Are garment owners really to blame?

Guest Post by Saif, in response to Zia Hassan

PaperArtist_2013-04-27_01-06-03

Ready made garments industry is one of the most important sector for Bangladesh (after agriculture and foreign remittance). True this sector has many problems, but none should get more priority than the issue of workers safety and ensuring their basic rights. When countless workers are burnt to death because the gate was locked from outside or where the workers were forced to work inside a risky building against their will that later collapsed and killed countless; the owners of these factories should be harshly punished to set an example. These unfortunate events are of unimaginable horror, and recurrence of such event is unacceptable by any measure. To make sure such incidents will never occur again, we should unite and make our demand loud and clear, we should prepare to sacrifice, we should close down risky factories even if we lose valuable export revenue. Effective labor union should be introduced for ensuring worker’s rights.

With due respect, I don’t think the problem in the sector is because the owners are making super profit. Generalizing all the garments owners as profit hungry inhumans will not solve this problem. Not all owners are evil. Reading the article it seemed like the only problem with the sector is the attitude of the owners. But in reality it is not the whole picture. In my opinion corruption and indiscipline by the owners and by the government authority are equally responsible. Not all factories are the same. There are complianced factories, that pays the workers in time, where worker’s safety is at an acceptable level. Again there are factories that are not complianced, workers are not paid in time, many safety issues are discarded. There are also some factories in between these two kinds. It is very important to deal differently with factories of different size.

Super Profit:
Small factories does not always get direct orders and have to rely on sub contracts from other factories and can get as low as 50-60 taka per piece as CM for a five pocket basic denim trouser. If they are lucky and get direct orders, they earn 65-80 taka per piece. The buying houses always do a hard bargain and they lose the bargain because of their non compliance. Mid sized factories usually get 80-120 taka per piece. So when you calculate with 117 taka it does not reflect the actual scenario specially the low/medium grade factories. These small factories deal with small quantity orders say 50,000 pieces. They usually do not have work study or industrial engineering departments to achieve high efficiency. They get a peak production of 80 piece per hour or 800 piece in a 10 hour day. But the average production is lower than peak production. When you produce 50,000 piece using 4 lines it is suppose to take 50,000/(800X4)=15.625 or 16 days. But in reality it takes 3/4 days extra to setup the line and achieve the target production. So 50,000 piece in 20*4 or 80 line-days brings down the productivity to 625 piece per day. 625 pieces production can earn 60lac-100lac taka for a 8 line factory in a month having 25 days. The factories in the Savar tragedy had 200/300 workers per factory, hence their revenue would be much less.

Now lets talk about expenditure. For a 65 machine line you may consider another 35 workers as helpers, quality, cutting, finishing, packing personals. So for the 8 line factory the total workforce is 800. The minimum wage for a helper is 3000. Average operators salary is around 5000. A supervisor salary is around 10,000. Let us consider on average the salary is 5000 per person. So the factory wage bill becomes 40 lac. Since we have considered 10 hour production, we have to calculate 2 hours over time wage. OT becomes 5000*.6*2*(2/8)*800=12 lac. So total workers wage becomes 52lac taka. In addition to that you have to pay APM PM GM Merchandiser Accountant security Quality etc.

This is only the wage. You have electricity cost, generator cost, transport cost, commercial cost etc etc etc. You will also need to take into account the time when the factory is not running, when you need to make an air shipment. There comes time when you fail to ship certain percentage of garments or say the buyer paid 5% less due to a quality issue. This discount of 5% of the fob value is 25% of the total CM value that you would actually receive. So you can see profitability greatly depend on your bargain power. Accept for the large garment manufacturing groups, most factories make marginal profits. That’s why you see a lot of facilities for workers in the factories of large groups but don’t find basic workers safety features in small factories. In my opinion one of the reason these factories don’t have safety features, not because they make super profit, but because they hardy make any. I am not trying justify it, just trying to explain the situation.

The point I am trying to make is the ready made garments sector is not a super profitable sector. You can make profit but you can also face huge loss. You have to be very efficient, very alert and work very hard to make a profit. With similar factory set up one owner can make a profit of crore of taka and another can lose crore of taka. The profitability mostly depends on how you are operating the factory. Another source of income is from selling leftover garments and fabrics. Sometime when you are lucky you can get substantial amount from here.

