Japanese apparel retailers are shifting their sourcing destination away from China due to rising labor costs and zero-COVID policies recently. Instead, Japanese apparel brands are moving their sourcing points to Southeast Asian countries such as Bangladesh, Vietnam and Cambodia. In this context, Japan can be considered a high-potential market for Bangladesh RMG.
For various reasons, China’s cost of living is rising due to the depreciation of the yen against the dollar. Meanwhile, China’s zero-COVID policy and rising raw material and labor costs are making China’s manufacturing operations very expensive. As a result, Japanese retailers have no choice but to withdraw from China.
According to Nikkei Asia, the Asia-Pacific trade agreement Regional Comprehensive Economic Partnership (RCEP) was signed last January. The agreement is helping Japanese firms to expand manufacturing operations in Southeast Asia.
Under the RCEP agreement, there is a duty reduction or concession on textile imports. With this facility, major Japanese apparel retailers such as Adastria, Aoyama Trading and Uniqlo are relocating production operations to RCEP member countries in Southeast Asia. Adastria, which owns popular fashion brands including Global Works, has increased production in Cambodia and Vietnam this year. The company’s total apparel production of Southeast Asia’s share rose to 22 percent in August, nearly double from a year ago.
Meanwhile, Japanese menswear retailer Aoyama Trading has started sourcing products from Indonesia and Vietnam. In the fiscal year 2021, the amount of clothing imported by the company from China stood at 36 percent. This rate is 7 percent less than the previous financial year.
The amount of apparel imported into Japan made in China fell to 59% in 2021 which was 81% in the last decade. According to data from the International Trade Center (ITC), Japan’s apparel imports in 2021 were $23.83 billion. While China’s share was 58.32%, followed by Vietnam (14.49%) and Bangladesh 4.89%.
Matsuoka Corporation operates contract factories for Uniqlo’s subsidiary Fast Retailing. In the fiscal year ended in March 2022, the company produced 50% of its products in China. But they want to reduce production by 29% by FY 2025. At the same time, the company will increase production in Bangladesh from 28% to 34% and in Vietnam from 16% to 28%.
Apart from raw materials, labor cost is the largest production cost. According to the Japan External Trade Organization (JETRO), the average monthly salary of a factory worker in Guangzhou, China, recently reached about $670. Which is approximately $270 in Ho Chi Minh City, Vietnam and $120 in Dhaka, Bangladesh.
According to Bangladeshi garment manufacturers, some of the potential export markets are Japan, Korea, India, the Middle East and Africa. Among them, Japan is the most promising market. Bangladesh earned $1.09 billion worth of export earnings from Japan in FY 2021-22. It has set a target of doubling by the fiscal year 2022-2023. According to EPB data, in the first four months (July-October) of the fiscal year 2022-23, Bangladesh earned $545.42 million from Japan.
Several Japanese apparel retailers including Fast Retailing (parent company of Uniqlo and five other retailers), Adustria, GU, Muji procure millions of products from around 300-350 Bangladeshi factories including Pacific Jeans, Urmi Group and Envoy Textiles.
Bangladesh Garments Manufacturers and Exporters Association (BGMEA) Vice President Shahidullah Azim said that Japan is shifting their production from China which is very good news for us. But demand for high-end products is high in Japan. To capture the Japanese market we need to focus on manufacturing value-added products. If this can be done, our exports to Japan could reach $10 billion per year from 2030.
According to the industry leaders, Japan is a high-potential market for Bangladesh. Their FOB quality and transaction power are very good. If we can catch up with Japan’s fast-changing fashion trends while maintaining research and development (R&D) and shipment time, we can capture more market share in Japan. We have that capability. In that case we must look at high-priced and value-added products.