CASE STUDY : Multinational Outsourcing and CSR. Inditex: The worldwide outsourcing garment industry and social community development in Morocco “Intermón claims that pressures on foreign clothing suppliers are smothering employees. […] In Morocco, where Cortefiel, Inditex (Zara), Mango and Induyco (El Corte Inglés) manufacture their products, a Tangier based textile factory 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 demand six ‐ day delivery terms in order to suit shop window change schedules.” (El País Newspaper, “Mujeres en Aprietos”, 10 ‐ 02 ‐ 2004)
towards process outsourcing that responded to its characteristic labor ‐ intensive production and current competitive pressures for cost reduction and flexibility. Sector companies had been forced to redesign their business strategies, focusing on performance measurement, new competence and skill development, product quality improvements and more strategically oriented human resources management. Yet, this new strategic focus entailed unprecedented risks, especially as regards labor practices, environmental care and unfair competition. As multinational companies embarked on this process, multilateral agencies and global NGOs had begun to look into and report on wrongful practices by large corporations, significantly calling the attention of increasingly sensitive and aware consumers and customers. Global society was urging apparel industry players to adopt a more responsible attitude to be embraced by their entire business value chain, including vendors and outsourced suppliers. Thus, Inditex was held responsible for what went on at outsourcing shop s owned by Moroccan, Peruvian, Chinese or Indian businessmen. This was precisely why Javier Chércoles, Social Responsibility Department director at Inditex, was losing sleep: how could they know for sure what happened in over 1,800 outsourcing shops scattered all around the world?
Introduction
It was early in October 2005, and the date set for the next Social Council meeting was fast approaching. This advisory body provided counsel to Inditex Group on corporate social responsibility (hence CSR) issues. The upcoming meeting would assess the CSR policies and programs the Group was developing. The textile industry in general and Inditex ‐ as an industry leader ‐ in particular were facing complex social challenges that affected not only their image and reputation but their operations as well. Inditex CSR strategy had emerged largely in response to these challenging issues. The time had come to evaluate this strategy’s 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 Group’s global strategy. At the same time, Javier Chércoles wondered what options were available for social intervention in developing nations. What were the limits to the company’s social responsibility? Should Inditex strive to ensure the wellbeing of its suppliers’ workers? He also pondered the visibility issue : Should the company communicate its CSR efforts openly, or should it pursue a more “ subtle”, low ‐ profile approach? In recent years, the textile industry had become highly globalized as a result of a strong trend
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Inditex Group Evolution
By late 2005, Spain’s Inditex (Industria de Diseño Textil) Group, owner of several retail brands including Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Kiddy’s Class, was a world leader in its sector, with more than 2,600 stores in 62 countries. The first Zara store was inaugurated in La Coruña, Spain, in 1975. Since then, the company had opened stores in over 400 cities in Europe, the Americas, Asia and Africa. Inditex engulfed eight retail chains with broad international presence. The group also included other companies associated with apparel business design, manufacturing and distribution operations. Group figures show that Zara, its oldest and most internationally expanded chain, accounted for 70% of its overall business, with 724 stores located in 54 countries. Europe was Inditex’s core business focus, featuring 1,945 stores that grossed over 80% of its total sales. In 2005, the more than 1,000 stores located outside Spain accounted for 57.5% of the group’s sales, and stores were opened in four new markets: Slovenia, Slovakia, Russia and Malaysia. Most Inditex stores were wholly ‐ owned and managed by the company; franchises were only
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used for 12% of the group’s points of sale, contributing 10% to total store sales from all chains. Inditex had experienced significant growth over the past few years, posting a net income of € 628 million on consolidated revenues of € 5.67 billion in 2004. As of December 31, 2005, the group had an overall headcount of 58,190 employees. 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 was positioned as a store selling quality fashion clothing at reasonable prices. By the end of the 1970s, there were half a dozen Zara stores in Galicia, Spain. In 1985, Inditex S.A. was established as a holding company atop Zara. Since then, its expansion gathered momentum: the first store outside Spain was opened in 1988 (in Portugal), and, between 1989 and 1998, the company expanded to 18 additional countries, developing or acquiring other fashion brands, such as Pull and Bear and Massimo Dutti. Throughout this process, the Group underwent deep structural changes and went from being an exclusively Spain ‐ based producing chain in 1980 to deploying, by 2005, company audited and certified production centers and providers in the Americas, Africa, Europe and Asia. 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 Group’s CSR strategies. Zara was a successful store, and success brings visibility. For several, reasons, both the media and the NGO community had their eyes set on Zara, a fact the company could not ignore.
