Navigating Social Compliance in the Garment Industry

‍Emily Lane 

Welcome to Clothing Coulture. I'm Emily Lane. 

Bret Schnitker 

I'm Bret Schnitker. 

Emily Lane 

We speak with experts where we explore the global dynamics that shape trends in the fashion industry, 

Bret Schnitker 

brought to you by Stars Design Group, a global production and design house with over 30 years of industry experience. 

Emily Lane 

Welcome to Clothing Coulture. In this episode, we're talking about navigating social compliance in the garment industry. This is a topic that repeatedly comes up in conversations with existing and prospective clients when discussing factory partners, and apparel manufacturing, Stars Design Group CEO Bret Schnitker is here, once again, as our apparel industry expert on this topic. Welcome, Bret. 

Bret Schnitker 

Thank you. 

Emily Lane 

So I think this is one of those topics, it's relatively complicated. There's a lot of confusion around social compliance versus social responsibility corporate server service responsibility. So can maybe we start with some basic definitions? What's the difference? and help us understand some of those distinctions? 

Bret Schnitker 

Sure, you're right, it is a complex landscape. Because social compliance, social responsibility means different things in different parts of the world, we live in a big world. We certainly have heard things on the news recently that paint a really varied landscape in terms of perspective on that. But social responsibility is more of a self-governance issue, it's more an internal look, governing, ensuring that you're not internally violating ethical environmental community standards. So it's something that you would look internally and achieve and set some guidelines in which you had self-navigate that social compliance is, is externally regulated. And again, there are several agencies that that regulate that. But at the very minimum standard, it is taking the laws and regulations of a particular country in which perhaps, in our business we're manufacturing in and ensuring that the factories and the production sources, the trim sources are following the country's guidelines for rules and regulations. I mentioned earlier that landscape is widely varied. Understanding that is important. I think there are a lot of tenants that govern that, just making sure at the basic level, that workers’ rights are covered, and that they have a voice. And that there's protections in place. There's a lot of violations and human rights issues around the world. And I think that these organizations really strive to set standards that we who economically engage with them, understand that certain ones do and certain ones don't follow these, these regulations. 

Emily Lane 

In the end, it really kind of comes down to humans, community and environment, right. Who is making these determinations? And how would a brand or retailer know that they're being socially compliant? 

Bret Schnitker 

Sure. There are at least 10. And I'll call them regulatory agencies, because they are probably self-identified in different ways. And they are ones that are probably more readily use in our industry with our people like WRAP. It's a Virginia based organization, Better Work, BSCI, Aim Fair Labor Association, ethical trade initiative and there are more. And I think that these agencies each create the standards to help factory owners set in place, processes that from, in some cases, at minimum from a country level, they're following rules and regulations. But some of these organizations take it to a completely different level. So that there's this global view of what we consider workers’ rights to be and they start to introduce those or enforce those and different certification processes that say that hey, they manage workers welfare in a way that we globally recognize that to be good and just. 

Emily Lane 

This certainly is a lot to navigate. And to make this easier, we've put all this information into a PDF, which you can download on our website at StarsDesignGroup.com. This has become a real emphasis for a lot of companies, especially with the headlines that we're seeing Chinese cotton and the canceled culture really at an all-time high. And I'm curious, Bret, with your experience, are there things that you've seen that might have given you some red flags that maybe something was amiss, are there things that that would be good cues to be looking out for? 

Bret Schnitker 

Well, certainly, there are some obvious ones. But a lot of this means that you've got to be engaged, you've got to be as present as you can be in a global world. And certainly, COVID has made that more difficult. I remember a time in 2016, I was having a conversation with a large software supplier. And we were dialoguing about some outerwear and there was certainly a costing challenge now. Always supplier to brand or supplier to store there's always costing challenges. We live with that every day. But the gap was so tremendously wide. That caused me to ask some more questions. Some of the follow up questions were specifically are you making? The reply was Harbin, China area, that's northern China, in a unique location very close to the North Korean border. And when you start to put in, you know, follow up questions. How often do you go to the factory? Do you have people in the lines viewing production every day? oh, we've certainly inspected the factory. It looks good, you know these things. When you see these lack of certification conversations, when you hear that they've kind of done what's called a hit and run inspection, hey, it looks good, looks fantastic. In rural parts, strategically and geographically located to what I call 

Emily Lane 

Near proximity, yeah 

Bret Schnitker 

Hot zones that can be problematic. It leads you down a path to understand that there could be some unique things going on. I ended up having a conversation that was my suspicion that more than likely, based on all the questions that I had asked that, indeed, it was being made in North Korea. He vehemently, of course, denied that that would be the possibility that he'd been working with a supplier for years. And funny enough, it was I think a day after the conversation, front page news came out that this particular supplier was manufacturing in North Korea. 

