Post on 05-Apr-2018
8/2/2019 MR 1 Garment Industries in Bangladesh and Mexico Face an Uncertain Future
1/3
Garment industries in Bangladesh and Mexico face an
uncertain future
Author:just-style.com| 20 October 2003
The garment industries in Mexico and Bangladesh face an uncertain future. Both
countries have built successful garment export industries, but they are no longer
achieving the growth which they enjoyed during the 1990s. Their garment exports are
threatened by the unprecedented trade liberalisation - the phasing out of the quota system
by 2005.
Bangladesh currently benefits from quota-free access to EU markets and generous quotas for US
markets, while Nafta member Mexico enjoys quota-free access to the US market. But theseadvantages will have disappeared by the end of 2004. And in both cases, international
competitiveness will be hampered by an absence of backward linkages into the yarn and fabric
sectors, and hence an over-reliance on foreign suppliers.
The garment industries in the two countries have something else in common. Both fear that
China will use its enormous resources to flood the world's markets. Now that China is a memberof the World Trade Organisation (WTO), other WTO countries are no longer permitted to
maintain quotas on Chinese exports after 2004.
Structural differencesStructurally, however, the industries in Mexico and Bangladesh could hardly be more different.
Mexico's export sector is concentrated mainly in maquiladoras or in-bond assembly plants
located close to the US border. Incoming components or part-assembled goods can be freelyimported without being liable to customs duty, and can then be exported to foreign markets,mostly those in the USA, without hindrance.
Critics of the maquiladora system argue that, because activities remain concentrated in arelatively small part of the country, the Mexican economy as a whole is deprived of some of the
benefits normally associated with industrialisation. In addition, maquiladoras have often been
accused of working to a different set of rules from the mainstream Mexican economy-not least inthe area of labour conditions.
Furthermore, most of the textile and clothing maquiladoras are owned or part-owned by foreign
interests, chiefly US companies, with little interest in transferring the skills and technologywhich would benefit the Mexican economy as a whole.
Instead, Mexico is seen by these firms as offering: a convenient location with close proximity to
the US market; a low wage workforce; and a means of enabling the US textile industry to survive
through production sharing.
http://www.just-style.com/authors/just-stylecom_id37http://www.just-style.com/authors/just-stylecom_id37http://www.just-style.com/authors/just-stylecom_id37http://www.just-style.com/authors/just-stylecom_id378/2/2019 MR 1 Garment Industries in Bangladesh and Mexico Face an Uncertain Future
2/3
Bangladesh's garment industry is geographically more dispersed than Mexico's. This is despite a
concentration of activity in and around the capital city of Dhaka, and a growing garmentmanufacturing presence in the country's export processing zones (EPZs). Bangladesh's garment
industry also appears to be more entrepreneurial - more than 95 per cent of garment factories are
owned by Bangladeshi companies or families rather than foreign investors.
The fact that most of the investment is in local hands means Bangladeshi owners have a vested
interest in the industry's future. Investment in the Mexican garment export industry, by contrast,is probably more susceptible to the impulses of foreign investors and to changes in the relative
competitiveness of different production locations.
On the other hand, having a foreign presence can improve access by manufacturers to the outside
world - especially foreign markets, provided they are allowed to do business directly with
foreign customers rather than intermediaries such as local agents.
Foreign investment
Foreign investment will certainly be needed in both countries if their respective industries are totake an important step in securing their futures - namely the development of "backward linkages"
or upstream operations in yarn and fabric manufacture.
In both Mexico and Bangladesh, the reliance of the garment industry on imported materials is a
major weakness. For garment makers, the need to import materials results in higher procurementcosts and hinders efforts to speed up response times. Also, it renders producers vulnerable toexchange rate movements, logistical and transportation problems, and the risk of disruption to
supplies through political, social or military conflict.
In 1996 Mexico became the USA's leading textile and apparel supplier in volume terms, fuelled
by its quota-free and duty-free access to the US market under Nafta (North American Free TradeAgreement). But in recent years confidence in the industry's future has been evaporating.
In 2002 China regained its position as the number one supplier to the USA in both value and
volume following its accession to the World Trade Organisation (WTO), and the removal of awhole batch of products from quota.
Expert Analysis
Prospects for the Textile andApparel Industry in Bangladesh 2003The textile and apparel industry inBangladesh occupies a prominentposition within the country's industrialstructure. It is the largest manufacturingsector, providing jobs for some 50% ofthe total industrial workforce andcontributing 9.5% of the country's GDP.Also, it accounts for almost 77% of totalexports, making it Bangladesh's leading
http://just-style.com/store/products_detail.asp?art=23729&lk=eahttp://just-style.com/store/products_detail.asp?art=23729&lk=eahttp://just-style.com/store/products_detail.asp?art=23729&lk=eahttp://just-style.com/store/products_detail.asp?art=23729&lk=eahttp://just-style.com/store/products_detail.asp?art=23729&lk=ea8/2/2019 MR 1 Garment Industries in Bangladesh and Mexico Face an Uncertain Future
3/3
US textile and apparel imports from Mexico, meanwhile,
rose in volume by only 1 per cent in 2002 and declinedin value by 3.6 per cent. The prospect of guaranteed
markets for Mexican garments in the USA is now
looking less secure. Not surprisingly, investors are
getting nervous.
The 125 per cent increase in US import volume from China in 2002 has sent shivers through theboardrooms of companies not only in the USA but also in many developing countries. Growing
numbers of firms fear that Chinese suppliers will progressively squeeze them out of global
markets.
Moves by the US industry to reintroduce quotas on Chinese exports will therefore be welcomed
by manufacturers in Mexico and Bangladesh as much as by those in the USA. But under the
terms of the WTO, the reintroduction of quotas can only be temporary.
Ultimately, garment makers in Mexico and Bangladesh will have to adopt strategies appropriatefor a world in which winners will be decided on the basis of their international competitiveness -
not on the basis of their quota-free access to the major markets.
foreign exchange earner. Find out morehere.
http://just-style.com/store/products_detail.asp?art=23729&lk=eahttp://just-style.com/store/products_detail.asp?art=23729&lk=eahttp://just-style.com/store/products_detail.asp?art=23729&lk=ea