June 6 (Bloomberg) -- In Bangladesh, the difference between a safe factory and an unsafe one comes down to a few cents.
For just pennies per t-shirt or pair of trousers produced, garment manufacturers could build factories where workers get a decent wage, maternity leave, and overtime, where chemicals and fumes are properly vented, and where hallways and fire exits are well lit and wide enough for everyone inside to flee any danger.
Tipu Munshi can explain how. The member of parliament and millionaire owner of Sepal Group, one of the country’s biggest garment manufacturers, charges $1.16 to sew a pair of jeans for Asda, the U.K. subsidiary of Wal-Mart Stores Inc.
He could make clothing for less and often does, but right now, for a pair of 14-pound ($22) George jeans, he’s charging a Hong Kong-based middleman, Li & Fung Ltd., 90 cents plus 26 cents of profit. Anything less, he cautions, and he would have to start cutting corners and compromise worker safety.
“You let us earn those few cents, and nobody in Bangladesh has to die while making basic, five-pocket jeans,” Munshi said as he juggled phone calls in his second-floor office in downtown Dhaka. “What is 15, 20 cents to a foreigner? Nothing.”
While organizations such as the Worker Rights Consortium, a watchdog group in Washington, have estimated the cost of running a safe factory, the figure of 90 cents per pair of jeans is based on precise and private pricing data from leading Bangladesh garment makers. That means the labor and factory cost -- the only thing Bangladesh manufacturers can negotiate -- represents just 4 percent of the price consumers pay for jeans.
It corroborates earlier predictions: Raising the billions of dollars needed to improve safety in Bangladesh’s factories would entail a per-garment cost roughly equivalent to New York’s subway fare in the 1960s.
To see how a few pennies in a $22 pair of jeans can help avoid another Rana Plaza -- the eight-story building that collapsed in April, killing 1,127 people -- it’s important to understand Bangladesh’s role in a supply chain that rings the globe. In the last two decades, most of the process has been automated. After designers in Europe and the U.S. dream up the latest fashions, precise patterns are instantly zapped to Asian factories via the Internet. Computer-driven lasers cut the fabric, using every inch possible.
GPS-guided ships carry containers stuffed with cartons of clothing to ports like Liverpool, Los Angeles and Hamburg, where they’re sorted according to bar codes and placed on fleets of trucks. They’re transferred to warehouses, then stores, where tags on garments are scanned and the clothing is prepared for display.
There’s just one step that hasn’t changed much in the past two centuries: the part where a worker leans over a sewing machine and stitches the fabric together. That’s where Bangladesh, and Tipu Munshi come in.
Munshi’s brightly lit factories have multiple fire exits, open spaces between production lines, and huge ventilation fans. Foreign dignitaries, including three U.S. Congressmen in January, have visited his facilities while on tours of Dhaka garment factories with a reputation for safety and known for paying workers more than the government-mandated minimum wage of $37 a month for garment workers.
Every hour a line of workers, mostly young women, can produce about 100 jeans. Those at the front of the line cut up pieces of denim and pass them on to others who sew the legs together, attach the zippers, and stitch on the pockets. The cost of running one of those lines -- including worker pay, manager salaries, safety features, real estate cost, even soap in the bathrooms -- is $90 per hour, according to Munshi. So he figures it costs him 90 cents per pair of jeans to run his factory.
Almost all the other expenses of making jeans are fixed, whether it’s done in China, Vietnam, or Oklahoma (a company called Round House produces them in Shawnee, outside of Oklahoma City). But a Bangladeshi seamstress earns less than $50 a month, versus $235 in China, $100 in Vietnam, and $1,440 in Oklahoma, according to World Bank and U.S. Census data. The difference in labor costs is why 7 billion garments a year flow out of Bangladesh.
That added up to $18 billion in exports last year for the impoverished, crowded country. And it has spawned some 5,000 factories, mostly in or near the steamy, traffic-choked capital, Dhaka. Those factories all compete with Munshi.
Some analysts caution that a few extra pennies per garment may not mean much to consumers, but it can be serious money for merchants. Orders for jeans, for instance, typically come in multiple lots of 100,000. So a dime for each pair would mean an extra $10,000 per lot, or $100,000 for an order of a million garments, which isn’t unusual.
