MGT489 Sec2 Group6 Indust Rep RMG

7/24/2019 MGT489 Sec2 Group6 Indust Rep RMG

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Strategy and Structure of the RMGIndustry

Group 6

Md. Shamim Faisal 112 0139 030

Md. Den Islam 112 0148 030

UmmeHabiba Eva 112 0133 030

Imtiaz Aba! 112 014" 030

Submitted To:

D!. M. Shahed#lAlam

$%#!se& M'()489

Se*& 2

Date& 12) 03) 201+


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Executive Summary

In an effort to understand strategy and structure of RMG (ready-made garments) this paper is to

assess the likely impact of technology developments, government and regulatory issues, strategicreactions to competitive pressures, and new markets along with the managerial developments in

the sector, and focusing on recent developments in supply chain management worldwide. his

pro!ect also illustrates the "angladeshiindustry in the glo#al conte$t including its si%e in the

glo#al arena assessing its significant role in socio-economic development in our country.

&econdary research has #een conducted for initial issue e$ploration. 'ifferent sections and

su#sections are included to descri#e variety of issues with recent and future trend of this industry.

Table of content

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Content Page

over age

*$ecutive &ummary +

Introduction

Glo#al Industry structure -

Glo#al Industry Issue -"angladesh in the glo#al conte$t -+/

0nalysis and conclusion +/-+1

Reference +

Research method +2

Introduction

RMGs industry is one of the one of the most dynamic sectors of glo#ally in consumer driven

market. RMG contri#utes to employment in developed countries, particularly in regions where

alternative !o#s may #e difficult to find. In the *uropean 3nion, for e$ample, the sector is

dominated #y small and medium-si%ed enterprises concentrated in a num#er of regions that are

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highly dependent on this sector (ommission of the *uropean ommunities, 1//).he RMG

industry has #een "angladesh4s key source of foreign e$change for the last 1 years. RMG

e$ports reached a steadfast figure of 3&' +.5+ #illion in fiscal year (1/+/-1/++)6 accounting

more than 78 of national e$port earnings, which was a#out 28-8 of the glo#al total of such

e$ports. It further contri#utes +/8 to the country9s G' (Mahmud R."., 1/+1). "angladesh9s

garment industry provides employment to a#out than .: million workers which 1.7 million are

women (Mahmud R."., 1/+1).In fact, the prospect of li#erali%ation of the te$tiles and clothing

sectors was one of the reasons why developing countries accepted to include services and

intellectual property rights Round (Reinert, 1///).

In recent years 3&0 is the largest and *uropean 3nion is the second largest consumer on other

0siandominance in glo#al production and e$port. he countries contri#uting to 0sia4s productionare hina, India, "angladesh and few others.

Global Industry Structure

argest !"porters of RMG products

#D%lla!s am%#nt in billi%n

hina +/

"angladesh +5

India +7

3nited &tates +2

urkey +1

Repu#lic of korea +1

akistan 5

;apan


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*3 is the #iggest importer of RMG roducts. 3&0 is the second in import position. 0mong *3

%one Germany and 3= are #iggest importer of "angladesh. his statistic shows the value of the

leading + te$tile importers worldwide in 1/+, #y country. In that year, the 3nited &tates was

the second ranked glo#al te$tile importer with a value of appro$imately 1 #illion 3.&. dollars.

>'ollars amount is in "illion

*uropean union 7

3nited states 1

hina 11


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he most #eneficial pu#lic policy of introducing #ack to #ack A> and #onded warehouse

facilities provide a tremendous impetus to the e$port scenario in "angladesh.

he government provided su#sidy worth k :.+ #illion (:+ crore) to e$porters of the ready-

made garment (RMG), leather and !ute goods sectors in the last financial year. 0n amount of k

:.1 #illion as su#sidy to such sectors was allocated for the current fiscal to further #oost

e$ports.?er government was working for setting up garment villages outside the city.

More land will #e allotted for esta#lishing clusters of garment factories. he government also

decided to release a fund of k +// million through the "angladesh Rural 0dvancement

ommittee ("R0) for construction of dormitories for the female garment workers and steps

have #een taken for ensuing welfare and safety of the garments workers.In this connection

Cinance Minister &hah 0M& =i#ria told the garment e$porters to e$plore new markets in the

*ast, especially in ;apan and 0ustralia and Middle *ast. ?e also cautioned that the government

would take strong actions against the Fleakage of foreign e$change4 and asked the "GM*0 to

keep an eye on those who were involved in the heist. ?e also e$pressed his o#servation that,

F*$ports are made, #ut proceeds do not come #ack.

