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Supply Chain Transformation in Global Apparel Is Possible Now

   /   Dec 27th, 2013Opinion

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Clothes provide cover and are key to expressing who we are and aspire to be. Encompassing clothing, textiles, footwear and luxury goods, the world’s garment and textile industry reached USD 3 trillion in turnover in 2011. It has closely mirrored the post-modernization of consumption and offshoring of production of the past thirty years. Products are turned around faster and faster. They are produced in supply chains spread around the globe. Accelerating product innovation cycles and offshoring have also served to highlight longstanding and intensifying sustainability challenges.

The Rana Plaza factory disaster that killed 1,133 workers when the factory in Bangladesh’s capital Dhaka collapsed in April 2013 served once again to bring these issues to global attention. There is mounting pressure on social and environmental performance as ever faster fashion runs its course. Low-skilled workers often end up operating chemicals, factories, and machinery they are otherwise untrained to handle. They have to turn out garments in a breathless rhythm even though they often do not make living wages. A host of initiatives and projects are under way to work on some aspects of the problem—but the question remains, can we truly solve the problem, and how?

This month, Impact Economy—the global impact investment and strategy firm—released my report, “Creating Sustainable Apparel Value Chains.” It works through the challenges facing the apparel industry and provides recommendations for how to identify solutions that will massively improve working conditions and environmental footprints. We invite you to read the report. The exciting news is: raising the industry’s social and environmental performance, and generating the level of productivity and competitiveness needed to make industry transformation actually viable, is possible.

We are approaching a watershed moment. The industry is on a path that is unsustainable. We cannot afford to see accidents like Rana Plaza multiply as growth powers on. And we need to move in scale. In Bangladesh alone, the world’s second largest sourcing hotspot after China and home to almost 160 million people, the industry now accounts for almost 20 percent of GDP, 80 percent of total export earnings and over 4 million direct jobs. Currently, though, many stakeholders only focus on aspects of the global textile and garment industry (e.g. living wages, child labor, health and safety, aspects of the environmental footprint). They are working on some dimension of a very large problem, often limiting their focus to narrow agendas. This is not good enough. The problem is systemic—our response needs to be as well. We have not achieved industry transformation so far and need to look for fresh catalysts.

The report identifies a series of enablers of industry transformation, including:

  • Fostering total resource productivity and transparency across the supply chain;
  • Improving working conditions with a new level of ambition;
  • Studying and replicating the best practices of leading producers; and
  • Upgrading industry infrastructure by (impact) investing.

An investment mindset is one of the key fresh ingredients. Capital is scarce and expensive in developing markets. But given the generally low resource productivity in the industry, there is a win-win opportunity: it is possible to improve social and environmental conditions while also enabling producers to save money and/or capture a higher margin by entering higher-value added production. Something as basic as replacing machinery dating from the late 1960s can unlock significant cost savings and productivity gains. Now think about investing in lean manufacturing and training as well as infrastructure improvements that reduce heat loads, energy usage, and water consumption.

The question is: how can we move from a few lighthouse projects here and there to improvement across the board? The time is ripe for a next generation of investments. Factories and supply chains are teeming with turnaround opportunities for financial returns and social impact, which investors have not yet grasped. If properly packaged, there is no logical reason why they should not also be able to attract capital from impact investors on a massive scale. The development industry is currently reinventing itself, redesigning development finance to mobilize private sector capital and achieve target development outcomes. It can facilitate such a transition by co-deploying (impact) investing capital alongside grants and providing funding incentives to internalize externalities such as water use, which often do not carry a cash cost in production locations.

Almost ten years ago, I argued that it was time for financial innovation to shake up the world of philanthropy and enable market-based solutions on a massive scale. What was a strange idea then has become mainstream. Today’s next big thing is to grasp the massive opportunity supply chain transformation provides for achieving development outcomes and asset diversification. And apparel is not the only labor-intensive industry with a poor environmental footprint that can be sorted out with the right combination of systems thinking, investments, and multi-stakeholder collaboration.

Dr Maximilian Martin is the founder and global managing director of Impact Economy. He has also served as founding global head and managing director of UBS Philanthropy Services, and created the first university course on social entrepreneurship in Europe.

Photo courtesy of SuSanA (Flickr).

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