Tuesday, July 2, 2013

Our Absurd Treatment of Bangladesh

Bangladesh became a center for apparel manufacturing after other locations like India and China became higher cost.  Once countries like Canada dropped their 18 percent duty on clothing made in Bangladesh, its industry exploded.  However, its production is focused on lower-value basic items like t-shirts and underwear.

Over time, the goal of a Bangladeshi apparel industry would be to move to higher value fashion items for better manufacturers and retailers.  In order to do that, they have to continue to expand their output, while improving their quality and capabilities.  Manufacturers have to continually lower their costs for the inevitable concessions that will be demanded by their volume customers, like Walmart.

So, the local entrepreneurs inevitably look for every way they can to cut costs while boosting production.  The building collapse which killed over 1,110 people came in a building that was rented by one of Bangladesh's largest producers.  The owner of the building has been brought up on charges that he built his buildings on ground that couldn't support the structure, and that he used substandard rebars and concrete.

The bigger problem is that the entire system of building project review, permitting, and inspection is bankrupt and doesn't work.  As well meaning as some of the manufacturers are about signing a pact to be responsible for the safety of facilities owned and run by others, this is neither a viable solution nor one which will appeal to their shareholders.

The appropriate internal regulatory mechanism is vendor certification, which all garment companies have to some degree.  So, before deciding to produce in Bangladesh, the company should have looked at the whole gamut of issues from plant safety through worker treatment and occupational health and safety.  Never mind that companies now report on sustainability issues, which should also touch on the sustainability and riskiness of supply chains.

However, in our short-term corporate mindset of looking for a boost in today's share price, the companies can't care and don't care.  They can't because if their t-shirts cost $1.00 more than their competitor's they will lose share; they don't care because a higher share price means a higher bonus.

So, while Bangladesh is called on the carpet by President Obama, China is given a free ride on safety issue in many industries.  Who bears the brunt of our ham-handed arrogance?  The young women who, despite working in extremely difficult conditions, are often the only support of their families and who provide a way out of poverty in their country.

Of the European companies, H&M had been working with its suppliers on issues like working conditions and plant safety as a normal course of their doing business.  For this kind of effort to pay off, both supplier country and retailer have to make longer-term commitments to each other.  Facilitating and funding some parts of this effort would be an appropriate role for multilateral agencies and for governments like the United States.

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