Alta Gracia: Changing Lives One Shirt At A Time

1. Research Progress Report
Alta Gracia: Work with a Salario Digno
John M. Kline
Edward Soule
Reflective Engagement Initiative
Georgetown University
December 5, 2011

2. ii
Research Progress Report
Alta Gracia: Work with a Salario Digno
John M. Kline
Edward Soule
Reflective Engagement Initiative
Georgetown University
December 5, 2011

3. iii
Copyright © 2011 John Kline and Edward Soule. All rights reserved.
Material in this Report may be quoted with appropriate citation.
Permission is granted to use the Report, unmodified, through electronic
link or download, for any usual educational purpose.
Electronic copies available at http://ibd.georgetown.edu/236606.html

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Executive Summary
A bold enterprise commenced operations in April of 2010. The place was a factory in Villa
Altagracia, a small town in the Dominican Republic. The product was licensed collegiate
apparel. But in sharp contrast to the typical “sweatshop,” owners of this factory made a blanket
commitment to humane employment practices. Employees would receive a “living wage,” their
rights to associate freely and bargain collectively would be respected, and their workplace would
be subject to exemplary health and safety standards. To ensure that these were not empty
promises, an independent organization was authorized to monitor operations and verify
compliance. Production would be marketed under the brand name Alta Gracia, and carry the
tagline “Changing Lives One Shirt at a Time.”
The purpose of this report is to chronicle the Alta Gracia enterprise after eighteen months of
production. Following are our key findings.
Alta Gracia is transforming the lives of its employees and their families. Some
representative vignettes are provided to illustrate the nature and extent of the change.
Although evidence is incomplete, there are good reasons to believe that the enterprise is
having salutary ripple effects on the wellbeing of the community.
Evidence suggests that some higher costs of Alta Gracia’s employment arrangement will
be recovered through operating efficiencies. Employees assume responsibility for their
productivity and quality of work, thereby eliminating at least one layer of supervision and
reducing costs of waste and defective merchandise. Turnover has been exceptionally
low, as has absenteeism, thereby reducing costs of training and backup labor.
Consumers have responded favorably to Alta Gracia merchandise. Available in over 400
college bookstores nationally, the garments are of equal or better quality as the most
popular established brands and priced comparably. Bookstores report that Alta Gracia
merchandise sells as briskly as competing brands and the margins on sales are equivalent.
Although bookstore access has been achieved, purchase volumes have not met
expectations. Many bookstores stock a token amount of merchandise and fewer than ten
genuinely championed the brand. Enterprise viability depends on increasing the number
of stores willing to devote at least 5% of apparel floor space to Alta Gracia products.
University administrations can encourage bookstores to allocate more space to displays
of apparel meeting higher labor standards. Many collegiate licensing codes already call
for payment of a “living wage” or a wage that meets a family’s “basic needs.” These
codes have lain dormant because licensees asserted such standards were impractical and
uncompetitive. For universities with such code requirements, support for Alta Gracia as
the only brand to meet their standards would seem to be a minimum required action.

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The Alta Gracia enterprise is a model of humane employment practices in the global apparel
industry. As such, it warrants the attention of anyone concerned about “sweatshop” labor—from
policymakers, activists and academics to leaders of firms and unions alike. We do not suggest
that lessons learned in Villa Altagracia are robust enough to support a call for a universal “living
wage.” However, there is considerable distance between a “living wage” and the wage and other
labor standards that dominate the apparel industry. Reducing this gap requires novel thinking in
multiple domains. Alta Gracia is important because it challenges the status quo and points the
way to alternative production models.
We describe the Alta Gracia enterprise as “bold” because the track record for such projects is not
encouraging. Alta Gracia stands a better chance of succeeding because of its sponsor, Knights
Apparel. As the leading producer of collegiate apparel, Knights has the critical ingredients of
capital and expertise, along with a management team personally committed to its success. The
company has joined a private multi-stakeholder approach that draws together business, labor and
non-governmental organizations (NGOs) in a new workplace model for the apparel sector –
offering “Work with a Salario Digno” and a sustainable pathway out of poverty for workers and
their families.

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TABLE OF CONTENTS
Preface.........................................................................................................................1
Dedication ...................................................................................................................2
Introduction .................................................................................................................3
Background and Start-up Period .................................................................................5
First-Year Standards, Implementation and Verification ...........................................10
What Does Salario Digno Mean? .............................................................................12
Impacts: Workers, Families and Community ..........................................................13
Individual Worker Stories .........................................................................................15
Financial and Operational Analysis ..........................................................................22
Production Profile: Burdens and Benefits............................................................22
Business Model: Initial Performance and Challenges Ahead ..............................25
Issues: Jobs, Development and Competitive Markets ..............................................27
The Near-Term Challenge ........................................................................................29
Wider Implications of Alta Gracia ............................................................................30
About the Authors .....................................................................................................33

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8. 1
Preface
This Research Progress Report covers developments at the Alta Gracia apparel factory in the
Dominican Republic since the August 30, 2010 publication of the initial Research Report on Alta
Gracia: Branding Decent Work Conditions. That first Report traced the factory’s start-up period
in early 2010, contrasting its unique practices of paying a “living wage,” respecting labor rights
and offering exceptional workplace conditions against the industry’s all-too-typical “sweatshop”
environment. To further distinguish this factory from the norm, it is monitored and its practices
are verified by the Workers Rights Consortium. Alta Gracia is owned and operated by Knights
Apparel Inc., the leading supplier of collegiate branded apparel. Findings from this research
raise challenges to assertions that international cost competition requires the suppression of
worker rights and wages in foreign factories.
This second-stage research updates and expands on the initial Report. The implementation of
Alta Gracia’s unusually high labor standards is assessed along with the brand’s product
penetration of the collegiate apparel market. For this new study, Professor Edward Soule of the
McDonough School of Business has joined Professor John Kline of the Walsh School of Foreign
Service, adding in-depth analysis of the Alta Gracia business model and the financial and
marketing challenges it faces. This Report also contains more extensive examples of the way
Alta Gracia’s factory affects people’s lives. Interviews with workers and their families provide
general descriptions while a series of individual vignettes detail the real-world impact of Alta
Gracia’s slogan: “Changing Lives One Shirt at a Time.”
Much has been accomplished over the first year and a half of Alta Gracia’s existence:
implementing innovative labor policies, forging a cooperative labor-management partnership,
establishing a high quality production process, and introducing a new apparel brand to over 400
college bookstores. Where Alta Gracia products have gained adequate floor display space, the
apparel is selling well at the same or slightly lower price as similar high quality merchandise.
However, total sales are not yet sufficient to match the factory’s production capacity, much less
support future expansion to hire more workers. The next 18 months will be crucial to build on
the initial momentum to assure the factory’s viability. Such success would not only benefit
current and future workers at Alta Gracia; it would challenge traditional beliefs by offering a
competitive labor-management model that respects labor rights and offers employees “Work
with a Salario Digno.”
The research and publication of this Report was funded by a grant from Georgetown University’s
Reflective Engagement Initiative. This program supports public scholarship, i.e., academic
research that contributes to a major public issue. Further work on Alta Gracia is being supported
by a new University program on Complex Moral Problems that can fund the continuation of
research on such issues. The authors gratefully acknowledge this financial support and
appreciate Georgetown University’s commitment to academic research with public policy
applications.

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Dedication
LaMarr Q. Billups was Assistant Vice President for Business Policy Planning at Georgetown
University. Beginning with his prior position at the University of Wisconsin-Madison, LaMarr
worked to adopt and implement university codes that would prohibit the “sweatshop” conditions
he witnessed on overseas trips. At Georgetown University and through his service on the Board
of the Worker Rights Consortium, he was an early supporter of the Alta Gracia project. As the
Chair of Georgetown’s Licensing Oversight Committee, LaMarr worked closely and easily with
students, faculty and other administrators, displaying dedication, candor and his own personal
style of gracious goodwill. Taken by illness from his family and colleagues on November 11,
2011, LaMarr is sorely missed. This Report is dedicated to his ongoing memory.
.
LaMarr Q. Billups shared a panel with Alta Gracia employees Elba Nurys and Maritza Vargas
during a Georgetown University symposium in September, 2011. He was an early supporter of
the Alta Gracia project. He is deeply missed by all who knew him.

