A historical analysis of Bangladesh and Vietnam competing for dominance and how Bangladesh can regain its reign.
The global garments trade is experiencing a slow, quiet tectonic shift. Industry leaders, including the former BGMEA president, brought a stark reality to light, that Bangladesh has slipped behind Vietnam in exporting garments, becoming the third-largest exporter. For a long time, China has been the largest exporter of ready-made garments while Bangladesh and Vietnam were in a neck-to-neck race for the second position. As Vietnam progresses forward, Bangladesh finds itself in a critical crossroad as this transition requires the understanding of historical backgrounds of both nations by looking at systemic factors and a probable future roadmap for Bangladesh to regain its dominance in the sector.
The origin of Bangladesh’s ready-made-garments stretch back to the 1980s, when the ‘Desh Garments’ collaborated with South Korea’s ‘Daewoo’, a small textile trader which evolved into one of South Korea’s most powerful chaebols (conglomerates) during the 1970s and 1980s. According to the BGMEA, Nurool Quader Khan, a freedom-fighter and the founder of the ‘Desh Garments’, sent 130 trainees to South Korea to learn to produce RMGs. Later, senior employees spread across the country, especially in Dhaka and Chattogram to make way for other export-oriented garment manufacturers. This led to a chain reaction for the emergence of a wide variety of industries, which became crucial partners of the economy. Major investments were put in sectors that are not even indirectly related with the RMG sector turned out to be the indirect outcomes of successful entrepreneurship in the following decades.
Bangladesh has leverages: abundant labour force, and preferential international tariff schemes under the Multi-Fibre Arrangement (MFA). MFA was an international trade agreement that involved clothing and textiles. Bangladesh received less-restrictive quotas and in many cases quota-free entry. This protected market access helped build its multi-billion-dollar RMG sector. The focus of the country was straightforward: to produce in high-volume, but the production must be cost-efficient.
Vietnam’s entry into the global market was a little late. Its joining accelerated rapidly after the Doi Moi (renovation) economic reforms of the late 1980s, starting from the year 1986. The goal was to create a socialist-oriented market economy from a centrally planned one by introducing land ownership for farmers, foreign investment, allowing private businesses etc. The country structured its policy around infrastructure development and geographical integration with East Asian economies and supply chains.
For years, both countries held distinct positions in global trade. However, structural weaknesses in Bangladesh’s RMG sector have allowed Vietnam to capture greater market share. The balance started to lean towards the latter as global demand shifted from traditional cotton toward man-made fibres (MMF) such as polyester and nylon. But this is not the main issue here. Recent domestic and trade challenges have intensified pressures for us. Bangladeshi exporters are facing rising energy prices, higher bank interest rates, policy uncertainties, and bureaucratic hurdles; all these impose heavy financial and operational pressures for manufacturers. On the other hand, Vietnam negotiated trade agreements and secured duty-free market access through the European Union-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which help to eliminate tariffs, cutting trade costs, and welcoming a huge amount of foreign investment.
Despite all the hardships, Bangladesh has the strength needed to rebuild its dominance in this field. However, it will require a shift from low-cost manufacturing to a high-value and technology-based model of production.
First, product diversification has become a must for the country. It should be the central focus of our export strategy. Manufacturers must avoid solely relying on cotton-based items and focus on other items such as MMF and technical textiles. Producing these might allow the sector to increase total export revenue without increasing the number of physical outputs. Second, Bangladesh should produce raw materials, packaging, accessories etc. domestically. It can produce yarns and fabrics domestically while reducing its reliance on imported raw materials. Third and not the least, administrative reform is absolutely necessary to reduce delivery times. Moreover, making custom procedures digital, removing corruption of custom officials and other bureaucratic institutions related with export and manufacturing is a necessity. All these will lower the operational cost for manufacturers in a short period of time.
International markets, clothing brands and customers are increasingly prioritising ESG (Environmental, Social, and Governance) standards. According to Dhaka Tribune, 52 of world’s top 100 Leed-certified factories are now situated in Bangladesh. A LEED-certified factory is an industry (can be a normal building as well) that meets strict standards for environmental sustainability and energy efficiency. Bangladesh must take advantage of its global lead in sustainable manufacturing. Its green-certified factories can serve as the global supply chain’s favourite partner for sustainable production of apparels. As the state prepares for its graduation from LDC status, bilateral trade partnerships with important economies, especially with the ASEAN states as Bangladesh is waiting for the association’s Sectoral Dialogue Partner (SDP) status.
Md. Fahim Hosan is a post-graduate student of International Relations at the University of Dhaka.