culture based on ethics and respect and translate into more than just aesthetic moves. So, is Inditex really and globally committed to CSR? (Press release by SETEM NGO, June 15, 2004) In 1992, Levi’s, a U.S. apparel company, was accused of selling jeans manufactured by Chinese immigrants working in slavery ‐ like conditions. In 1994, Kukdong, a Nike and Reebok supplier, was charged for violating labor standards by hiring minors to work up to 10 hours a day and allowing verbal and physical employee abuses. In 1998, charges were brought against Adidas for forcing prison inmates in China to work in despicable conditions. 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 conduct that included their commitment to observe and enforce legal labor practices and the principles contained in the Universal Declaration of Human Rights both at their own production plants as well as their suppliers’. This implied the adoption of specific practices, such as inspection, audit and evaluation mechanisms for outsourcing shops. However, many NGOs were still quite skeptical when it came to textile industry practices. Especially 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 network spanning throughout the world. It was devoted to pressing apparel multinationals to ensure all their products and services were produced in accordance with fair labor policies, as well as to raising consumer awareness on industry abuses. The Clean Clothes Campaign had such a vast impact in Europe that, in 1997, the European Parliament praised its work and recommended the European Commission to explicitly support this organization. In Spain, the Clean Clothes Campaign had been initially led by Setem, a Spanish development NGO, and later by Intermón Oxfam, a larger, more established organization. Both had adopted differing strategies in their dealings with the industry: while Setem pursued an ongoing and outspoken advocacy strategy, especially in the case of Inditex, Intermón ‐ Oxfam preferred a more collaborative approach to both the entire industry and Inditex in particular. In 2001,
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Stakeholders’ Reaction to Inditex CSR Strategy “Arteixo. ‐ SETEM, NGO that coordinates the Clean Clothes Campaign, will attend the textile Inditex Group’s General Shareholders’ Meeting, to be held tomorrow at Arteixo in La Coruña, in order to question company officials on primary issues, such as its Code of Conduct’s failure to refer to International Labor Organization (ILO) standards and the right to a fair wage. Since the creation of the Inditex Corporate Social Responsibility Department, SETEM ‐ Clean Clothes Campaign has monitored the company’s commitment to labor rights, purchasing practices, management transparence, etc. ‐ in short, all the aspects that truly determine a business
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Setem purchased Inditex stock in order to join the company’s annual Shareholders’ Meetings. Setem’s July 2004 press release clearly expressed its position on the company: “Inditex ’s social 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, Intermón Oxfam, a development NGO used to working with business companies, published a report, Moda que Aprieta (February 2004), that referred specifically to Inditex in the following terms: “This is the Spanish apparel group that has made more progress in CSR issues. Its key weakness lies in its difficulty to match its aggressive marketing policy, based on stringent order fulfillment terms, and its demand for suppliers to comply with its ethical code.” Currently, Clean Clothes Campaign platforms were approaching several sector multinationals to formulate a proposal for good practices in the textile industry. 2 In other words, some companies and NGOs were trying to analyze market pressures forcing harsh productivity, flexibility and low cost strategies on sector players in an attempt to minimize their negative impacts, such as labor instability and unsafe working conditions. A group of Inditex top executives recognized the need to approach company stakeholders meaningfully and to develop sound CSR strategies. They believed that it was crucial for Inditex to set in place suitable mechanisms to approach its stakeholders. The company had already moved in this direction through the creation of a Social Council, intended to engage the company’s stakeholders in an ongoing and fluent dialog. Inditex was also partnering with the Spanish Red Cross in relief efforts for the environmental disaster caused by an oil tanker ‐ the Prestige ‐ in Galicia, and collaborating with several NGOs in social programs in Africa, Latin America and Asia. On the other hand, some Inditex top executives and middle managers did not see the need to develop CSR strategies , nor to engage NGOs. They preferred traditional channels, such as business chambers, unions and government mediation. At the end of t he day, in their view, NGO accusations lacked any legal or factual grounds.
