The US alliance vs the European accord’s plans for Bangladesh garment factories

An article in the New York Times (July 14,2013) describes plans by an alliance of the US retailers to offer shared inspection reports of over 500 factories in Bangladesh, loans from a pool of $100 million to factory owners to improve their plants, but the option to cancel orders to factories that do not comply. The European accord plans to fund the remediation of factories that do not comply. US retailers claim that the European accord would expose them to unlimited liability in the US because the US legal environment is different from Europe. But the European proponents claim that voluntary changes as envisaged in the US plan would not be feasible. Should garment manufacturers in Bangladesh be required to take responsibility of their factories and make business decisions regarding compliance ? Or should importers be required to invest in improving factories, thus absorb the costs of compliance ? Will the best way to improve Bangladesh factories be global competition from countries like Cambodia and Vietnam that offer factories with compliance to importer’s requirements?

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24 Responses to The US alliance vs the European accord’s plans for Bangladesh garment factories

  1. Mastafa AlHassan says:

    I believe one reason why US firms want to do alliance and make sure factories, in Bangladesh and other low-wage counties, improve factory compliance is that the percentage of educated people in the world has increased due to technology and transparency of information. As a result, when people prefer certain brands over others, they do that because they feel sense of supporting the firm’s actions. To explain this differently, people started to pay attention to the “Why” when buying products rather than just the product functions. US firms know for sure that they will lose big sales if people hear that a fire killed 100 workers in one of the firm manufacture in Bangladesh due low compliance in safety. Lawsuits are another opportunity for big loses as well.

    • Mastafa AlHassan says:

      So, yes I agree that the best way to improve factory compliance is by global competition from countries like Cambodia and Vietnam. Without the competition, Bangladesh factories have lower incentives to improve compliance relative to the mother firm in the US.

  2. Mary Buente says:

    I believe that the Bangladesh factories and officials cannot be held solely accountable to solve the compliance problems by bearing the cost on their own. I believe that importers need to incentivize factories to increase standards by sharing the cost of compliance with them. This could be done by having the importers pay for part of the compliance changes and increasing coordination agreements with the factories by signing long term contracts thus providing reason for the factories to pay for the other half of the changes.

    The original article proves that without a good incentive, the changes will not happen on their own.

    “Mr. Kader, the acting mayor of Savar, said there was only so much a single official could do. “You should understand the reality in Bangladesh,” he said. “These people who are setting up industries and factories here are much more powerful than me. When a government minister calls me and tells me to give permission to someone to set up a factory in Savar, I can’t refuse.””

    As we have seen in studying the 4C’s, buyer power here is strong. Big brands like Walmart can bully these factories into low prices and increased production without changing any standards. The hope for an increased economic environment always wins.

    The problem is real and something needs to be done to prevent such environmental damage and unfair circumstances in Bangladesh. I believe importers needs to stand behind the change and facilitate these improvements.

  3. Linjie Wang says:

    I think garment manufacturers in Bangladesh should be responsible for their factories. With poor plants situation, their workers and products will suffer as well, leading them to small amount of revenue. Receiving loans from their retailers helps them to improve their plants and finally increases their amount of profit. But at first it also will cause a heavy burden on the factories, making them unluctant to accept. Thus contracts need to be made between the retailers and factories to help factories ease their burden, like no-interest loan or even discount.
    I think it is a good idea of lowering the costs to use global competition to choose factories from other countries like Cambodia and Vietnam. But retailers also need to considerate the new plants’ working conditions, quality of products, etc as well. Lower costs always related to poorer plants conditions. And to start over the cooperation with new factories may cause large amount of investment at first. This will lead to difficulties of switching from factories to factories. Long term cooperation is a chance of lower cost for both retailers and factories.

  4. Yunyang Olivia Liu says:

    I think that the importers should invest in improving the factories and made that as part of the compliance. For countries like Bangladesh, capital resources are limited while the labor resources is very attractive by having one of the lowest labor cost in the world. Corporations and compliance means working together and make it a win-win for everyone. By investing in improving the factories, the importer can benefit from improving their product quality and enhanced the bonding between the manufacturing and the business; While the Bangladesh factory can benefit from getting more efficient and get technology supported from importers to gain overall competitiveness, Thus in order to make it a win-win for everyone, investment from importer should be encouraged. At the same time, Bangladesh factories need to be strictly evaluated for its improvement and ROI, if it is below expectations, importers can always switch to other countries who can meet the ROI standards.

  5. At first, if the specific markets, such as US, require the compliance, the suppliers and importers have to follow the compliance. My opinion is simple. Since it is not a volunteer but a business, the people who would like to have the business opportunity should take the responsibility. If the suppliers would like to have the deal for their business, they have to comply it. On the other hand, if the importers would like to utilize the low-cost suppliers, the importer have to take the role of investing in the factory.

