September 18, 2013
By Lisa Wirthman
Less than a year before a tragic garment factory collapse in April killed over 1,000 people in Bangladesh, a World Bank study laid out many logistical reforms to improve the country’s garment industry.
An international outcry is now prompting some of those reforms, and could begin to change the logistics of the international clothing trade.
In Bangladesh, the first step for the garment industry – which accounts for three-fourths of the country’s exports – is to improve worker safety, said Scott Nova, executive director of the Worker Rights Consortium.
Because garment factories in Bangladesh compete intensely to piece together short-term orders from multiple retailers, price makes all the difference in winning a deal.
“In order to stay in business, they have to slash production costs to the bone,” said Nova, leaving little room for investments in safety or other logistical improvements.
“Bangladesh has to stop competing solely on the basis on being the absolute cheapest place in the world to produce apparel,” he said.
And companies need to pay closer attention to how suppliers are achieving cost reductions in order to avoid damage to their brands. The devastating tragedy in Bangladesh has made safety risks a primary concern for retailers now facing backlash from angry consumers.
Clothiers are faced with a logistical choice – stay in Bangladesh and improve conditions, or leave the country and face higher costs and criticism for walking away.
While some companies like Walt Disney DIS -1.08%Company are leaving Bangladesh, many others committed to stay. Over 70 mostly European retailers have signed a new Accord on Fire and Building Safety, which makes significant progress toward improving working conditions, Nova says.
The legally binding agreement requires corporations to inspect all the factories supplying their products within nine months – and pay for needed repairs. It also creates stronger relationships with suppliers by committing companies to stay longer at factories that are making improvements.
Because it includes both workers and corporations, the accord also establishes a model for addressing other supply chain problems. It could enable labor unions to better protect workers, and increase pressure to raise the country’s low minimum wage of 18 cents an hour, said Nova.
Higher wages and an investment in worker education could help Bangladesh create a larger pool of skilled workers to produce high-end garments, and reduce production costs by lowering the rates of rejection for defects, states a McKinsey and Company report.
In Sri Lanka, investing in workers gave the country a competitive boost. Sri Lanka’s “Garments Without Guilt” initiative attracted high-end clients by promising ethical production. The country is now a leading producer of intimate apparel, according to the World Bank report.
In Bangladesh, profits from high-end garments could create incentive to invest in badly needed logistical improvements in infrastructure and transportation that have been offset by low wages.
Problems like power shortages, poor connectivity with the port, and inefficient port management make timely shipments difficult. Improving trade logistics such as customs procedures, air shipment capacity, and rail services could shorten order fulfillment times by up to 21 days, states the World Bank report.
One major hurdle is developing a system for qualified inspectors from multiple agencies to visit the estimated 5,600 factories in Bangladesh. A current assessment indicates this will take time and retailers who had hoped to complete inspections within a year are now being told by government officials it will take at least five years.
Another stumbling block may be a separate Alliance for Bangladesh Worker Safety signed by 17 American retailers in July, including Walmart and Target TGT -1.28%. Labor groups claim the alliance, which includes no worker representation or enforceability, falls far short of the European accord, and could harm progress.
Both agreements are still new, so their impacts are uncertain. But improving worker safety may well lead to significant logistical improvements that benefit not only Bangladesh factories, but the international garment industry as well.