RMG exporters need to make sustained efforts for achieving self-reliance
Thursday, 20 March 2008
Ahmed Showkat Masud
MOST world-famous buyers have their own alliance with suppliers of fabrics and accessories. Mainly for fabrics, the buyers nominate some specific suppliers to supply the same to the readymade garments (RMG) exporters. China is a country that has the capacity to export RMG products with their own resources (fabrics, accessories). It is not dependent on other countries for fabrics and accessories. Above all, it has been able to forge alliances with the RMG buyers of the European Union (EU) and the USA. But we have to face various challengers for exporting RMG products. Since we have to purchase fabrics from abroad as per buyers' nomination, it increases the lead time for our exports. In this situation, our only advantage is our cheap labour force. It helps us to manufacture and export RMG products at lower prices.
But the problem is lying in other areas. Our RMG entrepreneurs rely mainly on brokers -- buying houses. Some buying houses have their offices in our country which are controlled by their main/mother offices located at Hong Kong. Such buying houses are getting master letters of credits (LCs) for RMG exports from famous buyers of the EU and the USA. Such sorts of buying houses have their own network for supplying fabrics and accessories. Somehow they have been able to build up relationship with some world-famous buyers.
These buying houses (Hong Kong-based ones) are receiving orders in the form of master LCs or contracts from the buyers. They (buying houses) manage the buyers so that they (buying houses) can supply fabrics and accessories from their own supply chain/network. Suppliers of fabrics and accessories are mostly based in China.
In most cases, our entrepreneurs are being compelled to accept orders from these Hong Kong-based buying houses. In case of contracts, the wording -- such as buyers actually HK-based buying houses -- the ultimate buyers are being used. Such kinds of contracts in most cases are not followed under the terms of export LCs. Conditions -- quality not being as per ultimate buyers' expectation -- could cause 5% to 15% discount on export value in case of late shipment.
Even the entire shipment could be cancelled if anything is found wrong after preshipment inspection. Inspection can be conducted by the local office of the buying houses or by their representatives of the Hong Kong office. Moreover, conditions -- the opening of back-to-back LCs at sight, the receipts of export proceeds by the RMG exporters on 30 days' differed basis etc. -- are being included in the contracts/orders.
Under such circumstances, the RMG exporters have to request their bankers to extend them the facilities of the Export Development Fund (EDF) of the Bangladesh Bank to settle the bills of back-to-back LCs (sight).
The exporters have to pay interest charges, on account of funds available under the facility, to the Bangladesh Bank at LIBOR rate+1%. Besides, they have to bear the commission and interest charges of their respective bankers. Such charges have to be paid because their bankers pay the sight bills of back-to-back LCs by creating loans, before getting funds under the EDF from the Bangladesh Bank. If an exporter has to open 80% back-to-back LCs up to 80 per cent of export values under the export LCs and has also to bear the cost of discount on export value and then foot the bill on account of the Bangladesh Bank's charges alongwith those of his banker, then how will it be possible to add value to export LCs/contracts?
But some exporters (RMG) are being compelled to accept this sort of orders in order to keep their factories operational.
To help overcome this problem, the entrepreneurs will have to be capable enough to develop their own alliance with buyers -- the ultimate buyers.
Furthermore, the government needs to take facilitatory steps to encourage the entrepreneurs to invest more in textile sector. The matters, discussed above, merit a priority attention of the government as well as the entrepreneurs.
The writer works with ONE Bank Ltd., Khatunganj Branch, Chittagong
MOST world-famous buyers have their own alliance with suppliers of fabrics and accessories. Mainly for fabrics, the buyers nominate some specific suppliers to supply the same to the readymade garments (RMG) exporters. China is a country that has the capacity to export RMG products with their own resources (fabrics, accessories). It is not dependent on other countries for fabrics and accessories. Above all, it has been able to forge alliances with the RMG buyers of the European Union (EU) and the USA. But we have to face various challengers for exporting RMG products. Since we have to purchase fabrics from abroad as per buyers' nomination, it increases the lead time for our exports. In this situation, our only advantage is our cheap labour force. It helps us to manufacture and export RMG products at lower prices.
But the problem is lying in other areas. Our RMG entrepreneurs rely mainly on brokers -- buying houses. Some buying houses have their offices in our country which are controlled by their main/mother offices located at Hong Kong. Such buying houses are getting master letters of credits (LCs) for RMG exports from famous buyers of the EU and the USA. Such sorts of buying houses have their own network for supplying fabrics and accessories. Somehow they have been able to build up relationship with some world-famous buyers.
These buying houses (Hong Kong-based ones) are receiving orders in the form of master LCs or contracts from the buyers. They (buying houses) manage the buyers so that they (buying houses) can supply fabrics and accessories from their own supply chain/network. Suppliers of fabrics and accessories are mostly based in China.
In most cases, our entrepreneurs are being compelled to accept orders from these Hong Kong-based buying houses. In case of contracts, the wording -- such as buyers actually HK-based buying houses -- the ultimate buyers are being used. Such kinds of contracts in most cases are not followed under the terms of export LCs. Conditions -- quality not being as per ultimate buyers' expectation -- could cause 5% to 15% discount on export value in case of late shipment.
Even the entire shipment could be cancelled if anything is found wrong after preshipment inspection. Inspection can be conducted by the local office of the buying houses or by their representatives of the Hong Kong office. Moreover, conditions -- the opening of back-to-back LCs at sight, the receipts of export proceeds by the RMG exporters on 30 days' differed basis etc. -- are being included in the contracts/orders.
Under such circumstances, the RMG exporters have to request their bankers to extend them the facilities of the Export Development Fund (EDF) of the Bangladesh Bank to settle the bills of back-to-back LCs (sight).
The exporters have to pay interest charges, on account of funds available under the facility, to the Bangladesh Bank at LIBOR rate+1%. Besides, they have to bear the commission and interest charges of their respective bankers. Such charges have to be paid because their bankers pay the sight bills of back-to-back LCs by creating loans, before getting funds under the EDF from the Bangladesh Bank. If an exporter has to open 80% back-to-back LCs up to 80 per cent of export values under the export LCs and has also to bear the cost of discount on export value and then foot the bill on account of the Bangladesh Bank's charges alongwith those of his banker, then how will it be possible to add value to export LCs/contracts?
But some exporters (RMG) are being compelled to accept this sort of orders in order to keep their factories operational.
To help overcome this problem, the entrepreneurs will have to be capable enough to develop their own alliance with buyers -- the ultimate buyers.
Furthermore, the government needs to take facilitatory steps to encourage the entrepreneurs to invest more in textile sector. The matters, discussed above, merit a priority attention of the government as well as the entrepreneurs.
The writer works with ONE Bank Ltd., Khatunganj Branch, Chittagong