What’s behind all this transparency fuss this year? Transparency isn’t something new. The need for open business communication has been present in a variety of business practices in the past decade.
The public can see it – most noticeably – through the growing number of brands sharing supply chain information to end consumers.
That’s on the surface. Sharing product information follows a series of initiatives and projects that companies undertake to demonstrate corporate responsibility:
- the implementation of in-house traceability systems for visible supply chains,
- internal audits for suppliers’ adherence to environmental standards,
- third-party certificates for sustainable sourcing,
- engagement in NGO initiatives,
What Makes the Difference?
When eco-aware consumers ask brands for proof of the product origin or ethical sourcing, brands will provide it. Or not . Depending on the potential reputational cost . When manufacturers require visibility of supply chains from their suppliers , suppliers will deliver it. Or not . Depending on the technical capabilities they possess at the moment. But when law enforcement says that all imported goods arriving on this shore will be detained unless they provide clear evidence they weren’t a result of forced labor , the “transparency” narrative changes.Regulations, Regulations Everywhere
The example above was a free interpretation of the UFLPA . This US law came into force in June 2022. It assumes that all imported goods from the XUAR region in China are made with forced labor. Importers have to prove they aren’t . Otherwise, these goods won’t be accepted in the U.S. UFLPA isn’t an isolated case. In France, brands are currently facing AGEC (Anti-Waste Circular Economy Law). It requires brands to put environmental labels on each product. The label must contain much more than the place of origin: Amount of water or energy saved. Traceability through every step of the supply chain. Amount of recycled materials used. Recycling and composting potential, eco-modulations, hazardous substances, etc. Moreover, the Netherlands is just about to implement a law on Child Labor Due Diligence . It will oblige Dutch companies to develop data-proven plans for eliminating child labor. In Germany, child labor and poor working conditions are covered under the Supply Chain Act , effective from January 2023. All German companies with over 3,000 employees will have to implement a supplier risk management system to prove ethical sourcing. Now, transparency sounds real, doesn’t it?How Transparency of Supply Chain Looks Like In Reality
Back to the U.S. Since the UFLPA came into force, the Customs and Border Protection (CBP) has detained 4,629 shipments with a total value of $1.07 billion. Having the numbers, we can easily project the UFLPA’s impact on all participants in the supply chain: For foreign exporters, this means additional storage costs , penalties , and missed sales opportunities. For suppliers – cash flow issues . For logistics – lost contracts . For retailers and distributors – stock shortages . And finally, for end consumers – a justified reason to seek alternative sources.Can You Read the Message?
From a broader perspective, the tightened regulations reveal a more meaningful message: It’s no longer transparency is the best policy . Because it’s not a policy. Neither is it a preference. It’s a norm – of operating, behaving, and consuming. Remember that:- Pioneering countries will soon expand the laws’ scope to a border range of industries (not only textile, for example) and regions of import (not only XUAR). Once established as a norm, it’s easier to improve and expand.
- Other countries will follow the established regulatory practices. It’s only a matter of time.
- Smaller businesses will adopt them even though the laws initially target large companies only. AGEC in France – for example – affects businesses with an annual turnover of over €50 million in the first year of implementation (2023).
Is It That Hard to Adapt to the New Regulatory Landscape?
Generally, businesses are accepting transparency as a new reality. As I said in the beginning, they have already felt “transparency pressure” through the demands of NGOs, stakeholders, and consumers. After all, all these new laws are an immediate result of the changing climate of corporate accountability and increased public awareness. Yet, I can sense a great deal of concern, especially among small and medium businesses, now that governments are imposing the “main” pressure. They are seriously concerned about their capacity of complying with the new transparency regulations. We have astonishing statistics. Over 80% of the companies – directly or indirectly affected by the new transparency regulations – admit they lack an identification system to meet the legal requirements.Toward a Win-Win Solution
The high percentage of “we-are-not-prepared” businesses doesn’t mean they will fail to comply with new regulations. It’s a common misconception – such systems have always been connected with large enterprises only, which, by default, translates into being too expensive and difficult to handle. The thing is that when it comes to supply chains, the ability to deliver accurate compliance documentation always follows the same pattern regardless of the company’s position in it:- to comply with supply chain regulations , you need to have supply chain information .
- to acquire accurate and timely information , you need visibility of your supply chain
- to gain visibility, you need a reliable traceability system.
