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BANGLADESH GARMENT INDUSTRY IN


GLOBAL CONTEXT, FINNISH
PERSPECTIVE

Case Company: Challenge Trading Corporations Oy

Lahti University of Applied Sciences

Faculty of Business Studies

Degree Program in International


Business

Thesis

Fall 2007

Ziten Kh. Shafiqul Islam


(IBU 0300661)
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Lahti University of Applied Sciences


Faculty of Business Studies

Ziten Kh: Shafiqul Islam


Bangladesh Garment Industry in Global Context, Finnish Perspective

Degree Program in International Business


Thesis; total page 90
Fall 2007

Supervisor: Maija Romo

ABSTRACT

This thesis deals with potential market for the garment industry and its supply
chain from Bangladesh to Finnish market. This is carried out with the both
perspective of Bangladeshi exporters export to Finnish market and Finnish
importer import from Bangladesh and it deals briefly with supply chain
management.

The main purpose of the thesis is to give a brief logistics solution to the both
parties. Since now there is no existing Finnish company doing business
directly with Bangladesh still there are lots of Bangladeshi garment products
in the market and those are coming to the Finnish market via specially Sweden
and other EU countries. This study is also a guideline for new companies who
would like to establish a new business channel between both countries. Case
company Challenge Trading Corporations Oy is a start-up company in the
clothing business, the study gives us details on how a company should choose
the suppliers, how to manage supply chain and it also gives further knowledge
about foreign trade procedures as a start-up company.

The study employs various methods to gather information such as newspaper,


electronic articles, information from related organizations, telephone
interviews, Internet surveys and own observation by dealings with case
company.

Finally, some recommendations are given for the engaging parties to enjoy
practicing the business and help them improve the efficiency in contacting
suppliers and buyers, transport agencies, for improvement of customer service
and gaining knowledge of foreign trade procedures.

Key words: Supply chain management, Bangladeshi garments industry,


foreign trade procedures, Challenge Trading Corporations Oy.
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LIST OF ABBREVIATIONS USED


AMTAC American Manufacturing Trade Action Coalition
AOA Agreement on Agriculture
ATC Agreement on Textiles and Clothing
BEPZ Bangladesh Exports Processing Zone
BGD Bangladesh
BGMEA Bangladesh Garment Manufacturers and Exporters Association
BIDS Bangladesh Institute of Development Studies
BKMEA Bangladesh Knitwear Manufacturers and Exporters Association
BRAC Bangladesh Rural Advancement Committee
BSC Bangladesh Shipping Corporation
C&F Carrying and Forwarding
CBW Central Bonded Warehouse
CMAI Clothing Manufacturers Association of India
CPD Center for Policy Dialogue
EBA Everything-But-Arms Initiative
EC European Community
EPB Export Promotion Bureau
EPZ Export Processing Zone
FBCCI Federation of Bangladesh Chambers of Commerce and Industry
FDA Food & Drug Administration
FDI Foreign Direct Investment
FY Fiscal Year
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
GOB Government of Bangladesh
GSP Generalized System of Preferences
GSS Gono Shahajya Sangstha
GSTP Global System of Trade Preference
GTZ German Technical Cooperation
HAWB House Airway Bill
HBL House Bill of Lading
ICSID International Center for Settlement of Investment Disputes
ICT Information and Communications Technologies
ILO International Labor Organization
IMF International Monetary Fund
ISD International Subscriber Dialing
L/C Letter of Credit
LDC Least Developing Country
LIC Low-Income Country
MAWB Masters Airway Bill
MBL Master Bill of Lading
MFA Multi Fiber Arrangement
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MIGA Multilateral Investment Guarantee Agency


MoU Memorandum Of Understanding
MSH Management Sciences for Health
NBR National Board of Revenue (Bangladesh)
NGO Non Government Organization
NWD Nation-Wide Dialing
OPIC Overseas Private Investment Corporation
QA Quality Assurance
RMG Ready Made Garment
SAPTA South Asian Preferential Trade Agreement
SEDF South Asia Enterprise Development Facility
SWOT Strengths Weaknesses Opportunities Threats
TAI The Access Initiative
U/D Utilization Declaration
UCEP The Underprivileged Children Education Program
UNDP United Nations Development Program
UNFPA United Nations Population Fund
UNICEF United Nations Children's Fund
VAT Value Added Tax
WEDF World Export Development Forum
WTO World Trade Organization
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TABLE OF CONTENTS

1. INTRODUCTION…………………………………………………… 1
1.1. Background……………………………………...…………. 1
1.2. Research questions…..……………………………………...1
1.3. Research methods…………………………………………. 2
1.4. Structure of the study…………………………………….... 2
1.5. Limitation…………………………………………………. 2
1.6. Introduction to the case company -
Challenge Trading Corporations Oy………………………. 3

2. INTRODUCTION TO SUPPLY CHAIN………………………….. 4


2.1. General description of supply chain……………..………… 4
2.2. The importance of global supply chain……………………. 7
2.3. Purchasing…………………………………………………..8
2.3.1. Current situation of purchasing in supply chain…… 8
2.3.2. Reason for global purchasing…………………..….. 9
2.3.3. Suppliers selection criteria………………………… 12
2.4. Distribution…………………………….………………….. 15
2.4.1. Transportation modes……………………………… 15
2.4.2. Warehousing……………………………………….. 19
2.5. Customer Service…………………………………………... 21
2.5.1. Elements of customer service…………………….... 21
2.5.2. Customer service measurement and improvement.... 22
2.6. Supply Chain for the RMG sector in Bangladesh…………. 28
2.7. Overview of Bangladesh Logistics industry in RMG sector. 30
2.8. Overview of Finnish logistics industry in general…………. 31

3. BANGLADESH AND ITS GARMENTS & KNITWEAR


INDUSTRIES………………………………………………………... 35
3.1. Bangladesh at a glance…………….………………………. 35
3.2. Trade Relationship between Bangladesh and EU…………. 38
3.3. Government commitment on Garment business…………... 39
3.4. Business climate………...…………………………………. 39
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3.5. Garments Industry in Bangladesh…………………………..40


3.5.1. History, development and human resource
of the RMG sector………………………………… 41
3.5.2. RMG Export performance…………………………. 43
3.5.3. Situation of the RMG sector of Bangladesh after the
MFA phase-out…………………….……………… 47
3.5.4. Strength of the sector………………………………. 49
3.5.5. Garment & Knitwear Manufacturers & Exporters
Association in Bangladesh………………………….50
3.5.5.1. Bangladesh Garment Manufacturers &
Exporters Association (BGMEA)……… 50
3.5.5.2. Bangladesh Knitwear Manufacturers &
Exporters Association (BKMEA)……… 52
3.5.6. Ethical Issues………………………………………. 53
3.5.7. Social impacts of the RMG sector…………………. 60
3.5.8. SWOT analysis of Bangladesh Garment Industry…. 62

4. FOREIGN TRADE PROCEDURES.……………………….……... 66


4.1. Import procedures from Bangladesh………………………. 66
4.2. Documentations……………………………………………. 67
4.2.1. Import documents………………………………….. 67
4.2.2. Export documents………………………………….. 68
4.3. Documentation procedures for foreign trade………………. 69
4.4. Import mechanism from Bangladesh to Finland…….……...71
4.5. Risk analysis……………………………………………..… 73
5. RECOMMENDATIONS………………………………………….... 76
6. CONCLUSION……...…………………………………………….… 81
7. SOURCES…………………………………………………………… 83
8. APPENDICES……………………………………………………….. 88
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1. INTRODUCTION
In this introduction chapter, we make a foundation of this thesis where the
background of the study is briefly mentioned, the out come of the study and it
is described how the study was carried out. In the end of this chapter, we look
at the structure of the thesis and finally we get to know about the case
company Challenge Trading Corporations Oy.

1.1 . Background
The case company intends to expand its line of business and as a part of its
internationalization process; it has made a modest decision in doing clothing
business within Bangladesh. In fact, because of a very limited knowledge
within the sector and the international trade, the need for marketing research
became vital. This study will help as a guidebook to explore the markets
within the clothing sectors. It will also help to gather knowledge about the
producing country as well as it gives some knowledge of logistics and supply
chain management. The main aim of this study is to explore the potential
market and future direction of the producing country from the case company’s
point of view and on the other hand aiming at finding the information needed
to reduce the company’s uncertainty within the target market. The specific
needs of the company aside, this study also will help as a good source of
information to any individual, organization or business interested in the
Bangladeshi garments industries.

1.2. Research questions


The study deals with the following questions:
 What is the logistics situation in Bangladesh and Finland?
 What is Bangladesh’s position within the international
garments industries?
 What are the procedures of doing garments business
between Bangladesh and Finland?
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 What are the possible risks involved in doing business in


these countries?

1.3. Research methods

The research has been carried out in this study with the secondary data using
statistics from the related industries website, related publications, magazines,
newspapers and the government agencies. Some information was acquired
through emails and telephone conversations as well as own observation of
doing work with the case company.

1.4. Structure of the study


The study begins with the theoretical part and then it focuses on Bangladesh,
its RMG industries. Then it continues with foreign trade procedures and finally
some recommendations are given for the engaging parties.

In the theoretical part, Supply chain is broken into different functions such as
purchasing; distribution and customer service and each of them are included
with various sub-items, which are presented here briefly too. Chapter Three
sheds light on Bangladesh and its garments & knitwear industry and business
environment. The following chapter illustrates foreign trade procedures which
includes documentations and import export mechanism. End of this chapter we
will see the risk analysis of the sector.

Finally, recommendations are given in the guideline of business risk and


opportunities for the case company and for the suppliers.

1.5. Limitation
The study will not deal with marketing issues and not even talk about Finnish
clothing market. It will only describe Bangladeshi Ready Made Garment
(RMG) sector, its development and country’s export performance, which will
give an opportunity to know about the suppliers and the sector for the new
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entrants. The study will deal with logistics very briefly and it may be the
foundation for further advanced research in marketing.
The study focuses on the case company Challenge Trading Corporations Oy
which aimed to expand its business into the clothing business and is very keen
on importing garments products from Bangladesh aspiring being retailer and
as well as wholesaler to the Finnish market. Because of the case company has
yet no experience of importing the products from Bangladesh to Finland, the
whole study is structured as a guideline of doing business between two
countries as an entrant. Ultimately the whole study will benefit the case
company and as well the exporting companies as the new entrants as well as
for those who like to establish garment factories in Bangladesh.

1.6. Introduction to the case company Challenge Trading Corporations


Oy.

Challenge Trading Corporations Oy has been established in 2006 at Lahti in


Finland. It began its operations with catering and restaurant business and had
one Indian ethnic restaurant in the beginning. During first year operations, it
established another same kind of restaurant in the same city.

Challenge trading corporations Oy. established with the aim of several


business ideas such as, catering, clothing and garment, computers, electronics
etc. After success of catering business, company desires to begin into garment
and clothing business. Company has no previous experience in this line of
business. As an entrant it seeks assist of how to enter to the garment business,
know how and after all, it seeks total foreign trade procedures knowledge.

In the beginning company would like to establish a retail shop in Lahti center
then it aims to expand its business to other city in Finland and as well as it
desires to be a whole seller.

Company has already started contacting with suppliers of Bangladesh and has
been able to gather primary information on this line of business. This study has
been carried out by close cooperation with the company.
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2. INTRODUCTION TO SUPPLY CHAIN

This is mostly a theoretical chapter where is illustrated the meaning of supply


chain, its importance and then focuses on the main components of supply
chain such as purchasing, distribution and customer service. In the same times,
we look at customer service measurement and improvement strategies. In the
end of this chapter, we analyze supply chain for the readymade garment sector
in Bangladesh and focus on briefly Bangladesh and Finland’s logistics
situations.

