I know China holds a special place in the hearts and minds of many Pakistanis. Mention of Mao’s land evokes feeling of sanguineness- elation and trust. On the contrast Bangladesh – well I will leave it up to your imagination.
But I believe it is in Pakistan’s interest to change that attitude immediately. Pakistani entrepreneurs, professionals and non-governmental organisations (NGOs) should learn Bengali in a hurry because Bangladesh is on it’s way to becoming the most desirable destination for Western buyers.
That’s a big loss for China that had up until recently nearly 40 percent share of Western markets for readymade garments. According to a survey released by McKinsey – a global management consulting firm, chief purchasing officers of leading American and European apparel companies are planning to decrease procurement from China over next five years because of “declining profit margins and capacity constraints.”
And, China’s loss is Bangladesh’s gain. “Although Western buyers are evaluating a considerable number of sourcing options in the Far East and Southeast Asia, many chief purchasing officers said in the survey that they view Bangladesh as the next hot spot,” reported McKinsey last week.
A survey of Bangladesh’s ready-made-garment industry identified solid apparel-sourcing opportunities, but also some hurdles.
In 2010 Bangladesh had exported approximately $15 billion worth of ready-made garments to value buyers in the US and Europe. This sector, “represents 13 percent of GDP and more than 75 percent of total exports.”
McKinsey forecasts “Export-value growth of 7.0 to 9.0 percent annually within the next ten years, so the market will double by 2015 and nearly triple by 2020,” bringing the estimate for 2015 to $30billion annually.
A majority of the respondents identified attractive prices as the most important reason for purchasing in Bangladesh. And the expectations are that prices will continue to be competitive as the efficiency is enhanced “to offset rising wage costs.”
Capacity was reported in the survey as the second-biggest advantage of Bangladesh’s ready-made-garment industry. “With 5,000 factories employing about 3.6 million workers (of a total workforce of 74.0 million), Bangladesh is clearly ahead of other Southeast Asian suppliers in this respect,” chief purchasing officers were reported saying.
Bangladesh also “offers satisfactory levels of quality, especially in value and entry-level mid-market products.”
You maybe thinking – well Bangladesh offers low prices, has sufficient production capacity and no quality issues- how can Pakistanis add value here. And it’s true that recent reports identify distinct advantages of sourcing from Bangladesh. However, the McKinsey study did identify five challenges for “apparel companies seeking to do more business there.”
The leading challenge for Bangladesh is infrastructure. “Transportation bottlenecks create inefficient lead times for garments and delay deliveries to customers,” McKinsey says, adding that this issue will become even more important in the future, “since buyers want to source more fashionable products with shorter lead times.” But this can be a golden opportunity for Pakistan. There are several successful infrastructure vendors in Pakistan who can benefit from the boom in a neighboring country. This also means job opportunities for civil engineers from Pakistan to go work in Bangladesh. Industries ancillary to infrastructure can also benefit.
The second biggest challenge for Bangladesh is “energy supply”—90 percent of the more than 100 local suppliers, McKinsey interviewed rate it as “poor or very poor.” The government (in Bangladesh) has “prioritized improvement in this area and started to upgrade power systems over the last two years”, with tangible results. Here Pakistan may not have much to offer but we can learn plenty from Bangladesh. Why is it that our Pakistani factories have to shut down while Bangladesh is able to address this issue adequately enough to keep the machines running?
Labor and environmental compliance is an issue for the majority of export driven countries- including China. The McKinsey survey shows most European and US chief purchasing officers saying, “standards have somewhat or strongly improved over the past five years,” with a caveat that “suppliers vary greatly in their degree of compliance.” There are several NGOs that monitor Bangladesh for labor and social-compliance issues and here is an opportunity for Pakistani NGOs to take their expertise outside their country. When it comes to environmental compliance, which has started to get serious attention, Pakistani NGOs and consulting firms can establish themselves very quickly. Western buyers will likely find it easier to engage a non-Bangladeshi entity for compliance. It makes perfect sense for Pakistan’s NGO to expand and take their expertise to Dhaka.
The McKinsey survey suggests that Bangladeshi suppliers need to optimize productivity to “mitigate the impact of rising wages and to close gaps with other sourcing countries and to satisfy new customer requirements for more sophisticated products.”
Bangladesh also needs “new machinery and technologies,” providing an opportunity to Pakistani apparel experts to lend their expertise. The insufficient size of “the skilled workforce, particularly in middle management,” provides opportunity to many Pakistanis who have worked in this industry all their life to travel east.
McKinsey reports that Bangladesh does not have adequate supplies of “natural or artificial fibres, and its dependence on imports creates sourcing risks and lengthens lead times.” I wonder if Pakistani experts have learned any lessons here that they can take to Bangladesh.
I believe the ready-made apparel boom in Bangladesh presents significant opportunities for Pakistani entrepreneurs, professionals and NGOs. Unlike India, where visa requirements and historical hostilities becomes a major barrier, Pakistanis can actually benefit from this rising star with whom we have a shared history.
This article first appeared in Daily Times. http://www.dailytimes.com.pk/default.asp?page=2012\04\13\story_13-4-2012_pg5_6