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Termpaper

- Corporate Social Responsibility: Inditex vs. H&M -

Hand-in date:

DD.MM.YYYY
Campus:

BI Oslo
Examination code and name:

EXC 2705 Scandinavian Management

Programme:

Bachelor in Business Administration

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Content
CONTENT.........................................................................................................................................I SUMMARY:....................................................................................................................................II COMPANY PROFILE:...................................................................................................................1 AN APPROACH TO INDITEX:..................................................................................................................1 CORPORATE SOCIAL RESPONSIBILITY:..............................................................................3 WHAT IS CORPORATE SOCIAL RESPONSIBILITY?.....................................................................................3 INDITEXS CORPORATE SOCIAL RESPONSIBILITY:....................................................................................4 HENNES AND MAURITZS CORPORATE SOCIAL RESPONSIBILITY:.............................................................11 CONCLUSION AND DISCUSSION:...........................................................................................16 CORPORATE SOCIAL RESPONSIBILITY, FICTION OR REALITY?...................................................................16

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Summary:
Through this paper we want to compare the differences and similarities between two of the main retailers in Europe regarding such an important topic as the Corporate Social Responsibility. At the same time, comparing these two companies: Inditex Group, a Spanish retailer and one of the biggest in the world and one of its main competitors, the Scandinavian (Sweden) company H&M; will allow us to compare how two similar companies but from very different origins faced this issue. The reasons to choose these companies in order to analyze the Corporate Social Responsibility policies from two different companies in Europe are the followings: Both are important companies which has business all around the world. This makes that both companies should be worry to control an ethical behavior and environmental respect of all their work partners worldwide which imply to be able to adequate to different countrys laws and cultures. We were looking for two companies which have a similar business in order to study how different cultures will make o not to have different points of view regarding the Corporate Social Responsibility. The analysis of the Corporate Responsibility policies from both companies will be carry out based on the following dimensions: Social Dimension: Where they give rules and guidelines for External manufacturers and suppliers, own group manufacturers and employees Economic Dimension: which we will not discuss in this paper.

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Environmental Dimension: the second dimension which we will talk about as the growing importance it has for the people and the companies currently.

Trough this study we expect to find out how this important topic is handle in by two different companies and if they way to do it is similar or not between similar business companies but with different country cultures.

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Company Profile:
An approach to Inditex: In order to understand how Inditex become one of the main retailes in the world we should talk about Amancio Ortega, founder of Inditex. Amancio Ortega had to start working very young, when he was only 13. One of his two first jobs was in a Clothing Store. He began distributing silk shirts embroidered with the initials of the bourgeois of the time. After that, he began to work as a clerk and manager of La Maja. At some time of their working life, he was sent to the house of the bank man called Pedro Barri de la Maza to deliver him handmade shirts. This man gave him a good tip with which he could buy their first scissors and patterns. From this moment, he always looks what he leaves as tip and requires generosity to his closest friends. While he was working at La Maja with his brother, his sister and with his future wife, he proposes to some manufacturers to make their own cloth to commercialize. As they see the great success they reach, he and his brothers decided to start their own business. And that was the germen of what Inditex is today: A company that today has more than 5,000 stores worldwide and that last year sales reached 11,084 million. One of the greatest successes of Amancio Ortega was to offer to everyone high quality clothes at a reasonable price. However his biggest success was to introduce the concept called: just-in-term method. This method allows the production chain to adapt its production to the customers needs in just 48 hours. Firstly, Amancio open the first store under the name of ZARA in 1975. Soon after he began to open stores all around Spain and it was in 1985 when Inditex was created to be the Head of the firm. Just 3 years later they open his first store out of Spain and start the expansion of the company worldwide. With the unstoppable growth of the firm, another firms where created and some other bought. Now Inditex has under its control the following brands: Zara, Massimo Dutti, Pull & Bear, Bershka, Oysho, Zara Home and Uterqe.
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From the very beginning, Inditex have had very present the necessity of carry on a sustainable development of their business, reason why the company has given such a big importance to the Corporate Social Responsibility. During the following point we will discuss this under the Social Dimension and the Environmental dimension. Regarding to these, we will highlight that Inditex has recently obtained the maximum score on the FTSE4Good index, which is an index that represent globally accepted standards of good practice corporate social responsibility.

