Bangladesh and the Problem of Ethical Sourcing

On Nov. 24, 2012, a fire broke out in the Tazreen Fashions factory in Dhaka, Bangladesh, killing 112 workers and injuring 200 more. At the time, it was the deadliest in a string of factory accidents in the country dating back to 2006, a six-year span that according to anti-sweatshop activist group Clean Clothes Campaign saw at least 500 Bangladeshi garment workers killed in factory fires.

It wasn't the deadliest manufacturing accident of 2012—barely two months prior, on Sept. 11, a textile factory in Karachi, Pakistan caught fire, killing 289 workers—and it would soon be overshadowed by the April 2013 Rana Plaza factory collapse that killed 1,127 laborers in Savar, Bangladesh. But it was the most inextricably linked to major Western supply chains. Walmart, Disney, Sears and other large companies were implicated in sourcing from the Tazreen factory, and the (justifiably) relentless media coverage of those ties added renewed fervor to long-standing calls for social accountability in overseas sourcing.

But how much will overseas sourcing and manufacturing policies actually change in the wake of these tragedies? Public reaction to incidents like these is often fickle, a brief but impassioned outcry for change that fizzles with the revolving of the news cycle. Apple's Foxconn debacle and Nike's ongoing Indonesian child-labor allegations ultimately did little to sway consumer habits, which in turn yielded little change in either company's sourcing policies; they may have cleaned up their acts (or at least assuaged consumer doubts), but neither company moved its manufacturing elsewhere.

Still, the Bangladesh incidents have dominated headlines in a way that Foxconn and Indonesia did not. Poor working conditions and near-nonexistent wages have existed overseas for as long as Western consumers have demanded low prices, but never has the body count been so impactful—quadruple-digits are hard to ignore. Public backlash has been more intense than ever, and for their part, the companies involved this time around have at last begun taking small steps to change the way they source.

The New York Times reported that as of May 14, Sweden-based H&M, Netherlands-based C&A and several other apparel retailers had signed a plan designed to enforce safer working conditions in Bangladeshi factories. Walmart rejected that plan, but announced its own factory-safety plan days later. Meanwhile, in March, Disney ceased all production in Bangladesh and revealed plans to move out of Pakistan, Belarus, Ecuador and Venezuela (countries the company deemed "highest risk") by 2014. These are small shifts, of course—the CNN Money article "Disney Pulls Out of Bangladesh Factories" noted that Bangladesh accounts for just one percent of all Disney's sourcing—but they're shifts nonetheless.

And bigger ones could be on the way as companies look to circumvent convoluted overseas supply chains altogether.

In a move likely unrelated to the Tazreen Fashions fire, Walmart announced in January it would boost sourcing of U.S. products by $50 billion over the next 10 years. General Electric plans to invest $1 billion through 2014 to "completely revitalize its U.S. appliances business and create more than 1,500 U.S. jobs," according to the company's website. And while U.S. manufacturing growth hit a seven-month low in May, the AlixPartners Manufacturing-Sourcing Outlook projected the U.S. to "achieve cost parity with China" by 2015 and ranked U.S. manufacturing attractiveness on par with that of Mexico.

What could all this mean for the U.S.-overseas manufacturing dynamic? Ultimately, not much—at least in the short run. If safety standards and working conditions overseas improve as a result of the tragedies in Bangladesh and elsewhere, that's a good thing. But it will take more than a few companies—even if they are giants like Walmart and Disney—tweaking their sourcing policies to affect significant change in global supply chains. And most of that comes down to simple economics.

"The major disadvantage is cost," said Kristy Tantillo, marketing manager for Indianapolis-based EMT, a promotional products supplier that sources about a third of its product line within the U.S. "The cost factor can be overcome when making automated products, but any product that requires a large amount of manual labor cannot be produced in the U.S. at a price that is competitive with offshore manufacturing."

IN PRINT AND PROMO

In the print and promotional products industries, the impact will vary.

Dr. Ronnie Davis, senior vice president and chief economist for Printing Industries of America, Sewickley, Pa., noted that most U.S. printers source paper, ink and other consumables from within the U.S., effectively insulating the industry from any supply chain shake-ups or sourcing-related consumer backlash. "Print is already a domestically sourced product since it does not travel well," Davis explained. "By this I mean that there is a currency about print, in that it is generally needed fairly quickly after ordering.

"Also, print's value-to-weight ratio means transportation cost can make up a large proportion of total cost," he continued. "Furthermore, since much of print is complementary with delivery and other sources there is need to integrate the supply chain. U.S. printers are the most productive in the world and the share of direct labor in most print jobs is around 15 percent, making it less cost-saving to source overseas."

As for printers that do source overseas—and the number is growing as Chinese and Indonesian vertical integration continues to yield reduced paper costs—Davis believes the fallout will be minimal. "I don't think that these tragedies will change printers' supply channels to a significant degree, since printers source entirely different types of products," he said.

The promotional industry, on the other hand, still sources the majority of its products overseas, with apparel—the manufacturing sector now under the most scrutiny—accounting for the largest chunk of the industry's business. If there's an increase in consumer demand for better, safer working conditions overseas, it could put promotional products suppliers' sourcing policies under the microscope.

In this regard, most industry suppliers already are proactive. The Quality Certification Alliance (QCA), a Chicago-based accreditation organization aimed at ensuring "safe, high-quality, socially compliant and conscientious merchandise" in the promotional industry, has 25 members, each vetted through multiple third-party audits and inspections. Many other suppliers, like EMT, audit independently. "We take several steps to ensure that our distributors and their customers are receiving the best product available," Tantillo said. "We do factory inspections and product testing on a consistent basis. Education is also ongoing and focused on current state and federal legislation and best practices."

Still, auditing alone may not always be enough. In the aftermath of the September 2012 fire in Karachi, it was revealed that inspectors had in August 2012 awarded the factory SA8000 certification for meeting "international standards in nine areas, including health and safety, child labor and minimum wages," according to The New York Times article "Inspectors Certified Pakistani Factory as Safe Before Disaster."

And that's where the real change could come for the promotional industry in the wake of the tragedies overseas—not in massive supply chain overhauls or shifting manufacturing centers, but in an increased emphasis on safety protocols and social accountability.

"Audits are representative of a moment in time," explained Dee Fenton, executive director, compliance for QCA. "For that reason, the age of the audit should be less than a year. If you aren't auditing, but you know your supplier factory is being audited, ask to see the audit, then ask how the observations are and have been addressed."

"Job number-one is to make sure you are asking comprehensive questions. Job number-two is making sure once you have information, you are following up on it and addressing it," added Fenton. "The biggest issue is monitoring and failing to address issues, because it allows potential problems to fester unchecked and transform into more significant issues."