Report On

“Contribution of the Ready-Made Garments (RMG) Sector to the Bangladesh Economy”

Course code:

Course title:

Section:

Submitted By:

Name: Lulu Marjan

2011-3-10-052

Submitted to:Dr. Muhammad Mahboob AliDepartment of Economics

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Date: 15/4/2013

DECLARATION

I, do hereby declare that the dissertation titled: “Contribution of RMG sector in

Bangladesh economy ” submitted to the Dr. Muhammad Mahboob Ali for the award of the

course of socio-economic profiles of Bangladesh. This is an original work of mine. No part of it,

in any form, has been submitted to any University or Institute for any degree, diploma or for other

similar purposes.

Name:Lulu Marjan2011-3-10-052Department of EconomicsEast West University

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Date: 15.12.2011

CERTIFICATE

I have the pleasure to certify that the dissertation titled “ Contribution of RMG sector in

Bangladesh economy” has been prepared under my supervision and guidance. To the best of my

knowledge, it is the researcher’s original work.

I also certify that I have gone through the draft and final hand-written version of the dissertation

and now I approve it for submission to the Dr. Muhammad Mahboob Ali, Bangladesh as a partial

fulfillment of the requirements for the course of ECO 101 .

Dr. Muhammad Mahboob Ali

Adjunct faculty

Department of Economics

Acknowledgement

At first we desire to express our deepest sense of gratitude of almighty Allah.

With profound regard we gratefully acknowledge our respected course teacher Dr.Muhammad Mahboob Ali for his generous help and day to day suggestion during preparation of the paper. He gives so much an inspiration and guidance to us that we are, short of words in expression our gratitude.

We thank to all of our group members as they all were serious and prolific towards making this paper.

Table of Contents P A G E N o. Chapter 1 INTRODUCTION1.1 Abstract1.2 Introduction1.3 Objective1.4 Scope1.5 Mythology1.6 Literature Review

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Chapter 2 DISCUSSION2.1 History2.2 An Overview of The Bangladesh Ready-made Garment Industry.2.3 Reason behind the Growth of RMG in Bangladesh2.4 Product Tree2.5 Exporting Condition of Garments Industry2.6 Contribution in National Income:2.7 Problems behind Readymade Garments Industry

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Chapter 3 ANALYSIS3.1 SWOT Analysis 16Chapter 4 CONCLUSION4.1 Recommendation4.2 Conclusion

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References

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Table of Contents

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CHAPTER 1

1.1 Abstract

INTRODUCTION

The ready-made garment (RMG) industry of Bangladesh started in the late 1970s and became a

prominent player in the economy within a short Period of time. The industry has contributed to

export earnings, foreign exchange earnings, employment creation, poverty alleviation and the

empowerment of women. The export-quota system and the availability of cheap labor are the

two main reasons behind the success of the industry. Shirts, T-shirts, trousers, sweaters and

jackets are the main products manufactured and exported by the industry. Bangladesh exports its

RMG products mainly to the United States of America and the European Union. The Ready

Made Garments (RMG) sector plays a pivotal role in the economy of Bangladesh. This sector

accounts for approximately 76% of the total export earnings and nearly 10% of GDP.

1.2 Introduction

Like other 3rd world countries Bangladesh is a developing country. Her economic development

depends firstly on Agriculture and secondly on Industry. Although Bangladesh is not developed

in industry, it has been enriched in Garment industries in the recent past years. For Bangladesh,

the readymade garment export industry has been the proverbial goose that lays the golden eggs

for over fifteen years now. Traditionally, the jute industry dominated the industrial sector of the

country until the 1970s. Since the early 1980s, the RMG industry has emerged as an important

player in the economy of the country. In the field of Industrialization garment industry is a

promising step. It is making significant contribution in the field of our export income and in the

economical development of our country. At present the government of our country earns billions

of dollars by exporting ready-made garments products to other countries. We have not achieved

this success over night; we have some elements that help us to achieve this success. At present

we are competing with our neighboring country; India and China. Though we are earning a

handsome amount of profit each year from this sector, the ready-made garment sector is

suffering with a lot of problems. We should solve these negative situations by ensuring proper

steps.

