Presentation on Bangladesh Strategy in Post MFA Environment

By

Mr. M A Awal
Director of the Board & Chairman Standing Committee on Textile, Specialized Textile & Backward Linkage Industries of The Federation of Bangladesh Chamber of Commerce & Industry (FBCCI) & Chairman Bangladesh Textile Mills Association (BTMA) Date: June 2, 2005 Place: Beijing

BANGLADESH

Where we are?

INTRODUCTION
Textile as a whole is a heterogeneous product market where yarn, fabric, fashion, material design, quality, colours, brands etc. create values. Therefore, constant innovation and improvement is a pre-requisite for increasing competitiveness. My presentation will therefore, have two-phases one, dealing with Primary Textile Sector (PTS) having a brief on present status & potentials and the second phase with present status of Export Oriented Readymade Garments Units, in the post MFA challenging environment.

CONTRIBUTION TO NATIONAL ECONOMY

Textile Sector as a whole plays an important role in the economic life of Bangladesh. The sector contributes 38% industrial value addition. Earns around 78% of total export earnings. Employs around 4.5 million workforce of which majority is women Generates huge cliental base for Banking, Insurance, Shipping, Transport, Hotel, Cosmetics, Toiletries and related other economic activities. Provides indirect employment to 0.80 million workforce in accessories industries related to garments. Provides 0.2 million job to waste recycle industry related to RMG sub- sector. Contributes 10.50% to GDP through RMG sub-sector.

INSTITUTIONAL FRAMEWORK
Textile Sector in Bangladesh has a number of sub-sectors; each operates independently, but works as complementary to each other. In Bangladesh RMG Sectors activities start from backward linkage to forward linkage that is apparels manufacturing. The whole chain of production process spans from yarn manufacturing to garmenting. From the processing point of view Textile sector has the following sectors: sub-

Yarn Manufacturing: Manufacturing of yarn from natural fibre & MMF Fabric Manufacturing: Woven & Knit Fabrics. Textile Product processor: Dyeing & finishing of grey fabrics & yarn dyeing Knitting Mills Knit-Dyeing-Finishing Mills Woven Composite Mills (more than one process is carried) Knit Composite Mills (more than one process is carried) Hosiery Units Readymade Garments Industry (RMG): Apparel manufacturing.

The market share of Bangladesh apparels can be seen from this table (2003-04)
(Value in $Mn)

Country

Total RMG Import

RMG Import from BD

% share of BD

EU US Canada Japan Hong Kong S.Korea Others Total

74150.00 66400.00 3700.00 19700.00 1700.00 900.00 32350.00 198900.00

3651.81 1628.59 256.40 19.79 6.59 3.15 119.76 5686.09

4.92 2.45 6.93 0.01 0.39 0.35 0.37 2.86

Bangladesh achieved a phenomenal growth in Readymade Garments exports, which is evident from the table below.
(Value in Mn. US$)
Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 (JulMar)

Total Export 3882.00 4418.28 5161.20 5312.86 5752.19 6467.30 5986.09 6548.44 7602.99 6097.12

RMG Export 2547.13 3001.25 3781.94 4019.98 4352.39 4860.12 4583.80 4912.10 5686.08 4734.14

% of RMG to total export 65.61 64.93 73.28 75.67 75.66 75.15 76.57 75.01 74.79 77.65

Growth of Woven Vs Knit RMG

1993-94 Total Export Woven Knit Million Dozen 541.99 412.21 129.78 % 100% 76.05% 23.95%

The share of woven RMG export has been declining as the growth of Knit RMG export supported by local inputs had been much higher.

2003-04 Total Export Woven Knit

Million Dozen 2185.06 1085.86 1099.20

% 100% 49.70% 50.30%

In 2003-04 knit RMG export has surpassed the woven RMG export because knit has competitive advantage due to availability of local inputs

Factors that contributed to the growth and expansion of RMG exports in Bangladesh are : MFA ( Protected Market ) G S P ( Preferential Market) Dynamism of Private Sector Policy support from Govt. & Continuity of Policies in successive Govts. Decontrol of Reserve Sector. Financial and Non-financial incentives RMG Sector in the list of free sector. Introduction of Back-to-Back L/C and Bonded warehouse Structural adjustment policies of Govt. Low labour cost.

