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Zara, Inditex and Amancio Ortega – the Responsibility of International Success

| Friday August 18th, 2006 | 6 Comments

zara.jpgEd Note:I’m happy to announce Jenni Lukac from Barcelona as a 3P contributor. This is the first of 5 in depth pieces that should add a little more variety to the site, as well as a bit of European flair! Withour further ado…
If I mention the names Amancio Ortega and Inditex to anyone outside of Spain I usually receive the puzzled response, “Who?” If I mention these names in Spain, they are almost universally received with a mixture of sincere admiration and ill-dissimulated envy – and I know what the other is thinking: “Him, again. How on earth does he do it?” Son of a railway employee from León, 70-year-old Ortega is the founder of Inditex, the richest man in Spain, the seventh richest in Europe and recently ranked 23rd in Forbes´ list of wealthy individuals worldwide.
Zara, the largest of Amancio Ortega’s companies and the flagship of his Inditex empire, recently moved up from 77th to 73rd place in Businessweek´s list of the 100 World’s Best Brands, the first Spanish firm to rank in Businessweek´s top 100 and the highest ranked name in fashion. The company also scored an astounding fourth place in Google’s Europe and Africa rankings, following Nokia, Ikea and Skype and ahead of fifth place BMW. Since 2002, Inditex has formed a part of the Dow Jones Sustainability Index and the FTSE4Good Index. No other Spanish company can compare with the rate of expansion and the CSR and environmental protection credibility that Inditex has sustained over the years. Having eclipsed his domestic counterparts and outpaced the foreign competition, such as H&M, Ortega’s empire stands in a class of its own.