2.1. General description of supply chain

There are multiple definitions found for supply chains in literature. According
to the Supply Chain Council a definition of a supply chain is: "The supply
chain-a term now commonly used internationally encompasses every effort
involved in producing and delivering a final product or service, from the
supplier's supplier to the customer's customer". The series of companies
(actors) that interact for this producing and delivering is what will be called
supply chain here. The actors are connected through the flow of products, the
flow of information and the flow of money (http://www.supply-chain.org)

The reason for the existence of supply chains is that there are very few
companies that can produce end products for end-customers from raw
materials on their own, without the assistance of other organizations. The
company that produces the raw material is often not the same company that
sells the end products to the end-customer. In order to provide end products to
the end-customers, a network of actors is involved in activities (as purchasing,
transforming and distribution) to produce products and/or services (Stevens,
1989; Lee & Billington, 1995; Swaminathan, Smith & Sadeh, 1996; Cooper,
Lambert, & Pagh, 1997).
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A general Supply Chain Model

Figure 1: A general Supply Chain Model


Source: http://www.gscg.org

From this description, the image of a supply chain in general is provided. The
actors are connected through the flow of products, flow of information and the
flow of money. In the figure above, a general supply chain model is illustrated.
The blocks represent the organizations/companies that handle the products and
add value. The choice for the term supply chain is unfortunately because it
leads to confusion. "Chains" evoke linear, unchanging, and powerless images.
"Supply" feels pushy and reeks of mass production rather than mass
customization. Better names like "demand network" or "customer driven
webs" have been proposed. Yet, the name "supply chain" seems to have stuck
(Johnson & Pyke, 2000).

Strictly speaking, the supply chain is a network of multiple businesses and


relationships (Lambert, Cooper & Pagh, 1998).
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The picture below gives a more accurate description of a demand network.

Supply Chain Demand Network

Figure 2: Supply Chain Demand Network


Source: Coyle, Bardi, & Langley, 1996

The term supply chain management is relatively new in literature, appearing


first in 1982 by Oliver and Webber. Supply chain management is viewed by
many as a highly novel management concept, but comparison with earlier
work reveals similarities. The fundamental assumptions, on which supply
chain management rests, are significantly older (Cooper et al, 1997).

Supply chain systems were regarded as channels of distribution. From this


perspective the focus of channel management was on making each firm in the
distribution channel more efficient and productive. Each firm operated on its
own, seeking to make the highest profits with little attention paid to its channel
counterparts (Lancioni, 2000).
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More recently, many manufacturers and retailers have embraced the concept of
supply chain management to improve efficiency across the value chain (Tan,
2001). The original use of the term supply chain management emphasized a
reduction in inventory both within and across firms, which the logistics
manager was confronted with, but that initial perspective has been broadening
(Keith & Webber, 1992).

Consequently, the competition is no longer between firms but between supply


chains. The goals of the entire supply chain become the common objective of
each firm. Cost and service improvements that were not achievable by
individual firms will now be attained by cooperating companies (Lancioni,
2000).

2.2.The importance of a global supply chain

The importance of an efficient global supply chain is highlighted


by the following reasons

(1) Growth in outsourcing:


As mentioned earlier, companies are taking advantage of location-specific
advantages such as skilled labor, low wages, lower cost of raw materials, and
lower overheads to move production and sourcing overseas. A case in point is
the fact that the majority of apparel in the US. is manufactured in the Far East,
and this has decimated the textile industry in the United States. Companies
look to lower their fixed assets by outsourcing functions to competent vendors
either domestically or overseas. Cisco is an example of a company that
boasted of having low inventory in the system and outsourcing all aspects of
manufacturing. An efficient supply chain is required to ensure the timely and
cost-effective movement of goods and services, together with the management
of the flow of information that would help control a dispersed supplier and
customer base.

(2) Global competition:


Competition is no longer confined to local domestic companies. Low-cost
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imports, the advent of foreign companies and the modernization of existing


companies have served to blur the competitive landscape. Companies need to
operate globally in order to reap the benefits of location and cost advantages,
enter untapped markets, reduce the dependence on saturated markets in
developed countries and offset global competitors. According to Michael
Porter, 2 competitive advantages can be achieved either through cost
advantages or differentiation strategies. An efficient global supply chain can
offer companies cost advantages through efficient operations and can serve as
a source of differentiation by assuring timely delivery and customer service.

(3) Effects of corporate strategy:


The modern day corporate strategy is focused on strategic alliances,
partnerships, coordination among channel members, co-adaptation among
multi business units and an integration of systems through information
technology, where many of these business entities could be global. In such an
environment, the presence of an efficient global supply chain can augment the
benefits of a good corporate strategy while leveraging the core competencies
of a global corporation.
(Developing a global Supply Chain: www.findarticles.com)
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2.3.Purchasing

2.3.1. Current situation of purchasing in supply chain


Purchasing is the buying of materials or services from an out side
source and thus involves the transfer goods from one distinct entity
to another. The purchasing activity is the upstream part of the
supply chain and is set in motion by the client’s demand for the
finished goods at the downstream end. A client’s requirement is
negotiated with marketing, this establishes the basis of operating
plans and then production decides what needs to be purchased. In
order to ensure an unbroken supply chain, purchasing, marketing
and production must work in a team to ensure delivery dates are
met. (Lysons, Keneth 2000, 1; Waller, Derek 2003, 489;)

Purchasing plays a multiple role in every supply chain because it might lead to
the cost increase or decrease directly, and effective purchasing can reduce the
total cycle time and improve the efficiency of order processing. The following
factors are giving the further explanation of the current situation of purchasing
in supply chain.

i) Emphasis on total quality management and customer satisfaction:


Purchasing is thinking strategically and is responsibility for total quality
management and satisfying the organizations’ customers. It takes the
responsibility for the quality of output of goods and services.

ii) E-commerce:
To simplify and reduce transactions and speed up communications between
firms and their major suppliers will continue on upward trend. Application
extends to web based fulfillment process, planning, scheduling and product
development.

iii) Technical entry route into purchasing:


Many firms requires of employment in a professional purchasing capacity may
be a technical educational background; for example, a software company may
require its key purchasing professionals to have educational background in IT
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or software engineer. (Burt, Dubler & Starling 2003; 180; Weele 2002, 172-
176)

iv) Global supply management:


Supply managers look globally to identify best possible suppliers. Further
reduction elimination of trade barriers is facilitating globalization of supply
network. For most companies, purchasing is an international operation. Raw
materials may be purchased from abroad because those are the only sources
and they are less expensive or better quality. (Leenders, Fearon, Flynn &
Johnson 2002, 706)

2.3.2. Reason for global purchasing

Global purchasing is the process for getting more for less.


In a hardware product, it is getting performance, better quality and improved
customer satisfaction for less cost to produce. Applied to an organization or a
service activity it is getting desired results faster with fewer resources. That
what is demanded from modern day global purchasing and supply chain
management.
Leading Corporations throughout the world recognized that purchasing and
supply chain management are critically important strategic functions.
Because they are so important in today’s highly competitive global market, a
firm’s success depends upon its ability to fully integrate its purchasing and
supply chain management goals into its overall corporate strategy. (Madoui,
Global strategic purchasing; http://madoui.chez-
alice.fr/madoui.purchasing1.html)

Global purchasing presents the same complexities and challenges found in


domestic purchasing but with added opportunities and risks. Global
purchasing does not just mean buying material from overseas suppliers. It
means, finding international suppliers, which share your short- and long-terms
business objectives, integrating these suppliers deeply into your business, and
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integrating these suppliers into the supply chain. (Madoui, Global strategic
purchasing; http://madoui.chez-alice.fr/madoui.purchasing1.html)

Your supply chain starts at product research and development, and goes
through to where you deliver the product to customers. Supply chain
efficiency is what it is all about. In order to fully benefit from global
purchasing, there is a need of closer and better relationships with suppliers,
mutual product development activity, and the mutual interest of two
companies trying to work on their long-term growth. There is also need to be
aware of the complexities of purchasing decisions and supply chain
management:
Purchasing decisions are involve so many issues, some of them are listed
below:
 Price, quality, delivery times, flexibility, and dependability;
 The need to address uncertainty in product performance or reliability;
 The need to identify the best ways to make rational decisions in the
face of uncertainty;
 Managing supplier relationships, a critical component for a company to
be competitive in cost, quality, and speed.
(Madoui, Global strategic purchasing; http://madoui.chez-
alice.fr/madoui.purchasing1.html)
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A supply chain is a network of facilities and distribution options that performs


the functions of procurement of materials, transformation of these materials
into intermediate and finished products, and the distribution of these finished
products to customers.
Traditionally, marketing, distribution, planning, manufacturing, and the
purchasing organizations along the supply chain operated independently.
These organizations have their own objectives and these are often conflicting.
The result of these factors is that there is not a single, integrated plan for the
organization - there were as many plans as businesses.
Consequently, the purchasing and supply functions will be part of integrated
and cross-functional teams. And, in this evolution, the role and importance of
purchasing and supply management will emerge as a primary element of
business strategy and will span a broader range of activities than traditional
buying-related functions to include supplier qualification, certification,
development, strategic alliances, management of deliveries and closer
coordination of inventories and material flow. (Madoui, Global strategic
purchasing; http://madoui.chez-alice.fr/madoui.purchasing1.html)
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2.3.3. Suppliers selection criteria

 Qualifying Suppliers
Having selected target-countries, and in order to identify prospective suppliers,
it is important to define the traits of candidates according to objectives. That
profile will help identify, short-list and screen prospective suppliers.

 Research, Evaluate, Interview, and Select Suppliers


After listing, the suppliers need to contact all listed companies through airmail,
fax or email. Clearly state the business proposition, objectives and the
procedure of supplier selection. Once prospective suppliers have indicated
their interest in offer, it is important to determine their legitimacy and financial
soundness. The financial condition of prospective suppliers should figure
heavily when determining the appropriate working relationship. Some of the
respondents will certainly not pass this stage of the selection process. The
survivors of this first screening, should undergo further research based mostly
on their past performance. After the financial test, past performance should be
an important part of the supplier qualification process. Then need to find out
how the supplier’s performance ratings compare with average satisfaction
scores for its industry and with own goals.
Contact randomly selected customers of prospective supplier and asks them to
rate that supplier on key performance measurements, such as:

 Delivery timeliness
 Problem responsiveness
 Product quality
 Total cost
 Technical support
 Quantities delivered
 Personnel attitude
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Calculate an overall satisfaction rating from ratings in the key performance


measurement categories. Then, illustrate the supplier’s performance ratings
compared to each other and identify each supplier’s weaknesses and strengths.
Finally, rank prospective suppliers to create a list of preferred suppliers based,
this time, on acceptable risk and internal standards.

To this list of preferred suppliers additional information should be gathered on


them, such as:

 Can the product be manufactured from the present facilities or will an


additional production capability be required?
 Does the present manufacturing operation have the capacity to handle
the anticipated level of orders?
 Does the company have the operational flexibility to switch,
particularly if the product's specification varies or is subject to
minimum volume requirements?
 For service companies, is the requisite expertise available in the
potential overseas supplier markets?
 Will the company have to send home office staff or station expatriate
personnel abroad in order to global purchase?
 Are the services subject to professional licensing or other forms of
regulatory oversight?

The most important step will be to establish relationships with the preferred
prospective suppliers. This should involve face-to-face meetings with the
principals. In addition, it is important to negotiate the appropriate legal
agreement with the counterpart firm selected.

Here are some tips for further search and evaluation of prospective suppliers if
do not have in-house resources or if a firm does not use an international
business consultant:
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 Credit Reporting Firms - Firms like Graydon America and Dun &
Bradstreet offer timely credit reports on overseas companies. The fee
for these reports typically varies according to the region of the world
and the promised delivery time for the report.
 Dun & Bradstreet also maintains a Web site where users can order
Business Background Reports on-line.

