Environmental Forces and SWOT Analysis of Garments Industries in Bangladesh
Executive Summary Bangladesh’s industrial base, which has remained stagnant over the past two decades, is very narrow, contributing to about 11.5 percent of the GDP (BBS, 2001). Within this narrow industrial sector, however, the ready-made garments (RMG) industry has flourished as its most dynamic sector. Since its modest beginning in the early 1980s, the industry has contributed to the economy appreciably in terms of employment, output, and foreign exchange earnings. Moreover, employing as it does more than 1 million young women, the industry has brought about a noticeable change in society as well as in intra-household gender relations. Apparently the most important factors behind the success of the RMG industry in Bangladesh are: the availability of cheap labor. The another factor which is now phased out was the GATT/WTO-controlled international textile and apparel trading system through the operation of the Multi Fiber Arrangement (MFA).In this connection, there is growing apprehension as to whether the industry, in order to remain competitive, will see both a reduction in the already very low wage levels and a further deterioration of the already very poor working conditions. This study aims to: •
Analyze the current status and future prospects of the RMG industry in Bangladesh terms of its growth, employment, and exports;
•
Assess the likely impact of globalization and liberalization (with special reference to the phasing out of the MFA) on the RMG industry; and
•
Investigate whether the reduction in wage rates and worsening of working Conditions in the RMG industry figure as strategies to continue to be competitive n the world apparel market.
The paper examines the static versus the potential dynamic competitive advantages of Bangladesh’s RMG sector, and the inter-linkages between job quality, productivity, and competitiveness in this industry.
Introduction
Bangladesh earns nearly $7 billion a year by exporting textile products, mainly to Europe and the United States. This is about 70 percent of total export earnings of the country. The RMG industry has around 4,000 units across the country. It employs around 2.5 million workers, 90 percent of whom are poor women. Whenever the country is criticized for its high level of corruption and confrontational politics, its garment industry is held up as a success story. Bangladesh has already been grappling with political instability due to the prevailing confrontational politics in the country. The situation was made worse when the country’s major industry and its main foreign exchange earner Ready Made Garments (RMG) industry got embroiled in labor unrest. The industry owners and political leaders initially tried to sweep the grievances of labor under the carpet by floating various conspiracy theories. But the problem has refused to die down as its roots lie within the industry and in the exploitation of labor
Background of RMG
The Ready Made Garment industry in Bangladesh is made up of 3,486 manufacturers and accounts for 76% of total foreign exchange earnings. It employs about 180,000 managers and 1.5 Million workers, of whom 1.2 Million are women. In Bangladesh, the RMG industry has emerged as a major economic sector and has had its impact on the financial services sector, communications, transportation, and on other related industries The RMG industry has had a major social impact. It has empowered 1.2 million women with employment and economic independence, which in turn has earned for Bangladesh recognition as a modern and enlightened society. The RMG sector in Bangladesh was not etched out by a competitive and efficient industry. It came about as a result of benevolent accommodations extended to Bangladesh as a developing country. Buyers came to Bangladesh of their own volition and it was at their behest that the industry grew and thrived. Since quality, competitiveness, and efficiency were not required to attract buyers, these aspects have remained largely ignored by the manufacturers of RMG in Bangladesh. The output of the RMG sector in Bangladesh is typified as low cost, low value added and poor quality. The high-end market niches, which demand high value addition and high quality, are well beyond the reach of the RMG manufacturers in their present state. When the preferential accommodations are withdrawn in 2005, other countries with preferred status will take Bangladesh’s place as low cost producers. The RMG sector in Bangladesh, with its poor quality and low productivity will be no match for the competitive producers. Sri Lanka has a smaller industry, but the annual turn over in volume and in dollar value is comparatively far superior to that of Bangladesh. The higher volume is explained by productivity. Factories in Sri Lanka operate at 80% - 90% of potential capacity. Whereas in Bangladesh, according to
some experts, productivity is between 35% and 55% of potential capacity with very few exceptions. For the RMG sector in Bangladesh, productivity alone can make a difference between life and death. The higher dollar value is explained by the addition of value. The consumer surplus is drastically greater in the market for high end products. Consequently, the profit margin is much higher for high end products. Trained people are at the heart of the successful RMG manufacturer: Trained designers, in tune with designers at the buyer’s end, adapt the buyer’s needs into the manufacturing process. And skilled managers organize the production floor for efficiency and quality. Sri Lanka invested in creating the human resource that mans their industry: CITI, Phoenix College, University of Moratuwa, are only some of the academic institutions in Sri Lanka that train people for the RMG sector. In India, the Ministry of Textiles has set up National Institutes of Fashion Technology in all major cities. In addition there are a large number of elite private institutes.
It is in this context that the BGMEA visualized and established the BGMEA Institute of Fashion & Technology in November 1999 and opened its doors to students in April 2000. Presently there are about 250 students enrolled in two Bachelor degree programs under the National University. 675 people employed in the industry have attended certificate courses on various aspects of the manufacturing process. Academic activities at BIFT are stimulated by the apparel manufacturing industry. The degree programs, though distinct, require students to develop some skills that are basic to designing and making apparels. These basic skills are learned through the first two semesters. Thereafter students are able to declare their candidacy for one of the degrees.
