Contents

INTRODUCTION .......................................................................................... 2 Significance of the study..........................................................................3 Objective of the Study..............................................................................3 Scope of the Study....................................................................................3 Methodology of the Study.......................................................................4 FINDINGS ......................................................................................... 5 Contribution of RMG sector to economy................................................ Structure of RMG !ndustry....................................................................." Challenges in e#port of readymade garments of $angladesh................" Competitiveness of the RMG !ndustry in !nternational Mar%ets............& Social impacts of the RMG sector..........................................................' (e#tile e#port from $angladesh.............................................................' (he )uture of Garment *#ports.............................................................+ ,rospects of the RMG !ndustry.............................................................-. Competitiveness of RMG sector.............................................................-/ ENHANCING COMPETITIVENESS.........................................................13 CONCLUSION..............................................................................................15 REFERENCES ..............................................................................................16

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

late 1970s and became a prominent player in the economy ithin a short period! "he industry has contributed to e#port earnings$ foreign e#change earnings$ employment creation$ po%erty alle%iation and the empo erment of omen! "he e#port-&uota system and the a%ailability of cheap labor are the t o main reasons behind the success of the industry! Bangladesh e#ports its RMG products mainly to the 'nited (tates of )merica and the *uropean 'nion! "hese t o destinations account for more than a 90 per cent share of the country+s total earnings from garment e#ports! "he RMG industry of Bangladesh has e#panded dramatically o%er the last three decades! "he ,e#port-&uota system- in trading garment products played a significant role in the success of the industry! .o e%er$ that &uota system came to end in /000! "herefore$ the competiti%eness issue needs to be addressed! "he RMG industry is the only multi-billion-dollar manufacturing and e#port industry in Bangladesh! "he country+s RMG industry gre by more than 11 per cent per annum on a%erage during the last 11 years! "his sector accounts for appro#imately 723 of the total e#port earnings and nearly 103 of G45! )t present there are about 0$000 garments factories employing appro#imately /!1 million people$ among hich 603 are omen! "he foreign e#change earnings and employment generation of the RMG sector ha%e been increasing at double-digit rates from year to year! "he RMG firms are located mainly in three main cities7 the capital city 4ha8a$ the port city 9hittagong and the industrial city :arayangon;! Ready-made garments manufactured in Bangladesh are di%ided mainly into t o broad categories7 o%en and 8nit products! (hirts$ "-shirts and trousers are the main o%en products and undergarments$ soc8s$ stoc8ings$ "-shirts$ s eaters and other casual and soft garments are the main 8nit products!

Signific nc!
"he rapid gro th 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! "hese factors are inter-related! "he relati%ely cheap cost of labor in Bangladesh is the reason for its comparati%e ad%antage internationally since goods can be produced at a lo er cost in Bangladesh than in many other countries!

O"#!c$i%!
<ollo ings are the ob;ecti%es of the study! "o gather 8no ledge about the o%erall scenario of Ready Made Garments (ector of Bangladesh! "o 8no about the contribution of RMG sector in economic de%elopment of our country! "o identify hat factors are affecting the gro th of this sector! "o 8no the competiti%e ad%antage of Bangladesh in this sector!

Sc&'!
"his report is on Readymade Garments (ector of Bangladesh! (o$ mainly e ha%e tried to focus on the follo ing factors7 9urrent scenario of Readymade Garments =ndustry! Reasons for the gro th in this (ector! Reasons for ha%ing competiti%e ad%antages in this =ndustry! *conomical and financial effect of this (ector in our national macroeconomics! "he detailed analysis of each segment as beyond the scope of our report! >e only focused on the general o%er%ie of this sector!

