Will Wal-Mart Move Manufacturing Out of Bangladesh?

Wal-Mart Stores (WMT), the world’s biggest retailer, can be a demanding customer. Its relations with clothing manufacturers in Bangladesh are especially fraught. A fire in a garment factory there left more than a hundred workers dead in November; a supplier had subcontracted work to the factory without Walmart’s knowledge, the company said. In January, Walmart warned its suppliers worldwide of a new “zero-tolerance” (PDF) policy against unauthorized subcontracting and announced factory health and safety initiatives—without providing any details about how much money, if any, it would contribute to the effort. Now, according to a report today in Women’s Wear Daily, the company also has a strategy to reduce its reliance on Bangladesh.

Bangladesh is the world’s second-biggest apparel exporter, after China, with an industry worth about $19 billion. Its labor costs are the lowest in the world, says Charles Kernaghan, executive director of the Institute for Global Labor and Human Rights. He says workers there make from 18¢ to 26¢ an hour; in China they make an average of $1.34 an hour. Kernaghan also notes that the Bangladesh Parliament is controlled by the business community, and the export processing zones by the military. “Bangladesh needs to make a giant step forward in terms of enforceable labor rights,” he says. “But when it comes to making the factories safer, this has to be up to the big retailers. It’s at least 50 percent their responsibility.”

Megan Murphy, senior manager for international corporate affairs at Walmart, said in an e-mail: “Bangladesh continues to be an important sourcing market for Wal-Mart. We welcome the opportunity to work with the respective governments, suppliers and factories to improve worker safety conditions and standards.”

If Walmart did move some of its apparel manufacturing out of Bangladesh, there are at least two other places it might go: Cambodia, where the average wage is 29¢ an hour, according to Kernaghan; and Vietnam, where workers make about 55¢ an hour. Walmart’s labor costs would go up, but it could benefit from the better infrastructure available in those countries.

Walmart could also be sending a not-so-subtle message to its suppliers in Bangladesh: You need us more than we need you.

BusinessWeek.com