• GreenGrade Stories Posted on 2015-03-17 15:58:14 UTC Posted by GreenGrade Staff Member

    During our day-to-day interactions with factories, we at GreenGrade have often observed failure to meet ethical compliance requirements, even when other drivers such as pressing business needs or budget is available. A large part of this has been attributed to the lack of awareness and knowledge among managers who are responsible for implementing the requirements. It has been agreed by factories that it is indeed the case, with the most common ‘reason’ being the complexity of the ethical compliance landscape.

    This presents a perplexing problem, since the commonly used method to estimate factory ethical performance are audit reports. Audit reports rarely give an indication of the awareness and knowledge of ethical compliance at a factory (other than indirectly from the number and severity of non-compliances seen)! Therefore, even if a factory successfully completes actions to address non-compliances noted in a report, without the required awareness and knowledge at factory level, it is unlikely that ethical performance can be sustainably managed. How can they, if managers do not know enough about ethical compliance?

    So how do we increase the ethical compliance awareness and knowledge of a whole industry in a country, without the traditional costs of training thousands? Simple; e-learning, the method many have tried and failed. True, there have been many reports written and opinions out there on e-learning arguing both ways. Some benefits of e-learning, as noted by the Chartered Institute of Personnel and Development (CIPD 2013) include:

    - Available 'just in time' and can be used anywhere at anytime.

    - Flexibility of access from anywhere at anytime.

    - Ability to reach simultaneously an unlimited number of employees, even in dispersed locations or complex organisational structures.

    - Uniformity/consistency of delivery of training/learning.

    - Potential to achieve cost reductions/cost-effectiveness, which may be perceived as especially important during adverse economic circumstances.

    - Possible reduction in the time taken to deliver training.

    - Ability to log or track learning activities, including capacity for HR or learning departments to check electronically that all relevant employees have completed compulsory training modules.

    - Possibilities of global connectivity and collaboration opportunities.

    - Ability to personalise the training for each learner.

    With benefits like these, why have so many initiatives failed and what can be the solution for the future? There are many views, but according to research insight from the CIPD (2012), “The combination of computing power, proliferation of gaming in leisure time and the need to capture the attention and engagement of learners means gaming will be increasingly crucial”.

    Introducing UpSkill

    At GreenGrade, we have been working on UpSkill, our new e-learning solution for some time now. UpSkill is to reach thousands of users in hundreds of factories thanks to its scalable, immersive and customisable design. Therefore, capturing the attention and engagement of learners without personal interaction (which is still the traditional model of training used most commonly in Bangladesh) is a key aspect that a lot of effort was spent developing.

    The resulting ethical compliance learning ‘game’ that was created not only helps transfer awareness and knowledge, but does so in a manner that does not put the learner to sleep. Indeed, we considered this as critical if one of the main problems of e-learning- low completion rates, is to be avoided.

    By constantly challenging the learner (while making resources available for reference and guidance if required) ensures that the learner has suitable ‘handholding’ that allows them to progress towards successfully completing the learning. The game environment and accessibility of related reference materials helps a manager at a factory navigate through the confusing maze of ethical compliance requirements in a more engaging (dare I say enjoyable?!) manner. Certainly a more palatable medium of learning for people whose energies are focused on shipments due or the most immediate targets.

    So can UpSkill single-handedly change the ethical compliance landscape of Bangladesh? The following viewpoint from the CIPD would be pertinent to note at this point: “Where used effectively and in conjunction with other development methods, e-learning can help to support high levels of individual, team and organisational performance as one key strand of organisational learning strategy” (CIPD 2013).

    What this means is that if there was an expectation that UpSkill would be the magic bullet that solves the ethical compliance issues at factories on its own, then that would be a utopian expectation. As anybody who has undergone training will tell you, it is the practical application that really makes the difference. What UpSkill can do is increase the ethical compliance awareness and knowledge levels- so that managers are in a better position to understand what actions need to be taken to meet requirements, which is the foundation for driving improvements.

    By applying awareness and knowledge gained through UpSkill, the factories can put themselves in a better position to comply with ethical standards required. This will give their customers greater confidence that the factory have the capacity to maintain sustainability of practices in the future.

    UpSkill will be rolled out in Bangladesh soon as part of the British government’s Department for International Development (DFID) Trade in Global Value Chains Initiative (TGVCI), which supports innovative solutions in the Bangladeshi garment sector. UpSkill has received a grant approval from TGVCI, run by DFID’s Programme Management Unit and managed by Cardno Emerging Markets (UK) Ltd.

