DHAKA – Faruque Hassan, managing director of Giant Group, has recently been elected president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) for the period 2021-23. Apparel Insider talked exclusively to Mr Hassan about his priorities in his new role and the challenges facing the Bangladesh ready-made garment industry.
What are your immediate priority areas in your new role as president of the BGMEA? Which issues will you be looking at first?
Since the export markets are deeply shocked by the waves of COVID and the impact on export is apparent, supporting the factories to survive and protecting livelihoods of millions of our workers is the first and foremost priority for us right now. The impact on our RMG sector is unprecedented; in the last financial year (FY 2019-20) we lost USD 6 billion. We are facing the challenge of 3rd wave of COVID-19 around the world as well as in Bangladesh. Although the impact of COVID-19 among garment workers in Bangladesh are minimal to negligible, the handling and facing the challenges due to delayed shipment, hold orders, canceled orders and lockdown in Bangladesh is my first key focus and priority.
Also, my team is working round the clock to make sure the health and safety protocols are strictly followed in the factories. Among the other key issues that me and my team are focusing on are: assuring capital liquidity or funds for RMG factories by working with the Finance Ministry and Central Bank of Bangladesh; making sure we have up to date information of orders on hold and canceled orders; and working with the commerce ministry, bank and retailers/buyers to minimise the impact. We are also focusing on overcoming the challenges and turning some of the challenges into new opportunities in the form of new orders with better R&D and design facilitated by BGMEA.
We are focusing on diversified product categories such as increasing our market share on poly/manmade fiber-based garments, sportswear, jackets and fast fashion on women’s product categories.
We are grateful to Honorable Prime Minister Sheikh Hasina for the unprecedented support which has saved the industry from obvious destruction.
What do you see as the biggest challenges facing the Bangladesh RMG industry at the present time?
As I have stated in my earlier questions on priorities, please note that facing the impact created by the 3rd wave of COVID is the biggest challenge. Export has been consistently following a declining trend since April 2020 till March 2021, impacting costs, competitiveness and capacity utilization. Related to the prolong impact of COVID is the global liquidity and cash flow crisis among the garments retailers/buyers which created the financial crisis among the manufacturers of Bangladesh, and overcoming that is the biggest challenge at the present time.
Apart from the devastating decline in export, price trend continues to worsen as the month of March 2021 posts 5.11 per cent decline in unit price compared to March 2019. The average decline in unit price for July-March 2020-21 compared to July-March 2018-19 is -3.58 per cent. Moreover, retail sales decline both in the USA and EU poses an additional challenge to the ongoing pandemic induced situation.
In December, 2020 retail sales in EU declined by 28 per cent and in USA the decline was 11 per cent latest in February 2021. The disruption in trade has caused turbulence in container and freight management, and has caused price hike in recent time. The inflation in yarn price is also a worrying factor for us.
Do you have a ‘vision’ for the industry?
The past four decades laid a strong foundation for the industry undoubtedly, now going forward we would pursue a ‘value added’ strategy in terms of vertical and horizontal capacity expansion, being more responsive to workers, community and environment and building a strong social ecosystem for the industry to support desired growth, approach newer avenues of cost optimization and being efficient including modernization of the industry, 4IR and developing required skills and competencies.
I think COVID-19 has changed the RMG industry from the way garments are designed, the approval process of samples and styles, materials used to make garments as well as manufacturing models and washes. The digitization impact of RMG due to COVID will remain and we have to adopt to the new way of working with 3D Design tool and fit approvals of styles/samples online, small order quantities for online sells, importance of sustainable wash and materials and so on – all are here to stay.
Our manufacturers are adopting to the changes and my organization BGMEA is helping the manufacturer to make sure Bangladesh remains one of the largest players in the global RMG manufacturing. We are focusing on R&D, innovation, training, diversification of product categories, sustainability and environment friendly green manufacturing, safety and efficiencies of our vast and dedicated workforce.
Moreover, as we have graduated to a middle dincome country market access would be a priority agenda for us coupled with the exploration of new markets and products. Innovation will remain at the heart of our journey forward.
Where do you see the key opportunities for RMG factories from Bangladesh?
Despite many difficulties faced by the RMG sector over the past years, it has successfully carved a niche in world markets and kept continuing to show robust performance. It is the resilience of our sector which has enabled us to achieve the second highest RMG exporter’s medal in the world and make “Made in Bangladesh with pride” a worldwide famous logo. Over the 40 year journey, we have achieved extraordinary growth of USD 34 billion export and have many more opportunities ahead of us, if these can be tapped correctly.
