Posted by: itm2011 | May 16, 2011

Reacting to Bad Publicity over Sweat Shop Issue: The Case of Primark

A case study by Michelle Min Hwa Lee

  • Industry Overview

It’s no secret that over the past century, with advances in technology, especially in communication and transportation, production chains and methods of conducting business have undergone significant transformation. What we call “Globalization” has shown us that no more do we have to wait for responses in writing from business partners for days at a time, aside from the fact that it might take a while if they are dodging your e-mails purposely nowadays, nor do we have to travel across the world for mere handshakes. It has decreased travel distances and allowed much more fluid communication through e-mail, chats and voice conferences. The lead-time to conduct a successful business cycle has been dramatically reduced, which consequently allows these businesses to concentrate in maximizing profits by making processes even more efficient.

Given such circumstances, the production chains concerning the fashion industry, specifically, have been heavily driven by consumer demand; forcing most major retail clothing companies to go overseas, opting for global sourcing rather than domestic production. It is a rather logical choice for these businesses whose sole goal has become maximization of profit and efficiency in the supply chain. The developing countries where most of the production is now held offer lower material and labor costs yet they satisfy enough infrastructural needs so that production can be seen as a possibility. The developing countries are more than happy to receive these foreign businesses that come to take advantage of cheap labor and material resources, as the investments of foreign businesses are likely to result in infrastructural advancement as well as GDP growth. Countries like India, China, Bangladesh, Turkey and Mexico are usually the industry’s favorite go-to spots as sourcing from these countries is likely to result in high profits for the businesses. However, some controversial problems have surged due to this evident blindness towards all other factors but profit.

Companies who have ignored the conditions, in which many of their workers were subjected to, have been slowly realizing the consequences of their negligence. Business ethics seems to be the big trend in this new millennium, though it should have been present since day one. Businesses have a responsibility to society. Certain rules of conduct and principles as well as patterns of behavior in business practices that involve “doing the right thing” should be crucial. Some businesses have been targets among the NGOs and protest groups for their unethical practices and their most precious facet, profit, has taken a plunge after heavy criticism.

  • Company Overview

Primark is a clear example of this profit plunge after dealing with child labor issues and other irresponsible business behaviors. This big retail chain, a part of Associated British Foods (ABF), a diversified international food, ingredients and retail group, constitutes of over 200 stores across Ireland, the UK, Spain, Netherlands, Germany, Belgium, and Portugal. With its headquarters in Dublin, Ireland, it is one of the big budget retail chains of Europe with revenue of £ 2,730 million in the financial year of 2009/2010. Its products include womenswear, menswear, childrenswear, footwear, accessories, lingerie and homeware and it employs approximately 36,000 people.

Primark is well known for selling clothes at the budget end of the market, sourcing cheaply from 600 major suppliers in 16 countries. Its success is based on, most evidently, sourcing cheaply, making clothes with simple designs and fabrics, only making them in the most popular sizes, and buying stock in huge bulks and varieties. Also, in order to maintain value/low prices, Primark tries to keep sale volumes high, retain margins low, advertising minimal, produce in a lean and efficient manner, and also benefiting from economies of scale by buying in bulk. All of the company’s merchandise is made specifically for the company, keeping all brands in the store private label.

  • Problem

The problem arose in 2005 when Primark scored the lowest of all leading clothing chains in the UK (3.5 out of 20) on the Ethical Index, which ranks criteria such as worker’s rights and whether they conduct business with oppressive regimes. They were heavily criticized for presenting such low business ethics. And to regain its now tainted reputation, Primark joined the Ethical Trading Initiative (ETI) in 2006, a NGO of an international alliance of companies and trade unions working in partnership to improve the lives of workers across the globe. However, two of the founding members of the ETI, Tesco and Asda, were also targets of criticism for their unethical business behaviors seen in their supplying factories in Bangladesh along with Primark, as reported by War on Want, a UK charity that investigates and condemns mal business practices.

