Bangladesh, and the apparel industry in general, could do well to combat the threat of a large group of sellers catering to the terms set by only a small number of buyers.
This is the situation currently facing the international apparel industry as prices per square meter continue to fall, according to three U.S. professors speaking at a meeting in the offices of the Bangladesh Garment Manufacturers and Exporters Association in Dhaka.
“It’s been a matter of concern to us, with the garment industry in Bangladesh under many threats, including a hike in the cost of production, factory remediation and currency devaluation,” said Atiqul Islam, president of the BGMEA.
Mark Anner, associate professor of labor and employment relations at Penn State University, said declining prices and the growing bargaining power of global brands needed some deep thought and bold solutions. “Monopsony helps big buyers to put pressure to reduce the prices of products,” he said.
His study, along with Jennifer Bair, assistant professor at the University of Colorado, and Jeremy Blasi, a fellow at Penn State, was presented at the BGMEA meeting, which also included academics and thinkers from the apparel industry. The study showed, for example, that the price per square meter of cotton trousers dropped 40.89 percent in the U.S. from 2000 at $4 to 2014 at $2.50.
Anner said Bangladesh was the top exporter of men’s and boys’ cotton trousers to the U.S., followed by China and Mexico.
A series of factors had contributed to this decline in pricing, Anner observed, including the Multi-Fiber Arrangement; the entry of China into the World Trade Organization in 2001, and then Vietnam’s normalization of trade relations with the U.S. in 2007 and its subsequent entry into the WTO.
The consolidation of major buyers is another factor, he noted, adding that it is necessary to look at a range of options to address the situation.
“For us, this illustrates the need to go deeper, to think more boldly and think of new ways to address the issues. It seems the only way to get out of that dynamic is to have a broader discussion, to find ways to have discussions involving the buyers and suppliers and labor,” he said.
Referring to the declining prices of apparel, Anner said the data showed relative stability in the Nineties — and then a steady decline from 1999 to 2001 to today.
“Looking at the situation today, there are two areas that need continued attention,” Anner said. “The reducing prices per square meter are a matter of concern and affect the global apparel industry as they affect suppliers, which in turn affects the labor. So, for one we need to broaden the discussion beyond the issues of building and fire safety — to others such as wages, benefits, working conditions, etc.
“Second, it is important to take the matter beyond a one-country model because the industry is so competitive it can move about quite a bit,” he said.
Explaining that one typical solution in a monopsony was for the government to step in, he said that could create an unfair market dynamic and was unlikely in the current political context.
The other solution is for suppliers to have better coordination such as discuss pricing as a group and agreeing on a price per unit. As Nazneen Ahmed, senior research fellow at the Bangladesh Institute of Development Studies, pointed out, it would be difficult for such a consensus to be reached by suppliers, with the threat of competing countries to increase their market share of apparel exports.
“The cost of production has gone up by 10 percent in recent times due to wage hikes and ongoing safety initiatives by the Western retailers and the government,” the BGMEA’s Islam said, “and manufacturers were already concerned about keeping pricing competitive.”
Involving buyers in discussions then becomes a key way forward, especially as agreements made could cover many countries, preventing the poor conditions from being replicated elsewhere.
Given that the two groups of global brands and retailers — the Accord and the Alliance — have gotten together to work for factory and worker safety in Bangladesh since the collapse of Rana Plaza in 2013, their mandate could be taken a step further.
“If the sourcing strategies of powerful buyers are the root cause of poor labor performance, then an effective solution to this problem requires the regulation of buyer practices. We develop this element by drawing out the parallels between contemporary supply chains and the emergence of domestic subcontracting networks in New York’s garment district during the early 20th century,” Anner said, using the jobbers agreements in the U.S. in the Twenties and Thirties as an example of the way to find effective solutions against sweatshops in any apparel producing country in the world.
As concerns about labor conditions as well as pricing continue to dominate the apparel industry in Bangladesh, think tanks within the country have been grappling with the problem as well, hoping to find ways to facilitate improvements and growth in the sector, which provides for more than 75 percent of the country’s export earnings.
“Another way forward is to follow the Chinese strategy of enhancing productivity and manufacturing high value-added products to increase Bangladesh’s market share in the U.S.,” said Ahsan H. Mansur, executive director of the Policy Research Institute.
Both manufacturers and economists in Dhaka felt that Anner’s analysis could help the industry further: Better coordination between global brands and retailers as well as a growing customer awareness can be the most plausible agent of change in getting rid of sweatshops.