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Production in Bangladesh: Overcoming Operational Challenges

As the world’s second-largest exporting country of ready-made garments (RMG), Bangladesh has attracted regional and international buyers, including many trading companies from Hong Kong. However, Bangladesh is relatively less exploited as a production base by Hong Kong manufacturers compared with Southeast Asian countries such as Vietnam and Cambodia, despite its comparatively lower labour costs.

First and foremost, Bangladesh presents prospective investors in its textile and RMG sectors with a dilemma: how to balance the benefits of very low wage bills with the many challenges posed by an unfamiliar operational environment. While cheap labour and an abundant supply of low-to-semi-skilled workers support its labour-intensive export sector, Bangladesh is fraught with practical difficulties – as exemplified by its poor scores in many categories of the World Bank’s 2017 Ease of Doing Business (EODB) Survey. Bangladesh’s overall score of 176 sits towards the bottom end of the 190 surveyed economies, outperformed by other garment exporters in Southeast Asia, as well as its South Asian neighbour India.

Table: EODB 2017 Rankings of Bangladesh and Other Asian Countries
Table: EODB 2017 Rankings of Bangladesh and Other Asian Countries

In the face of those operational challenges and the strong cost pressure on factory relocation and diversification, HKTDC Research recently embarked on a fact finding field trip to Bangladesh, visiting factories run by Hong Kong companies in order to gain a better understanding of their operational environment, and how they would tackle any challenges that might arise. 

Human-Resources Management

Unlike China, Bangladesh has no difficulty in finding RMG workers to fill such labour-intensive jobs as cutting, trimming, stitching, sewing and packing. However, all of the Hong Kong manufacturers interviewed invariably pointed out that human-resources management is the most important operational issue that foreign investors need to tackle on a daily basis.

Similar to most emerging countries, Bangladesh’s labour and work culture are admittedly not as mature as China’s or as compatible with efficiency-seeking Hong Kong businesses. However, Hong Kong manufacturers interviewed generally saw good potential in Bangladesh’s labour force and concluded that the operational issues were manageable.

Productivity Needs Further Improvement

Hong Kong companies considering factory relocation and diversification to Bangladesh mostly have set-ups in China, which is a very mature production base with more than 20 years of rapid development, resulting in unrivalled strengths in productivity as well as upscaling capability. Bangladesh’s labour productivity is notably lower than that of China, both on the production frontline and at the management level. Upscaling to take advantage of a good supply of low-cost labour, however, would usually present operational and management challenges to ensuring quality and timely delivery.

Photo: People gathering at the gate of the Export Process Zone (EPZ) in search of work.
People gathering at the gate of the Export Process Zone (EPZ) in search of work.
Photo: People gathering at the gate of the Export Process Zone (EPZ) in search of work.
People gathering at the gate of the Export Process Zone (EPZ) in search of work.
Photo: Workers at a milling factory in the Dhaka Export Process Zone (EPZ).
Workers at a milling factory in the Dhaka Export Process Zone (EPZ).
Photo: Workers at a milling factory in the Dhaka Export Process Zone (EPZ).
Workers at a milling factory in the Dhaka Export Process Zone (EPZ).

Many workers on the production frontline are illiterate, have very limited education, and possess an agrarian background. As a result, simple yet important procedures in the production flow, such as labelling and stocktaking, might not be carried out properly. More workers are needed in the production line in order to maintain a smooth and timely process. The quality of the finished products is not as standardised as those produced by workers in China or Vietnam, and high wastage is reported.

With regard to factory management, local Bangladeshi staffers mostly do not possess up-to-date management knowledge. As such, they tend to adopt line-management models that Hong Kong manufacturers would consider to be either obsolete or under-productive. Furthermore, many factory management staffers lack self motivation to improve efficiency and in turn need constant monitoring from top management to drive changes.

Training and Skill Transfer as Key

Such productivity and cultural difference issues are common when foreign investors set foot in an emerging country. All manufacturers that HKTDC Research interviewed said training was important in order to improve productivity. Overseas management talent initially needs to be “imported” from overseas to train local frontline workers and the supervisory team, as local workers often simply did not have the knowhow or the skill sets. A high degree of top-management involvement is always imperative in order to drive implementation and monitor progress in phases. A proper strategy and the determination of top management to engage Bangladeshi workers at different levels is conducive to driving changes and the desired upgrade in productivity.

Jamie Wong, the CEO of Queen South Textile Mills, which operates in the Bangladeshi capital Dhaka, said the company found human-resources training from Indian companies to be helpful. The Bengali-speaking part of East India shares the same language and has better cultural alignment with Bangladesh than China, so their training was more readily absorbed by Bangladeshis.

Sensitivity Towards Cultural and Economic Differences

Bangladesh has the highest percentage of Muslims, some 90%, of any Asian country, and is the third-most populous Muslim-majority country in Asia, after Indonesia and India.

