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Preface

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Abstract

Table of contents

Preface 2

Abstract 3

Table of contents 4

1. Introduction 5

1.1 Research Question 6

1.2 Theoretical Relevance 7

1.3 Practical and Social Relevance 8

1.1 Outline 8

2. Theoretical Background 9

2.1 The Asian Garment Industry 9

2.2 The Garment Supply Chain 10

2.3 Corporate Social Responsibility 12

2.3.1 Drivers of CSR 13

2.3.2 Effects of CSR 13

1. Introduction

“ The garment industry is perhaps the oldest, integrated international industry today. It has globalized and repeatedly restructured its production in the last two decades, moving from continent to continent in search of cheap labour and large-scale competitive advantage (Bhattacharjee & Roy, 2012, p. 71).”

An estimated 60 million to 75 million people (2014) are employed in the textile, clothing and footwear sector worldwide. Although present on al continents, garment manufactering remains concentrated in Asia, where 60 percent of the world's clothing is manufactured (Bhattacharjee & Roy, 2012). Asia offers the most competitive advantage in terms of scale of production, size of workforce, labour cost, technology, acces to raw materials and diversity of skills. In 2010, the garment industry was valued on 1.781 trillion USD and is expanding year by year. (Stotz & Kane, 2015; Bhattacharjee & Roy, 2012). The production of clothing is a major source of employment in many poor countries, and, therefore, the garment industry could play an important role in social and economic development on a very large scale. However, in order for the industry to do so, there needs to be a massive reconfiguration of the distribution of wealth and power in the indusrty (Wills & Hale, 2005).

For garment workers, working conditions remain poor in terms of working hours, abusive management, trade union rights, insecure contracts, wages, health and safety conditions (Merk, 2014).

In recent years, labour and human rights acitivists have been succesful at raising public awareness regarding labour practices in manufacturing facilities and they have put a great deal of energy into pressuring brands and retailers to accept responsibility for the implementation of decent working conditions throughout their supply chains (Arnold & Bowie, 2003; Merk, 2014; Bhattacharjee & Roy, 2012). Organizations such as Fair Wear Foundation (FWF), Asia Floor Wage (AFW) and Clean Clothes Campaign (CCC) have worked, in association with local governements, NGO's, trade unions and companies, to help ensure that the fundamental rights of workers are respected. As a result, corporate social responsibility (CSR) has emerged as an inescapable priority for business leaders in every country (Porter & Kramer, 2006). Furthermore, business ethics has been generally accepted by business people, politicians and the media considering these kind of issues (Wempe, 2009).

Lately, one of the main CSR themes in the global apparel industry is the payment of a ‘living wage' to garment workers. In many campaigns, this so-called ‘living wage' is on top of the list. The International Labour Organisation (ILO) has defined a living wage as a basic human right under their conventions and recommendations to the UN Universal Declaration of Human Rights (ILO, 1949; ILO, 1970). The definition of a living wage is most commonly accepted as: ‘Wages and benefits paid for a standard working week shall meet at least legal or industry minimum standards and always be sufficient to meet basic needs of workers and their families and to provide some discretionary income' (CCC, 2014; FWF, 2016; ASN Bank, 2016). However, a minimum living wage is not regulated or defined by a specific standard (ILO, 2014; Miller & Williams, 2009) and there exists no concrete quantative definition (Bhattacharjee & Roy, 2012).

Over the last two decades, extensive research has been conducted with regard to the role of branded companies and retailers in the garment industry (Merk, 2014). However, when it comes to the implementation of a living wage, it seems little progress has been made (FWF, 2016). For example, a living wage standard does not specify what the term ‘basic needs' is meant to include, nor what data should be used, which methodology for calculating living wages is best and what sort of household the living wage is meant to support (Setrini & Locke, 2005). Therefore, it appears to pose a number of challenges to all the stakeholders involved. According to Miller & Williams (2009), these challenges are as following: ‘National governments fear that raising minimum wages will have negative effects on trade and the economy. Multinational brands fear rising costs and potential loss of revenue and market share. Manufacturers will face the issue of rising costs against a backdrop of falling retail prices and consumer expectations of the same. For trade unions there remains the challenge of securing implementation mechanisms in the form of collective bargaining framewroks within a hostile union environment, while NGO's fear that any supply chain living wage initiative may not reach informal workers.'

1.1 Research Question

In this research, it will be tried to gain a deeper understanding about the challenges of implementing living wages in the garment industry, with the focus on branded companies and retailers whose products are manufactured in the garment industry of Asia. With this insight, possible ways to overcome the challenges will be identified, whereafter possible living wage implementation strategies will be discussed. Therefore, the following research question has been constructed:

“What is an efficient strategy for branded companies and retailers, whose suppliers operate in the garment industry of Asia, to succesfully implement a living wage?”