Spinning#he government is committed to fostering a strong spinning sector within the economy

to support the ro#ust te$tile and garment industry that has developed. he government is

therefore supporting spinners #y providing lower tariffs for machinery spares and raw materials,

cash incentives, reduced ta$ rate, and low-cost funding etc.

Competitive pre$$ure

he glo#al attention is now focused on the "angladesh garment industry. ?ow far the fatal fire

incidents will leave a negative impact on the whole readymade garment (RMG) sector, is not yet

clearly known.

"eing worried a#out issues relating to la#our standards in "angladesh, the 3& apparel #uyers are

now putting pressure on the RMG makers here to ensure proper compliance with such standards

in the sector. he #uyers in the overseas markets are now more concerned a#out the issue6 they

have called upon the government of "angladesh to monitor such a situation at the RMG units.

he new ongress in the 3&0 has attached a priority to it.

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he ministry of foreign affairs (MoC0) has recently received complaints from some 3& ma!or

apparel #uyers a#out a considera#le num#er of RMG units flouting the la#or and other related

standards. Most of the RMG workers9 #irth registration and payment system are not authentic.

Raising o#!ections to the accounts structure in the "angladesh apparel factories, they said the

RMG makers in most of the cases show fake ones. hey also e$pressed concern over ma!or

loopholes of the compliance system.

@n its part, "angladesh Garment Manufacturers and *$porters 0ssociation ("GM*0) said

"angladesh apparel makers are also aware of the issue. It has claimed that almost all the garment

manufacturers maintain super# la#our standards at their factories, noting that any strict la#or

policy is unlikely to hamper RMG e$ports to the 3& market. he association continues to work

for convincing all the RMG units to #ecome fully complaint, it said.

"ut the supply of local Hualified manpower to deal with compliance matters relating to la#or

standards, is short of the current reHuirements. he overseas #uyers are reportedly assigning their

own workforce to monitor conditions at the workplace where the goods are made for shipment.

"angladesh now #eing on the watch-list, international #uyers and consumers would like to see

effective steps in place to help avert a new tragedy. ;ust #ecause of a few grossly non-compliant

operators, the whole sector is getting a #ad name and as such, running the risk of losing markets.

3nder such circumstances, restoring the image of the country9s RMG sector is now an urgent

national task. he government, the apparel owners, workers9 representatives and all others do

need to urgently put in their !oint efforts to facilitate sustained development of the industry.

(angladesh RMG Industry in the Global )onte"t

In +5:/ the first garment industry in "angladesh (hen *ast akistan) was esta#lished at 'hakaand till +5+ the num#er rose to give. "ut these garments were of different type intended to serve

home market only. Crom +5: and +5 some entrepreneurs came forward to setup +//8 e$port

oriented garment industry. "oth domestic and international environment favored the rapid

growth of this industry in "angladesh. "y mid-seventies the esta#lished developed suppliers of

garments in the world markets i.e. ?ong =ong, &outh =orea, &ingapore, aiwan, hailand,

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Malaysia, Indonesia, &ri Aanka and India were severely constrained #y the Huota restrictions

imposed #y their ma!or #uyers like 3&0, anada and *uropean 3nion. o maintain their

#usiness and competitive edge in the world markets, they followed a strategy of relocation of

garment factories in those countries, which were free from Huota restrictions and at least same

time had enough traina#le cheap la#or. hey found "angladesh as one of the most suita#le

countries.

Relative Si%e in Glo&al 'rena#

"angladesh is the second largest ready-made garments e$porting country in the world ne$t to

hina. he ready-made garments make up around 7/8 of total merchandise e$ports from

"angladesh, with the value of e$ports in this su#-sector #eing greater than e$ports from India. In

1/+, half of "angladesh4s e$ports of garments and te$tiles went to *urope and a Huarter to the3&. *$port values of ready-made garments rose #y +8 in the first five months of 1/+2 after

growing #y ++.8 last year. 0mongst the 1 economies in the rade Corecast, "angladesh gets

around 1/8 of its imports from hina and #y 1/1/ this share will have risen to closer to /8.

