apparel-summit-01Syed Ferhat Anwar

The global apparel industry was shaken by a shockwave created in Bangladesh on April 24, 2013. Eight storied commercial building Rana Plaza collapsed, killing more than 1,100 people who made garments to dress thousands globally.

The sector contributes almost 80 percent of GDP, employs around 4 million workers and is the second largest exporter of readymade garments in the world. The world’s focus shifted to Bangladesh, perhaps for the first time since independence in 1971.

Many pundits at home and abroad forecasted a serious impact on the apparel sector, which in the recent past had seen several such incidents, including fire at Tazreen Fashions on November 24, 2012 that took 117 lives. These two incidents in a span of less than six months resulted in formation of international monitoring bodies to assess the status in Bangladesh at the ground level. It was envisaged that a majority of these sweat shops were not safe and thus, a storm was looming in the horizon for Bangladesh.

In April 2012, the world’s leading strategy consulting firm McKinsey & Co published ‘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 and noted: “While China is starting to lose its attractiveness in this realm, the sourcing caravan is moving on to the next hotspot. With Bangladesh having developed a strong position amongst European and US buyers, many companies are already eager to evaluate the future potential.”

apparel-summit-02The big question since the Rana Plaza accident was — Can Bangladesh steer this vast ocean going vessel in such a short time to be able to reach this destination?

In the latest report of Apparel CPO Survey 2013, McKinsey reiterated that in the aftermath of Rana Plaza, the RMG sector still held a competitive position. Several other reports also echoed a similar opinion. This time, all these reports showcased certain facts that indicated that the sector was not only trying hard to maintain the required global standards, but in fact, in some cases, it was far exceeding the standards set by competing countries. Thus, the reports suggest that Bangladesh is likely to be the best destination that has the ability to grab a share of the global market presently held by China. However, they are likely to face severe competition from the neighbourhood.

scan0001In general terms, one may conclude that Bangladesh will continue to be a destination for providing quality and ethical clothing to the world. The question is — can we reach $50 billion by the country’s 50th birthday as envisioned.

The overall performance of apparel exports in the last one year compared to the previous years has not been that different. The growth rate has been around 9 percent over the previous year, which is slightly lower than the past five years’ average of around 12 percent. This drop can be attributed to several factors, including a tainted image for Rana Plaza, political turmoil, energy crises, physical distribution, and discriminatory treatment by some major global buyers. Forecasts indicate that total exports are likely to reach around $27 billion by the end of 2014.

Based on a trend analysis and taking into consideration that the average growth rate for exports hovers around the 9 percent mark, the projection for 2021 stands at around $45 billion. While the same for 10 percent average growth results in approximately $48 billion. Thus, one can safely suggest that the sector does not need to do much to reach the goal of $50 billion by the country’s 50th birthday. The sector must take precaution to avoid any blunder that may result in dispiriting the brands. At the same time, Bangladesh will have to try and ensure that macro environmental factors, such as power and political stability, are maintained.

The above simple analysis indicates that perhaps Bangladesh is capable of achieving much more than the targeted figure set for the sector and projected by McKinsey & Co.

11To focus on some basic data and assess what might be achievable, studying the competitive scenario of some major exporting countries, including wages, productivity, bank interest rate, container exports, container imports, and capacity utlisation, is important. Bangladesh is lagging behind in some areas, but is capable of making substantial improvements within the time frame of our study. 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 the 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 have sustainable growth under the prevalent competitive scenario?

The Bangladesh apparel sector is in reality at a crossroad and suggesting that the target is necessarily easy to achieve perhaps may become a suicidal decision as a result of complacency. In addition, if one ignores India or Myanmar, one may also fail to transform the threats into opportunity. It is also worthy of mention that compliance and maintaining a safe workplace is a prerequisite, not an option.

Let us assess the competitive scenario here:

Bangladesh has a strategic advantage in terms of wages, however, 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, is 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 percent 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 percent by 2021.

21A decline in the interest rate can directly be transferred as wages to the workers. This alone can increase annual wages by atleast 9 percent, considering that almost 70 percent of costs are attributed to raw material and supplies, which are mostly imported. This can further add to enhancing productivity by utilising resources for higher skills and a professional workforce. This could further add another $2-5 billion by 2021.

India is strategically poised to attract US interest to counter Chinese supremacy, while China is likely to use Myanmar as a strategic hub for cost minimisation. Here, it is essential that Bangladesh tries to look at Myanmar not only as a joint venture partner but also as a haven for reallocation. We must understand that the reallocation cost for Bangladeshi manufacturers ($0.5 million for each factory) is going to be extremely high and this will seriously affect their competitiveness at the lower end of the product pyramid.

On the other hand, joint ventures accompanied by reallocation possibilities in Myanmar will not only help them continue with the business, but more importantly, will be the first step towards a greater value added alternative. This will also cut down import costs from China for supplies and raw materials. This strategic move with Myanmar and China can actually result in geometric growth. Bangladesh should be able to undertake such an initiative within five years and start earning by its 50th birthday.

bk0228Bangladesh 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 at both the top and bottom of the pyramid. This can easily enhance returns by 5-10 percent in the immediate future.

Bangladesh is today considered a power house in the apparel sector, being well known for a competitive and young workforce. Bangladesh can further take advantage of these two assets 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, the major production hub should be near the major markets with a view to further cut costs in the form of freight and time. This is a multidimensional strategy and requires separate elaboration.

The Bangladesh based manufacturing units employ a large number of expatriates at managerial levels who have in the past, diligently contributed towards building our sector. However, it is time now to also look for local talent to ensure that they stay within our hub rather than become competition. Second, the major buyers’ representatives for Bangladesh are invariably representatives of competing countries. This is another reason why Bangladesh is so frequently loosing orders to competition. Last, but not the least, Bangladesh is losing its workforce to competing countries.

Factory classification has become essential based on reports submitted by inspection teams. It is clear that a large number of factories are involved as subcontracting agents and are capable of producing quality goods but do not qualify under the definitional parameter set by the government and international agencies. The factories falling at the bottom of the pyramid may be placed under the SME umbrella and brought under formal clusters within the framework of Bangladesh Small and Cottage Industries (BSCIC) estates. This is part of the sustainability strategy.

The sector must also classify factories by category of products and value addition. This will help to identify the strengths and weaknesses of each category and develop a prospective market profile. Furthermore, with Bangladesh having a clear competitive advantage in terms of price, one should start looking at the prospects at the bottom of the pyramid and match it with our SME clusters.

business-71Bangladesh must continue to work on improving infrastructure, ensuring power and compliance, and maintaining a world class working environment.

It can be stated that the opportunities for Bangladesh even under severe economic, strategic and geopolitical challenges are immense. The ‘Made in Bangladesh’ tag has made inroads at the highest echelon of global society. Thus, $50 billion by our 50th birthday in fact is not a difficult target at all. The above analysis shows that we should be able to achieve $60 billion within the time frame if we work on areas such as productivity, capacity utilisation, categorisation of manufacturing units, creating new markets at bottom of the pyramid, and creation and placement of home grown talents at the decision level.

It is also time for us to focus on the second most important finding of McKinsey, strengthen trade linkages through looking at joint ventures with major buyers and also signing bilateral and multilateral agreements with nations. This will ensure sustainable results and help create a multinational ‘Made in Bangladesh’ brand focusing at the top and creating new brands for the bottom.


The writer is a professor at Institute of Business Administration, Dhaka University.
DECEMBER 04, 2014



About Ehsan Abdullah

An aware citizen..

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