ACROSS ASIA

Gap Wants To Transform Asian Garment Factory Conditions

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Buying clothing from big retailers has often forced shoppers to a moral crossroads: Do we accept that low prices entail abject conditions for workers in developing countries? Do we spend more—in time, in money—to search for more ethical options? Do we just choose not to think about any of this?

But maybe that equation can change. Today, Gap Inc., the parent company of Gap, Banana Republic, and Old Navy, will announce a major initiative to help tackle this troubling dynamic.

They are partnering with a novel investment fund called Tau, which hopes to raise $1 billion to transform the Asian garment factories that make much of the world’s wardrobes.

Factories need to be modernized but they’re undercapitalized.

Teaming up with Tau has tapped into something "very personal" for Gap apparel executive Sonia Syngal, who oversees the global supply chain for all the fashion giant’s brands. When Syngal visited India earlier this year, she met with workers enrolled in a Gap initiative that provides education and life-skills training to women who sew Gap clothing in factories in Asia. "It’s chance," says the India-born Syngal, "that I’m sitting in this role as opposed to on the factory line."

The fund—which has Yahoo cofounder Jerry Yang and Alexander (son of George) Soros on their starry investor roster and Apache co-creator Brian Behlendorf as an advisor—intends to buy minority stakes in factories and then upgrade environmental standards, improve labor conditions, and install technology that can raise productivity and increase transparency. "Factories need to be modernized but they’re undercapitalized," says Tau founding partner Oliver Niedermaier. The goal, according to another Tau partner Ben Skinner, is to cultivate factories that are the $1 trillion apparel industry’s "most radically transparent and most radically compliant."

The April 2013 Rana Plaza collapse, which killed more than 1,000 sweatshop workers in Bangladesh, spotlighted tragic weaknesses in the global network that clothes billions of people. After that disaster, European and North American clothing companies—most of which don’t own the factories that produce their goods—increased inspections of their vendors. "It’s so interesting to me to see how much people have said, ‘If you go audit, shouldn’t that drive improvement?’ Audits just take the temperature—they don’t drive change or improvement," says Rachelle Jackson, director of sustainability and innovation at Arche Advisors, a supply-chain consultancy that focuses on corporate social responsibility. "After the Rana Plaza collapse, we saw that some of our clients wanted to go really quick and look in their factories: Are there cracks on the walls? Then they would paint over the cracks. Even though 1,000 people died, that wasn’t enough to change the mentality." (Gap had no vendors at Rana Plaza nor is it an Arche client.)

Audits just take the temperature—they don’t drive change or improvement.

If death doesn’t change minds, Tau bets that money will. It’s not a charity. Its pitch to factory owners is that Tau’s capital and ideas will help turn a decent facility into a best-in-class one—"the absence of willingness of brands to invest in their factories helps create viable investment cases for us," Niedermaier says—while Tau’s connections to apparel giants will confer advantages in the race for business. Its pitch to brands (the deal with Gap isn’t exclusive) is that buying from a Tau vendor will come with freedom from worry about a Rana Plaza situation as well as unprecedented transparency.

"We want to build the most competitive factories," says Niedermaier. "If we do that in a way that the big brands benefit from, then it’s a win-win situation. Everybody gains." Really, Tau’s investment strategy is classic: It has identified an asset class, Asian garment factories, that it believes has been undervalued. And even before this—its first announcement of any action approaching concrete—its novelty garnered praise from the Guardian and the Economist.

The launch of Tau, which expects to make its first investments in the next few months, is timely. Labeling now means something in, say, fair-trade coffee or organic food. "For clothing, we really don’t have that transparency," says Tasha Lewis, an assistant professor of human ecology at Cornell whose research focuses on the global apparel supply chain. "We can make insinuations about what 'made in China' or 'made in Vietnam' or 'made in Bangladesh' means based on some of the media coverage, but we don’t really know."

The Gap-Tau agreement is light on hard commitments and detail. Tau agrees to give Gap vendors "priority" in its deal pipeline, while Gap will provide data and pledges to "consider" the factories that Tau transforms.

For Gap, the agreement with Tau is an essentially cost-free opportunity to give the vendors who produce its goods—more than 1 billion pieces of clothing a year—the possibility of "a value add," Syngal says, in the form of "expertise" and "funding for some of their new ventures." And the brand-burnishing announcement comes as other companies are bolstering their ethical-sourcing efforts: Last month, Levi Strauss & Co. announced that it would offer, through the World Bank’s International Finance Corporation, lower-cost capital to factories with stronger worker-safety and environmental ratings.

Gap is exploring ways to reduce production lead times, and Tau’s technological investments could eventually help. The transparency tools Tau promises to introduce could also change how Gap talks to consumers. "How can we give our customer visibility that we are ethically sourcing?" Syngal asks. "Wouldn’t it be nice if they connect somehow emotionally with the workers who make their clothes? It’s a really interesting opportunity to connect the female factory worker to the Gap employee and to our consumers."

Can Tau turn that from idea to reality? Its very name gives a sense of its ambition. Tau is a letter in both the Hebrew and Greek alphabets. In an industry still striving to address the conditions that created Rana Plaza, it’s not insignificant that in Old Testament times, tau was a sign of the absolution of sin. The Greek letter represents resurrection.

Update: An earlier version listed Brian Behlendorf as an investor; he is an advisor. Also, Tau is in the process of raising $1 billion but has not hit that target yet. We regret the errors.

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Editorial Team

The SupplyChains Magazine editorial team takes great pride in bringing you the best information to help you succeed in your supply chain, logistics or procurement functions. Together, our editors and contributors have more than 50 years of supply chain industry knowledge to share with you.

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