RMG Industry Analysis

MGT 489Sec: 05Ready Made Garments Industry

The ready-made garment (RMG) industry of Bangladesh started in the late1970s 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. 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 country’s 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.

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Introduction

The RMG industry of Bangladesh has expanded dramatically over the last three decades. 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 and has gradually replaced the jute industry. 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.

For the long-term sustainability of the industry competiveness plays a very important role. Some researchers consider the labor cost, unit cost, exchange rate, interest rate, prices of material inputs and other price- or cost-related quantitative factors for measuring the competitiveness of a manufacturing firm/industry. Some other researchers consider product quality, innovativeness, design, distribution networks, after-sales service, transaction costs, institutional factors relating to the bureaucracy of export procedures and other non-price factors for measuring the competitiveness of a manufacturing firm/industry .The influences of both price and non-price factors on the competitiveness of a firm/industry are reflected by market share and profit .This study attempts to incorporate price, non-price and result (for example, market share) factors in order to address the international competitiveness of the Bangladesh RMG industry

However, the long-term sustainability of the industry demands enhancement of deep level competitiveness. Therefore, the future development of the industry will depend on how much importance will be given to which factors/dimensions, and how the individual firms will respond and how government policies will influence the industry. Hence, the discussion of the competitiveness of the BangladeshRMG industry requires simultaneous consideration of both the surface and deep dimensions. In particular, this study uses (a) export value, product price, market share and lead time as surface-level indicators, and (b) linkage expansion, factory environment, product/market composition, and “production and distribution” time as deep-level indicators for measuring the international competitiveness of the Bangladesh RMG industry.

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Background:

Ready Made Garments: An Overview

The tremendous success of readymade garment exports from Bangladesh over the last two decades has surpassed the most optimistic expectations. Today the apparel export sector is a multi-billion-dollar manufacturing and export industry in the country. The overall impact of the readymade garment exports is certainly one of the most significant social and economic developments in contemporary Bangladesh. With over one and a half million women workers employed in semi-skilled and skilled jobs producing clothing for exports, the development of the apparel export industry has had far-reaching implications for the society and economy of Bangladesh.

RMG sector plays a pivotal role in the economy of Bangladesh. About 74% of the country's foreign currency earnings are earned by means of readymade garment export. There are more than 3000 garment factories scattered around the country employing more than 1.8 million workers and most of the workers in this sector are women.

This sector is the single most and biggest employer of women labor in the country and it has instilled a sense of strength in its economy. Beside this, more than 15 million people work in related industries from button-makers to truckers to insurance underwriters. Almost 85 percent of garments workers are women and most of them have come from villages.

The export oriented garment industry in Bangladesh made its first appearance in 1977-78 with 9 enterprises – generating export earnings of only I million and now the yearly export earnings of Bangladesh through RMG is about US $ 5.2 billion.

1977 marked the birth of Bangladesh Manufacturers’ and Exporters’ Association (BGMEA). The fundamental objective of BGMEA is to establish a healthy business environment for a close and mutually beneficial relationship between the manufacturers, exporters and importers in the process ensuring a steady growth in the foreign exchange earnings of the country. The entrepreneurs of the knit sector (BKMEA) stepped forward with their expertise in the late 80’s. Afterwards it is a story of sustained success for the Bangladesh RMG sector.

The year 2005 is expected to be the most crucial year for the RMG sector. The Multi-Fiber Arrangement (MFA) is going to be replaced by the Agreement on Textile and Clothing (ATC) for all 147-member counties of the WTO in January 2005. With this, major changes in the garments industries all over the world are anticipated. Consequently some countries will lose and some will gain. Bangladesh is so far predicted as one of the major losers.

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Initiatives are required to protect our most potential and prosperous industry whose development rate is now on an average 20 percent per annum. The total number of workforce employed in this sector is 1.8 million, which is half of the total industrial workforce of the country.

As the Multi-Fiber Arrangement (MFA) will be phased out by 2005 under the World Trade Organization (WTO) rules, Bangladeshi garment industry will no more enjoy quota and the industry will have to find its own place in the competitive international market.

Introduction of MFA: Blessings for Bangladesh

The MFA was introduced in 1974 to work as a short-term protection measure for the textile and clothing industries in developed countries against the competitions and trade imbalances created by the low-priced apparel manufactured in developing countries.

According to the MFA, every year countries agree quotas - the quantities of specified items, which can be traded between them. The MFA does not apply to trade between rich industrialized countries themselves.

After introduction of the MFA, Asia has become the world's foremost exporter. Initially production was concentrated in the East Asian countries Korea, Hong Kong, Singapore, and Taiwan, but by the middle of the 1980s other Asian countries became major producers. Bangladesh, Cambodia, Nepal, Haiti, Laos, Lesotho, Madagascar, and Myanmar emerged as major exporters of garment manufactures.

Bangladesh is a good example of a country that was benefited from quota restrictions on other countries' exports under the MFA. Both MFA and General System of Preferences (GSP), introduced in 1971, gave Bangladesh generous access to European Union (EU), Canada, and USA markets. Within ten years, RMG had overtaken the country's leading exports of jute, tea, shrimp and leather and developed into the country's single most important industry for employment and foreign exchange earnings (export earnings of this sector reached $5.2 billion in 2004 from $31 million in 1983).

The Government of Bangladesh's fiscal and financial support such as duty drawback facilities, tax holidays, cash assistance, income tax rebate facilities, zero tariff on machinery input, rebate on freight and power rate, bonded warehouse facilities, provision of import under back-to-back L/C, credit at confessional rate, export credit guarantee scheme, and retention of foreign exchange earned by the exporters, also facilitated the growth in this sector.

Bangladesh is a member of the World Trade Organization and its exports of RMG products are benefiting from the Most Favored Nation status including the post-Uruguay Round tariff rates and reductions in them made by all major developed

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nations. Bangladesh is a favored partner in the Generalized System of Preferences of the EU. It is also a signatory to the Uruguay Round Agreement on Textiles and Clothing. It concluded bilateral Multi-fiber Agreement (MFA) on trade of textiles and clothing with Canada, EU and USA. MFA restrictions on textiles and apparel trade will be withdrawn in phases by 2005 creating a more competitive environment when access to export market will not be as assured as under the current quota system.

The overall growth performance of modern textiles excepting the export-oriented garments industry has been very poor with only very limited investment taking place in weaving sub-sectors and relatively more new investment in the spinning sub-sector. Modern textiles have developed in a haphazard and footloose manner with little balancing among spinning, weaving, and dyeing-printing-finishing sub-sectors. Most mills are unbalanced with their own structures, and suffer from technological and production shortcomings. Over the years the links between the downstream textiles and garments sub-sector remained weak. Bangladesh entered into export market of readymade garments (RMG) in late 70’s and since then it has shown great potential for export earnings. Exports of RMG products have grown exponentially over the last two decades and consequently contribute a major chunk in the foreign exchange earnings.

But this growth has not been supported by the growth of the backward linkage facilities. The RMG industry has to depend upon imports for 85% of fabrics and 40% of yarn required for this expanding export market. Therefore, after the phasing out of MFA, the sector will be vulnerable to fierce global competition, not only in terms of exports, but also in terms of resource acquisition.