    Using the latest technologies, we at GreenGrade will be delivering UpSkill e-learning on ethical compliance directly to the factory, to an extent not seen before in the country. Stay tuned.

    References

    CIPD (2012) From e-learning to ‘gameful’ employment, CIPD Sustainable Organisation Performance Research Insight, April 2012. London: Chartered Institute of Personnel and Development.

    CIPD (2013) E-learning Factsheet -Revised August 2013. London: Chartered Institute of Personnel and Development. http://www.cipd.co.uk/hr-resources/factsheets/e-learning.aspx (Accessed on 7th July 2014)

  • GreenGrade Stories Posted on 2014-04-24 16:57:03 UTC Posted by GreenGrade Staff Member

    Today marks the first year of the tragic incident of the Rana Plaza building collapse which killed 1138 garment workers and wounded more than 2500 of them. This multi-storeyed building hosted different companies who produced for our major retail giants.

    “I lost my 19 year old son at the collapse. I come to this site every day to feel his presence since we could only recover half of his body after 15 days of the wreckage” says sobbing mother of Nazmul while staring at the debris of Rana Plaza.

    Nazmul was a sewing operator at the New Wave Bottoms Ltd factory located on the 2nd floor of the building. His mother like many other victims loved ones are still in shock and are visiting the site for the last one year. She blames the Bangladesh government of not having sufficient infrastructure to support such a tragic accident. After losing her son, she hopes to see more number of initiatives promoting workers safety being implemented so no mother goes through this unbearable loss.

    It is only fair to state that Bangladesh and its garment industry have learnt a great deal from this tragedy. The factory owners have been coaxed by their stakeholder to accept responsibility in order to improve workers safety standards. Collaborations such as ACCORD, ALLIANCE and other labour group initiated platforms have started restructuring the garment industry for better. A lot has been happening in terms of initiatives but it is still to be tested if the garment workers are aware of them and whether such programs are effectively co-existent.

    Today being the first anniversary of the tragic Rana Plaza incident, we would like to share the story of Nelufa and Fely. We usually read about the big players of the industry and their stance but hardly are the individuals who suffered the most gets to share their dreams and fears. 

    NELUFA BEGAM

    FELY

    Workers safety is of interest to people but very few are really sure about the existing standards and how they need to be implemented. The only thing RMG sector is very well versed is the audit/inspection system. We believe that GreenGrade’s new project can help to achieve this basic awareness and develop within the RMG sector.

    We, the GreenGrade team would now like to request you to observe a minute of silence in the memory of the lives lost and the sufferings endured.

  • GreenGrade Stories Posted on 2014-03-06 18:22:36 UTC Posted by GreenGrade Staff Member

    Recent documentaries exposed unacceptable work conditions in Bangladeshi Factories, but did they show the full picture?

    Ahead of the Rana Plaza disaster anniversary and on the back of the London Fashion Week, several British news organisations recounted in the past few weeks some unacceptable labour conditions in few factories in Bangladesh. Child labour, abuse of female workers, safety breaches and indifference towards basic legal requirements, underlined the unacceptable work practices employed by unscrupulous factory owners.

    ITV television channel aired on 6th of February the programme ‘Exposure: Fashion Factories Undercover’, which was followed shortly by the Sunday Times article ‘Blocked stairs, poor exits: the unsafe fashion factories’. Plenty of articles published following these exposures have questioned the Bangladeshi garment industry’s real willingness to change. However, they have overlooked and largely ignored one major fact: the huge amount of effort done by many factories to improve their working standards.

    The ITV documentary showed appalling footage of a girl as young as 14 years old being verbally and physically abused in a garment factory while being forced to work for 11 or more hours. This same factory that produces for giant UK retailers is seen responsible for padlocked fire emergency exits.  Moreover, there was footage of managers tutoring the workers on how to answer the factory inspectors who were expected later that day. Similar to this documentary was the article published in The Sunday Times on 16 February 2014 pointing towards blocked stairs and exits in an unapproved factory that produced for international fashion labels. The accused and named brands have responded by statements suggesting that either they were not informed and never approved the sub-contracting practice. Others said that they have terminated their contract with suppliers and factories who breached their business terms.

