Challenges and prospects of our export to US market
November 7, 2008
We know that Bangladesh started its journey as an independent state in 1971 from a very distressful condition. But the country is a resource-rich one and has remained so even after many years of economic exploitation by many foreign powers. The country is clearly blessed with some key natural resources, such as fertile soil as well as coal and natural gas as mineral resources. It is the major producer of jute, tea, and leather, and its labour force is considered quite competitive. All of these are essential ingredients not only for establishing a strong economic base for the country, but also for achieving further growth through trade and commerce.
Why then, one might ask, has Bangladesh remained poor and failed to achieve its potential in its 37 years of existence? A simple answer to this may be government policy. The government of a country is responsible for steering it in the right direction. Unfortunately, Bangladesh has never had a responsible government, and so the country’s potential has never been effectively tapped to improve the condition of the people.
Let us look at some hard facts. Trade plays an important role in the economic growth of a country. While countries like China and India are immensely benefiting from free trade that the United States has been promoting, Bangladesh has failed to take full advantage of such opportunities even though it possesses the necessary resources to do so. Most notably, Bangladesh missed a great opportunity to advance in information technology because the government reportedly rebuffed overtures from the U.S. businesses during the 1980s. Now imagine the situation in Bangladesh if a different course of action had been taken!
It is already a well-established and recognised fact that the main reason why Bangladesh missed its opportunity to forge ahead was primarily because of its corrupt political system. Economists estimate that the massive corruption has cost the country nearly 2.0 to 3.0 per cent of its annual growth. From an economic point of view this is a huge loss over the years. As an example, the U.S. economy has grown at a rate of 3.0 per cent per annum during the past decade. If corruption in Bangladesh, on the other hand, was somehow contained at a reasonable level, instead of 5.0 to 6.0 per cent current annual growth, the country would have been forging ahead as one of the fastest growing economies in the world today.
Let’s briefly review the situation.
Industrialisation in Bangladesh: The role of industrialisation is very critical for the economic development of a country. In the case of Bangladesh, instead of progress, many of its core industrial bases continue to dwindle. Take the example of the jute industry, which has been experiencing a steady decline over the years. When petroleum-based synthetic substitute products were introduced in the 1960s, the demand for jute products was somewhat weakened, though it never disappeared. The big irony is that Bangladesh has been gradually losing its jute market to India. Now with the high cost of petroleum, the demand for jute products is on the rise again, and the trend is likely to continue. But looking at the troubled condition of the jute industry in Bangladesh, it would be very hard to nurture any hope that the country would be able to take full advantage of the changed circumstances. The World Bank estimates that Bangladesh has the potential to increase its share of the jute market up to 80 per cent of raw jute and 50 per cent of manufactures.
Leather industry is another example, where Bangladesh could have made a huge inroad, but didn’t. There is a big demand for leather products everywhere, including the United States. Bangladesh has failed to fulfil its true obligation of producing and marketing quality leather products. Similar arguments may also be made about other key industries, such as tea, cotton or sugar. The fish industry may be an exception. It has done well, though it too has fallen short of expectation. The circumstances of the fish industry may be somewhat different, yet the government couldn’t escape its basic responsibility.
Garment Industry: This is the only area where Bangladesh could claim considerable success. Today garment export is the main source of foreign earnings for the country after remittance. It is a service industry in that almost all of the components of garments are imported except labour. Its success was not necessarily influenced by the government policy but essentially by outside forces. This industry had its origin in the 1970s when the investors of other South East Asian nations ventured to set up garment factories in Bangladesh to work around the export quotas imposed on their native countries by the United States. Later Bangladeshi entrepreneurs rushed to establish their own companies, some with little or no experience. After a period of adjustments, the industry began to stabilise and started to grow, and has eventually earned the world’s respect.
Thus, the stabilisation and growth of the garment industry in Bangladesh were achieved largely with the help and intervention of foreign investors who supplied expert technical support for quality control and had an effective marketing plan. Additionally, the country enjoyed a favourable quota system from the United States through the year 2004. As a result, of the more than 3.0 billion dollars of exports Bangladesh made to the U.S. in 2006, the garment sector was the major and biggest contributor. But this situation may now be rapidly changing as other least developing countries gain trade advantage from the United States, and Bangladesh fails to renew its favourable status. The failure to renew favourable status for Bangladesh may also fall on the shoulder of the government emissaries here for their inability to influence the U.S. Congress.
