Sustainability of spinning business: Key issues

The number of spinning mills in Bangladesh is on the rise. These mills are contributing remarkably to the growth of the ready-made garment (RMG) industry of the country. Spinning industry of Bangladesh can be discussed from two perspectives:  a) government policy regime, and b) individual mill management.

GOVERNMENT POLICY REGIME: In order to ensure smooth growth of spinning industry, the following government policy support is crucial.

1. DELISTING SPECIFIC HS CODES FROM BONDED WAREHOUSE LICENCES, INCREASING CASH INCENTIVE AND BANNING IMPORT OF RAW MATERIALS THROUGH LAND PORTS: Bangladeshi knit and denim RMG has already developed a very strong backward linkage industry -- spinning-knitting/weaving-dyeing and finishing -- which are mostly made with cotton and cotton blends of different kinds. The spinning industry of Bangladesh with 12.50 million spindles is capable to meet 95 per cent demand of yarn of the RMG sector. Woven, sweater and home textile are mostly based on imported fabric and yarn where spinning industry can meet 40 per cent of their yarn requirement. Therefore, the government in collaboration with Bangladesh Textile Mills Association (BTMA) may design a policy to exclude the HS (harmonised system) codes of import of yarn (cotton and cotton blends) and fabric (denim fabric) from the existing bonded warehouses licences of RMG exporters. In addition to that, to encourage use of local yarn and fabric in export oriented RMG, cash incentive can be raised. Alternative to it is to impose 'Anti-dumping Duty' that creates a negative country image, even if the country does not consider the difficulty in executing it. It is important to ban import of any raw material (cotton, yarn and fabric) through any land port and allow imports only through sea ports (i.e. Chattogram and Mongla). However, to accommodate for emergency shipments, a sample quantity of maximum 500 kilograms can be allowed to be imported through airports.
2. HEDGING OPPORTUNITY AGAINST COTTON IMPORT: The cost of cotton is 60-70 per cent of the total cost of a spinning mill. Last year Bangladesh, the biggest importer of cotton in the world, imported 7.20 million bales of cotton. In the 1990s cotton had little fluctuations (cotton index had a breath of maximum 5-10 cents in a year). Over the period, the cotton index has become two to three times riskier than it was earlier. So, in such a risky market, the only way to protect risk is hedging which is not permitted as per the existing guidelines of Bangladesh Bank. Beximco wanted to do it in around 1999 and it was way complicated to get the permission and the market Beta was quite low to exercise it in comparison with cost and benefit. Number one reason why the country could not compete with imported yarn is not having hedging opportunity. However, the spinners of Bangladesh are also quite reluctant to hedge the risk.
3. GAS AND POWER SUPPLY: Spinning is a power hungry industry that mostly depends on captive gas generators. It is not certain what is going to be the cost of power for next decades. Earlier, different locations had different levels of availability of gas which has improved a bit in recent times. However, this is very important for the industry to be assured of uninterrupted power at reasonable cost in the long run and government should work out ways to assure it.
4. 'NO' TO MONEY LAUNDERING: Spinning is a capital intensive industry and it needs to be free from activities that encourage unscrupulous funding. A level playing professional financing ground is required for the spinning as well as for the banking industry.
5. CONTROLLING RECRUITMENT OF FOREIGN EXPERTS: Home grown solutions work well. Spinning industry of the country is more than four decades old and there are enough human resources -- both professional and technical -- to run the spinning industry. At best, they may need some local and foreign training. Rampant presence of top foreign officials in spinning mills is found. The government needs to validate thoroughly before any foreign national is appointed in a spinning mill. Employing overseas persons is not only draining out huge foreign currency but also resulting in unemployment and frustration of local professionals and technicians. Eventually, the spinning industry is losing grounds for sustenance.
6. REVIEW OF PAY SCALE: Employees are the best resources to assure productivity and quality. The government in collaboration with BTMA should ensure systematic review of wages and salaries for the workers and executives. The working conditions need to be reviewed and updated. A benchmark of compensation package for the spinning industry employees needs to be set. This would improve working condition, reduce grievances and act as a boost to improve productivity, quality and harmonious employee-employer relationship.

INDIVIDUAL MILL MANAGEMENT: Management of most of the mills in Bangladesh is still owner-centric and not managed by professionals. This is a major disadvantage for the industry. Beximco showed the path of professional management and a few mills -- Square, Ha-meem, Envoy, Pahartoli,Viyellatex, etc. -- followed its footsteps that resulted in much better performance than the industry average. The size and capacity of the entrepreneurs have scaled up significantly due to professional management. This not only gives them a solid footing on their investments but also create +opportunities for professionals and management consultants to have mutually beneficial scope and growth to sustain. The owners need to validate their vision, mission and core values to business professionals to set strategic goals.  Connecting the dots needs to be left with business professionals as done by top business houses throughout the world.

Current challenging situation of spinning industry in Bangladesh is a result of 'under management' (where cost management and risk management are not in optimum condition) as well as unscrupulous import of yarn. Every spinning mill should have its unique strategic plans in order to face the battle in the short run, and win the war in the long run.

Abdul Wadud is CEO of TRANSFORM, a consultancy firm. [email protected]