Executive Summary

The ready-made garment (RMG) industry of Bangladesh started in the late

1970s and became a prominent player in the economy within a short
period. 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.

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

export industry in Bangladesh. The countrys RMG industry grew by more
than 15 per cent per annum on average during the last 15 years. This sector
accounts for approximately 76% of the total export earnings and nearly
10% of GDP. At present there are about 4,000 garments factories
employing approximately 2.5 million people, among which 80% are
women. The foreign exchange earnings and employment generation of the
RMG sector have been increasing at double-digit rates from year to year.

The RMG firms are located mainly in three main cities: the capital city
Dhaka, the port city Chittagong and the industrial city Narayangonj.

Ready-made garments manufactured in Bangladesh are divided mainly

into two broad categories: woven and knit products. Shirts, T-shirts and
trousers are the main woven products and undergarments, socks, stockings,
T-shirts, sweaters and other casual and soft garments are the main knit
products.

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Statement of The Research Problem
Bangladesh exports its RMG products mainly to the United States of
America and the European Union. These two destinations account for
more than a 90 per cent share of the countrys total earnings from garment
exports. The RMG industry of Bangladesh has expanded dramatically over
the last three decades. The export-quota system in trading garment
products played a significant role in the success of the industry. However,
that quota system came to end in 2004. Therefore, the competitiveness
issue needs to be addressed.

Significance

The rapid growth of the ready-made garments industry in Bangladesh is

facilitated by cheap labor, using simple technology, small amount of
capital and economic changes and policies. These factors are inter-related.
The relatively cheap cost of labor in Bangladesh is the reason for its
comparative advantage internationally since goods can be produced at a
lower cost in Bangladesh than in many other countries.

Objective

Followings are the objectives of the study.

To gather knowledge about the overall scenario of Ready Made

Garments Sector of Bangladesh.

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 To know about the contribution of RMG sector in economic
development of our country.
To identify what factors are affecting the growth of this sector.
To know the competitive advantage of Bangladesh in this sector.

Scope

This report is on Readymade Garments Sector of Bangladesh. So, mainly

we have tried to focus on the following factors:

Current scenario of Readymade Garments Industry.

Reasons for the growth in this Sector.
Reasons for having competitive advantages in this Industry.
Economical and financial effect of this Sector in our national
macroeconomics.

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

Methods of the study:

In every research study, there are two main sources of collecting data:

Primary data
Secondary data

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In our study, we have used secondary data for getting best result .so the
sources for getting secondary data we have searched the following:

1. Newspaper
2. Internet
3. Magazine
4. Annual report of BGMEA and CPD

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 Findings:

Contribution of RMG sector to the Bangladesh economy

The Bangladesh RMG industry, with its woven and knit sub-components,
is a pre-dominantly export oriented sector, with 95 per cent of the woven
and 90 per cent of the knit exports being directed to foreign markets. The
cumulative foreign currency earnings by the sector, since 1978, when first
export was registered, is estimated at 36.6 billion dollars.
Emergence of Knit-RMG: The growth dynamics of the sector over the last
decade evince two clearly discernible phases: during the initial period it
was the woven-RMG which dominated the structure of apparel exports
Diversification: Within the apparels sector, Bangladesh has been able to
accomplish product diversification.
Incremental Contribution: The increasing importance of the apparel
sector in the Bangladesh economy is best brought out by its share in the
country's incremental export growth.
Employment Creation and Wage Bill: RMG sector is one of the major
employers in the economy.
Backward and Forward Linkages: Growth of RMG sector has spawned a
whole new set of linkage industries and facilitated expansion of many
service sector activities.
Banking and Insurance: Growth of the RMG sector and the related
activities have contributed a lot to the robust growth of the financial sector
in Bangladesh.

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Shipping and Logistics: The RMG sector has contributed to the shipping
business in Bangladesh and stimulated setting up of several container
yards, expansion of port facilities to handle large container carrying trains,
increase of cargo handling and storage facilities.
Transport Communication: The growth and development of inland
transport services to a considerable extent owe to the growth of the RMG
industry.
Contribution to Government Exchequer: The RMG sector contributes to
the government exchequer both directly and indirectly.
Professional Services: The RMG sector extensively uses professional
services from CA firms, legal agencies, business consultants.
Information and Communication Technology: The RMG sector also
plays a catalytic role in the growth of the countrys ICT sector.
Real Estate: Demand for real estate development by the garment industry
to accommodate offices and factories of over 3400 garment units has
generated a lot of activities in the Construction Industry.
Waste Recycling Industry: Approximately 0.2 million people are engaged
in waste recycling industry of the country which get their materials from
the RMG industries.
Emerging Consumer Market: The 1.6 million workers in the industry
have created a large demand for consumer goods.
Engineering Sector
Utility Services
Hotel and Tourism

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Structure of the RMG industry and employment patterns

The industry can be differentiated into a number of segments. The first tier
factories at the formal end of the industry are epitomized by those in the
EPZ: they have direct links with international buyers, modern equipment,
better quality assurance, a large relatively skilled and educated workforce
and generally better working conditions than the rest of the industry
although trade unions have been banned till recently within the EPZs.
Second tier factories outside the EPZs also have a direct, often long-term,
relationship with their buyers and hence some reliability in their orders.
They vary in size from large to medium and also observe certain minimum
labor standards, largely because of their dealings with buyers. There is,
however, a third tier which merges imperceptibly with the informal
economy.

