Pactics CSR Magazine #1

PACTICS October2012

Your partner in premium packaging

A Brand new factorySiem Reap, Cambodia

Corporate social responsibi l i ty Report 2011-2012

to do business with Pact icsFive good reasons

Colophon

Editor-in-chiefMart i jn van Ri jnsoever

Managing editorMaart je Smeets

Editorial boardPiet Holten, Erwald Boer

The fol lowing people contributed to this magazine:Jul ie Bi j lstra, L ina Goldberg, Maggie Xu, Paula Louise Webster

PhotographyBrad Westphal (Shanghai )Stef f i Eckelmann (Cambodia)

DesignJanneke Holten

ProductionSynergos Communicat ie, Nether lands

PrintingShanghai Pushun Pr int ing Packaging Co. Ltd

This magazine is pr inted on FSC cert i f ied paper

Sustainable magazine & iPad bagInside out, you can use the bag as an iPad protect ion bag

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PACTICS October2012

Your partner in premium packaging

A Brand new factorySiem Reap, Cambodia

Corporate social responsibi l i ty Report 2011-2012

to do business with Pact icsFive good reasons

Table of content

8Foreword by Piet Holten

10Product ion in Cambodia,

Innovat ion in Shanghai

Double Interview

36Five good reasons to do

business with Pact ics

Pactics Principles

43Migrant workers

Portrait

44Peter Potman

Consul General of the

Kingdom of the

Nether lands in Shanghai

Column

45Corporate social

responsibi l i ty

Report 2011-2012

26A Brand new factory

Pact ics sets up act iv i t ies

in Siem Reap, Cambodia

34Saving up to start

my own business

Portrait

35Wilbert Kragten

Managing partner at

BSUR Shanghai

Column

20Smal l steps

CSR dilemmas

4Pact ics in short

Cover photography Stef f i Eckelmann

18With us from

the start

Portrait

24Top of the bi l l

Portrait

25Dick van Motman

president and CEO of

DBB Greater China Group

Column

4 PACTICS

PACTICSdevelopment of premium

for some of the

specialist in productionpackaging

PACTICSin short

PACTICS 5

in the fashion and sports industry

for some of theworld’s leadingbrands

Shanghai,China 180 employees

Siem Reap,Cambodia60 employees

in-house production capacity

40 million products per year

6 PACTICS

Products Imaging techniques

Materi alsEyewear cases

PRATEXhongkong

PACTICSshanghai

PACTICScambodia

PACTICS 7

PACTICSproducts

· 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

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

· Metal· Aluminum

· Plastic· EVA and soft cases

8 PACTICS

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.

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

Foreword

Piet Holten

A thousand decisions

PACTICS 9

Quality | ServiceStrong CSR and Risk management

Competitive pricesInnovation

10 PACTICS

Production in Cambodia, Innovation in Shanghai

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

PACTICS 11

12 PACTICS

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

reason and a businesslike vision on social responsibility. “As

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

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

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

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

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

than a satisfied employee.”

Protection of brand name

This vision towards business is interwoven throughout Pactics

business model. But there is a difference in being a responsible

employer and being able to physically present this to the outside

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

everyone in which way our products are produced. We regard

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

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

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

run the risk of uncovering abusive situations in factories. We

all know what consequences child labor or exploitative working

conditions can have for the image, reputation and future of

premium brands.”

“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.

Double interview

Production in Cambodia, Innovation in Shanghai

PACTICS 13

Conducting audits is first and foremost in determining and

communicating to the outside world whether labor conditions

comply to the standards of the International Labor Organisation

(ILO) and to local laws. These audits must be conducted

by companies of impeccable reputation. Also in this field,

deception and bribery of inspectors is no exception. Inspectors

of reputed auditing companies are not even allowed to accept

lunch from the company under inspection. CSR Manager

Martijn van Rijnsoever is formalizing our procedures through

intelligible documents and reports. A CSR code of conduct has

been developed and integrated. Ada Lu, responsible for Human

Resources ensures all rights and obligations of employees are

well defined and well communicated to our employees.

