Fashion Companies Respond to Bangladeshi Factory Concerns

Perception worries might not carry the same importance to all companies, but it is undeniable that businesses make decisions based on their clientele’s views on sourcing locations.

The perception worry was heightened by the recent Bangladesh factory building collapse. On May 24, 2013, the Rana Plaza factory building collapse led to over 1,200 deaths and countless injured. Similarly to other factories in Bangladesh, the working conditions in Rana Plaza were undeniably dangerous. Due to this accident, as well as prior factory collapses, a company associated with Bangladeshi manufacturing arguably gets an immediate bad reputation.

In response, Bangladesh and the international community have attempted to improve factory conditions and, indirectly, alleviate client perception worries. The Bangladeshi parliament recently ratified changes to improve labor laws. However, some critics, including the International Labor Organization, do not consider these reforms sufficient, and the efficacy of these new laws is still unknown.

Bangladesh’s garment industry is a supplier to many countries around the world, requiring multinational cooperation to improve safety and worker’s conditions. Therefore, European and North American companies have separately attempted to address worker conditions in Bangladesh. The European plan, known as the Accord on Fire and Building Safety in Bangladesh (the Accord), is a five-year pact signed by 75 mostly-European companies. The Accord calls for increased inspections, factory upgrades, and increased worker’s rights, and would be funded by signatory companies. The Accord has a legally binding structure that commits signatories to maintain their sourcing volumes in Bangladesh for two years.

American companies, like Gap and Walmart, have refused to sign the Accord, citing concerns that they would be exposed to unlimited legal liability, and that the Accord lacks transparency and accountability. North American brands and retailers, therefore, unveiled an alternative plan in July. The North American plan, known as the new Alliance for Bangladesh Worker Safety (the Alliance), is a binding five-year worker, fire, and factory safety pact which requires signatories to provide more than $42 million to improve safety conditions in garment factories and $100 million in loans to assist factory workers in making safety improvements. Unlike the Accord, the Alliance permits signatories to exit Bangladesh.

Manufacturing accidents, while tragic, can lead to changes in factory worker safety. It is too early to tell whether Bangladeshi law changes, or whether the European Accord or North American Alliance plans will bring any significant improvement. However, American retailers need to be aware of these legal developments, and understand the reputational implications of declining to participate in these changes. Looking for alternative sourcing locations might be an option, but leaving Bangladesh is not a permanent solution — it does not solve the working conditions in Bangladesh and does not solve reputational worries.