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The Rupp Report

The Rupp Report: Increased Social Consciousness

Jürg Rupp, Executive Editor

Bangladesh wants to be the “New China” of the textile industry. This was probably the case — and probably possible — until the devastating factory fire at Tazreen Fashion, and especially before the collapse of the Rana Plaza building near the capital Dhaka last year. That catastrophe was foreseeable — deep cracks could be seen in the brickwork of the factory building. There were rumors among the workers about this problem, and, ironically, a strike was planned for the day of the accident. But the factory bosses pushed the people to go to work; otherwise, there would be no money at the end of the month.
A year ago, on April 24, 2013, 1,135 dead and 2,456 injured people was the toll of the collapse of the factory building on the outskirts of Dhaka, and many are still missing. The Rupp Report has reported about it in several articles. Since the accident, the apparel industry is under intense scrutiny. Consumer organizations and trade unions have put up public pressure. After the collapse, people were outraged about insecure and exploitative working conditions in Bangladesh. In one specific case, the protest is already taking effect:
The Pressure Starts
Already last summer, major European customers expressed their concerns about a lack of security in Suman Fashion Ltd.’s multipurpose building. They threatened that they would withdraw from the supplier if nothing would change — in particular, the closure of the shopping center on the ground floor. The menace was followed by action: on April 4, Suman Fashion was closed, and 1,300 workers lost their jobs. The company had to stop production because the regular European customers didn’t place any more orders.
Further actions like this could be rather dangerous: More closures of garment factories would hit the economy of the whole country very hard. Aside from agriculture, the apparel industry is the dominant economic factor in Bangladesh. To stay in business, the ability to adapt to the requirements of the customers is mandatory.
Low Labor Costs
The reason for the success of the textile industry in Bangladesh up-to-now is primarily the low labor costs: One man-hour costs some 21 cents, compared with 24 cents in Cambodia, 35 cents in Indonesia and even 93 cents in China. In addition to low wages, the country has also a higher capacity than its competitors. Vietnam, for example, has about 3,200 factories; and Cambodia, 260; compared to 5,600 in Bangladesh. As one of the least developed countries, Bangladesh can also import its products duty-free to the European Union. In 2012, 58 percent of the country’s apparel exports were shipped to the EU, compared to a relatively low 21 percent to the United States.
The Failure Of The State
In Bangladesh, the state completely failed in one of its primary duties: ensuring security — including building security — due to claimed incompetence and corruption in the government and administration. Of course, inspections would be very useful. Yes, there is a responsible authority — the Chief Inspector of Factories and Establishments — pretending that it had executed some 3,500 inspections last year and notified 400 companies that they did not comply with building codes. But the official body is described as being corrupt.
Now, private organizations are taking the place of state supervision. Two initiatives, the Alliance for Bangladesh Worker Safety, based in the U.S., and the Accord on Fire and Building Safety in Bangladesh, based in Europe, are increasing their pressure. Both organizations were founded after the disaster of Rana Plaza; trade unions are also involved in the Accord on Fire and Building Safety in Bangladesh. Both organizations want to conduct inspections in all companies along the entire production chain of the brands involved.
Apart from the local market, wich is largest single customer of the Bangladeshi textile industry, Sweden-based H&M and Spain-based Grupo Inditex — parent company of Zara — are involved, as well as U.S.-based Walmart and Gap. The agreements are mainly intended to achieve better working conditions and higher building security. In addition, representatives of the EU and the U.S. have adopted certain measures. If security and fire protection does not improve, the EU will reconsider customs facilitations. If this procedure should prove to be valuable, it will be extended to other countries.
The Momentum
“Now is the right time,” stated Akter Kalpona, the head of the union Bangladesh Center For Workers’ Solidarity. She mentioned that the disaster has changed a lot, especially the increase in the minimum wage to US$68 per month. In many companies, more action for the safety of the workers has been done by now. Crucial for this development is the behavior of the owners, and especially the determination of the big brands and customers in Europe and the U.S. However, the commitment of some big brands seems to be very different.
The Accord started in February with systematic technical inspections in the apparel factories. For this job, 70 specially trained people are involved. By the end of September 2014, 1,500 factories should be checked; and by the end of next year, 3,500. It’s quite astonishing, but these are private companies doing a kind of a self-policing job, a task that should be fulfilled by the state.
Third-largest Exporter
In 1990, Bangladesh’s apparel export share totaled some 0.6 percent of the global market; in 2012, it increased to 4.7 percent. Net revenues of close to US$20 billion are still modest compared with the market leader, China including Hong Kong, with net revenues of US$182 billion. However, Bangladesh is now the third-largest exporter of textiles worldwide. In fiscal year 2013, apparel exports rose to US$21.5 billion — four times more than in 2000.
With these successes, the textile industry has become the dominant factor in this desperately poor country. In 1980, there were nearly 50 textile mills; in 2013, there were 5,600. Apart from agriculture, the sewing industry — with four million employees, of which are 80 percent are women — is the largest employer. Apparel comprises some 80 percent of Bangladeshi exports. In 2012, the country’s 155 million people achieved a gross domestic product of almost US$116 billion. Nevertheless, the export share is still rather modest.
Will The Customers Go Elsewhere?
However, Western consumers still demand cheap goods; that’s why the big buyers are still dependent on favorable purchasing conditions. There is fear in the local industry that the buyers are going elsewhere to find more cost-attractive production sites. Yet, the companies involved in the European agreement have agreed to continue to produce in Bangladesh at least until 2016.
An additional negative point for the country is productivity: measured by export value per worker, it has risen from US$2,700 in 2000 to US$4,800 in 2012 — a significantly lower level than in Vietnam, with US$12,560, and China, with US$32,331. If Bangladesh wants to be the new China of the textile industry, the country needs to progress further.
Will Anybody Pay More?
It is clear the conversion of factories takes time and money, which, in many places, is very short. Local experts claim that many things could be improved a lot if European and U.S. customers would be willing to pay just one dollar more for a T-shirt. But would they? So far, market reports from different countries still show a certain indifference. On the one hand, they regret the “poor workers”; on the other side, nobody is willing to pay more. What a vicious circle!
To be continued …
April 15, 2014