Backward linkages and forward linkages in the textile industry

 

Backward linkages and forward linkages

Backward linkages and forward linkages are playing a major role in the context of Bangladesh, as buyers in the global apparel marketplace to sustain with other countries in an open market economy this ready-made garment is facing many challenges due to a lack of industry exposure in our economy and the sector cannot get enough support from backward linkage industry. The objective of this article is to identify the current status of backward linkages in the ready-made garment sector in Bangladesh and how we can improve the status of backward linkages relative to demand. This article discusses the status of the backward linkage industry in Bangladesh, the constraints of the ready-made garment sector, finding and solving those constraints, and last but not least the opportunities of this growing industry. This article also sheds light on how backward linkage industries help the ready-made garment sector to meet buyer lead times and what initiatives should be taken to establish more backward linkage industries to be more competitive in an open market economy.

Backward linkages

The backward linkage industry with the ready-made garment industry is a popular way of describing the development of this industry. They provide embedded yarn, fabrics, and accessories in the export of knitted and crocheted garments. Over time, the ready-made garment is relying less and less on imported inputs resulting in increased value addition based on indigenous content. As ready-made garment has become a significant player in the global export market, it has created the pull effect of opening up interconnected sectors with final export products, a process known as backward linkage. Starting small, the backward linkage textile industry is now a close second to the RMG sector in terms of size. Like the first generation of dynamic RMG entrepreneurs, a new generation of textile entrepreneurs emerged in the mid-1990s who were ready to exploit the opportunities created by the RMG industry. They went for new investments in export-oriented textile projects that were to produce yarn and cloth to feed RMG exports. Wider access to concessional credit from the banking system to promote backward linkage activities, supportive taxation, and government subsidy policies, combined to encourage all backward linkage industries which (besides textiles) included manufacturing of goods such as packaging, buttons, zippers, and labels. It turned out to be a policy gamble worth taking.

Forward linkages

Forward linkages which mean business moving forward activities in Bangladesh play an important role in expanding the global Ready-Made Garments (RMG) business. In the global apparel market, products are ordered where the excess potential is available. Competing countries always try to gain a business position in the global apparel market. The RMG sector of Bangladesh is going through a very critical situation to beat the competing countries. As a result, the sector is facing many challenges day by day to sustain business due to a lack of forward linkage. In this case, most industries do not have research and development departments; there are also no great marketing strategies. The foreign workforce dominates major parts of management, production, and engineering in the garment industry. The decline and growth rate of garment factories, employment, and exports of RMG can be analyzed by analyzing the major clothing item, which is a T-shirt, and its exports to nine different EU countries and its sustainability. The business sector of Bangladesh. The study explores the current state of the RMG business, forward linkages of the RMG sector, how to address the bottlenecks, and some viable opportunities to meet the demand and sustain the RMG business in the global market. Going forward, operational improvements and a local workforce will overcome those challenges and expand this business.

Backward and forward linkages meaning

Bangladesh's textile or ready-made garment sector is the largest contributor to GDP in FY 2015 at around 81%. The industry has grown tremendously since 1978. The growth of this sector has made Bangladesh a middle-income country in the world by 2021. But this sector has always faced some problems to stand up to its true potential. Compliance issues in the textile sector were earlier, now the number of threats is increasing day by day. The biggest threat to this sector is its backward linkages. Although the industrial progress link, the manufacturing unit has properly made its ground the raw material production of this sector is far below the total demand. Bangladesh's backward linkage industry in the textile sector is 5-8% of total demand. Due to this, raw materials like fabrics, trims, and accessories are being imported from other countries. A large amount of raw material is being brought from foreign markets. 60-70% of the product cost goes to foreign markets to purchase raw materials and the profit from these production orders is very low. Buying raw materials from other countries takes a lot of time. Many factors are considered while purchasing raw materials. The main problem is to insure the lead time provided by the buyer. While purchasing raw materials from a foreign market the manufacturer needs to ensure the arrival time of the raw material because if the raw material is not in-house on time then the production and shipment of the buyer will not start. Timing so, when the goods are not delivered on time the buyer changes the factory or country of the order. Hence maintaining lead time has become very important to compete in the global market. The ready-made garments industry in Bangladesh has many competitors and the backward linkage status of many competitors is stronger than that of Bangladesh. Therefore, to sustain itself in the global market, Bangladesh needs to further develop its textile sector and ensure that the raw material crisis is solved. If the problem of raw materials is not solved, Bangladesh will be in a deep crisis. Therefore, to overcome the problem, Bangladesh must take initiative to solve the problem.

Since most of the raw materials are imported from foreign markets, the prices of the products fall dramatically and this reduces the country's profit margins. If the materials were sourced from the domestic market, there would be no need to go abroad and both time and money would be saved. So these imported materials are causing major damage to the e-made garment industry. According to the report, Bangladesh spends more than 7 billion dollars from foreign markets, especially cotton imports. Apparel buyers around the world have now reduced order times by giving a manufacturer a lead time of just 40 days to complete an order. But due to the import of materials from other countries, it takes time to order products and start production on time. Now it becomes quite difficult for industries that do not have composite factories. Bangladesh has only 6-8% composite factories in the readymade garment sector that have the full capacity to complete orders on time for garment buyers. Other factories go for extra extensions or airlift products. Asking for extensions or shipping the goods by air is a sensitive matter for the buyer. Garment buyers also have their retail customers who have to ship the goods on time, delaying the shipment because of the bad effect, many buyers are now interested in buying orders from other South Asian countries besides Bangladesh. Thus, the supply of raw materials to Bangladesh is hampering the forward linkages of other exporting countries. If they consider it necessary to avoid supplying raw materials to Bangladesh, Bangladesh will face a major crisis in the future. Rather, increasing the price of raw materials such as cotton and yarn will make it difficult to offer good prices to customers, which will create a difficult situation for garment manufacturers in Bangladesh. Bangladesh's only advantage in the apparel industry is the lowest cost of products compared to other countries in the world. If prices rise, many buyers may move away from Bangladesh due to environmental factors and political instability in Bangladesh. Also, there are other emerging threats in this sector that are still causing huge damage to this sector.