Achieving excellence in product diversification and value addition is one of the key opportunities for RMG factories from Bangladesh. With only a 6.8 per cent share in the global market, Bangladesh occupies a small portion and we have huge untapped potential ahead of us. We have opportunities both in the EU and USA, as well as in emerging markets.
Despite being the second largest apparel exporters in the world, 80 per cent of our garment exports fall within the price range of 15 dollars per KG, and only 20 per cent of the exports get a price above the 15 dollars range. Leaping from basic items to high end products, mostly driven by a shift from cotton to non-cotton, is a time befitting challenge and opportunity for us. We have an immense opportunity to attract local and foreign investment in the backward and forward linkage for expanding the value chain given the investments being made our government in infrastructure development and mega projects including 100 SEZs.
Recent media reports show that Bangladesh is placed second for ethical performance in 2020 among the supplying countries around the world, which testifies the tremendous transformational efforts made by the industry in past few years. The continuation of these efforts toward social and environmental excellence would certainly mark us as a distinct sourcing country, and we would work with that vision in collaboration with stakeholders and development partners.
Are you setting any targets for RMG exports from Bangladesh moving forwards?
The situation is highly volatile while we have the battle against COVID in one hand, and on the other hand the impact on the global economy and trade is inevitable. So any attempt to set a target in this context would be misleading. Yet, our first target would be to recover from the losses and to stay on course. We lost around 6 billion dollars in export in the 2019-20 fiscal year compared to the preceding year (from $34 billion export in FY2018-19 to $28 billion in FY2019-20), and if we can get anywhere closer to $34 billion this year that would be a good comeback. In the medium to longer term, we envision the industry to grow in terms of value addition and innovation than mere physical expansion, for example – enhancing the share in the value chain in the area of backward and forward linkages, penetrating the untapped segments of the global market like non-cotton and active-wear.
During 2020 one of the biggest issues faced by RMG exporters was cancelled orders. Here, the unequal balance between buyer and supplier was perfectly illustrated. What can the Bangladesh RMG industry do to improve this situation?
COVID has exposed a number of realities as far as the global trade and sourcing is concerned. The importance of ethical purchasing practices cannot be over emphasised. The cancellations of orders, non-payment and deferment, discounts, etc. only testify how vulnerable are the manufacturers in the global supply chain. Given the monopoly in the global apparel market where buyers dominate, the power imbalance between the buyers and suppliers is quite obvious, but the extent of fragility of the relationship was unimaginable, especially in terms of poor contract terms and their compliance, and absence of legal framework to settle the disputes across borders. This is not only the scenario in Bangladesh, but suppliers from across the world have more or less suffered from the same. While we need to set a standard for the contracts between parties at least to ensure minimum due diligence, there should be a fair trade policy at a global context.
Also, we will work with the Finance and Commerce ministry, and the private insurance sector on insurance for export orders which is not available in Bangladesh today. Another service BGMEA will try to implement is a buyer’s rating service based on some global rating agency such Moody’s Credit Rating to make our manufacturers aware of risk factors for a particular buyer from which they are taking orders. But certainly, we can’t just conduct business as usual post-COVID given the experiences and losses we suffered and still suffering from COVID.
What are your thoughts generally about poor purchasing practices by brands and retailers? And how can suppliers better protect themselves?
As mentioned above, the issue of poor purchasing practices and their impact on manufacturers, particularly in terms of ethical manufacturing and taking care of workers and environmental well-being, is widely debated, but so far little progress has taken place. While the power imbalance between buyers and suppliers remains at the centre of the dynamic, the lack of innovation and consistent remodelling of business from OEM to ODM and to OBM, and the increasing capacity to manufacture similar products for decades after decade with little improvements in value addition, serves also as one of the major reasons behind the vulnerability of the suppliers and poor negotiation power.
Of course, we need rules and their enforcement locally and globally to ensure due diligence, at the same time we need to take strategic action to get the manufacturers out of the ‘stuck in the middle’ situation.
There has been talk of blacklisting some brands eg Peacocks due to the way they have treated suppliers. Is this something you will be looking at in your new role as president?
I want to clearly mention that, neither blacklisting brands is something that I am looking forward to, nor we have blacklisted any brand. However, it doesn’t either mean that if our suppliers don’t get their due payments and brands do not abide by the code of conduct, we will remain silent.
Instead of blacklisting our buyers, who have been working with us over decades, I will be working to unite the stakeholders including buyers and workers representatives, and development partners like ILO to ensure sustainable and ethical business practices.
Considering the direst situation posed by Covid-19, which has literally shut down the whole world, it will be our plea to the international brands and buyers to act responsibly so that it doesn’t harm our factories. It is the collaboration and partnership between brands and our suppliers that has helped us to achieve such growth and my expectation will be that by working together we will find a way to combat this global crisis and turn around.