compliance Apr2020

Attracting Buyers Through Compliance

Wastra’s guide to a compliant factory

Current Scenario of Sourcing

Global sourcing patterns suggest that bulk buyers, i.e. ZARAs, H&Ms, Li& Fungs, PVHs and Walmarts of the world are slowly shifting their sourcing to cost competitive manufacturing locations including Bangladesh, Vietnam, Cambodia and Myanmar while gradually reducing sourcing from China. The adaptability of manufacturers, low manufacturing costs and tariff benefits in these countries have been the prime reasons for their recent success. However, what these trends fail to reveal is the level of control these brands have over the way their products are being manufactured in these new destinations. In fact, the garment manufacturing companies in these countries need to be commended for creating infrastructure suitable enough to comply with the needs of international buyers.

The increasing apparel exports from countries such as Bangladesh, Myanmar indicate that these countries have garnered significant interest from buyers and at the same time, they are moving towards building suitable infrastructure. These trends pose a question for Indian garment manufacturing companies as India’s garment exports in the past few years has been stagnant.

The main question is that if the brands have increased their sourcing volumes, why has India not received a significant share of the pie? The Indian garment manufacturing industry holds the scales of production in only a few pockets, however, the overall industry currently lacks the infrastructure to attract global buyers. The way ahead for Indian garment manufacturers is to develop export compliant factories that can cater to global buyers and still manage to be cost-competitive. With India having its cost factors less than China but more than Bangladesh, this might appear to be difficult to compete against Bangladesh, however, this can easily be overcome provided Indian garment companies build garment factories that are both compliant and competitive.

Importance of Compliance

Simply put, the act of conforming to the needs or demands of someone can be defined as compliance. When it comes to international fashion brands sourcing their products, compliance includes the assurance of procuring products that follow all the rule of law and procuring them within strict timelines. The reason for these measures are:

1. Rule of Law: The main reason for buyers’ compliance is to ensure that rule of law is followed by the manufacturers. This also helps brands avoid controversies related to ill-practices that manufacturers tend to undertake as cost-cutting measures. For example: Recently, many brands sourcing from Myanmar were put in a spot of bother following an investigative report from United Nations. The report highlighted that various textile park in Myanmar were partly owned by the state military, which has been accused internationally of persecution of a certain minority group in the country. Thus, forcing these brands to either look for new partners in Myanmar or shift their bases entirely.

2. Marketing: Among the major reasons for brands to be sourcing sustainable products is to be able to market their products accordingly. A recently concluded research by CGS revealed that more than 47% of the buyers in advance markets are ready to shell out as much as 25% more for sustainably sourced products, while close to 70% of the respondents believed sustainability is at least “somewhat important” to them when making a purchase. This highlights the importance of having a transparent supply chain and thus, the buyers/brands are looking to cash in the opportunity by branding their products as sustainable and lawfully-produced.

3. Growth of Workers Across Supply-chain: Many of the brands go beyond stating their brands as “Transparent” and actually invest towards improving the lives of their workers. These brands have programs to enhance the living standards of all the workers associated in the manufacturing process through regular learning sessions, vocational training for the workers and their families, etc. Compliance for these brands becomes a tool to bring about a change in the society. A good example for this could be H&M’s initiative for fair living wage, wherein H&M envisions to implement wage management systems across all its strategic supplier along with provision for democratically elected worker representatives. H&M believes that these initiatives will provide fair wages to all the grass root workers and also support them in growing along with the brand.

Thus, to primarily ensure these reasons brands tend to have compliances in place. In order to ensure uniformity in adherence of compliances, there are various standards present in the industry formed by government and other certification bodies. Multiple brands have their own compliance metrics and standards based on the industrial certifications.

Making an Export Compliant Factory v/s a Buyer Compliant Factory

There are various certifications that one can acquire to proclaim themselves as a compliant factory, these include certificates like ISO, STeP, NFSI, GOTS, etc. These certify that proper code of conduct was followed across the supply chain including raw material procurement, garment manufacturing and processing. These compliance certification assure compliance to Labour; Working Conditions; and Environment.

These certifications are deemed sufficient for catering to global market, however, multiple brands and buyers have their own set of norms similar to these standard certifications with a few additional parameters in-line with the brand’s commitment to sustainability and supply chain transparency. Adherence to these compliance requirements deems a factory compliant to serve a certain buyer or a group of buyers.

Simultaneously, there are other organizations like SEDEXTM that provide manufacturers training and tools for the best manufacturing practices and also promote the use of these practices in day-to-day functioning of the factories. SEDEXTM has established itself as an industry leader in driving the concepts of compliance and sustainability to developing countries across the globe.

Where do you start?

Conforming to a specific buyers’ norms and altering the factory can be difficult at times, considering the erratic demand cycle of brands. The large manufacturers usually get around this issue by allocating an entire floor to the compliance specifications of a consistent buyer. However, smaller manufacturers resort to conforming to basic compliance certifications. Additionally, multiple cases of human rights violations in the past have caused a few brands to look towards India’s neighbors for fulfilling their sustainable sourcing goals.

On the positive side, for India, there have been no major violations reported in the recent years, which provides India with an opportunity to take lead in compliance oriented manufacturing. Moreover, Bangladesh, Vietnam and Cambodia are feeling the heat of maintaining low-manufacturing costs amid the global slowdown and labour awakening. Indian manufacturers on the other hand have traditionally managed to keep manufacturing costs lower owing to government support. Export and buyer compliance is the last ingredient in this recipe for success for manufacturers in India.

However, the time has come for the industry to break away from the support provided by the governments and look inwards for achieving higher productivities. Wastra can help you setup factories that are export compliant and have all the boxes checked when it comes to the major buyers. Wastra can also assist you in achieving the compliance level of any specific buyer in your existing factory. Wastra’s tailored re-engineering modules customized to the client’s requirements, offer a unique solution improving on critical operations of your factory.

The article has been authored by Priyam Pandit, Associate Consultant.