Bangladesh has spent over 40 years growing its position as a key outsourcing hub and is the second-largest apparel exporting country in the world.
The rise of the Bangladesh apparel sector
With a global market share of 6.26%, according to the World Trade Statistical Review 2021, “the industry has come a long way,” said Md. Mohiuddin Rubel, a director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). “In 40 years, we have witnessed a sharp rise in exports, from USD$10,000 in 1978 to $34.13bn in FY 2018-19 (June-July).
And that figure would have continued to rise without the intervention of the coronavirus pandemic, he said.
“It caused losses of $6bn in the very first [financial] year” of the pandemic, year-on-year from July 2019 to June 2020, Rubel said. In the financial year for 2020/2021 (July to June) clothing and textile exports declined by a further $1.5bn, although sales recovered in latter quarters to an export value of $31.4bn, he said.
According to the Bangladesh Export Promotion Bureau, in FY 2020-21, Bangladesh exported $31.45billion’s worth of apparel, of which knitwear and woven products accounted for $16.96bn and $14.49bn respectively.
Bangladesh currently exports apparel to 167 countries across the globe, according to BGMEA data. It has around 3,500 readymade garment factories and 1,511 textile manufacturing plants, including dyeing-printing-finishing units, said Rubel.
Luxury apparel exports and sustainable credentials
However, out of fear of losing its second place in the global industry to Vietnam, which is its closest rival, the Bangladesh apparel industry is changing its business model, diversifying its exports to include high-end luxury products, lingerie, activewear and swimwear. “We are trying to gain a foothold in the high-end market,” said Rubel.
The country is also starting to stress its sustainability credentials, including worker health and safety, a sign of the progress the industry has made since the 2013 Rana Plaza disaster killed 1,134 people.
According to consultants McKinsey & Co, Bangladesh’s ready-made garment (RMG) sector is now a frontrunner in transparency in terms of factory safety and value-chain responsibility. The initiatives of the now defunct international groupings, the Accord on Fire and Building Safety in Bangladesh, and the Alliance for Bangladesh Worker Safety, as well as their local successor the RMG Sustainability Council, closed hundreds of unsafe, bottom-tier factories and increased the number of compliant factories.
“The industry is now prioritising the transformation of its business model from labour-intensive manufacturing into an innovative, high value-added manufacturing industry,” said Rubel.
Part of this process, said Faruque Hasan, president of the BGMEA, is a proactive effort to expand digitisation within the Bangladesh apparel sector.
“Several modern technologies, like laser-cutters, sewbots, 3D printers, robotic arms and others are used in the factories of Bangladesh,” he stressed.
Rubel stressed that to move up market, Bangladesh needs capacity building in fashion design and innovation. “We need to do more to adapt technologies, to reduce costs, and reduce the use of natural resources and reduce production times,” he said, noting that such capacity building would enable the industry to conduct more upstream work and boost its value addition.
As for environmental concerns, these are increasingly important to Bangladesh’s apparel industry, said Hasan, with the industry using “diverse technologies and auxiliaries,” such as “low liquor ratio dying machines,” ozone washes, using organic chemicals, laser printing, waterless dyeing and more, reducing pollution and energy consumption while boosting operational efficiencies.
Bangladesh leads the way on LEED green factories
Bangladesh is now home to the most Leadership in Energy and Environmental Design (LEED) green factories in the world. “Out of 150 LEED green factories in Bangladesh certified by the US Green Building Council (USGBC), 44 are platinum and 93 are gold rated,” said Rubel.
All green factories use solar panels to save energy and protect the environment. One such factory is operated by Plummy Fashions, based in Narayanganj, near Dhaka, which trains, “its staff on saving energy and reducing water consumption inside and outside the factory,” said Fazlul Hoque, managing director of the company and a former president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
The BGMEA has also signed an agreement with the Circular Fashion Partnership, a Bangladesh-based initiative established to harvest post-production fashion waste for use in producing new apparel products. The goal, said Hasan, was to shift to a circular economy from the current linear manifestation to reduce the industry’s carbon and water waste footprint.
While this progress is undeniable and long term, the Covid pandemic has had unescapable and potentially long-term impact on all industrial sectors in Bangladesh and the recovery process has been challenging, said Hasan.
