Herzogenaurach, 25 June 2004 - In recent weeks adidas-Salomon has been the subject of a campaign by the Workers Rights Consortium (WRC) and affiliated groups in the United States and in Europe, concerning the possible closure of a bag factory in Indonesia. The factory, PT Daejoo, is managed by a Korean-owned company, Daejoo Leports Corporation, headquartered in Seoul.
Although adidas does not buy product directly from PT Daejoo, we are deeply concerned about the situation in this factory and the wellbeing of the workers. Our licensee in the USA, Agron Inc, is a direct customer of PT Daejoo and, together with other US customers, has been supportive of the WRC in their efforts to remediate health and safety and labour rights issues in this factory. A full report on the WRC's findings and recommendations on PT Daejoo, dating from August 2003, is published on the WRC's website.
adidas-Salomon first learned of the current issues at PT Daejoo through our local social compliance staff in Jakarta, who were contacted directly by factory workers in the first week of May 2004. During the following 2 weeks, the WRC also communicated to us new problems at the factory, which had become apparent during 'follow-up visits' by local WRC monitoring staff. This was followed on 1 June by an email from one of the unions in the factory, SPN (Serikat Pekerja Nasional or National Labour Union). In its e.mail, the union asked that we confirm whether rumours circulating in the factory - as to its possible closure - were true, and requested us to intervene on their behalf to prevent Agron orders being placed with Daejoo's sister factory in China.
During this period, our local compliance staff visited PT Daejoo, together with a WRC representative, to assess the situation in the factory first hand and find out whether management did in fact intend to close the factory. Management refused to provide any confirmation at that time. Given the urgency of the situation, the head of the adidas Social & Environmental Affairs team in Asia flew to Indonesia, and together with our local compliance staff, met with factory management and the unions on 17 June 2004.
In the meeting with union representatives, we clarified the relationship between adidas-Salomon, Agron and PT Daejoo, and explained our expectations of Daejoo management regarding the fair treatment of the workforce. Further, we made clear that adidas-Salomon cannot make decisions or commitments on behalf of the factory management, nor can we directly mediate between the unions and factory management. If such mediation is required, this would be a matter for the local Manpower Department. We did undertake however to use our influence, through Agron, to bring Daejoo management to the table for a discussion with the unions. We also confirmed that as long as PT Daejoo is able to fulfill its operational requirements to Agron, i.e. in relation to quality, delivery, price and compliance with the Standards of Engagement (adidas-Salomon's Code of Conduct), our licensee would remain committed to placing orders with that factory. Subsequent to the meeting, our position was re-stated in a letter to the unions. The full letter can be downloaded from the top right side of this page.
Following our meeting with the unions, we then met with the factory management to obtain confirmation about the future of the factory, and the reasons for any proposed closure. According to PT Daejoo's management, operations in Indonesia are no longer internationally competitive, and this is the basis for a decision to close the factory. Given the prospect of imminent closure, and the rumours circulating among the workers, we requested that factory management immediately meet with the unions, to open dialogue and discuss the future prospects of the business. We understand an informal meeting was held on 22 June 2004 and a second, more formal meeting, is now scheduled for 1 July 2004.
The NGO community has directed its campaign against adidas-Salomon on the basis that Daejoo has obligations to comply with its buyers' codes, and such obligations prohibit the closure of a factory for the purpose of evading workers' rights. The campaign statements and enquiries received from students in the US and various organisations demand that we not facilitate Daejoo's actions by allowing a transfer of orders to the Daejoo factory in China. Fundamentally, adidas-Salomon is being urged not to 'cut and run'. Certainly, neither adidas-Salomon nor our licensee, Agron has ever requested or encouraged the relocation of orders from Indonesia to China, and we are strongly opposed to any such 'cut and run' action. Currently, we are pursuing every possible course of action with factory management to delay the factory closure while a proper assessment of the business and its viability is conducted.
A clear and unequivocal message has been communicated to Daejoo management by our licensee, Agron, regarding adidas-Salomon's expectations. Agron has written to Daejoo informing them of severe business ramifications should Daejoo not handle the current situation in Indonesia in a manner that the adidas-Salomon group considers cooperative, fair and reasonable. Daejoo management has been further advised that any real or perceived lack of cooperation from Daejoo will impact on Agron's ability to do business with Daejoo Leports in the future. All future orders with Daejoo's China factory have been suspended, pending the outcome of the PT Daejoo case.
Throughout our communications with Daejoo, management has stated that labour rights and occupational health and safety requirements are fulfilled at PT Daejoo. Further, Daejoo argues that the costs related to compliance have not had any bearing on the relative competitiveness of the Indonesian business or their decision to close the factory. These statements alone do not provide the level of disclosure and transparency that we expect from manufacturing partners. We have made repeated requests for, and Daejoo management has committed to providing, a written statement setting out the business case for closure of the Indonesian factory. Further, should the factory close ultimately, we have set out our expectations that management go beyond the legal obligations to workers in any severance settlement. We are waiting for written confirmation on this point also.
adidas-Salomon continues to maintain an active dialogue with the WRC and the other organisations following events at PT Daejoo. Similarly, we have communicated our position to other buyers. As this situation unfolds we will publicly, and transparently, report on our efforts to safeguard worker rights at PT Daejoo. All actions will be taken with the full support of our licensee partner, Agron.
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