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Friday, February 23, 2024

RMG product diversification in Bangladesh is hostage to government regulations

The RMG owners face several roadblocks in Bangladesh while trying to diversify their product baskets. The bureaucratic red tape is making required upgrades a nightmare according to industry players. 

For instance, a garment factory owner recently bought a machine worth crores of taka to produce seamless undergarments as a step towards diversifying his products.  This was the need of the foreign buyers as seamless undergarments have a huge demand in the international market for being more comfortable than traditional ones, but buyers require RMG factories to have these machines if they want to produce them. Seamless products have over 20 percent more valuation.

These machines are quite unique in that you put the cloth in and the undergarments come out as a whole; no stitching is involved. Then you cut them into particular sizes and send them to packaging. Unfortunately, the machine is currently sitting idle in the factory because of a “policy complication.” 

Usually, an undergarment is between 10 to 15 inches in size, but according to Bangladeshi rules clothes below 27 inches are regarded as fabric scraps (kata kapor) and their import is restricted. 

Industry officials said that seamless fabric and fabric scraps are miles apart. If authorities do not understand that this is nylon, this is polyester, or this is lycra-mixed, how can producers  work? If there is misuse, then they should set criteria to prevent it, such as the material should be man-made fibre, polymer, or it should have elastane, or the business must be conducted through bonds etc, they said.

Exporters said if necessary, authorities should conduct cutting inspections in the factories, instead of creating import barriers. Bangladesh is losing a huge market due to failure to diversify products. The world average export of man-made fibre is 55 percent while Bangladeshexports 30 percent to 35 percent only and has a potential to grab a share in the 20 percent gap.

Bangladesh’s garment exporters pointed out various NBR (National Board of Revenue) related ‘hassles’ like the ones mentioned above, they mentioned the HS Code complication. (Harmonised System (HS) Codes are used in the export process of goods. The Harmonised System is a standardised numerical method of classifying traded products.) Though some also say that it is normal to face obstacles in the beginning of a new change. 

Diversification according to a leading exporter comes in many forms – one of them is product diversification, like we make basic products for high fashion etc. Here we have cotton-based, mixed, polyester-mixed, and there is 100 percent man-made fibre. And then there is sportswear – both cotton and mixed. 

The major brands like Hugo Boss, Puma, Timberland, Ralph Lauren etc, who are purchasing more value-added products. For the value-addition to soar, man-made fibre in Bangladesh requires backward linkage and more investment in the supply chain sector.  

In the future, there is a possibility of a supply chain requirement to have Bangladesh’s own fabric to get the GSP+. It will require investment in yarns, finishing, warp knitting facilities etc, besides investment in forward linkage, skilled manpower, and investment in transforming the technology, monitoring, database management, etc. And if we don’t do these, someone else will warned an industry player

Bangladesh also needs market diversification. It did not do that before because order sizes were small. But now, all order sizes are small. So, it will have to have that design support. Some exporters think that instead of looking for loopholes in policies, and barriers, it is important for the industry to ask for the barriers to be removed.  

A leading exporter said diversification means you are changing something. And whenever there is change, there is a challenge. Obviously the NBR is operating on traditional rules. While rules are updated exporters willhave to face hassles at the beginning [of diversification phases]. Even the factory workers resist change as they are used to a certain type of work. But since diversification is must, industry players will have to face and ward off these challenges. 

The challenge the RMG businesses face in terms of product diversification is you need new materials to make new products, he said.  This backward linkage hasn’t quite developed in Bangladesh yet. So, the RMG owners have to import these products and while doing so, they face HS Code complications while clearing the raw materials at customs. 

Often, cost is impacted and it also takes a lot of time. Since product diversification is required for market diversification, as that is the only toretain the market on the global stage. The industry should ask the government to ease the procedures of the HS Code. 

An industry leader explained that basic products don’t have much additional accessories, but the up-market fashionable products require, for example, RFID tags, various embellishments, which are not explained or included in our NBR HS Code.

The NBR refused to release [the products] under the bond. In this issue, Bangladesh should follow the international standard. For diversification into new products and new markets these are important. The NBR should gradually modernise its policy.

Majority of the exporters who invested heavily in diversification are not happy. They urged the authorities to work speedily on the policy. But they regret that instead  of doing that they banned importing seamless clothes. If such issues exist, how are we going to diversify products they questioned?

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