Adress the following questions with regards to the case below: 1. Are there ethi

Question

Adress the following questions with regards to the case below:

1. Are there ethical and social responsibility issues for you, as a manager, to consider? If so, what are they?

2. Discuss the relevant stateholders and their interests?

3. Evaluate the various positions taken by many Western companies (including Disney, H&M, Zara, Gap, JC Penney, WalMart and others) discussed in this case. What are the pros and cons of these approaches? What additional alternatives are available to you?

4. Provide a plan of action regarding your sourcing. Demonstrate an awareness of the advantages and disadvantages of your plan, and make a case as to why your proposed solution best address the issues and stakeholders' interests in this situation.

In retrospect, the building collapse should not have prior to the collapse of the Rana Plaza building. In been a total surprise. Parts of the complex had been October 2012, The Gap announced a $22-million built on a pond filled with sand, making for an unsta fire and building safety plan with its suppliers in ble foundation. The entire building vibrated whenever Bangladesh, without identifying which factories it its diesel generator was working. The day before the was using there or how many factories would be im- collapse. visible cracks had appeared in the building. proved under the plan. In early April, in response to promoting some workers to run out. Both the local the factory fire the prior November that had killed police and the Bangladesh Garment Manufacturers 112, Wal-Mart pledged $1,8 million to train 2,000 and Exporters Association warned Sohel Rana that Bangladesh factory managers about fire safety the building was unsafe. Rana disagreed, and the com- Crities noted that these commitments represented a CASE BANGLADESH the building when it collapsed. Both died. Some sur zations estimated that it would cost some $3 billion w ors stated that their employees had pressured them to make the needed fire safety and building improve- to turn up for work as usual on Wednesday, the day ments to ensure that Bangladesh's 5,000 garment of the incident. After the collapse Sohel Rana fled. He factories were safe. four days later on t safter the building c ier d THE GARMENT INDUSTro l building in The death toll from the factory collapse was ini- retaier H&M;, Inditex, the owner of the Zara chain, tially pegged at 250, but over the following days and and Tesco-signed a legally binding agreement de- weeks it kept increasing. By mid-May it was clear that signed to improve safety conditions in Bangladesh's 1.100 people had died in the collapse, making garment factories Under the S.year agreement, the it the second-worst industrial disaster in the history signatories agreed not to hire manufacturers whose of South Asia, after the infamous Bhopal disaster factories fail to meet safety standards and committed in 1984. The Bangladesh government stated that it to help pay for necessary repairs and renovations Sig- h collapsed, killing over l of them workers in one of the five garment factories that occupied six floors of the building. This was not the first high-profile accident in the Bangladesh gar Bangladesh, one of the worlds poorest countries, has ver heavily upon e ts of textile prod had killed 112 garment workers Just days after the ucts to generate income, employment, and economic building collapse, a fire in another garment factory growth. Most of these exports are low-cost, finished killed eight people. The spate of accidents led to calls garments sokd to a wide range of retailers in the West for Western clothing retailers to do more to improve such as Wal-Mart, The Gap, H&M;, and Zara. For pay in the building collapse. f up to 5,000 factories on results being made public. The g bor will cost cach company other poor nations from which they source prouc quota system for textile exports that gave it, and other tion. Some interest groups went further, arguing that poor countries, preferential access to rich markets tion from countries where working conditions were so On January 1,2005, that system was scrapped in fawor bad. One prominent Westen company, Walt Disney, of one based on free-trade principles. From 2005 on, had already made this decision. In March 2013, Disney exporters in Bangladesh would have to compete for The building collapse prompted soul searching on the part of Western retailers over the S-year period of the agreement. S retailers, including Wal s against producers from other nations suchrom Bangladesh. Critics were quick to point out Gap Inc, Sears, and JC Penny, did not initially sign ha desires to drive prices down may have contrib- the pact. Gap Inc. stated that it would not sign the uted to the situation in Bangladesh, Factory owners pact because the language makes it legaly binding might bid low to get business from Western compa in US. courts. Instead it put forward an amendment nies While these factories might meet the standards calling for retailers to be publically expelled from the removed Bangladesh from the list of countries where it authorized partners to produce clothing and other as China and Indonesia. Many analysts foresaw the lo the Disney announcement with dismay. They arguod predicted a sharp jump in unemployment, a decline that the economy of Bangladesh was very dependent in the country's balance of payments accounts, and a upon the garment industry, and that "the whole n egative impact on economic growth. tion should not be made to suffer" because of these The s x- is commonplace for them to outsource production to Mart declined to comment