MM_Haider
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Despite the tariff-free access to the European market, the Faisalabad sock giant has yet to be able to make its Bangladesh operations profitable and decided to call it quits
NOVEMBER 28, 2020
By
Profit
Why is it that if one looks at the tags of clothes bought in Europe, they will invariably say ‘Made in Bangladesh’? Entirely European fast fashion brands like Zara (which is a Spanish retailer) will manufacture their clothes in Bangladesh.
There is a specific reason for this, and not just the usual developing world cliches of ‘cheap labour’ and ‘advantage in cotton’. Technically speaking, Bangladesh has been part of the World Trade Organisation since 1995. But in 2001, it would make a decision that would alter its fortunes for the better. That year, the country signed the ‘EU-Bangladesh Cooperation Agreement’ with the European Union. That agreement provides broad scope for cooperation, extending to trade and economic development, human rights, good governance and the environment.
But the real benefit, of course, was trade. Bangladesh was to receive duty-free access to EU markets under a programme known as the globalised scheme of preferences (GSP), designed to help developing countries grow through trade. The country has the most generous level of GSP, aimed at least-developed countries.
And it worked. For instance, in 2015, the EU accounted for 24% of Bangladesh’s total trade. Over 90% of the EU’s total imports from Bangladesh were in clothing. More impressively, between 2008 and 2015, EU imports from Bangladesh trebled from €5,464 million to €15,145 million, which represented nearly half of Bangladesh’s total exports.
One textile company in Pakistan took notice: the sock moguls, Interloop. The company is one of Pakistan’s fastest-growing and most exciting textile companies, and let us explain why.
In 1992, two brothers Musadaq Zulqarnain and Naveed Fazil along with their friend Tariq Iqbal Khan set out to establish a company producing hosiery products in Faisalabad. Zulqarnain, an engineer by profession was at that time employed at Sui Northern and Fazil, who had recently graduated from Oxford University in England, was having a hard time finding a suitable job back in Pakistan. It was at that time that their friend, Iqbal, told them of a new technology in textile manufacturing, and suggested that they bring it to Pakistan and set up a hosiery manufacturing company.
Thus, after selling off some commercial property, Interloop was established (the name is derived form the ‘interlooping of yarn’). The original investment was of Rs9.35 million, with 10 computerised sock knitting machines imported from Italy.
Those Italian connections proved useful. In the 1990s the Italian companies which had manufactured the machines bought by Interloop had sales agents in Pakistan, who were responsible for marketing the machines and bringing customers to companies who had already bought the machines. Through these agents, Musadaq was introduced to a French customer, who then brought two new customers to Interloop, one from Korea and the other from France.
Today Interloop owns more than 5,000 Italian knitting machines, employs 15,000 people with an organizational network spread over three continents. Its client list includes major global athletic wear brands like Nike, Reebok, Adidas, and Puma, as well as other major clothing brands like H&M, Uniqlo, Target, and Levi’s.
In March 2019, Interloop went public in Pakistan by listing 12.5% of its shares on the Pakistan Stock Exchange (PSX), raising a whopping Rs5.02 billion in what was the largest private sector initial public offering (IPO) in the country. According to its latest annual report, its profit after tax was Rs1,796 million, (significantly less than 2019’s Rs5,195 million, though the year was badly affected by Covid-19 pandemic).
But where did the Interloop’s interest in Bangladesh come from? Well, first, the company became interested in the EU itself. In 2009, the company joined hands with a Netherlands-based firm, called Eurosox Plus, to provide marketing intelligence, design, sales and distribution services to clients in Europe.
The natural conclusion from this expansion was to look at who had favourable relations with Europe. Enter Bangladesh. That is why in 2010, the company set up IL Bangla Ltd, a vertically integrated hosiery plant with a monthly production of 3 million pairs of socks.
This made Interloop one of the first Pakistani companies to set up operations in Bangladesh to take advantage of the tariff-free access to the EU that Bangladesh got.
Incidentally, the government of Pakistan has been trying for the past two decades to get that same GSP Plus access to the European Union’s market, without success. Part of that has to do with the fact that the EU demands changes in legal structures to protect human rights, including the abolition of the death penalty.
Under the Zardari Administration, from 2008 through 2013, Pakistan had a moratorium on the death penalty, but did not actually abolish it. The EU came close to considering offering GSP Plus status to Pakistan, but then, when Pakistan started executing people again after the 2014 attack on the Army Public School in Peshawar, the EU withdrew that offer.
And all of this is becoming relevant now, because in a notice sent to the PSX on November 18, Interloop said it would divest from the operations.
Apparently, whatever magic advantage they thought would appear from investing in Bangladesh had simply not appeared. In fact, for the last few years, “market conditions had made its ongoing operations untenable, and the unit is in losses for quite some considerable time, and as a consequence it is imperative the company divest its investment, and use that resource in some profitable venture.”
Currently, Interloop holds 31.61% of IL Bangla’s shares. The sale of assets and winding up process will be according to the laws of Bangladesh.
It turns out that despite Interloop’s track record, and high expectations of its Bangladeshi venture, it simply could not reap the regional promises it thought it could. No more made in Bangladesh socks then; simple made in Pakistan socks (with all the not so nice duties), for now.