Erwald Boer: “Through these independent audits we discover

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

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

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

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

a vigilant look at your CSR policies.”

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

8 PACTICS

Baby next to sewing machine

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

of babies and young children sitting next to their mothers and

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

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

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

food industry and forestry. Consumers become more and more

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

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

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

supermarkets now sell free-range eggs. Consumer awareness

will seep through to other industries and certainly to the more

luxury products. Right now, most consumers barely wonder how

and where their clothes and luxury items are produced.”

But this is changing. Major brands have strict corporate social

responsibility policies to prevent their names being associated

with unseemly matters like long working hours, below minimum

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

spread like a virus as consumers become more informed,

knowledgeable and more critical. While most production will

move to Cambodia, knowledge and innovation remains in

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

great personal satisfaction out of improving, renewing and

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

regular influx of students that come do their research at our

company. They are both engineering and business students. I

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

this knowledge development of great value and importance.

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

precisely how a brand performs on CSR and the environment.

These are vital developments. it is crucial for producers of

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

constantly under the microscope. As supplier we aim to offer

our customers as much security as possible.”

CSR in Cambodia?

Continuous pressure on prices make it difficult to stick to the

Pactics-ideal of a company where people can make a decent

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

payments have increased over 300 percent, from 200 RMB

per employee to 550 RMB and more increases are already

announced. Moreover, the RMB has devalued 25 percent against

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

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

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

the best intentions for its employees starts business in a country

where wages belong to the lowest in the world.

14 PACTICS

PACTICS 9

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

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

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

competitive in China is to cut on working conditions for our

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

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

processes that we cannot automate, to countries where the

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

in the world.”

The Cambodia Development Organization (CDC) has a program

offering qualified investors a permit (Qualified Investment

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

available to Cambodia, without paying excise duty and value

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

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

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

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

dollar is a generally accepted currency, so compared to China

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

do business in US dollars.

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

we are building a new environmentally and people friendly new

factory including extras like a daycare center. Despite these

facilities, the price of our products remain competitive due

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

according to our own high CSR standards, without undermining

our competitive position.”

Innovation in China

Apart from the geographical spread, Pactics also continuously

invests in automation and improvement of its technical and

administrative processes. This is not only to improve efficiency,

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

our CSR performance. While most production will move to

Cambodia, knowledge and innovation remains in Shanghai.

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

satisfaction out of improving, renewing and optimising our

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

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

both engineering and business students. I like the enthusiasm

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 15

16 PACTICS

“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.” •

PACTICS 17

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

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

Development of Pactics

18 PACTICS

I learned how to handle

new machines, as well

as how to better control

the quality of products.”

PACTICS 19

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

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

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

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

are operating more advanced machines. Besides, the working

environment of all workshops is more comfortable than before,

which improves the productivity.

Take my own string workshop for instance: At first we

sometimes had to wear masks because it was too smoky in

the workshop. However, the problem has been solved since

the factory installed exhaust facilities. I learned how to handle

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

products. We need to make progress because society is moving

forward.”

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.

With us from the start

Mr. Gu Zonglou

How do you experience CSR in China?

I think to answer this I should categorize corporate social

responsibility into two elements. The first one is taking into

consideration how you conduct business within your own

company. The second is about taking responsibility in your

supply chain, reaching beyond mandatory company boundaries.

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

primarily do comply to legal requirements. I remember in Dutch

companies I worked at, CSR policies were seen as extensive

social policies to improve employees’ health and happiness

and community outreach. They addressed issues which are

categorically above and beyond what is legally required.

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

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

legitimate wages, rightful benefits, offer decent working hours

and provide a clean, safe and healthy working environment to

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

as our big new year’s party and yearly company outing. But

remember, we are still an ‘unskilled labor’ factory in a low wage

country.

