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  Chanzez is a start-up to provide people with chances: people who make clothes, people who design clothes and people who want ethically produced clothes.  www.chanzez.com/chanzez

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Luxury brands can no longer ignore sustainability

If I asked you to picture the consumer luxury market, you might imagine jewels, sports cars, watches, premium drinks, high-end shoes and apparel, and so on. A combination of high quality, glamour, celebrity, and attitude. With a few exceptions, it’s been an industry not traditionally associated with concerns about environmental impacts, human rights, and wellness, even while those trends have been sweeping through the mainstream consumer products sector. But according to a new report, 2016 Predictions for the Luxury Industry: Sustainability and Innovation, that sustainability gap is closing fast.

Two organizations that work closely with high-end product companies, the Luxury Institute and Positive Luxury, produced the study (disclosure: I’m on the latter’s informal advisory board, but I had no involvement in the research). Diana Verde Nieto, the founder of Positive Luxury and main author of the study, makes a compelling case that sustainability and social responsibility are no longer nice-to-have for luxury brands — they are now requirements.

The report lays out a few key pressures.

First, the direct pressure: the laws are changing. The report points to the passage of the Modern Slavery Act in the U.K. in 2015, which requires larger companies doing business in Britain to publish a board-approved, public annual slavery and human trafficking statement. This kind of law clearly drives much more transparency and tracking up the supply chain. And it’s a good thing, as 71% of U.K. retailers and suppliers think it’s likely there are slaves in their supply chain.

Second, the indirect and more powerful pressure: social norms are changing, starting with high-profile tastemakers. Celebrities are more invested than ever in sustainability. Leonardo DiCaprio and Mark Ruffalo have produced movies and started organizations to tackle climate change and promote renewable energy. Harry Potter star Emma Watson is a vocal advocate on gender equality while also appearing regularly in fashion magazines. These names and others are lending their clout to the social and environmental agenda. Given their prominence in the fashion and luxury worlds, their beliefs, statements, and demands on companies matter.

On a larger scale, the expectations of companies are changing generationally — Millennials have different views on how companies should act. The report cites research showing that “88% of UK and US Millennials and Generation Xers believe brands need to do more good, not just ‘less bad.’” This generation is questioning consumption in general – a majority say they are spending more on experiences (meaning, less emphasis on stuff), which is a threat to the luxury world. And they are driving a “clean label” trend, where companies feel pressure to explain what’s in everything and where it came from.

Third, the report highlights the fact that the investment community is waking up to the value to consumer brands of managing environmental and social issues well. There are some early shoots of evidence to back this idea up: in 2015, a Morgan Stanley analyst raised the price target on some mainstream apparel players like Nike based on their sustainability performance. The report sees this pressure coming to luxury companies soon.

Finally, there’s the harsh reality of biophysical limits seriously compromising these companies’ ability to source their products. Luxury goods require digging up, growing, and processing materials throughout the value chain, and that’s all getting tougher. According to Verde Nieto, these are not just ethereal brand risks about labor or image, but actual business continuity risks. Climate change is changing water availability and crop production around the world. That affects cotton-based products and, as Verde Nieto says, cashmere and angora, for example, require a great deal of water to process.

For gems and minerals, Verde Nieto sees a range of challenges from the energy required in production to general availability. With slight hyperbole, she says, “we’re out of gold basically (almost all the gold we use is recycled), various substances and ingredients in skin care are threatening the environment, diamonds are scarce, and exotic skins are in trouble…basically — and this is the big ‘a-ha’ — some of the raw materials, crucial to the luxury industry, are under threat.”

The leading companies in this space have been acting on many of these pressures for years. Both Tiffany and Forevermark, a Debeers company, have certified their diamonds using the independent Kimberley Process as “conflict free.” L’Oreal has quietly been making itself one of the global leaders on climate change and renewable energy. The company has already cut greenhouse gases by 50% and has new targets to be carbon neutral (without buying renewable energy credits) by 2020.

Now all the big brands are jumping in. One of the report supporters, French luxury conglomerate LVMH, has been, according to Verde Nieto, conducting extensive lifecycle analyses of their business lines. Others like Veuve Cliquot Champagne are looking hard at packaging now. They’re all figuring out where their biggest risks and opportunities lie. The report has some additional good case studies in the watch, leather, diamond, and eco-tourism realms.

None of this is easy or obvious. This industry has some tough history to reconcile. “Blood diamonds” were not just a campaigners evocative phrase, but based on real money flows to brutal dictators. Slavery is still a problem. Mines are immense operations that can impoverish people and land — or create jobs and build the economy.

But in our transparent world, the risk of not tackling sustainability is extremely high for this sector. As CSR and sustainability evangelist John Elkington told the report writers, “The implicit promise [in luxury] is that the consumer need not worry about anything. Everything is taken care of… Until it isn’t, at which point the whole impression of invulnerability and perfection can deflate.”