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Research Progress Report 1
Alta Gracia: Work with a Salario Digno
Introduction
Alta Gracia is a new unique brand of clothing from Knights Apparel that provides workers in
Villa Altagracia, the Dominican Republic, with a pathway out of poverty and hope for a better
future. Beginning operations in April, 2010, the Alta Gracia factory produces t-shirts and
hooded sweatshirts for colleges and universities throughout the United States. The enterprise
supports over 130 jobs in a community devastated by the 2007 closure of its last major employer.
The factory is an important source of income for the community and a model for how companies
can treat workers fairly, with respect and dignity.
Every worker at Alta Gracia is paid a “living wage” that enables them to provide adequate food,
clean water, clothing, shelter, health care, childcare and education for themselves and their
families. This wage is more than three times the minimum wage for apparel workers in the
Dominican Republic.
The Spanish translation of “living wage” is salario digno -- a wage with dignity -- which better
captures the Alta Gracia concept. In addition to this salary, the company respects its employees’
rights as workers and as human beings, including the right to a safe and healthy workplace, the
right to be treated with dignity and respect on the job, and the right to form a union, which has
already been organized and approved.
A respected independent organization, the Worker Rights Consortium (WRC), verifies Alta
Gracia’s compliance with these standards through intensive on-the-ground monitoring of the
factory. Every Alta Gracia product carries a WRC tag confirming the product was sewn by
workers who are paid a living wage, have a union to represent them, and are treated fairly when
they come to work. Alta Gracia is the only clothing brand in the developing world known to
achieve these standards.
The living wage puts Knights Apparel at a competitive disadvantage. As other companies in the
global apparel industry look for the bottom rung on the cost ladder, Alta Gracia is perched at or
near the top. Management hopes to offset some of the additional costs through increased worker
productivity. However, productivity gains alone cannot sustain the operation. Alta Gracia must
also establish its competitive presence at a quality and price level against already well-
entrenched brands, without bearing the requisite marketing costs generally required to establish
and maintain a new fashion brand.
1
This report summarizes findings from recent research that updates progress since an initial Research Report by
John M. Kline, Alta Gracia: Branding Decent Work Conditions, 30 August 2010, accessible online at:
http://ibd.georgetown.edu/117448.html.

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In the meantime, management of Knights Apparel is sacrificing a nontrivial portion of the
company’s earnings in order to get the project off the ground. Rare indeed are comparable
instances where the managers of an apparel manufacturing facility in the developing world
prioritize the welfare of its workers over short-term profit maximization.
Key to Knight’s strategy is the ability to penetrate university bookstores. As distribution
channels go, this one has formidable barriers to entry. For one thing, it is a tiny sliver of the
apparel marketplace. 2 Yet it is highly sought-after: powerful global brands vie for placement on
extremely constrained floor spaces. Worse yet, these brands have long-standing relationships
with the bookstores, over 1,200 of which are reportedly managed by two companies. 3
The Duke University bookstore actively promotes the Alta Gracia brand, providing information on the
factory’s policies and devoting extensive floor space to attractive displays. The bookstore has sold
over 20,000 units of Alta Gracia apparel, reaching one-half million dollars in sales.
2
According to the National Association of College Stores, university bookstores recorded sales of $10 billion in
2010, including all categories of merchandise. http://www.nacs.org/about.aspx
3
James Koch, “An Economic Analysis of Textbook Pricing and Textbook Markets,” ACSFA College Textbook
Cost Study Plan Proposal, p.6. online, available at: http://www2.ed.gov/about/bdscomm/list/acsfa/kochreport.pdf
(accessed August 31, 2011)

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And yet Alta Gracia garments offer consumers a compelling proposition: equal or better quality
as compared to the most recognizable brands at an equivalent or slightly lower price. On top of
that, point of purchase signage highlights the human dimension of the Alta Gracia brand. It is
not surprising that the merchandise has sold at the same pace as established brands and
commensurate with the floor space allocated to it.
After its first year of operation, Alta Garcia remains a work in progress and its viability is an
open question. On the one hand, a major hurdle has been cleared. One year ago a major
unknown was whether enough consumers would forego recognizable brands and purchase Alta
Gracia garments. Although the exact size of the consumer base cannot be determined, it is not
trivial. The experience of the Duke University bookstore is telling: allocated considerable floor
space, sales of Alta Gracia products reached one-half million dollars in November, 2011 without
deterioration in overall apparel sales. That is the good news. Another bit of good news is that
nearly 400 bookstores now carry Alta Gracia products. The main difficulty is that, with a
handful of exceptions, bookstores have not devoted enough display space. Orders are running at
an unsustainable level—making the next year a critical time for this bold and important venture.
Background and Start-up Period 4
The Alta Gracia concept is rooted in the anti-sweatshop campaign of the 1990s, sparked by
revelations that many expensive, brand-name apparel products were made in developing country
factories under horrible work conditions that included child labor, forced overtime, unsafe
equipment, sub-poverty wages, worker abuse and anti-union violence. Organized protests soon
centered on college campuses where students demanded that administrators require labor codes
of conduct for any licensed collegiate apparel that would carry the university logo. Following a
wave of demonstrations that included widely-reported sit-ins, most universities adopted labor
codes contractually committing licensees to assure that their collegiate apparel were not made in
factories with “sweatshop” conditions.
The next challenge was monitoring implementation of these codes. Most brand apparel
companies do not produce anything. Rather they subcontract with literally thousands of
“contract manufacturers” around the world, using their purchasing power and ability to pit
producer against producer to achieve the lowest possible costs. As revelations of continued labor
abuses emerged, student pressure, coordinated by United Students Against Sweatshops (USAS),
led to a grudging agreement by apparel companies to disclose the location of factories producing
collegiate apparel. With the locations in hand, oversight organizations were finally in positions
to monitor code compliance. One such organization, the Fair Labor Association (FLA), included
industry and university membership while another group, the WRC, was formed with only
university and student representation.
4
This section is adapted from Kline, 2010.

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Notwithstanding the oversight mechanism, abusive practices continued to emerge, centering
around two issues. The sheer number of globally-scattered contract manufacturers producing
collegiate apparel proved a formidable obstacle to effective monitoring. In practice, the
monitoring organizations have responded to complaints from foreign workers that were aware of
the code standards, knew how to contact monitoring groups, and were willing to risk firing or
even violence for reporting the violations. Remediation of violations proved slow, frustrating
and sometimes futile. Apparel companies resisted taking responsibility for the losses and
hardships workers suffered at contract manufacturing plants that had been found in violation of
university codes.
The second issue relates to the variable content of university code standards and, in particular,
the relative strength of their wage and freedom of association provisions. Several model codes
and guidelines exist, including the Collegiate Licensing Company (CLC) Special Agreement
Regarding Labor Codes of Conduct, the FLA Workplace Code of Conduct, and the WRC Model
Code for Universities. The CLC Code Agreement provides a type of baseline framework to
encompass the codes of member universities. The FLA Code provides more specific standards
with compliance benchmarks while the WRC Model Code generally proposes the highest labor
standards.
Individual university codes of conduct for apparel licensees vary quite widely in the level and
specificity of their provisions. The baseline standard on compensation recognizes that employee
wages are essential to meet basic needs but requires only that employers pay the higher of the
legal minimum or prevailing industry wage. Stronger codes define a “living wage” standard
calculated to meet a specific list of essential needs for workers and their families. Codes also
vary from simply stating worker rights to freedom of association and collective bargaining to
more specific standards of conduct and treatment in how management relates to workers seeking
to form a union to negotiate on their behalf.
One proposal to address these two issues is a Designated Supplier Program (DSP) where the
production of licensed collegiate apparel would be consolidated into a relatively small group of
factories that could be monitored and certified to meet code standards. Core standards would
include the payment of a “living wage” and full respect for labor rights, including freedom of
association. Licensees would be required to follow pricing policies that would enable the
Designated Suppliers to implement the standards. Opponents to the DSP cite the added costs as
well as logistical impediments. Advocates of the proposal have not secured enough university
endorsements of the DSP to support its adoption.
Against this background, conversations between the WRC and Knights Apparel led to a project
that offers a possible bridge to a new model, particularly on labor-management relations and
payment of a “living wage.” Knights proposed to establish a factory that would produce
collegiate apparel using the type of high labor standards proposed in the DSP and market the
merchandise under its own line of licensed collegiate apparel. To understand management’s

