tos SK E0 9 9 DEC EMBER , 2006 rP ALFRED VERNIS MARC VILANOVA VERÓNICA FIGUEROA Inditex: Outsourcing in Tangier yo “Intermón claims that pressures on foreign clothing suppliers are smothering employees. […] In Morocco, where Cortefiel, Inditex (Zara), Mango and Induyco (El Corte Inglés) man ufacture 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) It was early in October 2005, and the date set for the next Social Council meeting was fast op 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 tC 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? No In recent years, the textile industry had become highly globalized as a result of a strong trend 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 p erformance 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 ________________________________________________________________________________________________________________ Professor Alfred Vernis prepared this case with the support of Research Associates Marc Vilanova and Verónica Figueroa, all from ESADE Business School, as part of the SEKN Case Collection. SEKN cases are developed solely as the basis for class discussion. Cases are not intended to Do serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2006 ESADE. To order copies or request permission to reproduce materials, call (800) 988-0886 or (6 17) 783-7500 outside the U.S. and Canada, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted i n any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of the above mentioned copyright holder. At the time this case was developed, the SEKN membership consisted of AVINA, EGADE, Harvard Business School, INCAE, Pontificia Universidad Católica de Chile, Universidad de Los Andes, Universidad de San Andrés, Universidade do Sao Paulo, FGV -EAESP, IESA, ESADE and Universidad del Pacífico. This document is authorized for educator review use only by Natalia Manso Alvarez, HE OTHER until February 2018. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860 783. Inditex was held responsible for what went on at outsourcing shops owned by Moroccan. Spain. multilateral agencies and global NGOs had begun to look into and report on wrongful practices by large corporations. Amancio Ortega Gaona. Group figures –presented in Exhibit 2 .190 employees. was a world leader in its sector.945 stores that grossed over 80% of its total sales.67 billion in 2004. there were half a dozen Zara stores in Galicia. the group had an overall headcount of 58.A. Since then. Peruvian. between 1989 and 1998. Chinese or Indian businessmen. Spain. such as Pull and Bear and Massimo Dutti. founder of Inditex. Most Inditex stores were wholly-owned and managed by the company. The first Zara store was inaugurated in La Coruña. HE OTHER until February 2018. Zara was positioned as No a store selling quality fashion clothing at reasonable prices. featuring 1. its oldest and most internationally expanded chain. In 1985.7860 . 2 This document is authorized for educator review use only by Natalia Manso Alvarez. Asia and Africa. the company expanded to 18 additional countries. its suppliers and outsourcing shops. Social Responsibility Department director at Inditex. with more than 2. Since inception. Spain’s Inditex (Industria de Diseño Textil) Group. developing or acquiring other fashion brands. was established as a holding company atop Zara (see the group’s current organization chart in Exhibit 3). its expansion gathered momentum: the first store outside Spain was opened in 1988 (in Portugal). owner of several retail brands including Zara. significantly calling the attention of increasingly sensitive and aware consumers and customers. in 1963. Since then. fully described in Exhibit 4. and. social and economic concerns regarding its employees.600 stores in 62 countries. including vendors and rP outsourced suppliers. company audited and certified production centers and providers in the Americas. Europe and Do Asia. the Americas. by 2005. Bershka. started his first apparel manufacturing factory.harvard. Global society was urging apparel industry players to adopt a more responsible attitude to be embraced by their entire business value chain. Inditex S. Permissions@hbsp. with 724 stores located in 54 countries.show that Zara. Confecciones Goa. Inditex had experienced significant growth over the past few years. store. Copying or posting is an infringement of copyright. in 1975. Throughout this process. Inditex engulfed eight retail chains with broad international presence (see Exhibit 1). 2005. Africa. franchises were only used for 12% tC of the group’s points of sale. This was precisely why Javier Chércoles.000 stores located outside Spain accounted for 57. Stradivarius. Slovakia.A. manufacturing and distribution op operations. Zara Home and Kiddy’s Class. Massimo Dutti. Pull and Bear. ESADE Business School Case Study t os practices. environmental care and unfair competition. and stores were opened in four new markets: Slovenia.edu or 617. as the company struggled to uphold the values and principles inspiring the Group’s CSR strategies. the Group underwent deep structural changes and went from being an exclusively Spain-based producing chain in 1980 to deploying.5% of the group’s sales. Thus. was losing sleep: how could they know for sure what happened in over 1. Soon he developed an interest for retailing and opened the first Zara S.800 outsourcing shops scattered all around the world? Inditex Group Evolution yo By late 2005. Russia and Malaysia. accounted for 70% of its overall business. posting a net income of € 628 million on consolidated revenues of € 5. especially in terms of labor. the more than 1. As multinational companies embarked on this process. By the end of the 1970s. the company had opened stores in over 400 cities in Europe. which became his first retail and distribution company. Oysho. This new scheme posed new challenges for Inditex. Europe was Inditex’s core business focus. contributing 10% to total store sales from all chains. As of December 31. In 2005. The group also included other companies associated with apparel business design. The Clean Clothes Campaign had such a vast impact in No Europe that. especially in the case of Inditex (see Setem’s press release presented in Exhibit 8). Setem purchased Inditex stock in order to join the company’s annual Do Shareholders’ Meetings. 2004) In 1992.” Instead. more established organization. is Inditex really and globally committed to CSR? yo (Press release by SETEM NGO. as well as to raising consumer awareness on industry abuses. purchasing practices. ESADE Business School Case Study t os Zara was a successful store. by 2004. 