It is a time for reflection in our RMG industry
As we head into the new decade, the Bangladeshi RMG industry is facing one of its sternest challenges since the beginning of the last decade. The most recent figures suggest our garment export is slowing down and factories continue to shut down, with more than 60 closing lately, leading to the loss of more than 31,000 jobs.
The closing down of factories is also not a new phenomenon. Around a thousand factories have reportedly closed down in the last 6 years, but perhaps those had different realities.
Post Rana Plaza safety overhaul in the industry required many to relocate. Regulatory changes to check unauthorized sub-contracting and conscious steps of buyers leading to escalate against slow movers of remediation have also contributed to the shutdown of a number of factories.
But the recent trail in factory closure might have occurred due to different reasons which are mostly economic. The factories that survived till 2018 all went through the rigorous regimes of Accord, Alliance, and government-led safety initiatives. But there were still groups of vulnerable factories out there struggling with making up their investments and costs of compliance, more so confronted with production cost hike and facing the heat of a global price war.
Multiple factors met at a point -- all resulted in a tough time for the apparel manufacturers of Bangladesh. Against the backdrop of an industry which employs four million people, these are not facts and figures which we should become overly alarmed at but, at the same time, they cannot simply be swept under the carpet.
Entering 2020, then, it is a time for reflection in our industry. With this in mind, I recently reached out to hundreds of RMG industry stakeholders to ask them where they think we are going wrong and how can they put things right. While readers might not agree with all of the points raised -- outlined below -- they certainly offer plenty of food for thought and provide a platform for a healthy debate.
One thing we all seem to agree on is that the level of competitive pressures is extremely intense right now. Several factors are at play here. One is the threat of global recession, which is impacting spending decisions as well as financial markets (and thus access to finance).
The other is the ongoing evolution of the global apparel industry, the two most significant trends in which are the migration to online retailing and the growth of Amazon. Both have serious implications for Bangladesh suppliers. The question is one of how we manage these.
Many people I reached out to suggested that the closure of factories in Bangladesh has been a case of natural wastage -- this is simply a survival of the fittest. Smaller factories which lack scale economies have been unable to cope in the brave new world we are entering, and have decided to either close up shop or, in some cases, sell out to larger factories.
This is a natural business process.
This points also to a problem with over-capacity. Why is this the case? One industry leader I reached out to suggested that “you cannot manage what you cannot measure.” It is commonly understood that Bangladesh RMG factories lack efficiency compared to their closest rivals in Vietnam; however, the real challenge is that they lack bench-marking. They do not know how efficient they are and/or are refusing to invest in readily available business intelligence software to gain a proper understanding of their operational effectiveness.
This sentiment ties into broader concerns about the industry whereby there is a tendency to invest in machinery but to neglect management tools aimed to drive broader operational excellence. This is in many ways about the macro versus the micro. It is also an argument for getting back to basics and considering the management basics of efficiency and effectiveness.
It does not matter what product you are producing, it is a fact that in poor performing factories, management chooses the wrong goals to pursue and makes poor use of resources. The result is a low quality product which customers do not want.
Likewise, in highly performing factories, management chooses the correct goals to pursue and makes good use of resources to achieve those goals. This leads to a product that customers want and at a price that customers can afford.
Such textbook theory can easily be applied to Bangladesh where, in recent years, too many factories have ignored market signals and focused on low value products, an area where the market is saturated.
To summarize the above points, as we head into the 2020s, there is a need for greater bench-marking so that factory owners have a panoramic view of their factory’s operational efficiency. There is also a need to target and manage resources more effectively and efficiently.
Could a shift towards automation and the use of sew bots help our industry? Such a solution would only be a case of placing a sticky plaster on the issue and would ignore the more deep-seated operational challenges outlined above.
Automation is the icing on the cake of a well-running, finely turned industry and it can never be seen as an answer itself. It also needs to be considered whether a factory owner will achieve an ROI on expensive automation equipment. In many cases, I suspect they will not.
What else do we need to address? Many people believe better logistics and could help the RMG sector; I would not argue with this. The extension of deep sea-port facilities for our RMG industry cannot come soon enough and this, combined with better road logistics generally, must surely be priorities for policy makers in the 2020s. Every little thing we can do to help get our products from A to B faster and more efficiently is vital.
Another subject raised time and again is marketing and branding. I have written about this issue before so will not elaborate too much, other than to say that we are competing in a fiendishly challenging global market.
Our branding needs to improve dramatically -- Brand Bangladesh needs to stand loud and tall, and our industry’s leaders can help create this brand by setting out a clear, coherent, strategic vision for our industry. What does Brand Bangladesh stand for? If brands do not yet know the answer to this question, they need to.
Finally, the dynamics of global industry and trade, including broader and wider global trade agreements, are changing daily. We cannot be passive by-standers in this process and must be at the centre of such negotiations, fighting daily for the best deal for our industry.
Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). He can be reached at [email protected]