    It is known fact that brands and retailers holds the sourcing and buying power, and therefore fulfil a  pivotal role in ensuring that factories fall into line. However, showing Bangladesh in poor light by highlighting the example of few bad factories, may lead to the opposite reaction – influencing these brands to shift their sourcing destination elsewhere. This would hinder the significant effort which is underway to raise factory standards. While there are factories as shown in both the ITV documentary and The Sunday Times article that have not taken social and safety compliance seriously, it is fair to say that many other factories have done well. These examples must be presented as well.

    GreenGrade’s Managing director, Dr Sharon Sadeh said ‘The recent media exposures do not portray a complete and fair picture of the Bangladeshi garment sector. A lot of work has been done and taken on board by many factories and ignoring their efforts will not encourage the industry to raise its standards. Much progress is likely to be achieved through the work of two particular industry initiatives: the Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Factories are actively allocating funds for infrastructure improvements, staff training and purchase of safety equipment at unprecedented scale – this is largely at the behest of international brands, mainly from the UK and US ’.

    Since the disaster of Rana Plaza and the tragic fire accident of Tazreen, Bangladesh ready-made garment (RMG) sector has been under much scrutiny on labour rights and safety issues. International agreements and initiatives by the International Labour Organisation (ILO), Bangladesh Accord, Alliance and other programmes have been promptly set up. A positive outcome will only be possible through commitment to change by all parties.  GreenGrade hopes that the many stakeholders involved in Bangladesh will help its garment sector to raise standards and thrive as a sourcing destination.

  • GreenGrade Stories Posted on 2014-01-27 10:44:58 UTC Posted by GreenGrade Staff Member

    Executive Summary

    The retail industry contributes to wealth generation and employment in developed and developing countries and is known for its extensive global reach and high level of price competition which puts downward pressure on prices throughout the supply chain. Today the working conditions in global supply chains have come under heavy scrutiny due to insufficient monitoring of both social and environmental conditions. Most reputation-conscious buyers only associate with factories with adequate compliance standards. Non-compliances, especially in the area of child labour and health and safety usually lead to immediate and permanent delisting from a retailer’s supply books.

    In this empirical study, the factors causing non-compliance in the garment sector of Bangladesh and Cambodia is discussed. Both countries have access to large workforces of low-wage labourers making them attractive options for western buyers.The countries have distinct culture and history but our reports highlighting their non-compliances have usually found quite similar issues. Therefore, it is worth understanding the major factors triggering such non-compliances. This report focuses on the political situations, the role of International Funding Schemes and Socio-economic factors of both Bangladesh and Cambodia that could be the cause of not adhering to the code. 

    The media highlights the unfortunate conditions of the factories situated in these countries but fails to analyse the vicious cycle leading to these conditions. This study is based on our experiences working with our client’s factories based in both countries and a literature review of various available reports and articles. The reading list has been added at the end for further understanding of the dynamics creating such ethical non-compliance. 

    Political Mechanism

    Cambodia and Bangladesh are infamous for continuous strikes and high levels of corruption. Both these factors have an adverse impact on the country’s garment sector. The political situation of a country has a significant contribution to the industries stability and success.

    Though the countries are different when it comes to their political structure and history still they manage to produce similar consequences. For example: According ETI Base Code 2.1 under the “‘Freedom of association and the right to collective bargaining are respected’ the workers, without distinction have the right to join or form trade unions of their own choosing and to bargaining collectively.” The majority of garment workers in both the countries do not get to exercise this right to its optimum.

    In Cambodia though there is a high level of unionization still these trade unions fail to represent the workers due to their motives being highly politicized or being more involved with court cases, arbitration and disputes. At the extremes if the union leaders gain extra fame then those unions are more vulnerable and the leader face life threat (tragic case of Chea Vichea in 2010) that does not serve to protect workers lives or promote their interest in the workplace.

    On the other hand Bangladesh government does not encourage formation of unions. The few existing unions are either affiliated with the ruling or the opposition party. Most of these unions are known for being corrupted and workers have a feeling that these unions favour the employers more than representing the factory workers. News and stories highlight that the workers who do associate with unions usually become victims of assault, harassment and also life threat. In 2012, Aminul Islam who was a prominent union leader was killed which spread a fear among the workers to join unions. 

    Recently due to political unrest in the country, it has been facing raged demonstration from workers on the issues of minimum wage and standard of working conditions. In a report, researcher Bjorn Claeson (2010) stated that the main reason of mounting labour unrest is due to lack of a recognized labour union.  

