While turning her Zara sweater vest inside out before putting it in the laundry, Ashley notices the tag and wonders, “Why are most of my clothes made in Bangladesh?”. Little does she know that this small developing nation is home to more than 5000 ready-made garment manufacturing units, making a major portion of all the clothes present in this world today.
If it was not for the low costs of production in this country’s RMG (Ready-Made Garment) sector then it would be hard for global fashion brands to provide garments at low prices. Believe it or not, but the entire industry in this country is only a bit more than 50 years old. Since then, the country has come a long way to situate itself as the second biggest clothing manufacturer, after China. In 2016 total apparel export was more than $28.6BN and that number is slated to top $50Bn by 2021.
So why exactly are big fashion brands shifting their apparel manufacturing to Bangladesh? To start off, the industrial roots of this small nation have a lot to do with it.
The jute industry in Bangladesh was fading out because of nationalization and clothing manufacturing was still a small industry, comprising of only 9 apparel exporters. In 1978, Desh Garments created a partnership with the Daewoo Group of South Korea and established a 6 line manufacturing unit. 130 of Desh’s employees went to Daewoo to be trained for six months, and came back and sowed the seeds of prosper. Within a few years the RMG sector ballooned to be worth more than $100MN.
Desh Garments in 1978
The government was especially helpful to the development of this industry as well. The foreign investment ceiling was abolished, entrepreneurs were given the ability to obtain licenses for duty-free import of machinery, bonded warehouse facilities were introduced, and on the financial side; the back to back L/C eliminated a lot of barriers to production such as needing working capital. All these innovative strategies permitted exponential growth in apparel manufacturing.
Fast forward to 2017 and as you can imagine, the RMG sector is an essential part of the Bangladesh economy, along with money remittance. The sector contributes to more than a quarter of the nation’s GDP and employs more than 4 million people. What is not apparent though, is that many other industries proliferated because of RMG.
FDI (Foreign Direct Investment) became popular in Bangladesh because of the RMG sector. After Desh Garments, Trexim ltd in Bangladesh and Youngones corporation in South Korea established a joint venture garment factory. As more corporations became comfortable investing in this young nation, it created a trend and led to even more attention all over the world. In 2016, out of the $2BN+ FDI that poured into the country, garments received an astounding $396MN.
Bangladesh Foreign Direct Investment Growth
The back to back L/C was not only beneficial for garments, but also for other industries which participated in any export-import activity. Leather, jute, agro, farming, etc. Given the relative inability for young Bangladesh manufacturing units to access credit, the back to back L/C gave an innovative way for even the most illiquid of manufacturers in this country to receive working capital.
This also allowed the banking sector to grow. Because of the rapid growth of garment manufacturing units, financial institutions started to offer easier credit and loans to entrepreneurs. It’s interesting to note that these entrepreneurs were among the very first industrialists of an independent Bangladesh. As the financial sector improved, RMG entrepreneurs obtained the facilities to expand both horizontally and vertically, enabling the economy on Bangladesh to grow rapidly in the 80s and the 90s.
Shipping is also another industry that benefited from the increased export-import activity that was happening. RMG currently constitutes about 80% of Bangladesh’s exports and as such requires a lot of external agents handling the shipments. External agents including couriers, freight forwarders, customs brokers, shipping companies, etc. The expanding shipping industry allowed the Chittagong sea port to improve and modernize as well. The Chittagong sea port is now Bangladesh’s biggest and busiest port and is the gateway of the country’s economy in many ways. Bangladesh now has hundreds of shipping companies, with garments being the main provider of their revenues.
Initially, apparel manufacturing in Bangladesh was simply about producing clothes at low costs and somehow getting it through. However, the dynamics of the industry began to change and thus quality became a huge thing. Buyers not only wanted cheaper prices, but also expected higher quality at those prices. As such, a revolution started with quality inspection within manufacturing industries in Bangladesh. Inspection companies sprouted up seemingly overnight to address these issues. Competition became so intense that factories decided to bring quality in house and have their own departments dedicated to just quality control. Quality inspection is now a mainstay in apparel manufacturing and it’s worth figuring out how to go about this process.
The RMG sector also involves a lot of backward linkage industries and it gave rise to the textile industry in Bangladesh. Textile manufacturing is now as modern as ever in Bangladesh and unlike the RMG sector which mostly produces for export, textile consumption is fairly an internal scene. Lastly of course, the RMG sector gave way to the rise of apparel wholesale as well, and Bangladesh is now a big contributor to the business of wholesale clothing worldwide.
Industries in Bangladesh have risen by riding the coattails of the RMG sector. But this is only the beginning of great things to come.
That’s a question that everyone keeps asking. The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) set a target of reaching total exports of $50BN by the year 2021. In 2011, a report by the consulting firm McKinsey & Co. projected a number in that ballpark. A lofty target but definitely possible. If anything, the past few years have shown the resilience of this industry to wade through troubled waters.
In 2012, Tazreen Fashion Factory experienced a fire that took the lives of at least 117 people, and injured more than 200 people. After that, in 2013, the Rana Plaza collapse happened and claimed the lives of more than 1100 people. Both were due to the negligence of the factory owners and operators. But the incidents revealed holes in the entire apparel manufacturing industry, in regards to compliance. There was a fear that the big fashion brands and retailers would move their business elsewhere. But what happened next was simply incredible!
Manufacturers started to heavily invest in compliance and adhering to stricter rules and regulations to make the industry safer, more regulated, and more humane. Many big brands and retailers, including the likes of Walmart and H&M, moved to establish two different agreements to establish a better apparel manufacturing industry; The Alliance for Bangladesh Worker Safety, and The Accord on Fire and Building Safety in Bangladesh. The framework introduced has gone a long way to ensure that the mistakes of yesteryears do not get repeated and the industry as a whole advances towards a greater future.
However, there still is a one big challenge to overcome; technology. Technology in this case encompasses a whole range of topics from data to operations. There is no infrastructure in place for any Bangladesh clothes producer to gather data and utilize it. Very few apparel manufacturers, if any, have little to no idea about big data. When it comes to operations, the consensus of the decision makers in this industry is that technology is a sunk cost and not an investment. If you ask a somewhat large 15 line factory what customer service means to them, it’s a receptionist handling incoming calls. A tragedy that stems from short term thinking.
But alas, a wind of change is blowing. Many entities are sprouting up in this sector to address these deficiency. Some are improving internal operations, some are tackling customer service, and some are capturing the orders that are out there, shifting away from China. Revolutions don’t happen overnight, they take time. The next revolution in apparel manufacturing will definitely be a technological revolution.
But why wait for technology to come to you? Send us an email and ask us how we can take care of your supply chain. You won’t be disappointed. The world’s biggest fashion factory is waiting for you!