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Spotlight | September 2016

Bangladesh textile: Opportunities ahead...

India can help in backward integration of apparel-led success story of Bangladesh textile industry, finds Avinash Mayekar, MD, Suvin Advisors.

The current global apparel market is estimated $1,100 billion with trade value of $700 billion. European Union is the largest consumer market, reaching $350 billion per annum, whilst China is the largest exporter with $288 billion. Leading countries such as EU, USA & Japan focus solely on highest value stages of textile and apparel value chain, that are designing, marketing & distribution. Meanwhile, the manufacturing activities are concentrated in India, China & other developing countries such as Bangladesh, Pakistan, Vietnam, Indonesia, etc. The connection between manufacturers and end-users created by traders from Hong Kong, South Korea & Taiwan is a unique trait of global textile and apparel industry. Global textile and apparel sector is growing with CAGR of 5 per cent and forecasted to reach $2100 billion by 2025. The growth rate of developed countries will slow down and the big emerging economies like China & India will be key growth drivers. Processing activities for export will partly switch from China to other countries. Bangladesh & Vietnam will be first destinations of shift.

Scale of the world apparel market in 2012 reached $1,105 billion, accounting for 1.8 per cent of global GDP. Four main consumer markets are EU-27, USA, China & Japan, with the population of only about one third of global population, these markets account for 75 per cent of global apparel value.

While the rest of Asia is disappointed in terms of export revenue in 2015, there was one surprising anomaly to the pattern – Bangladesh. Bangladeshi export earnings rose to $31.5 billion in 2015, thereby setting a new record for the South Asian country. This phenomenal success can be attributed to Bangladesh’s growing apparel industry, which accounted for over 83 per cent of total exports.

As global demand for cheap clothing rises rapidly, Bangladesh’s position as the second biggest exporter in the world continues to hold strong, which is mainly due to its large population and low labour costs. There is good reason for Dhaka to remain hopeful for the year ahead as well as exports account for 20 percent of Bangladesh’s GDP, while clothing in particular contributes around 80 percent of all exports. In fact, according to the World Bank, the country’s GDP is expected to grow to 6.7 percent this year, which will make Bangladesh one of the fastest growing economies in the world.

The textile and apparel industries provide the single source of economic growth in Bangladesh’s rapidly developing economy. Exports of textiles and apparels are the principal source of foreign exchange earnings. Agriculture for domestic consumption is Bangladesh’s largest employment sector. By 2013, about four million people, mostly women, worked in Bangladesh’s $19 billion-a-year industry, export-oriented ready-made garment (RMG) industry. Bangladesh is second only to China, the world’s second-largest apparel exporter of western brands. Sixty percent of the export contracts of western brands are with European buyers and about forty percent with American buyers. Only 5 per cent of textile factories are owned by foreign investors, with most of the production being controlled by local investors.

Bangladesh’s textile industry has been part of the trade versus aid debate. The encouragement of the garment industry of Bangladesh as an open trade regime is argued to be a much more effective form of assistance than foreign aid. Tools such as quotas through the WTO Agreement on Textiles and Clothing (ATC) and Everything but Arms (EBA) and the US 2009 Tariff Relief Assistance in the global clothing market have benefited entrepreneurs in Bangladesh’s ready-made garments (RMG) industry. Bangladesh, with a population of about 156 million, is among the most densely populated countries in the world. In 2012, the textile industry accounted for 45 per cent of all industrial employment in the country yet only contributed 5 per cent of the Bangladesh’s total national income.

Bangladesh textile and apparel export stood $31.5 billion in 2015. The major export partners to Bangladesh are the USA, Germany, UK, France and Spain. The major import partners are Thailand, India, China, Pakistan & Iran to Bangladesh.

Both countries have long shared common objectives for closer economic integration within the South Asia region, and these have recently been reemphasised by signing on to SAFTA, which takes effect from January 2006. Under SAFTA, the preferential tariffs agreed in the various rounds of SAFTA so far largely ineffective in generating much intra-regional trade will continue, but a number of ambitious new objectives have been enunciated. These include the eventual elimination of tariffs and non-tariff barriers on trade between the members, the harmonisation of Customs procedures and documentation, the facilitation of banking relationships, and cooperation and improvements in the infrastructure for regional trade and cross-border investments.

