Historically, the textile industry had always been the backbone of economic growth among most emerging and developed economies. Textiles have traditionally been a key driver of technological changes since the inception of the industrial revolution. As a matter of fact, it was the British textile industry that drove the industrial revolution in Britain. Subsequently, we witnessed how the successful development of this sector, enabled nations such as the USA, China, South Korea and even India to gradually build their global economic prominence.
However, as these nations diversified and upgraded their industrial and manufacturing portfolios, the market started shifting production of textile goods from developed to developing nations. As the developed nations started focusing more on high-tech industries with the goal of producing high-value products, due to the incremental nature of market competitiveness, textile buyers in developed economies were desperately seeking lower-cost destinations to source their goods. This is where developing nations came in with their large pool of cheap labor and rapid scalability, which changed the apparel industry irreversibly.
Bangladesh has been at the forefront of this shift and transformation, successfully competing for nearly four decades. The country is now regarded as a major player in the global RMG supply chain. According to the most recent WTO report, Bangladesh still remains the second largest RMG exporter with a 6.5% market share in the global marketplace. The RMG industry is now the most dominant economic driver in the country’s industrial sector, making up almost 12.36 % of the nation’s total GDP, and employing as many as 4 million workers.
Such monumental success was achieved despite the absence of resources such as cotton and other basic raw materials and without having a significant backward linkage industry. The strength and competitiveness of the Bangladesh RMG sector is primarily attributed to its’ ability to offer a large pool of low-cost labor that were and are still easily transformable into a skilled labor force. Furthermore, the country is endowed with an abundance of water that also contributes to the country’s core strengths.
Daunting challenges faced by the RMG Sector
Despite the admirable success of Bangladesh RMG, shifts in the global apparel industry as well numerous domestic factors are expected to bring some daunting challenges to the nation’s RMG sector in the foreseeable future. Firstly, in the markets such as the European Union and North America where Bangladesh’s RMG is primarily being exported to, the trends in consumer behavior have changed significantly in the past 8 years. Nowadays, consumers are spending more on electronic gadgets compared to replacing their garments with new ones.
In the past, typically consumers in developed economies would frequently spend a good amount of their surplus income on replacing their existing wardrobe. For instance, T-shirts were considered wearable for a few times at most before being replaced with new ones. However, due to changing consumer needs and focus on reducing carbon footprints the younger generation are using their existing garments for a longer time after re-washing and are either saving their disposable income or spending them on the latest communication devices such as smartphones.
Secondly, the largest consumer markets such as the USA are bracing for the possibility of an economic downturn in the wake of negative forecasts based on the negative yield curves in the bond market in the EU and Japan that are already witnessing alarming economic numbers. Apparel retailers in the U.S. are reluctant to building up large inventories in the wake of such economic possibilities that may impact their retail markets in the same way as the EU.
The sluggish growth witnessed both in the U.S. and Western Europe simultaneously is simply unprecedented, and are impacting consumer spending behavior and thus triggering lower demand forecasts by importers in these countries. Adding to the above phenomenon, the US-China trade war being strongly pursued by the two governments through retaliatory measures has also added fuel to the fire.
In the wake of the tariffs imposed on Chinese exports to the U.S. market, it was anticipated by many that Bangladeshi apparel manufacturers would benefit from this trade dispute by filling in the vacuum created by tariffs imposed on Chinese exporters. However, the reality is that Bangladesh RMG is not prepared to fill in the above gap. In fact, the RMG industry is far away from reaching the expertise and capacity to be in a position to replace China as a manufacturing hub, mainly due to the discrepancy in the scale of operations and product diversity offered by apparel manufacturers from China.
According to recent studies, as Bangladesh saw a decline in RMG exports, garment shipments from Vietnam increased by 10.54 % between July and September. While the growth observed for India was 2.2 %, and 4.74 % for Pakistan.
Many textile and apparel industry experts contend that the RMG exports from Bangladesh has declined primarily due to the lower consumption of RMG products all over the world caused by global economic downturns. However, the truth of the matter is that this simplistic claim is portraying only a part of the whole picture. In fact, there are multiple reasons that are driving the long-term supply chain strategies of buyers that are leading to an overall decline in new orders for RMG from Bangladesh.
The three major reasons for the RMG exports declining are identified by the author of this article are:
- Rising labor costs in parallel with unhealthy price competition
- Lack of sufficient product diversity among RMG manufacturers
- Risks posed to Bangladesh due to the impact of climate change and hostile geophysical positioning.
Growing labor cost and unhealthy price competition
Due to incremental living costs, demand, RMG workers have started to demand more monetary compensations. Politics, unfortunate industrial accidents, and incoherent labor laws have escalated this issue even further. As a result of pressure to raise minimum wages, the Bangladesh RMG is on the verge of completely losing cheap labor as a source of competitive advantage.
