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How is Bangladesh’s rival Vietnam’s RMG sector growing so fast?
RMG
Raihana Sayeeda Kamal
22 December, 2019, 02:45 pm
Last modified: 24 December, 2019, 11:42 am
It is high time Bangladesh started producing high-end diversified products, looked for diversified market, trained up workers to maximise efficiency, and started catering to small orders to get hold of the e-commerce platforms
The "Made in Bangladesh" tags on the apparels of the top-notch brands like Marks and Spencer, Zara, Calvin Klein, H&M, C&A and so on make us proud.
But the recent trend of negative growth in the apparel export of Bangladesh and the increasing diversion of trade of our close competitor Vietnam due to the US-China trade war have made us worried.
Between July and November this year, the export of Bangladeshi RMG products fell by 7.59 percent to $15.77 billion due to decline in the global demand, according to the Export Promotion Bureau (EPB).
Bangladesh, however, is still ahead of Vietnam this year. In the first 11 months from January to November, Bangladesh's export was $30.14 billion while for Vietnam it was $29.9 billion.
Four years younger to Bangladesh, what made Vietnam grow so fast?
Production of high-end apparels is traditionally embedded in the economy and culture of Vietnam.
Bangladesh depends on five items such as men's and women's t-shirt, trouser, shirt, jacket and sweater for export while Vietnam has diversified its product line. Only in a single market - the US - Vietnam exports 10 types of products – women's knit shirts and blouses (MMF), women's trousers (cotton), women's knit shirts and blouses (cotton), women's trousers (MMF), men's knit shirts (cotton), dresses (MMF), men's trousers (MMF), men's knit shirts (MMF), men's trousers (cotton), and women's coats (MMF).
The apparel sector played a significant role in making Vietnam a rising star by generating employment, earning foreign currencies and thus contributing to the economy.
Introduction of Doi Moi policy and export trend
Vietnam launched a policy named Doi Moi (economic rejuvenation) in 1986 to reform its economy through entering the free market trade.
The policy spurred rapid economic growth in the country.
The country has free trade agreements with the European Union, the Association of Southeast Asian Nations, Hong Kong, Singapore, South Korea and China.
The major markets for Vietnamese apparels are the United States, Europe, Japan and South Korea. The US has been the biggest export market for Vietnamese apparels and the country benefitted the most from the US-China trade war.
The squeezing market in China has opened a space for Vietnam.
Short lead time and infrastructure
Vietnam ranked 39th on the World Bank's Logistic Performance Index 2018 while Bangladesh's position is far behind – 100th.
Vietnam's lead time is shorter because of its better infrastructure of 1,900 miles of coastline and 320 ports. According to the World Economic Forum, Vietnam ranked 80th among 139 countries in the quality of port infrastructure, with an average score of 3.80 on a scale of 1 to 7 between 2006 and 2018.
Beside better infrastructure, Vietnam takes shorter lead time for skilled manpower, the capacity of production and geographical location – China, Hong Kong and Singapore are its neighbouring countries.
Bangladesh, on the other hand, takes longer lead time for poor shipment.
Lower cost of labour
The lower labour cost reduces the production cost compared to the other competitive sourcing countries in the global market though not lower than Bangladesh. But Vietnam will increase its minimum wage by approximately 5.7 percent from January 2020.
The wages will vary based on the living expenses and regional distance from the workplace.
Restricted competitiveness in domestic market
Vietnam has enacted a new competition law in July this year that limits unfair competition among the Vietnamese and foreign companies in the domestic market.
Bangladesh also has a competition act but it has no effective implementation.
Investing in producing raw materials
One challenge Vietnam is facing is the high import cost of machinery and raw materials.
The Vietnamese government has already started investing heavily in the development of the support industries. It has developed cotton industry and also expanded the knitting sector.
The production of input materials lowered the cost and opened its door to the competitive market.
Also, Vietnam takes shorter time to import raw materials from China than other sourcing countries.
Development of own brand
The government has given the apparel manufacturers opportunities to enhance their capacities, develop their original own brands and become original design manufacturers than working on the subcontract basis.
