Presentation on Bangladesh Strategy in Post MFA Environment By Mr. M A AwalDirector of the Board&Chairman Standing Committee on Textile, Specialized Textile & Backward Linkage Industries of The Federation of Bangladesh Chamber of Commerce & Industry (FBCCI)& ChairmanBangladesh Textile Mills Association (BTMA)Date: June 2, 2005Place: BeijingBANGLADESHWhere we are?Textileasawholeisaheterogeneousproduct market where yarn, fabric, fashion, material design, quality, colours, brands etc. create values. Therefore, constant innovation and improvement is a pre-requisite for increasing competitiveness. Mypresentationwilltherefore,havetwo-phases one,dealingwithPrimaryTextileSector(PTS) havingabriefonpresentstatus&potentialsand thesecondphasewithpresentstatusofExport OrientedReadymadeGarmentsUnits,inthepost MFA challenging environment.INTRODUCTION CONTRIBUTION TO NATIONAL ECONOMY Textile Sector as a whole plays an important role in theeconomic lifeof Bangladesh. The sector contributes 38% industrial value addition. Earns around 78% of total export earnings. Employs around 4.5 million workforce of which majority is women Generates huge cliental base for Banking, Insurance, Shipping, Transport, Hotel, Cosmetics,Toiletries and related other economicactivities. Provides indirect employment to 0.80 million workforcein accessories industries related to garments. Provides 0.2 million job to waste recycle industry related to RMG sub- sector. Contributes 10.50% to GDP through RMG sub-sector.INSTITUTIONAL FRAMEWORK Textile Sector in Bangladesh has a number of sub-sectors; each operatesindependently,butworksascomplementaryeach other.In Bangladeshforward linkage that is apparels manufacturing.process spans from yarn manufacturing to garmenting. FromtheprocessingpointofviewTextilesectorhasthefollowingsub-sectors:- Yarn Manufacturing: Manufacturing of yarn from natural fibre & MMF- Fabric Manufacturing: Woven & Knit Fabrics.- Textile Product processor: Dyeing & fi- Knitting Mills- Knit-Dyeing-Finishing Mills- Woven Composite Mills (more than one process is carried)- Knit Composite Mills (more than one process is carried)- Hosiery Units- Readymade Garments Industry (RMG): Apparel manufacturing.to RMGSectorsactivitiesstartfrombackwardlinkagetoThe whole chain of production nishing of grey fabrics & yarn dyeingThe market share of Bangladesh apparels can be seen from this table (2003-04)(Value in $Mn)Total RMG Import RMG Importfrom BD % share Countryof BDEU74150.00 3651.814.92 US66400.001628.592.45 Canada3700.00256.406.93 J apan19700.0019.790.01 Hong Kong1700.006.590.39 S.Korea900.003.150.35 Others32350.00119.760.37 Total198900.00 5686.092.86 Bangladesh achieved a phenomenal growth in Readymade Garments exports, which is eviYear dent from the table below.(Value in Mn. US$)Total ExportRMG Export% of RMG to total export 1995-963882.002547.1365.61 1996-974418.283001.2564.93 1997-985161.20 3781.9473.28 1998-995312.864019.9875.67 1999-005752.194352.3975.66 2000-016467.304860.1275.15 2001-025986.094583.8076.57 2002-036548.444912.1075.01 2003-04 7602.995686.0874.79 2004-05 (J uMar) l- 6097.124734.1477.65 Growth of Woven Vs Knit RMG1993-94 Million Dozen % Total Export541.99100% Woven412.21 76.05% Knit129.7823.95% The share of woven RMG export has been declining as the growth of Knit RMG export supported by local inputs had been much higher.2003-04Million Dozen %Total Export2185.06100% Woven1085.8649.70% Knit1099.2050.30% In 2003-04 knit RMG export has surpassed the woven RMG export because knit has competitive advantage due to availability of local inputsFactors that contributed to the growth and expansion of RMG exports in Bangladesh are :- MFA( Protected Market ) G S P( Preferential Market) Dynamism of PrivateSector Policy support from Govt. & Continuity of Policies in successive Govts. DecontrolofReserveSector. Financial and Non-financial incentives RMG Sector in the list of free sector. Introduction of Back-to-Back L/C and Bonded warehouse Structural adjustment policies of Govt. Low labour cost.The table below shows the product categories of our apparels export to major markets (2003-04)Marketof cts Total Export Earnings(I n MnUS$) Share of Woven Products ShareKnitted ProduU.S.A1628.5985.46%14.54%EU3651.8151.24%48.76%Canada 256.4072.44%27.56%Overall toall Marke ts 5686.0962.22%37.78% TREND IN EU MARKET InEUmarketBangladeshenjoysGSPfacilities. Thefacilitieshavebeenfurtherrelaxedthrough Everything But Arms (EBA) scheme. There is no quota for Bangladesh in the E Umarket.Export Trend in EU(Value in Mn. US $) 2000-01 2001-02 2002-03 2003-04ExportKnit anWoveProduct) of d n s 2418.00 2411.00 (- 0.3%) 2712.00 (+ 12.48%) 3651.79 (34.65% Export of TCto 2000 -01, but bouncedback by 12.48%34.65% in2003-04over 2002-03EUdeclined by0.28%in 2001- 02 over in 2002-03 over 2001-02, Foreign Exchange Retention on National basisParticulars Total Export in Million US$2003-04Total FE Retention in Million US$2003-04% ofNational FE RetentionRMG Export with local fabric2603 1953 25.70RMG Export with imported fabric3083 770 10.14%Major Problems