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. Permissions@hbsp. This implied the adoption of specific practices. the European Parliament praised its work and recommended the European Commission to explicitly support this organization. like Nike. Industry leaders. apparel company. NGO that coordinates the Clean Clothes Campaign. In 1994. and success brings visibility. such as its Code of Conduct’s failure to refer to International Labor Organization (ILO) standards and the right to a fair wage.org>. many NGOs were still quite skeptical when it came to textile industry practices. Copying or posting is an infringement of copyright. In 2001. a Nike and Reebok supplier. a U. Since the creation of the Inditex Corporate Social Responsibility Department.harvard.S. However. June 15. the Clean Clothes Campaign had been initially led by Setem. a Spanish development NGO. HE OTHER until February 2018. 1 an organization that originated in Holland in 1984 and. These precedents had driven large textile companies all over the world to adopt socially responsible strategies and policies. a larger. 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’.783.7860 . –in short. all the aspects that truly determine a business culture based on ethics and respect and translate into more than just aesthetic moves. and later by Intermón Oxfam. In 1998. etc. It was devoted to pressing apparel multinationals to ensure all their products and services were produced in accordance with fair labor policies. such tC as inspection. H&M. in order to question company officials on primary issues. had already turned into an informal NGO and union network spanning throughout the world. was charged for violating labor standards by hiring minors to work up to 10 hours a day and allowing verbal and physical employee abuses. charges were brought against Adidas for forcing op prison inmates in China to work in despicable conditions. Intermón-Oxfam preferred a more collaborative approach to both the entire industry and Inditex in particular. Intermón- 1 <www. 3 This document is authorized for educator review use only by Natalia Manso Alvarez. For several.SETEM. Kukdong. In Spain. Stakeholders’ Reaction to Inditex CSR Strategy rP “Arteixo. Especially noteworthy in this regard was the Clean Clothes Campaign. So. Both had adopted differing strategies in their dealings with the industry: while Setem pursued an ongoing and outspoken advocacy strategy. in 1997. was accused of selling jeans manufactured by Chinese immigrants working in slavery -like conditions. audit and evaluation mechanisms for outsourcing shops. management transparence. Levi’s. to be held tomorrow at Arteixo in La Coruña.. both the media and the NGO community had their eyes set on Zara. a fact the company could not ignore.edu or 617. SETEM-Clean Clothes Campaign has monitored the company’s commitment to labor rights. Benetton and Gap. will attend the textile Inditex Group’s General Shareholders’ Meeting. reasons.cleanclothes. Copying or posting is an infringement of copyright. such as labor instability and unsafe working conditions.in Galicia. At the end of the day. keeping inventories to a minimum and reducing fashion risks. Latin America and Asia. 4 This document is authorized for educator review use only by Natalia Manso Alvarez. to collect the necessary information to adjust store offerings to consumer demands. it Do was reinitiated. 2 In other words. as opposed to its international competitors ’ operations. The key to Inditex’s strategy lay in continued offering adjustment. They preferred traditional channels. They believed that it was crucial for Inditex to set in place suitable mechanisms to approach its stakeholders. so as to quickly respond to ever- No changing customer needs.edu or 617. Still. flexibility and low cost strategies on sector players in an attempt to minimize their negative impacts. logistics. based on stringent order fulfillment terms. Available at www. Clean Clothes Campaign platforms were approaching several sector multinationals to formulate a proposal for good practices in the textile industry. nor to engage NGOs. HE OTHER until February 2018. a development NGO used to working with business companies. Working paper. rather. A group of Inditex top executives recognized the need to approa ch company stakeholders yo meaningfully and to develop sound CSR strategies. A flexible. manufacturing. primarily focusing on more fashion -dependent items.intermonoxfam. some companies and NGOs were trying to analyze market pressures forcing harsh productivity. to be delivered to stores around the world. and its demand for suppliers to comply with its ethical code. such as business chambers.harvard. Its key weakness lies in its difficulty to match its aggressive marketing policy. some Inditex top executives and middle managers did not see the need to develop op CSR strategies . The group’s own production accounted for 40% to 50% of its total manufacturing operations. and collaborating with several NGOs in social programs in Africa. 2 Intermón-Oxfam. ESADE Business School Case Study t os Oxfam.7860 .783. that referred specifically to Inditex in the following terms: “This is the Spanish apparel group that has made more progress in CSR issues. unions and government mediation. in their view. which were more fragmented. while outside suppliers provided other kinds of garments.” rP Currently. Production Outsourcing Practices tC Inditex’s business model hinged on extensive forward integration. Posibles Buenas Prácticas en el Sector Textil. NGO accusations lacked any legal or factual grounds. 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. On the other hand. since stores actually collected market-specific information to be fed to design teams in order to complete the cycle. 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. 2005. highly customer-oriented structure handled the entire process. The company had already moved in this direction through the creation of a Social Council. Moda que Aprieta (February 2004). The process did not end at points of sale. intended to engage the company’s stakeholders in an ongoing and fluent dialog. including design. Permissions@hbsp. Regardless of their origin. at the same time. published a report. Vertical integration allowed for swift turnover and flexibility. and distribution operations.org. Inditex was also partnering with the Spanish Red Cross in relief efforts for the environmental disaster caused by an oil tanker –the Prestige. all garments were shipped to distribution centers for each chain. Inditex formulated its CSR policies. For this reason. yo Chercole’s arrival caused some uneasiness among managers. Thus. Amancio Ortega and José María Castellanos were both aware of this fact. he methodically reviewed Inditex shops around the world.” stated Amancio Ortega en 2003.783. 