Defining RMG-Textile Business

What is known as the textile industry includes all the steps necessary to transform fiber into fabric that is ready for stitching sold either in the market or used in the RMG, or ready-made garment sector. It is considered a business when the whole task is done with an objective of trading to home country or host country to earn money.

Defining Quota System

Quota system affects an economy in two different dimensions. Economies, which are not competitive enough, can have a share of the market taking the advantage of quota allocated to it. On the other hand, economies, which are competitive enough, cannot enjoy as much market share as they can afford because those cannot cross the limit of the quota.

When quota will be phased out, the economies of the first kind like those of Nepal, Bangladesh, Pakistan and Myanmar are afraid that they would lose global market share. On the other hand, the economies of the second kind those of China, Thailand etc. are expecting to gain more share of the global market.

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Under the MFA, the industry is enjoying quota facilities in the US, EU and Canadian Markets, out of which US is the leading buyer of the country’s ready-made garment exports.

Textile history:Textile history:

Traditionally, artisans working in small groups, in what are often referred to as cottage industries, produced most of the textile in the sub-continent. There were many such artisans in the area that was to become Bangladesh. In fact, from prehistoric times until the Industrial Revolution in the eighteenth century, East Bengal was self-sufficient in textiles. Its people produced Muslin, Jamdani, and various cotton and silk fabrics. These were all well regarded even beyond the region as they were manufactured by very skilled craftsmen.

The material produced by the artisans of Bengal started facing vigorous competition beginning in the eighteenth century after the growth of mechanized textile mills in the English Midlands. This eventually led to a great decline in the number of Bengali workers skilled enough to produce such high quality fabrics. According to popularly held beliefs, as the region's spinners and weavers meant competition for their emerging textile industry, the British imperialists responded by trying to force the artisans to stop production. They were said to have sometimes used methods as harsh as cutting off the thumbs of the craftsmen so they would never be able to spin or weave again.

However, after 1947 and the partition of East and West Pakistan from India, most of the capital and resources of Pakistan came under the control of West Pakistanis. The textile industry thus stagnated in East Pakistan as momentum for development shifted from the eastern part of the country to the west. The west also grew more cotton than the east, which was used as a plea for developing the industry in the west instead of in the east. The majority of all industries in the east were also owned by West Pakistani industrialists.

When Bangladesh gained its independence from Pakistan in 1971, the new government nationalized the textile industry, as it did with many other businesses in which West Pakistanis had been the principal owners.

Although there were some Bangladeshi industrialists, they did not form a large or politically powerful group and thus had to surrender control of their factories to the government as well. All of the country's textile factories were then nationalized and organized under the Bangladesh Textile Mills Corporation, or BTMC.

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ClassificationClassification

Today, the textile industry of Bangladesh can be divided into the three main categories: the public sector, handloom sector, and the organized private sector. Each of these sectors has its advantages and disadvantages. Currently, the organized private sector dominates, and is also expanding at the fastest rate.

Figure 1: Classification of Textile industry of Bangladesh

Weaving:

Weaving is the one of the most important process of the textile industry. Through this process, grey fabrics are produced from yarn. As per estimates of the Ministry of Textiles, the total demand for grey fabrics during 1994-95 was 327.00 crore metre. As against such a huge demand, only 104.00 crore metres of fabrics was produced locally and the balance 223.00 crore metres was imported. In spite of the huge demand gap of fabrics in the country, the level of capacity utilization of Powerloom and Specialized sub-sector is very low due to various reasons. The existing mill looms are very old and of narrow width. As a result, the grey fabrics of these looms are inferior in quality and have less demand in the market. The powerloom units of the Specialized sub-sector are of very small sizes each having only 10-20 looms without preparatory and sizing facilities and are scattered all over the country. Moreover, most of the looms of this sub-sector are synthetic-based, which are not suitable to process cotton and blended yarn. As a result, 75 percent of the capacity of this sub-sector remains idle although there is a huge demand for fabrics for export. The existing ordinary power looms are also very narrow and are only capable of producing lower and medium grade fabrics for local market. Apart from these technological problems, this sub-sector also suffers from various other problems like high prices of yarn, high tariff and taxes on imported yarns, electricity failures, lack of working capital, non-availability of adequate fund required for BMRE of the units which stand in the way of higher capacity utilization.

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Textile Sector

Public Sector

Private Sector

Handloom Sector

Hosiery and Knitting

Export oriented

RMG sector


Knitting

Recently, a good number of export oriented knit and knit dyeing-printing-finishing units have been set up in the country. Side by side, some conventional technology-based hosiery factories are also in operation. Some of the export-oriented knitting units are facing difficulties in producing knit fabrics of international standard due to technological handicaps in knitting and fabric processing. In addition, the existing traditional hosiery units are suffering from various problems like the use of obsolete technology, non-availability of quality raw materials, shortage of working capital and so on.

Actors in RMG IndustryActors in RMG Industry

The study of the role of services in RMG industry has revealed that- production planning, input procurement, management-accounting, banking and insurance, shipping service, port service, transport and communication service, electricity, legal counseling, sales and distribution, security, data processing, and some special services are widely used in RMG manufacturing firms. Some of these services are internally procured, some are procured partly from internal sources and partly from outside suppliers, and some services are entirely procured from outside suppliers. The outside supplies of services, again, may come from domestic private suppliers or national government or may be imported from abroad. What basically Bangladesh doing is taking order from buyers outside the country, make the product with the help of local manufacturers by taking input from outside or inside raw material, and supply it to the buyers.

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Current Prospect of the IndustryCurrent Prospect of the Industry

Growth in RMG sector:Growth in RMG sector:

Currently Bangladesh's RMG sector employs about 1.8 million workers in 3600 factories, which is about one-fourth of the number of employees engaged in the manufacturing sector. About 80 per cent of the workers in the RMG factories are women. The employment of women in this sector has created empowerment amongst women of the lower segment of society. It is a big social contribution of RMG sector of Bangladesh because 50 percent of our population, the women, been neglected in other industries.

The Readymade Garment (RMG) industry of Bangladesh tells an impressive story of the country’s successful transition towards a major export-oriented economy. Starting its journey in the late 1970s with a relatively small investment, the industry flourished in 1980s and 1990s and has become the largest industry in Bangladesh. The contributory factors of the RMG industry in Bangladesh are global trading agreements, cheap labor cost, government policy support and dynamic private entrepreneurship. All these things have helped Bangladesh to gain a handsome share in the global garment business.

From early 1990s onwards the RMG industry has become the largest foreign exchange earning sector in the economy. In 2007-2008 fiscal years, the total export of the sector was 10701.65 million which is staggering figure. The number of garment factory in Bangladesh totaled 4925 at 2009 which compiles a huge pie of the investment sector of the country.

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 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 country’s RMG industry grew by more than 15 per cent per annum on average during the last 15 years. The foreign exchange earnings and employment

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generation of the RMG sector have been increasing at double-digit rates from year to year.The RMG sector of Bangladesh is in rapid growth stage in its life cycle. Post-MFA condition has rejuvenated its life cycle and it presents huge globalized opportunity for firms.