Retailers “are not going to just offer to pay more without some kind of pay-back, seeing an end result, because unfortunately we live in a commercial world,” said Maureen Hinton, an analyst at Verdict Research in London. “It doesn’t sound like much, but it’s always more complicated than it appears. If retailers pay extra, will it improve working conditions and safety standards?”
Twenty-five retailers including Hennes & Mauritz AB and Inditex SA last month pledged at least $60 million over five years to monitor safety in Bangladesh factories. The Worker Rights Consortium estimates $3 billion is needed to get the buildings up to standard.
Munshi’s $1.16 in factory costs and profit are the only part of the equation he can negotiate, since the rest of the production costs him the same as his competitors: the zipper (15.5 cents), fabric ($3.69), four rivets (1.5 cents each), the button (5.7 cents), a hanger for display in stores (22.2 cents), a price tag bearing Asda’s logo (2 cents).
And yet every time Munshi sits down to negotiate with buyers, he says, they ask him to do it for less -- sometimes for as little as 50 cents or 60 cents for the $8 jeans sold by discounters.
“That is the danger zone,” Munshi said, scribbling out numbers to make his point. “I tell these retailers, I can’t do it for less, because it won’t be safe. And if I can’t do it, nobody can.”
Munshi’s daily dealings are usually with middlemen, in this case Li & Fung, the world’s largest supplier of clothing and toys to retailers. Li & Fung’s biggest customers include Wal-Mart and Target Corp.
Li & Fung’s Bangladesh subsidiary buys clothing and toys from about 150 factories employing 150,000 people, according to its website. Worldwide the company is known for bargaining hard, pushing down prices to keep its customers -- retailers -- happy, said Scott Nova, director of the Worker Rights Consortium.
“Li & Fung is only useful to Asda by reducing the final cost, and they do it by squeezing the producers,” said Nova. “This is something that happens every day at thousands of factories, and they do not take into consideration what it costs to make the product in a reasonable and safe manner.”
Li & Fung says suppliers benefit from working with the company because of its experience and global customer roster. The company demands garment manufacturers adhere to its workplace safety regulations, Li & Fung said in an e-mailed response to questions.
“Li & Fung has cultivated long-term relationships with many best-in-class suppliers,” the company said. The terms of its deals “make good business sense to all concerned - buyer, agent and supplier.”
Asda, which bought about 100 million garments from Bangladesh last year, trains its buyers to avoid contracts where the labor costs seem suspiciously low, the company said in an e-mailed statement. It has also helped train 17,500 workers in Bangladesh to increase efficiency and reduce absenteeism and labor turnover. In factories where the program has been implemented, wages have risen by 17 percent, Asda says.
Munshi says running a factory for less than 90 cents per pair of jeans would mean paying the women less than the $48 per month they earn, cutting into spending on safety measures, perhaps subcontracting work to smaller, more dangerous plants -- like the five that were in Rana Plaza.
Shapla Begum and Mehdedul Islam know those factories. The married couple worked at New Wave Bottoms, on the second floor of Rana Plaza. “That’s the worst factory I have ever seen,” the 20-year-old Shapla said from her bed in a Dhaka hospital. “I had to work 12-13 hours a day, sometimes until 3 a.m.”
She’d been there barely three months, earning about $50, plus overtime, when the building fell apart around her. Her husband was pinned under a table, inches from where a large concrete slab fell and shattered. Trapped for 72 hours, he was finally spotted by rescuers who passed him tools to hack his way out. “I was lucky,” said Islam, 26.
His wife was less fortunate. She was pulled from the wreckage with injuries to her left arm and right leg. In the hours after her rescue, doctors had to amputate the arm, and her leg has yet to heal.
New Wave Bottoms, and its parent company New Wave Styles in the same building, supplied U.S. retailers Cato Corp. and the Children’s Place. In other factories on other floors, workers stitched clothing for Spain’s Mango and British chains Primark, Bonmarche and Matalan. The owners and senior managers of New Wave Styles are awaiting trial and are not allowed to give interviews, according a Dhaka police official who declined to be named. The companies have no spokesmen, and Bloomberg News could not locate lawyers for them.