5 This document is authorized for educator review use only by Natalia Manso Alvarez. purchasing managers were asked to rank their suppliers according to that scorecard. Inditex. Javier and his staff created a complex database—dubbed the “corporate DNA” as it structured a “complex organism”—that factored in economic. could be working for Inditex in severe violation of human rights. tC “No large company. supported by a team of consultants. this business model partly relied on Inditex’s successful manufacturing process outsourcing strategy. to great benefit to company stockholders? CSR Strategy for Suppliers op Javier Chércoles set to work. Ortega y Castellanos had given him a vote of confidence. social and environmental indicators. so as to integrate social and environmental criteria into their purchasing decisions. which should rely on three core principles: goodwill.edu or 617. Thus. had developed a CSR strategy based on its relationship with its stakeholders. Chércoles was a passionate young man. HE OTHER until February 2018. What would this outsider do? Would he dare meddle in their activities. From then on. will survive in the future without an ambitious social responsibility plan. pointed out. awareness. “With this strategy. he decided to formulate a CSR strategy that would provide a framework for the group’s production chain. dialog and transparency. he realized that this was a recurrent. under the guidance of Javier Chércoles and with the approval of its Board. Accordingly. including: ! A code of conduct and a social audit program for outsourcing factories and providers. time-consuming task involving a constant risk: some shop. the company has accomplished greater flexibility and lower manufactured unit cost – two rather uncommon feats in this industry. His mission was to reduce the damaging risks for Inditex’s image. ESADE Business School Case Study t os Hence. they decided to hire an entrepreneur who was working as a consultant in London at the time: Javier Chércoles. sponsorship and patronage initiatives. and risky for the company.7860 .” Ironically. anywhere in the world.harvard. public or otherwise. and. Permissions@hbsp. Soon. at any time. ! A first pilot program designed to survey the needs of supply chain workers in Morocco. No ! Community development programs and production chain strengthening. the over 1. when Inditex went public in 2001. ! Active involvement in local and international CSR networks and stakeholder engagement venues. Inditex vice president and deputy counsel. Copying or posting is an infringement of copyright. which they had been carrying out so aptly.also embodied the foremost risk factor for the company’s rP reputation. particularly among the 200 members of the purchasing department that dealt with 1. who always made an impression –either positive or negative. As José María Castellanos. According to these tenets.800 outsourced workshops around the world.800 shops supplying Inditex from all over the world –listed in Exhibit 5. He had won over the company’s president and vice president by candidly expressing his views. 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 Do corners. domestic and international communities as part of its commitment to No society. such as location selection. product and service quality standards for customers. monitoring code Do compliance by outsourcing manufacturers and shops. such as good labor practices for Inditex employees. no harassment or abuse of any kind.7860 . Inditex also adopted environmentally responsible management and certification systems (such as ISO 14001 standards). community involvement. environmental care. Permissions@hbsp. in turn. The internal code included specific commitments to stakeholders. at the same time. the company tried to identify the challenges faced by workers –mostly youths. development and poverty reduction opportunities while enhancing productivity. outcome management through valuation reports that eventually translated into shop or factory rejection or corrective action plans.harvard. As Javier Chércoles put it. job training. According to company managers. Despite these efforts. “Our corporate responsibility contributions to these countries and their communities have been minimal over the past twenty years. The external code.” 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. finally. tC Code of Conduct and Social Audit Program Inditex Code of Conduct consisted of two sections: one referring to internal affairs (Exhibit 6) and another one for external issues (E xhibit 7). no discrimination. subcontracting practices. the company included the implementation of production chain strengthening programs. engagement platforms. among its priorities. The company had to support the communities affected by its operations. this process was meant to trigger a continued improvement cycle of working conditions at Inditex partner s hops and factories. The social audit program was managed in accordance to the company’s code of conduct. the group would effectively contribute to improving welfare conditions at the communities where it operated. as well as sponsorship and patronage activities. cooperative and micro-venture promotion.” He believed that ensuring conduct code compliance was not enough. and legislation compliance. corporate management still felt that the initiatives launched by the group. educational material. was compulsory for outsourcing manufacturers and shops and included specific practice commitments related to the following issues: no child labor employment. “This situation afforded an opportunity and. In addition. Thus. meant to promote overall respect for human rights from op suppliers’ factories to the communities where workers lived. 6 This document is authorized for educator review use only by Natalia Manso Alvarez. rP especially in developing nations. compensation s. HE OTHER until February 2018. the code forced outsourcing manufacturers and shops to commit to disseminating the code in their respective organizations and to allow Inditex to enforce it. freedom of association. promoting jobs. required more depth. and. ESADE Business School Case Study t os Finally. yo For Javier.in order to provide specific remedies through literacy programs. the promotion of the same practices among business partners and suppliers. called for a commitment to build business models that took into account not only economic but also environmental and social criteria. independent social auditors’ evaluation and recruiting. Copying or posting is an infringement of copyright.783. health and safety conditions. and company involvement in local. Through surveys conducted at factories. analyzing their economic impacts through supply and distribution chain strengthening programs.” To conclude this process. 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. exclusive dedication) much more than what local governments specifically demand. This program was intended to foster and develop the necessary actions to guarantee code enforcement. teachers’ training.edu or 617. 