Figure: Growth of the industry and employmentFigure: Growth of the industry and employmentSource: BGMEA official websiteSource: BGMEA official website

Export earnings and products:Export earnings and products:

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 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 country’s 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.

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Value in Million US$ 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 1.14Agri Products 122.3 0.79Others 1508.06 9.69Total 15565.19 100.00

Export competitiveness:

European Union market

Bangladesh has experienced both quantitative and qualitative changes in exporting garment products to the European Union market during the period 1996-2005. The textile and garment export earnings of Bangladesh from the European Union increased from 1.2 billion euros in 1996 to 3.7 billion euros in 2005. For India and China, the corresponding earnings increased from 3 billion and 5.3 billion euros in 1996 to 5.3 billion and 21.1 billion euros in 2005 respectively. Garment products generate the major share of Bangladesh’s export earnings from the European Union. However, both textile and garment products in China and India contribute to the export earnings from the European Union. For example, garment products on average generated more than a 95 per cent share of the total textile and garment exports to the

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European Union from Bangladesh during the period 1996-2005. The corresponding shares for India and China stand at below 75 per cent and 80-90 per cent respectively.

The top five product groups contributed 76 per cent of the total garment export earnings of Bangladesh from the European Union in 1996, and that share increased to 82 per cent in 2005. The corresponding changes for India and China were from shares of 62 per cent and 34 per cent in 1996 to 54 per cent and 45 per cent in 2005 respectively. This trend demonstrates that product diversification in Bangladesh is lower than that of India and China in exporting garments products to the European Union market. Knit garments from Bangladesh have gained remarkable access to the European Union market during the period 1996-2005 (see table 2).

Duty- and quota-free access of garment products manufactured under “two-stage local transformation” (yarn to fabrics and fabrics to garment) have accelerated the exports of knit garment products from Bangladesh to the European Union. As the knit textile subsector is relatively less capital intensive and requires relatively simple technologies, it managed to undergo rapid expansion, benefiting from the European Union Generalized System of Preferences. The woven part of the category has failed to utilize that facility owing to a lack of sufficient backward linkages.

In contrast to the European Union, both knit and non-knit products have entered the United States market simultaneously, as non-special tariff or tax reduction incentive was available there for the import of garment products from Bangladesh.The product-mix of garment products exported from Bangladesh to the European Union has changed significantly during the period 1996-2005. The share of shirts in total garment exports from Bangladesh to the European Union has decreased, whereas the shares for overcoats, jackets, sweaters, suits and some other garment products have increased in recent years. These changes demonstrate that Bangladesh is achieving some level of product diversification in exporting garment products to the European Union.

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In addition, a gender analysis indicates that Bangladesh has achieved some upgrading of its products recently in terms of exporting garment products to the European Union. Garments for females are treated as upgraded products compared with garments for males, since they add more value on average. The earnings of Bangladesh from the export of garments for females to the European Union have increased during the period 1996-2005 (Haider, 2006). US Market

Bangladesh has experienced some product diversification in its export of garments to the United States market in recent years compared with the early 1990s.6 However, the country’s performance in upgrading its products is not significant with regard to the United States market (Haider, 2006). The country experienced a sharp increase in the export of garment products to the United States market in the 1990s, but faced declines in export earnings from that country in 2002 and 2003, followed by slow increases since 2004. The exports of India also increased rapidly in the 1990s, although that country experienced comparatively slow progress in the last few years. However, the RMG exports of China to the United States have increased at a startling rate over the years. For example, the textile and garment export earnings of China, India and Bangladesh from the United States were $3.6 billion, $0.8 billion and $0.4 billion respectively in 1990, and increased to $22.4 billion, $4.6 billion and $2.5 billion respectively in 2005. Such rapid expansion in the exports of China represents a major challenge to other exporters.

Bangladesh exported a total of 99 types of products in the textile and garment category to the United States in 2005, but most of the category’s contribution was minimal. For India and China, the number of textile and garment product categories exported in the same year to the United States was 161 and 167 respectivel.

Category 340 (cotton non-knit shirts, man and boy) was the highest contributor to the export earnings of Bangladesh from the United States, amounting to $332 million in 2005. The export earnings of only eight categories8 crossed the $100 million export benchmark in the same year for the country. A total of 16 categories of exports crossed the $50 million benchmark and 31 categories crossed the $10 million export benchmark

Price competitiveness

China and some other competitors of Bangladesh have implemented sharp price-cutting policies in exporting garment products over the last few years, but Bangladesh has failed to respond effectively to such policies. China was able to drop the export price of 29 garment categories by 46 per cent on average in the United States within a year, from $6.23 per sq metre in December 2001 to $3.37 per sq metre in December 2002. However, all other suppliers were able to drop the price by only 2 per cent, from $3.50 per sq metre to $3.41 per sq metre during the same period. By the end of 2002, China had underpriced all other exporters to the United States in 22 out of 29

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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 12.441985-86 131.48 819.21 16.051986-87 298.67 1076.61 27.741987-88 433.92 1231.2 35.241988-89 471.09 1291.56 36.471989-90 624.16 1923.70 32.451990-91 866.82 1717.55 50.471991-92 1182.57 1993.90 59.311992-93 1445.02 2382.89 60.641993-94 1555.79 2533.90 61.401994-95 2228.35 3472.56 64.171995-96 2547.13 3882.42 65.611996-97 3001.25 4418.28 67.931997-98 3781.94 5161.20 73.281998-99 4019.98 5312.86 75.671999-00 4349.41 5752.20 75.612000-01 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

Source: BGMEA website

garment categories and it had underpriced others in 26 out of 29 categories by March 2003 (American Textile Manufacturers Institute, 2003).

Moreover, China rapidly managed to be price competitive in the European Union and other major international markets. For example, the average unit export price of garment products integrated in the third stage of the Multifibre Arrangement phase-out decreased from 11,600 euros per ton in 2001 to 9,500 euros per ton in 2002 for Bangladesh in the European Union, whereas the corresponding decrease for China in that market was from 13,500 euros to 8,800 euros per ton (European Commission,

Lead time

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Lead time refers to the time required for supplying the ordered garment products after the export order has been received. In the 1980s, the usual lead time in the garment industry was 120-150 days for the main garment supplier countries of the world; it has been reduced to 30-40 days in the current decade. However, in this regard the Bangladesh RMG industry has improved little; for example, the average lead time is 90-120 days for woven garment firms and 60-80 days for knit garment firms. In China, the average lead time is 40-60 days and 50-60 days for woven and knit products respectively; in India, it is 50-70 days and 60-70 days for the same products respectively.

Shortening the lead time is the most urgent priority task for Bangladesh. The best way is to develop domestic backward linkages with the aim of reducing “production and distribution” time. Such a strategy would contribute to enhancing the deep-level performance of the industry and would have a positive impact on surface-level performance. An alternative solution would be to establish a central or common bonded warehouse in the private sector for storing raw materials usable in the export-oriented garment industry, with special incentives such as duty-free import. While such a solution is the fastest way to improve surface-level competitiveness by reducing lead time, it carries the risk of delaying deep-level competitive performance-enhancing initiatives and the long-term development of the industry.

