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September 23, 2018

Rockstar Business: Capitalism is Good, Manufacturing Still Tricky

I am in the camp of people who re-read books, and I also have a couple of favourite journalistic pieces that I keep coming back to.

Chief amongst them is probably Matt Taibbi’s review, by which I mean take-down, of Friedman’s ‘The World is Flat’. My hatred for that book probably burns as brightly as Taibbi’s, but Taibbi has written the ultimate piece and I am not even going to try.

Another article I like coming back to is a 2012 WSJ article on Edun, the ethical clothing company set up by Bono and his wife, Ali Hewson.

 I have been a bit slack in checking on Bono and Geldof recently, but there have actually been a couple of headlines on Bono. He has, finally, in 2013, discovered that capitalism can help reduce poverty.

Well done. Better late than never, right? Except I always thought that when you have a mass audience like Bono, your learning curve really needs to be much, much steeper.

And there was another interesting piece of news: Edun, Bono’s and Ali Hewson’s ethical clothing company, made $7.9m in losses in 2012.

These losses are just slightly lower than those of the preceding year of $8.5m. At least a positive trend, you could argue, and indeed, ‘In spite of the losses, Bono and Ali Hewson in their directors' report state that they "are very satisfied with progress during the year, which was in line with the (five year) strategic business plan projections."’

This article in the Irish also says: ‘Accumulated losses at the firm total $54.5m and figures show that the firm's shareholders, Bono, Ali Hewson and the world's largest luxury goods group, LVMH, further propped up the firm with an additional $17.8m in loans in 2012, bringing to €54m the total of shareholder loans.’

That is a lot of cash to burn through. After the 2009 Louis Vuitton investment, I had expected that the company would, by now, have turned around its fortunes.

That is why the 2010 WSJ article is so worth reading. No doubt Bono and Ali Hewson went into the Edun venture with the best of intentions, but guess what – if you want to do business in Africa, or just simply business anywhere, you need to put in a bit of work. A good bit of work.

As Rachel Dodes wrote in the WSJ, Edun appeared mostly propelled by the celebrity name behind it and the expectation that goodwill towards poor Africans would ensure sales. Unsurprisingly, that did not happen.

I am not fan of pity brands (asante Magatte Wade) to start with, but when you are talking about items of clothing costing up to several hundreds of dollars: no thanks, but no.

At that price level, I more than expect a product that is good quality, good design, and that I would want to buy anyway, poor children or not. I might choose it over a non-poor-children one if both were of the same quality – but that is it.

I am sure it would have been possible to launch a successful fashion line from Africa – you just need to take a look around to see how much is currently going on in the fashion industry (or generally in business and foreign investment).

One of the big challenges is, of course, how to move from individual pieces to mass production of reliable quality. This was one of the questions I asked the ladies from Njema Helena whose clothes I really like: modern, well-cut tailoring with those lovely African prints.

What if they suddenly find that there is lots of demand for their dresses? If they are featured on a popular blog, or in an international magazine? Could they meet such demand?

Ali Hewson and Bono would, in principle, have been well placed to pursue this venture. They clearly had enough capital, and it would have been patient capital because their livelihood did not depend on the venture turning a profit in the first year, nor did they have super-greedy investors breathing down their necks.

And it is possible to manufacture here, but goodness, you need to actually be here (or hire someone here) to deal with all the gory details that make making things so difficult: KPLC, City Council, security, human resource, all that stuff.

The WSJ cites Ali Hewson: "We felt if we failed it would be a double failure. We'd be saying, 'We can't do this,' and then other companies would go, 'Well, see? We've always known that. Basically we dug our heels in and said, 'We're staying. We're going to make it work.'" Except they have not made it work (yet? Most of their production has been transferred to China).

But then nobody really looks to Bono and wife to determine whether an investment in Africa is feasible.

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