Please explain just how a retailer paying £2 for a polo shirt, instead of £1 would lead to "much higher prices on the High Street which would cause inflation and probably cost jobs in this country"?

If the retailer is selling it at £15 when its bought for £1 then, using an average 10% net margin rate, the fully absorbed cost to them will be around £13.65

Assuming most of those overhead costs are fairly fixed then your extra £1 will mean a price increase of £1.50, after adding on VAT and duty for imports from outside the EU, to maintain the retailers 10% margin.

So, the retailer is now selling the item for £16.50 but only making the same profit margin. On this one example you might say "well its only an increase of £1.50" but that translates to a price increase of 10%. Roll that out across the millions of products being imported and sold in UK shops (including food) and you'll soon have rampant inflation, accompanied by wage increase demands by UK workers for the hike in cost of living, which will ultimately lead to job losses.

You seem to think I'm against the retailer paying the manufacturer more, but I'm really not. I just appreciate that if that happens then the consumer in this country has to expect a significant increase (in %) in prices in the shops. I don't think that is what the vast majority of people want to happen and so ethics become a minor consideration. Bottom line is if you want ethical supply chains then be prepared to pay for it. I'm absolutely fine with that but many people wouldn't be.

How much extra pay would you demand for working in a building that was about to collapse and kill you?

If you were a NY firefighter - nothing.

How is that relevant to anything ? But since you ask, the answer is none because I am not in that unfortunate situation. Those people that are get the 'going rate' for the locality - it is not you or I that dictate the 'going rate' but the prevalent economic and social conditions in that area. The fact that the 'going rate' is awful and the conditions even worse doesn't change that fact - its one of those situations where if they didn't do the work then somebody else will and their family will starve instead. I don't like that any more than you do and you are sadly mistaken if you think otherwise.

Like I have already said, I am quite happy to pay more for goods to prevent such conditions. The problem is that there are many millions of people who aren't. In fact I'd wager that if you asked the general public if they'd permanently pay 10% more for their goods to help conditions in Bangladesh there would be a less than 10% acceptance. Its not me you need to convince.

With greater publicity and explanation to people about what theiir disposable clothing actually costs in terms of human suffering, I think plenty (but not all) would switch to better clothes, made better, for which the employee gets decent conditions and a living wage.
Unfortunately all the current marketing is about style and price.

Can you explain this, I'm a bit baffled how you get from the £1 cost to a net cost.

I'm talking about the fully absorbed cost after factoring in overheads. The cost to the retailer isn't just the price paid for the product, it is the whole chain from manufacture through to shipping, through to having a store to sell it in, to having staff to sell it, to advertising it, to heating and lighting the store etc

The example used was just that, a very simple example, and of course every line will have a different profit margin - some bigger, some smaller - but using an average product at 10% profit margin on full cost then if you're selling something at £15 and it is priced thus to make 10% margin on cost then ipso facto the full cost is £13.64 giving you £1.36 net margin.

The cost of the retailer buying the product and the cost of the retailer selling the product are very different things. People fixate on the original manufacturing cost but that ignores the whole raft of associated costs that occur between point of manufacture and point of sale.

That can't be right. If you were selling at £15 then you would be making only £12.50 gross as the rest of the sale price (£2.50) would be VAT.

Small, one unit trader under the VAT threshold?

You are correct, but I was working on net price not gross so as not to complicate matters. The figures are unimportant as they were merely examples to illustrate the principle, the principle applies whatever figures you wish to use.

So, basically you're saying that, because most of the retail cost is in overheads, you could double the pittance paid to the machinist in Vietnam and/or provide him/her with better working conditions without doubling the retail price at this end..

Deleted.

Yes in certain sectors you could, no doubt about that, in others you couldn't. It wouldn't make much of a difference to higher end retailers who are buying jeans for £3 and selling for £75, but it would make a difference to Primark-type retailes who buy for £1 and sell for £5.

But again the retailer works on a target profit margin so any increase would be passed on to customers which would create the inflation I mentioned some time back. Unless the retailer is prepared to absorb the extra cost (which is unlikely) then somebody else in the chain has to pay it, and that would be the consumer.

Whilst not specific to Bangladesh, I've just arrived back in Bangkok for the next 6 months and local labour rates plays some part in my day to day role. At the beginning of this year, the Thai national minimum wage increased to 300 THB per day (current r/e approx 41THB = £1.00, meaning minimum pay is approx £7.30 per day). In the North of Thailand, which is mainly agricultural and a producer of rice, sugar cane, and soy, the minimum wage was previously 159 THB / day (£3.8icon_cool.gif. This rise is an 88% increase in labour cost! As most small businesses are so labour intensive, labour represents a much bigger percentage of the cost of the finished product than in the west, for example. (I was in a produce packhouse here yesterday, and there must have been 300 people doing pretty much the same job that I saw being undertaken by 30 people and some basic mechanisation only 2 weeks ago in Spalding, Lincs). Businesses are therefore losing their competetive edge. The effect on small businesses has been huge, and increased inflation means the individual benefit has not been fully achieved. Interesting article can be found here:

[urlhttp://www.bloomberg.com/news/2013-02-26/thai-bankruptcies-rise-as-minimum-wage-rolls-out-southeast-asia.html[/url

A living, minimum wage should be an objective everywhere, but it needs to be managed and implemented in such a way as to reduce any impact - a staged approach may be the best long term solution.

Regarding safe conditions, this should be a pre-requisite: if a suppliers' premisies and working conditions are not safe, then any discerning business should not buy from that supplier.

Nice.

How would you define 'pittance', then, Standee?

Good post.

Agreed.
I don't know if that Thai rice is for export or for domestic consumption but I would say that, if and where the goods are for export, I think the minimum wage could be imposed faster and more effectively if, say, the EU used judicious import restrictions unless fair wages in decent workplaces are proven.


It does seem that Western businesses are sanguine about the conditions in which their goods are produced, until it comes out in the press or a pressure group gets hold of the info and publicises it, [uthen[/u we hear all the "we are working to improve ... " etc.

But that competetive edge is only gained by exploiting the work force.

But is it exploiting the workforce if the national minimum wage at the time was being applied?

The rice is for both domestic and export - Thailand is pretty much the largest rice exporter in the world.

Western business have some degree of blame, but the fact remains that there is a difference between a living wage and a nationally adopted minimum wage: the same is true in the UK

Paying the national minimum wage means you are 1p the right side of illegality. It has absolutely nothing to do with the issue of exploitation.

I found a book in a charity shop yesterday a large-format paperback that cost me more than the 1968 cover price of 12 shillings and 6 pence (I paid 69p). It's the history of the TUC from 1868 to 1968 and the first part is available to read online [url=http://www.tuc.org.uk/the_tuc/tuc-2878-f0.cfmHERE[/url.

I suggest people should read it, British working conditions 150 years ago are very similar to those we pay to make our throwaway items

An increase in the labour cost to produce a t-shirt in Bangladesh has absolutely zero effect on the fixed and variable costs of a UK (or other Western developed nation) retailer.

The TUC has determined that a doubling of the rate paid to Bangladeshi garment workers would add all of 2p to the cost of a t-shirt [url=http://www.tuc.org.uk/international/tuc-22201-f0.cfm?utm_source=twitterfeed&utm_medium=twitterLINK[/url. Of course you could argue that the TUC are taking a simplistic view and are not factoring in the applied percentage profit margins at each stage of production, distribution and sale. But I would counter that with: other than "that's the way it's always worked", why should that be the case? There is simply no sensible reason, other than sheer greed, why those workers wages cannot be doubled.