Indian exporters opt for cheaper production in Bangladesh

Faced with rising costs for labour, raw materials and real estate in India, garments exporters in the country are hiring cheaper production capacity in Bangladesh to beat cutthroat competition from countries like China and Vietnam in the global market.
Indian exporters are exporting fabrics to Bangladesh, helping the textile industry of that country and using rented production facilities to produce garments that are then exported to Western markets, “The Economic Times” reported yesterday.
The model of collaboration benefits the companies as well as the economy of Bangladesh and is a win-win situation for Indian garment manufacturers and exporters too.
Shahi Exports, one of India's largest ladies garment export houses based in Faridabad near Delhi, exports 3.35 lakh metres of fabrics to Dhaka every month. Their factory in Dhaka then turns these fabrics into nearly 1.5 lakh garments that are shipped out to the US and the European Union bearing 'Made in Bangladesh' tag.
"Such joint productions help make our exports more competitive than China and Vietnam," said Aditya Sharma, general manager of Shahi.
Shahi is not alone. A growing number of Indian exporters are using Bangladesh as an important station in their journey to Western markets, attracted by relatively cheap labour and land costs.
In Bangladesh, unlike in India, one can rent out a factory in lines of about 100 machines each so even one-third of a factory can be rented out making it easier for exporters to set up shops there.
"Goods manufactured in Bangladesh are 20-25 percent cheaper than in India," said Sudhir Dhingra, chairman and managing director of Orient Craft Export, one of the biggest exporters in North India.
By co-opting Bangladesh, Indian garment exporters find themselves making twice profits.
"Apart from the profit we make on the fabrics that we export to Bangladesh, Indian companies also maintain a 8-10 percent profit margin on the final goods, although this differs from product to product," said Dhingra.
This lucrative opportunity has resulted in a host of Indian textile mills and export houses getting into such collaborations.
This liking for Bangladesh has helped make that country the fourth largest apparels exporter in the world. Bangladesh has grabbed 3 percent share of the global apparel market, according to a recent report of World Trade Organisation.
As per the latest government data, Bangladesh's total export of readymade garments in 2010-11 touched an astounding mark of $17,1914.46 million growing at 43.35 percent over last year. In the same period, India clocked RMG exports worth $11175.76 million at just 4 percent growth.
However, while Indian exporters are going for collaboration with Bangladesh, concerns are there in some quarters that the very attributes that benefited India in the past may be coming back to haunt it.
Some experts said this trend could become problematic for India in the coming years, especially since the $45-billion domestic apparel business offers large-scale employment to people.
"We have a huge employment issue at hand and at this rate with most of the production going to other countries, this will cause a negative impact domestically," The Economic Times quoted Arup Mitra, professor at Institute of Economic Growth, as saying.