EXPORT MERCHANDISING

SWOT ANALYSIS OF APPAREL EXPORT BUSINESS FOR BANGLADESH WITH RESPECT TO INDIA

Submitted By: Govindasamy.A Kimjoujam Leivon Kristy N. Shangpliang

Malavika Pemmaya Rosemary Jacob K.

INTRODUCTION: Bangladesh has emerged as a new destination for apparel exports. Bangladesh has registered a 40 percent hike in its apparel exports in the last six months, with its increased exports to India and new markets wrested from global leader China. With many importers switching from China, Bangladesh has new destinations such as Japan, South Africa, Canada, Australia, New Zealand and some Latin American countries. The total exports were USD 12.19 billion against the USD 10.27 billion target. The annual export target has been set at USD 18.5 billion for fiscal 2010-11.The sector, however, is plagued by poor wages and working conditions that have frequently provoked workers to take to the streets. With manufacturers exerting pressures on the government for more concessions, a wage increase that the government oversaw last year is yet to be fully enforced. The exports are set to rise in coming months, as manufacturers have already bagged bigger orders than before. The government data shows Bangladesh exported knitwear worth USD 5.07 billion during the July-January period of the current fiscal year, registering 43.22 percent growth compared with the same period a year ago. In the seven-month period, the country exported woven garments worth USD 4.38 billion, a 39.09 percent rise.

The higher prices of raw materials, such as cotton and yarn, are also increasing the export earnings, as the buyers are paying more to help the makers cope with the costly imports. Bangladesh needs to import most of the raw materials for its garment industry. According to the data available, India's readymade garment exports moved up to $11.16 billion in April-March 20110-11, registering a growth of 4.23% when compared to April-March 200910. It is also observed that four months of May, June, July and November showed actual decline over corresponding months in the year 2009-10. The overall annual growth of 4.23% is anything, but cheerful. India always has an advantage over Bangladesh in terms of raw materials, infrastructure, quality, and technology. But India lost in terms of labour wages, lead time, semi skilled labourers and import duties.

BANGLADESH Bangladesh has been witnessing tremendous industrial growth across its industrial sector; textile and apparel have especially dragged the focus of government bodies and private investors. Vast availability of lowest manpower, one of the most competitive energy costs and a proven track record in apparel production and exports have positioned Bangladesh as a regional apparel industry development hub in the Asian continent. In context of fast increase in labour wages and raw material prices in other major regional counterparts, such as China, India, Thailand etc, Bangladesh is well poised to remain most preferred destination for international apparel majors for sourcing world class fabric and finished clothes. Bangladesh apparel industry has grown manifold in the last decade. The countrys recognition as low cost-high quality apparel production base resulted in apparel production boom. Both small- and large-sized firms are booking huge orders from the US and EU buyers and expanding their production capacities. The study revealed that factors including new plant

setups, capacity expansion in existing ones, technological up-gradation coupled with government favourable policies will enable apparel production to grow at an unmatched CAGR of 14.3% during FY 2011-FY 2014. On demand fronts, the growth has been slow but steady. Drastic improvement in income level encouraged the countrys middle-class population to opt for good quality apparels. The impact of improving buying power is quite visible on domestic market as consumers are now buying branded apparels and spending a considerable part of their disposable income on textile and clothing.

READY MADE GARMENTS IN BANGLADESH: Ready Made Garment (RMG) is the leading industry in Bangladesh. It is basically a labourintensive industry and it needs limited financial investment and relatively simple technology compared to other high technical industries. The success story of Garment Industry in Bangladesh is the story as to how the readymade garments starting in the late seventies as an insignificant non-traditional item of export. In 1998-99 this sector has earned 4019.98 million US$ through exporting which is 75.67% of the total export (Redwan, 1995). STRENGTH The tremendous success of Readymade Garment (RMG) exports from Bangladesh over last two decades has surpassed the most optimistic expectations. At present Bangladesh ranks fourth in the ladder of international garment exporters, accumulating US$13.2bn in export revenues in the period July 2010 to March 2011, according to official figures. This accounts for about 80% of Bangladesh's total exports, with 5m people employed across the country.

