House of COMMONS
MINUTES OF EVIDENCE
WELSH AFFAIRS COMMITTEE
Tuesday 27 February 2007
MR JOHN PEACE, MS ANGELA AHRENDTS, MR MICHAEL MAHONY and MS STACEY CARTWRIGHT
USE OF THE TRANSCRIPT
Taken before the Welsh Affairs Committee
on Tuesday 27 February 2007
Dr Hywel Francis, in the Chair
Mr Stephen Crabb
Mrs Siān C James
Mr David Jones
Memorandum submitted by Burberry
Examination of Witnesses
Witnesses: Mr John Peace, Chairman, Burberry, Ms Angela Ahrendts, Chief Executive, Burberry, Mr Michael Mahony, Director of Corporate Affairs, Burberry and Ms Stacey Cartwright, Chief Financial Officer, Burberry, gave evidence.
Q236 Chairman: Good morning, could I welcome you to this session of the Welsh Affairs Committee and its inquiry on globalisation. For the record could I invite you all to introduce yourselves, please?
Mr Peace: Thank you, Chairman. I am John Peace and I am Chairman of Burberry.
Ms Ahrendts: Angela Ahrendts, CEO of Burberry.
Mr Mahony: Michael Mahony, Director of Commercial Affairs at Burberry.
Ms Cartwright: Stacey Cartwright, Chief Financial Officer at Burberry.
Q237 Chairman: Thank you very much. Could I thank you for the memorandum you sent in to us; it was extremely helpful in our preparation. Could I begin by asking you, Mr Peace, Burberry markets itself as a very "British brand". In today's global economy, what does that really mean?
Mr Peace: Burberry in recent years has been very successful, and one of the cornerstones of that success has been its very rich British heritage. The association with the trench coat in particular and the early twentieth century association with the military has been a very important factor in Burberry's success and, in more recent years, the sense of "fashionability" we have brought to that brand.
Q238 Chairman: How important is it to Burberry that your headquarters remain in London?
Mr Peace: It is very important to us. Burberry is not just a British brand from a marketing sense; the heart of Burberry is here in Britain. In London we have all the design team, the marketing teams; it is the epicentre of what Burberry does globally.
Q239 Chairman: Following on that, given what you have just said, how important is it for your manufacturing to remain in Britain?
Mr Peace: In the submission we said there were a number of factors that we had to take account of when determining our manufacturing strategy. One of those clearly is unit cost, another is the iconic sense of the Burberry brand and the other is the quality of manufacture. All of those factors we take into account and the trench coat, for example, which is manufactured in Castleford and Rotherham, it is very important that that continues to be manufactured in Britain. By contrast, I know the Committee is aware that we have announced the closure of the factory in Treorchy, very sadly, but there the items being manufactured are polo shirts and today that accounts for about 25% of the polo shirts that we sell around the world. There, because it does not have the same association with the British iconic trench coat - clearly that is evidenced by the fact that we are able to successfully sell 75% manufactured outside of Britain so successfully - there is that fundamental distinction between polo shirt manufacture and that of the trench coats.
Q240 Mrs James: I note from your memorandum that you submitted you make a clear difference between the iconic trench coat and the manufacture of polo shirts. Does this clear differential that you make not damage your image and promote the "chav" culture associated with some of your Burberry products? Surely you are actually devaluing a very important logo and a very important item that is made on your behalf.
Mr Peace: I am not going to comment on the chav culture because the press did that, at our expense, for a number of years; what I would say to you is that if you look at all of the items that Burberry sells - its trench coats, its handbags, its leather goods - those are very successfully recognised as being made by a British brand, Burberry. It is less so with the polo shirts.
Q241 Mrs James: You are quite happy to see that.
Mr Peace: Absolutely; we clearly took that into account when reaching the decision that we reached.
Q242 Mrs James: Pride in the logo is not as clear as it once was.
Mr Peace: What we like to think we can do - because it is not just about price, it is about quality - Angela, perhaps you could comment on the quality of the polo shirts looking forward to the future.
Ms Ahrendts: It is the quality of the manufacturing process as well as the quality of the finished garment, so what we have been able to do is to significantly upgrade the fabric, upgrade the dying and washing facilities to decrease the shrinkage, upgrade the trim, so we are able to give the consumer a much higher quality product, which is very important in our world, at a significantly reduced cost. From the supply chain perspective as well, with the suppliers that we are using, they are what we call wholly vertical suppliers: they do 20 different processes, if you will, from sourcing yarns to laser printing et cetera, whereas our facility in Treorchy really just does one or two services. As we continue to grow the business - we are getting quite large - we really need to consolidate with wholly vertical suppliers worldwide.
Q243 Albert Owen: Just on that issue, Mr Peace mentioned cost, iconic and quality as the main issues there and yet he went on to say that really cost was the factor, the others are just by the way because he said that quality could be achieved elsewhere at a cheaper cost. Are you saying that the polo shirts produced in Britain are not of the same quality?
Mr Peace: I did not quite say that, but certainly the impression I wish to convey is that it is a combination of those three things. Certainly if, for example, the polo shirt production outside of Britain was of a lower quality, but the price was cheaper, that would not be an acceptable way forward.
Q244 Albert Owen: But cost is the main factor.
Mr Peace: Cost, together with the quality, together with the iconic recognition, so if for example the quality that we get from our polo shirts manufactured outside of Britain is at least as good if not better, and the price is half the price unit cost than we manufacture in Britain, then clearly as a company ----
Q245 Albert Owen: How does iconic come into this? How do you market an iconic brand that is made abroad?
Mr Peace: If you ask what is the iconic look of Burberry, clearly it is the Prorsum horse, which is the emblem of Burberry, but the single item which is recognised as Burberry, that distinguishes Burberry from all other luxury goods around the world, it is the trench coat. Indeed, from a ladies' fashion point of view in recent years we have tried to bring some of that trench style and design into the fashion items developed by our design team.
Q246 Albert Owen: When you are referring to polo shirts iconic does not matter, it is cost that is important.
Mr Peace: It matters much less.
Q247 Mr Crabb: Is it not true that as brands become more global and consumer behaviour responds to that, even for so-called iconic products it matters much less and increasingly less where that product is actually manufactured and it is impossible to say that there will never be a scenario where there is not some manufacturing of Burberry products still within the UK, it is quite possible that if delivering value for your shareholders means that you have to outsource offshore all your manufacturing and just retain a corporate finance and marketing function here in the UK, that is quite a possible scenario, is it not?
Mr Peace: We believe quite strongly that retaining the raincoat manufacture and outerwear manufacture in Britain is very important, and we do not see, certainly in the foreseeable future, that changing at all. What I can tell you is that many of our competitors who are not British have indeed outsourced and gone outside of their home country to have product manufactured, but that is not part of our strategy.
Q248 Mr Crabb: People's love of Raleigh bicycles has not decreased because they are now manufactured in the Far East and are not manufactured in Nottingham any more.
Mr Peace: You are talking to a Nottingham man here, now just be careful.
Q249 Mr Crabb: The same would apply to clothing.
Mr Peace: If you look at Raleigh bikes and if you look at the commodity market for bikes, then clearly Raleigh in Nottingham had a problem designing a product which could quite easily be copied or indeed produced more cheaply overseas. What we believe - and indeed the success of Burberry has demonstrated in recent years - is that by having this outstanding design team that we have we have been able not only to retain the trench but to go on developing it very successfully and that is why I am very confident that Burberry will continue to manufacture in this country the trench.
Q250 Chairman: Could I suggest a different definition of iconic in relation to your predecessor company so to speak, Polikoffs? That was very much associated with the trench coat given that it played such an important part in the war effort, and Polikoffs of course were welcomed as a company driven out of Eastern and Central Europe by the advance of Nazism and into the Valleys in the Fifties, Sixties and Seventies and, right down to today, Polikoffs is synonymous with being embedded in the culture and history as a model employer in the Rhondda. That to me is iconic in its association both with the community and the culture, and with the trench coat and all that that represents. What is your view of that?
Mr Peace: You make a very good point, Chairman, and one of the things we have done very successfully with Burberry to achieve growth in recent years is to go beyond just some of the iconic products and certainly part of our strategy in the future is to broaden the product range. That does not mean to say that all the add-on products that we may create are necessarily best made in Britain.
Q251 Mr Jones: Mr Mahony, on 23 January you issued a statement which said that "Burberry will continue to respond to the forces of globalisation, evolving its business to ensure it remains a successful British business generating prosperity in Britain". Could you tell us what you define the forces of globalisation to be, particularly in the context of Burberry?
Mr Mahony: Burberry is an example of a truly global company. We are very much headquartered and based in Britain, almost half the workforce is based in Britain, all the design and marketing is here and yet less than 10% of our sales are in Britain, so we are in effect the embodiment of globalisation in that globalisation has allowed us to sell our products worldwide. As I say, nearly 90% of our sales are worldwide and that of course brings value back to this country, and that also has enabled us to invest in the business and increase our workforce in the UK and our workforce in the UK has increased by 500 people in the last three years, you could say as a result of globalisation.
Q252 Mr Jones: Do you perceive globalisation to be a challenge or an opportunity or both?
Mr Mahony: It is both.
Q253 Mr Jones: What particular challenges does it present for Burberry?
