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Bangladesh’s industrial base, which has remained stagnant over the past two decades, is very narrow, contributing to about 11.5 percent of the GDP (BBS, 2001). Within this narrow industrial sector, however, the ready-made garments (RMG) industry has flourished as its most dynamic sector. Since its modest beginning in the early 1980s, the industry has contributed to the economy appreciably in terms of employment, output, and foreign exchange earnings.
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Environmental Forces and SWOT Analysis of Garments Industries in
Bangladesh
Executive Summary
Bangladesh’s industrial base, which has remained stagnant over the past two decades, is
very narrow, contributing to about 11.5 percent of the GDP (BBS, 2001). Within this narrow
industrial sector, however, the ready-made garments (RMG) industry has flourished as its
most dynamic sector. Since its modest beginning in the early 1980s, the industry has
contributed to the economy appreciably in terms of employment, output, and foreign
exchange earnings. Moreover, employing as it does more than 1 million young women, the
industry has brought about a noticeable change in society as well as in intra-household
gender relations. Apparently the most important factors behind the success of the RMG
industry in Bangladesh are: the availability of cheap labor. The another factor which is now
phased out was the GATT/WTO-controlled international textile and apparel trading system
through the operation of the Multi Fiber Arrangement (MFA).In this connection, there is
growing apprehension as to whether the industry, in order to remain competitive, will see
both a reduction in the already very low wage levels and a further deterioration of the
already very poor working conditions.
This study aims to:
Analyze the current status and future prospects of the RMG industry in Bangladesh
terms of its growth, employment, and exports;
Assess the likely impact of globalization and liberalization (with special reference to
the phasing out of the MFA) on the RMG industry; and
Investigate whether the reduction in wage rates and worsening of working
Conditions in the RMG industry figure as strategies to continue to be competitive n
the world apparel market.
The paper examines the static versus the potential dynamic competitive advantages of
Bangladesh’s RMG sector, and the inter-linkages between job quality, productivity, and
competitiveness in this industry.
Introduction
Bangladesh earns nearly $7 billion a year by exporting textile products, mainly to Europe
and the United States. This is about 70 percent of total export earnings of the country. The
RMG industry has around 4,000 units across the country. It employs around 2.5 million
workers, 90 percent of whom are poor women. Whenever the country is criticized for its
high level of corruption and confrontational politics, its garment industry is held up as a
success story. Bangladesh has already been grappling with political instability due to the
prevailing confrontational politics in the country. The situation was made worse when the
country’s major industry and its main foreign exchange earner Ready Made Garments
(RMG) industry got embroiled in labor unrest. The industry owners and political leaders
initially tried to sweep the grievances of labor under the carpet by floating various
conspiracy theories. But the problem has 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 and
accounts for 76% of total foreign exchange earnings. It employs about 180,000 managers
and 1.5 Million workers, of whom 1.2 Million are women. In Bangladesh, the RMG industry
has emerged as a major economic sector and has had its impact on the financial services
sector, communications, transportation, and on other related industries The RMG industry
has had a major social impact. It has empowered 1.2 million women with employment and
economic independence, which in turn has earned for Bangladesh recognition as a modern
and enlightened society. The RMG sector in Bangladesh was not etched out by a competitive
and efficient industry. It came 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 the industry grew and thrived. Since quality, competitiveness, and
efficiency were not required to attract buyers, these aspects have remained largely ignored
by the manufacturers of RMG in Bangladesh. The output of the RMG sector in Bangladesh is
typified as low cost, low value added and poor quality. The high-end market niches, which
demand high value addition and high quality, are well beyond the reach of the RMG
manufacturers in their present state. When the preferential accommodations are
withdrawn in 2005, other countries with preferred status will take Bangladesh’s place as low
cost producers. The RMG sector in Bangladesh, with its poor quality and low productivity
will be no match for the competitive producers. Sri Lanka has a smaller industry, but the
annual turn over in volume and in dollar value is comparatively far superior to that of
Bangladesh. The higher volume is explained by productivity. Factories in Sri Lanka operate at
80% - 90% of potential capacity. Whereas in Bangladesh, according to some experts,
productivity is between 35% and 55% of potential capacity with very few exceptions. For the
RMG sector in Bangladesh, productivity alone can make a difference between life and
death. The higher dollar value is explained by the addition of value. The consumer surplus is
drastically greater in the market for high end products. Consequently, the profit margin is
much higher for high end products. Trained people are at the heart of the successful RMG
manufacturer: Trained designers, in tune with designers at the buyer’s end, adapt the
buyer’s needs into the manufacturing process. And skilled managers organize the
production floor for efficiency and quality. Sri Lanka invested in creating the human
resource that mans their industry: CITI, Phoenix College, University of Moratuwa, are only
some of the academic institutions in Sri Lanka that train people for the RMG sector. In India,
the Ministry of Textiles has set up National Institutes of Fashion Technology in all major
cities. In addition there are a large 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 250 students enrolled in two Bachelor degree programs under the
National University. 675 people employed in the industry have attended certificate courses
on various aspects of the manufacturing process. Academic activities at BIFT are stimulated
by the apparel manufacturing industry. The degree programs, though distinct, require
students to develop some skills that are basic to designing and making apparels. These basic
skills are learned through the first two semesters. Thereafter students are able to declare
their candidacy for one of 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 late 1970s. 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 additional costs of importing all materials to Bangladesh. Bangladesh-origin
products met quality standards of customers in North America and Western Europe, and
prices were satisfactory. Business flourished right from the start; many owners made back
their entire capital investment within a year or two and thereafter continued to realize great
profits. Some 85 percent of Bangladeshi production was sold to North American customers,
and virtually overnight Bangladesh became become the sixth largest supplier to the North
American market. After foreign businesses began building a ready-made garment industry,
Bangladeshi capitalists appeared, and a veritable rush of them began to organize companies
in Dhaka, Chittagong, and smaller towns, where basic garments--men's and boys' cotton
shirts, women's 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 count was available,
but there were probably more than 400 firms by 1985, when the boom was peaking. After
just a few years, the ready-made garment industry employed more than 200,000 people.
