THE WALL STREET JOURNAL

Bangladesh: How Rules Went Astray

Jobs Went to Unauthorized Factories Despite Wal-Mart's Strict Code; Then Tragedy Struck

Figure 1: Bangladeshi officials inspected the burned-out garment factory on the outskirts of
Dhaka on Nov. 26

DHAKA, Bangladesh—In the last week of October, a supplier for Wal-Mart Stores Inc. placed
an order with garment-maker Simco Bangladesh Ltd. to produce 300,000 girls' shorts for
shipment in early December, according to a senior Simco executive.
Many of the world's biggest brands have turned to Bangladesh as a low-cost production base,
and Wal-Mart has become the largest buyer, sourcing more than $1 billion in garments annually,
according to the Bangladesh Garment Manufacturers and Exporters Association.

The apparel industry accounts for 80% of this poor South Asia nation's exports, and it's one
reason why the country's economic fortunes have been rising. Bangladesh exported $19 billion in
clothing last year, second only to China and double its overseas sales five years ago.
Investigators are still studying the cause of the fire and looking into reports that workers were
trapped inside the factory because managers locked the doors to prevent employees from stealing
garments. The garment industry association says that most of the apparel industry's factories
meet fire-safety standards. Foreign retailers say they have also made efforts to improve safety.

Figure 2: The fatal fire occurred at a factory in Ashulia, an industrial zone north of Dhaka,
Bangladesh's capital

But the aftermath has renewed attention on the industry's working conditions and exposed holes
in retailers' efforts to vet factories for safe practices. It is also causing rising discontent among
workers: On Monday, some 10,000 people clashed with police, forcing the closing of 50
factories.

The fire occurred at a factory in Ashulia, an industrial zone north of Dhaka, Bangladesh's capital.
How the factory came to be making clothes for Wal-Mart on Simco's behalf helps illustrate how
the industry works. It also happened, the Simco executive noted, amid a crush of work and tight
deadlines.
In Ashulia, workers, who generally enter the industry at the government's monthly minimum
wage of $37 a month, have increasingly gone on strike, demanding higher pay and better
conditions.

Factory owners have responded by locking the workers out for days at a stretch. Police have also
arrested scores of protesters. Local news reports of the death of a garment-workers activist,
Aminul Islam, who was discovered in April with signs of torture on his corpse, have added to the
tense atmosphere.

As a result, many employees from Bangladeshi villages who worked in the industry have opted
to stay home rather than return to the factories, workers' groups say.

"Many workers went back to their villages because of criminal charges filed by factory owners"
related to the protests, adds Babul Akhter, president of the Bangladesh Garment and Industrial
Workers Federation.

Figure 3: Ashulia in Bangladesh

Many factories, including one owned by Simco, the manufacturer that got the Wal-Mart
supplier's order, have faced worker shortages. The senior Simco executive, who declined to be
identified, said the factory couldn't complete Wal-Mart's order because 380 workers failed to
return after celebrations for the holy day of Eid al-Adha.

Instead, Simco decided to subcontract the job to one of Bangladesh's thousands of other
manufacturers, a standard practice in the industry, according to factory owners.

Tuba Group accepted the order, and in early November, Simco signed an agreement to transfer
the fabric it had imported duty-free to Tuba Garments, a Tuba Group unit.

As part of their effort to ensure that the factories that make their clothes meet safety and other
requirements, Wal-Mart and other big retailers have rules about when their orders can be passed
on to another manufacturer.

Wal-Mart, for instance, says that it is the suppliers' responsibility to use factories approved by
the company, and it warns in an extensive manual that suppliers can be banned from doing
business with it if they fail to get that approval.

Simco was familiar with those rules, because it has been making clothes for Wal-Mart for more
than a decade and sells 70% of its production to the company, the senior Simco executive said.
Yet he said Simco sent the girls' shorts order to Tuba Group without Wal-Mart's prior approval.

The executive said Simco believed this was acceptable because some of Tuba Group's factories
had been approved to make clothes for Wal-Mart. Indeed, a document on Tuba Group's website
indicates that Tuba Garments, the unit that contracted with Simco, underwent a successful Wal-
Mart audit in July 2011. Wal-Mart declined to comment on whether Tuba Garments is currently
a supplier.

