TOWARDS A MODEL OF CORPORATE SOCIAL RESPONSIBILITY (CSR) INTHE READY MADE GARMENTS (RMG) INDUSTRY IN BANGLADESH

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1 Page 1 of 17 ANZAM 2009 TOWARDS A MODEL OF CORPORATE SOCIAL RESPONSIBILITY (CSR) INTHE READY MADE GARMENTS (RMG) INDUSTRY IN BANGLADESH M. Ziaul Haque (first author) Senior Assistant Secretary, Economic Relations Division, Govt. of Bangladesh & M. Phil candidate, Department of International Relations, University of Dhaka mhziaul@yahoo.co.uk And Dr. Fara Azmat (2 nd author) Lecturer, School of Management and Marketing Deakin University fara.azmat@deakin.edu.au Paper Presenter: Dr Achinto Roy Lecturer, Deakin University Achinto.roy@deakin.edu.au Or Dr Thi Kieu Huong Le huong.le@deakin.edu.au

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3 Page 3 of 17 ANZAM 2009 TOWARDS A MODEL OF CORPORATE SOCIAL RESPONSIBILITY (CSR) INTHE READY MADE GARMENTS (RMG) INDUSTRY IN BANGLADESH ABSTRACT As the primary earner of foreign exchange in Bangladesh, the readymade garments (RMG) industry has been under constant criticism for the absence of corporate social responsibility (CSR) practices in the industry. Based on previous research, and drawing on the model of CSR in food industry developed by Maloni and Brown (2006), this paper aims to develop a model of CSR for the RMG industry in Bangladesh and discusses its various aspects to assist our understanding of the CSR issues in this industry. As the absence of a functional practice of CSR in the industry is considered as a threat to its sustainability, this paper provides important implications for the sustainability of RMG industry in Bangladesh. Keywords: Corporate social responsibility, fair trade, sustainability. INTRODUCTION Due to ethical compromises by the business organizations in recent years, corporate social responsibility (CSR) has gained increasing attention from governments and consumers (Maloni & Brown 2006). CSR has also been adopted as an approach to international development as international institutions like United Nations (UN), World Bank (WB), UK Department for International Development (DFID) have endorsed CSR with the objective of involving the private sector as a key player in poverty alleviation and achieving development goals (Newell & Frynas 2007). Several other development related organizations like the Asian Development Bank (ADB), Australian Agency for International Development (AUSAID) have encouraged a mandatory existence of CSR themes in their policy framework for good governance and outlined the relevance of a responsible private sector in their development literature (ADB 1999; AUSAID 2001). In developing countries like Bangladesh, CSR is a novel concept (Azmat 2008), but has started to gain prominence particularly with concerns for good governance in the important sectors of the economy such as readymade garments (RMG) industry. RMG in Bangladesh is particularly important due to its significance in the national economy, socio-political implications and international linkages. Although the industry has experienced phenomenal growth and has become the nation s primary earner of foreign exchange since 1990s ( Nielsen 2005), it has been facing criticisms and uncertainties which relate to irresponsible business practices such as CSR in BD RMG ANZAM paper.2009 Page 1 of 15

