Arvind , the largest denim company in India with a capacity of about 110 million mtrs , is planning to set up a manufacturing plant in Bangladesh in a 80:20 joint venture with Nitol Group of Bangladesh . The planned investment is about $69 million over a period of three years. In the first phase, a plant of 10 million mtrs would be set up with an investment of about $25 million and then it will be scaled up in the coming years.
Why Arvind Wants To Put Up A Plant In Bangladesh ?
There are just too many reasons to justify this move by Arvind. In fact , there could not be a better place for Arvind to go for to set up a new plant for denim.
- It is a Huge Market and consumes almost around 300 million mtrs of denim p.a out which about 100 million mtrs is imported . We have seen a number of new denim plants been set up in Bangladesh in the last few years and this has taken the domestic production capacity up to 200 million mtrs.
- Bangladesh enjoys the GSP benefit to the EU ie the garment exports from Bangladesh to EU are duty free . This provides a huge benefit to the local industry in Bangladesh – a benefit Arvind aims to tap.
- Bangladesh was the top export performer in the EU market in 2009 with a 6% growth whereas most of other countries suffered a fall in exports to EU to global recession. Bangladesh exported a total of Euro 5.9 billion worth of goods (over 90% were garments) to EU.
- Bangladesh exported a total of about 89.6 million pieces of jeans to EU in 2009 against only 8.1 million pieces from India .
There are significant cost advantages in Bangladesh as compared to India. These relate to labour costs, power costs and cost savings due to efficiencies of scale. Eg, the power cost in the Comilla Export Processing zone ,where Arvind will set up its plant , is about Taka 4.18 /kwh which translates to about Rupess 2.69 (about 6 cents) . Compare this with the cost of power that Arvind is currently incurring– Rs 3.8/kwh at Naroda plant and Rs 4.7/kwh at its Santej plant (about 8.5 to 10.5 cents/kwh). There will thus be a saving of about 30% in power costs alone. The labour, overheads and freight costs would be some of the other categories where Arvind would save substantial costs.
The lower costs in Bangladesh are one of the reasons why the average price of export of Denim Apparel from Bangladesh was Euro 4.17 in 2009 as compared to Euro 9.46 from India . The difference is Huge ! . In all likelihood, Arvind will go for a forward integration for export of garments from Bangladesh and aim to utilize all its fabric for own orders. This will mulitiply the gains accruing to it .
All the above mentioned factors and more have contributed to Bangladesh becoming a favourite destination for denim garment exporters and encouraging the denim major Arvind to set up base there .