Assessment Of Bangladesh For Overseas Expansion

Industry Overview

Discuss about the Country Assessment of Bangladesh for Overseas Expansion.

Aussie Textiles is a quality garments manufacturer of medium-size operating from Queensland. As a result of the increase in the competition that it is facing from imported goods that are cheaper, the company is thinking in terms of establishing a manufacturing plant in Asia and has selected Bangladesh as the potential country for establishing its manufacturing plant overseas. This report will be discussing the advantages as well as the disadvantages of carrying out operations in Bangladesh by conducting an industry overview and market analysis and will then make recommendations on their basis to suggest the appropriateness of the country for this expansion.

The developing nations in Asia are undertaking continuous expansion of their textile industry because of the cost of production being very low in these nations. Bangladesh has emerged as a major player in the sector of Ready Made Garments (RMG). The apparel industry contributes 76% to its total earnings from the exports of “textile and clothing”. The primary reason for this is the availability of labour in abundant quantities and at cheaper rates (Textile Exchange, 2016).

Even though the export revenue of most countries of Asia in 2015 was disappointing, Bangladesh did not follow that trend. The export earnings of Bangladesh increased to $3.2 billion in December, 2015 which was a new record for the country. This success was a result of the success which may be attributed to the growth of the apparel industry in Bangladesh which accounted for more than 83% of the figures in December, 2015. The increase in worldwide demand for cheap clothing has made Bangladesh the world’s second largest exporter and the position continues to be strong because of the huge population and low costs of labour. As per the World Bank, the GDP of the country is also expected to increase by 6.7% in the current year which will put it among the world’s fastest growing economies (Matsangon, 2016). A total of 20% of the GDP of Bangladesh comes from exports, out of which 80% is contributed by clothing (HKTDC Research, 2013).

However, the road ahead for the industry has certain obstacles also. The main recipients of the Bangladeshi garments is the European Union as they account for 61% of the exports and the European economies have been undergoing constant slowdown. Apart from this, the competition from Vietnam is also increasing which is expected to grow more rapidly after the ratification of the “Trans Pacific Partnership” during the current year. This could pose a threat to the current global ranking that Bangladesh has. Subsequently, the manufacturers of Bangladesh will be forced to bring in enhancements in their productivity levels for maintaining their competitive advantage. Despite these challenges, as the trade will pick up globally in the years to come, it is expected that demand will increase for the Bangladeshi garments and will prompt economic growth that is very much needed for the country (Matsangon, 2016).

Market Analysis

The market analysis for Bangladesh can be done with the help of the tools such as the PESTLE Analysis, Porter’s Five Forces and the Porter’s National Competitive Advantage Theory.

The PESTLE analysis is a tool that is useful for gaining an understanding of the growth or decline of the market and hence it helps in assessing the direction, potential and position of the business. It is a tool for measuring business. PESTLE is an acronym for “Political, Economic, Social, Technological, Legal and Environment” factors that are used for assessing the market from the perspective of an organisational unit or business (PESTLE Analysis, 2016).

The PESTLE Analysis for Bangladesh has been done in order to evaluate its business environment by focusing on the potentiality as well as the complexities.

Political unrest is common which disturbs the country’s international and national trading system. Hence, foreign firms are apprehensive of investing FDI in Bangladesh. A number of accidents have also occurred recently in the garment sector (ILO, 2016). Recent terrorist attacks made the country lag behind and weakened the business and it has to reassure the foreign buyers (Riley, 2016). The recent incidents like Tazreen Fire and Rana Plaza Collapse has raised concerns on safety of workers. However, forums have become active to bring the things back to normal and ensuring safety (Merchandising, 2015).

With respect to textile industry, the Government has adopted certain positive initiatives favouring foreign investors and no distinctions are made between domestic private and foreign investors in relation to incentives for investment and policies of import and export.

Companies usually face challenges in adjusting to the social environment of the country. The companies operating in the country are gradually recognizing the significance of corporate social responsibility.

Currently, heavy reliance on imported technology is present and planning is required for effectively transferring via adoption, assimilation and acquisition.

The other points of the PEST Analysis have been mentioned in Appendix 1.

Competitive rivalry exists in the industry for getting large orders from the buyers. Bangladesh is the 6^th largest supplier of textiles in the markets of the EU and the USA. It is emerged as a good potential for supplying quality textiles at cheap prices. Majority of the raw materials are imported but other factors of production are utilized for producing cheaper apparels. An investment friendly atmosphere is offered by Bangladesh to various brand names that outsource their production process to the country (Samaraweera, 2011).

