Latin America briefing

January 2014

Global Risk Perspective

Executive summary
Drawing on data from Sedex and other leading supply
chain risks experts, this briefing identifies top line
trends, challenges and opportunities in Latin America
with a focus on risk and performance management.

Supply Chain Complicity

2013
Extreme risk

Medium risk

>0.00 - 1.25

>5.00 - 6.25

>1.25 - 2.50
High Risk

>6.25 - 7.50
Low risk

>2.50 - 3.75

>7.50 - 8.75

>3.75 - 5.00

>8.75 - 10.00

Data source: Maplecroft: 2013

Key Risks
Supply chain risks particularly high in the major

economies of Mexico, Brazil, Colombia and Peru.

With major countries enjoying democratic political

systems, limits on freedom of association are less of a

challenge than in the past.
Instead, inadequate working conditions,
discrimination, and prevalence of forced and child
labour are the key risks.
Institutions for labour rights enforcement and
monitoring have failed to keep pace with economic
growth, and are particularly weak outside capital
cities.
Legislation in key countries is shifting towards greater
investor liability for subcontractor infringements of
labour standards. Therefore, there are political risks
for foreign companies who invest or operate in the
region.
Highest-risk sectors are mining, agrocommodities,
manufacturing and construction.

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In this briefing:
The key challenges and risks affecting supply chains
in Latin America include the impact of industry and
agriculture on the environment, inadequate labour
conditions despite the emergence of democratic
political systems.
Insights from Sedex on the most common supply
chain issues in Latin America. These include a lack
of proper health and safety management, as well as
environmental issues relating to a lack of compliance
to local and international laws and inadequate
environmental management systems.
Contextual information to help companies working in
Latin America to understand, monitor and manage
their supply chains risks and improve standards.
This report provides a generalised introduction into
the diverse region of Latin America, which offers many
opportunities but also poses significant challenges.

Environmental risks

Impact of industry and agriculture on availability of water,

biodiversity and ecosystem services have become

central political and reputational risk issue for companies
operating in Latin America.
Growth of civil society and greater digital inclusion means
communities are increasingly willing and able to mobilise
against projects with adverse local impacts.
Environmental regulations increasingly sophisticated, but
enforcement is uneven and often politicised; end users
typically liable for breaches.
For extractive industries as well as some other sectors
(e.g. aerospace), local content or offset requirements can
increase companies exposure to non-compliant local/
national suppliers.
Supplier adherence to certification regimes increasing
but varies nationally and subnationally; foreign investors
have little control.

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Latin America
Population, total (millions)

594

Population growth (annual %)

1.1

GDP (current US$) (trillions)

5.666

GDP per capita (current US$)

7,872

GDP growth (annual %)

Life expectancy at birth, total (years)

74.5

Mortality rate, infant (per 1,000 live births)

18.3

Prevalence of HIV, total (% population ages 15-24)

0.5

Source: World Development Indicators, The World Bank, 2011.

Latin America overview & key

statistics
Countries: Antigua and Barbuda, Argentina, Belize,
Bolivia, Brazil, Chile, Colombia, Costa Rica,
Cuba, Dominica, Dominican Republic, Ecuador,
El Salvador, Grenada, Guatelmala, Guyana, Haiti,
Honduras, Jamaica, Mexico, Nicaragua, Panama,
Paraguay, Peru, St. Lucia, St. Vincent and the
Grenedines, Suriname, Uruguay, and Venezuela.
Represents approx. 8.6% of the worlds population
in 2011.
Region covers over 21 million km2.

