US-China trade war hits Bangladeshi denim makers

The denim makers of Bangladesh are losing market share in the United States as their competitors, countries such as Vietnam, reap the benefits from the ongoing US-China trade war.

The sector is also witnessing a negative growth in the European market, due to the slowdown of the economy and a looming uncertainty centring the Brexit issue. 

Several Experts and denim makers made the observation on Tuesday while speaking to The Business Standard at the sideline of the second Sustainable Apparel Summit 2019, held at the International Convention City Bashundhara in Dhaka.

Experts said, the ongoing US-China trade war has brought an advantage for the economies in countries such as Vietnam, Cambodia, Pakistan and Mexico. 

Those countries are getting more export orders from US buyers due to their preparedness in welcoming the trade redirection, while Bangladesh is not getting the benefits of being the second-largest apparel exporter in the world.

The reasons for losing competitiveness include bulk investments concentrated on only five items, taka being strong against US dollar, and a lack of efficiency in product development and marketing.

As a result, apparel makers are getting fewer orders and are pressured to lower product prices. Small and medium enterprises which produce basic items are facing a tough time under the new wage structure while big companies are fighting for survival.

Commenting on the matter, former president of Bangladesh Garment Manufacturers and Exporters Association Siddiqur Rahman said, "The denim export is currently doing well, but we are losing our competitive edge to other countries.

"Vietnam is breathing down on our neck and if you see the country replacing Bangladesh in the apparel market by the next month that would not be very surprising."

Siddiqur also identified the appreciation of taka against the US dollar to be another reason for Bangladesh's loss of competitiveness in the apparel export sector.

Meanwhile, Maycs Garment Ltd Managing Director Ashikur Rahman said, "Many western brands already have a huge stock leftover from the previous year. That is why they are placing orders carefully.

"These brands usually place orders twice a year. But they are now placing a lower amount of orders in four phases."

Giant Group Managing Director Faruque Hassan said, "The slower economic growth in the Eurozone caused by the economic recession and a looming uncertainty over the Brexit issue have negatively impacted the apparel market in the European Union. 

"As a result, Bangladesh's denim exports are witnessing a negative growth in this market. The clothing business situation is not good throughout the region as the market for denim products has also shrunk." 

Faruque mentioned that Bangladesh's denim export sector has witnessed an 11 percent negative growth in the first eight months of the current year. 

"It is not happening only to Bangladesh. Every country and brand is witnessing a negative growth in the European Union market," said Faruque Hassan, who is also the senior vice president of the Bangladesh Garment Manufacturers and Exporters Association. 

Addressing the issue, Sharif Zahir, managing director of Ananta Denim Technology Ltd said, "Bangladesh's denim product exports to the US market has experienced a better situation compared to the last year because of the US-China trade war. 

"But we failed to utilise a large portion of benefits, while our competitors such as Vietnam and Cambodia secured those benefits."

He continued, "South American countries are doing well in exporting denim to the US market because of the shorter lead time. For the same reason, most of the US retailers and investors feel comfortable in placing orders to Vietnam and Cambodia.

"Buyers do not feel comfortable in visiting Bangladesh to place any orders due to several reasons. The country is not an attractive tourist destination and is not ranked particularly well in the ease of doing business index."

"These factors are undermining business opportunities in Bangladesh," said Sharif, who is also a director of Bangladesh Garment Manufacturers and Exporters Association.
Export performance in USA

According to the US Office of Textiles and Apparel data, Bangladesh's denim exports to the US market saw a 5.42 percent rise to $573.27 million during the January-August period this year. 

It was $544 million during the same period last year.

The USA's total denim product imports from the global markets recorded a 4.55 percent rise to $3.9 billion during the period of January-August this year.

Vietnam, a competitor of Bangladesh in the US market, earned $346.27 million from exporting denim products during this period, up by 34.43 percent from the same period last year.

On the other hand, overall export earnings from Vietnam to the USA have jumped by 33 percent, in contrast to only 13 percent growth by Bangladesh until August.

Pakistan has earned $262 million from denim exports, up by 14.20 percent from a year earlier.

Mexico, the second largest exporter of denim goods in the USA, has seen an 8.80 percent increase in export, from $793.22 million to $863 million. 

China, the largest denim product exporter to the global market, saw a 6.93 percent fall to $856.19 million, down from $920 million in the same period last year.

In 2018, the country exported denim goods worth $566.39 million to the USA, up from $507 million in 2017. 

Export performance in EU

According to Eurostat, statistics directorate of the European Commission, Bangladesh, the largest exporter of denim goods in the European Union, exported denim products worth $977.65 million, down by 11.04 percent during January-August period this year, which was $1.10 billion in the same period last year. 

In the first eight months of 2019, global denim exports to the European Union dropped by 11.84percent to $3.40 billion, which was $3.86 billion in the same period last year.

Bangladesh's closest competitor Turkey has posted a 10.82 percent negative growth to $734.5 million in the same period. 

China saw a 23.68 percent fall from $366 million to $279 million, while Pakistan registered a 5.29 percent fall to $569 million. 

According to the latest European Commission data, Eurozone economic growth dropped by 0.1 percent in the third quarter from 0.2 percent in the previous quarter.

Hoping for the best

H&M regional head for Bangladesh, Pakistan and Ethiopia Ziaur Rahman said, "Bangladesh has a large scope to increase its share in the clothing market through diversification of apparel items, producing value-added product development and increasing efficiency.

"When placing any value-added denim products, the H&M first thinks about Turkey, then China, then Pakistan due to their capacity and strength on value added segments.  Bangladesh is the last option for them." 

He added that the H&M is annually sourcing apparel goods worth around $3 billion, which is 10 percent of Bangladesh's total apparel export earnings.

Ziaur Rahman also mentioned that the brand procures about 60 million pieces of denim products annually.

Who are Bangladesh's Partners in denim Market?

Bangladeshi entrepreneurs supply denim products to major global retailers, including H&M, Levi's, Diesel, G-Star RAW, Uniqlo, Tesco, Wrangler, Oliver, Hugo Boss, Walmart and GAP.

Globally, around 2.1 billion pieces of denim are sold annually, according to the US International Trade Commission.

In 2014, the size of the global denim market stood at $56.20 billion. By 2020, the global denim market will reach $64.1 billion and Bangladesh's share in that market is projected to reach $7 billion by the end of 2021.