Mr Mahony: The challenge that you can see with globalisation is the need to respond to the international markets and make sure that as a business we are as efficient and effective as possible.
Q254 Mr Jones: Your memorandum mentions that "a combination of relatively high standards of education and lower wage rate levels in central and Eastern Europe will pose a challenge to lower value manufacturing operations in Wales and the rest of the UK." Could you expand upon that, please? I do not know whether you feel able to do that.
Mr Mahony: In the context of globalisation one has to look at where the workforce is most effective, and that is a combination of education skills and costs.
Q255 Mr Jones: How do you identify those issues in the context of Wales? You are talking about higher standards of education and lower wage rates in Central and Eastern Europe; how would you compare those standards with those that you find in Wales and the rest of the UK?
Mr Mahony: I am not an expert on Wales and when we look at our supply chain, which is what this is about, we have to work out what is the most efficient source of supply given the fact, as we discussed earlier, to make sure that we have an efficient and effective supply chain.
Q256 Mr Jones: I appreciate that but I was asking you about standards of education and wage rates. Are any of the witnesses able to comment on that?
Mr Peace: If I may, Mr Jones, comment on that for you; from a general retail experience point of view increasingly there is a demand globally for consumers to get the best deal by looking for products at the lowest possible price. What that has done in turn is to make it very attractive for many retailers - not just in Britain but in the United States and in other parts of Europe therefore - to source products in countries where the labour costs are lower than perhaps in their own country. As a result of that a lot of the products which might have been, in years gone by, manufactured locally in that particular country, are now imported. Therefore, the efficiency of their supply chains and sourcing and so on has become an integral part of the success of those businesses.
Q257 Chairman: Could I just intervene? You used the phrase "best deal"; does that actually include child labour?
Mr Peace: I used the term very carefully, Chairman, "best deal", because again from my experience consumers do not always just go for the very cheapest. They take into account a number of factors and I am absolutely certain that consumers would want products which are produced in a very legitimate way. Retailers who have gone overseas in this country, to import products which are manufactured overseas, have put in place appropriate measures from the Government's point of view to deal with corporate responsibility.
Q258 Chairman: Can you be certain that none of your garments worldwide are actually produced by child labour?
Mr Peace: We do everything that we reasonably can. Michael, do you want to just comment on the processes that we have in place?
Mr Mahony: We manufacture products all over the world and, as a company that is listed on the London Stock Exchange, we are concerned to ensure that we have appropriate standards of corporate social responsibility across everything that we do. Whenever we look for a new supplier we have both our own team and an external expert team that visit them, audit them against international standards, we have our own policy based on both international conventions and the ethical trading initiative and we make sure that the standards that our suppliers use are appropriate and are the standards that we expect in this country.
Q259 Mark Williams: Just returning to the particular point that Mr Jones raised with you on education, the quote that he read to you talks about high standards of education; what disparity are you drawing in terms of education and the skills base between Central and Eastern Europe and Wales in that statement?
Mr Peace: This is an issue which, if I can just divert away from Burberry for a moment, we have debated in other parts of Britain where I happen to be involved with the university. I think that the levels of education and the courses that are offered are very important and are relevant to the industries that we want to develop and invest in in the future. It is very important that the courses that our higher education and secondary education schools offer are joined up with what the business strategy in a particular region or in a particular part of Britain is attempting to do. One not connected to the other I do not think achieves the right level of success in terms of finding jobs.
Q260 Mark Williams: Therefore your assertion is that that is being addressed in Central and Eastern Europe but it is not in Wales and the UK?
Mr Peace: It is a fact that in Central and Eastern Europe, for example, there are plumbers and electricians who have been attracted to Britain because we have, as the British economy has grown so successfully in recent years, attracted those people into this country because we have a shortage of those vocational skills, and it does come back to what are the overall prime objectives of any long term education programme.
Q261 Mr Jones: Just to pursue that point, it is not just a question of education, it appears to me that the statement made in your memorandum indicates that you are able to find a more highly-skilled workforce who will work for lower rates of pay overseas, and from a commercial point of view presumably that makes good commercial sense.
Mr Peace: Certainly, Mr Jones, it is very important that the quality of the product is not less than the product manufactured in Britain. Stacey, you led our review of the sourcing and supply chain, perhaps you could add to that.
Ms Cartwright: In terms of looking at the particular supplier base that we have on polo shirts, for example, we talked earlier about the fact that Treorchy manufacture 25% of our polo shirt production globally; the other 75% is produced across the rest of Europe and Asia. Each of those suppliers is manufacturing polo shirts to a very different standard and specification, and one of the purposes of our review was to get a heightened and standardised level of specification for the product. It was not to take anything away from what was being done in Treorchy, it was simply that there were some existing specifications in there and we needed to elevate all of them to a higher level. The starting point in evaluating all of this was to say what was the base unit cost in each of those territories, and we found that we were actually manufacturing to a higher specification in other market places where we were able, because of the lower cost of production, to invest in certain finishing processes that we could not afford to do in Treorchy, and therefore part of this process was as much as anything else to get the right heightened level of quality for what was, yes, a reduced cost besides, so it was a two-fold approach here.
Q262 Mr Jones: Were the skills of the workforce higher in those particular locations, the basic skills?
Ms Cartwright: The infrastructure was different in our other suppliers because they are bigger facilities that already have facilities such as on-site testing, garment washing facilities, garment dying, things that we did not have the capability or the scale to do in Treorchy that enabled the base cost of the product to be more affordable to start with, and it enabled us then as we looked to move the production to enhance the overall quality of the product, so things like using the finest pima cotton because you have got the yarn-buying leverage because you are dealing with a much bigger organisation, for example; finishing off the product with herring-bone tape on the shoulder seams - it may sound something small, but it is little things that add to the overall quality of the product in the same way as you are able to do the garment washing on site that reduces the shrinkage of the product at the end of the day. These are the things where we talked about reinvesting in the quality of the product; it was not so much the skills shortage for the workforce in Treorchy, it was the fact that the higher base cost of the product to start with meant that we could not afford to invest in those traditional finishing processes.
Q263 Mr Jones: You indicate in your memo that you conducted a year-long review of your manufacturing operations. What trends did you identify during that review that you would attribute to the forces of globalisation?
Ms Cartwright: Again, going back to the comparison of where we already had differing supply chains in existence for very similar products heightened our awareness of the different cost and quality aspects within the chain, so that was one of the primary observations in the very early days, and remember the drive here to achieve standardisation, simplification within our supply chain, again driving out deficiencies by having fewer links within the supply chain, narrowing down, getting leverage in terms of the buying of the base raw materials and trims.
Q264 Mr Crabb: Given what you have just said about your review of the supply chain and manufacturing operations, you seem to be suggesting that you could get a better get polo shirt from factories overseas than at Treorchy. Given that, could your review have come to any conclusion other than closure of the Treorchy factory?
Ms Cartwright: In terms of the manufacture of polo shirts it really was very evident that because of both the cost differential and the ability to then reinvest in the quality of the garment, moving the production and consolidating it within our existing sources of supply for the other 75% was the most commercially sensible thing to do. What we did also look at was what alternative products we could perhaps make at the Treorchy site, so we did look long and hard at, for example, an outerwear facility on the site. We talked earlier about the fact that we make our iconic trench coat in our two facilities in Yorkshire; we actually had one facility three years ago and we added to that when we acquired a factory that was due to close from another player, and we did that because we wanted to reinvest in UK manufacturing when it came to those iconic products, the trench coats. When we took over that factory had less than 100 employees and we had less than 400 employees in our Castleford location; the combination of those two today sees us with 600 employees so we have substantially enhanced that. We do see the facility now to enhance that even further. We have the ability to put more production lines down at both of those factories at Castleford and Rotherham, increasing the efficiencies of the site even further, again entirely consistent with what we have talked about in terms of consolidation, streamlining our supply chain, leveraging with fewer suppliers, and therefore the option of putting outerwear into Treorchy was completely against the grain of trying to consolidate and leverage, streamline, under the one overhead. Although, again, we have run the numbers on that, it really became evident that that also was not commercially viable.
Q265 Mr Crabb: Would all your overseas plants for polo shirts take on equally the extra 25% now when Treorchy closes, or will it be switched to one location specifically?
Ms Cartwright: We will retain some flexibility within the supply chain because we are constantly looking at where are we going to get the best trade-off in terms of being able to continually enhance the quality and get it at the right price besides. Although at the moment we are consolidating into those existing sources of supply, you may expect us over the course of the next year or so to keep refining that. The differential in the unit cost between Treorchy and the other sources of supply was so great that that was the first stage; the second stage will just be working out where we get the best quality and efficiency trade-off within the existing sources.
Q266 Mr Crabb: What do you estimate to be the overall savings in production costs by moving from Treorchy to other sites?
Ms Cartwright: There are two elements to this. One is that there was a transfer price that was being paid internally by our merchandising division to acquire the product from Treorchy; that transfer price was not sufficient to cover the extra costs at the location and therefore in local terms we were still generating a manufacturing loss of £1.5 million. By then being able to source the polo shirts at a more affordable rate and add to the quality, there will be somewhere around £3 million worth of benefits on top.
Q267 Mr Crabb: Does the textile industry in Wales have any future at all?
