The Supply of Primarks Products Originates from the Bangladesh Garments Industry - Case Study Example

Name: Course: Tutor: Institution: City and State: Date: Introduction Businesses have a responsibility to the society in which they operate dictated by the code of conduct. In a wider perspective, businesses in the developed nations have a duty to contribute towards improving living standards of underdeveloped nation’s citizens (Sloman & Jones 2011 p.123). Going against this responsibility results is equivalent to unethical conduct that unacceptable in the modern era. Moving away from the colonial era where certain nations controlled the entire global economy involves improving economic conditions of underdeveloped nations through alleviating poverty. Primark Stores Limited is a company in the retail industry whose sourcing policy places it in the limelight under unethical conduct. Demand and Supply Bangladesh represents the underdeveloped nations that face exploitation from members of the developed nations through poor pay for their raw materials hence the permanent state of underdevelopment. Underdeveloped nations’ exports include over 80% of unprocessed goods offered at cheap prices to developed nations (Financial Times 2015 p.6). This problem emanates from poor technological advancements as well as slow industrial growth in the economies. Developed nations have identified the weakness and swooped in to reap the benefits from the woes of the underdeveloped economies. They source cheap factors of production to produce manufactured goods that fetch higher prices in the global market hence end up being the main beneficiaries of these products. Underdeveloped countries are the main contributors and the backbone of the global economy due to their wealth in raw materials but reap the least from benefits derived from them. The supply of Primark’s products originates from the Bangladesh garments industry where large-scale production of garments takes place. There are a large numbers of workers putting in extra hours in these production houses to ensure the provision of high quality products to the market. Other fashion houses have been associated with this source of supply that contributes to approximately 80% of Bangladesh’s exports. The highest percentage of workers in the country attributes their income to the garment’s industry that provides them with income for necessities and other daily expenses. However, this source of the company’s products has been marred with various unethical claims from the public (Siegle 2013 p.5). Low cost of production is the main driver of the company’s choice of the supplier due to cheap labor provided by workers in the garments industry. The industry offers cheap labor with the workers receiving wages below the minimum accepted wage rate in the UK. Workers receive half the pay they expect to receive on an hourly basis amounting to exploitation (Dhariwa 2009 p.10). The employer takes advantage of the fact that workers are entirely dependent on these jobs for their daily bread hence appreciate whatever wage rate offered. Poor working conditions characterize the factories with workers forced to work while heavily dressed due to lack of heating systems. Lack of necessities such as toilets in the working areas further accelerate the problem of poor working conditions faced by workers in the factories. Negative economic implications on the Bangladesh economy emerge from the operation of high fashion companies such as Primark in the country. In addition to the low wage rate offered to the workers in the country, the economy loses a large portion of its revenue from the employment of illegal immigrants. Illegal immigrants lack proper documentation from the country’s authorities hence the hardships in tracing their incomes. This translates into the loss of revenue payable in form of taxes from this group of people who enjoy the public utilities provided by the government. There government revenue collection therefore suffers from the low amount of taxes collected annually due to low-income levels of the citizens and tax evasion realized from employment of illegal immigrants (Siegle 2013 p.9). High demand for high fashion in the west offers Primark a wide market for its commodities. Primark provides its customers with high street fashion and especially in the knitwear segment. Its products comprises of fashion forward designs that the market highly appreciates hence the company enjoys high level of demand for its products. In Europe, the major market for its commodities comprises of consumers between the 18-44 years. The company therefore targets young people as its target market segment producing clothing that suits their taste in terms of keeping up with the fashion trends. The company based in Ireland has faced criticisms of its discriminatory market segment by serving the areas dominated by the Irish-American population while neglecting the rising numbers of the African-American people and the Hispanics in the US market (Financial Times 2015 p.15). Market Equilibrium The forces of demand and supply dictate the prices offered by firms in the fashion industry. The high demand for Primark’s commodities is matched with a high level of supply from its factories in Bangladesh. An increasing level of demand pushes the company to increase its level of production by making the workers put in extra hours (Sloman & Jones 2011 p.106). The labor force faces substantial amount of pressure in meeting the high quality standards and meeting the deadlines. In recent times however, governments have seen the need to interfere with