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AAFA Conference: Socially Responsible Manufacturing

Social responsibility is now at the center of every discussion about the future of the apparel industry and so it’s no surprise it figured prominently at a major conference recently hosted by the The American Apparel & Footwear Association.

The event, entitled “2014 International Sourcing, Customs & Logistics Integration Conference,” spanned from April 7-9.  One of the most timely panels, entitled “Socially Responsible Manufacturing:What We’ve Learned and What’s Next,” assessed the evolution of the apparel industry in the aftermath of the Rana Plaza tragedy. The discussants focused on a broad spectrum of issues including supply chain transparency, product safety, labor conditions, wages and the costs of compliance.

Nate Herman, Vice President of International Trade at the AAFA moderated the exchange. The panel included Rick Darling, Executive Director, Government and Public Affairs, Li and Fung Trading; Nancy Donaldson, Director, Washington Office, International Labor Organization (ILO); and Avedis Seferian, President and CEO, Worldwide Responsible Accredited Production (WRAP).

Herman initiated the discussion by observing that the mad rush of business and investment into Burma after its markets opened is an indication of a longing for alternatives to politically perilous climates like Bangladesh and Cambodia. Of course, he noted, Burma is marred by its own questionable history of compliance and may very well pose its own set of risks. For example, how much power does he military junta still wield? Is there still a preponderance of forced labor? As the country continues to modernize, will legislation that protects the right to associate and collectively bargain evolve with it?

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The conversation then immediately turned to Bangladesh. Despite some undeniable missteps, Darling said he was impressed with the remarkable progress Bangladesh has made in the last year, pointing out that the level of  cooperation between all the stakeholders–government officials, unions, factory owners and retailers–is something he has never seen before in thirty years of experience in the industry. Moreover, Darling said it was remarkable that retailers and brand dug in their heels and stayed in Bangladesh rather than simply decamp for a less tempestuous destination.

Seferian was then asked by Herman to speak to the differences between the two inspections groups that independently formed in Bangladesh to carry out factory inspections. After the Rana Plaza tragedy last April, two consortia of retailers who outsource apparel production to factories in Bangladesh were separately created to supervise desperately needed reforms and finance costly factory improvements. The E.U.-led Accord on Fire and Building Safety in Bangladesh (AFBSB) plans to inspect the approximately 1,000 factories that directly supply them with garments. There is also the U.S.-brokered Alliance for Bangladesh Worker Safety (ABWS) which covers another 700.These two groups have largely operated independently of one another, often acrimoniously volleying criticisms back and forth.

Surprisingly, Seferian contended that the similarities between the two organizations outweighed the points of contradiction. In fact, he referenced a recent study issued by the Stern School of Business at New York University that found the two organizations are remarkably well-aligned in their basic intentions. Of course, they do have some fundamental structural distinctions: the AFBSB is a legally binding agreement that specifically includes unions as participating members. The ABWS is premised on a strategic decision to not make any of its stipulations legally obligatory and made room for trade associations but not unions. The ABWS has approached the improvement of compliance from a commercial perspective, looking to make business incentives a key driver of eventual reform.

At this point in the discussion, Herman took the opportunity to announce that both Seferian and Darling were just appointed to the Board of Advisors for the ABWS.

Donaldson shared her unique perspective as one of the leaders of a major nongovernmental organization. The ILO is a sprawling group, comprising more than 185 members. The U.S. is the largest of those members. She said that the mission of the ILO is to catalyze sustainable change that combines the economic demands of business with the moral demands of compliance, ensuring both profitability and safety. The ILO approaches the issue of compliance from the purview of a tripartite focus: government, business and labor.

Donaldson discussed the steady march of social compliance, and the gathering awareness of the issue that underwrites it, as historically unique. Never before has the industry been better positioned to affect such transformational reform in a lasting, sustainable way. The job of the ILO, she said, is to continue to recruit enthusiastic social partners and build on the success already captured.

Darling pointed out the principal problem with Bangladesh from the perspective of factory safety was never one of a dearth of adequate legislation but of effective enforcement. The country, he argued, has has excellent building codes for years that were unfortunately neglected. Also, Darling warned that the current situation–one where inspections reform is driven by the nongovernmental organizations and foreign business–is not sustainable in perpetuity. Eventually, the Bangladesh government must take lead of the process and commandeer its own destiny.

Seferian emphasized that sustainable reform could only occur once the goals of social compliance became tethered to concrete business incentives. Public policy is important, of course, but insufficient on its own; compliance must eventually be cast as an indispensable condition of profitability. Darling agreed, and maintained that factories and retailers will ultimately succeed or fail, at least in part, because of their records of social compliance. Ultimately, business will re rewarded, or punished, for how dutifully they respect human rights and safety. All of this will become an even bigger issue, according to Darling, as manufacturing shifts out of China into places like Vietnam, Cambodia and Indonesia–countries at the bottom of the compliance scale.

Ivan Kenneally, Editor-in Chief of the Sourcing Journal, asked a question: “There seem to be two parallel currents in the apparel industry that exist in an uneasy tension with each other. One is newfound emphasis on social compliance. The other is the rise of the off-price market and all the margin compression that necessarily ensues. Will real reform require prices to finally rise? And if so, does this mean the consumer needs to be prepared to pay more to cover the costs of compliance?”

Darling answered that a comprehensive strategy for compliance cannot simply rely upon the consumer since they wield the ultimate power in dictating price. In other words, retailers and brands must take their bearings from consumer demand, not the other way around. The quest for compliance reform is a demand driven rather than supply driven enterprise. Donaldson, though, said that the latest research supports the view that the consumer is progressively prioritizing compliance in relation to cost more and more, expecting that retailers will find ways not to exploit foreign workers. Also, there is an enormous pool of socially responsible investment dollars, as much as a trillion worldwide, that retailers want to take advantage of.