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rationale, note that Knights does not own a recognizable brand. Rather, its merchandise carries
the brand of other organizations (e.g. the NCAA and the NFL) and is distributed primarily
through mass market retailers (e.g. Walmart and Target). By producing goods in a plant meeting
exemplary labor standards, Knights would gain entrée to university bookstores – a very high
value distribution channel – without the costs of licensing another brand. If successful, Knights
stood to develop a recognizable brand of its own without the marketing costs typically required.
To further demonstrate its commitment, management agreed to locate the factory in Villa
Altagracia’s free trade zone (FTZ), a decision that can only be understood from an historical
perspective. The factory that houses Alta Gracia had been occupied by a Korean-owned contract
manufacturer, BJ&B, for the production of hats. At its zenith, BJ&B had employed as many as
3,000 workers. University code violations, including harsh treatment and the dismissal of
workers who were thought to support organizing a union, led to significant protests by USAS
and university licensees. Facing substantial sustained pressure, BJ&B finally recognized a
representative union and reached the first collective bargaining agreement in a Dominican
Republic FTZ that included a wage increase.
This signature achievement in the anti-sweatshop movement soon turned sour as the brands
shifted their orders to other factories, causing BJ&B to lay off workers and, eventually, to
abandon the facility in 2007. To make matters worse, the company refused to meet its severance
pay obligations, precipitating another battle. A handful of workers from the company’s former
union held firm against unfair partial settlement offers. With the continued support of university
students, these workers finally received overdue payments. But they were without jobs. And no
other significant company established operations in the FTZ, perhaps because of the union
success at BJ&B, leaving Villa Altagracia to endure desperate economic conditions.
The Free Trade Zone in Villa Altagracia was left nearly empty after BJ&B closed in 2007, until the
Alta Gracia apparel factory began production in April, 2010.

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Knights Apparel agreed in advance to respect freedom of association in its new factory so the
union history of former BJ&B workers was not a deterrent whereas their experience in apparel
production was an attraction. In fact, several former workers in the union leadership were
included in discussions between Knights Apparel and the WRC that led to the creation of the
Alta Gracia factory. This initial pattern of cooperative, fair discussions reflecting a respect for
basic labor rights laid the foundation for a different style of labor-management relations – one
based on trust that grew from experience as agreed upon standards were actually followed during
the initial phase of the Alta Gracia’s startup.
Leaders from the former
BJ&B union explain
labor rights to new Alta
Gracia workers at a
meeting held on the
factory floor. Alta
Gracia management
raised no objections to
the union and has
worked cooperatively
with its leaders.
Central among the key labor standards was the guarantee of a “living wage” – the notion that a
full-time worker should earn enough to pay for the basic necessities of life. Conceptually similar
to a legal minimum wage, this voluntary “floor” for worker pay is advocated because the legal
minimum wage in most developing countries does not meet basic needs. Moreover, compliance
with minimum wage and other labor laws and regulations is rarely enforced. Improving this
state of affairs is unlikely because it is designed to attract foreign investors and to keep
indigenous manufacturers from seeking out lower cost alternatives.
Opponents to a “living wage” raise practical concerns: What should it cover? To whom should
it apply? Additionally, they assert that a “living wage” is not realistic from a competitive point
of view. The WRC calculated a “living wage” for the Alta Gracia factory by collecting local
costs of a basket of goods and services that included food and water, housing and energy,
clothing, healthcare, transportation, education and childcare, modest savings and some

16. 9
discretionary spending. 5 Assuming the primary wage-earner should be able to cover the needs of
three people in a four-person family, the calculation came out to a monthly salary of
RD$18,152.99, equivalent to US$497.34 in October 2008. The comparable monthly legal
minimum wage at the time in the Dominican Republic was RD$5,400, or less than one-third of a
“living wage.”
In October, 2011 the minimum wage applicable to FTZ workers was increased to RD$5,940. It
is scheduled to increase to RD$6,320, effective January 2, 2012. The Alta Gracia “living wage”
is adjusted each October to reflect inflationary increases (but not decreases). In November, 2011
the adjusted “living wage” rate for Alta Gracia employees was RD$20,893, or over 350% above
the legal minimum wage (and still 330% higher than the projected legal minimum raise after the
scheduled January, 2012 increase). The cost of maintaining this wage differential is actually
even greater than it appears because employers in the Dominican Republic are assessed for the
cost of employee benefits as a percentage of wages (roughly 38%). Thus, the higher cost of the
“living wage” is magnified in terms of the total cost of employing a worker.
Employee Wage Cost Comparison (November, 2011)
Monthly Wage Benefits Total Total (US$)
Minimum FTZ Wage RD$5,940 RD$2,257 RD$8,197 $216
Alta Gracia “Living Wage” RD$20,893 RD$7,939 RD$28,832 $759
These two core tenets of Alta Gracia’s operations, respect for basic labor rights and payment of a
“living wage,” respond to the most evident short-comings in the application of university
licensing standards for collegiate apparel. There are other important elements to the Alta Gracia
standards, including provisions for their verification, which will be discussed below. Together
the standards and their implementation form an integrated pattern of labor-management relations
that is better captured by the salario digno translation of “living wage,” also explained below. In
summary, as the Alta Gracia factory commenced operations, it was poised to bridge the gap
between demands for better working conditions and assertions that such demands were
unrealistic.
5
The WRC methodology is described more fully in Kline, 2010 and detailed online at the WRC website:
http://www.workersrights.org/

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First-Year Standards, Implementation and Verification
In its first year and a half of operation, the Alta Gracia factory met or exceeded its commitment
to pay workers a “living wage,” respect labor rights and attain high workplace standards in
health, safety and respect for its employees. This evaluation is attested to through the WRC’s
rigorous monitoring process that includes visiting the factory to observe and inspect workplace
conditions, reviewing factory records to compare payroll accounts to worker pay slips,
communicating with managers and union leaders, interviewing workers in off-site locations and
responding to all complaints. Any violation of agreed standards is reported to Knights Apparel
with a recommendation for remedial action and a timeline for completion. The WRC can
suspend or withdraw the use of its verification hangtag on Alta Gracia apparel if corrective
action is not taken in a timely manner.
The WRC’s verification reports, available on the organization’s website, cover the period up to
September 1, 2011. They found Alta Gracia in full compliance with wage, hours and overtime
standards. Monitoring identified a few reporting or calculation errors that were immediately
corrected, with steps taken to prevent a recurrence. The factory was found to have complied
fully with anti-discrimination standards, prohibitions on forced and child labor, respect for
women’s rights, and the “dignified and respectful treatment of employees.” 6
The Maquiladora Health and Safety Solidarity Network (MHSSN) joined the WRC in
monitoring Alta Gracia’s workplace practices. Comprised of 400 volunteer occupational health
and safety professionals, the US-based MHSSN provides information, technical assistance and
on-site instruction about workplace hazards. Knights Apparel consulted MHSSN during the
factory’s renovation and an inspection team has visited the facility twice.
Along with training for management and workers, MHSSN inspectors offered suggestions that
were accepted and implemented to improve electrical wiring and insulation, lighting, ventilation,
chemical exposure, machine safety and ergonomics. According to the WRC, the Alta Gracia
factory “has worked to implement industry best practices, above and beyond the legal minimum
requirements, to prevent workplace accidents and illnesses.” 7
In verifying Alta Gracia’s compliance with its unusually strong commitment to respect rights to
freedom of association and collective bargaining, the WRC reports the factory’s conduct “has
been exemplary and should serve as a model for other factories.” 8 Soon after the factory opened,
employees met in the plant during normal work hours for training sessions with NGO and union
6
“Worker Rights Consortium Verification Report: Findings”, WRC, 23 December 2010, p. 14, online, available at:
http://www.workersrights.org/freports/WRC%20Verification%20Report%20re%20Altagracia%20Factory%2012-
23-10.pdf. (accessed 25 November 2011).
7
Ibid, p. 10.
8
Ibid, p. 15.