About Bangladeshi Garments:
The ready-made garment industry in Bangladesh is not the outgrowth of traditional economic activities but emerged from economic opportunities perceived by the private sector in the late 1970s. Frustrated by quotas imposed by importing nations, such as the United States, entrepreneurs and managers from other Asian countries set up factories in Bangladesh, benefiting from even lower labor costs than in their home countries, which offset the additional costs of importing all materials to Bangladesh. Bangladesh-origin products met quality standards of customers in North America and Western Europe, and prices were satisfactory. Business flourished right from the start; many owners made back their entire capital investment within a year or two and thereafter continued to realize great profits. Some 85 percent of Bangladeshi production was sold to North American customers, and virtually overnight Bangladesh became become the sixth largest supplier to the North American market. After foreign businesses began building a ready-made garment industry, Bangladeshi capitalists appeared, and a veritable rush of them began to organize companies in Dhaka, Chittagong, and smaller towns, where basic garments--men's and boys' cotton shirts, women's and girls' blouses, shorts, and baby clothes--were cut and assembled, packed, and shipped to customers overseas (mostly in the United States). With virtually no government regulation, the number of firms proliferated; no definitive count was available, but there were probably more than 400 firms by 1985, when the boom was peaking. After just a few years, the ready-made garment industry employed more than 200,000 people. According to some estimates, about 80 percent were women, never previously in the industrial work force. Many of them were woefully underpaid and worked under harsh conditions. The net benefit to the Bangladeshi economy was only a fraction of export receipts, since virtually all materials used in garment manufacture were imported; practically all the value added in Bangladesh was from labor
Contribution of RMG to the economy:
Globalization, especially the intensification of trade liberalization in the 1990s, has had a significant impact on the Bangladesh economy, opening up opportunities in the export sector and subjecting the import-competing sectors to greater international competition. Overall, exports in the 1990s have increased by a factor of four, with imports also rising. The ratio of exports to GDP rose from around 5.5 percent in the early 1980s to around 13 percent in 1997. GDP increased to nearly 5 percent on average over this period, leading to a modest rise in per capita income. Unfortunately, the growth in income has also been accompanied by a rise in income inequalities, the national Gini coefficient rising from around 0.36 in 1983/84 to around 0.43 in 1995/96. Absolute poverty, at around 47.5 percent of the population, has registered hardly any decline from 1988/89 to 1995/96, although the percentage of the hardcore poor (those unable to meet 1,805 k. cal per person per day) has declined a few percentage points, and still accounts for 25 percent of the population. Within the export sector, there has been a shift away from more traditional exports such as tea and jute, to items such as RMG, fish and seafood, and leather. Figure: RMG exports from Bangladesh
The current manufacturing growth experienced by Bangladesh is thus by and large driven by the growth of the RMG industry. In 1992, knit and woven RMG accounted for 7 percent of units, 11 percent of fixed assets, 21 percent of annual investment, 30 percent of the employment and wage bill, and 23.5 percent of gross value added and returns on capital attributable to Bangladesh’s private manufacturing sector.2 A study of the country’s manufacturing sector’s performance in the 1980s found that the top 11 sub-sectors were, in terms of growth in value-added, RMG, fertilizer, tea processing and blending, compressed liquefied gas, biddies, leather shoes, printing and publishing, bakery, fish and sea food, silk and synthetic textiles, dyeing and bleaching textiles, soft drinks, hand and edge tools, china and ceramic wares, and tanning and finishing.3 According to a more recent study, RMG and pharmaceuticals are the two sub-sectors which demonstrated the most robust growth in output between 1988/89 and 1995/96, and thus commanded the most significant weight in the manufacturing structure.4
Growth of RMG Industry: Since its beginning more than two decades ago, the RMG industry has shown phenomenal growth, despite Bangladesh’s generally sluggish industrial base, turning the country from a traditionally jute-centered export economy to one primarily based on RMG exports. Between 1983 and 1984/85 the number of garment manufacturing units increased from only 47 to 487. In the 1990s, Bangladesh Garments Manufacturers and Exporters Association (BGMEA) membership experienced an annual average growth rate of 18 percentage points
RMG exports The dynamic performance of the RMG industry has transformed Bangladesh from Jute exporting country into what is primarily a garment exporting economy. From about 4 percent of Bangladesh’s total export earnings in 1983-84, within a time span of 15 years, the RMG industry currently accounts for about 76 percent of the country’s total export earnings, making Bangladesh one of the 12 largest apparel exporters in the world. More than 95 percent of the output of the RMG units and about 90 percent of that of the knitwear units cater to the foreign market.The success of Bangladesh’s RMG exports is in part attributable to availability ofcheap labor; preferential treatment received from the European Union (EU) under the GSP scheme; and substantial quotas available in the USA (as against quota restrictions imposed on its principal competitors, e.g. China, India, Pakistan, Sri Lanka, and Thailand). In the late 1970s and early 1980s, intermediate buyers began to
shift sources of RMG products from neighboring countries, due to the imposition of quotas, to countries like Bangladesh. Abundant cheap labor in Bangladesh ensured competitive prices, and thus acted as a primary incentive, while political turmoil in neighboring countries (e.g. Sri Lanka) further induced this transfer process. By relaxing the need for working capital and allowing duty-free access to inputs for the RMG sector, conducive domestic economic policies such as the granting by the Bangladesh Bank of back-to-back letters of credit (L/C) and bonded warehouse facilities further accelerated the process of establishing new RMG units. Superimposed on this process has been the impact of the North American quota system and the European Union’s preferential treatment under various schemes, e.g. the General System of Preferences (GSP). While in the USA and Canada, quotas imposed on apparel imports mean guaranteed access for developing countries Like Bangladesh, the GSP provided by the EU lends crucial support in maintaining competitive prices, and thus a competitive edge for Bangladesh’s RMG exports. Consequently, RMG exports have boomed (see Table 2.1 below). Over the last decade (1987-1997) the compound growth rate of RMG exports was more than 25 percent. Between 1992 and 1997, the annual compound growth rate of RMG exports experienced a robust growth of 19.4 percentage points, four times higher than GDP growth rates registered over the same period
Objective of the report Broad Objective :(To analyze the environmental forces in regard to garment Sector in Bangladesh.) Specific Objectives: The main objectives of the study are as follows: •
To analyse the micro & macro environmental forces that are influential in regard to Garments sector in Bangladesh.
•
To analyse the environmental factor such as customer, suppliers, and competitors in relation to garments sector in Bangladesh.
•
To analyse the environmental factor such as political, economical. Socio-cultural and technological relation to garments sector in Bangladesh.
•
To Analyse Strength, Weaknesses, opportunity, & Threat of the Garments Industries in Bangladesh.
•
To make strategy for the betterment of the sector in the coming years.
Literature Review The Marketing Environment.
Marketing Environment: The marketing environment surrounds and impacts upon the organization. There are three key perspectives on the marketing environment, namely the ‘macro-environment,’ the ‘micro-environment’ and the ‘internal environment’.
The micro-environment: This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence. The macro-environment: This includes all factors that can influence and organization, but that are out of theirdirect control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology.
EMBED Word.Picture.8 The internal environment. All factors that are internal to the organization are known as the ‘internal environment’. They are generally audited by applying the ‘Five Ms’ which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external. As marketers we call the process of managing internal change ‘internal marketing.’
PEST Analysis. Pest Analysis: It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up of: 1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc. 2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc. 3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.
Political Factors. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as: 1.How stable is the political environment? 2.Will government policy influence laws that regulate or tax your business? 3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
Economic Factors. Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at: 1. Interest rates. 2. The level of inflation Employment level per capita. 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on. Sociocultural Factors. The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include: 1.What is the dominant religion? 2.What are attitudes to foreign products and services? 3.Does language impact upon the diffusion of products onto markets? 4.How much time do consumers have for leisure? 5.What are the roles of men and women within society? 6.How long are the population living? Are the older generations wealthy? 7.Do the population have a strong/weak opinion on green issues? Technological Factors. Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc? Which marketing topic are you studying?
SWOT Analysis S=Strengths, W=Weaknesses, O=Opportunities and T=Threats SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stand for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors.