Sedex global statistics:

Latin America opportunities:

>33,000 members
>150 countries
>25 industry sectors based on the UNSPSC (United

Latin America holds 17% of the worlds known

oil reserves and will be a critical provider of

natural resources, including minerals and
agrocommodities, for decades to come.
Nations Standard Products and Services Code) listings
>44,300 sites of employment
Leading economies are stable democracies
committed to fostering competitive business
>19,600 audits
environments and cultivating value-added
industries to boost societal development.
Sedex Latin America statistics:
Rapidly expanding middle class set to reach
approximately 313m people by 2030 means
Sites from Latin America represent 10% of the total sites
that consumer markets have favourable long-term
on the Sedex system.
growth prospects, even though Latin Americas
Sedex members are present in 21 of the 24 nations in
share of the global middle class will likely fall due to
Latin America, with 4,264 sites registered.
rapid Asian expansion.
48% of sites are in manufacturing.
18% are intermediaries or agents, and 17% are large
No longer just about natural resources: the region is
agriculture sites.
becoming a critical location in global manufacturing
supply chains (e.g. aerospace in Mexico).
Latin American members represent a total of 4,324,736
workers (including permanent, temporary, agency, sub- Growth in intra-regional trade boosting rapid growth
contracted and homeworkers), 45% of which are female.
of Latin American brands and multilatinas which
invest across borders.
By industry, the highest proportion of sites on Sedex are
associated with the Produce (20.9%), Chemicals (10.1%)
and Grocery (9.2%) industries.

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Top 10 supply chain issues - Latin America

Category

Non-Compliance (NCs) Issue title

% of all
issues
in Latin
America

Global
incidence of
the issue

Management
Systems

A lack of proper code and system

implementation to meet local law, ETI
Base Code and customer requirements

7.8%

3.8%

Health, Safety
& Hygiene

Health and Safety Management

A lack of or inadequate Health and Safety
inspections

4.6%

1.3%

Health, Safety
& Hygiene

Chemicals
Inadequate storage facilities, labelling,
training, containment or spill kits for
hazardous chemicals or lapses in their use

3%

2.7%

Environment

Compliance of the site with local and

international environmental laws and
regulations

2.2%

2%

Working
Hours

Level of Overtime Hours Worked

Daily working hours/ overtime hours
exceeded the legal maximum

2.1%

0.9%

Health, Safety
& Hygiene

Chemicals
Absence of provision for safe handling/
storage/ disposal of hazardous chemicals

1.7%

1%

Environment

Environmental Management Systems

Environment Management Systems
inappropriate to the sites operations

1.6%

0.6%

Health, Safety
& Hygiene

Hygiene Facilities
Inadequate hygiene facilities - toilets,
drinking water, canteen, food storage etc.

1.5%

0.4%

Health, Safety
& Hygiene

Building/ Site Maintenance

Failure to comply with requirements for
electrical safety inspections

1.4%

0.7%

Working
Hours

Weekly rest day(s)

No rest day for each 7 days worked

1.4%

1.7%

Latin America
issues in the Sedex
system - Key points:
1 By category, Health,

Safety & Hygiene issues

collectively result as highest
occuring Non-Compliances
(NCs) at 58.7% of all issues
raised.

2 The second highest group is

Labour Standards, which
forms 23.7% of all the NCs
raised in Latin America.

3 A lack of, or improper

implementation of,
management codes or
systems are recorded as
the highest occurring NC,
at 7.8% of all single issues
recorded.

Sedex system - Latin

America comparison
with rest of world
Workers

18%

Sample size: 19,653 audits

It is interesting to note that although the top 3 noncompliances (NCs) for Latin America are seemingly
small percentages, they rank significantly higher
when compared to the global incidence
Some of the issues that are associated globally
as being of significance in Latin America, such
as Freedom of Association, Forced Labour and
Corruption, do not yet show themselves in our audit
data as statistically relevant individual issues.
This may be due to the sectors that Sedex
members represent in the region, which may not be
of as high risk for these types of issues compared
with sectors such as mining and construction.
In addition, issues such as corruption and forced
labour are by their very nature subversive activities
and therefore less easy to uncover.

Rest of world
82%

5% of audits are from

Latin American sites,

and those audits contain
7% of NCs globally.

Sites

Latin America

Rest of world
90%

represents 7% of
overdue NCs* globally.

On average NCs from

this region are closed

off 52% faster than the
global average.

10%

Audits

*A NC becomes overdue if the sites Corrective Actions are not completed and signed off by

5%

Rest of world
95%

an auditor within the Corrective Action timeframe.

