The readymade garment (RMG) sector plays a pivotal role in the economy of Bangladesh, accounting for more than 83 percent of the country’s exports and contributing approximately 16 percent to the GDP, with around 4,000 factories employing around four million workers.
Since its foundation, the booming RMG sector has, traditionally, been regarded by foreign buyers as a value resource, based on high-volume, low-cost products. The growth of the sector is undeniable. But how do we sustain these levels and how do we prepare for changes that will arise from Bangladesh’s transition from Least Developed Country (LDC) to developing country—with official developing country status expected by 2024?
One area that should surely be considered is the transition of the RMG sector from manufacturing of traditional value-oriented, volume-driven products, to the development of more high fashion, higher ticket price items. The benefits of adopting such an approach are obvious: a higher ticket price will generally yield a higher profit margin that, in turn, can be used to develop more upscale RMG facilities and for improvements in the general wellbeing and standard of living of the workforce. But what does this transition entail, and what are the potential pitfalls we may encounter by adopting such a strategy?
It is fair to say that the clear majority of products being produced by the Bangladesh RMG sector fall under the heading of commodity items—items that are considered basic by international buyers and, therefore, are mostly subjected to purchase price pressure.
With regard to the jeans sector, with which I am most familiar, the average production price for a pair of jeans is USD 5.50, compared to prices more than USD 15 in the more premium sector of the market. Admittedly, the volume of orders placed on commodity items is high, but profit margins are low, and we must consider, at a time of rising labour, raw material and resource costs (gas, electricity and water), how long we can continue to service this level of business.
Bangladesh has been a renowned low-cost labour resource for many years, but the world map is changing, with emerging resources from Africa that can compete with Bangladesh in terms of labour cost and that are receiving funding from both local and international governments and companies.
However, taking the next step in producing elevated products which can command a higher purchase ticket price is not easy. To begin with, we must concentrate on upgrading the image of Bangladesh to attract a broader spectrum of international customers—to show them that we are capable of producing products with integrity, not only mass volume basic items. For this we need to provide more value-added services, including R&D, in terms of fabric development, design and innovation in the production process as a whole. We should consider investment in education, specifically in the design and development areas, and the establishment of standalone R&D centres for specific areas of the industry, together with increased investment by factory owners in the fields of R&D specific to the product they produce.
Education in, and gaining an understanding about, dealing with this level of the market is critical, as is the method of approaching the business as a whole. High-fashion brands do not operate in the same way as mass-market high-street brands—their demand for quality is generally higher, they consider higher priced fabrics and trim items, and their order quantities, whilst attractive, are not at the level of mass-market brands. For this, managers and product developers need to consider a broader scope of partners—whether it be fabric suppliers or trim suppliers—and need to adopt a more qualitative approach where price, although important, should not be the first consideration (the right quality for the customer should be). This requires the necessary personnel acquainting themselves fully with both the target market and the target customer.
The development of higher end products will necessitate a sea change in the way we approach the RMG business—from government and concerned bodies through to management and to the training of workers at the factory level.
Firstly, we need to promote Bangladesh as a desirable resource that not only follows the highest international levels of safety, environmental and ethical standards, but also as a resource with integrity, capable of both understanding customer needs and having the necessary R&D facilities and value-added services. To achieve this, we will need increased investment in the education of the younger generations entering the design or product development arenas, increased development of our human resources and increased promotion of the capabilities available within the country in the international community.
Secondly, there needs to be a concerted effort to improve investment in technology and infrastructure. Increasing factory efficiency and adopting practices that allow for the manufacturing of smaller production runs without significantly increasing costs are areas that need to be explored in depth, and the necessary investment support needs to be made available. This, coupled with improved infrastructure and concerted efforts to reduce lead-times, will greatly enhance the appeal of Bangladesh to higher end labels.
Thirdly, alongside advances in technology and R&D, there is the necessity to train the workforce to manufacture these upgraded products. It may be necessary for certain RMG factories to invest in and develop standalone production lines that offer increased flexibility, can handle smaller quantities and can produce goods to the highest standards possible.
There is also the broader issue of understanding this elevated level of product and the need for Bangladesh’s RMG sector to reassess the way it handles price negotiations with customers. Investment in the development of higher end product does not come without price considerations and the product developed should be able to stand on its own and command a fair price based on the integrity of the product itself, as opposed to a price dictated by the customer purely on the basis that it is “made in Bangladesh”.
The next few years will be a momentous time for our nation, and I believe it is time that the RMG sector looks to the future—which may be a future that sees Bangladesh rebrand itself as a nation that can produce products of the highest quality for the most discerning customers.
Mostafiz Uddin is the founder & CEO of Bangladesh Apparel Exchange (BAE) and Bangladesh Denim Expo. He is the managing director of Denim Expert Limited.