Today, May 15, is the deadline set by IndustriALL Global Union of Geneva, Switzerland, for global retailers that source products from Bangladesh factories to sign an agreement ensuring safety for the country’s workers. The initiative follows a factory building collapse near Dhaka on April 24 that claimed 1,127 lives. The Rana Plaza building housed five garment factories where approximately 3,500 people were employed.
The dozen large global European and U.S. retailers that have signed on so far account for nearly 1,500 of Bangladesh’s 5,000 garment units. Large retailers like Walmart (which has already blacklisted close to 250 factories it found unsafe) and Gap — both of which source from that country — have stated they will develop their own factory safety plans.
According to Janice Bellace, Wharton professor of legal studies and business ethics, multiple safety agreements could prove difficult to implement. Edwin Keh, a lecturer in Wharton’s operations and information management department, adds that retailers should slow down their business operations in Bangladesh and more thoroughly study the problems that industries there face.
Bangladesh is the world’s second largest maker of outsourced garments after China, and its $20 billion garment industry accounts for four-fifths of its total exports. Yet, its four million garment workers earn an average $38 monthly and work in mostly unsafe buildings under deplorable conditions. Government fire safety inspectors recently determined that 943 of the 3,197 factories they visited are risky or substandard.
Six months before the Rana Plaza tragedy, the International Labor Rights Forum had tried to persuade Western retailers to sign a fire and building safety agreement covering their outsourced factories. PVH, which owns the Calvin Klein and Tommy Hilfiger brands, and Tchibo of Germany signed at the time, but other retailers shied away. In recent days, many others have signed on, including H&M of Sweden, Marks & Spencer, Primark and Tesco of the U.K., Spain’s El Corte Ingles and Italy’s Benetton.
Under the legally enforceable agreement, retailers will finance independent factory safety inspections and mandatory repairs and renovations, make reports public, allow workers a say in safety conditions and stop sourcing from those factories that do not meet specifications.
Walmart’s safety plan, as described in an article in The Wall Street Journal, is one that “is billed as a commitment, but [that] is different from the legally-binding pact meant to prevent disasters” like last month’s building collapse. Wal-Mart’s approach, according to the article, includes hiring an outside auditor to inspect 279 Bangladesh factories and publish its findings by June 1. If violations are found, Walmart said “it will require factory owners to make necessary renovations or risk being removed from its list of authorized factories.”
Split in the Ranks
Some other U.S. retailers, including Sears, Macy’s and J.C. Penney, prefer their own safety plans or are undecided about an industry-wide agreement. The National Retail Federation, a trade group based in Washington, D.C., discussed a possible accord among its North American member retailers, according to a Reuters report.
Multiple agreements would be “a major mistake,” according to Bellace. Small garment firms supply a significant number of retailers and would find it difficult to cope with many different agreements, she says. She advises retailers to form a consortium, create monitoring mechanisms, and hire and train inspectors. She doubts if many companies would have the resources of a large retailer to participate in factory safety agreements. PVH has agreed to contribute $2.5 million for factory safety improvements under the new plan, while Gap has separately promised $22 million for factory improvements.
“The pact will have little impact unless a substantial percentage of retailers and brands sign on,” Bellace says. “Otherwise, the small garment companies will simply do business with those that are the easiest on them, [as in] not requiring much, and doing ineffective monitoring” or none at all. Scott Nova, executive director of the Washington, D.C.-based Workers Rights Consortium, a labor rights monitoring group backing the agreement, disagrees. “If you have a program on the ground with competent inspectors, it is absolutely possible,” he told Knowledge@Wharton Today.
A Train Wreck Years in the Making
Keh, who earlier headed Walmart Global Procurement, likens the Bangladesh tragedy to “a slow moving train wreck that has been years in the making.” His snapshot of the country’s problems: It is poor and agrarian, with underdeveloped infrastructure, an overstretched power grid and an unhelpful legal structure. Fire codes, building safety and working condition rules are inadequately addressed and not always enforced. Corruption is another factor.
Bangladesh’s problems with factory safety may be the “unintended consequence of good intentions,” says Keh. Its apparel industry grew “too fast for its own good” as the European Union granted Bangladesh favorable duties for its exports. Its low wage levels lured U.S. brands, and rising wages in China helped it get even bigger volumes “as manufacturers chased the lowest needle,” he adds.
Keh labels the latest safety agreements “stopgap” and calls for “a more complete code of conduct” for companies doing business in Bangladesh. He advises Western companies to slow down business volumes with Bangladesh to “a sensible level,” while they undertake a full assessment of the most serious issues.
Bellace says the International Labor Organization can help set standards in Bangladesh’s garment industry, and employers could demand minimum standards and rigorous inspections. Labor unions have already helped regulate this “difficult-to-regulate industry.” She recalls the 1911 fire at Manhattan’s Triangle Shirtwaist Factory that killed 146 workers, mostly Jewish and Italian immigrant women. The outrage that followed led to a push for new legislation from the International Ladies Garment Workers’ Union.