Upstream Focus is Sourcing Journal’s series of conversations with suppliers, associations and sourcing professionals to get their insights on the state of sourcing, innovations in manufacturing and how to improve operations. In this Q&A, Faisal Samad, senior vice president of BGMEA, shares his perspective on retailer-manufacturer relationships and the outlook for Bangladesh’s garment producers.
Name: Faisal Samad
Title: senior vice president
Organization: Bangladesh Garment Manufacturers and Exporters Association (BGMEA)
What’s the No. 1 question or concern you hear from your members now that was never really a consideration before?
Currently what concerns us most is the uncertainty in business, not only in terms of the flow of orders at our end, but also in terms of retail sales and overall financial situation of the brands and retailers. Earlier there was stability, but as the brands are going through these unprecedented challenges caused by the pandemic, cracks can be seen in some of the best brands as well, which makes the overall business environment quite fragile and unpredictable. We have already seen situations like cancellations of confirmed orders, non-payment, delayed payment and absurd discounts by brands without being bothered about the consequences on manufacturers, the faltering progress of the Covid and economic recovery raises the concerns over insecurity in the reliability of the business partners, particularly in terms of business forecast and payments.
How should factories be evaluating potential brand and retail partners differently now compared to before the pandemic?
Track record of payment and performance of the brands during the pandemic need to be reviewed. At the same time, we need to be more innovative and pragmatic in the area of business transactions, particularly through engaging with factoring companies to de-risk payment problems, while insuring customers, which is a need of the hour, may be sought.
How can the relationship between these parties evolve?
In a highly volatile situation that we have been passing through right now, this is probably too early to evolve the relationship between parties in the global supply chain. In fact, the overall business situation and trading will determine the subsequent direction of these relationships. However, Covid has exposed the vulnerability in the global trade, which needs to be addressed pragmatically and systematically to make trade more predictable, safer and sustainable for mankind. While this may require measures to check sudden disruptions in business that affect the vulnerable parts in the supply chain, the situations like bankruptcies of the global brands and resulting non-payments to suppliers across borders must be taken with adequate importance.
How have your members leveraged technology and digitization to navigate remote collaboration with their clients?
Technological advancement, blessed by the fourth industrial revolution (4IR), is now a reality embraced by the businesses here. This has particularly been evident during this pandemic since physical movements, traveling and in-person meetings have been substituted by virtual tools and platforms. Our manufacturers are now getting increasingly used to virtual platforms like Zoom, Microsoft Teams, Google Hangouts, etc., which they have certainly leveraged locally and internationally to communicate in terms of regular meetings, which include sales, negotiations and critical supply chain management.
Not only communications, but technology has been one of the few great forces which is going to reshape the industry and the supply chain in the near future. In our readymade garment industry, we have introduced digital wage payments recently, and as per the visionary leadership and directives by our Honorable Prime Minister Sheikh Hasina, almost all the garment workers were paid with their wages digitally—either through digital bank transfer or mobile financial outlets—during the months of the first wave of Covid. BGMEA has been actively involved with the government and promoting digital wage payment since last year, and currently we are collaborating with an agency which is working on an interoperable digital transaction model. Besides innovation, efficiency has been one of the priority agenda for us to ensure business sustainability, and we are working on that front to enable our members to easily access technologies, in terms of building capacity through skills development as well as creating access to finance.
What should be manufacturers’ top lesson from the pandemic? How can they address this in their operations?
The biggest lesson for us from the pandemic is not to over-expose or over-leverage to a few customers or destinations, but to have a balanced portfolio of customers. Given the fact that the Covid is a significant wake-up call to mankind to be prepared for more catastrophes in future, we need innovative solutions to keep business and trade protected more than ever. Maintaining minimum WIPs [works in progress] and inventories and ensuring prudent financial contracts are some of the crucial needs of the hour.
What is the state of apparel production capacity in Bangladesh? From your perspective, what is the outlook for 2021?
Since we are a part of the global supply chain, in terms of sourcing raw materials and also to market our finished goods, the impact of Covid on our industry is inevitable. We faced an unprecedented decline in exports by 18 percent in the 2019-20 financial year ended in June 2020, and the period March-May 2020 slashed our exports by 55 percent. Garment export in the 2018-19 fiscal year reached $34 billion, which slid to $28 billion in the 2019-20 FY. The overall production capacity of the industry was on an expansionary trajectory till 2019, and quite unexpectedly Covid has taken the industry by surprise, leading to less fulfillment of capacity. However, apparel manufacturers are trying every avenue to minimize the losses and retain the minimum business volume by diversifying products and export markets.
The policy supports and incentives provided by the government have been absolutely crucial for us to be able to stay in course, and we are particularly thankful to our Honorable Prime Minister for her visionary direction in the form of incentives to diversify markets, which has brought a huge difference in our market portfolio in past 10 years. However, it’s difficult to draw a prediction on 2021 since we have a number of uncertainties to be cleared, like containing the virus and the success of the vaccines/vaccination, and how quickly the global economy responds in the post-pandemic era. Probably we are at the end of the tunnel, but the ray is not clearly visible yet to project the future confidently. But we certainly hope that 2021 will be a year of comeback, and we expect the industry to make a solid turnaround sometime in the season of spring 2022. Now we need to watch, learn, monitor and move cautiously.
How can the Bangladesh government best support the domestic garment industry during this time?
The industry has already received unprecedented support from the government, which is why probably it’s surviving still. We are ever grateful to Honorable Prime Minister for the very timely and wise decision to extend wage loan support to this industry, which came in the end of March and was extended for April-July 2020. Thanks to Bangladesh Bank and the Ministry of Finance for extending the much needed rescue package for the industry, particularly the easing off and enhancement of the export development fund, retention of foreign currency in single pool for back-to-back import payments, extend the tenure of realization of export proceeds, and most importantly suspension of loan classification till Dec. 31, 2020. BGMEA has been actively involved itself in presenting the real-time situation of the industry before the government as well as putting forth the need for fiscal and non-fiscal supports required by the industry to survive in this tough time.
If companies aren’t already producing in Bangladesh, why should they consider using it as a sourcing location?
Bangladesh continues to be the next frontier for readymade garments given the development of the industry over three decades, with skillsets, a diverse product range and growing, experienced entrepreneurs and professional approach, stable economy and government are the key reasons for new entrants to procure from Bangladesh, we will hope. We are taking preparations in crucial areas of business sustainability, especially innovation and 4IR, and approaching sustainability agenda from within the industry, while maintaining the excellence we have already achieved in workplace safety. Therefore, Bangladesh will certainly be the best choice for sourcing clothing.
What keeps you up at night?
The current prevailing failures of retailers and brands is a great concern for us, and we hope to move into a better condition soon.
What makes you most optimistic?
The availability of a vaccine in such a short time and the way the world is responding to this crisis sources a great hope for better days. The demand for clothing will be there and people will buy garments. So Bangladesh still has opportunities, while holding only 6.8 percent share of the global market, with continued policy support by the government, conscience and responsible sourcing by brands, we will certainly gear up and will be able to overcome the crisis.
What’s in store for BGMEA in 2021?
BGMEA is set to continue its role, first and foremost to enable the industry to stay in course during this difficult time through continued policy advocacies and direct engagement with the government and the industry. We have also made a few pledges to pave the way of sustainable industrialization, which we aim to pursue rigorously in the coming months and year:
- Pledge to workers’ education
- Pledge to early childhood learning of workers’ children
- Pledge to mental health
- Pledge to sustainability
- Pledge to culture export of Bangladesh
- Pledge to workers’ health
- Pledge to industry innovation and efficiency