Kuyichi in China How to develop a sustainable supply chain

Transcription

1 Kuyichi in China How to develop a sustainable supply chain By Yvet Breedveld International Fashion & Management Amsterdam Fashion Institute Research Report for Kuyichi Europe B.V. Amsterdam, June 2008 EMBARGO 2011

2 Kuyichi in China How to develop a sustainable supply chain I, Yvet Breedveld, hereby declare that this work is my own and is expressed in my own words. Any use of another author in any form, are properly acknowledged at their point of use. A list of references is included. By Yvet Breedveld International Fashion & Management Amsterdam Fashion Institute Research Report for Kuyichi Europe B.V. Amsterdam, June 2008 EMBARGO 2011 ii

3 This report has been printed on Biotop paper. This paper is FSC certified, indicating that it is produced in a sustainable manner; the trees used for this paper come from responsibly managed forests. Biotop paper is bleached without the use of chlorine and has not been treated with optical whiteners, giving the paper its natural tone. The cover of this report is made of spare metal that is prevented from being wasted by reusing it. iii

4 Preface This research report was written as the final assignment of the International Fashion & Management course of the Amsterdam Fashion Institute (AMFI). The subject of research was assigned by Kuyichi Europe BV. I would like to thank the following people: Bert Bruinink, Margreet van Dijk, Neeltje Steenbakkers, Celica Hummel, Piet den Toom and everybody else at Kuyichi for their help and support during the past twenty weeks. My AMFI process coach Marco Mossinkhof for his guidance in conducting the research and in structuring and writing the report. My parents and friends for supporting me throughout the International Fashion & Management Course and especially during the past twenty weeks in preparing this report. iv

5 Table of Content Executive Summary...1 Introduction.3 1. Kuyichi Kuyichi Vision Mission Identity The Product Strategy Current Performance 1.2 Partners MADE BY Solidaridad 2. Corporate Social Responsibility Trends and Developments Corporate Social Responsibility Development CSR in Fashion 2.2 Labour SA Other Standards 2.3 Sustainable Materials Organic Cotton Other Sustainable Materials 3. Relationship Management Marketing Channels 3.2 Relationships within the Marketing Channel 3.3 Dependency 3.4 Power within the Marketing Channel v

6 4. China General 4.2 Current Suppliers Current Performance CMT Companies Fabric Suppliers 4.3 Potential Suppliers Potential CMT Companies Potential Fabric Suppliers 5. Conclusion Recommendations General Recommendations 6.2 Specific Recommendations 7. Endnotes Sources Appendices 59 Appendix I: Appendix II: Appendix III: Appendix IV: Appendix V: Appendix VI: Appendix VII: Appendix VIII: Interview with Karin Reimerink...59 Implementation of the SA8000 Standard.. 62 Interview with Gerhard Schäuble...63 Certification Process of Organic Materials...63 Question List Current Suppliers...65 Outcome Question List Current Suppliers Cultural Difference Between China and The Netherlands.71 Question List Potential Suppliers.74 vi

7 Executive Summary Kuyichi is a style conscious jeans brand. Its mission is to provide fair trade and organic denim and fashion to the audience. Part of the brand s collections are produced in China, a country that is regularly in publicity for violating human rights in many different forms and that is rated as one of the least environmentally sustainable countries. Unfortunately Kuyichi has not yet been able to reach its goals and objectives in China either. This report researches the possibilities for Kuyichi to improve its performance in China. Kuyichi states to provide fair trade, but in fact does more than that, by aiming to provide a fair, humane and safe working environment for all people involved in the supply chain. Next to using organic cotton, Kuyichi also uses other sustainable materials such as recycled cotton and vegetable tanned leather. Kuyichi collaborates with organizations MADE BY and Solidaridad to reach its goals. MADE BY is an umbrella label that supports Kuyichi and other brands in cleaning up their supply chain. This is done by setting up networks of suppliers, organic cotton farmers and NGOs and by helping the brands to set up strategies and plans of approach. MADE BY also evaluates its member brands annually on their performance and communicates the scores in its annual report. Non governmental organization Solidaridad is the founder of Kuyichi. During its activities in the coffee and fruit industry, Solidaridad noticed the negative effects of the conventional cotton industry on people and planet and decided to try and change this. After unsuccessfully approaching existing brands to improve the situation, Solidaridad decided to take matters into own hands by starting up its own label. Since then, Solidaridad has been occupied in supporting and persuading other brands to clean up their supply chain. Together MADE BY and Solidaridad are also active in China, by aiding brands in improving labour conditions and increasing the use of organic cotton. Recently a Regional Expertise Centre has been started, from where the brands can be assisted even better and a more elaborate network can be set up. Kuyichi has not yet collaborated with the two organizations in improving the situation in China. Corporate Social Responsibility (CSR) is at the heart of Kuyichi s philosophy and is an important tool for differentiation. An increasing amount of businesses are also realizing that they have a responsibility towards people and planet; all the more reason for Kuyichi to ensure that its goals are reached. The mission of ensuring fair social circumstances is in practice realized through the implementation of certification and monitoring systems. There are various different methods available to ensure the ethical treatment of personnel, but Kuyichi aims at working with the SA8000 standard. Other widely used and recognised systems are also accepted and applauded. 1

