Goba RMG market Bangadesh pro|ected as Next Chna

Due to decnng prot margns and capacty constrants n Chna, nvestors are
ookng at other ower-cost countres for makng nvestment n ready-made
garment (RMG) ndustry, and producng and sourcng garment products.
Bangadeshs appare exports coud trpe by 2020 as the European and the US
buyers pan to strengthen ther presence n the country and new payers are
pannng to enter the market seen as the Next Chna, accordng to a study.
RMG exporters are now breathng easy as foregn buyers are begnnng to return,
wth Bangadesh gettng down to busness after a spe of potca upheava. The
government, the Internatona Labour Organsaton (ILO) and the buyers have
been workng together to mprove workng condtons n garment factores
foowng the Rana Paza tragedy n Apr 24, 2013. The dscontent of workers
over wages has aso subsded to a great extent wth the mpementaton of the
new wage board award. It s assumed that f the current stabty s aowed to
hod, Bangadeshs poston n
the goba ready-made market
woud get a ma|or boost.
GOLDEN GOOSE: There s an od
adage, "Dont k the goden
goose." The garment sector s
the goden goose for
Bangadesh. The country has
emerged as the second argest
exporter of readymade garment
products trang |ust behnd
Chna.
The country entered the appare export market n 1978 wth ony nne unts and
earned US$ 0.069 mon. Durng the ast three decades, ths sector has acheved
a phenomena growth due to pocy support of the government and more
mportanty, dynamsm of the prvate sector entrepreneurs aong wth extremey
hardworkng workers. Now the number of RMG unts s around 6,000 and the
export earnngs have exceeded US$ 20 bon. Knt garments are exported to 148
countres and woven products to 132 countres. Anaysts say the appare export
earnngs can be more than doubed by the year 2020.
More than 4.0 mon workers work n the RMG unts, of whom around 80 per
cent are women. The RMG roughy covers 78 per cent of the tota export of the
country. Garment workers make about two-thrds of the number of empoyees
engaged n the manufacturng sector.
As Chna has started osng ts attractveness due to a rse n costs of dong
busness there, Western buyers are now searchng for next Chna. They are
evauatng a optons to strengthen ther proxmty sourcng. Bangadesh s
ceary the preferred next stop for the sourcng caravan. Other markets n
Southeast Asa w ncrease ther exports too, but w not be abe to repace - at
east n the near future - Bangadesh as a vabe RMG sourcng hub.
CHINAS VERTICAL ECONOMY AND CHANCE OF BANGLADESH: In fact, Chna s
the ony country that has sustaned near doube-dgt growth for three
consecutve decades n the hstory of economc deveopment. Chna has become
the second argest economy n the word.
However, Chna now faces some structura probems. Per unt abour cost n the
country s on the rse. Its abour productvty grew at 7.0 to 13 per cent n the
past two decades, eadng to hgher wage cost and osng ts foothod as the
words owest cost manufacturer of consumer goods. Chnas exchange-rate
pocy and goba mbaances are aso promptng Be|ng to concentrate on hgh-
end manufacturng and servces sectors, known as vertca economy.
Chnas vertca economy woud create much room for ow-end abour-ntensve
manufacturng n Bangadesh and other South Asan economes that faced
Chnese competton unt recenty. Chna s pro|ected to buy about $20 tron
worth of goods and servces n ths decade.
Bangadesh, one of the post-Chna emergng economes, has aready started
competng wth Chna n goba appare exports. In fact, Chna s now usng
Bangadesh to outsource ts RMG products takng advantage of the cheap abour
costs here.
HIGHER MANUFACTURING GROWTH NEEDED: To seze export opportuntes n
Chna, Bangadesh shoud create room for hgher manufacturng growth.
Bangadeshs per capta manufacturng vaue-added, for nstance, s $107.65,
compared to Chnas 1,147.12 and Indas 163.44.
Bangadesh vrtuay needs a manufacturng makeover dversfyng both export
basket and destnaton. In dong so, the country needs to get ts manufacturng
prortes rght. Owng to the economys structura probem, t s hardy surprsng
that Bangadeshs export basket s very narrow.
