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Closure of the factory BJ&B in the Dominican Republic

June 08, 2007

Herzogenaurach, 8 June 2007 - End of February 2007, the supplier Yupoong informed us about the impending closure of BJ&B in the Dominican Republic. In the following we would like to comment on our business relationship with this factory.
The BJ&B factory manufactured fitted caps for Reebok in the early part of the decade. At no time, the adidas brand had a commercial relationship with BJ&B or the parent company Yupoong. Last production of Reebok styles took place in the factory end of October 2005, a time before Reebok became a member of the adidas Group in 2006. So the closure of the factory should not be attributed to actions taken by Reebok, or to the adidas Group.
Being a manufacturer of specialised caps, BJ&B served as an opportunity for Reebok to buy quality fitted caps at a location close to the US market. But as a result of a considerable decline in consumer demand for such products, Reebok's business in this particular market segment declined as well and the competitive value of using the BJ&B factory was removed. In addition, the factory location in the Dominican Republic proved detrimental, due to the lack of suitable suppliers in this area and the long transport routes for all materials. This led to very complex supplier logistics and corresponding transport time. Moreover, the machinery at BJ&B lacked equipment for specialised machining of caps, which other factories could already offer at that time.
Reebok’s decision to withdraw from this market segment because of declining consumer demand was announced to the management of BJ&B’s parent company at the beginning of 2005. At that point, there was no indication that other buyers had planned to withdraw from this segment, too. For the manufacturing of other product styles, the parent company of BJ&B offered its factories in Bangladesh and Vietnam. Both factories are part of our global supply chain and of our global monitoring programme and have established programmes to ensure effective worker-management communication.

During the years in which the factory had Reebok production, workers undertook intensive efforts to set up a union in the factory. Reebok assumed a leadership role in facilitating the development of factory policies and procedures, together with education and training programmes for management and workers, to ensure that the factory took no action that could be viewed as discriminatory against the union or its supporters. Support for the process included the Workers Rights Consortium, the Fair Labor Association, government officials and other brands. In the end, the union was elected by the workforce and recognised by the management. The election represented a major victory for supporters of freedom of association in the Dominican Republic establishing, we believe, the first union facility in the apparel sector in the country.

We have engaged with other buyers, the factory union Fedotrazonas and with the supplier management to better understand the reasons for the closure, the situation of the workers, and the retrenchment measures taken by the factory management. We obtained information that agreements were found between the union and the factory management regarding the workers severance package.

In order to better establish the facts regarding the legal status of the closure, the Fair Labor Association (FLA) commissioned Dr. Milton Ray Guevara, a labour consultant based in Santo Domingo, Dominican Republic, to draft an independent report on the situation.

During an early May 2007 meeting between buyers, factory management, NGOs, unions and workers representatives in the Dominican Republic, the closure and the negotiated settlement was discussed in great detail. The results of the discussions indicated that all of the actions taken by BJ&B were within the local law and labour code. However, there were indications that some of the closure actions were not commensurate with good industrial and labour relations practice. In late May, BJ&B management and representatives from FEDOTRAZONAS therefore had several meetings to discuss and renegotiate the workers severance package. An agreement was reached and signed on May 29 that paid all BJ&B workers an additional two months of salary (bringing severance to a total of 3 months salary) and gave FEDOTRAZONAS approximately 6,000 USD to develop capacity building and related activities for the displaced workers.

We applaud and appreciate the efforts of the BJ&B management and the workers representatives in renegotiating this settlement.