Kuyichi in China How to develop a sustainable supply chain

(1)

Kuyichi in China

How to develop a sustainable supply chain

By Yvet Breedveld

International Fashion & Management

Amsterdam Fashion Institute

Research Report for Kuyichi Europe B.V.

Amsterdam, June 2008

EMBARGO

2011

(2)

Kuyichi in China

How to develop a sustainable supply chain

I, Yvet Breedveld, hereby declare that this work is my own and is expressed in my own

words. Any use of another author in any form, are properly acknowledged at their point of

use. A list of references is included.

By Yvet Breedveld

International Fashion & Management

Amsterdam Fashion Institute

Research Report for Kuyichi Europe B.V.

Amsterdam, June 2008

EMBARGO

2011

(3)

This report has been printed on Biotop paper. This paper is FSC certified, indicating

that it is produced in a sustainable manner; the trees used for this paper come from

responsibly managed forests. Biotop paper is bleached without the use of chlorine

and has not been treated with optical whiteners, giving the paper its natural tone.

The cover of this report is made of spare metal that is prevented from being wasted

(4)

Preface

This research report was written as the final assignment of the International Fashion & Management course of

the Amsterdam Fashion Institute (AMFI). The subject of research was assigned by Kuyichi Europe BV.

I would like to thank the following people:

Bert Bruinink, Margreet van Dijk, Neeltje Steenbakkers, Celica Hummel, Piet den Toom and everybody else at

Kuyichi for their help and support during the past twenty weeks. My AMFI process coach Marco Mossinkhof for

his guidance in conducting the research and in structuring and writing the report. My parents and friends for

supporting me throughout the International Fashion & Management Course and especially during the past

(5)

Table

of

Content

Executive Summary...1 Introduction……….3 1. Kuyichi………4 1.1 Kuyichi 1.1.1 Vision 1.1.2 Mission 1.1.3 Identity 1.1.4 The Product 1.1.5 Strategy 1.1.6 Current Performance 1.2 Partners 1.2.1 MADE‐BY 1.2.2 Solidaridad

2. Corporate Social Responsibility……….14

2.1 Trends and Developments

2.1.1 Corporate Social Responsibility

2.1.2 Development 2.1.3 CSR in Fashion 2.2 Labour 2.2.1 SA8000 2.2.2 Other Standards 2.3 Sustainable Materials 2.3.1 Organic Cotton

2.3.2 Other Sustainable Materials

3. Relationship Management………27

3.1 Marketing Channels

3.2 Relationships within the Marketing Channel

3.3 Dependency

(6)

4. China………..….34 4.1 General 4.2 Current Suppliers 4.2.1 Current Performance 4.2.2 CMT Companies 4.2.3 Fabric Suppliers 4.3 Potential Suppliers 4.3.1 Potential CMT Companies

4.3.2 Potential Fabric Suppliers 5. Conclusion……….47 6. Recommendations………..………48 6.1 General Recommendations 6.2 Specific Recommendations 7. Endnotes……….53 8. Sources……….54 9. Appendices………59

Appendix I: Interview with Karin Reimerink……….………..59

Appendix II: Implementation of the SA8000 Standard……..………62

Appendix III: Interview with Gerhard Schäuble………..……….63

Appendix IV: Certification Process of Organic Materials………..….63

Appendix V: Question List Current Suppliers………..……….65

Appendix VI: Outcome Question List Current Suppliers………..………..67

Appendix VII: Cultural Difference Between China and The Netherlands……….71

(7)

Executive

Summary

Kuyichi is a style conscious jeans brand. Its mission is to provide fair trade and organic denim and fashion to the

audience. Part of the brand’s collections are produced in China, a country that is regularly in publicity for

violating human rights in many different forms and that is rated as one of the least environmentally sustainable

countries. Unfortunately Kuyichi has not yet been able to reach its goals and objectives in China either. This

report researches the possibilities for Kuyichi to improve its performance in China.

Kuyichi states to provide fair trade, but in fact does more than that, by aiming to provide a fair, humane and

safe working environment for all people involved in the supply chain. Next to using organic cotton, Kuyichi also

uses other sustainable materials such as recycled cotton and vegetable tanned leather.

Kuyichi collaborates with organizations MADE‐BY and Solidaridad to reach its goals. MADE‐BY is an umbrella

label that supports Kuyichi and other brands in cleaning up their supply chain. This is done by setting up

networks of suppliers, organic cotton farmers and NGOs and by helping the brands to set up strategies and

plans of approach. MADE‐BY also evaluates its member brands annually on their performance and

communicates the scores in its annual report.

Non‐governmental organization Solidaridad is the founder of Kuyichi. During its activities in the coffee and

fruit industry, Solidaridad noticed the negative effects of the conventional cotton industry on people and

planet and decided to try and change this. After unsuccessfully approaching existing brands to improve the

situation, Solidaridad decided to take matters into own hands by starting up its own label. Since then,

Solidaridad has been occupied in supporting and persuading other brands to clean up their supply chain.

Together MADE‐BY and Solidaridad are also active in China, by aiding brands in improving labour conditions

and increasing the use of organic cotton. Recently a Regional Expertise Centre has been started, from where

the brands can be assisted even better and a more elaborate network can be set up. Kuyichi has not yet

collaborated with the two organizations in improving the situation in China.

Corporate Social Responsibility (CSR) is at the heart of Kuyichi’s philosophy and is an important tool for

differentiation. An increasing amount of businesses are also realizing that they have a responsibility towards

people and planet; all the more reason for Kuyichi to ensure that its goals are reached.

The mission of ensuring fair social circumstances is in practice realized through the implementation of

certification and monitoring systems. There are various different methods available to ensure the ethical

treatment of personnel, but Kuyichi aims at working with the SA8000 standard. Other widely used and

(8)

To reduce the negative effects on the environment, Kuyichi aims to use only organic cotton, which is produced

without the use of hazardous chemicals. Next to organic cotton, other sustainable materials such as hemp,

bamboo and recycled cotton are also used.

