Page 1

PACTICS

October 2012

Your partner in premium packaging

Corporate social responsibility Report 2011-2012

A Brand new factory Siem Reap, Cambodia

Five good reasons

to do business with Pactics


Colophon Editor-in-chief Martijn van Rijnsoever Managing editor Maartje Smeets Editorial board Piet Holten, Erwald Boer The following people contributed to this magazine: Julie Bijlstra, Lina Goldberg, Maggie Xu, Paula Louise Webster Photography Brad Westphal (Shanghai) Steffi Eckelmann (Cambodia) Design Janneke Holten Production Synergos Communicatie, Netherlands Printing Shanghai Pushun Printing Packaging Co. Ltd This magazine is printed on FSC certified paper

PACTICS

October 2012

Your partner in premium packaging

Corporate social responsibility Report 2011-2012

A Brand new factory Siem Reap, Cambodia

Five good reasons

to do business with Pactics

Made of bamboo fiber

Made of recycled microfiber

Sustainable magazine & iPad bag Inside out, you can use the bag as an iPad protection bag


Table of content Cover photography Steffi Eckelmann

4 8 10

25

18

34

20 24

35

Pactics in short

Foreword by Piet Holten

Production in Cambodia, Innovation in Shanghai Double Interview

With us from the start Portrait

Small steps CSR dilemmas

Top of the bill Portrait

Dick van Motman president and CEO of DBB Greater China Group Column

26

A Brand new factory Pactics sets up activities in Siem Reap, Cambodia

Saving up to start my own business Portrait

Wilbert Kragten Managing partner at BSUR Shanghai Column

36

Five good reasons to do business with Pactics Pactics Principles

43

Migrant workers Portrait

44

Peter Potman Consul General of the Kingdom of the Netherlands in Shanghai Column

45

Corporate social responsibility Report 2011-2012


PACTICS

specialist in production development of premium

packaging

4 PACTICS


PACTICS in short

for some of the

world’s leading brands

in the fashion and sports industry

40 million products per year in-house production capacity

Shanghai, Siem Reap, China Cambodia 180 employees

60 employees

PACTICS 5


Materials

Products Eyewear cases

Imaging techniques

PRATEX hongkong

6 PACTICS

PACTICS

shanghai

PACTICS cambodia


PACTICS products · Microfiber · Recycled microfiber · Cotton and poly-cotton · Bamboo · Neoprene · Recycled neoprene

· Cleaning cloths for eyewear, electronics, jewelry and more · Eyewear bags and pouches · Laptop & tablet sleeves and bags, promotional bags

· Metal · Aluminum

· Plastic · EVA and soft cases

· Digital printing and sublimation · Screen-printing and pad printing · Embossing and de-bossing

PACTICS 7


A thousand decisions

Foreword

In 2006 we set up Pactics' first facility in a small office in Shanghai. Now, six years later, our factory has more than 180 employees. We produce huge numbers of microfiber products on the most modern and efficient production lines in our industry. Setting this up has been an adventure and continues to be as we expanded to Siem Reap, Cambodia, where we are on the eve of building our very own production facility from the ground up. During our rapid development over the last few years we have made thousands of decisions that have shaped the company. Many are of a very strategic nature, such as what production processes to invest in, whether to invest in new machinery and how to shape our sales and services. Piet Holten

Other decisions involve our employees and working conditions, including employee compensation, working hours, and factory health and safety issues. It is is not always easy or self-evident what to decide. My experience is that many of these decisions are often small on their own. Ultimately, though, the sum of these small decisions means the difference between a factory that is good to its people or one that exploits its employees. Building the company to where we are today was only possible with the hard work and dedication of our employees. On all levels in the company we focus on quality and customer service with respect for each other. We can be proud of the long term relationships that we have with our employees a lot of them have been working for us from the start. At the beginning our objective was to build a ‘decent’ factory, and now we have formalized that goal. What we used to call common decency has now developed into a thorough corporate social responsibility (CSR) policy, guiding both our large and small business decisions. The most recent landmark is this CSR report and magazine, in which we give account of our CSR performance. In the back you can find the actual report based upon the Global Reporting Initiative (GRI) guidelines. But first, we are proud to introduce our people and our company. On behalf of Pactics management and staff

Piet Holten President 8 PACTICS


Quality | Service

Strong CSR and Risk management

Innovation

Competitive prices

PACTICS 9


Production in Cambodia, Innovation in Shanghai 10 PACTICS


He who takes proper care of his employees, will offer the best product to his clients.� PACTICS 11


Production in Cambodia, Innovation in Shanghai Double interview “Socially responsible entrepreneurship is self evident for Pactics. He who takes proper care of his employees, will offer the best product to his clients.” President Piet Holten and Vice President Erwald Boer on their vision on entrepreneurship and the growing importance of Corporate Social Responsibility.

Piet Holten is not a man of many words, but possesses sound

employer and being able to physically present this to the outside

reason and a businesslike vision on social responsibility. “As

world. Vice President Erwald Boer: “We want to make clear to

a company you’re there to serve your clients in the best way

everyone in which way our products are produced. We regard

possible, and as such, earn your keep. That goes for Pactics as

transparency as a way to improve ourselves. As a supplier to

much as for any other company. The question is, how you do

global players the in eye-wear sector, we share a responsibility

it? I refuse to maximize profits over the back of my employees.

for the brand names of these companies. Our clients do not

Moreover, it is in my best interest, as there is no better employee

run the risk of uncovering abusive situations in factories. We

than a satisfied employee.”

all know what consequences child labor or exploitative working conditions can have for the image, reputation and future of

Protection of brand name This vision towards business is interwoven throughout Pactics business model. But there is a difference in being a responsible 12 PACTICS

premium brands.”


Conducting audits is first and foremost in determining and

been developed and integrated. Ada Lu, responsible for Human

communicating to the outside world whether labor conditions

Resources ensures all rights and obligations of employees are

comply to the standards of the International Labor Organisation

well defined and well communicated to our employees.

(ILO) and to local laws. These audits must be conducted by companies of impeccable reputation. Also in this field,

Erwald Boer: “Through these independent audits we discover

deception and bribery of inspectors is no exception. Inspectors

where we can improve. After an internal audit at Pactics itself in

of reputed auditing companies are not even allowed to accept

2011, we found out that we did had enough emergency exits, but

lunch from the company under inspection. CSR Manager

no emergency plan. We had first-aid kits, yet it was not indicated

Martijn van Rijnsoever is formalizing our procedures through

where they could be found. Such things come-up when you take

intelligible documents and reports. A CSR code of conduct has

a vigilant look at your CSR policies.�

President Piet Holten (L) and Vice President Erwald Boer (R)

PACTICS 13


Baby next to sewing machine

optimising our machines," Piet Holden said. "We also have a

In low-wage countries, Piet Holten has seen many instances

regular influx of students that come do their research at our

of babies and young children sitting next to their mothers and

company. They are both engineering and business students. I

sewing machines in the shed. “The more such scandalous labor

like the enthusiasm and energy they bring with them. I truly find

conditions and exploitation come to light, the less the world will

this knowledge development of great value and importance.

accept them,” he declares. “Look at what is happening in the

" They have, for instance, created a website that tells consumers

food industry and forestry. Consumers become more and more

precisely how a brand performs on CSR and the environment.

demanding--they want to know where their products come from

These are vital developments. it is crucial for producers of

and how they have been produced. Coffee, meat and vegetables

these products to draw their line in the sand, after all they are

are under increased scrutiny. As a result of consumer pressure,

constantly under the microscope. As supplier we aim to offer

supermarkets now sell free-range eggs. Consumer awareness

our customers as much security as possible.”

will seep through to other industries and certainly to the more luxury products. Right now, most consumers barely wonder how

CSR in Cambodia?

and where their clothes and luxury items are produced.”