Mr Peace: If you think of a textile industry that is producing a commodity product, not much of a future, frankly. If you can find a value add product, something which is specialist to the skills of the workforce or the plant and equipment that could be utilised in Wales then I think that would be possible. The other trend in recent years that is worth flagging here is that retailers increasingly instead of themselves being engaged in the manufacture have tended to buy from companies who themselves are the manufacturers; therefore they are basically saying we want a thousand of this product and the company that they are buying the product from in essence will be outsourcing the manufacture to them. That goes all the way from food, all the way through to clothing, luxury goods and so on. From Britain's point of view, a good thing - just to tell you a bit more about the strategy that Stacey was alluding to - if you go back to the late 1990s what Burberry was doing was, in essence, licensing its brand so that in countries such as Spain, countries such as Singapore, Hong Kong, instead of owning its retail stores, instead of actually developing the brand itself it was licensing it. What we did strategically was to set about buying up all the licensees so that we could control the development of the brand and the manufacture within Burberry itself, and that has meant actually that more and more of the functions such as design, such as merchandising, such as production of some of the outerwear garments has actually come back to Britain. That is why I am so confident that the epicentre for Burberry will be Britain because that is fundamental to our strategic plan.
Q268 Nia Griffith: If we could turn now to the workforce and what Burberry is able to do for the Treorchy workforce, what suitable alternative forms of employment are there in the area and how is your outplacement service working so far?
Ms Cartwright: I will pick that up. At the time of the announcement of the proposal to close we had 309 employees who were affected; today we have 185 still on the payroll so a number of employees have already found alternative employment. Really since the turn of the year our focus has been on how we can now help all of those employees find new work. You my be aware we have actually extended the closure date of the factory through to the end of March; the specific purpose of that being that we could keep the employees on site and use this time to invite in as many organisations as possible on job fairs, organisations to come in and really talk to the employees all together, to train people on site or to have them at least come in and then we would provide a minibus to take them off to where we were training them offsite. That has resulted in us having 280 job opportunities now identified for the 185 employees who remain, there are a further 600 in the pipeline that we are aware of that come up in around April time - those are in supermarkets and call centres. The sorts of training that we are providing really is across every sector that we can possibly think of where there are opportunities, there will be growth opportunities for the employees, so we are providing basic training, we are providing essential skills, we are providing PC training, we are providing training in the construction industry - people are being taught basic tiling, plastering - we are providing training for the care industry, providing food hygiene courses, really across every single thing and a number of the employees have attended three or even four of the courses that we have provided to be able to get that breadth of possibilities for what they might choose to do next.
Q269 Nia Griffith: Do you have any idea whether the sorts of jobs people are taking are of a temporary nature or of a more permanent nature?
Ms Cartwright: We have a lot of employees, it is literally on a week by week basis now that we have a number of resignations and we are delighted where people have got permanent roles to move into, so we think it is working very successfully.
Q270 Chairman: You mentioned the retraining; what has been the company's policy in Treorchy in terms of work-based training over the years. Has it taken a pride in that, has it accepted responsibility for providing training for its employees?
Ms Cartwright: In terms of, again, on the ground, people have had extensive training in terms of the actual roles that they have been appointed into. It is a very different turn of events now where clearly our primary objective is to get as many employees as possible into new work, and this will be in new sectors. It is not a case of there being a lot of manufacturing jobs for them to move into, we have to re-skill them into much broader areas, as we said, construction, care, those sorts of sectors.
Q271 Albert Owen: If I could return to corporate social responsibility, you stated today and in your memorandum that you do not employ persons under the age of 16. Are you absolutely certain that your offshore or third party suppliers adhere to the same policy?
Mr Mahony: On this, as I mentioned earlier, we have our own team plus we engage with third party expert auditors who review our supply chain worldwide, and I do not just mean in Asia I mean in Europe as well, to make sure that the appropriate standards are in place. Burberry has its own employees, but we are talking about our suppliers' employees; our suppliers are not to employ people who are under the age of 16 and we monitor that and police that through regular audits where we use both our own team and expert third party auditors.
Q272 Albert Owen: You would go to the actual factories.
Mr Mahony: Very much so, yes.
Q273 Albert Owen: You can guarantee, therefore, that your products in shops in Britain are not done by any child labour.
Mr Mahony: As I say, we have our third party expert audit team and they visit regularly, they look at the records and they report back to us.
Mr Peace: There is a problem, Mr Owen, which I would draw to your attention that does concern us here and that is the issue of counterfeit. Counterfeit is not just some casual manufacture of a few scarves in a factory, very often it is organised crime and we have been concerned in recent years about the levels of that, and not just here in this country. Very often we find that it is actually counterfeit products that can cause most concern because of course the quality, the sourcing of the materials and all the things that you quite rightly flag are not guaranteed at all.
Q274 Albert Owen: We understand that and we are all concerned about counterfeit, but we can only deal with your product here today and you can only answer on that behalf. You say that you had concerns as well about the minimum wage in various countries, and indeed pulled out of production in Bangladesh and the Philippines. What is the minimum wage in, say, Singapore in comparison to Britain and are you sure that your suppliers are adhering to those minimum standards?
Mr Mahony: As part of our audit process our auditors are aware of the local regulations in each country to make sure that not only is our own policy complied with but the local legal standards are met as well.
Q275 Albert Owen: In countries where there is no minimum wage what would you say to be a decent threshold level, how would you negotiate that with your third parties?
Mr Mahony: Most countries in fact do have a minimum wage but the overall standard ---
Q276 Albert Owen: Is that the case, does Singapore have a minimum wage?
Mr Mahony: Most of the countries that we operate in do have a minimum wage, but the standard that we operate to is what we call a living wage, which is a combination of meeting essential needs plus some discretionary income.
Q277 Albert Owen: I am not sure that every country that you operate in does have a statutory minimum wage; what I am saying is do you take that into the equation, is that something that you would look for when you are looking to set up with a third party supplier, that that social responsibility would include paying a decent living wage?
Mr Mahony: Yes, it does. As I say, our overall policy is that there must be a living wage paid, but we look at both our own policy plus local legal requirements and make sure both are met.
Q278 Albert Owen: You monitor that on a regular basis.
Mr Mahony: We do, yes.
Q279 Mr Jones: Ms Cartwright, could I revert to a question that the Chairman asked you a few moments ago about skills. Here in Treorchy you had a workforce that was dedicated to the company, that is naturally devastated at what has happened and stand to lose their jobs; it is as plain as that. Was there no way that Burberry as a responsible employer could have actually up-skilled the workforce in Treorchy and put extra investment into the Treorchy plant to ensure that those workers did not lose their jobs?
Ms Cartwright: There are two things here. In terms of the up-skilling of the workers, that is entirely what we are trying to do during this period now before the factory closes.
Q280 Mr Jones: Forgive my interrupting you; I understand that but what I was talking about was up-skilling that workforce to enable them to manufacture garments to the level of quality demanded by Burberry.
Ms Cartwright: Two things here in terms of the quality of the garments. Where we talk about the polo shirts, the quality level that we are able to raise in our other sources of supply is down to the fact that the unit cost of production is already at a much more affordable level, so you can afford to invest in the quality of that product. In terms of alternative products such as the iconic outerwear, yes, we could have invested in the local workforce, we could have invested in local machinery, the issue is around the existing capacity that we have for that product within our existing locations in Yorkshire.
Q281 Mr Jones: You mean in physical size terms.
Ms Cartwright: Both in physical size terms and the fact that the two units can operate as effectively one satellite using one overhead. The physical location of the Treorchy factory and the additional logistical costs, when it comes to production planning it is much more efficient to be able to do that across the sites in Castleford and Rotherham where we have sufficient capacity than to have that spread out over a third location. I mentioned earlier that one of the purposes through our review of the supply chain has been to consolidate, streamline and simplify the supply chain, and the focus on our existing plants in Yorkshire and gearing those up, putting more production capacity through those - which is what we continue to do - we do envisage that in those locations we will actually be adding another 100 jobs over the next three years. That is where the investment is going because it is most commercially viable to do that for Burberry.
Q282 Mr Jones: It would not have been commercially sensible, therefore, for you to invest in up-skilling the workforce in Treorchy or putting more capital investment into that plant, is that correct?
Ms Cartwright: That is correct, on the basis that we have existing facilities that can meet our capacity needs going forward with the additional recruitment of more resource over the course of the next three years.
Q283 Albert Owen: Just on that point, education and skills were not an issue for your decision, that is clear.
Ms Cartwright: No.
Q284 Albert Owen: Did you, as part of your review, approach the local authority or the Welsh Assembly Government to ask for some assistance with, perhaps, expanding the production there to get the high quality product made in the region?
Ms Cartwright: If you look at the size of the facility in Treorchy it would be difficult to envisage how you would be able to gear that up on a scale that would be commensurate with the facilities that we are using across Europe and Asia.
Q285 Albert Owen: You did not look at it.
Ms Cartwright: During the period of consultation we have had active conversations with every interested party who could possibly think of alternatives for us, but no viable alternatives have been put forward.
Q286 Albert Owen: So you did approach the Welsh Assembly Government to look at the possibility.
Ms Cartwright: We have had conversations with Welsh Assembly members, we have had conversations with the Welsh Textile and Clothing Association, whom we are working closely with as we speak to see if there is anything that can come out of that.
