Licensees and Factory Access for University Monitors

To:WRC Affiliate Universities and Colleges
From:Scott Nova
Date:February 8, 2016
Re:Licensees and Factory Access for University Monitors

We have learned from affiliate universities of a recent assertion by Nike concerning its ability to secure access for university labor rights monitors to its contract factories. Nike has told some universities that it does not have the ability to arrange such access for the WRC, because factories are independent businesses and it is the factories’ decision, not Nike’s, whether to let the WRC – or another monitor – in.

I want to offer our thoughts on this issue.

Nike’s claim is surprising. Nike’s own monitoring program, and, indeed, the entire field of labor rights monitoring, is predicated on the idea that apparel brands have significant leverage over their contract suppliers and can use this leverage to get suppliers to honor the brands’ preferences on labor rights matters – including factory access, among many other issues.

As everyone involved with university apparel understands, apparel brands – including university licensees – generally do not own their factories; rather, they outsource production to overseas contract manufacturers. This is the way the garment industry has been operating for decades.  

The factories that make the goods are legally independent of the licensees and indeed have the legal right to decide how to run their businesses. This is not limited to the issue of whether or not to cooperate with factory monitors, of course. Factory owners have legal control over every aspect of the way they run their business, including how they treat workers. If the only issue was who owns the factories, and therefore has the legal right to make such decisions, that would be the end of the discussion – there would be very little that licensees (or universities) could do about what happens to workers in a factory.

However, despite the fact that brands don’t own their supplier factories, they have nonetheless established labor standards, elaborated monitoring systems, and made labor rights commitments to their customers and their business partners (including universities). Indeed, most brands have had labor codes, and have been assuring customers and business partners that their suppliers will meet those labor codes, for at least twenty years. 

How can licensees, and other brands, make promises about how workers will be treated in their supplier factories when they don’t own and control the factories? The answer, of course, is that brands don’t rely on direct ownership to exert their will: they rely, instead, on the economic leverage they have over the suppliers, leverage that derives from the fact that suppliers are entirely dependent on the brands for their survival. Brands, including licensees, use this leverage to get suppliers to do things they want them to do, like cooperate with outside monitors – and agree to meet the labor standards of the licensee’s business partners, even when these standards go beyond the requirements of the law and the licensees’ own labor codes (as is the case with many universities’ codes).

For example, the Bangladesh Safety Accord has an independent safety inspectorate that needs regular access, on demand, to the 1,634 factories covered by the program. The factory owners have no legal obligation to let the Accord’s inspectors in – because they are not themselves signatories to the Accord and they have the right to make their own decisions about how to run their factories. Yet the Accord inspectors have had no trouble getting into these factories. Indeed, the Accord has conducted onsite inspections of these factories more than 5,000 times in the last two years – with minimal resistance. Why is this possible? It is possible because the brands that are signatories to the Accord use their leverage, very effectively, to convince the suppliers to cooperate.

That same use of buyer leverage explains why it has been possible for the WRC to access numerous collegiate factories, from Industrias de Exportacion and Gildan Villanueva in Honduras; to Premium, Genesis and SISA in Haiti; to Zongtex in Cambodia; to Optimum Fashion and UniGears in Bangladesh; to Nike factories like PT Kolon Langgeng (Indonesia), Eagle Speed (Thailand), and Pinehurst (Honduras).

Most importantly, this leverage explains how licensees can commit to comply with university labor codes in the first place. If licensees actually deferred to their suppliers on labor rights matters, on the grounds that it is factory owners that make the decisions – if licensees really lacked the ability to compel their suppliers to honor the licensees’ preference on labor rights matters – then no licensee could possibly assure universities that their logo goods are being made in compliance with university standards.

If a licensee like Nike did not even have the power to get university labor rights monitors into a factory for a couple of days, then how could that licensee possibly persuade a factory to improve its labor practices to the level required by university standards and then stay in compliance throughout the years the factory produces collegiate goods? If Nike did not have the kind of leverage over its suppliers necessary to get the WRC into its factories, then Nike could never have honestly assured universities that it can comply with the labor standards in its licensing agreements.

Fortunately, licensees do have the power to get the suppliers to improve their labor practices, when they choose to use it. And they do have the power to convince their suppliers to let labor rights monitors into their factories.

There are some exceptions: very small licensees that represent a tiny percentage of a factory’s business may not have enough leverage to get factories to allow independent monitors in and to otherwise comply with university standards. The challenges small licensees face are widely recognized.

The major licensees, like Nike, adidas, and Gear for Sports, do not have this problem. Nike sells $30 billion worth of merchandise in a year, all sourced from about 650 factories. At factory price, that is an average order volume in the tens of millions of dollars per year. A factory owner is not going to risk ten or twenty million dollars in business because it doesn’t want a particular monitor in its factory for two days – most factory owners will not risk any appreciable amount of orders over such an issue.

Indeed, a factory owner will go a lot further on labor rights matters than just granting access – if the owner believes labor rights are a priority for a customer like Nike. That is why university labor codes have proven to be such a powerful instrument for achieving labor rights gains at individual factories – when independent monitors can access the factory and identify the problems.  

Nike may point out that its order volume is lower at some factories and its leverage therefore less. It is true that order volume varies, and leverage with it, though it is difficult to imagine that any Nike supplier would thumb its nose at Nike over an access request. However, if there are factories in Nike’s collegiate supply chain where the company’s leverage is so low that it cannot secure access for the WRC, then its leverage is also too low at that factory to ensure compliance with university labor standards. If this problem exists, the solution is straightforward: Nike should place its collegiate production in factories where it has enough leverage to fulfill its labor rights obligations to universities.

As always, please let me know if you have any thoughts or questions about this communication.

Scott Nova 
Worker Rights Consortium 
5 Thomas Circle NW, 5th Floor 
Washington DC 20005 
ph  202 387 4884 
fax 202 387 3292 
[email protected]