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1.3 Objective

Followings were the objectives of the study.

Broad objective: To gather knowledge about the overall scenario of Ready-Made

Garments (RMG) Sector in Bangladesh.

Specific objectives: To attain the broad objective following specific objectives were

pursued.

o To know briefly about economic significant of RMG.

o To identify what factors are affecting an entrepreneur

o To identify the performance of an entrepreneur

1.4 Scope

This report is on a wide exporting sector of Bangladesh. So, mainly we have tried to focus on the

following factors:

Current scenario of ready-made garment industry.

Reasons for a healthy growth

Reasons for having comparative advantages in the world market.

Economical and financial contribution of this industry in Bangladeshi economy.

Beside these, we also brought several foreign benchmarks and statistics for doing the

research work in a better way.

The detailed analysis of each segment was beyond the scope of our report. We only focused on

the general overview of this subject.

1.5 Mythology

This report has been prepared on the basis of experience gathered through learning annual report.

For preparing this report, I have also get information from website of BGMEA, BKMEA Export

Promotion Bureau and many Government and non government organization. I have presented

my experience and finding by using different tables, which are presented in the analysis part.

The details of the work plan are furnished below:

o Relevant data for this report has been collected primarily by direct investigations

of different leasing company’s annual report and website.

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o The information and data for this report have been collected from secondary

sources. The secondary sources of information are annual reports, websites and

different manuals.

o Data collected from secondary sources have been processed manually and

qualitative approach in general and quantitative approach in some cases has been

used throughout the study.

o Qualitative approach has been adopted for data analysis and interpretation taking the processed data as the base. So the report relies primarily on an analytical judgment and critical reasoning.

1.6 Literature Review

Several Organizations have analyzed aspects of the garment industry in Bangladesh. Of the

various aspects of the industry, the problems and the working conditions of female workers have

received the greatest attention. There are several studies including The Centre for Policy

Dialogue (CPD), study by Debapriya Bhattacharya, Mustafizur Rahman and Ananya Raihan

(2002) and International Finance Corporation (2007) study on this topic. Both of these studies

use accepted survey and research methodology to analyze a wealth of data on the social and

economic background, Contribution of the RMG sector. Professor Muzaffar Ahmad looks at the

industrial organization of the sector and discusses robustness and long-term viability of apparel

manufacturing in Bangladesh. Wiigton (2000) provides a good overview of this industry,

especially the developments in the early years. Nidhi Khosla writes on the women worker in

Journal of International Women’s Studies (Vol. 11 #1 November 2009). The Bangladesh Planning

Commission under the Trade and Industrial Policy (TIP) project also commissioned several

studies on the industry. Hossain and Brar (2004) consider some labor-related issues in the

garment industry. Quddus (2006) presents a profile of the apparel sector in Bangladesh and

discusses some other aspects of the industry. Quddus (2006) presents results from a survey of

apparel entrepreneurs and evaluates the performance of entrepreneurs and their contribution to

the success of this industry. Islam and Quddus (2006) present an overall analysis of the industry

to evaluate its potential as a catalyst for the development of the rest of the Bangladesh economy.

Year(s) Issue1977-1980 Early period of growth1982-1985 Boom days1985 Imposition of quota restrictions1990s Knitwear sector developed significantly1993-1995 Child labor issue and its solution2003 Withdrawal of Canadian quota restriction2005 Phase-out of export-quota system

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2.1 History:

CHAPTER 2

DISCUSSION

Once upon a time the cloth of Bangladesh achieved worldwide fame. Maslin and Jamdani cloth

of our country were used as the luxurious garments of the royal figures in Europe and other

countries. The British rulers in India didn’t develop our cloth industries at all. Rather they

destroyed them and imported cloths from England. After the emergence of Bangladesh radical

change has come to our garment sector. Garment industries started working from the 10's of the

late century.

