Linking Factories to the Malls, Middleman Pushes Low Costs

Now, with sweatshop disasters there drawing international scrutiny, the business is looking for the next best place — perhaps South America or sub-Saharan Africa — where it can steer apparel buyers seeking workers to stitch clothing together for a few dollars a day.

As the world’s largest sourcing and logistics company, Li & Fung plays matchmaker between poor countries’ factories and affluent countries’ vendors, finding the lowest-cost workers, haggling over prices and handling the logistics for roughly a third of the retailers found in the typical American shopping mall, including Sears, Macy’s, JCPenney and Kohl’s.

Based in Hong Kong, the merchandiser owns no clothing factories, no sewing machines and no fabric mills. Its chief asset is the 15,000 suppliers in over 60 countries that make up a network so sprawling that an order for 500,000 bubble skirts that once took six months from drawing board to store shelf now takes six weeks at a sliver of the price.

That scale gives Li & Fung tremendous clout. “They are considered the Walmart of purchasing,” said Edward Hertzman, publisher of Sourcing Journal.

But in pioneering and perfecting the global hunt for ways to produce clothing more quickly and cheaply, Li & Fung, which had $20 billion in revenue last year, has been described by critics as the garment industry’s “sweatshop locator.”

“If globalization is a race to the bottom, where lowest wages win,” said Cathy Feingold, director of international affairs for the A.F.L.-C.I.O., “Li & Fung is the sherpa showing companies the fastest route down that slope.”

The business has been tied to labor violations and deadly accidents in several countries. It has also been faulted as failing to properly investigate complaints about conditions at factories, including one in Cambodia where hundreds of workers were sickened, and accused of cheating laborers of wages in Turkey.

In Bangladesh, Li & Fung has been tied to several calamities. It arranged the production of clothing for Kohl’s at one factory where 29 workers died in a fire in 2010. It brokered some work at another in 2011 where more than 50 workers who made Tommy Hilfiger clothing were injured and at least 2 died in an explosion and a stampede.

And last year, Li & Fung was responsible for some garments produced at the Tazreen Fashions factory, when 112 workers died in November in a fire after many of them were ordered to continue working even though alarms had sounded.

Such episodes highlight the often hidden role played by sourcing companies in trying to feed the West’s seemingly insatiable demands for ever cheaper merchandise. Worker advocates say that Li & Fung and others make accountability more difficult by adding a layer of insulation between reputation-conscious retailers and often poorly treated workers, allowing businesses to avoid bad publicity and legal liability when things go wrong.

Sourcing companies face an inherent conflict: they are expected to find low-cost factories for clients, but also to blow the whistle if the factories violate safety standards. Some critics say that the scale of Li & Fung’s operations and the speed at which it shifts production from one site to another give owners less incentive to improve their factories and make it difficult for Li & Fung to deliver on its pledges of carefully vetting its suppliers.

“We make our best effort to weed out bad factories,” said Bruce Rockowitz, chief executive of Li & Fung. “But we don’t always succeed.”

Mr. Rockowitz added that Li & Fung employees conduct rigorous on-site audits — unlike many competitors — to ensure that the company does business only with factories that adhere to safety regulations. In the case of Tazreen, Li & Fung had acquired a new subsidiary that placed orders at the factory, but the changes sought by Li & Fung had not been made 11 weeks later when the fatal fire occurred, a company spokesman said.

Kitty Bennett contributed research.