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Faiz Shah and Ambreen Waheed

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It is unethical to put down competitors product to get business. Siddiq Lone

Peter Mucha, Head of Tramondi Switzerland, looked at the date on his desk
calendar and read the fax a second time. It was May 29, 2002. He wanted to
be sure before calling his partner Ishtiaq Lone in Pakistan. The fax was from
COOPone of Europes largest consumer retailerswhom Mucha had been
trying to interest in his companys hand-stitched soccer-balls for months. Yes,
COOP would agree to place an order if Tramondi were certified to international
fair trade standards. Mucha knew of the guidelines published by Fair-trade
Labelling Organizations International (FLO) in Bonn, for the approved suppliers.
For Tramondi, this meant submitting to a comprehensive audit by FLO Islamabad,
Pakistan-based inspector, every spring and autumn. Mucha knew that in order
for Tramondi to negotiate with COOP, his ball-making facility in Sialkot, Pakistan,
would need significant upgrades and weeks of lead-time for before being able
to invite the FLO auditor. From his discussions with COOP, he had an idea of
what such an audit would entail.

#$)*%"&!+,%%-!"./ 0!#1!"/
Tramondi Sports Pakistan (Pvt) Ltd. was a sports-ball manufacturing unit located
on Daska Road, a place 6 Km outside Sialkot. It was a joint-venture between
Tramondia Swiss marketing brand, and Loftya Pakistani manufacturer.
!"
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Tramondi Pakistan emerged from a business relationship spanning over a decade,

with Muchas company, Tramondi Werbung AG, sourcing a variety of hand-
stitched sports-balls from Lones factoryLofty Sports.
Tramondi Switzerland was a family-owned business, founded in 1981, to
market promotional items, particularly footballs, badges, apparels, and so on,
through licensing arrangements with high profile events such as World Cup
Football and the European Football Championships. By 2002, the company had
branch offices in Germany, Pakistan, Austria, the United Kingdom and Hong
Kong, and supplier partnerships worldwide, offering services from design
concepts to manufacturing.
Lofty Sports too was a family-owned, business which began in 1927 to
supply sports equipment primarily to the British military units in the north-
west frontier region of India. The company began exporting sports equipment
to the UK in the early 1960s, and was able to expand its business across Europe
in the early 1970s after the large-scale manufacturing of hand-stitched footballs
moved to Sialkot. Lone family tradition that was kept alive from the companys
early years was that every worker received a whole years supply of food-
grain from the owner every year.
Peter Mucha and Ishtiaq Lone owned 50% each of Tramondi Pakistan.
Lone was responsible for the manufacturing side - overseeing product
development, raw materials, production, and financial management, whereas
Mucha managed the market interface, tracking market demand, quality assurance,
and market research. The partners were convinced that a business front-end in
Europe backed by a manufacturing back-end in Sialkot would give Tramondi
a competitive edge against other Pakistan-based exporters because, they would
be able to respond faster to consumer demand and generate a faster turn-
around for product ideas. Tramondi Pakistan started exporting its products
immediately after being formed in 1997, and as a result of the respective strength
of the two joint-venture partners, its turnover jumped from USD 1.05 million
to USD 2.97 million over the next three years.
Soccer has traditionally been a European sport, and the market for footballs
was fairly well-segmented nationally or regionally, until the emergence of Adidas
as the sports truly global mega-brand. Even as other global brands such as
Nike and Puma affected consumer loyalties for traditional brands, niche retailers
like Tramondi managed to retain some of their historical ties at the local level.
It is arguable how long this will remain so; but Tramondis strategy of directly
entering into the manufacturing segment helped cut their intermediary costs
and put their supply chain more directly under their oversight. For Lofty,
which had traditionally dealt with intermediate marketing arrangements for
its essentially low-cost product, the joint-venture brought direct market access
and the umbrella of a relatively well-known local brand.
In 2002, Tramondi claimed having captured a profitable segment of Europes
high-end market, perhaps not too far below the more visible global brands. For
Tramondi, an indicator of its success in a higher market segment was its status
as official supplier to national teams like Albania, Armenia, Latvia, and
Macedonia, and a number of football clubs across Europe. A successful co-bid
 7"-%* ==6 9:>>%(* .%"&;* 1(* &;%* 91,,%#* +'&,; !#

for rights to official Football World Cup merchandise twice in a row, and the
resulting visibility, further confirmed its owners belief in the strategic viability
of their joint-venture.