the free market mechanisms through taxation and other restrictions. This has worked to regulate the market in which Primark holds a large share, which has had negative impacts on its profits margin. The attainment of market equilibrium relies on the forces of demand and supply to achieve stability. The equilibrium price is the price at which the demand equals the supply of a particular commodity (Audi 2009 p.43). In Primark’s case, the commodities reach the market at equilibrium price since there is absence of excess demand or supply. The company achieves this equilibrium through the monitoring of the production process to ensure its ability to satisfy the existent level of demand. It ensures that the production aligns with demand through producing according to orders given by customers. The orders reaching the factories depend on the market research conducted on the fashion trends to establish the needs of the customer. This enables concentration of production activities on the high demand commodities while overlooking the products that do not contribute to demand satisfaction. However, price of the commodities and the income levels of the consumers always intervene towards the attainment of equilibrium price and quantity. Price Mechanisms Primark has made its mark as a producer of affordable commodities without compromising their quality. Its stores offer consumers considerably low prices for the high street fashion clothes hence the high level of demand for their products across their chain stores. The law of demand suggests that the lower the prices, the higher the level of demand at ceteris paribus and this undoubtedly holds true to Primark’s operations (Sloman & Jones 2011 p.22). Its type of product however attracts high price elasticity of demand since a small increase in price would lower the demand by a large proportion. Increasing the price of its commodities would lead to the loss of customers to its competitors who offer products at the same price. Price is therefore a crucial element in the maintenance of high demand levels for the company as well as in attracting new customers. Income level is among the great determinant of the level of demand for a commodity hence the need to identify the income dynamics of the target market. The consumer base of Primark comprises of low income earners most of whom cannot afford pricey luxurious clothes. Primark offers them an opportunity to look trendy without breaking the bank and to ensure they make repeated purchases. Dealing with low cost commodities unlike high cost products involves dealing with high level of elasticity in demand. Examining the income adjustments for the consumers would reveal that an increase in their income would highly influence the choice of fashion and gravitate towards expensive and durable products (The Economist 2015 p.8). The largest proportion of the population associates high price with high quality and vice versa without considering other factors involved in the production process. Increasing levels of income of its consumers would therefore lead to a loss of demand since adjustments of its prices proves a futile move. Corporate image has a direct implication on the performance level of a company since it attracts or repels consumers. Ethical issues surrounding Primark’s sourcing policy has had negative implications on the demand level especially in the UK market. Association of the company to exploitation of its workers in Bangladesh has tainted the company’s image. The collapse of Rana Plaza in Bangladesh unearthed serious concerns from the public on the welfare of the workers who put in hours of hard work into producing the high fashion products for the market in the UK and the US. It revealed the poor working conditions and the accelerating poverty levels among the population despite having employment (The economist 2015 p.4). The response of Primark to the tragedy however, saved the perception towards its sourcing policies by expressing genuine concerns on the welfare of the victims and paying them salaries for nine months without working. Market tastes and preferences influence the levels of demand in the fashion industry due to the versatile nature of commodities (The economist 2015 p.5). Primark is capable of following fashion trends and delivering fashion forward products to its customers hence its ability to maintain the top position in providing affordable high fashion products. However, the company has lagged behind in embracing technological advancements that could facilitate its growth. It lacks an ecommerce platform that has greatly boosted the performance of various firms globally. This sets a major obstacle in offering convenient services to its customers who would appreciate the ease of shopping. Embracing the technological era could therefore go a long way in the maintenance of high demand levels for its products and open opportunities in the global markets. Market Structure Primark operates in a monopolistic market structure with numerous sellers offering differentiated products. Generally, the sellers offer a similar product, clothing, but infer the concept of differentiation strategy to gain competitive advantage over competitors. Primark faces stiff competition from their fashion houses such as Zara and H&M who operate under similar conditions. They possess a common source of raw materials and labor, Bangladesh, and their workers operate under similar conditions. Primark has managed to brand its products using the price element and the high street fashion label hence gaining a competitive edge over its competitors. Ethical concerns