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Odd choice

It’s easy to miss. The words “on purpose” are printed on a small label inside the tote bag alongside the name of the woman who made it. It sits inconspicuously next to the other handbags on the shelves at high-end fashion brand Kate Spade. There is nothing notably different about it. Yet it was made in a factory that doesn’t have a reliable source of running water, where the electricity routinely cuts out, and where, until relatively recently, the workers didn’t have the necessary manufacturing skills. It’s in a tiny village called Masoro in landlocked Rwanda. There are no dependable roads, which means all the products made here have to be airlifted out – a much more expensive option than the usual way of sending them by ship. And perhaps most unusually, this factory didn’t exist at all until global fashion firm Kate Spade decided to open it and fund its creation just over three years ago. The obvious question is: Why?

“We like to stretch ourselves,” laughs Mary Beech, chief marketing officer at the firm.She says as a brand that makes clothing and handbags for women, and whose employees are mainly female, doing something to help empower women “came very naturally”. The branding of the product is subtle, says Ms Beech, because they don’t want it to be a token charity product. “We want women to buy these bags because they walk into the store and love them. First and foremost it has to be a beautiful product which is completely natural and integrated,” she adds. Rwanda’s horrifying 1994 genocide, when 800,000 Rwandans were killed, continues to affect people today, and Kate Spade says this history was an added incentive for choosing the location.

Of course, many brands undertake charitable projects. Fashion firm Asos, for example, sells a “Made In Kenya” range produced by local clothing manufacturer Soko, which it says aims to support local craftsmanship. Similarly, footwear firms Toms and Roma Boots both give away a pair of shoes to a child in need for each pair they sell. The difference with Kate Spade’s charitable initiative On Purpose, the firm says, is that it’s a business venture that had to make commercial as well as emotional sense.”It couldn’t be a crafty aside done for corporate social responsibility that didn’t tie back into economic sustainability,” says Taryn Bird, senior manager of the On Purpose initiative.She said this was because the firm wanted to set up something that lasted and enabled the factory to be financially independent, eventually taking orders from other fashion brands and becoming part of the global supply chain. The only way to make sure this happened, was to set it up themselves, says Ms Bird.

The factory is not owned by Kate Spade, but is an official supplier. The people who work there – around 150 – are employed by Abahizi Dushyigikirane Corporation, known as ADC.So is this just exploiting Rwanda’s low-wage economy?Kate Spade says not, pointing out even the lowest paid worker’s salary in the country is considerably higher than the median salary for private sector jobs in Rwanda. It has also set up a life skills programme at the company, offering counselling, information on health and nutrition and English language lessons.While the firm won’t be drawn on how much exactly it ploughed into the factory to get it going, Ms Beech says it was “a minimal investment”. Almost four years on she says they are “on track” to get their investment back and for the factory to become profitable. The staff retention rate is an impressive 98%.But Africa is not such an unusual choice for a firm looking to diversify its supplier base. Labour costs are already much lower than in China. According to Georgetown University in Washington, which studied the Kate Spade project, staff in factories in coastal China earned around $700 (£537) a month, over six times the average $113 monthly salary at the ADC factory.

Africa also offers what Ms Bird describes as “a very business friendly climate for export companies”. ADC does not have to pay duties on incoming raw materials and is also able to export the finished bags to the US without tariffs. In contrast, tariffs on handbags from Asian suppliers range from 4.5% to 17.5%, according to Georgetown University.So Africa has the potential to become the world’s next low-cost manufacturing hub thanks to a cheap workforce and an abundance of raw materials. A lot of production has moved there already. Ms Beech, however, says that wasn’t why Kate Spade chose Rwanda. The bags made there were additional orders reflecting increased demand for its products.Pietra Rivoli, a professor teaching finance and international business at Georgetown University, who led the study of the project, says the factory proves it’s possible to put a factory anywhere.”The set up was not terribly complex. It’s not something that other companies could not do given the motivation and support from management,” she says.She says the supportive factory set-up made ADC feel very different to any other factory she had visited.

“I’m not saying other factories are somehow bad. But most supplier relationships tend to be very transactional. The relationship is one of monitoring for labour abuses, whereas the ADC approach is a much more positive philosophy.”Typically, how cheaply and quickly something can be made are the main criteria a company uses for deciding where to locate a factory.Prof Rivoli says the Kate Spade example offers “a demonstrative case study” of an alternative approach. “What they have shown is that it can really be a win-win. The factory can pay the company back [for the set-up costs] and the firm can support the worker and their communities. So far it’s one small-scale experiment. But Kate Spade says it is already planning to pilot a second factory in a different developing country in the next couple of years.”This time we’ll make sure it has access to a port,” laughs Ms Beech.Global TradeMore from the BBC’s series taking an international perspective on trade:Where’s hot? This summer’s most popular holiday spotsThe lucrative world of ‘the super tutor’How the ‘better burger’ is taking over the worldWhat it takes to get Beyonce on a world tourThe country losing out in the breakfast juice battleWhy a $1.6bn car plant has been left to decayRead more global trade series here.
Source: BBC News

About Business Ideas UK

My name is Joel Bissitt. I have been an entrepreneur for 24 years and have run many small businesses across various sectors. For the last 10 years I have worked mainly within online media, franchising and small business start-ups. I am an author of various websites including Franchise UK https://www.franchise-uk.co.uk

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