The myth of Bangladesh being the cheapest garment manufacturer has been shattered, as Pakistan,India and China are luring away buyers with rock-bottom prices, sending Dhaka's exports into a tailspin.
Garment manufacturers said their exports grew more than 40 percent in the first quarter, despite the global recession, as orders meant for China were redirected to Bangladesh for its low-cost manufacturing reputation.
But the growth has slowed down sharply since October and is heading towards negative territory as Pakistan, India and China have poached many buyers by launching a price war.
"To be frank, Pakistan is now cheaper than Bangladesh in many items," head of Bangladesh and Pakistan sourcing of a top British retailer said.
"It's one of the reasons why Bangladesh's growth has suddenly declined although it looked perfectly alright in the initial months despite the global recession," the chief said.
Local exporters said India and Pakistan and a China--- buoyed by their governments -- have sharply lowered the values of their knitted and woven items, forcing retailers to move bulk of their orders there.
The countries lost ground to Bangladesh in the first half to December, but came back strongly since January.
"There is a huge scramble for orders in the international market," said Ziauddin Ahmed Chowdhury, a director of Knit Asia.
"In some of the knitted items, Pakistan and India have cut prices by 30-40 percent. We can't compete with these throw-away prices," he said, adding some manufacturers are operating at losses to keep orders.
"In the past, we used to wage price war with only ourselves. But now both Pakistan and India have plunged into the war, bolstered by their cheap currencies and huge state sops," he said.
While price is not the only factor that leads buyers to a country, it is one of the most important determinant for sourcing of a product, especially during recession.
"Top mass market retailers are slashing prices like anything. They don't care whether a supplier can make money or not," said Shawkat Iqbal, editor of Bangladesh Textile Journal.
"Pakistan is capitalising on this situation by blindly taking orders from the retailers. They are offering cheapest rates in denim, fancy fabrics and home textiles," he said.
Pakistan government has announced billions of rupees worth state aids for textile sector while its currency has been down by 30 percent, adding further lustre to its exports.
Iqbal said India is still costlier due to higher labour rate, but a falling rupee and bumber cotton harvest have made some of their products cheaper in recent months.
According to a Maharastra-based Indian textile group, its member factories are now witnessing a surge of orders from the European Union.
Shariar Alam, owner of leading garment manufacturer, Interstoff, said Pakistan won't be a threat in the long run, but Bangladesh should watch out for China and India who have come back strongly.
"They are now after every single cake," he said, adding Bangladesh woven manufacturers have lost most of their orders to these two countries.
"After April and May, our woven manufacturers hardly have any orders. And most of these orders have gone to either China or India," he said.
Especially, China has increased its tax rebate to its textile exporters to 15 percent, as it desperately tries to save jobs in the labour intensive sector.
The rebate allows Chinese textile companies who employ some 20 million people to get part of the money back they have paid in value-added tax on production input.
"China has halted its graduation into high valued textile manufacturing due to the global recession. At the moment, it is busy safeguarding its textile jobs," he said.
"It's subsidies have kept the low-end garment factories afloat, forcing buyers back to China again."
He said knitted exports of Bangladesh has still held up, thanks largely to cheap yarn prices in the past three months.
"But I don't know how long we can stay competitive with new curbs on yarn imports through Benapole and no signs of incentives from the government," he said.