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How to remain competitive after textiles & clothing sector transformation

Ferdaus Ara Begum | Published: September 08, 2019 20:29:14


Bangladesh's textile industry has attained the 30th position worldwide in terms of trade volume in four decades when the country has become the second largest apparel exporter. Now, the textiles and clothing is in a transformation from a labour-intensive sector to an automated, high skilled labour-based one.

Trends suggest employment in most of the manufacturing sector is depleting. Textiles and readymade garments (RMG) together absorb 42 per cent of the country's labour force, according to Bangladesh Bureau of Statistics. Despite rising trend in their exports, jobs there remain static at 4.5 million.

Automation and new sophisticated machines are often blamed for lower employment. Reports suggest the industry leaders have opted for retrenchment of workers, to make up for wage-hike and product price fall and to meet compliance costs.

Bangladesh's growth in merchandise export between 2008 and 2018 stood at 9.8 per cent, shows the World Trade Statistical Review 2019. Vietnam's growth during the period was 14.6 per cent and China's 5.7 per cent. Bangladesh with a $39 billion export is the 42nd exporter in the world and its market share is 0.3 per cent with annual growth of 9.0 per cent.

As an importer, however, Bangladesh has ranked 30th with a value of $62 billion a year and its share in the world is 0.4 per cent with annual percentage change of 16 (per cent). The country's import growth is much higher than the export when China's growth is declining.

Bangladesh's largest export sector, apparel is facing some challenges and in order to address the situation, what is required is transformation of the sector. Some emphasise realignment of products as the country's exports are confined to a number of low value products. Detailed studies are needed to overcome the challenges coming from recent tensions such as US-China trade war and in preparation for Bangladesh's graduation from least developed country status.

Some experts observed that woven garments require large investment. On the knitwear industries, they pointed out, only 20-30 per cent of fabric is sourced locally. Bangladesh has only 20 per cent man-made fibre (MMF) when global market for cotton-based apparel is shrinking at 0.5 per cent. MMF-based apparel is growing at 5 per cent.

Bangladesh has more than 60 per cent exposure to the European Union (EU) market, mainly for duty advantage, which would expire in 2024 or 2027. Competitor countries are negotiating free trade agreements (FTAs) with EU authorities.

In Bangladesh, labour productivity is low at 45-55 per cent. Technologies and automation (such as servo motors, button hopper, laser finish of denim and ERP system) could contribute to raising productivity. Logistical costs are higher with uncertainty and lead time issues. Access to finance is constrained by high interest rate.

There are new opportunities as well since loss of China's apparel trade opens up a $13 billion market. Consumers are preferring fast fashion. E-tailing makes marketplaces a large consumer.

Bangladesh may focus on MMF-based apparel production, which today has a global market of $150 billion. Vietnam has 55 per cent MMF-based apparel in its product mix. Estimates show, an MMF-based woven fabric production facility with capacity of 30,000 mtr/day would require investment of $60million excluding land.

Bangladesh may diversify product-market mix, through market development, market penetration, and product development. It could focus on China, India, and Japan markets ($750 billion).We have to check if these countries have domestic capacity to meet the demand and how far they are receptive. Bangladesh can still try to increase market share in the US and Japan.

Existing factories may convert from assembly line to modular production for fast fashion. Workers will need to operate multiple machines. Bangladeshi manufacturers would need to adjust with smaller volume of orders of fast fashion items. One issue is that fast fashion expedites product absolution and thus increases resource use, posing a threat to environment.

With the craze for fast fashion, concerns over sustainability and environment do not dominate consumers buying decisions so much. A report says, almost 88 per cent of US consumers like fast fashion while it is 46 per cent in Europe, who are not bothered about environment and sustainability.

Bangladesh may have to face some other changing scenarios. For example, Everything but Arms (EBA) facility under the GSP (Generalised System of Preferences) would be reviewed in 2023. Bangladesh, looking for its extension up to 2027, seeks GSP-plus facility, which, however, would have stricter Rules of Origin of around 50 per cent. If Bangladesh loses current facility in the EU, it will be quite challenging to keep up export with 12 per cent duty. Besides, the USA has kept the GSP facility withheld.

Meanwhile, despite repeated efforts, Bangladesh has not yet been successful in signing free trade agreement (FTA) with any  country.

Technology could be introduced for raising productivity. In Belorussia, some processes such as cutting are fully automated and the machines cost around Tk 12 million. In Bangladesh, manual cutting could be replaced by automation.

The government has set up the Bangladesh Fashion Trade Institute (BFTI) but it is not producing required results. We must find out ways and means to improve capacity of design development, a critical requirement for faster transition. Questions need to be asked as to why

MMF-based apparel has not developed in the country.

A$150 billion MMF-based apparel market could have been disaggregated for products. This item should be added to existing capacity, rather than fully focusing on MMF.

As Bangladesh is on way to graduate to middle income country (MIC), policies and strategies should be identified to overcome future pressures. A major issue after MIC graduation will be decent jobs. Bangladesh will have to face 27 conditions including 15 relating to labour. Sustainability challenges relating to waste management, energy, and pollution should be covered in the strategies.

The level of productivity of the workers can be improved not by pushing for working harder, rather by introducing a few key technologies, industrial engineering, time and motion study, and so on. Many factories do not have any industrial engineering department to do the job.

A key area of focus could be branding of high value products by a country which makes low value products, taking into consideration demand of the importing countries. Bangladesh may also consider joint venture investment rather than FDI, targeting technology transfer.

Most of the industry people are facing cash flow problems because of changes in business patterns. Alternative fund management for higher technology is the need of the hour. Coordinated efforts of policy planners, industry and academia, the government and the private sector are a must to maintain constant growth of the sector for new employment creation and attract investment.

Ferdaus Ara Begum is the Chief Executive Officer at Business Initiative Leading Development (BUILD).

ceo@buildbd.org

 

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