however mostly focused on Primark due to its low prices since the public sort to understand the reason behind these prices (Audi 2009 p.132). However, the company quickly jumped to its defense through the argument that its competitors experience low production costs though they continue to offer products at higher prices. Profit maximization, revenue maximization, and cost minimization emerge as the paramount reasons for the operation of a business (Sloman & Jones 2011 p.87). Maximizing profits involves maximizing revenue while minimizing costs to acquire a large difference between the two elements. Primark minimizes costs through engaging cheap labor and cheap raw materials to produce quality products at the lowest cost. In recent times however, the government has raised VAT tax on cotton, which has posed a major challenge to the company. This translates into higher production costs hence lowering the company’s profit margin considerably. The company cannot raise its prices above the equilibrium price due to the high price elasticity of demand for its products. Rising petrol prices associated with high inflation also have a negative implication on the previously stable growth of the firm due to the reduction in the consumers’ disposable income. Recommendations Solving the ethical issues surrounding Primark’s sourcing policy would greatly boost its performance level. The solution to these problems involves addressing the working conditions of workers and improving their income levels. The government could intervene through taxation of products sourced from underdeveloped nations (Financial Times 2015 p.12). Providing the minimum acceptable workspace standards would boost the morale of workers while improving the corporate image. Income incentive is among the most effective measures to solve the poverty levels of the Bangladesh population. Paying the minimum wage rate and incorporating benefits would greatly improve the living standards of the working population hence improve the economy. The sourcing policy could become an asset to the company in boosting its corporate image. Conclusion Sourcing of raw materials poses a serious concern for the ethics surrounding the process especially with the involvement of a developed nation (Audi 2009 p.76). Developed nations have a mandate to uplift the economy of the underdeveloped economy towards achieving a stable global economy. The exploitation of citizens in these countries through poor pay and poor working conditions contradict this mandate and reinforce the colonial era. Primark therefore finds itself in a position that requires urgent attention to save the image of the company. Reflection The case of Primark’s ethical sourcing policy is a revelation to the unbalanced relationship between developed and underdeveloped nations. I have learnt that, not all that glitters is gold since the sourcing of cheap raw materials from Bangladesh seems helpful to their economy in terms of employment opportunities but on closer examination, it is mere exploitation of their resources. I have learnt that ethics go beyond business minded decision making and leans towards humanity and the protection of the common good of the society (Siegle 2013 p.10). Developed nations should therefore consider the long-term effects of the commercial activities on underdeveloped economies in order to adopt the term ‘ethical’ in their operations. References Audi R. (2009). Business Ethics and Ethical Business. Sydney: Ashbury Publishers. Dhariwa N. (2009). Primark linked to UK sweatshops: Factory workers making clothes destined for fashion chain Primark work up to 12 hours a day for £3.50 an hour, an undercover BBC investigation has found. 12th January. BBC News. Available from http://news.bbc.co.uk/2/hi/7824291.stm [accessed 3rd November 2015] Financial Times (2015). Bangladesh pledges to reform labour laws. 5th September. Available from https://next.ft.com/content/cdf4cc44-b556-11e2-850d-00144feabdc0 [accessed: 3rd November 2015] Financial Times (2015). Business must take the lead on Bangladesh’s working conditions. available from https://next.ft.com/content/614f6e1c-b19d-11e2-b324-00144feabdc0 [accessed: 3rd November 2015] Financial Times (2015). Primark lands in Boston with dreams to break tough US market. 9th September. Available from https://next.ft.com/content/ebdf1910-5533-11e5-b029-b9d50a74fd14 [accessed: 3rd November 2015] Siegle L. (2013). Ethical shopping: how the high street fashion stores rate. 17th may. The Guardian. Available from www.theguardian.com/fashion/2013/may/17/ethical-shopping-high-street-fashion [accessed: 3rd November 2015] Sloman J., Jones E. (2011). Economics and the Business Environment. United Kingdom: Oxford Publishers. The Economist (2015). Faster, cheaper fashion: a rapidly rising, super-cheap Irish clothes retailer prepares to conquer America, rivals should be fearful. 5th September. Available from www.economist.com/news/business/21663221-rapidly-rising-super-cheap-irish-clothes-retailer-prepares-conquer-america-rivals-should [accessed: 3rd November 2015] The Economist (2015). No sparks: M&S is struggling to catch up with changing fashions. 14th July. Available from www.economist.com/node/21558608 [accessed: 3rd November 2015] Appendix Shift in Demand Demand curve Price Quantity An increase in price for Primark’s commodities would result into a shift in demand to the left. An increase in income also shifts the demand curve in a similar direction. Image Paul Lister, Associated British Foods: 'We would welcome increases in the minimum wage" http://www.bbc.com/news/business-24646942 Read More