EXECUTIVE SUMMARY

The RMG industry, with its woven and knit sub-components, is a pre-dominantly export oriented
sector, with 95 percent of the woven and 90 percent of the knit exports being directed to foreign
markets. It acts as the backbone of our economy and as a catalyst for the development of our
country. It contributed USD 28.09 billion last financial year which is 82% of total 2015-16 export.
This paper will give a comprehensive idea about the RMG industry of Bangladesh from an
economic perspective. It will start with analyzing the factors of demand-supply followed by
elasticity, market structure, cost structure, influence of government policies, socio-economic and
macroeconomic contributions etc.

At first, a brief overview of the industry is given. Starting its journey in the late 1970s with
relatively smaller investment, the industry flourished in 1980 and 1990 and has become the largest
industry in Bangladesh. It has achieved a growth of 20% per annum over the past 10 years. Woven
garment products still dominate the garment export earnings of the country. The share of knit
garment products has been increasing since the early 1990s; such products currently account for
more than 40 per cent of the countrys total RMG export earnings. Although various types of
garments are manufactured in the country, only a few categories, such as shirts, T-shirts, trousers,
jackets and sweaters, constitute the major production-share.

Then, in order to gain a microeconomic perspective to supplement the macroeconomic perspective

of the overall industry, five garments firms were selected. The firms chosen were: Ha-Meem
Group, Square Fashions Ltd., BEXIMCO Fashions Limited, DBL group, and Viyellatex Ltd.
Managers of these organizations were interviewed, and questionnaires were administered to the
managers and employees. The data uncovered through these primary sources as well as several
secondary sources provide a comprehensive picture of the overall industry, as well as generating
insights into the operations of the organizations that comprise the industry.

After that, the paper approached to analysis and application of different theories of economics. In
this section, the ten principles of economics, the theory of invisible hand, circular flow diagram,
and production possibility frontier are applied to the RMG sector of Bangladesh.

Next, the paper focuses on market forces of demand and supply. In this section, after analyzing
the current trends on the buying side, factors of demand and supply such as- price, substitutes,
population, seasonality, cost of production etc. are discussed in detail. Moreover, the elasticity of
demand and supply is analyzed for the sector. Starting from the influencing factors to price
elasticity and income elasticity were considered here for the ease of understanding.

i
After that, the factors of production are discussed in detail. It includes analysis of the number of
workers, factory capacity, raw materials, and machinery. The workers working in the Ready-made
Garments industry represent the most important input factor for the industry in Bangladesh. Cheap
labor is the main reason why Bangladesh enjoys a high comparative advantage in the RMG
industry compared to its main competitors. The raw materials used by the RMG producers consist
mainly of cotton, polyester, yarn, dyes and chemicals etc.

Then, a brief idea of the market structure is provided. It starts with the discussion of the export
market of Bangladesh, following by the major export items and major export destinations of
Bangladeshi RMG market. In addition to that, the oligopolistic competition of the industry is
discussed. Then, the game theory is applied to the sector.

Next, cost structure of the RMG products are examined. For this purpose, fixed cost & variable
cost, isoquant, isocost are considered. Moreover, the cotton price pattern is analyzed since cotton
is the main raw material for RMG sector.

After that pricing strategy of the sector is discussed. In Bangladesh, garments firms usually follow
two types of pricing strategy- budget pricing and value based pricing. In addition, the factors
affecting pricing are provided.

Then, an analysis of the RMG industry is conducted. SWOT analysis, Porters five force model
and PASTLE analysis are done for this purpose. Then, Porters Value Chain Model is applied to
grab an idea about the value chain of the sector.

Next, the effects of government policy is described. Global recession and MFA phaseout,
aftermath of the situation, different government policies such as- tax, minimum wage etc. and their
effect on the sector are considered in this regard.

After that the contribution of the sector is described with respect to socio-economic and
macroeconomic aspect. Its contribution towards women empowerment, employment generation,
poverty reduction, elimination of child labor etc. are considered here. Also, its contribution in
export earnings and GDP and sectoral contribution are discussed.

Then, the vision for the future of RMG industry is provided. Opportunities that clearly mark the
vision, challenges and realities are described in this section. It is expected that It is expected that
Bangladesh can exploit the potential that is before her while overcoming the challenges to be able
to export products of the value of USD 50 billion within 2021.

At last, some recommendations are provided to improve the overall performance of the industry.
In addition, the whole paper was used to provide a comprehensive conclusion.

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 TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................................................... i
1.0 INTRODUCTION ................................................................................................................................. 1
1.1 OBJECTIVES AND SCOPE...................................................................................................................... 1
1.1.1 BROAD OBJECTIVE ....................................................................................................................... 1
1.1.2 SPECIFIC OBJECTIVES ................................................................................................................... 2
1.2 SCOPE .................................................................................................................................................. 2
1.3 METHODOLOGY .................................................................................................................................. 2
1.3.1 FORMULATION OF RESEARCH OBJECTIVES ................................................................................ 2
1.3.2 SELECTION OF RESEARCH TYPE ................................................................................................... 3
1.3.3 DATA COLLECTION....................................................................................................................... 3
1.3.4 DATA ANALYSIS ........................................................................................................................... 5
1.4 LIMITATION ......................................................................................................................................... 5
2.0 INDUSTRY OVERVIEW ....................................................................................................................... 6
2.1 HISTORICAL BACKGROUND OF RMG SECTOR ..................................................................................... 6
2.2 GROWTH OF RMG SECTOR IN BANGLADESH...................................................................................... 6
2.3 TYPES OF RMG INDUSTRIES ................................................................................................................ 7
2.4 MARKET STRUCTURE OF GARMENT INDUSTRIES OF BANGLADESH............................................. 7
3.0 OVERVIEW OF COMPANIES............................................................................................................... 8
3.1 HA-MEEM GROUP ............................................................................................................................... 8
3.2 SQUARE FASHIONS LTD....................................................................................................................... 9
3.3 BEXIMCO FASHIONS LIMITED ........................................................................................................... 10
3.4 VIYELLATEX LIMITED ......................................................................................................................... 11
3.5 DBL GROUP ....................................................................................................................................... 12
4.0 APPLICATION OF DIFFERENT ECONOMIC THEORIES....................................................................... 13
4.1 THE 10 PRINCIPLES OF ECONOMICS IN RMG OF BANGLADESH ....................................................... 13
4.1.1 PEOPLE FACE TRADE-OFFS ........................................................................................................ 13
4.1.2 THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT ................................................. 13
4.1.3 RATIONAL PEOPLE THINK AT THE MARGIN .............................................................................. 13
4.1.4 PEOPLE RESPOND TO INCENTIVES ............................................................................................ 14
4.1.5 TRADE CAN MAKE EVERYONE BETTER OFF .............................................................................. 14
4.1.6 MARKETS ARE USUALLY GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY ............................ 14
 4.1.7 GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES........................................ 14
4.1.8 A COUNTRY'S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO PRODUCE GOODS AND
SERVICES ............................................................................................................................................. 15
4.1.9 PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY ..................................... 15
4.1.10 SOCIETY FACES A SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT ... 15
4.2 APPLICATION OF INVISIBLE HAND .................................................................................................... 16
4.3 KNIT VS. WOVEN: A PRODUCTION POSSIBILITIES FRONTIER ............................................................ 17
4.4 CIRCULAR FLOW DIAGRAM FOR RMG INDUSTRY ............................................................................. 18
5.0 MARKET FORCES OF DEMAND AND SUPPLY................................................................................... 19
5.1 CURRENT TRENDS ON THE BUYING SIDE .......................................................................................... 19
5.2 FACTORS OF DEMAND AND SUPPLY ................................................................................................. 19
5.2.1 PRICE .......................................................................................................................................... 19
5.2.2 SUBSTITUTE COUNTRIES ........................................................................................................... 20
5.2.3 POPULATION ............................................................................................................................. 20
5.2.4 SEASONALITY ............................................................................................................................. 20
5.2.5 COST OF PRODUCTION: ............................................................................................................. 20
6.0 ELASTICITY ....................................................................................................................................... 21
6.1. PRICE ELASTICITY OF DEMAND FOR THE RMG INDUSTRY ............................................................... 22
6.2. INCOME ELASTICITY OF DEMAND FOR THE RMG INDUSTRY........................................................... 22
7.0 FACTORS OF PRODUCTION ............................................................................................................. 24
7.1 NUMBER OF WORKERS ..................................................................................................................... 25
7.2 FACTORY CAPACITY ........................................................................................................................... 25
7.3 RAW MATERIALS ............................................................................................................................... 26
7.4 MACHINERY....................................................................................................................................... 26
8.0 MARKET STRUCTURE....................................................................................................................... 27
8.1 OVERVIEW OF THE EXPORT MARKET OF BANGLADESH ................................................................... 27
8.1.1 MAJOR EXPORT ITEMS OF BANGLADESHI RMG MARKET ....................................................... 27
8.1.2 MAJOR EXPORT DESTINATIONS OF BANGLADESHI RMG MARKET ......................................... 28
8.2 RMG MARKET OF BANGLADESH: AN OLIGOPOLISTIC COMPETITION .............................................. 28
8.3 EXPANSION OF RMG MARKET IN BANGLADESH ............................................................................... 29
8.4 RMG MARKET: A MIXED ECONOMY ................................................................................................. 29
9.0 APPLICATION OF GAME THEORY .................................................................................................... 30
10.0 COST STRUCTURE ............................................................................................................................ 31
 10.1 FIXED COST & VARIABLE COST ........................................................................................................ 31
10.2 ISOQUANT ....................................................................................................................................... 32
10.3 ISOCOST .......................................................................................................................................... 33
10.4 ECONOMIES OF SCALE .................................................................................................................... 34
11.0 PRICING STRATEGIES FOR THE RMG INDUSTRY.............................................................................. 35
11.1 BUDGET PRICING STRATEGY ........................................................................................................... 35
11.2 VALUE PRICING STRATEGY .............................................................................................................. 35
11.3 FACTORS AFFECTING RMG PRICES.................................................................................................. 36
11.3.1 RAW MATERIAL SUPPLY.......................................................................................................... 36
11.3.2 LABOR ISSUE ............................................................................................................................ 36
11.3.3 TAX RATE AND OTHER GOVERNMENT POLICY....................................................................... 36
12.0 COMPARATIVE ADVANTAGE ........................................................................................................... 37
12.1 MAIN COMPETITORS OF BANGLADESH IN RMG SECTOR ............................................................... 37
12.2 COMPARATIVE ADVANTAGES AND DISADVANTAGES OF BANGLADESHS RMG SECTOR .............. 38
13.0 INDUSTRY ANALYSIS........................................................................................................................ 39
13.1 SWOT ANALYSIS OF RMG SECTOR OF BANGLADESH ...................................................................... 39
13.2 PORTERS FIVE FORCES MODEL IN RMG SECTOR OF BANGLADESH ............................................... 40
13.3 PESTLE ANALYSIS OF RMG INDUSTRY OF BANGLADESH ................................................................ 41
14.0 PORTERS VALUE CHAIN MODEL ANALYSIS FOR RMG INDUSTRY OF BANGLADESH ...................... 42
14.1 PRIMARY ACTIVITIES ......................................................................................................... 42
14.1.1 INBOUND LOGISTICS ............................................................................................................... 42
14.1.2 OPERATIONS ............................................................................................................................ 43
14.1.3 OUTBOUND LOGISTICS............................................................................................................ 43
14.1.4 MARKETING & SALES .............................................................................................................. 43
14.1.5 SERVICE .................................................................................................................................... 43
14.2 SUPPORTING ACTIVITIES .................................................................................................. 44
14.2.1 FIRM STRUCTURE .................................................................................................................... 44
14.2.2 HUMAN RESOURCE MANAGEMENT ....................................................................................... 44
14.2.3 TECHNOLOGY........................................................................................................................... 44
14.2.4 PROCUREMENT ....................................................................................................................... 44
15.0 EFFECTS OF GOVERNMENT POLICY ................................................................................................ 45
15.1 GLOBAL RECESSION AND MFA PHASEOUT ............................................................................ 45
15.2 AFTERMATH OF THE SITUATION ............................................................................................ 46
 15.3 GOVERNMENT POLICY ............................................................................................................... 47
15.4 TAX AND DUTY............................................................................................................................ 47
15.5 REVISED WAGE POLICY FOR MINIMUM WAGE ..................................................................... 48
16.0 CONTRIBUTION OF RMG INDUSTRY ............................................................................................... 49
16.1.1 WOMEN EMPOWERMENT ...................................................................................................... 49
16.1.2 EMPLOYMENT GENERATION .................................................................................................. 50
16.1.3 CHILD LABOR ........................................................................................................................... 50
16.1.4 POVERTY REDUCTION ............................................................................................................. 51
16.1.5 IMPROVEMENT IN THE HEALTH SECTOR ................................................................................ 51
16.1.6 IMPROVEMENT IN PURCHASING POWER .............................................................................. 52
16.2.1 CONTRIBUTION IN EXPORT EARNINGS AND GDP .................................................................. 52
16.2.2 VALUE ADDITION IN THE MANUFACTURING SECTOR ........................................................... 53
16.2.3 SECTORAL CONTRIBUTION...................................................................................................... 53
17.0 VISION FOR THE FUTURE ................................................................................................................ 55
18.0 RECOMMENDATIONS & CONCLUSION ........................................................................................... 57
19.0 REFERENCES .................................................................................................................................... 59
APPENDIX ...................................................................................................................................................... A
 LIST OF TABLES
Table 1: Different types of Elasticity ............................................................................................ 21
Table 2: Price Elasticity of Demand for Knitwear products ......................................................... 22
Table 3: Income Elasticity of Demand in the EU ........................................................................ 23
Table 4: Income Elasticity of Demand in the US ......................................................................... 23
Table 5: Number of Workers ........................................................................................................ 25
Table 6: Factor Capacity ............................................................................................................... 25
Table 7:No. of Market for RMG Export ....................................................................................... 29
Table 8: Nash Equilibrium and Prisoners Dilemma between two RMG Exporters .................... 30
Table 9:Perception of competition from other countries .............................................................. 37

LIST OF FIGURES
Figure 1: Invisible Hand Concept ................................................................................................. 16
Figure 2: PPF Curve...................................................................................................................... 17
Figure 3: Circular Flow Diagram .................................................................................................. 18
Figure 4: Inelastic Demand, Neutral Demand, and Elastic Demand ............................................ 21
Figure 5: Factor of production ...................................................................................................... 24
Figure 6: Major Export Items Of Bangladeshi Rmg Market ........................................................ 27
Figure 7: Major Export Destinations Of Bangladeshi Rmg Market ............................................. 28
Figure 8: Single Isoquant Figure 9: Several Isoquants.... 32
Figure 10: Combination of Isoquant and Isocost .......................................................................... 33
Figure 11: Effect of Increased Expenditures ................................................................................ 34
Figure 12: Garments Minimum Wage .......................................................................................... 48
Figure 13: Employment Generation.............................................................................................. 50
Figure 14: Percentage of people under the poverty line ............................................................... 51
Figure 15: Change in Purchasing power ....................................................................................... 52
1.0 INTRODUCTION

Although Bangladesh used to be an agro-based developing country, in past two decades the
industrialization process has taken the country at a new height. Of many different sectors, Ready-
Made Garments (RMG) plays the most significant role to be laid on with the industrialization
process. With 95 per cent of the woven and 90 per cent of the knit exports being directed to foreign
markets, RMG industry is a pre-dominantly export oriented sector.

