Bangladesh is today considered a power house in the apparel sector. The overall performance of apparel exports in the last year compared to the previous years has not been that different. The growth rate has been around 9.0 per cent over the previous year, which is slightly lower than the past five years’ average of around 12 per cent. This drop can be attributed to several factors, including for Rana Plaza tragedy, political instability, energy crisis and discriminatory treatment by some major global buyers. In April 2012, the world’s leading strategy consulting firm McKinsey & Co released a study titled Bangladesh’s Ready Made Garments Landscape: The Challenge of Growth. McKinsey forecast that the Bangladesh apparel sector could reach $30 billion by 2015 and $50 billion by 2021. It noted: “While China is starting to lose its attractiveness in this realm, the sourcing caravan is moving on to the next hotspot.” In the latest report of Apparel CPO Survey 2013, McKinsey repeated that in the aftermath of Rana Plaza, the RMG sector still held a competitive position. Thus, the reports suggest that Bangladesh is likely to be the best destination that has the ability to grab the lion share of the global RMG market presently held by China. There is much evidence to demonstrate that Bangladesh’s garment exports can continue to grow. The garment industry grew at an annual average rate of 16.9 per cent since the MFA (Multi-Fibre Agreement) was abolished in 2005. This period includes the opening up of world garments trade to full competition, as well as the global economic crisis of 2008. There is more room to grow. Japan is now actively seeking to diversify its garments import base away from a focus on China to “China plus.” Chinese investors themselves are seeking to source from Bangladesh, given rising wages in China. Growing diversification away from garments of large countries like India and China gives Bangladesh an opportunity to not only increase world market share in garments, but also to find markets in these countries. And despite recent increases, wages in Bangladesh remain very competitive. There is a lot of room for the garment sector in Bangladesh to grow and capture an increasing share of the world market. Bangladesh’s share of world garments trade has risen gradually to 5.0 per cent. Vietnam has been catching up and is now close to Bangladesh, with a market share of almost 5.0 per cent. If Bangladesh can address the key constraints hindering exports, it could take some of the market being gradually vacated by China: capturing 20 per cent of China’s garment export markets would more than double Bangladesh’s total exports and absorb almost all the new entrants into the labour force over the next decade. If Bangladesh fails to act in time, other competitors could march ahead and take the markets China is vacating. China is currently either vacating some price competitive product segments or investing abroad in more competitive locations, offering great opportunities for Bangladesh. Bangladesh could potentially become an important player in manufacturing based on a strong comparative advantage in labour-intensive industries, with wages half those in India and less than one third of those in China or Indonesia. This comparative advantage, matched with a large population, has translated into very strong price competitiveness in the garment sector and possibly could, with the right policies, translate into competitive positions in other manufacturing industries. China losing ground in RMG: Opportunity for Bangladesh Future export growth will likely rely, first, on capturing new markets and increasing market share in existing markets, with existing products. Bangladesh’s exports have grown strongly and doubled in world market share between 1995 and 2012, owing to the success in garments, catering largely to the EU and USA. Garments can continue to grow, in existing and newer markets. Newer products will emerge more slowly. Thus, more rapid export growth will initially rely on capturing higher market shares in Bangladesh’s existing strength, i.e., basic garments – both in current markets, and penetrating newer and dynamic markets such as Japan, China, ASEAN and India. Bangladesh is lagging behind in some areas, but is capable of making substantial improvement. However, India has a superior advantage of grabbing a share from China, while Myanmar is strategically poised having unchartered waters for China to make a move and shift. In addition, countries like Cambodia and Vietnam are also ready and capable of taking a portion of the cake. Last but not least, starting from some of the African nations to even some developed nations with slow economic growth are in the race to grab a portion of the large chunk that China controls. Thus, the next question is: Can Bangladesh be number one RMG exporter in the world beating China?
Let us assess the capabilities to become world no 1:
Bangladesh has a strategic advantage in terms of wages. But India and Myanmar are breathing over its shoulder. One must clearly understand that price is the deciding factor for selecting a sourcing destination. This is truer when one observes that the purchasing intent for consumer goods is falling in major destinations and commodities, such as apparel, are considered highly price elastic. Lest we get overshadowed by price alone, we should be reminded that fashion still dominates the brand purse and supersedes generics. India, Myanmar and Cambodia have enough capacity to build their industries even further. Bangladesh should consider concentrating on productivity and capacity utilisation to start with. A 10 per cent hike in productivity in the next 6-7 years will result in a net increase of $5.5 billion on top of the predicted $48 billion. In addition, enhancing capacity at the lower-tier manufacturing units will add another $1.5 billion. Thus, concentrating on these should be able to push exports to $55 billion. The above scenario can also help to increase workers’ wages by at least 20 per cent by 2021. Bangladesh should start working on value addition with fabric designs, which takes away a substantial portion of its competitive advantage. Centres focusing on collection of fashion apparel and fabric from various destinations must be set up to participate in setting fashion trends. This can easily enhance returns by 5-10 per cent in the immediate future. Bangladesh can further take advantage by setting up of Bangladesh Export Processing Zones in selected countries. One may think of Myanmar as a starting point because of its geographic proximity and strategic alliance with China. However, major production hubs should be near the major markets with a view to further cutting costs in the form of freight and time. This is a multidimensional strategy and requires elaborate discussion. Bangladesh must continue to work on improving infrastructure, ensuring power and eco-compliance, and maintaining a world class working environment by creating eco-friendly RMG factory according to United States Green Building Council (USGBC). The ‘Made in Bangladesh’ tag has made inroads at the highest rank of global society. The above analysis shows that we should be able to achieve the status of no.1 exporter if we work on areas such as productivity, capacity utilisation, and categorisation of manufacturing units, creating new markets, and creation and placement of home-grown talents as skilled workforce through introducing need-based education and skill training at the decision-making level.
