The readymade garment (RMG) sector in Bangladesh provided 3.6 million direct jobs, contributed 13 per cent of the gross domestic product (GDP) and fetched over 75 per cent of foreign exchange earnings in 2012, says the World Bank data as of 2013. Bangladesh exported garment products worth US$ 24.5 billion in the fiscal year 2013-14, higher by 13.86 per cent than that of the previous fiscal year despite a prolonged political crisis and two major industrial disasters like the Tazreen Fashions fire and the Rana Plaza building collapse. The share of RMG in the country's export basket currently stands at around 80 per cent, according to the Export Promotion Bureau data as of 2014.
According to a 2011 study by McKinsey and Company (Bangladesh's readymade garments landscape: The challenge of growth), Bangladesh has two distinct advantages in the area of RMG: price and capacity. According to McKinsey, Bangladeshi RMG sector "provides satisfactory levels of quality, especially in value and entry-level mid-market products, while acceptable speed and risk levels can be achieved through careful management". McKinsey identified the following specific advantages of the RMG sector in Bangladesh:
a)Â Â Â Competitive price level is clearly the prime advantage of Bangladeshi garment products. The stakeholders see the wages increase in Bangladesh as being in line with that of other countries, and expect significant efficiency increases to offset rising costs. Therefore, they expect the price levels in Bangladesh to remain highly competitive in future.
b)Â Â Â The biggest advantage of Bangladesh's RMG sector is its capacity. With around 5,000 RMG factories employing about 3.6 million workers out of a workforce of over 75 million, Bangladesh is clearly ahead of the RMG suppliers from Southeast Asia (e.g. Indonesia has around 2,450 factories, Vietnam 2,000 and Cambodia 260). Other countries like India and Pakistan have the potential to be high-volume supply markets, but the high risk or structural factors for the workforce in those countries prevent utilisation of their capacities.
c)Â Â Â McKinsey ranked 'supplier capability' as the third competitive advantage of Bangladesh's RMG sector. Â
d)Â Â Â According to the McKinsey study, the Europeans also emphasise the advantage of sourcing from Bangladesh due to favourable trade agreements. The broadening of EU-GSP (generalised system of preferences) rules on duty-free imports from Bangladesh to include products with two-stage processing has made sourcing from Bangladesh more attractive. The duty-free facility provided by neighbouring India has resulted in increased garment exports from Bangladesh to that country in recent years.
In its 2011 study, McKinsey and Company opined: "While China was once considered 'the place to be' for sourcing', the light is starting to shine even brighter on Bangladesh". In the medium term, Bangladesh looks set to be the sourcing country of choice for the European and US buyers. During 1995-2010, Bangladesh's share of apparel imports into Europe and the USA more than doubled, securing Bangladesh's number-3 position among the EU-15 importers and the number-4 position among US importers. McKinsey forecasts continuation of this high growth of Bangladesh's RMG sector up to 2020, driven by the sourcing trends in Europe and the USA and Bangladesh's current strategic position. The European and US buyers will continue to increase their sourcing activities in Bangladesh in the medium-term. In addition, new buying markets in other regions are increasingly becoming important as sourcing customers for Bangladesh.
According to the McKinsey study, European and US companies are focused on a value-segment expansion from the current average of 20 per cent to the 25-30 per cent sourcing share by 2020. Mid-market brands, which generate around 13 per cent of their sourcing value in Bangladesh today, plan to raise their share to 20 to 25 per cent in the medium term. This growth will be driven by not only an increase in the volume of current product categories but also by broadening the sourcing strategy to more complex, more fashionable or increasingly sophisticated items. These imply that the value market will be the key volume contributor, while the mid-market will demonstrate a more dynamic growth. In addition, many mid to upmarket European and US buyers have drawn up concrete plans to source from Bangladesh in the coming years.
A new class of attractive customers for Bangladesh's RMG industry is also growing swiftly. Garment exports from Bangladesh to the new buying markets - those seeking alternative options in supplying products to their fast-growing middle-class consumers-saw a cumulative average growth rate of 56 per cent during the period of 2008-10. Regional Asian countries now want to benefit from the advantages Bangladesh can offer and Bangladeshi entrepreneurs now see China as the most important buyer in the medium and long terms. India has also followed the suit as bilateral agreements like the duty-free deal signed in September 2011 are fostering enhanced RMG exports from Bangladesh to India.
McKinsey opines that significant challenges brought on by the rapid growth of the RMG sector exist in Bangladesh. Depending on how well the most serious issues can be managed, it forecasts the RMG market in Bangladesh to realistically grow at an annual rate of 7 to 9 per cent up to 2020, resulting in an export value of up to US$ 42 billion in 2020. This trend is, however, not fully consistent with the expected export volume of US$ 26 billion in the fiscal year 2014-15.
The following two tables show the trends of Bangladesh's RMG exports during 2012-13.
The latest data shows that the export of woven garments to China rose from US$ 86 million in 2012-13 to US$ 142 million in 2013-14. On the other hand, the export of knit garments rose from US$ 52.5 million in 2012-13 to US$ 99 million in 2013-14. Overall exports from Bangladesh to China marked a rise of 63 per cent and RMG exports alone grew by 57.64 per cent during 2013-14 compared to that of the previous financial year. The overall exports from Bangladesh to China during 2012-13 and 2013-14 were US$ 458.118 million and US$ 746.198 million respectively. In July 2014 alone, Bangladesh's exports to China recorded a growth of 53.88 per cent. This growth is mainly attributed to duty-and-quota-free access for 4,788 products provided by China to Bangladesh as a least developed country (LDC). China is gradually switching to high-tech industries from the basic RMG items mainly because of high domestic costs, which has created a big opportunity for Bangladeshi RMG producers to grab its market. The internal demand for apparel items in China is worth US$ 310 billion per year, and grabbing even 1.0 per cent of that basket would fetch US$ 3.1 billion for Bangladeshi RMG exporters.
Apart from China, other countries and regions like Japan, Russia, India, Australia, New Zealand, Canada, Korea, Turkey, Southeast Asia, Central and South America as well as Middle East also have enormous potential to be future destinations for RMG exports from Bangladesh. However, there are some long-term challenges to the growth of the RMG sector. The challenges include infrastructure and governance, compliance issues, supplier performance, workforce supply, raw materials and economic and political stability. Side by side with addressing these challenges, Bangladesh also needs to gradually diversify export products to encompass other industries where it can be competitive in the long run.
The writer is a senior civil servant and former editor of 'Bangladesh Quarterly'.    hahmed1960@gmail.com
RMG sector: Opportunities and challenges
Helal Uddin Ahmed | Published: October 04, 2014 00:00:00 | Updated: October 03, 2014 21:19:19
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