Global Report: The uncomfortable truth about Bangladesh

Loblaw had plenty of warning.

 
(Photo: Jeff Holt/Bloomberg/Getty)

(Photo: Jeff Holt/Bloomberg/Getty)

Like a century-old, oft-renovated farmhouse, Rana Plaza, located in the Savar area north of Dhaka, Bangladesh’s capital, was the product of countless compromises. Built in stages over the past decade, it was originally intended for retail and office space but soon became caught up in the country’s fast-growing garment manufacturing industry. The seventh and eighth floors cantilevered out over the street; a ninth was under construction. Owner Mohammad Sohel Rana, whose surname was emblazoned out front in bold red italics, evidently failed to appreciate the looming result of all this improvisation. But on April 23, people noticed cracks and began fearing the worst.

The building’s collapse the following day stands among history’s worst industrial disasters, officially claiming 1,127 lives. It also exposed defects in the corporate social-responsibility machinery of Loblaw, Canada’s largest grocer. One of the several factories inside had supplied a “small number” of its Joe Fresh apparel items, the company confirmed. As rescuers and volunteers searched for survivors among the concrete pillars and twisted rebar, shaken Loblaw executives were left to reflect on what more they might have done. “I am troubled,” executive chairman Galen Weston told reporters, “that despite a clear commitment to the highest standards of ethical sourcing, our company can still be part of such an unspeakable tragedy.”

Weston’s surprise is likely genuine: Loblaw has established considerable corporate social-responsibility (CSR) machinery addressing a wide variety of environmental, labour and social issues. But it proved wholly insufficient to protect its brand from this disaster, much less ensure the safety of Bangladeshis making Joe Fresh garments. Loblaw has just signed an international accord that even CSR’s worst critics praise. But its provisions will clash with consumers’ and corporations’ desire for the cheapest clothing possible. Unless both groups are willing to accept greater responsibility, all this may come to naught.

Loblaw’s journey to Savar began a decade ago. Increasingly, the supermarket chain found itself in direct competition with Walmart, so it approached Joe Mimran, previously the founder of apparel chain Club Monaco, about a new line of clothing. Mimran set about striking a balance between “integrity of product design and killer price points,” as he later recounted to Strategy magazine. Joe Fresh launched in 2006 and soon garnered acclaim for achieving precisely that. The $6 “essential tank” and $12 children’s floral sundresses are among its latest offerings.

Bangladesh is the world’s leading enabler of killer price points. “T-shirts from Bangladesh can be half the price of its nearest price competitor—China, in this case,” claimed a December 2012 report by the International Labor Rights Forum, a worker advocacy organization. “Children’s cotton shirts made in Bangladesh are 15% cheaper than the same item made in the second cheapest country, Cambodia, and more than 50% cheaper than those made in China. Sweaters are 17% cheaper in Bangladesh than in its nearest competitor, Vietnam.”

China became a world-beating manufacturer by undercutting competitors; now Bangladesh is beating China at its own game. At a time when Chinese wages are rising by double-digit percentages annually, Bangladesh has gained market share: it is now the world’s second-largest exporter of apparel (behind China), sending more than $19-billion worth abroad in 2012. In Rana Plaza’s wreckage, one begins to perceive the human cost of Bangladesh’s competitive advantage. It starts with rock-bottom wages: its garment workers are the world’s lowest paid, earning a minimum wage of just US$37 a month. But another factor is the steady erection of new factories, now numbering an estimated 5,000. Although Bangladesh’s building codes are widely recognized as adequate, they are not enforced. Some factories are repurposed from non-industrial use. When extra space is required, new floors are routinely added, and new workers and machinery brought in, often with little consideration as to whether the structure can support the additional weight and vibration. Industrial disasters inevitably result. Serious fires have been regular occurrences for at least two decades. The worst happened in November, when a fire at Tazreen Fashions killed 112 workers. Garrett Brown is co-ordinator of the Maquiladora Health and Safety Support Network, a network of 400 occupational health-and-safety professionals who volunteer to provide technical assistance and on-site instruction at manufacturing plants primarily in Mexico. There’s no mystery behind Bangladesh’s fires, he says. “They have totally improper storage of materials, completely inadequate electrical systems that provide an ignition source, and absolutely inadequate emergency response plans,” he says. Building collapses are a more recent but equally conspicuous phenomenon. In April 2005, the Spectrum Sweater factory in Savar collapsed, killing 64 and injuring at least another 74. “In the northeast corner, the supporting pillars at the bottom had virtually no cement in them,” says Doug Miller, professor of ethical fashion at the University of Northumbria’s design school in Newcastle-upon-Tyne, U.K. He recently published a book on the disaster. “The cement had degraded,” he says. “When they poked through these totally buckled iron rods into the aggregate behind them, it was just bits of brick and sand.” In 2006, the five-storey home to Phoenix Garments in Dhaka collapsed following renovations that converted its upper stories into a private hospital, killing 22.

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(Photo: Justin Mott/Corbis)

Early reports suggest the Rana Plaza disaster shared much in common with previous incidents. In an interview with the U.K.’s Telegraph, Massood Reza, identified as the architect who designed Rana Plaza in 2004, said it was conceived as a four-storey market with two additional office floors above. Reports suggest a great many workers were concerned about the building’s structural integrity prior to its collapse. (An engineer declared it unsafe on April 23.) One worker described to Spiegel how many people stood outside the building the morning of the collapse, not daring to go inside. “The managers came and ordered us to get to work,” she told the German magazine. ‘We’re here too,’ they said….If we hadn’t gone upstairs to the factory, we would have lost our jobs. So we obeyed.”