The challenge in reaching these goals is not in implementing standards or using materials, but to get another to

implement the standards and use the materials you want them to. According to Louis W. Stern, Adel I. El‐

Ansary and Anne T. Coughlan, this can be achieved by exerting power. There are different sources and methods

of using power; when to use which source and how, depends on the relationship and dependency between the

two parties involved.

China does not have a good reputation when it comes to human rights, working conditions or environmental

consciousness. However the rules and regulations that are applicable in the country are quite sufficient and are

similar to the requirements set by the different labour standards. The challenge is to monitor and control

whether factories comply to these rules and regulations.

Not all of Kuyichi’s Chinese suppliers are currently compliant; two factories have a social standard and one

factory has implemented other methods of ensuring fair labour conditions. Organic cotton is not widely used

by the producers. However, most have found organic cotton suppliers and are open to start working with the

yarn in the future. Other sustainable materials are also available.

Kuyichi is quite dependant on its Chinese suppliers, but the other way around this is not the case. Because of

this, Kuyichi cannot easily persuade them to implement standards or start using sustainable materials.

Besides volumes and revenues, other sources of power can be very useful in stimulating the Chinese partners

to show desired behaviour. Kuyichi should become more aware of these sources and implement them more

consciously, considering the effects they have on the other party. Next to this, Kuyichi should invest in the

relationships with the different partners, so that all parties are aware of what the other is aiming to

accomplish. Another method to increase compliance, is by starting a cooperation with companies that have

already implemented social standards and sustainable materials. However most of the compliant companies

found are very large, leading to yet another unequal relationship.

The use of sustainable materials can more easily be increased by making use of the stock fabrics of the

suppliers. If suitable suppliers are not yet available, Kuyichi can introduce CMT companies to suppliers of

(9)

Introduction

Kuyichi aims at providing fair trade and organic denim and fashion to the consumer. Clothing that is created

with respect to the people and the environment involved in the process. Part of Kuyichi’s collections are,

however, produced in China, a country that is not exactly known for its ethical treatment of people and

environmentally friendly production techniques. Unfortunately, Kuyichi has not yet been able to proof this

general opinion wrong; Kuyichi is not working in compliance with its objectives in China. This raises the

following question:

What actions should Kuyichi take in order to ensure that its Chinese partners will work in compliance with

Kuyichi’s goals and objectives?

To answer this question, the following subsidiary questions will be answered: ‐ What is Kuyichi and what are the goals and objectives it is trying to achieve? ‐ What do these objectives mean in practice?

‐ What does the available theory say about this matter? ‐ What is the actual situation in China?

‐ How should this situation be handled in order for Kuyichi to reach its goals?

The final product of this research is a set of recommendations, advising the activities and actions that Kuyichi

should take in order to reach its goals and objectives in China.

This report focuses on organic materials and fair labour at sewing companies. Other factors that influence the

environment, such as transportation methods or dyeing processes, are not taken into account. The labour

conditions at cotton farmers or other yarn and fabric producers are not included in this research either. The

report analyses four different suppliers that Kuyichi is currently working with. Due to the magnitude of this

report, the other Chinese suppliers are not discussed. Due to the low response on the inquiries sent out to

potential suppliers, the analysis of potential suppliers is limited.

The data in this report is derived from both desk and field research. The desk research comprises literature

from the Internet, articles, books and Kuyichi’s administration and is mainly used to collect information on

Kuyichi, its goals and objectives, the applied theory and the general situation in China. Field research was

performed in the form of interviews with experts in the subjects at hand, conversations with the staff at Kuyichi

(10)

1. Kuyichi

Kuyichi is having difficulties to work in accordance with its objectives in China. But what exactly is Kuyichi, and

what are the ideals and goals that Kuyichi is trying to achieve?

The following chapter will introduce the brand Kuyichi, its vision and its goals. It will also discuss the strategies

and objectives for the coming years and how the brand is currently living up to these. The final section of this

chapter will discuss Kuyichi’s most important partner organizations: MADE‐BY and Solidaridad.

1.1 Kuyichi

Kuyichi was founded in 2001 by Dutch NGO Solidaridad. Solidaridad had been active in

improving labour and environmental conditions in the coffee and fruit industry in Latin

America, when they noticed how damaging the effects of the cotton and textile industry

were on the people and the environment involved. After deciding to try and change this,

several Dutch fashion companies were approached, but non were interested in taking

on this challenge. That is when Solidaridad decided to take matters into own hands by

starting their own fashion label: Kuyichi.

1.1.1 Vision

Kuyichi believes in two basic principles: fair trade and organic materials.

Kuyichi’s vision on trends and fashion is not influenced by this. “Innovative

design is as important to us, as social equity for the people and the

environment involved.”[1]

Kuyichi was the first brand to combine fashion with fair trade and organic

materials. “We find it strange our vision still differs from most other fashion

brands. We want more fashion brands to become more environmentally and

socially aware and we are happy to see that more and more brands join the

organic revolution!”[2]

1.1.2 Mission

Kuyichi’s mission is to design, produce and distribute fair trade and organic denim and fashion to an

international audience. Kuyichi aims to show other brands that using fair labour and sustainable materials can

(11)

Another goal Kuyichi has, is to involve different people and organizations with the brand: “Kuyichi strives at

being a stakeholder oriented company, which include customers, producers, employees throughout the whole

supply chain”[3]

1.1.3 Identity

Kuyichi is a “style conscious” jeans brand.[4] “We create style. We are conscious of how we create it”[5].

Kuyichi provides jeans and fashion that are put together with respect to planet and people involved in the

process.

1.1.4 The product

The collections consist of a denim line and a non‐denim line of tops, bottoms, outerwear and accessories. All

(12)

The collections are divided in basic, contemporary and trend items:

‐ The basic line consists of simple styles, with subtle branding and design. The entire basic line is made

of organic cotton.

