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    Asia-Pacific Trade and Investment Review Vol. 3, No. 1, June 2007

    3

    T

    Competitiveness of the BangladeshReady-made Garment Industry in

    Major International Markets

    Mohammed Ziaul Haider*

    ABSTRACT

    he ready-made garment (RMG) industry of Bangladesh started in the late1970s and became a prominent player in the economy within a short

    period of time. The industry has contributed to export earnings, foreign exchange

    earnings, employment creation, poverty alleviation and the empowerment of women.The export-quota system and the availability of cheap labour are the two main reasonsbehind the success of the industry. In the 1980s, the RMG industry of Bangladeshwas concentrated mainly in manufacturing and exporting woven products. Since theearly 1990s, the knit section of the industry has started to expand. Shirts, T-shirts,trousers, sweaters and jackets are the main products manufactured and exported by theindustry.

    Bangladesh exports its RMG products mainly to the United States of Americaand the European Union. These two destinations account for more than a 90 per cent

    share of the countrys total earnings from garment exports. The country has achievedsome product diversification in both the United States and the European Union.Recently, the country has achieved some level of product upgrading in the EuropeanUnion, but not to a significant extent in the United States. Bangladesh is lesscompetitive compared with China or India in the United States and it is somewhatcompetitive in the European Union.

    (continued on page 4)

    * Lecturer (on study leave), Economics Discipline, Social Science School, Khulna University, Khulna,Bangladesh, PhD candidate, Graduate School of Economics and Management, Tohoku University, Sendai Shi,

    Japan; e-mail: [email protected]@student.econ.tohoku.ac.jp. Any errors are the responsibilityof the author; the views expressed are those of the author and do not necessarily reflect those of the UnitedNations.

    mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]
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    Asia-Pacific Trade and Investment Review Vol. 3, No. 1, June 2007

    (continued from page 3)

    The phase-out of the export-quota system from the beginning of 2005 has raisedthe competitiveness issue of the Bangladesh RMG industry as a top priority topic.The most important task for the industry is to reduce the lead time of garmentmanufacturing. The improvement of deep-level competitiveness through a reductionin total production and distribution time will improve surface-level competitiveness

    by reducing lead time. Such a strategy is important for long-term stable developmentof the industry, but its implementation will take time. In contrast, the establishment ofa central or common bonded warehouse will improve surface-level competitiveness

    by reducing lead time, but deep-level competitiveness will not be improved andlong-term industry development will be delayed. Therefore, granting permission toestablish in the private sector such warehouses with special incentives, such as theduty-free import of raw materials usable in the export-oriented garment industry forreducing the lead time in garment manufacturing, is a critical issue for Bangladesh.

    Second, Bangladesh needs to improve the factory working environment andvarious social issues related to the RMG industry. International buyers are very

    particular about compliance with codes of conduct. Third, issues related to productand market diversification as well as upgrading products need to be addressed withspecial care. Moreover, the Government of Bangladesh needs to strengthen its

    support. The development of the port and other physical infrastructure, the smoothsupply of utilities, a corruption-free business environment and political stabilityare some priority concerns for the Government to consider in its efforts to attractinternational buyers and investors.

    1. INTRODUCTION

    The RMG industry of Bangladesh has expanded dramatically over the last threedecades. Traditionally, the jute industry dominated the industrial sector of the country untilthe 1970s. Since the early 1980s, the RMG industry has emerged as an important player inthe economy of the country and has gradually replaced the jute industry. The export-quotasystem1 in trading garment products played a significant role in the success of the

    1 Unilateral restriction, short-term arrangement (STA), long-term arrangement (LTA), MultifibreArrangement (MFA) and finally the WTO Agreement on Textiles and Clothing (ATC) are the chronologicalsteps through which the export-quota system was administered until it was finally abolished on 31December 2004, making worldwide textile and garment trade quota-free. The system allowed importers tocontrol the import of textile and garment products by imposing quantitative restrictions on exporting countries.

    For details on the system, see Agency for International Trade Information and Cooperation (1999); Hyvarinen(2000); Smith (1998); and Thongpakde and Pupphavesa (2000).

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    Asia-Pacific Trade and Investment Review Vol. 3, No. 1, June 2007

    industry. However, that quota system came to an end in 2004. Therefore, thecompetitiveness issue needs to be addressed, with special attention given to the long-term

    sustainability of the industry.The term competitiveness itself is a broad concept. Its meaning, implications,

    adaptation and achievement vary from firm to firm, industry to industry, or country tocountry. Michael E. Porter is a pioneer of the competitiveness theory (Porter, 1990)at the national or macro level (Cho and Moon, 2000). Firm/industry-level (micro level)competitiveness depends on various parameters. However, the literature provides nouniversal agreement on the definition of competitiveness. For example, some researchersconsider the labour cost, unit cost, exchange rate, interest rate, prices of material inputs andother price- or cost-related quantitative factors for measuring the competitiveness of

    a manufacturing firm/industry (Edwards and Golub, 2004; Fukunishi, 2004; Cockburn andothers, 1998; and Edwards and Schoer, 2002). Some other researchers consider productquality, innovativeness, design, distribution networks, after-sales service, transaction costs,institutional factors relating to the bureaucracy of export procedures and other non-pricefactors for measuring the competitiveness of a manufacturing firm/industry (Abdel-Latif,1993; Chen and others, 1999; and Sachwald, 1994). The influences of both price andnon-price factors on the competitiveness of a firm/industry are reflected by market shareand profit (Toming, 2006). This study attempts to incorporate price, non-price and result(for example, market share) factors in order to address the international competitiveness ofthe Bangladesh RMG industry.

    The majority of the competitiveness-related research studies focus on thecompetitive performance or on the factors influencing competitive performance. Thestudies consider product price, market share and other indicators to measure competitive

    performance, while considering wages, costs, productivity and other issues as factorsinfluencing competitive performance. However, Fujimoto (2001) puts special emphasis onthe capability2 factor that influences the competitive performance of a firm. According tohim, improvement in the capability of a firm enhances its competitive performance.This improvement takes time, but it ensures the long-term sustainability of a firm. In

    contrast, improving only competitive performance and not capability may not besufficient to ensure the long-term development of the firm.

    This study addresses the competitiveness issue from two broader dimensions:surface-level and deep-level competitiveness.3 Surface-level competitiveness reflects the

    2 Capability depends on organizational routine, managerial resources and knowledge held by an economicagent (Fujimoto, 2001).

    3 Three approaches for measuring the competitiveness of a manufacturing firm are proposed by Fujimoto(2000): deep-level performance, surface-level performance and profit performance. This study considers thesame concepts from the industry perspective and incorporates profit performance (measured by operating

    profit, return on invested capital, or stock price) into the surface-level performance because of the nature of theprofit performance-related factors concerned.

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    Asia-Pacific Trade and Investment Review Vol. 3, No. 1, June 2007

    competitive performance of a firm or industry that is directly observable to consumers.Deep-level competitiveness reflects the capability of a firm or industry that is not directly

    observable to consumers. An improvement in the deep-level performance enhances theperformance at the surface level. The severe competition under the quota-free tradingenvironment pressures the RMG industry of Bangladesh to enhance its surface-levelcompetitiveness at the earliest convenient time. However, the long-term sustainability ofthe industry demands enhancement of deep-level competitiveness. Therefore, the futuredevelopment of the industry will depend on how much importance will be given to whichfactors/dimensions, and how the individual firms will respond and how government policieswill influence the industry. Hence, the discussion of the competitiveness of the BangladeshRMG industry requires simultaneous consideration of both the surface and deepdimensions. In particular, this study uses (a) export value