This report discusses the challenges faced by the global apparel companies: H&M and Gap when implementing corporate social responsibility.

1. Challenges Of Corporate Social Responsibility
Within The Apparel Industry:
Implications on IHRM Practices
Prepared by Jennifer Kesik
15th November 2013
1

2. Abbreviations
CSR:
Corporate Social Responsibility
ESCAP: Economic and Social Commission for Asia and Pacific
IHRM:
International Human Resource Management
ILO:
International Labour Standards
ISO:
International Organization for Standardisation
OECD:
Organisation for Economic Co-operation and Development
SMT:
Stakeholder Management Theory
UN:
United Nations
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3. TABLE OF CONTENTS
Abbreviations………………………………………………………………………….. 2
Table of Contents….………………………………………………………………….
3
List of Figures. ………………………………………………………………………...
4
List of Tables…………………………………………………………………………..
4
1. INTRODUCTION……………………………..…….......................
5
1.1Background ……………..…………………………………………………
5
1.2 Purpose and Outline of the Report……………..……….………............
5
2. THE CONCEPT OF CSR……………………………….................
6
2.1 Theoretical Context of CSR………………………………………………
6
2.2 Carroll’s Pyramid Of Corporate Social Responsibility ……..…………
7
3. CSR CHALLENGES………………………………………..……..
9
3.1 Introduction…………………………………………………………………
9
3.2 Economical Challenges……………..……………………………………
9
3.2.1Profit Maximasation…………………………………………………
9
3.2.2 Conflict of Interest……………………………………………………
10
3.3 Legal and Ethical Challenges……………………………………………..
12
3.3.1 Local and International Legislation……………….……………….
12
3.3.2 Challenges in Application of Codes of Conduct………..…..
13
4. CONCLUSION……………………………………………………….
17
4.1 Purpose Revisited…………………………………………………………
17
4.2 Conclusions………………………………………………………………..
17
5. IMPLICATIONS FORIHRM PRACTICES……………….……….
18
3

4. List of Figures
Figure 1
The Pyramid of Corporate Social Responsibility7
Figure 2
Stakeholder Groups
11
List of Tables
Table 1
Concerns regarding labour law12
Table 2
Suppliers and employees are not convinced of CSR
Table 3
Suppliers are confused by the expectations16
14
4

5. 1. INTRODUCTION
1.1 BACKGROUND
Since the mid 1990s a number of global clothing apparel retailers started to be
criticized by the press for not fulfilling their societal obligations (Mujtaba et al. 2005).
It came to the public’s attention that a number of well-known companies engaged in
unethical practices of IHRMin either their own factories or those of their suppliers.
Over the years, global retailers started to be concerned with how their businesses
impact society in which they operate (Bartley 2007).
Corporate social responsibility (CSR)- “the concept whereby companies decide
voluntarilyto contribute to the better society” (COM 2001 cited by Weber 2008) has
been given increased amount of attention (Crane et al. 2008) and clothing retailers
received a lot pressure to become serious about CSR issues, especially with regards
to labour standards within the supply chains (Cooke and He 2010). Subsequently,
the clothing sector has observed the extensive adoption of codes of conducts
(Robers 2003). However,despite increased awareness and commitment to
CSR,multinational co-operations still face many difficulties when trying to implement
CSR policies within their supply chains.
1.2PURPOSE AND OUTLINE OF THE REPORT
Theprinciple purpose of this report is to critically discuss the concept CSR focusing
on key challenges associated with the implementation of CSR policies in the supply
chain within the apparel industry.
This paper will provide a brief introduction to the concept of CSR. Next, drawing
upon several relevant theoretical models and using the examples of two global
clothing companies: H&M and Gap this report will illustrate difficulties in reinforcing
CSR in practice. Finally, different ways in which businesses can tackle the obstacles
that prevent them from effective implementation of CSR will be proposed.
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6. 2. THE CONCEPT OF CSR
2.1 THEORITICAL CONTEXT OF CSR
Before discussing the main challenges associated with the implementation of CSR, it
is crucial to develop a clear understanding of the meaning of corporate social
responsibility. In the past, a number of different criteria have been used to define the
concept of CSR. Unfortunately, due to significant differences in the interpretation of
the meaning of CSR amongst researchers and practitioners, one universal definition
of CSR has never been established (Mc Williams et al. 2006 cited by Crane et al.
2008). Nevertheless, two distinctive views have been formed (Schwarz and Carroll
2003):
The efficiency theory- this view postulates that businesses have a duty to
generate profits complying with the minimal legal requirements (Friedman
and Friedman 1962, Davis and Blomstrom 1966).
Social responsibility theory- thisview argues that organisations have
broader social obligations to the society than just profit maximizationand
should be concerned with how their operations impact the whole society and
environment(Baker 2003 cited by Kakabadse et al. 2005).
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7. 2.2 CARROLL’S PIRAMID OF CORPORATE RESPONSIBILITY
Carroll (1991) combines those two perspectives, suggesting that CSR activities of
any company should consist of 4 distinctive elements: economic, legal, ethical and
philanthropic responsibilities (Figure 1).
Figure 1:The Pyramid of Corporate Social Responsibility
(Carroll 1991, p.42)
Carroll indicates that businesses should focus on satisfying expectations of
shareholders and delivering profits, obeying the law, being ethical and engaging in
the philanthropic responsibilities,which create a positive value for the society (1991).
These responsibilities however, should be fulfilled simultaneously “rather than in a
sequence”(Cooke and He 2010, p.356).
7

