The 40-Year Historical Journey of Vertical Integration in Bangladesh’s Garment Manufacturing.
Bangladesh’s journey in garment manufacturing has been remarkable, evolving from a nascent industry to becoming the second-largest exporter of ready-made garments (RMG) globally, behind only China. One of the pivotal factors behind this success has been the country’s gradual yet determined move toward vertical integration. Over the past 40 years, Bangladesh has steadily built a more self-sufficient, vertically integrated garment manufacturing sector. In This writing we will explore the history of vertical integration in Bangladesh, how it came to achieve this competitive advantage, and why other competing nations have struggled to replicate its success.
The Early Days: A Dependency on Imports (1980s-1990s)
In the late 1970s and early 1980s, Bangladesh’s garment industry was in its infancy. The country had no real infrastructure for textile production, and virtually all raw materials—yarns, fabrics, and accessories—were imported. Bangladesh was primarily focused on “Cut-Make-Trim” (CMT) operations, where it imported fabrics, cut and sewed them into garments, and then exported the finished products. The industry began to take shape with the establishment of Desh Garments Ltd. in 1977, in collaboration with South Korean firm Daewoo, marking the first step toward industrial-scale garment production in the country. Reaz Garments made the First export of Shirts. Later on Korean-owned Youngone established their production facilities.
During the 1980s and 1990s, Bangladesh’s RMG sector began to grow rapidly due to several factors:
Quota-Free Access to Global Markets: Under the Multi-Fibre Arrangement (MFA), Bangladesh benefited from quota-free access to Western markets, especially the U.S. and Europe, giving it a competitive edge over other nations.
Low-Cost Labor: The availability of cheap labor helped Bangladesh position itself as a low-cost manufacturing hub.
Foreign Investment: Foreign investors and joint ventures, particularly from Korea, Hong Kong, and Taiwan, helped set up the first wave of garment factories in Bangladesh.
However, despite the growth, Bangladesh remained heavily reliant on imported fabrics, particularly for woven garments. This dependency made Bangladesh vulnerable to external supply chain disruptions and kept its value addition relatively low.
The First Steps Toward Vertical Integration: Knitwear Revolution (Late 1990s - Early 2000s)
The real breakthrough in Bangladesh’s vertical integration journey came in the late 1990s and early 2000s, driven by the rapid expansion of the knitwear sector. Unlike the woven garment industry, which continued to rely on imported fabrics, the knitwear sector saw the emergence of local textile mills producing yarns and fabrics domestically.
Several key factors played a role in this development:
By the mid-2000s, Bangladesh’s knitwear sector was largely self-sufficient, producing around 90% of the raw materials locally. This development marked a significant step toward vertical integration, reducing the country’s dependence on imported fabrics and enabling shorter lead times for buyers.
Expansion of Vertical Integration: The Rise of Woven Garment Integration (2000s-2010s)
While Bangladesh had made considerable progress in knitwear, the woven garment industry still relied heavily on imported fabrics. However, by the 2000s, Bangladesh started investing in infrastructure to produce woven fabrics domestically. This period saw several important developments:
Establishment of Spinning and Weaving Mills: The government and private sector began focusing on expanding the country’s spinning and weaving capacity for cotton and blended fabrics. This growth was essential for producing a wide range of garments, from shirts to trousers.
Dyeing and Finishing Infrastructure: Along with spinning and weaving, Bangladesh also expanded its dyeing, printing, and finishing capacities. This allowed the country to handle multiple stages of production in-house, from yarn to finished fabric.
Backward Linkage Development Fund: The government introduced the Backward Linkage Development Fund, which provided financial support to industries involved in producing textiles, particularly for the woven sector. This fund was crucial in accelerating investment in local textile mills.
While Bangladesh made strides in woven garment vertical integration, the process was slower than in the knitwear sector. However, by the late 2000s and early 2010s, Bangladesh’s capacity to produce a wider range of fabrics had improved significantly.
The Role of Technology and Sustainability (2010s - Today)
As Bangladesh’s garment industry matured, the focus on vertical integration shifted toward improving the efficiency and sustainability of the supply chain. Several critical factors shaped the next stage of vertical integration:
Why Bangladesh Succeeded Where Others Struggled
While Bangladesh has made impressive strides in vertical integration, several competing nations have struggled to replicate this success. Key reasons include:
China
Strength in Vertical Integration: China has long been the global leader in vertical integration, controlling virtually every stage of the textile and garment production process. However, China’s garment industry has begun to shift focus due to rising labor costs and environmental regulations. As a result, production has moved to lower-cost countries, but China’s well-established infrastructure remains a benchmark for vertical integration.
