DHAKA, Dec 7 (Reuters) - Sweating and trembling as he
fielded questions about last month's killer fire at one of his
factories in Bangladesh, Delwar Hossain insisted he had no idea
the workshop was making clothes for Wal-Mart Stores Inc
when it went up in flames.
On the other side of the world, Wal-Mart said the factory -
where 112 workers lost their lives - was not authorised to
produce its merchandise and had been sub-contracted by a
supplier without its permission.
That there should be such blind spots in the supply chain of
the world's largest retailer is puzzling.
However, an investigation by Reuters since the Nov. 24 blaze
has found that, under pressure from big Western brands to
produce huge volumes of apparel fast and at rock-bottom prices,
Bangladeshi suppliers routinely sub-contract their orders.
This frequently happens without the knowledge of the
end-buyers and, all too often, the orders end up in factories
that under-pay workers or cut corners on safety.
Experts in supply-chain risk say the practice has led to a
lack of control over what is manufactured where, by whom and
under what conditions.
"The first problem is retailers and wholesaler s are
demanding more and more compliance and more and more protocol.
However, they keep pushing everyone for lower and lower prices,"
said Edward Hertzman, who runs Sourcing Journal, a trade
"You have one department of the company campaigning for fair
wages e tce tera, but then in the very next room the sourcing
department is asking for 10-20 percent cheaper. How do you do
In the charred remains at the site of the fire in an
industrial suburb of Bangladesh's capital, Dhaka, a Reuters
photographer found clothes that were labelled for - among other
big-brand retailers - Wal-Mart, Sears Holdings Inc and
Walt Disney Co.
After the fire, both Wal-Mart and Sears admitted that their
goods were being manufactured at the Tazreen Fashions workshop,
even though both had specifically denied that factory
authorisation as a supplier.
Disney said its records showed that none of its authorised
licensees had manufactured Disney-branded products at the
factory for the past 12 months.
Garment producers in the South Asian country say U.S. and
European buyers haggle with them over every nickel and cent to
keep their costs down, right down to the price of a shirt
button. In turn, the suppliers - operating on wafer-thin margins
- are forced to minimise their own costs and this often means
farming work out to factories that operate on a shoestring.
"Everything has a price," Bangladeshi Commerce Minister
Ghulam Muhammed Quader told Reuters in Dhaka.
"If you want to really give higher wages or really want to
give some sort of other safety standards at a higher level, it
costs some money. So the competitors for getting the orders from
the big brands always try to cut their cost in different ways."
For a long time Western apparel buyers depended heavily on
China to source their products. But labour shortages and
mounting wage pressures prompted them to look elsewhere and
Bangladesh has become - as a 2011 McKinsey report put it - "the
next sourcing hotspot."
There they have found a country that has favourable trade
terms with Europe and, crucially - with the minimum wage for
garment workers under $37 a month - plenty of cheap labour.
Bangladesh's roughly 3,000 factories now account for 80
percent of the country's $24 billion annual exports. The
industry employs 3.6 million people and more than four times
that number are dependent on the sector for their livelihoods.
In short, it has become the economic lifeblood of the
once-impoverished country as it moves up from aid to trade.
Poor working conditions such as overcrowding and even locked
emergency exits, have long been the dark side of this success
story. Rights groups say efforts to address this have often been
thwarted by curbs on union activities that employers and the
government fear could threaten the boom.
In April, a labour activist was found murdered and his body
bore signs of torture. Human Rights Watch said the killing
raised the possibility of government involvement because the man
had previously been detained and tortured by security officials.
Officials dismissed the suggestion.
There have been building collapses and many fires at
Bangladeshi garment factories in the past, although none as
deadly as the blaze at Tazreen Fashions.
Shamoly Akhter, 19, was working on the second floor of the
multi-storey factory building as night fell. She said that, when
a fire alarm started ringing, two supervisors prevented
employees from leaving and told them to return to their work.
"The alarm was ringing continuously and we were struggling
to get out ... but they said it was just a drill," she said at a
Dhaka hospital, where she was being treated for injuries
sustained when she leapt from the burning building.
She said that music playing in the factory was turned to
high volume, apparently to muffle the sound of the alarm.
When finally the workers forced their way to the staircase
they found it was ablaze, thick with smoke because highly
flammable yarn and fabrics stored around exits on the ground
floor had caught fire.
The factory had no external fire-escape stairs so Akhter,
like many of her co-workers, jumped from a window to the ground.
Factory owner Hossain, who was not present when the fire
broke out, said he had never been told by the building's
planners that an outside staircase was necessary.
"You see, there are three staircases so why would we need
another one?" he told Reuters in an interview.
SUBCONTRACTING - "A VERY COMMON PRACTICE"
Hossain is managing director of Tuba Group, which has
several garment factories. One of its units - Tuba Garments
Limited - was recently sub-contracted to produce Wal-Mart
clothes, but the order was diverted to Tazreen Fashions,
according to two industry sources who declined to be named.
Hossain confirmed the order came from a sub-contractor, but
said he had not been told the clothes were for Wal-Mart.
The trouble is that Wal-Mart rated the Tuba Garments factory
as a "yellow" in "ethical sourcing audits," which meant orders
could be placed there, but Tazreen Fashions was not on its list
of authorised factories.
"If somebody cheated ... it is not the fault of Wal-Mart, it
is not the fault of that factory even," said Mohammad Shafiul
Islam, president of the Bangladesh Garment Manufacturers and
Exporters Association. "It is not possible to police everything.
Inspection every single hour, every single moment is not
Islam said sub-contracting only happens "sometimes," but one
garment manufacturer who asked not to be named said it is "a
very common practice."
"Wal-Mart goes to the lowest bidder so manufacturers have to
work on high volumes, but no one can find enough compliant
factories to fulfill the orders, so they sub-contract," he said.
Sourcing Journal's Hertzman, a veteran of the sourcing world
who pairs retailers and apparel brands with factories in five
Asian countries, said the whole certification process is often
more cosmetic than anything else.
"A lot of times factories find ways to get around these
certifications," he said. "Everything looks kosher on the day of
the audit, but they really are not up to par."
The problem boils down to cost, he added. Manufacturers
commit to ethical behaviour, but they choose countries where
workers are paid comparatively meagre salaries because it saves
them money. Cheaper manufacturing there means cheaper goods on
shelves in the West, which is what consumers ultimately want.