Reference no: EM132623965
CONCEPT APPLICATION JOE FRESH AND THE BANGLADESH TRAGEDY.
Joe Fresh was originally launched as a female-only, affordable fashion line in select Loblaw retailers, but has since been launched in over 300 stores across Canada and has expanded to include both men's and children's clothing. Joe Fresh quickly became a major player in Canadian children's apparel retailers in Canada, dominating a large portion of market share. It also recently opened a flagship store on New York's Fifth Avenue and partnered with different retailers across the United States, including JCPenney. No one would have expected this Canadian "rising star" to be immersed in controversy, but that is exactly what happened to it in 2013.
On April 24, 2013, an eight-storey building (the Rana Plaza) collapsed in Savar (an industrial suburb of Dhaka, the capital of Bangladesh), killing 1,127 people in what became the deadliest disaster in the history of the garment industry. The dead were largely factory workers, who were pressured to return to their jobs that day despite knowledge that the building was unsafe. A teenage girl was the last to be found alive after spending over two weeks in the rubble.
Investigations soon discovered that the building was constructed with substandard materials and with a complete disregard for building codes. According to a government investigation, the Rana Plaza was doomed from the start. It contained illegally built upper floors that housed garment factories and employed thousands of workers. The huge power generators on those upper floors (often used because of regular power failures) literally shook the building when switched on. Though cracks appeared in the building and shook it on April 23, 2013, the factory bosses ignored concerns and ordered workers into the building the next morning. When a generator switched on, the building buckled and collapsed.
In the government's report, the local mayor was also blamed for granting construction approvals. The report recommended charges for the building's owner, Sohel Rana, as well as for the owners of the five garment factories in the building.
This was a horrific tragedy. But what did good companies like Joe Fresh have to do with it? Bangladesh is the world's second-leading exporter of clothing (behind China). The country has over 5,000 garment factories, and it completes orders for most of the world's top brands and retailers, one of which happens to be the Canadian-based Joe Fresh. Joe Fresh and countless other multinational retailers are attracted to Bangladesh because they have offered the least costly source of garment production; Bangladesh has the lowest wages in the world for garment workers.
Workers in these textile manufacturing companies often have no alternative job opportunities and are forced to work under horrendous conditions with extremely low pay because of financial desperation. Most workers receive the minimum wage for the industry, which is less than $38 a month for full-time work, and are forced into non-unionized jobs with severely restricted workers' rights. Many workers are further threatened or intimidated by local authorities when they try to fight for workers' rights or unions. It is worth mentioning that despite these devastating working conditions, Bangladesh's economy is completely reliant on its textile industry, which accounts for nearly half of its industrial employment in the country and the bulk of the country's merchandise exports-approximately $20 billion a year.
International companies justify the low wages paid to their Bangladeshi employees by arguing that they rely on Bangladesh's minimal labour costs to provide consumers with attractive price points and are forced to adopt offshoring to remain on par with competitors' costs. Interestingly, the actual salary paid to workers in manufacturing makes up a minor component in the overall cost of a product, suggesting that increases in wages would not actually lead to a significant rise in retail prices.
The employment context of Bangladesh differs dramatically from that in Canada or the United States. It is a significantly poorer country. The same rules and regulations regarding safety in Canadian factories would be very difficult for a factory in countries like Bangladesh to uphold considering their limited resources. The governments also do not operate in the same way. Many activists believe it is important for companies doing business overseas to be more responsible for ensuring workers' rights are upheld since many governments do not seriously support worker rights. Two years earlier, workers went on strike and were beaten and shot by local police. What were the workers' demands? They wanted a raise from $0.26 to $0.30 per hour.
Low pay is not the only labour problem. Worker hours consistently remain long as well. Often workers are forced to work 13 to 14 hour shifts seven days a week. According to Charles Kernaghan, director at the Institute for Global Labour and Human Rights, in the factory that collapsed, "these workers were mostly young women, and they were ordered into that factory . . . They didn't want to go into work as there were already deep cracks in the walls the day before."
International workers' rights groups have been outraged both with the conditions of work and with the response of the large firms involved with this incident. These international aid groups demand higher wages, access to unions, and governmentally regulated work conditions. Following the collapse, much attention has been directed at steps companies must take to ensure the safety of their workers. These include introducing new programs that would more closely monitor the structural conditions at many of these production facilities to ensure that full safety standards are being met. Sadly, many people feel that this type of disaster was inevitable given that the government cannot be trusted to enforce strict safety standards because of widespread corruption and bribery.
While several companies, including Disney, have stated their intentions to move their operations out of Bangladesh following this disaster, most firms are not budging. Joe Fresh, along with many other brands, will continue to be produced in Bangladesh under the justification that their actions in the country serve as a positive force that fuels the local economy and provides jobs to people living in extreme poverty. As stated by Joe Mimran, cofounder of Joe Fresh, "The apparel industry is at the forefront of every developing country. I believe we can do more good and drive lasting change by staying in Bangladesh."
On top of the obvious ethical and moral concerns involved with such a catastrophe, there is also a large impact on a company's image after receiving such negative media attention. In the case of Joe Fresh, Loblaw, the parent firm, sent several high-ranking members to Bangladesh to try and resolve the situation as quickly as possible. Joe Fresh has promised to compensate the families of workers affected by the accident and provide constant supervision of all aspects of product creation to ensure that Loblaw's values are maintained throughout. It was important for Joe Fresh not only to help the victims of the situation as soon as possible, but also to maintain its public appearance as a compassionate, caring company to its employees and consumers alike.
Loblaw made a significant effort to minimize the harm to its brand from the incident with a series of statements, public addresses, and new initiatives that ultimately calmed down the Canadian consumer base and prevented boycotting. In fact, none of the companies that have been tied to such recent disasters in Bangladesh, including Walmart or Joe Fresh, have suffered from any change in consumer purchase behaviour.
Loblaw has revamped its commitment to worker safety; recently it signed a pact along with several other major retailers like H&M promising to create significant improvements to building safety in Bangladesh textile factories. Loblaw stated recently that this pact represents the firm's "belief that active collaboration by retail and manufacturing industries, government and non-governmental organization, is critical to driving effective and lasting change in Bangladesh." The pact constitutes a shift in responsibility for the safety of workers from individualized brand standards to more all-encompassing industry standards. Under these accords, retailers will be responsible for a variety of tasks, including publishing public safety reports, providing safety training for employees, and assuming responsibility for paying for all mandatory repairs and renovations. A new no-tolerance policy that calls for firms to immediately end business relations with any manufacturer that does not abide by these safety standards is also being put in place.
Joe Fresh has made a public commitment to contribute to the welfare of Bangladesh after this terrible tragedy. What can companies like Joe Fresh do to compensate the relatives of the victims? What should they do? While Joe Fresh is making an effort to "do good" and improve safety standards, are these efforts satisfactory and are they "good enough"? Only time will tell.
QUESTIONS ON THE CASE STUDY
1. How is corporate social responsibility (CSR) an issue in this case? In your answer, consider the four levels of CSR.
2. Why should Joe Fresh be expected to act in accordance with societal expectations?
3. What kinds of obligations should companies like Joe Fresh have toward the people in other countries who make its products?