International Business: A Paper on the RMG Industry of Bangladesh

Bangladesh RMG Industry BUS 301: International Business Term Paper on Bangladesh RMG Industry Submitted to Ms. Syeda Shaherbanu Shahbazi Ahmed Senior Lecturer, BRAC University Submitted by MD. Amirul Islam Lisan Sami Kazi And the Group Submission Date 30th July, 2015 1|Page Bangladesh RMG Industry Executive Summary This paper has been prepared in order to present an evaluation of the international business strategies of Ready-made garments industries. Ready-made garments industries are the greatest value creation sector for one country. In Bangladesh, RMG (Readymade Garments) sector is generating a huge amount of money. Today RMG industry is the most contributing sector in the amount of export that Bangladesh do. In recent years percentage of RMG in total exports rising from 75% to 80%. In this report we talked about the global RMG industries and the international policies which they are using to conduct the business. Moreover, we talked about the domestic market, growth and size, exported or imported raw materials, valuable skills and human resources and the value chain system. In order to get a clear view we have used Porter`s Diamond theory model and tried to relate with those factors. In addition we have talked about different segment of this sector and others necessary things. In conclusion, most of the information of this report was collected from secondary sources. The sources include data from websites, article, theoretical knowledge and internet search. 2|Page Bangladesh RMG Industry Table of Content Overview of the Ready-Made Garments Industries: ...................................................................... 5 Industry Size and Growth: .............................................................................................................. 7 Domestic RMG Market of Bangladesh: ....................................................................................... 10 Export Growth Regarding Size and Market: ................................................................................ 11 Market: ...................................................................................................................................... 12 Product: ..................................................................................................................................... 13 Import of Raw Materials: .............................................................................................................. 16 Production Capacity of RMG Industry: ........................................................................................ 20 Industry Segments (Product-wise) ................................................................................................ 24 Cotton Industry:......................................................................................................................... 24 Spinning Industry: ..................................................................................................................... 24 Knitwear Industry:..................................................................................................................... 25 Woven Garments Industry: ....................................................................................................... 26 Dyeing and Finishing Industries: .............................................................................................. 26 Accessories: ............................................................................................................................... 27 Human Resource and Skill Requirements: ................................................................................... 28 Policy Initiatives ........................................................................................................................... 30 Fire and Building Safety in Bangladesh RMG Industry ........................................................... 30 Demand of Bangladesh RMG Industry ..................................................................................... 31 Value Chain .................................................................................................................................. 34 Research and Development: ......................................................................................................... 34 Production: ................................................................................................................................ 34 Marketing and Sales: ................................................................................................................. 35 Customer Service: ..................................................................................................................... 35 Information System: .................................................................................................................. 35 Company Infrastructure Logistics: ............................................................................................ 36 Human Resource: ...................................................................................................................... 36 Summarizing the Perspective of Porter’s Diamond Theory ......................................................... 37 Factor Endowments ................................................................................................................... 37 Low Labor Cost: .................................................................................................................... 37 Laborer’s Training Time: ...................................................................................................... 37 3|Page Bangladesh RMG Industry Yarn Consumption:................................................................................................................ 37 Climate: ................................................................................................................................. 37 Demand Conditions ................................................................................................................... 38 Domestic Demand: ................................................................................................................ 38 Demand in USA and EU Countries: ...................................................................................... 38 Related Supporting Industries ................................................................................................... 38 Firm Strategy, Structure and Rivalry ........................................................................................ 39 Recommendation .......................................................................................................................... 40 Conclusion .................................................................................................................................... 