Please answer this question: Is Walt Disney\'s decision to stop purchases of mer
ID: 364340 • Letter: P
Question
Please answer this question: Is Walt Disney's decision to stop purchases of merchandise from Bangladesh an appropriate way of dealing with the problem? Assume you are a member of Disney’s top management team. What action would you take? Why?
In retrospect, the building collapse should not have prior to the collapse of the Rana Plaza building. In been a total surprise. Parts of the complex had been October 2012, The Gap announced a $22-million built on a pond filled with sand, making for an unsta fire and building safety plan with its suppliers in ble foundation. The entire building vibrated whenever Bangladesh, without identifying which factories it its diesel generator was working. The day before the was using there or how many factories would be im- collapse. visible cracks had appeared in the building. proved under the plan. In early April, in response to promoting some workers to run out. Both the local the factory fire the prior November that had killed police and the Bangladesh Garment Manufacturers 112, Wal-Mart pledged $1,8 million to train 2,000 and Exporters Association warned Sohel Rana that Bangladesh factory managers about fire safety the building was unsafe. Rana disagreed, and the com- Crities noted that these commitments represented a CASE BANGLADESH the building when it collapsed. Both died. Some sur zations estimated that it would cost some $3 billion w ors stated that their employees had pressured them to make the needed fire safety and building improve- to turn up for work as usual on Wednesday, the day ments to ensure that Bangladesh's 5,000 garment of the incident. After the collapse Sohel Rana fled. He factories were safe. four days later on t safter the building c ier d THE GARMENT INDUSTro l building in The death toll from the factory collapse was ini- retaier H&M;, Inditex, the owner of the Zara chain, tially pegged at 250, but over the following days and and Tesco-signed a legally binding agreement de- weeks it kept increasing. By mid-May it was clear that signed to improve safety conditions in Bangladesh's 1.100 people had died in the collapse, making garment factories Under the S.year agreement, the it the second-worst industrial disaster in the history signatories agreed not to hire manufacturers whose of South Asia, after the infamous Bhopal disaster factories fail to meet safety standards and committed in 1984. The Bangladesh government stated that it to help pay for necessary repairs and renovations Sig- h collapsed, killing over l of them workers in one of the five garment factories that occupied six floors of the building. This was not the first high-profile accident in the Bangladesh gar Bangladesh, one of the worlds poorest countries, has ver heavily upon e ts of textile prod had killed 112 garment workers Just days after the ucts to generate income, employment, and economic building collapse, a fire in another garment factory growth. Most of these exports are low-cost, finished killed eight people. The spate of accidents led to calls garments sokd to a wide range of retailers in the West for Western clothing retailers to do more to improve such as Wal-Mart, The Gap, H&M;, and Zara. For pay in the building collapse. f up to 5,000 factories on results being made public. The g bor will cost cach company other poor nations from which they source prouc quota system for textile exports that gave it, and other tion. Some interest groups went further, arguing that poor countries, preferential access to rich markets tion from countries where working conditions were so On January 1,2005, that system was scrapped in fawor bad. One prominent Westen company, Walt Disney, of one based on free-trade principles. From 2005 on, had already made this decision. In March 2013, Disney exporters in Bangladesh would have to compete for The building collapse prompted soul searching on the part of Western retailers over the S-year period of the agreement. S retailers, including Wal s against producers from other nations suchrom Bangladesh. Critics were quick to point out Gap Inc, Sears, and JC Penny, did not initially sign ha desires to drive prices down may have contrib- the pact. Gap Inc. stated that it would not sign the uted to the situation in Bangladesh, Factory owners pact because the language makes it legaly binding might bid low to get business from Western compa in US. courts. Instead it put forward an amendment nies While these factories might meet the standards calling for retailers to be publically expelled from the removed Bangladesh from the list of countries where it authorized partners to produce clothing and other as China and Indonesia. Many analysts foresaw the lo the Disney announcement with dismay. They arguod predicted a sharp jump in unemployment, a decline that the economy of Bangladesh was very dependent in the country's balance of payments accounts, and a upon the garment industry, and that "the whole n egative impact on economic growth. tion should not be made to suffer" because of these The s x- is commonplace for them to outsource production to Mart declined to comment on why it did not sign ports of textiles continued to grow, even as the rest shadow economy of subcontractors where regula- but stated that it will continue to work with industru tions are routinely ignored and workers are paid less groups, suppliers, and the Bangladesh government than the legal minimum wage. Indoed, this is how they o come up with an appropriate resolution for this Bangladesh's exports of garments rose to around supply chains would be decimated unless they had an make a profit. That being said, all of the factories op- matter and develop broad based solutions" Wal- $20 billion in 2012, up from $8.9 billion in 2006, menative source of supply. Thus, Bangladesh has erating in the Rana Plaza seem to have been among Mart, which has had a sourcing office in Baneladesh of the world plunged into an economic crisis in 2008. ing it the larpest export industry in the country and benefited from the trend by Western importers to i he country's 1,500 or so regular exporters sources Some Western companies had already taken importers from the country, has long resisted legally textile industry in Bangladesh comprised some 5,000wd's largest exporter of garments Bangladesh steps to improve working conditions in Bangladesh binding agreements For its part, the