Overview- Garments Industry in Bangladesh

8/13/2019 Overview- Garments Industry in Bangladesh

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TEXTILE & READYMADE GARMENTS

EXECUTIVE SUMMARY

It would be an unjust to give all the credits to any single part (e.g., global market, Bangladeshbusiness community, or the government policy) for the boom of Bangladesh textile & RMGindustry. In fact, a range of internal and global factors & issues combined has caused it tohappen. Bengalis have century long history of mechanized tailoring and several thousand yearsof experience in hand stitching. The aptitude and art of sewing/stitching has geneticallytransmitted through the females of this land. Even today, one can hardly find a rural femaleadult who does not know hand stitching or embroidery work. From long since the textileindustry and garmenting have been in this very land that has past export experience too. Byexploiting the demand of the global apparel market, the local manufacturers/exporters backedby the responsive state polices have successfully utilized the skilled but cheap manpowerresource to recover the land's lost pride, once again.

Bangladeshs industrial base, which has remained stagnant over the past two decades, was verynarrow, contributing to about 11.5 percent of the GDP (BBS, 2001). Within this narrowindustrial sector, however, the ready-made garments (RMG) industry has flourished as its mostdynamic sector. Since its modest beginning in the early 1980s, the industry has contributed tothe economy appreciably in terms of employment, output, and foreign exchange earnings.Moreover, employing as it does more than 3 million young women, the industry has broughtabout a noticeable change in society as well as in intra-household gender relations. Apparentlythe most important factors behind the success of the RMG industry in Bangladesh are: theavailability of cheap labor. Another factor which is now phased out was the GATT/WTO-controlled international textile and apparel trading system through the operation of the MultiFiber Arrangement (MFA). In this connection, there were growing apprehension as to whetherthe industry, in order to remain competitive, will see both a reduction in the already very lowwage levels and a further deterioration of the already very poor working conditions.

However, this was not the case. It turns out that even in the face of other economic giants,Banglad eshs labor is cheaper than anywhere else in the world. While some smaller factorieswere documented making pay cuts and layoffs, most downsizing was essentially speculative the orders for goods kept coming even after the MFA expired. In fact, Bangladesh's exportsincreased in value by about $500 million in 2006.

This portion aims to:1. Analyze the current status and future prospects of the RMG industry in Bangladesh

terms of its growth, employment, and exports2. Assess the potentiality of investment by banks3. Assess the likely impact of globalization and liberalization on the RMG industry; and4. Investigate whether the reduction in wage rates and worsening of working5. Conditions in the RMG industry figure as strategies to continue to be competitive in the

world apparel market.

The section examines the static versus the potential dynamic competitive advantages ofBangladeshs RMG sector, and the inter -linkages between job quality, productivity, andcompetitiveness in this industry.


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INTRODUCTION

Bangladesh earns nearly $7 billion a year by exporting textile products, mainly to Europe andthe United States. This is about 79 percent of total export earnings of the country. The RMGindustry has around 8,500 units across the country. It employs around 4.7 million workers, 70

percent of whom are poor women. Whenever the country is criticized for its high level ofcorruption and confrontational politics, its garment industry is held up as a success story.Bangladesh has already been grappling with political instability due to the prevailingconfrontational politics in the country. The situation was made worse when the countrys majorindustry and its main foreign exchange earner Ready Made Garments (RMG) industry gotembroiled in labor unrest. The industry owners and political leaders initially tried to sweep thegrievances of labor under the carpet by floating various conspiracy theories. But the problemhas refused to die down as its roots lie within the industry and in the exploitation of labor

BACKGROUND OF RMG

The Ready Made Garment industry in Bangladesh is made up of 3,486 manufacturers andaccounts for 76% of total foreign exchange earnings. It employs about 180,000 managers and4.7 Million workers (Direct & Indirect laborers), of whom almost 3.7 Million are women. InBangladesh, the RMG industry has emerged as a major economic sector and has had its impacton the financial services sector, communications, transportation, and on other related industriesThe RMG industry has had a major social impact. It has empowered 3.7 million women withemployment and economic independence, which in turn has earned for Bangladesh recognitionas a modern and enlightened society.

The RMG sector in Bangladesh was not etched out by a competitive and efficient industry. Itcame about as a result of benevolent accommodations extended to Bangladesh as a developing

country. Buyers came to Bangladesh of their own volition and it was at their behest that theindustry grew and thrived. Since quality, competitiveness, and efficiency were not required toattract buyers, these aspects have remained largely ignored by the manufacturers of RMG inBangladesh. The output of the RMG sector in Bangladesh is typified as low cost, low value addedand poor quality. The high-end market niches, which demand high value addition and highquality, are well beyond the reach of the RMG manufacturers in their present state.

When the preferential accommodations are withdrawn in 2005, other countries with preferredstatus will take Bangladeshs place as low cost pro ducers. The RMG sector in Bangladesh, withits poor quality and low productivity will be no match for the competitive producers. Sri Lankahas a smaller industry, but the annual turnover in volume and in dollar value is comparatively

far superior to that of Bangladesh. The higher volume is explained by productivity. Factories inSri Lanka operate at 80% 90% of potential capacity. However, in Bangladesh, according tosome experts, productivity is between 35% and 55% of potential capacity with very fewexceptions. For the RMG sector in Bangladesh, productivity alone can make a differencebetween life and death.

The higher dollar value is explained by the addition of value. The consumer surplus isdrastically greater in the market for high end products. Consequently, the profit margin is muchhigher for high end products. Trained people are at the heart of the successful RMGmanufacturer: Trained designers, in tune with designers at the buyers end, adapt the buyersneeds into the manufacturing process. And skilled managers organize the production floor forefficiency and quality. Sri Lanka invested in creating the human resource that mans theirindustry: CITI, Phoenix College, University of Moratuwa, are only some of the academicinstitutions in Sri Lanka that train people for the RMG sector. In India, the Ministry of Textiles


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has set up National Institutes of Fashion Technology in all major cities. In addition there are alarge number of elite private institutes.

It is in this context that the BGMEA visualized and established the BGMEA Institute of Fashion &Technology in November 1999 and opened its doors to students in April 2000. Presently there

are about 550 students enrolled in two Bachelor degree programs under the NationalUniversity. 675 people employed in the industry have attended certificate courses on variousaspects of the manufacturing process. Academic activities at BIFT are stimulated by the apparelmanufacturing industry. The degree programs, though distinct, require students to developsome skills that are basic to designing and making apparels. These basic skills are learnedthrough the first two semesters. Thereafter students are able to declare their candidacy for oneof the degrees.

ABOUT BANGLADESHI GARMENTS

The ready-made garment industry in Bangladesh is not the outgrowth of traditional economic

activities but emerged from economic opportunities perceived by the private sector in the late1970s. Frustrated by quotas imposed by importing nations, such as the United States,entrepreneurs and managers from other Asian countries set up factories in Bangladesh,benefiting from even lower labor costs than in their home countries, which offset the additionalcosts of importing all materials to Bangladesh. Bangladesh-origin products met qualitystandards of customers in North America and Western Europe, and prices were satisfactory.