In order to provide a comprehensive and structured answer to the research question, the following sub-questions are developed:

• What are the characteristics of the Asian garment industry?

• How to describe the supply chain of the garment industry?

• How does the emergence of CSR effect the garment industry?

• What is a living wage?

• What are the most common barriers in the implementation of a living wage?

• How can branded companies and retailers overcome these barriers?

• What are efficient strategies for branded companies and retailers to succesfully implement a living wage into the Asian garment industry?

1.2 Theoretical Relevance

According to Setrini and Locke (2005), the debate over what constitutes a ‘fair and decent' wage and how it can be provided to workers is an old one. Sociel scientists and policy-makers and moral theologian have all made decent wages an explicit goal since the turn of 20th century.  However, there remains a debate around what the term ‘basic needs' is meant to include, what the best way is to determine ‘fair and decent' wages as well as what the effect of increased wages may have on employment levels, trade and the economy.

Despite the fact that over the past two decades extensive research has been conducted with regard to the role of branded companies and retailers in the garment industry, little is known about how companies could succesfully provide a decent wage to their workers.

The aim of this research is to get a deeper understanding about the challenges companies in the garment industry face regarding the implementation of a living wage. Furthermore, it seeks to find solutions on how to provide a living wage to garment workers. Therefore, this research is an initial step towards a clear definition of a ‘living wage' and could serve as  a starting point for future researchers in the field of business ethics, corporate social responsibility and strategic management with a focus on the implementation of a living wage.

1.3 Practical and Social Relevance

In recent years, labour and human rights activists have raised the public awareness regarding labour practices in manufacturing facilities. As a consequence, especially in the garment industry, one of the ‘hot topics' in Corporate Social Responsibility programs has become the payment of a living wage to garment workers. However, while businesses have awakened to these social issues, they are much less clear on what to do about them (Porter & Kramer, 2006). Furthermore, it is a fact that there are many questions still left to answer on living wage implementation (FWF, 2016). This research could provide companies with an insight in how they can overcome the challenges they encounter concerning the payment of living wages. In addition, the implementation strategies could function as a guidance when formulating their strategic CSR agenda. Not to mention that, hopefully, in a later stage, garment workers are being paid a living wage and could live a decent life with their families.

1.1 Outline

2. Theoretical Background

This literature review starts with a description of the Asian garment industry. The following part gives an overview of the supply chain of the garment industry. After that, the effect of the emergence of CSR on the garment industry will be described. Then, the definition of a living wage will be discribed. Furthermore, the possible barriers in living wage implementation will be discussed, whereafter plans are presented to overcome these barriers. At last, strategies are discussed to succesfully implement living wages.

2.1 The Asian Garment Industry

The garment industry is one of the oldest and largest export industries in the world. This industry is one of the most global of all industries due to the fact that most nations produce for the international textile and apparel market (Gereffi, 2001). Until the 1980s, clothing production was mainly standardized because styles did not differ much from one season to another. Furthermore, the majority of production took place close to end consumers: The United States and Europe had rapidly developing clothing industries (ILO, 2014).

However, in the 1990s, retailers started expanding their product ranges. In search of low-cost labour and production opportunities, clothing brands and retailers began to move production overseas and outsourcing manufacturing.

Nowadays, garment production is primarily concentrated in Asia because Asia offers the most competitive advantage in terms of scale of production, size of workforce, labour cost, technology, acces to raw materials and diversity of skills (Bhattacharjee & Roy, 2012). The industry, worth 1.781 trillion USD in 2010 (Stotz & Kane, 2015), is a major force of employment in Asia. For example, in Bangladesh alone, the industry accounts for almost 20 percent of the GDP, 4 million direct jobs and 80 percent of total export earnings. There are 5600 garment factories in Bangladesh with an average of 1500-2000 workers per factory (Martin, 2013). In total, the industry employs 60 to 75 million people worldwide with about three quarters of them female (Stotz & Kane, 2015).  

 The Asian manufacterers have succesfully specialized in the organization of export-oriented high-volume, labour-intensive, low-wage and low-skill manufacturing (Merk, 2014). Within Asia, garment production takes place mostly in China, Bangladesh, Cambodia, India, Pakistan, Viet Nam, Thailand, Sri Lanka and Indonesia. The Europian Union, the United States and Japan are the world's largest consumer markets, accounted for respectively 40.2 percent, 20.8 percent and 8 percent in 2012. Together they represent over two-thirds of world apparel imports (Martin, 2013).