The overall impact of the readymade garment export industry is certainly one of the most significant social end economic developments in contemporary Bangladesh. The remarkable achievement of RMG sector is now exposed to each and every country. Despite these impressive achievements and the probable challenges in the near future, if properly managed, the prospects for further expansion and growth for this sector remain bright. There are some major threats still exits in this sector but Bangladesh has the ability to overcome these threats. Readymade Garment (RMG) industry holds a key position in the economy of Bangladesh in terms of foreign exchange earning, employment generation and poverty alleviation. Right now RMG sector is the highest foreign currency earner in Bangladesh. Apart from contributing to huge foreign exchange earnings, RMG industry has become the largest source of employment generation. Around 2 million people are presently involved of whom 90% are distressed women in the RMG industry of Bangladesh. In addition a rough estimate shows that the sector through linkage effects is currently generating about US$ 2 billion worth of domestic economic activities. Bangladesh enjoys duty-free access of its apparel products to the European Union, Canada, Australia and some Asian countries, including Japan, Korea and China.

WEAKNESS It is the largest manufacturing sector contributing about 5% to the GDP. But this RMG sector is now facing some challenges especially after 2004. Bangladesh is still at its infancy in terms of quantity production in the readymade garments industry. The country still faces problems for the production of quality goods. Standard is also not satisfactory. The quality of the readymade garments of Korea, Hong Kong, Taiwan and other countries is far superior to that of Bangladesh. In RMG sector, value-addition is 30% only because a RMG unit has to import 70% of the total value of the product. The low value added represented that the backward linkage industries such as fabrics and accessories, which directly feed into the garment sector, have not satisfactorily developed. The weakest point of the Bangladeshi apparel industry is that it is still at the mercy of the exterior suppliers of its main raw materials namely the fabrics. Right now Bangladesh has a very limited capacity to produce fabrics required by the RMG factories. Her competitors

India, Pakistan, Thailand, Malaysia and other countries have their textile mills that can produce quality fabrics for the respective apparel industries. OPPORTUNITIES This sector will remain in intense competition in the context; it is very necessary to find out opportunities and challenges of RMG industry of Bangladesh in order to face firm competition in the free market environment. Japan is one of the potential markets for exports from Bangladesh. Quality and fashion conscious Japan is importing readymade garments from Bangladesh at an increasing rate even though this increase is very negligible. An extremely large program has to be taken to increase the exports. There exists supportive policy environment in the RMG sector of Bangladesh. The package of textile sector incentive has been aimed at primarily to boost up the exporters. Government has extended some major incentives and facilities for the local and foreign investors to help increase investment in the country for all industrial sectors including textiles and clothing. Quality and standard of RMG products can be improved by practicing Total Quality Management, preparing and following a quality manual for the products, training Quality Control and Quality assurance Personnel etc. Indian Government announced the duty-free access to 46 apparel items from Bangladesh; exporters from that country have reported orders for readymade garment worth an estimated $90 million from India. The country has registered a 40 per cent hike in its apparel exports in the last six months, with increased exports to India and new markets wrested from global leader China. With many importers switching from China, Bangladesh has new destinations such as Japan, South Africa, Canada, Australia, New Zealand and some Latin American countries, government officials and exporters said. THREATS According to the Ministry of Textiles, the local fabric manufacturers currently supply less than 19% of total woven fabric requirement. About 70% of the total fabric requirement of the knit sector is domestically produced as reported by the BTMA. Textile policy 1995 envisages

