textile future

8/8/2019 Textile Future

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1. 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 labour are the two main reasons behind the success of the industry.

In the 1980s, the RMG industry of Bangladesh was concentrated mainly in

manufacturing and exporting woven products. Since the early 1990s, the knit section of

the industry has started to expand. Shirts, T-shirts, trousers, sweaters and jackets are the

main products manufactured and exported by the industry. Bangladesh exports its RMG products mainly to the United States of America and the European Union. These two

destinations account for more than a 90 per cent share of the countrys total earnings

from garment exports. The country has achieved some product diversification in both the

United States and the European Union. Recently, the country has achieved some level of

product upgrading in the European Union, but not to a significant extent in the United

States. Bangladesh is less competitive compared with China or India in the United States

and it is somewhat competitive in the European Union.

The phase-out of the export-quota system from the beginning of 2005 has raised the

competitiveness issue of the Bangladesh RMG industry as a top priority topic. The most

important task for the industry is to reduce the lead time of garment manufacturing. The

improvement of deep-level competitiveness through a reduction in total production and

distribution time will improve surface-level competitiveness by reducing lead time.

Such a strategy is important for long-term stable development of the industry, but its

implementation will take time. In contrast, the establishment of a central or common

bonded warehouse will improve surface-level competitiveness by reducing lead time, but

deep-level competitiveness will not be improved and long-term industry development

will be delayed. Therefore, granting permission to establish in the private sector such

warehouses with special incentives, such as the duty-free import of raw materials usable


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in the export-oriented garment industry for reducing the lead time in garment

manufacturing, is a critical issue for Bangladesh. Second, Bangladesh needs to improve

the factory working environment and various social issues related to the RMG industry.

International buyers are very particular about compliance with codes of conduct. Third,

issues related to product and market diversification as well as upgrading products need to

be addressed with special care. Moreover, the Government of Bangladesh needs to

strengthen its support. The development of the port and other physical infrastructure, the

smooth supply of utilities, a corruption-free business environment and political stability

are some priority concerns for the Government to consider in its efforts to attract

international buyers and investors.

2. Historical Background of Garments Industry in Bangladesh

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 countrys total

export earnings in 1976, its share increased to about 75 per cent of those earnings in

2005. Bangladesh exported garments worth the equivalent of $6.9 billion in 2005, which

was about 2.5 per cent of the global total value ($276 billion) of garment exports. The

countrys RMG industry grew by more than 15 per cent 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


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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 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

in 1997 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 per cent of the countrys

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). 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.

3. Present Status of Garment industry in Bangladesh

Bangladesh's textile industry, which includes knitwear and ready-made garments along

with specialized textile products, is the nation's number one export earner. The sector,

which employs 2.2 million workers, accounted for 75 per cent of Bangladesh's total

exports of US$10.53 billion in FY2005-06, in the process logging a record growth rate of

24.44 per cent. Bangladesh is poised to overtake India in garment exports at the end of

current fiscal year in the wake of an appreciating rupee, leaders and experts of Indian


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Textile Industries projected on 5th July 2007. Last year, India exported garments worth

US $ 8 billion, whereas Bangladesh notched up around US $ 7.8 billion. Premal Udani,

former President of the Clothing Manufacturers Association of India (CMAI), said, "The

Indian textile sector may see a nearly 10 per cent negative growth in the current fiscal, if

the rupee appreciation continues."

In the 1980s, there were only 50 factories employing only a few thousand people.

Currently, there are 4490 manufacturing units. The RMG sector contributes around 75

percent to the total export earnings. In 2007 it earned $9.35 billion.[8]

This sector also

contributes around 13 percent to the GDP, which was only around 3 percent in 1991. Of

the estimated 2 million people employed in this sector, about 70 percent of them are

women from rural areas. USA is the largest importer of Bangladeshi RMG products,

followed by Germany, UK, France and other E.U countries.

"Bangladesh is a strong competitor in pricing with India. Moreover, the cost of

production there is low, and its currency is static against dollar unlike ours," he added.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) together

worked out an elaborate plan to double the country's garment exports to US$ 16 billion in

next three years by 2010, top leaders of these two organizations told this Correspondent.

The countries export earning during July 2006-May 2007 period of the last fiscal year

grew by 16.45 per cent over the corresponding period of the previous fiscal year, sources

in Bangladesh Export Promotion Bureau (EPB), the total export receipts during the first

eleven months of FY 2006-07 were US 10,958.62 million dollars.

