Made in Canada: How globalization has hit the Canadian apparel industry
Globalization was touted as the path to affluency, but for Canada’s garment industry it has been calamitous.
By: Sandro Contenta News, Published on Mon May 27 2013
CAMBRIDGE, ONT.—The unusual mission statement for the fledging Canadian-Made Apparel company is written on a board overlooking sewing machines and computerized fabric cutters. It’s nothing more than a date and time — Feb. 21, 2013, 1 p.m.
It’s the reminder of an event not to be repeated.
At precisely that moment, in this very same factory, the owners of John Forsyth Shirt Co. Ltd. told 110 employees that a century of shirt-making would come to an end. The company, established in 1903, was closing its factory — the latest victim of a Canadian-made garment industry decimated by globalization and, in Forsyth’s case, government decisions.
The catastrophic collapse of the Rana Plaza in Bangladesh, which killed 1,127 garment workers in April, renewed public attention on an economic theory that has transformed societies for three decades.
At its most idealistic, globalization is a business model for a world where market forces put everyone on the same development path to affluence and democracy. At its worst, it’s a model for exploitation and corporate conquistadors. In between is a large area where public policy, corporate decisions and consumer attitudes shape a theory often marketed as a force of nature.
“Globalization is about making choices,” says Suzanne Berger, a leading researcher of the business model at the Massachusetts Institute of Technology
The former employees of John Forsyth know that only too well.
The Cambridge factory had been struggling for years. Competition was fierce. The retail price of a Forsyth dress shirt runs from $70 to $125. Shirts made in places like Bangladesh sell for as little as $10 at huge retailers like Walmart. And demand wasn’t going Forsyth’s way.
“People want cheap shirts,” says Forsyth’s co-owner, Oliver Morante.
A decade ago the factory had 500 employees making 1.3 million shirts. That dwindled to 110 people working reduced hours to make 500,000.
“From a strict financial view, we probably should have closed that facility many years ago,” Morante says. “But we said, ‘It’s part of our heritage. We like the idea of being a domestic manufacturer.’”
The death blow came when the federal government cancelled “duty remission programs.” In place since 1988, they allowed apparel companies that manufacture in Canada to import some clothing from abroad duty free.
For Forsyth, a Mississauga-based company that imports 75 per cent of its shirts from China and Bangladesh — those sell for $25 — it meant the loss of almost $2 million annually. It was money used to partly offset the higher labour costs, compared to offshore rivals, of its Cambridge factory.
“Those are the types of programs the government needs to keep in place if it wants to have any semblance of domestic manufacturing,” Morante says.
Seventy Canadian companies benefitted from the $15-million remission programs. The finance ministry says some of them no longer manufactured in Canada while others were selling their remission allocation to companies that don’t produce here.
Morante says he warned the government that ending the program would force the closure of his Cambridge factory. He urged it to audit companies and kick out abusers. Last December, the government made its choice.
“They threw out the baby with the bathwater,” Morante says.
The finance ministry points to other initiatives to help the apparel industry, including removing tariffs on imported equipment. They didn’t benefit Forsyth.
The demise of the duty programs shocked Forsyth’s employees. In April 2005, with an election looming, Conservative Leader Stephen Harper visited the Cambridge factory and stitched “Made in Canada” labels on shirts. Employees who witnessed the event say Harper was calling on then-Prime Minister Paul Martin to renew the remission schemes.
In February, Forsyth applied for court protection from creditors under the federal Companies’ Creditors Arrangement Act, a legal way to restructure a company and avoid bankruptcy. The Cambridge plant closed March 8.
“It was a very sad day,” says Sandra Lima, 39, who spent 18 years at Forsyth. “You’re left with, ‘What am I going to do now?’ To start all over again was scary.”
Rick Droppo, the factory’s manager, also lost his job, adding to a bloody 40 years in the business. The nine Levis factories he worked at out west are part of a long list he’s watched disappear.