Business flourished right from the start; many owners made back their entire capitalinvestment within a year or two and thereafter continued to realize great profits. Some 85percent of Bangladeshi production was sold to North American customers, and virtuallyovernight Bangladesh became become the sixth largest supplier to the North American market.

After foreign businesses began building a ready-made garment industry, Bangladeshi capitalistsappeared, and a veritable rush of them began to organize companies in Dhaka, Chittagong, andsmaller towns, where basic garments mens and boys cotton shirts, womens and girls blouses,shorts, and baby clothes were cut and assembled, packed, and shipped to customers overseas(mostly in the United States).

With virtually no government regulation, the number of firms proliferated; no definitive countwas available, but there were probably more than 400 firms by 1985, when the boom waspeaking. After just a few years, the ready-made garment industry employed more than 200,000people. According to some estimates, about 80 percent were women, never previously in theindustrial work force. Many of them were woefully underpaid and worked under harshconditions. The net benefit to the Bangladeshi economy was only a fraction of export receipts,since virtually all materials used in garment manufacture were imported; practically all thevalue added in Bangladesh was from labor

CONTRIBUTION OF RMG TO THE ECONOMY

Globalization, especially the intensification of trade liberalization in the 1990s, has had asignificant impact on the Bangladesh economy, opening up opportunities in the export sectorand subjecting the import-competing sectors to greater international competition. Overall,exports in the 1990s have increased by a factor of four, with imports also rising. The ratio ofexports to GDP rose from around 5.5 percent in the early 1980s to around 13 percent in 1997.

GDP increased to nearly 5 percent on average over this period, leading to a modest rise in percapita income. Unfortunately, the growth in income has also been accompanied by a rise in


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income inequalities, the national Gini coefficient rising from around 0.36 in 1983/84 to around0.43 in 1995/96. Absolute poverty, at around 47.5 percent of the population, has registeredhardly any decline from 1988/89 to 1995/96, although the percentage of the hardcore poor(those unable to meet 1,805 k. cal per person per day) has declined a few percentage points, andstill accounts for 25 percent of the population. Within the export sector, there has been a shift

away from more traditional exports such as tea and jute, to items such as RMG, fish and seafood,and leather.

The current manufacturing growth experienced by Bangladesh is thus by and large driven bythe growth of the RMG industry. In 1992, knit and woven RMG accounted for 7 percent of units,11 percent of fixed assets, 21 percent of annual investment, 30 percent of the employment andwage bill, and 23.5 percent of gross value added and returns on capital attributable toBangladeshs private manufacturing sector. A study of the countrys manufacturing sectorsperformance in the 1980s found that the top 11 sub-sectors were, in terms of growth in value-added, RMG, fertilizer, tea processing and blending, compressed liquefied gas, biddies, leathershoes, printing and publishing, bakery, fish and sea food, silk and synthetic textiles, dyeing and

bleaching textiles, soft drinks, hand and edge tools, china and ceramic wares, and tanning andfinishing. According to a more recent study, RMG and pharmaceuticals are the two sub-sectorswhich demonstrated the most robust growth in output between 1988/89 and 1995/96, andthus commanded the most significant weight in the manufacturing structure.

GROWTH OF RMG INDUSTRY

Since its beginning more than two decades ago, the RMG industry has shown phenomenalgrowth, despite Bangladeshs generally sluggish industrial base, turning the country from a traditionally jute-centered export economy to one primarily based on RMG exports. Between1983 and 1984/85 the number of garment manufacturing units increased from only 47 to 487.

In the 1990s, Bangladesh Garments Manufacturers and Exporters Association (BGMEA)membership experienced an annual average growth rate of 18 percentage points.

RMG EXPORTS

The dynamic performance of the RMG industry has transformed Bangladesh from Jute exportingcountry into what is primarily a garment exporting economy. From about 4 percent ofBangladeshs total export earnings in 1983 -84, within a time span of 15 years, the RMG industrycurrently accounts for about 79 percent of the countrys total export earnings, makingBangladesh one of the 4 th largest garments exporters in the world. More than 95 percent of theoutput of the RMG units and about 90 percent of that of the knitwear units cater to the foreignmarket. The success of Bangladeshs RMG exports is in part attributable to availability of cheaplabor; preferential treatment received from the European Union (EU) under the GSP scheme;and substantial quotas available in the USA (as against quota restrictions imposed on itsprincipal competitors, e.g. China, India, Pakistan, Sri Lanka, and Thailand). In the late 1970s andearly 1980s, intermediate buyers began to shift sources of RMG products from neighboringcountries, due to the imposition of quotas, to countries like Bangladesh. Abundant cheap laborin Bangladesh ensured competitive prices, and thus acted as a primary incentive, while politicalturmoil in neighboring countries (e.g. Sri Lanka) further induced this transfer process.

By relaxing the need for working capital and allowing duty-free access to inputs for the RMGsector, conducive domestic economic policies such as the granting by the Bangladesh Bank ofback-to-back letters of credit (L/C) and bonded warehouse facilities further accelerated theprocess of establishing new RMG units. Superimposed on this process has been the impact of


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3. To analyze the environmental factor such as political, economical, Socio-cultural andtechnological relation to garments sector in Bangladesh

4. To analyze Strength, Weaknesses, opportunity, & Threat of the Garments Industries inBangladesh

5. To make strategy for the betterment of the sector in the coming years

6. Assess the viability and potentiality of investment by bank in this industry

LITERATURE REVIEW

THE MARKETING ENVIRONMENT

The marketing environment surrounds and impacts upon the organization. There are three keyperspectives on the marketing environment, namely the macro -environment, the micro -environment and the internal environment.

THE MICRO-ENVIRONMENT

This environment influences the organization directly. It includes suppliers that deal directly orindirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small,but this can be misleading. In this context, micro describes the relationship between firms andthe driving forces that control this relationship. It is a more local relationship, and the firm mayexercise a degree of influence.

THE MACRO-ENVIRONMENT

This includes all factors that can influence and organization, but that are out of their direct

control. A company does not generally influence any laws (although it is accepted that theycould lobby or be part of a trade organization). It is continuously changing, and the companyneeds to be flexible to adapt. There may be aggressive competition and rivalry in a market.Globalization means that there is always the threat of substitute products and new entrants. Thewider environment is also ever changing, and the marketer needs to compensate for changes inculture, politics, economics and technology.

THE INTERNAL ENVIRONMENT

All factors that are internal to the organization are known as the internal environment. Theyare generally audited by app lying the Five Ms which are Men, Money, Machinery, Materials andMarkets. The internal environment is as important for managing change as the external. Asmarketers we call the process of managing internal change internal marketing .

