“The Low Price” of the textile discounter KiK – consequences for labour conditions in textile factories in Bangladesh: Difference between revisions

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===== <u>3.2.1 How discounter determine the prices</u>  =====
===== <u>3.2.1 How discounter determine the prices</u>  =====


Why can discounter sell their products for such little prices? As you can read on the KiK homepage their basic business model is to order a big number of pieces from each product and deliver them with an intelligent logistic system to their stores. It is important to plan an attractive product-range and be flexible enough to order quickly new products when they have sold-out.<ref name="B" /> The production of demanded clothes needs to be a “Just-in-Time” production, because this system allows a maximum of flexibility and very little costs for storage.<ref>Globalisierung. Author: PD Dr. Norman Backhaus. Published by Prof. Dr. Rainer Duttmann, Prof. Dr. Rainer Glawion, Prof. Herbert Popp, Prof. Dr. Rita Schneider-Sliwa. Published in Westermann Bildungshaus Schulbuchverlage, Braunschweig 2009, page 167.</ref>  
Why can discounter sell their products for such little prices? As you can read on the KiK homepage their basic business model is to order a big number of pieces from each product and deliver them with an intelligent logistic system to their stores. It is important to plan an attractive product-range and be flexible enough to order quickly new products when they have sold-out.<ref name="B" /> The production of demanded clothes needs to be a “Just-in-Time” production, because this system allows a maximum of flexibility and very little costs for storage.<ref>Backhaus, N. (2009). Globalisierung. Published by Prof. Dr. Rainer Duttmann, Prof. Dr. Rainer Glawion, Prof. Herbert Popp, Prof. Dr. Rita Schneider-Sliwa. Braunschweig: Westermann Bildungshaus Schulbuchverlage, 167.</ref>  


The big volume orders have both advantages and disadvantages for the textile producers at Bangladesh. As an advantage you can name that the factories are working to full capacity. This is under the economic point of view a status that one should aspire. The workers have jobs and are paid. The problem is that such factories depend on only one huge client. If this client decides to search for a new producer the whole factory is without an order. That means the machines stand still and the workers are dismissed. The factory owner won’t have enough money to pay his bills like rental fee or electricity costs. If he doesn’t get a new order he will soon be bankrupt. So, the dependence to one client is a clear disadvantage for the producers. The big client uses his power to keep the prices down. “The largest discounters pay their suppliers up to 15-20 percent less for their goods than normal department stores (ActionAid, 2007, p. 16).”<ref name="A" /> The consequence of steadily decreasing prices is the decreasing of the already low wages of the garment workers. <br>  
The big volume orders have both advantages and disadvantages for the textile producers at Bangladesh. As an advantage you can name that the factories are working to full capacity. This is under the economic point of view a status that one should aspire. The workers have jobs and are paid. The problem is that such factories depend on only one huge client. If this client decides to search for a new producer the whole factory is without an order. That means the machines stand still and the workers are dismissed. The factory owner won’t have enough money to pay his bills like rental fee or electricity costs. If he doesn’t get a new order he will soon be bankrupt. So, the dependence to one client is a clear disadvantage for the producers. The big client uses his power to keep the prices down. “The largest discounters pay their suppliers up to 15-20 percent less for their goods than normal department stores (ActionAid, 2007, p. 16).”<ref name="A" /> The consequence of steadily decreasing prices is the decreasing of the already low wages of the garment workers. <br>  
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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. Retrieved February 28, 2011 from http://www.saubere-kleidung.de/ccc-60_wir/ccc-60_wir-ueberblick.html</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]]  
[[Image:T-shirt price components.jpg]]  
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==== 3.3 “Code of Conduct” by KiK – What does KiK to guarantee labour standards?  ====
==== 3.3 “Code of Conduct” by KiK – What does KiK to guarantee labour standards?  ====