Overbooking:
Not all factories do over booking. Orders are not that easy to get. Also very few shipments fail for lack of contingency or planning, the main reasons are failing to manage the supply of fabric and accessories, failing to take necessary approvals, failing to remain up to date with the customer where the design and specification changes continuously, etc. Very few shipment fails due to slow productivity. Sometime shipments fails when the turmoil in the country is at an extra ordinary level (like current political situation). When one order is pushed back for some reason, managing it is very hard. Your production capacity is idle and all of a sudden the amount of work is double of your capacity.

Tax:
As far as I know garments industry does not have any tax free privileges. Please show me government circular if you can find any. As an ex merchandizer you should know out of the total value of the export (conventionally known as FOB value) most of the amount are spent of buying fabric and accessories. The factories get or deal with a small portion (say around 20%) as CM. So when 1% of the revenue is deducted as tax at source the amount is actually 5% of the total CM or revenue that the local garments deal with. If a factory is lucky and manages a net profit of 15% the ducted tax would be 33% of that profit made. That does not mean garments owners dont dodge taxes. Like any business they also do. But the reality is due to AIT garments owners are good tax payers, better than other sectors.

So why am I boring you with all these figures? Because I think it is important to correctly point out the problems. If we think the only problem is the owners making a super profit then we will not be able to improve the situation. Yes there are large groups making super profits, but you will find very few compliance violation at these factories. Small factories with safety issues hardly makes profit. We need to deal differently with factories of different size. I find the following issues problematic in the industry:

1. The owner’s lack of sincerity for workers welfare issues
2. Ineffective monitoring by government authorities and their corruption
3. Lack of labour union to ensure workers rights
4. Low CM for small factories, buyers illogical atitude towards pricing

There are surely more issues that need to be addressed but these came on top of my mind. Hope we all can unite and fight until the sector is saved.

5 thoughts on “Are garment owners really to blame?

  1. “You can make profit but you can also face huge loss. You have to be very efficient, very alert and work very hard to make a profit. With similar factory set up one owner can make a profit of crore of taka and another can lose crore of taka”.

    That is exactly the point. Efficiency will deliver a crore of profit instead of a crore of loss. Low wages shouldn’t be there to cushion the risk. Instead, stickler for efficiency and measures for higher productivity should do that job. Higher productivity is also directly related to better working conditions. Wages need to go up and push factory owners to look elsewhere to preserve their margins. All this talk of compliance and regulations are not going to ensure that, but a higher wage bill will. Factory owners will only value their workforce when they start paying them more. Otherwise, cheap labour will only cheapen life, and we will see more of tragedies like Savar and Tazreen.

  2. @Farhad You are spot on. Cheap labour should not be the motivating factor for an industry, instead efficiency should drive the sector. We have a long way to go. But it is important to realize, low wage in this sector is a consequence of our poor economy. Compare the wage in agriculture. poultry, steel, construction, ship building, etc with other countries. Compare them with garment sector wage and you will realize it. But there are still scope of improvements. Adopting a long term pay scale (say for 5 years) that increases every year would be beneficiary for workers. Thanks.

  3. @Saif, you cannot compare agricultural wages with this, because the cost of living is higher at the urban centres where these factories are located. Accommodation cost alone takes up the lion’s share. Also, the real wages have not gone up proportionately over the last three decades; most think it has at best remained stagnant and at worst gone down significantly. If prices are adjusted for inflation, we will see that the margins have increased at the expense of workers wages. USD $ 1.20 per day is considered bordering on poverty line even for Bangladesh and cannot be justified for industrial workers.

  4. The point I was trying to make: Is the problem of low wage unique to garment industry or we have this problem in other industries as well (steel, construction, ship building, etc)?

  5. Doesn’t matter. The garment industry employs 3-4 million workers producing 80% of the country’s industrial output. Other industries in Bangladesh pales n comparison, both in terms of value and socio-economic impact. The garment industry, for all practical purposes, sets the benchmark for the fledging industrial sector of Bangladesh. There could be many industries with less or more performance in niche areas, but their overall impact would be insignificant in this context.

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