Unlocking the RMG export potential of Bangladesh

The RMG sector drives the wheels of the economy of Bangladesh. We feel proud to see the label 'Made in Bangladesh' in any western apparel store. But the price differences between a Bangladeshi apparel and a Vietnamese one of the same quality gives us quite a shock. If the price of Bangladeshi apparel is $5, it would be $9 for the Vietnamese one.

This has been the scenario for the past decades. It is a bad time for every business. And everyone is passing the blame on the Covid-19 pandemic and economic slowdown. But the price difference has nothing to do with the falling economy triggered by Covid-19. The problem persists from the pre-pandemic time.

In a recent webinar organised by fashion technology specialist Tukatech on "Cut the Noise – Devise a Comprehensive Integrated Strategy Based on Accurate Information", garment industry specialist David Birnbaum explained the issues in Bangladesh and India and suggested solutions to unlock the potentials.

According to Birnbaum, before the pandemic and the recession, the RMG exports of Bangladesh soared – from $14.8bn in 2010 to over $40.41bn by 2019. India was in a similar position, starting out with garment exports of $8.98bn, reaching $14.36bn last year, reported Just Style.

But a business's growth is measured by the market share it has, rather than calculating how much they earned from the exports.

When your market share is not going up, that means your customers are taking business to your competitors, Birnbaum points out.

"When you move into market share you can see the problem. To understand what is happening, you have to look at how it changes from year to year," he said.

For example, Bangladesh's global market share in apparel exports reached 7.8 percent in 2016, but had fallen to 6.4 percent in 2018. India's change in market share declined over the same timeframe, from 3.5 percent to 3 percent.

Only Cambodia seems to be doing well, after its market share grew 2.1 percent in 2019 on the year prior – unlike India where declines continued, and in Bangladesh where it levelled off, as per Just Style report.

There could be several reasons why the market share is falling. Birnbaum outlined a few.

Despite having some great assets: reliability, reasonable quality, and FOB (free on board) prices, which is among the very lowest in the world, the industry in Bangladesh is failing. 

"You ask Bangladesh what is the problem, and they tell you the customers will not pay a decent price. The Bangladesh export associations and members are correct. They have the lowest prices, and very often those prices are below cost," said Birnbaum.

"However, the problem is they are holding the picture upside down. The question is not why are customers paying Bangladesh factories so little? The real question is why are customers paying everybody else so much more?" Birnbaum asks the industrialists.

In Bangladesh, the prices for men's cotton pants, men's cotton woven shirts, women's cotton pants (denim), and cotton T-shirts are the lowest in the world. Men's shorts and jeans are the third lowest, sweaters are the second lowest, Birnbaum revealed.

"You can't get any lower. You can't say there is a problem with cost; you are already charging the lowest price."

"The customers pay Bangladesh less than its competitors because they believe that Bangladesh garments are worth less. Bangladesh is losing business because even though it has the lowest FOB prices in the world, customers will not believe the product is worth more. This is a terrible conclusion."

Then, what is the problem? The first, Birnbaum believes, is ethical.

"It is how Bangladesh's workers are treated – low wages, overtime, poor working conditions, and unsafe factories. It is also about how Bangladesh factories deal with the environment, pollution and sustainability. Bangladesh says it has 33 sustainable factories; there are 6,000 factories in the country. The problem is, in today's consumer driven market, factories that fail to meet the standards of CSR will become outlaws."

The Business Standard reached Syed M Sajjad, chief operating officer of Majumder Garments, to shed some light on the issue.

Sajjad thinks Bangladeshi garment industry has changed a lot after the Rana Plaza tragedy. Now, Bangladesh has the highest number of compliant and five-star quality sustainable factories. The issue is not with cost, pricing but with the 'image' or perception of the international buyers regarding Bangladesh.

"Bangladesh provides the best quality low end products at the lowest price, if compared to China, India, Pakistan, and Turkey. We need to change the perception of international buyers that our working condition is poor. Our workers are low paid. We need to show them that the scenario has changed drastically after Rana Plaza tragedy. It is not the same anymore. We need to take ownership of our work rather than letting them decide price and policy for us," said Sayed Sajjad.

To overcome the situation we need to do branding of our factories and products.

Transition happens. Always. Once China used to dominate low-end products, then the market shifted to Bangladesh. Cambodia has also come up as their cost is much lower compared to Bangladesh. Now the market will shift to Africa.

So, it's high time to diversify the export basket and look at mid-end or high-end apparel production.

"No high-end brand would like to source from a low-end market. This is the fact. We need to promote our eco-friendly, green factories. Now sustainability and eco-friendliness matter the most to international buyers. We have them, so we need a lot of branding, promotion," Sajjad said.

The second problem, Birnbaum pointed out, is credibility.