Gong forward, Bangadesh needs both short- and medum-term strateges to
boost ts manufacturng output. In the short run, the country shoud expot ts
exstng comparatve advantages fuy n the area of RMG exportabe. But to
become a compettve manufacturng ocaton and dversfy ts export basket,
Bangadesh has to focus on a number of factors that ahect export dverscaton
n the medum to ong run.
BANGLADESH AS OUTSOURCING HUB: Chna has aready paced some orders for
manufacturng appare tems n Bangadesh as the abour cost s cheaper here
than n the words fastest-growng economy. The monthy saary of a
Bangadesh worker woud be Rmb 500 to Rmb 600 ($80 to $95), whe one
Chnese worker now s pad at east Rmb 2,000 per month. Last year, Chna
rased ts mnmum abour wage by 23 per cent puttng the oca and foregn
garment manufacturers under pressure and forcng them to focus on countres
ke Vetnam, Camboda, Sr Lanka and Bangadesh, where the abour costs are
st ow. If the Chnese companes come here, t w open a new wndow of
opportunty. Snce Chna s swtchng over to the hgher segment of the market
and aso the h-tech ndustry, the country w need to mport garment products.
Bangadesh shoud seze the opportunty to export our goods there.
Bangadesh w be abe to export US$ 1.0 bon worth of RMG to Chna wthn
the next few years. There w be demand of US$ 650 bon n the goba cothng
and appare market by 2020 where there s a scope for Bangadesh to contrbute
$44.56 bon. Chna s an untapped opportunty for Bangadesh. At the same
tme, Bangadesh s a ucratve destnaton for coth sourcng for the Chnese
consumers at a 10 to 15 per cent ower prce due to duty-free access facty.
Chnas domestc RMG market s around $310 bon. Chnese mporters sourced
$100 mon worth of cothng tems n ast nne months of 2013 from
Bangadesh, and ther target s to reach $1.0 bon mark n 2014.
A survey found that European and US companes that focus on the appare
markets vaue segment pan to expand the share of ther sourcng from
Bangadesh 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 dented
potca nstabty as the key area of rsk n Bangadesh. Most of them sad they
woud reduce the vaue of ther sourcng n the country f potca stabty s
dsturbed.
Strengthenng the process of upgradng products s very mportant for the
Bangadesh RMG ndustry f t s to enhance ts compettveness. As wth Chna
and other promnent garment suppers, Bangadesh needs to address both
quatatve and quanttatve expanson of ts RMG ndustry smutaneousy n
order to sustan the busness n the ong run. The country needs to be capabe of
ad|ustng ts manufacturng capacty to frequent changes n customer demand. In
addton to upgradng products, the country shoud try to acheve product and
market dverscaton n order to dversfy rsks, gan access to new
markets/buyers and ncrease export voume.
Some mportant areas whch requre more attenton to sustan and enhance
deep-eve compettveness of the ndustry are reducton n producton and
dstrbuton tme, expanson of nkages, compance wth code of conduct of
buyers and changes n product/market composton.
The most urgent and mportant task for the Bangadesh RMG ndustry s
shortenng the ead tme; otherwse, nternatona buyers may dvert ther
attenton towards other suppers for mport of garment products n the current
quota-free busness envronment. The best opton for Bangadesh s to mprove
ts compettveness by reducng tota producton and dstrbuton tme, whch w
mprove surface-eve compettveness by reducng ead tme.
Product upgradng and dverscaton and aso market dverscaton are the next
prorty tasks for Bangadesh n order to dversfy rsks and to ncrease ts market
share. Bangadesh needs to expand ts capacty for manufacturng hgh quaty,
hgh-prced garment products. Manufacturng smpe shrts or T-shrts w not
enabe the country to reman nternatonay compettve n the ong run. Thus,
product dverscaton and upgradng processes need to be acceerated.
Bangadesh aso needs to dversfy ts markets to ncude |apan, Austraa and
other mportant nternatona markets.
The wrter s Assstant Secretary (Research and Fre Ce) of the Bangadesh
Kntwear Manufacturers and Exporters Assocaton.
Artce: Lton Chandro Sarkar