5 Reasons to start manufacturing leather

goods in Bangladesh within the next 5

years
Globally business people are rushing to reduce their production expenses. Australian
and Japanese fashion business are facing severe competition from their peers.
Reducing production cost is the way to achieve a competitive edge. The fast-fashion
brands have been facing this competition for quite long. Now the leather goods and
footwear luxury brands are also facing this competition. There are 2 major ways of cost
minimization: (i) technology adaptation and (ii) cheap labor. The developed counties
which are near the peak of their technological development. So, they are shifting or
outsourcing their production to underdeveloped and developing countries. Such as
countries in South and South-East Asia.

Bangladesh is one of the LDCs (Least Developed Country in world). Where you can
manufacture leather goods at a very low cost. Here are 5 ways how Bangladesh lowers
your cost of production of leather goods and footwear. And why you should shift or
outsource your production jobs to Bangladesh right now. To reap the benefit for the
next 5 years.

Low Labor Cost & Technology Adaptation

The major reason for the fashion brands to shift out their manufacturing unit to South
& Southeast Asia is cheap labor. And sad but true, Bangladesh has the lowest labor
wage even among the countries of South Asia. If you want to take advantage of cheap
labor, Bangladesh is the place to be. If you want to help people with the least income
level in the world, Bangladesh is the place to be. Table 1, shows the monthly wage of
labor in South & Southeast Asia.
 The semi-skilled and skilled labor
wages follow similar ratio. Chinese
labor expense increase rate is going
off the chart. Vietnam’s labor
expense increased by 6.5% this
year. The wage rate may increase in
Bangladesh too, as manufacturing
units move in. But it is not expected
to increase anytime within the next
5 years. This is the time to use this
trump card of cheap labor now.

Also, Bangladesh is adopting new

technologies for cost minimization
and efficiency. In the past small and
medium leather goods & footwear
factories used to depend on hand
sewing. But the scenario has improved in the last decade. Shoemaking machine and
leather sewing machine purchase had been soaring. We noticed that in the last
“Bangladesh Leather Footwear and Leather Goods International Sourcing Show”. And
this is only going to go up for the next 5 years.
Companies with Vertical Integration

Backward linkage of leather goods raw

material is easy to develop in Bangladesh.
The cow and goat hides are readily
available here. Bangladesh is a huge
consumer of cow and goat meat itself,
hence there is no cruelty killing for
leather. The preservation, tanning,
processing and finishing of leather, all
done within Bangladesh. You can find wet
blue leather dealers, tanneries and leather
goods factories all in one place. The area is
in or around the Savar Tannery Industrial
Estate. And many (like Osfelle) are
interconnected in operation and/or
ownership. These are companies with
vertical integration. These
interconnections lead to cost
minimization. Such as reduction of
transaction cost, cost of overhead and cost
of transportation. And also minimizes
several other internal operational
expenses. Thus, are able to offer lower
prices for manufacturing leather goods
and footwear.

Some buyers, especially from Japan, prefer close-knit and long-term relationship over
vertical integration. A simple alternative to vertical integration would be “one supplier
for one buyer”. Many small and small and medium factories in Bangladesh would be
more than willing to work for Japanese buyers.

GoB Cash Incentive

Leather Industry had been one of the booming industries of Bangladesh from its birth.
This industry scaled, developed and is moving up the value chain. It came a long way
from skinning rawhide to making luxury designer items with leather. Government of
Bangladesh (GoB) is very eager to keep this position in the value chain intact. So, the
Government is providing many facilities to encourage the export of leather goods.
 One such facility is 15% cashback as an
incentive on the amount of export. This is to
encourage leather goods manufacturer and
exporter of Bangladesh. After every
shipment, the manufacturers and exporters
can claim this cash incentive. This gives a
mental space to quote lower during
production negotiation. That is to the
advantage of foreign retailers and designers
who are negotiating. This cash incentive
benefit will persist for the next 5 years. As
declared by Prime Minister of Bangladesh
(Source: Foreign Exchange Policy
Department, Bangladesh Bank). This is the leverage you should use now for cost
minimization of manufacturing leather goods and footwear.

