Manufacturing

What happens here

Manufacturing covers the cutting, sewing, and assembly of fabric into finished garments. The structure is almost universally subcontracted: brands establish relationships with Tier 1 manufacturers who hold the primary commercial contract, but those Tier 1 suppliers routinely subcontract embroidery, printing, cutting, and finishing to Tier 2, 3, and 4 operators. A brand's stated supplier list may cover 200–400 Tier 1 factories; the full supply chain beneath those factories can involve thousands of additional facilities, most of which the brand has never audited and some of which it does not know exist.

Manufacturing is geographically concentrated in Bangladesh, Cambodia, Vietnam, Myanmar, India, and China, with nearshoring growth in Morocco, Turkey, and Portugal (driven partly by speed, partly by regulatory risk management). The Rana Plaza collapse in 2013, which killed 1,138 garment workers in Dhaka, remains the defining reference point for what supply chain invisibility costs at its worst. The industry employs an estimated 75 million people in garment manufacturing globally; the ILO estimates that roughly 85% of garment workers are women, concentrated in countries where labour protections are structurally weaker than in brand headquarter markets.

The audit industry that grew up to address brand supply chain accountability is itself structurally compromised. Social compliance audits are typically announced, short, and conducted by auditors whose fees are paid by the factory being audited. A 2023 analysis of BSCI audit scores in Bangladesh found no correlation between audit results and independently observed labour conditions. CSDDD's due diligence framework requires brands to go beyond audit-as-compliance, but the alternatives (worker grievance mechanisms, corrective action processes, supplier capability building) require time and investment that procurement cycles rarely accommodate.

The economics

Manufacturing is the most labour-intensive and structurally lowest-margin stage in the chain. Brands use competitive bidding to compress CMT (cut-make-trim) costs, and the real price-per-piece has declined consistently over two decades. Gross margins for Tier 1 manufacturers range from 8–18%, depending on product complexity, order stability, and geographic location. Factories in Bangladesh operate at the lower end of this range; Turkish and Portuguese manufacturers at the higher end, reflecting wage differentials.

The incoming regulatory compliance burden (CSDDD due diligence documentation, DPP primary data provision, and ESPR design-for-repair requirements) falls on an industry segment operating at margins that cannot absorb new uncompensated compliance costs. In practice, brands have historically responded to compliance requirements by adding obligations to supplier contracts without adjusting payment terms. Whether CSDDD's more substantive due diligence requirements change this dynamic depends on enforcement rigour that has not yet been demonstrated.

Tensions

The core structural tension is between brands' sustainability commitments and the pricing model that makes those commitments structurally impossible. A brand can publish a CSRD disclosure describing its supply chain oversight programme while its CMT pricing simultaneously creates conditions (unrealistic lead times, downward price pressure, and order instability) that make meaningful oversight unachievable. The tension is not primarily between sustainability and profitability; it is between the sustainability communication and the procurement reality.

ESPR's repairability requirements, DPP primary data obligations, and CSDDD audit depth all require manufacturer investment (in design capability, data management infrastructure, and remediation processes) that the CMT pricing model does not fund. The structural question is whether CSDDD's legal liability provisions create enough downside risk for brands to change the economic relationship, or whether brands find ways to discharge compliance requirements (documentation, contractual representations) without changing the underlying commercial terms.

Living wage remains the most contested issue at this node. The gap between legal minimum wages and independently calculated living wages in major garment-producing countries is substantial: in Bangladesh, the legal minimum wage was increased to roughly $113/month in 2024 following worker strikes, still estimated to be approximately 40–50% of a living wage by the Asia Floor Wage Alliance. No EU regulation currently creates a binding living wage requirement in fashion supply chains, though CSDDD's human rights due diligence framework requires brands to identify and address severe human rights impacts, of which wage levels are one.

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