Despite being a large industry, the backward linkage of the RMG sector could not attend sufficient attention from the top. Backward linkages play critical roles, as the global apparel buyers place orders with tight pricing along with the shortest possible lead-time.
Reportedly, 60 -70% of product prices go away in overseas markets for purchasing raw materials like yarn, fabric, chemicals, accessories and other associated materials.
We are striving continuously to explore the new market to increase the export value, whereas we have a ready market of a minimum of 10 billion dollars yearly. If we can cater to this investment opportunity in the backward linkage, we can gain a strategic advantage in global competitiveness and can perform well in SCM to attract buyers. This market size is almost one-third of the current apparel export value of Bangladesh.
Woven fabrics are accounting for around 35 to 40 percent that local manufacturers are unable to fulfill the rest of the 60 to 65% of its demand in the industry.
We, therefore, can call for developing the backward linkage as sub-sectors if we want to meet the export target in the global market. Strengthening backward linkage is a potential investment area that can reduce dependency on imported raw materials and intermediate goods.
Due to the multiple sourcing destinations for raw materials, the lead-time is becoming longer which is putting a negative impact on competitiveness. The efficiency of SCM directly lies with the efficient and sufficient backward linkage. Our competing countries getting additional leverages out of having backward linkages that make them efficient in SCM.
Textile today digs into the current conditions and prospect of backward linkages in the episode titled ‘Importance of Backward Linkage in RMG’ in TexTIMe on 6 June 2021. Md. Mosharaf Hossain, Director, BTMA and Chairman & MD, Mosharaf Group and Md. Mamunur Rashid, Director, MM knitwear and Managing Director, Mamun Knitwear was present in the webinar as panelists. Tareq Amin, Founder & CEO, Textile Today moderates the webinar.
In the conception, the moderator expressed the significance of the backward linkage of the RMG industry that gained an influential footprint in the global fashion industry. Mosharaf recollected that there was almost no backward linkage or spinning mills forty-fifty years back.
The then BTMC had a handful of production capacity of yarn whereas there are many spinning mills now in Bangladesh. He mentioned that Bangladesh is now capable of supplying 98 to 99 percent of cotton yarn for both knit and woven to the local industry. Amin reminded that some portion of yarn is still being imported. Mosharaf observed that some imported yarn was consuming for the local garments, not for the export markets.
In the question of higher yarn pricing, Mosharaf argued with the point. He mentioned that during the tug of a trade war between China and the USA in 2019, spinners were fallen in big losses due to the fall in the price of yarns. He argued that the cost of production of yarn has dramatically increased.
Gas, electricity and other government services’ fees have increased a lot. Furthermore, there is an absurd high cost of land for factory setup. Other competing countries get huge advantages in these regards. He also mentioned that raw materials of yarn have to import from India, the USA, Brazil and Australia, etc. Therefore, the efficiency of SCM and price of yarns involve many geopolitical matters, stability of the international market and natural factors.
In terms of financial facility, India gets payment just after one week of shipment whereas we have to wait for one-two months to mature payment – creates a big difference. On the other hand, local spinners help RMG factories by credit support and they return yarns if an issue of quality arises, Mosharaf told in the webinar.
Amin asked Mamun as to what extent his factory relies on the backward linkage. Mamun observed that he was equipped with knitting and dyeing where he identified that 80 percent of accessories were locally sourced.
Spinning was far behind the demand of his factory and the industry. He observed that Bangladeshi yarn was preferred for better quality than that of the Indian yarn. In the case of the lead-time, local yarn was helpful for quick availability.
At the time of the pandemic, the Moderator asked if they find any facility from local yarn manufacturers. Mamun anguished that pricing was high though we could meet the requirement of yarns locally.
He also agreed that global cotton price was increasing from a few months back due to high demand. We received huge orders in that time as the buyers tried to stockpile garments apprehending the impact of corona more, Mamun added.
With the demand side spike, yarn price jumped – could you negotiate for a higher price for the garment from buyers, Moderator asked. Buyers know all the costing henceforth price is quite open to them. Factories did not get higher prices although the yarn price increased 40 to 45 percent in that time, Mamun replied.
In the inquiry of capability of supplying value-added products, if local spinners can support them. Mamun observed that local spinners are not capable of supporting them yet.
He also mentioned that fancy yarn could be made locally to lessen the dependence on the foreign market. He observed that some of the accessories are being imported from China. Bangladesh government could help to grow this industry.
Mosharaf mentioned that though the industry had a lack of the different types of yarns his factory manufactures a variety of synthetic yarns like viscose, legin, vortex and many other types. He was hopeful that within the next five years there would be enough supply of the synthetic or fancy type of yarns.
For fancy items, the government should continue its support in import for polyester fiber, viscose fiber, acrylic fiber and legin fiber, etc.
He asked for the tax-free import of the previously mentioned fibers from the government. He also observed that as being heavy industry, spinning mills have to import spare parts and accessories, the government should allow these imports duty-free. Government-supported RMG, likely cotton yarns should receive supports to retain the currency in the country.
Amin was inquisitive that if any intermediary or other local manufactures can avail the bonded facility like those of exporters. Mamun agreed. He also told that bonded warehouse facility was good for exporters but there is a complexity of imports of materials. Mosharaf expressed his sufferings from the government rules, regulations and administration of the bonded warehouse.
To complicacy of bureaucracy put them in serious trouble. He also urged that government should curb a handful of traders who do malpractice of imported raw materials. He also showed the anguish of price dumping of fabric and yarns.
The moderator observed that small spinners were getting winded up whereas big spinners become bigger. Mosharaf observed that big spinners have other businesses and banks’ supports to stay in the business but in the cases of many small spinners, they cannot survive.
Moreover, due to excessive pressure of profitability and cost-cutting approaches, big factories go for composite nature to produce all on their own. It leads to shrinking small spinners more, Mosharaf added.
To answer a participant’s question, Mamun suggested that instead of doing big factories, new entrepreneurs can set up small factories for the accessories to support the industry and to get a quick return. Mosharaf observed that small factories do not get positive supports from banks rather bear the extra burden, he replied to the issue of not coming entrepreneurs for the last couple of years.
He emphasized the research and development from the side of government, BKMEA, BGMEA and BTMA to get way out for the industries. In his factory, he set up a strong RnD team. He also mentioned that BTMA by themselves set up RnD with the present leadership.
Mosharaf observed that buyers are now pushing manufactures to do RnD. Innovative products are to display before buyers to choose from. In the question of recycling yarn, Mosharaf replied that they do recycle yarn from the garment wastages; they produce fiber then make yarn with all international certifications like GOTS.
At last, Mosharaf envisioned that they would export yarns to foreign manufacturers in the short future. Mamun also hoped that they would set up a wing where they can do fancy and value-added items that China and Turkey normally do.
Watch the full video here: