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Is the Bangladesh factory collapse a turning point?

Benjamin Skinner, co-founder of Tau Investment Management on how retailers, factory owners, and investors can work together
Benjamin Skinner, co-founder of Tau Investmen... 02:50

As the world commemorates the one-year anniversary of the deadly Rana Plaza factory building collapse in Bangladesh, an overriding question remains: What can be done to prevent such industrial accidents in the future, especially in emerging economies and business sectors like Bangladesh's garment industry?

Many European and North American retailers, who depend on the Bangladeshi textile industry for their apparel, have responded to the factory collapse with their own worker safety initiatives. There have also been calls for consumers to consider the human cost behind that bargain-priced clothing we all demand.

At the same time, the media has picked up on the parallels between Rana Plaza and a similar disaster, a century earlier in New York City, when 146 people, mostly young immigrant women, were burned to death or forced to jump to their deaths after a fire swept through the Triangle Shirtwaist Factory. That 1911 tragedy gave new momentum to the U.S. labor movement; it also introduced regulations and reforms for workplace conditions and safety.

U.S. punishes Bangladesh for unsafe factory c... 01:57
But will Rana Plaza, like the Triangle Shirtwaist Factory, serve as a turning point for garment industry workers or another missed opportunity?

"I think that this disaster was big enough proportions that it caught the attention of the world in the way that perhaps some of the smaller incidents of the past have not," said Douglas Allen, director of the international MBA program at the University of Denver's Daniels College of Business. "I know that it's come up in conversations I've had with some of my MBA students in China as well."

There could be another incentive for change: profit. Some investors think Rana Plaza has opened the door to investment opportunities that can also improve safety and working conditions for garment workers in Bangladesh.

"It's not about altruism, it's about money," said Benjamin Skinner, co-founder and senior vice president at Tau Investment Management.

The New York venture investment firm believes that global supply chains have reached a critical point. "Decades of outsourcing and offshoring have reduced costs for leading corporations," it notes on its website, "but have also brought calamitous risks and inefficiencies."

And what Tau characterizes as a "race to the bottom" -- the cost-cutting and focus on productivity and profit ahead of investment in employee training, safety and well-being -- has led to tragedies like Rana Plaza, according to the firm.

Part of the problem, Skinner said, is what he calls "short-termism" at the factory and retail levels. Bangladeshi apparel manufacturers "are looking at 60-to-90-day lead times, [with] extraordinarily, razor-thin margins," he said.

In a country like Bangladesh, with its high interest rates on business loans, factory owners are more likely to invest in something that cuts down on their lead times, like a new machine, rather than in safety upgrades or new equipment.

"The way these supply chains are run is just not efficient; it's just not good business," said Oliver Niedermaier, Tau Investment's chairman and CEO. "Whoever can provide capital and expertise and access to buyers, and really fixes the problems in global supply chains, will have a huge value creation opportunity -- and therefore it is a very good area to invest."

Niedermaier gives the example of how such investment, combined with the willingness of a hypothetical Banglaeshi factory's majority owners and management, could transform a work environment.

"We're going to buy new machinery, new sewing machines," he imagined. "We're going to realize equal efficiencies by putting in a new boiler system and reducing water consumption; upgrade the management team, inject a middle management layer. We're going to help you train your workers on these new sewing machines, we're going to source more raw materials, we build a proper child care facility."

Changes like these create more efficient and conscientious companies, he said.

But initiating that process across an entire industry is far from easy, and involves bridging daunting cultural and economic challenges to the way business has been done in the past.

But in the long-term, Skinner noted, that effort is "about simplifying your sourcing, going to those vendors that are going to be reliable, where the lead times are going to be as promised, where the quality is extremely consistent and where the cost is eminently fair - - to the point we don't believe that you have to raise costs significantly to the buyer in order to have the products that are all of the above."

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