Challenges in export of readymade garments of Bangladesh

External Challenges
lack of popular brand name
Global economic turmoil
Competition with new giant players
Export of commodities

Internal Challenges
No natural resource endowment
Low wages,
Establishing backward linkages
Lacks adequate facilities

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Competitiveness of RMG Industry in International Markets

Export competitiveness in the United States market

Bangladesh has experienced some product diversification in its export of
garments to the United States market in recent years 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.
Export competitiveness in the European Union market
Bangladesh has experienced both quantitative and qualitative changes in
exporting garment products to the European Union market product
diversification in Bangladesh is lower than that of India and China in
exporting garment products to the European Union market.
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.
Lead time
Lead time refers to the time required for supplying the ordered garment
products after the export order has been received. Shortening the lead time
is the most urgent priority task for Bangladesh.
Linkage expansion
The consumption-production gap of yarn decreased over time, although
actual consumption increased every year. The fabric-manufacturing
capacity of the country also increased over time.

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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.
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.
Production and distribution time
A shorter production and distribution time improves deep-level
competitiveness.

Social Impacts of the RMG Sector

Women Empowerment: It is well recognized that womens participation in

income generation activities lends them a better status within the family
and provides them with considerable freedom.
Savings: Regular earning enables a large number of the garment workers
to go for some savings.
Child Labor: In recent years, international debate on child labor has
intensified.
Population Control: Employment opportunities especially for women
created positive impact on family planning and population control in the
country.

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Work Place Safety Programmes for Workers: BGMEA has been
implementing a number of programmes to ensure work place safety for
workers as well as management personnel of its member units.

Textile exports from Bangladesh

Exports increased by 11.86% in January over the same month a year ago,
while officials said the country would be able to meet the over $16 billion
export target for the current fiscal year despite being affected by the global
financial downswing. In contrast, exporters said it would be difficult to
retain the export target as the placement of overall export orders declined
drastically in February and early March. In January, the country bagged
around $1.4 billion, while the earnings were around $1.2 billion in the
same month of last fiscal year, showing a 4.38 percent growth in the
monthly target. However exports failed to meet the target for the July-
January period of the current fiscal year, fetching $9.1 billion against the
target of $9.2 billion for the period, according to data received from Export
Promotion Bureau (EPB).

The Future of Garment Exports of Bangladesh

Growth in overall exports from Bangladesh peaked in 1994-1995 at 40

percent a year, but growth has remained strong. In the July 1997-February
1998 period, total export earnings equaled $3.3 billion or 16.4% above the
exports over the same period in the previous year.i The garment and
knitwear exports accounted for the bulk of these exports. The knitwear
sector especially has been highly dynamic in recent years. Given the fact

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that this market is outside the purview of MFA and not protected by
quotas, this bodes well for the post MFA future of the industry.
Bangladesh apparel exports can now point to a proven track record of
successfully competing in a non-protected global competitive
environment. Unfortunately, other potentially promising exports from
Bangladesh such as leather, jute goods, and frozen foods have not fared as
well over this period. This has accentuated the already narrow export base
of the country and is certainly a matter of concern. The excess dependence
on foreign exchange earnings and export growth on garments and knitwear
calls for policy attempts to diversify the export base of Bangladesh.

Prospects of the RMG Industry

Despite many difficulties faced by the RMG industry over the past years, it
continued to show its robust performance and competitive strength. The
key factors that helped the country to continue the momentum in export
earnings in the apparel sector are reviewed below.
Market Diversification: Bangladeshi RMG products are mainly destined
to the US and EU.
Product Diversification: The growth pattern of RMG exports can be
categorized into two distinct phases. During the initial phase it was the
woven category, which contributed the most. Second phase is the
emergence of knitwear products
Backward Integration: RMG industry in Bangladesh has already proved
itself to be a resilient industry and can be a catalyst for further
industrialization in the country.

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Flow of Investment: It is plausible that domestic entrepreneurs alone may
not be able to develop the textile industry by establishing modern mills
with adequate capacity to meet the growing RMG demand.
A Supportive Policy Regime: Government of Bangladesh has played an
active role in designing policy support to the RMG sector that includes
back-to-back L/C, bonded warehouse, cash incentives, export credit
guarantee scheme, tax holiday and related facilities.
Lead Time: Lead time is a crucial factor maintaining export
competitiveness. Bangladesh happens to feature the longest lead time in
the RMG world.
Infrastructural Impediments: The existence of sound infrastructural
facilities is a prerequisite for economic development.
Labor Productivity: The productive efficiency of labor is more important
determinant for gaining comparative advantage than the physical
abundance of labor.