According to some estimates, about 80 percent were women, never previously in the
industrial work force. Many of them were woefully underpaid and worked under harsh
conditions. 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 the value added in Bangladesh was from labor
Contribution of RMG to the economy:
Globalization, especially the intensification of trade liberalization in the 1990s, has had a
significant impact on the Bangladesh economy, opening up opportunities in the export
sector and 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 of exports 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 per capita income. Unfortunately, the growth in income has also been
accompanied by a rise in income inequalities, the national Gini coefficient rising from
around 0.36 in 1983/84 to around 0.43 in 1995/96. Absolute poverty, at around 47.5
percent of the population, has registered hardly 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, and still 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.
Figure: RMG exports from Bangladesh
The current manufacturing growth experienced by Bangladesh is thus by and large driven by
the 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 and wage bill, and 23.5 percent of gross value added and returns on capital
attributable to Bangladesh’s private manufacturing sector.2 A study of the country’s
manufacturing sector’s performance 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, leather shoes, 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 and finishing.3 According to a more recent study, RMG and
pharmaceuticals are the two sub-sectors which demonstrated the most robust growth in
output between 1988/89 and 1995/96, and thus commanded the most significant weight in
the manufacturing structure.4
Growth of RMG Industry:
Since its beginning more than two decades ago, the RMG industry has shown phenomenal
growth, despite Bangladesh’s generally sluggish industrial base, turning the country from a
traditionally jute-centered export economy to one primarily based on RMG exports.
Between 1983 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
exporting country into what is primarily a garment exporting economy. From about 4
percent of Bangladesh’s total export earnings in 1983-84, within a time span of 15 years, the
RMG industry currently accounts for about 76 percent of the country’s total export
earnings, making Bangladesh one of the 12 largest apparel exporters in the world. More
than 95 percent of the output of the RMG units and about 90 percent of that of the
knitwear units cater to the foreign market.The success of Bangladesh’s RMG exports is in
part attributable to availability ofcheap labor; 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 its principal competitors, e.g. China, India, Pakistan,
Sri Lanka, and Thailand). In the late 1970s and early 1980s, intermediate buyers began to
shift sources of RMG products from neighboring countries, due to the imposition of quotas,
to countries like Bangladesh. Abundant cheap labor in Bangladesh ensured competitive
prices, and thus acted as a primary incentive, while political turmoil 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 RMG sector, conducive domestic
economic policies such as the granting by the Bangladesh Bank of back-to-back letters of
credit (L/C) and bonded warehouse facilities further accelerated the process of establishing
new RMG units. Superimposed on this process has been the impact of the North American
quota system and the European Union’s preferential treatment under various schemes, e.g.
the General System of Preferences (GSP). While in the USA and Canada, quotas imposed on
apparel imports mean guaranteed access for developing countries
Like Bangladesh, the GSP provided by the EU lends crucial support in maintaining
competitive prices, and thus a competitive edge for Bangladesh’s RMG exports.
Consequently, RMG exports have boomed (see Table 2.1 below). Over the last decade
(1987-1997) the compound growth rate of RMG exports was more than 25 percent.
Between 1992 and 1997, the annual compound growth rate of RMG exports experienced a
robust growth of 19.4 percentage points, four times higher than GDP growth rates
registered over the same period
Objective of the report
Broad Objective :(To analyze the environmental forces in regard to garment Sector in
Bangladesh.)
Specific Objectives:
The main objectives of the study are as follows:
To analyse the micro & macro environmental forces that are influential in regard to
Garments sector in Bangladesh.
To analyse the environmental factor such as customer, suppliers, and competitors in
relation to garments sector in Bangladesh.
To analyse the environmental factor such as political, economical. Socio-cultural and
technological relation to garments sector in Bangladesh.
To Analyse Strength, Weaknesses, opportunity, & Threat of the Garments Industries
in Bangladesh.
To make strategy for the betterment of the sector in the coming years.
Literature Review
The Marketing Environment.
Marketing Environment:
The marketing environment surrounds and impacts upon the organization. There are three
key perspectives 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
or indirectly, 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 and the driving forces that control this relationship. It is a more local
relationship, and the firm may exercise a degree of influence.
The macro-environment:
This includes all factors that can influence and organization, but that are out of theirdirect
control. A company does not generally influence any laws (although it is accepted that they
could lobby or be part of a trade organization). It is continuously changing, and the company
needs 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.
The wider environment is also ever changing, and the marketer needs to compensate for
changes in culture, politics, economics and technology.
EMBED Word.Picture.8
The internal environment.
All factors that are internal to the organization are known as the ‘internal environment’.
They are generally audited by applying the ‘Five Ms’ which are Men, Money, Machinery,
Materials and Markets. The internal environment is as important for managing change as
the external. As marketers we call the process of managing internal change ‘internal
marketing.’
PEST Analysis.
Pest Analysis:
It is very important that an organization considers its environment before beginning the
marketing process. In fact, environmental analysis should be continuous and feed all aspects
of planning. The organization's marketing environment is made up of:
1. The internal environment e.g. staff (or internal customers), office technology, wages and
finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers,
our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural
forces, 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 spending
power 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 government's position on marketing ethics?
4. What is the government's 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
is especially true when planning for international marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so
on.
Sociocultural Factors.
The social and cultural influences on business vary from country to country. It is very
important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
Technological Factors.
Technology is vital for competitive advantage, and is a major driver of globalization.
Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better
standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and
services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets,
auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g.
banners, Customer Relationship Management (CRM), etc?
Which marketing topic are you studying?
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
of planning and helps marketers to focus on key issues. SWOT stand for strengths,
weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors.
Opportunities and threats are external factors.
In SWOT, strengths and weaknesses are internal factors. For example:
A strength could be:
Your specialist marketing expertise.