    International Funding Agencies

    Since the 1980’s, both Cambodia and Bangladesh have been under the structural adjustment program imposed by International Financial Institutes. The rise of structural adjustment and neo-liberalism had a debatable impact on the developments of the state. In simple terms, countries like Cambodia and Bangladesh were going through major macro-economic problems during 1980’s comprised of high inflation rates, low growth rates and large balance of payment deficits. The only viable options for such countries were to seek assistance from International Monetary Fund and World Bank. 

    Certain conditions needed to be fulfilled by these countries in order to obtain this assistance. The two types of programmes attached were: Stabilization involving short-term measures to restore balance of payments and Structural adjustment measures for long-term implementation ‘to restructure the economy and generate economic growth’. Essentially this includes reduction in public expenditure, devaluation and steps to intensify production of internationally tradable goods. Reports suggested such conditions only increased the inequalities in the country.

    In 1999 IMF/World Bank launched Poverty Reduction Strategy Papers (PRSP) and the post-Washington Consensus these aimed at promoting investment in ‘human capital’ and a “country-driven” approach to poverty reduction. The critics to these new conditions suggest that these were the ‘treatments’ to an already epidemic disease.

    The predictions of World Bank and the IMF on Structural Adjustment Programs (SAPs) were proved wrong in contexts of social welfare and economic conditions. Removal of subsidies from food and basic goods inflated the prices and made them inaccessible to the poor. Also this shifted government spending from social investment to debt servicing. These elevated poverty in the low-income countries. The 

    notion of trade bringing significant benefits to developing countries is arguably correct but it has to develop strategies that endorse supply responses and facilitate pro-poor growth of the country. 

    Bangladesh realised its potential as a garment exporter when it underwent the structural adjustment program in the 1980’s and became export-oriented nation. Around the same time Cambodia integrated their export-led growth through rapid liberalization and further integration in the global economy. Both these countries were export driven and focused on economic growth to qualify for further debt relief initiatives. 

    Since the implementation of PRSP’s the UNDP has stated the inequalities reducing in both these countries. The reduction in their inequality is noticed but the reduction in comparison of their total export growth is still questionable. It is important to understand that UNDP acts as a custodian to the PRSP’s regional policy controllers. A report published by UNDP accessed their relationship with PRSPs. The UNDP has the expertise and therefore facilitates the PRSPs macro framework that allows space to foster pro-poor expenditure. Though it is a discussion on its own that will not be tackled in this report but the only point that is crucial in our study is that PRSP is part of a process that is political and technical and employs dynamic activities that sway with the economic situation. Therefore, it is not justifiable to report that these countries are doing better on the human development index due the PRSP and other international programmes. 

    The Multifibre Arrangement* (MFA) is another factor which has a significant impact on the garment industry of both Cambodia and Bangladesh. The MFA was revoked in 2004 and the garment trade was liberalized which intensified the price-competition. Usually the quotas imposed on large exporters benefited the low-income exporters but this termination questioned the stability of growth and poverty reduction in the garment-exporting low-income countries like Cambodia and Bangladesh. Keeping in mind, the oligopolistic nature of retail sector in developed countries and labour-intensified industry in the developing country an interesting overview could be drawn.

    Stolper-Samuelson Theorem predicted that liberalization usually reduces the output prices, which consequently reduce the workers’ wages. Now a drop in wage pushes the cost of production down that in turn leads to growth of production and export. This mechanism has been famous as ‘race to the bottom’ and ‘immiserizing growth’.

    After 2004, the garment exports of both countries grew rapidly. In Cambodia the number of firms grew and which in turn increased employment. This led to high productivity in the nation and this supported the bolstering wages.

    Then in 2009 United States and European Union removed restrictions against garment imports from China and Vietnam. This surged the competition even more among all the eastern Asian countries exporting garments. At the same time, recession hit the global economy and the cotton prices went up increasing the cost of production. In 2010, Cambodia’s export suffered a great deal due the above-mentioned factors and several others.

     

    Even though the growth in the garment sector in both countries increased in a declining rate still they maintained their price-competiveness. This contradicted the pessimistic views of economist on the post-MFA era. The size of the global market expanded letting the entry of new firms. The main reason of the productivity growth in a liberalized market was possible due to frequent firm turnover as well as the efforts of surviving firm.

