Present Situation of RMG Sector of Bangladesh
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| SUBMITTED To: A.K. Nabil Ahmed Lecturer , ,Dept: of AMT
SUBMITTED BY: Md.Toufiquzzaman Chowdhury S.M Touhidul Wares
SUBMISSION DATE:16 June 2011 NATIONAL INSTITUTE OF FASHION TECHNOLOGY,BANGLADESH
At first we desire to express our deepest sense of gratitude of almighty Allah. With profound regard we gratefully acknowledge our respected course teacher Mr.A.K.Nabil Ahmed 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 finally, thanks to my group members as he serious and prolific towards making this assignment. Once more time to Sir, we owe more than we can mention««mostly for teaching us to see the silver lining in every hard work
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Ñ.Ñ Abstract The ready ready--made garment (RMG) industry of Bangladesh started in the late Ñ s 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 exportexport-quota system and the availability of cheap labor are the two main reasons behind the success of the industry. Shirts, TT-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 of the total export earnings and nearly Ñ of GDP.
Ñ.2 Introduction Like other 3rd world countries Bangladesh is a developing country. Her economic development 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 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 readyready-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 readyready-made garment sector is suffering with a lot of problems. We should solve these negative situations by ensuring proper steps
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Broad objective: To gather knowledge about the overall scenario of ReadyReadyMade 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. Î 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 Ô Ô
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This report has been prepared on the basis of experience gathered through learning annual report. For preparing this report, I have also get information from website of BGMEA, BKMEA Export Promotion Bureau and many Government and non government organization. I have presented my experience and finding by using different tables, which are presented in the analysis part. The details of the work plan are furnished below: Relevant data for this report has been collected primarily by direct investigations of different leasing company¶s 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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Several Organizations have analyzed aspects of the garment industry in Bangladesh. Of thevarious 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 longlong-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 Women¶s 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 laborlabor-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.
j j Ñ 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 didn¶t 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 Ñs of the late century.
2.2 An Overview of the Bangladesh ReadyReady-Made Garment Industry: The RMG industry is the only multimulti-billionbillion-dollar manufacturing and export industry in Bangladesh. Whereas the industry contributed only .Ñ per cent to the country¶s total export earnings in Ñ , its share increased to about approximate 8 percent of those earnings in 2Ñ.Bangladesh exported garments worth the equivalent of $Ñ2348 Million in 2Ñ, which was about 3. percent of the global total value ($2 billion) of garment exports. The country¶s RMG industry grew by more than Ñ percent per annum on average during the last Ñ years. The foreign exchange earnings and employment generation of the RMG sector have been increasing at doubledouble-digit rates from year to year. Some important issues related to the RMG industry of Bangladesh are noted in table Ñ
ear(s)
Issue
Ñ -Ñ 8
Early period of growth.
Ñ 8282-Ñ 8
Boom days.
Ñ 8
Imposition of quota restrictions.
Ñ
s
Knitwear sector developed significantly.
Ñ
3-Ñ 3-
Child labor issue and its solution
23
Withdrawal of Canadian quota restriction.
2
Phase--out of export Phase export--quota system.
! Compiled by the author from Quddus and Rashid (2), Mainuddin (2) and databases of the Bangladesh Garment Manufacturers and Exporters Association, and the Export Promotion Bureau, Bangladesh Currently, there are more than 4, RMG firms in Bangladesh. More than percent of those firms are locally owned with the exception of a few foreign firms located in export processing zones (Gonzales, 22). 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 (2) found that inÑ more than per cent of the firms employed a maximum of 4 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. ReadyReady-made garments manufactured in Bangladesh are divided mainly into two broad categories: woven and knit products. Shirts, TT-shirts and trousers are the main woven products and undergarments, socks, stockings, TT-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 Ñ s; such products currently account for more than 4 percent of the country¶s total RMG export earnings (BGMEA website). Although various types of garments are manufactured in the country, only a few categories, such as shirts, TT-shirts, trousers, jackets and sweaters, constitute the major productionproduction-share (BGMEA website; andante, 2Ñ). Economies of scale for largelarge-scale production and exportexport-quota holdings in the corresponding categories are the principal reasons for such a narrow product concentration.
The prime reason why garment industries have come out to be the champion in the field of export 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. Source: Ministry of Labor and Employment, Bangladesh. July 26, 2010 Class
Existing Wage
Grade--Ñ Grade
,Ñ4.
,3.
8. 3
Grade--2 Grade
3,84.
,2.
8.
Grade--3 Grade
2,44 .
4,Ñ2.
8.23
Grade--4 Grade
2,2.Ñ
3,3.
.24
Grade-- Grade
2,4.
3,4.
8.8
Grade-- Grade
Ñ,8Ñ.
3,2Ñ.
Grade-- Grade
Ñ,2.
3,.
Apprentice
Ñ,2.
Announce Wage
2,.
