Garment manufacturing: How to navigate Myanmar’s ethical maze

As it undergoes profound and rapid change, Myanmar is today emerging as one of Asia’s most sought-after hubs for fashion sourcing. The country’s opening-up to the global economy has come after decades of military rule, during which a long period of isolation and internal conflict was followed by an era of gradual disengagement from politics by the ruling junta.

This retreat took a landmark step forward in November 2015, when the south-east Asian nation held the first openly contested elections in its modern history. With an associated easing of economic sanctions by the European Union and US, the administration of the National League for Democracy (NLD) – the party of Nobel Peace Prize laureate Aung San Suu Kyi – has set bold industrialisation targets.

The garment industry, which employs more than 350,000 workers today, is on track to become one of the country’s most significant growth drivers. A 2015 white paper by the Myanmar Garment Manufacturers Association estimates the number of jobs in the industry will increase to 1.5 million by 2024.

As rising production costs and geopolitical instability challenge neighbouring markets in China and Bangladesh, Myanmar’s garment sector is in demand. Buoyed by economic liberalisation and regulatory reforms encouraging investment and expansion, global fashion brands including Primark, Gap and H&M are increasing the volume of products they source from the country.

“Retailers and brands will always look to wherever they can find the best deal,” says Adam Mansell, chief executive of the UK Fashion and Textile Association (UKFT). But he warns that those weighing up a move into the country should tread carefully: “Brands will need to be sensitive to public perceptions of Myanmar’s human rights record, where there remains much to be done.”

An average wage below that of many neighbouring garment and textile hubs provides Myanwar with a competitive advantage. However, its lack of social protections, inconsistent enforcement of international safety requirements and stubbornly high level of corruption, mean it continues to turn out scandals with worrying regularity.

In a country where unionism was prohibited until March 2012, it was perhaps to be expected that labour laws and industrial relations would take time to catch up. For instance, a minimum daily wage of 3,600 kyat (£2.06) for an eight-hour work day was only set in late 2015, after contentious negotiations between factory owners and newly formed labour unions eventually reached an agreement.

The wage rule does not cover overtime compensation. This rate places Myanmar at the very bottom of the wage ladder for the region, behind countries such as Cambodia and Vietnam, where the monthly minimum wage ranges from £70 to £115, figures from the United Nations’ International Labour Organization (ILO) indicate.

Findings from a February 2017 study of 12 factories by the Netherlands-based Centre for Research on Multinational Corporations (known as SOMO), reported that labour rights violations were rife among the facilities surveyed in and around Myanmar’s largest city, Yangon. A lack of employment contracts or grievance mechanisms, unlawful deductions in line with the ILO definition of forced labour, and multiple cases of child labour were all reported, alongside damning accounts of poor working conditions from employees.

A low level of unionisation was also discovered, and ILO’s research suggested that existing labour laws were enacted to provide obstacles to workers engaging in collective action. However, a spokesman for Sports Direct, which manufactures in at least one of the factories included in the report, dismissed the interviews with workers as “anecdotal and uncorroborated”.

In March this year, Reuters reported that garment workers had destroyed a production line in a violent protest over working conditions and benefits at a Chinese-owned factory in Yangon. At the time, the production line was making clothes for H&M, which immediately placed its relationship with the factory on hold, issuing a statement expressing its concern over the conflict.

The Ministry of Labor, Immigration and Population, which was involved in mediation between workers and employers of the Chinese-owned factory, has said it is seeking to amend laws to improve the legal framework for disputes.

Meanwhile, Suu Kyi’s NLD party is coming under pressure – from workers’ groups and internationally – to do more to ensure safety for workers and to bring about labour reform, while also reassuring investors who want to involve themselves in the rapidly emerging and historically isolated market.

Accountability matters

Following several high-profile scandals, including the 2013 Rana Plaza factory collapse in Bangladesh, which killed 1,134 garment workers and brought about widespread calls for reform within the industry, western brands are acutely aware of the need for accountability.

“Today, the onus is on retailers to accept responsibility for their wider supply chains or face fines and reputational damage,” says Peter Needle, CEO of Segura, the cloud-based supply chain management firm.

“It’s not just the right thing to do – it’s also good business,” he continues, noting that a publicly traded retailer could expect a significant knock to its share price following an ethical crisis linked to its production processes.

In the face of under-developed compliance regulations within Myanmar, and as a means of mitigating risk of reputational damage, the solution for both retailers and manufacturers, it seems, is transparency.

Increasingly, brands such as Gap, Reebok and Marks & Spencer are publishing their full direct supplier lists online, while others are looking to boost traceability by disclosing who made their products and where.

For Chinese manufacturer Dishang, which operates two factories in Myanmar, a comprehensive and consistent corporate social responsibility and compliance policy across all production locations is essential.

“We adopt the Ethical Trading Initiative (ETI) base code as a minimum standard,” explains Philip Roebuck, the group’s European director. Dishang then makes use of production monitors and sustainability audits such as Sedex members ethical trade audit (SMETA) or the Waste and Resources Action Programme (WRAP). It also uses supply chain compliance systems such as Business Social Compliance Initiative (BSCI).

“The issue some companies face when using sub-contracted factories is avoided by operating our wholly-owned facilities,” says Roebuck.

He views Myanmar as a compelling and low-risk place to invest and do business in today’s climate – so long as you understand the market and can enlist adequate supply chain compliance measures: “The country is now politically stable and is making it straightforward for foreign-owned businesses to buy land and build production units. This gives it an advantage over places such as Bangladesh, along with simple import/export procedures to bring in raw materials and send out finished goods with minimal delays.”

While the government in Yangon is falling short of progress on workers’ rights and fair pay, it is heavily supporting the expansion of infrastructure projects such as utilities, transport and communications. Special Economic Zone (SEZ) laws include corporate income tax relief, import duty relief and expropriation protection mechanisms, making it easier and more attractive to do business in the country.

In the medium term, significant new government-led investment in vocational training will lead to a growth in the availability of skilled workers and of management-level staff.

Myanmar’s population of 54 million people means its garment factories have a large pool of cheap labour, and their favourable trading conditions may make them attractive to margin-conscious retailers. However, conditions for workers on the ground are often far from acceptable.

Oxfam International executive director Winnie Byanyima believes this is a moment of opportunity, if businesses investing in Myanmar are willing to demand ethical compliance: “Myanmar has the opportunity to break away from the path of inequality that so many other low-income countries have gone down. Global retailers, brands and local employers in Myanmar must apply pressure and seize this moment of political and economic change.”

Source: Drapers