The second element of CSR is supply chain responsibility. You

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

from companies where children are at work. We realize that

our responsibility stretches beyond the boundaries of our

company. This is the most challenging part. Although Chinese

CSR dilemmas

You cannot say your

factory is perfect, and then

buy your materials from

companies where children

are at work.”

Small steps

20 PACTICS

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

is easily circumvented. When I audit the facilities of suppliers

I find workers mostly work extensively long hours for less

than the minimum wage and do not get paid for overtime

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

Dangerous and unhealthy situations abound. I realize that I

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

detrimental standards. Through selection of suppliers, audits

and improvement programs we may be able to realize some

developments and improvements. But we cannot change the

market. Although this is often frustrating, we strive in taking

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

What is the strategic importance of a proper CSR policy to

your customers?

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

we can collaborate and join forces in improving working and

environmental conditions throughout the supply chain. For

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

they can realize their own CSR objectives. Besides these ethical

objectives, there is another important business intention.

Most of our customers are premium brand names. The

reputation of these brands is based on their high quality

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

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

their buying decision. This image is constructed through costly

marketing strategies and protected with the utmost care. So

why take the risk of blemishing this precious reputation by

not being careful and critical regarding the working conditions

within the supply chain?

Every month in the newspapers I read stories of scandals in

low wage countries that are connected to the world’s famous

brands. It takes just one careless scandal and your brand

equity is instantly discredited and your admirable name being

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

exploitative working conditions were identified at Apple’s largest

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

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

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

CSR activities we help our customers to minimize such brand

risk.

PACTICS 21

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

22 PACTICS

How do you remain competitive with such a comprehensive

CSR policy?

It goes without saying that our production costs are slightly

higher than competitors that disregard most of Chinese labor

law, and offer their employees working conditions that are far

below the bare minimum. Yet by being innovative throughout

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

having high standards. Social responsibility is part of a broader

philosophy at Pactics. We have very efficient production

processes. We work on automation where possible, have an

excellent quality record, and through the Enterprise Resource

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

plan production and source materials within our market with

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

are minute.

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

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

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

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

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

our customers, the more we can invest in it.

What dilemmas do you encounter as CSR manager at

Pactics?

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

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

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

called home labor, where employees took products home and

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

by Chinese law, and the employees usually welcome any

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

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

How many hours did the employees work? What are the

circumstances? Let’s be honest, we cannot be certain that they

haven’t put any of their kids to work.

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

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

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

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

Although we cannot change

the market, we strive in

taking conscious, well sought

out steps to be part of the

solution, not the problem.”

PACTICS 23

companies with over 100 employees are now obliged to

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

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

development. However, forming this type of group will not

happen overnight given the fact that workers have never been

given the opportunity to have representation historically.

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

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

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

instance, we first developed an employee survey, allowing them

to give structural feedback on a range of work-related topics.

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

make it work. •

A Case for improvement

Although we have many policies on workers' rights, and

although we do have an official policy which allows workers to

organize themselves, this is not something that is necessarily

straightforward in China. To compare: In Cambodia we

encountered a very open culture relating to issues like workers'

representation for both workers and local management. These

matters in our factory in Siem Reap have now resulted in the

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

shop-steward and assistant, who represents the employees in

management negotiations. In Cambodia we found these things

evolve very naturally and prove to be fairly straightforward.

Recently the city of Shanghai has adopted a new law on

Employees’ Representatives Conference. It says that all

24 PACTICS

Miss Chen,top of the bil l

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

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

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

worked as a seamster in Shanghai for several years, where I had

to work for 12 hours per day. Hhere overtime work is voluntary.

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

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

how to use the machines.

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

Whenever we get new workers in Shanghai they will watch and

learn from me as well.

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

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

family in my hometown.”

Practice makes perfect”

PACTICS 25

How production moves out of focus

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

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

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

Actually, I think that sometimes this happens, especially with

companies that have outsourced all or part of their production.

As the production processes move out, the focus naturally

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

major brand products, these are for an important part marketing

activities. We actually call them ‘brands’ not companies.

As production has moved to low wage countries many of

the processes became outsourced to supplier companies.