What seemed to be a closed case was cracked open again when BBC aired a documentary in 2008. The feature exposed the poor working conditions in Indian factories supplying Primark, through an undercover investigation. The feature also exposed the presence of child labor, which by far is considered the worst of unethical practices. The documentary aired on 23 June 2008, causing a major polemic among the consumers, which later led to mass boycott and protests organized mostly by War on Want. Excerpts of the documentary featured an 11-year-old Indian girl at a refugee camp sewing sequins on a shirt ordered by Primark. It was obvious that the growing pressure on suppliers of these third world countries to deliver fast fashion at rock-bottom prices had made sweatshop labor inevitable. Primark, of course, denied that it had any knowledge of child labor manifesting over its supplier factories that “under no circumstances would Primark ever knowingly permit such activities”.

The next move by Primark was quite logical but still did not solve the ethical dilemmas the company faced. Primark halted all business with the condemned suppliers, canceling millions of pounds worth of orders, and stated that that these suppliers had purposely deceived Primark (“wholesale deception”). However, many child protection groups disapproved of this action, calling it irresponsible and likely to cause additional hardship to the children and other workers.  They argued that Primark should have sought to improve working conditions and pay.

In December of 2008, the same charity that denounced Primark’s unethical business conducts came out with yet another report, Fashion Victims II.  The report claimed that terms and conditions had not improved in Bangladeshi factories supplying Primark two years after the charity first visited them. The first report had disparaged the same factories in Bangladesh for having precarious working conditions and ridiculous pay. Yet, when they went for the second time around, they saw no changes. The supplier’s employees were still over worked without appropriate compensation, working up to 80 hours a week, which is even against Bangladeshi law. The country’s labor law defines a standard working week as being 48 hours: eight hours per day, six days a week with two hours max of overtime per day. Therefore, by law, the working week is limited to a maximum of 60 hours. The report stated that not a single factory they had inspected had implemented an eight-hour working day.

Being overworked was the least of these Bangladeshi laborers’ problems. More than 60% of the women surveyed described how they were subjected to obscene and sexually suggestive language in the workplace, which some even reported instances of sexual abuse. The pay grade is also a big setback for the Bangladeshi workers since they don’t make enough money not even for subsistence, their monthly wage ranges from £ 13.97 to £ 24.37. A living wage is defined as a wage that enables a worker to provide his or her family with nutritious food, clean water, shelter, clothes, education, health care and transport, as well as some discretionary spending. For these workers to be earning a living wage they should be earning around £ 44.82 a month, but reality was that they were merely paid an average £ 19.16, less than half than what’s needed.

The summary of the Fashion Victims II report was that due to their low wage, the Bangladeshi workers not only endured hardships at a job with a terrible working environment, they were forced to live in appalling living situations. Many lived in small crowded shacks, without proper plumbing, and most still struggled to maintain such abysmal living conditions.

Ethical problems were not only discovered in overseas suppliers, but also in the UK. In 2009, it became public knowledge that even suppliers domestically were engaging in some dishonest activities. A supplier was forced by the ETI to remove its branding from Primark stores and websites following a BBC/The Observer investigation into their employment practices. Illegal immigrant labor was found in the supplier’s factory, composed mostly of Pakistanis and Indians, working in unsafe conditions and being paid less than the UK legal minimum wage. The factory was described as cramped and cold, in breach of health and safety regulations.

Breach in ethical protocol is not a problem only for Primark. Other big named retailers also served a similar fate as many reports on unethical practiced surged in the beginning of the 21st century. In 2003, Gap, the American mass market retailer was also involved in a class action lawsuit filed by sweatshop workers in Saipan. The allegations included “off the clock” hours, where workers were not paid for working overtime, unsafe working conditions, and forced abortion policies. Gap paid severely for such actions, a settlement of 20 million dollars was reached whereby Gap did not admit liability. Nevertheless, the company draws continued criticism over labor practices. Also, in May 2006, adult and child employees of Western, a supplier in Jordan, were found to have worked up to 109 hours per week and to have gone six months without being paid. Some employees claimed they had been raped by managers.Most of these allegations were directed at Wal-Mart (who mostly ignored the claims), while Gap immediately looked into the matter to remedy the situation.

However, in 2007, Gap made slowly made a comeback, and Ethisphere Magazine (an industry publication) chose Gap from among thousands of companies evaluated as one of 100 “World’s Most Ethical Companies.”Gap, Inc. was ranked 25th by CRO Magazine, another industry publication that is a successor to Business Ethics magazine, in its “100 Best Corporate Citizens” list in 2007.

