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Subcontracting in Textile and Clothing Sector in Bangladesh

http://www.textiletoday.com.bd/magazine/print/588

In Focus
Issue: February , 2013

Subcontracting in Textile and Clothing Sector in Bangladesh


Abrar Ahmed Apu, MSc. www.abrarapu.com ABSTRACT This paper is inspired by present compliance issues that have shaken clothing manufacturing industry of Bangladesh, which brings into the light an important player subcontractor. Subcontracting among numerous players and actors in the clothing sector is very common and an integral part of the textile clothing manufacturing chain. Subcontracting rms in Bangladesh, in most cases, are poorly structured and social and environment compliance are absolutely absent. The aim of this paper is to understand the subcontracting roles and relations in T&C supply chain.

Introduction: Textile and Clothing (T&C) manufacturing and trade are truly global and complicated. T&C sector is substantially buyer-driven (i.e. retailing sector) while few parts of the complex supply chain are producer driven (yarn, fabrics, traditional handloom products). This complex chain (fig. 1) fulfils its objectives of satisfying customers demand at the right time, at the right place, with right quality and right price predominantly with subcontracting. Subcontracting is very important and omnipotent but relatively unknown due to their informal nature. Fast fashion and shorter lead-time have been possible with the vital roles played by subcontracting. T&C manufacturing industry uses higher number of subcontracting activities among all manufacturing and engineering industries.

It is estimated that about 50% of its total works are subcontracted in T&C industry while other manufacturing complete its work with about 20% subcontracting. In the Philippines half of garment production reported to be subcontracted to small producers who pay workers below the poverty level (Manchester Workshop on International Subcontracting Chains, 2001). Subcontracting refers to the process of entering a contractual agreement with a third person or company to perform a certain amount of work (Subcontracting, 2013). A contractual agreement to manufacture textile products usually states the quantity, type, quality, deadline, and price for which the subcontractor must deliver. For subcontracting in Bangladesh, oral commitment and email exchanges work for contractual agreement, and it is rare to see any firm is using any formal contract form for subcontract. In 2004, total 3560 clothing firms employed 1.2 million labors (EPB). Among which about 1200 clothing firms were involved in subcontracting with 0.8 million workers (Rashid, 2006) If the trend is same, now total number of subcontracting clothing firms would be 1700 where there would be 2.35 million people working. Clothing manufacturing chain is of multi tiers activities- buyer, foreign buying agent, local buying agent, clothing manufacturer, and subcontractor along with backward and forward linkage suppliers. Clothing production is more assembling activities than manufacturing, thus it is difficult to avoid subcontracting in the chain. Figure 2 explains clothing business and subcontracting in Bangladesh. A firm is referred as parent or principal firm, which provide works to subcontractors. Subcontracting firms in most cases are
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Bangladesh Textile Today Issue: February , 2013

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Subcontracting in Textile and Clothing Sector in Bangladesh

http://www.textiletoday.com.bd/magazine/print/588

In Focus
Issue: February , 2013
small in sizes and principally, a part of informal sector of the economy. Subcontracting is being done not only to perform core activities, such as production of entire garments, but also specialized activities such as printing, washing and embroidery. Here quantity prevails over quality but at the same time it is regarded as a tool for modernization and employment generation (Determinants of Subcontracting in Lao Garment Industry). Principal firms contract out its work in subcontracting for many reasons: meet deadline, cost reduction, capturing higher growth and market shares, cheaply ensure higher quality, faster production, transfer production load, avoid production difficulty, pass risks and insecurities of workers down the line, weaken or avoid workers right who demand better wages and conditions or who try to form a trade union, grab seasonal opportunities as well as enjoying flexibility by utilizing production capacity of subcontractors. From the regional point of view, there are two types of subcontracting-international subcontracting and local subcontracting. When buyers transferring their works to other countries, even through traders we can term it as international subcontracting while locally situated manufacturing firms transfer their work to other manufacturing firms, we refer them as local subcontracting. This research will deal with local subcontracting, particularly in Bangladesh. In T/C sector of Bangladesh, there are different types of subcontracting activities due to versatile tasks demanded by principal firms. The subcontracting activities can be classified broadly into two groups, namely in-sourcing subcontracting and out-sourcing subcontracting. In the first group, the industry brings extra works into the company during times of off peak demand, while contracts out its works to other firms during peak season belongs to the last group. Again, they can be classified into following branches of subcontracting Capacity subcontracting/horizontal subcontracting: Principal firm that does not have enough capacity to complete the work in time goes for subcontracting, called capacity/horizontal subcontracting. This type of subcontracting is very common in clothing industry in the peak season when order volume higher than rest of the year. Clothing manufacturing industry asks for subcontract to other stitching industry to do the same (i.e. stitching of garments) and or similar (i.e., joining of garments by fusing, welding, stapling, and etc.) work it is doing.

