By Ian Cummins, Ron French and Soumik Sen
Following the April 2013 garment factory disaster in Bangladesh that killed over 1,200 workers, the International Labor Organization (ILO) brokered an Accord on Fire and Building Safety that has been signed by over 170 international retailers and brands, as well as prominent trade unions [i]. The Agreement will implement reasonable health and safety measures in the ready-made garment industry, monitored by independent inspectors, over a five-year period.
The signature of one retailer was conspicuously absent from this ambitious agreement: Walmart. The retail giant has also refused to contribute to an ILO compensation fund created to help the victims of the tragedy [ii]. Instead, the retail giant announced in 2013 that it was joining the Alliance for Bangladesh Worker Safety, along with 25 other North American retailers [iii].
Despite its stated commitment to ethical sourcing, Walmart’s refusal to join a multilateral initiative with government and not-for-profit partners speaks volumes about the company’s lack of commitment towards the communities where it sources goods. The ILO Accord was intended to affirm that retailers, suppliers, governments, trade unions and civil society groups have a joint obligation to create safe working conditions for all garment workers. By opting instead for a business-led initiative, Walmart has signaled that it views itself as being accountable only to its shareholders and consumers.
Underlying these decisions is Walmart’s desire to preserve its ability to source goods at the lowest cost possible and to provide consumers with Everyday Low Prices (EDLP). While the company has committed to ensuring its suppliers in Bangladesh meet basic safety conditions, it has made no commitments to a long-term sourcing relationship with the country’s garment industry. If efforts to improve working conditions increase costs for suppliers, Walmart’s history of prioritizing cost suggests the company would simply shift production to the next low cost destination.
Indeed, the growth of Bangladesh’s large garment industry has been fuelled by the increased costs of producing goods in Southern China, which has been partly driven by worker demands for higher salaries and better working conditions [iv]. A 2013 survey of Chief Purchasing Officers (CPOs) for 29 apparel retailers revealed that 77% were planning to reduce their share of goods sourced from China [v]. The CPOs cited rising labour expenses as the main driver of their increased sourcing costs, particularly in China where labour costs are estimated to be growing roughly 20% per year [vi].
Granted, this survey also reveals that Walmart is not alone in basing its sourcing decisions primarily on cost. However, given its size, scale and powerful leverage over suppliers, Walmart has a unique capacity to play a leadership role with respect to ethical sourcing, a reality acknowledged by CEO Doug McMillon in the company’s most recent Global Sustainability Reportvii. Walmart could use its supplier leverage to help bring about meaningful improvements for Bangladeshi workers simply by committing not to exit the country as it is taking concrete steps to strengthen working conditions. Sadly, by not signing the ILO Accord, the company has sent its suppliers and workers a clear signal that it is not willing to make any direct commitments to Bangladeshi governments, labour unions or civil groups.
There may be consequences for Bangladeshi workers sooner rather than later. Following the garment factory tragedy, the Bangladeshi government took steps to raise the monthly minimum wage for garment workers by 77% (approximately $68) [viii]. This type of policy change should be welcomed as it creates a level playing field for workers, suppliers and retailers without seriously affecting the country’s low cost advantage relative to other middle to high-income countries. However, this type of change will more likely push Walmart to begin its search for the next low-cost destination for sourcing goods. Indeed, there are signals this process may already be underway.
In 2012, Walmart increased its presence in Africa through the acquisition of South African retailer Massmart [ix]. The company’s expansion plans for the continent include countries that offer significantly worse legal protections for workers than either China or Bangladesh. For example, Nigeria, cited by Walmart as a “priority market”, has been rated by the International Trade Union Confederation as one of the world’s worst places for workers [x][xi]. The country also scores among the worst countries in the world on indexes measuring democracy, human rights protection and corruption [xii]. While it remains to be seen whether sub-Saharan African countries will ever replace Bangladesh or China as global sourcing destinations, the simple fact that Walmart has prioritized growth in a country like Nigeria where there is a risk of even greater abuses demonstrates that ethical sourcing considerations remain marginal when the company is making business decisions.
The signatures of over 170 retailers and brands on the ILO Accord suggest there are companies that disagree with Walmart’s approach. These companies may be betting that building longer term partnerships with suppliers, governments, trade unions and civil society groups in order to collectively improve working conditions will pay dividends by increasing productivity, building a loyal customer bases in emerging markets and reducing the risk of future tragedies that have given discount retailers such a bad image. Given Walmart International’s poor performance recently, it might be time for the company to reconsider its approach [xiii].
i Accord on Fire and Building Safety in Bangladesh. http://bangladeshaccord.org/ (Accessed October 31, 2014).
ii “U.S. Retailers Decline to Aid Factory Victims in Bangladesh.” New York Times. Nov 22, 2103. http://www.nytimes.com/2013/11/23/business/international/us-retailers-decline-to-aid-factory-victims-in- bangladesh.html?pagewanted=all&_r=0
iii Alliance for Bangladesh Worker Safety. http://www.bangladeshworkersafety.org/. (Accessed October 31, 2014).
iv “Exporters Leave China But Find Rising Costs Elsewhere.” Bloomberg Businessweek. January 9, 2014. http://www.businessweek.com/articles/2014-01-09/exporters-leave-china-but-find-rising-costs-elsewhere
v McKinsey and Company. “The Global Sourcing Map – Balancing Cost, Compliance and Capacity.” October 2013. Pg 3
vi Ibid. Pgs 2-3.
vii Walmart. 2014 Global Responsibility Report. Pg 3.
viii “Bangladesh Raises Minimum Wage for Garment Workers After Unrest.” Bloomberg. November 14, 2013. http://www.bloomberg.com/news/2013-11-13/bangladesh-garment-factories-to-stay-shut-amid-worker- protests.html .
ix Walmart acquired a majority stake in Massmart Holdings Ltd. in 2011. Massmart operates more than 350 stores in South Africa and 11 other sub-Saharan countries. See: http://corporate.walmart.com/our-story/our- business/international/africa.
x As a condition for approving the acquisition, the South African government required Walmart to contribute to a fund to help local suppliers adjust to Walmart’s new sourcing requirements. The court that approved the acquisition lowered the amount of the fund, arguing that integrating local African suppliers into Walmart’s supply chain was a more critical policy objective. See: “Walmart-Massmart Commercializes the Local Supply Chain.” Consultancy Africa Intelligence. http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=1244:walmart- massmart-commercialises-the-local-supply-chain-a-step-in-the-right-direction-&catid=82:african-industry-a- business&Itemid=266.
xi International Trade Union Confederation. “2014 ITUC Global Rights Index: The World’s Worst Countries for Workers.” http://www.ituc-csi.org/IMG/pdf/survey_ra_2014_eng_v2.pdf. Pgs 38-39
xii International Human Rights Rank Indicator. http://www.ihrri.com/index.php?iso=NG
xiii “Why Walmart is Failing in Emerging Markets.” The Motley Fool. http://www.fool.com/investing/general/2014/04/28/why-is-wal-mart-failing-in-emerging-markets.aspx.
Photo Credit: James Strock, Serve to Lead.
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