"RMG manufacturers need to learn to say ‘no’ over price"

After the United States, Germany is the largest market for Bangladesh's apparel products. Bangladesh's RMG export to Germany stands at around $5 billion per annum. 

Apart from being a big buyer, the country has also been collaborating with Bangladesh's private sector, civil society, and authorities to improve the industry by helping to raise its social and environmental standards.  

The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is a German federal enterprise that has been working in Bangladesh since 1972, implementing projects on behalf of the German Federal Ministry for Economic Cooperation and Development, in cooperation with the government of Bangladesh.  

The Business Standard recently interviewed Werner Lange, the coordinator of GIZ's Textile Cluster, who shared his thoughts and insights on various aspects of Bangladesh's apparel sector, ranging from sustainability and compliance to the growth prospect of the industry. 

A former textile buyer with more than three decades of experience, Lange has been heading the GIZ Textile Cluster since 2017.  

How would you evaluate Bangladesh apparel sector's development, in terms of workplace safety and sustainability, since the Rana Plaza tragedy? 

It will probably sound cynical, but I think - with all respect to the deceased and injured people – the Rana Plaza tragedy was an eye-opener and an opportunity at the same time. 

Because no other country in the world got so much pressure from buyers and the international community. And Bangladesh has acted accordingly. The improvement in industrial safety has been tremendous. And if someone claims that the world's safest factories are in Bangladesh, I will say yes, it is true.  

But you still can find the exact opposite of that. In other words, progress happened mainly where access to international consumer markets was relevant.  

And that brings us of course to the question of how sustainable it is. And how honest is the commitment to attain sustainability? I very often use the expression: 'comply or die.' In a positive way, it would be 'comply and fly.' 

With more and more global commitments to achieve sustainability goals, we are facing more and more rules and regulations, whether from the EU or the global level. 

International trade is increasingly dependent on compliance and if you look at the efforts in Europe, the Green Deal and, or specifically the Circular Economy Action Plan; it will regulate market access and success in the future. 

If you go back 20 years, we had the quota system, which was triggering businesses then. Now we still have EBA (Everything but Arms) and GSP+ (Generalised Scheme of Preferences Plus), but imagine if the EU combined market access and tax benefits with the product's carbon footprint. 

Maybe it won't happen tomorrow, but maybe it will come faster than expected. And I think entrepreneurs with a strategic vision are realising that the rules of business will change in that direction. 

Now, internalising the cost of social and environmental compliance will raise the cost of products. And of course, we must convey this to the customers.  

Speaking of production cost, RMG manufacturers have been complaining that brands do not pay heed to the repeated requests to pay higher prices for the products. How will the apparel makers finance the transformation? 

Frankly speaking, everyone has the freedom to say 'no.' Once a vendor has accepted an order, he should not complain about the price later. They need to learn to say 'no' to the buyer over price. 

I am a former buyer. Businessmen - whether buyers or manufacturers - always complain that they are not receiving the right price. 

Bangladesh's apparel exports are constantly increasing every year and you have a growth of 5-8%, it's a constant growth of the business. According to the logic of market - offer and demand - I mean, how does the market grow without resulting in corresponding compensation? 

Don't you think saying 'no' to the buyer will divert them to other manufacturers? 

Bangladesh is so strong that you cannot say we do not need Bangladesh. The buyers need Bangladesh.  

Of course, if one manufacturer is offering, let's say $10, and the next one says, 'Come to me, I make it for $9,' then the buyer will be tempted to go to the latter. But he needs to check whether the latter is compliant, and how the lower price is being offered. Is this factory paying fair wages to the workers? Are they paying overtime? Are they pouring wastewater into the environment? 

European governments are taking responsibility by putting pressure on the buyers to ensure compliance. The Bangladesh government could do the same. It could say whoever is not compliant, cannot do business.  

If you cut off the free riders here in the country, if they are forced to internalise the cost, the price is bound to go up.  

Are all the buyers sincere about it?  

Of course not. Some are more honest, others less. You have free riders everywhere - in the group of buyers and the group of sellers. 

But when you are a publicly known brand, and you have the attention of the civil society and media, your business practices are subject to constant evaluation. Pressure from the public can have an enormous impact on business.  

See what happened with a well-known German brand sponsoring an American celebrity. The brand came under pressure over the celebrity's politically incorrect statements. The media reported a potential loss of revenue of more than $1 billion. The brand finally ended the business collaboration. 

Do you think there is enough pressure on the buyers to possibly pay more so that manufacturers in Bangladesh can be more sustainable and ensure well-being for the workers? 

Frankly speaking, as long as we have the system of markets - offer and demand - limited and ruled by regulations, we have a playing field.  

Regarding the complaint that buyers are not paying enough, I would like to give you the example of the Central Fund. After the Rana Plaza disaster, the Ministry of Labour established this Central Fund, a fund responsible for providing financial support to workers. It is financed by a deduction of the export value of 0.03%.  

Half of this 0.03%, 0.015%, is for injury protection and compensation. Once garment workers get injured or die in workplace accidents, it is a compensatory payment for the permanently disabled and dependants of the deceased.  

Who pays that – the buyer. The buyer pays the product price. Of course, you can just take a different perspective and say no, the manufacturer pays it, because it is deducted by the government. But at the very beginning, it was the buyer who transferred the full amount. From a buyer's perspective, I could claim he is already contributing.  

Also, the International Labour Organisation (ILO) established the Rana Plaza Donors Trust Fund in 2014. The majority of the $30 million fund, which reached its target in 2015, was contributed to by international clothing brands, with remarkable contributions from the Bangladesh Prime Minister's Fund and anonymous donors.  

Therefore, the buyer might say 'I've already paid for something, which is actually an obligation of the employer according to international standards. Why are you solely holding us buyers responsible?'  

Are there laws in Europe to ensure responsible and sustainable sourcing?  

Yes, there is the German Supply Chain Due Diligence Act. It forces companies doing business abroad to prove that they have risk assessment systems in place, which requires establishing an appropriate and effective risk management system. This should be embedded in all relevant businesses. 

Monetary penalties can be assessed depending on the nature and gravity of the violation. Moreover, companies can be fined up to 2% of their average annual turnover. France was the first country in the world to adopt a law obligating large companies to carry out human rights and environmental due diligence, and the European Commission's proposal for a Corporate Sustainability Due Diligence Directive (CSDDD) will enforce responsible and sustainable sourcing. 

Do you think even after internalising the costs, Bangladesh's RMG sector can grow substantially, as it is now?    

Yes, because European or global legislation must honour compliance. So, the question is, are all involved governments really committed as well?  

Rules and regulations have a disruptive power. If you change the rules of the game, some will lose, some will win. This is always happening. What is required is vision, mission, strategy and implementation.  

I think the offer and demand mechanism of the market is necessary, but rules and regulations are essential, in combination with smart taxation.  

Taxes can be beneficiary and can support certain developments. For example, if the tax on gas and oil goes up significantly, consumers will move to renewables.  

We all live in the global village. It needs global solutions and therefore more international commitment.