    Also IMF promoted Trade Integration Mechanism to ease the short-term balance of payment difficulties. After IMF finished the 2nd review of Bangladesh PRGF Arrangement in 2004, they approved activation of the Trade Integration Mechanism that eased the short-term balance of payment difficulties.

    Dynamics of Vulnerability and Dependence

    The era of neo-liberal economy promoting globalisation created dependency on the global market. Such dependencies exposed these Least Developed Countries to a vulnerable environment. Various external and internal factors are responsible for affecting every stakeholder of this sector.

    The above figure is drawn to explain that vulnerability pertains among all the economic actors in countries like Bangladesh and Cambodia. From the last section it is clear that the national governments are vulnerable to International Financial Support and foreign investors to sustain their economic growth. Then the business houses and factory owners are vulnerable to their position in the supply chain. They are exposed to a market where they have to beat their counter-parts to maintain their business. The end of the supply chain is the factory workers and their organisations that are highly vulnerable to every economic change. They are exposed to poor working conditions and risk of losing jobs, which is dependent on the global market and their demand. 

    One of the usual challenges of the garment sector is their lack of ethical compliance related to overtime and adjacent violations. Most of the factories have a production bottleneck to be met.

    It is unfortunate that the factories are indirectly compelled to prioritise shipment fulfilments over ethical compliance due to the risk of penalty, monetary loss as well as sourcing relations with the buyers. In most cases, these factories fail to adhere to their customer’s ethical requirements due to outstanding violations, which would have occurred while satisfying the same customer’s shipment requirement. 

    The other major factor causing overtime and other ethical violation in this factory is overbooking orders up to 20% of their actual capacity, which is a regular practice among the garment factories. We have noticed that factories located in both the countries overbook orders approximately by 10-15%. In 2011, few of the factories in Bangladesh even exceeded their capacity by 25%.

    The major challenge we identified was during recessionary periods, the buyers try to negotiate the price with the factories and this undermines the incentive of the factory trying to restrict the practice of overbooking to reduce the risk of overtime. In the year 2011 and 2012, this was a major drawback for our client’s factories located in both the countries that had to solicit more orders and therefore overbook when needed in order to keep their own margins but yet again they face greater risk of buyer changes which leads back to overtime and seven day work.

    The biggest hit for Cambodia was during 2008 financial crisis. This crisis originated in the US, which was also the biggest buyer of garments and foot-wear produced in Cambodia. This economic situation had a major adverse effect on the dollar dependent country. The demand went down due to recession and the factories had to face a great loss. One important fact that needs to be discussed repeatedly is the structural adjustment undergone by these countries leading them to be highly export-oriented and dependent of foreign markets.

    Social and Cultural Impact

    Cambodia and Bangladesh are among the most religious countries of the world. About 95% of the population of Cambodia are Theravada Buddhists and 85% of the population of Bangladesh is Bengali-Muslim.  Two major celebrations in Cambodia are Pchum Ben and Water Festival but almost every month the calendar is tight with either cultural or international holidays.

    Bangladesh being a predominantly Islam country they celebrate the joyful festival of two Eids, Eid-ul-Fitr and Eid-Ul-Azha along with the month of Ramazan and other religious festivals. Similar to Cambodia, even the Bangladeshi calendar is tight with national holidays and cultural celebrations.

    It is worth noting that Cambodia and Bangladesh’s culture, law and human capital contributes to a significant challenge to any business owner. The figure below represents the productivity of both the countries around the year. About 23% of the year is occupied by national holidays in these countries

    Moreover, the factories witnesses low workforce attendance on the first day of work after a major national holiday. From our observance and experience, the attendance stabilises only after 14 days but it is estimated that there is overall a loss of 8 – 14% of the productive days on an average, every year. If a working day falls in between some major holiday then only 40% of the workforce shows up and produces 20% less of their usual output. Also productivity drops preceding a major holiday. 

    An interesting identical problem faced in both the countries is the issue of loyalty among workers. The factories do not expect the workers to stay more than couple of years and usually the reason of job rotation is concerned with better job offers or family reason. The monthly migration levels are around 10-11% in Bangladesh and 5-8% in Cambodia. 

    The similarity in labour force characteristics between these nations is that the garment sector is female dominated. Most of these women are young and unmarried with little education and belongs to the rural population. 

