A difficult bridge to cross

 Published in: The Financial Express on May 5, 2018
A difficult bridge to cross

The picture is pretty clear now. A few are blaming the building owner, a few think the manufacturers ought to be ‘hanged’; a few are holding the retailers responsible for not paying enough and for not having imposed strict compliance codes; a few even think that nothing will be affected.

The real picture is far from any of this. No matter how much Bangladesh Garments Manufacturers & Exporters Association (BGMEA) tries and brings the entire sector under scrutiny, not much will change. No matter how much the government tries to rein in safety measures and tough clauses, manufacturers will always find a loophole and use it as an exit point. No matter what anyone says or pledges, buyers will continue to buy from this country as competitive prices as they are not here for charity.

As a mature industry, it is only the manufacturers who can bring about changes. Old buildings won’t change overnight; dilapidated factory premises won’t disappear from the face of the earth and it’s not possible to shift 400-2000 workers out of a factory building in a week. Then what can the manufacturers do? Firstly, manufacturers must inspect their buildings to begin with. We must have certified engineers from BUET/DUET to check our pillars, our beams et al. and secure a first hand opinion within a day. Secondly, manufacturers must apply to BUET/DUET for a formal assessment of the buildings, which may take up to 15 days. A couple of tests may be conducted at this point. Hammer tests, gun tests, reinforcement design analysis, soil test and load test may be performed along with submission of the structural plan. Thirdly, manufacturers must share these findings with the workers, just to put the workers’ mind to ease. Fourthly, lobby with every possible quarter to win back the trust and respect of the sector.

I refuse to believe that we can’t improve the sector. I refuse to believe that we can’t defend our own case. To the best of my knowledge, the ones in jail including Tapash and Adnan are honest businessmen, who don’t have huge bank liabilities and who fell prey to Rana. The television clippings of Rana appear to be like a Hindi con artist maximizing on his apparent connections with the administration. It is evident. As for the garment owners, as much as I believe it was impossible for a floor manager to have coaxed the workers to have entered the factory without the knowledge of the owners, I also believe that these owners, as many of us, were traumatized by the factory closure owing to the recent hartals, strikes, unrests and had lost reason. I have no idea what is the price they will pay for having not acted rationally as their mistake has cost the nation more than 500 lives.

Canadian media has covered a breakdown of the costs of a polo shirt. (http://www2.macleans.ca/2013/05/01/what-does-that-14-shirt-really-cost/) They have shown that a 14 dollar polo shirt costs USD 5.67/ per piece at a Bangladesh factory. I have no idea about the weight of the polo shirt. Therefore I am unable to share an open cost breakdown with the readers. But I am more than happy to share a cost of a denim shirt made in Bangladesh.

A shirt requires fabric. At an average, 1.90 yards is needed for a long sleeve shirt with pockets, based on the US and Canadian sizes. The fabric price for denim is approximately USD 2.15/yd. This brings the fabric costs to USD 4.09/pc. The accessories for most of the brands are nominated and therefore per piece accessories costs would come to approximately USD 0.85-USD 1.00/pc. On top of this, the denim shirt would have to be washed. That would add another USD 0.10/pc-.15/pc depending on the required washing effect. After that, last but not the least, the CM (cutting and making) would come to around USD 0.90/pc. This would bring the FOB (freight on board) cost to USD 6.14/pc.

Let’s suppose the order is of 80000 pieces and is placed to a factory, which can only produce 80000 pieces. The factory would have to have at least four lines with 500 workers and it would also have to work for at least 10 hours a day for 26 days in a month. That factory would, most possibly produce around 770 pieces of shirts per line per day bringing the end of the day total to 3077 pieces. The factory costs of these 500 workers would be around USD 30000. That would bring the average salary to USD 60.00 at an average with overtime. Per piece cost of labor would then stand at USD 0.38/pc. The owner would be left with USD 0.52/piece. From this, the owner would probably take PC (packing credit) against which 1.0% from the FOB would be deducted. He/she would have to pay the utilities bill, rent, head office, marketing expenses. While the utilities and rent would come around USD 8750.00, which would mean another USD 0.11/piece, the head office costs and marketing costs would come to around another USD 8750.00 (USD 0.11/piece). From that USD 0.52/Piece that the owners retain, or rather that half a cent that we get from the buyer, we end up having USD 0.27/piece in reality. This too goes towards funding the next letters of credit (LCs), the next shipment and that too, if the manufacturer does not incur any discount or airfreight.

Therefore, economists like Jagdish Bhagwati who think that it’s only a localized issue and the margins are not even in discussion, would have to rethink the problem. However, references to buyers not paying enough are also instances we can’t highlight at a continuous basis. The last thing we can afford is to put the buyers in a defensive mood. If we need to bargain, we need to do it at our own pace and convenience. There is industrial diplomacy that we need to formulate through those who understand the business.

Significant investments need to be made now. The investment should not only come in the form of capital injection to our businesses and related infrastructure, but we must invest in our labor and engage in a dialogue which will not only address our deficits but will also assure our work force that our interests stretch way beyond our own hunger and we are as concerned about their welfare as much as we are about ours. And THAT is going to be the most difficult bridge to cross.

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