An unsustainable piece of clothing or jewel is, in the end, anything but flawless. As we all wake up to that reality, the luxury companies have no choice but to act.

#chanzezforchances

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We believe in Capitalism

Amy is a budding entrepreneur. She wants to start a social enterprise, which helps society and at the same time will run as a true business. A friend of Amy’s, Jason, always thought Amy was a moderate, but considering her plans now thinks she is a bit of a “lefty”. After Amy explains her ideas to Jason, he makes a quip, “I guess you think anyone who is doing well in business needs to be strung up?”

Capitalism has been getting a bad rap, especially after the financial crises of 2008. We would like to note a couple of things: 1) as much as people would like to push other systems, no other system has been shown to work as well in practice, or some systems have no real practical implementation recommendations; 2) some of the things that have been used to denigrate capitalism are less about capitalism and more about the greed of certain individuals (this includes people who promote capitalism in the wrong way to line their own pockets or avoid costs).

Sometimes in their simplest forms, we can see how a system really benefits society. With the complexity of the globalisation movement, the benefits that can be gained are misconstrued or unrecognised. In extreme cases, deficiencies or detrimental effects are falsified to satisfy an agenda. It is difficult for the general public to understand what is really happening with so many competing theories, most of which are not communicated in an honest way.

We are not here to write our thesis on economic theory, but we do want you to understand that we use capitalism as a core tenet of our setup and operational structure. Our clothes are sold at fair market prices. If the business ultimately succeeds it is because consumers like our products, not because we are a social enterprise. People only continue to buy if goods are of a good quality considering alternatives at the same price point.

Amy remarks to Jason “capitalism and business are not anti-society. It is greed and unfair practices that gives business as bad image. If people were fairer, then the business world would not be seen in such a bad light. There are laws in place that ensure businesses act appropriately, but some individuals in large businesses use their positions to circumvent laws, and avoid costs. I am happy to make an honest, law-abiding profit using basic capitalist principles. I just wish everyone else did the same, not just talk about doing the same.”

We pay our staff properly and we look after them. In the end, this reduces our churn rate. We don’t want people to leave once we have trained them. Also, happy employees come to work. People who are truant cost money. Short sighted employers say they will only pay by the hour, so if someone does not come to work they don’t get paid. What about productivity loss? Truancy has other less tangible costs.

We want staff to stay and grow and share in the success of the company. Maybe we value labour higher than capital compared to others, but in the end a company can always find more capital, but it is hard to find good people who work hard. So treating people well has its own rewards on the bottom line.

If an industry makes greater than normal profit, then others will join until the profit margin reduces to normal levels. In the clothing industry this economic principal has become synonymous with reducing costs in the production cycle, moving to cheaper locations, squeezing the pay of producers. Some see this is an inevitable conclusion to capitalism. We see this as a convenient fudge of the numbers. The negative externalities of this race to the bottom are not borne by the companies that create them. Pollution and social issues are not addressed, and politicians turn a blind eye to the costs of resolving these issues potentially for a fee. If these costs were taken into account, the profit margins enjoyed by clothing companies would not be so high, which would lead to a shake-up in their costs structures.

Our cost structure is based less on sales and marketing, and more on production and logistics. Surely with such a stable product, that is where the real cost should be, especially if we are making clothes of a similar standard as any of the popular brands.

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Slavery is a scourge of society and cannot be resolved by audits of the supply chain alone

Andy is a marketing manager at ABC Corp, a multi-national company that produces clothing that it sells all over the world. ABC Corp has suppliers from India, China, Indonesia, Vietnam, amongst other Asian countries. Andy has been reading a lot recently about modern slavery and worries about ABC’s supply chain. The International Labour Organisation (ILO) estimates there are 21 million victims of forced labour globally: that is the equivalent of one third of the population of the UK. If there is slavery involved with the production of ABC’s clothing and it becomes public, it could harm ABC’s brand image immeasurably.

Andy decides to talk to Will, the operations manager. Will has oversight over the entire supply chain, and is a key figure in selecting suppliers. He explains the issue to Will, who assures Andy that they are doing everything they can to ensure slavery is eradicated. However, he cannot categorically deny that there is no slavery in the supply chain.

Global companies need to rely upon global supply chains, and need to respond to changes quickly. However, supply chains are complex and it is difficult to manage every link in the chain without costs spiralling out of control. Issues such as modern slavery are hidden and require deep analysis to understand if it is in existence. Without the manpower to sit in every factory from which a company buys, there is no way to guarantee the supply chain is completely free of abuse or slavery.

