Cost doesnt necessarily correlate with market share

Cost doesn't necessarily correlate with market share

The cost of labour is just one element that needs to be taken into account when it comes to evaluating supplier factories and countries. And, as David Birnbaum shows here, cost doesn't necessarily correlate with market share.

A worker in Bangladesh...

  • is paid, at most $75 per month;
  • is not particularly efficient, requires about 18 minutes to produce one man's/woman's pair of denim jeans, which works out to 2400 jeans per annum.
  • The average FOB price of a made-in-Bangladesh jeans is $7.99.
    - Worker's output = $19,165.35
    - Worker's annual wage = $900
    - Worker produces 21.3 times his wage

A worker in the US...

  • is paid about $7 per hour;
  • is much more efficient than the worker in Bangladesh, requiring about 14 minutes to produce one man's/woman's pair of denim jeans, which works out to a per annum figure of 3086 jeans.
  • The average ex-factory price of a made-in-US jean is $25 (author's estimate).
    - The worker's output = $77,142.86
    - Worker's annual wage = $15,120
    - Worker produces 5.1 times his wage

All of which explains why denim jeans are produced in Bangladesh rather than the United States.

Now try this.

A worker in China...

  • is paid about $316 per month;
  • is reasonably efficient, requiring about 14 minutes to produce one man's/woman's pair of denim jeans, which works out to a per annum figure 2880 jeans.
  • The average FOB price of a made-in-China jean is $8.79.
    - Worker's output = $25,304.14
    - Worker's annual wage = $3792
    - Worker produces 6.67 times his wage

A worker in Mexico...

  • is paid about $540 per month;
  • when well-trained can be extremely efficient, requiring about 12 minutes to produce one man's/woman's pair of denim jeans, which works out to, a per annum figure 3600 jeans.
  • The average FOB price of a made-in-Mexico jean is $9.24.
    - Worker's output = $33,251.76
    - Worker's annual wage = $6480
    - Worker produces 5.13 times his wage

All of which explains why denim jeans are produced in Bangladesh rather than China or Mexico.

Now here comes the kicker:

US market share...

  • China: 28.9%
  • Mexico: 29.6%
  • Bangladesh: 6.4%

Since it was published, this article has sparked a debate on just-style about labour costs in Bangladesh. Click on the links below to read the follow-up comments.

Comment: Why it is all about the cost of labour!

Comment: Caught in the cost of labour trap

David Birnbaum is the author of The Birnbaum Report, a monthly newsletter for garment industry professionals. Each issue analyses in-depth US garment imports of four major products from 21 countries, as well as ancillary data such as currency fluctuations, China quota premiums and clearance rates. Click here to visit David's website.