Skip to main content

Op-Ed: Managing When the Truly Unexpected Happens in Sourcing

The huge problem with apparel sourcing is that it’s too new an industry for experience to be a guide every time.

Take Bangladesh. While it’s got many unique problems and opportunities, at first sight, its garment makers share most of the worries preoccupying their competitors worldwide:

  • Developing country apparel sales in 2014 grew 2.6% on 2013, when measured in US dollars. That meant 5.9% more garments, measured in square meters of fabric, than in 2013. So the average price per square meter of fabric fell in 2014, for the third year in a row, by 3 percent. Workers’ pay grew even faster than the volume of sales overall.
  • Overall, developing-world garment makers (especially in China) have responded to this by improving their productivity: McKinsey estimates Chinese manufacturers’ productivity grew 11 percent a year between 2007 and 2012 — and that level of productivity improvement ought to allow real volume growth at the same time as higher wages AND manufacturers’ continuing profitability.
  • Bangladesh’s apparel exports to developed countries, measured  in square meters of apparel, grew 11.4% in 2014, which means the dollar value of its exports grew as well. On the basis of numbers issued by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA)at the end of December, we calculate at Clothesource that productivity in Bangladesh factories grew 16.7% a year in 2013 and 2014. In principle, its apparel businesses ought to be in reasonable financial shape.

Many, of course aren’t.

  • Many are poorly capitalized, so they’re highly vulnerable to any adverse winds: the BGMEA estimated a net loss in 2014 of 310 factories, and 70,000 apparel-making jobs.
  • China’s apparel-making productivity miracle helped its manufacturers survive annual wage increases of 12-14 percent: Bangladesh factories had to handle a 77 percent wage increase in 2014.
  • Someone’s got to pay for the thousands of factory upgrades Bangladesh’s inspection program is throwing up — and that’s something no-one’s really agreed yet.
  • On top of which, Bangladesh garment makers have to deal with a “blockade”: a colossal campaign of intimidation by opposition thugs trying to stop the country’s transport systems. Since most exports require a 200 mile drive from the country’s production hubs to its only open-sea port at Chittagong, extra costs — in airfreight, late-delivery fines or inflated truck rates — is immense. Yet the dollar value of its apparel exports in January and February was still 6.5% up on 2014.

Bangladesh’s garment makers are unbelievably resilient. By the end of 2014, though, they, like many other manufacturers around the world, hit a problem they’d never hit before. By early March, it looked like one even they might fail to overcome.

Related Stories

60 percent of their income comes from sales to customers in the EU. On Jan. 1 2014, they were getting 104 Taka for every euro, while by Dec. 31, they were getting 92. Most well-run Bangladeshi apparel businesses seem to net profits between 10-20 percent of sales. So the 12 percent growth in the value of the Bangladesh currency against the euro during 2014 mean that by December, most were making almost no profit on euro-denominated sales.

But there was worse.

The relative value of the euro and the dollar have see-sawed against each other from the euro’s 2014 launch to 2014.

But the euro had appreciated against garment-exporting currencies more or less consistently since its invention — and, when the euro did slip back, it had never before fallen more than a few per cent.


Within a month of New Year’s Day, that 12 percent fall in the value of the euro against the taka suddenly accelerated: at one point in early March, the euro was worth 26 percent fewer taka than a year earlier.

Even if a Bangladesh apparel maker was getting the same price as in 2014, and had the same costs, that 26 percent fall in the taka value of his sales to Europe would almost certainly make him lose money on the sales. The blockade, though, probably ensured no apparel maker was keeping his costs down to 2014 levels.

A new, unexpected, domestic crisis like the blockade is almost an everyday event for Bangladesh’s long-suffering factory owners. But a huge, sustained, fall in their major customer’s currency is  almost unprecedented: it’s almost a law of nature that developing-country currencies depreciate against the developed countries they sell to.

That’s why we’re seeing an extraordinary paradox. Clothesource Tradetrak shows that European importers in 2014 paid 16.6% more per square metre (in euros)  for garments from Bangldesh than in 2013. Yet, with all their other problems, Bangladesh garment makers (and the country’s government) get even angrier about the allegedly “lower prices” European buyers are now paying than about the lunatics fire-bombing their trucks.


Bangladesh isn’t the only country suffering. In the latest United  Nations summary of global imports and exports, the EU accounts for even more (76 percent) of Ethiopia’s apparel exports — and  since March 2014, its currency has appreciated 18 percent against the euro.

The countries hit hardest are typically the poorest.

There isn’t an obvious solution. Except, possibly, to buy currency hedges. Which is a cost no-one ever thought necessary — and few poor-country manufacturers trust bankers enough to indulge in.


Mike Flanagan, CEO Clothesource. Clothesource offers consultancy on the world garment industry using the wide resources of The Clothesource Knowledge Base – the most comprehensive collection of information anywhere about sourcing for the apparel industry. He can be contacted at