Faster Longer Cheaper

European Retail Digest

Political Issues Faster, Longer, Cheaper: The nexus between poor labour standards and supply-chain management in the apparel industry By Sumi Dhanarajan, Policy Adviser, Oxfam, UK The clothing industry is big business. In a highly competitive market however, the race is intense amongst companies to deliver products at low prices that also meet consumer demands on quality and choice, and at the same time maximise returns to shareholders. As the interest in clothing retail grows from value or ‘discount’ retailers – who now have, for example, over a quarter of the market in the UK – so does a strategy of slashing retail prices, shortening lead time and keeping fashion lines fresh through regular changes become the principal driver in this industry.

In the last decade or so, high street retailers, supermarkets and fashion brands have one by one subscribed to policies of ‘ethical trading’ or ‘corporate social responsibility’. Responding to sweatshop campaigns, many have adopted codes of conduct that police suppliers’ adherence to labour standards. Implementation is through audits of workplaces either conducted in-house or through third-party inspectors. Yet, despite all good intentions, real improvements in working conditions have been limited. Over the last year, Oxfam with partners in 15 countries conducted extensive research in order to understand why this is the case. We revealed that current sourcing strategies designed to meet ‘just-in-time’ delivery combined with lowering of unit costs are significantly contributing to suppliers adopting exploitative employment practices. Whereas companies have been putting resources into ‘firefighting’ the problem of sweatshop labour by whipping suppliers’ into line with codes of conduct, not one was addressing their own actions as a key cause of the problem.

Short Lead Time, Long Working Hours And what for the workers who cut, sew, assemble and pack the t-shirts, blouses, trousers and jackets? Positioned at the end of these long and complex global supply-chains, they bear the ultimate burden of the immense pressure upon their employers to deliver ever-faster and evercheaper. A young Moroccan woman working in a garment factory supplying Spain’s leading department store, El Corte Ingles laments, “They pay as little as they can get away with. There is no work law here – the only thing that matters is that we work a lot in a short space of time. There are no rights”.

“Last year deadlines were about 60 days…[this year] the deadlines for delivery are about 60 days; sometimes even 45…” reported a Sri Lankan supplier to a major sportsbrand. Shorter lead-times and unpredictable order sizes and frequencies mean excessive working hours and forced overtime, often at very little notice. Workers from a Chinese factory producing for a UK sportsbrand alleged that they worked a total of 120 hours of overtime in a month – three times in excess of Chinese labour legislation. One worker complained: “We have endless overtime in peak season and we sit working non-stop for 13 to 14 hours a day. We sew and sew without stopping

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Issue 43 | European Political Issues

until our arms feel sore and stiff.” At a Bulgarian factory supplying a European sportswear company, workers reported that refusal to do overtime was used as a pretext for dismissal. The ‘fast-fashion’ phenomenon led by companies such as Zara and H&M that can take designs off the catwalk and into high street stores at incredible speed – Zara can put together a range in between 7 – 30 days – risks exacerbating the problem unless managed responsibly.

Low Prices, Low Wages Falling unit costs are also taking their toll. A Sri Lankan supplier to Nike interviewed in October 2003 estimated that while production costs had increased by approximately 20 percent in the last five years, unit prices paid by Nike had dropped by 35 percent in the previous 18 months. He said, “I feel that prices are reaching rock-bottom now in Sri Lanka and I am not sure how we will survive.”. At a Chinese factory, the owner reported unit prices for Umbro shoes were falling year on year. Workers from his factory interviewed in November 2003 complained that their wages had also fallen over the last three years. Whilst they used to be paid at least the minimum wage during the low season, that protection has since been removed. During a low season last year, workers in the sole department reported being paid between a mere RMB 200 and RMB 400 (¢20 – 40) per month.

