Let's take a look at Bangladesh as a sourcing market. The South Asia nation is already firmly established as a key player in the global apparel manufacturing industry, second only to China. Across the world, Asia is the dominant stakeholder in the garment manufacturing industry, home to seven of the top 10 garment manufacturing nations. Fast fashion retailers in particular are dependent on Asia for garment manufacturing.
Ongoing trade tensions between the U.S. and China were already driving brands to diversify their sourcing strategies away from China and that trend accelerated with COVID-19. As a result, the apparel industries in South and Southeast Asia nations, including Bangladesh, are growing in importance.
Bangladesh’s government targets of achieving US$50 billion worth of apparel exports by 2021 appears to be on the right track. If reached, this target would represent up to 10% of global apparel exports, up from the approximately 7% share of today.
One key selling point for apparel buyers is that Bangladesh offers the world’s least expensive garment cost. The economics are reinforced by Bangladesh’s Least Developed Country (LDC) status, qualifying it for duty-free (or reduced tariff) market access to more than 50 countries worldwide.
In fact, Bangladesh remained one of the top global sourcing destinations for international clothing buyers even during the pandemic, due to its competitive prices.
But rather than resting on its low-cost differentiator, the apparel industry in Bangladesh is deploying new technologies, rising up the value chain, and diversifying its production capabilities. And all of this development is matched with an increased focus on compliance, in response to the requirements of the many brands that are now mandated for Environmental Social and Corporate Governance (ESG) commitments as a non-negotiable part of their sourcing requirements.
Before looking into Bangladesh’s long term prospects and underlying dynamics, here’s a summary of how the events of 2020 impacted the nation’s apparel industry. In a clear indication of the truly global nature of the fashion sector, more than US$3 billion of Bangladesh’s garment orders were suspended or cancelled in April-May 2020. The business downturn, coupled with a government-mandated lockdown, shut thousands of factories and impacted four million workers across the country.
Since that low-point, 80-90% of orders have been reinstated, as Western economies started to recover and rebound. In August, Bangladesh's exports rose 4.3% y-o-y, with apparel being a key component of that growth. Although there are some indications that demand will rise in anticipation of the Christmas season, the wave of winter lockdowns sweeping across Europe and other nations could further impact the apparel industry in Bangladesh.
At the time of writing, Bangladesh apparel operation workforces are still reduced, and safety measures are in place to deal with the ongoing risks of further COVID-19 infections in factories.
Bangladesh ranks second only to China as the largest Readymade Garment (RMG) exporter globally, neck and neck with Vietnam, according to 2019 statistics. China leads with 30.8% of global exports, while Bangladesh holds 6.8%. And alongside Vietnam, traditionally a footwear leader, buyers continue to view Bangladesh as an important sourcing market for footwear.
In the first half of 2019, apparel exports from Bangladesh to the US rose 11.5% to reach US$3.57 billion. Bangladesh is ranked sixth as a supplier of textiles and apparel to the U.S., after China, India, Vietnam, Pakistan and Mexico. However, Bangladesh's market share has been growing in double digits, while China’s is sliding.
Apparel exports are a key driver of Bangladesh’s economy, at 20% of GDP, and employing approximately 20 million people. Other South and Southeast Asia nations such as Vietnam, Indonesia and India are experiencing growth across a number of sectors such as electronics, hard goods and other consumer products. For example, Vietnam exports nearly US$ 17 billion worth of clothing and accessories that accounts for just 5.5% of their export volume, dwarfed by their largest export category electrical machinery and equipment at nearly US$127 billion (41.7% of total exports). 5.5
While Bangladesh will surely diversify on its road to developed nation status, for the foreseeable future Bangladesh is truly dedicated to nurturing the success of the apparel and textile manufacturing, and their focus is likely to remain on this sector for a long time to come.
The government targets achieving US$50 billion in apparel exports by 2021, and the industry plays a central role in the government's aspiration to reach developed country status by 2041. For FY18, the Export Promotion Bureau (EPB) reported that overall exports grew by 5.8% to reach US$36.6 billion, primarily due to growth in apparel exports, so the plan seems to be on track.
The growing scale of the industry, government support and duty-free export access to major markets worldwide make Bangladesh an attractive sourcing destination.
Amid wider supply chain diversification, brands are increasingly turning to Bangladesh for the key denim garment sector. Per-piece prices for denim have risen from US$5.50 - US$7.0 into the US$10 - US$11 range. Manufacturers are also deploying new washing and polishing technologies, and increasingly using finer fabrics and design elements to add value. Bangladesh's total denim goods exports are now in excess of US$3 billion a year, with the country surpassing China to become the top denim supplier to the EU.
Total domestic production capacity from nationwide denim mills is more than 40 million yards a month, versus demand of nearly 70 million yards, with the balance being met by imports from markets such as China, India, Pakistan, and Turkey.
Government support for Bangladesh's industries and the apparel sector includes a commitment to develop and leverage Fourth Industrial Revolution (4IR) technologies such as AI, big data and 3D printing to address its challenges and harness its opportunities.
On a recent webinar with government and private sector speakers, Planning Minister M A Mannan assured the government’s full support to formulate and implement a national strategy and action plan for making Bangladesh 4IR responsive. At the same event, Dr Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) spoke about how the anticipated transition to automation and digitally-enabled ways of working will ultimately have a great economic impact on the nation and in the near term on RMG industries.13.5
Digital Bangladesh is far-reaching, including Digital Government, Human Resource Development, IT Industry Promotion and Connecting Citizens – which defines sustainable development goals and democratic rights, transparency and accountability towards ultimate nationwide full employment.
Bangladesh’s LDC status already qualifies it for duty-free market (or reduced tariff) access to more than 50 countries – including to the U.S and within the EU, to major markets such as Japan, China, Australia and Turkey; and Asian nations such as India, Malaysia, Thailand and Korea. Additionally, Bangladesh has trade deals granting preferential treatment for its exports such as the Asia-Pacific Trade Agreement and the South Asian Free Trade Area.
Looking ahead, HSBC Global Research's The World in 2030 report, published in September 2018, forecasts Bangladesh to achieve the largest move in global GDP rankings by the year 2030. The report places Bangladesh among the top six countries for projected growth, in a group that also includes India, Pakistan, the Philippines and Vietnam. If met, this forecast will see Bangladesh become the world's 26th largest economy.
The tragic loss of life suffered in the Rana Plaza factory tragedy of 2013 was a huge blow to the garment industry in Bangladesh. Overseas buyers shied away and the industry entered into a hard period of self-reflection. But from that dark hour have come positive actions and, ultimately, a transformation in levels of safety, security and compliance.
Bangladesh’s apparel sector came back by earning the highest certificates from the United States Green Building Council (USGBC). Twenty-five Bangladeshi factories are the proud owners of LEED (Leadership in Energy and Environmental Design) certificates. Six out of the top 10 LEED-certified factories worldwide are located in Bangladesh. “In every consideration, Bangladesh has the highest number of green garment factories in the world,” said the USGBC. These accolades have helped Bangladesh to gain more trust from investors.17
We hope you've found this update on Bangladesh as a sourcing destination valuable, and that you've come away with insights beneficial to you and your business.
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