2.2 An Overview of the Bangladesh Ready-Made Garment Industry

The RMG industry is the only multi-billion-dollar manufacturing and export industry in

Bangladesh. Whereas the industry contributed only 0.001 per cent to the country’s total export

earnings in 1976, its share increased to about approximate 80 percent of those earnings in 2010.

Bangladesh exported garments worth the equivalent of $12348 Million in 2010, which was about

3.00 percent of the global total value ($276 billion) of garment exports. The country’s RMG

industry grew by more than 15 percent per annum on average during the last 15 years. The

foreign exchange earnings and employment generation of the RMG sector have been increasing

at double-digit rates from year to year. Some important issues related to the RMG industry of

Bangladesh are noted in table 1

Table 1. Important issues related to the Bangladesh ready-made garment industry

Source: Compiled by the author from Quddus and Rashid (2000), Mainuddin (2000) and databases of the Bangladesh Garment Manufacturers and Exporters Association, and the Export Promotion Bureau, Bangladesh

Currently, there are more than 4,000 RMG firms in Bangladesh. More than 95 percent of those

firms are locally owned with the exception of a few foreign firms located in export processing

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zones (Gonzales, 2002). The RMG firms are located mainly in three main cities: the capital city

Dhaka, the port city Chittagong and the industrial city Narayangonj. Bangladesh RMG firms

vary in size. Based on Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

data, Mainuddin (2000) found that in1997 more than 75 per cent of the firms employed a

maximum of 400 employees each. Garment companies in Bangladesh form formal or informal

groups. The grouping helps to share manufacturing activities, to diversify risks; horizontal as

well as vertical coordination can be easily found in such group activities. Ready-made garments

manufactured in Bangladesh are divided mainly into two broad categories: woven and knit

products. Shirts, T-shirts and trousers are the main woven products and undergarments, socks,

stockings, T-shirts, sweaters and other casual and soft garments are the main knit products.

Woven garment products still dominate the garment export earnings of the country. The share of

knit garment products has been increasing since the early 1990s; such products currently account

for more than 40 percent of the country’s total RMG export earnings (BGMEA website).

Although various types of garments are manufactured in the country, only a few categories, such

as shirts, T-shirts, trousers, jackets and sweaters, constitute the major production-share (BGMEA

website; andante, 2001). Economies of scale for large-scale production and export-quota

holdings in the corresponding categories are the principal reasons for such a narrow product

concentration.

2.3 Reason behind the Growth of RMG in Bangladesh

The prime reason why garment industries have come out to be the champion in the field of

export is obviously the cheap labor. Women contribute to the working force in these garment

factories, as they are relatively cheaper than men.

2.3.1 Low cost labor: As Bangladesh is an overpopulated country it is very easy for the

garment industries to hire labors at a lower rate. At present the government of our country has

announced minimum wage to the garment workers but the industries can still earn a handsome

amount of profit by exporting their product. Although it has increase but comparatively it is still

low.

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Class Existing Wage Announce Wage Increase in %Grade-1 5,140.00 9,300.00 80.93%Grade-2 3,840.00 7,200.00 87.50%Grade-3 2,449.00 4,120.00 68.23%Grade-4 2,250.10 3,763.00 67.24%Grade-5 2,046.00 3,455.00 68.87%Grade-6 1,851.00 3,210.00 73.47%Grade-7 1,662.50 3,000.00 80.45%Apprentice 1,200.00 2,500.00 108.33%Source: Ministry of Labour and Employment, Bangladesh. July 26, 2010

2.3.2 Export-quota system: The “export-quota system” in trading garment products

played a significant role in the success of the industry. However, that quota system came to an

end in 2004. Therefore, the competitiveness issue needs to be addressed, with special attention

given to the long-term sustainability of the industry.

Unilateral restriction, short-term arrangement (STA), long-term arrangement (LTA), Multi-fibre

Arrangement (MFA) and finally the WTO Agreement on Textiles and Clothing (ATC) are the

chronological steps through which the “export-quota system” was administered until it was

finally abolished on 31 December 2004, making worldwide textile and garment trade quota-free

2.3.3 Easy Communication: It is very easy industries to collect raw materials from other

countries and they can easily export their produced goods to the other countries.

