ANALYSIS-Wage unrest tests Bangladesh garment industry's low-cost edge

Low wages and duty-free ​access to key Western markets helped Bangladesh become the world's second-largest apparel exporter after ‌China, ​but protests over pay are testing the cost advantage of an industry that generates more than 80% of the country's export earnings. Protests began on Saturday in industrial areas around the capital Dhaka, forcing hundreds of garment factories to suspend production. Workers are demanding a 140% wage hike and have clashed with police, who used tear gas ‌and sound grenades.

The unrest comes as the garment industry, which employs 4 million people and is known for its low costs and reliability, was about to begin manufacturing spring collections for major brands such as H&M, Associated British Foods-owned Primark and Walmart, and exposes the challenge of raising wages as global competition intensifies. Garment company executives say worried clients have already called about shipments, after earlier disruptions from severe fuel and power shortagesfrom the Middle East war and 2024's mass anti-government protests.

Sparrow Group, ‌whose clients include Inditex's Zara, Gap and Marks and Spencer, said it halted production on Monday after a large crowd attacked its factory. CCTV footage showed people throwing bricks and stones, smashing windows and damaging exterior walls while attempting ‌to force open the main gates. Sparrow head Shovon Islam said more than 5,000 workers were evacuated safely. It was not immediately clear who was behind the attack.

“This is the industry's busiest season,” Islam told Reuters, adding major shipments were scheduled for November. "Any disruption at this stage is extremely damaging and is hampering production at the worst possible time. All my buyers are concerned."

HIGHER PAY COULD ERODE PRICE ADVANTAGE Workers want a minimum monthly wage of 30,000 taka ($243), from 12,500 taka ($100) currently. The last pay increase was in 2023 when wages went up by more than ⁠56%. Previous hikes ​were between 50% and 77%.

Bangladesh's government formed a wage board ⁠on Sunday to make a pay recommendation after considering factors including inflation, economic conditions, living costs and export performance, said Abdur Rahman Tarafder, secretary of the Ministry of Labour and Employment. The American Apparel & Footwear Association, which includes the top US companies in the sector, said the board was ⁠a "critical opportunity to deliver a fair wage that allows garment workers to support themselves and their families" and called for an annual review process.

The garment industry contributes about 10% of Bangladesh's GDP. Any increase that is similar to past raises could push Bangladesh's minimum wage ​above India, the world's fourth-largest textile exporter.

Industry officials say minimum garment sector wages in India typically range from 13,000 rupees ($137) to 15,000 rupees a month. Pay in China and Vietnam is roughly twice as ⁠much as in Bangladesh, according to 2024 data from the International Labour Organization. M. Mohiuddin Chowdhury, chief executive of Clifton Group, a garment company in Bangladesh's port city of Chittagong, said India was also an increasingly strong competitor because it had its own cotton and a strong yarn industry, as well ⁠as ​government incentives to support the industry.

And while Bangladesh enjoys duty-free and quota-free access to places including the EU, Britain and Canada, India now has a free trade deal with the UK, the second-biggest destination for Bangladeshi garments. In the financial year ended June 30, Bangladesh's garment export earnings fell 1.65% from a year earlier to $38.70 billion, though they rebounded 6.1% in July-September to $10.58 billion.

'COSTS ARE RISING FROM ALL SIDES' Chowdhury said an American buyer recently sought a 3-cent reduction per ⁠piece on a knitwear order after Indian manufacturers offered lower prices.

"We had no choice but to accept," he said, even as logistics costs rose 5% to 7% over the past year due to higher fuel, electricity, shipping ⁠and freight expenses. "Costs are rising from all sides, but buyers ⁠are still pushing for lower prices," Chowdhury said.

"With margins often limited to 2% to 3%, factories have little room to absorb additional costs. Worker demands are understandable, but prolonged disruptions could threaten jobs and factory viability." Labour currently makes up about 10% to 13% of the industry's costs.

Selim Raihan, an economics professor at the University of Dhaka, said buyers ‌valued reliability. "A slightly cheaper supplier can ‌quickly become more expensive if orders are delayed, quality is inconsistent, or labour unrest repeatedly interrupts production," he said.