In any case, whether the current status on Bangladesh garment exports changes or not, to maintain the market share of garments in the United States, the country must continue to be competitive in respect of price, quality, and service. It may well be that under the prevailing circumstances, Bangladesh will lose some of its old clientele or will even face stiff competition for its products in the future. But this scribe believes that Bangladeshi entrepreneurs have gained enough experience in garments to stay competitive. What is then needed is an effective marketing plan for their success.
Other possibilities: Bangladesh has clearly demonstrated its skills in the textile sector. The present writer thinks the country should build on the foundation of such strength and strongly believes that this kind of skills that give Bangladesh an advantage in textiles can be easily transformed into an advantage, especially in the manufacture of leather goods. One may even go further and say that the same labour intensive skills can give Bangladesh an edge in all kinds of footwear, sports equipment (Pakistan has a stronghold on this currently), carpet weaving (another Pakistani export), and the labour intensive assembly of small electronic components-which may be imported from China or elsewhere and then assembled in Bangladesh-into electronic goods such as TV sets, personal computers, etc.
Bangladesh does not have to make any of these goods from beginning to end. Instead, it can concentrate on only the part of the manufacturing process that requires assembly by skilled hands.
Food processing may also work, especially if American companies such as Dole, Del Monte, and Chiquita are made aware of Bangladesh’s natural resources and skilled labour, and if they are welcomed by the government with appropriate incentives.
Marketing of products: The pre-requisite of success in trade is quality product, and an ongoing process of making improvements on the existing product. As has been noted, Bangladesh has come a long way in producing quality garments. In addition, the country could claim good progress in improving its quality in jute products, leather goods, and handicrafts as well as in the packaging of quality tea. All of these and many other products of Bangladesh have great prospects in the U.S. (One foot note about leather products: my wife who works in the merchandising business in the U.S. recently visited a stall in Dhaka, and saw beautifully crafted leather bags there. But after picking one up, she said she couldn’t help noticing a smell from the bag. A problem like this would require correction and could be corrected very easily.)
Anyway, production of quality goods is only half the battle. Marketing is as important as production or distribution. In fact, marketing may be the biggest hurdle Bangladeshi entrepreneurs would face in the United States. Marketing requires both knowledge and skill, and in the U.S. there are business firms which specialize in marketing. It may be advantageous to seek such professional help.
But short of engaging an expensive marketing firm by an individual business or industry, other approaches can be considered. Bangladeshi entrepreneurs should consider creating a workable business consortium, which will then go on to establish a permanent product centre in New York City with possible sub-centres in Atlanta, Chicago and Los Angeles where all the exportable products of Bangladesh will be represented. Each centre will then be equipped to process sale orders in coordination with the central office in New York. For promoting various products, an attractive web site may be created, and national as well as local news media may be utilized. Based on business experience, a central warehouse for keeping certain inventories may also be planned.
Again, the name of the game is competition, and having a plan ready for the competition. Once properly equipped with good quality products, competitive price, and superior service, Bangladeshi goods will have no problem with capturing and maintaining their market share in the U.S. A well thought out plan, which should include building and maintaining strong trade relations with reputable merchandising companies, and its proper execution will be needed.
It can, therefore, be concluded that to reap the benefit of trade with the United States, Bangladeshi entrepreneurs must be prepared to meet the challenge of marketing. The reward will be huge if they succeed.
Country needs to diversify exports, destinations : WTO
November 7, 2008
Bangladesh Ambassador to World Trade Organisation (WTO) in Geneva Debapriya Bhattacharya Tuesday said the country needs to diversify both its products and export destinations to weather the prevailing global financial downturn.
“The ready-made garment (RMG) is the only major product in the Bangladesh’s export basket. It is vulnerable particularly in the prevailing global economic scenario,” he said at a luncheon meeting in the city.
The American Chamber of Commerce in Bangladesh (AmCham) organised the meeting with its President Syed Ershad Ahmed in the chair.