Gereffi (2001) has argued that the garment industry is now characterised by ‘buyer-driven' commodity chains. What Gereffi means by this buyer-driven chain is that the garment industry supply chains are determined by the retailers and branded companies. Rather than having their own factories, these companies contract goods and services from their suppliers, while only maintaining functions as design, marketing and brand-development in-house (Wills & Hale, 2005, p. 5).

In recent years, a staggering phenomenon, observed by Bhattacharjee and Roy (2012, p. 70), occured: “Even as prices of most commodities have recently shot upwards, the prices of garments have fallen. Moreover, the profits of garment brands have been impressive”. They explain this phenomenon by the fact that the prices brands pay to the manufacturers in Asia have decreased, which, in turn, has reduced the profit margins of the manufacturers.

In addition, as described in Clean Clothes Campaign's Asia Report (2014), with an increasing focus on international ‘fast fashion' brands, which respond to preferences of costumers by delivering new fashion trends in increasingly short cycles, seasonal collections do not longer exist. Fashion collections are changing almost monthly. Due to this fast fashion, brands are putting more and more pressure on their suppliers as they want faster turnarounds on more orders. For many suppliers, one or two of these global brands are the majority of their business and therefore they depend strongly on them. As a result, these global brands have a strong influence on their suppliers. Considering the occurance of this phenomena, it is not surprising that garment workers continue to get low wages. However, with the influence global buyers have, they could play an important role in ensuring that workers receive a living wage.

2.2 The Garment Supply Chain

According to Gereffi and Memedovic (2003), globalization has been promoted both by industrial and commercial firms in recent years. As a result, two types of international economic networks have been established. They call one network ‘producer-driven' and the other ‘buyer-driven'. In producer-driven value chains, large and often transnational manufacturers play the central role in the coordination of production networks. Typical producer-driven industries are industries such as automibiles, computers and aircraft.

In contrast, buyer-driven value chains are characterized by “large retailers, marketers and branded manufacturers who play central roles in setting up decentralized production networks in a variety of exporting countries, typically located in developing countries” (Gereffi & Memedovic, 2003, p. 3). Furthermore, buyer-driven value chains are highly competitive and have low entry barriers. Examples of  buyer-driven firms are retailers like Wal-Mart and branded companies like Nike and H&M.

Thus, the garment industry is a good example of a buyer-driven value chain. Appelbaum & Gereffi (1994) have identified five main parts around which the apparel value chain is organized: raw material supply, which includes natural and synthetic fibres and yarns and fabrics manufactured by textile companies; production networks made up for garment factories including their domestic and overseas subcontractors; export channels established by trade intermediaries; and marketing at the retail level. In the figure below (Figure 1) a simplified form of the process relationships in the garment supply chain is given.

According to Miller (2009, p. 185), manufacturing capital in the apparel segment is characterized by two contridactory tendencies, which both are dictated by buying conditions forced by multinational brands and retailers; “ On the one hand there is the emergence of larger first tier ‘full package' manufacturers, capable of offering a one-stop service for buyers. On the other, there remain the ‘CMT' or cut make and trim manufacturers, responsible for a degree of volatility in the sector as they switch from country to country in search of more profitable sourcing conditions.” Between these two types of manufacturers there exists countless complex relationships of contracting and subcontracting manufacturers since manufacturers struggle to meet the production targets retailers and branded companies impose on them. This complexity is often used as an excuse by brands and suppliers for having no control over the payment of a living wage (Clean Clothes Campaign, 2014).

2.3 Corporate Social Responsibility

According to Dickson and Chang (2015, p.107), corporate social responsibility refers to “business practices addressing the well-being of workers and the environment.” CSR contributes to sustainability and it has been associated with human and workers' rights, health and safety of workers, environmental stewardship, consumer well-being, product affordability and quality.

As touched upon in the introduction, corporate social responsibility (CSR) has emerged as an incescapable priority for business leaders in every country (Porter & Kramer, 2006). In their article, Porter and Kramer (2006) mention that the attention to CSR by companies has not been entirely voluntary. Many of them have awoken to it after public responses to issues they previously thought were not part of their business responsibilities. Furthermore, governments, the media and activists have been holding companies responsible for the social consequences of their activities. Therefore, CSR has raised awareness all the way into corporate boardrooms and has become relevant when considering social issues.

For example, in the garment industry in particular, the Rana Plaza collapse in 2013 in Bangladesh where more than 1100 workers lost their lives brought the safety issues in garment factories to the world's attention. In addition, documentaries such as ‘The True Cost', give people an inside look into the untold stories and secrets behind the clothing industry. It adresses the impact the industry has on the world and shows the conditions garment workers have to work in every day. This, and much more, has raised the awareness of society on issues such as labour practices in the garment industry.

