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Promoting industry-wide implementation of better wage systems that meet the basic needs of workers is an opportunity for fashion brands to expand their contribution to the prosperity of the people employed along their value chain, their families and the greater community. It can also have the potential to increase productivity and reduce employee churn, increase the quality of output, improve the reliability of deliveries and foster employee-driven innovation. Although most fashion brands do not set the wages of production workers, they have a role to play in promoting systemic changes, which is needed due to institutional failings.

Dr Frank Hoffer is the Executive Director of ACT (Action, Collaboration, Transformation). He shares his perspective on how brands can use their position to promote better wage systems along their supply chain.

The garment industry is constantly searching for cost-effective production locations – and low labour costs are a decisive factor. At the same time ethical business practices, human rights due diligence and consumer expectations require companies to ensure fair and just wages in their supply chain.  But how can ethics win over money in a world where stock markets want to see growing rates of return every three months?

Individual corporate efforts to raise ethical standards quickly reach competitive limits. If consumers decide to buy according to ethical principles, markets will respond. And if once profitable business practices like slavery, child labour, pollution, toxic chemicals or excessive working hours become illegal, most businesses of course stop doing them. However, requesting individual businesses to bear the ethical costs when competitors don’t come close to a Sisyphean task. 

Requesting fair play in a game without rules has its obvious limitations. We need fair rules of the game, but also a neutral platform where companies can come together at a pre-competitive stage to transform the playing field. ACT (Action, Collaboration, Transformation) is a joint agreement between international companies and trade unions to work together to raise standards through national collective bargaining at industry level supported by international purchasing practices. Fair and transparent payment terms; better forecasting and planning; long-term relations with suppliers; and a commitment to cover higher wages in purchasing prices are essential to providing national actors with the planning security and the economic space to improve wages and working conditions.

Requesting individual businesses to bear the ethical costs when competitors don’t is likely a Sisyphean task.

At ACT we use a collective bargaining approach in which employers and trade unions negotiate wages and working conditions at industry-level in their country, with brands incorporating the higher wage costs in their purchasing prices. This method needs to be progressively extended to a growing number of key sourcing countries to avoid relocations motivated by wage costs. As a result, the first countries to implement the new approach of coordinated wage setting will receive support through country specific commitments of ACT member companies that will be developed in consultation with the national actors.

In Cambodia, where the ACT process is most advanced, member companies have committed to increasing their sourcing over the next four years, with rising wage costs to be reflected in purchasing prices, just as forecasting and planning will be improved, and sourcing will be focussed on suppliers complying with the collective bargaining agreement. These unique commitments from twenty ACT member companies are conditional on a collective bargaining agreement at industry level that secures freedom of association and an annual wage increase above inflation plus productivity growth. A transparent monitoring process on commitments and a complaints and dispute resolution mechanism are currently being developed to build confidence and trust among all actors that the commitments will be implemented. 

ACT member companies are committed to working together to change the way wages and working conditions are set in the global garment and textile sector and invite others to join. Structuring better wage systems within the fashion industry is a huge task, one that requires systemic change and calls for industry-wide, pre-competitive collaboration.

Global Fashion Agenda has reached out to industry leaders to get their perspective on the priorities in the CEO Agenda and how to get closer to solutions. The think pieces are a reflection of their personal or organisation’s approach to the issues and do not necessarily state or reflect the opinions and views of Global Fashion Agenda and its Strategic Partners.