1

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The development and success of ready made garments of

Bangladesh for the last fifteen years had been astonishing and
perhaps the most salient feature of Bangladesh economy since
liberation. The RMG industry now (97-98) accounts for around $
4 billion, comprising over 73% percent of total export. Country’s
apparel export has been growing at an average rate of 25%
over the last few years. Bangladesh presently exports ready
made garments to about 30 countries around the world with
over 45% to USA and 50% to the EU countries. There are around
2200 garment factories in the country situated mainly in Dhaka
and Chittagong

One crucial factor that provided ground for the rapid growth of
the industry in Bangladesh is the quota and GSP facilities
sanctioned under the GATT and MFA agreement. These facilities
shield Bangladesh from price competition to a large extent, as
well as they create barriers for major powerhouses like India,
China to penetrate in all market segments. The MFA will be
phased-out in 2005, creating an open market where all
countries will compete on an even ground. Major apparel
suppliers will then pose considerable threat to the RMG export
of Bangladesh. Another critical phenomenon is that currently
around 84% of fabrics used in the RMG sector are imported from
abroad. With the phasing out of MFA, all textile and apparel
producing considerably increase their apparel production;
resulting in a huge demand for fabrics. Bangladesh is likely to
face difficulty in getting a stable supply of fabrics at a
competitive price. This situation constitutes additional threat for
the RMG sector of Bangladesh. On the other hand, there is a
huge untapped global market for apparel and Bangladesh can
take this opportunity if it can remain as a competitive supplier
in the global market of textile and clothing.

1.2 PROBLEM STATEMENT

Considering the above background of the readymade garments

industry in Bangladesh, the problem statement of this research
project is:

Assessing the impact of different variables on the market share

of Bangladeshi RMG exports in the Post-MFA situation.
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1.3 OBJECTIVES

The research endeavors to focus on different dimensions of

RMG export of Bangladesh. These include current state of RMG
export, international trade agreements on textile and clothing,
major factors affecting the textile trade, and the new reality
emerging from the phase-out of Multi Fiber Agreement.

So the specific objectives of the study are the following:

 Identifying the relationships among different variables
those will have impact on the international trade of textile
and clothing in the post MFA situation.
 Assessing the impact of these variables on the market
share of Bangladeshi RMG sector.
 Assessing the awareness level of garment manufacturers
of Bangladesh.
 Determining key policy initiatives those will be critical for
Bangladesh to compete successfully in the post MFA
situation.

1.4 SCOPE OF THE STUDY

This is a study that is mainly an exploratory one. It does not

seek to reach in quantitative conclusion. Furthermore, the study
considers only the shirts and T-shirts manufacturers in Dhaka
City. This also takes into consideration RMG and textile trade
information on the US and EU markets for the last three year.

1.5 LITERATURE REVIEW

Many researchers have conducted in-depth studies on textile

and clothing trade. Summaries of some of these studies have
been have been provided below:

 Hafiz G A Siddiqi: Product diversification in the ready-

made garment sector of Bangladesh: why and how?
October 1996

The structures and directions of world trade in RMG are

changing fast. With changes in the nature of competition,
Bangladesh needs to explore new strategic opinions. One option
is to diversify into high priced and high fashion items for which
there is great demand in USA, EU, and Japanese markets. It
needs to improve its image in the world market, and prove that
it is capable making high priced items along with low cost items.
For this, it needs to formulate and implement appropriate
promotional and marketing strategies. Quality and price must
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be carefully tuned to international markets. High quality items

have to be produced at minimum cost. Going for backward and
forward integration may solve part of the cost reduction
problems. Adequate number of composite mills supported by
dyeing, printing, and finishing facilities must be developed to
reduce production cost. Besides, it must develop its design
capability. Appropriate marketing strategies to promote new
products in the new markets must be formulated and
implemented. For this, extensive market research will be
necessary. The Institute of Apparel and Fashion Technology with
necessary government support can undertake this. Bangladesh
should be able to overcome the emerging threats because it has
by this time developed some core competence embodies in the
form of entrepreneurial zeal. Bangladeshi entrepreneurs have
demonstrated that they can wade through muddled waters. Its
apparel industry is on a strong footing. If it can be implemented
the strategies suggested above it should not only be able to
diversify the products. It should also be able to improve its
position in the world markets even after MFA is phased out.

In this context, it must be mentioned that the role of our

ambassadors, high commissioners, Economic Ministers, Trade
Commissioners etc. need to be oriented toward aggressive
business diplomacy combined with political diplomacy. They
must be trained in method of business negotiations and
business promotion.

 B.M.M. Mozharul Huq: Policy Framework of a

Developing Country like Bangladesh to Help its
Apparel Industry Fit in the Post-MFA Trade Regime

The writer suggests following action plans for the development

of textile and RMG sectors.
 establishing backward linkage for the RMG industry.
 attaining self sufficiency in fabrics by 2005.
He also suggested the following strategies to achieve the above
action plans.
 Organizational restructuring of textile mills.
a. to downsize BTMC.
b. to privatize BTMC mils.
c. to examine organizational strengths and weaknesses of
private sector mills.
 Financial restructuring of textile mills.
d. to rationalize debt burden, both in the public and private
sector.
e. to examine issues such as converting debt to equity,
converting to interest free loans, write-offs.
f. to arrange bank loans for BMRE, long-tern investment and
working capital.
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 Improvement in production and technology.

g. to improve capacity utilization by ensuring working capital
and sustained power supply.
h. to create new capacity by setting up 199 Dyeing and
Finishing units, 146 Weaving units, and 109 Knitting and
Spinning units according priority.
i. to undertake BMRE program in textile industry.
j. to develop trained manpower by strengthening the
National Institute of Textile at Savar and also establishing
a new Fashion Design Institute in the country.
k. to develop direct marketing linkages and liaison among
various organizations.
l. to overcome the child-labor problem.

 Mustafizur Rahman: Favored Market Access under

WTO: Perspective from Least Developed Countries
(LDC) such as Bangladesh, October 1997.

The capacity of the LDCs to cope with the emerging challenges

will critically hinge on their ability to overcome supply side
weaknesses such as, low technological capacity, lack of
entrepreneurial and managerial skills, inefficient administration
of incentive schemes, and underdeveloped physical
infrastructure. Recent experiences with structural adjustment
programs undertaken by several LDCs bear testimony to the
fact that these problems are unlikely to be resolved in the short
run. It appears that in near future the aid-trade nexus will need
to be given more emphasis and priority in the donor-recipient
relationship. For their part the LDCs themselves will need to
give high policy priority to issues related to human and
institutional capacity building in order to stimulate export sector
performance in an increasingly competitive global market.

 C. A. F. Dowla: The Consequences of GATT Uruguay

Round for the Textile And Garments Sector in
Bangladesh, August 1998.

Bangladesh does enjoy comparative advantage in the

production of export oriented RMG industry. As the discussion
above demonstrates, over the years, it has already come of
edge. But the future of Bangladeshi RMG would depend on
proper utilization of the transition period for establishing
backward linkage, on sharp improvement in its product quality
and design, on diversification of products and markets, and on
marked improvement in labor productivity so that it can
penetrate in to high value adding, high priced, highly
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competitive global apparel markets. To succeed in the piercely

competitive world of tomorrow, the RMG manufacturers as well
as the government must understand that every dollar saved is
equivalent to every dollar earned for the economy.

The major challenge for the RMG industry would be to keep its
products globally competitive while striving hard to earn greater
value addition domestically. So far, the government played a
facilitative role in respect to the RMG industry. All efforts should
be made to keep the matter as such, the less the government is
involved in the industry, the more will be the chance for the
industry to grow. The major challenge for the government would
be to provide an investment climate which will promote both
domestic as well as international investment in backward
linkage industries in the textile sector so that the export
oriented RMG industry can reduce its dependence on imported
yarn and fabrics.

 Feisal Siddiqi: Development of Backward Linkage: Post

MFA challenges and opportunities for the RMG sector
of Bangladesh

This paper points out that the amount of woven fabrics procured
from local manufacturers by the RMG industry was still below 6
percent of its total requirements. In case of knitwear industry,
over 65 percent of the fabrics requirement are made locally.
The writer finds four major factors deterring the growth of
backward linkage — I) price and import tax structure, ii) lack of
private capital accumulation and difficulty in mobilizing capital,
iii) lack of expertise in quality textile manufacturing, and iv)
small local raw cotton corp. The writer further discusses the
problem of capital mobilization and suggests some specific
interventions by the government. The textile sector’s
unfavorable price and import tax structures, raw cotton
scenario, currency exchange rates and conversion costs, and
regional cumulation are also discussed in the article.

 ProFound: International Trade in Textiles and Clothing,

September 1998

This paper sheds light on different issues like trade agreements

affecting global trade in textile and clothing, major markets,
market access, and trade structures and distribution channels. It
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discusses the effects and challenges of MFA phase-out on

Bangladesh. Non-tariff barriers are becoming increasingly
important in the trade of textile and clothing products. Health,
safety, and environmental measures are among the most
important of the product requirements for exporters of textile
and clothing in developing countries. Moreover, consumers are
becoming more critical as to the labor conditions under which
products are made.

 Nader Majid: The Uruguay Round and South Asia: An

Overview of the Impact and Opportunities, July 1995

Majid examines the impact of the Uruguay Round on four South

Asian countries with similar trade structures: Bangladesh, India,
Pakistan, and Sri Lanka. These countries are major exporters of
textiles and clothing and some agriculture. Their manufacturing
sectors – especially textiles & clothing – would seem to be the
main beneficiaries of the Round.

The writer argues that the Round improves market security for
both exporters and importers, these countries must do much
more to adjust their domestic policies to the realties of the post-
Round global environment. There must be further liberalization
and more integration with both the region and the world. India
has done a lot to open up its economy but has not moved
forcefully enough to remove restrictions on most imports of
consumer goods. Pakistan retains heavy restrictions of many
imports but is reducing tariff rates and their dispersion.
Quantitative restrictions on imported inputs impede efficiency in
Bangladesh textiles & pharmaceuticals industries. Sri Lanka’s
trade regime is the most liberal in the region, but anomalies still
exists in incentives.

Binding tariffs in the four countries must be greatly reduced

before these countries can benefit from the Rounds disciplines
in agriculture. The dismantling of the MFA will increase South
Asia’s output of textiles by 17 percent, and their exports of
textiles by 26 percent. Output on clothing will increase ninefold
and exports more than twentyfold. The region may also benefit
from the more liberalized post-Round makers for semi-
manufacturing exports.

