Readymade Garments Sector Landscape: Vietnam vs Bangladesh

RMG Landscape: Vietnam vs Bangladesh

Currently in the RMG sector, right after China, Bangladesh and Vietnam are in the leading position in terms of global export. However, just within a span of a decade Vietnam, who had lagged behind in this sector previously, is now surpassing Bangladesh. According to the World Trade Statistical Review 2021, Bangladesh’s market share in the global garments market dropped to 6.3 percent in 2020 from 6.8 percent a year earlier. On the other hand, Vietnam’s market share stood at 6.4 percent in the same year which was 6.2 percent in the previous year. But how is Vietnam competing with Bangladesh to capture a large share of the global market?

Overview of RMG

In 2010, Vietnam’s market share in the global RMG export market was 2.9%, while Bangladesh’s share was 4.2%. Which means, even a decade ago, Vietnam was lagging behind Bangladesh in the RMG sector. According to the World Trade Organization’s International Trade Statistics 2011, Bangladesh ranked 5th on the list of global top exporters in the textile and clothing sector in 2010, while Vietnam ranked 7th.

However, in the following years, although the exports in the RMG sector of these two countries became more competitive, Bangladesh always remained ahead in terms of ranking. From 2015 to 2019, Bangladesh and Vietnam held 2nd and 3rd position respectively. But in the fiscal year 2019-2020, with a much smaller workforce than Bangladesh, Vietnam ranked second for the first time, leaving Bangladesh behind. According to the General Statistics Office of Vietnam and EPB, between July 2019 and June 2020, Vietnam’s RMG sector export earnings amounted to USD 30.94 billion, while Bangladesh’s RMG sector export earnings amounted to USD 28.82 billion.

One of the main reasons behind this is the impact of COVID-19 pandemic on global trading. When the Bangladesh government announced lock down during the epidemic, all activities from school, college, offices, courts, all sorts of production activities and import-export were halted. On the other hand, despite the lockdown, production and exports have not stopped in Vietnam. Therefore, Vietnam was able to surpass Bangladesh in RMG exports for the first time in 2020. According to a BGMEA source, the epidemic had a direct impact on 1,150 factories in the country’s RMG industry. In addition, more than USD 3.18 billion worth of orders were canceled.

Although Bangladesh’s RMG exports were severely affected by the epidemic in 2020, Bangladesh was able to regain its second position through export earnings between January and June 2021. According to BGMEA officials, in the first six months of 2021, Bangladesh exported USD 18.80 billion worth of garments, compared to Vietnam’s exports of about USD 16.86 billion.

While Vietnam lags far behind Bangladesh in the field of readymade garment exports just over a decade ago, over the past decade, Vietnam has become one of the leading competitors in the sector. But how exactly has Vietnam narrowed the ranking gap with Bangladesh in the readymade garments sector?

Reason Behind Vietnam Moving Ahead

Skilled Workforce

Vietnam is investing in education and skill development for workers to increase productivity. According to a report by The Financial Express, Bangladesh having a workforce of around 4 million, is producing and exporting the same amount of products as Vietnam. Whereas Vietnam has 1.5 million manpower less than Bangladesh. In addition, according to the Asian Productivity Organization (APO) 2020, the per-worker annual productivity level in Bangladesh’s garment industry is USD 10,400, compared to Vietnam USD 12,600 and China USD 23,600 respectively. According to industry experts, the main reason for the low productivity of Bangladeshi garment workers is lack of training, low wages, lack of a proper work environment etc.

Diverse Product Line

One of the reasons for Vietnam and Bangladesh narrowing down the gap in the ready-made garment sector is Vietnamese manufacturers producing diverse products. According to the Dhaka Tribune, 63.1% of the products exported from the country to the USA include MMF or Man Made Fiber, and cotton knit shirts, blouses, women’s trousers, men’s knit shirts, dresses, and women’s coats. These are the top 10 product categories. On the other hand, 79% of the total garment exports in Bangladesh are limited to 5 types of basic product lines such as trousers, T-shirts, sweaters, shirts and jackets.

High-End Apparel

In addition to high-end products such as high quality blazers, woven formal shirts and trousers, Vietnamese garments are also making outerwear for colder countries. According to a source in the Daily Star, there are only 8 blazer factories in Bangladesh, in comparison to Vietnam’s innumerable factories. In addition, they also produce large quantities of expensive sportswear. As a result, the average price of Vietnamese garment items is quite high. On the other hand, Bangladesh mostly produces basic and low price segment items like T-shirts and trousers. According to the Center for Policy Dialogue (CPD), in 2020 for every 100 kg of t-shirt Vietnam earned about USD 2,160 while Bangladesh earned about USD 1,100 for the same amount of t-shirts.

