Now You Know Profit Imparity between International Apparel Brands and Bangladesh Apparel Manufacturers

Profit Imparity between International Apparel Brands and Bangladesh Apparel Manufacturers

Fayshal Ahmed Munna
Master of International Business (Central Queensland University-Australia)
Bachelor of Science in Textile Engineering (Southeast University-Bangladesh)
Email: fayshalahmed.munna@cqumail.com

1.0 Executive Summary:
The purpose of the report is to investigate the change of profit growth between International apparel brands and Bangladeshi apparel manufacturers. This research project aims to find out, if there is any relation between international apparel brands and Bangladeshi apparel manufacturers yearly profit growth percentage.

Previous literature studied factors that influences International apparel brands and Bangladeshi apparel manufacturers profit growth. Which indicated that there is possibility of having relationship of profit growth percentage between International Apparel Brands and Bangladeshi apparel manufacturers. In addition, previous literature explained the apparel brands low cost strategy is challenging apparel manufacturers to make profit. Moreover, apparel workers are affected by apparel buyer’s production cost squeezing model.

Data sourced from seven (7) International apparel brands and five (5) Bangladeshi apparel manufacturers annual report and sustainability report of 04 consecutive years. These data are analyzed to find out; there is no partial relation between International apparel brands and Bangladeshi apparel manufacturers.

2.0 Introduction:
This research project will concentrate the profit growth variance between International Apparel Brands and Bangladeshi Apparel Manufacturers. Analyzing the profit growth percentage and variance is an important task for business analyst professionals to make proper business plan in every year. This research project will cover background of the project, literature review, research aim and questions. In order to answer research questions, this research project will cover research method, findings, discussion and conclusion.

2.1 Problem statement:
International Apparel business has become very competitive from last few decades. Wal-Mart, H&M, Target, Kmart, J.C. Penny, Uniqlo, Mango, Inditex and so on; are some big apparel brands in the world who are the holding the most number of consumers in the world. Adegoke, Arnold and Poul (2009) found that due to survive in competitive apparel market, most of the international apparel brands are sourcing their products from poor or developing countries like Bangladesh, India, China, Vietnam, Sri Lanka, Turkey. This research project concentrates on Bangladeshi apparel manufacturers.International apparel retailers are placing big orders to Bangladeshi manufacturer as Bangladesh achieved the largest market share of apparel manufacturing after China (McClearn,2013). The main reason behind this is to increase profit. A previous study by Michael, Xavier (2013) found that Profit is positively related to innovation outsourcing.

Along with the international apparel brands, Bangladeshi apparel manufacturers are also focusing on profit to sustain their existence in the competitive market. Though there are some different factors that influence both parties profit growth. Analyzing a business’s profit growth can show the future path of that business.However, there is not much studies profit growth impact and relationship between apparel brands and apparel manufacturers. Michael, Xavier (2013) argued that finding a retail company’s profit growth and understanding the relation with suppliers indicates the company’s strength.

3.0 Literature Review:

3.1 Factors influence profit growth of international apparel brands:
International apparel brands are taking a number of measures to compete worldwide and increasing their profit growth. Some factors come under light when apparel brands are conscious about their profit. Fratto, Jones & Cassill (2006) found that product price is the most important factor in competitive market. Product(apparel) unit price[1] is largely depends on products manufacturing cost. Edaba, Lucie, Norma, Nora & Paul (1994) found that When retailers face challenges on their profit, they respond by reducing the price of manufacturer.International apparel brands are sourcing apparels from Bangladesh as Bangladesh can produce ready-made garments in very cheap price comparing to other countries in the world. Strahle, Koksal (2015) pointed that Bangladesh is one of the best destination for low production cost of apparel. In addition, besides low cost production strategy, apparel retailers work on squeeze of unit product price, price concession or acceleration of delivery time (Paul, Vanessa.2001). Lot of apparel brands in the world has changed their business strategy on focusing on low cost production and profit growth. Fratto et al (2006) found that cost reduction strategy is Wal-Mart’s core business strategy. Along with Wal-Mart, many other international apparel brands are following the same strategy.

Labour cost is also a very important factor that influence ultimate profit of apparel brands. McClearn (2013) stated that Chinese labour cost is increasing in double digit percentage every year where Bangladeshi apparel labour cost are not increasing that much which attracts apparel buyers to place order in Bangladesh. In international competitive apparel market, supplier selection is a very tough decision where a buyer needs to sure about market production cost, maintenance of quality, capabilities of delivering huge production quantity and maintain delivery time. Shrahle et al (2015) argues that apparel brands prefer to place order where they can get assurance about low cost production, no tariff on apparels, use of high technology, delivery commitment on time and political stability. Apparel brands can control over their profit growth by controlling these factors.