What needs to happen, Birnbaum says, is first to accept the problem, and then bring in outsiders to solve the problem, for example, Greenpeace and the International Trade Union Confederation (ITUC).

"Six months to carry out a complete investigation, and six months to create and publish a viable strategy and then have a committee implement the strategy," said Birnbaum.

"Customers want to work with Bangladesh. Greenpeace, ITUC will give them a reason because they have credibility. This is the solution. The difficulty is that every strategy comes with a cost and, in the case of India and Bangladesh, the cost can be very high. I don't mean very high in terms of money but, given the problems facing India and Bangladesh, the strategic value of the solutions far exceeds the cost."

Sajjad also agreed with Birnbaum. "We have to call different organisations which work on environment, sustainability, and labour rights organisations to show our upgradation. We need a lot of promotion. This will promote our credibility."

Compared to Bangladesh, India has probably the best fashion and design knowledge in Asia, and can be called Italy of Asia, but it also faces serious problems, according to Birnbaum.

"Apparel is a seasonal industry: January to February serves the spring season and are 'reasonably good months.' After that, it falls down and moves up again in June, July, August, September and October, the heavyweight winter goods and the holiday goods seasons."

But India has only one season. It has a great line-up in January, February, and March and then after that goes into a constant decline. "How can an industry survive that fails to produce four seasons holiday merchandise? Why does it happen? This is the basis of the problem."

"As the orders fall, factories have to lay off the workers. They cannot invest in training workers. Without training workers, productivity remains low and the uneven quality and the excessively long lead times are an indication of the fundamental problem," Birnbaum explains.

But this is not the case in Bangladesh. Bangladesh has production throughout the year.

Another problem that India has is that they use locally made materials. It has the lowest rate of fabric imports, at just 1.4 percent of global market share, he said.

Their policy is to promote their own materials which are low in quality.

"Because if they cannot import fabric then they cannot have a full season, and if they cannot have a full season, industries will fail. If you look at a solution, the only possible solution is to encourage fabric imports," Birnbaum says.

Bangladesh, on the other hand, is a very popular sourcing destination for quality materials of low-end.

"Given the facts, Bangladesh does not have these issues. In terms of material quality, Bangladesh excels over India. Even though India has gained a name in mid-end production for its embellishment and designs, the poor quality of materials and laying-off of workers in off season, makes Bangladesh a reliable source," said Syed M Sajjad.

On the other hand, Director of Denim Expert and BGMEA, Md Mohiuddin Rubel told The Business Standard, "I do not find any logic to agree with the notion that Vietnam, Cambodia and Turkey are doing better than Bangladesh."

He went on to say, if we compare Cambodia with Bangladesh then it is to be noted that Bangladesh's export soared from $6.9bn to $33.6bn from 2015 to 2019, whereas, Cambodia's export reached from $2.2bn in 2015 to $8.5bn in 2019, as per the WTO data.

If we look at Turkey, it shows that their RMG export in 2005 was $11.8bn and in 2019 it reached $15.9bn. So clearly Bangladesh is staying ahead in terms of export, global market share and growth as we see from these data.

"Bangladesh was $3bn ahead of Vietnam in 2019 in terms of clothing exports, making us the second largest, though media reports say that Bangladesh became third as Vietnam crossed us, but that's not factually correct. Vietnam is portrayed as the second largest exporter by combining its textile and RMG export, and comparing it with our RMG export only," Mohiuddin Rubel.

Not only in terms of exports, but also in many other ways Bangladesh is probably in better position than the other countries, for example, the industrial safety and sustainability practices, and green industrialisation etc.

"However, these do not make us complacent and we have challenges and weaknesses as well. We could not upgrade our capabilities in terms of value addition, innovation, designing and diversification of items within the range of RMG products. Our productivity is also amongst the lowest," he added.

Here countries like Vietnam have a different reality since their industry is dominated by foreign investors, which is not the case in Bangladesh.

"So they are ahead of us in terms of technology, management, efficiency and skills. They also take less lead time compared to Bangladesh with China being a next door to them, which makes imports of raw materials easier," said Rubel.

Not only that, Vietnam's progress and maturity in the area of economic diplomacy is commendable. The country has already entered into FTAs and RTAs with a number of trade partners including ASEAN and EU. The recent EVFTA and EU Vietnam Investment Protection Agreements testify Vietnam's capability dealing with a trade partner like the EU.

Regarding solutions to unlocking the export potential, Rubel said, "Bangladesh has to go a long way, especially in commercial diplomacy and market access in the post LDC era. We have to improve the capacity of our industry with regard to efficiency enhancement, scale up pattern making and design input capabilities, and go for non-cotton items."

"At the same time, we need better infrastructure to further increase country competitiveness which can be achieved through optimised cost of business and lead time. We need more local and foreign investments in high-end backward linkage textile industries to keep pace with the changes in the market and the buying pattern of our customers," he added.