An approach to Hennes and Mauritz: Hennes & Mauritz AB, also known as H&M, is a Swedish retail company with presence in forty countries all around the world, but mostly located in Europe. Its product range is comprised of clothing, including underwear and sportswear, for men, women, children and teenagers, as well as cosmetic products, accessories and footwear (Factiva.com). But Hennes & Maurtiz AB is more than H&M, it comprises the brands: H&M, COS, MTWTFSS Weekday and Cheap Monday. H&M was founded in 1947 in the city of Vster, Sweeden by Erling Persson. In the beginning the company was named as Hennes, which in Swedish means hers, due to the fact they only sold clothing for women. In 1968 Hennes acquired Mauritz Widfross a Stockholm haunting equipment store. After the acquisition of this company Hennes began to sell men clothing and change its name to Hennes & Mauritz that later was abbreviated to H&M. During the decades of the 60s, 70s and 80s H&Ms main markets where Sweden, Denmark, Norway, Germany and the United Kingdom, where its stores were located. In the 90s it started an expansion plan opening stores in France and then in 2000 it opened in North America and in Spain. Following this expansion, H&M entered the Asian market opening its stores in Shanghai, Hong Kong and Tokyo in the year 2007. In 2009 it opened its first store in Russia and later on in 2010 in Israel and Turkey. The mission of H&M is to offer the customers fashion and quality at the best price possible. To achieve its mission, H&M has a team of a hundred designers who design H&M clothing line based on the last tendencies of fashion.
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Moreover, the company has special and limited editions developed by famous designers as Karl Lagerfeld, Stella McCartney or Jimmy Choo among others. When looking to H&M Corporate Social Responsibility it is important to have in mind that H&M does not own factories. Clothing are made by external suppliers located in Asia and Europe, which makes control of quality and labor conditions harder than if they were H&M own factories. To avoid problems H&M has a very strict and specific code of conduct for its employees and suppliers as part of it Corporate Social Responsibility, which we will discuss later. Thanks to all of the above H&M has become one of the major retailers in the world with 82,000 employees and reaching last year 126.97 billion SEK in sales.

Corporate Social Responsibility:

What is Corporate Social Responsibility? Corporate Social Responsibility - CSR from now on- has become more and more important in recent years in companies all around the world, but especially in North America and Europe and the main question is why. Corporations engage to CSR for multiple reasons: having a better brand reputation, attract employees to work for them, forestall legislation through social actions and programmes or to become a long-term investment in a community (Crane and Matten 2010). Because all of these and more reasons CSR have become such a strong issue in the twenty first century companies. But, what is Corporate Social Responsibility? Economist and researches from all over the world have researched and debated about what CSR is or why corporations have to have responsibility with the society. We, as students of business administration and members of this society, think that companies have to have responsibilities not only with its customers and stakeholders, but also with the community where they work and the environment. According to Carrol and Buchholtz (2009) CSR includes economic, legal, ethical and philanthropic expectations placed on organizations by society at a
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given point in time. The economic responsibility is the most important one and the basis for the rest of the responsibilities and as well as the legal responsibilities is required by the society. The ethical responsibility goes beyond the legal ones, which means that the company has to do what is right, just and fair. It is what is expected by the society. The final stair of this pyramid is the philanthropic responsibilities, which are desired by society (Crane and Matten 2010). But this is the US context and the companies we are going to study are both European, even though they have presence worldwide. In Europe the importance of the four level of responsibilities are a little bit different. While economic responsibility is really important and it goes beyond a certain level of profit and involves responsibility with the employees and local communities, the philanthropic stair is not as important as in North America. CSR can be also defined as the active and voluntary contribution to the social, economic and, economic and environmental firms, usually with the aim of improving their competitive position and valuation and added value. Now that we have defined what corporations and society understand by Corporate Social Responsibility we can study in detail how CSRs of Inditex and H&M are. Inditexs Corporate Social Responsibility: Inditex group plan is divided into three dimensions: the social dimension, the environmental dimension and the economic dimension. During this section we will focus on the first two. Social Dimension: It refers to the code which governs the relations with the External Manufacturers and Workshops and the relations between the employees of the firm.
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Inditex code of conduct for external manufacturers and suppliers: this section is divided in two parts.
a. The first is an introduction of the code where it is

