Garment Industry Large-scale production of readymade garments (RMG) in organised factories is a relatively new phenomenon in Bangladesh. Until early sixties, individual tailors made garments as per specifications provided by individual customers who supplied the fabrics. The domestic market for readymade garment, excepting children wears and men's knit underwear (genji) was virtually non-existent in Bangladesh until the sixties.
Since the late 1970s, the RMG industry started developing in Bangladesh primarily as an export-oriented industry although, the domestic market for RMG has been increasing fast due to increase in personal disposable income and change in life style. The sector rapidly attained high importance in terms of employment, foreign exchange earnings and its contribution to GDP. In 1999, the industry employed directly more than 1.4 million workers, about 80% of whom were female. With the growth of RMG industry, linkage industries supplying fabrics, yarns, accessories, packaging materials, etc. have also expanded. In addition, demand for services like transportation, banking, shipping and insurance has increased. All these have created additional employment. The total indirect employment created by the RMG industry in Bangladesh is estimated to be some 200,000 workers.
In addition to its economic contribution, the expansion of the RMG industry has caused noticeable social changes by bringing more than 1.12 million women into labour force. The economic empowerment of these working girls/women has changed their status in the family. The attractive opportunity of employment has changed the traditional patriarchal hegemony of the fathers, brothers and husbands. Most working women/girls can now chose when to get married or become mothers. The number of early
marriages is decreasing; so is the birth rate; and the working girls tend to send their little bothers and sisters to school, as a result, the literacy rate is increasing. They can participate in family decision-making. Most importantly, the growth of RMG sector produced a group of entrepreneurs who have created a strong private sector. Of these entrepreneurs, a sizeable number is female. A woman entrepreneur established one of the oldest export-oriented garment factories, the Baishakhi Garment in 1977. Many women hold top executive positions in RMG industry.
The RMG industry is highly dependent on imported raw materials and accessories because Bangladesh does not have enough capacity to produce export quality fabrics and accessories. About 90% of woven fabrics and 60% of knit fabrics are imported to make garments for export. The industry is based primarily on sub-contracting, under which Bangladeshi entrepreneurs work as sub-contractors of foreign buyers. It has grown by responding to orders placed by foreign buyers on C-M (Cut and Make) basis. During its early years, the buyers supplied all the fabrics and accessories or recommended the sources of supply from which Bangladeshi sub-contractors were required to import the fabrics. However, situation has improved. At present, there are many large firms, which do their own sourcing.
The hundred percent export-oriented RMG industry experienced phenomenal growth during the last 15 or so years. In 1978, there were only 9 export-oriented garment manufacturing units, which generated export earnings of hardly one million dollar. Some of these units were very small and produced garments for both domestic and export markets. Four such small and old units were Reaz Garments, Paris Garments, Jewel Garments and Baishakhi Garments. Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz Store in
dhaka. It served only domestic markets for about 15 years. In 1973 it changed its name to M/s Reaz Garm
ents Ltd. and expanded its operations into export market by selling 10,000 pieces of men's shirts worth French Franc 13 million to a Paris-based firm in 1978. It was the first direct exporter of garments from Bangladesh. Desh Garments Ltd, the first non-equity joint-venture in the garment industry was established in 1979. Desh had technical and marketing collaboration with Daewoo Corporation of South Korea. It was also the first hundred percent export-oriented company. It had about 120 operators including 3 women trained in South Korea, and with these trained workers it started its production in early 1980. Another South Korean Firm, Youngones Corporation formed the first equity joint-venture garment factory with a Bangladeshi firm, Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of thee new firm, named Youngones Bangladesh. It exported its first consignment of padded and non-padded jackets to Sweden in December 1980.
Within a short period, Bangladeshi entrepreneurs got familiar with the world apparel markets and marketing. They acquired the expertise of mobilising resources to export-oriented RMG industries. Foreign buyers found Bangladesh an increasingly attractive sourcing place. To take advantage of this cheap source, foreign buyers extended, in many cases, suppliers' credit under special arrangements. In some cases, local banks provided part of the equity capital. The problem of working capital was greatly solved with the introduction of back-to-back letter of credit, which also facilitated import of quality fabric, the basic raw material of the industry. The government assigned high priority to the development of RMG industry.
Till the end of 1982, there were only 47 garment manufacturing units. The breakthrough occurred in 1984-85, when the number of garment factories increased to 587. The number of RMG factories shot up to around 2,900 in 1999. Bangladesh is now one of the 12 largest apparel exporters of the world, the sixth largest supplier in the US market and the fifth largest supplier of T-shirts in the EU market. The industry has grown during the 1990s roughly at the rate of 22%. In the past, until 1980,
jute and jute goods topped the list of merchandises exported from Bangladesh and contributed more than 50% of the total export earnings. By late 1980s, RMG exports replaced jute and jute goods and became the number one in terms of exports.
