Sri Lankas apparel industry has moved from local to transnational

Sri Lanka's apparel industry has moved from local to transnational

This, the second in a series of articles showing month by month changes in US garment imports, covers South Asia: India, Bangladesh, Sri Lanka and Pakistan.

For the year to October 2017, US imports continued to decline.

Total US garment imports: YTD 10-2017 compared with YTD 10-2016:

DescriptionUnits (2016)Units (2017)% changeValue (2016) ($m)Value (2017) ($m)% change
ItemTotal US garment imports22,890,94023,109,5440.0168,99168,418-0.008
338/339Cotton T-shirts297,671289,885-0.0269,5029,419-0.009
347/348Cotton trousers161,328163,1000.01110,1599,993-0.016
340Cotton shirts30,16528,432-0.0572,5002,291-0.084
352/652Underwear219,171217,547-0.0073,1903,142-0.015
However, the recent trend indicates that US import declines are finally be coming to an end, with September showing an increase of 2.2% and October a 4.3% increase.

Total US garment imports (monthly change 2017 vs 2016):

UnitsValue
January10.7%5.3%
February-11.8%-13.6%
March7.9%4.2%
April4.7%-0.9%
May3.7%0.3%
June-2.2%-4.3%
July0.004-0.01
August-0.012-0.007
September0.0210.022
October0.0090.043

The countries of South Asia have little in common other than geographic proximity.

  • Their cultures are very different;
  • Their religions and languages are different;
  • Their governments are different.

Their industries are also very different.

Different scale (2016 data):

  • Bangladesh ranks 2nd with a 7.5% market share; shows substantial increases;
  • India ranks 6th with a 3.9% market share; shows moderate increases;
  • Pakistan ranks 18th with a 1.1% market share; shows little or no increases;
  • Sri Lanka ranks 19th with a 1.1% market share; shows little or no increases.

Different products:

  • Bangladesh and Pakistan specialise in basic commodities;
  • India and Sri Lanka specialise in higher value fashion goods.

As of 2016, it would appear that South Asia was doing very well, with only Sri Lanka showing a small decline.

South Asia – Global market share (ITC):

Source: ITC

Source: OTEXA

We can see a better picture when we look at the month-to-month market share changes that occurred in the first 10 months of 2017 compared with the same period in 2016. 

South Asia – Month on month % change market share 2016-2017:

Source: OTEXA

And we can see an even clearer picture when we look at the latest US country import data.

India

The long term trend shows increases. Between January 2005 (the date of quota phase-out) and the year to October 2017, India's market share of US apparel imports has risen steadily to the point it is now up by 22%.

US garment imports – India: 

However, India faces a serious problem. The garment business is highly seasonal. We have a minor spring/summer season with shipments January to March, and a major autumn/winter season with shipments May to October. The seasonal nature of the industry is clearly shown in the chart above.

However, what is not immediately clear from the chart is that India's garment industry is unique in that its seasonal shifts are the inverse. As we can see from the next graph, India's exports peak in March – nearly the reverse of the world average, which reaches a trough in March. In fact India has little or no autumn/winter season. 

Annual exports by month 2005-2016:

Source: OTEXA

It is amazing that India can be the world's 6th largest garment exporter despite the fact that its factories have little or no autumn/winter business. 

The effect on the industry is little short of catastrophic. Consider the difference between India's peak month March, which accounts for 10.5% of annual garment exports, and December which accounts for 6.7%. How is this possible. There are but two alternatives:

  • If the factory operates 10 hours per day in December it must operate 16 hours per day in March.
  • If the factory employs 100 workers in March it must furlough 44 workers in December.

This provides the answer to some of India's most serious questions: 

  • Why does India have world's highest rate of worker attrition?
  • Why do India's garment factories rely so heavily on subcontractors that operate in the grey economy?  

Despite these problems, India's garment industry is doing well. 2017 showed increased US market share almost every month.

US garment imports (monthly) – India:

Clearly this is not the result of low FOB prices. It must be the result of higher value.

US garment imports (FOB prices) – India:

Unlike others in South Asia that specialise in cheap commodity goods, India has successfully moved into the fashion sector. Just imagine how well India could do if its industry started to compete in the autumn/winter market.

Bangladesh

The trend does not look good.

US garment imports – Bangladesh:

After zooming ahead for years, in March 2016 the trend began to reverse. The short term graph brings the decline into focus. With the exception of November 2016 and February 2017, the industry has declined every month in the past year.

There seems to be little hope of recovery in the near term. In 2017, US market share declined every month.

US garment imports (monthly) – Bangladesh:

One major problem is that Bangladesh's export prices are becoming less competitive relative to world average, and are now substantially higher than FOB prices offered by other low cost commodity producers.

US garment imports (FOB prices) – Bangladesh:

It is past time that Bangladesh factories, the BGMEA (Bangladesh Garment Manufacturers & Exporters Association) and government face up to the wide range of problems, both economic and social.

Sri Lanka

Sri Lanka is a special case. On the surface, it would appear that it is very much a 3rd tier garment exporter, with little impact on the global industry. Looking at the local data tells only a small part of the story.

It would appear that the industry is barely holding its own despite a declining exchange rate.

US garment imports – Sri Lanka:

2017 has not been a good year.

US garment imports (monthly) – Sri Lanka:

FOB prices are among the highest in Asia.

US garment imports (FOB prices) – Sri Lanka:

Data notwithstanding, Sri Lanka's industry is doing just fine. Only not in Sri Lanka. To understand what is going on, we must step away from the China model, and look to the Hong Kong/Korea/Taiwan model. We all recognise that despite the massive changes that have occurred in the past 50 years, one thing remains constant: The same three little dragons that first built the global garment exporting industry in the late 1950s still control the industry today. Only the machines are gone. Sri Lanka follows the same pattern. The industry has moved from local to transnational. At least 12 Sri Lankan factories have off-shore branches. Three – Brandix, Hirdaramani, and MAS – are in the world top-50.

The big question is why.

The short answer is management. Sri Lanka has what may well be the world's best factory managers. Not only are the factories well run, they are almost certainly the most forward looking. 

Pakistan    

The long term trend is stagnant. This is very much a 3rd tier garment exporting industry. It is also an industry based on cheap commodity garments. As a result, there is little chance of substantial growth.

US garment imports – Pakistan:

The most recent data indicates little change.

US garment imports (monthly) – Pakistan:

FOB prices remain well below world average, not uncommon for a commodity exporter.

US garment imports (FOB prices) – Pakistan:

With a 15% market share, South Asia remains an important regional supplier to the US market, ranking third after China and ASEAN.

All garment products – market share by value:

20162017 (YTD 10-17) % +/-
ASEAN24.925.62.7
SSA1.31.31.7
MX/DR-CAFTA14.014.21.3
South Asia15.215.1-0.7
China35.134.1-2.9

However, the region is losing ground. 

  • Bangladesh is moving to a state of decline. 
  • Pakistan is very much a minor supplier.
  • Sri Lanka, while of strategic importance on a global level, remains a small exporter on a national level.
  • India looks best

The first article in this series looked at Trends in US garment imports from Mexico and DR-CAFTA

The data comes from the Birnbaum Report, a monthly compilation available on subscription.