Strong Backward Linkage

As a geographical neighbor of China, since the beginning of the industry, Vietnam has focused more on backward linkage development. Consequently, the country has been able to produce fashionable and design-based products in the high price segment and has been able to add larger value to its products. On the other hand, the backward-linkage of Bangladesh’s RMG sector is still very weak, for most of the raw materials Bangladesh is still dependent on imports. Bangladesh is even importing accessories like oven fabric and lace from China. According to Shahidullah Azim, Senior Vice-President, BGMEA, although Bangladesh is ahead of Vietnam in terms of number of exporters, it is still far behind in terms of value addition.

Infrastructural Development

Vietnam’s infrastructural development is having a huge impact on attracting foreign investors. In addition, the country’s information technology and digital infrastructure is much more stable and strong than in Bangladesh. Even the port facilities in Vietnam are more developed than Bangladesh’s. Moreover, due to its strong infrastructure and geographical location, Vietnam is able to supply products to Western and European markets within a very short time. According to The Daily Star, while Vietnam ships products to the European Union with a lead time of 30 days, Bangladesh has a lead time of about 90 days.

Foreign Investments

At present, having relatively stable labor and land prices compared to China, Vietnam is becoming the most preferred destination for many foreign investors, due to its well-developed infrastructure. Even many Chinese investors are investing in Vietnam’s RMG sector, which is having a very positive result on its industrial growth.

Free Trade Agreements 

Vietnam has access to zero-duty to more than 50 percent of the global market due to its involvement in several free trade agreements. Some of the notable free trade agreements in Vietnam are the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU-Vietnam FTA (EVFTA), and RCEP. Vietnam also has bilateral free trade agreements with several countries, such as Japan, Australia and New Zealand. Vietnam has already created quite a strategic business network with the Western and European belts. However, in these cases, Bangladesh is still far behind. 

In addition to these factors, there are a number of challenges in the RMG industry of Bangladesh. Due to these challenges, Vietnam continues to stay ahead in competition with Bangladesh.

Why is Bangladesh Falling Behind?

Once upon a time while low wages served as a key tool in attracting foreign investors to the country’s garment sector, now the Labor’s low wages are facing negative controversy in the global media, rather than an advantage. Industry experts believe that, to make workers more productive and the industry more sustainable, maintaining a proper wage policy and focusing on a skilled labor force is very important. In terms of high-end product sourcing, global renowned brands and retailers are still considering Bangladesh as an optional supplier. Besides, the industry leaders feel that they are not getting orders for high value products as the image of Bangladesh in garments is that of a low-price product manufacturer. Bangladesh is still lagging behind in terms of production of synthetic fiber or man-made fiber based garments. According to TBS, 10 years ago, about 21 percent of the total products made in Bangladesh were these types of products, but now it has come down to 18 percent. To further diversify the export basket of readymade garments in Bangladesh, product incentives for synthetic fiber and duty free import of synthetic fiber need to be ensured. The largest part of the logistical cost is spent on transport. Where the road transport rate of Bangladesh in terms of supply of garments is comparatively higher than all other developing and developed countries. In addition, the industry is facing problems such as a doubling of the transportation cost, including supply delays due to weak port and road infrastructure in the country. 

There are some issues and controversies regarding the work environment of the garment factories. Most of the garment factories lack worker friendly facilities. In 2012, a fire at Tazreen Fashions, a garment factory in Dhaka, killed 117 people. Five months later, the Rana Plaza collapse killed more than 1,100 workers. As a result, the overall garment industry of Bangladesh has to face various criticisms in the domestic and global markets. 

The Corona epidemic had a profound effect on the Asian garment industry. As a result, other countries are working on long-term strategies to bring the situation under control and ensure future growth. According to Global Industry Analysis, Bangladesh still lags far behind in terms of long-term planning and implementation. According to Joly Talukder, general secretary of the Bangladesh Garment Workers Trade Union Center, factory owners and the government only respond when workers protest. He added that factory owners are also more interested in immediate gain, which is one of the biggest hurdles behind the overall growth of the industry.

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