Bangladeshs growth in US apparel market share has been on the wane since late 2016

Bangladesh's growth in US apparel market share has been on the wane since late 2016

Things are no longer going well for Bangladesh when it comes to US garment imports, writes David Birnbaum, as he takes a closer look at why the country has been left behind as its competitors have moved forward. 

The latest US garment import data has been released for the period up to May 2017, showing the serious decline of US garment imports that began in mid 2016 is beginning to moderate. The months of March and May both showed small increases.

US garment imports % +/- change 2016-2017

  5/20166/20167/20168/20169/201610/201611/201612/20161/20172/20173/20174/20175/2017
Units 2.20%-1.30%-3.00%-3.80%-5.80%0.00%3.30%-1.50%10.70%-11.80%7.90%4.70%3.70%
Value0.40%-6.10%-7.90%-6.00%-10.90%-7.00%-3.30%-7.30%5.30%-13.60%4.20%-0.90%0.30%

The rise of Bangladesh's garment export industry has been nothing less than spectacular. Until recently it appeared that nothing could stop Bangladesh: not the Tazreen fire, not the Rana Plaza building collapse, not terrible working conditions – and certainly not the lowest wage rates in Asia. It was as if US and EU importers were addicted to made-in-Bangladesh garments and nothing could stop the need to buy. By 2015 Bangladesh garment exports were second only to China.

Bangladesh garment export market share

Then something changed. Starting in late 2016 Bangladesh market share growth began to moderate and later went into decline. After 25 years of exceptional continuous growth, this was an extraordinary reversal.

We are told that the decline in imports from Bangladesh is part of a worldwide problem affecting every garment exporting country. However, that conclusion is not backed up by the data. For example, Bangladesh is in trouble but not India and certainly not Vietnam.

US garment imports by country: % +/- change 2016-2017

  6/20167/20168/20169/201610/201611/201612/20161/20172/20173/20174/20175/2017
Vietnam 6.10%12.30%10.00%1.20%14.00%6.20%12.40%12.10%4.70%11.00%12.30%1.80%
India0.80%0.40%10.70%9.50%2.80%4.30%2.70%-0.90%0.90%-3.20%-3.20%5.00%
Bangladesh6.30%7.60%6.00%10.00%-14.80%9.50%-1.30%-8.10%6.30%-10.30%-6.80%-2.00%

We are told the problem is rising costs that have forced Bangladesh factories to increase FOB prices. However, once again the data tells a very different story. Between 2010-2014, at the time when Bangladesh's US market share was undergoing its greatest increase, FOB prices – calculated on the basis of square metre equivalents (SME), published by the US Commerce Department's Office of Textiles and Apparel (OTEXA) – rose every year from $2.45 to $3.00.

It was only after peaking in 2010 that FOB prices declined every year to $2.79 as of the year ending May 2017. Contrary to the accepted wisdom, higher market share, at least in the case of Bangladesh, came at a period when FOB prices were rising; and reduced market share, came at a period when FOB prices were falling.

US garment imports: FOB prices for made-in-Bangladesh garments

  2010201120122013201420152016YE 05-17
FOB $2.45$2.93$2.94$2.92$3.00$2.89$2.85$2.79

One thing is abundantly clear, for a very long time US garment importers were willing to pay more for garments exported from India and Vietnam than from Bangladesh. 

US garment imports: % premium/discount to average from all countries

  2010201120122013201420152016YE May/2017
India 11.10%13.30%12.30%12.90%11.50%14.40%16.30%16.80%
Vietnam6.60%2.20%2.10%4.10%5.70%7.70%7.60%7.10%
Bangladesh-15.20%-10.00%-9.40%-9.00%-5.80%-7.70%-5.00%-5.60%

I suggest there are two underlying reasons for the decline in the Bangladesh garment industry, and that if I am correct what we are seeing is a problem that was a long time coming and may continue well into the future.

  • Throughout the period 2010-2017, made-in-Bangladesh garments became less price competitive almost every year. Even in the period 2014-2017, when Bangladesh FOB prices declined, that decline was less than the world average. If we compare Bangladesh FOB prices with the world average we can see that, as of 2010, Bangladesh FOB prices were at a discount of 15.2% to world average. By 2017 that discount has been reduced to 5.6%.

% +/- Bangladesh vs world average

  • Low FOB price is no longer the primary factor determining where orders are going, which explains why India and Vietnam are moving ahead while Bangladesh is falling behind. If I am correct, Bangladesh's boast that its workers are paid less than any other country in Asia will no longer be worth much. 

If indeed made-in-Bangladesh garments have become less competitive, I suggest the gap between Bangladesh and its competitors is not because Bangladesh has moved backwards, but rather that its competitors have moved forward.

Most of us recognise that the global garment industry is operating in a technological world where, in order to compete, factories require first-class engineers to increase productivity and specialists to enable them to provide important services.

For example, India faces many of the same problems as Bangladesh, but Indian garment factories have become service providers. In this regard, India has the best product development facilities in Asia. Whatever India's other problems, the importer knows the made-in-India product will have design integrity – the garment will look like the sample and the sample will look like the designer's original sketch. As a result, India has become the place to make complex fashion, and for this service alone the importer will pay a premium price.

Vietnam has indeed become a second China. The country has developed first-class education and training facilities turning out excellent managers and merchandisers. It is moving ahead to develop speed-to-market. Vietnam has become a leader in sustainable production. In short Vietnam has become one of the easiest places in which to work. The factories understand customer needs and have developed the facilities to meet those needs.

Against this, what does Bangladesh offer? Cheap overworked labour!

The problem is not moral. Bangladesh has the same problems as any failing company and/or industry: poor management.

Forcing a sewer to work 14 hours per day, 7 days per week does not make sense. Productivity falls. Quality falls. Worker attrition rises.

If you want your factory to operate 24 hours a day, 7 days a week that is not a problem. Capital-intensive industries such as spinning work 24-7. The answer is simple: three 10-hour shifts. Production rises. Productivity rises. Quality levels remain high.

Many operations must per-force operate 24-7: hospitals, police and fire departments, just to name a few. Their answer is a simple and well established 4x4x4 in which four teams each work a 12-hour shift, four days a week. These operations would fall apart if they forced their staff to work in Bangladesh-type conditions.

Today, we have the means to meet the needs of industry reasonably, safely and without losing productivity, reducing quality or reliability. If Bangladesh management brought in qualified engineers they could move from excessive overtime to reasonable working hours, increase productivity and wages and move into the 21st century.

Bangladesh has some first-class factory operations that are now and will remain successful in the future.

But the rest face an existential choice. I suggest that in the not-so-long run either Bangladesh changes its management culture, or their industry will be taken over by large transnational factory groups that understand how to run a modern factory operation leaving the locally owned factories nowhere.

Bangladesh books first US apparel import gain since January