In 1983-84, RMG exports earned only $0.9 billion, which was 3.89% of the total export earnings of Bangladesh. In 1998-99, the export earnings of the RMG sector were $5.51 billion, which was 75.67% of the total export earnings of the country. The net foreign exchange earnings were, however, only about 30% of the figures quoted above because approximately 70% of foreign exchanges earned were spent in importing the raw materials and accessories to produce the garments exported.
Both external and internal factors contributed to the phenomenal growth of RMG sector. One external factor was the application of the GATT-approved Multifibre Arrangement (MFA) which accelerated international relocation of garment production. Under MFA, large importers of RMG like USA and Canada imposed quota restrictions, which limited export of apparels from countries like Hong Kong, South Korea, Singapore, Taiwan, Thailand, Malaysia, Indonesia, Sri Lanka and India to USA and Canada. On the other hand, application of MFA worked as a blessing for Bangladesh. As a least developed country, Bangladesh received preferential treatment from the USA and European Union (EU). Initially Bangladesh was granted quota-free status. To maintain competitive edge in the world markets, the traditionally large suppliers/producers of apparels followed a strategy of relocating RMG factories in countries, which were free from quota restrictions and at the same time had enough trainable cheap labour. They found Bangladesh as a promising country. So RMG industry grew in Bangladesh.
By 1985, Bangladesh emerged as a strong apparel supplier and became a powerful competitor for traditional suppliers in the US, Canadian and European markets. Since 1986, Bangladesh has been increasingly subjected to quota restrictions by USA and Canada. RMG industry suffered setback in a number of countries in the 1980s. Some countries had internal problems, for example, Sri Lanka; and some other countries of Southeast Asia experienced rapid increase in labour cost. Buyers looked for alternative sources. Bangladesh was an ideal one as it had both cheap labour and large export quotas. The EU continued to grant Bangladesh quota-free status and GSP privileges. In addition, USA and Canada allocated substantially large quotas to Bangladesh. These privileges guaranteed Bangladesh assured markets for its garments in USA, Canada and EU. The domestic factor that contributed to the growth of RMG industry was the comparative advantage Bangladesh enjoyed in garment production because of low labour cost and availability of almost unlimited number of trainable cheap labour. The domestic policies of the government contributed to the rapid growth of this sector. The government provided various kinds of incentives such as duty-free import of fabrics under back-to-back L/C, bonded warehouse facilities, concessionary rates of interest, cash export incentive,
export processing zone facilities, etc. The government also took a number of pragmatic steps to streamline export-import formalities.
There are several weaknesses of the RMG industry of Bangladesh. Labour productivity in the RMG sector of Bangladesh is lower than many of its competitors. Bangladeshi workers are not as efficient as those of Hong Kong, South Korea and some other countries and in most factories, technologies used are not the latest.
In addition to the fact that the industry is vulnerable because it is highly dependent on the imported raw materials, the infrastructure in the country is deplorably underdeveloped. Problems in power supply, transportation and communication create serious bottlenecks. Inadequate port facilities result in frequent port congestion, which delays shipment. All these increase the lead-time to process an order, i.e. the time from the date of receiving an order to the date of shipment.
The application of MFA had negative impact on many garments exporting countries. The countries, which were adversely affected by quotas under MFA, created pressure to discontinue MFA by integrating textile and clothing industries into GATT system. As a result, the Uruguay Round negotiations envisaged the phasing out of MFA by the end of 2004. With the phasing out of MFA, the position of Bangladesh in the world market will change as all countries including those under quota restrictions, will enjoy quota free status. Bangladesh will have to compete with a larger number of established and powerful suppliers of readymade garments. Bangladesh has taken some steps to face the new challenges. Such steps include removing infrastuctural bottlenecks, building additional supply capacity, use of cost reduction strategy, and increase in value-addition through backward integration.
For RMG sector, the backward linkages are weaving the fabric, spinning the yarn, and dyeing, printing and finishing operations. These operations can be combined into one composite mill or they can be established as separate units. Currently, Bangladeshi apparel exporters import fabrics at international prices using back-to-back letter of credit. While procuring through back-to-back L/C, the importers (Bangladeshi exporters of apparels) pay high interest and other charges, commissions, fees for the services of the middlemen involved. The establishment of composite mills or individual units of weaving, spinning and processing will reduce lead time and increase value addition and employment, in addition to improving the cost advantages.
In the Fifth Five-Year Plan (1997-2002), the government of Bangladesh envisages the attainment of self-sufficiency in yarn production by establishing new spinning capacities. The production capacity of this sector increased substantially though not as much as was required. There are 1,126 weaving and spinning mills including 142 ring spinning mills and 15 open-end spinning units in Bangladesh. These units produce mostly for the domestic markets. Of the total production of fabric, only 25% are supplied by the modern mills, the rest of the domestically produced fabrics are supplied by the specialised units, power looms and handloom sub-sectors. The RMG industry uses a small quantity of fabric woven in the handloom sub-sector. The domestic capacity meets less than 8% of the demand for woven fabrics of the export-oriented RMG industry. The domestic production can meet about 40% of the demand for export quality knit fabrics.