Continuous pressure on prices make it difficult to stick to the Pactics-ideal of a company where people can make a decent

But this is changing. Major brands have strict corporate social

living. The minimum wage in China has risen and social security

responsibility policies to prevent their names being associated

payments have increased over 300 percent, from 200 RMB

with unseemly matters like long working hours, below minimum

per employee to 550 RMB and more increases are already

wage salaries or child labor. “I expect this trend to inevitably

announced. Moreover, the RMB has devalued 25 percent against

spread like a virus as consumers become more informed,

the US Dollar in the last four years. For this reason, Pactics

knowledgeable and more critical. While most production will

has been forced to shift its focus and key future challenges to

move to Cambodia, knowledge and innovation remains in

Cambodia. It may sound a bit contradictory that a company with

Shanghai. “My background is in machine engineering. I get

the best intentions for its employees starts business in a country

great personal satisfaction out of improving, renewing and

where wages belong to the lowest in the world.

8 PACTICS 14 PACTICS


“The fact of the matter is, that because of our vigorous business

Piet Holten: “In Siem Reap, near the Angkor Wat temple complex,

ethics, we have no other choice than to refocus and relocate,”

we are building a new environmentally and people friendly new

says Piet Holten. “Due to rising costs, the only way to remain

factory including extras like a daycare center. Despite these

competitive in China is to cut on working conditions for our

facilities, the price of our products remain competitive due

employees, as many competitors do. And I simply refuse to do

to low wages. The low wages allow us to conduct business

so. To maintain our standards, we need to move the manual

according to our own high CSR standards, without undermining

processes that we cannot automate, to countries where the

our competitive position.”

costs are lower. Cambodia is one of the 40 poorest countries in the world.”

Innovation in China Apart from the geographical spread, Pactics also continuously

The Cambodia Development Organization (CDC) has a program

invests in automation and improvement of its technical and

offering qualified investors a permit (Qualified Investment

administrative processes. This is not only to improve efficiency,

Program, or QIP). This allows us to import materials not locally

but also to be more agile, capable and diligent when monitoring

available to Cambodia, without paying excise duty and value

our CSR performance. While most production will move to

added tax. And for the EU, Cambodia is part of the Everything

Cambodia, knowledge and innovation remains in Shanghai.

but Arms (EBA) agreement which allows duty free import to EU-

“My background is in machine engineering. I get great personal

countries, as long as locally added value to the product is more

satisfaction out of improving, renewing and optimising our

than 40 percent. Cambodia also has the advantage that the US

machines," Piet Holden said. "We also have a regular influx of

dollar is a generally accepted currency, so compared to China

students that come do their research at our company. They are

we run no exchange rate risks. The largest of Pactics clients all

both engineering and business students. I like the enthusiasm

do business in US dollars.

and energy they bring with them. I truly find this knowledge development of great value and importance.”

If we want to maintain our standards, we need to move the manual processes that we cannot automate, to countries with lower wages.’’ PACTICS PACTICS 9 15


“Knowledge development and a thorough CSR policy make Pactics the company it is today,” Erwald Boer states. “It is our strength to collaborate and with our clients on every detail, right down to product development. By investing in knowledge, we can offer customised products and we are very flexible. For instance, if a client that wants 100,000 cloths of 18 by 18 centimeters, we can calculate exactly how much they can save on material and waste by making the cloths for example 17.5 by 18.5 centimeters. Less waste equals effective cost management, and more importantly, an eco-friendly solution to a very basic issue.” Thanks to our continuous improvement, knowledge and innovation, the opportunities for Pactics are endless. The company has rapidly grown to be a leading reputable supplier within the eyewear industry. Electronic goods, like telephones and computers with touch screens are an interesting market that Pactics is currently analyzing. The same goes for jewelry and hospitality. Erwald Boer: “We do not shy away from product development on our own initiative or in cooperation with a client. To further development, industrial design and the microfiber material itself are things we want to research more in the future.” Piet Holten's vision for Pactics is clear and simple: “Pactics specializes in making microfiber bags and cloths with the utmost care for our clients and for the people working for us. The latter makes me sleep better.” •

16 PACTICS


2004 Start-up of Pactics US as a trading company importing microfiber from China 2005

Establishment of Pratex Asia Hongkong to better organise trade. Also start-up of representative office in Shanghai for quality control purposes regarding Chinese suppliers.

2006 Pactics begins the export of microfiber products from China to the US 2008 Establishment of Pactics Shanghai. Start production of microfiber products (15 employees, 500 m2) 2009

Expansion of Shanghai factory to 65 employees and 750 m2. Start of digital printing and sublimation on microfiber.

2011 Growth to 35 employees in Cambodia and factory relocation 2011 February Expansion of Shanghai factory from 750 to 1550 m2 and 180 employees 2011

September Set up of second factory in Shanghai with 750 m2 and 30 employees in a separate facility to produce microfiber cloths

2012

March Up-scaling in Siem Reap (60 employees) start developments of sustainable eco-friendly factory in Siem Reap

2012 June Approval of Private Sector Investment (PSI) for new factory in Siem Reap by the Dutch Government 2012 November Start construction of factory Siem Reap

2010 Start of pilot factory in Siem Reap (15 employees)

Development

of Pactics

PACTICS 17


I learned how to handle new machines, as well as how to better control the quality of products.�

18 PACTICS


With us from the start

Engaging employees with their work is crucial for the overall quality and productivity. We believe investing in our people, is the best way to create the best products. Mr. Gu Zonglou

“I remember the exact date the factory opened and I started

Take my own string workshop for instance: At first we

working here; July 18th 2008. The factory experienced a hard

sometimes had to wear masks because it was too smoky in

time when it first started, but it grew better step by step. It

the workshop. However, the problem has been solved since

improved in many ways. We are using better materials, and

the factory installed exhaust facilities. I learned how to handle

are operating more advanced machines. Besides, the working

new machines, as well as how to better control the quality of

environment of all workshops is more comfortable than before,

products. We need to make progress because society is moving

which improves the productivity.

forward.�

PACTICS 19


You cannot say your factory is perfect, and then buy your materials from companies where children are at work.”

Small steps

CSR dilemmas

How do you experience CSR in China?

In China, within our market, internal CSR policies are about

I think to answer this I should categorize corporate social

keeping the bottom-line for proper business conduct. We pay

responsibility into two elements. The first one is taking into

legitimate wages, rightful benefits, offer decent working hours

consideration how you conduct business within your own

and provide a clean, safe and healthy working environment to

company. The second is about taking responsibility in your

our employees. By all means we actively do extra activities such

supply chain, reaching beyond mandatory company boundaries.

as our big new year’s party and yearly company outing. But remember, we are still an ‘unskilled labor’ factory in a low wage

Although they are not perfect, In Europe and the US, companies

country.

primarily do comply to legal requirements. I remember in Dutch companies I worked at, CSR policies were seen as extensive

The second element of CSR is supply chain responsibility. You

social policies to improve employees’ health and happiness

cannot say your factory is perfect, and then buy your materials

and community outreach. They addressed issues which are

from companies where children are at work. We realize that

categorically above and beyond what is legally required.

our responsibility stretches beyond the boundaries of our company. This is the most challenging part. Although Chinese

20 PACTICS


labor law is quite well written, it is not well enfroced, and it

Most of our customers are premium brand names. The

is easily circumvented. When I audit the facilities of suppliers

reputation of these brands is based on their high quality

I find workers mostly work extensively long hours for less

products, and on an exclusive image. For consumers, the

than the minimum wage and do not get paid for overtime

image of a product is one of the most important elements in

and regularly work a full month, without a single rest day.

