As per the latest joint study conducted by the Center for Policy Dialogue (CPD) and the MiB, 86 per cent of the surveyed 610 factories said that brands/buyers did not take supportive measures for caring about workers’ health and financial peril of factories during the pandemic even as per Khondaker Golam Moazzem, the CPD Research Director underlined, diversified sources, both for suppliers and buyers, help mitigate the challenges that emerge during any emergencies and went on to add that during the pandemic, for example, a factory’s 70 per cent capacity was for a single buyer, and explained if the factory had a diversified buyer base, it could have alternatives when its largest buyer declined to receive or cancel orders. However, he agreed that small buyers are less-affected compared to large ones as the former survived with their one or two stores while the bigger ones had to close many of their outlets.
According to a recent survey the Bangladesh readymade garment sector relies on too few buyers and, as may be expected, the insinuations of the same can be rather substantial and far reaching, as perhaps has been evidenced during the COVID-19 pandemic, which brought to fore the pitfalls of such a practice.
According to Mapped in Bangladesh (MiB), which tracks export-oriented garment factories digitally, Zara, H&M, Li & Fung and Walmart are the top four brands out of 3,600 retailers that had business during the last four years with 300 to 352 local apparel factories even as experts said the dependence on a small number of buyers is a major weakness not only for small-scale enterprises but also for large factories and that due to such dependency, exporters had no other option but to accept arbitrary demands — ranging from order cancellations, deferred payments, discounts, etc., — during the pandemic.
It may be mentioned here that as per the latest joint study conducted by CPD and the MiB, there was discontinuation of normal business ties with the buyers/brands immediately after the pandemic, a ‘major challenge’ for the suppliers and went on to underline that small and medium-sized factories as well as Chittagong-based units were found to be lacking in maintaining normal contacts — buyers and brands are supposed to maintain normal business contact particularly during the crisis period, discuss the issues and challenges confronted by the suppliers and try to provide predictability to the suppliers with regard to orders, prices and market situation, it said — while about one-third of the factories maintained that at least some of their orders were called off and necessary payment not made.
Some 30 per cent factories reported that a section of buyers deferred shipment with timely payment while 20.5 per cent factories said buyers settled with deferred payment, whereas about 16 per cent factories claimed that buyers settled part of their orders at a reduced price and 1.8 per cent factories complained that buyers cancelled orders but agreed to pay the cost of raw materials.
As per the MiB data, a total of 3,600 global brands, buyers and retailers have been sourcing locally RMG items from 3,211 export-oriented garment factories located in Dhaka, Gazipur, Narayanganj and Chittagong during last four years while KiK, C&A, Next, LPP, Kmart and Mango are the six brands that have been sourcing from more than 200 local garment factories. Lidl, Pep & Co, nkd, Matalan, JCPenney, Gap and Target are among the 11 brands that have business with more than 100 factories and there are 29 brands and retailers that have business with more than 50 but fewer than 100 factories and 175 buyers do business with 5 to 49 factories while more than 1,300 brands do business with a single factory.
It may be mentioned here that in 2020, Bangladesh garment industry faced large-scale order cancellations that had devastating impacts on the industry even as 2021 also started on a somewhat dull note with major retailers in USA and Europe sitting on excess inventories and cutting back on new (Spring) orders with major implications on readymade garment factories in Bangladesh subsequent to the new Coronavirus pandemic lockdowns and patchy national vaccine rollouts.
According to a Reuters report, which cited McKinsey, the value of unsold clothing globally, in stores and warehouses, ranges from US $ 168 billion – US $ 192 billion (140-160 billion euros), which is more than double the normal levels.
“We are operating at 25 per cent of capacity,” reportedly underlined Miran Ali, one of the Director of BGMEA who also represents the Star Network (an alliance of manufacturers in six Asian countries) speaking to the Reuters even as apparel exporter Shahidullah Azim, whose clients include North American and European retailers, on his part reportedly said that there are no orders for March even though orders usually arrive three months in advance.
The pre-Christmas lockdowns in most parts of Europe followed by another clampdown in January 2021 has hit garment makers in Bangladesh hard even as 50 factories surveyed by the BGMEA reportedly maintained that they had received 30 per cent lesser orders than usual this season.
Meanwhile, the survey report added that a section of buyers/brands reinstated the cancelled orders even as some buyers filed for bankruptcy, which caused problems for local suppliers and went on to suggest that apparel trade bodies should encourage factories to diversify their buyers’ base by including not only large-scale buyers/brands but also small-scale buyers/brands.
Speaking to the media, one of the other BGMEA Director, Mohammad Abdul Momen reportedly said the pre-requisite of becoming vendors of buyers and its process have been becoming stringent day by day and citing 90 per cent dependency on a few buyers, he said, the factories’ overwhelming reliance on single or a few buyers is insignificant, considering the size of buyers’ requirements as they buy in large volume across the globe.
Admitting that majority of exports go to 10 to 15 buyers Mohammad Abdul Momen said ‘buyers want large capacity’ even as President of BGMEA, Dr. Rubana Huq, on her part reportedly maintained that buyers’ business practices during the pandemic had put the industry in uncertainty.
We do not want to name and shame any of the buyers, since we have a long history of working relationship with most of the buyers, reportedly stated the BGMEA President while adding that there was uncertainty over confirmed business, allocation of capacity, shipment, payment and work in progress, optimum management of supply chain and the use of resources and economic impact and business viability.
So, going by the findings of the survey and what the industry people say, factories would do good to diversify their buyer base to avoid contingencies in the business front, during emergencies at least, it seems.