‐ The contemporary items are commercial and mainstream, but are still innovative and have a strong

‘Kuyichi‐feel’ to them.

‐ The trend line consists of fashionable and innovative items, with distinct and refreshing designs and

fits.

Kuyichi uses as much high quality, organic cotton as possible. Next to cotton, Kuyichi uses linen, nylon,

vegetable tanned leather viscose and various wool blends. “The organic and fair trade stories are hidden

treasures most consumer find out later.”[6]

1.1.5 Strategy

Kuyichi’s strategies and objectives are divided in three main categories. The first is the increase of the use of

organic cotton. The possibilities of using other sustainable materials such as recycled cotton, recycled polyester

and soy bean are being researched and integrated into the collections.

The second category is fair trade. Kuyichi aims at working with CMT1 companies that treat their employees

fairly and respectfully. In practice, this means working with companies that are certified against a social

standard, indicating that workers are treated fairly and are paid a living wage. For now, Kuyichi’s efforts are

focussed at CMT companies, as this is the part of the supply chain where most human labour is involved.

The third category of Kuyichi’s strategies, is transparency. Kuyichi wants its supply chain to be transparent, not

only for the company to know what is going on and what needs to be changed or improved, but also for the

consumer to be able to find out what steps their garment goes through before it ends up in their closet. The

tool used to make this possible is MADE‐BY’s Track&Trace system, which allows customers to trace the supply

chain of their product on the internet. This system will be described in more detail in chapter 2.2.1.

In cooperation with partner‐organization MADE‐BY, Kuyichi sets up its strategy and step‐by‐step approach,

towards its goals and objectives. The following objectives have been derived from ‘Kuyichi action plan 2008’ by

MADE‐BY.

1

CMT company: Abbreviation for Cut‐Make‐Trim company. A CMT company receives instructions from the customer (usually a head‐tail

(13)

‐ Organic cotton

Kuyichi has set the following objectives concerning the use of organic cotton:

2008: 50% organic cotton in cotton collection

To reach these objectives, the following measures will be taken during the years 2008 and

2009. The effects of these actions will become clear in 2009 and 2010.

- Kuyichi will set up an organic supply chain in India;

- The possibilities for organic production in China will be investigated;

- The ‘organic concept’ will be introduced to the Indonesian supplier;

- Kuyichi will research the possibilities of environmentally friendly printing and denim washing

techniques.

‐ Social Circumstances

Kuyichi aims to provide fair working conditions throughout its supply chain. This is

reached through implementation of standards or certification processes.

The aim is to work with CMT‐companies that comply to the SA8000 standard. Next to the

SA8000 standard, several other standards and monitoring systems are recognised by

Kuyichi. Partner organization MADE‐BY has analyzed these standards and categorized

them into three classes (class A,B and C) according to their quality. The objectives set for

social circumstances, both aim at increasing the percentage of certified factories and at developing these to

class A certified factories.

The objectives for the coming years are as follows:

2008: 10% of the collection produced in class A certified factories 20% of the collection produced in class B certified factories

To reach these objectives, the following actions will be taken in 2008 and 2009. The effects will become clear in

2009 and 2010.

- Start producing part of the collection with Indian CMT‐company Tubeknit, which is SA8000 certified;

(14)

- Introduce social programs to the top 5 of key suppliers.

‐ Traceability

The transparency of the supply chain is achieved through the traceability of the

goods through MADE‐BY’s Track&Trace system. Following are the objectives with

respect to the traceability of the collections:

2008: 30% of collections traceable

Following actions will be taken in 2008 and 2009, showing the first effects in 2009 and 2010:

- Visualizing the supply chains of organic cotton of several Turkish suppliers;

- Implementing the Track&Trace system at these suppliers;

- Implementing the Track&Trace system at Indian CMT‐company Tubeknit.

1.1.6 Current performance

Kuyichi states that it ensures fair working conditions within their factories and that it works with materials that

do not harm people or planet. But to what extent is Kuyichi currently living up to these statements? The

following paragraphs are based on the figures from 2007.

Sustainable Materials

During the year 2007, 35% of the cotton used in Kuyichi’s collection is organic cotton. A large portion of this

cotton is used in the T‐shirt and denim collections, which have both grown in size and increased the use of

organic cotton. Kuyichi is currently testing other sustainable materials, such as recycled cotton and polyester,

linen and bamboo.

Working conditions

Kuyichi’s score on working conditions during the year 2007 was as follows: Non‐certified: 88% Class C certified: 12% Class B certified: 0% Class A certified: 0%

(15)

The score of 2007 was lower than that of 2006. There were several reasons for this: Kuyichi was forced to

terminate the relationship with a certified supplier in India, due to the low volumes that were being produced.

Difficulties at the Peruvian supplier Limatex, which was in the process of certification, forced Kuyichi to

decrease the produced quantities, further lowering the score. This company filed bankruptcy at the beginning

of 2008. Kuyichi’s major denim supplier SCS was exploring the possibilities of SA8000 certification, but this

could not be included in the score. SCS is expected to be certified in 2008.

Traceability

During the year 2007, 14% of Kuyichi’s collections were traceable.

Volumes

During the year 2007, Kuyichi produced 385.253 pieces. 233.933 (39,3% of total collection) of these pieces

were part of the denim collection. Within the fashion collection, 233.933 (60,7% of total collection) pieces were

sold. The collections were produced in seven different countries: The Netherlands, Turkey, Peru, Tunis, China,

India and Macau.

1.2 Partners

MADE‐BY and Solidaridad are Kuyichi’s most important partners in the process towards the achievement of

Kuyichi’s goals and objectives. The following paragraphs will describe the roles and activities of these

organizations (more specifically in China) and how Kuyichi collaborates with these organizations. 4% 27% 16% 3% 0% 30% 20% The Netherlands Turkey Peru India Macau Tunis China

Figure 1.2: Origin of collection

39%

61%

Denim Non‐denim

(16)

1.2.1 MADE‐BY

MADE‐BY is an umbrella label for sustainable production. Members are fashion brands that

use organic cotton and fair labour; production takes place at companies that comply with a

social code of conduct. MADE‐BY is the first initiative in fashion that focuses on the

environmental and labour conditions throughout the supply chain.

