Role of ‘Buying House’ in Bangladesh RMG industry

MM Uddin       
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Introduction:

Buying House (BH) is one of the most distinguished business fields in Bangladesh RMG sector. It is well understood that Bangladesh achieved second highest RMG exporters’ position in the world, because the sector produces high quality product with a competitive price than other competitor countries. Bangladesh has created a big place in the world’s apparel market, where garments buying houses play a vital role for this significant contribution. Considering minimum 5 percent buying services commission, it could be said that at least 1.4 billion dollars have mutually been shared by garments manufacturers and buying houses in last FY 15-16.

Buying House (BH):

A buying house is basically a trading partner between the buyer/retailer and manufacturer. Two types of BH we see in the business field, it can be a buying agency or liaison office and trading/buying office. Both terms contain different meanings.

Figure 1: Estimated number of Liaison Offices & Buying Houses in Bangladesh.
Figure 1: Estimated number of Liaison Offices & Buying Houses in Bangladesh.
  1. Buying agency or liaison office is an independent buyer’s regional office, from where all kind of necessary approvals have given. It can’t show any income without expenditure according to local law. I.e. Decathlon (France), TEMA (Turkey) & H&M (Sweden)
  2. On the other hand, buying office is that, which works at a time with different buyers and brands. In this case, all the required approvals are coming from the buyer. They are only authorized from order execution not for major decision making. I.e. Target Australia, T&M Sourcing Ltd, Apptex Sourcing & ARP.
  3. A few of the office endeavors as a liaison officer and a buying house that means these types of office efforts at a time an independent buyer’s office with maximum approval authority without fabrication and Lab deep selection. And also performances for different buyers and brands without approval authorities.
  4. Many garments manufacturers use their separate marketing office as a buying house and they are calculating 5 to 10% commission for that service.

 

History of Bangladesh BH:

The export oriented RMG sector in Bangladesh started its modest journey as a small non-traditional sector of export in late the 1970s. After the liberation, especially from the 90s the RMG industry started to surge at a formidable pace as the country was gaining political and social stability. Within three decades, RMG has transformed itself as the country’s highest revenue generating sector, contributing 82% (USD 28.094 billion FY 15-16) of country’s total export. 70’s or 80’s there have no BH in Bangladesh. The early 90’s some entrepreneur brings the buying house concept to fulfill the industrial demand.

Now according to reports from BKMEA and BGMEA there are more than 1000 enlisted buying houses, 1500 export oriented textile industries and more than 6000 (4000 under BGMEA and 2000 under BKMEA as of 2015-16 FY) RMG industries operating in the country. It is to be mentioned that real number would be bit less as there are companies who are members of the both BGMEA and BKMEA. Through last 2 decades’ this number was growing very fast.  Industry insiders said, buying house is a hub for sellers comprising of leading manufacturers, exporters and suppliers, displaying their latest and trendiest collection of apparels to a huge audience round the year.

Why need Buying House?

Actually a buying house always plays a vital role in the RMG sector. It is the combination of all marketing activities, which is not only related to searching foreign garment buyers, order collecting, media for the manufacturers but also placing orders to the suitable garments manufacturing factories and providing all types of technical and communicational support to the buyers and manufacturers.

BH plays an important role in the garments manufacturing sector of Bangladesh. Bangladesh RMG sector is 100% dependent on foreign buyers, and foreign buyers depend on garments buying house. Because many times they don’t have enough idea of the production country, way of communication, culture, nature and so on, whereas buying house provides them strong support by supplying garments products according to their demands. To reduce buying house dependence some of the most famous buyers opened their own office in Bangladesh which is very costly. That is not possible for all foreign buyers. So that the new buying houses are increasing day by day. Below are some fundamental points for a comprehensive view on the necessity of BH.

Cost saving:

Production cost reduction is one of the prime objectives of a retailer. If a buyer gets the product with competitive price and best quality, it’ll help to catch the mass level consumer market. Bangladesh is 100% export oriented manufacturing country. Hundreds of buyers and retailers are producing their brands from Bangladesh but the maximum company has no any liaison or own operational office here. So for the appropriate execution of an order there has no alternative to depend on a good reliable buying partner except build up an own functioning office. Setting up own office is costly and time consuming factor. One of the famous Brand country manager Carin Kjellgren said, “Half million USD we are investing only for maintain 30 employees per year”. Whereas a buyer can easily get all services from a buying house only to share some percentage FOB or service charge or sometime both.