RMG industry

The RMG industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 20 years. By taking advantage of an insulated market under the provision of Multi Fibre Agreement (MFA) of GATT, it attained a high profile in terms of foreign exchange earnings, exports, industrialisation and contribution to GDP within a short span of time. The industry plays a key role in employment generation and in the provision of income to the poor. Nearly two million workers are directly and more than 10 million inhabitants are indirectly associated with the industry. Over the past twenty years, the number of manufacturing units has grown from 180 to over 3,600. The sector has also played a significant role in the socio-economic development of the country.

Other industries

Apart from textile Industry, agriculture is one of the major sectors in Bangladesh. Other industries which have shown very strong growth include the pharmaceutical industry, shipbuilding industry, information technology, leather industry, steel industry and light engineering industry.

Shipbuilding is a growing industry in Bangladesh with great potentials. The potentials of shipbuilding in Bangladesh have made the country to be compared with countries like China, Japan and South Korea. Referring to the growing amount of export deals secured by the shipbuilding companies as well as the low cost labour available in the country, experts suggest that Bangladesh could emerge as a major competitor in the global market of small to medium ocean-going vessels.

Major roadblocks for Bangladesh textile

  • With the EU being a principle recipient of garments, accounting for 61 per cent of exports, there is the continued slowdown of European economies to consider.
  • Moreover, growing competition from Vietnam, which will grow fervently once the Trans-Pacific Partnership is ratified sometime this year, could threaten Bangladesh’s current global ranking
  • Insufficient government policy about this sector is a great problem in garments
  • Poor labour laws are resulting into conflicts
  • Lack of marketing techniques
  • Lack of training organisations for industrial workers, supervisors and managers
  • Sluggish backward or forward linkages
  • Fewer process units for textiles and garments
  • Autocratic approach of nearly all the investors
  • Incompetent ports, entry/exit complicated and loading/unloading takes much time, time-consuming custom clearance etc.

Prospects

  • Product diversification: The growth pattern of RMG exports can be categorised into two distinct phases. During the initial phase it was the woven category, which contributed the most. Second phase is the emergence of knitwear products that powered the recent double digit (year-on-year) growth starting in FY04. In the globalise economy and ever-changing fashion world, product diversification is the key to continuous business success. Starting with a few items, the entrepreneurs of the RMG sector have also been able to diversify the product base ranging from ordinary shirts, T-shirts, trousers, shorts, pajamas, ladies and children’s wear to sophisticated high value items like quality suits, branded jeans, jackets, sweaters, embroidered wear, etc. It is clear that value addition accrues mostly in the designer items, and the sooner local entrepreneurs can catch on to this trend the brighter be the RMG future.
  • Backward integration: RMG industry in Bangladesh has already proved itself to be a resilient industry and can be a catalyst for further industrialisation in the country. However, this vital industry still depends heavily on imported fabrics. After the liberalisation of the quota regime some of the major textile suppliers Thailand, India, China, Hong Kong, Indonesia and Taiwan increased their own RMG exports. If Bangladesh wants to enjoy increased market access created by the global open market economy it has no alternative but to produce textile items competitively at home through the establishment of backward linkage with the RMG industry. To some extent the industry has foreseen the need and has embarked on its own capacity building.
  • Flow of investment: It is plausible that domestic entrepreneurs alone may not be able to develop the textile industry by establishing modern mills with adequate capacity to meet the growing RMG demand. It is important to have significant flow of investment both in terms of finance and technology.
  • Government policies: The Government has played an active role in designing policy support to the RMG sector that includes back-to-back L/C, bonded warehouse, cash incentives, export credit guarantee scheme, tax holiday and related facilities. At present government operates a cash compensation scheme through which domestic suppliers to export-oriented RMG units receive a cash payment equivalent to 5 percent of the net FOB value of exported garments. At the same time, income tax rate for textile manufacturers were reduced to 15 percent from its earlier level for the period up to June 30, 2008. The reduced tax rates and other facilities are likely to have a positive impact on the RMG sector.
  • Advantageous trading agreements: All Bangladeshi products (other than armaments) enjoy complete duty and quota free access to EU, Japan, Canada, Australia and most other developed countries. Bangladesh is a signatory to the Multilateral Investment Guarantee Agency (MIGA); Overseas Private Investment Corporation (OPIC), USA; International Center for Settlement of Investment Disputes (ICSID); World Intellectual Property Organization (WIPO). Bilateral agreements to avoid double taxation have been signed with 28 countries with a further nine countries under negotiation.
  • Labour productivity: The productive efficiency of labour is more important determinant for gaining comparative advantage than the physical abundance of labour. In Bangladesh, the garment workers are mostly women with little education and training. The employment of an uneven number of unskilled labours by the garment factories results in low productivity and comparatively more expensive apparel. Bangladesh labour productivity is known to be lower when it compared with of Sri Lanka, South Korea and Hong Kong. Bangladesh must look for ways to improve the productivity of its labor force if it wants to compete regionally if not globally. Because of cheap labor if Bangladesh makes the labor productivity in the apex position, then the future of this sector is highly optimistic.
  • Research & training: The country has no dedicated research institute related to the apparel sector. RMG is highly fashion oriented and constant market research is necessary to become successful in the business. BGMEA has already established an institute which offers bachelor’s degree in fashion designing and BKMEA is planning on setting up a research and training institute. These and related initiatives need encouragement possibly intermediated by donor-assisted technology and knowledge transfer. A facilitating public sector role can be very relevant here.

