Sole of the Export Industry

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Footwear was Bangladesh’s leading export item at $827 million in FY 2017. Currently, the sector has a high potential for capturing a larger share of the global market, which is about $240 billion annually for all types of footwear including leather, manmade leather, and denim or others fabrics. In recent years, Vietnam and Cambodia have been forging ahead in seizing big chunks of the EU and North American markets with strategies that are worth noting and emulating.

Footwear exports from Bangladesh rose by 22.96% from FY 14 to FY 17 as shown in Figure 1. The Footwear sector plays a significant role in the economy of Bangladesh in terms of its contribution to export and domestic market. However, it faces tough competition from China, the world’s leading footwear exporter at 53% share; this is followed by Vietnam and Cambodia which are the two other thriving exporters. 

Over the recent years, it can be observed that the world’s largest footwear manufacturer China, is now withdrawing from the global leather goods market and Bangladesh should be ready with huge potential to attract foreign investment in the sector. China’s annual leather footwear production had dropped by 5.29% in 2013 and 7.45% in 2014. The main reasons for China’s focus shift are the rising labor cost. In consequence, Bangladeshi manufacturers are now planning to fill the vacuum in the international footwear market being left by China but Vietnam and Cambodia are ahead in this game as we will find out.

Bangladesh is also emerging as a leading supplier of non-leather footwear at low prices and standard quality. The country is now supplying sports shoes, sandals, flip-flops and boots to a number of leading global retailers including H&M, Decathlon, Kappa, Skechers, Fila, and Puma. Non-leather footwear exports stood at $171.57 million in FY14. Presently there is 110 export-oriented factories manufacture footwear in Bangladesh. Of them, Apex, FB, Picard Bangladesh, Jenny’s, Akij, RMM Bengal, and Bay have their own tanneries and leather processing units. Reasons behind the fast rise in demand for synthetic footwear include the non-compliance issues surrounding the leather industry, and the price of synthetic or polysynthetic leather footwear being three times cheaper than the genuine leather ones.

The Vietnam-European Union free trade agreement which will take effect in 2018 and allow Vietnamese footwear makers more chances to boost export. To take advantage of those agreements, the local leather and footwear industry prepare material at home to join preferential tariffs from the deal when exporting their products to the US, the European Union, and some other markets. The master plan to develop footwear in Vietnam, from 2020 to 2025, emphasizes that the footwear industry is the key exporting industry, with its strategic products are shoes, sandals and priority to sneakers and canvas shoes, fashion leather footwear, high-quality briefcase, bag, and wallets, and supporting industries, quality leather and leatherette. Moreover, there is a necessity to focus on building capacity to design and develop new products. Vietnam signed the (now nearly defunct) Trans-Pacific Partnership (TPP) deal and other FTAs expecting they would present more opportunities in production and business for Vietnam’s enterprises, including firms from the textile, garment, leather and footwear industries. The outlook for Vietnamese footwear is positive, especially when export tariffs to EU and other TPP countries (probably in a truncated TPP) will be reduced to 0% and Vietnam abides by the geographic origin regulation for its products.

The Vietnam Leather, Footwear and Handbag Association (Lefaso) reported that the sector obtained $16.2 billion from export last year, up 8.8% from 2015. Of which, $13 billion was from footwear and the remaining was from handbags and leather items, marking respective annual increases of 8.2% and 11.1%.Footwear currently ranks fourth and suitcase-bag-briefcase ranks tenth among Vietnam’s top 10 foreign currency earners.

Currently, Vietnam’s footwear industry has 812 enterprises and more than 624,000 employees (75% of whom are female); 70% of big exporting enterprises are joint ventures or 100% foreign capital. 90% of Vietnam’s footwear products are processed products that are dependent on technical devices, technology, design, and sources for imported supplies of raw materials, accessories.

