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OM in the News: Can Outsourcing Be Improved?

June 3, 2013
TAL factory in China. TAL makes 1 of every 6 shirts sold in the US

TAL factory in China. TAL makes 1 of every 6 shirts sold in the US

The day after the Rana Plaza factory crumbled in Bangladesh, the death toll numbered 225. “We were lucky: It could have been worse”’ wrote the LA Times. But when recovery halted, the final toll was not lucky at all: 1,127 bodies. You’d be hard-pressed to pick a lower point for outsourcing or a better example of the high cost of cheap labor when you discuss outsourcing in Chapter 2.

The past two decades have provided plenty of reasons to believe that relying on low-wage workers overseas has made multinationals complacent about their safety. Some of the companies manufacturing in Bangladesh have rushed forward with promised improvements — H&M and Zara signed an accord to improve laborers’ safety and pay in the country. “Costs are rising everywhere we go. There’s no running away from that,” says the CEO of TAL Group, the manufacturing giant that has factories in China, Vietnam, Thailand, and Indonesia.

A decade ago, Nike took a different tack to improve its manufacturing. The company was plagued by stories of poor working conditions and underpaid labor in sweatshops, so in 2004 it began to publicly reveal online all of Nike’s factories. Still, such fixes can’t grapple with the fact that most workers’ fates remain tied to the laws (or lack thereof ) in their home countries. An MIT outsourcing expert concludes that private oversight isn’t enough. “We need to bring government back in,” he says, offering the example of Cambodia, a country reliant on the apparel industry after years of genocide and civil war. The U.S. allowed the country to expand its exports on the condition that labor standards show steady improvement. The Cambodian government has since replaced U.S. oversight, and it now licenses for export only factories that have met the standards of the International Labor Organization. “Bangladesh, take note,” writes Fortune (June 10, 2013).

Discussion questions:

1. What responsibility do global companies have in improving working conditions in Bangladesh and other developing countries?

2. How has TAL worked to lower costs as wages increase?

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