Nike Reduces Supplier Footprint in Bangladesh Due Mainly to Safety Concerns for Workers

Nike has recently severed its contracts with several suppliers within the country of Bangladesh as a result of increased concerns about labor conditions within their factories.  The importance of Bangladesh has risen in the garment production industry over the past several decades due to the fact that labor costs are very inexpensive.  Many foreign companies have recently expanded sourcing and manufacturing operations in Bangladesh in order to remain competitive within the industry.  In pursuit of the same advantage in margins that has lured competitors, Nike first entered Bangladesh in 1991, and has at one time maintained up to 10 factories in the country.  However, the company has faced a series of public relations problems due to labor conditions that have been revealed in some of its sourcing factories (including the use of child labor), and has become much more sensitive to the reduction in earnings that can result from negative publicity.

Nike’s decision to re-examine its manufacturing operations in Bangladesh came as a result of the collapse of a garment factory near the capital of Dhaka that killed over 1000 workers.  At the time, Nike had been engaged in some internal debates that centered on whether the company could successfully control and promote safe working conditions within the facilities of their Bangladeshi suppliers and thereby continue to reap the considerable benefits in the margins, or whether they should consider sourcing elsewhere.  In order to make their recent decision, a group of high level Nike executives visited the country itself, and were led on a series of facility tours by Hannah Jones, Nike’s head of sustainable business.  Upon the conclusion of the tours, the resulting decision had apparently become clear as a result of the conditions that were observed in the visit.  Soon after, Nike decided to end its partnership with “Lyric Industries” and another Bangladeshi supplier, thereby reducing their presence in the country to now only 4 plants, all located in “export processing zones” that exist in Bangladesh.  Nike acknowledges that this decision is likely to negatively affect its profits, which have already fallen noticeably last fiscal year.

 

http://online.wsj.com/news/articles/SB10001424052702303873604579493502231397942?KEYWORDS=nike&mg=reno64-wsj

Leave a Reply