their buying decision. This image is constructed through costly

Dangerous and unhealthy situations abound. I realize that I

marketing strategies and protected with the utmost care. So

work in a market, that on average, has somewhat low and often

why take the risk of blemishing this precious reputation by

detrimental standards. Through selection of suppliers, audits

not being careful and critical regarding the working conditions

and improvement programs we may be able to realize some

within the supply chain?

developments and improvements. But we cannot change the market. Although this is often frustrating, we strive in taking

Every month in the newspapers I read stories of scandals in

well sought out steps to be part of the solution, not the problem.

low wage countries that are connected to the world’s famous brands. It takes just one careless scandal and your brand

What is the strategic importance of a proper CSR policy to

equity is instantly discredited and your admirable name being

your customers?

critically damaged for a long time. The Foxconn scandal, where

Some of our customers have a thorough CSR policy. With them

exploitative working conditions were identified at Apple’s largest

we can collaborate and join forces in improving working and

supplier in China, is very well known. Reports of mass fainting

environmental conditions throughout the supply chain. For

at factories producing products for H&M, Zara and Gap have

them, we are most definitely part of the solution. We make sure

also recently been in the headlines. I believe that through our

they can realize their own CSR objectives. Besides these ethical

CSR activities we help our customers to minimize such brand

objectives, there is another important business intention.

risk.

Watermelons for all! As a thank you for everyone's patience with a full day of photography in the factory

PACTICS 21


Although we cannot change the market, we strive in taking conscious, well sought out steps to be part of the solution, not the problem.”

How do you remain competitive with such a comprehensive

and customer service. The better our CSR policy is valued by

CSR policy?

our customers, the more we can invest in it.

It goes without saying that our production costs are slightly higher than competitors that disregard most of Chinese labor

What dilemmas do you encounter as CSR manager at

law, and offer their employees working conditions that are far

Pactics?

below the bare minimum. Yet by being innovative throughout

Although we do our very best to keep to high standards, we

our entire process, we manage to keep the costs low, despite

still work and compete in a market that is far from perfect. Due

having high standards. Social responsibility is part of a broader

to capacity issues at the start of 2012, we made use of so-

philosophy at Pactics. We have very efficient production

called home labor, where employees took products home and

processes. We work on automation where possible, have an

packaged them. As long as it is not structural, this is allowed

excellent quality record, and through the Enterprise Resource

by Chinese law, and the employees usually welcome any

Planning (ERP) system that we are implementing, we can

opportunity to make some extra money. So far, no problem. But

plan production and source materials within our market with

we had no transparency as to what happened in the homes.

unprecedented efficiency. At the end of the day, the differences

How many hours did the employees work? What are the

are minute.

circumstances? Let’s be honest, we cannot be certain that they haven’t put any of their kids to work.

That being said, the extent of our CSR policy largely depends

So these are real dilemmas for us. As we had no alternative at

on the mandate we get from our customers. From a business

that moment, we did it, but it didn’t feel good. Luckily we now

perspective, I think you can say that CSR is a non-tangible

have extra packaging capacity in Cambodia (see 'A brand new

quality that you add to your product, like quality, delivery speed

factory' p. 26), which means that this situation will not return.

22 PACTICS


A Case for improvement

companies with over 100 employees are now obliged to

Although we have many policies on workers' rights, and

organize a form of workers' representation. In a country where

although we do have an official policy which allows workers to

labor unions are not allowed, I believe this is a very positive

organize themselves, this is not something that is necessarily

development. However, forming this type of group will not

straightforward in China. To compare: In Cambodia we

happen overnight given the fact that workers have never been

encountered a very open culture relating to issues like workers'

given the opportunity to have representation historically.

representation for both workers and local management. These matters in our factory in Siem Reap have now resulted in the

It does, however, make us realize that new Shanghai law or

active establishment of a 'workers association'. This includes a

not, we currently have no organized dialogue with our workers.

shop-steward and assistant, who represents the employees in management negotiations. In Cambodia we found these things

Our approach is to improve our current policies step by step. For

evolve very naturally and prove to be fairly straightforward.

instance, we first developed an employee survey, allowing them to give structural feedback on a range of work-related topics.

Recently the city of Shanghai has adopted a new law on

In the meantime, we will study the law and find out how we can

Employees’ Representatives Conference. It says that all

make it work. •

PACTICS 23


Miss Chen, top of the bill

Practice makes perfect” When it comes to seaming, Miss Chen is unparalleled in speed and quality. When the Cambodian seamsters saw a video of Miss Chen working at full speed, they couldn't believe that it was possible to seam so quickly. The only option was to fly Miss Chen to Cambodia to show the workforce her impressive techniques. “Practice makes perfect. I was the only seamster here when the

But then I am used to show people how to work the machines.

factory was built. So I may be more familiar with the machines

Whenever we get new workers in Shanghai they will watch and

due to the long time I have been working here. Before this I

learn from me as well.

worked as a seamster in Shanghai for several years, where I had to work for 12 hours per day. Hhere overtime work is voluntary.

As a migrant worker, for me it is most important to have a stable

I am very happy I got the possibility to travel to Cambodia. Since

job and earn money to support my two children who live with

I don’t speak English I could only showing them with gestures

family in my hometown.”

how to use the machines.

24 PACTICS


Column Dick van Motman President & CEO - DDB Greater China Group

The black spot in brand risk How production moves out of focus

This brings me to the black spot in brand risk. There is a

It is no secret that the major global brands spend a lot of effort

contrast between the perfect cosmopolitan world created

and a lot of money on building their brand. You may almost forget

around a product and the real world of the people actually

that there is an actual product involved that needs attention too.

producing them in the supply chain. This is not a problem

Actually, I think that sometimes this happens, especially with

by itself, just how the globalized economy works. But when

companies that have outsourced all or part of their production.

working conditions become exploitative, things change; then

As the production processes move out, the focus naturally

exploitation becomes part of the product. And the moment this

moves to those processes still in-house. For companies selling

gets connected to the brand name, years of brand building can

major brand products, these are for an important part marketing

get damaged severely.

activities. We actually call them ‘brands’ not companies. The temptation to focus just on cost competitiveness and move As production has moved to low wage countries many of

production to low wage countries, swap materials/ingredients

the processes became outsourced to supplier companies.

for cheaper ones and cut a few corners when it comes down

Moreover, actual production costs decreased severely. What

to regulations and labor laws makes it difficult to stay true

hasn’t changed is that the product is still a vital part of the total

to a brand promise. A promise of a unique experience. An

brand. You can do all the branding effort you like, if the product

experience that might indeed first be derived from the prestige

is not good the brand gets damaged. And it takes years to build

of owning the product and using it.

a brand and sometimes can take only hours to break it down. But the very thing that the brand is supposed to do, which is Bill Bernbach, the B in DDB, famously said, good advertising for

build a long-term relationship with the consumer, is seriously

a bad product makes it fail even faster. Now in the age of faster,

undermined when it doesn’t keep it’s promise of ‘trust’. Trust to

faster, and a misplaced emphasis on cost control versus quality

give not just a personal experience but trust that this experience

control and invention, he’s proven right on a daily basis.

the consumer derives is given by a brand that does not exploits just for quick gains, follows the values of humanity and produces

Another famous saying, says ‘quality’ always wins but in

products that are safe and environmentally sound.

nowadays environment where the deal is so important and where consumers are very fickle it’s not easy to stick to your

Only then a brand promise becomes a promise fulfilled, a true

guns and play the long-term game.

consumer experience gets delivered and brand value gets created.