2.3.4 Government Support: Government is supporting directly and indirectly the

industries and monitors their activities so that they can perform properly. Government reduces

tariff and supply production factors like electricity and water to them.

2.4 Product Tree

Bangladesh exports about 63 items to different apparel markets. Ready-made garments

manufactured in Bangladesh are divided mainly into two broad categories: woven and knit

products. Shirts, T-shirts and trousers are the main woven products and undergarments, socks,

stockings, T-shirts, sweaters and other casual and soft garments are the main knit products.

Woven garment products still dominate the garment export earnings of the country. The share of

knit garment products has been increasing since the early 1990s; such products currently account

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for more than 40 per cent of the country’s total RMG export earnings (BGMEA website).

Although various types of garments are manufactured in the country, only a few categories, such

as shirts, T-shirts, trousers, jackets and sweaters, constitute the major production-share (BGMEA

website; and Nath, 2001). It needs to be mentioned here that Bangladesh produces a very limited

categories of expensive and fashion oriented garments. Economies of scale for large-scale

production and export-quota holdings in the corresponding categories are the principal reasons

for such a narrow product concentration. Main apparel items exported from Bangladesh is shown

in the tree – diagram drawn below:

YEAR WOVEN KNIT SWEATER TOTAL

1995-96 1948.81 598.32 2547.131996-97 2237.95 763.3 3001.252004-2005 3598.20 2819.47 6417.672005-2006 4083.82 3816.98 7900.82006-2007 4657.63 4553.6 9211.232007-2008 5167.28 5532.52 10699.82008-2009 5918.51 6429.26 12347.77Source: BGMEA, (value in mn. Us$ quantity in mn dozen)

2.5 Exporting Condition of Garments Industry

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The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh

economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal

growth during the last 20 years. By taking advantage of an insulated market under the provision

of Multi Fibre Agreement (MFA) of GATT, it attained a high profile in terms of foreign

exchange earnings, exports, industrialization and contribution to GDP within a short span of

time. The industry plays a key role in employment generation and in the provision of income to

the poor. Nearly two million workers are directly and more than ten million inhabitants are

indirectly associated with the industry. Over the past twenty years, the number of manufacturing

units has grown from 180 to over 3600. The sector has also played a significant role in the socio-

economic development of the country.

COMPARATIVE STATEMENT ON EXPORT OF RMG AND TOTAL EXPORT OF BANGLADESH

YEAR EXPORT OF RMG (IN MILLION US$)

TOTAL EXPORT OF BANGLADESH (IN MILLION US$)

% OF RMG'S TO TOTAL EXPORT

1983-84 31.57 811.00 3.891984-85 116.2 934.43 12.442000-01 4859.83 6467.30 75.142001-02 4583.75 5986.09 76.572002-03 4912.09 6548.44 75.012003-04 5686.09 7602.99 74.792004-05 6417.67 8654.52 74.152005-06 7900.80 10526.16 75.062006-07 9211.23 12177.86 75.642007-08 10699.80 14110.80 75.832008-09 12347.77 15565.19 79.33

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2.6 Contribution in National Income:

When the garment industries 1st started to export, the sector was not paid much attention but the

situation has changed and at present it is earning the highest amount of foreign currencies in our

country.

Major Product Export from Bangladesh

Year Product Export %

2008-09

RMG 12347.77 79.33Frozen Food 454.53 2.92Tea 12.29 0.08Raw Jute 148.17 0.95Chemical Product 421.58 2.71Jute Goods 373.18 2.40Leather 177.32 1.14Agricultural Products 122.3 0.79Others 1508.06 9.69Total 15565.19 100.00

Source: Export Promotion Bureau, Bangladesh (Value in Million US$)

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2.7 Problems behind Readymade Garments Industry:

2.7.1 Backward Linkage:

Backward linkage means the use by one firm or industry of produced inputs from another firm or

industry (Alan V Deardorff , 2001)

That means the finished garment relies on three steps; first level for converting fibers/cotton to

yarns, second step for converting yarns to grey fabrics and the final step for converting gray

fabrics to dyed, printed of other finished fabrics.