Devaluation of Dong
Vietnam, being an export-oriented country, has depreciated its currency against the US dollar.
With better market access, zero tariff on certain markets, shorter lead time, and competitive exchange rate, Vietnam has been enjoying an advantage.
Bangladesh, on the other hand, has no plan to devalue its currency as the country's economy mostly depends on import rather than export. This is another reason for Bangladesh to lose its competitiveness in the global market as it offers higher prices than other competitors.
Expansion of domestic market by attracting Foreign Direct Investment
Targetting the young population, the domestic demand for apparel products in Vietnam is also growing.
With increased urbanisation, growing employment and income, the Vietnamese people spend the second-highest amount on clothing after food. Their domestic market is also attracting investments from the major international brands.
The country with skilled labourers and sophisticated techniques is attracting Chinese and Korean investors.
The decline in orders for the Chinese apparel manufacturers and the increase in demand for the Vietnamese RMG products will encourage the Chinese clothmakers to shift investments to Vietnam in order to take advantage of the benefits.
On the other hand, despite being the strongest source of economic growth of Bangladesh for nearly three decades, the textile and apparel sector faces various challenges. Though the sector has been holding the second position in the world ranking for long, Vietnam's continued and robust growth poses a risk to Bangladesh.
Among other reasons, poor shipment facilities, higher production costs due to compliance, pegging of taka against US dollar, increased wage structure, false promise by buyers of giving fair prices, less diversified products, lack of diversified market and more importantly, unskilled workforce and the lack of mid-level management are the main roadblocks to the growth of this sector.
In Bangladesh, 84 percent of total export came from the RMG sector in the last fiscal year. If Bangladesh wants to get back on its track by competing with Vietnam, it is high time Bangladesh started producing high-end diversified products, looked for diversified market, trained up workers to maximise efficiency, and started catering to small orders to get hold of the e-commerce platforms.
https://tbsnews.net/companies/rmg/how-bangladeshs-rival-vietnams-rmg-sector-growing-so-fast
RMG
Raihana Sayeeda Kamal
22 December, 2019, 02:45 pm
Last modified: 24 December, 2019, 11:42 am
It is high time Bangladesh started producing high-end diversified products, looked for diversified market, trained up workers to maximise efficiency, and started catering to small orders to get hold of the e-commerce platforms
The "Made in Bangladesh" tags on the apparels of the top-notch brands like Marks and Spencer, Zara, Calvin Klein, H&M, C&A and so on make us proud.
But the recent trend of negative growth in the apparel export of Bangladesh and the increasing diversion of trade of our close competitor Vietnam due to the US-China trade war have made us worried.
Between July and November this year, the export of Bangladeshi RMG products fell by 7.59 percent to $15.77 billion due to decline in the global demand, according to the Export Promotion Bureau (EPB).
Bangladesh, however, is still ahead of Vietnam this year. In the first 11 months from January to November, Bangladesh's export was $30.14 billion while for Vietnam it was $29.9 billion.
Four years younger to Bangladesh, what made Vietnam grow so fast?
Production of high-end apparels is traditionally embedded in the economy and culture of Vietnam.
Bangladesh depends on five items such as men's and women's t-shirt, trouser, shirt, jacket and sweater for export while Vietnam has diversified its product line. Only in a single market - the US - Vietnam exports 10 types of products – women's knit shirts and blouses (MMF), women's trousers (cotton), women's knit shirts and blouses (cotton), women's trousers (MMF), men's knit shirts (cotton), dresses (MMF), men's trousers (MMF), men's knit shirts (MMF), men's trousers (cotton), and women's coats (MMF).
The apparel sector played a significant role in making Vietnam a rising star by generating employment, earning foreign currencies and thus contributing to the economy.
Introduction of Doi Moi policy and export trend
Vietnam launched a policy named Doi Moi (economic rejuvenation) in 1986 to reform its economy through entering the free market trade.
The policy spurred rapid economic growth in the country.
