The garment industry is the backbone of the economy. Annisul Huq describes how, apart from providing employment to millions and some seventy percent of our foreign exchange earnings, the industry has made Bangladesh a respected name in international commerce.

Success one stitch at a time

The ready-made garments (RMG) sector has a venerable history of about 25 years. This period cannot simply be termed as "long" as this would be the understatement of the decade. This history is one of success, endeavour, and the continuous struggle of the class of entrepreneurs who remained focused on achievement and challenges.

With the first garment exporting unit, Reaz Garments in 1978, and along with that initiative, Desh Garments, led by the visionary entrepreneur, Mr. Noorul Quader, Bangladesh stepped into a new promised land of prosperity.

Upon seeing the advertisement for recruits, the country wondered in awe and questioned Mr. Quader's plans of sending 129 graduates and engineers to be trained in Korea. Why would simple sewing operations need high tech applications? Many even suspected something mischievous in this venture. But after rigorous training in Korea, these graduates returned home, qualified and efficient, bringing to the land a new discipline of "line management" which elevated our tailor status to standardised manufacture.

Hence, RMG took birth in this land with the help of financial institutions and the limited financial resources of the family of the young entrepreneur who cherished in him a dream to set up an industrial unit allowing him global access and exposure.

This is how RMG experienced lift off, and till date, with the exception of a few government policy directions, the sector can boast of not resorting to large public funding and can assert its base being in the core of purely private initiative.

Every owner turned out to be the provider of hundreds of jobs for the semi-skilled work force, of which the majority happened to be women. Manufacture of a single shirt required 42 workers, a pant almost 48, a jacket almost 60. This is how this industry utilized the people and carried their torch of ambition and prosperity since the inception of this industry.

Washing requires newest machines, newest chemicals; fashion requires quick turn around time for women, who change style and colour over six times a year, with men requiring style changes thrice a year. Fabric and accessories from China, Taiwan, and Hong Kong need to be linked to the production floor right on time.

A delay of a day kills the shipment, jeopardizing the fate of the merchandise. Is it going to miss the vessel? Is the buyer going to cancel the lot? Is the mode of shipment going to be air at shipper's cost? Is the one day delay going to reduce the worth of the million dollar consignment to a million cents?

The manufacturer spends sleepless nights agonizing over these problems while others, from a distance, hardly have any perception of these unavoidable risks. Little do they realize that the inadequacies of custom handling, banking flexibilities, and bonded warehouse advantages have put us decades behind in the global race.

Yet our lifestyle does not escape scrutiny. Calling us aggressors and traducers of human rights compliance is also part of regular exercise and practice. Little credit is given to our 25 long years of toil which has taken the country to another level of economic progress.

This industry experienced an export boom in the 1990s because of the excellent quota negotiation with the US in 1984-85, allowing us an advantage over China and India. The quota distribution policy was also flexible. Besides, EU has been quota-free forever, enabling the customers to source large quantities from this country when all our competitors faced quota impositions till the end of 2005. On top of it, under Everything But Arms (EBA) facility, ready-made garments made with local fabric or yarn received duty-free access.

A major shift happened when Sri Lanka faced severe political problems in the early 1990s and the buyers shifted to Bangladesh almost overnight.

The most beneficial public policy of introducing back to back LC and bonded warehouse facility gave a tremendous impetus to the export scenario of Bangladesh, without which RMG would have never taken off in Bangladesh.

A statistical overview will help the readers chart the progress easily:
RMG today provides direct employment to approximately two million, 80 percent of which are women. The industry has grown from the export of $31.57 million in 1983-84 to the current figure $6.41 billion in 2004-2005, having a value addition of over 51 percent of total export. From a mere 800 factories, the number of garment factories has climbed up to almost 4,000.

This industry directly impacts many other industrial, social, and financial sectors.

The major services and profitability of bank and insurance institutions evolve around RMG, earning almost Tk 1,200 crore as LC commission and interest.

Six jetties out of sixteen in Chittagong port operate only for RMG transactions. Up to 80 percent of containers are dedicated for garments. Almost 70 percent of trucks plying between Dhaka-Chittagong and Dhaka-Benapole earn almost Tk 180 crore yearly.

Twenty five thusand customers, suppliers, and relevant sources visit our land yearly which brings in Tk 100 crore in tourism revenue.

The land owners have 6.5 crore square feet area occupied by RMG offices and factories, generating about Tk 300 crore.

The government earns approximately Tk 380 crore yearly on account of electricity, gas, water, phone, fax in connection with the sector. Consumption of cosmetics, saris, and food undergo economic activity to the tune of Tk 350 crore. The maximum investment has been done in backward linkage sector in the last twelve years worth Tk 15,000 crore, supporting the knit, woven, and accessories industries.

In brief, a new class of survivors have emerged upon the economic face of the nation.

Total apparel export in 1994 stood at $1886.42 million whereas within the first six months of 2005, the export figure has been $3201.54 million .

The first six months of 2005 has experienced 12.87 percent increase compared to last year.

The figures which have marched towards the upper curve surely glorify our blood, sweat, and tears. Our industry, so far, has spoken of a clean success story.

However, 2005 has emerged with the phasing out of the Multi Fibre Arrangement, leaving us extremely vulnerable in our export landscape.

Though, the evaporation of quotas have threatened us, we, from BGMEA have always maintained that we will be facing our real challenge in 2008 when China gets relieved, finally, from its WTO safeguard clauses. This has also been proved by our current year's export performance. Bangladesh has seen increased export to the US, both in knit and woven, owing to the strict monitoring of safeguard issues in comparison to EU, who, in turn have been comparatively softer, enabling Chinese imports to flood their market-place.

