By Pablo Antón-Diaz and Viviane Azevedo*
The Haitian-based garment company, Industrial Revolution, shows it is possible to operate both efficiently and profitably, while still maintaining healthy, dignified and equitable working conditions.
Over the past few decades, major clothing and footwear brands and retailers in the developed world have almost completely outsourced their manufacturing operations to offshore locations in search of low-cost labor and production opportunities.
Most clothing companies design and market their products in developed countries while subcontracting production in developing countries where governments provide incentives to attract and retain their business. Unfortunately, in many cases this has resulted in low wages, poor working conditions and unfair labor practices for workers of garment assembly factories throughout the developing world.
Haiti was no exception
Until recently, Haiti was no exception, because of its dependence on low-end products, substandard working conditions are common, wages are extremely low, and they have even declined over time. Yet, the textile and clothing industry plays a critical role in the local economy.
As of 2012, this sector employed more than 29,000 workers and accounted for most of the country’s exports (80%) and about 10% of its GDP. Apparel exports and investments have significantly increased since 2006, thanks to the economic engagement of the United States through the Haitian Hemispheric Opportunity through Partnership Encouragement Act, commonly known as HOPE. HOPE provides tariff-free access for most Haitian garment products into the United States.
Although expanded exports are good news, providing workers with adequate working conditions remains a challenge. Now, a new garment factory doing business under the name of Industrial Revolution II (IRII), is attempting to depart radically from the prevailing paradigm of low-cost production of commodity garments by establishing a “shared-value” business model that also places an emphasis on social advancement for its workers, their families and their communities.
The beginning of an industrial revolution
The plant began operating in September 2013, financed by its investors and a $1 million loan from the IDB’s Opportunities for the Majority Sector that was used to retrofit an old warehouse in an industrial park near the Port-au-Prince airport and to purchase state-of-the-art sewing, cutting and printing equipment.
Training is an integral part of the IRII business model. Workers hired have never worked in the industry before and are trained from scratch on IRII’s manufacturing system. The training takes place in an on-site program that lasts up to three months. For many of the 140 employees hired and trained to date, this was their first formal employment. During the first year of operation, voluntary turnover was close to zero compared with an annual industry rate that averages 25 to 30%.
IRII has also been able to pay all its employees well above the established minimum wage set by the Haitian government, thanks to performance incentives. Workers also have a full-time, in-house doctor, a dining hall, access to training facilities, and work in a well-lit, ventilated environment. With these significant improvements over typical working conditions, productivity has been increasing steadily. After only a year in operation the factory is just as efficient as higher-volume producers.
A revolution is not an easy ride
As a young company just starting to build up a solid clientele, IRII has struggled to resolve issues related to its supply chain. Because there are no fabric mills in Haiti, all inputs used in garment production have to be imported, together with trims, threads, labels, hand tags and other production materials.
When the volumes of merchandise requested are not high enough, the final cost to customers ends up being more than they are willing to pay. In response, IRII management is developing the ability to quickly identify the right type of customers, who place large enough orders so that the fabric can be procured cost-effectively, and subsequently a fair price can be offered to the customer while IRII maintains a satisfactory margin.
An industrial and social revolution
As part of its “shared-value” proposition, the company also plans to earmark 50% of its future profits for social programs that will benefit the factory’s workers, their families and their communities directly. The idea is to partner with service providers already on the ground, such as Partners in Health, Prodev and the International Rescue Committee, to increase access to healthcare, education, adult vocational training services and to improve local infrastructure.
“I am painfully aware, like many, that our industry’s main vision has been to travel the globe seeking out and supporting the developing countries offering us the least expensive labor,” said Joelle Berdugo-Adler, one of IRII’s sponsors. “The industry has put thousands of people to work and as such has given people a leg up out of abject poverty, but for me that just is no longer enough.”
With efforts to identify a clientele that makes sense for the company, and to adapt quickly to the market, IRII has made solid steps in the right direction, helping to demonstrate to the rest of the garment industry in Haiti that it is possible to produce efficiently and profitably while maintaining healthier, dignified and more equitable working conditions for employees and the surrounding community.
This post is part of a blog series on development effectiveness featuring stories on learning and experiences from IDB projects and evaluations.
*Pablo Antón Díaz is a Development Effectiveness Consultant at the Inter-American Development Bank’s (IDB) Opportunities for the Majority Initiative (OMJ). At OMJ, he is in charge of monitoring the results of OMJ’s operations, and performing data integrity on the information submitted by companies and executing agencies, including analyzing and ensuring reporting consistency of both social and financial performance indicators. He also provides smart analytics for management on portfolio performance.
Viviane Azevedo is a Development Effectiveness and Knowledge Specialist in Opportunities for the Majority (OMJ) at the IDB. In this capacity, she is in charge of monitoring and measuring the development results of OMJ’s operations and products.