Friday, March 22, 2013
Bangladesh Political Riots Threaten Booming Textile, Apparel Exports
BIMAN MUKHERJI contributed from
TROUBLES IN Bangladesh are beginning to spoil its reputation among foreign companies that had flooded into the country—and are highlighting risks to investors looking for new manufacturing bases cheaper than China.
An upswing in the past few years that had lifted this impoverished South Asian nation into one of the world's top clothing exporters now risks slipping through its fingers after a series of tumultuous events.
Violent protests this month over the sentencing of three Islamist opposition leaders for war crimes during
1971 war of independence have led to at least 60 deaths and widespread strikes. Bangladesh
The protests come on the heels of two apparel factory fires, one in November and a smaller one in January, which killed a combined 119 garment workers and attracted widespread negative press overseas. Rights groups said the fires reflected sometimes-dangerous working conditions and lax enforcement of labor standards in an economy that has become a major supplier to American and European retailers.
Now, some companies are speaking of the country in the past tense.
was a good place to do
business. But you have to read the political trends in the world," says
Christophe Roussel, chief executive for global nonfood sourcing and logistics
at Tesco Corp., the world's
third-largest retailer after Wal-Mart Stores Inc. and Carrefour SA. Bangladesh
"We are already moving away from
Bangladesh," adds Veit Geise, vice
president for sourcing at VF Corp., a ,
company that owns brands such as Wrangler, Timberland and Nautica. "How
many eggs do you want in a basket that's basically a powder keg?" Both men
were speaking at a meeting of supply-chain executives about sourcing goods in
Asia sponsored by the French Chamber of Commerce in Greensboro, N.C. Hong
It isn't the first time pessimism arises around
Bangladesh's garment industry; in 2005, the
lifting of textile quotas fed worries that smaller garment-producing countries
would be crushed by 's
greater ability to export. But despite such concerns, China 's
exports have continued to increase. According to data supplied by Bangladesh 's
Export Promotion Bureau, garment exports grew by more than 10% in the first
eight months of the fiscal year ending in June, helped by diversification into
emerging markets. Bangladesh
Any effects of concerns around the recent volatility won't be seen for a while. Nevertheless, in the latest period, exports to traditional markets in Europe and
slowed to a combined growth of around 5% from a year earlier. Analysts say this
may be a reflection of nervousness among the world's largest retailers due to
sluggish economies as well as a reluctance to risk shipment delays.
The latest unrest ignited Feb. 5 when a war-crimes tribunal sentenced a senior Islamist politician to life in prison. Two other opposition figures have been sentenced to death, sparking what many have called
worst riots since independence from . Local producers say they
also are suffering from the turmoil. Pakistan
"We are badly hit," says Rubana Huq, managing director of garment exporter Mohammadi Group. "Thousands of trucks carrying goods to
port have been burned or damaged during strikes in the last two weeks.
Manufacturers are chartering cargo aircrafts to make up for lost time. The
country's image has been badly damaged." Chittagong
But what many companies have found is that countries like Bangladesh—which seem like alternatives to China, including Cambodia, Vietnam and Indonesia— have their own obstacles. While salaries might be lower, political instability, poor infrastructure, recurring strikes and labor-law complexities can add their own costs.
's deep supply-chain network
is hard to replicate quickly elsewhere, making it difficult for some factory owners
to move. Nike Inc. recently said only eight
of the 896 factories it worked with in 2011 were in China as it reduces its
exposure to countries presenting reputational risks. Bangladesh
That means there could be a limit to how much production actually leaves
in the coming years, economists say. China
wiped out Korea's textile
industry, Bangladesh or Cambodia won't wipe out China's," says Ben Simpfendorfer of Silk
Road Economics in Hong Kong.
Tesco has already moved aggressively to diversify its sources of goods away from
. The low-price retailer has
reduced its reliance on Chinese factories from about 80% of its goods a few
years ago to 60% today, Mr. Roussel said, with Bangladesh playing a big role in
that transition. But after recent volatility in the country, Tesco is thinking
twice. "We were overloaded in China ," he said.
"It's not about the conditions in the factory; it's the country
Tesco is looking for manufacturing sites closer to its core European markets, such as
Eastern Europe and Africa. But China will remain its biggest supplier, he says,
will remain dominant in industries such as toys and electronics. China
Any further loss of investor interest in
Bangladesh would mark a big lost opportunity for
the country, which remains one of the poorest in Asia,
with a per capita gross domestic product of less than $2,000 and a history of
What it does have going for it is a large population, with most of its 150 million people of working age, and relatively low wages, which helped fuel a manufacturing boom centered around garment making. After years of rapid growth,
clothing exports have hit close to $20 billion, nearly as much as the
second-largest exporter, ,
according to World Trade Organization data. Italy , the world's largest clothing
exporter, sent abroad $154 billion of clothes in 2011. China
has looked on with envy as
scooped up more business in recent years. Bangladesh 's garment exports are
expected to be around $13 billion this fiscal year which ends in March, around
the same as last year and short of the government's target of $18 billion. India
sees an opening. A Sakthivel,
chairman of India India's
state-backed Apparel Export Promotion Council, estimates around $500 million of
orders have shifted from Bangladesh
in the past four months. "Some of the buyers are coming back to India ," he
Azizur Rahman, a senior official of the Bangladesh Export Processing Zone, denied that foreign investors may be pulling out. "The government is determined to keep the export-oriented industries free from political strife," he said. "We have plenty of investment in the pipeline and we hope to maintain our rapid growth."
The government has remained bullish, setting an export target of $28 billion for the 2013 fiscal year ending June 30.
But many manufacturers around
are skeptical. Garment-industry leaders say buyers have canceled scheduled
trips due to the unrest, while manufacturers have incurred steep transport
costs to make deadlines.
"The orders are still coming, but we will see the negative effect of the political upheaval in the coming months," said Ahsan Mansur, executive director of the Policy Research Instute, a Dhaka-based think tank.
Owners were forced to temporarily close 300 private garment factories in the Ashulia industrial belt outside
Dhaka in June last year after clashes between workers and
police. The factories reopened after three-way talks between government
ministers, manufacturers and workers' unions, and the government promised to
give ration cards to workers to buy commodities at subsidized rates.
All those pressures mean more foreign companies may move to reduce exposure to the country, and potentially other nations seen as alternatives to
"We source significantly from
Cambodia and Bangladesh,
but we do want to put a kind of cap on those countries," says Richard
Thomas, head of Far East for
department-store chain Marks & Spencer. "There are the
political issues and risks associated with them. My personal view is that you
shouldn't source more than about 25% of your goods globally from a place like
A version of this article appeared March 22, 2013, on page A11 in the
edition of The Wall StreetJournal U.S.