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Creating competitive advantage for RMG

It was long been claimed that the competitive advantage in RMG for Bangladesh was of “cheap labor” comparing to other manufacturing countries. Being a labor-intensive industry, availability of working people remains to be vital to the RMG sector. Natural resources, particularly water pours positivity in terms of competitive advantage for the textile industry. The government, in past, has also played a pivotal role in shaping the competitiveness of the RMG sector.

TexTIMe-Creating-competitive-advantage-RMG
Figure: (Clockwise) Tareq Amin, Founder & CEO, Textile Today; Engr. Md. Shamsuzzaman CIP, Ex-President, ITET & Managing Director, Micro Fibre Group; Mohammad Hatem, First Vice President, BKMEA & Managing Director, MB Knit Fashion.

A question now comes up that if Bangladesh still dominates a position as a competitive country for being a global hub of apparel sourcing.

In terms of skillsets, Bangladesh shows a 5 to 7% gap with China. A polished and efficient SCM of China leads to superior productivity. Turkey also could well-managed supply chain that has awarded the country a strong foundation as a manufacturing destination. Both the countries hold 15 to 17% higher operational efficiency in the supply chain than that of Bangladesh. It (SCM) creates a phenomenal competitive advantage for these countries.

In Bangladesh, though factories were not in competition with other factories in the past. They now compete with each other to take orders that ultimately lower the price down. They used to do it for feeding the operating and fixed costs of the extra-large factories comparing to the other competing countries.

Textile today enquires into the current and future sphere of competitiveness of the RMG industry in the episode titled ‘Creating Competitive Advantage’ in TexTIMe on 4th July 2021. Engr. Md. Shamsuzzaman CIP, Ex-President, ITET & Managing Director, Micro Fibre Group and Mohammad Hatem, First Vice President, BKMEA & Managing Director, MB Knit Fashion were present in the webinar as panelists. Tareq Amin, Founder & CEO, Textile Today moderates the webinar.

In the inception, Tareq pointed a survey that showed – 39 percent of the factories were taking orders in loss. He also recalled the information from the BGMEA President in a recent past webinar of TexTIMe. He enquired that as to where competitive advantage lies in the RMG of Bangladesh.

Hatem observed that there was no competitive advantage of ‘cheap labor’ rather ‘availability of workers easily’ might be one of the competitive advantages for us. Secondly, the devotion and resilience of entrepreneurs in Bangladesh are one of the key factors of competitive advantage. Here, almost 99 percent of entrepreneurs are local where our competing countries have 90 percent foreign investors, Hatem told.

Zaman observed that there are certain things we need to do to stay competitive – 1. Product development 2. Quality product and 3. On-time delivery. He told that if we can do well in these three points, buyers will continue to rely on us. It is not easy to perform well in these three critical points, he remarked.

In the matured industry of 40 years, why we are still taking orders in loss, Moderator asked. Hatem agreed that factories are taking orders at a loss just to stay in the operation of factory. Another crucial thing is that those who have bank loans, have to take orders even in the loss to service their liabilities monthly. Internal rivalry or competition also puts factories in additional pressure. This unhealthy competition of the factories could create a problem. Factories compete with each other from which buyers take opportunity to get prices down. He also lamented that ethical buying practices should be maintained by buyers’ side as well. Though buyers continuously advocate for ethical trading initiatives they merely follow it.

In the question of strategy and marketing, Hatem told that more than 80 percent of factories were poor in negotiations and marketing.

In the 1990s, competitive advantage was found in – there was 25 percent of government incentive, cheap labor, and no tight issue of the environment while no ETP was required – in that time profit was much but order quantity was less. Later on, government incentives started to go down and touches to 5 percent. And compliance and other issues come to the surface with the growth of the industry, Zaman told.

Hatem informed that almost 2000 factories have been closed for the last few years. Zaman observed that factories got composite in nature to secure many associated items under a single umbrella. He also observed that China and other competing countries do not do it as likely we do. China, particularly, gained expertise in a single item that made them extra-ordinary for that particular item. But he thinks that being a composite may be good in some cases. He observed that many small factories getting closed. They want to gain excessive profit that creates a curse for them, Zaman noticed.

In the issue of corporate culture, professionalism and innovation – some factories are doing well and they are getting competitive advantage out of it. Both the panelists were hopeful that next generations of the industry would be smart enough to take the industry forward.

Which magic works well for Micro Fibre Group, moderator asked – Zaman replied that they could prepare a home trained, skilled and capable team in knitting, dyeing and merchandising. Next on, they meticulously choose and focus on product development. They have grown expertise in fleece fabric which was dominated by the Chinese market in the past. He also suggested that our factories should look at China and Vietnamese factories as to how they are doing well in business.

We are still importing polyester types of fabrics from China. Basic or conventional items got saturated in terms of profitability. We should focus on the manmade fibre for doing value-added items, Zaman added.

Hatem observed that illogical duty and tax rates were impeding scopes of manmade fibre. He clarified that there is 3 percent of VAT on cotton yarn whereas it is 6 percent on manmade fibre. He lamented that if the government could take timely and necessary support for the industry we could do better. He also observed that there was no justification for such tax imposition. He aggrieved that if government even eagers to help and grow the sector but officials of implementation are not cooperative to do so.

In case of SCM, Zaman observed that internal capacities had grown with prior planning. Moreover, there are many accessories companies in Bangladesh now, so factories do not face difficulty much for it. Except zipper accessories sub-sector is capable of supporting RMG factories.

In terms of compliance, both panelists told that though factories invested their time, effort and money heavily, they don’t receive a premium out of it. Sometimes, factories bear unnecessary burdens from compliance bodies in some issues, they added.

For human sources, Zaman observed that there was capable textile engineers and other professionals to drive the industry. Hatem added that professionals need to be more innovative and proactive to solve critical issues.

In case of current hike of yarn price, Hatem observed that it is an excessive price considering their manufacturing costs. Zaman also agreed that it was a high price, Spinners know that if factories import from India, Vietnam or other countries they can’t do shipment on time. Well off factories were importing yarns as they made contracts with buyers in advance.

Some of the spinners are furthering their investment now because of high profits in the last few months. They should be waiting for taking such an investment decision. This flow of profit may not continue in future, Zaman remarked.

Watch the full video here:

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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