Labor cost rise in China shifts Japanese companies to Bangladesh

Desk Report       
Print Friendly

Due to wages rise in China, Japanese manufacturing companies are looking for cheaper production bases elsewhere in Asia. One country where they are coming is Bangladesh as it offers them the lowest labor cost than others. Bangladesh industry experts hoped, investment in Bangladesh would increase from Japan, which is a very good opportunity for the country’s economy.

Bangladesh has been traditionally known as Asia’s poorest country,” said Mari Tanaka, an official at Japan External Trade Organization’s Overseas Research Department. “Labor costs are lower compared to Japan and other East Asian countries while it’s possible to hire a large number of young laborers”, Tanka added.

Figure 1: Graph shows labor cost of different countries where Bangladesh’s labor cost is the lowest only $111 per month for Japanese companies. (Source: Japan External Trade Organization)
Figure 1: Graph shows labor cost of different countries where Bangladesh’s labor cost is the lowest only $111 per month for Japanese companies. (Source: Japan External Trade Organization)

According to the Japan External Trade Organization, the number of Japanese companies with operations in Bangladesh has become more than tripled since 2008, reaching 253 as of May 2017.That’s still far fewer than the number of China or Thailand, but their presence in Bangladesh is increasing at a much faster pace.

Garment shipments to Japan from Bangladesh began after the adoption of ‘China Plus One’ policy by the Japanese government in 2008 to reduce overdependence on China for goods like apparel, electronic gadgets and home appliances. The ‘China plus One’ policy was supplemented by the relaxation of the Rules of Origin by Japanese government for least-developed countries, which worked in Bangladesh’s favor. Bangladeshi garment manufacturers have been enjoying zero-duty benefit on apparel exports to Japan even if the raw materials were imported.

Table 1: Bangladesh’s RMG Export to Japan in Last 10 Years                                                                             Value in US$
Table 1: Bangladesh’s RMG Export to Japan in Last 10 Years                                                                     Value in US$

According to the Japan Textiles Importers Association, Japan imported 65% of its textile products from China in 2015. China at one time accounted for nearly 80% of textile imports, but the percentage has been declining gradually due to rising labor costs, among other reasons. Now imports from countries like Vietnam and Indonesia are rising. Although Bangladesh only accounts for 2.3% of total imports, it averagely grows at an annual pace of about 20-40%.

Amid rising labor costs, Japan’s garment industry is shifting production from China to Bangladesh and other Asian countries, however, to catch the opportunity is not so easy for Bangladeshi businessman, though, Japanese businesses have keen interest to invest in Bangladesh as they have got rid of the fear in the wake of terrorist attack on Holey Artisan Bakery in 2016. Mohammed Hatem, Former President of BKMEA, said, “Japanese apparel market is still dominated by China, Bangladesh could avail the China-plus opportunity.”

“Recently labour cost is increasing rapidly, but most of the Chinese factory are technologically developed, so that labors don’t want to work in lower salary and so that, some of  Chinese factory are shifting in Vietnam, Bangladesh, Myanmar and Cambodia”, he added.

According to BGMEA, Bangladesh RMG millers are facing some challenges with Japanese clients like:

  • Strict quality requirements
  • Barrier of language
  • Japanese clients are very much choosy in selecting suppliers brands like to place order via trading companies

Experts opined that Japan’s interest to utilize Bangladesh’s cheap labor will increase FDI (Foreign Direct Investment) in Bangladesh, which will ultimately contribute in country’s employment generation, socio-economic development etc. Therefore, Bangladesh should take the opportunity how she can utilize it in a maximum way.

Among the 253 Japanese companies operating in Bangladesh, about 30 are in the clothing or leather industries, 15 or so are in clothing parts and inspection, 10 in logistics, about 15 in the IT services industry and rest are the other category of industries.

Copyright Notice

Any unauthorized use or reproduction of Textile Today content for commercial purposes is strictly prohibited and constitutes copyright infringement liable to legal action.

SHARE