PACTICS 25


Designing a new factory allows us to bring all aspects of our CSR policies into practice.�

A brand new 26 PACTICS


factory PACTICS 27


A brand new factory Rising costs in China and pressure on sales prices make Cambodia an appealing location for labor-intensive production companies. As have others, Pactics decided to move part of its production to Cambodia where we are building our own specially-designed factory with respect for people and the environment as the guiding principle. In September 2011, 200,000 Cambodian workers took to

Siem Reap versus Phnom Penh

the streets for better working conditions and higher wages.

Starting of 2010, Pactics sought a location outside the

Almost half of the Cambodians working in manufacturing, are

Cambodian capital of Phnom Penh, where most factories are

employed in the garment sector. Despite the growth in this

clustered. Instead, the city of Siem Reap was chosen, in the

sector, minimum wages in Cambodia remain around 65 USD per

province of the same name. This is one of the poorest provinces

month, which is below the minimum wage level in surrounding

of Cambodia. The local rice factories have closed shop. Although

countries. According to NGOs this is not enough for workers

the nearby temples of Angkor Wat draw in a lot of tourism, most

to provide and sustain a basic living wage for themselves and

of the revenue generated does not benefit the local population.

their dependants. The widespread use of temporary contracts deprive employees from basic rights like paid pregnancy leave,

The management of the Pactics factory in Siem Reap has

full salaries and bonuses.

been in the hands of Naing Vannoeun, who to foreigners is better known as ‘Wave.’ Formerly a Thai language student

A country where so many labor rights are trampled on may

who worked as a driver in Phnom Penh, Vannoeun received

not seem the best place for a company with high standards in

in-service training to get him up to speed with Internet and

regards to corporate social responsibility. For Pactics however,

communication at the Pactics offices in Shanghai. Now he is

the low wages and favorable trade conditions are exactly the

running the Cambodian branch with a lot of guidance and care

reason to choose Cambodia (see 'Double interview'; p. 10)

for his people. “A lot of employees have been with us from the

These allow the company to remain loyal to its CSR standards

word ‘go,’ Vannoeun said. "This is not common in Cambodia,

and at the same time remain competitive to their clients.

where people often have short term contracts."

28 PACTICS


We take the factory to the people, instead ofthe people to the factory.’’

PACTICS 29


We even have married couples and family members working here together. I think it is very important that we take good care of our employees. They are often from poor backgrounds and have very limited options to improve their situation. They

Eighty percent

repay everything we do for them with their loyalty, hard work and dedication.”

of the employees

wanted to be physically removed from the turmoil of Phnom Penh. A factory with

are young women and many have children.’’

A fundamental reason for Pactics to choose Siem Reap is because Piet Holten high CSR standards will not receive a warm welcome by other factories operating in the area. Competition on the labor market is fierce and stories of obstruction are often heard. Phnom Penh is flooded predominantly by young women, 18 to 25 years of age, looking for work in the garment industry. They often are forced to leave their children behind at home and move to the Cambodian capital to earn money for the entire family. It is relatively normal for employees to send over half of their earned wages back home. After also paying the rent of their meek living quarters, very little money is left for food, let alone health care expenses. This brings Piet Holten to the highest significant and primary factor in choosing Siem Reap. “Instead of making people leave their home environment to come work at the factory, I want to bring the factory to the people.”

30 PACTICS


I find it an unpleasant thought that young mothers must leave

Piet Holten: “Designing a new factory allows us to bring all

their children and family and travel to Phnom Penh to find work.

aspects of our CSR policies into practice. Labor conditions

I think you generate far more peacefulness and satisfaction

alongside sustainability and environmental objectives are a key

within your company when your employees can return to their

focus in the design and planning of this facility. Pactics received

families after a day of work.

a private sector investment grant from the Dutch government to support, build and realize this new factory ambition. Pactics

The green factory

strategically integrated the guidelines of the ILO program

After an initial test period when starting up production in

‘Better Factories’ in the design of the factory. Siem Reap-based

Cambodia, by March 2011 the number of Pactics employees

English architect Stuart Cochlin is responsible for the impressive

soon grew to more than 50. (see box, development Pactics

design. Cochlin is familiar with local building practices and has

Cambodia). Employees from Shanghai were flown into

incorporated a long list of sustainable and environmentally-

Cambodia to train local staff in bookkeeping and planning. Top

friendly features. The design includes weed beds for filtering

production seamster Miss Chen was brought in from Shanghai

sewage, solar panels on the roof, north-facing windows and

to show the local seamsters fast and efficient techniques,

corridors and patios that will make the factory a people-friendly

increasing their production. Soon Pactcis made the strategic

place. The factory is a configuration of several smaller buildings

choice to build a sustainable factory of its own. Siem Reap

instead of one large production hall, this allows natural light to

differentiates itself instantly from Phnom Penh and China as

come in via all angles and improves natural ventilation. Pollution

there is no establishment of industries. It therefore has no

from mobility is also kept low considering the short, convenient

manufacturing space available for rent. The new facility will

distance workers have to travel to the factory.

dramatically increase productivity and efficiency. Aerial view from entrance

View of staff area and garden

PACTICS 31


Land Mines

Living wages

Socially and ethically, the bar is set high for the new factory.

The social unrest in Cambodia and the concerns of NGOs in

Eighty percent of the employees are young women and many

the surrounding countries usually entail harrowingly low wages.

have children. To address this the factory will feature a daycare

Pactics can build beautiful facilities, but if people don’t have

and a room for nursing mothers. There will be a training room

enough money to support their families, a beautiful factory isn’t

for employee education as well as lunch facilities that will offer

worth all that much. The legal minimum wage in Cambodia is

a healthy nutritious lunch to the employees.

66 USD per month. Pactics’ wages are safely above this. (see box on wage build-up). Furthermore the company pays health

The factory will be on ground level with the different buildings

costs and personal accident insurance. It also pays around 50

connected via corridors. There will be a disabled toilet and the

USD per year on schooling, for example, an English language

whole facility and surrounding grounds will be made disabled

or computing course.

friendly. This allows landmine victims to be fully employable at Pactics. As a result of the war in Vietnam and Pol Pot’s regime,

Pactics’ own analysis shows that employees on average live

Cambodia struggles with an inheritance of millions of landmines.

about 8 kilometers from the current location. Most of them

According to NGO estimations, Cambodia has over 60,000

arrive at work by foot or by bicycle. Of the 60 employees, 56 live

physically disabled people as a catastrophic consequence

with their families. This means that costs for living and traveling

of exploding landmines. Usually they have limited access to

are relatively low. The employees elect a workers council with

education and employment and despite some government

a shop steward and assistant who represent the employees'

arrangements, most of them do not receive any support from

interests in communication with the management.

the state. Vannoeun: “For the new factory we already have a lot of applicants. I try to pick people who are in the most need of an

Cambodia is currently the fastest growing economy in

income, like adolescent orphans, or single parent families. Land

Southeast Asia. Adolescents who have studied abroad are

mine victims can work in our departments for packaging. They

returning home with new and creative positive ideas. Due to

may be handicapped, but this does not mean they cannot use

Cambodia's relatively open society, there is room for critical

their hands and work to the potential of our other employees.”

NGOs and pressure groups to help move things forward. All of these developments will hopefully improve working conditions, slowly but surely. It would be gratifying if Pactics and its values can be part of this process and improvement. •

32 PACTICS


Development

Pactics Siem-Reap 2010 October Start of pilot factory Cambodia (15 employees)

2011 March Scale-up to 30 employees, factory moves to ‘ Shophouse’ location 2011 December Growth to 40 employees, rent of second Shophouse 2012 March Growth to 50 employees, rent of seperate warehouse 2012 June Award of PSI subsidy by Dutch government for realisation of the new factory in Siem Reap 2012 November Start of construction on new factory - Siem Reap

Pactics’

salary build-up Base wage seamsters

$ 72,- pm

Presence bonus

$ 0,50 p/d

Guaranteed wage at 48 hrs/week

$ 85,- p/m

The avarage salary, based upon piece-rates is close to 100 USD per month at an average of 24 workdays. In case the employee does not achieve the minimum of 85 USD with Piece-rate work, Pactics will replenish the amount. Any amount over 85 USD is extra earnings for the employee. PACTICS 33


Saving-up to start my own business

For young employees, it is important to be able to work a steady job that will allow them to realize their dreams for the future.

