Bangladesh Apparel Industry: Naive negotiation and a rat race
The quote "Let us never negotiate out of fear. But let us never fear to negotiate", from John F Kennedy is a mantra that should be adopted by all of us working in the readymade garment (RMG) sector of Bangladesh when entering into price discussions with our trading partners.
Traditionally the RMG sector has been treated by foreign buyers as a value resource. Whilst the industry has enjoyed phenomenal growth since its inception in the early 1980s, the important questions we must ask are: how much of that can be attributed to having the lowest price offer on the table, and how do we, as an industry, negotiate fair prices that will ensure a more sustainable business model for the future?
Since the tragic events of the Rana Plaza collapse in April 2013, the industry has been under the international spotlight and subjected, quite rightly, to the most stringent ethical and social compliance measures among all garment manufacturing nations worldwide. The process of remediation undertaken by the majority of our manufacturing facilities has required huge investments but the industry has gained little in return in terms of price paid to vendors for production.
For too long the RMG industry has lain under a shadow cast by being perceived by our customers as the underdog when it comes to pricing. But this is a myth, perpetuated by those companies that would pigeon-hole Bangladesh as a "value" resource alone, ignoring the advancements that have been made in social and environmental compliance, technology and product innovation.
It is high time that companies within the RMG sector begin discussing openly with their business partners all of the improvements to their facilities that have been made and explaining (in black and white financial sheets, if need be) the cost implications associated with the adoption of compliant, ethical, environmentally sound practices.
The problem here, I believe, is twofold: firstly, the majority of companies operating in the RMG sector are beholden to their customers and do not dare question their methods of working or prices allocated for the product they are supplying. If the customer that the manufacturer is supplying to is, truly, a business partner, then there is no shame in the manufacturer explaining the full cost of the product they are in negotiation about and, furthermore, no shame in rejecting a price offer that is untenable for their facility.
Here, I believe, a fundamental flaw lies in the inexperience and inability to negotiate, within the middle management of those working in the RMG sector. As an industry we need to ensure that these key players in business negotiations, some of whom are the only "face" of the company known by our Western customers, have the necessary negotiation skills to secure the best possible price for the products we produce. As owners and directors of apparel and fabric producing businesses, we should actively be encouraging our middle management teams to seek the necessary training and exposure to fully understand the entire negotiation process, and the ramifications of simply agreeing to a customer's demands.
Training and education in the art of negotiation skills is sadly lacking within our industry. Given the importance of the apparel sector to the nation as a whole it is high time that both the government and companies working in the sector establish an educational system that guarantees that our middle management are equipped with the necessary knowledge and skills to face customers with confidence and the ability to negotiate the appropriate prices with the customers they deal with. After all, if we are entrusting our middle management with the task of dealing on a day-to-day basis with our business partners, is it not right that we equip them with the necessary tools to fulfil their roles?
This leads to the second point. There exists an unhealthy culture amongst manufacturers in the sector to undercut their fellow producers in order to secure business—by adopting this "rat race" approach the industry is shooting itself in the foot! How can we expect to present a united front as an industry, when price negotiations can be undermined by those manufacturers that will capitulate to every whim of the buyer?
The RMG sector needs to agree on a series of minimum price levels per product category that guarantee that production can be carried out following the highest standards of social and environmental compliance. The adoption of such practices would, I believe, eradicate the "dog-eat-dog" nature of the RMG industry. No longer would a manufacturer be able to undercut one of their apparel trade competitors, as a base price for any product produced in Bangladesh would already have been set by the RMG industry, our government and, if need be, international governments and agencies. Such a strategy would involve the support of both our government and the apparel manufacturers associations (BGMEA and BKMEA for example) whose role it is to protect the best interests of the industry and their members. Such a system does not currently exist, but by entering into a healthy dialogue with our RMG industry colleagues, our business partners, government and non-government agencies, it is possible to create a set of minimum price tariffs for product types that represent a fair market price that allows fully compliant methods of production to be observed.
I believe that the way for us to ensure the long-term future of our nation's RMG industry is to embrace the art of successful negotiation and ensure that our middle management staff are equipped with the necessary negotiation skills, to establish a system whereby a fair price is paid for any apparel product produced in safe and sustainable conditions.
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). Email: mostafiz@denimexpert.com.
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