The criminal element adds to the complexity of the situation. Intricate webs of criminal gangs, shell corporations, and coercion ensures that even if corporations were to monitor supply chains better, the problem will either will remain hidden or not reported due to intimidation and violence.

The migrant nature of many of workers makes workers vulnerable. Economic migrants with little education can be distrustful of authorities and those authorities may not be interested in dealing with their abuses anyway. So this makes these people, who are simply looking to work themselves out of poverty, prime targets for slave owners.

Andy wants to go further and see how he can help ABC be better at first identifying and then addressing slavery issues. As he digs into the subject, he sees a myriad of problems, many of which he cannot solve by himself. Having the backing of his multi-national is also not enough. He needs to collaborate with NGOs, trade unions (where they are allowed to exist), governments, local communities and competitors.

In the report named “Corporate approaches to addressing modern slavery in supply chains: A snapshot of current practices” (2015) by Ashridge Executive Education at Hult International Business School, a number of recommendations were made including: need for leadership, alignment of a company’s response to slavery, collaboration with others, end-to-end supply chain visibility, audits, and having real experience in companies to tackle the issues.

A need for the leaders of a company to be involved with any change programme is essential. It doesn’t have to be about ethical production, it could be about changing processes to become more efficient, or implementation of a new IT system. So leaders need to understand that tackling abuses in the supply chain is like any other change: without pressure and approval from senior management, nothing will happen. It is not enough to provide lip service for marketing purposes.

Aligning a company to the ideals of ensuring ethical production is not simply a matter of a few memoranda sent to employees; it is the change in policies and training, the use of measurements that capture data on abuses and the actions that take place to resolve issues aggressively and transparently.

Collaboration is difficult at the best of times, especially when competitors are involved. Add to that the varying interests, education levels, mind sets and cultures of NGOs, governments, local communities and trade unions, there is obviously going to be lack of trust, people not listening to each other, and deadlocks. Companies need to drive through this to get to strategies that can be implemented, as too many strategies are either too compromising or too based in useless intellectual exercises rather than actionable and measurable plans. Having people at the company with real experience on how to deal with supply chain abuses could help.

Finally, it is worth noting that it is impossible to think of a supply chain, which is completely abuse free for global companies. Audits can only scratch the surface, some of the solutions above can help, but they cannot eradicate the issue. Even by owning production, with size issues are bound to arise. So ultimately it becomes an issue of economics. Does a company grow and grow, and then gain economies of scale by outsourcing everything? Or even if a company grows and keeps its production base, does it consolidate into large factories? Both of these are economic decisions that open the door to abuse. So will the customer have to pay more, or will the company make less?

Our model is to produce in small factories using local people, who are treated well. We aim to keep to high street prices, so this will mean lower margin. However, we expect to gain by being more efficient in other areas: less marketing cost, more organic growth. This is slower, but hopefully more sustainable. Also, we have no physical shops, so we do not incur the cost of rent and maintenance of properties.

[chanzez-blog]

Case Study: When tragedy hites your supply chains

Laura Cronenberg, the CEO of Tots & Teens, sipped her black tea in the lounge of Shahjalal International Airport and took some time to collect herself before her flight departed. The past few days had been a whirlwind, and she was still trying to make sense of how her work life had transitioned so abruptly from celebration to crisis.

On Monday she’d been feting T&T’s employees in acknowledgment of the company’s fiscal-year performance. The New Jersey-based children’s clothing retailer had increased its profits by 5%, and Laura had gathered everyone at headquarters for a champagne toast. But then T&T’s chief operating officer, Jim Zappa, had pulled her aside to tell her the shocking news: A garment factory in Bangladesh that produced and packaged merchandise for T&T and other retailers had collapsed in the middle of a workday. She and Jim booked flights right away, landed in Dhaka the following morning, and took a car to the disaster site.

It was a horrible scene. Bulldozers were clearing large debris, rescue workers were searching for survivors, and a group of mothers sobbed and held up pictures of their missing sons and daughters. The area looked like the aftermath of an earthquake. According to news reports, the building had been constructed quickly and cheaply with substandard materials on a filled-in pond. More than 2,000 workers had perished, and many more were injured.

Surveying the wreckage, Laura felt queasy. The human loss was devastating, and as a mother herself, she didn’t want to imagine what the parents of the dead and injured workers were going through. But she had to stay strong; she had a job to do. The company would have to find a way to support the victims and their families and to tighten up oversight of its supply chain. Even more pressing, it needed to find a replacement facility. The fall line, which typically accounted for 80% of T&T’s revenue, was scheduled to go into production in two weeks. Laura had to quickly decide if another Bangladesh contractor could do the work or if she should shift to a factory they were already using in China.

Pros and Cons

She and Jim spent the rest of the day touring other facilities, and the next morning they returned to Shahjalal, en route to Shenzen, where they would visit one of their Chinese contractors. Now Jim joined Laura in the lounge carrying two bottled waters and an extra-tall coffee. He looked as haggard as she felt.