3.2 Bangladesh as a big apparel supplier:
Bangladesh has become a large apparel supplier in the world for last few years. BGMEA[2](2016) shows a data that there are 4,482 garments industries where about 4.0 million employees are working.According to Around the globe (2016), Bangladesh garments export earning boost to $25.3 billion in July-April session 2015-2016 from last fiscal year 2014-2015 same session. In year 2016-2017 Bangladesh garments export expand a lot. BEPB[3](2016) published a data that Bangladesh garments export earning in Australia, UK,USA, Canada and Europe was $5.82.02,$3306.50,$5201.01,$946.30 and $17750.50 respectively.

Bangladesh is the biggest apparel sourcing hot-spot as Rachel, Mushfiq (2015) China has planned to shift apparel sourcing away for increasing labour cost and skilled labour shortage in this sector. Therefore, Bangladesh got the most market share for apparel manufacturing. Strahle et al (2015) stated that business friendly environment, better trade agreement, cheap labour cost, cheap transportation cost for raw materials, putting apparel business under free trade agreement with a lot of countries, use of high technology in apparel production makes Bangladesh a suitable place to place manufacturing order. A report projection says that Bangladesh apparel export business will triple in 2021 which will also lead a labour demand of 3.5 million workers (Rachel et al ,2015).

3.3 Factor influences profit growth of Bangladeshi apparel manufacturers:
Bangladeshi apparel manufacturing industry is growing under high competition with other countries in the world. Maintain buyer’s commitment and profit growth at the same time has become a great challenge. Jin, Farr (2010) found that buyers puts continuous pressure on suppliers to control production cost and quality at the same time. This situation is not easy to overcome for manufacturers. Taslima (2014) found that Bangladeshi apparel manufacturer found themselves in the middle between product demand in different fashion season in global market and controlling production cost to make profit.So, low production cost and low labour cost are two main factors that influence Bangladeshi apparel industries profit growth. McClearn (2013) found that production cost for a T-shirt in Bangladesh is almost half from its nearest competitor China. ILRF[4](2012) published that sweaters can produce sweater 17% cheaper than its closest competitor Vietnam. In addition, Children’s cotton shirt can be produced 15% cheaper in Bangladesh than its nearest competitor Cambodia and 50% cheaper than its second closet competitor China. In this perspective, apparel manufacturers choose to keep labour cost almost same every year which will differentiate them from other competitors. Hence, that creates the worker’s life miserable ultimately.Larry (2013) found that dirt-cheap labour, vulnerable building construction,poverty is the behind story of Bangladeshi worker’s life.

3.4 Profit focus causing the ignorance of Bangladeshi apparel worker’s miserable life:
International apparel buyers and Bangladeshi apparel manufacturer both parties are concern about individual profit growth. Emmelhainz, Adams & Ronalds (1999) found that international apparel buyers are going under extra scrutiny for using sweatshop labour in production to maximize profit. Farhana, Monir & Shayekh (2015) found that almost 50% of apparel manufacturing worker’s salary is around BDT[5] 10,000 per Month which is the world’s cheapest labour cost in apparel manufacturing.

Taslima (2014) argues that manufacturers are in serious competition that they cannot even negotiate with the buyers regarding price and delivery time as they are afraid to lose order. Paul et al (2001) argued that apparel retailers control market share effect on profitability to achieve economical goal only. Few buyer as Tesco, lower their product price 5-10% in year 2005-2006 than 2004-2005 (Taslima,2014). In that sense, apparel manufacturing workers in Bangladesh are depriving from promotion, regular salaries, overtime, medical facilities, safe working place and so on. Nancy (2016) found that employers tolerate unsafe working condition and long working hours to make more profit. In recent years, Bangladesh apparel manufacturing faced two devastating accidents. Diana (2015) found that collapse of Rana Plaza in Savar, Dhaka costs 1100 garments worker’s life in 2013 and fire in Tazreen Fashion, Bangladesh took 112 workers life. These two horrific accidents grabbed the whole world’s attention. A number of apparel brands signed an accord on building safety and fire safety within three weeks (Diana,2015). Emmelhainz et al (1999) found that government and consumer’s consciousness regarding foreign manufacturers and their workers condition are increasing. Nimbalker, Cremen & Wrinkle (2013) found that 7% of Australian apparel brands code of conduct maintain ILO[6]principles. Australian Fashion Report 2015 found that about 75% of apparel brands are not concern about their manufacturer. International apparel brands are more focused on profit growth where Taslima (2015) argues that buying practice of buyers have a direct impact on apparel manufacturers and their workers.

