Addressing Social Issues in Commodity Markets: Using Cost Modeling as an Enabler of Public Policy in the Bangladeshi Apparel Industry

Abstract

Global apparel brands that source production from less developed countries are increasingly exposed to risks that arise from human rights violations. Despite widely publicized factory safety failures, reactionary regulatory efforts remain inadequate. This situation is commonly attributed to unyielding downward price pressure imposed on factories by Western brands. To address this problem, this research develops a comprehensive cost model for low‐cost apparel production following a total cost of ownership approach. Comprehensive production data for cotton T‐shirts from nine Bangladeshi factories provide the basis for model construction. The model reveals that materials generate the bulk of production costs (77%) for a T‐shirt, in contrast to worker wages which generate only 2 percent of the total production cost per unit (e.g., 16 cents out of a $8USD retail price). The TCO provides fundamental insights, grounded in real data, to guide policy and regulation among stakeholders in high‐risk, low‐cost supply chains. Based on the research context, results are considered through the lens of agency theory to provide managerial implications for relevant stakeholders.