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garment industry

Moving up the garment industry’s global value chain

Paul Lister's picture

Many African countries are striving to move up the global value chain in the footsteps of countries like China and (more recently) Bangladesh. We asked Paul Lister – Director of Legal Services and Company Secretary, Associated British Foods (ABF) – how ABF and its subsidiaries determine where it will source goods. He says that in the end, efficiency is key.

Textiles in Bongooo Bazaar, Dhaka, Bangladesh. Photo: Flickr @ dnevill (Dan Nevill)

Bangladesh’s inclusive Central Bank

Atiur Rahman's picture

Bangladesh is now the world’s second largest apparel exporter after China. Its garment industry accounts for 80% of its overall exports and around 4 million jobs. Atiur Rahman, Governor of the Central Bank of Bangladesh, tells us that the government sees employment (both formal and informal) as the link between growth and poverty reduction, with an emphasis on inclusive growth policy and financial inclusion.

Workers in the Wool Tex Sweaters Limited in Shewrapara, Dhaka. Photo: Abir Abdullah/ADB

The perils of competition

Zahid Hussain's picture

Promoting competition is considered the best available option for increasing economic well-being. The recent global financial crisis prompted policymakers to reconsider basic assumptions, but the virtues of competition were not among them. However, gone are the days when practitioners slept sound thinking the economy, if left alone, is self-correcting.

The limitations of competition as a force for universal good are well-known. Consumers can be inadequately informed, making it possible for firms to take advantage of them. The intrinsic difficulty of matching skills to positions and the costs associated with moving jobs may make workers stay with abusive employers. More basically, in a world where people have imperfect information and workers can’t always leave their employer, firms may be able to respond by cutting corners and abusing consumers and workers.

Is the problem with competition itself or the legal and informal institutions that yield this type of competition? The answer depends in part on one’s ideological lens—namely the belief of competition existing outside a regulatory framework, necessitating governmental intervention in the marketplace versus the belief that regulatory forces help create, define, and nurture competition in the market, necessitating improvements to the legal framework if competition is failing.

Some policies that supposedly restrict competition are justified for promoting competition. Intellectual property rights, for example, can restrict competition along lets say the use of a trade name. But the argument is that intellectual property and antitrust policies complement, rather than conflict, one another in promoting innovation and competition.

Life will surely be more stressful if we needed to compete for everything. Cooperation is often more relaxing. Society and competitors at times benefit when rivals cooperate in joint ventures to address collective needs. Competition can make people less cooperative, promote free-riding, and reduce contributions to public goods, thus leaving society worse off.

The point is not all forms of competition are beneficial. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition. Bangladesh’s garment industry is a contemporary case in point.  The collapse of Rana Plaza in Bangladesh brought to the fore the pathetic state of working conditions in many factories serving the global supply chains. The structure of the supply chain itself—the relationship among regulators, buyers, suppliers, and workers—is fundamentally related to these problems. 
The practice of subcontracting is routine in Bangladesh’s garment industry. The prevalence of competitive indirect sourcing strategies has resulted in a supply chain driven by the pursuit of nominal cost minimization. It has increased risks for business and workers by undermining prices, wages, working conditions, and investment in productivity and quality. The apparel units engaged in sub-contracting are mostly non-compliant particularly in paying wages and maintaining safety standards.

Question is why do compliant factory owners take recourse to such sub-contractors? Major global buyers see Bangladesh as a market where they can obtain the most competitive prices for a high volume of lower end products. Consequently, they set low price targets. The manufacturers compete for large orders by undercutting each other, further driving down the prices. They make delivery commitments far in excess of their capacity to produce without breaching compliance. When prices are dramatically driven down, the natural tendency of a garment manufacturer is to manage their unit at a least cost with regard to overheads and wages. The pressure to drive these down arise inevitably.

Rana Plaza One Year On

Ellen Goldstein's picture

Lessons on Governance from Bangladesh’s Garment Industry

One year ago today, in the outskirts of Bangladesh’s capital city, an eight-story garment factory collapsed of its own weight, killing 1,130 young workers and injuring thousands more.  The ghastly photos of bodies trapped in the Rana Plaza wreckage provoked outrage in the wealthy world, targeted largely at global retailers who purchased garments there.  North American and European consumers called for measures to ensure safe conditions and humane treatment for Bangladeshi garment workers, mostly young women from poor families in remote rural areas.  Many called for a boycott of the big-box retailers and of the Bangladeshi products they sell.

I had just moved from Bangladesh to Europe at the time, and my advice to friends who asked was: “Go ahead and buy those skinny jeans or that tank top if you want.  It’s the right thing to do for Bangladesh and its young workers.”

