Is CSR a Modern Brand Building Mechanism?
Do Apparel Retail Brand Pricing Policies Create Unethical Manufacturing Practices?
25 years after CSR “Corporate Social Responsibility” in the apparel and textile industry started standing for something, has there been any real change, or is it a terminology that some brands use to communicate their corporate and ethical responsibility to consumers? Is it just brand and marketing propaganda?
Why do we Police CSR Policy?
The idea of employing a socially responsible work force in the manufacture of apparel is noble. But what changed from 25 years ago making CSR policing necessary?
Apparel manufacturing, when it was in our own backyard was never noble. There were sizable well managed facilities, but their was sewing been performed by illegal or newly arrived immigrants in small to medium sweat shops and homeworkers. For many of the workers this was their primary source of income, off book and under minimum wage. However the worker could work an infinite number of hours, which presented the chance of a new beginning for their family.
Like today, this was driven by brand pricing to achieve corporate profitability, competitive placement and consumer sales.
Retailers and brands, needing to remain competitive in a shrinking global environment remained focused on pricing to ensure consumers kept coming through their doors. Thus it spelt the end of backyard manufacturing and the start of global outsourcing where production was no longer visual and the supply chain was at arm’s length.
Competitive pricing was paramount, and offshore manufactures were hungry to meet the need of brands willing to take whatever steps necessary to win business.
Local Production to Global Sourcing
Social responsibility challenges within offshore manufacturing were highlighted and exacerbated by the media drawing attention to child labour, unsafe and inadequate conditions, confinement with no choice to work overtime for prolonged periods of time with no benefits. Brands heightened policies of mandatory compliance auditing and implementing corrective action planning to show consumers that corporations care.
Brands Engage CSR initiatives such as BSCI, ETI & WRAP to show they are Ethical Organisations
ETI – Ethical Trading Initiative https://www.ethicaltrade.org
BSCI – Business Social Compliance Initiative – http://www.amfori.org/content/amfori-bsci
WRAP – Worldwide Responsibe Accredited Production – http://www.wrapcompliance.org
Global Factories use Deception to Achieve CSR and Margin Objectives
To maintain expected pricing levels and margins, manufacturers resorted to different tactics to grasp their share of the market. These tactics, which still exist today, include bribing auditors, running compliant and non-compliant HR & payroll records and subcontracting to smaller factories for labour intensive production.
Today there is a definite change and improvement. But, at a grass root level the same situation exists as it did 25 years ago, brands and factory owners still strive to increase profits.
Brands are under pressure to drive margin growth and business turnover from investors.
Apparel Manufactures are under pressure to reduce cost and deliver brand quality from buyers.
To achieve margin, fabric can be manipulated to reduced cost. Labour on the other hand can be reduced through unpaid overtime or subcontracting, not easily transparent if there is no policing at the manufacturing facility. Workers rights maybe violated.
CSR doesn’t always meet the needs of the Worker
Another challenge is for apparel factories to meet the needs of the workers, this at times may be a contradiction to social responsibility policy as follows;
- Workers are generally non-local, migrant and live in a dormitory, they want to maximise the number of hours worked to increase their salaries, if factories don’t deliver enough working hours, workers will go to another factory that can offer their expected overtime. Limiting working hours in itself creates problems for factory efficiency.
- Workers sign non-compliant labour contracts based on minimum wage as they want to maximise their take home salaries. They do not believe the benefits offered by the government will be seen or are transferable once they relocate to their home town.
Social compliance protects the workers, but it can restrict workers in getting what they see as been important and puts the factory at risk of not meeting supply chain objectives across price, capacity and delivery.
The conundrum created between social compliance and sourcing initiatives intensifies the risk of the factory doing something non-compliant.
Example; sourcing asks the factory to cut prices by 10%, while CSR asks for a 20% wage rise. For suppliers paying legal minimum wage and legal overtime, payroll would increase labour costs by 10-20%. However, despite this reality, little science goes into price-setting by brands and retailers. Functional alignment of brand policies need to be part of due diligence before real gains are made.
It takes a Catastrophe to make Change
After the events of the 2013 Rana Plaza, Bangladesh incident, where 1130 lives were tragically lost. CSR compliance was heightened throughout the immediate and downstream supplier community. It didn’t however solve the problem at hand, it just increased policing of the factories which ultimately protects the brand.
On 8 February 2017, the OECD launched a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to todays need.
The guidance encourages the Apparel, Textile and Footwear industry to think differently and to react differently in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand WHY they are occurring.
Moving CSR from Policing to Preventative Improvement
The policy presents a preventative tone rather than purely regulatory, which is a step in the right direction. Major brands are reducing their stance on auditing and moving their resources to improving partnerships with manufacturers and workers.
Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own supply chain and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts and illegal subcontracting.
For brands to be ethical, CSR policy must be extended across the full supply chain. CSR must be part of the TCO “Total Cost of Ownership” strategy to achieve brand and business objectives, not just a corporate statement.
The modern supply chain sees the importance of building sustainable supplier engagement, social accountability and achieving cost objectives through strong partnerships across brand, manufacturer and workers which must be aligned to business goals.
To achieve true social responsibility all parties, government, brand, manufacturer and workers, need to be transparent and work together on achieving mutual objectives, be it ethical or margin.
Education and transparent partnerships will build and deliver expected results.
Like to know more, contact PHIL BAILEY – APPAREL & TEXTILE GLOBAL SOURCING OPERATIONS LEADER
A Global Sourcing, Procurement & Supply Chain Leader with 28 years proven skill transforming complex Retail, Wholesale, Catalogue and Ecommerce sourcing, supply chains and operations for global Apparel, Textile and Consumer Products businesses that source from low cost production regions and distribute to global markets.
Selected text in this document is derived from; A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry. http://oecdinsights.org/2017/01/31/fashion-industry-oecd-due-diligence-instrument/
The full OECD guidance can be downloaded from this web page; http://mneguidelines.oecd.org/responsible-supply-chains-textile-garment-sector.htm