Sky is the limit for the garments' sector
Undoubtedly the most rejoicing matter after the independence of the country is the success story of ready-made garment (RMG) sector which could uplift the fates of millions of Bangladeshi people over three decades.
The journey of the sector which started in early 80's of the last century is still on its full momentum for a steep growth.
Broadly, the sector could make thousands of successful entrepreneurs, millions of skilled workers and the sector helped put the economy on a firm footing through contributing 80 percent in the national export basket.
Having such a steady and robust export growth, grabbing more market pie globally the World Trade Organisation (WTO) declared Bangladesh as the second largest apparel supplying country worldwide in 2010.
Bangladesh now claims 4.8 percent of the global RMG trade of $412 billion. According to McKinsey & Company, an international management consulting firm, Bangladesh's apparel exports will reach $36 billion by 2020.
Some key market players believe that the country's potential is even greater. But, such a position is not created in a day or two, it is the relentless journey of three decades.
The garment industry is a national asset now. The industry has reached such an envious position for the concerted efforts of millions of workers, entrepreneurs and governments.
The sector is still facing some challenges. Some of the major challenges as follows:
Confrontational political situation
The first victim of confrontational politics is the garment sector as the exporters face challenges in production, marketing, distribution of raw materials, destruction of factories by the enraged political party supporters.
The activities of the sector stop for the confrontational politics. Workers cannot move up to the factories during political chaos like shutdown and political impasses.
Even, during the latest spell of shutdown, almost all 5,500 garment factories suffered shipment hassle as the goods laden trucks could not go out of the factories for violent political situation across the country.
In case of delayed shipment, the factory owners have to face the orders cancellation from the international buyers, expensive air shipment, demurrage and delayed payment.
So, political stabilisation is the utmost need for highest export earning garment sector.
Perennial gas and power crisis: Inadequate supply of gas and power to the industrial units has become a perennial problem now. For inadequate supply of gas and power the industry owners have no choice but to run the factories with expensive diesel run generators for running the factories.
Moreover, the government has suspended giving new gas connection to the industrial units since mid of 2010 on the excuse of exploration of new gas wells across the country.
Many mainly composite garment units are failing to start production only for the lack of gas connections in the factories, although those were constructed a lot earlier.
Garment makers are saying that they have the orders in their hands as those are shifting from China to Bangladesh.
The optimistic exporters are saying that only sky is the limit for Bangladeshi garment items.
China, the largest apparel supplying country worldwide, is losing its share globally for price competitiveness and shortage of workers and shifting to high-end technologies.
Poor infrastructure problem: With inadequate supply of gas and power, the poor infrastructures became a major challenge for the ready-made garment (RMG) sector.
Poor road communication and a messy traffic system have made the sector vulnerable. The Dhaka-Chittagong highway, through which country's 80 percent exports and imports are carried out, is still is a bad shape.
There has been delay in the works of expansion of the road to four lanes. The goods laden vehicles have to stand for hours in the traffic jam on the way to Chittagong from Dhaka and its adjacent areas for poor road.
Many garment exporters complained that they cannot meet the strict lead-time set by the international buyers for delayed shipment in Chittagong port due to poor road condition.
Dearth of skilled workforce
Three decades old garment sector is now suffering from 25 percent shortage of skilled workers as the country could not arrange vocational and technical education system for the workers.
According to industry insiders currently 3.5 million workers are directly employed in the sector where 80 percent are women. Grooming a strong mid-level management for handling such a big sector is another big challenge for sustenance.
The training system is still very inadequate. Most of the workers get in job training. As result, they are less productive and the rate of internal migration of workers in the garment sector is higher.
Very few workers had the opportunities to have the training before joining in their services.
Since, the rate of productivity from the unskilled and semi-skilled workforce, the owners depend on quantity of workforce for optimum level of production.
Crisis of industrial land
Many local and foreign investors are not getting adequate land for establishing industries for scarcity of land even at higher prices.
It will be very difficult to get a suitable industrial plot in the Dhaka-Mymensingh, Savar, Ashulia, Narayanganj and Narsingdi industrial belts for setting up new industrial units.
Marketing and price negotiation problem
Majority of the first generation garment entrepreneurs did not start their business with formal education.
They started their business normally and got bigger later, although the second generation is very organised.
So price negotiation, which is very vital for sustenance of business, remained unattended to many.
It is widely believed that the export of garment would have become more had the Bangladeshi exporters got the exact market price for the sold items from the international buyers.
The prices for per dozen garment items remained stuck at $26.50 over the last three years although the cost of production increased nearly 15 percent year-on-year.
Price negotiation is still a major problem. For having such a poor price negotiation capacity, a section entrepreneur felt encouraged for price cut and unhealthy price competition in the domestic market.
Inefficient port operations
Chittagong port is the most vital link for businesses in Bangladesh.
Until now, this port cannot attain the global standards in operation. The ships have to wait for long days for unloading for inefficient port management. Automatic system should be introduced in the port for quickening the export-import businesses.