Export price index, during the July-May period of FY 2006-07, declined by 0.75 percent

but the volume of export increased by 17.20 percent compared to the same period of the

previous fiscal year. The price index and primary product export volume, however,increased by 3.78 and 4.01 percent respectively.

On the other hand, the quantity of industrial products exported registered a rise of 18.24


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percent despite decline in its price index compared to the same period of the previous

fiscal year. RMG business started in the late 70s as a negligible non-traditional sector

with a narrow export base and by the year 1983 it emerged as a promising export earning

sector; presently it contributes around 75 percent of the total export earnings. Over the

past one and half decade, RMG export earnings have increased by more than 8 times with

an exceptional growth rate of 16.5 percent per annum. In FY06, earnings reached about 8

billion USD, which was only less than a billion USD in FY91. Excepting FY02, the

In terms of GDP, RMGs contribution is highly remarkable; it reaches 13 percent of GDP

which was only about 3 percent in FY91. This is a clear indication of the industrys

contribution to the overall economy. It also plays a pivotal role to promote the

development of other key sectors of the economy like banking, insurance, shipping, hotel,

tourism, road transportation, railway container services, etc.

One of the key advantages of the RMG industry is its cheap labor force, which provides a

competitive edge over its competitors. The sector has created jobs for about two million


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people of which 70 percent are women who mostly come from rural areas. The sector

opened up employment opportunities for many more individuals through direct and

indirect economic activities, which eventually helps the countrys social development,

woman empowerment and poverty alleviation.

VALUEAND QUANTITY OFTOTALAPPARELEXPORT

CALENDAR YEAR BASIS

YEAR

TOTAL APPAREL EXPORT

IN MN.US$

TOTAL APPAREL EXPORT

IN '000 DZ

WOVEN KNIT TOTAL WOVEN KNIT TOTAL

1994 1544,89 341,53 1886,42 41642,49 13768,85 55411,34

1995 1976,40 512,18 2488,58 49377,11 19828,10 69205,21

1996 1942,37 686,27 2628,64 47536,84 26107,21 73644,05

1997 2621,33 810,49 3431,82 60560,49 27997,84 88558,33

1998 2871,06 976,29 3847,35 64229,77 34587,54 98817,31

1999 2987,73 1169,90 4157,63 64938,82 41303,64 106242,46

2000 3376,49 1448,22 4824,71 71634,03 51588,27 123222,30

2001 3162,28 1432,72 4595,00 67724,50 50180,09 117904,59

2002 3076,28 1573,40 4649,68 83443,78 70714,60 154158,38

2003 3398,84 1850,36 5249,20 85829,29 80503,80 166333,09

2004 3686,78 2532,62 6219,40 94223,23 104904,34 199127,57

2005 3689,60 3210,48 6900,08 96387,06 138190,49 234577,55

2006

(Dec) 4544,79 4388,72 8933,51 125648,96 190595,40 316244,36

Source: BGMEA (www.bgmea.com)

4. Prospects of Garment industry in Bangladesh

4.1 Financial Prospects

Before the MFA phase-out, most critics claimed that since multinational firms always

look for the best combination of locations for their factories in order to minimize

production costs, they will concentrate their production in only a few places in the world


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and withdraw their capital from anywhere else. Then, the garment industry in the low-

income exporters would collapse because of the low level of technology incorporated into

the shallow accumulation of physical and human capital, poor physical and institutional

infrastructure, and distance from the main markets. Among the losing low-income

countries, Bangladesh was considered to be the most vulnerable because they rely on

clothing for as much as three quarters of the composition of all export commodities. Even

inside the country, the owners of garment factories widely publicized their distressed

situation and asked their governments and international society for assistance. Most of

the media in the country also stated that the export-oriented garment industries in the

country were about to lose their competitiveness and decrease both exports and

production. Therefore, the critics assumed that the clothing industries in Bangladesh was

on the brink of extinction, and as a result, they rarely discussed positive factors in support

of the growth of the country as strong garment exporter. Contrary to the critics

predictions, and fortunately for the country, Bangladesh has fared successfully since

2005, and its good performance does not seem to be attributed solely to the agreements

made by China with the United States and the European Union because of the following

observation.