Moreover, actual production costs decreased severely. What

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

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

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

a brand and sometimes can take only hours to break it down.

Bill Bernbach, the B in DDB, famously said, good advertising for

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

faster, and a misplaced emphasis on cost control versus quality

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

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

nowadays environment where the deal is so important and

where consumers are very fickle it’s not easy to stick to your

guns and play the long-term game.

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

contrast between the perfect cosmopolitan world created

around a product and the real world of the people actually

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

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

working conditions become exploitative, things change; then

exploitation becomes part of the product. And the moment this

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

get damaged severely.

The temptation to focus just on cost competitiveness and move

production to low wage countries, swap materials/ingredients

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

to regulations and labor laws makes it difficult to stay true

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

experience that might indeed first be derived from the prestige

of owning the product and using it.

But the very thing that the brand is supposed to do, which is

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

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

give not just a personal experience but trust that this experience

the consumer derives is given by a brand that does not exploits

just for quick gains, follows the values of humanity and produces

products that are safe and environmentally sound.

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

consumer experience gets delivered and brand value gets created.

ColumnDick van Motman

The black spot in brand risk

President & CEO - DDB Greater China Group

A brand new factory

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

26 PACTICS

A brand new factoryPACTICS 27

28 PACTICS

A brand new factoryRising 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

the streets for better working conditions and higher wages.

Almost half of the Cambodians working in manufacturing, are

employed in the garment sector. Despite the growth in this

sector, minimum wages in Cambodia remain around 65 USD per

month, which is below the minimum wage level in surrounding

countries. According to NGOs this is not enough for workers

to provide and sustain a basic living wage for themselves and

their dependants. The widespread use of temporary contracts

deprive employees from basic rights like paid pregnancy leave,

full salaries and bonuses.

A country where so many labor rights are trampled on may

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

regards to corporate social responsibility. For Pactics however,

the low wages and favorable trade conditions are exactly the

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

These allow the company to remain loyal to its CSR standards

and at the same time remain competitive to their clients.

Siem Reap versus Phnom Penh

Starting of 2010, Pactics sought a location outside the

Cambodian capital of Phnom Penh, where most factories are

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

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

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

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

of the revenue generated does not benefit the local population.

The management of the Pactics factory in Siem Reap has

been in the hands of Naing Vannoeun, who to foreigners is

better known as ‘Wave.’ Formerly a Thai language student

who worked as a driver in Phnom Penh, Vannoeun received

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

communication at the Pactics offices in Shanghai. Now he is

running the Cambodian branch with a lot of guidance and care

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

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

where people often have short term contracts."

PACTICS 29

We take the

factory to the

people, instead

ofthe people to

the factory.’’

30 PACTICS

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

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

A fundamental reason for Pactics to choose Siem Reap is because Piet Holten

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

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.”

Eighty percent

of the employees

are young women

and many have

children.’’

PACTICS 31

I find it an unpleasant thought that young mothers must leave

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

I think you generate far more peacefulness and satisfaction

within your company when your employees can return to their

families after a day of work.

The green factory

After an initial test period when starting up production in

Cambodia, by March 2011 the number of Pactics employees

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

Cambodia). Employees from Shanghai were flown into

Cambodia to train local staff in bookkeeping and planning. Top

production seamster Miss Chen was brought in from Shanghai

to show the local seamsters fast and efficient techniques,

increasing their production. Soon Pactcis made the strategic

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

differentiates itself instantly from Phnom Penh and China as

there is no establishment of industries. It therefore has no

manufacturing space available for rent. The new facility will

dramatically increase productivity and efficiency.

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

aspects of our CSR policies into practice. Labor conditions

alongside sustainability and environmental objectives are a key

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

a private sector investment grant from the Dutch government

to support, build and realize this new factory ambition. Pactics

strategically integrated the guidelines of the ILO program

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

English architect Stuart Cochlin is responsible for the impressive

design. Cochlin is familiar with local building practices and has

incorporated a long list of sustainable and environmentally-

friendly features. The design includes weed beds for filtering

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

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

place. The factory is a configuration of several smaller buildings

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

come in via all angles and improves natural ventilation. Pollution

from mobility is also kept low considering the short, convenient

distance workers have to travel to the factory.

