Bangladesh – The OM Blog by Heizer, Render, & Munson

OM in the News: Amazon’s Bangladesh Problem

Clothing sellers formed safety-monitoring groups after the 2013 Rana Plaza collapse.

Ethical lines aren’t clear-cut in the global garment-supply chain, which remains a murky network in which clothes pass from factories through traders around the world. After a 2013 factory collapse killed more than 1,100 people in Bangladesh, most of the biggest U.S. apparel retailers joined safety-monitoring groups that required them to stop selling clothing from factories that violated certain safety standards.

Amazon didn’t join, reports The Wall Street Journal (Oct. 24, 2019). The site today offers a steady stream of clothing from dozens of Bangladeshi factories that most leading retailers have said are too dangerous to allow into their supply chains. Apparel appears on Amazon that is made in factories whose owners have refused to fix safety problems, such as crumbling buildings, broken alarms, and missing sprinklers and fire barriers. Walmart, Target, Costco, and Gap have agreed to have their supply chains inspected and to disclose to the groups the factories that supply them.

Clothing including pants, sweaters, and robes that originate from blacklisted factories have ended up on Amazon, which has become a major player in apparel. Other retailers must compete in this market, where customers often seek the lowest price. Amazon may have overtaken Walmart as America’s No. 1 clothing seller and dominates the online-retail market.

Amazon runs its platform without many of the constraints that other companies apply to their products and stores, sometimes in ways that can put customers and workers in danger. That is particularly true for Amazon’s third-party marketplace, made up of millions of individual sellers. Many are anonymous and aren’t subject to some of the oversight Amazon applies to its own brands and to items it sells directly. Thousands of products listed on Amazon are deemed unsafe by federal agencies, are deceptively labeled or are banned by regulators—items that many retailers’ policies bar. They include items such as unsafe children’s toys and recalled motorcycle helmets. Amazon doesn’t inspect factories making clothing that it buys from wholesalers or that comes from third-party sellers.

Classroom discussion questions:

Is this a significant supply chain issue? Why?
What is Amazon’s responsibility in selling products from Bangladesh–and elsewhere?

OM in the News: Garment Makers Returning to Bangladesh

The dollar value of apparel exports from Bangladesh to the U.S. is up 14.5%

The trade war between the U.S. and China has led many fashion brands to shift production to spots across Asia, including to Bangladesh, where safety issues persist years after two horrific workplace accidents killed more than 1,000 workers in 2012-2013. American clothing makers cut back on sourcing from Bangladesh or abandoned the country entirely, after the accidents.

In the aftermath, large U.S. retailers formed the Alliance for Bangladesh Worker Safety, an organization responsible for inspecting Bangladeshi factories that produced Alliance brands goods. The organization recommended improvements for structural, fire and electrical safety, and blacklisted factories that failed to make changes. When the Alliance dissolved in 2018, it said 90% of factory-safety issues had been resolved for factories in its program.

But some industry analysts say that safety and compliance issues persist, including structurally unsound factories and retaliation against employees who join unions. One global audit company has found continued use of child labor in the Bangladesh apparel supply chain, stating that over 80% of factories in South Asia were in need of improvement.

Now new tariffs have gone into effect in that already difficult environment. Since Sept. 1, most Chinese garment imports to the U.S. are subject to 15% tariffs—enough in the apparel industry to make many products uncompetitive. So companies have bulked up sourcing in Bangladesh amid “safer” conditions, and according to The Wall Street Journal (Sept. 6, 2019), at least one major brand that left—Ralph Lauren—has returned.

China remains by far the world’s largest supplier of garments. The shift to South Asia will only come gradually, in part because China’s high-quality infrastructure meant clothes could be shipped quickly from Chinese factories to the U.S.—necessary in the age of fast fashion, when consumers alight on new styles every few weeks.

Classroom discussion questions:

Besides tariffs, what other factors are driving manufacturers out of China?
What are the plusses and minusses of Bangladeshi production?

