A critical appraisal of the competitiveness of the BangladeshReady-made garments industry in the international market

Mohammad Shah Mizan

B0629RORO0411

Declaration

This work has not previously been presented in any form to the University or toAny other body whether for the purpose of assessment, publication or any otherPurpose (unless otherwise indicated). Save for any express acknowledgements,References and bibliographies cited in the work.I confirm that, the intellectual content of the work is the result of my own efforts.

Signature……………………………..Date…………………………………..

Acknowledgements

I would like to express my sincere gratitude to my supervisor, Mr. David Hallfor his help regarding the dissertation. It is nearly impossible to complete thisdissertation in time without his patient guidance, understanding and inspiration. Iwould also like to thank all the respondents who spend their valuable time andshared their experience with me. Without their help this research would never becompleted in time. Finally, I would like to thank my parents who brought me tothis earth, my two younger brothers and friends for their help and appreciationwith the project. Especially, I would like to grateful my God who made meeverything possible.

Executive summary

To survive and succeed in garment manufacturing business in today’s era of globalisationand Increasing competition, it is important for industry to analyse thecompetitive performance and status of the Bangladesh RMG industry. To stay inthe competitive international market Bangladesh RMG industry must follow thelower price strategy by maintaining quality as well as decrease the productioncost. Therefore, various factors, in the form of theories, affecting the success ofthe firms or industry critically evaluated during the literature review. The theoriesare strategic management; PEST analysis; five forces model; and swot analysis.The interviews of garment manufactures were gained so as to get an insider view

of this industry and gain the practical side with their relation to the theories. TheCompetitive performance of Bangladesh RGM in surface-level competitive performanceis good in the international market over the year. On the other hand,Deep-level competitiveness is not in satisfactory level. Bangladesh must expandthe backward linkage to support the garments industry to avoid the over dependencyof raw material from foreign source. In addition, to stay in the competitivemarket Bangladesh must take some initiative to reduce long lead time and improveport management and solve other important issues as soon as possible.

Table of Contents

Chapter 1: Introduction1.0-Introduction 91.1-Background of the industry 91.2- Research objectives and questions 101.3- Bangladesh RMG industry export performance 101.4- Market concentration .111.5- Product concentration 11

Chapter 2: Literature review2.0-Introduction 142.1- Factors affecting by Bangladesh RMG industry 152.2- Identification of competitiveness 182.3- Competitive performance 232.4- Strategic management process 232.5- Internal and external environmental analysis 242.5.1- External analysis 252.5.1.1- Pest analysis 252.5.1.2- Five forces 262.5.2- Internal analysis 28

2.6- Corporate business strategy 292.6.1- Supply chain management 292.6.2-Lead time management 302.6.3-Diversification 302.6.4- Backward linkage 312.6.5- Global competition 312.6.6- The multi-fibre (MFA) agreement 32

Chapter 3: Research Methodology3.0- Introduction 353.1- Research philosophy 373.2- Research approach 373.3- Research design 383.4- Research Strategy 393.5- Data collection method 433.6- Data analysis 443.7- Data access 45

3.8- Credibility of the research 453.9- Ethical issues of the research 46

Chapter 4: Findings and discussion4.0- Introduction 474.1- Surface-level competitive performance 4774.1.1- Export performance in US market 474.1.2- Export performance in EU market 494.1.3- Price competitiveness 534.1.4- Lead time analysis 564.2 - Deep-level competitiveness performance 604.2.1-Backward linkage expansion 604.3-Swot analysis 674.4- Five forces analysis 704.5- Conclusion 75

Chapter 5: Recommendation 77

Bibliography 80

Chapter1: Introduction

1.0 Introduction

Bangladesh ready-made garments industry is the largest industrial sector in theBangladesh. This sector plays a very important role in the country’s economyover the last 25 years and emerged as a threat to the major competitor in theinternational market. However, cheap labour cost, government policy, globaltrading agreement and private entrepreneurship and quota free market helped theBangladesh to achieve handsome share on the international garments business.After the end of the multi-fibre agreement (MFA) world garments business morecompetitive than previous time and it was predicted that Bangladesh RMGindustry would face strong challenges as it would lose business to majorcompetitor like china and India, but the predication has been proved wrong.

1.1 Background of the industryBangladesh RMG industry started its journey in late 1970s with a quiet smallinvestment and narrow export; the main success in early 1990s and has becomethe largest industrial sector in Bangladesh. However, this sector has become thelargest foreign earning sector in 1990s, it has reached high importance in terms ofits contribution to GDP within very short time ( Mahmud et al. 1991). Bangladeshhas achieved nearly $15 billion by exporting garments products in 2011-2012 andRMG sector covers over 80%of the total export of the country. Moreover, theindustry has become a vehicle for further industrialization of the country. Nownear about 15 million people’s livelihoods directly and indirectly depend on thissingle industry and it accounts 40 percent of industrial employment (World Bank2012). More than 5 million garment workers are working in approximately 5000RMG units; of them over 85 percent are women.

From the beginning, some association has been working to support, protect andfind the potentiality to export in international market. BGMEA is the mainassociation in this sector to protect the higher interest rate and the promoter of10trade negotiation in international market like WTO, EU Commission, US tradeassociation, UNCTAD etc.

1.2 Research Objectives:• Critically assess the competitive performance of the BangladeshRMG industry.• To diagnose competitive status of the Bangladesh RMG industry.• To recommend the proper strategies best reflects the status of theBangladesh RMG industry.

Research questions:Ø How Bangladesh perform surface and deep level competitiveness in theinternational market?Ø What are main challenges for the Bangladesh RMG industry to competein the international market?Ø What factors affect the competitive status of Bangladesh RMG industryin international market?Ø Which strategies best reflect for the Bangladesh RMG industry?

1.3 Bangladesh RGM industry export performanceBangladesh emerged as a strong competitor in the world market by following lowcost strategy. Bangladesh has achieved good performance over the last 25 yearswhich contributes to GDP and generate foreign currency as well as creatingemployment over the year. This industry usually export mainly woven and knitgarment to the international market.

Figure: 1 Ready-made garments export of Bangladesh(Amount in million US $)Source: BGMEA, 2012

The chart shows that Bangladesh RMG exported $4000.20 million woven productto the international market in the fiscal year of 2011-2012.The export performanceof the woven garments increasing over the year which represents $5918.51million in the fiscal year of 2008-2009.On the other hand, Knit garments productalso has good performance in the year of 2004 to 2009 which delineates $ 2819.47to $6429.26 million. However, Bangladesh RMG exports both knit and wovenproduct at the amount of $12347.77 in between the year of 2004 to 2009. Thisachievement indicates that Bangladesh RMG enjoying great performance in worldgarments export market. The Bangladesh RMG industry faced a difficulties forthe three months after withdrawn the quota restriction and that time wovengarments export declined by 5.6%.After the three month this industry again grownup by the 13% in the fiscal year of 2010-2011 and knit garments growth by35%.The economy of Bangladesh highly dependent on the garments sector andthis industry became the life line of the country economy.

1.4 Market concentration:

Bangladesh mainly concentrates the product in EU and US market. This industryexports 90% of the total product to the EU and US market. Bangladesh enjoyingthe quota free restriction in the US and EU market, that’s why they mainlyfocuses on these two major market. However, after the end of MFA period US matook restriction to avoid the over dependency of Chinese product.

1.5 Product concentration: Despite of great performance in the internationalmarket, Bangladesh RMG not properly aggressive for the market concentration ascompare to other major rivals like china, India, Vietnam etc. Bangladesh onlyexports very few product categories in the international market, only five itemsdominated in the EU and US market. These five items are Trousers, shirts, t-shirt,sweaters, jackets which cover near about 80% of the total garments export. Thesefive items still performs very well in the international market.

Chapter 2: Literature Review

2.0 IntroductionThis section reviews the literature relevant to competitiveness of the Bangladeshgarment industry and different important studies about the competitiveness. Therehave been a variety of studies examining the importance of the RMG industry inBangladesh and theories of competitiveness and internal and externalenvironmental issues. Bangladesh RMG industry has been maintaining goodperformance in the international market with competing big competitors, such asChina, India, Mexico, Indonesia, Turkey, Pakistan etc. Thecompetition has been increasing due to end of quota restriction after 2005.So it isimportant for Bangladesh RMG industry to understand the internal and externalenvironmental analysis and competitive advantage .All these theories aboutcompetitive advantages and environmental analysis has been published bydifferent authors in their books, journals, research papers and articles etc.This literature review mainly concentrated about major factors of Bangladeshgarments industry, strategic management process and competitiveness and as wellas competitive advantages of the Bangladesh ready-made garments industry. Hereresearcher has been discussed about some major factors faced by the Bangladeshindustry and then discussed about competitiveness in different level. Later twoimportant components of strategic management (External and Internal analysis)are reviewed .In addition, corporate strategy of Bangladesh RMG industry andother factors which are affecting by garments industry also discussed. Thisliterature review critically examined by referring to various related articles, booksand journals.

2.1 Factors affecting in Bangladesh ready-mate garments industryBhattacharjee and Hossain(1993) have conducted a study on “Key FactorsAffecting the Export Decision of Garment Products in Bangladesh”. The authorshave tried to identify the factors affecting the export decision of garmentsmanufacturers in Bangladesh. According to the authors national export policy,comparative marketing distance, lack of export commitment, exogenous economic

constraints and competitive rivalry have been identified as major barriers toexport decision of garment products. They also discussed about the diversificationof export market, export promotion and government facility to support thisindustry as well as the Physical presence in the foreign market must be ensured tocultivate business contracts and to gain the attention of the foreign buyers.Many researches concentrated on MFA quota issues and focus on the result ofpost quota period. All of these studies predicted more or less matched theBangladesh ready-mate exports after the quota free period. Moreover, westernresearcher gave negative outcome, in contrast local researcher was challenging.Swiss consultant,(Ghazi Textile Organisation)predicted bad scenario unlessBangladesh improved its infrastructure, and suggested that exports would declineby $2 billion and around 800,000 jobs would disappear. However, The WorldBank (Sattar et al. 2005), predicted export shocks and economic welfare losses forBangladesh by using Global Trade Analysis Project (GTAP) model. In terms ofthis prediction Bangladesh could be losses 17% workforce in apparel and 5%from textiles and some other studies predicted loss of 1 million jobs. On the otherhand, local researchers Islam (2001), Dowlah (1999), Bhattacharya and Rahman(2000), Khundker (2002) was analysing post MFA situation. They mainlyconcentrated on the main reason for fall of the garments export, new policyreform, infrastructural development, and compliance and labour lawimplementation but with local tacit knowledge. In addition, Rahman (2000)studied how Bangladesh could dramatically expend in apparel market after MFA.After MFA US apparel would grow up from $79 billion to $120 billion and16Bangladesh could achieved 2.5% to 3% of the market share and remarkablegrowth at the same time(Rahman,2000).Mohiuddin(1991) described the factors that brought Bangladesh into the attentionof the entrepreneurs as an attractive place of full- fledged readymade garmentsindustry, find the conducive factors for its rapid growth and compare the size ofthe industry with its competitors as well as identification of customers bydeveloping new strategy to capture new markets for the industry.Mahmud and Nizami (1993) have focused the Growth, contribution to theEconomy, Problems and Prospects in Bangladesh garment industry. They assesthe perspective of the growth and development of the industry and examine theproblems of the industry in different fields, and suggest for solution of theproblems. The authors described the responsible factor for rapid growth wereidentified to be Government encouragement and fiscal incentives, comparativelylow investment requirements, liberal bank loan, cheap labour and provision fortechnical staff assistance from abroad, ethnic problem of Sri Lanka, imposition ofquota on neighbouring countries, high demands of readymade garments abroadetc. Problems that were identified for the garment industry were non-availabilityof related raw material in the local market, limited scope for productdiversification, power failure, high labour turnover, labour unrest, underutilizationof capacity, lack of skilled workers, marketing and political problems, lowerworking facilities, indifference of Government and exploitation by middlemenetc.Rahman(1995) has written a paper entitled “GSP and export competitiveness ofBangladesh: Some Emerging Issues of Post-GATT Phase” wherein he hasexamined the role of generalized system of Preference Schemes in enhancingexport competitiveness of Bangladesh in the global market. The author found that