000 people in Morocco and gross 3. project sponsorship focused on cultural issues (orchestra and museum support) and relief efforts for specific emergencies. such as fundraising campaigns to provide op schooling for children in developing countries.783. Copying or posting is an infringement of copyright. its secretary general. Permissions@hbsp. H&M. February 6. 2005. Lastly. it had been decisively supported by José María Castellanos. family and community matters. These partnerships included. domestic and international NGOs or associations to partner with.harvard. Inditex’s vice president. their families and communities. “Marruecos se Aprieta el Cinturón“. The company implemented these programs in three areas: community development. Entreculturas-Fe y Alegría and Centro Gumilla.687 companies employ some 200. the Moroccan textile industry is being threatened. Since inception. Next. or The Global Alliance for Workers and The Communities. Inditex’s store network was used for special awareness projects. The French. HE OTHER until February 2018. most of whom lived in Tangier’s poorest boroughs. 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. in collaboration with foundations such as Padeia. Venezuela and Peru.7860 . especially Beni Makada and 7 This document is authorized for educator review use only by Natalia Manso Alvarez. as well as to raise public awareness yo through its store networks.” El País Newspaper. Inditex developed specific initiatives to improve social and labor conditions for workers. for instance. social fabric development. In addition. ESADE Business School Case Study t os Community Development Programs These programs promoted education and learning as a means to fuel development in the communities where Inditex operated. at the same time. such as the sinking of the Prestige oil tanker off the Galicia coast in 2002. such as education. The company’s CSR department was fully committed to its implementation. However. These activities were undertaken in collaboration with NGOs such as Fundación Codespa. and Antonio Abril. as it concentrated virtually all of the production sourced from Morocco. like Nike. projects for social and employment integration for vulnerable segments in Spain. measure and prioritize their needs associated with specific issues. a Moroccan city on the Mediterranean coast. it identified local. Its goal was to work on specific social issues. production and distribution chains. The first pilot experience was carried out in Morocco. factory and shop employees were surveyed as well to detect. all major retailers outsource a share of their apparel manufacturing operations in Morocco.are currently analyzing or have already started to move their No production operations from Morocco to China or India. had recently become a textile production hub for several countries (see Exhibits 9 through 11 for socio-demographic data on Morocco and Tangier).15 billion euros in revenues. In rP community development. The city was particularly important for Inditex. Puma and Pinky –none from Spain so far. The program sought to identify the needs of production chain female workers and their families. Do Tangier. Within its production and distribution chains. and project sponsorship. Some leading brands. A total of 1. tC Special Program for Tangier Workers “From El Corte Inglés and Cortefiel to Inditex.edu or 617. Spanish and British markets absorb 82% of Moroccan exports. The Tangier program was managed through a collaboration agreement between the company and Fundación Codespa. job training. Finally. driving. findings were analyzed and an action plan was drawn. rP The work at BCSCs was intended to respond to the specific needs of workers.harvard. health and safety. op The survey findings provided a guideline for Inditex to design suitable programs. while Mesnana displayed a larger share of type-A households –i. HE OTHER until February 2018. ESADE Business School Case Study t os Charf. and Ben Kirane from Charf) were chosen to build an alliance that would contribute to improving living conditions in their respective communities. These harsh initial results shocked Inditex top executives: poverty in Tangier was excruciatingly real.. legal counsel. managers at the factories included in the study were interviewed in depth to collect their opinion on personnel training needs. Also. their families and communities directly or indirectly linked to Inditex’s supplier base. administrative and labor assistance. extreme poverty affected 19% of workers’ households.edu or 617. as well as potential services that would better socio-economic conditions for employees and their families. Mouatina in Jerari and Beni Makada. Most surveyed factory workers resided at Ben i Makada (53 %) –an area that had experienced great growth in recent years as a result of internal migration. 8 This document is authorized for educator review use only by Natalia Manso Alvarez. literacy programs. First. Tanger Ville (19%) and Mesnana (6%). Most workers from Tanger Ville lived in severe poverty –type-B households (see Table 2). An-Yo. basic technical training on textile manufacture. In 2002. workers’ minimum age. Solange. these centers were known as “basic community service centers” (BCSCs). workers Do who lived in moderate poverty (one or two people living off a single salary). health services. By linking monthly income (€ 180) to the number of household members. while 36% of the overall working population lived in severe poverty. Fundación Codespa conducted a field survey (see Exhibit 13 for the survey’s specific yo objectives) for a total population of 3. Additionally. The five companies selected (Novaco. Currently. Four local community associations (Ain Hayani from Dradeb-Ain Hayani.783. Copying or posting is an infringement of copyright.720 people and a 420 employee sample. The remaining 57% of workers lived in Charf (22%). an initial approach to actual poverty levels could be drawn. 