M!$(&)* &f $(! *$+),=n e%ery research study$ there are t o main sources of collecting data7 5rimary data (econdary data =n our study$ e ha%e used secondary data for getting best result !so the sources for getting secondary data e ha%e searched the follo ing7 1! /! ?! 0! :e spaper =nternet Maga@ine )nnual report of BGM*) and 954

<indings7
C&n$.i"+$i&n &f RMG *!c$&. $& $(! / ng0 )!*( !c&n&1,
"he Bangladesh RMG industry$ ith its o%en and 8nit sub-components$ is a pre-dominantly e#port oriented sector$ ith 91 per cent of the o%en and 90 per cent of the 8nit e#ports being directed to foreign mar8ets! "he cumulati%e foreign currency earnings by the sector$ since 1976$ hen first e#port as registered$ is estimated at ?2!2 billion dollars! Emergence of Knit-RMG: "he gro th dynamics of the sector o%er the last decade e%ince t o clearly discernible phases7 during the initial period it as the 0oven1RMG hich dominated the structure of apparel e#ports Diversification: >ithin the apparels sector$ Bangladesh has been able to accomplish product di%ersification! Incremental Contribution: "he increasing importance of the apparel sector in the Bangladesh economy is best brought out by its share in the countryAs incremental e#port gro th! Employment Creation and Wage ill: RMG sector is one of the ma;or employers in the economy! ac!"ard and #or"ard $in!ages: Gro th of RMG sector has spa ned a hole ne set of lin8age industries and facilitated e#pansion of many ser%ice sector acti%ities! an!ing and Insurance: Gro th of the RMG sector and the related acti%ities ha%e contributed a lot to the robust gro th of the financial sector in Bangladesh! %&ipping and $ogistics: "he RMG sector has contributed to the shipping business in Bangladesh and stimulated setting up of se%eral container yards$ e#pansion of port facilities to handle large container carrying trains$ increase of cargo handling and storage facilities! 'ransport Communication: "he gro th and de%elopment of inland transport ser%ices to a considerable e#tent o e to the gro th of the RMG industry! Contribution to Government E(c&e)uer: "he RMG sector contributes to the go%ernment e#che&uer both directly and indirectly! *rofessional %ervices: "he RMG sector e#tensi%ely uses professional ser%ices from 9) firms$ legal agencies$ business consultants! Information and Communication 'ec&nology: "he RMG sector also plays a catalytic role in the gro th of the country+s =9" sector!

Real Estate: 4emand for real estate de%elopment by the garment industry to accommodate offices and factories of o%er ?000 garment units has generated a lot of acti%ities in the 9onstruction =ndustry! Waste Recycling Industry: )ppro#imately 0!/ million people are engaged in aste recycling industry of the country hich get their materials from the RMG industries! Emerging Consumer Mar!et: "he 1!2 million or8ers in the industry ha%e created a large demand for consumer goods! Engineering %ector +tility %ervices ,otel and 'ourism

S$.+c$+.! &f $(! RMG in)+*$., n) !1'0&,1!n$ ' $$!.n*

"he industry can be differentiated into a number of segments! "he first tier factories at the formal end of the industry are epitomi@ed by those in the *5B7 they ha%e direct lin8s ith international buyers$ modern e&uipment$ better &uality assurance$ a large relati%ely s8illed and educated or8force and generally better or8ing conditions than the rest of the industry C although trade unions ha%e been banned till recently ithin the *5Bs! (econd tier factories outside the *5Bs also ha%e a direct$ often long-term$ relationship ith their buyers and hence some reliability in their orders! "hey %ary in si@e from large to medium and also obser%e certain minimum labor standards$ largely because of their dealings ith buyers! "here is$ ho e%er$ a third tier hich merges imperceptibly ith the informal economy!

C( 00!ng!* in !2'&.$ &f .! ),1 )! g .1!n$* &f / ng0 )!*(

*#ternal Challenges lac8 of popular brand name Global economic turmoil 9ompetition ith ne giant players *#port of commodities

