Textiles webinar 29-11-2011

Renewable Energy Webinar

09-11-2011

Textiles in 21st Century: Challenges and Opportunities

Dr H.L VijayakumarPast Chairman , Past Chairman ,

Textile association IndiaKarnataka unit

Opportunities

• Rising Market opportunities• Shifting of production from western countries

to Asia• Growth in the urban Population, Income and • Growth in the urban Population, Income and

Lowest median age.

Rising Market Opportunity For Developing Countries

• Most developed countries will see continued decline of their textile and

apparel industry and create fresh opportunity of up to US$ 140 Billion

for exports for developing countries by 2020

• In addition, an opportunity of approx US$ 360-370 Billion likely to be

created due to rise in demand

• Hence an additional market opportunity of ~US$ 500 Billion likely to be

created by 2020

CountryTrade Value

in 2000(US$ mn)

CAGR since 2000

Korea

CountryTrade Value

in 2000 (US$ mn)

CAGR since 2000

Declining Apparel Exports of Western / Developed Countries

Growing Apparel Exports of Asian Countries

And…Resulting In Continuing Shift Of Export Base Towards Asia For Apparel ….

Korea Republic

5027 -12%

Dominican Republic

2555 -10%

USA 8629 -8%Mexico 8631 -7%Canada 328 -6%

Vietnam 1821 22%

Cambodia 970 18%

China 36071 16%

Bangladesh 5067 10%

India 5960 8%

Pakistan 2144 8%

..Leading To Increase In Global Textile & Apparel Trade

Source: WTO, UN Comtrade & Technopak Analysis

Challenges for Textile sector• External- Stability of currency- Economical slowdown- Price Fluctuation - International polices

• Internal• Internal- Impact of Globalisation- Infrastructure- Availability of trained man power- Local Govt. polices- Supply chain- Brand and product mix

Disruptive Growth in Textile Industry…..

(Before 2005)

FACTOR DRIVEN

§ Raw Material Availability

§ Labor availability

§Government policy influenced

(2005-2015)

EFFICIENCY DRIVEN

§ Vertical / Virtual Integration

§ Manufacturing excellence

§ Supply Chain Efficiency

§Diversity in product mix

(2015 onwards)

INNOVATION DRIVEN

§ Product

§ Design / Brand

§ Channels

§ Business Processes

Conclusion• There are many favorable opportunities for

the growth of textile sector in the world.• The global economical melt down and the

price fluctuation posing major threat to the stability of the sector. stability of the sector.

• WTO impact in shifting of production centresfrom one region to other will have major threat to the lively hood of common man.

Faruque HassanFaruque HassanVice President,Bangladesh Garment Manufacturers & Exporters Association (BGMEA)

&

Giant Group, Dhaka, Bangladesh

Managing Director,

While the world economy just started to see the recovery from the worst economic crisis since the 1930s, the sigh of relief could not last longer as the US and EU economy are now preparing for the worst. The recession caused by the financial crisis in late 2008 put us in an uphill struggle to survive. On top of that, the historical rise of cotton and textile price and the inadequacy of energy and infrastructure in the country had been some major challenges. Dwelling in such a situation the industry attained an outstanding growth in the 2010-2011 fiscal year (FY), i.e. July 2010 - June 2011, which has been possible for the all-out effort and resilience of our entrepreneurs and for the unparallel supports by our proactive workforce, and for the supports from our unparallel supports by our proactive workforce, and for the supports from our valued buyers who have been always with us in our good and bad times. However a further slowdown in the world economy would not be that easy for us to handle and we are yet to see how differently it could affect our industry and economy. In addition to all these challenges, there as some new opportunities as well like – reforms of GSP rules, preferential access to some new and potential markets. The soaring production and labor costs in competitor countries and their resulting impact on comparative advantage is leading a change in global sourcing pattern of apparel, and certainly the name of Bangladesh tops the list of preferred sourcing destinations. Now we need a holistic approach by the government in reforming the infrastructure and administrative machineries in order to enable Bangladesh to tap most of its opportunities.

Since the beginning in early 1980s, there have been numerous challenges throughout the journey of the readymade garment (RMG) industry till now, but the incredible achievement of garment exports from Bangladesh has outshined the most optimistic expectations. Bangladesh has been positioned as the second largest readymade garment exporting country in the world in 2010 as per the statistics of WTO (if EU is not considered as a country, rather an economic zone). WTO (if EU is not considered as a country, rather an economic zone). The global clothing market clearly recovered in the last year, according to latest data from the World Trade Organization (WTO). Total exports were up 11.4% in dollar terms, at US$351.5 billion, after falling 13.2% in 2009. China remains the leading exporter in value terms, EU as an economic zone ranking second after China, at US$22.30 billion. During the period 2000-2010 China's exports gained 260% while Bangladeshi exports increased 210% over the same period. The share of Bangladesh stood 4.6% in the said year.