18. 11
representatives on labor rights. In the spring of 2010, employees formed a committee to explore
the formation of a union. In near-record time, the Union of Alta Gracia Workers (SITRALPRO)
was established in June, 2010 and officially registered with the government.
Pablo Tolentino and Elba Nurys are among over 130 Alta Gracia employees who enjoy much better
and safer workplace conditions than in their prior factory jobs. Management followed the advice of
U.S. experts who inspected the plant regarding lighting, ventilation, electrical wiring, ergonomic
chairs, safety training and other workplace standards.
Alta Gracia management meets with union representatives regularly on a range of issues. For
example, the representatives requested and management agreed to change the times of daily
breaks and to alter the factory’s schedule prior to some Thursday holidays so workers could
spend long four-day weekends with their families. SITRALPRO is preparing a contract proposal
to submit to collective bargaining, a process in which the company has agreed to negotiate in
good faith. Overall, the WRC declares that “management successfully created an atmosphere
within the factory where workers felt free to unionize without fear of management retaliation – a
first, in our experience, in any export apparel factory in the Global South that supplied a US
brand or retailer.” 9
The WRC verification reports were corroborated during the authors’ research in the Dominican
Republic, most recently during July and November, 2011. Meetings with management, union
leaders, union members, and non-union workers (of whom there are less than ten) confirmed that
the overall state of management-labor relations was by far the best of any factory in their
experience. Workplace conditions drew consistent approval with several workers commenting
on how training alerted them to safety risks they had disregarded in other jobs. These factors all
contribute to the strong commitment expressed by all the workers to producing a quality product
that will sustain their opportunity for continued employment with Alta Gracia.
9
Ibid.

19. 12
What Does Salario Digno Mean?
The English term “living wage” is generally translated in Spanish as salario digno, or wage with
dignity. Whereas the English term basically signifies a level of monetary compensation
sufficient to pay for the fundamental necessities of life, the Spanish term connotes more than just
pay rates, encompassing other aspects of how workers are treated and how they feel about
themselves, both collectively and individually. In multiple interviews, Alta Gracia workers
discussed the importance of these broader notions and rejected the idea that higher wages alone
are sufficient for a salario digno. The right to be represented by a union was an essential
element for nearly all workers, but other responses stemmed from more personalized values and
experiences that often reflected pride in their work as well as their family responsibilities and
accomplishments. In their own roughly-translated words, the following unattributed comments
help convey the broader significance of salario digno for Alta Gracia workers.
“To me salario digno means being taken into account; you are actually valued at
work. People are able to get a higher education, better intellectual development,
and better nutrition; without this we can’t have goals. Before, we were excluded
from the whole system.”
“It means having the right to health. Living dignified means having the security of
money, not living day to day, not knowing if you will be able to make ends meet;
not having everything left up to chance.”
“Dignified means more union of the family. When there is hunger, there is
disunion in the home. Dignified means better nutrition. Dignified means better
education.
“To live dignified means to have a bathroom inside; it means being able to eat
three times a day; it means being able to get an education and being able to have
your children get education. A not dignified life is not having a future.”
“With a salario digno, I don’t lose sleep anymore, as a mother, wondering how I
will make ends meet. I would say Alta Gracia is the salvation for a lot of mothers.”
“Salario digno means being able to work toward our aspirations. It allows one to
accomplish dreams. In (a previous factory), the road was always dark. We always
had to be borrowing money and taking out loans. You don’t get to see the results of
working. A salario digno allows you to be identified as a human being.”

20. 13
Impacts: Workers, Families and Community
Assessed after a year’s experience, the impacts of Alta Gracia’s “living wage” policy are already
visible physically and manifest psychologically in the lives of the workers, their families and the
community of Villa Altagracia. One type of impact arises from choices in allocating weekly
income that, while still modest, is several times more than most of the workers have ever
received. Local NGOs provided early briefings with information on budgeting and saving, but
the workers appear to have adapted easily to income management responsibilities. Although
most earnings still go for the purchase of basic necessities, the spectrum of alternative uses for
disposable income varies with the individual, ranging from surprising the children with an ice
cream treat to repaying predatory loans bearing weekly rates of interest of ten percent or higher.
Two priorities commonly top the list for using available funds. Clearly the most frequent
beneficiaries were children who now can enjoy regular meals of more nutritious food along with
the clothes, books, and other expenditures needed for schooling. Housing improvements are
often the second priority: some employees are moving from a parent’s home to a rented house;
others are renovating existing homes to add inside bathrooms, interior walls to replace hung
sheets, and concrete roofs instead of tin sheets. Some workers save a portion of their wages to
build up a down payment and qualify for their first-ever bank loan.
Interior room
dividers and
appliances are
some early
improvements
Alta Gracia
workers
finance with
higher wages.
Other frequently noted expenditures are the purchase of basic home appliances such as a
refrigerator or a clothes washer. Workers report that having more money enables them to change
shopping habits, permitting a greater variety of healthier food choices for the family. They can
also purchase goods in larger and less expensive quantities; for example, selecting a sixty-pound
bag of rice instead of having only enough cash to buy small, more expensive packages every few
days. Some workers are returning to school to complete their education or to pursue advanced
studies while others must first repay funds borrowed from relatives during periods of
unemployment.
Nearly all of this activity stimulates the moribund economy in Villa Altagracia. The economic
multiplier effect would predict that the wages paid to Alta Gracia workers create significantly

21. 14
more wealth as they circulate through the community. Examples include increased demand for
construction materials for home improvements as well as appliance purchases such as
refrigerators, stoves, washing machines and motor scooters. Paying back money borrowed from
family and friends increases their potential spending power. Banks gain new customers with
sufficient financial stability to qualify for first-time loans. Childcare centers improve their
quality with more children attending from the families of Alta Gracia workers. Small restaurants
open outside the FTZ’s gates to provide lunchtime options.
While economic impacts are visible, psychological impacts are expressed in the words of Alta
Gracia employees. One common refrain is family. Many workers had suffered long periods
where their choice was unemployment or minimum wage jobs in Santo Domingo or other distant
cities. The time and expense of commuting forced parents to leave home before dawn and return
well after dark, or alternatively sleep away from home and, at most, spend time with their family
on weekends or often only Sunday. Regular absences and constant financial worries combined
to loosen family bonds and deny children parental guidance and nurturing. A salario digno
meant freedom from daily worry and fear about “What can I feed the kids? How can we pay the
rent? What happens if we get sick?” Alta Gracia’s local employment opportunity and unusually
high wages address both these causes of psychological strain, permitting an easier and more
cohesive family life.
Another expression of salario digno is the employees’ feelings at work and about work. More
than simply higher pay, salario digno meant respect for labor rights and being treated with
dignity as a human partner rather than an instrumental tool in the factory’s production process.
At Alta Gracia, workers essentially self-manage their own production modules, receive health
and safety training, and have union and other channels to offer ideas and raise grievances.
Particularly compared to their experience at other factories, the workers believe their individual
and collective self-worth is recognized and valued at Alta Gracia. This feeling is reflected in the
“dignified and respectful treatment of employees” 10 documented by the WRC as well as
management’s response to the workers’ union.
The story of one young woman captures the difference between the conditions in many
“sweatshops” and salario digno. 11 In her previous job in an apparel factory she was given one
break for lunch. Otherwise, she was not allowed to leave her sewing station without permission.
Asked whether she was given permission to take brief bathroom breaks, she explained that
sometimes she would; but other times her requests were denied and there were occasions when it
became impossible to wait. She explained further that pregnant women were particularly
vulnerable to this treatment. One can only imagine the humiliation and anger of being subjected
to such petty tyrannies. One can easily imagine the joy of working in a place where, as this
employee put it, “we are our supervisors.”
10
Ibid, p. 14.
11
Related to the authors in an interview on July 21, 2011

