H&M: Supply Chain and Outsourcing

A multinational corporation is a term referring to an organization that conducts business operations out of countries other than the home nation. As economic globalization becomes an increasing movement in modern society, it is not abnormal to see a greater frequency of these types of corporations conducting their business with a variety of countries. More specifically, over time, nations of the Global South have experienced a dramatic increase in corporate appeal from the garment producing industry. It is no surprise then, that with cheap labor, access to raw materials and a promise of rapid development, countries in this region have seen a rise in the demand of foreign establishments vying to carry out production here.

As a Hennes and Mauritz (H&M) employee of three years, I have come to be familiar with their foreign affairs in the Global South, particularly in Bangladesh. Bangladesh is the main region in which H&M outsources the production of their merchandise before shipping the majority of these goods to the Western world. It is not uncommon for the company to take many opportunities each year to educate and update their employees of their interactions with Bangladesh. Being presented with one-sided information concerning these interactions, I was made to believe that H&M’s presence in this country is beneficial for the development of the nation on a global scale. Such things as training programs in the operation of sewing machines with the guarantee of employment at H&M are features I understood to be aiding the country in economic sustainability. However, after study on the topic of the effects of globalization and multinational corporations in developing countries, I recognize that there are arguments claiming global outsourcing in the Global South is a barrier to the possibility of progress in these nations. Through critical analysis of arguments supporting and against H&M in Bangladesh, it is evident that the existence of this company in a developing nation does affect the growth of the country. Despite the fact that H&M may abide by the labor and environmental policies of Bangladesh, their presence in the country as a foreign transnational corporation hinders the likelihood of economic or political growth and negatively impacts the nation’s steps towards development.

Founded in 1947, Hennes and Mauritz (H&M), is a clothing company that originated in Sweden. Today H&M operates out of 38 countries, backed with 87,000 employees (H&M 2011: ). Alongside having stores across the globe, H&M has special relationships with certain countries in which it outsources the majority of its’ merchandise. One of the essential countries in which H&M relies on for the outsourcing of their merchandise is Bangladesh. “Bangladesh, considered being one of the ‘Least Developed countries’ (LDC), has been tremendously influenced by globalization, particularly the restrictions in the apparel industry over the last decades” (Uddin 2006: 7). Bangladesh achieved freedom as an independent country in 1971, and after undergoing trade liberalizations in the 1990s, Bangladesh made the switch from an agriculturally dominant economy to that of a market led one (Uddin 2006: 7). When multinational corporations such as H&M learn that a country is newly liberalized, it is common for them to step in and offer the country their business, along with reasons why their business will guarantee this country fast development. “For Bangladesh, the quotas acted as a guarantee for certain quantities of export sales, helping to establish market presence” (Uddin 2006: 7). The concern attached to these types of export sales for Bangladesh, is that the business H&M is outsourcing is the most basic among all the aspects that make up this company.

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H&M sources their manual labor to Bangladesh so as to keep new business issues in the mother country. “By sourcing non-core business activities a company can focus on its core business in a better way” (Alim 2010: 30). By H&M outsourcing its production tasks to Bangladesh, Sweden is sending its’ ‘no-brainer’ business to a developing country. The business sector in Bangladesh is less likely to achieve development through H&M’s outsourcing habits because these second hand projects focus on manual labor. Being that the majority of its’ market based economy deals with manual labor, Bangladesh is deprived of working with new technology – which is the norm for capitalist countries. Therefore development in Bangladesh cannot be attained, as the nature of the work force is not advancing.

“The emergence of American, European, Japanese and Third World multinationals has created a new competitive environment, requiring the globalization or at least semi-globalization of corporate strategy” (Alim 2010: 24). H&M is among the world’s leading multinational garment retailers, they promise their customers “fashion and quality at the best price” (H&M 2011: ). In order to remain in a position of competitive advantage, some would say corporations of this nature have to maintain a certain reputation concerning all the aspects of business they conduct. In modern society, methods of sustainable production are being favored as the general public is aware of certain on goings in the production of goods such as child labor, and the exploitation of human rights and environmental laws. Companies of this nature than need to take certain precautions to ensure that their business is being conducted in a manner that follows regulations of the outsourcing country, and in a manner that will result in a satisfied consumer.

It is fair to say that the consumer has a significant influence on the way H&M conducts their business. Now that awareness regarding the environment is important on a global scale, many consumers first verify that a sustainable company is manufacturing the merchandise they are purchasing. For example, H&M has taken initiative in ensuring that the cotton they use in their products is increasingly organic “…cotton is the raw material we use the most. Although we do not source any raw materials, directly, we are committed to actively contributing to reduce their impacts” (H&M 2009: 33). This is extremely popular for H&M, who stresses the importance of their products being made in an eco friendly environment. Often times, transnational corporations view outsourcing as a ‘win-win’ situation (in terms of maintaining a good reputation among customers) as they take their production over seas to developing countries that offer cheap production costs, alongside lenient labor and environmental laws.