established of 246 spinning mills with 25000 spindles each, 481 weaving mills each with capacity to produce 17 million meters of fabrics, 481 dyeing-printing-finishing units each with same capacity for yarn and woven fabric by the year 2005. Thus it is a challenge for RMG sector in Bangladesh to get right quantity of fabrics. The recent US Trade and Development Act 2000 provide duty free and quota free access to the US market from 48 countries of SubSaharan African (SSA) from October 1, 2000 to September 13, 2008.Though after 2004 quota system will be benefited for access duty free to USA till 2008. As USA is the single largest importer of Bangladesh RMG, Bangladesh will lose competitive position relative to those 72 countries. The labour productivity in RMG factories has improved during the last 11 years. The experiences of Japan, Hong Kong, South Korea and other suppliers of RMG confirm this type of relationship between productivity and wages. Unlike in the public sector of Bangladesh, in RMG sub sector, wages have increased during the last 11 years but productivity has increased more than wages have. The growth and development of Bangladesh Ready Made Garment is highly satisfactory as it is found in number of factories, share in total foreign exchange earnings and value added to the economy. The major problems of RMG are low net exporting, low value addition, low quality and standard, low productivity, elimination of quota and GSP, intense competition, scarcity of backward linkage industries etc. to comply with the set standards by the importing countries and global RMG marketers, Bangladesh need to improve its working condition. Bangladesh has to improve their infrastructure Irregular gas and electricity supply, pitiable rail and road communication systems, political instability, and high bank interest as the stumbling blocks to the sectors further growth Bangladesh is having competition with China, Vietnam, Cambodia and Sri Lanka. The EU being the Bangladeshs biggest single market (take over half of Bangladesh exports) is a great concern. The impact is not less in China, India and ASEAN countries also About 50-60 percent of Bangladeshi garment goods are exported to EU, where a lot of companies are going through economic crisis. So, due to this the garment exports are little low.

SWOT ANALYSIS OF INDIAN APPAREL & TEXTILE INDUSTRY The Indian Textile industry adds 14% to the industrial production and 8% to the GDP of India. It provides employment to 38 million people and thus, is the second largest employment provider after agriculture. The Indian Apparel & Textile Industry is one of the largest sources of foreign exchange flow into the country with the apparel exports accounting for almost 21% of the total exports of the country. Indian apparel industry contributes 45 % of Textile exports. A systematic SWOT analysis of the textile and apparel industry indicates the following:STRENGTH

Raw material base India has high self sufficiency for raw material particularly natural fibres. Indias cotton crop is the third largest in the world. Indian textile Industry produces and handles all types of fibres.

Strong entrepreneurial skills have always been the backbone of the Indian Apparel and textile Industry.

Flexibility The small size of manufacturing which is predominant in the apparel industry allows for greater flexibility to service smaller and specialized orders. Rich Heritage The cultural diversity and rich heritage of the country offers good inspiration base for designers. Domestic market Natural demand drivers including rising income levels, increasing urbanisation and growth of the purchasing population drive domestic demand. WEAKNESS More dependence on cotton Due to over specialization in cotton, the bulk of the international market is missed out, synthetic products in India are expensive and fabric required for items like swimsuit, sky-wear and industrial apparel is relatively unavailable. Less attention on man power training Poor quality standards Distance of the potential market Lower average consumption in domestic market Lack of professionalism and integration of supply chain Dependence on quota system Very low investment on R&D Limited exploitation of economies of scale Higher production costs on account of power and capital costs Lower labour productivity Infrastructure bottlenecks causing delays Under developed supply chain management and 3PL logistics service providers Outdated and Inflexible labour laws Fluctuation in the currency exchange rate

Lack of capacity and value addition.

OPPORTUNITIES Growing Industry World textile trade would continue to grow at a rate of 3-4% Market access through bilateral negotiation The trade is growing between regional trade blocs due to bilateral agreements between participating countries. Integration of Information technology Supply Chain Management and Information Technology has a crucial role in apparel manufacturing. Availability of EDI (Electronic Data Interchange), makes communication fast, easy, transparent and reduces duplication. Opportunity in High Value Items India has the opportunity to increase its UVRs (Unit Value Realization) through moving up the value chain by producing value added products and by producing more and more technologically superior products. India now focusing more on Non EU and US markets like Japan, Latin Americas and African Countries. India has the huge opportunity in High quality and luxury products. Government Initiatives The Government of India has promoted a number of export promotion policies for the Textile sector in the Union Budget 2011-12 and the Foreign Trade Policy 2009-14. This also includes the various incentives under Focus Market Scheme and Focus Product Scheme; broad basing the coverage of Market Linked Focus Product Scheme for textile products and extension of Market Linked Focus Product Scheme etc. to increase the Indian shares in the global trade of textiles and clothing.
I.

