Fair Wear undertakes mission to Bangladesh to disseminate its expertise on purchasing practices and costing

Fair Wear undertook a mission to Bangladesh from 2 to 8 November. Fair Wear Country Manager for Bangladesh, Mr. Koen Oosterom, was joined by Mr. Klaus Hohenegger, Fair Wear Consultant, and Ms. Paula de Beer, Living Wage Associate at Fair Wear.

Koen, together with Mr. Bablur Rahman, Fair Wear Country Representative in Bangladesh, participated in a roundtable meeting on purchasing practices at the Dutch Embassy on 4 November and a panel discussion, also on purchasing practices, on the 5th. Both events were part of the Sustainable Apparel Forum 2019. The panel, which was moderated by Ms. Jill Tucker of the C&A Foundation, also included Mr. Frank Hoffer, Director of ACT, Jeff Wintermans, Coordinator of the Dutch Agreement on Sustainable Garments and Textile and Mr. Miran Ali, Director in the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). The panel discussed different solutions put forward by the panellists, including having a common standard, industry-wide bargaining, transparency on purchasing practices and costing, and legislation against harmful purchasing practices.

In parallel, Klaus and Paula visited several factories where they discussed the difficult situation many factories find themselves in at present: they are struggling to keep their heads above  water. Among all customers from the factories we visited, only one (incidentally a Fair Wear member) increased prices after the December 2018 Minimum Wage increase. The majority of factories confirmed an ongoing push to reduce prices, which is leading to unsustainable, low profit margins and factories even selling below costs. As one factory manager explained, it’s often a choice between ‘taking the order and losing 30% or not taking the order and losing 100%.’

The Fair Wear labour minute costing tool was developed to improve factories’ bargaining positions in difficult situations like these. During their factory visits, Paula and Klaus validated the tool by completing a large number of real product costings. These visits proved that if real data is inserted, the Fair Wear Costing Tool provides accurate data and numbers. The tool thus proved effective in obtaining insight about a factory’s product costing, providing the factory with a basis for transparent and verifiable arguments to justify a certain FOB price during negotiations with buyers. As such, we found the use of the tool could indeed effectively put factories in a better negotiation position.

It’s often a choice between taking the order and losing 30% or not taking the order and losing 100%

Factory manager, Bangladesh

The Fair Wear mission to Bangladesh concluded with a supplier seminar on labour minute costing and price negotiations with buyers on 7 November 2019. Fair Wear Foundation organised this seminar in cooperation with the Bangladesh Garments Manufacturers Exporters Association (BGMEA), the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), the Bangladesh Garments Buying Houses Association (BGBA), the Dutch Agreement of on Sustainable Garments and Textile (AGT), the German Partnership for Sustainable Textile (PST) and the Dutch Ministry of Foreign Affairs/Embassy of the Kingdom of the Netherlands in Bangladesh. Among the 180 participants were relevant staff of BGMEA and BKMEA, members of the BGBA as well as senior management of garment factories producing for European brands that are members of the AGT and PST.

During the seminar, many of the factory visit findings as well as previous research findings were reiterated. Participants indicated that at most 20% of their customers increased the prices after the 2018 minimum wage increase. Instead of increasing prices, buyers tell factories to increase their efficiency, or they ask for options to decrease the product value. This puts factories in a difficult position. As one manufacturer put it, ‘for a simple t-shirt, what options do I have? Deliver only the two sleeves, and not the body?’

Jokes aside, all participants emphasised the need for a change in buying practices if the Bangladesh garment industry is to become sustainable in the long term. Marijke Willemsen, Head of Sustainability of Dutch Retailer WE Fashion and representative of the AGT, stated that there is a need for a ‘two-way’ Code of Conduct between brands and suppliers. Right now, most brands still use a ‘one-way’ Code of Conduct: telling suppliers what they are expected to do. A two-way Code of Conduct should also address specific responsibilities for the buyers of brands and retailers, such as elements related to lead times, style changes, price adjustments following increase of local minimum wages, or changes in environmental legislation, she explained. Mr. Mohammad Abdul Momen, Director of the BGMEA, noted that there is a problematic power imbalance between brands and factories: brands and retailers hold most of the power and value within a garment value chain, while factories bear the responsibility for compliance and ensuring good working conditions. He argued that brands should take their responsibility to ensure sustainable production.

For a simple t-shirt, what options do I have? Deliver only two sleeves, and not the body?

Manufacturer, Bangladesh

This is exactly where the Fair Wear product costing tool comes in. It shows how much the price of a garment would need to increase in order to give factories the required financial room to ensure payment of at least the legal minimum wage, with all other things being equal. The seminar’s participants understood that being able to provide evidence of actual labour costs could help them in their price negotiations. Garment prices are highly sensitive, particularly in the fiercely competitive fast fashion sector, but a detailed examination shows that the labour element accounts for a relatively small share of the price that consumers pay. ‘The cost of labour is just a fraction of the retail price, often not more than 2-4 percent,’ Koen pointed out. ‘Making this transparent is important as it shows that it is entirely possible to increase wages without affecting the ‘‘marketability’’ of the garments concerned.’

Participants enthusiastically started working on the costing tool with the case study exercise Fair Wear provided during the seminar. Some factory managers even started inputting their actual factory data right away. During the closing round, some factory owners and buyers pointed out that now they know what their factory’s real labour cost is, they can use it in discussions with merchandisers. Similarly, brand participants determined to ensure that the workers producing their garments are paid at least the legal minimum mandated by law also indicated it benefits them when they can demonstrate the link between wages and prices. As Klaus explained: ‘The Fair Wear labour minute calculator offers the much-needed transparency.’

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Read more on Fair Wear’s work on living wages here.

Read more on Fair Wear’s work in Bangladesh here.