Activities

MADE‐BY “stimulates and supports fashion labels in ‘cleaning up’ their supply chain”[7]. To achieve this, MADE‐

BY works together with the brands in setting up strategies and action plans. These action plans are adjusted

and evaluated on a yearly basis and improvement is monitored. MADE‐BY cooperates with Solidaridad in

building sustainable supply chains and networks of organic cotton projects, spinners, CMT companies, but also

trade unions and local NGOs. Through this network, MADE‐BY can introduce brands to possibly suitable

partners. They assist brands in educating and informing their suppliers, both on labour and environmental

issues. At the moment, MADE‐BY is working on an interactive database, in which the suppliers, manufacturers

or other partners of the brands will be collected. The member brands can access this intranet‐type of system to

search for suitable partners on specific criteria, post messages and have discussions with other brands through

the online forum. The database will be aired within a couple of months. MADE‐BY also provides its member

brands with useful information and guidelines for the different aspects involved in improving the supply chain.

Each year, MADE‐BY publishes annual reports, evaluating the activities of the brands in terms of social and

environmental compliance. These reports help to create transparency of the brands and their supply chains.

According to MADE‐BY, “being open about a company’s activities is the starting point for improvement of

processes and production throughout the chain’.[8]

MADE‐BY uses three main indicators to measure and evaluate companies:

‐ Labour

All MADE‐BY labels aim to work with factories that comply with the minimum requirements set by the

International Labour Organization (ILO). These factories guarantee health and safety for their employees, do

not use child labour, pay living wages, work humane working hours and give employees the right to form

unions.

The MADE‐BY norm for socially responsible production is SA8000, but MADE‐BY also recognises five other

major standards that are widely used in the apparel industry. After extensive research, the six standards have

been classified in three levels. These levels are taken into account during the annual evaluations.

‐ Organic Cotton

MADE‐BY stimulates the use of organic cotton. Other types of sustainable materials are also applauded. To

proof the authenticity of the organic cotton yarn, certifications are necessary. Please see appendix IV for the

(17)

‐ Track&Trace

The Track&Trace system allows the consumer to see where their garment is coming from. Who picked the

cotton, who spun the yarns and who sewed your jeans together? By entering the MADE‐BY code that is printed

on the carelabel in the garment, the process can be traced on the MADE‐BY website. MADE‐BY aims to make

the total collection of all its member brands traceable.

Activities in China

During its first year, MADE‐BY was not active in China at all. According to Karin Reimerink, supply chain

manager at MADE‐BY, this was based on the opinion that the situation in China was very bad, not sustainable

at all and therefore not what MADE‐BY was looking for. “Later we realized that this actually offered great

potential and that we could really accomplish something here.” [9] Different brands also requested MADE‐BY’s

assistance on improving processes in China. “It would be a pity if they could not join MADE‐BY or if we could

not do anything to assist them.” Please see appendix 1 for the full interview with Karin Reimerink.

Last year, MADE‐BY and Solidaridad cooperated in setting up the ‘Expertisecentre China” in Hong Kong. From

this office, two cotton projects have been started and in the future, other projects or activities can be run from

this centre. MADE‐BY has also started improvement processes for several suppliers.

Cooperation between MADE‐BY and Kuyichi

As for all its labels, MADE‐BY sets up action plans for Kuyichi. These plans indicate when which levels of

compliance should be reached and how this can be done.

Currently, MADE‐BY is assisting Kuyichi in increasing the traceability of its collections by training several

different factories in Peru as well as in Tunisia. Secondly, MADE‐BY is playing an important role in the SA8000

certification process that one of Kuyichi’s major denim suppliers in Tunisia is currently going through. MADE‐BY

also supplies useful information concerning processes or possible partners.

1.2.2 Solidaridad

The Inter‐Church Foundation for Action for Latin America, Solidaridad, was

founded in 1976. The main objective of the organization is to support the

attempts of churches, groups and people in Latin America, Asia and Africa, that

aim at changing existing social structures. Solidaridad is a joint venture between various different Dutch

churches, which are represented in the foundation’s board. Solidaridad has made it their mission to ‘combat

structural poverty and to promote peace and justice’.[10]

Solidaridad works with the principle of fair trade, and believes that donating and lending money is not the

solution for developing countries. By stimulating and investing in local initiatives for changing the current

economy and social structures, people can become independent and self‐providing. In general, people in

(18)

their own income. Solidaridad helps small‐scale and underprivileged farmers in finding access to the market

and stimulates corporate social responsibility with respect for people and planet.

Solidaridad constantly develops new initiatives to stimulate fair trade and sustainable production and

stimulates large‐scale companies to integrate corporate social responsibility in their company management and

to produce their products in a sustainable method.

Solidaridad has developed programs in many different industries which are important in different developing

countries. Next to the fashion industry, Solidaridad is also active in the coffee, cacao and tea, tourism, fruit,

soy and biomass industry.

Fashion

The fashion program of Solidaridad is aimed at

improving the living conditions of cotton farmers and

workers in the textile industry and at making the

fashion industry as a whole more sustainable. Within

the fashion program there are many different

initiatives, the first being the foundation of Kuyichi in

2001. Since then, Solidaridad has set up MADE‐BY, the

brands M’Braze and 100% Organic Cotton and has

continuously been attempting to persuade other

brands to take their Corporate Social

Responsibility. In 2007, Solidaridad spent

approximately 1.5 million euros in the fashion program

alone. Projects within this the fashion program are

spread across the world, from South America, to Asia

and Africa.