Other sources of information on overseas companies include:


 Company Directories
 International Banks
Rémy Madoui, Global strategic purchasing; (http://madoui.chez-
alice.fr/madoui.purchasing6.html)
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2.4.Distribution

Distribution is one of the important components of the supply chain.


Transportation is the second major cost of the cycle as well as the warehousing
cost. These directly affect the goods purchasing cost. In this chapter, we
illustrate the different kinds of transportations and briefly describe about wear
housing.

2.4.1. Transportation modes

Transportation usually represents the most important single element of supply


chain for most firms. The changing nature of supply chain, particularly the
move by many companies towards global operations, has had an obvious
impact on the relative importance of the different modes of transport. In
developing global supply chain, more products are moved far greater distances
because companies have developed the concepts of focus factories, with a
single global manufacturing point for certain products and the concentration of
production facilities in low-cost manufacturing locations. (Rushton, Oxley &
Croucher 2001; 337)

Transportation modes are an essential component of transport systems since


they are the means by which mobility is supported. In terms of delivering
products to the customers, most companies use mainly road, rail, maritime, air,
pipelines and telecommunications. However not all modes are suitable for all
companies. Each mode is explained here briefly.

 Road transportation

Road infrastructures are large consumers of space with the lowest level of
physical constraints among transportation modes. However, environmental
constrains are significant in road construction. Road transportation has an
average operational flexibility as vehicles can serve several purposes but are
rarely able to move outside roads. Road transport systems have high
maintenance costs, both for the vehicles and infrastructures. They are mainly
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linked to light industries where rapid movements of freight in small batches


are the norm. (Slack, Rodrigue & Comtois;
http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)

 Rail transportation

Railways are composed of a traced path on which are bound vehicles. They
have an average level of physical constrains linked to the types of locomotives
and affected by the gradient. Heavy industries are traditionally linked with rail
transport systems, although containerization has improved the flexibility of
rail transportation by linking it with road and maritime modes. Rail is by far
the land transportation mode offering the highest capacity with 23,000 tons
fully loaded coal train being the heaviest load ever carried. (Slack, Rodrigue &
Comtois; http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)

 Maritime transportation

Because of the physical properties of water conferring buoyancy and limited


friction, maritime transportation is the most effective mode to move large
quantities of cargo. Main maritime routes are composed of oceans, coasts,
seas, lakes, rivers and channels. However, maritime circulation takes place on
specific parts of the maritime space, particularly over the North Atlantic and
the North Pacific. The construction of channels, locks and dredging are
attempts to facilitate maritime circulation by reducing discontinuity.
Comprehensive inland waterway systems include Western Europe, the Volga /
Don system, St. Lawrence / Great Lakes system, the Mississippi and its
tributaries, the Amazon, the Panama / Paraguay and the interior of China.
Maritime transportation has high terminal costs, since port infrastructures are
among the most expensive to build, maintain and improve. High inventory
costs also characterize maritime transportation. More than any other mode,
maritime transportation is linked to heavy industries, such as steel and
petrochemical facilities adjacent to port sites. (Slack, Rodrigue & Comtois;
http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)
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 Air transportation

Air routes are practically unlimited, but they are denser over the North
Atlantic, inside North America and Europe and over the North Pacific. Air
transport constraints are multidimensional and include the site (a commercial
plane needs about 3,300 meters of track for landing and take off), the climate,
fog and aerial currents. Air activities are linked to the tertiary and quaternary
sectors, notably finance and tourism that require movements of people. More
recently, air transportation has been accommodating growing quantities of
high value freight and is playing a growing role in global logistics. (Slack,
Rodrigue & Comtois;
http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)

 Pipelines

Pipeline routes are practically unlimited. The longest gas pipeline links Alberta
to Sarnia (Canada), which is 2,911 km in length. The longest oil pipeline is the
Transiberian, extending over 9,344 km to Western Europe from the Russian
arctic oilfields in eastern Siberia. Physical constraints are low and include the
landscape and Pergelisol in arctic / sub-arctic environments. Pipeline
construction costs vary according to the diameter and increase proportionally
with the distance and with the viscosity of fluids (from gas to oil). The Trans
Alaskan pipeline, which is 1,300 km long, was built under difficult conditions
and has to be above the ground for most of its path. Pipeline terminals are very
important since they correspond to refineries and harbors. (Slack, Rodrigue &
Comtois; http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)

 Telecommunications

Telecommunication routes are practically unlimited with very low constraints,


which may include the physiography and oceanic masses that may impair the
setting of cables. They provide for the instantaneous movement of information
27

(speed of light). Wave transmissions, because of their limited coverage, often


require substations, such as for cellular phone networks. Satellites are often
using a geostationary orbit which is getting crowded. High network costs and
low distribution costs characterize many telecommunication networks, which
are linked to the tertiary and quaternary sectors (stock markets, business to
business information networks, etc). Telecommunications limit the
requirement for personal movements in some economic sectors. (Slack,
Rodrigue & Comtois;
http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/ch3c1en.html)

In the chart below the six main modes of transporting products are compared
for each of the key transportation features. Also shown are the estimated
percentages of product movement (i.e. freight traffic) that occurs within the
United States for the five modes that handle tangible products. These
percentages are taken from the 2006 Statistical Abstracts of the United States
and reflect estimates as of 2001.

Mode Product Speed Accessibility Cost Capacity Intermodal % of US


Options Capability Product
Movement
Truck Very Moderate High Moderate Low Very High 28%
Broad
Railroad Broad Slow Moderate Low Moderate Very High 41%

Air Narrow Fast Low Very Very Low Moderate <1%


High
Water Broad Very Slow Moderate Very Low Very High Very High 13%

Pipeline Very Very Slow Low Low Very High Very Low 17%
Narrow
Digital Very Very Fast Very High Very Low Moderate Very Low ?
Narrow
Table 1: Modes of Transportation comparison

Source: http://www.knowthis.com/tutorials/principles-of-marketing/managing-
product-movement/8.htm
28

2.4.2. Warehousing

The warehouse is the most common type of storage though other forms do
exist (e.g., storage tanks, computer server farms). Some warehouses are
massive structures that simultaneously support the unloading of numerous in-
bound trucks and railroad cars containing suppliers’ products while at the same
time loading multiple trucks for shipment to customers. Warehouses are
facilities that provide a proper environment for the purpose of storing goods
and materials that require protection from elements. Warehouses must be
designed to accommodate the loads of the material to be stored, the associated
handling equipment, the receiving and shipping operations, associated
trucking and the needs of the operating personnel. The designed of the
warehouse space should be planned to the best accommodate business service
requirements and the products to be stored/handled. The economics of modern
commercial warehouses dictate that goods are processed in minimal
turnaround time. Below we discuss five types of warehouses:

 Private Warehouse
This type of warehouse is owned and operated by a company that is also
involved in other aspects of the distribution channel. For instance, a major
retail chain may have several regional warehouses supplying their stores or a
wholesaler will operate a warehouse at which it receives and distributes
products.
(Principles of Marketing: Managing Product Movement
http://www.knowthis.com/tutorials/principles-of-marketing/managing-
product-movement/6.htm)

 Public Warehouse
The public warehouse is essentially space that can be leased to solve short-
term distribution needs. Retailers that operate their own private warehouses
may occasionally seek additional storage space if their facilities have reached
capacity or if they are making a special, large purchase of products. For
example, retailers may order extra merchandise to prepare for in-store sales or
29

order a large volume of a product that is offered at a low promotional price by


a supplier.
(Principles of Marketing: Managing Product Movement
http://www.knowthis.com/tutorials/principles-of-marketing/managing-
product-movement/6.htm)

 Automated Warehouse
With advances in computer and robotics technology, many warehouses now
have automated capabilities. The level of automation ranges from a small
conveyor belt transporting products in a small area all the way up to a fully
automated facility where only a few people are needed to handle storage
activity for thousands of pounds/kilograms of product. In fact, many
warehouses use machines to handle nearly all physical distribution activities
such as moving product-filled pallets (i.e., platforms that hold large amounts
of product) around buildings that may be several stories tall and the length of
two or more football fields.
(Principles of Marketing: Managing Product Movement
http://www.knowthis.com/tutorials/principles-of-marketing/managing-
product-movement/6.htm)

 Climate-Controlled Warehouse
Warehouses handle storage of many types of products including those that
need special handling conditions such as freezers for storing frozen products,
humidity-controlled environments for delicate products, such as produce or
flowers, and dirt-free facilities for handling highly sensitive computer
products.
(Principles of Marketing: Managing Product Movement
http://www.knowthis.com/tutorials/principles-of-marketing/managing-
product-movement/6.htm)

 Distribution Center
There are some warehouses where product storage is considered a very
temporary activity. These warehouses serve as points in the distribution
system at which products are received from many suppliers and quickly
30

shipped out to many customers. In some cases, such as with distribution


centers handling perishable food (e.g., produce), most of the product enters in
the early morning and is distributed by the end of the day.
(Principles of Marketing: Managing Product Movement
http://www.knowthis.com/tutorials/principles-of-marketing/managing-
product-movement/6.htm)

2.5. Customer Service


Customer service is the most important tools of any supply chain and is
normally an integral part of a company’s customer value proposition.
Moreover, all supply chain activities must be structured to support the
company’s customer service objectives. Customer service has been defined in
several ways by many experts. Here is the most popular definition of customer
service by Kent N. Gourdin,

According to Gourdin, (2001; 41) sometimes customer service is seen as an


activity; that is, something that the organization provides. A customer service
department that handled complaints, special order, billing etc. Similarly,
customer service can be viewed as a measure of performance. For example, if
the firm an ship completed orders with 24 hours of receipt 95% of the time, it
is providing good customer service. Another way is some firms view customer
service as a corporate philosophy that defines the way business is conducted.
Certainly this type of organization may also have a customer service
department or utilize performance standard, but the focus in this case is on the
customer, not the process.

2.5.1. Elements of customer service

Customer service is a broad term that includes many elements ranging from
products availability to after-sale maintenance. A number of elements are
commonly associated with customer service. There are five key elements of
customer service explained below which is mentioned in Gourdin’s Global
Logistics Management book.
31

(1) Dependability:
It is the most important concern from the customers point of view simply
because it addresses very basic parts of the buying process. Dependability may
be in the form of product availability. It may also refer to such things as
meeting promised delivery dates, filling orders correctly and providing
accurate billing statements. (Gourdin 2001; 41.)

It is related to the order cycle: that is, how long it takes for the goods to be
delivered after the order has been placed. The emphasis today in many
developed markets is on speed, the faster the better. (Gourdin 2001; 41.)

(3) Convenience:
It deals with things like ordering accessibility, hours for pick-up and delivery,
frequency of sales calls, technical assistance and after-sales service.
(Gourdin 2001; 42).

(4) Communications:
It encompasses activities like cargo tracing, answering customer enquiries,
billing and information management. In addition, communication also implies
that the firms listen to its customers, find out what their needs are and makes
every efforts to satisfy them. (Gourdin 2001; 42.)

(5) Honesty:
It implies that the company keeps the promises it makes to its customers.
Pledging more than can be delivered virtually guarantees that customers will
be dissatisfied, so managers must be careful not to overstate customer service
levels when there may be considerable pressure to do so. (Gourdin 2001; 42.)

2.5.2. Customer service measurement and improvement

World-class companies have taken more market share by providing notably


better customer service. Customer service is a very critical component in
32

achieving and maintaining a high level of customer satisfaction. Most chief


executives say, customer satisfaction is a number-one priority for their
companies. It is clear that excellent customer service performance adds value
for all members of the supply chain. The level of customer service not only
determines whether existing customers will remain the same, but how many
potential customers will be increased. Management needs to carefully and
critically assess how their companies have performed at developing and
implementing a customer-focused service strategy. The following statement,
which has been taken as a guideline from a famous American business
consultant Donovan(www.rmdonovan.com) Here he explains how to measure
and improve the customer service performance.