Product and market composition

The product and market composition of garments from Bangladesh requires special attention to ensure the long-term sustainability of the Bangladesh RMG industry as a prominent supplier in the global market. The export-quota system diverted the attention of some international garment suppliers from quantitative expansion to qualitative improvement of exportable garment products. China and other competitor countries took that opportunity, but Bangladesh failed to do likewise. The country stands far behind in the race to upgrade products compared with its rivals. Bangladesh is still focused on manufacturing lower-end products, although recently the country has emerged slowly from being a lower-end producer towards becoming a middle/high-end producer, from being a simple male-wear producer to become a producer of fashionable female wear.

Target (in million USD) 2010-11

%Change of Export Performance over Strategic Export Target (First 5

Months)

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Export of RMG in FY 07-08, 08-09 & 09-10 (in Million USD)

Monthly Growth Rate Compared to Last Year (%)

Year Month Woven Knit Total Month Woven Knit Total

2007

July 345.20 346.74 691.94 July -23.61 -23.45 -23.53

August 417.02 445.05 862.07 August -9.71 -0.42 -5.14

September 353.78 412.46 766.24 September +0.54 +18.17 +9.32

October 314.66 387.32 701.98 October +1.05 +10.13 +5.87

November 417.14 442.06 859.20 November +26.29 +40.35 +33.16

December 471.11 516.57 987.68 December +2.48 +15.51 +8.90

2008

January 492.36 464.40 956.76 January +49.02 +68.87 +58.04

February 477.96 455.05 933.01 February +15.05 +32.61 +23.00

March 481.00 443.98 924.98 March +22.77 +25.05 +23.85

April 415.27 479.08 894.35 April +34.48 +47.00 +40.91

May 441.65 536.38 978.03 May +19.94 +32.16 +26.35

June 540.13 603.43 1143.56 June +13.72 +23.97 +18.91

Total (Jul'07-June'08)

5167.28 5532.52 10699.80Total (Jul'07-June'08)

+10.94 +21.50 +16.16

Share in National Export FY 2007-08

36.62% 39.21% 75.83%

Year Month Woven Knit Total Month Woven Knit Total

2008

July 547.30 640.50 1187.8 July +58.55 +84.72 +71.66

August 485.90 569.64 1055.54 August +16.52 +27.99 +22.44

September 492.08 620.94 1113.02 September +39.09 +50.55 +45.26

October 292.22 357.04 649.26 October -7.13 -7.82 -7.51

November 487.81 548.53 1036.34 November +16.94 +24.08 +20.62

December 500.44 503.98 1004.42 December +6.23 -2.44 +1.69

2009

January 584.24 562.94 1147.18 January +18.66 +21.22 +19.90

February 532.80 466.71 999.51 February +11.47 +2.56 +7.13

March 541.90 480.33 1022.23 March +12.66 +8.19 +10.51

April 437.79 480.40 918.19 April +5.42 +0.28 +2.67

May 493.41 578.59 1072.00 May +11.72 +7.87 +9.61


Product

Knitwear 7131.62 28.31%

Woven 6614.77 12.94%

Source: Export Promotion Bureau, Bangladesh

VALUE AND QUANTITY OF TOTAL APPAREL EXPORT FISCAL YEAR BASIS(VALUE IN MN. US$ QUANTITY IN MN DOZEN)

YEARTOTAL APPAREL EXPORT IN MN.US$

TOTAL APPAREL EXPORT IN MN.DZ

WOVEN KNIT SWEATER TOTAL WOVEN KNITTOTAL

1995-96 1948.81 527.91 70.41 2547.13 48.82 23.18 72.001996-97 2237.95 566.7 196.60 3001.25 53.45 27.54 80.991997-98 2844.43 641.22 296.29 3781.94 65.59 32.60 98.191998-99 2984.96 763.32 271.70 4019.98 64.79 36.66 101.451999-2000 3081.19 943.15 325.07 4349.41 66.63 45.27 111.902000-2001 3364.32 1018.64 476.87 4859.83 71.48 52.54 124.022001-2002 3124.82 941.1 517.83 4583.75 77.05 63.39 140.442002-2003 3258.27 1075.45 578.37 4912.09 82.83 69.18 152.012003-2004 3538.07 1531.71 616.31 5686.09 90.48 91.60 182.082004-2005 3598.20 1926.35 893.12 6417.67 92.26 120.13 212.392005-2006 4083.82 2772.97 1044.01 7900.8 108.82 165.02 273.842006-2007 4657.63 3305.51 1248.09 9211.23 133.08 199.54 332.622007-2008 5167.28 4058.43 1474.09 10699.8 147.43 241.60 389.032008-2009 5918.51 4570.64 1858.62 12347.77 169.59 290.92 460.51

Value and quantity of total Apparel export (in $ ):Value and quantity of total Apparel export (in $ ):

MAIN APPAREL ITEMS EXPORTED FROM BANGLADESH(VALUE IN MN. US$)YEAR SHIRTS TROUSERS JACKETS T-SHIRT SWEATER1995-96 807.66 112.02 171.73 366.36 70.411996-97 759.57 230.98 309.21 391.21 196.601997-98 961.13 333.28 467.19 388.50 296.291998-99 1043.11 394.85 393.44 471.88 271.701999-2000 1021.17 484.06 439.77 563.58 325.072000-2001 1073.59 656.33 573.74 597.42 476.872001-2002 871.21 636.61 412.34 546.28 517.832002-2003 1019.87 643.66 464.51 642.62 578.372003-2004 1116.57 1334.85 364.77 1062.10 616.312004-2005 1053.34 1667.72 430.28 1349.71 893.122005-2006 1056.69 2165.25 389.52 1781.51 1044.012006-2007 943.44 2201.32 1005.06 2208.9 1248.09

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2007-2008 915.6 2512.74 1181.52 2765.56 1474.092008-2009 1000.16 3007.29 1299.74 3065.86 1858.62

Value in Million US$

Month

ALL COUNTRIESWoven

Growth Rate

KnitTotal (Woven+Knit)

Growth RateYear Year

Growth Rate

2009/10 2010/11 2009/102010/11 2009/10 2010/11 July 521.91 671.2828.62 651.69 798.6622.55 1173.60 1469.9425.25August 490.09 645.3931.69 552.46 790.0643.01 1042.55 1435.4537.69September October November December January February March April May June Total: 1012.00 1316.6730.11 1204.151588.7231.94 2216.15 2905.3931.10

Source: BGMEA trade information.Source: BGMEA trade information.

Buyers and SellersBuyers and Sellers

Bangladesh has a tremendous reputation for her Ready Made Garments throughout the world. Europe and America is the main export region of Bangladesh.

