Middlemen in RMG sales abroad
Ahmed Showkat Masud | Wednesday, 25 June 2008
THE country's readymade garments (RMG) exporters receive export letters of credits (L/Cs) or sales contracts mainly from the USA and the European Union (EU). In some cases, it has been observed that the beneficiaries are of Hong Kong, South Korea or other countries. The applicants of export L/Cs or sales contracts are of the USA or the EU origin. Since the beneficiaries are based in Hong Kong, South Korea or some other countries, the exporters of our country who accept those export L/Cs or sales contracts through transfers of the same by the beneficiaries to their names (our country's exporters); become the second beneficiaries.
For this reason, our country's exporters have to pay about 5.0 per cent commission or to allow 5.0% discount on the consignment value. It leads to reduced value addition against those export L/Cs or sales contracts. This has been happening when there is no direct contact or communication between the ultimate buyers and the country's exporters. In those cases the ultimate buyers or applicants of the master L/Cs or sales contracts often use their world wide agents or vendors network.
Only few exporters of our country have direct contacts with the ultimate buyers or applicants of the master L/Cs or sales contracts. That is, most of our RMG exporters are dependent on agents or vendors of the world-famous RMG buyers. The RMG sector is losing about 5.0% of the values of the export orders on account of commission or as discount payments on consignment value for dependency on agents or vendors.
Besides this issue, there is an another area of concern. The world famous buyers used to quote between US$ 40.00 to 45.00 per dozen of shirts. The same buyers, in some cases, are offering between $22.00 and 25.00 per dozen of shirts. Our exporters are being compelled to accept those orders for keeping their factories running. They have to give more salaries and wages for complying with the terms of such kinds of cheap orders. The values of master LCs or sales contracts have declined to a half of what those should be. But the export values remain the same like those of the orders where the per dozen shirts' value is between $ 40.00 and $ 45.00. For performing the low cost -- that is by about US$ 22.00 to 25.00 per dozens of shirts -- orders, the RMG exporters have to employ a large workforce, and pay for more power, gas etc., charges and other office expenses. As a result, this profit margin, that is, value addition gets reduced.
The practice, as mentioned about, is reportedly being resorted to, by the buyers intentionally at a time when the economic slowdown in the USA and food price-rises in the global market have resulted in lower consumption of RMG items.
Our exporters do need to build up their capacity to make direct contacts with ultimate buyers. That will reduce their dependence on agents, vendors etc. They (exporters) will have to be cautious enough so that no buyer can take the chance by raising questions about compliance issues. By this way, the exporters can overcome the problems relating to acceptance of unjustified orders where no value addition will be there. Above all, since the western world, mainly, the USA, has been passing through a tough time and economic slowdown is visible there, our exporters, mainly in the RMG sector, will have to explore new markets. Because, China, India, South East Asian countries and Brazil are now becoming richer.
The writer is at One Bank Limited, Khatunganj Branch, Chittagong
For this reason, our country's exporters have to pay about 5.0 per cent commission or to allow 5.0% discount on the consignment value. It leads to reduced value addition against those export L/Cs or sales contracts. This has been happening when there is no direct contact or communication between the ultimate buyers and the country's exporters. In those cases the ultimate buyers or applicants of the master L/Cs or sales contracts often use their world wide agents or vendors network.
Only few exporters of our country have direct contacts with the ultimate buyers or applicants of the master L/Cs or sales contracts. That is, most of our RMG exporters are dependent on agents or vendors of the world-famous RMG buyers. The RMG sector is losing about 5.0% of the values of the export orders on account of commission or as discount payments on consignment value for dependency on agents or vendors.
Besides this issue, there is an another area of concern. The world famous buyers used to quote between US$ 40.00 to 45.00 per dozen of shirts. The same buyers, in some cases, are offering between $22.00 and 25.00 per dozen of shirts. Our exporters are being compelled to accept those orders for keeping their factories running. They have to give more salaries and wages for complying with the terms of such kinds of cheap orders. The values of master LCs or sales contracts have declined to a half of what those should be. But the export values remain the same like those of the orders where the per dozen shirts' value is between $ 40.00 and $ 45.00. For performing the low cost -- that is by about US$ 22.00 to 25.00 per dozens of shirts -- orders, the RMG exporters have to employ a large workforce, and pay for more power, gas etc., charges and other office expenses. As a result, this profit margin, that is, value addition gets reduced.
The practice, as mentioned about, is reportedly being resorted to, by the buyers intentionally at a time when the economic slowdown in the USA and food price-rises in the global market have resulted in lower consumption of RMG items.
Our exporters do need to build up their capacity to make direct contacts with ultimate buyers. That will reduce their dependence on agents, vendors etc. They (exporters) will have to be cautious enough so that no buyer can take the chance by raising questions about compliance issues. By this way, the exporters can overcome the problems relating to acceptance of unjustified orders where no value addition will be there. Above all, since the western world, mainly, the USA, has been passing through a tough time and economic slowdown is visible there, our exporters, mainly in the RMG sector, will have to explore new markets. Because, China, India, South East Asian countries and Brazil are now becoming richer.
The writer is at One Bank Limited, Khatunganj Branch, Chittagong