8 To reduce the negative effects on the environment, Kuyichi aims to use only organic cotton, which is produced without the use of hazardous chemicals. Next to organic cotton, other sustainable materials such as hemp, bamboo and recycled cotton are also used. The challenge in reaching these goals is not in implementing standards or using materials, but to get another to implement the standards and use the materials you want them to. According to Louis W. Stern, Adel I. El Ansary and Anne T. Coughlan, this can be achieved by exerting power. There are different sources and methods of using power; when to use which source and how, depends on the relationship and dependency between the two parties involved. China does not have a good reputation when it comes to human rights, working conditions or environmental consciousness. However the rules and regulations that are applicable in the country are quite sufficient and are similar to the requirements set by the different labour standards. The challenge is to monitor and control whether factories comply to these rules and regulations. Not all of Kuyichi s Chinese suppliers are currently compliant; two factories have a social standard and one factory has implemented other methods of ensuring fair labour conditions. Organic cotton is not widely used by the producers. However, most have found organic cotton suppliers and are open to start working with the yarn in the future. Other sustainable materials are also available. Kuyichi is quite dependant on its Chinese suppliers, but the other way around this is not the case. Because of this, Kuyichi cannot easily persuade them to implement standards or start using sustainable materials. Besides volumes and revenues, other sources of power can be very useful in stimulating the Chinese partners to show desired behaviour. Kuyichi should become more aware of these sources and implement them more consciously, considering the effects they have on the other party. Next to this, Kuyichi should invest in the relationships with the different partners, so that all parties are aware of what the other is aiming to accomplish. Another method to increase compliance, is by starting a cooperation with companies that have already implemented social standards and sustainable materials. However most of the compliant companies found are very large, leading to yet another unequal relationship. The use of sustainable materials can more easily be increased by making use of the stock fabrics of the suppliers. If suitable suppliers are not yet available, Kuyichi can introduce CMT companies to suppliers of sustainable materials. 2

9 Introduction Kuyichi aims at providing fair trade and organic denim and fashion to the consumer. Clothing that is created with respect to the people and the environment involved in the process. Part of Kuyichi s collections are, however, produced in China, a country that is not exactly known for its ethical treatment of people and environmentally friendly production techniques. Unfortunately, Kuyichi has not yet been able to proof this general opinion wrong; Kuyichi is not working in compliance with its objectives in China. This raises the following question: What actions should Kuyichi take in order to ensure that its Chinese partners will work in compliance with Kuyichi s goals and objectives? To answer this question, the following subsidiary questions will be answered: What is Kuyichi and what are the goals and objectives it is trying to achieve? What do these objectives mean in practice? What does the available theory say about this matter? What is the actual situation in China? How should this situation be handled in order for Kuyichi to reach its goals? The final product of this research is a set of recommendations, advising the activities and actions that Kuyichi should take in order to reach its goals and objectives in China. This report focuses on organic materials and fair labour at sewing companies. Other factors that influence the environment, such as transportation methods or dyeing processes, are not taken into account. The labour conditions at cotton farmers or other yarn and fabric producers are not included in this research either. The report analyses four different suppliers that Kuyichi is currently working with. Due to the magnitude of this report, the other Chinese suppliers are not discussed. Due to the low response on the inquiries sent out to potential suppliers, the analysis of potential suppliers is limited. The data in this report is derived from both desk and field research. The desk research comprises literature from the Internet, articles, books and Kuyichi s administration and is mainly used to collect information on Kuyichi, its goals and objectives, the applied theory and the general situation in China. Field research was performed in the form of interviews with experts in the subjects at hand, conversations with the staff at Kuyichi that is confronted with the issues discussed, and questionnaires held amongst Kuyichi s partners in China. 3

10 1. Kuyichi Kuyichi is having difficulties to work in accordance with its objectives in China. But what exactly is Kuyichi, and what are the ideals and goals that Kuyichi is trying to achieve? The following chapter will introduce the brand Kuyichi, its vision and its goals. It will also discuss the strategies and objectives for the coming years and how the brand is currently living up to these. The final section of this chapter will discuss Kuyichi s most important partner organizations: MADE BY and Solidaridad. 1.1 Kuyichi Kuyichi was founded in 2001 by Dutch NGO Solidaridad. Solidaridad had been active in improving labour and environmental conditions in the coffee and fruit industry in Latin America, when they noticed how damaging the effects of the cotton and textile industry were on the people and the environment involved. After deciding to try and change this, several Dutch fashion companies were approached, but non were interested in taking on this challenge. That is when Solidaridad decided to take matters into own hands by starting their own fashion label: Kuyichi Vision Kuyichi believes in two basic principles: fair trade and organic materials. Kuyichi s vision on trends and fashion is not influenced by this. Innovative design is as important to us, as social equity for the people and the environment involved. [1] Kuyichi was the first brand to combine fashion with fair trade and organic materials. We find it strange our vision still differs from most other fashion brands. We want more fashion brands to become more environmentally and socially aware and we are happy to see that more and more brands join the organic revolution! [2] Mission Kuyichi s mission is to design, produce and distribute fair trade and organic denim and fashion to an international audience. Kuyichi aims to show other brands that using fair labour and sustainable materials can be commercially successful without compromising in style and quality. 4