40 4|Page Bangladesh RMG Industry Overview of the Ready-Made Garments Industries: The ready-made garments industry is one among the globalized industries of the world. However the Ready–Made Garments (RMG) sector has emerged as the biggest earner of foreign currency. The RMG sector has experienced an exponential growth since the 1980s. Worldwide, this sector contributes significantly to the GDP. 1950 was the beginning of RMG in the Western world. The MFA (multi fiber agreement) which was made in 1974 imposed an export rate 6 percent increase every year from a developing country to a developed country. China is one of the leading readymade garment exporting country. In the early 1980s Bangladesh started receiving investment in the RMG sector. Some Bangladeshis received free training from the Korean Company Daewoo. In the 1980s, there were only 50 factories employing only a few thousand people. Currently, there are 4490 manufacturing units. The RMG sector contributes around 76 percent to the total export earnings. This sector also contributes around 13 percent to the GDP, which was only around 3 percent in 1991. RMG products are exported mainly to the United States of America and the European Union. Of the estimated 4.2 million people employed in this sector, about 50 percent of them are women from rural areas. In 2000, the industry consisting of some 3000 factories employed directly more than 1.5 million workers of whom almost 80% were female. USA is the largest importer of Bangladeshi RMG products, followed by Germany, UK, France and other EU countries. Recent movement show that India and Pakistan are two biggest threat for Bangladesh RMG and textile industry. Because, the readymade garments industry has played a substantial role in the Indian and Pakistani economy. For Bangladesh the readymade garment sector is the golden goose. The country has emerged as the second largest exporter of readymade garment products trailing just behind China. Bangladesh entered the apparel export market in 1978 with only nine units and earned US$ 0.069 million. During the last three decades, this sector has achieved a phenomenal growth due to policy support of the government and more importantly, dynamism of the private sector entrepreneurs along with extremely hardworking workers. Now the number of RMG units is around 6,000 and the export earnings have exceeded US$ 20 billion. Knit garments are exported to 148 countries and woven products to 132 countries. Export earning can be more than double by the year 2020. But all these expansion and global demands started after the failure of Jute export (which was the big item in export in the past). Bangladesh's garment industry provides employment to about than 3.6 million 5|Page Bangladesh RMG Industry workers which 2.8 million are women. Workers in these garment factories are almost always illiterate. They have very limited knowledge of human rights, working conditions and labor standards. Moreover, a survey found that European and US companies that focus on the apparel market's value segment plan to expand the share of their sourcing from Bangladesh to 25 to 32 per cent by 2020, from an average of 20 per cent now. Bangladesh is now trying to diversify its markets to include Japan, Australia and other important international markets. 6|Page Bangladesh RMG Industry Industry Size and Growth: The major destination of RMG products is EU, USA, Canada, Japan, and Australia. Bangladesh is currently the 4th largest apparel exporting country to the US market, trailing behind only China, Vietnam and Indonesia. Not long ago, Mexico’s apparel exports were significantly higher than of Bangladesh which is reversed in the recent months. Bangladesh was the top export performer in the European Union market in 2009 with 6 percent growth, when all other countries, except for Qatar, suffered an export fall in the common market due to a global financial contraction. Bangladesh shipped products worth 5.8 billion euro’s to the EU in 2009, increasing from 5.7 billion euro’s in 2008, witnessing a 6.3 percent rise. During the time, Bangladesh outperformed its global competitors: China, India and Vietnam. Table: Major Country-wise Export Documents Analysis of country wise export shows that the USA is the main destination of our export. It appears from Table that in FY 2008-09, the USA secured the top position in respect of importing commodities from Bangladesh followed by UK (14.58%), Germany (9.64%) and France (6.62%). During the period under report, goods worth US$4,052.00 million were exported to the USA, which was 26.03 percent of the total export of the country. The principal commodities exported to USA are woven garments, knitwear. 7|Page Bangladesh RMG Industry Figure: RMG Export Growth through Last Decade (2002-2012) From this figure we can say that in 2002-2003 the RMG export rate was 4.91 billion, in 2003-2004 it was increase and the rate was 5.69 billion. In 2011-2012 the growth rate was very high and the growth rate was 19.09 billion. 8|Page Bangladesh RMG Industry List of top ten clothing exporting countries in 2010 are given below: 9|Page Bangladesh RMG Industry Domestic RMG Market of Bangladesh: The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 25 years. Top exporters of readymade garment (RMG) are now turning their focus for getting more tramps into the domestic market. RMG exporters are now wanted to sight on home market as local consumption of word-class wear grasp a vast prospective. The domestic market has gigantic prospect as there are more than 160 million people living in the country. Bangladesh has become the hub for readymade apparels produced by small factories that cater to the domestic market for both adults and children's wear. With some 8,000 small factories churning out products ranging from children's clothing to T-shirts and jeans, they service the lower and middle income groups of Bangladesh. Indeed, sales touch Tk1,000 crore during the month of Ramadan. What is interesting to note here is that denim (jeans) constitute 50 per cent of total output and quality is up to the mark. With a pair of jeans retailing at wholesale level ranging between Tk50 and Tk100 below that of other wholesale markets in the country, Keraniganj has been propelled in to a different playing field. With retail pricing ranging at around Tk300 for mediocre quality and pricing going anywhere up to Tk2,000 for superior finish, we are seeing the emergence of a parallel RMG sector that caters purely for domestic consumers. Needless to say, the Keraniganj model can and probably will be replicated successfully in other parts of the country. Yet, domestic apparel producers are not bereft of problems beyond their control. Infrastructure inadequacies like power outages hamper production; poor condition of roads and the haphazard manner in which factories have grown are some of the issues that need to be dealt with to avoid incidences of fire and even building collapse. The sector needs recognition and access to banking credit to realize its full potential. These are areas where the government must step in to help facilitate growth of this subsector. 10 | P a g e Bangladesh RMG Industry Export Growth Regarding Size and Market: Bangladesh’s recent export performance in the world market for readymade garment has improved markedly. Constant Market Share Analysis is used in order to determine the competitiveness of Bangladesh and its competitors, which are the main readymade garment producers, in the USA, UK, CANADA and others. Bangladesh is able to export s readymade garment of high and consistent quality at low costs, under conditions which meet the world standards set by the world. In addition to competitive advantages, Bangladesh has benefited from growth in the overall size of the world export market for readymade garment, but has suffered from having only relatively small shares in the important markets of some member States. Market research on consumers’ demand and preferences could further improve Bangladesh’s recent export performance of readymade garment. 