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Walmart, the world's largest retailer, demands the lowest costs from suppliers and delivers the lowest prices to consumers. But in the bargain, it is said to be preventing safety measures from being put in place
When Walmart's chief executive, Michael Duke, appeared at a Council on Foreign Relations meeting in New York this month, a raucous crowd of protesters awaited him. Walmart was confronting reports of bribery in Mexico, a wave of labour demonstrations in the United States and, perhaps most critically, questions about a grisly fire that had killed 112 workers at a Bangladeshi garment factory used by several Walmart suppliers.
"We will not buy from an unsafe factory," Duke told the audience. "If a factory is not going to operate with high standards, then we would not purchase from that factory."
But Duke's reassurances that Walmart enforces high standards in the global clothing industry appear to be contradicted by inspection reports it requested and some of Walmart's own internal communications: Just two weeks before Duke's vow, a top Walmart executive acknowledged in an e-mail to a group of retailers that the industry's safety monitoring system was seriously flawed. "Fire and electrical safety aspects are not currently adequately covered in ethical sourcing audits," Rajan Kamalanathan, the executive, wrote to other board members of the Global Social Compliance Program, a business-led group focused on improving the supply chain.
Three inspection reports from 2011 and 2012 at the Tazreen Fashions factory where the fire occurred revealed serious repeated violations, including a lack of fire alarms in many areas, a shortage of fire extinguishers and obstacles blocking workers' escape routes. At the same time, those inspections did not even cover whether the factory had fire-safe emergency exits, leaving that responsibility to often lax government inspectors.
Walmart led an effort to block a plan to have global retailers underwrite safety improvements at factories in Bangladesh, according to minutes of an April 2011 meeting as well as several participants.
Walmart has become the world's largest retailer by demanding the lowest costs from suppliers and delivering the lowest prices to consumers - while promising its customers that the billions of dollars of goods it buys from Bangladesh, China and other countries are produced in safe, non-sweatshop factories. Walmart buys more than $1 billion in garments from Bangladesh each year, attracted by the country's $37-a-month minimum wage, the lowest in the world.
But even as the deadly November-24 fire at the Tazreen factory has stirred soul-searching inside and outside the apparel industry about the effectiveness of its global factory monitoring system, some nonprofit groups say Walmart has been an important obstacle to efforts to upgrade fire safety. That is partly because it has shown little interest in changing the existing practice of demanding that the factories, often operating at razor-thin margins, meet fire safety standards at their own cost.
"They are squeezing the manufacturers, and the manufacturers are happy to get away with the minimum compliance that they can," says Farooq Sobhan, a former Bangladeshi diplomat involved in past negotiations between Bangladesh and the United States on trade policy for apparel. "It is kind of a vicious cycle."
Walmart says it is doing everything it can to prevent factory fires. "Walmart has been advocating for improved fire safety with the Bangladeshi government, with industry groups and with suppliers," Kevin Gardner, a Walmart spokesman, says in an e-mail. "We firmly believe factory owners must meet our supplier standards, and we recognise the cost of meeting those standards will be part of the cost of the goods we buy. We know our customers expect this of us and our suppliers."
Walmart also insists that several of its apparel suppliers were using the Tazreen factory without its approval. Two days after the Tazreen fire, Walmart said it had "de-authorised" use of the factory, but without saying when or why; two weeks later it said it had taken the action "many months ago".
But critics say that the inspection reports discovered in the Tazreen factory - which were obtained by New York Times from a labour advocacy group - underscore fundamental problems with Walmart's supply chain in Bangladesh, allowing it to avoid addressing safety problems it should have dealt with.
"The Walmart system of audits and inspections is not improving the factory safety conditions here in Bangladesh," says Kalpona Akter, executive director of the Bangladesh Center for Worker Solidarity. "They maintain this system to enable them to keep their hands clean and deny responsibility."
Two Walmart-sponsored inspections in 2011, along with a third monitoring report in April 2012, revealed recurring violations, with the first Walmart audit report, containing a warning from a Walmart official, giving the factory an "orange", or high risk, assessment. Under Walmart's rules, such factories are to be reinspected within six months, and are disqualified only after failing three audits within two years - raising the possibility that workers remain exposed a year or more to serious dangers before a factory is dropped.
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In February 2010, Douglas McMillon, chief executive of Walmart International, arrived in Dhaka, Bangladesh's capital, on an unannounced visit. Walmart was already a major buyer of garments in Bangladesh but now planned to purchase far more.
Under tight security, McMillon held court in a conference room of the Radisson hotel, summoning a small delegation of industry leaders. One participant recalled even being forbidden from taking his cellphone and fountain pen. During the meeting, according to the participant, McMillon spoke out about Walmart's commitment to corporate social responsibility and expressed sympathy when one Bangladeshi factory owner complained about the difficulty in meeting certain standards, given the low prices paid by buyers.