“This is my first job after graduation. I started in February, 2011. I came to work here from Anhui province; I started in February 2011 when I was 19. One of my friends works here, and she recommended Pactics to me. The work time here is not too long, 8 hours a day. I can live in Shanghai and save several hundred RMB per month. Most of my friends work in a battery factory, which is harmful for their health and they have to work long hours. Last year the entire company went to Chong Ming Island for a day and everyone had lunch together. It was a great memory for me. Besides skills, I also learned a lot about how to communicate and get along with co-workers here. For now, the English lessons are only provided for office employees. If there is any opportunity for the production staff to take part in those lessons, I am more than willing to do so. I plan to work here temporarily, for several years. After I saved some money and when I am mature enough, I want to go back to Anhui and start my own business.

34 PACTICS


Column Wilbert Kragten Managing partner at BSUR Shanghai A brand consultancy

CSR means business It takes years of careful planning, marketing investment and

learns which companies have integrated CSR in their corporate

image building to create a brand and only seconds to destroy.

strategies and building a more sustainable business model.

The recent BP Deepwater Horizon disaster is fresh in our

Companies like BMW, Philips or Unilever are on the list and this

mind and the negative impact enormous. The result: years of

list is growing each year, making CSR even more important in

marketing campaigns about BP going Beyond Petrol wasted,

the years to come.

not to mention the loss of reputation, credibility and consumer confidence. This very recent example shows that more than

CSR means business

ever companies should be aware of the impact they make

When applied and integrated well, CSR provides a number

on consumers through their products, marketing campaigns

of other great benefits for a company. First of all, it drives

and actions. And how a company should effectively embrace

differentiation in the market field and consumers will value

responsibility for the company’s actions to its consumers,

the difference, like Body Shop or American Apparel Second, it

employees, the environment and other stakeholders.

drives innovation as companies have to find new and innovative ways to be more sustainable, invent new technologies and add

Often, CSR is not receiving the attention, priority or respect it

new and improved products to their portfolio, like more fuel-

should get. CSR is not just a section in the annual report, CSR

efficient cars, recycle materials or improving quality standards.

should be an integrated part of marketing and closely aligned

And CSR creates brand value. If consumers are willing to pay a

to the corporate strategy as consumers look beyond the brand

higher price for those brands, brand margins improve and the

and consider the company behind it. How responsible are they?

value chain increases. Being responsible has progressed from a

How sustainable? What is their long-term strategy? A quick

rather soft initiative to a commercial, sustainable strategy each

look at the Dow Jones Sustainability Index, an index which

and every company should embrace and market.

monitors the sustainability performance & key reference point, PACTICS 35


PACTICS Text Martijn van Rijnsoever, photography Brad Westphal

principles

Quality

On-Time, Complete and Compliant

Responsive & Proactive

Service

Strong CSR & risk management Innovation is key | Competitive prices 36 PACTICS 4 PACTICS


Five good reasons to do business with Pactics

Our strength is our ability to provide high quality products at a competitive price while operating responsibly�.

Quality: On-time, complete and compliant A promise companies often make towards their customers.

to solve them without delays to the delivery time. This is what

So how is Pactics different?

gives us the edge over 99% of manufacturers in China.

Pactics makes sure to meet every need of the client at every stage of development and production, ranging from the details

How does Pactics ensure product quality?

and quality of the hard physical samples to the CSR guidelines

Our quality control is second to none. Our QC department is

which are a necessity for the large brand names that we work

involved at several stages during the production process to

with.

ensure the highest quality products. Absolutely nothing leaves our factories unless approved by several people and checked

We ensure streamlined communication with the client to ensure

by the actual sales representative, in accordance with our

that the quality of their bulk order is processed effortlessly and

clients wishes. Having our sales representatives within our

most importantly, delivered on time. We stay in constant contact

production facilities enables us to develop new products quickly

with our suppliers to make sure that if issues arise, we are able

and guarantees that the requirements of the clients will be translated correctly. PACTICS 37


Service: Responsive and proactive Responsive Pactics style:

production facility, and the client can call off the goods when

Our offices in Europe and Shanghai are open Monday to

needed. Goods will be invoiced at the moment they place the

Saturday in order to allow us to have staff members available at

call off. This way, clients don’t have to finance stock and also

all times for our different time zones and continuous deadlines.

don’t need a large warehouse. We work based on production

The decision-making process for big clients takes place in their

forecasts and we ensure there is enough stock at a warehouse

offices around the world from London to Milan to Hong Kong.

near the client’s production facility at all times.

In addition to our large corporate clients, we are happy to

What do we mean when we say that we are proactive?

work with smaller clients requiring smaller orders, such as

About two years ago we started doing business with the largest

promotional or eco-friendly products. The marketing-driven

eyewear group in the world, based in Italy. We made it a key

approach of one of our clients – which results in many small

objective to hire a native Italian speaking professional in order to

orders such as limited editions and signature series – has

make sure there is no miscommunication between the Chinese

made our team very flexible and experienced with this type of

back office and our new client.

requests. If clients have specific goals for products we help them with Depending on the customer’s demands, Pactics can take

the development. If they change their mind during the research

care of the full logistic chain and deliver to your doorstep. We

process we are happy to develop further, or start the sample

focus on our customers processes and offer ‘vendor-managed

making process over. We give advice and help to make choices

inventory’ for our larger clients. Pactics is able to produce

that will keep prices low. Sometimes this process can take

packaging material, ship it to a warehouse near a client’s

weeks, sometimes months.

4 38PACTICS PACTICS


Vendor / supplier managed inventory Advantages: No need to finance stock and a reduction in space allocated to packaging material in your warehouse

Warehouse near your production facility

Customer

Pactics Shanghai Pactics Cambodia

Strong CSR and risk management Why is this corporate social responsibility policy in the

So what does Pactics actually do considering CSR?

best interest of our clients?

We have developed our own CSR system, based on the ILO

Many of our clients need 100 percent assurance that their

conventions and in line with most of the well-known CSR

brands are being produced in an environmentally friendly and

codes. We aim to improve to higher levels and we are currently

ethical way. As a supplier, we are co-responsible for the name

carrying out rigorous audits on our suppliers using third party

and image of our clients. We make sure our CSR policy is top

auditors to ensure everything is indeed in check.

of the bill, so clients can work with us with peace of mind. For the part that we are responsible for, we want to ensure

We try to ensure our surroundings are kept sustainable through

nothing in their supply chain can damage their brand name and

energy saving measures. Pactics restores, reuses and recycles

reputation. Working with a supplier such as Pactics enables our

all excess material and waste. In both Cambodia and Shanghai

customers to control their risks, be it premium brand names or

we have created specific ‘waste stations’ in order to control and

up-and-coming companies.

manage our excess fabrics and materials. PACTICS 39


Innovation is key Great sound bite, but what does it mean in practice?