As the world economy started recovering from the recession since early 2010, the FY2010-2011 marked a turning point for our RMG industry. Exports increased by 43.36% during this time in monetary value compared to previous year reflecting a strong come back. However, this growth was not absolute, as a significant portion of this growth has been caused by the cotton and textile price hike in the international market. The real growth in volume term was not more than 20%-25%. However, export prices stopped rising in My 2011 as the cotton price started getting normal, meaning that there might be a dent in monetary value-wise export growth in coming months.

After a better-than-expected performance during the last fiscal year, the global apparel market is signaling a clear slow-down ahead, which has already been visible by a fall in US import volumes in July-September 2011. Import by EU has also started decelerating in July 2011. There are now clear signs that the global clothing market began shrinking again. The official statistics of Bangladesh for the month of September 2011 shows a negative growth by

Apparel imports started slowing down again amid thecrises in EU and US economies….

Bangladesh for the month of September 2011 shows a negative growth by 6.66% compared to the same month of previous year. A breakdown of the figure by product category reveals that though woven exports managed to keep a slightly positive growth by 0.50% during the said month, knitwear export seen the real slowdown by -12.38%. The crisis in US and EU economy, unemployment, debt crisis and poor economic forecast are all indicating a tough time ahead. A clear dry-out in order position is already observed. Moreover, the safeguard duty imposed by Turkey has also been another reason as exports to Turkey has already started to shrink. The overwhelming concentration on US and EU is one of the major reasons of the vulnerability. The over dependence in two major markets (i.e. EU and USA) has been a major reason behind such demand shock and there is no alternate to diversify our export markets.

Despite all the hurdles in global economy the world clothing market grew at a good pace. However, lack of adequate workers has been one of the major challenges for a supplier giant like China which is eventually leading to a shift to populous countries like Bangladesh. But the lack of enough skilled workers is a concern for our industry. The level of productivity is also another major concern for us. Therefore, particular focus is needed on skills

Availability of skilled workers and productivity….

another major concern for us. Therefore, particular focus is needed on skills development and productivity enhancement. Focus has to be given on knowledge sharing in the area of fashion designing and innovation in order to enable the industry to graduate to next higher level. An enhanced productivity level and optimizing the cost of labor and inputs could substantially help the industries to tackle the wave of inflation and other emerging pressures.

Inflation remains a major issue in low cost countries. The inflation rate has a major impact on the level in wages which increase cost of production. The rising inflation in Bangladesh and other competitors including China, Vietnam, Cambodia, Myanmar, Pakistan, Indonesia and India is a threat to the competitiveness. Consumer prices are still rising in India and Pakistan, while

The rising inflation in emerging economies, an opportunity in disguise for Bangladesh………

competitiveness. Consumer prices are still rising in India and Pakistan, while China and Vietnam have been able to get a grip on it. Inflation in Bangladesh has come down a bit from 11.97% in September 2011 to 11.42% in October 2011.

From industry perspective the concern remains that despite a number of hurdles the minimum wages for the garment workers was increased by 80% which came into effect from November 2010. The implementation of the new minimum wage is highly satisfactory from the very first month. But the soaring inflation, which is now a thirteen year record high, is just not axing the income of marginalized group, but also limiting the competitiveness of industries and fading out the benefit of the wage increase.

The evolving pattern of global trade competitiveness is one of the most prior issues to plan our future business. In context of Bangladesh, we have seen in the past two decades how the non-trade factors have emerged as important as trade factors. The growing concern on environment and the progress toward eco-friendly business in recent time is also encouraging. Nevertheless, greener and cleaner production is going to be one of the most important pillars for our future business. Moreover, energy efficient green and clean production is also a means to cost efficiency as well. Bangladesh being a rising contender in the global apparel industry has a huge scope to enhance the efficiency of

Resource efficiency through cleaner production & technology up-gradation………………

being a rising contender in the global apparel industry has a huge scope to enhance the efficiency of water, gas and electricity usage. This becomes more important while addressing the truth that the country itself has been facing some major resource challenges, and we have already gone beyond the point of taking proactive steps. We have to adopt energy efficient and environment friendly machineries and technology in our production plant, particularly low risk and energy saving boilers, energy saving light, LED light, Servo motors and so on. To reduce emission of harmful chemicals we have to use effluent treatment, to reduce the use of chemicals in the wet processing we should use water treatment plant and low-liquor ratio dyeing machine. Initially these will incur some investments, but if we can become energy efficient then the cost will come down. Besides, we should also catch up with the technologies available like CAD-CAM, ERP, spreading machine, laying machine, automatic cutting machine, folder, guide, attachment in sewing machine, etc to reduce the cost of excessive human employment. There is also a growing regulatory as well as community pressure on industries for environmental compliance. Buyers are also giving increasing priorities to green producers. Therefore, it is a high time to prepare ourselves to take the lead.

