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Bangladesh manufacturing industry on course correction

"Nearly 7,000 RMG facilities in Bangladesh produce 16 per cent of all manufactured goods and employ 55 per cent of all workers in the manufacturing sector, says a report. Readymade garments account for 83 per cent of per annum exports. Bangladesh is heavily reliant on RMG exports and the signs can be alarming. Factors such as changes in trade relations, costs and access to shipping and logistical routes, raw material costs, and consumer tastes and attitudes can hamper growth of the industry and economy in turn."

 

Bangladesh manufacturing industry on course correction 002Nearly 7,000 RMG facilities in Bangladesh produce 16 per cent of all manufactured goods and employ 55 per cent of all workers in the manufacturing sector, says a report. Readymade garments account for 83 per cent of per annum exports. Bangladesh is heavily reliant on RMG exports and the signs can be alarming. Factors such as changes in trade relations, costs and access to shipping and logistical routes, raw material costs, and consumer tastes and attitudes can hamper growth of the industry and economy in turn. Garment workers’ unions are currently negotiating a raise in monthly minimum wages that is three times higher (Tk 16,000) than the current wage (Tk 5,300). The fact is Bangladesh’s export competency lies in its low cost labour and a wage hike would ultimately hamper trade dynamics.

To evade over dependence on garments sector, the Bangladeshi government has launched an export diversification program in the manufacturing sector. The program is the product of a larger initiative aimed at increasing overall standard of living in Bangladesh with the goal of emerging as a middle-income country by 2021. Consisting of two five-year plans (FYP6 2010-2015 and FYP7 2016-2020), the program is supported in part through financing from the World Bank and covers everything from infrastructure to education to industry to women's empowerment.

If the government wishes to achieve its 2021 goal of manufacturing, which represents 90 per cent of exports, it would have to increase output substantially and secure a 28 per cent share of the GDP up from roughly 20 per cent. This is only possible if RMG production continues to achieve double-digit growth annually.

New economic policies

The reason behind such sustained growth has been industry-friendly policies, which include duty-free import ofBangladesh manufacturing industry on course correction 001 inputs, bonded warehousing facilities, back-to-back LC, rapid custom clearance. Part of the diversification plan is to utilise these same policies for the sectors whose export potential the government is seeking to boost.

While companies who may be looking to source apparel from Bangladesh in the long-term will need to be mindful of the changing economic landscape, this push towards diversification doesn’t mean RMG industry will not get its due importance. In fact, one of the stated elements of manufacturing diversification is to increase the quality of existing sectors, one of which would be readymade garments. The incredibly favourable economic policies geared toward maximising the competitiveness of RMG exports are not so easily undone and could easily outweigh any added cost of a minimum wage increase.

Points to ponder

Meanwhile, RMG manufacturers are increasingly being pressured to bear more costs of production, taking responsibility for purchase of fabrics, development of samples, costs of couriers, and, in some cases the holding of stock. And to do so, there needs to be improvements at every step. The first improvement should be in planning and consistency of the buyer’s business with suppliers. Lack of accurate forecasting by customers can lead to large and unpredictable orders being placed at the lowest possible cost, with insufficient time for the manufacturer to produce the goods without the use of over-time or sub-contraction of orders. If consistent forecasts can be provided by the customer, the manufacturer is able to allocate necessary man-hours and capacity to fulfill the orders. Next, they need to create awareness about the importance of design and development. The costs of these developments are absorbed by suppliers and yet the rewards can be low, given the investment in time and resources required for the development of product.

Besides, buyers should be encouraged to support and incentivise development of sustainable business practices by suppliers. The future success of global garment supply chain hinges on the adoption of fully sustainable, transparent business practices, not only in Bangladesh, but around the world. There needs to be a sea change in the buying practices and that needs to be combined with a standardised, global set of criteria that is agreed by all customers for the manufacturing of garments, regardless of the origin of the goods being manufactured.

 
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