Bangladesh Readymade Garments Landscape

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Apparel, Fashion & Luxury Practice

Bangladesh’s ready-made garments
landscape: The challenge of growth

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Bangladesh’s ready-made garments
landscape: The challenge of growth

Foreword
A growing number of chief purchasing officers (CPOs) in European and US apparel companies are scrutinizing their sourcing strategies, as margin and supplier capacity pressure building over the last several years has caused them to search for the next performance improvement opportunity.

While China is starting to lose its attractiveness in this realm, the sourcing caravan is moving on to the next hot spot. With Bangladesh having developed a strong position among European and US buyers, many companies are already eager to evaluate the future potential. However, the lure of competitive prices, available capacities, and supplier capabilities offered is being cautiously weighed against a prevailing insecurity created by the challenges inherent in Bangladesh’s ready-made garments (RMG) market. McKinsey & Company has initiated a case study that sets out to review Bangladesh’s RMG growth formula, which builds on the country’s strong starting position and the increasing demand of international buyers. This report provides an overview of the rapid growth being seen in Bangladesh’s RMG industry and then describes the main hurdles that exist for buyers when it comes to sourcing in Bangladesh. The final section of the report details what the three core stakeholders – government, suppliers, and buyers – can do to overcome the challenges of growth in Bangladesh’s sourcing market. The case study and recommendations documented in this report are based on: ƒ

A n extensive interview-based survey of CPOs from leading apparel players in Europe and the US, accounting for USD 46 billion in total apparel sourcing value and covering 66 percent of all apparel exports from Bangladesh to Europe and the US

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A telephone survey of 100+ local RMG suppliers in Bangladesh, which represents approximately 10 percent of Bangladesh’s total apparel exports

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In-depth desk research using both international (e.g., World Bank, International Monetary Fund, EIU, investment banks) and local sources (e.g., Bangladesh Garment Manufacturers and Exporters Association, Centre for Policy Dialogue, Bangladesh Institute of Development Studies)

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E xtensive field work, including in-depth supplier interviews, factory visits, interviews with sourcing office managers, and discussions with other local and international experts (e.g., corporate social responsibility experts and logistics experts).

McKinsey wishes to thank all participants of this study, especially the Bangladesh German Chamber of Commerce and Industry (BGCCI) President Md Saiful Islam and Executive Director Daniel Seidl, for their support in compiling this report.

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Potential for rapid growth of Bangladesh’s
RMG industry
The sourcing of RMG is experiencing a new phase of transition, which is creating the need for companies to react accordingly in order to secure their cost positions in the apparel market. While China was once considered “the place to be” for sourcing, the light is starting to shine ever brighter on Bangladesh.

Current trends on the buying side
For decades, European and US apparel buyers were benefiting from continually decreasing purchasing prices by moving their sourcing activities to low-cost countries in the Far East and by cutting out the “middle man.” Sourcing teams could freely take their pick of the next country sourcing opportunity along the five main criteria of price, quality, capacity, speed, and risk.

Within the last several years, however, European and US buyers have been faced with a growing number of margin and capacity issues, creating an increase in sourcing strategy revisions.
Although the European and US apparel markets have regained much of their sales following the slump brought on by the most recent global financial downturn, market...
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