Over the years Bangladesh has attracted investments from many foreign companies looking to get a share of the growth trajectory that the country has seen in the last two decades. Companies from China, Korea, Sri Lanka and India have setup manufacturing units in the country, and some even have facilities in other Asian countries also like Indonesia, Philippines and Myanmar to offer the best product to international buyers taking advantage of ‘location’ strengths from cheap labour to high skill expertise. Global manufacturing is now an increasing phenomenon and Bangladesh is among one of the most preferred manufacturing destinations in garments…
Although, the relatively cheaper wage rate is one of the prime reasons for manufacturing in Bangladesh for most companies, the receptiveness to new products and the commitment of the industry with enough patience to wait for long term gains is also a major attraction. “In the region we looked at India, Thailand, Cambodia, Vietnam, and saw the longevity of the apparel business in Bangladesh only, as the other countries due to their demographics will slowly move away from the garment industry. We wanted to build a business that won’t be a 5 or 10 year game but a 20-30 year long venture,” reasons Vijay Uttam, CEO, Intimate Apparels. The company also has 3 units in Indonesia from where high-end lingerie is manufactured.
Even Indian companies who are manufacturing in Bangladesh agree that it’s not only about low wages. “Although the cost of wages has risen I am seeing the customer list for every exporter is growing here, and I can reflect that the trend would continue. Bangladesh’s workforce is cost-effective even at higher wages in terms of productivity and desired skill and an increase in wages would not hamper the industry to sustain and grow,” says Vishal Ranjan, Senior Merchandiser, Shahi Exports, Liaison Office, Dhaka. Shahi is today the biggest garment exporter in India with multi-products and multi-location manufacturing. The proximity of Bangladesh to India is also an added puller for Indian manufacturers as it is easier to coordinate and monitor operations.
According to the Board of Investment in Bangladesh, Indian textile and apparel firms have invested nearly US $ 80 million in 35 factories since 2006. Exporters like Shahi Exports, House of Pearl Fashions, Jay Jay Mills, TCNS, Gokaldas Images and Ambattur Clothing already have factories in Bangladesh, besides Chennai-based Rattha Overseas, which was earlier outsourcing from Bangladesh, is also setting up its own Bangladesh factory. Ravi Shankar, who was responsible for setting up Rattha’s outsourcing operations in 2007, is very clear that Bangladesh is offering too many advantages to be ignored. “There is no doubt that the operational cost in Bangladesh is about 5% higher than India, but the cost benefit on CMT is around 30%, which more than compensates for the operational inefficiencies.”
The goal of why one is manufacturing in Bangladesh is very clear, and Vijay shares that moving into Bangladesh was not about the type of products they wanted to manufacture, but rather it was about the type of business. “Now the type of business we are doing here in Bangladesh is of replenishment, i.e. focus on styles that have large volumes and are continuously selling. And since we have wide technical know-how of the product we were able to handle that part successfully, so whether it was a plus size or a padded bra, we were able to manage. But what we felt for Bangladesh is that instead of fashion, the ease was more in doing the basic stuff. If we would have taken up fashion items in Bangladesh, the development would have been slower,” shares Vijay. In fact, huge volumes of basic products are definitely the core strength of Bangladesh and many companies are manufacturing in the country to take advantage of the same.
Indeed, every country has a certain advantage. Taking the case study of lingerie, China makes every category of product and can offer very short turnaround times on some of the most critical bra styles. However, when a bra is being made in Sri Lanka, Indonesia or Thailand it is not easy to source a wide variety of lace or elastic, and that too within hours, whereas in China the options are endless, which makes product development easy. So, though Sri Lanka is strong in manufacturing it cannot react swiftly to new accessory or fabric demands as one would have to get the same from China, which will itself take a week. And also it has limited workforce, which is very skilled and highly trained to mostly produce critical fashion bras of SAM of 45 minutes too. Again, though Indonesian companies are vertical, have skilled labour force producing a quality product and can offer turnaround times similar to that of China, but they too are expensive and good for only high-end products. The same is true for Thailand.
As for manufacturing in Bangladesh, Korean company, GH Haewae Group is very sure that cost of manufacturing is the biggest puller to setup a manufacturing unit in the country. “Unfortunately, in Bangladesh the efficiency is less than competitive Asian countries like Vietnam or Indonesia and even Myanmar, but so is the wage – thus both balance each other. But if the wages are increased, we would lose all the advantage that we have manufacturing in the country,” says Kim Youn Ki, MD, GH Haewae Group. The company moved into Bangladesh in 2004 and subsequently closed down their Indonesia operations as the facility became unviable because of rising production cost. A big advantage that manufacturers in Bangladesh enjoy is special duty-free status with regard to the EU which is 9.4% on landing cost.
An interesting aspect of many companies venturing into Bangladesh is the choice to manufacture products that few in the country are already doing. “In Bangladesh there are so many basic garment manufacturers, producing T-shirts, shirts and trousers; but Bangladesh does not have many outerwear factories, so we started a factory for jackets, to differentiate ourselves and not be directly in competition with the Bangladeshi manufacturers, as they have a better experience of their core product,” adds Kim Youn Ki.
