International Paper

The Rise of Bangladesh’s Textile Trade

Bangladesh, one of the world’s poorest countries, has long depended heavily upon exports of textile products to generate income, employment, and economic growth. Most of these exports are low-cost finished garments sold to mass-market retailers in the West, such as Wal-Mart. For decades, Bangladesh was able to take advantage of a quota system for textile exports that gave it, and other poor countries, preferential access to rich markets such as the United States and the European Union. On January 1, 2005, however, that system was scrapped in favor of one that was based on free trade principles. From then on, exporters in Bangladesh would have to compete for business against producers from other nations such as China and Indonesia. Many analysts predicted the quick collapse of Bangladesh’s textile industry. They predicted a sharp jump in unemployment, a decline in the country’s balance of payments accounts, and a negative impact on economic growth.

The collapse didn’t happen. Bangladesh’s exports of textiles continued to grow, even as the rest of the world plunged into an economic crisis in 2008. Bangladesh’s exports of garments rose to $10.7 billion in 2008, up from $9.3 billion in 2007 and $8.9 billion in 2006. Apparently, Bangladesh has an advantage in the production of textiles—it is one of the world’s low-cost producers—and this is allowing the country to grow its share of world markets. As a deep economic recession took hold in developed nations during 2008–09, big importers such as Wal-Mart increased their purchases of low-cost garments from Bangladesh to better serve their customers, who were looking for low prices. Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing, stated its production in Bangladesh jumped percent in 2009, while production in China, its biggest supplier, slid 5 percent.

Bangladesh’s advantage is based on a number of factors. First, labor costs are low, in part...