Loblaw’s supply chain for Joe Fresh clothing includes 47 Bangladeshi manufacturers. It would have been well-advised to keep an eye on its suppliers. Instead it was caught entirely off guard.

There is evidence Loblaw wants to source responsibly and, moreover, has made more than token efforts in that regard. It has a relatively evolved CSR infrastructure, covering everything from procurement of sustainable seafood to palm oil to paper. By the end of this year, for example, it has committed to source all seafood from sustainable sources. Given its history and business mix, Loblaw’s CSR practices are primarily what one would expect from a supermarket chain. But it also has policies directly addressing issues common to the garment industry, such as prohibitions on forced and child labour. Loblaw says it audits suppliers regularly to ensure compliance.

This approach broadly mirrors what the rest of the garment industry is doing. Some brands, like Gap, employ their own in-house teams; many others contract auditing to third parties. Some also join industry-sponsored initiatives like Worldwide Responsible Accredited Production, or the more stringent Fair Labor Association, both of which afford some measure of independent validation.

But the CSR approach has repeatedly failed to address predictable risks, including factory collapses. In mid-May, a ceiling at a Cambodian shoe factory gave way, killing two. The facility made sneakers for Asics, a member of the Fair Labor Association.

Audits fail for many reasons. Often, inspectors lack the required experience and credentials, for instance, and it’s difficult to devise methodologies covering all conceivable issues. Also, factories have learned to work around them, for example by subcontracting on the sly to other factories.

CSR evolved somewhat in response to newly identified risks. According to Miller, prior to the Spectrum collapse, most audits assumed the structural integrity of factories; afterward, many scrambled to obtain assurances from civil engineers, electrical contractors and other professionals. One common practice is to check for necessary permits and other documents, although Miller believes that accomplishes little. There aren’t enough inspectors, and corruption is rampant, raising the possibility permits can be acquired through skullduggery.

How all this played out at Rana Plaza is unclear. Canadian Business asked Loblaw to describe its audit methodology and to provide a copy of any resulting assessments, but these were not forthcoming. We do know, however, that its process left Loblaw blind to structural issues. “Our audits align with those of industry around the world, but we recognize that these measures do not address the issue of building construction or integrity,” it acknowledged in a statement.

This leaves Miller incredulous. After the Spectrum collapse, he says, “they should have been doing that for the last eight years.” But Loblaw’s omission was not unique. Two Rana Plaza factories were registered with the Business Social Compliance Initiative. Both were audited and approved.

In Rana Plaza’s aftermath, Loblaw moved to reassure stakeholders it would overhaul its CSR practices. The company committed to ensuring its products are made in facilities that respect local construction and building codes and promised to deploy employees in every country where it does business. Loblaw’s most significant gesture was to sign the Accord on Fire and Building Safety in Bangladesh, a previously moribund NGO-sponsored initiative that gained sudden support following the disaster. The accord presses for far greater responsibility for managing supply chains than the industry accepted previously. Participating brands and retailers agree to ensure the remediations and improvements they demand are feasible relative to the prices they’re paying. Activists are particularly enthused with provisions for binding arbitration. If a clothing brand disagrees with a ruling of the accord’s steering committee, it can appeal for a final and binding arbitration process—but any resulting award is legally enforceable. That marks a notable departure from CSR programs, which are overwhelmingly voluntary. Dozens of retailers signed on in May, meaning more than 1,000 Bangladeshi factories could soon fall under its auspices. Brown says the accord’s implementation could set a new “floor” of minimum standards below which few factories will tread. “This is the best shot we’ve had,” he says.

There are benefits to accepting greater responsibility for one’s supply chain, and they can be seen at Gildan Activewear. Although the bulk of its production is in Central America, Gildan is expanding in Europe and Asia. And while it does outsource, it owns most of its production. In 2010, it bought a textile and sewing facility near Dhaka, acquiring along with it about 2,000 employees. “When you own your own facilities and control the manufacturing process,” explains Peter Iliopoulos, senior vice-president of public and corporate affairs, “you have direct influence in terms of the CSR standards you can implement.” Gildan’s garments are less likely to be outsourced to other plants, and it’s far easier to implement corrective actions.

Take Gildan’s approach to structural issues. Acknowledging the scope of Bangladesh’s safety problems, the company went beyond the due diligence normally performed when acquiring a new building. It hired ABS Consulting, a global safety and risk-management firm. “They conducted building surveys, they tested all of the materials, concrete reinforcing techniques, and produced a 3-D model of the building,” Iliopoulos says.

Although the building was deemed safe, Gildan followed recommendations and further shored up the building with reinforced concrete and new structural steel. It also added a wastewater treatment facility—an oddity in Bangladesh. These upgrades cost roughly $1 million. Although Gildan’s audits are not immune to many of the same criticisms applied industrywide, they seem more credible than Loblaw’s. There is independent oversight: Gildan is a member of the Fair Labor Association, which accredited Gildan in 2007. There is also greater transparency. In contrast with Loblaw’s refusal to provide inspection reports, FLA’s reviews of Gildan’s factories are publicly available.

The accord, and Loblaw’s broader response to Rana Plaza, could well disappoint. Weston and other executives may feel a moral obligation to improve safety for Bangladeshi workers. But Loblaw’s stock is up sharply since the disaster: one might infer shareholders are preoccupied with other considerations. To the extent any future improvements in labour and safety practices inflate the Bangladesh price for garments, competitive forces and the profit motive are likely to encourage buyers to migrate discreetly to the next up-and-coming low-cost frontiers. Meanwhile, Miller and other sources warn that unless the accord facilitates meaningful involvement by workers, it will founder. These are discouraging thoughts. But if the simultaneous deaths of 1,127 workers isn’t sufficient to prompt meaningful change, it is difficult to imagine what could be.

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