Garments export to gain from recession in the West!
Wednesday, 22 October 2008
Syed Fattahul Alim
Leaders of the Readymade Garments (RMG) sector are rather upbeat about the prospect of export of garment in the USA and Europe in spite of recession in those countries. Their optimism is largely based on the growing interest of the buyers from Europe and the USA about the cheaper garment products from Bangladesh. It may sound strange that the demand for Bangladeshi garment is increasing in those countries, despite the fact that they are going through the worst kind economic crisis since the Great depression that first struck USA and then the rest of the world in the early thirties of the last century.
Now that a similar situation is prevailing in Northern America and Europe, how would they be able to buy more RMG products from Bangladesh? What does really happen when recession strikes an economy? The first casualty of a country hit by recession is its consumers. The consumers buy less because their income level falls sharply. The banks tighten their credit, the businesses face capital shortage and the industries face production loss due to falling demand for goods. Industries reduce the number of their workers, because they sustain loss as a result of fall in their sales. Retrenchment of workers, cut in production, closing down of businesses and so on accompany such times in the life of a nation during recession. The USA and Europe have been passing through exactly such a situation recently. Under the circumstances, it is natural that those countries will also slash the volume of import of consumer goods from other countries. Surprisingly though, in the face of these difficulties being faced by the overseas markets, both our garment exporters and the representatives of the foreign buyers are still expecting that the recession in the USA and Europe have been a blessing in disguise for the RMG sector of Bangladesh.
What is then the substance of such optimism expressed by the foreign buyers as well as the local exporters of RMG products?
The first point in favour of their position is that with reduced purchasing power, the consumers of the recession-hit countries will look for less expensive goods. And so far it is about apparels, Bangladeshi products fit well to suit their need.
On the other hand, the RMG exporters are also pinning their hope on the increasing competitiveness of the local garment products, because those are far cheaper than those of China and other bigger Asian exporters like Vietnam and Indonesia. On this score, a highly-placed representative of the largest retailer in Germany, Metro, was of the view that Bangladesh was the cheapest manufacturer of garment in the world and he dismissed the possibility that China, Vietnam or Indonesia could ever come near to Bangladesh as regards the cheapness of the RMG products. Similar are the views expressed by the representatives of the big European buyers of RMG products of Bangladesh-origin like H&M of EU and KappAhl of Sweden. Five of such top overseas buyers told this paper that despite the fall in retail sale in those countries, the volume of their orders from Bangladesh will increase, rather than decrease in the coming months. It may be mentioned here that annually those countries import RMG products to the tune of US$1 billion from Bangladesh.
It is, therefore, a strange twist of luck for Bangladesh that it might be gaining out of the reduced buying power of the consumers in the European and the North American markets. This is certainly a heartening piece of news for Bangladeshi garments industries.
Such rosy scenario of the RMG sector, however, was contradicted by another leader of the apparel sector, the president of the Bangladesh Knitwear Manufacturers and Exporters' Association (BKMEA). The BKMEA leader, Mr. Fozlul Haque, drew a rather very bleak picture of the situation pointing to the 10 per cent fall in overseas orders for local garments products last September. What is more, he was not even ready to take the July figure of garments export, which demonstrated a 75 per cent increase over the previous year, as any indication of a future growth of the RMG sector and dismissed it as something accidental.
The contradiction in the views of the leaders of the RMG and knitwear sectors of the apparel industry cannot be taken lightly. Optimism is always welcome. But one has also to be very cautious of becoming overoptimistic about any development in the market. The recessionary storm in the USA and Europe may not subside tomorrow. It may continue longer than being expected by many. So, the exporters of apparel will have to look for other markets in Asia and Europe.
As it has often been suggested by the well-meaning section of society as well as in this column that for the sake of long-time survival in the export market, the local export-oriented industries should not place all their eggs in a single basket. This is true both of the export destinations and of the type products being exported abroad.