8. As a result, CSR could be expressed in the following equation:
Economic Responsibilities
+ Legal Responsibilities
+ Ethical Responsibilities
+ Philanthropic Responsibilities
= CSR
(Author’s own)
However, despite the fact that Carroll’s model clearly illustrates what responsibilities
need to be met by a business wanting to be considered CSR friendly, integrating the
entire range of expectations happens to be difficult to be implemented in practice
(Szegedi and Kerekes 2012). Several difficulties appear to exist in relation to various
responsibilities and attempting to conform to all responsibilities creates many internal
and external challenges, which will be further discussed in the next section of this
report.
8

9. 3. CRSIMPLEMENTATION CHALLENGES
3.1 INTRODUCTION
As recognized earlier within this report, one of the biggest challenges associated
with being socially responsible lies around the difficulty in turning CSR into practice
(Szegedi and Kerekes 2012).Ensuring that CSR is appropriately implemented is
even more complex for multinational apparel companies that operate extended and
complicated supply chains. Traditionally, this was not a case as companies owned
their own supply bases. However, over the years companies have moved away from
the vertical integration and started to outsource their products from a variety of
suppliers who are often located in different regions across the globe (Lummus and
Vokurka 1999).This brings many challenges for companies to manage.
3.2ECONOMICAL CHALLENGES
3.2.1 PROFIT MAXIMASATION
Referring to Carroll’s model,maximizing profits and achieving economic prosperity is
a fundamental responsibility of any business (Carroll 1998). Shareholder
Management Theory (SMT) and the concept of fiduciary capitalism recognize that
businesses have only one responsibility and this is “to use resources and engage in
activities designed to increase its profits for shareholders” (Friedman and Friedman
1962, p.133). This view has its origins inthe traditional neoclassical theory of
economics, which is concerned with the survival and success of organisations. The
clothing industry is not different from any other sectors in business in terms of profit
generation.
Both H&M and Gap operate in ahighly competitive apparel industry and as a result
are on a constant search for less costly methods of manufacture (Frenkel 2001). For
the purpose ofminimizing their costs, H&M does not own any factories (Carlie 2009).
Instead, the company sources its products from more than 700 factories in Asia
(Muso and Riso 2006). Similarly, Gap locatesits factories in the less developed
9

10. countries such as Bangladesh where the cost of production is significantly lower
(Gap 2012).In the light of theSMTit is normal forbusinesses to focus their attention
merely on the profit creation. With this conception in mind, it could be debated that
having an agenda beyond profit maximization, in this case implementation of CSR is
outside the scope of the business operations.
3.2.2 CONFLICT OF INTEREST
However, in recent years an increasingly well articulated view on the relationship
between businesses and the society started to emerge. In the new globalized
environment, where organisations are more transparent due to existence of Internet
and social media, customers“demand a new meaning of responsibility from the
businesses” (ISO 2006, p.10). According to the CSR study conducted by Cone
Communications Global (2013, p.7) nine out of ten consumers “want companies to
go beyond the minimum standards required by law to operate responsibly and
address social and environmental issues”.
In regards to H&M and Gap, the author of this report supposes that pressure
received from consumers is further amplified by the fact that both of those
companies were found to be involved in socially irresponsible activities in the
past.However, Bhandarkar and Rivero (2008) recognize that although consumers
demand companies to behave in a socially responsible manner, it is the value for
money and price of a product that determinescustomers’ purchasing decision. This
behavior is especially predominant in the current economic climate. According to
Willard (2002 cited by Bhandarkar and Rivero 2008) only 3 per cent of consumers
actually base their buying decisions purely on companies’ attitude towardsCSR.
Apart from the difficulty in meeting demands of consumers, both H&M and
Gapreceive significantexternal pressure to engage in CSR practices from
otherdifferent stakeholdergroups (Figure 2) including authorisers, business partners
and external influences (Roberts 2003).
10

11. Figure 2: Stakeholder Groups
COMPANY
(Adapted from Roberts 2003, p.162)
It is therefore clear thatone of the main challenges that businesses such as H&M and
Gap need to manage is balancing the expectations of different stakeholders.
11

