A woman was riding her scooter to work at a company providing data entry services to mostly overseas clients. While passing an intersection, a car from a side road suddenly swerved into the main road, knocking her down and she lost her life. This is one of many such road deaths due to accidents as people get to work. Pressure is now building from NGOs on the foreign companies, asking them to ensure that employees working with their suppliers are safe while getting to work, and also to supervise traffic and make sure that road rules are being followed.

Does this story seem far-fetched? Well, think about how different it is from the situation in Bangladesh following the garment factory building crash on April 24 in Dhaka, that killed over a 1,000. The papers are full of reports about how foreign buyers are reacting. Some are considering extending their audits to also see if the buildings were constructed as per code, while other companies are said to be looking to exit Bangladesh.

Locals, part of problem

Meanwhile, the local mayor, who had allowed several factories to be constructed in violation of rules, has justified his action on grounds that it takes too long to get the required permissions.

He has since been arrested. Mohammed Fazlul Azim, a garment factory owner as well as a member of parliament, is reported imploring brands not to leave the country. Why? Because ‘the industry is very important to us. Fourteen million families depend on it.’ But as a factory owner and a politician, he has no explanation for why the garment factory owners behave so badly in a country where the industry accounts for 80 per cent of its exports.

The problem is that Azim and his ilk are part of the problem. The UK magazine, Economist , says over 25 MPs have investments in the garment business. The owners make sure the industry gets preferential taxation and other benefits, even while they have managed to deny for long the garment factory workers’ right to form unions. They possibly also overpower local factory, fire, and other inspectors doing their job.

Even as well-meaning activists try to invoke the image of ruthless multinationals trying to profit out of slavish labour in the developing world, we need to reflect on the roles of the locals. The Bangladesh situation highlights a common problem in developing countries, where failure of political governance combines well with unethical behaviour by local businesses. Should foreign corporations step in to fill the breach?

Audit checks

The manager of a European firm that gets its garments made in Bangladesh has been reported as saying that its contracts with Bangladeshi suppliers ensures that proper safety procedures are followed in the work area. Now, it may have to ensure that the contracts also include clauses about whether the buildings are constructed properly, and having their audits check on that too.

This is where my hypothetical story at the beginning of this article comes in. Will the overseas buyers also ensure that the traffic police take care that the workers commuting to work do not die because of chaotic traffic?

Bangladesh’s Finance Minister, Abul Maal Abdul Muhith, has reportedly said that the impact from the recent building collapse wasn’t serious enough to harm the garment industry. Well, he needs to understand the concept of ‘transaction costs.’

These are costs incurred by the foreign buyers sourcing from Bangladesh, which would include those on lawyer fees, audits of factory practices, travel, and so on.

These will shoot up now because of also including the cost of the bad image a company gets when it is reported as buying stuff from a factory violating safety rules.

Research in the West shows customers are prepared to pay a higher price for a product they know is made ethically. Bangladesh factory owners are going for the bottom of the trough.

Walt Disney, finding its transaction costs too high, has already decided to source from elsewhere. Target and Nike have also reported that they have reduced the number of supplying factories in Bangladesh. Europe is reviewing the duty free benefits accorded to Bangladesh under its Generalized Scheme of Preferences.

Bangladesh is a success story that may be heading towards failure if its elite does not wake up. Here is a developing country that, even without any ‘natural advantages’ to be in the garment business, managed to take advantage of Multi Fibre Agreement quotas to become the second largest exporter after China. The country exploited its labour cost advantages to build relationships with buyers to thrive even after the MFA was scrapped.

It is easy to blame the government, politicians, and bureaucrats of Bangladesh for letting the industry down, and not enforcing rules on the books. But the blame should also be shared by the garment factory owners in Bangladesh, who want to shift their corporate responsibility to western retailers.

These businessmen, aware of the competitive nature of their business, are cutting costs by overworking their workers and skipping safety procedures. They don’t realise that this is not how you compete today. They do not understand their ultimate consumer in the western world is now sensitised to being aware of working conditions and factoring that into his/her buying decisions.

The politician-businessman nexus helped the garment industry get on its feet. That same nexus should now grow up and take responsibility, and it cannot expect the foreign buyers to do the job.

(The author is professor of International Business and Strategic Management at Suffolk University, Boston, US.)

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