!nternal Challenges :o natural resource endo ment Do ages$ *stablishing bac8 ard lin8ages
2

 lac8s ade&uate facilities

C&1'!$i$i%!n!** &f RMG In)+*$., in In$!.n $i&n 0 M .3!$*

E(port competitiveness in t&e +nited %tates mar!et Bangladesh has e#perienced some product di%ersification in its e#port of garments to the 'nited (tates mar8et in recent years te#tile and garment e#port earnings of 9hina$ =ndia and Bangladesh from the 'nited (tates ere E?!2 billion$ E0!6 billion and E0!0 billion respecti%ely in 1990$ and increased to E//!0 billion$ E0!2 billion and E/!1 billion respecti%ely in /001! E(port competitiveness in t&e European +nion mar!et Bangladesh has e#perienced both &uantitati%e and &ualitati%e changes in e#porting garment products to the *uropean 'nion mar8et product di%ersification in Bangladesh is lo er than that of =ndia and 9hina in e#porting garment products to the *uropean 'nion mar8et! *rice competitiveness 9hina and some other competitors of Bangladesh ha%e implemented sharp price-cutting policies in e#porting garment products o%er the last fe years$ but Bangladesh has failed to respond effecti%ely to such policies! $ead time Dead time refers to the time re&uired for supplying the ordered garment products after the e#port order has been recei%ed! (hortening the lead time is the most urgent priority tas8 for Bangladesh! $in!age e(pansion "he consumption-production gap of yarn decreased o%er time$ although actual consumption increased e%ery year! "he fabric-manufacturing capacity of the country also increased o%er time! Compliance issues =n addition to speedy supply$ the social dimensions of the RMG industry are getting more attention from consumers$ social or8ers$ elfare organi@ations and brand name international buyers! *roduct and mar!et composition "he product and mar8et composition of garments from Bangladesh re&uires special attention to ensure the long-term sustainability of the Bangladesh RMG industry as a prominent supplier in the global mar8et! "he e#port-&uota system di%erted the attention of some international garment suppliers from &uantitati%e e#pansion to &ualitati%e impro%ement of e#portable garment products! -*roduction and distribution. time ) shorter ,production and distribution- time impro%es deep-le%el competiti%eness!
6

S&ci 0 I1' c$* &f $(! RMG S!c$&.

Women Empo"erment: =t is ell recogni@ed that omen+s participation in income generation acti%ities lends them a better status ithin the family and pro%ides them ith considerable freedom! %avings: Regular earning enables a large number of the garment or8ers to go for some sa%ings! C&ild $abor: =n recent years$ international debate on child labor has intensified! *opulation Control: *mployment opportunities especially for omen created positi%e impact on family planning and population control in the country! Wor! *lace %afety *rogrammes for Wor!ers: BGM*) has been implementing a number of programmes to ensure or8 place safety for or8ers as ell as management personnel of its member units!

T!2$i0! !2'&.$* f.&1 / ng0 )!*(

*#ports increased by 11!623 in Fanuary o%er the same month a year ago$ hile officials said the country ould be able to meet the o%er E12 billion e#port target for the current fiscal year despite being affected by the global financial do ns ing! =n contrast$ e#porters said it ould be difficult to retain the e#port target as the placement of o%erall e#port orders declined drastically in <ebruary and early March! =n Fanuary$ the country bagged around E1!0 billion$ hile the earnings ere around E1!/ billion in the same month of last fiscal year$ sho ing a 0!?6 percent gro th in the monthly target! .o e%er e#ports failed to meet the target for the FulyFanuary period of the current fiscal year$ fetching E9!1 billion against the target of E9!/ billion for the period$ according to data recei%ed from *#port 5romotion Bureau (*5B)!

T(! F+$+.! &f G .1!n$ E2'&.$* &f / ng0 )!*(

Gro th in o%erall e#ports from Bangladesh pea8ed in 1990-1991 at 00 percent a year$ but gro th has remained strong! =n the Fuly 1997-<ebruary 1996 period$ total e#port earnings e&ualed E?!? billion or 12!03 abo%e the e#ports o%er the same period in the pre%ious year!i "he garment and 8nit ear e#ports accounted for the bul8 of these e#ports! "he 8nit ear sector especially has been highly dynamic in recent years! Gi%en the fact that this mar8et is outside the pur%ie of M<) and not protected by &uotas$ this bodes ell for the post M<) future of the industry! Bangladesh apparel e#ports can no point to a pro%en trac8 record of successfully competing in a non-protected global competiti%e en%ironment! 'nfortunately$ other potentially promising e#ports from Bangladesh such as leather$ ;ute goods$ and fro@en foods ha%e not fared as ell o%er this period! "his has accentuated the already narro e#port base of the country and is certainly a matter of concern! "he e#cess dependence on foreign e#change earnings and e#port gro th on garments and 8nit ear calls for policy attempts to di%ersify the e#port base of Bangladesh!