 What’s Your Performance?


Do you really provide your customers with a high level of service? If your
company is not recognized as providing a very high level of customer service
then, it is likely you are missing one of the most critical points for gaining
competitive advantage, improving profits, strengthening your market position
and increasing sales volume.
Are you improving fast enough at delivering what your customers really want
and need?
It’s a deceptively simple question; an accurate answer is often not that easy.
Too many companies operate under false assumptions about how long
customers will wait for a supplier to improve…sometimes, until it’s too late.
To avoid any false assumptions, use the following 10 questions to help your
organization assess customer service performance progress and opportunities.
You may find it worthwhile to have the entire management staff delve into the
implications of the issues these questions raise.

Remember that a self-criticism can be difficult. It’s very important that


everyone carefully and realistically considers each question and then candidly
answers.
33

SELF QUESTIONS
YES NO
1. Have we reduced our total cycle time
by at least 50% over the past 3 years?

2. Do 99 percent or more of our orders reach


customers on time?

3. Are we shipping zero defect products to our customers?

4. Have we reduced our product development cycle


time by at least 50 percent over the past 3 years?

5. Have we surveyed our customers in the last two years to


establish where we rank on customer-defined service
factors versus our competitors?

6. Have we provided our customers with new value-added


services to enhance our products during the last two years?

7. Have we clearly defined the measurable goals we


want to achieve and when we want to achieve them?

8. Are we measuring and improving upon


customer-defined service success factors?

9. Do our performance measures appropriately balance


customer service into the total business equation?

10. Is top management actively engaged in improving


customer service?
34

If you answer No to any one of these critical questions, it is a solid indicator


that if you are not now experiencing heavy pressure from customers to
improve, you will soon. It’s worse when your competitors get more aggressive
in these areas and you have to catch up. If you checked Yes to every question
above, however, then your company is certainly doing better than most.
Of course, Yes answers don’t guarantee market leadership and profitability, but
you can be certain that one or more No answers means corrective action is
essential to ensure your company’s competitive success and future
profitability.
Too many companies limp along with less than top-notch customer service.
Well-intentioned goals to achieve and sustain a high level of customer service
often exist. Yet, customer service is often one of those perpetual problems in
the process of being solved, but without measurable results. Executive
management is often very frustrated with the seeming inability to solve the
customer service competitive dilemma once and for all. (Donovan;
www.rmdonovan.com)

 Management Guidelines
Customer service is a competitive weapon that can easily differentiate one
supplier from another. A lot of talk today is centered on quality, new processes
and systems, continuous improvement and the like, but it must be aimed at
customer satisfaction or it isn’t worth much over the longer term. The same
old way of doing business is just not good enough; the complex job of
redefining and implementing new processes, policies, systems and
measurement are mandatory to solidify your company’s future.
A strong executive mandate that is an informed directive, based upon a
methodology that will allow your organization to take the necessary actions
with its processes, policies, systems and measurements, is paramount to your
company’s success in becoming a customer service leader.
After making the commitment to achieve best-in-class customer service,
management can use the following 10 guidelines to keep organization focused
and rapidly moving toward achieving customer service goals.
35

1. Take an active role in this critical corporate mission if you want to become
the competitor that delights its customers. Do not delegate customer service
and satisfaction downward.

2. Recognize that quality is a given and response time, delivery reliability,


cost, and value added services will be required to gain a competitive
advantage.

3. Understand all of the underlying issues that prevent your company from
delivering topnotch customer service.

4. Resist the temptation to take a piecemeal approach to customer service


improvement simply because the root causes of problems seem too complex
and interconnected to allow for a total solution.

5. Establish customer satisfaction improvement on a strong executive directive


and an action plan containing the principles and tactics that will guide the
organization to positive and permanent change.

6. Survey customers to find out what they think your company’s strengths and
weaknesses are versus your competitors’. Listen and respond.

7. Focus the company’s internal activities on quality and response time


improvement.

8. Tie the measurement system for customer service improvement to the


reward system for management and, if possible, all employees.

9. Conduct regular cross-functional meetings to discuss what’s working,


what’s not, and what actions need to be taken.

10. Develop a results-driven, tactically oriented action plan with the goal of
providing the best customer satisfaction in your industry.
(Donovan; www.rmdonovan.com)
36

 Strategy and Discipline


The discipline to adhere to a good customer service and operational strategy
can create substantial rewards. A notable example of effective strategy and
disciplined adherence is Dell Computer. Dell provides its customers with a
quality product, flexible product configurations, quick response and a
reasonable price. The marketplace responded by buying more and more
product from Dell and its stock went up 10.000 percent over the past five
years.

Now, its competitors and many other industries are rushing to copy Dell’s
operational strategy model. The fact is, the model is easy to develop,
conceptually, but more difficult to execute to a high degree of perfection.

In most industries, customers have become more sophisticated and demanding


of their supply chains. Suppliers that offer the most in customer-defined
quality products, pricing and quick order turnaround will outperform their
competitors and easily gain more market share in the future as customers
clamor for more. For management, a high level of customer service must
become a measurable result. (Donovan; www.rmdonovan.com)
37

2.6. Supply Chain for the RMG sector in Bangladesh

The cotton knitwear sector (raw cotton has to be imported) of the garment
industry in Bangladesh shows an almost complete supply chain. Spinning,
yarn dyeing, knitting, confection of knits and garment finishing are done in the
country. Some of the factories in Bangladesh are even fully vertically
integrated (spinning to finished garment). The situation in the woven garments
sector is completely different. There are only a few weaving mills in
Bangladesh offering a sufficient quality standard for exports and consequently
the majority of fabrics which are used for woven garment exports has to be
imported. This means higher purchasing costs, stronger dependence on an
external supplier (e.g. concerning delivery dates) and also pricing
disadvantages due to higher import duties e.g. on the EU markets. (Corporate
Solution, Bad Nauheim 2005)

The following chart shows an overview of the value chain structure within the
textile and garment industry of Bangladesh.

Figure 3: Structure of the Textile and Garment Industry in Bangladesh


Source: Corporate Solution, Bad Nauheim 2005
38

When looking at the supply chain in the textile and garment sector in
Bangladesh one has to consider on the one hand the gross value addition for
each production step and on the other hand the necessary investment or costs
and their amortization (net value addition). The net value added in spinning or
weaving is rather low due to the relatively high share of raw material costs
(e.g. raw cotton for spinning) and usually very high costs for production
technology / investment. The net value addition in knitting or confection
(garment production) is on the other hand considerably high, requires
furthermore low investment but is very labor intense. For that reason the
garment industry has a much higher contribution to a value addition within the
supply chain than the textile industry. Nevertheless an efficient domestic
textile production leads normally to a much better value addition than yarn or
fabric imports and in addition to that it prevents the garment industry from
depending too much on other supplying markets, less influence on delivery
times or problems with the right to claim a guarantee.
The approximate gross value addition for different steps within the textile and
garment production in Bangladesh is listed below.
 Spinning 17 %
 Weaving 15 %
 Knitting 18 %
 Dyeing / Finishing 15 %
 Finished Garments 28 %
(Corporate Solution, Bad Nauheim 2005)

We will discuss further details on Bangladesh RMG in chapter 3 of this study.


39

2.7. Overview of Bangladesh logistics industry in RMG sector

Bangladesh has a great geographical advantage. It has a long coastline of


about 580 km along the Bay of Bengal and has two large seaports, Chittagong
in the South East and Mongla in the South West. International sea borne trade
of Bangladesh has been using these two seaports, with about 90% passing
through the Chittagong. For its geographical advantage Bangladesh has a long
history of logistics service. It offers the highest level of service in the total
logistics solution based such as transportations; sea-freight, airfreight and
contract logistics combined with strong IT-based supply chain management
solutions.

The government owned shipping line business Bangladesh Shipping


Corporation (BSC) provides and monitors shipping services in international
routes. It carries out activities connected with or ancillary to shipping,
including taking over of the undertakings, movable assets or immovable
assets, or properties of any corporation engaged in such activities. The
company operates routes and services directly to the United Kingdom/Africa,
Far East/Japan, and Pakistan/West Asia gulf and also has direct or indirect
international logistics cooperation. It offers Singapore feeder services,
chartering and tramping service, crude oil lighter-age service at Chittagong,
and food grain lighter-age service at Chittagong and Mongla. BSC has its own
13 different vessels. The company is mostly in Chittagong based. Except this
there are many other international standard private owned shipping and
logistics firms are operating their business in Bangladesh.
The RMG sector itself also has contributed to the shipping business in
Bangladesh and stimulated setting up of several container yards, expansion of
port facilities to handle large container carrying trains, increase of cargo
handling and storage facilities. RMG manufacturers also extensively use
services of Clearing & Forwarding Agents for the purpose of customs
clearance of inputs and finished goods. It is estimated that port usage fees
earned from the RMG sector account for more than 40% of the income of the
port authority. RMG sector contributed about US$65 million in FY2002 to
40

earnings of the Shipping business of the country by way of port charges, C&F
Agents commissions, freight charges, forwarding charges etc.

The growth and development of inland transport services to a considerable


extent owe to the growth of the RMG industry. Both wheel transport service
and railway service are widely used by RMG sector for activities related to
manufacturing and cargo movement. The concept of covered van emerged in
Bangladesh for safe transportation of the RMG products in particular. In 2002
the inland transport industry received about 27.3 million dollars as revenue
from the RMG sector.
Source: Contribution of the RMG Sector to the Bangladesh Economy
(Bhattacharya, Rahman & Raihan 2002)

2.8. Overview of Finnish logistics industry in general

Finland is at the center of Europe’s fastest growing region, Northern Europe.


The eastern land border with Russia is the longest in the European Union,
while efficient air, sea and land transport from Finland to Asia and the rest of
Europe link East, West, North and South. Finland’s central position, security
and modern infrastructure offer great potential for new, efficient logistics
services, transport channels and value-adding services. Today’s business
advantage lies in the increasing flow of goods and the integration of
transportation networks and modes. The advanced air, road, rail and sea
connections through and inside Finland create a unique business environment
for logistics services providers and delivery hubs.
(Opportunities in Logistics Services in Finland; www.investinfinland.fi)
41

Below graphic shows the fastest transport channels between Europe and the
Far East.

Figure 4: Transport channel between Europe and the Far East


Source: Invest in Finland, 2006

Finland offers a highly developed transport and logistics infrastructure. As


international business continues to grow, demand for new services and
operators are increasing. This provides business opportunities for new logistics
service providers and operators in Finland. In recent years, Finnish trade with
the Baltic Sea region, Russia and Scandinavia has increased noticeably. This
development, coupled with the growing transit transport between European
countries, China and other Asian markets, fuels demand for new value-added
services. At the same time transport networks in Western European are
congested, while the economic growth in the Baltic Sea region and Russia is
rapid. To tap into this growth, companies need to explore alternative
transportation routes. Finland is ideally located to offer competitive
connections between East and West.
(Opportunities in Logistics Services in Finland; www.investinfinland.fi)

Established logistics players must also offer one-stop shopping services for
small and medium sized companies. Specialized companies providing
advanced, value added services for all modes of transport can develop their
operations in Finland, too. The next trend in logistics will be the outsourcing
of value-added services globally. Finland can serve as a logistics hub for
domestic and international transport in northern Europe and Russia.
42

There are plenty of reasons that make Finland an ideal base for logistics
services providers. It has growing business potential, a challenging climate, a
high education level, advanced ICT (Information and Communication
Technology) and logistics know-how, and an ambitious, development oriented
attitude in general. Nearly 15% of Finland’s GDP, and 10% of Finnish
corporate turnover is spent on logistics. Finland is an excellent test market for
developing new, efficiency-boosting logistics solutions and applications.
(Opportunities in Logistics Services in Finland; www.investinfinland.fi)

Finnish combination of maritime and rail transport seamlessly integrate


logistics chains across Europe and Asia. The main ports include all Baltic Sea,
North Sea Atlantic ports in Western Europe. For instance, Finland is the Port
of Hamburg’s third biggest trading partner on a national level and the leading
freight destination for the Port of Lübeck, Germany’s largest Baltic Sea port.
The Finnish ports are also the leading transit link into Russia. Since the Baltic
Sea region is the most dynamic area in Europe, maritime connections are
better than ever, and new investments build up the capacity. For example, a
new cargo port at Vuosaari, Helsinki, will be opened in 2008. It will be the
most modern port on the Baltic Sea, with high standards in security,
environmental protection and logistics services. It will also have direct rail
connections to Russia and Asia.
Following graphic shows, the maritime transports connect with different
countries.