22. 15
Salario digno also encompasses the role work should play in how individuals view their
opportunities for choice and hope for the future. Remembering her jobs at other factories, one
worker recalled simply feeling that: “I worked to be tired, without accomplishing anything.”
Workers commonly describe their efforts in other factories as, at the end of the day, futile. Work
only allowed them to live a day longer in the same conditions, without any hope for
improvement. Alta Gracia’s policies empower workers to have dreams, set goals and make
choices, providing a pathway out of poverty.
Individual Worker Stories
The motto adopted by the Alta Gracia brand is “Changing Lives One Shirt at a Time.” While the
above description provides an overview of how lives are changing in Villa Altagracia, the true
measure of this impact is more vivid and meaningful when viewed from the perspective of
individual workers and their families. With their permission, the following summaries relate the
personal stories of some of those workers. There are many more workers, and many more
stories, but these capsules are representative of the significant effects Alta Gracia has produced
in workers’ lives in just its first year of operation.
Isabel
Isabel lost her job when she was laid off from an apparel factory in the Villa Altagracia’s FTZ.
She worked as a maid, cleaning and cooking in other homes, to secure some income. Life
became harder when her wooden house burned down in 2008. She was able to move into her
mother’s house next door but her husband had to live with his family in their house. After being
hired for a job at Alta Gracia, Isabel was able to secure a loan to help rebuild her house and
reunite her husband and young daughter. She even added internal walls in the rebuilt house to
replace the hanging sheets that previously were used to separate rooms. Isabel is now building
an outside restroom so that it can be shared with her mother, since neither house has a bathroom.
She reports that people in the community are surprised that she was able to come out of her
situation so well; they are not jealous of her good fortune but hope the factory can hire more
people. For herself, Isabel hopes to return to school and study to be a nurse.
Isabel’s
rebuilt home
reunites her
family; the
new outdoor
restroom will
also benefit
her mother
who lives
next door.

23. 16
Ana
After losing her apparel job in Villa Altagracia’s FTZ, Ana worked for four years making men’s
boxer shorts at a factory near the airport in Santo Domingo. She had to live away from home
and went up to 15 days without seeing her two children, now ages 9 and 6, who stayed with her
mother. She then spent nearly two years unemployed, although she found some temporary work
as a cashier and in a hotel daycare center. She could only afford to rent a place so small the
children still had to live with her mother. After starting a job at Alta Gracia, Ana rented a larger
house. Now she can see her children every day and keep them close. She can also provide them
a better education and she dreams of owning her own home one day. Ana believes the factory’s
economic effects flow into the town’s economy, where the hardware firm and corner stores are
doing well. She helped finance construction on a part of her mother’s house. “In this way I am
passing along the wealth.” Working at Alta Gracia enables Ana to stay close to home and assist
her extended family, both ways to maintain family bonds which is an important value for her.
Ana wants to return to school and become a teacher.
After several years living away from her children, Ana’s job at Alta Gracia allows her to rent a small
house near the factory where they live together. She wants to return to school and become a teacher.
Susy
Susy moved to Villa Altagracia as a young girl when her father got a job in the paper mill. She
worked for nearly five years at BJ&B when it first opened. After she got married and had a first
child, she left to care for the baby. She was unemployed for 18 years as three more children
were born, but her husband was fully employed for 10 years and worked as a handyman the rest
of the time. Unfortunately, his work did not provide adequate health insurance; they could not
afford additional expensive treatment for a daughter born ill after another pregnancy and she
died. Susy’s job at Alta Gracia provides good health insurance coverage and her “living wage”
salary secured a bank loan that financed an expansion of their home, providing space needed by
Susy, her husband and four children. Another result Susy cites with pride is being able to
support her daughter’s dream to play on the nation’s Olympic-level volleyball team. After

24. 17
winning regional and national medals, the 15-year-old now travels each day to practice in Santo
Domingo, which means money for transportation and other expenses to support her training. She
will soon leave the country for the first time to play abroad in tournaments. Susy’s Alta Gracia
job is changing their lives with new opportunity, greater security and strengthened family bonds.
Susy and two of her children show off volleyball medals won by another daughter. Susy’s Alta
Gracia job supports that daughter’s training for the national team as well as addition to their home.
Yolanda
Yolanda worked at the BJ&B apparel factory for nine years and was an active member of its
union before the company closed. During Yolanda’s unemployment, her husband usually found
work for a couple days a week. They could generally afford only two meals a day, if they were
lucky. She was unable to pay for the medication needed to treat her high blood pressure. Since
obtaining a job at Alta Gracia, Yolanda has repaid the money they had to borrow. They fixed the
front of the family’s house where she lives with her husband, two children, her mother and her
sister. She was able to enroll her children in a better school and is helping support her sister and
mother, including paying for her mother’s medicine.
Yolanda’s long unemployment meant daily struggles and debt for her family. With a decent
wage at Alta Gracia, the debts are repaid and she can now help others.

25. 18
Clary
Clary was unemployed for several years and her husband’s work had to support the family of
five. There was no money to repair their house or add internal walls to separate the living and
sleeping areas. After she was hired at Alta Gracia, they made a few small improvements but
postponed substantial renovation in order to pursue a business opportunity. Since she was a
young girl, Clary had dreamed of starting a laundry. With employment at Alta Gracia, she was
able to secure a loan and lease a small store space along the town’s main street. Her husband
manages the business and they have hired their first employee. Clary gave birth to a daughter in
June, 2011, expanding her family to six. She was able to take 12 weeks of maternity leave at full
pay, divided if she wanted between pre- and post-natal care. When she returned to work,
insurance covered the cost of childcare at a center located close to the FTZ and national law
provides for a one hour leave each day for a year to permit mothers to feed their newborns.
Because Clary knew about these rights and benefits, she was able to plan in advance for their
use. With the new laundry business doing well, Clary was recently able to replace her home’s
tin roof with a concrete one and add a new wall.
Alta Gracia’s maternity leave benefitted Clary when her baby was born and insurance now
covers the cost of a childcare facility near the factory. Her job also secured a loan that
enabled Clary to start her “dream” business that her husband manages.
Aracelis
After losing her job at the TK apparel factory in Villa Altagracia’s FTZ, Aracelis worked for a
year at a pants and shirt factory in Santo Domingo. Unable to afford public transport, she left her
home at 5:30 am and hitchhiked to the capital city. She finished work at 4:15 pm but had no
reliable way means of getting home. Aracelis next worked for two years making bathing suits at
a different factory, also in Santo Domingo, from 7 am to 5 pm. After that she was unemployed

26. 19
and just tried to sell things from her home. Life was very hard because she was the sole provider
for four children and had no family living in Villa Altagracia. Aracelis was hired by Alta Gracia
in March, 2010. The first thing she did with her pay was to send her oldest son, then age 20, to
the university in Santo Domingo where he studies accounting. Aracelis was also approved for
her first bank loan, enabling her to build an extension behind her home. She plans to live in it
while renting out the front part of the house. Later she hopes to add a second floor that could
also be rented, providing a stable income.
After long commutes
to find scarce work in
the capital, Aracelis’
job at Alta Gracia
allows her to spend
time at home where
she is adding a rental
room for extra
income to support her
four children.
Ramon
Ramon is building a new house, employing neighbors to help with the construction. He and his
wife have carefully planned the design and calculated the expenses, recording everything in a
journal. With a job at Alta Gracia, Ramon qualified for a first-ever bank loan to help him
finance the house. Previously he had to work in another city for a year and a half, earning
RD$6,300 a month (one-third his current pay). He worked from 8 am – 5 pm, 7 days a week.
He could only go home to see his family three days a month. Ramon has three daughters. He
can now spend more time with them and with his wife. They are also covered by Alta Gracia’s
health insurance and Ramon has enrolled the children in a better school. Soon the family will
enjoy life together in their new home.
Ramon lived away from his family to find a job. Working now at Alta Gracia, he can live
at home, earn three times as much and finally begin building the family’s own house.

