University of Minnesota business Prof. Kingshuk K. Sinha was prompted by an off-base comment of mine to see if U.S. and European retailers really care what happens at the far end of their apparel supply chains in Bangladesh.
It took years to find out, but he later was encouraged to discover that the answer is yes, they care enough to have made worker conditions at least a little better. What’s interesting is how much Sinha cared that the American retailers would at least try.
Decisions about supply chains have “serious consequences, very serious consequences,” said Sinha, who is on the faculty of the U’s Carlson School of Management. While stories of worker exploitation have regularly cropped up as businesses increasingly globalized, what was happening in Bangladeshi apparel shops several years ago made for a horrifying story of repeated fatal incidents.
While it was only one factor behind the decision for a research project, Sinha clearly remembered a call with me after the most appalling incident of them all — a factory building collapse in 2013 near the capital city of Dhaka that killed more than 1,100 people.
At the time, Sinha knew little of what Target, Walmart Stores and other U.S. retailers were thinking. He just knew that any suggestion that American retailers would soon be taking their business elsewhere seemed wrong.
He agreed big retailers couldn’t stand more blows to their reputations, but moving to new suppliers elsewhere wasn’t easy and would have caused other problems, including terrible ones for the Bangladeshi workers who would lose their livelihoods. What the U.S. retailers really needed to do was use their commercial clout to force Bangladeshi suppliers to provide safer places to work.
Sinha’s expertise is in the management of supply chains, a business term that largely means the flow of products and services through all the links of production and transportation. There’s far more to effective management than seeking efficiency and reliability.
It’s simply foolish for a U.S. company to take delivery of products at a West Coast container port and not really think about what happened to produce those goods and get them there. The U.S. company may own just a small piece of a long, complex chain, but there are risks along the whole thing.
When workers in Asia and elsewhere have been injured or systematically exploited making products for American companies, an attitude of not my factories, not my fault has tarnished the companies’ brands.
This is one way a company can do everything by the book and yet still lose its “social license to operate,” an idea Sinha shared in an article written with former Mosaic Co. CEO Jim Prokopanko.
Shortsighted thinking about the supply chain also leads to lost opportunities, he said. One example he discussed comes from the medical device business, where new lifesaving products are celebrated without those involved really thinking through how broadly they could be used.
Is the product cheap enough so patients outside a wealthy nation’s health care system can pay for it? If not, that sounds like a supply-chain challenge of finding a low-cost and high-quality way to build the device on one end of the supply chain and the most efficient way to distribute it at the other end.
Sinha was drawn to the Bangladeshi ready-made garment business as a research topic by its worker safety scandals and the news coverage that followed. He noted that in some ways the industry there is a dramatic success story. In just a couple of decades it grew to export more than $22 billion worth of apparel a year and employ about 4 million people, mostly women.
When the news out of Bangladesh was the worst and writers like me were calling him, Sinha noted that he had never read about poor product quality. That intrigued him because low cost often leads to low quality. In fact, Bangladesh has a long tradition of apparel and textile making, and to make his point Sinha reached into a bag for an imported sari, a beautiful and richly textured garment of red, cream and fuchsia.
“I knew what they are capable of doing,” he said of workers in Bangladesh. “Stitching together some branded products is absolutely trivial.”
U.S. retailers were not likely to find comparable suppliers at the prices available in Bangladesh. As a response to the crisis continued to unfold, Sinha learned of retailers in the U.S. and Europe banding together to ensure that suppliers meet a standard for worker safety.
Working together was a promising approach, he said, because it reduced the opportunity for one or two retailers to get a cost advantage over the rest by buying from the cheapest, and likely the most reckless, factory owner.
The question Sinha had for a research project was whether the approach of these two groups, one European and one American, really worked. He wanted to know if the suppliers found to be at a low risk for fire and other safety issues attracted more customers.
Sinha and his co-authors focused on what the retailers found while inspecting more than 1,600 Bangladeshi factories, looking at the risks from fire, structural damage and electrical system failure.
They found the confirmation they were looking for, too. U.S. and European retailers did steer business to suppliers with lower risks of fire and electrical failures.
As a recent conversation on his Bangladesh research wound down, Sinha noted that gains in worker safety could be fragile. Among other things, the pressure to cut costs, for retailers here and suppliers in Asia, has certainly not decreased.
“I worry that the consortium stays together,” he said. “My concern is that these [retailers] are such cutthroat competitors that the consortium would eventually disband.”
“If the suppliers were left to their own devices,” he added, “it would go back to square one.”