DHAKA, Bangladesh—Hannah Jones, Nike Inc. 's head of sustainable business, had been lecturing colleagues for years about the dangers of manufacturing in Bangladesh. Yes, the country featured some of the cheapest factories in the world, she argued, but the athletic-gear maker could ill afford another public pasting over its labor practices.

Her counterparts in the production division, charged with squeezing costs, countered that they should all visit the place together and then decide. So one day last year, five of them slogged up a dirty staircase to the top floors of an eight-story building here that housed one of Nike's suppliers, Lyric Industries.

Rolls of fabric were strewn across the production floor and some windows were bolted shut, Ms. Jones recalls, clear-cut hazards in the event of a fire. The building was filled with other businesses, and there was no telling how safe those were. After spending the morning speaking with Lyric managers, workers and people in the neighborhood, they flew home and decided to cut ties with the company.

The decision came not long before another garment-manufacturing hub known as Rana Plaza collapsed, killing 1,100 people in a suburb of Dhaka, in the worst industrial disaster in Bangladesh's history. The tragedy, which happened a year ago this month, has forced Western apparel sellers to re-examine their world-wide search for cheap labor, which has turned Bangladesh into an exporter of $20 billion of clothing a year.

"Our competitors were moving fast into Bangladesh and the pressure was getting bigger and bigger," says Nike Chief Operating Officer Eric Sprunk. "We needed a strong point of view to say, 'Are we going to increase our source base there or not?' "