Despite many difficulties faced by the sector over the past years, it continued to show robust
performance, competitive strength and, of no less importance, social commitment. Starting its
journey in the late 1970s with relatively smaller investment, the industry flourished in 1980 and
1990 and has become the largest industry in Bangladesh. Bangladesh exported RMG worth only
USD 69,000 in 1978. By the year 2014, within a span of about three decades, exports have gone
up to USD 20 billion which is 75% of total export of Bangladesh. Moreover, RMG has a lot of
impact on the economy of Bangladesh such as contributing a large portion in the GDP (Gross
Domestic Product), Contribution to the GNP (Gross national Product), Economic Empowerment
providing employment to around 4.2 million Bangladeshis, mainly women from low income
families.

The contributory factors of the RMG industry in Bangladesh are global trading agreement, cheap
labor cost, government policy support and dynamic private entrepreneurship. All of these have
helped Bangladesh to gain a handsome share in the global garment business. Today the industry
has become a vehicle for further industrialization of the country by accelerating its journey with
the commitment to the society to build prosperous Industrial backbone for socioeconomic
development of the country.

1.1 OBJECTIVES AND SCOPE

The objective of this report has been divided in two parts- Broad objectives and Specific objectives.
Later on, the objectives have been backed by different scopes of writing this report.

1.1.1 BROAD OBJECTIVE

This report will focus on applying the concepts and theories of managerial economics to the
findings regarding the Ready Made Garments (RMG) industry of Bangladesh to develop an in-
depth insight on how this sector influences the economy of Bangladesh.

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1.1.2 SPECIFIC OBJECTIVES
To study the market structure and major market participants of the RMG industry
To determine the contribution of this industry in the GDP of Bangladesh
To find out the factors affecting the demand and supply in the RMG sector
To understand how changes in these factors affect the elasticity of demand and supply of
RMG sector
To conduct a comparative study on the export growth of this sector over the years
To study the contribution of this sector on empowerment of women in the workforce of
Bangladesh
To develop an understanding on the impact of government regulations and policies on this
industry

1.2 SCOPE

The study offers opportunities for thorough analysis of the numerous possibilities of the RMG
industry of Bangladesh. This paper will analyze the RMG sector of Bangladesh by studying the
overall industry as well as particularly identifying some firms within the industry. The analysis
performed in this report will help both industry veterans and new entrants understand the different
factors that affect the performance of organizations in the RMG industry. The preparation of this
report will be conducted from 12 April 2017 to 26 April 2017. To better facilitate data collection,
the primary research will be based on Dhaka region only.

1.3 METHODOLOGY

This report will be based on a comprehensive analysis of primary and secondary data. To collect
the secondary data, extensive online research will be conducted. At the same time, primary data
will be collected by following certain steps which has been discussed throughout methodology.

1.3.1 FORMULATION OF RESEARCH OBJECTIVES

The following factors have been considered while formulating the research objectives:

An overview of the RMG industry of Bangladesh

Exploring the effect the RMG industry on the economic and social development of
Bangladesh
Applying the concepts and theories of managerial economics to the findings of the paper

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1.3.2 SELECTION OF RESEARCH TYPE

Exploratory Research

Major portion of this report will be based on exploratory research. As this paper attempts to
determine the effects of the various factors of supply and demand on the chosen industry, as well
as analyze the industry based on economic concepts and theories, exploratory research method is
best suited for the purposes of this research. Data collection of the exploratory research will be
from the managers in some of the selected companies in this industry. The managers will be asked
about pricing, performance, demand and supply of this sector. Besides, data will be collected from
managers regarding their perception of the effects of different economic factors in the industry.

Descriptive Research

Beside the exploratory research, a descriptive research will also be conducted on the topic. To do
so, a questionnaire will be administered to the managers of the selected organizations which will
attempt to distinguish the extent to which the different factors have affected the industry in the
past, from the perspective of industry veterans. The questionnaire will include a variety of question
types like Likert Scale, Semantic Differential, and Dichotomous Questions etc. which will build a
strong ground to understand the underlying objective of this report.

1.3.3 DATA COLLECTION

For both of the research types, certain primary data will be collected. Apart from that, online site
will be used to collect different secondary data. Primary data will be collected from many
traditional methods like interviews, surveys etc. Secondary data will be mostly based on online
research. The details of this data type is discussed in the following sections by mentioning the
different parameters.

Primary Data

Primary data will be based on the findings of the interviews and survey conducted on different
managers of the RMG Sector of Bangladesh. Primary data for this paper will be collected in three
ways:

In-depth interview

Telephone interview

Survey Questionnaire

3
 Secondary Data

Secondary data will mostly be collected from different internet sources. But not only internet
sources, some other data will be collected from some other sources too. Given below are the criteria
of secondary data being collected for this purpose:

o Internal Sources:

Company websites

Company publications and annual reports

o External Sources:

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Website

World Bank Database

List of Information Needed:

Based on the data collection method and data types, a list of needed information has been
developed below:

Data regarding the GDP percentage of RMG sector

Data about how many players are present in the market
Data of current and potential buyers
Data regarding export information
Data about demand planning and ordering schedule
Data on RMG Sectors major business owners
Data regarding the regulatory body of RMG industry
Data about the current trends on the buying side
Data on the factors of demand and supply influencing the RMG sector
Data influencing the price elasticity of demand in RMG sector
Data influencing the income elasticity of demand in RMG sector
Data related to the contribution of the factors of production in this industry
Data about different cost and pricing methods of this sector

4
1.3.4 DATA ANALYSIS
After the data has been collected from all the sources, a comprehensive analysis of qualitative and
a quantitative method will be pursued.

QUALITATIVE ANALYSIS

Qualitative research is one of the two major approaches to research methodology in social sciences.
Qualitative research is about understanding phenomena, exploring issues, and answering questions
by analyzing unstructured data. Qualitative research involves an in-depth understanding of
human behavior and the reasons that govern human behavior. This paper will use qualitative
analysis to understand the economic and social impact of the RMG industry of Bangladesh, and
relate the findings with the concepts of Managerial Economics.

QUANTITATIVE ANALYSIS

Quantitative research is a more logical and data-led approach which provides a measure of what
people think from a statistical and numerical point of view. For the purposes of this paper,
quantitative analysis will be performed on the data gathered from the chosen companies in order
to develop a more in-depth understanding of the factors affecting their operation. Quantitative
research will also be performed from a macroeconomic perspective, allowing this paper to
establish the effects of different factors of supply and demand on the RMG of Bangladesh.

1.4 LIMITATIONS

The major limitations that we faced while preparing this proposal were:

Unavailability of data, due to difficulty in gaining access to data, or simply because the
data has not been collected by the respective organizations.
Lack of updated data. The smaller organizations often do not record their data on a regular
basis, causing the information available to be lagging behind by 1 or 2 fiscal years.
Another vital limitation is time and resource constraint. We had to submit this proposal in
a short period of time. This proposal could have been done more substantially if more time
was allowed.

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2.0 INDUSTRY OVERVIEW

2.1 HISTORICAL BACKGROUND OF RMG SECTOR

Garments industry is the largest industrial sector of Bangladesh. Though the history of Ready
Made Garment Industry is not one too old, still Bangladeshi clothing business has a golden history.
Probably it started from the Mughal age (16th to the 19th century) in the Indian subcontinent
through Dhakai Musline. It had global reputation as well as demandable market around the globe
especially in the European market.

After industrial revolution in the west they were busy with technological advancement & started
outsourcing of ready-made garments to meet up their daily demands. Many LDC's took that chance
& started ready-made garments export at that markets. Bangladesh took this chance enjoyed quota
& other facilities of them. Thus readymade garments industry started to contribute in our economy
from late eighties (1977). The history of the garments industry dates back to 1977 when the first
consignment was exported to then West Germany by Jewel garments. The number of units,
however, remained a meager 46 until the end of 1983. From a humble beginning the sector has
thus made phenomenal growth over the last two decades, the number of units growing to around
4328 (BGMEA, 2016).

2.2 GROWTH OF RMG SECTOR IN BANGLADESH

Bangladesh is active to achieve a phenomenal growth in export of the Ready Made Garments. The
export of Ready Made Garments from Bangladesh has increased from a meager USD 7 million
during 1981-82 to about USD 1.95 billion during 1995-96. The Ready Made Garments sector has
achieved a growth of 20% per annum over the past 10 years. Such high growth was catalyzed by
the low wage along with Multi-fiber Agreement (MFA) on textile quotas principally with USA,
Canada and European countries. The Generalized System of Preferences (GSP) provided import
tax breaks worth about 15% of the import valuation, giving Bangladesh`s Ready Made Garments
export a considerable advantage in these markets. In addition to the above, the financing
agreements created through a system of back to back Letters of Credit (LOC) covering imported
inputs and finished exports, greatly contributed to the accelerated growth of RMG sector. The
above factors enabled Bangladesh to become the fifth largest exporter of RMG to the European
Union and sixth largest to the USA. The Ready Made Garments industry is the multi-billion-dollar
manufacturing and export industry in Bangladesh.

6
Whereas the industry contributed only 0.001 per cent to the countrys 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 USD28.09 billion in 2016, which was about 82% of total export of the
country. The countrys 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
is increasing from year to year.

2.3 TYPES OF RMG INDUSTRIES

The garment Industry in Bangladesh is broadly classified into Knitwear, RMG, woven, specialty/
linen including terry towels and others. Different types of garments industries include Woven,
Knitwear, Sweaters, Fiver, Fabrics, Yarns Grey, Fabrics, Finished, Spinning Weaving, Knitting,
Dyeing, Printing, Finishing etc. Before exploring strategic options for the industry, it makes sense
to take a quick look at the industry structure and the scale economies it presents. Bangladesh
Garment Manufacturers and Exporters Association (BGMEA) Members Directory 2015-2016
lists 4328 member firms exist. Among them 1100 knitting factories, 725 sweater factories, and the
remaining 2503 are woven garment units. In addition, Bangladesh Knitwear Manufacturers and
Exporters Association (BKMEA), boasts a membership of another 860 knitwear firms, of which
some 300 are believed to have dual membership with BGMEA, leaving 560 units with exclusive
BKMEA membership.

2.4 MARKET STRUCTURE OF GARMENT INDUSTRIES OF BANGLADESH

Ready-made garments manufactured in Bangladesh are divided mainly into two broad categories:
woven products 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. Woven garment products still dominate the garment export earnings of the
country. The share of knit garment products has been increasing since the early 1990s; such
products currently account for more than 40 per cent of the countrys total RMG export earnings
(BGMEA website). Although various types of garments are manufactured in the country, only a
few categories, such as shirts, T-shirts, trousers, jackets and sweaters, constitute the major
production-share.

Currently, there are 4,328 RMG firms in Bangladesh. More than 95 percent of those firms are
locally owned with the exception of a few foreign firms located in export processing zones. The
RMG firms are located mainly in three main cities: the capital city Dhaka, the port city Chittagong
and the industrial city Narayangonj.

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3.0 OVERVIEW OF COMPANIES

3.1 HA-MEEM GROUP

Ha-Meem Group is a Bangladeshi clothing manufacturer company

which is one of the leading suppliers of readymade garments and denim
fabric in the world. As a Bangladeshi clothing manufacturer, they have been contributing
massively in the financial growth of the nation.

The company is equipped with 26 garments factories, a unique Denim mill, Sweater factory,
Embroidery and Printing factory, Carton factory, Poly bag industry, Label factory, Jute mill,
Chemical formulation plant, Tea Gardens, Transport company, News Channel and a national daily
Newspaper. Its overseas office in Hong and China gives fastest support in procurement of fabric
and accessories. Its own C & F office in every Bangladeshi port gives benefit of quick clearing
and forwarding support.

Ha-Meem group has a rich history of 30 years in the textile business that has today evolved into a
company with various interests like shipping, newspapers, tea gardens etc. It all started with a
garment company in 1984 and two creative men Mr. A. K. Azad and Mr. Delwars vision to break
through in the textile industry and making Ha-Meem Group a leading wholesale clothing
manufacturer in Bangladesh. The business activities of Ha-Meem Group have been growing day
by day under their vigorous leadership. Thus the company became a pioneer in wholesale clothing
manufacturing in Bangladesh. Today the company has 26 garment factories consisting of 250
production lines and 7 washing plants to produce 6 million pcs/month.

A group of 180 merchandisers are working relentlessly and acting as a strong bondage in between
the buyer and the factory. Merchandising subgroups are recreated to give effective support to
respective buyer to ship goods on-time.

Buyers from different parts of the world are lining up to buy Ha-Meem produced outfits. A list of
buyers name and their respective countries is given below:

Buyer Name Country Buyer Name Country

H&M USA JESSYPANY South Africa
KHOLS USA American Egale France
VF ASIA Germany LINDEX UK
ASMARA Italy OSHKOSK Spain
WALMART Canada NEXT USA
PUMA Canada LINDEX FRANCE

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3.2 SQUARE FASHIONS LTD.

Square stepped in Textiles business in 1997 by its yarns

manufacturing unit namely Square Textiles Ltd. With most
sophisticated vertically integrated infrastructure SQUARE
FASHIONS LIMITED (SFL) started its project in 2001 &
production in 2002 with the combination of modern Technology and skilled professionals which
helped it to achieve the position to cater for worlds top notch customers in a short span of time.
All these were possible due to the innovative ideas, tireless efforts, perseverance and dedication of
the founding chairperson of Square, Mr. Samson H Chowdhury.

Square Fashions Limited is producing a wide range Readymade Knit Apparels (Polo Shirts, T-
Shirts, Tank Top, Trousers, Hooded Jacket & Cardigan, Sports Wear, Undergarments, Mens &
Ladies Fashions Wear, Kids Wear) & Circular Knit Fabrics both in open width and tubular width
in different weight. At present SFL has two Garments Units and two Fabrics Units and each unit
is adequately facilitated with cutting, embroidery, printing, sewing and finishing. The production
capacity of Garments Unit-1 & 2 is 60000 pcs/day & 45000 pcs/day respectively and the total
production capacity of Fabrics Unit-1 & 2 is 39.5 (Solid-32 tons, Yarn Dyed-3.5 tons, Mercerized
Fabric-4tons) tons fabrics/day.

Square has got some of the most famous international buyers on their bags like Puma, H & M,
Pierre Cardin, S. Oliver, Marks and Spencer, Espirit, Hugo Boss, Bonita, G-Star and Mexx.

Total land area of the factory premises is 5212 decimal (52.12 acre) and more than 13,000 of
human capitals are directly engaged in the whole production process. Square Fashions Limited is
providing free workers dormitories with pure drinking water, lighting and cooking facilities,
transportation, meals at work, recreational facilities and round the clock medical service.