A new, innovative product or service.
Location of your business.
Quality processes and procedures.
Any other aspect of your business that adds value to your product or service.
A weakness could be:
Lack of marketing expertise.
Undifferentiated products or services (i.e. in relation to your competitors).
Location of your business.
Poor quality goods or services.
Damaged reputation.
In SWOT, opportunities and threats are external factors. For example:
An opportunity could be:
A developing market such as the Internet.
Mergers, joint ventures or strategic alliances.
Moving into new market segments that offer improved profits.
A new international market.
A market vacated by an ineffective competitor.
A threat could be:
A new competitor in your home market.
Price wars with competitors.
A competitor has a new, innovative product or service.
Competitors have superior access to channels of distribution.
Taxation is introduced on your product or service.
A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too much.
Two people rarely come-up with the same final version of SWOT. TOWS analysis is
extremely similar. It simply looks at the negative factors first in order to turn them into
positive factors. So use SWOT as guide and not a prescription.
SWOT analysis.
SWOT analysis should distinguish between where your organization is today, and where it
could be in the future. SWOT should always be specific. Avoid grey areas. Always apply
SWOT in relation to your competition i.e. better than or worse than yourcompetition. Keep
your SWOT short and simple. Avoid complexity and over analysis SWOT is subjective. SWOT
is a very popular tool with marketing students because it is quick and easy to learn.
Methodology
The theoretical part of the study is based on secondary date collected from different
publications on Bangladesh Garments Industries. The information collected has been
analyzed along with various numerical observations and graphical representations. The
empirical part is mainly based on primary data that is to be collected through questionnaire
and personal interview of the owners/managers of the selected sample garments.
I visited different places regarding the secondary data collection. As many as ten places
were visited to acquire necessary information and the information collected was
accumulated and distributed among the entire report.
Reporting—Finding and Analysis
Contribution of the RMG industry to the socio-economic development of Bangladesh
The RMG is earning over 70% of the nation’s total foreign currency. In addition to earning
lion's share of the country's total foreign exchange, this sector has brought about a positive
transformation in the over allspice economic condition of the clotty. Some of the
contributions that the sector marks to the nation are: Since its inception till date, the
industry has earned nearly USS 22 billion (Tk. 103.4 Thousand Crore) for the country. The
Value Addition portion has been about US$ 6.6 billion (Tk. 31 Thousand Crore). However the
earning is approximately about four times the investment in the industry. Estimated,
present total investment is about Tk. 3,9000 Crore \-whereas the earning is about Tk. 16,00
Crore.
Employment generation
The RMG industry of Bangladesh has enjoyed a meteoric rise, from less than 50 factories in
1983 to 2600 in 1997. In the same period, the level of employment has risen from some
10,000 to approximately 1.4 million (14 lacs) today, with its share of employment in the
manufacturing industry increasing from a mere 2% to 15%. About 90% of the workers are
women, constituting almost 70% of all female employment in this nation's manufacturing
sector. A tin has created vast scope family, families of about 1.4 million (14 Lacs) workers
depend on this industry. This industry has created a large-scale employment scope (About
1.5 Crore, each garment 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 the
tremendous development of Banking and Insurance sector in our country. Presently, our
commercial banks are earning over Tk. 2,000 Crore per year from oursectors. By now,
some bank 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
earning about 12.5% or about Tk. 1800 Crore per year from the RMG industry as various
types of premiums for insurance policies.
Shipping Business
The manifold increase in the shipping business in Bangladesh including setting up of a
several container 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
Dhaka International Airport (ZIA) have also been due to the Garmentt industry.
C &. F business
The unprecedented increase in the C & F Stevedoring is because of the huge import of the
garment raw materials & export of ready made garments. On average, they earn I % on all
exports and imports which amounts to nearly TK. 230 Crore.
Tax On Export Earnings
As source tax only, presently the RMG industry is paying over Tk. 40 Crore.
Population Control
With the opportunity of earning more, they now want to enjoy their lives. TIlls need is
helping girls avoid early marriage and frequent pregnancy. It is contributing to the birth
control program of our comfrey also. From 1985 - 86 till date, the country has been saved
from a burden 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
enter this sector then continue to stay because of the very working condition congenial for
them. They are enjoying recognition and dignity in the society. This sector helps approach
social equilibrium between men and women. Having the capability of earning, girls/women
are well treated 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 billions yards of fabrics a year
to the export oriented garment industry has also been developed by the industry. A large
number of ancillary have been emerged and growing keeping pace with this industry as
well. Estimates shows 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, this sector 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) recycling
industry. With these wastes, they are stuffing toys, pillows, quilts, cushions etc. and
earning about Tk. 1,500 - 2,000 per month. It means, on an average, at present, they are
earning about Tk. 30 - 40 Crore per year.
Transport:
The road transport business has been expanded because the lion's share of cargo, moving
between 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 are the proud owners of even 10/12 trucks.
Real Estate
Economic demand for real estate development generated by the garment industry to
accommodate 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 housing
accommodations in Dhaka and Chittagong. Moreover, one study shows that real estate
industry could now look forward to launching prospective housing projects feasible and
viable in both financial 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
great extent. For example, this sector is paying on an average US $ 2.26 million (Tk. 10.40
crore, @Tk. 40,'000 per factory) per month. As telephone and fax bill, this industry is
paying US $ 0.56 million (Tk. 2.60 crore) per month.
Emergency Consumers Market
About 1.4 million workers in the industry are appearing in the consumers' market with a
demand worth US$ 1.59 million (Tk. 7 Crore). An increasing demand for moderate cost
cosmetics, sharee, footwear, fast food and other consumer products is also a direct result
of about 1 million new consumers entering into the market with new living standard
backed by increasing purchasing power. The industry is helping women emancipation and
empowerment. (10 Track Records enclosed). For food (Mainly fastfood items), they are
affording about US$ 0.61 million (Tk 2.80Crore) per day.
