I recently listened to Lisa Nolan talk about doing business in China. Lisa runs Lizal Inc, a US based full service merchandise manufacturer for brands like Coach and Wal-Mart. The company has manufacturing offices in Guandong and Taiwan. The business employees between 4,000 to 8,000 people depending on the season. Lizal can take anything from a napkin drawing to a fully specified drawing and turn it into goods that span everything from event promotional items to high end retail goods.

China’s economy is booming, helped in part by $27 billion worth of exports to Wal-Mart stores. But doing business in China is not simply a matter of setting up shop, hiring cheap labour and supplying goods. According to Lisa, there are many compliance issues that American companies have to overcome: “US companies take compliance very seriously. If a light over an exit sign at your factory isn’t working you can get written up as being in breach of compliance requirements. A lot of times it is the little things that catch you out.”

The compliance rules of some companies are so strict that making it over the barriers is not only onerous but costly: “In some cases, compliance can eat up 30 per cent of your first year’s revenue. That’s tough but the long term rewards are worthwhile - if you’re prepared to do what customers require.” Asked why companies are so stringent, Lisa says that in recent years, brands have become aware of the potential reputational risk to which they expose themselves. Last June, the New York Times asserted that:

Over all, the number of products made in China that are being recalled in the United States by the federal Consumer Product Safety Commission has doubled in the last five years, driving the total number of recalls in the country to 467 last year, an annual record.

These are emotive issues that capture the public’s attention so for Lisa, staying in line is one of her most important agenda items.

During our conversation, Lisa said that her business is subject to third party audits as a way of ensuring her facilities are in line with what is agreed. “Sometimes these involve outside accountants who check our payroll records to ensure we’re paying a proper wage to our staff.” This led me to speculate whether auditors might be getting two dips at the same pot. I asked Lisa if she knows whether the information gathered for customer audit was available to financial auditors for her own company accounts. She thought they were separate issues - which they are - but it strikes me that auditors could save their clients money if those kinds of record were passed across as part of the annual financial audit review process.

The biggest problem faced by manufacturers is that each brand has its own compliance rule book. This means there is a separate set of procedures to overcome for each company supplying brands which drives up compliance cost. Some companies are looking towards SA8000 as a way of providing a single international compliance standard for social accountability. Of her own company, Lisa says “We’re still researching to see if that certification is something that would benefit us.”

Given the hurdles, is it all worth it? “Our customers are very protective of their supplier facilities. Many companies take one look and say they won’t bother. We on the other hand have benefited greatly from doing as we’re asked. It’s all about the rewards that go with a good reputation for doing the right thing.”