In SWOT, strengths and weaknesses are internal factors. For example: A strength could be: Your specialist marketing expertise. A new, innovative product or service. Location of your business. Quality processes and procedures. Any other aspect of your business that adds value to your product or service.
A weakness could be: Lack of marketing expertise. Undifferentiated products or services (i.e. in relation to your competitors). Location of your business. Poor quality goods or services. Damaged reputation. In SWOT, opportunities and threats are external factors. For example: An opportunity could be: A developing market such as the Internet. Mergers, joint ventures or strategic alliances. Moving into new market segments that offer improved profits. A new international market. A market vacated by an ineffective competitor. A threat could be: A new competitor in your home market. Price wars with competitors. A competitor has a new, innovative product or service. Competitors have superior access to channels of distribution. Taxation is introduced on your product or service. A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too much. Two people rarely come-up with the same final version of SWOT. TOWS analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use SWOT as guide and not a prescription. SWOT analysis. SWOT analysis should distinguish between where your organization is today, and where it could be in the future. SWOT should always be specific. Avoid grey areas. Always apply SWOT in relation to your competition i.e. better than or worse than yourcompetition. Keep
your SWOT short and simple. Avoid complexity and over analysis SWOT is subjective. SWOT is a very popular tool with marketing students because it is quick and easy to learn.
Methodology The theoretical part of the study is based on secondary date collected from different publications on Bangladesh Garments Industries. The information collected has been analyzed along with various numerical observations and graphical representations. The empirical part is mainly based on primary data that is to be collected through questionnaire and personal interview of the owners/managers of the selected sample garments. I visited different places regarding the secondary data collection. As many as ten places were visited to acquire necessary information and the information collected was accumulated and distributed among the entire report.
Reporting—Finding and Analysis Contribution of the RMG industry to the socio-economic development of Bangladesh The RMG is earning over 70% of the nation’s total foreign currency. In addition to earning lion's share of the country's total foreign exchange, this sector has brought about a positive transformation in the over allspice economic condition of the clotty. Some of the contributions that the sector marks to the nation are: Since its inception till date, the industry has earned nearly USS 22 billion (Tk. 103.4 Thousand Crore) for the country. The Value Addition portion has been about US$ 6.6 billion (Tk. 31 Thousand Crore). However the earning is approximately about four times the investment in the industry. Estimated, present total investment is about Tk. 3,9000 Crore \-whereas the earning is about Tk. 16,00 Crore. Employment generation The RMG industry of Bangladesh has enjoyed a meteoric rise, from less than 50 factories in 1983 to 2600 in 1997. In the same period, the level of employment has risen from some 10,000 to approximately 1.4 million (14 lacs) today, with its share of employment in the
manufacturing industry increasing from a mere 2% to 15%. About 90% of the workers are women, constituting almost 70% of all female employment in this nation's manufacturing sector. A tin has created vast scope family, families of about 1.4 million (14 Lacs) workers depend on this industry. This industry has created a large-scale employment scope (About 1.5 Crore, each garment factory is providing employment opportunity for about 550 workers. Banking Sector The RMG sector has been playing role as one of the main catalyst contributing to the tremendous development of Banking and Insurance sector in our country. Presently, our commercial banks are earning over Tk. 2,000 Crore per year from oursectors. By now, some bank charges have increased to even three times the charges in 1985. Insurance Sector Insurance companies, even after reducing different rates by about 54%, are presently earning about 12.5% or about Tk. 1800 Crore per year from the RMG industry as various types of premiums for insurance policies. Shipping Business The manifold increase in the shipping business in Bangladesh including setting up of a several container yards (including an Inland Container yard at Dhaka by the Bangladesh Railway), expanding the port facilities to handle large containers, introducing special container - caning - trains, and the increasing of cargo handling and storage facilities at the Dhaka International Airport (ZIA) have also been due to the Garmentt industry. C &. F business The unprecedented increase in the C & F Stevedoring is because of the huge import of the garment raw materials & export of ready made garments. On average, they earn I % on all exports and imports which amounts to nearly TK. 230 Crore. Tax On Export Earnings As source tax only, presently the RMG industry is paying over Tk. 40 Crore.
Population Control With the opportunity of earning more, they now want to enjoy their lives. TIlls need is helping girls avoid early marriage and frequent pregnancy. It is contributing to the birth control program of our comfrey also. From 1985 - 86 till date, the country has been saved from a burden of at least 4 million new mouths to feed. Women emancipation and social transformation: The industry is helping women emancipation and employment. The women workers, if enter this sector then continue to stay because of the very working condition congenial for them. They are enjoying recognition and dignity in the society. This sector helps approach social equilibrium between men and women. Having the capability of earning, girls/women are well treated by their families. They are no longer any burden to their families. Linkage industry: Prospect for a huge textile industry capable to supply over 3 billions yards of fabrics a year to the export oriented garment industry has also been developed by the industry. A large number of ancillary have been emerged and growing keeping pace with this industry as well. Estimates shows that about 80% of garment accessories like cartons, threads, buttons, labels, poly bags, shirt boards, neck boards etc. are now being produced our country also. Approximately, this sector is earning about Tk. 2,000 Crore from the RMG industry. Waste recycling industry About 0.2 million people are engaged in (mainly, the waste cut pieces of fabrics) recycling industry. With these wastes, they are stuffing toys, pillows, quilts, cushions etc. and earning about Tk. 1,500 - 2,000 per month. It means, on an average, at present, they are earning about Tk. 30 - 40 Crore per year.
Transport: The road transport business has been expanded because the lion's share of cargo, moving between Dhaka - Chittagong and Dhaka - Benapole by road, is on account of the garment sector. Those who once started transportation business with rented trucks, many of them by now are the proud owners of even 10/12 trucks. Real Estate Economic demand for real estate development generated by the garment industry to accommodate offices and factories of over 2,600 garment units deserve consideration. About 26,000 mid - level manages in the industry have been renting 26,000 posh housing accommodations in Dhaka and Chittagong. Moreover, one study shows that real estate industry could now look forward to launching prospective housing projects feasible and viable in both financial and social tennis for about one million single Women working in garment industry. Utility services Credit of manifold increase in the revenue of utility services also goes to this industry to a great extent. For example, this sector is paying on an average US $ 2.26 million (Tk. 10.40 crore, @Tk. 40,'000 per factory) per month. As telephone and fax bill, this industry is paying US $ 0.56 million (Tk. 2.60 crore) per month. Emergency Consumers Market About 1.4 million workers in the industry are appearing in the consumers' market with a demand worth US$ 1.59 million (Tk. 7 Crore). An increasing demand for moderate cost cosmetics, sharee, footwear, fast food and other consumer products is also a direct result of about 1 million new consumers entering into the market with new living standard backed by increasing purchasing power. The industry is helping women emancipation and empowerment. (10 Track Records enclosed). For food (Mainly fastfood items), they are affording about US$ 0.61 million (Tk 2.80Crore) per day. Further industrialization: ď ą
The industry has proved itself to be the most prospective industry for a
country like Bangladesh, which is endowed with the huge cost - effective labor force. Moreover, it has further been emerged to the soundest base for the hem} industries. As the stock market has been collapsed, Ri\1G offers itself as to be the only base for further industrialization in the colmtry. The 1.4 million workers in the industry are appearing in the consumers market with a ď ą
demand worth US$ 1.59 million (Tk 1.7 Crore)
The.4 mi11ion workers are spending about US $ 0.30 million (Tk 1.4 crore) as Mess rental per month.
