From the heights of 1999/2000, when the total RMG export was
about NRs 12 billion to the lows of 2011/2012, when the total RMG export was
NRs 4.05 billion, Nepalese RMG industry has continuously loosing international
market to African and the South Asian manufacturers. One of the major damage
was due to the removal of duty-free and quota-free access to its market by the
then largest importer of Nepalese RMG – USA in 2004. Add to this, USA gave
special preference to RMGs from African nations. The exports of RMG from Nepal
declined sharply during this period, i.e. NRs 12 billion in 2002/2003 to NRs
6.7 billion in 2004/2005, with almost all the decline in the US market.
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| Picture Source: http://ekantipur.com |
To sustain, Nepalese RMG industry searched for other markets
where it enjoyed preferential treatment. Japan, Canada and the EU market were
the places to go. All these markets gave preferential treatment to the garment
exports from Nepal. But, the industry must be cautious in terms of serving
these markets. Japan and Canada could be just another USA. On the other hand,
EU policies are very less subject to changes. Also, the EU gives special
treatment to Nepal, along with Laos, through the derogation facility – the
products needn’t fulfill the stringent criteria of rules of origin in
order to get the duty-free access to the market. Another advantage of putting a
lot of effort in this market is the sheer size of it – population of over 500
million.
But, the industry should take the treatment as only the
stepping stone to these markets. In order to sustain and grow in the market,
the industry has to build its core competency and build its competitiveness as
soon as possible. One of the most important features of the industry is that it
can provide the quality preferred by the customers at the lowest prices. Another
major advantage is that the customers trust Nepalese manufacturer over their
South Asian counterparts due to past experiences.
In order to make an impact in the European market, the RMG
industry has to be able to partner with bigger retail chains and deliver their
large orders – running in millions of pieces. But, due to regular load
shedding, requirement of large labor force which would give rise to stronger
unions flexing their muscle, irregular raw material supply and no standards on
quality of end products which result in rejection of orders after they are
shipped to the markets, the garment producers haven’t been able to accept and
deliver large orders.
Strengthening the existing association – Garment Association
of Nepal (GAN) in order to share risks and opportunities among the members,
should be able to solve the issues. GAN should act as a virtual company with
the members acting as its satellite plants. The volume of raw material from the
suppliers would be massive if the members acquired from GAN, which in turn
purchased from the suppliers. This would increase the bargaining power of the
purchasers and thus the timely delivery of materials with consistent quality
would be possible. Also, taking huge orders from the European retailers would
be possible, with GAN dividing the orders among the members as per their
competency. Developing quality standards for the products and the production process
by the association would remove the possibility of the customers rejecting the
orders after they have reached Europe. Also, collaborative shipping would be
possible. Huge volume of shipments would also mean lower costs via the concept
of economies of scale.
These activities would sharpen the core competency of the
industry, i.e. to provide quality at lowest prices. This will not just enable the
industry to sustain in the European market but also grow there and in other
markets, reviving the lost glory of the industry.
(The article is based on the research done by a group (named
Kanzen) of MBA 3rd term students of KU School Management, as
per the requirements of their course – Global Business Management)
