Bangladesh – next sourcing hotspot?

China dominates the European and US markets for ready-made garments with about 40% of all imports from the Asian region. But a recent McKinsey survey has found that 89% of buyers in Europe and the US are looking to reduce their buying from China because of declining profits and capacity issues.

While many of the buyers are considering a range of Southeast and Far Eastern nations for the manufacturing of their garment including Vietnam, Indonesia and Cambodia, the #1 continues to be Bangladesh as the place to source apparel in the next 5 years.

Bangladesh

The key facts about Bangladesh are:

History:

  • Europeans created trading posts in the 16thCentury
  • Britain dominated the nation
  • In 1947 West Pakistan and East Bengal separated from India to form Pakistan
  • Bangladesh seceded from Pakistan in 1971
  • In elections in 2008 Sheikh Hasina Wajed was elected prime minister

Geography:

  • 98% Bengali, 2% tribal
  • Muslim 89.5%, Hindu 9.6%
  • Population 161,083,804
  • Median age 23.3 years
  • Major cities include Dhaka (capital), Chittagong, Khulna, Rajshahi
  • Literacy rate of 47.9%

Economy:

  • 5-6% growth per year
  • $282.5b GDP
  • GDP per capitia $1,700
  • Labour force in industry 30%
  • Unemployment rate 5%
  • Population below the poverty line – 31.5%
  • Exports $23.86b
  • Garment exports $12.3b
  • About a third of the nation floods annual and this hampers economic development

Why source from Bangladesh?

With such a large part of exports (around 13% of GDP and 75% of exports) in the garment sector there is already knowledge, skills and experience in this within Bangladesh.

Pricing is also another factor. Low costs are attractive but there is also an expectation of significant efficiencies in the future that will offset rising wages.

A further reason is capacity. There are 5,000 factories today employing 3.6 million workers which means that Bangladesh is well ahead of other Southeast Asian suppliers.

Key purchasers from value and mid-level brands have indicated that Bangladesh will continue to be a key buying spot based on these indicators and the satisfactory levels of quality for this section of the market.

The Challenges

McKinsey have identified 5 challenges for firms wanting to buy apparel out of Bangladesh. These include:

#1 Infrastructure

Transportation can bottleneck in Bangladesh leading to delays in stock landing. As more fashionable items have a shorter lead time this can affect buying decisions. Energy supply remains a concern as well. It is rated as being poor-very poor. The Government has recognised this as the #1 issue for growing GDP and have started upgrading power systems.

#2 Compliance

There are a number of labour and social compliance issues when dealing with Bangladesh. In terms of corporate social responsibility this can really affect a brand, similar to the Nike and Adidas issues in the past. Green environmental issues have started to gain attention as well. This needs to be a major consideration for every brand.

#3 Suppliers’ performance & the skilled workforce

Suppliers productivity must improved to counteract rising wages so that Bangladesh remains competitive against other SE Asian nations. Issues around investing in infrastructure and technology remain.

#4 Raw materials

Bangladesh lacks raw materials, so most product is imported. This can lead to delays. Development of a local sector would minimise this risk.

#5 Economic & political stability

Most buyers have indicated that if the political system destabilises that they would not source from Bangladesh. Most buyers are concerned about political unrest, strikes and the ease of doing business.

What Next?

The three main stakeholders – the government, suppliers and buyers – must continue to work together to drive the change and potential of the Bangladesh garment industry.

As with any buyer-supplier relationships buyers should work with the suppliers closely to review the full value chain to ensure it is lean, rethink pricing negotiations that can lead to investment in technology and automation and ensure that they are dealing with factories that support CSR and will not have a negative affect on the brand.

Building long term sustainable relationships with the suppliers in Bangladesh can only lead to sustainable pricing, better delivery and quicker turnaround.

Cheers Michael

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Comments 10 comments

AndriyR 4 years ago

An interesting fact about Bangladesh is that a country with a population of 161m people is so rarely seen on TV. This is a good indicator of some sort of stability I think. Last week though - BBC made a nice report from this region confirming all you're saying - Bangladesh people are very hardworking, but the factory owners there are not paying them enough to make at least minimum living, while the managers are taking advantage of the multibillion dollar exports for their own wealth. Hope this is going to change.


charmike4 profile image

charmike4 4 years ago from Adelaide, South Australia Author

Thanks AndriyR for your comment. I think that as this nation starts to emerge that we will start seeing more and more clothing from Bangladesh. With CSR pressure from western nations this should also increase the rights, conditions and wages of staff. Cheers Michael


pramodgokhale profile image

pramodgokhale 4 years ago from Pune( India)

I am an Indian,we know Bangladesh well and their skill and

abilities. The low cost destination in Asia dominates garment market and quality garments made by Bangladesh are being exported.

This may generate wealth and employment too.The wages are low so they can offer at low prices.


charmike4 profile image

charmike4 4 years ago from Adelaide, South Australia Author

Thanks pramodgokhale. In regards to wages do you think these will rise and is it responsible for western nations to exploit the cheap wages without care or consideration of the conditions that the workers work in? Cheers Michael


unknown spy profile image

unknown spy 4 years ago from Neverland - where children never grow up.

Great hub charmike! Voted up and all.


charmike4 profile image

charmike4 4 years ago from Adelaide, South Australia Author

Thanks unknown spy!


MCJ10 4 years ago

Charmike4, I like the idea of western nations putting more CSR pressure on Bangladesh. However, I think that you'll find that no improvements will be made for Bangladeshi workers for a while. The main reasons is that the exporters association is very powerful and will object to any increases in minimum wage (currently, the minimum wage is substantially below a "living wage", which makes Bangladesh so "competitive" in the RMG industry). I work in the finance industry and have spoken to management of many clothing retailers who are all flocking in Bangladesh. Do you know why? Not because labour costs are lower (labour costs are just a fraction of the total cost of goods sold anyway) but because the government in China is suddenly enforcing labour laws. In contrast, the government in Bangladesh could not care less and their workers are bound to live in squalor. China has had a problem with child labour, sweatshops, etc. but unfortunately this is nothing compared to Bangladesh! A quick glance at the difference in labour laws gives you the real reason why so many retailers are moving their production to Bangladesh.


charmike4 profile image

charmike4 4 years ago from Adelaide, South Australia Author

Great insight into the reasons why firms are attracted to Bangladesh. Is there anything that can be done by pressure groups in the developed nations to stop this exploitation MCJ10?


tehjib profile image

tehjib 3 years ago from Bangladesh

Very nice writings about Bangladesh's apparel sourcing.

I am also in the same business and the information in the hub is well written.

Thanks.


charmike4 profile image

charmike4 3 years ago from Adelaide, South Australia Author

Thanks tehjib for your comments, Cheers Michael

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