11 Another goal Kuyichi has, is to involve different people and organizations with the brand: Kuyichi strives at being a stakeholder oriented company, which include customers, producers, employees throughout the whole supply chain [3] Identity Kuyichi is a style conscious jeans brand.[4] We create style. We are conscious of how we create it [5]. Kuyichi provides jeans and fashion that are put together with respect to planet and people involved in the process The product The collections consist of a denim line and a non denim line of tops, bottoms, outerwear and accessories. All items are jeans related and can be described as tough and sexy with a cool, street wise look and feel to them. 5

12 The collections are divided in basic, contemporary and trend items: The basic line consists of simple styles, with subtle branding and design. The entire basic line is made of organic cotton. The contemporary items are commercial and mainstream, but are still innovative and have a strong Kuyichi feel to them. The trend line consists of fashionable and innovative items, with distinct and refreshing designs and fits. Kuyichi uses as much high quality, organic cotton as possible. Next to cotton, Kuyichi uses linen, nylon, vegetable tanned leather viscose and various wool blends. The organic and fair trade stories are hidden treasures most consumer find out later. [6] Strategy Kuyichi s strategies and objectives are divided in three main categories. The first is the increase of the use of organic cotton. The possibilities of using other sustainable materials such as recycled cotton, recycled polyester and soy bean are being researched and integrated into the collections. The second category is fair trade. Kuyichi aims at working with CMT 1 companies that treat their employees fairly and respectfully. In practice, this means working with companies that are certified against a social standard, indicating that workers are treated fairly and are paid a living wage. For now, Kuyichi s efforts are focussed at CMT companies, as this is the part of the supply chain where most human labour is involved. The third category of Kuyichi s strategies, is transparency. Kuyichi wants its supply chain to be transparent, not only for the company to know what is going on and what needs to be changed or improved, but also for the consumer to be able to find out what steps their garment goes through before it ends up in their closet. The tool used to make this possible is MADE BY s Track&Trace system, which allows customers to trace the supply chain of their product on the internet. This system will be described in more detail in chapter In cooperation with partner organization MADE BY, Kuyichi sets up its strategy and step by step approach, towards its goals and objectives. The following objectives have been derived from Kuyichi action plan 2008 by MADE BY. 1 CMT company: Abbreviation for Cut Make Trim company. A CMT company receives instructions from the customer (usually a head tail company) and produces the actual product. The customer will then sell and distribute the goods to its own cusomers. 6

13 Organic cotton Kuyichi has set the following objectives concerning the use of organic cotton: 2008: 50% organic cotton in cotton collection 2009: 65% organic cotton in cotton collection 2010: 80% organic cotton in cotton collection To reach these objectives, the following measures will be taken during the years 2008 and The effects of these actions will become clear in 2009 and Kuyichi will set up an organic supply chain in India; - The possibilities for organic production in China will be investigated; - The organic concept will be introduced to the Indonesian supplier; - Kuyichi will research the possibilities of environmentally friendly printing and denim washing techniques. Social Circumstances Kuyichi aims to provide fair working conditions throughout its supply chain. This is reached through implementation of standards or certification processes. The aim is to work with CMT companies that comply to the SA8000 standard. Next to the SA8000 standard, several other standards and monitoring systems are recognised by Kuyichi. Partner organization MADE BY has analyzed these standards and categorized them into three classes (class A,B and C) according to their quality. The objectives set for social circumstances, both aim at increasing the percentage of certified factories and at developing these to class A certified factories. The objectives for the coming years are as follows: 2008: 10% of the collection produced in class A certified factories 20% of the collection produced in class B certified factories 2009: 15% of the collection produced in class A certified factories 25% of the collection produced in class B certified factories 2010: 30% of the collection produced in class A certified factories 40% of the collection produced in class B certified factories To reach these objectives, the following actions will be taken in 2008 and The effects will become clear in 2009 and Start producing part of the collection with Indian CMT company Tubeknit, which is SA8000 certified; - Start the SA8000 certification process with the main denim supplier in Tunesia; 7

