The Financial Express

Rescuing small garment factories

Rescuing small garment factories

In post-Covid time, the country's key export earner readymade garment sector apparently has mixed fortunes--- a rebound on the one hand and a less visible downside on the other. The rebound is reflected in the substantial increase in export (even beyond the pre-pandemic level), and the downside in the languishing of small and medium factories for want of export orders. That is to say, the leap in exports is attributable to the performance of big factories which are reportedly having a hard time to cope with huge export orders, while the smaller ones are sitting idle or at best trying to keep them somewhat busy with subcontracting for the big ones.  

 This being the case, it is clearly a picture of highly uneven growth. No doubt, the big factories deserve appreciation for their work, but the fact that the country's RMG industry also comprises thousands of small-to-medium factories makes it a case of paramount importance to look into the reasons for their current state.  

 The pandemic did cause considerable damage to the entire sector by way of cancelled orders, depressed demand, and low productivity due to lockdown, restricted movement and delayed clearance of raw materials against back-to-back letters of credit. Industry insiders were worried that the situation might linger to leave a very heavy toll on the highest foreign exchange earning sector of the economy. The situation did not last long enough to cause an unmanageable dent to the industry as a whole, though smaller plants reliant largely on sub-contracting had to bear the brunt most.  

 Around one and a half years on, things have changed much to the cheer of the industry people. However, a close look at the state of recovery tells that it is the overseas buyers, and the big garment units who are the gainers. Bangladesh received US$23.98 billion from readymade garment (RMG), both knit and woven, exports during July-January period of 2021-22 fiscal, recording a 30.30-per cent year-on-year growth, according to official data. The month of December 2021 saw monthly export of garment products soar beyond $4.0 billion for the first time in the history of the country's RMG export. A surge in demand in keeping with the gradual recovery from the fallout of the pandemic, fixing up the supply chain, and indeed smart production management at home are mainly the reasons for the rebound--- a well deserved accomplishment of our manufacturers and exporters.  

 Now the obvious question that arises, is it the efficiency and damage control mechanism as well as the strength to absorb shock that enabled the big companies to immediately get back to business which was not the case with the relatively smaller units? Most likely so.  

 According to reports, around a thousand medium and small factories enlisted as members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and nearly 1,500 non-member factories are not getting enough orders to survive. These factories are also reportedly being exploited by buyers as whatever orders that come their way, the price offered is too low. Still left with no choice they are accepting these orders-- more to remain in business than making any profit. It has been learnt from industry insiders that as the severity of the pandemic began to soften, substantial export orders got shifted to Bangladesh. These orders were originally meant for China, Vietnam, India and Pakistan--- to name some of the formidable competitors of Bangladesh in garment export. Understandably, this shift was due mainly to competence of the factories in handling big orders while also fulfilling compliance needs of the importing countries and the buyers. 

 Observers are of the opinion that with the massive improvement of a large number of garment factories over the years since the incidents of fire and factory collapse years ago, these factories stand out as preferred sources of overseas buyers, including renowned global buyers who are well disposed to place not only bulk orders but also orders for value added up-end products. As a result, factories not so well equipped are in no position to compete with them, and the situation may take a further worsening turn if the present situation persists.  

 The BGMEA and the government have important roles to upgrade the smaller units which though capable of manufacturing and exporting are stuck with many constraints--- finance being the prime constraint. Many of these units did export on a regular basis in the pre-pandemic times, but now they are held back too tightly for any forward movement.  

 It is clear, had these smaller factories been more equipped in terms of compliance, skilled workers and machineries, the big factories would not have been overburdened with too much workload as they are now (risking quality assurance), as a good portion of the orders would have made it to the smaller ones. Besides, they could invite additional work orders. 

 There is no doubt that the country's RMG industry is the number one recipient of government support--- fiscal, financial or whatever--- but how far these incentives and stimulus have gone to the smaller units remains a question. It is high time the government and the industry associations, the BGMEA and Bangladesh Textile Manufacturers and Exporters Association (BTMEA) sat down and tried to find ways to make things better for the smaller garment units. 

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