Emily Lane 

Oh my gosh, 

Bret Schnitker 

They had caught them in the act. Many times. That's unintentional by the brand. They don't, they're not going ham. How many produced in North Korea, so I can end up on front page news. It's just the fact that we live in a big world and production being the way that it is the challenges with costing too. If you're really dedicated to initiatives in that space, it's important to do your homework and be present or have people that are present, when you start to see warning signs and caution signs. I re-emphasize that, look, we live in a big world, it is difficult to keep your finger on the pulse of everything that occurs, especially when there are governments kind of working against you. They want to produce they want to hit price point, they want to do it profitably. And you can't be everywhere we've certainly learned with COVID and certain situations and in the country that evidently where it began, how difficult it was to navigate that space in some cases. We do our best and that's why some of these certification agencies can be helpful. They have boots on the ground, they can help you ensure and vet that for sure. 

Emily Lane 

Sure. Some takeaways from that would be if it sounds too good to be true. Pricings to great or something along those lines. That might be the case. It's just a little too good to be true 

Bret Schnitker 

Yeah, there's a significant amount of pressure on business to keep pricing the same as it was from years ago and certainly keep your competition afloat being profitable. There was another situation years before that in 2013. In Bangladesh, that was a tragedy that made front page news in Bangladesh. It was the Rana Plaza disaster There was a situation that happened before that too. Bangladesh is a country that survives I think 85% of its export dollars are really tied to export earnings of the garment industry. And so, this is an important sector for them. You go to Bangladesh for one reason, the ability to produce large volumes at inexpensive prices. That's kind of a big thing that Bangladesh touts and there is there is a lot of challenge in that country in terms of workers’ rights and worker safety. And Rana Plaza was one of those situations, I think over 1000 people died, there were 2300 people injured. It was a it was a horrible tragedy. 

Emily Lane 

Yeah 

Bret Schnitker 

I think one of the things that we as a group of garment industry professionals need to understand and recognize is that we do have economic power. And with that economic power, we can really solicit change when it comes to workers’ rights and worker welfare. I think from a personal standpoint, it was difficult for me to see, while some remaining committed and use economic power to make things for the better, overall, a number of organizations that were producing in Bangladesh, ran, they didn't want to be associated with the situation. They didn't want to be associated to the country. That kind of works in reverse, when you have a country that relies on apparel products, as a majority of their export earnings, and you run from the country, all of a sudden, what's left? There's no welfare in the country its workers need to work. They need to get paid, whatever they get paid. And they need those pelts to put food on the table and put roof over their head, when as an industry, we run from situations like this. I think we exacerbate the situation and to the date. Bangladesh is still dealing with ramifications. And still to this date has not improved workers’ rights and worker safety to the level that it needs to. I think that when we look at that situation, there's a heck of a lot more we could be doing, as a group to say, look, we want to produce, we want to help, provide food and shelter for the workers in Bangladesh. We have certain standards, and we want them to be safe, and we want them to have rights. And as a group of we could organize and get together and enforce that I would think that it affects change in nations. 

Emily Lane 

I think it's a really important point. I can certainly see the challenge there, that economically that must have been devastating to have all of these companies pull away after such a traumatic. Yeah, example. Sometimes it's easier. 

Bret Schnitker 

Hey, we're doing business, this is a hot subject, we're just better till it gets fixed to pull away. And in many cases, I think we're called to a greater standard get engaged. 

Emily Lane 

Yeah, well, the economic impact you had mentioned, you know, 84, 85% of the economics of that country are tied to apparel. I can see the challenges socially and for the companies to step up and create those standards that are needed for better worker welfare. But that's what I love about your suggestion, it's really a bigger responsibility, you often talk about being a citizen of the world. And so, as a citizen of the world, and other companies that are in this space. How can we as a community help support change? 

Bret Schnitker 

Well, and I think recognizing after being in 70 countries for a long time, and spending time in places that aren't typical more rural locations, and really seeing countries for what they are, we also must be careful not to put the American lens on the international landscape. Realizing that, we’re a young country. We're talking about failures as it relates to our welfare system and other systems and governmental systems breaking down, we're starting to see those other countries. It's interesting when I was traveling with people. I love India, I've always loved India, but some people who have not been outside the US very often, will go to India for the first time. It's a different space, you got 1.5 billion people, and they look at it and in their own naivete, maybe they look at it. They say, wow, when are they going to going to become civilized? And I think when I dropped the bomb on them, they get they get anxious, but I say there are a lot more civilized than we are. We're a 200-year-old country and it's been around for 1000s of years. This is our future, not our past. I think understanding that dynamic worldwide is that there are countries that are significantly older than ours that have grown in population that realize that certain things break down when things become unwieldly for certain governments, and we must recognize the situations for what they are within individual countries. We must understand that while the standard of living in certain places may not meet our level of standard living, the key important facts are, is that are they be true? Are they being treated fairly? Are they making a daily wage because in many cases, the alternative would be nothing, there is no welfare. There is always this interesting tightrope we walk, pushing for the compliances. And the standards that we want, I think some of those things don't have to cost more. And understanding that, that echo system must maintain itself in such a way. And so, I think it's a dialogue that we should all be having, sometimes it gets a little uncomfortable, but understanding that, look, it's important for us, I think it's important for the world, to recognize that and us in the industry, especially, that these people work tirelessly to provide livings for us, and how can we make things better. We tend to have an economic advantage, and we can make changes directly economic advantage. Those changes may be incremental in time. It may require a combination of technology and oversight and understanding all those types of elements, that it won't happen immediately. A consistent dialogue will help change things in time. 

