Chinese factories turn to Bangladesh as labour costs rise

Bangladesh hopes lower labour costs will attract more orders from China

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There is a spring in the step of Syed Faizul Ahsan as he walks through the floor of his garments factory outside the Bangladeshi capital, Dhaka.

Hundreds of workers, most of them women from rural areas, are busy making sweaters for an overseas client.

The setting may well be similar to any one of the thousands of such factories in Bangladesh, but one thing makes Mr Ahsan's unit stand out.

The sweaters made in his unit are not heading to the US or eurozone, the two biggest markets for Bangladesh's garment exports, but to China.

Growing orders from mainland China mean that Mr Ahsan can breathe easy despite the slowdown in demand from the US and eurozone.

"A few years ago only 5% of my factory output was for the Chinese market. Now it has gone up to 20%," he says.

He expects that number to increase further in the coming years.

Labour cost

It may sound strange that Chinese firms are turning to Bangladesh to make clothes, not least because China is the global leader in clothing manufacturing and exports.

Start Quote

Rosa Dada

In Bangladesh the average monthly salary for garments workers is only around $70 to $100. If I produce here, price is much more competitive”

End Quote Rosa Dada Four Seasons Fashion Limited

But the shift is happening for very obvious reasons.

Rosa Dada of Four Seasons Fashion Limited, a Chinese garments manufacturer, says factories in China are not competitive anymore because of increasing wages of labourers and a sharp hike in overall production costs.

Ms Dada has been running a garments factory in the Chinese port city of Ningbo for nearly two decades.

"In my factory in China, the salary of workers has been increasing steadily over the last few years," she told me during her recent visit to Bangladesh to look for opportunities here.

"It has reached around $400 to $500 (£250 - £315) a month per worker. If I continue to produce there, our business will disappear.

"In Bangladesh the average monthly salary for garments workers is only around $70 to $100. If I produce here, price is much more competitive."

She has already opened an office in Dhaka and is not only looking to order clothes for her own firm but is also involved in getting other Chinese online retailers to source from Bangladesh.

Chinese manufacturers say if they source clothes from Bangladesh, prices can come down by 10% to 15% depending on the category.

'A new beginning'

Bangladesh garment exporters say the other advantage they enjoy is that more than 90% per cent of their products, such as T-shirts, jeans, sweaters and casual trousers enjoy duty free access to the Chinese market.

The combination of lower labour costs and duty free access means that orders from China are likely to receive a boost in the coming years.

Workers at Mr Ahsan's factory in Bangladesh An increase in Chinese orders may help offset the decline in demand from the US and eurozone

Bangladeshi clothing exports to China jumped to more than $100m last year, from $19m a few years ago.

It is a modest beginning but Bangladeshi factory owners expect the shipments of ready-made clothes to China to go up to $500m in the next five years.

According to Chinese media reports, Vancl, China's largest online clothing retailer, has already shifted a portion of its shirts and casual trousers orders to Bangladeshi factories.

Meanwhile, western fashion brands such as Ocean and H&M are also making clothes for Chinese customers in Bangladeshi factories.

"I think it marks a new beginning for our exports," Siddiqur Rahman, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), tells the BBC.

"At a time when western economies are going through recession, Asian countries like China, Japan and India are opening up for us."

Potential pitfalls

While there is tremendous opportunity for growth, there are fears that this potential may remain unfulfilled.

Start Quote

Our prices are low. That's why big western fashion brands are coming here. If they increase their buying price, we will also increase our salary to the workers”

End Quote Md Siddiqur Rahman BGMEA

Bangladesh's creaky infrastructure and political instability have been a major concern for the clothing manufacturers.

In addition, there have been violent labour protests in recent months with workers demanding better wages and conditions.

Labour activists say Bangladeshi clothes manufacturing workers are among the lowest paid in the world for this type of work.

The killing of a prominent labour activist, Aminul Islam, earlier this year has only added to the insecurity among the factory workers.

Following an outcry by western campaign groups over wages, major global retailers like Walmart and GAP have urged the country's factories to increase salaries.

But Bangladeshi business leaders are defiant saying they have recently hiked up wages in the sector and warn that any further increase may damage its competitiveness.

"Our prices are low. That's why big western fashion brands are coming here. If they increase their buying price, we will also increase our salary to the workers," Mr Rahman says.

But as the country attempts to gain ground as a lower-cost alternative to China, local workers' conditions will come under increasing scrutiny.

Industry players will have to find the right balance between maintaining competitiveness, meeting labour demands and keeping their buyers satisfied.

That may prove to be the toughest test for the sector yet.

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