Asia's Week: Bad Tidings For Export Processing Zones

That’s certainly the case in Bangladesh, the world’s second-largest garment exporter that has a minimum wage of $37 a month. The dramatic collapse of a multi-storey factory complex outside the capital Dhaka on Wednesday with over 300 lives lost is a reminder of the steep human cost. Workers had reportedly complained about cracks in the wall but to no avail. It collapsed during work hours and overhead photos reveal the crude construction that left it so vulnerable.

The complex housed several factories, and had been illegally built up by a politician who owned the site and now appears to be in hiding. Garment workers took to the streets Friday and clashed with police who fired rubber bullets and tear gas. Sky News reports that authorities have arrested two of the factory bosses, one named as a chairman of New Wave style fashion and the other as a managing director. Rescuers are still digging through the rubble but the death toll is likely to rise.

The tragedy comes five months a deadly fire at another garment factory in Bangladesh that left over 100 dead. In that case, garments were being sewn for Walmart and Sears, but both companies said that the factory wasn’t a direct supplier. Walmart says it’s investigating claims that it had been sourcing from factories located in the building that collapsed this week. British retailer Primark has acknowledged that it had a supplier in the complex; other branded clothing spotted in the rubble suggest that other Western fashion retailers were complicit in the owner’s slap-dash cost-cutting.

Bangladesh’s garment exports are worth nearly $20 billion annually and have grown sharply in the last five years, partly as a consequence of rising labour costs in China, the world’s largest garment producer. Its competitive edge is cost, not quality or logistics; fabrics and other inputs are often imported. In general, supply-chain managers prefer China’s factory towns with their ready access to roads and ports. Yet even Chinese factories have begun outsourcing the final stages of production to Bangladesh and Cambodia so that they can keep costs down. The question for fashion retailers that rely on this supply chain to stock their shelves is to what extent they are culpable in sweatshop abuses and deadly incidents. The New York Times reports that PVH, which owns the Calvin Klein and Tommy Hilfiger labels, has proposed that Western retailers pay for better factories in Bangladesh with proper fire-safety measures. Walmart hasn’t joined this initiative but has promised to fund a health and safety institute in Bangladesh.

The week’s other major jolt to Asia’s export processing industry was delivered by the North Korean regime. It has forced the remaining South Korean staff to leave Kaesong, a capitalist enclave in the North that is financed by South Korean entrepreneurs. Earlier this month, as tensions rose on the peninsular, North Korea abruptly pulled its 50,000 workers from the facility, which manufactures goods for South Korea and export markets. South Korea has kept up a brave face about restarting operations and 175 South Koreans opted to stay in their plants rather than return home. But that plan has run aground: North Korea has blocked food supplies. So now everyone is pulling out, though Pyongyang and Seoul both call it a temporary halt to an experiment started in 2004 as a jointly-run industrial zone. As usual, North Korea appears to be cutting off its nose to spite its face: Kaesong was a source of foreign currency to pay for imports. But politics and security (and paranoia) trump business logic in the nuclear-armed North.

The final outsourcing story of the week is about domestic demand, not exports. Hon Hai, the Taiwanese electronics assembler known as Foxconn, is preparing to open a factory in Indonesia to produce mobile phones. But this time the beneficiary won’t be Apple’s customers or its enormous cash pile. Instead, Foxconn plans to supply handsets to Indonesian brands, according to a Foxconn spokesman in Taipei who spoke to Reuters. Indonesian Trade Minister Gita Wirajawan has been talking up the deal for several months, claiming that it would represent a $10 billion investment in Southeast Asia’s largest economy. Since Apple is by far Foxconn’s biggest customer, diversification is always welcome and it can always add capacity in Indonesia, should the factory prove successful. Indonesia is a huge consumer market and the government will probably make sure that domestically-produced phones are competitive with imports from China. I imagine that ZTE and Huawei will be watching closely. So should labour activists who have jumped up and down on Apple over its supply chain management in China. Just because Foxconn isn’t making iPhones in Indonesia that doesn’t mean that its labour practices should go unmonitored.