Bangladeshi garment workers get only 2.96 percent, or just $0.54, of the $18.25 retail value of a polo shirt in the Western world, said the Fair Wear Foundation (FWF), an Amsterdam-based rights group, yesterday.
The FWF's research showed many buyers were not willing to pay more after the minimum wage was increased in Bangladesh in 2013, said its expert Klaus Hohenegger.
Brands agree to increase prices when the fabric cost goes up or currency fluctuates, but start bargaining when the minimum wage goes up, making the argument that factories simply need to -- increase their efficiency.
“This must be seen within the context of Bangladesh where the prices of garments have been steadily going down year by year despite the rising cost of production,” Hohenegger said at a workshop yesterday.
The FWF and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) organised the workshop styled “labour minute costing and price negotiation with buyers” at the capital's Lakeshore Hotel.
“Our view is that it is the buyer's responsibility to comply with the legal wage requirements,” Hohenegger said, while calling for transparency in the 'Free on Board' (FOB) pricing.
FOB is the point at which the ownership of the goods is transferred to the buyer such that the seller is no longer responsible for damages.
Making the cost of labour transparent is important as it shows that it is entirely possible to increase wages without affecting the 'marketability' of the garments concerned since the cost of labour is just a fraction of the retail price, said FWF's Country Manager Koen Oosterom.
The total manufacturing cost of the $18.25 polo shirt in a factory in Bangladesh is $3.50. The manufacturers sell the item to the wholesalers at $3.85, which includes a 10 percent profit margin.
The manufacturers have to spend $1.75 on fabrics, $0.40 on accessories, $0.25 for embroidery and $0.10 for packaging.
The manufacturers' direct labour cost (salary) is $0.33, indirect labour cost (different allowances) is $0.21, management cost $0.17 and factory running cost $0.29.
The wholesalers and retailers also spend certain percentage of money for insurance, transportation and duty.
The FWF labour minute calculator shows how much the price of a garment item would need to go up in order to give factories the required financial room to ensure payment of at least the legal minimum wage, all other things being equal, Oosterom said.
The tool also makes it possible to calculate the labour cost per product based on a higher wage level, such as a living wage benchmark or a wage agreed through collective bargaining agreement.
Garment prices are highly sensitive, particularly in the fiercely competitive fast fashion sector, but a detailed examination shows that the labour element accounts for a relatively small share of the price that consumers pay.
Fazlee Shamim Ehsan, the second vice-president of the BKMEA, pointed out that in a margin-driven industry buyers are often unwilling to shoulder the higher costs of compliance with new legal wage requirements.
“Suppliers are at times reluctant to provide a detailed breakdown of costs, concerned that it will be used against them and they will be pressured to lower prices even further.”