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Hong Kong weighs Bangladesh textile opportunities

According to the Hong Kong Trade Development Council, Hong Kong delegates who recently attended Bangladesh’s autumn clothing fairs came away impressed with the potential opportunities for sourcing, as the country transforms itself into a ready-to-wear supplier.

The global economic downturn has seen a sharp fall in orders from traditional, developed markets in the US and the EU, opening the way for Bangladeshi factories to increase contact with ready-to-wear buyers from Hong Kong, Japan, Australia, Canada and South Africa.

"There’s room for the quality to improve, but that won’t take a long time," says Sabina Yu, Chief Executive of the Hong Kong Knitwear Innovation and Design Society, which last month sent a group of delegates to Knit Expo 2009 in Dhaka, as well as a number of knitwear factories. The delegates were impressed with the size, facilities and labour standards of the factories they visited, and have expressed an interest in co-operating with Bangladeshi garment makers.

In the short term, Bangladesh looks well poised to receive high-volume orders from established garment sources such as Li & Fung from Hong Kong, Inditex of Spain, Sweden’s H&M, C&A of the Netherlands and US giant Wal-Mart.

The low demand for volume sales in traditionally strong markets such as the US has forced buyers to assess the value of extremely low labour costs, even compared to China and Vietnam, the major garment producers in the region.

The lower overheads have also attracted investors. Changzhou Giantsun Textile from Mainland China is among the enterprises planning to set up a garment factory, trade sources say. Uniqlo of Japan says it wants to double its imports from Bangladesh, and plans to invest US$70 million in a factory.

There are opportunities for investors to upgrade and add value to the country’s spinning, weaving and dyeing industries. The knitwear supply chain in Bangladesh is quite well integrated (with local suppliers meeting the demand for 75 percent of the yarn and 90 percent of the required knit fabrics), but the woven garment industry is still very dependent – up to 85 percent – on imports of quality cloth to be used for the ready-to-wear export market.

Investment is needed in sub-sectors such as man-made fibres and yarns, yarn-dyed shirtings, and denim fabrics, not to mention composite mills combining yarn, textile and garment production. In the home-textiles sector, especially for bed sheets and terry towels, growth expectations are high.

Hong Kong used to account for 6 percent of total foreign direct investment in Bangladesh – a share that was higher than for the Chinese mainland, according to local observers. Probably the biggest textile investment made by a Hong Kong company was the 80 percent participation in the US$23.8 million spinning-mill project initiated by Hong Kong Shanghai Manjala in 1995.

Foreign investors are also watching how upcoming global free-trade initiatives following the World Trade Organisation ministerial meeting in Geneva will be played out. This might present Bangladesh with challenges as a low-labour-cost centre.

Logistically, the Bangladeshi government can make the country look more attractive to foreign investment by urgently fixing problems like frequent energy shortages and blackouts, an insufficient transport infrastructure, and inefficient shipping and customs regimes.

Clothing shows attract foreign delegations

At the country’s top clothing trade events, Knit Expo and Batexpo 2009 (which both took place in November), it became clear that foreign interest is growing in Bangladesh. The supply business in turn was upbeat about prospects in 2010.

A delegation of more than 50 Japanese businessmen visited both fairs this year. Fazlul Hoque, President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), says his country is able to supply US$2 billion of the US$24 billion Japanese apparel market in 2010, up from US$74 million in 2009.

Subhan Abdus, President of Japanese trading company Taiyo Japan, says: "Japanese buyers don’t compromise on quality. But from what I saw in a number of Bangladeshi factories, with a few improvements [the garments will be] fit to export to Japan. The US$2 billion target sounds realistic."

A delegation from South Africa’s leading clothing group, Truval Manufacturers, was quick to decide on sourcing from Bangladesh. Visiting sweater factory Softex in the Dhaka Export Processing Zone, the firm decided on the spot to start business relations.

Rezwan Selim, Managing Director of Softex, said that in 2009 he expects to register a 12 percent growth in sales. Softex supplies for international names such as Celio, Auchan, Okaïdi and Gap.

Mohammad Soharwardi, Chairman of large integrated textile-and-knitwear group Rupashi, said his 10 percent growth target remains for 2009 as well as for 2010.

Sasha Denim of Dhaka is to increase its monthly jeans production capacity from 100,000 to 150,000 pieces, and will start up a new jeans plant producing 100,000 pieces per month by the end of 2010.

Vulnerable position on worker conditions

Bangladesh’s export success is actually built on a narrow base, with very low labour costs and an advantageous generalised system of preferences status. These are not very stable pillars for a principal export sector.

In fact, among all major apparel exporting countries globally, Bangladesh has the lowest labour costs, according to consultants Werner International, Kurt Salmon Associates and Jassin-O’Rourke Group.

Comparing average wage rates in the ready-to-wear industry in 2008, Jassin estimated the rate to be at US$0.22 per hour in Bangladesh – significantly below wages in Cambodia (at US$0.33), Vietnam (at US$0.38), Sri Lanka (at US$0.43), India (estimated at US$0.51) and China (between US$0.86 and US$1.08).

In 2006 and again this year, discontent among poorly paid workers in Dhaka resulted in civil unrest. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has promised to oversee a minimum wage of US$24.1 per month. But the threat for abuse doesn’t play well with international buyers mindful of their own pledges of corporate social responsibility.

Bangladesh has duty- and quota-free access to the EU, Norway, Switzerland, Canada and Australia, and duty-free access to Hong Kong and Japan, while US importers still pay on average 15 to 16 percent less per unit when importing garments from Bangladesh. But the country will have to rectify its approach to labour conditions to receive further benefits from the US and the EU, industry commentators say.

The industry itself, supported by German Technical Co-operation, is working to enhance quality, productivity, social and environmental compliance, and fashion orientation. The BGMEA has created its own Institute of Fashion and Technology, which co-operates with the Hong Kong Polytechnic University and other reputable international institutes, and has a faculty of several thousand students.

Bangladesh is keen to push market diversification, using Hong Kong as a regional hub. "In July 2009, there were eight delegates at Hong Kong Fashion Week, while in January 2010, at least 20 of our companies will exhibit there," says the BKMEA’s Hoque.