#$)*%"&!+,%%-!"./ 234%"&

Tramondi Pakistan had not been aloof from the changes that have been thrust
on the local sports industry as a result of rising consumer demand for ethical
products. They are conscious of the effect of non-tariff barriers that buyers can
apply against suppliers, including issues of labour practices, working conditions,
and human rights. The governments Export Promotion Bureau had been running
awareness programmes at Chambers of Commerce and trade associations all
over the country to explain the impending changes to the exporters. The media
regularly report on the preparations made by other competing economies such
as Bangladesh or Sri Lanka, to counter technical barriers to trade. All these
highlight the critical role of social standards and compliance programmes in
promoting competitiveness for local exporters.
Meanwhile, there had been a mushrooming of consultants offering their
services to prepare companies for the challenge of non-tariff barriers pertaining
to social and environmental performance. The companies can choose independent
certification programmes such as those mandated by Social Accountability
International, or Fairtrade Labelling Organization International, or stakeholder-
reviewed voluntary disclosure like those promoted by the Global Reporting
Initiative. Consultancy services for building compliance with these and other
less generic, industry-specific protocols, particularly in the textile, garments,
and footwear sectors, typified by the Worldwide Responsible Apparel Production
or the Fair Labour Association regimes, come with price tags that match customer
preference. Tramondi cannot ignore that demonstrating supply chain
transparency is fast becoming a prerequisite for business negotiations in this
to be or not to be scenario. It is also clear to them that the burden of proof
continues to lie with the manufacturers and exporters.
Over the last decade, the regulatory environment had changed significantly
in favour of social and environmental compliance. The impending EU Legislation
would make it impossible for the non-compliant and unethical companies to
sell their products in Europe. As they saw, more and more regulatory barriers
go up, Tramondis owners knew opportunities would increasingly be confined
to the exporters who were compliant. Mucha and Lone both agreed that they
would have to be among the leaders who could face the emerging global
trading environment with a well-prepared strategic approach.

#$)*%"&!+,%%-!"./ )$%'"&

The Sialkot Chamber of Commerce reported an export volume of over 40 million

balls over the year 2000. Every major brand had traditionally sourced a significant
!$ !"#$%&'()* +#",&',%-* '(* .%/%012'()* 3,1(1456* 7"-%-* 8#14* 91:&;* <-'"