11 | P a g e Bangladesh RMG Industry Despite many difficulties faced by the RMG industry over the past years, it continued to show its robust performance and competitive strength. The resilience and bold trend in this MFA phase-out period partly reflects the imposition of ‘safeguard quotas’ by US and similar restrictions by EU administration on China up to 2008, which has been the largest supplier of textiles and apparel to USA. Other factors like price competitiveness, enhanced GSP facility, market and product diversification, cheap labor, increased backward integration, high level of investment, and government support are among the key factors that helped the country to continue the momentum in export earnings in the apparel sector. Some of these elements are reviewed below. Market: Bangladeshi RMG products are mainly destined to the US and EU. Back in 1996-97, Bangladesh was the 7th and 5th largest apparel exporter to the USA and European Union respectively. The industry was successful in exploring the opportunities in markets away from EU and US. In FY06, a successful turnaround was observed in exports to third countries, which having a negative growth in FY05 rose three-fold in FY06, which helped to record 23.1 percent overall export growth in the RMG sector. It is anticipated that the trend of market diversification will 12 | P a g e Bangladesh RMG Industry continue and this will help to maintain the growth momentum of export earnings. At the same time a recent WTO review points out that Bangladesh has not been able to exploit fully the duty free access to EU that it enjoys. While this is pointed out to be due to stringent rules of origin (ROO) criteria, the relative stagnation in exports to EU requires further analysis. Table: Region-wise Share of RMG Export Year Export Share to USA Export Share Combined Export Share to Share of USA of & EU (%) Countries European Countries Other (%) 2001-2002 42.67 55.43 98.10 1.90 2002-2003 38.02 57.12 95.14 4.86 2003-2004 28.64 65.42 94.06 5.94 2004-2005 30.64 64.24 94.88 5.12 2005-2006 33.67 49.77 83.43 16.57 Source: Export promotion Bureau Product: The growth pattern of RMG exports can be categorized into two distinct phases. During the initial phase it was the woven category, which contributed the most. Second phase is the emergence of knitwear products that powered the recent double digit (year-on-year) growth starting in FY04. 13 | P a g e Bangladesh RMG Industry Table: Growth Pattern of Woven and Knitwear Categories Year Woven Knitwear 2002-03 4.28 13.34 2003-04 8.59 29.88 2004-05 1.70 31.26 2005-06 13.50 35.38 Source: Bangladesh Bank In the globalize economy and ever-changing fashion world, product diversification is the key to continuous business success. Starting with a few items, the entrepreneurs of the RMG sector have also been able to diversify the product base ranging from ordinary shirts, T-shirts, trousers, shorts, pajamas, ladies and children’s wear to sophisticated high value items like quality suits, branded jeans, jackets, sweaters, embroidered wear etc. It is clear that value addition accrues mostly in the designer items, and the sooner local entrepreneurs can catch on to this trend the brighter be the RMG future. Table: Export performance of different Apparel items (In million USD) Year Shirt Jackets T-Shirt Trousers Sweater 2001-02 871.22 412.34 546.28 636.61 517.83 2002-03 1019.88 464.51 642.62 643.66 578.38 2003-04 1116.57 364.78 1062.11 1334.85 616.31 2004-05 1053.34 430.28 1349.71 1667.72 893.12 2005-06 1056.87 408.97 1781.51 2165.25 1042.61 Source: Bangladesh Bank Some factors are maintaining export competitiveness of Readymade garments industry of Bangladesh. They are: Backward Integration, Flow of Investment, A Supportive Policy 14 | P a g e Bangladesh RMG Industry Regime, Lead Time, Infrastructural Impediments, Labor Productivity, Cheap labor force, Enough Research and Training etc. The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 20 years. By taking advantage of an insulated market under the provision of Multi Fiber Agreement (MFA) of GATT, it attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP within a short span of time. The industry plays a key role in employment generation and in the provision of income to the poor. Nearly two million workers are directly and more than ten million inhabitants are indirectly associated with the industry. Over the past twenty years, the number of manufacturing units has grown from 180 to over 3600. The sector has also played a significant role in the socio- economic development of the country. The Agreement on Textile and Clothing (ATC) introduced in 1994, aimed at bringing textiles and clothing within the domain of WTO rules by abolishing all quotas by the end of 2004. It provides an adjustment period of 10 years, so that countries affected by the MFA could take the necessary steps to adjust to the new trading environment. Liberalization of trade following the Uruguay Round agreement presents opportunities as well as challenges for a developing country like Bangladesh in RMG sector. In the Post-Uruguay Round period, traditional instruments of trade policy such as tariffs, quotas, and subsidies will become less feasible and less relevant. In a liberalized trade regime, competition among textiles and clothing exporting countries is likely to become intense. The objective of this paper is to identify the prospects of RMG industry after the MFA phase out by analyzing the current scenario along with different policy measures and the available options in order to be more competitive in the new regime. The export made by Garments Industries of Bangladesh is improving year after year except some of the year. Strike, layout, shutdown of company, political problem, economic problem, inflation etc. are the prime cause of decreasing export in this important sector. But above it, Readymade Garments Industries is the leading sector in export sector. 15 | P a g e Bangladesh RMG Industry Import of Raw Materials: The economy of Bangladesh is generally reliant on farming while the Ready–Made Garments (RMG) segment has risen as the greatest worker of outside money. The RMG division has encountered an exponential development since the 1980s and its go on. The part contributes essentially to the GDP development rate. It additionally gives work to around 4.2 million Bangladeshis, basically ladies from low salary families. The business assumes a key part in occupation era and in the procurement of salary to poor people. About four million specialists are specifically and more than twelve million occupants are by implication connected with the business. In the course of the last a quarter century, the quantity of assembling units has developed from 180 to more than 4000. Bangladesh is being very developed in exported sector of RMG where it would needed very small amount of imported raw materials for increasing level of production. Bangladesh is mainly imported goods from the neighboring country India. There are large discrepancies between the Indian statistics of exports to Bangladesh and the Bangladesh statistics of imports from India, both in the aggregate and even more so at the level of individual commodities. Bangladesh is to a great extent relies on upon the imported profoundly variable however infrequently substantial imports of grains (mostly wheat and rice) from India. Bangladesh is likewise importing from different nations, however India has been the principle supplier as of late. Bangladesh is mainly imported raw materials like as button, zipper, fabric and sewing thread mainly from India. Our country is also imported the level of the garments product basically from the highly developed country USA. Our country is very much improved in RMG industry where in every year they can export products in different countries. On the other hand it will be needed to import few raw materials when any institute or customer ordered to give them their expected outfits. Bangladesh is needed to import few expensive and elegant materials which can use to make the desired goods more demandable. As per the Bangladesh import information, in 2003-04 "Consecutive LC" imports from India represented 3.5% of its aggregate "Consecutive LC" imports. 