Suggesting expansion of the agricultural sector, Dr. Bhattacharya said: “Agricultural trading system is still highly distorted, obstructing agricultural products’ export. The country needs to give more efforts to export agricultural items.”
Share of RMG in the country’s total export earnings is about 80 per cent. Market share of Bangladesh’s export to the currently dull US market is about 25 per cent and to the European market more than 46 per cent.
The ambassador to WTO gave importance to expanding the market of Bangladeshi products in big neighbour India and other South Asian countries.
“Focus more on service sector as trade in services would dominate tomorrow’s global commerce,” he urged the attending businessmen at the luncheon meeting.
Mr. Ershad Ahmed has sought help of the ambassador to take up the recent global economic slump issue to the WTO forum so that Bangladesh is not affected much.
Dr. Bhattacharya, also the permanent representative to UN offices in Geneva, said the Doha Round would be the last opportunity for Bangladesh to negotiate trade preferences as a least developed country (LDC) in the WTO.
“I believe Bangladesh would emerge as a middle-income country by the time when another round of WTO negotiation will begin”, he expressed the hope adding, “The country will at least become a lower middle income country when it will celebrate its 50th anniversary of independence.”
“In the meantime, a new round of WTO negotiations would be launched,” he said.
The trade expert said the current Doha Round will be facing setback owing to the elections in the United States to be followed by those in the European Union and in India, and the current global financial downturn.
“The current negotiation will gain momentum early next year and take one year to conclude while another one year would be required for scheduling the decisions,” he said adding, “we’ve targeted the year 2011 for completing our negations as the last opportunity in the WTO.”
The former chief of the Centre for Policy Dialogue (CPD), said: “Trade related capacity building through Aid for Trade is a big challenge in the sense that it is difficult to ensure donors’ assistance in additional and predictable manner.”
“Bangladesh should put focus on infrastructure development projects like construction of Dhaka-Chittagong Highway, improvement in Mongla port activities, setting up of deep-sea port and installation of new power generation plants through donors’ support,”
Underlining the Rules of Origin (RoO), Dr. Bhattacharya said: “It is more important than the tariff issue at this moment. Bangladesh and LDCs should press the developed and developing nations to implement LDC-friendly RoO.”
The trade expert said it has by now become a little bit difficult for Bangladesh to get negotiating partners in the WTO as hardly any other country in the LDCs’ group could boost their trade as significantly as Bangladesh had achieved since the WTO came into being in 1995.
Dr Bhattacharya said the country would have to find new partners in the next round of negotiations and to take preparations to face the emerging difficult situation.
The Textile and Garment Industry in Bangladesh Increased by 18.2% to Reach US$9.6bn
October 12, 2008
Research and Markets Laura Wood, Senior Manage rU.S. Fax: 646-607-1907 Fax (outside U.S.): +353-1-481-1716
Indian co to invest $9.78m in DEPZ
September 25, 2008
In this connection, an agreement was signed between the Bangladesh Export Processing Zones Authority (BEPZA) and M/s Lenny Apparels Limited in the city Monday, said a press release.
BEPZA Member (Investment Promotion) Prasanta Bhushan Barua and Chief Executive Officer of Lenny Apparels Waseem Mohd Siddiqui signed the agreement on behalf of their respective organisations.
Among others, Executive Chairman of the BEPZA Brigadier General Jamil Khan was present at the signing ceremony.
The company will also create employment opportunities for 1620 Bangladeshis and 61 foreign nationals.
Export to US won’t fall, rather there will be fast growth: ADB
September 25, 2008
The Asian Development Bank (ADB) said Bangladesh’s export to the US market would not be hindered rather there would be a fast growth although the US safeguard against its major competitor China would be eliminated from first of January next year.
“Although the US safeguard quota on China is set to expire at the end of this year, the appreciating yuan and the China’s move out of the low-end of the garment market could allow fast export growth for Bangladesh given its sound track record in this market segment,” said the Asian Development Outlook 2008 Update, launched Tuesday.
The US government after phasing out of multi-fibre arrangement (MFA) for garment and textile exports in December 2005 imposed embargo on the Chinese apparels. Under the safeguard, the US importers are allowed to import limited products from the emerging Asian country.
