Backward Linkages of Bangladeshi Textile and apparel industry: The export revenue of RMG sector in Bangladesh is $8421.52 million in 2022. But unfortunately, 60-70% of the total earnings is spent on buying raw materials. This study finds the challenges & limitations of backward linkage of RMG sector. In Bangladesh, cotton, yarn, fabric, dyes & chemicals, trims & accessories etc are must needed materials for backward linkage industry of RMG sector. For the pathetic condition of this sector, one of the major reasons is that cotton production is very low in this country due to unavailability of suitable soil & environment. Also, unavailability of commercially produced species of cotton. There is no genetic engineered species of cotton plant. Another major reason is that trims and accessories production is also low due to lack of research and poor quality. Also, another major reason is that synthetic fiber production is also low due to lack of machines and lack of innovation and technology. 

Therefore, this industry needs a sufficient internal supply of its raw materials to achieve robust growth. The backward linkage sector can complete the task. This was and continues to be Bangladesh’s major obstacle in this industry. Weak industrial exposure in our economy prevented the RMG sector from receiving enough support from the upstream sector. Most of the time, we must rely on outside sources, or import, for our basic resources. In these situations, even though this sector contributed significantly to our export profits, the economy’s value addition was inadequate. The majority of the profits were returned to over the limit, and on top of that, we are losing faith in our ability to produce in terms of timely shipment, price, etc. Therefore, in order for the RMG sector to continue growing at its current rate and for our export revenues to improve through value addition, there needs to be a strong establishment of backward linking industries. This paper aims to comprehend the RMG sector’s trends, how backward linkage might improve RMG performance, and lastly, how to establish backward linkage industries in Bangladesh.

In our nation, it’s usual to have ineffective management practices while managing raw materials. Issues with production delays result from it. Due of the delayed production and subsequent delayed shipments, the entire industry is harmed by this. The digitalization of the data and communication system is not known to the relevant executives. Since they are at ease with manual information flow systems, there is a reduction in the effectiveness of raw material management, which leads to low production. On the factory floor, the issues are visible to the naked eye. However, the problem’s notification falls mostly on inventory management[1]. Bangladesh’s economy greatly benefits from the ready-made clothing industry.

RMG accounts for around 14.07 percent of Bangladesh’s GDP and 81 percent of all export revenues when looking at fundamental economic factors. The second-largest exporter of RMGs worldwide is Bangladesh. Bangladesh generated USD 8421.52 million in RMG export revenue in 2022, making up 90.68 percent of all RMG exports[2]. Backward linkage, in general, refers to the usage of manufactured inputs from one company or industry by another.

Thus, three stages are necessary to produce completed textiles in the textile business. The first stage involves turning cotton or fibers into yarns, the second stage involves turning skeins into grey fabrics, and the third stage involves turning grey fabrics into colored, printed, or other completed fabrics or clothes. Backward linkage., a subset of Bangladesh’s textile industry includes cotton, yarn, fabric, dyes and chemicals, trims and accessories etc[3]. The Bangladeshi textile industry’s RMG sector has a 5-8% backward tie to overall demand. Because of this, raw materials like fabric, trimmings, and accessories are imported from nations with fiercer competition. As a result, a sizable portion of raw materials are being imported.

60–70% of the cost of the finished product must be paid for by purchasing the raw materials, and the profit from these production orders is quite small. It takes a long time to import raw materials from other nations[4]. For instance, Bangladesh imported for its domestic apparel sector $1.32 billion in knitted fabrics, $2.76 billion in woven fabrics, and $0.10 billion in yarn in 2020. It takes around 20 days to receive the raw materials if local garment exporters import yarn and textiles from other nations like China and India[5]. 

According to figures from the Bangladesh Textile Mills Association (BTMA), yarn purchases in Bangladesh by textile millers in the months of January through June were US$2.66 billion, or 76% of the total import value of US$3.5 billion the year prior. Additionally, imports of woven fabrics totaled US $2.21 billion in the first half of this year, which is almost 70% of what was purchased in 2021. Meanwhile, the country’s knitters are said to have purchased fabrics worth US $1.29 billion from foreign suppliers in the first half of 2022, which is more than three-fifths of the US $2 billion spent on textiles in 2021[6].

