Bangladesh and supply chains: the difference between policy and action

An in-depth look at what might change corporate practices.

There has been enough and more said on the Rana Plaza collapse and the absence of a regulatory framework, poor corporate monitoring of large supply chains, cheap labor, and the ensuing price wars between countries, contractors and laborers; and of course consumer activism. While all of these are valid causal factors, none are revelations. Everyone involved in the steadily lengthening value chain that marks the production process in today’s connected world is aware, actively or passively, about the realities that have made emerging markets the ‘sweatshops of the world’. What stands apart this time, is that while accountability was accepted rather grudgingly by a majority of the global retailers found churning out the latest trends from the debris of the Rana Plaza, nearly all of these retailers wax eloquent about their sustainable endeavors in glossy annual reports. It is time now for sustainability to make that essential shift from ‘initiatives’ to ‘process’. Since it attained independence, the readymade garment industry has been the backbone of economic growth and employment in Bangladesh. From 384 factories employing 0.12 million workers in 1984-85, the industry has expanded rapidly to 5,400 factories and four million workers in 2011-12. The sector churns out 80% of total exports made from the country, making it the third largest exporter of readymade garments globally. The driving force behind this exponential growth has been the seemingly endless pool of cheap labor. Coupled with weak regulations and a nearly absent monitoring system, this brings down labor costs substantially. The minimum wage in Bangladesh is $37 a month, an attractive rate compared with $120 in Vietnam and $204 in China.The natural consequence of low wages and related absence of any health & safety provisions is a compromise on worker safety. Data provided by the International Labor Rights Forum confirms this with 1,800 worker fatalities recorded since 2005, all attributed to factory collapses and fires. The culmination of this deep negligence was the Rana Plaza collapse in April 2013. With 30 ‘factories’, a bank and more than 3,000 workers, obvious structural faults were ignored so that daily production targets remained uncompromised. The result was a human disaster of staggering proportions that killed nearly 1,200 workers and finally managed to draw attention to the questionable supply chain management processes that are driving the global FMCG industry. While Disney, Levi Strauss, Target, Nike, Sears Holding and J.C Penny are seeking to withdraw licenses, other retailers scrambled to make amends. Labor rights groups have succeeded in getting PVH Corp and German retailer Tchibo to sign a binding agreement to ban sub-contracting at high risk facilities, finance renovations & fire safety training and make audit results available to the public. The much delayed Accord on Fire & Building safety, a legally binding commitment by retailers to ensure workplace safety at international standards for a period of 5 years, has been signed by 40 major retailers and may finally see the light of day. The government responded with pleas to companies to maintain Bangladesh as their playground even as it did nothing to address factory safety or land supply for the garment sector in the 2013-14 budget. Meanwhile, the Bangladesh Garment Manufacturers & Exporters Association (BGMEA) released a document on the crises, highlighting
over other things, the rise in cost of production (mainly due to exchange rate fluctuations) that has marginalized incomes and logically led to a fall in compliance related spending. Clearly, the onus of dignity & safety of Bangladeshi labor rests on the responsible business practices of companies. At the Rana Plaza, orders of 17 American and European brands were underway. These included Walmart, Primark, Joe Fresh (Loblaws) and the relatively smaller M. Corona, Yez Zee and Industrias Cristian Lay. Sustainability Reports for only six of these companies: Wal-Mart, Primark, Loblaw, Tex – Carrefour, Benetton and Mango, all of which are either multi-product retailers or global brands, were accessible. Ironically, all retailers ended up with a common subcontractor, indicating a uniformity of practices that determine supply chain management, regardless of sustainability commitments. H&M and Walmart are the largest buyers of garments manufactured in Bangladesh. A run through of their supply chain policy reveals the gaps in implementation and the liberty to make errors for companies in a weak regulatory environment. With a presence in 43 countries, H&M has multiple sustainability commitments such as organic raw materials, stringent targets on water consumption and model factories in Bangladesh. It sources garments primarily from Bangladesh, China, India and Cambodia. For its 785 suppliers, H&M monitors factory compliance, provides training for suppliers & their workers and promotes social dialogue through multiple associations such as Better Work, the Fair Labor Association and the Fair Wage Network. The company acknowledges second and third tier subcontracting and states that its 148 ‘strategic partners’ who account for 53% of production, can own and subcontract work to multiple factories. The company has successfully conducted 2,646 audits till date for all its suppliers. The scope of these exercises,however, is limited to first-tier suppliers. Only 58 audits covered second-tier suppliers. Similarly, only 30 of 747 head audits and 28 of 1,779 follow up audits checked on second-tier suppliers. In Bangladesh, a majority of the 5,400 factories are second and third tier suppliers. With a focus on Bangladesh, the company has provided more than 100,000 workers and middle managers with additional training in fire and safety. Supplier factories are required to conduct electrical assessment as well, with costs shared by the company. Overall, the company states a collaborative and exhaustive system to ensure sustainability in its supply chain. The implementation of these initiatives is negated by ground experiences. In March 2010, structural faults led to a fire at the Garib & Garib factory, with 21 fatalities. The company had reported due compliance of the factory with its ‘Code of Conduct’ and health & safety audits were conducted only five months ago, with no serious drawbacks noted. Similar discrepancies in audit results and actualities emerged post the Rana Plaza collapse. An interview of a factory owner who supplies exclusively to H&M reveals his complete compliance with fire and safety requirements. This, even as all fire exits were bolted shut. The company on its part reconfirmed a satisfactory audit on health & safety of the unit. Unfortunately for H&M, its operations in Cambodia followed suit. A factory collapse in May 2013 had the company absolving itself of responsibility citing unapproved sub-supplier linkages. Surprising, since Cambodian workers have been striking since 2012 against inadequate wages and poor conditions of work, and H&M claims to have launched thorough investigations into labor management in the country. As the common link between the Tazreen Factory fire in November 2012 and the Rana Plaza collapse in April 2013,

