In the RMG sector, we need to start thinking long-term
What chaotic, uncertain times we live in. The recent outbreak of coronavirus and its potential impact on global apparel supply chains, including Bangladesh RMG factories, is one such example of the chaotic situation. But in terms of volatility and unpredictability, this dreadful epidemic is the tip of the iceberg. What single issue will have the most impact on our RMG industry in the coming years? Will it be climate change? Automation? A global recession, which many economists fear is just around the corner given such high levels of debt across all strata of western society? Competition from African textile producers which can drastically undercut our own manufacturers? Further cost-cutting by our brand and retailer customers? Political turmoil and infighting? Strikes and discontentment among our workers? The list is endless. Against this backdrop, the only real certainty I can think of, the only one thing that will always remain the same is this: Our industry — brands and their suppliers — will place profit maximization above all else. Above people, above climate, above long-term risk. Short-termism is the default setting, and this is most clearly seen in the (mainly) publicly listed companies which make up the customer base of the RMG industry in Bangladesh. Each quarter, brands and retailers announce their latest revenues and profits. High profits equals good, low profits or a loss equals bad. Rapidly rising revenues are greeted with jubilation, for they mean a higher dividend is likely later on in the year. Declining revenues are met with panic and, on occasion, restructure and the loss of jobs. To some extent, it has always been like this and I am not saying this is all bad. After all, any business must be financially solvent — and profitable — to continue as an ongoing entity. But the scrutiny which our customers are under, the pressure to deliver never-ending growth and profits, appears to be greater than ever before. And, of course, this has a huge impact on suppliers. Brands and retailers feel the pinch, and we, in turn, take the strain. Is any of this sustainable? Let me put this another way: Is this obsession with the short-term, with continually higher profits, really compatible with environmental governance and a fair society? It cannot be, and that is why I believe we need to move towards different barometers of success moving forwards. In this quest to reward shareholders handsomely, in this drive to ensure some people get very rich indeed, we have lost something very important along the way. Care for others, concern for the wider environment and society. There is a risk, when writing an article along these lines, of being political, but that is not the intention here. The environment, a fairer society — I do not believe these are political issues for I believe all sides of the political spectrum would agree with such notions. These are universal issues which affect us all. I recognize that our industry and its suppliers are now slowly but surely beginning to turn the needle on sustainability issues. I also recognize there is some talk of the industry trying to bring about living wages in supply chains. But in these areas, we are talking about just baby steps. And the reason for that is that the fundamentals remain the same: Short-term profits and an obsessive focus on the shareholder is clouding judgement and delivering outcomes which are bad for the environment and bad for wider society. I believe the global apparel industry is crying out for two things. The first is human leadership with an emphasis on integrity, decency, and a clearly defined focus on doing the right thing. I see aspects of this in some businesses but all too often I simply see and hear far too much corporate-speak and CEOs who simply values delivering “shareholder value” (whatever that might be). Secondly, and related to the above, I believe we need a new yardstick by which successful leadership is measured. In one sense, we are seeing evidence of this. The largest buyer of apparel from Bangladesh, H&M, recently appointed a former sustainability executive as its CEO. This is a very promising move which, hopefully, sends a message to the rest of the industry. But more fundamental change may be required if we are to bring about the kind of systemic change our industry needs. Moving forward we need systems and processes — maybe even legal frameworks — in place which reward and incentivize new types of leadership. Leaders who focus on the long-term, leaders with integrity and empathy, leaders who recognise their wider environmental and societal obligations must be welcomed and rewarded accordingly. In many respects, this is a corporate governance issue. Conversely, in future, it is to be hoped that leaders who focus purely on the short-term, on the financial, on the shareholder, and on their pay packet for the following year, become a dying breed. The problems of today and tomorrow are very different to those we faced in the past and will not be solved by the same kind of leadership as we have had in years gone by — in fact, that was the type of leadership which, in many respects, has got us into the current turmoil in the first place. Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). “Despite lots of incentives and policy support, the sector is failing to overcome the dullness. This is due to appreciation of taka against US dollar, which eating up our competitiveness in the global market,” Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) first vice president Mohammed Hatem said. The government should rethink the exchange rate and offer a special rate on the amount of value addition, added the business leader. Misuse of bonded warehouse facilities is another reason, which dents the demands for local yarn and fabrics. “Some of the export-oriented apparel makers sell fabric and yarn in the local market illegally, which is imported duty free under bonded warehouse facility,” Khorshed Alam, owner of Little Star Spinning Mill, said. “Local millers, as a result, have to sell at lower price, while there is unsold stock,” he mentioned.
Internal factors
Some internal factors may have played a role in the negative EPS. “Slower exports earnings have an effect on negative EPS but some external factors should be taken into consideration such transparency of financial report,” Centre for Policy Dialogue (CPD) Research Director Khondaker Golam Moazzem told Dhaka Tribune.
Situation may worsen
Sector people fear further deterioration in the apparel sector, adversely impacting the EPS of the listed companies. “Amid a gloomy outlook for the country’s apparel sector, the government has increased the prices of electricity, another blow to the production cost, which already increased manifold,” said Anwar-Ul Alam Chowdhury Parvez, chairman director of Argon Denims Limited. On Thursday, Bangladesh Energy Regulatory Commission (BERC) again increased the prices of electricity for retail consumers by 5.3% to Tk7.13 per unit and bulk consumers by 8.4% to Tk5.17 a unit, effective from March 1.