@ther *merging Market economies in 0sia will also gain market share in "angladesh at the

e$pense of developed economies.ow the num#er of RMG units is around :,/// and the e$port

earnings have e$ceeded 3&J 1/ #illion. =nit garments are e$ported to +27 countries and woven

products to +1 countries. 0nalysts say the apparel e$port earnings can #e more than dou#led #y

the year 1/1/. 0s hina has started losing its attractiveness due to a rise in costs of doing

#usiness there, western #uyers are now searching for Fne$t hina4. @ther markets in &outheast

0sia will increase their e$portstoo, #ut will not #e a#le to replace6 at least in the near future6

"angladesh as a via#le RMG sourcing hu#.

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Principle Player$ and 'rea$#

RMG is the leading industry in "angladesh. It is #asically a la#or-intensive industry and it needs

limited financial investment and relatively simple technology compared to other high technical

industries. he success story of Garment Industry in "angladesh is the story as to how the ready-

made garments starting in the late seventies as an insignificant non-traditional item of e$port. In

+557-55 this sector has earned 2/+5.57 million 3&J through e$porting which is.:8 of the

total e$port .he tremendous success of Readymade Garment (RMG) e$ports from "angladesh

over last two decades has surpassed the most optimistic e$pectations. 0t present "angladesh is

the :th largest e$porter to 3&0 and in +55 "angladesh #ecomes +7th largest e$porter in the

world. ow "angladesh ranks first e$port of -shirts to *urope, the overall impact of thereadymade garment e$port industry is certainly one of the most significant social-end economic

developments in contemporary "angladesh. he remarka#le achievement of RMG sector is now

e$posed to each and every country. 'espite these impressive achievements and the pro#a#le

challenges in the near future, if properly managed, the prospects for further e$pansion and

growth for this sector remain #right. here are some ma!or threats still e$isting in this sector #ut

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"angladesh has the a#ility to overcome these threats. Readymade Garment (RMG) industry

holds a key position in the economy of "angladesh interns of foreign e$change earnings,

employment generation and poverty alleviation. Right now RMG sector is the highest foreign

currency earner in "angladesh. 0part from contri#uting to huge foreign e$change earnings,

RMG industry has #ecome the largest source of employment generation. 0round 1 million

people are presently involved of whom 5/8 are distressed women in the RMG industry of

"angladesh. In addition a rough estimate shows that the sector through linkage effects is

currently generating a#out 3&J 1 #illion worth of domestic economic activities. RMG industry is

the most important sector for the economy of "angladesh. It accounts for .+28 in 1///-1//+

of the country4s total e$port earnings. "ut this RMG sector is now facing some challenges

especially after 1//2. "angladesh is still at its infancy in terms of Huantity production in the

readymade garments industry. De still have pro#lems in our country for the production of Huality

goods. &tandard is also not satisfactory. he Huality of the ready-made garments of =orea, ?ong

=ong, aiwan and other countries is far superior to that of ours.

Strategic I$$ue$#

(avora&le Policy &y Government# he government came out with some policies which

triggered the #usiness growth and the entrepreneurs took the chance to gain on it. he privileges

en!oyed #y RMG sector through government policy are #ack to #ack Aetter of redit (AK),

#onded warehouse, ash Incentives and reduced income ta$ rate. 0dditionally in 1//2,

government reduced the corporate income ta$ from / to +/ percent for RMG industry and from

/ and percent to 1/ percent for te$tile firms until ;une /, 1//:

'vaila&ility o) cheap la&or and lo* energy co$t# "angladesh is one of the cheapest on la#or

wages, even compared to the standard of the &outh 0sian region. he wages are unlikely to

increase due to vast unemployment rate that e$ists in the country and lack of alternative work

opportunities especially for rural women. "angladesh has around / millions of availa#le low

cost workers who could #e easily traina#le and engaged in the apparel sector. oncerning the

energy cost, Gas #urned energy cost in "angladesh is less than two centsK=D? in compared to

5., :.1 and .72 centsK=D? in India, akistan and hina, respectively.

+uota$ o) "S' and GSP provided &y E"#hird and fourth most important factors considered

#y the firms were internationalE Huotas provided #y the 3& through the MC0 which was initiated

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in +57 and preferential treatment #y *3 under the G& scheme. he MC0 has #een called Fthe

most cele#rated case of glo#al market sharing arrangement,4 which was designed to protect the

te$tile and garment industry of developed countries, due to increased imports which was

accompanied #y unemployment rate

(avora&le exchange rate#he favora#le e$change rate of "angladesh currency aka with the

3&0 dollar helped also the "angladeshi RMG products to #e competitive in world market.