China, world’s largest apparel exporter, has a total market share of 40 per cent in the globe. On the other hand, Bangladesh has only two per cent market share.
Both Bangladesh and China compete in the same markets such as EU and the US.
Bangladesh’s export earnings of garments including woven and knitwear items from the US market is nearly 30 per cent of the country’s export income while the rest comes from the EU and other markets in the world.
Trade experts and garment exporters felt that lifting of US safeguard on China from January 1 next year would not lessen garment export to the US market.
Executive director of the Centre for Policy Dialogue (CPD) Mustafizur Rahman said: “I am optimistic about the garment export growth to US market despite phasing out of the US safeguard on China from December 31.”
“As Chinese currency yuan has appreciated and the country has taken move to produce more fashionable garments targeting the high-value market segment in the world moving out from its low-end of the market, Bangladesh’s export would not be hampered,” he said.
Bangladesh mainly targets the low-end market segment in the US and other countries in the world.
Mr. Mustafizur Rahman, also a trade expert, suggested that the local garment exporters take preparation for producing high-value and fashionable garments to grab the high segment of the markets in the US and the European countries as the prices of low-value products had already declined much.
Salam Murshedy, managing director of the Envoy Group, said the apparel export growth like the last couple of years could not be achieved in the first year of lifting of US embargo on China but in the long-run the export would not be hindered much.
“Next year, Bangladesh might face a tough competition from China in the US market. But I think the export will post a fast growth like previous years after a couple of years as our backward linkage industry is growing fast,” said Mr, Murshedy who exported nearly US$100 million worth of garments last fiscal.
Forecasting higher trade growth in the current fiscal, the ADB outlook said imports are expected to grow by 21 per cent with higher bills for oil, foodgrain and other raw materials in the FY09, while exports are expected to grow by 16.5 per cent mainly owing to stronger growth in knitwear and garments.
The ADB, however, warns Bangladesh saying: “Yet in the face of rising labour and raw material costs, garment producers need guaranteed access to electricity and programme to address labour shortage, especially at the supervisory and mid-management levels to retain their competitiveness.”
Graduating to higher priced garments
September 25, 2008
OUR RMG exporters should realize that the drop in export earnings in the US is not only due to the competition Bangladesh is facing from some countries which have got quota-free and duty-free access to the US market. The point is that the US market has also shrunk considerably for all countries that export low-end or common RMG products to it because of the continuing recession in that country.
The demand for the sort of common apparels that Bangladesh exports to the US and other markets in developed countries is income elastic. The incomes of common consumers in the USA and other developed countries have been falling due to recession. But the demand situation for more higher priced garments bought by affluent section of people in those countries are income inelastic because these classes of people tend to buy at a steady rate regardless of price and their income. Thus, the Bangladeshi RMG exporters need to try changing over or adding to their capacities to produce higher priced garments or higher quality garments which have still good demand in the US market and the markets of other developed countries.
If our RMG producers and exporters can make this switch-over fast, then they can very probably get around the competition they now face in relation to some sub-Saharan, African and Asian countries in exporting mainly common apparels. The Bangladeshi garments operators with their experience gathered so far- and established capacities –are probably better-positioned to effect a change in their production from common to higher quality apparels. In that case, not only the RMG sector in Bangladesh will get a new lease of life, it will also actually reach a new height from fatter profit margins from exporting higher quality RMG products.
Wal-Mart wants rebate on garment orders
September 12, 2008
Readymade garment (RMG) exports are likely to suffer yet another blow as Wal-Mart, the world’s largest retailer of clothing, wants a 2 percent rebate on its current orders of Bangladeshi RMG products.
An export-oriented garment factory owner told The Daily Star that Wal-Mart had instructed him to give a 2 percent rebate on sales of RMG products.
Industry insiders said the US-based Wal-Mart buys RMG products worth $1.7 billion a year from Bangladesh, adding that currently it buys the products from more than 200 garment factories in Bangladesh.
The major products that Wal-Mart purchases include T-shirts, shirts, polo shirts, pullovers, home textiles, bed sheets and trousers.
