Truman National Security Project

H&M has given suppliers a major incentive to actually pay workers more

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By Sarah Labowitz | 12.6.13
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H&M’s new strategy to raise wages at its supplier factories is a breath of fresh air after the Rana Plaza factory collapse in Bangladesh. The incident only fueled the ongoing debate about the role of global retailers in respecting the rights of the workers who make their products. As we head into the holiday season, H&M’s “roadmap towards a fair living wage in the textile industry” echoes similar efforts among a handful of other retailers, and is a hopeful sign for shoppers and workers.

Documents from H&M provide an overview of a phased plan to pay a “fair living wage” to 850,000 workers at the company’s strategic suppliers over the next four years. Starting in 2014, H&M will work with a small group of model factories in Cambodia and Bangladesh to test the methodology, which will then be expanded to an additional 750 factories. It’s an ambitious plan that expands the company’s longstanding efforts on workplace issues in its supply chain. The proof will be in the execution, but there’s reason to be optimistic that this is at least a serious effort to address the fundamentals of sourcing and pricing practices that lie at the heart of poor working conditions.

Moreover, it’s part of a nascent movement among a small group of retailers taking on wage issues in their supply chains. H&M joins Puma, Adidas, and Nike in taking a hard look at how their own sourcing practices effect working conditions and wages. This is a bright spot amid a drumbeat of bad news about supply chains—if efforts like H&M’s take hold in a growing number of companies, we might finally begin to see some progress on rising wages for workers on a sector-wide level.

There are three lessons in H&M’s announcement that are worth paying attention to as we make holiday shopping decisions.

Collaborating with other companies and outside stakeholders drives innovation

H&M is part of a small but growing group of companies that are focusing on wages in the supply chain. Many of these companies belong to the Fair Labor Association(FLA), which includes global brands, as well as NGOs and universities. The FLA has focused on the issue of wages since 2006, and several of its members—H&M, Adidas, Puma, Nike, and Syngenta—are innovating in their sourcing practices to increase wages. H&M’s announcement comes on the heels of a meeting of a group of companies and other experts convened by the Dutch and German governments examining wages in the supply chain. H&M’s road map is an illustration of how working with other companies in the same sector, as well as outside stakeholders, can drive innovation in addressing working conditions across an industry.

Focus on sourcing and pricing

Many of the problems with low wages and poor working conditions stem from the purchasing practices of global retailers. But too often, efforts to solve the problem focus on noncompliant factories and an endless cycle of inspections. The H&M announcement is another acknowledgement that the supply chain operations of global retailers are perhaps the most important place to look for improvements in wages and working conditions.

Strong sourcing relationships create incentives for improving working conditions

The H&M road map rests on strategic relationships with factories producing two-thirds of its products. For the pilot group of model factories in Bangladesh and Cambodia, H&M has committed to purchasing 100% of its production for five years. This represents a significant shift towards business incentives for improving working conditions, as opposed to a compliance model that focuses on inspections. To be sure, it will be easier for H&M to manage those incentives when it’s buying all of a factory’s production than it will be when H&M is one among several brands buying from a factory. How H&M will coordinate with its competitors as the program expands will be a key area to watch.

Globalization is premised on the notion that an expanded international economy creates value for business, as well as for people in developed and developing countries. Ensuring that workers are paid a fair wage is a task that should fall to governments. But in a place like Bangladesh, where the government has demonstrated weak capacity to ensure minimum standards for wages and workplace safety, that responsibility falls in part to global brands. As we head into the biggest shopping weeks of the year, I’ll be looking for brands like H&M, Nike, Adidas, and Puma that collaborate with other brands and are accountable to outside stakeholders, focus on sourcing and pricing practices, and create business incentives for better performance on working conditions.

Sarah Labowitz is a Truman National Security Project Fellow. This article originally appeared on Quartz.