Chinese factories turn to Bangladesh
as labour costs rise
By Ethirajan Anbarasan, BBC News, Dhaka
29 August 2012 Last updated at 22:04 GMT
There is a spring in the step of Syed Faizul
Ahsan as he walks through the floor of his garments factory outside the
Bangladeshi capital, Dhaka.
Hundreds of workers, most of them women from rural areas, are busy
making sweaters for an overseas client.
The setting may well be similar to any one of the thousands of such
factories in Bangladesh, but one thing makes Mr Ahsan's unit stand out.
The sweaters made in his unit are not heading to the US or eurozone, the
two biggest markets for Bangladesh's garment exports, but to China.
Growing orders from mainland China mean that Mr Ahsan can breathe easy
despite the slowdown in demand from the US and eurozone.
"A few years ago only 5% of my factory output was for the Chinese
market. Now it has gone up to 20%," he says. He expects that number to
increase further in the coming years.
Labour cost
It may sound strange that Chinese firms are turning to Bangladesh to
make clothes, not least because China is the global leader in clothing
manufacturing and exports.
But the shift is happening for very obvious reasons.
Rosa Dada of Four Seasons Fashion Limited, a Chinese garments
manufacturer, says factories in China are not competitive anymore because of
increasing wages of labourers and a sharp hike in overall production costs.
Ms Dada has been running a garments factory in the Chinese port city of
Ningbo for nearly two decades.
"In my factory in China, the salary of workers has been increasing
steadily over the last few years," she told me during her recent visit to
Bangladesh to look for opportunities here.
"It has reached around $400 to $500 (£250 - £315) a month per
worker. If I continue to produce there, our business will disappear.
"In Bangladesh the average monthly salary for garments workers is
only around $70 to $100. If I produce here, price is much more
competitive."
She has already opened an office in Dhaka and is not only looking to
order clothes for her own firm but is also involved in getting other Chinese
online retailers to source from Bangladesh.
Chinese manufacturers say if they source clothes from Bangladesh, prices
can come down by 10% to 15% depending on the category.
'A new beginning'
Bangladesh garment exporters say the other advantage they enjoy is that
more than 90% per cent of their products, such as T-shirts, jeans, sweaters and
casual trousers enjoy duty free access to the Chinese market.
The combination of lower labour costs and duty free access means that
orders from China are likely to receive a boost in the coming years.
Bangladeshi clothing exports to China jumped to more than $100m last
year, from $19m a few years ago.
It is a modest beginning but Bangladeshi factory owners expect the
shipments of ready-made clothes to China to go up to $500m in the next five
years.
According to Chinese media reports, Vancl, China's largest online
clothing retailer, has already shifted a portion of its shirts and casual
trousers orders to Bangladeshi factories.
Meanwhile, western fashion brands such as Ocean and H&M are also
making clothes for Chinese customers in Bangladeshi factories.
"I think it marks a new beginning for our exports," Siddiqur
Rahman, vice president of the Bangladesh Garment Manufacturers and Exporters
Association (BGMEA), tells the BBC.
"At a time when western economies are going through recession,
Asian countries like China, Japan and India are opening up for us."
Potential pitfalls
While there is tremendous opportunity for growth, there are fears that
this potential may remain unfulfilled.
Bangladesh's creaky infrastructure and political instability have been a
major concern for the clothing manufacturers.
In addition, there have been violent labour protests in recent months
with workers demanding better wages and conditions.
Labour activists say Bangladeshi clothes manufacturing workers are among
the lowest paid in the world for this type of work.
The killing of a prominent labour activist, Aminul Islam, earlier this
year has only added to the insecurity among the factory workers.
Following an outcry by western campaign groups over wages, major global
retailers like Walmart and GAP have urged the country's factories to increase
salaries.
But Bangladeshi business leaders are defiant saying they have recently
hiked up wages in the sector and warn that any further increase may damage its
competitiveness.
"Our prices are low. That's why big western fashion brands are
coming here. If they increase their buying price, we will also increase our
salary to the workers," Mr Rahman says.
But as the country attempts to gain ground as a lower-cost alternative
to China, local workers' conditions will come under increasing scrutiny.
Industry players will have to find the right balance between maintaining
competitiveness, meeting labour demands and keeping their buyers satisfied.
That may prove to be the toughest test for the sector yet.
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