4 ANZAM 2009 Page 4 of 17 adoption of child labor, poor working conditions, low wages to mention a few ( Nielsen 2005). These sweatshop conditions not only create a negative image of the industry for international buyers but also for the consumers in the developed economies as they are increasingly attaching importance to how a company is conducting its business and whether it is adopting socially responsible business practices in its supply chain in developing economies (Fliess,Dubreuil and Agatiello 2006; Lee 2008). Although the issue of CSR in RMG industry in Bangladesh is very important as it is linked with the sustainability of the industry, the topic is severely under-researched. There have been some isolated research on selected dimensions which include gender issues, child labor and concerns with labor rights (Khan 2001; Absar 2001; Khundker 2002; Nielsen 2005; Ahmed 2006; Paul- Majumder and Begum 2006), there has been no consolidated effort to come up with a model of CSR in the RMG industry that outlines the related dimensions. In this paper we attempt to fill this void in the literature and aim to develop a model of CSR in the RMG industry of Bangladesh briefly outlining its different dimensions. We have developed this framework based on review of existing literature and available information on the RMG sector. This paper is organized in three sections. We first review the literature on CSR as a general concept and then discuss the relevance of investigating CSR in the RMG industry. Based on the literature review and discussions, we then develop a model of CSR to identify the major concerns and discuss the various dimensions of the model, followed by the conclusions and implications of the paper. Understanding CSR as a Concept LITERATURE REVIEW Deleted: Business theorists have observed a paradigm shift in business from a traditional positivist approach to an epistemological approach in recent times (Kiel 1998). This portrays business as a part of the greater society, where it has responsibility for reaching beyond the narrow perspective of profit maximization in the short term (Quazi & Brien 2000). Although the term CSR has been CSR in BD RMG ANZAM paper.2009 Page 2 of 15

5 Page 5 of 17 ANZAM 2009 widely researched, there remains ambiguity relating to its definition as it has been interpreted to have various meanings. UNIDO (2002) defines CSR as a response of business to stakeholder s legal, ethical, social and environmental expectations. UNO (2007:1) on the other hand defines CSR as the overall contribution of business to sustainable development. A similar definition is provided by Holmes and Watts (2002:2) on behalf of the World Business Council for Sustainable Development (WBCSD) that defines CSR as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. Similarly Perrini (2006: 306) argues that to be socially responsible, organizations should integrate economic, social and environmental concerns into their business strategies, their management tools and their activities, going beyond compliance and investing more into human, social and environmental capital. Maloni and Brown (2006: 36) go a step further and relate CSR with the stakeholders identifying it as a responsibility which centers on the idea that a corporation may be held socially and ethically accountable by an expansive array of stakeholders such as customers, employees, governments, communities, NGOs, investors, supply chain members, unions, regulators, and media. From a slightly different perspective Campbell (2007) proposes two aspects in the concept of CSR. First, the businesses must not do anything that could harm their stakeholders-notably, their investors, employees, customers, suppliers, or the local community within which they operate. Second, if they do cause harm to their stakeholders, they must then rectify it whenever the harm is discovered and brought to their attention either voluntarily or in response to legal requirements or some sort of encouragement. This definition seems to have the appropriateness which is required from the perspective of good governance and the involvement of the state in this process. In these definitions the issue of self regulation by the business organizations instead of governmental regulation gets prominence. For the purpose of this paper we adopt the definition of CSR as provided by UNIDO (2002) which views business to be working ethically and integrating economic, social and environmental aspects in their strategies. CSR in BD RMG ANZAM paper.2009 Page 3 of 15

6 ANZAM 2009 Page 6 of 17 Discussion of CSR may not be based on a single model (Newell & Frynas 2007). In the context of developing and developed countries CSR should be identified distinctively (Visser 2008; Gugler & Shi 2009). Economic trends, environmental realities, socio-politico-cultural context and scope of business in developing countries differ significantly from other contexts. Also, there are country specific and industry specific differences that deserve cognizance for a credible discussion of CSR. In addition, globalization and precisely the trends in economic globalization deserve attention in the literature of CSR. In sectors like RMG which is entirely tied with international market this relevance is very acute. Economic globalization as a process where economic sphere gains certain independence from the political decision making at a global level (Kopperi 2001) and national level (specifically in economic affairs) (Weiss 2000) poses credible question for the state s authority in regulating the business sector for public welfare. This is particularly a serious concern for developing countries where globalization is not indigenous economically and politically (Wade 1996; Hirst & Thompson 1996) and the state is identified with weak public sector institutions incapable of protecting public welfare and resist the pressure from MNCs. Current literature and realities in the business and corporate world provide a wide scope for a global relevance of CSR with significant obstacles at the international and national level. While approaching CSR for a country like Bangladesh, these constraints deserve attention as the calculation of cost and opportunity cost of CSR appears to be not an easy one. Drawing upon previous research and emerging industry trends in the food industry in USA, which faces many criticisms of CSR issues in supply chain, Maloni and Brown (2006) have developed a comprehensive framework of CSR in the food industry for its sustainability. The framework is based on a number of dimensions which include animal welfare, biotechnology, environment, fair trade, health and safety, and labor and human rights. As ignoring CSR issues present the companies with a greater risk, the development of this framework acts as a strategic tool helping the development of operational supply chain CSR practices Relevance of CSR in the RMG Industry CSR in BD RMG ANZAM paper.2009 Page 4 of 15

