4.

In dealing with international buyers what type of challenges and weakness the RMG
industry has which it can use to strengthen its bargaining power over buyers?

https://thefinancialexpress.com.bd/views/rmgs-challenges-to-be-sustainable-1596126405

Major challenges for the industry

 Slowdown in export:
The second wave of Covid-19 has already forced us to experience its severity as it crippled the
western world. Cities in Europe and the USA, which are the major markets of our clothing, are
either under lockdown or state of emergency. Export has been on a falling trend once again
during October – December 2020, after a slight recovery in August and September 2020. RMG
export in October 2020 has declined by 7.78% on a year-over-year (y-o-y) basis, while October
2019 had seen 19.79%, meaning that the growth in October 2018 and 2020 is -26.03%.
Similarly, the y-o-y growth of export in November 2020 was -2.66%, but growth between
November 2018 and 2020 is -14.32%. The recently published data for December makes it more
appalling as export plunged by 9.69%. This wrapped the annual export performance with an
unprecedented fall of 16.94%.

 Changing buying behavior and underutilization of capacity: 

With the detection of the new strain of the virus and retail sales growth in both the USA and EU
been on a declining trend (i.e., -16% in November and -13% in October 2020 respectively), the
situation has further aggravated at the buying end. Though we don’t have an inclusive picture
over the real-time ‘cancellation’ scenario in the industry and non-payments, but a survey on 50
factories shows that instead of cancellation buyers are following a ‘go slow’ approach in placing
new orders and factories reported 30% less order, which is the picture industry-wide and getting
worse day by day. Though the first wave was more severe and cancellation during the second
wave is not that rampant, but buyers are following a different approach to managing their supply
chain. Instead of cancellation, we are experiencing a slowdown in order placements. This is as
severely adverse as the first wave since factories are not being able to have a forecast and plan
their capacity. Such an uncertainty puts the industry in an unpredictable situation and impacts in
the area of –

1. Uncertainty over confirmed business, shipment, payment and WIPs

2. Allocation of capacity (utilized and unutilized)
3. Optimum management of supply chain and use of resources
4. Economic impact and business viability

 Unprecedented decline in price: 

While the price decline has already been a trend in the global market for decades, the COVID-
19-led disruption has further escalated the situation. We have lost 2.87%-unit value in 2020, and
during September-December the decline was recorded at 4.82%. Given the scenario of
underutilization of capacity which already spurred cost and increased cost of compliance
especially to maintain health and safety at factories, such a scenario is unsustainable.

 Financial vulnerability and support needed to reconstruct the industry:

This is important to note the differences between the impact of the first wave and the second
wave of COVID-19. With a slight pause, the recurrence of COVID has appeared as ‘decapitating
the already dead’. Injured by the first wave the industry was already bleeding and left to such a
disrupted and weakest position that severity of a fraction of the magnitude of the first wave may
be more intense.

Reconstruction of the industry from the damages done by COVID-19 and protecting the
livelihoods of our workers is of topmost priority for us in 2021. While we need legal protection
to save our factories from forced loans caused by buyers’ bankruptcies, special measures are
needed to allow factories turnaround from the damages, particularly relieving them from bad
loans and outstanding liabilities for a considerable tenure so that the factories don’t suffer from
suffocating borrowing limits from banks. We are ever grateful for the supports from the
government which saved the industry and the livelihood of our 4.1 million workers from a
possible catastrophic consequence of the first wave. We hope that through the continued support
from the government we will be able to stay in the course throughout the second wave, though
it’s very difficult to foresee the severity of the impact on the global economy and the recovery
process.

 Vulnerability in the trading system, e.g., contractual arrangement:

COVID has exposed the vulnerability in global trade which needs to be addressed pragmatically
and systematically to make trade more predictable, safer and sustainable for mankind. The
weaknesses in the contractual arrangements between parties in global trade are something which
has been exposed by COVID and needs to be addressed. The situations like bankruptcies of the
global brands and resulting non-payments to suppliers across borders must be taken with
adequate importance. Appropriate safeguard measure is also needed globally by forums like
WTO or WCO or UNCTAD or ICC in collaboration with developed and developing nations to
ensure due diligence in trade. Besides, we need policy reforms to resolve insolvency so that it
protects business and investment, also makes the path of new entrepreneurs’ smoother. The need
for a safe exit policy has been an urge by the industry for quite some time, and the post-
pandemic reconstruction of the industry may falter without an appropriate arrangement to deal
with insolvencies.

