Trade/B2B - WSAToday
Cleaning Up Their Act?
The heart of the footwear industry has become environmentalists’ public enemy #1 – but what does that mean for eco retailers?
By Liane Bonin
For anyone familiar with current newspaper headlines, the “green” 2008 Summer Olympics being promised in China this month might seem like an oxymoron. While Beijing has gone to great lengths to clean up the city, vowing to institute driving restrictions and shut down factories during the event, the reality is that pollution in the country has become a problem so massive it extends far past China’s own borders—and a cleaner, greener Olympics will do little to change it.
While only 1 percent of China’s 560 million urban residents have safe air to breathe and nearly 500 million lack access to drinkable water, according to The Los Angeles Times, the country’s smog now accounts for up to 40 percent of the air pollution in parts of California and 25 percent of that in Los Angeles. But the impact of China’s pollution problem extends beyond the air we breathe. With green consumers becoming better informed about production methods, and incidents such as Mattell Toys’ recall of 1.5 million Chinese-made toys because of lead paint fueling anti-China sentiment, for eco-conscious retailers the China problem has directly hit home. “Since the toy recalls, people are asking, ‘Are you sure this isn’t made in China?’” says The Little Seed co-owner Paige Goldberg Tolmach. “And I’m so glad they’re asking those questions.”
But many others aren’t. Given that the country exports 87.6 percent of America’s footwear, eschewing product from China is unlikely to make sense for most retailers or consumers. But the next logical question—can China clean up its act?—isn’t an easy one for anyone to answer.
TANGLED IN RED TAPE
“There are a number of challenges,” admits Isabel Hilton, editor of chinadialogue.net. “Most Chinese manufacturers have not seized on the proposition that sustainability builds long term value.” Efforts by the Chinese government to educate manufacturers about the benefits of green business have also failed dramatically. Last year President Hu Jintao started a “Green G.D.P.” initiative to recalculate gross domestic product after subtracting the costs of pollution, but the results were so dismal (for some provinces, pollution-adjusted growth rates fell close to zero) the project was quickly backburnered.
This isn’t to say that Beijing hasn’t picked up the global green initiative. The national government recently mandated that by 2010 the nation will use 20 percent less energy than it did in 2005 and vowed to reduce emissions of toxins such as mercury. Whether or not provincial politicians will pay any attention to that lofty goal is the thornier issue. “There’s a saying in China, ‘Heaven is high, the emperor is far away,’” says Robert Kapp, president of consulting firm Robert A. Kapp & Associates, Inc. “Trying to make a national mandate stick is very difficult, especially when job evaluations for these local politicians are based on keeping people employed and keeping the peace.”
“China appears to be a top-down society, but in reality, everything is implemented at the local level,” explains Peter Mangione, president of Footwear Distributors and Retailers of America (FDRA). “And for those local officials, their success is based on growth, and that’s it. Environmental issues that get in the way of that simply lose out. To change that situation will require a level of leadership that’s simply not apparent right now.”
FACING FORWARD
Given that the health of the Chinese people ranks a distant second behind the unrelenting demand for growth, it’s not surprising that the green issue gets pushed to the sidelines. Last year The New York Times revealed that the World Bank estimated a staggering 750,000 people a year die prematurely from air and water pollution in the country, a statistic that Chinese officials demanded be removed from the report.
But Beijing may still be able to push through some improvements. “A law was adopted in February that forces Chinese companies to submit to an environmental performance audit before they can be listed on the stock exchange,” notes Rick Schulberg, executive director of the International Sustainable Development Foundation. “It sounds like a small thing, but it’s really a pretty heavy hammer.” He adds that China’s Ministry of the Environment has for the first time established regional offices, giving Beijing better access to those all-important local officials. “It is a solution? No. But does it suggest they’re looking for ways to implement these initiatives? Yes.”
Ironically, losing face on the global stage may spur more change than any political action. The recent discoveries of lead in Chinese-made products ranging from toys to toothpaste created an uproar in the United States heard clearly at the products’ source. “The anguished outbursts from American consumers and politicians have resonated there, where there has been a major concern that the China brand could be so badly damaged it could take years to recover,” says Kapp. “The Chinese are really quite traumatized by the quality failures in their own market.”
And while freedom of speech is still limited in China, there are signs that public concern about the environment are bubbling to the surface. “If you pick up a newspaper, there’s open talk about environmental conditions,” says Schulberg. “Five years ago that would have been unheard of because it’s seen as anti-growth. The mantra is changing, and there’s more awareness of the consequences to polluting. And because the country has a public heath system, the government is paying the bill for it. The loops are coming together.”
