Presentation on Bangladesh Strategy in Post MFA

Environment
By

Mr. M A Awal
Director of the Board
&
Chairman
Standing Committee on Textile, Specialized Textile & Backward Linkage
Industries of
The Federation of Bangladesh Chamber of Commerce & Industry (FBCCI)
&
Chairman
Bangladesh Textile Mills Association (BTMA)
Date: June 2, 2005
Place: Beijing

BANGLADESH

Where we are?

INTRODUCTION
Textile as a whole is a heterogeneous product
market where yarn, fabric, fashion, material design,
quality, colours, brands etc. create values.
Therefore, constant innovation and improvement
is a pre-requisite for increasing competitiveness.
My presentation will therefore, have two-phases
one, dealing with Primary Textile Sector (PTS)
having a brief on present status & potentials and
the second phase with present status of Export
Oriented Readymade Garments Units, in the post
MFA challenging environment.

CONTRIBUTION TO NATIONAL ECONOMY

Textile Sector as a whole plays an important role in the economic
life of Bangladesh.
The sector contributes 38% industrial value addition.
Earns around 78% of total export earnings.
Employs around 4.5 million workforce of which majority is women
Generates huge cliental base for Banking, Insurance, Shipping,
Transport, Hotel, Cosmetics, Toiletries and related other economic
activities.
Provides indirect employment to 0.80 million workforce in
accessories industries related to garments.
Provides 0.2 million job to waste recycle industry related to RMG
sub- sector.
Contributes 10.50% to GDP through RMG sub-sector.

INSTITUTIONAL FRAMEWORK

Textile Sector in Bangladesh has a number of sub-sectors; each

operates independently, but works as complementary to each other. In
Bangladesh RMG Sectors activities start from backward linkage to forward
linkage that is apparels manufacturing. The whole chain of production process
spans from yarn manufacturing to garmenting.

From the processing point of view Textile sector has the following
sectors:

sub-

Yarn Manufacturing: Manufacturing of yarn from natural fibre & MMF

Fabric Manufacturing: Woven & Knit Fabrics.
Textile Product processor: Dyeing & finishing of grey fabrics & yarn dyeing
Knitting Mills
Knit-Dyeing-Finishing Mills
Woven Composite Mills (more than one process is carried)
Knit Composite Mills (more than one process is carried)
Hosiery Units
Readymade Garments Industry (RMG): Apparel manufacturing.

The market share of Bangladesh apparels can be

seen from this table (2003-04)
(Value in $Mn)

Country

Total RMG
Import

RMG Import
from BD

% share of BD

EU

74150.00

3651.81

4.92

US

66400.00

1628.59

2.45

Canada
Japan

3700.00
19700.00

256.40
19.79

6.93
0.01

Hong Kong

1700.00

6.59

0.39

S.Korea

900.00

3.15

0.35

Others

32350.00

119.76

0.37

198900.00

5686.09

2.86

Total

Bangladesh achieved a phenomenal growth in Readymade

Garments exports, which is evident from the table below.
(Value in Mn. US$)
Year

Total Export

RMG Export

% of RMG to
total export

1995-96

3882.00

2547.13

65.61

1996-97

4418.28

3001.25

64.93

1997-98

5161.20

3781.94

73.28

1998-99

5312.86

4019.98

75.67

1999-00

5752.19

4352.39

75.66

2000-01

6467.30

4860.12

75.15

2001-02

5986.09

4583.80

76.57

2002-03
2003-04
2004-05 (Jul-

6548.44
7602.99
6097.12

4912.10
5686.08
4734.14

75.01
74.79
77.65

Mar)

Growth of Woven Vs Knit RMG

1993-94

Million Dozen

Total Export

541.99

100%

Woven

412.21

76.05%

Knit

129.78

23.95%

The share of woven RMG export has been declining as the growth of Knit RMG
export supported by local inputs had been much higher.

2003-04

Million Dozen

Total Export

2185.06

100%

Woven

1085.86

49.70%

Knit

1099.20

50.30%

In 2003-04 knit RMG export has surpassed the woven RMG export because knit
has competitive advantage due to availability of local inputs

Factors that contributed to the growth and expansion

of RMG exports in Bangladesh are :

MFA

( Protected Market )

G S P ( Preferential Market)

Dynamism of Private Sector

Policy support from Govt. & Continuity of Policies

in successive Govts.

Decontrol of Reserve Sector.

Financial and Non-financial incentives

RMG Sector in the list of free sector.

Introduction of Back-to-Back L/C and

Bonded warehouse

Structural adjustment policies of Govt.

Low labour cost.

The table below shows the product categories of

our apparels export to major markets (2003-04)
Market

Total Export
Earnings

U.S.A

1628.59

Share of
Woven
Products
85.46%

EU

3651.81

51.24%

48.76%

Canada

256.40

72.44%

27.56%

Overall to
all Markets

5686.09

62.22%

37.78%

(In MnUS$)

Share of
Knitted
Products
14.54%

TREND IN EU MARKET
In EU market Bangladesh enjoys GSP facilities.
The facilities have been further relaxed through
Everything But Arms (EBA) scheme.
There is no quota for Bangladesh in the E U
market.
Export Trend in EU
(Value in Mn. US $)
Export of
Knit an d
Wove n
Products

2000-01

2001-02

2002-03

2003-04

2418.00

2411.00
(- 0.3%)

2712.00
(+ 12.48%)

3651.79
(34.65% )

Export of TC to EU declined by 0.28% in 2001- 02 over 2000 01, but bounced back by 12.48% in 2002-03 over 2001-02, 34.65%
in 2003-04 over 2002-03

Foreign Exchange Retention on National basis

Particulars

Total Export
in Million
US$
2003-04

Total FE
Retention in
Million US$
2003-04

% of
National
FE
Retention

RMG Export with

local fabric

2603

1953

25.70

RMG Export with

imported fabric

3083

770

10.14%

Major Problems Confronting RMG Sector in Bangladesh.

Heavy dependence on imported fabrics.
Long lead time.
Difficulties in compliance of various standard without
increasing costs.
Low Labor productivity.
Shortage of Working Capital.
Large scale production of low value added products.
Passive marketing approach.
Lack of direct contact with buyers.
Inefficient functioning of ports.
Poor infrastructure.
Regular interruption in our power supply
Lack of product and market diversification.
Negative impact of FTA/RTA. (TDA/2000)

Major steps for effective Cost reduction strategy

Improvements in Labour Productivity

Better industrial Relations

Reduction of high dependency on imported fabrics

Reduction of lead time

Improvement in Backward linkages

Efficient management of port

Maintenance of Direct Relationship with Clients

Provide incentives, Provide Marketing Support

Ensuring compliance of standards

STRATEGIES TO MEET POST - MFA CHALLANGES.

The major strategies are : Export Trade

Promotion, development of infrastructure,
easy access to fabric, reduction in duties
and interest rates, human resource
development, marketing support, setting
up of garment villages,
provision for
separate economic zones for private
sector investment in PTS, provisions of
investment incentives, improvement in
local operating environment, improvement
in social accountability and labor
safeguard etc.

Competitiveness Issues

Managing Competitive advantage involve :

Increase Productivity
Supply Chain Management
Design/Fashion/Market Development
Service Orientation

Probable reasons for fall in average price

Global manufacturing is having over capacity

Weak US market following terrorist attacks of September 11
In fighting among suppliers to maintain market share
Global recession
Fierce competition among inefficient small and medium
size producers
Entry of new suppliers
Phasing out of quota, exports soared and prices fell
Cost of buying quota over, exporters were able to drop
their prices without sacrificing margins.

Code of Conduct : Ethical Sourcing (Stop Sweat Shops)

- Social sourcing as a criteria for trade
- Increased insistence on socialresponsibility of
manufactures/suppliers
- Corporate code conduct / business values to
guarantee certain standards:
* No child labour

* No discrimination

* Working condition

* Working hours

* Minimum wages compensations

* No forced labour

* Freedom of association

What will be requested

R

Strong buyers market: Concentration on a few

countries where they can source best.

Pure CMT business will phase out, buyers will ask for
services (approach to customer satisfaction)

Retail- Suppliers partnership (transparency, joint

planning )

Craftsmanship will be taken for granted

Lean retailing: Transfer of inventory management to

suppliers

Active marketing approach will replaced passive

marketing approach

Strong Trade Association to :

R

Develop a strong negotiation power

Participate in trade negotiation

Take lead role in fulfilling labour standards

Take over regulatory function of govt. (issues of

IRC/ERC, CO, GSP etc)

Represent sector in national committees

Provide strong support to members (market

intelligence, trade fairs, e-portals, lobbying etc)

Working together creates synergies :

With friendly competitors of the same level of

production chain (sub- contracts)

Clustering e.g for dyeing, printing finishing

R
R

Strategic alliances between larger and smaller

companies
Alongside the textile production chain (strategic
alliances with local fabric suppliers to cut down
lead time)

To streamline training programmes

Increased competitiveness through flexibility :

Be able to respond to specific client demands

Develop capability to handle smaller and more

difficult orders

Develop merchandising capabilities

Develop an efficient sales network

Develop synergies with buyers : to jointly develop

patterns, designs, exchange of data through enetworks

Increased productivity through HRD & Fashion :

R

Enforce in house training

Create training cooperation agreements between

companies from different levels of production chain

Diversify into creative training (design, fashion etc)

Combine R & D and training

Diversify products and markets

Improve product quality and diversify into new

product lines

Develop more fashionable products

Develop small sized fashion line to be flexible in market

penetration

Active product marketing, focusing on fashion, trends, formality

going beyond pure functionality

Capacity Building
Use electronic data interchange for :
R

Receiving & processing orders,

Receiving market & sales information

Facilitating production planing

Handling complicated packaging instructions

Providing customers with speedy information on

production status, shipping status, inventory etc

So What to do?
Close Dialogue with Decision makers to :

Monitor the new political economy for textile

& clothing

Compare/benchmark with others

Develop a national/regional supply chain

HRD to increase productivity and flexibility

Develop an active marketing approach based

on a positive country image

Create a service oriented mindset and a closer

regional cooperation

Globalization is yesterdays news now. The era

of regionalization has began & we should take
advantage of that.