Steps from fiber/cotton to finished fabric

Background

Backward linkage is the process by which one company or industry uses inputs produced by another company or industry[7]. Bangladesh is only capable of knitting and finishing in the knitwear industries, and it lags behind in producing yarn and textiles, which are crucial components for the woven industry. Only accessories saw success because they were able to meet 80% of domestic demand. How well RMG sector links can operate both backward and forward is a key factor in the success of the apparel industry. The production flow is likely to be disrupted if the manufacturer has effective control over the supply of the raw materials, components, and support services required to make the finished product.

After the removal of quotas in 2005, Bangladesh’s RMG industry now faces intense competition in the international market for garment exports. This industry also faces a number of difficulties, including unskilled labor, inadequate infrastructure, an electricity crisis, a gas shortage, insufficient bank loans with high interest rates, high tax rates, complex social compliance requirements, political unrest, lack of new investment, weak backward and forward linkages, etc. To overcome these obstacles, a number of cooperative and coordinated actions by owners and significant stakeholders must be made in order to achieve the ultimate aim of taking the top spot in the global garment market[8].

In addition, there has been a rise in rivalry from nearby nations including Thailand, India, Pakistan, China, and Bangladesh, from which Bangladesh imports fabrics to satisfy the fabric needs of its RMG sector. Due to their internal utilization of domestically produced yarns and fabrics, these nations have stronger backward linkage support, which puts pressure on Bangladesh’s garment industries by driving export prices up[9]. 

With a goal of increasing cotton production, Bangladesh Cotton Development Board (BCDB) has set a production range of 176286 bales in 2020-21[10]. The primary material used to create yarn and fabric is cotton. But a large amount of land is needed to grow cotton. However, Bangladesh is a small nation with limited land area. Additionally, Bangladesh lacks the specific type of soil needed to grow good cotton. Cotton growing is less profitable in Bangladesh, according to the farmers. They then switch to other fibers as a result. Bangladesh is therefore forced to rely on other nations for its cotton needs, including Uzbekistan, India, China, Pakistan, the United States, Egypt, Turkey, and Australia[2].

Spinning mills are the facilities where the yarn is made from the fiber. It is a crucial area of the textile industry because it is here that yarn for knitting, weaving, and sewing is made. Cotton yarn makes up the majority of the primary spinning products. About 60% of the cost of items supplied goes toward managing and focusing raw materials, which is still not being done. The productivity of our mills is another factor that is still at least 10% lower than that of other nations like China, Vietnam, India, and Pakistan. 

Raw materials and productivity by themselves can demonstrate the way to increase the spinning industry’s margin. Weaving is the name given to the process of creating woven fabric. Bangladesh’s woven fabric manufacturing environment is not ideal. Because weaving is so expensive in the textile sector. A woven composite factory will cost at least $35 million to establish. A significant amount of cloth is imported from China, Vietnam, and other nations in order to operate this industry and satisfy customer demand. The textile industry must initially locate a trustworthy source to import the fabric and yarn. The entire cost of an order, which includes the cost of importing woven fabrics, is 75%. This costs Bangladesh a great deal of money[2].

Knitting is the interloping of yarn technique used to create knit fabrics. The textile industry’s largest market contribution in Bangladesh is the knitting sector. The availability of upgrades and inexpensive machine knitting have caused this business to grow significantly. In Bangladesh, there have been numerous composite knit clothing companies during the past ten years. The knitwear sector in Bangladesh offers a wide range of items with a high level of added value, which are in high demand in western nations. As the textile industry expanded quickly, there was a huge increase in the need for raw materials[8]. 

The trim and accessory industries in Bangladesh are well advanced. It fully maintains demand and offers value-added services and goods. Bangladesh produces trims and accessories of extremely high quality. Since the textile industry has expanded, the trims and accessories market has become more than sufficient. More than 1400 trims and accessory businesses operate in Bangladesh today, rising to the challenges posed by the worldwide market and offering the highest quality complete goods[1]. The textile and apparel industries are currently facing a crisis. It is necessary to eliminate all potential causes of low output. To satisfy the demands of a competitive market, adequate transformation is required. The entire planet is undergoing a change in strategy.

Literature Review

Condition of overall backward linkage of RMG sector

The study couldn’t find any specific papers about challenges & limitation of backward linkage of RMG industry of Bangladesh. A journal about the overall backward linkage in readymade garment industry in Bangladesh of RMG by Mohammad Rakib Ibn Habib says that, It is inevitable that one of the major issues of success in readymade garment (RMG) industry in Bangladesh must depend on backward linkage conditions, support, and strategy formulation[7]. According to data from Bangladesh Textile Mills Association (BTMA), textile millers in Bangladesh purchased yarn worth US $ 2.66 billion in January-June, accounting for 76% of the total import value of US $ 3.5 billion in the previous year, added imports of yarn, cotton, knitted and woven fabrics skyrocketed to the point where their combined value in the January-June 2022 period almost equaled that of the entire previous year.

