Bangladesh RMG Industry’s Road to 50 Billion Dollar Milestone - How Far It Is?

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The challenges Bangladesh RMG industry needs face to meet the 50 Billion Dollar mark by 2021.

March 28, 2017: Bangladesh RMG Industry’s Road to 50 Billion Dollar Milestone - How far it is?

For Bangladesh RMG [herein after referred as BDRMG] Industry eyeing on an ambitious goal not dreamy at all amid eye-popping growth, it has met in its decades-long journey. The maturity of the industry is undisputed now. The bite of the BDRMG in the 500 billion dollars global RMG market is just smaller than China’s; in spite of odds, it had to face at home and abroad. Out of top ten LEED certified factories of the world, BD housed five, of them three topping the list. Hundreds more are in process. A somewhat calm political atmosphere has also been prevailing in the country for quite some times.

Inspired by the backdrop the industry has planned to reach 50 billion dollar milestone by 2021, the very year the country will celebrate its 50th anniversary of freedom.

Bangladesh RMG Industry

Let’s see the facts & figures approaching the milestone. Well, Dollars earned so far, well short of target. Export Promotion Bureau, Bangladesh [EPB] data show, RMG export in the first eight months of the last FY [2015-2016] stood at $28.09 billion. The first eight months [July-Feb] of the current FY [2016-2017] recorded an export of 18.64 billion, against 18.13 billion of the same period of FY 2015-2016. A mere 2.82% rise in growth. BDRMG requiring around 13% healthy growth to reach the 50b dollar milestone. With this progress report in hand, the industry has to fight in fronts at home and abroad as well, in order to maintain the growth required. Let’s look into the hurdles BDRMG has to cross over to reach the 50 Billion mark.


Peaking Costs of Production


Peaking costs of production, perhaps the major concern at home. When every segment in the FTAR industry has to bow down to meet customers’ demands for a low price, experiencing a rise in costs of production by a segment will invariably shrink growth in sales and the market share eventually. In recent times, BD RMG has encountered a sharp rise in the payrolls resulting from meeting the demands of minimum wages. Costs of production went from bad to worse when Government increased the prices of key utilities like electricity & gas. Furthermore, the Industry had to account for considerable overheads toward Compliance, especially after Rana Plaza catastrophe. The Costs of Compliance too instrumental in pushing the production costs up.

Steady Exchange Rates


Steady exchange rates also preventing makers here from accommodating low prices. Dollars being the key currency in terms of business, Bangladesh Taka remains very strong against the US dollars over the last 4 to 5 years. In sharp contrast, currencies of some competing countries have been devalued against Greenbacks to soften their export prices. Turkish Lira has been devalued by around 68 percent while Indian Rupees and Vietnamese Dong devalued by 40 percent. These devaluations helping exporters of these nations quoting low prices. Owing to Brexit, UK Pounds recorded a six-year low against Euro. The pound sterling too sank as low as $1.35 — its lowest rate against the dollar since September 1985. To make up the losses resulting from price fall of pounds British buyers have started reducing prices of garments from Bangladesh.

Unfriendly Industrial Relations


The industry caught a nasty cold following some tragic and unwanted events headlined by different media at home and abroad. The same resulted in a drop in sales. To quiet the criticism, it went to a note-worthy length to straighten out the issues relating to workers ‘Safety & Welfare’. It seems controversies still exist concerning some workers’ rights and fulfilling their demands especially relating to the formation of trade unions. Five major buyers of Bangladesh’s RMG, H&M, Inditex, C&A, Next, and Tchibo have stayed out of Dhaka Apparel Summit 2017, in response to recent repression of workers and denial of trade union rights.