14 - Introduce social programs to the top 5 of key suppliers. Traceability The transparency of the supply chain is achieved through the traceability of the goods through MADE BY s Track&Trace system. Following are the objectives with respect to the traceability of the collections: 2008: 30% of collections traceable 2009: 50% of collections traceable 2010: 75% of collections traceable Following actions will be taken in 2008 and 2009, showing the first effects in 2009 and 2010: - Visualizing the supply chains of organic cotton of several Turkish suppliers; - Implementing the Track&Trace system at these suppliers; - Implementing the Track&Trace system at Indian CMT company Tubeknit Current performance Kuyichi states that it ensures fair working conditions within their factories and that it works with materials that do not harm people or planet. But to what extent is Kuyichi currently living up to these statements? The following paragraphs are based on the figures from Sustainable Materials During the year 2007, 35% of the cotton used in Kuyichi s collection is organic cotton. A large portion of this cotton is used in the T shirt and denim collections, which have both grown in size and increased the use of organic cotton. Kuyichi is currently testing other sustainable materials, such as recycled cotton and polyester, linen and bamboo. Working conditions Kuyichi s score on working conditions during the year 2007 was as follows: Non certified: 88% Class C certified: 12% Class B certified: 0% Class A certified: 0% 8

15 The score of 2007 was lower than that of There were several reasons for this: Kuyichi was forced to terminate the relationship with a certified supplier in India, due to the low volumes that were being produced. Difficulties at the Peruvian supplier Limatex, which was in the process of certification, forced Kuyichi to decrease the produced quantities, further lowering the score. This company filed bankruptcy at the beginning of Kuyichi s major denim supplier SCS was exploring the possibilities of SA8000 certification, but this could not be included in the score. SCS is expected to be certified in Traceability During the year 2007, 14% of Kuyichi s collections were traceable. Volumes During the year 2007, Kuyichi produced pieces (39,3% of total collection) of these pieces were part of the denim collection. Within the fashion collection, (60,7% of total collection) pieces were sold. The collections were produced in seven different countries: The Netherlands, Turkey, Peru, Tunis, China, India and Macau. 39% Denim Non denim 20% 4% 27% The Netherlands Turkey Peru India Macau Tunis 61% China 30% Figure 1.1: Division of collections 16% 0% 3% Figure 1.2: Origin of collection 1.2 Partners MADE BY and Solidaridad are Kuyichi s most important partners in the process towards the achievement of Kuyichi s goals and objectives. The following paragraphs will describe the roles and activities of these organizations (more specifically in China) and how Kuyichi collaborates with these organizations. 9

16 1.2.1 MADE BY MADE BY is an umbrella label for sustainable production. Members are fashion brands that use organic cotton and fair labour; production takes place at companies that comply with a social code of conduct. MADE BY is the first initiative in fashion that focuses on the environmental and labour conditions throughout the supply chain. Activities MADE BY stimulates and supports fashion labels in cleaning up their supply chain [7]. To achieve this, MADE BY works together with the brands in setting up strategies and action plans. These action plans are adjusted and evaluated on a yearly basis and improvement is monitored. MADE BY cooperates with Solidaridad in building sustainable supply chains and networks of organic cotton projects, spinners, CMT companies, but also trade unions and local NGOs. Through this network, MADE BY can introduce brands to possibly suitable partners. They assist brands in educating and informing their suppliers, both on labour and environmental issues. At the moment, MADE BY is working on an interactive database, in which the suppliers, manufacturers or other partners of the brands will be collected. The member brands can access this intranet type of system to search for suitable partners on specific criteria, post messages and have discussions with other brands through the online forum. The database will be aired within a couple of months. MADE BY also provides its member brands with useful information and guidelines for the different aspects involved in improving the supply chain. Each year, MADE BY publishes annual reports, evaluating the activities of the brands in terms of social and environmental compliance. These reports help to create transparency of the brands and their supply chains. According to MADE BY, being open about a company s activities is the starting point for improvement of processes and production throughout the chain.[8] MADE BY uses three main indicators to measure and evaluate companies: Labour All MADE BY labels aim to work with factories that comply with the minimum requirements set by the International Labour Organization (ILO). These factories guarantee health and safety for their employees, do not use child labour, pay living wages, work humane working hours and give employees the right to form unions. The MADE BY norm for socially responsible production is SA8000, but MADE BY also recognises five other major standards that are widely used in the apparel industry. After extensive research, the six standards have been classified in three levels. These levels are taken into account during the annual evaluations. Organic Cotton MADE BY stimulates the use of organic cotton. Other types of sustainable materials are also applauded. To proof the authenticity of the organic cotton yarn, certifications are necessary. Please see appendix IV for the certification process of organic yarns. 10