Country 2006-07 2007-08 2008-09 2009-10

Germany 1103.28 1245.07 1334.40 1282.77

USA 762.39 807.28 959.42 891.61

UK 489.40 616.91 720.58 725.74

France 475.86 639.55 705.69 692.00

Netherlands 243.85 359.13 513.98 528.57

Spain 351.34 410.78 404.23 384.55

Italy 268.00 320.42 368.86 379.04

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Ord

er fro

m

Bu

yers

Input raw material: Import

Input raw material: Local

BD RMG- Textile

Manufacturers

Production

Exp

ort to

ou

tside

cou

ntries


Canada 200.70 232.40 292.05 283.86

Belgium 163.60 143.59 157.52 155.79

Sweden 103.82 137.71 125.74 129.89

Business flow:Business flow:

Figure: Process of Exporting RMG

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Analyzing the RMG industry

SWOT ANALYSIS

Strengths of RMG industry

Cheap Labor: India and China is a great threat for the RMG industry of Bangladesh. But as labor is cheaper here in Bangladesh, comparative with its international counterparts, cheap labor is a competitive advantage for us.

Commitment to quality: Though there was a huge doubt whether this industry can survive at all or not after Multi Fiber Agreement quota expires, we have seen that our RMG industry didn’t only keep their market but also expanded it and these all happened because of a commitment to quality and clients needs.

Weakness of RMG industry:

Demoralization of labor: Labor wage is very poor, as a result the labor are becoming very demoralized and it’s affecting the quality of the product.

Raw material unavailability: Raw materials are not that much available in this area. It hampers the total productivity level and due to this problem there are so many miscommunications.

Inadequate compliance capability: Compliance capability is low.

Slow delivery: delivery process is very slow and old fashioned.

Financially weak local firms & high interest rate: most of the firms are not that much strong financially; as a result it got bankrupted most of the time and cannot provide superior quality.

Week labor policy: labor policy is not well defined it work as a weakness for the company.

Inefficient and old fashioned designers and experts: market is growing but the experts are still with the old fashion which is creating lack of innovation.

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Dependence on imported accessories: There is a high dependency on imported accessories.

Narrowly defined export market: the export market is very narrowly defined so the customer base is not well organized.

Inadequate backward linkages: As we told earlier that 90% of the raw materials needed come from import and as quality raw materials are unavailable in local market, our backward linkages are still very much weak and also unpredictable due to unstable and ever changing international market prices. Though this is a important problem, we still are in darkness to find a proper solution for this problem.

Highly unstable unionization: As we said, our workforce is unprejudiced and illiterate and we also said that there is a growing number of political and unionized unrest, which are mostly coming from outside this industry, these has made the unionization pretty much unpredictable. This unpredictability have impeding us from forecasting future or upcoming challenges and make ourselves prepared keeping enough time in hand. We need to work on this problem with much concentration so that we can fight against these types of problem with enough time in hand.

High turnover: High turnover is a significant problem or weakness of this industry which not only making the production and delivery slow but also causing huge on-job training costs and wastages. We need to work on increasing employee moral and motivation, and to make that motivation or moral, the RMG factory owners has to be people oriented first, instead of hard-core profit oriented monsters. Then we can be rid of this problem. They says it will cost them more but actually, in long run, it will give them more profits through reducing employee turnover, reducing on job training costs, reducing wastages, experience curve and higher efficiency and faster production and in time delivery.

Low or semi skilled labor force: Again, we have to be more people-oriented. In an industry which itself is labor intensive, there is no alternative than setting up a people oriented production or business strategy. Only then we can cover up our weakness which is coming through the low or semi skilled workforce. We need to provide them with more training and education

Opportunities against Weakness of RMG industry

Adequate supply of labor: As most of our individual farmers in this industry don’t or cant pay the salary of their workers and thus making the workers demoralized, we have a huge opportunity to cope up withy this threat from the huge supply opportunity of labors.

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Export oriented trade policy: As stated earlier, we have a problem with quality raw materials. We are dependent on international markets for raw materials to run our productions. This is a important weakness that we have. But again, as our government’s import policies for export items are very much relaxed, we are actually covering up that weakness by this liberal import policy.

Supportive clients: Though it is seen that we are a country where compliance issues are not properly taken care of, but still we have our market and the market is expanding day by day. This have proven that our clients are pretty much supportive and this opportunity has made our weakness in compliance issue a bit flexible for us so that we can have time and develop ourselves. But it is also true that more has to be done. The better we will be in compliance, the better market we can acquire.

Growing international demands: We have talked about the corruption and bureaucracy in every aspect of our personal, social and economic life. These bureaucracies has made our deliveries very slow, sometimes significantly difficult for our market sustainability. But, as international market is growing each and every day, we are still very much capable of sustaining in the international market though, sometimes, we are loosing buyers for our slow or delayed delivery. So, we don’t need to fix this problem right now as we already have a opportunity to cover this problem, but for a better future, perfection has to be made.

Free flowing FDI: Our local firms are mostly private limited company or wholly sole ownership which have made them difficult to expand as they are financially weak and/or loan facility for them is minimum. But cheap labor and government’s FDI policies has made our country quite attractive to foreign investors. The result is, the weaknesses of weak local firms are covering up by the strong FDIs. Though these FDIs are taking most of the profit to their home country, but its true that our peoples are getting employed and thus a very important social problem is being solved.

Non-prejudiced workforce: A very important weakness of our RMG industry is that our farmers don’t follow the labor policies or labor law very strictly. Instead, they try not to follow those policies at all. This has made us vulnerable to unionizations and unpredictable CBA activities or demands. But, on the other hand, as our workforce are very much illiterate and unaware of their rights and also are very much non-prejudiced, this lacking from workforce side is letting the factories or owners of the firms survive in this industry. Though this is not a nice picture to draw, it is a reality and our industry is positively effecting from this side. But again, to have a better future in this industry, this thing must be totally alternated.

Growing number of textiles and fashion institutes: Most of our garments industries are runner by old and out dated thinkers but there are a growing

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number of fashion houses as well as fashion institutes. From these fashion institutes, our economy is getting enough supply of young, energetic and modern think tanks that already is a good source for our RMG industry. The more day will pass the better or resourceful will be our garments production houses.

Booming garments accessories production houses: Nearly 90% of the raw materials that our RMG industry needs are imported and thus makes the total earning in trade very low. But recently, there is a growing number of accessories manufacturers who are manufacturing different raw materials locally with local inputs, making the trade balance positive to our economy. In future, this accessory production plants will grow more and thus reducing the raw materials from 90% to a much lower amount which will be beneficent to our economy.

Huge existing demand worldwide: 90% of our production goes to only USA and European markets. This is a weakness but as the other markets are still existent, we can explore to those sides and make our export basket larger. We have that opportunity and the opportunity is waiting to be grabbed.

Threats of the RMG industry:

Erratic public power supply: A big threat for this industry is the poor power supply. Most of the sewing machines run by electricity. If there is frequent power failure and for long hours, this makes the production very slow and the shipment delayed significantly. We still don’t have any strength to fight against this mega threat.

Inadequate public services: Road and transportation, Gas, water service, even security service is very week here in Bangladesh. These all plays important role in the development of any industry and the lacking of these have made our RMG industry very much vulnerable. We have seen what happened in 2006 in Savar and Gazipur regions. Thousands of outsiders simply ransacked many of out factories and the police force couldn’t do anything at all. We have loosed many buyers for this social problem. We need to solve these problem otherwise may be in near future this industry will extinct from our economic profile.