OM in the News: Still Outsourcing to Bangladesh

It has been 5 years since the 2013 garment factory collapse in Bangladesh that killed 1,134 people and left over 2,500 injured. The Rana Plaza factory building was expanded illegally, with extra floors stacked one on top of another. An engineer had declared it unsafe, and the thousands of people who worked inside, stitching garments for clothing brands from around the world, knew it was trouble. The tragedy focused international attention on Bangladesh’s role as the world’s second-largest garment producer, and led the government and manufacturing associations to promise big improvements.

Many of the world’s top clothing brands said they would stop contracting with factories if they failed to improve safety for their workers. European and U.S. brands set up programs meant to improve safety. Five years later, the situation is complicated, and factories overseen by the government and subcontractors remain at risk. About 3,000 of the country’s 7,000 factories are still exposed to life-threatening risks, ranging from a lack of fire safety equipment to serious structural flaws, reports The New York Times (April 24, 2018). The dangerous factories, often small, sometimes subcontract work from larger factories that deal with foreign brands. Textile exports are a huge business for Bangladesh, bringing in $28 billion annually, mostly from Europe and the U.S.

Under new programs, some 2,300 factories have been inspected and many have upgraded their safety standards. Industry insiders guardedly admit that subcontracting remains a problem, since larger businesses sometimes contract some work out to smaller, less-safe factories. This issue of outsourcing (Chapter 2) remains controversial to Westerners, who want inexpensive clothing, but ethically produced.

Classroom discussion questions:
1. What is the responsibility of Western firms whose manufacturing takes place in countries like Vietnam, Ethiopia, or Bangladesh?

2. What was the agreement reached shortly after the collapse?

OM in the News: The Toll of Cheap Clothing

Relatives hold photos of workers missing in the Rana Plaza collapse

In April 2013, when the Rana Plaza building in Bangladesh crumbled and killed more than a thousand garment workers, Western clothing executives were chastened. They were the ones, after all, who’d been pressuring Bangladesh’s apparel factories to cheaply reproduce runway trends for consumers in the U.S. and Europe who’d grown used to $10 dresses. Following the accident, H&M, Zara, Walmart, Gap, and other major brands announced they’d fund and oversee factory inspections in Bangladesh, demanding improvements from facilities that fell short and cutting off business with those that didn’t get better.

“Three years have passed, and an uncomfortable truth is emerging,” reports BusinessWeek (Oct. 31-Nov.6, 2016). Of some 1,600 factories, more than 80% are behind schedule on improvements. The government, too, has made limited progress: It’s shut down just 39 facilities that posed an “immediate” danger to workers. Meanwhile, investigators keep finding defects: faulty sprinklers, exit stairwells used for storage, missing fire doors.

Surprising? The craze for cheap, on-trend clothing that helped turn Bangladesh into the world’s second-biggest apparel exporter, after China, has actually intensified since the disaster. Low-priced brands keep undercutting one another, and that keeps squeezing the factories that produce their clothes. This is the backdrop against which factory owners are expected to make time-consuming, expensive improvements.

So far, the government has shut down only those factories that posed an imminent risk to employees. If it lets imperfect, if not immediately dangerous, factories continue to operate, that could endanger garment workers. At the same time, the garment industry is a major employer, credited with helping to cut the country’s poverty rate almost in half since the 1990s, to just over 31%. Also, Bangladesh’s garment industry is facing serious competition from other countries, and if it becomes costlier to source clothing from Bangladesh, Western brands could migrate to Cambodia, Vietnam, Burma, or Ethiopia.

Classroom discussion questions:

What is the ethical dilemma facing both U.S. brands and the Bangladesh government?
Why are the safety fixes not corrected more quickly?

OM in the News: Human Rights and Overseas Factory Workers

Bangladeshi volunteers and rescue workers at the scene of the Rana Plaza building collapse in April 2013 that killed 1,135 people. — Bangladeshi rescue workers at the scene of the Rana Plaza building collapse in 2013 that killed 1,135 people.

