Textiles and Beyond: Is Bangladesh Becoming the next Low-Cost Sourcing Haven?

The NYT recently ran a useful overview on the sourcing evolution that has been taking place in the poor country of Bangladesh. The story notes that, "as costs have risen in China, long the world's shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia -- at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids." As an example to prove this point, the Times notes that Li & Fung's production in Bangladesh rose "20 percent last year" in comparison to China which "slid 5 percent." The lure for companies is cheap wages. Very cheap wages.

Consider that Bangladesh "has the lowest garment wages in the world, according to labor rights advocates." One factory worker in the article earns just under sixty-five dollars per month. Compare this to the "minimum wages in China's coastal industrial provinces ranging from $117 to $147 a month." But low wages don't necessarily make for an ideal LCCS environment. Bangladesh remains a clear third-world outpost from an infrastructure perspective. Consider how it "suffers blackouts six to seven hours a day because it has not invested enough in power plants and natural gas fields." Moreover, if you combine a relative lack of infrastructure compared with China -- and even Vietnam -- with the prospect of rising wage demands as worker demands increase, the potential for the Bangladesh LCCS sourcing equation to not add up most certainly comes into play.

Yet in the meantime, many companies are getting more aggressive in seeking out their "next China" global sourcing strategy when it comes to goods for export. For many, the next "China" will actually end up remaining China -- but with increased movement inland as well as greater factory automation to hedge against wage increases, currency changes, VAT rebate reductions, export tariffs and other factors that may continue to drive up total cost in the region. But for those organizations looking for low-skilled labor for production in areas where automation is challenging or requires investments where the costs/benefit equation doesn't compute quickly enough, Bangladesh may yet prove a suitable strategy. But unlike China -- which has become far safer in the past decade in terms of food safety -- be sure to pack your Power and Cliff bars if you've got to make trips to the region.

Jason Busch

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