View of staff area and garden

Aerial view from entrance

32 PACTICS

Land Mines

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

Eighty percent of the employees are young women and many

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

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

for employee education as well as lunch facilities that will offer

a healthy nutritious lunch to the employees.

The factory will be on ground level with the different buildings

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

whole facility and surrounding grounds will be made disabled

friendly. This allows landmine victims to be fully employable at

Pactics. As a result of the war in Vietnam and Pol Pot’s regime,

Cambodia struggles with an inheritance of millions of landmines.

According to NGO estimations, Cambodia has over 60,000

physically disabled people as a catastrophic consequence

of exploding landmines. Usually they have limited access to

education and employment and despite some government

arrangements, most of them do not receive any support from

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

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

mine victims can work in our departments for packaging. They

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

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

Living wages

The social unrest in Cambodia and the concerns of NGOs in

the surrounding countries usually entail harrowingly low wages.

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

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

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

66 USD per month. Pactics’ wages are safely above this. (see

box on wage build-up). Furthermore the company pays health

costs and personal accident insurance. It also pays around 50

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

or computing course.

Pactics’ own analysis shows that employees on average live

about 8 kilometers from the current location. Most of them

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

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

are relatively low. The employees elect a workers council with

a shop steward and assistant who represent the employees'

interests in communication with the management.

Cambodia is currently the fastest growing economy in

Southeast Asia. Adolescents who have studied abroad are

returning home with new and creative positive ideas. Due to

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

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. •

PACTICS 33

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

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’ salary build-up

Development Pactics Siem-Reap

“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.

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.

34 PACTICS

PACTICS 35

It takes years of careful planning, marketing investment and

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

The recent BP Deepwater Horizon disaster is fresh in our

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

marketing campaigns about BP going Beyond Petrol wasted,

not to mention the loss of reputation, credibility and consumer

confidence. This very recent example shows that more than

ever companies should be aware of the impact they make

on consumers through their products, marketing campaigns

and actions. And how a company should effectively embrace

responsibility for the company’s actions to its consumers,

employees, the environment and other stakeholders.

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

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

should be an integrated part of marketing and closely aligned

to the corporate strategy as consumers look beyond the brand

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

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

look at the Dow Jones Sustainability Index, an index which

monitors the sustainability performance & key reference point,

learns which companies have integrated CSR in their corporate

strategies and building a more sustainable business model.

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

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

the years to come.

CSR means business

When applied and integrated well, CSR provides a number

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

differentiation in the market field and consumers will value

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

drives innovation as companies have to find new and innovative

ways to be more sustainable, invent new technologies and add

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

efficient cars, recycle materials or improving quality standards.

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

higher price for those brands, brand margins improve and the

value chain increases. Being responsible has progressed from a

rather soft initiative to a commercial, sustainable strategy each

and every company should embrace and market.

ColumnWilbert Kragten

CSR means business

Managing partner at BSUR ShanghaiA brand consultancy

4 PACTICS

Text Martijn van Rijnsoever, photography Brad Westphal

PACTICSprinciples

QualityStrong CSR & risk management

On-Time, Complete and Compliant

Responsive & Proactive

Innovation is key | Competitive prices

Service

36 PACTICS

PACTICS 37

Our strength is our ability to

provide high quality products

at a competitive price while

operating responsibly”.

Five good reasons to do business

with Pactics

Quality: On-time, complete and compliant

A promise companies often make towards their customers.

So how is Pactics different?

Pactics makes sure to meet every need of the client at every

stage of development and production, ranging from the details

and quality of the hard physical samples to the CSR guidelines

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

with.

We ensure streamlined communication with the client to ensure

that the quality of their bulk order is processed effortlessly and

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

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

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

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

How does Pactics ensure product quality?