The Readymade Garment (RMG) Industry's vulnerability to market uncertainties

became manifest during the pandemic more than ever before. Even some big names
in the international retail market, which buy garment products from Bangladeshi
exporters, failed to go by the stipulated provisions in their contracts. In some
cases, the overseas importers even cancelled the previously agreed upon supply
orders. Others, on the other hand, came up with arbitrary demands for discounts,
price reduction, and deferred payments and so on. Being at the receiving end, local
RMG companies were left with fewer options but to accept their last-minute
demands. What was further upsetting is that in the majority of cases the buyers
displayed little or no concern about the plights of the garment workers. Clearly,
such incidents have once again exposed how unprepared Bangladesh's RMG sector
is to any external shock.
However, such unsavory pandemic-time experience should be a lesson for the
export trade operators. It is that like in diplomacy, there is nothing called
permanent friendship or partnership in business. As such, there is hardly any point
grudging the opportunistic behavior of even time-tested buyers in difficult times.
Instances of such less-than-ethical business proclivity by overseas buyers of our
RMG products were unraveled in a study recently carried out jointly by a local
policy think tank and a RMG export-trend tracking body.   Another potentially
risky aspect of the country's RMG export that came out from the study is that more
than 300 local apparel exporters depend only on six foreign brands for their supply
orders. This is despite the fact that there are around 3,600 global brands including
retail companies who have been sourcing their apparel imports from over 3,200
Bangladeshi RMG exporters during the last four years. One simply fails to
understand why a major chunk of the country's apparel export should be
concentrated in the hands of a handful of foreign buyers. That such concentration
and the dependence that follows from it can be counter-productive need not be
overemphasized.

The best way to avoid such predicament is to be able to enhance the local
exporters' bargaining strength with the foreign buyers. And the best way to gain
that strength is through the oft-advised path of diversifying the export market for
our RMG products. Notably, this lack of bargaining power is not limited to the
country's export-oriented garment business alone. In truth, the export sector in its
entirety is susceptible to such risks. Such a state of affairs does not speak well of
an economy that is otherwise known for its resilience and stability. And such a
weakness cannot be allowed to dog it when the country is soon to upgrade itself as
a middle-income economy. While the garment sector should lay stress on
diversifying its exportable items, it should also work on widening its export
market. At the same time, the government should extend its support, both in terms
of policy and incentives, to other potential export sectors. These other sectors may
include, for instance, pharmaceuticals, agricultural products, electronic goods,
light engineering, shipbuilding, IT and others. Needless to say, the bigger the
export basket, the stronger will be the economy's ability to absorb external shocks.
It will also go a long way in boosting the exporters' morale to face up to the
powerful foreign buyers.

1. Unskilled workers
2. For the development of
an industry, it is necessary
 to have sucient skilled
with required expertise.
5. Develop some business strategies to overcome these challenges.

Bangladesh RMG sector is in a deep crisis in the current year and it is also not sure how the
sector will see a prosperous growth in the future as well. The sector is experiencing a downturn
apparel export of 67.74% in July-November, so Industrialists forecast that the sector will see
negative growth in the coming months also. In this context, both the government and readymade
garments (RMG) leaders should set the survival strategy to implement a series of reforms that
will open immense opportunities for the apparel industry. In an analytical view Textile Today
found there are three major areas that the Bangladesh RMG sector can patch up as the survival
tools. Industrialists and experts opined the three tools can be the ultimate option for the industry
to move on in the global competition. Product development the forty years old Bangladesh RMG
industry is still young in product development and still could not gain enough maturity. New
concept generation, evaluation and commercialization of new products could be the biggest
strength for the country today if they are really focused on them in the 80’s or early 90’s era.
Industry insiders believe the RMG sector should focus and invest in product development to
survive in the unstable apparel market. The below factors have to be considered why product
development is important and how it could be designed to survive in the coming seasons:

Brands strategy to reduce their design cost: Nowadays the buyers are reducing their design
costs due to various reasons. Instead of going to the seasonal designers they are now approaching
the manufacturers – it reduces design cost immensely as in Europe or the US. A study found, to
create a tech pack retailer has to pay around $200-$300 range that makes generally agencies and
freelancers across the globe. “To sustain in the market, manufacturers should develop new
designs/concepts with their R&D team. And this one-stop service is a lifeline for buyers, who are
desperately looking to reduce the price to stay in the retail business.”

Design studio is the way to attract brands and retailers: A design studio is a workplace for
the designers and artisans who are engaged in conceiving, designing and developing new
products or objects. In this regard, Bangladesh apparel manufacturers should focus on the
creation of an entirely new product or modification to an existing product in a new concept. “A
design studio will add value to your industry but you have to know enough your customers, their
buying pattern, their thinking, etc. then you can approach to design studio rightly.”

“Concepts mainly come from the value-added aspect and another thing is that now many buyers
and retailer brands are shutting down their own design studios to reduce the cost and they want
support from us in this regard. So, establishing a design studio should be the supreme task to stay
competitive,” he added further.

