42% of North American Companies Would Still Work with International Suppliers Engaged in Slave Labor, Fraud, Money Laundering or Bribery

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May 09, 2023, 08:00 ET

Despite Regulatory Pressure and Cancel Culture, Brands Still Are Not Taking Ethical Sourcing Seriously, Finds Creditsafe Study

ALLENTOWN, Pa., May 9, 2023 /PRNewswire/ -- We live in an age where consumers expect the products they buy to be produced sustainably and ethically – and are even willing to pay more for these products. When brands fall foul of these expectations, consumers will call them out publicly – damaging the brand's reputation and costing them both customers and revenue. Meanwhile, more regulations are being passed in the U.S. and Canada requiring companies to prove their goods are not produced using forced or child labor. Despite these pressures, North American companies still aren't taking ethical sourcing and supplier due diligence seriously, according to 'The Murky Waters of Overseas Manufacturing' study released by Creditsafe.

The study uncovers a glaring contradiction between what businesses do as a due diligence exercise and how seriously they take ethical sourcing. On the one hand, 83% of the respondents said they run compliance checks on international suppliers at least once a quarter. This is likely driven in large part by the regulatory pressure and fear of being 'canceled.' However, the results of these compliance checks carry little weight in a manufacturer's decision to work with suppliers. In fact, nearly half (42%) of businesses in the U.S. and Canada admitted they would still work with an international supplier that has been found to be on a sanctions list or involved in slave labor, corruption, bribery, fraud or money laundering.

Matthew Debbage, CEO of the Americas and Asia for Creditsafe, believes this contradiction highlights a bigger problem in global supply chain management. "Many companies are simply running compliance checks to tick a box and show that they did the necessary due diligence. But they're not using the results to protect the integrity of their global supply chains. This needs to change if brands want to restore customer confidence and position themselves for long-term growth. The key is not to just run a compliance check once and then be done. Just like with credit risk, brands should regularly monitor their global supply chain for compliance issues. That's the purpose of compliance checks – to give you the information you need to avoid working with unethical, corrupt suppliers and, ultimately, prevent your company from incurring financial, legal and reputational damage as a result."

Key findings from the research study include:

Eradicating supply chain fraud is more pressing than fixing production and shipping problems. Four in 10 companies are concerned about being scammed by someone imitating a director of a legitimate company or sending money to a fake bank account. But only 17% are worried about receiving damaged or faulty goods, while 16% are concerned about shipment delays.
Is supply chain financing making manufacturers more or less resilient? The study found that 69% of companies have used supply chain financing in the last 12 months and another 66% expect to use it in the next 6 to 12 months. These findings signal that companies are using multiple lines of credit to stay afloat through the year. So, there is reason to believe that supply chain financing could be more of a crutch and enabler of poor financial management practices.
Struggling with product shortages? Supplier over-reliance is likely the reason. The study found that 35% of the respondents use less than 500 international suppliers to produce their goods. Meanwhile, just 7% distribute their production across 10,000 to 15,000 suppliers and only 3% use more than 15,000 suppliers.
Suppliers should expect more price haggling from manufacturers in the next 12 months. As we've seen this year, many companies are soliciting discounts from suppliers. The data from our study indicates this will continue to be a trend, with 95% of the respondents saying they plan to ask suppliers for a discount in the next 6 to 12 months to proactively protect their cash flow.

As SVP of Research and Education at Credit Research Foundation, Mike Bevilaqua understands how important the supplier selection process is. He explains, "Ultimately, the decision to work with a supplier should be based on a holistic assessment of all relevant factors, including the supplier's credit report, payment history as well as their product quality, pricing and customer service. It's important to perform due diligence and conduct thorough research to minimize risks and ensure a successful business relationship, including understanding the magnitude of ongoing litigation or legal filings and potential impact to ongoing operations."

Survey Methodology

The study surveyed over 480 finance and supply chain professionals in the United States and Canada who use international suppliers to produce their goods. Our goal was to understand their key challenges and priorities with financing, ethical sourcing and supplier due diligence – and how this impacts their decision to work with international suppliers. The survey included companies across the following industries: retail and wholesale, healthcare and pharmaceutical, manufacturing, aerospace, automotive, technology/electronics and transportation.

ABOUT CREDITSAFE

Creditsafe, the global expert in credit monitoring and risk management, is the world's most used provider of business reports. Today, over 115,000 customers globally depend on Creditsafe to make critical business decisions. Using real-time data from over 9,000 sources across 160+ countries, Creditsafe's mission is to help businesses mitigate financial, legal and compliance risks, while also empowering them to make more informed decisions. To learn more, visit http://www.creditsafe.com

Media Contacts
Crackle PR for Creditsafe (US)
Emily Shuler, Senior Account Manager
Email: [email protected]
Phone: +1 609 751 4712

Creditsafe
Ragini Bhalla, Head of Content & PR, US & Canada
Email: [email protected]

SOURCE Creditsafe