“I thought, ‘Hey man, I really failed,’” says Droppo, 61, noting Forsyth had given him a free hand at running things. “It’s up to me to make sure these people have jobs.”
He embarked on what his friends considered a quixotic adventure — to buy and reopen the factory. It was nerve-wracking.
“I had to go and get sleeping pills,” he says.
He asked the federal government for financial help but they turned him down. Banks set unacceptable conditions for loans. So he turned to private investors, people he knew in the trade. They struck a deal.
Old customers stayed on, including Tim Hortons and Sobeys, who have uniforms made for their employees. Forsyth sold Droppo the factory, with its modern equipment, dirt cheap. And Forsyth committed to ordering about 300,000 dress shirts a year.
Droppo rented less floor space and hired back 40 former employees at $11 an hour, $2 less than they had been making, on average, with Forsyth. In early May, the factory reopened under a new name — Canadian-Made Apparel.
“It’s not like a factory, it’s like a family,” says Ina Stagl, 52, who spent 29 years with Forsyth. “Rick Droppo is, in my eyes, a hero. He was not thinking of himself, he was thinking about us.”
“I’m really angry with the government,” she adds. “They gave millions to the car companies and nothing to us.”
Only three shirt-making factories remain in Canada, Droppo’s and two in Quebec. Droppo is convinced he can make a go of it. And the workers are fully behind him.
On the mission board, the fateful date looms like a warning of a monster outside.
In theory, globalization is the process toward a single world economy — a time when the price of labour, capital and goods and services will be the same everywhere. We, of course, are far from that.
The world’s economy was more globalized between 1870 and 1914, notes Berger, an MIT political science professor. The price of commodities and labour converged as people moved freely across borders and new technology — from steamships to trans-Atlantic communication cables — fuelled trade.
The First World War brought it to an end. Immigration controls and tariffs went up.
“Globalization is somewhat reversible because governments still have the power to block things at their borders,” says Berger, author of How We Compete: What Companies Around the World Are Doing to Make It in Today’s Global Economy.
In Canada’s apparel industry, quotas limited the amount of goods imported from individual countries. When the quota of Chinese imports was filled, Canadian importers shifted to goods from Korea, then Mauritius and so on.
“The structure of the industry was built on the backs of these quota arrangements, which forced you into very mobile sourcing scenarios,” says Bob Kirke, executive director of the Canadian Apparel Federation, which represents 300 manufacturers, importers and retailers.
“Canadian companies became experts at moving goods all over the world.”
It was training for the next round of globalization, which kicked off in the early 1980s. The corporate model until then was vertical integration — research and development, design, manufacturing and after-sales service were all done under the same corporate roof.
The 1980s saw what Berger describes as a “tectonic shift.” Wall Street pushed a leaner, “asset-light” model. Labour-intensive manufacturing arms were often the first to be severed. The reward was higher stock prices.
“The factory is always the low-hanging fruit,” says Droppo, recalling his two decades at Forsyth’s Cambridge plant. “Every financial consultant we ever had in here said the factory’s got to go.”
As Wall Street preached outsourcing, new technology made it more possible. Digitization allowed product design to be separated from manufacturing, Berger notes. A silicone microchip could be designed in the U.S., for example, and digitized instructions to make it sent directly to a cutting machine in Taiwan. The U.S. company no longer needed an expensive semiconductor foundry as part of its operations.
Unionized jobs largely responsible for expanding a postwar middle class began to disappear. In Canada since the late 1990s, the result is rising income inequality, challenging governments with a series of social policy choices, including how to redistribute wealth.
In the garment industry, clout shifted from manufacturers to big retailers like Walmart. They developed their own brands. Consumers got hooked on “fast fashion,” discarding clothes with every new style. Accessing cheaply manufactured garments became a priority.