Increase in
3.4 8.4 Ñ8.33
!" !"##$ % $ % The ³export³export-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 longlong-term sustainability of the industry. Unilateral restriction, shortshort-term arrangement (STA), long term arrangement (LTA), MultiMulti-fiber. Arrangement (MFA) and finally the WTO Agreement on Textiles and Clothing (ATC) are the chronological steps through which the ³export--quota system´ was administered until it was finally abolished on 31 ³export December 2004, making worldwide textile and garment trade quotaquota-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
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Bangladesh exports about 63 items to different apparel markets. ReadyReady-made garments manufactured in Bangladesh are divided mainly into two broad categories: woven and knit products. Shirts, TT-shirts and trousers are the main woven products and undergarments, socks, stockings, TT-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 for more than 40 per cent of the country¶s total RMG export earnings (BGMEA website).Although various types of garments are manufactured in the country, only a few categories, such as shirts, TT-shirts, trousers, jackets and sweaters, constitute the major production--share (BGMEA website; and Nath, 2001). It needs to be mentioned production here that Bangladesh produces a very limited categories of expensive and fashion oriented garments. Economies of scale for largelarge-scale production and export--quota holdings in the corresponding categories are the principal export reasons for such a narrow product concentration. Main apparel items exported from Bangladesh is shown in the tree ± diagram drawn below:
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&
*
$#%& '
,
(&)*
*
+
EAR
WOVEN
KNIT SWEATER
TOTAL
1995--96 1995
1948.81
598.32
2547.13
- -
223.
3.3
3Ñ.2
28Ñ .4
4Ñ. .8
Ñ
24 24--2
3 8.2
2--2 2
483.82
38Ñ. 8
2--2 2
4.3
43.
2--28 2
Ñ.28
32.2
Ñ
28 28--2
Ñ8.Ñ
42 .2
Ñ234.
2ÑÑ.23 .8
( # %) * "$" ( # % + !" , !" " % - %- " ./%) ./* /((, " % ! ,!", 0 1' " % ( " - %" % " % " 2 %- % % " , % % %Ñ3 ( " # ( " # % "%
!"#$%$& '$ " (!( )#!%!D%" $(*!$+ )#!% !D $( +$* ',
YEAR
EXPORT OF RMG (IN MILLION US$)
TOTAL EXPORT OF BANGLADESH (IN MILLION US$)
% OF RMG'S TO TOTAL EXPORT
1983--84 1983
31.57
811.00
3.89
Ñ 8484-8
ÑÑ.2
2--Ñ 2
48 .83
4.3
2001--02 2001
4583.75
5986.09
22 22--3
4 Ñ2.
48.44
23 23--4
8.
2.
24 24--
34.43
4Ñ.
Ñ2.44 .Ñ4 76.57 .Ñ 4.
84.2
4.Ñ
2-- 2
.8
Ñ2.Ñ
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2-- 2
2ÑÑ.23
Ñ2Ñ.8
.4
Ñ4ÑÑ.8
.83
Ñ.Ñ
.33
2--8 2
Ñ
.8
28 28--
Ñ234.
42+% 5 % Ñ !", " % " %
Major Product Export from Bangladesh:
Year
Product
Export
%
RMG
Ñ234.
.33
Frozen Food
44.3
2. 2
Tea
Ñ2.2
.8
Raw Jute
Ñ48.Ñ
.
Jute Goods
33.Ñ8
2.4
Leather
Ñ.32
Ñ.Ñ4
Others
Ñ8.
.
6'% % %+ 2.7.1 Backward Linkage: Backward linkage means the use by one firm or industry of produced inputs from another firm or industry (Alan V Deardorff , 2001) That means the finished garment relies on three steps; first level for converting fibers/cotton toyarns, second step for converting yarns to grey fabrics and the final step for converting gray fabrics to dyed, printed of other finished fabrics.Out of three steps, Bangladesh is only capable of knitting, finishing in knitwear sectors but far behind in producing yarn, fabrics which is a major factor for woven section. Only success came to accessories where 80% demand of our country was fulfilled.
= = =
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Some
other problems of RMG sector
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/2/7!+! 3.Ñ 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 doesn¶t 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.
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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.
j 4.1 Recommendation: Bangladesh economy at present is more globally integrated than at any time in the past. The MFA phasephase-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 phasephase-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 providingproviding- 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.
Optimists see opportunities in challenges; pessimists see only challenges in opportunities.
With MFA phasephase-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. Bangladesh¶s objective should be to retain the current share of 2.5% in US market during the first 3 years of phasephase-out (2005 (2005--8). Then enhance the market share to 3% and above. Bangladesh should take the strategy of cautious Optimism
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.bangladesh http://www.bangladeshknitwear.com/ http://www.nbr--bd.org/ http://www.nbr http://www.fbcci--bd.org/ http://www.fbcci http://www.ideas.repec.org/p/pdb/opaper/50.html https://www.cia.gov/library/publications/the--world https://www.cia.gov/library/publications/the world-factbook/geos/bg.html http://www.en.wikipedia.org/wiki/Bangladeshi_RMG_Sector
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