ď ą
About 0.7 million workers are spending about US $ 0.02 mil1ion (Tk 7 lakh) for conveyance per day.
Child labor elimination and education to the reloaded under age worker Today, thanks to the wide media coverage received by the famous Harkin's Bill, a General awareness about and appreciation of the noble aim and objective of the Bill has been created among the members of the BGMEA. Each and every Bangladeshi garment exporter is convinced that child labor is indeed" Abusive and Exploitative". And as proof of that consciousness we at the BGMEA, with the corporation of the ILO, UNICEF, the Govt. of Bangladesh and active guidance of the US Mission in Dhaka, managed to sign on the 4th of July, 1995 a historic document, known as memorandum of Understanding (MOU) on the elimination of child labor from the gaIll1ent sector of Bangladesh. Following implementation of that MOU, in both letter and spirit, the entire garment sector of Bangladesh has been declared child labor free with effect from October 31, 1996. Although the level of implementation is estimated by lLO at 95%, that should be considered a remarkable doubt free of implementation of the MOD in the socioeconomic realties of the country.
Strength, Opportunity, Weakness and Threat of Garments Industries Condition of garments industry:
The ready-made garment industry in Bangladesh has enjoyed a meteoric rise, from less than 50 factories in 1983 to 2600 in 2007.In the same period, the level of employment has risen from some 10,000 to approximately 1.4 million today, with its share of employment in the manufacturing industry increasing from a mere 2% to 15% about 90% of the workers are women, constituting almost 70% of all female employment in this nation manufacturing sector. This has created a vast scope for employment and uplift of the hitherto neglected section of our population, thus radically transforming the socioeconomic condition of our country. The apparel export trade today accounts for as much as over 75% of Bangladesh’s total foreign exchange earning. Contribution to the sectors like Banking, Insurance, Hotel and Tourism, Linkage and Recycling, Consumer’s Goods, Utility Services, Transportation, Real Estate and C and F Stevedore only, roughly estimated, the RMG industry is now playing the catalyst role behind the consequential economic activities in the country to the time of the tune of nearly Tk.12000 Crore per years. The strengths of Bangladesh: The strength of a firm or country in the Market depends on its specific comparative advantage(s), which its competitor does not have. A particular uniqueness of a supplier shapes up its strategic profile. In case of Bangladesh, this uniqueness is the unlimited availability of unusually cheap labor that stands out as a low technology and labor intensive industry. The workers can be employed at a very low wages, not only in comparison to other competitor countries, but also in comparison to other domestic industries in Bangladesh. In domestic market as well, the wages of the workers of the RMG industry happen to be the lowest. This should be apparent from the figure presented in table below. TABLE NO. 1 Average minimum wages of RMG industry as % of average minimum of wages of twelve selected industries SECTOR/INDUSTRY
%
JUTE BAILING MATCH HOSERY REROLLING
82 83 86 70
PRINTING CINEMA COLD STORAGE PHARMACEUTICAL SHOE PATROL PUMP FISHING TRAWLER ROAD TRANSPORT
92 86 72 79 83 77 57 72
Source: Calculated by Dr. Hafiz G.A Siddiqi, Professor and Academic Dean, North south University and Former Director IBA, Dhaka University, based on World Bank Report. The figures in the table indicate, for example, that the average minimum wages of the workers in the RMG industry in 1997 was 82% of that in jute bailing industry, 70% of that in re-rolling industry, and so on. All of the 12 industries included in the table paid average minimum wages, which were higher than that of TMG industry. In high competitive international market, it is the price and quality, which determines the competitive position of a supplier, on the account of price, Bangladesh can beat all its competitors. Price is related to cost of production which in case apparel industry is greatly determined by the labor costs. Wages in Bangladesh is remarkably low. Naturally it will continue to enjoy competitive advantages in international markets because it has virtually unlimited supply of cheap labor who can learn the low technology operation necessary in producing RMG without much investment in terms of money and time. That Bangladesh has a tremendous labor-cost advantage can be seen by looking at the comparative average hourly wages (including fringe benefits) of some 39 countries, both develop and developing, presented in the table. Werner International data on hourly wage cost in the clothing industry (inclusive of social contributions) is shown in the Table-
TABLE NO. 2 Hourly wages costs in the RMG industry (Selected countries) COUNTRY
WAGES($)
COUNTRY
WAGES($)
Norway
18.09
Taiwan
4.61
Denmark
17.29
Hongkong
3.85
Germany
17.22
Sri Lanka
0.35
UK
8.42
China
0.25
USA
8.13
Bangladesh
0.16
Weakness of Bangladesh The problems in the industry pre-date the riots which took place just over a month ago and which were attended by deaths, injuries and the destruction of property. Over the years, hazardous working conditions have resulted in the deaths of many workers through factory fires and collapses. The Spectrum Factory building collapse of April 2005 killed 64 people, injured over 70 and left hundreds jobless. In February 2006 a fire destroyed the four-story KTS Textile Industries in Bangladesh’s port city of Chittagong again killing scores of mostly young and female workers. Workers, who are mostly young women, also face an acutely difficult working environment - wages are low, hours are long, forced labour is practised, child labour exists, sexual harassment exists, freedom is curtailed, whether it be locked doors or rights of association, and there are a multititude of other practices which go against international labour standards and codes of conduct (= non-compliance). At the level of legislation and business dealings, lack of implementation of laws, restrictive laws and unfair buying practices by buyers compound the issue of non-compliance. Banking sector anomalies: Our banking sector, which once played a very positive role behind the development of this sector, based on the bank-client relationship, this relationship has been strained due to the creation of forced loan/demand loans as a result of non-shipment of goods during the period of political impasse in 2005/06.The creation of demand loans/forced loans and their subsequent classification as bad loans resulted in a strained relationship whereby client
were refused to open Back-to Back L/C facilities inspire of having the ability to secure export orders and to execute them. Electricity crisis: For over the last two years, electricity crisis has been at its peak the last one-decade or more. Presently, on an average, we are losing production worth of about US$1.6 million per day just owing to the electricity crisis. Taxes on export earnings: The tax burden on export oriented garments sector is reducing competitiveness of Bangladesh made garments in the international markets against products from competing country. With other incentive for aggressive marketing, several countries including our neighboring ones are totally exempting their export sectors, including RMG, from all export taxes to help supplement their competitiveness and boost up export in the international markets. Communication: Good communication system is a pre-requisite of economic development. Lack of it creates road congestion, takes longer time in shipping raw materials and finished products to the port from the factory and thus increase cost. Law and order situation: Sound law and order situation and congenial political environment are pre-requisites for development. Due to the lack of it, interest of both the employees and the employers are being affected. Wage problem: The National Wage Board is likely to announce today a minimum wage for the workers in the export-oriented garment sector with a gross salary of around Tk 2,000 for the entrylevel employees. The announcement may invite strong protest from both the garment owners and workers, as it is a bit higher than what the factory owners had agreed and much below than the workers' demand for Tk 3,000 as the monthly salary. The board so far held
