Despite being a global leader in apparel manufacturing and exports, Bangladesh is lagging behind many of its competing countries in terms of price points and, this is something the industry players have been complaining about for long.
A recent report from none other than the International Trade Centre (ITC) only validated their claims.
The report by the multilateral agency which has a joint mandate with the World Trade Organization (WTO) and the United Nations (UN) through the United Nations Conference on Trade and Development (UNCTAD), has underlined that global buyers are consistently paying lower than the global average price to apparel suppliers in Bangladesh but higher to some of its competitors.
It further added Bangladesh garment manufacturers receive rates that are around 32 per cent to 83 per cent lower than the highest prices that they pay to the suppliers in other countries.
In a study report titled The Garment Costing Guide for small firms in value chains, the ITC said there is a growing argument that customers — retailers and brands — should pay their suppliers a fair free-on-board (FOB) price since they are often paying the prices that are below the factory costs.
The free-on-board price of exports and imports of goods is the market value of the goods at the point of uniform valuation (the customs frontier of the economy from which they are exported).
The only solace for Bangladesh however is that it is not alone in this and has countries like Pakistan and Cambodia for company even as the ITC report claimed these countries are consistently paid lower than the world average prices, whereas nations like Vietnam, Indonesia, Turkey and Mexico are given higher than the average rates.
Product-wise price comparison!
According to the report, made in Bangladesh men’s woven cotton trousers were sold for US $7.01 per piece in 2020, which was 9.20 per cent below the global average of US $ 7.72 while Vietnam received US $ 10.76 per piece and suppliers from Sri Lankan and India received US $8 and US $ 8.41 respectively, for the same product.
When it comes to locally made men’s cotton jeans, they were sold at US $ 7.81 per piece, 7.20 per cent down from the global average of US $8.41 even if Vietnam received US $ 11.55 by selling a similar item.
Similarly, woven cotton jackets brought US $ 10.10 per piece for Bangladesh, which was 0.70 per cent below the global average although Thailand received US $ 48.86 and Mexico got US $ 34.11 per piece for the same product while a bra made in Bangladesh from man-made fibre (MMF) was sold at US $ 3.19 per unit, which is 18 per cent below the international average, for which Vietnam managed to get US $ 6.06.
The only exceptions are ‘Made in Bangladesh’ women’s cotton trousers and men’s cotton T-shirts, both of which brought home a price that was slightly higher than the global average.
Locally made women’s cotton trouser was sold at US $ 6.43 per piece, up by 23.30 per cent from the world average of US $ 5.22 even if Turkey took home the highest at US $ 15.84, which is a staggering 203.60 per cent higher than the global average. Likewise, men’s cotton T-shirts manufactured in Bangladesh fetched US $ 1.47 per piece, around 23.10 per cent higher than the global average of US $ 1 even as Peru netted the highest among the suppliers from around the world at a price tag of US $ 8.46 per piece.
Figuring out the reasons behind the falling price points
“The problem is not that customers are paying these factories less, but rather customers are paying everyone else more,” underlined the ITC report, the study for which was conducted using data from the Office of Textiles and Apparel of the US even as it analysed the statistics of Bangladesh’s 10 most important export items for 2020, comparing their FOB prices with those of their 10 biggest competitors, for each product.
Trying to figure out the reasons, the President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Faruque Hassan, partly blamed the major share of the basic products in Bangladesh’s export ensemble,for the lower prices paid.
Reports claim Bangladesh produces mostly cotton-based items and exports bulk of the products in five key items including trousers, shirts, sweaters, etc., even though many garment makers are now giving more attention on producing critical and value-added items like lingerie, swimwear, sportswear, etc., to move up the value chain and command better prices.
“Bangladesh has improved a lot in terms of quality, product diversity and compliances in recent years,”underlined Faruque on a positive note.
Meanwhile, the ITC report claimed garment making has evolved from just cut and stitch into a complex service industry while adding the actual cut and sewing operations are the simplest and least remunerated tasks.
Giving an example of how the industry has evolved, ITC report maintained the first-generation garment producers in many Asian hubs like Hong Kong, Singapore and Seoul have transformed from simple product makers to multinationals and they operate globally and invest in engineering, advanced information technology and cutting-edge technology.
