Reference no: EM132182817
Peter Purchase, Vice President for Global Sourcing at Lansing Worldwide Inc. (LWI), was pacing back and forth in his office. It wasn't because he just finished his third cup of coffee in 90 minutes. Rather, he was anxious because he didn't know what to do. He had been studying the travel report that Bill dropped off earlier that morning. Bill had just returned from a visit to LWI's suppliers in Bangladesh. Bill was the category manager for the apparel LWI sold in its North American retail outlets. Bill visited LWI's major apparel suppliers twice a year. His report on the three Bangladeshi suppliers was troubling.
Over two years had passed since the Rana Plaza collapse. Many initiatives had been implemented to improve Bangladeshi working conditions. LWI also felt it had done its share to promote stricter safety standards and controls. However, at the three supplier facilities Bill visited, Bill had noted missing fire equipment, "emergency exits" that didn't lead to safety zones, and hallways crowded with stacked boxes of ready-to-ship apparel. In case of emergency, workers had the narrowest of passageways to squeeze through. In Peter's mind, these conditions were an invitation to disaster. What should Peter do?
The Rana Plaza Tragedy
On April 24, 2013, an eight-story factory building in Savar, Bangladesh, collapsed, killing 1,134 people and injuring hundreds more.1 The collapse was one of the most deadly structural failures in modern history.2 A day before the accident, inspectors found structural problems and cracks in the building, which led some of the businesses (shops and a bank branch) to close immediately for the following day.3 However, other tenants forced their garment workers to come to work and keep the production lines running. Several of these suppliers produced apparel for U.S. and European companies.
Critically, home to some of the lowest labor costs in the world (the minimum monthly wage in the Bangladeshi garment industry is $37), Bangladesh is the world's second-largest exporter of garments.4 Large brand-name companies, including Gap, H&M, Sears, Tommy Hilfiger, and Walmart source apparel from over 5,000 apparel factories that employ more than 3.2 million workers.5
LWI's Situation and Response
LWI had been sourcing apparel from Bangladesh for over a decade. LWI entered Bangladesh as a sourcing location as the wages in China were beginning to go up. With wages rising 18% per year for the past 10 years, China was no longer an ideal origin country for mass-market apparel. As LWI operated on tight margins, the pressure to find low-cost sources of supply was constant. Bangladesh had offered such a new low-cost location. The bottom line: By moving to Bangladeshi suppliers, LWI could offer its customers the apparel they wanted at the prices they demanded.
The good news: None of LWI's suppliers were affected by the Rana Plaza tragedy. Nonetheless, Peter was paralyzed by ethical dilemma presented by doing business in Bangladesh. Workers received a very low minimum wage—one many considered to be below a "living wage." Too often, these same workers were stuck in unsafe—even dangerous—working conditions. Despite his concerns, Peter knew that for many of these workers, the next best option was much, much worse. So, packing up and moving to another location wasn't a simple solution.
Trying to find a "happy" balance, Peter had made sure to include specific contract language requiring suppliers to live up to LWI's code of conduct. Meeting adequate safety regulations was mandatory. The contracts included a "black-and-white" clause. Simply put, any breach would lead to immediate termination. Peter even sent one of LWI's safety officers (responsible for the safe operations of company-owned facilities in the U.S.) to the Bangladeshi suppliers to help them get up to speed and implement the necessary procedures. Peter couldn't understand how despite these efforts and investments, Bill could come back with such a disappointing report. What should Peter do differently? He was at a loss for solutions.
Questions
1. What else could Peter do to remedy the situation?
2. Since the initial efforts did not achieve their intended outcome, would it be better to exit Bangladesh? Should LWI consider exiting apparel? After all, other sourcing locations suffered from similar challenges. And, Peter was certain that raising prices was not an option. Customer demands for low-priced products was an industry fact.
3. Does LWI have an ethical (or legal) responsibility to help Bangladesh raise working standards?