indicated the regulatory framework on which the new Code is articulated: The agreements of the ILO, The Universal Declaration of Human Rights of the United Nations, The Principles of the Global Compact of the
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United Nations, The Directives of the OECD for multinational companies, The Base Code of ETI, The locally applicable employment legislation and The local legislation in environmental matters and, in the absence there of, the international legislation that is in force.
b. The second part of the code refers to the 11 points

which are regulated by Inditex and explains what they consist about.
1. No forced labor: Inditex does not allow any kind of force

work and do not allow their suppliers to ask for any deposit to her employees and make them to recognize the right of the employee to leave the job if he has advice with reasonable time.
2. No child labor: Inditex define like underage to any people

under sixteen. But if the countrys legislation asks for a higher age, then this limit will have to be respect. It also says that people under eighteen should not work at night or in dangerous situations as is define in the Recommendation 190 of the International Labour Organization.
3. No discrimination: Not any discrimination should be allow

based on race, caste, creed, nationality, religion, age, physical or mental disability, gender, marital status, sexual orientation and/or union membership or political affiliation.
4. Respect for freedom of association and collective

bargaining: It shall be ensure that the employees, without distinction, have the right of association, union membership and collective bargaining. No discrimination could arise from the exercise of this right.
5. No harsh or inhumane treatment: Inditex require that all

employees should be treated with dignity and respect.

6. Safe and hygienic working conditions: a safe and healthy

work place should be provided to the workers, as well as minimum conditions of light, ventilation, hygienic
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environment, fire protection, security measures and access to potable water. Moreover, externals manufacturers and suppliers should adopt every necessary measure to ensure security and safe conditions at the work place.
7. Wages are paid: Inditex require that the employees salary

should be at least the minimum established by law or higher. Moreover it should be enough to cover the basic and reasonable necessities of the employees.
8. Working hours are not excessive: Is not allowed to work

more than 48 hours a week and it should be recognize at least one free day for every 7 natural days.
9. Environmental awareness: External manufacturers,

suppliers and their subcontractors shall be duly committed at all times to protect the environment and shall comply, at least, with the standards and requirements of the applicable Local and International Laws and Regulations. (Inditex Source) 10. Regular employment 11. Code implementation: In this point it is explain how some aspects should be regulated on the Inditex structure. Topics as the requisites for subcontracting or for the publication of the code as well as the necessity of providing the employees with a copy of the code translate to the local language are discussed here. Why does inditex implement a code of conduct for their suppliers? The reason why Inditex has developed this code for external manufacturers and suppliers is that Inditex works with enormous number of externals, even when it also has it owns manufactures. So, in order to ensure that every part of the Inditex structure follow ethical rules and behavior they integrated this code to the conduct code of the company.

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From the moment that this code was implemented, every supplier (External manufacturers and Workshops) of Inditex has the obligation of follow the rules disposed in it. How does Inditex control that everyone related with the business follow the code? As Inditex is very concern about the social dimension it has develop rules and codes as well as a department to ensure that the ethical rules are met. The first step was the inclusion of a rule in the code that allows Inditex to make all the controls they want without the necessity of advice before the control. It also creates a department of consultants which is dedicated to the realization of these control all around the world where Inditex has supplier. However, as Inditex has such a big number of external manufacturers and suppliers it also has external consultants to make these controls.
3.1.1. Internal Guidelines for responsible practices: this section

emphasis on ensuring a good work environment as it makes a particular reference to the No-discrimination of any person due to any reason (no racial, religion o sex discrimination is permitted) as the company consider itself a multicultural company. Not only Inditex has regulated their External manufacturers and suppliers but it has also create an Internal Guidelines for Responsible Practices of the Inditex's Group Personnel to encourage the ethical behavior of their employees and help prevent all forms of corruption. As the name indicates, they are just guidelines and not a set of obligation. Inditex expect that their employees will follow this guidelines, reason why it has create an organism to report any irregularity inside the company. It was approved in February 2002 and is defined as an ethical commitment that includes basic principles and standards for the appropriate development of the relations between the Inditex Group and its main stakeholders (employees, customers, shareholders, business partners and any societies where it develops its business model). (Extract of Inditex Ethical code).
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The code explains their guidelines referring to the following aspects:

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Scope of application: these guidelines are to be follow in all the company body, including own factories and business and External manufacturers and Suppliers.

