Bangladesh: Transforming into Global Clothing Sourcing Hub [Link]

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Cover Story
Issue: Nov-Dec , 2010

Bangladesh: Transforming into Global Clothing Sourcing Hub

Abstract
Clothing industry is the largest industrial sector in Bangladesh in terms of earning foreign revenues and employment providing.
The industry was the fourth biggest contributor in the global clothing market on the basis of export data of 2007 (WTO). Export
levels are increasing every year, and more international clothing buyers set up their own sourcing offices and satellite offices,
while the country becomes the global hub for cheaper clothing. Sourcing is very successful trade tool and important management
strategy for any company or country. Many factors contribute to Bangladesh, transforming into one of the best destinations for
clothing sourcing. Porter’s Diamond Model is used to access Clothing industry’s likely competitiveness in global perspective.

Key Words
Clothing Sourcing Hub, Full Package, Vertical Unit, Buying House, Porter’s DiamondModel.

Clothing industry, the biggest industrial sector in term of employment-provider and foreign revenue earnings of Bangladesh, has
transformed itself into the global hub for clothing (Ready-Made- Garment, RMG) sourcing after China. The industry in Bangladesh
is only thirty years old since the first clothing exporting unit, Reaz Garment, put the first step in clothing export market in 1978.
Bangladesh grabs more than 3 percent share in the global clothing export-market and positioned itself as 4th largest clothing
exporter after Chain, EU nations, and Turkey in 2007 (source: WTO). As the export trends on the rise, local analysts believe that
the latest position of Bangladesh would reach 3rd place in terms of value and volume. The total earnings from clothing export
maintained at US$ 12.59 billion for the year of 2009, and it was only US$ 10 billion in 2007 (source: EPB).

Bangladesh is well known globally for its cheap clothing manufacturing industry. The country started focusing on cheap clothing,
especially in the last quarter of 2008, the same time when global financial recession hit the industries. To cope with reduced
income and spending, consumers in the financially restrained countries; namely the US and EU; switched from expensive clothing
items to more cheaper clothing. In 2008, the major competitor, China, lost its competitiveness due to high wages of laborers and
appreciation of local currency. As a result, the Chinese manufacturers barely profited through exporting clothing; they can earn
larger profits if they can sell those items in the local markets. Now, China, the largest supplier of clothing items in the world,
started to outsource Bangladeshi clothing, because Chinese manufacturers produce only high value-added clothing or
technologically advanced products (clothing items with own brands, or clothing items with functional performance-UV protective
wear, photochromic function, etc.). Now, Bangladesh is full fledged cheap clothing hub globally, and the product ranges
concentrate on basic low cost, low-value, and low-margin clothing: T-shirt, polo shirts, pajamas, woven shirt, trousers, shorts,
and undergarments.

As the country gains experience from working with buyers from different countries, the country becomes more familiar with
different quality standards, environment requirements, compliance issues, above all, learning business methods. Due to
long-time businesses with international buyers, the country not only earned foreign revenues but also developed general human
resources into one of the most useful human assets for the nation. Some of them already proved themselves as successful
business leaders, industrialists, consultants, and policy makers. The clothing sector acquainted with different global standards for
manufacturing, social compliance and Corporate Social Responsibilities (CSR). Some manufacturers are applying Total Quality
Management (TQM) tools and techniques to fight against competitors’ product-quality and using lean manufacturing production
methods for better time efficiency. Many of the clothing manufacturers have set up vertical unit (setting up of all textile-
manufacturing divisions as well as clothing assembly unit in the same shade) to fulfill buyers’ sourcing requirement ‘full package’
(one stop service where buyers place orders and get their products in the required quality, in the right time). All the players in
the clothing manufacturing chain; like suppliers of raw materials, accessories and trims, clothing manufacturers, and forwarding
agents; are creating ‘collaboration’, joint venture’, ‘alliance’, and ‘merger’ to provide full package and important service (sourcing)
demanded by buyers. The clothing sector of Bangladesh became accustomed to the supply chain concept, strong textilepipeline
methods, and Information Technology (IT) in the industry. IT road show for apparel industry held in 1997 in Dhaka for the

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SAP-IBM-OBT that helped to understand IT and its vast applications in the clothing sector. Information Technology use is must for
manufacturers as big buyers insist on technology applications that handle everything from stock management to design bidding.
Needless to say, clothing business is buyer-driven meaning that interaction among various players in the textile pipeline is driven
by the demands of the final market place.

