Readymade garment exporters in Bangladesh are facing banking-related challenges, particularly in cases of raw material imports and product exports, according to a latest study by the Bangladesh Institute of Development Studies (BIDS).
The most pressing concerns included delays in opening letters of credit (LCs), high bank charges and delays in payment receipt, it pointed out.
The study surveyed some 63 medium- and large-sized garment factories. About 40 per cent of them identified delays in opening LCs as a key bottleneck in the supply chain, BIDS Research Director Monzur Hossain said on Sunday.
He presented the findings of the study titled 'Supply Chain Dynamics for Sustainable RMG Growth in Bangladesh' at the annual BIDS conference on development 2024.
Sajjad Zohir, Executive Director at Economic Research Group (ERG), chaired the third session on BIDS work on technology, supply chain and employment in firms at the four-day conference that began at a city hotel on Saturday.
Three per cent of the companies faced difficulties in opening LCs due to the dollar crisis while 16 per cent reported delays in receiving payments, affecting their cash flows and operational continuity.
Some 13 per cent reported that higher charges are adding to the operational costs while three per cent cited complications in banks' online system.
On average, 38 per cent firms source raw materials like yarn, fabric, chemical/wash materials, trims, accessories domestically while 24 per cent internationally source through intermediaries or third parties while the rest 38 per cent directly source from international market, Mr Hossain said.
As much as 46 per cent respondents suggested reducing the bank transaction costs or bank charges, 22 per cent pressed for arranging TT payments.
Other recommendations included a precise rate for dollar, same LC charge for all banks, reducing tax, usage of advanced technologies while few others stressed on increasing domestic sourcing to avoid bank complication, he noted.
As timely sourcing of raw materials from foreign suppliers becomes challenging to meet lead time and avoid air shipments, discounts and order cancellations, direct marketing and the elimination of intermediaries could contribute to the establishment of an efficient supply chain system, Mr Hossain noted.
He also mentioned that creating a unified and coordinated system among all parties involved is challenging.
"Paying only minimum wage is not enough to sustain the business. Without effective management of the supply chain, meeting the buyers' specified lead time becomes impossible," he said.
Talking over the impact of post-LDC graduation, he said Bangladesh would no longer enjoy duty-free market access to most developed markets, including the EU.
Citing data, Mr Hossain said Bangladeshi made RMG might face duty ranging from 7.0 per cent to 14 per cent because of the erosion of duty-free market access and RMG exports might fall by 10.8 per cent by 2031.
Total export could fall by about 6.0 per cent, he added.
The study suggested leveraging cost efficiencies across multiple areas and key actions included investing in infrastructure modernisation, optimising power and utility resources, enhancing skills of the workforce, promoting effective management practices, adopting advanced technologies and implementing state-of-the-art supply-chain management techniques.
RMG products naturally provide higher profit margins, it said, recommending exporters to target more advanced and niche market segments to secure higher prices and strengthen backward linkages by focusing on expanding fabric production capacity to enhance competitiveness.
Meanwhile, BIDS Research Director Kazi Iqbal shared findings of another study titled 'Technology Upgradation of the RMG Industries in Bangladesh' conducted on eight products, 36 processes and 136 sub-processes of 43 firms.
The study showed that for each machine, the number of factory workers has decreased over time which is more pronounced for machine operators and helpers as the industry has become more capital intensive.
A major expansion of the capacity occurred in the last 10 years and there is evidence of greater firm capabilities in recent years with rise in technical professionals like graduate and diploma textile and industrial engineers, increased use of software, direct exports and certification.
Investment in overall research and development is more in some products like home textile, lingerie, sweater, woven shirt and woven trouser, it showed.
Sub-process wise productivity has increased and this is higher for jackets, home textile and lingerie.
The share of females in the total labour force declined from 56 per cent in 2014 to 53 per cent in 2023 with a large decrease for jackets.
It also showed that higher capital intensity has both displaced and reinstated workers.
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