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. An analysis of household conditions in each area revealed that the borough that registered the largest number of extreme poverty workers was Beni Makada. set at approximately € 180 a month. freedom of association and antidiscrimination. and awareness programs on health and hygiene-related issues. Permissions@hbsp. the study clearly showed that shop workers were very poor. it was the area showing the greatest density of textile industry workers. Mesnana from its namesake neighborhood. with a 23% share of type-C households. tC Table 1 Textile shop population household distribution Rating Description % Type-A households Moderate poverty 1 to 2 people per salary 45 % € 90-180 euros per month per person Type-B households Severe poverty 3 to 4 people per salary 36 % € 45-60 euros per month per person Type-C households Extreme poverty More than 5 people per salary 19 % No € 36 euros per month per person Tangier was divided into four urban boroughs. informal education. Within the program. As shown in Table 1. Morocco’s apparel industry adhered to the standard minimum wage.e.7860 . The second worst area was Charf. BCSC’s social service offerings included: day-care facilities for female workers’ children. Pakistan. yet. while male workers’ incorporation to textile industry jobs was also viewed as an interesting option to mitigate high local unemployment rates. for the most part. ESADE Business School Case Study t os Table 2 Population household type and location distribution Beni Makada Charf Tanger Ville Mesnana Type-A households 47 % 45 % 39 % 54 % Type-B households 30 % 38 % 49 % 32 % Type-C households 23 % 17 % 12 % 14 % rP In addition. and their social impact on communities exceeded the specific purview of business production. recruiting and hiring practices. since textile factory employment opportunities increased substantially for qualified workers. Interviews focused on the following objectives: getting an overall description of each organization. Permissions@hbsp. it seemed that most committed companies were local suppliers. Specifically. Inditex was now working with fewer suppliers in Morocco. the latter were producing more garments. collecting information on human resources. whereas project opponents were. Bangladesh. HE OTHER until February 2018. shop workers expressed their interest in learning to read and write and their need yo for courses to be delivered outside business hours. This demand reflected clearly on the opinions voiced by textile businessmen and the training courses required by employees. The survey also revealed that the greatest concern for this population hinged on economic and family instability. instead of going around the world with an army of consultants to certify shops. assessing job training requirement complexity and identifying major training issues. while others –reluctant to participate.000 to Fundación Codespa for 9 This document is authorized for educator review use only by Natalia Manso Alvarez. The program had not been too costly: during the 2002-2004 period. the survey revealed that literacy rates among workers varied according to gender and age. but also showed their unequivocal enthusiasm. Brazil and Argentina). Turkey. programs drew opposing reactions: several companies not only were willing to join in on the project. one out of every three female workers was illiterate. whether. During the study. Moroccan production costs (see Exhibit 12) were lower than in Turkey or Poland and higher than India’s or Bangladesh’s. 3% of the group’s production came from Northern Africa (Morocco). as well as their views on the services offered through basic community service centers (BCSCs). this line of work especially favored women’s access to the labor market. while 3% was produced in Latin America (Mexico. Furthermore. Specifically. Do Javier Chércoles wondered if that was the right path –i. Copying or posting is an infringement of copyright. thus enhancing gender equality. Thailand. 12% in European non-EU member nations (Rumania.783. and the remaining 59% in the European Union (primarily in Spain and Portugal). Indonesia. Cambodia. tC Pilot programs’ early results seemed encouraging: employee absenteeism and turnover reductions had enabled factories to improve their productivity.. Venezuela. Peru. They also believed they needed to boost their job expertise. and measuring executives’ knowledge and opinions on services offered by BCSCs.harvard. Apparently.7860 . Lithuania and Bulgaria). and this rate worsened as workers got older: the highest illiteracy rate -56%.was found among female workers over 45 years of age. Inditex had contributed € 450.threatened to move their operations if pressed to join any program. 23% in Asia (China. op In addition. foreign manufacturers that had set up shop in No Morocco exclusively for cost reduction and customer proximity purposes. Sri Lanka and South Korea). executives at the above-mentioned five factories were also interviewed to gather their educated opinion on industry labor market demands. Viet Nam. India. it would be better to focus on improving Moroccan textile workers’ living conditions in order to enhance shop productivity. In addition.edu or 617.e. Some managers were pondering whether Inditex should explain their efforts in Morocco to stop critiques. accounting for 35% of exports and 40% of industrial jobs…”3 (). before moving on to other cities. Was it the role of a multinational to provide social services to local populations? Was Inditex actually replacing the Moroccan Government in its responsibilities? rP 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. as well as the promotion of and support to union activities in collaboration with major Moroccan. Nonetheless. 10 This document is authorized for educator review use only by Natalia Manso Alvarez. in the industrial race. lacking support from international NGOs and multilateral agencies as a result of Clean Clothes Campaign’s ongoing attacks to Inditex in op Morocco. the program had also met with some opposition. Permissions@hbsp. preserve operating efficiency through a reduced number of members. At this particular meeting. and Europe’s No interest in keeping Arab countries. Its composition was meant to provide broad third-sector coverage in terms of outlooks and yo interests and. Also. such as quota abolishment and China’s incorporation to the WTO (January 2005). who also served as the Council Secretary. It had been recognized that the nation’s textile sector was undergoing a major transformation due to several factors. In fact. to assist its chairman in his duties and to contribute to Council performance. like Morocco. it had provided € 240. Morocco’s industry white book read: “The textile and apparel industry plays a major role in Moroccan economy. social and economic stability in Northern Africa. Meeting attendants wondered if. 