Square Fashions Limited believes in sustainable growth and give the highest priority to
preservation of nature and ecological balance. Keeping in mind, it established Biological
Treatment Plant, Comprehensive Energy Saving Program, and Effluent Treatment Plant (ETP) in
its dye house to accomplish the biological treatment of by-products.

As recognition of its efforts towards a congenial working environment, SFL awarded as Best
Workers Friendly Knitwear Industry in Bangladesh. SFL also upholds Ethical Trading Initiative
(ETI) based codes covering Freedom of Association, Safe working Conditions, Regular
employment, Reasonable working hours which is Free from Bonded & Child Labor and
Discriminatory as well as harmful treatment.

9
3.3 BEXIMCO FASHIONS LIMITED

BEXIMCO was founded in the 1970s by two brothers

Ahmed Sohail Fasiur Rahman and Ahmed Salman Fazlur
Rahman. Since the early days, the Group has evolved from
being primarily a commodities trading company to a
leading, diversified group with a presence in industry
sectors that account for nearly 75% of Bangladeshs GDP.

BEXIMCO Textile Division consisting of 7 industries

having the capability to offer a complete product range for
the export and domestic textile markets. The Textile Section of BEXIMCO Group consists of
Bextex Ltd., BEXIMCO Fashions Ltd., BEXIMCO Apparels Ltd., International Knitwear &
Apparels Ltd., Crescent Fashions Ltd. and Essess Fashions Ltd.

Beximco Fashions Limited (BFSL) a member of Beximco Group started its commercial
production during July 1997. BFSL is a 100% export oriented garment industry, located at Dhaka
Export Processing Zone at Savar, Dhaka. Beximco Fashions Limited produces over 6 million pcs
of high quality dress/casual shirts for prominent brands and retails in USA, Canada & Europe.

Beximco Fashions Limited is managed by a group of professionals including expatriates and aims
at producing high quality garments through an effective quality control system right from sourcing
of fabric to end product. The number of employees at the beginning of year 2009 is 2,220.

Beximco Fashions Limited has a corporate headquarter at Dhanmoni, Dhaka and an operational
headquarter at Gazipur. The factory of BFSL is at Ganakbari, Savar. It has a total of 19 lines and
about 2200 workers. The production capacity is 20000 pcs (approx.) per day. They have a total
authorized capital of 175 million (BDT) and paid up capital of 500 million (BDT).

BFSLs main customers in USA & CANADA are American Eagle, Wal-Mart, Target Corp.,
Sears/K-mart, Kohls, Oxford USA, Berne Apparel, Richlu Canada, YM Canada, J.C. Penny,
Dickies, Charming Shop, Macy and Regatta. In Europe, Beximco Fashions limited has customers
such as H & M, C & A, River Island, Bershka, Zara and Pull & Bear.

10
3.4 VIYELLATEX LIMITED

Viyellatex is an integrated textile and apparel manufacturing company of Bangladesh. The

company started in 1996 as a small family business of knit apparel manufacturing. Since then, the
company has grown as one of the leading multi-dimensional business conglomerates of
Bangladesh. The company continued with developing spinning, knitting, dyeing, accessories and
printing facilities and emerged as Viyellatex group in 2002. Now Viyellatex Group has 11 different
business units, seven of which work as RMG manufactures or support industry.

While Viyellatex remains a 100% export-oriented organization, the company vision is focused
towards uplifting Bangladesh on a global scale. The group has achieved numerous awards for
business, social and environmental performance over the years and remains strongly
committed towards the Millennium Development Goals.

Like most other Garment Manufacturers of Bangladesh, Viyellatex operates as the supplier of
leading European and North American Chains. Viyellatex are mainly sourcing partners of Puma,
Calvin Klein, PVH, OLYMP, Hugo Boss, DKNY, Timberland, Marks & Spencer, S.Oliver,
Espirit, Hawes & Curtis and Tommy Hilfiger.

Raw Material for Viyellatex is of two types. As the firm knits its own textiles, it uses fabric as raw
materials. However, currently, the knitting capacity of the firm is limited to cotton and also the
dyeing capacity is also limited to cotton fabric. Thus, Viyellatex needs major raw materials of
three categories:

Regular White Fabric

Dye Fabric (Non Cotton)
Dyeing Chemicals

Viyellatex gets regular White Fabric from one of its Groups sister concerns, Viyellatex Spinning.
The actual raw material to produce Fabric is raw cotton. However, cotton is not largely available
in Bangladesh. The current local production is only 0.1 million bale which is only 2% of local
demand. Viyellatex usually imports cotton from Commonwealth of Independent States (CIS) and
other sources. For emergency purpose, Cotton is also imported from India. The type of products
they usually produce needs very little synthetic or polyester cotton, which they directly buy as Dye
Cotton mainly from Coats Bangladesh. Dye Chemicals are also very important for Viyellatex.
Currently Viyellatex is importing raw chemicals from China and also using local chemicals to dye
their Fabrics.

11
3.5 DBL GROUP

DBL Group, a ready-made garment and textile giant

of Bangladesh, commenced its operations in 1991.
The group, with its 18 subsidiaries, is engaged in
diverse business activities, including prominence in
composite knit wear production through state-of-art
facilities for cotton spinning, fabric knitting- dying-
finishing and garments cutting-sewing-washing-
finishing-packing & exporting.

DBL Group has a dedicated and skilled workforce

of more than 24,295 employees. DBL Group is
capable of producing 25,000 Pieces of Fleece Jacket or 45,000 Pieces of Polo or 100,000 Pieces
of TShirts daily. They had an annual turnover of USD 365 Million for the year 2015-16. The
group is expecting shipment of apparel worth $340 million by the end of the current fiscal year.
DBL Group supplies quality apparels to globally renowned retailers and is focused on upholding
the reputation of the readymade garments and textiles industry of Bangladesh.

Their major markets include Europe, Asia and Oceania, North America and South America. Some
of the major buyers of DBL Group are H&M, George, Walmart, Puma, ESPRIT, G-STAR, Bonita,
Gerry Webber, MQ, Gymboree, M&S, and Next Sourcing etc. They are the Platinum Supplier of
H&M for Knit Garments.

In apparel manufacturing, the need for perfection begins right from the birth of the raw materials.
The quality of yarn permeates through every single process till packaging. The key raw material
imported by DBL Group is Cotton. The majority of cotton imports come from USA and African
countries (Mali, Zimbabwe, etc.). Viscose and Modal are imported from Austria and Polyester
Staple Fiber comes primarily from Thailand.

12
4.0 APPLICATION OF DIFFERENT ECONOMIC THEORIES

4.1 THE 10 PRINCIPLES OF ECONOMICS IN RMG OF BANGLADESH

The RMG industry of Bangladesh can be discussed in lieu of the ten principle of economics as
described by Harvard Professor N. Gregory Mankiw. The principles are discussed below:

4.1.1 PEOPLE FACE TRADE-OFFS

Its impossible to get everything you want at the exact same time. Its impossible for me to sleep
all day and work all day. Its impossible for me to grill a steak at home while also dine at Olive
Garden. This means people face tradeoffs. We have to trade one thing for another thing theres
no other option. This is why people often barter with others. People are willing to trade 7 years of
college work for the ability to become a lawyer, lots of money for a house, and pretty much every
other choice in life. People face tradeoffs.

4.1.2 THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT

Political mayhem is often manifested in countrywide strikes and blockades. During such situations
production, distribution, etc. all are disrupted. Moreover, world geopolitics is also a matter of
concern as it is sometimes suspected that labor violence is instigated by more developed and rival
countries in order to hamper the consistent trend in apparel export. Therefore, the tradeoff between
the political condition of the country and the economic downturn, we need to decide, prioritize our
standpoint and take necessary steps.

4.1.3 RATIONAL PEOPLE THINK AT THE MARGIN

Thinking within the margins means trying to get the best result, if you have the option of choosing
a good car or a perfect car, the rational choice is the perfect car. All things being equal, the better
option is better. Thinking within the margins is essentially believing in net benefits focusing on
the best thing possible. Rational people think within the margins.

Labor productivity is highly correlated to wages; one unit rise in wage is expected to increase labor
productivity by 1.3 units. This implies the significance of the implementation of the new wage
structure a RMG factory owner will think rationally for the sustainable growth of his company and
improve the labor forces for their increased productivity.

13
4.1.4 PEOPLE RESPOND TO INCENTIVES

This is an unavoidable concept found in human behavior. Its just how people function. We
respond to incentives. Incentives arent necessarily selfish in the traditional sense, but they all
appeal to our values whether conscious or subconscious. There is no denying that the RMG has
long been characterized by a wide variety of deprivations of its workers, which include, inter alia,
lack of proper infrastructure facilities and safety at workplace, non-compliance with minimum
wages, lack of provision of essential service benefits to the workers. Violent protests by the
workers have been an outburst of their long denied basic demands. Therefore, fair and equitable
wage for the labors is the main takeaway from this point.

4.1.5 TRADE CAN MAKE EVERYONE BETTER OFF

When people trade in a free market, its because they are both responding to peaceful incentives.
An employer trades money for labor because they want the labor. Both sides are acting in a way
that they think benefits them as much as peacefully possible. So in the near future it would start to
generate positive returns in the economy. The government should provide necessary welfare
facilities and social security to the RMG workers for the betterment of their livelihood.

4.1.6 MARKETS ARE USUALLY GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY

Market forces work so that if theres a demand for something as well as a potential supply of it,
the market will try to unleash the supply to meet the demand. This will eventually lead to market
equilibrium where the demands are quenched as much as possible by the market. Making money
filling market demands is an incentive that nearly everyone reacts to during their lives. Bangladesh
has near about more than 4,000 garment factories with up to 10 million livelihoods dependent on
it directly or indirectly. This growth and size has become prominent only because there is demand
in the market and theres also scope of meeting that demand.

4.1.7 GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES

Over the past twenty years, the number of manufacturing units of RMG sector has grown from
180 to over 3600. This is because the capital structure got bigger and the market potentials has
been utilized. Besides the private sectors the government policy and regulations also played a vital
role in this process.

14
4.1.8 A COUNTRY'S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO
PRODUCE GOODS AND SERVICES

Differences in the standard of living from one country to another are quite large. Changes in living
standards over time are also quite large. The explanation for differences in living standards lies in
differences in productivity. Definition of productivity: the quantity of goods and services produced
from each hour of a workers time. High productivity implies a high standard of living.

Thus, policymakers must understand the impact of any policy on our ability to produce readymade
garments. To boost living standards, the policy makers, need to raise productivity by ensuring that
workers are well educated, have the tools needed to produce goods and services, and have access
to the best available technology.

4.1.9 PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY

Inflation is the rate at which the general level of prices for goods and services is rising and,
consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation,
and avoid deflation, in order to keep the economy running smoothly.

The RMG industry occupies a unique position in the Bangladesh economy. It is the largest
exporting industry in Bangladesh, which experienced phenomenal growth during the last 20 years.
By taking advantage of an insulated market under the provision of Multi Fiber Agreement (MFA)
of GATT, it attained a high profile in terms of foreign exchange earnings, exports, industrialization
and contribution to GDP within a short span of time.

4.1.10 SOCIETY FACES A SHORT-RUN TRADEOFF BETWEEN INFLATION AND

UNEMPLOYMENT

Major effect of inflation is that a nation's nominal currency loses value. That is, it takes more
Dollars, or Pounds Sterling, or Euros, or Yen, or Swiss Francs, to buy the same quantity of goods.
The obvious consequence, or effect, of this is that inflation makes it more difficult for people to
afford the basic necessities, not to mention luxuries, of life if their labor is not able to keep pace
with the inflation rate. The question isnt whether we can judge each trade off individually the
question is how we determine to make those tradeoffs. The short-run trade-off between inflation
and unemployment plays a key role in analysis of the business cycle. Fluctuations in economic
activity, such as employment and production are generally called business cycle. Policymakers
can exploit this trade-off by using various policy instruments, but the extent and desirability of
these interventions is a subject of continuing debate.

15
4.2 APPLICATION OF INVISIBLE HAND

Adam Smith used the metaphor of the invisible hand to refer to the guidance and benefit society
receives when individuals act in their own self-interest when trying to make money. According to
Smith, when consumers are left to freely choose what they want to buy, and businesses are left to
freely decide what they want to sell, the self-interest of both will lead to decisions that result in
good prices and the right products in the economy and marketplace. As a result, Smith argued that
no government intervention is needed. We simply have the invisible hand of economic self-interest
to guide us. Let's explore the theory more to help it all make sense.

Figure 1: Invisible Hand Concept

As demand for cheap labor and clothing continues unabated, China and Bangladesh has become
the leading producer of the clothes hanging in our closets. Most of the cotton for these clothing,
comes from India, the United States and Uzbekistan, and those who produce it often fare badly. In
the readymade garments industry of Bangladesh, the major impact of technical change is
associated with the increasing adaptation of new technologies by the apparel makers to respond to
the broader changes in global retailers' strategies. The RMG industry is the mainstay of the
country's economy, which accounts for over 82 per cent of total exports and employs more than
four million people. Bangladesh Garment Manufacturers and Exporters Association (BGMEA) set
the goal to take the present clothing exports $28 billion to $50 billion by 2021. The target is highly
ambitious but not entirely unattainable. The invisible hand along with skilled workforce is required
to make the RMG export dream into reality.

16
4.3 KNIT VS. WOVEN: A PRODUCTION POSSIBILITIES FRONTIER

The RMG market of Bangladesh mostly consists of two primary product types- Knit and Woven.
`So, companies need to choose in which product they want to focus more in comparison to other.
There are three possible situations which a RMG company can choose to pursue:

Producing only Knit products but no Woven products

Producing only Woven products but no Knit products

A mixture of Knit and Woven products

Figure 2: PPF Curve

From the figure the situation clears up. At point A, the company is only producing Woven product
and at the point F, the company is only producing Knot products. In the middle points from B to
E, the company is using different blend of Knit and Woven products.

The point X demonstrates a situation where the resources available to the RMG companies are
being underutilized. Theoretically there might be a point like Y where production can be
maximized. But in reality it is not possible for the RMG companies because there will not be
enough resources to reach that level of production.

17
4.4 CIRCULAR FLOW DIAGRAM FOR RMG INDUSTRY

The circular flow of income is a neoclassical economic model depicting how money flows through
the economy. In the simplest version, the economy is modeled as consisting only of households
and firms. Money flows to workers in the form of wages, and money flows back to firms in
exchange for products.

Like every other economic entity commercial banks also go through circular flow diagram. It has
two markets.

FACTOR MARKET

For Readymade Garments Industry

factors market is the market where
factories spend on rents and buys
buildings and other equipment. For
buying these commodities factories
pay wage and salary to workers, rent
and price for buildings and other
equipment and interest for the
deposits collected. The factor
market, sometimes called the
resource market, represents the
purchase of resources in an
economy. In the factor market,
households are the sellers of
Figure 3: Circular Flow Diagram
resources, and factories are the
buyers of resources.