Chart: Muslim Population in Popular Production Bases
Chart: Muslim Population in Popular Production Bases

Only the RMG manufacturing industry can absorb so many workers with such little schooling or skills in Bangladesh. However, foreign employers, including senior factory workers, who are providing income opportunities for an eager workforce, are cautioned against showing arrogance or disdain towards relatively poor and backward local workers.

HKTDC Research found that the workplaces contained many female employees, especially those carrying out such tasks as sewing and stitching.  We were told that manufacturing jobs had helped female workers to find greater social freedom and independence, things rarely experienced by many of their female village peers in a traditional Muslim country such as Bangladesh.

Photo: Standardised headscarves are worn as uniform in a factory set up by Hong Kong manufacturers.
Standardised headscarves are worn as uniform in a factory set up by Hong Kong manufacturers.
Photo: Standardised headscarves are worn as uniform in a factory set up by Hong Kong manufacturers.
Standardised headscarves are worn as uniform in a factory set up by Hong Kong manufacturers.

In the workplace, wearing a hijab, or headscarf, is for many Muslim females a visible expression of their religious identity. Foreign employers in Bangladesh should show sensitivity towards this and strike a proper balance with respect to a uniform dress codes and traditional Muslim attire.

Foreign investors should also expect praying to be part of the daily life and routines of Bangladeshi workers. Praying is practised at least during lunch time and in the evenings, if not five times per day. Foreign employers should be mindful that Bangladesh has a large number of RMG factories run by indigenous people, and foreign companies should note that their workers are likely to compare and benchmark their treatment against those in Bangladeshi-operated factories.

Generally, Bangladeshis are likely to maintain a certain level of social distance with foreigners, which may translate into trust and communication issues among foreign staff and local Bangladeshi factory workers, complicated at times by the need for language interpretation.

Labour Unions

Labour unions are active in Bangladesh, especially after the Rana Plaza collapse in 2013, which has spurred an increase in both the number of unions and members. With a considerable increase in factory-level unions in the country’s garment district, foreign investors should be aware that labour strikes are common, especially in Dhaka during election years. Labour union activities in Bangladesh, however, can be considered moderate, and strong unionist movements similar to the level in Cambodia are rarely found in the country.

As labour strikes are mostly concentrated in Dhaka, manufacturers can consider setting up production plants in other export processing zones (EPZ), such as Chittagong. Frequency and impact of labour strikes are much lower outside the Dhaka city boundary. Chittagong, a port city about 250 km from Dhaka, possesses an added advantage of reducing the logistics time for export shipment. In comparison, Dhaka’s strengths include its position as the country’s commercial capital, with better facilities for foreign buyer visits and meetings, and superior air connectivity than Chittagong. Furthermore, the skill level of workers in Dhaka is generally higher.

Operational issues regarding human resources appear daunting at the start but prove to be manageable over time. Indeed, time and patience is needed to establish trust between management and staff and to formulate a labour management model most compatible with their businesses. Meanwhile, Bangladesh’s productivity is about 70% that of China, lower than Vietnam (90%) but higher than Cambodia (55%), according to estimates by the Hong Kong Apparel Society.

With a notably larger labour supply than all other Southeast Asian countries except Indonesia, Bangladesh’s labour cost advantage is likely to remain in the medium term. Therefore, Hong Kong manufacturers see good potential in price competitive Bangladeshi labour. Investment in worker training and management knowhow, which could add to short-term costs, will result in efficiency and knowledge gains over the medium-term, eventually narrowing the productivity gaps with the other more costly exporting economies. 

Overall, Hong Kong businesses HKTDC Research interviewed consider that Bangladesh is suitable for factory relocation and diversification, yet demands continual management vigilance and determination.

Obtaining Land and Utilities

As discussed in the preceding article, Production in Bangladesh: Recent Developments and Opportunities, insufficient infrastructure and difficulties in obtaining land and utilities present big hurdles to instigating production in Bangladesh. As the provision of infrastructure facilities and utilities administration are out of the control of foreign investors, manufacturers can only adopt measures to accommodate the situation. The table below compares Dhaka with Colombo and Phnom Penh regarding the different aspects of obtaining electricity. Dhaka only outperforms the Sri Lankan and Cambodian cities in terms of electricity price. However, public-grid electricity might account for only a small portion of monthly electricity consumption for a factory in Dhaka.

Table: Ease of Obtaining Electricity in Dhaka
Table: Ease of Obtaining Electricity in Dhaka

Dealing with Red Tape

As stated earlier, Bangladesh scored low at 176 out of 190 in the World Bank’s EODB Survey, and red tape and excessive administrative procedures are prevalent. Again comparing Colombo and Phnom Penh in relation to different aspects of starting a business in Dhaka, it takes about 244 days to register property in Dhaka, much longer than in Colombo and Phnom Penh. Bangladesh performs best in terms of building-quality control, largely due to the regulations and compliance introduced after the Rana Plaza collapse in 2013.