16 | P a g e Bangladesh RMG Industry The readymade article of clothing industry in Bangladesh which was beforehand dependent on outside suppliers for cotton and woven fabric has now begun utilizing more neighborhood crude materials for the fare business. The nation imported 236 million kg of cotton yarn and 289 million kg of woven fabric in the last monetary and the import figures were 240 million kg yarn and 295 million kg fabric in the earlier year as per Bangladesh Textile Mills Association (BTMA). The sums show 1.59 for every penny or 3.83 million kg less import of yarn and 1.95 for each penny or 5.73 million kg less import of cotton fabrics in the last financial. The lower import helped recovery the administration about US $ 64.430 million. The yarn and fabric imports descended insignificantly in the simply finished up monetary year (2014-15), along these lines expanding the quantum of neighborhood quality expansion to the attire. Bangladesh imports a wide range of products from India. According to the Indian export statistics for 2003/04, there were at least some exports in all but 4 of the 98 HS chapters. About a third of total imports were primary agricultural, fish and livestock products, 6.6% processed foods and drinks (including animal foods), and most of the rest manufactured products .Leaving aside textile and clothing imports, most of which go duty free to Bangladesh RMG importers, India was supplying 21.5% of Bangladesh’s total imports for use in the domestic market. India's main fares are then contrasted and Bangladesh's aggregate imports of the same item assembles as recorded in the NBRs database for Bangladesh's monetary 2003/04, and Bangladesh's normal defensive taxes amid 2003/04 are indicated for every item gather. That India is supplying truly unfaltering shares of Bangladesh's imports of essential rough materials, midway stock used for family creation, capital items and non-oat last customer goo The Indian exchange bits of knowledge have been not been sorted into these groupings, but instead a parcel into the three characterizations portrayed in assert the essentialness and variability of oat admissions, and is unsurprising with a declining Indian part in the supply of inputs to Bangladesh exporters, since this is the essential destination of its cotton material charges. The statistics shows that India's offer of Bangladesh's aggregate imports of each of these item gatherings is high: more than half for 8 item gatherings, somewhere around 20% and 30% for 7 item gatherings; somewhere around 10% and 20% for 7 item bunches; and in just three cases under 10%. 17 | P a g e Bangladesh RMG Industry Perpetual reliance on the import of cotton yarn and woven fabrics is taking a little downturn as the readymade article of clothing (RMG) producers are utilizing that the nation imported 236 million kilograms (KGs) of cotton yarn and 289 million KGs of woven fabrics in the last financial. The import figures were 240-million-kg yarn and 295-million-kg fabrics in the earlier year. Be that as it may, the reliance on import of yarn and fabrics, sources said, can without much of a stretch is chopping down significantly if the Primary Textile Sector (PTS) is dealt with appropriately. The neighborhood fabrics business is still possessed and over-overflowed with outside made fabrics. Nearby material items neglect to draw in neighborhood clients and take care of their demand because of diverse issues. Figure 1: Major sectors of import payment over the years Source: Authors’ calculation based on Bangladesh Economic Review, Bangladesh bank, Export promotion Bureau From the statistics view we can easily see that the export condition of India to Bangladesh is grew from time being to 2001-2013. In very previous years probably early as 1995 Bangladesh is imported very low amount from other country but in present time it would be increased. The main reason behind it is the demand of the customer’s desired goods. The customers’ demands are going to increase day to day and to satisfy their wants Bangladesh need to import raw materials. In 20012002 Bangladesh imported 500 us dollars and in 2012-2013 it increased by 3500 us dollars. And it import very large in petroleum products goods and very low in food grains products 18 | P a g e Bangladesh RMG Industry Figure 2: Percentage change of LCs opening and import settlement Import payment has increased in the first seven months of this current fiscal year because of the the import payments of capital machineries, petroleum, industrial raw materials and consumer goods. LCs opening of Capital machineries was USD 2118.64 million with a growth rate of 54.27 percent in the period of July-January of FY 2013-14 whereas it was USD 1373.37 million with growth rate of only 12.50 percent in the same period of the previous fiscal year. LCs opening of imported goods decreased in FY 2012-13 because of the high rate of interest on banks’ landing and shortage of gas and electricity. The import of capital machinery increased in the recent months of this current fiscal year despite having an unfriendly business environment in the country amid political unrest. The import of rice increased gradually in the recent months due mainly to lower prices of the essential commodity in the international market and increase in price of rice in the local market in the last few months. From the table we can understand the import condition of Bangladesh over a year.The percentage of import is changed by months ina year in it also go ups and downs over a year. 19 | P a g e Bangladesh RMG Industry Production Capacity of RMG Industry: Bangladesh is a well developed country in terms of readymade garments industry. About 80% of the production is going to exported in the developed countries from Bangladesh RMG industry and very little as 10 to 15% of goods are going to used in our country. By day to day the production cepacity of RMF is no doubt to be improved its bounderies and make more profit by earning foreign currencies. The RMG definitely would work to increase the growth rate of our country. There are some statistics of production limits of RMG is given below. Figure : 3 The table of production cepacity of RMG After observing the statistics table we can easily recognize that the production of goods in RMG is quit increased since 1993 to 2013. It is really a positive side for the RMG industry as well as for 20 | P a g e Bangladesh RMG Industry the economy of our country. The RMG is basically producing the jeans wear product such as shirts, trousers, jackets, t shirts, sweaters which are demanded in foreign country more. The production sweaters are the most in shows the table than the other product. The RMG industry is basically produce for foreign countries and they export the product in different by their needs. Very small amount of product which are lay down as a wicked product these are used in local city. Figure 4: Country-wise percentage share in export earnings Source: Authors’ calculation based on Bangladesh Economic Review, Bangladesh bank, Export promotion Bureau, 2014 The figure: 4 show the country wise export rate of RMG sector. The highest percentage of export is done with USA and the very low with India and Turkey. So the economy of Bangladesh is depends on the export of RMG with developed nation USA and it based on the production capacity of the industry. 21 | P a g e Bangladesh RMG Industry Figure: 5 Export and import growth of RMG The figure is the production level of RMG industry in Bangladesh where the export and import growth rate is increased like this percentage. It’s a basic information for Bangladesh is that our economy as well as growth rate is highly depends on RMG export sector. In every year our country exports a large percentage of goods in foreign countries and attains large number of foreign money. On the other hand by day to day our countries import level is also going to increase as the demand of customer is increased. To satisfy the customers need RMG sector need to import raw materials such as button, cotton, fabrics, zipper, color, machineries etc. from other countries. The import is mainly go run with the neighboring country India and USA, Canada, Japan, Russia, Thailand. The 80% of production of RMG industry is going to export and rest is used in Bangladesh. In every year Bangladesh will import 20 to 30% raw materials from some developed country and the main portion of raw materials is come from the root areas of the locality. The generation of RMG area is relies on upon the improvement of making items and guarantees to make great quality item. In RMG Bangladesh is as of now all that much created and deliver great quality item so they can get the need. The creation limit is likewise expanded by presenting great sorts of hardware. The pieces of clothing work are likewise take preparing in fundamental of create more item and also some of the time work need to travel to another country for go to preparing venture of how to deliver more quality item. The RMG business is a constructive sign for the unemployment part of individuals by offers them a potential work. The lower class 22 | P a g e Bangladesh RMG Industry individuals can procure their job by work in a piece of clothing production line as it is a fitting answer for them to gain by their vitality. 