Corruption and bureaucracy: Corruption and bureaucracy is supposedly the biggest impediment to the development of our economy. The ransack that happened in Gazipur and in Savar industrial zones in the year 2006, our police force was silent audience most of the times. This is a open indicator of corruption in security force in our country. Moreover, the ransack itself is a clear evidence of corruption. The farm owners are also corrupt. They don’t pay salary or other legal benefits to their employees in a regular manner. This has increased employee demoralization. Moreover bureaucracy in all level,

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esp. in import and export documentation and processes have made both import and export difficult and time consuming. Still we don’t have any strength to cover up this mega threat to this industry.

Price hike of Cotton and Yarn in international market: The main raw material which are yearn and cotton is imported from china, India and Egypt. In Bangladesh, quality cotton doesn’t cultivate which made us very much vulnerable to international market price hikes of raw cotton and yarn. As our soil is not proper for cultivating good quality of cotton, we will remain vulnerable from this side unless we can make alternative solution of this problem.

Excessive political swings: Like corruption and excessive bureaucracy, we also have very high level of political swings. If one government takes some initiatives, other government cancels out those policies or initiatives whether they are good or not. This type of political and in turn policy changes is very difficult for commerce and industry. We still don’t have any strengths by which we can fight against this problem.

Growing terrorism & its false/amplified propagandas: Growing terrorism and false or amplified propagandas are a new threat to this industry. Whatever happened in 2006 in Savar and Gazipur through which hundreds of garments factories are ransacked and properties worth million of taka damaged may have some true agendas but mostly they are amplified in a much larger extent. Moreover, it is seen that most of the looters or protestors were actually not garments workers but outsiders. This is a threat for our RMG industry which need to be carefully observed and monitored.

International Competitors: There are lots of international competitors, so, the market became more competitive than ever. To sustain in the market this industry can not compromise its quality.

Quota restrictions: Quota created new restrictions which is also a big threat for this country, because, by this Bangladesh might loose some of its contracts or clients.

Driving forces of the Industry:

The success story of the Readymade Garments sector of Bangladesh is based on employment generation and increasingly high value addition, thus smoothening the path for growth and development of the country. The mentioned performance of the industry has been possible due to:

The Government of Bangladesh has always been concerned about the sector's growth and has played an active role as a catalyst to solve various complexities, whenever intervention was necessary.

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The cheap but disciplined and regimented workforce has been keyed to the success of this industry. Labor as a factor of production has enabled Bangladesh to compete against its international competitors.

The entrepreneur class has been dedicated and motivated to the country's economic prosperity. There has been many interest and dedicated investors in our country who were inclined toward investing in this sector.

The quality of the manufactured apparel, which has been increasingly recognized by our international buyers and end users all over the world. The high quality of apparel has been the only differentiating factor for this sector.

Buyers' response has been encouraging through repeat orders. The industry has been producing all sorts of apparels for all seasons and has managed to get repeat orders for every season.

The import policy of Bangladesh government has been flexible and friendly for import of accessories. Frequent change in political climate has not interrupted this sectors performance and instead all of them assisted with dedication.

Retaining buyers and getting repeated orders is one of the key success factors of this sector. Readymade garment industries have managed to maintain the confidence of the buying class and others in the business.

Although the backward linkage textile industry is not adequate for the needs of the RMG industry, it has been supporting regular manufacturing and supply systems to some extent.

We have more than 100 composite factories; besides the composite units, many garments have their own dyeing and finishing units. A separate dyeing and finishing industry also has grown up over the time to support the sector. Good capacity exists in the sector.

There is agreement to establish trade unions in the factories, provided it is free from political influences. The owners are realizing that healthy trade union is the best way to listen to and address the grievances and aspirations of the workers and as well as it is a platform from where owners can explain their situation. Moreover the right to congregate and to form organization is the constitutional right of the workers.

Emerging internet capabilities has some bearings on the performance of garments sector. Use of global cyberspace to communicate with geographically dispersed buyer is an essential success factor for this industry.

Globalization of fashion industry is another key to success in this industry. Adapting to globalization is the order of the day. Maintaining optimum lead

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time to fulfill the orders of distant buyers is another driving force of the industry.

Backward linkage is a cost-reducing factor in the industry. Ability to produce Yarn reduces the cost of raw materials substantially which gives the RMG company upper hand in the industry.

Export diversification helps the industry players to reduce business risk. It also works as a hedge against foreign exchange rate fluctuations.

Negative Forces

Port Congestion and Crisis: Due to unchecked interest by a section of politicized dock laborers, the Chittagong Port is subject to frequent shut-down. Go-slow and congestion are chronic problems. Chittagong port being the largest seaport in the country contributes to 80% of import and 75% of export of the total international trade. As the normal activities in export and import are hampered due to the complexity created by various reasons like dock labor unionism, go slow principle, strike etc. usage of the seaport by traders has been disturbed and declining. This is definitely influencing the national economy negatively. The Garment Exporters and Garment input importers have been facing problems in export and import for years. The government should play a stronger role in addressing the port crises. Handing over port activities to private sector enterprises perhaps can ensure a sustainable solution.

Frequent Interruption in Energy Supply: For nearly the last two years the electricity crisis has been unparalleled. To better describe the situation it would be safe to say that the power grid has been at its peak capacity for the last decade or two. Interruption in electricity sector hinders production and thus adversely affecting the garments industry.

Congestion in Road and Railway Communication and Traffic Jam: A good transport system is a prerequisite for economic development. A lack of it creates road congestion, as a result it may take a longer time to get imported raw materials from the port and transport the finished product to the port from the factory. It also causes additional transport costs.

Unfavorable Taxes and VAT for RMG: The tax burden on the export oriented garment sector is reducing the competitiveness of Bangladesh-made garments in the international market against products from competing countries.

Insufficient International Marketing Support: In order to expand the market share and survive in the free global competition in the international market, product diversification appears to be an indispensable strategy. As for our access to other markets, efforts are being made to enter Japan and other Far East markets; however, presently we are mainly dependent on EU markets and the U.S.

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Compliance Issues: In addition to speedy supply, the social dimensions of the RMG industry are getting more attention from consumers, social workers, welfare organizations and brand name international buyers. Currently, many international buyers demand compliance with their “code of conduct” before placing any garment import order. Although Bangladesh was able to solve the problem of child labor very successfully in the mid-1990s, the country’s performance in improving the factory working environment is not yet satisfactory. Informal recruitment, low literacy levels, wage discrimination, irregular payment and short contracts of service are very common practices in the RMG factories in Bangladesh. It is true that the country still enjoys some comparative advantage in manufacturing garment products based on low labor costs. However, such advantages cannot be sustained forever nor can they be expected from a humanitarian perspective.