PRODUCT MARKET

The product market represents the purchases of finished goods and services in an economy.
Households are the main buyers of goods and services in the product market, and businesses are
the sellers of goods and services, as shown in the top half of the figure. From the circular flow
model, it appears that the product market is a single physical location where products are bought
and sold. But this is clearly not the case. Instead, the product market represents the millions of
buy-sell transactions that are made every day in supermarkets, gas stations, convenience stores,
department stores, bakeries, laundries, dentist and doctor offices, delis, and coffee shops.

18
5.0 MARKET FORCES OF DEMAND AND SUPPLY
The demand for Bangladeshi garments products having growing continually ever since its
conception. However, the jump in demand came after the FY 2002-03, when the annual growth
rate of the demand jumped for around 9-10% to 30%. Ever since, the demand has been surging
forward, claiming more and more of the share of the national exports.

5.1 CURRENT TRENDS ON THE BUYING SIDE

The sourcing of RMG is experiencing a new phase of transition, which is creating the need for
companies to react accordingly in order to secure their cost positions in the apparel market. By
moving the sourcing activities to low cost countries and by reducing the number of intermediaries,
European and US apparel buyers are constantly decreasing purchasing prices to gain competitive
advantage. However, in recent times, European and US buyers are facing several issues regarding
margin and capacity requiring revision of their strategies.

Bangladesh has what it takes to be the next sourcing hot spot. Since the start of its garment export
industry in the late 1970s, Bangladesh has seen its RMG export levels grow steadily and has
become a top global exporter. With around USD 15 billion in export value in calendar year 2010,
the RMG industry is currently Bangladeshs most important industry sector (13 percent share of
GDP and total export share of over 75 percent). With 12 percent average annual growth rates,
clothing exports are the key driving force behind GDP development (7 percent CAGR from 1995
to 2010). The attractiveness for buyers lies in Bangladeshs long-term experience and strong
performance in the sourcing country selection criteria of price and capacity as well as product
portfolio offered.

5.2 FACTORS OF DEMAND AND SUPPLY

5.2.1 PRICE
According to the law of demand, if the price of a good or service increases the quantity demanded
decreases and vice versa, other factors being constant. That is, price and quantity demanded are
inversely related.

The law of demand denotes how price changes affect consumer choice. Other factors being
constant, raised price of a good causes the quantity demanded to fall because the consumers have
limited income. The mathematical expression of this relationship is as follows:

Qx = f(Px)

19
Bangladeshi garment industrys competitive advantage is the price level. The stakeholders see the
wages increase in Bangladesh as being in line with that of other countries, and expect significant
efficiency increases to offset rising costs. Therefore, it is expected by them that in the future the
price levels in Bangladesh will remain highly competitive.

5.2.2 SUBSTITUTE COUNTRIES

In China, labor shortages, are impacting the RMG industry negatively, as workers are moving on
to more attractive industries and better jobs. Per unit labor cost in the country is on the rise. Its
labor productivity grew at 7.0 to 13 per cent in the past two decades, leading to higher wage and
losing its position as the worlds lowest cost manufacturer of consumer products. Chinas
exchange-rate policy and global imbalances are also encouraging Beijing to concentrate on high-
end manufacturing and services sectors, known as vertical economy.

5.2.3 POPULATION
Bangladeshs RMG industry is witnessing a new class of attractive customers which is growing
quickly. Regional countries want to gain from the benefits Bangladesh has to offer. Suppliers in
Bangladesh see China gaining most importance for them over the next ten years, with India
following suit with a ranking of third. In order to foster increased trade, bilateral agreements, such
as the recent duty-free deal between India and Bangladesh announced in September 2011, are
being established. Taking these factors into account, Bangladeshs RMG industry is expected to
face growing demand.

5.2.4 SEASONALITY
In the garments industry the time of the year affects the demand. The industry faces majority of
demand occurring in summer, closely followed by winter. In comparison the spring and autumn
seasonal demands are much lower.

5.2.5 COST OF PRODUCTION:

The garment sector in Bangladesh is generating great competencies through operating as groups
of functions. In other words, garment firms are effectively operating as conglomerates, thereby
securing many of the efficiencies of vertical integration in a sector where individual capital shares
and firm size remain relatively small. The backward linkage industry helped the garment industry
to have the higher value addition and much higher net retention rate. This is how the garments
sector established itself as the highest contributor, in terms of both gross and net export earnings,
to Bangladeshs economy.

20
6.0 ELASTICITY
Elasticity refers to the degree of responsiveness in supply or demand in relation to changes in price.
If a curve is more elastic, then small changes in price will cause large changes in quantity
consumed. If a curve is less elastic, then it will take large changes in price to effect a change in
quantity consumed. Graphically, elasticity can be represented by the appearance of the supply or
demand curve. A more elastic curve will be horizontal, and a less elastic curve will tilt more
vertically. When talking about elasticity, the term "flat" refers to curves that are horizontal; a
"flatter" elastic curve is closer to perfectly horizontal.

Figure 4: Inelastic Demand, Neutral Demand, and Elastic Demand

To calculate the coefficient for elasticity, the percent change in quantity is divided by the percent
change in price:
Percentage change in quantity demanded
Coefficient of Elasticity =
Percentage change in price

Table 1: Different types of Elasticity

21
6.1. PRICE ELASTICITY OF DEMAND FOR THE RMG INDUSTRY

The price elasticity of demand of the Knitwear industry has been calculated with data from the last
ten fiscal years.
Table 2: Price Elasticity of Demand for Knitwear products

FY Export in Percentage Export in Average Percentage Price

Million Change Billion USD Price change in Elasticity of
dozens Price Demand
2010-11 688.31 47.86% 17914.46 26.03 -3.05% -15.69

2011-12 722.85 5.02% 19089.73 26.41 1.47% 3.42

2012-13 814.32 12.65% 21515.71 26.42 0.05% 262.91

2013-14 852.88 4.74% 24491.88 28.72 8.69% 0.55

2014-15 1346.7 57.90% 25492.34 18.93 -34.08% -1.70

Source: OEC and Primary Data

Considering the last ten fiscal years, it can be seen that on average, the Ready Made Garments
products of Bangladesh show relatively high price elasticity of demand. This is because of the fact
the despite small changes in average price of RMG products over the years, demand has been
continually growing, owing to a myriad of external factors such as higher competitor prices, new
regulations and changes in global economic conditions.

6.2. INCOME ELASTICITY OF DEMAND FOR THE RMG INDUSTRY

The major markets for the Ready Made Garments industry are the European Union countries and
the United States, with some emerging markets currently looking promising. In order to find the
Income elasticity of the Knitwear industry in these markets, data from 2005 to 2014 has been used.
For the European Union, 28 EU countries have been considered in these data which have been
analyzed here. The data presented here has been reduced to better understand the recent impact in
this decade. So data from 2010 to 2014 has been used here.

22
 Table 3: Income Elasticity of Demand in the EU

Year Per capita Knit Export Income Woven Income Total Income
income to EU - Elasticity Export to Elasticity RMG Elasticity
Current 28(Million of EU -28 of Export to of
dollars USD) Demand (Million Demand EU -28 Demand
(Knit) USD) (Woven) (Million (RMG)
USD)
2010 33757.6 5620.179 -323.38 2881.05 -211.59 8501.23 -283.80
2011 36218.3 7324.922 4.16 4113.669 5.87 11438.59 4.74
2012 34114.5 7396.22 -0.17 5177.02 -4.45 12573.24 -1.71
2013 35435.5 8682.28 4.49 6077.71 4.49 14759.99 4.49
2014 36317.3 8847.28 0.76 6519.33 2.92 15366.60 1.65

It is seen that if data over the last 10 years is considered, the income elasticity of demand for knit
products varies across a range, from slightly negatively elastic to occasionally showing large
positive elasticities. The same is seen for woven products as well. One important point to note is
that while Knit products have shown larger income elasticities from 2005 to 1009, the income
elasticity for Woven products has been larger from 2011-2014. This corresponds to the fact that
due to the change in GSP regulations, woven exports from Bangladesh are benefitted more
compared to knit exports.
Overall, it can be said that external factors such as global economic conditions and government
regulations are largely responsible for the income elasticity of demand for Knitwear products in
the EU market.

Table 4: Income Elasticity of Demand in the US

Year Per Knit Income Woven Income Total RMG Income

capita Export to Elasticity Export to US Elasticity Export to Elasticity
income US of (Million USD) of Demand US (Million of
Current (Million Demand (Woven) USD) Demand
dollars USD) (Knit) (RMG)

2010 26,558 1068.001 232.25 3169.81 204.25 4237.811 211.18

2011 27,554 1045.097 -0.57 3575.377 3.41 4620.474 2.41
2012 28,281 1130.9 3.11 3865.68 3.08 4996.58 3.09
2013 30,027 1197.85 0.96 3943.52 0.33 5141.37 0.47
2014 30,176 1317.14 20.07 3970.98 1.40 5288.12 5.75

23
7.0 FACTORS OF PRODUCTION

The production function in economics indicates the highest level of output (Q) that can be
produced by a firm for every specific combination of input factors (i.e. the physical relationship
between output and input), while holding technology constant at some predetermined state.
The mathematical form the production function is, Q = f (X, Y, Z)
Where, Q = Quantity produced

X = Land Y = Labor Z= Capital

There can be a number of different inputs to production, i.e. "factors of production," but they are
generally designated as either capital or labor. Technically, land is a third category of factors of
production, but it's not generally included in the production function except in the context of a
land-intensive business. The particular functional form of the production function (i.e. the specific
definition of f) depends on the specific technology and production processes that a firm uses.

Figure 5: Factor of production

The input factors for a Readymade Garments Industry are:

1. Number of workers
2. Factory Capacity
3. Raw Materials
4. Machineries

24
7.1 NUMBER OF WORKERS

The workers working in the RMG industry represent the most important input factor for the
industry in Bangladesh. Cheap labor is the main reason why Bangladesh enjoys a high comparative
advantage in the RMG industry compared to its main competitors. The continual increase in the
labor force in the industry has resulted in a large growth of the industry over the years.

Table 5: Number of Workers

EMPLOYMENT IN EMPLOYMENT IN
YEAR MILLION YEAR MILLION
WORKERS WORKERS
1994-95 1.20 2010-11 3.60
1995-96 1.29 2011-12 4.00
1996-97 1.30 2012-13 4.00
1997-98 1.50 2013-14 4.00
1998-99 1.50 2014-15 4.00
1999-00 1.60 2015-16 4.00

7.2 FACTORY CAPACITY

With the growth in demand for RMG products, the number of factories in Bangladesh have
increased as well. The number of factories went from 384 in 1984-85 to 5876 in 2012-13.
However, the number of factories in 2015-16 was 4328. Once again, the data is presented for the
entire RMG industry, as most factories have both knit and woven departments, which makes it
difficult to gauge the exact number of factories dedicated solely to producing knitwear products.
Table 6: Factor Capacity

NUMBER OF NUMBER OF
YEAR GARMENT YEAR GARMENT
FACTORIES FACTORIES
1994-95 2182 2010-11 5150
1995-96 2353 2011-12 5400
1996-97 2503 2012-13 5876
1997-98 2726 2013-14 4222
1998-99 2963 2014-15 4296
1999-00 3200 2015-16 4328

25
7.3 RAW MATERIALS

The raw materials used by the RMG producers consist mainly of cotton, polyester, yarn, dyes and
chemicals etc. The RMG industry in Bangladesh enjoys an advantage regarding raw materials in
that the industry has strong backward linkage. As the export has increased in the RMG sector, the
capacity of backward linkage has also increased accordingly.

a. Trimmings:

Without fabrics, the materials which are used in a

List of Trimmings required for
garment during the making of apparel are called making Shirt, Trouser, Jacket
trimmings. A trimming can also be a narrow fabric used Sewing thread
as decorative or functional edging on apparel or Lining
furnishing fabrics. Some trimmings can be seen from the Button
Zipper
outside garments which are used outside the garments
Main label, care label, size label
and some are not seen which are used inside.
Motif

b. Accessories:

Accessories are those materials which are not attached with the apparel. It can be explained in
other way, accessories are those materials which are not used during manufacturing the garments,
only used for finishing and packing the garments.

List of Accessories Required for Making Shirt, Pant and Jacket

Neck board Safety sticker
Back board String
Plastic collar insert Hanger
Hang tag Butterfly
Ball head pin Collar stay
Tissue paper Price ticket

7.4 MACHINERY
The factories producing RMG products use different machineries for their production. Different
machineries are required for different aspects of production, such as knitting, dying, sewing,
finishing. The machines are mostly bought from China and each machine have distinct functions.
The list of machines used in the RMG industry are given below along with the company name and
functions of those machines.

26
8.0 MARKET STRUCTURE

8.1 OVERVIEW OF THE EXPORT MARKET OF BANGLADESH

Bangladesh is the 55th largest export economy in the world and the 139th most complex economy,
according to the Economic Complexity Index (ECI). As a developing country, this progress of
Bangladesh is praiseworthy in the global economy. In 2015, Bangladesh exported $35.7B and
imported $38.3B, resulting in a negative trade balance of $2.6B. Bangladesh being a country not
fill up with a lot of mineral resources has to rely on some imports that gave such a negative trade
balance. Still, the export figure is rich taken into consideration of the economic condition of the
country. In 2015 the GDP of Bangladesh was $195B and its GDP per capita was $3.34k. This
figure is slowing growing and has a potential to grow up even more in the coming future.
The top exports of Bangladesh are Non-Knit Men's Suits ($5.6B), Knit T-shirts ($5.28B), Knit
Sweaters ($4.12B), Non-Knit Women's Suits ($3.66B) and Non-Knit Men's Shirts ($2.52B). This
information alone provides an understanding how important RMG sector is to the Bangladeshi
economy. 80% of the countrys export are exports of RMG products. The top export destinations
of Bangladesh are the United States ($6.19B), Germany ($5.17B), the United Kingdom ($3.53B),
France ($2.37B) and Spain ($2.29B).

8.1.1 MAJOR EXPORT ITEMS OF BANGLADESHI RMG MARKET

In 2015 Bangladesh exported $35.7B, making it the 55th largest exporter in the world. Out of this
export amount, 80% was the contribution of the RMG sector of Bangladesh.

Figure 6: Major Export Items Of Bangladeshi Rmg Market

27
8.1.2 MAJOR EXPORT DESTINATIONS OF BANGLADESHI RMG MARKET

The top export destinations of Bangladesh are the United States ($6.19B), Germany ($5.17B),
the United Kingdom ($3.53B), France ($2.37B) and Spain ($2.29B).

Figure 7: Major Export Destinations Of Bangladeshi Rmg Market

8.2 RMG MARKET OF BANGLADESH: AN OLIGOPOLISTIC COMPETITION

Since the beginning of the expansion of RMG as the most successful business of Bangladesh, this
industry never had to face any monopolistic competition from any individual companies. There
were always big players on the market who provided an oligopolistic competition in the market to
create a smooth business environment. The major players contributing to this oligopoly are:

Ha-meem Group BEXIMCO Square Fashions Opex Sinha Fakir Group

Fashions Ltd. Ltd. Group

DBL Group Epyllion Group Standard Group Asian Apparels Givensee Group
Ltd. of Industries Ltd.