27. 20
Matilde
Matilde was unemployed for four years after an apparel factory closed, sometimes working as a
housekeeper but surviving with support from her sister and mother. Her husband had passed
away and it was difficult to provide meals for her four children. There was no money for
healthcare, even though she knew something was wrong. After being hired at Alta Gracia in the
summer of 2010, Matilde obtained health insurance and scheduled a physical exam. She was
diagnosed with cancer. The insurance covered a successful operation that December. Matilde’s
salary at Alta Gracia allowed her to rent a house closer to the factory, enroll her children (then
ages 3, 5, 15, 16) in better schools and progressively pay off her debts. She also began studying
at the university in Santo Domingo, taking classes after work from 6 – 10 pm on Monday
through Friday and 8 am – 2 pm on Saturday. Her older children take care of the younger ones
while she’s in class. When asked how the children respond to her commitment to study at the
university, Matilde related how hard the children were now working in their own studies, as
shown in the good grades they were receiving at school. At the university Matilde is learning
how to operate medical equipment. She wants to become a medical technician and help make
sonogram and X-ray technology more easily available to residents of Villa Altagracia.
Employment at Alta Gracia provides Matilde and her children with health insurance and
enough financial stability to pursue their educational dreams.
Manuel
Manuel began working at BJ&B in 1995 and was employed there until 2001, leaving before the
union was formed. He worked at a hat factory in the capital for a year and a half, commuting by
bus six days a week, leaving early and returning late. He spent most of his weekly earnings of
940 pesos on transportation and meals. Manuel then found a job that paid 1,500 pesos weekly in
another factory producing hats and shorts. He endured the same daily commute for 6 years until
political changes affected his employment. He learned about Alta Gracia from friends who had
worked at BJ&B and his long apparel sector experience helped him secure one of the scarce jobs.

28. 21
With a “living wage” income and his savings on transport, Manuel put aside money toward
building a family home. After qualifying for a bank loan, he completed a concrete house that
provides room for the whole family. Without the long daily commute, Manuel can also spend
more time with his children, now ages 16, 10, 7, and 3, making the house a real home. He hopes
Alta Gracia expands to give other people an opportunity to provide their children with better
conditions and a good education so that they will be able to pursue their own goals.
Manuel’s job at Alta Gracia enabled the family to build a new house with room for all four
children. More importantly, Manuel no longer commutes to the capital daily and can spend
time with his family making the new house a home.
Ana Maria
Ana Maria has held low-wages jobs both in and outside the apparel sector. For example, when
she worked in Bavaro (a town on the island’s eastern edge) in 2005, her job was to cook 40
pounds of rice and 30 pounds of beans every day. She had to use a wood stove and transport the
food in a motorized cart. She was paid 3,000 pesos every 22 days for her cooking while her
husband drove a truck and earned 7,000 pesos a month. The worst part of the work in Bavaro
was that travel to Villa Altagracia took nearly a full day, permitting her to see the children only
three days each month. Ana Maria started her Alta Gracia job in May, 2010. She was able to
pay off their debts after just 5 months in her new position. Subsequently she purchased a stove,
refrigerator, computer, and a new bed (three children had been sleeping in one “sandwich” bed --
the ones that fold up). However, she believes the most important benefit from the higher wage
will be education for the children. One son is already studying industrial engineering at the
university while another is expecting to begin studying medicine. The other two children are still
in public school. Now the sole support for her children, Ana Maria hopes company benefits may
extend to include partial scholarship help for the children of employees.

29. 22
Before her job at Alta Gracia, Ana Maria had to live far from her four children. Now they live
together and her better wages help support one son already studying engineering while another son
(not pictured) prepares to enter the university to study medicine.
Financial and Operational Analysis
Alta Gracia merchandise has passed a critical test: it sells. And Alta Gracia has transformed
lives. But is the operation sustainable? Will it grow and transform more lives or will it come to
an inglorious end. While it is premature to answer these questions, it is the ideal time to
understand the forces and factors that will determine the outcome of this bold enterprise. Alta
Gracia will either flourish or fail—muddling along indefinitely is not a lively possibility. In
either case, the best defense against opportunistic interpretations is to understand and document
what is actually transpiring. Thus far this Progress Report has concentrated on the background
and history of the Alta Gracia initiative and its impacts on workers. Now we consider its
viability as a business.
PRODUCTION PROFILE: BURDENS & BENEFITS
It is no exaggeration to describe Alta Gracia as the high-cost producer of licensed collegiate
apparel. No other firm pays a “living wage” or anything approaching it. To compound matters,
the Dominican Republic tends to have higher non-payroll costs. 12 Moreover, the island nation
does not afford easy access to the major supply chain hubs in Latin America or Asia. Thus, it is
not surprising that of all the circum-Caribbean nations, the Dominican Republic suffered the
most from the expiration of the Multi-Fibre Arrangement in 2005. Werner and Blair report that
garment exports fell by more than half and 73,000 jobs were lost in the succeeding three years. 13
Suffice it to say that Alta Gracia stands in sharp contrast to the race-to-the-bottom of the cost
ladder that characterizes the global apparel industry.
12
According to a 2007 study by the Fair Labor Association, electricity in the DR was three times more expensive
than in Mexico and 23% more than in Honduras.
http://www.fairlabor.org/fla/_pub/SyncImg/drmissionreport_final.pdf (accessed November 26, 2011)
13
Marlon Werner and Jennifer Bair, “After Sweatshops? Apparel Politics in the Circum-Caribbean”, NACLA
Report on the Americas, July-August 2009, pp. 6-10.

30. 23
To put the cost burden of Alta Gracia in perspective, consider an often-cited metric in the apparel
industry: operating costs per minute. The computation is straightforward: divide the total
operating costs (i.e., everything except material) over a specified period by the total minutes
worked by the production staff (over the same period). A member of Alta Gracia’s management
team estimates that the factory’s operating costs could be as high as 14 cents per minute when it
reaches full capacity. Based on first-hand experience, he reported that facilities in Sri Lanka
operate at approximately 5 cents per minute. Insofar as operating costs represent a significant
portion of the total costs of producing t-shirts and fleece tops, operating at nearly three times the
costs of a low-cost producer is not a prescription for prosperity.
Although Alta Gracia is saddled with a serious cost burden, some portion of it will not depress
earnings. In particular, paying a “living wage” stands to redound to the benefit of the enterprise.
As explained below, the amount of the benefit cannot be quantified at this time, but based on the
following factors, it will not be trivial.
First, as the undisputed employer of first resort, some of Alta Gracia’s higher labor costs will be
offset by a highly productive workforce. Management has been selective in terms of experience
and reliability; and turnover and absenteeism have been negligible. An experienced workforce
matters because, despite the characterization of “cut and sew” factory workers as “unskilled,” it
takes approximately three months of training for a sewing machine operator to become
minimally proficient. A reliable and stable workforce matters because the typical manager will
add staff in the face of chronically high levels of turnover and absenteeism. Thus, although the
Alta Gracia workforce is considerably more expensive than the norm, it should be quite lean and
productive in comparison to the typical cut and sew operations.
Two other factors stand to offset some of Alta Gracia’s higher labor costs: supervisors and
material waste. To explain, consider that the labor-intensive part of the apparel manufacturing
process is an assembly line operation. Precut parts are sewn together and reinforced by teams of
between 8 and 20 employees (called modules). Each employee sews a single seam. The work
demands intense concentration on a repetitive task. Mistakes can result in the scrapping of
partially completed garments – and disengaged employees are apt to make many mistakes. In
response, garment manufacturers deploy a significant tier of supervision. Alta Gracia is
different: two supervisors cover six modules. And rather than hovering over the shoulders of
unhappy machine operators, these individuals serve as trainers and were described by workers
and management alike as “problem solvers.” Alta Gracia modules are self-managed, with
employees taking responsibility for the quality and quantity of their work. Indeed, management
estimates that several more modules could be added without increasing “supervision.”
These three factors should cushion the financial impact of paying a “living wage.” However, the
magnitude of that cushion should not be overstated: Alta Gracia will still be a high cost
producer. To illustrate, consider that the payroll for 100 Alta Gracia workers is $75,900 per
month ($759 times 100). And consider that a similarly configured factory could be set up next

