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CONDITIONS OF RMG SECTOR OF BANGLADESH
Maruf Mahfuz
Email: maruf.txt@gmail.com
Cell: 01738676060
Department of Textile Engineering
World University of Bangladesh
INTRODUCTION:
The Readymade Garments (RMG) sector has a greater potential than any other sector to contribute to the reduction of poverty in Bangladesh. The sector rapidly became important in terms of employment, foreign exchange earnings and its contribution to Gross Domestic Product (GDP). Despite the phenomenal success of the RMG sector, poor working conditions in the factories and a lack of Social compliance are serious concerns, which have, since 2006, led to labor unrest and damage to institutions and property. As a result, there is a rising fear in Bangladesh that the readymade garments sector may face a decline in demand. Social compliance in the RMG industry is a key requirement for most of the world’s garments buyers.
The RMG sector has experienced an exponential growth since the 1980s. The sector contributes significantly to the GDP. It also provides employment to around 4.2 million Bangladeshis. An overwhelming number of workers in this sector are women. This has affected the social status of many women coming from low income families.
In the 1950s, labors in the Western World became highly organized; forming trade unions. This and other changes provided workers greater rights including higher pay; which resulted in higher cost of production. Retailers started searching for places where the cost of production was cheaper. Developing economies like Hong Kong, Taiwan and South Korea presented themselves as good destinations for relocations because they had open economic policies and had non-unionized and highly disciplined labor force that could produce high quality products at much cheaper costs.
In order to control the level of imported RMG products from developing countries into developed countries, Multi Fibre Agreement (MFA) was made in 1974. The MFA agreement imposed an export rate 6 percent increase every year from a developing country to a developed country. It also allowed developed countries to impose quotas on countries that exported at a higher rate than the bilateral agreements. In the face of such restrictions, producers started searching for countries that were outside the umbrella of quotas and had cheap labor. This is when Bangladesh started receiving investment in the RMG sector. In the early 1980s, some Bangladeshis received free training from Korean Daewoo Company. After these workers came back to Bangladesh, many of them broke ties with the factory they were working for and started their own factories.
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. In 2007 it earned $9.35 billion. This sector also contributes around 13 percent to the GDP, which was only around 3 percent in 1991. 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 E.U countries.
EXPORTING CONDITION OF GARMENTS INDUSTRY:
RMG 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 MultiFibre 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. 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 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. Over the last thirty years, international trade and investment in the global textile and garment (T&G) sectors has been influenced by Multi-Fiber Agreement (MFA) quantitative restrictions(quotas) applied by the major developed country importers (the United States, the European Union, Canada and Norway) on T&G exports from (predominantly) developing countries.
DEVELOPMENT OF THE EXPORT OF RMG SECTOR:
In terms of GDP, RMG’s contribution is highly remarkable; it reaches 13 percent of GDP which was only about 3 percent in 1991. This is a clear indication of the industry’s contribution to the overall economy. It also plays a pivotal role to promote the development of other key sectors of the economy like banking, insurance, shipping, hotel, tourism, road transportation, railway container services, etc. One of the key advantages of the RMG industry is its cheap labor force, which provides a competitive edge over its competitors.
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EXPORT HISTORY:
The 100 percent export-oriented readymade garments (RMG) industry of Bangladesh has witnessed remarkable growth since its inception in the late 1970s. Paradoxically, this flagship industry of Bangladeshi private entrepreneurial talent took roots through the first export consignment of shirts from Bangladesh made by the state-trading agency, the Trading Corporation of Bangladesh (TCB), in the mid-1970s under countertrade arrangements and the destination was some East European countries. Subsequently, however, private entrepreneurs entered the industry and phenomenal growth took place in RMG exports from Bangladesh. Export of RMG increased from US $40 thousand in 1978 –79 to US $6.4 billion in 2004-05. The industry has also provided employment to nearly 2 million workers, most of them women drawn from the rural areas. Explosive growth of RMG exports is of course not unique to Bangladesh. The annual compound growth rate of RMG export industries in Indonesia (31.2%), Mauritius (23.8%), and Dominican Republic (21.1%) compares favorably with that of Bangladesh (81.3%) over the 1980-87 period 1. However, while initial conditions were favorable for export growth in the countries noted above, this was far from true in the case of Bangladesh. This makes research into the factors responsible for the observed striking growth of RMG exports from Bangladesh a compelling case study in economic development.