Condition of cotton fiber production

Only 1.77 lakh cotton bales were produced in the nation in 2021, which was insufficient to supply even one spinning mill with all of its needs. Over the last five years, production has climbed by 10,000 bales annually, but the output has not reached 2 lakh bales[11]. Long-term crops require 6-7 months to produce. In Bangladesh, the commercial types CB-1, CB-3, CB-5, CB-9, and CB-10 are grown. Only two of the five types—CB-5 and CB-9—are hairy varieties, and all five are long-lasting and require at least six months. They are only mildly tolerant to sucking pests.

In many cotton-growing regions, farmers now find it more economical to plant other crops like rice, maize, vegetables, bananas, flowers, and tobacco than cotton because cotton is currently in such intense competition with other crops. Due to the extensive and indiscriminate use of pesticides, particularly insecticides for aphids, jassids, and cotton bollworms, cotton in Bangladesh is a significant polluter crop, like in many other nations. More than 15-20 insecticide sprays are applied each season, pushing insecticide expenditures to more than 40% of total input costs and causing pest resurgence and secondary outbreaks[12].

Condition of man-made fiber production

Every day, over 430 spinning mills are in operation. Only 27 of the 430 factories produce man-made fiber (MMF), but these are for a specific type of polyester yarn.[5]. According to figures from the Bangladesh Textile Mills Association, Bangladesh imported 78,208 tons of polyester staple fiber in 2016, an increase of 11.39 percent from 70,209 tons in 2015 and 35.72 percent from 51,729 tons in 2014. (BTMA). Viscose staple fiber imports were estimated at 29,146 tons in 2016, a small decrease from 29,538 tons in 2015. The statistics revealed a volume of 16,063 tons from January to June of 2017. Viscose staple fiber imports were 18,115 tons in 2014 for Bangladesh.

Tencel, a fiber derived from trees and leaves, was imported in quantities of 5,034 tons in 2016 and 6,199 tons in 2015. There are now more factories making synthetic fibers. From 10 to 12 production units for polyester fibers alone seven years ago, there are now 52. There are ten Tencel plants and 45 viscose staple fiber mills. Despite the fact that cotton fiber continues to be the primary material used by spinners, the proportion of man-made fiber has increased globally. When compared to even five years ago, the ratio of yarn created from cotton to artificial yarn increased to around 80:20, whereas it was 90:10 even five years ago[13].

Condition of fabric production

The Bangladesh Textile Mills Association (BTMA) reports that entrepreneurs invested Tk 5,970 crore in 26 new manufacturing facilities, increasing their total capacity by more than 745,400 new spindles. For the domestic apparel market, Bangladesh imported woven fabrics worth $2.76 billion, knitted fabrics worth $1.32 billion, and yarn around $0.10 billion in 2020. Additionally, imports of woven fabrics totaled US $ 2.21 billion in the first half of this year, which is almost 70% of what was purchased in 2021. Meanwhile, the country’s knitters are said to have purchased fabrics worth US $ 1.29 billion from foreign suppliers in the first half of 2022, which is more than three-fifths of the US $ 2 billion spent on textiles in 2021[6].

Due to the expansion of backward links in the knit sub-sector, including their own knitting and dyeing section, which gives them an advantage to deliver shipments on time, the number of knitwear growth increased by 15.14 to 29.14 percent, while the growth of the woven sector decreased by 84.86% to 70.84%. Whereas the woven sector suffers from a lack of backward connectivity. 75% of the total sum was used to buy raw materials from overseas markets, resulting in a very low gross profit. The percentage of back-to-back L/C shares declined from 63.01% in 1992 to 45.10% in 2001, demonstrating the increase of backward linkage in the late 1990s. Only the knitting industry saw significant growth in this expansion since setting up a woven composite factory would cost around $35 million and developing a knit composite factory would cost about $3.5 million[14].

