Olivia Rao Introduction to Globalization

The Globalization of The Gap “Doris and Don Fisher opened the first Gap store in 1969. The reason was simple. Don couldn’t find a pair of jeans that fit. They never expected to transform retail. But they did” (Gap Inc.). This is what one would see if they went to the website for Gap Inc. under the “Our Story” tab. When thinking about a transnational corporation that has taken the world by storm, people often think about corporations like Wal-Mart and Apple. However, when it comes to retail and apparel, as noted on their website, Gap Inc. has truly transformed the world of retail. This revolutionary TNC came into existence at the turning point between the Keynesian era and the neoliberalism era. In this era of neoliberalism, TNCs have become huge empires spanning the globe in a multitude of directions, whether it is the pursuit for new inputs for labor or the search for new markets. What many of these complex companies have in common is that they stemmed from one simple idea; Apple’s was developing computers, Wal-Mart wanted to deliver the lowest prices for consumers. In Gap’s case, it began with being able to find the perfect pair of jeans. This simple concept combining with the new era of neoliberalism allowed this TNC to skyrocket into the global market based on this simple commodity. From that, Gap Inc. has created five brands: Gap, Banana Republic, Old Navy, Piperlime, and Athleta, yielding about 3,100 stores and employing 134,000 people, in 90 countries. Gap Inc. prides itself on operating on these key principles: creativity, delivering results, doing what is right, and always thinking of their customers first (Gap Inc.). In my own personal experience as an employee of Gap Inc., I worked at an Old Navy Outlet store in Auburn,

Washington. In a place like Old Navy, I was surprised at being offered a $9.50 starting wage. There were two reasons for my surprise: I was a teenager, and it was a desolate outlet mall that was in desperate need of a makeover; I thought it would not be receiving much traffic, but I ended up being very wrong. What surprised me more were the kind of people I was working with for these wages: a middle-aged mother with children in high school; a former teacher; a student of pharmacy who commuted back and forth from the University of Washington; and a few other twenty-somethings who already had their degrees but either could not get a job or had chosen to take a break and not pursue what they had gone to school for, or at least not yet. While I was a novice in the work force, being surprised that I was being paid forty-six cents higher than Washington state minimum wage, that also led me to think about the people who were trying to make a living out of these wages and begged for me to think about how that forty-six cents was really supposed to separate living and trying to survive. After my work for a few weeks, I was introduced to my first 40% off outlet exclusive sale, where, as described in the name everything in store is 40% off, and I thought it was a once a year event, but I later learned that these happen four, five, or even six times a year. This can lead anyone to wonder where these products are coming from, how much they cost to produce, how much money the makers of these products are actually making when wages paid by Gap Inc. in America could never sustain the lives of the college graduates that it employs. It creates the question of how Gap Inc. can still bring in such colossal annual profits and if it still manages to pay everyone along the commodity chain. The answer to this question lies in globalization. This TNC can stick to its principles of creativity, delivering results, doing what is right, and always thinking of their customers in a strategic way. They can appeal to different groups by driving huge sales in places like Old Navy, where they try to deliver the lowest prices to consumers in order to compete with the apparel in

places like Target and Wal-Mart, whereas the more luxurious brands like Athleta and Piperlime cater to the customers that will pay much higher prices for a different, higher-quality product. Alluring sales at places like Old Navy are a consumer’s dream and are what draw customers in, create loyalty to the TNC, and attract them to their other brands that offer many more products, for usually much higher prices. Gap Inc. caters to all kinds of people, from low to high class, and it always remains so profitable and expansive, it is no wonder that this TNC was able to profit from this kind of adaptation skill in its quest to go global, in its labor and production, and its search for new markets. When a company globalizes, there are inevitable changes to the model in which it is managed to maximize efficiency, deliver the most to the consumer, and, above all, finish each year with the highest profit possible. While exploring when, where, why, and how Gap Inc. has globalized, it is important to look at how it has searched for new markets, new audiences, new sources of labor, how they treat those new workers in new cheaper inputs of labor, and how they have made this process as efficient as possible. There are a multitude of factors that make this globalization possible: downward harmonization, sourcing efficiencies, and horizontal integration, just to name a few. When examining the globalization of a transnational corporation, it is important to look at where and when these TNCs have exhibited the process of globalization. The Gap Inc. website shows that there are a multitude of places an individual can go to contact the company with headquartering offices spanning from: its global headquarters in San Francisco, to New York, Toronto, London, Paris, Beijing, Shanghai, and Tokyo (Gap Inc.). To have this many headquartering offices stretching all over the globe, it is evident that there has been major profit and material gain from all of these regions. The era of neoliberalism began in 1970, which

