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OM in the News: Rethinking The Decision To Locate in Bangladesh

April 2, 2013
Strike in Bangladesh

Strike in Bangladesh

As we discuss in Chapter 8, there are many factors that go into global location decisions. For the past few years, Bangladesh had been one of the biggest beneficiaries of a major reordering of the world’s low-end manufacturing. Rising pay in China has forced companies to find less-costly production locales, especially for goods that require armies of laborers such as apparel, shoes and linens. Bangladesh’s exports of clothes have nearly doubled since 2008, creating thousands of jobs in a country with a long-struggling economy. But what many companies have found is that countries like Bangladesh—which seem like alternatives to China, including Cambodia, Vietnam and Indonesia—have their own obstacles, reports The Wall Street Journal (March 22, 2013). While salaries might be lower, political instability, poor infrastructure, recurring strikes and labor-law complexities can add their own costs.

Troubles in Bangladesh are beginning to spoil its reputation among foreign companies that had flooded into the country—and are highlighting risks to investors looking for new manufacturing bases cheaper than China. Violent protests have led to at least 60 deaths and widespread strikes. The protests come on the heels of two recent apparel factory fires which killed 119 garment workers. Thousands of trucks carrying goods to Chittagong port have been burned or damaged.

“Bangladesh was a good place to do business. But you have to read the political trends in the world,” says Tesco’s CEO. “We are already moving away from Bangladesh,” adds the VP of VF, the company that owns Wrangler, Timberland and Nautica. “How many eggs do you want in a basket that’s basically a powder keg?”

It seems that China’s deep supply chain network is hard to replicate quickly elsewhere. Nike recently said only eight of the 896 factories it worked with were in Bangladesh as it reduces its exposure to countries presenting reputational risks.

Discussion questions:

1. What advantages does China have for apparel makers over Bangladesh?

2. Discuss each of the location factors in Chapter 8 vis-à-vis Bangladesh.

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