Stefan Heinig, the CEO of KiK, points out: “At KiK, the social, ecological and economic added value is very important. This is why today, we take advantage of our strength and size to campaign for the principles of sustainability and to promote continuous improvement. In 2006, we established a strict code of conduct to which all our suppliers are committed. We consequently work on the implementation of the entailed demands. Even though it needs a lot of effort, patience and the ability to take occasional setbacks, our measures in regards to social responsibility serve as role models in the discount domain and help to impose standards.”<ref name="C">Published in CSR brochure of KIK, October 2010. Available from: http://www.kik-textilien.com/uploads/media/CSR-Broschuere_eng.pdf (View: 26.2.2011).</ref>  
Stefan Heinig, the CEO of KiK, points out: “At KiK, the social, ecological and economic added value is very important. This is why today, we take advantage of our strength and size to campaign for the principles of sustainability and to promote continuous improvement. In 2006, we established a strict code of conduct to which all our suppliers are committed. We consequently work on the implementation of the entailed demands. Even though it needs a lot of effort, patience and the ability to take occasional setbacks, our measures in regards to social responsibility serve as role models in the discount domain and help to impose standards.”<ref name="C">CSR brochure of KIK. (2010, October). Retrieved February 26, 2011 from http://www.kik-textilien.com/uploads/media/CSR-Broschuere_eng.pdf</ref>  


This statement is very important because KiK sets his own levelling board they must achieve or otherwise can get criticised for. As a next step it is necessary to take a closer look to the established code of conduct by KiK in 2006. The code of conduct describes social standards for all trading partners of KiK, including those in Bangladesh and China. “The regulations of the code of conduct contain all the usual conventions of the International Labour Organisation (ILO) for good working conditions. These include adhering to maximum working hours and paying a minimum wage as well as a safe and clean working environment, freedom of assembly and collective bargaining and the prohibition of child labour.”<ref name="C" />  
This statement is very important because KiK sets his own levelling board they must achieve or otherwise can get criticised for. As a next step it is necessary to take a closer look to the established code of conduct by KiK in 2006. The code of conduct describes social standards for all trading partners of KiK, including those in Bangladesh and China. “The regulations of the code of conduct contain all the usual conventions of the International Labour Organisation (ILO) for good working conditions. These include adhering to maximum working hours and paying a minimum wage as well as a safe and clean working environment, freedom of assembly and collective bargaining and the prohibition of child labour.”<ref name="C" />  
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This case study focuses on the globalisation issue in a concrete case. Globalisation leads to the opportunity to buy labour where ever you like for the cheapest price. Big discounter like the German garment discounter KiK use the new opportunities and let their garment products produced in Bangladesh. The Bangladeshi economy benefits from this but also falls in dependence because about 76% of their export-volume today is based on their textile industry. After the phase-out of the “Agreement on Textiles and Clothing” of the World Trade Organisation price-reductions take place to keep the client orders. The workers stand on the lowermost hierarchy level. They have to suffer directly from low prices and very short-term delivery promises.  
This case study focuses on the globalisation issue in a concrete case. Globalisation leads to the opportunity to buy labour where ever you like for the cheapest price. Big discounter like the German garment discounter KiK use the new opportunities and let their garment products produced in Bangladesh. The Bangladeshi economy benefits from this but also falls in dependence because about 76% of their export-volume today is based on their textile industry. After the phase-out of the “Agreement on Textiles and Clothing” of the World Trade Organisation price-reductions take place to keep the client orders. The workers stand on the lowermost hierarchy level. They have to suffer directly from low prices and very short-term delivery promises.  