Table: Ease of Starting a Business in Dhaka
Table: Ease of Starting a Business in Dhaka

The essential elements required to set up production premises, such as obtaining land, registering property, arranging construction permits and providing utilities, are all daunting procedures for business operators. This is especially difficult for foreign companies unfamiliar with the bureaucratic culture of Bangladesh, compounded by language barriers and a lack of business connections.

For example, some manufacturers told HKTDC Research they had experienced difficulties with customs clearance when importing capital goods, such as machines that were new to the country. Concerned government officials had no direction as to how to carry out customs clearance for these machines, and a lot of effort was spent working with different government departments in order to complete the process. 

Bangladesh allows full foreign direct investment and foreign-local joint ventures in manufacturing. One option to help deal with red tape is to partner with a local business, which often has better capability and resources to handle administrative issues such as registration and permits. “My local partner serves as the key interface between the factory and other parties such as the government, utilities providers and local industry associations, while I focus my attention on managing the daily factory operations,” said Tommy Lee, one of the directors at the Hong Kong Apparel Society. Such division of responsibility between local businesses and foreign investors is common in local foreign joint ventures in Bangladesh.

Reducing Logistics Time

Logistics infrastructure in Bangladesh is in dire need of upgrading, and the country’s road network is insufficient to support its rapidly growing industries. Businesses are rather passive in this area, merely balancing considerations between logistics time and other production factors.

Banny Yu, Chairman of the Hong Kong Apparel Society, shared his experience of having an export-processing production plant in Chittagong, where the port is located, in view of the considerable amount of raw materials that have to be sourced from China. Transportation of raw materials takes at least seven to eight hours per trip from Chittagong Port to Dhaka, and longer to other areas where the road network is even worse.

Having established amicable working relationships with overseas buyers, Yu noted that there was no strong need to meet business contacts and other parties in Dhaka, thus allowing his company to choose Chittagong as a production base, significantly reducing logistics time and cost. Other advantages of choosing Chittagong include fewer labour strikes, cheaper land and more land available for expansion.

As the world’s second-largest exporter of RMG products, Bangladesh’s logistics performance urgently requires further improvement. It fares much worse than its South Asian neighbour India, and is slightly out-scored by major RMG exporters in Southeast Asia, such as Vietnam and Cambodia. It does currently out-perform Myanmar, a minor RMG supplier but one that has attracted more attention lately due to its labour-cost advantage compared to its ASEAN peers.

Table: International Logistics Performance Global Ranking 2016 of Selected Production Bases
Table: International Logistics Performance Global Ranking 2016 of Selected Production Bases

Gauging Currency Exchange Risk

Exchange-rate fluctuations and currency mismatches are common issues to consider when investing in any emerging country, given that buy orders are paid in US dollars, while a large part of production costs including machinery amortisation are priced or paid in the local currency, which can fluctuate greatly against the US dollar. In the case of the Bangladeshi Taka, the USD exchange rate was about 1:65 in 2005, surging to 1:84 in 2012 before easing slightly to 1:79, currently. Hong Kong manufacturers interviewed admitted it would be difficult to predict exchange-rate movements and engage in hedging operations.

Furthermore, exchange control complicates the issue. The Bangladeshi Central Bank administers exchange control to minimise capital outflow – therefore it is difficult to have rebate adjustment on orders once a transaction is made and money is paid into Bangladesh. Business owners have to factor in exchange control and adjust on pricing and payment terms.


While most Southeast Asian countries offer better EODB conditions than Bangladesh, Hong Kong manufacturers with operations in either Dhaka or Chittagong unanimously pointed out that the labour-cost advantage and abundant labour supply is likely to be sustainable over a much longer time period than in Southeast Asia. In that regard, Bangladesh may only be rivalled by some parts of India and Africa, which could be more challenging than Bangladesh.

From the experience of Hong Kong manufacturers, daily operational issues such as labour, productivity and utilities shortages in Bangladesh can all be challenging in the initial years of operations, yet manageable over time. Efficiency and productivity gains can be achieved through considered investment in intensive training and management over the short-to-medium term. In other words, Hong Kong manufacturers can make good use of the human resources in Bangladesh for labour-intensive production, provided that they are determined to work out an investment and management strategy compatible with the local conditions.

Logistics limitations caused by the country’s infrastructure deficiency, however, will take more time to improve as this falls beyond the direct control of factory operators. It would be difficult for foreign companies unfamiliar with local practices to handle red tape and problems arising from government bureaucracy, issues that would be best left to any local partner and consultants.

In sum, Bangladesh is still an acceptable choice for consideration of relocating and diversifying labour-intensive industries despite the operational challenges mentioned above, especially if a foreign manufacturer is to adopt a long-term view to set up a production plant in the country, instead of just exploiting the labour-cost advantage in the short term.

Content provided by Picture: Kenix Lee
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