The old adage, ‘you get what you pay for,’ could hold true for sourcing today — cost competitive nations like Myanmar, Bangladesh and Cambodia may be the world’s lowest wage nations, but they are also ranked the highest risk.
In a recent Labor Costs Index report, risk analytics firm Verisk Maplecroft, warned that companies would be wise to really weigh the risks posed by poor working conditions and high instances of child labor and human trafficking, for example, before sourcing in low costs labor markets.
“The true cost of business in the emerging economies is more than the direct expenses associated with the labor force,” said Charles van Caloen, a senior analyst at Verisk Maplecroft. “It is essential for companies to understand and price in risks, such as strikes, disruptions and poor worker health, when making market entry or strategic sourcing decisions.”
Verisk’s index measured a combination of wages, employment regulations, social security contributions and labor productivity in 172 countries and found that Myanmar was the lowest-cost economy, followed by Bangladesh and Cambodia.
But uncertainty and unrest has led to a wealth of setbacks for apparel retailers trying to source from the low-cost nations.
Myanmar is presently experiencing a worker strike where as many as 4,000 garment factory workers have been staging sit-ins outside of factories for more than two weeks demanding better pay (there is no official minimum wage in the country) and better labor conditions. In Bangladesh, political turmoil that has been ongoing for almost two months has led to transportation blockades in the country, causing delayed import and export movement. Cambodian factory workers were striking for higher wages on and off for much of last year until they got a 28 percent pay hike to $128 a month. The total makes wages much higher than Bangladesh’s monthly $68 rate, and the Garment Manufacturers Association in Cambodia (GMAC) reported that apparel orders for the first 11 months of 2014 increased only 1 percent over the prior year period.
The average monthly wage across Myanmar, Bangladesh and Cambodia is less than $100, compared with an average pay rate of $450 per month in China, according to the International Labour Organization (ILO).
“Bangladesh and Myanmar do not require employers to make social security contributions, while China requires a social security contribution of 20 percent,” the report noted. The Myanmar Garment Manufacturers Association (MGMA) said, however, that the country has required both employers and workers to contribute 2 percent each to a health and social care fund since April 2014, though Myanmar’s labor cost still remains the lowest.
“Over time, this cost-competitiveness will likely attract investment that will drive development and increase productivity and wages, as with China in recent years.”
Low-cost nations are increasingly gaining market share from China, which ranked 64 out of 172 on the index as costs there have risen with the country’s economic progress.