Tuesday, 19 December 2006

Emotional blackmail won't save Burberry jobs but community action just might

It seems crazy that Burberry, a leading fashion brand which made £84.2 million profit in the last six months, would need to make 300 Welsh workers redundant on the basis that its Treorchy factory is no longer viable.

That is until you glance at the summary on page 1 of the firm's Annual Report and Accounts and see that nearly 50% of its business comes from North America and the Asia Pacific region. Burberry wants to switch manufacturing to China and, no matter how loyal and hardworking they may be, there is no way Burberry's Welsh workers can compete.

This is not simply a matter of Chinese workers working for less money than their Welsh counterparts, although of course they do. (The average Chinese textile worker earns approximately 35 pence per hour - £1.51 in Welsh equivalent buying power - whereas Welsh workers receive at least the minimum wage of £5.35 per hour.)

The Chinese currency, the Renminbi or Yuan, is pegged at an artificially low rate by the Chinese government to a basket of foreign currencies, dominated by the US dollar, and trades within a narrow 0.3% band. This gives Chinese manufacturers a massive cost advantage, even over countries with notoriously low labour rates, such as Mexico.

Since the Renminbi is pegged - rather than being allowed to fluctuate with market forces, as does the pound and every other major currency - companies like Burberry do not need to hedge against foreign exchange risks when sourcing from China since the price in dollars or pounds is always predictable. Most Chinese exporters trade in US dollars and, for a British-based business, buying in dollars is very attractive right now.

I'm not party to Burberry's business strategy, of course, but based on the experience of working with several similar companies, China probably offers Burberry greater and faster growth potential than any other territory. (Chinese managers are becoming rich on the basis of their cheap labour costs and favourable exchange rates, and they have developed a voracious appetite for Western luxury goods.) Manufacturing in China will keep prices competitive in the key Chinese market whilst allowing reasonable profit margins to be maintained. This will probably benefit Burberry's bludgeoning Japanese franchises too.

With North American being another important market and the Renminbi being kept artificially low against the dollar, manufacturing in China is win-win for Burberry. It doesn't require a degree in economics to work out that if the dollar is trading at 1.96 to the pound, goods manufactured in Wales will not be anywhere near competitive in the North American and Chinese markets.

A few years ago, Welsh workers would have had the edge over their Chinese counterparts in terms of craftsmanship and quality, but that's no longer the case. Globalisation is not good news for the former industrial heartland of Wales, and Burberry is a global business.

On page 7 of the Burberry Annual Report it says "The Group… took initial steps to rationalise its supply chain by consolidating sourcing of selected key products". Whatever that means, I doubt it offers any reassurance for the communities of Treorchy and Treherbert. 'Corporate social responsibility' extends to helping workers find new jobs but doesn't stretch to losing money if there are no new jobs to be found.

Whilst my heart is entirely with the workers, my head says there is no way Burberry is going to change its position. The emotional campaign currently being championed by Leighton Andrews AM, Chris Bryant MP, Peter Hain MP, actors Rhys Ifans and Ioan Gruffudd and others is unlikely to meet much success unless the government steps in with incentives to keep the factory open. Nevertheless, Ioan Gruffudd should be heartily congratulated for making a genuine personal commitment by risking his endorsement deal with Burberry to support the worker's cause. The interventions of Rhys Ifans and Bryn Terfel are evidently heartfelt too.

Burberry claims a 'distinctive British sensibility' but that doesn't mean 'Made in Wales'. Chris Bryant, the Rhondda MP, tabled an early day motion at Westminster warning that "by withdrawing from UK production Burberry will be irremediably damaging its brand identity". That begs the question; will American or Chinese consumers pay twice as much for a polo shirt 'Made in Treorchy'? I don't believe so. And does Burberry currently source most of its manufacturing in Britain? No, of course it doesn't. The consumer wants the added value that the words 'distinctive' and 'sensibility' imply. The word 'British' merely suggests a certain style. It conjures up images of Big Ben, soldiers in Bearskins, black taxis and red buses, not a factory in the Rhondda. 'Made in Wales' would mean little to Burberry's American consumers and nothing at all to Chinese consumers, who don't care where the product is made anyway. In Burberry's case, the consumer wants the emotional values the product represents more than its functional efficacy, in keeping out the weather, for example.

Chris Bryant went on to "urge investors to think twice about Burberry's commercial decisions". The very next day, Burberry's stock hit new highs on news of its half-year profits, and the price has continued to rise ever since. This demonstrates perfectly the short-term nature of the current investment climate and is a ringing endorsement from investors of the profit focus adopted by Burberry's management. These people don't feel any responsibility for a few Welsh jobs.

Angela Ahrendts, Burberry's new CEO who joined the firm in July, didn't get where she is today by being a mug either. According to Forbes magazine, she'll make $31 million (£16 million) over 5 years if she hits her performance targets at Burberry. That's a hell of an unemotional incentive to reduce costs.

The long and short of it is that the factory is going to close and emotional blackmail is not going to make any difference. 300 good people are going to lose their jobs and the knock-on effect will devastate their communities.

If the little business I'm now launching were two or three years down the road I'd be interested in taking over the factory. But, in the meantime, there may be something practical that I, the supporters of the 'Keep Burberry British' campaign (this name is spurious because the organisers are well aware that Burberry doesn't intend to close its 'British' factories in Yorkshire, but enough of the negativity) and everyone else in Wales can do to help.