Further industrialization:
The industry has proved itself to be the most prospective industry for a
country like Bangladesh, which is endowed with the huge cost - effective
labor force. Moreover, it has further been emerged to the soundest base for
the hem} industries. As the stock market has been collapsed, Ri\1G offers
itself as to be the only base for further industrialization in the colmtry.
The 1.4 million workers in the industry are appearing in the consumers
market with a demand worth US$ 1.59 million (Tk 1.7 Crore)
The.4 mi11ion workers are spending about US $ 0.30 million (Tk 1.4 crore)
as Mess rental per month.
About 0.7 million workers are spending about US $ 0.02 mil1ion (Tk 7 lakh)
for conveyance per day.
Child labor elimination and education to the reloaded under age worker
Today, thanks to the wide media coverage received by the famous Harkin's Bill, a
General awareness about and appreciation of the noble aim and objective of the Bill has
been created among the members of the BGMEA. Each and every Bangladeshi garment
exporter is convinced that child labor is indeed" Abusive and Exploitative". And as proof
of that consciousness we at the BGMEA, with the corporation of the ILO, UNICEF, the
Govt. of Bangladesh and active guidance of the US Mission in Dhaka, managed to sign
on the 4th of July, 1995 a historic document, 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 letter and spirit, the entire garment
sector of Bangladesh has been declared child labor free with effect from October 31,
1996. Although the level of implementation is estimated by lLO at 95%, that should be
considered a remarkable doubt free of implementation of the MOD in the
socioeconomic realties of the country.
Strength, Opportunity, Weakness and Threat of Garments Industries
Condition of garments industry:
The ready-made garment industry in Bangladesh has enjoyed a meteoric rise, from less than
50 factories in 1983 to 2600 in 2007.In the same period, the level of employment has risen
from some 10,000 to approximately 1.4 million today, with its share of employment in the
manufacturing industry increasing from a mere 2% to 15% about 90% of the workers are
women, constituting almost 70% of all female employment in this nation manufacturing
sector. This has created a vast scope for employment and uplift of the hitherto neglected
section of our population, thus radically transforming the socioeconomic condition of our
country. The apparel export trade today accounts for as much as over 75% of Bangladesh’s
total foreign exchange earning. Contribution to the sectors like Banking, Insurance, Hotel
and Tourism, Linkage and Recycling, Consumer’s Goods, Utility Services, Transportation,
Real Estate and C and F Stevedore only, roughly estimated, the RMG industry is now playing
the catalyst role behind the consequential economic activities in the country to the time of
the tune of nearly Tk.12000 Crore per years.
The strengths of Bangladesh:
The strength of a firm or country in the Market depends on its specific comparative
advantage(s), which its competitor does not have. A particular uniqueness of a supplier
shapes up its strategic profile. In case of Bangladesh, this uniqueness is the unlimited
availability of unusually cheap labor that stands out as a low technology and labor intensive
industry. The workers can be employed at a very low wages, not only in comparison to other
competitor countries, but also in comparison to other domestic industries in Bangladesh. In
domestic market as well, the wages of the workers of the RMG industry happen to be the
lowest. This should be apparent from the figure presented in table below.
TABLE NO. 1
Average minimum wages of RMG industry as % of average minimum of wages of
twelve selected industries
SECTOR/INDUSTRY %
JUTE BAILING 82
MATCH 83
HOSERY 86
REROLLING 70
PRINTING 92
CINEMA 86
COLD STORAGE 72
PHARMACEUTICAL 79
SHOE 83
PATROL PUMP 77
FISHING TRAWLER 57
ROAD TRANSPORT 72
Source: Calculated by Dr. Hafiz G.A Siddiqi, Professor and Academic Dean, North
south University and Former Director IBA, Dhaka University, based on World Bank Report.
The figures in the table indicate, for example, that the average minimum wages of
the workers in the RMG industry in 1997 was 82% of that in jute bailing industry, 70% of
that in re-rolling industry, and so on. All of the 12 industries included in the table paid
average minimum wages, which were higher than that of TMG industry.
In high competitive international market, it is the price and quality, which
determines the competitive position of a supplier, on the account of price, Bangladesh can
beat all its competitors. Price is related to cost of production which in case apparel industry
is greatly determined by the labor costs. Wages in Bangladesh is remarkably low. Naturally it
will continue to enjoy competitive advantages in international markets because it has
virtually unlimited supply of cheap labor who can learn the low technology operation
necessary in producing RMG without much investment in terms of money and time. That
Bangladesh has a tremendous labor-cost advantage can be seen by looking at the
comparative average hourly wages (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 of social contributions) is shown in the Table-
TABLE NO. 2
Hourly wages costs in the RMG industry (Selected countries)
COUNTRY WAGES($) COUNTRY WAGES($)
Norway
Denmark
Germany
U K
USA
18.09
17.29
17.22
8.42
8.13
Taiwan
Hongkong
Sri Lanka
China
Bangladesh
4.61
3.85
0.35
0.25
0.16
Weakness of Bangladesh
The problems in the industry pre-date the riots which took place just over a month ago and
which 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 factory
fires 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
KTS Textile Industries in Bangladesh’s port city of Chittagong again killing scores of mostly
young and female workers. Workers, who are mostly young women, also face an acutely
difficult working environment - wages are low, hours are long, forced labour is practised,
child labour exists, sexual harassment exists, freedom is curtailed, whether it be locked
doors or rights of association, and there are a multititude of other practices which go
against international labour standards and codes of conduct (= non-compliance). At the level
of legislation and business dealings, lack of implementation of laws, restrictive laws and
unfair buying practices by buyers compound the issue of non-compliance.
Banking sector anomalies:
Our banking sector, which once played a very positive role behind the development of this
sector, based on the bank-client relationship, this relationship has been strained due to the
creation of forced loan/demand loans as a result of non-shipment of goods during the
period of political impasse in 2005/06.The creation of demand loans/forced loans and their
subsequent classification as bad loans resulted in a strained relationship whereby client
were refused to open Back-to Back L/C facilities inspire of having the ability to secure export
orders and 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 just owing to the electricity crisis.
