The wage commission has set the minimum wage for the ready-made garment (RMG) workers at Tk. 5,300 for a new entrant notwithstanding the dissenting position of the representatives of the manufacturers. The manufacturers are solely responsible to pay whatever minimum wage is finally set and hence have to bear the burden singlehandedly. According to them, the proposed minimum wage is too much for them and simply beyond their ability to bear.
One of the main reasons for the inability to bear the burden of the proposed minimum wage, as mentioned by the manufacturers, is the declining price of their exports in the global market. Other reasons include lack of undisrupted source of power, high bank interest rate, poor trade logistics, and loss of working hours due to conflicting politics of the country. This is true that Bangladeshi RMG manufacturers are condemned with one of the most challenging business environment among their global competitors.
While the factors like high interest rate, power shortage, poor trade logistics, and political factors are beyond the control of the manufacturers, who is to be blamed for declining price of RMG exports? The answer, unfortunately, is: the collective failure of the manufacturers. They are to be held responsible why the price of the RMG exports of Bangladesh has been declining since 2005.
Until 2004, access to main global markets for RMG like the USA and EU was regulated through use of quotas allocated to different developing countries under multi-fibre arrangement (MFA). Under that environment international buyers had to come to Bangladesh after exhausting the quotas allocated to other countries. That enabled Bangladesh to ensure a better bargain. In most cases, buyers did not have any alternative to accepting the price demanded by Bangladeshi exporters. But those heydays disappeared with the phasing out of MFA quota since 2005.
The potential impacts of phasing out of MFA quota has been rigorously studied before its removal and a number of preemptive actions have been recommended. However, the potential increase in competition and its impact on price of our exports failed to emerge as a forefront issue in those researches. As a result, the manufacturers remained more or less oblivious about it, let alone taking any institutional and collective measures. The outcome was very obvious - gradual decline of the price of the RMG exports of Bangladesh.
FASHION PYRAMID: This decline in price has accelerated further by country's failure to move up the product ladder. The composition of global apparel market is not homogenous in terms of product. Different types of apparel products distinguished on the basis of their fashion content can be identified in global apparel markets. The composition of the global apparel market can be explained in terms of what is called a 'Fashion Pyramid'.
At the bottom of this pyramid is the basic garment - the most labour-intensive apparels that people use as necessary items. Bangladesh operates mostly in this segment of the global market.
In the second rung of the pyramid are the mid-value garments. Production of mid-value garments is mostly labour-intensive but in some cases it requires certain level of skills.
The third rung of the pyramid is the fashion basics. Production of these items requires skills and better marketing skill. In the fourth and top-most rung of the pyramid are better fashion and designer fashion items. These items are highly skill-intensive.
Some standardised features of the fashion pyramid may be identified as follows:
First, the lead time - the time elapsed between receipt of the order and delivery of the product - becomes shorter with movement along the fashion pyramid. It simply means, to move from the production of basic garments to mid-value garments, a country must be able to shorten its lead time.
Second, the quality of the product increases with the movement up the fashion pyramid.
Third, the demand for products becomes uncertain with graduation from one rung to the next one. This is because the fashion items are highly income elastic. When income falls, the fashion items are the first one that a household is likely to drop from its consumption basket.
Fourth, competition among the producers of fashion items is fierce and hence one has to be able to differentiate his/her products from others to survive in the market.
Finally and most importantly, the price of the product and value-addition increase with the movement up the fashion pyramid.
Since Bangladesh has been operating mostly in the bottom rung of the pyramid, producing the labour-intensive basic garments, there is no strong ground for the price of its apparel exports to increase. Since the basic garments are highly labour-intensive, and their production does not require significant skills, the new entrants in the global apparel markets operate in this segment. This simply means Bangladesh is facing increased competition from new entrants in the global apparel markets. There may not be a single entrant big enough to pose any threat to Bangladesh, but the fact remains that they are many in numbers.
With the increase in the number of basic garments exporting countries, the buyers now have more avenues to shop around. As a result the prices for Bangladeshi RMG exports are continuously declining. Due to lack of marketing and bargaining skills of Bangladeshi exporters, the price is even declining faster.
THE EXAMPLE OF SRI LANKA: As mentioned earlier, the continuous decline in the price of Bangladeshi RMG exports is the result of inaction to combat the newly evolved environment in global apparel market. Anticipating a crowded global market in the post-MFA era with emergence of new exports of garments, many countries adopted new strategies. Sri Lanka, although not as big an exporter of garments as Bangladesh is, can be an example in this regard. Following the phasing out of MFA quota, Sri Lanka's Joint Apparel Association Forum (JAAF) undertook a 'Garments Without Guild' initiative as a business strategy to withstand new global competition.
The forward-looking manufacturers of the country realised that they need some marketing tag to differentiate themselves from others to survive in the competition facing the fierce competition from giants like China, India, Bangladesh etc., as well as newly-emerged other countries. It was also their realisation that in a quota-free environment, buyers will enjoy more freedom to select its source country. At the same time, given the increasing awareness about workers' right and environmental issues among the western consumers, the issue of compliance would draw more attention in the post-MFA era. Accordingly, they developed codes to be followed to pursue their 'Garments Without Guild' agenda.
Sri Lanka signed up an international auditing company SGS to certify that factories comply with these codes. Because of the perseverant pursuit of these codes, Sri Lanka has emerged as a preferred source country when it comes to ethical trading practices. This is how Sri Lanka differentiated it from other garment exporting countries. It has helped Sri Lanka not only to stand tall in global apparel market but also to carve out and consolidate a niche among high-end clients in casual wear, intimate apparel, active and sportswear, and children wear. Needless to mention, such a niche helped the country, in turn, to enjoy higher prices for its garments exports.
BREAKING THE SHACKLE OF DECLINING PRICE: If Bangladesh wants to break the shackle of declining price for its garment exports, it needs to graduate from the production of basic garments to the production of mid-value garments and fashion basics first. At the same time, it needs a new marketing tag to differentiate itself from other exporters. Without them, the circular problem involving production of basic garments, low price, low wage, labour unrest, low productivity, and production of basic garments will continue.
Bangladesh is not apparently ready for the graduation from the bottom rung of the fashion pyramid and to have its own marketing tag yet. The question is whether Bangladesh will start working to accomplish them without much delay.
Abul Basher, PhD is Researcher at Bangladesh Institute of Development Studies (BIDS), former economist, World Bank, and former faculty, Willamette University, USA. cccg67@yahoo.com
Why is the price of our RMG exports declining since 2005?
Abul Basher | Published: November 13, 2013 00:00:00 | Updated: November 30, 2024 06:01:00
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