On October 28, 2007, BBC footage showed child labor being used in Indian Gap factories.Gap has denied that it was aware of such happenings and that it is against its policy to use child labor. The one piece of clothing in question — a smock blouse — was removed from a British store and will be destroyed. Gap also promised to investigate breaches in its ethical policy.

Over the past few years, several companies have been accused of unethical and inhumane practices, not only Primark. It shows that regardless the size of the company, the race towards driving down practices have put companies in positions where they will opt even for alternatives that may taint their reputation. Lower costs and higher margins or expensive ethical measures?

  • Repercussions

These events have delivered a serious blow to the company’s reputation. Primark’s own website, ironically titled www.ethicalprimark.com, clearly states that living wages will be paid, child labor shall not be used, environmental requirements shall be fulfilled, and no harsh or inhumane treatment will be allowed. Primark claimed to be adhering to the ETI code of conduct as well as abiding by all domestic and international labor laws. Repercussions of Primark’s unethical behavior were severe. Many consumers, upon hearing the firm’s bad reputation for disregarding Business Ethics, opted for boycott or turned to rival retailers. Once bad reputation settled in, it was hard to shift the consumer’s opinions in Primark’s favor. Primark was met with heavy criticism from various NGOs, charities, protest groups, media, and most importantly from their consumers.

  • Proposed Solutions

Nevertheless, Primark hasn’t been just letting everything play out. First off, Primark proposed a renewed vision statement: “As an international brand with a global supply chain we have a responsibility to act ethically. We embrace this responsibility as an opportunity to be a great force for good. Primark is committed to providing the best possible value for our customers, but not at the expense of the people who make our products.” Their new vision clearly puts a big emphasis on acting responsibly and ethically. They propose a profitable and sustainable business as their main objective. Finally, Corporate Social Responsibility has seeped into Primark’s company operations. Ethical behavior is a key player in building a company’s brand image and giving a reason for consumers to trust and have confidence in the brand. As the reputation of the business increases, it reduces the risks.  Consumers and stakeholders alike will benefit and be pleased to be associated with Primark.

Primark has also implemented an Ethical Trade Director, who will conduct audits on new and current suppliers and train them to maintain a corporate social responsibility. These Ethical Trade Directors will be in charge of teaching suppliers factories and Primark’s own buyers the ethical issues and create awareness to avoid any more problems. The company’s code of conduct will be strictly enforced, especially abiding by the International Labor Organization’s (ILO) code as well, which is an agency of the UN. All of these new measures will entail in extra costs, however Primark states that all are necessary for being ethically responsible and believes that it will lead to a cleaner reputation as well as better management.

A new company aim has been identified: Transparency. Primark seeks to demonstrate commitment to responsible manufacturing through this characteristic. Transparency means the business is open to people seeing how it manages its relationships with suppliers. And, in turn, suppliers’ practices also need to be transparent. This measure will help Primark to retain cleaner reputation it seeks as well as opportunities in new investments and ventures.

  • Observational Factors

Though implementing these new approaches will definitely be beneficial to Primark, the difficult of monitoring every single aspect of an overseas supplier still remains a difficult challenge. Ethical Trade Directors can only supervise a limited number of suppliers and buyers.   There are bound to be some slips and holes, it will be their core responsibility to draw up an efficient plan to prevent any unethical and inhumane treatment of the workers. It will certainly be a big task as Primark seeks to expand, opening new stores in 2011 at original locations in Germany and the Netherlands.

The recent expansions of Primark are actually a good sign that it is slowly regaining its lost reputation and consumers are striving to return to this value priced retailer. Primark’s growth will inevitably come from offering low prices for fashionable goods while promoting its ethical manufacturing standards. And by working with external agencies such as the International Labor Organization (ILO), the ETI and independent auditors, Primark will help to set and maintain standards in the fashion industry. Hopefully, this commitment to responsible manufacturing will help to assure its customers that the goods they are purchasing are not only fashionable and good value-for-money, but also that they are ethically produced by workers who are fairly treated and compensated.

REFERENCES:

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