17 Track&Trace The Track&Trace system allows the consumer to see where their garment is coming from. Who picked the cotton, who spun the yarns and who sewed your jeans together? By entering the MADE BY code that is printed on the carelabel in the garment, the process can be traced on the MADE BY website. MADE BY aims to make the total collection of all its member brands traceable. Activities in China During its first year, MADE BY was not active in China at all. According to Karin Reimerink, supply chain manager at MADE BY, this was based on the opinion that the situation in China was very bad, not sustainable at all and therefore not what MADE BY was looking for. Later we realized that this actually offered great potential and that we could really accomplish something here. [9] Different brands also requested MADE BY s assistance on improving processes in China. It would be a pity if they could not join MADE BY or if we could not do anything to assist them. Please see appendix 1 for the full interview with Karin Reimerink. Last year, MADE BY and Solidaridad cooperated in setting up the Expertisecentre China in Hong Kong. From this office, two cotton projects have been started and in the future, other projects or activities can be run from this centre. MADE BY has also started improvement processes for several suppliers. Cooperation between MADE BY and Kuyichi As for all its labels, MADE BY sets up action plans for Kuyichi. These plans indicate when which levels of compliance should be reached and how this can be done. Currently, MADE BY is assisting Kuyichi in increasing the traceability of its collections by training several different factories in Peru as well as in Tunisia. Secondly, MADE BY is playing an important role in the SA8000 certification process that one of Kuyichi s major denim suppliers in Tunisia is currently going through. MADE BY also supplies useful information concerning processes or possible partners Solidaridad The Inter Church Foundation for Action for Latin America, Solidaridad, was founded in The main objective of the organization is to support the attempts of churches, groups and people in Latin America, Asia and Africa, that aim at changing existing social structures. Solidaridad is a joint venture between various different Dutch churches, which are represented in the foundation s board. Solidaridad has made it their mission to combat structural poverty and to promote peace and justice.[10] Solidaridad works with the principle of fair trade, and believes that donating and lending money is not the solution for developing countries. By stimulating and investing in local initiatives for changing the current economy and social structures, people can become independent and self providing. In general, people in developing countries do not like to receive money for nothing and would much rather work in order to earn 11

18 their own income. Solidaridad helps small scale and underprivileged farmers in finding access to the market and stimulates corporate social responsibility with respect for people and planet. Solidaridad constantly develops new initiatives to stimulate fair trade and sustainable production and stimulates large scale companies to integrate corporate social responsibility in their company management and to produce their products in a sustainable method. Solidaridad has developed programs in many different industries which are important in different developing countries. Next to the fashion industry, Solidaridad is also active in the coffee, cacao and tea, tourism, fruit, soy and biomass industry. Fashion The fashion program of Solidaridad is aimed at improving the living conditions of cotton farmers and workers in the textile industry and at making the fashion industry as a whole more sustainable. Within the fashion program there are many different initiatives, the first being the foundation of Kuyichi in Since then, Solidaridad has set up MADE BY, the brands M Braze and 100% Organic Cotton and has continuously been attempting to persuade other brands to take their Corporate Social Responsibility. In 2007, Solidaridad spent approximately 1.5 million euros in the fashion program alone. Projects within this the fashion program are spread across the world, from South America, to Asia and Africa. Activities in China Solidaridad has been active in the fashion industry in China since The organization considers China to be a country where a lot is wrong, but that also shows great potential for improvement. Solidaridad has been cooperating with local as well as international partners to better the labour and environmental conditions. During the past year, Solidaridad has mainly worked together with MADE BY on its activities in China, as 9% 14% 86% Figure 1.3: Expenditures Solidaridad 91% Figure 1.4: Expenditures fashion Fashion Others China Other countries 12

19 described earlier. The most important accomplishment has been the foundation of the Chinese office, from where the two cotton projects and the other activities in China will be managed. Solidaridad has also started training several production facilities in cooperation with US certification company Social Accountability International (SAI). In total, Solidaridad invested ,00 in its Chinese program during the year Conclusion Kuyichi claims to work towards fair trade and the use of organic cotton. The chapter above has shown that Kuyichi in fact does more than that. Aside from making trade fair, Kuyichi aims to provide a safe, respectful and fair working environment for all people active in Kuyichi s supply chain. A better description would be fair labour. Next to organic cotton, Kuyichi is also testing and introducing alternative sustainable materials into the collections. To put it simply: Kuyichi has truly integrated Corporate Social Responsibility (CSR) into its company philosophy and management and has turned it into a Unique Selling Point (USP) by being the first to combine it with fashion. Unfortunately, Kuyichi has not yet been able to reach the CSR objectives that the brand has set for itself. Kuyichi s most important partners on the journey towards a fair and clean supply chain are Solidaridad and MADE BY. These organizations are actively supporting Kuyichi and other brands in reaching their CSR goals. The projects that Kuyichi, MADE BY and Solidaridad are currently undertaking (both in cooperation with each other and independently), promise to improve Kuyichi s scores in the future. 13