A unique fact when analyzing the outsourcing habits of H&M in Bangladesh is that they do not own any of the factories in which production of H&M merchandise takes place. Instead, roughly 700 independent suppliers deliver their products (Alim 2010: 62). This allows H&M to maintain a clean reputation amongst other multinational corporations to its’ customers in terms of abiding by environmental policies and human rights laws. Due to their large purchasing volumes: “H&M is the second largest buyer in Bangladesh as a single buyer” (Alim 2010: 65), H&M plays a large role in the economy of Bangladesh. Seeing as the business they bring to the country is mainly exporting primary material, the country needs to produce these goods in volume for cheap. This can lead to neglect of human rights, “The claims surfaced as in Bangladesh, violent protests by tens of thousands of garment workers demanding higher pay forced the closure on Tuesday of 700 factories that supply the top names in Western retail, including H&M” (Fashion Giant H&M evades Taxes in Bangladesh: ). Being that H&M does not own the factories in which this neglect takes place, they often claim to encourage management of factories to abide by human rights laws. Although, it is hard for one to tell for certain if this is the case. In an industry where the demand for these products continues to rise, it is very difficult for Bangladesh to break a cycle of human rights abuse in order to meet a quota. A history of exploitation of human rights due to the demand by foreign corporate parts in the country is a factor contributing to the lack of development – or potential for development in Bangladesh.

There are 2 million individuals that make up the workforce of the garment industry of Bangladesh; of this figure, 70% are women (Wulff 2008: 1). H&M takes time to inform their employees of employment opportunities they provide for those in developing countries. They are particularly proud of the work-training program implemented for those who show interest in making clothes in Bangladesh. H&M trains prospective factory employees in operating sewing machines with the promise of guaranteed work after successful completion of the program. Though there are obvious benefits to the idea of providing jobs for people of Bangladesh (especially women), the work-training program H&M has put into practice has long-term negative effects on the development of the country. An evident gain of the program being that women are provided an opportunity to work and help support their families, has the negative side effect of women continuing to be perceived as a domestic figure – sewing clothes while men manage the factories.

Aside from a gender bias that will be hard to break as the popularity of this program grows, there is also the issue of young adults not continuing in a higher education. A direct correlation can be seen with respect to the number of people working in a factory, and the number of people in that factory who have received a higher degree of education. Of the amount of individuals producing clothes in a given factory in Bangladesh, the majority has achieved no more than a high school diploma (Uddin 2006: 72). With less of the population attaining a hire education, difficulty in developing an interdependent economy arises due to the dependence on entry-level positions created by H&M’s work-training program.

One of the reasons why outsourcing in Bangladesh is extremely popular for H&M, a company that stresses the importance of their clothes being made in an eco friendly environment, is a result of the leniency of labor and environmental laws. Important for consumers to be reminded, is that policies protecting the environment in the Western world are generally much more strict than those protecting the environment in the Global South. Multinational corporations are often the reason why environmental laws in developing countries are so lenient. Governments and authorities in these countries generally feel pressured to comply with the influences of the business needs of transnational corporations. “According to the BGMEA (Bangladesh Garment Manufacturers and Exporters Association) officials, the social responsibility initiatives of BGMEA directly responded to the concerns of multinational buying companies – the group they believed constituted the most powerful stakeholder group. The BGMEA executives made specific reference to the expectations of, and pressures exerted by, buying companies such as Nike and H&M…” (Azizul 2009: 108). These pressures felt display a direct relationship with the development of a country. When the government – which is supposedly the highest authority in a given region, is pressured to act a certain way by a foreign investor, the country ceases to develop in an independent manner, as there is a dependence on the business this investor provides. The extent of Bangladesh’s dependence on multinational clothing companies such as H&M is seen in the fact that around 4,500 garment factories accounted for roughly 80% of the country’s 16-billion-dollar export income in 2009 (Anger after deadly H&M factory fire: ).

In the process of outsourcing the production of their merchandise, H&M often demands the usage of raw materials that need to be sourced from various countries. It is interesting though, that they leave the chore of purchasing these materials to the production factories in Bangladesh. “…most of the time, suppliers import the raw materials from abroad due to unavailability in the local market. In some cases, H&M nominates the raw materials supplier. In that situation, suppliers purchase the raw materials from those nominated sources, whether they are local or foreign” (Alim 2010: 72-73). H&M’s Sustainability Report from 2009 states that transporting raw materials from a country outside Bangladesh can take up to 44 days to arrive, causing potential delays in the production of merchandise (Alim 2010: 73). Importing materials from nations outside of Bangladesh for the production of goods presents a conflict in terms of development. Firstly – being that Bangladesh produces merchandise under the condition of cheap labor, expenses of importing materials from other countries can damage their overall profit rate. More importantly however, is that by sourcing raw materials from places outside of Bangladesh, domestic businesses suffer when trying to compete against more powerful foreign corporations. Through this cycle, foreign transnational corporations shape the economy of Bangladesh.

Through investigation on the subject of the impact of globalization and the presence of transnational corporations in the Global South, strong arguments declare that global outsourcing in these regions is a barrier to the possibility of development. As an employee of a multinational corporation, I have considered its’ relationship to Bangladesh through two perspectives. Firstly, the relationship presented to me through H&M’s viewpoint; being that their presence in Bangladesh allows for them to outsource quality merchandise for cheap labor costs while increasing capital of the export sector and creating jobs. As well I have analyzed a more negative stance on the issue of H&M in Bangladesh. This being that H&M is hindering the possibility for development in Bangladesh through creating dependence and pressuring the government. Both perspectives have in common the argument that H&M in Bangladesh acts as a major influence on the development of the country. Although H&M follows the labor and environmental policies in Bangladesh, the company’s existence in the country is enough to decrease the likelihood of both economic and political growth while negatively affecting the nation’s ability to develop.