Gap Inc hopes its presence in Myanmar will help develop responsible sourcing practices in the countrys garment industry

Gap Inc hopes its presence in Myanmar will help develop responsible sourcing practices in the country's garment industry

US retail giant Gap Inc has made no secret of the fact that it faced - and continues to face - a number of compliance issues linked to its decision to start sourcing garments from Myanmar/Burma. And the extent of these challenges has now been revealed.

Gap announced in June that it had become the first major US retailer to source garments from Myanmar since economic sanctions were suspended in 2012 - and immediately faced criticism from labour rights activists over concerns about poor pay, conditions and worker rights in the country's clothing factories.

The San Francisco-based firm has now released details of the "rigorous due diligence process" it underwent before sourcing began, and the ongoing legal, labour and human rights issues it is now actively monitoring.  

The findings have been voluntarily submitted in a report titled "Responsible Sourcing in Myanmar," and they make sobering reading for other Western brands and retailers thinking of doing business in the country.

Gap is currently sourcing finished outerwear, including jackets and vests, for its Old Navy and Banana Republic Factory brands from two South Korean-owned factories in Yangon.

But before it could make this move, it engaged with US government officials, industry and union representatives as well as international and local NGOs. It also hired independent monitoring organisation Verité to carry out more detailed assessments of the two factories before they were approved for production.

The initial assessments were carried out in November 2013, with a follow-up audit in January 2014 at each facility before the factories began cutting fabric. Two more audits were conducted in March and June, and additional checks are scheduled for September and December this year.

This process identified a catalogue of compliance issues around working conditions, health and safety, the report says, including a lack of worker training on handling cleaning chemicals, exposed electrical outlets and wires, missing warning information, and ventilation or air circulation issues.

While no evidence of child labour was found, both factories had employed under-age workers in the past. "At one factory, several workers stated they were 19 years of age but had worked at the facility for 3-5 years," Gap said, adding that it also encountered inconsistent policies on the minimum hiring age, a lack of proof of age verification, and signs that some age verification documents had been tampered with.

Verité also found that working hours regularly exceeded the permitted limit of 60 total hours (including overtime), and "workers did not take one day off in seven days," the report said. 

Not only did workers not understand how to calculate their wages, but factories did not consistently pay required premiums for overtime hours. And in terms of annual earned and paid leave, the factories either had no policy on this, or ones that conflicted with Myanmar law.

The audit teams also found that both factories did not have disciplinary policies, leading to inconsistent disciplinary practices and punitive fines. "Workers reported cases of verbal abuse and inappropriate behaviour by supervisors," while line supervisors at one factory had taken unofficial disciplinary action or collected fines from workers without a clear basis for action.

Gap said the factories have since been helped to develop corrective action plans with regular training programmes and follow-up meetings.

But the retailer found it "takes time for workers and management to understand and retain information and make adjustments to customary practices and behaviour."

It also cautions that: "Due to Myanmar's isolation and lack of exposure to international practices, [local managers and supervisors] have limited experience with adopting new business methods or complying with current international standards." 

Building and fire safety
When it comes to building and fire safety, the provisional Myanmar National Building Code (MNBC) issued in September 2013 has yet to be implemented.

On top of this, Gap also believes "the country's limited rule of law and under-developed regulatory regime...and factories' lack of experience with fire safety and emergency preparedness, create potential human rights and business risks."

That said, its building and fire safety checks "identified areas for improvement but did not find any imminent threats to worker safety related to either factory's structural integrity."

The company points to an important distinction between the apparel industries in Myanmar and Bangladesh. Whereas many garment factories in Bangladesh are located in multi-story buildings, apparel factories in Yangon are typically one- and two-story buildings with mezzanines. Fire risk to workers' lives is generally much greater in taller buildings where it is more difficult to quickly exit the building from higher floors.

Other potential problems
In addition to labour rights and worker safety issues, Gap highlights a number of other potential problems to doing business in Myanmar, including environmental policies and procedures, land disputes and corruption.

Future plans include using the Sustainable Apparel Coalition's (SAC) Higg Index v2.0 to evaluate factory environmental performance in areas such as energy consumption and greenhouse gas emissions, water, air quality, waste and chemicals.

"Going forward, our local team also plans to conduct further research on the current and anticipated regulatory environment for environmental issues in Myanmar," the retailer says, noting limited existing regulations and documentation.

It is also taking the prevalence of land confiscations in Myanmar into account, and the difficulties in confirming the legitimacy of land ownership. Many of the land disputes in Myanmar occurred in the early 1990s or since 2010, and the company stresses the need for factory management to conduct thorough due diligence before acquiring any additional land.

And of course there is "the corruption risk associated with doing business in Myanmar," with additional steps on top of the company's existing Anti-Corruption Policy seeing senior representatives from the sourcing and Global Integrity (GI) teams meeting with factory management to discuss the issue.

Gap Inc initially expects its sourcing activities in Myanmar to create more than 700 new jobs to fulfill its apparel orders and aid in the employment of more than 4,000 workers. The company also believes its presence will help develop responsible sourcing practices in the country's garment industry.

The easing of sanctions against Myanmar in late 2012 saw an increase in exports to around $1.2bn in 2013, a 33% increase from the year before. The Myanmar Garment Manufacturers Association (MGMA) is hoping apparel exports will continue to rise and reach $2bn by 2016.

For further insight into Gap's move into Myanmar and the country's potential as a garment sourcing hub, click on the following link: SOURCING: Gap's Myanmar move highlights country's potential.