Hbr Cases Csr Outsourcing in Tangers 2 P
CASE STUDY : Multinational Outsourcing and CSR. Inditex: The worldwide outsourcing garment industry and social community development in Morocco “Intermon claims that pressures on foreign clothing suppliers are smothering employees. […] In Morocco, where Cortefiel, Inditex (Zara), Mango and Induyco (El Corte Ingles) manufacture their products, a Tangier based textile factory sold a pair of slacks to large Spanish retailers for 3. 3 euros three years ago; today, the same item sells for 2 euros.
Female factory workers work 12 to 16 hours a day during the high season, because orders from Spain demand six ? ay delivery terms in order to suit shop window change schedules. ” (El Pais Newspaper, “Mujeres en Aprietos”, 10 ? 02 ? 2004) towards process outsourcing that responded to its characteristic labor ? intensive production and current competitive pressures for cost reduction and flexibility. Sector companies had been forced to redesign their business strategies, focusing on performance measurement, new competence and skill development, product quality improvements and more strategically oriented human resources management.
Yet, this new strategic focus entailed unprecedented risks, especially as regards labor practices, environmental care and unfair competition. As multinational companies embarked on this process, multilateral agencies and global NGOs had begun to look into and report on wrongful practices by large corporations, significantly calling the attention of increasingly sensitive and aware consumers and customers. Global society was urging apparel industry players to adopt a more responsible attitude to be embraced by their entire business value chain, including vendors and outsourced suppliers.
Thus, Inditex was held responsible for what went on at outsourcing shop s owned by Moroccan, Peruvian, Chinese or Indian businessmen. This was precisely why Javier Chercoles, Social Responsibility Department director at Inditex, was losing sleep: how could they know for sure what happened in over 1,800 outsourcing shops scattered all around the world? Introduction It was early in October 2005, and the date set for the next Social Council meeting was fast approaching. This advisory body provided counsel to Inditex Group on corporate social responsibility (hence CSR) issues.
The upcoming meeting would assess the CSR policies and programs the Group was developing. The textile industry in general and Inditex ? as an industry leader ? in particular were facing complex social challenges that affected not only their image and reputation but their operations as well. Inditex CSR strategy had emerged largely in response to these challenging issues.
The time had come to evaluate this strategy’s impact, especially focusing on outsourced shops, in order to outline a future course of action.
Specifically, Inditex had launched a program in Tangier and needed to assess this experience and find a way to incorporate it into the Group’s global strategy. At the same time, Javier Chercoles wondered what options were available for social intervention in developing nations. What were the limits to the company’s social responsibility? Should Inditex strive to ensure the wellbeing of its suppliers’ workers? He also pondered the visibility issue : Should the company communicate its CSR efforts openly, or should it pursue a more ” subtle”, low ? profile approach?
In recent years, the textile industry had become highly globalized as a result of a strong trend 1 Inditex Group Evolution By late 2005, Spain’s Inditex (Industria de Diseno Textil) Group, owner of several retail brands including Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Kiddy’s Class, was a world leader in its sector, with more than 2,600 stores in 62 countries. The first Zara store was inaugurated in La Coruna, Spain, in 1975. Since then, the company had opened stores in over 400 cities in Europe, the Americas, Asia and Africa.
Inditex engulfed eight retail chains with broad international presence. The group also included other companies associated with apparel business design, manufacturing and distribution operations. Group figures show that Zara, its oldest and most internationally expanded chain, accounted for 70% of its overall business, with 724 stores located in 54 countries. Europe was Inditex’s core business focus, featuring 1,945 stores that grossed over 80% of its total sales. In 2005, the more than 1,000 stores located outside Spain accounted for 57. % of the group’s sales, and stores were opened in four new markets: Slovenia, Slovakia, Russia and Malaysia.
Most Inditex stores were wholly ? owned and managed by the company; franchises were only 2 used for 12% of the group’s points of sale, contributing 10% to total store sales from all chains. Inditex had experienced significant growth over the past few years, posting a net income of € 628 million on consolidated revenues of € 5. 67 billion in 2004. As of December 31, 2005, the group had an overall headcount of 58,190 employees.
Amancio Ortega Gaona, founder of Inditex, started his first apparel manufacturing factory, Confecciones Goa, in 1963.
Soon he developed an interest for retailing and opened the first Zara S. A. store, which became his first retail and distribution company. Since inception, Zara was positioned as a store selling quality fashion clothing at reasonable prices. By the end of the 1970s, there were half a dozen Zara stores in Galicia, Spain.
In 1985, Inditex S. A. was established as a holding company atop Zara.
