contribution of the ready-made garments (rmg) sector to the bangladesh economy(2)

8/7/2019 Contribution of the Ready-Made Garments (RMG) Sector to the Bangladesh Economy(2)

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LEADING UNIVERSITY, SYLHETAn Assignment

On

ECO-231: ECONOMY OF BANGLADESH

Topic: Contribution of the Ready-Made Garments (RMG) Sector to the

Bangladesh Economy

Submitted To:

Syed hasanuzzaman

Senior Lecturer

Dept. of Business Administration

Leading University, Sylhet.

Submitted By:

Name ID

1.Nadim Ahmed Cho0801010095

2.Shahjahan Monjur0801010098

3.Md.Sadi Khan08020100113.Md.Moshiour Rahman Cho

0802010006. 5. Jahir Uddin0803010024


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6.

Date of Submission: 02.05.2011

Letter of Transmittal

April 2011

Mr. Syed hasanuzzaman

Senior Lecturer,

Leading University, Sylhet.

Subject: Submission of Report on Contribution of the Ready-Made Garments (RMG)

Sector to the Bangladesh Economy

Dear Sir,

This is my pleasure to submit this study on Contribution of the Ready-Made Garments(RMG) Sector to the Bangladesh Economy. We have done our level best to complete the

report in time and with the quality of my expectation. The whole experience of this report

enables us to get an insight in to the real life situation. I have really enjoyed working in

International Communication Corporation preparing the report. Hope the report will be

met your expectation and standard. I would like to thank you for your supportive

suggestion and helping me to carry on this study.

Sincerely yours,

Course Code: ECO-231

Semester Summer 2011.

Leading University, Sylhet. Bangladesh


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Acknowledgement

At first we desire to express our deepest sense of gratitude of almighty Allah. With

profound regard we gratefully acknowledge our respected course teacher Syed hasanuzzaman for

his generous help and day to day suggestion during preparation of the report. He is so much an

inspiration and guidance to us that we are, short of words in expression our gratitude. We like to

give thanks especially to our friends and many individuals, for their enthusiastic

encouragements and helps during the preparation of this report us by sharing ideas

regarding this subject and for their assistance in typing and proof reading this manuscript.

And finally, we thank to all of our group members as they all were serious and prolific

towards making this assignment.

Once more time to Sir, we owe more than we can mentionmostly for teaching us to see the

silver lining in every hard work.


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CHAPTER : 1

1.1 Abstract:

The ready-made garment (RMG) industry of Bangladesh started in the late 1970s

and became a prominent player in the economy within a short Period of time. The industry

has contributed to export earnings, foreign exchange earnings, employment creation,

poverty alleviation and the empowerment of women. The export-quota system and the

availability of cheap labor are the two main reasons behind the success of the industry.

Shirts, T-shirts, trousers, sweaters and jackets are the main products manufactured and

exported by the industry. Bangladesh exports its RMG products mainly to the United

States of America and the European Union. The Ready Made Garments (RMG) sector

plays a pivotal role in the economy of Bangladesh. This sector accounts for approximately

76% of the total export earnings and nearly 10% of GDP.

1.2 Introduction:

Like other 3rd world countries Bangladesh is a developing country. Her economicdevelopment depends firstly on Agriculture and secondly on Industry. Although

Bangladesh is not developed in industry, it has been enriched in Garment industries in the

recent past years. For Bangladesh, the readymade garment export industry has been the

proverbial goose that lays the golden eggs for over fifteen years now. Traditionally, the

jute industry dominated the industrial sector of the country until the 1970s. Since the early


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1980s, the RMG industry has emerged as an important player in the economy of the

country. In the field of Industrialization garment industry is a promising step. It is making

significant contribution in the field of our export income and in the economical

development of our country. At present the government of our country earns billions of

dollars by exporting ready-made garments products to other countries. We have not

achieved this success over night; we have some elements that help us to achieve this

success. At present we are competing with our neighboring country; India and China.

Though we are earning a handsome amount of profit each year from this sector, the ready-

made garment sector is suffering with a lot of problems. We should solve these negative

situations by ensuring proper steps.

1.3 Objective

Followings were the objectives of the study. Broad objective: To gather knowledge

about the overall scenario of Ready-Made Garments (RMG) Sector in Bangladesh.

Specific objectives: To attain the broad objective following specific objectives were

pursued.

To know briefly about economic significant of RMG.

To identify what factors are affecting an entrepreneur.

To identify the performance of an entrepreneur.

1.4 Scope

This report is on a wide exporting sector of Bangladesh. So, mainly we have tried to

focus on the following factors:

Current scenario of ready-made garment industry.

Reasons for a healthy growth.

Reasons for having comparative advantages in the world market.


