The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Earlier this month, as the military response to anti-coup protests in Myanmar became increasingly deadly, fashion retailer H&M announced that it would temporarily suspend placing new orders with suppliers based in the Southeast Asian manufacturing hub.
While H&M framed the decision as taking a moral stance, Serkan Tanka, the company’s country manager for Myanmar, also outlined “practical difficulties and an unpredictable situation limiting our ability to operate in the country.”
Italian fashion group Benetton has since taken similar measures, and other global brands with suppliers in the country are facing mounting pressure to re-evaluate their business ties to Burmese industry, which is often inextricably linked to the military regime.
“If you have to do business in Myanmar or do sourcing in Myanmar, your partner is likely to be affiliated with the military,” said Kaho Yu, senior Asia analyst at UK-based risk consultancy Verisk Maplecroft. “They do have a very dominating influence across the country, across sectors.”
The military coup in Myanmar, which installed Min Aung Hlaing as commander-in-chief at the start of February in response to the landslide electoral victory of Aung San Suu Kyi late last year, has been met with ongoing protests across the nation. The workers who make up Myanmar’s emerging yet significant garment industry have been a notable presence among protests and general strikes.
Crackdowns on protests have turned increasingly violent, with protestor fatalities in the dozens as a result of security forces opening fire on crowds on several separate occasions. As of Tuesday, March 16, the estimated death toll stands at 149. There have also been isolated reports that garment workers have been targeted in some workplaces, and that wage disputes with employers have been met with deadly violence at the hands of state security forces.
Meanwhile, Chinese-owned factories have suffered a series of attacks in industrial parks across Yangon, some of which were reportedly set alight. Fast Retailing, the Japanese parent company of Uniqlo, recently confirmed that fires broke out at two of its supplier facilities in the country on Sunday (neither factory was operating at the time, and there were no injuries). South Korean and Taiwanese producers there are also being advised to take precautions.
Most [workers] are facing this unfathomably gut-wrenching decision about whether to... continue to make clothes or to join the civil disobedience movement and risk their jobs and being able to eat at the end of the month.
Despite the recent escalation, most brands have been tentative or measured in their response. H&M emphasised the temporary nature of its suspension; country manager Tanka said the retailer would “refrain from taking any immediate action regarding our long-term presence in the country,” where it has about 45 direct suppliers.
Cheap labour in fragile states
The global fashion industry was unprepared for the disruption caused by the Covid-19 pandemic, but recent disruptions in Myanmar are not a ‘black swan’ event. The global fashion industry is no stranger to a whole host of foreseeable risks in its supply chains, from increasingly frequent natural disasters brought about by climate change, to geopolitical tensions amounting to tariff hikes and import bans.
Political instability and civil unrest are key considerations, particularly when companies seek out emerging sourcing markets where critics contend there is often a race to the bottom in terms of labour costs and human rights.
“In Myanmar, the workforce in the garment industry is very young, for the most part between the ages of 16 … to 25,” said Andrew Tillett-Saks, a labour organiser currently based in Myanmar. “Most of them are facing this unfathomably gut-wrenching decision about whether to stay at work and continue to make clothes or to join the civil disobedience movement, and risk their jobs and being able to eat at the end of the month.”
Myanmar’s garment industry is still relatively modest in scale compared to top exporters in the region such as Bangladesh, Vietnam and Cambodia, but it is growing fast: the value of apparel exports has grown exponentially since 2015, and increased 47 percent between 2018-2019 alone, according to data from the World Trade Organisation.
Brands’ tendency to outsource production to a web of far-flung suppliers is risky business.
In the political climate, fashion brands whose supply chains are exposed to Myanmar face the unenviable task of navigating the scrutiny and outrage of various stakeholders. But choosing to engage with suppliers in a country like Myanmar, where current events reflect years-long political tensions and the deeply entrenched influence of the country’s military junta, is a calculated move.
According to last year’s Fragile States Index, an assessment of countries across 12 risks and vulnerabilities indicators, Myanmar ranked as the 23rd most fragile out of 179 states. Five to 10 years ago, the country was considered even more fragile than it is today, so brands will have made decisions to partner with suppliers there when the country was arguably even more unstable.
It is no coincidence that Myanmar has some of the lowest salaries in the world. Indeed, there appears to be some correlation between a sourcing country’s degree of instability and its cost of labour. Ranking just one place above Myanmar as an even more fragile state in the index was the east African nation of Ethiopia, another emerging ultra-low-cost sourcing hub for fashion.
Trade-offs to diversify supply chains
From a strategic perspective, Ethiopia is a potentially attractive sourcing hub for a multitude of reasons: low labour costs, a large young population and a relatively near-shore option for western brands looking to diversify their supply chains beyond Asia, and especially China (where productivity is high but labour costs are rising, as are geopolitical tensions with the west).
Though Ethiopia is one of the fastest-growing economies in the world, investors have legitimate concerns. The outbreak of violence between the army and forces loyal to the former ruling party in the Tigray region in early November is the latest episode in a prolonged period of civil unrest.