Out of three steps, Bangladesh is only capable of knitting, finishing in knitwear sectors but far

behind in producing yarn, fabrics which is a major factor for woven section. Only success came

to accessories where 80% demand of our country was fulfilled.

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The success of the government industry very much depends on how effectively RMG sector

linkages may operate backward and forward. If the manufacturer has effective control over the

supply of raw materials,

Components and ancillary services needed to produce final product. Then the production is likely

to be interrupted. If the company develops an effective marketing service strategies that provide

right signal, and if marketing and distributing system as a whole are effective for having the

products reach the target markets, then the sales revenue for the company is likely to be

maximized. It means that to minimize cost of production and maximize sales revenues both

backward and forward linkages need to be integrated. Here the issue of developing backward

linkages is discussed with reference to the desirability of having control over the supply of inputs

of RMG industry, mainly, fabric, yarn and processing status (Siddique, 2004).

These three steps are integrated into each other as shown in table 1. It shows that these three

steps are essential for backward linkage integration (BGMEA, January 2005)

Some other problems that the industries face:

Dependency on different countries for raw materials

Illiterate, unskilled and unsatisfied Workers

Lacking of Resources

Political Instability

Low Working Salary:

Lack in Marketing Tactics

M/C advancement is necessary

Absence of easily on-hand middle management.

Small number of manufacturing methods

Lack of training organizations for industrial workers, supervisors and managers

Fewer process units for textiles and garments

Incompetent ports, entry/exit complicated and loading/unloading takes much time

Time-consuming custom clearance

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CHAPTER 3ANALYSIS

3.1 SWOT Analysis:

3.1.1 Strengths

1. The biggest foreign currency earning industry.

2. Ancillary services, fees, commission are more.

3. RMG credit experts are available.

4. Competitors like China doesn’t have vertical integration

3.1.2 Weaknesses

1. Backward Linkage industry is absent.

2. Automation is not cost effective in our country.

3. External raw materials supply.

3.1.3 Opportunities

1. Investment in Backward Linkage Industry.

2. Liberalized Globalization will push to improve the quality of the RMG products.

3. Composite plants will get advantage by reducing lead time.

3.1.4 Threats

1. WTO agreement

2. Pressure on Compliance issues from consumer groups.

3. Negative image of Bangladesh in the international market for less concern on human

and social issues.

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4.1 Recommendation:

CHAPTER 4CONCLUSION

Bangladesh economy at present is more globally integrated than at any time in the past. The

MFA phase-out will lead to more efficient global realignments of the Garments and Clothing

industry. The phase out was expected to have negative impact on the economy of Bangladesh.

Recent data reveals that Bangladesh absorbed the shock successfully and indeed RMG exports

grew significantly both in FY07 and (especially) in FY08. Due to a number of steps taken by the

industry, Bangladesh still remains competitive in RMG exports even in this post phase-out

period. Our Garments Industries can improve their position in the world map reducing the

overall problems. Such as management labor conflict, proper management policy, efficiency of

the manager, maintainable time schedule for the product, proper strategic plan etc. Government

also have some responsibility to improve the situation by providing- proper policy to protect the

garments industries, solve the license problem, quickly loading facility in the port, providing

proper environment for the work, keep the industry free from all kind of political problem and

the biasness. Credit must be provided when the industry fall in need. To be an upper position

holder in the world Garments Sector there is no way except follow the above recommendations.

We hope by maintaining proper management and policy strategies our country will take the top

position in future

4.2 CONCLUSION

Optimists see opportunities in challenges; pessimists see only challenges in opportunities.

With MFA phase-out US market for apparels is going expand dramatically as

uncompetitive US firms are compelled to make their exit. There will be enormous

opportunities for competitive players to make new breakthroughs in US market.

Bangladesh’s objective should be to retain the current share of 2.5% in US market during

the first 3 years of phase-out (2005-8). Then enhance the market share to 3% and above.

Bangladesh should take the strategy of cautious Optimism.

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