The second biggest garment exporter globally, Bangladesh’s growth in apparel exports has not been very satisfactory over the last few years! Registering a growth of 4.08 per cent in FY 2014-15 during which it earned US $ 25.49 billion in apparel exports (as compared to FY 2013-14’s earning of US $ 24.49 billion), the growth rate showed a glimmer of hope in FY 2015-16 during which the country registered a growth of 10.21 per cent to earn US $ 28.10 billion only. However, it faltered again and touched a 15-year low growth of 0.20 per cent in FY 2016-17 (US $ 28.15 billion in apparel exports).
Notwithstanding this inconsistent export growth, McKinsey & Company’s survey (titled The apparel sourcing caravan’s next stop: Digitization, published in September 2017) based on interviews of Chief Purchasing Officers (CPOs) of top 63 global garment retailers and brands (which together are responsible for a total sourcing value of over US $ 137 billion), underlined that Bangladesh would remain the sourcing hotspot for the international retailers and brands over the next five years because of competitive price and China’s declining market.
CPOs of top 63 global garment retailers and brands (which together are responsible for a total sourcing value of over US $ 137 billion), underlined that Bangladesh would remain the sourcing hotspot for the international retailers and brands over the next five years because of competitive price and China’s declining market.
China appears to have passed its zenith as a low-cost sourcing country, due to both increased local demand and a reduction in size of the available workforce, the report underlined.
“I feel the McKinsey survey pertaining to Bangladesh’s prospects as a sourcing destination is spot on…,” maintains Md. Moniruzzaman Monir, Chairman of Badon Fashion Limited & Explorer Apparels Ltd. Monir cites the increasing order volumes from buyers to prove the country’s popularity as the global sourcing hotspot. He, however, is concerned over the declining product value, which is impacting the overall export earnings.
Afzalul Alam, Managing Director of ZAS Apparels (Pvt.) Limited, feels increased order volumes alone may not have the desired effect more so at a time when overheads are on rise leading to hike in the production cost. “…We’ve been getting new CAPs from Accord and Alliance, adding to the expenses. But buyers are not ready to pay those extra cents,” complains Afzalul expressing the popular sentiment amongst manufacturers, already reeling under dwindling profit margins. The increasing labour cost in China and Vietnam compared to Bangladesh is the significant factor leading the global brands and retailers to opt for Bangladesh still under such difficult circumstances, feels the MD of Zas Apparels.
Afzalul’s claims pertaining to Bangladesh’s cost-competency has even been highlighted in an earlier report: Bangladesh’s readymade garments landscape: The challenge of growth management, by the consulting firm, which underlined Bangladesh’s two main ‘hard’ advantages as ‘price’ and ‘capacity’, while also touching upon the challenges (infrastructure, compliance, raw materials, economy and political stability, etc.) that the country faced which were mentioned in the earlier report.
As per McKinsey report while some traditional lowcost countries seem to be losing their attractiveness, international sourcing executives are showing keen interest in the newer lowcost markets– particularly Myanmar and Ethiopia.
Over the years, drastic improvements have taken place in all these areas. Under the rule of the present Government, the country has not only been able to maintain overall healthy economic growth and political stability but also has been able to take sweeping steps to improve the infrastructure and power scenario.
Besides improving the infrastructure of Chittagong Port, the Government has commissioned two studies on the technological and economic feasibility of a mid-sized seaport north of Chittagong and a floating terminal in Chittagong. It has also opened cross-border electricity import trade with India while also considering the prospect of liquefied gas as an alternative power source.
The 2017 report of McKinsey, further maintaining that companies need to choose sourcing countries strategically– balancing costs, capacity, speed, quality and compliance – and be ready to implement dual sourcing strategies, observed that the search for the caravan’s next stop is as active as ever, but there are new dynamics at play. While some traditional low-cost countries seem to be losing their attractiveness, international sourcing executives are showing keen interest in the newer low-cost markets – particularly Myanmar and Ethiopia, it added.
But exporters believe that there is no alternative to Bangladesh. “It is just a tactic to put pressure on us to compromise on pricing… Negotiation is a mind game after all. The so-called threat from the African countries is on for the last many years and even Myanmar is also seen in the same context now,” states Md. Fazlul Haque, Managing Director of Plummy Fashions Ltd.
The export figures of Bangladesh’s competitors – US $ 1.855 billion for Myanmar in FY 2016-17 and US $ 89.3 million for Ethiopia as per Ethiopian FY 2016-17, compared to Bangladesh’s US $ 28.15 billion export in the same time period – give a distinct idea of where they stand today vis-à-vis Bangladesh.
Taking the observations of McKinsey’s latest survey in the right earnest, industry insiders opined that the languid growth of FY 2016-17 has been a oneoff development and outcome of the global economic downturn (that severely impacted various overseas markets), combined with the changing world order during which Bangladesh’s two big export destinations went through major change. The change of guards in USA amidst Trump administration’s re-shoring rhetoric and the historic Brexit that witnessed UK deciding to part ways with the European Union Bloc (scheduled on March 29, 2019), played a significant role in the export debacle and hence should not be seen as the weaning popularity of Bangladesh as a sourcing destination.
In fact experts underlined that the industry’s competency and capacities, coupled with affordable and increasing worker base and the indomitable entrepreneurial spirit of the garment exporters, are the essential components that will help Bangladesh maintain its lure as the perfect sourcing destination, not only over the next five years but for a very long time to come.