Challenges in Implementing a Sector Strategy

South Asia Enterprise Development Facility of the IFC (SEDF) has

designed a sector strategy to:
Safeguard and increase global market sales of the RMG sector by
strengthening market linkages.
Increase productivity, and
Increase adherence to social and environmental compliance standards.

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Challenges that need to be addressed:
Specificity of interventions: Each target sector and support market
demands a different approach and strategy, which makes
implementation difficult, requiring sector-specific training, staff
communication, logical frameworks, and performance targets etc.
Coordination among integrated elements: Coordinating activities
across sectors and support markets, financial services, and business-
enabling environment components, is a complex and requires co-
ordination among implementation units as well as amongst players
within markets.
Market distortion: Significant subsidies by various donors still play a
role in target sectors, and many market development initiatives still
consider it appropriate to offer advisory services at no cost. This is in
direct conflict with the SEDF business model of client contribution
towards costs for services.
Slow private sector response: Although the program has a longer time
frame than many initiatives and can be renewed, private sector change
is slow and culture change takes time.

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Competitiveness of RMG sector

Scenario 1 indicates the current situation of Bangladesh. In

this stage, the country has to depend mostly on foreign
sources for inputs such as textiles. For this very reason,
both the lead time and total production and distribution
time are longer in this case.

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Scenario 2 considers the establishment of common bonded
warehouses in Bangladesh, which will play a significant role
in reducing lead time but total production and
distribution time will not be shortened. Therefore, common
bonded warehouses will not create any positive impact on
deep-level competitive performance.

Scenario 3 is the primary stage of establishing a domestic

textile industry, which will reduce both the lead time and
total production and distribution time compared with the
present situation (scenario 1). As a result, both surface and
deep-level competitiveness will be improved.

Scenario 4 is the intermediate stage of domestic textile

industry development. Local textile firms will be able to
bear the risk of producing and storing some basic textile
items to supply the garment firms just after getting the
demand order. Such capability will reduce the lead time
and offset the necessity of common bonded warehouses.

Enhancing Competitiveness

Bangladesh RMG industry has achieved some product

diversification in both the United States and the European
Union as a garment supplier. Recently, the industry has
achieved some upgrading of its products in the European
Union, but this has not occurred to a significant extent in

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the United States. Some important areas that require more
attention to sustain and enhance deep-level
competitiveness of the industry are reduction in
production and distribution time, expansion of linkages,
compliance with code of conduct of buyers and changes in
product/market composition. The Government of
Bangladesh should also provide more active policy support.
Figure illustrates a simple competitiveness enhancement
model for the Bangladesh RMG industry.

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The most urgent and important task for the Bangladesh
RMG industry is shortening the lead time. The best option
for Bangladesh is to improve its deep-level competitiveness
by reducing total production and distribution time, which
will improve surface-level competitiveness by reducing lead
time. Bangladesh faces significant constraints in this regard
and hence it is not possible to establish strong backward
linkages overnight.

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The establishment of common bonded warehouses in the
private sector for storing raw materials for use in export-
oriented garment factories under some special incentives,
such as duty-free imports, could play a significant role in
reducing lead time.

The establishment of common bonded warehouses and the

expansion of backward linkages are two options for the
Bangladesh RMG industry. While the establishment of
common bonded warehouses will improve only surface-
level competitiveness, the latter will improve both surface
and deep-level competitiveness. A good balance between
these options will sustain and enhance Bangladeshs
position in the world market, and at the same time upgrade
the countrys current status of being only an assembler so
that it could become a full-package supplier of garment
products.

Bangladesh needs to concentrate on improving the working

environment in factories and address other social issues
related to the garment industry. Product upgrading and
diversification and market diversification are the next
priority tasks for Bangladesh in order to diversify risks and
to increase its market share. Manufacturing simple shirts or
T-shirts will not enable the country to remain internationally
competitive in the long run.
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Moreover, the Government of Bangladesh needs to
strengthen its support for the development of port and
other physical infrastructure, for smooth utility supply,
improved security systems, the attainment of a corruption-
free business environment and political stability. Such steps
will contribute to reducing the lead time while building the
confidence of international buyers.

Conclusion

RMG sector in Bangladesh is clearly not out of the woods yet and defining
the correct market intervention to address the market failures and improve
competitiveness is no easy task. The interventions have clearly
demonstrated that they have met with some early success, and further
impact analysis will be needed to demonstrate sustainability. International
benchmarks are proving to be a useful motivating tool to encourage firms
to enhance productivity. The sector based strategy employed by SEDF in
the RMG has yielded some valuable lessons for sector interventions.

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References

Bangladesh Garment Manufacturers and Exporters

Association (BGMEA) Government recognized trade
body of garment factories of Bangladesh,
www.bangladeshgarments.info

Asia-Pacific Trade and Investment Review - Mohammed

Ziaul Haider.

A journal by International finance corporation

Pakistan journal of Applied Sciences 2(10): 975-979,
2002

International Conference On Moving Towards Gender

Sensation Of Trade Policy 25-27 Feb 2008_Talukder

A report of international labor organization.

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