RMG EXPORTS AND IT’S SHARE IN TOTAL EXPORT OF BANGLADESH
| YEAR | EXPORT OF RMG (IN MILLION US$) | TOTAL EXPORT OF BANGLADESH (MILLIONS US$) | % of RMG’S TO TOTAL EXPORT IN MILLIONS US$) |
| 1983-84 | 31.57 | 811.00 | 3.89 |
| 1984-85 | 116.2 | 934.43 | 12.44 |
| 1985-86 | 131.48 | 819.21 | 16.05 |
| 1986-87 | 298.67 | 1076.61 | 27.74 |
| 1987-88 | 433.92 | 1231.2 | 35.24 |
| 1988-89 | 471.09 | 1291.56 | 36.47 |
| 1989-90 | 624.16 | 1923.70 | 32.45 |
| 1990-91 | 866.82 | 1717.55 | 50.47 |
| 1991-92 | 1182.57 | 1993.90 | 59.31 |
| 1992-93 | 1445.02 | 2382.89 | 60.64 |
| 1993-94 | 1555.79 | 2533.90 | 61.40 |
| 1994-95 | 2228.35 | 3472.56 | 64.17 |
| 1995-96 | 2547.13 | 3882.42 | 65.61 |
| 1996-97 | 3001.25 | 4418.28 | 67.93 |
| 1997-98 | 3781.94 | 5161.20 | 73.28 |
| 1998-99 | 4019.98 | 5312.86 | 75.67 |
| 1999-00 | 4349.41 | 5752.20 | 75.61 |
| 2000-01 | 4859.83 | 6467.30 | 75.14 |
| 2001-02 | 4583.75 | 5986.09 | 76.57 |
| 2002-03 | 4912.09 | 7602.99 | 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 |
| 2009-10 | 12496.72 | 16204.65 | 77.12 |
| 2010-11 | 3971.52 | 5029.05 | 78.97 |
PROSPECTS & CONTRIBUTION:
Contributes 76% of total exports in Bangladesh. Major products of apparels include knit and woven shirts, blouses, trousers, skirts, shorts, jackets, sweaters, sports wears and many more casual and fashion items. The sector currently employs approximately 1.5 million workers, mostly females from underprivileged social classes. Clothing, being the largest industrial sector, has been experiencing phenomenal growth for last 10 years. This is largely due to the simple level of technology needed by the industry. Moreover, relatively inexpensive and easily available machineries, requirement of smaller premises, abundant supply of cheaper work force, low tariffs on imported machineries and, most significantly, benefits of reserved markets by MFA quota have spurred the growth of the garment industry. At present the country exports nearly 5 billion US$ per year to around 90 countries in the world which include USA, Canada, Germany, UK, France, Italy, Netherlands, Spain and Belgium. In fact, Bangladesh is the 6th largest supplier of apparels in the US market. In order to export readymade garments, it is now almost mandatory for the exporters to disclose the quality parameters towards acceptance of the product as per the intended end use as decided by the World’s leading brands. Knowledge in regulations pertaining to the area of flammability, care label and fiber products identification act are very important for export oriented garment trade, which is not only to satisfy the requirement of U.S. Federal Trade regulation but also to safeguard the interest of consumers. Performance evaluation of the garments is essential prior to shipment with a view to meet the specific requirement standards of the buyers. Working environment, wherein the garments are to be produced, is equally important to protect human rights and the code of conduct derives the basic objectives of social compliance issues. Thus, Bangladesh has a stiff challenge ahead to meet the demand of world market.
CONTRIBUTION TO THE NATIONAL ECONOMY:
The role of the RMG sector in our national economy can hardly be over-emphasized. There has been a steady development in our RMG export field during at least the last decade and a half butin the last few years it has been unique. Readymade Garment (RMG) industry still remains themainstay of export earnings for Bangladesh. About 76 percent of total export earnings of Bangladesh come from this sector. Export statistics from RMG sector in the last five years wereUS$ 5,686.06 million in FY 2003-04, US$ 6,417.67.67 million in FY 2004-05, US$ 7900.80million in FY 2005-06, US$ 9,211.23 million in FY 2006-07, US$ 10,699.80 million in FY2007-08 and US$ 12.35 billion in FY 2008-09.