Opportunities

  • Technical textiles:
    • Growing Shipbuilding Industry gives good opportunity for manufacturing of high-end braded ropes which can replace steel ropes.
    • Large coastal area gives opportunity for like fishing nets for marine products
    • Agriculture is the major sector in Bangladesh giving huge opportunity for Agrotech
    • Bangladesh is the second largest producer of Jute, making it future hub for manufacture of Geotech
    • Leather industry, another big industry in Bangladesh, gives opportunity for production of coated fabrics
  • Abundant availability of jute: Bangladesh holds the second position as a Jute producer in the world with the average production of Jute 1.08 million tonne per year. Bangladesh is the major exporter (more than 80 per cent market share) of Jute Fiber in the world. But, now time has come to focus more on value addition rather than exporting fibre. In fact, Jute is widely used in Geotech products. Bangladesh should capitalise such opportunities.

Summary

  • Cheap labour, favourable government policies and advantageous trading agreements makes Bangladesh hub for RMG sector. But, there is huge gap in entire textile value chain of Bangladesh. Bangladesh has huge potential for backward integration to weaving and processing industry, and India can supply state-of-the-art machinery to Bangladesh. This will give price advantage to Bangladesh because of reduced logistic cost.
  • In fact, Bangladesh entrepreneurs can explore the opportunity to set up manufacturing facilities in India.
  • Other big opportunity for Bangladesh is technical textiles. The country has large coastal area with shipbuilding as a one of the major industries. So, technical textile products like braided ropes, fishing nets have great growth potential.
  • Jute is another raw material produced in abundance, so geotech is another opportunity for Bangladesh.
  • Agriculture being one of major sectors in Bangladesh, so agrotech products have good growth prospects.
  • Leather industry is another big industry in Bangladesh gives opportunity for production of coated fabrics
  • With access to international sea and air routes the location of the country is ideal for global trade.

Suvin Advisors Pvt Ltd is a unique consultancy firm in India offering turnkey solutions to entire textile industry globally. Suvin is offering wide range of services from conceptualisation to implementation such as business strategy, project management consultancy and process management, depicting strength of Suvin’s team of handling projects like strategic business development, market research, master planning, architectural services, structural designing, utility designing, construction management, process management and mergers and acquisitions, etc.

What Suvin offer?

With recent trends, Bangladesh manufacturers can explore the manufacturing possibilities in India. During my visit, I found Bangladesh textile industry needs to have a professional approach towards the development of men, materials and management. In spite of having global leadership in knitted garments and denim jeans manufacturing plants, these ‘3 M’s’ are weak in Bangladesh. Hence special thrust needs to be given in following areas: Entrepreneurs need to define the roadmap to meet these challenges. We, from Suvin have come out with professional support to develop new generation who is ready to take reign of the business on their young shoulders.

Our services?

  • Strategy
  • Soft skills development programmes
  • HR solutions

Our methodology

  • Suvin will meet top management of the company to demonstrate company credentials;
  • Suvin will understand their requirement, challenges for the organisation in terms of men, materials and machines;
  • More importantly Manpower related issues can be addressed in two parts
    • By conducting training programs
    • By setting up systems and processes
  • Suvin will work with the entrepreneurs and their team to derive the plan
  • Suvin will give presentation on implementation plan to the top management which will highlight current issues with various techniques and tools to improve capabilities of people at various levels in the organisation Suvin will conduct training workshops based on the approved plans
  • After training workshops, Suvin will submit in-depth report along with analysis of the issues and future action plan
  • Suvin will support in implementing the plans.
  • Suvin is all set to help you in identifying, analysing and addressing the challenges of your organisation and offer appropriate solutions.

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