ContentsContentsINTRODUCTION .......................................................................................... 2

Significance of the study..........................................................................3Objective of the Study..............................................................................3Scope of the Study....................................................................................3Methodology of the Study.......................................................................4

FINDINGS ………......................................................................................... 5Contribution of RMG sector to economy................................................5Structure of RMG Industry.....................................................................6Challenges in export of readymade garments of Bangladesh................6Competitiveness of the RMG Industry in International Markets............7Social impacts of the RMG sector..........................................................8Textile export from Bangladesh.............................................................8The Future of Garment Exports.............................................................9Prospects of the RMG Industry.............................................................10Competitiveness of RMG sector.............................................................12

ENHANCING COMPETITIVENESS.........................................................13

CONCLUSION..............................................................................................15

REFERENCES ..............................................................................................16

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

late 1970s and became a prominent player in the economy within a short period. The industry has contributed to export earnings, foreign exchange earnings, employment creation, poverty alleviation and the empowerment of women. The export-quota system and the availability of cheap labor are the two main reasons behind the success of the industry.

Bangladesh exports its RMG products mainly to the United States of America and the European Union. These two destinations account for more than a 90 per cent share of the country’s total earnings from garment exports.

The RMG industry of Bangladesh has expanded dramatically over the last three decades. The “export-quota system” in trading garment products played a significant role in the success of the industry. However, that quota system came to end in 2004. Therefore, the competitiveness issue needs to be addressed.

The RMG industry is the only multi-billion-dollar manufacturing and export industry in Bangladesh. The country’s RMG industry grew by more than 15 per cent per annum on average during the last 15 years. This sector accounts for approximately 76% of the total export earnings and nearly 10% of GDP. At present there are about 4,000 garments factories employing approximately 2.5 million people, among which 80% are women. The foreign exchange earnings and employment generation of the RMG sector have been increasing at double-digit rates from year to year.

The RMG firms are located mainly in three main cities: the capital city Dhaka, the port city Chittagong and the industrial city Narayangonj.

Ready-made garments manufactured in Bangladesh are divided mainly into two broad categories: woven and knit products. Shirts, T-shirts and trousers are the main woven products and undergarments, socks, stockings, T-shirts, sweaters and other casual and soft garments are the main knit products.

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Significance

The rapid growth of the ready-made garments industry in Bangladesh is facilitated by cheap labor, using simple technology, small amount of capital and economic changes and policies. These factors are inter-related. The relatively cheap cost of labor in Bangladesh is the reason for its comparative advantage internationally since goods can be produced at a lower cost in Bangladesh than in many other countries.

Objective

Followings are the objectives of the study.

To gather knowledge about the overall scenario of Ready Made Garments Sector of Bangladesh.

To know about the contribution of RMG sector in economic development of our country.

To identify what factors are affecting the growth of this sector. To know the competitive advantage of Bangladesh in this sector.

Scope

This report is on Readymade Garments Sector of Bangladesh. So, mainly we have tried to focus on the following factors:

Current scenario of Readymade Garments Industry. Reasons for the growth in this Sector. Reasons for having competitive advantages in this Industry. Economical and financial effect of this Sector in our national

macroeconomics.

The detailed analysis of each segment was beyond the scope of our report. We only focused on the general overview of this sector.

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Methods of the study:

In every research study, there are two main sources of collecting data:

Primary data Secondary data

In our study, we have used secondary data for getting best result .so the sources for getting secondary data we have searched the following:

1. Newspaper2. Internet3. Magazine4. Annual report of BGMEA and CPD

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Findings:Contribution of RMG sector to the Bangladesh economy