23 | P a g e Bangladesh RMG Industry Industry Segments (Product-wise) The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 20 years. Growth of RMG sector has spawned a whole new set of linkage industries and facilitated expansion of many service sector activities. The RMG industry propelled the growth of cotton, spinning, weaving, dyeing and finishing industries, production of accessories and spare parts. From the perspective of business nature and product, the industry can be classified as Cotton Industry: Cotton considered the first stage of backward linkage sub-sector which is the main source for producing yarn. Bangladeshi garment industry is fully dependent on imported cotton to fulfill the huge shortfall of yarn souring. Though Bangladesh needs to support cotton production but due to scarce land in Bangladesh, to build cotton industry in Bangladesh may not be recommended. Bangladesh garment market is still categorized as a source of low to medium quality garment in the international market. So it may be necessary to sticks with low to medium range cottons. With the lower-price cotton markets, Bangladeshi is disadvantageous compared to Indian textile mills who buy cotton from Indian growers 25% to 30% cheaper than Bangladesh import the same cotton from India or international market. The government needs to take some initiatives such as imposing no tariffs or quota on cotton import so that importers can get cotton cheaper and keep the cotton price down in the local market. Spinning Industry: The textiles and clothing sector is segmented into the Textiles Sector (locally known as Primary Textiles Sector or PTS) and the export-oriented clothing (or RMG) sector. The textiles sector spans everything from the conversion of raw cotton to yarn through spinning yarn to weaving gray fabrics as well as finishing, dyeing and printing of gray fabrics. The textiles sector (PTS) is the backbone of the clothing industry because it provides the backward linkage for both the knit and woven sectors. The textile mills produce the inputs needed by the RMG industry, so there are substantial cost savings. The domestically produced 24 | P a g e Bangladesh RMG Industry inputs hence play a significant role in reducing lead time. Most spinning mills of Bangladesh produce low-grade yarn. The existing capacity is not enough to produce good quality combed yarn and polyester/cotton blended yarn for meeting the requirement of the clothing industry. The products of the spinning sub-sector are cotton yarn, polyester, synthetic yarn, woolen yarn and blended yarn mixed of cotton and polyester of different counts (mostly up 80s count). Yarns are being used by the weaving sub-sectors like specialized textiles, handlooms, and knitting and hosiery. Knitwear Industry: The next stage is weaving and knitting where yarn are converted to fabrics. Fabric is main raw material for making garments and accounts for 75 percent of the garments cost. Both hand loom and power loom are suitable for domestic market but a large demand of quality fabrics cannot be met by hand loom production. But in case of power loom, they may be increase the production capacity to satisfy part of the RMG sector demand with the large investment. In the long run Bangladesh weaving mills need a high volume of yarn production to fulfill the demand for domestic and export markets. The export-oriented Knitwear industry is the top-leading exporting sector in Bangladesh in terms of export. Its contribution in creating employment opportunities for female workers without high educational background in the formal sector is exceptional! The industry has a great contribution in poverty reduction by providing entry-level workers with a great scale of employment opportunities and earnings higher than the national poverty line. Such a dynamic development of the industry entails great diversity in efficiency, even in comparison with the garment industry of other developing countries. The Knitwear industry of Bangladesh has global competitiveness in terms of product quality & price through industrial upgrading in terms of usage of latest machineries and vertical integration and industrial agglomeration. Starting with a few Knitwear items, the entrepreneurs of the RMG sector have also been able to diversify the product base ranging from ordinary shirts, T-shirts, trousers, shorts, pajamas, ladies and children’s wear to sophisticated high value items like quality suits, branded jeans, jackets, sweaters, embroidered wear etc. It is clear that value addition accrues mostly in the designer items, and the sooner local entrepreneurs can catch on to this trend the brighter be the RMG future. 25 | P a g e Bangladesh RMG Industry Woven Garments Industry: Garments are made from various types of fabrics (Ahmed, 2002; Islam, 2001). Woven garments are made from the type of fabric that is crafted through weaving (Wikipedia, the free encyclopedia, 2005). The various kinds of fibers are the most basic raw material of any types of garments. Then, in case of natural fibers, they (fibers) are straightened through a process called carding (Ahmed, 2000). After that, the fibers go through a further processing called combing through which short strands are taken out. They are then called silver and processed to give a twisted shape called roving, which is put on spinning frame to be spun around bobbin or cone. Such spun fibers take the name of yarns. The yarns are then packed and marketed. The main markets of Bangladesh woven products of Bangladesh are the European Union countries and the United States. Historically, these two markets have counted for over 90% of the entire woven export of the country. In the EU, the bigger markets are the U.K., Germany, Sweden, Italy, and the Netherlands. In the North American region, besides the US, Canada is a substantial market where woven garments export of BD is gradually increasing. Among the new markets, Japan and Turkey seem to be big potentials, where a greater share of woven export is going every year. The following table compiled upon the data from Export Promotion Bureau of Bangladesh shows the markets of Bangladeshi woven products and the value of export and the share of total woven garments export in each. The main woven products of Bangladesh are shirts, trousers, and jackets, mostly made from cotton. Though the products are not categorized by the Export Promotion Bureau according to whether they are woven shirts or non-woven shirts, the following table compiled from data of EPB still testifies that these are the three main woven products of Bangladesh. These three products, the majority of which are woven, constitute over 40% of the total apparel export of Bangladesh. Dyeing and Finishing Industries: This is the final stage where the fabric either can be used for domestic market or RMG sector for export purposes. Dyeing and finishing units in Bangladesh are currently able to process all of the locally produced grey. According to Bangladesh Textile Mills Association (BTMA, 2001). Bangladesh knitting, knit dyeing and finishing sub-sector had 282 firms (99 merchandized dyeing and finishing, 183 semimerchandized dyeing and finishing) with annual fabric production capacity (fabric) of 680 26 | P a g e Bangladesh RMG Industry million meters. Existing knitting, knit dyeing and finishing sub-sectors cover the