========================================================================================================
I wonder if all Pakistani companies who transferred their operations to BD withdraw like that ... what will happen to the Bangladeshi economy bubble ...
NOVEMBER 28, 2020
By
Profit
Why is it that if one looks at the tags of clothes bought in Europe, they will invariably say ‘Made in Bangladesh’? Entirely European fast fashion brands like Zara (which is a Spanish retailer) will manufacture their clothes in Bangladesh.
There is a specific reason for this, and not just the usual developing world cliches of ‘cheap labour’ and ‘advantage in cotton’. Technically speaking, Bangladesh has been part of the World Trade Organisation since 1995. But in 2001, it would make a decision that would alter its fortunes for the better. That year, the country signed the ‘EU-Bangladesh Cooperation Agreement’ with the European Union. That agreement provides broad scope for cooperation, extending to trade and economic development, human rights, good governance and the environment.
But the real benefit, of course, was trade. Bangladesh was to receive duty-free access to EU markets under a programme known as the globalised scheme of preferences (GSP), designed to help developing countries grow through trade. The country has the most generous level of GSP, aimed at least-developed countries.
And it worked. For instance, in 2015, the EU accounted for 24% of Bangladesh’s total trade. Over 90% of the EU’s total imports from Bangladesh were in clothing. More impressively, between 2008 and 2015, EU imports from Bangladesh trebled from €5,464 million to €15,145 million, which represented nearly half of Bangladesh’s total exports.
One textile company in Pakistan took notice: the sock moguls, Interloop. The company is one of Pakistan’s fastest-growing and most exciting textile companies, and let us explain why.
In 1992, two brothers Musadaq Zulqarnain and Naveed Fazil along with their friend Tariq Iqbal Khan set out to establish a company producing hosiery products in Faisalabad. Zulqarnain, an engineer by profession was at that time employed at Sui Northern and Fazil, who had recently graduated from Oxford University in England, was having a hard time finding a suitable job back in Pakistan. It was at that time that their friend, Iqbal, told them of a new technology in textile manufacturing, and suggested that they bring it to Pakistan and set up a hosiery manufacturing company.
Thus, after selling off some commercial property, Interloop was established (the name is derived form the ‘interlooping of yarn’). The original investment was of Rs9.35 million, with 10 computerised sock knitting machines imported from Italy.
Those Italian connections proved useful. In the 1990s the Italian companies which had manufactured the machines bought by Interloop had sales agents in Pakistan, who were responsible for marketing the machines and bringing customers to companies who had already bought the machines. Through these agents, Musadaq was introduced to a French customer, who then brought two new customers to Interloop, one from Korea and the other from France.
Today Interloop owns more than 5,000 Italian knitting machines, employs 15,000 people with an organizational network spread over three continents. Its client list includes major global athletic wear brands like Nike, Reebok, Adidas, and Puma, as well as other major clothing brands like H&M, Uniqlo, Target, and Levi’s.
In March 2019, Interloop went public in Pakistan by listing 12.5% of its shares on the Pakistan Stock Exchange (PSX), raising a whopping Rs5.02 billion in what was the largest private sector initial public offering (IPO) in the country. According to its latest annual report, its profit after tax was Rs1,796 million, (significantly less than 2019’s Rs5,195 million, though the year was badly affected by Covid-19 pandemic).
But where did the Interloop’s interest in Bangladesh come from? Well, first, the company became interested in the EU itself. In 2009, the company joined hands with a Netherlands-based firm, called Eurosox Plus, to provide marketing intelligence, design, sales and distribution services to clients in Europe.
The natural conclusion from this expansion was to look at who had favourable relations with Europe. Enter Bangladesh. That is why in 2010, the company set up IL Bangla Ltd, a vertically integrated hosiery plant with a monthly production of 3 million pairs of socks.
This made Interloop one of the first Pakistani companies to set up operations in Bangladesh to take advantage of the tariff-free access to the EU that Bangladesh got.
Incidentally, the government of Pakistan has been trying for the past two decades to get that same GSP Plus access to the European Union’s market, without success. Part of that has to do with the fact that the EU demands changes in legal structures to protect human rights, including the abolition of the death penalty.
Under the Zardari Administration, from 2008 through 2013, Pakistan had a moratorium on the death penalty, but did not actually abolish it. The EU came close to considering offering GSP Plus status to Pakistan, but then, when Pakistan started executing people again after the 2014 attack on the Army Public School in Peshawar, the EU withdrew that offer.
And all of this is becoming relevant now, because in a notice sent to the PSX on November 18, Interloop said it would divest from the operations.
Apparently, whatever magic advantage they thought would appear from investing in Bangladesh had simply not appeared. In fact, for the last few years, “market conditions had made its ongoing operations untenable, and the unit is in losses for quite some considerable time, and as a consequence it is imperative the company divest its investment, and use that resource in some profitable venture.”
Currently, Interloop holds 31.61% of IL Bangla’s shares. The sale of assets and winding up process will be according to the laws of Bangladesh.
It turns out that despite Interloop’s track record, and high expectations of its Bangladeshi venture, it simply could not reap the regional promises it thought it could. No more made in Bangladesh socks then; simple made in Pakistan socks (with all the not so nice duties), for now.
========================================================================================================
I wonder if all Pakistani companies who transferred their operations to BD withdraw like that ... what will happen to the Bangladeshi economy bubble ...