The Bangladesh RMG industry, with its woven and knit sub-components, is a pre-dominantly export oriented sector, with 95 per cent of the woven and 90 per cent of the knit exports being directed to foreign markets. The cumulative foreign currency earnings by the sector, since 1978, when first export was registered, is estimated at 36.6 billion dollars.Emergence of Knit-RMG: The growth dynamics of the sector over the last decade evince two clearly discernible phases: during the initial period it was the woven-RMG which dominated the structure of apparel exportsDiversification: Within the apparels sector, Bangladesh has been able to accomplish product diversification.Incremental Contribution: The increasing importance of the apparel sector in the Bangladesh economy is best brought out by its share in the country's incremental export growth.Employment Creation and Wage Bill: RMG sector is one of the major employers in the economy.Backward and Forward Linkages: Growth of RMG sector has spawned a whole new set of linkage industries and facilitated expansion of many service sector activities.Banking and Insurance: Growth of the RMG sector and the related activities have contributed a lot to the robust growth of the financial sector in Bangladesh.Shipping and Logistics: The RMG sector has contributed to the shipping business in Bangladesh and stimulated setting up of several container yards, expansion of port facilities to handle large container carrying trains, increase of cargo handling and storage facilities.Transport Communication: The growth and development of inland transport services to a considerable extent owe to the growth of the RMG industry.Contribution to Government Exchequer: The RMG sector contributes to the government exchequer both directly and indirectly.Professional Services: The RMG sector extensively uses professional services from CA firms, legal agencies, business consultants.Information and Communication Technology: The RMG sector also plays a catalytic role in the growth of the country’s ICT sector.

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Real Estate: Demand for real estate development by the garment industry to accommodate offices and factories of over 3400 garment units has generated a lot of activities in the Construction Industry.Waste Recycling Industry: Approximately 0.2 million people are engaged in waste recycling industry of the country which get their materials from the RMG industries.Emerging Consumer Market: The 1.6 million workers in the industry have created a large demand for consumer goods.Engineering SectorUtility ServicesHotel and Tourism

Structure of the RMG industry and employment patterns

The industry can be differentiated into a number of segments. The first tier factories at the formal end of the industry are epitomized by those in the EPZ: they have direct links with international buyers, modern equipment, better quality assurance, a large relatively skilled and educated workforce and generally better working conditions than the rest of the industry – although trade unions have been banned till recently within the EPZs. Second tier factories outside the EPZs also have a direct, often long-term, relationship with their buyers and hence some reliability in their orders. They vary in size from large to medium and also observe certain minimum labor standards, largely because of their dealings with buyers. There is, however, a third tier which merges imperceptibly with the informal economy.

Challenges in export of readymade garments of Bangladesh

External Challenges lack of popular brand name Global economic turmoil Competition with new giant players Export of commodities

Internal Challenges No natural resource endowment Low wages, Establishing backward linkages lacks adequate facilities

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Competitiveness of RMG Industry in International Markets

Export competitiveness in the United States marketBangladesh has experienced some product diversification in its export of garments to the United States market in recent years textile and garment export earnings of China, India and Bangladesh from the United States were $3.6 billion, $0.8 billion and $0.4 billion respectively in 1990, and increased to $22.4 billion, $4.6 billion and $2.5 billion respectively in 2005.Export competitiveness in the European Union marketBangladesh has experienced both quantitative and qualitative changes in exporting garment products to the European Union market product diversification in Bangladesh is lower than that of India and China in exporting garment products to the European Union market.Price competitivenessChina and some other competitors of Bangladesh have implemented sharp price-cutting policies in exporting garment products over the last few years, but Bangladesh has failed to respond effectively to such policies.Lead timeLead time refers to the time required for supplying the ordered garment products after the export order has been received. Shortening the lead time is the most urgent priority task for Bangladesh.Linkage expansionThe consumption-production gap of yarn decreased over time, although actual consumption increased every year. The fabric-manufacturing capacity of the country also increased over time.Compliance issuesIn addition to speedy supply, the social dimensions of the RMG industry are getting more attention from consumers, social workers, welfare organizations and brand name international buyers.Product and market compositionThe product and market composition of garments from Bangladesh requires special attention to ensure the long-term sustainability of the Bangladesh RMG industry as a prominent supplier in the global market. The export-quota system diverted the attention of some international garment suppliers from quantitative expansion to qualitative improvement of exportable garment products.“Production and distribution” timeA shorter “production and distribution” time improves deep-level competitiveness.