In general, negotiations about new issues – trade in services,

trade related aspects of intellectual property rights, and Trade
Related Investment Measures (TRIMs) – will affect South Asia in
different ways. The impact on the movement of labor, in which
the region has a comparative advantage, seems to be more
effective than in other areas. More disciplined rules to protect
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intellectual property rights and more transparency about

investment and competition policies will benefit the region in
the long run.

 D E Moris and M D Crosby: Quality Requirements for

Textiles and Clothing in Europe

Quality requirements for textile and clothing sold in the

European market are evolving rapidly as competition in this
sector increases and consumer concerns for environmental
health and safety factors gain momentum. Textile materials
used, health and safety rules, household textiles echo-labeling,
management and recycling of non-hazardous waste are coming
under active concern and legislation.

 Madhavi Majumdear: The MFA Phase-out and EU

Clothing Sourcing: Forecasts to 2005 (Textile Outlook
International, March 1996)

The phasing-out of MFA will have a significant impact on the

pattern of extra-EU trade and sourcing over the next nine years.
It will also have a major impact on the evaluation of the EU’s
textile policy. Unlike the USA, the EU has not published details
of the products it intends to integrate at each stage. This could
depend on how quickly exporting countries open their markets
to Western imports. However, the EU has considerable leeway
as to product choice, and the most sensitive clothing categories
will probably not be integrates until 2005.

The phase-out program will directly affect only 16.5 percent of

import value. Also of importance for the EU’s future trade
patterns will be the effects of Turkey’s membership of the EU
customs union, and the full liberalization of imports from
Eastern Europe and the CIS.

Clothing import growth will accelerate over the next ten years,
with market penetration reaching 55 – 64 percent by 2005.
Large low-cost countries such as India and China will continue to
dominate the supply of low-cost imports into the EU market, as
will Hong Kong and the “preferential countries.” Eastern Europe
will continue to be important for outward processing, CMT work
and niche products.

1.6 IMPORTANCE OF THE STUDY

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The emergence of GATT and globalization of economy has

posed a threat for LDC like us. Specially for those sectors which
do not have strong infrastructural back up and backward
linkage RMG Sector is such a sector which contributes 74%
[C.A.F Dowlah, August 1998] of our total export earning. So this
sector certainly deserves attention from every aspect. The
phase out of MFA by the year 2004 will affect adversely,
because currently we enjoy GSP and quota benefit. From the
starting of 2005 we will have to compete with the established
RMG manufacturing countries. This research will tend to identify
some of our strengths and opportunities that will help our RMG
sector overcome the upcoming threat.

1.7 RESEARCH MODEL

The research model consists of different levels of hypotheses.

Each hypothesis again comprises of relationships among
different variables. The variable that is independent in one level
becomes dependent in the succeeding level. For the research
purpose, five levels of variables have been identified. The first
level variables are considered as individual concepts those
constitute a construct at the following level. To reach at the
ultimate objective, the research follows an inductive-deductive
process up to the fifth level.

In the post MFA situation, the market share of Bangladeshi RMG

will primarily depend on two factors: positioning of the product
in the apparel market, and diversification of product and
market. Positioning is an important factor in determining market
share because it is the price along with its desired quality, which
will determine the survival of a certain product in a competitive
market. The price of a product essentially depends on the cost
of fabrics, labor wage, and productivity of labor. The lower cost
of fabrics and labor wage will assure a better cost advantage of
our RMG sector over its competitors. A mere cheap labor can
not promise a lower cost. Productivity also plays a vital role in
cost reduction. Ultimately the productivity of labor brings into
play when a manufacturer counts how much he pays for a unit
production. Productivity can be improved through training the
labor, adopting new technology in the floor, and improving
management performance. Age, sex, health, and curricular
education of labors seem to act as extraneous variables in this
case. Cost of fabrics depends on how the manufacturers source
them. Recent studies show backward linkage and import as the
major sources of fabric. This research also incorporates the
concept of Multi Lateral Agreement in fabric sourcing and its
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impact on costing. In general, relying heavily on import costs a

manufacturer more to produce garments.

Product and market diversification is the other major

determining factor of RMG market share. The research
considers that diversification depends on effective use of
marketing mix and the profiles of importing countries. Product,
price, distribution, promotional activities, and public relations
are the concepts of marketing mix. Product again becomes a
construct with the composition of three major concepts: quality,
design, and packaging. Similarly, promotion is also a construct
of advertising, sales promotion, personal selling, and publicity.

The market share of a particular country in the international

trade of textile and clothing in the post MFA situation will be
subject to an external environment. This external environment
includes three components. The first is General Agreement on
Trade and Tariff (GATT) which consists of MFA, ATC, TRIM, and
other trade regulations. The second component is Tariff.
Competitors’ strategic moves through ERM and price-cuts also
play a vital role in the environment. Other environmental
constraints include eco-labeling, safety and health requirement,
and labor condition requirements.
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1.8 HYPOTHESES ON GARMENT MANUFACTURERS

Hypothesis: Big producers know the situation better

Hypothesis: Most products are within quota and GSP facilities.
Hypothesis: For Knit products more that 50% of fabrics are
locally produced. For woven products, more than 50%
of the products are imported.
Hypothesis: Majority of the workers is not skilled.
Hypothesis: Majority of the producers does not provide training.
Hypothesis: Age and sex are not important factor for
productivity.
Hypothesis: Management plays a crucial role in increasing
productivity.
Hypothesis: Majority of the exporters faces some problems in
opening L/C.
Hypothesis: More than 90% of the RMG products are targeted to
lower market segment.
Hypothesis: Majority of the producers face problems in
forwarding their products.
Hypothesis: Majority of the products falls into below average
category.
Hypothesis: Most of the stock-lots result from delay in delivery
time.
Hypothesis: Majority of the producers does not undertake any
promotional activities.
Hypothesis: Political disturbance has high impact on overall
business.

1.9 LIMITATIONS

One limitation of the study is that it keeps some factors outside

the consideration of its framework. These factors include ERM,
currency devaluation, etc. those may have crucial role on the
textile and clothing trade. Another limitation is that the study
focuses on a subject a major portion of which is too remote from
this place. Analyzing a situation from a distant place
consequently brings some limitations.

1.10 TYPES AND SOURCES OF INFORMATION

The types and sources of information those are necessary for

the study have been identified and presented in the following
table.
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2.0 RESEARCH METHODOLOGY: A TWO-WAY APPROACH

2.1 RESEARCH DESIGN

The research project seeks to find out new relationships

between the market share of Bangladeshi RMG in the post MFA
situation and several variables identified in the research model.
The study also focuses to determine key policy initiative that
will be crucial for Bangladesh to face challenges of the post MFA
situation. The MFA will be phased-out by 2005. This factor will
immensely change the situation. There are many other factors
such as price and quality of clothing, fabric sourcing, exchange
rates, environmental issues, etc. that will have considerable
impact on the international trade of textile and clothing. There
are many intervening variables that will also have influence on
this issue. All these factors give a very complex shape to the
international trade of apparel. The research is, therefore,
exploratory in type and qualitative in nature. The study also
incorporates some conclusive analysis based on primary survey
on garment manufacturers.

2.2 DATA COLLECTION METHOD

Primary information from RMG manufacturers have been

collected through survey questionnaire (please refer to
Appendix A). Information on international trade of textile and
clothing, GATT, MFA, etc. have been collected from published
materials and Webster of WTO. The EU market statistics have
been taken from Eurostat CDs, published by the Statistical
Office of the European Communities. The quota utilization
statuses in the EU market have been collected from Internet
websites. The US market information has been taken from
official website of US Department of Commerce. Current state of
RMG in Bangladesh have been collected from secondary sources
Studies undertaken by various experts on RMG of Bangladesh
have also been used to find relevant information.

2.3 SAMPLING METHOD

BGMEA maintains an up-to-date list of all garments

manufacturers; and this list includes production capacity,
products manufactured, employees etc. As the list is the
population of our research project, it is clear why it should
follow probability sampling. As defended by the scope, the
research considers only the RMG manufacturers of Dhaka City.
These manufacturers was then classified into two strata based
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on the sourcing of fabrics as fabric constitute 75% of the total

cost of unit clothing. These strata are a) knitwear, and b) woven
products. T-shirts and Shirts largely represent these two strata
respectively. Taking other product categories into consideration
would not maximize differences among them in terms of the
stratification base. In this way, the sample frame can be
identified as the T-shirts and Shirts manufacturers of Dhaka
City. Once strata composition and number have been defined,
the next step is to conduct a stratified random sampling with
proportional allocation to each stratum.

2.3.1 Sample Size Determination

On the basis of the data provided in the BGMEA Members

Directory, mean and standard deviation with respect to the
production capacity (in dozens of unit clothing per year) have
been calculated and given below.
Mean of sample frame, µSF = 183,258 dozens per
year.
Standard Deviation, σSF = 67,129 dozens per year.

Total No. of Sample Frame, N = 1028

The researchers assume that production capacity determines
the size of the manufacturer, provided that no capacity remains
unutilized.

To remain within 10% of the actual mean required a sample

results within ± 18326 dozens per year of the actual average;
this means that the samples follow a confidence interval of
± 18326 dozens of unit clothing per year. With 95% confidence
level and the calculated interval, the sample size (n) needed
must be such that
1.96σx = 18326 dozens per year.
∴σx = 9349.9 dozens per year.
With these data, sample size can be determined using the
σ SF 67129
σℵ
 = = 9349.9 =
n −1 n −1
following equation.
∴n = 52.55 ≈ 53
n/N = 53/1028 = 0.058
Since n/N ratio is less than 0.3, it is not required to consider the
Population Correcting Factor. Population relative weights for
three strata are as follows.
Wwoven = 0.6
Wknit = 0.2
Wboth = 0.2
Using proportional allocation, sample size for each stratum is
calculated.
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Nwoven =WwovenN = 0.6(53) = 31.8 ≈ 31

Nknit =WKnitN = 0.2(53) = 10.6 ≈ 11
Nboth =WbothN = 0.2(53) = 10.6 ≈ 11

2.4 EXPERT OPINION

The RMG exporters, particularly BGMEA officials, and industry

experts constitute a rich information source on RMG exports. In
order to collect information from these experts, the researchers
find it more logical to go for expert opinion rather than going for
a focus group discussion. Because focus group help to get an
insight to the problems from different perspective. The available
literature on RMG export also serves the purpose to some
extent. So, logically, going through their literature means going
through their opinion as well as looking at the problem from
their perspective.