“That was rough yesterday,” Laura said. “I can’t stop thinking about the rubble—and the sobbing.”

“Yes,” Jim replied, nodding. A Texan and a former Marine, he could sometimes be taciturn.

“What’s your view on keeping operations in Bangladesh? Can we be sure this will never happen again?”

“I’m not sure,” he said. “Of course, there are pros and cons. A few years ago, when we decided to stop carrying other brands and create our own, we chose to manufacture in Bangladesh for the cost and convenience. Labor and transportation are cheap, quality is relatively good, and all the factories are clustered in a small area. The other pro is that Bangladesh has duty-free access to the European Union, which China and the African countries don’t have.”

Laura nodded. T&T’s five-year strategic plan called for expansion into the United Kingdom, France, and Spain, and the tax breaks would be helpful. “What are the cons?”

“Well, obviously, even though Bangladesh has established worker safety laws, standards, and regulations, they’re often sidestepped or ignored. We had no idea this factory was in such bad condition, but clearly the owners didn’t care, and the inspectors looked the other way for far too long. The facilities we saw today appear to be up to snuff. But there are no guarantees—especially when we and other retailers create so much pressure for fast turnover. There’s also a lot of corruption and chaos.”

“Can we change things for the better? What about the effort that’s under way to pull together an industry coalition for worker safety?”

“That won’t be easy or quick,” Jim said. “Moving everything to China would be more expedient and less risky. But I worry about what will happen if we just pack up and leave. I think—”

Interrupted by their boarding announcement, he broke off. “That’s us,” he said, picking up his bag.

But Laura knew exactly what he meant. If T&T exited, and others followed, where would that leave Bangladesh and its workers? She’d seen the stats. Work from the fashion industry had helped cut poverty in the country by a third and now accounted for a third of its GDP. A mass exodus would be devastating to its economy. But what if T&T stayed, and nothing substantial changed? They might have to face another disaster.

When Laura had decided that T&T should launch its own clothing lines and engage more directly with the supply chain, she’d never imagined that anything like this could happen. Now, as she and Jim walked down the tunnel to their plane, she was at a loss. In her five years as CEO, she’d successfully managed stock market crashes, layoffs, a recession, strikes, downsizing—but nothing had prepared her for this.

Costs and Risks

“We can expand operations, no problem,” Kevin Chen, the owner of the Shenzen factory, told them.

A graduate of Wharton who spoke fluent English, he was a gracious and gregarious host. And he’d been a great partner. Tots & Teens was currently producing 36% of its merchandise in China and had never had any problems there. The hangarlike factory—full of humming sewing machines and workers wearing face masks—was both pristine and efficient. Still, Laura wondered whether Kevin could execute on the promises he was making.

As she and Jim were chauffeured to their hotel in downtown Shenzhen, she picked Jim’s brain again. “Kevin says they can ramp up their operations, but do you really think they can do it as fast as he says?”

“I have no reason to believe otherwise,” Jim replied. “But I suppose there’s no guarantee.”

Laura wasn’t satisfied. “I need more than that.”

“We already use China for a large percentage of our manufacturing, and so far we’ve been happy,” Jim said. “They’ve been doing this for a long time, and they’re good at it.”

“But with an increased production load, will they be able to handle quick turnarounds?”

This was a big issue for T&T. Formerly, it took about six months for the company to design a piece of clothing, send it into production, and get it into stores. But now, because of competition from fast-fashion retailers and the capricious demands of buyers, many T&T lines were restyled every four weeks. The Dhaka factory had manufactured those products.

“I think so,” Jim said, but without his usual confidence.

Laura’s phone pinged with new e-mails. She saw a note from T&T’s head counsel, who was drafting language for the worker-safety coalition, and one from the company’s communications chief to alert management that a protest group had announced plans to assemble outside T&T’s headquarters the following afternoon.

Laura sighed. She could answer those when she got to her hotel room. She turned back to Jim. “What else do we need to consider?”

“The cost of labor in China is significantly higher and rising. But my main concern is risk. Right now we’re spread out among China, Bangladesh, and, to a lesser extent, Vietnam, Cambodia, and a few other countries. If we move more of our manufacturing into China, we’ll have 50% of our production there and we’ll be…”

Laura finished his sentence: “Exposed.”

Jim nodded. “I worry about what will happen if costs spike further. We can’t afford to have the margins drop on half our merchandise. Even worse, there could be a worker strike—or a natural disaster—which would mean half our goods delayed or destroyed.” The same scenarios had already occurred to Laura.

The car pulled up to the hotel entrance. After checking in, parting ways with Jim, finding her room, and replying to e-mails, Laura called room service for a hamburger. But by the time it arrived, she realized that she’d lost her appetite. All she wanted to do was lie down and close her eyes.