Is Strengthening Bangladesh's Unions Good Economics and Good Politics?

Zahid Hussain's picture

The fallout from the April 24 collapse of the Rana Plaza building in Dhaka, Bangladesh has had severe domestic and international reactions. The international buyers and governments have responded vehemently to these events. Careful reappraisal of labor issues has been universally identified as a key area of reform. The objective is to ensure workers’ safety and workers’ rights. Poor labor standards can adversely affect Bangladesh’s overall reputation in the exporting sector. The government has been pressured to take a series of measures to improve workers’ safety. Representatives of the Bangladesh government, the European Union and the International Labor Organization met in Geneva on July 8, 2013 to promote improved labor standards and responsible business conduct in Bangladesh’s garment industry.  Following up on the commitments made in Geneva, Bangladesh’s legislature recently amended the Bangladesh Labor Law to provide improved protection, in law and practice, for the fundamental rights to freedom of association and the rights to collective bargaining, among others.

Are these good economics and good politics now and in the future?

Let Good Sense Prevail in Bangladesh’s Garment Industry

Zahid Hussain's picture

The garment industry in Bangladesh has been subject to several tests of resilience in recent years—global recession, energy shortage, input price increases, and labor unrest. Of late, the labor unrest has escalated apparently triggered by disagreement over re-fixation of minimum wage. The workers, for quite some time now, have been pressing for adjustment in minimum wage that was last increased in 2006, after 12 years, from Tk. 930* (about $60 in PPP) per month to Tk. 1,662 (about $108 in PPP) per month. The government in April 2010 committed that a new pay-scale for the RMG workers will be announced before Ramadan, and formed a Wage Board for making the wage recommendations. For reasons not yet fully understood, the labor unrest was reignited recently without waiting to hear what the Wage Board’s recommendations are. However, it is abundantly clear that dissatisfaction with the nominal level of the minimum wage is at the center of the discord between garment owners and workers.

Cambodia's economy in 2010: After unusual year, is recovery on its way for workers and entrepreneurs?

Stéphane Guimbert's picture

When I was asked to look back at Cambodia's economy in 2009 and ahead to 2010, I began to wish I had some magic tools such as this ox (although in that case, the ox was not that magical, since the 2009 harvest turned out to be quite good).

Seeing the financial crisis: What might contraction look like in Cambodia?

Stéphane Guimbert's picture

Declining revenue of tuk-tuk drivers in Cambodia shows even the informal sector isn't insulated.
Growth forecasts in Cambodia are generating a fair bit of confusion. Many simply question whether it is possible for GDP growth to be lower in 2009 than in the past 15 years.

The World Bank today launches its projection of a 1 percent contraction of the Cambodian economy. This is based on an analysis of available statistics and feedback from a range of economic actors. Yet, to most of my Cambodian friends, it remains hard to conceive.

It is true that "seeing" such a contraction will be difficult. Basically, what it means is that economic activity in 2009 will be pretty much the same as in 2008. So the fact that we continue to have traffic jams in Phnom Penh, see tourists at the Royal Palace, and hear construction machines in many residential areas is consistent with such a projection. What will change, though, is that incomes will not increase this year as fast as past years and it will also become more difficult for the 250,000 young people leaving school each year to find their first job. What also will be different is that with no growth in aggregate, there will be a proportion of those with a livelihood at the end of the year worse than at the beginning.

Debating Cambodia's growth: A tsunami in 2009?

Stéphane Guimbert's picture

The global slowdown is hurting Cambodia's tourism industry, with fewer visitors in late 2008 than in the same period of 2007. Image credit: flydime at Flickr under a Creative Commons license.
Cambodia was one of the few Asian countries saved from the December 2004 devastating tsunami. But, a few days ago, at the Cambodia Economic Forum, panelists suggested that the economic tsunami – or various synonyms – would not spare Cambodia.

It's been a couple of months since the World Bank prepared the "perfect storm" report on the recent economic developments in East Asia. Our view at the time was that the crisis would reveal some of Cambodia's economic vulnerabilities – i.e. its lack of export diversification and its extreme reliance on foreign investment for growth. I think that this is an important lesson from our recent analysis on growth in Cambodia (more on this later).

Our projections for 2009 at the time were just below 5 percent GDP growth. This is consistent with the projections of the Government, the IMF, the Asian Development Bank, and an International Labor Organization (ILO) report on the impact of the crisis released yesterday. The Economist Intelligence Unit has a more pessimistic projection of 1 percent.

So who is right?