although as a least developed country Bangladesh shall continue to enjoy many ofthe benefits for which she is currently eligible under GSP, the preferential margin

will considerably diminish as tariff rates are further reduced and rationalized inthe coming future. The author also found that the relative price –competitivestrength can only be maintained if the GSP schemes are both broadened andstrengthened simultaneously.Chowdhury and Hossain(2000) have emphasized on the development of thequality of products and factors affecting the quality of the products. Theydescribed the main factors affecting the quality of garments product and suggestmanufacturers a priority list of the factors for proper maintenance and control ofthe same. According to chowdhury and hossain (2000) the manufacturers of thisindustry need to use a better quality of raw materials to raise the quality of theirproducts to compete in the international market and need of skilled labour whichis also an important key factor to produce quality product. But the industry isexpanding so fast that the management of skilled labour recruitment has becomeunmanageable. The relative importance of the factors varies in affecting quality ofgarment products. Quality of raw materials, workmanship of the workers and thestyle of the products are given the highest weight by the respondents then againlevel of technology used, packaging used and factory condition stand as the nextimportant factors for the same product (chowdhury and hossain ,2000). Theauthors identified some key factors affecting quality such as quality of rawmaterial, workmanship of workers, level of technology used, per unit export price,packing materials used, style of the products, efficiency of supervision are factorsthat affect quality of products but did not consider other factors such as quality ofthe machine, the standard of acceptance or rejection region that may also affectquality.Adhikary (2005) has conducted a study on “Looking for Cost Competitiveness -AProposal for the Readymade Garments (RMG) Sector of Bangladesh.” Hediscussed the cost of current transporting channel for RMG products, attempts tostock lots and loan defaults, comparison between cost of track shipment andrailway shipment. He also suggests the setting up of a viable organization cateringto the needs of cost effective transport leading to cost competitiveness of theRMG sector.18According to M. Mohiuddin (1991), the Bangladesh RMG is still a growingindustry supported by less developed and old technology. As a result this industryis mainly labour intensive. The industry is financed by the private and publiccommercial banks. This industry is a result of off-shoring by the US market. Thelead time is yet to be reduced to ensure the customer satisfaction. Besides, firmsrequire more investments to be able to produce in large volume in order to get thebenefit of economy of scale and volume (M. Mohiuddin, 1991).Mahmud and Nizami(1993) in their article, “Garment Industry in Bangladesh:Growth, contribution to the Economy, Problems and Prospects” argue that thereare firms that don’t utilize their full production capacity. The main source oflabour is female who are illiterate. Therefore, main strength of this industry is thecheap labour rate. The industry has been unable to attract talented managerialskills which seem to be one of the weaknesses (M. Mohiuddin, 1991). For theenhancement of the competitive advantage there is a need of backward linkageindustry of its own in the supply chain of Bangladesh RMG (Siddiqi, 2005). This

will help the industry to reduce the dependency on foreign sources of rawmaterials and retain the core competence of low price. Even though the Multifiberagreement has abolished, as a least developed country Bangladesh enjoysGSP facilities which helped to detain the competitive position in the worldmarket. But in the coming future if the tariff rate decline that will encourage therival within the industry. In that case the GSP facility will help no more ( Rahman1995).2.2 Identification of CompetitivenessCompetitiveness is about productivity, which in turn is a function of factorsrelated to cost of products, as well as those related to non-price factors such asdelivery schedules, reliability of producers, and such intangible factors like imageof the country/company and brand equity. A company is competitive if it is ableto produce products that either cheaper or better than those of other firms.19The concept of competitiveness is broad. Different author identified the theoriesof competitiveness by different ways. Its meaning, implications, adaption andachievement vary from country to country, industry to industry or firm to firm.However, Michel E.Porter is the pioneer of the competitiveness theory in 1990and cho and moon discussed its national and macro level in 2000.However, theliterature provides no universal agreement on the definition of competitiveness.Moreover, some author, researcher reflects the labour cost, exchange rate, unitcost, price of input and other price or cost related factors for measuring thecompetitiveness of an industry/manufacturing firm(Edwards and gloub,2004) andCockburn and others,1998).In contrast, some other researchers consider theinnovation ,design, quality, distribution network, sales service, transaction cost,bureaucracy of export procedures and other non-price factors for measuring thecompetitiveness of a manufacturing firm and industry( sachwald,1994). In aworld increasingly global and competitive it is essential that companies develop astrategic management in order to follow the complexity of the environment, thetrends and competitiveness of the market to gain competitive advantages .Thisstudy attempts to incorporate price, non-price and result (for example, marketshare) factors in order to address the international competitiveness of theBangladesh RMG industry.According to porter(1990), the main indicator of competitiveness is aboutproductivity and then productivity is the main element of the living elements ofcountry due to contribution of the country’s gross national incomecapita.(Porter,1990) identified four determinants of competitive performance,such as- (1)Factor condition, it is includes with fracture, expertise andrequirement of the industries competitive action;(2) demand condition,requirement of particular goods and service for the domestic demand;(3)businessstructure and rivalry: its includes the business organization and management,characteristics of local rivalry as well as the situation of the country;(4) thepresence of supporting industries, its includes the supplying industries support themain industries to be competitive in international market. According to (Ferreiraand Alberto, 2008) location is one of the main important sources for the business20competitiveness and company cannot change the location where it is in the rightplace. That’s why attractiveness factors can be offer by region so that business canbe located there and how the investor can do (or not) business with regionalactors.

The concept of competitiveness has been exercised in level of business or firm.The world competitiveness report well defined the business competitiveness as theability to produce markets goods with design and services and price and noneprice factors with more attractive package than the competitors (IMD & WEF1990, cited in D’Cruz and Rugman 1992).However, competitiveness in the firmlevel is simply the sustained ability of firm to generate profitability in openmarket. The department of trade and industry in UK defined the competitivenessof the firm as the capability to produce goods and services of the right price andquality as well as right time. Its means fulfil the goods and services to thecustomers by effectively and efficiently rather than other competitors (DTI 1998,cited in Budd & Hirmis, 2004) there are other some indicators of firm’scompetitiveness like cost, productivity, profitability and market share.The term competitiveness has also been applied at the industry or sector level. Inindustry level, competitiveness is ability to achieve goals by performing with theircompetitors without subsidies and protection. However, it includes totalprofitability of nations firms in the industry, trade balance in the industry andbalance of inbound and outbound foreign direct investment as well as cost andquality at the industry level. A competitive industry is one comprising firmsoperating profitably in open markets on a sustained basis. Cost, profit andproductivity are some possible indicators of competitiveness at the industry level (McFetridge (1995).The industrial level competitiveness is often better indicatorof nation economic health than firm competitiveness level the success because ofgovernment support, monopoly rents and pure efficiency. Evaluating thecompetitiveness of an industry, successful firm asses On the other hand, it is alsosignificant to note that the single firm competitiveness does not essentiallyindicate the competitiveness of an industry.21Competitiveness is about ability to provide the services and products to thecustomer by effectively and efficiently than competitors. However, the success oftrade sector achievement in international markets without subsidies and protectionand provides direct measure of firm’s competitiveness by performance ininternational market. On the other hand, competitiveness is ability to match orbeat the best firms in goods and services by cost and quality in the non-tradesector. Moreover, assessing the competitiveness in non-trade sector is moredifficult because of no direct market performance test.National competitiveness defined as the competitiveness of a nation or country inwhich under the fair and free market condition ,produce goods and services whichmeet the test of international markets, whereas concurrently sustaining andincreasing the real income for its people for the long term(OECD,1996, cited inBudd & Hermis 2004).In the European Competitiveness Report, the EuropeanCommission stated that ‘competitiveness is understood as a sustained rise in thestandards of living of a nation or region and as low a level of involuntaryunemployment as possible’. The World Economic Forum, in its GlobalCompetitiveness Report, defined competitiveness as ‘the set of institutions,policies and factors that determine the level of productivity of a country’ (WEF2007). Moreover, “The only meaningful concept of competitiveness at thenational level is national productivity” (Michael Porter 1990).The concept of competitiveness may seem easy to understand, however thecomplexity of the concept is clear when we want to define and analyse, fromvarious sources of literature. Porter (1990) argues that its ambiguity arises from

the huge variety of definitions and perspectives on competitiveness, which makesit difficult to give an exhaustive and indisputable definition. Porter (1990)considers that are the companies and not the countries that compete in theinternational market, however the success of companies can be explained by theeconomic environment, institutions and by government policies. This means thatthe nation or region competitiveness is build up on the success that companies22reach on the international market. According to Porter (1990) the analysis shouldfocus on specific industries or on industry segments and not on the economy as awhole, since it is inconceivable that all companies in all sectors have acompetitive advantage.For the nation, competitiveness means achieve high standard of living by thenations citizens. However, the standard living determined by level of productivitywith organized nation resources and output of the economy per unit of labour. Thewhole economy is being competitive if the overall framework of macroeconomicis in equilibrium and increase or maintain the capacity in international marketshare when rising the standard living of population at the same time (ECLAC,1990).A high rising of the standard living can be achieve only by continuingimproving productivity either higher volume of productivity in existing businessor successful entry into higher productivity business. The other authors have givensimilar definition about competitive nation… “A competitive nation is one thatcan succeed in international trade via high technology and productivity, withaccompanying high wages and income”(Dollar and Wolff, 1993).According toporter(1990) and krugman(1994) the finest Definition of competitiveness haslong been used in international comparison ,that is productivity.Location competitiveness refers the ability to geographic areas to attract and holdproductive workers and capital resources. Its covers the city, rural or industrialareas .However, cities play the important factors of production, such as -capitaland labour (OECD,2006).The success of urban competitiveness have ability tocontinually improve business environment ,physical, social and culturalinfrastructure, innovative and profitable firms, high employment rate, high wages,high GDP per capita, lower inequality of income and social exclusion (DCLG2006).Some studies have accepted storpers definition “The ability of an (urban)economy to attract and maintain firms with stable or rising market shares in anactivity while maintaining stable or increasing standards of living for those whoparticipate in it”. (Storper, 1997).232.3 Competitive performanceThe main indicators to measure competitive performance are product price,marker share, quality etc. and some other factors influencing competitive performance.Such as- wages, production cost, productivity and other issues. Accordingto Fujimoto (2001) firms or industries competitive performance influenced bycapability and enhancement of competitive performance depends on improvementof capability. However, an improvement of industry or firm capability takes timebut it confirms the long-term sustainability of a industry or firm. On the otherhand, improvement of competitive performance without capability may not beenough to ensure long-term sustainability of the industry or firm. (Fujimoto,2001) proposed three approaches for measuring the competitiveness of a manufacturingfirm .These are deep-level performance, surface-level performance andprofit performance. .This study describes the surface-level and deep-level competitive