On the contrary, countries like Vietnam, Cambodia and others are posing serious threats with their cheaper labor costs and semi-skilled workforce. Additionally, Myanmar and some African nations, such as Ethiopia are also making strides in entering the RMG sector as sourcing destinations. Such pressures are contributing to the already declining spread between revenue and cost for RMG producers in Bangladesh. According to a study conducted by ‘The Daily Star’, in the first quarter of the current fiscal year, garment exports from Bangladesh have dropped by 1.64 % year-on-year, and in fact, in the last quarter export earnings dropped to $8.05 billion which is 11.52 % short of the quarterly target of $9.10 billion.
Moreover, retailers are not practicing fair and responsible purchasing. While the apparel buyers have placed immense pressure on the RMG producers to upgrade their production infrastructure to meet international safety compliance standards, yet there has been no corresponding support in terms of prices paid by the buyers to offset the additional financial burden borne by the producers. In actual fact, despite fulfilling all compliance benchmarks with flying colors and consequently transforming factories into role models for safety, local manufacturers are continuously being pressured to lower prices of their final products to price-levels that are untenable. As a result of such unfair practices, due to the highly competitive nature of the market, RMG manufacturers in Bangladesh are forced to do business at prices that are unsustainable.
According to Rubana Huq, President of BGMEA, buyers are now trying to take advantage of the presence of unhealthy price competition among the local garment makers. This practice is making it more and more difficult for new local investors and entrepreneurs to enter the market. An estimate by the Fair Wear Foundation (FWF) indicates that as many as 39 % of the Bangladeshi garment exporters are presently accepting prices below their actual production costs for the sake of keeping their business relations with international retailers and just to cover their wages and financial obligations to lenders.
According to a Daily Star Business News in 2019, only 13 % of the buyers who source from Bangladesh have so far increased the prices of garment items even after the minimum wage hike in 2013. Based on a survey done by Mridha (2019), the outcome of such practices is that just in the first three-quarters of 2019 fifty-nine garment factories have been shut leading to job losses for 25,900 RMG workers.
Lack of diversity in the range of product offerings
The discourse presented in the preceding paragraph does not suggest that all onus of responsibilities lie with international buyers, in fact, the RMG producers in Bangladesh have not been keeping themselves up to date with changing consumer behaviors and demands from the market places where their products are being sold.
According to Mahmud Hasan Khan Babu, former Vice-President of the BGMEA, consumers had been decreasing their purchase of apparel for some time and spending more on other types of durable products. He also states that Bangladeshi manufacturers have expanded their capacity to produce the type of apparel they manufacture currently without any study on global consumption trends.
The WTO projects that the lack of product diversification is a significant reason apart from rising online business models and decline in apparel purchase from brick and mortar shops for the current declining trend in orders coming into Bangladesh for RMG. In a recent interview, Rubana Huq suggests that Bangladesh needs to diversify and upgrade its’ capacity to produce high-value apparel rather than focusing on low-value basic garments to become more competitive in the global fashion market. The shift among producers towards high-end high-value garments is overdue and is one of the main reasons for Bangladesh not being able to cash-in on the opportunity created by the U.S.-China trade war.
Adverse impact of climate change and potential seismic activities
Bangladesh RMG has come a long since the infamous Rana Plaza and Tazreen Fashions incidents, indicating the resilience and perseverance of the local entrepreneurs and other key stakeholders that have supported the industry. As a result, the Bangladesh RMG industry is now much stronger than ever in terms of capacity and compliance with global standards. In terms of infrastructure and safety standards, most Bangladeshi RMG manufacturing plants are as good as any in the world, which has become another source of competitive advantage.
Despite such admirable progress made by RMG producers, the international garments buyers appear to be apprehensive and are actively seeking alternative sourcing destinations! The question is why?
The answer is the possibility of imminent ‘natural calamities’ driven by global warming as well as geological forecasts with regards to possible earthquakes in and around Bangladesh. The geophysical position of Bangladesh makes the country prone to a significant number of adverse geological conditions. These conditions are potential sources of major disruptions for the RMG industry and thus the global apparel supply chain that relies on Bangladesh.
According to an article by BBC, by the end of the century, sea levels are expected to rise along the Bangladesh coastline by up to 1.5 meters that will come with more extreme seasonal fluctuations in sea levels. Global warming is likely to inhibit powerful storms and unusually high-tides that are currently being observed once each decade, but this could become a regular phenomenon up to 3 to 15 times each year by 2100.
A new research forecasts coastal flooding will impact nearly 42 million people in Bangladesh by 2050 and by that time more than 25% of the land of Bangladesh may be inundated by seawater. It is worth mentioning that the country is yet to develop a deep-sea port.