local demand and the major portion of the export RMG sector in Bangladesh. Due to the increased demand in RMG sector and to attain self-sufficiency in fabric supply, Bangladesh established 481 additional units of dyeing, printing and finishing units with 10 million meter fabric production capacity for each unit. Dyeing, printing and finishing factors had depended mostly on imported fabrics as Bangladesh’s weaving sector could not fill the export demand of the RMG. To develop dyeing, printing and finishing sub-sectors, it is imperative to build up modern units with appropriate technology, set up bonded warehouses that can meet the fabric demand until the local grey production can meet the quality and quantity, stocks of dyes and chemicals that can meet the demand of dyeing, printing, finishing sub-sectors. Accessories: Only for accessories, Bangladeshi garment industry is in quite good position. About 80% of those known as accessories (zippers, buttons, threads, stiffeners, inter-linings, packaging materials, etc.) are available locally and meet the requirements of the international buyers. A considerable amount of backward linkage has already been established in this export support sector and it maintains its excellent position. 27 | P a g e Bangladesh RMG Industry Human Resource and Skill Requirements: Readymade garments sector requires hi-tech technology and skilled people as it is a hi-tech industry. The professional knowledge, thoughts and innovative ideas of the readymade garments professionals working in this sector are the key factors for the development. Human resources are people recruited in the organization and treated as the prime mover and an important element for success of any organization (DeCenzo& Robbins, 2005). The sector consistently creates job opportunities, especially for highly qualified people. Human resource planning is the process of an organization ensures that it has the right number & kind of people, at the right places, at the time, capable of effectively & efficiently completing those tasks that will help the organization achieve its overall objectives. Human resource management is concerned with people activities, getting & keeping people which are the crucial part of Human resource management. Like other industries, Readymade garments industry also believes that the human resources are most valuable asset for the organization. Readymade garments sector is making considerable investments in attracting and developing competent professional human resources. Readymade garments not only foster entrepreneurship, but also consciously encourage entrepreneurship in their organizational environment. This leads to innovation and creativity transformed into new products, services and new ways of doing things. To get most effort storm human resources, Readymade garments sector implement programs like decentralization, job enrichment and job rotation. The extent of empowerment enjoyed by people at various levels of the organization enables each employee from the very bottom to the top, to contribute to the overall momentum of the companies. Availability of machinery, know-how and human resources the machinery for readymade garments manufacturing does also have to be imported. This places Bangladeshi companies at a cost disadvantage compared with Indian manufacturers who can source the machinery nationally. The leading manufacturers import most of their equipment from Europe or Japan, a fact they claim ensures quality advantages over their Indian competitors. Other manufacturers import machinery e.g. from China or India. Part of the cost may be compensated by export subsidies these countries are giving. However, when competing in international markets, it becomes a question of comparative export subsidizing in these countries: whether machinery exports being more or less subsidized than readymade garments product exports. 28 | P a g e Bangladesh RMG Industry The RMG sector in Bangladesh which employs more than 3.6 million people has been experiencing acute shortage of skilled workers which is a major constraint to realize its true growth potential, especially in a dynamic and fast growing industry led Bangladesh economy. The shortage of adequately skilled and employable workforce poses a significant barrier to its accelerated growth and competitiveness. It may also be observed that the export oriented garment industry has demonstrated spectacular growth over the past two decades. RMG exports reached a steadfast figure of USD 17.91 billion in fiscal year 2010-2011; accounting 78.15% of national export earnings. Bangladesh has already become the second largest clothing exporting country in the world. Hence, we have a tremendous potential to grow further as we supply only 4%-5% of world’s clothing consumption. Skill development is an important medium to unlock this potential and a focused approach to fulfill RMG sector’s skill requirements can go a long a way towards ensuring healthy growth for the sector. This is especially relevant in the context of Bangladesh’s demography, where around 70% of our people are working population. This may also be mentioned that the economic growth of Bangladesh greatly depends on creating employment for its huge population. Every year around 20 million people are joining the labor force seeking work, while opportunities for productive employment are also increasing in the garment sector. 29 | P a g e Bangladesh RMG Industry Policy Initiatives Fire and Building Safety in Bangladesh RMG Industry Despite the epic growth of our RMG industry, and its bright prospects, challenges are still there. One of the biggest challenges currently faced by our RMG industry is to ensure workplace safety and better working conditions for the millions of garment workers. Two major accidents, the Tazreen fire and the Rana Plaza collapse, have brought the issue of workplace safety to the fore and led all stakeholders to act accordingly. Following the unfortunate incidents, various platforms such as the Bangladesh Accord on Fire and Building Safety, the Alliance for Bangladesh Worker Safety and National Plan of Action have been formed to improve building and fire safety of Bangladesh’s garment industry. All members of the BGMEA and BKMEA are working all-out to carry out the corrective action plans suggested by the Accord, Alliance and National Plan of Action after inspections, even investing huge amount of money. Moreover, the factories which were set up in an unplanned way and housed in risky buildings have started relocating to safer buildings. Besides, a project has been taken to set up a well-planned garment industrial park beside the Dhaka-Chittagong Highway where the structurally weak garment factories will be able to relocate. However, ensuring workplace safety at all garment factories is a gigantic task and will take time to accomplish. But we believe the government of Bangladesh, BGMEA and BKMEA, with the support of global brands and international development partners, will be able to ensure the safety of the RMG industry and maintain the momentum of socio-economic development in the country. The National Tripartite Plan of Action on Fire Safety and Structural Integrity (NAP), signed in July 2013 after Rana Plaza, updated a previous fire safety plan signed after Tazreen. The plan Stipulates a series of commitments for the government of Bangladesh to meet by certain deadlines. For example, the government has upgraded its labor inspection department to a full directorate 30 | P a g e Bangladesh RMG Industry with a larger budget and is committed to create 800 positions, including 200 inspectors, by the end of 2013. To help Bangladesh with inspections and safety improvements in factories, in October 2013 the International Labor Organization (ILO) launched a $24 million, three-and-a-half year initiative called ‘‘Improving Working Conditions in the Ready-Made Garment Sector’’ (RMGP). The program will assist with inspections of approximately half of Bangladesh’s