Free Market Access

Bangladesh is enjoying duty-free market access or reduced tariff rate facilities. This
access encompasses many developed and developing countries of the world. This duty-
free quota-free access to export is valid for leather, leather goods & footwear. This is
possible because Bangladesh is the least developed country in world.

Bangladesh is getting General System of

Preference (GSP) facilities. This GSP is being
provided by 38 countries of the world.
General System of Preference (GSP) is a
preferential tariff system. This provides
tariff reduction on various products. For the
least developed countries of the world. Table
2, shows some of the developed members
under the GSP scheme and Duty Free Quota
Free (DFQF) coverage for Bangladesh.

Last year UN Committee for

Development Policy (Comité de Políticas
de Desarrollo, CPD) declared
that Bangladesh is eligible to
graduate from a least developed country
in world to “Developing Country”. This
was a preliminary declaration of graduation. Bangladesh expects to receive the official
"Developed Country" status by 2026. So, in 5 years Bangladesh might not fall under the
GSP scheme anymore. This convenience is for a limited time. Fashion brands and
retailers should start manufacturing in Bangladesh now.

Indo Pacific Strategy & Belt and Road Initiative

Cost minimization is evident upon shifting or outsourcing. The developed countries
will soon shift their production units to South and Southeast Asia. Many manufacturing
plants will also move from China to Bangladesh when the factories start to move to
South Asia. The products/goods made in Bangladesh will then be marketed and sold all
over the world. Safety of these factories would be of utmost importance to respective
consumer countries. Safety measures include human resource protection and product
transportation security. The United States indents this security measurement as Indo-
Pacific Strategy. China calls it the Belt and Road Initiative.

Waterways are the main route

of goods transportation from
South & Southeast Asia to
America & Europe. There are
no geographical ground
connections between these
regions. Thus, transporting
goods by water through the
Indian Ocean and the Pacific
Ocean is by far the most viable
method. It costs much less,
can also transport a lot of
goods at once and is even safer
than to transport by air. So the
United States, together with its Allied powers, is designing the Indo-Pacific Strategy. This will
ensure seamless security for the transportation of goods through this region.
Chinese factories are also expanding across
South and Southeast Asia. They are also keen
to ensure safety in the transportation of goods.
China has a more convenient geographical
position than other developed countries. It has
direct ground connections with European
countries. And there is the option to use the
ports of Europe or Africa to connect North and
South America. China does not have to be a
part of the Indo-Pacific Strategy due to this
geographical advantage. So instead, China is
attempting to build the world's largest ground
connection. This is the Belt and Road
Initiative. China can reach Europe or America
uninterrupted, through land only.

The geographical location of Bangladesh is very important. For both U.S. Indo-Pacific
Strategy and Belt and Road Initiative of China. And with its huge population, it is a gold
mine of cheap labor. The Government of Bangladesh is being swift in taking advantage
of the situation. It is taking necessary action to increase foreign investment. And
facilitating foreign brands to outsource manufacture in Bangladesh. Within the next 5
years, there will be a surge of factory shifting and outsourcing. It is high time; clothing
& leather goods brands should start manufacturing in Bangladesh. Especially brands of
Australia and Japan, two partners of U.S. Indo Pacific Strategy. Before U.S. & Chinese
companies swipe over the leather goods industry of Bangladesh.

Conclusion
Bangladesh jumped from 176th position to 168th position in the “Ease of Doing
Business Index” this year. Government of Bangladesh reduced bureaucratic
complexities, reformed land buying procedures. It undertook 100 economic zone
projects to attract foreign investment. It is providing support to companies with
vertical integration. Working to make leather processing more sustainable. Also, the
government is providing different types of facilities, incentives and exemptions. All
this to encourage foreign brands to manufacture leather and leather goods & footwear
from Bangladesh. Some benefits you may avail for a long time and some are time-
bound. But rest assured that, as Fashion Business, you should start working with us
right away. And take advantage of all the facilities Bangladesh is providing for the next
5 years. Otherwise, you will be missing out on a remarkable competitive edge, that we
have to offer to your fashion business venture.