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Bangladesh Poised to Become Exporting Powerhouse, But Can it Handle the Challenges?

Bangladesh is poised to become a top apparel exporter. Global buyers are flocking to the country, looking to build long-term partnerships. In one recent bellwether event, H&M announced that it now sources one-third of its goods from the country and is looking to increase that share.

In the past three years, industry leaders have shown their ability to dramatically improve quality without the large increases in cost that have been seen in China. Currently, Bangladesh is attracting buyers who are looking for more affordable apparel prices, but it is on track to become a vertically integrated manufacturer of products at all points on the value chain.

Much of the capital supporting these developments is coming from China, as makers there seek lower labor costs and a more malleable labor force. Rising Chinese garment wages have started pricing workers out of export-oriented industries. The minimum wage in Bangladesh is approximately $60 a month, versus around $280 a month in China.

H&M is not the only firm looking to source more deeply from Bangladesh. Inditex, Tesco, and Gap are all bidding to source more apparel products from the country, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Bangladesh is slowly building a consensus for becoming the world’s largest apparel exporter. It is the only country in the region with a large enough workforce to seriously consider that goal. China currently has 30% of the global apparel market, but its share has been declining by about 5% a year. Much of that is due to rising costs, and the rest is due to production being retargeted toward domestic markets.

The real question is, can Bangladesh handle the scope of its vision? A rash of labor disruptions this summer raised serious questions about the ability of owners and the government to handle worker dissatisfaction. Those issues have subsided for now, but are likely to flare of periodically until businesses become more adept at improving conditions and paying overtime and wages. H&M has called for greater cooperation between industry and workers, going so far as to agitate on the worker’s behalf in September, calling for government intervention in labor disputes.

Industry leaders are also concerned about infrastructure problems. The country suffers from period energy shortages, much like Pakistan. Though the government has vowed to prioritize electricity and natural gas for export sectors, there are still capacity issues. They have embarked on an energy modernization plan that is expected to ease shortages, though it has been slow in starting.

Chinese investors have been looking at developing additional infrastructure around industrial parks. For their plans to be successful, the government would need to provide them with land, as land prices have begun to skyrocket. They are also focused on improving fire safety and building standards, to bring conditions closer to international standards.

China rose on the back of government supported infrastructure investment, and strong sectoral coordination. To surpass China, Bangladesh will need the same level of support. The task is daunting, in part because improvements have thus far been accompanied by inflation and demands for higher wages – factors that could potentially erode Bangladeshi competitiveness and throw business to Thailand, Pakistan, Cambodia, and Myanmar.

At this point, the country has the initiative and is capturing the lion’s share of growth. If all the pieces fall into place, Bangladesh could emerge as a global exporting powerhouse. If not, it will remain an important player and a vital part of any firm’s sourcing strategy.

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