Hbr Cases Csr Outsourcing in Tangers 2 P

CASE STUDY Multinational Outsourcing and CSR. Inditex The worldwide outsourcing garment labor and mixer community learning in Morocco Intermon claims that pres authorizeds on foreign clothing suppliers are smothering employees. In Morocco, where Cortefiel, Inditex Zara), Mango and Induyco El Corte Ingles)manufacture their products, a Tangier based cloth pulverization sold a pair of slacks to large Spanish retailers for 3.3 euros three years ago today, the same item sells for 2 euros. Female factory workers work 12 to 16 hours a day during the high season, because orders from Spain beg six ? ay deliverytermsinordertosuitshopwindowpanechangeschedules. (ElPaisNewspaper,MujeresenAprietos,10? 02? 2004) towardsprocessoutsourcingthatrespondedtoitscharacteristiclabor? intensiveproduction and current competitive pressures for cost reduction and flexibility. Sector companies had beenforcedto inventtheirbusinessstrategies,focusingonperformancemeasurement,new competence and skill ontoge ny, product quality improvements and much strategically orientedhumanresourcesmanagement.Yet,thisnewstrategicfocusentailedunprecedented risks, especially as regards labor practices, environmental care and unfair competition. As multinationalcompaniesembarkedonthisprocess,multilateralagenciesandglobalNGOshad beguntolookintoand reputationonwrongfulpracticesbylargecorporations,significantlycalling theattentionofincreasinglysensitiveandawareconsumersandcustomers. Globalsocietywas urgingapparelindustryplayerstoadoptamoreresponsibleattitudetobeembracedbytheir entirebusinessvaluechain,includingvendorsandoutsourcedsuppliers.Thus,Inditexwasheld responsibleforwhatwentonatoutsourcingshopsownedbyMoroccan,Peruvian,Chineseor Indianbusinessmen. ThiswaspreciselywhyJavierChercoles,SocialResponsibilityDepartment director at Inditex, was losing sleep how could they know for sure what happened in all over 1,800outsourcingshopsscatteredallaroundtheworld? Introduction It was early in October 2005, and the date set for the next Social Council meeting was libertine approaching. This advisory body provided counsel to Inditex concourse on corporate hearty responsibility (hence CSR) issues.The upcoming meeting would assess the CSR policies and programstheGroupwas driveing. ThetextileindustryingeneralandInditex? asanindustry attraction? inparticularwerefacingcomplexsocialchallengesthataffectednot totallytheirimage and reputation only when their operations as well. Inditex CSR strategy had emerged largely in response to these challenging issues. The time had come to evaluate this strategys impact, especially focusing on outsourced shops, in order to outline a future course of action.Specifically, Inditex had launched a program in Tangier and needed to assess this experience and find a way to incorporate it into the Groups global strategy. At the same time, Javier Chercoleswonderedwhatoptionswereavailableforsocialinterventionindevelopingnations. Whatwerethelimitstothecompanyssocialr esponsibility? ShouldInditexstrivetoensurethe wellbeingofitssuppliersworkers? HealsoponderedthevisibilityissueShouldthecompany communicate its CSR efforts openly, or should it pursue a more penetrative, low ? profile approach?Inrecentyears,thetextileindustryhadbecomehighlyglobalizedasaresultofastrong leaning 1 InditexGroupEvolution Bylate2005,SpainsInditex(IndustriadeDisenoTextil)Group,ownerofseveralretailbrands including Zara, Pull and stop, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and KiddysClass,wasaworldleaderinitssector,withmorethan2,600storesin62countries. The first Zara store was inaugurated in La Coruna, Spain, in 1975. Since then, the company had openstoresinover400citiesin europium,theAmericas,AsiaandAfrica.Inditexengulfedeightretailchainswithbroadinternationalpresence. Thegroupalsoincluded other companies associated with apparel business design, manufacturing and dissemination operations. GroupfiguresshowthatZara,itsoldestand someinternationallyexpanded chain, accountedfor70%ofits boilers suitbusiness,with724storeslocatedin54countries. Europewas Inditexscorebusinessfocus,featuring1,945storesthatgrossedover80%ofitstotalsales. In 2005, the more than 1,000 stores located outside Spain accounted for 57. % of the groups sales, and stores were opened in four new markets Slovenia, Slovakia, Russia and Malaysia. MostInditexstoreswerewholly? ownedandmanagedbythecompanyfranchiseswereonly 2 usedfor12%ofthegroupspointsofsale,contributing10%tototalstoresalesfromallchains. Inditexhadexperiencedsignificantgrowthoverthepastfewyears,postinganetincomeof 628milliononconsolidatedrevenuesof5. 