31. 24
door and pay the legal minimum wage cost of $216 per month (with benefits). Now, assume that
the neighboring factory required twice as many employees to produce the same output as 100
Alta Gracia workers. In that rather farfetched case, its payroll would be $43,200 ($216 times
200) or not quite 60% of the Alta Gracia payroll. Productivity gains cannot overcome a cost
differential that is rooted in the fact that three people can be hired for 85% of the cost of a single
Alta Gracia employee.
Alta Gracia employees
work in modular teams
with help available from
trainers rather than
multiple levels of
supervisors. The system
respects the dignity of
the workers and fosters
responsibility for quality
control and productivity.
The financial impact of the above factors cannot be quantified until the factory achieves a steady
state of normalized production. At present, the plant is grossly underutilized by the production
for which it was designed. The factory can produce 30,000 units per week, but actual production
has been closer to 24,000 units (as of November, 2011). And that 80% capacity utilization rate is
deceiving. Orders from university bookstores have fallen short of expectations and Knights
management was faced with a decision. They could have furloughed or terminated workers but
chose, instead, to shift production of standard Knights merchandise from contract manufacturers
around the world to Alta Gracia. Doing so kept the workers employed but much of their output
has been value category merchandise that is distributed through mass-market retailers. As such,
it is not representative of Alta Gracia merchandise in terms of production runs, materials, and
unit sales prices. Injecting this production saved the day for the Alta Gracia workers, but it
confounds any meaningful analysis of the financial or operational performance.
In shifting production from contract manufacturers to Alta Gracia, Knights moved from low cost
producers to a high cost operation. As explained below, the Alta Gracia factory is predicated on
a premium product for a premium distribution channel. Knights Apparel is bearing that extra
cost for now but the arrangement is not sustainable.
The cost structure and underutilization of Alta Gracia may strike some readers as dire and
insurmountable. And they would be if Alta Gracia were just another cut and sew factory in the
global apparel industry and if its sponsor were did not have the resources to overcome some
serious difficulties. However, Alta Gracia is not just another garment manufacturing plant:

32. 25
owing largely to the attractiveness of its mission, the operation has received considerable
attention and support. Additionally, Knights Apparel has the managerial expertise and capital to
move the project forward. To explain how management intends to rationalize its cost structure
and utilize the factory, an explanation of the Alta Gracia strategy is in order.
BUSINESS MODEL: INITIAL PERFORMANCE AND CHALLENGES AHEAD
The Alta Gracia strategy is straightforward: produce premium garments and distribute them
through a high value channel, university bookstores. A key element of this strategy is that it
would be executed without an established brand and without a sales force with the heft to service
a highly fragmented national market. This is a key element because the enterprise cannot
prosper unless Alta Gracia garments command prices that are comparable to those of
recognizable brands, but without incurring the prohibitively high costs of establishing a brand or
maintaining a national sales force. If successful, Knights Apparel stands to achieve margins that
are sufficient to absorb the increased labor and operating costs that are not offset through
productivity gains. In effect, lower sales and marketing costs make it possible for Alta Gracia
employees to receive a “living wage.”
At first blush, this is not a realistic strategy. As discussed earlier, gaining access to university
bookstores is a formidable challenge, especially in the premium priced category. Simply put,
adding a rack of Alta Gracia merchandise takes one away from another brand. And those other
brands have established cachet with consumers and long-standing relationships with bookstore
buyers. Access to this highly sought-after floor space was achieved by positioning Alta Gracia
to gain the backing of student activists and similarly committed faculty and administrators. To
elaborate, many colleges and universities are operated as “values-driven” or “values-based”
organizations. To one extent or another, the values they espouse are aligned with the mission of
Alta Gracia. In other words, the fit is excellent.
Knight’s Apparel CEO Joe
Bozich (left) presents an Alta
Gracia t-shirt to Georgetown
University President John J.
DeGioia at a September 6, 2011
symposium on “The Alta Gracia
Project: Continuing
Georgetown’s Leadership.”
Factory employees Maritza
Vargas and Elba Nurys told the
audiences about their jobs at the
Alta Gracia factory.

33. 26
The value proposition to the bookstores is compelling. As discussed earlier, the sales and
margins per square foot of Alta Gracia merchandise are indistinguishable from those of other
premium priced garments. For those stores that are managed by the universities (referred to as
independents), stocking Alta Gracia garments is an opportunity to manifest the institutions’
values. For the stores that are managed by third party contractors (i.e., Barnes & Noble College
Booksellers and Follett Higher Education Group), universities control the space in which they do
business through limited duration operating agreements. Under the circumstances, there is no
rational reason for not accommodating their client and landlord.
The value proposition for the consumer is more complicated. The purchase of an Alta Gracia
garment entails sacrificing the cachet of a popular sports brand (e.g., Nike). However, sales thus
far suggest that consumers are willing to do so, probably because the university logo is their
dominant consideration. Once the influence of a recognized brand is neutralized, purchasing
decisions turn on standard considerations of features, benefits, and price. On that playing field,
Alta Gracia has proven to be very competitive. Exit interviews have not yet been conducted to
determine the extent to which consumers are influenced by the point of purchase cause-
marketing materials or the WRC verification tags. Anecdotal evidence suggests that the
perceived quality of Alta Gracia garments is the dominant consideration, but a formal study is
clearly warranted.
Given its barriers to entry, Alta Gracia’s initial performance has been impressive. Merchandise
is in over 400 bookstores. Unfortunately, most of those stores have devoted little more than a
token amount of floor space. So although Alta Gracia has achieved fairly wide penetration of the
universe of university bookstores, it needs to be deepened on a store-by-store basis.
The challenge ahead entails a short-term objective of achieving a breakeven level of sales and a
longer-term goal of profitability. Management estimates that breakeven would be achieved if
university bookstore sales accounted for half of the plant’s output or approximately 720,000
units per year. Orders are expected to be roughly half of that level for the 2011-12 academic
year. Longer term, orders would need to quadruple in order to utilize the productive capacity of
the plant, provide a return to Knights Apparel, and keep the Alta Gracia workforce gainfully
employed.
These objectives may seem unattainable but on closer examination they are quite realistic. To
begin, Alta Gracia products are not yet sold in two-thirds of the more than 1,200 college
bookstores across the United States. Considering only bookstores already selling Alta Gracia
merchandise, a 60 percent increase in current sales would meet initial objectives. Of course,
universities and their bookstores vary in size and sales potential. If fewer than 50 bookstores
matched the purchases at Duke University, the employment of Alta Gracia’s workforce would be
secure. Based on recent sales performance, management estimates this result could be achieved
if such stores devoted only 6 or 7 percent of their apparel floor space to Alta Gracia merchandise.

34. 27
If these marketing targets are achieved, the brand would have legs and management could look
toward expanding into an adjacent building and hiring additional workers.
The UCLA bookstore features several types of attractive Alta Gracia displays along with multiple
racks and shelves fully stocked with various sizes and styles of apparel.
Issues: Jobs, Development and Competitive Markets
Alta Gracia’s commitment to a “living wage,” respect for labor rights, and other enhanced
workplace standards challenges core assumptions about the “sweatshop” model that dominates
the global apparel industry. The earlier Research Report 14 traces past debates and addresses
several issues where Alta Gracia’s approach calls into question assertions that “sweatshop” jobs
are justified by the absence of a better economic alternative. Further research confirms and
extends this analysis, particularly on three issues: more jobs versus better jobs; “sweatshops” as a
path to development; and the competitive dynamics of the global apparel industry.
The first issue concerns the possibility that paying Alta Gracia workers a “living wage” deprives
others of employment opportunities. Since Alta Gracia pays workers over three times the
minimum wage, why not provide minimum wage jobs to three times as many workers? In
theory, this makes sense. In reality, it is not feasible. The “living wage” is a key feature of the
Alta Gracia brand and a major reason why it is offered in university bookstores. The argument
that the enterprise should hire more and pay less is based on a faulty assumption. Eliminate the
“living wage” and the project would not exist; the low-wage segment of the market is already
being supplied.
14
Kline, 2010.