The table below shows the product categories of our apparels export to major markets (2003-04)
Market Total Export Earnings
(In MnUS$)

U.S.A EU Canada Overall to all Markets

1628.59 3651.81 256.40 5686.09

Share of Woven Products 85.46% 51.24% 72.44% 62.22%

Share of Knitted Products 14.54% 48.76% 27.56% 37.78%

TREND IN EU MARKET
In EU market Bangladesh enjoys GSP facilities. The facilities have been further relaxed through Everything But Arms (EBA) scheme. There is no quota for Bangladesh in the E U market. Export Trend in EU
(Value in Mn. US $)
Export of Knit and Woven Products 2000-01 2001-02 2002-03 2003-04

2418.00

2411.00 (- 0.3%)

2712.00 (+ 12.48%)

3651.79 (34.65%)

Export of TC to EU declined by 0.28% in 2001- 02 over 2000 01, but bounced back by 12.48% in 2002-03 over 2001-02, 34.65% in 2003-04 over 2002-03

Foreign Exchange Retention on National basis

Particulars Total Export in Million US$ 2003-04 Total FE Retention in Million US$ 2003-04 % of National FE Retention

RMG Export with local fabric RMG Export with imported fabric

2603

1953

25.70

3083

770

10.14%

Major Problems Confronting RMG Sector in Bangladesh.

Heavy dependence on imported fabrics. Long lead time. Difficulties in compliance of various standard without increasing costs. Low Labor productivity. Shortage of Working Capital. Large scale production of low value added products. Passive marketing approach. Lack of direct contact with buyers. Inefficient functioning of ports. Poor infrastructure. Regular interruption in our power supply Lack of product and market diversification. Negative impact of FTA/RTA. (TDA/2000)

Major steps for effective Cost reduction strategy

Improvements in Labour Productivity Better industrial Relations Reduction of high dependency on imported fabrics Reduction of lead time Improvement in Backward linkages Efficient management of port Maintenance of Direct Relationship with Clients Provide incentives, Provide Marketing Support Ensuring compliance of standards

STRATEGIES TO MEET POST - MFA CHALLANGES.

The major strategies are : Export Trade Promotion, development of infrastructure, easy access to fabric, reduction in duties and interest rates, human resource development, marketing support, setting up of garment villages, provision for separate economic zones for private sector investment in PTS, provisions of investment incentives, improvement in local operating environment, improvement in social accountability and labor safeguard etc.

Competitiveness Issues

Managing Competitive advantage involve :

Increase Productivity Supply Chain Management Design/Fashion/Market Development Service Orientation

Probable reasons for fall in average price

Global manufacturing is having over capacity Weak US market following terrorist attacks of September 11 In fighting among suppliers to maintain market share Global recession Fierce competition among inefficient small and medium size producers Entry of new suppliers Phasing out of quota, exports soared and prices fell Cost of buying quota over, exporters were able to drop their prices without sacrificing margins.

Code of Conduct : Ethical Sourcing (Stop Sweat Shops)

- Social sourcing as a criteria for trade - Increased insistence on socialresponsibility of manufactures/suppliers - Corporate code conduct / business values to guarantee certain standards: * No child labour * Working condition * Minimum wages compensations * Freedom of association * No discrimination * Working hours * No forced labour

What will be requested

Strong buyers market: Concentration on a few countries where they can source best. Pure CMT business will phase out, buyers will ask for services (approach to customer satisfaction) Retail- Suppliers partnership (transparency, joint planning ) Craftsmanship will be taken for granted Lean retailing: Transfer of inventory management to suppliers Active marketing approach will replaced passive marketing approach

Strong Trade Association to :

Develop a strong negotiation power Participate in trade negotiation Take lead role in fulfilling labour standards Take over regulatory function of govt. (issues of IRC/ERC, CO, GSP etc) Represent sector in national committees Provide strong support to members (market intelligence, trade fairs, e-portals, lobbying etc)

Working together creates

synergies :

With friendly competitors of the same level of production chain (sub- contracts) Clustering e.g for dyeing, printing finishing Strategic alliances between larger and smaller companies Alongside the textile production chain (strategic alliances with local fabric suppliers to cut down lead time) To streamline training programmes

Increased competitiveness through flexibility :

Be able to respond to specific client demands Develop capability to handle smaller and more difficult orders Develop merchandising capabilities Develop an efficient sales network Develop synergies with buyers : to jointly develop patterns, designs, exchange of data through enetworks

Increased productivity through HRD & Fashion :

Enforce in house training Create training cooperation agreements between companies from different levels of production chain Diversify into creative training (design, fashion etc) Combine R & D and training Diversify products and markets Improve product quality and diversify into new Develop more fashionable products Develop small sized fashion line to be flexible in market penetration Active product marketing, focusing on fashion, trends, formality going beyond pure functionality product lines

Capacity Building
Use electronic data interchange for :
Receiving & processing orders, Receiving market & sales information Facilitating production planing Handling complicated packaging instructions Providing customers with speedy information on production status, shipping status, inventory etc

So What to do?
Close Dialogue with Decision makers to :
 Monitor the new political economy for textile & clothing     Compare/benchmark with others Develop a national/regional supply chain HRD to increase productivity and flexibility Develop an active marketing approach based on a positive country image  Create a service oriented mindset and a closer regional cooperation Globalization is yesterdays news now. The era of regionalization has began & we should take advantage of that.

THANK YOU