Figure 5: Maritime Transport Channels in Finland


Source: Investment in Finland 2006
43

Over 90% of Finland’s export goods are shipped through more than 50 ports
located along 1000 kilometers of coastline. Although winters may be quite
cold, the ports and shipping routes are kept open by the national icebreaker
fleet.
In 2004, the total maritime transport volume through the ports was
100,623,681 tones, of which exports covered 41%, imports 49%, and domestic
traffic 10%.
(Opportunities in Logistics Services in Finland; www.investinfinland.fi)
44

3. BANGLADESH AND ITS GARMENTS & KNITWEAR


INDUSTRIES

In this chapter, we focus on Bangladesh, its international business cooperation


and the business environment. Then we illustrate deeply about Bangladesh
RMG sector, development and its human resources with ethical matters. In the
end of this chapter, we look at the SWOT analysis of the sector.

3.1. Bangladesh at a glance

 General Information
Bangladesh is an independent and sovereign Republic known as the Peoples
Republic of Bangladesh. The country emerged as an independent state on
March 26, 1971. The war of liberation ended on December 16, 1971 in victory
of Bangladeshi forces and surrender of the occupying army. This area was
under Muslim rule for five and a half centuries and passed into British rule in
1757 AD. In August 1947, it gained independence from the British rule along
with the rest of India and formed a part of Pakistan and was known as East
Pakistan. The national flag of the republic consists of a circle colored red
throughout its area, resting on a green rectangular background. The citizens of
Bangladesh are known as Bangladeshis.

Figure 6: Map of Bangladesh


Source: http://worldatlas.com/webimage/countrys/asia/bd.htm
45

Geographical Location: Between 20°34' and 26°38' north latitude 88°01'


and 92°41' east longitude.
Boundary: North: India, West: India, South: Bay of Bengal,
East: India and Myanmar
Area: 56977 SQ. Miles or 147570 SQ. KM
Territorial water: boundary12 Nautical Miles
Official Name: Peoples Republic of Bangladesh
President: Professor Dr. Iaajuddin Ahmed
Chief Advisor: Dr. Fakhoruddin Ahmed
Capital City: Dhaka
Major Administrative Units: Dhaka, Chittagong, Khulna, Rajshahi,
Mymensingh, Comilla, Barisal, Sylhet
Standard Time: GMT+6.00 Hours.
Language: State language Bangla. Second language English
Demography: Population: 141.34 million, Annual Growth rate:
1.48%, Density: 928 per sq. km, Religion:
Muslim 88.3%, Hindu 10.5%, Buddhist 0.6%,
Christian 0.3%. Secularism is ensured
constitutionally.
Climate: Sub-tropical. Three main seasons: Winter
(November-February), Summer (March June),
Monsoon (July – October). Climatic variations:
Winter temperature average maximum 29°C,
Winter temperature average minimum 11°C,
Summer temperature average maximum 34°C,
Summer temperature average minimum 21°C,
Monsoon average rainfall 1194 mm to 3454 mm.
Topography: Over 85% of the country is flat, alluvial and
plain.
Principal rivers: Padma, Meghna, Jamuna,
Brahmaputra, Teesta, Surma and Karnaphuli
(Total 230 rivers including tributaries).
Currency: Taka
Economy: Agriculture Based.
46

Principal Industries: Jute & cotton textiles, garment making, tea


processing paper, newsprint, cement, chemical
fertilizers, light engineering, sugar.
Principal Minerals: Natural gas, lignite coal, limestone, ceramic clay
and glass sand.
Principal Exports: Ready made garments, raw jute, jute
manufacturers, tea, fish, hides and skins,
newsprint.
Infrastructure:
Road Transportation: Road transportation facility with quality
transport and reasonable fare. Bridges on almost
all of the major rivers. The bridge over Jamuna
(4.8 km) is the 8th longest bridge of the world.
Waterway:
Sea: Chittagong and Mongla
Inland River: Dhaka, Chandpur, Barisal, Khulna, Baghabari,
Sirajganj, Sharishabari, Narayanganj, Bhairab
Bazar, Ashuganj.
Airway:
International: Dhaka, Chittagong and Sylhet
Domestic: Dhaka, Chittagong, Jessore, Ishwardi, Sylhet,
Comilla, Cox’s Bazar, Thakurgaon, Syedpur,
Rajshahi and Barisal.
(www.bkmea.com)
47

3.2. Trade relationship between Bangladesh and EU

Bangladesh has pursued a policy of trade liberalization throughout the last ten
years. Export diversification and import liberalization received increased
attention. As a result, a considerable reduction in tariff and non-tariff barriers
was achieved.
Bangladesh’s exports to the EU market have benefited from preferential
market access, i.e. duty and quota-free access (GSP, EBA initiative)♣.
However, Bangladesh’s trade capacity presently relies on a very limited
number of export products. There is therefore a need for diversification of the
country’s export range and the improvement of backward and forward
linkages to make the industry more competitive. Reforms to improve the
economic governance situation and the conditions in the port of Chittagong
would be a boon to the country’s business potential and its investment climate.
The EU is by far the biggest trade partner of Bangladesh, importing 54% of its
goods, for the annual amount of €4,1bn and generating a trade balance surplus
for Bangladesh of over €3bn every year. Presently Bangladesh is also amongst
the most prominent exporters from the group of LDCs to the EC, representing
20% of the total exports from all LDCs to the European market. Bangladesh's
principal export goods to EU are textile products (75% of the EU imports from
BGD). The effect of the phase out of the WTO Agreement on Textiles and
Clothing in December 2004 was less severe than expected, with export figures
for knitwear and woven goods maintaining healthy growth. On the other hand
EU exports to Bangladesh include food, chemical products and machinery and
mechanical appliances. (The EU’s relations with Bangladesh;
http://ec.europa.eu)

GSP= Generalised System of Preferences; under this the EU is currently granting


unilateral tariff preferences to 178 developing countries. From the preferential imports
under this regime in 2002, half were duty free and half at a reduced duty.

EBA= Everything but Arms initiative; under this unilateral preferential regime, the
worlds 48 poorest countries – out of which 34 are Sub-Saharan – export to the EU
duty-fee and quota-free.
48

3.3. Government commitment on garment business

The Government of Bangladesh offers great incentives for encouraging the use
of local fabrics in the export oriented garment industries. For encouraging
textile export, the import of capital machinery is duty-free. Import of cotton is
also duty-free. Moreover, the Government has recently implemented several
policy reforms to create a more open and competitive climate for foreign
investment.
Bangladesh is endowed with abundant and cheap labor force that is easily
trainable and convertible into semi-skilled and skilled work force. Price,
heavily weighted by the labor cost, is one of the main determinants of
comparative advantage in the labor-intensive garment industry. The price of
labor in Bangladesh is lower compared to some its neighboring countries as
well as some other garment producing countries in South-East Asia and East
Europe. Obviously, existence of such cheap but easily trainable labor is one of
the advantages that Bangladesh enjoys and will be enjoying over a
considerable period in the context of international trade on clothing.
(www.bgmea.com)

3.4. Business climate

Backward - Linkage of Apparel Industry Shows Potential for Foreign


Investment
Estimate shows that about 80 percent of garment accessories like cartons,
threads, buttons, labels, poly bags, gum tapes, shirt boards, neck boards etc.
are now being produced in Bangladesh, contributing to the national GDP. But,
the textile (Spinning, Weaving, Finishing etc.) industry is just budding.
Prospect for a huge textile industry capable to supply over 3 billion yards of
fabrics a year to the export oriented garment industry has also been developed
by the industry. (www.bgmea.com)

Presently, the total fabric requirement in captive market is for about 3 billion
yards, of which about 85-90 percent is imported from countries like China,
India, Hong Kong, Singapore, Thailand, Korea, Indonesia, Taiwan, etc. Fabric
requirement is increasing at 20 percent per annum. This offers a tremendous
opportunity for further industrialization in Bangladesh. Taking the global
49

context within the purview of open market economy (started in 2005) it can
exploit the benefit of the potential textile industry of the country by
immediately establishing 60 moderate-size composite textile mills, capable of
producing 30 million yards of fabrics per year per factory.
Extensive program of incentives, to expedite investment in the country, are
now in place covering
 No Ceiling for investment
 Tax holiday of up to 10 years
 Tax-exemption and duty-free importation of capital machinery
and spare parts for 100% export oriented industries
 Residency permits for foreign nationals including citizenship
 Easy capital profit and divided repatriation facilities
 Double taxation avoidance
 Tax-exemption on the interest payable on foreign loans
 Taka (BGD currency) convertible on current account etc.

Investors can also take advantage of the GSP (generalized system of


preference) and EBA (everything but arms) facilities, which allow duty and
quota-free access to European markets.
(www.bgmea.com)

3.5. Garments Industry in Bangladesh

The industry was established by foreign investors who set up garment and
accessories factories in Bangladesh’s Export Processing Zones (EPZs) during
the mid-1980s to access Bangladesh’s abundant supply of low-cost labor and
take advantage of its quota share under the MFA. The Readymade Garment
(RMG) sector has grown tremendously over the past 20 years, generating
associated increases in employment that contribute greatly to poverty
reduction and a rise in export earnings. The RMG industry’s share in export
earnings rose from just over 10 percent in 1984 to almost 76 percent in 2006.
Moreover, RMG exports accounted for more than 81 percent of the growth in
the value of exports during that period. (IMF Country Report, June 2007)
50
51

3.5.1. History, development and the human resource of the RMG sector

The RMG sector itself in Bangladesh accounts for a small proportion of GDP
yet serves as an engine of growth. Taking into account the high import content
of garment manufacturing, it is estimated that the RMG industry directly
contributes only about 25 percent of value added in manufacturing, which
itself now accounts for approximately 17 percent of GDP. The sector, however,
generates substantial demand for transportation, distribution, other services,
and construction. Moreover, RMG factories account for 40 percent of
industrial employment and provide the largest single source of formal
employment and wage earnings in the economy. RMG factories and associated
businesses (spinning, dyeing, finishing, etc.) are estimated to provide
employment for a total of 10 to 12 million people.
Of an estimated 4,550 firms at the end of 2006, just 83 were wholly or
partially foreign owned (Table 2). Aggregate Foreign Direct Investment (FDI)
in the sector since the industry’s inception is estimated at $370 million (Table
3). All FDI was restricted to the EPZs by law until 2005 and there is no
evidence of any significant FDI outside of the EPZs since the removal of that
restriction.