10

P.&*'!c$* &f $(! RMG In)+*$.,

4espite many difficulties faced by the RMG industry o%er the past years$ it continued to sho its robust performance and competiti%e strength! "he 8ey factors that helped the country to continue the momentum in e#port earnings in the apparel sector are re%ie ed belo ! M .3!$ Di%!.*ific $i&n- Bangladeshi RMG products are mainly destined to the '( and *'! P.&)+c$ Di%!.*ific $i&n- "he gro th pattern of RMG e#ports can be categori@ed into t o distinct phases! 4uring the initial phase it as the o%en category$ hich contributed the most! (econd phase is the emergence of 8nit ear products ac!"ard Integration: RMG industry in Bangladesh has already pro%ed itself to be a resilient industry and can be a catalyst for further industriali@ation in the country! #lo" of Investment: =t is plausible that domestic entrepreneurs alone may not be able to de%elop the te#tile industry by establishing modern mills ith ade&uate capacity to meet the gro ing RMG demand! / %upportive *olicy Regime: Go%ernment of Bangladesh has played an acti%e role in designing policy support to the RMG sector that includes bac8-to-bac8 DG9$ bonded arehouse$ cash incenti%es$ e#port credit guarantee scheme$ ta# holiday and related facilities! $ead 'ime: HDead time+ is a crucial factor maintaining e#port competiti%eness! Bangladesh happens to feature the longest lead time in the RMG orld! Infrastructural Impediments: "he e#istence of sound infrastructural facilities is a prere&uisite for economic de%elopment! $abor *roductivity: "he producti%e efficiency of labor is more important determinant for gaining comparati%e ad%antage than the physical abundance of labor!

C( 00!ng!* in I1'0!1!n$ing S!c$&. S$. $!g,

(outh )sia *nterprise 4e%elopment <acility of the =<9 ((*4<) has designed a sector strategy to7 (afeguard and increase global mar8et sales of the RMG sector by strengthening mar8et lin8ages! =ncrease producti%ity$ and =ncrease adherence to social and en%ironmental compliance standards!

11

Challenges that need to be addressed2 %pecificity of interventions- *ach target sector and support mar8et demands a different approach and strategy$ hich ma8es implementation difficult$ re&uiring sector-specific training$ staff communication$ logical frame or8s$ and performance targets etc! Coordination among integrated elements: 9oordinating acti%ities across sectors and support mar8ets$ financial ser%ices$ and businessenabling en%ironment components$ is a comple# and re&uires coordination among implementation units as ell as amongst players ithin mar8ets! Mar!et distortion: (ignificant subsidies by %arious donors still play a role in target sectors$ and many mar8et de%elopment initiati%es still consider it appropriate to offer ad%isory ser%ices at no cost! "his is in direct conflict ith the (*4< business model of client contribution to ards costs for ser%ices! %lo" private sector response: )lthough the program has a longer time frame than many initiati%es and can be rene ed$ pri%ate sector change is slo and culture change ta8es time!

1/

9ompetiti%eness of RMG sector

(cenario 1 indicates the current situation of Bangladesh! =n this stage$ the country has to depend mostly on foreign sources for inputs such as te#tiles! <or this %ery reason$ both the lead time and total ,production and distribution- time are longer in this case! (cenario / considers the establishment of common bonded arehouses in Bangladesh$ hich ill play a significant role in reducing lead time but total ,production and distribution- time ill not be shortened! "herefore$ common bonded arehouses ill not create any positi%e impact on deeple%el competiti%e performance!

1?