performance. Surface-level competitiveness reflects the “competitive performance”of a firm or industry that is directly observable to consumers. In theearliest time, Bangladesh readymade garments industry exercised the surface-levelcompetitiveness under the quota free trading environment. On the other hand,Deep-level competitiveness emphasizes on the capability and not directly involvewith customers. Surface-level performance may be improve by the developmentof deep-level performance and ensure the long term sustainability2.4 Strategic Management ProcessStrategic management process plays a very important role in global businessenvironment .However, “strategic management process is a rational approach firmor industry use to achieve strategic competitiveness and earn above averagereturn”(Hitt,Ireland,hosskison,2009).The process of strategic management dividedin two categories: one is strategy formulation and other is strategyimplementation. Strategy formulation achieves the organizational goals throughdetermining creating strategies in the organization. On the other hand, strategyimplementation is a process where strategy implemented by practicing24organizational policies. According to Browne,(1994) “The strategic analysisprocess helps to integrate opportunities with the distinctive competencies of a firmto create an effective strategy”. The company needs strategic management processfor achieve their internal success. The garment firms in Bangladesh can generate anumber of strategies by analysing its internal and external environment.2.5 Internal and external environmental analysisA number of books, articles and journals have concentrated on the external andinternal analysis of industry and firm to understand their present and futuresituation. (Barney and Hesterley, 2007; Morden, Hitt et al, 2007; Macmillan andTampoe, 2000; Luffman et al, 1996). Ready-made garment industry can recognizetheir potential threats and opportunities its competitive environment by practisingexternal analysis” (Hitt, Ireland, hosskison,2009).). On the other hand, internalanalysis helps the organization to find the strengths and weakness (Analoui andKarami, 2003). Internal analysis also emphasizes on the specific resources of thefirms and its assets, information and technology, capabilities (Barney, 1991).Fashion is always changing and a very important factor in the clothing industry.Hence, skilled manpower, developed technology, better raw material are required.Furthermore, working environment and effective supervision of the managementbrings out the best from the employees (Z. Chowdhury et al., 2004). All theseinternal factors may enhance the company performance but external factors suchas the national export policy, comparative marketing distance, and lack of exportcommitment, exogenous economic constraints and competitive rivalry have beenidentified as major barriers to export decision of garment products. To help thissituation out foreign based service should be carried out and finally thegovernment should take some responsibility in arranging trade fair in abroad (H.Bhattachajuee et al. 1993). Cheap labor is the core competence of BangladeshRMG. To be more cost effective they can look for an alternative transportationmeans ( Adhikary, 2005).

2.5.1 External analysisAccording to Duncan (1972) and Milliken (1987) “uncertainty exists in a firm dueto its external environment if the decision makers do not understand the futureevents or are unable to assign probabilities about the particular changes that will

be incurred”. Luffman et al (1996) stated that “Environmental change is one ofthe major influences upon the performance of business”. These types ofdevelopment may affect to garments industry in a particular country (Tsiakkiros,2002). According to (Morden, 2007; Hitt et al, 2003; Macmillan and Tampoe,2000; Luffman et al, 1996) environmental analysis consists of Political, economic,social and cultural, and technological factors (PESTEL).Bangladesh garmentsindustry faces various problems due to political instability, government rules andregulation, bureaucratic process etc. However, in economic factor Bangladeshgarments industry faces obstacle because of global recession, fluctuation ofexchange rate and inflation. In global competition due to lack of technologicaladvancement Bangladesh garment industry have not been properly compete withtheir competitor .Moreover, SWOT also includes in external analysis and developa plan for potential strength, threat, opportunities and weakness. According to(porter,1998) PEST analysis is very important strategic tool which is find out theactual position of the business and also give the way for business operation.2.5.1.1 Pest analysisPolitical Environment(Keim, 2001; Hitt et al, 2003) stated that political factors are those in which“organisations and interest groups compete for attention, resources, and a voice ofoverseeing the body of laws and regulations guiding the interactions amongnations”. Garments industries affected by government rules, laws, policies andcreated strategy which arise opportunities and threats (Luffman et al, 1996).Economic EnvironmentEconomic environment gives the direction to industry for understand economicenvironment, real scenario, identifying the changing trends, strategic implications26and impact of the business environment (Hitt et al, 2000).According to (Morden,2007; Macmillan and Tampoe, 2000) economic environment analysis includesGDP, exchange rate, recession, capital market, rates of labour market, governmentpolicies ,tax and interest rates.Social and Cultural EnvironmentSocial and cultural environment consists of work patterns, age, growth ofpopulation, psychological changes, Such as- consumer taste, habits, attitude,consumer behaviour, values of culture inside the society (Morden, 2010).Manyauthors said that these types of factors form a foundation a society.

Technological EnvironmentNowadays analysis of technological environment plays a vital role in globalcompetitive market and many of exporting and importing firms focuses oncontinuous innovation to achieve competitive advantage (Gavetti and Levinthal(2000) and Coff (1999). In external economy firms can make strategic decisionthrough utilizing technological circumstances and knowledge. However, a firmproduce more quantity, improve quality, delivery and replace labour with capitalby implementing advancement technology. According to (Macmillan andTampoe, 2000) PEST analysis is very important for garments manufacturing unitsand emphasizes on change in external environment which are very necessary forthe industry.2.5.1.2 Five forcesPorter's framework is known as the five forces model. It focuses on five forcesthat shape competition within an industry. The porter five forces provide an

outline to the managers in organisations for firms or industrial analysis. However,firms or industries success depends on their own or competitors strategy andshould develop a positive strategy by analyse different factors. (Barney andHesterley, 2007) stated that “defined strategy as a theory about how to achievehigh performance by a firm within the markets and industries it is operating”.Grant (1991) defined strategy as “the match an organisation makes between its27internal resources and skills...and the opportunities and risks created by itsexternal environment”.According to (Macmillan and Tampoe, 2000) “High industry attractiveness andlow barriers to entry leads to high threat of entry”. However, existing firms couldunder the threat if the new competition arises and new competitors providesadditional production capacity with low returns or revenues for the competingfirms if the demand not increase in the market (Luffman et al, 1996; Barney,1995). Porter (2008) stated that barrier changes can increase or decrease the threatof new entrants. The competition of garments industry is progressively increasingbecause of low barrier in the market.Nowadays in the industry most of the products and services executing samefunctions due to availability in the market, satisfying the needs of customerswhich creates high threats of substitute (Porter).However, threats of newsubstitute can be developed over the time by implementing advance technology.In addition, Porter (2008) stated that to overcome this situation firm could usenew product feature in existing product or offering better value to the customersby providing broader accessibility.Bargaining power could be higher if the total supply in the industry is smallamount of the suppliers total output (Macmillan and Tampoe, 2000). Accordingto(Morden, 2007; Hitt et al, 2003 )in this situation, supplier can dominate over thefirm by increasing prices and decrease the quality of the products. For instance,airlines industry before only depends on the travel agents to sell tickets but nowthey sell ticket by online.28Porter (2008), stated that “Powerful customers-the flip side of powerful supplierscancapture more value by forcing down prices, demanding better quality or moreservice (thereby driving up costs), and generally playing industry participants offagainst one another, at all the expense of industry profitability”. Bargaining poweris high if the buyer can easily switch to the other supplier to get discounts oradditional features or services. Porter (2008) suggested that to overcome thissituation company should expand their services, maintain good relation with thebuyer or find alternative way to reach customers.Porter (2008) stated that, “Rivalry among existing competitors takes manyfamiliar forms, including price discounting, new product introductions,advertising campaigns, and service Improvements”. If the high rivalry exists inthe garments industry then the profitability would be limited. (Hitt et al, 2003).2.5.2 Internal AnalysisNowadays internal analysis plays a very important role in business environment.Internal analysis consists of identifying the problem, developing strategy,protecting problem, deploying resources, capabilities and core competencies.However, internal analysis describes the internal changes in the firm on the basisof performances. In addition, (Hitt et al,2003) stated that, a garments industryrequires practical resource analysis, firm capabilities and core competencies to

achieve competitive advantages. Firms resources consists of firms productionprocess, such as capital equipment, employees skill, finance, management etc. Ingarments industry tangible and intangible resources can be quantified by resourceanalysis but does not create a strategic advantages of a firm. Firm capabilitiesdepend on its skill and knowledge of employees and organize resources that havebeen deliberately combined integrated to achieve goals. Resources andcapabilities created foundation of competitive advantages for firm’s competitor.Many researchers suggest that a firm should develop 3 to 4 core competencies.Resources and capabilities are the continuous learning process of the organization29and cannot change rapidly due to both are created through organization history(Teece et al, 1992).2.6 Corporate business strategy

2.6.1 Supply chain ManagementSupply chain management is very crucial factor in today’s competitive businessenvironment. To increase competiveness and generate more profits many firmsutilizing SCM in many countries in the world. Many Bangladesh ready-madegarments industry implementing SCM to reduce lead time (Bruce, 2004). Supplychain management is processes which are cover the shortage of raw materials andinventory process as well as finish goods from point of origin to point ofconsumption. In garments sector supply chain involving in separate activities.According to (Cooper et al., 1997) “SCM is concerned with the effectiveness ofdealing with final customer demand by the parties engaged in the provision of theproduct as a whole”.Hege (2004) stated countries would increase value added andachieve more export earnings if the local textile industry and export orientedindustry maintains a strong linkage. In Bangladesh garments sector supply chainusually recognize in the textile sector, backward linkage, import from neighbourcountry or the same country. The importance of the supply chain focused on theoutsourcing growth, global competition and effects on the corporate strategy.However, present situation of supply chain emphasizes on total qualitymanagement, customer satisfaction-commerce etc. Supply chain perform thefunctions of procurement of materials, immediate transfer of materials and finishgood as well as distribute finish goods to the customers.302.6.2 Lead time management:Nowadays, global competitive market highly concentrates of the value of qualityand delivery on time. However, manufacturers are very conscious to maintainquality with low prices and deliver the product to the buyers rather thancompetitors to achieve competitive advantages. According to (Charles J.Murgiano, 2007) Lead time differentiate the firm from competitors and help thecompany to make a strong image in the market which makes increase sales. Thedefinition of lead-time differ company to company how or which part companyconcentrated upon.(Li,2000) stated that lead time is process between placing anorder and deliver the product. Nowadays, average lead times are between 90 to120 days and sometimes 90 to 120 days. However, Lead time usually involve withorder process period, procurement, manufacture and deliver the product throughdifferent stages of supply chain. In addition, lead time can be reduced if deliverthe product instantly after manufactured or fast response from suppliers(Simchi,david et al., 2000). In ready-made garments sector, lead time starts from

getting the buyer order confirmation and then ordering raw materials (Fabrics andaccessories) to the supplier and after that production starts and process run byshipment of final product and then receive by the buyers.