Production Outsourcing Practices
Inditex’s business model hinged on extensive forward integration, as opposed to its international competitors’ operations, which were more fragmented. A flexible, highly customer ‐ oriented structure handled the entire process, including design, manufacturing, logistics, and distribution operations. Still, stores accounted for a key component in Inditex ’s business model: a carefully designed atmosphere was meant to provide a comfortable purchasing experience for customers and, at the same time, to collect the necessary information to adjust store offerings to consumer demands. The key to Inditex’s strategy lay in continued offering adjustment, so as to quickly respond to ever ‐ changing customer needs. Vertical integration allowed for swift turnover and flexibility, keeping inventories to a minimum and reducing fashion risks. Inditex’s business cycle started with garment design ‐ carried out by designer teams. The company owned a group of factories that were in charge of a significant share of its manufacturing operations, primarily focusing on more fashion ‐ dependent items, while outside suppliers provided other kinds of garments. The group’s own production accounted for 40% to 50% of its total manufacturing operations. Regardless of their origin, all garments were shipped to distribution centers for each chain, to be delivered to stores around the world. The process did not end at points of sale; rather, it was reinitiated, since stores actually collected market ‐ specific information to be fed to design teams in order to complete the cycle. Hence, this business model partly relied on Inditex’s successful manufacturing process outsourcing strategy. As José María Castellanos, Inditex vice president and deputy counsel, pointed out, “With this strategy, the company has accomplished greater flexibility and lower manufactured unit cost ‐ two rather uncommon feats in this industry.” Ironically, the over 1,800 shops supplying Inditex from all over the world also embodied the foremost risk factor for the company’s reputation. Amancio Ortega and José María Castellanos were both aware of this fact. For this reason, when Inditex went public in 2001, they decided to hire an entrepreneur who was working as a consultant in London at the time: Javier Chércoles. His mission was to reduce the damaging risks for Inditex ’s image. Chércoles was a passionate young man, who always made an impression ‐ either positive or negative. He had won over the company’s president and vice
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president by candidly expressing his views. Ortega y Castellanos had given him a vote of confidence. Chercole’s arrival caused some uneasiness among managers, particularly among the 200 members of the purchasing department that dealt with 1,800 outsourced workshops around the world. What would this outsider do? Would he dare meddle in their activities, which they had been carrying out so aptly, to great benefit to company stockholders?
created a complex database ‐ dubbed the “corporate DNA” as it structured a “complex organism” ‐ that factored in economic, social and environmental indicators. From then on, purchasing managers were asked to rank their suppliers according to that scorecard, so as to integrate social and environmental criteria into their purchasing decisions. Finally, Inditex also adopted environmentally responsible management and certification systems (such as ISO 14001 standards), analyzing their economic impacts through supply and distribution chain strengthening programs, community involvement, engagement platforms, as well as sponsorship and patronage activities. Despite these efforts, corporate management still felt that the initiatives launched by the group, especially in developing nations, required more depth. As Javier Chércoles put it, “Our corporate responsibility contributions to these countries and their communities have been minimal over the past twenty years.” He believed that ensuring conduct code compliance was not enough. The company had to support the communities affected by its operations. Thus, the group would effectively contribute to improving welfare conditions at the communities where it operated, promoting jobs, development and poverty reduction opportunities while enhancing productivity. For Javier, “This situation afforded an opportunity and, at the same time, called for a commitment to build business models that took into account not only economic but also environmental and social criteria.” José María Castellanos shared this vision: “Our group feels a moral obligation to offer people working for us at outsourcing shops (often with full ‐ time, exclusive dedication) much more than what local governments specifically demand.” To conclude this process, among its priorities, the company included the implementation of production chain strengthening programs, meant to promote overall respect for human rights from suppliers’ factories to the communities where workers lived. Through surveys conducted at factories, the company tried to identify the challenges faced by workers ‐ mostly youths ‐ in order to provide specific remedies through literacy programs, job training, teachers’ training, educational material, and, finally, cooperative and micro ‐ venture promotion. These initiatives revolved around two major approaches: programs to monitor compliance with the company’s Code of Conduct and programs to improve social and working conditions of outsourced suppliers.