Q287 Albert Owen: Sorry, I want to be clear on this. During the review period did you approach the Welsh Assembly Government to ask for assistance for the production of polo shirts to remain in Wales?
Ms Cartwright: We commenced the discussions with all interested parties after we announced the proposal for the closure back in September.
Q288 Albert Owen: But not during the review period.
Ms Cartwright: Not during the review. The review consisted of internally reviewing this, with the assistance of the local management on the ground in Treorchy, so the local production director and the local finance director there were involved in the review with us.
Q289 Albert Owen: But not external bodies.
Ms Cartwright: No.
Q290 Chairman: Ms Ahrendts, could I ask you a question as the chief executive: how important are your royal warrants?
Ms Ahrendts: They are very important to the company. We have had them for a number of years and currently have them today. For all of the reasons that Michael and John have talked about, the headquarters here and the design teams, everything that we do is really centred here and they remain important as well.
Q291 Chairman: What do you have to do in order to acquire the royal warrants?
Mr Mahony: I am conscious that there has been discussion of the royal warrants in connection with the Treorchy factory. Generally, we are very proud to hold the royal warrants and we remain proud to hold them, but I hope for reasons that the Committee would understand it is not our practice to comment in detail upon them. I hope the Committee will understand that.
Q292 Chairman: Is that in the context of corporate social responsibility, are you nervous about answering questions like this?
Mr Peace: Perhaps I could answer you, Chairman. My colleagues are trying to say to you that the royal warrants are important to Burberry; there is no condition that products sold by Burberry are manufactured in Britain but, clearly, Burberry still manufactures products in Britain. Not all of its products are manufactured in Britain, but from the point of view as a retailer, as a wholesaler, as a distributor of first class fashionable luxury products, then an endorsement via the royal warrants is very important to the company.
Q293 Chairman: I can see that you are anxious not to answer all the questions as completely, and I respect that. Could you answer this one final question then: when are they due to expire?
Mr Mahony: Again, what I would say is that we are very proud to hold the warrants, but it is not a matter that we comment upon.
Chairman: Obviously, that will be shown on the record. Mrs Siān James.
Q294 Mrs James: We have heard a great deal of evidence from you today on the reasons why you have decided to pull out of Treorchy. I would like to turn now to encouraging businesses to locate in Wales; in your experience what are the advantages of operating in Wales? Have there been any disadvantages and how do you think they could be overcome?
Mr Peace: Wales has been used by Burberry since 1988 for the manufacture of product and as has been identified already by this Committee manufacture of commodity products in Wales becomes very difficult. If the Committee took the view that retaining manufacturing in some form in Wales was important to the economy, to the people, then selecting very carefully what type of manufacturing to encourage would be very important. Given that you cannot escape the fact that wage levels in other countries and emerging markets are lower, you have to find some form of value added.
Q295 Mrs James: Have you any idea what value added would be, maybe not in your industry but other industries? We have a very flexible workforce; what do you think about value added?
Mr Peace: For example, if you look at fabric development, looking at the fabrics that are chosen for garments in the future, perhaps linking some research project with one of the universities might be something which encourages a start-up business to actually focus on that type of manufacture and that particular product. Indeed, the iconic trench originally became very attractive and very sought-after because of its waterproof qualities; I suppose if I could tell you a good idea I would probably go and patent it, but I cannot. That is manufacturing. If you step outside of the manufacturing arena the Committee has to determine what sectors it thinks are appropriate, but again I would encourage you to look at the education, the higher education and secondary education structures that are in place because, ultimately, it is going to be important to have the right skills within the workforce and also to encourage capital investment in businesses in that particular region.
Q296 Mark Williams: On that basis what more could the Assembly Government specifically and the UK Government do to encourage the manufacturing sector? You have talked generally about education and you made that point earlier on, but what else would you be looking for from those bodies?
Mr Peace: Britain in the last ten years has been very successful at attracting new businesses to this country. If I take financial services, which is a sector I know quite well, if you look at the City of London it is probably now the global financial capital of the world, and it has achieved that over a ten-year period because of a combination of different factors, a very important part of which of course is the quality of the people that are employed here and indeed attracting people who are not British into this country, but with the right skills. It is a question of having a strategic plan, being very clear what jobs you feel could be attracted into Wales. I am very mindful of what Ireland did over the last ten years or so with the technology companies and attracting some of the high tech companies into Ireland, and that came largely as a result of the higher education system in Ireland putting a lot of investment into technology type of skills.
Q297 Mark Williams: You have focused particularly on up-skilling there but what other incentives do you think would be most effective in attracting companies like that to Wales?
Mr Peace: The overall financial environment, the tax structures that are in place, the encouragement for inward and outward investment; all of those factors you need to take into account when drawing up your strategic plan.
Q298 Mr Jones: Mr Peace, you have mentioned Ireland and you have mentioned tax structures; Ireland of course has a significantly more beneficial corporation tax regime than the UK. Could you comment on that; to what extent do you find the tax structures in the UK to be a barrier to new investment in industry?
Mr Peace: First of all I do not think it has been a barrier because that is why London has become such a success story in recent years.
Q299 Mr Jones: Forgive me, I understand that, but when we are talking about the City of London we are talking about a totally different type of enterprise from manufacturing in Treorchy.
Mr Peace: What I was suggesting you was that in your strategic plan what you have to determine is in what sectors you feel you wish to encourage new businesses and established businesses, to perhaps locate or relocate to Wales. It was in that context that I was referring there to manufacturing. In terms of Ireland, certainly Ireland has got an attractive tax structure, but so have other countries in the world and you cannot look at taxation in isolation from all these other factors. It is the overall combination of people, economic taxation, all of those factors together that will determine the success of the economy.
Q300 Mr Jones: And regulation?
Mr Peace: Clearly, businesses would like to think that regulation is at a sensible level, so of course that is a factor you need to take into account.
Q301 Mr Jones: How do you perceive the level of regulation in the UK to be?
Mr Peace: I do not think I am here today to make a comment about a generalism in the UK.
Q302 Mr Jones: Forgive me, but I think you are because you are a global company; you are relocating a manufacturing industry from the South Wales Valleys overseas. Clearly, you must have a view about regulation in the UK and you can assist the Committee to that extent.
Mr Peace: Let me answer you this way, Mr Jones, because what I have done in recent years is, for example, in 2002 taken Burberry public. I chose the London stock exchange to list Burberry. Last year I demerged a very large corporation called Dewhursts and I listed both the businesses and the Retail Group, which is one of the largest general merchandise retailers in the UK, and a technology business called Experian - both of those were listed in London as well, so rather than give you an opinion, perhaps actions speak louder than words.
Q303 Mr Jones: What are we to glean from that?
Mr Peace: One gleans that I have a great deal of confidence in Britain and in London as a financial centre.
Q304 Mr Jones: But not as a manufacturing centre.
Mr Peace: Clearly I have a great deal of confidence in Castleford and in Rotherham continuing to be a very successful manufacturing centre for our Burberry trench coats, and I am sure there are other examples in parts of Britain where there will be opportunities to grow the manufacturing base. My point to you is that given the competitive pressures globally now, it is very difficult to have a sustainable business if it does not have any sort of value add associated with it.
Q305 Albert Owen: You mentioned, Mr Peace, the up-skilling, you mentioned links with universities which are all very important for that value added to the product, but how important is grant aid to a company like yours? You mentioned Ireland and I know there are many factors that have attracted industry to that area, but grant aid was certainly very important. Did you receive grant aid in 1988 that helped you to locate in Treorchy in the first place?
Mr Peace: I cannot tell you about 1988, that pre-dates even me, but what I can tell you is that occasionally grant aid can be a factor, there is no question about that. Where aid can be more relevant is in start-up ventures, innovation, and it is very important that we emulate some of the wonderful things that exist on the campuses of US universities where you have the private investment companies, the banks and so on, looking for new ideas. I would encourage you to do that as a way of bringing jobs to Wales.
Q306 Albert Owen: I am sure we will, but did you look at that when you did the review and before you took the decision? Again, you know, you say you did not approach the Welsh Assembly Government, perhaps they could have assisted you in helping you with grant aid and the start-up that you are talking about.
Mr Peace: What Stacey explained is that clearly we undertook a review, not just of Treorchy but of our entire supply chain. What that showed was that the cost of polo shirt manufacture was twice as much in Treorchy as it was in the other places that we were manufacturing polo shirts. If we were to invest as a company significantly more capital into re-equipping the plant, into expanding and retraining, there has to be a return on that capital and that would increase the costs still further, so the economics - this is what Stacey was trying to get at - the viability of keeping the plant ----
Q307 Albert Owen: I fully understand that, but you did not explore the grant aid avenue, did you?
Ms Cartwright: The scale of the numbers that we were talking about really spoke for themselves in the early days. When we announced the proposal to close we were inviting at that point any other ideas and thoughts and offers of grant aid, but remember the scale of the numbers that we talked about earlier; the local loss of £1.5 million, the sourcing gains to be made by taking offshore of a further £3 million per annum - you are really talking about a sizeable differential there and our perception was that for that degree of shortfall to be made up through grant aid would be unrealistic, particularly if it was expected to continue for a number of years.
Chairman: Mr Stephen Crabb wishes to make a brief intervention.