These companies are the dominant forces of the RMG sector of Bangladesh. However, there is no
monopoly from any single company in the market. Even though the market cannot have a perfect
competition in real life, but this market condition provides a close look at the perfect competition
having implemented an oligopolistic environment.

28
8.3 EXPANSION OF RMG MARKET IN BANGLADESH

As mentioned before, 80% of the export of Bangladesh is a contribution of its RMG sector.
Currently the country exports its apparel products to more markets than ever before. The
table below shows the picture from 2002 to 2015- where in 2002 RMG items were exported
to only 97 destinations, whereas the number increased up to 159 in 2011 indicating
development of newer 62 markets. In 2015, this number has increased further to 170. It is to
be noted that the summation of knitwear and woven wear export earnings is generally
termed as RMG earning. The addition of export destinations of both products do not reflect
total number of RMG markets as there are some countries that import both knit and woven
items which provides the following table of data:
Table 7:No. of Market for RMG Export

Year 2002 2011 2015

No. of Market for Knitwear Export 86 145 151

No. of Market for Woven Wear Export 94 126 144

No. of Market for RMG Export 97 159 170

8.4 RMG MARKET: A MIXED ECONOMY

RMG sector in Bangladesh follows a mix of command and market economy. This blend is decided
by answering three questions:
RMG sector in Bangladesh follows a mix of command and market economy. This blend is decided
by answering three questions:

WHAT Determined partly by consumer preferences and partly

To Produce by government

HOW Determined partly by producers seeking profits and

To Produce partly by government

FOR WHOM Determined partly by puchasing power and partly by

To Produce government preference

29
9.0 APPLICATION OF GAME THEORY
Game theory is a popular theory in economics which deals with the fact how cooperation can help
all the parties in a situation. The application of game theory is widely applied in economics to
comprehend the idea of cooperative decision-making. The game theory is deployed in this exercise
to help conceptualize the rationale and scope for cooperation between RMG exporters. This has
been done by considering, on one hand, RMG exporters in Bangladesh as potential allies, reflecting
the cooperation in terms of sharing their orders from foreign importers; and, on the other hand, as
natural partners since they share similar infrastructure, capacity and connectivity interests.

The game theory can be applied between RMG exporters in two ways:
Where member factories are informed about the strategies of the other players in the
industry (Nash equilibrium)
Where one group faces difficulties in comprehending the others strategic decisions
(Prisoners Dilemma).
An illustration of the cooperation game with an example payoff matrix is shown below:
Table 8: Nash Equilibrium and Prisoners Dilemma between two RMG Exporters

RMG Exporter A
Cooperate (A) Defect (B)
Cooperate (A) 100, 100 0, 50
RMG Exporter B
Defect (B) 50, 0 0, 0

To keep matters coherent, the objective of cooperation for profit-maximization has been
considered a base model, which is the case here for the RMG exporters. RMG exporter A (a
hypothetical firm) wants to maximize profits by taking into cognizance RMG exporter Bs (another
hypothetical firm) strategies. Exporter A wants to attend to as much of orders as possible without
the possibility of price-undercutting by exporter B. In the first best scenario, if all cooperates, all
stand to attain the highest possible payoff. On the other hand, one exporter (exporter A) may defect
when they may not be clear about the other exporters strategies (exporter B).

30
10.0 COST STRUCTURE
The costs incurred by the Readymade Garments Industry can be broken down into two categories:
Fixed and Variable. Fixed costs are costs that must be paid regardless of production or output.
Variable costs are costs that change with the level of production, these are usually costs that are in
some way directly associated with output, such as electricity, packaging etc. Adding together Fixed
Cost and Variable Cost will give Total Cost.

10.1 FIXED COST & VARIABLE COST

For the garments the Variable costs are basically used to identify the total cost and cost of
manufacturing. Cost of manufacturing can be defined as the cost incurred by the factory to run the
factory making garments. This cost is also known as operating cost. Cost of Manufacturing is
determined for per unit garment.

Variable Cost Fixed Costs

Labor Cost Property
Material Cost Plant
Electricity Cost Sewing Machine
Packaging Cost Fabric Cutters
Accessories Cost Utility
Executive Salaries

From the annual reports of some of the top garments industry the common cost items and their
ranges are given below:

EXPLICIT COSTS AMOUNT IN TK

Salary and Allowances 30,000,000 to 40,000,000
Directors Remuneration 6,000,000 to 9,000,000
Consultation Fee 374,241 to 499,618
Travelling and Conveyance 300000 to 400000
Overseas Travelling 15,703,625 to 28,992,794
Training Expenses 165,562 to 341,607
Printing and Stationery 586,676 to 1,010,377
Computer Comsumable 105,165 to 256,755
Post, Telephone, Fax & Telex 1,279,314 to 912,190
Electricity, Gas & Water 536,333 to 645,945
Vehicles Running & Maintenance 4,903,166 to 5,643,592
Tiffin and Refreshment 1,311,221 to 1,364,855

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10.2 ISOQUANT

An isoquant curve (from the Greek and Latin words for same quantity) is a curve that shows
the various technically efficient combinations of resources that can be used to produce a given
level of output. Different output levels have different isoquants. The higher the output level, the
higher the isoquant curve. For example, an output level of 100 pairs of jeans can be produced with
the resource combinations shown on curve IQ1. An output level of 150 pairs of jeans requires
larger resource combinations, shown on curve IQ2.

Figure 8: Single Isoquant Figure 9: Several Isoquants

As each additional worker is eliminated in figure 1, the number of machines added to keep output
constant at 100 pairs of jeans must rise and that is just what happens. Notice that as the firm
moves down curve abcde in figure 1, using fewer and fewer workers, the curve flattens out
indicating that larger and larger increases in machines are needed to make up for one fewer worker
or that the marginal product of machines diminishes and the marginal product of the remaining
workers rises.
The higher the output level, the higher the isoquant curve, as shown in figure 2. For example, an
output level of 100 pairs of jeans can be produced with the resource combinations shown on curve
IQ1. An output level of 150 pairs of jeans requires larger resource combinations, shown on IQ2.
To understand how the firm determines its most efficient resource combination, we must
remember that it operates under conditions of diminishing marginal returns. The factory will
always produce in the upward-sloping range of its marginal cost curve, and marginal cost increases
because marginal returns decline. Therefore, given a fixed quantity of one resource as more of
another resource is used, the additional output marginal product of that resource must diminish.

32
10.3 ISOCOST

An isocost (meaning same cost) curve is a curve that shows the various combinations of
resources that can be employed at a given total expenditure (cost) level and given resource prices.

There are different isocost curves for different output levels. The higher the output, the higher the
isocost curve. As long as the prices of labor and capital stay the same, however, the various isocost
curves for different output levels will be parallel to one another and will have the same downward
slope.

Suppose, for instance, that the daily wage of labor is $100 and the daily rental for a sewing machine
is $20. With a daily budget of $600, a firm can employ six workers and no machines or thirty
machines and no workers. Or it can combine labor and machinery in various ways. It can employ
four workers at a total expenditure of $400 and add ten machines at a total expenditure of $200.
Curve IC1 in figure 3 shows the various combinations of workers and machines the firm could
choose. This kind of curve is called an isocost curve.

Figure 10: Combination of Isoquant and Isocost

Using both isoquant and isocost curves, we can determine the most efficient resource combination
for a given expenditure level. Assuming that a firm is on isocost curve IC1 in figure 3 (which
represents an expenditure of $600 per day), the most technically efficient and cost-effective
combination of labor and capital will be point a, three workers and fifteen machines. At point a,
isocost curve IC2 is tangent to isoquant curve IQ2. The firm is producing as much as it can 150
pairs of jeans a day with an expenditure of $600. If it spent the same amount but used more labor
and less capital, it would move to a lower isoquant and a lower output level. At point b on curve
IC1, for instance, the firm would still spend $600 but its production level would fall from 150 to
100 pairs of jeans per day.

33
 Figure 11: Effect of Increased Expenditures

Of course, with increased expenditures, the firm can move to a higher isocost curve. In figure
R8.1.4, as the firms budget expands, its isocost curve shifts outward from IC1 to IC2 to IC3. At
the same time, the firms most efficient combination of resources increases from a to b and then
to c. As expenditures on resources rise, we can anticipate that, beyond some point, the increase in
output will not keep pace with the increase in expenditure; at that point, the marginal cost of a pair
of jeans will start to rise.

10.4 ECONOMIES OF SCALE

Economies of scale apply to a range of organizational and business situations and at different
levels, such as a business or manufacturing unit, plant or an entire venture. For example, a large
manufacturing facility would be expected to have a lower cost per unit of output than a smaller
facility, all other factors being equal, while a corporation with many facilities should have a cost
advantage over a competitor with fewer.

For the Garments industry this rule is applicable too. In the garments industry it is seen that the
garments factories are producing at a bulk amount. This is because for the bulk amount of product
the average unit fixed cost gets decreased. The bulk production also decreases the variable cost so
the total unit cost also gets decreased. The more the amount increases the cost decreases.

34
11.0 PRICING STRATEGIES FOR THE RMG INDUSTRY
The RMG industry consists of designers, manufacturers, distributors and retailers dealing in
clothing and fashion accessories targeted at different consumer segments. Its many niches are
mostly saturated, creating a fierce price competition among some brands and an equally fierce
brand-image competition among others.

11.1 BUDGET PRICING STRATEGY

Many consumers seek low prices when shopping for apparel. Serving this segment can yield
significant sales volume at the expense of lower per-unit profitability. Customers in this segment
are willing to sacrifice quality for affordability and are less likely to be loyal to specific brands. A
bundled pricing strategy can work well here. When multiple bundled products are sold together at
a single low price, it can convey a sense of additional cost efficiency for budget shoppers. Focus
on cost control for this pricing strategy to continually push prices lower over time. Rely on
economies of scale, driven by the relatively high volume of low-profit pricing strategies, to
squeeze out small per-unit profits.

11.2 VALUE PRICING STRATEGY

The value pricing strategy sits somewhere between the budget and luxury segments. The key to
value pricing is to strike a balance between cost and quality. Value shoppers are not willing to
sacrifice quality for extremely low prices, but they also are not willing to pay more than apparel is
worth simply for a popular brand logo. Consumers in this segment look for clothing and
accessories that will last several years or more, making the durability of materials a prime concern.
These consumers prefer leather and wool over polyester and plastic, for example. Rather, source
high-quality materials and apply a standard markup to each product, staying within the general
price range of similar apparel products.

35
11.3 FACTORS AFFECTING RMG PRICES

11.3.1 RAW MATERIAL SUPPLY

The country imported a substantial volume of raw materials, especially raw cotton, cotton yarn,
woven fabrics and synthetic fibers, last year to feed local textile and ready-made garment (RMG)
industries. Import of key raw materials had increased by about 5-10 per cent last year despite a
comparatively slow growth rate in RMG export. The sector saw a 4.08 per cent export growth in
the last fiscal year, 2014-15. However, it failed to keep pace with the growth of imported input.

Figure 12:Import Trends of Cotton, Yarn & Fibre

11.3.2 LABOR ISSUE

The main issue for our RMG industry is the violent labor unrest and the subsequent upward
adjustment of wages proposed. There is no denying that the RMG industry has long been
characterized by a wide variety of deprivations of its workers, which include, inter alia, lack of
proper infrastructure facilities and safety at workplace, non-compliance with minimum wages, and
lack of provision of essential service benefits to the workers. Violent protests by the workers have
been an outburst of their long denied basic demands. This hampered production and so did the
pricing.

11.3.3 TAX RATE AND OTHER GOVERNMENT POLICY

Bangladesh Labor Law 2006 (BLL 2006) Implementation of the BLL 2006 is monitored primarily by
Ministry of Labor and Employment (MoLE) factory inspectors and BGMEA and BKMEA social
compliance monitors. Besides inspecting and monitoring the status of the factories, BGMEA and

BKMEA monitors provide advisory support to factory personnel so that they are able to implement the
required, correct measures as stated in BLL 2006.

36
12.0 COMPARATIVE ADVANTAGE

A countrys comparative advantage is determined by its relative scarcity, such as, its factor
endowment ratios relative to the rest of the world or a set of countries. However, it is not necessary
to include all constituents affecting a countrys comparative advantages, rather comparative
advantage is revealed by observed trade patterns compared to other countries.

12.1 MAIN COMPETITORS OF BANGLADESH IN RMG SECTOR

Not surprisingly, China is seen as the main player in the readymade garments market, with
stakeholders mentioning low cost and high productivity, strong government support, availability
of raw materials, and good infrastructure. China has the largest U.S. market share among
Bangladeshs competitors. Vietnam was often cited as the real competitor to Bangladesh, due to
many of the same factors as China. Vietnam tends to be followed by Sri Lanka, Cambodia,
Pakistan and India.

When asked to rate countries according to their competitiveness, international retailers ranked
China highest with a 5, followed closely by Bangladesh with a 4, the same level as Pakistan and
Indonesia. If Bangladesh is appreciated for the cost and quality of its products, Pakistans strength
lies in the presence of a textile industry and the availability of raw materials, two elements that
were often mentioned as important disadvantages for Bangladesh. The very low ranking of Sri
Lanka was attributed by the respondents to the ongoing conflict there. This political situation has
improved in the last few months, which will certainly help Sri Lanka benefit from a better image
among buyers.
Table 9:Perception of competition from other countries

Country Rating Factors

Bangladesh 4 Cost, capacity, quality (Needle work)
Sri Lanka 1 Labor cost, capacity, political problems
India 3 Product mix, textile base, raw materials availability, IT
Cambodia 3 Very small country, low capacity
Pakistan 4 Fabric and textile base, availability of raw materials
Vietnam 4 Infrastructure, capacity, costs
China 5 Closer to fabric base, price, product mix, infrastructure

37
12.2 COMPARATIVE ADVANTAGES AND DISADVANTAGES OF
BANGLADESHS RMG SECTOR

Labor, whether for its low cost or its adaptability, is considered as the key comparative advantage
of Bangladesh, while bad infrastructure and lack of backward linkages are most often mentioned
as impediments to Bangladeshs competitiveness. Some buyers even expressed their appreciation
for the intangible qualities that is present in Bangladesh among its entrepreneurs and workforce.