government of ing fast, suggesting that the trend to shift textile pro- duction away 3 million people 85% of whom were women with few from China may continue Bangladcsh stated that it would raise the minimum Buking. TheEomowist Apnil 25, 2013 Rags in the Riins recession took hold in de- Bangladesh, however, does have disadvantages: age for garment workers in the country and tighten veloped nations during 2008-2009, major impr most notable are constant disruptions in electricity building and fire regulations ers such as Wal-Mart increased their purchases of because the government has underinvested in power low-cost garments from Bangladesh to better serve generation and distribution infrastructure Roads and their customers, who were looking for kow prices ports are also inferior to those found in China Li& Fung.a Hong Kong ing and apparel manufacturing, saw its production in sch as Bangladesh has been driven by intense com- Bangladesh Jump 25% in 2009, while production in petition among Western clothing retailers US con- Learning to Offer More Than Just Low Wages N Yok Tme December 14, 2004 p CI: V Baja"As Labor Costs Risc in China Textile Jobs Shift Elsewho," New Yok Times July 17, 2010, pp l. 3; S·Greenhouse." Bangladesh Fears Exodus of Apparel Firms Sos S Banjo, Promies in Bangladesh. The Wal Svt New Yok Tines, May 2. 2013:SGreenhouse. "Major Retailers Bradsher, "Jobs Vanish as Exports Join Bangladesh Safety Plas. Ner Yok TimesMay 13, 2013 A Fall in Asia," New ork ws January 22 2009, p 8l: Kaittin merman and N Shah "American Tastes ael Boom in Bangla company that handles so The demand for garments from low-cost sources May 14, 2013; K Pretly. The Ent July 18, 2008, p4. he New Collapsing desh."Walf Stes oaurnal, May 13,2013 t supplier, slid 5%. Bangladesh's advantage is based on a number of factors. First, labor costs are low, in part due to low hourly wage rates and in part due to investments by spending relatively little on clothing. In 2012. US consumers devoted just 3% of their annual spending to clothing and footwear, compared to around 7% in nology during the past decade. The minimum wage clothing is that real prices have fallen significantly rate in Bangladesh is currently S38 a month, com-overthe last two decades. Since 1990, clothing prices pared to a minimum wage in China of SI 38 a month. in the United States have risen by just loo in nomi- Wage rates in the textile industry are about $50 to $60 nal terms, compared to an 82% jump in nominal food a month, less than a fifth of the going rate in China. prices during the same period. Adjusted for price in- Textile workers may have to work 12-hour shifts and ation, clothing prices have fallen. The sluggish US can work 7 days a weck during busy periods While conomy and stagnant wage growth have incrcasod the pay rate is dismally kow by Western standards, in pressure on clothing retailers by capping consumers a country where the gross national income per capita disposable income. At the same time, the desire to is only 5850 a year the pay is better than that available shop for fashionable new outfits remains strong. The in many other unskilled and low-skilled occupations. result has been strong price competition among retail Second, there are few regulations in Bangladesh, apparel chains and as one foreign buyer says whatsoever that cannot be bent."The lack of effeo- tive regulations keeps costs down. Another advge FACTORY COLLAPSE for is that it has an of that supply inputs to it garment manufacturers Some three-quarters of allThe building that collapsed on April 24 was an eight inputs are made locally. This saves garment story complex, the Rana Plaza, named after its owner. facturers transport and storage costs, import duties Sohel Rana, a local politician and member of the rul- and the long lead times that come with the imported ing political party. The builders of the Rana Plaza woven fabrics used to make shirts and trousers only had approval for the construction of a f Bangladesh also has the advantage of being an al trcture, but in Bangladesh rules can be bent, so the ternative to China, Many importers in the Wes vbuilders added three extra floors Five garment fac- tories China for imports of specifie goods, fearing that if of the collapse, it is estimated that they were making there was a disruption, cconomic or otherwise, thei clothes for some 30 Western apparel brandsExplanation / Answer
The Rana Plaza case is a horrific incident which occured in Bangladesh in 2013. Around 38 people were killed due to the collapse of the garment manufacturing facility which lacked basic standards that the building should have had.
It is important to understand Bangladesh's economy to understand what to do in the given situation. Bangladesh has a $30+ bn dollar textile industry primarily due to the free access it has given to the Western Markets. The extremely low wage costs in Bangladesh make it very lucrative for multinationals to set shop in Bangladesh.
As for Walt Disney, stopping purchases of merchandising is just a quick fix. This might temporarily give the organization a respite in the sense that they will feel there are no human right's violations happening because of them, but if they look at it in the long run, this is not going to work.
In any industry, competitive pricing is key, and for this, it is necessary to optimise costs. You are not going to succeed if you keep your raw material cost high and bank only on quality for the customer. Especially in the merchandising industry. If I were the top management, I would ensure that the suppliers have a rigorous HSE (Health, Safety and Environment) standard. Regular audits would have to be conducted by a third party and by the parent organization itself. Violation of any sort can immediately result in cancelling contracts/purchase orders. Apple has strict norms with all of its suppliers. A similar route should be followed for all of Walt Disney's suppliers.
While I would ensure thers is strict protocol in terms of HSE, I would also ensure that the suppliers are paid in time and credit periods are not over-utilised so that the workers/labourers get their wages in time. A lot of discomfort happens when big organizations exploit small suppliers.
Hence, as a part of the leadership team, instead of stopping the purchase of merchandises from Bangladesh, I would lay out strict quality and HSE standards and ensure the suppliers are given appropriate business volumes for a profitable run.