The Hidden Costs of Luxury: Labor Challenges in the Watch Accessory Industry
TN
Post COVID has been an interesting time to review the watch industry from a manufacturing point of view. There have been multiple supply chain challenges and manufacturing transparency. During the last couple of months, we have seen multiple reports on labor challenges that have been the result of cost pressures, supply chain transparency issues, and low minimum order quantities that have driven unstable workforce retention and working standards. It’s a complex topic that drives both demand for ethical and sustainable production but also pressures on cost reduction and low volumes.
Let’s dive into the hidden costs and labor challenges of production and explore what we have seen as trends and changes in terms of geopolitical standpoints, trade agreements, and how it is shifting manufacturing hubs and highlighting the importance of transparency. Especially by ensuring ethical and fair labor practices.
Labor Challenges and Supply Chain Transparency
Recent investigations into labor practices in the luxury sector have revealed troubling conditions, even for some of the world’s most prestigious brands. Reports exposing multiple high-end European brands highlight how cost pressures have led to unethical labor practices among contractors in Europe. What we have seen is below-minimum wages, lack of employment benefits, and exploitative conditions for migrant workers that lean towards modern slavery. Consumers have realized that European-made labels do not automatically constitute fair working standards and living.
One of the main challenges is the lack of true due diligence in the supply chain. Often the relationship between brand and manufacturing is purely a transactional one. The lack of strategic partnership or development often results in the bare minimum being done in order to “pass’ a tick box exercise. As seen in recent exposure of European production, it highlights that the emphasis on cost-saving measures often overrides the commitment to fair labor practices regardless of where the country of origin is.
Transparency is key to addressing these challenges. Global initiatives like the UN Global Compact and its Forward Faster program emphasize the need for brands to adopt fair living wages, fair treatment of workers, and robust due diligence frameworks. However, it will only be true change by setting measurable targets and transparently communicating progress.
The Role of Trade Agreements in Manufacturing – Changes in The Industry
The challenges of having ethical and sustainable production are not limited to Europe, since Asia, with its low-cost environment, has also resulted in challenges when it comes to fair living and ethical production. However, what we have seen during the recent years is that certain geopolitical tensions and the ongoing push on trade policies and free trade agreements have caused significant changes to our manufacturing industry. One notable example is the transition of production from China to Thailand, which is driven by development made with the Japan-Thailand Economic Partnership Agreement (JTEPA).
Under JTEPA, we can export certain products duty-free to Japan, such as leather watch straps. In contrast, Chinese exporters face applied tariffs of up to 8%. This pushes Thailand into becoming an attractive alternative for production for brands that want to hedge their supply chain manufacturing risks. The lack of Chinese New Year also constitutes a steady production throughout the year.
The True Cost of Low MOQs
Minimum Order Quantities (MOQ) have long been a challenge in the manufacturing industry. While low MOQs are appealing to microbrands and emerging businesses, they do create challenges for us, particularly in maintaining stable work volumes and labor retention. For workers, irregular production schedules often lead to unstable employment, leaving them without long-term financial security. Brands that focus solely on minimizing MOQs risk perpetuating this instability, undermining the social sustainability of their supply chains.
This is one of the main reasons for the “catalogue” production that is prevalent in China, where low MOQ production runs per customer are absorbed by selling the same product to multiple customers. While effective from a manufacturing standpoint, it does not often resonate with the brand identity.
The Path Forward
What we have seen during 2024 is that consumer awareness is growing when it comes to ethical production, regardless of the origin. For brands that are proactive instead of being reactive, they are already developing a strong relationship with their suppliers that not only creates a viable product but also considers the advantages that existing and future trade policies have established. Initiatives like JTEPA, coupled with global sustainability frameworks such as the UN’s Forward Faster agenda, provide a roadmap for achieving this transformation.