Recently, International Trade Centre (ITC) recent report titled ‘The Garment Costing Guide for Small Firms in Value Chains’ claims that Bangladesh’s FoB prices are lower than even Pakistan and Cambodia – In addition, the prices Bangladesh’s RMG makers get far below the global average rate. While Vietnam, Indonesia, Turkey and Mexico like apparel manufacturing countries are always getting paid above the global average.
Contrary, time and time, it was exposed that for a basic knit T-shirt in Bangladesh, buyers pay $1.47 FOB price. While they source the same quality T-shirt from India with $2.14 FOB. Industry leaders opined that most of the time buyers come here with the mindset to pay less or see the country as a cheap sourcing destination.
Although, the ITC report signifies that the unruly reality does not lie with the end-consumers as they are willing to pay better prices to some apparel-making countries but rather less to supplying countries that are impotent to meet their needs.
ITC collected data from the USA Govt. Office of Textile Apparel (OTEXA), and examined 10 of Bangladesh’s most vital exports for 2020, matching their FOB prices with those of their 10 biggest competitors for each product. From the ITC tables, it is revealed that Bangladesh gets rates ranging from 32% to 83% lower than the highest rates paid to other suppliers in its competitor countries.
The report highlighted that those garment manufacturing countries that have evolved from simple manufacturing operations into a complex service industry – are getting better deals in terms of better FOB prices. While some RMG manufacturing countries have remained focused on simple cut and sewing operations, provide few services and produce commodity-type garments – suffer the most.
“To stay in business, these companies need to expand their services. All-inclusive costing is an essential step for this expansion. Accurate costing and valuing are the first steps to moving up the value chain. Without that, the all-important business case cannot be made,” said Pamela Coke-Hamilton, Executive Director of, the International Trade Centre.
Here are some of the top exporting apparel items of Bangladesh and their FoB prices and growth comparision with other competitor countries:
For instance, the ITC report showed that men’s woven cotton trousers made by Bangladeshi garment exporters got on average $7.01 per piece against its world average rate of $7.72 in 2020.
The report highlighted that Bangladesh received 9.20% minus the international average rate. While the same product made by Vietnam gets $10.38, Mexico $8.97, Cambodia $8.81, Indonesia $8.74, India $8.41, Sri Lanka $8.0 and Pakistan $7.10.
Out of the top 10, Bangladeshi-made products only – women’s cotton trousers and men’s cotton T-shirts – received rates marginally higher than the worldwide average.
The fundamental problem
ITC report claims that the garment industry in developing countries like Bangladesh is faced with a fundamental problem: increasingly the decisions made are based on an outdated model of reducing costs and therefore do not deliver the solutions required for a service-oriented industry that should focus on value.
The industry blames this on incompetent management. Where once CEOs held their position for a decade or longer, their life expectancies are now just two or three years. Blaming this on the inability to keep up with an ever-changing industry. And continuously search for better data and more sophisticated analysis to inform what is going on, the ITC report said.
Whereas in fact, the real problem lies with the decision-making process itself. We operate in a world where managers are increasingly more educated, with access to ever-more sophisticated tools, and yet often reach their most important decisions by asking veterans of the industry, the ITC report stressed.
Fairness between the customer and the factory
There is a growing argument that customers (retailers and brands) should pay their factory suppliers a fair FOB price. This discussion began in lower labor rate industries up to the point at which they were often paying prices that were below factory costs. The data is clear, and many factories have been forced to close because of low FOB prices.
The conclusion is that the fault lies with the customer and therefore they should be forced to pay a higher FOB price. However, the report said if this problem is seen by using a cost-to-value analysis, then a different picture emerges. The problem is not that customers are paying these factories less, but rather that customers are paying everyone else more.
The data is equally clear. Customers pay a lower price because the value provided by the failing factories is worthless. Consider the following data from the OTEXA that analyses 10 of Bangladesh’s most important exports for 2020, comparing their FOB prices with those of their 10 biggest competitors for each product.
The ITC report said, in each case, supplying countries such as Bangladesh, Pakistan, and Cambodia are consistently paid below-world average prices. While supplying countries such as Vietnam, Indonesia, Turkey and Mexico are repeatedly paid above-world average rates. The problem does not lie with the customers. They are willing to pay higher prices to some countries but rather less to supply countries that are unable to meet their needs.
Bangladesh’s RMG industry reality and what buyers do
Bangladesh’s readymade garment (RMG) industry is the icon and leader in green factories – having the most number of USGBC LEED Certified factories. At the same time, in recent years, the industry’s value-addition in terms of backward linkage textile, accessories and packaging, R&D, in-design house, and washing has been phenomenal. Yet, the country’s RMG makers suffer for a better price. Worst yet, they are continuously offering lower Freight on Board (FoB) prices for its RMG items from global retailers and brands.
On top of that, in COVID-19 times, it was explicitly clear that most brands and buyers were not ethical in their businesses – as they hold the orders, did not clear payments and forced illegal discounts in the manufacturing countries like Bangladesh.
Bangladesh apparel industry leaders opined that most buyers have moved to the open costing method and the most disappointingly same buyer offers a better price while sourcing from a Chinese supplier – while lowering the prices in Bangladesh. This is really hurting the industry, as well as, the people.
Shovon Islam, Managing Director, Sparrow Group and Chairman of the BGMEA’s Standing Committee on Press and Publicity said, “I partially agree with the ITC report. In recent years a lot of value-addition has been done in Bangladesh’s textile apparel industry. For instance, in the garment and denim washing segment value-addition is world-class. We are only behind Türkiye. Similarly in the denim category, Bangladesh is a leader and we are producing world-class denim products.”
“But, our main challenge is over-reliance on 10 to 12 products and over capacity expansion– which has led to internal competition among us and less FoB,” Shovon Islam added.
“Similarly, over-reliance on 10 to 12 products has put us in a tight situation. We must need product diversification to resolve this scenario. For example, our competitor Vietnam makes embellishment fashion products in the same categories in addition to more value-added products. What I mean is that instead of basic twill pants like us – Vietnam makes polyester-made pants. Or in the woven category, they increase fabric value and claim higher FoB prices.”
“So, we need to add value-addition to be in the same league. It does not mean a massive value-addition overnight. Rather, small but effective value-additions on our regular 10 to 12 products fabric development.”
“At the same time, instead of sticking to 10 to 12 products manufacturing – we need apparel product diversification. Like, when a factory has a wide array of product baskets, it can easily eradicate the lack of work order in a particular product. It will also remove the undercutting practice from our industry,” said Shovon Islam.