The country has free trade agreements with the European Union, the Association of Southeast Asian Nations, Hong Kong, Singapore, South Korea and China.
The major markets for Vietnamese apparels are the United States, Europe, Japan and South Korea. The US has been the biggest export market for Vietnamese apparels and the country benefitted the most from the US-China trade war.
The squeezing market in China has opened a space for Vietnam.
Short lead time and infrastructure
Vietnam ranked 39th on the World Bank's Logistic Performance Index 2018 while Bangladesh's position is far behind – 100th.
Vietnam's lead time is shorter because of its better infrastructure of 1,900 miles of coastline and 320 ports. According to the World Economic Forum, Vietnam ranked 80th among 139 countries in the quality of port infrastructure, with an average score of 3.80 on a scale of 1 to 7 between 2006 and 2018.
Beside better infrastructure, Vietnam takes shorter lead time for skilled manpower, the capacity of production and geographical location – China, Hong Kong and Singapore are its neighbouring countries.
Bangladesh, on the other hand, takes longer lead time for poor shipment.
Lower cost of labour
The lower labour cost reduces the production cost compared to the other competitive sourcing countries in the global market though not lower than Bangladesh. But Vietnam will increase its minimum wage by approximately 5.7 percent from January 2020.
The wages will vary based on the living expenses and regional distance from the workplace.
Restricted competitiveness in domestic market
Vietnam has enacted a new competition law in July this year that limits unfair competition among the Vietnamese and foreign companies in the domestic market.
Bangladesh also has a competition act but it has no effective implementation.
Investing in producing raw materials
One challenge Vietnam is facing is the high import cost of machinery and raw materials.
The Vietnamese government has already started investing heavily in the development of the support industries. It has developed cotton industry and also expanded the knitting sector.
The production of input materials lowered the cost and opened its door to the competitive market.
Also, Vietnam takes shorter time to import raw materials from China than other sourcing countries.
Development of own brand
The government has given the apparel manufacturers opportunities to enhance their capacities, develop their original own brands and become original design manufacturers than working on the subcontract basis.
Devaluation of Dong
Vietnam, being an export-oriented country, has depreciated its currency against the US dollar.
With better market access, zero tariff on certain markets, shorter lead time, and competitive exchange rate, Vietnam has been enjoying an advantage.
Bangladesh, on the other hand, has no plan to devalue its currency as the country's economy mostly depends on import rather than export. This is another reason for Bangladesh to lose its competitiveness in the global market as it offers higher prices than other competitors.
Expansion of domestic market by attracting Foreign Direct Investment
Targetting the young population, the domestic demand for apparel products in Vietnam is also growing.
With increased urbanisation, growing employment and income, the Vietnamese people spend the second-highest amount on clothing after food. Their domestic market is also attracting investments from the major international brands.
The country with skilled labourers and sophisticated techniques is attracting Chinese and Korean investors.
The decline in orders for the Chinese apparel manufacturers and the increase in demand for the Vietnamese RMG products will encourage the Chinese clothmakers to shift investments to Vietnam in order to take advantage of the benefits.
On the other hand, despite being the strongest source of economic growth of Bangladesh for nearly three decades, the textile and apparel sector faces various challenges. Though the sector has been holding the second position in the world ranking for long, Vietnam's continued and robust growth poses a risk to Bangladesh.
Among other reasons, poor shipment facilities, higher production costs due to compliance, pegging of taka against US dollar, increased wage structure, false promise by buyers of giving fair prices, less diversified products, lack of diversified market and more importantly, unskilled workforce and the lack of mid-level management are the main roadblocks to the growth of this sector.
In Bangladesh, 84 percent of total export came from the RMG sector in the last fiscal year. If Bangladesh wants to get back on its track by competing with Vietnam, it is high time Bangladesh started producing high-end diversified products, looked for diversified market, trained up workers to maximise efficiency, and started catering to small orders to get hold of the e-commerce platforms.
https://tbsnews.net/companies/rmg/how-bangladeshs-rival-vietnams-rmg-sector-growing-so-fast
