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Bangladeshi RMG still yields more profit to retailers: Sourcing from China being reduced, says survey

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Workers in action

Despite recent deadly industrial disasters that have put the reputation of the country at risk, Bangladesh still remains the biggest source of profit for retailers of readymade garments (RMG), according to a leading business consulting firm.

Bangladesh is a magnet for global retailers due to a large number of garment factories and low minimum wages though the country suffered more industrial disasters than any other garment-producing country, revealed a new study by consulting firm McKinsey & Co.

Eighty per cent of the retailers participating in the survey plan reducing their sourcing from China in the next five years, primarily because of rising labour costs, the study said.

The New York-based McKinsey & Company, Inc. is a global management consulting firm that focuses on solving issues of concern to senior management.

The $20 billion garment business of the country has come out ahead of smaller rivals Vietnam and Cambodia in the ranking of countries with the highest potential for future sourcing, the study said.

“Bangladesh is still number 1,” says Achim Berg, a partner in McKinsey’s German office, and the author of the study. “Recent events present a challenge for everyone, but there’s no alternative for doing big production volumes.”

The new research shows that production capacity and price appear to trump safety and labour when it comes to choosing where to source clothes, said the study published by The Wall Street Journal on Monday.

Retailers including Hennes & Mauritz AB, Wal-Mart Stores Inc., Gap Inc. and Zara Parent Inditex SA are grappling with how the public perceives their role in the problems of Bangladesh. Labour unions have pointed fingers at retailers for turning a blind eye to safety violations in factories.

The companies have formed safety pacts aimed at improving working conditions, which also help improve their image.

For now, China remains the world’s largest garment producer by far, with more than $150 billion in annual exports. But its minimum wage is four times the $39 monthly base rate of Bangladesh, the study said.

Bangladesh is tied with Italy for the number 2 spot for current exports; Italy is historically a major producer of fashion and accessories but is declining in importance.

Mr. Berg conducted his poll of 29 European and American retailers representing global sourcing volume of $40 billion in July and August, not long after the April collapse of the Rana Plaza factory building near Dhaka, which killed more than 1,100 workers.

The collapse-the latest and most deadly in a string of disasters-forced many retailers to reconsider their sourcing. Some, such as Walt Disney Co, are withdrawing from Bangladesh.

The South Asian nation has plenty of drawbacks and the retailers are facing safety compliance issues and labour unrest, the McKinsey study showed.

Massive strikes that delay garment production and deliveries are increasing ahead of a national election in the coming months. In addition, the Bangladeshi government has committed to raising the minimum wage, meaning labour costs could increase there too.

However, retailers are hoping that Myanmar, Bangladesh’s poor neighbour, could grab a share of global garment production.

In the McKinsey survey, surprisingly Myanmar emerged as the country with the fourth most potential, after Bangladesh, Vietnam and Cambodia, says Mr. Berg.

He says the finding represents “pure desperation and hope” rather than a realistic expectation that the rural country will become a significant manufacturer any time soon, since there are very few factories or trained seamstresses.

Other potential emerging manufacturing countries, such as Haiti and Ethiopia, where H&M has been looking to build production, are still so marginal they don’t register on the survey.

Bangladesh counts about 5,000 factories, more than double the number in Vietnam and 20 times as many as in Indonesia. But even with such large capacity, midsize retailers are getting shut out of the country. “The big players bundle their volumes with fewer suppliers and as a consequence block up whole factories,” says Mr. Berg.

Published : Wednesday, 18 September 2013: FE Report

Source : http://www.thefinancialexpress-bd.com

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