on why it did not sign ports of textiles continued to grow, even as the rest shadow economy of subcontractors where regula- but stated that it will continue to work with industru tions are routinely ignored and workers are paid less groups, suppliers, and the Bangladesh government than the legal minimum wage. Indoed, this is how they o come up with an appropriate resolution for this Bangladesh's exports of garments rose to around supply chains would be decimated unless they had an make a profit. That being said, all of the factories op- matter and develop broad based solutions" Wal- $20 billion in 2012, up from $8.9 billion in 2006, menative source of supply. Thus, Bangladesh has erating in the Rana Plaza seem to have been among Mart, which has had a sourcing office in Baneladesh of the world plunged into an economic crisis in 2008. ing it the larpest export industry in the country and benefited from the trend by Western importers to i he country's 1,500 or so regular exporters sources Some Western companies had already taken importers from the country, has long resisted legally textile industry in Bangladesh comprised some 5,000wd's largest exporter of garments Bangladesh steps to improve working conditions in Bangladesh binding agreements For its part, the government of ing fast, suggesting that the trend to shift textile pro- duction away 3 million people 85% of whom were women with few from China may continue Bangladcsh stated that it would raise the minimum Buking. TheEomowist Apnil 25, 2013 Rags in the Riins recession took hold in de- Bangladesh, however, does have disadvantages: age for garment workers in the country and tighten veloped nations during 2008-2009, major impr most notable are constant disruptions in electricity building and fire regulations ers such as Wal-Mart increased their purchases of because the government has underinvested in power low-cost garments from Bangladesh to better serve generation and distribution infrastructure Roads and their customers, who were looking for kow prices ports are also inferior to those found in China Li& Fung.a Hong Kong ing and apparel manufacturing, saw its production in sch as Bangladesh has been driven by intense com- Bangladesh Jump 25% in 2009, while production in petition among Western clothing retailers US con- Learning to Offer More Than Just Low Wages N Yok Tme December 14, 2004 p CI: V Baja"As Labor Costs Risc in China Textile Jobs Shift Elsewho," New Yok Times July 17, 2010, pp l. 3; S·Greenhouse." Bangladesh Fears Exodus of Apparel Firms Sos S Banjo, Promies in Bangladesh. The Wal Svt New Yok Tines, May 2. 2013:SGreenhouse. "Major Retailers Bradsher, "Jobs Vanish as Exports Join Bangladesh Safety Plas. Ner Yok TimesMay 13, 2013 A Fall in Asia," New ork ws January 22 2009, p 8l: Kaittin merman and N Shah "American Tastes ael Boom in Bangla company that handles so The demand for garments from low-cost sources May 14, 2013; K Pretly. The Ent July 18, 2008, p4. he New Collapsing desh."Walf Stes oaurnal, May 13,2013 t supplier, slid 5%. Bangladesh's advantage is based on a number of factors. First, labor costs are low, in part due to low hourly wage rates and in part due to investments by spending relatively little on clothing. In 2012. US consumers devoted just 3% of their annual spending to clothing and footwear, compared to around 7% in nology during the past decade. The minimum wage clothing is that real prices have fallen significantly rate in Bangladesh is currently S38 a month, com-overthe last two decades. Since 1990, clothing prices pared to a minimum wage in China of SI 38 a month. in the United States have risen by just loo in nomi- Wage rates in the textile industry are about $50 to $60 nal terms, compared to an 82% jump in nominal food a month, less than a fifth of the going rate in China. prices during the same period. Adjusted for price in- Textile workers may have to work 12-hour shifts and ation, clothing prices have fallen. The sluggish US can work 7 days a weck during busy periods While conomy and stagnant wage growth have incrcasod the pay rate is dismally kow by Western standards, in pressure on clothing retailers by capping consumers a country where the gross national income per capita disposable income. At the same time, the desire to is only 5850 a year the pay is better than that available shop for fashionable new outfits remains strong. The in many other unskilled and low-skilled occupations. result has been strong price competition among retail Second, there are few regulations in Bangladesh, apparel chains and as one foreign buyer says whatsoever that cannot be bent."The lack of effeo- tive regulations keeps costs down. Another advge FACTORY COLLAPSE for is that it has an of that supply inputs to it garment manufacturers Some three-quarters of allThe building that collapsed on April 24 was an eight inputs are made locally. This saves garment story complex, the Rana Plaza, named after its owner. facturers transport and storage costs, import duties Sohel Rana, a local politician and member of the rul- and the long lead times that come with the imported ing political party. The builders of the Rana Plaza woven fabrics used to make shirts and trousers only had approval for the construction of a f Bangladesh also has the advantage of being an al trcture, but in Bangladesh rules can be bent, so the ternative to China, Many importers in the Wes vbuilders added three extra floors Five garment fac- tories China for imports of specifie goods, fearing that if of the collapse, it is estimated that they were making there was a disruption, cconomic or otherwise, thei clothes for some 30 Western apparel brands