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Bangladesh is becoming more and more significant for the apparel retailers and fashion brands worldwide as the country is consistently providing the C&M service at the most competitive price maintaining acceptable quality standards. Existing merchants and brands are expanding their work order and new ones are coming hurriedly to utilize the opportunities and to make their products more competitive in the global apparel market. Prominent fashion brands like H&M and Wal-Mart are intended to increase their sourcing from Bangladesh to a great extent and the other retailers are also following; making the situation lucrative and tricky at the same time for the industry. This issue of Bangladesh Textile Today is designed to make an overview of the fashion brands and apparel retailers sourcing from Bangladesh and their point of views about the existing industry
Readymade garment (RMG) is the key export item and a main source of foreign exchange for the last 25 years. Bangladesh textile garments sector has been expanded in a vigorous way and maintained its maturity by holding 2nd position globally with 5% market share in Readymade Garments production and export in 2012. During the Fiscal Year (2011-12) our total export volume was USD 24.23 billion. Out of the total export, export from the RMG sector was USD 19.08 billion which is 78.7%. Global market size export of RMG (Woven & Knit) is US$ 400 billion. Bangladesh share in the global market is about 5 %. This mere 5% share alone is literally strong to indicate that there is a great opportunity of expansion. That means more and more fashion retailers and brands will be looking to source from Bangladesh and the trend has already been started. Bangladesh has been successfully supplying apparel products consistently to the premier international fashion brands like H&M, C&A, M&S, Wal-Mart, GAP, Levi’s, s.Oliver, Tesco, Zara, Carrefour, JCPenney and many more. In November last year, McKinsey & Company, a global management consulting firm forecasted Bangladesh’s apparel exports could grow double by 2015 and triple to $42 billion by 2020 (McKinsey CPO Survey, November 2011). They also mentioned that Bangladesh will be the apparel sourcing hot spot over the next 5 years.
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| Fig: RMG Export during FY 2008-09 to FY 2011-12 (Mn. US$) |
Table: - Region wise Export Performance FY 2011-12 (million USD)
Region | 2011-12 |
EU | 6928.69 |
USA & Canada | 1415.77 |
European Free Trade Association | 113.77 |
Latin American Integration Association | 163.04 |
Emerging Markets | 700.84 |
Others | 164.28 |
Bangladesh launched a deep and wide-ranging trade reform strategy in the early 1990s. Rapid RMG export growth has been observed from the fiscal year 1994-95 to 2011-12. In the fiscal year 2010-2011, robust growth 43.35% compared to previous fiscal year has been experienced. RMG export has been remained stable and export volumes have continued their robust growth. Commitment, competitive price and high quality of products are the main driving forces behind the rise in exports of garment items to the new destinations.
Prominent presence of top retailers and fashion brands in Bangladesh has been realized and it’s also been realized that present top retailers have long-term policy to increase the sourcing volume at a greater extent from Bangladesh. New giant retailers and fashion brands are routing for Bangladesh and already they have started to visit factories as well as set up their liaison offices.
H&M: H&M, the Swedish retail giant for clothing is all set to double its annual outsourcing volume from Bangladesh to around $3 billion within the next five years. The recent visit of H&M CEO Karl-Johan Persson revealed their interest to double their sourcing from Bangladesh which is around $1.5 billion now. The biggest outsourcing company for Bangladeshi garment items mentioned that, they get products at competitive prices from the country.
However, H&M is one of the largest fashion brands in the world. With over 60,000 employees at 2600 stores, H&M branches can be found almost anywhere in the world. H&M retail locations focus on providing a wide range of affordable products that will entice a broad base of consumers. That’s one of the reasons making them to source more from Bangladesh as the country can provide products consistently at the most competitive prices.
C&A: According to most of the international buyers Bangladesh is becoming more popular for its strong competitiveness as the other competing countries like China, Vietnam, India and Pakistan are facing higher costs of production. A manager of Mondial orient Ltd. Said “the export of garments from Bangladesh will remain unhurt for the next 15-20 years as the country has potential.” Mondial is a sister concern of German-based C&A Company, which has more than 1,500 retail outlets across Europe. “Mondial purchases garments worth $700 million a year from Bangladesh,” he said. This year, the company has also increased its purchases to 20 percent, he said adding every year his company increases the volume of the orders from Bangladesh by at least 10 percent. C&A mainly purchases jeans, shorts, children’s wear, woven and knitwear products. He said his company buys garment items from 125 garment factories in Bangladesh. “We are here mainly for the lower prices of garment items as the prices of apparel items in other countries have already gone up following the higher costs of production.” He said China is suffering from a shortage of workers and higher costs of production. Moreover, the current generation in China is no longer interested in the garment businesses. The new generation is much more interested in doing jobs sitting in air-conditioned rooms, he added.
