China’s rising cost and China’s RMB appreciation have motivated some western firms to source their products from other low-cost countries in South-East Asia. Bangladesh is an attractive place for western companies (e.g., Walmart, H&M, Mango, and Adidas) to source their apparel products due to its low labor cost (US\$ 2 per day) and loose or unenforced regulations.
When more firms source from Bangladesh, more contract manufacturers enter the market to meet demand. This trend has created the garment industry in Bangladesh that accounts for over 80% of the country's exports. However, as more contract manufacturers compete for orders at lower price during and after the financial crisis, many factory owners simply ignore environmental, health and safety issues. While the exact statistics is not known, anecdotal evidence is heart-wrenching: over 800 Bangladeshi garment workers have died from factory fire since 2005; and over 1000 apparel factory workers have died after Rana Plaza collapsed in 2013. Donaldson (2014) commented that 20% of the factories in Bangladesh are simply unsafe.
Consumers around the world were outraged about unsafe working environment, and many activists blamed the brand owners for not caring about worker safety except their profits. While many international brands (Tommy Hilfiger, Gap, and many others) were not directly responsible for the disasters, they faced collateral damages due to negative publicity.
What should these major brands do? If they stop sourcing from Bangladesh, then millions of poor garment workers will be out of work. If they continue sourcing from Bangladesh, then they need to do something proactive. It is with this long term obligation in mind, 166 apparel corporations from 20 countries in Europe, North America, Asia and Australia, along with numerous Bangladeshi unions, and NGOs (e.g., Workers Rights Consortium, International Labor Organization) formed the Accord on Fire and Building Safety in Bangladesh in May 2013 (www.bangladeshaccord.org).
The Accord is an independent agreement designed to improve workplace safety of over 2 million workers of 1800 factories, to conduct independent safety inspections jointly, and to report the results of these inspections on its website, and to provide funding of up to US$ 6,000 for improving factory safety at each factory. Besides highlighting which factory violated which safety standards, these reports contain information about which kind of remedial actions that certain factories must take as well information about the progress of certain corrective actions that the factories are taking.
The “joint audits” adopted by the Accord can certainly streamline the auditing process and reduce cost, but it may not be enough to deter factory owners from cutting corners unless there is credible threat and penalty. We are hopeful that the Accord has the right idea by imposing “collective penalties” – all accord members will ``jointly terminate'' the business relationship if a non-compliant supplier commits serious safety violations or if a non-compliant supplier fails to participate fully in the inspection and remediation.
With credible and severe punishment for bad behavior, few factories dare to misbehave. By imposing collective penalties, western forms can mitigate the risk of collateral damages!
Donaldson, T., ``Bangladesh Resetting the Bar on Compliance Standards,'' Sourcing Journal, October 3, 2014.