7 Page 7 of 17 ANZAM 2009 The existing practice of CSR in Bangladesh is more of a philanthropic and voluntary nature and not a systematic one. Moreover, weak enforcement of the regulatory framework, rule of law, accountability and lack of control of corruption- absence of these components of good governance in Bangladesh- are enabling business to be socially irresponsible (Azmat and Coghill 2005). The private sector in Bangladesh seems to emphasize earning profits on a short term, ignoring the issue of responsible behavior and even the prospect of long term business. The other problems for CSR in Bangladesh is the absence of a functional relationship of the business sector with the society and government (Samaratunge, Teicher and Alam 2008), failure of the state to accomplish the task of capitalist transformation (Alam 1993, 1994) and lack of industrialization. Despite this fragile state of business and industrial base, RMG has witnessed a stunning growth in Bangladesh. Leadership by the private sector has been the sole determining factor in this growth that has boosted investment climate of the country and has positively influenced other sectors like shipping and logistics, real estate, professional services like utilities, CA firms, engineering sector and hotel and tourism (Bhattacharya, Rahman and Raihan 2002). In addition, it is also a huge sector for employment for semi-skilled and unskilled workforce and in particular the female population of the country. This industry occupies the major portion of export earnings by Bangladesh (Absar 2001). In recent years the share of this sector in the total export of Bangladesh has been 73.84% in , 75.06% in and 75.64% in fiscal years (GOB 2007). RMG industry in Bangladesh has developed with a dominant core-periphery structure of production (Rahman 2004:75-76) and dictated by the external elements, where the local investors are not in the driving seat. Moreover, the Bangladeshi state apparatus, increasingly driven by export oriented economic policies, has limited its role to watching from the sideline (Khan 2001:214). As a result, in recent years, this industry has been constantly facing challenges from labor unrest and other socio-political concerns. In the words of the president of the Bangladesh Garments Worker s Federation(CPD 2003:7), there is doubt about RMG as a sustainable business when a large portion of the workers can not have a decent living by toiling most part of the day in the working place. Further there are also concerns about labor safety and the master- CSR in BD RMG ANZAM paper.2009 Page 5 of 15

8 ANZAM 2009 Page 8 of 17 slave rather than partners relations between workers and owners in the RMG industry (CPD 2003). It is widely argued that, for improved competitiveness of the RMG industry, Bangladesh needs to improve the factory working environment and various social issues related to the RMG industry (Haider 2007) and also its responsiveness to consumer ethics and standards (Khundker 2002). Relevance of CSR has emerged as a viable prescription from the civil society, academia, NGOs and very cautiously by the government. Impact of globalization has made the situation more complex. As Ahmed (2006) observes that, there are two opposite pressures of globalization regarding worker s rights- price competition among exporting countries that encourage a reduction in production cost and rising concerns (expressed by consumers, ILO, trade unions ) regarding labor rights. In a developing country like Bangladesh it is very difficult to identify a set of objective or concerns for CSR in a vast industry like RMG. Labor rights and gender realities have over the years topped the list of major concerns in this industry. A research by Absar (2001: 12) found workers are aware of their problems and solutions where the 35 workers interviewed in that research pointed out to the following six solutions to their existing problems- job security (through job contracts and enforcement of factory laws), physical security (through provision of factory transportation), higher wages (in accordance with consumption price increases), regular and timely payment of wages, subsidized accommodation arrangements, and better living conditions. TOWARDS A MODEL OF CSR IN RMG INDUSTRY IN BANGLADESH Drawing on the model of CSR in the food industry developed by Maloni and Brown (2006), we present a conceptual model of CSR in RMG in Bangladesh, based on previous research and the contextual realities in the country. CSR in BD RMG ANZAM paper.2009 Page 6 of 15