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Responsible sourcing insights briefing

It is important that international buyers who are

operating in Latin America know that we definitely
see a trend towards more and more legislation by
governments, national but also local governments,
who want to be the forefront of sustainability and
see that they have to do it through legislation.

We interviewed over 3200 business executives

and consumers in 2011 from 17 countries in the
region, to ask which countries are more advanced
in terms of CSR. There is a belief that higher
standards are coming from abroad, 62% think that
multinationals are bringing higher standards to the
region. However, they also believe the national
companies are catching up very quickly.

Fabrice Hans, Executive Director, Forum

Empresa

Another key change we are seeing is the

growth and spread of multilatinas, firms
within Latin America or head quartered in a
Latin American country who invest across
the continent into other countries in the
region and in some cases - as with Brazilian
construction and mining companies - actually
outside the region as well, so you can see
Brazilian investment inward into areas of
Africa becoming very important. All this
means that the region is set to become more
and more important in terms of global supply
chains.

James Lockhart-Smith, Principal

Analyst, Latin America, Maplecroft

Rio de Janeiro, Ryan M Bevan

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Responsible sourcing insights briefing

About this briefing:

RESOURCES

This business briefing is the latest in a series of films, publications,

resources, webinars and in-person events by Sedex Global and partners.
These focus on a range of topics including; key emerging trends for
sustainable supply chains by region and emerging CSR topics, risk
and performance management in global supply chains, highlighting
companies achievements of good practice and best practice, impact,
collaboration and convergence in responsible business.
See http://www.sedexglobal.com/resources/publications/

Sedex offers services, initiatives and resources that help companies

source responsibly, to fast-track transparency, and to demonstrate
the business case for supply chain sustainability. These include:

Sedex Global Platform: we provide the worlds largest

collaborative platform for sharing responsible supply chain data and
monitoring and managing risk.

SMETA (Sedex Members Ethical Trade Audit): an audit

methodology that engages supply chain monitors, buyers and
suppliers in one common audit approach, thereby reducing
duplication and increasing convergence.

Responsible Sourcing Insights: six short films featuring

interviews with leading multinationals, suppliers, trade bodies,
NGOs and other experts at the sharp end of tackling responsible
supply chain challenges.
Associate Auditors Group (AAG): a group of auditing companies,
Sedex members, NGOs and other ethical auditing experts that work
together to drive convergence in ethical trade/social auditing, based
on, and helping to shape, best practice.
Sedex Supplier Workbook: an in-depth guide offering practical
guidance, case studies and good practice to help suppliers around
the world drive ethical improvements in their businesses.
Disclaimer:
Data covers October 2011 to October 2013. All data correct as of 8th
December 2013.

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Europe
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About the partner author

organisations:
Sedex Global (www.sedexglobal.com)
Our mission is to drive collaboration,
increase transparency and build the
capacity thats needed to raise standards
across all tiers of the supply chain. We offer
the worlds largest collaborative platform for
managing and sharing ethical supply chain
data, along with leading-edge services
which multi-national companies use to
understand, monitor and manage supply
chains risks and improve standards.
Sedex works to drive engagement up
and down the supply chain, encouraging
follow up corrective actions on audits and
facilitating dialogue to address challenges
on the ground. We collaborate with a
range of stakeholders to share insights
and promote best practice on responsible
supply chain issues.
Sedex offers a range of services to
enable effective responsible supply chain
management. See http://www.sedexglobal.
com/member-services/
Maplecroft (maplecroft.com)
Maplecroft is a leading risk analytics,
research and strategic forecasting
company. We offer an unparalleled portfolio
of risk indices, interactive maps, expert
country risk analysis, risk calculators,
scorecards and dashboards. These
technological solutions identify emerging
trends, business opportunities and risks to
investments and supply chains worldwide.
Sedex 2014
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publication are protected by copyright or
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is subject to the copyright of Sedex
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is authorised, except for commercial
purposes, provided that Sedex Global
is mentioned and acknowledged as the
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found in this publication must be respected.

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