    The Labour turnover in respect to most of these young women is linked to the socio-economic characteristics of both the countries. They have a ‘hierarchically structured society’ with the strong notion of men being the bread-winners of the family and women being the household carers. Though women are granted equal constitutional rights still according to the social norms men have higher authority over women. This influences the women to dedicate most of her time to her family after marriage.

    In order to support their families before marriage, these women migrate to other towns and start working at the factories at a very young age with low wages. Factory owners use this situation in their advantage and prefer employing young women for easy control and low price. These women leave the factory at the event of their marriage. The employers choose to let these workers go after marriage and recruit new younger ones. Also most women leave the job after marriage due to their dislike of workplace stress and hazard.

    The other probable reasons of high Labour turnover rate are due to the wages. Once the workers have sufficient experience and skills then they get easily attracted to jobs in other factories with better wages. 

    Conclusion

    Today, the garment industry is highly debated around the world. Tragic incidents of Rana Plaza and Tazreen in Bangladesh followed by continuous lockouts in Cambodia have put this industry under close supervision in the international arena. This sector though contributes more than 80% of the export revenue to their respective industry still suffers due political, international and socio-economic reasons.

    Over the years the garment sectors have expanded but if the existing issues keep persisting in these nations then it will be worth observing how they maintain their position in the international garment sector. This report dealt mainly with the dynamics in their respective political structure, effect of international funding services and cultural and social norm that has and will keep having an enormous role to play in this sector.

    The garment sector would continue to flourish only if all stakeholders: buyers, suppliers, factories and government could address the inter-linked issues and improve the country’s reputation. The international media has been criticising the sweatshops, fire and building safety measures and more but very few of them report the reasons forcing such unethical and non-compliant behaviour of the factories situated in developing countries. Such non- compliance and pressure on labour standards is created by the increasing competition among global suppliers on the basis of pricing or labour cost in order to cater to a small group of powerful buyers.

    Therefore, globalisation did promote these countries and gave them the necessary recognition on the world economy but at the cost of competing in a highly vulnerable environment. The different code of conducts established by international organisations and retailers or any other effective solutions can only achieve some success if they are in accordance to the price- competition and buyer-pricing dynamics. 

    Glossary

    BDT- Bangladeshi Taka

    BGMEA – Bangladesh Garment Manufactures & Exporter Association

    ETI – Ethical Trade Initiative

    GMAC – Garment Manufacturers Association

    IMF – International Monetary Fund

    MFA- Multi fibre Arrangement

    PRSP – Poverty Reduction Strategy Papers

    SAP- Structural Adjustment Program

    UNDP – United Nations Development Programme

    Reading List

    Ahmed, S., Rahman, Z. M and Islam, N. (2013). Labor Unrest in the Ready-Made Garment Industry of Bangladesh. International journal of Business and Management; Volume 8, No. 15. Available at: http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/25661/17243

    Anner, M., Bair, J and Blasi, J. (2012). Buyer Power. Pricing Practices and Labor Outcomes in Global Supply Chains. Available at: http://www.colorado.edu/ibs/pubs/pec/inst2012-0011.pdf

    Asuyama, Y., Chhun, D., Fukunishi, T., Neou, S and Yamagata, T. (2010). Firm Dynamics in the Cambodian Garment Industry: Firm Turnover, Productivity Growth, and Wage Profile under Trade Liberalization. Available at: http://ir.ide.go.jp/dspace/bitstream/2344/930/1/ARRIDE_Discussion_No.268_asuyama.pdf

    Bargawi, O. (2005). Cambodia’s Garment Industry – Origins and Future Prospects. Economics and Statistical Analysis Unit Working Paper 13, London. Available at http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/2513.pdf

    Beresford, M. (2009). The Cambodia clothing industry in the post-MFA environment: a review of developments. Journal of Asia Pacific Economy Volume 14, Issue 4, Pages 366-388. Available at: http://www.tandfonline.com/doi/abs/10.1080/13547860903169357#.UsanR7SPDy8

    Bjorn, C. (2010, November). Enemies of the Nation or Human Rights Defenders? Fighting Poverty Wages in

    Bangladesh. Sweat Free Community. Available at: http://www.sweatfree.org/docs/enemiesofthenation.pdf

    Chea, S and  Sok, H. (2013). Cambodia’s Membership in the WTO and the Implication for Public Health. Yale Journal of Health Policy, Law, and Ethics Volume 4, Issue 2. Available at: http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1092&context=yjhple