Emily Lane 

You know, we are still in the midst of an unprecedented time. We've been going through COVID, we're seeing some positive evolution there, but it certainly during this time, put a lot of a lot of stress on the supply chain. How do you see that stress impacting the perception, or priority of social compliance? Do you do you see this becoming even more difficult to navigate as a result? 

Bret Schnitker 

Yeah, this has been a challenging time for the world. In our industry, I believe that COVID wiped out over $1.2 trillion of our of revenue in general. And, when you're dealing with those kind of things, we've all heard about these cancellations that occurred during COVID. We chose to handle things a little differently. We believe that, that we're responsible for our partnerships long term. I don't think that everyone chose that path. Everyone has their own reasons for doing what they do. I think there was over $40 billion dollars in payments, they're outstanding still to this date, there's over 18 billion that are due these factories. 

Emily Lane 

Many won't survive this. 

Bret Schnitker 

Many haven't survived. Some of the stories are heartbreaking when you hear them that people have been doing a great job managing social compliance, really caring for the factoring, growing things, sometimes family legacies, and then having this thing hit, they're wiped out. They don't have PPP, they don't have Care Act, they don't have Idle loans. They're just done. There are a lot of people coming after them. One of the unfortunate situations is that it works this way down to the workers. And I think that what we're seeing as of today is that $3.2 billion, and in in money that was owed to workers are expected, has still not been paid. You might say well, that's wrong, they should absolutely be paid. Yes, they should absolutely be paid. But these factories work on small margin, some of them, really slim month. And there is no way to bail out a factory worldwide, especially in some of these countries. And so, when our industry did what they did, for whatever reasons, the impact goes right back to the worker in terms of, so we can care about social compliance, we care about all these things, we can tell all these stories/ We have to recognize that again in our economic strength and economic decisions, whether we're talking anywhere in the world as a purchaser in the garment industry, there are ramifications to are decisions that kind of fly in the face of our overall desire to make workers lives better? There's absolutely as a domino effect to various decisions. 

Emily Lane 

You know, pulling out of these factories, leaving them with these bills. 

Bret Schnitker 

Yeah, 

Emily Lane 

It's going to decrease our options. 

Bret Schnitker 

Well, for a long time, there has been this kind of a rhetoric in our industry about, hey, we're good partners, we partner with our factories, we're in this together. COVID showed that that may not be particularly true for all parties that experience the COVID wows, and so manufacturers overseas, or are trying to look into different ways to secure their livelihood. As you can imagine, for every action, there's an opposite and equal reaction. Sometimes it's human nature, it's probably greater than the initial situation. They're looking to figure out ways to protect themselves. And so I think they're nine countries getting together to form sort of Alliance to say, look, here's what we'll do. Here's what we won't do. A lot of these factories, extend the terms to a lot of suppliers. That's a trust factor. If the extended terms went to people that violated that trust through maybe real situations again, but didn't pay factories, they're going to have to create ways that that shore up their future also. I think that one of the future paths that will evolve because of this. We talk in other episodes about the evolution, digital cyber exploding. Well, in the finance world, the same thing is going to happen, a lot of people have touched on the notion of blockchain technology. A lot of people when they talk about blockchain technology. 

Emily Lane 

Yeah 

Bret Schnitker 

Blockchain technology is certainly a solution as we evolve into this new landscape. where it sort of protects both parties. In the traditional finance system, before blockchain, you had an option called a letter of credit. In situations where perhaps factories were not super comfortable with the credit of a particular customer. I was in maybe a new relationship, or they just heard bad things. Or, in some countries, the factory can borrow against the letter credit for financing also. But that letter of credit would spell out things from the customer side and say, Look, if you do these, my bank will automatically pay you through this letter of credit. And it was sort of out of the hands of both parties. Once the agreement was made, and the letter of credit was credit was opened, you do this that lead the money is going to go to you and there's no way I can really stop it eventually. And there was always that bank transaction that was fees that were occurring in the new space blockchain technology sort of in some ways, and no banks don't feel super comfortable with us. But replace that banking transaction, where requirements and agreements are set in one block and factory. If you do this in a digital space, we're going to put all these requirements. If you do this then I put money in this block and factory when you apply the proper certifications, and they have inspections and bills of lading and another block. There's this almost automatic handshake that says, okay, you've satisfied your deal. I've satisfied mine and the money transfers. I think it's a future of how business is going to evolve my belief. 

Emily Lane 

Wow. Yeah, that is a lot to process. If you have questions out there on navigating this ever-changing climate and social compliance. We're very happy to schedule a consultation with you to help answer any questions you might have. Make sure to subscribe so you can stay apprised of upcoming episodes of Clothing Coulture and follow us on our socials @clothingcoulture and @starsdesigngroup. Thank you for joining us. 

Bret Schnitker 

Thanks Emily 

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