After more than 1,100 deaths exposed dangerous labor conditions in Bangladesh in 2013, brands like H&M, Walmart and Gap were among the most powerful companies that pledged to improve the safety of some of the country’s poorest workers. “But 3 years later,” The New York Times (May 31, 2016) writes, “those promises are still unfulfilled, and that safety, labor and other issues persist in Bangladesh and other countries where global retailers benefit from an inexpensive work force.“

A new report by the Asia Floor Wage Alliance has put another spotlight on the conditions. In Bangladesh, tens of thousands of workers sew garments in buildings without proper fire exits. In Indonesia, India and elsewhere, pregnant women are vulnerable to reduced wages and discrimination. In Cambodia, workers who protested for an extra $20 a month were shot and killed.

The brands say that in recent years they have made significant progress in structural repairs and monitoring of factories. But the report accuses Walmart of benefiting from forced labor and other abusive practices in a number of Asian countries. In Cambodia, for instance, workers at factories who make Walmart products are required to work 10-14 hours a day in sweltering heat, without access to clean drinking water or breaks — conditions that have contributed to “mass fainting episodes.” Workers who refuse or who try to speak up for themselves risk being fired.

Factories in many developing countries are under enormous pressure to churn out billions of dollars worth of goods at costs low enough to beat out the competition for business from foreign companies. H&M, with $25 billion in sales, is one of the biggest beneficiaries of the so-called fast-fashion craze, relying on factories in many countries to help quickly refresh its clothing offerings.

Classroom discussion questions:

What are the ethical responsibities of OM managers whose supply chains are in developing countries?
Why is it difficult to meet labor condition commitments?

OM in the News: Nike’s Struggle to Balance Cost and Worker Safety

Nike's factory in Vietnam — Nike’s factory in Vietnam

Nike’s head of sustainable business had been lecturing colleagues for years about the dangers of manufacturing in Bangladesh, reports The Wall Street Journal (April 22, 2014). Yes, the country featured some of the cheapest factories in the world, she argued, but the athletic-gear maker could ill afford another public pasting over its labor practices. Her counterparts in operations, charged with squeezing costs, countered that they should all visit the place together and then decide. So one day last year, they popped into a Dhaka building that housed one of Nike’s suppliers, Lyric Industries. Rolls of fabric were strewn across the production floor and some windows were bolted shut, clear-cut hazards in the event of a fire. The team flew home and decided to cut ties with the company.

Nike’s internal conflict over Bangladesh shows that its effort to clean up its act in the developing world, which began about 20 years ago, remains a work in progress. As the U.S. apparel industry sends more production to low-cost nations, Nike’s experience offers a lesson in the difficulty of managing the twin priorities of controlling costs and maintaining acceptable working conditions.

Nike was founded in 1964, in part on the premise that it could produce quality footwear at lower costs by using cheap labor at overseas factories. At the time, only 4% of U.S. footwear was imported. Today, the figure is 98%. But by 1998, the Nike CEO stated: “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse.”

So Nike released the names and locations of its factories—the first major retailer to do so—to be more transparent about its supply chain. It improved air quality for workers and stationed dozens of people in countries where it manufactured products to help find cost savings and improve worker treatment. In 2008, Nike created a “country risk index” to score the potential downside of doing business in certain locations. Bangladesh ranked near the bottom, with over 5,400 garment factories churning out $20 billion of clothing exports.

Classroom discussion questions:

1. Since Nike has 1,000,000 workers in 744 factories worldwide, how can it monitor both quality and sustainability?

2. What major disaster occurred in Bangladesh recently that highlighted the problems of manufacturing there?

OM in the News: Ethical Issues and Bengladesh’s Clothing Factories

Factory workers in Dhaka, bangladesh — Factory workers in Dhaka, Bangladesh

A group of 17 major North American retailers, including Wal-Mart, Gap, Target and Macy’s, just announced a plan to improve factory safety in Bangladesh, drawing immediate criticism from labor groups who complained that it was less stringent than an accord reached among European companies. The American plan, according to The New York Times (July 11, 2013), commits $42 million for worker safety, including inspections and an anonymous hot line for workers to report concerns about their factories, and more than $100 million in loans and other financing to help Bangladeshi factory owners correct safety problems. But unlike the accord joined mainly by European retailers, the plan lacks legally binding commitments to pay for those improvements.