Base on the above study, the hypotheses are developed;

H0: Profit growth percentage of International apparel brands and Bangladeshi apparel manufacturers are related on each other.

H1: Profit growth percentage of international apparel brands and Bangladeshi apparel manufacturers are not related to each other.

4.0 Research Aim and Question:
The aim of the research is to identify the profit growth percentage of five selected international apparel brands and five selected Bangladeshi apparel manufacturer. The questions are developed to achieve the aim of this research is given below:

How International apparel brands profit growth is changing?
Is there any variation in Bangladeshi apparel manufacturers profit growth?
Is there any relationship exist between Bangladeshi apparel manufacturers and International apparel brands profit growth?

5.0 Research Method:

5.1 Sample Size:
In this paper, seven (7) international apparel brands and five (5) apparel manufacturing industry in Bangladesh are selected based on their availability of financial or annual report considering year between 2014 to 2017.The list of randomly selected international apparel brands and Bangladeshi apparel manufacturing industry is shown in table 01 and table 02 respectively.

Table 01: Sample size of the study (International apparel brands)

Profit Imparity between International Apparel Brands and Bangladesh Apparel Manufacturers Now You Know Profit Imparity between International Apparel Brands and Bangladesh Apparel Manufacturers

Table 02: Sample size of the study (Bangladeshi apparel manufacturing industry)

5.2 Data Collection:
The main data for this paper are the annual and financial reports of seven international apparel brands and five Bangladeshi apparel manufacturing industries. Annual reports and financial reports are collected between the year 2012 to 2015 from the company’s official websites. In addition, data was also sourced from Bangladesh Garment Manufacturers and Exporters Associations (BGMEA) bgmea.com.au, Bangladesh Export Promotion Bureau (BEPB) www.epb.gov.bd. For literature review and other purposes, different journals, books, articles, fashion reports and other secondary data were reviewed.

5.3 Variables:
All data are collected from sampled companies annual report, substantial report and Financial report within the year 2012 to 2015.The variables-profit growth and profit growth percentage, for seven apparel brands and five apparel manufacturers of Bangladesh will be used in data analysis.

6.0 Data Analysis:
In this research paper quantitative data as net profit, net profit growth percentage, net profit growth percentage difference is collected from annual and substantial report of sampled companies from 2012 to 2015. Bryman & Cramer (2001, p.2) pointed out that Quantitative data analysis is advantageous in respect to the diffusive use of statistical data. The statistical data of all companies’ annual report will be done to find out profit growth and profit growth percentage.They will be analysed by using correlation analysis to find out the relation between International apparel brands profit growth and Bangladeshi apparel manufacturers profit growth. SPSS software is issued to perform correlation analysis. In addition, few calculations will be done to analyse profit growth and percentage of profit growth of the companies.

6.1 Profit Growth Analysis:
The first part of the analysis is to find out profit growth of sampled international apparel brands and Bangladeshi apparel manufacturers. All data is sourced from the annual report, sustainability report of seven international apparel brands from the year 2012 to 2015.Few apparel brands profits are converted to USD currency for the convenience of calculation.

Table 03 : Seven(7) International Apparel Brands Net profit[7]from 2012-2015.(all data are in million USD)

Source: www.hm.com, www.Inditex.Com, www.WAL-MART.com, www.kmart.com, www.target.com, www.uniqlo.com,www.mango.com

Data for five Bangladeshi apparel manufacturers profit growth also sourced from the annual report, sustainability report from the year 2012 to 2015. Few apparel manufacturers profit is converted to USD currency for the convenience of calculation.

Table 04: Five (5) Bangladeshi Apparel Manufacturers Net profit from 2012-2015. (all data are in million USD)

Source: http://www.beximco.com/assets/investor/bsl-annual-2014.pdf, http://textile.squaregroup.com/tex_financialStat.html, http://www.rahimtextile.com/images/frontImages/RTM_Annual_2016.pdf, www.wesgarmers.com

6.2 Profit Growth Percentage Analysis:
Profit growth percentage indicates a company’s success. Luigi (1962) found that profit growth accumulates the distribution of capital and income. Profit Growth percentage in every year between 2012 to 2015 will be calculated by using the formula of increase of profit growth percentage and decrease of percentage.