Government policies obliged. The NAFTA free trade deal between Canada, the U.S. and Mexico happened in 1984. In 2003, Canada removed all tariffs and quotas from 49 “least developed countries,” including Bangladesh. Two years later, as part of its commitment to the World Trade Organization, Canada removed all quotas on textiles and apparel imports — a move that had been signalled for a decade.
To no one’s surprise, manufacturing jobs moved to low-wage countries, first Korea and China, and when wages began climbing there, increasingly to places like Bangladesh. Montreal-based Gildan Activewear Inc., with $1.95 billion in 2012 sales, has most of its manufacturing in Latin America and the Caribbean.
The number of Canadians making clothes declined from 94,260 in 2001 to 19,340 in 2010, according to Statistics Canada. (When administrative jobs are included, the total number declined from 106,226 to 25,670.) About half of the industry is based in Quebec; less than 30 per cent is in Ontario.
GDP in the clothing manufacturing sector declined from $3.6 billion in 2002 to $1.4 billion in 2011. The domestic market share of clothes made in Canada dropped from 40 per cent in 2004 to 23 per cent in 2008.
“It’s fashionable to say, ‘Buy Canadian,’ as long as someone else buys it and not me,” Droppo says, giving his take on the attitude of consumers who make low price a priority.
The Apparel Human Resources Council, an industry-led group, complained of “price deflation” in a 2011 report.
The Rana Plaza disaster in Bangladesh focused attention, however briefly, on the working conditions behind the low-cost market. It pushed companies like Loblaw Cos. Ltd., which had some of its Joe Fresh line made at the plaza, to adopt a plan for safe factories.
Prof. Marsha Dickson, co-director of the Sustainable Apparel Initiative at the University of Delaware, is skeptical. Western companies have been auditing their overseas contractors for the past 15 years and it hasn’t made a difference, she says. Better safety and working conditions mean higher production costs. Which buyer will be the first to accept that?
“The pressure on prices has not made it feasible for the manufacturers to truly change what they’re doing,” says Dickson, also a director of the Fair Labor Association, an NGO formed by former U.S. president Bill Clinton to improve working conditions for apparel workers.
Purchase orders found in the Rana Plaza rubble indicate the Spanish chain Mango was paying $4.45 (U.S.) for the making of a shirt that it sold at its branded stores in Britain for $40 to $46. (The minimum wage for the lowest skilled in Bangladesh’s clothing industry is $38 a month. The average salary, according to business owners interviewed by Reuters, is $64 a month.)
Western retailers and importers are also reluctant to commit to more than one purchase order at a time. Why would a manufacturer in Bangladesh upgrade his factory and improve working conditions, Dickson asks, if the buyer might go elsewhere for the next order?
Besides, Forsyth’s Morante claims some western importers use so many manufacturers, “I’m not sure they even know where their product is being produced. It’s just so big. The volumes are huge.” Two years ago, he visited a factory in Bangladesh making 500,000 shorts for Swedish retail giant H&M.
In Canada, it has become fashionable to bid good riddance to low-skilled, low-paying jobs, even as they grow in the non-unionized service sector. The future, some economists insist, is in highly skilled work and, in the Canadian-made garment industry, niche products at a higher price point — Canada Goose jackets is the often cited example.
But Berger warns of a tipping point. She co-chaired an MIT project that examined the difficulties 246 mostly American companies faced in bringing a product they invented to market.
Her team published a preliminary report in February that warned years of outsourcing and corporate downsizing had created “holes in the (U.S.) industrial ecosystem.”
“We saw reasons to fear that the loss of companies that can make things will end up in the loss of research that can invent them,” the report says.
Lost is the learning that happens when engineers who design a product interact with factory technicians trying to mass produce it. The problem solving at that point is the source for future innovations and higher profits.
With fewer big manufacturers, cutting-edge research is more likely to happen in small startups and university labs. But they lack the resources to scale up and bring their innovations to market. It also means fewer workers being trained and a smaller skilled labour pool for startups to tap.
