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New players edging BD out of RMG race in US market

  • Published at 12:49 am December 12th, 2018
File photo of Female workers seen working at RMG factory in Bangladesh Rajib Dhar/Dhaka Tribune

Vietnam, Cambodia, Turkey grabbing more market share

Capitalizing on the ongoing US-China trade war, in a short span of time, Bangladesh’s competitors are rapidly taking over a greater share of the US RMG market.

Vietnam is bagging the most benefits as it has expanded its range of apparel products, an avenue abandoned by China due to tariff hikes, which eventually weighed on their competitiveness.

On the other hand, India experienced lower growth by 3.84% to $3 billion, and Mexico witnessed negative growth by 2.77% to $2.60 billion, which was $2.66 billion in the previous fiscal year. Indonesia saw negative growth by 2.29% to $3.40 billion this year.

“Import orders, especially RMG, from many US buyers are diverting away from Bangladesh and shifting more to Vietnam, Cambodia, or even Myanmar,” read a study titled “Trade War and Its Implications for Bangladesh.”

Many companies have started increasing their production capacity in Bangladesh, it added. 

Emerging competitors also faring better 

On top of that, emerging competitors such as Myanmar, Kenya, and Ethiopia have registered sharp growth.

In the January-November period of 2018, Myanmar and Kenya’s apparel exports to the US rose by 29.86% and 16.28% to $122.80 million and $293.84 million respectively, compared to the previous fiscal year.  Ethiopia’s apparel exports saw an unusual rise of 107.53% to 77.53 million, which was $37.30 million in the previous fiscal year. 

Why Bangladesh lags behind 

Explaining Bangladesh’s performance in tapping the opportunity deriving from the trade war, economists and industry insiders blamed lack of product diversification, absence of value addition and inadequacy of ports, which cause longer lead time. 

“Bangladesh is the second largest exporter of  apparel products globally, but it mostly produces basic items, while its competitors, including Vietnam, Turkey, and Cambodia, have diversified and are currently manufacturing high end products,” former caretaker advisor AB Mirza Azizul Islam told the Dhaka Tribune.

“As a result, they are taking the advantage and grabbing more market share.” 

In addition, Bangladesh lacks innovation, as well as research and development, a key tool for diversifying products, said the economist.  

However, the business community says that longer lead times are a major reason for the slower growth compared to other countries.

“As a manufacturer, we cannot ship finished goods within a shorter lead time. Our competitors such as Vietnam ensure quick delivery as they have better port facilities,” Bangladesh Garment Manufacturers and Exporters Association (BGMEA) vice president Mohammed Nasir told the Dhaka Tribune. 

As the state of physical infrastructure is not up to the standard, transportation of goods for exporting purpose takes more time and money, he said.

However, the business leader also expressed hope in ensuring quick delivery as the government has taken lots of initiatives, which are in progress and are to be completed very soon. 

How Bangladesh can gain more

Before the trade war, many Chinese companies were already moving to Cambodia and other countries because of lower labour costs.

Since the trade war cast a shadow on both US and Chinese investors who are doing business in China, there is also a chance for relocation of factories from China. But it is a long process and there would be more relocation to Vietnam and Cambodia than Bangladesh.

That is why Bangladesh needs to attract more foreign investment, which would help to retain the growth.  

“Since the production cost in China will increase due to rise in tariff, there are a number of ways trade can be diverted to other Asian countries and Bangladesh has the best opportunity due to its low labor cost and capacity to execute large volume orders, Centre for Policy Dialogue (CPD) research director, Khondaker Golam Moazzem, told the Dhaka Tribune. 

On the other hand, as a long term policy, global manufacturers could also decide to change investment decisions and move to building investment hubs, said the economist.

In making export growth sustainable and grabbing more from the US apparel export pie , Bangladesh has to concentrate on attracting Foreign Direct Investment (FDI) as investment is also shifting along with the purchase orders, said Moazzem.

Bangladesh has to identify the products which were being exported to the US market by China and move to develop in that arena for further growth, he added. 

“To maximise the benefits of the trade war, Bangladesh has to analyze the opportunity to understand the potential that can be utilized and increase supply-side capacity to meet the higher demand from buyers,” said Ali Ahmed, Chief Executive Officer (CEO) of Bangladesh Foreign Trade Institute (BFTI). 

To attract investments, Bangladesh has to incentivize investors to invest here and brand the investment opportunities with quality infrastructure projects, said Ahmed.

On top of that, to face any uncertain situation and sustain the growth, we need to focus on policy readiness and improving our ‘Ease of doing Business’ position, he added. 

Commenting on the issues, Senior Commerce Secretary Shubhashish Bose said this is a measure (tariff, trade war) to penalize Chinese companies. But what happened to the US companies located in China is that they are moving to relocate companies out of China and they are not going back to the US.” 

The trade war has made more than $250 billion Chinese exports more expensive for US buyers. But these companies are not flocking to the US. Rather, they are looking to transfer to Asia, he added.

As per a US trade organization survey, only 6% companies located in China would return to the US, while 94% want to relocate to Asian countries, which would create more opportunities for Bangladesh.  

Bangladesh's advantage 

In attracting more apparel orders and foreign investment from the China shift, Bangladesh is the best place as it has long experience and large volume capacity.   

“Bangladesh has the best possibility for gain from the relocation or shifting of business as it has large scale capacity with reasonable labor cost and quality products. The sector employs 4 million workers,” Exporters Association of Bangladesh (EAB) president Abdus Salam Murshedy told the Dhaka Tribune.

On the other hand, the government’s decision of establishing 100 Special Economic Zones (SEZs) will be a game changer as it is offering great opportunities to investors from home and abroad, said Salam.

Meanwhile, the sector has a strong backward linkage industry for both accessories and textiles, in providing instant supply of raw materials, he added. 

Bangladesh to face tougher competition in EU markets 

Bangladesh may face tougher competition in the European Union markets as Chinese exporters will divert their export business from the US to the EU due to a rise in tariffs. 

“Due to the ongoing trade war between US-China, China will move to Europe, which means Bangladesh will have strong competition in the EU market, International Apparel Federation (IAF) president Han Bekke said during his recent visit in Bangladesh.

On the other hand, China will not be able to sell in the US, which will create a huge gap and subsequent opportunity for Bangladesh. Manufacturers, who only do business in the US will get more benefits, said Bekke.

The global apparel leader suggested preparation as the key to success in the utilization of opportunities, which in turn will depend on capacity. 

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