We need to embrace technology, train the workforce, and move up the value chain
Recent reports based on the data released on OTEXA show a declining trend of apparel exports from Bangladesh to the US market. Bangladesh’s export earnings from US saw a 4.46% fall to $5.07 billion in 2017, which was $5.30bn a year ago. Bangladesh’s market share in US apparel market came down to 6.31% from 6.58%.
Vietnam, one of the closest competitors of Bangladesh, registered over 7% growth in the US apparel market, followed by Mexico at 5.33%, India at 1.19%, and Pakistan at 1% in the same period. China, the largest exporter of apparel products, also saw a decline in export earnings as well as market share in the US.
China’s share is declining while it is still a leader with major market share in the US apparel export trade. The possible explanation could be the rising labour costs in China and China pushing its industry towards more high-tech manufacturing via PM Li Keqiang’s “made in China 2025” policy. So much so that both China and USA are on the verge of a trade war with President Trump’s latest announcement to impose tariffs on goods imported from Mainland China.
So far apparel has not made it to the list of goods on which Trump plans to impose tariff. But it sure is a cause of worry for a lot of apparel sourcing professionals in the US. Bangladesh and Vietnam have emerged as the alternative to China because of the diversification hunt of the apparel sourcing professionals.
Bangladesh or Vietnam?
Let’s try to uncover what could be the reasons for decline by uncovering the competitive advantages of the top competitors -- Bangladesh and Vietnam, are vying for the US apparel export market share, other than of course the clear leader China which continues to hold a significant share.
Major comparative advantages of Bangladesh apparel industry are lower wages, high capacity suitable for large volume orders, and lean manufacturing. Bangladesh has some indigenous supply of local cotton, yarns, and fabrics, even though it is not sufficient to cover the entire demand of the apparel export sector. The high dependence on importing most of cotton and fabric to sustain apparel manufacturing contributes to longer lead times. To add to the woes are the poor infrastructure, inefficient logistics, and unstable energy supply.
Vietnam, on the other hand, has much higher labour cost (twice or thrice of Bangladesh). This comparative disadvantage is offset by higher productivity of skilled and better trained workers. As a result, Vietnam can produce intricate styles with agile and flexible manufacturing. Vietnam is way ahead in terms of better developed infrastructure and logistics services as well as reliable energy supply. This results in shorter lead times. However, Vietnam lacks in domestic raw materials and primarily relies on imported textiles. But Vietnam’s proximity to China makes transporting raw materials easier and convenient.
If we look at the product portfolio of Bangladesh and Vietnam that constitute apparel export to the US from these two countries, it becomes apparent that Bangladesh has much less diversified product portfolio than its Vietnamese counterparts.
Bangladesh’s total exports, 79% are concentrated in five basic products: Trousers, t-shirts, sweaters, shirts, and jackets. Without enough skilled labor, Bangladesh struggles to diversify production and manufacture more high-end garment and textile products.
Compared to this, Vietnam has a more diversified product portfolio. 63.1% of Vietnam’s apparel exports to the USA comprise of these top 10 product categories: Women’s knit shirts and blouses(MMF), women’s trousers (cotton), women’s knit shirts and blouses (cotton), women’s trousers (MMF), men’s knit shirts (cotton), dresses (MMF), men’s trousers (MMF), men’s knit shirts (MMF), men’s trousers (cotton), and women’s coats (MMF).
In terms of market penetration, Vietnam has done a great job of reducing its dependence on just one or two markets alone. A report on Textile Today states, despite several challenges from the abandonment of the Trans-Pacific Partnership (TPP) last year, Vietnam’s textile and garment industry exceeded its 2017 target of $30bn with an export turnover of over $31bn, an increase of 10.23% from the prior year. Major markets of the US, the EU, Japan, and South Korea maintained good growth, while there were breakthroughs in exports to other markets such as China, Russia, and Cambodia.
Despite the several challenges, Vietnam is doing some things right. Their government supported heavy investments in textile industry. Vietnam was the second biggest investor in the development of shuttle less looms and the biggest investor in ring spindles and open-end rotors, amongst the ASEAN countries.
So, what Bangladesh needs to do is clear. We cannot compete on low-cost advantage alone. David Birnbaum, a seasoned apparel industry veteran and expert, observes that there is no world shortage of low labour rate countries. At this very moment, major importers are investing heavily in Ethiopia and other African countries, where a good wage is $50 per month.
Bangladesh must either move away from mass market commodities to higher value-added fashion goods or increase productivity. Bangladesh garment factories must re-engineer their operations to increase worker skills.
The world today
At the buyer/retail end of the US market, industry is going through a massive upheaval in the wake of changing consumer expectations, technological advancements of a digital era.
What decisions Walmart makes in the US can impact Bangladesh’s export market share to the US, as it alone accounts for nearly 20% of the $5.07bn worth of total apparel exports from Bangladesh to the USA in 2017. Walmart has decided to close 269 stores in the US and across the globe under its cost-cutting move.
Similar store closures and re-alignment of strategies by retailers to suit the new market conditions is the new normal in the developed world.
If Bangladesh must serve the dynamic and changing retail market, we need to match our steps and speak the same language as our buyer counterparts.
What got Bangladesh to the point we are now on will not continue to take us further. We cannot continue to rely on low labour cost advantage and basic products of low skill level alone. Not for long anyways.
Embracing technology, up-skilling our workforce to meet new technology needs, moving up the value chain in its product-portfolio from basic commodity to high end fashion, diversification of markets, developing a conducive climate for attracting foreign investment, improving our ranking in the global competitive index on all pillars, developing our infrastructure, developing our own textile sector to reduce over-dependence on raw-materials and thus reduce lead times are all crucial to ensure that Bangladesh can retain its number two spot as the apparel exporter to the world.
Mostafiz Uddin is the Founder & CEO of Bangladesh Apparel Exchange (BAE) and Bangladesh Denim Expo. He is the Managing Director of Denim Expert Limited.