“Covid has affected the whole supply chain. Buyers are reducing the lead time and demanding faster delivery. Orders are also coming in small batches rather than in big volumes. As a result, supply chain management is disrupted [and this] may take a lasting turn,” Hasan warned.
This is a big concern for a lower cost, far-sourcing hub such as Bangladesh, whose costs have been inflated by freight and oil price hikes. The resulting “hike in yarn price, dyes and chemical price, is a major concern for us,” he said. Freight cost increases are a particular problem, triggering a “near-shoring tendency among buyers,” even where the new manufacturing location has higher labour bills, “to save freight costs as well as lead time,” Rubel pointed out.
To address this time-efficiency problem, developing vertical integration in factories is important. Bangladesh’s backward linkages are growing, but more upstream expansion is needed: “Bangladesh has succeeded in increasing its annual capacity of yarn production from 1.5m kg in 1994 to 3.27m kg in FY 2020-21. Similarly, the production of fabrics for domestic and export markets has increased from 702m metres in 1972-73 to 7.800m meters at present,” said Rubel.
One particular strength is that the knitwear sector of Bangladesh, a critically important segment of the industry, is more vertically integrated. “Only 20 percent of knitwear fabrics need to be imported. On the other hand, 60 percent of our fabric requirements for the woven items are imported,” Rubel added.
Even for knitwear there are some upstream supply chain weaknesses: “Since Bangladesh does not grow cotton, we do not have any of this core raw material, including fibre. Also, for the non-cotton items, we need to import non-cotton yarn and fibre. There are only a few spinning mills, who are using non-cotton fibres, but mostly we import non-cotton yarn for the sweater industry and non-cotton fabric for producing jerseys, sportswear, athleisure, etc,” said Rubel.
The benefit of increasing backward linkages is portrayed by the Dhaka-based Azim Group, which has added button, polythene-bag and carton manufacturing to its clothing production lines. It also maintains a relationship with fabric suppliers within Bangladesh and neighbouring Asian countries to speed up its order fulfilment. “Our backward linkages reduce lead time and help us offer competitive prices in the international market,” said an Azim Group note.
“We have to emphasise the need to source fabrics locally. We have to build backward linkages and try to manufacture fabrics locally. There is huge scope in man-made fibre [MMF] and [natural] non-cotton categories,” he said, stressing increasing the supply of these inputs would help the Bangladesh apparel sector target high-end sales, argued Rubel.
Logistics remain a challenge for Bangladesh’s apparel sector, even though most of its factories are in the capital Dhaka and the country’s largest seaport Chattogram.
Tackling transport pinch points to improve infrastructure
Infrastructure is of poor quality in this emerging market country, affecting industry performance: “It needs to improve its transport, energy and digitisation infrastructure,” said Enamul Hafiz Latifee, policy and trade economist and former assistant secretary to BKMEA.
According to the World Bank’s Logistics Performance Index 2018, Bangladesh’s global rank dropped from 78 worldwide in 2010 to 100 in 2018, while Vietnam improved its ranking from 53 to 39 over the same period, reported McKinsey and Co.
Bangladesh has transport pinch points: “Most products are shipped through Chattogram seaport while some goods are shipped by air through Hazrat Shahjalal International Airport in Dhaka,” Rubel said.
The government is tackling the problem, however, spending freely on major projects such as Padma Bridge, linking the south-west of the country to northern and eastern regions, and hence its main seaport. The country’s first deep seaport – Matarbari – linked to a new container terminal in Maheshkhali in Cox’s Bazar is expected to open in 2025, both south of Chattogram. Also, a Dhaka Metro rail project “may help to reduce the logistics cost and lead time industry is now burdened with,” said Latifee.
Bangladesh plans 100 economic zones to attract investment
Meanwhile, the government is planning to establish 100 economic zones across the country to attract investment, including from overseas, into all textile, apparel and shoe manufacturing. Companies with plants located in these zones will benefit from tax and duty reductions or exemptions. And the government is expanding Bangladesh power production, including constructing major power plants, such as a 1,200 megawatt (MW) coal-fired power station in Matarbari, Cox’s Bazar, and a 1,320MW coal-fired power plant in Patuakhali on the south coast.
“The [national] electricity generation capacity has already reached more than 25,227 megawatts, which is a very positive sign for the industry,” Rubel said.
