Indians…Wait & Watch… Bangladesh Market Situation!!!
By Mr. Avinash Mayekar, MD- Suvin Expo LLP
Better to be watchful than invest in a hurry. The recent unexpected political turmoil in Bangladesh is making a great noise in the Indian textile Industry. Many discussions are happening on various forums about the possible advantages that India will soon be provided with. However, in my truthful and unbiased opinion, I would like to state some facts before making a pseudo-growth surge statement.
1. At the onset, the textile and apparel industry in Bangladesh contributes 80% to its export earnings while employing a 4.5 million workforce. We all know the current situation in Bangladesh is a temporary turn of events, a political coop that might have been staged with intervention from other countries. However, Bangladesh as a country can never ignore its most important textile & apparel industry.
2. As far as Bangladesh's textiles & apparel industry is concerned it has been doing exceedingly well in the past few years and grabbed a very good double-digit market share in the major global apparel markets such as Europe & USA. It is the preferred market for apparel with zero duty in Europe.
3. Understanding Bangladesh's strong background and backup for Apparel exports if there is an "acclaimed advantage" of this situation for India then we need to compare the Indian textile and apparel industry with the Bangladesh textile and apparel industry.
4. They have a very low interest burden or rather the interest rate at which they are working through various financial arrangements is unbeatable. Especially the ones offered by most of the developed countries.
5. Most of the brands from various countries, like Europe, USA & China have their stake in various units in Bangladesh's apparel industry that finance the money at a much lower interest rate than the prevailing interest rate in India.
6. Another point is that the working efficiency of the apparel plants in Bangladesh is much higher than that of India. They have more than 10% or 15% higher plant efficiency when compared with India. All because the skill level of people working in Bangladesh Apparel industries is of higher grade and they are using the best technologies available in the world. They also have very good operational efficiency of the working people because the only income for these people is coming from the apparel industry and no other industry is better.
7. So competing an India Apparel unit with Bangladesh on pricing, the following are additional costs borne by Indian make.
- 12% of the duties which are levied for Bangladesh in Europe
- At least 1 or 2% higher interest rates in India than investors in Bangladesh
- Plant efficiencies are lower in India by about 10 to 15% than that in Bangladesh’s apparel industry
- Effective labour costs are much cheaper in Bangladesh as productivity is higher
- Chinese investors have factories in Bangladesh for their orders
All these points if we put together then it is difficult for Indians to compete with Bangladesh’s garment sector.
Clubbing these facts with the existing situation which is completely political turmoil we all know that none of the countries can ignore themselves on the issue of earnings. As far as the global economy is concerned Bangladesh is very well known for exporting excellent quality garments to big brands for many years. Most of the brands have complete control of Bangladesh markets. Also, they are happy to source it from them as they enjoy all the advantages which are mentioned above.
So unfortunately I don't think that the Indian apparel industry is going to get any immediate, long-term advantage out of the situation.
Conclusion:
Focusing on the challenges of our apparel industry, we are having many issues related to unions, political interference and logistic issues. So simply the apparel industry working conditions in Bangladesh are much more user-friendly than in India.
So it is better not to have false hopes from this situation and understand it is only a temporary glitch in the Bangladesh system. However, we need to monitor this situation closely and be ready to grab the share when the situation hampers the efficient running of plants in Bangladesh.
We need efficient skill management and complete control of the PESTEL factors around us to take advantage of such situations when the time comes.
I would say, if someone is thinking of an immediate advantage from the Bangladesh situation then it is yes but not in the longer run, especially till they have a duty advantage.
All we need to do is get ready for the opportunity or else come out with our own global brands and carry out FTA’s to get better mileage. Till then just wait & watch !!!