We also support clients with their product development. Our

Innovation enables us to be nimble and stay competitively

techniques and skills enable us to develop specific shapes and

priced without having to compromise our CSR standards. By

styles on demand. In order to gain the best design result we

streamlining and automating our processes and production, we

carry out various tests free of charge including color fastness

are able to monitor every production detail and improve our

testing, water resilience testing, etc. Throughout this process

efficiency. Because we partly develop our machines in house, we

we keep a high level of correspondence with the customer with

are able to produce on demand deliveries in smaller amounts.

updates, photos, test results, design & innovation suggestions

Our service includes key innovation regarding techniques,

and any other requirements needed.

materials, efficiency and reducing costs for our customers where we can. If one technique is slightly cheaper yet produces

New markets

the same result needed, we will notify our customers giving

Innovation enables us to expand into new markets. The past

them the best deal we possibly can.

couple of years have seen us enter the sports market (US baseball teams, ski accessories, skateboarding accessories)

Product development

and high end jewelry & watch markets.

We research and develop materials in house like organic bamboo, recycled microfiber

and products of recycled

We are now focusing on the electronics market with for instance

neoprene. Under the name of Sustics we recently developed

developments of our neoprene tablet and laptop line. We look

and launched our 2012 eco-friendly line including bags,

at the music industry for example, brass instruments and dj

packaging and cloths.

equipment requires specific packaging which we can cater to. Furthermore, with our CSR standards we want to provide to the small scale, high end, sustainable garment sector.

40 PACTICS


Competitive prices This CSR and stuff sounds expensive. Does this mean

unlike other Chinese suppliers. However, this would never be

Pactics products come at a high price?

more than about 5% per product. A small price to pay for the

We aim to keep competitive prices amongst others by constant

assurance of people-friendly products and a safe supply chain.

innovation in every possible way. But sometimes yes, clients

The costs of damage control because of a scandal concerning

will pay slightly more considering our policies are actually met,

child labor, for instance, would be much higher. •

Customer satisfaction, Indigo “I am delighted that Indigo are able to work with Pactics for the development and supp ly of products for our clients. Of partic ular importance is the position Pactics take on Corporate Social Responsibility (CSR) which is allied to that of Indigo. It provides us with the confidence and understanding that every stage of supply is compliant.  Pactics appear to be leading on these issues and driving change.  This attitude to business provides a welco me change. I look forward to a long succ essful relationship whereby responsibility to peopl e

and the environment sit equally with qualit y and profit as business principles.”

Trevor Hayward

Director

Indigo Concept Packaging Limited

PACTICS 41


CSR is at the heart of our entrepreneurial philosophy. It is in our organization’s DNA and functions as a foundation for the way we want to work and do business. Each and all of Pactics’ managers and decision makers firmly believe that doing business in a fair and transparent manner will benefit all. For customers top quality, for employees an inspiring and professional working environment and a company to be proud of. CSR does not stop at our own organization’s boundaries. This implies that we certainly have a preference for suppliers and new customers that share the same values. CSR is a joint responsibility and a dynamic process. Customers that value CSR in their way of working will certainly expect a similar behavior from their suppliers. At the same time consumers become more and more sophisticated and conscious about CSR issues when buying products. As CSR is an ongoing long term undertaking, a shared commitment will certainly benefit all stakeholders. We look forward to have this discussion with our customers and match their policies. Julie Bijlstra - Business development manager Europe Paula Louise Webster - Business development manager Pamela Berte - Account manager Diederik Damen - Business Development Manager 42 PACTICS

For customers top quality, for employees an inspiring and professional working environment and a company to be proud of”.


Migrant Workers

Migrant workers leave their home and children to provide for an income for their family. Education and a good life for their children is the most important thing for parents who work in the cities far away from home. Li: “We have worked in factories in Guangzhou before. Here we work less hours every day in a better environment. We sent part of our salary back to our hometown. It is enough for us to support the education of our children in elementary school. We hope our children will be top students in their class and go to college for further education.” Haiyang: “We are both from Henan Province, where we met. Now we live near the factory. Our two children are in our hometown under the care of my mother. I left my wife and children to come and work in the factory after the Spring Festival in 2011. The orderly management and comfortable environment appealed to me. The work is not that tiring. So I introduced my wife to work here one week later.” PACTICS 43


Column Peter Potman Consul General of the Kingdom of the Netherlands in Shanghai

A pretty steep challenge Win-win Strategy Dutch entrepreneurs are well known as pioneers in international

their CSR policies and activities and to provide good company

business and have been for centuries. This year we celebrate

CSR reports in order to enable interested parties to engage with

400 years of maritime relations between the Netherlands and

them. In addition, our embassies and consulates are able to

China. Unfortunately, those early Dutch traders were not known

provide practical information, advice and support to companies.

for their social skills. At the time, the Dutch were not very

Dutch companies are particularly encouraged to show and

popular with the Chinese who called them "hong mao" for their

promote corporate social responsibility in their chain of

red hair. Since then, luckily, Dutch entrepreneurs have quickly

suppliers and buyers. This is a pretty steep challenge, especially

moved up the civility ladder and have moved to the forefront

for small and medium sized companies. Nevertheless, we are

of what has become known as corporate social responsibility,

proud to see that the Dutch business community is already at

or CSR.

the forefront of corporate social responsibility worldwide!

Companies that do business worldwide are often confronted by

Pactics is a good example. We all know that implementing

significant differences in culture, ethics, legislation, access to

corporate social responsibility in the textile industry in a country

resources and ways of doing business, as well as development

like China is not easy. In this report, Pactics will show you how

levels of the local region that have a profound impact on social

they go about being a responsible enterprise in the face of

performance practices. In order to help companies dealing

fierce price competition in the local and global market.

with these issues, the Dutch government is actively engaged in helping Dutch companies get the most out of their CSR policy,

CSR is the only win-win strategy for enterprising, profit-making

by providing training, practical guidance, bundling of knowledge

and social development. It is about our mutual future, the future

and dialogue among business communities and societies.

of our society and our children. Together we can make our world

Furthermore, we ask our companies to be transparent about

better!

44 PACTICS


PACTICS CSR Report

July 2011 - June 2012

planet - people - profit - principles Set up according to the reporting guidelines of the Global Reporting Initiative PACTICS 45 41 CSR Report PACTICS


1.1

Strategy and Analysis Pactics produces a low skill labor intensive product. Production of such products takes place in low wage countries. There is a constant pressure to move to even cheaper locations. This is an undeniable dynamic in our industry. We ourselves have already moved from Mexico to China, and with rising wages here, there is again pressure on our business. Pactics does not compromise on its bottom line, so the pressure cannot be translated into lower wages, more working hours, or other savings on basic working conditions. Our strategy to stay in business and keep our CSR level up is threefold. First of all, we invest in more efficient production processes. Both in actual production as in management systems, we try to automate as much as possible. Secondly, we look for clients that want a higher added value product, as this is where our competitive advantage lies. Either they are more complicated products, or products appreciated for its CSR compliant production. The third, is that we are already moving part of the most labor intensive processes to Siem Reap, Cambodia. Life in Siem Reap is much cheaper than in Shanghai, which translates in lower wages. This allows us to remain faithfull to our bottom line. While working on the above strategic challenges, CSR remains work in progress for us. As our company is dynamic, CSR policy is in need of constant scrutiny. Internalising CSR values in an essentially Chinese organization, is a challenge by itself. Of course managing our supply chain is also an ongoing issue. Piet Holten President

1.2

Key impacts, risks and opportunities Pactics supplies to the world’s leading eyewear companies. That makes us a player in the top segment of our market, with relatively high production volumes. Towards our competitors and suppliers however, we do not have a dominant position. The impact we have on sustainability is mostly in-company. We address non compliance issues at our suppliers, but we realise our capacity to make them fully compliant is limited. We do however work hard for positive change in our supply chain. In-company, we offer our employees all a decent wage, decent working hours and a clean, safe and healthy working environment. It is our intention that employees working at Pactics are happy in their work, and have a financial base that allows them a decent living in accordance with local standards. We do this by structurally benchmarking ourselves to external CSR codes. This is done by a database we have created where we match CSR codes, with local legal obligations and our own policies. Work in Process Pactics was set up as a decent factory. When we received an external audit at the end of 2011, we learned that for CSR compliance, the decent philosophy needed to be defined in policies and be proven through records. Since then, we have developed a comprehensive CSR policy, and a Personnel Handbook. Furthermore we are developing other tools, like checklists and survey forms to assure CSR standards are formalized in our policies and integrated in our practice. When we have these finalized, we will have a strong CSR policy and practice. We aim to have these running in the second half of 2012 and plan to invite an external auditor to verify our progress. Careful balance Above are our internal challenges. They challenge our management capacities. In our market, with very low margins, CSR compliance is something that influences the basic cost of the product. If competitors do not pay basic wages, proper working hours and if they don’t invest in their facilities like us, they can offer products against a lower price. Our main external challenge is to get a mandate from our customers to continue our journey. As we are a business, a dollar spent on one side, must be at least a dollar earned on the other side. Looking at developments in the markets with increasing consumer awareness and an increasing transparency in global supply chains, we believe time is on our side.