Q308 Mr Crabb: Were you taken by surprised by the extent of the campaign against the proposed closure of the Treorchy site? Did you anticipate the level of concern expressed?
Mr Peace: I was not surprised nor disappointed at a campaign against the closure of the factory.
Q309 Albert Owen: Embarrassed?
Mr Peace: Forgive me, sir. I was bitterly disappointed at the campaign aimed at damaging the Burberry brand, I thought that was most inappropriate. I was not embarrassed. I was very sad about the fact that 300 people were losing their livelihoods. I come from a mining community so I can feel for those people and if I could have found a way of saving those jobs in a sustainable way I would have been much happier than people losing their livelihoods.
Q310 Albert Owen: I do not personalise this, I did not say you were embarrassed, was the company embarrassed by going round the world saying it is British and yet sacking British workers?
Mr Peace: That was why I was trying to draw a distinction for you because Burberry clearly is not pulling out of Britain, Burberry is not trying to in any way change its heritage. Indeed, Burberry is one of the few remaining British retailers and manufacturers that still manufacture in Britain, and it is a huge success story for this country. It is very sad indeed that we just could not make the factory in Treorchy viable.
Q311 Chairman: We are coming to the end of this evidence session and I want to ask two short questions. This inquiry is learning about the impact of globalisation on Wales, and that is why we have invited you to give evidence, that is why we have invited Corus to give evidence next month and Alcoa. All three companies, in a way, are going through a process of major restructuring and we want to learn from that as a select committee. What have you learned in the light of the last six months as a company?
Mr Peace: I certainly take on board the questions, particularly from Mr Owen. I think consultation with you, with the Welsh Assembly, looking back in hindsight perhaps we should have engaged more with you. I think that is a lesson that we would take out of this.
Q312 Chairman: And the employees?
Mr Peace: With the employees clearly to some extent we are bound by employment legislation as to what we can or cannot do. I am delighted that we did what we did in the retraining programme and if there are any lessons we can learn from this, and we are not through it yet, in terms of how we can retrain and re-skill our workforces moving forward, that is something we will be taking on board as a company.
Q313 Chairman: One final question. I noticed in your memorandum but also in answer to one question that you referred to the possibility of a starter business. If one did succeed and it decided to name itself "Polikoffs" or "Burberry Rhondda" or "New Burberry Rhondda", what would your views be on that as a gesture of goodwill?
Mr Peace: Clearly we would reserve the right to answer that when we know what the venture is because protecting the Burberry brand, that is arguably one of our most important assets. My answer to you is it depends.
Q314 Chairman: In the light of your observations and answers just a moment earlier when you were saying you wanted to learn from the experience then clearly you might want to reflect on that. Thank you very much for your evidence today and for your memorandum. If you feel there is some area in the light of the questions today that you want to supplement with a further memorandum we would be very pleased to receive it. Thank you.
Mr Peace: Thank you, Chairman. Thank you, Members of the Committee.
Memorandum submitted by GMB
Examination of Witnesses
Witnesses: Mr Allan Garley, Regional Officer, South Western Region, and Mr Mervyn Burnett, GMB Senior Officer, GMB, gave evidence.
Q315 Chairman: Good morning. Could I ask you to introduce yourselves for the record, please.
Mr Garley: Allan Garley, Regional Officer, South Western Region of the GMB.
Mr Burnett: Good morning, Chairman, colleagues. I am Mervyn Burnett, Senior Officer with the GMB.
Q316 Chairman: Thank you very much. Thank you for your memorandum, it was very helpful to us. Mr Burnett, could I begin with you. In your memorandum you say: "it became very evident to the GMB in the early days that there was no intention from the company's point of view to seriously consider any alternative to the closure plans". When, and on what basis, did you decide that this was actually Burberry's intention?
Mr Burnett: From the very start when they announced the closure plans. There was no notification to the GMB or any other board prior to 6-9-06 when they made the announcement on a visit to the factory. I think from some of the evidence it is quite clear that Burberry is a retail company and it is the GMB's view that Burberry do not want to be involved directly with manufacturing. The basis of that is a number of products have moved offshore, not just the polo shirts, on which the company announced the proposal to close the Treorchy site, but the duffel coat manufacturing has moved to Eastern Europe and the quilted jacket manufacturing moved to Eastern Europe. That basically leaves the iconic rainwear left that Burberry manufactures within the UK at its Castleford and Rotherham sites. Recruitment was still ongoing in the Castleford site from the day they made the announcement and if there was any intention by Burberry to relocate some of the workers that was undermined and the recruitment in Castleford continued right throughout the consultation process. Requests for information regarding the year-long review were made by myself on several occasions and it was the delay in getting the information from the company that hampered the consultation process. In most cases the information was either provided the day before we were due to meet or actually on the day of the meeting. It became clear that this was making it extremely difficult from the trade union's point of view to consult in a meaningful manner and complaints were made via the minutes of those consultation meetings on every occasion about the delaying tactics. This happened from the very start. It became quite evident in the early stages of the consultation that the company were not seriously looking at meaningful consultations and the options that were available to keep the factory going.
Q317 Albert Owen: Good morning. You tell us that Burberry: "could increase its profits by 2% or £4 million a year by closing the site at Treorchy and transferring the work to Asia", so do you accept that this was purely a commercial decision by them?
Mr Burnett: Yes. As far as we are concerned it was pure corporate greed to increase the profitability of a company that made £165 million last year and their sales were up by 25%. There had been no investment in the Treorchy site for a number of years either in terms of the factory itself or in terms of training in relation to the workers.
Q318 Albert Owen: When you say that there has been no investment, the decision was taken, they say, to improve the quality. Are you suggesting that although the brand was changing there was no investment in improving the quality of the product at Treorchy?
Mr Burnett: To my knowledge there was no investment in new technology in the factory. I just want to make a point on the upgrading of skills with the workforce. This workforce has produced every product that Burberry produces: quilted jackets, duffel coats, and they were actually producing the iconic rainwear a number of years ago. In 2004 there was a move to concentrate on just one particular product, ie the polo shirt, to allow the factory to become more efficient and we were instrumental in part of those discussions with the company to increase productivity there, which did increase by about 25%.
Q319 Albert Owen: I have heard what you said in answer to the Chairman's questions but what input did the GMB have in the year-long review?
Mr Burnett: Absolutely nothing whatsoever. Neither the GMB nor any other body, as far as we are aware of, knew that there was an internal review going on. We were not consulted in any way, shape or form.
Q320 Albert Owen: You may have heard the evidence of the previous session when the management were in front of us and they said that there was an internal review. You were not even aware of that?
Mr Burnett: No, not until the announcement was made on 6-9-06.
Q321 Albert Owen: Were senior managers part of that review?
Mr Burnett: Not to my knowledge. Certainly not at the local level.
Q322 Albert Owen: You described in your memorandum that there were two other options to the closure of Treorchy which were considered by the review. What was the GMB's preferred solution?
Mr Burnett: I think the GMB's preferred solution was that the company withdraw the proposals completely and enter into full discussions with the GMB on how we can maintain production at the Treorchy site. One of the options did involve introducing iconic rainwear into the Treorchy site and we believe that the workforce possesses the necessary skills to do that. As I said, three or four years prior to that they were already producing the iconic rainwear. That would have retained something in the region of 220 jobs. That was undermined by the fact that the company were already recruiting skilled machinists in the Castleford site to increase that productivity.
Q323 Albert Owen: Do you accept that there would have been a high level of investment needed to produce the rainwear?
Mr Burnett: Not necessarily a high level. The equipment is there. There probably would have been some investment, which we would accept, but in terms of upskilling I think it would have been minimal.
Q324 Albert Owen: Minimal upskilling but some investment.
Mr Burnett: Yes.
Q325 Albert Owen: You do not think that was explored at all. I asked the question about external bodies like the WDA, as it was, or the Assembly Government. They said they asked during the review period for external bodies and that was not forthcoming, so although you, as a trade union, were not involved in it you do not know whether the management was approached by the Welsh Assembly Government?
Mr Burnett: It has never been mentioned throughout the consultation process that any other body was involved in the review, including the Welsh Assembly or the local authority or anyone else.
Q326 Mr Crabb: Mr Burnett, you referred to the current profitability of the company. Do you accept that it is one of the primary duties of the management of any company not just to make decisions for the present, for the next 12 months but for the next three or five years ahead and recent British corporate history is littered with examples of companies whose management have been complacent, have sat back on their laurels, enjoyed the profits of today and then not existed in years to come and Burberry management have a duty to safeguard the future of their company which includes keeping jobs in the UK as a result?
Mr Burnett: They have a duty on that but they also have a duty to their employees and a social responsibility to their employees. I believe workers expect to have a certain level of job security with a company that is producing such record profits and whose sales are increasing. They produce a quality product and are able to produce other products if Burberry so wish, and I think its responsibility to its employees should come first.
Q327 Mr Crabb: In one of your previous answers you used the phrase "corporate greed". We have just sat through a session with the management of Burberry and they outlined to us what many people would regard as quite a rational, sensible strategy for safeguarding the future of the company. Which element of that strategy do you regard as displaying corporate greed exactly?