Month-to-Month One-Year Growth Rates for Exports of Garments to the United States

(%)


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Figure 8: Displays the month-to-month one-year growth rates of garment exports to the

United States;

Source of Data: Japan Customs

The rates incorporate the growth in garments for a month in 2005 as against the same

month in 2004. It is evident that China achieved extremely high rates of growth

throughout 2005. Surprisingly, the value of garment exports in February 2005 was 140

percent higher than that in February 2004. The rate for June was also over 100 percent.

Although the growth rate declined towards the end of 2005, it still kept only a little below

20 percent in the last two months in the year. The decline might have been affected by the

sentiment spread over the pressure to depress Chinas garment exports to the United

States and the EU. It is noteworthy that even during the high time for China, when it

entertained an extremely high growth in garment exports in the first half of 2005,

Bangladesh and Cambodia maintained a high 20 to 30 percent level of growth in garment

exports to the United States. Their growth rates were generally a little below that of India

during the year. However, they are distinct from Vietnam, whose growth rates were

negative during the second and third quarters of 2005 and where positive growth was

recovered only after the renewal of the quantitative restriction system on Chinas garment

exports to the United States. In other words, the steady growth in garment exports from

Bangladesh looks robust compared to what occurred in China. (Yamagata, April 2007)

4.2 Employment Prospects

Garment sector is the largest employer of women in Bangladesh. The garment sector has

provided employment opportunities to women from the rural areas that previously did not

have any opportunity to be part of the formal workforce. This has given women the

chance to be financially independent and have a voice in the family because now they

contribute financially. However, the women workers are facing many problems. Most

women come from low income families. Low wage of women workers and their

compliancy have enabled the industry to compete with the world market. Women are

paid far less than men mainly due to their lack education. Women are reluctant to


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unionize because factory owners threaten to fire them. Even though trade unionization is

banned inside the Export processing Zones (EPZ), the working environment is better than

that of the majority of garment factories that operate outside the EPZs. But, pressure from

buyers to abide by labor codes has enabled factories to maintain satisfactory working

conditions. In recent times, garment workers have protested against their low wages. The

firsts protests broke out in 2006, and since then, there have been periodic protests by the

workers. This has forced the government to increase minimum wages of workers.

4.3

Political ProspectsPolitical problem is very important for garment business. It creates very bad effects in

garments production. The author has discussed only three major obstacles related to the

political problems. Such as:

y Hartal :Each buyer gives an order and a target date to the vendor. Due to Hartal the production

process, inter factory transportation and shipment process may hamper. Sometimes

garments (End products) are exported by air to meet the buyers date. In this case the

owner has to spend extra cost.To remove this problem Hartal should be stopped.

y Strike :Strike is one type of Hartal created by the workers. Workers are illiterate and so they are

paid low wages by the owners. Sometimes workers are influenced by their leader and

stop working to notify their owners about wages. In some cases the strike comes out a

large volume that the workers act destructive works against the factory management and

take place along the high way to create strike. As a result the productions go down.

To reduce this problem, the management should keep sound relationship with worker

leaders and should meet their demands time to time.

y Internal politics :Internal politics mean the politics is created in garment factory among the workers and

upper level stuffs. The workers perform their own duty under the supervision of their


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upper level stuffs. In some cases, the stuffs make bad behaviors to the workers. At that

moment, the workers mentality falls down and production also decreases. The

management should convey cooperative attitude to the workers so that they can work

liberally and get chance to make correct their own faults.

4.5 Cultural Prospects

Women EmpowermentIt is well recognized that womens participation in income generation activities lends

them a better status within the family and provides them with considerable freedom. A

job ensures equitable access to household resources (nutrition) and larger investment on

female human capital (health and education). Employment opportunities draw attention

to womens needs for public facilities such as transportation, communication, safety etc.

and creates a demand for policy response in these areas. It also has created a demand for

education and health. As the income by the female member reduces dependency on male

income it reduces their vulnerability. It also reduces the possibility of domestic violence

against women. Expansion of womens employment has contributed positively to the

improvement of the savings behaviour of the poor people since women tend to be better

savers. Employment in the RMG industry has provided direct access to cash income for

the first time to many poor women. A survey, conducted by the BIDS (Bangladesh

Institute of Development Studies) in 1997 showed that for 96 percent of the female

workers in the non-EPZ areas, work in the garment industry was the maiden wage

employment. The survey also showed that women were taking up such roles paying for

house rents and schooling expenses for their children or brothers and sisters. Despite the

fact that they have lower incomes, the female garment workers were spending the same

amount as the male workers on the studies of their family members. The same survey

further showed that female workers were spending their earnings on their marriage, thus

taking a big burden off their families. The independent earnings also allow these women

to have a greater share in household decision-making. Evidently, wage work at the

garment industry has empowered women and improved their status.