Employment in RMG Factories in Bangladesh


Fiscal year Domestically owned Employees Avg.
factories Employees/F
1996/7 2,503 1,300,000 519
1997/8 3,618 1,800,000 498
2005/6 4,220 2,200,000 521
Memorandum items (end-2006)
Total employment in EPZ garment factories 122,098
Of which: In wholly and partially foreign-owned
95,559
Firms in EPZs
Number of wholly and partially foreign owned- firms
in EPZs 83
Table 2: Employment in RMG Factories in Bangladesh
Source: BGMEA, BEPZ Authority; and IMF Stuff calculations
52

Garment and Textile Investment in the EPZs*


(In millions of U.S. dollars; cumulative for 1983–2006)
Investor Woven Knitwear Textiles Total
Garments
100% Foreign Owned 247,20 65,60 168,60 481,40
Joint Venture 50,50 5,90 18,60 75,00
100% Domestically Owned 54,10 12,00 42,00 108,10
Total 351,80 83,50 229,20 664,50

Table 3: Garment and Textile Investment in the EPZs


Sources: Bangladesh Export Processing Zones Authority; and IMF staff
calculations.
* For all firms operational as of December 31, 2006.

The vast majority of employment in the RMG sector is in domestically owned


firms located outside of the EPZs and the average number of employees in
these factories has consistently been around 500. Key differences between
firms with FDI and those that are domestically owned are that productivity in
the firms with FDI is estimated to be 20 percent greater than in domestic RMG
firms and the average number of employees in firms with FDI is substantially
higher. (World Bank (IMF Country Report, June 2007)

3.5.2. RMG Export performance

Despite expectations to the contrary, Bangladesh’s garment industry has


exhibited robust growth since the expiration of the ATC and the corresponding
elimination of quotas on January 1, 2005.
Following a slowdown in garment export growth early this decade, total
garment export value (and volume) growth has recovered in the past three
years to annual rates in excess of 20 percent (Table 4).
53

Growth of RMG Exports, 2000/01–H1 2006/07*

Table 4: Growth of RMG Exports 2001/01


Sources: Export Promotion Bureau; and IMF staff calculations.
*Fiscal year ending June 30. H1= Half fiscal year account of till December
2006

The overall export figures for garments mask a significant change in the
structure of Bangladesh’s RMG industry that is the result of the very rapid
growth of knitwear production and exports.♠ From a total share in garment
export earnings of 25 percent in 1997 knitwear exports rose to half of exports
in the six months ending in December 2006 (Figure 7). In volume terms,
knitwear now accounts for more than 60 percent of Bangladesh’s garment
exports. (IMF Country Report, June 2007)

Knitwear includes all garments sewn from knitted fabric (e.g., t-shirts,
undergarments) and garments, such as sweaters, that are knit from yarn.
Woven garments refers to all garments sewn from woven fabric (e.g., dress
shirts, shorts, trousers), including all denim products.
54

Bangladesh: Changes in the Structure of the RMG Industry

Figure 7: displays Changes in the Structure of the RMG Industry in


Bangladesh.
Sources: Export Promotion Bureau; and IMF staff calculations.

Bangladesh has had a mixed experience relative to other Asian LIC garment
producers in capturing additional total market share in the world’s largest
garment markets since the removal of quotas. In the EU market, which was the
largest market in the world for imported garments in 2006, India and Vietnam
55

have outpaced Bangladesh in capturing market share in the past two years
(Table 5).
56

In the U.S. market, Bangladesh has captured an additional 1 percent of market


share, on par with India and well ahead of other Asian LICs.
(IMF Country Report, June 2007)

Bangladesh: Shares of Imports of Garments into the EU and U.S.


Markets
(In percent)

Table 5: displays the Bangladesh’s share of imports of garments into the Eu


and US market in percent
Sources: Eurostat; U.S. Department of Commerce; and IMF staff calculations.

Among Asian countries other than China, Bangladesh and other major Asian
LIC garment producers are in aggregate capturing an increasing share of
Asia’s total exports to the EU and U.S. markets. Detailed data for all major
producers of garments show that the aggregate shares of major Asian LIC
producers (Bangladesh, Cambodia, India, Pakistan, Sri Lanka, and Vietnam) in
total Asian garment exports (excluding those of the People’s Republic of
China) to the EU and U.S. markets have risen from between 34 and 57 percent
in 2003 to between 45 and 68 percent in 2006, depending on product and
destination. This is evidence that production outside of China but within Asia
is shifting rapidly to Asian LIC producers, and indeed the market shares of
Malaysia, Philippines, South Korea, Taiwan Province of China and Thailand
are eroding across markets and across products. (See appendices 1-2)
(IMF Country Report, June 2007)
57

 Recent improvement

Bangladesh is poised to overtake India in garment exports at the end of current


fiscal year in the wake of an appreciating rupee, leaders and experts of Indian
Textile Industries projected on 5th July 2007. Last year, India exported
garments worth US $ 8 billion, whereas Bangladesh notched up around US $
7.8 billion. Premal Udani, former President of the Clothing Manufacturers
Association of India (CMAI), said, "The Indian textile sector may see a nearly
10 per cent negative growth in the current fiscal, if the rupee appreciation
continues."
"Bangladesh is a strong competitor in pricing with India. Moreover, the cost of
production there is low, and its currency is static against dollar unlike ours," he
added.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)
together worked out an elaborate plan to double the country's garment exports
to US$ 16 billion in next three years by 2010, top leaders of these two
organizations told this Correspondent. The countries export earning during
July 2006-May 2007 period of the last fiscal year grew by 16.45 per cent over
the corresponding period of the previous fiscal year, sources in Bangladesh
Export Promotion Bureau (EPB), the total export receipts during the first
eleven months of FY 2006-07 were US 10,958.62 million dollars.

Export price index, during the July-May period of FY 2006-07, declined by


0.75 percent but the volume of export increased by 17.20 percent compared to
the same period of the previous fiscal year. The price index and primary
product export volume, however, increased by 3.78 and 4.01 percent
respectively.

On the other hand, the quantity of industrial products exported registered a rise
of 18.24 percent despite decline in its price index compared to the same period
of the previous fiscal year.
(Bangladesh to overtake India in RMG exports; The New Nation, July 6, 2007
58
59

3.5.3. Situation of the RMG sector of Bangladesh after the MFA phase-
out

Before the MFA phase-out, most critics claimed that since multinational firms
always look for the best combination of locations for their factories in order to
minimize production costs, they will concentrate their production in only a
few places in the world and withdraw their capital from anywhere else. Then,
the garment industry in the low-income exporters would collapse because of
the low level of technology incorporated into the shallow accumulation of
physical and human capital, poor physical and institutional infrastructure, and
distance from the main markets. Among the losing low-income countries,
Bangladesh was considered to be the most vulnerable because they rely on
clothing for as much as three quarters of the composition of all export
commodities. Even inside the country, the owners of garment factories widely
publicized their distressed situation and asked their governments and
international society for assistance. Most of the media in the country also
stated that the export-oriented garment industries in the country were about to
lose their competitiveness and decrease both exports and production.
Therefore, the critics assumed that the clothing industries in Bangladesh was
on the brink of extinction, and as a result, they rarely discussed positive factors
in support of the growth of the country as strong garment exporter.
(Yamagata, April 2007)

Contrary to the critics’ predictions, and fortunately for the country, Bangladesh
has fared successfully since 2005, and its good performance does not seem to
be attributed solely to the agreements made by China with the United States
and the European Union because of the following observation.
60

Month-to-Month One-Year Growth Rates for Exports of Garments to the


United States (%)

Figure 8: Displays the month-to-month one-year growth rates of garment


exports to the United States;
Source of Data: Japan Customs

The rates incorporate the growth in garments for a month in 2005 as against
the same month in 2004. It is evident that China achieved extremely high rates
of growth throughout 2005. Surprisingly, the value of garment exports in
February 2005 was 140 percent higher than that in February 2004. The rate for
June was also over 100 percent. Although the growth rate declined towards the
end of 2005, it still kept only a little below 20 percent in the last two months in
the year. The decline might have been affected by the sentiment spread over
the pressure to depress China’s garment exports to the United States and the
EU.
It is noteworthy that even during the high time for China, when it entertained
an extremely high growth in garment exports in the first half of 2005,
Bangladesh and Cambodia maintained a high 20 to 30 percent level of growth
in garment exports to the United States.
(Yamagata, April 2007)

Their growth rates were generally a little below that of India during the year.
However, they are distinct from Vietnam, whose growth rates were negative
61

during the second and third quarters of 2005 and where positive growth was
recovered only after the renewal of the quantitative restriction system on
China’s garment exports to the United States. In other words, the steady
growth in garment exports from Bangladesh looks robust compared to what
occurred in China. (Yamagata, April 2007)

3.5.4. Strength of the sectors

Bangladesh’s RMG sector possesses two distinct competitive advantages,


which have accounted for the sector’s overall export success. Specifically:
unlimited (i.e. quota-free) access into the European Community (EC) market
and preferential tariff treatment in both the EC and American markets; and
comparatively low-cost, highly trainable labor.
Comparative Manufacturing Cost of Yarn
(US $ Per kg of yarn)
Cost Bangladesh India Pakistan Japan Korea Thailand
item (Private sector)
Waste 0.17 0.27 0.33 0.32 0.33 0.33

(11) (15) (21) (14) (18) (19)

Labor 0.54 0.02 0.20 0.45 0.08 0.05

(36) (01) (12) (19) (05) (03)

Power 0.15 0.28 0.28 0.05 0.17 0.19

(10) (07) (07) (07) (08) (10)

Interest 0.31 0.56 0.45 0.24 0.42 0.50

(21) (31) (28) (10) (24) (28)

Total 1.48 1.78 1.60 2.38 1.73 2.74

(100) (100) (100) (100) (100) (100)

Index 100 120 108 161 117 118


Table 6: displays comparative manufacturing cost of Yarn among the other
South Asian countries
Source: WEDF
62

Other competitive enhancing factors include:


 Low rate of duty (2.5%) on imported capital machinery;
 Reputation for reliability;
 Geographically concentration of production units; and
 Strong government support program
(International Trade Center; http://www.intracen.org)

3.5.5. Garment and Knitwear Manufacturers and Exporters Association


in Bangladesh

There are two associations in Bangladesh playing an important role as a


sector’s guardian. Al most all the factories are their members and all factories
are directed by the associations. They monitor closely and involve with all
perspective includes human resources and ethical matters, improve quality of
the labors, quality of products and exports performance. Also they work as a
negotiator with all international organizations, buyers, Government of
Bangladesh and labor associations. The two associations are Bangladesh
Garment Manufacturers & Exporters Associations (BGMEA) and Bangladesh
Knitwear Manufacturers & Exporters Association (BKMEA). We take a brief
look at those associations and their activities below:

3.5.5.1. Bangladesh Garment Manufacturers & Exporters Association


(BGMEA)

Bangladesh Garment Manufacturers & Exports Association has established in


late 70s as a small non-traditional sector of export, Ready-made Garment
(RMG). It emerged as a promising export-earning sector of the country by the
year 1983. Bangladesh at that time lacked a sectoral trade body, non-
government in nature, free from traditional bureaucracy, to help the sector to
boost up the country's foreign exchange earnings. As a result, 1977 marked the
birth of BGMEA. Since its humble inception with only nineteen (19) garment
manufacturers and exporters, BGMEA has grown into a strong and dynamic
body. Today it is proud to have about 3500 garment manufacturers and
exporters as its members.
63

The fundamental objective of BGMEA is to establish a healthy business


environment for a close and mutually beneficial relationship between the
manufacturers, exporters and importers in the process ensuring a steady
growth in the foreign exchange earnings of the country. To this end, BGMEA
has been playing a very strong role to lead the industry in concurrence with the
government. The following are the regular activities of BGMEA:

 Organizing members to hold or to participate in apparel fairs at home


and abroad;
 Establishing and promoting contacts with foreign buyers, business
associations, chambers etc.
 Providing the members, apparel buyers and other information users
with various related data.
 Monitoring international apparel trade and trade fairs and
disseminating the relevant information through its Computer-Network-
System linked with various on-line data sources in the USA and the
EU.
 Encouraging co-operation between industries, companies, firms
engaged in manufacturing of garments, allied industries and exporters
of ready-made garments.
 Organizing seminars and symposia on current trade issues to develop
awareness and consensus among the members and other related parties.
 Helping in Government's textile quota negotiation with USA and
Canada.
 Helping to resolve trade disputes between the members and the buyers.
 Maintaining computerized membership information and providing
information on quota matters.
 Monitoring implementation of MoU on child labor elimination from
the export oriented garment sector of Bangladesh.
 Educating the displaced workers below the age of 14 years and the
children of the workers through setting up of school-cum-health
centers in different zones of Dhaka, Narayangonj and Chittagong.
64

 Publishing a fortnightly magazine styled "BGMEA Newsletter" that


provides updated information about the garment sector.
 Helping disposal of stock-lots of fabrics.
 Recommending for correct utilization of fabrics/yarn/acrylic/wool.
 Giving permission for Inter-bond sub-contract of bonded warehouse
goods.
 Issuing Utilization Declaration (U/D), Export Orders for clearance of
raw materials imported by member-factories.
 Ensuring adoption of Safety Measures in order to avert fire accidents in
factories.
 Contributing financial aid for the victims in case of casualty in fire
accidents in member-factories.
 Having regular co-ordination with the labor organizations in the
garments sector to resolve labor
related issues and establish cordial employer-worker relationship.
 Creating awareness of the member-units on labor matters by giving
expert advice as and when required.
 Giving legal assistance to member-units through our Legal Adviser as
and when required.
 Co-sponsoring with GOB, ILO and UNDP for implementation of
welfare measures for garment workers in broader areas of primary
health care, transportation, social security & insurance coverage,
housing and skill training.
(www.bgmea.com)

3.5.5.2. Bangladesh Knitwear Manufacturers & Exporters Association


(BKMEA)

Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA) was


formed in 1996 by the all out efforts of few knitwear manufacturers. Soon
after the formation it undertook activities to look after the interest of the
knitwear sector of the country. Today it an association of 1050 knitwear
manufacturers and exporters that represent the 2nd largest export earning
sector of the country.
65

BKMEA has grown enormous network in home and abroad. The members are
the strength and primary network support of BKMEA. Besides BKMEA works
closely with International agencies and maintains close relationships with
Diplomatic Offices in Dhaka. It also works with similar organizations in
Europe and USA on common interest like Global Alliance for Fair Textile
Trade (GAFTT) and American Manufacturing Trade Action Coalition
(AMTAC). To boost up trade and to enhance cooperation between Bangladesh
and China, BKMEA and Yunnan Light & Textile Industry Association signed a
MoU on 10th June 2005.

BKMEA is putting tireless efforts to enhance productivity of its members,


enhance social compliance status and workers welfare, diversify export
market, and better market access of the country's knitwear products to EU,
USA, China, and other countries. BKMEA is working with German Technical
Cooperation (GTZ),South Asia Enterprise Development Facility (SEDF),
United Nations Development Program (UNDP) and other related organizations
in this regard. BKMEA has signed MoU with SEDF on December 21, 2004
and with GTZ on March 16, 2005.

BKMEA Was Formed To Address The Following Agenda


 Protect the Interest of the Sector
 Promotion & Development of the Market
 Promotion & Development of the Sector
 Capacity Building of the Sector
 Social Compliance Status Enhancement
 Basic Rights Education and Awareness Raising

BKMEA's Services to the Member Units


 Product & Market Promotion
 Social Compliance
 Research & Development
 Productivity Improvement
66

 Arbitration
 One stop service point regarding UD/UP
 Other necessary services at the shortest possible time
(www.bkmea.com)

3.5.6. Ethical Issues

As we already have come to know that the export-oriented RMG sector of


Bangladesh has come to play an important role in the economy and society of
Bangladesh. In its turn, the BGMEA, as the apex body of all entrepreneurs in
the RMG sector, takes all possible measures to promote the interest of the
workers and the sector. BGMEA strives to promote the cause of the sector and
raise public awareness about the important role the sector is playing in the life
of the country. BGMEA has undertaken a number of projects under its social
welfare programs to ensure better occupational safety and health and
enforcement of labor rights as per the local laws and ILO convention
guidelines, which are briefly mentioned below:

 Enforcement of minimum wage


Last year (2006) RMG sector in Bangladesh was in a deep crisis by striking of
labor for increasing their wages and other facilities. As a result whole sector
nearly got collapsed and situation was unrest almost a week during September
2006. Local and international media have actively involved and were able to
get national and international attention on the matters. To solve this problem a
three parties mutual agreement (BGMEA, Bangladesh Government and RMG
Labor Union leader) established. In the agreement, a minimum wage has been
set up which is 1662,50 Taka/month and this was forced to implement for all
the garment factories at the latest 30th June 2007. By the due date al most all
the factories has implemented the minimum wage rule in their factories. A
research (done by CPD; Center for Policy Dialogue) shows, by the end of 30th
June 38 garment factories out of 4550 were failed to implement the minimum
wage agreement. Government is closely monitoring the issue and enforcing
the owners of the factories to implement the agreement. Those who did not
implement the agreement by the due date, they received another 2 months to
67

review this matter that means, by 31st August 2007 they must implement the
agreement otherwise government will take a necessary action against them.

In a seminar (arranged by CPD on 6th August 2007 in Dhaka) the Labor and
Employment Adviser of the caretaker government Mohammad Anwarul Iqbal
said, “the government was formulating rules to ensure the minimum wage for
the garment workers. Thirty-eight RMG factories have not implemented the
minimum wage as of June 30 this year.
68

The time for implementing that agreement has now been extended up to
August 31st 2007. Cases will be filed against them if they fail to implement it
by this time."
(The New Nation, August 7, .2007)

 Child Labor free


The elimination of child labor is also among the core labor standards in the
ILO Convention. The Harkin Bill placed at the US Senate entitled “The Child
Labor Deterrence Act of 1993” which called for the elimination of child labor
in the export oriented manufacturing and mining industries. As a consequence
many garment industries had to retrench child workers from their factories. In
many countries these retrenched children ended up in more strenuous and less-
remunerative jobs, or worst, turned to begging in the street. Bangladesh was
officially declared Child Labor Free in 1994.

The Bangladesh RMG sector set a unique example through collective efforts,
which eventually led to the development of a safety-net program for the child
labors. The BGMEA/ILO/ UNICEF Child Labor Project in the garment
industry of Bangladesh, funded by the US Development of Labor was the first
of a series of child labor programs executed by the International Program on
the Elimination of Child Labor of the ILO. This project, initiated in 1995, is
based on a Memorandum of Understanding (MOU) signed by the BGMEA
and two international organizations, the ILO and UNICEF, with the aim of
progressively phasing out child labor from more than 2,500 (at that time)
factories that are members of the association.
The key elements of the MOU were:
a) A fact-finding survey to determine the extent of child labor in the
garment industry;
b) The establishment of an education program in which identified
child workers should be enrolled;
c) The establishment of a monitoring and verification system;
d) The provision of income compensation in the farm of a monthly
stipend of Tk. 300, the equivalent of (at that time) US$ 7. The costs
69

are to be shared by on fifty-fifty basis by BGMEA, the ILO and


other donors.

The renewal of the MOU is an important step in developing a sustainable


result of the first MOU and to ensure a child labor free garment industry.
While continuing to ensure previous commitments and efforts, the parties to
the MOU-2 also take upon themselves the task to develop a long term and
appropriate response to the problem of child labor monitoring in the garment
industry. MOU-2 signed by the same parties on 16 June 2000 in Geneva.

The key elements of the MOU-2 were:


a) Maintain achievements of MOU 1 and keep the BGMEA factories
child labor free through continued monitoring.
b) Develop a strategy for transferring the monitoring component to
another appropriate entity/entities for future monitoring.
c) Continue and expand collaboration with relevant Ministries of the
Government, including the Ministry of Labor and the Ministry of
Education.
d) Continue educational support to children removed under MOU 1
and newly identified working children, under the form most
appropriate to their needs.
e) Provision of skill training will be made available for all working
children removed from the BGMEA factories.
f) Through a sponsorship/scholarship program BGMEA will assist a
selected number of ex child workers to received specialized skill
training to find re-employment in the garment sector and better
career opportunities.
g) Where appropriate, maintain the established infrastructure of the
ongoing schools, by enrolling child workers from neighborhood
communities.
h) Stipends will be discontinued after December 2000. To the extent
possible, other compensating measures may be provided.
70

i) Develop a strategic plan for making achievements in the field of


education/skill training sustainable, by learning from the
experience of MOU 1.

Since 1994, BGMEA has established seven Medical Centers for the garment
workers in Dhaka, Narayanganj and Chittagong, where most of the factories
are concentrated. The medical centers are providing free primary health care,
medicine and advocacy services on reproductive health issues to the garment
workers.In addition, construction of a 150-bed modern hospital at Mirpur,
Dhaka has been initiated at the initiative of BGMEA. The hospital will be
equipped with burn and emergency units. An estimated Taka 109600000 will
be spent for the hospital project.

Since October 1998, with the technical assistance from the United Nations
Population Fund (UNFPA) and the Government of Bangladesh, BGMEA is
implementing a project titled "Family Welfare and Reproductive Health
Education Services for Garment Workers" in Dhaka. BGMEA has already
contributed US dollars 323,000 to this project, while UNFPA share is US
dollars 216,000. More than 160,801 workers have so far benefited from the
project.
Following successful outcome of the project, UNFPA, under its sixth country
program has included the project for yet another phase between 2003-2005.
Two other areas (one in Dhaka and the other in Chittagong) covered by the
project. The BGMEA contributed US$ 430,000 and the UNFPA provided US$
290,000 for its implementation.
(www.bgmea.com)

 BGMEA-MSH-TAI Initiative
According to the MOUs signed on 10 May 2001 between BGMEA and two
US-based organizations, Management Science for Health (MSH) and
Technical Assistance Inc., two of the BGMEA's health centers have been
upgraded with the technical support provided by these organizations.
(www.bgmea.com)
71

 Workers' Health Check-up Project


Under this project, BGMEA and a local NGO Bangladesh Rural Advancement
Committee (BRAC) have provided annual health check for more than 20,000
garment workers during the period of 1998-2001.
(www.bgmea.com)

 Non-formal Education Program


Under this component of the Child Labor Elimination Project, 8,200 students
were enrolled in 336 schools, run by two local NGOs, Bangladesh Rural
Advancement Committee (BRAC) and Gono Shahajya Sangstha (GSS). At
present, 36 schools are providing education to the remaining 650 students
from the target group.
(www.bgmea.com)

 Earn and Learn Program


Under this program, BGMEA has provided part time job to 900 students
through BRAC and GSS. ILO and UNICEF are also providing skill
development training on tailoring, embroidery, garments machine
maintenance, manufacturing and wool knitting to these students.
(www.bgmea.com)

 BGMEA-ILO Extended Projects


The BGMEA, with support from the ILO Dhaka office, has undertaken
another two projects for the former child labors. This project was cost 1.2
million US dollars. Under the project, over 1400 students will be provided
skill development training and 450 families of them would be provided micro-
credit ranging from Taka 5000 to 15,000 for income generating activities. The
Underprivileged Children Education Program (UCEP) and SUROVI, two
reputed local NGOs, along with Singer Bangladesh, a multinational company,
have been providing skill development training to the students.
(www.bgmea.com)
72