A Son’s Question

Laura had never been so happy to see the Newark airport. A 15-minute taxi ride later, she was at home in Summit and surprised to see her son, Devon, a sophomore at Columbia, sitting at the kitchen table eating chips and guacamole. “I took the train down,” he said. “Dad told me you could use some cheering up. And I was sick of dining hall and takeout food.” He grinned.

Laura asked about his classes; Devon was a political science major with a focus on international relations. Soon the conversation turned to the disaster in Bangladesh.

“The whole thing is messed up,” Devon said. “My professor says that U.S. companies are exploitative and care only about themselves. He says they’re trying to shirk their responsibilities. Is that true? I can’t believe T&T is involved in this.”

His words stung, but Laura understood. Devon reminded her of herself as a college student: passionate, idealistic, confident, and, well, naive. If only life were so simple…

“I’m sorry, Mom,” Devon said quickly. “I didn’t mean to freak out. I know this isn’t easy for you. If it’s any consolation, I’m sure you’ll make the right decision. You always do.”

Laura smiled. Unfortunately, the “right decision” had never before seemed so elusive. What would be best for the company? For T&T’s employees and customers? For the people who made its dresses, shirts, and sweaters all over the world?

Question: Should T&T relocate its production from Bangladesh to China?

The Experts Respond

John Manners-Bell is the CEO of Transport Intelligence, a global market research organization; an adviser to the World Economic Forum; and a visiting professor at London Metropolitan University.

Laura should keep Tots & Teens in Bangladesh. The company has a moral responsibility to support factory workers, give them safer workplaces, and contribute to the community. It would be unethical to pull out in the wake of the building collapse.

The question is where to start. Forming an alliance with other companies is a good first step. That’s exactly what U.S. and European retailers did after the 2013 Rana Plaza disaster, on which this case is loosely based. They formed two groups to help victims and improve safety conditions.

But if T&T wants to make real changes in Bangladesh, it has to do a lot more, beginning with ensuring that workers make a decent wage. Higher pay will raise the standard of living, and GDP will grow as a result. Once that happens, the government should have the funds to improve the country’s infrastructure—a win-win for both Bangladesh and the companies that do business there.

T&T should also improve relations with its contractors. The best way to do that is to stop jumping from one to the next, in an effort to reduce costs and manage demand, and instead work to establish meaningful and long-lasting partnerships. That will lead to better communication and discourage factories from using subcontractors that operate outside T&T’s purview.

None of these things will be easy. But many companies, including Marks and Spencer, Tesco, and Walmart, could be models for T&T. And Switcher, a clothing retailer based in Switzerland, started an experiment in 2014 in which it donated 1% of all its purchases from one Chinese supplier directly to factory workers. Tots & Teens could do something similar in Bangladesh.

Laura may face an uphill battle. To T&T’s board, China probably looks like an inviting option, especially since the company needs to solve its problem as quickly as possible. Laura must therefore make an economic as well as a moral argument. By staying in Bangladesh, being socially responsible, and managing an ethical supply chain, T&T could develop a competitive advantage over other retailers. It would be better positioned to identify and avoid risks, sparing itself uncertainty, surprise, and unexpected costs. And it would increase the value of its brand among socially conscious consumers, boosting sales. It might even be able to start selling its clothing at a premium and using some of the profits to further improve its supply chain, creating a virtuous cycle.

Bottom line: T&T should recommit to Bangladesh. It’s the ethical thing to do, and it’s in the best interests of the business.

Adam M. Kanzer is a managing director and the director of corporate engagement and public policy for Domini Social Investments.

Should Tots & Teens stay in Bangladesh or leave? The answer is extremely complicated. But one thing is certain. Doing business in any emerging market is rife with difficulties, so whatever T&T decides, it needs to do a much better job of managing its supply chain.

The more controversial option is to leave Bangladesh. But there’s precedent for that. In 2013 Disney decided to pull out of several high-risk countries, including Bangladesh, after a series of fires and safety lapses. By exiting so publicly and recommending implementation of the International Labour Organization’s Better Work program, Disney sent a strong signal that government officials should clean up their act. Having engaged with Disney about its supply chain for many years in my role at Domini, I thought the decision to leave was a good one. T&T could use Disney as a model.

T&T shouldn’t take this decision lightly, however. Its presence in Bangladesh is more substantial than Disney’s was, and it therefore has a much greater responsibility to the community. At the very least, it should provide money and support to the victims of the building collapse. Cutting and running is not an option.

But if factory owners in Bangladesh aren’t serious about making changes, and if government officials don’t enact and then enforce stronger worker protections, then T&T would be well within its rights to leave. Lines must be drawn, and one company can do only so much. If, ultimately, T&T doubts that it can operate in Bangladesh without subjecting workers to unacceptable risks, it should not be doing business there.