The comparative advantages and disadvantages of the RMG sector of Bangladesh from the
perspective of factory workers, factory owners, mid-level managers, international buyers and
associations are given below:

1. Factory Workers:

Comparative Advantages Comparative Disadvantages

Low cost of labor Dependent on import of raw materials

High quality of products Untrained, inflexible and abusive mid-level
Fast and efficient workforce management
High labor supply Lack of facilities
Reasonable targets set Political disruption drives buyers away
Poor infrastructure

2. Factory Owners

Comparative Advantages Comparative Disadvantages

High quality of products Lack of backward linkage causes high

Cheap labor lead time, is expensive, and causes
Availability of labor (unskilled) dependence on subcontractors for
Favorable tax policies and incentives accessories.
Big hub of closely located factories Poor infrastructure leads to shipment
Buyers prefer the hospitable and delays
cooperative nature of Bangladeshi Exchange rate fluctuation
entrepreneurs Access to finance is very costly
BD makes marginal profit and offers better Shortage of skilled labor
Lack of technology to produce
prices
complicated design

38
13.0 INDUSTRY ANALYSIS

13.1 SWOT ANALYSIS OF RMG SECTOR OF BANGLADESH

STRENGTH WEAKNESS
- Low Labor Cost
- Low Price of Production Political Instability -
- Strong Local Supply Chain Poor Infrustracture -
- Years of Experiences Low Productivity -
- Advantage over China, Pakistan & Inefficient Mangement -
India Long Lead Time -
- Low Cost of Captive Power
Generation Using Gas as Fuel Erratic Power Supply -

SWOT
OPPORTUNITY THREAT

- Comparative Advantage Loss of GSP Quota -

- Market Diversification Lack of Compliance -
- New Emerging Markets Global Competitors -
- RMG Integration Rules & Regulations -
- Possibility of Cost Reduction Poor Political Culture and Violence -

39
13.2 PORTERS FIVE FORCES MODEL IN RMG SECTOR OF BANGLADESH

BARGAINING POWER OF BUYERS

Buyers have many options in the highly competitive market
Switching cost among suppliers is very low for buyers
Buyers find new emerging suppliers in different countries

BARGAINING POWER OF SUPPLIERS

Has little power to bargain with buyers' conditions
Faces the problem of inefficient raw materials supply
However enjoys a long-lasting relationship with buyers

THREAT OF NEW ENTRANTS

Requirement of low investment brings new players
Requirement of no high technology also brings new entrants
However, first movers do not face this threat

THREAT OF SUBSTITUTES
Bangladesh's cheap labor is a hard substitute to find
Sourcing of production factors are cheapest in Bangladesh
However there is some uprising global substitutes

INDUSTRY COMPETITORS
Bangladesh enjoys being one of the largest exporter of
RMG in the world
However other competitors are emerging fast globally

40
13.3 PESTLE ANALYSIS OF RMG INDUSTRY OF BANGLADESH

Bangladesh lost GSP Quota from USA recently

Still enjoys GSP from European Union
Government involvement always has an impact here

Exchange rate flactuation affects RMG industry

Growth rate faced a short decline during 2008-2009
80% of country's export are from RMG sector

Employees large number of female workers

Improving social infrustructure by creating employment
High population always kept the labor cost low

Requires very low-tech facility to operate

Technology is used by installing machinaries
Integration of SCM is possible by technology

Pollutes air, water and soil of the surrounding

Initiative to reduce pollution is taken with Germany's help
Has a target to reduce energy consumption

Employee security is a questionable thing

Workplace hazard exists
Government forces to take safety precautions

41
14.0 PORTERS VALUE CHAIN MODEL ANALYSIS FOR RMG
INDUSTRY OF BANGLADESH

Michael Porters Value Chain Model has two main sections. One is the primary activities which
includes five subsections. Another one is the activity that supports these five primary activities.
The following figures gives a better explanation of the model.

Based on this, a comprehensive discussion is given below about the Primary and Support
Activities of RMG Sectors Value Chain in Bangladesh in the following two sections.

14.1 PRIMARY ACTIVITIES

14.1.1 INBOUND LOGISTICS

Inbound logistics of RMG sector is spread in four aspects:

RAW MATERIALS LABOR MACHINERIES ORDERS

Sourced from Availability of Machines are Direct orders

multiple places cheap labor purchased from buyers
Bought from Educated from abroad Indirect orders
both local and employees at Machineries from buying
international managerial involves high houses
markets level cost

42
14.1.2 OPERATIONS
The process of operations is divided in the following steps:

Design from
Buyers
Cutting Printing

Order Fabric
Stiching
Receiving Finishing

Knitting Dyeing Packing

14.1.3 OUTBOUND LOGISTICS

The outbound logistics need to deal with two things:

Warehouse to store the products ready to be exported

Transportation system to help fulfill the order

14.1.4 MARKETING & SALES

Different sources of marketing & sales include:

Direct communication with the buyer

Communicating using internet media
Posting advertisement in relevent places

14.1.5 SERVICE
Service is provided in RMG industry for two reasons:

Handling Customer Complaints Properly Providing Timely Customer Support

43
14.2 SUPPORTING ACTIVITIES

14.2.1 FIRM STRUCTURE

RMG companies have various hierarchy in their organizations. However, in the top management
there always seems to be a general trend to follow a certain aspect of hierarchy. The general
organogram of a RMG company goes like this:

Chairman

Vice Chairman

CEO

General Manager

Deputy General
Manager

14.2.2 HUMAN RESOURCE MANAGEMENT

There usually is no predefined specific department of human resource in RMG industry. The
management sets up the basics to go with the general trend of the market. They seem to set the
salary and compensation package for the employees and workers. The training is mostly on-the-
job training which does not have any formal procedure of evaluation.

14.2.3 TECHNOLOGY
RMG industry does not require any high-tech system like having an Enterprise Resource Planning
System. It works only with basic development of basic technology. A simple spreadsheet can
manage the entire business. Besides the workers who work with the machineries do not need to
engage in any technical works either. So technology is not a major aspect that shapes this industry.

14.2.4 PROCUREMENT
RMG sectors have well-established procurement department who purchases the raw materials by
sourcing the cheapest product with the highest level of quality. The most common scenario is
companies having fixed contractors for providing them with raw materials. By keeping fixed
contractors, the companies can develop a long-lasting relationship.

44
15.0 EFFECTS OF GOVERNMENT POLICY

15.1 GLOBAL RECESSION AND MFA PHASEOUT

The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh
economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal
growth during the last 20 years. By taking advantage of an insulated market under the provision
of Multi Fiber Agreement (MFA) of GATT, it attained a high profile in terms of foreign exchange
earnings, exports, industrialization and contribution to GDP within a short span of timeOver the
past twenty years, the number of manufacturing units has grown from 180 to over 3600. The sector
has also played a significant role in the socio-economic development of the country.

Though there was no absolute decrease in total export from Bangladesh but finds a decrease in the
market share of Bangladeshs apparel in the US market. The phase out would lead to a 20 percent
decrease in the production of Bangladeshi wearing apparels. Fontana et al. (2002) using a
computable general equilibrium (CGE) model of Bangladesh in association with a social
accounting matrix constructed for 1999-2000 simulated the scenario in context of RMG price
shocks. They found that just a 9 percent decline in the world price would lead to a consequent 29
and 35 percent shrink in volume and value of Bangladesh RMG export.

45
15.2 AFTERMATH OF THE SITUATION
Mechanization and automation have not diminished the role of human element in industrial
establishments. Nor have the economic reforms belittled the significance of labor. Human resource
is an important factor to increase productivity and quality and to reduce costs; all of the factors of
production are equally important to survive in the competitive world. In fact, the role of workforce
has become highly critical in garment industry. Labor force is an important input in industrial
production and this is equally in garment industry of Bangladesh.

46
Under prevailing uprising Bangladesh government has taken initiatives to address the grievance
issues through fixing minimum wage for the industry. In this regard government formed a high
powered body to recommend the minimum wage by consulting various social stakeholders. The
body was also asked to prepare a report on the nutritional requirements of the apparel workers by
consulting the Institute of Food and Nutrition of the University of Dhaka, Sramik Karmachari
Oikya Parishad and other garment workers association.

15.3 GOVERNMENT POLICY

Government role in terms of letting conducive policy environment for flourishing the industry in
less developed country has very little success story. In this prospect Bangladesh government policy
setting has been point on especially in case of RMG sector. Most extraordinarily Bangladesh
government formulate policy in such way it let more or less the sector alone, not regulating it while
almost everything else in the manufacturing sector was heavily regulated. Most importantly the
sector s success was designed by some innovative policy designs which enable the external
financing through back-to-back letters of credit and the provision of special bonded warehouses to
access inputs at international prices.

15.4 TAX AND DUTY

More specifically, there is exemption of corporate taxation on export profits, although this has
been weakened since 1992 by the imposition of advance income tax. Besides, the industry has
enjoyed a concessional duty rate of 7.5 percent on capital equipment imports for several years.
This incentive has been improved recently by allowing special bonded warehouse licensees to have
their local banks guarantee the duty, with one third liquidated when the equipment is installed and
another third liquidated subsequently.

47
15.5 REVISED WAGE POLICY FOR MINIMUM WAGE

Ensure the Implementation of the New Wage Structure It is now essential to implement the
proposed wage structure to reduce frequent labor violence which is the biggest threat to the apparel
sector. As per the recommended wage structures, the minimum wages in the industry would
increase by about 80 percent. According to the labor law and act of government, the RMG work
is categorized into seven grades and the minimum wage for the seventh grade worker is BDT 5,300
while for the first grade worker it is BDT 13,000 (ministry of labor and employment, 2013). The
implementation of a new wage structure would increase the total production cost. The CPD (2007)
anticipated an additional annual expense of about $14,000. Hence the profit margin would also be
a bit lower in the short term. But higher wages are also positively related to better working
environment, better compliance and improved living standard. So in the near future it would start
to generate positive returns in the economy. The government should provide necessary welfare
facilities and social security to the RMG workers for the betterment of their livelihood.

Figure 13: Garments Minimum Wage

48
16.0 CONTRIBUTION OF RMG INDUSTRY

16.1 SOCIO-ECONOMIC CONTRIBUTION

The RMG industry has become a vehicle for further industrialization of the country. It has
accelerated to its journey with the commitment to the society to build prosperous Industrial
backbone for socioeconomic development of the country. Its contribution towards women
empowerment, employment generation, poverty reduction, elimination of child labor etc.
contributed to overall improvement in the Human Development Index (HDI) indicators of
Bangladesh.

16.1.1 WOMEN EMPOWERMENT

Women empowerment is the indication of gender equality which is the precursor to moving the
country forward, towards middle income status, towards inclusive and sustainable development.
Womens participation in income generation activities lends them a better status within the family
and provides them with freedom. A job ensures equitable access to household resources and larger
investment on female human capital. Employment opportunities create demand for education and
health. As the income by the female member reduces dependency on male income, it reduces their
vulnerability. It also reduces the likelihood of domestic violence against women. Expansion of
womens employment has contributed positively to the progression of the savings behavior of the
poor people since women tend to be better savers.

49
16.1.2 EMPLOYMENT GENERATION
An effective way to reduce the poverty level is to create employment opportunities for the
impoverished people. RMG industry of
Bangladesh has played important role in this
by creating employment opportunities for
the poor and uneducated people who were
previously engaged with the traditional
agriculture sector. Total employment in this
sector, at present, stands at more than four
million about 85 per cent of which are
women. In the 1990s a large part of the
incremental labor force in the
manufacturing sector was absorbed by the
RMG sector. According to BKMEA, the
RMG workers received USD 315.25 million
as their wage in FY 2002. This purchasing Figure 14: Employment Generation
power contributed significantly to the
growth of the economy through its multiplier impact in terms of consumption expenditure and
savings.

16.1.3 CHILD LABOR

In recent years, international debate on child
labor has intensified. The elimination of child
labor is also among the core labor standards in
the ILO convention. The HARKIN bill placed
at the US senate entitled the child labor
deterrence act of 1993 which called for the
elimination of child labor in the export
oriented manufacturing and mining
industries. As a consequence many garment
industries had to retrench child workers from
their factories. The BGMEA/ILO/ UNICEF
child labor project in the garment industry of
Bangladesh, funded by the US development of labor was the first of a series of child labor
programs executed by the international program on the elimination of child labor of the ILO. This
project, initiated in 1995, is based on a memorandum of understanding (MOU) signed by the
BGMEA and two international organizations, the ILO and UNICEF, with the aim of progressively
phasing out child labor from more than 2,500 factories that are members of the association.

50
16.1.4 POVERTY REDUCTION

RMG sector now provides

employment to about 3 million people. 45
The sector accounts for one-thirds of 39
40
manufacturing investment and is 35
35 31
responsible for three-fourths of export
earnings. It has been observed that out 30 26
of 9.0 percentage point reduction in 25
head-count poverty during 2000-2005,
20
2.5 percentage point reduction is due to
growth of RMG sector. The RMG 15
export growth has also a positive 10
impact on service sector. The service
5
sector has created huge job opportunity
for the people which, in turn, have 0
2000 2005 2010 2014
positive impacts in reducing poverty
and have resulted in change. The Figure 15: Percentage of people under the poverty line
estimated poverty headcount ratio for
2014 is 24.7 (ged estimate) percent.

16.1.5 IMPROVEMENT IN THE HEALTH SECTOR

Amartya Sen said that health status is a key indicator of a populations welfare. Bangladesh has
made significant progress in providing health services. Awareness about heath has increased
among people. RMG sector of Bangladesh provides directly about 3 million employment facilities
and another 1.5 million indirectly, which improves the income level as well as the purchasing
power of those people. Access to medicine and access to registered doctor have increased
significantly. Calorie intake of the workers has increased considerably. According to Bangladesh
maternal mortality survey (BMMS), maternal mortality has declined from 322 in 2001 to 194 in
2010, a 40 percent decline in nine years. Child mortality rate has been reduced to a satisfactory
level. According to Bangladesh demographic and health survey (BDHS) 2011 (NIPORT 2013),
31.7 percent of births in Bangladesh are attended by medically trained personnel, e.g., a qualified
doctor, nurse, midwife, family welfare visitor (FWV), or community skilled birth attendant
(CSBA). BKMEA has set up a hospital for the better treatment of the workers. BKMEA also
strictly monitors the member factories so that each factory provides medical services to the
workers.

51
16.1.6 IMPROVEMENT IN PURCHASING
POWER 80
The development of RMG sector has a huge impact 70
on the improvement of purchasing power capacity 60
in Bangladesh, particularly for rural female. The 50
purchasing power of the low income people has 40
69
increased significantly. Now people can afford 30
20 47
more goods than before. This happens because the 32
10 26
income level has increased considerably. The
0
purchasing power of the garment workers has been
2000 2005 2010 2014
increased significantly compared to the scenario
back in 1980s and 1990s. Figure 16: Change in Purchasing power

16.2 MACRO-ECONOMIC CONTRIBUTION

Readymade Garments (RMG) is a great prospect for the Bangladesh Economy especially in
Exporting. Almost 80% of total export covers from this Sector. RMG impact a lot in the economy
of Bangladesh such as contribution a large portion in the GDP (Gross Domestic Product) ,
Contribution to the GNP (Gross national Product), Economic Empowerment especially for
Women because 80% of The Garments Worker are Women.

16.2.1 CONTRIBUTION IN EXPORT EARNINGS AND GDP

The 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. RMG contributed USD 28.09 billion which is
82% of total 2015-16 export. A matured, safer and strong RMG sector is securing countries export
earnings, industry insiders said. Once again the RMG sector has shown its resilience of
overcoming many difficulties it is facing.

