Arkansas Business

We missed this earlier in the week: A Wall Street Journal report looking at how unauthorized garment factories circumvented Wal-Mart Stores Inc.'s rules about subcontractors in foreign counties.

The specific case here is in Bangladesh, where a garment factory fire in November killed more than 100 people. The factory had made clothes for Wal-Mart, but not with the retailer's knowledge. It's a situation the Journal says shows the pitfalls of doing business in that country:

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.

What happened with Wal-Mart's order illustrates the pitfalls of doing business here. Facing capacity constraints, Simco subcontracted the work to another company without Wal-Mart's authorization, the Simco executive said. Wal-Mart, which said it has strict rules for factories manufacturing its orders, declined to respond to specific queries about the shorts order.

When the subcontractor's factory, which was also making clothes for Sears Holdings Corp., the European retail chain C&A and others, burned down in late November, killing 112 workers, it exposed the lines that some Bangladeshi manufacturers are willing to cross to get the work done—and the increasing tension and deteriorating labor relations that have gripped an industry that is a lifeline for the Bangladesh economy.

Read the Journal's full report here. There's another by Reuters here.