captures the essence of Gap Inc.’s growth, which began in 1969 and is still continuing in the present day. Not only has Gap Inc. globalized to reach new cheaper inputs of labor, but it has globalized to reach new markets as well: the company owns stores in Canada, China, France, Ireland, Italy, Japan, the United Kingdom, and the United States. In addition to these markets, there are franchise stores not directly owned by the company in the Philippines, Singapore, Malaysia, United Arab Emirates, Korea, Kuwait, Qatar, Bahrain, Oman, Saudi Arabia, Cambodia, Indonesia, and Mexico (Gap Inc.). With a computer, Gap Inc. apparel is essentially accessible everywhere through their international website. In production, Gap Inc. has received serious mixed reviews. Gap’s top factory regions are in China with 464 factories, Southeast Asia with 671, the Indian subcontinent with 592, and Mexico, Central America, and the Caribbean with 298 factories. India and China were supposed to be Gap’s new up-and-coming markets; however, those are also the locations where they have seen the most abuses in factories as well. Thirty-four out of China’s 464 factories received the lowest marks in Gap’s evaluations of its company (Strasburg, 2004). Gap cut ties with 136 factories between China and SE Asia due to labor violations (Liedke). Horizontal integration is when subcontractors are contracted to do much of a company’s operations, besides management and marketing that are not owned by the company itself. Gap Inc. is a horizontally integrated company, and it is no surprise that within these third-party companies, there are violations of labor laws and company conduct. Using these third-party companies in different countries allows the parent company to get away from criticisms and restrictions on business practices. President Marka Hensen blamed alleged abuse in India on an unauthorized subcontractor for one of its vendors (CNN, 2007). Using third-party work allows the company to expand into variety of different markets by both production and sale.

Map showing where Gap clothing is produced and how horizontal integration affects how this TNC has expanded around the globe. Lines represent profits all going to the global headquarters in San Francisco where Gap Inc. began (https://maps.google.com/maps?hl=en&tab=wl).

The second map shows all the regions where Gap Inc. Stores are located, although it is nearly impossible to capture the mass of over 3,000 stores (note the bareness of countries like the United States that have over 1,000 stores), this map shows the vast distance this transnational corporation has covered since its origins in 1969 (https://maps.google.com/maps?hl=en&tab=wl). Gap is now extending its market into countries in which it also manufactures. Foreign direct investment opened up India to be invested in by other countries, and as an American company, Gap Inc. immediately began to capitalize on this new opportunity. Also, as China’s middle class is growing at an astronomical rate, Gap has been opening stores consistently throughout the country (Gap Inc.). When comparing the two maps, one can see that Gap is in almost all of the regions in which it is producing product. There has been an extremely high volume of stores opening up in Central and South America, the Middle East, and the Indian subcontinent. This new wave of expansion highlights the extreme unequal distribution of wealth in these regions, as many of them are being flagged for having horrendous sweatshop conditions in their factories, but yet there is still a class of people that can afford their products and are driving these new markets. To put it into perspective, the richest man in the world is projected to be “commodity king,” Mukesh Ambani, from India in 2014, with assets exceeding $62 billion (Stern, 2010), while the per capita income in India is still less than $4,000 a year, equaling a little over $10 a day on average per citizen, but factory workers are the lowest paid people in the country, meaning that a majority of factory workers, like those who work for Gap, are paid much less than the average (Rapoza, 2012). There is an extreme division of wealth in the countries in which Gap Inc. produces, which is why there is an ample work force willing to work for low wages but also a steady flow of consumers ready to buy their products.