Condition of Trims and accessories production

Today Bangladesh has 1327 trims and accessories industry in Bangladesh meeting the challenges provided by the global market and providing the best quality full products[15]. There are over 1,800 factories in the nation making packaging and clothing accessories. They provide 40 different product categories, including buttons, plastic hangers, and polybags etc. In FY20 and FY19, the total revenue from garment exports was $33 billion and $40 billion, respectively. 95% of the demand for packaging and garment accessories in the RMG industry, which generates 86% of the nation’s export revenue, is satisfied locally. The accessories and packaging makers’ organization estimates that if the backward linkage industry operates at full capacity, it can supply 10% more[16].

Used tools and software

To display the findings, the team has investigated several applications and technologies. To identify the root causes and subsequent impacts of the main difficulties with backward linking, a fishbone diagram is employed[17]. The frequencies, percentages, and standard deviations of the replies to the questionnaire are represented using SPSS statistics analysis[18].

Findings & Analysis

The analysis is conducted based on the data the study collected through google form questionnaire. Primarily, the basic data that the study collected are analysed & portrayed here using bar chart. 56 different organization from all around the country & 70 different responsible executive from those organization participated in this process. By studying literature & interviewing responsible industry personnel & industry expert the study made hypothesis of problem statement. After that the study collected actual data from the industry to find out real time scenario of challenges & limitation of backward linkage. This analysis will portray an overview of causes, challenges, limitations & development opportunities of backward linkage of RMG sector in Bangladesh.

Basic status quo analysis of the industry

Backward linkage industry	Status example
Typical certifications that buyers ask for raw materials	GOTS, BCI, LEED, OCR, Oeko-tex, GRS, Woolmark, etc.
Top local companies for supplying cotton	Sunny Cotton, PGS, Tradecom, Zaber spinning mill, Masco, Ha-Meem, SQ, Square etc.
Top foreign companies for supplying cotton	Bros, Allenberg, Cargil, Noble group, Shonxing, etc.
Top local companies for supplying trims	Rpac, Babylon, ABS trims, Blue Planet, COTS, UNION accessories, Montrims, smart narrows etc.
Top foreign companies for supplying trims	Avery dennison, Checkpoint, Annie aviation etc.
Top local companies for supplying accessories	Rpac SML, Agami Accessories Ltd, Epyllion, Blue planet, Union, Montrims, Smart Narrows etc.
Top foreign companies for supplying accessories	Avery dennison, Checkpoint, Pexar etc.

Typically bought raw material

The study has identified some of the most bought raw materials required in RMG sector. These are: cotton, yarn, grey fabric, finished fabric, trims and accessories. The below chart shows what materials the industries need to procure. From the information the study has collected in this survey, The study can see that among them, most of the industries buy trims which is 77.1%.

Statement	Strongly Agree	Agree	Neutral	Disagree	Strongly disagree
The local material industry is not well established	54.3%	35.7%	8.6%	0	1.4%
Cotton production is very low in Bangladesh	80%	18.6%	1.4%	0	0
There are no well-known local brands for trimmings	21.4%	54.3%	17.1%	7.1%	0
There are no well-known local accessory brands available	18.6%	34.3%	34.3%	7.1%	5.7%
Unable to meet sustainability standards in backward linkage industry	67.1%	17.1%	12.9%	0	2.9%
Unable to meet eco-friendly standards in backward linkage industry	61.4%	27.1%	7.1%	1.4%	2.9%
Factory Infrastructure for backward linkage is not well established	38.6%	41.4%	17.1%	1.4%	1.4%
Government initiatives are insufficient to support expanding local backward-linkage industries	14.3%	28.6%	41.4%	11.3%	4.4%
Lack of investment for growing local backward linkage industries	30%	20%	24.3%	21.4%	4.3%
Lack of skilled man power for backward linkage industries	51.4%	30%	11.4%	5.7%	1.4%
Lack of maintenance of SOP in backward linkage supply chain management	64.3%	25.7%	8.6%	0	1.4%
Lack of use of software to monitor the correct material flow	42.9%	41.4%	15.7%	0	0
Lack of proper machineries for backward linkage industries	34.3%	54.3%	10%	1.4%	0
Lack of entrepreneurship and innovation in backward linkage industries	60%	24.3%	12.9%	2.9%	0

Root cause analysis of major challenges

Reasons for less cotton production in Bangladesh The study has identified some reasons for less cotton production in Bangladesh. These are: scarcity of arable land, lower price of cotton for the farmers, lack of research and lack of investment. The below chart shows the reasons for less cotton production in Bangladesh. From the information the study has collected from this survey, The study can see that among them, most of the respondents think lack of research is the main reason which is 79.4%.