But the shuffling didn't stop there.

Tuba Group has a history of moving orders between its factories, and it had gotten into trouble
with Wal-Mart for this before, according to another document on Tuba Group's website. The
document lays out details of a January 2011 audit of Tuba Textile Mills Ltd. that found that Tuba
officials had broken Wal-Mart's rules by allowing one of its nonaudited factories to stitch labels
onto garments.
Nonetheless, Tuba Garments passed the shorts order onto yet another Tuba Group unit called
Tazreen Fashions Ltd. without seeking permission, according to the Simco executive.

Figure 4: A photo taken at Tazreen Fashions, the factory in Ashulia, Bangladesh, where a fire
killed at least 112 people on Nov. 24

Wal-Mart said in a statement last week that it had previously banned Tazreen Fashions from
making its clothes but provided no other details.

A series of social audits—or checks by third parties that factories are safe, don't use child labor
and follow other rules—turned up problems at Tazreen Fashions' factory, according to a
document on Tuba Group's website and third-party auditors.

Wal-Mart declined to comment on the details of the audits of any Tuba Group companies. It said
that its supplier, which it declined to identify, had sourced garments from Tazreen Fashions
without authorization and that it had terminated its relationship with the supplier after the fire.

Attempts to reach Delwar Hossain, Tuba Group's owner and managing director, were
unsuccessful.
According to Bangladeshi media, Mr. Hossain said at a news conference last week that he
believes the fire may have been an act of arson. In interviews, he also said that social audits
carried out for Wal-Mart didn't raise fire-safety issues at Tazreen Fashions.

An auditor for Wal-Mart, U.K.-based Intertek Group PLC, found Tazreen Fashions to be "high
risk" during an inspection over a year ago, according to Mamun Zaman, a Bangladesh-based
operations manager with Intertek.
Mr. Zaman said third-party companies such as his check factory safety and conditions but don't
necessarily know if unauthorized subcontracting occurs among companies that are part of a
larger group.

Sanjida Khatun, a garment worker who says she was employed by Tazreen Fashions for two
years but left in October, said she never took part in fire-drill training while working at the
factory. "We never had a safety drill and were never told what to do in case of a fire," she said.

Sears also said it didn't know its clothing was being made at the Tazreen factory. It added that it
had fired the supplier responsible, which it identified as International Intimates Inc. The New
York-based supplier didn't respond to requests to comment.

Siddiqur Rahman, vice president of the garment manufacturers group, said Wal-Mart's supplier
had placed orders totaling 2.4 million pairs of shorts with at least 10 factories, including the one
owned by Simco. The decision by Wal-Mart to end its relationship with the supplier, effectively
canceling the orders, could cause losses of up to $7 million and put 20,000 workers out of jobs,
Mr. Rahman said.

Pressure from foreign retailers has helped improve some conditions for workers, including nearly
eliminating child labor from the garment industry, workers' groups acknowledge.

Bangladeshi officials say that further improvements in working conditions and wages will cost
money but that foreign retailers have been loath to pay more to finance such measures.

"The buyers write to us to improve working conditions. We asked them to raise prices by 25
cents per clothing unit that would go to workers' welfare. They refused, citing the financial
downturn in their countries," said Mikail Shiper, a senior official in Bangladesh's Ministry of
Labor and Employment.

Retailers say they have been working to improve their sourcing practices. Wal-Mart, which
works with around 100,000 suppliers, said that last year it asked them to stop working with 155
factories. Roughly a third of those were in Bangladesh.

Labor groups have persuaded some retailers to offer financing to help improve fire safety in
Bangladeshi factories.

But a Wal-Mart executive, speaking at a meeting last year with other retailers and organized-
labor groups, said that "it is not financially feasible for the brands to make such investments,"
according to members of the labor group Clean Clothes Campaign.

Wal-Mart said the comment was taken out of context. "We firmly believe factory owners must
meet our standards," said Kevin Gardner, a company spokesman. "We recognize the cost of
meeting those standards will be part of the cost of the goods we buy."

—Tom Wright contributed to this article.