Labor rights groups estimated that it would cost as much as $3 billion to bring Bangladesh’s garment factories up to an acceptable safety standard. “Wal-Mart, Gap and the corporations that have chosen to join them, are unwilling to commit to a program under which they actually have to keep the promises they make to workers and accept financial responsibility for ensuring that their factories are made safe,” stated five of the groups. They faulted the plan for being “company-developed and company-controlled,” adding that “under the Gap/Wal-Mart scheme, brands and retailers are not obligated to pay one cent toward the renovation and repair of their factories in Bangladesh.”

The problems in Bangladesh’s garment industry have not affected the retail industry’s demand for cheap goods made there. Exports in June rose 16.3% to $2.7 billion, based on strong clothing sales. Bangladesh has quickly grown into the world’s 2nd largest apparel maker after China. But in a race to keep up with demand, many older buildings that lacked structural support were converted into factories, and building codes were ignored.

Discussion questions:

1. What is the responsibility of US and other firms that contract to have their products made in Bangladesh.

2. Are the critical labor rights groups correct in that US firms need to make stronger commitments to revamping the infrastructure?

OM in the News: Can Outsourcing Be Improved?

TAL factory in China. TAL makes 1 of every 6 shirts sold in the US

The day after the Rana Plaza factory crumbled in Bangladesh, the death toll numbered 225. “We were lucky: It could have been worse”’ wrote the LA Times. But when recovery halted, the final toll was not lucky at all: 1,127 bodies. You’d be hard-pressed to pick a lower point for outsourcing or a better example of the high cost of cheap labor when you discuss outsourcing in Chapter 2.

The past two decades have provided plenty of reasons to believe that relying on low-wage workers overseas has made multinationals complacent about their safety. Some of the companies manufacturing in Bangladesh have rushed forward with promised improvements — H&M and Zara signed an accord to improve laborers’ safety and pay in the country. “Costs are rising everywhere we go. There’s no running away from that,” says the CEO of TAL Group, the manufacturing giant that has factories in China, Vietnam, Thailand, and Indonesia.

A decade ago, Nike took a different tack to improve its manufacturing. The company was plagued by stories of poor working conditions and underpaid labor in sweatshops, so in 2004 it began to publicly reveal online all of Nike’s factories. Still, such fixes can’t grapple with the fact that most workers’ fates remain tied to the laws (or lack thereof ) in their home countries. An MIT outsourcing expert concludes that private oversight isn’t enough. “We need to bring government back in,” he says, offering the example of Cambodia, a country reliant on the apparel industry after years of genocide and civil war. The U.S. allowed the country to expand its exports on the condition that labor standards show steady improvement. The Cambodian government has since replaced U.S. oversight, and it now licenses for export only factories that have met the standards of the International Labor Organization. “Bangladesh, take note,” writes Fortune (June 10, 2013).

Discussion questions:

1. What responsibility do global companies have in improving working conditions in Bangladesh and other developing countries?

2. How has TAL worked to lower costs as wages increase?

OM in the News: The Case of the $6.75 Bangladeshi Shirt

The recent tragedies at several Bangladeshi garment factories have claimed over 1,000 lives—and focused international attention on this important industry. So far, much of the discussion has focused on Bangladesh’s minimum wage law–the average garment worker gets take-home pay of $70-$80 per month. But The Wall Street Journal (May 17, 2013) raises the question of how that minimum wage is being paid.