If I was organising the campaign to save the Rhondda jobs, I'd ask Bernard Ashley, the co-founder and former Chairman of Laura Ashley, to get involved. Bernard has been a great supporter of Welsh craftsmanship over the years and he still owns an innovative digital printing business for fabric at Llangoed. His son Nick Ashley, a great designer in his own right and the man credited with invigorating Dunhill's menswear range (a competitor to Burberry), might be commissioned to draw up a classical collection the workers at Treorchy could manufacture.

What could I do myself? I would be willing to design, produce and market a t-shirt through The Red Dragonhood (www.thereddragonhood.com) with the profits going towards funding a new venture to keep Treorchy going.

If Ioan Gruffudd, Charlotte Church, James Hook and Rhys Ifans (maybe some of our musicians too) were to model them, Terry Morris were to take the pictures, Bryn Terfel, Tom Jones and Max Boyce were to lend their fame and the politician's were to help with administration, then we'd be likely to sell enough in Wales alone to fund a new start-up at the factory.

The offer is on the table. If we can raise money for Children In Need and other good causes, why can't we do the same to keep the Rhondda in business? Forget globalisation. Let's start looking after our own.

Click here to check out The Red Dragonhood


Rhys Wynne said...

Diolch am adael sylw ar fy mlog. I hadn't read this post properly (well still havent read every word - it's a long one indeed), but I agree with what you're saying.

My own take on this is that we should do all we can to keep the Burbery factory open, but I'm not sure if giving 'financial assitance' is the right thing to do. Burbery are already amking a profit, the just want a bigger one and why should all of us be paying the wages of the workers.

Sadly, there will be very little manufacturing left in the UK as it's so cheap in the far east. Not only is this bad for our economy, but the working conditions of these workers overseas concern me, that's why I try to but Welsh made first, Uk made second, and as a last resort 'Fair trade' from overseas. This limits choice of course, but things are changing, and with the internet it's easier to find if you're willing to search.

Recently I've been buying clothing from Oyster (who stock Howeis and Glo4Life - both organic and fairtrade), and when I read your info page (yn Gymraeg wrth gwrs!), I was pleased to read that your shitrs are made in the UK.

I reckon there's a gap in the market for Welsh designs (although Welsh language designs have been arounf for 15 years by Cowbois, Canus Rufus, Shwl di Mwl etc).

The translation looks good.

Rhys Wynne said...

Just to add a bit of relevance to your post, I also think that the factory could be kept going (but not making Burbery gear) as well. If more people were prepared to pay say £25-30 per garment, a price that really reflects the cost of production, instead of a £9 one from Primark, then we could keep manufacturing in Wales. I'm all for buying/wearing Welsh designed and Welsh made clothing.

>Economy - people still in work
>Environment - product travells less
>Human rights - demand for sweatshop labour decreases
>Culture - we wear more uniqe clothing, suitable for our our tastes and representing our own culture rather than being hemogonised into an Anglo American style.

Martin Davies said...

I'm not proposing financial assistance for Burberry, it’s doing very well on its own apparently, but I am proposing to help the workers take control of the means of production. They could, for example, make a product range for sale by mail order in the UK especially if, for example, Julien MacDonald were to agree to design it. I'm prepared to ask him.

Burberry making a profit is not the relevant issue here; globalisation and its effects on areas like the Rhondda are the issue. Why Western governments are allowing China such an advantageous position is beyond me, but these things need to be addressed at a governmental level if we are to have anybody left in manufacturing in Wales.

If we’re prepared to let manufacturing go, we need to develop the public and private service sectors. For me, that means developing a separate Welsh civil service as well as a national bank and other institutions. In short, we need to take control of the means of production and manage affairs effectively at a local (Welsh) level, federated within the EU.

Martin Davies said...

I agree absolutely! Oddly enough, fashion is the key to achieving the outcome you're talking about. You can't force people to do things for practical reasons, but they'll do almost anything because it's fashionable (like paying 60 quid for a t-shirt with von Dutch printed on the front - as a lot of people did a while ago - or watching 'I'm a Celebrity Get Me Out of Here').

Welsh firms are achieving premium prices in various sectors, food, for instance, and there is no reason why this can't be achieved in the clothing sector as well.

I strongly feel we need to define a modern Welsh cultural identity, and with my label I'm trying to do my bit to help this along... at a realistic price!

Do you know anything about Social Credit, the economic system devised by C. H. Douglas in the 1920s? It's a logical alternative to both capitalism and communism and is worth studying because it resolves the problems caused by globalisation and could mean an end to poverty.

Rhys Wynne said...

Interesting reference to food, yes this is something that's (slowly) being appreciated by Welsh consumers (and probably following a lot of promoting from public agencies)

Educating people is the hard bit and getting them to see the advantages of home grown/produced goods - are highlighting the disadvantages of having the means of production thousands of miles away in th ehands of people who don't give two shits about who consumes. Not heard of Social Credit, is it similar to Local Currency (I shall Google it)

BTW I've blogged about your label and blog here

plaid wrecsam said...

Glad I'm not the only one who thought the "Keep Burberry British" slogan was ill-conceived (and probably invented for Labourite propaganda purposes).

I too would be delighted to see Burberry workers having control of the means of production at their factory. As you say, it could reinvent itself as a Welsh manufacturer of quality goods.

Tower did it with coal, why not these workers with clothing? The support of designers, superstars models and (to begin with) some financial expertise, would see them through.

It's a vision thing.

PS Good blog - some of the t-shirt designs brought a wry smile.

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