The “T-Shirt Phase” of Economic Development


The NY Times had a great article last week on Bangladesh and the “T-Shirt Phase” of a developing country’s economic cycle. What is the T-Shirt Phase? It’s a stage familiar to all frontier market investors, where a country transitions from an economy dominated by subsistence agriculture to one that uses its cheap labour advantage to undercut exports by more developed countries:

According to the comprehensive “Ashgate Companion to the History of Textile Workers,” a study of 21 countries over 350 years, nearly every nation suffered through its T-shirt phase differently. Argentina’s brutal encomienda system literally worked indigenous laborers to death. The Hapsburg monarchy’s T-shirt phase coincided with its own collapse. Japan’s progress was slowed by a world war; Germany’s was all but destroyed by two. New England’s textile workers had it relatively good; if conditions didn’t improve, they could threaten to leave for the frontier.

All these countries, however, experienced the same broad phenomenon. Lex Heerma van Voss, an editor of the “Ashgate Companion,” told me that the T-shirt phase lasts only as long as there are large populations of farmers with few options. This is known as a “race to the bottom.” Factory owners compete by offering low prices, which are accomplished by paying workers tiny wages. Cutting costs by a few pennies per shirt may sound trivial, but mass-market brands find that even a slight increase in price destroys demand. And those pennies at wholesale become dollars at retail.

Competition from other countries is extremely tough, and margins are razor thin:

Cambodia responded to angry worker strikes by raising its minimum wage to $78 a month, about double of that in Bangladesh. The average Cambodian T-shirt now costs an American wholesaler around $2.50, which is 82 cents more than one coming from Bangladesh — a huge differential in the apparel trade. Mike Flanagan, a retail-sourcing consultant, told me that if Bangladesh raised its prices even 50 cents, the results would be devastating. “There won’t be four million garment-making jobs in Bangladesh,” he wrote in an e-mail. “There probably won’t be 4,000.”

However, the article ends by declaring Bangladesh the king of the current T-Shirt age:

Ramachandran and I tried to figure out what countries might inherit Bangladesh’s T-shirt phase. Other than Burma, a long shot, Ramachandran couldn’t think of any. For now, Bangladesh might be where this centuries-long T-shirt journey ends..

Have we truly reached a point where there are no more developing countries, early in their growth phase, ready to take up the mantle as the world’s next textile workshop? By perusing this list of minimum wages by country, we found that the minimum wage for a garment worker in Bangladesh is currently 3000 taka ($38 USD) a month, or about $460 USD a year. So what countries could undercut Bangladesh at their own game?

The pickings are slim but Bangladesh is by no means the end of the road for the garment industry:

  • Central African Republic (salary of 8500 CFA francs /$200 USD a year)
  • Cuba (salary of $108 USD a year, although heavily subsidized education/healthcare/property skews the result)
  • Ethiopia (salary of $276 a year for government workers, more than banking and insurance!)
  • Kyrgyzstan (average annual salary of $280 USD)
  • Malawi ($331 USD)
  • Sierra Leone ($160-$200 USD)
  • Tajikistan ($205 USD minimum annual salary)
  • Uganda ($260 USD)
  • Uzbekistan ($250 USD)

Looks like the new frontier of the garment industry is in Central Asia and Africa..



  1. […] Bangladesh being a Frontier Market, it will be important to see how the government responds.  The country already has the infrastructure for the RMG industry, and this would be difficult to replicate in the short-term.  However, if another country with abundant labour can prove that it has the capability to produce low-cost goods in a safe manner, then it could expect to have significant growth.  The most obvious competitors would be a newly emerging Myanmar and Cambodia.  We have also focused on Bangladesh and its garment industry in our earlier piece here. […]

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