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Memorandum submitted by Burberry (GLOB 19)
Introduction
1.1 Established in 1856, Burberry is an international luxury brand. Through its operations, the Group designs, sources, markets, licences and distributes apparel, accessories and other lifestyle products for women, men and children. Burberry products are sold worldwide through a network of 260 directly operated stores and concessions, 71 third-party operated retail locations and a network of wholesale customers, which include leading prestige retailers in each market.
1.2 The brand has a rich heritage associated with Britain - including outfitting military officers during the early twentieth century. The global headquarters of Burberry are based in London together with all design, marketing, advertising, retail, purchasing, and supply chain management activities. Burberry employs around 2,000 people in the UK, of which some 600 are engaged in manufacturing activities in our own factories in Castleford, West Yorkshire and Rotherham, South Yorkshire, where the iconic Burberry trench coats and other luxury outerwear products are made.
1.3 At the time of writing in February 2007, Burberry also operates a factory in Treorchy, South Wales, which it has owned since 1988. This plant currently produces polo shirts. In September 2006 - following a year long review of Burberry's supply chain and manufacturing process - the unfortunate conclusion was reached to end operations at Treorchy. The conclusion of the review found that Treorchy was not commercially viable and that as a number of other clothing retailers have also found, it is now possible to source certain products of greater quality overseas at a significantly lower cost, from suppliers who will nearly always take on the complete management, purchase, production and distribution requirements. The review also looked at how we could improve and streamline what is currently a very complex supply chain. As a public company we have to justify any item of capital expenditure to our shareholders - within this context there was found to be no case for re-equipping Treorchy to make different items when capacity exists elsewhere in the UK and Europe. It is expected that the Treorchy site will close on 30 March 2007 with the production shifting to other existing and more competitive sources of supply in the European Union and Asia.
1.4 We are pleased to have the opportunity to provide a formal statement of our views as part of this Inquiry, although we will restrict them to the areas which we are most able to offer an informed view; namely the employment aspect and the four associated issues of relocation of jobs; the implications of EU enlargement for employment prospects in Wales; the impact of Asia and elsewhere on manufacturing and service industries in Wales; and skills shortage and how it can be addressed, internally and externally.
The relocation of jobs
2.1 Globalisation has meant that to remain internationally competitive, it is important to operate at the most appropriate and efficient locations. Our experience of the luxury branded goods sector shows that this calculation is a function of unit cost, skill levels, and brand value. For 'iconic' and high price-point garments such as Burberry trench coats and our other luxury outerwear products it is important to maintain British manufacture. For goods such as polo shirts, unit cost is more important than place of manufacture, which appears to have limited relevance to the consumer given that at present only 25% of our polo shirt output is made in Treorchy, with rest being made in Portugal, Turkey and Asia.
2.2 For the record, we would like to outline our position with regard to the relocation of jobs within the context of our policy on Corporate Social Responsibility:
1. Burberry does not own factories in China, Hong Kong or any other Asian countries. Burberry uses third party suppliers which, after implementation of the proposed changes in sourcing, will supply less than 10% of Group production. Burberry will ensure high standards of corporate and social responsibility from these suppliers, with regular expert third party audits to ensure continued compliance. Burberry also collaborates with other international brands to underpin adherence from third party suppliers to its Corporate Social Responsibility compliance standards. 2. Suppliers to Burberry pay a wage at or above the minimum wage in the relevant country. This wage will vary depending on the cost of living in the country concerned. Management has taken a decision not to source products from Bangladesh and the Philippines where it has concerns over the level of minimum wage. 3. Suppliers to Burberry do not employ persons under the age of 16.
The implications of EU enlargement for employment prospects in Wales
3.1 Burberry manufactures around two-thirds of our total production in four EU member states: the UK, Italy, Spain, and Portugal and has no current plans to manufacture garments in the newer member states - although there is already present a clothing industry in countries such as Poland and Romania. We have no specific perspective on enlargement of the EU and its effect on Wales, other than noting that a combination of relatively high standards of education and lower wage levels present in central and Eastern Europe will pose a challenge to lower value manufacturing operations in Wales and the rest of the UK. Burberry notes that Turkey - currently negotiating accession to the EU - already has a number of high quality clothing manufacturers.
The impact of eastern and southern Asia on manufacturing and service industries in Wales
4.1 As with any area of the UK in which labour-intensive, low value-added manufacturing industries are present, Wales has found it very challenging to compete against the economies of Asia and Eastern and Southern Europe in such sectors. For instance, it is indicative to note that employment in Welsh textile manufacturing industry declined from around 13,000 in 1991 to less than 4,000 in 2005. This economic restructuring will understandably prove to be uncomfortable for those who find their jobs caught up in this global shift, something readily acknowledged by Secretary of State for Trade and Industry, the Rt Hon Alistair Darling MP:
"It is understandable that some in developed countries are apprehensive. Globalisation means change. It means our industries must develop, and with them our workforce. People need to learn new skills. Adapt to new jobs. That change can bring insecurity, and nostalgia for the old perceived certainties. That is why politicians and global business leaders need to take a lead in showing the benefits of globalisation."[1]
And by Chancellor Gordon Brown:
"Because advanced industrial nations like ours can no longer rely - as we used to do in a sheltered world - on mainly low cost manufacturing, we have to find other high value added and new sources of wealth and employment - by focusing on our comparative strengths."[2]
Skills shortage and how it can be addressed, internally and externally
5.1 Burberry have no comment to offer as (see 1.2) the design, marketing, advertising, retail, purchasing, and supply chain management functions are all located in London, rather than Wales.
5.2 Burberry concurs with the former Secretary of State for Trade and Industry (and now Secretary of State for Education and Skills) Rt Hon Alan Johnson MP:
"Our response must instead be to help Britain move up the value chain towards a high wage, high skill, high value economy. We are racing to the top, not to the bottom.[3]"
Conclusions
6.1 Burberry can only speak authoritatively about its own experiences, but as the only globally competitive luxury goods manufacturer of any scale remaining in Britain we do hope that our perspective is useful. The Treorchy experience is an obvious example where Wales has found it very challenging to compete against some other economies in manufacturing operations. Our own experience demonstrates that whilst globalisation can significantly impact upon lower valued-added production in the UK, it has allowed global companies such as Burberry to grow our business around the world and has resulted in higher-skill, higher value-added jobs in the UK in design and marketing of our higher value garments. Whilst we are a global business with less than 10% of our sales in the UK, our ability to compete successfully globally in our key markets generates value in the UK. Therefore, the answer, recognised by politicians of all parties, is to seek to attract higher value-added operations and employment, whilst also focusing on up-skilling the workforce.
February 2007 [1] Speech at Renmin University, Beijing, 28 November 2006, http://www.dti.gov.uk/about/dti-ministerial-team/page35799.html [2] Speech at CBI Presidents Dinner, 5 June 2006 [3] Speech by The Rt Hon Alan Johnson MP, (then) Secretary of State for Trade and Industry Engineering Employers Federation (EEF), London, Wednesday 1 February 2006 |