As for the Cambodia footwear sector, it can be noted that the footwear sector continued to record strong growth in 2015, with exports increasing by 21.8% to a total of $538 million. The countries of the European Union (EU) were the main destination markets for footwear exports, with a 56% share, followed by the US, which represents an 18% share. Japan is also an important market for Cambodia. In 2015, combined garment and footwear exports accounted for 78% of the country’s total merchandise exports. The garment and footwear sector is Cambodia’s largest formal private sector employer, as it currently employs more than 620,000 workers, 86% of whom are female, and with a large majority being relatively young.

According to the Cambodian Investment Board (CIB), 78 new garment and footwear investment projects were approved in 2014. These projects were largely funded by investors from mainland China and Hong Kong, with a small proportion from Taiwan and other economies. Most were in the form of sole ownership (85%), and only about 15% in the form of joint ventures. The new garment and footwear projects approved in 2014 accounted for $452 million of fixed assets (a slight decline compared to 2013). Investments in the garment and footwear sector represented 28% of the total newly approved investment in fixed asset value in 2014.

The growing footwear industry over the past decade led hundreds of thousands of young Cambodians to migrate to the city seeking paid employment. Some factories offered extra financial incentives to some workers to attract labor, while base wages of entry-level workers have often remained aligned with the statutory minimum wage. Cambodia’s minimum wage for the garment and footwear industry was first introduced in 1997 when it was set at $40 per month. The rate has since increased to $128 per month, effective from January 1, 2015. The minimum wage is guaranteed for every full-time worker in the garment and footwear industry; part-time workers need to be paid in proportion to their working time.

Brexit could pose short-term risks to Cambodian garment and footwear exports via its effect on Britain’s exchange rate, while longer-term risks are posed by the potential loss of tariff-free access to the UK market.

The World Bank has upgraded Bangladesh and Cambodia from a least developed country (LDC); this may presage a similar upgrade from the UN. If this occurs, both countries could ultimately lose its access to the EU’s EBA scheme for LDCs. This will not be recognized until the next three years, as there are transitional arrangements in place. The garment and footwear sector has some time to prepare for an environment in which its competitive advantage is reduced through loss of EBA status, but it will need to adapt to this reality over the medium-term.

Another lesson that can be learned is rather than aiming for a revival of manufacturing across the entire economy, China’s policymakers let selected industries and geographic regions take the lead in ramping up manufacturing. The lead sectors were export-oriented consumer goods (such as textiles, shoes, and toys) and infrastructure and real estate- related industries (such as steel, cement, glass, construction equipment, and ship-building). Letting some sectors and regions serve as pioneers enable the country’s leaders to start ramping up manufacturing in those segments of the economy with already enjoying some comparative advantage. These early movers also become showcase examples from which other industries and regions could learn from.

In Bangladesh, the per capita usage of footwear is rising and the per capita consumption of footwear, including leather, is 3-pairs, which was 1.7-pairs five years back. The local footwear market that was worth Tk .16,000 crore in 2016 is growing at a rate of 10-15% annually. The country uses 30 crore pairs of footwear annually. Currently, Bangladesh exports footwear to over 50 countries, including the EU, China, Japan, Korea, Canada and North America. The EU is the largest export destination of Bangladesh’s footwear industry. And the majority of leather (54%) is exported to the EU market.

Bangladesh lacks world-class backward linkage industries. Production outsourcing by leading global footwear brands has driven export growth in China, Vietnam, and Cambodia. Along with outsourcing comes FDI and the development of a well-integrated supply chain. Leather and non-leather footwear require a more complex and sophisticated supply chain to become globally competitive. The global clothing and footwear markets are dominated by leading retail companies through outsourcing much of their production to developing countries.

Bangladesh should concentrate more on global reputation and branding like Vietnam and India. They achieved this global reputation for their modern technology, processing plants, and product-related skilled man powers. So to get the global reputation, we should take proper private and govt. initiatives in the field of leather technology. Branding is the most important aspect to get the global market reputation in the footwear sector. Nike, Rebook, Hushpuppy and some other is a world-famous reputation for footwear.

The writer can be reached at mehrin.karim07@gmail.com.

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