There is another side of the story regarding the comparative competitiveness of the Bangladesh-origin garment products vis-à-vis those of China. The success, if any, in this respect would hinge on the cheapness of Bangladeshi garment workers. The Chinese garment products have, of late, become costlier than before. What is reason for the apparel products of China-origin getting more expensive? This is because the cost of labour has increased in that country.
Should it really be an occasion to exult over? It is certainly not. In this context, one has to look only at the volatile situation in the garment industries in and around the capital city. And the reason for those sporadic incidents of violence in the garment industries is also well-known. So, the bragging over the cheap labour in the garment sector in Bangladesh loses all its meaning when the factory owners are living in fear of workers' violence accompanied by destruction and ransacking of the valuable machines and other properties of the factories. So, before claiming that we have the cheapest labour in the garment sector, it is very necessary to first address the problems that lie at the root of workers' violence. In fact, cheapness of labour in a stable industry should be the standard. If we mean competitiveness, we need also to take care so that it is not being earned by depriving the workers. A competitiveness that is well-earned should be the aim of our industries, garments or otherwise.
While striving to achieve competitiveness, our garment industries must also focus on producing quality goods that China, Vietnam or Indonesia excel in. In fact, competitiveness should also be about producing quality products at a lower cost. That will need investment in the workers of the garment industries so that their skills and efficiency level are increased through training. Their working and living conditions also have to be improved. These are the ways to keep our garment industries at a sustainable level. Otherwise, any success would be contingent and temporary.
To boost export, too much dependency on a single item needs to be avoided. To this end, it would be necessary to include more items in the export basket, for which overseas markets should be vehemently explored. Expansion of the number of exportable items is the only safeguard against aggression of more powerful competitors out to grab our overseas markets for a particular item.
Making the most of a special situation in the market is no doubt a very smart policy. However, one cannot expect that such a situation would continue for an indefinite period of time. The more sustainable policy, therefore, would be to develop the capacity to survive and even excel one's competitor under the normal market conditions.
Leaders of the Readymade Garments (RMG) sector are rather upbeat about the prospect of export of garment in the USA and Europe in spite of recession in those countries. Their optimism is largely based on the growing interest of the buyers from Europe and the USA about the cheaper garment products from Bangladesh. It may sound strange that the demand for Bangladeshi garment is increasing in those countries, despite the fact that they are going through the worst kind economic crisis since the Great depression that first struck USA and then the rest of the world in the early thirties of the last century.
Now that a similar situation is prevailing in Northern America and Europe, how would they be able to buy more RMG products from Bangladesh? What does really happen when recession strikes an economy? The first casualty of a country hit by recession is its consumers. The consumers buy less because their income level falls sharply. The banks tighten their credit, the businesses face capital shortage and the industries face production loss due to falling demand for goods. Industries reduce the number of their workers, because they sustain loss as a result of fall in their sales. Retrenchment of workers, cut in production, closing down of businesses and so on accompany such times in the life of a nation during recession. The USA and Europe have been passing through exactly such a situation recently. Under the circumstances, it is natural that those countries will also slash the volume of import of consumer goods from other countries. Surprisingly though, in the face of these difficulties being faced by the overseas markets, both our garment exporters and the representatives of the foreign buyers are still expecting that the recession in the USA and Europe have been a blessing in disguise for the RMG sector of Bangladesh.
What is then the substance of such optimism expressed by the foreign buyers as well as the local exporters of RMG products?
The first point in favour of their position is that with reduced purchasing power, the consumers of the recession-hit countries will look for less expensive goods. And so far it is about apparels, Bangladeshi products fit well to suit their need.
