Buyers will have to play a crucial role in the survival of the medium and small-size factories in the middle of the pandemic
The fact has, finally, come out - large ready-made garment factories, even in the midst of the pandemic, are growing.
Prior to the Covid-19 pandemic, apparel factories, irrespective of their size or capacity, got orders. Buyers would give out orders to all the players in the industry.
However, the scenario has changed. Now, because of the coronavirus crisis, the demand for apparel has shrunk.
As the number of orders has decreased, buyers are choosing to work with factories which are best maintaining compliances followed by second-grade factories and then, third-grade ones.
We can call a factory "large" if it has an annual turnover of at least $100 million. Ones generating $20-80 million revenue fall under the medium category. The annual turnover of a small-size factory is less than $20 million.
More or less, 70 percent apparel factories in the country fall under the small and medium-size categories and most of the owners are bearing the brunt of the pandemic.
Large factories can absorb the shock of Covid-19 because they have access to more finances than that of small and medium-size factories. They have access to more loan facilities and can even avail offshore funds.
On the other hand, the small and medium-size factories are running on loans with three to four percent more interest rates.
Large garment factories have bigger production lines which results in lower production cost than that of small and medium-size factories. Thus, large factories can sell their products at a cheaper price.
They have the benefit of price.
In most cases, large factories sell products directly to retailers. The small and medium-size factories have to depend on local buying houses or foreign importers.
The products change many hands which, in a way, affects the profit margin as well. Everyone wants to add their margin in the process.
However, retailers can offer factory owners a better price when they source products directly from the factories. This means, large factories are getting the benefits.
However, the small and medium-size apparel makers are being deprived of the benefits large factories are reaping.
They are struggling to compete with large factories in terms of price. The production cost of a small and medium-size factory cost is higher when compared to the production cost of a large factory.
Buyers are also giving less time to the factory owners to complete orders.
Before the Covid-19 outbreak, they provided factories enough time, even six months, to process orders. Now, buyers only give 70 days.
In fact, buyers themselves take longer time to make decisions as they are not getting the market projection on time. Ultimately, they are placing orders behind scheduled time as well.
Though the number of orders dwindled due to the fall in demand, the supply-side has remained unchanged amid this pandemic.
All garment factories are up against cut-throat competition to stay afloat. The factories are taking orders at less price than that of the past. Due to the demand-supply imbalance, the price is plummeting.
There are many inoperative factories thinking that it is better to work at a cheap price than incurring a loss. In this way, large factories are making up the loss even during this crisis.
The small and medium-size factories cannot maintain compliance because of its limitations of space and other issues.
If a small or medium-size factory wants to fulfil the compliance now, the owners will have to make new investments. It is impossible for a factory owner to make re-investment in this situation.
We can put an end to compliance-based discrimination against small and medium-size factories considering the Covid-19 pandemic.
The buyers should go to all types of factories because all of them are maintaining compliance, more or less. If a factory survives, all dependents on the factory will survive.
Buyers should also make ethical purchase decisions. They should see everyone equally because all factories are certified by them, be it platinum or silver.
The onus is now on the buyers who will have to play a crucial role in the survival of the medium and small-size factories in the middle of the pandemic.
If buyers stop discrimination and keep on distributing orders like they did before the pandemic situation. Then all factories will survive.
Syed M Sajjad is the chief operating officer of Majumder Garments Limited.