Bangladesh Growing Manufacturing Base for Indian Companies

In the PressMay 19, 2022

Over the last decade Bangladesh has grown exponentially, positioning itself strongly among the garment manufacturing hubs in not only Asia, but the world. Though many industry watchers argue that the advantages that the country has in terms of duty free access to 37 countries, including EU nations, Canada and Australia, gives it the edge, the commitment of the players and pro-activeness of the industry to meet global standards cannot be undermined.

No wonder, over the past five years, the garment manufacturing industry in India, which has been battling rising labour costs stoked by new manufacturing industries like IT and automobiles vying for manpower, compounded by the fact that electricity costs more than double of what it does in Bangladesh, more and more Indian garment manufacturers have started looking at Bangladesh to support their operations for growth. While some have gone ahead and set-up production units in Bangladesh, many others prefer to outsource from the country either in direct association with the factories or through agents settled in Bangladesh who have tie-ups with factories. Besides garment exporters, the Bangladesh route is today also being sought after increasingly by Indian domestic brands, which enjoy the added advantage of duty-free entry of garments from Bangladesh besides the obvious cost advantage.

Ravi Shanker, Ex Country Manager, Rattha Overseas, Bangladesh

According to the Board of Investment in Bangladesh, Indian textile and apparel firms have invested nearly $ 80 million in 35 factories since 2006. Exporters like Shahi Exports, House of Pearl Fashions, Jay Jay Mills, TCNS, Gokaldas Images and Ambattur Clothing already have factories in Bangladesh and Chennai-based Rattha Overseas, which was earlier outsourcing from Bangladesh, is also setting up its own Bangladesh factory. Ravi Shankar, who was responsible for setting up Rattha’s outsourcing operations in 2007, is very clear that Bangladesh is offering too many advantages to be ignored. “ There is no doubt that the operational cost in Bangladesh is about 5% higher than India, but the cost benefit on CMT is around 30%, which more than compensates for the operational inefficiencies.”

“Although the minimum wages have been fixed to almost double the figure of what it was previously the minimum wage, which is now around $ 43 is still much less when compared to the minimum wages of India, which are around $ 100,” says Rajat Bhattacharya, Luxury Connect, who has worked extensively in Bangladesh.

But it’s not only about low wages, adds Vishal Ranjan, Senior Merchandiser, Shahi Exports, Liaison Office, Dhaka, “Although the cost of wages has risen I am seeing the customer list for every exporter is growing here, and I can reflect that the trend would continue. Bangladesh’s workforce is cost-effective even at higher wages in terms of productivity and desired skill and an increase in wages would not hamper the industry to sustain and grow.”

B. Jaichand, MD, Jay Jay Mills (India)

With huge infrastructure, Bangladesh factories are specializing in bulk production. Even the infrastructure of the mid-size factories are world class with vertically integrated knitwear plants besides having their own knitting dyeing and finishing plants are also equipped with their own embroidery, printing, washing plants.  “The infrastructure in Bangladesh is capable of handling half a million to one million pieces in one go, whereas in India such huge capacities are rarely seen,” says Praveen Chauhan, Director, Festivals PR, a Bangladesh-based company which is helping companies to source from Bangladesh.

With Bangladesh still concentrating mostly on basics the strength is in circular knits as most of the medium to large operations are all vertically integrated. The country is also the largest producer of denim RMG in the world. Sweaters are another area where Bangladesh manufacturing has a very large base. Moreover, the facilities in Bangladesh are specialized units to produce a specific garment, be it bottoms, shirts or knits and sweaters.

Nearly 50% of Chennai-based Ambattur Clothing’s $ 140 million exports are now done out of Bangladesh even as the share of shipments from Indian units dwindled to 25%, with the rest coming from operations in the Middle East. Ambattur Clothing, which also entered Bangladesh in 2007, has gone from just about 500 workers to about 4,000 persons in Bangladesh.  Another company which has great faith in its Bangladesh operations is Tirupur based Jay Jay Mills, which employs about 1,500 persons at its Bangladesh factories and which would have the most number of workers once expansion projects are completed. Currently, the company employs about 3,000 workers in India and nearly 4,000 persons in Sri Lanka. The company aims to get 30-40% of its production from Bangladesh in the next five years.