Why Bangladesh Competes: While China excels in vertical integration, Bangladesh’s lower labor costs and specialization in knitwear allow it to compete effectively in certain segments. Bangladesh is increasingly focusing on technology and sustainability, areas where China faces challenges due to its vast scale and environmental pressures.
Vietnam
Reliance on Imported Fabrics: Despite its success as a garment exporter, Vietnam remains heavily reliant on imported fabrics, particularly from China. Its limited domestic textile production capacity has made it challenging to achieve full vertical integration.
Why Bangladesh Outpaces: Bangladesh has developed a more self-sufficient supply chain for knitwear, while Vietnam continues to import a significant proportion of its fabrics, increasing lead times and costs.
India
Strong Domestic Textile Industry: India has significant vertical integration in its textile sector, particularly for cotton-based products. However, inefficiencies in infrastructure and logistics, combined with bureaucratic challenges, have prevented India from fully capitalizing on its integrated supply chain.
Why Bangladesh Surpasses: Bangladesh’s streamlined export processes, government support, and focus on efficiency have allowed it to outpace India in global garment exports, despite India’s larger textile base.
Pakistan, Cambodia, Myanmar, Ethiopia, and Others
Limited Integration: Countries like Pakistan, Cambodia, Myanmar, and Ethiopia have made strides in garment manufacturing but remain limited in their ability to produce textiles domestically. Pakistan has some vertical integration in cotton, but political instability and energy shortages limit its potential. The other nations rely heavily on imported fabrics and face challenges in scaling up their textile industries.
Why Bangladesh Leads: Bangladesh’s continuous investment in backward linkages, coupled with government policies and industry incentives, has enabled it to build a more integrated and efficient supply chain compared to these competitors.
Bangladesh’s 40-year journey toward vertical integration in garment manufacturing has been marked by strategic investments, government support, and the development of strong backward linkages, particularly in the knitwear sector. While the country’s progress in woven garment vertical integration has been slower, ongoing investments in fabric production, dyeing, and finishing are positioning Bangladesh as a fully integrated player in the global garment industry.
Other competing nations, despite their strengths, have struggled to achieve the same level of vertical integration due to challenges such as reliance on imported fabrics, inefficiencies in infrastructure, and political instability. Bangladesh’s focus on cost efficiency, sustainability, and technological advancements has allowed it to emerge as a global leader in vertically integrated garment manufacturing, providing it with a unique competitive advantage in the fast-evolving global apparel market.
Vertical Integration in Garment Manufacturing: Global Comparisons and Bangladesh’s Competitive Edge
Vertical integration in garment manufacturing refers to a business model where companies control multiple stages of production, from raw material sourcing to the finished product. This integration allows for better control over quality, costs, and supply chains. In the global garment industry, countries are at various stages of adopting vertical integration, which affects their competitiveness. While some nations have well-developed vertically integrated systems, others rely heavily on imports for parts of the production process. Bangladesh, despite facing challenges, has shown remarkable progress in this area and is increasingly seen as a model for efficient vertical integration in garment manufacturing. This essay examines the vertical integration status of key garment manufacturing countries and highlights Bangladesh’s strategic advantages.
1. China
Situation: China is a global leader in vertical integration. It has a well-established supply chain that includes raw material production, spinning, weaving, dyeing, finishing, and garment production. China’s massive textile and apparel industry allows it to control most stages of production in-house, making it highly efficient and self-sufficient.
Advantages: China’s vertical integration gives it the ability to control costs, ensure high quality, and deliver goods quickly. It’s one of the few countries that can handle everything from fiber production (especially cotton and synthetic fibers) to finished garments on a massive scale.
Challenges: Rising labor costs and environmental regulations are pushing some production out of China, but its integrated supply chain remains a significant strength.
2. Vietnam
Situation: Vietnam has developed into a major garment manufacturer but lacks full vertical integration. It heavily relies on imported raw materials like fabrics and yarns, especially from China, to produce its garments. Vietnam excels in garment production but is working to develop more integrated capabilities.