  6. Caroline Paulus says:

    I certainly agree that there need to be incentives involved to improve the Bangladesh factories. However, it is a matter of who is willing to absorb the costs and is it a short-term or a long-term solution? Until those are agreed on, a natural incentive for Bangladesh factories to improve their plants is through global competition. In order to compete, Bangladesh factories will be forced to improve or give way to countries like Cambodia and Vietnam.

  7. Elizabeth Paulus says:

    The garment manufacturers in Bangladesh need to take control of their factories and the improvements on them, or else risk losing out to other factories (like Cambodia and Vietnam) that are better run and maintained. While I do not agree that importers should bear the burden of the factory improvements, what would be interesting is a coordination agreement between importers and the factories that would provide the factories with funds designated solely for factory and machinery improvements and the importers with reduced costs for the goods they are getting. This would lead to a win-win situations for both parties involved, as well as improvements in the Bangladesh factories that lead to more benefits for the retailers down the road, such as higher quality products and better communication with the factories.

  8. Xinlan Fang says:

    Voluntary sacrifice is never going to happen in the business world. Thus if the US importers do not offer any monetary or technological assistance for Bangladesh garment manufacturers, no improvement should be expected. However, from importers’ perspective, they cannot be the only ones who are responsible to fund the factories that do not comply since the most important reason they choose these suppliers is the low cost. Consequently, in order to create a win-win situation, I suggest both parties share the cost of compliance. However, since there are always other possible alternatives such as suppliers in Cambodia and Vietnam, importers can switch to these suppliers if the switching cost is not too high. Introducing global competition can never be a bad thing since it serves as a strong incentive for existing manufacturers to continuously improve their products/services.

  9. Yini Peng says:

    I believe that those who want to take the business chances should take the responsibility to improve their plants. In other words, importers should absorb the costs if they want their suppliers’ remediation. However, if garment manufacturers in Bangladesh want to compete with those in Cambodia and Vietnam that agree to comply to importers’ requirements, they need improve and absorb the costs by themselves.

  10. Rhishikesh Mahajan says:

    I think retailers should invest in improving factories in Bangladesh to make them compliant. In the past year, there have been many instances of workplace disasters in Bangladesh, especially in the garment business. One of the reasons may be due to the high demand placed by big retailers in US with short response time. In such cases, western retailers should look at placing realistic demands. Bangladeshi manufacturers should invest more of their profits into making their factories safer. But none of this will happen if big retailers in the United States and Europe do not demand it and help pay for it. And if certain brands have a long standing supplier, it makes sense to invest in the same supplier rather than switching to a different supplier.

  11. Importers should be required to invest in improving factories because they have money and knowledge about compliance. Through the investment, the supply chain can have better coordination and as a result, profit would increase.
    Global competition will motivate Bangladesh factories to improve themselves because it is difficult to survive without improvement. However, excess competition often triggers worse work environment in manufacturing factories. Thus, retailers must supervise its suppliers periodically whether they keep the compliance or not.

  12. venkata Mujje says:

    I strongly believe that USA retailers should colloborate and provide support for Bangladesh factories and treat them as partners in their business. Cancelling orders from factories that dont comply and avoid liability can only be a short term strategy.

    Especially when the world is becoming flat there are no geographical separate entities that are not connected.The laws may be different but the ethics are universal and it hurts your brand as well as conscience.I agree with European Accord.

  13. Ben Murphy says:

    Global competition is the best incentive to get the factories in Bangladesh compliant with new global standards in manufacturing work conditions. The US retailers have it right in having loan money available and are willing to help any manufacturer that wants help. The Europeans have it backwards in that providing remediation after a manufacturer has been fired is not the best way to improve conditions down the road. If the person running that factory did not believe that the conditions they were providing were bad or that they didn’t care to improve them, then even after improvements have been made the conditions will start to deteriorate once more since they did not care to begin with. It will be a waste of money to fix up a place that will not maintain good working conditions in the long run. Those facilities need to go out of business to allow others that do care about their workers to flourish and allow new ones to be created as well.

  14. Lin Qian says:

    I think importers should invest in improving the garment manufactures in Bangladesh. Receiving loans from western retailers can be significantly improve manufactures’ productivity and increase the revenue. Meanwhile, the higher quality and lower cost is expected, which could also benefit back to the retailers.

  15. I believe that global competition is the best way to improve factory compliance in Bangladesh. Buyer power in this instance is strong because U.S. retailers provide a lot of business to Bangladesh’s garment factories by buying product from them. However, if the U.S. gains others low-cost sources, such as from those in Cambodia and Vietnam, they will choose to go with the factories which comply with their standards and those in Bangladesh will lose business as a result. Therefore, if factories in Bangladesh do not comply due to pressure from the U.S.,they will likely end up needing to comply as a result of global competition.