PEST ANALYSIS

It is very important that an organization considers its environment before beginning themarketing process. In fact, environmental analysis should be continuous and feed all aspects ofplanning. The organizations marketing environment is made up of:

1. The internal environment e.g. staff (or internal customers), office technology, wages andfinance, etc

2. The micro-environment e.g. our external customers, agents and distributors, suppliers,our competitors, etc


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3. The macro-environment e.g. Political (and legal) forces, Economic forces, Socio-culturalforces, and Technological forces. These are known as PEST factors

POLITICAL FACTORS

The political arena has a huge influence upon the regulation of businesses, and the spendingpower of consumers and other businesses. You must consider issues such as:

1. How stable is the political environment? 2. Will government policy influence laws that regulate or tax your business?3. What is the governments position on marketing ethics? 4. What is the governments policy on the economy? 5. Does the government have a view on culture and religion?6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

ECONOMIC FACTORS

Marketers need to consider the state of a trading economy in the short and long-terms. This isespecially true when planning for international marketing. We need to look at:

1. Interest rates2. The level of inflation Employment level per capita3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so

on

SOCIO-CULTURAL FACTORS

The social and cultural influences on business vary from country to country. It is very importantthat such factors are considered. Factors include:

What is the dominant religion? What are attitudes to foreign products and services? Does language impact upon the diffusion of products onto markets? How much time do consumers have for leisure? What are the roles of men and women within society? How long are the population living? Are the older generations wealthy? Does the population have a strong/weak opinion on green issues?

TECHNOLOGICAL FACTORSTechnology is vital for competitive advantage, and is a major driver of globalization. Considerthe following points:

Does technology allow for products and services to be made more cheaply and to abetter standard of quality?

Do the technologies offer consumers and businesses more innovative products andservices such as Internet banking, new generation mobile telephones, etc?

How is distribution changed by new technologies e.g. books via the Internet, flighttickets, auctions, etc?

Does technology offer companies a new way to communicate with consumers e.g.banners, Customer Relationship Management (CRM), etc?


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METHODOLOGY

The theoretical part of the study is based on secondary date collected from differentpublications on Bangladesh Garments Industries. The information collected has been analyzedalong with various numerical observations and graphical representations. The empirical part is

mainly based on primary data that is to be collected through questionnaire and personalinterview of the owners/managers of the selected sample garments.

FACTORS THAT CONTRIBUTED THE DEVELOPMENT OF RMG

For the development of RMG in this decade, credit should be given to several dynamics that notonly sustained the private PT industry and the export oriented RMG industry but also causedreal boom of the sector. These are:

INTERNATIONAL TRADE TREATY & AGREEMENT

1. Bangladesh RMG export availed the generalized system of privilege (GSP) in the EUcountries as a member of least developing country (LDC); this was not given to itsnearest core competitors such as India, Pakistan, or Sri lanka

2. Quota facility in USA market was enjoyed, although that was reducing year after year.3. Rules of origin also favored Bangladesh in developing own backward linkage industry.4. Bangladesh Government Policy5. Textile was declared as the thrust sector to extend all out cooperation to the export

oriented RMG and the backward linkage industry.6. Provisions of cash incentives (initially to the extent of 25% of the export value) to the

exporters and backward supply chains by the government o f Bangladesh7. Extended bonded warehouse provisions8. Rationalized tariff on textile & garments inputs9. International Supply Chain Hong Kong based dealmakers for their own business interest

tried Bangladesh RMG export to expand in the EU, USA, Australia and Canada.

REPORTINGFINDINGS AND ANALYSIS

CONTRIBUTION OF THE RMG INDUSTRY TO THE SOCIO-ECONOMIC DEVELOPMENT OFBANGLADESH

The RMG is earning over 75 % of the nations total foreign currency. In addition to earning lionsshare of the countrys total foreign exchange, this sector has brought about a positivetransformation in the over allspice economic condition of the clotty. Some of the recentcontributions of the industry to the nation are:

Bangladesh now shares 80.7% of the total export of Bangladesh and claims 4.8 percentof the global RMG trade of $412 billion

The countrys single month export earnings hit a record US$ 3,024.29 million in July, thefirst month of the financial year 2013-14

The growth is an impressive 24 per cent compared with the export earnings figure ofJuly in financial year 2012-13 which was $2.4 billion

The total export earnings from RMG sector in June was over $2.1 billion. T he countrysexport in the just concluded FY 2012-2013 was $27.01 billion, growing by 11.18 percent from the previous FY, whereas the government set the export earnings target for

the current FY 2013-14 at $30.50 billion with a CAGR growth of 12.84 per cent.


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The total RMG export in FY 2012-13 grew by 2.73 per cent to $21.51 billion in the FY 13from $19.08 billion in the FY 12

The sector with a total investment of over 4.5 billion pound is now capable of supplying90 percent of fabrics for the knitwear sub-sector and 40 percent of fabrics for the wovensub-sector

Value addition to the economy is the highest so far with almost 70%Table: 2

Contribution in National EconomyShare of Knitwear in RMG Export (FY 2012-13) 48.69%CAGR Growth (FY 2008-09 FY 2012-13) 12.98%Share of Knit Garments in GDP (FY 2012-13) 8.07%Net Retention amount (2012-13) US$ 11833.65 millionNet retention rate 55% (Highest)Value addition 70% (Highest)Labour Force Employed

Direct 4.0 million; about 70% of them are womenIndirect 0.70 million

Number of Member Units About 1926 (Up to 25 November'2013)

EMPLOYMENT GENERATION

The RMG industry of Bangladesh has enjoyed a meteoric rise, from less than 50 factories in1983 to 8,500 in 2013. In the same period, the level of employment has risen from some 10,000to approximately 4.7 million (direct and indirect labor) today with about 70% of the workersbeing women. This industry has created a large-scale employment scope (About 4.7 Crore, eachgarment factory is providing employment opportunity for about 550 workers.

BANKING SECTOR

The RMG sector has been playing role as one of the main catalyst contributing to thetremendous development of Banking and Insurance sector in our country. Presently, ourcommercial banks are earning over Tk. 2,000 Crore per year from this sector. By now, somebank charges have increased to even three times the charges in 1985.

INSURANCE SECTOR

Insurance companies, even after reducing different rates by about 54%, are presently earningabout 12.5% or about Tk. 1800 Crore per year from the RMG industry as various types ofpremiums for insurance policies.

SHIPPING BUSINESS

The manifold increase in the shipping business in Bangladesh including setting up of a severalcontainer yards (including an Inland Container yard at Dhaka by the Bangladesh Railway),expanding the port facilities to handle large containers, introducing special container caning trains, and the increasing of cargo handling and storage facilities at the Shahjalal InternationalAirport (ZIA) have also been due to the Garment industry.

C &. F BUSINESS

The unprecedented increase in the C & F Stevedoring is because of the huge import of the RMGraw materials & export of RMG garments. On average, they earn I % on all exports and importswhich amounts to nearly TK. 230 Crore.

TAX ON EXPORT EARNINGSAs source tax only, presently the RMG industry is paying over Tk. 40 Crore.


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POPULATION CONTROL

With the opportunity of earning more, they now want to enjoy their lives. TIlls need is helpinggirls avoid early marriage and frequent pregnancy. It is contributing to the birth controlprogram of our country also. From 1985 86 till date, the country has been saved from aburden of at least 4 million new mouths to feed.

WOMEN EMANCIPATION AND SOCIAL TRANSFORMATION:

The industry is helping women emancipation and employment. The women workers, if enterthis sector then continue to stay because of the very working condition congenial for them. Theyare enjoying recognition and dignity in the society. This sector helps approach socialequilibrium between men and women. Having the capability of earning, girls/women are welltreated by their families. They are no longer any burden to their families.