Governments should fill the gaps, but as local manufacturing decreases there are fewer players with the clout to pressure them. Berger’s team visited local manufacturers with “little beyond their own internal resources to draw on when they seek to develop new projects. They’re ‘home alone,’” her report says.
In Canada’s apparel factories, the tipping point is most obvious in the large number of workers nearing retirement.
“The industry will require 6,200 to 7,600 production workers over the next several years, for which there is virtually no supply,” the Apparel Human Resources Council says in its 2011 report.
“Furthermore, most companies currently do not have the resources or processes in place to properly train personnel . . . This could make it difficult for companies to simply maintain their current levels of domestic production.”
Even Canada’s successful garment-making companies, in other words, face a tough future.
Montreal-basedSecond Denim Co., which does all of its manufacturing in Canada, is a fast-growing company.
“Fashion changes faster and faster and our biggest edge is being able to react very quickly compared to clothes being made anywhere else in the world,” says Second Denim’s 40-year-old co-owner, Eric Wazana.
The company designs and manufactures stylish denim slacks, jackets and dresses, including the popular yoga jean — cotton, polyester and spandex blends that “feel like a Second skin,” according to the company website. The clothes retail from $120 to $189.
In 2011, brightly coloured jeans “became a phenomenon overnight.” Wazana quickly shifted production and stocked the 1,000 retailers who buy his clothes with colours like icy blue, peppermint, tangerine and watermelon.
“I had coloured jeans in all of my retailer stores almost nine months before the big boys could start getting some stuff,” Wazana says, referring to big-name retailers that import from Southeast Asia or China. “A lot of people missed out on that big wave. We caught it, and the retailers who work with us got the full benefit.”
The same happened when ankle-length jeans took off. If retailers detect a trend and want to change an order to ride it — flare jeans to skinny ones, for example — Second Denim obliges. If one wants to test the waters with a small order, that’s fine, too.
Retailers that exclusively rely on huge orders made overseas can’t be that flexible. When they miss a trend, big stocks get discounted and expected profit margins drop.
Growing up, Wazana watched his mother, a seamstress, repeatedly lose her job as factories closed down. He graduated as an accountant and worked in clothing stores, where he saw customers frustrated by the limited choice in denim wear. In 2000, he co-founded Second Denim.
For years, it had 20 employees and subcontracted manufacturing to a company in Quebec. One day, the factory shut down, after giving Wazana six months’ notice.
He travelled to China to check out what outsourcing had to offer. “There was so much more profit to be made, so much more,” Wazana says, noting the lower labour costs. But there was a catch.
“What you see is supposed to be the best and even the best there wasn’t good enough for me,” he says. “The conditions, the way people are treated — there’s no respect for workers in some of these places.”
He went back to Quebec and, two years ago, bought a recently shut garment factory in Saint-Côme-Linière, a town of 3,000 people east of Montreal.
“People in the town thought we were completely crazy,” Wazana says in a phone interview. “They were like, ‘The other guys had 30 years’ experience in the business and they failed. What makes you, little punk from Montreal, think you’re going to succeed?’”
Second Denim now has 120 full-time employees, 80 of them hired last year. Finding enough skilled people to do the work was difficult and most had to be trained. The lowest salary is $11 an hour, with benefits.
“If I wanted to start importing, we could make a lot of money very quickly,” Wazana says. “But that’s not what we’re about. We’re about keeping the jobs here and making things happen. In 10 years the rewards are going to be huge.”
Wazana won’t divulge sales volume but says his company has grown by “double digits” annually for the last seven years. He’s now focused on making Second an international brand — the kind of success he acknowledges might force him to outsource some production. Canada doesn’t have the trained workers or facilities to make that happen.
“Unfortunately, the governments have left the (garment) infrastructure of Canada completely dismantled,” he says.
Wazana made his choice, just like governments, consumers and other companies must make theirs.