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Social Impacts of the RMG Sector

Women Empowerment: It is well recognized that women’s participation in income generation activities lends them a better status within the family and provides them with considerable freedom.Savings: Regular earning enables a large number of the garment workers to go for some savings.Child Labor: In recent years, international debate on child labor has intensified.Population Control: Employment opportunities especially for women created positive impact on family planning and population control in the country.Work Place Safety Programmes for Workers: BGMEA has been implementing a number of programmes to ensure work place safety for workers as well as management personnel of its member units.

Textile exports from Bangladesh

Exports increased by 11.86% in January over the same month a year ago, while officials said the country would be able to meet the over $16 billion export target for the current fiscal year despite being affected by the global financial downswing. In contrast, exporters said it would be difficult to retain the export target as the placement of overall export orders declined drastically in February and early March. In January, the country bagged around $1.4 billion, while the earnings were around $1.2 billion in the same month of last fiscal year, showing a 4.38 percent growth in the monthly target. However exports failed to meet the target for the July-January period of the current fiscal year, fetching $9.1 billion against the target of $9.2 billion for the period, according to data received from Export Promotion Bureau (EPB).

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The Future of Garment Exports of Bangladesh

Growth in overall exports from Bangladesh peaked in 1994-1995 at 40 percent a year, but growth has remained strong. In the July 1997-February 1998 period, total export earnings equaled $3.3 billion or 16.4% above the exports over the same period in the previous year.i The garment and knitwear exports accounted for the bulk of these exports. The knitwear sector especially has been highly dynamic in recent years. Given the fact that this market is outside the purview of MFA and not protected by quotas, this bodes well for the post MFA future of the industry. Bangladesh apparel exports can now point to a proven track record of successfully competing in a non-protected global competitive environment. Unfortunately, other potentially promising exports from Bangladesh such as leather, jute goods, and frozen foods have not fared as well over this period. This has accentuated the already narrow export base of the country and is certainly a matter of concern. The excess dependence on foreign exchange earnings and export growth on garments and knitwear calls for policy attempts to diversify the export base of Bangladesh.

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Prospects of the RMG Industry

Despite many difficulties faced by the RMG industry over the past years, it continued to show its robust performance and competitive strength. The key factors that helped the country to continue the momentum in export earnings in the apparel sector are reviewed below.Market Diversification: Bangladeshi RMG products are mainly destined to the US and EU.Product Diversification: The growth pattern of RMG exports can be categorized into two distinct phases. During the initial phase it was the woven category, which contributed the most. Second phase is the emergence of knitwear productsBackward Integration: RMG industry in Bangladesh has already proved itself to be a resilient industry and can be a catalyst for further industrialization in the country.Flow of Investment: It is plausible that domestic entrepreneurs alone may not be able to develop the textile industry by establishing modern mills with adequate capacity to meet the growing RMG demand.A Supportive Policy Regime: Government of Bangladesh has played an active role in designing policy support to the RMG sector that includes back-to-back L/C, bonded warehouse, cash incentives, export credit guarantee scheme, tax holiday and related facilities.Lead Time: ‘Lead time’ is a crucial factor maintaining export competitiveness. Bangladesh happens to feature the longest lead time in the RMG world.Infrastructural Impediments: The existence of sound infrastructural facilities is a prerequisite for economic development.Labor Productivity: The productive efficiency of labor is more important determinant for gaining comparative advantage than the physical abundance of labor.

Challenges in Implementing a Sector Strategy

South Asia Enterprise Development Facility of the IFC (SEDF) has designed a sector strategy to: Safeguard and increase global market sales of the RMG sector by

strengthening market linkages. Increase productivity, and Increase adherence to social and environmental compliance standards.

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Challenges that need to be addressed: Specificity of interventions: Each target sector and support market

demands a different approach and strategy, which makes implementation difficult, requiring sector-specific training, staff communication, logical frameworks, and performance targets etc.

Coordination among integrated elements: Coordinating activities across sectors and support markets, financial services, and business-enabling environment components, is a complex and requires co-ordination among implementation units as well as amongst players within markets.