The major challenge for us will now be in competitiveness as against quotas. This may not lead to free trade, as one can expect to see more of trade policies and new trading requirements manipulating market access. The emergence of bilateral, regional, and free trade agreements with complex trading patterns can be expected to increase as well.

Sourcing patterns are changing with buyers looking for new "full package" suppliers offering them a one stop service platform. The current number of suppliers will be halved by 2006 and will be halved again by 2010. Only suppliers with shorter lead time, express services, excellent communication skills, and more technical linkages will survive this era.

The current challenges in the international trading of clothing sector are largely dictated by price, quality, time, and service, along with the various factors that affect them. The challenges envisaged are as follows:

• China as a WTO member and a highly competitive environment.
• Compliance requirements imposed by buyers.
• Erosion of benefits.
• Price pressure.
• Lack of product diversification.
• Competitive sourcing.
• Lead-time
• Lack of research and development

Bangladesh benefits from preferential access to the EU, Canada, Norway, Japan, and Australia, with main export traffic being directed to Canada and EU. The latest scenario has been BGMEA trying to influence flexibilities in the present, stringent rules of origin in the EU, for lack of which our woven shipment has been drastically decreasing in the EU, owing to the scarcity of local woven fabric.

To make things worse, our government has, so far, been the major hindrance in applying for the changes in the rules of origin, as this change stands as an obstacle to the local fabric producers who enjoy a virtual monopoly in terms of price and supply.

For the US, BGMEA trade lobbyists are trying to maximize their strength in the Congress and to get duty-free status for Bangladesh. A bill has been floated in both the House and the Senate titled TRADE Act 2005 by the sole effort of BGMEA, to secure trade preference for LDC's left out of consideration.

Hopes of having complete duty-free status are realistic, but it will require steady and firm effort to translate this dream of ours to reality.

With the emergence of the US customs trade partnership against terrorism under the Department of Homeland Security, various new requirements are being added for exporters. It envisages the monitoring of the entire supply chain, starting from the security compliance to the complete management systems. Maintaining files and records, agreeing to random US customs inspections, sending advance electronic information about the cargo to the US customs, without which a particular shipment will be refused entry into the US -- are all part of compliance.

The basic human rights compliance and the technical compliance will stay in place and these pre-requisites are increasing every day. Buyers are even sending private third party audit firms to the workers' homes to interview them about their wages and benefits in private.

The quota-free world today is without barriers and the challenges that all the countries face are multiple. However, in order to qualify as being a worthy supplier, one needs to have a level playing field on which to compete. With such limited infrastructure, and with almost non-existent public support, the manufacturers of Bangladesh have tough chance, in the long run, to withstand the global pressure of competitiveness.

Added to the pressure of competition, the pressure to reduce margins has been severe on Bangladesh. The manufacturers are expected to slash their margins by 50 percent. They are expected to participate in e-bids that award the business to the lowest quoting vendor. E-auctions are unreasonable to a certain extent, if one considers the years of R&D a particular company has put into that particular product category, only to suddenly lose out to the competition just because of a margin disadvantage of two cents per piece.

The key to profit margin lies in competitive sourcing. For a woven shirt, almost 60 cents out of a dollar is spent on sourcing materials.

Therefore, any reduction in purchasing and logistics has a direct impact on our exports.

Sourcing at its best means having an almost vertical set-up. This is a scenario that is not going to happen in Bangladesh soon as there has been serious lack in setting up backward and forward linkages.

Buyers today lean towards lean retailing, meaning keeping low inventory and importing from the source only and when needed. For this reason, they look for quick turn around times, meaning quick import practices from East Europe for EU and South America for US. The transit time from Bangladesh also remains very unattractive as we reach US in almost 30 days while China makes it by 17.

Unlike India and East Europe, Bangladesh has hardly concentrated on R&D. Our exposure to fashion is at its lowest and this has led to us following design trends from our buyers. On the other hand, the buyers are constantly looking for newer design concepts, while we are able to provide none.

Key factors for survival would be increasing sourcing capabilities by developing good sourcing networks, reduction of lead times, providing "full package" service to the customer starting from R&D to warehousing at destination, formation of apparel parks and clusters to live up to the demands of the economies of scale, good functioning of public-private partnership which would ease the hiccups in the import/export processes in namely banking, and a customs area.

Forming functional regional ties to accelerate and encourage regional and bilateral free trade. Saarc and Asean rules of origin acceptance should be viewed as the most effective trade deal. Developing export promotion through export promotion offices abroad in collaboration with diplomatic representatives of the countries of manufacture, identifying and catering to other export markets in the region like India and China, along with other export products, exploring the expertise of e-linkages in the clothing industry, and benchmarking our own performance against our competitors, are a few options that may set our survival mode into action.

Bangladesh is still in the race and will continue to be only if an effective forum comprising of entrepreneurs and bureaucrats is formed. This partnership is the only way forward to our economic emancipation. Good governance and certain flexibilities and incentive schemes will not only set the wheels of manufacturing in motion, but will also see some positive response from all around the globe.

The negative political and environmental image that Bangladesh currently has must be readdressed with caution. The media, our representatives abroad, must play a positive role here. Most of all, our own practices must be free and fair and must offer transparency to the retailers in order for them to be comfortable with their production in our land.

Today, we have no option to retreat. The road ahead is marked by the fastest growth that will lead our land to immeasurable progress. The woman behind the machine today is way past the point of being able to return to her hometown. She personifies promise and prosperity -- and we can't let her down at this hour.

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Annisul Huq is Director, BGMEA, and Chairman, Mohammadi Group.
Photos: Syed Zakir Hossain