23 meetings after it was formed on 31 May but it could not reach any consensus in the face of strong opposition from both the garment owners and the workers. Gross salary package of Tk 2,000 include the basic salary of roughly Tk 1,400, sources said. In a revised proposal, garment owners insisted on a take home package of about Tk 2,000 for a worker with two-hour overtime but it was not accepted. Annisul Haque, representative of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) on the wage board, said, "We will not accept anything like a gross salary package of around Tk 2,000 [excluding the overtime] as it will make a huge difference with what we proposed." The take home package including a two-hour overtime and attendance allowance will virtually stand at around Tk 2,800 which the garment owners will not be able to bear, he said, adding, "Factory is like our child and we will not take the responsibility of killing our child." Terming the board's 24th meeting today a crucial one, Zafrul Hasan, who represents the workers as a permanent member on the board, said, "In view of the rising living cost, it will not be possible for the workers to accept any deal fixing the wage below Tk 2,000, as there was no pay raise in last 12 years." Minimum wage for the workers is now Tk 950 that was fixed around 12 years ago. The three-month deadline for fixing minimum wage for the garment workers ended on August 31 without any settlement on the issue and different workers' organizations started street agitation the following day in protest against ignoring the tripartite deal. Following the severe labor unrest in the country's premier export-earning garment sector, the government formed the wage board and asked it to recommend a pay structure for the workers within three months. The government, garment owners and workers' leaders at a meeting on June 12 inked a 10-point memorandum of understanding (MoU) after a series of discussions on May 24, June 1 and June 4 among the stakeholders in the garment sector and decided to implement those in phases to address the labor unrest, ensure labor rights and peaceful atmosphere in the factories. Meanwhile, National Garment Workers Federation (NGWF) laid siege to National Wage Board office at Topkhana Road yesterday and handed over a memorandum demanding immediate announcement of minimum wage for the garment workers. More than one hundred garment workers participated in the siege programme ignoring heavy rain yesterday, NGWF said in a statement. The workers have become frustrated and aggrieved because wage was not announced as per the agreement signed at the June 12 tripartite meeting, it said, adding
that the workers have already started agitation and it may create an unstable situation again.
Gender discrepancy in job type and wage rate: Within the RMG factories, gender discrepancy in wage levels for comparable jobs is Small, especially when accounting for factors such as age, education, and experience. In the production process, however, female workers are mainly concentrated in “less skilled” operations, and thus are low paid. In the RMG industry, most women work either as operators (where almost all workers are female) or as helpers (40-60 percent of the total work force in this category are females). It is extremely rare to find women working as production managers, supervisors, finishing and machine operators, or as “in-charges” who draw salaries varying from 2-10 times that of the average operator, depending on the type of operation involved. Elsewhere, 12 the author has thus argued that the female labor market in Bangladesh is largely segmented by jobs (tasks) and by type of industry, as is clear from the discussion in Section 3.1.4, above, and factors such as age, education, and marital status13 account for the low average wages of female workers, since they are prone to “crowd in” to certain specific jobs and occupations. Thus, discrimination in wage payments between male and female workers may be very limited, but discrimination in terms of education and training and various barriers to entry explain the low wages and low opportunity costs of female labor, a factor which needs to be addressed at the policy level.
Agreement with garment worker not honored: A study by Bangladesh Institute of Labor Studies (BILS) has indicated that garment manufacturers and exporters in Bangladesh have yet to implement four agreements signed between 1997 and 2005 to defuse problems following labor unrests. A number of labor leaders believe that owners reached accords with workers just to defuse troubles whenever there was unrest. Instead of implementing deals, the owners even filed a writ petition against the government notification about minimum wages for laborers circulated in 2001. The factory owners also did not implement the 24-point suggestion offered by the
Department of Inspection for Factories and Establishment in November 2000. The department pointed out 24 kinds of irregularities in the garment industry that went against labor laws. Inspection by the department also found that non-implementation of labor laws resulted in discontent and anger among the workers.
Opportunity of Bangladesh Buyers like Pelle Karlsson now have the fate of millions in their hands. He works for H&M, a chain that has shops across Europe and the United States. The company is now deciding which countries to keep doing business with. "We have our price strategy; we have our quality level and also if the country can work with a good lead time," he said. "Based on these three factors we will select both our suppliers and the countries that can cope with these things. We still think Bangladesh is able to compete in these areas." H&M has moved some of its operations in Asia to Dhaka from Hong Kong in anticipation of buying more of its supplies here from now on. But what is good news for Bangladesh will be bad news for workers in other developing countries.
Threats of Bangladesh Phasing out of MFA threat: It seems that the phenomenal growth of the RMG exports from Bangladesh has become a threat to its powerful competitors. Naturally, the competitors are eager to snatch away the markets from Bangladesh with aggressive and innovative business strategies. They will certainly take advantage of the new provision included in the final acts of the Uruguay Round. One such provision is the phasing out of MFA (Multi Fiber Arrangement). The GATT system as it well known, GATT/WTO prohibits not only unjustified tariff barriers but also all from of non-tariff barriers like the imposition of quota. In the sixties, while the GATT prohibited discrimination between trading partners, it allowed certain exception to the GATT principles and one of the m was the MFA. USA and several other developed countries argued that if developing countries who enjoy comparative advantage in terms of
labor cost are allowed to export RMG without any restriction the apparel and the RMG industry in their country will be severely hurt. They felt the need to develop certain protection method, which will be severely hurt. They felt the need to develop certain protection method; GATT will recognize which will reduce this problem and which as well. To achieve this goal, a special provision known as a FA was instituted. Under the Bangladesh to take advantage of its non quota status and chap labor, and they for their own interest provided the initial motivation and help to Bangladeshi entrepreneurs to acquire the position of a powerful supplier in the world market. With the phasing out of MFA the position of Bangladesh in the world market will change. After the year 2005, if MFA is really phased out, these countries may not remain our partner in progress due to the change in the circumstances. Then, all countries including those, which are now under quota restrictions, will be on quota free status and might emerge our strongest competitors. This means that, Bangladesh ill have to compete with a larger number of established and powerfl.11 suppliers of RMG on equal terms. Furthermore, others small countries are likely to emerge as new competitors.