Taxes on export earnings:
The tax burden on export oriented garments sector is reducing competitiveness of
Bangladesh made garments in the international markets against products from competing
country. With other incentive for aggressive marketing, several countries including our
neighboring ones are totally exempting their export sectors, including RMG, from all export
taxes to help supplement their competitiveness and boost up export in the international
markets.
Communication:
Good communication system is a pre-requisite of economic development. Lack of it creates
road congestion, takes longer time in shipping raw materials and finished products to the
port from the factory and thus increase cost.
Law and order situation:
Sound law and order situation and congenial political environment are pre-requisites for
development. 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
the export-oriented garment sector with a gross salary of around Tk 2,000 for the entry-
level employees. The announcement may invite strong protest from both the garment
owners and workers, as it is a bit higher than what the factory owners had agreed and much
below than the workers' demand for Tk 3,000 as the monthly salary. The board so far held
23 meetings after it was formed on 31 May but it could not reach any consensus in the face
of strong opposition from both the garment owners and the workers.
Gross salary package of Tk 2,000 include the basic salary of roughly Tk 1,400, sources said. In
a revised proposal, garment owners insisted on a take home package of about Tk 2,000 for a
worker with two-hour overtime but it was not accepted. Annisul Haque, representative of
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) on the wage board,
said, "We will not accept anything like a gross salary package of around Tk 2,000 [excluding
the overtime] as it will make a huge difference with what we proposed." The take home
package including a two-hour overtime and attendance allowance will virtually stand at
around Tk 2,800 which the garment owners will not be able to bear, he said, adding,
"Factory is like our child and we will not take the responsibility of killing our child." Terming
the board's 24th meeting today a crucial one, Zafrul Hasan, who represents the workers as
a permanent member on the board, said, "In view of the rising living cost, it will not be
possible for the workers to accept any deal fixing the wage below Tk 2,000, as there was no
pay raise in last 12 years." Minimum wage for the workers is now Tk 950 that was fixed
around 12 years ago. The three-month deadline for fixing minimum wage for the garment
workers ended on August 31 without any settlement on the issue and different workers'
organizations started street agitation the following day in protest against ignoring the
tripartite deal. Following the severe labor unrest in the country's premier export-earning
garment sector, the government formed the wage board and asked it to recommend a pay
structure for the workers within three months. The government, garment owners and
workers' leaders at a meeting on June 12 inked a 10-point memorandum of understanding
(MoU) after a series of discussions on May 24, June 1 and June 4 among the stakeholders in
the garment sector and decided to implement those in phases to address the labor unrest,
ensure labor rights and peaceful atmosphere in the factories. Meanwhile, National Garment
Workers Federation (NGWF) laid siege to National Wage Board office at Topkhana Road
yesterday and handed over a memorandum demanding immediate announcement of
minimum wage for the garment workers. More than one hundred garment workers
participated in the siege programme ignoring heavy rain yesterday, NGWF said in a
statement. The workers have become frustrated and aggrieved because wage was not
announced as per the agreement signed at the June 12 tripartite meeting, it said, adding
that the workers have already started agitation and it may create an unstable situation
again.
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
production process, however, female workers are mainly concentrated in “less skilled”
operations, and thus are low paid. In the RMG industry, most women work either as
operators (where almost all workers are female) or as helpers (40-60 percent of the total
work force in this category are females). 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 times that of the average operator, depending on the type
of operation involved.
Elsewhere, 12 the author has thus argued that the female labor market in Bangladesh is
largely segmented by jobs (tasks) and by type of industry, as is clear from the discussion in
Section 3.1.4, above, and factors such as age, education, and marital status13 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 the low wages and low opportunity costs of female
labor, a factor which needs to be addressed at the policy level.
Agreement with garment worker not honored:
A study by Bangladesh Institute of Labor Studies (BILS) has indicated that garment
manufacturers and exporters in Bangladesh have yet to implement four agreements signed
between 1997 and 2005 to defuse problems following labor unrests. A number of labor
leaders believe that owners reached accords with workers just to defuse troubles whenever
there was unrest. Instead of implementing deals, the owners even filed a writ petition
against the government notification about minimum wages for laborers circulated in 2001.
The factory owners also did not implement the 24-point suggestion offered by the
Department of Inspection for Factories and Establishment in November 2000. The
department pointed out 24 kinds of irregularities in the garment industry that went against
labor laws. Inspection by the department also found that non-implementation of labor laws
resulted in discontent and anger among the workers.
Opportunity of Bangladesh
Buyers like Pelle Karlsson now have the fate of millions in their hands. He works for H&M, a
chain that has shops across Europe and the United States. The company is now deciding
which countries to keep doing business with. "We have our price strategy; we have our
quality level and also if the country can work with a good lead time," he said. "Based on
these three factors we will select both our suppliers and the countries that can cope with
these things. We still think Bangladesh is able to compete in these areas." H&M has moved
some of its operations in Asia to Dhaka from Hong Kong in anticipation of buying more of its
supplies here from now on. But what is good news for Bangladesh will be bad news for
workers in other developing countries.
Threats of Bangladesh
Phasing out of MFA threat:
It seems that the phenomenal growth of the RMG exports from Bangladesh has become a
threat to its powerful competitors. Naturally, the competitors are eager to snatch away the
markets from Bangladesh with aggressive and innovative business strategies. They will
certainly take advantage of the new provision included in the final acts of the Uruguay
Round. One such provision is the phasing out of MFA (Multi Fiber Arrangement).