Share in national Share in GDP (%)

export (%) Share in gdp (%)

Share in national export (%) 17.35

2013-14 14.07
78.6 79.61 81.13 81.68 16.57
77.12 78.14
2011-12 16.31
16
2009-102010-112011-122012-132013-142014-15 2009-10 12.45

52
16.2.2 VALUE ADDITION IN THE MANUFACTURING SECTOR
The value addition in the RMG sector is over 20 per cent and in knitwear sector, it is high, nearly
90 per cent. There is a target of $50 billion garment exports by 2021. As a matter of fact, the
contribution of RMG sector in Bangladesh manufacturing value added (MVA) went up from 6.5
per cent in 1993-94 to 30 per cent in 1998-99. Elasticity of the MVA to RMG value added was
about 0.3, implying that 10 per cent growth of RMG exports leads to an increase in the MVA by
3 per cent.

16.2.3 SECTORAL CONTRIBUTION

BACKWARD AND FORWARD LINKAGE DEVELOPMENT

Growth of RMG sector has spawned a whole new set of linkage industries and facilitated
expansion of many service sector activities. The RMG industry not only propelled the growth of
spinning, weaving, dyeing and finishing industries, production of accessories and spare parts, but
also rendered large externalities by contributing to other economic activities in such areas as
banking, insurance, real estate, packaging, hotels and tourism, recycling, consumer goods utility
services and transportation.

The RMG sector has overwhelmingly high backward linkage with textile sector providing fabrics,
yarn and other ancillaries. It has important backward linkage with utilities such as electricity, gas,
and machinery and spare parts supplying sectors. It has forward linkage with transport,
communication, banking and insurance and trade services. Besides, there is a considerable
subcontracting linkage within the sector. The buying house also plays important role towards
bringing the manufacturers and buyers of the finished goods closer.

BANKING AND INSURANCE

Growth of the RMG sector and the related activities has contributed a lot to the robust growth of
the financial sector in Bangladesh. A World Bank survey revealed that almost all firms (98%) are
the clients of the commercial banks for working capital and procurement of machines and
equipment (57%). Moreover, the RMG sector has also contributed to the growth of the countrys
insurance sector. On average, every year the premium paid by the RMG sector to the insurance
companies was about 6 million dollars. All firms have their machines and plants insured and,
additionally, 87% of importers of input and 15% of the RMG exporters get their imports/exports
insured.

53
SHIPPING AND LOGISTICS INDUSTRY DEVELOPMENT

The RMG sector has contributed to

the expansion of 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.
RMG manufacturers also
extensively use services of
clearing & forwarding agents for
the purpose of customs clearance
of inputs and finished goods.

It is estimated that port usage fees earned from the RMG sector account for more than 40% of the
income of the port authority. RMG sector contributed about us$79 million in fy2014 to earnings
of the shipping& logistic business of the country by way of port charges, C&F agents
commissions, freight charges, forwarding charges etc. The prediction about RMG sector
contribution to the shipping and logistic industry will increase at $84 million in 2021 and at $91
million in 2050.

EMERGING CONSUMER MARKET

The 4 million workers in the industry have created a large demand for consumer goods. A regular
source of earning increases the basic consumption needs such as improved diet, better healthcare,
improvements in family utensils and housing conditions etc. The sector has created an increasing
demand for consumption of low cost commodities, cosmetics items, dresses, footwear, fast food
and other products. A whole industry has been created to service this growing demand and created
employment opportunities for hundreds of thousands of people.

54
17.0 VISION FOR THE FUTURE

Since the start of its garment export industry in the late 1970s, Bangladesh has seen its RMG export
levels grow steadily and has become a top global exporter. With around USD 15 billion in export
value in calendar year 2015 RMG industry is currently Bangladeshs most important industry
sector with 17% percent share of GDP and total export share of over 82 percent. With 10% percent
average annual growth rates, clothing exports are the key driving force behind GDP development.
It provides satisfactory quality levels, especially in value and entry-level mid-market products,
while acceptable speed and risk levels can be achieved through careful management.

Supplier capability ranks third- mentioned by 30 percent of respondents in the survey of European
and US CPOs. However, the current acknowledgment of capability is much focused. Bangladeshs
suppliers are known for supplying good quality and large order sizes for the value and lower mid-
market. At the same time, suppliers have started to expand into more value-added services.

17.1 OPPORTUNITIES THAT CLEARLY MARKS THE VISION

Trade generation by 2020: At present the volume of world apparel trade is almost $450 billion,
which was USD 351 billion in 2010. Bangladesh occupies only a meager 4.83 per cent share,
indicating a tremendous potential to further penetrate the global market. The global apparel market
is predicted to be $ 650 billion by 2020, indicating a further demand for $ 200 billion dollars
apparel to be catered to in the next six years. Bangladesh RMG sector can gain a large share of
this new market.

China Plus: The 'China Plus' issue has once again led a fresh restructure of clothing sourcing
countries and, Bangladesh has got a strong footing. Many discussions have been held on the
possible gain for Bangladesh from China's gradual reduction of bulk apparel production. The rising
production costs, socio-economic and livelihoods uplift, and shift to high-tech industries are some
of the reasons why apparel buyers have become increasingly concerned to shifting their sourcing
from China to other countries. Bangladesh has become the biggest beneficiary of this development.

The Chinese apparel producers and exporters may find it feasible to relocate their
production in Bangladesh for exports to western markets.
About 1.3 billion population of China creates a huge domestic market and having duty free
access to China as an LDC is an added advantage for Bangladesh.

Exploring New Markets: Bangladesh's apparel exports have been concentrated to two major
destinations - European Union (EU) and North America. It is encouraging to note that over the last

55
five years, remarkable progress has been achieved in diversifying our exports to non-traditional
markets. The share of our apparel export to markets, other than EU and North America, was 6.88
per cent (2008-09) fiscal year which has increased to 14.71 per cent (in 2013-14). This
diversification of export destinations, with growing exports, is a healthy sign.

Following developments in the arena of international trade policy, we expect further opportunities
to emerge for Bangladesh. The simplification of GSP (generalized system of preferences) rules of
origin by European Union, Japan, Norway, Switzerland and duty free & preferential market access
by India, China, Korea and Malaysia are all positive signs for us.

Product Diversification: The majority of our RMG exports are concentrated in five basic products
(77 per cent of the total export). We wish to enter the market for some higher-end products like
Suits/Blazers, Lingerie, Jackets, Swimwear, Sportswear, uniform, raincoat, fishing wear, etc. For
this, we would require technological
upgrading and targeted expertise. We trust our
RMG industry will adapt, and redefine itself.
We encourage Foreign Direct Investment
(FDI) from our technologically advanced
partners for this product diversification in the
high-end non-traditional items.

17.2 CHALLENGES & REALITIES

Despite the epic growth of our RMG industry,
and its bright prospects, challenges are still there. Some areas, where increased attention is
required, are listed below:

Infrastructure: For all business stakeholders, infrastructure (transport and utilities supply) is the
single largest issue hampering Bangladeshs RMG industry. Buyers today are forced to carefully
select the type of products to source from Bangladesh, since congested roads, limited inland
transport alternatives, and the lack of a deep-sea harbor add inefficiencies to garment lead time.
With the aim to move toward sourcing more fashionable, shorter lead time items in Bangladesh,
reliable and fast transport is becoming extremely important. The transport issues need to be solved
quickly in order to avoid a collapse in the transport network as volumes continue to grow.

Compliance: As a developing country, Bangladesh is under close scrutiny by nongovernmental

organizations (NGOs) and corporate social responsibility (CSR) stakeholders regarding
compliance. Both CSR experts and buyers compliance standards, but there is still a broad range of
compliance seen across suppliers and, as described in the following, many unsolved topics still
exist. Solving these issues and achieving ethical labor standards and sourcing practices are key
prerequisites in Bangladeshs apparel industry from a McKinsey perspective. Regional
concentration of Bangladeshs RMG industry provides a relatively high visibility of the

56
compliance situation. CSR stakeholders can visit a significant amount of suppliers within a
relatively short time. For European and US apparel players, McKinsey sees careful supplier
selection, value chain transparency, a tireless effort, and close relationships with suppliers
remaining crucial to ensuring compliance when sourcing in Bangladesh.

Human resources: The RMG industry needs skilled human resource in terms of both skilled
workers and mid-level management. The industry is currently employing 4.4 million workers
where our productivity is 77 per cent. This is lower than our main competitors (India 92 per cent,
Vietnam 90 per cent, and Pakistan 88 per cent). Though over the years a good backward linkage
has developed we still fall short in forward linkage.

Market diversification: Market diversification, exploration of new markets is another major area
for us to ensure sustainable growth of the industry. Though our apparel export share to non-
traditional markets has increased in recent times we need to further enhance this momentum.

Politics: Over the years, political instability has posed a difficult challenge. Political disturbance
within the country has become a prime headache functioning against growth in the apparel sector
as well as in the entire economy. Political mayhem is often manifested in countrywide strikes and
blockades. During such situations production, distribution, etc all are disrupted. Moreover world
geopolitics is also a matter of concern as it is sometimes suspected that labor violence is instigated
by more developed and rival countries in order to hamper the consistent trend in apparel export.

Market Access: There are a number of non-tariff barriers to trade with the South Asian
Association for Regional Cooperation (SAARC) and other Asian countries region which includes
lack of land connectivity, transit crisis, complex visa system, etc. A regional infrastructure strategy
is essential for tapping economic and commercial opportunities among the Asian countries, while
safeguarding the growth opportunities for underdeveloped countries such as Bangladesh.

Raw materials: The high volatility of raw materials prices seen within the last few years has
increased buyers, sensitivity to raw materials prices and ease of access in sourcing countries.
Considering this context, the current lack of any noteworthy own raw materials supply of natural
or man-made fibers in Bangladesh weighs even stronger, beyond the immediate issue of lead time
increase. Bangladeshs dependency on imports creates sourcing risks and longer lead times.

18.0 RECOMMENDATIONS & CONCLUSION

18.1 RECOMMENDATIONS
57
Bangladesh has outstanding reputation in the global market for their readymade garments sector.
The garments industry of Bangladesh have all the sectors of woven and knit item like spinning,
knitting, dyeing, printing, embroidery, accessories, and garments production. So, this is huge in
case of production and maintenance both. However there is still room for improvement.

Selected Items: In a severely competitive apparel market where the competitors are the
giants like China and India, Bangladesh might concentrate in the selected items. Bangladesh
can gain competitive advantages over them rather to compete in whole extent of the RMG

Improvement of Supply Chain: If supply chain or procurement department is not robust,

the merchandisers procure all the raw materials of garments thats why they feel more
pressure to complete shipment and sometime also over the shipment date then company
should pay the extra money for air shipment. So when supply chain department obtain all the
raw materials then merchandiser can easily shipment the goods within lead time.

Backward linkages industry: Its required to further develop Bangladeshs backward

linkages industry (i.e. textile) especially in the woven sector in order to fulfil the existing and
increasing demand of the RMG industry. Bangladesh can also encourage repositioning of
textile industries from the high cost developed countries.

Pay Scale: Pay scale is very poor which is needed to be increased because factories will lose
potential workers due to their policy.

Planning and Quality Assurance: Planning department of operation should be stronger and
the time management should be followed. Productivity will be low if there is less command
of the authority towards the production. It should be increased for the higher productivity.
The quality assurance system should be also modernized because quality is the top priority of
all international buyers.

Encourage FDI and Cooperation in apparel and Textile Sector: Bangladesh can
encourage FDI in apparel sector along with the textile sector. The FDI can also bring new
technology, know-how and increase productivity.

Freedom of Entrepreneurs: The RMG entrepreneurs from Bangladesh should make their
strategies and policies in terms of the value chain rather than the final products as the strategy
of the coopetition (cooperation + competition) among the leading players are more
sustainable than the blind competition.

58
 Infrastructure Development and Reducing the Lead Time: One of the major obstacles
Bangladesh RMG sector faces is the scarce infrastructure. In consequence, longer lead time
comparing with China and Vietnam. Bangladesh should further improve physical
infrastructures such as sea-ports capacity and efficiency and repositioning of garments
factories from the overcrowded city centers like Dhaka, the national capital.

18.2 CONCLUSION
Ready Made Garments industry, being the largest export industry of Bangladesh contributes 80%
to the total export of the country. This industry has a large impact on reducing poverty of the
country by creating employment opportunity for many people of the country. Especially women
workers now have a place to work for and have their own contribution to the countrys GDP.
Besides, the government managed to reduce child labor by regulating the RMG sector properly.
This industry being the one which has the highest contribution to the economic growth of the
country has several factors that influences its demand and supply. The demand from the foreign
buyer is trending change because of the uprising global competitions. However, the supply is
increasing at the same time because of the continuous economic and infrastructural development
of the country. Along with these facilities, if Bangladesh can manage to improve the backward
linkage, they will be able to reduce the lead time of the arrival of raw material to the factory. At
the same time, development of the supply chain can prove to be crucial to the infrastructural
development of the entire RMG industry. At the same time, ensuring a better working environment
will help the sector to boom in the coming future even though the global market is becoming more
and more competitive with time.

19.0 REFERENCES

59
Ahmed, R., Islam T. and Amin A., The Effects of Market Diversification Activities on Bangladesh RMG
Export, International Journal of Economics and Financial Issues, Vol 3, No. 4, 2013, pp. 938-948.

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Bextex.net, 'BEXIMCO | Textiles & Apparel Division'. Available at: http://www.bextex.net/, Web. 10 Sept.
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Export Promotion Bureau, Bangladesh. Ministry of Commerce. http://www.epb.gov.bd, Accessed during

September 2015.

Fair Wear Foundation. (2013). Bangladesh Country Study 2013. Amsterdam: Fair Wear Foundation.

Fakirknit.com, 'Fakir Knitwears Ltd'. Available at: http://www.fakirknit.com/, Web. 11 Sept. 2015.

Gherzi Textile Organization. 2002. Post-MFA Development Strategy and Technical Assistance for the
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Haider, M.Z. (2007). Competitiveness of the Bangladesh Ready-made Garment Industry in Major
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Hossain, I. (2015), RMG losses stand at Tk22,000cr in blockade, available at:

http://www.dhakatribune.com/business/2015/feb/12/rmg-losses-stand-tk22000cr-blockade

Hossain, I. (2015), RMG export shines in volume, pales in value, available at:
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Islam, S. (2009) Impact Of Global Recession on both Export and Local RMG Market (Knit And Woven),
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Kamal, M., Billah, M.M. and Hossain. S. (2010). Labor Unrest and Bangladesh Labor Act 2006: A Study
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Mankiw, N. (2004). Principles of microeconomics. Mason, Ohio: Thomson/South-Western.

Mariani, R. and Valenti, F. (2013) Working Conditions In the Bangladeshi Garment Sector: Social
Dialogue And Compliance Delft University of Technology.