The more credible option is to stay in Bangladesh. But if T&T decides to go this route, it must conduct a top-to-bottom review of its supply chain and select factories that are safe, compliant, and accountable.

It must also advocate for factory workers. This is a crucial point. After the Rana Plaza disaster, I and my colleagues at the Interfaith Center on Corporate Responsibility worked to pull together a coalition of investors representing $3 trillion, which urged apparel companies to sign the Accord on Fire and Building Safety in Bangladesh, a legally binding agreement that made companies accountable for improving safety conditions—and, more important, for strengthening labor unions. At Rana Plaza, factory workers saw cracks in the wall but didn’t refuse to work out of fear of losing their jobs. A strong labor union could have changed that dynamic. Unfortunately, a lot of U.S.-based companies, unlike their European counterparts, were reluctant to sign the accord out of concern about potential liability and a general discomfort about working side-by-side with labor unions.

T&T must reform its fast-fashion practices as well, though that will be extremely difficult. Customer preferences can’t be changed overnight. However, apparel companies need to take a hard look at how their business and design decisions affect workers on the floor. It’s no secret that cheap prices and quick turnarounds place a lot of pressure on factories, which demand overtime from workers or use subcontractors to help fulfill orders. Incentives to cut corners on worker health and safety often start at the top. That needs to change.

It’s important to note that the priorities I’ve outlined aren’t unique to one country. No matter where T&T does business, it must work to implement these changes. Disasters on the level of Rana Plaza are unacceptable. Companies can no longer overlook safety issues in the pursuit of cheap labor. They need to uphold higher standards.

[chanzez-blog]

Whats the purpose of a business?

What’s the purpose of a business?

Professor Charles works at a prestigious business school and teaches a class in Modern Political Economy. He always starts his first lecture with a question to the students: “What is the purpose of a business”. The majority of students provide the answer “increasing shareholder value”. Other answers include “servicing customers” and “to provide products and services that consumers want”. There are few who think that businesses are formed “to serve a community”. Over the years, Professor Charles has seen a larger proportion of students answer “increasing shareholder value”, which he sees as the product of the curriculum at the university, which focuses on corporate finance, marketing, strategy, etc. He thinks to himself “these are the people who will one day work at and run our larger companies and government institutions”.

After the poll he addresses his class: “Since the financial crisis of 2008, there has been an outcry over society’s inequality, corruption and cronyism. This is an outcome of the current capitalist system. Though it is a better system than any other proposed, any system has room for abuse. I hope capitalism can evolve into something better with greater scrutiny available from social media sources. Who would like to comment?”

Is shareholder value the ultimate goal?

We believe the primary purpose is to serve a customer, without whom there would not be a business. This means making products that people actually want at a price that makes sense. However, we also have a secondary purpose, which is to serve the community. Just as customers are important, employees are needed to produce products and provide services.

Treating people who work for a business well (not just financially, but also respectfully and transparently) has been shown to reduce staff turnover and ultimately to increase productivity. A happy workforce is more likely to contribute to the company by helping to improve processes and working that little bit harder. In addition, we think it is a good thing that people are happy at a place in which they spend a large portion of their lives.

Ultimately all of the above drive shareholder value. So shareholder value is not a primary purpose of a business, but a result of a well operated business, which drives productivity through an incentivised and happy workforce.

Paul, who is looking to become an investment banker after graduation puts up his hand and answers: “Well, the system is self-regulating. If we focus on shareholder value, shareholders will vote with their dollars. A company that is not doing well will be sold, and shareholders buy companies that are doing well. So if the price goes down then the company needs to fix its issues, and when the price goes up that’s a vote of confidence.”

Zoe, who also wants to go into the financial sector counters with: “That’s nonsense. The markets focus on short-term quarterly reports. Prices going up just means you met forecasts, not that the long-term viability of the company is strong. But I agree that we should focus on shareholder value because a long term buy-and-hold strategy of good companies will help everyone, as our pensions, insurance, investments, etc. are all based on market performance.”

Shelley, who is looking to be an entrepreneur, adds “I think we have to look at the long term, but let’s take the market out of it for a minute. If a company is to succeed, it has to do two things well - make good products and give good service. If you do that, the owners will be rewarded, if not they won’t. Talking about the markets, maybe it doesn’t always see the best possible solution, just the lowest cost, highest profit solution. Where would Apple be if we believed the markets?”

What’s wrong with high profits?

Nothing is wrong with high profits, but companies need to make those profits from innovation and hard work, just like any individual. Not through financial engineering, better marketing campaigns or exploitation.