According to Bangladesh Garment Buying House Association (BGBA) there are more than 1100 buying houses and every week at
least one buying house starts their operation. It is estimated that 90% of the clothing companies are tied up to buying
houses/agents. A buying house is a network and information hub for clothing manufacturers, exporters, suppliers and clothing
buyers. Buyers from across the world can meet sellers at this permanent office and source their products as per their exact
specifications. The house plays vital role for clothing buyers to execute their ‘orders’ by local clothing manufacturers. Sourcing
office, Commission office, Liaison office, Procurement office and Satellite office are few other terms usually use in
interchange/same purpose of clothing buying house. In literature, above terms have difference means that can be explained by
following figure below:

Bangladesh has become one of the most lucrative destinations for cheap clothing sources in the world. Formidable rivals are no
longer interested in producing basic clothing items and doing costly businesses. Bangladesh belongs to Least Developed Country
(LDC) category, which ensures international favors to Bangladesh in doing international business in clothing sector; like
Generalized System of Preferences (GSP) and/or GSP Plus facilities, Everything But Arms (EBA) agreement, and Duty-Free-
Quota-Free Market Access (DFQFMA) initiative. Apart from this, government has imposed top priority in clothing industry sector
through cash incentive/return on export clothing items and tax reduction. Some other forces in creating the lucrative clothing hub
are: bonded warehouse facilities with government participation, back-to-back Letter of Credit (L/C), bilateral, regional and free
trade agreements, user-friendly rules implementation and established linkage Textile industry. The revised draft on Rules of
Origin (RoO) from European Commission (EU), if be implemented in January 2011, then this definitely turns Bangladesh into the
most lucrative destination in the world. Presently implemented RoO for GSP scheme is two-stage conversion process; namely,
yarn to fabric and fabric to clothing; while drafted new RoO is onestage; namely, fabric to clothing. Duty-free access of 205
garment items by China from Bangladesh would open further opportunities for Bangladesh.

Global clothing buyers and retailers set up their liaison/ procurement/sourcing offices in Dhaka and some of them are- Wal-Mart,
Tesco, M&S, H&M, Zara, Adidas, JC Penny, IKEA, LI & Fung, and Uniqlo. German premium brand, Hugo Boss, is going to source
clothing from Bangladesh for the first time in history. Bangladeshi clothing products are gradually expanded to Japan, China,
Australia, and Latin American countries.

Any company goes for sourcing option due to poor internal performance or drivers of profitability. By opening own
sourcing/liaison in manufacturers’ country or direct buying/sourcing provides the buyers a bundle of competitive advantages.
Cost advantages is the main driving force behind the development of foreign clothing sourcing offices in the exporter countries.
Other few advantages are: integration in value chain; buyers get a long list to choose their best suppliers; get pricing advantages
due to many suppliers for one work; director control over production shed, quality control; on time delivery/high flexibility to
meet fluctuations in demand thus better prediction future performance in demand market; control over commercial risks; may
get new opportunity to include in the business. Sourcing policies are made on two levels, country level and company level. On the
country level, aspect like quota, duty rates, ethical aspects, wage structure, distance, local infrastructure, economic and political
stability play a role. Other aspects like fast reaction, speed to market, logistics management, quality production facilities, design
capacity, availability of raw materials are not country-specific.

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Above figure shows that Bangladesh has huge space to turn the clothing sector into the most competitive in clothing
manufacturing hub in the world. If the industry improves its productivity and reduces custom clearance then could reduces its
lead-time as well, while the industry is enjoying lowest wage, the most important competitive tool in the sector.

