Finding a South Asian alternative to Bangladesh may prove difficult

Finding a South Asian alternative to Bangladesh may prove difficult

While it may be too early to state with any degree of certainty that the Bangladesh bubble has burst, most sourcing professionals now accept that the bubble has developed sizeable leaks. These same sourcing professionals are also taking fast action not be caught in an increasingly probable implosion. 

The question: where to move the Bangladesh business?

The other countries in South Asia - India, Sri Lanka, and Pakistan - would seem to be the obvious choice. Most offer cheap labour and each offers its own advantage.

Clearly South Asia looks good. From being the worst performing region in 2012, South Asia has moved up to be the world's best forming region in 2013.

Bangladesh:
It is important to recognise that despite the growing consensus that the Bangladesh garment industry is moving towards a state of collapse, all the current information is anecdotal.

Up to November, 2013 was a great year for the Bangladesh garment export industry. Even November gave no cause for alarm. At best we can conclude that November US garment imports as measured in units showed a marginal decline, while imports as measured by value remained unchanged.

We know that customers are showing increasing doubts about Bangladesh as a reliable supplier. However those doubts may be assuaged if the Bangladesh industry and its government can convince customers that the worst is over.

At the same time, before customers can leave Bangladesh they must find a country (or countries) with sufficient spare capacity to produce the orders previously assigned to Bangladesh. This is by no means a simple solution.

India:
2012 was the worst year in the history of India's garment export industry. 2013, while appreciably better than 2012, has in fact brought only marginal increases. In the 12 months ending November 2013, India's US market share was up only 1.2%. This may be less of the end of the problem and more of what investment bankers call a 'dead-cat-bounce.'

However, in some respects India does look like the best replacement for Bangladesh:

  • Indian factories invested heavily in Bangladesh. As a result, customers currently working with Bangladesh branches of Indian factories can escape from Bangladesh with no effort whatsoever. Same supplier, different branch.
  • India is a cheap labour country. Wages in India, while higher than Bangladesh, are now lower than wages in Cambodia.
  • India's garment export industry is one of the largest in the world.
  • India is home to a major textile industry.

On the other hand, India does has a downside:

  • The current shift out of Bangladesh will occur during spring season production. India's industry has but one season - spring. As a result, this is the period when factories already operate at full capacity; the period when labour shortages are endemic; the period when factories cannot (or should not) accept new orders.
  • India currently faces serious structural and systemic obstacles. Unless customers are willing to accept these obstacles, they will face problems.

India is a gamble.

Sri Lanka
This country has had a very good run. From 2010 to YTD 11/13, US market share is up 19%. 

There are good reasons for this.

  • Sri Lanka's industry might well be the best-managed in the entire garment exporting world.
  • Sri Lanka's industry is known for running at the cutting edge of innovation. Developing customer relationships by producing the difficult styles; the move from product maker to service supplier; the introduction of product development centres; the building of the first zero-carbon footprint - they all began in Sri Lanka.
  • Sri Lanka is home to three world-class operations.

However, there are downsides:

  • Sri Lanka has a very small market share.
  • The EU is not about to give Sri Lanka free-trade advantages.

Sri Lanka provides one unique advantage. The customer can trust the Sri Lankan factory to deliver the right product on time. In a time of uncertainty, this might be worth more than any cost saving.

Pakistan
This country has been in decline for some time. From 2011 to YTD 11/13, US market share is down by 13.5%.

The good news is that Pakistan shares much in common with Bangladesh:

  • Pakistan is a low labour rate country with wages comparable to Bangladesh.
  • Pakistan has been granted duty-free access to the EU, just like Bangladesh.
  • Pakistan's industry is a major source of foreign exchange and employment, just like Bangladesh.

The bad news is that Pakistan shares much in common with Bangladesh

  • Both are near the bottom of the corruption list.
  • Both have serious problems with working conditions and workers' rights.

Fleeing Bangladesh to go to Pakistan is very much like moving from the Bangladesh of today, to the Bangladesh of tomorrow.

If your goal is cheap labour, leaving Bangladesh might be a necessity. But finding a better location may prove difficult.

At least with regard to South Asia.