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RMG under rebate pressure

REFAYET UILLAH Mirdha
Bangladesh's ready-made gar ments (RMG) sector, it seems, is stuck between two walls made ot glass. On one hand, exporters operate under intense competition, pushing selling prices to rock bottom. On the other hand, inter national buyers are playing ace alter ace, as they demand rebates ordiscounts on shipped products.
A mirror image appears when it comes to issues of importing raw materials for production.
The local traders import virgin cotton, accessories and capital machinery from foreign exporters who do not give any rebates or discounts to them, not even when prices of such products in the world markets fall.
A disheartened importer said virgin cotton prices declined by more than 15 percent, from 80 cents to 65 cents, but exporters refused to pass on the discounts, despite pleads.
The importer, also one of the biggest exporters of Bangladesh, has to give 2 percent discounts on shipped products to foreign buyers. He termed the practice 'an unethical business transaction'.
Rebates and discounts are nothing new to Bangladesh, but die practice has become more popular after the global financial recession, although the volume of exports is on the rise, says the exporter. International buyers are sending letters requesting rebates to most manufacturers in die country, he adds.
The pressures do not end here; international RMG buyers demand that manufacturers improve compliance issues, bring the businesses up to international standards.
Presently, most garment factories in Bangladesh are compliant as they follow international codes of business, such as following the latest wage structure of the country, says the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
In the face of intense competition, such pressures for rebates and high quality of products and work processes have been squishing profits, exporters lament.
Survival translates to increasing work order volumes, they add.
"Even though we religiously act in accordance with every compliance issue, buyers demand rebates and are not willing to pay the extra buck for Bangladesh apparels," a local manufacturer told The Daily Star.
Bangladeshi manufacturers have low bargaining and negotiation capacities with the international buyers, an exporter pointed out.
"We need business intellectuals to step into newer markets, and ultimately to enhance bargaining and negotiation capacities of Bangladeshi makers," he says.
It is most common among Bangladeshi exporters to count their pennies rather than focus on the details, such as developing new techniques of negotiation, skills and product development with new designs and a modern outlook.
Local exporters say that a shirt sold for $50 at any retail house in the US is bought from Bangladesh at a maximum price of $7.
In China, for instance, international buyers have to quote just
prices for apparels, as the nation enjoys greater bargaining powers.
"We do not wish for a big jump in the prices of our products, just reasonable prices that meets our business expenses and ethical buying practices," an exporter says.
The continuing downward pressures on prices by international buyers is negatively hitting profitability of this sector and undermining efforts to improve working conditions, industry leaders warn.
Despite the cost rise of around 15 percent last year, the sector failed to pass the higher cost of production on to buyers because of cutthroat competition.
On the contrary, unit garment prices have fallen by between 1-2 percent in the immediate past fiscal year.
In order to try and stem falling prices, leading Bangladeshi garment manufacturers have launched campaigns to persuade major international buyers for ethical buying practices.
In this connection, Bangladeshi RMG manufacturers and exporters addressed the issue at a two-day meeting involving international buyers in Dhaka on June 28-29.
The MFB (Multi-stakeholders Forum-Bangladesh) meeting brought together public institutions, labour and civil society organisations and businesses.
Nazma Akthar, a founder of the Bangladesh Garment Workers' Federation, recently says international buyers reduce prices all the time. “Then they emphasise how compliance is important for them. It's a two-phase scam,” she says.
According to the industry, erratic supply of gas and power, higher freight charges in local and international markets, yarn price hikes, implementation of minimum wages for workers, higher transport costs and higher prices of capital machinery were some of the main reasons behind the higher cost of doing business over the last year.
Meanwhile, Bangladesh earned SI0.7 billion from the export of woven and knitwear products in FY2007-08.
In the first two months (July and August) of FY2008-09, the total export from woven and knitwear reckons 52.243 billion against its target of $2,102 billion, the Export Promotion Bureau (EPB) data reveals.
reefat@thedailystar.net