Other reason of not taking FGD is that Focus Group Discussion is

conclusive in nature, but it merely finds any specific conclusion
rather than providing a set of conclusions. This set of
conclusions again has to be tested by the experts and
situations. Here the set of conclusions for this specific problem
has already been extracted from literature review. Now in order
to find out a specific conclusion, this set of conclusions has to be
validated by the experts. So, it is more logical to go for expert
opinion rather than going for FGD.

2.5 FIELD PLAN

A questionnaire, along with its manual, has been designed with

a view to delineating the present scenario in the RMG sector,
awareness of the manufacturers about MFA phase-out, and their
answers to the post MFA competition. Pre-testing with ten
manufacturers has been done to clear off the response biases
and non-response biases from the questionnaire. The field plan
for pre-testing has been conducted through critical group
discussion. Two of the group members were given the
responsibility to reach five respondents each. The respondents
were selected on convenience basis.

The sample frame we have defined includes only Dhaka City. To

reach each respondent within this frame, we first divided Dhaka
City into eight specific areas. Each member of the group was
given the responsibility to cover each area. Area was assigned
to each group member on the basis of his residence.
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We have selected three types of respondents for our study.

Type I refers to shirt producers; Type II refers to T-shirt
producers and Type III includes producers who produces both
the products. Through a critical group discussion we have
planed for three specific ways to approach each type of
respondents. Experts were treated as exclusive group and two
members were given the responsibility to collect their opinion.

After accessing all such things, we have prepared our time

calendar. A calendar of ten days was divided into three stages.
Stage I was contact and appointment stage. Stage II was
defined as interview stage and the final stage, stage III, was
collection stage. The first two stages consist of three days each
and the final stage consists of four days. One of the group
members was given the charge of survey co-ordination.

2.6 DATA ANALYSIS PLAN

For the purpose of analyzing the data collected from sample

survey, the research project uses some statistical and
mathematical tools, such as, frequency distribution, cross-
tabulation, correlation, Chi-square test, and factor analysis. For
analyzing behavioral data, the researchers used interval scale.
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3.0 FINDINGS & ANALYSIS OF INFORMATION

3.1 KNOWLEDGE LEVEL OF THE PRODUCERS

There were two questions on the knowledge level of the

respondents. Those who gave correct answers were given one
point for each question. The results of these two questions have
been shown in the above figure. The correlation between
knowledge level and size in terms of total number of workers is
0.618 and size in terms of fabrics used is 0.663.

Figure: Frequency Distribution of Knowledge-level.

Not
Knowledgable
11%
Knowledgable
13%

Moderately
Knowledgable
76%

3.2 TYPE OF RMG MARKETS

The survey shows that 64.14% of the total volume of RMG are
quota items, 27.94% are GSP products. So 92.08% of the total
RMG export of Bangladesh are covered by quota and GSP
facilities.

Quota Non- GSP Non-GSP

quota
Volume 72,86 0 31,74 9
Percent 64,14 0,00 27,94 7,92
Figures in million.

3.3 MAJOR COMPETITORS

Most of the respondents could not mention the names of the

competing countries. Some of them, however, mentioned that
major competitors of Bangladesh are India, China, Pakistan,
Vietnam and Sri Lanka.
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3.4 FABRIC SOURCING

For woven products, the survey found that 17.32% fabrics are
locally produced, 58.76% are imported and 23.92% are from
MLA.. For knitwear, local fabrics are 84.91%, imported 15.09%.

Local Import MLA Total

Woven 12,815 43,485 17,7 74
17,32% 58,76% 23,92%
Knit 19,7 3,5 0 23,2
84,91% 15,09% 0,00%
Both 10,4 2,95 1,9 15,25
68,20% 19,34% 12,46%
Figures in million.

3.5 FABRIC SOURCING DECISION

The survey finds that the proportion of fabric souring decision made
by foreign buyers is 46.32%. Local buying houses make 40.52% fabric
sourcing decision and producers themselves make 13.15% sourcing
decisions.

Foreign Foreign Local Self

Fashion Buyer Buying Decision
Designe House
r
Volume 0 52,62 46,04 14,94
Percent 0 46,32% 40,52% 13,15%
Figures in million.

3.6 WORKERS SKILLS

Thirty five percent of the workers of the RMG sector are skilled
workers, 55.71% are semi-skilled and 8.95% are unskilled workers.

Skilled
Semi- Unskille
skilled d
Number 12705,2 20041,2 3221,6
Percent 35,32 55,71 8,95
Figures in million.

3.7 TRAINING FOR LABORS

Thirty two percent of the producers provide training for their workers
and the rest of the producers do not provide any training. Training is
mainly on the job.

3.8 MANAGEMENT’S PERFORMANCE

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NULL HYPOTHESIS:
There is no significant difference other than sampling variations
between the agreement on management performance on
labors’ poor performance and that of better productivity.

Frequency distributions of the agreement on these two

statements are found out and Chi-square is applied test to that
hypothesis.

For Better For poor performance,

productivity, Fi fi
Strongly disagree 12 13
Moderately agree 33 29
Disagree 08 11
Total frequency 53 53

Using the Chi-square formula,

k
( fi − Fi) 2
X2 =∑
i =1 Fi
χ observed
2
= 0.083+0.485+1.125
= 1.693
χ2critical (for 99% significance, degree of freedom=2) = 9.21

Therefore, null hypothesis is accepted

3.9 PRODUCTIVITY

For further testing of these factors, Factor Analysis technique

has been applied to the data using SPSS. Factor Analysis Output
table shows that Factor 1 is a good fit on the data from
variables 3, 4, 5, and 6, but a poor fit on the other variables.
This indicates that these four variables are probably measuring
the same basic attitudes or value system, and therefore, a
factor exists. We can use our own judgment to conclude from
these results that “Demographic Profile” was the factor that tied
these variables together. Looking at the responses to each
variable under this factor, it has been found that the means of
these responses were 2.4, 2.4, 2.2, and 2.3 respectively. This
indicates that most respondents found these variables
moderately important.

TABLE: FACTOR ANALYSIS OUTPUT

Factors
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Factor 1 Factor Co
2
1 -0.092 0.893 0.806
2 -0.114 0.882 0.791
Variable 3 0.916 - 0.840
0.0003
Number 4 0.781 0.203 0.651
5 0.832 0.0567 0.696
6 0.935 -0.020 0.874
EV/No. of 0.5062 0.2700 0.7763
Statement
Extracted by Principal Component Method (SPSS)

Second factor has been identified with a good fit on the data
from variables 1, and 2, but a poor fit on the rest of the
variables. These three variables are also measuring same
basic attitudes and are probably tied up with “Technological
Know-how.” The means of these variables are 2.3 and 3.0
respectively. The respondents felt moderate importance to
training and high importance to technology.

3.9.1 Evaluating the Results

The right most column ‘Communalities’ of Factor Output

Table shows that the three factors explain 75 percent or
more of the variance in all of the responses to all
statements but one. Three factors explain 66 percent or
more of the variances of al the variables. Since the
identified three factors account for most of the variance
associated with each of the six variables, it can clearly be
concluded that the three factors fit the data quite well.

The Eigenvalues associated with each of the factors indicate

how well each of the identified factors fit the data from all of
the respondents on all of the statements. Moreover, the
Eigenvalue per statement is the proportion of the variance
in the entire set of standardized response scores, which is
explained by that factor. Table 4 shows that Factor 1, and 2
explains 50.62 and 27.0 percent respectively of the variance
in the standardized response scores from all of the
respondents on all six variables. By adding these figures for
the three factors, we see that the three factors together explain
0.5062 + 0.270 (or 77.63 percent) of the variance in the entire
set of response data. Since these three factors account for more
than 70 percent of the total variance, the identified factors can
 21

be considered a good fit to the entire set of data. For that

matter, ‘Technological Know-how’, and ‘Demographic Profile of
Labors’ can explain the productivity of labors quite well.

3.10 PROBLEM IN OPENING LCS

Thirty percent of the producers face problems in opening LCs

and the rest do not any problem.

3.11 TARGET MARKET SEGMENT

Fifty two percent of the producers produce their products for

middle segment of the market and 47 % produces for lower
segment.

Upper Middle Lower

Volume 0 59,47 54,13
Percent 0 52,35 47,64

3.12 PROBLEM IN FORWARDING PRODUCT

Customs and Transportation problems have been identified as

the major problems faced by the producers. This has been
found by calculating the mean value of each response. The
mean was 3.

3.13 FABRIC QUALITY

The mean of the responses shows that producers use

satisfactory quality fabric for their products. The mean was
2.62.

3.14 FASHION AND STYLE OF THE PRODUCT

The mean of the responses shows that the fashion and style of
the product are of average category. The calculated mean is
1.92.

3.15 PROMOTIONAL ACTIVITIES

The survey found that 67.90% of the producers don’t use any
kind of promotional tool, 5.66% of the producers use
advertisement, where as 15.10% use direct sales approach.
 22

Sales promotion is used by 9.4% of the producers and publicity

is used by only 1.80% of the producers.

3.16 GOVERNMENT POLICY ON RMG

The survey shows that producers think that government’s

policies on RMG and textile are satisfactory. The calculated
mean is 2.19.

3.17 PROMOTIONAL ACTIVITIES OF THE GOVERNMENT

The producers consider the promotional activities of the

government as satisfactory. The calculated mean in this case is
1.85%.

3.18 BARRIERS AFFECTING RMG EXPORTS

Factor Analysis technique has been applied to the data using

SPSS. Factor Analysis Output table shows that Factor 1 is a good
fit on the data from variables 1, 9, 10, 11, 12, and 13, but a
poor fit on the other statements. This indicates that these five
statements are probably measuring the same basic attitudes or
value system, and therefore, a factor exists. Looking at the
responses to each Second factor has been identified with a good
fit on the data from variables 2, 4, and 5, but a poor fit on the
rest of the variables. A third factor is identified from the factor
analysis output fits on the data from statements 3 and 7, and a
fourth factor with variables 6 and 8.

TABLE: FACTOR ANALYSIS OUTPUT

Factors
F1 F2 F3 F4 Communaliti
es
1 0.521 0.440 0.410 -0.436 0.824
2 0.465 0.565 -0.327 -0.282 0.722
3 -0.561 0.316 0.572 -0.396 0.899
4 0.202 0.682 60.381 -0.262 0.579
E-02
 23

5 -20.308E- 0.523 -0.349 0.409 0.563

02
6 -30.769E- 0.294 -0.658 0.560 0.835
02
Variable 7 -20.909E- -10.775E- 0.722 0.530 0.803
02 03
Number 0.142 0.292 0.231 0.568 0.481
8
9 0.744 -0.445 - -0.232 0.813
80.134
E-02
10 0.722 0.253 0.346 0.345 0.824
11 0.538 30.031E- 0.409 0.297 0.545
02
12 0.678 -0.612 20.082 0.105 0.846
E-02
13 0.715 0.108 -0.309 -0.213 0.665
EV/No. of Statement 0.2464 0.1672 0.1635 0.1459 0.7203
Extracted by Principal Component Method (SPSS)

3.18.1 Evaluating the Results

The right most column ‘Communalities’ of the table does not

explain more of the variance in all of the responses to all
variables It can not be concluded that the three factors fit the
data quite well.

