Wednesday, January 8, 2014

Time to reassess retail supply chain’s dependence on low labor costs

To go along with my 2014 theme and encouragement of thinking outside of the box,  below is a preview of Friday's brief for our APAC e-newsletter. The retail supply chain has long been dependent on low-wage labor however with incidents in Bangladesh and Cambodia, I challenge big brands to creatively rethink their supply chains to help prevent such occurences in Bangladesh and Cambodia from occurring in not only these countries but elsewhere.

Bangladesh garment factories have dominated the press in regards to poor working conditions and low wages however it seems Cambodia is now in the spotlight as Cambodian factory workers seek to obtain a raise in minimum wage to $160 per month.

According to the Wall Street Journal, factory workers decided to strike as a protest against the government's offer in December to raise the industry minimum wage 19% to $95 a month, starting in April. Workers then refused a second offer made by officials, a 25% increase to $100 a month, starting in February and continued with its ten day strike. 

A government ultimatum for workers to return to work by January 2 was ignored and as such on January 3rd, protesters reportedly hurled rocks, bottles and Molotov cocktails at police which resulted in government troops opening fire on striking garment workers, killing at least four.

Since then, and as of Tuesday, January 7, about 65%-70% of workers had returned to factories according to the country’s garment association.

The garment and footwear industry is Cambodia’s biggest export commodity, representing, according to some estimates, 80% of the country’s total exports. According to the country’s commerce ministry, for the first 11 months of 2013, the garment industry earned over $5.0bn an increase of 22% compared to same period in 2012. 

Employing an estimated 600,000 people in over 800 factories, the garment and footwear industry has suffered a negative financial impact due to the many factory closures because of this strike. In fact, the country’s garment association estimates that the strike has cost Cambodia's garment industry about $200m in lost revenue, and that orders may decline 20%-30% in 2014.

This latest episode relating to low-cost manufacturing continues to highlight the need for responsible supply chain management. In an open letter to the government, factories and union, international brands such as the Gap, Adidas, H&M and Inditex noted they had "observed both the widespread civil unrest and the government's use of deadly force" with "great concern." Perhaps instead of just “observing” it is now time to take action and reconsider supply chains that are based simply on low labor costs.

*data expressed in US dollars