Enforcement of the legislation: Employees shall follow the legislation rules of the country in order to enforce these guidelines.

Relationship among employees and with customers: All employees are bound to act, as regards their employment relationships with other employees and with the customers, pursuant to the principles of respect, dignity and justice, taking into account the different cultural sensitivity of each individual and not allowing any manner of violence, harassment or abuse in their work, nor any discrimination against because of their race, religion, age, nationality, sex, or any personal or social traits statutorily forbidden other than their own merit and capacities, in pursuit, especially of the attention and assimilation into working life of disabled or handicapped people (reference: Inditex web page)

Relationship with suppliers: it should be based on a lawful, ethical and respectful relationship.

Relationship with authorities: based on the same rules as the above relationship and it also mention that no employee should offer, grant, apply for or accept, either directly or indirectly, any gifts, handouts, favors or compensations,

Communication of activities: employees should report directly to the company.

Personal conflicts of interest: Inditex remarks that the company respects the personal and private life of its
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employees and if any problem will arise then they are asked to go to the Committee of Ethics.
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Exercise of political activities: Inditexs activities are to be carry out without any political influence.

Use of goods and services of the company: they are not to be used for own profits.

Exercise of other activities: employees shall not do another activity that reduces the efficiency or will end in an interest conflict with Inditex.

Confidentiality of information: the confidential contract still available even when the employee leaves the company.

Record of transactions: Inditex apply for the clearness of the transactions

Enforcement of the Guidelines and Committee of Ethics: Publicity of the guidelines:These Guidelines shall be made available to the employees in their own language; they will be posted on all web sites of the Group and shall be subject to the appropriate disclosure, training and awarenessraising actions to be properly understood and implemented within the whole organization.

Environmental dimension: It refers to the necessity that Inditex believe it has while realizing its activity according to the environment. They firmly believe that their business activity should be follow sustainable development standards which guarantee the environmental protection. These part of the corporate responsibility plan also has different point. We will discuss two of them: a. The first part refers to the principles that are follow in the environmental policy which are 4:

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1. Inditex will consider the environmental variable while

their planning and develop of their activities, as well as their company partners. It will also promote the environmental awareness. 2. Inditex will met the environmental law which will legislate it activities as the same time that it will work hard to minimize and avoid the contamination and the environmental impact that it activities could cause.
3. It will develop their management in order to improve

their efficiency and to reduce the resource consumption. 4. They guarantee that their employees will know the companys policy
b. The second part that we will discuss refers to stragecial environmental

plan of Inditex for the following years: As it has been said above, Inditex make a big effort to make the suitable development art of its policy. Consequently they try to improve their efficiency, reason why they analyze its business trying to find where they can apply that principle and where it is possible to improve. The currently strategic plan refers to the years 2007 to 2010 and its main objectives are: To reduce greenhouse gas emissions. To encourage the spread of renewable energies. To maximize efficient use of energy in manufacturing. To raise employee awareness and enhance staff training. Moreover it is focus on five points to develop: 1. Sustainable Store (Store Sustainability System) 2. Inditexs Pro-Kyoto

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3. ProjectEnergy and Environmental Integration Project

(IEMA):The goal of this project is to install sources of renewable energy, such as wind energy, solar photothermal and photovoltaic solar energy, at the companys distribution hubs and reduce energy use to a minimum.
4. The Carbon Footprint Project. Analysis of the Textile Life

Cycle: The term carbon footprint refers to the environmental impact of a given activity. 5. The Terra Project, the End of the Cycle. Hennes and Mauritzs Corporate Social Responsibility: As it has been stated before the aim of H&M is to give its customers fashion and quality at the best price. They way of achieving this is no other than manufacture its products in a way that is environmentally and socially sustainable. As well as Inditex we have divided H&M CSR in two dimensions: social dimension and environmental dimension. Social Dimension: refers to Code of Conduct and Code of Ethics that is applicable for all suppliers, their subcontractors, business partners as well as Hennes and Mauritz AB employees. H&M code of conduct is based on the following international and national standards: o The Universal Declaration of Human Rights o The UN Convention on the Rights of the Child o Applicable ILO Conventions o National Legislation In this code of conduct eight are the main points that are developed. Those are the following: 1. Legal Requirements: All suppliers and business partners must follow all the national laws of the countries they are operating in. If the code of conduct is conflict with the law, this last one is the one, which has to be followed.