PESTLE Analysis

Bangladesh is among the nations which is unable to complete its quota which the larger markets have provided it with. Consequently, several foreign nations are using it as a hub for preparing their products by means of outsourcing it to Bangladesh and then get access to markets which were not accessible previously to them. The country is deriving benefits from this situation and is inviting investors as well as foreign companies for placing orders in order to get this facility (Houkokusho, 2012).

This is mainly from the countries which do not have GSP or facility of quota. Quota system is a big player and with Bangladesh having a quota left in the EU markets where nations such as China do not have accessibility, it is emerging as a hub where countries buy the services and then export it with their labels. This provides a comparative advantage. This coupled with quality, has made Bangladesh the best choice available.

The country enjoys an advantage when inputs are ordered from the suppliers of cotton and knit in India and China. Import of most of the raw materials reduces the benefit of initiating backward linkage and increases the supplier power but still it is able to attain inputs at global prices from its suppliers. The power of the domestic suppliers is increasing gradually as the number of local companies is rising. A large scale advantage is available to the suppliers due to the concentration of the industry based on the area. It enjoys a good reputation globally with the suppliers due to timely payments which is assisting it in getting quick supplies of raw materials, matching prices with international quoting for local and foreign suppliers.

Economies of scale in production are yet to be achieved by the country which may result in potential entrants threatening its growth. The availability of cheap labour is the country’s biggest advantage which safeguards it from new entrants and growth has been rapid in the textile sector of Bangladesh which is posing a tough competition to the already established players. However, political scenario has been unstable in the recent years which have led to nations like Vietnam, Sri Lanka and some Latin American nations to try and take away the advantages but as of now the threat remains minimal.

Poor branding of the country and lesser power of influencing customers, has led to increase in preference for Thailand, India and China but the cost of the buyers switching to these nations is high due to comparatively higher labour and raw material costs (Business Wire, 2011). However, there is a threat of rise in the substitute products such as clothes of banana and jute fibres and synthetic products.

Conclusion and Recommendations

The analysis of Bangladesh reveals that the greatest advantage of the company is its cheap labour and the fact that due to the country being unable to fulfill its quota requirements, other nations can consider it as a hub for manufacturing and then use it for gaining entry into other markets. It is recommended that Aussie Textile should set up its manufacturing facility in Bangladesh even though there are disadvantages in the form of political instability and safety of the workers but still the low cost of production, the timely repayment to the suppliers and quality of goods produced along with the accessibility to new markets, things returning to normal and also assurance by the Government of providing safe conditions and timely deliveries are the major advantages which outweighs this disadvantage. The increasing labour wages and prices of raw materials in other Asian nations like Thailand, India and China makes Bangladesh the preferred destination.

Business Wire, 2011. Research and Markets: Bangladesh Apparel Industry Analysis. Research. Dublin: Business Wire Business Wire.

HKTDC Research, 2013. Bangladesh’s garment industry: recent development and outlook. [Online] Available at: https://hkmb.hktdc.com/en/1X09UVLU/hktdc-research/Bangladesh%E2%80%99s-garment-industry-recent-development-and-outlook [Accessed 25 September 2016].

Houkokusho, C., 2012. Dynamics of Garment Industry in Low Income Companies:Experience of Asia and Africa. Interim Report. IDE-JETRO.

ILO, 2016. Improving Working Conditions in the Ready-Made Garment Sector in Bangladesh (RMGP Programme). ILO.

Matsangon, E., 2016. Bangladesh textile industry sets export record. World Finance, 26 January.

Merchandising, 2015. Readymade Garments Industry of Bangladesh. [Online] Available at: https://www.garmentsmerchandising.com/readymade-garments-industry-of-bangladesh/ [Accessed 25 September 2016].

PESTLE Analysis, 2016. What is PESTLE Analysis? A Tool for Business Analysis. [Online] Available at: https://pestleanalysis.com/what-is-pestle-analysis/ [Accessed 25 September 2016].

Riley, C., 2016. Bangladesh’s huge garment industry tries to reassure foreign buyers. CNN Money, 4 JUly.

Samaraweera, D., 2011. Analysis: Bangladesh Garment Industry Aims For Fast Growth. [Online] Available at: https://www.just-style.com/analysis/bangladesh-garment-industry-aims-for-fast-growth_id109958.aspx [Accessed 25 September 2016].

Textile Exchange, 2016. Apparel, Clothing & Garments Industry Overview. [Online] Available at: https://www.teonline.com/apparel-garments/industry-overview.html [Accessed 25 September 2016].