Savings


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Regular earning enables a large number of the garment workers to go for some savings.

Workers investments on family pension schemes etc. create savings. A BIDS survey

conducted in the early 1990s found that 21 percent of both male and female workers aged

15 years and above had their own bank accounts. A higher proportion of workers (30

percent) had bank accounts in the EPZ. Findings showed that women are on average

better savers than men and save about 7.6 percent of their otherwise small income.

(BIDS)

Population ControlEmployment opportunities especially for women created positive impact on family

planning and population control in the country. Independent workingwomen are getting

more conscious about the advantage of a small family, and are exposed to modern family

planning methods. Working adolescent girls tend to avoid early marriage as they have

their own source of income and are self-dependent. The mean age at marriage for girls

working in RMG factories tend to be higher than the national average.

(BIDS)

4.6Social Prospects

As we already have come to know that the export-oriented RMG sector of Bangladesh

has come to play an important role in the economy and society of Bangladesh. In its turn,

the BGMEA, as the apex body of all entrepreneurs in the RMG sector, takes all possible

measures to promote the interest of the workers and the sector. BGMEA strives to

promote the cause of the sector and raise public awareness about the important role the

sector is playing in the life of the country. BGMEA has undertaken a number of projects

under its social welfare programs to ensure better occupational safety and health and

enforcement of labor rights as per the local laws. Last year (2006) RMG sector in

Bangladesh was in a deep crisis by striking of labor for increasing their wages and other

facilities. As a result whole sector nearly got collapsed and situation was unrest almost a

week during September 2006. Local and international media have actively involved and

were able to get national and international attention on the matters. To solve this problem

a three parties mutual agreement (BGMEA, Bangladesh Government and RMG Labor

Union leader) established. In the agreement, a minimum wage has been set up which is

1662,50 Taka/month and this was forced to implement for all the garment factories at the


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latest 30th June 2007. By the due date al most all the factories has implemented the

minimum wage rule in their factories. A research (done by CPD; Center for Policy

Dialogue) shows, by the end of 30th June 38 garment factories out of 4550 were failed to

implement the minimum wage agreement. Government is closely monitoring the issue

and enforcing the owners of the factories to implement the agreement. Those who did not

implement the agreement by the due date, they received another 2 months to review this

matter that means, by 31st August 2007 they must implement the agreement otherwise

government will take a necessary action against them.

Workers' Health Check-up ProjectUnder this project, BGMEA and a local NGO Bangladesh Rural Advancement

Committee (BRAC) have provided annual health check for more than 20,000 garment

workers during the period of 1998-2001.

Non-formal Education ProgramUnder this component of the Child Labor Elimination Project, 8,200 students were

enrolled in 336 schools, run by two local NGOs, Bangladesh Rural Advancement

Committee (BRAC) and Gono Shahajya Sangstha (GSS). At present, 36 schools are

providing education to the remaining 650 students from the target group.

Earnand Learn ProgramUnder this program, BGMEA has provided part time job to 900 students through BRAC

and GSS. ILO and UNICEF are also providing skill development training on tailoring,

embroidery, garments machine maintenance, manufacturing and wool knitting to these

students.

Work PlaceSafety Program for WorkersBGMEA has been implementing a number of programs to ensure work place safety for

workers as well as management personnel of its member units. In addition to providing

support to the members to comply with the safety rules set by the government, BGMEA

has been organizing training and awareness building programs for the workers and the

management staff. The association regularly monitors and follows up proper

implementation of safety compliance by individual member factories. The BGMEA

Safety Measures Cell, which organizes the awareness and training programs, has

provided fire prevention and safety training to 9,194 employees of 794 factories from


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Dhaka and Chittagong between December 1997 and July 2002. The BGMEA is also

providing compensation to the affected workers and their families. In case of death or

injury on work, BGMEA pays the cost of treatment and extra compensation to the

affected worker or his family. The association also employs the members of the victim's

family to help them support financially. Between December 1990 and September 2001,

BGMEA has paid Taka 5.4 million as compensation to the affected workers from the

association's fund.