Where and when this transnational corporation globalized leads helps to answer the question of why it has globalized. Gap used a marketized commodity chain model characterized by waves of outsourcing, and offshoring, thereby calling on third parties to do a majority of the labor in order to create a downward harmonizing effect. This in turn drove prices down for consumers, and maximized profits for equity owners. By being in the countries in which they manufacture clothing, they obtain better knowledge of what people are interested in there and who can afford it; generally, the class divisions between those who make the clothes and those who can afford the clothes is extremely clear. This is also the result of the post-Fordism era, as it was no longer important to the corporations if their products were affordable for the workers who made them. Instead, some of what characterized the post-Fordism era was the development of specialized products or, in the case of Gap Inc., retail lines, directed at certain audiences. An example of this was the launching of Gap’s sibling brand, Old Navy. In research, it was found that Gap stores usually attracted a higher-income customer, and those with lower incomes usually bought a majority of merchandise that was marked down, so the idea behind Old Navy stores was to market to a middle class with incomes between $20,000 and $50,000 (Strom, 1994). “The company [Gap] shifted some of the production it does abroad into countries where labor costs are lower. It decided the Old Navy customer would prefer a better price to details like the top-stitching around the neck of a one-pocket T-shirt if it could give them for $7 the same brilliant colors it offered for $10.50 in a T-shirt at the Gap” (Strom, 1994). Globalizing in this new post-Fordism era created the new need for such a sourcing efficiency, so it could market to this lower-income audience, while Gap took the position of marketing to those with higher incomes.

Another characterization of the post-Fordism era, in addition to the pursuit of cheap labor, includes the use of child labor and the feminization of the workforce. All of these aspects of the need for cheap labor lead to the abuse of the new force of workers that post-Fordism creates. The US territory of Saipan is a hub for manufacturing for Gap Inc. and Ralph Lauren. Although Saipan is a US territory, it sets its own immigration laws allowing a huge migrant workforce to flood in from nations like China and Korea that will work under conditions that most Americans would never submit to. The labor conditions in Saipan do not comply with labor policies in the United States at all, but to get around this, most of these factories are Chinese- and Korean-owned, so it makes it easier to get around US laws. One Chinese migrant worker said she had to quit her job when the factory told her she must get an abortion (Ross, 2000). A pregnancy would reduce a factory’s efficiency, and granting a woman maternity leave would take away from the overall downward harmonizing effect that the company is trying to achieve. Gap argues that it is “working to facilitate advancement and help women create change for themselves, the garment industry and beyond” (Gap Inc.). “We believe that women in the developing world, when provided access to education, training and support, can be real agents of change – for their families, their communities and ultimately for society as a whole,” says Dotti Hatcher, Executive Director of Gap Inc. P.A.C.E. Global Iniatiatives (Gap Inc.). Gap claims that it is trying to do good for society by this feminization of the work force, and wants to do more beyond the making of garments. What Gap really needs to look into is how to bridge the gap between exploiting women in factories and forcing them to get abortions; to empowering women, allowing them to have children, having the means feed their children, and not only to be able to educate them, but to have access to education themselves; these are the components that drive a society. The gap between exploitation and advancement is what keeps women oppressed,