9 Page 9 of 17 ANZAM 2009 Figure: 1- Dimensions of CSR in the RMG industry in Bangladesh [Insert figure-1 here] The following section briefly elaborates the various dimensions s of the above model to assess its relevance in the understanding of CSR in RMG industry in Bangladesh. Gender Realities It is often criticized that, economic globalization is centered on the social construction of gender (Marchand, 1996: 600) which has encouraged feminization of labor in the global South in particular in the labor intensive and low wage textile and garments industries (Moghadam,1999:372). About 85 percent of workers in the garments industry in Bangladesh are women. Entrepreneurs in the garment industry have preferred to hire more women because of prevailing beliefs that women are nimble and patient, more controllable than men because of their docile nature, less likely to join trade unions, better at sewing and acceptance of lower wages (Paul- Majumder and Begum 2006:3; Morshed 2007:34). There is a gendered division of labor and gender centric discrimination against female workers in this industry (Absar 2001; Khundker 2002). There are claims of empowerment of women in this process which is reflected in some cases like income, late marriage, decision making, awareness etc. (Paul- Majumder and Begum 2000). But, it lacks far behind from the criteria for empowerment set by different organizations like DFID (2001) and the literature in this area. Research in regard to the welfare of garments worker puts a grim portrait. Paul Majumder and Begum (2000, 2001,2006) mention mental health problems for female workers associated with the garment factories include job insecurity, heavy workload, unhealthy work environment, fear of sexual harassment, bad behavior of the management, lack of child care facilities, claustrophobia and other phobias and depression. This is in addition to the general poor working condition of the RMG factories. There is a wide scope for concerns in regard to the social perception about these workers and their place in the society which relies a lot on their income. The existing approach of the industry towards its female workers and their place in the Bangladesh society is not conducive for their empowerment and improving the gender realities in Bangladesh. These workers are exploited CSR in BD RMG ANZAM paper.2009 Page 7 of 15

10 ANZAM 2009 Page 10 of 17 (Paul- Majumder and Begum 2000) and are rather stuck in the middle of a process- partly unaware and largely incapable to decide the course of their future. Legal Aspects The RMG industry is often criticized for tax evasion and lack of transparency in their business that poses question to the compliance of legal standard in this industry. The management is accused of unjustified hiring and firing and in most cases the retrenched workers are not paid their dues (Rashid 2006). The owners of these factories utilized informalized labor recruitment and workplace policies, which included recruiting workers without proper appointment letters and providing the supervisory staff full authority to hire and fire semi-skilled casual workers whenever necessary (Khan 2001:180). It appears that, documentation and transparency are not considered as best practices in this industry. In a developing country with weak institutional capacity in the public sector these sort of practice hampers governance and public interest. Social Welfare RMG as an industry does not encourage the issue of social welfare for its workers and to some extent to the other segments of the society. This is quite contrary to its huge size and revenue generation. From the very outset as mentioned by Khan (2001:181) most RMG factory owners pursued their business without significant social obligations to their workforce. Workers in this industry are not covered by any social welfare and security initiative by their employers. Rather there are instances when the employer or management has been source of social insecurity for the workers. There is no recreational facility in the industry, although there are occasional events like open air concert, cultural events of mass scale where the scope of recreation is compromised with the intrusion of publicity for the organizers or the sponsors. Female workers face tough time in doing justice to their family responsibilities as there are no mentionable welfare initiatives and child care facilities. In absence of weekly holiday, the workers, their families and their children are all being severely affected both mentally and physically (Rashid 2006). The powerful networks of industry owners have not allowed the implementation of minimum wages, work hour restrictions, worker s pension schemes and fringe benefits (Absar 2001). There is no transportation and accommodation facility for these workers who live mostly in groups. In case of CSR in BD RMG ANZAM paper.2009 Page 8 of 15

