Will Bangladesh beat Mexico in denim exports to USA

by Nitish Varshney

03-September-2018  |  9 mins read

denim exports
Image Courtesy: missionwestinsurance.com

Denim exports from Bangladesh have been exceptionally positive over a last few years. The country has already topped the EU market with a 27 per cent market share and US $ 1.30 billion worth of denim shipment in 2017, noting a surge of 0.54 per cent over 2016, while it is fiercely moving towards beating Mexico to gain 2nd spot after China in denim exports as far as the USA is concerned.

Bangladesh clocked US $ 507.90 million in its denim exports to USA in 2017, noting 9.57 per cent surge over 2016. While, Bangladesh’s close competitor Mexico plunged 7.92 per cent on the yearly note to US $ 793.46 million in 2017. Even during January to June ’18 period, Bangladesh exported denim apparels to USA worth US $ 245 million, marking 16.86 per cent growth, according to the data released by OTEXA. Interestingly, Mexico, which is 2nd biggest denim apparel supplier to USA, fell 2.73 per cent to clock US $ 360 million in the same period.

This continuous decline of Mexico indicates the business from USA is gradually skewing towards Bangladesh, probably due to rising wages in Mexico as well as trade negotiation on NAFTA agreement. On the other hand, Bangladesh’s growing denim fabric base, low wages and automation have helped Bangladesh manufacture more of value-added garments and beat Mexico (which fell 5.21 per cent to US $ 44 million) in Women and Girls (WG) category of jeans export. Bangladesh grew 16.19 per cent in WG category exports to touch US $ 104.17 million during H1 ’18.

Year Denim Apparel Export Value to USA (Bangladesh) Denim Apparel Export Value to USA (Mexico)
2016 US $ 463.53 million US $ 861.63 million
2017 US $ 507.90 million (up 9.57 per cent) US $ 793.46 million (down 7.92 per cent)
(Jan.-Jun. period)
US $ 245 million (up 16.86 per cent) US $ 360 million (down 2.73 per cent)

The reasons behind Bangladesh’s lead…

The reasons behind Bangladesh’s steep climb in denim exports to USA are many but the key factor will remain the low unit prices. Bangladesh shipped 3.22 million dozen of jeans in H1 ’18 in the US market, while the shipment from Mexico stood at 3.53 million dozen in the same period. Unit prices offered by Bangladesh were valued at US $ 76.27 per dozen, which were way less than what Mexico (US $ 101.92 per dozen) offered.

In an era of massive cost-competitiveness, such high UVR from Mexico is definitely hurting its denim exports despite being in close proximity to the USA and getting an advantage of ‘zero’ duty rates for jeans shipped to USA under the North American Free Trade Agreement (NAFTA). Mexico is CMT industry for denim and imports denim fabrics from USA itself. The American companies are scared of what will happen if President Trump sticks to his stand on NAFTA. Supported by all these factors, in FY 2017-18, Bangladesh exported denim apparels worth US $ 2 billion which is expected to cross US $ 6 billion by 2021 provided with the fact that that new investments by Bangladeshi denim exporters both in fabrics and garments manufacturing are increasing in capacity, pushing export earnings up, offering competitive prices, and taking the lead in the global denim trade and especially in US denim market.

The manufacturers are sourcing denim fabrics locally instead of importing. According to Bangladesh Textile Mill Association (BTMA), Bangladesh currently has 31 denim fabrics manufacturing mills, which have an annual fabric production capacity of over 400 million-meter fabrics. However, local suppliers can only meet 50 per cent of Bangladesh’s annual demand for denim fabrics and the rest is met through imports from China, India, and Pakistan.

Commenting on the same, Gazi Mahbubul Alam, Director, Mahmud Group, Bangladesh, shared withApparel Resources, “Since we have our own denim mill and we produce more than 16 million-meter denim fabrics annually, it gives us the leverage to control the price. Also, we have a mechanism with which we are somewhat immune to the price fluctuations of the fibre. Thirdly, if even after this, the rates seem high to the buyers, we work with them and explore ways and means to bring the cost down by way of twitching the length or changing the seam style or remove some operators all together.”

Another denim giant in Bangladesh, The Delta Quality Denims Ltd. (a sister concern of US $ 200 million The Delta Group) believes technology and automation can take the country’s denim export to a whole new level. Rupak Chakraborty, Director (Operations & Marketing) of the company told Apparel Resources, “With the installed technologies, Delta has reduced human intervention, salary burdens and has improved the flow of processes to a great extent. The infusion of the latest automated technologies are also helping the company to maintain the quality desired by the buyers and that too in much lesser cost than the market prices, thereby, making Delta a trusted company in the market in an era where most of the manufacturers are cribbing about losing orders due to their failure of keeping the unit prices of garments low and, at the same time, quality high.”

Meanwhile, the buyers, especially for denim, no-a-days are preferring to work with socially and environmentally compliant factories. Bangladesh has been successful in having a complete control on the entire denim supply chain as well as improvement of the safety standard in the country’s apparel industry has also drawn the attention of more global buyers lately. World’s top LEED certified factory Envoy Textiles is located at Bangladesh and the group produces 60 million meter of denim fabric every year.

Growth opportunity for Bangladesh…

According to market research firm Technavio, the global denim and jeans market is worth about US $ 60 billion, out of which around US $ 14 billion market exists in USA alone. The denim industry is expected to grow at a CAGR of over 6.5 per cent by 2020. Since Bangladesh is now the largest exporter to the EU and holds a large share in US market, there is an enormous opportunity to grow in the US, surpassing Mexico and pacing up to match the export figures of China, especially in premium denim jeans segment which is expected to grow at a CAGR of 12.23 per cent by 2020.

Challenges for the country…

Despite growth, Bangladesh faces some great challenges. Expensive utility services including gas and electricity are somehow hindering new investment in the country’s denim sector. Further, the country is still dependent on fabric importation for 50 per cent of its denim fabrics demand, which is somehow increasing the cost of the product as well as shipping time is more as compared to Mexico. Lately, the country is seeing the manufacturers’ inclination towards value-added products to a great extent but it certainly needs more attention if the country wants to stay ahead in the race as its another close competitor Vietnam is moving rapidly in the US market.

During H1 ’18, Vietnam exported US $ 110.71 million worth of denim apparels in the USA market, growing at a rate of 44.79 per cent on Y-o-Y basis. Though the export figure is more than half to that of Bangladesh’s, the growth rate of Vietnam is a worry for the country as the growth of Vietnam is surely an indicator that US buyers may shift there in future, seeing Vietnam’s experience of manufacturing high-end clothing.

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