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Economical and financial contribution of this industry in Bangladeshi economy.

Beside these, we also brought several foreign benchmarks and statistics for doing the

research work in a better way.

The detailed analysis of each segment was beyond the scope of our report. We only

focused on the general overview of this subject.

1.5 Mythology

This assignment has been prepared on the basis of experience gathered through

learning annual report. For preparing this assignment, we have also get information from

website of BGMEA, BKMEA Export Promotion Bureau and many Government and non

government organization. We have presented my experience and finding by using differenttables, which are presented in the analysis part. The details of the work plan are furnished

below:

Relevant data for this assignment has been collected primarily by direct

investigations of different leasing companys annual report and website.

The information and data for this report have been collected from secondary sources. The

secondary sources of information are annual reports, websites and different manuals.

Data collected from secondary sources have been processed manually and

qualitative approach in general and quantitative approach in some cases has been

used throughout the study.

Qualitative approach has been adopted for data analysis and interpretation taking

the processed data as the base. So the report relies primarily on an analytical

judgment and critical reasoning.


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1.6 Literature Review

Several Organizations have analyzed aspects of the garment industry in

Bangladesh. Of the various aspects of the industry, the problems and the working

conditions of female workers have received the greatest attention. There are several

studies including The Centre for Policy Dialogue (CPD), study by Debapriya

Bhattacharya, Mustafizur Rahman and Ananya Raihan (2002) and International Finance

Corporation (2007) study on this topic. Both of these studies use accepted survey and

research methodology to analyze a wealth of data on the social and economic background,

Contribution of the RMG sector. Professor Muzaffar Ahmad looks at the industrial

organization of the sector and discusses robustness and long-term viability of apparel

manufacturing in Bangladesh. Wiigton (2000) provides a good overview of this industry,

especially the developments in the early years. Nidhi Khosla writes on the women worker

in Journal of International Womens Studies (Vol. 11 #1 November 2009). The

Bangladesh Planning Commission under the Trade and Industrial Policy (TIP) project also

commissioned several studies on the industry. Hossain and Brar (2004) consider some

labor-related issues in the garment industry. Quddus (2006) presents a profile of the

apparel sector in Bangladesh and discusses some other aspects of the industry. Quddus

(2006) presents results from a survey of apparel entrepreneurs and evaluates the

performance of entrepreneurs and their contribution to the success of this industry. Islam

and Quddus (2006) present an overall analysis of the industry to evaluate its potential as a

catalyst for the development of the rest of the Bangladesh economy.


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CHAPTER: 2

2.1 History:

Once upon a time the cloth of Bangladesh achieved worldwide fame. Maslin and Jamdani

cloth of our country were used as the luxurious garments of the royal figures in Europe and other

countries. The British rulers in India didnt develop our cloth industries at all. Rather they

destroyed them and imported cloths from England. After the emergence of Bangladesh radical

change has come to our garment sector. Garment industries started working from the 10's of the

late century.

2.2 An Overview of the Bangladesh Ready-Made Garment Industry:

The RMG industry is the only multi-billion-dollar manufacturing and exportindustry in Bangladesh. Whereas the industry contributed only 0.001 per cent to the

countrys total export earnings in 1976, its share increased to about approximate 80

percent of those earnings in 2010. Bangladesh exported garments worth the equivalent of

$12348 Million in 2010, which was about 3.00 percent of the global total value ($276

billion) of garment exports. The countrys RMG industry grew by more than 15 percent

per annum on average during the last 15 years. The foreign exchange earnings and

employment generation of the RMG sector have been increasing at double-digit rates from

year to year. Some important issues related to the RMG industry of Bangladesh are noted

in table 1.


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Table 1. Important issues related to the Bangladesh ready-made garment industry:

Year(s) Issue

1977-1980 Early period of growth

1982-1985 Boom days

1985 Imposition of quota restrictions

1990s Knitwear sector developed significantly

1993-1995 Child labor issue and its solution

2003 Withdrawal of Canadian quota restriction

2005 Phase-out of export-quota system

Source: Compiled by the author from Quddus and Rashid (2000), Mainuddin (2000) and

databases of the Bangladesh Garment Manufacturers and Exporters Association, and the

Export Promotion Bureau, Bangladesh Currently, there are more than 4,000 RMG firms in

Bangladesh. More than 95 percent of those firms are locally owned with the exception of a

few foreign firms located in export processing zones (Gonzales, 2002). The RMG firms

are located mainly in three main cities: the capital city Dhaka, the port city Chittagong and

the industrial city Narayangonj. Bangladesh RMG firms vary in size. Based on Bangladesh

Garment Manufacturers and Exporters Association (BGMEA) data, Mainuddin (2000)

found that in1997 more than 75 per cent of the firms employed a

maximum of 400 employees each. Garment companies in Bangladesh form formal or

informal groups. The grouping helps to share manufacturing activities, to diversify risks;

horizontal as well as vertical coordination can be easily found in such group activities.