-nalysis

0s we already know that te$tile and clothing sector of "angladesh is the most successful

industry, compare to other industries that operates their #usiness in "angladesh along with other

countries. @ur garments industry is mainly e$port oriented. 'espite so many challenges, it has

flourished and #ecame the most revenue-generating sector for "angladesh. 0t the same time

te$tile and clothing, industry has high value added segments where design, research and

developments (RL ') are important competitive factors. he high end of the fashion

Industry uses human capital intensively in design and marketing. he same applies to market

segments such as sportswear where #oth design and material technology are important. Cinally,

RL' is important in industrial te$tiles where, again, material technology is an important

competitive factor. 0t the micro level, the two sectors are increasingly integrated through vertical

supply chains that also involve the distri#ution and sales activities. Indeed, the retailers in the

clothing sector increasingly manage the supply chain of the clothing and te$tiles sectors. he

apparel #usiness in south 0sia is largely confined to #uyer driven commodity chains (")

rather than producer driven commodity chains. In ", profits 'erive not from scale, volume,

and technological advances as in producer-driven chains, #ut rather from uniHue com#inations of

high- value research, design, sales, after-sales services, marketing and financial services that

allow the #uyers and #randed merchandisers to act as strategic #roker in linking overseas

factories and traders with evolving product niches in their main consumer markets (Gereffi

+555). Cor e$ample, ike and 0didas sourced their clothing around the world without owning

any manufacturing units. hey concentrate on marketing and design to increase their profit while

reducing costs and risk through outsourcing. Glo#al markets relies more on innovative capa#ility

and an a#ility to shift from one process or product to another without loss in efficiency. rofit

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also comes from #reaking traditional two season fashion cycles to nearly every monthKoccasion

fashion sale. ?owever, the main strategies that work #ehind the success in this industry is the

low wage rate of the workers and their productivity.

'espite all the facts there are some e$ternal and internal pro#lems in the te$tile and clothing

sector faces some challenges that must #e solved in order to keep up the growth in this sector.

he challenges are-

?eavy dependence on imported raw materials

Aong lead time

'ifficulties in compliance of various standards without increasing cost

Aow la#or productivity

&hortage of working capital

Aarge-scale production of low value added product.

assive marketing approach

Aack of direct contact with #uyers

Inefficient functioning of ports

oor infrastructure

Regular interruption in our power supply

Aack of product and market diversification

"ureaucratic #ottleneck

olitical unrest

)onclusionReadymade Garments (RMG) plays an important role in the economic development of

"angladesh. 0s a resource poor country, "angladesh has to face serious pro#lems with the matter

of duty and Huota free access. "ut the chairman of "GM*0 recently say that without Huota

system "angladesh RMG sector will develop within few years such as 1//-1/+/, #ut passing

those year RMG sector face a high competition in glo#al market. he e$ports income of woven

and knitwear in RMG sector of "angladesh have #een increased +8 and 28 during 1//2-

1//. ?ere given the e$pected growth rate during 1//2-1// to 1//5-1/+/.

"angladesh has #een a#le to maintain its current growth momentum, driven #y rapid e$port

e$pansion, in spite of MC0 phase out and other shocks. It4s very clear that the predicted decline

of RMG industry in "angladesh did not take place and instead, he RMG industry has improved

competitiveness and raised e$ports value. omplete safeguards against the hinese products at

the end of 1//7 and the accelerated competition are yet to come. If the recent data of the

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#eginning of 1//7 and Huota-free-safeguards-less anadian market are any e$ample of market

trends in 1//5 and #eyond, then "angladesh can e$pect to #ecome the second largest net

garments e$porter in apparel. In order to reach to that point, It reHuires also continuous

development of the sector and allied industries and fair access as a A' country products to the

3&0 market.

Reference:

+. Mahmud R." (1/+1) &kills development in "angladesh RMG sector. The News Today.

Retrieved from httpEKKwww.newstoday.com.#d1. ommission of the *uropean ommunities (1//, @cto#er). The future of the textiles and

clothing sector in the enlargedEuropean Union:*uropean *conomic and &ocial

ommittee and the ommittee of the Regions.. Reinert, =.0. (1///, n.d.). , Give us virtue, #ut not yetE &afeguard actions under the

0greement on e$tiles andlothing,The World Economy.( 1-).2. ords+, ?. =. (1//2). The Global Textile and Clothing ndustry post the.&wit%erlandE

Dorld rade @rgani%ation.. Rose, G.M. and &hoham, 0. (1//1) F*$port performance and market orientationE

esta#lishing an empirical link4,!ournal of "usiness #esearch,


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7. &D@-0nalysis-on-Readymade-Garment-Industry-in-"angladesh.retrieved from

scri#d.com5. httpEKKwww.scri#d.comKdocK:+2//KRMG-Industry-in-"angladesh-hallenges-and-

rospectsOscri#d

+/. httpEKKwww.statista.comKstatisticsK1:2/Kvalue-of-the-leading-glo#al-te$tile-importers-#y-country.