    Dennis, A. (2013). Workers’ agency and re-working power relations in Cambodia’s garment industry. Available at: http://www.capturingthegains.org/pdf/ctg-wp-2013-24.pdf

    Ear, S. (2009). Sowing and Sewing Growth The Political Economy of Rice and Garments in Cambodia. Available at: http://csua.berkeley.edu/~sophal/384.pdf  

    Easterly, W. (2005). What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans. Journal of Development Economics Volume 76 Pages 1-22. Available at: https://mcedc.colorado.edu/sites/default/files/Easterly_What%20did%20Structural%20Adjustement%20Adjust.pdf

    Elson, D. (1995). Male bias in macro-economics: the case of structural adjustment. [This article is Chapter 7 of Elson, Diane (ed.) 1995. Male Bias in the Development Process, Second edition, Manchester University Press, Manchester.]

    Greenleaf, A., Ahmed, F and Sacks, A. (2012). Regulatory Reform in Bangladesh: The Political Settlement and the Garment Industry. Available at: http://web.mit.edu/polisci/research/Greenleaf_Ahmed_Sacks.pdf

    Gilbert, A. (2012). Major Cambodian festivals: Pchum Ben and Water Festival. Travelfish Organisation. Available at: http://www.travelfish.org/blogs/cambodia/2012/10/01/major-cambodian-festivals-pchum-ben-and-water-festival/

    Hossain. E. (2013). Aminul Islam. Murdeed Bangladeshi Labor Acctivist. Still Without Justice 14 Months After Death. HuffingPost on 22nd of June 2013. Available at: http://www.huffingtonpost.com/2013/06/22/animul-islam-bangladesh-activist_n_3473603.html

    Hossain, Z. (2010). Report on Cambodia Textile & Garment Industry. African Cotton & Teextile Industries Federation. Available at: http://www.cottonafrica.com/documents/ACTIF%20Report%20on%20Cambodia%20Textile%20and%20Garment%20Industry_Zakir%20Hossain_2010.pdf

    Hughes, C. (2003). The Political Economy of Cambodia’s Transition, 1991-2001.London: Routledge Courzon.Avaialable at: http://www.untag-smd.ac.id/files/Perpustakaan_Digital_2/POLITICAL%20ECONOMY%20The%20political%20economy%20of%20Cambodia%92s%20transition,%201991%962001.pdf

    ILO and IILS (2013). Studies On Growth With Equity. Bangladesh : Seeking Better Employment Conditions For Better Socioeconomic Outcomes. Available at: http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_229105.pdf

    Im, N., T and Dabadie, M. (2007). Dollarization in Cambodia. Available at:http://www.nbc.org.kh/download_files/publication/others_eng/NoteMD117-14_article_dollarization.pdf

    IMF. (2013). IMF Concludes 2013 Article IV Mission to Cambodia. Available at: https://www.imf.org/external/np/sec/pr/2013/pr13451.htm

    Kolben, K. (2004). ‘Trade, monitoring and the ILO: working to improve conditions in

    Cambodia’s garment factories’. Yale Human Rights & Development Law Journal 7: 79-120.

    KPMG (2012). Investing in Cambodia. Available at: https://www.kpmg.com/KH/en/IssuesAndInsights/ArticlesPublications/Documents/Investing%20in%20Cambodia_16%20Jul_s.pdf

    Mamum, K. A and Nath, K. H. (2005). Export-led growth in Bangladesh: time series analysis. Applied Economics Letters Volume 12, Issue 6, Pages 361-364. Available at: http://www.tandfonline.com/doi/abs/10.1080/13504850500068194#.UrhtgPRdVK0

    Murshid, K. A. S., Zohir, C. S., Ahmed, M., Zabid, I and Mehedi, S. A. T. M. (2009). The Global Financial Crisis Implications For Bangladesh. BIDS-PRP Working Paper Series. Available at: http://www.academia.edu/292386/Global_Financial_Crisis_Implications_for_Bangladesh_BIDS-PRP_Working_Paper_

    Polaski, S. (2006). Combining Global and Local Forces: The Case of Labor Rights in Cambodia. Issue of World Development Volume 34 No. 5. Available at: http://carnegieendowment.org/files/WDCambodia1.pdf