2.6.3 Diversification

Diversification plays a very important role in today’s businessworld.(Porter,1998) )stated that “diversification based on interrelationship is theform of diversification with the greatest likelihood of increasing competitiveadvantages in the existing industries or leading to sustainable competitiveadvantage in new industries”. He also discussed that market based diversificationstrategy is about sell new products to new buyers, channels, geographic markets inorder to reap the benefit of the market interrelationship and the product orienteddiversification based on manufacture same product with share productionactivities.312.6.4 Backward linkageSiddiqi (2005) focused on the development of backward linkages to combat thechallenges that may arise after 2005. The author examined the possibility ofestablishing backward linkages in Bangladesh garments industry. However, OurRMG may lose the comparative advantage in cheap labour in the long run if itdoes not increase its labour productivity and with this end in view Bangladeshmust train the workers, supervisors and factory managers and reduce thedependency from foreign sources. He also discuss the improve capacity to spinyarn, weave cloth and process grey fabrics, continue to thrive as long as labourremains cheap and government policy to reform this sector. Moreover, he alsoconcentrated about development of human resources and explores new marketindependently and Bangladesh must explore access to duty-free markets and try toimprove law and order situation.

2.6.5 Global competition

Nowadays level of global competition in the garments industry not only arise inthe domestic boundaries but also compete in the global (Ernst andConnor,1989).The firms are now expend their business in international new market toachieve competitive advantages through favourable government policies and lowcosts (Qian and Li, 1998). According to Spulber (2007) four types of trade costssuch as transaction costs, tariff and non-tariff costs, transportation costs and timecosts and these costs may vary country to country. Anderson and Gatignon (1986)stated that in global business different countries have different meanings, such ascultures, traditions, customs and societies, business practises and marketingmethods etc. According to Rousslang and to (1993) in transportation cost such asshipment of export and import, supply chain and distribution channel is still atrade barriers in many countries. Barney and Hesterley (2007) mentioned aboutcost advantage to firms. They includes differences of size, production capacity,machineries, plant and equipment costs, employee specialisation, spread,physical limits to efficient size, worker de-motivation, market distance, suppliers,cost advantages, competitive advantages , labour, land, capital and raw material,32technological advantages and finally policy issues. Bangladesh ready-made

garments industry can achieve competitive advantages through analysing thesefactors.Porter (1990) concentrated some important factors for the organization such asinnovation, improvement and up gradation. However, Simon (1996) stated that afirm can achieve competitive advantages if the firm practicing continuousimprovement in the products and services. In addition, Hamel and Prahalad(1991)recommended to experiment new product lunch in the market for recognize newsuccessful product. However, Porter(1990) stated that quality can creates astructure of business environment to achieve competitive advantage in market.There are some factor which are shaping a environment to create competitiveadvantages such as factor conditions; demand conditions; related and supportingindustries; and firm strategy, structure and rivalry. These factors are veryimportant in Bangladesh garments industry for determine the product cost. Forthis reason Bangladesh needs to recognize these factors to compare with theirmain competitors.

-3: Research methodology

3.0 Introduction

Research methodology and its procedure have been discussed thoroughly in thischapter. From the beginning research have been discuss in initial level and thenconsider about research philosophy and research approach in broad way.However, research design has been conducted under the research philosophy andresearch approach. Later research strategy has been conducted in this research.Moreover, instruments of data collection method plays a very important role inthis research as well as data sampling and sampling design also been conductedin this section. Finally discussion of ethical issues has been mentioned in thischapter.3.1 Research PhilosophyIn this research, researcher focuses on the philosophical inferences. According to(saunder,2007) “Philosophical framework of social researchers effects on theirunderstanding and perceiving all social phenomenon and behaviour” (Saunder,2007). He also stated that, “Philosophy effects on research topics, designing andmethodology”. However, researcher selects their approaches and topic by usingdifferent philosophical assumption.There are three major philosophies areidentified namely positivism, interpretive, and realism.

PositivismKnowledge can be clearly organized and commonly recognized in positivism.Here everything ignores from philosophy but the knowable things of usualphenomena, time and space, unchanging relations of coexistence and succession.According to (Levin, 1998), “Positivists believe that reality is stable and can beobserved and described from an objective viewpoint”. Positivist looks how aspecific relationship has produced and its effect without interfering phenomenabeing studied. Phillips and Burbules (2000) discussed that, “People cannot be36positive about claims of knowledge when studying the behaviour and actions ofhumans”. However, separation of fact and value is the most significant argument

of positivism, which continually determined to work inside fair attitude.According to Bryman and Bell (2001), identified, “positivism is the most oftentreated as a supporting quantitative method”. Above the statement of Bryman andBell(2001) quantitative research is more used than qualitative research inpositivism.The philosophy of positivism also discovers the reliability or scientific validity ofprescriptive knowledge of “real world”(Don ethridge,2004).To summarize andunderstand, the approach allows the focus of research to be on understand what ishappening in a given context. However, It contains the consideration of differentactor perspectives ,researcher participation, multiple realities taking account ofthe situation of the phenomena understudy, and analysis of data as well ascontextual understanding .(David carson,Audery gilmore,chad perry andkjell,2001).

3.2 Research Approaches

Deductive approach:

It starts with general and ends with detailed and sometimes this strategy known as“top down approach”. Moreover, in this strategy we can think about interest orissue and apply in a theory and after that we can test a specific hypothesis.Deductive approach commonly used in the nature of the relationship betweentheory and research ( Bryman and Bell 2001). Deductive approach, linked withquantitative method to the relationship research and hypothesis which theinflection is placed on the testing of theories. Deductive theory represents thesimilar analysis of the nature of the relationship between research and theory(Bryman,Bell, 2007).Moreover, (Hussey and Hussey,1997) stated that deductiveresearch is “a study in which a conceptual and theoretical structure is developedwhich is then tested by empirical observation, thus particular instances arededucted from general influences”. This approach is moving from general toparticular and tested by experimental observation.38Inductive approach:It involves method from a specific case. Inductive is usually moving fromspecific to general. This theory moving from detailed observation to broadertheories and generalization .In addition, informally this theory sometimes it calledbottom up approach. It can be informally called as a “bottom up” approach .Hereresearcher has been collected the data through interview, observation or questionand then make a general conclusion. However, according to ( Byman andBell,2007) Qualitative research emphasizes on inductive approach to therelationship between research and theory, in which the highlight is placed on thegeneration of the theories Here researcher has been used a grounded theoryapproach to the analysis of data and to generation of theory and researcher hasbeen conducted with inductive approach because it matched with qualitativeresearch.3.3 Research designResearch design plays a very import role for research and researcher can use differentresearch design techniques for any particular topic. (Bryman, Bell, 2007)Stated that “Research design provides a frame work for the collection andanalysis of data and it reflects decision about the priority being given to a range of

dimensions of the research processOpen-ended questionnaire:In Open-ended questionnaire respondents answer question by their own wordsand it is also known as subjective question. However, this type of questionnairerequires more than a word answer and starts with who, which, what, where andwhy etc. Researcher has been conducted an open-ended questionnaire consistingof 32 questions. This questionnaire has been pilot tested and necessarymodifications have been made. There are some different forms of open-endedquestionnaire that have used due to the data collection process as well.39SamplingPatton (2002) stated that “sampling depends on the real condition being analyseand not follow the established procedure for an appropriate sample size”. Thismeans number of sample should be selected according to present situation andother information which are related to the research (Mason, 2002). For thisreason, researcher has been used different survey method through selectingspecific sample size and conducted interviews to achieve proper justification forthe researched topic (Yin, 1994).This study was identified through Garments owners, Managing directors andpotential garment expertise from seven different ready-mate garments industry inthe Bangladesh. For this research ,researcher has been selected the participantswho are able to provide best answers to the research question(Creswell, 1994).Tocollect the information researcher has been selected directors of the firm, seniorexecutives, production managers, operational mangers who has minimum fiveyears of experience in garments manufacturing unit. However, researcher alsohas been selected five ready-made garments firms as the sample of the study and100-200 workers selected from seven different garments firms.In this research,samples has been selected according to research question.3.4 Research StrategyResearch strategy provides the way to the researcher and supports the researcherto do the research in organised way. In research strategy, researcher commonlyused two types of strategies: Qualitative and Quantitative research strategy. Thistwo research strategy helps the researcher in methodological issues to differentiatethe both research and classifying the different methods of business. (Brayman andBell 2007), stated that “the connection between theory and research,epistemological considerations and ontological considerations both the researchcan be taken two distinctive cluster of research strategy”. Above this both authorsopinion, researcher can use both strategies to the conduct of business research.40Quantitative research:This approach quantifies the market measurement with data. However,information relates to size of market, market growth and market share as well aspenetration of the market etc. Furthermore, quantitative approach also use tomeasure in attitudes of consumer ,Customer satisfaction ,commitment and acollection of other previous useful market data as well as used as a datacollection technique(such as questionnaire) or data analysis procedure(such asgraph or statistics) that generate on uses numerical data(Bryman,Bell, 2007). Thisresearch requires a deductive approach to the relationship towards research andtheory.Qualitative research:

Qualitative research helps the variety of settings and conduct different business tobusiness as well as consumer market covering a range of issues by qualitativeresearch. However, qualitative research strategy usually emphasis words ratherthan quantification in the collection of data and analysis .According to (Brymanand Bell, 2007) it used as a synonym for any data collection technique, such asinterview or data analysis procedure, such as categorizing data, that generates oruse non numerical data.However, this research usually emphasizes words ratherthan numbers in the collection and analysis of data. (Bryman andBell,2007),stated that “Qualitative theory is supposed to be outcome of aninvestigation rather than something that precedes it”. That’s mean this researchconsidered a method in theory and classification develop out of the datacollection and analysis. However, qualitative research involves the group oftheories rather than testing theories at the beginning.41In this methodology, researcher has been conducted the qualitative research in themaking of the dissertation. However, researcher has been gathered the dataaccording to research objectives and question and also collect some real issuesregarding the Bangladesh ready-made garments industry through qualitativeapproach.Why Qualitative research?Qualitative research is the most suitable method for explore the objective of theresearch and give the clear understanding of the topic that can deliver thedescription which is not deliver through any other research method. Silverman(2000) stated that, because of ability to data analysis quantitative method do betterthan qualitative which based on typical samples that organize large number ofpeople for the events or activities through complete categorization. Moreover, inthis study the gain of qualitative research is negligible as it contains folding datafrom different sources and understanding the depth of the topic. However,Halfpenny (1979) believes that “Qualitative research is concerned withdeveloping concepts rather than applying pre-existing concepts”. In researchmethod, a researcher ability depends on the availability of the data and how aresearcher well make a foundation for the research by using proper method.According to (Maanen, 1998) Qualitative research is powerful tools for businessand management subject which provides a clear understanding in the research forthe particular subject such as- general management, public sector management,entrepreneurship and small business, marketing, human resource management,development of strategies, organizational theory and operation management.

