Bangladesh’s ready-made garment (RMG) exports reached approximately $36.13 billion in the last fiscal year, according to the latest data. Over the past three decades, the country’s RMG exports have grown 24 times. The sector employs over 3.3 million workers and contributes the largest share of the nation’s export earnings. However, its portfolio remains concentrated in a few markets and mainly comprises low-value products.
For years, the country’s RMG exports have concentrated mainly on five sectors— trousers, T-shirts and knitted shirts, sweaters, shirts and blouses, and underwear— all of which are low-value products. Experts say that the market for basic products in the RMG sector is shrinking globally while the demand for lifestyle, fashion, and high-value products is rising. Bangladesh lags behind its competitors in this segment, particularly in the manmade fiber sector. Only 10-15 companies have successfully diversified into these products across the country, and of those, just 5-6 operate on a large scale, each generating business worth 20 to 30 billion taka.
Bangladesh must explore numerous untapped markets beyond the European Union (EU) and the United States. Penetrating these markets will require substantial investment, much of which could come from foreign direct investment (FDI).
The recent political transition in the country led to a certain level of instability. However, the challenges the RMG sector is facing are not new. The industry struggles with limited product and market diversification, and the production of high-value products remains low. Implementing Environmental, Social, and Governance (ESG) regulations is also getting tougher. But the potential for improvement and growth in these areas is never less.
Harder ESG regulations
The global RMG industry is undergoing a transformative phase driven by evolving market dynamics, rigorous ESG regulations, and the advancement of automation. These developments push industry players to adapt rapidly in an increasingly complex and demanding market. Recent market dynamics also indicate a shift in consumer behavior, with a growing preference for sustainable and ethically produced garments. This change is driven by increased awareness of environmental and social issues, leading consumers to demand greater transparency in the supply chain.
The EU Commission recently introduced new ESG regulations, though haven’t been implemented yet, which is considered one of the most significant developments in the global RMG industry. These rules are designed to ensure that garments are produced in a manner that is environmentally sustainable, socially responsible, and governed by ethical business practices.
Economist M Masrur Reaz, the chairman and founder of Policy Exchange Bangladesh, a research organization focusing on applied economic policy, said to Industry Insider that ESG regulation has brought challenges and opportunities.
“The global RMG industry stands at a crossroads, with market dynamics, ESG regulations, and automation driving the need for adaptation. Companies that can effectively navigate these challenges will be better positioned to thrive,” he said.
Major global retailers and fashion brands now impose these conditions on their suppliers, pushing for greater accountability and transparency in production processes. For instance, companies are increasingly required to reduce their carbon footprint by adopting sustainable manufacturing practices.
Positive impacts can be seen in Bangladesh, such as adopting energy-efficient technologies, reducing water usage, minimizing waste, etc. The number of environmentally friendly (LEED-certified) factories in the country is gradually increasing. As of September, 229 factories have achieved eco-friendly certification from the U.S. Green Building Council (USGBC). Currently, 56 of the world’s top 100 and 9 of the world’s top 10 eco-friendly factories are in Bangladesh.
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), 91 eco-friendly factories hold platinum certification, 124 factories hold gold certification, 10 have silver, and 4 have certified status.
Mohiuddin Rubel, a BGMEA director and AMD of Denim Expert Limited emphasized that sustainability has become essential for the RMG sector’s continued growth rather than just an option. He said, “The global demand for sustainable and ethically produced garments is increasing, driven by consumers who are more aware of the environmental impact of their purchases. International regulations, like the EU Green Deal, establish new sustainability standards that will eventually affect all countries, including Bangladesh.”
However, Masrur Reaz believes that Bangladesh is still lagging in global market competitiveness. He pointed out that the quality and standards of our products, which could compete internationally, are not up to the mark. Global buyers are increasingly prioritizing ESG, an area where we are not adequately prepared. Failure to meet these standards can result in loss of business with key global players, damaging reputations, and potential legal repercussions, he added.