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CSR Strategy for Suppliers
Javier Chércoles set to work, and, supported by a team of consultants, he methodically reviewed Inditex shops around the world. Soon, he realized that this was a recurrent, time ‐ consuming task involving a constant risk: some shop, anywhere in the world, at any time, could be working for Inditex in severe violation of human rights. Thus, he decided to formulate a CSR strategy that would provide a framework for the group’s production chain. “No large company, public or otherwise, will survive in the future without an ambitious social responsibility plan,” stated Amancio Ortega en 2003. Accordingly, Inditex, under the guidance of Javier Chércoles and with the approval of its Board, had developed a CSR strategy based on its relationship with its stakeholders, which should rely on three core principles: goodwill, dialog and transparency. According to these tenets, Inditex formulated its CSR policies, including: • A code of conduct ; • A social audit program for outsourcing factories and providers ; • Community development programs ; • Production chain strengthening, awareness, sponsorship and patronage initiatives ; • Active involvement in local and international CSR networks and stakeholder engagement venues ; • A first pilot program designed to address the needs of supply chain workers in Morocco. • The CSR department felt that the company’s current purchasing practice ‐ requiring purchasing managers to rate suppliers solely on price ‐ was unfair for providers, as it created incentives to cut corners, and risky for the company. Thus, Javier and his staff
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Code of Conduct and Social Audit Program
Inditex Code of Conduct consisted of two sections: one referring to internal affairs and another one for external issues. The internal code included specific commitments to stakeholders, such as good labor practices for Inditex employees, the promotion of the same practices among business partners and suppliers, product and service quality standards for customers, and company involvement in local, domestic and international communities as part of its commitment to society. The external code, in turn, was compulsory for outsourcing manufacturers and shops and included specific practice commitments related to the following issues: no child labor employment, no discrimination, freedom of association, no harassment or abuse of any kind, health and safety conditions, compensation s, environmental care, subcontracting practices, and legislation compliance. In addition, the code forced outsourcing manufacturers and shops to commit to disseminating the code in their respective organizations and to allow Inditex to enforce it. The social audit program was managed in accordance to the company’s code of conduct. This program was intended to foster and develop the necessary actions to guarantee code enforcement, such as location selection, independent social auditors’ evaluation and recruiting, monitoring code compliance by outsourcing manufacturers and shops, outcome management through valuation reports that eventually translated into shop or factory rejection or corrective action plans. According to company managers, this process was meant to trigger a continued improvement cycle of working conditions at Inditex partner s hops and factories.
collaboration with foundations such as Padeia, Entreculturas‐Fe, Y Alegría and Centro Gumilla. Within its production and distribution chains, Inditex developed specific initiatives to improve social and labor conditions for workers, their families and communities, as well as to raise public awareness through its store networks. These activities were undertaken in collaboration with NGOs such as Fundación Codespa, or The Global Alliance for Workers and The Communities. The first pilot experience was carried out in Morocco, with other countries under study for future roll ‐ out. These programs started with a survey for factory and shop managers to assess workers’ needs and problems. Next, factory and shop employees were surveyed as well to detect, measure and prioritize their needs associated with specific issues, such as education, job training, family and community matters. Finally, findings were analyzed and an action plan was drawn. In addition, Inditex ’s store network was used for special awareness projects, such as fundraising campaigns to provide schooling for children in developing countries. Lastly, project sponsorship focused on cultural issues (orchestra and museum support) and relief efforts for specific emergencies, such as the sinking of the Prestige oil tanker off the Galicia coast in 2002.
Special Program for Tangier Workers
“From El Corte Inglés and Cortefiel to Inditex, all major retailers outsource a share of their apparel manufacturing operations in Morocco. The French, Spanish and British markets absorb 82% of Moroccan exports. A total of 1,687 companies employ some 200,000 people in Morocco and gross 3.15 billion euros in revenues. However, the Moroccan textile industry is being threatened. Some leading brands, like Nike, H&M, Puma and Pinky ‐ none from Spain so far ‐ are currently analyzing or have already started to move their production operations from Morocco to China or India.” El País Newspaper, “Marruecos se Aprieta el Cinturón“, February 6, 2005.