Mckinsey and Company (2011). Bangladesh's ready-made garments landscape: the challenge of growth
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Murshid, K., Zohir, S. and others, The Global Financial Crisis Implications for Bangladesh, The
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Rahman, M. and Anwar, A., 2005. EU Sanctions on Import of Chinese Apparels: Implications for
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62
APPENDIX

A
 A. QUESTIONNAIRE FOR BUYERS OF RMG PRODUCTS

Dear Respondent,
We are conducting a research on the A STUDY ON THE READY MADE GARMENTS
INDUSTRY OF BANGLADESH: USING THE APPLICATION OF ECONOMIC
CONCEPTS, TOOLS AND TECHNIQUES. This research is for purely academic purpose
only. We will highly appreciate your participation in this research. All of the information you
provide will be kept confidential.
Instructions to fill out this survey is given in the beginning of every section.
Your help is very much appreciated by us. If you have any query, please feel free to contact us on
this number: 017 64856110.

1. Which aspect has the major influence in your purchase decision from the RMG Manufacturers
of Bangladesh?

a. Quality b. Price c. Service d. Previous Experience

2. What is your level of satisfaction from the following aspects of purchasing your products?
Very Very
Aspects Dissatisfied Neutral Satisfied
Dissatisfied Satisfied
a. Quality 1 2 3 4 5
b. Price 1 2 3 4 5
c. Service 1 2 3 4 5
d. Previous Experience 1 2 3 4 5
e. Post-purchase Service 1 2 3 4 5
3. How do you perceive the importance of the following aspects of purchasing your products?
Not Somewhat Very
Aspects Neutral Important
Important Important Important
a. Quality 1 2 3 4 5
b. Price 1 2 3 4 5
c. Service 1 2 3 4 5
d. Previous Experience 1 2 3 4 5
e. Post-purchase Service 1 2 3 4 5

4. What is your average annual demand in BDT?

5. How many suppliers do you buy products from?

a. 1 b. 2 c. 3 d. 3+

B
6. Through which channel do you find the majority of your suppliers?
a. Personal Contacts b. Companys Marketing
c. Words of Mouth d. References of Others
e. Other Sources:

7. From which RMG companies do you purchase most of your products? (Mention as many name
that is applicable to you)

8. What is the average relationship length with your suppliers?

a. Less than a year b. 1-2 Years

c. 2-5 Years d. 5+ Years

9. In which season you have the highest level of demand?

a. Summer b. Rainy Season

c. Winter d. Spring

10. Rate the reliability of your suppliers in terms of the following criteria:

Not Somewhat Very

Criteria Neutral Reliable
Reliable Reliable Reliable
a. Order Receiving 1 2 3 4 5
b. Order Processing 1 2 3 4 5
c. Delivering 1 2 3 4 5
d. Maintaining Deadlines 1 2 3 4 5
e. Conformance in Service 1 2 3 4 5

THANK YOU VERY MUCH FOR YOUR TIME

C
 B. QUESTIONNAIRE FOR MANUFACTURERS OF RMG PRODUCT

Dear Respondent,
We are conducting a research on the A STUDY ON THE READY MADE GARMENTS
INDUSTRY OF BANGLADESH: USING THE APPLICATION OF ECONOMIC
CONCEPTS, TOOLS AND TECHNIQUES. This research is for purely academic purpose
only. We will highly appreciate your participation in this research. All of the information you
provide will be kept confidential.
Instructions to fill out this survey is given in the beginning of every section.
Your help is very much appreciated by us. If you have any query, please feel free to contact us on
this number: 017 64856110.

1. Who are your major customers?

a. Local Buyers b. Foreign Buyers c. Both

2. What is the average relationship length with your buyers?

a. Less than a year b. 1-2 Years
c. 2-5 Years d. 5+ Years

3. Please rank the following factors based on how disruptive they are to the production and
delivery processes of your organization.

Not Slightly Somewhat Highly

Factors Disruptive
Disruptive Disruptive Disruptive Disruptive
a. Quality 1 2 3 4 5
b. Lack of raw materials 1 2 3 4 5
c. Cost of raw materials 1 2 3 4 5
d. Load shedding 1 2 3 4 5
e. Strikes and blockades 1 2 3 4 5
f. Transportation problems 1 2 3 4 5
g. Compliance with
1 2 3 4 5
government regulations
h. Unskilled laborers 1 2 3 4 5
i. Increase in Labor cost 1 2 3 4 5

4. In which season you have the highest level of sales?

a. Summer b. Rainy Season

D
 c. Winter d. Spring

5. Which channel do you use to purchase machineries for your company?

a. Personal Contacts b. Companys Marketing

c. Words of Mouth d. References of Others
e. Other Sources:

6. Which country do you buy most of your machineries from? (Mention as many name that
is applicable to you)

7. Do you use the services of a buying house?

a. Yes b. No

8. Which buying houses do you sell your products to? (Mention as many name that is
applicable to you)

9. What is your average annual sales in BDT?

10. How many buyers do you usually sell your products to in a year?

a. 1 b. 2 c. 3 d. 3+

THANK YOU VERY MUCH FOR YOUR TIME

E
C. Garments export as percentage of total export

Total Garments
Year Total Export Percentage
Export

1994-1995 2228.35 3472.56 64.17%

1995-1996 2547.13 3882.42 65.61%

1996-1997 3001.25 4418.28 67.93%

1997-1998 3783.64 5161.20 73.31%

1998-1999 4020.17 5312.86 75.67%

1999-2000 4352.39 5752.20 75.66%

2000-2001 4860.43 6467.30 75.15%

2001-2002 4583.8 5986.09 76.57%

2002-2003 4912.1 6548.44 75.01%

2003-2004 5686.09 7602.99 74.79%

2004-2005 6417.67 8654.52 74.15%

2005-2006 7900.8 10526.20 75.06%

2006-2007 9211.23 12177.90 75.64%

2007-2008 10699.8 14110.80 75.83%

2008-2009 12347.51 15565.19 79.33%

2009-2010 12496.72 16204.65 77.12%

2010-2011 17914.46 22924.38 78.15%

2011-2012 19089.69 24287.66 78.60%

2012-2013 21,515.73 27019.63 79.63%

F
 0
5000
10000
15000
20000
25000
30000

0.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%

10.00%
1994-1995
1994-1995
1995-1996
1995-1996
1996-1997
1996-1997
1997-1998
1997-1998 1998-1999
2013-2014

1998-1999 1999-2000
1999-2000 2000-2001
2000-2001 2001-2002
2001-2002 2002-2003
2002-2003 2003-2004
2004-2005
2003-2004
24,491.88

2005-2006
2004-2005
Total RMG Export

2006-2007
2005-2006

Growth of Export
2007-2008

G
2006-2007
2008-2009
2007-2008 2009-2010
2008-2009 2010-2011

E. Growth of RMG export over the years

30181.00

2009-2010 2011-2012
2010-2011 2012-2013
2011-2012 2013-2014
D. Total Export of RMG over the years (in millions)

2012-2013
2013-2014
81.15%
F. RMG export to top 10 exporting countries (in millions)
Country 2009-10 2010-11 2011-12 2012-13 2013-14

Germany 1282.77 2022.05 2039.97 2168.13 2573.70

UK 725.74 990.98 1103.30 1259.84 1335.25

USA 891.61 1119.04 1013.95 1130.90 1197.85

France 692.00 999.71 855.18 892.45 964.27

Spain 384.55 595.92 660.73 702.90 856.28

Italy 379.04 525.17 571.46 554.94 731.91

Canada 283.86 432.92 401.82 461.97 445.10

Netherlands 528.57 591.07 325.28 246.77 385.48

Belgium 155.79 299.74 320.46 317.19 440.63

Denmark 178.24 256.32 318.72 375.62 450.71

H
 G. Income Elasticity of Demand in European Countries

2013 2014

Income Income Income Income Income Income

Country Elasticity of Elasticity of Elasticity Elasticity Elasticity Elasticity
Demand Demand of of of of
(Knit) (Woven) Demand Demand Demand Demand
(RMG) (Knit) (Woven) (RMG)

Austria 1.95 2.19 2.09 -7.34 -13.13 -10.02

Belgium 8.27 7.41 7.89 -2.44 2.33 -0.38

Bulgaria 16.00 -19.18 2.84 -6.20 28.66 -3.87

Croatia 26.71 14.61 24.78 -11.04 15.93 -13.63

Cyprus -34.10 2.53 -35.09 6.65 2.51 0.27

Czech 34.24 72.46 55.06 -6.62 -12.00 -9.87

Republic
Denmark 5.28 4.05 4.97 -1.96 24.17 4.40

Estonia -3.87 -7.47 -5.07 -14.27 18.80 -8.78

Finland 0.54 -1.70 -0.13 -14.73 -57.90 -26.75

France 1.85 3.76 2.53 10.86 33.62 19.40

Germany 3.53 3.68 3.59 -0.57 0.09 -0.30

Greece -4.63 19.76 -7.16 -22.52 24.19 -17.40

Hungary 22.67 98.63 24.76 -13.26 -11.10 -13.10

Ireland 2.87 0.29 2.00 -1.47 4.75 0.48

Italy 17.84 13.89 16.29 -2.85 -5.18 -3.73

I
 Latvia 0.87 35.42 2.85 11.66 46.62 18.53

Lithuania -6.10 -10.57 -6.67 -5.19 N/A -0.25

Luxembourg -22.84 N/A -22.84 N/A N/A N/A

Malta 14.83 N/A 26.86 455.74 N/A N/A

Netherlands 4.81 4.84 4.82 -5.81 -3.95 -5.00

Poland 2.16 2.27 2.20 1.44 1.39 1.42

Portugal 9.29 12.25 9.94 -3.37 1.25 -2.29

Romania -6.58 25.14 19.47 -23.29 2.89 -23.29

Slovakia 1.44 -0.04 0.81 -1.70 -2.24 -1.92

Slovenia 21.44 2.90 19.85 19.89 21.05 6.97

Spain 7.06 8.54 7.69 3.55 9.55 6.14

Sweden 1.89 -0.77 0.92 -5.54 -5.06 -5.38

United 3.38 3.50 3.44 1.07 1.51 1.28

Kingdom

J
H. The continuous change of cotton prices in the twelve months :

Month Price(US cents per Pound) Change

Jan 2016 68.75 -2.33 %

Feb 2016 66.57 -3.17 %

Mar 2016 65.46 -1.67 %

Apr 2016 69.28 5.84 %

May 2016 70.28 1.44 %

Jun 2016 74.10 5.44 %

Jul 2016 81.06 9.39 %

Aug 2016 80.26 -0.99 %

Sep 2016 77.86 -2.99 %

Oct 2016 78.52 0.85 %

Nov 2016 78.92 0.51 %

Dec 2016 79.50 0.73 %

Jan 2017 82.33 3.56 %

Feb 2017 85.16 3.44 %

Mar 2017 86.78 1.90 %

K
I. Graphical change in Cotton Prices in Bangladesh

L
 J. Bangladeshi RMG Importer Countries
The main importer countries of Bangladeshi RMGs are USA, UK, Germany, France, Spain, Italy,
Belgium, Netherlands and Canada. In April-June 2016 quarter, total export to these nine countries
stood at USD 6690.08 million, of which 85.6 percent (woven 45.4% and knitwear 40.3%) is RMG
export. RMG export to these nine countries in April-June 2016 quarter was USD 5736.54 million,
which is 5.8 percent and 8.6 percent higher than the previous quarter and April-June 2015
respectively. During this period excepting decrease in Netherlands (9.9%), UK (6.7%) and
Germany (0.6%) RMG export to other six countries substantially increased compared to the
previous quarter. RMG export to the nontraditional market increased by 8.6 percent during July-
December FY16 compared to same period of preceding year.

Countries Total Woven Knitwear Total Woven Knitwea Percentage Others

Export Garment RMG (%) r Share of
s (Woven+ (%) RMG in
Knitwear) Total
Export (%)
USA 2026.04 1106.97 366.35 1473.32 54.64 18.08 72.72 27.28
Germany 1334.21 525.79 714.72 1240.51 38.41 53.57 92.98 7.02
UK 987.78 472.71 447.59 920.30 47.86 45.31 93.17 6.83
France 569.04 218.14 315.78 533.92 38.33 55.49 93.83 6.17
Spain 555.48 229.49 288.51 518.00 41.31 51.94 93.25 6.75
Italy 395.49 134.01 233.671 367.68 33.88 59.08 92.97 7.03
Belgium 282.81 119.11 116.95 236.06 42.12 41.35 83.47 16.53
Netherlan 222.03 77.15 88.69 165.84 34.75 39.95 74.69 25.31
ds
Canada 317.2 156.01 124.9 280.39 49.18 39.38 88.56 11.44
Sub-Total 6690.8 3039.38 2697.161 5736.54 45.43 40.32 85.75 14.25
Others 2596.57 733.6 983.939 1717.54 28.25 37.89 66.15 33.85
Total 9286.65 3772.98 3681.1 7454.08 40.63 39.64 80.27 19.73

M
 Table: Country-wise RMG Export in April-June 2015-16

Countries April- July- Oct- Jan- April- Quarterly Yearly

June 15 Sep 15 Dec 15 March June 15 Growth Growth
16
USA 1494.97 1436.20 1377.40 1338.00 1473.32 10.11 -1.45
Germany 1076.40 1083.85 1080.29 1248.48 1240.51 -0.64 15.25
UK 812.61 798.38 818.43 986.67 920.30 -6.73 13.25
France 492.14 333.37 453.33 393.69 533.92 35.62 8.49
Spain 452.13 414.96 436.00 495.08 518.00 4.63 14.57
Italy 342.40 282.65 323.18 304.56 367.68 20.73 7.38
Belgium 188.90 186.13 186.63 226.51 236.06 4.22 24.97
Netherlands 151.07 148.78 160.76 184.17 165.84 -9.95 9.78
Canada 270.32 255.24 215.67 246.62 280.91 13.90 3.92
Sub-Total 5280.94 4939.56 5051.69 5423.78 5736.54 5.77 8.63
Others 1584.18 1499.67 1644.76 2080.62 1717.54 -17.45 8.42
Total 6865.12 6439.23 6696.45 7504.40 7454.08 -0.67 8.58

Table: Country-wise Comparative Statistics of RMG Export

N
 K. Encouraging export
Government focus on encouraging export-led industrialization was the main objective behind
such government initiatives. The government provides the advantage of duty-free raw material
imports usable in the manufacturing of export products to encourage and accelerate such
industrialization. However, proper monitoring and careful implementation of this duty-free raw
material import strategy is important to protect the illegal infiltration of imported materials into
the domestic market. Such infiltration hampers the development of local backward linkage
sections. This issue is restraining the government from coming to any final decision on allowing
the duty-free import of raw materials in huge quantities and storing them in common bonded
warehouses for use by export-oriented garment factories in order to reduce lead time.

O
 L. Infrastructure development:
Infrastructure development is another area where the support of the government is undeniable in a
developing country such as Bangladesh. Moreover, the government 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
buyer.

In contrast to such positive outcomes of policies another concern is the issue of proper and on-
time implementation of policies and strategies. Rules and regulations that exist only on paper are
meaningless if they are not duly and properly implemented. Again such monitoring and
implementation are hindered by the bureaucratic complexities, corruption within the sector. Hence,
political instability and lack of good governance are some areas which the government needs to
address in order to ensure the proper implementation of its strategies and policies.

Figure: Infrastructural map of Bangladesh

P
Q