The Crash Program to Avert Work Place AccidentsBGMEA took up a Crash Program in September 2001 to further raise awareness among

the workers and management to avert work place accidents. The program-included

awareness building on fire prevention, first aid, fire fighting equipment, proper electric

wiring and evacuation facilities. Teams formed of experts from the Fire Service and

Civil Defense Department, visited and checked the fire safety measures of 3,409 factories

where they demonstrated the fire prevention and evacuation drills in the factories both in

Dhaka and Chittagong.

(www.bgmea.com)

Garment VillageBGMEA is also working towards setting up of garment village to relocate the garment

factories from the busy and crowded cities to suburbs.

5. Problems of Garment Industry in Bangladesh

5.1 Political problem

In contrast to the public sector-led import-substituting industrialization strategy pursued

during the first few years after independence, the industrialization philosophy of the

government changed rather dramatically from the late 1970s when the emphasis was on

export-oriented growth to be spearheaded by the private sector. Towards this end, various

policy reforms were implemented in the 1980s and 1990s. Some of these reformed

policies contributed considerably to the growth of the RMG industry in Bangladesh.

During the 1980s, a number of incentives were introduced to encourage export activities.

Some of them were new like the Bonded Warehouse Facility (BWF), while others like


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the Export Performance License (XPL) Scheme 37 were already in operation and were

improved upon. Also, rebates were given on import duties and indirect taxes, there were

tax reductions on export income, and export financing was arranged. Under the XPL

scheme, exporters of non-traditional products received import licenses for specific

products over and above their normal percentage allotment based on the f.o.b. value of

their exports. Under the Duty Drawback System, exporters of manufactured goods were

entitled to get refund of duties and taxes paid on imported inputs used in export

production, and also all excise duties paid on exported finished goods. For certain fast-

moving items such as RMG, a notional system of duty payments was adopted in 1982-83.

Under this system, exporters were exempted from paying duties and taxes on imports

used in export production at the time of importation, but were required to keep records of

raw and 21packaging materials imported. The duties and taxes payable on the imports

were kept in a suspense account. Liabilities to pay the amounts in suspense were removed

on proof of exports. The discussion in this section clearly points to the positive

contribution made by policy reforms to the growth of the RMG industry in Bangladesh.

In particular, two policies the SBW facility and the back-to-back L/C system- led to

significant reduction in cost of producing garments and enhanced competitiveness of

Bangladeshs garments exports. It also allowed garment manufacturers to earn more

profit which, when necessary, could be used to overcome difficulties arising from weak

governance. Furthermore, poor governance, reflected in the leakage of duty-free imported

fabrics in the domestic market, paradoxically enough also helped the garment

manufacturers to earn extra profit and thereby enabled them to absorb the high cost of

doing businesses a fall out of bad governance.

5.2Social Problem with Data

There is another dimension of the wage structure in the RMG industry in Bangladesh

which deserves attention. Wages in Bangladeshs apparel industry have been lower not

only in comparison to other competitor countries, but also in comparison to most other

domestic industries. Thus, for example, a comparison on the basis of wage data provided

in the Statistical Yearbook of Bangladesh, 1998 shows that the average monthly wage of


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skilled RMG factory workers was 1.4 to 2 times lower than that of similar factory

workers in the textile and other sectors. These factors appear to have been primarily

responsible for the lower labour cost in the garment industry compared to most other

industries in Bangladesh. First, the garment industry is characterized by a predominance

of female workers who are prepared to accept lower wages than their male counterparts

due to their lower opportunity cost of time. Second, the minimum wage fixed by the

government has been lower for the garment industry compared to other industries. Third,

garment entrepreneurs have succeeded in reducing labour costs by generally depriving

workers of decent working conditions through side-stepping national labour standards.

