Bangladesh plans to double its apparel export to reach a high ambition mark of USD 50-billion by 2021 which currently stands at USD 28 billion by expanding its global markets. It is going to be a difficult task but the only way to increase the export amount is by adding value to the apparel.
The set target to increase apparel exports is in line with the government's Vision 2021, which is centred around a goal for the country to attain the middle-income country status by that year when the nation celebrates the golden jubilee of its independence.
The current competitive advantage of Bangladesh is already being challenged by countries that depend on low-cost productionâ€”like Ethiopia. Many European and US retailers and brands will follow these countries if better margins are offered.
Moreover, if Bangladesh is to graduate into a middle-income country, then the wages for its four million workers involved with the garment industry will have to rise at the expense of the margins of the apparel producers, resulting in lower profitability and losing that competitive edge.
It is a catch-22 situation given our current low-cost production strategy. And it's doom to failure because of the law of nature about a developing country that must offer the benefits of a higher living standard in its journey to becoming a nearly industrialised one.
Therefore, for the growth vision for 2021 to deliver, it is high time the apparel industry leadership fostered change as regards its customer base. The first option is to keep the customers in the apparel sector, not with low cost, but with innovation, collaboration and proliferation, thereby increasing the production volume and margin. Simultaneously, growing the number of customers in the value creation process will be an added bonus.
For decades, international buyers for large international apparel chains and brands have worked under the assumption that labour cost must be kept as low as possible in order for garments to be produced at competitive prices. This widely-held belief has made the industry move from country to country, as the increase in labour cost erode each local market's temporary advantage. One day, possibly soon, this journey will come to an end.
Cheap labour is becoming a rare commodity while the number of low-cost countries is also dwindling. Demonstrated thought leadership by the international retailers and brands need to get ahead of this trend by assessing what they can influence with their existing production partners to generate sustainable efficiency gains, improve their production speed, and ultimately take pressure off labour cost management, thus ensuring that margins are offered as a part of efficiencyâ€”not through cheaper labour.
Consequently, the challenge for the apparel buyers is to collaborate with their production partners to advance the ideas of innovation, collaboration and proliferation. By inspiring, generating and adopting production innovations that improve speed and efficiency, they can increase their responsiveness to fashion cycles.
By collaborating on adopting a standard unit of measure, both parties can, through this act of co-creation, help bring cost transparency to the supply chain and boost productivity. And by managing sub-suppliers and improving coordination with tier one, two and three for fabric, trim and sundries, they can proactively manage the raw material suppliers, consequently delivering positive proliferation.
Next to streamlining the internal processes to gain value growth, the other obvious concept to support the growth of Bangladesh apparel export is the external shift from volume to value customers.
According to the Boston Consulting Group, there has been a rebound in consumer confidence since the last financial crisis. As confidence rises, consumers become more willing to splurge on expensive products.
Therefore, there are many opportunities for the Bangladesh apparel industry to grow margins by adding value and attracting premium brands and retailers. A blouse or pair of jeans cost more or less the same to produce, and it is mainly the raw materials that are adding cost to production.
Managing the raw materials will be crucial but the margin gains will be many times more as the medium to premium brands and retailers sell at a much higher retail price and can buy the product in Bangladesh at a higher price.
The biggest trend in EU and the US for capturing margin building and value adding growth is Experience Economy, which is estimated at USD 1.3 trillion in annual consumer spending in the US alone. The shift from personal goods to experiences will benefit some fashion companies, provided they are positioned correctly. For example, the rise of health and wellness experiences benefits companies that make activewear, athletic footwear, and other apparel for exercising, hiking, and spending time outdoors. The rise in leisure travel will mean higher sales of layering clothes, luggage, and travel accessories.
To respond to this, companies will need to reposition themselvesâ€”at the levels of the portfolio and individual brandsâ€”by orienting products around specific experiences.
This is where the other opportunity lies for supporting the growth vision for Bangladesh by 2021: shortcutting the traditional entry price brands by adding new medium to premium brands and retailers that are targeting the experience economy.
Quick gains could come by addressing these brands in the medium to premium segment with the already established production and supply chains in Bangladesh and harvesting the margins as the retail prices are higher than the entry price brands. In this, Bangladesh faces a few challenges. Medium to premium brands and retailers are looking for value adding design perspectives that will enhance the consumer experience and set the products apart from competition.
The second challenge is the perception of Bangladesh as a production hub that ignores social and ethical issues leading up to the collapse of factory buildings due to lack of health and safety. Many US and EU boards of directors see Bangladesh as a liability that can get a bad press and damage their image.
The value creation performance of the Bangladesh apparel industry has, for over 40 years, delivered continued growth but if the apparel industry is to continue to support the growth, change management and repositioning from volume to value are the key.
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