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

involved at several stages during the production process to

ensure the highest quality products. Absolutely nothing leaves

our factories unless approved by several people and checked

by the actual sales representative, in accordance with our

clients wishes. Having our sales representatives within our

production facilities enables us to develop new products quickly

and guarantees that the requirements of the clients will be

translated correctly.

4 PACTICS

Service: Responsive and proactiveResponsive Pactics style:

Our offices in Europe and Shanghai are open Monday to

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

all times for our different time zones and continuous deadlines.

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

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

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

work with smaller clients requiring smaller orders, such as

promotional or eco-friendly products. The marketing-driven

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

orders such as limited editions and signature series – has

made our team very flexible and experienced with this type of

requests.

Depending on the customer’s demands, Pactics can take

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

focus on our customers processes and offer ‘vendor-managed

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

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

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

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

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

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

forecasts and we ensure there is enough stock at a warehouse

near the client’s production facility at all times.

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

About two years ago we started doing business with the largest

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

objective to hire a native Italian speaking professional in order to

make sure there is no miscommunication between the Chinese

back office and our new client.

If clients have specific goals for products we help them with

the development. If they change their mind during the research

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

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

that will keep prices low. Sometimes this process can take

weeks, sometimes months.

38 PACTICS

PACTICS 39

Strong CSR and risk management

Why is this corporate social responsibility policy in the

best interest of our clients?

Many of our clients need 100 percent assurance that their

brands are being produced in an environmentally friendly and

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

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

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

nothing in their supply chain can damage their brand name and

reputation. Working with a supplier such as Pactics enables our

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

up-and-coming companies.

So what does Pactics actually do considering CSR?

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

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

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

carrying out rigorous audits on our suppliers using third party

auditors to ensure everything is indeed in check.

We try to ensure our surroundings are kept sustainable through

energy saving measures. Pactics restores, reuses and recycles

all excess material and waste. In both Cambodia and Shanghai

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

manage our excess fabrics and materials.

Warehouse near your production facility

Vendor / supplier managed inventory

Pactics ShanghaiPactics Cambodia

Customer

Advantages: No need to finance stock and a reduction in space allocated to packaging material in your warehouse

40 PACTICS

Innovation is key

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

Innovation enables us to be nimble and stay competitively

priced without having to compromise our CSR standards. By

streamlining and automating our processes and production, we

are able to monitor every production detail and improve our

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

are able to produce on demand deliveries in smaller amounts.

Our service includes key innovation regarding techniques,

materials, efficiency and reducing costs for our customers

where we can. If one technique is slightly cheaper yet produces

the same result needed, we will notify our customers giving

them the best deal we possibly can.

Product development

We research and develop materials in house like organic

bamboo, recycled microfiber and products of recycled

neoprene. Under the name of Sustics we recently developed

and launched our 2012 eco-friendly line including bags,

packaging and cloths.

We also support clients with their product development. Our

techniques and skills enable us to develop specific shapes and

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

carry out various tests free of charge including color fastness

testing, water resilience testing, etc. Throughout this process

we keep a high level of correspondence with the customer with

updates, photos, test results, design & innovation suggestions

and any other requirements needed.

New markets

Innovation enables us to expand into new markets. The past

couple of years have seen us enter the sports market (US

baseball teams, ski accessories, skateboarding accessories)

and high end jewelry & watch markets.

We are now focusing on the electronics market with for instance

developments of our neoprene tablet and laptop line. We look

at the music industry for example, brass instruments and dj

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.

PACTICS 41

Competitive prices

This CSR and stuff sounds expensive. Does this mean

Pactics products come at a high price?

We aim to keep competitive prices amongst others by constant

innovation in every possible way. But sometimes yes, clients

will pay slightly more considering our policies are actually met,

unlike other Chinese suppliers. However, this would never be

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

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

The costs of damage control because of a scandal concerning

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 supply of products for our clients. Of particular 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 welcome change. I look forward to a long successful relationship whereby responsibility to people and the environment sit equally with quality and profit as business principles.” Trevor HaywardDirectorIndigo Concept Packaging Limited

42 PACTICS

For customers top

quality, for employees

an inspiring and

professional working

environment and a

company to be proud of”.