PLAYING OUR PART
Though Chinese manufacturers may want to clean up their acts, the role of Western companies in the country’s pollution problem is a difficult one. Historically, international brands have brought their business—and their environmental problems— to the East. “We all know there were a number of companies that saw China as a source of cheap labor and a dumping ground,” says Schulberg. “Companies that were shut down by the EPA here set up in China, using the same old technology that no one wanted in their own backyard. And a lot of this was done in collusion with officials because the laws were murky and poorly enforced. It’s a fact of life, and it’s still happening. Not with respectable international companies, but a number of companies that are based in the United States.”
And, while many brands are dedicated to cleaner practices, they may still bump up against a fundamental culture clash in demanding them from China. “Communication between American and Chinese colleagues is a challenge, because the Chinese are likely to say ‘yes’ when they have good intentions, even if they aren’t really in a position to comply,” says Karen Christensen, CEO of Berkshire Publishing and publisher of Guanxi: The China Letter.
As brands such as Mattell have discovered, the only way to be sure that Chinese manufacturers are meeting agreed-upon standards is by checking and double-checking. “I think, regrettably, there’s no substitute for effective inspection for any importing country,” says Kapp. “This is a huge task American companies must face up to, and it will add costs.”
BIGGER PROBLEMS TO SOLVE
Unfortunately, higher costs are in the pipeline whether or not international brands step up quality testing or Beijing successfully institutes change, as Chinese currency is going up while the dollar drops. Last year the yuan gained 7 percent on the dollar, and in the first quarter of this year it jumped 4 percent. Labor shortages in coastal territories are also likely to make the price of production jump. “International brands take advantage of the fierce competition on the ground in China and force down prices while insisting on nominal adherence to human rights and environmental standards,” says Hilton. “The result is widespread counter-compliance, ghost factories and the other ills of the global supply chain. If international brands truly want to assure customers that they pursue sustainable practices in the supply chain, they and their customers have to accept that, in the short term, such practices have to be paid for.”
With U.S. based brands feeling the economic pinch and Chinese manufacturers trying to sustain growth, no one will be surprised if the issue of the environment gets a lot of lip service and not much else. “Sourcing in China today is going through such a dramatic realignment,” says Mangione. “The export machine is threatened by rising costs, and that’s on peoples’ minds everywhere. The house is on fire, and in the midst of that, green issues are not at the top of anyone’s list.” Mangione notes that not only are factory costs up, but so are the prices for food, fuel and electricity in China. “You can’t raise retail prices 20 percent, and we have a soft retail environment right now. This is the perfect storm.”
WHAT’S NEXT
With so many obstacles, the specter of a green China may seem at best a pipe dream. But experts say there just might be a silver lining in this toxic dark cloud. “Actually, the good news is that it’s gotten so bad,” says Schulberg. “People are looking at the situation and realizing they can’t just look at economic growth, because it doesn’t matter how much you have or earn, you still have to breathe the air. And from a legal standpoint and a regulatory standpoint, no country is more active than China right now in putting environmental regulations into action.”
Simple economics may ultimately fuel green efforts as China faces shortages. With the government already trucking in water to the Eastern part of the nation as wells there run dry and 550 of the 600 largest cities in the country are running short on water, conservation and efforts to keep pollutants out of ground water may be the only thing preventing civil unrest in the near future. Analysts working for Shell, Coca-Cola, Procter & Gamble, Cargill and other companies which depend heavily on secure water supplies have suggested that China’s economy could crash due to water shortages by 2015.“In the long term, China can’t sustain growth without sustainability,” says Hilton. “The country faces severe shortages of water, energy and raw materials, severe public health impacts and massive pollution. All of these represent costs that will come home in the near and longer term and will impact growth.”
But whether Chinese officials will agree with the dire future predicted by analysts is open to debate. “I’m skeptical,” admits Mangione. “I think most observers are, because even in developed countries there’s a tension between the environmental imperative and growth. Even in a democracy it’s hard to balance both things, and in China there’s such a prejudice toward growth. That’s how local officials feather their nests, so where’s the incentive in scaling back? Green simply goes against the grain in China.”
At least one brand leader has faith that China’s future isn’t so grim. In his company blog, Terra Plana brand manager Galahad Clark addresses anti-China sentiment by noting that the country has some of the “most advanced (and eco friendly) component suppliers in the world” and that the factories the brand works with are independently audited by international NGOs. “China is a country of 1.3 billion and, as she develops, the world is understandably concerned that there may not be enough resources to go around,” he writes. “China is shaking the world we all share and we should embrace the exciting interaction of ideas, goods and services.”
Still, even with bright spots to be found, greening China as a whole will be a long, uphill battle. “There is progress being made, but the situation is very bad,” Schulberg admits. “So the question becomes, is progress being made fast enough? We can’t know. We just need to pick up the pace.”
