Global case study: Spanish fashion in Morocco. Roban van Herk - TUDelft Barbara Truger - Graz Oleksandr Kosenko - National Technical University of Ukraine Niuni Butron - UPC Gloria Ripaldi - UPC Assel Borasheva - Caspian State University of Technology and Engineering Abstract Morocco is one of the largest garment producers near Europe, and exports mostly to France and Spain. The growing textile industry generates employment, but there are many problems arising with it. The proximity to Europe is one of Morocco's biggest advantages, especially regarding the new trend of fast fashion. Suppliers can react quickly to market developments, which is essential for fast fashion, because design, development, production and distribution cycles grow considerably fast and retailers can get adjust to it. These short cycles shift the risks from retailers to suppliers, who shift it to workers. Furthermore, the factories' workforce is smaller and requires employees to work overtime, what makes setting up meetings or collective organizations even more difficult, and increases the pressure on workers. Nowadays Fashion & fast fashion has become an increasing complex problem for the global sustainability development, debilitating conditions of workers, human right and raising the conditions of environmental. Fast fashion needs retailers, who can faster and faster increase number of stores in all countries worldwide. This raises a lot of problems: contacts with customers, procurement, distribution, etc. And also, fast fashion needs speed in everything: short development cycles, rapid prototyping, small batches and variety so that customers are offered the latest designs in limited quantities that ensure a sort of exclusivity Introduction Over the past decades the global economy has changed towards fragmented and geographically dispersed global production networks. Literature on these networks is more focused on the economic effects on regions and countries than on the changing situation of workers. Although global production networks undoubtedly generate employment in developing and transition countries, the quality and sustainability of these jobs are highly questionable. Fast fashion in particular leads to highly flexible and insecure jobs. The concept of fast fashion is to bring new products on the market at a high rate, enhancing the ability of lead firms to quickly respond and adapt to changing market conditions and costumers' buying behavior. This requires increased flexibility of suppliers, higher pressure to deliver in shorter time spans, as well as still meeting quality standards. We also consider the effects on the overall economic situation and the importance of the agility in creation of responsive supply chains in way to manage the uncertainty which clothing industry lives nowadays. This document is focused on Fast fashion and in way to analyze it and show some results takes Inditex Company, especially on its brand Zara which is one of the best examples of fast fashion retailers and sources around 9% of its textiles in Morocco, as an example.
Methodology This paper is based on a research of existing literature and case studies of the apparel industry in Morocco. Because Zara is the most important brand of Inditex and as we know they get 9% of their raw material from Morocco, we ll try to relate both situations based on an analysis focused on the actual situation of the clothing industry in Morocco. We are going to present a brief research about its policies and social-economic situation and after that we will try to analyze its relation with actual clothing industry situation in Spain (as we said before, based on Zara s example) Framework Morocco is among the most industrialized countries in Africa, though it, has still many problems of underdevelopment, especially in the south of Morocco, due to the geographical isolation; for this is the reason why Morocco remains at 116 º out of 179 according to the Human Development Index. The domain of the Islamic dynasties has had a great influence from the seventh century, while dating back to the nineteenth century, the early infiltration of colonial France and Spain. Morocco became a protectorate in 1912, and after several rebellions, led by Sultan Mohammed V, is among the first countries in Africa to become independent in 1956. Now Morocco is a constitutional monarchy, but during the Arab Spring, that has been less strong than in others Arabian Countries, after the dramatic changes in neighboring states, large public demonstrations and regional political, King Mohanammed VI, initiated a series of reforms to strengthen human rights, democracy, good governance and economic transparency. The centerpiece was a revision of Morocco s constitution that was drafted by a commission appointed by the king and adopted in a popular referendum during July 2011. The role of the prime minister has been strengthen, as head of the government, with more power in legislature and judiciary. The king has still the power to dissolve the parliament, he remains the chief of the armed forces and the conuntry s preeminent religious authority Even if Morocco achieved its policy of France and Spain independence on March 2, 1956; in April 7 France officially relinquished its protectorate in Morocco. Through agreements with Spain in 1956 and 1958, before Morocco regained territories controlled by that country. Morocco is a member of the UN since the November 12, 1956. In October 2008, Morocco was the first Mediterranean country to obtain the status of a special partnership with the European Union ("advanced status"), following the reforms undertaken at the political, social and economic. This status includes the establishment of a EU-Morocco conference and the direct participation of Morocco in a number of EU ministerial councils and business meetings Textile and food industries are very developed, but in recent decades the industry has also developed in the chemical, petrochemical, automobile. Economic growth, constant since 2003, has allowed us to control immigration and improve exports, infrastructure and inflow of foreign capital Morocco has a fairly stable economy with continuous growth over the past half century. GDP per
