Bangladesh: Apparel On The Rise

n the past, Bangladesh was known as a big exporter of jute, tea and other agricultural
products. However, more recently, the country has become one of the fastest-growing ready-made
garment (RMG) exporters in the world.

Bangladesh’s RMG sector — composed of the knitwear and woven garments sub-sectors — is the
largest export-oriented manufacturing industry in the country, employing 1.8 million people, most
of whom are women. According to recent figures from the government’s Export Promotion Bureau (EPB),
the sector had exports of US$12.5 billion in fiscal year (FY) 2009-10 (July-June), constituting
approximately 77 percent of the country’s total exports.

Of the total RMG exports, Bangladesh exported approximately US$6.5 billion of knit apparel
and US$6 billion of woven apparel in FY 2009-10. In July-August 2010, exports of knitwear rose by
32 percent over the same period in 2009, and exports of woven garments rose by just over 30
percent. Knitwear is the dominant sub-sector in terms of quantity exported, with a 51.7-percent
share of RMG exports; while woven garments hold a 48.3-percent share. The main apparel items
Bangladesh exports are T-shirts, trousers, sweaters, jackets and shirts.



Numerous textile associations support Bangladesh’s industry. The main two that support the
RMG sector are the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

BGMEA represents 4,490 Bangladeshi export-oriented apparel manufacturers. The organization
helps strengthen and promote the RMG sector by establishing a healthy business environment and
cultivating relationships among the manufacturers, exporters and importers, with the goal of
increasing Bangladesh’s foreign exchange earnings. Since its inception in the late 1970s, the
organization has helped increase RMG exports by 500 percent.

BKMEA was established in 1996 and comprises about 1,700 knitwear manufacturers and
exporters, representing the country’s largest export-earning sector. The organization works to
promote sector interests, promoting and developing the sector’s capacity as well as the market.

Both organizations work to improve social compliance status, and provide education and
spread awareness of basic rights.

Government Support

The Bangladeshi government actively supports the country’s textile industry. The government
recently supplied a bailout package to 270 closed RMG production facilities in order to restore
their productivity. Commerce Minister Muhammad Faruk Khan has emphasized that adequately training
garment workers will help to increase the country’s garment exports, and has implemented a training
program for 40,000 workers and officials that will be conducted by BGMEA. And, following pleas by
BGMEA and BKMEA, Finance Minister Abul Maal Abdul Muhith has agreed to provide small- and
medium-sized garment exporters with an additional 5- to 10-percent increase in cash incentives on
the total value of exports. The incentives will be available until June 30, 2011.

BGMEA and BKMEA recently voiced their concern to the government over rising cotton prices,
asserting that the increases will adversely impact the country’s RMG industry, and have requested
that the government intervene. Bangladesh consumed 4 million bales of cotton in the 2009-10 year,
according to the U.S. Department of Agriculture, and Bangladesh’s knitwear producers are among the
largest buyers of cotton-based yarn. Recent flooding in Pakistan — the fourth-largest producer of
cotton in the world and a major supplier of cotton to Bangladesh — has destroyed much of Pakistan’s
cotton crop, contributing to higher cotton prices and limiting Bangladesh’s supply. Khan has stated
that the Bangladeshi government will begin importing cotton from Africa, India and Uzbekistan to
reduce the price of cotton and help the country’s weavers and knitwear exporters recover from
financial difficulties.

Textile Machinery

The latest export figures from several textile machinery associations indicate that
Bangladesh has increased its machinery investments. The German Engineering Federation (VDMA)
Textile Machinery Association reports that in January and February 2010, its machinery exports to
Bangladesh rose 8 percent to total 2.7 million euros. January-July 2010 export figures show a
significant increase over the same period in 2009: Spinning machinery exports were worth 11.1
million euros compared to 2.2 million euros in the corresponding period in 2009; finishing
machinery exports including washing, bleaching and dyeing machinery were worth 5.8 million euros,
compared to 2.5 million euros in 2009; and weaving machinery exports were worth 695,000 euros,
compared to 461,000 euros in 2009. Only knitting machinery exports decreased, from a value of 4.8
million euros in 2009 to 3.1 million euros in 2010.

