Mr Sharif Zahir: Our compliance standard is the best in the entire world

This piece was transcribed from Mr Sharif Zahir’s speech in a ‘Round Table’ discussion arranged by Bangladesh Apparel Youth Leaders Association (BAYLA).    

When I took over the business, we had 1500 people and now we have 36000 people across a very diversified product portfolio. One of the things that I focused on from the beginning was creating an organization.

Traditionally this industry is more entrepreneur-focused, if we look at the 80s it was more like a cottage industry. One or two factories were done properly and later it grew like a mushroom. In the 90s we saw some mature investment, especially from the knit sector. If we look at how the industry evolved, it has grown through the effort of private initiatives or entrepreneurs.

When the industry is small, it’s possible to grow rapidly. We grew from a few billion to the next stage. But now that the industry is exporting 34 billion and employing 4 million workers it can’t be an unplanned industry. We have seen the cost of being unplanned, we saw all the tragedies that took place.

So, we have come all this way by learning from our mistakes. I think now is the time with the image that we have created in the industry, particularly during the last 7-8 years, we can proudly say that our compliance standard is the best in the entire world.

Our entrepreneurship has matured, we have younger people, we have the next generation in place. So, I would expect the industry to take off from here in a more mature way. The main component of a business is demand and supply. We don’t want to get into a product category or a segment that is already crowded. I don’t know why previously we focused on increasing line length.

For some reason, we are very shy about talking about the bottom line. Our news media portrays making a profit as a fault. We work in a sector where our retailers are making double-digit net margin profit. A CEO loses his job if the profit drops from 11% to 10%-10.5%.

We should look at the sectors more critically, just because it looks like someone else is doing good does not necessarily mean he is doing good. We have the market knowledge; we should explore products that have less supply with a big margin.

Last year our industry was on the brink of collapse due to covid. I have seen partners we have worked with for 20-25 years going beyond standard business ethics. Some went for straightway cancellation, others asked for discounts. I have spoken to CEOs of all the big industries and their behaviour was immoral and not in line with standard business practices. So, we have to understand the reality, it is purely a matter of economics, it is a matter of profitability, it is a matter of bottom line.

We have to be prepared for it. I am talking to entrepreneurs today. We have stories of big failures and we don’t want our industry to go down that path. So, everyone needs to have an exit policy. When you form a business, you have to think of an exit.

Product diversification is very important. There are still a lot of sectors, a lot of items that are technical that have the niche which Bangladesh is not doing today. China’s business will shift, it is a huge 250-billion-dollar industry, even if it is a 5-10% shift. The biggest gainer should be Bangladesh. Recently we have seen Vietnam taking advantage of products like activewear which have been extremely profitable for retailers. Activewear used to be done in Taiwan, it moved to China and now it moved to Vietnam.

There are product categories we should target and explore. Mature factories should R&D and find out which products and technologies they should adopt.

All the NGOs, Banks, DFID, everyone is working in the textile sector because it creates the most employment. So, textile is the backbone of any developing country. All stakeholders should focus on promoting the textile industry.

In countries like Ethiopia, you would not see multistoried buildings, only single-storied buildings. This removes about 60-70% compliance risk, particularly for high-density industries like garments. Why not our next phase of growth happens in that way? We now have economic zones; this is a fantastic opportunity.

In economic zones, we should leave 50-100 acres for SMEs. Banks could fund this and together we can build in a planned way. This also creates an opportunity to groom entrepreneurship. If we can set up a small industry they can focus on online orders. Online orders are difficult for large factories but a startup can adopt this method easily. And he is going to make 4 times the profit of big factories. This is a huge opportunity for entrepreneurs. Another 10 billion can come from this sector.

We are very proud of our LEED factories but they are not getting better prices for being LEED-certified. Green initiatives should be taken that has a bearing on the profit. Solar has become feasible as it is cheaper than the grid so obviously, we should invest in solar. We have to keep in mind that we should adopt technologies that give us returns. If we can increase the country’s image, we can charge more for our products. Unfortunately, even bigger brands reduce prices for the same product, even Adidas reduced prices to 5 cents a spin when in Sri Lanka they can’t do it for less than 12 cents. The main reason for this is our internal competition instead of promoting together. Bangladesh’s main competitor is Bangladeshi factories, no other country can compete with us in the price category. So, if we are wise, know how to do costing, if we create additional factories based where there is demand and less supply only then can we come out of this as winners.

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