"India is a great neighbour"; "China is a great market"; "The region should try being inward looking"; "Oh! But manufacturing cost in China is high and they must buy from us!" "Ah! Garment exports posted 42.49 per cent growth in the 11 months of the current fiscal year!" All these form a part of our daily rhetoric especially when it is over a cup of tea-break in a seminar that is organised with sincere intent by think tanks which mean well and create an opportunity for us to exchange our business cards with a few others, network and look forward to the next conferences to get together once again.
Manmohan Singh coming to Bangladesh not only created a stir, it moved mountains. The movers and shakers of the visit ended up with sour faces and one of the only gains that was hyped was India having finally given Bangladesh an opportunity to reduce the trade deficit of more than $4.5 billion by allowing 46 Bangladeshi apparel items duty-free access to the Indian market. Our commerce minister was quoted stating that Bangladesh's export will double to India, if the non-tariff barriers could be resolved. With the Indian PM's visit, India's negative list has come down to 434 from 480 as 46 apparel products will now be enjoying a duty-free access.
Now, economists are by profession and passion optimists. Business community by habit is filled to its hilt by sceptics. The truth is that with the apparel exports accounting for nearly $18 billion or more than 80 percent of the country's total export of $22.92 billion in fiscal 2010-11, Bangladesh is still struggling with new markets. Japan has been tough, China tough and India an uninteresting challenge.
I have Japanese firms walking in through our door almost every fortnight. I look upon their visits as an exercise to exert my lungs and as an opportunity to look into their styles. The collars of their shirts are crisp, the fabric impeccable, the packing stunning. The polite Jap reminds me that it is a steady order of 30000 pieces a month valuing at USD 4.5 out of which USD 33750.00 is retained at our end amounting to 25 percent of the total unit price. In order to make the styles, I will have to dedicate 3 lines consisting of 150 machinery and 300 people including helpers. My labour cost is USD 21000.00, my infrastructure cost is around USD 5000.00 for those three lines and then on top of that, USD .10/pc is an additional cost that goes towards testing which takes up USD 3000.00. The customer also wants to ensure that I understand that there will be surprise costs included in the deal meaning that if we are a week late, we will have to pay a 5 percent discount which will be USD 6750.00 and in case if we run late beyond a week, then the goods will have to be flown out, which would mean USD 60,000.00 (USD 2.00/pc at peak season). I am humbly requesting the readers to do a simple calculation: should Japan be my cup of tea?
I have Indian firms regularly sending us cost sheets, designs and queries. With a population of 120 crore, and the retail apparel market estimated at USD 25 billion, the right time to strike must be now, I often mutter to myself. Not one piece of their woven product is simple. No one shirt is simple. After all, the men must look good. They also must flaunt their patches, their embroideries, their stitches, and the carelessly stylish look. Indian consumers all seem to bear the GQ look and for us, the haplessly hopeless manufacturers, we must comply with their requirements. The first question, "What is your CMT?" I am taken aback. CMT (cutting, making and trim)?? I pick up enough courage to tell the interested Indian, "But I don't do business this way; I source the fabric, the accessories and I simply quote an FOB (Freight on board) price!" To this he retorts and shares with me that he has already looked around the market and the market is hungry and the best that he can offer is a USD 1.10/pc. The condition is even more stringent; the fabric will also have to come from India. I am shocked! The styles that he is talking about will take up double production space and time and yet the price is almost nowhere near our required bare minimum.
India, a country well supported by its government with subsidies, incentives and has no dearth of raw material has no reason to source from Bangladesh. Either they produce it in their small factories with huge margins and export to the EU, or they are flaunting their local labels and marketing their product in their own local market. I am once again, requesting my readers to suggest if India at all should be my dream market?
Last but not the least, I have no queries from the Chinese. They are sellers and not buyers. I watched a 007 movie the other evening and I ended up comparing Bond's bubble garment with China. Every time Bond got hit, he pushes a button and a bubble pops up enclosing him in snow, wind or fire. China has a bubble shield around it which none of us can touch, smell or fathom.
Unaffected by the world crisis in 2008 followed by recession in 2009, and the Euro zone being completely affected by the Greek debt crisis, China goes on and is still posting a 9.1 percent growth in the third quarter. Manufacturing in China, in spite of what we believe, will continue to struggle and overcome crisis. China is built to withstand any shock. The current reality in China happens to be a little gloomier with the input price sub-index, (a key measure of how much factories pay for raw materials), has risen to 57.2 in August from 56.3 in July indicating that the purchasing prices are rising, adding pressure on corporate costs.
So, surely with this scenario, where Bangladesh is enjoying duty concession on exports of 757 products to Chinese market under Asia Pacific Trade Agreement out of which 22 knitwear items and over 20 woven items are in the concession category, export to China is bound to shoot through the roof!
The Chinese have an answer to this. My mailbox has a strategic mail waiting for me. Tempting indeed! A Chinese exporter has just come up with a joint venture set up. The mail specifically praises our competitive labour market, our production skills and then finally makes the proposal of setting up a factory where the land and the machinery will be bought by us while he will aid us with technology and of course, orders.
I wrote back refusing the offer as I sincerely do not believe that my country needs any Joint Venture or even Foreign Direct Investment in readymade garment sector. We are strong enough on our own and will continue to supply to our markets, hoping for a better break in better value added product coming our way, someday…
What I shared with you was a grass root scene. While every seminar and summit will tell us that there are newer markets opening up, don't be dazzled by any of the statements. Little do the experts know that many standard factories are running on sub-contracted orders and have empty spaces starting from November; little do many know that a meeting with a European buyer takes more than 5 hours to conclude as major part of the conversation evolves around the staggering unemployment rates in the EU, the dipping consumption of apparel, etc, etc. So, while the buyers get ready to show their styles to us, most of us go through an information session of how badly their economy is performing.
Last but not the least, I want to refer to the 4th South Asian Economic Summit which was hosted by Centre for Policy Dialogue just a day back. The organisers meant well, brought together academics, professionals and all the stakeholders to the table sharing figures, pouring over old agonies, current hurt and finally summed up our potential in the most positive manner. Truth is that there is an essential disconnect between economic utopias and the market reality.
While speakers stressed on the possibility to export to China and India, I was reminding myself that our exports to China in 2010-2011 was only .29 percent of our total exports while India was standing at a meagre .20% of our total export of 17.94 billion dollars.
Why is our export reality to non-traditional markets like China and India so dismal?
In the same seminar, while the SAARC Secretary General had sent a message to CPD stressing on the need to "build bridges" in the region and while every policymaker sounded positive, a few of us belonging to the "Club Miserables" took away with us a strong message that was voiced by Professor Rehman Sobhan who added the twist by critiquing the rhetoric of the "lack of political will" by saying that "Mr. Political Will" could not be expected to walk through our doors till we actually created him.
Professor Sobhan, think tanks like CPD have created the outfit, but when will our leaders finally create his spirit? When will our leaders finally destroy their "Mr. Disconnect" and sync with our needs and aspirations?
Is there a timeline that you can set for this to happen?
Rubana Huq, Managing Director, Mohammadi Group.