House of Pearl Fashions is among the first Indian companies to set-up operations in Bangladesh in 2006 and currently 15% of its total exports are accounted for from the country. Supplying large volumes to US retailers such as GAP, factories in Bangladesh made complete sense.
Its second Bangladesh factory is speeding up operations using a workforce that costs one-third of that in India. House of Pearl’s Bangladesh facilities’ contribution towards exports is likely to triple.

Some Constraints Faced by Indian Companies working in Bangladesh

However, not every exporter is upfront of setting up manufacturing units in Bangladesh and many exporters are outsourcing their requirements, without creating assets. Despite all these advantages, it is not easy to work in Bangladesh and the biggest challenge according to companies already in the country is finding the right partner. “While there is a huge choice of factories finding the one that jells with the buyer requirements in terms of compliance and product understanding on one hand and with our own working style is not easy,” says Adarsh Sharan, V-P (Apparel Sourcing), Matrix who is responsible for establishing the Bangladesh operations for the company. Most companies have their own Bangla speaking staff in the country to monitor operations. In fact, though almost 60% of the factories in Bangladesh are now compliant and many of them who deal with the brands like H&M, Walmart, JCPenney, C&A, Espirit, G Star are not only compliant but are also quality conscious. “However your own team needs to also monitor this, as Bangladeshi factories are notorious for letting slip delivery dates and T&As have to be established from day one and you have to monitor on a daily basis – there is no second way out,” warns Rajat.

Another major problem in Bangladesh is longer lead time, as due to logistics, especially for wovens, the fabric needs to be imported and this adds to the time factor. The average lead time is 90-120 days for woven garments and 60-80 days for knits, while in China, the same is 40-60 days and 50-60 days and in India, 50-70 days and 60-70 days, respectively. “ Bangladesh is the Macca of Cut Make & Trim (CMT) Orders as cheap labour is the USP of the industry, however, Bangladesh should worry about sourcing issues, as the country has to heavily rely on foreign countries for its supplies,” says Kaushik Mitra, Production Leader – Quality & Supply, Oxylane, Bangladesh.

Bangladesh is also haunted by issues of power shortage and limited capacity of logistics with the Dhaka-Chittagong train connection offering limited capacity of 120 containers per day, whereas the requirement is 10 times the current capacity. Again the basic problem is that of minimum quantities with Bangladeshi factories preferring to work mostly on bulk orders and large runs and therefore there is no flexibility like in India – where the factories can churn out smaller quantities readily.

Pantaloons, Globus and Turtle have started exploring opportunities in Bangladesh

Bangladesh a haven for Indian Domestic Retailers/Brands

With India allowing duty-free entry of Bangladesh textiles, retail giants like Pantaloons, Globus and Turtle have started exploring opportunities in Bangladesh. While Pantaloons and Globus are looking at sourcing textile from Bangladesh, Turtle is looking at setting up factories there. Pantaloons expect to bring down prices by 10-15% with such initiatives. “We are much opportunistic to search for vendors who would quote the lowest rate for manufacturing,” says Pantaloon Retail India.

Retailers would definitely go to them for denims and knitwear,” adds Arun Sirdeshmukh, Chief Executive of Reliance Trends that retails private labels like DnmX, Team Spirit, Performax along with Reebok, Levis Signature and John Players. A price hike of 15% turned Sirdeshmukh towards Bangladesh, a cheaper destination. “Although we source overwhelmingly from Indian suppliers, we look at Bangladesh for cheaper sourcing and volumes that will help us deliver better prices to our consumers,” says the retailer who expects a price revision in Spring/Summer. “Fall in cotton prices and the Bangladesh phenomenon would help,” he reasons.

There is no doubt Bangladesh has become a very important hub for the Indian sub continent, especially to the Indian retail sector. Already a majority of the Indian brands are outsourcing their products from Bangladesh and the trend is growing. There are obvious advantages in buying basics and bulk from Bangladesh as the cost advantage on the CMs are considerable as compared to India; however, the India-centric items like embroideries, light weight ladies fabrics (voiles, georgettes, viscoses n fashion styles) is not something which Bangladesh factories can handle.