Global fashion brands cut Bangladesh orders after turmoil

August 19, 2024

Category: General

Country: Bangladesh

Region: Asia

Producers in world’s second-largest garment exporter say customers are concerned about violence and disruption

By Benjamin Parkin, Dhaka.
15th August, 2024.

Top international fashion brands are shifting orders away from Bangladesh because of the turmoil that surrounded the fall of authoritarian Prime Minister Sheikh Hasina, according to manufacturers in the world’s second-largest garment exporter.

Factories were shut for days after Sheikh Hasina’s government brutally cracked down on student protesters, sparking an uprising that toppled her regime last week. Multiple factories owned by regime loyalists, including suppliers to global brands such as Swedish retailer H&M and Spanish chain Zara, were torched in retaliatory attacks.

The weeks of violence, in which an estimated 500 people died, have delayed deliveries of clothes and shoes for the winter retail season in Europe and North America.

Factories have resorted to working overtime and flying products by air, an expensive option that has wiped out profits for the deliveries, in order to make up a backlog that stretches as far as a month.

Bangladeshi exporters said some major brands had shifted orders for upcoming seasons to rival south-east Asian suppliers, disrupting existing global supply chains and threatening the economic backbone of the country of 170 mn.

Factories “received calls from Spanish buyers, German buyers: ‘For the time being, we’re diverting 40 per cent of our orders to Cambodia or Indonesia,’” said Mamun Rashid, an adviser to garment manufacturers in Bangladesh. “They didn’t know how long this turmoil would continue.”

Syed Nasim Manzur, managing director of Apex Footwear, which supplies French sports retailer Decathlon and Uniqlo’s Japanese parent Fast Retailing, said the upheaval had “led to a real shaking of confidence” in Bangladesh among international brands.

“Large groups are saying they’ll reduce their sourcing by 30 per cent for the next season,” said Manzur, who is also president of Bangladesh’s leather goods and footwear exporter association. “We need to make sure that confidence is restored.”

Muhammad Yunus, the Nobel Peace Prize-winning economist who took charge as the country’s interim leader last week, has said his first priority is to reestablish law and order.

Authorities have created a new industrial security task force and deployed the army to guard factories. Police, who went into hiding after the former government’s collapse, started returning to duty this week.

Prime minister since 2009, Sheikh Hasina prioritised making it easier to do business, investing in roads, ports and digitisation.

Many global brands have come to rely on Bangladesh. H&M, for example, has more than 1,000 entries for Bangladesh-based suppliers on its website. The country exported $47bn worth of garments last year and is also a large producer of shoes and leather goods.

But export industries became deeply entwined with Sheikh Hasina’s ruling Awami League party. Trade associations were dominated by loyalists and industry tycoons held senior positions in her government, which critics said allowed them to act with impunity — including by defaulting on bank loans.

“Many of them used their office to appease her, and get in her good books, so they could later on become ministers, mayors and also hold positions in Awami League committees,” said one factory owner who supplies H&M and Zara. He added that securing customs licences and clearances had required paying “a huge amount of money” in bribes.

Yunus’s government has said it wants to crack down on corruption and reform institutions such as the bureaucracy and judiciary, which executives say will help Bangladesh’s export sectors become more competitive.

Salman F Rahman, a former industry adviser to Sheikh Hasina and co-founder of Bangladesh’s Beximco Group, was arrested in Dhaka on Tuesday after allegedly trying to flee the capital in disguise.

A suburban Dhaka factory run by Beximco, which says on its website its clients have included H&M and Zara, was attacked by anti-government protesters last week. On Tuesday, the sign outside its main gate was still partially torn down and piles of ash remained on the charred floor of its burnt-out reception area.

H&M declined to directly comment on whether it was shifting orders, but said it welcomed the “steps taken for greater stability” in Bangladesh and that factories there were “gradually opening again”.

“We have also expressed to our suppliers that we would not seek any discount due to delays that might happen under the current circumstances,” the Swedish clothing group said.

Uniqlo declined to comment on whether it was shifting orders away from Bangladesh, but said it did not cancel them “without a factory’s prior consent”. Zara and Decathlon did not respond to requests for comment.

Exporters said they hoped Yunus, who is celebrated globally for founding microfinance pioneer Grameen Bank, could reassure international brands.

But it is unclear how much time the new leader will have. Exporters say they would like him to be in power for at least a year, but some legal experts argue the unelected government must concentrate on restoring stability and preparing for elections before then.

Apex’s Manzur said political stability was a “prerequisite for economic growth”. “The economy has lost a lot of momentum, which needs to be regained at the first opportunity,” he said.

An Apex facility in suburban Dhaka that was closed for a total of nine days during the upheaval is now working 12-hour shifts instead of the usual eight to catch up on the delivery backlog.

About 8,000 people, mostly women, staff long production lines churning out Decathlon trainers and sturdy work boots for US brand Wolverine.

“The faster we can rebuild the image, the faster we can secure the orders,” said Md Nasrullah, Apex’s head of international business. “There are many examples when we’ve met impossible deadlines for the buyers.”

Executives said even if business had been temporarily lost to other countries, Bangladesh’s plentiful and low-cost labour meant the country would be hard to replace in the long term.

“We all are trying to recover,” said Nowshin Islam, a production head at Apex’s sports unit. She acknowledged the situation in the country was uncertain, but added: “I think we will get over it pretty soon. I’m very positive for the future.”