Table 1: Clothing items export figures, its contribution and growth

Porter’s Diamond Model can be used to access the Clothing industry’s likely competitiveness in global perspective. The industry is
likely to be competitive when the factors mentioned in the Porter’s Diamond Model are significant in locally than its competitors.
The four key factors in Michael Porter’s Diamond Model are: Factor Conditions, Demand Conditions, Supporting Industries, and
Rivalry, Strategy, Structures.

Factor Conditions: Factor conditions for Bangladeshi Clothing industry are skilled human resources and vast labour force,
government supports for textile and clothing technological upgradation, creation of textile and clothing villages, special
economic/export processing zones, duty reduction for the import of inputs/machines, incentive for use of local inputs, income tax
reduction, etc. international supports like GSP, GSP+, duty free access.

Demand conditions: A world-class domestic market produces a world-class industry and a worldclass industry produces
world-class competition (Prahalad, 1993). The Bangladeshi clothing industry within the country has helped in the creation of
world-class market.

Supporting Industries: Supporting industries supply inputs raw materials, which are important to the competitiveness of any
industry. Bangladesh is self-sufficient in knit fabric while accessories and trims suppliers are more competitive to support the
clothing industry. These industries providecost-effective inputs and upgrading process, thus stimulating other companies in the
chain to innovate.

Rivalry, Strategy and Structure: Rivalry among local firms push industries for innovation, but as the clothing industry in the
country is not saturated to feed international demand, thus local rivalry is not prominent here. As the country has adopted the
strategy of export-led model to develop itself, the firms are also following the export-oriented industry model. Clothing industry
players are building joint ventures, partnership, becoming mergers, as required to fight international competition countries.

Conclusion:

The clothing sector is buyer-driven. The industry is ‘footloose’ type industry, meaning that the industry can easily shift between
locations across the globe if the industry fails to satisfy buyers by quality and price. The key competitiveness factors of clothing
sector of Bangladesh are identified as its cheap labor, inputs (increasing self-sufficient in knit fabrics), special agreement
(duty-free access in EU, Canada, Norway), and mass production of basic garments (USITC Report, 2004). The industry faces
difficulties due to language barriers, customs, communication hurdles, little use of Information Technology and CAD/CAM, and
lack of design and products development. The transformation of our clothing industry into global sourcing hub not only means of
employment of about 5 million people and earning of billions of dollar every year, but also gifts to grow many sectors; like
banking, insurance, hotels, restaurant, tourism, transport & logistics, and telecommunication. The fate of the textile industry has
close ties to the prospect of clothing industry. The dynamic role of the private sector is the principal key factor in the success of
the sector, while government role is appreciating. To transform Bangladesh, as true clothing manufacturing sector and sourcing
hub, both the private sector and the government have a long list of home works to do. Poter’s Diamond Model suggests that

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competitiveness in the clothing sector could erode if international supports are withdrawn while integrating and coordinating
textileclothing pipeline and supply chain could develop competitive advantages.

References:

Cotton-Textile-Apparel Sectors of Pakistan: Situations and Challenges Faced by Caesar B. Cororaton, Abdul Salam, Zafar
Altaf, David Orden
Garment Exports: Winning Strategies by Darlie O. Koshy
Who's Buying Apparel by New Strategist Publications, Inc, United States. Bureau of Labor Statistics
Fashion Buying by Helen Goworek
The outsourcing process: strategies for evaluation and management by Ronan McIvor
The Outsourcing Option by R. P Prasad
Buying business services: towards a structured service purchasing process by Wendy van der Va & Frank Rozemeijer
Analyzing Global Apparel Markets: Distribution Channels differ across EU states:

[Link]
* Own compilation from sources: [Link]; World Bank (2006); ILO Global
Wage Report 2008/09; 2007 or latest ; USITC report, 2004;Gherzi Textile Organization; OTEXA
The Role of Core Competencies in the Corporation by C.K. Prahalad (1993)
The organization of firms in a global economy by Elhanan Helpman, Dalia Marin, Thierry
Verdier

Bangladesh Textile Today

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