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OM in the News: Walmart and the Bangladesh Factory Fire

December 6, 2012

bangladesh fireThe garment factory fire in Bangladesh last week that killed 112 workers was a horrible tragedy. Emergency exits were padlocked and fire engines could not reach the blaze through dense and overcrowded roads. But the question for your students becomes: what does Walmart do with its clothing suppliers like this one? The Wall Street Journal (Nov.27, 2012) writes: “Walmart said the factory was no longer authorized to make clothes for the retailer, and that it had cut ties to a supplier that subcontracted with the factory without its authorization.”

Walmart’s ethical-sourcing department claims it notified the factory last year that it had found it to be “high-risk” and yanked its business–yet the chain’s clothing was still being produced there when the factory went up in flames. In its 2012 report on global responsibility, the retailer said it had stopped working with 49 factories in Bangladesh because of fire-safety issues. (Garment factory fires have killed over 600 people in the past 6 years).

Labor activists are scolding global companies for tolerating such terrible conditions in Bangladesh. The Journal (Nov.29, 2012) adds that Walmart is well aware of the reputational risks of sweatshop sourcing, trying hard to monitor working conditions among their suppliers. “But determined factory owners, abetted by local authorities can always fool inspectors.” Worth noting is the fact that a country of Bangladesh’s population—approximately 150 million—is greatly dependent on a single industry in which it has no natural advantage. Garment exports earn around $19 billion per year, accounting for 80% of total export. Clothing is Bangladesh’s only major manufactured product.

The garment industry there enjoys special labor rules, including a ban on unionization, and regulated pay rates that depress wages in the name of competitiveness. In this respect, Bangladesh is like China and other East Asian tiger economies, except that Bangladesh hasn’t pushed the economy further up the value chain. Instead, it has skewed investment toward the garment industry.

Discussion questions:
1. What is Walmart’s responsibility in dealing with global suppliers’ safety issues?

2. Why does Bangladesh support this industry so heavily? Why is it afraid of Ghana?

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