46 PACTICS CSR Report


O r g a n i za t i o n P ro f ile 2.1

Name of the organization

Headquarter: Pratex Hongkong Subsidiaries: Pactics Shanghai Co. Ltd, Pactics Cambodia Co. Ltd NB this CSR report covers the Pactics Shanghai CO.Ltd subsidiary

2.2

Primary brands, products, and/or services. The reporting organization should indicate the nature of its role in providing these products and services, and the degree to which it utilizes outsourcing.

Specialist in production and development of premium packaging for a large number of the world’s leading brands in the fashion and sports industry • Cleaning cloths (e.g. for eyewear, electronics, jewelry etc.), • Eyewear bags and pouches, • Eyewear cases (outsourcing) • Laptop and tablet sleeves and bags, • Promotional bags imaging techniques • Digital printing and sublimation • Screen-printing and pad printing • Embossing and de-bossing Materials • Microfiber - recycled microfiber • Cotton and poly-cotton • Bamboo • Neoprene – recycled neoprene • Eyewear Cases: metal, aluminum, plastic, EVA and soft cases (outsourcing)

2.3

Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures.

See 2.1

2.4

Location of organization’s headquarters

Headquarter: Pratex, Hong Kong main offices: Pactics Shanghai, China

2.5

Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

• China (Hong Kong) Pratex headquarter • China (Shanghai) Pactics Shanghai, production and sales • Cambodia (Siem Reap) Pactics Cambodia, production

2.6

Nature of ownership and legal form

Privately owned, limited company (Pactics Shanghai Co.ltd has a WFOE status)

2.7

Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries).

Luxury and sport goods: Eyewear, garment, electronics, jewelry Geographic breakdown: USA 65% Europe 25% Asia 10%

CSR Report PACTICS 47


2.8

Scale of the reporting organization, including: • Number of employees; • Net sales (for private sector organizations) or net revenues (for public sector organizations); • Total capitalization broken down in terms of debt and equity (for private sector organizations); and • Quantity of products or services provided. In addition to the above, reporting organizations are encouraged to provide additional information, as appropriate, such as: • Total assets;

Number of employees: 130 We choose not to disclose financial information

2.9

Significant changes during the reporting period regarding size, structure, or ownership including: • The location of, or changes in operations, including facility openings, closings, and expansions; and • Changes in the share capital structure and other capital formation, maintenance, and alteration operations (for private sector organizations)

Expansions: august 2011 floorsize expanded from 1550 m2 to 2250m2

Awards received in the reporting period.

No awards

2.10

No other significant changes

R epo r t Pa r a m e t e rs 3.1 - 3.4

This is the first CSR report of Pactics. The reporting period is 1 July to 30 June 2012. Pactics plans to publish its CSR report on an annual basis. For further information on Pactics CSR policies, please contact Martijn van Rijnsoever, CSR Manager. martijn.vanrijnsoever@pactics-cn.com Report Scope and Boundary

3.5

Pactics is a supplier company that for the first time and on its own initiative publishes a CSR report. We publish this report for reference to our customers and other stakeholders, but more importantly as a self assessment of our CSR policies. To us writing the report based upon GRI guidelines is a learning experience. We have applied the ‘Guidance on Defining Report Content’ and the associated Principles to the best of our abilities, we expect to improve our reporting step by step. We have made sure that our choice of report content was not determined by desired outcome. But non-material indicators have been left out based upon the following reasoning: indicators that require us to gather and present information that is beyond our capacity have been left out. Indicators on social issues are considered material to the nature of Pactics Indicators on environment are often non material. Indicators that formulate requirements too ambitious for the small organization that we are, have been left out. Indicators that suggest a large organization with serious impact on society and the world at large have been left out.

3.6

This CSR report reports on Pactics’ two production locations in Shanghai, China

3.7

Pactics has a small pilot factory in Siem Reap, Cambodia. We will be building a new factory in Siem Reap starting end of 2012, and plan to include the Cambodian activities in our next CSR report (2013).

3.9

All data included in this report is taken from data internally available in the files of human resources, purchasing, sales and finance. Some information for impact assessments and indicators requested by the GRI guidelines are beyond our capacity to collect.

48 PACTICS CSR Report


Chemicals must be stored properly. Secondary containers make sure that if leakage occurs, chemicals will not spill on the floor but are contained. The ink in this picture is produced in Italy and relabeled for Chinese speaking employees. All safety and usage information is published on ‘so called’ MSDS sheets, Material Safety Data Sheets.

51 CSR PACTICS Report PACTICS 49


For screen printing we use a fast drying paint. To obtain an optimum lifespan for the screens, we need to clean them continuously.

Excess paint is washed off at the cleansing station on the side of the water treatment system. We structurally check and make sure discharged water meets required standards.

50 PACTICS 50 PACTICS CSR Report


GRI Content Index 3.12

• Strategy and Analysis 1.1 – 1.2; P. 46 • Organizational Profile 2.1 – 2.10; P. 47 • Report Parameters 3.1 – 3.13; P. 48 • Governance, Commitments, and Engagement 4.1 – 4.17; P. 51 • Core Performance Indicators 5; P. 52

3.13

No external assurance was sought in writing this report.

Gove r n a n c e , C ommit me nt s, a nd Enga gem en t Governance 4.1

President | Piet Holten Vice President/Business Development | Erwald Boer • Sales | Pamela Berte • Sales | Paula Webster • Project Manager | Thomas Hermans • CSR manager | Martijn van Rijnsoever Factory 1 • Operations Director F1 | Silva Gu • Production manager | Dennis Lu • Support and planning | Maria Miao • QC Manager | Amy Xu • Purchasing manager | Daniel Gu • Finance Department | Anna Liu • Human Resource manager | Ada Lu Factory 2 • Operations Director F2 | Michael Xu • Production supervisor | Robert Gu • Technical supervisor | Henry Han • QC supervisor | Melody Zao

4.2

Piet Holten is owner and president.

4.4

Pactics has a simple factory management structure. Including floor managers, factory managers and general management. Besides reporting and feedback in the line, employees have the opportunity to make direct requests to President and Vice President There is an anonymous procedure via HR manager and a suggestion box. During the biweekly management meetings CSR issues are part of the agenda. Besides official policy of free employee organization, Pactics has no formal employee representation body.

4.8

The Pactics CSR Code of conduct is set up according CSR standards that refer to ILO conventions. For the temporary factory in Cambodia the existing code has been translated in Khmer was and subsequently implemented.