20 2. Corporate Social Responsibility Corporate Social Responsibility (CSR) is a very important aspect for Kuyichi. In fact, the style conscious concept is an important tool of differentiation for Kuyichi. This is also the reason that Kuyichi wants to pay special attention to the conditions of the activities in China. The following chapter will discuss the topic of CSR in more detail and will describe what the goals and objectives that Kuyichi has set for itself actually come down to in practice. The first paragraph will describe the development of CSR and the position it has in society today. The second part of this chapter will in turn describe the two main aspects of Kuyichi s CSR policies: Fair labour and sustainable materials. The SA8000 standard will be discussed in depth, as this is the standard that Kuyichi strives for. The other standards that are recognised by MADE BY will also be discussed briefly. The main source of sustainable materials for Kuyichi is organic cotton, which will be discussed first. Other sustainable materials are constantly being developed and gaining in importance. These alternatives will be discussed in the final section of this chapter. 2.1 Trends and Developments Corporate Social Responsibility has an important role in the management of many companies nowadays, including that of Kuyichi s. In fact, it has an important role in society as a whole. But what is CSR exactly? Why and how did CSR become so popular and important in society nowadays? What role does CSR play in the fashion industry? The following paragraphs will answer these questions Corporate Social Responsibility Corporate Social Responsibility, Corporate Responsibility, Corporate Citizenship, Responsible Business; all these terms describe the same concept: The continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. [11] Simply put, CSR is about being aware of the effects that you businesses activities have on the people and the environment involved, keeping the negative effects at a minimum and aiming at improving the lives of the people involved. At the same time, the business should remain financially sound and profitable. The financial, social and ecological aspects of company business must be balanced. These aspects are also indicated with the three Ps: People, Planet and Profit. 14

21 People Sustainability Profit Planet Figure 2.1: Sustainability As the figure above illustrates, sustainability or sustainable development, is what occurs when the three Ps are combined successfully. The original definition of sustainability was formulated by the Brundtland Commission (formerly known as The World Commission on Environment and Development) in 1987: Development that meets the needs of the present without compromising the ability of the future generations to meet their own needs. [12] This can be achieved by treating people fairly, recognising and providing their needs, maintaining stable levels of economic growth and using natural resources carefully and protecting or enhancing the environment. In other words: by taking ones Corporate Social Responsibility Development Corporate Social Responsibility is not new. In the past, companies like Philips provided housing and social funds for their employees and their families. Reasons for this were fears of unrest, the desire to keep out unions and the entrepreneur s sense of responsibility (dictated by political or religious convictions). With the development of public social services, the focus of CSR shifted towards problems outside of the factories. During the past decades, everything in our society, including corporate social responsibility, has developed rapidly. The Dutch top advisory board on social economic policy, the SER, published an advise concerning CSR. In this advise, the SER recognises several social developments since World War II. These developments are recognisable throughout western Europe, where the economical and social developments were fairly similar. 15

22 1. The improved educational system and increase in disposable income has increased the role of individual perceptions and preferences; 2. The increased prosperity has lead to a shift in needs from material to immaterial; 3. The economy has shifted from capital and production intensive, to knowledge and service intensive; 4. Both companies and social organization have gained in influence and power, causing a new division in responsibility between government, market and society. These trends have caused the responsibility for sustainable development to move away from the governments, on to companies and organizations. Several different sources influence these to take this responsibility: what must be done (laws and regulations, but also society s expectations), what should be done (ones personal beliefs) and what pays (what serves ones own self interest, for example a stronger reputation). Must An important expectation that society has of companies is that they explain, proof and back up their CSR statements. The consumer does not settle for the claims that companies make. Transparency and openness are very important for a company to be considered sincere. The division between the internal company and the external surroundings become less clear. A company needs to confirm with society s opinion. The Internet allows consumers to inform themselves and each other of prices, quality and companies CSR performance. (Negative) publicity can easily be generated, which can serve as a very strong tool for consumers to command certain behaviour. People are noticing more and more that governments are not able to solve all problems, and are implicitly or explicitly asking companies to take their responsibility to contribute to the world s prosperity and welfare. Companies are becoming social partners of governments. Should What companies feel they should do is related to the entrepreneur s or management s opinions. Managers translate their personal mission to that of the organization, which improves a company s commitment, especially when this concerns corporate social responsibility, as this usually comes from a strong personal opinion of giving back to society or personal ethics. Pays What pays differs from company to company. Three factors are influential: Unethical behaviour can lead to legal actions, causing negative publicity. Companies that take their Corporate Social Responsibility find it easier to recruit and hold on to employees. This is caused by the fact that people tend to choose a company that meets their personal norms and values. 16

