COMMENT: Sustainability raises the bar on apparel sourcing
From credit problems at CIT, to falling pay and rising opposition to the political situation in Honduras, textile and apparel suppliers last month faced up to a number of significant sourcing issues. But perhaps most momentous of all was the unlikely positioning of Walmart and the Chinese government as environmentalists' great hopes, writes Mike Flanagan.
In Britain, newspapers call this time of the year the 'Silly Season.' It's when there's not much happening because everyone's away on holiday, so the media fix on any silly story to fill the space between the ads.
So is it the recession stopping everyone from going away? Or the fact that it's been the coldest July in Chicago, and close to the wettest July in London, for years?
Whatever the explanation, it's hard to remember a time when so many really significant things were going on in the world of sourcing.
We may think the US supply network escaped a bloodbath when CIT and Kellwood found re-financing so close to the wire. But CIT got refinanced at a staggering cost - and was forecasting losing $1.5bn in the second quarter anyway. So it's by no means out of the woods yet.
To add to the gloom, some people are trying to explain why Deutsche Bank refused to refinance Kellwood, then changed its mind. One explanation is that Deutsche had a raft of deals covering its bets if Kellwood did fail - and stood to make money if that happened.
Though Kellwood's now safe, the episode should remind vendors that there's always a risk any debt-laden retailer or vendor will be the victim of a lender who actually stands to make more from a bankruptcy than keeping a business going.
With CIT still not totally out of the woods, credit management is going to be THE crucial management skill for most garment makers for at least the next year. And that's going to make them very cautious about all sorts of things.
But oddly, they're not always cautious about investing money. During July we saw growing capital investment from China, through Indonesia, to India.
Even in the Philippines, textile mills and garment makers were talking of serious investments if the US Congress Bill to give duty-free status to clothes made in the Philippines from US fabric goes through.
But increasingly the focus is on investment to cut costs - often by using fewer people - rather than to increase capacity.
We've also seen workers' take-home pay falling. Not necessarily pay per hour - but the number of hours worked.
In Cambodia for example, a survey published in July showed average hours worked in garment factories down 18% on 2008, though pay per hour has stayed flat.
Throughout the developing world, workers' agitation is increasingly about really awful conditions or overdue wages - rarely strikes for higher pay.
Rising opposition to Honduras
So it's no surprise that union attempts have been so ineffective at mobilising opposition to the right-wing coup in Honduras that overthrew the populist president Zelaya.
And unions have certainly been trying. Foreign federations of trade unions have called for Honduran ships to be boycotted, for the EU to halt the duty free concessions it gives Honduran clothes, for US companies buying clothes from Honduras to stop buying, and for the United Nations to impose who-knows-what penalties.
Though lots of foreign governments have expressed their displeasure at the Honduras coup, none of the various union demands seems to have been heeded by anyone.
Trade seems to go on almost unaffected - not least because there's very little evidence Honduran garment workers want their jobs put at risk by the sanctions so happily being demanded by foreigners with nothing to lose from grandiose complaints.
There's no great evidence Honduran workers are in favour of the coup either. (They've been turning out for pro-coup demonstrations, but there are allegations they've been forced to do so by their companies, and also very nasty allegations that the new regime has been behind the killing of some union activists).
But the lack of support from Honduran workers for bans on the clothes they make - which is what foreigners are demanding in their names - does rather throw into doubt the claims by international union federations that they really represent the views of their members.
Buying power in a tough market
If workers have limited power in a tough market, buyers have a great deal more.
A group of US apparel majors have written an anti-coup letter to US President Obama - the first time in US history that US businesses have collectively and publicly attacked a right-wing coup in Central America.
Until now, it's always been assumed US capitalism has been the secret hand behind every overthrow of a populist regime south of the border. But it's now clear some of America's biggest businesses are against the new Honduran government.
It's no accident that the letter-writers to Obama include Gap - but also Nike, Adidas and Knights Apparel, who depend heavily on the sports and collegiate markets.
The only activist campaign concerning Honduras that has had much effect recently is the boycott of Russell Brands by more than 80 US colleges over its running of Honduran factories.
No doubt Gap, Nike, Adidas and Knights want to see democracy in Honduras - but they also want their customers' approval. Businesses' self-interest may well be doing more for Honduran workers than union "demands."
And it's enlightened self-interest that's also behind July's really big story: the near-simultaneous announcements by the world's two largest apparel organisations of ambitious programmes for sustainability reporting.
The world's largest apparel retailer, Walmart, launched its Sustainability Index at almost exactly the same time the world's largest garment manufacturer body, the China National Textile and Apparel Council (CNTAC), announced 100 businesses would release reports on sustainability (and other compliance issues) following its new CSR-GATE reporting guidelines by the end of 2011.
The intention, of course, is that eventually almost all Chinese textile and garment companies will follow. CNTAC isn't quite your usual trade association: unlike analogous organisations, it's there to do what the government tells it, rather than tell the government what to do.
Both Walmart and CNTAC are ultimately committed to getting garment manufacturers to understand the impact of what they're making on society and the environment, and to publish that information.
Both are years away from achieving it, neither is very clear about what exactly manufacturers will be reporting in five years or so - but both have a degree of clout few federations or unions can command.
Both are also relatively impervious to criticism: whatever they do, cynics assume the worst motives, and they're both used to dealing with that.
Most astonishingly, though, both combine religious fervour about sustainability with a deep belief sustainability is their self-interest.
CNTAC realises China can't go on increasing its pollution, or expecting workers to accept unpleasant working conditions.
And Walmart realises environmental problems can't be solved without businesses actively cooperating - and that it's in a unique position to influence its 100,000 suppliers because it's got no vested interest in unsustainability.
Not being stuck with decades' worth of polluting equipment, Walmart doesn't need to defend unsustainable practices - but it knows how easily it could be damaged by being seen as the dinosaur on this issue.
Both are able to obtain formidable amounts of expertise at relatively little cost. Neither are financially near the edge, worried as so many Chinese factories and Walmart suppliers are that in today's financial climate any investment in new ideas might ruin them.
They make an unlikely pair, and they're coming at the problem from different positions.
But with a recession increasing the risk of more indebted Western brands or retailers going under, and making unions increasingly ineffectual, pressure on businesses will increasingly come from big buyers or even bigger governments.
There's no buyer bigger than Walmart; no government bigger than China's.
Anyone wanting to see change in how we make and ship garments is going to have to work a great deal more with Walmart and the Chinese government, and their smaller peers - and spend a great deal less time on grand gestures.
Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries. The new suite of Clothesource Guides help buyers find the best value - and give emerging-market lobbyists hard data on what their competitors offer.
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