Originally posted in Nikkei Asia on 7 September 2022

Bangladesh clothing exporters target Asia as Western demand fades

Manufacturers increasingly look to markets such as Japan, South Korea

DHAKA — Bangladesh’s huge clothing industry is looking for new markets in countries such as Japan and South Korea, hoping to broaden its customer base as surging inflation stifles orders from key buyers in North America and Europe.

The South Asian nation’s producers of ready-made garments contribute around a fifth of its gross domestic product and more than 80% of its export earnings. But they face slumping demand, with three quarters of the sector’s exports usually going to the European Union and the U.S., where customers are grappling with the economic fallout of Russia’s invasion of Ukraine.

“Most factories are getting orders of less than 30% of their capacity for the next winter season amid record inflation rates across Europe and the U.S.,” Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told Nikkei Asia. “To cope with the ongoing turbulence on the global economic and political fronts, we have started looking for [nearer] destinations to export to.”

Maintaining healthy exports will be crucial for Bangladesh as it struggles with dwindling foreign exchange reserves. Its government recently asked the IMF for a $4.5 billion loan to help dampen the risk of the kind of instability that has swamped its neighbors Sri Lanka and Pakistan.

Nine countries — Canada, the U.S., Belgium, France, Germany, Italy, the Netherlands, Spain and the U.K. — account for more than 70% of Bangladesh’s RMG exports, according to the Asian nation’s central bank. Major customers include budget fashion chains H&M, Primark and Zara, along with U.S. retailers such as Walmart and Target.

Bangladesh is the world’s second-biggest clothing exporter, after China, with BGMEA data showing the value of ready-made garment shipments jumped to more than $42 billion in 2021 from around $30 billion five years before.

“If we depend only on the U.S. and EU, it will be a big problem for us. In the COVID-19 pandemic time, Bangladesh’s exports to a number of Asian countries rose notably. We want to expand this market,” said Azim, who is also managing director of Classic Fashion Concept garment company.

“Buyers are now requesting deferred shipments, but we are aware of how to tackle this shock. We are focusing on alternative markets,” Azim said. “We are going to hold garment expositions in Japan and Korea individually in October this year to attract more retailers and brands from these countries.”

Fahmida Khatun, executive director of the Centre for Policy Dialogue, a Dhaka think tank, said, “Apparel … orders are falling at a time when Bangladesh is already facing a dollar crisis. If the falling trend … continues, it will impact the country’s foreign currency market.”

Bangladesh’s foreign exchange reserves had dropped to just under $40 billion as of July 20, enough for around five months of imports, from about $45.5 billion a year earlier.

“The economy is currently experiencing serious problems in its external balance,” Khatun said. “So the impact of falling [ready-made goods] export orders will be felt at an industry level and also in [the] overall economic level.”

The country’s garment makers are looking to diversify in others ways as well. Until now, a lot of Bangladesh’s clothing exports have been cotton items that are often described as “fast fashion,” disposable attire churned out around rapidly shifting consumer tastes.

“The demand for noncotton, man-made fibers such as polyester and viscose has increased worldwide. It is a huge market,” said Azim. “This would enable us to move towards other market segments, such as sports [and] ‘athleisure’,” he continued, using a term for clothing that can be worn both for sports and in other settings.

Bangladesh’s clothing industry accounts for around a fifth of the nation’s gross domestic product and over 80% of its export earnings.   © Reuters

“In view of the prevailing situation, we are now focusing more in research and development to produce more low-cost fabric and man-made fabric, as people’s buying capacity is going down due to inflation,” said Kutubuddin Ahmed, chairman of Envoy Textiles.

Such a switch could also help clothing makers deal with soaring input costs. “Raw material prices have hiked, so we are thinking how we can make [production] cost effective,” Ahmed said.

Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh, stresses that the stakes are high. “Bangladesh’s apparel exports registered growth in [recent] months, but September and October may see a negative trend, and the situation will be bad in the coming months as buyers are suspending orders,” he said. “The subcontracting apparel factories will suffer most. The workers may lose their jobs, which will affect the overall economy.”