Ready-made garments manufactured in Bangladesh are divided mainly into two broad

categories: woven and knit products. Shirts, T-shirts and trousers are the main woven

products and undergarments, socks, stockings, T-shirts, sweaters and other casual and soft

garments are the main knit products. Woven garment products still dominate the garment

export earnings of the country. The share of knit garment products has been increasing


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since the early 1990s; such products currently account for more than 40 percent of the

countrys total RMG export earnings (BGMEA website).Although various types of

garments are manufactured in the country, only a few categories, such as shirts, T-shirts,

trousers, jackets and sweaters, constitute the major production-share (BGMEA

website; andante, 2001). Economies of scale for large-scale production and export-quota

holdings in the corresponding categories are the principal reasons for such a narrow

product concentration.

2.3 Reason behind the Growth of RMG in Bangladesh

The prime reason why garment industries have come out to be the champion in the

field of xport is obviously the cheap labor. Women contribute to the working force in

these garment factories, as they are relatively cheaper than men.

2.3.1 Low cost labor:

As Bangladesh is an overpopulated country it is very easy for the garment

industries to hire labors at a lower rate. At present the government of our country has

announced minimum wage to the garment workers but the industries can still earn a

handsome amount of profit by exporting their product. Although it has increase but

comparatively it is still low.

Class Existing Wage Announce Wage Increase in %

Grade-1 5,140.00 9,300.00 80.93%

Grade-2 3,840.00 7,200.00 87.50%

Grade-3 2,449.00 4,120.00 68.23%

Grade-4 2,250.10 3,763.00 67.24%

Grade-5 2,046.00 3,455.00 68.87%

Grade-6 1,851.00 3,210.00 73.47%

Grade-7 1,662.50 3,000.00 80.45%

Apprentice 1,200.00 2,500.00 108.33%

Source: Ministry of Labour and Employment, Bangladesh. July 26, 2010


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2.3.2 Export-quota system:

The export-quota system in trading garment products played a significant role in

the success of the industry. However, that quota system came to an end in 2004.

Therefore, the competitiveness issue needs to be addressed, with special attention given to

the long-term sustainability of the industry. Unilateral restriction, short-term arrangement

(STA), long-term arrangement (LTA), Multi-fibre arrangement (MFA) and finally the

WTO Agreement on Textiles and Clothing (ATC) are the chronological steps through

which the export-quota system was administered until it was finally abolished on 31

December 2004, making worldwide textile and garment trade quota-free.

2.3.3 Easy Communication:

It is very easy industries to collect raw materials from other countries and they can

easily export their produced goods to the other countries.

2.3.4 Government Support:

Government is supporting directly and indirectly the industries and monitors their

activities so that they can perform properly. Government reduces tariff and supply

production factors like electricity and water to them.

2.4 Product Tree:

Bangladesh exports about 63 items to different apparel markets. Ready-made garmentsmanufactured in Bangladesh are divided mainly into two broad categories: woven and knit

products. Shirts, T-shirts and trousers are the main woven products and undergarments, socks,

stockings, T-shirts, sweaters and other casual and soft garments are the main knit products.

Woven garment products still dominate the garment export earnings of the country. The share of

knit garment products has been increasing since the early 1990s; such products currently account


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for more than 40 per cent of the countrys total RMG export earnings (BGMEA

website).Although various types of garments are manufactured in the country, only a few

categories, such as shirts, T-shirts, trousers, jackets and sweaters, constitute the major

production-share (BGMEA website; and Nath, 2001). It needs to be mentioned here that

Bangladesh produces a very limited categories of expensive and fashion oriented garments.

Economies of scale for large-scale production and export-quota holdings in the corresponding

categories are the principal reasons for such a narrow product concentration. Main apparel items

exported from Bangladesh is shown in the tree diagram drawn below:

YEAR WOVEN KNIT SWEATER TOTAL


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1995-96 1948.81 598.32 2547.13

1996-97 2237.95 763.3 3001.25

2004-2005 3598.20 2819.47 6417.67

2005-2006 4083.82 3816.98 7900.8

2006-2007 4657.63 4553.6 9211.23

2007-2008 5167.28 5532.52 10699.8

2008-2009 5918.51 6429.26 12347.77

Source: BGMEA, (value in mn. Us$ quantity in mn dozen)

2.5 Exporting Condition of Garments Industry

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 Fibre 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 oftime. 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.