“Global buyers are increasingly prioritizing ESG, an area where we are not adequately prepared. The ESG regulation has brought both challenges and opportunities,” M Masrur Reaz, Chairman, Policy Exchange Bangladesh
In parallel with the rise of ESG standards, the RMG industry is witnessing a significant shift towards automation. Integrating advanced technologies such as robotics and artificial intelligence (AI) offers several benefits, including increased efficiency, reduced labor costs, and improved product quality.
However, it also has challenges. For many manufacturers in developing countries, the high initial investment required for automation can be a barrier. There is growing concern about the potential job losses resulting from increased automation.
Experts suggest that Bangladesh’s export-oriented industries, particularly the RMG sector, must enhance their competitiveness in the international market by maintaining ethical production practices and improving quality control as the country prepares to be promoted from Least Developed Country (LDC) status.
Over the past decade, improvement efforts in safety, health, and human resource management in the RMG sector have been remarkable. The industry has focused on ensuring compliance by considering social and environmental factors witnessing positive changes, including improved occupational safety, enhanced worker health protection, reduced accident risks, better compensation arrangements, and overall development of institutional standards. However, despite those positive advancements, entrepreneurs in this sector often lament that Bangladesh receives minimal or no additional benefits from its compliance efforts.
Diversifying the market is crucial
Our RMG sector is heavily dependent on a few markets, which eventually affect export earnings. Approximately 90% of the country’s RMG products are exported to North America and EU countries.
Masrur Reaz remarked, “We have largely failed to diversify the export sector and raw material imports due to the absence of a comprehensive diversification strategy. Additionally, the quality and standards of our products are insufficient for competing effectively in the global market.”
For example, Bangladesh’s garment exports to the U.S. market have been steadily declining, with a 25 percent drop in exports last year. This downward trend continues into the current year. In the first three months of this year, Bangladesh exported ready-made garments worth $176 million to the U.S., a decrease of 17.68 percent compared to the same period last year. However, the Export Promotion Bureau (EPB) has yet to release export data for the past few months.
Masrur Reaz identified two key risks in this situation. First, the country’s heavy reliance on the RMG sector means any decline or negative shift in the global market could significantly impact it, potentially leading to a substantial decrease in exports. Second, the current state of the RMG sector alone is insufficient to generate the necessary investment, export growth, and employment opportunities for the country.
Likewise, raw material imports are restricted to a few countries, notably China. The Tariff Commission of Bangladesh reports that 60 percent of woven garment textiles are sourced from China, which also supplies 15 to 20 percent of the raw materials and dyeing chemicals for knitwear. This heavy reliance on a single country poses a risk to the industry, particularly if geopolitical tensions or situations like the COVID-19 pandemic arise. As we know, the ongoing trade disputes between major economies, such as the U.S. and China, have also led to disruptions in the supply chain, prompting manufacturers to diversify their sourcing strategies.
Following our graduation from LDC status, we may lose GSP benefits. Therefore, we need to target new markets, including Asian countries such as Australia, Japan, China, India, and Latin American nations. These regions have significant untapped potential. Bangladesh should enhance export promotion and develop effective market positioning strategies for these areas.
Shovon Islam, a director of BGMEA and the Managing Director of Sparrow Group, said Bangladesh has significant opportunities to diversify into new, value-added products and markets.
“To enter larger markets, we need not only to diversify products and markets but also to develop a skilled workforce,” Shovon Islam, Managing Director, Sparrow Group
Bangladesh is still far from transitioning to high-end products (HEP). Cotton-based basic products comprise nearly 65-70 percent of the country’s total RMG output. However, the market for these basic items is gradually shrinking as people’s lifestyles improve and they increasingly seek out more fashionable, high-end clothing.
Bangladesh must focus on producing high-end, branded, and fashion-forward products with added value. Competitors like China, India, Sri Lanka, and Vietnam have shifted from low-end to high-end manufacturing and are now commanding premium prices from global brands. The demand for high fashion is significant, while competition remains relatively low. Because producing high-fashion items requires specialized expertise, manufacturers can negotiate more favorable terms with buyers.