While the worker is sewing, on another floor of the same factory building negotiations are under way between the factory owner and a retailer’s rep. The factory owner is offering a shirt to the buyer at $6.75 per piece. Of that, the owner will spend $4.75 buying the 1.9 yards of 100% cotton with a fine 50s thread count, and another $1 buying the labels, accessories and other components the retailer specifies. The remaining $1 per shirt funds the “cutting and making,” which includes wages for the workers. Part of it funds the letters of credit the manufacturer will use to ensure a steady supply of raw materials. Part of it goes toward capital expenses–and part will become the manufacturer’s profit.

An order for 400,000 shirts typically means that 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents.

The remaining 25 cents may cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs. All is at a delicate equilibrium, writes the Journal, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight some boxes of shirts that suffered a 2-week production delay.

Discussion questions:

1. If the cost of upgrading factory safety averages $128,000, where should the money come from?

2. How do students feel about paying more for clothes to help raise the living and safety standards in the country making the product?

OM in the News: Disney Cleanses its Supply Chain

Disney sweater found in the remains of a fire last year in Bangladesh

Ever since a building with garment factories collapsed in Bangladesh a few weeks ago, killing more than 1,000 people, Western apparel companies with ties to the country have scrambled to address public concerns about working conditions there. But one big American company, Disney, had already decided to leave the country — pushed by the devastating fire just six months ago that killed 112 people. The Walt Disney Company, the world’s largest licensor with sales of nearly $40 billion, recently ordered an end to the production of branded merchandise in Bangladesh. The New York Times (May 2, 2013) reports that on March 4, the company had sent a letter to thousands of licensees and vendors setting out new rules for overseas production.

This comes as no surprise to those of us in Orlando, where Disney, with its 60,000 “cast members” (employees in layman’s terms), is king. Its public image as a safe, clean, and wholesome company is carefully maintained. Disney’s move reflects the difficult calculus that companies with operations in countries like Bangladesh are facing as they balance profit and reputation against the backdrop of a wrenching human disaster. “We felt this was the most responsible way to manage the challenges associated with our supply chain,” says Disney’s president of consumer products.

With some labor groups urging Western companies to stay and fix problems rather than leave, Disney said that it would pursue “a responsible transition that mitigates the impact to affected workers and business.” It set out a yearlong transitional period for its contractors to phase out production in Bangladesh, Pakistan, Belarus, Ecuador and Venezuela by April, 2014. In deciding in which countries to permit production, the company relied heavily on the World Bank’s Governing Indicators, which evaluate performance on issues like government effectiveness, rule of law, accountability and control of corruption.

Discussion questions:

1. Evaluate Disney’s decision to leave these 5 countries vs. staying and trying to improve conditions.

2. How can a major company protect its reputation when global supply chains are so complex?

OM in the News: Bangladesh and the Clothing Supply Chain

Global apparel companies often depict their international supply chains as tightly scrutinized systems to ensure that clothing sold to American buyers is produced in safe, monitored factories. Yet their inspectors usually check safety factors and working conditions, not the soundness of the buildings themselves, and the companies often have little control over the subcontractors who do much of the work. This was the case in Bangladesh’s chaotic industrial center. The building collapse last week that caused at least 1000 deaths, reports The New York Times (May 1, 2013), has produced some jarringly different responses from Western apparel retailers that obtained goods from factories inside the building. Several American and European retailers have sought to minimize any ties they had to factories in the Rana Plaza building, while some other companies have been quick to acknowledge their ties to those garment suppliers — and have pledged to contribute to a fund to help families of the victims.

The Children’s Place, a NJ retail chain that operates 1,100 stores, said that although a garment factory inside Rana Plaza had produced apparel for it, “none of our apparel was in production there at the time of this terrible tragedy.” But customs documents show that over the past 8 months, Rana Plaza had made more than 120,000 pounds of clothing sent in 21 shipments to the Children’s Place.

After labor groups said they had found labels of Benetton clothing in the rubble, Benetton initially denied using any factories in the building. But as more labels and documents showing Benetton orders were found and publicized, the company revised its response, saying it had placed only a one-time order there and had severed ties with that factory. The head of one anti-sweatshop group criticizing Western companies stated: “It is high time for Benetton to stop this senseless game of always trying to pretend they’re not there.”

