Bangladesh Factory Collapse: Can Retailer-Led Reform Overcome Government Corruption?

A factory collapse on April 24 that killed at least 1,100 garment workers in Bangladesh, one of the deadliest such incidents in history, may finally bring about substantive reform in the garment production industry which has been backdrop of so many tragedies. In a country where corruption makes effective regulation almost impossible, retailers are taking up the challenge of monitoring the conditions at their factories in Bangladesh. But the costs of reform and rampant government corruption may cause these efforts to come up short.

Retail consultant Burt Flickinger, explaining how concern over the bottom line may be an obstacle to the implementation of pledged reforms, says "apparel retailers don't have enough of a corporate conscience. They feel guilty about what's happened, but they're concerned about their competition, cash flow and raising dividends for stockholders." Some retailers are choosing to just move production outside of the country instead of reforming.  The Walt Disney Co. has announced that it will leave Bangladesh, and industry experts predict others may chose to do the same in the near-term. 

Further, those who do decide to pursue reform may hold back to avoid incurring too much of a competitive disadvantage against firms who do nothing or defect from their pledges. This is the reason Sohel Rana, owner of the Bangladeshi building in which a fire killed hundreds in January, gives for why he continued to operate despite known reports of structural flaws. "I did not force [the tenants to stop]. It was them who forced me, saying they would face huge losses, and shipments would be canceled if the factories were closed for even one day."

However, facing street protests at universities and stores in more than a dozen cities across the country, most retailers seem to be taking reform seriously. Some have vowed to stay and promised to work for change, including Walmart and H&M, the top two producers of clothing in Bangladesh, as well as other big retailers such as The Children's Place, Mango, J.C. Penney, Gap, Benetton and Sears.

One reform is H&M’s decision to sign a "legally enforceable contract [that] calls for retailers to stop doing business with any factory that refuses to make necessary safety improvements, and for workers and their unions to have a substantial voice in factory safety." In addition, Walmart has committed to enforcing similar standards, as well as tying some of the compensation of some executives to the success of its compliance program.

Some, though, say it may not be enough. Matthew Amengual, a professor at the MIT Sloan School of Management says "companies have a very important role to play, but they can't do it just by auditing their supply chain." Safety issues, Amengual believes, are too complex for companies to properly monitor or change. He argues that although companies can set regulations for how the factory is run, the government is needed for more complicated tasks such as monitoring the structural integrity of thousands of factories.

Bangladesh's government has made some progress, agreeing this week to raise the minimum wage and allow the country's 4 million garment workers to form trade unions without prior permission from factory owners. But Bangladesh is still considered the "Wild East" of regulatory regimes, where corrupt political relationships allow owners and operators to ignore safety inspectors — if these inspections even occur. In fact, in Transparency International's Corruption Perception Index, Bangladesh falls between countries like Cameroon, Pakistan, and Nigeria.

Only through continued pressure from consumers and scrutiny from the media will retailers choose to overcome the economic costs of production returns. But even if this is the case, the obstacle of poor government oversight may inhibit the thorough reform needed to ensure that tragedies such as the factory collapse never happen again.