67billionin2004. AsofDecember31,2005,the grouphadanoverallheadcountof58,190employees.Amancio Ortega Gaona, founder of Inditex, started his first apparel manufacturing factory, Confecciones Goa, in 1963. Soon he developed an interest for retailing and opened the first Zara S. A. store, which became his first retail and distribution company. Since inception, Zara wa s positioned as a store selling quality fashion clothing at reasonable prices. By the end of the 1970s, there were half a cardinal Zara stores in Galicia, Spain. In 1985, Inditex S. A. was established as a holding company atop Zara.Since then, its expansion gathered momentum thefirststoreoutsideSpainwasopenedin1988(inPortugal),and,between1989and1998, the company expanded to 18 additional countries, developing or acquiring other fashion brands,suchasPullandBearandMassimoDutti. Throughoutthisprocess,theGroupunderwentdeepstructuralchangesandwentfrombeing anexclusivelySpain? basedproducingchainin1980todeploying,by2005,companyaudited andcertifiedproductioncentersandprovidersintheAmericas,Africa,EuropeandAsia.This new scheme posed new challenges for Inditex, especially in terms of labor, social and economic concerns regarding its employees, its suppliers and outsourcing shops, as the company struggled to uphold the values and principles inspiring the Groups CSR strategies. Zarawasasucces sfulstore,andsuccessbringsvisibility. Forseveral,reasons,boththemedia andtheNGOcommunityhadtheireyessetonZara,afactthecompanycouldnotignore. market-gardeningbasedonethicsandrespectandtranslateintomorethanjustaestheticmoves.So,is InditexreallyandgloballycommittedtoCSR? (PressreleasebySETEMNGO,June15,2004) In1992,Levis,aU. S. apparelcompany,wasaccusedofsellingjeansmanufacturedbyChinese immigrantsworkinginslavery? likeconditions. In1994,Kukdong,aNikeandReeboksupplier, waschargedforviolatinglaborstandardsbyhiringminorstoworkupto10hoursadayand allowingverbalandphysicalemployeeabuses. In1998,chargeswerebroughtagainstAdidas forforcingprisoninmatesinChinatoworkin mournfulconditions.These precedents had driven large textile companies all over the world to adopt socially responsible strategies and policies. Industry leaders, like Nike, H&M, Benetton and Gap, had developed and published codes of take aim that included their inscription to observe and enforce legal labor practices and the p rinciples contained in the Universal Declaration of HumanRightsbothattheirownproductionplantsaswellastheirsuppliers. Thisimpliedthe adoption of specific practices, such as inspection, audit and evaluation mechanisms for outsourcingshops.However, many NGOs were still quite skeptical when it came to textile industry practices. curiously noteworthy in this regard was the Clean Clothes Campaign,1 an organization that originated in Holland in 1984 and, by 2004, had already turned into an informal NGO and union profits spanning throughout the world. It was devoted to pressing apparel multinationalstoensurealltheirproductsandserviceswereproducedinaccordancewithfair laborpolicies,aswellasto aggrandizementconsumerawarenessonindustryabuses.TheCleanClothes CampaignhadsuchavastimpactinEuropethat,in1997,theEuropeanfantanpraisedits workandrecommendedtheEuropeanCommissiontoexplicitlysupportthisorganization. InSpain,theCleanClothesCampaignhadbeeninitiallyledbySetem,aSpanishdevelopment NGO,andlate rbyIntermonOxfam,alarger,moreestablishedorganization. Bothhadadopted differing strategies in their dealings with the industry while Setem pursued an ongoing and outspoken protagonism strategy, especially in the case of Inditex, Intermon ?Oxfam preferred a more collaborative approach to both the entire industry and Inditex in particular. In 2001, 4 Stakeholderschemical reactiontoInditexCSRStrategy Arteixo. ?SETEM,NGOthatcoordinatestheCleanClothesCampaign,willattendthetextile InditexGroupsGeneralShareholdersMeeting,tobeheldtomorrowatArteixoinLaCoruna,in ordertoquestioncompanyofficialsonprimaryissues,suchasitsCodeofCo ductsfailureto referto planetaryLaborOrganization(ILO)standardsandtherighttoafairwage. Sincethe creation of the Inditex Corporate Social Responsibility Department, SETEM ? Clean Clothes Campaign has monitored the companys commitment to labor rights, purchasing practices, management transparence, etc. ? in short, all the aspects that truly determine a business 3 Setempurch asedInditexstockinorderto pairingthecompanysannualShareholdersMeetings.SetemsJuly2004pressreleaseclearlyexpresseditspositiononthecompanyInditexssocial responsibility plan is a deceitful front that has enabled the company to portray itself in the media as a pioneer in social responsibility issues in Spain. Instead, Intermon Oxfam, a development NGO used to working with business companies, published a report, Moda que Aprieta(February2004),thatreferredspecificallytoInditexinthefollowingtermsThisisthe SpanishapparelgroupthathasmademoreprogressinCSRissues.Itskeyweaknessliesinits difficultytomatchitsaggressivemarketingpolicy,basedonstringentorderfulfillmentterms, anditsdemandforsupplierstocomplywithitsethicalcode. Currently, Clean Clothes Campaign platforms were approaching several sector multinationals to formulate a proposal for good practices in the textile industry. In other words, some companies and NGOs were trying to analyze market pressures forcing harsh productivity, flexibi lity and low cost strategies on sector players in an attempt to minimize their shun impacts,suchaslaborinstabilityandunsafeworkingconditions. A group of Inditex top executives recognized the need to approach company stakeholders meaningfullyandtodevelopsoundCSRstrategies. TheybelievedthatitwascrucialforInditex to set in place suitable mechanisms to approach its stakeholders. The company had already moved in this direction