23 Customers collectively influence companies to run their business ethically. In the past, price determined sales. After quality and uniqueness, consumers are now asking for products produced in an ethical manner, by ethical companies. European companies in general are taking the lead when it comes to CSR as an integral part of company management. The American concept of CSR is much more a philanthropic model, where companies take their responsibility by donating to charity. CSR has only recently begun to shift to the more strategic role that it has in most European companies CSR in fashion Corporate Social Responsibility is also playing an important role in the fashion industry. Could Solidaridad not find one fashion brand interested in producing fashion in a more sustainable manner in 2000, anno 2008 virtually every brand has some kind of CSR policy. Main reason for this is the influence that CSR has on a company s or brand s image, which is of great importance in the fashion industry. Big players like Nike and H&M are decreasing their ecological footstep by using organic cotton for a small portion of their cotton collections. This may not sound like much, but in relation to the huge quantities of cotton that these brands are using, the smallest percentage is still a lot. These large, well known brands are also setting an example that other brands must follow to keep their position and reputation in the market. Many brands have implemented standards and certification systems in order to improve working conditions throughout their supply chains. According to US organization Organic Exchange, the organic cotton market has since 2001, grown with 600%, from $245 million in 2001 to $2.7 billion in 2007.[13] Scandals often stir up the discussion of CSR. All Dutch newspapers covered the story of Dutch denim brand G Star, that was working with an Indian production company where employees were confronted with sexual intimidation, violence, unpaid work and low wages. G Star immediately stopped its production at the plant. After mediation (requested by Dutch and Indian government and led by former Prime Minister Ruud Lubbers), the relationship was restored at the beginning of this year. According to G Star, the conditions in the factory have been improved and are now in compliance with Indian law, international standards and G Star s Code of Conduct. The adequate response by G Star has definitely kept the damage to a minimum. The corrective actions taken, and finally restoring the relationship has probably even improved the brand s reputation on the subject of CSR. 2.2 Labour Many different organizations have set up standards, certification and monitoring systems, with the common goal of improving labour conditions worldwide. Kuyichi has chosen to work with the SA8000 Standard and is 17

24 aiming at working only with factories that have attained the SA8000 certificate. The first paragraph of this chapter will discuss this standard. Aside from SA8000, MADE BY recognises six standards that are widely used and accepted in the fashion industry. After thorough research, analysis and benchmarking, MADE BY identified three levels of standards. These alternative standards will be briefly described in paragraph SA8000 The SA8000 Standard is a voluntary verification system focussing on the human aspect of the workplace and the supply chain. The standard is based on norms of the International Labour Organization (ILO), the Universal Declaration of Human Rights and United Nations Rights Conventions and is designed to ensure that companies comply with the highest ethical standards in labour conditions. Currently, over 1,300 suppliers are certified in 63 countries and 70 industries. Following is the official summary of the content of the standards (quote): 1. Child Labor: No workers under the age of 15; minimum lowered to 14 for countries operating under the ILO Convention 138 developing country exception, remediation of any child found to be working 2. Forced Labor: No forced labor, including prison or debt bondage labor, no lodging of deposits or identity papers by employers o or outside recruiters 3. Health and Safety: provide a safe and healthy work environment; take steps to prevent injuries; regular health and safety worker training; system to detect threats to health and safety; access to bathrooms and potable water 4. Freedom of Association and Right to Collective Bargaining: Respect the right to form and join trade unions and bargain collectively; where law prohibits these freedoms, facilitate parallel means of association and bargaining 5. Discrimination: No discrimination based on race, caste, origin, religion, disability, gender, sexual orientation, union or political affiliation, or age, no sexual harassment. 6. Discipline: No corporal punishment, mental or physical coercion or verbal abuse 7. Working Hours: comply with the applicable law but, in any event, no more than 48 hours per week with at least one day off for every seven period; voluntary overtime paid at a premium rate and not to exceed 12 hours per week on a regular basis; overtime may be mandatory if part of a collective bargaining agreement 8. Compensation: wages paid for a standard work week must meet the legal and industry standards and be sufficient to meet the basis need of workers and their families; no disciplinary deductions 9. Management Systems: facilities seeking to gain and maintain certification must go beyond simple compliance to integrate the standard into their management systems and practices. (unquote) [14] 18

25 Social Accountability International (SAI) The SA8000 standard was developed by Social Accountability International (SAI). SAI is an international nonprofit organisation with the mission to improve working conditions around the world. Our mission is to promote human rights for workers around the world as a standards organization, ethical supply chain resource, and programs developer. [15] SAI consists of a Board of Directors, consisting of 9 members, responsible for evaluating the performance of SAI and its management, and a 26 member Advisory Board. The Board consists of experts from various different parties such as trade union, human rights organizations, retailers and manufacturers. The task of the Advisory Board was to develop a set of standards that could be used to asses and evaluate working conditions in the workplace and ensure fair treatment of all employees. This resulted in the establishment of the SA8000 standard in Since then, the Advisory Board is continuously working on evaluating and improving the standard. The standard was last revised in Implementation There are two different methods for implementing the SA800 standard. Please see appendix II for a description of the different procedures. Both procedures finish with an audit against the standard. This audit is performed by a Certification Body, an organization that is accredited and monitored by Social Accountability Accreditation Services (SAAS). This accreditation agency was founded in 1997 as a department within SAI and established as an independent non profit organization in SAAS is responsible for assessing and accrediting qualified organizations as Certification Bodies for various different certifications, including the SA8000 Standard. Costs The costs of certification vary, depending on the size of the company. The larger the company and the larger the workforce, the more time is needed for the audit. Costs may also vary between certification bodies. According to Gerhard Schäuble, managing director of SA8000 auditing bureau Fair & Human GmbH, the costs of certification are mostly paid by the customer. We always try to share the costs because of advantages both sides have. But mostly it is the importer who pays. [16] Please see appendix III for the full interview with Gerhard Schäuble. Kuyichi generally doe not pay for audits or certifications, because it believes that the initiative and efforts should come from the company itself. If a company is not motivated or willing to implement a standard itself, this indicates that it is not fully committed to ensuring ethical treatment of its employees. 19

