The Apparel Industry after the Bangladesh Tragedy
The recent collapse of a garment factory in Bangladesh killed more than 1,000 people and led to massive protests in the small South Asian country. Mike Moriarty, senior partner in A.T. Kearney's consumer and retail practice in Chicago, discusses the incident and what the apparel industry can learn from this tragedy.
Q. What are some of the lessons of this incident for apparel companies?
Moriarty. For the past 20 or so years, apparel companies have learned that finding the lowest-cost location is not the goal. What’s most important is the total cost of producing, acquiring, delivering, and ultimately satisfying the consumer with a product. In Bangladesh, companies are producing cotton underwear, socks, and T-shirts—the kinds of garments counted in the millions and billions. So if the cost of labor is pennies per garment cheaper in one place than another, that can make a big difference. But, there are intangibles that must be considered as well. Corruption, bureaucracy, and unsafe working conditions are all intangible yet important aspects of a low-cost country decision. The loss of life, as occurred in Bangladesh, is a sad reminder of these intangibles and why we are seeing every major apparel company in Bangladesh redoing its calculus.
Now, to say that all apparel companies are bad is not true. In fact, a lot of the labor groups are saying, "Don’t leave. Stay and help us make this place better." The global apparel companies are a big part of the solution for these low-cost labor countries, even as they might feel, and rightly so, that they are also contributing to the problem. On one hand, companies benefit from low-cost labor and, on the other, they supply valuable jobs and have the power to apply commercial pressure on the Bangladeshi government and bring global attention to improve labor standards and working conditions.
Q. Many companies say they are reconsidering their presence in Bangladesh. Do you think that ultimately apparel firms will stay in Bangladesh?
Moriarty. In some way or another they will stay, as long as they feel comfortable that a global agency has a view into working standards and safety procedures. For centuries, garment work has been a staple for developing economies, and there's no reason why faulty building standards or a few unguided bureaucrats or local labor leaders should keep millions of people from an opportunity to participate in the global economy. At the same time, these are human beings in Bangladesh who are looking for a better life, and we must ensure that conditions in these factories are safe.
Let's say, for example, that all apparel production in Bangladesh were shut down. Where will the apparel companies go? Egypt? Indonesia? Guatemala? There are other options and other governments, and other people who will try to take advantage of others. So leaving doesn't really solve the problem.
A better idea is to rethink their presence in Bangladesh. How do we integrate the Bangladeshi market better into the international market? How do we ensure that labor standards in Bangladesh are consistent with what we see in the United States, Western Europe, and Japan? It'll take some time.
Q. Most apparel companies use contractors, subcontractors, or licensees when they work in Bangladesh. How will this affect these relationships?
Moriarty. These relationships with contractors and licensees are only as good as their handshake. It’s a very difficult position to be in. We're talking about thousands of nodes in a network, and all you need is one or two bad nodes and you've got a terrible situation like this. This is a risk that comes with the territory when working in these countries. Developing a network for manufacturing and sourcing in Asia is a complex, but necessary exercise that requires finding the right balance of cost, quality, and service.
Q. When looking for low-cost countries, how do you suggest companies balance the costs versus the risks?
Moriarty. There are three things. First is to work with people you know. As much as possible develop relationships. Develop networks within the country so that you are comfortable that the factory managers are treating the workers appropriately.
Second, work with international organizations—labor organizations or better workers' programs, or even the World Health Organization or the World Bank—to ensure you are being sensible and responsible about how you go about working in some of these places. Very often this is very difficult to achieve.
Third, consider stability for your own company. If you’re always looking for the least costly destination, you're always going to be running around the world. If the idea is to satisfy your customers with high-quality goods made in a responsible and ethical fashion, then your customers will come back. That holistic view of business, while very difficult in the apparel industry and particularly in lower-priced items, is one that serves everybody very well.