Investment in product tracking tech fuels RMG accessories growth

Infograph:TBS

Summary:

• RFID technology adoption surged, with 30 factories now producing locally.
• RFID simplifies inventory and security for factories and retailers.
• Small factories struggle with LCs, forex shortages, and high interest rates.
• Political instability and energy issues hinder investment and growth potential.
• Uncertainty shifted 15%-20% of orders but trust in Bangladesh remains.

Accessories and packaging entrepreneurs have heavily invested in radio frequency identification (RFID) technology to track RMG products in smart inventory, leading to a sixfold increase in the number of factories over the past five years.

Simultaneously, the accessories and packaging industry has seen significant investment growth in biodegradable and recycled poly and paper-based packaging materials, according to insiders.

According to data from the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), the number of factories producing RFID locally has increased from 5-6 five years ago to 30 now.

BGAPMEA President Md Shahriar said his company supplies RFID to several buyers, with demand steadily growing. He also mentioned that over 100 factories are prepared to invest in local RFID manufacturing.

"These investments will not only serve the local apparel industry for deemed exports but also create opportunities for direct exports," he added.

Deemed exports refer to transactions where goods or services are supplied within the country that add value to final products or services for export.

Shahriar further explained that the direct export value of the accessories and packaging industry currently stands at approximately $1 billion, while deemed exports are valued at $8 billion.

Speaking with The Business Standard, a country manager for a European Union brand said, "The brand has been using RFID technology on all its products over the past 5-6 years to simplify inventory management." 

The industry comprises approximately 1,610 operational factories, of which only 40 are large-scale, with annual turnovers exceeding $30 million

BGAPMEA President Md Shahriar

"RFID technology is being adopted not only by fashion brands but also by Bangladeshi apparel exporters at the factory level," he added.

RFID is a technology that uses electromagnetic fields to automatically identify and track product tags, which store electronic information that can be read remotely without direct line-of-sight or contact.

The country manager further said the use of barcodes also simplifies entry at every sales point in fashion stores.

Abdullah Hil Rakib, managing director of Team Group, told TBS that some brands are introducing automated logistics and smart inventory systems to reduce human involvement.

Referring to the Spanish brand Inditex, he said the brand's introduction of automated logistics has also created demand for RFID. 

He added that this tracking system also strengthens the security system in stores.

Rakib mentioned that Team Group's accessories unit has an annual turnover of about $20 million, with $3 million exported directly to China, Turkey, Italy, and India.

Focusing on sustainability and circularity  

Considering the demand from brands in light of EU legislative changes, accessories and packaging manufacturers have also invested in biodegradable and recycled poly materials to promote circularity.

BGAPMEA President Md Shahriar said the use of biodegradable and recycled poly has been increasing over the last five years.

He added that about 20% of Bangladesh's exported apparel products now use biodegradable and recycled poly, and after 2026, they will be required to use 100% biodegradable and recycled poly due to legislative changes addressing environmental issues.

Installed capacity could support $80b exports

Md Shahriar said the industry has the capacity to support the country's exports up to $80 billion at present. However, due to buyer nominations, exporters are compelled to import certain accessories, trims, and packaging materials.

He added that with government policy support, the industry could secure buyer nominations, which would help make the sector 100% import-substitute.

Once fully import-dependent, the accessories and packaging sector now meets more than 90% of local demand. Lead time has significantly improved, as garment exporters can now source accessories and packaging locally.

During the Covid-19 pandemic, when the country was only importing medicines, the sector supported 100% of the accessories and packaging materials for the export sectors, Shahriar said.

Some challenges remain  

The industry leader mentioned that despite the high potential to increase its contributions to the country's exports, the sector's growth is hindered by several challenges, creating uneven competition among stakeholders.

He explained that most small and medium-sized accessories manufacturers and exporters are struggling to open Letters of Credit (LCs) due to a shortage of foreign currency, whereas larger companies can do so with ease. As a result, small factories are forced to purchase dollars from the kerb market at higher rates, often paying an additional Tk4 to Tk5 per dollar, which significantly impacts their competitiveness.

On the other hand, small factories are burdened with high interest rates, which can reach up to 16%, while larger companies benefit from rates 1% to 2% lower, further exacerbating the uneven competition.

The industry comprises approximately 1,610 operational factories, of which only 40 are large-scale, with annual turnovers exceeding $30 million, the president said. 

Md Shahriar also noted that the industry has some foreign investments, including fully Foreign Direct Investments (FDIs) and joint venture partnerships, with about 50 such factories.

He explained that there is an opportunity to attract more FDIs, considering the country's potential. However, both foreign and local investments have remained almost stagnant due to the challenging business environment. He identified political instability, rising utility prices, and energy shortages as the main challenges to attracting investment.

He urged the government to ensure an adequate supply of gas and electricity for industries and to prioritise the safety of factories and entrepreneurs for the sake of the economy.

"This year presents an opportunity for business growth, but entrepreneurs find themselves caught between optimism and uncertainty," he added.

The sector contributes 15% to 40% of the value addition of exported goods, depending on product design and innovation.

Some orders shifted from Bangladesh due to uncertainty

Shahriar alleged that some sector orders have shifted to other countries due to concerns over law and order.

On Sunday, on the sidelines of a press conference, he stated that, in the current context, some orders – estimated at 15%-20% – have shifted to competing countries, mainly due to the unstable law and order situation.

However, he mentioned that buyers have expressed their intention to return once the situation stabilises, as they continue to trust Bangladesh. He also noted that one of his buyers, Target Australia, had shifted some orders to India.