Home ›› 25 Mar 2023 ›› Opinion
The ready-made garment (RMG) industry of Bangladesh has experienced remarkable growth over the past few decades, becoming a key driver of the country’s economy. The RMG sector is the highest contributor to the total export earnings of Bangladesh, with a share of more than 80%. The RMG industry has a huge potential of growth. However, to ensure sustainable growth and competitiveness of the industry, the development of strong backward linkages is crucial.
Backward linkage refers to the development of domestic suppliers and support industries to provide the raw materials, machinery, and other inputs required by a particular industry. The RMG sector is still heavily reliant on imported raw materials and lacks backward linkage, which is a critical factor in enhancing the competitiveness of the industry.
Currently around 85-90 per cent of the yarn demand for knit RMG and 35-40 per cent of the yarn demand for woven RMG are met by the primary textile sector in Bangladesh. It means we have a huge scope of increasing our textile industry’s capacity to meet the woven fabric demand of the RMG industry. Bangladesh is the largest importer of cotton in the world, with import of cotton worth around USD 10 billion in FY 2021-2022. Bangladesh also imported man-made filaments and man-made staple fibres worth USD 1.7 billion and USD 1.7 billion respectively in FY 2021-2022.
The country also imports polyester staple fibre and viscose staple fibre alongside chemicals, dyes and other raw materials. There are more than 1500 textile mills registered with Bangladesh Textile Mills Association (BTMA). Among them more than 400 are yarn manufacturing mills, more than 800 are fabric manufacturing mills and around 250 are dying, printing and finishing mills in Bangladesh. So, there is an enormous potential of investment in backward linkage industry including the textile sector to meet the growing demand of the RMG industry in Bangladesh.
Improving backward linkage would involve developing the local production of fabrics, yarns, and accessories required for garment production. Developing backward linkage has several potential benefits for the RMG sector in Bangladesh. One of the major benefits of strong backward linkage is cost saving. By sourcing raw materials locally, manufacturers can avoid the additional costs associated with importing materials, including transportation, tariffs, and other fees. By having control over the production of raw materials, manufacturers can ensure a steady supply of high-quality inputs at a lower cost, which ultimately translates into more competitive pricing for their final products.
Backward linkage industry also helps to reduce lead time. One of the key factors of today’s RMG business is the ability to react with the fast fashion strategy. By having productions of the raw materials not only gives price advantage but also makes the lead time shorter for the customer which is even some time more critical factors in order placement decision. Bangladesh is little far to the European countries and the USA which is the biggest market for our industry so far and it takes around a month to reach the products in these places on an average. In some cases that is why even with little more price buyers prefer to place orders nearby to get the product faster in their warehouse. So, improving lead time will give Bangladesh competitive advantage which eventually will make them able to export more and that is possible more by establishing more and more developments in backward linkage.
If we have backward linkage, it is easier to ensure improved quality control. While importing from outside the garment manufacturer doesn’t have full control on the qualities of the raw materials. By having greater control over the production process from start to finish, manufacturers can ensure consistent quality and reduce the risk of defects or product failures. So, by developing more backward linkages in country will eventually enable us to get better qualities of the raw materials and accessories thus better final product.
While importing raw materials is related with USD as we need to pay the import bills, so by reducing dependence on imported materials, manufacturers can improve their competitiveness and maintain profit margins even in the face of fluctuating exchange rates or trade restrictions. It will also help us to balance our reserve as we do not need to pay bills in USD what we used to pay earlier.
One of the main areas of concerns for our country recently is to keep balance the reserve that can address better by investing in backward linkage more. For sure we must need to help manufacturers to give them proper access to finance as well to inspire them investing in new industry as well. Innovation is the key factor in today’s business world in all the industries in every step to be competitive and updated. With backward linkage, manufacturers have more opportunities to innovate and develop new products that meet changing consumer demands. It provides the opportunities to make new products with minimum price to the manufacturer which ultimately gives price advantage of the total product.
With the LDC graduation, Bangladesh will lose preferential advantage in the international market. We have to prepare for GSP Plus after 2029 by complying with the Double Transformation Rules. This would necessitate the development of the backward linkage industry considerably in the country. A special scheme can be adopted to attract foreign investment in the non-cotton textile and garment sector.
By integrating backward linkage into their supply chain, manufacturers can ensure sustainable and ethical sourcing practices, which is becoming increasingly important to consumers and regulatory bodies. If we talk about ESG, one of the most talked about terms of the present time, environment, social, governance or corporate governance are all running here. Sustainability is a much larger aspect, it does not only focus on the environment, rather is the collective phenomenon of these three aspects of E-S-G, one of the main elements of which is the environment. If we talk about the environment, we have a lot of responsibility here.
How to maintain the environment, be less polluters, be water saver (using less and no pollution) etc. come up subsequently. However, there is not a common criteria or common measurement on how we can bring new products by maintaining everything or how much we recycle or how much we continue innovation at low cost. These all can be addressed better while having more backward linkage investment.
Expansion of backward linkage industry will mean employment opportunities for more people in Bangladesh. With near about 180 millions of people, employment is always a biggest concern of our country and government. Improving backward linkages can create more employment opportunities in the domestic textile and garment industry. This can help reduce unemployment and poverty levels in Bangladesh. The more investment in backward linkage the more employment opportunity is there. While new product innovation and automation is correlated, so we must consider this factor of employment as our country has abundant of labour which we must employ to keep our poverty level low. Day by day with the increase in competition it has become a challenge for the manufacturers to get the maximum with automation and introducing new technologies which may have some impact on our labour-intensive industry in future. This issue can be addressed better while having more investment in new industry.
Saving cost, lead time and quality improvement, innovation, new employment generation and having sustainable practice - all these factors are heavily related with developing the overall infrastructure of any country. For performing in all these factors, we must need to address each issue which is correlated to the development of the overall infrastructure of our country. Hence developing backward linkage will make our country’s overall infrastructure better.
However, there are several challenges to improving backward linkage in Bangladesh’s RMG sector. These include the lack of domestic infrastructure for raw material production, limited access to finance for small-scale producers, and a lack of technical expertise in areas such as fabric production and dyeing.
One of the key factors to be addressed here while investing more in backward linkage we must research the future market and demand and not invest in traditional products which will not help us to compete in the future market. For example, we need to see which products will lead the industry in near future, and accordingly make our investment in developing backward linkage industry. If we are trying to promote Man-made fiber related products, then we must investment in the necessary textiles that will help us to get better fabric and price in man-made fiber related fabrics and should not invest in traditional cotton-based textile more.
To overcome these challenges, the government of Bangladesh and industry stakeholders must work together to develop a comprehensive strategy for improving backward linkage. This could involve initiatives such as providing financial incentives for local producers, investing in training and technical assistance programs, and facilitating partnerships between domestic suppliers and foreign buyers.
Improving backward linkage is essential for the long-term sustainability and competitiveness of Bangladesh’s RMG sector. By addressing the challenges and implementing effective solutions, the industry can move towards a more self-sufficient and prosperous future.
The writer is a director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