Advantages: Vietnam’s strength lies in its efficient garment assembly and strong international trade agreements, which make it a popular choice for brands. However, the country’s reliance on imports for raw materials makes it vulnerable to supply chain disruptions.
Challenges: To fully integrate, Vietnam must invest in domestic textile production facilities, particularly in weaving and finishing, to reduce dependence on imports.
3. India
Situation: India has significant vertical integration in its textile and garment industry. It is one of the world’s largest producers of cotton, with a well-established supply chain that includes spinning, weaving, dyeing, and garment production. India’s industry is capable of handling all stages of garment manufacturing.
Advantages: India’s vertically integrated textile industry allows for greater control over costs and quality, especially in cotton-based textiles. It is also diversified, producing a wide range of fibers including cotton, jute, and silk.
Challenges: Despite its strengths, inefficiencies in logistics, outdated infrastructure, and bureaucratic delays limit India's ability to fully capitalize on its integrated system.
4. Pakistan
Situation: Pakistan has a relatively vertically integrated textile industry, particularly in cotton production and textile manufacturing. It produces a large volume of cotton yarn, fabrics, and garments, which gives it a degree of self-sufficiency.
Advantages: Pakistan’s control over key stages of production, from cotton farming to finished garments, makes it competitive in terms of pricing and supply chain efficiency.
Challenges: Energy shortages and political instability affect the country’s ability to maximize the benefits of vertical integration.
5. Myanmar
Situation: Myanmar is still developing its garment manufacturing industry and lacks significant vertical integration. Most of its garment production is focused on cut-make-pack (CMP) operations, where the materials are imported, and the garments are assembled locally.
Advantages: Myanmar offers low labor costs, which makes it attractive for basic garment assembly.
Challenges: The lack of vertical integration means Myanmar is heavily dependent on imported raw materials, particularly from China, making it vulnerable to supply chain disruptions.
6. Ethiopia
Situation: Ethiopia is an emerging player in the garment industry and has made significant strides toward vertical integration, particularly through foreign direct investment (FDI). However, the industry is still in its infancy, and full vertical integration has not yet been achieved.
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Advantages: Ethiopia’s growing textile sector, supported by government incentives and investments from Chinese and Turkish companies, is working towards creating a more integrated supply chain.
Challenges: The industry still relies on imported fabrics and lacks the scale to be fully vertically integrated at this stage.
7. Cambodia
Situation: Cambodia, like Myanmar, is primarily focused on garment assembly, with limited vertical integration. The majority of fabrics and raw materials are imported, particularly from China.
Advantages: Cambodia’s strength lies in its ability to offer low-cost labor, making it an attractive destination for basic garment manufacturing.
Challenges: The lack of textile production facilities means that Cambodia is heavily reliant on imports, which limits its ability to add value to the supply chain.
8. Egypt
Situation: Egypt has a strong tradition in cotton production and textile manufacturing, giving it a relatively vertically integrated industry. It produces high-quality cotton, which is processed domestically into yarn, fabrics, and garments.
Advantages: Egypt’s control over the entire cotton textile supply chain makes it a competitive player in high-quality textile production.
Challenges: Political instability and outdated infrastructure have hindered the country’s ability to modernize its textile and garment industry.
9. Philippines
Situation: The Philippines has a small garment manufacturing industry that lacks significant vertical integration. Most of the materials used in production are imported.
Advantages: The country’s strength lies in its skilled workforce and its proximity to major export markets.
Challenges: The lack of textile production facilities means the Philippines remains dependent on imports, limiting its competitiveness.
10. Mexico
Situation: Mexico has some degree of vertical integration, particularly in the production of denim and other textiles for the North American market. However, much of its garment industry relies on imported materials.
Advantages: Mexico’s proximity to the U.S. gives it a logistical advantage, especially in the production of apparel for the fast-fashion market.
Challenges: The country has limited capacity for producing a wide range of fabrics, which restricts its ability to fully integrate its garment supply chain.
11. Sri Lanka
Situation: Sri Lanka has a relatively well-developed garment industry but lacks significant vertical integration. The country imports most of its fabrics and other raw materials.
Advantages: Sri Lanka’s strength lies in high-quality garment production, particularly for luxury and performance apparel.
Challenges: The reliance on imported raw materials makes it vulnerable to supply chain disruptions, limiting its ability to fully integrate its manufacturing process.