The buyers’ association seems to be apprehensive and pessimistic about the government’s long-term plan to tackle the fallout of such calamities on the RMG supply chain. Any contingency plans drawn up by the government have not been communicated to the forum of international apparel buyers. Therefore, if the government has already drawn up contingency measures, then such plans ought to be communicated to global buyers that source from Bangladesh.
In November 2015, the Honorable Prime Minister of Bangladesh visited the Netherlands to observe how the Dutch government has prepared survival models under the seawater. Since then Bangladeshi experts have been working on a survival model also, but unfortunately, this has been communicated at a global stage neither from our government nor from any industry representative.
Another matter of grave concern, are earthquakes. According to experts, Bangladesh happens to be situated in one of the most seismically active zones of the world. If any massive incident happens, our government does not have the capacity to rebuild the communication infrastructures overnight. Also, considering the extremely high density of our population, recovering from massive natural disasters will become more and more difficult with time. Although the strongly built RMG manufacturing plants will likely withstand the impact of earthquakes, the irreparable damages to other components of the supply chain such as communication, supplies, etc. will have a major impact on operations of the RMG factories.
Hence, buyers are becoming progressively skeptical about relying too much on Bangladesh for production given the probable geological hurdles. Therefore, the international apparel buyers are re-designing their long-term supply chain strategies by spreading the potential risks by sourcing from other emerging RMG producing nations mentioned earlier in this article. Apparently, some buyers have directly advised their supply chain partners in Bangladesh not to expand further in Bangladesh. Although many buyers are still optimistic about Bangladesh, they are asking their vendors to upgrade to more high-end value-added products.
Way forward for Bangladesh RMG: Building sustainable and resilient supply chains
Being a doctoral research student and an active member of the RMG industry, the author of this article is constantly searching for effective solutions to the challenges highlighted above. In light of the daunting challenges faced by the industry, the author has decided to conduct a comprehensive study that could lead to measures towards building a resilient supply chain in the RMG sector. Hence, the goal of the study is not only to identify the hurdles in the way of the RMG sector but also to develop sustainable solutions to overcome them. Most efforts in bringing about a sustainable future for Bangladesh RMG has been focusing primarily on measures such as energy savings, increasing productivity and efficiency among workers across the board and enhancing quality in products and processes. However, the need to build a robust and resilient supply chain for the long-term sustainability of this sector has been understudied.
The entire gamut of RMG supply chain is just too broad a topic for a single stream of research endeavor, hence the focus of the research undertaken by the author is to address how a sustainable supply chain may be developed through focusing on building a large pool of middle-managers for the RMG industry with the necessary set of knowledge and skills to plan contingency measures and mitigate the impact of any shocks that are impacting or will impact the industry in the future.
The whole idea of working on the concept of developing people skills especially focusing on a large pool of middle-managers is derived from the basic premise of the balanced scorecard architecture developed by Harvard University Professors Norton and Kaplan. The balanced scorecard architecture is comprised of four (4) perspectives: financial performance, customer satisfaction, operational efficiency, and developing people skills.
When effort is applied towards improving people skills of an organization, it automatically influences operational efficiency that in turn improves customer satisfaction, which eventually results in better financial performance. Therefore, the goal of building a sustainable RMG sector starts with improving the managerial skills of the people who matter the most in the day-to-day functioning of an RMG manufacturer; that is the middle managers.
During the search for comparative information on sustainable supply chains in apparel manufacturing, it was discovered that Bangladesh has a 5-7% marginal difference with China in terms of skillsets, however, China’s superior productivity are results of their robust supply chain management. Similarly, Turkey has a well-managed supply chain that has given the country a strong foundation as a manufacturing nation. Both countries are considered 15-17% higher in operational efficiency benchmarks compared to Bangladesh. Therefore, a well-developed and robust supply chain managed by a world-class pool of managers can absorb any shocks and result in higher productivity.
The author of this article has embarked on a research endeavor to link capacity building of the middle management of the Bangladesh RMG sector as a potential driver of building a resilient and sustainable supply chain network in Bangladesh. For instance, an initiative such as the ‘PEOPLE’ project may make significant contributions towards achieving the above goal. Unfortunately, the middle management in the RMG sector has been more or less overlooked, which is ironic considering the fact that they are the backbone of the day-to-day operations of RMG manufacturing. Hence, initiatives such as the PEOPLE project may actually become game-changers for the industry. The objective of the research undertaken by the author is aimed at unraveling the truth to this assumption.
Since the beginning of the historical journey of Bangladesh’s export-oriented RMG industry, the sector has been successfully giving significant returns to both local and international RMG stakeholders, in spite of the risks and hurdles it had to overcome through the years. Almost every company still in operation is generating earnings more or less, striving to continuously improve their operations and are getting progressively competitive each day.