12. 3.3 LEGALAND ETHICAL CHALLENGES
3.3.1 LOCAL AND INTERNATIONAL LEGISLATION
Additionally, global apparel organisations are in a challenging position as they often
deal with stakeholders from different countries where differences in culture, norms
and legal standards are common (Kolk and Tulder 2010). The apparel production of
H&M and Gap takes place in less developed countries across Asia where legal
requirements, especially with regards to human rights, child labor, working time, and
health and safety conditions are often “inadequate, outdated or insufficiently
enforced by the local government” (Gap 2012, p.28). ESCAP (2005) highlights 6
main concerns related to problems regarding labour law looking specifically at
countries in Asia (Table 1).
Table 1: Concerns regarding labour law
Concern 1Law is conflicting and can be questionable
Concern 2 Law does not extend to everyone
Concern 3 Some governmental policies may cancel labour law
Concern 4 Existing labour law are criticized
Concern 5 There is no enforcement from the government
Concern 6 Historical agreements of labour law reject workers’ rights
(Adapted from ESCAP 2005)
According to Carroll’s Pyramid of Corporate Responsibly, businesses should comply
with law when performing their activities (Carroll 1991).However, it could be argued
that Carroll’s model does not provide guidelines to what and which law specifically
companies should follow.
This could be interpreted that if companies operate in the countries where legal
requirements are minimal or workers’ rights are not recognised, corporations should
not go further beyond those requirements. However, an important question could be
posed: What if the local legislation allows businesses to be socially irresponsible?
12

13. It could be debated that MNCs should comply with the internationally recognized
conventions such as OECD Guidelines, UN GlobalCompact, ISO26000 and
ILOLabourStandards.The problem however, is that majority of managers treat those
conventions as standards to aspire to but most are skeptical whether they can be
fully endorsed (ESCAP 2005). As a result, global clothing organisations such as
H&M and Gap respect fundamental standards“only within their own sphere of
influence” (Gap 2012, p.7).
3.3.2 CHALLLENGES IN APPLICATION OF CODES OF CONDUCT
In an attempt to accommodate the differences between the local and global
regulations and with intention to influence working conditions in the overseas
factories, both H&M and Gap implement business codes of conducts (Wright and
Sage 2006) and are dedicated to self regulating their business activities (Wotruba
1997 cited by Hemphill 2004). Codes of conduct are referred to as “commitments
voluntarily made by companies, associations and other entities, which put forth
standards and principles for the conduct of business activities in the market
place”(OECD 1999, p.5). At Gap alone, there isa team of 100 full time employees
working on the implementation of company’s code of conduct (Yperen 2006). H&M
also operates a code of conduct and CSR is an integral part of the company strategy
(H&M 2012).
However, neither H&M nor Gap can forcefully order their suppliers to comply with
code of conducts. Due to the fact, that, both H&M and Gap do not have any
ownership over factories from which they source, the companies can only suggest
how the business should or should not be conducted. Therefore, it is clear that
having a code of conduct in place does not automatically ensure that suppliers fully
adhere to the set guidelines. It is of no surprise that one of the key difficulties for
H&M and Gap is conformity to corporate codes of conducts by the overseas
suppliers (Gap 2012, H&M 2012). According to scholars (Cook and He 2010) there
are several reasons on why this is may be challenging:
13