Mr Burnett: I think Mr Peace mentioned that it is not about price but I think this is all about price, it is all about reducing the manufacturing costs of producing a particular garment. In Treorchy it costs approximately £11 to make a polo shirt. They produced somewhere in the region of 600,000 polo shirts last year with a retail value of a minimum of £55 which equates to about £30 million revenue. If you take the manufacturing costs and the overhead costs, which come to about £7.2 million, that still leaves a hefty profit of somewhere around £22 million to £23 million. I think that the factory was viable and the figures showed that.
Q328 Mrs James: I would like to turn to the effects of the planned closure of Treorchy. You describe the impact of the closure as "devastating" for the local community. What is being done to mitigate the effect of this?
Mr Burnett: It has been extremely difficult. Burberry has been the largest employer in the Rhondda Valley for many, many years. Even when it was Polikoffs and Burberry took it over in 1987 there were over 309 people employed there. The community relies upon Burberry to provide stabilisation, if you like, within the community. There are families who have worked there, not just the mother and father but sometimes the son or daughter work there as well. People like to work within the community. It cuts down on the commuting and even though many of these people are only on the minimum wage being able to walk to work in the morning makes it more viable for them to stay in the community, work in the community and spend their hard-earned money in the community and the community benefits from that.
Q329 Mrs James: How effective is the outplacement facility which has been established? We have heard a little bit about it but can you tell us more about it. What role will the GMB play in helping the workers at Treorchy re-skill and find new employment?
Mr Burnett: The problem of re-skilling is very difficult. All of these people have worked purely and solely in the clothing and textile industry and are going to have to acquire new skills in order to find employment opportunities within South Wales. Sadly, those are few and far between within the Rhondda Valley. They are going to have to travel outside the Valley and, therefore, commute down to Cardiff and out to various parts. It is a difficult subject. There are jobs available but the last time I was in the factory, which was yesterday morning in fact, looking at the adverts for jobs, they do not tell you what pay is being paid, they do not tell you what hours are being paid for, so they are virtually walking into a situation where they do not know what the situation is. It has been extremely difficult for them. We have worked with the Welsh Assembly, with Careers Wales and React Wales to find job opportunities and we do have contacts with other employers in South Wales and any vacancies they become aware of are passed on to the Burberry factory in the hope these employers will take some of these people on. It is highly unlikely that 309 people will find employment within the Rhondda Valley.
Q330 Mrs James: In the evidence we heard a little earlier, I cannot remember the figure exactly but it was 309 people originally.
Mr Burnett: Yes.
Q331 Mrs James: It is down to?
Mr Burnett: 185.
Q332 Mrs James: Thank you. What sort of jobs do these other people have to seek or move on to?
Mr Burnett: They have gone into a number of various areas. Most of them are in the care sector. There is a new hospital being built down in Llwynypia which will be up and running although it will be some time yet, but most of the jobs are within the care sector or the retail sector, not in manufacturing.
Q333 Mrs James: Again, the manufacturing base within the Rhondda is being eroded.
Mr Burnett: Yes.
Q334 Nia Griffith: I want to talk about the types of jobs and the disparity there seems to be between the company saying there were a lot of jobs being advertised but the numbers being taken up were much smaller. You have already touched on some of the issues but do you see the terms and conditions, the pension prospects, the stability of the types of jobs that people can find being very different from a stable job in a manufacturing company?
Mr Burnett: Yes, I think that is correct. Some of the jobs may only be part-time working and temporary positions, but bear in mind they have to go through the whole process of providing protection under the employment law for two years, or at least a year. It is a very difficult situation for the people there. Most of those people have worked with Burberry from the ages of 15 or 16 and have been there for the last 20 or 30 years and do not know any other trade. Bear in mind the majority of the workforce is female and that in itself may cause problems when they try to find employment suitable to their needs so it does not interfere with their working life and their family plans and social responsibilities.
Q335 Nia Griffith: Would you say transport is also a problem in the sense that probably most of them do not have cars and presumably do not necessarily have the right bus services or whatever at the right times?
Mr Burnett: Yes, that is right. Some of the training programmes that people have managed to fall into are either in Caerphilly or in Llanelli. As the crow flies you might think that is not too far away but in commuting terms it means you have to come all the way down the Rhondda Valley into Cardiff and commute out. That will add another hour and a half or two hours maybe on each working day. With all the training that is available it does not guarantee anyone a job at the end of the day.
Q336 Mr Jones: On 26 January Burberry announced that it was donating its factory to the local community and it announced that it had agree that it could either be sold or could continue to operate and underwrote the value of the factory to the extent of £1 million. Are you aware of what plans are emerging to use the factory for some other purpose or to sell it?
Mr Burnett: No. We have never had a consultation with the company in relation to the sale of the factory. The first we became aware of that was during a press release made by Burberry.
Q337 Mr Jones: So you have never talked to Burberry about these proposals?
Mr Burnett: No.
Q338 Mr Jones: Are you going to?
Mr Burnett: The intention is that the consultation will continue until the final day if the factory does close and we will continue throughout those discussions with Burberry.
Q339 Mr Jones: So you will discuss the proposals for the donation of the factory?
Mr Burnett: If Burberry wish to agenda it we will discuss it with them.
Q340 Mr Jones: You mentioned corporate greed earlier on. Burberry did not actually have to donate the factory to the community, did it?
Mr Burnett: No, they did not.
Q341 Mr Jones: It is not a statutory requirement in any sense.
Mr Burnett: No, it is not.
Q342 Mr Jones: This will be above and beyond any redundancy obligations that it will have. Do you think in fairness to Burberry, therefore, you might want to reconsider the expression "corporate greed" because clearly it has gone beyond what it needed to do in terms of its obligations to the workforce?
Mr Burnett: In terms of the factory being left to the community, if I can just bring to the Committee's attention it does need £250,000 spent on the electrical system just to bring it up to the required regulations. The building itself is built around the old factory and it has severe problems with that, hence my comment earlier that there has been little investment in the maintenance of that factory. We are concerned that rather than become an asset to the community it will become a liability.
Q343 Mr Jones: That cannot possibly be the case if Burberry have underwritten its value to the extent of £1 million. Whichever way you look at it, it is a £1 million asset to the community, is it not?
Mr Burnett: There is a question mark over whether it is worth £1 million or not.
Q344 Mr Jones: No, forgive me, Burberry have said that they will underwrite its value to the tune of £1 million.
Mr Burnett: As I say, we need to have discussions with the company because up until today we have not had any consultation with the company on this matter.
Q345 Mrs James: I would just like to ask a follow-up to that. Do you believe that Burberry would have made this offer if it had not been for the high profile campaign that you and the community have fought? It seems to me that this is a generous gift but it only comes after a great deal of publicity, the sort of publicity that they do not want to attract.
Mr Burnett: Yes, in my view it was a gesture.
Q346 Mrs James: A gesture.
Mr Burnett: The object of the gesture was to divert attention away from the campaign.
Q347 Mr Crabb: You seem to be suggesting that there has almost been a policy of neglect by the management towards the Treorchy site. Can you clarify that?
Mr Burnett: I think there has been a certain amount of neglect in terms of the workforce itself and in terms of the maintenance of the factory.
Q348 Mr Crabb: They have allowed the site to run down?
Mr Burnett: Yes.
Q349 Mr Crabb: You feel the management have been negligent therefore?
Mr Burnett: Yes, I think they have.
Q350 Nia Griffith: Could I just ask about the value of the site. Do you think they would have been able to sell it for anything at all?
Mr Burnett: To my knowledge the factory is built on industrial land and it would have to remain industrial land. It is highly unlikely that a factory of that size, unless we can find someone who is prepared to come in and set up a new company, could be sold, but the problem is the amount of money that needs to be invested in the site.
Mr Garley: I do not know whether it is in order for me to make a comment in relation to the question.
Q351 Chairman: Please do.
Mr Garley: I think the last two or three questions are quite important. The announcement with regard to the factory was announced via the press so it is important to make clear, as Mervyn has said, no-one was aware of any discussion on the potential donation of the factory to the community, it was announced via a press statement which the GMB believe was nothing more than a publicity stunt. In terms of the factory being run down, for over a year now the Welsh Assembly Government has been attempting to pay the company over £100,000 that it is entitled to in grant aid and the company has refused to accept that payment. That goes back to the year before last. That is an indication as to why the GMB believes that the company some considerable time ago made the decision to move out of manufacturing in Wales.
Q352 Mr Jones: Mr Garley, I find it very surprising that you use the expression "publicity stunt". It is clearly the case that the company has promised to donate the factory and to underwrite its value to the extent of £1 million. It did not need to do that, did it?
Mr Garley: I do not have anything to say other than what I have just said. This was nothing more than a publicity stunt in the view of the GMB.
Q353 Mr Jones: A publicity stunt costing £1 million to the company?
Mr Garley: In terms of the value of the factory, of course, since 6 September the company have spent to advise us that the factory is worthless, that the factory needs over a quarter of a million pounds spent on it to make it in any way, shape or form viable to operate from. I repeat, Mr Jones, that in the view of the GMB the offer of the factory, via the newspapers, was a publicity stunt. I just make the point that there is such a thing as employment legislation which compels the company to comply with consultation and during this period of consultation they have not discussed the issue of the £1 million or the factory with the GMB at any time.
Q354 Mr Jones: But you have not approached them, have you, Mr Garley, to discuss that? That was what I understood from your colleague.