Foreign tours for concept development: To obtain cultural immersion, increased confidence,
and of course to widen mindset Bangladeshi industrialists and designers should frequently travel
the new markets. In this regard buying the latest fashion trending products from abroad, where
innovation could be driven for the next trend can help to understand the pulls of the people.
Foreign tours can be a good way to get concepts and new ideas. Apparel manufacturers can visit
some industries in other countries and learn more knowledge practically. Training by the
manufacturer of the machinery company also can help to make technically sound.”

“Industrialists and designers should participate in international textile fairs, seminars,

workshops, etc. There is no other option to give second thought other than product
diversification, automation, digitization and previsions if we want to explore more in this
industry.”

Product diversification
Product diversification is the major area where Bangladesh stands far behind from the
competitors in the apparel market. This is due to the overall mindset and lack of investment for
product diversification. The biggest barrier in the diversification of the product is to change the
complete machine set up and expertise development. Industry experts suggest considering below
issues –

Development of mindset for product diversification: Many of the apparel manufacturers

believe doing the basic product can give better efficiency and this will maximize their profit. But
global retailers are moving towards versatile products.
“Bangladesh is working slowly on product diversification concept and we are clearly lagging
behind in product positioning. The key success factor to adopt effective design studio and
product development is a mindset and willingness to take the risk. Because here you have to
work with the high-end product if you want to sustain in this business

Should break the myth of cotton base product: Bangladesh is the hub of cotton products
because 96% of its knitwear fabric is produced locally that completely based on cotton.
But development in producing the synthetic fabric, local manufacturers are really not in the big
quantity that RMG exporters can purchase. For specialized fabric Bangladesh still fully
dependent on the outside source that requires long lead time.

“Bangladesh mainly produces cotton products and that is why we should do something that is
out of the mainstream, as it will make us more sustainable in the market.”

“Our main challenge is product diversification. We are producing the same category of products
by almost every manufacturer. For example, Bangladesh has 400 spinning mills and almost
every spinning mill is producing the same cotton or cotton-blend yarn. There is no special yarn
producer. 150+40D ACR (Air covering yarn) yarn is used for super stretch denim fabric, which,
is not available in Bangladesh. Some entrepreneurs should start working on it.”

No diversified product: Some of the apparel manufacturers are exporting goods in a loss just to
survive in the market let alone the margin to keep. So other suppliers also have to offer the same
product price otherwise they cannot grab order because the devaluation of RMG products have
already done by the other Bangladeshi apparel exporters.
In this regard, product diversification can help to be unique from the basic-product manufacturer.
 “We have become our own competitor in the product category. This is damaging to our
business. Buyers are taking this opportunity. They have many options to choose from and then
they are playing with a price. We are getting very low margin, which is the main struggle for our
business.”

Efficiency improvement
What efficiency Bangladesh could gain in the apparel sector is not truly discovered. But experts
opined it could be between 40-50% which is really below the other Bangladesh competitors. For
a country that passed more than four-decade in the industry, the level of efficiency is not really
satisfactory. To improve efficiency, the industry insiders suggest some area to take care –

Need proper training: Training is the key tool to strengthen those skills that the RMG sector
needs to improve. Any development program will bring the employees to a higher level of
efficiency so they all can achieve similar skills and knowledge.
“There is no alternative than training to convert our population into assets. We need to arrange
training to increase the efficiency of our local people. Training can be provided by foreign
experts or combined with local experts.”

Develop cost-effective processes: With a process improvement approach, manufacturers can

eliminate wasteful spending and make the organization more effective from top to bottom.
“Every single day there are significant changes in this industry, buyers continuously trying to
reduce the cost and yearly it reduces by about 5% from the previous year. So, to survive this
industry, it is regularly needed for cost-effective process and machinery.”

Reducing consumption: Reducing resource consumption and waste will allow RMG

manufacturers to step further towards sustainability and for a longtime business target.
“Laser technology is capable to enhance productivity, reduce water and energy consumption and
diminish damaging emissions and waste, guaranteeing ZERO contamination, which allows
sustainable eco- friendly denim production.”

Improving efficiency in communication: Effective communication skills are fundamental to

success in any organization. Market efficiency always depends on good communication skills.
“We all should break the myth that we are not good at communication. Factory owners should
also focus on increasing their efficiency level, waste minimization and they should think long-
term in case of purchasing new technology. Besides investing in technology, also owners should
invest in human capital to sustain in the business.”

Technological development for efficiency: Applications of technology will improve and help

to grow in the businesses. Despite having a top-notch production house that produces
international standard products, Bangladesh is lagging behind than India or other rival countries
only for the poor marketing efficiency.