GLOBAL VALUE CHAINS LUXURY ANTI-VALUE #9

When we buy into the beauty of luxury, we lovingly run our fingers across the handstitched Made in Italy label. We conjure dreams of Tuscan hills of rolling green and gold, deep set family businesses which have lasted for centuries, the scent of hand-cut leather, and the deft hands of needle and thread.

The reality is sometimes much different than the fairy-tale. In an expose piece for the LA Times, a journalist ran a story on big name brands importing cheap overseas labor into Italy’s heritage leather scene in an effort to cut costs. The article warns would be buyers;

‘These days, the coveted “Made in Italy” label on those Prada bags and Gucci shoes, which can quadruple a price, may not mean what it used to. Thousands of Tuscan factories that produce the region’s fabled leather goods are now operated and staffed by Chinese. Though located in one of Italy’s most picturesque and tourist-frequented regions, many of the factories are nothing more than sweatshops with deplorable conditions and virtually indentured workers.’

While buyers are used to hesitating over buying a garment made in china, Cambodia, or Bangladesh, they usually would feel clean and comforted purchasing goods with a Made in Europe logo. But it’s a false sense of security. Back in the 90’s the Tuscan region became flooded with imported labor from Wenzhou in China. These workers set up textile businesses in garages or joined the manufacturing houses of big-name brands like Prada and Gucci, churning out Made in Europe textiles for a fraction of the cost of European workers. They worked eye-wateringly long hours, the smaller businesses imported cut price textiles from back in China, and they grew. In this piece for The New Yorker, D.T Max notes;

The Chinese firms gradually expanded their niche, making clothes for middle-tier brands, like Guess and American Eagle Outfitters. And in the past decade they have become manufacturers for Gucci, Prada, and other luxury-fashion houses, which use often inexpensive Chinese-immigrant labor to create accessories and expensive handbags that bear the coveted “Made in Italy” label. 

The piece goes on to note that even a few years ago; ‘In 2014, an Italian artisan spoke to the investigative television journalist Sabrina Giannini. Gucci had given him a big contract, he said, but the pay was so low—twenty-four euros a bag—that he had subcontracted the work to a Chinese mill, where employees worked fourteen-hour days and were paid half what he made. When the bags made it to stores, they were priced at between eight hundred and two thousand dollars.’

While a spokesperson for Gucci reported these accusations as falsehood and has promised to increase scrutiny of their supply chain, the underlying message throughout these two articles is clear – big name luxury brands are cutting costs to increase profit and are selling a story of artisanship that doesn’t match the reality. Of course there’s always the argument that business is business, but consumers turn to luxury because they want to invest in the best.

Back in 2007, British born brand Burberry moved one of their welsh factories to China in an effort to increase profits. The move caused a celebrity backlash and general uproar as the business were seen to be turning their back on their shiny promise of corporate social responsibility, especially as the move threatened to put a lot of people out of jobs in a small Welsh town.

The move went ahead regardless, with Burberry holding up their hands apologetically and saying; ‘its business, it’s the right decision’. But isn’t there then a hypocrisy on the table for a brand that has built its legacy on a Made in Britain label? For Burberry it wasn’t a do or die situation like it was with car manufacturers like Jaguar and Aston Martin, it was in the interest of short-term profit, at the expense of their integrity. A few years later and reports were that Burberry had to pull out of China due to concerns over workers conditions. A scandal it wasn’t hard to see coming from the start.

Read the 24 Anti-Laws of Marketing and you see that Burberry went against the luxury strategy with this move. Rule 18 points out that luxury brands should not relocate their fashions because; ‘Luxury goods are unconcerned about cost control, at least to this degree. It is more important for a luxury item to be steeped in a culture and being made in a certain place is worth the expense of maintaining this association. To be made elsewhere is to dilute the identity and perceived value of the brand.’ Another law being broken here; law 23; Anti-Laws of Marketing – 23: Do not look for cost reduction: cost reduction is an obvious mistake that luxury brands should avoid: it is done to keep prices down and is often indifferent to the impact on quality. Luxury brands recognize that there is a high cost to providing high quality and compromising on quality is entirely unacceptable to their customers.

While fashion gets the brunt force of accusations against global value chains, the technology sector also brings huge problems to the table. One of the largest plants for manufacturing Apple products can be found in Shenzhen at the Longhua complex. Marked as one of the hardest factories for journalists and reporters to get into, since 2010 the compound has had a reported 18 suicide attempts and 14 confirmed deaths according to this piece by The Guardian. Long work hours, poor conditions, and harsh treatment from managers were reported from inside the grey walls. In 2012 50 workers gathered on the roof and threatened to jump unless conditions improved. In response to all of the above, the factory put up body nets, made workers sign a declaration not to kill themselves and even Steve Jobs noted that the spate of suicides were in-keeping with the national average.

Now that we have  learned about the dangers of global value chains, let’s explore the solution.