Mr Garley: I am sorry?
Q355 Mr Jones: You have not approached them to discuss that offer, that was what I understood from Mr Burnett.
Mr Garley: The company have not been willing to discuss anything with the GMB.
Q356 Mr Jones: You have not discussed the £1 million offer?
Mr Garley: We have not discussed anything with the company for some considerable time.
Q357 Mr Jones: When are you going to do so?
Mr Garley: We have plans to discuss a number of issues with the company very shortly.
Q358 Mark Williams: I want to talk more generally on the challenges of globalisation. I was interested to hear what you said about the National Assembly and grant aid. What action more generally would you look to the UK and Welsh Assembly Governments for to deal with some of the challenges faced by globalisation? In your memorandum you talked about the transfer of intellectual property, production numbers and jobs. What action do you look for from the Government to reduce some of the effects?
Mr Garley: Can I just ask is that the Government and the Welsh Assembly?
Q359 Mark Williams: Both.
Mr Garley: I think a prerequisite to that is for the Government, business and trade unions to understand what drives globalisation and to work together to encourage business to remain in Wales and the UK, that has to be the first priority. The Welsh Assembly Government, for example, is putting into place building blocks which the trade unions hope will deliver a manufacturing strategy in conjunction with the Wales Business Procurement Taskforce which has the declared objective of increasing the percentage of Welsh spend in manufacturing and the service sector. We take the view that markets can be influenced and created from government and government agencies but, of course, it requires joined-up thinking from across the sectors. One example is the Office of Government Commerce guidance in relation to reserve contracts. This is in specific regard to the new procurement regulations which provide for contracting authorities to reserve at least one contract for supported employment workplaces. The same guidelines talk about the need to ensure that social, employment and environmental considerations are taken into account in managing the contracts. For Wales, which has a very large number of supported employment workplaces, that is an extremely good opportunity to increase the number of people with disabilities working in supported factories and, in fact, to increase the number of supported workplaces in Wales. That is an excellent opportunity. Another example is Wales could and should be able to promote itself as a world leader, for example in new and renewable technologies. The investment by the Japanese company, Sharp, in a solar module manufacturing plant in Wrexham is a good example where inward investment is based on the Government's renewable energy and microgeneration target in conjunction with assistance from the Welsh Assembly Government. They are just two examples, Mr Williams, and that is the way forward.
Q360 Mark Williams: You have anticipated my next question which was the examples, so thank you for that. More broadly, what do you perceive as the comparative advantages for Wales in attracting jobs? Are there other things that you can highlight?
Mr Garley: I think the obvious, or perhaps not so obvious from what we have just heard, is the fact that we have a large and diverse workforce with many skills and talents. The Welsh workforce is renowned throughout the world as having a work ethic and it is used to an industrial and manufacturing and service environment. It has to be said that the Welsh Assembly Government is very supportive of inward investment. I think loyalty is perhaps something I should not say but I will. The Welsh workforce has a loyalty which is beyond comparison. It may be ironic, and possibly Burberry would not agree with this, but the loyalty that has been shown by the Burberry workforce, for example, in attempting to retain their jobs and skills that they have built up over many, many years in Treorchy is something that has meant this particular campaign has clearly attracted enormous publicity throughout the world, possibly for the wrong reasons. It has drawn attention to the fact that Welsh workers and people who work in Wales do have a high regard for the skills and talents that they have acquired over many, many years. It is difficult to describe, Mr Williams, but that loyalty aspect is something we should not ignore.
Q361 Mark Williams: More generally, in the debate you heard earlier about skills more generally but on basic skills from secondary education right the way through, where does Wales fit into basic skills, mathematics, literacy, form-filling for job applications? We have heard comparisons drawn overseas and alleged high standards overseas compared with Wales but what are your perceptions about that?
Mr Garley: I think Wales has some work to do and I think the UK has some work to do. I am pleased to say, and again I can only talk for Wales in this context, that the Welsh Assembly Government has just completed a three year period where it set up a manufacturing taskforce to look specifically at the manufacturing and servicing sector, research and development, skills, education and training. That area was one that was given a very high priority. I think the Welsh Assembly Government is fully aware of the needs to enhance and increase the training and education and I believe they have started on that process.
Q362 Mark Williams: No doubt you would agree the research base that our universities could offer is something very special indeed?
Mr Garley: Absolutely.
Q363 Mr Crabb: Your written evidence to the Committee referred to the decline of the textile industry in Wales. Do you think that decline is inevitable given the context of globalisation which we are living with? Do you believe that the decline can be reversed in any way? Are you able to offer us some thoughts on reasons for the decline of the textile industry in Wales?
Mr Garley: Is that specific in relation to the textile industry or more generally?
Q364 Mr Crabb: Textiles.
Mr Garley: In the textile industry, of course, we have seen a migration in essence since what I call the first recession in 1979-80. We have seen a migration of textile jobs from the UK abroad. Over that period of time over a million jobs have gone from the UK abroad. It is important to understand the reasons why they have gone. One reason is the move from small retail outlets to the sales of clothing by the big supermarkets that cannot be underestimated. Of course, the big supermarkets are able to drive down the price of goods by high volume bulk purchasing in addition to taking advantage of the labour costs that we have heard a little bit about this morning. That has enabled the supermarkets and the companies that supply them to keep their prices down. Originally the work was produced from Morocco and then it went to Pakistan and now China appears to be where there are the lowest costs. In Wales specifically there was a problem with regard to Marks & Spencer, for example, when we went through a period where in essence they dumped their supply chain manufacturers in Wales and that has seen such companies as Bedwear and Dewhurst's disappear.
Q365 Mr Crabb: Do you regard that as an example of corporate greed as well?
Mr Garley: Yes, I do actually because at the time that Marks & Spencer dumped their manufacturers they had record profits. Very similar to the Burberry similar scenario, at that time Marks & Spencer had record profits and money was literally coming out of their ears and they dumped in excess of 6,000 clothing workers in Wales and in the UK through that corporate greed. I just make the point if I can that those companies still exist, those companies have not gone to the wall, all that has happened is they have transferred and migrated their manufacture elsewhere. That is something that causes the GMB enormous concern and we really do have to do what we can to find out exactly where production is taking place. For example, on the Burberry front we know the two factories that Burberry are now getting their polo shirts sourced from; the company will not tell us but we know the two factories. I believe that an ITV reporter has been to both factories and has interviewed the manager in that factory and I believe in that interview the factory manager could not guarantee that child labour would not be used. If that is the case, and I say if that is the case, that is not the action of a responsible company or a company that has Corporate Social Responsibility. We have asked the company as well how much are the workers in China going to be paid in these two factories and they will not tell us. We have asked the company what hours of work are the workers in China going to work and they will not tell us. We have asked the company how many days a week do they have off and they will not tell us. We have asked the company how many holidays are they entitled to and they will not tell us. Either they do not know, in which case I just make the point that is not a very socially responsible company, or they do know and they will not tell us. I just make the point that the GMB intends to find out and we will take the necessary steps to ensure that our members in Treorchy know the answers to those questions.
Q366 Nia Griffith: If we can return for a moment to your comments about the loyalty and stability of the Welsh workforce which you see right across South Wales. Would you say there is almost a geographical factor which bolsters that up in a sense in that communities are where the mines were and, therefore, travelling from the Valley to other areas is not so easy and people are more vulnerable in their communities to any closures?
Mr Garley: I think you are absolutely right in what you are saying. I also think it is a factor that applies across Wales irrespective of geographical location and one may say that would apply across the UK irrespective of geographical location, that the vulnerability of workers through globalisation knows no bounds, it is a continuous process and it affects people as companies make decisions as Burberry have made. I would certainly agree with you that the fact that the factory is located where it is possibly makes it doubly difficult for those people who are put in this invidious position. I just repeat what my colleagues have said, that this is a company that made £165 million profit last year and in our view that factory could continue in production if the company were to do what every other company does when they find themselves in the position Burberry did: if they talk to their workforce, talk to the trade unions that represent their workforce and talk to the governmental bodies that may be able to offer assistance and guidance with regard to future grants or future locations. The fact of the matter is that Burberry did not do that and the Welsh Assembly Government is keen at this minute to offer assistance but it is Burberry that is declining that offer. If that helps you to understand why I still say corporate greed is what we are talking about here, I make no apologies.
Q367 Nia Griffith: Could I just ask a little bit about the vulnerability. We have obviously read from what you have written but also heard from other trade unions this feeling that it is easier to close a factory in Britain than in some other countries in the European Union. Can you give us some exact details as to what makes it easier to do that?
Mr Garley: I will try. In the GMB's view it is relatively simple in that the UK is much more wedded to the free market than any of their competitors. The US, for example, preaches free market but has the largest number of global companies and therefore dominates many of the markets, however it protects its own industries, such as steel, banana plantations and their distributions and, of course, its own military purchasing where all military purchases in the US have to have at least 60% US components, which effectively means it has got to be produced in the USA. If that was the case in the UK the number of people working in manufacturing would increase dramatically.
Q368 Nia Griffith: You are saying a government procurement policy which buys British would help.
