When govt policy stands in the way of RMG product diversification

A garment factory owner recently bought a machine, worth crores of taka, to produce seamless undergarments, as a step towards diversifying his products. 

Seamless undergarments have a huge demand in the international market for being more comfortable than traditional ones, but buyers require RMG factories to have these machines if they want to produce them. 

These machines are quite unique in that you put the cloth in and the undergarments come out as a whole; no stitching is involved. Then you cut them into particular sizes and send them to packaging. 

Seamless products have over 20% more valuation, said a BKMEA leader recently.

Unfortunately, according to the BKMEA leader, the machine is currently sitting idle in the factory because of a "policy complication." 

Usually, an undergarment is between 10 to 15 inches in size, but according to Bangladeshi rules clothes below 27 inches are regarded as fabric scraps (kata kapor) and their import is restricted. 

"One has to understand that seamless fabric and fabric scraps are miles apart," he said, adding, "If authorities do not understand that this is nylon, this is polyester, or this is lycra-mixed, how can we work? If there is misuse, then they should set criteria to prevent it, such as the material should be man-made fibre, polymer, or it should have elastane, or the business must be conducted through bonds etc."

"If needed, they should set a rule that every cloth we bring in should be used completely for expo," he suggested.  

He said that if necessary, authorities should conduct cutting inspections in the factories, instead of creating import barriers. 

"We are losing a huge market due to our failure to diversify products. The world average export of man-made fibre is 55% while we export 30% to 35%, an almost 20% gap," he added.  

We recently reached out to several garment owners and BGMEA (Bangladesh Garment Manufacturers and Exporters Association) and BKMEA leaders to further understand the extent of challenges that businesses have in terms of diversification of their products.  

Along with pointing out various NBR (National Board of Revenue) related 'hassles' like the ones mentioned above, they mentioned the HS Code complication. (Harmonised System (HS) Codes are used in the export process of goods. The Harmonised System is a standardised numerical method of classifying traded products.) 

However, some also say that it is normal to face obstacles in the beginning of a new change. 

In recent years, as the country braces to graduate from lower income countries, diversification of RMG both in terms of markets and products has been a crucial discussion point. 

"Diversification comes in many forms - one of them is product diversification, like we make basic products for high fashion etc. Here we have cotton-based, mixed, polyester-mixed, and there is 100% man-made fibre. And then there is sportswear – both cotton and mixed," DBL Group managing director MA Jabbar said. 

"We are working with more brands besides the regular ones. For example, Hugo Boss, Puma, Timberland, Ralph Lauren etc, who are purchasing more value-added products," he said. 

For the value-addition to soar, man-made fibre in Bangladesh requires backward linkage and more investment in the supply chain sector.  

"We used to have GSP (Generalised System of Preference) in every step. In the future, we may see a supply chain requirement to have our own fabric to get the GSP+. We will be needing investment in yarns, finishing, warp knitting facilities etc," he said. 

"We will also need investment in forward linkage, skilled manpower, and investment in transforming the technology, monitoring, database management, etc. And if we don't do these, someone else will." 

He also emphasised on skilling up for increasing efficiency and emerging as a market leader. 

"We make regular items but there are many other items - festival items for example - that we don't make. So, we have to tap into that section. We also need market diversification. We didn't do that before because order sizes were small. But now, all order sizes are small. So, we have to have that design support." 

Instead of looking for loopholes in policies, and barriers, he said it is important for the industry to ask for the barriers to be removed.  

Md Fazlul Hoque, managing director of Plummy Fashions Ltd, said that diversification means you are changing something. And whenever there is change, there is a challenge. 

"Perhaps the NBR has traditional rules. You have to face hassles at the beginning [of diversification phases]. Even your factory people may not like it, for they are used to a certain type of work. There will be a myriad of challenges and obstacles. But you cannot stay away from diversification in the face of these challenges," he said. 

The first vice-president of the BGMEA, Syed Nazrul Islam, however, said that the complexity involving the NBR's HS Code is a key issue that needs to be addressed, besides other issues, like the need for backward and forward linkages. 

The challenge the RMG businesses face in terms of product diversification is you need new materials to make new products, he said.  This backward linkage hasn't quite developed in Bangladesh yet. 

So, the RMG owners have to import these products and while doing so, they face HS Code complications while clearing the raw materials at customs. 

"Often, cost is impacted and it also takes a lot of time. Since product diversification is required for market diversification, if we cannot make new products, we cannot retain our market on the global stage," Syed Nazrul Islam said, adding, "We can ask the government to ease the procedures of the HS Code." 

What is the complexity involving the HS Code? 

BGMEA director Asif Islam explained that basic products don't have much additional accessories, but the up-market fashionable products require, for example, RFID tags, various embellishments, which are not explained or included in our NBR HS Code.

"So, what NBR does is, they refuse to release [the products] under the bond. We face some barriers in this area," Asif said. "In this issue, we should follow the international standard. For diversification into new products and new markets these are important. We have to gradually modernise our policy."

The BKMEA leader we spoke to at the beginning, however, said, "They [authorities] should work on the policy. But what did they do instead? They banned importing seamless clothes. If such issues exist, how are we going to diversify products? If we keep making the products, maybe the buyers will ask us to make even more. But if we can't work, how will we increase production?" 

TBS tried to contact NBR Chairman Abu Hena Md Rahmatul Muneem but was unable to get a response.