Competitive statement of export of RMG and total export of Bangladesh:


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Year Export of RMG

(In million US$)

Total export of

Bangladesh

(In million US$)

% Of RMGs of

total export

1983-84 31.57 811.00 3.89

1984-85 116.2 934.43 12.44

2000-01 4859.83 6467.30 75.14

2001-02 4583.75 5986.09 76.57

2002-03 4912.09 6548.44 75.01

2003-04 5686.09 7602.99 74.79

2004-05 6417.67 8654.52 74.15

2005-06 7900.80 10526.16 75.06

2006-07 9211.23 12177.86 75.64

2007-08 10699.80 14110.80 75.83

2008-09 12347.77 15565.19 79.33


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2.6 Contribution in National Income:

When the garment industries 1st started to export, the sector was not paid much

attention but the situation has changed and at present it is earning the highest amount of

foreign currencies in our country.

Major Product Export from Bangladesh

Year Product Export %

Frozen Food 12347.77 79.33

Tea 12.29 0.08Raw Jute 148.17 0.95

2008-09 Chemical 421.58 2.71 Product Jute Goods 373.18 2.40

Leather 177.32 1.14Agricultural 122.3 0.79Products

Others 1508.06 9.69Total 15565.19 100.00

Source:Export Promotion Bureau, Bangladesh (Value in Million US$)


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The success of the government industry very much depends on how effectively RMG

sector linkages may operate backward and forward. If the manufacturer has effective control

over the supply of raw materials, Components and ancillary services needed to produce final

product. Then the production is likely to be interrupted. If the company develops an

effective marketing service strategies that provide right signal, and if marketing and

distributing system as a whole are effective for having the products reach the target

markets, then the sales revenue for the company is likely to be maximized. It means that to

minimize cost of production and maximize sales revenues both backward and forward

linkages need to be integrated. Here the issue of developing backward

linkages is discussed with reference to the desirability of having control over the supply of

inputs of RMG industry, mainly, fabric, yarn and processing status (Siddique, 2004).

These three steps are integrated into each other as shown in table 1. It shows that these

three steps are essential for backward linkage integration (BGMEA, January 2005)


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Some other problems that the industries face:

Dependency on different countries for raw materials.

Illiterate, unskilled and unsatisfied Workers.

Lacking of Resources.

Political Instability.

Low Working Salary:

Lack in Marketing Tactics.

M/C advancement is necessary.

Absence of easily on-hand middle management.

Small number of manufacturing methods.

Lack of training organizations for industrial workers, supervisors and managers.

Fewer process units for textiles and garments.

Incompetent ports, entry/exit complicated and loading/unloading takes much time.

Time-consuming custom clearance.


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CHAPTER :3

3.1 SWOT Analysis:

3.1.1 Strengths

1. The biggest foreign currency earning industry.

2. Ancillary services, fees, commission are more.

3. RMG credit experts are available.

4. Competitors like China doesnt have vertical integration

3.1.2 Weaknesses

1. Backward Linkage industry is absent.

2. Automation is not cost effective in our country.

3. External raw materials supply.

3.1.3 Opportunities

1. Investment in Backward Linkage Industry.

2. Liberalized Globalization will push to improve the quality of the RMG products.

3. Composite plants will get advantage by reducing lead time.

3.1.4 Threats

1. WTO agreement

2. Pressure on Compliance issues from consumer groups.

3. Negative image of Bangladesh in the international market for less concern on human

and social issues.


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CHAPTER : 4

4.1 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 FY07 and (especially) in

FY08. 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 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 top position in future.

4.2 Conclusion:

Optimists see opportunities in challenges; pessimists see only challenges in opportunities.

With MFA phase-out US market for apparels is going expand dramatically as

uncompetitive US firms are compelled to make their exit. There will be enormous

opportunities for competitive players to make new breakthroughs in US market.

Bangladeshs objective should be to retain the current share of 2.5% in US market during

the first 3 years of phase-out (2005-8). Then enhance the market share to 3% and above.

Bangladesh should take the strategy of cautious Optimism.


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References

http://www.bgmea.com.bd/

http://www.bkmea.com/

http://www.epb.gov.bd/

http://www.bbs.gov.bd/

http://www.mincom.gov.bd/

http://www.btmadhaka.com/

http://www.epzbangladesh.org.bd/

http://www.bangladesh-bank.org/

http://www.bangladeshknitwear.com/

http://www.nbr-bd.org/

http://www.fbcci-bd.org/

http://www.bdgarments.wordpress.com/history/

http://www.ideas.repec.org/p/pdb/opaper/50.html

http://www.en.wikipedia.org/wiki/Bangladeshi_RMG_Sector

http://www.libcom.org/tags/bangladeshi-garment-workers

https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html


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contribution of the ready-made garments (rmg) sector to the bangladesh economy(2)

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