Bangladesh disaster: The deadly side of cheap labor

The factory collapse in Bangladesh that killed over 300 people this week is a stark reminder of the risks in the global retail industry’s search for cheap production.
But there have been few signs that safety issues and other questionable labor conditions are sending shock waves through the major Western retailers, their shareholders or the people who buy the clothes in the United States, Europe and elsewhere.
Despite a series of accidents that have killed hundreds of people in recent months, dozens of major retailers and apparel makers continue to operate in Bangladesh.
The country ships about $ 15.6 billion of ready-made garments each year — about 80 percent of its total exports. Sixty percent of Bangladesh’s garment exports go to Europe; the United States takes 23 percent, and Canada takes 5 percent, according to data from Bangladesh’s Commerce Ministry and industry sources.
About 18 months before the previous big tragedy in Bangladesh — a fire in November in a textile factory that killed 112 people — shareholders at Wal-Mart Stores Inc had the opportunity to weigh in on the safety question. By a nearly 50-to-1 margin, they rejected a proposal to require suppliers to report annually on safety issues at their factories.
In arguing against the proposal, Wal-Mart’s management made its reasoning clear: Having suppliers compile such reports “could ultimately lead to higher costs for Walmart and higher prices for our customers. This would not be in the best interests of Walmart’s shareholders and customers and would place Walmart at a competitive disadvantage,” the company said in proxy materials.
Soon after the fire, Wal-Mart and Sears Holdings Corp. admitted their goods were being made at the Tazreen Fashions workshop even though they had denied that factory authorization as a supplier.
Bangladesh is hardly the only source of inexpensive clothes and cheap labor that has sparked concern about labor conditions. From Vietnam, to the American protectorate of Saipan, to the massive workshops in China, Western companies have found themselves entangled with places where worker health and safety conditions are often questioned.
Disasters such as the April 24 collapse of an eight-story factory building in Bangladesh have not changed the calculation for apparel makers and retailers. Cheaper products appeal to shoppers. And the taint, if any, appears to be manageable.
The courthouse, marketplace and stock market seem to be telling them they are right.
Shoppers such as Mohini Raichura are making decisions that justify the retailers’ strategies. Raichura, a 30-year-old London charity worker, was shopping Friday at Primark, a discount retailer owned by Associated British Foods, even though she knew that some of its products were made at the factory that collapsed earlier in the week.
“I go there because it’s cheap. That’s awful. It really makes me a bad person,” Raichura said. “But you know, I work for a charity, I’m on a limited income, and I pay rent in London — that’s how I justify it.”
Consumers continue to purchase products from brands like Wal-Mart’s Faded Glory, found in the Tazreen rubble, and Loblaw’s Joe Fresh, found in the ruins of the factory building this week.
Loblaw Cos Ltd’s stock has edged up since the tragedy this week, while Wal-Mart and Sears’ shares have moved higher since the Tazreen fire last November. That disaster, in which locked doors prevented workers from fleeing to safety, did not appear to have any measurable impact on sales at Wal-Mart and Sears after both acknowledged their products were made there.
The world’s court systems have not provided a disincentive, either. For example, in 2005, a lawsuit was filed in California state court on behalf of factory workers in Bangladesh, China, Indonesia and other countries accusing Wal-Mart of failing to address substandard working conditions in suppliers’ factories.
But the case was ultimately dismissed, and according to a search of available filings on the Thomson Reuters legal database Westlaw, there have been no US lawsuits filed against Wal-Mart or Sears on similar matters since the Tazreen fire.
Michael Silverstein, senior partner and managing director at Boston Consulting Group, said the attractions of places like Bangladesh outweigh the risks, and most retailers believe the risks can be managed.
“Bangladesh is a very viable source for apparel retailers. It has very low labor cost, good operational efficiency and because it produces in such large quantities, supply-chain costs are also low,” Silverstein said. “Obviously safety and health conditions need to be tightly policed. Suppliers need to be rated and visited frequently.”
Wal-Mart and other companies have vowed to step up their safety audits, training, and conversations with government officials. Earlier this month, Wal-Mart said it would donate $ 1.6 million to help start a new Bangladesh training academy.
Foreign companies have long grappled with working conditions in manufacturing hubs, including China — places that have become the world’s workshops because of low wages and improving transport infrastructure.
Global protests against Apple Inc swelled after reports spread in 2010 about suicides at plants operated by Foxconn, Apple’s chief supplier in China. The world’s most valuable technology company was forced to tackle the issue head-on. Apple publicized an internal audit that for the first time spotlighted all its manufacturing partners. It set up a workplace-improvement program, invited auditors like the Fair Labor Association to review it, and began monitoring its several hundred contract manufacturers more closely. Foxconn also significantly boosted wages at plants making Apple products.
In the apparel industry, Nike Inc began making changes to its sourcing and worker policies after there were charges of minimum wage violation and child labor practices in the mid-1990s. In 2005, the company disclosed its factory list, and then broadened that to cover 800 factories worldwide that manufacture all Nike brands.
But Nike and Apple make higher-priced brand name products than many apparel retailers. And protests such as the ones they have faced have mostly failed to materialize when it comes to retailers who sell cheaper apparel products.