Apparel Online Bangladesh Magazine November Issue 2018 | Page 10

MINDTREE
Q-and-A
As per reports, Bangladesh Government has decided to fix the minimum wage for the 3.6 million
workers employed in the readymade garment sector of the country at Taka 8,000, which will be
implemented from December this year.
Do you think this has been a rational increase considering the need, requirement and challenges
faced by the stakeholders or will it have any adverse business implications…
Akhilesh Kumar Singh
Country Manager, Francis Wacziarg Agencies (P) Ltd.
If we have seen salary being raised in 2010 and 2013, then the current
hike of minimum wage in 2018 is okay. However, I feel the decision on
increasing the minimum wage has been taken a bit early and I think it is
due to the upcoming general elections scheduled to be held in a couple
of months. Once the election is declared, the current Government will
not be able to take a call on this issue officially.
Looking at this decision from the workers’ perspective, I would say it is
a positive move as the workers and their families would be benefited
by the increased minimum wage. However, looking at it from a different
angle, I feel the rise in minimum wage will impact the FOB prices, and
exporters will now start increasing the FOB rates. Many of them had
even been preparing to ask upcharges for the delivery of goods which is
already confirmed from December 2018 onwards.
So, on the whole, it is a very complicated scenario for the buyers and
buying agents like us. If the FOB price increases, then other countries
will become more competitive in terms of price points and buyers might
move to those destinations. So, the overall impact on the business is
clearly foreseeable.
Md. Ehsanuddin Khan
Chief Operating Officer, Sonia & Sweaters Limited
In assessing whether the new minimum wage of readymade garments
workers (to be implemented from December of this year) has been a
rational increase, several factors relevant to the stakeholders need to
be taken into serious consideration. At the heart of the discussion lie the
two most important realities: that of the business landscape in which we
operate and of the human component that drives the industry.
It is a well-known fact that price attractiveness is amongst the foremost
reason for sourcing out of Bangladesh. The global sourcing paradigm,
in its evolving form, is constantly forcing the fashion value-chain to
be streamlined, thereby resulting in lower prices and consequentially
diminishing margins for the manufacturers at large.
Though there have been much-needed improvements in workplace
safety standards over the past few years, it has come at significant
expenditure for a majority of the industry’s participants. In addition to the
forecast of increased costs of production being attributable to increase in
the workers’ wages, the industry must also plan to tackle increase in raw
materials and other manufacturing expenditures over the next few years.
From the human component perspective, the grim reality is that the
cost of living is becoming increasingly unmanageable for low-income
groups. For the majority of workers, savings from their current earnings
is virtually impossible, and that would hold true even with the newly-
increased minimum wages as well. The inflationary pressures on daily
essentials, coupled with the lack of any structured mechanism whereby
workers are provided subsidies on food, housing, healthcare,
or children’s education by the Government or the relevant trade bodies,
has lent momentum to the push for an increase in the minimum wages of
this proportion.
The immediate business implications of an increase in minimum wages
of this proposition would be felt harder by the smaller and medium-sized
factories with greater constraints on their financial capabilities.
In a market where it is becoming increasingly difficult to negotiate
better prices from buyers/customers, the predominant segment of
manufacturers still positioned in entry-level mid-market clothing items
would definitely struggle to absorb the incremental wage cost component
of manufacturing.
Factories dependent on economies of scale in their operations will,
over the next few years, be compelled to adjust production targets to
be gained through improving workers’ efficiencies, but in the immediate
short-term, there may be no easy answers in terms of offsetting the
increased costs of production.
The logical outcome of such a scenario would likely result in leaving
many factories at the crossroads as to where their future lie. The
factories with a longer-term approach to their business would have
to look at their workers more and more as partners in their ongoing
development, in ensuring that the skill-sets at each level of the
production chain are constantly being upgraded. Most proactive
companies would also use this situation as a platform for their continued
efforts in increasing transition to value-addition manufacturing, gearing
towards revenue enhancement, without which, the common interests of
all the stakeholders would be extremely difficult to protect.
Roshan Withanage
Managing Director, CJ International
It is a hard question to answer… Taking into account the increasing
cost of living and the welfare of the workers, I have to agree that
the move to increase their salary and the quantum of salary hike is
rationale.
However, at the same time, I also feel that increase in minimum wages
will have an adverse impact on the Bangladesh apparel industry at
least in the short run. This is so because Bangladesh’s unique selling
point has always been the low cost criterion and not value addition. 
The consumer, on the other hand, puts pressure on the retailers to
push for compliance and fair wages but they are unwilling to pay a
reasonable price for the items that they buy.
Currently a cup of coffee in Europe would cost as much as a cheap
T-shirt; and the consumer would expect the T-shirt to last for a few
seasons or years. In my opinion, if we can move from low price being
our unique selling point to value addition being our strength like that in
other countries like Sri Lanka, I feel we would then have a much better
chance for sustainable growth.
10 Apparel Online Bangladesh | November 2018 | www.apparelresources.com