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Labor Problem/Violence

Biggest Problem for RMG: Labor problem:The raging controversy over wage hike in the readymade garments (RMG) sector continues. This is happening at a time when the industrial structure in China, the world's largest exporter of apparel products and one of the major competitors of Bangladesh, is undergoing rapid transformations. While the China shift could benefit Bangladesh's RMG in the medium to long run, the industry faces some short-term challenges largely owing to economic problems in the advanced economies.

While the emerging markets returned to the high growth path following the great recession of 2008-09, the advanced countries' economic outlook remains gloomy. The hope of economic recovery is overshadowed by continuous job losses in the United States (US) and the sovereign debt problem on the both shores of the Atlantic. Further, most countries in Europe are announcing a series of austerity measures that could slash their demand for imported goods and services significantly. Both Europe and the US remain Bangladesh's major exports markets.

Amidst the global financial crisis Bangladesh's apparel exports have not had much impact largely owing to the massive fiscal stimulus packages in the advanced world. However, the recent austerity measures and a less than rosy outlook of advanced economies could affect Bangladesh's apparel sector adversely. This indeed limits the RMG owners in Bangladesh revising labor cost upward, particularly at the scale the workers have been demanding.

However, there is also a silver lining as far as the industry's prospects are concerned. China is increasingly focusing on the development of high-end manufacturing and services, given the structural needs of its economy. Beijing has also decided to allow a gradual appreciation of its currency in the wake of relentless pressure from the US and Europe. China's undervalued exchange-rate policy is believed to be a cause of strain in the global economy.

The rising unit labor cost and upward adjustment in its currency mean that a plethora of low-end manufacturing jobs will eventually be moving out from China. Indeed, many jobs have already moved inland from China's coastal areas and some low-end manufacturing units are relocating to Vietnam.

The shortage of workers is particularly acute in the country's two major manufacturing hubs -- the Pearl River Delta and the Yangtze River Delta. In Guangdong province there was a shortage of half a million workers in 2009. Following this development, of late, the minimum wage in Beijing has increased to

27


960 Yuan ($142, Tk. 9,800). There is no unique minimum wage in China. It is set locally according to standards laid out by the central government. Moreover, following the recent financial crisis, there is a realization in China that the country's current growth model that relies excessively on exports and investment needs to be rebalanced, with a greater emphasis on consumption. Development of high-end manufacturing and service sectors is the key in this regard.

China's move towards a vertical economy could create much room for Bangladesh, given the latter's abundant supply of labor. Bangladesh's other competitors in the neighborhood, India and Pakistan, are not in a good shape owing to the former's dilemma with its economic openness and the latter's overwhelming political problems. India's economic openness bars its apparel sector taking the currency advantage -- undervalued exchange rate -- which the Bangladeshi RMG sector enjoys, given the huge capital inflows in the country that makes the Rupee exchange rate highly volatile. Moreover, India's labor market is highly inflexible, a major problem in its industrial structure. This leaves Bangladesh, Indonesia and Vietnam to augment their market shares in the wake of the China shift.

Given the structural shift in China and a bleak economic outlook of the advanced countries, the authorities in Bangladesh must understand the changes clearly before taking ad hoc decisions. There are three stakeholders as far as the RMG sector is concerned -- the plant owners, the workers and the government.

The workers' fight against unsustainably lower wages in RMG is understandable given the growing cost of living in Dhaka. Nevertheless, they must accept the fact that it is the cheap labor cost that has made Bangladesh a competitive place for apparel manufacturing. Nonetheless, the recent hike in China's minimum wage will help Bangladesh to maintain its low cost advantage despite the likely upward wage adjustment in the RMG sector.

The government cannot escape its responsibility by merely announcing a minimum wage and letting the law enforcers go after the protesters. The successive governments in Bangladesh have failed to provide the required infrastructure and uninterrupted energy supply, making per unit production cost in Bangladesh more expensive than most of its competitors, if one isolates the wage cost effects. The high energy cost and the poor infrastructure are neutralizing Bangladesh's cheap labour advantage -- leaving a squeezed margin for the producers. Unfortunately, the deadweight loss arising from the government's poor service delivery is mostly shared by the workers.

The situation in the global economy should be researched carefully. The owners and the government should explore new markets for apparel products, particularly focusing on emerging markets. More than half of global economic growth is now driven by emerging markets. However, Bangladesh's PR skills are relatively underdeveloped. This is reflected by the fact that it has failed to showcase the country in the 2010 Shanghai Expo, the largest business gathering ever.

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The emerging markets may not substitute the advanced world as the consumer of last resort, at least in the short run, but in the medium to long run they could become significant markets for Bangladesh's RMG products. Many emerging markets including China are developing domestic markets offering various incentives. The expansion of the auto market in China in 2008-2009 is the prime example.Moreover, as we observed in the case of China, an economy cannot suppress the prices of its non-tradable (housing, for instance) for long if the concerned economy undergoes a steady growth for decades. So, the exchange rates in China, Brazil and other emerging markets will gradually appreciate with their strong economic growth. The real exchange rate is nothing but the ratio of the goods and services that can be traded in international markets (e.g. an iPod) and those that cannot be traded (e.g. a haircut).

Bangladesh's autarkic financial system can continue to afford offering the exchange rate advantage to its exporters. Economic literature suggests that undervaluation is a second-best mechanism for alleviating institutional weakness and market failures that tax the tradable. Market failure in Bangladesh is rampant and its institutions remain weak.

This also means that owing to high opportunity costs, China, Brazil, South Africa and even India will increasingly abandon low-end manufacturing plants and start buying such products, including apparel, from Bangladesh, Indonesia and similar low cost producers. Such a scenario is not very unlikely in the near future. Bangladesh is one of the few countries that stand to benefit from such changes if the respective stakeholders act prudently.

Problems with the proposed wage increase:

There are at least three problems with the proposed wage increase: 1) the wage increases still don’t bring wages to the level where workers will be able to keep up with the increased cost of living, 2) while the minimum wage gives an 80% increase in wages to the newest workers, veteran workers don’t see similar increases in their own wages, and 3) there are widespread reports/rumors that the bosses will refuse to pay the government-mandated wage increases.

On Friday, for instance, the Bangladesh Garment Manufacturers and Exporters Association protested the National Board of Revenue’s decision to punish those garment mills which were not paying taxes on rented property and tried to block the imposition of a new value-added tax. Already feeling the squeeze from the rising cost of production (in part due to wage increases, but also because of electricity and high cotton prices), garment manufacturers are claiming that the taxes cripple their ability to compete in the world market. So when the same BGMEA announced that wage increases would go in effect on Monday, November 1, few were holding their breath in expectation of increased wages. In fact, the Financial Express was reporting that the financial troubles in the garment industry have already prompted a number of sales of factories to foreign capital. (Everyone seems bent on blaming the workers

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http://www.thefinancialexpress-bd.com/more.php?news_id=116276&date=2010-11-01



http://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=92504

http://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?news_id=92504





and not the bosses who clearly overestimated how much they could produce in an economic downturn).