The Eigenvalues associated with each of the factors indicate

how well each of the identified factors fit the data from all of the
respondents on all of the statements. Moreover, the Eigenvalue
per statement is the proportion of the variance in the entire set
of standardized response scores, which is explained by that
factor. Table 4 shows that Factor 1, 2, 3 and 4 explains 24.64,
16.72, 16.35 and 14.59 percent respectively of the variance in
the standardized response scores from all of the respondents on
all thirteen statements. By adding these figures for the three
factors, we see that the three factors together explain 72.03
percent of the variance in the entire set of response data. Since
these three factors account for more than 70 percent of the
total variance, the identified factors can be considered a good
fit to the entire set of data.
 24

4.0 AGREEMENTS ON TEXTILE AND CLOTHING TRADE

International trade of textile and clothing has been subject to an

increasing array of trade agreements over the past four
decades. The textile and clothing came as a serious matter of
GATT negotiations in early 1960s when developing countries
began to demonstrate their comparative advantages in this
sector. The developed countries introduced Short Term
Agreements in 1961 and Long Term Agreement in 1962 in order
to regulate and control textile and apparel trade. These
agreements empowered developed countries to use wide
discrimination and restrictions on the imports of textile products
from developing countries.

4.1 THE MULTI FIBER AGREEMENT (MFA)

In addition to concerns and problems of developing countries, in

the late 60s, the increased use of synthetic fibers and
innovations of knitting technology raised new issues in the
textile trade. The MFA was created as a transitional measure
geared to facilitate the process of structural adjustment that
was required in the industries of the developed countries in
view of the rapid shift of comparative advantage in textile and
clothing productions towards developing countries (Profound,
1998). The MFA made significant departures from previous
agreements in this sector. Concerns for developing countries
and a substantial increase in their earnings from trade in textile
and clothing sector received significant importance under MFA.
The MFA spelled out provisions for ensuring orderly
development of trade in textile and clothing, and contained
adequate safeguards avoiding disruptive effects on individual
markets and line of productions in both importing and exporting
countries. The MFA was highly discriminatory at country and
product levels. It set the terms and conditions for governing
quantitative restrictions on textile and clothing either through
negotiations or bilateral agreements or on a unilateral basis. In
entering into bilateral agreements under MFA, the countries
were expected to adhere strictly to MFA rules:

 For the determination of quota and categories;

 For restraint levels; and
 For the inclusions of such provisions as annual growth rates,
carry-over of unutilized quota from the previous year etc.

At the end of 1994, when the arrangement was terminated, the

MFA had a membership of 39 countries. Eight of these were
developed countries and were designated as importers; the
 25

remaining 31 developing country members were considered

exporters. An important achievement of the GATT/ Uruguay
Round is the decision to phase out restrictions on imports of
textile and clothing. The Agreement on Textile and Clothing
replaced the MFA as of January 1, 1995.

4.2 AGREEMENT ON TEXTILE AND CLOTHING (ATC)

The ATC, which was drafted during the GATT Uruguay Round,
called for phasing out of all discrimination and restrictive
measures taken and implemented by the developed countries in
a period of ten years. The MFA had been in operation as a
derogation from basic discipline of non-discrimination of GATT
for 20 years. The ATC called for gradual scrapping of all these
restrictions by 2005 so that an era of free and open world trade
can be created. ATC comes as an integral part of the Final Act of
the Uruguay Round and the agreement is applicable to all WTO
members and all there trade in textile and clothing are subject
to its provisions.

Under the ATC, the textile and clothing sector will be fully
integrated into the GATT by the year of 2005. ATC provides a
gradual phasing out of all restrictions in four stages. At each of
these stages, products should be taken from each of the
following categories: tops and yarns, fabrics, made-ups textile
products, and clothing. The members would have freedom to
select the products to be integrated.

Stage 1 (On January 1, 1995): Importing countries were

required to integrate at least 16% of their 1990 import volume
of the products in the Annex. Growth rates for remaining quotas
were increased by 16%. Thus a quota subject to a 10% growth
rate in 1994 will grow by 11.6% a year for the duration of Stage
1.

Stage 2 (On January 1, 1998): Members would have to

integrate a further 17% of their product volume chosen from the
product list. For remaining products subject to quota, the
growth rates applying in Stage 1 will be uplifted by a further
25%. Thus quotas which grew by 10% prior to the phase-out
programs are allowed to grow by 14.5% a year by Stage 2.

Stage 3 (On January 1 2002): A further 18% of products will be

integrated and growth rates of quotas restricting remaining
products uplifted by 27%. Thus quotas will be allowed to
increase by 18.4% during Stage 3.
 26

Stage 4 (On January 1 2005): All remaining products,

representing at least 49% of 1990 import volume will be
integrated.

The agreement however, states that the ratios mentioned

above are not maximum limit for the members; the countries
are free to integrate their products to the extent they like -
provided that the minimum percentages are integrated.

4.2.1. Freedom of Product Choice

As it has been already mentioned, at each stage, the importing

countries are obliged to integrate a minimum of just one
product from each sub-sector. This gives them considerable
freedom in their choice of products. Indeed, the available
evidence suggests that the most import-sensitive clothing
products will remain under quota until the end of the phase-out
period.

4.2.2. Growth rates of quota

Growth rates of products that remain in the list, the bilateral

framework will continue to operate, and this will permit
differential growth rates to continue for different exporting
countries until the integration process. This is because initial
growth rates differed at the start of the integration process, and
subsequent growth rates are based on those initial rates.

4.2.3. Fare trade policy and safeguards

Once a product category has been integrated, importing

countries are not permitted to reintroduce quotas restricting
imports of that product. However, they are allowed to use
safeguard measures under the GATT Article XIX during the
phase-out period. This allows countries to take action in the
event of sudden import surges that threaten their domestic
industries. In addition, importing countries can initiate anti-
dumping action against unfairly traded goods.

4.2.4. Tariffs

Tariffs in the textile and clothing sector will continue to be very

high despite the Uruguay Round agreement. In the post-
Uruguay Round period, the average tariff for all goods will be 4
percent compared to 6 percent in the pre-Uruguay Round
period. In the case of textiles, however, the average post-UR
tariff will be three times the average for all goods, 12 percent
compared to 16 percent pre-UR. The textile and clothing sector
will therefore remain one of the most protected sectors
 27

4.2.5. Trade liberalization for non-WTO countries

Under the GATT agreement, Importing countries have no

obligation to liberalize imports from non-WTO countries. This is
particularly important with respect to China. Until the country
joins the WTO and undertakes to comply with the rules on tariff
reduction and market opening, existing tough controls on
Chinese exports to the West are likely to remain.

4.3 THE LOME CONVENTION

The Lome Convention was created to promote and accelerate

the economic, social and cultural development of the 70 African,
Carribian and Pacific (ACP) countries based on mutual interest
for both contracting parties. This is the most far-reaching trade
agreement the EU has signed with developing countries. The
fourth Lome Agreement, signed in 1989, nowadays includes 70
ACP countries and several other territories, which are all former
European colonies.

In 1995, the Lome IV Convention has been reviewed. The main

outcome of the review was that in the period up to 2000, more
emphasis will be laid to trade development rather than on trade
preferences. Several decades of preferential import tariffs into
the EU have not brought the expected results of improved trade
preferences of the ACP countries. It was concluded that tariff
preferences alone are insufficient to stimulate export from ACP
countries and more needed to be done to improve the
competitiveness of export oriented enterprises in ACP countries.
As such, funds made available to national and regional
programs under the European Development Fund will primarily
be allocated to improve productivity, efficiency, quality
management, trade information facilities and trade
infrastructure. At the same time, some more preferences were
granted.

4.4 THE CARIBBEAN BASIN INITIATIVE (CBI)

The Caribbean ACP countries benefit from the USA Caribbean

Basin Initiative (CBI). The Caribbean Basin Economic Recovery
Act launched the CBI officially in 1982. The CBI is more
advantageous than the Generalized System of Preferences
(GSP) scheme offered by the USA because it has no fixed time
limit and is more relaxed in terms of the rules of origin.
Although textiles are excluded from the CBI, Caribbean ACP
countries enjoy special treatment in the USA market under
 28

regulation 9802-00-80. This regulation allows Caribbean

products only to the value added in the Caribbean countries.
Under this regulation, more than eighty percent of their textiles
and clothing exports are exported to the USA.

4.5 THE NORTH AMERICAN FREE TRADE AREA (NAFTA)

The NAFTA agreement between the USA, Canada and Mexico,

concluded in January 1994, allowes preferential trade between
the member countries. The Asian countries are faced with
competition through the NAFTA arrangements and in particular
Mexico's membership. Although the direct loss in export in
export revenue for these countries is expected to be small and
is likely to be more significant. With ongoing ideas for a Western
Hemispheric Free Trade Agreement, this will further affect the
strategy of the Asian countries.

4.6 MFA IMPLEMENTATION PROCESS IN THE US AND EU

The US and EU have taken different ways of implementing MFA.

The US has already published a full list of products that it
intends to integrate at each stage of the three stages. The US
bilateral agreements tend to be more restrictive than those of
the EU, both in the breath of their product coverage and in the
specification of import growth rates. In case of dominant
suppliers, US agreements are more restrictive. For China,
Taiwan, South Korea, and Hong Kong, the number of restricted
products in 1994 varied from 74 to 49 and quotas were
permitted to grow by only 0-2% a year. For other supplier
countries, such as India, Bangladesh, Thailand, and Philippines,
the number of restrained categories varied from 13 to 27. For
these countries, quotas on most products were allowed to grow
by much more generous 6-7%.