Walmart has now kicked into damage control. In both cases, the company was found to be producing from grossly unsafe factories. In both cases, the company has distanced itself from suppliers, citing the much abused complex subcontracting web. It continues to make its supplier policy more stringent, with limited action on its own part. It failed to sign up to the Accord on Fire and Building Safety, an extension of its publicly touted statement on the financial feasibility of upgrading Bangladeshi factories in 2011. A shareholder proposal by a former Bangladeshi factory worker to comply with the Accord and ensure more transparent and timely action for its supply chain was voted down by the Board in June 2013. Serious gaps mark the company’s performance. The Tazreen Factory was audited in May 2011 with ‘higher risk violations’ even as media reports point out that five licensors continued to source work to Tazreen in 2012. The company addresses fire risks in Bangladesh specifically in its Ethical Sourcing Program. But post the Tazreen fire, it emerged that fire and electrical safety was only partially covered in its guidelines and needed an upgrade. The Ethical Sourcing Program document dated January 2012 has detailed guidelines that can enable factories to comply with environmental and social sourcing.Among other things, it directs suppliers to disclose all factories and subcontractors involved in the manufacturing process. Walmart then determines the scope and nature of audits. Costs are to be borne by suppliers, placing the financial and execution liability of sustainability on its suppliers. Further, Walmart’s disclosure processes are carried out on-line, guaranteeing global access but not guaranteeing coverage in poverty-ridden Bangladesh with internet access limited to only 3.5% of the population. Walmart’s response to the two accidents once again makes the suppliers accountable. From three chances earlier, suppliers will now face a ‘Zero Tolerance’ policy regarding undisclosed subcontracting. Suppliers are required to station employees in countries with subcontracting operations to ensure compliance. Statements from Walmart’s management circulating in media sources make the company sound like a victim of shoddy suppliers as opposed to an active stakeholder. Rajan Kamalanathan, Walmart’s vice president of ethical sourcing stated “We want the right accountability and ownership to be in the hands of the suppliers” and that “We are placing our orders in good faith.”

Radhika Mehrotra is an Analyst, Stakeholder Engagement at Solaron Sustainability Services in India.