capita grew 47 % in the Sixties reaching a peak growth of 274% in the seventies. However, this proved unsustainable and growth fell sharply to only 8.2% in the eighties and 8.9% in the nineties. The textile and clothing (T&C) manufacturing industry spans the globe. Historically, the T&C manufacturing industry has played a critical role in national development as it is labor intensive and requires low-skilled workers and low fixed costs. It coincides with the push for least developed countries to become more integrated into the global market through free trade agreements and export-led growth. Establishment of this industry provides LDCs with the opportunity to develop industries that require higher fixed costs and a higher skilled work force. Morocco, a minor player in the global T&C manufacturing industry, is used as a case study in this paper and the influence of Spanish fast fashion. Despite numerous international trade agreements and support from United States Agency for International Development (USAID), the International Labour Organization (ILO), and the government of Morocco, the Moroccan T&C industry struggles in the global marketplace. In the past two years approximately 10,000 jobs have been lost as a result of factory closures; most of these jobs were held by women. In response to these woes, the World Bank advised Morocco to lower labor costs and increase productivity. Yet research and conversations with women workers and members of the labor community indicate that wages are already low and working conditions are often less than optimal. Problem Analysis The textile and clothing manufacturing industry in Morocco accounts for the greatest part of industrial employment since the 1980s, creating 175.000 jobs. Most of the employees are women. One third of Morocco's exports (4% of its GDP) are textiles, 92% of which are exported to Europe. Around 36% of Moroccan textile exports go to France and Spain each. Moroccan textiles have a market share of 4% in Europe. The Moroccan textile industry grew dramatically because of economic readjustment policies in the early 1980s, after a debt crisis. Morocco is a labor rich country, and therefore has a comparative advantage in low-capital, labor-intensive industries such as the garment industry. Low production costs (based on low wages) mean competitiveness, although the increased competitions with Asia and the global financial crisis affect the Moroccan industry. The effect on workers of being integrated in global production networks are mixed. Without question, global production networks generate employment opportunities, especially for former marginalized groups, such as women and unskilled workers. The high pressure on supplier firms is often met with low wages and unstable jobs, increasing the workers' vulnerability. In 2004, Morocco s labor code was revised and became one of the most progressive in the Arab world. The implementation, however, proofs to be difficult. Unionization rates, for example, are still around 3%. It was precisely in 2005 when the global fashion industry changed drastically because of the removal of the import quotas duo to for example the European Union. The worldwide clothing trends became:
- Fragmented European production of clothes. A lot of different stores in Europe. - Increasing internationalization of the industry with big consolidates. More companies were merging. - More production activities in countries with lower salaries, like India. - More flexible organized companies to match customer taste and demand. - Democratization of prices meaning the latest designs for lower prices. Nowadays time is recognized as a competitive weapon. To know clients demands and to have the ability requires more than speed and of course a lot of agility. But we should not confused agility with leanness (which is about doing more with less). That s why many companies that have adopted lean manufacturing as a business practice are anything but agile (Fig. 1) Raw materials, as we said before, becomes from external suppliers where are procured through the company s buying offices in the United Kingdom, China, and The Netherlands, with most of the materials themselves coming from Mauritius, New Zealand, Australia, Morocco, China, India, Turkey, Korea, Italy, and Germany. Based on everything we talk about before, we can argue that doctrine of the fast fashion needs retailers, who can faster and faster increase number of stores in all countries worldwide. This raises a lot of problems: contacts with customers, procurement, distribution, etc. And this, in turn, requires the development of information infrastructure. Also, fast fashion needs speed in everything: short development cycles, rapid prototyping, small batches and variety so that customers are offered the latest designs in limited quantities that ensure a sort of exclusivity. All of the fast fashion retailers may be divided by two groups: retailers in the true sense, which has no manufacturing competencies, and other ones, who are not just retailers, but are retailers with factories. First group are the main engine, which moves up the clothing industry globalization. As they haven t any manufactures, they outsource the job to the countries with partially industrialized countries. On the other hand, retailers, who have manufacturing competencies, may provide more