26 Criticism on SA8000 Like any other standard or certification program, the SA8000 standard is not perfect. Following are the major disadvantages of this standard: In theory, non governmental organizations can be accredited by SAAS, but currently only commercial quality control organizations have been accredited. The factories that are audited, pay these certification bodies directly. This questions the independence of the certification bodies; Factory employees do not always trust in the independence of the auditors either. This causes them to be afraid to speak freely about subjects such as discrimination and harassment. It is debatable whether it is possible to declare a company SA8000 compliant based on a one day audit. When a company is SA8000 certified, it remains unclear whether the supply chain of the company is also certified. The responsibility of certification lays with each individual member, instead of with the company on top of the supply chain. Certification as well as corrective actions need to be paid by the factories Other Standards As indicated previously, Kuyichi s and MADE BY s norm for social compliance is SA8000. However, there are other standards that are widely used and accepted in the fashion industry. MADE BY has researched and benchmarked the six most commonly used initiatives and classified them in three levels, class A being the highest, class C the lowest. Of course, a certificate in any of these classes is better than no certification at all. Class A Ethical Trading Initiative (ETI) The Ethical Trading Initiative (ETI) is a multi stakeholder initiative comprising companies, NGOs and trade unions. The initiative was developed in Member brands must monitor their supply chain regularly, the frequency is dependant on the capacity and choice of the brand. The progress made is reported to ETI. Most brands rely on third parties for these audits. ETI is the only standard that includes subcontractors, supplier and homeworkers. Content wise, the ETI standard is comparable to the SA8000 standard. Fair Wear Foundation (FWF) The Fair Wear Foundation (FWF) was founded in the Netherlands in The multi stakeholder organization of trade unions, NGOs and companies currently has 28 members. The FWF is only active in the apparel industry. Member brands report annually on the progress made in their supply chain. They are required to audit all their suppliers within three years. Unannounced external audits are carried out in approximately 3% of the facilities per year. The auditors are local teams that are trained by the FWF. The FWF standard includes 20

27 suppliers and subcontractors; homeworkers are not included. The content of the standard is comparable to the SA8000 standard. Class B Fair Labour Association (FLA) The Fair Labour Association (FLA) is a non profit organization that was founded in The FLA is a multistakeholder organization, with stakeholders from universities, NGOs and companies. The FLA currently has twenty members, from within as well as outside of the textile industry. Member brands report on their progress to the FLA. They are required to audit their suppliers every three years. A small percentage is audited unexpectedly by a third party. The standard addresses the suppliers of member organizations and subcontractors, homeworkers are not included. The FLA standard is less strict than the SA8000 standard. Wages are required to be at industry or local law level, compared to the living wage required by SA8000. FLA is less strict on freedom of association and collective bargaining, forced and child labour and health and safety. Business Social Compliance Initiative (BSCI) BSCI was developed in 2003 by the Foreign Trade Association (FTA) and currently has 109 members (mostly retailers) from ten countries. The board of BSCI lies with FTA; no unions, NGOs or other stakeholders are involved. BSCI uses a monitoring system and the member brands report to BSCI on their progress. Unannounced audits are conducted by third party certification bodies, which are accredited by previously mentioned SAAS. BSCI addresses social conditions at suppliers and subcontractors. Homeworkers are not included. The BSCI standard requires organizations to pay their employees the minimum wage, instead of a living wage, which SA8000 requires. Class C Worldwide Responsible Apparel Production (WRAP) The Worldwide Responsible Apparel Production (WRAP) organization works with the Apparel Certification Program. This standard was developed in 1998 and since then, over 600 facilities have been certified. As the title indicates, WRAP is only active in the apparel industry. WRAP is a multi stakeholder organization consisting of company, NGO, government, and university representatives. WRAP uses a certification system. After all requirements are met, a certificate is issued. The audits are conducted by third parties. After certification, unexpected audits are executed once a year on average. The standard addresses subcontractors and suppliers, homeworkers are not included. WRAP is not very strict on several different issues. Concerning wages, only compliance to local law is required. Young workers are not specifically protected and the standard is less strict on forced labour. 21