because there is no pathway out of working in factories for the means of survival and actually being productive in society. The need for a sourcing efficiency, getting the cheapest products as quickly as possible, has led to the neglect of thousands of workers. An area where Gap Inc. has done some of its more substantial growth in store openings is also the place where a large portion of their manufacturing has been done. The Indian subcontinent and China are where Gap Inc. has faced the most controversy. Two years ago, there was a fire in a Bangladesh factory that killed 29 people, and in September 2012, there was a fire in a Pakistani factory that claimed 300 lives (Bhattacharjee, 2012). Many of these deaths could have been avoided; however, employees could not escape due to the fact that all of the exits were locked, and a majority of the windows were barred because it was common practice to keep the workers inside the factory for as long as possible to maximize production (Chua, 2012). Incidents such as these cause critics to call on consumers to boycott, which influenced Gap Inc. to make serious revisions to their practices. When a corporation makes such revisions, it opens the door for new competition. “Wal-Mart Stores Inc., the world’s biggest company and a frequent target of sweatshop critics, plans to review Gap’s report to get ideas on how it might improve conditions at the factories supplying its merchandise, said company spokesman Bill Wertz” (Liedtke, 2004). These revisions open up a new opportunity to compete with other corporations on the basis of having a good global image. As a result of the fires, Gap developed a new devotion to social responsibility. “Gap Inc. seeks to ensure that the people working at various points along the supply chain are treated with fairness, dignity and respect – an aspiration that is born out of the belief that each life is of equal value, whether the person is sitting behind a sewing machine at a factory that produces clothes for Gap Inc., working at one of our stores, or wearing a pair of our jeans” (Gap Inc.). This

statement was directly from the Gap website under the section called “Social Responsibility” under the tab “supply chain.” “To give you a sense of our team’s scope [Gap’s Social Responsibility Team], we conducted 4,316 inspections in 2,053 third-party contract garment factories around the world in 2006, reaching approximately 99.4% of factories that had been approved for Gap Inc. production for the entire year. We also rejected 18% of the new factories that we evaluated (which meant that they would not be approved to receive Gap Inc. production orders), and revoked our approval of approximately twenty-three garment factories for compliance violations” (Oberkofler, 2008). Oberkofler is the director of Gap Social Responsibility team, and she goes on to explain that while many companies cut ties with abusive manufacturers, Gap chooses to stay with some of them, so they can work with these subcontractors and improve the lives of those who work for them. While Gap has its faults in the treatment of those on its supply chains, this newfound commitment to social responsibility shows the acknowledgment of how all parts of this commodity chain deserve equal treatment. “Over the past decade, transnational activists, policy makers and academics have suggested that consumers might form the basis of a new type of global regulation: transnational networks, attentive to ethical violations and insistent on global equity, could threaten to ‘name and shame’ companies who fail to meet global standards, and independent monitors could provide the information and transparency needed to make these threats credible. To avoid scandal, multinational companies would insist that their subcontractors improve working conditions; gradually, working conditions will be improved rather than eroded, down the global supply chain” (Siedman, 2008). This new commitment to social responsibility captures, again, the new competition between transnational corporations to have the most ethical and untarnished reputation. The use of independent monitors would allow for transparency

among all corporations that would use them because it reduces the chance for bias or exclusion of information that could hurt the corporation’s image. Gap has also gone global, not only to add to its astronomical profits, but also to make up for its decline in the American market. In 2011, Gap decided to close 21% of its US stores, which is equal to 189 stores, by the end of 2013. However, what Gap Inc. is capitalizing on is marketing a way of American dressing around the world. “Chile is a great match for Gap brand’s aesthetic and target customer. With a nearly $6 billion apparel & footwear market, a retail sector that makes up 9.4% of the country’s GDP, and a proven customer base interested in American style and brands, Chile represents a natural extension for our brands,” said Stefan Laban, managing director of strategic alliances for Gap Inc. (Byington, 2012). While the popularity of Gap is decreasing in the United States, it is also opening doors for Gap to target different audiences around the world and market an American way of styling to everyone around the world. To continue understanding why this TNC has globalized, one must understand how it has globalized. As of July 2012, Gap Inc. had revenue of $14.9 billion and a net income of $833 million (Mergent Online). Although Gap Inc. has been on the decline in America, these gigantic profits call for the need to be sustained, so the answer to sustaining this growth is to globalize. Their chairman, Glen Murphy, makes $1.5 million, John Keiser, Executive Vice President Chief Information Officer makes $655,769, and Division Officer, Arthur Peck, makes $849,231. Here in its home country, people at the bottom of the Gap Inc. hierarchy, the associates, are paid somewhere around $9.50, while abroad, the people actually on the bottom of the hierarchy, are the factory workers in places like Cambodia, who are fighting to increase their base pay of $61 a month for 8-hour days, six days a week, which averages about $2.54 per day and 32 cents per