Other non tariff barriers: The final acts of Uruguay Rolled negotiations strengthened the GATT principle of reducing all tariff barriers. But it is not in the case of non-tariff barriers, because they take so many subtle fonts that they face disagreement that agreement in their definition. The child labor, environmental and human right issues are such non-tariff barriers. It is quite likely that by restructuring, improving managerial efficiency and increasing productivity Bangladesh will be able to compete in the intentional market. But problems will arise if the importers apply subtle non-tariff barriers under the disguise of humanitarian issues like child labor. Here the main challenges for the producers of RMG of Bangladesh lies how to tackle the problems of child labor. The much-talked about "Child labor" issue can be an effective non-tariff ban-ire. The Harking Bill design to prevent adduce of child labor is based on humanitarian ground.
Child labor Issues: Should be for both labor welfare and occupational safety. For safety use of aprons, gloves, dust masks, eye masks, ear protectors, gum boots, smoke detector and early rehearsed fire fighting arrangement is very important. Water treatment plant is a must to avoid pollution in the industry. Social environment related to labor rights, product safety and intellectual property rights are considered to be of increasing importance now-a-days. Ensuring social compliance is very important in the industries involved in production of RMG for maintaining quality of products as well as rules for export market. On protection of labor rights and improvement of working conditions, international standards have been developed and adopted by major markets. In contrast with labor rights, product safety issues are mostly mandatory requirements. Compliance issues like working environment, salary, maternal leave for female workers, and safety and health conditions of apparel sector workers have come to the forefront of attention of the international buyers. There is no option other than ensuring social compliance to maintain quality of products. Because labor can never enhance their skill without having a minimum wage for living and favorable environment for work. The compliance issues have become more important after the expiry of the MFA. Though these issues are very fundamental as far as the workers' interest is concerned but at the same time these are very capital intensive for implementation.
More non-tariff barrier: Bangladesh also faces other issues like environmental issues or minimum wage rate issue, apparently on humanitarian ground. But questions arises that are these issues truly on humanitarian grounds or it is a hidden agenda designed by the competitors of Bangladesh exports to increase the cost of production with the ultimate result of making Bangladesh exports less competitive in the world. Dreams and uncertainty: Anwar ul-Alam Chowdhury is the owner of Evince Textiles. He has just opened a new factory in Gazipur, about an hour's drive outside Dhaka.
It is so new parts of it are still being built by laborers who carry bricks and cement in baskets on their heads. Wages in Bangladesh are low, around half those paid in China, giving the country a competitive edge. "Everybody dreams, you know, so we are also dreaming," said the owner as he walks around his new production lines. When the factory is up to full speed it will be making 1.5m shirts a month. "It could be good, I think. A lot of customers are positioning themselves in Bangladesh, like Tesco, like Carrefour, like H&M. So all the indications are that this will be the greatest opportunity for Bangladesh." But for garment workers like Shanaz Parvin Rekha this is a period of uncertainty. She's still looking for a new job. And it will be some time A laborer on the Evince Textiles before it becomes clear whether Bangladesh will be a site at Gazipur winner or a loser in the new global free market for garments. Developing countries around the world face upheaval after the quota system governing the garment industry was finally phased out at the end of last year. For Bangladesh the stakes are especially high - it relies on garments for more than three-quarters of its exports. About 1.8m people, most of them women, work in garment factories. As many as 15 million more in support industries depend on the trade for their survival. Around the world the big and the efficient see the change as an opportunity.
Exploitation of Workers: Unions say garment workers are angry over low pay and long hours. Wages in Bangladesh's garment factories can be as little as $20 a month. Thanks to poor working conditions, employer-worker clashes have been recurring in the textile industry. Workers often take to the streets with complaints of poor pay and working conditions.
Impact of globalization on RMG Sector The possible impact of globalization on employment and quality of jobs in the RMG industry will depend on Bangladesh’s ability to withstand a more competitive global33 environment. It is arguable that this competitiveness on the other hand will depend amongst other things
on measures taken to improve productivity and job quality.In the worst scenario, a failure to maintain competitiveness will lead to enterpriseclosures and increased sub-contracting from larger to smaller units. This will obviously lead to unemployment among mostly women workers, a possible reverse trend of rural-urban migration, and a reduction in the household earnings of workers. A greater degree of subcontracting may also adversely affect job quality, since working conditions and job quality have been found to be inversely related to the size of RMG units.14 Deterioration in job quality is likely to have serious consequences. Entrepreneurs must recognize that labor is not simply a commodity; and that better working conditions are desirable from the point of view of productivity and efficiency, as well as from that of fairness and justice.Workers’ rights include freedom of association, which is currently prohibited inthe export processing zones, while unionization is actively discouraged in the industry as a whole.15 Interestingly, the entrepreneurs interviewed as part of this study expressed divergent views regarding job quality. Most were worried about the impact on costs, and some regarded labor retrenchment and subcontracting as a way out. A few more enlightened entrepreneurs believed attitudinal changes were needed, and that wider dissemination of information would help. Others thought that the imposition of a social clause should be delayed, giving entrepreneurs a chance to adjust to the phasing out of the MFA, as well as helping them to relocate factories outside Dhaka, where there could be more available space for canteens and other facilities, and where factories could be functionally designed to meet safety standards. In any case, measures to increase productivity and competitiveness may involve some rationalization of the workforce and technology upgrading such as the introduction of computer-aided design (CAD). It has been suggested that the latter will lead to a substitution of male for female workers, given the higher educational and skill requirements of the new technologies, and the currently disadvantaged status of women in this respect. Sub-contracting may again be more actively pursued as a cost-cutting strategy by larger and more successful firms. Other measures to improve productivity and competitiveness such as skill upgrading will, on the other hand, improve job quality and earnings for workers.