There are economic pressures that mean businesses need to find lower cost production facilities. But this is driven by a myriad of complex incentive structures and corrupt systems that enable companies to drive profits to higher and higher levels, whilst driving living standards down.

We know that we are never going to be the lowest cost producer. This is because it is impossible to compete with companies that skirt regulations and produce unethically to keep costs down. We are also not going to be the highest price seller, as we believe that consumers should be buying at a reasonable price. This means we will create a margin by being more efficient, and accepting a lower return on capital.

Where is the trade-off? Producers that produce ethically will earn fewer profits. No amount of efficiency savings can help us then. True, but we believe producing ethically and selling at a fair price still provides a good profit provided we are a high volume producer.

[londonorganicpr]

Quote of the day! #ethicalfashion

[chanzez-blog]

Why does marketing and design cost so much?

Dan went to a premium brand store to find a shirt. The store was well laid out: not overly packed with racks of clothing and decorated in an urban-cool style. The assistants greeted him and were friendly. After browsing for 10 minutes, Dan saw a shirt he really liked. After trying it on, he purchased the shirt.

A week later, Dan was wearing his shirt and saw a shirt similar to his on sale in a shop he was passing by. Dan went into the shop and saw the shirt in the shop was priced at 50% of the price he purchased his shirt. It wasn’t exactly the same: he preferred the cut of his shirt and the material was different, though he didn’t know the difference between the materials used. He walked away thinking he still preferred to pay twice the price for his shirt.

Legitimately, top designers have higher costs. Top designers are not bulk sellers, so they need to have high profit margins; otherwise the business model does not work. Design talent are highly-paid. As in any industry, reaching the top can and should be beneficial to those individuals who strive to get there.

With that said, it is difficult to justify the prices set by brands that are mass-sellers. Their cost structure is based somewhat on research and design, but a big budget item is sales and marketing. All those sports stars and adverts cost a lot of money! Why spend so much on marketing? To push the brand and not necessarily the clothes, so how much better are the clothes?

Brands oftentimes increase prices to give the allure of prestige and exclusivity. This is an illusory game to give a feel good factor to the customer. In the example, Dan is happier that his material is superior without knowing the difference between materials. Also, are the cuts that different? Sometimes yes, but also sometimes no. It depends on how the clothes retailer is setup. But Dan will be confident his cut is better, after all why pay more for something that is not better?

Dan tells his friend Jim about the “knock off” shirt he saw in the store nearby. Jim is not a “clothes person”. He likes what he likes, but was never really into fashion. He thinks that Dan is just into brands, and that Dan would not be able to tell the difference if the shirt he saw today was rebranded with a recognisable brand. Jim knows this is an argument he is unlikely to win with Dan.

Paying so much on marketing creates brand loyalty. The more brands spend on marketing and the more sports and movie stars associate with a brand, the more ordinary people buy into a brand. It is then hard to make the emotional switch into a new brand which has no brand background, but equally good clothes.

Look at the sweatshop stories: people know that it happens, they even see their preferred brands linked to sweatshops; however, people still want to buy from those very same brands. This is partly because the issues are so far away, so people do not have to worry about them. Many people say they don’t see an alternative, but alternatives (like ours) are popping up all the time. Some say it is because the clothes from brands are better, but this is a myth and considering new production methods, the myth is easy to dispel. The main reason is brand loyalty, and it is consumers that pay to hook themselves to the brand, as the price they pay for clothes are reinvested into marketing campaigns that deepen that brand loyalty.

Clothes are staple goods. People will always need clothes. That does not mean that clothes can’t be stylish or well-made if you don’t pay-up. Our motto is to give people chances, and that runs from designers to tailors to support staff. We give designers a chance to get their designs out there. The design world is incredibly competitive, but it is not always the most meritocratic. We don’t care about a person’s background, just about their ability. And consumers who buy our clothes are the best test for designers’ ability.

Our production process ensures tailors are paid properly and treated well. In turn they produce quality clothes from the quality materials we provide, and our support staff ensures you get your clothes on time after you order. So if you get good designs, good materials and are served well do you really have a reason just to choose clothes from brands that spend some of your purchasing money to hook you further?

[chanzez-blog]

Fairtrade does not go far enough

John is a socially minded executive at ABC Inc., a large clothes retailer with operations world-wide. Three years ago he made a presentation to senior management about the need to become an ethical producer stating that not only will it help people who produce clothes for them, but it will also help the company’s marketing campaigns. John won the senior management backing and only sourced clothes from ethical production houses in Asia. However, today the company is entangled in a public relations nightmare as news of child labour, poor conditions in sweat shops and less than poverty pay hits the headlines. The news came to light because of a fire at a warehouse producing clothes for ABC Inc. in which a number of people died or were injured. The problem was compounded by ABC Inc. denying their clothes were produced there.

What went wrong?

