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May 30, 2013 at 09:08 PM
A recent Bangladesh factory building collapse and its dreadful human toll revealed Western retailers are exposed to supply chain risks that perhaps they had not expected: reputation and liability.
The collapse, neither the first nor even the most recent disaster for factory workers in countries with low production costs, was the site of more than 1,100 deaths. Cracks had been seen on the outside of the building the day before the collapse and workers from several factories located in the building fled. The next day, however, they were forced back to work—then died when the building came down on top of them.
The building owner, who, along with a municipal engineer and seven others, is now facing murder charges, could face the death penalty. But retailers, too, find that they are also being held accountable, at least in some way, for the tragedy.
Even before rescue operations and the death toll were complete, international retailers who outsource garment manufacturing to Bangladesh found themselves the target of a public outcry against conditions leading to the tragedy. Their responses differed widely; some were proactive: immediately acknowledging business ties, promising to work toward better conditions, some even contributing to the victims’ families. Others denied ever outsourcing to those factories until photos of their products amid the wreckage spread across the Internet.
Bangladesh has made itself the go-to country for cheap labor. Its minimum wage is about $37 per month, drawing Western clothing companies in swarms, even as Pope Francis denounced both the pay rate and the country’s working conditions as comparable to slave labor. The government has actively pursued the garment business, aided by a large labor force and the end of production quotas that resulted in lots of new business being thrown its way because of low production costs.
Another factor keeping costs low has been growth itself, so fast that it has led to poor or nonexistent government supervision and enforcement of standards for safety in the workplace—even, perhaps, according to activists, the government’s willful ignorance of labor conditions.
The European Union, which buys about 60% of garments manufactured in Bangladesh, has also allowed the country’s clothing products favorable trade terms. This is something Bangladesh was begging the EU to continue in the wake of the tragedy, claiming that imposition of harsh trade conditions would hurt the country’s economy and result in job losses. The garment industry in Bangladesh, according to its Export Promotion Bureau, makes up some 80% of its exports.
Yet factory owners bid each other lower and lower to win shares of what has become a $20 billion business from Western retailers who have constantly sought cheaper places to produce their wares. And it shows: in the past six months, three major factory disasters—a fire in November that claimed 112 lives and another in January killing 7, and the Rana Plaza building collapse with a final toll of 1,127—have shone a spotlight on the corners cut to achieve those low rates: lax or nonexistent zoning regulations, cronyism on building permits, corruption in construction.
The spotlight has not just captured Bangladeshi factory owners and government officials who have championed or ignored lax regulations. It has spread to the corporations who do business in Bangladesh and in other low-bid countries, and is likely to be costly—even to companies that deny any involvement.
