Coronavirus shifting orders from China but can Bangladesh get them?

The spread of the deadly coronavirus has created a fresh opportunity for Bangladesh's apparel exporters as many global retailers want to shift their orders from China to Bangladesh, industry insiders said.

As their spring season draws closer, retailers who depend heavily on China – known as the world's workshop of factories – for sourcing their garments and other fashion products are desperately looking for alternative sources, which include Bangladesh.

But the question is, can Bangladesh capitalise on this?

Apparel entrepreneurs are not so confident about it because they rely heavily on China for importing their raw material.

MA Jabbar, managing director of DBL Group, which is one of the leading apparel manufacturers and exporters in the country, said the spread of coronavirus across China will create some opportunities for Bangladeshi exporters if the current situation extends further.

"We are already receiving requests from Western buyers to create some space for additional orders," he added.

However, Jabbar is skeptical about the benefit because manufacturers depend too much on China for raw material such as fabrics, yarn, accessories and some basic chemicals for the garment and textile industry.

Sources at the DBL Group say that about 20 percent of their raw material comes from China, and they are looking for new sourcing markets like Indonesia, Thailand and India.

"We have already placed some orders to buy raw material from other countries to cut our dependence on China. But we have to pay more for that," Jabbar told The Business Standard.

Buyers will have to pay more to exporters as their production cost will increase because of it, he noted.

"We will try to grab a large portion of orders from China. However, Vietnam will benefit more from the situation because of its proximity to China," said David Hasanat, chairman and managing director of Viyellatex Group.

He also said that Bangladesh has strengths in some areas, such as the capacity to produce 80-90 percent knit fabrics, 70-80 percent denim fabrics and 40-45 percent woven fabrics.

Hasanat added that Thailand, Korea, Indonesia and India could be the alternative sourcing markets for raw material.

Knitwear exporters should be in a very advantageous position because local millers can meet 85 percent of the exporters' need for fabrics.

Yet, Bangladesh may not reap the benefits because knitwear manufacturers also import chemicals and some other raw material from China, said Mohammad Hatem, managing director of MB Knit Fashion.

Hatem, also the first vice president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said unscrupulous suppliers have already hiked raw material prices in the local market.

"It is not easy to shift the sourcing destination within a week, but buyers are currently looking for alternative sources," said Siddiqur Rahman, former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

He said buyers have to be flexible with exporters in terms of sourcing raw material.

"We do not directly source any fabric and other raw material from a country. We just buy as per the buyers' demand," Siddiqur said.

"If Bangladeshi woven garment exporters are able to source raw material from Pakistan, India and other countries instead of China, they will survive in the long run," said the former BGMEA president.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said Bangladesh should diversify its sourcing destinations in the future to reduce dependency on China.

European apparel retailers may see their profits affected by the coronavirus outbreak ahead of the spring-collection launches if Chinese factories, especially in key apparel-producing provinces Guangdong and Zhejiang, are forced to remain closed for longer, according to a Bloomberg report.

LPP, a Polish clothing manufacturer, said 10 percent of its spring-collection delivery is at risk due to factory closures.

Inditex, Asos, Primark and Next rely heavily on Chinese factories and fabric sourcing.

For Next, 19 percent of its products come from China.

Also, 19 percent of Asos' manufacturing workforce, 52 percent of Primark's and 29 percent of Inditex's production factories are in China.

Flexible supply chains may be able to reduce manufacturing disruptions, the report said. 

Fabric sourcing from China may be more difficult to substitute, and will put deliveries at risk, given the average six- to seven-month design-to-production time.

H&M's small supply-chain exposure to China makes the retailer practically immune to the coronavirus outbreak.

With only about six percent of manufacturing and three percent of processing workers employed in Chinese factories against 72 percent manufacturing and 87 percent processing in Bangladesh, the impact should be negligible, Bloomberg said.

H&M started moving production out of China in 2005, the company's most important sourcing market then, amid concerns over the European Union garment-import restrictions.

With labour costs rising, 67 percent of European Union-based businesses have started sourcing from other countries or plan to do so, according to Qima.

Yet, other countries in Southeast Asia do not have the same level of skill and tech as China, which has specialised in manufacturing more complicated, high-value clothing over the last 20 years.