Activities in China

Solidaridad has been active in the fashion industry in

China since 2006. The organization considers China

to be a country where a lot is wrong, but that also

shows great potential for improvement. Solidaridad

has been cooperating with local as well as

international partners to better the labour and

environmental conditions.

During the past year, Solidaridad has mainly worked

together with MADE‐BY on its activities in China, as

9%

91%

China Other countries

Figure 1.4: Expenditures fashion

14%

86%

Figure 1.3: Expenditures Solidaridad

Fashion Others

(19)

described earlier. The most important accomplishment has been the foundation of the Chinese office, from

where the two cotton projects and the other activities in China will be managed. Solidaridad has also started

training several production facilities in cooperation with US certification company Social Accountability

International (SAI).

In total, Solidaridad invested €136.313,00 in its Chinese program during the year 2007.

Conclusion

Kuyichi claims to work towards fair trade and the use of organic cotton. The chapter above has shown that

Kuyichi in fact does more than that. Aside from ‘making trade fair’, Kuyichi aims to provide a safe, respectful

and fair working environment for all people active in Kuyichi’s supply chain. A better description would be fair

labour. Next to organic cotton, Kuyichi is also testing and introducing alternative sustainable materials into the

collections. To put it simply: Kuyichi has truly integrated Corporate Social Responsibility (CSR) into its company

philosophy and management and has turned it into a Unique Selling Point (USP) by being the first to combine it

with fashion. Unfortunately, Kuyichi has not yet been able to reach the CSR objectives that the brand has set

for itself.

Kuyichi’s most important partners on the journey towards a fair and clean supply chain are Solidaridad and

MADE‐BY. These organizations are actively supporting Kuyichi and other brands in reaching their CSR goals. The

projects that Kuyichi, MADE‐BY and Solidaridad are currently undertaking (both in cooperation with each other

(20)

2. Corporate

Social

Responsibility

Corporate Social Responsibility (CSR) is a very important aspect for Kuyichi. In fact, the style conscious‐concept

is an important tool of differentiation for Kuyichi. This is also the reason that Kuyichi wants to pay special

attention to the conditions of the activities in China.

The following chapter will discuss the topic of CSR in more detail and will describe what the goals and

objectives that Kuyichi has set for itself actually come down to in practice.

The first paragraph will describe the development of CSR and the position it has in society today. The second

part of this chapter will in turn describe the two main aspects of Kuyichi’s CSR policies: Fair labour and

sustainable materials. The SA8000 standard will be discussed in depth, as this is the standard that Kuyichi

strives for. The other standards that are recognised by MADE‐BY will also be discussed briefly.

The main source of sustainable materials for Kuyichi is organic cotton, which will be discussed first. Other

sustainable materials are constantly being developed and gaining in importance. These alternatives will be

discussed in the final section of this chapter.

2.1 Trends and Developments

Corporate Social Responsibility has an important role in the management of many companies nowadays,

including that of Kuyichi’s. In fact, it has an important role in society as a whole. But what is CSR exactly? Why

and how did CSR become so popular and important in society nowadays? What role does CSR play in the

fashion industry? The following paragraphs will answer these questions.

2.1.1 Corporate Social Responsibility

Corporate Social Responsibility, Corporate Responsibility, Corporate Citizenship, Responsible Business; all these

terms describe the same concept: “The continuing commitment by businesses to behave ethically and

contribute to economic development while improving the quality of life of the workforce and their families as

well as of the local community and society at large.” [11]

Simply put, CSR is about being aware of the effects that you businesses’ activities have on the people and the

environment involved, keeping the negative effects at a minimum and aiming at improving the lives of the

people involved. At the same time, the business should remain financially sound and profitable. The financial,

social and ecological aspects of company business must be balanced. These aspects are also indicated with the

three Ps: People, Planet and Profit.

(21)

Figure 2.1: Sustainability

As the figure above illustrates, sustainability or sustainable development, is what occurs when the three Ps are

combined successfully. The original definition of sustainability was formulated by the Brundtland Commission

(formerly known as The World Commission on Environment and Development) in 1987: “Development that

meets the needs of the present without compromising the ability of the future generations to meet their own

needs.” [12] This can be achieved by treating people fairly, recognising and providing their needs, maintaining

stable levels of economic growth and using natural resources carefully and protecting or enhancing the

environment. In other words: by taking ones Corporate Social Responsibility. 2.1.2 Development

Corporate Social Responsibility is not new. In the past, companies like Philips provided housing and social funds

for their employees and their families. Reasons for this were fears of unrest, the desire to keep out unions and

the entrepreneur’s sense of responsibility (dictated by political or religious convictions). With the development

of public social services, the focus of CSR shifted towards problems outside of the factories.

During the past decades, everything in our society, including corporate social responsibility, has developed

rapidly. The Dutch top advisory board on social‐economic policy, the SER, published an advise concerning CSR.

In this advise, the SER recognises several social developments since World War II. These developments are

recognisable throughout western Europe, where the economical and social developments were fairly similar.

People

Planet Profit

(22)

1. The improved educational system and increase in disposable income has increased the role of

individual perceptions and preferences;

2. The increased prosperity has lead to a shift in needs from material to immaterial;

3. The economy has shifted from capital and production intensive, to knowledge and service intensive;

4. Both companies and social organization have gained in influence and power, causing a new division in

responsibility between government, market and society.

These trends have caused the responsibility for sustainable development to move away from the governments,

on to companies and organizations. Several different sources influence these to take this responsibility: what must be done (laws and regulations, but also society’s expectations), what should be done (ones personal

beliefs) and what pays (what serves ones own self‐interest, for example a stronger reputation).

‐ Must

An important expectation that society has of companies is that they explain, proof and back up their CSR

statements. The consumer does not settle for the claims that companies make. Transparency and openness are

very important for a company to be considered sincere. The division between the internal company and the

external surroundings become less clear. A company needs to confirm with society’s opinion.