LINKAGE INDUSTRY

Prospect for a huge textile industry capable to supply over 3 billion yards of fabrics a year to the

export oriented garment industry has also been developed by the industry. A large number ofancillary have been emerged and growing keeping pace with this industry as well. Estimatesshows that about 80% of garment accessories like cartons, threads, buttons, labels, poly bags,shirt boards, neck boards etc. are now being produced our country also. Approximately, thissector is earning about Tk. 2,000 Crore from the RMG industry.

WASTE RECYCLING INDUSTRY

About 0.2 million people are engaged in (mainly, the waste cut pieces of fabrics) recyclingindustry. With these wastes, they are stuffing toys, pillows, quilts, cushions etc. and earningabout Tk. 1,500 2,000 per month. It means, on an average, at present, they are earning aboutTk. 30 40 Crore per year.

TRANSPORT

The road transport business has been expanded because the lions share of cargo, movingbetween Dhaka Chittagong and Dhaka Benapole by road, is on account of the garment sector.Those who once started transportation business with rented trucks, many of them by now arethe proud owners of even 10/12 trucks.

REAL ESTATE

Economic demand for real estate development generated by the garment industry toaccommodate offices and factories of over 2,600 garment units deserve consideration. About

26,000 mid level manages in the industry have been renting 26,000 posh housingaccommodations in Dhaka and Chittagong. Moreover, one study shows that real estate industrycould now look forward to launching prospective housing projects feasible and viable in bothfinancial and social tennis for about one million single Women working in garment industry.

UTILITY SERVICES

Credit of manifold increase in the revenue of utility services also goes to this industry to a greatextent. For example, this sector is paying on an average US $ 2.26 million (Tk. 18.08 crore, @Tk.40,000 per factory) per month. As telephone and fax bill, this industry is paying US $ 0.56million (Tk. 2.60 crore) per month.

EMERGENCY CONSUMERS MARKET


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About 4.7 million workers in the industry are appearing in the consumers market with ademand worth of almost US$ 5 million. An increasing demand for moderate cost cosmetics,saree, footwear, fast food and other consumer products is also a direct result of about 1 millionnew consumers entering into the market with new living standard backed by increasingpurchasing power. The industry is helping women emancipation and empowerment. For food

(Mainly fast-food items), they are affording about US$ 0.61 million (Tk. 4.8 Crore) per day.FURTHER INDUSTRIALIZATION

The industry has proved itself to be the most prospective industry for a country likeBangladesh, which is endowed with the huge cost effective labor force. Moreover, it hasfurther been emerged to the soundest base for the hem industries. As the stock market is slowlystanding on its feet, RMG offers itself as to be the only base for further industrialization in thecountry.

1. 0.4 million workers are spending about US $ 0.30 million (Tk 1.4 crore) as Mess rentalper month

2. About 0.7 million workers are spending about US $ 0.02 mil1ion (Tk 7 lakh) forconveyance per day

3. Child labor elimination and education to the reloaded under age worker

Today, thanks to the wide media coverage received by the famous Harkins Bill, a Generalawareness about and appreciation of the noble aim and objective of the Bill has been createdamong the members of the BGMEA. Each and every Bangladeshi garment exporter is convincedthat child labor is indeed Abusive and Exploitative. And as proof of that consciousness we atthe BGMEA, with the corporation of the ILO, UNICEF, the Govt. of Bangladesh and activeguidance of the US Mission in Dhaka, managed to sign on the 4 th of July, 1995 a historicdocument, known as memorandum of Understanding (MOU) on the elimination of child labor

from the gaIll1ent sector of Bangladesh. Following implementation of that MOU, in both letterand spirit, the entire garment sector of Bangladesh has been declared child labor free with effectfrom October 31, 1996. Although the level of implementation is estimated by lLO at 95%, thatshould be considered a remarkable doubt free of implementation of the MOD in thesocioeconomic realties of the country.

SWOT ANALYSIS OF GARMENTS INDUSTRY

OVERVIEW (SWOT ANALYSIS)

S=Strengths,

W=Weaknesses,

O=Opportunities and

T=Threats

SWOT analysis is a tool for auditing an organization and its environment. It is the first stage ofplanning and helps marketers to focus on key issues . SWOT stand for strengths, weaknesses,opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities andthreats are external factors.

A word of caution, SWOT analysis can be very subjective. That is why we are not relying onSWOT too much. Two people rarely come-up with the same final version of SWOT. TOWSanalysis is extremely similar. It simply looks at the negative factors first in order to turn them


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into positive factors. Thus in this section, SWOT is used more as a guideline rather than adefinite solution.

SWOT ANALYSIS

THE STRENGTHSThe strength of a firm or country in the Market depends on its specific comparativeadvantage(s), which its competitor does not have. A particular uniqueness of a supplier shapesup its strategic profile. In case of Bangladesh, this uniqueness is the unlimited availability ofunusually cheap labor that stands out as a low technology and labor intensive industry. Theworkers can be employed at a very low wages, not only in comparison to other competitorcountries, but also in comparison to other domestic industries in Bangladesh. In domesticmarket as well, the wages of the workers of the RMG industry happen to be the lowest. Thisshould be apparent from the figure presented in table below.

TABLE: 1

Average minimum wages of Twelve selected industriesIndustry Minimum

Wage Rate(Gross)

Percentage

PRINTING 4450 67.42%SHIP BUILDING 4625 64.86%SOAP & COSMETICS 3300 90.91%MATCH 4560 65.79%SHOE 3652.5 82.14%JUTE BAILING 3862.5 77.67%PHARMACEUTICAL 3625 82.76%OIL MILLS & VEGETABLE 7420 40.43%COLD STORAGE 6050 49.59%ROAD TRANSPORT 6300 47.62%REROLLING 4600 65.22%TANNERY 8750 34.29%

Source: Minimum Wage Board of Bangladesh (FY: 2012-13 April)

The figures in the table indicate, for example, that the average minimum wages of the workersin the RMG industry in 2013 was 77.7% of that in jute bailing industry, 65.2% of that in re-rolling industry, and so on. All of the 12 industries included in the table paid average minimumwages, which were higher than that of RMG industry.

However, increasing pressure from the workers to increase their minimum wage rates haspersuaded the Minimum Wages Board to take the decision of minimum wage of garmentworkers at Tk. 5,300 unanimously and the final recommendation is sent to the labor ministryfor gazette notification which is set to be applicable from December 2013.

