European market study Bangladesh home decor & home textiles handicrafts

This value chain analysis (VCA) explores the interventions and support activities that are needed to let SMEs (small to medium-sized enterprises) involved in the home décor and home textile (HDHT) sector in Bangladesh to seize European market opportunities and tackle obstacles in a sustainable manner. Because the term ‘handicrafts’ is used in Bangladesh for products that are categorised as HDHT in European markets, this VCA study refers to ‘HDHT handicrafts’. The focus is on four groups of HDHT handicraft products that are handmade from natural and/or recycled materials: basketry; shopping bags and totes; rugs and mats; and decorative home textiles. These products are particularly suitable for the European mid-market segments, or in some cases for the premium segments. European demand for ethically made products with a story is on the rise, although mainstream buyers remain primarily interested in product quality and price.

Collecting reliable trade data for the four products groups proved to be problematic because the Harmonized System (HS) categories are too broad to offer insight into groups of products that are handmade using specific natural materials. Nonetheless, it was calculated that the European Union (EU) markets for basketry and handwoven rugs from developing countries amounted to €400 million in 2016 and that the markets are expanding. Although Bangladesh’s SMEs as yet have a small share in this market for basketry and rugs – €6.5 million – their share has been growing rapidly over the past five years. These figures suggest Bangladesh’s firms could claim a larger share if their products are competitive.

There are about 400 HDHT handicraft manufacturers, with 90 of them involved in exporting. The 400 firms are virtually all SMEs with under 500 artisans on the payroll. Depending on the size of orders this may involve additional artisans on temporary hire – varying from dozens to a few thousand – who work at home. In total, the handicraft sector in Bangladesh likely offers employment to hundreds of thousands of artisans, possibly up to one million. Some may work only a few hours per week, others a full-time working week. The majority of HDHT handicraft goods produced by the production chain is sold domestically; only 20% is exported.

HDHT handicrafts are not a priority sector to the Government of Bangladesh (GOB). In 2015, it published the Handicraft Industry Policy (in Bengali only), but the policy has yet to materialise in practice. Nonetheless, the sector has been receiving support in a fragmented manner because the sector itself is fragmented. The GOB provides considerable support to jute production and jute- based handicrafts, but similar support does not exist for grass-based and cotton-based handicrafts. In addition, there has been government support for cottage industries, for rural development, for weavers operating handlooms, and for handicraft exporters.

The macro-economic context of the HDHT handicraft value chain is positive. With its GDP growing at well over 5% annually, Bangladesh’s economy has been doing remarkably well over the past years. The prospects for the medium term are bright. Bangladesh has recently become a lower-middle income country and is on track to be graduated from the United Nation’s list of Least Developed Countries by 2024.

A major asset of the Bangladesh HDHT handicraft value chain is that it scores high on sustainability. HDHT handicrafts are generally made from renewable, natural or recycled materials, resources whose collection does not affect biological diversity, that are normally not chemically treated, often naturally dyed, and manufactured by hand. In respect of social sustainability, over a quarter of the 90 HDHT handicraft exporters are WFTO certified, while a number of other companies are ethically driven as well. Socially responsible entrepreneurship is among the unique selling points (USPs) of the entire sector. About 80% of the artisans who work in the value chain are rural young women aged between 20 and 35, an important achievement in view of the very wide gender gap in Bangladesh, where only 33% of the women of working age participate in the labour force.

This VCA study involved the consultation of 54 stakeholders, 25 of them via personal interviews and 29 in the three focus groups we organised. The organisations that were consulted comprise potential or actual exporting HDHT handicraft manufacturers, business support organisations (BSOs), governmental agencies, NGOs and international experts. Almost all interviews and focus groups were organised in the first two weeks of May 2018. A validation workshop to discuss the draft report and VCA findings with key stakeholders took place mid-July 2018 in Dhaka.

The consultation round revealed a series of obstacles that hamper export growth. At company level, a major limitation is the vulnerable position of the SMEs in the HDHT value chain, both domestically and abroad. Their main raw materials include jute, cotton and grasses; for supply of the first two materials the SMEs depend on government policies and corporate strategies in respectively the powerful jute export and the ready-made garment (RMG) industries. Only in the supply of grasses do the HDHT handicraft SMEs serve as domestic chain leaders. In international markets, the SMEs have to deal with foreign importers and retailers, who have the market leverage to set the conditions for production processes, design and other product qualities in Bangladesh. At the level of business support, a major constraint is the limited services that are provided by the government and business support organisations (BSOs).

The study discusses a series of constraints and links them to suggestions for upgrading in the HDHT handicraft value chain. These are listed below.

1. The number one constraint, according to all consulted stakeholders, is the lack of international marketing capacity among exporting SMEs. Our consultations revealed a lack of basic marketing and logistical knowledge. Upgrading international marketing capacity can be achieved via participation in a training or coaching programme that teaches SMEs how they could identify foreign buyers with a suitable supply chain strategy, and shows them how to negotiate with them and how to present their collections.

1. The second widely shared concern regards the lack of design and innovative capacity among HDHT handicraft SMEs. Virtually all manufacturers we consulted struggle with the design of their new products: they cannot afford specialised designers, and if they can, the designers are not interested in handicrafts or have no clue of ‘market-based’ design that looks beyond aesthetics. Upgrading designing capacity is possible by setting up a market-based design programme in a (public-private) collaboration with existing art and design institutes in Bangladesh.

1. HDHT manufacturers often pointed to the challenges they face to secure their raw materials: jute fabrics are expensive; it is hard for them to purchase small quantities of jute; flooding often delays the harvesting of wild grasses; and drying and storing of grasses is a major issue especially during the rainy season. These are constraints that can be mitigated by the SMEs themselves if they have better general and supply chain management skills, which can be learnt. Upgrading is possible by encouraging existing BSO training capacity in Bangladesh to start providing tailor- made training to HDHT handicraft exporters.

1. If exporters want to claim a larger share of the European HDHT markets, the exporters need to be critical of their prices and consider productivity improvements. In a world where the fourth industrial revolution is about to begin, the HDHT handicraft sector in Bangladesh has yet to engage in the first one. However, modernisation of the sector would face manufacturers with a formidable dilemma since hundreds of thousands of artisans depend on craft work for their badly needed income. Yet this is indeed the challenge for the sector if it wants to maintain its competitiveness in the near future. The upgrading opportunity lies in establishing a national stakeholder platform, involving the entire value chain, where solutions are explored.