The installation of code of conduct systems like the one of the KiK company is theoretically a very good idea. I think that these conducts would really help to improve working conditions in developing countries if they would be implemented in reality. The problem of the code of conduct is its voluntary form. The described schedule for an unannounced audit sounds good, but it can be and really is undermined. The research study in 2008 by Khorshed Alam shows that voluntary conducts aren’t useful. He was interviewed by the journalist Christoph Lütgert („Panorama -- die Reporter" of the TV-channel ARD<ref>ARD-exklusiv: Die KiK-Story: http://www.ardmediathek.de/ard/servlet/content/3517136?documentId=5063630 (View: 28.2.2011).</ref>) again in 2010 and he affirms his former statement that little has changed since the code of conduct has been proclaimed. Audits were made, but only at “good” factories or with well-prepared workers that were forced to say all is really nice in the factory. Sometimes auditors are even tricked.  
The installation of code of conduct systems like the one of the KiK company is theoretically a very good idea. I think that these conducts would really help to improve working conditions in developing countries if they would be implemented in reality. The problem of the code of conduct is its voluntary form. The described schedule for an unannounced audit sounds good, but it can be and really is undermined. The research study in 2008 by Khorshed Alam shows that voluntary conducts aren’t useful. He was interviewed by the journalist Christoph Lütgert („Panorama -- die Reporter" of the TV-channel ARD<ref>ARD-exklusiv: Die KiK-Story. (2010, August). Available from http://www.ardmediathek.de/ard/servlet/content/3517136?documentId=5063630</ref>) again in 2010 and he affirms his former statement that little has changed since the code of conduct has been proclaimed. Audits were made, but only at “good” factories or with well-prepared workers that were forced to say all is really nice in the factory. Sometimes auditors are even tricked.  


I do support the idea of installation code of conducts but in my opinion it isn’t enough to delegate such inspections once or twice a year to an audit-team that visits some factories. I think a huge company like KiK should have a special and direct interest in social responsibility. They can actively do something for the workers at their supplier factories if they do stress in their contracts that they are willing to pay a higher, “fair” price if the supplier is willing to pay more wage to his workers and strictly follow the rules of the code of conduct. The payment and working conditions need to be controlled permanently by a changing group of KiK management members who stays directly in the Bangladeshi factory. In such a control system it is in fact impossible to present a “show” for one day. The everyday control will lead to the rise of a new feeling of security around the workers. The problem of corruption is avoided by a steadily rotation of controllers. In addition the discounter should conclude a long-term contract with its supplier, so that the job safety can be guaranteed.<br> <br>It would be really good if such big discounters like KiK with their market power decide to follow my propositions but I indeed take a very gloomy view of that. The consequence out of that must be the installation of governmental rules for worldwide trade and production. The government or worldwide organisations like the WTO, the EU or the USA should agree on strict rules for labour conditions and invent an independent powerful audition system. If the biggest industrial nations agree upon these rules of labour conditions they can link their import on the adherence of these rules. In this case the developing countries and their clients would have a direct stimulus to achieve the required aims because otherwise they cannot export or import anything.  
I do support the idea of installation code of conducts but in my opinion it isn’t enough to delegate such inspections once or twice a year to an audit-team that visits some factories. I think a huge company like KiK should have a special and direct interest in social responsibility. They can actively do something for the workers at their supplier factories if they do stress in their contracts that they are willing to pay a higher, “fair” price if the supplier is willing to pay more wage to his workers and strictly follow the rules of the code of conduct. The payment and working conditions need to be controlled permanently by a changing group of KiK management members who stays directly in the Bangladeshi factory. In such a control system it is in fact impossible to present a “show” for one day. The everyday control will lead to the rise of a new feeling of security around the workers. The problem of corruption is avoided by a steadily rotation of controllers. In addition the discounter should conclude a long-term contract with its supplier, so that the job safety can be guaranteed.<br> <br>It would be really good if such big discounters like KiK with their market power decide to follow my propositions but I indeed take a very gloomy view of that. The consequence out of that must be the installation of governmental rules for worldwide trade and production. The government or worldwide organisations like the WTO, the EU or the USA should agree on strict rules for labour conditions and invent an independent powerful audition system. If the biggest industrial nations agree upon these rules of labour conditions they can link their import on the adherence of these rules. In this case the developing countries and their clients would have a direct stimulus to achieve the required aims because otherwise they cannot export or import anything.  
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<br>--[[User:Reibe|Reibe]] 17:50, 28 February 2011 (CET)<br>  
<br>--[[User:Reibe|Reibe]] 17:50, 28 February 2011 (CET)<br>  
Corrected version after peer review: --[[User:Reibe|Reibe]] 14:40, 7 March 2011 (CET)


= <u></u>Literature review<br>  =
= <u></u>Literature review<br>  =
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