Conversations about pricing and safety should include the workers whose lives are affected, said Kalpona Akter, executive director of the Bangladesh Center for Worker Solidarity, a group that helps garment workers unionize. The government and factory owners target unions to reduce membership rolls and prevent organizing, she said.
Safety “negotiations are useless unless workers are involved as equal stakeholders,” she said after fielding a call from an angry factory owner blaming her for a strike in his factory. Her offices, on the ground floor of an apartment building in an alleyway, are plastered with posters of Aminul Islam, a labor leader and colleague who was kidnapped, tortured and murdered last year. “Workers are dying every day,” Akter said, “and these factory owners are talking about dollars and cents.”
Since the Rana Plaza collapse a month ago, garment industry workers have staged thousands of walkouts. And in the past month, flash strikes have forced partial or full closures of 200 factories, according to the Bangladesh Garment Manufacturer’s Association. The Industrial Police, a special force that deals with labor unrest, have fired rubber bullets and tear gas shells to disperse crowds of protesters such as the 50,000 who gathered in Ashulia on May 19. Since January, 33 all-day strikes have resulted in almost 200 deaths and at least 1,500 injuries, according to a tally published by Bangladeshi newspaper The Daily Star.
Is the cost of saving a Bangladeshi seamstress’s life really just a few cents? Nova, the director of the Worker Rights Consortium, came up with a similar answer. His math goes like this: assume that 5 percent of Bangladesh’s factories are irredeemable and should be demolished. The remaining 95 percent need to be repaired. It would run a maximum of $3 billion for the entire country, based on an analysis of the cost per square foot of making factories comply with U.S. safety standards by adding features such as sprinklers and fire escapes. The actual cost -- an average of $600,000 per factory -- would likely be lower because not all plants need every upgrade.
Cost of Safe
“It would cost even less to bring them to a few rungs below U.S. standards,” Nova said. “But even that would have a direct impact in the numbers of lives saved.”
Add a dime to each garment the country exports and you get $700 million a year to fix factories. Over four years, almost every sewing shop in Bangladesh could be made safer -- with retailers, consumers, middlemen and factory owners splitting the 10 cents per garment, Nova said.
David Hasanat, owner of Viyellatex Group, does the math in his head every day. His company, based just north of Dhaka, has revenues of $200 million a year and has worked mostly for up-market clients like Puma SE, Hugo Boss AG, DKNY, and Calvin Klein. He won an award for environmental sustainability from the Bangladesh Brand Forum and another from South Africa’s Woolworth’s for supplier excellence. He pays at least $75 a month, twice the government minimum wage, and runs a retirement fund where the company matches some employee contributions. Earlier this year, he jetted off to Boston to speak at Harvard University about his business.
At one factory, he recently spent more than $500,000 on a system that includes sprinklers and a computerized system that quickly guides employees trained in fire-fighting to a blaze, an extra step that’s not mandatory in Bangladesh. And yet, like Munshi, he faces constant pressure from buyers to lower his prices below the level at which he says he can run a safe factory.
“Buyers never consider that my company should get four or five cents more on each garment we make” to cover such costs, Hasanat said over coffee in a five-star hotel in Dhaka. “Instead, they are always saying, ’This is the target price, this is what other factories are offering us.’ But if you do that, where is my incentive to invest in safety?”
Hasanat’s engineers have determined that it costs him about 7 cents per worker per minute to run his factory. So a t-shirt that takes 10 minutes to finish has a labor and factory cost of 70 cents. He tacks on a 10 percent profit, so he needs to make 77 cents a shirt. “In many cases, we don’t get even this price,” he said. “We are one of the best factories, we pay a lot more than government minimums, all my investment in safety, and the customer isn’t happy with that.”
He makes compromises, asking for higher volumes on orders where buyers don’t allow him his profit margin. But, he cautions, there’s a limit. “I try and teach my customers -- every cheap product has a cost,” he said. “And Rana Plaza is the cost of cheap.”
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