The expansion of BD RMG in foreign markets bypassing Middlemen

Submitted by-

Emdadul Haque 3-09-17-061 Jewel Das 3-09-16-062 Md. Abdullah Al Mamun 3-10-19-054 Nahid Rijwan 3-09-17-033

Submitted toProf. Md. Altaf Jalil Dept. of Management Studies Dhaka University Dhaka

What is RMG?
Ready-made garments manufactured in

Bangladesh are divided into two broad categories: woven & knit products.
Shirts, T-Shirts and trousers are main woven

products. Undergarments, stockings, socks, T-Shirts, sweaters and other casual and soft garments are main knit products.
Knit fabrics are made of one long continuous

thread worked into interlocking loops. Woven fabrics are held together by weaving the warp and

What is the RMG market structure?

The RMG industry is the only multi-billion dollar

manufacturing and export industry in Bangladesh. In 2005 RMG contributed to 75 percent of total Export earnings. Bangladesh exported garments worth $6.9 billion. The countrys RMG industry grew more than 15percent in the last 15 years. Bangladesh. More than 95% are locally owned a few Foreign firms located in export processing zones.

Currently there are more than 4,000 RMG firms in

The share of knit garment products still dominate

the garment export earning 40% of total RMG sector .

Brief Overview
Bangladesh Exports its RMG mainly to EU and to

the United States of America. The two destinations account for more than 90% export earnings from RMG industry.
The

RMG industry of Bangladesh expanded dramatically over the last three decades; the export-quota system in trading garment product system played an important role in the success of the industry.

Years 1977-1980 1982-1985 1985 1990 1993-1995 2003 2005

Issue

Continued.

Early period of Growth Boom Days Imposition of Quota Restrictions Knitwear sector developed Significantly Child labor issue and its solution Withdrawal of American Quota restrictions Phase out of export quota system

Factors affecting this Boost

The

phenomenal growth of clothing industry can largely be attributed to simple level of technology.

Supply of Cheap Workforce. Supply of Cheaper Energy. Most Significantly benefits of

reserved markets by MFA (Multi Fiber Agreements)

Discussion Details
Business Process of RMG sector Raw-Materials Supply Process Strategy of Operation in existing and

Foreign Markets Scope for Improvement How to Bypass Middlemen Existing Environmental Advantages/Locally Actual Examples & Taking Competitive Advantage

Business Process of RMG sector

Buy Raw materials from suppliers. Arrange Organize Production methods. Get Buyers requirements design, style, colour,

material. Prepare demo sample product and get approved by Buyers QC. Product Requirements from Customers after satisfactory sample delivery. Get Order and Shipment Details. Process L/C. Before shipment go through Quality Checking Inspection. Revised pricing.

Raw-Materials Supply Process

Strategy of Operation in existing and Local Markets
Distribution and Supply Chain Retail Outlets Fashion Houses Buyers Resellers Stock-lot sell out to external buyers

 Strategy of Operation in Foreign Markets

Distribution and Supply Chain Buyers Middlemen Resellers

Future Opportunities for RMG Field:

Bangladesh has now a scope to go for more

fashion oriented products deserving high price in the global market. With the help of further increase of productivity & quality and design support. Bangladesh can minimize cost and maximize profit and export value. Bangladesh, as a proven experienced RMG & Textile manufacturer, can expand share in the existing market (USA, EU, Australia, Canada, etc.) and can also explore opportunity in Japan

Continued
In the long run, Bangladesh has a scope to

target huge populated country like China and India- where demand as well as cost of manufacturing will be wider. EU is willing to establish industry in a big way as an option to china particularly for knits, including sweaters If skilled technicians are available to instruct, prearranged garment is an option

Basic Issues
An organization wishing to "go international faces three major issues :

Market Choice Decision

The choice of foreign markets depend on their

long run profit potential . Favorable markets are: Politically stable developed Developing nations with free market systems Relatively low inflation rates and private sector debt Less desirable markets are: Politically unstable developing nations Developing nations with mixed or command economies Developing nations with excessive levels of borrowing Markets are also more attractive : When the product in question is not widely available