hour. (Businessinsider, 2012). The low wages are no accident, it is a way to force down costs to the corporation and sustain profits, even when there is declining success in the US market. The overseas frontier is always available to Gap Inc., whether it is through new markets or new sources of labor (Businessinsider, 2012). Gap’s expansive practices have led to a downward harmonization of all aspects in their commodity chain, in order to increase net income. This can be interpreted as a race to the bottom. As a result of this globalization, there has been abuse abroad, due to the importance of increasing the bottom line versus taking the time and money to take care of all of its workers worldwide. “Gap Inc. outsources jobs overseas for a very simple reason: So that they can pay low wages and avoid American labor regulations. Gap Inc. starts out its hunt for overseas labor looking to exploit vulnerable workers. Gap cannot be shocked; when the vulnerable people it hires as workers are exploited” (Clifford, 2007). It is hard for American consumers to put a human face to this growing problem that all corporations face until stories like factory fires killing hundreds of people are told. In contrast, many think that this investment is good for both the American economy and the markets in which Gap “invests”. “The objective of the policy was to attract investment, create local manufacturing and employment” (Timmons, 2012). As mentioned before, discussing India opening itself to foreign direct investment, corporations will say that they are benefiting each other, as they are extending employment to other countries. Opponents of this sort of foreign direct investment say “when companies like Gap Inc. come in and hire child laborers under appalling conditions, they are actually harming the economy of India by stunting the development of a generation of children who are malnourished in the sweatshops, and can only be of any lasting using [sic] to the economy of India if they go to school, not to work. When 50%

of children in India work seven days a week, they have no time to develop into people who will be able to contribute meaningfully to the economy of India as adults” (Clifford, 2007). Both sides of this argument have credible claims. If everything worked out ethically and according to plan, then the economies in places like India would be improving due to companies like Gap Inc. employing their citizens. The problem is that measures taken to ensure responsibility are often mere cover-ups. “We realize there are differences in local laws and practices in different countries. Sometimes our Code may go above and beyond what’s required by law. Because we’re committed to meeting the highest standards of business conduct wherever we do business, we all must follow all aspects of the Code, even if it’s not required by local laws. In other cases, there may be country-specific laws that are not addressed by our Code, but are included in other Gap Inc. policy manuals. Make sure you know and follow all laws and policies that relate to your job” (Gap Inc.). This section of their code of conduct explicitly contests the popular accusation of offshoring jobs to get around American labor standards. At first glance, it is apparent that the race to get the lowest price overshadows the need to always uphold their end of this promise because Gap is not under the same scrutiny of law in many of its overseas markets, and there are hardly any third parties influential enough to make a change. When explaining how this TNC is received globally, it really all depends on who is being asked. In all of the countries where Gap is manufacturing products as well as selling them, Gap makes sure to market to those who can afford it, while trying to keep the wages of their laborers as low as possible. Gap Inc. has done an impeccable job of marketing to countries an American way of dressing, in a way that is individual to each market, a form of glocalization.

Example of American styling abroad:

Gap Inc. markets to audiences by selling what the country thinks “American” looks like by appealing to the demographics in each area that will buy from their brands. The abuses committed by Gap Inc. are very unfortunate, in this day and age; it is nearly impossible not to depress wages and labor conditions in order to cut what, to them, would be excess spending. Gap originated right at the beginning of the neoliberal era, where free trade was just taking off, and as this era evolved until now, so did its business practices, which is how it has gotten on its current path of pursuing the cheapest inputs for labor and materials while expanding markets to as many countries as possible and violating many policies along the way.

Gap Inc. has tried to correct its mistakes, and it looks like it is trying to take responsibility for its actions; but when it comes to its factories and sweatshops, all transnational corporations have a long way to go to make globalization have an equal and positive effect in all of the countries in which it is present. ______________________________________________________________________________

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