It is no coincidence that the fashion companies Fox and Delta lead the Calcalist’s salary gap ranking. The global fashion industry relies on a large amount of working hands, mainly in countries where the cost of wages is low and sometimes the employment conditions violate human rights.
However, there is a fundamental difference between Fox and Delta. It manifests itself mainly to the detriment of Delta when the financial reports are analyzed. The wage costs at Fox mainly reflect the store workers in Israel, while Delta’s wage costs mainly reflect the wage cost of the production workers in the various countries where the company operates.
When Fox sells us fashion items, it sells us items that it manufactures through subcontractors in East Asian countries. The sums of the company’s expenses for those contractors are indeed in the report, but they express the cost of the goods purchased from those contractors – the cost of the final product. This cost includes the raw materials and the cost of the wages of those production workers. Therefore, it is not possible to understand from Fox’s reports What is the wage cost of production workers?
Unlike Fox, in Delta’s reports the company refers separately to the cost of raw materials and the cost of wages for production workers. Delta gives us a complete view of the entire value chain, and this is also reflected in the wage gap between the company’s CEO Isaac Dabach and an average worker in the company.
The main production activity of Delta is concentrated in the countries of Vietnam (4,980 employees, as of the end of 2022), Thailand (4,915 employees), Egypt (4,120 employees), China (2,060 employees) and Myanmar (2,005 employees, as of the end of 2022). Delta also uses subcontractors, and it also has production workers who are not included in the salary costs, but the picture it offers us reflects much more.
The factories of the fashion companies are located in these countries due to the low production costs. You can even learn about this from Delta’s own reports, which detail how during the year it closed the production activity of the Bogart Group in China, and moved it to cheaper countries. Bogart, purchased by Delta in 2019, produces bras and swimwear for private brands in Europe and the USA. B (like Nike, Walmart, Victoria’s Secret). As a private label manufacturer, it is very sensitive to production costs and any operational savings it manages to generate will be reflected in the profit line.
In the second quarter of 2022, Delta embarked on an efficiency plan, which included closing the production activity of the Bogart plant in Shenzhen, a move that led to the dismissal of 780 workers in China. Delta transferred Bogart’s production activity to a new factory in Vietnam, and of course recorded an expense of 5.5 million dollars due to the move, among other things, to pay severance pay to workers in China. The purpose of the program is, among other things, to save transaction costs, when Delta did not specify what its rate of efficiency in production costs is.
According to a report by the Fair Labor Association, the average wage for a textile worker in China in 2020 was $700 per month, while in Vietnam, according to a report by the International Labor Organization, the average wage for textile workers was only $283 per month. It should be noted that in recent years there has been a noticeable trend of fashion manufacturers leaving China and moving to other countries in East Asia due to the rise in the standard of living in China, which also brought with it an increase in workers’ wages.
The gap between China and Vietnam is maintained even when comparing the minimum wage in the two countries. According to data from the ILO organization (adjusted to purchasing power – PPP), which operates a comprehensive and up-to-date database on minimum wage data in all countries of the world, the minimum wage adjusted to purchasing power in China is approximately $390 per month, while the corresponding figure in Vietnam is $315 per month. In Egypt, another major production country for Delta, the minimum wage adjusted to purchasing power is about $244 per month.
The trend of fashion brands leaving China has made Vietnam one of the most popular countries for the production of fashion items, but the new trend does not seem to have led to an improvement in employment conditions. A report by the organization Anti Slavery International published in 2019 was based on in-depth interviews with workers in textile factories in Vietnam and claimed that worker protection laws are not sufficiently enforced, and that the field suffers from a lack of institutional enforcement – such as unpaid overtime, child labor and forced labor.
Fox reports indicate that most of the company’s purchases are made from subcontractors in China. The company states in the reports that it is examining various options and agreements with other suppliers to reduce the dependence on production in only one country. Another country where Fox has been purchasing goods for many years is Bangladesh, and Fox does this even though Israel does not have diplomatic relations with it. Bangladesh is the country where the minimum wage adjusted for purchasing power is the lowest among the popular countries for fashion manufacturers – only $67 per month according to ILO data.
Fox’s reports even included a short sentence about the conditions of production and stated that “Among other things, production in Bangladesh is exposed to the processes of increasing the supervision of the employment of workers in the country, especially in the field of textiles. At this stage it is difficult to assess whether the aforementioned processes will affect the production capacity in Bangladesh.” Bangladesh has been at the center of an international struggle for years to improve the employment conditions of textile workers, but still suffers from poor enforcement of safety standards and labor laws.
How does Fox ensure that the clothes sold in the company’s networks do not rely on working conditions that violate basic human rights? The company told “Calcalist” that “Fox produces in various places in the world – Europe and Asia, including China. In the production agreements with the company’s suppliers, there is an obligation to comply with the provisions of all laws, including labor laws.”
Delta Galil stated that “Delta works to the highest and strictest standards in the factories and is careful about the rights of the employees. We conduct frequent internal audits and tests are done by our customers, who are the leading brands and retailers in the world, for whom the welfare of the employees is very important.”