Rising wages squeeze Bangladesh garment makers as factories await upgrades

Sun Apr 13, 2014 5:04pm EDT
 
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By Serajul Quadir

DHAKA (Reuters) - Bangladesh garment factory owners say they are soaking up much of the cost of nearly doubling wages as some global retailers balk at price hikes, leaving less money for safety improvements urged by apparel chains after last year's Rana Plaza disaster.

The task of coping with a 79 percent increase in the minimum monthly wage to $68, imposed last December at the urging of some retail chains, comes as competition intensifies among emerging markets producing garments for stores like Walmart (WMT.N: Quote) and Zara (ITX.MC: Quote). That is squeezing sales in Bangladesh's main export industry.

At Dhaka-based clothing company Simco Group, one of the thousands of businesses the sector comprises, chairman Muzaffar Siddique said that before the wage increase his net profit margin was a little more than 2 percent. Now he's losing money on orders, and reckons four out of every five garment makers in the world's second-biggest clothing exporter after China are in the same boat.

"I approached one of my Western buyers to raise prices, and the relevant company said, 'It is your business and you have to manage it ... you cannot slip it to us'," Muzaffar said. He declined to identify the Western buyer.

Nearly a year after the eight-storey Rana Plaza building collapsed in Dhaka's Savar district, killing more than 1,100 workers, Bangladesh's garment export growth has slowed to the lowest rate in 15 years. Some buyers have shifted orders to countries like India, Vietnam, Indonesia and Cambodia because of concerns about workshop safety, higher wages and political uncertainty.

Rana Plaza was the deadliest of a series of workplace tragedies in Bangladesh's garment business. Some Western retailers have lobbied for higher wages and better standards for workers - and also have warned investors there may be a price to pay in terms of reduced profit margins.

'IDLE GOSSIP'

Babylon Group, a garment factory in Dhaka that says it makes clothing for major global retailers, is another company struggling to adjust to the higher cost base. It employs more than 12,000 people, and since the wage hike has lost money making clothing for customers, according to documents seen by Reuters.   Continued...

 
Employees work in a factory of Babylon Garments in Dhaka January 3, 2014. REUTERS/Andrew Biraj