May 3 (Bloomberg) -- Walt Disney Co.’s decision to pull out of Bangladesh is fueling debate over whether other manufacturers should leave the country or stay put to improve workplace conditions in the South Asian nation.
Disney, the world’s largest entertainment company, removed Bangladesh in March from a list of countries where it authorizes partners to produce clothing and merchandise, according to a letter to licensees released yesterday. Belarus, Ecuador, Pakistan and Venezuela were also taken off the list, which cut the number of acceptable nations to 172 from 215, Disney said.
While Disney’s contractors had less than 1 percent of the company’s production in Bangladesh, marketers with more activity there will have to decide whether to stay and spend to improve worker safety or go elsewhere and potentially see the costs of their products rise even more. They need to make the calculation as they assess the risk to their brand names.
“There is a move afoot for companies to say clearly, ‘We need to be part of bigger oversight procedures,’” Cory Krupp, an associate professor at Duke University’s Sanford School of Public Policy, said in a phone interview. “The other way is just to move to Vietnam or Cambodia where they have better standards and the government is better at upholding them, and Bangladesh is going to learn the hard way.”
Disney, based in Burbank, California, asked licensees making its goods in Bangladesh and the other barred countries to end production in those places by March 2014. Safety standards in Bangladesh have been in the spotlight after accidents including an April 24 building collapse in Savar that killed at least 501 people and a November factory fire that claimed 112. Disney said its products weren’t made at either site.
“If your footprint is low and you make the calculus and there are other places where you have more leverage and can make improvements, that’s a sound approach,” said David Schilling, senior program director at the Interfaith Center on Corporate Responsibility.
The head of Disney’s consumer products division, in a statement yesterday, said there’s no easy answer.
“These are complicated global issues and there is no ‘one size fits all’ solution,” said Bob Chapek, president of the division. “Disney is a publicly held company accountable to its shareholders and after much thought and discussion we felt this was the most responsible way to manage the challenges associated with our supply chain.”
The Interfaith Center’s approach historically been to stay and work to improve health and safety standards, Schilling said in an interview. His New York-based group has worked with Disney and other companies on safety standards.
Wal-Mart Stores Inc. and J.C. Penney Co. were among retailers sending representatives to a meeting near Frankfurt this week to discuss cooperating to improve worker safety in Bangladesh following that nation’s biggest industrial disaster.
The talks, organized by Germany’s international cooperation service known as GIZ, were aimed at winning support from the companies, labor unions and non-governmental groups for Bangladesh’s national action plan and for supplier assessments of fire and building risk, said Peter McAllister, a director of the Ethical Trading Initiative, who attended.
The discussions were also aimed at winning backing for remediation programs to make buildings safer, McAllister said. The European Union, the country’s largest trading partner, has said it may apply sanctions in the wake of the disaster.
“There will be a strong call for as many brands as we can, who source in Bangladesh, to get behind” the call for higher safety standards, McAllister said.
Loblaw’s Cos.’ Joe Fresh clothing label and the Primark division of London-based Associated British Foods Plc, owners of brands produced at the collapsed building, have vowed to improve working conditions in Bangladesh. Both retailers also said on April 29 they would pay unspecified compensation to the families of victims.
“Bangladesh continues to be an important sourcing market for Wal-Mart,” Megan Murphy, a spokeswoman for the world’s largest retailer, said yesterday in an e-mail. The chain, based in Bentonville, Arkansas, said it has worked with government officials, industry groups and suppliers to improve safety.
J.C. Penney will “take an active part in the dialogue that aims to come up with a comprehensive approach -- that includes multiple stakeholders -- to solving the factory safety issues in Bangladesh,” Daphne Avila, a spokeswoman for the Plano, Texas-based retailer, said in an e-mail.
The Children’s Place Retail Stores Inc. obtained 15 percent of its merchandise from Bangladesh in the year ended Feb. 2, according to a March 28 regulatory filing, and isn’t going to leave.
“Simply walking away is not the answer,” Jane Singer, a spokeswoman for the Secaucus, New Jersey-based company, wrote in an e-mail. “The terrible tragedy in Savar provides further impetus for coordinated efforts between retailers, NGOs, and the Bangladesh government to provide long term solutions to prevent future safety issues.”
Companies that stay, such as Gap Inc., have to balance demands for improved workplace standards against the low costs and the risk of a workplace disaster that might damage their reputations, Pietra Rivoli, a professor at Georgetown University’s McDonough School of Business, said in a phone interview.
The Gap is working with its suppliers and government officials to improve safety, according to Debbie Mesloh, a spokeswoman for the San Francisco-based retailer.
“When you have a brand name like Disney or Gap, they really need to protect the value of the brand, and one way to do that is to distance themselves from things like what happened in Bangladesh,” Rivoli said.