Value Addition from Knitwear industry

Bangladesh’s entry into the “modern” textile trade is relatively new, but knitwear entrepreneurs have been able to quickly adapt to the nature of demands. The knitwear sector in Bangladesh is generating large efficiencies through operating as groups of spinning, fabric knitting, dyeing, finishing. In other words, knitwear firms are effectively operating as conglomerates; thereby reaping many of the efficiencies of vertical integration.

Within Bangladesh’s RMG exports, there has been a significant shift towards the knitwear sub-sector from the woven wear sub-sector. During the FY1991-FY1995period, the ratio of exports of woven RMG to knit RMG was about 85:15; by FY2010, this had changed to 48:52 (see table 2). The shift towards RMG exports and the ascendancy of the knitwear sub-sector within RMG were heavily influenced by preferential market access and Bangladesh’s ability to take advantage of the favorable treatment that was offered.

In Bangladesh, normally the knitwear production process starts from cotton. Then the next processes are done in our country. We are to import 98% of our required cotton from foreign countries- the only impediment to become a vertically integrated knitwear industry. Bangladesh knitwear industry is playing a vital role in value addition of Gross Domestic Product (GDP)

Table: Value Addition and Net Retention Rate of Bangladesh Knitwear Sector
Year 1994 2000 2008 2012 2013 2014
Value Addition 50% 70% 75% 72% 75% 75%
Net Retention 40% 55% 61% 53% 50% 48%

The domestic value addition in this sector is about 75%, which is much higher than woven products. The Knitwear sector’s value addition contribution in the GDP is about 10%. In the export field, the knitwear industry of Bangladesh has managed to make a big name across the world. BKMEA has taken different initiatives to promote the export growth of knitwear products. BKMEA is working to incorporate the latest technology, which in turn will increase the domestic value addition.

Backward linkage Development:
The core strength of the knitwear sector is its backward linkage. The entrepreneurs of the sector have not only increased their stitching capacity overtime, but also invested in the allied industry to augment the overall capacity of the total sector with the same pace. Over the period of time, knitwear sector gradually became almost self-sufficient in fabric and yarn development. This improvement has become possible because of the integrated growth of spinning factories in line of the growth of country’s stitching capacity and increased need of the yarn and fabric.

As the export has increased in the knitwear sector, the capacity of backward linkage has also increased accordingly. The result is local suppliers can provide now 95% of the total fabric requirement of the sector (source: BTMA). The growth of spinning mills is alsostepped with the growth of knitwear exports. In 2010-11, total number of Yarn Manufacturing Member Mills was 383, whereas Fabric Manufacturer Member Mills was 743. But now-a-days, there are more than 500 Yarn Manufactures Mills in Bangladesh. As of now, the total investment in the backward linkage in knitting, dyeing and spinning industry is more than US$ 5.03 billion or € 4.00 billion.

In 2013-14, the contribution of knitwear in national export earnings is 39.81%. The Direct contribution of Knitwear sector on GDP of Bangladesh is almost 7%, but the backward linkage sector of Knitwear sector has another 2% contribution on GDP.

This has resulted because of the backward linkage industry that has grown over time which helped the knitwear sector to have the higher value addition and therefore a much higher net retention rate.

In course of time, the sector has become almost self-sufficient in production of fabrics and yarn. This improvement has become possible due to the integrated growth of spinning factories with the growth of country’s stitching capacity and increased need of yarn and fabrics. As a result, local suppliers at present can provide up to 90% of the total fabric requirement of the sector and local yarn suppliers provide around 75% of the total requirement of the sector.

The backward linkage industry has helped the knitwear industry to have the highervalue addition and much higher net retention rate. This makes the knitwear sector asthehighestcontributor in terms of both gross and net export earnings. Besides, the sector opened upemployment opportunities for many individuals through direct and indirect economic activities, which eventually helps the country’s social development; woman empowerment and poverty alleviation (see, Bakht, Yamagata, andYunus, 2009).

It is evident that technical efficiency in knitwear sector is increasing in Bangladesh. While this is true of most of the manufacturing industries, knitwear sector warrants extra consideration because of its contribution to the foreign exchange earnings and employment with value addition through backward linkage industry.

A closer analysis of the growth pattern, performance, problems, and prospects of the knitwear sector is necessary for evolvinga policy regime that is beneficial for the optimal development.