However, while businesses and society have awakened to these issues, they are not clear on what to do about them (Porter & Kramer, 2006). According to Porter and Kramer (2011), a big part of the problem is that companies remain trapped in an outdated approach to value creation that has emerged over the past few decades. Companies continue to optimize short-term financial performance while missing the most important customer needs and ignoring the broader influences that determine their longer term succes. In addition, Cooke and He (2010) found in their study that although managers have a basic understanding of CSR and what it means to the firm, they do not seem to know how to translate CSR into company practices. Furthermore, as Wempe (2009) in his article emphasises, scholars in the field of business ethics also do not seem to know how to capitalise on the attention these social issues now receive. In addition, Dickson and Chang (2015) found that only a small body of literature has studied apparel manufacturers concerning their CSR practices. Therefore, we are yet in the first stages in the development of sustainable supply chains.

2.3.1 Drivers of CSR

In their study, Welford and Frost (2006) examined CSR practices in Asian supply chains. They found that CSR managers do not experience much pressure from consumers in a direct way. According to them, consumers want to be assured that companies are not abusing workers, but at the same time consumers rarely come directly to companies for this information. Consumers tend to rely on information mainly given by the media, which in turn is influenced by NGOs and trade unions.

Furthermore, they found that some NGOs criticize companies because, in their view, they are not working as sustainable as they should. CSR managers respond to this issue by saying that they are often constrained by resource issues, in particular due to limited budgets for what they need to achieve and a lack of qualified personnel. According to these CSR managers, this is a major constraint for moving forwards on CSR issues.

Another driver of CSR found by Welfort and Frost (2006) is that companies experience a great deal of pressure from long-term investors, rather than short-term investors. These long-term investors, such as venture capitalists and investment bankers, all want more information about the companies' CSR practices and more assurance about how potential risks are being handled. They have started to realize that, in order to protect their investments, it is essential to protect reputation and brands.

The most important driver of CSR, however, is reduction of risks. Companies cannot afford to be seen or associated with things as doing harm to people or the environment. Even if it is not accurate, bad publicity has negative effects on their reputations and it damages brands. For many companies, their reputation is central for their business.

2.3.2  CSR Implementation

According to Cooke and He (2010), a wide range of CSR activities are now being practiced by companies which vary across countries and industries. They cluster these activities into five main groups, namely: workforce activities; environmental activities; marketplace activites; community activities and company leadership, vision and values. Merk (2014) has described some strategies companies have adopted in response to CSR. He found that some companies have reluctantly implemented CSR programmes, such as CSR training programmes and multi-stakeholder iniatives. Other companies have even tried to actively search for ways to mislead buyers. While another group of companies have preferred to collaborate or in some cases adopted their own CSR strategies.

Besides these activities, CSR standards and guidelines have been developed to provide guidance for businesses. Cooke and He (2010) divide these standards into two main categories. The first category relates to the meaning of CSR on the governmental and inter-governemental level. This includes, at the national level, national and sub-national laws and regulations governing businesses, and, at the inter-governmental level it includes instruments such as the OECD Guidelines for Multinational Enterprises. Standards developed by NGOs such as the International Organisation for Standardization (ISO) belong to the second categorie.

In addition of these two categories, companies have developed their own codes of conduct concerning their social and environmental activites around the world. In most cases, codes of conduct stick to legal standards such as minimum wages, hours of work, health and safety forced and child labour and more (Welfort & Frost, 2006). Companies expect their overseas partner manufacturers to adhere to these codes. However, Welfort and Frost (2006) found that there exist multiple difficulties with regard to these codes of conduct.

First, manufacturers often have different customers with different codes of conduct to which they all have to adhere. The problem is that many codes of conduct have contradictory elements. Furthermore, although divergence of codes is an issue, manufacturers are often repeatedly audited to codes that are in many aspects the same. These inspections and audits are carried out by companies' own audit teams or they are carried out by specialist auditing and inspection companies that send their own trained staff.

Second, companies are to some extent able to cheat in order to cover up for not meeting the requirements of codes of conduct. For example, some companies keep several sets of books in order to be able to show auditors that workers are paid a salary and have worked a number of hours as specified in the code of conduct. Another worrying event is that, according to Welfort and Frost (2016), many factory inspectors are part of the cheating in the inspection and auditing process. This is particularly the case with third party inspectors, who walk around the factory for one day, look at some records, write a report and send the invoice to the customer.

Third,

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