The Association of Italian Textile Machinery Manufacturers (ACIMIT) reports that sales of
Italian textile machinery to Bangladesh increased from 31 million euros in 2007 to 41 million euros
in 2008, placing Bangladesh as its third-largest Asian market behind China and India. In the nine
months from January to September 2009, finishing machinery constituted 58 percent of the total
Italian machinery purchased by Bangladesh; spinning, 17 percent; weaving, 14 percent; accessories,
10 percent; and knitting, 1 percent.

Interestingly, the Switzerland-based International Textile Manufacturers Federation’s
(ITMF’s) 2008 and 2009 International Textile Machinery Shipment Statistics noted a marked decline
in global textile machinery shipments. Nonetheless, Bangladesh remained an important Asian investor
in spinning, weaving and knitting machinery segments.

United-Kingdom-based business information provider Textiles Intelligence Ltd. released a
report in September 2010 stating that global deliveries of rapier and projectile looms rose
dramatically, by 31 percent, in 2009 — a year when overall loom purchases declined. The surge in
purchases is due in large part to significant increases in investments by Bangladeshi and Chinese
mills. Bangladesh added 5,273 machines, representing a 181-percent increase — significantly greater
than China’s acquisition of 2,073 machines, representing a 27-percent increase. According to
Textiles Intelligence, the sudden increase in purchases of such looms indicates that the Asian
woven fabric industry is responding to the global economic downturn by moving into more specialized
markets. Rapier and projectile looms are typically used to weave more technical fabrics that have
higher added value than those produced on air-jet looms. The market for these fabrics tends to
weather a crisis better than do basic fabrics produced on air-jet looms, the company notes.

BKMEA asserts that the knitwear sector’s main strength is its backward linkage. Over time,
the sector has become almost self-sufficient in terms of fabric and yarn supply, as a result of
spinning factories growing at the same rate as the country’s stitching capacity, therefore
increasing fabric and yarn needs. Furthermore, as knitwear exports have increased, upstream
supplier capacity has gradually increased correspondingly. As a result, domestic suppliers now are
meeting 90 percent of the sector’s total knit fabric needs, and domestic yarn suppliers are
providing approximately 75 percent of total yarn requirements. Also, the number of spinning mills
has increased as knitwear exports have grown. Currently, investment in backward linkage in the
knitting, dyeing and spinning industries totals more than US$4.9 billion.

Investments In Bangladesh

Companies worldwide are beginning to invest in Bangladesh’s textile industry. The country
offers a favorable business climate, as it has very low labor costs compared to other
textile-producing countries; has a favorable trade status with the European Union (EU); and as
mentioned previously, is supported by numerous government incentives.

Germany-based Amann Group — a producer of high-quality sewing and embroidery threads — and
Bangladesh-based Standard Group — a company involved in numerous businesses including, among
others, apparel manufacturing — in which it employs more than 35,000 people and produces more than
40 million garments annually — have established Amann Bangladesh Ltd., a joint venture that will
produce and sell high-quality sewing threads for apparel and shoe/leather applications.
Construction on a new, fully integrated production facility in Gazipur will begin in January 2011,
with operations expected to commence in mid-2012. The site will have a production capacity of 3,000
metric tons annually.

Japan-based zipper manufacturer YKK Corp. is investing approximately US$27 million to expand
its manufacturing plant in Dhaka, Bangladesh, in order to meet demand and support continued growth
in garment export processing. The company is expanding the size of its facility, which it expects
to complete in 2011, with a goal of increasing the plant’s manufacturing capacity by 45 percent by

India-based Arvind Ltd. — an integrated manufacturer of denim and shirting fabrics for the
apparel industry — and Bangladesh-based Nitol Niloy Group, a company involved in a variety of
business sectors — have established an 80/20 joint venture to increase Arvind’s denim manufacturing
capacity to 140 million meters. The company will invest US$60 million over three years to set up a
30-million-meter capacity denim manufacturing plant in Bangladesh. Arvind reports that demand for
denim fabrics in Bangladesh is growing at a rate of more than 25 percent, with a current output of
280 million meters, of which approximately 180 million meters are manufactured locally and around
100 million meters are imported.