On the other hand, the RMG exporters are also pinning their hope on the increasing competitiveness of the local garment products, because those are far cheaper than those of China and other bigger Asian exporters like Vietnam and Indonesia. On this score, a highly-placed representative of the largest retailer in Germany, Metro, was of the view that Bangladesh was the cheapest manufacturer of garment in the world and he dismissed the possibility that China, Vietnam or Indonesia could ever come near to Bangladesh as regards the cheapness of the RMG products. Similar are the views expressed by the representatives of the big European buyers of RMG products of Bangladesh-origin like H&M of EU and KappAhl of Sweden. Five of such top overseas buyers told this paper that despite the fall in retail sale in those countries, the volume of their orders from Bangladesh will increase, rather than decrease in the coming months. It may be mentioned here that annually those countries import RMG products to the tune of US$1 billion from Bangladesh.
It is, therefore, a strange twist of luck for Bangladesh that it might be gaining out of the reduced buying power of the consumers in the European and the North American markets. This is certainly a heartening piece of news for Bangladeshi garments industries.
Such rosy scenario of the RMG sector, however, was contradicted by another leader of the apparel sector, the president of the Bangladesh Knitwear Manufacturers and Exporters' Association (BKMEA). The BKMEA leader, Mr. Fozlul Haque, drew a rather very bleak picture of the situation pointing to the 10 per cent fall in overseas orders for local garments products last September. What is more, he was not even ready to take the July figure of garments export, which demonstrated a 75 per cent increase over the previous year, as any indication of a future growth of the RMG sector and dismissed it as something accidental.
The contradiction in the views of the leaders of the RMG and knitwear sectors of the apparel industry cannot be taken lightly. Optimism is always welcome. But one has also to be very cautious of becoming overoptimistic about any development in the market. The recessionary storm in the USA and Europe may not subside tomorrow. It may continue longer than being expected by many. So, the exporters of apparel will have to look for other markets in Asia and Europe.
As it has often been suggested by the well-meaning section of society as well as in this column that for the sake of long-time survival in the export market, the local export-oriented industries should not place all their eggs in a single basket. This is true both of the export destinations and of the type products being exported abroad.
There is another side of the story regarding the comparative competitiveness of the Bangladesh-origin garment products vis-à-vis those of China. The success, if any, in this respect would hinge on the cheapness of Bangladeshi garment workers. The Chinese garment products have, of late, become costlier than before. What is reason for the apparel products of China-origin getting more expensive? This is because the cost of labour has increased in that country.
Should it really be an occasion to exult over? It is certainly not. In this context, one has to look only at the volatile situation in the garment industries in and around the capital city. And the reason for those sporadic incidents of violence in the garment industries is also well-known. So, the bragging over the cheap labour in the garment sector in Bangladesh loses all its meaning when the factory owners are living in fear of workers' violence accompanied by destruction and ransacking of the valuable machines and other properties of the factories. So, before claiming that we have the cheapest labour in the garment sector, it is very necessary to first address the problems that lie at the root of workers' violence. In fact, cheapness of labour in a stable industry should be the standard. If we mean competitiveness, we need also to take care so that it is not being earned by depriving the workers. A competitiveness that is well-earned should be the aim of our industries, garments or otherwise.
While striving to achieve competitiveness, our garment industries must also focus on producing quality goods that China, Vietnam or Indonesia excel in. In fact, competitiveness should also be about producing quality products at a lower cost. That will need investment in the workers of the garment industries so that their skills and efficiency level are increased through training. Their working and living conditions also have to be improved. These are the ways to keep our garment industries at a sustainable level. Otherwise, any success would be contingent and temporary.
To boost export, too much dependency on a single item needs to be avoided. To this end, it would be necessary to include more items in the export basket, for which overseas markets should be vehemently explored. Expansion of the number of exportable items is the only safeguard against aggression of more powerful competitors out to grab our overseas markets for a particular item.
Making the most of a special situation in the market is no doubt a very smart policy. However, one cannot expect that such a situation would continue for an indefinite period of time. The more sustainable policy, therefore, would be to develop the capacity to survive and even excel one's competitor under the normal market conditions.