Or take for instance the government’s issuing of a proclamation on Sunday that it would punish any garment factory owner who refused to pay the wage increase and the festival bonus to his/her workers. Clearly there seems to be some understanding that the bosses are seriously considering breaking the law in order for this to be issued. Although it should be noticed (in typical Sheikh Hasina speaking-out-of-both-sides-of-her-mouth fashion) that the Awami League also announced on the same day that it was launching its “industrial police” whose sole job would be to make sure that the unions stayed in line.

A few months ago, I reported about the splits in the labor movement (between the pro-government unions and the independent, left unions) and they seem to have widened in recent weeks. Take, for instance, the difference in posture between the Garment Shramik Oikyo Parishad and the pro-government Jatiya garment Sramik Federation:

“A minimum wage of Tk 3,000 is insufficient for a worker to lead a decent life, and so, we protested the hike,” Mushrefa Mishu, president of Garment Shramik Oikyo Parishad, told the FE.

Mishu also expressed fear regarding the implementation of the new wagestructure in all factories. “We have previous experiences that make us worried.”

“The wage hike is not the demand of the garment workers’ organisations, but the promise from the government and BGMEA,” said Aminul Huq Amin, president of Jatiya Garment Sramik Federation.

“Though in the tri-party meeting in August we proposed to announce the hike earlier than November, we are hopeful that the new wage hike will be implemented in all factories.”

It’s unclear whether this will produce another round of protests like the one’s that broke out last summer, but what does seem to be clear is that organizing in the garment industry is still proceeding. And if the bosses look to solve their financial troubles on the backs of the workers, there will likely be a big fight once again.

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http://www.google.com/hostednews/afp/article/ALeqM5iMmlj5BeGUx2IHIKssb0_bMxrrnQ?docId=CNG.b95254350d0ac32fc6adf9552ea6d6bb.71

http://www.google.com/hostednews/afp/article/ALeqM5iMmlj5BeGUx2IHIKssb0_bMxrrnQ?docId=CNG.b95254350d0ac32fc6adf9552ea6d6bb.71

http://www.bdnews24.com/details.php?id=177651&cid=2

http://www.albd.org/

http://www.thedailystar.net/newDesign/news-details.php?nid=160792

http://bdnews24.com/details.php?id=177653&cid=4



Recommendation

Clothing industry is one of the most labor-intensive sectors in the world. The industry is most labor-intensive sector in Bangladesh due to very less use of technology. This industry is the backbone of our export economy, which in turn is supported by more than 3 million workers. Being an integral part of the industry, labors deserve to get higher consideration by the manufacturers. Unfortunately, the manufacturers cannot take their matters into priority; resulted in present unrest.

Frequent labor unrest in clothing manufacturing sector; strikes by labors & their unions; has become common in Bangladesh. Most obvious reason for the unrest is wages & increments up to a level, which could help them to live a minimal life. Is it legal demand of the labors or labor unions to raise their monthly wages from Tk.1600 (US$ 25) to Tk.5000 (US$ 70)? In fact with the high inflation in food and energy price, it is getting difficult for the workers to live with the present lowest monthly wage of Tk.1600. Most of the owners of the clothing factories can realize the reality, but they are unable to increase the wages as demanded by the labor unions. They are not making such a high profit to meet their demands.

Reasons for Labor Unrest Proposed SolutionsLow wages Control food and power abnormal inflation;

readjust wagesHigher wages discrimination/gap in organizational hierarchy

Restructure factory hierarchy organogram; provide incentive to deserving employees but keeping salary indiscriminate level

Lack of compliance (no weekly day off, no festival bonus, compulsory over-time, but fraction payment or no payment)

Ensure social and environmental compliances in the clothing-manufacturing sector.

No responsible organizations who will listen labors’ needs and demands

A neutral organization to be formed (taking members from BKMEA, BGMEA, labors unions, and government employee from labor ministry) who listen them.

Death of any garment labors in the factory premises, could be by fire-smoke,

Train labors techniques how to save themselves; construct production plant

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electrified and labor pain for pregnant women

accordingly; keep contractual agreement with nearest doctors in the locality, in case of unable to ensure 24 hours doctor.

Distorted minded boys/males labors create havoc of unrest to press their illegal demands

In case of recruiting boys/males, scrutinize them properly.

Local influential (could be mastans) trading of garment wastes/jhoot, sometimes creates unwanted unrest in the clothing manufacturing areas.

Needs to formulate garment police to tackle such occurrences (like Railway Police to guard Bangladesh Railway)

Some believe international politics willing creates labor unrest, thus intentionally spread the news of labor unrest in the industry to take unprivileged advantages.

In such cases, government and media could play vital role. They should go depth in the matter, and thus broadcast real pictures (hidden cases)

Conclusion

RMG Industry is supposedly the most important industry of our country, which in fact, became the backbone of our national economy. We have lots of opportunity to make our future out of it if we care. But if we are selfish on developing our own wealth, we will lose this golden opportunity for our own future. If we can make this country similar like Malaysia or Thailand, if someday this industry cannot give us backing, we won’t lose much as by that time our other industries also will be developed enough. RMG industry is giving us that opportunity. We just need to more focus on the development of this industry and develop not by omitting the people. This is a labor intensive industry; labor is the biggest and most useful resource. If we can’t develop this resource, the industry can’t be developed. So, Peoples Republic of Bangladesh needs to be more people oriented and people mean the general people. The industry is highly competitive but given the key success factors are adopted with proper care, it can be said that this industry can continue to be the spearhead of the country’s export sector. Industry presents good growth opportunity for business. Industry profitability is expected to be higher given the negative forces are swayed away. The degree of risk is going go down due to new hedging tools and incremental interests from foreign buyers. Therefore, all in all RMG industry of Bangladesh presents fairly sufficient rate of return for new business ventures.

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References:

» Bangladesh Sangbad Sangstha (BSS) “Moudud for following compliance to code

of conduct in RMG sector”

http://www.bssnews.net/index.php?genID=BSS-05-2004-08-05&id=7 -->

» “Action now concerning factory fire Bangladesh” 8 Dec 2000

http://www.cleanclothes.org/news/00-12-00.htm

» BGMEA “BGMEA's Contribution To Social Sector Development”

http://www.bangladeshgarments.info/batexpo/batexpo2004/socialwelfare

» “Garments ‘Made In Bangladesh’. The social reality behind the label”

http://www.somo.nl/monitoring/reports/bangladesh.htm

» “Social Standards in the Ready-Made Garment Industry: Case of Bangladesh -

Fiction or Reality.” 25th September, http://www.lift-standards.com/doc2.htm

(Symposium organized in Berlin, Germany)

» Bangladesh Knitwear Manufacturers & Exporters Association

http://www.bkmea.com/facts_figures.php

» Bangladesh Textile Today http://www.textiletoday.com.bd/index.php?

pid=magazine&id=79

» New Red Indian

http://newredindian.wordpress.com/2010/11/02/wage-hikes-and-labor-

struggles-in-bangladesh/

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http://newredindian.wordpress.com/2010/11/02/wage-hikes-and-labor-

http://www.textiletoday.com.bd/index.php?pid=magazine&id=79

http://www.textiletoday.com.bd/index.php?pid=magazine&id=79

http://www.bkmea.com/facts_figures.php


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Documents

RMG Industry Analysis