Bangladesh’s Vertical Integration: A Growing Competitive Advantage
Despite its historical reliance on imported raw materials, Bangladesh has made impressive strides towards vertical integration in garment manufacturing. While it still imports a significant amount of fabrics, especially for woven garments, it has developed a strong backward linkage industry for knitwear, which has made its garment sector more self-sufficient.
1. Strong Backward Linkages in Knitwear
Growth of Local Textile Industry: Bangladesh has developed a well-established textile sector that supports its knitwear industry. Approximately 90% of the raw materials for knit garments (such as cotton yarns and fabrics) are sourced locally. This high level of vertical integration allows for faster lead times and greater control over the supply chain.
Advantages Over Competitors: Compared to countries like Vietnam and Cambodia, which heavily rely on imported fabrics, Bangladesh’s local sourcing for knitwear reduces production costs and lead times, making it more competitive in the fast-fashion industry.
2. Expansion of Spinning and Weaving
Investment in Spinning and Weaving: Bangladesh’s textile industry, particularly in spinning and weaving, is growing rapidly. This allows the country to produce more of its own yarns and fabrics, although it still imports for woven garments.
Strategic Growth: Investments in this area are reducing the country’s dependence on imports from China and India. As Bangladesh continues to expand its textile production capabilities, its degree of vertical integration will increase, further enhancing its global competitiveness.
3. Competitive Lead Times
Faster Delivery: Vertical integration in knitwear and growing capacities in weaving have enabled Bangladesh to shorten its lead times, a critical factor for brands like H&M, Zara, and Primark, which demand quick turnaround times to meet fast-fashion cycles.
Comparison with Other Countries: Competitors like Vietnam and Sri Lanka, which import significant portions of their raw materials, struggle with longer lead times. Bangladesh’s ability to control more of its supply chain allows it to deliver products faster, giving it an edge in the global market.
4. Economies of Scale
Large-Scale Production: Bangladesh’s massive garment industry, combined with its growing local textile production, allows it to achieve economies of scale. This reduces per-unit production costs and increases efficiency, making it a low-cost, high-volume producer.
Comparison: Countries like Myanmar and Cambodia, with smaller and less integrated industries, cannot match the scale and efficiency of Bangladesh’s vertically integrated operations.
5. Government Support and Policy Framework
Incentives for Textile Investment: The government of Bangladesh has introduced various incentives to boost local textile production, especially in spinning, weaving, dyeing, and finishing. Tax exemptions, duty-free import of capital machinery, and subsidies on power and water have encouraged domestic and foreign investments in backward linkage industries. This proactive approach has stimulated the growth of local fabric manufacturing capabilities.
Strategic Development Plans: Bangladesh's government has also included the textile and garment industry in its long-term economic strategies, such as Vision 2021 and Vision 2041, to position the sector for sustained growth. These policies emphasize reducing import dependence and increasing domestic production, further enhancing vertical integration.
6. Growth of Fabric Manufacturing Capacity
Local Fabric Production: The production capacity for fabrics has been steadily increasing, with investments in both cotton and synthetic fabric manufacturing facilities. This growing capacity is particularly beneficial for knitwear and is starting to extend into woven garments, reducing the reliance on imported fabrics from countries like China and India.
Diversification into Technical Textiles: Bangladesh is also exploring the development of technical and synthetic textiles, which are essential for producing higher-value garments like activewear and performance clothing. This is a strategic move, as global demand for technical textiles is rising rapidly, and Bangladesh’s increased capacity in this area could help it capture new market segments.
7. Integration of Advanced Technologies
Automation and Digitalization: As part of its push towards vertical integration, Bangladesh’s textile and garment manufacturers are increasingly adopting automation and digitalization in their operations. The use of automated fabric cutting, dyeing, and finishing technologies has improved efficiency and reduced lead times, making the supply chain more agile. This integration of technology into the value chain helps Bangladesh compete with countries that traditionally lead in technology-driven production, such as China.
Sustainable Technologies: Bangladesh is also investing in sustainable production technologies, such as water-efficient dyeing and energy-saving machinery. By integrating eco-friendly practices into the manufacturing process, the country is not only adding value to its supply chain but also positioning itself as a leader in sustainable garment manufacturing, attracting environmentally conscious brands.
8. Bangladesh’s Strong Export Infrastructure
Established Export Network: With a well-developed infrastructure for exporting garments, including efficient port facilities and logistics networks, Bangladesh has been able to enhance its supply chain management. The ease of exporting finished products gives it an edge over countries like Myanmar and Cambodia, where logistics and export procedures are still developing.