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2. Child Labor is not accepted: Based on the ILO Conventions and the UN convention on the Rights of the Child H&M does not accept child labor. Child under the age of 15 (14 in the case that the law allows so) or younger than the legal age of employment if its higher than 15 cannot be employed. Moreover, all legal limitations on the employment of people below the age of 18 must be followed. 3. Health and Safety: Suppliers employees and business partners employees security must be a priority at all times. This includes that no hazardous equipment or unsafe buildings are accepted as well as emergency exist must be clearly marked. The employers must ensure that there are the less labor accidents as possible, and have always a first aid kit available and a doctor or a nurse when is legally required. 4. Workers Rights: The basic rights of workers dealt in this code of conduct are: i. Not acceptance of force or bonded labour. ii. Migrant employees have the same rights as local employees. iii. Every employee shall be treated with respect or dignity. Any kind of abuse or harassment is not allowed. iv. Every employee has the right to join or form association of their own choosing. v. No employee shall be discriminated against in employment or occupation on the grounds of sex, race, color, age, pregnancy, sexual orientation, religion, political opinion, nationality, ethnic origin, disease or disability. On concern of wages and salaries H&M base its code of conduct on Article 23:3 of the Declaration of Human Rights that states the following: Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity. This means that wages must be paid on time and reflect the experience, qualification and performance of the worker.

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5. Housing Conditions: If the company provides housing to the employees the point number three of the code of conduct also applies. The dormitory must be separated from the workplace. 6. Environment: Matter of environment will be discussed later when talking about the Environmental dimension. 7. Systems approach: H&M suppliers and business partners must have the necessary policies and management in place. 8. Monitoring and Enforcement: This point is to ensure that everyone follows this code of conduct and they are transparent about information. H&M, to ensure this has a team of auditors, known as the Full Auditing Program (FAP), whose mission is to aim if there are any gaps between the code of conduct and the actual practices and conditions of the workplace. The second part of the social dimension is the code of ethics that tries to avoid disloyalty, dishonesty, bribery and corruption. This Code of Ethics is basically a few important guidelines for employees and suppliers on how they should behave when representing H&M. The third point of this dimension is the strengthen communities. As it is said in the H&M Sustainability Report 2010 Our operations have an impact on communities around the world. We contribute to economic growth in the areas that H&M and our suppliers operate in and use our influence to promote better social and environmental conditions. Investing in the communities around us extends these improvements more widely in turn, benefits our business. H&M focuses its efforts in three main areas and through two main partners. The areas in which it works are: employment and education among women and youth, water and innovation of sustainable materials. Its main partners are: UNICEF and WaterAid. An example of how much H&M is committed to its communities is that in the year 2010 they spent 32.7 millions of Swedish kroners. Environmental Dimension: As it was said before the aim of H&M is to give its customers fashion and quality at best price being socially and environmentally sustainable. Environmental dimension is a really important matter in CSRs
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H&M. This dimension can be divided in three parts as it is divided in the H&M Sustainability Report 2010: Be Climate Smart, Reduce, Reuse and Recycle, and use natural resources responsibly. Be Climate Smart is based in three main pillars to fight climate change due to it is one of the major challenges of our time. These pillars are being climate smart, energy efficient and use more renewable energy. They plan to do so by reducing its greenhouse gas emission by 5% in 2012, installing photovoltaic solar panels in its distribution centers in Belgium and Germany or building their stores following environmental guidelines in order to be more energy efficient. With all this measures H&M tries to achieve a level of 20% of energy coming from renewable energies by 2020 or reduce the energy consumption also by a 20 percent in its stores. Reduce, Reuse and Recycle has as major aim to minimize waste impact as much as possible, zero waste to landfill. To accomplish this challenge the firm has started to carry on some measures such as: o Bags made from recycled material. These bags are made of a 50 percent of post-consumer and 50 percent of pre-consumer. o Reduce product packing from raw material selection to product and end of life, including transportation packing. o Recycling and reusing of hangers. o Use of recycled fibers as recycled wool, cotton or polyester in H&M products. Use natural resources responsibly because of the scarcity of natural resources nowadays; H&M is highly committed to conserve water, soil, air and species. To be able to carry on this commitment the company has focused in: o Raw Materials: H&M is working hard in achieving that by 2020 all cotton will come from sustainable sources; the participation of the firm in the program Better Cotton Initiative reflects that. Organic cotton, which is the cotton used by H&M, reduces
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potential negative impact of cotton on local water quality and biodiversity. o Water: Even though water is not a main part of H&M producing system it is used it takes part in it. In order to improve and reduce the waste of water the group has signed in 2008 the UN Global Compact. By signing this compact H&M commits itself to improve water efficiency and improve wastewater quality. o Paper: H&M uses a lot of paper that is why they just use recycled paper; Forest Stewardship Council (FSC) certified paper is used on receipt rolls and EU- flower labeled paper is used in mail orders and catalogues.