The EU, on the other hand, has adopted a product -focus

approach. Unlike USA, the EU has not published a full product
list for integration at the start of each stage. This leaves its
option open, pending developments in import penetration. Thus
clothing products with high levels of import penetration, or
those likely to cause the most market disruption can be
integrated at the end. In 1996, the EU had bilateral textile and
clothing agreements with 49 countries, although not all of them
are under the MFA. Also, not all countries are subject to quotas.
Many suppliers are subject to "surveillance", which means that
imports are monitored to identify sudden surges, which may
require action, and to prevent and detect fraudulent imports.
 29

5.0 READY MADE GARMENTS OF BANGLADESH

The growth and success of the apparel industry over the last 15
years has been spectacular, and perhaps the most salient
feature of the Bangladesh economy. The apparel industry now
('97-'98) accounts for over 73% of the country’s total export
earning (Hafiz Siddiqi, 1998). Country’s apparel export rose to
US$ nearly 4 billion FY98 from a mere US$ 6 million in 1981.
Bangladesh exports ready-made garments presently to about
30 countries around the world with over 45% to USA, 50% to the
EU countries. The industry employs more than 1.4 million
workers, 90% of them are female.

5.1 NATURE AND PATTERN OF GROWTH

Country’s apparel export has been growing on an average at

the rate of 25% for last several years. The garments industry
began to appear in 1977-78 with 8 enterprises. The number of
garment factories reached 587 in 1984-85, and now it has
reached around 2650 by September 1998. In fact, this is an
exceptional growth rate for any industry anywhere in the world.
The quota restriction in the US markets and completely
unrestricted entries into the EU market have contributed
significantly to this high growth rate.

Table: RMG and Total export of Bangladesh

Year RMG Export (Mn Total % of Total
$) Export Export
1991-92 1182.57 1993.92 59.31
1992-93 1445.02 2382.89 60.64
1993-94 1555.79 2533.90 61.40
1994-95 2232.09 3472.56 64.28
1995-96 2547.03 3882.00 65.61
1996-97 3001.25 4418.28 67.93
1997-98 3781.94 5161.20 73.28
Source: Hafiz Siddiqi, 1998, p 12

5.1.1. Marketing trend: EU emerges as the largest buyer

For the last five years, EU has become the largest buyer of
Bangladesh's RMG products. The US is continuing to be the
second largest importer. In FY 98, EU's share of RMG was 51%,
US share was 44%. Among the EU countries, Germany imports
the maximum share of RMG.
5.1.2. Knitwear: the highest growth rate
 30

One major factor of high growth rate in the RMG export of

Bangladesh has been the knitwear sector. Bangladesh's
knitwear industry has emerged as a competitive supplier in the
global apparel market. As the table shows, the knitwear exports
to the EU countries has almost doubled in the 1990s - increased
from 43% in 92-93 to 79% in 96-97, while the share of the US
has fallen in 16% in 96-97 from 38% in 92-93. In dollar terms,
however, the share of the US did not fall. The export income of
the knitwear registered about 400% growth during the same
period.

Table 3.2: Proportion of woven and knitwear in the RMG

export
Commodity 92-93 93-94 94-95 95-96 96-97
Woven RMG 1240.5 1291.6 1835.1 1948.81 2237.95
Share of EU 40 49.5 43.6 49.0 45.0
(%) 53 42.0 49.5 45.0 49.0
Share of
US(%)
Knit RMG 204.5 264.2 393.3 598.32 763.30
Share of EU 43 47 66.4 74.8 79.1
(%) 38 32 24.9 20.2 16.2
Share of US
(%)
Source: C A F Dowla; 1998, p.30.

5.2 EXPORT IN OTHER COUNTRIES

Bangladesh is also making inroads in the high quality conscious

RMG market in Japan. Bangladesh exports of RMG to Japan
stood at $ 5.6 million in '94-95. Bangladesh's export to Canada
ranged between 2-3% of its total export income over the years.
The RMG producers are steadily moving toward high value
items like quality suits, jackets, branded jeans, embroidered
ladies wear, increasing over at 25% per year over the last few
years. They are also diversifying into non-quota items.
 31

6.0 ANALYSIS OF EU MARKET DATA

6.1 EU IMPORTS

In 1997, the total intra/extra EU imports of ready-made

garments valued at almost Ecu 60 billion (US $ 68 billion at
1997 exchange rate). Between 1995 and 1997, imports
increased by 20 percent. Bangladesh has become an important
player in the RMG sector. In 1994, it appeared among the top
ten of extra-EU suppliers for the first time. In 1997, it was the
16th leading supplying country (including intra-EU supplying) in
terms of value and 9th in terms of volume. In this year,
Bangladesh supplied clothing worth of Ecu 1.4 billion, up almost
50 percent from the 1995 level.

Table 4.1: EU intra/extra imports of RMG products (Value

in Ecu thousand, volume in Tons)

1995 1996 1997

Value Volume Value Volume Value Volume
Total RMG 50,118, 2,540,0 53,842, 2,715,4 59,528, 3,288,6
T-shirt 608 74 124 28 161 51
Pullover 3,446,8 241,51 3,999,1 278,778 4,194,8 264,931
Shirt 93 8 94 348,311 00 364,256
Blouses 6,296,2 430,13 7,275,9 169,438 8,442,5 159,547
From 23 7 72 91,073 25 92,261
Bangladesh: 3,032,5 179,88 2,969,1 2,989,7
Total RMG 48 6 70 130,708 40 146,394
T-shirt 2679,16 84,031 2,579,4 41,441 2727,7 38,013
Pullover 4 65 14,931 75 21,797
Shirt 27,978 38,409 37,511
Blouses 966,891 27,961 1,131,4 2,766 1,446,0 3,922
188,263 11,021 96 87
101,193 43,740 276,915 270,00
373,319 2,745 138,323 7
30,324 343,062 243,15
32,178 8
365,29
8
48,360
Source: Eurostat 3/1997, 4/1998, 8/1998

6.2 SHIFTS IN THE LEADING SUPPLIERS

,
Important changes have taken place in the list of top ten
suppliers in recent years. In 1988, for example, Hong Kong,
Turkey, Yugoslavia, South Korea and China were among the top
 32

five, in both value and volume terms. By 1994, China had

emerged as the number one supplier, followed by Turkey, Hong
Kong, Tunisia and Morocco in value terms. Bangladesh
appeared among the top ten by replacing South Korea
(Mojumder, 1995).

Table: Top Ten Extra-EU suppliers of Clothing, 1995 -1997

By Value (Ecu in thousand)
1995 1996 1997
Country Ecu % Country Ecu % Country Ecu %
shar shar shar
e e e
China 3,541,2 12.4 China 4,164,2 13.5 China 5,109,7 14.4
Turkey 92 3 Turkey 04 4 Turkey 61 1
Hongkon 3,188,4 11.1 Hongkon 3,432,3 11.1 Hongkon 3,958,3 11.1
g 01 9 g 19 6 g 89 6
Tunisia 2,545,9 8.94 Tunisia 2,498,5 8.12 Tunisia 2,590,6 7.31
Morocco 89 6.07 Morocco 73 6.12 Morocco 05 5.68
Poland 1,729,4 5.73 Poland 1,883,6 5.44 Poland 2,015,3 5.30
India 32 5.62 India 14 5.24 India 15 4.63
Romania 1,631,2 5.57 Romania 1,673,4 5.01 Romania 1,878,5 4.34
Banglad 34 3.41 Banglad 23 3.74 Banglad 40 4.17
esh 1,602,4 3.39 esh 1,612,6 3.68 esh 1,641,0 4.08
Indonesi 01 3.19 Indonesi 65 3.17 Indonesi 69 3.59
a 1,587,7 a 1,541,3 a 1,538,6
49 93 50
971,660 1,150,0 1,477,9
966,891 40 37
907,982 1,131,6 1,446,0
62 87
973,583 1,273,4
28
Source: Computed from Eurostat data; details in Appendix.

By Volume (Ton)
1995 1996 1997
Country Ton % Country Ton % Country Ton %
shar shar shar
e e e
China 247,9 14.3 China 267,8 14.4 China 281,6 14.1
Turkey 44 6 Turkey 28 2 Turkey 55 0
Hongkong 167,5 9.70 Hongkong 195,0 10.5 Banglades 226,7 11.3
Banglades 82 9.04 Banglades 97 7 h 73 5
h 159,1 6.55 h 139,7 7.57 Hongkong 146,3 7.33
India 78 6.25 India 19 7.08 India 94 6.47
Morocco 113,1 5.49 Tunisia 130,6 6.13 Morocco 129,2 5.38
Tunisia 71 5.39 Morocco 92 5.43 Tunisia 01 5.35
Poland 108,0 3.89 Poland 113,1 5.14 Indonesia 107,5 5.32
 33

Indonesia 10 3.74 Indonesia 61 3.73 Romania 93 3.97

Pakistan 94,87 3.35 Romania 100,0 3.60 Poland 106,9 3.72
5 87 3.20 59 3.64
93,03 94,83 106,2
5 4 28
67,22 68,76 79,27
2 6 3
64,50 66,39 74,39
8 9 2
57,90 58,98 72,80
5 2 1
Source: Computed from Eurostat data; details in Appendix.

During 95-97, positions of top ten suppliers in terms of value

remain same; although their market shares have changed.
Shares of China and Turkey have remained same; shares of
Hong Kong, Tunisia, Morocco, Poland and India are decreasing.
Shares of Romania, Bangladesh and Indonesia are going
upward. Growth rate of Bangladesh is good; in fact, it may move
one step upward in 1998. In terms of volume, Bangladesh has
become third largest supplier in 1997, replacing Hong Kong.
Since 1988, Low cost Asian countries, preferential countries
(Turkey, Tunisia, and Morocco) and Poland have become
dominant suppliers.

Table: Trends in average unit prices of extra-EU clothing suppliers (Ecu/Kg)

1995 1996 1997

China 14.28 15.55 18.14
Turkey 19.02 17.59 14.05
Hongkong 15.99 17.88 20.05
Tunisia 18.59 18.82 18.97
Morocco 17.19 17.65 17.56
Poland 23.84 23.45 22.54
India 14.70 13.62 14.30
Romania 12.45 19.50 19.86
Bangladesh 8.54 8.65 9.87
Indonesia 14.06 14.66 16.06
Source: Computed from Eurostat data.

The average unit prices of leading suppliers don't represent

their competitiveness; rather they represent their target
markets. Table shows that average price of preferential
countries remain higher. Their high price reflects, in part, the
fact that a large share of imports from such countries consists of
goods made from high value EU fabrics under outward
processing arrangements. Poland also falls into this category;
however its prices were higher than those of the preferential
countries. Unit prices of Romania (12.45), Indonesia (14.06),
 34

India (14.70) and China (14.23) indicate that they cater to mid
and upper segments.

Among low cost Asian suppliers, average unit price of India has
remained same. Prices of China have increased highly; in case
of other countries, it rose modestly. Bangladesh remains the
lowest cost supplier among the top ten countries.