Since then, its expansion gathered momentum: the first store outside Spain was opened in 1988 (in Portugal), and, between 1989 and 1998, the company expanded to 18 additional countries, developing or acquiring other fashion brands, such as Pull and Bear and Massimo Dutti. Throughout this process, the Group underwent deep structural changes and went from being an exclusively Spain ? based producing chain in 1980 to deploying, by 2005, company audited and certified production centers and providers in the Americas, Africa, Europe and Asia.
This new scheme posed new challenges for Inditex, especially in terms of labor, social and economic concerns regarding its employees, its suppliers and outsourcing shops, as the company struggled to uphold the values and principles inspiring the Group’s CSR strategies. Zara was a successful store, and success brings visibility. For several, reasons, both the media and the NGO community had their eyes set on Zara, a fact the company could not ignore. culture based on ethics and respect and translate into more than just aesthetic moves.
So, is Inditex really and globally committed to CSR? (Press release by SETEM NGO, June 15, 2004) In 1992, Levi’s, a U. S.
apparel company, was accused of selling jeans manufactured by Chinese immigrants working in slavery ? like conditions. In 1994, Kukdong, a Nike and Reebok supplier, was charged for violating labor standards by hiring minors to work up to 10 hours a day and allowing verbal and physical employee abuses. In 1998, charges were brought against Adidas for forcing prison inmates in China to work in despicable conditions.
These precedents had driven large textile companies all over the world to adopt socially responsible strategies and policies.
Industry leaders, like Nike, H, Benetton and Gap, had developed and published codes of conduct that included their commitment to observe and enforce legal labor practices and the principles contained in the Universal Declaration of Human Rights both at their own production plants as well as their suppliers’. This implied the adoption of specific practices, such as inspection, audit and evaluation mechanisms for outsourcing shops.
However, many NGOs were still quite skeptical when it came to textile industry practices. Especially noteworthy in this regard was the Clean Clothes Campaign,1 an organization that originated in Holland in 1984 and, by 2004, had already turned into an informal NGO and union network spanning throughout the world. It was devoted to pressing apparel multinationals to ensure all their products and services were produced in accordance with fair labor policies, as well as to raising consumer awareness on industry abuses.
The Clean Clothes Campaign had such a vast impact in Europe that, in 1997, the European Parliament praised its work and recommended the European Commission to explicitly support this organization.
In Spain, the Clean Clothes Campaign had been initially led by Setem, a Spanish development NGO, and later by Intermon Oxfam, a larger, more established organization. Both had adopted differing strategies in their dealings with the industry: while Setem pursued an ongoing and outspoken advocacy strategy, especially in the case of Inditex, Intermon ?
Oxfam preferred a more collaborative approach to both the entire industry and Inditex in particular. In 2001, 4 Stakeholders’ Reaction to Inditex CSR Strategy “Arteixo. ? SETEM, NGO that coordinates the Clean Clothes Campaign, will attend the textile Inditex Group’s General Shareholders’ Meeting, to be held tomorrow at Arteixo in La Coruna, in order to question company officials on primary issues, such as its Code of Co duct’s failure to refer to International Labor Organization (ILO) standards and the right to a fair wage. Since the creation of the Inditex Corporate Social Responsibility Department, SETEM ? Clean Clothes Campaign has monitored the company’s commitment to labor rights, purchasing practices, management transparence, etc.
? in short, all the aspects that truly determine a business 3 Setem purchased Inditex stock in order to join the company’s annual Shareholders’ Meetings.
Setem’s July 2004 press release clearly expressed its position on the company: “Inditex ‘s social responsibility plan is a deceitful front that has enabled the company to portray itself in the media as a pioneer in social responsibility issues in Spain. ” Instead, Intermon Oxfam, a development NGO used to working with business companies, published a report, Moda que Aprieta (February 2004), that referred specifically to Inditex in the following terms: “This is the Spanish apparel group that has made more progress in CSR issues.
Its key weakness lies in its difficulty to match its aggressive marketing policy, based on stringent order fulfillment terms, and its demand for suppliers to comply with its ethical code. ” Currently, Clean Clothes Campaign platforms were approaching several sector multinationals to formulate a proposal for good practices in the textile industry. In other words, some companies and NGOs were trying to analyze market pressures forcing harsh productivity, flexibility and low cost strategies on sector players in an attempt to minimize their negative impacts, such as labor instability and unsafe working conditions.
A group of Inditex top executives recognized the need to approach company stakeholders meaningfully and to develop sound CSR strategies. They believed that it was crucial for Inditex to set in place suitable mechanisms to approach its stakeholders. The company had already moved in this direction