Community Development Programs
These programs promoted education and learning as a means to fuel development in the communities where Inditex operated. The company implemented these programs in three areas: community development, production and distribution chains, and project sponsorship . In community development, it identified local, domestic and international NGOs or associations to partner with. Its goal was to work on specific social issues, driving, at the same time, social fabric development. These partnerships included, for instance, projects for social and employment integration for vulnerable segments in Spain, Venezuela and Peru, in
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The Tangier program was managed through a collaboration agreement between the company and Fundación Codespa. Since inception, it had been decisively supported by José María
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Castellanos, Inditex ’s vice president, and Antonio Abril, its secretary general. The company’s CSR department was fully committed to its implementation. Tangier, a Moroccan city on the Mediterranean coast, had recently become a textile production hub for several countries. The city was particularly important for Inditex, as it concentrated virtually all of the production sourced from Morocco. The program sought to identify the needs of production chain female workers and their families, most of whom lived in Tangier’s poorest boroughs, especially Beni Makada and Charf. Four local community associations (Ain Hayani from Dradeb ‐ Ain Hayani; Mesnana from its namesake neighborhood ; Mouatina in Jerari and Beni Makada; and Ben Kirane from Charf) were chosen to build an alliance that would contribute to improving living conditions in their respective communities. Within the program, these centers were known as “basic community service centers” (BCSCs). The work at BCSCs was intended to respond to the specific needs of workers, their families and communities directly or indirectly linked to Inditex’s supplier base. Currently, BCSC’s social service offerings included: day ‐ care facilities for female workers’ children, literacy programs, health services, informal education, basic technical training on textile manufacture, legal counsel, administrative and labor assistance, and awareness programs on health and hygiene ‐ related issues. In 2002, Fundación Codespa conducted a field survey for a total population of 3,720 people and a 420 employee sample. Additionally, managers at the factories included in the study were interviewed in depth to collect their opinion on personnel training needs, as well as potential services that would better socio ‐ economic conditions for employees and their families. The five companies selected (Novaco, Solange, An ‐ Yo, Gehatex and Amernis) all complied with the social responsibility standards set by Inditex’s Code of Conduct for Outsourcing Manufacturers and Shops on issues such as compensation policies, workers’ minimum age, health and safety, freedom of association and antidiscrimination. The survey findings provided a guideline for Inditex to design suitable programs. First, the study clearly showed that shop workers were very poor. Morocco’s apparel industry adhered to the standard minimum wage, set at approximately € 180 a month. By linking monthly income (€ 180) to the number of household members, an initial approach to actual poverty levels could be drawn. As shown in Table 1, extreme poverty affected 19% of workers’ households, while 36% of the overall working
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population lived in severe poverty. Table 1 Textile shop population household distribution
Rating Type ‐ A households Type ‐ B households Type ‐ C households
Category Moderate poverty
Description 1 to 2 people per salary € 90 ‐ 180 euros per month per person
% 45 %
Severe poverty 3 to 4 people per salary € 45 ‐ 60 euros per month per person Extreme poverty More than 5 people per salary € 36 euros per month per person
36 %
19 %
Tangier was divided into four urban boroughs. Most surveyed factory workers resided at Beni Makada (53 %) ‐ an area that had experienced great growth in recent years as a result of internal migration. The remaining 57% of workers lived in Charf (22%), Tanger Ville (19%) and Mesnana (6%). An analysis of household conditions in each area revealed that the borough that registered the largest number of extreme poverty workers was Beni Makada, with a 23% share of type ‐ C households. Also, it was the area showing the greatest density of textile industry workers. The second worst area was Charf, while Mesnana displayed a larger share of type ‐ A households ‐ i.e., workers who lived in moderate poverty (one or two people living off a single salary). Most workers from Tanger Ville lived in severe poverty ‐ type ‐ B households (see Table 2). These harsh initial results shocked Inditex top executives: poverty in Tangier was excruciatingly real.
Type ‐ A households Type ‐ B households Type ‐ C households
Beni Makada 47 %
Charf 45 %
Tanger Ville 39 %
Mesnana 54 %
30 %
38 %
49 %
32 %
23%
17 %
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12 %
14 %