garment factories by helping to stand up 30 structural assessment teams. The program will also work to improve the government’s inspection mechanisms, build occupational health and safety awareness in factories, and provide compensation and skills training for victims of the Tazreen and Rana Plaza accidents. Apparel brands launched two major worker safety initiatives after Rana Plaza. Over 100 companies, mostly European but joined by a few American firms such as PVH (parent company of Calvin Klein, Tommy Hilfiger and Izod), American Eagle, and Abercrombie & Fitch, signed on to an initiative called the Accord on Fire and Building Safety in Bangladesh (‘‘the Accord’’). Over 20 American retailers, including Wal-Mart, Gap, Target and JC Penny, declined to join the Accord but formed a similar initiative called the Alliance for Bangladesh Worker Safety. Demand of Bangladesh RMG Industry The readymade garments industry acts as the backbone of our economy and as a catalyst for the development of our country. We take pride in the sector that has been fetching billions of dollars as export earnings and creating jobs for millions of people in the country. Basically the country with its limited resources has been maintaining 6% annual average GDP growth rate and has brought about remarkable social and human development. At the same time this sector generates for 81% of total export earnings of the country. Now the apparel industry is Bangladesh’s biggest export earner with value of over $24.49bn of exports in the last financial year (from July 2013 to June 2014). 31 | P a g e Bangladesh RMG Industry With challenges on one side, a more glittering future is waiting for the ready-made garment industry of Bangladesh on the other side; at least facts and figures have made us believe so. A recent study jointly conducted by the United States Fashion Industry Association (USFIA) and the University of Rhode Island (URI) has made us more optimistic about the potentials of our RMG industry. According to the study, the US-based fashion companies are expected to boost their sourcing from Bangladesh in the next two years. McKinsey, a global management consulting firm, described Bangladesh as the next hot spot in apparel sourcing. The renowned firm forecasts export-value growth of 7-9% annually and our apparel export will double by 2015 and nearly triple by 2020 provided that we can successfully overcome a few challenges including developing infrastructure and skill workforce. It is the responsibility of all of us to protect the interest of this industry which has given our economy a strong footing, created jobs for millions of people, especially for women, lifted them from the abyss of chronic poverty and given them a dignified life. Now what we need to do is deal with all the challenges facing our garment industry, paving the way for its further development. Although BGMEA along with the government and other international organizations has taken the initiatives of developing skills of workers, yet more initiatives as such are required to meet the demand of the industry and enhance the productivity of the industry. The budget allocation of the government for the skill development also needs to be increased. BGMEA University of Fashion and Technology (BUFT) is offering graduate and post-graduate degrees to students on fashion design, knitwear technology and apparel merchandising related subjects. Nonetheless, to meet the current shortfall of competent professionals in the mid-level of our garment factories, fashion, textile and industrial merchandising related departments need to be established at all of our major public and private universities. Bangladesh mainly produces five products – T-shirts, sweaters, trousers, men’s and women’s shirts. Moreover, we are dependent mainly on two markets namely the EU and North America (the US and Canada). Though we reduced our dependency on these two markets from 93% to 85% in last five years (From fiscal 2009-10 to 2013-14), we need to diversify the destinations of our 32 | P a g e Bangladesh RMG Industry apparel export and concentrate on high-end products like suits, lingerie, etc. more for the sustained growth of our apparel industry. 33 | P a g e Bangladesh RMG Industry Value Chain The overall management of all the operations in a firm is included in its value chain. A firm having a proper value chain can work efficiently to produce the desired product and distribute it to the end users in specified time. The value chain of RMG industry of Bangladesh has been discussed as follows. This value chain comprises a series of value formation activities including production, marketing and sales, materials management, research and development, human resources, information systems and firm infrastructure. Here, we divide all the activities into two parts as primary activities and support activities. Primary Activities: It includes the research and development, production, marketing and sales and customer service. Research and Development: It is a matter of fact that the RMG industries of Bangladesh mainly deals with the final formulation of branded generics from imported Federation of Bangladesh Chambers of Commerce and Industries (FBCCI). This industry does not have any significant capability for research and development. It actually is very much import oriented industry as raw materials like FBCCI, packaging and materials are sometimes imported from abroad. With time changes are expected to be seen in this sector, for example A.G. DRESSES LTD. Is the best garments of Bangladesh has already proved capability and headed the Bangladesh Garments Market in both formulation. It has been able to introduce hi-tech, specialized products and dosage forms. Introduction of innovative products has been possible due to its reverse engineering capability. Production: Production includes all planning, implementation of plans as part of marketing management functions. Starting from the introduction of new product into the market till the management of the existing portfolio to achieve the marketing objectives is included here. Production of drugs and other products include detailed preparation of Marketing Plan, designing and development of promotional materials and management of regulatory affairs with Drugs Administration. All 34 | P a g e Bangladesh RMG Industry relevant coordination works with supplier/factory and procurement department concerning machinery and raw materials that will be used to manufacture the concerned brands. Marketing and Sales: Marketing and sales teams work together in the regions of international markets and they are also trying to catch the local markets also in order to create partnerships with local business man, dealer and all kind of retailer. The sales force of a firm increases market share by providing accurate and comprehensive information regarding their company and products. Due to this, greater access to latest design of world-class standard becomes possible. The sales and marketing teams are seen to pay regular visit or survey to the market; show the benefits of new existing products with the help of promotional tools. They also do monitor the competitors’ activities. These teams are associated with other works like receiving sales order from the retailer’s coordination among different markets, market rearrangement, handling different problems of field forces. Customer Service: The management of RMG industries in Bangladesh has a competent team of professionals who operates with a progressive attitude to provide effective solutions to satisfy the customers’ needs, through its products and services of uncompromising quality. Support activities: It includes the activities related to information system, company infrastructure logistics and human resource. Information System: The main functions here are connected to computer and other related accessories which supports all the users. Maintenance of server and ensuring of smooth LAN operation are key factors here as most of the RMG firms are very much updated in technological sectors. Providing latest technical and software support to all the sectors of the firm is done by the information systems. RMG firms like A.G. Industries and A.J. Industries are using hi-tech information system to maintain a proper communication with all the participants of its supply chain. 