6.3 TRENDS AND MARKET SHARE IN T-SHIRT

Total import of T-shirt was Ecu 1775 million in 1995, Ecu 2114
million in 1996 and Ecu 2255 in 1996. Bangladesh supplied Ecu
RMG worth of 188 m in 95, Ecu 276 m in 96 and Ecu 270 m in
97. Exports from Bangladesh, Hongkong and India have
decreased in 1997. Exports from Turkey, China and Mauritius
have increased (for full text, please refer to Appendix). Turkey
comprised 22% market share in terms of Ecu; its growth rate
was 16%. Turkey mainly operates in the upper segment (unit
price 16.05 Ecu/Kg) and it might have captured additional
market share from India, China and other upper segment
players who have lost market shares. One reason of decrease in
Bangladesh's T-shirt export may be that Bangladesh exports for
lower segment and this segment might have become saturated
(in 95 and 96, Bangladesh had a high growth rate in T-shirt).
Another probable reason might be competition from China, and
India that operate in all segments. These countries might have
compensated their lose of market share to Turkey by increasing
their market share in the lower segment.

Prices of Preferential countries (Turkey, Morocco and Tunisia)

have decreased during the last three years. Asian countries still
remain the low cost suppliers. Turkey, Hongkong and USA are
relatively high cost suppliers, reflecting their higher value
specialization. Bangladesh remains a very low cost supplier in
the list; indicating its status as the low cost bulk supplier.
Bangladesh became the largest supplier of T-shirt in terms of
volume in 1997.

Bangladesh has the lowest cost per unit among the top ten
suppliers of T-shirt; however some other countries have a lower
cost per unit and Bangladesh faces competition from these
countries. These countries include United Arab Emirates (6.74
Ecu/Kg), Bulgaria (7.02 Ecu/Kg). Bangladesh also faces
competition from countries such as Syria (8.55 Ecu/Kg), Pakistan
(9.11 Ecu/Kg), Romania (10.55 Ecu/Kg).

Table: Unit Price and Market share of EU's leading T-shirt

suppliers (Ecu/Kg).
 35

1995 1996 1997 Mkt share Mkt share

(Ecu/Kg) (Ecu/K (Ecu/K By Value By Volume
g) g) (97) (97)
Turkey 19.17 17.67 16.05 22.69 17.47
Bangladesh 6.73 6.68 7.10 11.97 20.83
China 9.28 10.92 13.92 7.32 6.51
India 11.93 5.69 12.89 6.13 5.87
Mauritius 13.67 14.26 15.10 5.63 4.61
Hongkong 18.19 17.71 19.19 4.26 2.74
Morocco 15.99 13.77 12.17 3.69 3.74
Tunisia 13.23 13.24 12.87 2.73 2.62
USA 16.90 8.76 22.18 2.71 1.51
Hungary 13.51 13.72 14.65 2.23 1.88
Source: Computed from Eurostat data

6.4 TRENDS AND MARKET SHARE IN SHIRT

Bangladesh continued to be the largest supplier of shirts for the

last three years (95-97) in terms of both value and volume; its
market share in terms of value and volume remained stable at
16% and 26% respectively. Total market of shirt was Ecu
2247.72 million in 1995; it reached Ecu 2141.31 million in 1996
and Ecu 2190.21 million in 1997. The market has decreased
2.5% from 95 to 97. Exports from Bangladesh have, however,
continued to grow; in 1995, its export was Ecu 373.31 m. and in
1997, it was Ecu 365.29 m.

The average unit price off all extra-EU suppliers was 14.88
Ecu/Kg in 1995 and 18.42 Ecu/Kg in 1997. Bangladesh continued
to be the lowest cost supplier within the top ten countries
followed by India and China. Higher cost suppliers include
Poland, Tunisia, Morocco and Turkey (price range 27-23 Ecu/Kg).
Indonesia, Romania and Hongkong were in the midway (price
range 17-18 Ecu/Kg).

Table: Unit Price and Market share of Extra-EU leadingShirt suppliers (Ecu/Kg)

1995 1996 1997 Mkt. Share Mkt. share

(Ecu/Kg) (Ecu/Kg) (Ecu/Kg) % %
Value (97) Volume
(97)
Banglades 8.53 8.93 9.73 16.68 28.12
h 16.28 17.07 19.36 12.47 10.57
Hongkong 13.73 12.84 13.89 10.49 12.39
India 13.96 14.63 16.75 6.42 6.29
China 22.54 22.11 22.18 6.03 4.46
Turkey 22.11 23.02 21.94 5.67 4.25
Morocco 26.96 27.02 26.11 4.00 2.51
Poland 15.87 17.72 18.80 3.91 3.42
Romania 25.66 25.15 25.79 3.85 2.45
Tunisia 14.92 16.21 18.61 3.02 2.67
Indonesia 14.88 15.19 16.42 100.00 100.00
 36

All extra-
EU
Source: Computed from Eurostat data; details in Appendix

Bangladesh faces competition mainly from Pakistan (unit price

10.03), and to some extent from India (unit price 13.89), Arab
Emirates (unit price 13.54), and Bulgaria (Unit price 14.15).

6.5 MARKET SITUATION AND BANGLADESH

Trends in unit price give some indication of competitiveness;

but it mainly indicates the market segment of a particular
country. High unit prices some suppliers such as Hong Kong,
Turkey, East European Countries reflect to a certain extent their
specialization in high value-added, design intensive ranges.

Bangladesh has become the third largest supplier of apparel in

the EU market in terms of volume, representing 7.33% market
share; in term of value, its position is ninth. Several factors have
contributed to this development. First, there are some
differences between Bangladesh and other countries regarding
to export regulation. Bangladesh (as a Least Developed
Country) and other preferential countries are enjoying full GSP
facilities under compliance of certain requirements. These
facilities provide zero tariff facility for exporting products. Other
countries (India, China) enjoy GSP facilities partially; (they have
to pay 85% of conventional tariff, which is 13%). However, only
30% of Bangladesh's export are covered under GSP; the rest is
exported without GSP facilities. Another major benefit that
Bangladesh enjoy is that it can export any item in an unlimited
amount; there is no quota restriction on Bangladesh in
exporting to the EU market. Other countries (except preferential
countries) are restricted to quota limitation. It can be seen from
quota utilization figures that these countries (particularly China
and India which are considered potential competitors of
Bangladesh once MFA is phased out) are utilizing their quota to
a full extent. So, quota is definitely binding for these countries.
Limited by the quantitative restriction, the European buyers
prefer to buy relatively high value added products from these
countries and place orders for lower segment products in
Bangladesh and thus maximize the value. The lower average
price of Bangladesh thus reflects the lower segment based
export mix of Bangladesh, rather than the higher
competitiveness.

Table: Quota Utilization rate of the apparel suppliers in 1997

Country T-shirt Shirt Pullover Trousers

China 99.90 99.86 99.91 99.84
 37

India 99.78 89.66 99.93 99.85

Hongkong 64.82 67.56 99.93 99.89
Indonesia 66.10 94.70 100.00 73.22
Macao 98.69 93.80 99.49 99.92
Pakistan 91.29 55.19 91.52 90.89
Thailand 54.38 69.89 90.33 55.01
Source: Website of SIGL

From the statistics presented in different tables, it becomes

clear that China has become a formidable player among the
extra-EU suppliers. China retains first position in the EU market
both in terms of value and volume. Preferential countries and
India are also dominant players. Another major player is Turkey;
it is the second largest supplier both in term of value and
volume.

As it has been mentioned above, GSP and quota facilities are

shielding the competition in the apparel market. These
restrictions are expected to continue up to 2004. So Bangladesh
is likely to benefit from this quota regime (in terms of shield of
price competition) during this time. Though the integration of
quota items have started in 1995, and already two phases have
been completed, most of the items Bangladesh exports are
likely to be integrated in the last phase of MFA phase out.

6.6 MARKET ACCESS TO THE EU

Table:Tariff and Non-tariff barriers

Tariffs Quota Surveilla Certificate

nce of Origin
1. Preferential Countries 0 No Yes EUR1
(Morocco and Tunisia)
No No EUR1
2. ACP countries 0
3. Least Developed No Yes (only GSP Form A
0
Countries under GSP Banglad
( Incl. Bangladesh) esh)
0
No EUR 1
4. EFTA countries
No
(Switzerland, Norway,
No No
Iceland) 0
No
85%
5. Turkey Some GSP Form A
countries No
6. GSP countries 0-
No
13.4%
7. OECD (USA, Japan, No No
Canada, Australia,
Mexico, New Zealand) Yes
Some No
8. Third Countries not 0-
countries
covered by any specific 13.4%
Yes
agreements (North
Korea, Croatia, Bosnia)
 38

9. Central and Eastern 0- No

Europe (Poland, 13.4% Yes
Romania, Czech
Republic, Hungary, Yes
Bulgaria, Slovac N/A
Republic) Yes Yes
0- No
10. WTO/GATT registered
13.4% No
countries under MFA
11. Special Agreements 0-
(Russia) 13.4%
Source: Profound, 1998
Remarks
 Turkey was accorded custom union status with effect from
January 1, 1996.
 The Central and Eastern European countries: a number of
categories was liberalized and outward processing traffic
(OPT) quota increased in March 1997.
 CSP countries pay 85% of the conventional tariff. This implies
a tariff rate of 0-11.4%.

The import tariff depends on the origin and the composition (HS
code) of the product, and whether the country that exports a
product to the EU has an agreement with the EU. The tariff has
to be paid by the importer when the product enters the EU. This
includes a Customs Union around which the Common External
Tariff ensures that duties will be paid when goods enter that
Union.

6.7 ACCESS OF BANGLADESH TO THE EU MARKET

Bangladesh has access to the EU market under the GSP scheme

as least-developed developing country. This means that it does
not have to pay customs duties on products covered by the
scheme, which include textile and clothing products, under the
condition that a certificate of origin accompanies the imported
goods. Furthermore, Bangladesh is subject to surveillance for
the categories 4 (T-shirt), 6 (trousers), and 8 (shirts).
Surveillance means that importers have to submit export
licenses (specifying the member state for which the goods are
destined) in support of their application for import licenses. This
dual-licensing system enables the EU authorities to supervise
imports to take action in the event of surges and to check
fraudulent imports.
In November 1997, Bangladesh was granted derogation from
Regulation EEC/2454/93 in respect of the definition of the
concept of originating products used for the purposes of the
GSP scheme. A range of textile and clothing products which are
 39

manufactured in Bangladesh from woven fabric or yarn

imported into that country and originating in a country
belonging to ASEAN, SAARC or the Lome Convention shall be
deemed to originate in Bangladesh in accordance with certain
arrangements.
 40

7.0 ANALYSIS US MARKET DATA

Table: Leading suppliers of clothing in the US market.

