1 The Clothes Trade in Britain

The clothes retailers
In Britain we spend a great deal of money on clothes: £2.5 billion a month, which is slightly more than we spend on cars, an average of more than £500 per person. We are buying more clothes than we ever have.

Although there are more than 30,000 independent clothes retailers, we buy our clothes mainly from high street clothes stores, trendy designer shops, mail order catalogues - even supermarkets are getting in on the act.

Retail distribution in UK clothing market, 1997 1

Key: * inc. Marks and Spencer ** inc. Debenhams, Bhs and Littlewoods
*** inc. market stalls, charity shops, discount retailers
Source: Corporate Intelligence

But the market remains overwhelmingly dominated by the big players and Marks and Spencers is the biggest player of all.

The major players in UK garment retailing2

These high street clothing shops are engaged in a permanent cut-throat price war to attract our custom. UK retail prices as a whole rose by 50% between 1987 and 1996, but clothing and footwear rose by only 16% in the same period. Women's wear, the biggest clothing seller, rose by only 1%. Allowing for inflation, the price of women's clothes has fallen by a third in the last 10 years.3

The clothes manufacturers
Under pressure to keep their prices low, most retailers look for cheaper sources of clothes rather than cut their profit margins. In such a climate, they tend to see relocation as the solution to maintaining low prices.

A number of factors come into play when a company decides to relocate production. The supplier country is chosen on the basis of its quota allocation, its infrastructure, the reliability of suppliers in relation to quality and delivery times and, most importantly, its labour costs.

Hourly wages in textile factories (Spring 1996)4

Country & Hourly wages (£)
USA 6.24
UK 6.05
Italy 6.01
Tunisia 0.92
Thailand 0.79
Mexico 0.70
Turkey 0.66
Philippines 0.47
Bangladesh 0.28
China 0.24
Indonesia 0.23

Source: Werner International Management Consultants

This table shows average hourly wages in textile factories in countries central to the clothing industry. It clearly illustrates the enormous wage differentials that attract buyers to developing countries. Wages in the clothing industry are often even lower.

In recent years, the number of jobs in British clothes factories has fallen rapidly as companies have relocated their production to cheaper countries. British clothing imports have tripled since the mid-1980s and, by 1996, accounted for 57% of the clothes sold in Britain. Even Marks and Spencers (M&S), which traditionally bought almost entirely from British manufacturers - and is often credited with single-handedly ensuring the survival of at least part of the British clothing industry - aims to source half its merchandise from outside Britain within the next 3-5 years. Courtaulds, a major M&S supplier, said in their 1997 Annual Report: "In clothing, we are increasing the proportion of product made in the Mediterranean region and in Asia to achieve more competitive costs… We now own clothing factories in Morocco, Tunisia, Turkey, Sri Lanka, the Philippines, Thailand and China." 5

Competition over labour costs
Competition between the increasing number of developing country suppliers exerts further downward pressure on wages and conditions. The potential for over supply results in a buyers' market where retailers can set the terms of production. Ask for a wage rise in Bangladesh, and the threat is that jobs will go to Vietnam. Ask in Vietnam, and the threat is that they will go to Bangladesh.

"The buyers always say the market is bad and we have to lower the price; it's their standard technique. So for the last few years, our costs have been rising, but prices haven't. There's always competition from China and now Indonesia and Thailand are cheap again. If the price is cheaper, buyers will go to that country." (Manufacturer in Bangladesh)6

"We were told if we demanded too much money, the company would relocate to other countries. One factory moved to Laos recently. Are we paid too much? After ten years service, we take home about £13 for a 48 hour week." (Union activists, Thailand) 7

Downward pressure on costs operates even within regions of the same country. In China, buyers from American companies are moving their production from state-owned factories in the north, to foreign, privately owned unregulated factories in the south, where wages can be half the typical 17p an hour paid in the north.

The search for cheaper production goes hand in hand with a rise in sub-contracting, as manufacturers have found that it is often cheaper to pass on production to smaller producers and concentrate on marketing, design and quality control.

In the UK itself, more and more work is being farmed out, with the supply chain including an increasing number of semi-regulated or unregulated sweatshops and home workers. When overseas sourcing is also involved, the result can be so complex that retailers at the top of the production pyramid can have no idea where - and under what conditions - their clothes are actually being made.

In Asia, studies and partners reveal huge variations in the wages and conditions of garment workers. In some countries, such as the Philippines and Sri Lanka, a history of active trade unions and state support for some degree of labour rights has established expectations about acceptable labour standards. In other countries, such as China, Vietnam and Bangladesh, the floor is often set by physical endurance as minimum wage levels are set well below that needed to meet basic needs. The work tends therefore to gravitate downwards to those countries with the lowest wages and poorest workers' rights.

Company Codes of Conduct

At the end of the 1990s, consumers are considerably more aware of the global need for better working conditions and higher wages. Faced with increasing public pressure, clothing retailers are beginning to recognise their responsibility for working conditions in supplier factories. UK clothing companies are adopting and, as experience grows, improving codes of conduct. Broadly, these are voluntary codes which set out minimum labour standards for a company's suppliers.

There is growing recognition, however, that if codes are to be anything other than exercises in PR, there is a need to demonstrate compliance and effective monitoring. Current work focuses on the breadth of company codes in terms of coverage of the issues, the thoroughness of compliance and the depth of codes in terms of reach down the line of supply, and on devising and experimenting with procedures for independent verification.

What Codes of Conduct say about wages
Most companies in their Codes of Conduct commit themselves to paying the legal minimum wage, or the prevailing wage rates for the industry in the country concerned.

Minimum wage levels
Pegging wages at legal minimum levels assumes that the legal minimum wage is based on reasonable cost of living calculations. In fact, this is often not the case:

• countries establish legal minimum wages often with little or no relationship to the wages that are necessary to meet the basic needs of workers and their families;
• some countries consciously set legal minimum wage levels below subsistence levels to attract foreign investment;
• it is common to find minimum wage levels failing to rise in line with inflation, which in some contexts is extremely high.

Factories operating within certain Export Processing Zones (EPZ) or Free Trade Zones (FTZ) are exempt from minimum wage laws.