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. In addition. Social Council meetings were also attended. Euro-Mediterranean partnership potential. ESADE Business School Case Study t os program development and assistance to Moroccan partners. the absence of an organized union structure at Moroccan outsourcing plants. Major project obstacles had been found to include: first. the Moroccan Government had begun to acknowledge the domestic significance of the country’s textile industry. Copying or posting is an infringement of copyright. tC Fortunately.harvard. and. the single item on the agenda was the discussion of the Tangier project. Spanish (CCOO-Fitega) and international (ITWGTF) unions. by the company’s Corporate Social Responsibility Department director and Inditex’s secretary general. June 2003. Inditex should first find out why it was so severely criticized for its Moroccan activities. swift consumption growth in Europe (and the rest of the world). HE OTHER until February 2018.edu or 617.7860 . second. Many were wondering if there was another way to work with the poor in developing nations.783. where NGOs found it harder to oversee shop operations. Do 3 Resum du Livre Blanc de l’Industrie Marocaine du Textil et de l’Habillement. at the same time.000 directly to shops in Morocco to improve their safety and hygiene standards. it had been a topic of debate at both the Board and the Social Council. without voting rights. finally. the lack of a local social capital that could support the company’s CSR strategy demands and needs. These hurdles were overcome through the development of social equity in the four communities where Inditex workers lived. is the result of Inditex decision to enhance its children clothing market positioning. Oysho Oysho (www. ESADE Business School Case Study t os Exhibit 1 Inditex Retail Chains Zara Zara (www. as of 2002). Zara Home had opened 26 stores in Spain.com) was created by Inditex in 1991. Bershka (www. Stradivarius Stradivarius (www. No Do 11 This document is authorized for educator review use only by Natalia Manso Alvarez. Copying or posting is an infringement of copyright. The information constantly provided by stores enables Zara’s 200-member designer team to turn rP customer needs into retail offerings. operates in 46 countries through a network of over 600 stores in top. or in urban areas where Zara stores do not have a dedicated department for children wear. Greece and the United Kingdom. music and urban art. intend to provide a dedicated environment for fashion.783.zara. it owns Bershka yo 300 stores in 23 countries. At Zara. a coffee-shop. tC Kiddy´s Class Kiddy´s Class. These stores are located in small towns. delivering the latest trends with top quality and reasonable prices. knitwear and op accessory developments to female segments.pullandbear. design is conceived as a process closely related to customer demands. light.com) was founded in 1985 and acquired by Inditex in 1991. By late January 2004. a videogame area.massimodutti. Massimo Dutti offers universal fashion designs for both men and women.oysho.com) –the group’s eighth retail format.com). Pull and Bear Pull and Bear (www. whose first store opened in 1975 in La Coruña (Spain). hip fashion design.e-stradivarius. Portugal. Permissions@hbsp. Inditex opened the first Zara Home chain stores (www. video clips.7860 . barely six months after its launching.edu or 617. Currently. Pull and Bear stores are meant to be more than just points of sale. Apparel. with their vanguard aesthetics and large surfaces. The chain includes 350 stores located in 18 countries. This new chain pursues the original Zara strategy.bershka. Massimo Dutti Massimo Dutti (www.harvard. Its fashion concept targets young. offers the latest design.com) originated in April 1998 as a new store and fashion concept to address the needs of younger women (and men. with over 100 stores in Spain and Portugal. where there are no Zara stores. created in 2001. This chain owns more than 75 stores in 8 countries.zarahome. takes Inditex concepts to the world of lingerie and female underwear. accessory and make-up offerings are complemented by additional services: music. frequently renewing its home offerings and providing top design products at attractive prices. a chain acquired by Inditex in 1999. Zara Home During the 2003 fiscal year.com). space and music with young. Its almost 200 stores in 9 countries combine color.com). featuring a line scope that ranges from the most urban sophisticated offerings to more sportive garments. urban segments aged 14 to 28. The 250 Bershka stores in 13 countries. HE OTHER until February 2018. major-city locations. 004 18.edu or 617.760 32.200 15.783. Copying or posting is an infringement of copyright. ESADE Business School Case Study t os Exhibit 2 Evolution of Inditex Group Selected Data over Recent Fiscal Years 2005 2004 2003 2002 2001 2000 1999 1998 1997 rP Total sales * 6.244 1. HE OTHER until February 2018.284 1.992 1.615 1.217 Net income* 803 628 447 438 340 259 205 153 117 Number of stores 2.7860 .558 1.harvard.891 op Exhibit 3 Inditex Group Organization Chart Since 2005.974 3.250 2.724 24.692 2.190 yo 47. 58.576 10.740 5. Pablo Isla is the new CEO.535 26.035 1. tC Amancio Ortega President José María Castellanos Vice President & Deputy Counsel Antonio Abril No Secretary General and Council Secretary • Brands Javier Chércoles • Expansion Social Corporate Responsibility • Logistics • Finances • Communication • Taxes • Capital markets • Administration Do 12 This document is authorized for educator review use only by Natalia Manso Alvarez.
[email protected] 4.615 2.599 3.046 39.080 922 748 622 Number of countries 62 56 48 44 39 33 30 21 14 International sales 57% 55 % 54 % 54 % 54 % 53 % 48 % 46 % 36 % Employees *in € millions Source: Inditex 2006. the group goes public. Greece (1993). Asia and Africa. Brazil. the first Zara store outside Spain is inaugurated in Oporto (Portugal). 1986 -1987 The group’s manufacturing companies pour their entire output to Zara. Poland. Spain). 2002 A new logistic center for Zara is built in Zaragoza (Spain). Venezuela. 1975 The first Zara store opens its doors in a downtown La Coruña (Spain) location. Indonesia. 2000 Inditex moves its headquarters to a new building in Arteixo (La Coruña. New store openings take place in Slovenia. 1997 Norway and Israel join the list of countries where Inditex operates. Inditex acquires the remaining stock at Massimo Dutti. Austria. Switzerland. Chile and Uruguay. Kuwait and Lebanon. Oysho. to be followed by its first store in Cyprus the following year. The group opens new stores in Finland.edu or 617. Denmark and Qatar.783. The groundwork is laid for a logistic system that meets the needs of the group’s strong projected growth. Italy. 2001. The group opens its first store in Malta. Slovakia. and the chain expands throughout major Spanish cities. Copying or posting is an infringement of copyright. Inditex inaugurates the second Zara distribution center in Zaragoza (Spain) to complement the Arteixo (La Coruña. Permissions@hbsp. Argentina. 2004 Inditex opens its 2000th store in Hong Kong. 1995 -1996 op In 1995. El Salvador. On May 23. It also starts operating in Ireland. 2005 Inditex opens its first stores in Mónaco. The group starts operating in the United States and France. the Americas. HE OTHER until February 2018. opening stores in New York (1989) and Inditex creates the Pull and Bear chain and acquires a 65 % interest in Massimo Dutti. 