proportion of their sportsballs from Sialkot. Their collective buying clout was
having a positive effect on the whole Sialkot industry, especially when they
together insisted on better working conditions. As a consequence, ball
manufacturers had begun investing in facilities that increasingly complied with
internationally recognized workplace standards. In an industry reliant on home-
based artisans, and vulnerable to seasonality and fluctuating volumes,
manufacturers had traditionally been hesitant in making long-term investments
in factory standards, workplace conditions and workers well-being. A study
conducted in the year 2000 by the All Pakistan Federation of Labour found
most sportsball manufacturing units below the standard. The only exceptions
were companies where there was direct brand intervention to improve labour
practice as part of buyers codes of conduct, etc. Investments in efficiencies and
cost savings in areas other than cheap labour were still the exceptions in Sialkot.
A widely circulated report by the Global March Against Child Labour
had alleged that, faced with the ILO-led workplace monitoring for child labour,
Sialkot manufacturers had begun
sending their sportsballs for stitching
outside Sialkot, ostensibly because the The report argued that in the face of
cost of monitoring was eating into increasing pressure to reduce prices
already thin margins. The report argued even further, Sialkots producers faced
that in the face of increasing pressure the proverbial devils alternative: lose
to reduce prices even further, Sialkots business to compliant competitors or
producers faced the proverbial devils lose profits to compliance costs.
alternative: lose business to compliant
competitors, or lose profits to compliance costs. As a result, Sialkot manufacturers
who have significant brand commitments have perforce adopted at least a
minimum acceptable level of labour and workplace standards.
Between 1994 and 1998, the World Federation of the Sporting Goods
Industry (WFSGI) emerged in the vanguard of efforts to abolish child labour
in the soccer industry. It brought together the brands, their local suppliers, and
the UN system together around what became known as the Atlanta Agreement
for the elimination of child labour in the soccer industry. WFSGI released its
Code of Conduct, mandatory for all its members, that lays out a labour practice
framework under the ILO principles. The United States Sporting Goods
Manufacturers Association (SGMA) and the Soccer Industry Council of
America (SICA) likewise appeared in the forefront of the movement to clean
up the soccer supply chain and make it accessible to the US consumer. The
International Football Federation (FIFA) had shown a commitment to make
the soccerball supply chain more transparent by agreeing on a code of conduct
in collaboration with the International Confederation of Free Trade Unions
(ICFTU). APFOL and the All Pakistan Federation of Trade Unions (APFTU),
both internationally affiliated, initiated units in Sialkot, trying hard to register
labour unions in an environment of quiet resistance.
Despite its relatively fast growth in an otherwise vulnerable industry,
Tramondi was concerned that it would soon face consumer pressure for social
performance in its primary market that predominantly comprises low-end brand
 7"-%* ==6 9:>>%(* .%"&;* 1(* &;%* 91,,%#* +'&,; !!

retailers in Italy, the Netherlands, Switzerland, and South Korea. The dilemma
was that while the consumers in these markets demanded clean and green
products, they were seldom prepared to accept price increases that would help
offset compliance cost in distant supply chains. As a result, retailers could
make it difficult for Tramondi to remain competitive under severe price
compression. Moreover, orders had been variable because of the countrys
political situation, an ever-expanding ball supplier base in Southeast Asia and
South America, and the general slide of selling prices across the industry. For
Tramondi, becoming part of an ethical labelling programme seemed a good
business strategy as well as a way to give practical shape to the owners
philanthropic aspirations.
Tramondi knew that in order to attain certified supplier status with FLO,
the international fairtrade certification body, it would have to comply with the
International Fair Trade Guidelines, drawn in line with ILO conventions, the
UN Charter on Human Rights, and other relevant global standards. FLO would
have to verify independently Tramondis adherence to its Guidelines, and for
this Tramondi would have to invest significantly in a compliance programme
that met or exceeded FLOs requirements before its buyer scheduled an inspection.
However, even this would mean constant local interaction to bring about
an attitude change that was conducive to fair-trade values. Experience from
Sialkot did not seem too positive, for the apparent reason that while companies
were willing to toe the fair-trade line simply to get business, they may not
have bought into the principles that drive the movement. Also, the local NGOs
chosen as monitors often lacked the integrity and professional capacity needed
to change attitudes and build a culture of compliance.