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Conclusion and Discussion:

In the previous pages we have exposed objectively the CSRs of the two most important clothing retailers of the world. We have seen that they are not only leaders in the industry but also leaders in Corporate Social Responsibility. Both companies are highly committed with the communities they are operating in and with the environment. However, one thing it is what companies do on paper and another one what happens in practice. Many are the companies that have shown the world how committed and worried they were about the environment or the society and how much they were doing form that have had to recant themselves because they were involved in public scandals of child exploitation or pollution. An explication of this is what happened to the American sportswear manufacturer Nike Inc. which had to pay 1.5 million dollars due to the fact children under the age of fourteen where working in its factories in China and Vietnam. So what we have to ask ourselves as customers of these firms is: Are they really executing all those commitments? Corporate Social Responsibility, fiction or reality? After a long research to this paper we think that these two companies are really committed with their responsibility with the society and the environment. H&M has been awarded with the title of one of Worlds most ethical companies in 2011, which means that they are trying and achieving what they propose themselves in their Sustainability Reports. Meanwhile, Inditex has recently obtained the maximum score on the FTSE4Good index (An index that represent globally accepted standards of good practice corporate social responsibility) and only during the last year it end its relationships with more than 300 suppliers. However, they do not have the complete control of their suppliers and business partners and sometimes they can be involved in scandals as Nike was. The main problems or deficiencies that are usually found when a supplier receives a low qualification are: deficiencies on the safety measures, the subcontracting not authorized or controlled by Inditex, excessive number of extraordinary hours; lack of training of workers, the daily working hours exceed
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the legal maximum (11 hours), the absence of weekly rest, undeclared workers to Social Security or environmental pollution problems. To conclude with the discussion we will expose one of these cases where some business partners escape to the control of the auctions and break the code of conduct. The case regards to Inditex and was discovered by the Portuguese newspaper Expresso. The auditions carried by Inditex divide its suppliers with a score which goes from A, the best grade; to D, the worst one. Once some deficiencies are found specific deadlines are given to them in order to correct them and get out of this qualification if they want to keep being a supplier of inditex. As we can see, the compromise of Inditex does not only appear on the paper, but it also comes true by the continuous auctions which are made around the world to all of its external and internal suppliers. However, despite those controls, in May 2006, the Portuguese Newspaper, the Expresso, published an article denouncing the abuses and irregularities perpetrated by a few Inditex suppliers in this country. The reaction of Inditex was immediately, and they announced that they were going to investigate the information given by Expresso. They also affirm that in the case of this information will be validated; the suppliers will have been violating the internal code of conduct for suppliers, so Inditex will end any relationship with them. What we can get from this example? We understand that the controls are not perfect; however, these two companies put great effort in the accomplishment of their codes of conduct and dealt harshly with the business partners who do not comply.

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