Cost is still king - buyers stick with Bangladesh

After the recent tragedies in garment factories in Bangladesh,

rivalling garment exporting nations like India, Pakistan, Sri Lanka, Indonesia, Cambodia and Vietnam may have expected a run on their production units but this hasn’t happened yet as Reuters confirmed. Cost is king and with amounts as low as one cent making a difference, Bangladesh is still very much ahead of the race.

“No buyer is in a hurry to move from Bangladesh because Western retailers are stressed about passing any retail price increases to customers. Currently, there is no substitute for Bangladesh, where manufacturers even risk operating from rickety structures to cap costs,” confirmed Arvind Singhal, chairman of India-based retail consultancy Technopak Advisors. “The reason Bangladesh went from zero to hero in the garment sector is because there is no country with such low labour and other costs,” he added.

While US retail giant Walmart has already confirmed its commitment to Bangladesh, calling it an “important sourcing market”, Swedish fashion chain H&M may be looking for alternative manufacturers elsewhere but not at the expense of Bangladesh. “We are not reducing our purchases from Bangladesh. We aspire to have long-term relations with our suppliers. We are always looking at new production capacity to support our continuous expansion,” explained H&M spokeswoman Elin Hallerby.

And indeed, the figures confirm that the recent factory accidents have hardly made a dent in Bangladesh’s exports: According to the country’s international trade association, exports for the year that ended in June rose by 13 percent to 21.5 billion dollars. Of those exports, 80 percent are clothes and shoes. In the month of June, garment exports even increased by 26 percent year-on-year to 2.2 billion dollars.

Sixty percent of these garments go to Europe, where Bangladesh benefits from the “Globalised Scheme of Preferences” (GSP) that offers trade preferences and a break on taxes and customs to so-called ‘poor countries’.

Currently, Bangladesh has been placed in the most beneficial bracket but this could change if working conditions in the country do not improve. At a meeting in Geneva last week, EU trade commissioner Karel de Gucht stressed the fact that the “trade preferences by the EU are not to be taken for granted”.