Channel of Bangladesh RMG

PRODUCER MIDDLE MAN PROCESSO R EXPORTER IMPORTER WHOLESALE MARKET DISTRIBUTOR

Entry Strategies

Direct Export
The

firm becomes directly involved in marketing its products in foreign markets The firm itself performs the export task rather than delegating it to others Expected benefits are:
Increased sales Greater control Better market information Development of expertise in international marketing

Direct Exporting Strategy

Sending international sales representatives

into the foreign market. Selecting local representatives or agents to prospect the market Using independent local distributors who will buy the products to resell them in the local market (with or without exclusivity). Creating a fully owned commercial subsidiary to have a greater control over foreign operations. (In most cases, the commercial subsidiary will be a joint venture created with a local firm to gain access to local relationships.)

Foreign Manufacturing

Ownership/FDI
The

international firm makes a direct investment in a production unit in a foreign market. It is the greatest commitment since there is a 100% ownership. The international firm can obtain wholly foreign production facilities in two primary ways:
It can make a direct acquisition or merger in the

host market It can develop its own facilities from the ground up.

In many countries, governments prohibit 100%

ownership by the international firm and demand licensing or joint ventures instead.

Risk

Comparative Entry Strategies

High Risk/ High Return

Export

Licens ing

Contrac Joint t Manufa Venture c-turing

FDI

Low Risk/ Low Return

EntryMethod

Control

Risk

Resource Flexibility Ownership Commitment High Med-High Low Low Medium High High Med-High Low

Retur n

Investments Contracts Exports

High Medium Low

Low Med-High Low

an Organization on Entry Strategy

Psychic distance has a negative affect Decentralization of decision-making has a

negative affect Organizational culture has a positive affect International experience has a positive affect Firm size has a positive affect

Entry mode choice framework

Existing Environmental Advantages/Locally

Cheap Labor Ready made skilled RMG Workforce Experience Cheaper cost of machines Regulatory Organizations providing

support Favorable terms of Trade Geography & Time frame Advantage Using Govt Policies & Subsidies Product Pricing

Weakness & Threats

1. Bangladesh produces mostly basic productswhich are low cost items; the share of fashion products i.e., high value added product is very low. 2. Bangladesh does not produce the basic raw materials (only a negligible quantity of cotton but no manufactured fiber) and as such has to depend totally on sensitive global market. 3. Because of inadequate backward linkage, lead-time happens to be long, nearly 3months.

4. Public power supply is erratic. 5. Bank interest rate is still high enough, particularly of private sector bank, for investment of export oriented high value project. 6. HRD facility, productivity and quality support, testing and accreditation support, design support and compliances are yet to be enhanced. 7. Cost of doing business is high because of under table money 8. Lack of marketing tactics

Continued

Continued
9. Absence of easily on-hand middle management 10. A small number of manufacturing methods 11. Lack of training organizations for industrial workers, supervisors and managers. 12. Fewer process units for textiles and garments 13. Sluggish backward or forward blending procedure 14. Incompetent ports, entry/exit complicated and loading/unloading takes much time

Continued..
15. Unless new strong market is explored in home or abroad, any non-cooperation from USA & EU may jeopardize the whole Bangladesh RMG export business and consequently the textile manufacturing. 16. Sudden price hike of cotton and yarn in the global market may push Bangladesh to a very awkward situation to devastate the business. 17. The type of labor and political anarchies of the recent days if prevails in the future, Bangladesh may lose the business in the way Sri Lanka has lost.

Scope for Improvement

Produce Better Quality Expand in Foreign Markets Incorporating external Organizations

BGMEA & BKMEA Improve Relations for SAARC countries Infrastructure Finance Communication & Transportation Streamline/Sourcing supply of Rawmaterials

Conclusion
Bangladesh economy at present is more globally integrated than at any time in the past. The MFA phase-out will lead to more efficient global realignments of the textile and clothing industry. The phase out was expected to have negative impact on the economy of Bangladesh. Recent data reveals that Bangladesh absorbed the shock successfully and indeed RMG exports grew significantly both in FY05 and (especially) in FY06.