Fair trade has traditionally focused on paying fair prices to producers, paying a living wage, reducing enforced overtime, improving working conditions and reducing child labour. All of these are admirable objectives, and worthy of pursuit. The issue is implementation.

The fair trade industry is not new anymore, but its implementation models are still at a nascent stage. As with any industry, it will take many years, if not decades to settle into an acceptable form. The main driver in implementing fair trade is through supply chain management: that is the process of buying manufactured products from companies that make those products. This is a complex system, which not only includes the manufacturers of finished products, but also the suppliers to manufacturers.

John ensured he only used accredited clothes producers where audits are carried out. He went to the factories in Asia and saw for himself that the clothes being produced were produced by a happy work force under good conditions and who make a fair wage.

Where did the unfair practices come from?

Suppliers can become fair trade accredited, and audits are carried out to ensure products are produced in accordance with a retailer’s fair trade policies. However, we have seen both in the recent and the distance past that accreditation audits can be circumvented. We don’t want to be sued here, so we won’t mention names, but there are documentaries and articles on well-known uber-cool electronics companies and many clothes retailers caught out in their production processes. Companies profess to carry out fair trade production, but their audits only look at the superficial. Only when tragedies such as a factory fire, or investigative reporting demonstrate the reality of poor working conditions, use of sub-contractors which use child labour and supress worker rights, and even deaths due to negligence does any of this information come to light, and then only for a brief moment before the news moves onto another “compelling story”.

We feel the only way to combat the issue of mistreatment during production is to control production. That means becoming a manufacturer, creating a secure and friendly environment in which people can work, and fostering a community around a factory so people understand that the business is there to serve the community, not simply to extract profits at their expense.

We will provide more information on how we are organising production facilities over the coming weeks. But if you have any ideas, we would love to hear from you.

[beadandreel-blog]

Kindness is always in fashion ❤️

[chanzez-blog]

We should be ethical thinkers. When we act ethically we can help a humans life, even if it is one step at a time.

[chanzez-blog]

We Are Chanzez! Check us out on Facebook, LinkedIn, Instagram or Twitter and see what we are up to (the links are in our bio). Write us a message if you have any comments or suggestions, we always want to be in touch with our audience. 

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The World Needs Social Impact Producers

In a consumerism-led world where public service from the political classes is practically non-existent, the world needs producers that have public interest as well as profits in mind. And consumers need to seek out these producers and if their products are as good as any other, then consumers should buy from these producers. Consumers in this way will make a difference with their spending power, the only thing that really moves the business world.

Economics teaches us that rational people will always buy the best goods available at a price that they feel provides value. We don’t disagree with this. Indeed, this ensures producers are efficient, and always improving their products. Prices fall and quality increases, which eventually leads to better quality of life for everyone. However, this fundamental principle has been hijacked by marketing, a field that has grown and shaped consumerism over the last 50 years and at an accelerating pace. No longer are we looking to purchase the things we need, we are now brainwashed into buying things we believe we want.

Let’s take the example close to our hearts: clothing. When a person goes into a branded store to purchase a simple t-shirt, is that t-shirt better than one made by a similar producer who ensures that his production does not have slave or child labour, that the workers are paid fairly so they can live off their wages, and the working conditions and clean and safe? If you look at the materials used, it is the same cotton or polyester that makes up the t-shirt. The stitching is standardized and workers are equally well trained to ensure the stitching lines are straight. So is it the colours, the print quality or the embroidery? Not really, this is also a standardized process with standardized dyes and machinery. So it must be the fact the item is just that much more fashionable. Well, that is subjective, but when you see high street styles, yes they change over time, but most stores have products that are derivative of each other or of non-high street uber-fashion houses, and ethical producers also have designers that produce such items. So we just don’t see it, except for the fact that the glossy magazines, TV adverts, radio jingles, etc. all push people to buy mainstream.

We think there is a different way to produce, still provide quality goods, ensure workers are fairly treated and compensated, and still make profits. Over the next few months we will be laying out our thoughts on ethical production. We welcome your feedback (hopefully constructive), and ideas on how we can change the system for the better.

[chanzez-blog]

Who Are We?

Chanzez is a start-up to provide people with chances: people who make clothes, people who design clothes and people who want ethically produced clothes. Chanzez manages a closed loop production cycle, monitoring production and distribution. This is because it is the only way we can ensure that production is truly ethical and our social impact message is not lost. Our Vision A world in which labour is valued as much as capital, and is paid fairly so people can afford to live in a world where inequality does not see poverty growing. Our Mission To be at the forefront in engaging technology to increase trade in ethically produced goods. Our Objectives 1) Derive a successful business model to manufacture clothing using ethical production 2) Use technology that is engaging and fun to assist buyers 3) Spread knowledge about ethical production and dispel myths