Mr Garley: That would be of tremendous assistance. Many of our fellow European states are prepared to provide more aid to their industries and, if necessary, I use the term, "bend the rules" to protect their own industries. Other European governments are prepared to work with their industries to create markets to enable them to become world leaders in new technology. Examples are the German and Danish support for wind technology and the present German support for solar technology. Again, the free market in the UK has made more British companies vulnerable to takeovers and mergers with not only the loss of manufacturing plants but the loss of intellectual property rights. We believe that is absolutely vital. The UK labour protection is weaker than in most other parts of Europe. Of the original 15 Member States only one country has weaker labour protection than the UK, and that is Portugal.
Q369 Mark Williams: Turning to the issue of consultation, you raised an important issue about child labour overseas and you said that you had written or corresponded with Burberry and had no answers. Was there no response to your correspondence or was there a letter which was hardly clear back from them on that issue?
Mr Garley: I believe what I said, or certainly what I meant to say, was we have repeatedly asked Burberry to advise us of the hours of work, the wages, the number of holidays, and we also asked them, going way back to the end of last year, to confirm that they did not or would not employ child labour. I do not believe we had a response direct from Burberry on that one although I do believe the press release was issued at much the same time as the announcement with regard to the donation of the factory of £1 million.
Q370 Mark Williams: More generally the extent of consultation with the GMB has been negligible, if not non-existent.
Mr Garley: Possibly the best way of describing the company's disdain for their workforce and the unions is that we got to know of the proposed closure via a message left on a telephone answering machine. I think that sums it up.
Q371 Mark Williams: During the consultation period were any attempts subsequently from you as a union to speak to Burberry directly ignored?
Mr Garley: The GMB take the view that the consultation has been an absolute sham. They had no intention of maintaining the manufacturing unit in Treorchy and we believe they made the decision many, many months ago.
Q372 Mr Crabb: Specifically, who do you think is benefiting from what you describe as Burberry's corporate greed? Who are the beneficiaries of that?
Mr Garley: The GMB is of the view that the company is looking to withdraw from manufacturing in the UK. That is the view of the GMB.
Q373 Mr Crabb: Sure, but both of you have made the allegation and used the phrase "corporate greed" which implies that somebody is benefiting. Who do you think is benefiting from this corporate greed?
Mr Garley: In our view the beneficiaries are, of course, the company and the shareholders of that company.
Q374 Mr Crabb: Who are the shareholders?
Mr Garley: I cannot give you a list of the shareholders.
Q375 Mr Crabb: British pension funds?
Mr Garley: Possibly. The GMB is a shareholder.
Q376 Nia Griffith: If I could return to the issue of the level playing field with other countries and the EU to start with. You mentioned about the bending of rules, would this be in the form of hidden subsidies or something of that nature?
Mr Garley: I think it would be in the form of what I have described, for example in the US they openly support their military industry and if we did the same with regard to the production of military uniforms in the UK, for example, that would have a dramatic effect on increasing manufacture. The definition of whether the European laws allow you to support your military industries is whether what you produce is warlike. In France, for example, all of the military uniforms are produced in France because they are categorised as warlike. That is within the European legislation. You would expect the GMB to take the view that the same should apply here in the UK. I think the reality is that trade unions across the globe would better accept globalisation if we knew that our brothers and sisters who were producing the clothes, for example in China or India, were being offered good wages and conditions, to know that they had the right to join an independent trade union, to know that they enjoy a healthy and safe environment, but of course it is the difference between what actually happens in China, for example, and what should happen in the China that makes the price of a shirt in Wales uncompetitive with the price of a shirt in China. It is that difference in the Corporate Social Responsibility that we have heard about this morning, not very convincingly if you do not mind me saying so, that makes it uncompetitive to produce something in Wales compared to China.
Q377 Nia Griffith: Are you suggesting that in the context of globalisation what we need is some form of social contract or some sort of way in which minimum standards would be expected across a wide number of countries?
Mr Garley: Very much so, so that the ILO standards are met across the board, whatever they may be at any time, and it has to be said even those standards are not terribly satisfactory. If that happens then you start to move into some sort of level playing field. I am sorry to keep going back to Burberry but when Burberry cannot even tell us where they are getting their goods made and now that we have found out they will not tell us how much they are paid for those goods, it has to be that until we find out the answers to the questions we are asking that we remain suspicious of their commitment to Corporate Social Responsibility.
Q378 Chairman: Could I end with a series of questions about the GMB. Much of the evidence this morning has been about the way in which Burberry has responded to globalisation. In the light of comments that you have heard this morning, and you referred to Dewhurst's in an earlier period suffering as a result of some form of earlier globalisation, how has GMB itself responded in recent times to this phenomenon of globalisation and the acceleration of the processes that we have been hearing about this morning?
Mr Garley: We have been attempting, and I think it follows on from that last question, to ensure that the standards, the terms and conditions of employment elsewhere in the world are brought up to ILO standards at the very least. For example, the GMB forwarded to the Committee a couple of documents with regard to War on Want and Labour Behind the Labour Reports, which went in-depth into standards in Europe and on the international scene. I do not intend to go through those documents this morning, you will be pleased to know, but the fact is that whilst many companies have signed up to the CSR and expect the same from their suppliers to ensure that they comply with ILO standards, whilst it looks good in principle, in practice the standards are not kept to. War on Want, for example, finds that Asda, Primark and Tesco are able to offer their goods at substantially reduced prices at the expense of workers in the Third World. Workers in Bangladesh, the report will show you, are found to be working 80 hours a week at five pence an hour, health and safety is appalling, and reference is made to ----
Q379 Chairman: Mr Garley, could you pause at that point. The question is specifically not about describing the position but how the GMB nationally is responding to the situation. For example, what are you doing in terms of making your members more aware of the forces of globalisation, upskilling, migrant labour? How are you coping both in Wales and nationally to all of that? Are you reacting or are you anticipating and proactive?
Mr Garley: I do apologise, Chairman, I thought you wanted me to go into detail in relation to the conditions. I fully accept your point. In terms of the GMB's position, again we just have to understand what is happening in world trade so that we can take steps to adapt. The GMB have lobbied Government directly as part of the Manufacturing Forum to ensure that we do have a strategy for UK manufacturing. Clearly that would include joined-up government and support for industry in line with our competitors. We propose linking government policies, such as energy, to UK manufacturing to pump-prime new markets and technologies such as renewable energy and microgeneration. We have argued for Community Development Funds to enable funds to be provided in advance to keep industry in the UK. We have proposed that Government consider the implications of procurement on UK manufacturing. We have lobbied, and continue to lobby, Government in relation to employment law. With regard to Europe the GMB is actually the only British trade union with an office in Brussels. This office has multilingual staff and facilities for meetings. As a campaigning organisation we are fully aware that our members are increasingly affected by globalisation and European and international level decision-making. To fully promote and protect the rights and opportunities of our members we recognise that we need to actively represent them at national, European and international levels. Our role is obviously to be active in Europe in defending our members against liberalisation and deregulation policies, which is just as important, in fact, as securing positive workplace rights and priorities. As a general trade union we are affiliated to eight European international federations through which we work together with EU and local unions to protect our members across all of those eight sectors. We look to join in solidarity to respond to the increasing and ruthless globalisation that is taking place. Possibly global exportation is better phraseology than globalisation. All of these federations are affiliated to the European TUC, on which we have a seat on the Executive. We have also been successful in gaining funding - I think this is quite important - for several transnational projects involving unions in Denmark, Finland, Germany, Sweden, Spain and Poland covering issues such as skills, upskilling developments, flexible work organisation and systems of quality management. We are attempting to effectively equip our members with the skills needed to defend themselves against globalisation.
Q380 Chairman: That is extremely helpful. It would be even more helpful if you were able to give us further information about that in a subsequent memorandum.
Mr Garley: Of course.
Q381 Chairman: At the end of the previous session I referred to this legacy of Polikoffs and Burberry. It strikes me, and please forgive me for being indulgent as a lapsed historian, that there was a Rhondda miner called Mark Starr who wrote two books called A Worker Looks at History and A Worker Looks at Economics. He left the Rhondda in the 1920s and went to work for the International Lady Garment Workers' Union of America, a very famous union based in New York. Subsequently he went to work for UNESCO. It occurs to me that this phenomenon of globalisation is nothing new. Certainly he had an awareness of the forces that were operating and the importance of trade unions to have international links. The point of this question, and I am coming to it in a moment, is that in the light of all of this and in the light of the experience specifically in the Rhondda, would you have dealt with this any differently? Are there lessons for the GMB in Wales and nationally that can be drawn from the experiences of the employees and your members in Treorchy that can be learnt more widely on an international basis, or is it too early to say?
Mr Garley: I am happy just to make a couple of comments on that. The historical point you made is well made. This particular campaign has sent the GMB into areas that previously it has not been into and, of course ---
Q382 Chairman: Do you mean Parliament?
Mr Garley: Of course ----
Q383 Chairman: You have been here before then.
Mr Garley: Of course we will learn from what has happened. I think one of the reassuring moments was when we were able to put ourselves in the position where demonstrators were outside the Burberry shops in Paris, Chicago, New York and Las Vegas. I think that is a good demonstration of the international solidarity that you were alluding to there, Chairman.
Chairman: It is very difficult to follow that one. As I said earlier, please give us further memoranda if you feel that would be helpful to us. This has been a very instructive morning and early afternoon. Thank you very much.