Apparels, anxieties and actions

The fact that the cloud could be in the horizon, is not a new news. A wake up call has long been sounded to develop the sector in tune with competitive and non-quota environment. Unfortunately little seems to have been done to this effect. And that is really the problem with protection and quota systems: infants never grow old and matured to withstand bad weather. It appears from the existing researches that there will be winners and losers but hardly the winners would be able to compensate for the losers. This seemingly indicates to a potential loss for Bangladesh as a result of the phasing out of MFA.

Allow me to draw the attention of the readers to a seminal book on the issue. Marlon Lezama, Brian Webber and Charles Dagher (2004) wrote if on the prospects, problems and policy implications of the apparel industry. Titled as "Sourcing Practices in the Apparel Industry -- Implications for Garment Exporters on Commonwealth Developing Countries", the book has been published by the Commonwealth Secretariat. The authors mainly discussed the implications of the phasing out among Commonwealth developing countries and suggested as to how firms can remain competitive in the face of evolving sourcing policies, technology and practices complemented by related framework at government and other institutions.

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Marlon et.al submits a succinct summary of the structure of the garment industry in Bangladesh. According to them, there are four groups of companies. (a) Roughly 15 companies or groups owning a total of about 220 manufacturing units with a capacity of 10,000 dozen pieces or more per month. These groups have offices in US, Europe or in Hongkong. (b) There are about 550 production units with a capacity of 5,000 or 10,000 dozens per month. They mainly work for importers and agents, about 60 per cent on cut and make basis and 40 per cent on FOB basis. (c) Seven to eight thousand companies owning an estimated 1,993 production units each with a capacity of 5,000 dozen pieces per month are mainly engaged in sub-contracting. (d) About 1500 units are sick and most of them are not even operating.

"The research findings indicate that countries that are particularly at risk in the changing apparel industry environment are those where apparel accounts for more than 50 per cent of exports and where market shares are less than 3 per cent". Luckily, Bangladesh and India reached the threshold level of market share in 2001. More than half of the exports of Bangladesh constituted apparels and the market share crossed 3 per cent.

Based on survey results, the authors are of the view that low wages alone would be no longer enough to justify high exports. Nor the growth of the apparel industry would hinge on low wages from labour abundant country. "Increasingly buyers are moving to optimise costs throughout the supply chain as opposed to simply seeking lower cost for cut, make and trim". That is, they try to optimise macro costs (e.g. tariffs and doing business), indirect costs (delays, late delivery etc.) and direct costs (costs of inputs). It is being argued that there is little scope to reduce costs on account of labour but attention needs to be thrown on other points in the value chain.

To mitigate the anxieties of the apparel industry in the wake of a phase out, the governments have to come up with actions. The macro costs fall within the domain of the government. Government can help build infrastructure, train labour, creating good business environment etc. It is here governments and industry could work hand in hand. Governments of Commonwealth countries can also go for strong lobbying for their country clients. Lobbying has vast importance in American and European systems.

Many of the observations made by the authors are relevant for Bangladesh and hence needs to be appreciated. Bangladesh has to integrate with the world market not on the basis of cheap labour alone but on the basis of taking total costs into account. Hassles at ports and grappling with courts could be costly for the survival of the industry. Bangladesh has progressed well but not enough. Bangladeshi mills now meet close to 80 per cent of their yarn requirements for knitwears and some 30 per cent of fabric needs. The country has to devise alternative arrangements, in addition to, or in lieu of, the current ones. The apparel industry should also move towards collaborative efforts both domestically and regionally for furthering the gains from trade.

The book by Marlon Lezama and others should be read by the quarters concerned in apparel industry. It gives a brief background to the challenges, an elaborate presentation of choices faced and suggests steps to overcome the crisis. The case studies cited in the book are interesting and insightful. Bangladesh apparel industry needs some food for thought from the book. It is not a time for anxieties but for actions as postulated in the book.

Abdul Bayes is a Professor of Economics at Jahangirnagar University