Increase ÷ previous Number × 100%= increase ↑

Decrease ÷ previous Number × 100% = Decrease ↓

Profit Growth percentage of seven international apparel brands signifies their business position in world market.

Table05: Seven (7) International Apparel Brands Net profit growth percentage from 2012-2015. (all data are in percentage)

Source: Calculation of profit growth percentage from table 03

Profit growth percentage of Bangladeshi Apparel manufacturers points their business success and challenges to survive in competitive market.

Table06: Five (5) Bangladeshi Apparel Manufacturers profit growth percentage from 2012-2015. (all data are in percentage)

Source: Calculation of profit growth percentage from table 04

To determine whether there is any relationship between International apparel brand and Bangladeshi apparel manufacturers profit growth percentage, it is essential to identify each company’s profit growth and profit growth percentage.

7.0 Findings & Result:

7.1 Descriptive statistics:
Seven international apparel brands and five Bangladeshi apparel brands; annual report and financial report from the year 2012-2015 is provided in sourcing data. Descriptive statistics shows that profit growth percentage in 2012-2012,2013-2014,2014-2015 (3 sessions) that makes the n value 3. Minimum and maximum change of profit growth percentage of each company is also found from the descriptive statistics. Mean value shows that five (5) out of seven (7) international apparel brands profit growth percentage is positive in average where four (4) out of five manufacturers average profit growth percentage is positive.

Table07: Descriptive statistics

Descriptive statistics shows the standard deviation all companies, where it shows all the companies profit growth percentage (apparel brands and manufacturers) are positively differ from each other. In addition, it also shows that five Bangladeshi apparel manufacturers profit growth percentage is more than the apparel brands profit growth percentage.

7.2 Correlation:
Correlation table shows that percentage of International apparel brands profit growth are control variable to check partial correlation between 7 apparel brands and 5 apparel manufacturers.

The partial correlation results show that there is no relation between International apparel brands profit growth percentage as there is no difference occurs between Bangladeshi apparel manufacturers and international apparel brands profit growth percentage change.

8.0 Discussion:
The purpose of this section is to measure the impact of profit growth percentage among the companies. Company performance largely reflects its yearly growth percentage where finding says there is no correlation between international apparel brands and Bangladeshi apparel manufacturers profit growth percentage.

Each company’s profit growth depends on the market competition, labour cost, raw material and infrastructure cost. Therefore,apparel brands spend a large amount of money on retailing and advertising. In contrast, Apparel manufacturers needs more money on product development and improving quality.

The finding shows hypothesis H1is accepted that says there is no relation between international apparel brands and Bangladeshi apparel manufacturers profit growth percentage.

9.0 Conclusion:
This section will focus on research aim and questions, limitations of this research project and recommendations.This research project finds that profit growth of international apparel brands is changing a lot comparing to Bangladeshi apparel manufacturers profit growth. Here, this changes are occurring to retailer’s apparel design of collection and consumer relationship. Moreover,apparel manufacturers profit is not depending on International apparel brands profit growth. International apparel brands profit growth largely depends on business geographical area, business strategy and market penetration.

9.1 Limitation:
There are few limitations of this research. First one is sample size of seven international apparel brands and five apparel manufacturers in Bangladesh where is around 5000 garments in Bangladesh (BGMEA2016).

The second limitation is finding annual or financial report of Bangladeshi apparel manufacturer. Though there are 5000 garments of Bangladesh but a very less number of manufacturing company publishes annual report publicly.

9.2 Recommendation:
This research project concludes that there is no partial correlation between International Apparel Brands profit growth and Bangladeshi apparel manufacturers profit growth. This result suggests Bangladeshi apparel manufactures to concentrate on own business plan to find out competitors, market size, market potentiality and development of trade relation with international buyer. In addition, providing better working environment and decent wages can attract international apparel buyers to place order.

This study focuses on listed companies which are big companies.Future studies on small and medium size manufacturers or apparel retailer regarding profit growth impact and setting up profit margin will be beneficial for researchers, company owners or managers.

10.0 References:

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11.0 Appendices:

Figure: Correlation between 7International apparel brand and 5Bangladeshi apparel manufacturers

Footnotes:
[1] Unit price = Price of a single commodity
[2] BGMEA=Bangladesh Garments Manufacturers and Exporters Associations.
[3] BEPB=Bangladesh Export Promotion Bureau.
[4] ILRF=International Labor Rights Forum
[5] BDT=Bangladeshi Taka(CURRENCY)
[6] ILO=International Labour Organisation
[7] Net Profit=Actual profit after working expenses

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