The readymade garment (RMG) industry is the leading sector in Bangladesh in terms of foreign exchange earnings. The sector witnessed on average 16 per cent year-on-year growth since 1990 up to fiscal 2015-16, according to Policy Research Institute of Bangladesh. Bangladesh holds the second position in global market share of RMG with a rate of 6.4 per cent. Vietnam holds the third position with a market share of 5.5 per cent, India has a market share of 4 per cent while Turkey and Cambodia retained their shares of 1.4 per cent and 3.4 per cent respectively, making the competition very fierce. However, the leading position is held by China with a staggering 38 per cent of market share of the US$ 450 billion global RMG market. Bangladesh aims to carve its share larger by achieving $50 billion of world RMG market by 2021. This requires over 13 per cent growth to reach the target. In the last fiscal year, Bangladesh earned $ 28 bn through exporting RMG with only 0.20 per cent growth, according to Export Promotion Bureau (EPB) of Bangladesh.
Along with a rising competition in the global RMG industry, recent shifts in the global arena may stand as a constraint or an enabler in disguise for the Bangladesh RMG sector to make further expansion. Thus, Bangladesh as a whole needs to undertake a much focused strategy in order to adapt to these recent developments and use them to its own advantage to earn its goal.
Public sentiment about globalisation has taken a sharp turn in the leading markets of Bangladesh. The election of Donald Trump, Brexit, and the rise of ultra-rightist parties in Europe are all signs of growing popular displeasure with the free movement of trade, capital, people, and information. These sentiments might lead to some greater regulation in the export market and create impediments in terms of higher tariffs or non-tariff barriers and greater restriction to trade. These recent shifts create the need for forging greater relationship with the emerging economy and thus serve as an opportunity to create more diversified markets for Bangladesh RMG sector.
An aggressive popularity of online sale and the struggle of brick and mortar retailers have created a change in the retail dynamics and thus affecting the manufacturers as well. The retailers are facing profit erosion and as a survival technique they are putting continued downward price pressure on the RMG manufacturers. Although the export of garment items grew 10 per cent in volume in fiscal 2016-17, the value remained almost the same as in the previous year, according to the commerce ministry data. Swedish fast fashion giant H&M, CEO Karl- Johan Persson has aptly captured the trend in his recent statement: "The fashion retail sector is growing and is in a period of extensive and rapid change as a result of ongoing digitalisation. The competitive landscape is being redrawn, new players are coming in and customers' behaviour and expectations are changing, with an ever greater share of sales taking place online." So in order to adapt to this change, manufacturers might need to change the entire business model- faster delivery of goods, efficient payment modality and accommodating inventory system and so on. The online shopping platforms put consumers in a better position to track the transparency of the products whether those are produced in socially and environmentally fair conditions. These create the opportunity for the producers to be more conscious about the manufacturing process, working conditions and environmental sustainability issues.
The demand for apparel items is declining in the Western world. Customers progressively becoming more environment concerned and are making more conscientious buying decisions: purchasing less and focusing on quality. The country's export earnings from two promising markets - Japan and China - dropped in the first quarter of the current financial year 2017-18. Same is true about the export earnings from the two other major markets, United States and Germany. In 2015, the demand for apparel items worldwide declined 8 per cent to $445 billion, according to data from the World Trade Organization. So the competition in the RMG export market is shifting from price leadership to differentiation and quality. Competitive countries like India, Vietnam and China are already ahead with advanced technological capacity. While here in Bangladesh, about 70 per cent of the manufacturers focus on very low-value products and thus receive very meager mark up on the sales. This challenge in the export market creates an opportunity for the home manufacturers to increase their capacity to make value based differentiated products, a complete change in the organisational structure for lean management and better communication, accommodating higher skilled workers and reworking of strategies for better societal engagement.
However, there always lies a silver lining. Be it digitalised or solid infrastructure, the global apparel market is predicted to grow and to be worth $ 650 bn by 2020. A recent change in the Chinese economy with rising value of yen and increase in the cost of production, a huge influx of Chinese investment is making towards Bangladesh. China's market share slid down to 36.4% from 39.3% last year. On the other hand, there is a prospect of European and American companies to expand the share of their apparel sourcing from Bangladesh to 25-32 per cent by 2020 from an average of 20 per cent. This could be a turning point for Bangladesh to seize the opportunity by revamping its infrastructure and moving into a higher tier of value chain.
This higher aspiration requires better marketing strategies, international standard negotiations tactics, advanced bargaining skills, more and up to date information on the shifts of global trends and more importantly the persuasive capacity to influence the major stakeholders in both local and international market. A careful mapping of the both market and non-market stakeholders based on the power and interest matrix will enable all companies within the industry to plan engagement strategies carefully, and have better understanding of where to optimally utilise resources to maximise benefits.
Thus it is imperative for the industry to embrace different social initiatives which will create a better image of Bangladesh RMG in the global arena and will enable the industry to converge economic and social goals. This quest requires meticulous analysis of the stakeholders' roles and designing effective engagement strategies. Influencing local government to facilitate the industry with its supportive policies, gaining trust of the labour unions and other social interest groups, maintaining a good relationship with the suppliers, forging new market and continue to serve in the existing markets and having media support and so on. These efforts cannot be an arbitrary one, and calls for systematic planning and context-sensitive modeling, which allows room for adaptation to different environmental conditions and developments.
Shaharbanu Ahmed, Senior Lecturer of BRAC University, writes from Toronto Canada. She is currently pursuing her second MBA Degree from Schulich School of Business, York University.