3.5 Data collection method

Data collection method is a very important element for any kind of research tocollect the information methodically .Researcher might be face difficulties to getthe answer of the research question if the researcher not able to collect the data insystematic way. There are two kinds of data for any research. One is primary dataand the other is secondary data.

Primary data:In primary data collection method, researcher has been conducted semi-structuredinterviews on the basis of research questions and objectives. Here researcher hasbeen focused on the competitive status and performance in international market

and as well as other important factors of the Bangladesh ready-made garmentsindustry by using self-completion questionnaires. However, researcher has beenselected seven garments factory owners, directors, senior executives by the usingsample criteria. In addition, researcher has been conducted semi-structuredinterview which covered a list of ideas and question, although these may dependon interview to interview. This means that researcher omitted some question inparticular interview, given a specific organizational context that is encountered inrelation to research topic,(saunders,lewis and thornhill 2009). These primary datamight be quantitative or qualitative in nature as well. In this research paper,researcher has been collected primary data through open-ended questionnaire.Insemi structured interview researcher has been covered a list of ideas andquestion, although these may depends on interview to interview.Secondary data:Researcher has been collected secondary data through publications, articles,journals, magazines, journal, government statistics, annual company or industryreport, and web pages were consulted for an understanding of the ready-madegarments industry. However, researcher also collected data from literature, book,relating to the manufacturing industries and of ready-made garments industry of44Bangladesh. On the other hand, researcher also has been collected secondarydata through by post, email or fax.Semi-structured interview:Semi-structured interview can be used if the researcher have knowledge about thetopic and able to make questions in advance of interviewing.(Bryman andBell,2007) stated that “Semi-structured interview typically readers to a context inwhich the interviewer has series of question that are general forms of an interviewbut it is able to vary the sequences of question”. This interview usually foundedopen question to enter in a detail in a particular topic. In this interview researcherhas been asked the same question of all participants.

3.6 Data analysisData analysis is a technique of making sense of outline are in or can be entailed onthe set of figure (Bryan Nolan,1994).The analysis is based on the result of aconsolidated evaluation of relevant theory and empirical information collectedaccordingly. All the collected information has been observed through the gloss oftheoretical framework and has been used for answering the problem statement. Inaddition, Patton (2002) discussed that “examining an interview after it iscompleted can also be the beginning of analysis”. Qualitative data analysis is acreative process and it involves major demands, thoughtful works andknowledgeable severity. However, purpose of the topic and nature of investigationwere analysed by the interview. Researcher has been analysed the important notesof data during the interview and other copied data. In addition, according to(Bogdan and Biklen ,1982) expresses qualitative data analysis as "working withdata, organizing it, breaking it into manageable units, synthesizing it, searchingfor patterns, discovering what is important and what is to be learned, and decidingwhat you will tell others". Here interpretation engaged importance of analysis,descriptive patterns, relationship and linkage between various descriptivedimension and assigning meanings (Patton, 2002). Researcher has been analysed45the data in different stages as suggested by (Miles and Huberman ,1994)

suggested that data can be analysis in two ways which are follows-• Consolidation and data reduction: Continually write note on relevant topic,main idea and identify categories.• Data Display and Interpretation: Data transferred from comparisons andinterpretation, draw the conclusion.3.7 Data access:Researcher has been talked with managing director of seven firms and describedthem about dissertation topic and research objectives. They confirmed that theywould give the full support in terms of direct and telephone interview. Researcherhas been maintained communication with them to get more information ifnecessary. Moreover, researcher has been also maintaining a good relation withthe company that helped the researcher to find easy access to accomplish theresearch.3.8 Credibility of the research:Reliability is the context to which a measurement procedure yield the sameanswer however and whatever it is carried out and degree of which the findings isindependent of accident circumstances of the research(Jerome krik,mark.lmiller,1986). Validity is the context to which it gives the correct answer.However, validity is the finest accessible estimation to the reality of a particularproposal and conclusion .The researcher has been conducted the probable findingof the study to the existing theory of the business strategy and find out whichcharacteristics of the result are more valid than others. The results could donate tothe generalization of some theories by that techniqueResearcher has been narrated the findings of the study to existing theories ofready-made garments industry in dissertation and come across which46characteristic of the findings are commonly more applicable than the others. Bythat method, the findings could contribute to the generality of several aspects ofthe theory, as opening another opportunity for prospective upcoming research.The finding of the credibility mainly depend on the results of the questionnaire,and respondents enquired to remain anonymous, objectivity of the answers andimpartiality. However, the researcher does not give one hundred presentguaranties for validity and reliability, because it was very difficult to avoid thesubjective interpretations.

3.9 Ethical issues of the research

Research ethics is very important things for every research. According to(Bryman and Bell, 2007). This part of the research considered as the morality andthe value of the rresearch .Here research ethics has been considered in everystages of research.There were some ethical issue that may occur from the makingof research. One of the problems was carrying out the research plagiarism.Plagiarism means follow the research or work which is done by the others.However, researcher has been also used appropriate usage of Harvard referencingsystem to solve the issues of plagiarism. Another ethical issue may be arising thatis copyright. Researcher makes sure that he took the permission to use figures andtables from other published sources.47

Chapter: 4

Findings and discussion

4.0 IntroductionThis study will consider and bring out the competitive performance of theBangladesh RMG industry under the both the surface and deep level dimensionsin USA and EU market as compare to mainly china and India in US and EUmarket as well as some other competitors. This research also investigates theinternal and external factors to find out the competitive status of the BangladeshRMG industry. However, recommendation will be provided on the basis offindings and analysis.4.1 Surface-level competitiveness performanceThis section considers the surface-level competitive performance of BangladeshRMG industry as compare to mainly china, India and also other competitors in USand EU market. In addition, price competitiveness and lead time also analysed insurface-level performance.4.1.1 Export performance in US market:Bangladesh has recently practised some product diversification for its exportgarments product in US market as compare with earlier time. But the upgrade ofits product are not significant in US market as compare with other competitorslike china and India, Vietnam, Cambodia etc. (Haider 2006).However,Bangladesh enjoyed sharp increase to the US market in the 1990s but later 2002and 2003 faced declined in export earnings from garments sector. After the fiscalyear of 2002-2003 export performance slowly increasing till 2009.Moreover,RMG exports of India experienced slow progress in last few years but RMGexport of china to US market have increased at the starting rate over the year.48Garments exports performance of china increased $32.6 billion from 1990s to2009 and India increased $8.8 billion. Whereas, Bangladesh experienced $4.1billion. China challenged all major competitors by their rapid expansion ofgarments product in the US market. Bangladesh exporting 99 types of textile andproduct category to the US market but the most of the contribution of productcategory is minimal. However, India and china exporting respectively 161 and167.According to director of kds limited “In spite of good performance ofBangladesh, we are not aggressive for product diversification in the market butour major rival’s china and India are far more aggressive than us”.In US market, Bangladesh has experienced highest earnings from Category 340(cotton non-knit shirts, Jackets, trousers), amounting $780 million and only eightcategories exported more than $470 million. Moreover, a total of 16 and 31categories exports respectively only $180 million. Indian highest earnings fromcategory 369 (miscellaneous cotton manufactures) which represent $580 millionfrom the United States and they also earned $439 million,$168 million from 12,20and 56 categories.Source:BGMEA

On the other hand, the significant changes in china are different than all otherscompetitors. China earned $5.2 billion million from670 (man-made fibre flatgoods/handbags/luggage) and 9,62,78 and 124 categories crossed respectively the$1.7 billion, $1.3 billion and $780 million .The Indian RMG more diversified thanBangladesh and china is significantly more diversified than India and Bangladesh.

In addition, exports of Bangladesh RMG more concentrated mainly in man-made49fibre or cotton. On the other hand India and Bangladesh diversified in all fibregroups.4.1.2 Export performance in EU market:The export earnings of Bangladesh ready-made garment products increased 8.1billion euros in 1996 to 2009.On the other hand, India and china increasedrespectively 5.7 billion and 37.1 billion euros between from1996 to 2009.However, the director of clipton group stated that “Europe is our largest marketand our performance is better than our rivals India”. Bangladesh generates mostexport earnings from garments product in EU market which represents 95% andonly 5% earned from textile. In contrast, India and china exports both textile andgarments products in EU markets which stand below 75% and 90% respectively.This trend shows that Bangladesh textile sector far behind than china and India inEU market but maintaining a strong performance in EU market. Bangladeshexperienced 75% of total garments export from top five categories in 1996 and itincreased by 12% in 2008 but the India and China were decreased their mainproduct category by 28%and 6% share to improve the other medium or lowproduct categories .This trend shows that Bangladesh has lower productdiversification than India and china to the European market. At this momentBangladesh mainly focuses on the USA and UE market and low involvement ofdiversification, on the other hand India and china has continued to diversify itsmarkets and change products mix of its exports. However, Bangladesh hasincreased production and marketing capabilities by showing recent performancebut still lack of core competence to compete with major competitors ininternational market.50In EU market, Bangladesh has experienced highest earnings from Category 340(cotton non-knit shirts, Jackets, trousers), amounting $2.9 billion and category 8exported more than $ 500million. Moreover, a total of 16 and 31 categoriesexports respectively only $320 million and $10 million. Indian highest earningsfrom category 369 (miscellaneous cotton manufactures) which represent $1.9billion from the EU and they also earned $450million and $175 million from32and 11 categories.

Source: BGMEA

On the other hand, China has significant performance than all other competitors.China earned $ 7 billion from 670 (man-made fibre flat goods/handbags/luggage)and 43,91,74 1categories crossed respectively the $6 billion, 2 billion, and $1billion .The Indian RMG more diversified than Bangladesh and china issignificantly more diversified than India and Bangladesh. In addition, exports ofBangladesh RMG more concentrated mainly in man-made fibre or cotton. On theother hand India and Bangladesh diversified in all fibre groups.

