A premise of impactful journalism, especially in today’s era of search enabled electronic content, is to start an article with the most impactful statement to draw reader interestYesterday, the New York Times featured an article: Linking factories to the malls, middleman pushes low costs.  (Access via CNBC web site) The Times article opens as follows:

Li& Fung– the most important company that most American shoppers have never heard of- has long been on the cutting edge of globalization, chasing cheap labor to garment factories first in China, then elsewhere in Asia including Bangladesh.

While most American shoppers are not aware of Li & Fung, global supply chain teams are, most especially those residing in apparel and other consumer hard goods supply chains.  They are often characterized as the global logistics go-to firm, and that is brought out in the Times article.  On Supply Chain Matters, we have posted various commentaries regarding this global sourcing firm, the most recent being a January posting noting a creditability crisis that had emerged.

The Times article paints a picture of the massive global clout of Li & Fung that is not particularly flattering, and will probably add more to the firm’s ongoing challenges. It presumes that with “sweatshop disasters” now drawing international scrutiny, retailers will be seeking the next best low-cost sourcing option for apparel, perhaps sub-Saharan Africa, and Li & Fung will lead the effort from its shear supply chain influence. It also draws a direct connection for Li & Fung’s garment sourcing involvement tied to several factory calamities, including the Tazreen Fashions factory fire that resulted in 112 deaths and re-raised the global awareness to sub-standard factory conditions across Bangladesh and other low-cost regions.  That is information that had not explicitly been shared by business media up to this point.

Being the largest influencer of apparel sourcing offering retailers nearly 15,000 global suppliers in over 60 countries, implies strong influence, and the Times description of picture of business practices implies that apparel factory owners are provided little incentives to improve factories to required standards. One factory owner is quoted: “They (Li & Fung) usually get what they ask for”.  In other words, no factory owner will turn down business coming from Li & Fung, along with the demands for delivered cost.

The Times praises the global sourcing firm for doing its homework in tracking migrant labor trends, performing undercover audits, and for contributing to the victims fund concerning the Tazreen factory disaster. However it takes the firm to task for not publicly releasing audit reports or even acknowledging the specific factories it utilizes.

From our lens, there are broader implications for global retailers and apparel supply chains to contemplate.  We have noted the widespread calls for increased audits of factories, and the formation of separate European and U.S. retail industry consortiums that have been formed to fund and oversee higher standards of factory working conditions.  Business media has been running story lines that global retailers may not necessarily know exactly where their apparel orders have been sourced because of current practices and unstated norms.  However, one of the largest apparel sourcing firms, cited as having intimate sourcing and logistics capability, has more direct visibility, and, in our view, should take a more proactive role in the new industry consortium audit and standards efforts.

The storyline for apparel should not be chasing the next low-source country sourcing destination but rather fostering minimal acceptable global-wide factory physical and worker labor standards. Li & Fung needs to up its game and become a more active and visible influence player in these efforts, and global retailers should demand that their sourcing firm take such a profile.

Bob Ferrari