In comparison, most small and medium-sized garment manufacturers in the developing countries, and especially in the least-developed countries, have not adapted to this changing trend and they still remain focused on simple cut and sewing operations, providing only a few services while producing commodity-type garments, the report held.
“They may not know how to develop their services and doubt their customers would pay for them,” claimed the report while urging the companies to expand their services to stay in the game.
Price-points – a long-standing concern!
Comparison with the competing countries or not, Bangladesh has been at the receiving end of the faltering price points for long.
Despite increased oversight and various initiatives like the Alliance for Bangladesh Worker Safety and the Accord on Fire and Building Safety, prices of Bangladesh-made apparel items continued to fall, claimed a media report in 2019 while adding the falling prices come even though the prices of cotton, which is the main raw material for nearly 90 per cent of the garments coming out of Bangladesh, have increased.
It added, for instance, in 2013, a dozen pairs of Bangladesh-manufactured cotton trousers sold for US $ 62.26, citing the findings of Pennsylvania State University researcher Mark Anner while adding that in 2017, the same quantity of pants were available for cheaper price: US $ 54.29 per dozen to be precise, marking a 12.8 per cent drop in just five years.
“Although the prices of cotton increased during [some of] this time,” along with the general cost of production, which increased by 30 percent between 2014 and 2018, “the prices of Bangladeshi-made garment items went down,” Anner held, adding that “international retailers did not” – or maybe better yet, would not – pay a higher price to local manufacturers and exporters.
“As an industry, we have been over-aggressive about price quotes in order to secure business from Western brands and retailers,” underlined then the ex-BGMEA President Rubana Huq,in the meanwhile adding, “It’s natural for buyers to take advantage of it.”
“As a readymade garment manufacturing hub, we have been trapped in a spiral of declining unit prices for years. There are many theories as to why it is so. People often make the link between the end price of clothing and the prices paid to apparel makers. It is also argued that too many suppliers are chasing too many buyers in Bangladesh, and that these supply-demand dynamics force the prices downwards—with buyers taking advantage of the market situation,” claimed an apparel exporter speaking to Apparel Resources (AR) recently, adding, “I believe there is some truth in both these theories. However, perhaps it is time to start looking inwards as garment manufacturers if we wish to resolve this issue for the benefit of all.”
Many in the industry also accepted that despite robust demands at times, there is a tendency amongst some industry players to offer products that are way below the prevailing market rates just to bag orders.
The ITC report has only just unravelled another aspect to the same (price points) vis-a-vis Bangladesh’s standing as compared to the FOB price commanded by other countries that are considered Bangladesh’s competitors.
What is the solution then?
“It is true that the prices of garment items made in Bangladesh are a bit lower compared to those in other countries and the average world price because local manufacturers are still strong in basic garment items,” meanwhile observed a representative of a major European retailer based in Dhaka hinting it’s time they moved up the value chain, but not before, “A hidden unhealthy competition has also kept the prices of the items lower.”
Excess capacity, like in the denim segment, is another reason for falling prices at least when it comes to denim offerings, maintained the person concerned to give another example of the various reasons behind price-points of ‘Made in Bangladesh’ apparel failing to make much of an improvement.
As it would have been, exporters are mulling setting up minimum prices for garments to ensure fair prices to survive the intense competition while coping with the rising production cost.
Meanwhile, interacting with AR, many industry players complained about not getting a fair price for apparel items for a long time even as they added competition among entrepreneurs within countries has further made buyers indifferent towards paying fair prices.
“In order to compete amongst themselves, exporters have installed costly machines with higher efficiencies and higher production capacities but in the absence of sufficient orders, exporters have to take orders even at breakeven to pay workers’ wages and utility bills, to be in the business,” claimed an apparel exporter while alleging foreign buyers of exploiting the existing situation.
With production cost going up further, thanks to rising cost of raw materials, LNG and increased transportation cost, a new dimension is added to the issue of price points now.
It has thus become imperative to set a base ceiling, claimed the industry people speaking to AR even as the ITC report called for implementing an all-inclusive costing, which it underlined was an ‘essential step’ towards commanding better price points .
“Accurate costing and valuing is the first step towards moving up the value chain. Without that, the all-important business case cannot be made,” signed off the report with a welcome suggestion.