The Internet allows consumers to inform themselves and each other of prices, quality and companies’ CSR

performance. (Negative) publicity can easily be generated , which can serve as a very strong tool for consumers

to command certain behaviour.

People are noticing more and more that governments are not able to solve all problems, and are implicitly or

explicitly asking companies to take their responsibility to contribute to the world’s prosperity and welfare.

Companies are becoming social partners of governments.

‐ Should

What companies feel they should do is related to the entrepreneur’s or management’s opinions. Managers

translate their personal mission to that of the organization, which improves a company’s commitment,

especially when this concerns corporate social responsibility, as this usually comes from a strong personal

opinion of giving back to society or personal ethics.

‐ Pays

What pays differs from company to company. Three factors are influential: ‐ Unethical behaviour can lead to legal actions, causing negative publicity.

‐ Companies that take their Corporate Social Responsibility find it easier to recruit and hold on to

employees. This is caused by the fact that people tend to choose a company that meets their personal

(23)

‐ Customers collectively influence companies to run their business ethically. In the past,price

determined sales. After quality and uniqueness, consumers are now asking for products produced in

an ethical manner, by ethical companies.

European companies in general are taking the lead when it comes to CSR as an integral part of company

management. The American concept of CSR is much more a philanthropic model, where companies take their

responsibility by donating to charity. CSR has only recently begun to shift to the more strategic role that it has

in most European companies.

2.1.3 CSR in fashion

Corporate Social Responsibility is also playing an important role in the fashion industry. Could Solidaridad not

find one fashion brand interested in producing fashion in a more sustainable manner in 2000, anno 2008

virtually every brand has some kind of CSR‐policy. Main reason for this is the influence that CSR has on a

company’s or brand’s image, which is of great importance in the fashion industry.

Big players like Nike and H&M are decreasing their ecological footstep by using organic cotton for a small

portion of their cotton collections. This may not sound like much, but in relation to the huge quantities of

cotton that these brands are using, the smallest percentage is still a lot. These large, well‐known brands are

also setting an example that other brands must follow to keep their position and reputation in the market.

Many brands have implemented standards and certification systems in order to improve working conditions

throughout their supply chains. According to US organization Organic Exchange, the organic cotton market has

since 2001, grown with 600%, from $245 million in 2001 to $2.7 billion in 2007.[13]

Scandals often stir up the discussion of CSR. All Dutch newspapers covered the story of Dutch denim brand G‐

Star, that was working with an Indian production company where employees were confronted with sexual

intimidation, violence, unpaid work and low wages. G‐Star immediately stopped its production at the plant.

After mediation (requested by Dutch and Indian government and led by former Prime Minister Ruud Lubbers),

the relationship was restored at the beginning of this year. According to G‐Star, the conditions in the factory

have been improved and are now in compliance with Indian law, international standards and G‐Star’s Code of

Conduct. The adequate response by G‐Star has definitely kept the damage to a minimum. The corrective

actions taken, and finally restoring the relationship has probably even improved the brand’s reputation on the

subject of CSR.

2.2 Labour

Many different organizations have set up standards, certification and monitoring systems, with the common

(24)

aiming at working only with factories that have attained the SA8000 certificate. The first paragraph of this

chapter will discuss this standard.

Aside from SA8000, MADE‐BY recognises six standards that are widely used and accepted in the fashion

industry. After thorough research, analysis and benchmarking, MADE‐BY identified three levels of standards.

These alternative standards will be briefly described in paragraph 2.2.2.

2.2.1 SA8000

The SA8000 Standard is a voluntary verification system focussing on the human aspect of the workplace and

the supply chain. The standard is based on norms of the International Labour Organization (ILO), the Universal

Declaration of Human Rights and United Nations Rights Conventions and is designed to ensure that companies

comply with the highest ethical standards in labour conditions.

Currently, over 1,300 suppliers are certified in 63 countries and 70 industries.

Following is the official summary of the content of the standards (quote):

1. Child Labor: No workers under the age of 15; minimum lowered to 14 for countries operating under

the ILO Convention 138 developing country exception, remediation of any child found to be working

2. Forced Labor: No forced labor, including prison or debt bondage labor, no lodging of deposits or

identity papers by employers o or outside recruiters

3. Health and Safety: provide a safe and healthy work environment; take steps to prevent injuries;

regular health and safety worker training; system to detect threats to health and safety; access to

bathrooms and potable water

4. Freedom of Association and Right to Collective Bargaining: Respect the right to form and join trade

unions and bargain collectively; where law prohibits these freedoms, facilitate parallel means of

association and bargaining

5. Discrimination: No discrimination based on race, caste, origin, religion, disability, gender , sexual

orientation, union or political affiliation, or age, no sexual harassment.

6. Discipline: No corporal punishment, mental or physical coercion or verbal abuse

7. Working Hours: comply with the applicable law but, in any event, no more than 48 hours per week

with at least one day off for every seven period; voluntary overtime paid at a premium rate and not to

exceed 12 hours per week on a regular basis; overtime may be mandatory if part of a collective

bargaining agreement

8. Compensation: wages paid for a standard work week must meet the legal and industry standards and

be sufficient to meet the basis need of workers and their families; no disciplinary deductions

9. Management Systems: facilities seeking to gain and maintain certification must go beyond simple

compliance to integrate the standard into their management systems and practices. (unquote) [14]

(25)

Social Accountability International (SAI)

The SA8000 standard was developed by Social Accountability International (SAI). SAI is an international non‐

profit organisation with the mission to improve working conditions around the world. “Our mission is to

promote human rights for workers around the world as a standards organization, ethical supply chain resource,

and programs developer.” [15]

SAI consists of a Board of Directors, consisting of 9 members, responsible for evaluating the performance of SAI

and its management, and a 26‐member Advisory Board. The Board consists of experts from various different

parties such as trade union, human‐rights organizations, retailers and manufacturers. The task of the Advisory

Board was to develop a set of standards that could be used to asses and evaluate working conditions in the

workplace and ensure fair treatment of all employees. This resulted in the establishment of the SA8000

standard in 1997. Since then, the Advisory Board is continuously working on evaluating and improving the

standard. The standard was last revised in 2001.

