Bangladesh is one of the leading ready-made-garments exporters in the world. More precisely, recently, Bangladesh has taken over India to become the second largest garment exporter after China. There has been much whisper going on who is the next to take over China as the biggest apparel export powerhouse. It is not easy for Bangladesh to take over China in spite of our cheap labour, four decades of skill and experience, and shifting of Chinese work orders to other countries. China has a huge workforce of over 10 million working in apparel sector, naturally, because of its big population of 1.39 billion emerged with biggest capacity for the production of textiles and ready-made-garments [China Fact Sheet, 2014]. The global consumption of apparel product in 2015 was US$445 billion of which China as the biggest contributes for 39.26% and Bangladesh as next contributes for 5.90% [WTO, 2016]. That means, Bangladesh is producing less than one sixth of the value of the apparel produced by China.
Contrary to China’s experience in apparel export from the ancient days Bangladesh has only less than 40 years of experience. During this short span of time Bangladesh has surpassed not only the US and European countries but also Mexico, India, Pakistan, Sri Lanka, Indonesia, etc. who has long history of making ready-made-garments. With China’s transition from clothing to other industries and Bangladesh’s consistent growth, it is evident that with proper planning Bangladesh would take over the leadership role some day in near future. In the next part of this article we will discuss about the opportunities in front of Bangladesh to take over that leadership role and at the same time the challenges that may impair even today’s position as being the 2nd to the leader China.
Price, Capacity, and Capability- According to industry insiders, currently, 4 million workers are directly employed in the sector of which 80 percent are women. This helps Bangladesh with abundant supply of cheap labour. According to Mckinsey & Company in their 2015 survey “Sourcing in a volatile world” concludes that cost of labor is still the key driver. For this reason Bangladesh will still be able to offer better prices than all its competitors. Though Bangladesh has listed 4,000 factories the total number of factories will exceed 8,000. Bangladesh has a total workforce of 76 million of which only 4 million works in ready-made-garments industry. Among other RMG suppliers in South Asia in terms of capacity, Indonesia has 2,450 factories, Vietnam 2,000, Cambodia 260 factories. For value to mid-level market most CPO (Chief Purchasing Officers) thinks Bangladesh provides ‘good quality’ for large order sizes.
Trade Benefits- In the early 1980s Bangladesh started receiving investment in the RMG sector and grew tremendously at an export rate 6% growth each year because of the MFA agreement imposed an from a developing country to a developed country. The EU recently has given duty free concessions under “Everything but Arms” (EBA) scheme to Bangladesh. Canada has also announced that from January 2003, all imports into Canada from Bangladesh including RMG shall be duty free. Citing USTADA 2000, Bangladesh is lobbying for similar benefits from USA also. All these concessions together scopes of new FTA, FDI, and collateral trade with other emerging countries would be beneficial to expand its markets (ITC, 2002).
Product integration- In spite of good forward and backward integration in knit and denim sectors there are many other areas such as, woven shirt, woven bottoms, sport wear, active wear, work wear, and fashion area there is huge market. There are also scopes in the area of fashion designing and work actively throughout the value chain from designing, transportation, whole selling, retailing, branding, etc.
Logistics- New export processing zones are being set up, dormitory for workers are being constructed in Dhaka and Chittagong [Financial Express, 2012], Garment village at Gozaria, Munshigonj is underway [The Daily Star, 2016]. Chittagong port is being renovated to increase its capacity by the Dutch consultants and China already offered financial assistance to make a deep sea port in Sonadia [The Diplomat, 2016]. Making the Dhaka-Mymensingh highway to four lanes and Dhaka-Chittagong highway to eight lanes will save time and money and boost export and import [The Daily Star, 2016].
Global economic turndown- It is also a major factor which has considerably reduced the buying power at consumer end. With the increase of labour cost and dearth of workforce in China many smaller companies will shift their production to cheaper source like Bangladesh. The recent devaluation of the Chinese RMB also means that Chinese products will artiﬁcially get more competitive in the international market. However, raw material procured from China will become cheaper, contributing to cost competitiveness of Bangladeshi apparel [Dhaka Tribune, 2016].
Worker Unrest- No salary or delayed salary is one of the most important reasons for worker unrest. They alleged that ‘Jhut’ trading and other local political issues are the root cause of unrests. But all the factory owners, workers, leaders, and industry experts suggest that problems can be solved by mutual understanding and not by shutting down the factory.
Infrastructure- Congested roads, inland transportation and inadequate port facilities are single biggest issue hampering operational execution [Mckinsey’s, 2015]. As mentioned in the prospect part Government has to continuously work on development, maintenance, and up gradation of the infrastructure. This is the lifeline for both imported raw material and export clothing. Lead time and productivity are two most important aspects in fashion. None of these could be improved without improving the infrastructure.
Compliance- Bangladesh has successfully implemented social compliance but still a long way to go in terms of occupational health and safety requirement [Mckinsey’s, 2015]. Accord and Alliance are working on these issues and so far they already inspected 3859 garments factories. This is a big step towards claiming our industries safe for the retailers who are relentlessly trying to prove that their products are not from sweatshops. Textile Today (2016) reported that textile industries in Bangladesh are alleged with a number of environmental issues including direct discharge, not using environment friendly dyes and chemicals, not using the effluent treatment because of the lack of National Effluent and Quality Standards (NEQS).