Each of these factors is discussed below. About 80 percent of workers in the garment

industry are women. It has been generally argued that entrepreneurs in the garment

industry have preferred to hire more women because of prevailing beliefs that women are

nimble and patient, more controllable than men because of their docile nature, less likely

to join trade unions, and better at sewing. In addition to these reasons, another important

reason why women have been preferred is that they are willing to accept lower wages

than men. The productive efficiency of labor is more important determinant for gaining

comparative advantage than the physical abundance of labor. In Bangladesh, the garment

workers are mostly women with little education and training. The employment of an

uneven number of unskilled labors by the garment factories results in low productivity

and comparatively more expensive apparels. Bangladesh labor productivity is known to

be lower when it compared with of Sri Lanka, South Korea and Hong Kong. Bangladesh

must look for ways to improve the productivity of its labor force if it wants to compete

regionally if not globally. Because of cheap labor if our country makes the labor

productivity in the apex position, then we think the future of this sector is highly

optimistic.

5.3 Financial Problem

It is plausible that domestic entrepreneurs alone may not be able to develop the textile

industry by establishing modern mills with adequate capacity to meet the growing RMG

demand. It is important to have significant flow of investment both in terms of finance


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and technology. The investment outlook in this sector is encouraging, although the

uncertainties before the MFA phase-out period caused a sluggish investment scenario. In

part the momentum in the post-MFA phase-out period is indicative of the efforts

underway towards capacity building through backward integration. This is evident in the

pace of lending to the RMG sector and in the rising import share of RMG related

machinery. However further progress would be necessary to improve and sustain

competitiveness on a global scale.

5.4. Environmental Problem

Environment has an effect on the garments production.

Seasonclass:

Season changes have a very big effect on the garment production. In summer season

worker feels very hot due to the high temperature. So that they can not work properly.

For this purpose, need sufficient air passing in the floor space. On the other side in winter

season worker feels very cold due to the low temperature. So they need warm cloths to

survive. The company should take necessary steps to help them by making a fund for

them.

Ageclass :

Every company needs a responsibility of child labors. When they take the worker, must

follow the age role of the country. A child can not give more production. They also can

not do any hard work. So the company should follow the labor laws to recover this

problem

6. Futue of Garment Industry in Bangladesh

The surface-level competitive performance of the Bangladesh RMG industry is rather

good, as indicated by quantitative expansions of its exports to major international markets

over the time period. Moreover, the industry has already initiated the process of


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enhancing its deep-level competitive performance. For example, the Bangladesh RMG

industry has achieved some product diversification in both the United States and the

European Union as a garment supplier. Recently, the industry has achieved some

upgrading of its products in the European Union, but this has not occurred to a significant

extent in the United States. Some important areas which require more attention to sustain

and enhance deep-level competitiveness of the industry are reduction in production and

distribution time, expansion of linkages, compliance with code of conduct of buyers and

changes in product/market composition. The Government of Bangladesh should also

provide more active policy support. Below Figure illustrates a simple competitiveness

enhancement model for the Bangladesh RMG industry.

The most urgent and important task for the Bangladesh RMG industry is shortening the

lead time; otherwise, international buyers may divert their attention towards other

suppliers for the importation of garment products in the current quota-free business

environment. The best option for Bangladesh is to improve its deep-level competitiveness

by reducing total production and distribution time, which will improve surface-level

competitiveness by reducing lead time. An important precondition for implementing that

strategy is the existence of a strong domestic textile industry. Bangladesh faces

significant constraints in this regard and hence it is not possible to establish strong

backward linkages overnight. Therefore, to retain competitiveness in the global market,

Bangladesh has to think of other alternatives. The establishment of common bonded

warehouses in the private sector for storing raw materials for use in export-oriented

garment factories under some special incentives, such as duty-free imports, could play a

significant role in reducing lead time. Such a policy runs the risk of delaying the

initiatives that are necessary in order to strengthen deep-level competitiveness. However,

globalization is putting pressure on the country to accept that risk. The establishment of

common bonded warehouses and the expansion of backward linkages are two options for

the Bangladesh RMG industry. While the establishment of common bonded warehouses

will improve only surface-level competitiveness, the latter will improve both surface and

deep-level competitiveness. A good balance between these options will sustain and

enhance Bangladeshs position in the world market, and at the same time upgrade the


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countrys current status of being only an assembler so that it could become a full-package

supplier of garment products. Second, Bangladesh needs to concentrate on improving the

working environment in factories and address other social issues related to the garment

industry. The RMG firms in Bangladesh have been facing immense pressures from

international buyers for compliance with their codes of conduct. In contrast, the big

buyers are interested in continuing and expanding their business with Bangladesh if

shorter lead time and compliance standards can be met. Therefore, Bangladesh should

address these two issues very carefully and immediately, which are the least conditions

necessary to survive the competition.

