Bangladesh’s attractiveness as an apparel-sourcing destination remains potent, yet the country has faced increasing competition in recent years that could compound the challenges of the pandemic, according to a McKinsey survey that interviewed chief procurement officers (CPOs) in the fashion industry of the country.
However, the pandemic has stalled the sector’s progress at a crucial moment, just as global shifts in fashion sourcing threaten Bangladesh’s position in industry supply chains.
The garments sector will need to innovate, upgrade and diversify, investing in flexibility, sustainability, worker welfare, and infrastructure, authors Achim Berg and Karl-Hendrik Magnus, who are senior partners in McKinsey’s Frankfurt office; Harsh Chhaparia, a partner in the Gurugram office; and Saskia Hedrich; a senior expert in the Munich office, wrote in an article on the company’s website.
Readymade garments (RMG) exports from Bangladesh more than doubled, from $14.6 billion in 2011 to $33.1 billion 2019—a compound annual growth rate of 7 per cent. The value of the country’s RMG exports fell by 17 per cent in the first year of the pandemic, representing revenue losses of up to $5.6 billion.4
Although our 2019 CPO survey pointed to Bangladesh as the top global sourcing hotspot, Vietnam was close behind, and was the preferred sourcing country among US executives.
Although comparable data for global exports in 2020 has not yet been published by the World Trade Organization, data from European and US imports indicate that Vietnam likely overtook Bangladesh in 2020—pushing Bangladesh’s RMG industry out of its position as the second-largest garment-exporting country in the world after China, the authors write.
The new preferential trade agreement between the European Union (EU) and Vietnam, launched in August 2020, could well lead to apparel exports from Vietnam outperforming Bangladesh’s. Among US apparel importers, Vietnam has outpaced Bangladesh’s RMG industry for some time.
In 2020, Vietnamese apparel imports to the United States were worth 2.5 times those from Bangladesh. As US buyers move sourcing out of China, Vietnam is proving to be the biggest winner. Growth of apparel imports from Vietnam is outperforming imports from Bangladesh, they note.
A key strategy for the sector’s growth over the past decade has been to diversify customer countries and move to more complex products and value-added services. However, Europe (62 per cent of export value) and the United States (18 per cent of export value) remain Bangladesh’s RMG industry’s leading customer markets, although dependency on the United States has decreased.
There is room to increase exports to nontraditional markets, particularly as traditional markets are showing lower growth in apparel retail sales, the authors observe.
Turning to compliance, factory and occupational safety, and transparency, the Bangladesh garment sector has shown enormous improvement. Factory buildings not only have become safer, Bangladesh now has more green garment factories than any other country, although these factories’ share of the country’s apparel exports remains low, the McKinsey article says.
The Bangladesh government might benefit from recalibrating its strategies to attract foreign investors. The country’s RMG sector currently lags in foreign direct investment (FDI) compared to its Asian peers, it adds.