In addition, the survey revealed that literacy rates among workers varied according to gender and age. Specifically, one out of every three female workers was illiterate, and this rate worsened as workers got older: the highest illiteracy rate ‐ 56% ‐ was found among female workers over 45 years of age. During the study, shop workers expressed their interest in learning to read and write and their need for courses to be delivered outside business hours. They also believed they needed to boost their job expertise, since textile factory employment opportunities increased substantially for qualified workers. This demand reflected clearly on the opinions voiced by textile businessmen and the training courses required by employees. In addition, this line of work especially favored women ’s access to the labor market, thus enhancing gender equality, while male workers’ incorporation to textile industry jobs was also viewed as an interesting option to mitigate high local unemployment rates. The survey also revealed that the greatest concern for this population hinged on economic and family instability. In addition, executives at the above ‐ mentioned five factories were also interviewed to gather their educated opinion on industry labor market demands, as well as their views on the services offered through basic community service centers (BCSCs). Interviews focused on the following objectives: getting an overall description of each organization; assessing job training requirement complexity and identifying major training issues; collecting information on human resources, recruiting and hiring practices, and measuring executives’ knowledge and opinions on services offered by BCSCs. Pilot programs’ early results seemed encouraging: employee absenteeism and turnover reductions had enabled factories to improve their productivity, and their social impact on communities exceeded the specific purview of business production. Apparently, programs drew opposing reactions: several companies not only were willing to join in on the project, but also showed their unequivocal enthusiasm, while others ‐ reluctant to participate ‐ threatened to move their operations if pressed to join any program. Furthermore, it seemed that most committed companies were local suppliers, whereas project opponents were, for the most part, foreign manufacturers that had set up shop in Morocco exclusively for cost reduction and customer proximity purposes. Moroccan production costs were lower than in Turkey or Poland
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and higher than India’s or Bangladesh’s. Inditex was now working with fewer suppliers in Morocco; yet, the latter were producing more garments. Specifically, 3% of the group’s production came from Northern Africa (Morocco), while 3% was produced in Latin America (Mexico, Peru, Venezuela, Brazil and Argentina), 23% in Asia (China, India, Bangladesh, Thailand, Cambodia, Viet Nam, Pakistan, Indonesia, Sri Lanka and South Korea), 12% in European non ‐ EU member nations (Rumania, Turkey, Lithuania and Bulgaria), and the remaining 59% in the European Union (primarily in Spain and Portugal). Javier Chércoles wondered if that was the right path ‐ i.e., whether, instead of going around the world with an army of consultants to certify shops, it would be better to focus on improving Moroccan textile workers’ living conditions in order to enhance shop productivity. The program had not been too costly: during the 2002 ‐ 2004 period, Inditex had contributed € 450,000 to Fundación Codespa for program development and assistance to Moroccan partners. Also, it had provided € 240,000 directly to shops in Morocco to improve their safety and hygiene standards. Nonetheless, the program had also met with some opposition. In fact, it had been a topic of debate at both the Board and the Social Council. Was it the role of a multinational to provide social services to local populations? Was Inditex actually replacing the Moroccan Government in its responsibilities? What would company shareholders think?
The Social Council and the Moroccan Government
Inditex’s Social Council included four NGO representatives and a faculty member from a business school. Its composition was meant to provide broad third ‐ sector coverage in terms of outlooks and interests and, at the same time, preserve operating efficiency through a reduced number of members. In addition, Social Council meetings were also attended, without voting rights, by the company’s Corporate Social Responsibility Department director and Inditex ’s secretary general, who also served as the Council Secretary, to assist its chairman in his duties and to contribute to Council performance. At this particular meeting, the single item on the agenda was the discussion of the Tangier project. Major project obstacles had been found to include: first, lacking support from
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international NGOs and multilateral agencies as a result of Clean Clothes Campaign’s ongoing attacks to Inditex in Morocco; second, the lack of a local social capital that could support the company’s CSR strategy demands and needs, and, finally, the absence of an organized union structure at Moroccan outsourcing plants. These hurdles were overcome through the development of social equity in the four communities where Inditex workers lived, as well as the promotion of and support to union activities in collaboration with major Moroccan, Spanish (CCOO ‐ Fitega) and international (ITWGTF) unions. Fortunately, the Moroccan Government had begun to acknowledge the domestic significance of the country’s textile industry. Morocco’s industry white book read: “The textile and apparel industry plays a major role in Moroccan economy, accounting for 35% of exports and 40% of industrial jobs…”3 (). It had been recognized that the nation’s textile sector was undergoing a major transformation due to several factors, such as quota abolishment and China’s incorporation to the WTO (January 2005), swift consumption growth in Europe (and the rest of the world), social and economic stability in Northern Africa, Euro ‐ Mediterranean partnership potential, and Europe’s interest in keeping Arab countries, like Morocco, in the industrial race. Meeting attendants wondered if, before moving on to other cities, Inditex should first find out why it was so severely criticized for its Moroccan activities. Some managers were pondering whether Inditex should explain their efforts in Morocco to stop critiques. Other company executives were beginning to feel that it would be easier to stop outsourcing production in Morocco and move to China or other parts of the world, where NGOs found it harder to oversee shop operations. Many were wondering if there was another way to work with the poor in developing nations.
