The True Cost of Our Shoes

Photo: bargainmoose.ca / Flickr

“Abiti Puliti” campaign and the “Change your shoes” initiative published a report based on research of production strategies of three world-renowned shoemaking brands: Tod’s, Geox and Prada.

The report titled “The True Cost of Our Shoes” presents a detailed insight into functionality of production and distribution chains of luxurious brands, at whose one end is an expensive product, marketably refined and packed, while at the other, hidden from the public, are degrading work conditions for ever-cheaper labor worldwide.

Relentless race for increased profits unceasingly changes global production routes since capital’s mobility, outsourcing strategies and adjustment in international and national laws enable continual decrease in production costs through relocation to regions where labor is cheaper. Consequently, work conditions are globally degraded, jobs are less safe and salaries are lower. These companies’ large revenues is directly tied to new market conditions and privileged position of “important names” in the production chain.1 Revenues which were generated by the ever increasing imbalance between the production cost and final product’s price is not equally distributed to all of the production actors.

Relocation of production to Europe

Relocation of production to regions of cheaper labor, mostly in Asia, caused the decrease of labor cost worldwide, so today we are witnessing the process of reshoring, which is a term which describes the return of production to countries of origin (back-reshoring) or relocation to Eastern Europe (near-reshoring).

Eastern European devastated economy is the root cause of the region’s cheaper labor cost than in some Asian countries. Additionally, these countries’ governments are competing in attracting foreign investors and in establishment of the so-called “Free Zones” with special business conditions and securing of various favors such as additional financing through subventions, free infrastructure, release from import and export taxes, tax concessions, etc. Additional privilege for business in Eastern Europe is accomplished through OTP (Outward Processing Trade), specific customs system which enables companies to export raw material outside of EU, and to import back semi-manufactured or finished products while paying the tax only on the value of additional processing. In this manner companies are enabled to increase the network of subcontractors without much additional cost.

Suppliers of Tod’s are currently located in Italian provinces where labor is cheap. Prada’s current practice is the return of production to Europe, to Italy – but mostly to Eastern European countries. All of Geox’s main suppliers are not from Italy but mostly from Asia and a few from countries of Eastern Europe.

Production chain and its hierarchy 

Delegation of some of the parts of the production process to third parties is nothing new in business practices of large companies. The novelty of today are companies which do not own their own factories – the complete production of a brand has been outsourced.

Fragmentation of the production process stipulates the infrequency of the fully in-house production chain. Tod’s is a rare example of full production of high-grade shoes in its factories, another is Geox which owns a factory in Serbia where it holds a full production process of low- and mid-grade shoe models (this factory produces only 3% of the company’s total production).

Fully external production chain is a much more frequent practice. In this case other factories are responsible for complete production of shoes. Although the supply contract is signed with a single party, in practice many other companies are included in the system. Sometime the production process is a mixture of both (mixed chain shoe production) where the assembly of the final product is occurring directly in company’s factories, while parts are obtained from a subcontractor.

Due to the dominant position large brands have in the market, they are in the position to completely dictate the production conditions, which often means that subcontractors are forced to sign unfavorable contracts. According to some testimonies, amounts received by subcontractors were not even enough to cover basic costs of production which led to small companies’ bankruptcy and loss of jobs.2 Drastically short delivery deadlines and low prices stipulate delegation of some of the production stages to less profitable companies with poor work conditions. Fragmentation of the production process enables easier labor exploitation, which increases as we move from brands’ central location to the periphery of the production process.

The report lists examples of particular subcontractors which were forced to work in gray zone, thus increasing insecurity of work conditions: work from home or untaxed cash salaries. Although companies formally sign contracts only with the leading supplier, quality control is performed throughout the whole chain, without interest for the production conditions. The report also states cases of delayed payments which resulted in unpaid workers’ salaries at different levels of the production chain. Labor union activities are much harder, if not outright prohibited, in these conditions.

Geox’s Business in Serbia

Part of research which relates to Geox company’s business in Serbia confirms media reports on numerous irregularities and violations of workers’ rights in this company.

The report reminds that Geox’s factory in Vranje was open in January of 2016 through the Serbian government’s subventions valuing 11 million Euro. In return, the company was obliged to employ 1,250 workers who were to receive a salary equivalent to the legal minimum increased by 20%. However, Geox paid most of its workers the minimum amount until September 2016, while salary slips frequently neither list overtime hours, nor they were paid. Additionally, workers reported illegal labor contracts, irregular job terminations, verbal harassment and lack of adequate work conditions and safety.

Media pressure, which ensued after some of the female workers decided to publicly address poor work conditions in this factory, was somewhat successful. Salaries at Geox were increased, overtime work was brought down to its legal frame and two labor unions were registered.

However, workers still report numerous irregularities which Campagna Abiti Puliti informed the company about on February 13th, 2017. The company did not respond before the report’s publication.3 The report warns that, although salaries were increased to the amount 20% larger than the minimal legal salary in Serbia (according to the latest report the lowest salary at Geox is approximately the equivalent of 230 Euros in Serbian dinars per month), this amount is still not enough to cover basic life expenses, if we take into account that the average consumer basket for a three-member family is approximately 520 Euros a month.

The fact that there is an evident fear to speak publicly about the conditions of subcontracting, production and working conditions, underlines the pressure dominant brands exercize over the other participants of the production chain. Subcontractors fear the cancellation of their contracts, while workers fear that they will loose their jobs.

The long list of requests addressed to companies, EU members’ governments and the EU Parliament, which concludes the report, somewhat underlines that global production chains are designed to encourage the race to the bottom, the race to destroy workers’ rights, wherever the workers are. The report emphasizes the importance of informed consumers, independent media and international solidarity networks, which, along with labor unions, should pressurize companies to behave responsibly and in accordance to national laws, international conventions and the UN Guiding Principles on Business and Human Rights.

Translation from Serbian: Nenad Porobić

  1.  According to the report, Tod’s had revenues of 1,004 million Euro in 2016, while Prada and Geox made 3,548 and 900 million Euro, respectively
  2. For example: Parlanti of Monsummano Terme (Tuscany), which produced its own brands while also operating as a subcontractor for Prada. The company closed in June 2014, taking with it the jobs of 38 workers. According to the trade union representative, among the causes of the company’s collapse, were the too-low prices being paid by Prada, which were in fact not enough to cover production costs, resulting in a shortfall of three euros per shoebox. This is denied by the company.
  3. The campaign’s previous letter was sent in December of 2016. The original report contains the company’s response.
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