Fig: Competitiveness enhancement modelfor the Bangladesh ready-madegarment industry

Product upgrading and diversification and market diversification are the next priority

tasks for Bangladesh in order to diversify risks and to increase its market share.

Bangladesh needs to expand its capacity for manufacturing high quality, high-priced


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garment products. Manufacturing simple shirts or T-shirts will not enable the country to

remain internationally competitive in the long run. Thus, the product diversification and

upgrading processes need to be accelerated. Bangladesh also needs to diversify its

markets to include Japan, Australia and other important international markets. Moreover,

the Government of Bangladesh needs to strengthen its support for the development of

port and other physical infrastructure, for smooth utility supply, improved security

systems, the attainment of a corruption-free business environment and political stability.

Such steps will contribute to reducing the lead time while building the confidence of

internationalbuyers.7.Recommendation

In the quota free world, the survival of Bangladesh garments industry depends on

improving the trade issues in order to make sure the favorable business environment. The

biggest priority should be for the policy maker to improve the political situation of the

country. Bangladesh is still competitive in low labor cost but labor training and education

is necessary to improve the labor productivity. One of the great weaknesses of the

Bangladesh garment industry is longer lead-time in supply chain that can be reduced to

implement modern technology and introducing management information system in

warehouse system. Easy access in government credit can play an important role of

increasing both local and foreign investment in garments industries. The weakness in

governance including corruption and weak state of law order system is one of the major

barriers in industry growth in long run. The major barrier to compete in global trade is

collapse in energy sectors. Although Bangladesh has abundance natural resources of gas,

electricity water plant but lack of proper energy management industrial sector still

suffering of sufficient supply. However, Bangladeshs main challenge is the longer lead-

time, which we talked before. Countries like Cambodia and Vietnam that also import rawmaterials from China require only 60-90 days for delivery of the finished product to the

buyers. At the same time, in the region, Sri Lanka requires only a maximum of 60 days to

deliver the products to the buyer. There is therefore an urgent need for Bangladesh to

drastically reduce the lead-time for RMG exports to enable the industry to be

competitive. An effective approach to decreasing lead-time that is advocated for by the


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RMG industry in Bangladesh is the establishment of a Central Bonded Warehouse

(CBW). Such a warehouse would be a customs bonded area that would purchase and

stock commonly used raw materials, consumables, machineries and spare parts in bulk,

and would provide these materials to RMG manufacturers when the export L/C is

submitted. The export L/Cs would also serve as an efficient regulatory mechanism and

prevent manufacturers from withdrawing excessive amounts of materials from the

warehouse, thus preventing the sale of excess materials like thread and fabric back to the

local market at reduced prices. As a result, the local fabric and thread industry would be

protected from the competition posed by imported raw materials. It is estimated that the

establishment of an efficient CBW in Bangladesh would lead to the saving of 4 days on

the L/C opening process, as well as remove the need for spending up to 40 days on the

production, shipping and port clearance of export materials. As a result, lead-time can be

brought down to less than 60 days, and can restore Bangladeshs competitive edge in

global RMG markets. Another way in which lead-time can be reduced is through

upgrading and enhancing the port facilities in Bangladesh. At present, only the

Chittagong port is used by RMG manufactures to receive imported raw materials and

export the finished RMG. The Chittagong Port has a severe draft limitation, preventing

the docking of mother ships, and is constrained by severe congestion, due in part to

problems with management and inadequate loading and unloading facilities. As a result,

RMG producers face difficulties in ensuring timely shipment of their goods. Therefore,

there is a need to modernize and renovate the Chittagong Port, to enable port facilities to

function more efficiently. The Chittagong Port Authority has been very responsive to this

need for modernization, and has recently introduced rubber tire gantry cranes to expedite

the loading and unloading process. At the same time, they are in the process of building a

new container terminal, which must be managed by the private sector. To further reduce

the problems with port congestion, the Government must make a concerted effort to

improve another port of Bangladesh called Mongla Port. If this port could be used to

export some volume of RMG and other goods, it would reduce the pressure on the

Chittagong Port and further reduce lead-time for RMG producers. However, much work

needs to be done to bring Mongla Port up to international standards. Therefore,

renovation work on the port must begin early, to enable this port to effectively serve


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RMG exporters. Simply reducing port congestion is not enough, however. The Customs

formalities at the Port also have to be improved. Presently, it is estimated that up to 65

different signatures are required by Customs officials to clear a container from the Port.