Shovon Islam told Industry Insider that high-end products are being manufactured in Bangladesh, but only a limited number of factories have managed to do so. Most high-end clothing is made from man-made fibers, yet only 30 percent of our products use these materials. More than 50 percent of the products made by my company are diversified, and they are all high-value additions.
To move towards high-end products, we need both man-made fibers and fabrics. Bangladesh produces cotton fabric, along with twill and stretch or elastane fabrics. However, our cotton fabrics still lack a fine finish. Regarding man-made fibers, which are petrochemical-based, our capabilities are almost non-existent. One must also think about creating the backward linkage industry required for manufacturing high-end products.
Dr. Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), said, “We have not yet developed the necessary skills to produce man-made fibers domestically, so we must import them to meet demand. This remains our biggest challenge. Although there has been progress in areas like sportswear and outerwear, with Bangladesh starting to manufacture these products, the advancement is still modest, but there are promising trends.”
“Establishing a strong relationship with fashion designers and branding experts is crucial for entering the high-end market. Major brands like Hugo Boss and Zara, for example, work closely with fashion designers to achieve their distinctive styles,” Mr. Razzaque added.
Challenges in transitioning to HEP
Both industry stakeholders and experts have emphasized the need to increase domestic capacity in man-made fiber production, which requires substantial investment. Securing domestic investment is challenging, especially during the country’s macroeconomic crisis. A potential solution could be foreign direct investment (FDI).
Here, Dr. Razzaque pointed out two key issues with domestic investment. First, the overall investment climate in the country is generally weak. Second, local entrepreneurs have historically been resistant to foreign investment in the garment sector, which has not benefited the country.
We can see India as an example, where entrepreneurs have successfully raised significant investments from the local capital market. However, Bangladesh’s capital market is fragile. This means we cannot secure the necessary financing from the capital market or obtain loans from local banks to build the required factories, as it would require billions of money. Since raising such funds domestically is not feasible, we must attract FDI, particularly from countries like China and Korea, which excel in man-made fiber production.
There are some other things to consider. You will notice some distinct differences if you examine any garment product from any of the world’s top brands. The sewing techniques used are advanced. While we can do such work, it requires highly skilled personnel, and we currently have a significant weakness in this area.
Sparrow Group MD Shovon Islam says investing in human resources should be prioritized alongside investing in factories. Bangladesh faces a shortage of skilled workers, as the current education system does not adequately produce them. Companies manufacturing high-end products often bring technicians from countries like India, Indonesia, Sri Lanka, and the Philippines. To enter larger markets, we need to diversify products and markets and develop a skilled workforce.
What we want
Following the student movement, the Awami League government was ousted on August 5, 2024. The country is now being led by an interim government headed by Nobel laureate Professor Dr. Muhammad Yunus. However, the law and order situation, which deteriorated with the fall of the previous government, has yet to be fully addressed. This uncertainty is causing concern among industrial owners, exporters, and foreign buyers.
Entrepreneurs note that over the past 16 years, the country has been under an autocracy characterized by an underlying sense of fear, limited freedom of speech, bureaucratic constraints on traders, and harassment of customs and bonds. These situations are now expected to improve under the interim government.
“Professor Dr. Yunus has global recognition and is highly capable. This could significantly enhance Bangladesh’s brand image and strengthen our position in the global market,” Dr. Mohammad Abdur Razzaque, Chairman, RAPID
“The next six months are crucial for us,” remarked Mr. Shovon Islam, “if we achieve stability during this period, it will be a significant success. Given our current situation, we have the opportunity to create a much better Bangladesh than before.”
The country’s RMG sector is not receiving the priority it requires. Some argue that, after 40 years, additional opportunities or incentives are unnecessary. However, it’s important to recognize that this sector still has significant potential for diversification. This could enable us to enter new markets and explore new product categories, making our goal of reaching $100 billion in garment exports achievable.
Shafiqul Islam is a Bangladeshi business journalist and contributing writer. He specializes in small business enterprises, startups, investment, credit, sustainability, recycling businesses, and trade bodies.
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