Struggling to manage expenses during economic challenges?

The Conference Board predicts a 96% probability that the United States will enter a recession within the next 12 months. It indicates a potential global economic downturn. If this happens, businesses may face reduced profits, a credit crunch, and lower cash flows.

While cutting expenses is a common strategy, it is time to think ahead. With expanding transparency legislation, companies can’t afford to ignore the ramifications of modern slavery in their business anymore. Failure to maintain a moral company also means losing ethical customers and talents.

As recent trends in HRM show, companies that invest in their people during downturns are more likely to be profitable than those that downsize for cost-cutting reasons alone. The Mekong Club has over 10 years’ experience providing guidance in crisis management for its members. This blog aims to help make sound investments during economic challenges. We will first introduce anti-slavery strategies for higher compliance, efficiency, and profitability. Then we discuss how these techniques can be applied.

What is anti-human trafficking during an economic downturn?

1. Forceful compliance management for increasing modern slavery risk in economic challenges

Research has proven that economic shocks would skyrocket modern slavery risk. Partially due to the pandemic, in the last five years, 10 million more people have been victims of modern slavery, on top of the 40 million from the previous report. We expect the number to rise further due to the impending economic downturn.

Internal and cross-border human trafficking could arise during an economic downturn. The job loss trend could provide unscrupulous traffickers with more desperate victims. Given intense job competition, mushrooming workers may travel to seek better opportunities. Migrant workers confront poverty, discrimination, unemployment, and limited access to essential services. As a result, these workers may accept lower-paying and exploitative jobs and pay recruitment fees. Considering that businesses have countless workers, they are vulnerable to forced labour risk during the downturn.

Anti-human trafficking is critical for compliance and avoiding fines during economic downturns. The new German Supply Chain Due Diligence Act is now in place. Hence, businesses are subject to more significant legal risks. The law requires firms to issue a policy statement on human rights strategy and introduce preventive measures. It allows for fines of up to EUR 800,000, or up to 2% of a business’s average global turnover. Companies also may be barred from participating in public tenders if their fine exceeds EUR 175,000. Considering heavy penalties for non-compliance, businesses should beware of the growing modern slavery risk during the economic downturn.

2. Streamline the process of managing modern slavery risk

Businesses demand performance guarantees and quick ROIs within tight budgets. During the 2020 recession, 244 large companies filed for bankruptcy. Accordingly, maintaining revenue and cutting costs to minimise profit loss is a top priority for surviving during economic challenges.

What technology adoption is suitable for conquering this challenge? AI can boost productivity. A study by Accenture reveals AI will allow people to save time, increasing productivity by 40%. AI solutions can free up your team members for more strategic tasks and improve output and accuracy. Additionally, employees may be overwhelmed by their daily tasks during economic layoffs, posing a pessimistic atmosphere at the workplace and lowering productivity. Introducing AI can relieve employees’ burdens and increase their morale. More than two-thirds of employees are pleased with how AI has aided them in their work, which maintains employee retention. AI can save time, reduce turnover costs, and refine productivity during a potential recession.

AI not only provides a benefit in the short term but is also crucial to long-term development. It’s common to neglect the long-term during an economic downturn, but AI can benefit both. LinkedIn co-founder Reid Hoffman said, “You are sacrificing the future if you opt out of AI completely.” Infosys also states that 76% of enterprises believe AI will be fundamental to their future success. Although there’s still a large adaptation before most organisations implement these technologies, consider acquiring AI for the future success of your company.

AI is instrumental in identifying modern slavery via automation, which strengthens efficiency. For example, financial institutions can leverage AI’s anomaly detection to identify patterns in financial flows. Transaction analysis within banks designed to catch money laundering can miss small flows of money taken from bank accounts in the victim’s name, often with repeat visits to a local ATM. KYC checks combining AI can also more accurately detect deception and exploitation when traffickers open bank accounts on behalf of the victim. Furthermore, integrating workers’ voices and AI can identify individuals from ambiguous and sparse datasets when taking social audits on supply chains. It can detect red flags of exploitation, such as unusual numbers of employees sharing the same address or bank details. AI can allow brands to recognise, predict and unlock new insights into modern slavery at a much higher efficiency, and we hope that these technologies will be more widely available in the near future.

3. Retain ethical and loyal customers to secure revenue.

Companies should prioritise enticing existing customers during a potential downturn. Many businesses trim their marketing and advertising budgets to save money. Therefore, you need to be vigilant about how to use your resources. Interestingly, 65% of a company’s business comes from existing customers. Instead of attracting new customers, focus on using the money to nurture your existing customer base. They will likely continue to purchase your products and services and contribute to continuous revenue.

If your company sells ethical products, continue and expand your moral marketing efforts. Consumers who already pay a premium for ethical goods like Fairtrade and organic produce are unlikely to be deterred by a slowing economy. Because consumers have stronger ties to ethical brands, they are able to charge more than their unethical counterparts. Consequently, ensure that principled customers are pleased with your product or service offerings.

Even if raising ethical standards is not a priority, it’s important to be aware of the consequences and risks related to modern slavery and business. Provided customers learn that a company supports an issue that contradicts their beliefs, 76% will refuse to buy its products or services. The loss can be substantial for brands that have customers in the United States. 90% of survey respondents in the United States said irresponsible business practices would cause them to boycott a brand. Maintaining a good reputation among customers during difficult times is essential.