Such administrative processes are not only time-consuming, but also provide

opportunities for increased corruption. Customs formalities need to be reformed, to

enable RMG exporters to clear their imported raw materials faster. Computerization and

e-government initiatives can be of crucial importance to clearing up this logjam. In order

to boost exports in the niche areas and to take full advantage of the options afforded by

the special economic zones, LDCs require a highly skilled and trained workforce. There

is already an abundance of semi-skilled and unskilled workers, but as the nations must

move on to more complicated production methods and products, there is a growing

demand for skilled labor. To address the problem, the government and private sector

must work together to increase the options for extensive vocational training. Such

training can provide the labor force with the skills necessary to produce high quality

goods for export, and can boost the interest of potential investors. In addition, knowledge

of the English language must be built up to ensure that more value added services like

business process outsourcing, call centers and software development can flourish.

Opportunities for all types of exporters in developing countries still remain, in particular

as long as increased attention is given to quality and reliability in deliveries. Effective

competitive capability by developing countries requires knowledge of the legal, technical,

quality and fashion requirements. In addition, suppliers must make resources available,

not only to monitor and understand developments in the target countries, but also to use

test laboratories to ensure that quality requirements are strictly met. In general, it can be

said those companies, which are continually adapting new technologies and have the

advantage of low production costs, have definite advantages.

7. Conclusion

Bangladesh has demonstrated that it is highly competitive in the worlds major garment

markets since the expiration of the ATC (Agreement on Textiles and Clothing.) Its strong

performance to date is attributable to significant competitive advantages emanating from


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its abundant low-cost labor, the flexible exchange rate, and increasingly close ties with

major international buyers that are allowing the industry to benefit from the transfer of

knowledge and technology. The industrys success has, however, been supported by the

transitional safeguards on exports from China. These safeguards are due to expire in 2008

and the erosion of Bangladeshs market share in Canada, its only major market in which

there are no safeguard restrictions on China over the past two years, suggests that

Bangladesh will face much greater competition in its two largest garment export markets

in the relatively near future. Vietnams accession to the WTO in January 2007 poses a

challenge for Bangladesh since Vietnam now has quota-free access to the large markets

in which these two countries compete head-to-head.

Recent labor unrest in Bangladeshs garment sector is a potential risk to the industry and

highlights the need for continued efforts to raise safety standards, to improve general

working conditions, and to implement wage agreements. To maximize the likelihood that

Bangladeshs garment industry will continue to thrive the industry and government will

need to address a number of issues. Foremost among these is the development of

vocational and other educational programs that will support the industrys need for more

highly skilled domestic labor, including line and production managers. Given the clear

constraints imposed on the RMG and other industries by the poor condition of the

countrys infrastructure, it is critical that the government moves to improve the roads,

railways and ports, and to streamline further the customs procedures applied at all points

of entry. A general change for the better in the business climate from better infrastructure

and improved governance may attract more FDI into the garment sector, including

outside the EPZs. This could be particularly important since there is strong evidence that

productivity and employment is higher in FDI firms and more FDI in the sector would

create additional competition, thereby helping to improve the competitiveness of all

RMG firms. Aside from addressing these constraints to growth, Bangladeshs garment

industry should more actively explore new markets. Even though firms report that they

are constantly running at maximum capacity and prefer to deal with known buyers and

customers, efforts should be made to develop new business, at least in large Asian

countries such as Japan, China and India. This may help Bangladesh to sustain its growth


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in the increasingly competitive global market, particularly since it is well placed to

absorb business in the low-end and medium garment market as other major producers

move up the supply chain.

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 25 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. To remain

competitive in the post-MFA phase, Bangladesh needs to remove all the structural

impediments in the transportation facilities, telecommunication network, and power

supply, management of seaport, utility services and in the law and order situation. The

government and the RMG sector would have to jointly work together to maintain

competitiveness in the global RMG market. Given the remarkable entrepreneurial

initiatives and the dedication of its workforce, Bangladesh can look forward to advancing

its share of the global RMG market.


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