In high competitive international market, it is the price and quality, which determines thecompetitive position of a supplier, on the account of price, Bangladesh can beat all itscompetitors. Price is related to cost of production which in case apparel industry is greatlydetermined by the labor costs. Wages in Bangladesh is remarkably low. Naturally it will


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continue to enjoy competitive advantages in international markets because it has virtuallyunlimited supply of cheap labor who can learn the low technology operation necessary inproducing RMG without much investment in terms of money and time. That Bangladesh has atremendous labor-cost advantage can be seen by looking at the comparative average hourlywages (including fringe benefits) of some 39 countries, both develop and developing, presented

in the table. Werner International data on hourly wage cost in the clothing industry (inclusive ofsocial contributions) is shown in the Table:

TABLE NO. 2

Hourly wages costs in the RMG industry (Selected countries)Country Wages ($)Norway 18.09Denmark 17.29Germany 17.22U K 8.42USA 8.13Taiwan 4.61Hongkong 3.85Sri Lanka 0.35China 0.25Bangladesh 0.16

WEAKNESSES

The problems in the industry pre-date the riots which took place just over a month ago andwhich were attended by deaths, injuries and the destruction of property. Over the years,hazardous working conditions have resulted in the deaths of many workers through factoryfires and collapses. The Spectrum Factory building collapse of April 2005 killed 64 people,

injured over 70 and left hundreds jobless. In February 2006 a fire destroyed the four-story KTSTextile Industries in Bangladeshs port city of Chittagong again killing scores of mostly youngand female workers. On November 24, 2012, 125 people are recorded to have lost their livesdue to a devastating factory fire in Tazreen Fashion of the Tuba Group. Workers, who are mostlyyoung women, also face an acutely difficult working environment wages are low, hours arelong, forced labor is practiced, child labor exists, sexual harassment exists, freedom is curtailed,whether it be locked doors or rights of association, and there are a multitude of other practiceswhich go against international labor standards and codes of conduct (non-compliance). At thelevel of legislation and business dealings, lack of implementation of laws, restrictive laws andunfair buying practices by buyers compound the issue of non-compliance.

BANKING SECTOR ANOMALIESOur banking sector, which once played a very positive role behind the development of thissector, based on the bank-client relationship, this relationship has been strained due to thecreation of forced loan/demand loans as a result of non-shipment of goods during the period ofpolitical impasse in the later parts of 2013. The creation of demand loans/forced loans and theirsubsequent classification as bad loans resulted in a strained relationship whereby client wererefused to open Back-to Back L/C facilities inspire of having the ability to secure export ordersand to execute them.

ELECTRICITY CRISIS

For over the last two years, electricity crisis has been at its peak the last one-decade or more.Presently, on an average, we are losing production worth of about US$1.6 million per day justowing to the electricity crisis.


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TAXES ON EXPORT EARNINGS

The tax burden on export oriented garments sector is reducing competitiveness of Bangladeshmade garments in the international markets against products from competing country. Withother incentive for aggressive marketing, several countries including our neighboring ones aretotally exempting their export sectors, including RMG, from all export taxes to help supplementtheir competitiveness and boost up export in the international markets.

COMMUNICATION

Good communication system is a pre-requisite of economic development. Lack of it creates roadcongestion, takes longer time in shipping raw materials and finished products to the port fromthe factory, thus increasing cost.

LAW AND ORDER SITUATION

Sound law and order situation and congenial political environment are pre-requisites fordevelopment. Due to the lack of it, interest of both the employees and the employers are being

affected.WAGE PROBLEM

The National Wage Board is likely to announce today a minimum wage for the workers in theexport-oriented garment sector with a gross salary of around Tk. 5,200 for the entry-levelemployees. The announcement invited strong protest from both the garment owners andworkers, as it is a bit higher than what the factory owners had agreed and much below than theworkers demand for Tk . 8,500 as the monthly salary.

GENDER DISCREPANCY IN JOB TYPE AND WAGE RATE

Within the RMG factories, gender discrepancy in wage levels for comparable jobs is small,

especially when accounting for factors such as age, education, and experience. In the productionprocess, howe ver, female workers are mainly concentrated in less skilled operations, and thusare low paid. In the RMG industry, most women work either as operators (where almost allworkers are female) or as helpers (40-60 percent of the total work force in this category arefemales). It is extremely rare to find women working as production managers, supervisors,finishing and machine operators, or as in -charges who draw salaries varying from 2 -10 timesthat of the average operator, depending on the type of operation involved.

Elsewhere, the author has thus argued that the female labor market in Bangladesh is largelysegmented by jobs (tasks) and by type of industry, as is clear from the discussion in the abovesection, and factors such as age, education, and marital status account for the low average wages

of female workers, since they are prone to crowd in to certain specific jobs and occupations.Thus, discrimination in wage payments between male and female workers may be very limited,but discrimination in terms of education and training and various barriers to entry explain thelow wages and low opportunity costs of female labor, a factor which needs to be addressed atthe policy level.

OPPORTUNITY OF BANGLADESH

Buyers like Pelle Karlsson now have the fate of millions in their hands. He works for H&M, achain that has shops across Europe and the United States. The company is now deciding whichcountries to keep doing business with. They have their price strategy; quality level and also ifthe country can work with a good lead time. Based on these three factors H & M will select boththe suppliers and the countries that can cope with these things. H&M has moved some of itsoperations in Asia to Dhaka from Hong Kong in anticipation of buying more of its supplies here


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from now on. But what is good news for Bangladesh will be bad news for workers in otherdeveloping countries.

THREATS

NON TARIFF BARRIERS

The final acts of Uruguay Rolled negotiations strengthened the GATT principle of reducing alltariff barriers. But it is not in the case of non-tariff barriers; they take so many subtle fonts thatthey face disagreement. The child labor, environmental and human right issues are such non-tariff barriers.

It is quite likely that by restructuring, improving managerial efficiency and increasingproductivity Bangladesh will be able to compete in the intentional market. But problems willarise if the importers apply subtle non-tariff barriers under the disguise of humanitarian issueslike child labor. Here the main challenges for the producers of RMG of Bangladesh lies how totackle the problems of child labor. The much- talked about Child labor issue can be an effective

non-tariff ban-ire. The Harking Bill design to prevent adduce of child labor is based onhumanitarian ground.

On the other hand, India will withdraw its objection at the World Trade Organization (WTO)against a European Union decision meant for allowing duty-free access to 75 Pakistani products,most of which are garments. Bangladesh will face tough competition mainly for eight garmentitems if Pakistan is allowed the duty-free facility to the EU. Currently, Bangladesh is the thirdlargest garment supplier to the EU after China and Turkey. Bangladesh may primarily lose $800million garment market in the EU if Pakistan is granted the duty waiver and the amount willincrease gradually.

CHILD LABOR ISSUES

It should be for both labor welfare and occupational safety. For safety use of aprons, gloves, dustmasks, eye masks, ear protectors, gum boots, smoke detector and early rehearsed fire fightingarrangement is very important. Water treatment plant is a must to avoid pollution in theindustry. Social environment related to labor rights, product safety and intellectual propertyrights are considered to be of increasing importance now-a-days. Ensuring social compliance isvery important in the industries involved in production of RMG for maintaining quality ofproducts as well as rules for export market. On protection of labor rights and improvement ofworking conditions, international standards have been developed and adopted by majormarkets. In contrast with labor rights, product safety issues are mostly mandatoryrequirements. Compliance issues like working environment, salary, maternal leave for female

workers, and safety and health conditions of apparel sector workers have come to the forefrontof attention of the international buyers. There is no option other than ensuring socialcompliance to maintain quality of products. Since labor can never enhance their skill withouthaving a minimum wage for living and favorable environment for work. The compliance issueshave become more important after the expiry of the MFA. Though these issues are veryfundamental as far as the workers interest is concerned but at the sam e time these are verycapital intensive for implementation.

MORE NON-TARIFF BARRIER

Bangladesh also faces other issues like environmental issues or minimum wage rate issue,apparently on humanitarian ground. But questions arises that are these issues truly on

humanitarian grounds or it is a hidden agenda designed by the competitors of Bangladesh


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exports to increase the cost of production with the ultimate result of making Bangladeshexports less competitive in the world.