How to achieve anti-human trafficking strategies

1. Modern-day slavery training 

Modern slavery training is vital to building company-wide awareness and capacity building for compliance management. As this crime is ever-evolving, up-to-date training is necessary for effective action against modern slavery risk. Consider inviting a commercially aware and knowledgeable anti-human trafficking organisation to conduct the training. Solid modern slavery training can allow companies to learn new risks and trends for modern slavery compliance. Also, it enables employees to recognise and report modern slavery. By instilling modern slavery awareness into employee training, their confidence in reporting anything suspicious would inevitably be enhanced. Modern-day slavery training can thus tackle alarming legal and modern slavery risks.

Proper modern slavery training should be: 

• Informative and role-specific to engage the audience
• Mandatory for all employees with modern slavery risk exposure
• Refreshed regularly to ensure knowledge retention and to account for new information and trends in modern slavery
• Complemented with e-learning to deliver it to the whole supply chain

Every industry has its crucial issues to focus on in modern-day slavery training:

Finance:

When combating modern slavery in the financial sector, anti-money laundering is always the primary focus. A solid anti-human trafficking strategy, however, is not the sole responsibility of a single person or team within any financial institution. Consequently, financial institutions should focus on the following issues in training:

• The anti-money laundering compliance officer should learn to include modern slavery risk factors and typologies.
• When a customer visits their branch, the customer relationship manager and branch staff should be able to detect suspicious activity.
• Property and procurement teams must understand how to use modern slavery risk indicators and assess supplier risk.
• To identify which investees are making better progress in addressing modern slavery, ESG analysts must learn how to read a modern slavery statement critically.

Hospitality:

Aside from handling modern slavery in supply chains, hotels can protect sex trafficking victims and face legal risks for not doing so. Hotel rooms are frequently used for sexual abuse by traffickers due to the transience and anonymity of hotel customers. With human trafficking being a concealed crime, it’s in the organisation’s best interest to ensure there’s training for housekeeping, reception and security staff in indicators of sex trafficking and reporting. Watch the below video to learn more.

Supply chains:

All managers, employees, and subcontractors should receive training. E-learning is an excellent tool for providing training in the workers’ native languages. Training on supply chain management should also incorporate the following:

• C-suite level and board members of brands and retailers must understand the role their business can play in addressing modern slavery in their extended supply chains.
• Buyers should be aware of the impact of purchasing practices on working conditions in production units.
• Compliance managers must be aware of modern slavery to establish and maintain anti-slavery policies and procedures.
• Supplier factory owners or subcontractors must be aware of the risk of modern slavery and its consequences.
• Workers should understand the risks of borrowing from their employers to reduce debt bondage.
• Social auditors should be trained to use technology for social audits or understand ILO forced labour indicators to ask the right questions.

Free modern-day slavery training

The Mekong Club has prepared Modern Slavery Introductory Training videos for supply chains in the finance and hospitality sectors. Please feel free to share with your colleagues to enhance modern slavery awareness.

2. Addressing the risks of modern slavery with the use of technology

One issue with modern slavery is the ever-changing and hidden risk. In an economic downturn, cryptocurrency and climate change can fuel new modern slavery typologies. Traffickers and abusers are also adept at concealing modern slavery by switching tactics. What makes matters worse is the scarcity of data. Hence, handling modern slavery risk is costly for businesses.

STOP THE TRAFFIK, IBM and Clifford Chance LLP collaborated to create the Traffik Analysis Hub (TA Hub) to tackle this complexity. TA Hub aims to unveil a trafficker’s typology via survivor stories. Instead of relying on tracking money flows, it compensates and enriches data with survivor stories. TA Hub converts credible data from survivors into trafficking patterns and hotspots.

How does it work? The AI and natural language processing (NLP) extract people involved, how it operates, and what enables or constrains it. While the data from the survivor story is accurate, it may be low in volume. For this reason, the Hub complements it with negative news and other data sources. 100+ organisations have joined using this technology and share data in a non-competitive and secure environment.

You can use analytical tools to transform the data into helpful insights. The tools are highly customisable, and include map analytics and a dashboard. This comprehensive data enables companies to fix potential issues, prevent modern slavery risk, and enhance their ESG profile.

How? To reduce third-party risk, you can identify rogue contract labour providers on TA Hub. AML professionals can use this technology to identify the typology of modern slavery. Law enforcement agencies can enhance their investigations of suspects, victims, and the infrastructure used in victim trafficking and exploitation. Businesses can conduct intelligence-led supply chain audits to increase customer confidence that their products are slave-free. By doing so, it also ameliorates a company’s ESG report with greater efficiency in preventing modern slavery.

3. Ethical Marketing

When promoting a product, service, or brand in a way that is consistent with your company’s values and morals, you engage in ethical marketing. Marketing efforts should not exaggerate claims and practise complete transparency and openness. So how can you engage in ethical marketing?

First, examine your business environment, segmentation, demographics, and customer personas in relation to your SDGs and ESG metrics. You will quickly identify the most common moral values of your customers.

Then, align your company’s mission and vision statements with UN sustainability goals representing your brand and your customers’ ethical values.

Finally, leverage what has been discovered and apply it to your communication strategies. For example, demonstrate your ethical practices and be vocal about social and moral issues on social media. Ethical marketing emphasises your brand with a strong sense of social responsibility that customers want to support.

Conclusion

With the impending economic challenges, consider addressing the current risk while planning for the future. Implementing anti-human trafficking practices can help improve compliance, cost-cutting, and revenue. Joining modern-day slavery training, using tech tools to address risks, and developing an ethical marketing strategy are all ways to achieve them. To continue staying ahead of the curve, sign up for our mailing list for the latest news and events here.

Author: Tsz Yin Wong