14. SUPPLIERS AND EMPLOYEES ARE NOT CONVINCED OF CSR
CSR activities usually incur some extra cost to the suppliers and require extra effort
from everyone involved in the process (Cooke and He 2010). Therefore, in order for
suppliers to implement CSR practices within their factories, they need to feel
convinced by the concept of CSR and see how CSR can contribute to their overall
profits or their own situations(Bhandarkar and Rivero2007). H&M and Gap notice
that persuading suppliers and employees to adhere to CSR policies and
implementation of codes of conduct is difficult, therefore both of those companies
take steps to overcome this challenge (Table 2).
Table 2:Suppliers and employees are not convinced of CSR
Challenge
1.Communicate
importance of CSR to
suppliers and employees
2.Deepen relationships
with suppliers and
employees to build trust,
transparency and
develop the feeling of
belonging (Robert s
2003)
3.Highlight potential and
tangible benefits in
implementing CSR in
practice (Cooke and He
2010)
4.Recognise progress by
providing incentives for
desired behavior
IHRMPractices
IHRM Practices
already in place
Suppliers and
employees are
not convinced of
CSR
IHRM Best Practices
already in place
- In 2012 CEO of
H&M visited the Prime
Minister of
Bangladesh, Sheikh
Hasina, to emphasise
H&M’s support for
higher minimum
wages and regular
wage adjustments in
the country
- Global learning and
training system for
employees are in
place
- H&M conducts
regular surveys to
obtain the view on the
problems from
suppliers
- The “Speak Up!”
initiative encourages
employees and
suppliers to report
issues in a
confidential way
- 24/7 hotline with
multilingual operators
is available to all
employees worldwide
- Fisher Award for
Integrity has been
established to honor
employees who have
demonstrated
commitment towards
integration of Gap
values
(Adapted from H&M 2012 and Gap 2012)
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15. SUPPLIERS ARE CONFUSED BYTHE EXPECTATIONS
Secondly, suppliers are often confused with what is expected from them. Suppliers
are required to conform to the internally set codes of conductand at the same time
they are asked to meet the demand of supply. It is also crucial to notice that
managers of the factories often have several codes of conduct to conform to,
depending on the number of companies they work with (ESCAP 2005).
Overall, this creates a great deal of pressure as well as confusion in regards to what
activities should be prioritized by suppliers: ensuring the compliance with codes of
conducts or meeting the requested demands even if that means not following the set
guidelines. In order to make company’s expectations easy to understand for staff
and suppliers, H&M and Gap have several practices in place.
As demonstrated in Table 2 overleaf, both H&M and Gap incorporate specific
training and provide help on how to implement code of conducts within the
operations. Nevertheless, the author of this paper believes that involvement from
H&M and Gap should go further and both companies should be working with other
companies who source from the same factories in order to develop a single
homogeneous set of standards (See Best Practice 4 in Table 3).
15

16. Table 3:Suppliers are confused by the expectations
Challenge
IHRM Best Practice
Suppliers are
confused by the
expectations
1.Provide appropriate
training and advice
2.Implement CSR
Guidebooks/ Help
Resources
3.Provide training
specific to the industry in
which the company
operates
4.Work on partnering
with other companies
who source from the
same factories to
develop a single
homogeneous set of
standards
IHRM Practices
already in place
- 100% of suppliers
receive training on
code of conduct
- Induction training
covering Code of
Conduct is mandatory
for all employees
- Global learning and
training system for
employees are in
place
- H&M plans to set up
model factories with
some of the best
suppliers to more
easily showcase
correct practices to
others
IHRM Practices
already in place
- All employees
worldwide are
required to participate
in an overview course
within 30 days of the
employment date
- Online self-help tools
are in place, links to
variety of important
contacts and policies
are provided
- The company
provides a specific
training on non
discrimination, fair
wages, working hours
and anti corruption
(Adapted from H&M 2012 and Gap 2012)
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17. 4. CONCLUSION
4.1 PURPOSE REVISITED
The objective of this report was to critically analyze the challenges faced by global
organisations in implementing CSR policies. Throughout this paper, the complexity
of challenges associated with the implementation of CSR by global apparel
companies in their supply chains has been explored in detail.
4.2 CONCLUSIONS
It has been recognised that MNCs such as H&M and Gap face numerous
economical, legal and ethical challenges when implementing CSR. Primary
obstacles in applying CSR throughout the tiers of the supply chain relate to
balancing the interests of various stakeholders with generating profits, dealing with
differences in legal standards between countries, problems with implementation of
codes of conduct as well as deciding on what is right and wrong in terms of moral
obligations.
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18. 5. IMPLICATIONS FORIHRM PRACTICES
In the light of the above conclusions and from the examples generated throughout
this report, the author has made several recommendations, which could be
particularly useful for global apparel companies such as H&M and Gap (Table 4).
Table 4: Recommendations
Recommendation 1
Given the fact that balancing stakeholders’ interests is one of the major
difficulties faced by organisations, the author recommends that
organisations pay attention to stakeholders’ expectations andassess
them on a continuous basis.
Recommendation 2
If suppliers are not convinced of the concept of CSR and are often
confused with what is expected from them, it is not adequate for
companies to simply hand over a copy of code of conduct to their
suppliers to follow. Instead, MNCs need to continue to persuade and
educate suppliers about the importance of CSR and implementation of
codes of conduct in their factories. Moreover, the organisations need to
ensure two-way communication between them and suppliers so that all of
those employed in the overseas factories feel confortable to openly
discuss the problems they encounter.
Recommendation 3
Recognizing that suppliers often struggle with complying to a number of
codes of conduct from different companies, the author recommends that
H&M and Gap apart from continuing to provide training and advice, work
in partnership with other businesses who source their products from the
same factories. This could foster an agreement on one standardized
code of conduct and reduce the confusion amongst the suppliers.
Recommendation 4
Finally, H&M and Gap might consider that implementing CSR is an ongoing process, which needs to be monitored and reviewed regularly.
Unless CSR is given appropriate care and the concept is embedded
within the company strategy, socially responsible slogans will be
worthless.
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