Bangladesh Factory Collapse: Risk Lessons for CFOs

Bangladesh, with one of the lowest minimum wages in the world (US$0.23/h), has established themselves as a good option for the highly competitive garment industry. But cheap labor doesn’t come without risk. Bangladesh is also ranked eighth-worst country for industrial working conditions in 2012.
 
Based on the tragedy of the collapsing Rana Plaza building in Bangladesh in April earlier this year, this report from Marsh discusses risk management and suggested solutions on how to operate in high-risk low-wage countries.
 
  • Reputational Risk
Garment retailers who don’t look at the risks and ignore factory safety will hurt their brand reputation in case of a tragedy. Especially among the younger population who barely has any brand loyalty.
 
  • Compliance Risk
Although there are several global protocols and regulations established through for example Non-Government Organizations (NGO), the Rana Plaza tragedy clearly shows that they are not well implemented. A company should consider making unannounced and consistent auditing and create worker engagement (such as anonymous feedback) to ensure safer working environment.
 
  • Supply Chain Risk

For the retail industry, consistent production and delivery is vital to keep profitability. Any disruption in deliveries will take months before it is restored on the balance sheet. Networking and showed interest with the suppliers can create a unified ethical working environment and enhance continuity. 

 

 

 

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