The table delineates that Bangladesh enjoyed tremendous performance in EUmarket. However, Bangladesh RMG exported $ 3941million knit garments in yearof 2009, whereas, India exported $2829 in 2009.Bangladesh has more successfulthan India in EU market. On the hand, China has significant growth in EU marketwhich shows $12143 million. In contrast, Bangladesh and Indian both declined in

non-knit product in EU market but china increasingly export their non-knitproduct in EU market. In the made-up product category Bangladesh and Indiaslightly increase in their export in the year of 2004to 2009.The charts alsodelineates that Bangladesh export more knit garments than woven garments (nonknit)from 2004 to 2009. The share of knit garments has been increasedsignificantly due to quantity and value in total exports. On the other hand, theshare of woven (non-knit) garments has been dramatically decreased by 86%.Thissector has been able to modify its product categories which added value and moredesign, such as-fashionable shirts, designed shirts, quality jeans ,jackets, jumper,eco 0friendly cloth, embroidered wear etc.

Figure: 3 Share of oven imports in EU market

Share of EU woven imports ,2007Source: EurostatKnitwear product, Bangladesh exports grew up by near about 7% while worldexports increased by 2.3% in 2008.However, China had a mass growth whichrepresents 32.58% and Vietnam increased by 11.88%.China knitwear marketshare in EU increased by 12% from 2007 to 2008 but Bangladesh and India feltby2% market share. Duty free access offered to boost Bangladeshi product in EUmarket for knit clothing. But the situation for woven product is different ascompare to knit product.2008 due to weaker retail sales in EU and rising taka against euro.Above the discussion from the analysis, product diversification of Bangladeshready-made garments industry is lower as compare toEU market. However, this industry also should develop structural changes inproduct mix and develop a research and development programme to make qualityand fashionable product as well as meet the demand of international market.

4.1.3 Price competitivenessPrice is the most important factor for the global competition. In last few yearschina and other major competitor applied price cutting strategy for export garmentproducts. However, Bangladesh did not take any strategy for price cutting policy.China dropped 29 categories of garments product by 46% in USA market. On theother hand, all other competitor cut the price by 2%.China quickly achieved theprice competitiveness in EU and other international market but Bangladesh failedto respond price cutting policies to stay in competitive in quota free internationalmarket. The sales executives of clipton ltd stated that “Raw material price isbecoming is higher that’s why we are not able to take price cutting policies”.Moreover, production costs are becoming higher due to increasing lead time,insufficient power supply and unstable political situation etc.Price per dozen in dollar selected Asian countries: 2008(Dozen of price in dollars)The chart represents the price of cotton trouser from Bangladesh is more cheaperthan other competitor which is about £5.54 and Pakistan is the main competitor,whereas china charged the price around $85.50.On the other hand, Pakistansupplied the cheapest woven shirt which is around $23.59 which is two timecheapest than Bangladesh and Chinese woven was the most expensive. Moreover,Bangladesh supplied the most cheapest slacks to US market than all othercompetitor and nearest rival was Vietnam which is around $54.14.In addition, for

the knit shirts Bangladesh was the price leader in compare to other competitor andthe price of that product category was the most cheaper than china, Vietnam,Pakistan and India. In trouser category, Pakistan charged the cheapest price thanall other competitor, whereas Bangladesh charged $35.17.In addition, the price ofcotton under for Bangladesh was $8.69 and Chinese price almost double whichwas around $17.93.Moreover, Bangladesh and Pakistan was the closest rival interms of woven blouse and knit blouse. Above this analysis shows thatBangladesh was the top price competitive country in the Asia and maintain lowprice strategy. In spite of low prices Bangladesh lost its market share to the chinadue to value terms. So Bangladesh have must take initiatives to improve value55addition, otherwise they would lost their market share to china or other strongrivals.Labour cost:Lower labour cost is the main competitive advantage for Bangladesh in compareto other all competitors. Bangladesh offering lowest labour cost all south Asiancountry and its 2.5 times lower than china per hour. The Labour cost includeswages, social charges, and a series of bonuses.Figure: 4Garments Manufacturing Labour Cost in 2010Source: Jassin O’Rourke, 2010Although china cut their price for 29 categories but other product categories priceincreased by 37% the year in between 2005 to 2008 and supplier shifted to thehigher part of the market in order to take full advantage of restriction imposed byBangladesh

Labour cost in US$Labour cost in US$56US. However, raising the production cost is the main reason for the high productprice. But at the same time Bangladesh declined their price by 7%, whereasVietnam and Cambodia dropped their price respectively 14% and 19%.China andMexico were the top supplier of trouser in US market as their price respectively$80 and $86, while Bangladesh sell only $52 which is lower than all othercompetitors and Bangladesh has achieved highest share of trouser in US marketwhich is about 14%.This trends shows that price competitiveness has been mainkey to achieve market share.The import volumes in clothing sector have been on downturn in US market. Theimport of mans and boys non-knit shirts declined by 14.44 % for volume and8.45% in terms of value terms but China increased their export by 16.27% interms of value terms. As a result, china achieved a highest share of the US marketin 2009 which is affected other competitors, like Bangladesh, India, Cambodia,Vietnam and other countries. However, Bangladesh lost the leading position interms of volume as order declined by 17% and ranked behind china in2008.Moreover,average shirt price is $76 per dozen. Bangladesh sold $49 perdozen which rather cheap than china, India and Vietnam but Pakistan set theirprice only $39 per dozen. This analysis indicates that Bangladesh not strong invalue terms. That’s why in spite of low price Bangladesh lost their market share tothe china.

4.1.4 Lead time analysis:Lead time refers to the time required for supplying the ordered garment productsafter the export order has been received. Lead time in garments industry was 120-150 days during 1980s and later it is about 30-40 days. The average lead time ofBangladesh of ready-made garments industry is about 90-120 days for wovengarments and 60-80 days for knit garments. On the other hand, the average leadtime for china takes 40 to 60 days for woven and 50-60 days for knit product,India takes 50-70 days for deliver the woven product and 60-70 days for knitproducts. The best way for Bangladesh to reduce lead time by developing57backward linkage that helps to avoid the high dependency of raw materials fromoutside. If Bangladesh develops this strategy that will improve not only deep-levelperformance and but also develops surface-level performance. Bangladesh RMGcan improve surface –level competitiveness by reducing long lead time.Bangladesh imports most of the raw materials like fabrics and other importantaccessories from abroad. The industry spends 55-75 days to get the raw materialsfrom abroad (Nuruzzaman, 2012). This is the main factor for long lead time andother factor is lack of speedy process on Chittagong port (Nuruzzaman, 2012).Inthe Chittagong port containers stuck for 15-20 days, which is required to be outbetween 3 to 5 days. Bangladesh garment industry would lose their reputation andimage in the international market if the raw material remains shiftless atChittagong port 10 to 15 days (Kutubuddin Ahmed, 2002). Moreover, managingdirector of Mohammad garments ltd. Stated, “we are spending 15-20 days forreceiving raw materials from port which is more significant for increase leadtime”. Researcher collected primary data from 7 export oriented garments firm tofind out the probable reason for long lead time. According to them, 72%respondent said that inefficient port management, poor infrastructure andcommunication system. Moreover, researcher has been also collected secondarydata by Managing director of Khaja fashion limited. The Managing director ofthis divided lead time in three broad stages. In the first stages, fabrics suppliertakes 40-55 days including duration of fabric manufacture to the supplier and thenthe second stage, sea port to manufacturer takes 15-20 days and in final stagemanufacturer takes 35- to 45 days to deliver the product to the buyer.

Source: Khaja fashion LtdThe most important thing is sending the raw materials to manufacturer from theport. The total procedure usually takes only 2 to 3 days but Chittagong port takes15 to 20 days due to inefficient port management and poor infrastructural facility.So it is clear that manufacturer of Bangladesh spent 55-75 days to get rawmaterials.According to 67% responded stated that , buyer make contract with the rawmaterial suppliers before giving final order to the manufacturers and increaseefficiency at sea port by the government. According to the director of khanGroup, “Normally after the final contract with buyer we give the order to thefabric supplier and wait for 15-20 days for make fabrics”. Above the discussion,some manufacturer stated that shipping and unloading port procedure is the mainreason for long lead time. On the other hand, 31%respondants thinksinfrastructure of poor transportation increases lead time. In addition manglingdirector of clipton ltd also stated that “we can reduce lead time effectively byreducing more dependency on raw materials from abroad.

Above the discussion, the competitiveness deeply affected by lead time and it’salso affecting the supply chain because of inefficient management. In the first foursteps time spend is the main reason for long lead time. Long lead time can be59reduced through by develop port management, effective transportation system andimprove communication. By analysing the interview researcher got an idea howlead time involved in supply chain by seeing the lead time equation and use theprojected time.Total lead time = [{Information lead time} + {(Order lead time)}]Order lead time = Fabrics manufacturing time+ time spend in shipment+unloading from container +Receive by manufacturer+ final production ofproduct+ shipment for final export.So, order lead time =7+15+25+14+6+23+20Total lead time = 120Above the equation, manufacturer receives the fabrics from supplier by four stepswhich take more than 60 days. However, shipping time is unchanged but we canreduce the other time for the lead time process.

From the beginning manufacturer needs to place order to the foreign supplier andthen supplier send fabrics through shipment and later product reach in the port andthen fabrics unloading from the container and send to the manufacturer.Manufacturer needs 55-75 days for completing the whole process, but the durationof whole process can be reduce 30-35 days by implanting effective supply chainmanagement and for the shipment needs only 25-35 days.Bangladesh RMG also can reduce lead time by manufacturing fabrics locally andit can reduce 55-75 days from total lead time and then this sector will able toexport their products 45-60 days regularly.

4.2 Deep-level competitive performance

4.2.1 Backward linkage expansion:Backward linkage expansion supports the Bangladesh RMG industry toavailability of raw materials, control production cost, export raw materials etc.Every year Bangladesh imports a huge volume of raw materials from outside thecountry. According to 66% respondent, production and consumption of yarnincreased but the gap between production and consumption of yarn decreasedover the year. This trend shows that Bangladesh already started the linkageexpansion. However, a huge number of manufacturer still prefer to import rawmaterials from outside instead of local supplier due to price difference. However,Managing director of khan garments limited stated that “we brought yarn from thelocal market at the price of $2.80 per kg, whereas our neighbour country Indiasells same quality at the price of $2.1 per kg”. Here Bangladesh is just a pricetaker for its import raw materials from foreign sources. On the other hand, Indiaand China expand their textile sector and developing themselves as a prominenttextile supplier in the world market. Both these country support their RMG toavoid import of raw materials from external sources which facilitate the easy61availability of raw materials and helps to add the value addition. For this reason,development of backward linkage is very important for Bangladesh RMG.