Market distortion: Significant subsidies by various donors still play a role in target sectors, and many market development initiatives still consider it appropriate to offer advisory services at no cost. This is in direct conflict with the SEDF business model of client contribution towards costs for services.

Slow private sector response: Although the program has a longer time frame than many initiatives and can be renewed, private sector change is slow and culture change takes time.

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Competitiveness of RMG sector

Scenario 1 indicates the current situation of Bangladesh. In this stage, the country has to depend mostly on foreign sources for inputs such as textiles. For this very reason, both the lead time and total “production and distribution” time are longer in this case.

Scenario 2 considers the establishment of common bonded warehouses in Bangladesh, which will play a significant role in reducing lead time but total “production and distribution” time will not be shortened. Therefore, common bonded warehouses will not create any positive impact on deep-level competitive performance.

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Scenario 3 is the primary stage of establishing a domestic textile industry, which will reduce both the lead time and total “production and distribution” time compared with the present situation (scenario 1). As a result, both surface and deep-level competitiveness will be improved.

Scenario 4 is the intermediate stage of domestic textile industry development. Local textile firms will be able to bear the risk of producing and storing some basic textile items to supply the garment firms just after getting the demand order. Such capability will reduce the lead time and offset the necessity of common bonded warehouses.

Enhancing Competitiveness

Bangladesh RMG industry has achieved some product diversification in both the United States and the European Union as a garment supplier. Recently, the industry has achieved some upgrading of its products in the European Union, but this has not occurred to a significant extent in the United States. Some important areas that require more attention to sustain and enhance deep-level competitiveness of the industry are reduction in “production and distribution” time, expansion of linkages, compliance with code of conduct of buyers and changes in product/market composition. The Government of Bangladesh should also provide more active policy support. Figure illustrates a simple competitiveness enhancement model for the Bangladesh RMG industry.

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The most urgent and important task for the Bangladesh RMG industry is shortening the lead time. The best option for Bangladesh is to improve its deep-level competitiveness by reducing total “production and distribution” time, which will improve surface-level competitiveness by reducing lead time. Bangladesh faces significant constraints in this

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regard and hence it is not possible to establish strong backward linkages overnight.

The establishment of common bonded warehouses in the private sector for storing raw materials for use in export-oriented garment factories under some special incentives, such as duty-free imports, could play a significant role in reducing lead time.

The establishment of common bonded warehouses and the expansion of backward linkages are two options for the Bangladesh RMG industry. While the establishment of common bonded warehouses will improve only surface-level competitiveness, the latter will improve both surface and deep-level competitiveness. A good balance between these options will sustain and enhance Bangladesh’s position in the world market, and at the same time upgrade the country’s current status of being only an assembler so that it could become a full-package supplier of garment products.

Bangladesh needs to concentrate on improving the working environment in factories and address other social issues related to the garment industry. Product upgrading and diversification and market diversification are the next priority tasks for Bangladesh in order to diversify risks and to increase its market share. Manufacturing simple shirts or T-shirts will not enable the country to remain internationally competitive in the long run.

Moreover, the Government of Bangladesh needs to strengthen its support for the development of port and other physical infrastructure, for smooth utility supply, improved security systems, the attainment of a corruption-free business environment and political stability. Such steps will contribute to reducing the lead time while building the confidence of international buyers.

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Conclusion

RMG sector in Bangladesh is clearly not out of the woods yet and defining the correct market intervention to address the market failures and improve competitiveness is no easy task. The interventions have clearly demonstrated that they have met with some early success, and further impact analysis will be needed to demonstrate sustainability. International benchmarks are proving to be a useful motivating tool to encourage firms to enhance productivity. The sector based strategy employed by SEDF in the RMG has yielded some valuable lessons for sector interventions.

References

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) – Government recognized trade body of garment factories of Bangladesh, www.bangladeshgarments.info

Asia-Pacific Trade and Investment Review - Mohammed Ziaul Haider.

A journal by International finance corporation

Pakistan journal of Applied Sciences 2(10): 975-979, 2002

InternationalConferenceOnMovingTowardsGenderSsensitisationOfTradePolicy25-27Feb2008_Talukder

A report of international labor organization.

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