Three Ethiopian opposition parties jointly claimed in early February that the death toll stood at 52,000, with a further 3 million forced to flee from their homes. The situation continues to draw international scrutiny, with US Secretary of State Antony Blinken invoking “very credible reports of human rights abuses and atrocities that are ongoing.”
There is little risk of a similar conflict emerging elsewhere in Ethiopia. Tigray was the perfect storm.
Within the Tigray region, the already-troubled Mekelle Industrial Park has remained shuttered, with suppliers for brands including H&M and Calzedonia halting operations for fear of workers’ safety. But by and large, the direct, immediate impact of the conflict on Ethiopia’s garment industry has been low and relatively contained; the majority of manufacturing bases are based outside Tigray.
“Obviously, in any developing country there are always ups and downs,” said Roger Lee, CEO of Hong Kong-based TAL Apparel, speaking to BoF in February. “From a day to day [perspective], we have been fortunate,” he said, adding that TAL’s Ethiopia facility had not been harmed by the conflict due to being based south of the capital Addis Ababa, and therefore a significant distance from Tigray.
In the medium term, the key consideration for brands and their suppliers will be the likelihood of similar conflicts cropping up in other, more industrial regions of the country, but experts say this is low. “There is little risk of a similar conflict emerging elsewhere in Ethiopia. Tigray was the perfect storm,” said Ed Hobey-Hamsher, senior Africa analyst at Verisk Maplecroft, in an email exchange with BoF. “What we will see is an increase in ethnic violence … but it will take the form of intercommunal civil unrest.”
The country’s garment, footwear and textile manufacturing industry is relatively small but growing, which some local industry advocates see as an opportunity to prioritise home-grown entrepreneurship over the outsourced manufacturing of international megabrands.
“The most ethical way to consume is to know who is making your goods in the most direct manner,” said Bethlehem Tilahun Alemu, founder of sustainable footwear brand SoleRebels and manufacturing network organisation Made by Ethiopia. Industry leaders in developing nations should be working toward building brands of their own that compete with the likes of Nike, she suggested. “That changes the entire paradigm.”
Nonetheless, foreign investment from brands and multinational manufacturing giants has been a key area of growth helped along by the federal government. This is evidenced by several dedicated industrial parks dotted around the country and promises by prime minister Abiy Ahmed Ali to relax investment restrictions and encourage foreign business, said Luke Munkombwe, operational risk analyst at Fitch Solutions.
As such, noted Hobey-Hamsher, the industry’s perceived alignment with the government does make it a target for protestors.
Long term, the biggest threat to any global brand’s supply chain operations is often punitive sanctions on trade and exports to key consumer markets. Experts on Ethiopia and the wider African region see little risk of this, or indeed consumer pressure for brands to re-think their sourcing strategies there. Ethiopia’s economic prowess among the African Union, at a time when it is spearheading economic integration under the African Continental Free Trade Area (AfCFTA), mean alleged human rights abuses are not necessarily a cause for sanctions, and “among even ESG-savvy consumers, Abiy is also protected by his reputation as a high-profile Nobel Peace Prize winner,” said Hobey-Hamsher.
Spotting the next political risk
Current flashpoints in Ethiopia and Myanmar are unique, complex and distinct, but nonetheless illustrate wider risks among emerging sourcing markets. Even far more established apparel and textile exporting countries, including Bangladesh, India, China and Vietnam, rank among the highest in the world when it comes to risk of danger from security forces and human rights violations, according to Verisk Maplecroft data.
The thing to watch is whether those protests shift from being disruptive and road closures, or transport strikes, to actually damaging private assets.
When it comes to spotting future politically and socially driven supply chain risks, the regions of Central and South America, where there is a high baseline risk of civil unrest, are important places to monitor, particularly as the North American fashion industry considers the further nearshoring of its manufacturing operations there. 2021 is a big year in the election cycle for many countries in the region, and widespread public pressure for policy changes — in some cases underpinned by populist rhetoric — could have implications that weigh on labour markets, tax policy, infrastructure and regulation, according to an operational risk report by The Economist Intelligence Unit.
“You tend to get a lot of protests in the [Latin America] region,” said Jimena Blanco, head of Latin America at Verisk Maplecroft. “For us, the thing to watch is whether those protests shift from being disruptive and road closures, or transport strikes, to actually damaging private assets.”
While there are the advantages of established trade links, particularly in Central America, productivity is typically lower compared to manufacturing powerhouses in Asia, and there are de facto operational costs associated with insecurity in the region, such as daytime-only haulage routes, kidnappings, red tape surrounding legal employment, and the need for due diligence for any investment or partnership that could be exposed to organised crime affiliation.
There is also historical precedent for companies getting caught up in civil war and violence targeting trade union activists in Colombia, northern Brazil, Honduras and Guatemala, said Blanco.
The dynamics of Colombia in particular speak to the wider challenges of the fashion industry weighing up attractive business opportunities in dynamic emerging sourcing markets with reputational risk, coupled with a hazy track record in self-regulation and due diligence. “From an investor perspective, there are certain things that are very appealing,” said Blanco. “From a social perspective, it still has a long way to come.”