In a move that will likely strike fear into the hearts of Bangladeshi exporters, many global retail firms are reconsidering their sourcing arrangements in the tragedy stricken country. Negative publicity stemming from the Tazreen Fashions fire in November and the more recent factory building collapse has pushed Benetton, the Children’s Place, Gap, and other retailers to rapidly reassess how to improve working conditions in the country.
More dramatically, Walt Disney Company, possibly the world’s largest licenser with sales of almost $40 billion, pulled production of its branded merchandize from Bangladesh in March.
This full-scale ban came in the form of thousands of letters to vendors and licensees containing new rules for overseas production that explicitly prohibited the use of factories in Bangladesh and Pakistan. Their move stemmed from the apparent failure of efforts to improve conditions after the November fire.
The move reflects the nature of the problems in Bangladesh and Pakistan. Disney has apparently concluded that safety concerns cannot be regulated at the factory level, or by a single buyer. Rather, the country as a whole has to improve safety and working conditions in order to prevent fraudulent subcontracting.
In Bangladesh and Pakistan the government has not deployed enough inspectors to monitor the RMG sector and trade organizations have only recently (in the past week) taken the kinds of steps that would have been required months or years ago in order to prevent these disasters. For a firm like Disney, which relies on a strong brand reputation to move its products, the calculus of risk versus benefit has shifted away from the bottom of the sourcing ladder.
Labor groups have criticized the move, preferring firms to pressure the government to improve conditions, rather than simply taking their business elsewhere. But for firms like Disney, altruism is not an option.
Bob Chapek, president of Disney Consumer Products, said, ““These are complicated global issues and there is no ‘one size fits all’ solution,” in an interview published by the New York Times. “Disney is a publicly held company accountable to its shareholders, and after much thought and discussion we felt this was the most responsible way to manage the challenges associated with our supply chain.”
Disney disclosed its decision two days after officials from two dozen apparel companies and retailers met with representatives from the German government and NGOs to try and negotiate a safety plan for the more than 4,000 Bangladeshi garment factories. The firms involved included Walmart, Carrefour, Gap, and Li & Fung.
Many of the firms cited recent action taken in response to the November fire, including Walmart’s decision to fund a safety academy and it’s tightening of sourcing rules. Gap has taken similar steps. Labor activists have called the moves insufficient, asking firms to actually pay for physical improvements to the factories. This is a difficult sell, because the companies do not own the factories.
Scott Nova, the executive direct of the Worker Rights Consortium, said in an interview in the New York Times, “Companies feel tremendous pressure right now. The apparel brands and retailers face a greater level of reputation risk of being associated with abusive and dangerous conditions in Bangladesh than ever before.”
Bangladesh is the world’s second largest apparel exporter after China, with over $18 billion in apparel exports and 3.6 million garment workers. Many of them earn less than $50 per month, and recent news coverage has led to strong criticisms of firms that participate in such a low wage labor market.
Ironically, Disney and other prominent global firms may be worsening the situation by leaving Bangladesh. Many factories could close, and with few other employment options the workers will weigh down the labor market, creating pressure that could lower wages. At the same time, the departure of such high profile firms would mean their replacement by other, less scrupulous entities.
H&M, notably, has chosen a different path. Last year that company started pressuring the Bangladeshi government and factory to negotiate with worker unions, pay higher wages, and improve safety conditions. They tied an increase in their Bangladesh sourcing to the improvements.
That strategy, though high minded, will ultimately only be effective if firms are willing to pay more for the clothes they are producing, accepting lower margins or passing costs on to the consumer.