DREAMS AND UNCERTAINTY

Wages in Bangladesh are low, around half those paid in China, giving the country a competitive

edge. A lot of customers are positioning themselves in Bangladesh, like Tesco, like Carrefour,like H&M so all the indications are that this will be the greatest opportunity for Bangladesh. Butfor garment workers this is a period of uncertainty and it will be some time before it becomesclear whether Bangladesh will be a winner or a loser in the new global free market forgarments.

Developing countries around the world face upheaval after the quota system governing thegarment industry was finally phased out at the end of last year. For Bangladesh the stakes areespecially high it relies on garments for more than three-quarters of its exports. About 4.7mpeople, most of them women, work in garment factories. As many as 15 million more in supportindustries depend on the trade for their survival. Around the world the big and the efficient see

the change as an opportunity.EXPLOITATION OF WORKERS

Unions say garment workers are angry over low pay and long hours. Wages in Bangladeshsgarment factories can be as little as $66 a month. Thanks to poor working conditions, employer-worker clashes have been recurring in the textile industry. Workers often take to the streetswith complaints of poor pay and working conditions.

IMPACT OF GLOBALIZATION ON RMG SECTOR

The possible impact of globalization on employment and quality of jobs in the RMG industry willdepend on Bangladeshs ability to withs tand a more competitive global environment. It isarguable that this competitiveness on the other hand will depend amongst other things onmeasures taken to improve productivity and job quality. In the worst scenario, a failure tomaintain competitiveness will lead to enterprise closures and increased sub-contracting fromlarger to smaller units. This will obviously lead to unemployment among mostly womenworkers, a possible reverse trend of rural-urban migration, and a reduction in the householdearnings of workers. A greater degree of subcontracting may also adversely affect job quality,since working conditions and job quality have been found to be inversely related to the size ofRMG units.

Deterioration in job quality is likely to have serious consequences. Entrepreneurs mustrecognize that labor is not simply a commodity; and that better working conditions are

desirable from the point of view of productivity and efficiency, as well as from that of fairnessand justice. Workers rights include freedom of association, which is currently prohibited in theexport processing zones, while unionization is actively discouraged in the industry as a whole.

Interestingly, the entrepreneurs interviewed as part of this study expressed divergent viewsregarding job quality. Most were worried about the impact on costs, and some regarded laborretrenchment and subcontracting as a way out. A few more enlightened entrepreneurs believedattitudinal changes were needed, and that wider dissemination of information would help.Others thought that the imposition of a social clause should be delayed, giving entrepreneurs achance to adjust to the recent devastation in the economic fonts, as well as helping them torelocate factories outside Dhaka, where there could be more available space for canteens and

other facilities, and where factories could be functionally designed to meet safety standards.


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In any case, measures to increase productivity and competitiveness may involve somerationalization of the workforce and technology upgrading such as the introduction ofcomputer-aided design (CAD). It has been suggested that the latter will lead to a substitution ofmale for female workers, given the higher educational and skill requirements of the newtechnologies, and the currently disadvantaged status of women in this respect. Sub-contracting

may again be more actively pursued as a cost-cutting strategy by larger and more successfulfirms. Other measures to improve productivity and competitiveness such as skill upgrading will,on the other hand, improve job quality and earnings for workers.

ACHIEVEMENT OF GARMENTS SECTOR

(1) BGMEA membership starting with only 19 in early 1983 has reached 2923 in 2012-13,increasing at the rate of 20.5% each year.

(2) The growth of garment export in terms of dollar is almost proportional to the rate ofincreases of factories; it depicts a healthy steeper growth of the industry per se.

(3)Garment export has been increasing on an average 20% each year. As the rate of increase,not less than 20% per year is expected to continue through the next 15 years, growth prospectof Bangladeshs apparel industry look s very bright.

(4) Bangladesh presently currently holds 5 th largest apparel exporters sector in USA, 3 rd largestin EU and 6 th most lucrative place for supply in the world . Countrys RMG products are steadilymoving toward high value sophisticated items like high quality suits, jackets, branded jeansitems, embroidered ladies wear etc. increasing @ 25% per year, over the last few years, theyhave utilized quota and diversified their products into non-quota items.

(5) Bangladesh has recently entered the extremely quality conscious RMG market of Japan and

created a niche for itself. In 1994-95 export of RMG to Japan was US$ 5.72. And in 1996-97 itwas US$ 9.35 Million

(6) Germany took the 2 nd share followed by EU. Germany has led the EU market in the last fewyears followed by US, France, Italy and the Netherlands. In 2012-13 Germany alone importedapparels worth US$ 39 billion against the purchase of US$ 103 billion in. However, as a singlecountry, US have been the highest apparel importers from Bangladesh.

FACTS & FIGURES

MEMBERSHIP AND EMPLOYMENT

YEAR NUMBER OF GARMENTFACTORIESDIRECT EMPLOYMENT(MILLION WORKERS)

2006-07 4490 2.4

2007-08 4743 2.8

2008-09 4925 3.5

2009-10 5063 3.6

2010-11 5150 3.6

2011-12 5400 4

2012-13 5600 4

Source : BGMEA.


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COMPARATIVE STATEMENT ON EXPORT OF RMG AND TOTAL EXPORT OF BANGLADESH

YEAREXPORT OF RMG(IN MILLION US$)

EXPORT OF RMG(IN MILLION DOZENS)

TOTAL EXPORTOF BANGLADESH(IN MILLION US$)

% OF RMG'S TOTOTAL EXPORT

WOVEN KNIT TOTAL WOVEN KNIT TOTAL

2006-07 4657.63 4553.6 9211.23 133.08 199.54 332.62 12177.86 75.64

2007-08 5167.28 5532.52 10699.8 147.43 241.6 389.03 14110.8 75.83

2008-09 5918.51 6429.26 12347.77 169.59 290.92 460.51 15565.19 79.33

2009-10 6013.43 6483.29 12496.72 172.8 292.7 465.5 16204.65 77.12

2010-11 8432.4 9482.06 17914.46 615.52 729.88 1345.4 22924.38 78.15

2011-12 9603.34 9486.39 19089.73 599.24 677.46 1276.7 24287.66 78.6

2012-13 11039.85 10475.88 21515.73 709.89 777.22 1487.11 27018.26 79.63

Bangladesh's RMG Export to World (Jul-December, FY 12-13 & FY 13-14 )