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A second issue centers on the argument that low-wage “sweatshops,” though undesirable, are a
stage that a developing country must pass through on the way to future economic development.
Proponents of this view point to examples of success while conveniently ignoring countries, such
as the Dominican Republic, where such progress has been elusive at best. Development is a
highly idiosyncratic process and lessons learned from one country’s experience do not
necessarily apply in other countries. Sometimes carefully choreographed government policies
have lifted people out of poverty, not free market ideology, but unfortunately many developing
countries are not governed wisely or consistently. In any event, the evidence is not clear and
convincing enough to endorse the status quo of “sweatshop” labor conditions on the basis of
economic theory.
A “living wage” provides a pathway out of poverty for workers and their families while benefitting
the local community. The Alta Gracia business model challenges the assertion that “sweatshops”
are a necessary stage of economic development.
The third issue lies at the heart of conventional wisdom about economic realities in a global
apparel industry. Most economic analyses attribute the industry’s low wages and poor labor
conditions to competitive market pressures on apparel firms. Thousands of factories compete to
fill orders placed by large brands and retail stores that pressure foreign suppliers to reduce costs,
knowing orders can be shifted to other factories willing to accept a lower price. While factory
owners face these price pressures, the burden of reducing costs inevitably falls on workers,
especially where unemployment is high and labor regulations are weak.
These circumstances are often seen as dictated by the impartial forces of marketplace
competition. However, if the industry’s full business structure is considered, a distorted picture
of market competition emerges. The highly competitive conditions facing thousands of small
developing country apparel factories contrasts markedly with the relatively small number of
large, developed country brands and retail firms that enjoy oligopsony bargaining power. The
big buyers are price-setters and small producers are price-takers who, in turn, satisfy the buyers’
cost reduction demands by further squeezing workers who have few job alternatives. The

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ideology that free market competition dispassionately allocates costs and benefits among parties
in the global apparel industry does not match the sector’s dichotomous competitive market
structure.
Alta Gracia begins
cost and income
planning with a
“living wage”
guarantee for its
workers rather
than maximizing
profits by seeking
lowest-cost labor
locations.
The Near-Term Challenge
Prospects for the Alta Gracia brand rest largely with two groups: merchandise buyers and
managers of university bookstores and the consumers of collegiate apparel. Students, parents,
friends and alumni will buy t-shirts and sweatshirts emblazoned with their college name and
logo, but there will be several brands from which to choose. Product design, quality and price
determine many decisions, but the significance of a brand name also exerts some influence,
especially when other product characteristics are similar. Alta Gracia depends on a social
marketing strategy to inform potential consumers about the exemplary labor conditions under
which its apparel are produced, trusting that this association will be meaningful to the person
making the purchase. This process depends heavily on individual students and campus
organizations to alert and inform others about the Alta Gracia difference through seminars,
articles, tabling, posters and social networking channels. Supported by groups such as United
Students Against Sweatshops and United Students for Fair Trade, these activities are
progressively taking hold. Some faculty and university administrations have also recognized
Alta Gracia’s substantially higher labor standards and expressed support for the product.
For the Alta Gracia brand to succeed, these efforts must continue with even greater recognition
of the substantial differential between the standards under which collegiate brand apparel is
produced. This step would involve more institutional action at the level of university
administrations. Following the past decade’s student protests against “sweatshop” conditions,
most universities adopted codes that set minimum labor standards for apparel licensees. Despite
continuing monitoring and enforcement problems, these codes offered some reasonable
assurance that a college’s logo will not appear on apparel produced under extreme labor
conditions -- essentially establishing a “not a sweatshop” standard. However, Alta Gracia is the
only brand that is independently verified to comply with much higher labor standards by paying
a “living wage,” fully respecting labor rights and providing exemplary safety and health

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workplace conditions. More than simply “not a sweatshop”, the Alta Gracia brand pioneers a
new approach that encompasses the broader concept of salario digno.
Interestingly, many colleges and universities have already adopted or endorsed codes of conduct
for apparel licensees that call for such higher standards, including the payment of a “living
wage.” Until now, however, the industry asserted such a wage standard was impossible to
achieve because it would make the product commercially uncompetitive. With no company
offering a product that met a “living wage” criterion, universities were essentially forced to
accept products that fell below their adopted code standards.
A review of nearly sixty university codes revealed that over one-third specifically endorsed a
“living wage” standard while another twenty percent used a “basic needs” wage criterion that
was above the legal minimum and prevailing industry wage. If followed, these standards would
favor Alta Gracia products as the only brand that complies with the wage provisions in the
existing apparel licensing codes of many universities. Almost certainly, these codes have not
been monitored from this perspective because, until now, no company had been willing to offer a
product that could meet a “living wage” standard. Perhaps with Alta Gracia’s arrival, it is time
to review university codes to reassess whether their stated terms are being met. These codes
should guide university actions, including steps to assure that products meeting such standards
and bearing the university logo are recognized and readily available at campus bookstores.
It is doubtful that current Alta Gracia capacity could meet demand if all colleges with a “living
wage” or “basic needs” code provision resolved to enforce such a standard. Arguably, however,
those colleges should give Alta Gracia products preferential treatment in contracts, purchasing
and bookstore displays. Such preferential treatment and increasing demand would clearly signal
other producers to adopt comparably higher labor standards or risk losing market share.
Wider Implications of Alta Gracia
Alta Gracia is a managerial moral exemplar in an industry in which workers have not been
accorded the respect they deserve. As with many ideals, there is plenty of space between what is
transpiring in Villa Altagracia and management practices in apparel factories around the world.
Emulating every feature of the Alta Gracia model is not the only way to improve. Nor is it
realistic for all firms to pay a full “living wage.” But there is a wide spread between a “living
wage” and the current practice of paying the legal minimum or the prevailing industry wage.
Reducing that spread requires a compelling “business case” – something Alta Gracia stands to
provide in the apparel sector. Over time, the benefits of its intelligent and humane approach to
management should be evident, and they should be adaptable to a range of business models and
pay scales. The long-term promise of Alta Gracia is the light it shines on these possibilities.

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The Alta Gracia workers appreciate the support of consumers who buy their products and hope this
business model can expand to provide others an opportunity to improve their lives.

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About the Authors
Dr. John M. Kline is a Professor of International Business Diplomacy in the Walsh School of
Foreign Service, Georgetown University. His teaching focuses on international business-
government relations, international investment strategies and negotiations, and international
business ethics. The second edition of Dr. Kline's textbook, Ethics for International Business:
Decision-Making in a Global Political Economy, was released by Routledge in London and New
York in May, 2010. He is the author of three other books as well as numerous scholarly articles
and chapters in co-authored and edited books.
Prior to joining the Georgetown faculty, Dr. Kline was Director of International Economic
Policy at the National Association of Manufacturers. He received his doctorate in political
science from The George Washington University and holds a masters degree in international
relations from The Johns Hopkins University School of Advanced International Studies. Dr.
Kline serves as a consultant to various international organizations and private multinational
corporations. Recent projects include a comparative analysis for UNCTAD on foreign
investment policy promoting small and medium-sized enterprises (SMEs) in Malaysia and
Singapore, and electricity infrastructure in Chile and New Zealand.
Dr. Edward Soule is an Associate Professor at the McDonough School of Business,
Georgetown University where he has taught courses in managerial ethics and corporate social
responsibility since 1999. In 2002 and 2011 he was awarded the Joseph F. Le Moine Award for
Undergraduate and Graduate Teaching Excellence. Dr. Soule’s research considers two facets of
business from a moral point of view: management responsibility and commercial regulation. His
research appears in a range of scholarly books, journals, and reports: from The Academy of
Management Review to The Journal of Philosophy and Medicine. Recent works include a 2009
article, “Principles of Managerial Moral Responsibility” (with Hedahl and Dienhart), that
appeared in Business Ethics Quarterly; and an essay, “Regulation,” that was included in a 2010
collection entitled Finance Ethics: Critical Issues in Theory and Practice (Ed. John Boatright).
Dr. Soule’s academic activities reflect his unlikely past—formal training in moral and political
philosophy that came at the conclusion of his business career. He practiced public accounting
for twelve years, after which he served as the Chief Financial Officer of Edward Jones from
1986 to 1995. In 1999 he received a Ph.D. in moral and political philosophy from Washington
University in St. Louis. Dr. Soule chairs the Board of Trustees of Rare, an international
conservation organization headquartered in Arlington, Virginia (rareconservation.org). A native
of St. Louis and a seasonal resident of Clarksville, Missouri, Ed is a devoted fan of the most
illustrious organization in professional sports, the St. Louis Cardinals.

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