H&M Grabs More Control of Asia Factories Amid Bangladesh Unrest

Three decades after it started doing business with suppliers in Bangladesh, Hennes & Mauritz AB (HMB) is seeking greater control of production in a nation where it is among the largest purchasers of clothing.

H&M this year agreed to become the sole client of two factories in Bangladesh and one inCambodia, helping convince building owners to offer satisfactory conditions and wages, Anna Gedda, H&M’s social sustainability manager, said.

“We see these a little like test centers where we can try out different things that we can then push out on a larger scale in the entire supply chain,” Gedda said in an interview.

H&M, which normally shares factory space with other labels, is seeking tighter control over production in countries like Bangladesh, where thousands of workers held protests yesterday to demand higher wages. The deaths of more than 1,000 Bangladeshis in April’s collapse of the Rana Plaza complex led retailers including H&M and main European rivalInditex SA (ITX) to commit to improving fire and building safety.

H&M is among global clothing retailers that have shifted output toward Asia, using local contractors to reduce the cost of production. The lowest wages in Asia after Myanmar have helped spawn a $19 billion Bangladeshi manufacturing industry.

The three factories where H&M has taken full control of production were chosen from among some of the retailer’s top suppliers, Gedda said in an interview at the company’s headquarters.

Controlling Output

H&M, which started buying from Bangladesh in 1982 and Cambodia in 1998, has a long-term commitment to the plants, she said, without disclosing their location or the length of the exclusivity agreements.

“While this is undoubtedly a positive and innovative move, H&M, like many competitors, still has a long way to go to achieve the control over, and visibility into, its supply chain,” said Bryan Roberts, an analyst at researcher Kantar Retail.

By fully controlling output, H&M is attempting to make improvements to factory safety, boost the quality of products being made for it and get them to stores more quickly, H&M spokeswoman Elin Hallerby said by e-mail. The Swedish retailer is seeking to end a history of missing profit estimates and in September reported quarterly profit that topped analyst predictions for the first time this fiscal year.

“These test factories provide supply-chain transparency and greater control over working conditions,” Ashma Kunde, an analyst at Euromonitor International, said by e-mail.

Long-Term Commitment

H&M has found that its business model works best when not owning factories, according to Gedda.

“We see that it has helped strengthen the local industry by giving ownership to local suppliers instead,” she said.

The initiative to take more control over production in far-flung parts of the world has the support of Fair Trade Center, a non-governmental organization which scrutinizes Swedish companies’ trade with developing countries.

“We encourage H&M to be transparent about this initiative so that unions, other non-governmental organizations and other companies are able to monitor the project as well as to see how they can learn from it,” Catrin Rosquist, a project leader at Stockholm-based Fair Trade Center, said by phone.

To contact the reporter on this story: Katarina Gustafsson in Stockholm atkgustafsson@bloomberg.net