“We look at Bangladesh as strategic location in view of unique advantages it offers,” said
Jayesh Shah, director and CFO, Arvind. “Bangladesh being [least developed country], garments
exported from Bangladesh do not attract any import duty if the fabric is manufactured in
Bangladesh. The wage cost in Bangladesh is amongst the lowest in the world. We shall be
manufacturing high-quality denim fabric to cater to requirement of European countries. Since we are
already exporting 36 million meters of denim to Bangladesh annually, we have ready market available
and hence the proposed plant shall be profitable from day one.”

Expanding Its Global Reach

One of the Bangladesh’s main objectives is to lessen its dependence on the U.S. and EU
markets, which currently import more than 80 percent of its apparel. Interestingly, officials at
the EPB recently announced that the country’s apparel shipments to the United States and the EU
either declined or grew only slightly in terms of value in FY 2009-10. However, apparel exports to
new markets in that period grew significantly, such as to Turkey, where Bangladeshi exports
increased 28 percent to $306 million; Japan, up 134 percent to $174 million; Australia, up 84
percent to $85 million; South Africa, up 5 percent to $48 million; China and Hong Kong, up 41
percent to $45 million; and Brazil, up 15 percent to $45 million. Other markets where Bangladeshi
exports increased include Saudi Arabia, South Korea, India, New Zealand and Taiwan.

“We are pinning our hopes on at least 10 new markets, as growth in shipments to these
countries is very high,” said BGMEA President Abdul Salam Murshedy. “Although exports to these new
markets are much less than those made to our traditional markets, local exporters are quite upbeat
about the new markets.”

BGMEA has been taking action to help Bangladesh expand its exports to these markets. In
February, the organization held a seminar titled “Market Access and Product Diversification,” where
lawmakers, political leaders and textile industry experts convened to discuss how the RMG sector
can diversify its products and enter unexplored or under-explored potential markets. Speakers noted
that if the country focuses on diversifying its products with quality and low production costs,
then potential export destinations could include Japan, Australia, South Korea, Brazil, Chile,
Mexico, Hong Kong, Taiwan, China, Singapore, Russia and the United Arab Emirates.

They also emphasized that in order to help the RMG sector survive in the future,
manufacturers should prioritize aspects such as availability of skilled workers; a healthy
industrial atmosphere; timely delivery of export orders; desired quality; reduced lead time; low
price; and sustainable compliance.

A 12-member delegation from BGMEA recently visited Brazil, Chile and Mexico to educate the
countries regarding Bangladesh’s RMG industry and to encourage them to import Bangladeshi products.
BGMEA has a goal of exporting US$500 million to the three countries in the next two years.

BKMEA also is encouraging new markets to invest in Bangladesh’s apparel industry. In 2009,
the organization sent trade delegations to Japan and Hong Kong as well as to South Africa and
Botswana to promote knitwear trade relationships. BKMEA President A.K.M. Salim Osman reports that
so far, the organization’s efforts with Japan have been successful, and many Japanese buyers and
investors are considering Bangladesh as a sourcing destination. UNIQLO, Marubeni Corp. and Chori
Ltd., among other Japanese companies, already have opened offices in Bangladesh and begun sourcing.
According to recent press reports, Japan-based apparel manufacturer Onward Holdings plans to add
Bangladesh as its third manufacturing base, following China and Vietnam.

Various news agencies are reporting that Bangladeshi officials also are encouraging
countries to promote trade with its textile industry. Deputy High Commissioner Ruhul Alam Siddique
visited the Karachi (Pakistan) Chamber of Commerce and Industry (KCCI) to promote trade between
Bangladesh and Pakistan, and reportedly stated that the countries could initiate joint ventures.
KCCI President Abdul Majid Haji Mohammad said Pakistan could benefit from Bangladesh’s preferential
access to EU markets and garment expertise, and Bangladesh could benefit from Pakistan’s spinning
and weaving strengths. Khan traveled to Singapore, urging the import of more apparel products from
Bangladesh and asked the government to encourage its entrepreneurs to invest in Bangladesh’s
textile industry. His message was favorably received by Singapore Minister for Trade and Industry
Lim Hng Kiang.

October/November/December 2010