Thursday, June 27, 2013

A Broken Outsourcing Model

---------- Forwarded message ----------
From: barry levine
Date: Thu, Jun 27, 2013 at 8:52 AM
Subject: re: A Broken Outsourcing Model
To: ""

To the Editor:
  One searches in vain in the writings of Adam Smith for evidence of
concern for the "race to the bottom". In his 18th century world, all
wages tended towards subsistence because starvation was commonplace
and there was always a lower applicant for low-skill work. That
changed with the Industrial Revolution; for the first time, the
world's economic activity could absorb the world's labor resource. The
result was an increase in total wealth inconceivable to an earlier
generation of economist.
   In this new industrialized world, we need policy more sophisticated
than Adam Smith's insight that globalization produces more efficient
use of human resource. We need to couple trade policy to civil rights
and to environmental policy. It should be no more acceptable to import
a garment made by abused labor than it would be to import a child in a
crate and put her to slave labor in our homes.
Barry Haskell Levine

Find more of my (largely one-sided) correspondence with the New York Times at:
Or write a letter of your own. Democracy only works when we engage in
the issues of our day


A Broken Outsourcing Model


Published: June 26, 2013

In the two months since the collapse of a factory building killed more than 1,100 people in Bangladesh, 50 Western clothing companies have signed an agreement designed to improve working conditions in that country’s apparel factories. That should help, but the effort can be sustainable only if it is accompanied by much bigger changes in how the industry does business.

Workers die inpreventable fires, building collapses and other workplace catastrophes in developing countries because factory owners have few incentives and little money to build safe plants. Most American and European brands and retailers use a rotating cast of hundreds of third-world suppliers, instead of establishing long-term relationships with fewer of them. This helps keep costs low because factories must submit competing bids for each bulk order of T-shirts, jeans and cargo shorts.

Even factory owners who want to improve conditions find it hard to do so because the customers have no obligation to give them more work in the future or to compensate them for the renovations through higher prices, labor activists and industry executives say. Those who do make big improvements may have to raise their costs so much that they might lose orders to less scrupulous suppliers.

The current system also hurts big Western brands and retailers in important ways. Many of the clothes produced in poor conditions tend to be of inferior quality because plant owners who skimp on safety often spend less money on training and installing technology, factory inspectors say. As a result, clothing companies who use cut-rate suppliers often end up wasting time sending back defective merchandise and waiting for replacement goods.

But it does not have to be this way. American and European retailers could contract with fewer factories and establish long-term relationships with them. If they did so, they would have to monitor fewer factories and would have greater influence over suppliers to demand upgrades and changes. Reducing the number of suppliers would certainly raise retailers’ costs compared with the current race-to-the-bottom system of outsourcing. But those costs could be offset by benefits like better-quality products and more timely deliveries of products, retail executives and factory inspectors say. In fact, companies like Nike have said that reducing the number of factories they use has made their businesses more efficient.

The agreement recently signed by clothing retailers and brands, including Zara, H&M and Calvin Klein, commits the companies to help pay for renovations and stick with Bangladeshi suppliers who agree to improve their facilities. This is a good start in addressing an entrenched problem — and also makes sound business sense.

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