Million US$ Woven Knit Total

Jul-Dec Jul-DecG r o w t h

%


%


%Major EUCountries 2012-13 2013-14 2012-13 2013-14 2012-13 2013-14

Austria 9.71 11.09 14.23 13.39 16.78 25.34 23.1 27.87 20.67

Belgium 112.15 161.36 43.88 148.28 212.95 43.61 260.43 374.31 43.73

Bulgaria 0.05 0.03 -40.14 0.62 0.61 -2.13 0.67 0.64 -4.86

Denmark 60.79 57.96-4.65

178.25 219.8223.32

239.04 277.7816.21

Finland 4.02 4.88 21.4 10.96 12.63 15.29 14.98 17.52 16.93

France 218 273.53 25.47 429.41 479.6 11.69 647.41 753.13 16.33

Germany 664.09 853.39 28.51 1,032.81 1,296.21 25.5 1696.9 2149.6 26.68

Greece 2.28 2.83 23.91 5.71 5.74 0.61 7.99 8.57 7.26

Italy 158.54 209.86 32.37 247.71 336.7 35.93 406.24 546.56 34.54

Ireland 32.68 31.42 -3.86 60.07 71.24 18.6 92.75 102.66 10.68

Netherlands 117.98 140.49 19.08 150.65 185.87 23.38 268.63 326.36 21.49

Portugal 2.62 5.27 101.51 9.43 16.73 77.35 12.05 22 82.59

Romania 1.57 1.52 -3 2.85 2.54 -11.02 4.42 4.06 -8.17

Spain 236.96 283.9 19.81 340.96 417.15 22.35 577.92 701.05 21.31

Sweden 52.24 52.56 0.62 98.61 114.8 16.42 150.84 167.36 10.95

U.K. 530.31 565.43 6.62 620.15 652.07 5.15 1150.46 1217.5 5.83

Cyprus 0.03 0.07 133.33 0.49 1.19 141.19 0.53 1.25 138.7

Czech Republic 17.88 30.11 68.43 17.3 21.76 25.76 35.18 51.87 47.44

Estonia 0.36 0.09 75 1.25 0.72 -42.71 1.61 0.81 -49.92

Hungary 0.07 0.24 256.04 1.13 3.92 245.74 1.2 4.16 246.32

Latvia 0.04 0.14 243.89 0.59 0.73 24.39 0.63 0.87 38.4

Lithuania 0.21 0 -100 1.07 0.19 -81.8 1.28 0.19 -84.77


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Malta 0 0.04 0 0.35 1.13 225.11 0.35 1.17 236.26

Poland 70.03 92.48 32.07 114.95 149.69 30.23 184.97 242.18 30.93

Slovakia 14.28 12.71 -11.02 20.07 24.06 19.87 34.35 36.77 7.03

Slovenia 1.22 2.1 72.13 3.85 8.28 115.06 5.07 10.38 104.78

Sub-Total (EU) 2308.09 2793.5 21.03 3510.91 4253.11 21.14 5819 7046.61 21.1EU % of World 46.43 46.69 70.56 71.5 58.5 59.06

USA 1,736.97 1,959.38 12.8 537.85 616.76 14.67 2274.82 2576.14 13.25

% of USA 34.94 32.75 10.81 10.37 22.87 21.59

Canada 247.22 274.61 11.08 231.7 224.1 -3.28 478.92 498.71 4.13

% of Canada 4.97 4.59 4.66 3.77 4.81 4.18

Non-TraditionalMarkets

Australia 71.21 69.99 -1.72 129.19 138.61 7.29 200.4 208.6 4.09

Brazil 28.83 37.19 28.99 64.44 52.23 -18.95 93.28 89.42 -4.13

Chile 3.51 4.94 40.7 9.72 12.49 28.56 13.23 17.43 31.78

China 42.36 65.95 55.67 26.24 44.15 68.26 68.6 110.09 60.49

India 27.23 43.41 59.42 7.23 9.45 30.69 34.45 52.85 53.39

Japan 122.12 161.84 32.52 94.74 135.16 42.66 216.87 297 36.95

Korea Rep. 47.22 43.07 -8.8 17.25 26.58 54.06 64.47 69.64 8.02

Mexico 23.83 28.81 20.89 34.84 39.73 14.02 58.67 68.53 16.81

Russia 17.45 33.14 89.95 36.89 60.79 64.78 54.34 93.93 72.86

South Africa 18.56 16.9 -8.92 11.98 9.29 -22.52 30.54 26.19 -14.26

Turkey 94.7 238.72 152.07 67.33 96 42.58 162.04 334.72 106.57Sub-Total 497.04 743.96 49.68 499.86 624.46 24.93 996.89 1368.42 37.27% o f N o n -

Tr a d i t i o n a l 10 12.43 10.05 10.5 10.02 11.47

G R A N D TO TA L 4971.06 5983.51 20.37 4975.89 5948.69 19.55 9946.95 11932.2 19.96

FUTURE PROSPECTS

SHORT-TERM SNAPSHOT

Trade flows are expected to be stable over the next six months with 41.7% of respondentsexpecting trade volumes to be unchanged. Although respondents have become less pessimisticabout the outlook for the global economy, slower growth in Asia in recent months has dimmedtheir view of growth prospects in these key trading markets.

CURRENT VIEW

Last year, 8% of Bangladeshi exports went to Asia whilst nearly 20% went to North Americaand more than 40% went to Europe. Wages are lower in Bangladesh than in many Chineseregions and South-East Asian countries, and this competitive advantage has enabled low-cost


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manufacturing industries such as textiles to grow rapidly over the past decade. Bangladesh nowhas a share of more than 10% of the world market for clothing and apparel.

Trade within Asia has been boosted by greater regional cooperation with a proliferation of freetrade agreements having been signed in recent years. Although emerging market growth has

slowed in recent months, it will still support an expansion of trade and by 2020 we expect theshare of Bangladeshi exports going to Asia to have more than doubled to 15%.

CORRIDORS OF CHOICE

Clothing and apparel is Bangladeshs largest export sector, helped by wagecompetitiveness. Although wages will gradually rise, Bangladesh will remaininternationally competitive, with the clothing sector contributing almost a quarter of theincrease in exports out to 2015.

The second largest sector is textiles and wood manufactures and this sector willcontribute almost a third of the increase in exports out to 2015.

Animal products are Bangladeshs third largest export sector and animal products andanimal and plant materials will contribute 15% of the increase in exports from 2013 to2015.

Exports to emerging Asia will grow by more than 15% from 2013 to 2020, particularlyin clothing, other manufacturing and animal products to meet the growing demand forthese products from the rapidly increasing middle classes in China and the rest of EastAsia. Exports to Latin America will also grow strongly with growth averaging more than10% out to 2020, largely reflecting trade in clothing and textiles.

OPPORTUNITIES FOR BUSINESS

There have been a number of major incidents at clothing factories including a fire in April thatkilled over 1000 people. Workers safety is an important issue for the multinational clothingbuyers and in the near-term, the uncertainty surrounding this might discourage investment(FDI inflows were less than 1% of GDP in 2012). But over the medium to longer-term we expectrising FDI inflows to support investment as foreign companies seek to access Bangladeshs largedomestic market and substantial infrastructure development needs.

LONG-TERM OUTLOOK

Bangladesh is located in the w orlds most dynamic trading region and has established a strongfoothold in clothing and apparel. The demographic trend is very favorable and Bangladesh isseeking to boost its trade prospects further by setting up free trade with many of its neighbors,hoping to broaden its export base and encourage FDI.

CORRIDORS TO WATCH

A rising middle class across Asia will help to drive strong trade flows from Bangladesh to therest of Emerging Asia and by 2030 India will be Bangladeshs third largest export destinati on.Over the next twenty years China, India, Vietnam and Malaysia will be the fastest growingexport destinations.

Exports to Turkey, notably of clothing, apparel, textiles and wood manufactures will grow

strongly out to 2030 and within twenty years Turkey will be Bangladeshs fourth largest exportdestination.


