Cutting cloth to fit
Competing in global garment value chains

Garment producers in developing countries face key global challenges, including changing trade regimes, international standards, new competitors and demands from buyers for higher quality, lower prices and faster delivery. Against such global challenges, who wins and who loses in Bangladesh and Vietnam?

The international garment industry is structured by global retailers who source their goods from suppliers in low-income countries such as Bangladesh and Vietnam. The garment industry is critical to Bangladesh and Vietnam, accounting for 75 per cent of Bangladesh’s manufactured exports and close to 50 per cent in Vietnam. Both countries have experienced significant growth in the past decade in garment sector employment and export volume, but they are threatened by the intended phase-out of the Multi-Fibre Arrangement (MFA) in 2005. The MFA controls international trade in garments and provides low income countries with preferential access to leading markets. It also controls competition from China (the world’s leading clothing supplier), labour standards and competitive pressures in garment retailing.

Global challenges

Working with local researchers – at the Bangladesh Institute of Development Studies and in Hanoi, the Institute of Economics and the Centre for Poverty Reduction – the Institute of Development Studies in Sussex used value chains to study the implications of such global challenges for garment firms and workers in Bangladesh and Vietnam.

The key research findings from the study are:

• Bangladesh, in particular, has benefited immensely from the quota regimes of the MFA. This is also important for Vietnamese exports to the EU, but Vietnam also competes in the relatively less regulated Japanese market.
• Large firms in Bangladesh and large state-owned firms in Vietnam have been at the forefront of winning orders from leading global buyers. Vietnamese state enterprises can access state-subsidised credit to upgrade technically, and have the capacity to take on large orders for diverse product ranges.
• In contrast smaller, private firms in both countries often supply lower quality and lower priced garments to regional traders and less demanding markets.
• Larger Bangladeshi firms and Vietnamese state enterprises are better able to meet international labour standards. In both countries, smaller firms, subcontractors and home workers risk being marginalised for failing to comply with global standards.
• Both Vietnam and Bangladesh remain competitive in terms of labour costs, when compared with China.
• In some cases, buyers help local suppliers upgrade by improving product quality and helping suppliers take on the additional functions of fabric sourcing and logistics. But there is also evidence that global buyers are consolidating their supply base, reducing numbers of suppliers and placing larger orders. And, in certain product lines, and in particular types of value chains, buyers are increasingly moving towards sourcing from the cheapest suppliers.

These findings indicate that the gains from globalisation for garment manufacturers in Vietnam and Bangladesh are substantive, but unevenly distributed. It is clear that despite the intended phase-out of the MFA, and new competitive challenges, Bangladesh and Vietnam will remain key players in the global industry. However, the garment industry in both countries must upgrade, enhance linkages with the textiles sector, reduce delivery times (a major worry for Bangladesh) and improve product quality.

The policy implications of this research include:

• Trade preferences such as the MFA quotas can be an important driver in promoting industrial development, but do not necessarily encourage moving up the value chain into functions with a higher value.
• Despite being a latecomer to the industry, Vietnam is better positioned to meet global demands as it has a strong government, a local textiles industry and is well positioned within regional East Asian trading networks.
• Because Bangladesh faces more significant hurdles and much greater poverty consequences in improving on its position, it requires stronger intervention to support local linkages into fabrics and to reduce supply bottlenecks.
• Employment and training programmes are needed to help garment workers and entrepreneurs meet the skills demand and to retrain into other sectors.
• Small firms need targeted support to raise labour and managerial skills, to access capital to upgrade, and to foster co-operation between firms. By specialising and co-operating with each other, small firms may be able to compete alongside larger enterprises.

Khalid Nadvi
Institute of Development Studies
University of Sussex
Brighton BN1 9RE
UK

T +44 (0)1273 877355
F +44 (0)1273 621202

k.m.nadvi@ids.ac.uk

See also

‘Vietnam in the global garment and textile value chain: impacts on firms and workers’, in Journal of International Development, by K. Nadvi and J. Thoburn, 2003 (forthcoming)

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