Responsible Management of Factory Closures and Downsizing

The economic downturn is having a significant adverse impact on global supply chains. In March 2009 WTO economists reported a “precipitous drop in global production and trade” which began first in the developed economies and then in the developing world, which is more heavily dependent on exports for growth. In China for instance, total exports for the month of February 2009 were down 26% compared with the same month in the previous year and 28% compared with January 2009. Due to weak consumer demand and a declining order book, suppliers are being forced to make difficult decisions. It is requiring them to become leaner and more efficient and to “right-size” their businesses. And in some cases, it is leading to factory closures and job losses.

Over the past two decades the adidas Group has faced several periods of consolidation and factory closures. Some have been planned: as part of our long term strategy to concentrate more orders in fewer but better suppliers, or as a consequence of mergers, acquisitions and divestitures. And some have been the result of past economic crises: the most recent being the 1998 Asia Financial Crisis. Our previous experience in dealing with closures and downsizing means that we have well-developed systems in place to monitor and manage such eventualities, including the impact on workers and local communities.

So what have we done in response to the current global financial crisis?

Our Social and Environmental Affairs team has worked collaboratively with our Global Sourcing division to manage potential adverse impacts along our supply chain:

		As early as November 2008 all internal sourcing managers we reminded of the Group’s long standing Termination Standard Operating Procedure, which details the ethical handling of any planned order reductions or termination of our supplier relationships. Moreover, as part of our commitment to transparency we have published these guidelines on the adidas Group website.
		We have prepared and issued a Handling Layoffs and Redundancies Guideline to all our sourcing partners globally. The guideline draws on international best practice for the handling of layoffs and redundancies and also specifies the minimum expectations of the adidas Group.
		We have intensified engagement with our suppliers, to understand their issues and concerns and to be as transparent as possible about our plans and order situation.
		In our allocation system we have given priority in our order placement to our long term core suppliers, some of which produce up to 100% for the adidas Group.
		We are tracking individual suppliers to understand the actions they are taking to manage their workforce during these challenging times, including any planned layoffs or restructuring initiatives and the impact that reduced order volumes may have on worker pay and benefits.
		We have reviewed and updated ourselves and our suppliers on the statutory requirements for worker dismissals and mass layoffs in each of our primary sourcing countries in Asia and have engaged with governments to understand how their response to the financial crisis will impact on enforcement practices and policies, such as minimum wage setting and social insurance.
		We have recently engaged with United Nation’s agencies and Asian NGOs in formulating guidance for governments on the impact of the current crisis on women migrant workers. For more please see http://www.unifem.org/news_events/story_detail.php?StoryID=871

It is through such efforts that we continue to act responsibly and ethically as a business, with due care and consideration for the workers who make our products.

Development of guidance

Chronology	Guidance notes	Focus
2001	Termination guidance note included into SEA field staff handbook	Internal
2003	Termination guidance note included in global sourcing operating policies	Internal
2004	Review of policies and practices due to the end of the WTO’s Multi-Fibre Arrangement	Internal
2007	Termination Standard Operating Procedure updated, incorporating ethical sourcing practices from Reebok	Internal
2008	Guidelines on Handling Layoffs and Redundancies	Supplier
2009	Advisory on handling the impact of layoffs on migrant workers	Supplier

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