Bangladesh duty concessions around the world
For the time being, Bangladesh enjoys privileged market access to major purchasing countries around the world. Until 2026, it is likely to be regarded by the United Nations as a Least Developed Country (LDC), which guarantees duty-free market access to markets such as the European Union (EU), Canada, Japan and Australia.
As a south Asian country, Bangladesh also enjoys special duty concession in countries such as China, South Korea, India and Sri Lanka, under the Asia Pacific Trade Agreement (APTA) and South Asian Free Trade Agreement (SAFTA), both of which it is a signatory.
The government also maintains duty free imports of key input such as polyester, viscose, acrylic, synthetic, and modacrylic staple fibres, with the duty for textile chemical dyes kept low at 5%, said Latifee.
“Export-oriented RMG factories can import yarn and fabric under a duty-free incentive, which reimburses all customs duties paid on imported yarn and fabric (but not taxes such as the VAT and Advanced Income Tax). Imports of all textile raw materials, including fabrics have no quotas,” Latifee added.
The Bangladesh government is also providing export incentives such as duty drawback systems, bonded warehouse facilities, and export subsidies linked to the value of the exports. The government offers a 4% incentive for sales of exports of clothing made with yarn and fabrics produced in Bangladesh. It offers another 4% on export earnings by small-and-medium-sized clothing companies. The government pays an additional 4% export cash incentive for the sales of new RMG items to any market. There is an additional 2% cash incentive for RMG exports to the Euro area, and 1% additional special incentive for all RMG exports. These subsidies will remain in place until 2026, said Latifee.
Bangladesh apparel sector and the Covid pandemic
During the Covid-19 lockdown in 2020, the government announced a stimulus package worth $595m to export oriented industries that included the apparel sector, according to KPMG International. “The role of the government to support the RMG industry has absolutely been a lifesaver…during the most dire moments induced by Covid-19. Because of that salary support by the government, factory owners have been able to pay their workers, even though the production was halted for 40 consecutive days during March and April 2020,” said Hasan. These actions represented “unprecedented moves by all the ministries and departments of the government to stand by the industry and help us survive,” he recalled.
Despite this, during the first wave of the Covid-19 pandemic, (March-December 2020), about 232 clothing factories were closed and have yet to reopen, about 6.9% of a total 3,342 factories making RMG. Around 350,000 RMG workers lost jobs, (although some have been rehired by other employers, during the pandemic), according to a joint survey by the Centre for Policy Dialogue (CPD) and Mapped in Bangladesh (MiB).
The apparel sector in Bangladesh has been increasing its spending on research and development, Rubel claimed: “R&D activities are always important, but it’s difficult to have an estimate of how much is being invested in this regard, since factories do these activities individually as per their business model and growth vision. But from the BGMEA, we always treat this with utter importance and have taken several initiatives to promote knowledge and technology,” Rubel said. One example is that the BGMEA is currently setting up its own innovation centre at its head office in Dhaka to boost knowledge and innovation in the industry once it opens in 2022.
This work is also encouraged by Bangladesh research institutions such as the BGMEA University of Fashion & Technology, Bangladesh University of Textiles and the Shanto-Mariam University of Creative Technology. Such “excellent research and development institutions” also aim to train technically competent expert workers for the apparel, textile and allied sectors, “emphasising innovation and creativity,” Rubel added.
Labour relations are relatively stable in Bangladesh, with a Garment Workers Trade Union Centre, a trade union federation for garment workers, negotiating with business owners over workers’ salary and safety issues.
The government has a Department of Inspection for Factories and Establishments (DIFE) under the Ministry of Labour and Employment, which is responsible for ensuring welfare and safety protocols for factory workers are followed. Besides working as a labour law enforcement agency, it provides information and advice to “employers and workers concerning the most effective means of complying with the legal provisions,” said a DIFE note.
“It collaborates with various government and private organisations, agencies along with international organisations especially ILO [the International Labour Organisation] to facilitate policy, planning, measures and directions adopted to enhance occupational safety and health for all workers by appropriate working conditions and environment,” it added.
In short, while Bangladesh is certainly facing challenges regarding the trend towards near sourcing, its apparel sector is attempting to prepare for increased competition by strengthening backward linkages, research and logistical efficiency.