For the first time in 30 years, Newage Group, a Bangladesh-based garment manufacturer, is sensing an opportunity to sell in the U.S. And it has President Donald Trump’s battle with China to thank.
Newage, a supplier to Hennes & Mauritz AB, has been doing business with European companies for three decades but is now getting inquiries from Macy’s Inc. and Gap Inc., Asif Ibrahim, vice-chairman of Newage Group, said in an interview. Rival Viyellatex Group forecasts its annual exports to the U.S. will more than double to $25 million in the year that began July 1, buoyed by rising orders, according to Chairman David Hasanat.
The South Asian nation, which is the world’s second-largest garment exporter, has seen the value of its overseas sales rise to a record $40.5 billion in the year ended June 30, coinciding with Trump boosting tariffs on $200 billion of Chinese goods to 25 percent from 10 percent. The tit-for-tat trade war has seen American and Chinese orders for more than half of the 1,981 tariffed products so far being re-routed to other countries, including Vietnam and Malaysia.
“The rate of inquiries has gone up by 30 percent,” Newage’s Ibrahim said. “Tariffs are being imposed unilaterally by one person at this point in time. That made some retailers a bit nervous. They are shifting their orders to this country to lower their business risks.’’
Macy’s said in May the company has been working for a “number of months, and really for a couple of years, about moving production out of China,” while the same month Gap said it has been migrating sourcing out of China for the last several years.
For Bangladesh, which aims to double total exports to $72 billion by 2024, snaring part of the $41 billion of the clothing business that goes to China will provide a fillip to an economy that the Asian Development Bank forecasts will expand a record 8 percent for the next two years. Bangladesh’s garment industry, which employs 4 million people, accounts for 13 percent of gross domestic product.
Finished clothing has so far been excluded from the list, but should talks fail and Trump raises tariffs on $300 billion of Chinese products in the next round, textiles will be hit. Bangladesh and Vietnam are well-positioned as apparel manufacturing hubs and will be obvious choices as retailers with exposure to the U.S. move their production out of China, Fitch Solutions said in a report.
To tap rising demand, Newage, which has an annual revenue of about $100 million, tied up with a Chinese investor to set up a $20 million garment factory in Kaliakoir on the outskirts of the capital Dhaka. The unit expects to start production in four months.
“There’s a huge potential to further expand investment” in the garment industry, Bangladesh Prime Minister Sheikh Hasina said in a speech to Chinese businessmen in Beijing on July 4. “We highly value the huge interest demonstrated by the Chinese investors in our country and as such we are setting up a special economic zone for the Chinese Investors.”
But for Bangladesh companies there’s a roadblock to winning more orders from Western firms. With its infrastructure ranked at 103 in the World Economic Forum’s Global Competitiveness Index, compared with 29 for China, Bangladesh needs to improve its supply chain, modernize its garment factories, build highways and reduce red tape at ports to lure more buyers.
Prime Minister Hasina opened two four-lane bridges on the highway to the Chittagong Port in May and another bridge earlier in March, cutting travel time to the nation’s main port by almost half. The government has also been accelerating construction of highways. Still it takes 168 hours for exporters in the nation to ship from Dhaka, while it takes just 23 hours in Shanghai, according to the latest Doing Business report by the World Bank.
“Of course, we are not as good as Hong Kong or China,” said Khalid Quadir, co-founder and chief executive officer of Brummer & Partners Asset Management (Bangladesh). “There’s congestion at the port, but congestion may be the function of more and more containers going there. Our ports aren’t ready.”
Exporters also need to improve productivity, said Fahmida Khatun, executive director of Dhaka-based Centre for Policy Dialogue. “In order to increase productivity, we need to go for technological upgrade and automation in the garment industry. There are some companies that have adopted automation, but it has to be done across the sector,” she said.
Then there’s the price advantage. China exports garments at about $2.3 a piece, compared with $2.79 for Bangladesh and $2.52 in Cambodia, according to Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association. China’s price dominance over other nations along with technological superiority may keep exports from the north Asian nation resilient, she said.
But for now, Bangladesh companies are making the best of the situation. About 30 percent of Viyellatex’s clients, including PVH Corp.—the owner of American fashion labels Tommy Hilfiger and Calvin Klein, are from the U.S., compared with 20 percent a year ago.
“We are ready to handle an influx of business orders from American companies,” said Viyellatex’s Chairman Hasanat.
—With assistance from Jordyn Holman.