Why the RMG factories become sick
Wednesday, 27 January 2010
A business delegation has offered a bailout formula suggesting that concerned banks will share 40 per cent of the outstanding debts, government could share 40 per cent and the rest 20 per cent could be paid by the sick units of the related industry.
There is not doubt that world-wide economic melt-down has an adverse affect on the units of RMG sector. But we have to remember that there were several other factors responsible for the problem.
There hase been a competitive environment in the RMG sector of our country. Buyers have option to impose any types of condition, they want. But our RMG sector is still dependent on the buyers of the USA and the EU countries.
Our RMG factories are dependent more or less on the vendors/agents who have offices is Hong Kong, South Korea. Those vendors have local offices (buying houses) in our country.
LCs are issued favouring their local buying houses. The buying houses are transferring those LCs to different RMG factories. The related RMG factories have to count up to 5.0 per cent commission of export LCs values. Besides, monitoring by buyers' local representatives and preshipment inspection certificate issuing take some days. Loading of export items and availability of ships of that specific shipping lines mentioned in the export LCs also take time. All these things cause lead time to increase.
Quality issue is another factor. Once quality could not be maintained permanent buyer will no longer be there; they will switch over to another exporter. And for running their factories throughout the year, some entrepreneurs willingly make late shipment, because they have not enough orders in hand. This gives chance to the buyers to make payments after deducting almost 5.0 per cent amount of export bills as discount. If this kind of late shipment continues for long time or against few orders the exporters lose their buyers and cut profitability .
The entrepreneurs those who run their factory with underutilised capacity cannot keep their workers and management for long duration. Frequent change in workers and managements cause the factories to suffer losses.
Another thing is that, some of entrepreneurs take or accept orders half the value of the same kind of export orders received previously. All the things discussed above were some of reasons making the RMG factories sick. Therefore, our business leaders' bailout formula will hardly benefit the sufferers. Rather, the business leaders should take realistic steps so that in future no factory becomes sick.
Ahmed Showkat Masud
AB Bank Ltd
Anderkilla, Chittagong
There is not doubt that world-wide economic melt-down has an adverse affect on the units of RMG sector. But we have to remember that there were several other factors responsible for the problem.
There hase been a competitive environment in the RMG sector of our country. Buyers have option to impose any types of condition, they want. But our RMG sector is still dependent on the buyers of the USA and the EU countries.
Our RMG factories are dependent more or less on the vendors/agents who have offices is Hong Kong, South Korea. Those vendors have local offices (buying houses) in our country.
LCs are issued favouring their local buying houses. The buying houses are transferring those LCs to different RMG factories. The related RMG factories have to count up to 5.0 per cent commission of export LCs values. Besides, monitoring by buyers' local representatives and preshipment inspection certificate issuing take some days. Loading of export items and availability of ships of that specific shipping lines mentioned in the export LCs also take time. All these things cause lead time to increase.
Quality issue is another factor. Once quality could not be maintained permanent buyer will no longer be there; they will switch over to another exporter. And for running their factories throughout the year, some entrepreneurs willingly make late shipment, because they have not enough orders in hand. This gives chance to the buyers to make payments after deducting almost 5.0 per cent amount of export bills as discount. If this kind of late shipment continues for long time or against few orders the exporters lose their buyers and cut profitability .
The entrepreneurs those who run their factory with underutilised capacity cannot keep their workers and management for long duration. Frequent change in workers and managements cause the factories to suffer losses.
Another thing is that, some of entrepreneurs take or accept orders half the value of the same kind of export orders received previously. All the things discussed above were some of reasons making the RMG factories sick. Therefore, our business leaders' bailout formula will hardly benefit the sufferers. Rather, the business leaders should take realistic steps so that in future no factory becomes sick.
Ahmed Showkat Masud
AB Bank Ltd
Anderkilla, Chittagong