It’s time to talk about the cost of compliance in RMG sector
Doing business has become an increasingly costly endeavour in the global ready-made garment (RMG) industry. Since I started out a couple of decades ago, the number of regulatory—and costly—hoops one has to jump through has increased dramatically. If a casual observer were to look into the amount of money factory owners spend annually simply for the right to be allowed to operate, they would be in for quite a shock. This is not a complaint, by the way. Compliance is good and, for the most part, necessary—although the amount of money being "creamed off" by middlemen and agents in our sector does frustrate me at times.
Having said that, it is time we started looking more closely into the burden of compliance on the RMG factories. To this end, I greatly appreciated a new study recently done in the United States, where researchers conducted an in-depth survey to establish all of the actions that apparel factories need to take in order to come into compliance with the international labour standards. The study was described as the first step towards determining what such compliance would cost the consumers, and building support for making the needed changes.
It must be noted here that, at present, consumers are barely—if at all—impacted by these compliance costs. If they were, clothes would be much more expensive (and that is perhaps what we need to start thinking about).
So what did this study find? The study looked at what apparel factories need to do to comply with international labour standards: fair pay, working conditions, fire safety, and so on.
To conduct the study, researchers spoke to 15 professionals with experience in auditing apparel factories to evaluate the extent to which factories comply with international labour standards. They wanted to calculate all of the actions factories would need to perform in order to come into minimum compliance with those important labour standards. They also costed these actions. They found that the number of costs associated with meeting each standard would vary from factory to factory and, of course, this would depend on the work they had already done.
What is interesting here is that future research will assess individual factories to see what the costs would be for each of them. They will then, in turn, calculate what compliance would mean in terms of the cost for each finished item of apparel.
It should be noted that this research only focused on labour standard compliance. There are other costs of compliance for factories to consider these days as well. Many factories now are being asked to undergo environmental audits—this being an area of huge growth. There are also many private industry eco-labels which are increasingly becoming "must-have" as far as buying teams are concerned.
In our industry, if one wants to work with large buyers, there is only one way to do this—comply. That partly explains why we are seeing a move towards consolidation within our industry, with fewer, larger factories. These large factories need economies of scale to pay the cost of compliance.
One thing that is certain in all of this is that the cost of compliance will continue to increase. Keeping that in mind, we need to start thinking about how costs can be passed back down to the consumers. If people want clothing which has been produced in a safe environment, where workers are treated properly, where production adheres to high environmental standards and so on, that is fine. But they can't demand all of that and still expect to pay cheap prices. Let's remember that when the fast fashion model was created a couple of decades ago, these compliance costs were a fraction of what they are now. We had not, for example, seen the huge overhaul in safety issues in Bangladesh. We had not also seen the growing influence of the International Labour Organization (ILO) standards, which have done a lot to improve the lives of workers in our industry.
The supply chain model has changed remarkably since fast fashion's invention. But prices, sadly, have not kept pace. Price deflation (in real terms, anyway) remains a huge issue in our industry. The cost and burden of compliance keep falling on the factories—hence, it is no surprise that, in some cases, factories cut corners. The auditing model, as we are constantly told, is weak and only represents a moment in time. Factories put their best foot forward when auditors arrive, but what about when the auditors are not there?
Many of these issues could be addressed, I believe, if compliance costs were shared by all—including the end consumers. The researchers in the study mentioned above suggested that they would soon attempt to estimate a total cost to these compliance issues. This cannot come soon enough, and it will be enlightening to see what figure they come up with. Such figures might open the eyes of people who have little idea of what it takes to run a viable RMG factory in the present day and age.
When we do have this cost figure, perhaps we can start thinking about what we can do with it. In an ideal world, I would like to see all RMG factories put the breakdown of compliance costs in their labels. This would tell consumers what it costs to ensure that the product they are purchasing has been produced in a factory that treats workers fairly and has respect for the environment.
Surely, this is something our industry can start to consider? As well as ensuring a fairer industry where suppliers don't bear all the burden of compliance, it would bring the consumers closer to our industry and give them a better understanding of what it takes to produce sustainable garment products. They might be picking up a T-shirt off the rail with a USD 10 price tag, but there is a story behind that which, at present, they have little awareness of. Perhaps it is time they found out.
Mostafiz Uddin is the managing director of Denim Expert Limited, and the founder and CEO of Bangladesh Apparel Exchange (BAE) and Bangladesh Denim Expo.