The heart of the footwear industry has become environmentalists’ public enemy #1 – but what does that mean for eco retailers?
By Liane Bonin
For anyone familiar with current newspaper headlines, the “green” 2008 Summer Olympics being promised in China this month might seem like an oxymoron. While Beijing has gone to great lengths to clean up the city, vowing to institute driving restrictions and shut down factories during the event, the reality is that pollution in the country has become a problem so massive it extends far past China’s own borders—and a cleaner, greener Olympics will do little to change it.
While only 1 percent of China’s 560 million urban residents have safe air to breathe and nearly 500 million lack access to drinkable water, according to The Los Angeles Times, the country’s smog now accounts for up to 40 percent of the air pollution in parts of California and 25 percent of that in Los Angeles. But the impact of China’s pollution problem extends beyond the air we breathe. With green consumers becoming better informed about production methods, and incidents such as Mattell Toys’ recall of 1.5 million Chinese-made toys because of lead paint fueling anti-China sentiment, for eco-conscious retailers the China problem has directly hit home. “Since the toy recalls, people are asking, ‘Are you sure this isn’t made in China?’” says The Little Seed co-owner Paige Goldberg Tolmach. “And I’m so glad they’re asking those questions.”
But many others aren’t. Given that the country exports 87.6 percent of America’s footwear, eschewing product from China is unlikely to make sense for most retailers or consumers. But the next logical question—can China clean up its act?—isn’t an easy one for anyone to answer.
TANGLED IN RED TAPE
“There are a number of challenges,” admits Isabel Hilton, editor of chinadialogue.net. “Most Chinese manufacturers have not seized on the proposition that sustainability builds long term value.” Efforts by the Chinese government to educate manufacturers about the benefits of green business have also failed dramatically. Last year President Hu Jintao started a “Green G.D.P.” initiative to recalculate gross domestic product after subtracting the costs of pollution, but the results were so dismal (for some provinces, pollution-adjusted growth rates fell close to zero) the project was quickly backburnered.
This isn’t to say that Beijing hasn’t picked up the global green initiative. The national government recently mandated that by 2010 the nation will use 20 percent less energy than it did in 2005 and vowed to reduce emissions of toxins such as mercury. Whether or not provincial politicians will pay any attention to that lofty goal is the thornier issue. “There’s a saying in China, ‘Heaven is high, the emperor is far away,’” says Robert Kapp, president of consulting firm Robert A. Kapp & Associates, Inc. “Trying to make a national mandate stick is very difficult, especially when job evaluations for these local politicians are based on keeping people employed and keeping the peace.”
“China appears to be a top-down society, but in reality, everything is implemented at the local level,” explains Peter Mangione, president of Footwear Distributors and Retailers of America (FDRA). “And for those local officials, their success is based on growth, and that’s it. Environmental issues that get in the way of that simply lose out. To change that situation will require a level of leadership that’s simply not apparent right now.”
FACING FORWARD
Given that the health of the Chinese people ranks a distant second behind the unrelenting demand for growth, it’s not surprising that the green issue gets pushed to the sidelines. Last year The New York Times revealed that the World Bank estimated a staggering 750,000 people a year die prematurely from air and water pollution in the country, a statistic that Chinese officials demanded be removed from the report.
But Beijing may still be able to push through some improvements. “A law was adopted in February that forces Chinese companies to submit to an environmental performance audit before they can be listed on the stock exchange,” notes Rick Schulberg, executive director of the International Sustainable Development Foundation. “It sounds like a small thing, but it’s really a pretty heavy hammer.” He adds that China’s Ministry of the Environment has for the first time established regional offices, giving Beijing better access to those all-important local officials. “It is a solution? No. But does it suggest they’re looking for ways to implement these initiatives? Yes.”
Ironically, losing face on the global stage may spur more change than any political action. The recent discoveries of lead in Chinese-made products ranging from toys to toothpaste created an uproar in the United States heard clearly at the products’ source. “The anguished outbursts from American consumers and politicians have resonated there, where there has been a major concern that the China brand could be so badly damaged it could take years to recover,” says Kapp. “The Chinese are really quite traumatized by the quality failures in their own market.”
And while freedom of speech is still limited in China, there are signs that public concern about the environment are bubbling to the surface. “If you pick up a newspaper, there’s open talk about environmental conditions,” says Schulberg. “Five years ago that would have been unheard of because it’s seen as anti-growth. The mantra is changing, and there’s more awareness of the consequences to polluting. And because the country has a public heath system, the government is paying the bill for it. The loops are coming together.”