Discussion questions:

1. What is Benetton’s responsibility in a case such as this?

2. What options do operations managers have to deal with fires, collapses, and other tragedies in countries like Bangladesh and Pakistan?

OM in the News: Rethinking The Decision To Locate in Bangladesh

As we discuss in Chapter 8, there are many factors that go into global location decisions. For the past few years, Bangladesh had been one of the biggest beneficiaries of a major reordering of the world’s low-end manufacturing. Rising pay in China has forced companies to find less-costly production locales, especially for goods that require armies of laborers such as apparel, shoes and linens. Bangladesh’s exports of clothes have nearly doubled since 2008, creating thousands of jobs in a country with a long-struggling economy. But what many companies have found is that countries like Bangladesh—which seem like alternatives to China, including Cambodia, Vietnam and Indonesia—have their own obstacles, reports The Wall Street Journal (March 22, 2013). While salaries might be lower, political instability, poor infrastructure, recurring strikes and labor-law complexities can add their own costs.

Troubles in Bangladesh are beginning to spoil its reputation among foreign companies that had flooded into the country—and are highlighting risks to investors looking for new manufacturing bases cheaper than China. Violent protests have led to at least 60 deaths and widespread strikes. The protests come on the heels of two recent apparel factory fires which killed 119 garment workers. Thousands of trucks carrying goods to Chittagong port have been burned or damaged.

“Bangladesh was a good place to do business. But you have to read the political trends in the world,” says Tesco’s CEO. “We are already moving away from Bangladesh,” adds the VP of VF, the company that owns Wrangler, Timberland and Nautica. “How many eggs do you want in a basket that’s basically a powder keg?”

It seems that China’s deep supply chain network is hard to replicate quickly elsewhere. Nike recently said only eight of the 896 factories it worked with were in Bangladesh as it reduces its exposure to countries presenting reputational risks.

Discussion questions:

1. What advantages does China have for apparel makers over Bangladesh?

2. Discuss each of the location factors in Chapter 8 vis-à-vis Bangladesh.

OM in the News: Walmart and the Bangladesh Factory Fire

The garment factory fire in Bangladesh last week that killed 112 workers was a horrible tragedy. Emergency exits were padlocked and fire engines could not reach the blaze through dense and overcrowded roads. But the question for your students becomes: what does Walmart do with its clothing suppliers like this one? The Wall Street Journal (Nov.27, 2012) writes: “Walmart said the factory was no longer authorized to make clothes for the retailer, and that it had cut ties to a supplier that subcontracted with the factory without its authorization.”

Walmart’s ethical-sourcing department claims it notified the factory last year that it had found it to be “high-risk” and yanked its business–yet the chain’s clothing was still being produced there when the factory went up in flames. In its 2012 report on global responsibility, the retailer said it had stopped working with 49 factories in Bangladesh because of fire-safety issues. (Garment factory fires have killed over 600 people in the past 6 years).

Labor activists are scolding global companies for tolerating such terrible conditions in Bangladesh. The Journal (Nov.29, 2012) adds that Walmart is well aware of the reputational risks of sweatshop sourcing, trying hard to monitor working conditions among their suppliers. “But determined factory owners, abetted by local authorities can always fool inspectors.” Worth noting is the fact that a country of Bangladesh’s population—approximately 150 million—is greatly dependent on a single industry in which it has no natural advantage. Garment exports earn around $19 billion per year, accounting for 80% of total export. Clothing is Bangladesh’s only major manufactured product.

The garment industry there enjoys special labor rules, including a ban on unionization, and regulated pay rates that depress wages in the name of competitiveness. In this respect, Bangladesh is like China and other East Asian tiger economies, except that Bangladesh hasn’t pushed the economy further up the value chain. Instead, it has skewed investment toward the garment industry.

Discussion questions:
1. What is Walmart’s responsibility in dealing with global suppliers’ safety issues?

2. Why does Bangladesh support this industry so heavily? Why is it afraid of Ghana?