By Value, (Million US$)
1996 1997 1998
Country US % Country % Country %
$ sha sha sha
re re re
Hongkon 386 10. Mexico 505 11. Mexico 272 10.
g 0 61 China 0 79 China 0 16
China 376 10. Hongkon 448 10. Hongko 256 9.5
Mexico 9 36 g 7 48 ng 5 8
Taiwan 355 9.7 Dom. 393 9.1 Dom. 188 7.0
Dom. 9 8 Rep. 4 9 Rep. 9 6
Rep. 197 5.4 Taiwan 221 5.1 Taiwan 121 4.5
Philippin 3 2 Hondura 5 7 Philippin 1 3
es 175 4.8 s 207 4.8 es 110 4.1
S. Korea 3 2 Indonesi 1 6 Hondura 5 3
Hondura 150 4.1 a 165 3.8 s 901 3.3
s 2 3 Philippin 9 7 Indonesi 900 7
India 138 3.7 es 159 3.7 a 869 3.3
Italy 0 9 S. Korea 6 3 S. Korea 800 6
Banglad 121 3.3 Banglad 159 3.7 India 795 3.2
esh 9 5 esh 6 3 Banglad 785 5
Thailand 118 3.2 India 151 3.5 esh 680 2.9
Total 7 6 Thailand 7 4 Thailand 267 9
Mkt. 114 3.1 Total 144 3.3 Total 62 2.9
8 6 Mkt. 7 8 Mkt. 7
112 3.0 134 3.1 2.9
4 9 7 5 3
104 2.8 125 2.9 2.5
9 8 6 3 4
363 428
89 27
Source: www.otexa.gov

By Volume (Million m2)

1996 1997 1998 *
Country US % Country % Country %
$ shar share share
e
Mexico 10 11.3 Mexico 155 13.70 Mexico 84 11.59
China 99 8 China 5 8.34 China 7 7.63
Hongkon 86 8.93 Dom. 947 7.01 Dom. 55 5.95
g 2 7.86 Rep. 796 6.49 Rep. 8 5.49
Dom. 75 6.76 Hongkon 736 6.39 Hondura 43 5.16
Rep. 9 5.93 g 725 5.91 s 5 5.02
Taiwan 65 5.48 Honduras 671 5.19 Banglad 40 4.38
Banglad 3 5.45 Banglade 589 3.92 esh 1 3.57
esh 57 4.56 sh 445 3.82 Hongko 37 3.24
Hondura 3 3.41 Taiwan 433 3.46 ng 7 3.02
s 52 3.12 Philippine 393 2.84 Taiwan 36 2.75
Philippin 9 2.97 s 322 2.82 Philippin 7 2.56
 41

es 52 2.94 Salvador 320 2.78 es 32 2.33

Indonesi 6 2.48 Indonesia 315 Salvado 0
a 44 Sri Lanka 113 r 26
India 0 South 49 Indonesi 1
S. Korea 32 Korea a 23
Sri 9 India India 7
Lanka 30 Total Mkt Sri 22
Thailand 1 Lanka 1
Total 28 Costa 20
Mkt 7 Rica 1
28 Total 18
4 Mkt 7
23 17
9 0
96 73
58 10
* (Up to July)

Total market for apparel in the US in terms of value increased

17% in 1997. Out of the leading suppliers, Mexico appeared to
be the most benefited player; it has increased its market share
by 1.18%. China, India, Bangladesh and Honduras have
modestly increased their exports. Growth rates of other
countries have decreased in most of the cases. Bangladesh
became 10th largest suppliers in the US market in 1997 in term
of value and 6th largest supplier in terms of volume.

Table: Unit prices of leading suppliers in the US market

96 97 98
Mexico 3.24 3.25 3.21
Hong 5.09 5.35 5.15
Kong
China 4.37 4.79 4.60
Dom. 2.68 2.78 2.78
Rep.
Taiwan 3.44 3.52 3.45
Honduras 2.31 2.29 2.24
Indonesia 4.03 4.06 3.93
South 4.81 4.74 4.79
Korea
Philippine 3.41 3.58 3.45
s
Banglade 2.12 2.16 2.08
sh
India 3.94 4.28 3.96
Thailand 4.39 4.49 4.17
 42

Sri Lanka 3.54 3.79 3.58

Vietnam 1.81 1.78 1.79
Costa 2.65 2.79 2.68
Rica 3.49 3.20 3.15
Pakistan
Source: computed from table 5.1

Out of the leading suppliers, unit price of Bangladesh is one of

the lowest. Unit price of Bangladesh indicates that it is
competing in the lower segment of the US market. Bangladesh
is competing against China, India, Pakistan, Sri Lanka, Vietnam,
Philippines, and in some cases with Indonesia. China also
produces a range of items serving upper and middle segments.
Bangladesh also competes against Mexico and some central
American countries (mainly Costa Rica, Dominican Republic,
Honduras). Like the EU market, lower price of Bangladesh in the
US Market does not necessarily reflect the price
competitiveness of Bangladeshi export. Rather it marks the
problem of reaching the upper markets.
 43

8.0 WAGE, PRODUCTIVITY AND BACKWARD LINKAGES

8.1 WAGE AND PRODUCTIVITY

Wage costs are a key component to total costs in clothing

manufacture. Werner International data on hourly wage costs in
the clothing industry (inclusive of social contributions) show the
following Asian countries as having the lowest costs in 1993:
Bangladesh ($ 0.16), China ($ 0.25), Vietnam ($ 0.26). Among
East European countries, only Romania ($ 0.25) appears in the
same category.

Table: Hourly Wage costs in the clothing industry,

selected countries, 1993, ($)
Norway 18.09 Portugal 3.03
Denmark 17.29 South Korea 2.71
Germany 17.22 Hungary 1.62
Belgium 16.20 Former 1.29
Sweden 15.84 Czechoslovakia 1.08
Netherlands 15.41 Mexico 1.06
France 14.84 Morocco 1.04
Austria 14.30 Mauritius 0.77
Italy 12.31 Malaysia 0.71
Japan 10.64 Thailand 0.53
Finland 9.25 Philippines 0.44
UK 8.42 Poland 0.35
USA 8.13 Sri Lanka 0.28
Ireland 7.44 Indonesia 0.27
Spain 6.41 India 0.27
Greece 5.85 Pakistan 0.26
Taiwan 4.61 Vietnam 0.25
Hongkong 3.85 Romania 0.25
Turkey 3.29 China 0.16
Singapore 3.06 Bangladesh
Source: Majumder 1995

Cost comparisons have also made by Kurt Salmon Associates

(KSA). However, the KSA data, for 1995, go further than the
Werner figures by calculating the cost of actual work content
rather than hourly wages. On the basis of KSA figures, the
disadvantage of East European countries relative to South Asian
suppliers appears to be smaller, in many cases disappears. Also,
the competitiveness of East European countries appears to
improve in comparison with preferential countries. Poland, the
Czech Republic and Romania, for example, fare marginally
better than India. However, the lowest cost countries are still
China, Vietnam and South Korea (Table 6.2).
 44

Although wage cost in Bangladesh is the lowest, it does not

indicate much of comparative advantage. The wage costs
should be examined in terms of comparative productivity. In
terms of productivity, Bangladesh does not have any special
advantages. The total working hours in the RMG industry can
not be used optimally in Bangladesh duo to a number of factors.
There are some

Table: Cost per standard minute produced of a standard

clothing item

Country DM/Standard
Minite
Tunisia 0.23
Morocco 0.22
Turkey 0.21
Hungary 0.25
Poland 0.23
Czech Republic 0.22
Romania 0.20
Hong Kong 0.25
India (Bombay) 0.25
India (North) 0.23
Indonesia 0.21
Sri Lanka 0.20
Vietnam 0.20
South Korea 0.15
China (south) 0.14
China (north) 0.14
Source: Majumber 1995, p 54

"hidden" costs that are not included in the wages. In many of its
competitor countries, productivity is much higher. For example,
the total man-hour required to produce a shirt of a particular
specification is Bangladesh is higher than the man-hour required
in Indonesia. One may note that the wages in most of the
Southeast Asian and other competing countries are increasing
at much faster rates than that in Bangladesh. This may possibly
allow Bangladesh to maintain its strength in terms of cost
advantages for longer time in future. But wages eventually will
be high in this country as well. Therefore, Bangladesh may lose
this comparative advantage in cheap labor in the long run if it
does not increases it productivity (Hafiz Siddiqy; 1996, p 5).

8.2 BACKWARD LINKAGE

 45

The cost of fabric and accessories comprises 75% of the total

cost of an RMG. Bangladesh has to depend immensely for
fabrics to be used in the RMG. In 95-96, over 26 billion yards of
fabrics were used in the garments sector - a lion share of that,
around 86%, was imported from countries like India, China,
Taiwan, Hongkong, Pakistan, Sri Lanka, Indonesia, Japan etc. In
case of knitwear, the imported fabric is 35% and in case of
woven, it is 96%. Currently, almost 65% to 75% of the export
earnings of the RMG industry ends up with the importing of the
fabric requirement. There are some crucial reasons for
developing an effective backward linkage of fabrics. First,
manufacturers buy fabrics at international prices with the
support of back-to-back LC, but prices are not necessarily
competitive. They also have to pay high interest for a certain
period ( C A F Dowlah, 1997, p 47). Second, with the phasing out
of garments quotas post MFA, textile power houses like China,
India and Pakistan are likely to become formidable suppliers of
RMG in the world market and this will result in an overwhelming
demand for fabrics. Getting fabrics at a competitive price may
become impossible for Bangladesh. Third, in order to expand
into new and potentially more lucrative segments of the global
apparel market, getting fabrics at a competitive price is crucial.
All these reasons indicate that unless Bangladesh establish a
strong base of backward linkages, it may face serious problems
in the future.
 46

9.0 POLICY SUGGESTIONS

Bangladesh's export caters mainly to the lower market

segments of both EU markets and US. The performances of the
major suppliers in the EU and US markets during the last three
years indicate that quotas and preferential treatments are
heavily shielding the price competition among the suppliers. In
1996, in terms of value, export of Bangladesh to the EU grew by
17% from the previous year; in 1997, the growth rate was 27%.
The overall performance is good; but there are some factors
that should be considered. One of Bangladesh's mostly exported
items, T-shirt, has reached its market saturation point. In fact,
exports of T-shirt from Bangladesh have decreased from the
previous year. This phenomenon indicates that Bangladesh
should concentrate more on other products and should go for
product diversification.

