Bangladesh, The Next Garment Industry In China?

With the withdrawal of mainland China

The rise in labor costs and its currency in mainland China will make China less competitive in labour intensive industries.

Transfer position to Bangladesh

At present, there is a trend of moving from the southern part of China to other Asian countries, including buyers in mainland China.

McKinsey predicts Bangladesh's potential for rapid growth in the garment industry, making it the next hot spot.

In McKinsey's report, the results of intensive research on policy makers and staff in the entire value supply chain are analyzed, including major foreign buyers, local suppliers and governments.

The growth of Bangladesh will not be confined to the low cost garment industry. Buyers' demand will also drive the industry to more sophisticated projects and more diversified products in the upper and middle reaches.

Attractiveness of price

In a case study, McKinsey illustrates the four advantages of Bangladesh in terms of foreign buyers.

These foreign buyers account for monk's clothing.

All the purchasing directors (ChiefPurchasingOfficers) involved in the study indicated that price attractiveness is the first and foremost reason for purchasing to Bangladesh.

The significant increase in efficiency expected by the researchers will make up for future cost increases, but Bangladesh's prices remain highly competitive.

The young workforce in the Bangladesh (median age of 23.1), the lowest labor cost in the region, and the affirmative quality control capabilities make it an ideal place to purchase after Mainland China.

Productivity

Half of the purchasing directors involved in the study said that the capacity is

Another 30% of the participants listed capacity as the third advantage of Bangladesh.

Suppliers in Bangladesh are known for providing quality orders at high and low end markets.

The purchasing director of the high priced buyer hopes to increase the purchase amount to Bangladesh by 10% every year, and the buyer in the middle price market hopes to grow 14% annually.

The growth is also shown in the study of suppliers: 73% of suppliers believe that there is a growth rate of 10% per year.

Tax exemption for export to Europe

Bangladesh also benefited from preferential trade agreements, especially from the European Union.

Tax-free treatment is regarded as the main advantage of Bangladesh in Europe.

The change in the rules of origin of the European Union's generalized preferential system (EU-GSP) has made Bangladesh more attractive.

The McKinsey report points out that the rapid growth of the garment industry in Bangladesh has attracted new customers.

Countries in the region also wish to enjoy the trade preferences enjoyed by Bangladesh, and the agreement on tax exemption reached between Bangladesh and India in September 2011 is one example.

The report of McKinsey not only emphasizes that Bangladesh is an alternative to foreign buyers in mainland China, and other countries have shown strong attraction to buyers, though not as attractive as Bangladesh. 89% of Bangladesh ranked Bangladesh as the top three places of purchase, 52% Vietnam, 41% Indonesia and 37% Kampuchea.

If successfully overcome the challenge, Bangladesh will grow 7-9% in real terms in the next ten years, 2 times in 2015 and 3 times in 2020.

Disadvantage

The advantages of the garment industry in Bangladesh are determined. How to overcome obstacles and deal with it will determine its future.

According to the visiting director of procurement, one of the biggest problems hindering the Bangladesh clothing industry is pportation and public infrastructure.

Due to road obstacles, limited options for inland pportation and deep sea ports are lacking. Buyers must be careful about what products they want to purchase from Bangladesh.

Reliable rapid pportation is very important, which can avoid delays in the delivery of raw materials and garments.

Bangladesh needs expansible infrastructure to cope with the increase in exports.

At present, the export growth rate of garment exports is 7-9%, and is expected to be maintained until 2020.

Insufficient energy supply

Bangladesh's energy supply is poorly rated, not only inadequate but also too old to meet the international standards of environmental friendliness.

Traffic problems need to be resolved as soon as possible in order to cope with the increasing exports and to avoid the saturation of the road and rail networks between the hub area of Dhaka and Chittagong, as well as to improve the airport and port productivity.

The McKinsey report thinks that it is easier to solve the energy problem in two or three years, as manufacturers begin to build their own power supply system, Bangladesh's power supply network has increased 2000 trillion watts of electricity, and has signed contracts with 34 power plants.

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Conforming to international standards

NGOs and CSR workers examine Bangladesh's compliance with international standards. The report points out that careful selection of suppliers, pparency of value chains and close relationship with suppliers are very important for purchasing garments in the United States and European Union in Bangladesh.

For local suppliers, meeting Western standards has become a challenge because of its low cost competition in neighboring countries, as well as different requirements from New Territories customers such as mainland China and India.

Most developed countries understand that health, social and environmental requirements are the key factors for their success.

Among industries, non-governmental organizations and buyers, corporate social responsibility strategy should be established for the establishment of a broad industry for corporate social responsibility teams, cleaner production and workers' satisfaction.

The Garment Without Guilt (GWG), established by the Sri Lanka garment industry, is the best case for Bangladesh's garment industry.

Educated workers and underinvestment in science and technology

The report points out that in the next 3 years, the cost of labour in Bangladesh will increase by 30%. However, the director of procurement believes that this point has not yet had any negative effect, because the increased productivity and investment in technology and education will make up for the increase in labor costs.

In addition, buyers should not only increase the number of products in the current category, but also focus on expanding the procurement of more sophisticated and sophisticated products, requiring local manufacturers to have more skilled manpower and more advanced machines.

At present, the obstacle in Bangladesh lies in the lack of skilled workers and management personnel. In order to cope with more complex requirements, investment in technology and advanced machinery is very important.

Lack of local raw materials

Lack of local raw materials makes price fluctuation and supply delay, relying on imports to cause procurement risk and longer lead time.

The McKinsey report suggests that local delivery and vertical integration should be enhanced in order to delay delivery.

Bangladesh should seek to enhance the value chain, improve the quality of goods in the local market, and make more use of trade agreements and import materials with India's tax-free agreement, so as to upgrade suppliers and create more sophisticated products.

Political, social and economic instability

Half of the director of procurement said that if the political instability of Bangladesh, they would reduce the amount of procurement in Bangladesh. Political instability and strikes have caused serious delays in delivery. Corruption is also a major obstacle to business in Bangladesh.

In addition, Bangladesh's interest rate is 13%, 5.4% times two times that of mainland China, which also hinders the investment of local suppliers in capital and technology.

Direction for the growth of garment industry

In order to make full use of the Chinese mainland to withdraw garments.