As the multilateral trade negotiation of WTO is failing to see any progress, frustrated on the slow pace of current multilateral trading system, many countries are signing preferential trading agreements in the forms of regional trading arrangements and bilateral trading arrangements. However, we have barely seen any progress on this issue. Considering the dynamics of global trade regime an immediate initiative is necessary to look into the prospect of such trade arrangements with prospective trade partners.

Market Access and Nation Branding…………

such trade arrangements with prospective trade partners.

Besides, Bangladesh has quite successfully able to satisfy the consumers with compliance, quality, price, lead time and commitment. Bangladesh is not only exporting basic clothing, but also producing apparels for renowned brands. Here the country perception plays a big role when it comes to further market penetration and targeting high end apparel segment, where nation Branding is a precondition. Country branding has become vital for export marketing, for further penetration in the existing markets and to develop new markets. A positive country perception is also required to support industry’s progress to high end fashion industry.

Despite all the adversities in the global economic situation the world apparel exports have grown by 11.39% in 2010 compared to the previous year. The world apparel export was worth of 351.46 billion US dollar in the mentioned year. Such an increase reveals a steady growth in world apparel consumption and showing an

Growth in world apparel imports……………

steady growth in world apparel consumption and showing an opportunity for the manufacturing countries.

New market exploration……………

The overwhelming concentration of our exports to the European Union and North America has been quite vulnerable for the future of the apparel industry, particularly for Bangladesh. The United States, Canada and the European Union countries (predominately Germany, United Kingdom, France, Netherlands, Spain, Italy, Belgium, Denmark and Sweden) take more than 90% of our apparel exports. Market diversification has always been limited; despite we have tremendous opportunities to explore the Latin American, South we have tremendous opportunities to explore the Latin American, South Africa, East European and even the Asian regions. The Latin American region remains largely untapped, though the economies of those countries are booming rapidly. The retail sale of clothing is increasingly quite impressively in countries like Brazil, Mexico, Chile, Russia and Turkey. On the other hand, Asia is the habitat of around 60% of world population. There is a tremendous potential in the growing Asian economies like China, India, Indonesia, Korea, Malaysia, Hong Kong and Singapore to develop our alternate markets. The rising middle class and higher middle class groups and their spending power is a clear indicator of the potential of these markets.

Market access……….The simplification of GSP rules of origin adopted by 27 European countries from 1 January 2011; and the similar initiative adopted by Norway from 1 April 2011, Switzerland 1 May 2011 and Japan 1 April 2011; preferential market access offered by a number of countries, like South Korea, China and Malaysia have opened a huge opportunities for garment export to these countries. Besides the Government of India has granted duty free quota free (DFQF) access for 45 apparel items from 6 September 2011 under SAFTA which is another big opportunity for us. India has tremendous potential for our apparel exports being one of the most emerging economies in the potential for our apparel exports being one of the most emerging economies in the world and our next door neighbor. Other advantages remain less lead time, price competitiveness, less consumption of fabrics due to comparatively smaller size specification and the growing middle class population in India. These 45 RMG items secured 79.04% of our RMG exports to India in FY2010-2011. However, there are some other items which were granted Duty Free Quota Free access by India from before, which accounted 1.94% of our RMG exports to India in FY2010-2011. On top of it, the decision taken by the Government of India on 24 November 2011 allowing 51% foreign investment in the multi-brand retail segment (like Wal-Mart, Carrefour) and 100% FDI in single brand retailing (like H&M, Zara) will facilitate global retail houses to open stores in India. This would eventually create a unique opportunity for Bangladesh to supply our quality and competitive apparel products to Indian market through these multinational retailers most of which are already in business in Bangladesh and having their liaison office here.

The China Plus move……

Important to note that China still remains the leader in world apparel market with a 36.94% share in 2010 (WTO), but the rising wages and production and inflation is eroding their competitiveness. This is leading to a restructure in the sourcing patterns as the retailers and importers are focusing on “China Plus”countries; Bangladesh is the ultimate choice. Also we have noticed countries; Bangladesh is the ultimate choice. Also we have noticed a good number of brand buyers have come to Bangladesh and sourcing higher value added items, which is also helping us to keep the growth pace. We believe we could explore more opportunities in both traditional and non-traditional markets for a wider range of products.

The importance of the apparel industry to the economy of Bangladesh cannot be overemphasized. This is not just about the statistics, it is more about livelihoods. It is not just about export earning and GDP, it is also about the millions of people producing these goods to lead productive lives and providing opportunities for future generations. The RMG industry has been playing a vital role in accelerating economic growth through employment generation, poverty alleviation and empowering women. A hunger generation, poverty alleviation and empowering women. A hunger and poverty free Bangladesh is envisioned by the government by 2021, when Bangladesh will celebrate the golden jubilee of its independence. So the entire nation needs to unite and act to reach the potentials.

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