Implementation

There are two different methods for implementing the SA800 standard. Please see appendix II for a description

of the different procedures. Both procedures finish with an audit against the standard. This audit is performed

by a Certification Body, an organization that is accredited and monitored by Social Accountability Accreditation

Services (SAAS). This accreditation agency was founded in 1997 as a department within SAI and established as

an independent non‐profit organization in 2007. SAAS is responsible for assessing and accrediting qualified

organizations as Certification Bodies for various different certifications, including the SA8000 Standard.

Costs

The costs of certification vary, depending on the size of the company. The larger the company and the larger

the workforce, the more time is needed for the audit. Costs may also vary between certification bodies.

According to Gerhard Schäuble, managing director of SA8000 auditing bureau Fair & Human GmbH, the costs

of certification are mostly paid by the customer. “We always try to share the costs because of advantages both

sides have. But mostly it is the importer who pays.”[16] Please see appendix III for the full interview with

Gerhard Schäuble.

Kuyichi generally doe not pay for audits or certifications, because it believes that the initiative and efforts

should come from the company itself. If a company is not motivated or willing to implement a standard itself,

this indicates that it is not fully committed to ensuring ethical treatment of its employees.

(26)

Criticism on SA8000

Like any other standard or certification program, the SA8000 standard is not perfect. Following are the major

disadvantages of this standard:

‐ In theory, non‐governmental organizations can be accredited by SAAS, but currently only commercial quality

control organizations have been accredited. The factories that are audited, pay these certification bodies

directly. This questions the independence of the certification bodies;

‐ Factory employees do not always trust in the independence of the auditors either. This causes them to be

afraid to speak freely about subjects such as discrimination and harassment.

‐ It is debatable whether it is possible to declare a company SA8000 compliant based on a one day audit. ‐ When a company is SA8000 certified, it remains unclear whether the supply chain of the company is also

certified.

‐ The responsibility of certification lays with each individual member, instead of with the company on top of the

supply chain. Certification as well as corrective actions need to be paid by the factories.

2.2.2 Other Standards

As indicated previously, Kuyichi’s and MADE‐BY’s norm for social compliance is SA8000. However, there are

other standards that are widely used and accepted in the fashion industry. MADE‐BY has researched and

benchmarked the six most commonly used initiatives and classified them in three levels, class A being the

highest, class C the lowest. Of course, a certificate in any of these classes is better than no certification at all.

Class A

Ethical Trading Initiative (ETI)

The Ethical Trading Initiative (ETI) is a multi‐stakeholder initiative comprising companies, NGOs and trade

unions. The initiative was developed in 1998. Member brands must monitor their supply chain regularly, the

frequency is dependant on the capacity and choice of the brand. The progress made is reported to ETI. Most

brands rely on third parties for these audits. ETI is the only standard that includes subcontractors, supplier and

homeworkers. Content‐wise, the ETI standard is comparable to the SA8000 standard.

Fair Wear Foundation (FWF)

The Fair Wear Foundation (FWF) was founded in the Netherlands in 1999. The multi‐stakeholder organization

of trade unions, NGOs and companies currently has 28 members. The FWF is only active in the apparel

industry. Member brands report annually on the progress made in their supply chain. They are required to

audit all their suppliers within three years. Unannounced external audits are carried out in approximately 3% of

(27)

suppliers and subcontractors; homeworkers are not included. The content of the standard is comparable to the

SA8000 standard.

Class B

Fair Labour Association (FLA)

The Fair Labour Association (FLA) is a non‐profit organization that was founded in 1997. The FLA is a multi‐

stakeholder organization, with stakeholders from universities, NGOs and companies. The FLA currently has

twenty members, from within as well as outside of the textile industry. Member brands report on their

progress to the FLA. They are required to audit their suppliers every three years. A small percentage is audited

unexpectedly by a third party. The standard addresses the suppliers of member organizations and

subcontractors , homeworkers are not included. The FLA standard is less strict than the SA8000 standard.

Wages are required to be at industry or local law level, compared to the living wage required by SA8000. FLA is

less strict on freedom of association and collective bargaining, forced and child labour and health and safety.

Business Social Compliance Initiative (BSCI)

BSCI was developed in 2003 by the Foreign Trade Association (FTA) and currently has 109 members (mostly

retailers) from ten countries. The board of BSCI lies with FTA; no unions, NGOs or other stakeholders are

involved. BSCI uses a monitoring system and the member brands report to BSCI on their progress.

Unannounced audits are conducted by third party certification bodies, which are accredited by previously

mentioned SAAS. BSCI addresses social conditions at suppliers and subcontractors. Homeworkers are not

included. The BSCI standard requires organizations to pay their employees the minimum wage, instead of a

living wage, which SA8000 requires.

Class C

Worldwide Responsible Apparel Production (WRAP)

The Worldwide Responsible Apparel Production (WRAP) organization works with the Apparel Certification

Program. This standard was developed in 1998 and since then, over 600 facilities have been certified. As the

title indicates, WRAP is only active in the apparel industry. WRAP is a multi‐stakeholder organization consisting

of company, NGO, government, and university representatives. WRAP uses a certification system. After all

requirements are met, a certificate is issued. The audits are conducted by third parties. After certification,

unexpected audits are executed once a year on average. The standard addresses subcontractors and suppliers,

homeworkers are not included. WRAP is not very strict on several different issues. Concerning wages, only

compliance to local law is required. Young workers are not specifically protected and the standard is less strict

on forced labour.

(28)

2.3 Sustainable Materials

To decrease or eliminate the negative environmental and human effects of its activities, Kuyichi aims to use

organic cotton in its cotton collections. The following chapter will explain what damage the conventional

cotton industry does to the environment and the people working in it and how the organic cotton industry is

different. The last part of this chapter will discuss some other alternatives to conventional cotton.