It is also common phenomenon in textile industry particularly in weaving of fabrics and dyeing of fabrics. Weaving firm capacity subcontracts out its preparatory processes such as warping (arranging hundreds of yarns into a sheet of parallel yarns of a specified length and width) and sizing (encapsulating the parallel yarns with protecting size materials). Fabric dyeing firm looks for capacity subcontracts out for its finishing processes for the dyed fabrics such as raising treatment, heat setting, soft finishing and etc.
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Subcontracting in Textile and Clothing Sector in Bangladesh

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In Focus
Issue: February , 2013
Vertical subcontracting: This is commonly seen in our Textile sector. It is rare to see that all the processes of the vertical chain are in one shed or under the principal firm. Thus, principal firm contracts out some of its processes in the vertical chain to subcontractors. Three types of vertical subcontracting are present in our T&C sector- backward, intermediate and forward vertical subcontracting. Principal firm in the knit apparel manufacturing usually maintains two facilities namely- garmenting and knitting while dyeing of fabrics is contracted out to intermediate subcontractor, yarn manufacturing (raw material for knitting) contracted out to backward subcontractor and if finished apparels is forwarded to buyer to sell out is forward subcontracting. Specialist subcontracting: This type of subcontractor usually has specialized machinery or equipment and skilled labors to undertake complex and precision tasks. As for examples, apparel manufacturing firm thats core activities includes cutting and stitching of apparels, while some specialist activities in the apparels like printing, embroidery, stone effects, brushing, normal wash, enzyme wash, hand stitch, and special stitches etc., subcontracted to small firms/subcontractor. Supplier subcontracting/Component subcontracting: Principal firm contracts out the manufacture of some parts of its final products to other firm, called supplier/components subcontracting. In apparel industry principal firm usually manufactures out labels, motif, button, zipper, lace, and etc., to suppler subcontractors. Here the subcontractor is an independent supplier with full control over the development, design, and the method of production, but is willing to enter a subcontracting agreement to supply a dedicated or licensed part to the principal firm. Product subcontracting: Principal firm contracts out complete products to subcontractor but performs marketing and sales functions. Complete apparel subcontracting by retailers/brands/buying houses is one of the common examples in this case. In selecting subcontractor, the most principal firms in Bangladesh place greater emphasis on that subcontractor produces high quality products cheaply in a given time. Other criteria where emphasis is given are soundness of management, ability to chase delivery times, ability to offer quality assurance, ability to develop technology and planning and proposal capability. In Bangladesh there are listed 385 yarn manufacturing mills, 721 fabric manufacturing mills, 233 dyeing industries and 5050 apparel manufacturing industries. Some of the big textile firms are fully vertically and horizontally integrated i.e. BEXIMO, Babylon group, East West Industrial Park are some examples those who have vertical manufacturing and a retail brand as well. On the other hand, several others are partially horizontally and vertically integrated (yarn manufacturing to finished garments, but no retails centers), i.e. Opex-Sinha Group, Square Textile Group, NR Group etc. And there are many other who are neither horizontally nor vertically integrated. Subcontracting point of view, they can be categories as the following: Group 1: Factories, which neither subcontract out nor subcontract in: The principal firm is horizontally and vertically integrated with its sister firms. Horizontal integration indicates to cooperation relationship among different firms in the same level of industrial chain, say knit fabric stitching firm coordinated with woven stitching, embroidery, printing and or garment accessories firms. In the same way, take examples of spinning, weaving and processing firms. Ring spinning coordinates with rotor spinning, weaving firms coordinates with warping, sizing, and dyeing firm coordinates may with brushing, heat setting firms, etc., are some examples of horizontal integration in the textile sector.