The current requirement of yarn for both domestic and export-oriented RMG industry is about 590 million kg and this will increase to about 818 million kg by the year 2005. The current requirement for fabrics is 4,400 million meters and by 2005 it will increase to 6,000 million metres. It is estimated that by 2005 Bangladesh will need 156 spinning mills each with 25,000 spindles, 371 weaving mills each with 125 looms, and 371 dyeing and finishing units each with capacity of processing 10 million meters of fabrics per annum.
The government of Bangladesh has specified some goals in the latest national development plan for backward linkage industries. To achieve the goals set in the Fifth Five-Year Plan, Bangladesh offers attractive incentives to attract both local and foreign direct investment in RMG sector. The Export Promotion Bureau, in collaboration with the Bangladesh Garment Manufacturers and Exporters Association (
bgmea), undertakes various activities to promote Bangladeshi garments in foreign markets. They also organise annual Exhibition in Dhaka in which hundreds of foreign buyers participate.
Bangladesh exports a very limited categories of products. The factories in Bangladesh produce shirts, jackets, trousers, and other garments, with high concentration (about 60% of the total apparel exports) in the export of shirts of low price. Bangladesh is the largest exporter of men's and boys' cotton shirts in the US market. In this market, it competes with India, Sri Lanka, Mexico and other Central American countries in the lower price segment. The average price of Bangladesh-made shirts was $62.74 per dozen in 1998. This price was the second lowest. The Dominican Republic sold the lowest priced shirts of the same category at $54.79 per dozen. Prices of Indian, Mexican and Sri Lankan shirts were $81.04, $76.26 and $74.77 respectively. Against this, the prices of Hong Kong and Malaysia shirts were $107.34 and $134.08 respectively. Exporters from Bangladesh produce mostly those items on which quotas are available. However, there are a few exceptions. Some South Korean firms operating from Export Processing Zones of Dhaka and
chittagong export padded jacket and trousers of higher value. Many firms now export some non-quota items as well. The share of such items in the total quantity, however, is very small. Recently, export of knitwear and sweaters has increased faster than that of woven wears. These indicate that Bangladesh is actively engaged in the process of product diversification.
Although Bangladesh exports garments to some 30 countries, its exports are highly concentrated in two major markets, the USA and EU. The USA as the largest importer country imported 43.24% of total garments exported from Bangladesh in 1998-99. Bangladesh was the sixth largest supplier of apparels in the US markets in the same year. However, if European Union is considered as a single market, the US market becomes the second largest. Bangladesh exported 52.38% of its apparel exports to the EU in 1998-99. The EU is the single most important destination of knitwear export from Bangladesh. Of the individual members of the EU, Germany is the largest importer of both woven RMG (15.6%) and knitwears (14.8%) from Bangladesh and it is followed by the UK and France. The EU as a bloc has been importing from Bangladesh an increasing quantity of apparels. In the last five years Bangladesh's exports to the EU have grown by 174%. The main reason for this phenomenal growth is the almost duty free (due to GSP privileges) and quota-free access to this market. Other export markets are small. Japan and ASEAN countries are potentially large markets. Bangladesh has not yet been able to export sizeable quantity of apparels to Japan, although it imports about 90% of the machinery from Japan to run the apparel industry. Similarly, Bangladesh has not been able to have market access to ASEAN, or Indian markets although it imports a huge quantity of fabrics and yarn from these countries. The main reasons for this are the tariff and non-tariff barriers Bangladesh faces in these markets. Recently, Bangladesh has started exporting to India, South Korea and other new markets. As a member of South Asian Association of Regional Cooperation (SAARC), Bangladesh has undertaken an elaborate programme to increase apparel exports to India and other member countries of SAARC.
Bangladesh responded positively to the international requirement of elimination of child labour from the garments sector. Under the Memorandum of Understanding jointly signed by BGMEA, ILO, UNICEF and US Embassy, Dhaka on 4 July 1994, Bangladesh pledged to eliminate child labour by November 1996. Accordingly, it took necessary measures to do so. The laid-off children were provided financial support so that they could attend schools until they attain the age of 15. BGMEA and some NGOs jointly operate a number of schools for these children. The factory owners are required to abide by the laws that regulate minimum wages, working conditions, eco-labeling, etc of the garment factory workers. The workers are allowed to form and/or join trade unions. There are many active trade unions with CBAs in the garment industry. But factories located in the Export Processing Zones do not have trade unions. However, the workers of those factories receive higher remuneration and better benefit packages. To meet the international standard, the industry with the help of BGMEA makes sure that the factories do not use any dyes including Azu dye that are hazardous to health. Bangladesh recognises the fact that its economic security depends on the future of its RMG industry. Therefore, it has undertaken an elaborate programme to meet the challenges it is likely to face in the post-MFA world market. [Hafiz G A Siddiqi]
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