Li & Fung: Li & Fung is another premier Hong Kong based sourcing company that sourced garments worth 870 million in 2011 and is looking to raise it up to 2 billion through the next three years as they are getting the products in the most competitive prices and acceptable quality. Currently Li & Fung has acquired sourcing activities of Target-Australia; hence their business from Bangladesh will dramatically increase this year. Li & Fung have orders from most of the European countries for Bangladesh is one of their sourcing destinations. They are interested to set up industries as a joint venture with Bangladesh to go for bigger production. The country manager of Li &Fung opined that there is no lack of skilled manpower here thus the industry have immense future prospect. As Li & Fung is the sourcing company for number of global brands, its influence on the vendor country like Bangladesh is increasing as well. Though the company is Hong Kong based Li & Fung truly focus to increase sourcing from Bangladesh.
TALLY WEiJL: Tally Weijl, a leading international fashion apparel brand, is shifting its liaison office from China to Dhaka in Bangladesh. Europe’s well-known chain store Tally Weijl has operations in France, Germany and Switzerland. The company engaged in designing and production of apparels for women and girls, and sells the same in its own stores. While rising cost of production has pushed up the prices of garments in China, Bangladesh offers apparels at competitive prices and it has also developed its product range over the past few years. Viewing Bangladesh’s potential to supply better quality garments at cheaper rates as compared to China, Tally has shifted its liaison office from China to Dhaka to reap cost advantage. The firm plans to set up an office in Dhaka within next two to three months, and it has already appointed some officials for the purpose. Tally Weijl imported knitwear and woven items worth US$ 80 million from Bangladesh during 2011. After relocating its liaison office, the company intends to raise its procurement from Bangladesh by 50 percent. With a network of 760 stores, Tally marks its presence in 31 countries and over 2,800 employees.
UNIQLO: UNIQLO, being No. 1 in Japan and No. 4 worldwide (sales in apparel industry), they are now targeting to become the world’s No. 1 apparel manufacturer-retailer with USD 50 billion in 2020. UNIQLO Product Management Offices are located in Shanghai and Shenzhen (China), Ho Chi Minh (Vietnam), and Dhaka (Bangladesh). Total 1083 stores round the globe. UNIQLO Country manager (Bangladesh) mentioned in their recent career seminar that, 5-6 years ago they used to do 99% production from China but now they are shifting production unit from China because of the future inconsistency of Chinese apparel business. They have joint venture factories to produce fabric and garments here and are looking to expand. They are looking for business leaders from Bangladesh as well to follow up their sourcing requirements now. As Bangladesh is entering strongly to Japanese market off late, UNIQLO’s target to reach 50 billion dollar business will be well assisted from Bangladeshi factories ahead.
Oriental Buying Services Ltd. is sourcing for Italy based GruppoCoin including famous OBS Industree brand. While talking to one of its manager it is revealed that while the company started office 6 years back their business from Bangladesh was around 20 million. Now this year it is being around 180 million. Last year the company had around 40% growth and targeting the coming year for similar. Same is the case with many other brands like Kick, NKD, Aldi, Auchan, s-Oliver, American eagle, Street, and Primark etc. Some of them have their own office here in Bangladesh; others are sourcing through trading houses.
Table:- List of top retailers and fashion brands importing from Bangladesh
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PRESENT CONDITION OF RMG SECTOR IN BANGLADESH:
The garment industry has played a pioneering role in the development of industrial sector of Bangladesh. Though it took a rather late start i.e., in 1976 but it soon established its reputation in the world market within a short span of time. Resultantly garment is now one of the main export items of the country. Besides, enriching the country’s economy it has played a very important role in alleviating unemployment. At present there are more than two thousand one hundred garment factories in the country employing more than 12 lack labors. 85 percent of the labor force is women. With 5,000 factories employing about 3.6 million workers (of a total workforce of 74 million), Bangladesh is clearly ahead of other Southeast Asian suppliers in terms of capacity of the ready-made-garment industry. It also offers satisfactory levels of quality, especially in value and entry-level midmarket products.