1976 -1984 Zara’s fashion concept is welcomed by customers. Stores are opened in four new markets: Andorra. Luxembourg.7860 . Spain) logistic center. Inditex enters into new international markets: Mexico (1992). the Dominican Republic and Singapore. Saudi Arabia. 1999 Inditex acquires Stradivarius. Germany. starts his apparel manufacturing business. Operations grow steadily during a decade until the company owns several manufacturing plants rP supplying products to several European countries. Canada. New stores are added to the group’s network in tC Holland. Bahrain. Philippines and Costa Rica Do 13 This document is authorized for educator review use only by Natalia Manso Alvarez.harvard. Inditex president and founder. The group opens new stores in several countries: the United Kingdom. ESADE Business School Case Study t os Exhibit 4 Inditex Milestones 1963 -1974 Amancio Ortega Gaona. the Czech Republic. No 2003 The group opens its first Zara Home stores -its eighth chain. Belgium and Sweden (1994). Iceland. Japan. the group’s fifth chain. The group now operates in 50 countries in Europe. 1998 Bershka is founded to address the apparel demands of younger women. yo In December. The first store in Morocco is opened this same year. Russia and Malaysia. Puerto Rico and Jordan. Turkey. Arab Emirates. Thailandia. 1988 1989 -1990 1991 1992 -1994 Paris (1990). 1985 Inditex is created as a holding company atop all group companies. 2001 Inditex launches its lingerie chain. Inditex guarantees a safe and healthy work environment for all its employees.7860 . Customers Inditex is committed to offering customers top product quality and guarantees that its products pose Do no health or safety risks. ESADE Business School Case Study t os Exhibit 5 Inditex outsourced factories around the World (2004-2006) External External External External suppliers suppliers Suppliers Suppliers rP 31-1-2004 abandoned 2004 31-01-2005 31-01-2006 North Africa 139 81 91 69 Americas 74 34 61 47 Asia 488 239 464 344 Europe (Turkey 174 89 138 125 and former Eastern Europe) European Union 1. No form of physical. HE OTHER until February 2018. psychological or verbal abuse is tolerated at Inditex. Society Inditex is committed to collaborating with the local. association and collective negotiations.
[email protected] 1. tC Inditex employee salaries depend on job descriptions and comply wi th sector labor agreements. 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. No Inditex employee is discriminated on account of his/her race. 2005.783. In addition. No Suppliers Inditex outsourcing manufacturers and shops must comply with the clauses on customers and employees of the present Code.344 1. religion.347 Source: Inditex Annual Report. physical handicap. they allow Inditex or authorized parties to verify their compliance. nationality or gender.686 1. sexual. Exhibit 6 Employees yo Internal Code of Conduct op Inditex does not employ minors. age. national and international communities where it operates.edu or 617.harvard. 14 This document is authorized for educator review use only by Natalia Manso Alvarez.763 901 932 762 Total 2. Copying or posting is an infringement of copyright. Inditex recognizes employees’ right to union affiliation. They will also ensure these conditions at all employee facilities. in compliance with local legislation. No discrimination Outsourcing Manufacturers and Shops will not discriminate on the basis of gender. nationality. a Code of Conduct for Outsourcing Manufacturers and Shops was formulated. Compensation policy Outsourcing Manufacturers and Shops will abide by any current labor legislation. ensuring reasonable lighting. 100. and physical or mental handicap. rP This Code of Conduct is based on the principles contained in the Universal Declaration of Human Rights.4 of the International Labor Organization’s Covenant 138. Copying or posting is an infringement of copyright. 138. exceptionally. ventilation. No physical punishment.
[email protected] . with a special emphasis on compensation. health. affiliate or negotiate collectively. political affiliation. No and fire protection conditions. child labor and environmental policies. Local legislations setting an older age will be respected.harvard. Environmental care Outsourcing Manufacturers and Shops will be forced to comply with current environmental Do legislation. sexual orientation. Harassment and abuse tC Employees at Outsourcing Manufacturers and Shops will be treated with dignity and respect.edu or 617.783. 182 and 190. age. Health and safety Outsourcing Manufacturers and Shops will provide a safe and healthy work environment for their employees. op Freedom of association Outsourcing Manufacturers and Shops will respect employees’ right to associate. the United Nations’ Convention on Children Rights and the International Labor Organization’s conventions numbers 29. HE OTHER until February 2018. safety. 87. 111. 98. They will pay at least the minimum wages set by law for each job category. hygiene. 105. This Code of Conduct focuses on eleven items: Child labor yo Outsourcing Manufacturers and Shops will not employ minors. recruiting. race. ESADE Business School Case Study t os Exhibit 7 Code of Conduct for Outsourcing Manufacturers and Shops In order to guarantee adequate Internal Code of Conduct observance and management throughout Inditex production chain. Minors are defined as individuals under the age of 16 or. harassment or abuse of any kind will be permitted at any time. religion. 15 This document is authorized for educator review use only by Natalia Manso Alvarez. subjecting them to no sanctions of any kind in this regard. 14 in countries included in article 2. as well as access to drinking water. expresses its disapproval of the award presented by Fundación Codespa to Inditex on October 28 in recognition for its solidarity and its Corporate Social Responsibility (CSR) policy. Inditex consistenly ignores these accusations and flaunts its CSR model financing development programs. October 10. HE OTHER until February 2018. coordinated by SETEM. during its Shareholders’ Meeting on July 18. October 29.3 SETEM-Clean Clothes Campaign repudiates this award and condemns the flagrant deceit involved in Inditex CSR activities. rP Other applicable laws Outsourcing Manufacturers and Shops will abide by all current local. SETEM-Clean Clothes Campaign has repeatedly questioned the company’s CSR policy and its apparent confusion between true CSR initiatives and Inditex social or patronage activities. 2003) tC The Clean Clothes Campaign. A copy of the present Code will be translated into the local language and posted in a visible location for all employees. At the same time. it insists on pointing out that CSR does not refer to how company profits are used for social or sponsorship purposes. Copying or posting is an infringement of copyright.1 For example.info). 