Theme 3 CSR & International Management

CASE STUDY Fast-Fashion and the Ethics of Low-Cost Labor

https://www.youtube.com/watch?v=QRDevzj1ZE4

Who wants to wait six months for runway looks to hit the stores? In today’s fast-fashion world,
six months is an eternity. Nearly extinct is the tradition of three luxurious fashion seasons per
year (fall, spring, resort). Those seasons have been replaced by rock-bottom prices on 30 to
50 trend-driven cycles—per year. Consumers in the United States and Europe have embraced
the entire fast-fashion approach—inexpensive apparel and high turnover of designs. In fact,
their shopping behaviors have allowed companies like H&M and Zara to grow into
international retailing behemoths.

The speed of fast-fashion goes beyond the production cycle. Europe’s fast-fashion
chains have grown faster than the retail fashion industry as a whole, partly because the
combination of low cost, fresh designs, and quick turnover is extremely successful in fueling
consumer demand. Fast-fashion companies also boast higher margins that those reported by
their traditional counterparts—an average 16% compared to an average of 7%. Undeniably,
the application of planned obsolescence to fashion has been financially successful.

The fast-fashion approach is not without controversy, however, particularly when it

comes to outsourcing production. Companies like Benetton, Walmart, and Disney place huge
orders with offshore vendors who often cannot deliver the entire order without enlisting the
help of additional subcontractors. Unauthorized subcontracting is the end result, and brands
don’t always know who is producing their products or where. Phil Robertson, deputy director
of Human Rights Watch’s Asia division, affirms this, saying, “I’ve talked to Thai workers who
are three or four levels down from the original orders. If the brands don’t know, they should
know. A lot of them are turning a blind eye to outsourcing.”

One country that has grown from outsourcing in the garment industry is Bangladesh.
With labor rates averaging $40 per month, Bangladeshi garment workers are the cheapest
around. (Compare that to approximately $120 per month on average for garment workers in
China.) Those low labor costs have caused explosive growth in the size and scope of the
country’s garment industry. In 2005, the country exported $6.9 billion worth of clothing. By
2011, that figure had risen to $19.9 billion, making the Bangladesh the world’s third largest
exporter of clothing, behind China and Italy.

Makeshift garment factories have popped up all over Bangladesh. It now has roughly
4,500 garment factories, and disasters have ensued from the rapid growth. In November 2012,
the fire at the Tazreen Fashion factory resulted in 112 deaths. In the subsequent five months,
over 40 other fire-related accidents occurred in Bangladesh, and in April 2013, Rana Plaza, a
building housing numerous garment factories, collapsed killing over 1,000 people.

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 Bangladesh isn’t the only country where concerns about subcontracting are growing.
Vietnam, Indonesia, Thailand, and Cambodia also regularly face issues with multilayer
outsourcing, and each of them could be next in line to wear the lowest-labor-cost title.
Subcontracting to vendors to produce garments at lower costs can be beneficial to companies
in the following ways:

• Having access to a network of subcontracts provides companies with the flexibility they
need to produce last-minute orders. In the same vein, relying on subcontractors allows
companies to adapt their production schedules depending on consumer demand and
keep fixed costs lower than if they built their own production infrastructures.
• Regularly moving manufacturing work to low-cost labor centers keeps labor costs low
and allows companies to compete more ardently against each other.
• Garment work is often the only industry that poorer nations can attract as they
develop into more robust economies. Threatening to revoke trade agreements or exit
countries risks putting workers desperate for income out of work. One government
official said off the record, “If they are really trying to help garment workers in
Bangladesh, this is not really the way. These are people who need the work…What use
is compassion if it takes away the livelihood of thousands of workers?”
• Using a network of subcontractors insulates brands from direct contact with unsavory
work environments with unsafe working conditions.
• Using low-cost labor has created value for the consumer who benefits from lower
prices in the store. Fewer household resources need to be spent on the same basket
of apparel goods as a decade ago.
Despite the benefits, subcontracting to low-cost providers with unsafe working conditions has
generated much controversy, not only in fast-fashion, but in the broader apparel and footwear
industry as well:

• The European Union is considering revoking a favored trading status it had awarded to
Bangladesh as a result of the series of workplace disasters that happened in that
country in 2012 and 2013. The EU is Bangladesh’s larges trading partner. Women’s
Wear Daily reported that EU trade commissioner Karel De Gucht told Belgian media,
“The government of Bangladesh must change something. Otherwise, I am ready to
launch an investigation, which may lead to the suspension of Bangladesh’s trade status
with the EU.”
• According to an analysis by the Workers Rights Consortium, it would take roughly $3
billion and five years to upgrade Bangladesh’s garment factories to Western standards.
However, because the relationships are based on short-term contracts, WRC director
Scott Nova told The Atlantic, “Long-term commitments they don’t want to make.”
• Bangladeshi suppliers say Western companies put heavy pressure on prices, resulting
in bad pay and unsafe conditions for workers. In fact, demands for ultralow prices and
ultrafast turnaround times put extreme pressure on garment manufacturers
throughout the developing world. Auret van Heerden, CEO of the Fair Labor
Association, argues, “The manufacturing industry is running out of low-cost sourcing
destinations, and it’s time to invest in making factories safer and better, rather than
searching for cheaper labor.”

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 • Hopscotching throughout the developing world looking for the lowest labor costs
ultimately threatens brands’ reputations. Even Helena Helmersson, head of
sustainability for H&M, seems to agree. She told The Observer, “Remember that H&M
does not own any factories itself. We are to some extent dependent on the suppliers—
it is impossible to be in full control.”
• Sourcing practices have exposed sharp contrasts between fast-fashion and luxury
designers and exposed hypocrisy among critics. Italian designer Miuccia Prada, who
also holds a PhD in political science, told Women’s Wear Daily, “People who are
intellectual leftists, they say I am expensive and horrible, ‘How can you sell clothes at
that price?’ Simply, it’s the cost. If you pay people to do everything with the right
system, things are expensive. And the same people who criticize the dangerous
production environments, when it comes to cost, they like the inexpensive pieces
because they think it’s more democratic.”

So, who is ethically responsible?

Questions

1. Do you agree with the EU’s threat to use trade agreements as a weapon in the fight
against low-cost subcontracting? If governments were to regulate the number of
subcontractors that can be involved in the production of a product, do you believe
businesses that outsource their work would be more prone to respond ethically to
catastrophes and to working conditions in general?
2. If a brand explicitly forbids a vendor from subcontracting, but the vendor subcontracts
anyway, which company bears the responsibility for any tragedy that ensues? In other
words, who is ethically responsible for events like Tazreen Fashion factory fire and the
New Wave Style building collapse, both in Bangladesh?
3. What level of ethical responsibility does the end consumer of fast-fashion apparel bear
for those tragedies?