Other major buyers of Bangladeshi RMG products are Tesco, JC Penny, Zara, GAP, H & M, Adidas, Puma, Marks and Spencer, PVH, G-STAR and S Oliver.
Iftequer Hossain, the owner of Total Apparel, a local buying house, said Wal-Mart has asked for the rebate on its current orders.
“This rebate on sales to Wal-Mart may continue through next year as it continued in other countries,” he said, adding that the rebate is yet to be fixed on the already-shipped RMG products.
However, a senior official at the Dhaka office of Wal-Mart told The Daily Star: “We do not know anything about 2 percent rebate or discount of Wal-Mart.”
President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Anwar-ul-Alam Chowdhury Parvez said such rebate would further hamper the exports of local garment. “Such rebate will hit the profitability of the local RMG suppliers,” he said.
Industry people said the price index for exportable local apparel items declined by more than 1 percent over the last fiscal year, while the cost of doing business in Bangladesh, particularly in the RMG sector increased by 15 percent.
According to the industry, inadequate gas and power supply, higher freight charges in both the local and international markets, yarn price hike, implementation of the minimum wage for workers, higher transport costs and higher prices of capital machinery were the main reasons for higher cost of doing business over the last one year.
The country’s RMG sector with frequent labour unrest and higher cost of production would not be able to sustain such discount, industry people opined.
An apparel exporter said international buyers exploit the local RMG manufacturers’ inexperience in international marketing by enforcing different conditions on exports of local garment items.
“Most of the RMG business is done through middlemen. We should develop our own marketing network,” he said.
The continuing downward pressure by international buyers on clothing prices is hitting profitability in the RMG sector, which would ultimately undermine efforts to improve working conditions, industry leaders have warned.
At a meeting of Multi-stakeholders Forum-Bangladesh (MFB), held in June in Dhaka, local manufacturers pressed the major international buyers for increasing prices of RMG products.
Bangladesh earned $10.699 billion through exports of woven and knitwear — the two sub-sectors of RMG — in fiscal year 2007-08, according to the Export Promotion Bureau.
S Korea offers duty-free access of BD goods
September 10, 2008
South Korea has decided to allow duty free access of Bangladeshi goods into its market, aiming to boost up the bilateral trades between the two countries, the South Korean ambassador to Dhaka said.
South Korean Ambassador to Bangladesh Suk-Bum Park said his government has recently forwarded its decision to the commerce ministry of Bangladesh, offering duty free access of over 300 Bangladeshi products into its markets from this year. ”The duty free offer that covers almost all items would help augment Bangladesh’s export to South Korea significantly”, Park said.
He hoped that Bangladeshi business people would have a good look to the offer to reap the maximum benefit out of it.
In line with the offer, products including textile items, synthetic fibers, jute goods, silk items, cotton, automobile parts, dry foods, etc. would enjoy the benefits of duty free access to South Korean markets.
In the fiscal year 2007-08 (July 2007- June 2008), South Korea exported goods worth 612 million US dollars to Bangladesh, while imported goods worth 142 million US dollars, according to the data from the Bangladeshi Commerce Ministry. Bangladesh imports petrochemical items, paper products, machinery, high-quality fabrics and electronic items from South Korea, while it exports frozen foods, garment products and naphtha to South Korea.
Russia looks to Bangladesh for garment expertise
September 3, 2008
First batch of skilled worker expect to leave in next two months
Skilled Bangladeshi textile workers are being hired to work in Russia, further evidence of Bangladesh’s growing status as a world leader in garment expertise.
Abdul Matin Chowdhury, secretary to the Ministry of Expatriates’ Welfare and Overseas Employment, said 60 skilled workers will go to Russia in the first batch within the next two months. More could soon follow, he added.
Although garment industry leaders have previously complained of a shortage of skilled labour in Bangladesh, yesterday they welcomed the Russian initiative as proof of the strong development and international competitiveness of the local garment sector.
The Russian company Visozstoy will initially employ the workers.
“I have already approved a local recruiting agency to select the manpower to export to Russia,” Matin Chowdhury said, adding that a ministry delegation will attend a forum on employment in Russia at the end of the month.