workplaces at the West. Until very recently, retailers with factories have been credited for this, but now situation in many countries has changed. A brand leader in fast fashion is nowadays Inditex. Inditex company s founder was already a business man in 1963, the firm only opened its first store abroad in 1988. Since then, its growing presence in the international market has gone hand in hand with innovations such as the adoption of just-intime techniques to fashion production and retailing. Zara is the flagship of Inditex, a holding company located in Galicia (Northwest Spain). It is one of the most successful fashion retailers on the world, currently operating in 59 countries which accounted for 66 percent of the group s turnover in 2005. In 2003, a industry code of conduct and a label, Fibre Citoyenne (FC), were created for factories passing a social audit. Inditex sources from FC-certified factories only since 2007, increasing the label's importance and hence measurable labor-standards. Enabling rights did not improve, and the better measurable standards were only accessible for regular workers. FC also led to increased subcontracting, mostly to small, not certified companies, in order to keep the own social standards up. Case of study: Zara The internationalization of Zara seems to follow the classic stage model by firstly entering geographically or culturally close markets before taking opportunities in more distant markets. It first started expanding slowly followed by a more aggressive expansion to new countries with more stores opened each year. Competitors of Zara follow a similar approach; this global expansion was triggered by both push and pull factors, which represent internal and external influences of the company respectively. The most important push factor was that Zara believed the market in Spain was becoming too small. The key pull factors that explain the internationalization of Zara, include Spain s entry into the European Union, the globalization of the economy, the homogenization of consumption patterns across countries, the removal of barriers to export and the development of information technology. Compared with the competition, Zara has three main distinctions. The first is vertical integration to achieve a faster turnaround time. Vertical integration means that the store is very flexible organized so it can react on customer needs in a short time. Zara uses franchise and joint ventures for rapid expansion. At last the use of the store as the main tools for promotion, with low spend on advertising, is a relevant distinction of Zara with its competitors. In all the countries the Zara store is located in the key shopping areas, making it an effective marketing too. There are several discussions about extent external economies boosted the success of Spanish fashion firms abroad by exploring Spanish export districts for textiles, clothing, and shoemaking during the 1980s, just before the most important firms in similar or related industries can benefit from external economies of scale through spatial concentration, and this concentration can also become a source of competitive advantage in industry. The English economist Alfred Marshall established the basis for these arguments, according to him, a geographically localized industry could benefit from several types of external economies. The first has to do with non-codified knowledge, since if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. The second type of external economy is related to the emergence of subsidiary industries, which can be set up in a district there is a large aggregate production of the same kind, even though no individual capital employed in the trade be very large. The third external economy has to do with specialized labor. In
this regard, Marshall argued that a localized industry gains a great advantage from the fact that it offers a constant market for skill. Employers are apt to resort to any place where they are likely to find a good choice of workers with the special skill which they require. This triad of advantages, namely knowledge spillovers, subsidiary industries, and specialized labor, and be considered the economic foundations of the pure or classical. As we can see, clothing geography is also changed. Twenty years ago high-quality items, such as fashion garments and tailored suits, was possessed only by US and European firms and workers. It was believed, that countries outside US and Europe will just increase the production of low-quality, and in the best way the middle-quality goods. Also, it was assumed that firms in partially industrialized countries had long lead times, minimum production runs that were too large and poor quality control. But when retailers expanded their demand for high-quality goods the competitive advantage came to the low-wage suppliers in the partially industrialized countries. And now retailers are often get goods from such countries as India, Turkey or in Inditex case: Morocco, where available a large supply of highly skilled tailors, who have for some reasons pushed out of business by a worldwide companies. The use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain. Virtual supply chains are information based rather than inventory-based. Process integration means collaborative working between buyers and suppliers, joint product development, common systems, and shared information. This form of cooperation in the supply chain is becoming ever more prevalent, as companies focus on managing their core competencies and outsource all other activities. Approximately 