"They wanted to enhance their actions of corporate social responsibility," says the participant, agreeing to speak only on the condition of anonymity because of Walmart's influence in Bangladesh. "But it never happened." Walmart has long held itself out as an industry leader in pushing for safety and ethical standards at the overseas factories that supply its stores, saying it further toughened its fire safety standards this year. It boasts that monitors did 9,737 inspections at 8,713 factories last year to verify that Walmart's suppliers were adhering to its standards. Moreover, Walmart executives have played a forceful role in industry discussions about what should be done to prevent future factory fires.
In the days after the Tazreen disaster, Kamalanathan, the Walmart executive who acknowledged the inadequacy of factory inspections, proposed a series of recommendations to improve fire safety. But nearly all of them put the onus on Bangladeshi authorities and factory owners. A copy of his e-mail was provided by an official who believes Walmart has not done enough to improve factory safety.
Many workplace safety experts say Walmart's own monitoring system is part of the problem. A report on an inspection of Tazreen Fashions, conducted in May 2011, found that the factory had only 30 of the 66 required fire extinguishers. There were no fire alarms or fire hose pipes on the factory's fourth and fifth floors and no smoke detectors in the room where yarn was stored. The evacuation plan was outdated, and the factory lacked a health and safety committee, as required by law. The factory's managers said they would fix most of the problems within weeks.
The factory was again inspected seven months later, in December 2011, and again serious problems were discovered. Like the previous inspection, it was sponsored by NTD Apparel, a Montreal-based company that supplies Walmart. Sajeev Jesudas, president of UL Verification Services, whose company conducted the daylong December inspection, said it did not consider itself responsible for inspecting for fire escapes or enclosed stairways. "That's the responsibility of the local building code inspector," he said in an interview. "We don't have jurisdiction to inspect the building code."
Bangladesh's government inspectors, however, are known to be overstretched and prone to frequent lapses. Scott Nova, executive director of the Worker Rights Consortium in Washington, says, "If Walmart's audits are not ensuring that a multiple-story factory in Bangladesh has functioning fire emergency exits, then they're not really auditing for fire safety."
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Walmart has released only limited details of its relationship with Tazreen Fashions. Documents found at the factory show that six Walmart suppliers had been using the factory in the previous 18 months, including two relying on Tazreen in the weeks just before the fire. Documents show that as recently as last September 13, two months before the fire, 55 per cent of the factory's production was for Walmart suppliers. Two days after the fire, Walmart said it had fired a supplier who it said was using the factory without permission.
Walmart says on its Web site that it has dropped 94 factories in Bangladesh for fire safety issues since 2010; 23 other factories moved to safer buildings. For all the problems, though, many labour advocates do not want buyers like Walmart to simply abandon factories found wanting.
In April 2011, an urgent meeting was called in Dhaka, bringing together 50 labour leaders, factory owners, government officials and representatives of retailers like Walmart, Sears, Gap and Target. The issue was fire safety. Two factory fires in 2010 had killed 50 workers.
On the table were two issues: how to improve safety and who should pay for it. According to the minutes of the meeting and several participants, Walmart took the lead in blocking the proposal. The minutes, which were made available to The Times, state that Sridevi Kalavakolanu, a Walmart director of ethical sourcing, joined by an official from the Gap, noted that the proposed improvements would involve up to 4,500 factories and would "in most cases" involve a "very extensive and costly modification."
"It is not financially feasible for the brands to make such investments," the minutes quoted them as saying. One participant, Ineke Zeldenrust, international coordinator for the Clean Clothes Campaign, an anti-sweatshop group based in Amsterdam, says Walmart's opposition effectively killed the proposal.
Walmart says its remarks were taken "out of context," adding that it "has been actively developing and implementing proactive programs to raise fire safety awareness and increase fire prevention."
Labour groups and some Western retailers are pressing Walmart to join an effort in which PVH, the parent of Tommy Hilfiger and Calvin Klein, and Tchibo, a German retailer, have agreed to help pay for fire and electrical safety improvements at Bangladeshi factories. Under the plan, an independent international monitor would inspect factories, and the companies would promise to pay what was needed to bring the factories up to standard.
In the recommendations he e-mailed to officials at other retailers, Kamalanathan floated Walmart's new plan, including recommendations that Bangladeshi government officials inspect more strictly, closing unsafe factories, while factory owners finance needed safety improvements.
Experts agree that Bangladesh's government and factories provide inadequate monitoring and enforcement on fire safety. But many also agree that it is unrealistic to expect governments to enforce labour laws aggressively and shut down unsafe factories, given the disincentives for Bangladesh and other low-wage countries that are eager to attract apparel orders to create jobs and increase exports.
"It is disingenuous," says Professor O'Rourke of Berkeley, "for a company to blame the local government for not doing its job, when the company knows very well that part of the reason there are so many factories in this country is that local labour laws and other laws are not enforced and production costs are lower because of that."
Sobhan, the former Bangladeshi diplomat, says that Walmart, for all its ambitions, was far less active on corporate social responsibility issues in Bangladesh than retailers like Carrefour and H&M. "They are certainly lagging well behind the others," Sobhan says. "We'd like to see them being more proactive in doing the right thing."