Bangladesh: a Chinese stitch-up?


BANGLADESH: A CHINESE STITCH-UP?

2012-01-10__business010101010

BY DAVID KEOHANE

Bangladesh could be this decade’s great usurper if it manages to sidle into the low-value manufacturing gap China is leaving in its wake as it moves up the value-adding ladder. And if a report by McKinsey, the consultancy, is correct the ready made garment sector is one place where Bangladesh is ready to strike.

McKinsey’s report, released Thursday, says:

For many years, China was almost always the hands-down answer to all buyers’ needs, but those times are changing… In 2010, China dominated ready made garment (RMG) imports to Europe and the US, accounting for approximately 40 percent of the import volume in the region. The macrotrends of wage increases and capacity pressure, however, have proven to heavily weigh on the Chinese RMG sector.

According to McKinsey’s survey, 54 per cent of chief purchasing officers in Europe and the US are planning to decrease their sourcing activities in China by up 10 per cent. Another 32 per cent said they planned to decrease their sourcing activities by more than 10 per cent.

As Ifty Islam of Asian Tiger Capital Partners has previously written on beyondbrics:

China’s labour costs are rising, its pollution costs are increasing, its labour regulations are getting stricter, and it will be forced within the next six to nine months in my guess to revalue the renminbi. Its own currency will make it less competitive for labour- intensive goods.

The social and political pressures to push Chinese wages higher, as evidenced by worker discontent in companies such as Foxconn in 2010, has made it increasingly uneconomic to keep producing the lowest margin products there.

This is particularly true in the RMG sector. McKinsey’s report argues that capacity for Western RMG buyers in China is reaching its limits, as RMG players in coastal China switch to serving the fast growing, more profitable domestic market and as the Chinese government seeks to support more value-added industries. McKinsey’s report notes that since 2000, China’s total apparel exports have been reduced to nearly half of their historical total.

Bangladesh, with the region’s youngest (median age 23.1 years) and cheapest labour force, a huge existing RMG capacity (currently 5,000 RMG factories) and long term experience in the sector, is ideally positioned to benefit from China’s RMG retreat.

McKinsey says that since the late 1970s, Bangladesh has seen its RMG export levels grow steadily, hitting some $15bn in 2010. And in the last 15 years, say McKinsey, Bangladesh’s share of apparel imports to Europe and the US have more than doubled making it the third largest apparel exporter to the EU and the fourth largest to the US.

RMG is now Bangladesh’s most important industry sector, representing 13 per cent of GDP and 75 per cent of total exports.

Of course, Bangladesh is not a perfect market and a number of large challenges remain, as McKinsey’s chart summarises:

Importantly, Bangladeshi’s won’t be satisfied with low wages forever. McKinsey’s survey points to a 30 per cent increase in the cost of labour within the next three years. However, such increases are not being viewed too negatively and respondents expect to see offsetting efficiency gains tacking the sting out of higher wages.

Thus, for the next ten years McKinsey forecasts high growth for Bangladesh’s RMG sector of 7 per cent to 9 per cent a year. That translates to the market doubling by 2015 and nearly tripling by 2020 and an export value of between $36bn to $42bn

————————-

526028_571536989539139_1387779648_a

 

About Ehsan Abdullah

An aware citizen..
This entry was posted in ACHIEVEMENTS - SUCCESS, ECONOMY. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s