Greater Flexibility? Pay by Piece and Employ Casually The current industry norm is to pay workers by piece rather than by time-rates. This allows the factory manager to define the quantity that he/she wants to worker to produce according to the orders put in by the retailer. Where suppliers are given too little time to turn around the order, production targets become excessive. If targets are not achieved during the normal working day – which they usually are not – then workers are expected to work overtime on their own account and are not paid unless they complete the target set. In low season, piece-rates mean that the factory manager can reduce labour costs. Piecerates also allow for the supplier to adjust to drops in unit costs by reducing the amount paid per

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piece. Workers at an Indonesian factory supplying six sportswear brands told researchers: “In the garment division, the usual target is a thousand pieces per lane, per day. But during export days, the target doubles to two thousand pieces. This doubling is very stressful for us and we often cannot reach it. When we don’t, we get yelled at by the management and sometimes we get warning letters.” There is also a growing trend within the garment industry of hiring workers on a short-term ‘rolling’ basis - often with no written contract – even though the jobs are long-term. With this ‘casualisation’, employers can ‘concertina’ their workforce in response to demands for flexibility from retailers. They are also able to circumvent any labour protection offered including the need to pay benefits such as maternity leave, social security and severance pay. Critically, employers also seek to prevent workers from organising so that they do not challenge bad working conditions. Garment workers in a Turkish factory supplying several major European sportswear retailers said, “Last year while the workers of the next factory were striking, our supervisor said to us “You will see – all of them will lose their jobs. You never make this mistake. Otherwise you also face the same consequence.”

Business-as-usual is not Ethical Research has led Oxfam to conclude that ethical trading – despite the rhetoric – is still very much at the periphery of apparel companies’ core business operations. And suppliers know this. One Chinese garment manufacturer told our researchers: “I know how to deal with the ethical code people. I can judge the balance of power between the buying departments and those responsible for the codes of conduct to see where the real power lies.” Oxfam’s research revealed that at five Chinese sportswear factories, managers had faked compliance with the retailers’ code of conduct during audits either by doctoring the books or forcing workers to lie during interviews. Further, ethical trading staff themselves admit that in circumstances where order have to be

European Retail Digest

Figure 1 | The Supplier’s Dilemma

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Issue 43 | European Political Issues

delivered on time, they accept that the management will have to derogate from certain code provisions. As the Multifibre Arrangement (MFA) comes to an end this year, the concerns highlighted will intensify. One fear is that suppliers in countries that can no longer rely on quotas as their comparative advantage will be forced into having to meet even lower unit prices or offer greater flexibility as retailers threaten to relocate to lowercost locations.

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Make the Change We suggest that the following policy and practice changes by retailers could deliver the integration of ethical and buying functions necessary to ensure labour standards are met in their supplychains: - Develop an ethical purchasing policy that ensures sourcing strategies and purchasing practices do not cause breaches in international labour standards; - Mandate ethical trading staff to oversee the labour standards impact of purchasing practices; - Train sourcing staff on their responsibilities to

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meet the company’s code of conduct on labour standards; Ensure staff incentives and performance assessments are structured to reward rather than undermine ethical purchasing; Include compliance with labour standards in supplier selection and assessment; Set adequate delivery lead-times that are determined with suppliers, taking into account their ability to fulfil production without breaching labour standards; Improve critical path management to prevent inefficiencies at the retailer’s end imposing upon production at the supplier’s end; Negotiate a price that is compatible with the supplier meeting labour standards; & Give suppliers the opportunity to provide feedback on the pressures they face through purchasing practices without this jeopardising their custom.

The global garment industry generates trade of more than ¢280 billion a year. It is high time that the 40 billion people employed within it reap the benefits of this thereby truly being given a chance to work their way out of poverty.

In February this year Oxfam International published Trading Away Our Rights: Women working in global supply chains. The report forms the basis of 20 national campaigns seeking to secure improvements in workers’ rights protection in the fresh produce and garment sectors. See Oxfam International (2004) Trading Away Our Rights: Women working in global supply chains: Oxfam GB [available at http://www.maketradefair.com] In March this year, Oxfam, Global Unions and the Clean Clothes Campaign launched the Play Fair at the Olympics Campaign to place pressure on the sportswear industry to ensure its business practices do not undermine workers rights. The campaign also called upon the International Olympics Committee to adhere to the tenets of Olympism by including labour standards clauses in its marketing, sponsorship and licensing agreements. See Oxfam, Global Unions and Clean Clothes Campaign (2004) Play Fair at the Olympics: Respect Workers Rights in the Sportswear Industry: Oxfam GB [available at http://www.fairolympics.org]

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