Gap Inc. began considering operating in Myanmar almost a year after the United States and the European Union formally eased sanctions on the former pariah state; it took another year of preparation before the company became the first U.S. retailer to make clothes in the country formerly known as Burma. In June, Gap announced it will be putting “Made in Myanmar” jackets and vests on its shelves later this summer.

Gap’s decision to invest in one of Asia’s poorest countries and the long process from conception to reality highlight the promise and potential hazards of the country as it reenters the global economy. Being the first in Myanmar could give the company an edge — keeping its supply chain “flexible and nimble,” Gap executives say. In the fiercely competitive apparel market, staying trendy requires the speed afforded by a complex web of suppliers and factories that can react at a moment’s notice. But there are risks — to the company’s investment as well as its reputation — in working in a country without a minimum wage or reliable electricity. And the government’s precarious international standing, as its treatment of minorities, political dissidents, and journalists frequently draws outcries, only makes it riskier.

The retailer first started exploring the option last summer by meeting with local NGOs, trade union leaders, and officials. Sonia Syngal, who runs the company’s supply chain, worked with Gap’s team responsible for the company’s environmental impact and labor standards, led by Kindley Walsh Lawlor, to consider all aspects of sourcing from Myanmar, from human rights to anti-corruption policies.

In the fall, the Gap team reached out to Claude Fontheim, a labor lawyer and consultant with experience in brokering deals between apparel companies and international unions. (Fontheim declined to be interviewed for this story.) By winter, the Gap team had a plan that included the outlines of a private-public partnership. The company announced in June at the U.S. Embassy in Myanmar that along with its factory orders, Gap would also work with USAID and Hewlett-Packard on a women’s education program. The company didn’t disclose how much money it was investing in Myanmar overall or in the USAID program.

In addition to partnering with USAID, the company also consulted other current and former government officials, including former State Department ambassador-at-large for global women’s issues, Melanne Verveer. A Gap spokeswoman said the company paid Verveer’s firm, Seneca Point Global, a “nominal fee” to consult on women’s empowerment in Myanmar. Verveer applauded Gap’s efforts in this blog post on the company website.

The company’s Myanmar plan also includes at least a year of factory audits by an outside firm. Gap’s in-house team usually inspects factories to make sure they meet the company’s international labor standards, but in Myanmar the clothier decided to also contract with an independent auditor to check working conditions. That firm, Verité, inspected factories over six months and worked with suppliers to improve circumstances.

“We found, when we first assessed, that workers didn’t really have any idea of what they could expect in terms of payment, time spent on-site, limitations on overtime, days off — very basic-level benefits,” Verité CEO Dan Viederman said.

Viederman said Gap won’t allow his firm to discuss specifics but that the factories’ working conditions have improved since Verité began its inspections.

Viederman’s findings highlight the risk for Gap: The company has to create standards or it could be blamed for those poor working conditions later.

Gap says it’s ready to do that.

“In Myanmar, we’re currently working with two factories and are committed to applying industry-leading best practices and to doing our part to ensure that internationally recognized human rights and labor standards are upheld,” Courtney Wade, a company spokeswoman, stated in an email. She added that Gap’s decision would result in 700 local hires for a new building at one of the factories and that the company’s business will contribute to the employment of 4,000 people.

Wade said Gap is placing orders through two South Korean vendors that the company has used before, though she wouldn’t disclose which ones for competitive reasons. She said Gap’s supply chain includes more than 40 countries, many of which are emerging markets.

Gap has said it will file disclosures about its business with the State Department, even though the company is not required to because it isn’t building its own brick-and-mortar factories. U.S. companies that invest more than $500,000 in Myanmar or invest in the oil and gas industry have to file annual reports about corruption, human rights, and environmental programs.

“It’s our goal to release it soon so that it can act as a baseline,” Lawlor, the Gap vice president for social and environmental responsibility, said.

Despite all of Gap’s efforts to convince the world that it is acting aboveboard in Myanmar, there are skeptics. Local unions and international labor rights activists say pay and factory conditions are the most important factors.

“There’s no lower-wage place to go with lower enforcement of labor conditions than Myanmar,” said Dara O’Rourke, a professor at the University of California at Berkeley who studies labor conditions and supply chains. O’Rourke said that Gap must be “radically transparent” by, for instance, disclosing the independent factory auditor’s findings to prove that it isn’t relying on sweatshops.

“Just the fact that they’ve hired a bunch of consultants doesn’t give me any confidence in the conditions,” O’Rourke said. “They’re going into a country which has, currently, very little infrastructure for enforcing labor rights, so it’s incumbent on Gap Inc. to prove that they’ve created safe, healthy, humane, dignified jobs.”

Vicky Bowman, a former British diplomat who now runs the Myanmar Centre for Responsible Business, said Myanmar’s government has very little capacity to police labor standards.

“It’s all very well to tell the companies to do the right thing, but if you don’t have local government enforcing it, it makes it harder for the company to do the right thing,” Bowman said.

“All Western companies are aware, as they should be, that they’re going to come under a lot more scrutiny in Myanmar than they will in Laos, Cambodia, or Vietnam,” she said.

Activists targeted Gap for not signing an accord on labor rights in Bangladesh after a series of disasters drew attention to the lack of basic fire and building safety standards in the country. An Asian-American political group, 18 Million Rising, recently created a fake Gap website to draw attention to the issue during the company’s annual shareholder meeting.

In addition to the possible reputational risks to Gap, the U.S. government could reinstate sanctions if the government of President Thein Sein is seen as backtracking on its commitment to democracy. Last week, House Foreign Affairs Committee Chairman Ed Royce (R-Calif.) called for new punitive measures against his government for human rights abuses, including visa bans and possible new economic sanctions.

Over the past year, 15 U.S. companies, including Coca-Cola and Western Union, have registered with the State Department that they’ve invested in Myanmar. As of April, Myanmar’s government approved $243.6 million in foreign direct investment from U.S. companies, according to a recent U.S. Embassy report. The energy sector provides the bulk of outside investment but that could be changing. And Gap’s trailblazing could be a helpful test case for other U.S. companies waiting on the sidelines.

Peter Kucik, a former Treasury Department sanctions official now with Inle Advisory Group who provides consultancy services to companies on business in Myanmar, said he expects more companies to commit to doing business in the country over the next two or three months.

“Last year people just wanted the broad strokes and now you have people saying they’ve looked at the numbers and this does make sense,” Kucik said.

Link: http://www.foreignpolicy.com/articles/2014/07/14/gap_gambles_on_myanmar