The textile industry has always had allegations of outsourcing their labour and hiring firms in third world countries so that they can produce clothes at a lower cost. While this may seem to have advantages in the short-run, once the public finds out of their unethical behaviour huge corporations usually receive in turn a lower demand for their products. Therefore, many of them – such as Walmart – assure they have rigorous inspections to prevent child labour and appalling working conditions.
However, why is it that every couple of years a new scandal breaks out?
I recently came across a video which shows how some firms profit from such labour without them even knowing it.
While Walmart inspects the firms they actually hold contracts with, those local firms hire other firms with shadier practices to produce clothes for them. I found this very closely similar to the way Enron got away with inflating its value even with external accounting firms auditing them.
Since this is not the first time a firm has gotten away with questionable behaviour by hiding their wrongdoing inside other firms, I believe that there must be a fundamental change in the way businesses are audited. They must not be analyzed in a vacuum, as if they did not have close interactions with other firms. The cash flow of the firm and the businesses it interacts with should be heavily monitored in order to view their relationship. While using a more broader method of auditing may be costly, it is the only way to assure that there is a deeper understanding of a firm’s behaviour.
