Though the huge human tragedy caused by the fire accident in a garment factory in Bangladesh has raised questions about the country continuing to be favoured for garment outsourcing, it will not lead to flight of business from that country, according to an Indian industry source.
It is not only the competitive labour cost but the fact that the Government there under the direct supervision of the Prime Minister has made the job of entrepreneurs easy which weighs with the investors there, he said.
In an interview to Business Line, V.Ramachandran, Proprietor, Weearr Intercontinental, Bangalore, who has been in apparel outsourcing business for over three decades, felt that the garment buyers ‘will still do business in a big way’ with Bangladesh despite the unfortunate accident. This was because the country offered several advantages like low making charges and duty free export opportunity to Canada, Europe/UK. He said the quality of the machinery and production there were ‘at par with rest of the garment manufacturing countries’.
Elaborating on the cost-benefit of doing business in Bangladesh, he said the cost of making a 5 pocket jeans there was approximately $1.30 to $1.40 per piece. But in India, it costs $4 to $ 5 a piece. He reasoned that even if wages shot up in that country by 30 per cent, it would still retain its competitiveness in terms of final FOB price, apart from the duty advantage in importing nations, excluding the US.
Ramachandran mentioned while quality might be the same in all garment exporting nations, the output was better in Bangladesh, Vietnam and Cambodia. While many factories in India work at 60 per cent efficiency on an average, in Bangladesh they work at 100 per cent efficiency because of plentiful labour.
He added many Indian companies, big and small, have invested in joint ventures in Bangladesh. Koreans also are investing in the sector there. While Indians are employed in key positions in Indian JVs, they employ anywhere between 500 to 3000 local people in their factories. Like him most of the garments buying houses have their liaison offices in Dhaka to negotiate with clients’ principals.
Another major advantage was the Board of Investment under the direct control of the Prime Minister did a splendid job of ‘guiding the entrepreneurs’ in investing there. He estimated that nearly 400 garment buying houses from India were operating from Bangladesh where registration was not cumbersome.
Bangladesh – A big garment industry
Ramachandran said as an individual, he would not hesitate to outsource production from there ‘as long as I am able to keep my buyers happy’ and still brought forex to India. He estimated that around 3 per cent of the employees in garment industry were of Indian origin employed in manufacturing, outsourcing activities etc.
He explained that buyers felt comfortable in placing orders with Indian companies if they have their own set up in Bangladesh. This has led to Indian exporters to scout for JVs in Bangladesh, which are more successful than going solo, because of language, easy repatriation of funds etc.
Ramachandran said the industry was witnessing growth there because of availability of abundant and cheap labour compared to countries like India, Sri Lanka, Cambodia and Vietnam. In Pakistan, labour was not costly, but there were other issues. In Bangladesh, dependence on other countries for accessories and fabric had gone down steeply due to local production.
He mentioned the medium-size Bangladeshi companies also were flexible in accepting orders of smaller size. When volume is sizeable, even a small difference in rate could make a huge difference for buyers, particularly as quality was not an issue. The Government was also encouraging exporters to shift from Dhaka / Chittakong.
Ramachandran said from the time he first went to Bangladesh in 2000, the infrastructure facilities have improved and felt any set back the industry suffers there due to the latest tragedy would only be temporary.
He said the garment industry association there has been insisting on its members to ‘ethically and socially audit their units’ and buyers of every hue encouraged their suppliers to fall in line with the norms.
According to reports, the country has about 5000 garment factories employing more than 3.5 million workers and ranked the third largest textile exporter after China and Italy. Many well known global brands and retail chains source their buying from Bangladesh.
Source: Thehindubusinessline