In the US market, apparels of different categories are exported

under the quota arrangements. The BEXIMCO Research Cell
estimates that in 1997, Bangladesh exported 63 categories of
apparel to the US market. Out of these, 21 categories are quota
items; but 98.5% (in terms of quantity, not value, in value term,
it will be slightly lower) of the total export were within these 21
categories. So, quotas cover almost all exports of Bangladesh to
the US and quotas are definitely shielding the price competition.

In the EU market, Bangladesh is allowed to export unlimited

amount of products where as most of the major clothing
suppliers are restricted by quota. Again, Bangladesh gets
preferential GSP facilities which major suppliers don't get.
Although, the average unit prices of Bangladesh's apparel are
lower than most of the major suppliers in both EU and US
market, these unit prices don’t reflect price competition. Quotas
are imposed on the basis of volume imported, not on value;
consequently major suppliers maximize their value by exporting
high value, highly specialized items. As a result, their unit prices
are indicative of market segment they operate. The quota
utilization figures indicate that all major suppliers fulfil their
quota fully over the years. Being limited by quota restriction,
Major supplies don't operate mainly in the lower segment of
apparel market. But, if they want to compete in this segment or
if they get the opportunity (which they will get after 2004), they
will produce clothing at a lower unit price. Bangladesh, in that
situation, will face serious competition from these suppliers and
may lose considerable chunk of market share. As Dr. Mustafizur
Rahman, Project Director of CPD and a reputed trade economist,
says, " this sector - the RMG and the knitwear sector
(constituting more than 70% of out export) - is subject to
 47

various quota and non-quota international trade arrangements

which has shielded our RMG sector from price competition to a
large extent. Had their been no quota, it would be difficult for us
to compete with other low cost bases in the East and South
Asian countries."

But, for the time being (that is up to 2004), the prospect of

Bangladesh's RMG appears to be sound. As both of the EU and
US will not integrate the most sensitive product item until the
end of 2004, Bangladesh is not expected to face any serious
challenge during this period.

However, the real challenge for will come on 2005 when the
MFA will be phased out and textile and clothing trade will be
fully integrated into GATT. Bangladesh will compete with other
apparel suppliers in a non-restricted, free international trade
regime. The following policy inititatives can be considered as
crucial for the RMG sector of Bangladesh in the post MFA
situation:

9.1 PRODUCT DIVERSIFICATION

In order to compete successfully, Bangladesh must

concentrated on middle and upper segment of the apparel
market. Currently Bangladesh focus on lower market segment.
In the post MFA situation, Bangladesh much produced
diversified products. By offering new products that have high
value, high specialization in term of fashion and design, it
should try to penetrate in the mid market segment in the
coming years. This will safeguard Bangladesh's prospect to
remain as a leading supplier of clothing.

9.2 ESTABLISHING BACKWARD LINKAGE

At present, local fabrics meet only 14% of the need of the RMG
sector. When textile trade will be completely integrated into
GATT, there will be a huge demand for fabric all around the
world among clothing producing countries, Unless, Bangladesh
establishes a strong supply base of fabrics, surviving in the post
MFA situation will be tough for Bangladesh.

9.3 INCREASING MARKETING EFFORT

Marketing effort will also play a crucial role in the coming years.
Currently Bangladesh does not have a strong marketing
mechanism that can comprehensively promote RMG of
Bangladesh in the EU and US markets. To compete successfully
 48

in a free and open market, increased marketing activities play

very important role. Bangladesh must develop a strong
marketing program for its apparel export.

9.4 INCREASING PRODUCTIVITY OF LABOR

Productivity of labor is also another critical factor that will play

crucial role. Productivity of labor in Bangladesh is very low.
Bangladesh must give emphasis on increasing its labor
productivity through improving technological know-how and
demographic profile.

REFERENCES

Boyd, Westfall, and Stasch, Marketing Research: Text and

Cases, Richard D. Irwin, Inc. 6th Edition, 1985

Hafiz G A Siddiqi: Product diversification in the ready-made

garment sector of Bangladesh: why and how? October 1996

Hafiz G A Siddiqi: Globalization versus Regional Trade, 1998

B.M.M. Mozharul Huq: Policy Framework of a Developing

Country like Bangladesh to Help its Apparel Industry Fit in the
Post-MFA Trade Regime

Mustafizur Rahman: Favored Market Access under WTO:

Perspective from Least Developed Countries (LDC) such as
Bangladesh, October 1997.

C. A. F. Dowla: The Consequences of GATT Uruguay Round for

the Textile And Garments Sector in Bangladesh, August 1998.

Feisal Siddiqi: Development of Backward Linkage: Post MFA

challenges and opportunities for the RMG sector of Bangladesh

ProFound: International Trade in Textiles and Clothing,

September 1998
 49

Nader Majid: The Uruguay Round and South Asia: An Overview

of the Impact and Opportunities, July 1995

D E Moris and M D Crosby: Quality Requirements for Textiles

and Clothing in Europe

Madhavi Majumdear: The MFA Phase-out and EU Clothing

Sourcing: Forecasts to 2005 (Textile Outlook International,
March 1996)
 50

TABLE OF CONTENTS

1.0 INTRODUCTION.....................................................................................................................1
1.1 BACKGROUND OF THE STUDY.................................................................................................1
1.2 PROBLEM STATEMENT..........................................................................................................1
1.3 OBJECTIVES........................................................................................................................2
1.4 SCOPE OF THE STUDY...........................................................................................................2
1.5 LITERATURE REVIEW............................................................................................................2
1.6 IMPORTANCE OF THE STUDY...................................................................................................7
1.7 RESEARCH MODEL...............................................................................................................8
1.8 HYPOTHESES ON GARMENT MANUFACTURERS .........................................................................11
1.9 LIMITATIONS.....................................................................................................................11
1.10 TYPES AND SOURCES OF INFORMATION................................................................................11
2.0 RESEARCH METHODOLOGY: A TWO-WAY APPROACH.......................................13
2.1 RESEARCH DESIGN.............................................................................................................13
2.2 DATA COLLECTION METHOD................................................................................................13
2.3 SAMPLING METHOD.............................................................................................................13
2.3.1 Sample Size Determination..........................................................................................14
2.4 EXPERT OPINION...............................................................................................................15
2.5 FIELD PLAN......................................................................................................................15
2.6 DATA ANALYSIS PLAN.......................................................................................................16
3.0 FINDINGS & ANALYSIS OF INFORMATION................................................................17
3.1 KNOWLEDGE LEVEL OF THE PRODUCERS ................................................................................17
3.2 TYPE OF RMG MARKETS....................................................................................................17
3.3 MAJOR COMPETITORS.........................................................................................................17
3.4 FABRIC SOURCING.............................................................................................................18
3.5 FABRIC SOURCING DECISION................................................................................................18
3.6 WORKERS SKILLS..............................................................................................................18
3.7 TRAINING FOR LABORS.......................................................................................................18
3.8 MANAGEMENT’S PERFORMANCE...........................................................................................18
3.9 PRODUCTIVITY...................................................................................................................19
3.9.1 Evaluating the Results.................................................................................................20
3.10 PROBLEM IN OPENING LCS................................................................................................21
3.11 TARGET MARKET SEGMENT................................................................................................21
3.12 PROBLEM IN FORWARDING PRODUCT.....................................................................................21
3.13 FABRIC QUALITY..............................................................................................................21
3.14 FASHION AND STYLE OF THE PRODUCT.................................................................................21
3.15 PROMOTIONAL ACTIVITIES.................................................................................................21
3.16 GOVERNMENT POLICY ON RMG........................................................................................22
3.17 PROMOTIONAL ACTIVITIES OF THE GOVERNMENT....................................................................22
3.18 BARRIERS AFFECTING RMG EXPORTS................................................................................22
3.18.1 Evaluating the Results...............................................................................................23
4.0 AGREEMENTS ON TEXTILE AND CLOTHING TRADE............................................24
4.1 THE MULTI FIBER AGREEMENT (MFA) ...............................................................................24
4.2 AGREEMENT ON TEXTILE AND CLOTHING (ATC)....................................................................25
4.2.1. Freedom of Product Choice.......................................................................................26
4.2.2. Growth rates of quota.................................................................................................26
4.2.3. Fare trade policy and safeguards..............................................................................26
4.2.4. Tariffs..........................................................................................................................26
4.2.5. Trade liberalization for non-WTO countries.............................................................27
4.3 THE LOME CONVENTION.....................................................................................................27
4.4 THE CARIBBEAN BASIN INITIATIVE (CBI)..............................................................................27
4.5 THE NORTH AMERICAN FREE TRADE AREA (NAFTA)...........................................................28
4.6 MFA IMPLEMENTATION PROCESS IN THE US AND EU..............................................................28
5.0 READY MADE GARMENTS OF BANGLADESH ..........................................................29
 51

5.1 NATURE AND PATTERN OF GROWTH........................................................................................29

TABLE: RMG AND TOTAL EXPORT OF BANGLADESH......................................................................29
5.1.1. Marketing trend: EU emerges as the largest buyer..................................................29
5.1.2. Knitwear: the highest growth rate............................................................................29
5.2 EXPORT IN OTHER COUNTRIES...............................................................................................30
6.0 ANALYSIS OF EU MARKET DATA..................................................................................31
6.1 EU IMPORTS....................................................................................................................31
6.2 SHIFTS IN THE LEADING SUPPLIERS .........................................................................................31
6.3 TRENDS AND MARKET SHARE IN T-SHIRT...............................................................................34
6.4 TRENDS AND MARKET SHARE IN SHIRT...................................................................................35
6.5 MARKET SITUATION AND BANGLADESH .................................................................................36
6.6 MARKET ACCESS TO THE EU..............................................................................................37
6.7 ACCESS OF BANGLADESH TO THE EU MARKET........................................................................38
7.0 ANALYSIS US MARKET DATA.........................................................................................40

8.0 WAGE, PRODUCTIVITY AND BACKWARD LINKAGES...........................................43

8.1 WAGE AND PRODUCTIVITY..................................................................................................43
8.2 BACKWARD LINKAGE.........................................................................................................44
9.0 POLICY SUGGESTIONS.....................................................................................................46
9.1 PRODUCT DIVERSIFICATION..................................................................................................47
9.2 ESTABLISHING BACKWARD LINKAGE.......................................................................................47
9.3 INCREASING MARKETING EFFORT..........................................................................................47
9.4 INCREASING PRODUCTIVITY OF LABOR...................................................................................48
REFERENCES..............................................................................................................................48
APPENDIX A: Questionnaire
APPENDIX B: Questionnaire Manual
APPENDIX C: EU and US Market Data