The GATT system as it well known, GATT/WTO prohibits not only unjustified tariff barriers
but also all from of non-tariff barriers like the imposition of quota. In the sixties, while the
GATT prohibited discrimination between trading partners, it allowed certain exception to
the GATT principles and one of the m was the MFA. USA and several other developed
countries argued that if developing countries who enjoy comparative advantage in terms of
labor cost are allowed to export RMG without any restriction the apparel and the RMG
industry in their country will be severely hurt. They felt the need to develop certain
protection method, which will be severely hurt. They felt the need to develop certain
protection method; GATT will recognize which will reduce this problem and which as well.
To achieve this goal, a special provision known as a FA was instituted. Under the
Bangladesh to take advantage of its non quota status and chap labor, and they for their
own interest provided the initial motivation and help to Bangladeshi entrepreneurs to
acquire the position of a powerful supplier in the world market. With the phasing out of
MFA the position of Bangladesh in the world market will change.
After the year 2005, if MFA is really phased out, these countries may not remain our
partner in progress due to the change in the circumstances. Then, all countries including
those, which are now under quota restrictions, will be on quota free status and might
emerge our strongest competitors. This means that, Bangladesh ill have to compete with a
larger number of established and powerfl.11 suppliers of RMG on equal terms.
Furthermore, others small countries are likely to emerge as new competitors.
Other non tariff barriers:
The final acts of Uruguay Rolled negotiations strengthened the GATT principle of reducing
all tariff barriers. But it is not in the case of non-tariff barriers, because they take so many
subtle fonts that they face disagreement that agreement in their definition. The child labor,
environmental and human right issues are such non-tariff barriers.
It is quite likely that by restructuring, improving managerial efficiency and increasing
productivity Bangladesh will be able to compete in the intentional market. But problems
will arise if the importers apply subtle non-tariff barriers under the disguise
of humanitarian issues like child labor. Here the main challenges for the producers of RMG
of Bangladesh lies how to tackle 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 on humanitarian ground.
Child labor Issues:
Should be for both labor welfare and occupational safety. For safety use of aprons, gloves,
dust masks, eye masks, ear protectors, gum boots, smoke detector and early rehearsed fire
fighting arrangement is very important. Water treatment plant is a must to avoid pollution
in the industry. Social environment related to labor rights, product safety and intellectual
property rights are considered to be of increasing importance now-a-days. Ensuring social
compliance is very important in the industries involved in production of RMG for
maintaining quality of products as well as rules for export market. On protection of labor
rights and improvement of working conditions, international standards have been
developed and adopted by major markets. In contrast with labor rights, product safety
issues are mostly mandatory requirements. Compliance issues like working environment,
salary, maternal leave for female workers, and safety and health conditions of apparel
sector workers have come to the forefront of attention of the international buyers. There is
no option other than ensuring social compliance to maintain quality of products. Because
labor can never enhance their skill without having a minimum wage for living and favorable
environment for work. The compliance issues have become more important after the expiry
of the MFA. Though these issues are very fundamental as far as the workers' interest is
concerned but at the same time these are very capital 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
exports to increase the cost of production with the ultimate result of making Bangladesh
exports less competitive in the world.
Dreams and uncertainty:
Anwar ul-Alam Chowdhury is the owner of Evince Textiles. He has just opened a new factory
in Gazipur, about an hour's drive outside Dhaka.
It is so new parts of it are still being built by laborers who carry bricks and cement in baskets
on their heads. Wages in Bangladesh are low, around half those paid in China, giving the
country a competitive edge. "Everybody dreams, you know, so we are also dreaming," said
the owner as he walks around his new production lines. When the factory is up to full speed
it will be making 1.5m shirts a month. "It could be good,
I think. 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." But for garment workers
like Shanaz Parvin Rekha this is a period of uncertainty.
She's still looking for a new job. And it will be some time
before it becomes clear whether Bangladesh will be a
winner or a loser in the new global free market for garments. Developing countries around
the world face upheaval after the quota system governing the garment industry was finally
phased out at the end of last year. For Bangladesh the stakes are especially high - it relies on
garments for more than three-quarters of its exports. About 1.8m people, most of them
women, work in garment factories. As many as 15 million more in support industries 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
Bangladesh's garment factories can be as little as $20 a month. Thanks to poor working
conditions, employer-worker clashes have been recurring in the textile industry. Workers
often take to the streets with 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
will depend on Bangladesh’s ability to withstand a more competitive global33 environment.
It is arguable that this competitiveness on the other hand will depend amongst other things
A laborer on the Evince Textiles
site at Gazipur
on measures taken to improve productivity and job quality.In the worst scenario, a failure to
maintain competitiveness will lead to enterpriseclosures and increased sub-contracting from
larger to smaller units. This will obviously lead to unemployment among mostly women
workers, a possible reverse trend of rural-urban migration, and a reduction in the household
earnings 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 of RMG units.14 Deterioration in job quality is likely
to have serious consequences. Entrepreneurs must recognize 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 fairness and justice.Workers’ rights
include freedom of association, which is currently prohibited inthe export processing zones,
while unionization is actively discouraged in the industry as a whole.15 Interestingly, the
entrepreneurs interviewed as part of this study expressed divergent views regarding job
quality. Most were worried about the impact on costs, and some regarded labor
retrenchment and subcontracting as a way out. A few more enlightened entrepreneurs
believed attitudinal 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 a chance to adjust to the phasing out of the MFA, as well as helping them to
relocate 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. In any case, measures to increase productivity and competitiveness may involve
some rationalization of the workforce and technology upgrading such as the introduction of
computer-aided design (CAD). It has been suggested that the latter will lead to a
substitution of male for female workers, given the higher educational and skill requirements
of the new technologies, 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 successful firms. 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 2503 in 1996-97,
increasing at the rate of 20% each year.
(2) The growth of garment export in terms of dollar is proportional to the rate of increases
of factories; it depicts a healthy steeper growth of the industry per se.
(3)Garment export has been increasing on an average 24% each year. AS the rate of
increase, not less than 20 % per year is expected to continue through the MFA phasing out
transition, growth prospect of Bangladesh’s apparel industry loads very bright.
