Garment Export: Bangladesh gets up to 83% lower price than rivals

International buyers are consistently paying lower than the global average price to apparel suppliers in Bangladesh but higher to some of the country's competitors, according to the International Trade Centre (ITC).

In fact, local garment manufacturers receive rates that are 32 per cent to 83 per cent lower than the highest prices paid to the suppliers in other countries. 

This validates, for the first time, Bangladeshi garment manufacturers' claims about receiving lower prices from global buyers and underscores the importance of moving up the value chain.

In a study report -- The Garment Costing Guide for small firms in value chains – published in August, 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 data is clear and many factories have been forced to close because of the lower FOB prices."

"The conclusion is that the fault lies with the customers and therefore, they should be forced to pay a higher FOB price,"

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).

Bangladesh is the second-largest apparel supplier in the world, behind China, bringing home $42.61 billion in the last fiscal year.

Geneva-based ITC is a multilateral agency and has a joint mandate with the World Trade Organisation and the United Nations through the United Nations Conference on Trade and Development.

The ITC said it looked at the problem using a cost-to-value analysis and saw a different picture.

"The problem is not that customers are paying these factories less, but rather customers are paying everyone else more."

"The data is equally clear: customers pay a lower price because the value provided by the failing factories is worthless," it said.

The ITC conducted the study using data from the Office of Textiles and Apparel of the US.

It analysed the data of Bangladesh's 10 most important export items for 2020, comparing their FOB prices with those of their 10 biggest competitors for each product.

In each case, supplying countries such as Bangladesh, Pakistan, and Cambodia are consistently paid lower than the world average prices, whereas Vietnam, Indonesia, Turkey and Mexico are given higher than the average rates.

"They are willing to pay higher prices to some countries but rather less to supplying countries that are unable to meet their needs," the ITC said.

For instance, men's woven cotton trousers made in Bangladesh were sold for $7.01 per piece in 2020, which was 9.20 per cent below the global average of $7.72.

Vietnam received $10.76 per piece while Sri Lankan and Indian exporters got $8 and $8.41, respectively, for the same product.

Similarly, the locally made men's cotton jeans were sold at $7.81 apiece, again 7.20 per cent down from the global average of $8.41. Vietnam received $11.55 by selling a similar item.

Only two products -- women's cotton trousers and men's cotton T-shirts – manufactured in Bangladesh brought home a price that was slightly higher than the global average.

Made-in-Bangladesh women's cotton trouser was sold at $6.43 per piece, up 23.30 per cent from the world average of $5.22.

Turkey took home the highest at $15.84, a staggering 203.60 per cent higher than the global average.

Men's cotton T-shirts fetched $1.47 per piece for Bangladesh, which was 23.10 per cent higher than the global average of $1. Peru netted $8.46, the highest among the suppliers around the world.

Woven cotton jackets brought $10.10 per piece, which was 0.70 per cent below the global average. Thailand received $48.86 and Mexico got $34.11, the ITC study said.

A bra made in Bangladesh from man-made fibre was sold at $3.19 per unit, which is 18 per cent below the international average. Vietnam got $6.06.

According to the study report, garment manufacturing has evolved from a simple manufacturing operation into a complex service industry.

The actual cut and sewing operations are the simplest and least remunerated tasks.

First-generation garment producers in Asian cities such as 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.

Yet most small and medium-sized garment manufacturers in developing countries, and especially least-developed countries, have not adapted to this changing industry and they remain focused on simple cut and sewing operations, provide few services and produce commodity-type garments.

"They may not know how to develop their services and doubt their customers would pay for them," said the ITC.

The multilateral agency urged the companies to expand their services to stay in business.

"All-inclusive costing is an essential step for this expansion. Accurate costing and valuing is the first step to moving up the value chain. Without that, the all-important business case cannot be made."

"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," said a major European retailer in Dhaka.

For instance, Bangladesh's 80 per cent of garment items are still confined to five cotton-made items and it has the problem of over-capacity.

"So, a hidden unhealthy competition has also kept the prices of the items lower," he said.

The retailer noted that there is excess capacity in the denim segment, so the price is falling.

Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association, partly blamed the major share of the basic products in the export basket for the lower prices paid to Bangladesh.

Other obstacles, listed by the entrepreneur, include poor infrastructure and longer lead time.

"Bangladesh has improved a lot in quality, product diversity and compliances in recent years," he said, however.

Refayet Ullah Mirdha/ The Daily Star