Since 2015, Vietnam has started pursuing different strategies to beat Bangladesh
Ready-made garments (RMG), a 40-year-old industry, began in Bangladesh without a proper plan in the 1980s. Since then, the industry has grown up through a lot of hurdles, with regulations being a primary concern. The industry learnt from its mistakes. It has, from time to time, addressed some critical issues that have caused grave concern in the national and international media.
The industry appeared to be moving along smoothly until a few days back when the RMG sector lost its position as the second-largest apparel manufacturer in thr world to Vietnam. This is a worry for us all as the single sector generates more than 84 percent of national export earnings.
The micro and macroeconomy of Bangladesh depends mostly on this industry. Millions of workers are directly and indirectly involved in the RMG sector. The engagement of 80 percent of women workers has made this industry more critical for socio-economic development and women empowerment.
Vietnam surpassed Bangladesh in ready-made garments exports in the first five months of the current calendar year. According to the World Trade Organisation (WTO), in the last calendar year of 2019, Bangladesh was the second-largest garment exporter after China.
According to data compiled from various sources, Vietnam exported garments products worth $10.50 billion from January to May 2020, while Bangladesh's export was of $9.68 billion at the same time.
Historically, RMG is a portable business that has never been through stagnant or stable production. With little capital and technical support, sweatshops have been a compact business for the last hundred years.
In the previous century, migrant workers in the United States faced brutalities in factories. A century later, RMG workers in Bangladesh have been facing the same fate. Between the Triangle Shirtwaist factory fire and the Rana Plaza building collapse (1911-2013), the industry did not change much in its manufacturing practices around the world.
Theoretically and from productivity concerns, low wage cannot be the ultimate tool to attract international buyers. Due to the inadequate level of trade union participation in RMG factories, meagre wages were the primary weapon to attract foreign investors in the Bangladeshi RMG. However, scholars have been calling for a long time to change this strategy and invent a suitable way to attract more foreign investors to Bangladesh.
But this did not happen. As such, Bangladesh's RMG sector has received negative media coverage around the world, which has tarnished the industry's reputation for violating ILO conventions and national labour laws while conducting operations.
Now the question is, why is Vietnam becoming so competitive in the world market?
Since 2015, Vietnam has started pursuing different strategies to beat Bangladesh. Vietnam looked to diversify its product line and look for different unique options beyond traditional themed products, which was a reason behind their success.
Officials in Vietnam are aiming to boost their economy by 7 percent this year, at a faster rate than the world's factory powerhouse China. This mainly happened because of investment in manufacturing, lack of trade disputes and the rise of a middle class in Vietnam.
According to the Asian Development Bank (ADB), a 7 percent performance among the ten fastest-growing economies in Asia this year will put Vietnam ahead of China. The ADB has forecasted a 6 percent increase in China's GDP.
Vietnam has found a reliable business network between the Western and European belts. They also did not strategically forget to build good relations with their neighbours, but Bangladesh is lagging in this regard.
Regional investors from Japan, Singapore, South Korea and Taiwan have stabilised Vietnam's production and service sector. Their Vietnamese factories produce garments and auto parts as well as consumer electronics. In the first half of 2019, foreign-invested projects accounted for about $9.1 billion in allocations, up about 8 percent from the same period in 2018.
Vietnam is reaping the benefits of a modern and outstanding era of development of educational institutions due to massive capital injections and the right policies. Yet, their infrastructural development is also an important factor for investors. Their port facilities are far ahead of Bangladesh.
On top of that, the Vietnamese are more skilled in information technology and other technologies, and their digital infrastructure is more stable and adequate than in Bangladesh. The recent development of e-commerce business has made Vietnam even more successful.
Most importantly, their organisations are built on a democratic process, and citizens are getting support from organisations to increase productivity. In contrast, Bangladeshi institutions lag behind in providing appropriate services to the citizens of the state.
Geographically, they are in a much better position. It takes very little time to supply products to Western and European markets, as well as regional destinations. Their shipments are also carried from time to time through both aviation and marine cargo.
Foreign investors left Chinese shores before the trade war between the USA and China began. China is still widely known as the world's factory hub, but labour and land prices continue to rise. Thus, Vietnam became the most favourable destination for foreign investors. Many Chinese investors are investing in Vietnam's RMG sector, which has yielded positive results.
During the Covid-19 pandemic Vietnamese factories did not have to close for a month like Bangladesh.
After analysing the current situation, I will offer the following suggestions to Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh government to follow:
The BGMEA must adopt a different strategy for the challenges that RMG is facing now. Most importantly, BGMEA should hire international academics as advocates and negotiators with international apparel buyers for sustainable business. The industry needs more talented experts.
The experts can analyse the situation through appropriate theoretical frameworks and provide advice on current and future trends in the business. The BGMEA must commission some theoretical analysis through accredited academics who can give better advice on the next steps to follow. Some of the frameworks are PESTLE, SWOT, Porters Five Forces, VRIN analysis etc.
The BGMEA needs to create their own fashion houses and brands like Zara, H&M - this is not impossible with 40 years of experience in the international market and our own supply chains, like Walmart and big GSCs, should be developed.
A unique market and product needs to be explored rather than depending on the traditional market and products. The BGMEA needs to find a long term relationship with a big organisation like Walmart, H&M, Zara and persuade them to build big factories in Bangladesh. However, small organisations can also be targeted.
Establishing an e-commerce network and bringing successful businesses like Alibaba, Amazon, etc. as a stakeholder could be helpful. The BGMEA needs to encourage small scale production for small companies around the world through a new marketing channel. Institutional development is a must, which will provide adequate services to domestic and international traders fast, or as a one-stop service centre.
Good governance must be ensured through authentic monitoring system. Above all, the wages of the workers must be increased. A loyal worker can be more productive and make the industry more sustainable.
Asm Anamullah is an Australian academic.