    • Bangladesh factories should also be responsible for the implementation of any necessary changes. The U.S. would benefit from providing some funds to help them since there would be additional costs for them if they needed to change suppliers, but the primary burden should still fall to the Bangladesh factories since they are the ones ultimately responsible for the effects that occur due to their operation standards.

  16. Hiroaki Tanaka says:

    In terms of the quality and cost, the Bangladesh Garment factories will improve by multinational companies amid global completion. My concern is that excess competition makes the work condition of people in poverty and environmental situation worse. I hope that importers, which can make profits sustainably by offering better trading conditions, higher social and environmental standards, and securing the rights of producers and workers, will increase. In addition, I hope that academic ideas that stakeholders can sustainably gain more profits by considering benefits of people and society involved with the business will develop.

  17. Raudel Medina says:

    I believe the Alliance’s position is much better because it allows for global competition while providing a feasible loan support system for factories in Bangladesh. The Accord’s position I don’t believe is possible because there is no way to get all retailers that buy from these factories on board, thus no one is willing to pay the bill for the improvements where others not contributing can benefit. The Alliance provides accountability to the factory owners with a solution, where the Accord’s idea works only in a utopia– where corruption and motivation issues are not a problem. The cancellation of orders as a result from the Alliance’s position is much better because it sends the message, but it is not fatal since the factories can take up the loan option. On the other hand, the Accord has shut down plants such as the Softex factory and have not been able to financially revive the operation.

  18. Chenghao says:

    After reading this story, I have recalled the example that Professor Iyer gave us during the class. “Salmon issues in Costco”. Both of the stories share the same idea, which is the end buyer didn’t acknowledge true situation in the original supplier from the intermediate seller. With the tendency of global sourcing, most of the developing country become the ideal manufacturing place, however, how to monitor and ensure all the original supplier follow various laws is hard. I do believe that end purchasers have liability to improve those issues. Even though their are not directly purchase from the end supplier, they need to coordinate all involved parties.
    In this particular case, even though Europe and U.S. have different regulations regarding those legal problems, but I don’t think switch to the other country will be the long term solution. In sustainable perspective, only if the end buyer invest more into the original supplier, otherwise, the problem will still occur in the near future.

  19. Ye Zhao says:

    I think it is commonly agreed that compliant with global standards and improve factory working conditions would be beneficial for the global industry. The cost of making such improvements is the main concern for both the manufacturing factories and importers. In my opinion, the cost should be shared between both parties, the importers should provide necessary supports to help the manufacturing factory. Also, this might works better under long term contract since both parties need to invest. If it is only a short term contract, I am afraid no one want to afford the cost. However, different country will have different standards, it is possible for the factory to meet one countries standard, but it will be hard if they need to meet multiple countries standards. The cost for the manufacturing factory will be very high.

  20. Yang Junchao says:

    The topic goes back to cooperation. To achieve the win-win position, it is a good idea if the Alliance’s position achieved. It does not only improves the quality of the products but also makes the Bangladesh’s market become more competitive in the world. However, the cost is visible, the US needs to invest money and technology into the area they can not easy to control. In other words, what if its partners get the benefits and technology then betray the investors. Therefore, I consider a clear contract is important. Also, share the risk and benefit is another strategy that the company should follow.

  21. Anran Wang says:

    I think importers should invest in improving factories rather than letting all developing countries compete endlessly for lower labor costs. It is not only healthy economic but also not for humanitarian reasons. People who are working in those factories in developing countries are already struggling for their own and their family living. The endless lower cost would only cut their living income and make their life more miserable. Plus, I think the global competition would not help solve the problem because those developing countries do not have the resources and funding to afford those kind of improvements so their only solution to win out the global competition is to cut their prices instead of making those improvement. The benefit of importers helping those developing countries is the sharing of those advanced technologies and experience from importers since they probably have experienced those phrases. Win-win situation involves with two sides, so it will be unfair for just one side making effort and the other side just sit for the good outcome. So I think the best solution for this situation is to let importers and factories work together. Importers could offer funding and technology and factories could provide staff engagement and management commitment.

  22. Gildardo Salas says:

    I think this would be a good scenario to do if the US retailers didn’t do it with bad intentions, or to affect Bangladesh manufacturers If that is not the case, I think that if US retailers are in a position where they have enough power and money to help manufactureres improve their plants, they can even do this as a social responsibility for manufactureres to self-sustain and that the situation can turn into a win-win result for everyone. Even if manufacturers wanted to be responsable on their own, many of tem wont have the resources available to achieve it.

    That is why I think if the US first start helping manufacturers with this loan, and also starting teaching them how to self-sustain. It will create a benefit for both sides in a medium to long term amount of time.

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