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Fairtrade Labelling Organizations International, with headquarters in Bonn,

was the worldwide standard-setting and certification body for fair trade.
It worked with more than 800,000
producers and their dependants in more
FLO guarantees that products sold
than 40 countries. By setting fair-trade
anywhere in the world with a
standards and creating frameworks that
Fairtrade label marketed by a National
enabled trade to take place in conditions
Initiative conform to Fairtrade
equitable to small producers, FLO
Standards and contribute to the
worked to improve the condition of the
development of disadvan-taged
poor and marginalized producers in the
producers.
developing world. FLO itself was com-
FLO website
posed of 18 member National Initiatives
(NIs) who encouraged industry and
consumers to support fair-trade principles by purchasing products with the
International Fairtrade Label. Through its field liaison network, FLO worked
to guarantee standards, facilitate businesses aspiring to go fair-trade, and build
producer capacity to comply with the far-trade guidelines.
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The FLO certification programme, following ISO 65the standard for

certification bodieswas open to all producers and traders that complied with
fairtrade standards. An independent certification unitFLOCertcoordinated
the processes related to inspection of producers, trade auditing, and certification.
Its regionally located inspectors carried out spot-inspections every six months
for each producer. The trade audit unit within FLOCert audited about 450
producer organizations and traders in 49 countries, thus ensuring that producers
actually received the revenues for their products sold under the fairtrade label.
The revenues included a fairtrade minimum price that covered the cost of
sustainable production and fairtrade premium that allowed for investments in
the social and economic development of producer organizations. A unique
aspect of fairtrade criteria was that they demanded direct worker representation,
preferably through a registered union, in joint bodies that decided on the
utilization of fairtrade premium they earned.
In the FLO system, the consumer essentially paid for the fairtrade system.
Traders passed on to consumers the higher fairtrade price and premium. The
national initiatives charged a licensee fee from the importers. This paid for
FLOs certification and inspection costs and partly for the National Initiatives
marketing expenses. Although still partly externally funded, the biggest part
of the cost of the system was included in the retail price.

Fairtrade Labelling started with coffee in Central Americabut had understood itself
right from the start as a means of development for disadvantaged farmers and workers in
developing countries. Trade as an instrument of development is based on connecting the
producer with the consumer. Food commodities are the most visible products where this
can be shown. Based on experience in Africa, Asia and Latin America, the scope had
steadily been widened with the core aim of assisting the weakest parts in a chain of
custody.
Olaf PaulsenHead of Standards and Policy, FLO

In 2000, the total retail volume for FLO was about Euro 250 million,
which had shown a steady increase every year, averaging about 26%. One of
the virtues of fairtrade labelling is the generation of financial resources through
trade that helps producers and workers to produce and live in a sustainable
way.

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Responsible Business Initiative (RBI) was a civil society organization formed in

1998, to promote ethical business principles among Pakistani export SMEs,
helping them achieve a win-win situation by improving the conditions of their
workers and communities while increasing their competitive advantage as socially
responsible producers. RBI had strong linkages with organizations setting global,
social and environment standards. These helped RBI understand the global
 7"-%* ==6 9:>>%(* .%"&;* 1(* &;%* 91,,%#* +'&,; %&%