Crisis of raw cotton and yarn
Bangladesh is totally dependent on imported raw cotton and yarn as the country does not produce the two basic items for garment manufacturing.
The garment manufacturers have to spend more than billion US dollars every year for importing raw cotton. But, sometimes, the uncertainty in availability of raw cotton in global markets hampers the production and prices of finished garment items.
In 2010, the local cotton importers had to import this white fibre at $2.50 per pound which was sold at $60 cents earlier for decades.
It happened so for prediction of lower production of raw cotton worldwide. But, later the prices came down to a tolerable.
Inefficient economic diplomacy
Nowadays it is acknowledged by all that strong economic diplomacy means strong businesses.
Until now many Bangladeshi missions abroad fail to achieve the target in export of Bangladeshi products.
It happens so only for inefficient economic diplomacy. Not only this, the government's right foreign relationship in right time helps to gain advantages in overseas trade.
Suppose, in Bangladesh countries demand for Bangladeshi garment items is very high, but Bangladesh cannot penetrate over there for the lack of bad or for not having bilateral relations with those countries.
As for example, the Russian market and some Latin American markets have great potentials for Bangladeshi garment items. It needs proper initiatives from the government and private sector entrepreneurs to grab the opportunities in those markets.
Shortage of fashion designers and lack of education system
Introduction of new fashion is called the heat of garment products.
But, unfortunately, Bangladesh does not have skilled manpower in this important segment of garment production.
This is because, Bangladesh did not established educational institutions for imparting such important lesson to the learners.
As a result, Bangladeshi designers cannot claim any unique design although the country became the second largest apparel supplying country worldwide. Still, Bangladesh has to depend on supplied design from the international customers.
External trade related factors and the row over GSP scheme
Bangladesh will have to keep a regular watch on the international changes in financial sector as the garment business is an international trade.
The export of Bangladesh's garment remained insulated from the biggest financial crisis in the western world in 2007 and 2008. This was possible only for the country's basic garment production.
But, Bangladesh can take an advantage from financial risk as well if the country's entrepreneurs keep close watch on customers' behaviours.
Because, people started changing their tastes with rebounding of the economy. If Bangladesh can replenish the production the country will be able to export more now in the not only traditional markets, but also to new export destinations.
Very often, the zero-duty benefits under the Generalised System of Preferences (GSP) issue comes under attacks from different countries. Currently, the GSP in the US market is under threat on labour standard.
The US the single largest export destination for Bangladeshi garment items. Bangladesh annually exports more than $5billion garment items to the US market. So cancellation of GSP will have a negative impact on export of garment items to the US. If the US cancels the GSP, the other countries like the EU may be influenced from such decision. So, the government should handle such a situation very carefully.
Compliances and standards of labour
Compliance is very important factor in garment business now.
The products will have to produce following the internationally standard compliances, like ensuring workers' welfare, timely payment, production protecting the environmental degradation.
The standards of labour should be enhanced. The garment makers will have to take the green initiatives in production cycle. Fire safety should be improved to avert any further Tazreen tragedy.
Shifting from basic to high-valued garment items
Time has come to reap the dividends of three decades' hard works by the entrepreneurs. The entrepreneurs will have to produce high-end garment items for upscale customers.
But, it is a challenge as well for lack of skilled workers and designers. At the same time the more the country export more value added items the more the country will be benefited.
Tariff, the backward integration, non-tariff and para-tariff barriers
Tariff, para-tariff and non-tariff barriers are major challenges for garment trade.
Some countries have high tariff, for which the exporters cannot gain the benefit from the export.
Like South Africa and Russia have higher tariff on export of garment items from Bangladesh.
On other hand, Bangladesh has to face a lot of para-tariff and non-tariff hassles in export of garment items to India, although Indian government has already allowed duty-free export of almost all products from Bangladesh excepting 25 drug and alcoholic beverages.
So, the government should negotiate to remove such barriers in garment export.
New export destination
Finding new destinations is really a big challenge for Bangladeshi garment items. All markets are considered as new destinations excepting the US, the EU and Canada. Bangladesh has a lot of potentials in India, South Africa, South Korea, China, Malaysia, Japan, New Zealand, Australia, Russia and Turkey. But challenges remained in exploration of those markets.
Corruption and higher bank interest rate
Corruption is a major challenge for Bangladesh.
The corruption in garment sector is also a major challenge like Hall-Mark loan scandal. The company has embezzled Tk 26,00 crore the Sonali Bank branch at Ruposhi Bangla Hotel with showing fake documents.
As a result, the other commercial banks are not showing interest lending money to the entrepreneurs. Higher bank interest rate is another major challenge for garment sector in Bangladesh.
Bangladesh enters 2013 with a firm footing as the world's second largest garment exporter, raising hopes for a new wave of business despite turbulent times in parts of the globe.
Bangladesh has the potential to grab more market share in near future, but the country will have to address those challenges first.
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The writer is Senior Busines Reporter, The Daily Star.