Increasing productivity an answer to energy shocks 

Global demand for apparel is on the decline in the wake of the Russia-Ukraine war, though Bangladesh is compensating for it to some extent through orders that are shifting from China. 

As gas prices are increasing globally, we will also have to increase the price of our products. There will be a big burden on producers, but the buyers also have to share that. The question is, how much can be taken from the buyer? We cannot charge too high prices, so this will either end up reducing our profitability or our orders.

If we charge too high prices, buyers will look elsewhere, such as Vietnam, China, India or Cambodia. They will not want to buy from us if it is convenient for them to buy from our competitors. In that case, our opportunity to increase the prices will decline further.

We have been subsidising gas and electricity prices for a long time, and that has kept us competitive. But now we will not get that chance. China and India buy oil and gas from Russia, which helps to reduce their costs. We cannot buy from Russia, so our costs are higher.

So, efforts should be made to reduce utility bills by installing new technologies, rooftop solar panels, and energy saving machinery. We should try to increase our productivity. 

Still, there are issues like elections and political uncertainty. Of course, in the past there was uncertainty surrounding the political movements and elections, but we in the garment sector got the support and cooperation of the government and all the opposition parties. As a result, it has been possible for the garment sector to run successfully amid such situations.

Before 2019, the minimum wage for a worker was Tk5,300. And it was raised to Tk8,300 in 2019. Another hike in labour wages in 2023 will increase our cost of production, and retaining buyers will be the biggest challenge for garment exporters.

For instance, the total manpower in Snowtex's four factories is about 19,000 people. We have to pay around Tk25 crore in wages per month. Wage increases will inevitably result in significant cost increases, with our wage payments likely to go up by Tk5 crore to Tk6 crore.

If wages go up, we can make some adjustments with buyers. But a large burden will fall on us. A buyer or a brand cannot charge its retail customers the additional cost of clothing at will. That is why they have to adjust it in some way.

In the past, we have seen good buying orders prior to wage increases. But after the increase in wages, buying orders declined. There is also the concern of whether we will fall into such a situation this time as well.

Buyers eventually buy products from the countries that are most convenient for them, taking into account price, lead time, and other factors. For example, if China offers to make a product at Tk10, they will not give me a purchase order if I offer the same price. I have to offer Tk9.95 at best. 

Moreover, we lag behind China and Vietnam in the backward linkage industry. They have deep seaports accessible to mother vessels, but we do not have that advantage in logistics. When our lead time is three months, theirs may be less than two months. As we lag behind them in lead time, we have to stay competitive with affordable prices. 

In other words, in order to get purchase orders, it is necessary to make a proposal for making clothes at a lower price than the competing countries.

Another problem is our price-cutting competition among ourselves. Those who have a lot of capacity face huge losses if they do not get enough buy orders. As a result, they accept orders at the break-even point or even at a loss.

So what is the way to survive?

We must sustain our competitiveness by increasing productivity through the incorporation of new machines and technologies and by upskilling workers. Those who are able to do this will survive; the rest will struggle.

For example, production should be increased to 1,150 or 1,100 pieces from 1,000 previously, using modern machines and technology and increasing worker skill.

Those who do not master this area are lost. It has also been observed that the cutting and making charge of a garment may be less than it used to be 20 years ago.

It takes a lot of effort to increase productivity. It can be done not just by investing, but by knowing how to increase productivity.

I visited factories in China, Vietnam, India, Sri Lanka, and Turkey to learn about new technologies, machinery, and ways to increase productivity. I visited the HUGO BOSS factory in Turkey, which is very modern. I am planning to go to Vietnam soon. I try to learn these things on a regular basis. I never delay in increasing the efficiency of machines and if investment is required, I do so.

Some worker-friendly best practices in factories play a major role in increasing productivity. Initially, I was hesitant to spend so much money on these activities. But later, I realised that these costs helped us make our productivity sustainable. So we do not see them as an expense, we see them as an investment. It reduces dropout rates among workers and increases their concentration.

Buyers do not pay us extra per unit for these costs. But through this, our production costs come down. Buyers feel comfortable doing business with us, and we can work with them on a long-term basis. They put themselves at risk if they place orders with non-compliant factories.

This time, because winter is harsher in export markets, maybe the sale of winter clothes will be higher. We believe that even if the situation is bad until June 2023, it will get better, not worse, after that.

I have seen many ups and downs in this sector in the last 20–25 years. But we are optimistic that the year will go well in the end after facing various hurdles.

The author is the managing director of Snowtex Group