Annex 1 : Inditex Retail Chains Zara (www.zara.com), whose first store opened in 1975 in La Coruña (Spain), operates in 46 countries through a network of over 600 stores in top, major ‐ city locations. At Zara, design is Zara conceived as a process closely related to customer demands. The information constantly provided by stores enables Zara’s 200 ‐ member designer team to turn customer needs into retail offerings. Pull and Bear (www.pullandbear.com) was created by Inditex in 1991. Its fashion concept Pull and Bear targets young, urban segments aged 14 to 28. Pull and Bear stores are meant to be more than just points of sale. Apparel, accessory and make ‐ up offerings are complemented by additional services: music, video clips, a coffee ‐ shop, a videogame area. The chain includes 350 stores located in 18 countries. Massimo Dutti (www.massimodutti.com) was founded in 1985 and acquired by Inditex in 1991. Massimo Dutti Currently, it owns 300 stores in 23 countries. Massimo Dutti offers universal fashion designs for both men and women, featuring a line scope that ranges from the most urban sophisticated offerings to more sportive garments. Bershka (www.bershka.com) originated in April 1998 as a new store and fashion concept to Bershka address the needs of younger women (and men, as of 2002). The 250 Bershka stores in 13 countries, with their vanguard aesthetics and large surfaces, intend to provide a dedicated environment for fashion, music and urban art. Stradivarius (www.e ‐ stradivarius.com), a chain acquired by Inditex in 1999, offers the latest Stradivarius design, knitwear and accessory developments to female segments. Its almost 200 stores in 9 countries combine color, light, space and music with young, hip fashion design. Oysho, created in 2001, takes Inditex concepts to the world of lingerie and female underwear, Oysho delivering the latest trends with top quality and reasonable prices. This chain owns more than 75 stores in 8 countries. Kiddy´s Class, with over 100 stores in Spain and Portugal, is the result of Inditex decision to Kiddy´s Class enhance its children clothing market positioning. These stores are located in small towns, where there are no Zara stores, or in urban areas where Zara stores do not have a dedicated department for children wear. During the 2003 fiscal year, Inditex opened the first Zara Home chain stores (www.zarahome.com) ‐ the group’s eighth retail format. This new chain pursues the original Zara Home Zara strategy, frequently renewing its home offerings and providing top design products at attractive prices. By late January 2004, barely six months after its launching, Zara Home had opened 26 stores in Spain, Portugal, Greece and the United Kingdom.
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Annex 2 : Evolution of Inditex Group Selected Data over Recent Fiscal Years Total sales Net income Number of stores Number of countries International sales Employees 1997 117 622 14 36% 1998 153 748 21 46% 1999 205 922 30 48% 2000 259 108 33 53% 2001 340 1284 39 54% 2002 438 1558 44 54% 2003 447 1992 48 54% 2004 628 2244 56 55% 2005 1 217 1 615 2 035 2 615 3 251 3 974 4 599 5 761 6 741 803 2692 62 57%
2000 2001
Inditex moves its headquarters to a new building in Arteixo (La Coruña, Spain). Stores are opened in four new markets: Andorra, Austria, Denmark and Qatar. Inditex launches its lingerie chain, Oysho. On May 23, 2001, the group goes public. It also starts operating in Ireland, Iceland, Italy, Luxembourg, the Czech Republic, Puerto Rico and Jordan.
2002 2003
A new logistic center for Zara is built in Zaragoza. The group opens new stores in Finland, Switzerland, El Salvador, the Dominican Republic and Singapore. The group opens its first Zara Home stores ‐ its eighth chain. Inditex inaugurates the second Zara distribution center in Zaragoza (Spain) to complement the Arteixo (La Coruña, Spain) logistic center. New store openings take place in Slovenia, Slovakia, Russia and Malaysia.
2004 Amancio Ortega Gaona, Inditex president and founder, starts his apparel manufacturing business. Operations grow steadily during a decade until the company owns several plants supplying products to several European countries. 2005
Inditex opens its 2000t h store in Hong Kong. The group now operates in 50 countries in Europe, the Americas, Asia and Africa. The first store in Morocco is opened this same year. Inditex opens its first stores in Monaco, Indonesia, Thailand, Philippines and Costa Rica
Annex 3 : Inditex Milestones
1963 ‐ 1974
Annex 4 : Inditex outsourced factories around the World (2004 ‐ 2006)
The first Zara store opens its doors in a downtown La Coruña (Spain) location. Zara’s fashion concept is welcomed by customers, and the chain expands throughout major Spanish cities. Inditex is created as a holding company atop all group companies. The group’s manufacturing companies pour their entire output to Zara. The groundwork is laid for a logistic system that meets the needs of the group’s strong projected growth. In December, the first Zara store outside Spain is inaugurated in Oporto (Portugal). The group starts operating in the United States and France, opening stores in New York (1989) and Paris (1990). Inditex creates the Pull & Bear chain and acquires 65 % interest in Massimo Dutti. Inditex enters into new international markets: Mexico (1992), Greece (1993), Belgium and Sweden (1994). In 1995, Inditex acquires the remaining stock at Massimo Dutti. The group opens its first store in Malta, to be followed by its first store in Cyprus the following year. Norway and Israel join the list of countries where Inditex operates. Bershka is founded to address the apparel demands of younger women. The group opens new stores in several countries: the United Kingdom, Turkey, Argentina, Venezuela, Arab Emirates, Japan, Kuwait and Lebanon. North Africa Americas Asia Turkey + East Europe) European Union Total External suppliers 31 ‐ 1 ‐ 2004 139 74 488 174 1,763 2,638 External suppliers abandoned in 2004 81 34 239 89 901 1,344 External suppliers 31 ‐ 01 – 2005 91 61 464 138 932 1,686
Inditex acquires Stradivarius, the group’s fifth chain. New stores are added to the group’s network in Holland, Germany, Poland, Saudi Arabia, Bahrain, Canada, Brazil, Chile and Uruguay.