The main reason is the adaptive and resilient nature of the people of Bangladesh. The RMG entrepreneurs learn very quickly and have increased their operational efficiencies as and when required by the evolving nature of the global RMG business.
Despite the laudable achievements, the challenges identified such as unhealthy price competition is putting the industry through a severe stress test, making owners of these companies question the future of their companies to which they have dedicated their lives and resources. As mentioned earlier, the existing international apparel buyers are constantly pressuring manufacturers to produce value-added products, and yet not making any compromises on prices. In order to remain competitive and to meet customer expectations, many factory owners have started adopting value-added products even before properly understating the true substance and meaning of value-added products.
Adding fuel to the fire is that while most of the RMG companies are engaged in the self-destructive competition by taking orders below cost and at the same time pursuing high-value apparel production, international buyers meanwhile are hunting for new manufacturing locations for basic low-value apparel.
The buyers are pushing Bangladeshi RMG companies to invest in facilities to produce value-added apparel, while they are shifting orders for basic low-tier products to countries such as Myanmar, Ethiopia, etc. that are now considered as emerging low-cost manufacturers. These shifts in procurement strategies of the buyers are not only driven by lower labor costs in those new destinations, but the strategy has a lot to do with diversifying the risk portfolio of their supply chain network, considering some of the probable shocks such as impact of climate change that may disrupt their businesses in the future.
Why are buyers so hell-bent on establishing such balance in the apparel supply chain? The answer is simple: they want to minimize risk and hedge on future impacts of climate change. These actions are part of their long-term strategies. Within Bangladesh, they are asking factories to invest more for value-added products, new technologies, automation, etc.
This is technically migrating Bangladesh from a lower-tier segment to the middle- and higher-middle tier segments of the market. Many apparel buyers are also encouraging large Bangladeshi RMG manufacturers to invest in countries such as Vietnam, Cambodia, Myanmar and Ethiopia.
Interestingly, many companies from Bangladesh have already started investing heavily in these new destinations. Blindly following the lead of the buyers by investing abroad in production facilities without addressing the challenges locally by developing remedial measures, such RMG companies are missing the big picture. Instead of creating competition for Bangladeshi RMG companies, the proper step would be to collectively put an effort to develop the industry through developing long-term strategies to build sustainable and resilient supply chains, instead of creating competition for your own industry in Bangladesh.
There is no specific variable that stimulated the emergence and rise of the RMG sector of Bangladesh; international openings, cheap labor, MFA and GSP trade facilities, skilled workforce, adaptability and government support had collectively attributed to the creation of this phenomenon. However, the path is not as smooth as it used to be. Diminishing demand for mid-tier apparel and mounting competition in the industry is making it more and more difficult for businesses to survive with rising costs and associated risks.
Wayouts for Bangladesh textile and RMG industry
On top of that rising labor cost, lack of variation in the product offerings and adverse geophysical factors are driving the problem even further, putting the entire Bangladesh RMG supply chain at peril. Therefore, in order to remain competitive in the global market, manufacturers in Bangladesh now more than ever have to consider revamping their business models keeping sustainability as the principal priority. Hence, the author believes that the solution lies in re-designing business strategies with a pivotal focus on existing core strengths in order to build resilience in the supply chain.
Low cost has always been our unique selling point and we have to ensure that we do not lose it, especially considering how price-sensitive the global apparel market has become. As mentioned earlier in this article, supply chain management should be a major focus area, considering its intrinsic ability to enhance productivity and in turn lowering costs. Investing in appropriate technology can also play a key role: an efficient automated model paired with a sustainable supply chain can significantly increase our ability to utilize scale effectively, in order to reduce costs and accelerate production to remain competitive.
At the same time, focus on value-based products (i.e., high-tier apparel products) through diversification and innovation can be considered as a long-term approach towards sustainability. Nevertheless, such initiatives take time and the industry is not likely to reach that level and space of sophistication and creativity overnight, as the RMG industry in Bangladesh has been built on cost efficiency/low price model.
At present, we neither have the scale nor the linkages to be in a space from where we can focus heavily on innovation. Having said that, the encouraging fact is that some manufacturers in Bangladesh have slowly started to focus on value as well. Experimentation in product design and development has started. However, it will take years for the whole industry to collectively reach that competence level from which we can add value in products through innovation.
At present, we do not have a concrete and decisive response to all the challenges ahead of us, but as a citizen and as an active member of this industry, we have high hopes considering the resilient nature of our nation and of the RMG sector in particular. Finally, it is hoped that a research endeavor that is data-driven may culminate into a roadmap to navigate the quagmire that the industry faces for maintaining and consequently further accelerating the on-going growth of our RMG sector.