RANA PLAZA ASSIGNMENT

ANUSHKA SHARMA
BJ21131, Section C

1) You would draw from the case "Rana Plaza" that firms in Bangladesh have been
aggressively pursuing global opportunities. Briefly describe their expansion strategies and
the ways they leverage their competitive advantage.

The economy of Bangladesh is majorly driven by the garment industry which employs 2% of the
population. Firms in Bangladesh have been aggressively pursuing global opportunities through
exports especially in the garment industry.

Their major competitive advantage lies in being cost efficient. This in turn occurs due to their
extremely low cost labour and large capacity. The minimum wage in Bangladesh was lower than
that of other developing countries like Turkey, Cambodia and even India. The minimum wage in
China, the largest exporter of garments in the world, was four times that of Bangladesh.
Moreover, a large portion of the garment workforce was women who were paid lower wages.
The factories compromised on working conditions to reduce cost. This enabled them to have
extremely lower cost as compared to other competitors and in turn attract larger MNCs to
produce garments in the country.

Further, in 1971, Bangladesh government began privatizing industries to spur economic growth
in the country. During 1974, the Multi-Fiber Arrangement (MFA) was enacted which regulated
the sales of garments and textiles from developing countries to First World countries. The MFA
led to imposing quotas on garment exports from countries like China, Hong Kong, Korea and
India but no such quotas were imposed on Bangladesh and hence the garment industry in
Bangladesh witnessed growth in exports from $12000 in 1978 to close to $21 billion in 2012.

Even though the MFA expired by 2004, by 2013, 40% of the garment factories in Bangladesh
had export contracts and the lower costs accruing due to lower wages were a major reason for the
same. These factors helped the Bangladeshi firms’ access opportunities of exports in the
garments sector. The low cost of production combined with duty free access to global markets
helped them pursue global opportunities and stay competitive.
2) How do you analyze the global market structure, the competitive forces in the
Bangladesh market, and the interrelationship between global and local markets?

Global Market Structure: The global readymade garment industry (RMG) is based on large
volumes of cheap labour, mostly sourced from developing economies such as India, Cambodia,
Bangladesh and China. The finished garments are usually exported to US, Europe and Canada.
In light of the incidents such as Rana Plaza, some MNCs have either started shifting their
factories to lower risk countries while others have collaborated to invest in safety standards.
Competitive Forces in the Bangladesh Market
1) The Global Fashion Brands: Global fast fashion labels set up their operations in
Bangladesh due to the lower production costs and larger capacity as compared to other
countries like India, Cambodia and China. The firms may decide to shift their production
units in case of cost increase or a threat to their image, they may face significant cost for
the same, however, they still hold considerable influence on the Bangladeshi firms.
2) The Workers: Workers usually hold very less power as they do not usually get alternate
employment opportunities and they do not unionize due to the fear of losing employment.
3) NGOs: Several NGOs have tried to educate the workers about their legal rights and also
attempted to resolve their issues. Thus, they have significant power to bring a change.
4) Factory Owners: The factory owners were generally warned about the unsafe conditions
of their factories but they seldom took any efforts to resolve the same. They were hesitant
to invest large sums of money as they feared losing MNC contracts due to higher costs.
5) Bangladeshi Government: The government took steps to ensure Bangladesh remains
preferred destination for production and exports and even suppressed protests to maintain
the same. They can implement laws that can have significant impact on production units.

Interrelationship between Global and Local Markets

Global fast fashion labels such as H&M, Inditex (Zara) as well as other low to mid-price labels
like Walmart, Calvin Klein, Gap prefer Bangladesh market due to the lower cost of production.
The local markets get access to global opportunities due to exports and they in turn generate
employment. However, to remain cost competitive, the local firms usually compromise on the
wages and working conditions. The global markets also benefit from the larger capacity provided
by Bangladeshi factories as this helps them cater to the spikes due to seasonal demands.
3) How successful have these firms been in handling inclusivity and diversity among its
workforces? How are the issues of worker rights being negotiated?

The garment industry being labour intensive, employed vast majority of women workers. 12% of
Bangladeshi women within the age group of 15-30 years were employed in the industry during
2011. They were usually paid even lesser wages as compared to their male counterparts, which
helped the firms maintain their cost competitiveness.

There were no specific policies for handling diversity and inclusivity in these firms. However,
several NGOs and MNCs like Care Bangladesh and Walmart helped female workers learn more
about their legal rights and created programs to develop their leadership skills.

Therefore, firms like Rana Plaza do give employment to women workers and thereby maintain
diversity but they do not take any measures to handle the diversity and inclusivity.

Negotiation of worker right issues

Attempts by workers to highlight the poor safety conditions in the factories were suppressed by
the Bangladeshi government. There were instances of detention and physical violence on certain
labour activist by the Security forces.

The workers further could not form labour unions as the law required 30% of workforce to
petition in order to form a union which was difficult considering the names of petitioners were
open to inspection by the owners. The workers feared losing their jobs and since there were not
many alternate employment opportunities, the workers usually did not form unions.

Even after MNC audits revealed important labour issues like child labour and extended working
hours at lower wages, there were hardly any steps taken to counter the same. The workers didn’t
have enough opportunities to highlight their concerns on working conditions or negotiate their
wages. The lack of alternate employment opportunities further added to the problem as the
workers were hesitant to form unions and individually they didn’t have enough say to negotiate
for a change.