scenario and consumer market in the developed countries, so as to advise

businesses about the need to remove bottlenecks that hinder exports from
Pakistan. RBI worked to promote ethical business practices through its
collaboration with organizations such as FLO with the aim of helping small
business achieve market access, earn, and share profits in a responsible way
for promoting sustainable development.
RBI was aware of the perceived threat of non-tariff trade barriers and the
rising consumer demand for ethical supply chains. It saw the fair-trade option
of having the added advantage of directly impacting the lives of disadvantaged
workers and farmers. It initiated dialogue with the fair-trade movement in
1998 with a view to promoting Pakistani products through the fairtrade
movement. In 1999, through a formal collaboration with the Swedish NI,
Rattvisemarkt, RBI carried out a preliminary assessment of introducing fairtrade
labelled sportsballs from Pakistan into the European niche market. After a
successful pilot where RBI assisted producers build capacity for fairtrade, FLO
added sportsballs to its portfolio of offerings. The year 2002 saw three sportsball
producers being certified by FLO, and over 120,000 sportsballs were exported
by mid-2003, mainly to Italy and Switzerland under the International Fairtrade
label, and another 40,000 or so unlablled ones produced under fair-trade
conditions.
Sportsballs were the first fairtraded non-food product sold with the
International Fairtrade label. It was also the first fairtrade product from Pakistan,
thus making the country officially a part of the global fairtrade movement.
FLOs decision to adopt sportsballs was informed, among other things, by
RBIs field research. As Rattvisemarkts counterpart in Pakistan, RBI compiled
producer profiles in Sialkot, conducted preparatory orientation sessions and
pre-certification audits to ascertain producer support needs. RBI was asked by
FLO to act as the liaison agency in Pakistan during the pilot phase of the
sportsball project. RBI was convinced that the power of soccer, as a sport as
well as a consumer phenomenon, could be harnessed to propagate the philosophy
of equitable and ethical trade. Sportsballs could launch a drive for conscious
buying because, they had the potential to satisfy not only the desire for pleasure,
but also the human need to reach out.
RBIs participation in Rattvisemarkts presentations to buyers in Sweden
had confirmed the following:
a. The sportsball had the potential to attract continuous consumer demand;
b. Pakistan was considered a reliable source of fairtrade balls;
c. Perceptions of improved working conditions were attractive to buyers;
and,
d. Despite risk, local supply chains could meet international workplace
standards.
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Two manufacturers in Sialkot had already applied for fairtrade certification

through the Chamber of Commerce. Tramondi had not yet responded to the
request, even though it was a signatory to the Sialkot Chamber of Commerce
programme for the elimination of child labour, with its facilities being monitored
by the International Labour Organization. However, Lone and Mucha realized
that the Tramondi factory was still in need of significant changes with respect
to workplace safety and workers rights before FLO inspectors could be invited
in. To meet compliance requirements level, the owners estimated a minimum
investment of about $30,000 (see Table 11.1).

TABLE 11.1 Cost of Upgrade to Fairtrade

Cost Amount in Rs.

Inspection 30,000
Technical assistance cost 300,000
Infrastructure upgrade cost 200,000
Materials and equipment cost 150,000
Training and staff cost 480,000
Legal fees and insurance cost 50,000
Marketing cost 340,000
Process/setup cost 50,000
Miscellaneous 150,000
Total PKR 1,750,000
Equivalent USD 30,000

Mucha wanted to check with Lone what certification options were available
in the Pakistan market and what price tags they come with. Lone would have
the answers within the day. Once the options were arrayed, Mucha would
want to discuss with Lone how these were to be implemented. Certification
programmes typically do not endorse or identify solution providers or
consultants. Most often consultants claimed they could prepare companies for
certification. However, the experience in Pakistan was that such consultants
were seldom interested in organizational development or diffusion of good
practice.
But, Mucha knew Lone would be interested in spending the USD 30,000
(the required amount) only if it helped Tramondi get COOPs business over
the long term, even if it meant conflict with production floor managers who
remained inimical to change. Also, Mucha felt that Lone would prefer avoid
sweeping system challenges and try and convince him to use his personal
contacts in the Swiss industry to get the order anyway.
 7"-%* ==6 9:>>%(* .%"&;* 1(* &;%* 91,,%#* +'&,; %&(

Another discussion that Mucha knew he would have with Lone was
whether or not they should simply forget about COOP for the moment and
concentrate on other buyers who would be satisfied with Tramondis ISO9000
certification and its membership of the ILO child labour monitoring programme.
It was now end-May and the next FLO inspection could be as close as in
September. Assuming a compliance plan would need about three months to
visualize, develop, and implement before it could be audited, Mucha had just
about a week to come to a decision. He picked up the phone and asked to be
connected to Ishtiaq Lone, Chairman, RBI.

$3:!30/ ;'35#!%"5

11.1 How can Tramondi remain competitive without meeting the requirements
for fairtrade standards?
11.2 Given the investment needed for fairtrade certification, what can Tramondi
do to remain competitive without increasing prices?
11.3 What can Tramondi do to help Mucha to secure more orders from European
retailers in the short run?