++. httpEKKwww.assignmentpoint.comK#usinessKeconomicsKreport-on-the-contri#ution-of-

garments-industries-in-#angladesh-economy.html+1. httpEKKwww.thefinanciale$press-#d.comK1/+2K/K17K1:1

Research Method

Cor carrying out this pro!ect paper, we had to study the actual operations of garments Industry.

0s this report has conducted on overall condition of a particular industry, we mainly depended

on secondary sources to meet our purpose.

&econdary source

&econdary material is used, literature, research pu#lications, trade andproduction data, interviews

given #y key people in the garment trade in different sources, articles in local newspapers and

internet. hose are listed in the #i#liography..@nline data from different De#sites helps us a lot

to make this report.

&cope of the study0 ma!or o#!ective of this paper is to analy%e the strategic challenges that RMG industry of

"angladesh faces. In this report, we also tried to find out the reasons of growth of RMG industry

in "angladesh despite many challenges. 0s indicated, the rise of the RMG industry in

"angladesh occurred during a time when the economy9s health was in poor shape and it was

1$ | , a - e
http://www.scribd.com/doc/51393919/SWOT-Analysis-on-Readymade-Garment-Industry-in-Bangladesh#scribdhttp://www.scribd.com/doc/51393919/SWOT-Analysis-on-Readymade-Garment-Industry-in-Bangladesh#scribdhttp://www.scribd.com/doc/61403307/RMG-Industry-in-Bangladesh-Challenges-and-Prospects#scribdhttp://www.scribd.com/doc/61403307/RMG-Industry-in-Bangladesh-Challenges-and-Prospects#scribdhttp://www.statista.com/statistics/236403/value-of-the-leading-global-textile-importers-by-countryhttp://www.statista.com/statistics/236403/value-of-the-leading-global-textile-importers-by-countryhttp://www.assignmentpoint.com/business/economics/report-on-the-contribution-of-garments-industries-in-bangladesh-economy.htmlhttp://www.assignmentpoint.com/business/economics/report-on-the-contribution-of-garments-industries-in-bangladesh-economy.htmlhttp://www.thefinancialexpress-bd.com/2014/03/28/25672http://www.scribd.com/doc/51393919/SWOT-Analysis-on-Readymade-Garment-Industry-in-Bangladesh#scribdhttp://www.scribd.com/doc/51393919/SWOT-Analysis-on-Readymade-Garment-Industry-in-Bangladesh#scribdhttp://www.scribd.com/doc/61403307/RMG-Industry-in-Bangladesh-Challenges-and-Prospects#scribdhttp://www.scribd.com/doc/61403307/RMG-Industry-in-Bangladesh-Challenges-and-Prospects#scribdhttp://www.statista.com/statistics/236403/value-of-the-leading-global-textile-importers-by-countryhttp://www.statista.com/statistics/236403/value-of-the-leading-global-textile-importers-by-countryhttp://www.assignmentpoint.com/business/economics/report-on-the-contribution-of-garments-industries-in-bangladesh-economy.htmlhttp://www.assignmentpoint.com/business/economics/report-on-the-contribution-of-garments-industries-in-bangladesh-economy.htmlhttp://www.thefinancialexpress-bd.com/2014/03/28/25672


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plagued #y various pro#lems, #oth structural and policy-induced in nature, which constrained,

among other things, growth of manufacturing industries in the country. ?ow did the RMG

industry overcome these pro#lems and flourish while growth of most other industries stunned #y

these unfavora#le factors. he paper attempts to answer this Huestion #y analy%ing the pro#lems

and then e$plaining how the RMG industry managed to overcome many of these pro#lems and

what their strategic plans were as well as how they managed and keep pace with their strategies

that ensured its healthy growth. Most of the information collected from #ooks, !ournal, paper

cutting and different "GM*0 report, internet etc.

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Documents

MGT489 Sec2 Group6 Indust Rep RMG