How product diversification helps sustainability of RMG
Bangladesh's RMG industry is passing a hard time than ever before with many challenges such as, the downward trend of price, deficiency of Research and Development, inefficiency, wastage and severely lack of planning for product diversification. Since 2014 to 2018, Bangladesh lost 1.61 per cent unit value of its apparel on CAGR (compounded annual growth rate) basis--according to Rubana Huq (president of BGMEA).
Very recently the Prime Minister of the People's Republic of Bangladesh Sheikh Hasina emphasized on the country's garment manufacturers to explore new markets and diversify their products considering the demand of fast-changing fashion and apparel designs in the international market said this while addressing a program of the National Textile Day-2019. She also added it's essential to diversify our products regularly with these (the demand of fashion, design and colour in the international apparel markets). Bangladesh is a fast-emerging, highly competitive location for investments in terms of cost, human resources, size of domestic market, and access to international markets, trade facilitation, and investment protection.
In the meantime apparel apex body like BGMEA has identified 51 readymade garment (RMG) items having potentials in the international market. Now entrepreneurs could invest to manufacture the diversified items for widening their product base and grabbing a larger share in the growing global market. For the time being country already has world-class factories (in term of green industries) where safety and working conditions are not a matter of concern anymore. The diversification of products is the demand of time to get better price and sustainability of the industry.
However BGMEA chose 31 items with potentials for next five years and 20 others with potentials for next 10 years. The global market for these two groups of products would be worth US$ 132 billion and $ 54 billion respectively. Whereas Bangladesh exported products worth $ 7.1 billion in 2018 from the 31-item group while $ 1.2 billion from the 20-item group.
The 31 identified items are either made of cotton where Bangladesh has strength or non-cotton items having similar features of the traditional items. These items - including 19 for women and girls while 17 cotton and 14 non-cotton - are relatively less complicated to manufacture, so the cost of diversification is less. And 20 other items where entrepreneurs could be invest in next 10 years. Out of these items, 10 are for women and girls and all are made of non-cotton fibre like manmade fibre (MMF), vegetable and other artificial fibres.
Moreover the apex body also selected some products for its traditional US (two items) and EU (10 items) markets. The potential products for diversification in the US and EU markets have been selected as per the products' share in Bangladesh's export, US and EU's global import and annual import value of more than $ 3.0 million from Bangladesh to these two destinations.
This initiative to identify the products with market potentials due to the sector's large dependence on five major products like t-shirt, sweater, trouser, jacket and shirt. The five items contributed about 73 per cent or US$ 24.8 billion of the country's total exports earnings of US$ 34.13 billion from the apparel items in the last fiscal year. Most of the RMG items (74.14 per cent) are made of cotton. The share of global trade of cotton-based apparel is around 35 per cent which is shrinking at 0.5 per cent CAGR between 2007 and 2017.
On the other side share of MMF-based apparel is around 45 per cent of global trade which is growing at 5 per cent CAGR in the same period. In 2017, global trade of MMF-based apparel was $ 150 billion, where Bangladesh had 5.0 per cent share of it as compared to Vietnam's 10 per cent.
Due to changes in lifestyle, consumers are looking for products which are easy to care thus raising demands for MMF-based products. Besides all these, our average productivity (including all operation) is below 35 percent in many cases. If we look at other manufacturing countries, we are really behind many of them. Sri Lanka's average efficiency is more than 70 percent, for example. We should invest in industrial engineering to increase productivity and efficiency.
Although country entrepreneur has immense potential for bagging more work orders. But entrepreneurs need bank loans at a lower interest rate for rapid expansion of the business along with SME. Further strengthening to generate skilled workers to produce the value added items and allow foreign direct investment in fabric manufacturing here in Bangladesh are needed for business sustainability.
Remarking that Bangladesh sells garment items at very low prices. The Prime Minister urged the businessmen to take initiative so that international buyers raise the prices at least to some extent. If the buyers raise the price of every cloth by one US dollar, we could develop this sector further.
The writer is deputy secretary, BKMEA and an independent business analyst