Analysis of six different stages in backward linkage chain to clothing exportsof Bangladesh

In this analysis, the demand-supply gaps in garments industries of Bangladesh bydividing in different 6 stages. This total chain of production and supply in thegarments industry reasonably perceived as the backward linkage to the globalmarket of RMG product.

Stage-1: Clothing in global marketIn this stage Bangladesh needs to find the niche market in global market for itsgarments export because most of market driven firms are more aggressive thanever before to remain in the market. So identification of market and product ofeach market is very important. There are different types of garment manufacturingindustry in Bangladesh which can produce the support of new backward linkagefacilities and serve these markets. Moreover, Bangladesh can export moreproducts by backward linkage initiatives and follow the “moving –up market “toprevent low cost competition from other countries which gain requires exploringnew markets through extensive market research. In addition, Bangladesh RMG faraway for export intermediate goods, such as yarn, grey and finished fabrics etc.This issue gives the clear idea Bangladesh garments industries will facetremendous challenge in open market.

Stage-2: Clothing production and export of BangladeshAt this moment Bangladesh textile mills not able to meet the demand of localgarment manufactures and they only produce 10% of the demand and the pricesare higher than foreign suppliers. According to 38% respondents, raw materialsprice inside the country is higher than foreign sources. In addition, other anotherissue in the RMG export in Bangladesh is lead time. Bangladesh cannot properlydeliver export garments product within average lead time because of long time toget raw materials, poor port management, undeveloped transportation facility,lack of communication etc. Diversification of product is another importantelement in the export of ready-made garments. Many garments exportingcountries involved capital-intensive high technology, such as-Thailand, Korea,Hong Kong, turkey etc. Thailand based on low capital per worker and adoptedsimple technology. To develop effective production and export Bangladesh mayimprove management system by engineering, management information systembut which is involved high cost. However, if Bangladesh takes initiatives for build63an institution of fashion technology it will boost up for Bangladesh RMG. Forinstance, Hong Kong trade development council has established a fashion librarywhich is very useful for fashion designers as it provides updated information andcommunication in this field. India and turkey have also developed fashioninstitute which adapts to changes in fashion and provides latest fashion trends.Stage-3: Finished fabric makingIn Bangladesh dying, printing, and finishing industries have moderately grownduring last few years. But it depends substantially on imported grey which againinvolves additional cost in import tax, transportation cost etc. Moreover, subsectorlacks modern equipment’s and demanded quality. Only few units can doproper dying having particular deficiencies with colour shading. However, at

present dying facilities commonly depends on export fabrics from outside and notavailable dying facilities inside the country.Stage -4: Grey fabric making (weaving and knitting)Bangladesh weaving mills continually drops short of production owning to chainlink shortage of yarn production in spinning sub-sector. As a result has to import3.15 billion metres grey fabrics adding tax, transport and other cost making thefabrics expensive. If the Bangladesh able to produce fibre locally and supply themanufacturer at cheap or same price as compare to the foreign raw materialsupplier then Bangladesh strongly compete with major competitor like china andIndia. On the other hand, knitting segment of grey cloth making is Bangladesh isbetter than others and meet local demands but faces some difficulties. Thissubsector still needs modern facility for modern quality. BKMEA(Bangladeshknitwear and manufactures and exporters association) has some demand i.e.waiver of import tax, Vat from spare parts, dyes and chemicals, support measure64of 5%FOB value to deter devaluation of neighbouring countries,7% flat interestrate on all advances/terms loans, financial subsidy of at least 6-7%,waiver of peakhour electricity charge, textile park reschedule of container handling charge andtraining centre for skill development.Stage-5: Production of yarn through spinning millsBangladeshi labour productivity is about 0.65 kg per mam-hour in spinning sub –sector and it is lower than other competitors of the country. The yarn gap is filledby imports of 3.15 billion meters of grey every year. Only 21% of total demandfor is met locally in Bangladesh. Spinning mills dramatically increase andexpansion of sub-sector also have good position but present gap in yarn,according to CPD study, is 500 million kg for export and local market. Again, thespinning sub-sector is plagued with the technician shortage, power crisis andshortage of raw materials. The towering gap between demand and production ofyarns entails massive imports under bonded warehouse facility which flawed byleakage. In Hong Kong .modern and open end technology is used in spinningmills to produce yarn which is supplied to the local knitting and weavingindustries. In spite of country’s competitive advantages of lower wastepercentage, lowest power price, low depreciation rate, only two factors take awaythe competitive advantage of Bangladesh takes over India and Pakistan that areprice of auxiliary materials in Bangladesh is the highest among the all yarnproducers and low conversion rate. Bangladesh spinning mills produces mostlylow grade yarn and does not have capacity to produce good quality combed yarnand blended yarn.

Stage-6: Fibre production or importsThe position of fibre production in Bangladesh vis-à-vis other leading countries(China, Pakistan, India, turkey etc.) from which it is obvious that extensivenatural fibre production, mainly cotton, is not feasible owing to growing demandfor food to feed a gigantic population and paucity of cotton land. This entails themassive import of cotton by the spinning sub-sector of the country. Now china,India, Pakistan, turkey enjoying the fibre advantages in backward linkage chain.Therefore, Bangladesh comparative advantage in natural fibre does not break offthe spirit of backward linkage if the other segments of the chain emerged asdynamic and potential but the condition is not feasible for Bangladesh.

4.3 Swot analysisStrengthThe main strengths of Bangladesh ready-made garments are availability of labourand low labour cost than other competitors. The average hourly wages forBangladesh, India, china and Pakistan are respectively $0.23, $0.51, and $0.37.However, Bangladesh has created already a strong brand image in the worldmarket by maintaining international standard. However, R&D sector developedBIFT (Bangladesh Institute of Fashion & Technology) which gives the idea offashionable product diversification, providing latest fashion trends, develop newfashion design and creates fashion designers to support the Bangladesh RMG.WeaknessThe main weakness of Bangladesh RMG industries is high dependency of rawmaterials from outside the country. Market and product are not properlydiversified as compare to other major competitor like china and India. BangladeshRGM industry also have several major weakness which are low productivity, lackof knowledge in information of international market, political instability, poorport management, ineffective transportation system and huge dependency onready-made garments subsector.Bangladesh may face difficulties for dependence68raw material from foreign source, such as India, china ,south Korea etc. Thesedirect competitors would charge high price for raw materials or stop selling rawmaterials. However, Bangladeshi labour productivity is much lower than itscompetitors like Srilanka, south Korea and Hong Kong and its might be affect inlow labour cost of competitive advantages. Moreover, the major weakness forBangladesh is poor port management. At this moment Bangladesh experiencinglong lead time because of inefficient port management. These inefficiencies mightbe arise serious problem for the Bangladesh in international market. However,political instability also affects Bangladesh RMG industry. In political factors,unloading, shipment and production usually stuck by the strikes which affects inproduct delivery to the buyer. The product quality and quantity of BangladeshRMG is still not in the satisfactory level to meet the global demand. The productquality of South Korea, Hong Kong, Taiwan and countries are far better thanBangladeshi product. Moreover, other main weakness is value addition, in RMGvalue addition only 30% because 70% of the other value import from outside thecountry. The value addition of Bangladesh is low to compare other majorcompetitor because backward and forward linkages still not developed. The othermain weakness is limited capacity of produce raw materials like fabrics butcompetitor like china, India, Pakistan, Thailand, South Korea and other countriesproduces quality fabrics.

Opportunities:

Bangladesh RMG needs to find out the opportunities in order to face globalcompetition in the free market environment. Now many foreign investorsinterested to establish garments industry in Bangladesh due to availability of lowcost labour, superior geographic location and a huge number of skill and semiskillworker. If foreign investors establish industry in Bangladesh then more jobswill be create and government generate money as well as opportunity to gettechnological support.The main opportunities for Bangladesh RMG are quota free world market and

United Nations Commission for Trade and Development (UNCTAD 1986)assessed that developing countries will expand their garments by 135% and textile69by 78% and this change will be much larger. In 2000, USA raised their import by105% for garments and textile item, whereas EU rose by 190% and demand ofboth garments and textile increasing over the year in global market. Moreover,Bangladesh can get utilize this opportunity to develop forward and backwardlinkage with RMG. Bangladesh RMG achieved significant competitive advantageover the competitor in the knitting sector. Bangladesh able to produce yarn per kgonly $1.48,whereas Pakistan $1.60,india $1.78,korea $1.73 .In addition, Some EUand Asian countries willing to establish knit industry as an option to chinabecause of low labour cost and inexpensive energy cost. However, there are someKorean firm operating export processing zone in Dhaka and Chittagong. Thesezones have producing trousers and jacket with high quality. Bangladesh RGM cantake latest technological facility from these export zones producing high qualitygarments products.Threat: The biggest threats would be arise from big competitors like china, India,Vietnam, Srilanka etc. Bangladesh RMG faces threats from the competitors notonly by marketing but also from outsourcing. As the discussed before inweakness, Bangladesh imports a huge quantity of raw materials from directcompetitors. These competitors might be stop export raw materials to Bangladeshor charge higher price. If the competitor will take this action against Bangladeshthen RMG will face serious problem to compete with major competitor ininternational market. In addition, nowadays, child labour is very sensitive issuesin international market specially market.704.4 Five forces analysisNowadays many industry asses their different level of competitive by using thefive forces model. There are many explanations for that fact; one of them is theindustry structure. Porter built up this reference to analyse the industry that isinfluenced by five important factors (Supplier power, Threat of substitutes,Barriers to entry, Buyer power and Rivalry).The analysis of five forces inBangladesh RGM industry are as below:Threats of new entrantsBarrier to entry

Bangladesh already makes a good reputation in world market and exportdramatically increased over the year. For this reason many domestic competitorinvolved in this sector. On the other hand, Bangladesh did not get GSP facilityafter the MFA. Therefore, many new competitors entered in US market and makea strong competitive environment.Costs advantage, economies of scale, government’s policies, capital requirementsand power of retaliation towards entering companies explain why it is difficult toenter in this industry. Most of the export oriented company in the domestic marketcreated strong power by cost advantages and economies of scale and make hugeinvestment and that are now sunk cost. For this reason, if a new competitor wantsto enter in the market they must have to break the barrier by offering lower pricewith good quality, bringing additional production capacity at initial level.According to 70% respondent, this industry already established if any new

company enter this market they will face huge challenges. Here barrier to entry ishigh because of high competition reduce the profitability and the technology ofthis industry naturally capital intensive.

Time and cost of entry

To establish a garments industry setup requires huge investment, research anddevelopment, innovation and understanding of customer needs. In garmentsindustry, market entry is not much difficult but achieving a strong position in amarket is very tough. New entrants might be face different tough situation likeoperationalexpertise, machinery, skill worker, infrastructure development andcontinuous production management. On the other hand, new entrants also faceother problem, such as-over dependence of supplier, risks of raw materials,change in customer demand, etc.