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    Przeworski, A and Vreeland, R., J. (2000). The effect of IMF programs on economic growth. Journal of Development Economics Volume 62 Pages 385 – 421. Available at: http://international.ucla.edu/media/files/Przeworski_Vreeland.pdf

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  • GreenGrade Stories Posted on 2013-12-18 17:36:47 UTC Posted by GreenGrade Staff Member

    Here we examine the dynamics between buyers, factories and ethical compliance requirements

    The apparel companies from developed nations place the bulk of their garment orders with manufacturers in less developed countries where the cost of production is lowest. Since the Second World War East Asian countries such as Cambodia and Bangladesh have increased their garment exports as foreign investments have flooded in due to price-competitiveness. This has contributed to diminishing poverty by creating employment, which helps the workers to financially support their families and relatives.  It is important to remember that from a trade perspective a drop in wage could expand both the production and exports known as a ‘race to the bottom’ or ‘immiserizing growth’.

    These concepts started dominating the textile sector after the termination of Multi-fibre Arrangement (MFA) in 2004 when the international garment trade was opened up and consequently heightened the price-competiveness. This led the retailers or buyers to demand lower prices, shorter lead times and better credit terms from the suppliers. The suppliers were reluctant to negotiate a better deal for fear of losing their clients and thus found factories in low wage countries which were more economical but often had significantly more non-compliances.

    Facing pressure from NGOs and the media, retailers are now introducing better ethical standards to their supply chains which are also hoped to impact their reputation as responsible companies.

    Western buyers are used to paying less but seeing as the workers only get 3-5% of the profits, even if their wages are doubled the price difference for the final product would be negligible. Most of the bigger retail giants have codes of conduct on their Corporate Responsibility policies highlighting their ‘fair pricing strategy’ but the challenge is that most of them have more than eight tier supply chain and it is not possible to monitor and verify all stages throughout these supplier factories.  

    Companies like H&M and Marks & Spencer have already announced their intention to raise the minimum wages of the workers in their factories. H&M will decide on the ‘living wage’ for its producers following a GAP analysis between wages and the cost of living for their factories situated in Bangladesh and Cambodia. Following the series of accidents in the garment factories, retailers have shown keen interest in endorsing projects to improve the work environment.

    As governments are in charge of establishing the minimum wages of a country, they must take into consideration the international competiveness of the wages they set. It is apparent that if the wages increased after a certain level then the international buyers will shift their orders toward other countries with lower labour costs. In such a situation it is the multinational companies who need to support the government by agreeing to absorb a certain rate of increase. 

    As mentioned by economist Paul Krugman, increase in wage is against the law of demand and supply. It is a basic concept that when the price of a certain commodity increases, the demand decreases. Countries like Bangladesh and Cambodia have been winning contracts due to their cheap labour and from the factories’ perspective, they need to have a good inflow of orders to keep such factories alive.

    The law of economies will force the factories to eliminate labour as the price fluctuates. Following the increase in Minimum Wages of Bangladesh, the director of Simco Dresses Ltd from Bangladesh, Khurrum Siddique said “Increasing productivity is the only way to survive. It’s almost impossible for the industry to sustain this level of staffing at the new wage level”. Moreover, he also mentioned that he is expecting to shed about 700 or 10% of his workers in order to install new and improved machinery.

    Increase in wage shifts more pressure on the factories then their buyers. A substantial increase would only force the factories to specialise in higher value products with greater profits. This in turn would lead in loss of jobs. From a macro perspective the sudden increase in wage leads to a vicious cycle. The following figure gives an approximate scenario that could rise due to sudden increase in wage particularly in developing nations with low-wages.

    The impact of raising the minimum wage depends on various factors and differs from the stakeholder’s perspective. In countries like Bangladesh and Cambodia with the lowest minimum wage, such a hike should not eliminate their price-competiveness completely. In the fear of economic downfall and labour unrest, governments try to set policies that are lucrative for exports but these policies can only be optimized by the buyers sharing some responsibility on the improve in labour conditions.

    If buyers like H&M and Marks & Spencers continue to promote better wages in the developing countries whilst guaranteeing an increase in their orders then the wage hike will have a strong positive impact on the economy and labour. If the buyers do not share the cost by guaranteeing orders, then the change in price would have an adverse change in demand and as much as we want to see fair prices for all workers in developing countries, it is unfair to push wages too high as their production will ultimately become less attractive to foreign buyers.