The group, which includes low and mid-price fashion chains Zara, Stradivarius, Massimo Dutti, Pull and Bear, Kiddy’s Class and Oysho, currently employs approximately 60,000 people worldwide, 86% of whom are young women with an average age of 26. Inditex likes to emphasize that 54% of its technical, administrative and management positions are held by women. In 2003, the group made a successful entry in linens and home accessories, with the more up-market brand Zara Home that now has stores in 15 countries, from Spain to Saudi Arabia.
Ortega started manufacturing clothing for other brands in 1963. In 1975, the same year dictator Francisco Franco died, he opened his first Zara store in A Coruña. It was the moment when young Spanish women entered the workforce by the tens of thousands and had money to spend. Amancio Ortega had an uncanny instinct for where Spain was headed and how far it could go. He was right on the mark when he created inexpensive, trendy clothes for a new consumer class of Spanish women turning their back on the legacy of Franco’s police-enforced dress codes, but his fortune was secured by his decision to buck the trend of outsourcing production to countries where labor costs were cheaper and to maintain the bulk of his factories in Spain.
Decades before marketing trend analysis figured out that the 21st century consumer would demand a role in the design of the product he would buy, Zara based its production and distribution systems upon its capacity to respond rapidly to customer feedback. A new Zara garment can be transformed from a design in a studio in Arteixo, A Coruña, Galicia, into an article for sale in any store in peninsular Spain in the brief period of two weeks. Ortega can make an affordable knock-off of a starlet’s dress that impressed young women in the pages of ¡HOLA! and deliver it to his stores before they forget how completely cool it was. “What does have to do with CSR?” you must be asking. Everything.
Assuring rapid delivery of trendy, affordable clothes throughout Spain ruled out relocating factories to countries where unregulated labor was cheaper. By manufacturing its merchandise in Spain, Zara was required to negotiate with newly formed labor unions backed by a popular Socialist government. While other, generations-old Spanish textile businesses fought a losing, rearguard battle against labor reform and mounting competition in Asia, newcomer Ortega created an ever-expanding network of youth-oriented brands, state of the art factories and distribution centers throughout Spain.
Ortega’s plans coincided with a growth economy and the rise of ethical consumer movements. When the idea of measuring corporate citizenship really began to take hold, Ortega’s decision to concentrate production in Spain to ensure rapid production and delivery paid off big-time. Compared with brands that outsourced all their production to subcontractors in underdeveloped countries, Zara, with the bulk of its production Spain and forced by law to comply with Western European labor laws, proved to be a hands down winner by CSR measurements. Ortega either anticipated the rise of CSR the way he anticipated the necessity of incorporating customer feedback and providing rapid delivery, or he was in the right place at the right time with the right strategy and the common sense, to once again, go with the zeitgeist. Although Inditex now out sources 40% of his manufacturing to cheaper labor markets, the bulk of its production still remains in Spain and its solid CSR ranking has made the company a favorite of SRI fund indexes worldwide.
Inditex creates 7,000 new jobs internationally each year. The challenge of stocking a rapidly expanding retail empire in which a new store opens practically every day in some far-flung location, however, strains the logistics and moral fiber of the best CSR-oriented companies. Inditex is known for its routine compliance inspections of foreign suppliers, but maintaining control of conditions and practices on four continents is a Herculean project that sometimes fails. On April 11, 2005, an ill-constructed factory in Bangladesh that produced clothing for Zara and other foreign labels collapsed, killing sixty workers and injuring scores of others.
To Zara´s credit, the company immediately proposed a compensation fund to indemnify the injured and the families of the victims, working closely with local and international garment workers unions and non-profit organizations to calculate the appropriate level of compensation and to convince other clients of the foreign subcontractor to support the effort. Other factory customers, KarstadtQuelle and Steilmann (German), Cotton Group (Belgian) and Scapino (Dutch), have made a separate counter offer that falls short of the union and international relief organization demands, which Zara, alone, continues to support. Other clients, such as Carrefour (French and Belgian), continue to insist that they bear no moral or fiscal responsibility at all for the Bangladesh disaster or disaster relief.
Since the Bangladesh factory disaster, Inditex has worked more closely with international workers organizations, but the unresolved issue of shared guilt between international brands and their sweatshop subcontractors continues to haunt Zara and other multinational firms that wish to combine global expansion with fair trade ethics, as well as the theorists who aspire to promote corporate social responsibility movements. How big is too big? Is small the only road to beautiful? Alternatively, is designer William McDonough correct in searching for a formula that mitigates the potential negative effects of continuing consumption by the ecological design of the products consumed?
Zara and its sister companies are based upon the “ethic” of constant consumption. An axiom of the company’s success is the almost complete biweekly turnover of each store’s stocks. If you like it, buy it now or it will sell out, is the unstated rule governing Zara consumer behavior. Whether this model will bear up in a world of diminishing resources, growing civil unrest in developing countries and soaring petroleum prices is yet to be seen.
It appears to have been more the result of pressure to maintain competitive margins than unbridled corporate greed that left Zara labels in the dust and ruins of a collapsed, substandard sweatshop in Bangladesh. While Inditex does not track the accident, its own relief fund initiatives or the lack of worker solidarity of his competitors on its own corporate website, one can follow the story in the Clean Clothes Campaign website and other garment worker and fair trade sites around the world. Once again, Ortega’s instinct for determining which way the wind is blowing is guiding him to choose the road less taken.
Inditex is a member of the United Nations Global Compact and recently announced its membership in the Ethical Trading Initiative (ETI), an organization of international retail companies, large suppliers, trade unions and NGOs, whose purpose is to define and promote best practices and the implantation of corporate codes of conduct regarding the working conditions around the world.
His company has worked with the International Textile, Garment and Leather Workers’ Federation to develop a Voluntary Relief Scheme for the survivors and families of the dead workers in Bangladesh. On July 6, 2006, Inditex sent a letter of invitation to the other brands that had jobbed work out to the ill-fated factory to participate in the fund, stressing the importance of organizing operations and beginning indemnity distribution in September.
Summer slides away, for the elite of international fashion manufacturing and distribution, on idyllic islands, by the pool, in a mountain hideaway. The container ships with the fall collections are now on their way to their destinations or waiting in silent warehouses. As of the writing of this mid-August article, Mr. Ortega’s Inditex stands alone with the proposal he developed with the ITGLWF. Let’s hope the checks from his peers are in the mail.
Back in Spain, the latest Inditex company press release informs that the group will implement new labor reforms intended to “reconcile family and professional life” with the proposed “Equality Law” even before the bill is voted upon and goes into force. I recommend the press release to corporate American CSR directors who can read Spanish. It is an interesting document for those who believe that European companies are laggards in implementing CSR practices.
Amancio Ortega’s legacy might be more in the corporate ethics he exports than the bargain clothes he imports. Inditex makes few changes to the production it distributes worldwide. The hemlines of dresses sold in Moslem countries are apparently a bit longer. It states in its corporate webpage, “(our) international presence allows us to conclude that there are no frontiers that would impede a shared culture of fashion.” An international presence should also allow Inditex, and its competitors worldwide, to acknowledge that no frontier impedes a shared culture of corporate responsibility either.


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  • Sam Cooper

    I met Amancio Ortega few times. He is not only brilliant but modest too.

  • daniel

    o my gosh you’re soo lucky!
    I wish I could meet a billionaire.It’s my dream to become one soo bad.

  • Jennie

    I only hope that American corporations who outsource will begin to follow Ortega´s brave and respectful policies. After reading Naomi Klein´s NO LOGO, I was fearful that Zara was among the corrupt. Although I agree that our rate of consumption is unsustainable, at least someone out there making all of these products, Ortega, has a heart. Let us hope that the toxic competition won´t soften his high standards.
    PS…Daniel, I can´t even believe you put down People Magazine long enough to read this type of article.

    • neeebe

      so is zara fair trade?

  • neeebe

    so is zara fair trade?

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  • Nicanora

    I wish Mr. Amancio Ortega keep this brilliant fashion  with latino community soon.I’m very poor to buy clothes  but. 

    I love Zara clothes