Welfare Schemes: The Government has offered health insurance coverage and life insurance coverage to 161.10 million weavers and ancillary workers under the Handloom Weavers' Comprehensive Welfare Scheme, while 733,000

artisans were provided health coverage under the Rajiv Gandhi Shilpi Swasthya Bima Yojna.
II.

Skill Development: As per the 12th FYP, the Integrated Skill Development Scheme aims to train over 2,675,000 people within the next 5 years (this would cover over 270,000 people during the first two years and the rest during the remaining three years). This scheme would cover all sub sectors of the textile sector such as Textiles and Apparel

III.

Textiles Parks: The Indian Government has given approval to 21 new Textiles Parks to be set up and this would be executed over a period of 36 months More Educational Institutes and Center of Excellence for Textiles

IV.

THREATS

There has been an increase in seasons per year which has resulted in shortening of the fashion cycle. India will have to open its protected domestic market for foreign players thus domestic market will suffer. EU has granted the status of Generalized Systems of Preferences to Sri Lanka, while Bangladesh has got the Least Developed Country status from EU. Pakistan, meanwhile, has got a zero duty tariff level from both EU and US. The non-tariff barriers, such as anti-dumping and countervailing duties, quota restrictions, and packaging, labelling, testing and quarantine requirements are affecting Indian exporters.

Poor Energy supplies ( almost 6 hrs per day electric cut in many states ) Increase in Petrol Prices, Real Estate cost, Wages Lack of Semi-Skilled and Skilled labourers High competition from Countries like China, Bangladesh, Pakistan, Srilanka, Vietnam etc. Dyeing problem in Tirupur. Fluctuations of Currency in the world market.

COMPARISON

PARTICULARS/COU NTRY COST OF 1LAKH SQ.FT FACTORY LABOUR WAGES LEAD TIME PRODUCTIVITY WORKING TIME

INDIA

BANGLADESH

$ 800000 Rs.8,000/month 90 days for Knit and 120 days for Woven 60 % Efficiency 8-8.5 Hours

$ 500000 Rs.5,000/month 60 days for Knit and 90 days for Woven 90-95% Efficiency 12 Hours

DUTY FOR EU & OTHER COUNTRIES APPRAEL EXPORTS (2010) EXPORT GROWTH (2005-2010)

9.6 %

Free Import

$10 billion

$13 billion

5.2 %

14.2 %

CONCLUSION Many retailers and brands are looking at Bangladesh as huge opportunity for sourcing garments and they are slowly shifting from India, China and other countries. If duty concessions, labour and other costs are taken into account, garments produced in Bangladesh is almost 20 per cent cheaper this apart, the aggressive monetary tightening policies of the Reserve Bank of India (RBI) in the recent months has also made cost of capital expensive and further added to the woes of Indian textile makers. Textile companies are facing cut-throat competition. Profit margin is very low and 15-20 per cent cost difference is a big thing. So people are getting attracted to Bangladesh. China is not able to stand the competition and is losing its share of exports in US and European markets to Bangladesh.

Textiles are perhaps the most labour intensive industry. In Bangladesh labour is not only cheap but also easily available when you compare it with India and China. Besides labour cost and duty advantage, raw materials and real estate costs are also cheaper in Bangladesh. Recently, Indian garment makers have invested about $79 million in 35 factories in Bangladesh, according to Bangladeshs Board of Investment, which compiles the data. This clearly shows the Shift of Apparel business towards Bangladesh.

BIBILOGRAPHY:

Mr.Vijaya Prabhakaran , Merchandiser ,Shahi Exports ,Bangalore Mr.Anton, Merchandiser, Must Garments, Bangladesh.
http://www.fibre2fashion.com http://www.cci.in/pdf/surveys_reports/indian-textile-industry.pdf http://www.usitc.gov/publications/332/PUB3401.pdf http://www.apparelresources.com http://www.livemint.com/2011/10/02234501/Indian-garment-makers-headto.html http://www.indiantextilejournal.com/articles/FAdetails.asp?id=1546

http://www.thehindubusinessline.com/industry-andeconomy/economy/article2592173.ece?homepage=true&ref=wl_home http://texmin.nic.in/

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