CSR Report PACTICS 51


4.9

Pactics has hired a CSR manager to further develop its CSR performance. It is the CSR manager’s responsibility to make Pactics fully compliant to all legal requirements in the countries of operation and moreover comply to ILO based CSR standards. The CSR manager reports to the Vice President. The GRI report is a yearly self-assessment. Commitments to External Initiatives

4.11-13

Pactics holds no membership to any external initiatives. Although we build our CSR system on accepted CSR standards and ILO conventions, we do not formally subscribe or endorse any. Stakeholder Engagement

4.14-17

Pactics has not engaged external stakeholders in the process of developing this report.

P er f o r m a n c e I n d i ca t o rs NC#

Content

Comments

EC3 Core

Coverage of the organization’s defined benefit plan obligations

1. According to Chinese law and regulation, the age of retirement in Pactics: 60 for men, 50 for women. 2. Pactics pays for employee benefits according to government laws and regulations. There is no specific company benefit plan.

EC5 Add

Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation

Minimum salary in Shanghai for employees working six days/week, plus insurance, equals around 2160 RMB. Average piece rate salary is 2552.54 RMB, 35% higher than minimum wage Average hour based salary is 2390.73 RMB, 28% higher than minimum wage, Average piece rate salary is 6.77% higher than average hour based salary.

EC6 Core

Policy, practices, and proportion of spending on locallybased suppliers at significant locations of operation

1. Pactics defines “local” market as Chinese market. 2. The selection process of suppliers is: • Suppliers offer price and post samples to Pactics • Assess all the samples from different suppliers • Give feedbacks to suppliers and ask them to adjust products if needed • Inspect factories of suppliers 3. Pactics spends 100% of procurement on local suppliers.

EC7 Core

Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation

1. The procedure for local hiring is: • Recruitment requirement from department • HR manager posts recruitment advertisement out of factory, as well as on online recruitment website • HR conducts phone interview • Final interview for candidates will be conducted by both HR and department manager 2. 2 out of 4 (50% of) senior management are locally hired.

52 PACTICS CSR Report


EN1 Core

Materials used by weight or volume

Microfiber cloth: 103 939kg Recycled microfiber: 100kg String: 6376 kg Printed labels: 859 172 pc

En2 Core

Percentage of materials used that are recycled input materials.

<1% of material used is recycled.

EN4 Core

Indirect energy consumption by primary source

In total, Pactics used 239,070 kw*h electricity during the reporting period: Factory I: 180,030 kw*h Factory II: 59,040 kw*h ( Start from August 2011)

EN7 Add

Initiatives to reduce indirect energy consumption and reductions achieved

Measurement to reduce electricity: • Lower lights in workshops to workers’ height • Utilization of blinds • Set temperature between 23-28°C when using air conditioning. • No information on reduction numbers

EN8 Core

Total water withdrawal by source

In total, Pactics used 600 cubic meter water during the reporting period: • Factory I: 131 m3 • Factory II: 469 m3 (Start from August 2011)

EN22 Core

Total weight of waste by type and disposal method

• • • • •

EN26 Core

Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation

Pactics is planning to build a new and sustainable factory in Cambodia. The Shanghai production facilities do not offer many opportunities for serious environmental impact reduction.

EN28 Core

Monetary value of significant fines and total number of nonmonetary sanctions for noncompliance with environmental laws and regulations

None. Pactics complies with all environmental laws and regulations.

LA1 Core

Total workforce by employment type, employment contract, and region

1. Employee number: 126 full-time employees, 3 part-time employees, 129 employees in total (per june 2012). 2. There are 3 contract types in Pactics. 2-year contract for new employees, 3-year contract for employees hired for at least 2 years, permanent contract for employees hired for at least 5 years. 3. As Pactics is built for only 4 years, there is no permanent employee in Pactics for now.

LA2 Core

Total number and rate of employee turnover by age group, gender, and region

1. The total number of employees leaving employment during the reporting after probation is 106 2. Among all the employees leaving employment, 29 of them (17%) are male and 140 of them (83%) are female.

The waste of Pactics includes inks, paints, fibers, paper etc.. Pactics classifies waste by hazardous and non-hazardous. Method of disposal: Hazardous waste: is send back to original suppliers. Non-hazardous waste: is sold to recycling agents.

CSR Report PACTICS 53


LA5 Core

Minimum notice period(s) regarding operational changes, including whether it is specified in collective agreements

Pactics policy, complying with Chinese labor law, is to give employees at least one month of notice before ending a contract and compensate them with at least one month salary. However, until now, No contracts have been terminated on Pactics initiative.

LA7 Core

Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region

1. There is one injury incident during the reporting period. 2. No occupational diseases occure, and Pactics provides employees a free physical examination every year.

LA8 Core

Education, training, counseling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases

As serious diseases offer no increased risks on society in the Shanghai area, Pactics has no company program on serious diseases.

LA10 Core

Average hours of training per year per employee by employee category

8 hours per year on average.

LA13 Core

Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity

1. There are 4 senior management, 9 middle management, and 116 production employees in Pactics. 2. 25% of senior management is female, 56% of middle management is female, and 82% of production employees are female.

LA14 Core

Ratio of basic salary of men to women by employee category

The basic salary is the same between male and female employees. The ratio is 1:1.

HR2 Core

Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken

1. Pactics has 5 significant suppliers during the reporting period. 2. During the reporting period, 3 out of 5 (60% of) significant suppliers have been audited by an external auditor. 3. One zero-tolerance issue was uncovered. Immediate action was requested from suppliers. Issue was solved within proper time limits.

HR4 Core

Total number of incidents of discrimination and actions taken

There have been no incidents of discrimination at Pactics.

HR6 Core

Operations identified as having significant risk for incidents of child labor, and measures taken to contribute to the elimination of child labor

1. No child labor existing at Pactics 2. Pactics checks the ID card of every employee before hiring them in order to make sure there is no child labor in the company.

54 PACTICS CSR Report


HR7 Core

Operations identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of forced or compulsory labor

No forced labor has occurred at Pactics. Pactics employees are always free to move around and leave the premises. Pactics also has policies that provide employees proper wages, overtime is voluntary.

SO2 Core

Percentage and total number of business units analyzed for risks related to corruption

1. In China, threats from corruption are relatively low. 2. Purchasing department is the only department in Pactics that may be exposed to risks related to corruption. So far Pactics does not deem it necessary to develop any specific anti-corruption policies.

SO4 Core

Actions taken in response to incidents of corruption

No incidents of corruption happened in Pactics during the reporting period.

SO8 Core

Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with laws and regulations

None. Pactics complies with all laws and regulations.

PR1 Core

Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures

1. Pactics is certified by REACH (Registration, Evaluation, Authorization and Chemicals) and CPSC (Consumer Product Safety Commission), which reflects the highly assuring health and safety of products. 2. Pactics provides employees with comfortable working environment, safe machines and various training programs. 3. Suppliers are well selected in order to guarantee the quality of materials. 4. All the production processes are monitored by quality control department.

PR2 Add

Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes

None. Pactics complies with all regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle.

PR9 Core

Monetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services

None. Pactics complies with all laws and regulations concerning the provision and use of products and services.

CSR Report PACTICS 55


Pratex Hong Kong Room 1203, Euro Trade Centre 13-14 Connaught Road Central Hong Kong SAR E info@pactics-cn.com

Pactics Shanghai Co. Ltd 500 Jianyun Road, Zhoupu Town Nanhui District Tian Na Industrial Park, Building 3 2F, 2-6 (West) Shanghai 201318 - China T +86 21 5138 8760 F +86 21 5138 8770 E info@pactics-cn.com Pactics Cambodia Co. Ltd No. 668, Vihear Chen Village Sangkat Svaydangkum Siem Reap Town Siem Reap Province Cambodia T +855 63 6980 999 E lim@pactics-kh.com

Pactics CSR Magazine #1  

Corporate Magazine published Q4 2012 includes CSR report July 2011 - June 2012

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