Confronting RMG Sector in Bangladesh. Heavy dependence on imported fabrics. Long lead time. Difficulties in compliance of various standardwithout increasing costs. Low Labor productivity. Shortage of Large scale production of low value addedproducts. Passive marketing approach. Lack of direct contact with buyers. Inefficient functioning of ports. Poor infrastructure. Regular interruption in our power supply Lack of product and market diversification Negative impact ofFWorking Capital..TA/RTA. (TDA/2000)Major steps for effective Cost reduction strategy Improvements in Labour Better industrial Relations Reduction of high dependency on imported fabrics Reduction of lead time Improvement in Backward linkages Efficient management of port Maintenance of Direct Relationship with Clients Provide incentives, Provide Marketing Support Ensuring compliance of standardsProductivity STRATEGIES TO MEET POST - MFA CHALLANGES.reductioninduties humanresource Themajorstrategiesare:ExportTrade Promotion,developmentofinfrastructure, easyaccesstofabric, andinterestrates, development,marketingsupport,setting upofgarmentvillages,provisionforseparateeconomiczonesforprivate sectorinvestmentinPTS,provisionsof investmentincentives,improvementin local operating environment, improvement insocialaccountabilityandlabor safeguard etc.Competitiveness Issues Increase Productivity Supply Chain Management Design/Fashion/Market Development Service Orientation Managing Competitive advantage involve :Probable reasons for fall inaverage price Global manufacturing is having over capacity Weak US market following terrorist attacks of September 11 In fighting among suppliers to maintain market share Global recession Fierce competition among inefficient small and medium size producers Entry of new suppliers Phasing out of quota, exports soared and prices fell Cost of buying quota over, exporters were able to drop their prices without sacrificing margins. Code of Conduct : Ethical Sourcing (Stop Sweat Shops)- Social sourcing as a criteria for trade - Increased insistence on social responsibility of manufactures/suppliers - Corporate code conduct / business valuestoguarantee certain standards:* No child labour *No discrimination* Working condition *Working hours* Minimum wages compensations *No forced labour* Freedom of associationWhat will be requested Strong buyers market: Concentration on a few countries where they can source best. Pure CMT business will phase out, buyers will ask for services (approach to customer satisfaction) Retail- Suppliers partnership (transparency, joint planning ) Craftsmanship will be taken for granted Lean retailing: Transfer of inventory management to suppliers Active marketing approach will replaced passive marketing approachStrong Trade Association to : Develop a strong negotiation power Participate in trade negotiation Take lead role in fulfilling labour standards Take over regulatory function of govt. (issues of IRC/ERC, CO, GSP etc) Represent sector in national committees Provide strong support to members (market intelligence, trade fairs, e-portals, lobbying etc) Working together creates synergies : Withfriendlycompetitorsofthesamelevelof production chain (sub- contracts) Clusteringe.g for dyeing, printing finishing Strategicalliancesbetweenlargerandsmaller companies Alongsidethetextileproductionchain(strategic alliances with local fabric suppliers to cut down leadtime) To streamline training programmes Increased competitiveness through flexibility: Be able to respond to specific client demands Develop capability to handle smaller and more difficult orders Developmerchandising capabilities Develop an efficient sales network Develop synergies with buyers : to jointly develop patterns, designs, exchange of data through e-networks Increased productivity through HRD & Fashion : Enforce in house training Create training cooperation agreements between companies from different levels of production chain Diversify intocreative training (design, fashion etc) Combine R & D and training Diversify products and markets Improve product quality and diversify into new product lines Develop more fashionable products Develop small sizedfashion line to be flexiblein marketpenetration Active product marketing, focusing on fashion, trends, formalitygoing beyond pure functionalityCapacity BuildingUse electronic data interchange for : Receiving & processing orders, Receiving market & sales information Facilitating production planing Handling complicated packaging instructions Providingcustomerswithspeedyinformationon production status, shipping status, inventory etcSo What to do?Close Dialogue with Decisionmakers to : Monitor the new political economy for textile &clothing Compare/benchmark with others Develop a national/regional supply chain HRD to increase productivity and flexibility Develop an active marketing approach based on a positive country image Create a service oriented mindset and a closerregional cooperation Globalizationisyesterdaysnewsnow.Theera ofregionalizationhasbegan&weshouldtake advantage of that.