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

PACTICS 43

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.”

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.

Migrant Workers

44 PACTICS

Win-win Strategy

Dutch entrepreneurs are well known as pioneers in international

business and have been for centuries. This year we celebrate

400 years of maritime relations between the Netherlands and

China. Unfortunately, those early Dutch traders were not known

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

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

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

moved up the civility ladder and have moved to the forefront

of what has become known as corporate social responsibility,

or CSR.

Companies that do business worldwide are often confronted by

significant differences in culture, ethics, legislation, access to

resources and ways of doing business, as well as development

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

performance practices. In order to help companies dealing

with these issues, the Dutch government is actively engaged in

helping Dutch companies get the most out of their CSR policy,

by providing training, practical guidance, bundling of knowledge

and dialogue among business communities and societies.

Furthermore, we ask our companies to be transparent about

their CSR policies and activities and to provide good company

CSR reports in order to enable interested parties to engage with

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

provide practical information, advice and support to companies.

Dutch companies are particularly encouraged to show and

promote corporate social responsibility in their chain of

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

for small and medium sized companies. Nevertheless, we are

proud to see that the Dutch business community is already at

the forefront of corporate social responsibility worldwide!

Pactics is a good example. We all know that implementing

corporate social responsibility in the textile industry in a country

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

they go about being a responsible enterprise in the face of

fierce price competition in the local and global market.

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

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

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

better!

ColumnPeter PotmanConsul General of the Kingdom of the Netherlands in Shanghai

A pretty steep challenge

PACTICS 41

Set up according to the report ing guidel ines of the Global Report ing In i t iat ive

PACTICSCSR Report July 2011 - June 2012

CSR Report PACTICS 45

planet - people - prof i t - principles

1.1 Strategy and AnalysisPactics 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 HoltenPresident

1.2 Key impacts, risks and opportunitiesPactics 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 ProcessPactics 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 balanceAbove 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

Organ i za t ion Pro f i l e

2.1 Name of the organization Headquarter: Pratex HongkongSubsidiaries: 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 Kongmain 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%


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

No other significant changes

2.10 Awards received in the reporting period. No awards

Repor t Parameters

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. [email protected]

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.


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: 130We choose not to disclose financial information

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.

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.

PACTICS 51CSR Report PACTICS 49

50 PACTICS

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.


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.

Governance , Commi tments , and Engagement

Governance

4.1 President | Piet HoltenVice 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 PresidentThere 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.

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.

Pe r fo rmance Ind ica to 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 locally-based 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 suppliers3. 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 manager2. 2 out of 4 (50% of) senior management are locally hired.

EN1 Core

Materials used by weight or volume Microfiber cloth: 103 939kgRecycled microfiber: 100kgString: 6376 kgPrinted 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*hFactory 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 • 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.

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 non-monetary 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 1062. Among all the employees leaving employment, 29 of them (17%) are male and 140 of them (83%) are female.


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 Pactics2. Pactics checks the ID card of every employee before hiring them in order to make sure there is no child labor in the company.


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.

Pactics Shanghai Co. Ltd500 Jianyun Road, Zhoupu TownNanhui DistrictTian Na Industrial Park, Building 32F, 2-6 (West)Shanghai 201318 - ChinaT +86 21 5138 8760F +86 21 5138 8770E [email protected] Cambodia Co. LtdNo. 668, Vihear Chen VillageSangkat SvaydangkumSiem Reap TownSiem Reap Province CambodiaT +855 63 6980 999E [email protected]

Pratex Hong KongRoom 1203, Euro Trade Centre13-14 Connaught RoadCentral Hong Kong SARE [email protected]

Pactics CSR Magazine #1

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Transcript of Pactics CSR Magazine #1