11 Page 11 of 17 ANZAM 2009 any violation of labor rights and social security concerns there seems little remedies and the access to remedies appears to be more restricted. Fair Trade The RMG industry in Bangladesh relies on a network of supply chain to procure raw materials and other products. In this supply chain there are small manufacturers who are in a disadvantageous condition with the large manufacturers. Often there are payment delays that results in to arrear bills for several other small businesses within the chain producing a ripple effect on the chain. This results in to low pay of the workers, arrear bills and tension in the supply chain. This situation has an international linkage where the mainstream business is dictated by the foreign buyers and buying houses whose business methods pose credible concern for the adaptation of CSR as a strategic aspect. Cost effectiveness as a strategy to sustain the pressures of economic globalization and recent financial crisis seems to have enhanced the scope of unethical business practice in the kind of supply chain that is relevant here. Fair Pay RMG factories in Bangladesh are accused of extremely low pay in comparison to similar industries in other countries. The practice of low pay has been identified as the major comparative advantage for this industry. The matter of poor pay has several other dimensions like relatively lower pay to female workers, unpaid overtime etc. In most of the factories, the owners deliberately keep at least two months salary and overtime bills of the workers in arrear (Rashid 2006). As latest as 27 May, 2009 a RMG named Mohammodi Fashion 2000 Ltd. in a place called Hemayetpur, Savar sub district adjacent to capital city Dhaka was burnt by angry workers who according to the newspaper report did not get their due arrear payments. The Daily Star report (28 May, 2009) mentions that police fired 40 blank shots and charged baton on the agitating workers, leaving 10 injured. Arrear bills and unpaid overtime appears to be the buffer zone between labor unrest and the management. This contributes to the already non-existent healthy managementlabor relations (Khan 2001:204). The pay structure in this industry seems to be based on the CSR in BD RMG ANZAM paper.2009 Page 9 of 15

12 ANZAM 2009 Page 12 of 17 social vulnerability of its female workers, unemployment situation in the country and the mantra of cost effectiveness at the cost of a labor friendly production system. Labor Rights Due to labor unrest, in the year 2006, nearly 300 factories, including 21 factories in Savar EPZ, were damaged or partially damaged causing a total loss of nearly $ 70 million (Rashid 2006). In recent years incidents like this has appeared frequently mainly due to the poor exercise of labor rights in the industry. The four core labor standards set by the ILO (on the basis of convention no. 87, 98, 29,105,138,182,100 and 111) - freedom of association and the effective recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labor, the effective abolition of child labor and the elimination of discrimination with respect to employment, remuneration and occupation are not practiced by the RMG industry (Morshed 2007). Ahmed (2006) in her studies found that, existing international and national rules and regulations protecting various rights of workers are largely violated in the apparel industry of Bangladesh. Bangladesh has ratified all the above ILO Conventions other than the no. 138 (Minimum Age for Employment, 1973) and is committed to relevant international policy framework including that of WTO. In March of 1993, US Senator Harkin reintroduced his bill to eliminate economic exploitation of children. As a result, in 1995, the (RMG) sector in Bangladesh faced the risk of consumer rejection and threat of product boycott in USA, its major export market, on the issue of child labour. The RMG sector to protect its biggest market took some measures principally as a tactical measure which is not yet part of their strategic mission to eliminate child labour from the industry. The RMG workers can not practice labor rights prescribed by ILO. They are asked to work whole months at a time without a single day off, in contravention of the Factory Act of 1965 (Absar 2001:6). The existences of child labor in the industry, poor working conditions, inadequate and irregular salaries are serious problems in the industry. Without a credible solution of the labor related concerns this sector has the possibility of losing its competitiveness. Trade union movement in Bangladesh is weak and male oriented (Absar 2001:3) and highly politicized CSR in BD RMG ANZAM paper.2009 Page 10 of 15

