Bangladesh is going to be the Largest Apparel Exporter in the world

'Global RMG market – Bangladesh projected as Next China'

Due to declining profit margins and capacity constraints in China, investors are looking at other lower-cost countries for making investment in ready-made garment (RMG) industry, and producing and sourcing garment products. Bangladesh’s apparel exports could triple by 2020 as the European and the US buyers plan to strengthen their presence in the country and new players are planning to enter the market seen as the ‘Next China’, according to a study.

RMG exporters are now breathing easy as foreign buyers are beginning to return, with Bangladesh getting down to business after a spell of political upheaval. The government, the International Labour Organisation (ILO) and the buyers have been working together to improve working conditions in garment factories following the Rana Plaza tragedy in April 24, 2013. The discontent of workers over wages has also subsided to a great extent with the implementation of the new wage board award. It is assumed that if the current stability is allowed to hold, Bangladesh’s position in the global ready-made market would get a major boost.

GOLDEN GOOSE: There is an old adage, “Don’t kill the golden goose.” The garment sector is the golden goose for Bangladesh. The country has emerged as the second largest exporter of readymade garment products trailing just behind China.

The country entered the apparel export market in 1978 with only nine units and earned US$ 0.069 million. During the last three decades, this sector has achieved a phenomenal growth due to policy support of the government and more importantly, dynamism of the private sector entrepreneurs along with extremely hardworking workers. Now the number of RMG units is around 6,000 and the export earnings have exceeded US$ 20 billion. Knit garments are exported to 148 countries and woven products to 132 countries. Analysts say the apparel export earnings can be more than doubled by the year 2020.

More than 4.0 million workers work in the RMG units, of whom around 80 per cent are women. The RMG roughly covers 78 per cent of the total export of the country. Garment workers make about two-thirds of the number of employees engaged in the manufacturing sector.

As China has started losing its attractiveness due to a rise in costs of doing business there, Western buyers are now searching for ‘next China’. They are evaluating all options to strengthen their proximity sourcing. Bangladesh is clearly the preferred next stop for the sourcing caravan. Other markets in Southeast Asia will increase their exports too, but will not be able to replace — at least in the near future — Bangladesh as a viable RMG sourcing hub.

CHINA’S VERTICAL ECONOMY AND CHANCE OF BANGLADESH: In fact, China is the only country that has sustained near double-digit growth for three consecutive decades in the history of economic development. China has become the second largest economy in the world.

However, China now faces some structural problems. Per unit labour cost in the country is on the rise. Its labour productivity grew at 7.0 to 13 per cent in the past two decades, leading to higher wage cost and losing its foothold as the world’s lowest cost manufacturer of consumer goods. China’s exchange-rate policy and global imbalances are also prompting Beijing to concentrate on high-end manufacturing and services sectors, known as vertical economy.

China’s vertical economy would create much room for low-end labour-intensive manufacturing in Bangladesh and other South Asian economies that faced Chinese competition until recently. China is projected to buy about $20 trillion worth of goods and services in this decade.

Bangladesh, one of the post-China emerging economies, has already started competing with China in global apparel exports.  In fact, China is now using Bangladesh to outsource its RMG products taking advantage of the cheap labour costs here.

HIGHER MANUFACTURING GROWTH NEEDED: To seize export opportunities in China, Bangladesh should create room for higher manufacturing growth. Bangladesh’s per capita manufacturing value-added, for instance, is $107.65, compared to China’s 1,147.12 and India’s 163.44.

Bangladesh virtually needs a manufacturing makeover diversifying both export basket and destination. In doing so, the country needs to get its manufacturing priorities right. Owing to the economy’s structural problem, it is hardly surprising that Bangladesh’s export basket is very narrow.

Going forward, Bangladesh needs both short- and medium-term strategies to boost its manufacturing output. In the short run, the country should exploit its existing comparative advantages fully in the area of RMG exportable. But to become a competitive manufacturing location and diversify its export basket, Bangladesh has to focus on a number of factors that affect export diversification in the medium to long run.

BANGLADESH AS OUTSOURCING HUB: China has already placed some orders for manufacturing apparel items in Bangladesh as the labour cost is cheaper here than in the world’s fastest-growing economy. The monthly salary of a Bangladeshi worker would be Rmb 500 to Rmb 600 ($80 to $95), while one Chinese worker now is paid at least Rmb 2,000 per month.  Last year, China raised its minimum labour wage by 23 per cent putting the local and foreign garment manufacturers under pressure and forcing them to focus on countries like Vietnam, Cambodia, Sri Lanka and Bangladesh, where the labour costs are still low. If the Chinese companies come here, it will open a new window of opportunity. Since China is switching over to the higher segment of the market and also the hi-tech industry, the country will need to import garment products. Bangladesh should seize the opportunity to export our goods there.

Bangladesh will be able to export US$ 1.0 billion worth of RMG to China within the next few years. There will be demand of US$ 650 billion in the global clothing and apparel market by 2020 where there is a scope for Bangladesh to contribute $44.56 billion. China is an untapped opportunity for Bangladesh. At the same time, Bangladesh is a lucrative destination for cloth sourcing for the Chinese consumers at a 10 to 15 per cent lower price due to duty-free access facility.

China’s domestic RMG market is around $310 billion. Chinese importers sourced $100 million worth of clothing items in last nine months of 2013 from Bangladesh, and their target is to reach $1.0 billion mark in 2014.

A survey found that European and US companies that focus on the apparel market’s value segment plan to expand the share of their sourcing from Bangladesh to 25 to 32 per cent by 2020, from an average of 20 per cent now.

UPGRADING PRODUCTS: The European and the US buyers have identified political instability as the key area of risk in Bangladesh. Most of them said they would reduce the value of their sourcing in the country if political stability is disturbed.

Strengthening the process of upgrading products is very important for the Bangladesh RMG industry if it is to enhance its competitiveness. As with China and other prominent garment suppliers, Bangladesh needs to address both qualitative and quantitative expansion of its RMG industry simultaneously in order to sustain the business in the long run. The country needs to be capable of adjusting its manufacturing capacity to frequent changes in customer demand. In addition to upgrading products, the country should try to achieve product and market diversification in order to diversify risks, gain access to new markets/buyers and increase export volume.

Some important areas which require more attention to sustain and enhance deep-level competitiveness of the industry are reduction in production and distribution time, expansion of linkages, compliance with code of conduct of buyers and changes in product/market composition.

The most urgent and important task for the Bangladesh RMG industry is shortening the lead time; otherwise, international buyers may divert their attention towards other suppliers for import of garment products in the current quota-free business environment. The best option for Bangladesh is to improve its competitiveness by reducing total production and distribution time, which will improve surface-level competitiveness by reducing lead time.

Product upgrading and diversification and also market diversification are the next priority tasks for Bangladesh in order to diversify risks and to increase its market share. Bangladesh needs to expand its capacity for manufacturing high quality, high-priced garment products. Manufacturing simple shirts or T-shirts will not enable the country to remain internationally competitive in the long run. Thus, product diversification and upgrading processes need to be accelerated. Bangladesh also needs to diversify its markets to include Japan, Australia and other important international markets.

The writer is Assistant Secretary (Research and Fire Cell) of the Bangladesh Knitwear Manufacturers and Exporters Association.

Article: Liton Chandro Sarkar