The apex garment makers’ bodies in Bangladesh – the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) – have on 1st January this year formed a joint committee aimed at fixing minimum price and manufacturing cost of apparel items.
Such a move, if industry insiders are to be believed, has become more important than ever before to address some underlying and inherent problems, which had upset the industry dynamics for long only to gain worrying proportions lately.
“…unhealthy competition and undercutting is nothing new. Offering nearly a break-even price was a common practice of the smaller exporters, decades ago. This practice has been going on unabated only to gain momentum recently as more and more work orders are making their way into Bangladesh…,” said an apparel manufacturer speaking to Apparel Resources, who explained fresh out of the pandemic and looking for business to survive and sustain (according to reports, due to the pandemic, on an average, BGMEA members’ sales revenues declined by 17.4 per cent in 2020 compared to 2019 even if COVID-19 has, reportedly, forced many small factories to sell physical capital in order to survive), there is a cutthroat competition amongst the garment makers, who more often than not resort to unethical ways to bag orders.
This could have helped individual players in terms of getting some business but has come at a price the industry could ill afford, say people in know of things while adding such practices have pushed the overall prices of finished apparels, significantly down.
It may be mentioned here when someone undercuts price behind the scene to bag orders, one has no option but to compromise on various aspects to save a penny or two that might have an adverse impact even on working conditions and workers’ rights besides creating an unhealthy competition between the suppliers while also pushing the price of end products down.
Left with very little option, the garment makers’ bodies are now led to use institutional methods to determine and fix the base prices of apparel products.
And thus came into being the joint committee for fixing minimum prices of apparel products.
Structure and functioning
“The exporters have created an uneven, inequitable and unprincipled market. To create a level playing field for all, the committee will set a minimum price now,” claimed the Chairman of the 15-member Committee and Vice-President of BKMEA, Fazle Shamim Ehsan.
Initially, the committee will calculate the production cost per minute of three types of garment factories (general small and medium, compliant and environment-friendly) which it would establish by calculating workers’ wages and allowances, gas and electricity bills and other expenses.
Subsequently, the minimum cost will be calculated by finding out how long it takes to make a garment even if the value of all materials will also be checked while taking into consideration the UD (Utilisation Declaration) against the purchase order.
The committee will then submit a detailed report to the boards of the respective associations for their perusal.
“Instead of old method of pricing, we will unveil a new system which will help the apparel exporters negotiate with the buyers effectively,” in the meanwhile underlined BGMEA Vice-President Miran Ali, who went on to add BGMEA was also working towards developing another price bargaining mechanism for the exporters.
Fair price app for effective price negotiations…
To help suppliers in this regard, the garment makers’ bodies are working on introducing an application that would help garment makers keep in consideration the floor costs, wage, other workers’ benefits, etc., during price consultations with the buyers, to cut a profitable deal.
“…a factory will thus be able to seek fair pricing. The app has already been developed and offered for use,” said a concerned official involved in introducing the application even as industry players maintained the COVID-19 pandemic had only added to the price pressure on suppliers.
“During the pandemic, buyers tightened price negotiations and went for hard bargaining…,” claimed the Chairman of the joint committee, who averred as a result of which, garment makers had to accept orders many a times even at loss, just to keep the ball rolling.
Benchmarking challenges!
“Benchmarking minimum price and manufacturing costs is not as easy as it looks; there are a lot of calculations and complexities that have to be taken care of…,” underlined a member of the joint committee, adding, “Meeting around 100 to 150 factories, determining the production cost per minute is a very complicated job and must be done with utmost perfection.”
The exercise will also include product-specific Standard Minute Value (SMV) analysis as well as production processes and techniques, efficiency and other factors relevant to determining the minimum price and manufacturing cost of apparel products, claimed another member, who emphasised the principal objective of this exercise was to draw an inclusive picture of the overall manufacturing cost (of the main clothing items) based on which the minimum prices will be determined.
Some manufacturers, however, think calibration of the minimum clothing price and production cost is not as complicated as it is being made out to be, provided the approach is correct even as they raised questions on the working style of the joint committee which they feel is rather complex.
They further underlined cost per minute varies from unit to unit and it is almost impossible to determine a fixed minimum price and cost of production for all, using this process.
However, Fazlee Shamim Ehsan is confident the exercise would be carried out smoothly and efficiently too, thanks to the latest and modern methods being used even though efforts are also on to find empirical facts by consulting with the broader stakeholders including yarn, fabric, dye, processing, embroidery/embellishment and accessory manufacturers to understand the associated costs and their dynamics, including on the lead time.
Given the complexities of the things perhaps, another 11-member joint committee was formed later on 17 January involving the BGMEA, BKMEA and the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA).
“The garments, accessories and packaging industry play a significant role in meeting the demand of the apparel sector, thus complementing each other….Garment exporters and accessories’ suppliers need to work together in a cooperative and collaborative approach to create a win-win situation for all,” opined BGMEA President Faruque Hassan.
According to the people in know of things, the 11-member committee will be headed by BGMEA Vice President Nasir Uddin, which will act as a bridge between the manufacturers of garments, accessories and packaging to strengthen mutual business relationship through collaboration even if this committee will also deal with trade-related issues and settle disputes that arise from time to time amongst the garments manufacturers and accessories-packaging suppliers.
The issue of fixing the base price has become all the more important considering lately freight charges have gone up by more than 400 per cent, yarn prices by 65 per cent, workers’ wages by more than 25 per cent, port cost by 23 per cent and dye-chemical cost by 40 per cent, which is making it difficult to be in the business of garment manufacturing and exports, let alone make profit out of it, say industry insiders while adding albeit suppliers are seeking better rates in view of the above factors, buyers are in no mood to concede (increase unit price any further).
Keeping in mind the existing scenario, the joint committee’s efforts to fix the minimum benchmark rates would benefit the industry immensely felt the garment makers, who wait with bated breath for things to take shape now!
“No one can then take any order below the benchmarked price…,” quips BGMEA Vice-President Shahidullah Azim heaving a sigh of relief even as President of the Bangladesh Textile Mills Association (BTMA) Mohammad Ali Khokon on his part observes, “We should now concentrate on bargaining better prices from the global retailers…,” to wind up on a positive note.
