Global Value Chain Analysis of RMG

Group Profile

Sl. Name Batch Id

1 Md. Arif Hasan 29th ZR1703024
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Ready-Made Garment Industry of Bangladesh

Timeline at a Glance
 Ready-Made Garment Industry of Bangladesh

The gradual traction achieved over these years in terms of growth may
have been achieved due to:
 The growth of exports to non-traditional markets such as Africa.
 A depreciating currency allowing for easier exports.
 The increase in demand of RMG as an effect of the US-China Trade War
 Global Value Chain Analysis: Concept
Global value chain (GVC):

Global Value Chain is the integration of activities of global companies and local companies in order to produce a
particular product or services within a core and supported industry environment.

Elements of GVC (Local & Global)

The first set of elements refers to international elements,

determined by the dynamics of the industry at a global level

The second set of elements explain how individual countries

participate in GVCs.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

A set of value chain boxes including research and design, inputs, production, distribution and marketing,
and sales, and in some cases the recycling of products after use
 Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Participants in GVC

Figure shows that the global garment value chain is made up of

two sub-chains.
At the broad level, garment production is constructed and
managed by global brands and retailers who act as the lead
firms.
Garment manufacturers are performing the value creation
activities implemented by the different participants and
benefited via their participation in the supply chain
 Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Structure of RMG Industry of Bangladesh

Yarn  For Knit products, up to 80% of the yarn requirement are met by domestic suppliers,
Suppliers  20% of the yarn is still imported due to international clients requirement and unavailability in
Bangladesh.
 Around 5% of the need for cotton is met by local production.
 The fabric and yarn can be produced in Bangladesh by local manufacturer after import of cotton.

Fabric  20% of the woven requirement for the RMG sector is catered locally,
Suppliers  woven fabric production also increased to about 20% from about 5% in 1994.
 Local fabric suppliers are normally part of integrated factory groups
 Fabric is imported mainly from China, HK China, India, Pakistan, Korea, and Taiwan.
 Quite often, these fabric suppliers are nominated mills provided by the buyer

Accessories  Most of the domestic trim suppliers are importers.

Suppliers  A burgeoning group of international trim manufacturers having local factories are catering to the
domestic RMG sector.
 Imported trims: buttons, lace, zips, etc.
 Several international trim suppliers have representative offices now in Bangladesh and take orders
directly.
 Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Structure of RMG Industry of Bangladesh

Factories:  Categorized as composite as well as non-composite factories.

 Composite knit garment manufacturers are producing their own fabric, having dye houses. (compete
effectively in price and lead time)
 Non-composite factory is only cutting and making of garments. (competitive advantage of cost
effective labor)
Fabrics category Knitwear Woven wear
Local value addition 75% 25%
through yarn production

Lead Firms  Incurring substantial resources in setting up the global supply chain
 About 70% of Western buyers in Bangladesh establish direct relationships with local RMG
manufacturers
 The buying houses agent of lead firms represent the brands in the manufacturing countries
 Buying houses select the manufacturers and managing the relationships with them,
 Negotiation including price- and lead-time setting as well as quality control
 Input-Output Local Institutional Stakeholders
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Structure Analysis

Structure of RMG Industry of Bangladesh

Distribution  Moving garments to customers.

 Considered post-production logistics or apparel sourcing.
 The key factors : cost, quality, lead time and reliability as well as social and environmental
compliance.
 The distribution segment of the chain is best evaluated based on product categories.

Marketing &  Lead firms play major role

Sales  Related to pricing, distributing and selling the physical apparel product,
 Including marketing and branding.
 Lead firms marketed and sold to consumers (via retail channels), institutions or the government.
 This stage of the chain accounts for the highest value addition in the chain
 Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Structure of RMG Industry of Bangladesh Activities BD Need to Perform to be a in Upper GVC

Here, Red Box Indicates Improvement Requirement/Shortage

v
 Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Structure of RMG Industry of Bangladesh Activities BD Need to Perform to be a in Upper GVC

Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

GVC activities are usually carried out in different parts of the world. Usually developing countries
offer low labor costs and raw materials, and Rich nations, with highly educated talent, are behind R&D
and product design.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Scope of RMG Industry of Bangladesh

Bangladesh have the

opportunity to expand
its RMG export through
Geographic expansion
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

It is clearly related to how the global firms control the local firms. Five governance structures: markets, modular
(Lead firms deals with Key suppliers), relational, captive, and hierarchy.

In Captive chains, small suppliers are dependent on one or a few buyers and high degree monitoring. BD is
shifting from Captive to Modular governance.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Economic Conditions Key inputs, labor costs, infrastructure and access to finance.

Social context
Availability of labor and its skill level, female participation
and access to education.