Supplier performance and workforce supply- Worker wages will always increase but at the same time the industry has to learn how to optimize production, improve skill, increase capability, and lessen the capacity gap [Mckinsey’s, 2015]. Currently, the productivity of Bangladeshi workers is much lower than the productivity of the neighboring countries. At the same time Bangladesh must start moving from making mid-level products to value added products. The Government must also establish more TAV (Technical and Vocational) Institute in order to ensure supply of skilled workers for new factories growing at a rate of 6-9% each year. Without these it will be impossible to mitigate the growing worker salaries.
Raw material- Bangladesh does not produce raw cotton which is the main raw material for the apparel industry [Mckinsey’s, 2015]. Until it is self-sufficient on its own cotton the spinners must pre-book the cotton fields in order to secure the raw material for its production. Even Bangladesh does not have the required industries for dyes, chemicals, plastic, synthetic fibers, printing materials, etc. The factories must procure their raw materials from certified and trusted companies in compliance with the US and EU standard.
Political stability- This is one of the most uncertain form of problem that happens out of the blue and devastates the RMG industry until stabilized [Mckinsey’s, 2015]. It comes in the form of security threats, political unrest and strikes, corruption, and difficulty in doing the business. Bangladesh is a democratic country with two major political parties. It is the characteristic of each party when in opposition to go for movement to get down the ruling party from power. These movements are mostly aggressive accompanied by blockades, transportation strikes, port shut down and on the other hand suppressive by the ruling party to move things orderly. Though the ranking in Transparency International has improved but there is little improvement in corruption index.
Banking and financial system- Due to high interest rate financing cost increases which cause a severe effect on production. The withholding tax of 1% also effects the production badly. The high cost of doing business is because of intensive increase in the rate of interest which has increased the problems of the industry. Provisions like reintroduction of 0.5% minimum tax on domestic sales, withholding tax on import of textile and articles etc., are catastrophe. Bangladesh in 2010 were at an average of 13% according to IMF whereas China get at less than half, for the 5.4%, average lending interest rate.
Threats from the competitors- Bangladesh still retains the preferred position for apparel sourcing, but is closely followed by Vietnam, India, and Myanmar. Sub-Saharan countries like Ethiopia enjoy a number of beneﬁts through preferential trade agreements (GSP to USA and EU), cheap labor (lower than Bangladesh), surplus electricity, cheap land price, preferential investment terms, and proximity to the EU and the US [Dhaka Tribune, 2016]. Chinese, Korean, Indian entrepreneurs have heavily invested in Myanmar [The News Today, 2016]. Ethiopia and Kenya are among top of the list of Sub-saharan countries will enjoy most energetic work-age population in next 20years [Mckinsey, 2015].
Energy Crisis- Improving electricity crisis is one of the most important assignments for the Government. By this time, they have considerably improved it and 34 other power plants are under negotiation to solve the problem at least for the export sector. Solar power and plants with proper architectural design can reduce the local consumption of electricity to some extent. Lots of textile mills are suffering from inadequate gas pressure. There is no solution to this problem if no new gas field can be added with the local supply. Government must think about alternate sources like LPGs through pipelines. The cost of production has risen due to instant increase in electricity and gas tariff and due to load shedding some mill owner uses alternative source of energy like generator which increase their cost of production further [The News Today, 2016].
Lack of skilled worker and mid-level management- The Daily Star March 26, 2013 showed that three decades old garment sector is now suffering from 25 percent shortage of skilled workers as the country could not arrange vocational and technical education (TAV) system for the workers. Grooming a strong mid-level management for handling such a big sector is another big challenge for the near future. Now-a-days, many Indian, Sri Lankan, and Pakistani peoples working in the RMG industry in mid-level management position which is creating cultural conflict and outward remittance which would have been retained by local people.
Farook Sobhan, Chairman of Bangladesh Enterprise Institute, told just before the visit of Chinese President to Bangladesh in 2016 that China could help Bangladesh by relocating their industries in Bangladesh to become the number one ready-made-garments exporter in the world [The Daily Star, 2016]. This is possible because of the vast manpower and China’s strategic interest of being with Bangladesh. The total size of clothing and footwear market value in the US alone was 388.88 billion in 2016 [Statista, 2016] but our export to the US has dropped below 40 percent of our total export. Bangladesh must try to revive that market with political lobbying for gaining FTA. At the same time, the new export processing zones must be able to attract new FDIs for fast track implementation. To attain the long-term sustainability of the industry, the individual factories are working on increasing productivity, adopting lean inventory system, shortening the lead time, etc.
Amid challenges, threats, and disparity over global economy, Bangladesh still possess just enough strength and opportunities to take advantage of the situation with proper planning and organization. We are already in a leadership position and it is just the matter of time to take over China to become number one in the world. 81 percent of its export earning comes from the clothing sector [BGMEA, 2016]. In order to be in Goldman Sachs ‘Next 11’, or JP Morgan’s ‘Frontier Five’ or attaining SDGs and MDGs Bangladesh have no other alternative but to gain the full leverage from this ready-made-garments sector.
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