Explanation / Answer

1.Yes there are ethical and social responsibility issues as a manager for me here. The main issue is related to the safety of the employees, production material and equipments in Bangladesh. The employee safety is extremely important as other factors can be mitigated. The buildings in Bangladesh where the garment industries operate are built without confirming to the safety standards and employees are working under high risk for manufacturing our garments. Another concern is the political atmosphere of Bangladesh where the rules can be easily bent and there are chances of fraud and breach of contract while doing business in Bangladesh. The minimum wages set for the workers is too low in Bangladesh and the same also not given sometimes since it’s is easy to break law in Bangladesh. These issues are really a concern for me as a manager.

2. The relevant stake holders include the international companies which sourced production in Bangladesh. Their interest is to make profit while producing garments by purchasing the material for production at low cost and paying low wages for the workers.

Another stake holder is the garment factories which take the contract from the western companies for production of garments. Their aim is to make profit in their business by compromising on infrastructure that should be provided in a work environment and pay low wages to employees.

Very important stakeholder here is the workers who work under extreme risk conditions to make a living. They are paid very less but they work as the wages are very important for them.

Another stakeholder is the government who set the rue and regulation for international companies. The Bangladesh government is trying to attract maximum companies to Bangladesh to improve the living standard and economy in Bangladesh. Hence the rules are not tight.

The people in Bangladesh are other stakeholder who take advantage of employment or becomes the victim of these incidents.

3. Disney removed Bangladesh from the list of countries where they authorized partners to produce cloths and other merchandise. The pros are Disney can avoid the chances of any issues related to safety like building collapse in future and the loss of money through those incidents. The concern is that Bangladesh is good for making profit in garment business because of low cost of material, low wages and less restriction to enter the business. By removing Bangladesh from list Disney is losing a key production location to make profit in business.

Gap announced a $22 million fire and safety plan with its suppliers in Bangladesh. The pro is that the safety standards may increase and the possibility of incidents like collapse of Rana plaza building may reduce. The concern is that there are they do not have an idea on which factories they use and which factories are going to improve under this plan.

Wal-mart pledged $1.8 million to train 200 Bangladeshi factory managers about fire safety. The pro is that the managers can help the employees to be trained on fire safety and speed up the rescue operation in case of fire. But the concern is that to what extent they can save the workers if the building condition is worse. To ensure fire safety and building improvements Bangladesh need minimum $3 billion.

H& M, Inditex, Zara and ,Tesco signed a legally binding agreement designed to improve safety conditions in Bangladesh garment factories in which they decided not to hire manufacturers who fail to meet the safety conditions or are not ready to improve the factories. A governing board will do the safety inspections and each company would have to spend $2.5 million over 5 year’s agreement. The pro is the safety standards will improve. The concern is that the agreement makes the companies legally binding in US.

The alternatives available are forcing the government to make the rules tighter on building safety in order to do business in Bangladesh.

4.According to my plan I would not outsource the business to local manufacturers in Bangladesh. Instead I would acquire an established manufacturer in Bangladesh and control the business. The building and employees would be under direct control of the company and new buildings would be built if required and the necessary renovation should be done to the existing buildings. The employees would be provided with enough infrastructures and minimum wages would be ensured under all circumstances.

The advantage of this plan is that it will be easy to address the safety concerns and we need not search for the companies or buildings where our units operate. Ensuring minimum wages would increase employee satisfaction and productivity also would increase.

The disadvantage is that company need spend more on acquisition compared to outsourcing. Another disadvantage is the adverse political conditions in Bangladesh which may affect the factory operation.

In this situation if we make a decision to acquire it would help to address the issues related to employee issues better and our major stakeholders are the employees. Ensuring safety at workplace and wages would address the employee interest better than any other method. Another stakeholder is government and staring a new business by an international company would be a great relief for government under the current situation. One more stakeholder is the local people and the living standard of the people of Bangladesh improves when new business gets established.

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