Requires new marketing strategy
Export of apparel items of Bangladesh to the European union(EU), North America including the U.S.A remained very sluggish in the outgoing fiscal year mainly due to Brexit, national elections in the major European countries, decline in demand of apparel items in the US market, depreciation of euro against the US dollar and prolonged labour unrest at home in Dec’ 2016. Of the total export receipts estimated at $34.83 billion apparel items stake has registered a bit over $29 billion, being grown merely by 1.69 percent year-on-year. It should be borne in mind that this negligible growth in terms exporting of apparel items, which alone makes up well over 80 percent of our entire export earnings, is, to say the least, very frustrating. Probably, ever since Bangladesh’s journey to the global apparel export market, never did she register such a poor performance as it did in the fiscal year of 2016-17, of course an declining sign – that calls for prudent actions from all concerned.
The scanty export growth of garments items could be attributed to a number of external and internal factors. Let us first deal with the internal factor. Had there been a favourable exchange rate the export earnings could have been at least $ 2 billion more as the shipment of garments abroad has increased during the period. But receipts belied it. In August 2016 one euro was exchanged for $1.35, it came down to $1.045 in last December and the trend continued until June this year before revision.
Fashion pyramid: The decline in price of garments products has been further heightened by manufacturer’s repeated failures to move up the product ladder, albeit Bangladesh’s garments industry dated back to as early as 1978 with Desh Garments being the first one. The composition of global apparel market is not homogeneous in terms of product. Different apparels distinguished on the basis of unique fashion contents can be identified in the global market. The composition of global market can be explained in terms of what is called “Fashion Pyramid”. At the bottom of this pyramid is basic garments- the most labour intensive apparels that the people use as a basic need, value addition of this item is lowest compared to other rungs of the fashion pyramid. Bangladesh’s flourishing garments industry operates mostly in this segment of the global apparel market.
The second rung of the pyramid is mid-value garments. Production of mid-value apparel is labour intensive too but in some cases it requires certain level of skill and it is costlier than the basic item. Third rung of the pyramid is the fashion basics, production of which requires skill and marketing strategy. The fourth and the topmost rung of the ladder is sophisticated and unique design oriented fashion item. This item is highly and absolutely skill oriented and the costliest segment of all, and needless to say, value addition thereof is also the highest.
Some standardized features of fashion pyramid may be narrated as follows: First the lead time -the time elapsed between the receipt of order and delivery of product- becomes shorter with the movement along with the fashion ladder. It simply means the movement from basic garments to mid-value garments. By ensuring this system in place a country could be able to shorten its lead time.
Second, the quality of the product increases with the moving up to the fashion pyramid. Third, the demand of the product is volatile and a bit uncertain- with the graduation from one rung to the next one. This is because fashion items are highly elastic. When income of the people across the board falls fashion is the first one which is likely to drop from the consumption basket. Fourth, competition among the producers of fashion items is intense, massive fierce as well, and one has to be capable of differentiating his or her products from others in order to survive robustly in the market. This also relates to what is called “branding”.
Finally and most importantly, the price of the product and value addition thereon escalates with the movement up the fashion ladder. Since over the years Bangladesh has been mostly operating at the bottom rung of the fashion pyramid, value addition of which, is very meager not to say negligible, and there is very little ground for the price of its apparel items to increase in the arena of global market. Since basic garments are mostly labour intensive and there production does not demand any significant skills, the entrants in the global apparel tend to operate in this rung of the fashion pyramid. This explains about why Bangladesh is acutely facing ever-increasing competition from the new entrants in the global apparel market. There may not be single entrant big enough to pose threat to Bangladesh but the fact remains that there are many in numbers. With the increase of basic garments producing countries buyers have now adequate avenues to shop around, implying that buyers have more edge in this business than the sellers. Owing to lack of bargaining dexterity, prevalence of labour unrest and delay in delivery of products the prospect is going from bad to worse – the price is even declining faster.
Because of poor services at Chittagong port, by which more than 90 percent of apparel export is shipped, the release of goods now takes nearly 15 days, posing a serious premonition in terms of shortening lead time. Previously, retailers and brands would give 90 days lead time but now they have reduced it to 70 days. Competing countries like Vietnam, India, Cambodia and Indonesia can supply to retailers and at a shorter lead time than Bangladesh. We are still lagging behind them owing to low productivity, port congestion, and poor physical infrastructure.
Now turn to the external factor. The Brexit in June last year was chiefly responsible for the slowdown in garments export to the EU where more than 65 percent of garments are shipped a year. During last fiscal year apparel export to the U.K, the third largest garment export destination for Bangladesh, declined 5.97 percent to 3.31 billion. It was 3.52 billions in the year before, registering a 21.37 percent year-on-year growth rate.
This year is of elections for the major economies of the EU. France, Netherland and the U.K have already had their turns while Germany; the second largest export destination for Bangladesh is going to hold it on Sept, 24. During such period retailers and brands wait for the regime’s policies, so it might have a negative impact on business activities. Besides, apparel export in U.S.A, the largest single apparel export destination to ours, has fallen by well over 5 percent owing to reduction of demand of this product there. All these factors have combined to contribute a quasi-negative growth on the apparel export.
Currently, Bangladesh is the second largest apparel exporting country in the world. And it has set goal to harness $50 billion a year from exporting apparel items with the start of year 2021. It is no doubt a big challenge. If Bangladesh wants to achieve this target and break the shackle of declining price of her apparel export, she first needs to graduate from basic garments to mid – value garments and thereafter to fashion basics. By so doing, the value addition in this sector will certainly be more, paving the path of attaining the cherished export target. At the same time, it has to have its own branding, marketing lag to differentiate itself from other competitors for that matter. Not only that, it has to increase its productivity and competitiveness while ensuring social, industrial and environmental compliance standards-and needless to say, no less important is to constantly explore potential export destinations. Without them the circular problems involving basic garments such as low price, low export earnings, low wages, low productivity and festering labour unrest will continue. And the dream of achieving the export goal on garments item by 2021 will remain elusive. All the stakeholders of RMG sector, therefore, must realize that other countries like Vietnam, Cambodia and Indonesia have already been gearing up there capacities. Besides, very soon Vietnam is likely to get GSP facilities from the US.
And, this rings the bell loud and clear-for urgent action.
Shaikh Rezanul Haque Manik is retd Dy. General Manager of BSCIC could communicate: email@example.com