Proximity to Raw Material Markets: While Bangladesh continues to import some raw materials, especially for woven garments, its proximity to large textile-producing countries like India and China allows for quick and cost-effective procurement when necessary. This proximity enhances the efficiency of the supply chain, even for non-integrated parts of the industry.
9. Bangladesh’s Integration in the Global Supply Chain
Global Value Chain Partnerships: Bangladesh has positioned itself as a critical player in the global garment supply chain by establishing strong relationships with international brands. As brands seek reliable partners with integrated supply chains, Bangladesh’s growing backward linkages make it an attractive sourcing destination, particularly for fast-fashion brands. These partnerships reinforce Bangladesh's status as a top-tier manufacturing hub with the ability to deliver quality garments at competitive prices.
International Trade Agreements: Bangladesh benefits from preferential trade agreements, such as the Generalized System of Preferences (GSP) and the Everything But Arms (EBA) initiative with the European Union. These agreements allow Bangladeshi garments to enter key markets at reduced tariffs, which gives the country a cost advantage. The further development of local raw material production will only amplify this advantage, as it will allow Bangladesh to lower production costs even more.
10. Skilled Labor and Experience in the Garment Sector
Specialization in Knitting: Bangladesh has established itself as a world leader in knitwear production. The workforce in the knitting sector has developed highly specialized skills, which makes Bangladesh’s knitwear products among the most competitive globally. As more raw materials are sourced domestically, the skill level of the workforce, combined with vertical integration, creates an unbeatable value proposition.
Expertise in Vertical Integration: Over the past two decades, Bangladesh’s garment industry has accumulated vast expertise in vertical integration strategies, learning from both domestic and international best practices. This accumulated experience provides Bangladesh with a competitive advantage over emerging markets, such as Ethiopia and Myanmar, where the workforce is still gaining experience and industrialization is in its early stages.
11. Sustainability and Ethical Compliance
Sustainability Initiatives: As the global fashion industry shifts toward more sustainable and ethical sourcing, Bangladesh’s investment in eco-friendly practices and ethical labor standards strengthens its position. Many factories in Bangladesh are now LEED-certified (Leadership in Energy and Environmental Design), and the country has the highest number of green garment factories globally. By integrating sustainable practices into its vertically integrated manufacturing process, Bangladesh is attracting brands that prioritize ethical and environmental standards.
Social Compliance and Worker Safety: Following the Rana Plaza disaster in 2013, Bangladesh has implemented stringent safety and labor regulations. This commitment to worker welfare and safety compliance has bolstered the confidence of international buyers. The country’s enhanced regulatory framework now integrates worker safety into the entire production chain, making Bangladesh a model for ethical production.
Bangladesh’s strides toward vertical integration have greatly enhanced its competitiveness in the global garment industry. While it still imports fabrics for woven garments, its strong backward linkages in knitwear, coupled with investments in fabric production, technology, and sustainability, have made its supply chain more efficient and self-sufficient. As the country continues to expand its capabilities, especially in woven textiles and technical fabrics, Bangladesh is well-positioned to reduce its dependence on imports and further solidify its place as a leading vertically integrated garment manufacturing hub.
Compared to countries like Vietnam, Myanmar, and Cambodia, which rely heavily on imported raw materials, Bangladesh has a clear advantage in terms of supply chain control, cost efficiency, and lead times. Even when compared to giants like China, Bangladesh’s ability to integrate vertically while maintaining cost advantages and developing sustainability initiatives sets it apart as a competitive, future-ready garment manufacturing powerhouse.
While many countries are striving to achieve vertical integration in their garment industries, Bangladesh has made notable progress, particularly in the knitwear sector. This growing vertical integration is a key factor behind the country’s competitive edge, enabling it to offer faster lead times, lower costs, and greater control over production. As Bangladesh continues to invest in its textile industry, its degree of vertical integration will only increase, further solidifying its position as one of the world’s top garment manufacturers.
In comparison to competitors like Vietnam, Cambodia, and Myanmar, which still rely heavily on imported raw materials, Bangladesh is making rapid strides toward self-sufficiency. Its ability to produce large volumes of garments at low cost, combined with growing vertical integration, makes it a formidable player in the global apparel market.
Managing Director at HEDA consultants and technologies
1 个月Very Logical analysis!