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Subcontracting in Textile and Clothing Sector in Bangladesh

http://www.textiletoday.com.bd/magazine/print/588

In Focus
Issue: February , 2013

Vertical integration indicates to cooperation relationship among different level of industrial chain. Weaving/knitting firm when coordinates with spinning firm (backward vertical integration) and or weaving/knitting firm coordinates with processing firm (forward vertical integration) are some examples of vertical integration. The principal firm creates cluster of all activities, process, and production in the name of group of companies. Thus, never feels of subcontracting importance.

In this regard, the principal firm is well managed by its trained teams in backward, forward and horizontal linkages. The principal firm is well usually organized, socially and environmentally compliant as well as maintains Bangladesh labor low, and environmental requirements.
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Subcontracting in Textile and Clothing Sector in Bangladesh

http://www.textiletoday.com.bd/magazine/print/588

In Focus
Issue: February , 2013
Group 2: Factories, which both subcontract out and subcontract in: In this case, the principal firm either horizontally or vertically integrated. Vertically integrated firms may need some works from horizontally integrated or vice-versa to complete items. The principal firm has limited capacity and when gets more order than its capacity looks for contracts out some of its work. In the same manner, when the firm is running less than its capacity, the firm looks for contract in (subcontract) works. Due to poor managerial team (marketing and sales) skills, the firm fails to balance work round the year. Group 3: Factories, which subcontract in only: The firm is small in size with one of few basic or specialized activities, and usually does not do core (stitching is core activity in garment manufacturing) activities but supporting activities (printing, embroidery, garment washing). Thus, the firm works behind the principal firm in the progress of the final manufacturing goal. On the other hand there are some sewing factories also who are fully dependent on subcontracted orders as they dont have enough managerial & marketing capacity to correspond and finish a direct order. In common picture such factories are poorly managed where the workers are frequently unpaid or paid late. Sometimes, the workers are paid on piece basis or hourly as suitable for the firm. Usually this type of firms is lacking of social and environmental compliances. Group 4: Firms, which subcontract out only: Trading companies or buying offices which do not won production facilities subcontract out their works. These trading companies or buying offices maintain very good communication and strategic coordination with its buyers and manufacturers/supplier with their efficient and skilled management team.

Conclusion: Subcontracting chain is an integral part of the complex T&C business. Understanding roles of these subcontracting firms are very important from the trade and business aspects. Principal firms can turn into subcontracting firms when they dont have educated and skilled human resources, and in some cases if dont have credit access to bank facilities. Again, subcontracting in the clothing industry presents a huge challenge to all of us involved in promoting the rights of workers, as the subcontracting firms are huge in numbers and there exists hyper price competition or lower profit margin in Bangladesh. Therefore, formulating effective strategies from government and stakeholders for subcontracting is very important in improving labor conditions. Codes of conducts (COC) of the principal firm are unlikely to reach workers at the end of the complex subcontracting chain resulting compliance turmoil. On the other hand when we talk about value addition, subcontracting factories can do least and thats why they and their workers suffer. The sector now needs abundant skilled management staffs and workers as if they can receive buyers orders directly and can ensure highest possible value addition. Works Cited

Communities, C. o. (1996). The competitiveness of Subcontracting in the textile and clothing industry in the EU. The Council, EU, Brussels.
Determinants of Subcontracting in Lao Garment Industry. (n.d.). Retrieved Jan 2013, from www.cmr-journal.org . Manchester Workshop on International Subcontracting Chains. (2001). Suncontracting. (2013, Jan). Retrieved Jan 2013, from http://www.referenceforbusiness.com. Retrieved 02 4, 2013, from The Daily Star: /newsdetails.php?nid=267704 Rashid, M. A. (2006). Rise of Readymade Garments in Bangladesh: Enterpreneurial ingenuity or public policy. World Bank and BIDS, Dhaka. EU Communities, (1996): The competitiveness of Subcontracting in the textile and clothing industry in the EU

Star, T. D. (2013, 02 4). The Daily Star. http://www.thedailystar.net/newDesign

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