 Intensive care:

A new product like a new born baby, without proper care it’ll bring thousands dollar losses on both sides. A big lose for a buyer is reputation as well as money. The Merchandiser, leader of the products always busy to take care of the product’s quality as per buyer requirement. He is the doctor of any types of intensive situation in the development to shipment stage. And that is not possible for buyers from the far away. Buying houses are performing this kind of services with full buyer and supplier satisfaction.

Intend support:

The supplier normally achieved 90 days for a single order execution lead time. In the recent year, it’s reducing significantly, but not more then 60 days that mean within this anything can happen. A continues third eye support is needed in this complex supply chain process; it is badly needed in the supplier side especially in the production time. In the production time merchandiser need to take some important decision for smooth production, so that before take the decision he has to observe the real scenario, what happened the production floor after wide-ranging observation, he can make a decision save quality and production both in stipulated time. And it’s not possible for a foreign buyer without a buying house support.

Maintain strong communication:

The proper communication never happened without appropriate knowledge about the subject and complete technical know-how. Buying house receives proper information from the buyer and makes it understandable for the supplier who directly executes the order. Most of the time people in this process use their mother language for making actual meaning.  Buying house works not only with the reputed buyers, it also helps to small buyers. At present, many new potential brands are growing; whose have no specified supplier. Buying house provides them sound opportunity by providing garments suppliers.

Quality assurance:

Actual quality assurance is one of the key tasks of a buying house because garment industry maintains a complex supply chain where vendor sources different materials from different places, stitch garments through to different skilled workers and sell goods to retailers. Buying house always hired very expensive quality expert to ensure the product quality. No end consumer will buy a garment with poor quality and visible defects. So buyers and retailers knowingly do not purchase a product that does not meet the international quality standard.

Quality conscious buyers have a strong quality inspection system in place to avoid purchasing of defective goods. So without a buying team support it’s quite difficult to produce right quality product from factories.

 Quick development support:

New design development is very important for every retailer. Every year buyer develops number of new products, which is full of trial and error. Speed to market is critical to retail business that requires quick support from the supplier. But the supplier always in a rash that’s why many buying house created their own sample development facilities to give quick development support to the buyer.

Recently, some famous buying house like Li & Fung, T&M sourcing using virtual sampling as it significantly reduces the amount of time required to design, produce, handle and seek approvals for product samples. Product designers create collections of virtual apparel samples for customers to review in a digital showroom. Beyond the benefits of time and efficiency, virtual sampling offers a more sustainable approach to traditional design and sampling methods.

Minimize the local export law complicacy:

For doing business the foreigners has to know details about business laws, rules-regulations and most basic licenses information required to do business in Bangladesh. Important Laws- Tax, Customs & Revenue Laws, Investment Related Laws, Investment Related Policies and BIDA Act, 2016 are important to know. If the buyer makes a partnership with a buying house the buyer will be relaxed from the above issues easily.

Risk minimization:

Buying house responsibly manages the environmental, social and governance performance. BH works with their customers, suppliers and industry partners to further the sustainability of supply chains and communities across the network. Well established BH has assessed the progress against sustainability goals, set aspirational targets against best practice benchmarks and take action to meet those targets. Due to the close observation, BH can give instant information to the buyer where buyers can take preventive measure as soon as possible.

Market analysis:

The production country’s market updates are one of the major concerns of a fast growing buyer. They always want to know about production country’s political situation, labor law, review of the worker salaries, yarn price, accessories price, fabric price, lead-time, the future of the business, FDI (foreign direct investment) and many other issues related to production. But all time it’s not covered by the international media, international media always cover the most significant issues. But buyer needs a regular update about the production country because it is fully related with their next budget planning so the local buying house is main player who play a vital role in the Bangladesh RMG sector for the foreign buyers.

General activities of a buying house

Figure 2: General activities of a buying house.
Figure 2: General activities of a buying house.
  • Marketing for order collection from the buyer.
  • Select good suppliers to place the order.
  • Order execution process follow up to shipment.
  • Making product development samples for buyers.
  • Contacting with buyers for necessary approvals.
  • Forwarding all the comments and approvals to the factories.
  • Follow-up order processing according to buyer’s demand.
  • Maintain desired product quality from sample to production.
  • Should follow inspection terms and conditions according to buyer’s demand.
  • Shipping the goods and collect sales feedback

Conclusion:

RMG sector of Bangladesh has a new slogan: “$50 billion by 2021.” It’s not a dream vision for the country. The country has enough ability to achieve this goal. We are hoping to reach $50bn in exports by 2021, the 50th anniversary of the Republic of Bangladesh. To achieve this milestone-buying house will play a significant role by collecting many orders from the world’s top garments buyers.

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