35 | P a g e Bangladesh RMG Industry Development and maintenance of centralized databases are done by the information systems and the firm thus can make active managerial decisions and keep their work flow proper. Company Infrastructure Logistics: Supply Chain helps to ensure that products leave our manufacturing sites and reach our clients efficiently and effectively. Ensuring smooth distribution of products to all over the country is the main concern for the logistics of these firms. Also the collection of payments from the customers is done by them. Logistics perform functions as the representative of like A.G. Industries and A.J. Industries the depot level. Maintenance of vehicles and inventories needed for distribution networks are very important in creating value. Human Resource: Human Resources team develops and outfits strategic advantages consistent with their Values and business imperatives to both attract potential candidates and retain current employees. In doing so, the team enhances employee performance, promotes personal development and organizational effectiveness. 36 | P a g e Bangladesh RMG Industry Summarizing the Perspective of Porter’s Diamond Theory Factor Endowments Low Labor Cost: Cheap labor force is the principle static comparative advantage that Bangladesh enjoys over potential competitors. Compared to the other sectors like textile, wage level of different RMG industries in Bangladesh are pretty low for both male and female workers. Different statistics shows that workers in RMG factories are getting 1.4 to 2 times lower wage than the worker of same position in other industries. Though a few years back, Bangladesh government has increased the wage rate but it is still not meeting the expectations of the workers. Moreover, female workers in the RMG industries get even lower wage than male workers get and get low-paid jobs than males. Besides, the wage rate of the RMG sector is the lowest in the world on an international scale. Even on South Asian Scale, wage rate in Bangladesh is lower than India, Sri Lanka and Nepal. Laborer’s Training Time: According to a study done by AskBD in 2013, almost 90% workforce of the overall RMG industry is women. In Bangladesh, culturally women are more exposed to sewing techniques. As a result, they take significantly less time to be trained and become an expert worker in this sector. Yarn Consumption: Demand of Bangladeshi RMG products is increasing every year. For this reason, different industries like fabric manufacturing companies are expanding too because of increasing consumption every year. So, different industries linked to the RMG sector are expanding their business too which is a positive sign for our economy. Climate: The environment of Bangladesh is highly in favor for yarn, knitting, weaving; which is the reason behind the high quality RMGs. 37 | P a g e Bangladesh RMG Industry Demand Conditions Domestic Demand: Demand of Bangladeshi RMGs in other countries are pretty high, but in domestic market, it is too weak. If the industry need to grow then both domestic market and international market is equally important. Some companies thinks that the international market in future will be difficult to access and then if they want to grow, they need to expand in the domestic market. But this is going to be tough too because most of the population has a little excess disposable income to spend on clothing. Demand in USA and EU Countries: The biggest market of the RMG goods of Bangladesh is USA and EU countries. Bangladeshi RMG experience a sharp increase in export of goods in USA in 1990s and started to increase since 2004. In the time period 1996-2005, Bangladesh has faced both quantitative and qualitative changes in exporting to EU countries. In this time, export earning has increased from 1.2 billion euros to 3.7 billion euros. Major shares of export earnings are coming from exporting to European Union. Related Supporting Industries Bangladesh’s RMG industry mostly dependent on the imported raw materials which affects the cost of production that has a negative impact on the competitiveness. This is the weakest part of the Porter’s Diamond of Bangladesh’s RMG Industry. Bangladesh’s RMG industry still focused on manufacturing lower-end products though the standard of our country in slowly emerging from lower-end producer to middle or high-end producer. Once it was only simple male-wear producer and now it’s becoming the producer of fashionable female wear. In order to enhance the competitiveness, strengthening the process of upgrading is very important for the whole industry. Besides, in order to sustain in this industry, the RMG sector should focus on expanding both quality and quantity and adjust the manufacturing capacity as the demand is increasing every year. 38 | P a g e Bangladesh RMG Industry Firm Strategy, Structure and Rivalry Rivalry among Firms: If there is a lot of firms, innovation is a way of pushing demand. But as the clothing industry is not saturated to meet international demand, rivalry is not prominent here. To fight the international competitors, different companies of the industry are building joint ventures, partnership, becoming mergers and so on. 39 | P a g e Bangladesh RMG Industry Recommendation Bangladesh economy at present is more globally integrated than at any time in the past. The MFA phase-out will lead to more efficient global realignments of the Garments and Clothing industry. The phase out was expected to have negative impact on the economy of Bangladesh. Recent data reveals that Bangladesh absorbed the shock successfully and indeed RMG exports grew significantly both in FY06 and (especially) in FY07. Due to a number of steps taken by the industry, Bangladesh still remains competitive in RMG exports even in this post phase-out period. Our Garments Industries can improve their position in the world map by reducing the overall problems. Such as management labor conflict, proper management policy, efficiency of the manager, maintainable time schedule for the product, proper strategic plan etc. Government also have some responsibility to improve the situation by providing- proper policy to protect the garments industries, solve the license problem, quickly loading facility in the port, providing proper environment for the work, keep the industry free from all kind of political problem and the biasness. Credit must be provided when the industry fall in need. To be an upper position holder in the world Garments Sector there is no way except follow the above recommendations. We hope by maintaining proper management and policy strategies our country will take the apex position in future. Conclusion The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 25 years. By taking advantage of an insulated market under the provision of Multi Fiber Agreement (MFA) of GATT, it attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP within a short span of time. The industry plays a key role in employment generation and in the provision of income to the poor. To remain competitive in the post-MFA phase, Bangladesh needs to remove all the structural impediments in the transportation facilities, telecommunication network, and power supply, 40 | P a g e Bangladesh RMG Industry management of seaport, utility services and in the law and order situation. The government and the RMG sector would have to jointly work together to maintain competitiveness in the global RMG market. Given the remarkable entrepreneurial initiatives and the dedication of its workforce, Bangladesh can look forward to advancing its share of the global RMG market. 41 | P a g e