(4) Bangladesh presently holds 6th largest apparel exporters sector in USA and the 5th largest
in EU. Country’s RMG products are steadily moving toward high value sophisticated items
like high quality suits, jackets, branded jeans items, embroidered ladies’ wear etc. increasing
@ 25% per year, over the last few years, they have 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 it was US$ 9.35 Mn.
(6) EU took the largest share followed by US. Germany has led the EU market in the last few
years followed by UD, France, Itally and the Netherlands. In 1996-97 Germany alone
imported apparels worth US$ 392.09 million against the purchase of US$ 326.89 million in
1995-96. Only shirts and T-shirts worth US$ 202.36 million were imported by Germany in
1995. However, as a single country, US have been the highest apparel importers from
Bangladesh.
Year wise Membership
Table of Figure 2 Year No. of Garments
1993-94 834
1995-96 1163
1997-98 1537
1999-00 1839
2001-02 2363
2003-04 2503
STATUS OF READY MADE GARMENT INDUSTRY COMPUTED BY BY BGMEA
Table No. 3
Sl. No. Year Total
No. of
RMGs
Employment
Workers
Fabrics:
B-Yards
Exports in
THs-dozs
Export in
M-US$
1 1993 180 - 0.102 1143.55 31.57
1993-94 1995-96 1997-98 1999-00 2001-02 2003-04
2 1994 587 - 0.105 4209.09 116.20
3 1995 601 0.198 0.225 4762.58 131.48
4 1996 658 0.283 0.410 10818.68 298.67
5 1997 712 0.306 0.490 15717.81 433.92
6 1998 737 0.317 0.579 17064.21 417.09
7 1999 780 0.335 1.780 22608.84 624.16
8 2000 934 0.402 1.020 30566.63 866.82
9 2001 1354 0.582 1.225 42836.02 1182.57
10 2002 1695 0.802 1.590 46717.44 1445.02
11 2003 1839 0.827 1.900 45166.00 1555.79
12 2004 2182 1.20 2.300 62512.00 2228.15
13 2005 2352 1.29 2.600 72005.00 2547.13
14 2006 2503 *1.30 *2.86 80986.40 3001.25
Source: BGMEA, RDTI Cell. March 1998
FIGURE NO. 3
TABLE OF FIGURE 3
Year Export of RMG iNdustry (In Mn. US$)
1991-92 811.00
1993-94 934.43
1995-96 819.21
1997-98 1076.61
1999-00 123.20
2001-02 1291.56
2003-04 3882.00
2005-06 4418.28
Garments Export By Major Regions
Table No.4
Countries 2005-06 2003-04
Taka Dollar % of total Taka Dollar % of
total
USA 36004383 880303 45.17 36422670 908070 49.48
UK 9213240 225263 11.56 4723725 185084 10.09
Germany 8954528 217937 11.24 7701752 192016 10.46
France 7063214 172695 8.86 5232454 130453 7.11
Ltaly 5368625 131262 6.74 5800193 144607 7.88
Neterlands 3594023 87873 4.51 2917715 72743 3.96
Belgium 2194483 53655 2.75 1264699 31531 1.72
Canada 196973 48158 2.47 1959567 48855 2.66
Sweden 1129470 27615 1.42 742623 18515 1.01
Spain 1110720 27157 1.39 959207 23914 1.30
Share of RMG in Country’s 2004-05 Total Export
Table of Figure-4
Commodities Export Share %
RMG 67.93
JUTE GOODS 7.12
RAW JUTE 2.63
TEA 0.86
LEATHER 4.42
CHEM PRODUCTS 2.46
OTHERS 14.51
Figure No. 4
From the table no. 8 and corresponding figure no. 4 we see that the RMG exports exceed
that of other countries by a very wide margin. By far it is the single largest foreign currency
earner of Bangladesh.
RMG Exports to Different Countries
Table of Figure 5
Markets Exports in Different Countries (%)
US 39.3
Europe 54
Canada 2.5
Others 4
Figure No. 5
From the table no 9and corresponding figure no 5 we see that the single largest inporter of
RMG from Banbgladesh country wise is the US. It imports more than 39 % of total RMG
export of Bnagldesh.
Apparel Export To Us
Table of Figure 6
Year Value in million US$
1993-94 581.1
1995-96 703.96
1997-98 592.46
1999-00 1006.08
2001-02 1001.68
2003-04 1245.14
2005-06 (July-February) 1054.7
Findings:
The apparel exports to US from Bangladesh has seen a relatively stead increase with the
exception 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 is regarded as the engine in the industrialization of any country. The textile industry
in Bangladesh is also the mother industry. But unfortunately the textile industry is facing
different kinds of challenges in different times.
The textile industry is not free from the burden of loans from banks that was created the
BTMC before the denationalization in the 1980s. So cotton factories without modernization
cannot be inter linked with the high rate of import tax, vat, advance income 5tax payment,
unadjustable workers pay with production and high rate of electric charge given to the
government, so that they cannot compete with the Indian textile goods., Indian textile
goods are smuggled into the country and for lack of administrative control of bonded
warehouse and infiltration in the internal market through corruption, so that productive
textile goods cannot be marketed in the country. In spite of that creation of enough
opportunity acceptability of income tax structure and 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 the
textile mills in our country are not able to supply cloths according to the demand.
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 be to take the necessary steps to increase labor productivity. In order to realize the
incremental gains from the expansion of the global apparel market, the country also needs
to diversify its market, instead of putting all its eggs in one basket, i.e. continuing to exploit
the same niche market. Though Bangladesh now exports garments to about 25 countries
around the world, the USA is the single largest importer of its RMG products, amounting to
43 percent of total garment exports. Bangladesh is the sixth-largest supplier of apparel in
the US market (Rahman and Rahman, 2001). Considering the European Union as a single
market, the USA then becomes the second largest. Over the past few years, Bangladesh’s
RMG exports to the EU have expanded rapidly, with the EU currently importing about 52
percent of Bangladesh’s total garment products. The inter-temporal evidence of the narrow
market base of Bangladesh RMG exports in the 1990s is provided by the concentration of
exports to the US and EU market (almost 96 percent in 1998-99, see Table A2.8 in Annex).
