Buyers want quality and compliance, but are they willing to pay?
A worker at a garment factory in Bangladesh.
When Bangladesh pitched the idea of raising prices of its apparel products before the crucial compliance evaluation board of European countries and the US it was the first ever time that the country raised a voice on such a high-level platform.
Bangladesh’s Commerce Minister Tofail Ahmed was speaking on behalf of the apparel makers and exporters who were looking for an opportunity to place such a call when he urged Western retailers to pay more while sourcing from Bangladesh at the fourth high-level follow-up meeting of the Sustainability Compact, held in Brussels, through the ending week of June.
In return, Bangladesh was strongly reminded that it would risk advancement in its trade status and business if it does not deliver on commitments to sustainability. The European Union said that if Bangladesh wants to attain the GSP Plus status once its graduates out of the least developed country (LDC) club, it has to strictly oblige to the conditions of the Sustainability Compact and deliver on grounds of labour rights, structural integrity of buildings and occupational safety and health, and responsible business conduct.
With the lowest labour wage in the world, Bangladesh has used the low-cost sourcing option to its advantage while building up its apparel industry over the past two decades. It was not before some serious drawbacks like the Rana Plaza disaster or Tazreen Fashion fire that factory compliance ever came to light. Since then, for five years, there has been rapid transformation within the industry.
In terms of sustainability and compliance, most of the transformation came after the manufacturers were roped into remediation work by agencies built by the Western retailers and brands – namely the Accord and Alliance. On average, all the factories spent between US $200,000 to US $1.2 million for remediation works.
Five years down the road, now, Bangladesh boasts of having among the most sustainable and compliant line of factories anywhere around the world. In fact, the advancement has been so rapid that the country has around 280 green factories – 67 certified by the US Green Building Council (USGBC), among which several are Platinum rated.
But has the sustainability development helped the business in any way?
According to statistics, exports from Bangladesh to the European Union, the country’s largest apparel export destination by region, Bangladesh has consistently surged due to depreciating Taka. In 2017, Bangladesh exported over € 15.3 billion to the region. Though the volume of exports is increasing, values have been dropping. In the US, exports dropped by almost 4 per cent to around US $5 billion in 2017.
Besides, Bangladesh has always been the place to turn to for low-cost apparel sourcing. A recent report of the Asia Inspection released in April found it to remain true and that retailers are more into Bangladesh as a source of low cost sourcing option, second to giant China, rather than an option to diversify the sourcing basket.
Salahuddin Ahmed, managing director of M&J Group that has at least three Platinum-rated facilities – Columbia Washing Plant ltd, Genesis Fashions Ltd and Genesis Washing Ltd, says the advancement in sustainability helps very little in securing higher pricing or expanding business. He says: “Compliance relates to business only in the sense of ethical sourcing. But in regard to attracting buyers or asking for higher pricing, it depends on business relations and bargaining capacity solely… and, sustainable workplace is something that you can’t bring up in the discussion.”
At a time when global demand of apparel items is dwindling, Bangladesh may not be able to uphold its low-cost supply strategy with the due increase in labour wages– expected to come into effect this year.Coupling with rising prices of raw materials, global fall in pricing of apparel items and fluctuating markets, there may be very little margin for the apparel manufacturers to continue business viably.
According to what could be learned, for the last 15 years in this business, apparel pricing has increasingly gone down due to rising competition and internal structural problems of Bangladesh including big lead time and what the manufacturers would like to call “image crisis”. But, all this time, there has not been compromise in terms of quality in any way.
In conversation, Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), dropped a hint that buyers have always been reluctant in paying more while sourcing from Bangladesh.
“You know, it won’t happen until you can brand Bangladesh. They are willing to pay US $10 for a piece of apparel when it is made in Italy. But when the same thing is sourced from Bangladesh, they pay US $1. Even when the quality of the apparel is same, or even better, they will not pay more. It is all because of the brand value Italy has. We need to do the same thing for Bangladesh,” he said.
On the upside though, Bangladesh has had the opportunity for talking on pricing strategies with a group of buyers. After the meeting on Sustainability Compact, several rounds of meetings were held with a forum of European buyers on the sidelines. There, Bangladesh had the opportunity to talk over pricing issues.
Fazlee Shamim Ehsan, second vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), who attended three such meetings, says: “We have pitched to them (buyers) about pricing issues. They have assured us that they will look into the matter. They have agreed to discuss further about ethical pricing.”
According to what could be known, the buyers have asked for details into the expenditure of the apparel manufacturers. They said they will have a thorough study on the Bangladesh matter and decide about raising prices. However, to most of the meeting attendants, it seemed all a pile of “mumbo jumbo” to dillydally the process.
“Look at the upside,” Fazlee Shamim says in response to queries in this regard. “Before this, we did not have the chance to place demands of fair pricing to the buyers. Now, at least, we are getting to talk about this issue.”
Industry-wise, Bangladesh’s apparel sector is growing in the path as desired in the line of reaching US $50 billion export by 2021. By the end of fiscal 2017-18, they crossed the pledged US $30 billion mark, registering an impressive 8.6 per cent gain.
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