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Better infrastructure, strong FDI positions Vietnam ahead of Bangladesh

Better infrastructure strong FDI positions Vietnam ahead of BangladeshsIncreasing diversion of trade from Bangladesh to its close competitor Vietnam is causing the nation to lose sleep. As recent Export Promotion Bureau stats reveal, RMG exports from Bangladesh declined by 7.59 percent to $15.77 billion due to a decline in global demand. One reason for declining export is Bangladesh’s overdependence on only five items: men’s and women’s T-shirts, trousers, shirts, jackets and sweaters. Vietnam exports around 10 types of products to the US alone. The country also has free trade agreements with the European Union, the Asean, Hong Kong, Singapore, South Korea and China. It exports apparels to countries like the United States, Europe, Japan and South Korea. Of this, the US has traditionally been the biggest market for Vietnamese apparels and has benefitted the most from the US-China trade war. 

Shorter lead times enhances infrastructure ranking

Having 1,900 miles of coastline and 320 ports, Vietnam offers shorter lead times for apparel shipments compared to others. It was ranked 80th by the World Economic Forum in terms of quality of port infrastructure, with an average score of 3.80 on a scale of 1 to 7 between 2006 and 2018.  Vietnam also offers shorter lead times for procuring skilled manpower and reaching its production capacities. 

Cheap labor reduces production costs

The country has a low labor cost which reduces production costs compared to other competitive sourcing countries. However, Vietnam has increased its minimum wage by 5.7 per cent from January 2020. Wages will be based on the living expenses and regional distance from the workplace.  In July 2019, Vietnam enacted a new competition law that limits unfair competition among Vietnamese and foreign companies in the domestic market. Though Bangladesh too launched such an act, it has not been effectively implemented. 

Developing industries to curb import costsBetter infrastructure strong FDI positions Vietnam ahead of Bangladesh

Another challenge that Vietnam faces is the high import cost of machinery and raw materials. To counter, this, Vietnam government is making heavy investments in the development of support industries. It has developed its cotton and knitting industry. Production of input materials lowers production costs besides opening doors to the competitive market. Also, Vietnam takes shorter time to import raw materials from China than other sourcing countries.

Currency devaluation adds advantage

The export-oriented country recently depreciated its currency Dong against the US dollar. Its better market access, zero tariffs on certain markets, shorter lead times, and competitive exchange rates, give it an advantage over other countries. On the other hand, Bangladesh does not plan to devalue its currency as the country’s economy mostly depends on import rather than export. This is causing it to lose competitiveness in the global market as it offers higher prices than other competitors.

Attracting foreign direct investments

With increased urbanisation, growing employment and income, Vietnamese people spend the second-highest on clothing after food. The domestic market attracts investments from the major international brands. The country, with skilled laborers and sophisticated techniques, is currently attracting many Chinese and Korean investors.

Comparatively, despite being the strongest source of economic growth for Bangladesh for three decades, the textile and apparel sector faces various challenges. Poor shipment facilities, higher production costs due to compliance, pegging of taka against US dollar, increased wage structure, false promise by buyers of giving fair prices, less diversified products, lack of diversified market and more importantly, unskilled workforce and the lack of mid-level management are some major roadblocks.  

If Bangladesh wants to indeed compete with Vietnam, it needs to start producing high-end diversified products, look for diversified markets, train its workers to maximize efficiency, and start catering  to small orders to get hold of the e-commerce platforms.