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Annex 5 Internal Code of Conduct
Employees Inditex does not employ minors. No Inditex employee is discriminated on account of his/her race, physical handicap, religion, age, nationality or gender. Inditex recognizes employees’ right to union affiliation, association and collective negotiations. No form of physical, sexual, psychological or verbal abuse is tolerated at Inditex. Inditex employee salaries depend on job descriptions and comply with sector labor agreements. Inditex guarantees a safe and healthy work environment for all its employees. Business partners Inditex ensures that each and every one of its business partners complies with the clauses on customers and employees of the present Code. Suppliers Inditex outsourcing manufacturers and shops must comply with the clauses on customers and employees of the present Code. In addition, they allow Inditex or authorized parties to verify their compliance. Customers Inditex is committed to offering customers top product quality and guarantees that its products pose no health or safety risks. Society Inditex is committed to collaborating with the local, national and international communities where it operates.
emphasis on compensation, recruiting, health, safety, child labor and environmental policies. This Code of Conduct focuses on eleven items: Child labor Outsourcing Manufacturers and Shops will not employ minors. Minors are defined as individuals under the age of 16 or, exceptionally, 14 in countries included in article 2.4 of the International Labor Organization’s Covenant 138. Local legislations setting an older age will be respected. No discrimination Outsourcing Manufacturers and Shops will not discriminate on the basis of gender, race, religion, age, nationality, sexual orientation, political affiliation, and physical or mental handicap. Freedom of association Outsourcing Manufacturers and Shops will respect employees’ right to associate, affiliate or negotiate collectively, subjecting them to no sanctions of any kind in this regard. Harassment and abuse Employees at Outsourcing Manufacturers and Shops will be treated with dignity and respect. No physical punishment, harassment or abuse of any kind will be permitted at any time. Health and safety Outsourcing Manufacturers and Shops will provide a safe and healthy work environment for their employees, in compliance with local legislation, ensuring reasonable lighting, ventilation, hygiene, and fire protection conditions, as well as access to drinking water. They will also ensure these conditions at all employee facilities. Compensation policy Outsourcing Manufacturers and Shops will abide by any current labor legislation. They will pay at least the minimum wages set by law for each job category. Environmental care Outsourcing Manufacturers and Shops will be forced to comply with current environmental legislation. Subcontracting Policy Outsourcing Manufacturers and Shops subcontracting jobs for Inditex will ensure that subcontractors also abide by the present Code of Conduct.
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Annex 6 : Code of Conduct for Outsourcing Manufacturers and Shops
In order to guarantee adequate Internal Code of Conduct observance and management throughout Inditex production chain, a Code of Conduct for Outsourcing Manufacturers and Shops was formulated. This Code of Conduct is based on the principles contained in the Universal Declaration of Human Rights, the United Nations’ Convention on Children Rights and the International Labor Organization’s conventions numbers 29, 87, 98, 100, 105, 111, 138, 182 and 190, with a special
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Other applicable laws Outsourcing Manufacturers and Shops will abide by all current local, national and international laws. Supervision and enforcement Outsourcing Manufacturers and Shops will allow Inditex to carry out or commission inspections to ensure Code compliance and will provide supervisors and inspectors with the necessary documentation and means for this process. Code Publication Outsourcing Manufacturers’ and Shops’ heads will inform their employees of Code contents. A copy of the present Code will be translated into the local language and posted in a visible location for all employees.
Annex 7 : Labor costs in the garment industry worldwide
