No other country in South Asia has benefited more from the quota regime than Bangladesh - so the abolition of textile quotas at the beginning of next year represents a huge challenge for the country's apparel makers. One of Bangladesh's main problems is that it produces few textiles, and has to import those used in most garments for export. But Rohit Kuthiala believes Bangladesh is capable of rediscovering its apparel strengths from next year onwards.

Bangladesh currently benefits from quota free access to EU markets and generous quotas from the US. In addition, it benefits from the GSP (Generalised System of Preferences), under which garments that have any process from yarn upwards carried out in Bangladesh will qualify for duty-free import into the EU.

This means all jersey wear/fine knits, sweaters and all garments made with fabric woven in Bangladesh come under the category of duty-free access into the EU. Canada has also extended similar benefits to apparel products from Bangladesh.

Bangladesh imports almost all its yarn from China, India and Indonesia. This is in addition to the millions of metres of fabric the country is sourcing from all over the world to be converted to garments in Bangladesh.

Driving economic growth
The beginnings of Bangladesh as an apparel exporter began in the 1970s when many entrepreneurs from other Asian countries, frustrated by quotas imposed by importing nations, set up factories in Bangladesh to benefit from even lower labour costs. This, and the quotas, more than offset the cost of importing all raw materials to Bangladesh.

As foreign businesses began to flourish many local entrepreneurs also set up companies in and around Dhaka, Chittagong, and other smaller towns. Soon the garment industry employed more than 200,000 people, around 80 per cent of whom were women being represented in the workforce for the first time.

However the net realisation to the Bangladeshi economy was very low as most of the materials used were imported. Practically all the value added was from labour.

Having built a good infrastructure for apparel manufacture over the past few decades, Bangladesh is now expected to be a heavy loser once quotas have been phased out. Countries with a better vertical integration set-up for apparel will be able to offer lower lead times and more competitive prices.

Instead of shipping fabric from one country to another, which increases both time and money, it might be more cost effective for companies to pay slightly higher labour rates and make the garments in the country of origin of the fabric itself.

However despite the uncertainty and the growing volume of imports from China into the US and EU, Bangladesh still offers several advantages to importers:

  • GSP (Generalised System of Preferences) benefits enabling lots of products to still be imported duty free, an advantage offered just by a few LDC (Least Developed Countries) including Pakistan, which may lose its similar advantage next year.This is extremely advantageous to customers retailing at low price points where 12 per cent duty can make a big difference.The current rules of origin allow duty free imports of goods made in Bangladesh 'upward of the yarn,' meaning all jersey wear (where fabric is knitted and dyed in Bangladesh) and sweaters made in Bangladesh will enter EU countries duty free.

    But garments made from imported fabrics still attract full duty. If the rules of origin are amended to allow duty-free import of "everything but arms" from LDC countries, this will be a huge boost to the Bangladeshi clothing industry.
  • One of the cheapest labour rates available in the world. With minimum wages starting from approximately US$22 a month, Bangladesh is one of the cheapest countries to work from.

    This offers a very low value addition in terms of labour whilst making clothing from imported raw material. The clothing business is still one of the most labour intensive industries in the world, so this is a huge advantage that goes Bangladesh's way.
  • Over the years Bangladesh has managed to build itself into one of the biggest vertically integrated capacities for making jersey wear and sweaters. The machines and facilities offered in Bangladesh for these products are almost unmatched anywhere in the world, except maybe China (which has these resources despite quota restrictions as it also supplies non-quota countries and the huge domestic market).
  • The warm humid weather conditions in coastal Bangladesh are ideal for sweater production, strengthening the yarn in the machines, leading to fewer breakages and better quality.

The way forward
The lifting of textile quotas is the single biggest challenge Bangladesh's textile industry has had to face.

It is tough to compete with vertically integrated, low cost textile producers like China, India and Pakistan, but Bangladesh still has a strong chance.

There is renewed interest globally in the Indian sub-continent as a strong alternative to China for apparel sourcing post quota phase-out, and Bangladesh is the lowest cost producer in the region. It needs to renew its relationships with fabric and yarn producers in the region to have quick and fast access to these inputs.

Bangladesh is just a few days trucking time from India, with its strong textile and yarn producing base. Quick and easy access to Indian yarn and fabrics would not only give the benefit of quick lead times to Bangladeshi apparel production, but also an opportunity for Bangladesh to move up the value ladder in fancy yarns for sweaters and jersey wear and more expensive fabrics for woven apparel production.

Both China and India, whose current competitiveness stems from their massive yarn and fabric infrastructure and comparative low wages, are among the fastest growing economies of the world.

But as they get more expensive, and wage levels increase, more and more 'value for money business' will start to look elsewhere, even though these countries retain their yarn and fabric advantages.

What better place than one a few days' trucking time away, with half the salary costs?

Until then, Bangladesh has a lot of work to put into its infrastructure, with ports, electricity supply, roads and human resources all in dire need of investment and upgrading.

Even though the short term future might not be as certain and secured for the clothing industry in general in Bangladesh, there is no doubt in the long run it will be a player that refuses to go away.

By Rohit Kuthiala.