Environmental damage can also be decreased by altering or eliminating washing processes of fabrics or

garments. This aspect will not be covered in this research report.

2.3.1 Organic Cotton

Conventional cotton

50% of the world’s textile is made of cotton. Cotton is considered a ‘natural fibre’, but it is

also the fibre that damages the environment and the people growing it the most.

Approximately 3% of the world’s cultivated land is used for cotton farming, but 25% of all

insecticides and 10% of all pesticides used worldwide, are used on cotton. The effects are

enormous: people are poisoned and may even die due to the hazardous chemicals used to

protect the plants. If the chemicals themselves do not harm the farmers, the water they use

will. The chemicals end up in the ground water, which eventually ends up in the food chain.

The irrigation of water needed for the cultivation, causes the rivers and lakes to dry out.

The water that is left, is heavily polluted.

Eventually, the plants and the insects become resistant to the chemicals used, leading to

higher doses of chemicals, or even more poisonous chemicals to be used.

Cotton farmers are dependent on their cotton harvests and use their fields for growing the

same fibre year after year, leaving the field barren and infertile.

The answer for many cotton producers seemed to be genetically modified cotton seeds. These seeds are

resistant to pests and insects. However, new seeds need to be purchased annually at very high prices, causing

many farmers to get into debt. The long term effects of genetically modified cotton seeds is unknown. The fear

is that pollens from the plants will spread uncontrollably, mixing with traditional cotton plants.

Organic Cotton

Organic cotton farmers work with organic fertilizers and natural crop protection. In order to keep the fields

healthy and fertile and to prevent insect plagues, the fields are alternatively planted with cotton and other

crops. These methods support biodiversity, improve the quality of the soil and often use less water.

The costs of organic cotton are higher than conventional cotton, however in the final price, the use of organic

cotton will not have such a great effect. Cotton accounts for approximately 5% of the total price. Organic

(29)

of organic cotton can be smaller than that of conventional cotton. However, the money that is usually spent on

herbicides and pesticides can be greatly reduced, decreasing the effects of the lower yield.

For a thorough description of the different processes of organic and conventional cotton farming, please see

http://www.cyarn.com/products/Spun‐yarn/why‐buy2.html.

To be able to claim that cotton is organic and for a company to back up the claim of using organic cotton, the

yarn needs to be certified. It is in fact obliged by law to certify the cotton up to yarn level. This is not only

applicable to organic cotton, but is the case for any organic fibre. Please see appendix IV for an explanation of

the certification processes.

2.3.2 Other Sustainable Materials

Next to organic cotton, there are many other materials that are a suitable alternative to conventional cotton.

There are other natural fibres that cause far less damage to the environment and recycling used materials is

also being used more commonly. The following overview offers just a glimpse of all the developments that

have taken place and are still taking place today.

‐ Bamboo

Bamboo is a good alternative to cotton: The yarn is strong and resilient, but the fabric is

very soft, has a silky appearance and is very durable. The fibre absorbs moist very well; it

can retain up to three times its weight in water (3‐4 times more than cotton) keeping the

body dry and comfortable. Bamboo is anti‐static, anti‐fungal and anti‐bacterial, even after

multiple washings. These qualities help reduce bacteria in clothing, which causes

unpleasant odours. In addition, the bamboo fibre has insulating properties, keeping the

wearer cool in summer and warm in winter. Bamboo fabric can be dyed in bright colours

and can be draped smoothly. It is suitable for use in several different product groups, from

knits to woven shirts. A disadvantage of bamboo is that large amounts of bleach are

needed to get the fabric white. This is why many companies choose to leave the fabric in its

unbleached state. The bamboo plant is the fastest growing plant in the world, due to the

fact that it absorbs water so well. The plant reaches its maximum height within three

months and spreads very rapidly. It improves the soil quality in degraded and eroded areas. Herbicides or

pesticides are not necessary, because the plant produces an antibacterial substance itself.

(30)

‐ Hemp

Hemp is the easiest textile crop to grow organically. The plant easily grows up to 5 meters

high and has a thick layer of leaves, blocking the growth of weed. No insecticides or

herbicides are needed. Growing hemp requires far less water than is needed for growing

cotton, due to the long roots of the plant.

Hemp has been used for thousands of years, traditionally as a coarse fibre, making it very

suitable for ropes and sails. Developments in the growing and handling of the plant and

fibres made it possible to create finer and softer fibres which are ideal for clothing. Clothing

made of hemp is strong and durable and has good insulating and absorbent properties. The

fibre can last three times longer than cotton fibres and is mostly used for durable, woven

fabrics. Hemp can be dyed in virtually any colour, but due to the plant dyes that are often

used on hemp products, it has the undeserved reputation of being dull in colour.

China is currently the number one producer of hemp and has been growing the crop for

over 6000 years. The demand for hemp in clothing textiles has almost disappeared in western markets, but is

currently increasing in popularity due to the discussion on the environmental effects of the cotton industry.

‐ Soy

Soybean yarns are made from the waste of the manufacturing of tofu. Soy can be grown

organically or non‐organically, but is in either way less damaging to the environment than

other textile crops. Soybean fibre has excellent properties and is sometimes referred to as

“vegetable cashmere”.[17] Fabrics have a lustrous, silky appearance and drape very well.

They have a soft and smooth handfeel and are light weight. Soy absorbs moist as well as

cotton and transmits it even better. The fabric can be dyed well and is colourfast. It is an

easy‐care fabric that does not shrink or crease and dries quickly. It also has antibacterial

properties. Soy fibre is ideal for products that are worn close to the skin, such as underwear,

nightwear and sportswear. When combined with other fabrics, the soy fibre improves the

properties. For example, when combined with wool, soy will decrease the shrinkage and

make the fabric more easy‐care. When combined with silk, it will prevent the fabric from

sticking to the skin when wet.