Institutions
Includes tax and labor regulation, subsidies, and education and
innovation policy (needed for growth and development)
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Perspective of Bangladesh

Wage Comparison Employee Productivity Logistic Performance index

Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Perspective of Bangladesh

Comparative LPI

 NO EDUCATIONAL INSTITUTEIN BD PROVIDE PhDs IN

RMG
 RENOWNED UNIVERSITY LIKE IBA,DU YET TO OFFER
HIGHER DEGREE OR ANY COURSE SPECIFIC TO RMG
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

 Companies Lack of Co-ordination among

 Industry Associations Stakeholders
 Workers
 Educational Institutions (IBA and others)
9% interest rate demanded by industry
 Government Agencies ( Export Promotion
and Investment Attraction Departments) High wages demanded by social activists
 Ministries of Foreign Trade and Economy Inadequate Government Policy to accommodate
 Educational Institutions 9% interest rate
Financial institutions are the sufferer
All must be coordinated towards single Complete haphazard situation
achievement. Can be coordinated and resolved with
  innovations.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Upgrading defined as moving to higher value activities in GVCs in order to increase the benefits.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Functional Upgradation Perspective of Bangladesh

Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Perspective of Bangladesh

End Market Diversification

Target Non-traditional Market such as Africa, Russia

Product Diversification

 Most Profitable five items: T-shirts, Sweaters, Trousers, Jackets and Shirts. identified 51 new products with
high export potential which can be used to break further into non-traditional markets
 Move from basic items to high value items

Own Brand Creation

 Focus on Green RMG: Most number of LEED (Leadership in Energy and Environmental Design) certified
green garment factories in Bangladesh, with 91 certified factories in 2019.
 Adding value to apparel through national branding.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Use of Technology In BD RMG

 Textile and Clothing sectors play a major backward linkage support system for RMG. Govt.
 Private sector is focusing on RMG value chain up-gradation by setting up semi heavy industry to support the Textile
industry, the one of the main value chain contributors. As per Bangladesh Bank, US$ 6.92 billion back-to-back L/C
only for the raw materials instead of US $ 28.02 billion export which is 25% of total export.
 As per BTMA more than 1,300 spinning, weaving, dyeing, printing and finishing mills in the country have invested $
4.0 billion and the sector’s contribution to the gross domestic product amounts to 13 percent .
 Bangladesh textile millers have imported machinery worth TK 71.19 billion in the last fiscal year of 2014-15, and
2013-14 it was TK 50.63 Billion. At the Dhaka Int’l Textile & Garment Machinery fair 2017 exhibitors sold
machinery worth $ 220 million.
 Ginning & pressing, Spinning & allied machines, Synthetic filament yarn machines, Weaving and allied machines,
Processing machines, Hosiery/RMG machines, Textile testing equipment, Multiple segments are BTMA are
importing as Textile Engineering Goods.
Input-Output Local Institutional Stakeholders
Geographic Scope Governance Context Upgrading
Structure Analysis

Supporting point to establishing textile engineering goods

 Invest is not barrier: Indian textile machinery investment 2000 crores rupee mean 400 million USD, this little
investment should not a potential problem.

 Domestic demand for textile machinery is increasing at a 10.90% over the year

 Cost of doing business in Bangladesh is considered to be one of the lowest. As per Japan External Trade
Organization (JETRO), the cost of doing business in Bangladesh is lowest among 28 south Asian countries 

 Govt. Support: The Bangladesh Export Zones Authority (BEZA) has set a target to build 100 economic zones
under public-private arrangement by 2030. The special economic zones (SEZs) will be developed on 75,000
acres of land that will create 10 million jobs for the people. The SEZs will have the capacity to produce
products and services worth $ 40 billion as per BEZA.

 Institutional Support: Needs more technology and research-based subjects like Process engineering, System
engineering, Quality engineering, Ergonomics, Operations research or management sciences in the public and
private universities syllabus.
Availing the Opportunity Offered by GVC
Availing the Opportunity Offered by GVC
Availing the Opportunity Offered by GVC
Availing the Opportunity Offered by GVC
Availing the Opportunity Offered by GVC
 Availing the Opportunity Offered by GVC

Challenges

 There is a lack of understanding among these countries' policy makers and businesses about the multidimensional impact
of GVC
 No uniform mechanism is applicable to enhance the capacity of the LDCs to participate in GVC.
 There is also no assurance that by actively participating in GVC, these countries will be benefited substantially.
 Unlike tariffs or quotas, standards are not just set by the government but also by a wide range of private actors. In fact,
the surge of GVC demonstrates that private sector is dominating in standard setting.
 In the private sector, leading firms are developing and setting standards to determine the efficiency of their value chain
operations. Such standard setting practice poses challenge to countries like Bangladesh, especially to the manufacturers
of these countries.
 Countries like Bangladesh are not in a position to bargain for relaxed standards. Private standards are becoming more
dominant than national standards. In fact, it is not the government or state, but the private firms which are ultimately
exporting and importing products.
 Bangladesh and other LDCs are generally standard takers, not standard setters. They have very little voice in global
standard setting platforms
Any Questions?????