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“The Low Price” of the textile discounter KiK – consequences for labour conditions in textile factories in Bangladesh: Difference between revisions
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“The Low Price” of the textile discounter KiK – consequences for labour conditions in textile factories in Bangladesh (view source)
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In chapter 2 I have already mentioned the “Agreement on Textiles and Clothing” (ATC) of the World Trade Organisation that phased out in 2005. After this phase-out a hard competition between Bangladesh and the former restricted countries like China and India began with the consequence for Bangladesh – which is very depending on export of clothing – that price reductions started which were to be paid by the garment workers in the end. “The poor countries, competing to retain their clothing industry, try to offer the lowest wages.”<ref name="A" /> | In chapter 2 I have already mentioned the “Agreement on Textiles and Clothing” (ATC) of the World Trade Organisation that phased out in 2005. After this phase-out a hard competition between Bangladesh and the former restricted countries like China and India began with the consequence for Bangladesh – which is very depending on export of clothing – that price reductions started which were to be paid by the garment workers in the end. “The poor countries, competing to retain their clothing industry, try to offer the lowest wages.”<ref name="A" /> | ||
Figure 1 is adapted from the brochure of the “Clean Clothes Campaign”. It is necessary now to give a short presentation of the “Clean Clothes Campaign” because it offers important information in its brochure that is used as one of the key literature in this case study. The key aim of the “Clean Clothes Campaign” is to improve the working conditions in the global garment industry, especially in less developed countries. This campaign is widely supported by many NGOs and labour unions.<ref>Profile of Clean Clothes Campaign: http://www.saubere-kleidung.de/ccc-60_wir/ccc-60_wir-ueberblick.html (View: 28.2.2011).</ref> The figure shows of which price components a T-shirt price is made up. “Wages only account for 0.5-1 percent of the ultimate selling price of the product”.<ref name="A" /> The large portion of the price is gained outside Bangladesh in Western industrial nations like Germany. Only the factory and wage costs remain in the Bangladeshi economy. A huge amount of the later price is spend for marketing activities and the rest, about 50 percent is used to cover costs of the retailer and to gain some profit.<ref name="A" /> <br> | Figure 1 is adapted from the brochure of the “Clean Clothes Campaign”. It is necessary now to give a short presentation of the “Clean Clothes Campaign” because it offers important information in its brochure that is used as one of the key literature in this case study. The key aim of the “Clean Clothes Campaign” is to improve the working conditions in the global garment industry, especially in less developed countries. This campaign is widely supported by many NGOs and labour unions.<ref>Profile of Clean Clothes Campaign: http://www.saubere-kleidung.de/ccc-60_wir/ccc-60_wir-ueberblick.html (View: 28.2.2011).</ref> The figure shows of which price components a T-shirt price is made up. “Wages only account for 0.5-1 percent of the ultimate selling price of the product”.<ref name="A" /> The large portion of the price is gained outside Bangladesh in Western industrial nations like Germany. Only the factory and wage costs remain in the Bangladeshi economy. A huge amount of the later price is spend for marketing activities and the rest, about 50 percent is used to cover costs of the retailer and to gain some profit.<ref name="A" /> <br> | ||
[[ | [[Image:T-shirt price components.jpg]] | ||
This figure is adapted from the brochure of the “Clean Clothes Campaign”.<ref name="A" /> | |||
To make it easier to understand I like to give a concrete example. If we think about 1% wage costs for a normal T-shirt that is sold to us for 20 Euro, only 20 Cent of the price belongs to wage costs. I think this is remarkable information, because it should be easy to increase the wages without any massive price explosions. I even risk saying that nobody of the customers would recognize the effect of raised wages. The problem is that the discounters only think in large scales. If they want to launch an order to a factory owner in Bangladesh they compare the complete price for their order. It is a highly competitive process in which only the quickest and cheapest supplier wins. How the factory owner manages to produce the ordered amount of clothes is not important for the discounter. This lies in the responsibility of the Bangladeshi factory owner. He himself also wants to gain profit and therefore reduces his costs, especially the wages of his workers. It is all a downward spiral to satisfy the dictated low prices of the huge discounters.<br> | |||
===== <u>3.2.2 Three tendencies in purchasing practise</u> ===== | |||
The big discounters who have a huge market power use three main purchasing practises in their direct interaction with their suppliers from developing countries. These three tendencies are receiving their products “cheaper” and “quicker” and in addition are including the reduction of their own risk by applying “risk-shifting” methods. | |||
As said in the previous paragraph, prices are dictated. The producer in Bangladesh takes such small prices because otherwise he loses his order. Gisela Burkhardt, an expert for development politics, confirms that “suppliers are threatened with being removed from the lists, if they do not reduce the price.”<ref name="A" /> Although the costs of energy have risen, the prices for garment still decline. This is again only possible because the wage costs are reduced. | |||
The second practise method is the timely pressure that is put on the suppliers. The discounter demands quick production time. There are two main causes to name for this demand. On the one hand the fashion business today is changing very quickly. Collections in the past change only twice a year, but today there can be changes every month, that mean twelve times a year.<ref name="A" /> The discounter wants to be very flexible which implies that their store-houses should act only like a logistic-centre where in-coming products are reorganised and immediately delivered to the final stores. So at best case nothing stays long in the store-houses. This system is in fact very economic but needs a good working, dependable and especially quick supply chain. Today the internet offers the possibilities to launch an order for products that are produced on the other side of the world. Again the producers are under pressure to react quicker than their competitors. They do not have enough time to calculate thoroughly. They depend on the orders and therefore no order is much worse than a bad order for a low price. | |||
The last point is the risk-shifting procedure. It goes along with the need to be able to produce “Just-in-Time” when a powerful discounter launches an order. The owner of a factory in Bangladesh needs to purchase the materials, like yarn, buttons, zips and cloth for the production on his own risk before he gets a new order. The delivery times have shorted massively. A received order on Sunday has to get delivered by Wednesday.<ref name="A" /> “The company not only saves storage capacity, but also passes on all risks to the suppliers.”<ref name="A" /> The need to store materials for a future production which isn’t yet saved by a contract leads again to an enlargement of the dependency of the Bangladeshi supplier on the big discounter.<br> | |||
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