40% of the garments those with the broadest and least transient appeal are imported as finished goods from low-cost manufacturing centers in the Far East. The rest are produced by quick-response in Spain, using Zara s own highly automated factories and a network of smaller contractors. All other manufacturing activities, including the labor-intensive finishing stages, are completed by networks of more than 300 small subcontractors, each specializing in one particular part of the production process or garment type. These subcontractors work exclusively for Zara s parent, Inditex SA. In return, they receive the necessary technological, financial, and logistical support required to achieve stringent time and quality targets. The background of unstable jobs, varying working hours and increased pressure on delivering in time as well as at a high quality complicates social upgrading. Social upgrading is the process of improvements in the rights and entitlements of workers as social actors by enhancing the quality of their employment. (Plank et al. 2012, p. 4) Possibilities for social upgrading differ between workers, depending on their status of regular or irregular workers. Regular workers usually have high skills and experience and have worked in the same factory for some time. Irregular workers are mostly women and workers from minority groups, with temporary or casual contracts. Regular workers have higher chances for social upgrading, especially regarding measurable standards such as higher wages and job security. They also have more training opportunities, in order to produce more specific products. Irregular workers have the lowest possibilities for social upgrading in the contrary, commercial pressures can even lead to social downgrading. The demand for just-in-time delivery leads to temporary or casual contracts for a large group of workers, including highly varying working hours, and often mandatory over-time work.
Discussions From the analysis of social upgrading in Morocco, it seems that there is a mix of social upgrading and downgrading. Improvements are mostly limited to measurable standards, but many issues are difficult to implement, since they contradict the current business dynamics. Another important aspect of social upgrading is the difference between regular and irregular workers. Regular workers have access to better employment contracts and social security than irregular workers. Higher wages, working time conditions and enabling rights are still contested for both groups of workers. Because of globalization more production of fashion is done in a broad range of countries. Especially countries with lower wages are favorable for the simple steps of production. A conflicting influence of this is the fast fashion, which requires production to be closer to the market. This influence led Zara to decide to have a significant amount of its production to be in Spain, close to its main market. Conclusions Fast fashion is a major topic in the fashion industry nowadays. This means that information systems need to be developed to align all the steps in the production. It also put social upgrading under pressure, because of its high time and quality standards. It creates a lower job quality in the fashion industry. Globalization has taken a large role in the fashion industry. The foundation of the EU and decreasing import barriers are causes of the globalization. Specialization per country is possible in this way. Zara follows a similar path as other brands. It started its globalization because of the effects discussed in this paragraph. It has shown a rapid expansion since then. Now there is a race between the fast fashion retailers to increase number and capacity of the stores, maximize speed of service and responsiveness of supply chains. Maximizing the speed, synchronicity and responsiveness of the supply chain involves maintaining a rhythm of flexibility. The importance of the agility in creation of responsive supply chains in way to manage the uncertainty the dress industry lives nowadays is essential to survive in the market. Most of the garment factories in Morocco were established by European subcontractors, which could benefit from low production costs as well as access to Western markets. The reduction of product complexity should be a major priority for marketing and logistics people working together. Product complexity includes not only design issues (e.g., the number of nonstandard components in a product) but also excessive variety that does not contribute to greater customer or consumer value. On the other hand, textile and clothing manufacturing industry brings many benefits to Morocco, including labor, economic growth and foreign revenues. The problem is, that the wealth is not equally distributed. Workers get extremely low wages and have to work under very bad conditions, often violating national and international labor law. References Jordyn Elizabeth Arndt (2013) Contending with change: Moroccan women's participation in the textile and clothing manufacturing industry. http://www.textile-network.com/news-and-trends/sourcing-in-morocco_18352_en/ http://www.fibre2fashion.com/news/international-textiles-tradenews/newsdetails.aspx?news_id=159524
Christopher, M.: The Agiile Supply Chain; Competing in volatile Markets. London, Industrial Merketing Managment, Elsevier Science Inc, NY, 2000. Plank et al. (2012) Workers and Social Upgrading in Fast Fashion : The Case of the Apparel Industry in Morocco and Romania, ÖFSE October 18, 2013, Alexis Arieff, Morocco: Current Issues Jordi Catalan, Ramon Ramon-Muñoz Marshall in Iberia. Industrial Districts and Leading Firms in the Creation of Competitive Advantage in Fashion.