Cap maker sees snags in shift to Bangladesh

Labour problems lurk but Mainland Headwear is still attracted by cheap wages in the country

PUBLISHED : Wednesday, 18 September, 2013, 12:00am
UPDATED : Wednesday, 18 September, 2013, 3:08am

Two years ago, when Mainland Headwear chose Bangladesh as the location for its new factories, rather than China, its management may not have expected it would face so many hurdles.

Despite the well-known problems of flooding, power shortages and a lack of infrastructure in the country, its capital, Dhaka, has continued to attract leading fashion brands, with the likes of Nike and Victoria's Secret setting up production lines to take advantage of wages that are among the lowest in Asia.

But Mainland Headwear, which makes caps for Nike, Reebok and Wrangler, said there were quite a few hidden costs behind the cheap labour - even with wages just a tenth of those in China.

"When we first went there, the male workers would not take orders from a Chinese supervisor because she was a woman," said Maggie Gu, the company's chief operating officer. "Also, we had to be careful not to raise the salary of a worker from a lower social class higher than that of his higher-class peers, otherwise there would be a riot."

And while Bangladeshi workers were much less demanding than their Chinese counterparts - who Gu said might turn down a job if the factory had no air conditioning or there were not enough workers of the opposite sex - they also took much longer to pick up a skill.

"It may take three men in Bangladesh to do one man's job in China," Mainland Headwear's chief financial officer, Thomas Lai Man-sing, said. "Taking everything into account, the productivity rate there is probably just half of that in China."

Despite all the problems, Bangladesh, along with members of the Association of Southeast Asian Nations such as Vietnam and Indonesia, have become a second choice for Hong Kong manufacturers which can no longer afford the wages in China that have more than doubled since 2009.

The wage rise was driven by Beijing's four trillion yuan (HK$4.5 trillion) fiscal stimulus and by Guangdong's drive to push its manufacturing sector higher up the value chain.

"I bought a plot of land in Hubei province for expansion two years ago, but I changed my mind after seeing wages jump HK$15 million in a year," Mainland Headwear managing director Pauline Ngan Po-ling said. "I gave up the land and moved to Bangladesh, where I already had a supplier."

But that did not necessarily make the company's life that much easier. Its plan to move half of its production capacity to Dhaka this year was repeatedly delayed - first by a nationwide labour strike sparked by the collapse of a substandard garment factory that killed more than 1,000 workers in April, and then by a delay in the transfer of titles for the sites it had acquired.

But despite the hurdles, the migration of manufacturers from China will continue.

Sun Mingchun, the head of China research at Daiwa Capital Markets, said in a report that the 10 Asean countries - with a combined manufacturing workforce of 50 million to 60 million - would replace China as the world's new factory over the next 10 to 15 years, not only because of their advantages in terms of costs, wages and labour supply, but also because many enjoyed duty-free export status to Europe and the United States.

"In 2000, 40 per cent of Nike's sports shoes were made in China, and 13 to 14 per cent in Vietnam. Now, it's the other way round. Vietnam's share has jumped to 41 per cent, while China's fell to 32 per cent," Sun said.