Achievement of Garments Sector (1) BGMEA membership starting with only 19 in early 1983 has reached 2503 in 1996-97, increasing at the rate of 20% each year. (2) The growth of garment export in terms of dollar is proportional to the rate of increases of factories; it depicts a healthy steeper growth of the industry per se. (3)Garment export has been increasing on an average 24% each year. AS the rate of increase, not less than 20 % per year is expected to continue through the MFA phasing out transition, growth prospect of Bangladesh’s apparel industry loads very bright. (4) Bangladesh presently holds 6th largest apparel exporters sector in USA and the 5 th largest in EU. Country’s RMG products are steadily moving toward high value sophisticated items like high quality suits, jackets, branded jeans items, embroidered ladies’ wear etc. increasing @ 25% per year, over the last few years, they have utilized quota and diversified their products into non-quota items. (5) Bangladesh has recently entered the extremely quality conscious RMG market of Japan and created a niche for itself. In 1994-95 export of RMG to Japan was US$ 5.72. And in 199697 it was US$ 9.35 Mn. (6) EU took the largest share followed by US. Germany has led the EU market in the last few years followed by UD, France, Itally and the Netherlands. In 1996-97 Germany alone imported apparels worth US$ 392.09 million against the purchase of US$ 326.89 million in 1995-96. Only shirts and T-shirts worth US$ 202.36 million were imported by Germany in 1995. However, as a single country, US have been the highest apparel importers from Bangladesh.
Year wise Membership Table of Figure 2 Year 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04
No. of Garments 834 1163 1537 1839 2363 2503
1993-94 1995-96 1997-98 1999-00 2001-02 2003-04
STATUS OF READY MADE GARMENT INDUSTRY COMPUTED BY BY BGMEA Table No. 3 Sl. No. Year
Total
Fabrics:
Exports in Export in
No. of Workers
B-Yards
THs-dozs
M-US$
0.198 0.283
0.102 0.105 0.225 0.410
1143.55 4209.09 4762.58 10818.68
31.57 116.20 131.48 298.67
0.306
0.490
15717.81
433.92
1 2 3 4
1993 1994 1995 1996
RMGs 180 587 601 658
5
1997
712
Employment
6 7 8 9 10 11 12 13 14
1998 1999 2000 2001 2002 2003 2004 2005 2006
737 780 934 1354 1695 1839 2182 2352 2503
0.317 0.335 0.402 0.582 0.802 0.827 1.20 1.29 *1.30
0.579 1.780 1.020 1.225 1.590 1.900 2.300 2.600 *2.86
17064.21 22608.84 30566.63 42836.02 46717.44 45166.00 62512.00 72005.00 80986.40
417.09 624.16 866.82 1182.57 1445.02 1555.79 2228.15 2547.13 3001.25
Source: BGMEA, RDTI Cell. March 1998
FIGURE NO. 3 TABLE OF FIGURE 3 Export of RMG iNdustry (In Mn. US$) TABLE OF FIGURE 3 5000.00 4500.00 4000.00 3500.00 3000.00
TABLE OF FIGURE 3 Export of RMG iNdustry (In Mn. US$)
2500.00 2000.00 1500.00 1000.00 500.00
19 83
-8 19 4 85 -8 6 19 87 -8 8 19 89 -9 19 0 91 -9 2 19 93 -9 19 4 95 -9 6
0.00
Year 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04
Export of RMG iNdustry (In Mn. US$) 811.00 934.43 819.21 1076.61 123.20 1291.56 3882.00
2005-06
4418.28
Garments Export By Major Regions Table No.4 Countries
2005-06 Taka
Dollar
% of total
2003-04 Taka
Dollar
%
USA UK Germany
36004383 9213240 8954528
880303 225263 217937
45.17 11.56 11.24
36422670 4723725 7701752
908070 185084 192016
total 49.48 10.09 10.46
France Ltaly Neterlands Belgium Canada Sweden Spain
7063214 5368625 3594023 2194483 196973 1129470 1110720
172695 131262 87873 53655 48158 27615 27157
8.86 6.74 4.51 2.75 2.47 1.42 1.39
5232454 5800193 2917715 1264699 1959567 742623 959207
130453 144607 72743 31531 48855 18515 23914
7.11 7.88 3.96 1.72 2.66 1.01 1.30
Share of RMG in Country’s 2004-05 Total Export Table of Figure-4 Commodities RMG JUTE GOODS RAW JUTE TEA LEATHER CHEM PRODUCTS OTHERS Figure No. 4
Export Share % 67.93 7.12 2.63 0.86 4.42 2.46 14.51
of
From the table no. 8 and corresponding figure no. 4 we see that the RMG exports exceed that of other countries by a very wide margin. By far it is the single largest foreign currency earner of Bangladesh.
RMG Exports to Different Countries Table of Figure 5 Markets US Europe Canada Others Figure No. 5
Exports in Different Countries (%) 39.3 54 2.5 4
From the table no 9and corresponding figure no 5 we see that the single largest inporter of RMG from Banbgladesh country wise is the US. It imports more than 39 % of total RMG export of Bnagldesh.
Apparel Export To Us Table of Figure 6 Year 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 (July-February)
Value in million US$ 581.1 703.96 592.46 1006.08 1001.68 1245.14 1054.7
Findings: The apparel exports to US from Bangladesh has seen a relatively stead increase with the exception being the year 1993-94 because at that time the quota system was introduced.
Solutions to the Problems Industrialization is an important part in the economic development of Bangladesh and textile is regarded as the engine in the industrialization of any country. The textile industry in Bangladesh is also the mother industry. But unfortunately the textile industry is facing different kinds of challenges in different times.
The textile industry is not free from the burden of loans from banks that was created the BTMC before the denationalization in the 1980s. So cotton factories without modernization cannot be inter linked with the high rate of import tax, vat, advance income 5tax payment, unadjustable workers pay with production and high rate of electric charge given to the government, so that they cannot compete with the Indian textile goods., Indian textile goods are smuggled into the country and for lack of administrative control of bonded warehouse and infiltration in the internal market through corruption, so that productive textile goods cannot be marketed in the country. In spite of that creation of enough opportunity acceptability of income tax structure and argument bank rate of interest can boost the export of textile goods. It is often said that the quality of the cloth produced is not at par with foreign cloths and the textile mills in our country are not able to supply cloths according to the demand.