Rise of New Sourcing Destinations


With the rise of new sourcing destinations, existing sources are being opted out by the CPOs of clothing companies. Bangladesh is no exception. Markets needed to be diversified. Forking out in different destinations to explore non-traditional markets has always been a must for the sellers to maintain its growth. To counter the switching to new sources BD too has to explore new avenues to display and sell its merchandise. Over the years BDRMG’s presence in non-traditional markets felt but not as bold as traditional. A shift in concentration to non-traditional will help sustain losses in traditional.
Source: The Apparel Story magazine by BGMEA

Lacking Diversification


Not only has the market, the basket too had to be diversified to pave the road toward 50b dollar milestone. One size Fits all approach won’t help retain grounds when options are available and competition is at its peak. In fact, product diversification is an antidote to reverse the downturns in marketplaces. So far, Shirts, Trousers, Jackets, T-Shirts & Sweaters are grossing 77% of BD’s export bills out of as many as 35 top selling merchandises. The contribution of these mighty Five remained almost constant in the last ten years from 2004 to 2014. To penetrate deep into a market and to prolong healthy growth a wealth of more products has no alternative. If we look at the growth chart of China we could visualize how product diversification sky-rocketed China’s growth in export volume in a span of fifteen years from 2000 to 2015.

Source: The Apparel Story magazine by BGMEA

Insignificant presence in High-end markets


Usually, newcomers’ crowd into the lower ends armed with low prices, thus shrinking the market of existing marketers. At this stage, you need to switch to high ends with value added merchandise to stay afloat. Value added merchandise will fetch extra dollars equating the lost shares in the market. Yes, we could see that BDRMG has stepped in higher ends in recent years with the inclusion of Suits, Blazers, Lingerie, Active wears, Outer Wears and of MMF products. High-end brands like Hugo Boss, Nike, Adidas, Puma, Diesel, Ralph Lauren Mango, DKNY, CK, Benetton, and Hilfiger are being sourced from Bangladesh, but not as significant as BDRMG needs to realize its goal.

Switching to value added merchandise is a must for BD in one way or another. Resources here are not in abundance, and pricey too. Industry can craft products with same resources but for different price points. Implementation of 3R principles of the environment is getting weights along with usual compliance issues. Crafting value-added products in one end will help implement the principles and enable encashing more dollars on the other. 

Efficiency of Supply chain 


Let’s now look into the upstream areas of BDRMG. Performances of upstream areas regulate the export performances of RMG to a considerable extent. Able support of upstream segments of FTAR like Fiber, Textile would help BDRMG to minimize costs & shorten production lead time, happened to be the problems of the industry for long. Fast fashion clothing houses like Inditex, H&M, TopShop, Uniqlo, and Mango required shelving merchandise faster than the industry standard.
Last but not least at all, current US administration posed no new threat to BDRMG as of to date. But the industry has to keep eyeing on the moves of Trump’s administration. He is said to be using the Textile as the poster boy for reeling back globalization.

Conclusion


While crimson flickers in the distance hazy lines are ahead. If the problems above persist an otherwise reachable milestone will be out of reach, as far as stipulated time frame is concerned. Average export growth rate achieved in the last five fiscal years [2011 to 2016] is around 10%. If we compare this with the 13% asking rate, as assumed, a short of 5-6 billions may be affected. Whatever the problems are, 50b milestone is yet within reach if BDRMG could fight well on two fronts i.e. increasing growth in non-traditional territories and switching to high-end merchandise more significantly. Encouraging are the enthusiasm of makers as a whole and the tranquil political climate prevailing now at home. With these in hand, a concerted effort by all stakeholders could yet transform the dream into reality.

About the Author:
 Sharfuddin Ripon has worked in the RMG factories in Bangladesh from 1990 to 2010 in various positions starting from Merchandisers to Executive Director in the end. At present he owns and manage XL Fibers, enterprising in garment inspections and buying services. Associated with BGMEA Institute of Fashion & Technology, BIFT, Chittagong as guest faculty on Apparel Merchandising. Read more from the author in his blog Quality Fashion Lines.

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Bangladesh RMG Industry’s Road to 50 Billion Dollar Milestone - How Far It Is?
The challenges Bangladesh RMG industry needs face to meet the 50 Billion Dollar mark by 2021.
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