Who cares, really?

 Published in: The Financial Express on November 6, 2013
Who cares, really?

As I sit down to write this article, there are reports on widespread violence in areas like Mirpur and Gazipur. A frantic phone call from one of our factory managers was enough to put the fear of air shipment or possible discounts in me. That the industry may actually be going through the toughest times possible does not seem to considerably cause a stir these days.

The quickest pass-the-buck syndrome has gripped the society and when it comes to deviations from norms, it’s the easiest to point a finger at the manufacturers and have heated discussion on TV late night or write a column or two on how nothing has taken a positive turn in the sector. An emerging economy may have shortsighted manufacturing community that may ignore the issues related to labour. But does the responsibility begin and end with only the manufacturers? Is there someone who cares enough, really?

A minimum wage hike has been announced. The raise seems to be reasonable and the RMG industry should be able to cope with the increase. But how are the customers feeling? I can share with readers at least eight mails sitting in my mailbox saying that we are more than 30 cents higher than China or India in lingerie. I can also share at least five that have come in the last hour that says that our cost of manufacturing (CM) is too high, our consumption is too much, and that we could do with lesser CM. Where are the manufacturers going to go?

In principle, most of the retailers and brands have assured the world that they are prepared to pay more to the factories in Bangladesh. One of the leading brands has actually gone ahead and asked for a minimum wage review in Cambodia last week. Now that spells of good news for even Bangladesh. But how and from when are our customers going to pay the up charge?

Ground reality is this that we are all fighting our grounds in all fronts. If it’s the buyers, most of the manufacturers have already engaged in negotiations and have indicated to the customers that there “will” be a wage increase that will possibly impact the price level from anywhere in between 25% and 40% of the FOB value. Customers have not said ‘no’ to this, but many have even pledged bearing the up charge. However, there are grey areas to be cleared:

1) From when will the customers absorb the increase?

2) Will they absorb it fully?

The minimum wage review board has announced the proposed hike. BGMEA has rejected and last but not the least, the workers have taken to streets in a few areas of Dhaka already. If the wage takes effect anytime before March 2014, the RMG community will face major impediment as there is no way any factory in Bangladesh can pay the up charge without being paid by the customers.

As for the both the questions, many of us have received mixed messages from our clients. Some have agreed to absorb minimum wage increase from the date that it will be implemented; some have asked manufactures to share the increase; some have refused to look dates and have just said: “You can calculate the extra into your next orders.” The riskiest response is the third one.

Let me try and explain a little bit more:

Paying extra wage for work by December 7 for being done in factories in November would mean that the factory has to bear the extra cost from the proceeds of the goods produced and shipped from mid September. Factories working on TT (telegraphic transfers) generally receive the proceeds 45 days from the date of the bill of lading. This brings us to the first question: from when will the customers start paying the increase? Answer: even if they agree to pay from November 01st or whichever date the increase comes into effect, the goods produced in end November will all be paid for mid January. What then happens to the manufacturer who has to pay the extra salaries for two whole months, i.e November and December? If a factory has only four lines and has 500 workers and has a total wage of around 3.0 million taka a month, they will be incurring an increase of at least 80% in general on their total costs. How and from where is the factory expected to pay this? As per the industry cycle, most of us are taking orders in for next March, which will all be paid for by mid-May. In reality, none of us are going to get any extra payment for any wage hike till May of 2014. Then who is going to bear the brunt of the wage hike till then?

How does the globe look right now? Are the customers going to buy less? No. According to official figures from the US Department of Commerce’s Office of Textiles and Apparel (OTEXA), textile and apparel imports rose 7.0% year-on-year to 5.39bn square metre equivalents (SME). While Chinese shipments to the US were unchanged in July, it rose to 5.5% in last August to 1.17bn SME. And while Vietnam experienced growth of 14.3% to 217m SME, Bangladesh saw gains of 16.0% to 161m SME. So, in brief…the world is buying more.

Additionally, according to the Retail Consumer Survey in May 2013, 44% of the consumers don’t care about where their clothes were made. Does this mean that all’s well with the world? No. Whether or not the consumer cares about the “made-in” label, the responsibility of responsible manufacturing is on our shoulders. Whether the global apparel imports soar or not, manufacturers cannot take the market for granted. For the brands and the retailers, they need to be safe and for us, we need to be compliant as there are rewards that come with good practices. As per the World Bank 2012 report, the return on investment for compliant factories is 2:58 and for non-compliant factories 1:94.

In short, the manufacturing reality in the world is fast changing. In Cambodia, the ‘KamakoChhnoeum Project’ (The outstanding worker project) under the Better Factories program in Cambodia has received 3245 valid phone calls from the workers sharing their grievances. This is Cambodia’s challenge. For India, the recent fire that killed six in New Delhi at a garment factory situated in New Ranjeet Nagar attracted negative press. To top them all, Bangladesh is being routinely covered in the most negative perspective as possible.

I appeal to the civil society and academics to kindly extend your hand and do all that you can to help us address our issues relating to labour and not simply table protests, which will endanger the economy, specially at a time when election related unrest and violence is already plaguing our regular lives. Airfreights and discounts kill the sector. If there are any further unrests potentially jeopardising production at this point of time, and if we are not able to help save the industry today, someone has to take the blame of a failed economy in the years to come.