He said the workers will receive US$450 a month in wages and a package of benefits such as medical facilities and travel allowances.
Fazlul Hoque, president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said although the country has been suffering from a skilled manpower shortage, the initiative is good.
“It is good that we are unlocking the potential to export garment workers as well as their products,” he said.
“However we should always be aware that nobody is being deprived by exporting RMG manpower,” Hoque added.
According to statistics there are more than 2.5 million skilled, semi-skilled and unskilled workers in the woven, knitwear and textile sectors.
Industry insiders said at present garment workers comprising 80 percent female workers are working in near 4500 woven factories, nearly 1700 knitwear factories and more than 1300 textile factories.
Hoque said Russia is also a potential RMG products’ market for Bangladesh. Every year Russian buyers outsource a significant number of RMG products to Bangladesh, he said.
Talking to The Daily Star president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Anwar-Ul-Alam Chowdhury Parvez said the initiative is good, as the demand of RMG workers in Russia has been increasing.
Advising the government to continue a relentless effort to grab the Russian and other potential markets for RMG workers Parvez said the government should also continue training workers to make them skilled.
Market operators said remittances from expatriate Bangladeshis could exceed US$7.0 billion in 2008 as more and more local skilled and semi-skilled workers are going abroad for jobs.
According to official statistics, the country received nearly $6.0 billion in remittance from non-resident Bangladeshis last year and the contribution of the remittance to the gross domestic product crossed 13 percent.
RMG buying houses boom as China business cost up
September 3, 2008
Readymade garments (RMG) buying houses, both local and foreign, now grow rapidly in Bangladesh, as the country has become a lucrative place for RMG outsourcing on the appreciation of Chinese currency against the greenback.
As part of their business expansion, foreign buying houses are eying to set up more liaison offices here.
The buying houses including M&S, Adidas and Tesco have already published advertisements in newspapers to recruit experienced merchandisers for such liaison offices to collect RMG products at a competitive price from local garment units.
Industry insiders said many Chinese apparel manufacturers have either changed their businesses or stopped production following the decline in foreign buying orders and higher cost of doing business due to a hike in workers’ wages.
Buying house is a hub for sellers comprising of leading manufacturers, exporters and suppliers, displaying their latest and trendiest collection of apparels to a huge audience round the year.
Buyers from across the world can meet sellers at this permanent showroom and source their products as per their exact specifications. Bangladesh is the world’s 5th largest producer of textiles and garments.
Talking to The Daily Star, Kazi Iftequer Hossain, the owner of Total Apparel, a local buying house, said the number of buying houses that have sprang up in 2008 is 200, while the number was 150 last year.
“Of the total outsourcing of apparel items from the local market, 60 percent is done through foreign buying houses and 40 percent by the local ones,” Hossain said. He said in every month at least 6 buying houses are coming into operation now.
President of Bangladesh Buying House Association (BGBA) Qayum Reza Chowdhury said there are more than 1000 local and foreign buying houses in the country.
“Many Chinese manufacturers stopped exporting apparel items as they can hardly make profit at more than 2 percent. Rather they can make profit at 10 percent if they sell the RMG products in their local market,” Chowdhury said.
He said Russia and Uzbekistan are going to be major destinations for Bangladeshi RMG products as the buyers of those countries are moving to Bangladesh instead of China to place huge orders.
Meanwhile, Nurul Islam, managing director of Noman Group, country’s one of the largest home textile producing companies, said the demand for RMG products from foreign buyers has marked a 30 per cent rise in the first 11 months of the current fiscal, compared to the corresponding period last year.
“We have a target to export RMG products, especially home textile worth US$20 million a month from 2009. At present the group is exporting products worth $12 million a month,” Islam said.
The overall orders for RMG products also increased by 30 to 40 percent this fiscal, he said, pointing to the fact that foreign buyers are not offering higher prices for the item.
Echoing Nurul Islam’s view, Nassa Group Managing Director Nazrul Islam Swapan said the country is getting more export orders because foreign buyers lean towards Bangladesh because of the high prices of apparels made in China, the world’s largest apparel manufacturing country.
At present, Nassa Group has 38 garment factories and it has a target to export $300 million in 2008, Nazrul said.