2001 . CSR specifically refers to the means and the labor and social conditions used by the company to make those profits. an organization Inditex financially supports. Do 2 Voz de Galicia . Permissions@hbsp. 3 Las Noticias de Comfia Bulletin (www.7860 . Code Publication yo Outsourcing Manufacturers’ and Shops’ heads will inform their employees of Code contents. chairing the United Nations’ No Global Compact in Spain .harvard.edu or 617. 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.2 or accepting the Corporate Solidarity award presented by Codespa.comfia. Instead. May 2003. Morocco and Turkey that repeatedly shame the company.783. SETEM-Clean Clothes Campaign will continue to strive –both as a Campaign and as a shareholder.to ensure that Inditex fully complies with its CSR policy and truly adopts a socially responsible management behavior. ESADE Business School Case Study t os Subcontracting Policy Outsourcing Manufacturers and Shops subcontracting jobs for Inditex will ensure that subcontractors also abide by the present Code of Conduct. 16 This document is authorized for educator review use only by Natalia Manso Alvarez. In this regard. 2003. Inditex representatives dodged the questions asked by SETEM-Clean Clothes Campaign and the charges for irregular production shops in Spain. national and international laws. "La Moda: UnT ejido de Injusticias". op Exhibit 8 SETEM Press Release for the Clean Clothes Campaign (November 11. Notes: 1 SETEM-Clean Clothes Campaign report. it should be noted that Morocco’s primary source of income derives from currency shipments from Moroccan two million émigrés.000 people) Children mortality rate 49. 6 Source: El País Semanal.500 dirhams Min.7(including Western Sahara) Sahara) Urban population Employed active population yo 55 % Total: 8. or hashish smuggling and trafficking operations.600 dirhams Population below the poverty line Average: 19 % Urban: 12 % Rural: 27. These funds exceed the revenues from tourism and phosphate export industries. Permissions@hbsp. United Nations .7 million Fertility rate (1995-2000) 3. wage: 1.edu or 617.2 % tC Total illiteracy rate (population over 52 % Especially in rural areas and 15 years of age) among women Women : 69 % (1995) Men: 44 % (1995) Health data 5 Access to drinking water Rural: 47. especially relevant in agriculture and trade. UNDP 2002 and Tableau de Bord Social. 5 Sources: HRW.4 offspring Period 1970-1975: 6.5 million Increasing steadily due to rural drought-caused exodus Female distribution Urban: 21 % Rural: 29.2 (excluding Western 41.5 % Urban distribution : op Rural: 4.8 % 1990-1999 data No Urban: 81 % Access to medical services (every 46 100. Copying or posting is an infringement of copyright. Number 1. ESADE Business School Case Study t os Exhibit 9 Selected Morocco’s Socio-Demographic Data (2001)4 Total population (2000) 29..783.6 % Salary Average: 3 . Moroccan Government. 17 This document is authorized for educator review use only by Natalia Manso Alvarez.5 % Men: 20 % Women: 27. HE OTHER until February 2018.72 / 1000 This official data does not include informal economy data.9 offspring Life expectancy (1995-2000) 66.6 million 60 % below 25 years of age rP Projected population in 2015 37.7860 . In addition. 6 Do 4 Source: Data provided by Tangier’s Trade and Industry Chamber based on several sources -Guía del Inversor 2001.9 million Urban: 4.6 years Demographic density 64.2 % Unemployment rate Urban: 19.harvard.37 million Rural: 4.381. 750 52.130 people areas and on account of Tangier’s location 1998: 566. HE OTHER until February 2018.000 49.000 16.783.34% 4. Permissions@hbsp. 9 Source: Diagnostic de la pauvreté à Tanger.edu or 617.0008 Young population (60 % under 25 years of age) 1971: 190.000 22. 8 Source : Agence Urbaine de Tanger.9% Charf 47.000 13. 1998).85% 10.446 people strong rural immigration from neighboring 1994: 497.5% tC No Do 7 Source: Projection RGHP (1994.7860 . ESADE Business School Case Study t os Exhibit 10 Tangier’s Socio-Demographic Data (1998)7 Tangier Population 700.00% 5.672 29.578 77.00% 1.8% TOTAL 108. Demographic density 135 per acre Area 4.000 53.000 people as a “passage” to Europe. 18 This document is authorized for educator review use only by Natalia Manso Alvarez.180 people Population increase is attributed mainly to rP Population evolution 1982: 293.199 acres Percentage of 49 % households in unhealthy conditions Exhibit 11 yo Poverty Areas in Tangier 9 op Percentage of Total Number of Number of poor Percentage of Urban Borough households in Households households poor households extreme poverty Tanger 32. PNUD et Royaume du Maroc.harvard.3% Beni Makada 29. 1999. Copying or posting is an infringement of copyright. Additionally. Do ! To map the basic needs detected by the survey through the use of a geoscience information system (GIS). ! To assess the textile-specific training offered by BCSCs in order to collect beneficiaries’ opinions on these learning experiences. Also.edu or 617. to collect information on family size and structure to measure the demand for children services (day care. focusing on younger family members. to gain a more thorough understanding of Moroccan family sociological features. study areas. and to consult businessmen on their views on BCSCs current educational offerings and the need for new curricular content developments. tC Exhibit 13 Survey to Tangier Workers Survey objectives included: ! To detect textile workers’ and companies’ widespread job training needs. ! To assess workers’ educational status in order to adjust basic community service centers’ educational No offerings. Copying or posting is an infringement of copyright. to survey household composition and children schooling or occupation to serve a two-fold purpose: first. dollars) Textile Industry Hourly Labor Cost in 2002 (in US$) rP Denmark Switzerland Netherlands France United States Hong Kong Poland Turkey Morocco Bulgaria yo op India Bangladesh Source: Analytical study of Moroccan textile potential (2003).
[email protected]. HE OTHER until February 2018. which provided for the identification of Tangier boroughs requiring immediate attention for their current social aid. educational and job training offerings. etc. it was very useful to find out whether priority areas were close to or distant from the four BCSCs established. 19 This document is authorized for educator review use only by Natalia Manso Alvarez. to measure their demand for additional programs. and. ESADE Business School Case Study t os Exhibit 12 Textile Industry Hourly Labor Cost in 2002 (in U. libraries. to determine suitable medical services to be offered by BCSCs.7860 .).S. Action plan implementation and management largely depended on this initial mapping. school support. and second.783. ! To gather information on local food habits and health conditions in order to identify the population’s most common ailments. accordingly.