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India, China, Vietnam and Turkey will be Bangladeshs fastest growing import partners withindustrial machinery, textiles and wood manufactures and transport equipment the fastestgrowing import sectors. By size animal products, cereals, sugars, coffee, tea, spices and

beverages will be the largest import sectors, reflecting the basic needs of Bangladeshs largepopulation.

SECTOR CONTRIBUTION TO INCREASE IN MERCHANDISE EXPORTS

FOCUS ON INFRASTRUCTURE

Bangladesh is ranked 118th in the world for its infrastructure according to the World EconomicForum. This is the lowest of any country in our sample and its infrastructure rating has actuallyfallen in recent years. Particular attention needs to be paid to the transportation network andcapacity and reliability of power generation.

But progress is being made and over the next twenty years the proportion of imports related toinfrastructure will rise to more than a third. The governments aim is to more t han doubleelectricity generation within the next few years, at a cost of around USD 15bn. If thesedevelopments take place, they will encourage investment in industry and improve growthprospects.

But the World Economic Forum has expressed concerns about the honesty and transparency ofpublic funding decisions and financing projects is a major challenge as a high level ofbureaucracy deters private funding. The government relies on public-private partnerships inthis area and, until tax reforms enable more government-funded projects, progress will be slow.

FINDINGS

The apparel exports to US from Bangladesh has seen a relatively steady increase with theexception being the year 1993-94 because at that time the quota system was introduced.

SOLUTIONS TO THE PROBLEMS

Industrialization is an important part in the economic development of Bangladesh and textile isregarded as the engine in the industrialization of any country. The textile industry inBangladesh is also the mother industry. But unfortunately the textile industry is facing differentkinds of challenges in different times.

The textile industry is not free from the burden of loans from banks that was created the BTMCbefore the denationalization in the 1980s. So cotton factories without modernization cannot beinter linked with the high rate of import tax, vat, advance income tax payment, un-adjustableworkers pay with production and high rate of electric charge given to the government, so thatthey cannot compete with the Indian textile goods., Indian textile goods are smuggled into thecountry and for lack of administrative control of bonded warehouse and infiltration in theinternal market through corruption, so that productive textile goods cannot be marketed in thecountry. In spite of that creation of enough opportunity acceptability of income tax structureand argument bank rate of interest can boost the export of textile goods.

It is often said that the quality of the cloth produced is not at par with foreign cloths and thetextile mills in our country are not able to supply cloths according to the demand.


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GOVERNMENT SOLUTION

MAJOR ISSUES AND PROSPECTS IN THE GARMENT INDUSTRY

Need for market diversification

If Bangladesh were to remain competitive in the post MFA era, one inevitable strategy would beto take the necessary steps to increase labor productivity. In order to realize the incrementalgains from the expansion of the global apparel market, the country also needs to diversify itsmarket, instead of putting all its eggs in one basket, i.e. continuing to exploit the same nichemarket. Though Bangladesh now exports garments to about 25 countries around the world, theUSA is the single largest importer of its RMG products, amounting to 43 percent of total garmentexports. Bangladesh is the sixth-largest supplier of apparel in the US market (Rahman andRahman, 2001). Considering the European Union as a single market, the USA then becomes thesecond largest. Over the past few years, Bangladeshs RMG exports to the EU have expandedrapidly, with th e EU currently importing about 52 percent of Bangladeshs total garmentproducts. The inter-temporal evidence of the narrow market base of Bangladesh RMG exports inthe 1990s is provided by the concentration of exports to the US and EU market (almost 96percent in 1998-99, see Table A2.8 in Annex). While the export share to the USA has witnessedan annual average rate of decline of 1.5 percentage points, however, the corresponding share tothe EU has experienced an annual growth rate of 1.6 percentage points. Thus, the increment inthe EU share has simply replaced the declining share in the USA market, which suggests that,instead of diversification, Bangladeshs export market has remained concentrated over the pastdecade. The combined market share of the USA and the EU has thus increased from 95.5 percentto 95.6 percent between 1991-92 and 1998-99. Bangladesh so far has been unable to gainaccess to ASEAN or Indian markets, although it imports a huge quantity of fabrics and yarn fromthese countries. Similarly, although it imports about 95 percent of its total garment machineryfrom Japan, its market share of apparel export to Japan is a mere 0.1 percent.16 Bangladeshsinability to gain access to these large markets in turn suggests that the country has yet toestablish its claims, as advocated by the WTO, to the principles of reciprocity and market access.

Establishing backward linkages

A fundamental constraint on the potential of the RMG industry is the general absence ofbackward linkages. In their absen ce, despite abundant cheap labor, the countrys local valueaddition has so far been only 25-30 percent of gross exports. The RMG industry is currentlyheavily dependent on imported raw materials. Roughly 80 percent of the woven fabrics and 50percent of the knitted fabrics are imported17, despite some improvements in this regard sincethe mid-1990s, in terms of investments in backward linkage industries, especially with theannouncement of the Textile Policy, 1995, and the granting of various incentives by theGovernment. With the phasing out of the MFA, Bangladesh may face a supply shortage ofrequired fabrics, some stakeholders argue, since the current suppliers will find it moreprofitable to use their domestically produced fabrics to produce their own RMG products, whichthey will be able to export competitively in the quota-free world apparel market. Recent trendsand relaxation of the GSP to allow for accumulation within the SAARC region, however, suggestthat the availability of fabrics may not be suc h a severe constraint. Nonetheless, Bangladeshsexcessive dependence on imported raw materials has adversely affected its competitiveness byincreasing the lead time and cost of production.

Improvements in productivity

It is clear from the discussion so far that one issue facing the RMG industry in Bangladesh is theslow rate of increase in productivity, and the gap that exists between this country and other


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RECOMMENDATION

The main recommendations in this regard are the following:

1. Diversification of markets into ASEAN and other regions outside the European Unionand North America

2. Diversification of products, particularly the transition to higher value-added items3. Building of technological capacity and skills for a range of products4. Strong support for the establishment of backward linkage industries, but with proper

assessment of international competitiveness, with a focus on dyeing and finishing units(which some studies have identified as potentially more competitive) and on smallerunits which are less capital intensive and less risky as investments

5. Continued emphasis on primary and secondary education in government educationpolicies, aiming to develop a more skilled and generally higher-quality labor force

6. Continued emphasis on education and skills development for women, specifically,aiming to close the gender gap

7. Introduction of functional English courses for managerial and supervisory staff andgreater attention to on-the-job training, with appropriate incentives such as tax rebates

8. Encouragement for relocation of factories outside main urban areas, with serviced plotsbeing made available and adequate supervision to ensure that factories are functionallydesigned

9. Better regulation and supervision of factories, reinforcing government regulatorycapacity in this regard to ensure compliance with the Factory Act

10. Compliance with labor laws with regard to wages, weekly holidays, canteen and crchefacilities, occupational safety including attention to fire hazards, etc

11. Setting up a data bank by the relevant ministries in collaboration with suchOrganizations as the ITC, the ILO, and UNIDO to monitor trade flows by product And

region, information on new technologies, etc.12. Dissemination of information by the ILO regarding linkages between job qualities andproductivity and best practices in other countries, aiming to promote attitudinalchanges among entrepreneurs

Overview- Garments Industry in Bangladesh

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