PLAYING OUR PART
Though Chinese manufacturers may want to clean up their acts, the role of Western companies in the country’s pollution problem is a difficult one. Historically, international brands have brought their business—and their environmental problems— to the East. “We all know there were a number of companies that saw China as a source of cheap labor and a dumping ground,” says Schulberg. “Companies that were shut down by the EPA here set up in China, using the same old technology that no one wanted in their own backyard. And a lot of this was done in collusion with officials because the laws were murky and poorly enforced. It’s a fact of life, and it’s still happening. Not with respectable international companies, but a number of companies that are based in the United States.”
And, while many brands are dedicated to cleaner practices, they may still bump up against a fundamental culture clash in demanding them from China. “Communication between American and Chinese colleagues is a challenge, because the Chinese are likely to say ‘yes’ when they have good intentions, even if they aren’t really in a position to comply,” says Karen Christensen, CEO of Berkshire Publishing and publisher of Guanxi: The China Letter.
As brands such as Mattell have discovered, the only way to be sure that Chinese manufacturers are meeting agreed-upon standards is by checking and double-checking. “I think, regrettably, there’s no substitute for effective inspection for any importing country,” says Kapp. “This is a huge task American companies must face up to, and it will add costs.”
BIGGER PROBLEMS TO SOLVE
Unfortunately, higher costs are in the pipeline whether or not international brands step up quality testing or Beijing successfully institutes change, as Chinese currency is going up while the dollar drops. Last year the yuan gained 7 percent on the dollar, and in the first quarter of this year it jumped 4 percent. Labor shortages in coastal territories are also likely to make the price of production jump. “International brands take advantage of the fierce competition on the ground in China and force down prices while insisting on nominal adherence to human rights and environmental standards,” says Hilton. “The result is widespread counter-compliance, ghost factories and the other ills of the global supply chain. If international brands truly want to assure customers that they pursue sustainable practices in the supply chain, they and their customers have to accept that, in the short term, such practices have to be paid for.”
With U.S. based brands feeling the economic pinch and Chinese manufacturers trying to sustain growth, no one will be surprised if the issue of the environment gets a lot of lip service and not much else. “Sourcing in China today is going through such a dramatic realignment,” says Mangione. “The export machine is threatened by rising costs, and that’s on peoples’ minds everywhere. The house is on fire, and in the midst of that, green issues are not at the top of anyone’s list.” Mangione notes that not only are factory costs up, but so are the prices for food, fuel and electricity in China. “You can’t raise retail prices 20 percent, and we have a soft retail environment right now. This is the perfect storm.”
WHAT’S NEXT
With so many obstacles, the specter of a green China may seem at best a pipe dream. But experts say there just might be a silver lining in this toxic dark cloud. “Actually, the good news is that it’s gotten so bad,” says Schulberg. “People are looking at the situation and realizing they can’t just look at economic growth, because it doesn’t matter how much you have or earn, you still have to breathe the air. And from a legal standpoint and a regulatory standpoint, no country is more active than China right now in putting environmental regulations into action.”
Simple economics may ultimately fuel green efforts as China faces shortages. With the government already trucking in water to the Eastern part of the nation as wells there run dry and 550 of the 600 largest cities in the country are running short on water, conservation and efforts to keep pollutants out of ground water may be the only thing preventing civil unrest in the near future. Analysts working for Shell, Coca-Cola, Procter & Gamble, Cargill and other companies which depend heavily on secure water supplies have suggested that China’s economy could crash due to water shortages by 2015.“In the long term, China can’t sustain growth without sustainability,” says Hilton. “The country faces severe shortages of water, energy and raw materials, severe public health impacts and massive pollution. All of these represent costs that will come home in the near and longer term and will impact growth.”
But whether Chinese officials will agree with the dire future predicted by analysts is open to debate. “I’m skeptical,” admits Mangione. “I think most observers are, because even in developed countries there’s a tension between the environmental imperative and growth. Even in a democracy it’s hard to balance both things, and in China there’s such a prejudice toward growth. That’s how local officials feather their nests, so where’s the incentive in scaling back? Green simply goes against the grain in China.”
At least one brand leader has faith that China’s future isn’t so grim. In his company blog, Terra Plana brand manager Galahad Clark addresses anti-China sentiment by noting that the country has some of the “most advanced (and eco friendly) component suppliers in the world” and that the factories the brand works with are independently audited by international NGOs. “China is a country of 1.3 billion and, as she develops, the world is understandably concerned that there may not be enough resources to go around,” he writes. “China is shaking the world we all share and we should embrace the exciting interaction of ideas, goods and services.”
Still, even with bright spots to be found, greening China as a whole will be a long, uphill battle. “There is progress being made, but the situation is very bad,” Schulberg admits. “So the question becomes, is progress being made fast enough? We can’t know. We just need to pick up the pace.”