(cenario ? is the primary stage of establishing a domestic te#tile industry$ hich ill reduce both the lead time and total ,production and distribution- time compared ith the present situation (scenario 1)! )s a result$ both surface and deep-le%el competiti%eness ill be impro%ed! (cenario 0 is the intermediate stage of domestic te#tile industry de%elopment! Docal te#tile firms ill be able to bear the ris8 of producing and storing some basic te#tile items to supply the garment firms ;ust after getting the demand order! (uch capability ill reduce the lead time and offset the necessity of common bonded arehouses!

En( ncing C&1'!$i$i%!n!**

Bangladesh RMG industry has achie%ed some product di%ersification in both the 'nited (tates and the *uropean 'nion as a garment supplier! Recently$ the industry has achie%ed some upgrading of its products in the *uropean 'nion$ but this has not occurred to a significant e#tent in the 'nited (tates! (ome important areas that re&uire more attention to sustain and enhance deep-le%el competiti%eness of the industry are reduction in ,production and distribution- time$ e#pansion of lin8ages$ compliance ith code of conduct of buyers and changes in productGmar8et composition! "he Go%ernment of Bangladesh should also pro%ide more acti%e policy support! <igure illustrates a simple competiti%eness enhancement model for the Bangladesh RMG industry!

10

"he most urgent and important tas8 for the Bangladesh RMG industry is shortening the lead time! "he best option for Bangladesh is to impro%e its deep-le%el competiti%eness by reducing total ,production and distributiontime$ hich ill impro%e surface-le%el competiti%eness by reducing lead time! Bangladesh faces significant constraints in this regard and hence it is not possible to establish strong bac8 ard lin8ages o%ernight! "he establishment of common bonded arehouses in the pri%ate sector for storing ra materials for use in e#port-oriented garment factories under some special incenti%es$ such as duty-free imports$ could play a significant role in reducing lead time!

11

"he establishment of common bonded arehouses and the e#pansion of bac8 ard lin8ages are t o options for the Bangladesh RMG industry! >hile the establishment of common bonded arehouses ill impro%e only surface-le%el competiti%eness$ the latter ill impro%e both surface and deep-le%el competiti%eness! ) good balance bet een these options ill sustain and enhance Bangladesh+s position in the orld mar8et$ and at the same time upgrade the country+s current status of being only an assembler so that it could become a full-pac8age supplier of garment products! Bangladesh needs to concentrate on impro%ing the or8ing en%ironment in factories and address other social issues related to the garment industry! 5roduct upgrading and di%ersification and mar8et di%ersification are the ne#t priority tas8s for Bangladesh in order to di%ersify ris8s and to increase its mar8et share! Manufacturing simple shirts or "-shirts ill not enable the country to remain internationally competiti%e in the long run! Moreo%er$ the Go%ernment of Bangladesh needs to strengthen its support for the de%elopment of port and other physical infrastructure$ for smooth utility supply$ impro%ed security systems$ the attainment of a corruptionfree business en%ironment and political stability! (uch steps ill contribute to reducing the lead time hile building the confidence of international buyers!

9onclusion
RMG sector in Bangladesh is clearly not out of the oods yet and defining the correct mar8et inter%ention to address the mar8et failures and impro%e competiti%eness is no easy tas8! "he inter%entions ha%e clearly demonstrated that they ha%e met ith some early success$ and further impact analysis ill be needed to demonstrate sustainability! =nternational benchmar8s are pro%ing to be a useful moti%ating tool to encourage firms to enhance producti%ity! "he sector based strategy employed by (*4< in the RMG has yielded some %aluable lessons for sector inter%entions!

12

R!f!.!nc!*
Bangladesh Garment Manufacturers and *#porters )ssociation (BGM*)) C Go%ernment recogni@ed trade body of garment factories of Bangladesh$ !bangladeshgarments!info Asia-Pacific Trade and Investment Review - Mohammed Ziaul Haider. ) ;ournal by =nternational finance corporation 5a8istan ;ournal of )pplied (ciences /(10)7 971-979$ /00/ =nternational9onferenceInMo%ing"o ardsGender(sensitisationIf"ra de5olicy/1-/7<eb/006J"alu8der ) report of international labor organi@ation!

17