India’s garment makers flock to Dhaka

COIMBATORE: When B Jaichand found it difficult to get workers to start a large unit for making garments in Tirupur two years ago, he decided to open a factory in Bangladesh . His Jay Jay Mills already had units in Sri Lanka but the island nation no longer enjoyed duty-free concessions in major export markets . Besides duty-free benefits for the European market, Bangladesh offered a readily available workforce at wages about half of India’s .
Chennai-based Ambattur Clothing also took the same route to Bangladesh in 2007. Nearly 50% of its $140 million exports are now done out of Bangladesh even as the share of shipments from Indian units dwindled to 25%. From just about 500 workers, the company, which also has a presence in the Middle East, now employs about 4,000 persons in Bangladesh.
The labour crunch is pushing exporters to Bangladesh , which has emerged as an attractive destination for producing garments. Indian garment makers have invested about $33 million (around Rs 165 crore) in Bangladesh since 2006, Bangladesh’s Board of Investment data said.
Interestingly, Bangladesh surpassed India’s garment exports only a couple of years ago and has been consistently recording double-digit growth.
“The dearth of labour made us look outside Chennai . Production costs are 25-30 % lower in Bangladesh,” says Vijay Mahtaney, MD, Ambattur Clothing. This would translate into profit margins of about 10%. This is significant for garment exporters who operate with just 4-5 % profit margins. Garments sold from India also attract 8-9 % import duties while Bangladesh enjoys duty-free status in many developed markets including Europe .
“The competition for labour is very high here. Labour costs have become prohibitive for a large factory,” Jaichand says.
Jay Jay employs about 1,500 persons at its Bangladesh factories, which would have the most number of workers once expansion projects are completed. Currently , it employs about 3,000 workers in India and nearly 4,000 persons in Sri Lanka.
While workers get about $120 (around Rs 5,900) a month as wages here, it is only $60-70 a month in Bangladesh. “A lot of manpower-intensive work is done in our Bangladesh factories ,” says Jaichand. Though wages account for only about 20% of overall production costs, finding workers for factories with over 1,000 machines has become a tough task in India, he says.
Jay Jay has already put in about half of its planned $10 million investments in Bangladesh , which accounts for 10% of its total production now. The company aims to get 30-40 % of its production from Bangladesh in the next five years.
The Bangladeshi odyssey, however, is not entirely a hassle-free one for firms. Apart from the export processing zones, power supply is erratic and transportation is slow due to bad roads. A consignment from Dhaka to Chittagong port, which should take only 4-5 hours, often takes two days to reach the destination. Worse still, companies have to contend with thefts as well. Moreover, not everyone is convinced with the low-cost Bangladesh story.
“There would be no significant advantage as buyers would quote only a Bangladesh price for orders,” says Gautam Chakravarti, CEO, Gokaldas Exports, the country’s largest garment exporter .
Global buyers quote up to 25% lower prices for low-end garments made in Bangladesh and this would take away bulk of the advantage, say industry officials.
But the recent free trade agreement (FTA) between India and Bangladesh has firms looking to source garments from the East for the domestic market. The FTA allows duty free access for 46 textile items produced in Bangladesh, which are 20-25 % cheaper. “There is potential for collaboration and we can take advantage of the new tariff (FTA) regime,” Chakravarti says. “Domestic brands would also start sourcing from Bangladesh. The industry would have to move to costcompetitive locations,” says Mahtaney.