WTO and RMG: Contemplating survival strategy

No doubt that, right now the Bangladeshi economy is considerably dependent on the ready-made garments (RMG) industry. If this industry really collapses, then its impact on the socio-economic situation will be tremendous. About 75 percent of our foreign currency earning garment sector employs as many as 1.8 million workers, i.e. half of the nation's entire industrial workforce. Even much of the remaining workforce is also directly or indirectly dependent on RMG industry.

It seems, because of some unexplainable reason, Bangladeshi entrepreneurs are only waiting to see through their ruination without analysing the situation and doing anything to overcome it. We are going to face the challenge after December 31, 2004. Does it mean everything is going beyond our grip? Have we ever calculated what threats actually we are going to confront? What opportunities we are still left with? What are our weaknesses and what are our strengths? What rearrangements we need to cope with the changing situation? I will try to discuss these in brief.

Tap here to add The Daily Star as a trusted source

While implementation of that ultimate phase of WTO treaty begins after 2004 we will have no special support and have to face global competition in the business. The quota will be out rightly abolished, and as per WTO treaty the tariff barrier (i.e. import duty) all over the world will gradually be reduced to zero. Consequently we will lose buyers' interest from both US and EU in our products. It is a matter of great anxiety for not only our garments industry, but for the whole economy (because of GDP and employment shares).

Haphazard and shortsighted growth of any industry cannot survive long, unless it is brought to a systematic track. So, it is the right time to give special attention to this sector to put it on the survival track. For surviving and competing in the global market, garments experts and researchers give importance to the following points judging from their experience, observation, and the trend of modern businesses.

Cost minimization: Our first disadvantage is our unit production cost. Despite the least labour compensation our unit production cost is higher mainly because of --

High wastage of raw material and system loss: The main component of raw material is fabric/yarn. Wastage there reduces company's net profit by 20-50 percent on an average. By employing efficient, educated and sincere merchandisers this problem can be reduced drastically. Wastage from system loss can be reduced through efficient management system.

Lower productivity: There is no way but to boost our productivity to survive in the highly competitive global market, specially when we are not in a position to enjoy the economy of scale like that of China and India. We can point mainly to the following reasons, and take necessary steps to resolve those:

* Lack of workers' training

* Lack of proper motivation

* Unenlightened production managers

* Lack of proper knowledge about the potential capacity of machinery used, etc.

Quality control: Quality control is one of the most important aspects to attract buyers. In the very competitive global market it is not possible to survive without attaining global standard in product and satisfying buyer's taste. So far, we observe, we are not too far from that envisaged quality level. A bit of attention can reach us there. Special briefing and modern technologies can be introduced in this connection.

Minimum lead-time: Currently we are shipping goods within 60 to 90 days. In very special case we can ship in less than 60 days and sometimes we are also taking more than 90 days. As per market's requirement, where fashion is changing frequently with shorter duration, buyers want shipment within very short lead-time. Despite meeting all other requirements we may not get major buyers if we cannot improve our lead-time factor.

To overcome the problem we shall have to give more attention to:

Infrastructure development for backward linkage support: Backward linkage support is actually the most important part of total infrastructure development. This is mainly the job of BGMEA and government. But we have to keep in mind that, our garment sector has basically developed with private entrepreneurship. But in this transitional period they have to obtain direct and indirect support from government.

Indian government has sanctioned a huge budget of 25 thousand crore rupees for infrastructure development. India is much more advanced than us in this sector. We have to think what measures we have to take to survive by competing with those in the global market.

Introduction of modern communication technologies: Now the buyers expect real-time information, instant reports and services. Whereas, we are taking not only several days, but often even several weeks to give the service. Introducing modern technologies we can provide the following instant services to buyers:

- Video conferencing: We can have communicate through video conference with buyers. Buyers can even include the retail customers to give instant solution on a certain point.

- Internet, Intranet, and Extranets: Through intranet combining different departments we can have the real-time information and reports on production and shipment status of each and every order. If there is any problem at any stage we can take necessary action to overcome it. Buyer also can check and be updated with the status of his order. Accordingly he can interact with his market and maintain his goodwill and demand in the market.

- For styling, lab-dips, and other approvals: Through modern technologies we can obtain approval and buyer's opinion on certain styling and colour matching within a very short time. It saves our time for making samples again and again while saving time and money for sending those by courier.

All this will help us to reduce the lead time a lot and at the same time gain the buyer's confidence.

Pricing strategy for marketing: In the changing situation we have to adopt a different pricing strategy for marketing. Definitely different companies will adopt different marketing policies and pricing levels according to their market range, buyers' demand, machinery setup and quality offered. But we have to consider with high importance the global competitors' pricing, level of competition and appeal of our product in the global market.

Japanese pricing strategy (for any goods) is that they survey the market demand against different price levels and based on optimum demand and profit they set a target price for a specific product. Then they ask their engineering department for addition-deduction to match with that target price. This is called "target pricing" strategy. In the changing situation, I think we can go for "target pricing" method. This is important to survive and promote global market share.

Market diversification: Now we are completely dependent mainly on two markets: EU and US. This situation is highly risky and imbalanced. Any time it may create trouble and claim undue advantages. Diversification is highly important at this moment mainly i) to secure sufficient orders; ii) and if there is any misunderstanding with the existing buyer, we can balance it with alternative market; iii) and because in the monopolistic market there is every chance of exploitation by the buyer.

Through diversification we can come out of it.

Government as well as entrepreneurs can take initiative to create business relationship with countries which are importing garments from outside other than us. We can look to the east-European countries and also some South East Asian countries.

There are also other issues, which are even more important. Some of these are --

Compliances: As per the pressure from Human rights organisations and environmentalists, big buyers give some preconditions to protect human rights and environment. To get orders we have to implement these in our factories. It will help us in two ways. Firstly, it will help us to create good environment at our factories, and secondly it will ensure orders.

CBA: It is a very sensitive and controversial issue. Our experience with CBA is not very encouraging. But we have pressure mainly from US buyers for allowing CBA in our RMG industry. If we don't agree we may lose the US market, and a part of EU market. In this situation some experts suggest not to go too far with this bargaining. If we are to allow it today or tomorrow, it is better to do it as smoothly as we can. We may think of allowing CBA in the most controlled, tolerable, and production-friendly shape, where the ultimate role of the CBA needs to be diverted towards production and discipline among workers.

Conclusion: We need an integrated preparation from government, entrepreneur and management levels. We need more talented and efficient global level managers in parallel infrastructure development, who can take the challenge of upcoming globalisation.

It is time to think about and exert our full efforts and resources to confront the upcoming challenge. By implementing as suggested we can improve upon cost, quality, lead-time, communication and real-time reporting, and if we can rearrange our workforce with its potential capacity we can hope for not only surviving, but also taking a lead in world apparel business.

Md Iftekhar Hossain is Senior Merchandiser, Ayman Group.