What do the brands say about changes in sourcing post-MFA? Based on MSN interviews with 10

major North American companies

MFA+3: Labour rights in a changing garment industry San Pedro Sula, HondurasSeptember 30th, 2008

What changes in countries? Shift from higher cost to lower cost countries

globally and within regions Most companies left some higher cost

countries entirely Most companies began placing orders in new

lower cost countries Overall number of countries didn’t change Less dramatic shifts than anticipated

Increase/decrease in orders Overall shift from Americas to Asia Less increase to China than anticipated Increases to low-cost countries near China

Winners & Losers Countries losing orders: Mexico, Canada,

Guatemala, El Salvador, Sri Lanka, Philippines Countries gaining orders: China, Vietnam,

Cambodia, Bangladesh, India, Egypt, Nicaragua, Haiti

Surprises? China & Nicaragua didn’t grow as quickly as

expected Rapid increase in orders to Vietnam Growth of domestic market in China Some companies returning to Africa

Changes in suppliers Consolidation: using fewer, larger suppliers Deeper, longer-term relationships Not necessarily using fewer factories Suppliers are multi-nationals themselves,

producing in many factories in many countries

Key factors in sourcing decisions: #1 Issue: Price of production State of US economy & exchange rates affect

price Other factors: speed, quality, proximity to

market, full-package capacity, lean, flexibility re styles and fabric, reliability

Issues re sourcing decisions Oil costs/carbon footprint making proximity to

market more important Proximity loses advantage without

local/regional access to fabric, etc. Ability to meet order deadlines and

transparency when unable to do so

Trade Agreements DR-CAFTA important, but not sufficient Regional agreements (Mercosur) also

important, not just for US market New agreements can undercut established

ones (CAFTA/NAFTA) Bilateral agreements between US and

countries in other regions increasing competition

Labour and Environment Oil/energy cost linked to carbon footprint

issue more important than labour rights However, labour rights most important when

considering entering new country General agreement: government must

improve labour regulation/enforcement

Looking Ahead… Mexico & Dominican Republic could face

further declines Central America uncertain (disagreement on

countries) China less growth than other Asian countries

(Vietnam) Africa could rebound

Key factors for suppliers Invest in fabric supplier relationships Offer multiple services Flexibility: multiple styles, variety of fabric Transport costs & order delivery issues Sustainable: socially and environmentally

responsible, and transparent Price/profits still the major factor

What should governments do? Attract investment in textile production Invest in upgrading and training (workers and

management) Improve transport infrastructure, lessen

bureaucratic delays More attention to environmental issues all

along production chain Better labour and environmental

regulations/enforcement

What does MSN think about what the brands are saying? Not sufficient information on sourcing

plans Upgrading could bring higher value

processes But, buyer demands could increase:

flexibilization, pressure to meet production targets, work overtime, cut labour costs

Brands want lower prices and more services -- workers get squeezed

Consolidation benefits large manufacturers, but not necessarily workers

Environment tops labour rights Rising oil costs & consumer concern make

environment more important than workers But, carbon footprint concerns also give

Americas advantage over Asia Could also favour national/regional production

for domestic/regional markets Can we link environmental, health & safety

and community health issues?

Shift of emphasis on labour rights Labour rights still important, but part of a

package of demands Cost and failure of auditing shifts emphasis to

government regulation Could we enlist brand support for better laws

and better enforcement?