Toward Improving Factory Working Conditions in Developing Countries: An Empirical Analysis of Bangladesh Ready-Made Garment Factories

Abstract

With supply chains now extending into developing countries, time and again, working conditions in supplier factories have been found to be unsafe. In this study, we focus on factories in the Bangladesh ready-made garment industry that supplies North American and European retailers. These retailers have adopted an innovative approach toward improving the working conditions of supplier factories by forming consortiums. The consortium of North American retailers is the Alliance for Bangladesh Worker Safety (“Alliance”). The consortium of European retailers is the Accord on Fire and Building Safety in Bangladesh (“Accord”). The central question addressed in this study is the following: How do working conditions in a supplier factory impact the supplier’s trustworthiness from a retailer’s perspective? We characterize supplier factory working conditions in terms of three types of risks, namely, structural risk, fire risk, and electrical risk. Next, we examine the implications of each type of risk for supplier trustworthiness measured as the number of retailers contracting with the supplier factory. The empirical analysis is conducted using archival data on safety inspections from the Alliance and Accord. The results support the contention that retailers are sensitive to working condition risks in a supplier factory; that is, as working condition risks in a supplier factory increase, the supplier’s trustworthiness decreases. However, these associations vary with the type of risk. Specifically, fire and electrical risks are associated with decreased supplier trustworthiness, while structural risk has a marginal effect. Furthermore, the negative associations between working condition risks and supplier trustworthiness are moderated by the size of the supplier factory such that the negative associations are significantly attenuated for larger-sized supplier factories compared to the smaller-sized factories. The study findings, taken together, provide nuanced insights into the marketplace implications of working condition risks in supplier factories and highlight the sensitivity of the retailer–supplier relationship to such risks. These findings also provide actionable guidance on how to manage working condition risks. The online appendix is available at https://doi.org/10.1287/msom.2017.0679 . This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Value Chain Innovations in Developing Economies.

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