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Why will Vietnam overtake Bangladesh in RMG export?

Bangladesh has been struggling to retain its position as the second-largest garment exporter worldwide as Vietnam is performing well in recent months. Currently, Bangladesh is the second-largest garment exporter worldwide by grabbing 6.4 percent market share while Vietnam is in the third position holding 6.2 percent.

Vietnam-overtaking-Bangladesh-RMG-export
Figure: Vietnam has been performing strongly as this country has more advantages than Bangladesh.

Current position of Bangladesh as the garment exporter worldwide

However, over the last year, Vietnam’s export has been rising rapidly and it is expecting that the shipment of apparel items will cross $40 billion at the end of the year. To achieve this target, the industry needs export value growth of at least 11-12 percent for the rest of the year.

So, Bangladesh might lose its position to Vietnam as the country might not achieve the target at the end of the year.

Bangladesh exported garment items worth $21.84billion between July and February, the first eight months of the current fiscal year. The export declined by 5.53 percent year-on-year, according to data from the Export Promotion Bureau (EPB).

The receipt from the garment export is also 13.45 percent below the target for eight months at $25.24billion, the data also said. Between July and February, Bangladesh fetched $10.89billion from the shipment of knitwear products and $10.94billion from the woven product shipments, according to data.

During this period, both knitwear and woven export declined by 5.17 percent and 5.88 percent respectively. Bangladesh might not achieve the target of exporting $38.20billion worth of garment items at the end of the fiscal year if the shipments do not rise abnormally.

Bangladesh’s garment export has been declining because of the closure of nearly 1200 small garment factories over the last few years failing to maintain strict compliance set by the international retailers and brands and also for the offering of lower prices by the international buyers.

The slowdown in export growth is a reflection of the decaying competitiveness of Bangladesh’s RMG industry.

Bangladesh’s RMG export dipped by 7.74% during July-November of FY2019-20, whereas as per the latest information Vietnam’s export grew by 6.41% during July-October 2019.

Major reasons behind such slowdown in export could be –

Stronger currency exchange rate

Policy incentives by competitor countries which are why they are being able to get more business by lowering prices. Honorable Prime Minister has kindly granted few policies support for the RMG industry and most of those are yet to be materialized.

Increase in production cost which is significantly fueled by a minimum wage increase in December last year

Poor efficiency and relatively higher cost of doing business (evident by the Doing Business index) are significant drawbacks to our trade competitiveness.

Over concentration of the industry to a few product items ranging in the lower tier of price and over-concentration of markets are also among the top-rated challenges.

During January-November 2019 several 61 factories have been shut down that resulted in a job cut of 31600 workers.

Why is Vietnam performing strong?

Vietnam has been performing strongly as this country has more advantages than Bangladesh. Vietnam has recently signed the landmark Free Trade Agreement (FTA) with the EU, which has allowed Vietnam to enjoy the zero-duty benefit to this largest trading bloc of the world.

As we are tracking export data monthly, the trend is still giving a dull picture. It’s difficult to project the trend since the global market looks volatile due to the emergence of many factors like EU-Vietnam FTA, the strategic move by China to offset the impact of punitive tariff by lowering prices, and the emergence of new sourcing destinations.

Since the EU and Vietnam signed the FTA, Bangladesh has been facing a challenge from Vietnam as both countries have been producing the same kinds of products. However, Vietnam has the diversified goods at a competitive price, which Bangladesh cannot afford.

Geographically, Vietnam is closer to the EU and other western countries, Bangladesh does not have such an advantage of geographical location. So, Vietnamese garment manufacturers can easily ship the goods with lower lead time.

Bangladesh needs a long lead time to the EU and the US. So, in the case of air shipment of goods, Bangladeshi manufacturers need to pay high cost to the airliners, but Vietnamese manufacturers can easily ship the goods with airliners at lower costs.

Vietnam has a lot of Chinese investment, which is a big plus point for this country. Higher productivity in the factories of Vietnam is also a big advantage of them. As for Vietnam, which is now almost at par with Bangladesh, the investors are mostly from China.

Many Chinese investors have factories in Vietnam in addition to those they run in mainland China. As a result, the benefits of product development in China also trickle down to Vietnam. This makes the job of sourcing by buyers easier in Vietnam. This is the main reason why Vietnam is doing so well in RMG exports in recent times.

While Bangladesh is a popular destination for manufacturing low-end items at the cheapest rate globally, Vietnam produces high-end apparel with a strong backward linkage industry and educated workforce.

But the latest ease of doing business index reveals that Vietnam is still a better choice for investment than Bangladesh. The World Bank report published in October last year shows that Vietnam fell one notch down to 70th and Bangladesh moved eight notches up to 168th in the global ranking.

Vietnam is going to attain Bangladesh’s position as the world’s second-largest apparel supplier by concentrating on product diversification.

Clothing-exports-Bangladesh-Vietnam-USD

Even after four decades, Bangladesh’s garment sector is still trapped in basic items. Still, almost 75 percent of the shipments consist of T-shirts, trousers, sweaters, formal shirts and jackets.

There has been slow graduation towards value-added and high-end garment items for upscale customers in the Western world.

Bangladesh is still lagging in the production of technical and smart clothing items, due to which it could not tap into the global market for hospital clothing, school uniforms and armed forces, worth billions of dollars.

Moreover, the Vietnamese government assists the entrepreneurs of this country in different ways like food subsidy to the workers, social benefits, medical benefits and housing assistance. The efficiency level of Vietnamese workers is higher than Bangladeshi workers because of the improved supply of gas and electricity, working environment and infrastructures.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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