The economics of the $6.75 shirt in Bangladesh

In an article in the Wall Street Journal (May 16, 2013), a manufacturer, Rubana Haq, describes the producer margins in a $6.75 shirt he manufactures. He claims that it costs $4.75 to buy the cotton cloth and $1 for the labels and other components specified by the manufacturer, leaving $1 for wages for employees, credit costs for the manufacturer for the raw material, penalties for delays or errors as well as profit margin. Thus, increases in minimum wages in Bangladesh, if not translated into higher prices, would squeeze the estimated 25 cent margin for Bangladesh manufacturers, making it uncompetitive for them to make clothing. Given these economics, what responses should one expect from retailers so that ignoring maintenance or abusive working conditions are not the norm ? Should retailers be expected to guarantee a reasonable margin to prevent unintended consequences of their procurement ? Should retailers be responsible for buying and delivering raw material to reduce credit costs and make the supply chain competitive or should that be the responsibility of the Bangladesh government and banking system to provide credit facilities ?

About aviyer2010

Professor
This entry was posted in Global Contexts, Operations Management, Service Operations, Supply Chain Issues and tagged , , , , , , , , , , , . Bookmark the permalink.

One Response to The economics of the $6.75 shirt in Bangladesh

  1. There are at least 2 additional factors.
    1. Consumer prices-what is the end-consumer willing to pay
    2. Import duties-in many cases apparel carries very high import duties which drives the cost of the garments higher. In some instances it can be as much as 30+%. Alleviating the heavy duties would allow factories to capture that margin and improve working conditions

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