One of the most persistent and challenging corporate responsibility issues for many global brands is how to manufacture products in contract factories in less developed countries while paying fair wages and maintaining acceptable working conditions for workers.

We recently wrote, for example, about the global giant Nike, whose three main product lines — footwear, apparel and equipment — are made in approximately 600 contract factories that employ more than 800,000 workers in 46 countries around the world.  In a corporate responsibility report published in January, Nike acknowledged that wage and working conditions issues remain problematic.

“While we can point to many examples of improvements, challenging issues remain for our company and our industry in systemically identifying and tackling how to affect long-term system-wide change,” the company said.

Now The New York Times reports in a lengthy feature story of a “high-minded experiment” at a factory in Villa Altagracia, Dominican Republic, that is a “response to appeals from myriad university officials and student activists that the garment industry stop using poverty-wage sweatshops.”

With 120 workers, the factory is owned by Knights Apparel, a privately held company based in Spartanburg, S.C., that is reportedly the leading supplier of college-logo apparel to American universities.  “Industry experts say it is a pioneer in the developing world because it pays a ‘living wage’ — in this case, three times the average pay of the country’s apparel workers — and allows workers to join a union without a fight,” according to the Times.

While that “living wage” is only $500 a month, the Times story reports on worker Santa Castillo, who says: “We never had the opportunity to make wages like this before…I feel blessed.”  Comparing this factory with others, union leader Maritza Vargas says, “the difference is heaven and earth.”

The experiment has been driven by Knights Apparel CEO Joseph Bozich, who, after being diagnosed with multiple sclerosis, decided that “I wanted to find a way to use my business to impact people that it touched on a daily basis,” according to the Times.

Another powerful factor has been Knights Apparel’s strong brand presence among college and universities, and a bet by the company that students will be willing to pay a premium for products made by workers that are treated well.

The economics of the business are illuminating.   Paying the 120 workers the “living wage” – or $500 a month – means the factory’s cost will be $4.80 a T-shirt, 80 cents or 20 percent more than if it paid minimum wage. Knights will absorb a lower-than-usual profit margin, selling the shirts for $8 wholesale, with most retailers marking them up to $18, according to the Times.

Knights Apparel developed its plan working closely with the  Worker Rights Consortium (WRC), an independent labor rights monitoring organization that works “to combat sweatshops and protect the rights of workers who sew apparel and make other products sold in the United States.”  The WRC has over 175 college and university affiliates.

Apparel makers Nike and Addias are board members of the Fair Labor Association, a collaborative effort that provides affiliated colleges and universities with information on the labor compliance programs of companies involved in the production of collegiate merchandise. The FLA says it has over 200 colleges and universities in the U.S. and Canada.

A Nike spokesman said his company would “watch with interest” the Knights initiative, according to the Times.

Apple Inc.’s latest Supplier Responsibility report indicates the company has stepped up its audits and training at a number of locations around the world.

The report says the company conducted on-site audits at 102 facilities in 2009, up from 83 in 2008, and trained 133,000 workers, supervisors and managers, a sharp increase from 27,000 a year  earlier.

“During most of our audits, suppliers stated that Apple was the only company that had ever audited their facility for supplier responsibility,” the report declares. Its audits have involved facilities in China, the Czech Republic, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and the U.S.

Apple’s code of conduct for suppliers covers expectations in five key areas: labor and human rights, health and safety, environmental impact, ethics and management commitment.

And the company has issued standards on a number of topics including dormitories, juvenile worker protections, medical non-discrimination, pregnancy non-discrimination, prevention of involuntary labor, wages and benefits, and working hours.

Apple said previous audits have revealed “a complex recruitment process” which has sometimes resulted in workers paying fees in excess of legal limits, in part due to fees involving third-party labor agencies helping recruit workers from other countries.

The company said it requires suppliers to repay overpaid fees and workers have been reimbursed more than $2.2 million in overcharges over the past two years.  Apple says its standard limits recruitment fees to the equivalent of one month’s net wages.

"Management Commitment" Gets Lowest Rating

It said it has found problems with suppliers in Taiwan, where companies often use contract workers from countries such as the Philippines, Thailand and Vietnam, and has conducted training and other programs to improve hiring practices.

Apple said its audits of 102 facilities last year included 22 repeat audits and 80 first-time audits.  Its summary of audit results indicated that the category of “management commitment” had the poorest results, with a 61%  rating for both compliance and for systems in place.

“Ethics” fared highest, 95%  in compliance and 86% with systems in place; labor and human rights scored 72% in compliance and 67% in systems; health and safety, 76% compliance and 74% systems.

Apple said audits turned up 17 “core violations” in 2009, including eight for excessive recruitment fees; three for hiring underage labor;  three for improper disposal of hazardous waste; three involved falsification of records.

Apple audits found 55 facilities that did not have “dedicated personnel accountable for compliance with all categories of Apple’s Code,” and it has required formal training programs for both workers and managers.

The company said it will “continue to terminate business when suppliers have repeat core violations or their practices suggest that they do not take our Code seriously.”