Government Solution Major issues and prospects in the garment industry
Need for market diversification If Bangladesh were to remain competitive in the post MFA era, one inevitable strategy would be to take the necessary steps to increase labor productivity. In order to realize the incremental gains from the expansion of the global apparel market, the country also needs to diversify its market, instead of putting all its eggs in one basket, i.e. continuing to exploit the same niche market. Though Bangladesh now exports garments to about 25 countries around the world, the USA is the single largest importer of its RMG products, amounting to 43 percent of total garment exports. Bangladesh is the sixth-largest supplier of apparel in the US market (Rahman and Rahman, 2001). Considering the European Union as a single market, the USA then becomes the second largest. Over the past few years, Bangladesh’s RMG exports to the EU have expanded rapidly, with the EU currently importing about 52 percent of Bangladesh’s total garment products. The inter-temporal evidence of the narrow market base of Bangladesh RMG exports in the 1990s is provided by the concentration of
exports to the US and EU market (almost 96 percent in 1998-99, see Table A2.8 in Annex). While the export share to the USA has witnessed an annual average rate of decline of 1.5 percentage points, however, the corresponding share to the EU has experienced an annual growth rate of 1.6 percentage points. Thus, the increment in the EU share has simply replaced the declining share in the USA market, which suggests that, instead of diversification, Bangladesh’s export market has remained concentrated over the past decade. The combined market share of the USA and the EU has thus increased from 95.5 percent to 95.6 percent between 1991-92 and 1998-99. Bangladesh so far has been unable to gain access to ASEAN or Indian markets, although it imports a huge quantity of fabrics and yarn from these countries. Similarly, although it imports about 95 percent of its total garment machinery from Japan, its market share of apparel export to Japan is a mere 0.1 percent.16 Bangladesh’s inability to gain access to these large markets in turn suggests that the country has yet to establish its claims, as advocated by the WTO, to the principles of reciprocity and market access. Establishing backward linkages A fundamental constraint on the potential of the RMG industry is the general absence of backward linkages. In their absence, despite abundant cheap labor, the country’s local value addition has so far been only 25-30 percent of gross exports. The RMG industry is currently heavily dependent on imported raw materials. Roughly 80 percent of the woven fabrics and 50 percent of the knitted fabrics are imported17, despite some improvements in this regard since the mid-1990s, in terms of investments in backward linkage industries, especially with the announcement of the Textile Policy, 1995, and the granting of various incentives by the Government. With the phasing out of the MFA, Bangladesh may face a supply shortage of required fabrics, some stakeholders argue, since the current suppliers will find it more profitable to use their domestically produced fabrics to produce their own RMG products, which they will be able to export competitively in the quota-free world apparel market. Recent trends and relaxation of the GSP to allow for accumulation within the SAARC region, however, suggest that the availability of fabrics may not be such a severe constraint. Nonetheless, Bangladesh’s excessive dependence on imported raw materials has adversely affected its competitiveness by increasing the lead time and cost of production.
Improvements in productivity It is clear from the discussion so far that one issue facing the RMG industry in Bangladesh is the slow rate of increase in productivity, and the gap that exists between this country and other competitors in this regard. There is also scope for capacity building in different types of skills and processes. The aim should be to move the industry up to a different regime, wherein competition is based on higher productivity, an improved working environment, and backward and forward linkages to meet the new challenges of the postMFA era. A more concerted action plan is needed in this regard. Interviews with entrepreneurs, for example, have suggested that Bangladesh is at a disadvantage compared to other countries in South Asia; such as, Sri Lanka, where a more educated labor force, especially at the supervisory and managerial levels, increases labor productivity. Thus, training schemes for managers and supervisors are an important element in increasing productivity, including the introduction of functional English courses for higher-level employees, improving their ability to read operating manuals and so on. To these ends, the Government should also increase its allocations to the education sector. Responsiveness to consumer ethics and standards New challenges facing the RMG industry and the export sector in general include greater consumer awareness of quality, health, and environmental standards. These issues may well act as non-tariff barriers, but entrepreneurs have little option other than to meet these requirements and codes of global transactions. Similarly, working conditions—including safety, health, and the earnings of workers, together with issues such as child labor—are growing concerns on the part of international consumers. The industry needs to improve its image in this regard, advertising recent achievements such as the abolition of child labor and improvements in occupational safety. Efforts to further improve standards, furthermore, are likely to have longer-term payoffs. Need for a data bank Interviews with entrepreneurs suggested considerable uncertainty regarding the behavior of competitors and their responses to the new global environment. A considerable gap also exists in knowledge about trade and investment flows. This is understandable, given that most entrepreneur interactions are with buyers who merely specify their product needs,
provide the designs, etc. The emerging global environment, however, calls for more strategic action with regard to major competitors. In this respect, international organizations such as the ITC, UNIDO, and the ILO can have special roles to play. The relevant ministries can also maintain easily accessible data banks on trade flows by country and region, including information on product line, changes in unit costs, special opportunities, new technologies, cost effectiveness of different technologies, etc., especially in the backward linkage industries. The BGMEA should also try to disseminate such information to all types of entrepreneurs.
Dark Side of the Garment Industry This most flourishing industry of Bangladesh has its dark side. A large number of the units are located in dilapidated buildings. In April 2005, an entire building, housing hundreds of mainly female workers in the outskirts of Dhaka, collapsed. Sixty-four laborers, at work on their machines, were crushed to death, and 84 injured. What is worse, most of these buildings do not have adequate fire escapes. On February 24 this year, more than 50 people were killed and about 100 injured in a fire at a textile mill in Bangladesh. The industry leaders unite together to get support and benefits from the government, but they are not equally willing to look after the welfare of workers. In the RMG industry in several places in Bangladesh workers are paid their salaries two moths late. Overtime is imposed and in some cases not rewarded. The rising inflation has reduced the value of wages. But the industrialists say that it’s the job of the government to control inflation.
Recommendation The main recommendations in this regard are the following: 1. Diversification of markets into ASEAN and other regions outside the European Union and North America; 2. Diversification of products, particularly the transition to higher value-added items; 3. Building of technological capacity and skills for a range of products;
4.
Support for the establishment of backward linkage industries, but with proper
assessment of international competitiveness, with a focus on dyeing and finishing units (which some studies have identified as potentially more competitive), And on smaller units which are less capital intensive and less risky as investments; 5. Continued emphasis on primary and secondary education in government education policies, aiming to develop a more skilled and generally higher-quality labor force; 6. continued emphasis on education and skills development for women, specifically, aiming to close the gender gap; 7. Introduction of functional English courses for managerial and supervisory staff and greater attention to on-the-job training, with appropriate incentives such as tax rebates; 8. Encouragement for relocation of factories outside main urban areas, with serviced plots being made available and adequate supervision to ensure that factories are functionally designed; 9. Better regulation and supervision of factories, reinforcing government regulatory capacity in this regard to ensure compliance with the Factory Act; 10. Compliance with labor laws with regard to wages, weekly holidays, canteen and crèche facilities, occupational safety including attention to fire hazards, etc.; 11. Setting up a data bank by the relevant ministries in collaboration with such Organizations as the ITC, the ILO, and UNIDO to monitor trade flows by product And region, information on new technologies, etc. 12. Dissemination of information by the ILO regarding linkages between job qualities and productivity and best practices in other countries, aiming to promote attitudinal changes among entrepreneurs;
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