Factory of the Future – The Otto Grameen Textile Company
Over two million people work in the textile industry in Bangladesh, with women accounting for 80 percent of the workforce in clothing factories. The clothing industry is one of the region’s key employers and plays an important role as a source of income for the poorest strata of society. These people need the jobs, yet all too often they have to work in textile factories under poor safety conditions for wages that do not even cover their basic needs.
Several Western retail companies are working to prevent such labor conditions in their production facilities; one of these is the Otto Group, headquartered in Hamburg, Germany. The Otto Group’s commitment to social and environmental responsibility has a long tradition. Environmental protection was established as a corporate aim way back in 1986. What is more, the individual company OTTO integrated a Code of Conduct into its supplier framework agreements in 1996; this Code has since been expanded to include all Otto Group companies. It is an integral part of the Group’s contractual relationships with its suppliers and forms the basis of the Otto Group’s internal monitoring program and Social Management System.
The first “Type II” social business
Good working conditions as well as the health and safety of workers in the supply markets are of the utmost importance to the Otto Group. As a sign of their commitment, the Otto Group and Grameen formed a joint venture in 2009 to establish the Otto Grameen Textile Company. The “Factory of the Future” will be set up in Dhaka, the capital of Bangladesh. Along with producing clothing for export under socially and ecologically sustainable conditions, it is intended to serve as a beacon project for this form of sustainable business practice.
(Photo: Otto Group)
Dr. Michael Otto, chairman of the Otto Group Supervisory Board, is confident about the venture: “The Otto Grameen Textile Company will show that it is entirely possible to harmonize ecological and social criteria with economic aims.”
The social entrepreneur and Nobel Peace Prize winner Professor Muhammad Yunus is a project partner. He is committed to creating a poverty-free world. As such, the Otto Grameen Textile Company is a so-called “Type II” social business, meaning the profits generated by the company are not paid out as a dividend to investors, but are used to improve the living conditions of the workers, their families, and the communities.
All aspects of the company are sustainable – from the ecologically optimized building and exemplary working conditions to its social involvement in the region. The Otto Group is offering an interest-free loan to cover the investment costs, with the start-up capital being repaid over a period of 10 to 15 years from the profits of the Otto Grameen Textile Company. As soon as the social business is self-financing, the profits generated – overseen by the Grameen Otto Trust – will be used for the long-term improvement of the living conditions of the region’s poorest people.
Ecologically optimized factory building
It is anticipated that the Otto Grameen Textile Company will commence operations in 2011 and produce around 250,000 to 300,000 articles per month for export. The textiles will be produced in an ecologically optimized, CO2-efficient factory building equipped with the latest insulation, energy-saving lighting, and optimized ventilation systems.
Social Business
The purpose of a social business is not to maximize profits; rather, the highest priority is on pursuing social and often ecological aims. There are two types of social business: the so-called Type I business gives the poor access to affordable food, products, healthcare, and education. The company does not have to generate a profit – it just has to cover its own costs. In contrast, a Type II social business is profit-oriented. However, the profit is not paid out in the form of return on capital, but is used for the benefit of workers in the form of a social return on investment. The objective here is to make a lasting improvement to the local population’s living conditions. Grameen Otto is the world’s first Type II social business.
Exemplary social benefits
The Otto Grameen Textile Company offers the region’s poor the opportunity to free themselves from poverty. “Poor people are not asking for charity, as charity is not a solution for poverty. They want to work to earn their livelihood. Our company will provide an example of how to tackle poverty in the world,” explains Professor Yunus. Fair wages, good working conditions, and social benefits are the cornerstones of the social program for the 500 to 700 workers. T-shirts, sweatshirts, and underwear will then be cut, sewn, pressed, and packed at the Otto Grameen Textile Company. Workers will be offered further education and training opportunities as well as healthcare, and will receive a healthy lunch. During working hours, their children will be looked after in a workplace daycare center offering pre-school classes. In a second stage, assistance will also be provided to neighboring communities in the form of educational offers, healthcare, and the setting up of sanitary facilities. The focus of the
efforts will primarily be on fostering individual, community, and social progress by offering extensive educational offers.
Emulation welcomed
“Opportunities for the workers to gain qualifications, the introduction of high environmental protection, and work safety standards are an example of how the UN Global Compact Principles are being implemented in practical terms. The Otto Grameen Textile Company should serve as a model for further textile factories in Bangladesh, and prompt the entire industry to take similar action,” says Dr. Johannes Merck, vice president Corporate Responsibility of the Otto Group, summarizing the venture’s goals. The plan is to extend the factory in Dhaka in the second phase of the project, with possible long-term expansion of the concept within Bangladesh and to additional countries.
This project description was originally presented in the Global Compact International Yearbook 2010.
Andreas Streubig is Division Manager Corporate Responsibility at Otto Group.