While the export share to the USA has witnessed an annual average rate of decline of 1.5
percentage points, however, the corresponding share to the EU has experienced an annual
growth rate of 1.6 percentage points. Thus, the increment in the EU share has simply
replaced the declining share in the USA market, which suggests that, instead of
diversification, Bangladesh’s export market has remained concentrated over the past
decade. The combined market share of the USA and the EU has thus increased from 95.5
percent to 95.6 percent between 1991-92 and 1998-99. Bangladesh so far has been unable
to gain access to ASEAN or Indian markets, although it imports a huge quantity of fabrics
and yarn from these countries. Similarly, although it imports about 95 percent of its total
garment machinery from Japan, its market share of apparel export to Japan is a mere 0.1
percent.16 Bangladesh’s inability to gain access to these large markets in turn suggests that
the country has yet to establish 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 of
backward linkages. In their absence, despite abundant cheap labor, the country’s local value
addition has so far been only 25-30 percent of gross exports. The RMG industry is currently
heavily dependent on imported raw materials. Roughly 80 percent of the woven fabrics and
50 percent of the knitted fabrics are imported17, despite some improvements in this regard
since the mid-1990s, in terms of investments in backward linkage industries, especially with
the announcement of the Textile Policy, 1995, and the granting of various incentives by the
Government. With the phasing out of the MFA, Bangladesh may face a supply shortage of
required fabrics, some stakeholders argue, since the current suppliers will find it more
profitable to use their domestically produced fabrics to produce their own RMG products,
which they will be able to export competitively in the quota-free world apparel market.
Recent trends and relaxation of the GSP to allow for accumulation within the SAARC region,
however, suggest that the availability of fabrics may not be such a severe constraint.
Nonetheless, Bangladesh’s excessive dependence on imported raw materials has adversely
affected its competitiveness by increasing 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 the slow rate of increase in productivity, and the gap that exists between this
country and other competitors in this regard. There is also scope for capacity building in
different types of skills and processes. The aim should be to move the industry up to a
different regime, wherein competition is based on higher productivity, an improved working
environment, and backward and forward linkages to meet the new challenges of the post-
MFA era. A more concerted action plan is needed in this regard. Interviews with
entrepreneurs, for example, have suggested that Bangladesh is at a disadvantage compared
to other countries in South Asia; such as, Sri Lanka, where a more educated labor force,
especially at the supervisory and managerial levels, increases labor productivity. Thus,
training schemes for managers and supervisors are an important element in increasing
productivity, including the introduction of functional English courses for higher-level
employees, improving their ability to read operating manuals and so on. To these ends, the
Government should also increase its allocations to the education sector.
Responsiveness to consumer ethics and standards
New challenges facing the RMG industry and the export sector in general include greater
consumer awareness of quality, health, and environmental standards. These issues may well
act as non-tariff barriers, but entrepreneurs have little option other than to meet these
requirements and codes of global transactions. Similarly, working conditions—including
safety, health, and the earnings of workers, together with issues such as child labor—are
growing concerns on the part of international consumers. The industry needs to improve its
image in this regard, advertising recent achievements such as the abolition of child labor
and improvements in occupational safety. Efforts to further improve standards,
furthermore, are likely to have longer-term payoffs.
Need for a data bank
Interviews with entrepreneurs suggested considerable uncertainty regarding the behavior of
competitors and their responses to the new global environment. A considerable gap also
exists in knowledge about trade and investment flows. This is understandable, given that
most entrepreneur interactions are with buyers who merely specify their product needs,
provide the designs, etc. The emerging global environment, however, calls for more
strategic action with regard to major competitors. In this respect, international
organizations such as the ITC, UNIDO, and the ILO can have special roles to play. The
relevant ministries can also maintain easily accessible data banks on trade flows by country
and region, including information on product line, changes in unit costs, special
opportunities, new technologies, cost effectiveness of different technologies, etc., especially
in the backward linkage industries. The BGMEA should also try to disseminate such
information to all types of entrepreneurs.
Dark Side of the Garment Industry
This most flourishing industry of Bangladesh has its dark side. A large number of the units
are located in dilapidated buildings. In April 2005, an entire building, housing hundreds of
mainly female workers in the outskirts of Dhaka, collapsed. Sixty-four laborers, at work on
their machines, were crushed to death, and 84 injured. What is worse, most of these
buildings do not have adequate fire escapes. On February 24 this year, more than 50 people
were killed and about 100 injured in a fire at a textile mill in Bangladesh. The industry
leaders unite together to get support and benefits from the government, but they are not
equally willing to look after the welfare of workers. In the RMG industry in several places in
Bangladesh workers are paid their salaries two moths late. Overtime is imposed and in some
cases not rewarded. The rising inflation has reduced the value of wages. But the
industrialists say that it’s the job of the government to control inflation.
Recommendation
The main recommendations in this regard are the following:
1. Diversification of markets into ASEAN and other regions outside the European
Union and North America;
2. Diversification of products, particularly the transition to higher value-added items;
3. Building of technological capacity and skills for a range of products;
4. 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 smaller units
which are less capital intensive and less risky as investments;
5. Continued emphasis on primary and secondary education in government education
policies, 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 and
greater 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 plots
being made available and adequate supervision to ensure that factories are functionally
designed;
9. Better regulation and supervision of factories, reinforcing government regulatory capacity
in this regard to ensure compliance with the Factory Act;
10. Compliance with labor laws with regard to wages, weekly holidays, canteen and crèche
facilities, occupational safety including attention to fire hazards, etc.;
11. Setting up a data bank by the relevant ministries in collaboration with such
Organizations 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 and
productivity and best practices in other countries, aiming to promote attitudinal changes
among entrepreneurs;
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Recommended