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 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, T-shirts, trousers, jackets and sweaters, constitute the major production-share (BGMEA website; and Nath, 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.
With about $15 billion in exports in 2010, ready-made garments are the country’s most important industrial sector; they represent 13% of GDP and more than 75% of total exports. Recent surveys carried out by the consulting firm McKinsey and the accounting firm KPMG identified attractive prices as the most important reason for purchasing in Bangladesh. Price levels will remain highly competitive in the future, since significant efficiency increases will offset rising wage costs.
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| Diagram of Garment Export from Bangladesh |
But Bangladesh has its own challenges to overcome. Impediments to investment include unreliable power supply, high real interest rates, corruption, and weaknesses in law and order. So what can Bangladesh do to overcome these challenges and utilise its huge potential?
First, inefficient infrastructure, including transportation and energy supply, is the single largest bottleneck hampering our garments industry. This issue will become even more important in the future, since buyers want to source more fashionable products with shorter lead times. The government needs to prioritise improvement in this area and start to upgrade power systems. Fortunately, a number of steps have been taken in this regard.
Second, although labour and social-compliance standards have improved over the past few years, suppliers vary greatly in their degree of compliance. Environmental compliance is just beginning to get attention.
Third, the suppliers’ productivity must improve not only to mitigate the impact of rising wages but also to close gaps with other sourcing countries, such as India and Cambodia, by satisfying new customer needs for more sophisticated products. Lack of investment in new machinery and technologies and the insufficient size of the skilled workforce, particularly in middle management, is also hampering growth in this industry.
Fourth, access to raw material is crucial for clothing exporters. Lack of backward linkages and Bangladesh’s dependence on imports create sourcing risks and lengthen lead times. Compounding the problem is the volatility of raw-material prices in recent years. The development of a local sector could improve lead times.
Fifth, political stability is a prerequisite for attracting foreign investors. Political unrest, strikes, and the absence of ease of doing business are major concerns of foreign investors.
The three main stakeholders the government, suppliers and buyers must work together to realise the potential of Bangladesh’s ready-made-garment market. The government’s top priorities for investment should be developing infrastructure, maintaining political stability, reducing corruption, and providing education and trade support.
Buyers should help to increase the supply chain’s efficiency and transparency and increase their support for lean operations and electronic data exchange. They should also build closer relationships with suppliers and improve their own operational execution. Their long response times, the complexity of internal procedures involving the merchandising and sourcing functions, and a large number of last-minute changes slow down the overall process.
While Bangladesh has some very promising advantages in certain dimensions in the garments industry, a number of challenges remain. Only if these challenges can be overcome will Bangladesh’s garments industry continue to prosper.
CONCLUSIVE REMARKS:
Bangladesh has ample opportunity to grasp a good share of market as there exist a favorable environment in the country to set up RMG factories and increase production. The favorable market access opportunity has placed Bangladesh to become major exporting nation in the world. There are positive sign from the manufacturer’s as well as they are receiving expected responses from the foreign buyers. Already a number of new buyers from Bangladesh’s traditional export destinations, such as America, Canada, and EU, and new markets such as the Middle East, China, Malaysia, Japan, Russia, Hong Kong, Brazil and Argentina have inquired about factories and the business potential here. In the age of competition in producing improved quality over cost-reduction policy Bangladesh have to move into high value added products through diversification. With the rapid growth of export volume, one day Bangladesh will be the world largest RMG exporting country and that day is not so far.
REFERENCES:
- Bazlul Khondhker, Abdur Razzaque, and Nazneen Ahmed. “Exports, Employment and Working Conditions: Emerging Issues in the Post – MFARMG Industry.”
- Naila Kabeer and Simeen Mahmud. “Rags, Riches and Women Workers: Export – oriented Garment Manufacturing in Bangladesh.”
- “Bangladesh’s RMG Export Performance.
- http://textilelearner.blogspot.com/2012/11/present-conditionsituation-of-ready.html
- http://www.textiletoday.com.bd/demo/magazine/print/494
- Debapriya Bhattacharya, Mustafizur Rahman , Ananya Raihan; Contribution of the RMG Sector to the Bangladesh Economy Paper.
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