Cost advantages

Most of the new entrants faces the problem of low margin and large operationalcost because of unavailable economies of scale, high initial investment andcompete with giant firms. The managing director of KDS group limited stated that“The establishment cost of new export oriented factory cost and operational costis very expensive”.Above this analysis, threats of new entry is low to medium for the existingmanufacturer because a huge number of garment industry available in Bangladeshas this sector very potential.

Bargaining power of supplier:

Bangladesh RMG exports a huge quantity of raw materials from outside thecountry like china, India, Pakistan etc. The sample companies import their rawmaterials from china and India and collect the cotton from domestic market. Atthis moment few manufacturer buying raw materials from local market whichare relatively higher than foreign market. Bangladesh highly depended on theoutsourcing raw materials and accessories which carries 70% of the total rawmaterials due to lack of enough capacity to produce export quality fabrics and72accessories. Bangladesh imports 90% of woven fabrics and 60% of knit fabrics.The industry is based primarily on sub-contracting, under which Bangladeshientrepreneurs work as sub-contractors of foreign buyers. It has grown byresponding to orders placed by foreign buyers on C-M (Cut and Make) basis.During its early years, the buyers supplied all the fabrics and accessories orrecommended the sources of supply from which Bangladeshi sub-contractorswere required to import the fabrics. However, situation has improved. At present,there are few large firms, which do their own sourcing. In Sample Companymainly import from India and china .They also collect raw materials from localmarket in case of emergency. They are not vertical integrated for this reason theyare not able to maintain availability of raw material at all time and does not getproper support from backward linkage industries. Above the analysis of all factorsbargaining supplier power is high.

Bargaining power of buyer:

The manufacturer of Bangladesh RMG industry produces their product accordingto buyer specification. If the manufacturer fails to maintain product quantity,quality and price then the buyer easily switch to the competitors like china, India,Srilanka, Vietnam which are able to meet buyer’s requirements. According to thesample company most of the buyer places their through buying agents. At presentBangladeshi entrepreneurs created a strong reputation in the world apparelmarkets and Bangladesh an increasingly becoming attractive place for the foreignbuyers to take the advantages of cheap labour sources. It has been seen from last10 years especially after MFA the world textile market becoming competitive dayby day and now buyer are demanding high quality product with low price.Number and size of customersThe customers have strong bargaining power because of two reasons; one is manygarment manufacturers in Bangladesh RMG and other Bangladesh RMG highlydependent on foreign buyers. In Bangladesh almost has more than 4500 garmentsindustry and 90% of the product export the foreign countries.73Price sensitivityForeign buyer and buying agent have high power for bargaining of pricing issue.Buyer has lots of option to place their order from many countries due tocompetition increasing in quota free world over the last five years. If theBangladesh fails to maintain price then the buyer will switch to the othercompetitors.Quality: Quality is the other main factor in the garments industry. If themanufacturer not able to maintain the quality requirement then the buyer might becancel the order or switch to the other competitor. For example-Bangladesh lostits t-shirts market share to china in US market in terms of value in 2005.Above this discussion, the bargaining power of buyer is relatively high.

Threats of substitute

Bangladesh RMG has very low threats of substitute because garments productsare the basic necessity of human life and customer cannot move to other productsby leaving garments products. On the other hand, the price of substitute productsis more expensive. Moreover, the quality, features and benefits of substituteproducts are generally lower.

Rivalry

Number and size of firms

The garments industry has varied number of players with some major garmentsproducers who have created a strong brand image in world market, such as-KDSlimited, pacific jeans limited, clipton group etc. KDS is the market leader becauseof its long list of product line and coverage of different geographical area as wellas main raw materials manufacturer in Bangladesh. However, in Bangladesh74many small and medium sized firms also competing in the international market.

Both these companies can be considered as potential threats due to strongproduction capacity, quality, knowledge and prices.

Quality differences

Quality differences and product specification is a major concern in this industry.The major garments firms of Bangladesh like kds ,clipton, pacific jeans, and othermajor rivals are able to meet the international standard in terms of quality.

Switching cost

For the garments industry switch the cost is very difficult because of expensivemachinery and infrastructure cost involve with the whole manufacturing costwhich prevents the garments manufacturer to change over from existingproduction method to newer innovation. Moreover, switch the supplier also riskybecause of consistency in product quality.

Economies of scale

The world garments market becoming competitive day by day. Now the largegarments manufacturer targets at economies of scale by product standardization,such as- product design, high quality over a much larger on sales base. KDS is themarket leader because of its economies of scale by bulk production which helpthem to manufacture large volume of product .This price down strategy can takesthose firms which have vast investment, good market reputation, strong marketingstrategy and ability to take risk in the business.

Competition between local and foreign firms

Rivalry among the foreign and local competitors is very high because ofeconomies of scale, low diversity and number of competitors and higher industrygrowth indicates market rivalry is high. In local market order are limited and theircompetition based on cost. Bangladesh garment industry competing theinternational market by maintaining low cost strategy .If the other manufacturingcountry like India, china, Vietnam or other country offer the best price with samequality then the buyer will switch to the other competing country.Above this analysis, the trends show that the Structure of Bangladesh RMG istotally different. This industry has lot of opportunity but bargaining power ofsupplier and buyer are relatively high. On the other hand, threats of new entrymedium to low. So it is clear that rivalry in this market also high in both domesticand international market.

Conclusion

The competitive performance of Bangladesh RMG in surface-level is somewhatgood by quantitative developments of export growth in competitive internationalmarket over the year. However, the RMG industry of Bangladesh has alreadystarted the development of its surface-level competitive performance. Forinstance- Bangladesh RMG industry entered some product diversification and USand EU market. This industry also trying to concentrate in market concentration,

as this sector already entered in japan, Australia, Middle East and some othercountries. The industry recently took some initiatives for product upgrade in EUmarket but not emphasizes on US market. Some areas need more consideration toachieve deep-level competitiveness by backward linkage expansion. Bangladeshgovernment should take some initiatives to support this industry to make a strongimage in the global competitive world. The most emergency tasks for Bangladeshare reducing long lead time; otherwise international buyers may switch to othersuppliers. However, the best way to progress surface-level competitivenessthrough reducing long lead time, which will also help to develop deep-levelcompetitiveness. In addition, Bangladesh must take some strong initiative toestablish backward linkages but it is not possible to establish overnight.Bangladesh also has to think about other alternatives to maintain competitivenessin international market. Bangladesh RMG must be avoiding to over dependencyof raw materials from foreign sources and concentrates on local raw materialsproduction. Moreover, globalization giving forces to the Bangladesh to take thatthreat. So, Bangladesh should take an effective strategy to improve not only76surface-level competitiveness but also deep-level competitiveness. A goodbalance in surface and deep level competitiveness will achieve a good position inthe world market and the same time improvement of the countries present positionby providing full-package garments pro duct. On the other hand, Bangladesh mustimprove their working environments in the factory, as international buyer givingthe pressure for compliance with codes of conducts. Now many big buyersinterested to expand their in Bangladesh if they able reduce long lead time andmeet the compliance issues. So, Bangladesh should more focus these issues verycarefully and directly. At this moment Bangladesh experiencing some product andmarket diversification but this process far behind than major competitors. So,Bangladesh RMG must take some product and market diversification strategy toincrease its market share. Only Simple shirts or t-shirts manufacture will not helpthe country to remain competitive in international market for a long time, that’swhy Bangladesh needs to develop quality and high price garments products.However, port management must be develop and strengthen in order to stay in theinternational market. Such all these steps will help the Bangladesh RMG industryto improve the competitive performance in the international market.77

Chapter 5: Recommendations

Pricing strategyPricing strategy will be the best reflects the competitive status of BangladeshRMG industry. The main suggestion for Bangladesh RMG industry is to maintainlow pricing strategy. This sector already achieved competitive advantage by itslow price strategy. Bangladesh should maintain this pricing strategy to stay in thecompetitive international market. If the Bangladesh exports their product at alower price than competitor then more buyers will place the order or existingbuyer will get high volume of product order. Bangladesh RMG should also focuson product cost strategy. If the product cost is lower than they manufacturer ableto export lower price than competitor.78Improvement of quality

Quality is one of the main factors for global competitive market which makes thecustomers loyal to the product. According to sampling group quality can affectsthe sales in international market because now customers are very qualityconscious and fashionable. However, they also believe that growth of businessdepends on by providing good quality, effective design and ability to fulfill therequirement of changing fashion trend and style.Improvement of lead timeLong lead time which has negative impact on export growth of Bangladeshgarments industry. We must take some initiative to reduce the long lead time bydevelopment of port management, efficiency of goods unloading, implementingnew technology and avoid over dependency of raw materials. If we can achievethis strategy we can definitely improve lead time and deliver the product veryshortly which will create a strong position for the Bangladesh RMG ininternational market.Now the most important task for Bangladesh RGM industry is reduce long time. Ifthe RMG do not take any initiatives to reduce long time then in future might beswitch to competitive countries in the present quota free business environment.However, the best way for Bangladesh to progress its deep level competitivenessthrough reducing production and distribution time, which will improve surfacelevel competitiveness by decreasing long lead time.Develop labor productivityWe have to improve our labor productivity by providing good wages and otherfacilities, like-bonus, free medication, child care etc. If we provide these facilitiesthen the labor will be more motivated and that will became more productive.79Market diversificationBangladesh mainly exports in EU and US market and recently some othergeographical market. This sector already builds a good reputation in the market,so they should enter the other market and give more attention to minor market.The governments of Bangladesh should encourage the manufacturer to enter inthe other markets with high growth potential that have not been capture by therivals. The advantage of early move helps the industry to build long termprospects. At present the share of Bangladesh RMG in middle east and Africa isonly 7.9% and 1.1%.The present share shows that Bangladesh can utilize thisopportunities by strategically enter these market.

Expansion of Backward linkage:Backward Integration refers to the development of subsidiary industries in orderto reduce Bangladesh garment’s dependence on imported inputs i.e., thesupporting industries that produce garment accessories and the initial processingof imported gray fabric. If RMG sector expends backward linkage, it will supportthe RMG sector for avoid the over dependency raw materials from foreignsources. However, Manufacturer can also buy raw materials at a cheap pricewhich will help the manufacturer to sell their product at cheap price thancompetitor in the international market. In addition, expansion of backward linkagewill also support the industry to reduce long lead time and that will help themanufacturer to send the product within international standard lead time.

Diversify the product rangeNowadays, major competitors like china and India highly diversifying the product

in international market but Bangladesh garments industry still not muchaggressive for their product diversification. Bangladesh should come with widerange of product in international market. If the Bangladesh RMG more diversifythe product in the international market then it will create strong competitiveenvironment and Bangladesh RMG industry emerge as strong threat for themajor competitor.

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