13 Page 13 of 17 ANZAM 2009 (Khan 2001). This leaves very little space for a healthy trade unionism to flourish. Political involvement of the trade union leaders in a country with a dismal record of political stability and political maturity, poses credible concerns for investors. This situation deserves intervention of CSR as a strategic step to uphold the interest of the industry. Occupational Health & Safety RMG industry seriously lacks in regard to the health care of its workers and safety in the workplace. Major problems in this regard are absence of fire safety measures, first aid, suffocated work place etc. Most of the RMG factories do not have reproductive health care for women workers. Due to absence of such healthcare along with congested and suffocating working environment, the trend of producing physically disabled babies is reportedly increasing (Rashid 2006). Fire safety is another serious concern which a trade union leader has mentioned as virtual death traps for the workers (CPD 2003). According to unofficial sources nearly 300 workers were killed and 2000 injured in fire incidents in garments factories in Bangladesh since 1990 (Rashid 2006). Environment Most of the RMG factories are located in non-industrial areas. Presence of industrial units in residential and commercial places is contributing to neighborhood insecurity, destruction of urban planning, fire hazards due to the highly flammable nature of the raw materials and products in the industry, power shortage due to huge electricity and gas consumption by these industries within the residential areas, air pollution and noise in the neighborhood etc. Most of the garments factories are located in rented premises at commercial or residential areas. They do not have required industrial approval in most cases (Rashid 2006). Unplanned constructions in urban and commercial areas do not provide any room for incorporating safety measures in the infrastructure. For a densely populated country like Bangladesh the location of these factories are major threats to public health and environmental standards. CSR in BD RMG ANZAM paper.2009 Page 11 of 15

14 ANZAM 2009 Page 14 of 17 CONCLUDING REMARKS This study provides a closer look to a calculative exploitation of human resources belonging to the socially disadvantageous and vulnerable segment in Bangladesh. Profit maximization by the entrepreneurs and inadequate commitment of the state in terms of its public welfare mandate appears as the two most frustrating aspects for the implementation of CSR in this sector. RMG industry in Bangladesh seems to be a very suitable case to study the applicability of CSR as an effective mechanism capable of putting human welfare above profit. On the basis of the discussions so far, it can be argued that, CSR needs to be incorporated by the RMG industry in Bangladesh for its survival and sustainability. This paper aimed at shedding light at the realities and the complexity involved in considering CSR in the RMG sector in Bangladesh and has developed a framework of CSR in the industry consisting of a number of dimensions. There is however a need for an elaborate study on specific dimensions of the proposed CSR model like environmental implications, fair trade, fair pay, occupational health and safety, social and economic welfare of garments workers, labor rights etc. Exploring the nexus of the government, political leadership, factory owners and their international partners is another critical area where detailed studies can be pursued. Most important issue in the application of CSR in the RMG sector in Bangladesh is to be extremely judicious and responsive to ground realities as mentioned by Kabeer (2004, 2004a) that the good intentions implemented without due regard for their likely outcomes carry the danger of doing more harm than good to those they seek benefit. As CSR is now increasingly being identified with positively affecting the bottom line performance of a corporation (Lee 2008) and a positive aspect for the competitive position in global trade for developing countries (Gugler and Shi 2009), the study has important implications for the sustainability of the industry. In the absence of any consolidated CSR efforts in the RMG industry the proposed model contributes to the formulation of a comprehensive tool to consider CSR practices within the RMG industry. CSR in BD RMG ANZAM paper.2009 Page 12 of 15

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17 Page 17 of 17 ANZAM 2009 Wade Robert (1996) Globalization and its Limits: Reports of the Death of the National Economy Are Greatly Exaggerated in Berger S. and Dore R. (eds.) National Diversity and Global Capitalism, Cornell University Press: Itacha, NY. Weiss Linda (2000) Globalization and State Power, Development And Society Vol. 29(1):1-15. Deleted: Page Break Figure: 1- Dimensions of CSR in the RMG industry in Bangladesh CSR in BD RMG ANZAM paper.2009 Page 15 of 15