 BGMEA-ILO New Partnership


ILO has initiated a three-year (2002-2004) project with BGMEA on improving
labor relations and working conditions in the garment sector of Bangladesh.
Financial involvement of BGMEA was 600 thousand dollars and ILO
contributed US$ 1.5 million with assistance from the US Department of Labor.
The project is basically aimed at raising awareness on national labor laws and
ensuring occupational health and safety, human resources management, labor
and welfare and continued monitoring of child labor elimination.
(www.bgmea.com)

 Work Place Safety Program for Workers


BGMEA has been implementing a number of programs to ensure work place
safety for workers as well as management personnel of its member units. In
addition to providing support to the members to comply with the safety rules
set by the government, BGMEA has been organizing training and awareness
building programs for the workers and the management staff. The association
regularly monitors and follows up proper implementation of safety compliance
by individual member factories. The BGMEA Safety Measures Cell, which
organizes the awareness and training programs, has provided fire prevention
and safety training to 9,194 employees of 794 factories from Dhaka and
Chittagong between December 1997 and July 2002.
The BGMEA is also providing compensation to the affected workers and their
families. In case of death or injury on work, BGMEA pays the cost of
treatment and extra compensation to the affected worker or his family. The
association also employs the members of the victim's family to help them
support financially. Between December 1990 and September 2001, BGMEA
has paid Taka 5.4 million as compensation to the affected workers from the
association's fund.
(www.bgmea.com)

 The Crash Program to Avert Work Place Accidents


BGMEA took up a Crash Program in September 2001 to further raise
awareness among the workers and management to avert work place accidents.
73

The program-included awareness building on fire prevention, first aid, fire


fighting equipment, proper electric wiring and evacuation facilities.
Teams formed of experts from the Fire Service and Civil Defense Department,
visited and checked the fire safety measures of 3,409 factories where they
demonstrated the fire prevention and evacuation drills in the factories both in
Dhaka and Chittagong.
(www.bgmea.com)

 Garment Village
BGMEA is also working towards setting up of garment village to relocate the
garment factories from the busy and crowded cities to suburbs.
(www.bgmea.com)

3.5.7. Social impacts of the RMG sector

 Women Empowerment
It is well recognized that women’s participation in income generation activities
lends them a better status within the family and provides them with
considerable freedom. A job ensures equitable access to household resources
(nutrition) and larger investment on female human capital (health and
education). Employment opportunities draw attention to women’s needs for
public facilities such as transportation, communication, safety etc. and creates
a demand for policy response in these areas. It also has created a demand for
education and health. As the income by the female member reduces
dependency on male income it reduces their vulnerability. It also reduces the
possibility of domestic violence against women. Expansion of women’s
employment has contributed positively to the improvement of the savings
behaviour of the poor people since women tend to be better savers.

Employment in the RMG industry has provided direct access to cash income
for the first time to many poor women. A survey, conducted by the BIDS
(Bangladesh Institute of Development Studies) in 1997 showed that for 96
percent of the female workers in the non-EPZ areas, work in the garment
industry was the maiden wage employment. The survey also showed that
women were taking up such roles paying for house rents and schooling
74

expenses for their children or brothers and sisters. Despite the fact that they
have lower incomes, the female garment workers were spending the same
amount as the male workers on the studies of their family members. The same
survey further showed that female workers were spending their earnings on
their marriage, thus taking a big burden off their families. The independent
earnings also allow these women to have a greater share in household
decision-making. Evidently, wage work at the garment industry has
empowered women and improved their status.
(Zohir, 2001)

 Savings
Regular earning enables a large number of the garment workers to go for some
savings. Workers investments on family pension schemes etc. create savings. A
BIDS survey conducted in the early 1990s found that 21 percent of both male
and female workers aged 15 years and above had their own bank accounts. A
higher proportion of workers (30 percent) had bank accounts in the EPZ.
Findings showed that women are on average better savers than men and save
about 7.6 percent of their otherwise small income.
(BIDS)

 Population Control
Employment opportunities especially for women created positive impact on
family planning and population control in the country. Independent
workingwomen are getting more conscious about the advantage of a small
family, and are exposed to modern family planning methods. Working
adolescent girls tend to avoid early marriage as they have their own source of
income and are self-dependent. The mean age at marriage for girls working in
RMG factories tend to be higher than the national average.
(BIDS)
75

3.5.8. SWOT analysis of Bangladesh Garment Industry

The Bangladesh Ready Made Garment industry has achieved great success
over a short time of period. The garment industry has become the main source
of export and major driver of the GDP of Bangladesh. However the global
market environment for textile and clothing industries is in transitional stage
and will change at the end of the phasing out quota. This change in global
trade will create new challenges for the Bangladesh RMG industry. The quota
free business environment will allow the competitors to take way the global
market share from Bangladesh. Therefore high productivity, free access in
backward supply line, shorter lead-time will determine the industry
competitiveness.

The following analysis of strength, weakness, opportunities and threats


(SWOT) concisely sum up the conclusion of the competitiveness in firm level
of Bangladesh garment industry.

 Strength
 Low labor cost.
 Energy at low price.
 Easily accessible infrastructure like sea road, railroad, river and air
communication.
 Wide ranges port facilities.
 Accessibility of fundamental infrastructure, which is about 3 decade
old, mainly established by the Korean, Taiwanese and Hong Kong
Chinese industrialists.
 FDI is legally permitted.
 Moderately open Economy, particularly in the Export Promotion
Zones.
 GSP under EBA (Everything But Arms) for Least Developed Country
applicable (Duty free to EU).
 Improved GSP advantages under Regional Cumulative.
76

 Looking forward to Duty Free Excess to US, talks are on, and appear
to be on hopeful track.
 Investment assured under Foreign Private Investment (Promotion and
Protection) Act, 1980 which secures all foreign investments in
Bangladesh.
 OPIC's (Overseas Private Investment Corporation, USA) insurance and
finance agendas operable.
 Bangladesh is a member of Multilateral Investment Guarantee Agency
(MIGA) under which protection and safety measures are available.
 Adjudication service of the International Center for the Settlement of
Investment Dispute (ICSID) offered.
 Excellent Tele-communications network of E-mail, Internet, Fax, ISD,
NWD & Cellular services.
 English is spoken widely which make communication easy.
 Weakness of currency against dollar/euro and the condition will persist
to help exporters.
 Bank interest@ 7% for financing exports.
 Convenience of duty free custom bonded w/house.
 Readiness of new units to enhance systems and create infrastructure
accordant with product growth and fast reactions to circumstances
 Caretaker government is making the country corruption free.

 Weakness
 Long lead-time
 Lack of marketing tactics.
 The country is deficient in creativity.
 Absence of easily on-hand middle management.
 A small number of manufacturing methods.
 Low acquiescence: there is an international pressure group to compel
the local producers and the government to implement social
acquiescence. The US GSP may be cancelled and purchasing from US
& EU may decrease significantly.
77

 The machinery required to assess add on a garment or increase


competence are missing in most industries.
 Lack of training organizations for industrial workers, supervisors and
managers.
 Autocratic approach of nearly all the investors.
 Fewer process units for textiles and garments.
 Sluggish backward or forward blending procedure.
 Incompetent ports, entry/exit complicated and loading/unloading takes
much time.
 Speed money culture.
 Time-consuming custom clearance.
 Unreliable dependability regarding Delivery/QA/Product knowledge.
 Communication gap created by incomplete knowledge of English.
 Subject to natural calamities.

 Opportunity
 EU is willing to establish industry in a big way as an option to china
particularly for knits, including sweaters.
 Bangladesh is included in the Least Developed Countries with which
US is committed to enhance export trade.
 If skilled technicians are available to instruct, prearranged garment is
an option because labor and energy cost are inexpensive.
 Foundation garments for Ladies for the FDI promise is significant
because both, the technicians and highly developed machinery are
essential for better competence and output
 Japan to be observed, as conventionally they purchase handloom
textiles, home furniture and garments. This section can be encouraged
and expanded with continued progress in quality.
 Chittagong port is going to be handed over to the foreign operator,
which will make the port’s service much faster, it will also reduce lead-
time as well as total cost will be decreased.
78

 Bangladesh is going to gain its political stability, which will make


foreign trade much smoother and will foreign buyers will be more
convinced.

 Threat
 China is a most likely the biggest threat for Bangladesh as this country
has relatively high labor productivity and applies more capital-
intensive modern technology and it has less lead-time because of its
relative advantages in getting locally available raw materials like
fabrics, various RMG accessories. China has also relatively better
infrastructural facilities like energy supply, transportation and
communication system.

 Some African and Caribbean countries have enjoyed zero-tariff facility


under AOA act (Agreement On Agriculture) that helps them to be more
competitive relative to Bangladesh.
79

4. FOREIGN TRADE PROCEDURES

In this chapter, we illustrate the foreign trade procedures. Mainly here we


focus on import procedures from Bangladesh as Finland perspective and what
sorts of documents are needed. After that, we go through as same way from
Bangladesh perspective; meaning that, export procedures to Finland as well as
documentation require, end of this chapter illustrates the risks analysis.

4.1. Import procedures from Bangladesh

Import from EU countries means free movement of goods but import from
Bangladesh meaning import from outside the EU countries, which is quite
complex. However, Bangladesh is under the Everything But Arms or “EBA”
initiative, which is key arrangement of GSP.. Under GSP regulation as a LDCs
country Bangladesh enjoys the duty free unlimited access to EU countries. So,
from Finland it is effortless to import the goods from Bangladesh.
(International Trade: http://www.enterprisefinland.fi)

This arrangement requires a Form A certificate of origin to be presented upon


importation. The certificate is specific to each shipment. Another precondition
is that the goods must be sent directly from a preferred country to a
Community Member State. The goods may be transported via a third country
provided that they are under Customs control during that time. Customs
control means that the goods are not released for free movement in the
country; they may only be transported between locations or warehoused. The
exporter or a party authorised by the exporter fills out the Form A certificate.
The form is available from the authorities of the appropriate country. The
certificate must be confirmed by an authority declared to the EU Commission
by the preferred country in question. The authority can be a Customs authority
or another authority.
(International Trade: http://www.enterprisefinland.fi)
80

VAT on Imports from Outside the EU


Customs collects VAT on goods imported from outside the EU. VAT is levied
on the total amount of the purchase price, delivery costs and duty (in this case
duty free) according to the transport agreement up to the first destination
within Finland. After paying the VAT, client can take possession of the goods.
To arrange the total custom procedures an agent (forwarder) use is allowed. If
any importer likes to avoid the customs arrangement and like to safe their time
and overall if importers feel complications then they can higher an agent by
paying and as a start-up company this way is much more easier.
(International Trade: http://www.enterprisefinland.fi)

4.2. Documentations

Documentation is the foremost important part in any business especially in


foreign trade. Implementation of business agreement depends to some extent
on preparing the documents correctly and submission of the same. On the
contrary, many problems may arise if documents are not prepared correctly.

4.2.1. Import Documents


The following documents are needed to import the goods from Bangladesh
Importers prepare parts of these documents and exporters provide the rest.
However to take possession of the goods from the customs these documents
must be presented.

 Bill of lading
 Cargo manifest
 Certificate of origin
 Collection order
 Commercial invoice
 Customs cargo release form
 Customs import declaration form
 Customs transit document
 Equipment interchange receipt
81

 Import license
 Packing list
 Pre-shipment inspection clean report of findings
 Ship arrival notice
 Stowage plan
 Technical standard/health certificate
 Terminal charges receipt

4.2.2. Export Documents

To export the goods from Bangladesh following documents are needed:


 Copy of export agreement
 Copy of letter of credit
 EXP form
 Invoice
 Packing list
 Bill of lading
 Certificate of origin
 Bill of export
 GSP Certificate

(EPB Bangladesh, www.epb.gov.bd)


82

4.3. Documentations procedures for foreign trade

According to Mr. Ahmed (telephone interview on 16.08.2007) following the


general documentation procedures for the foreign trade.
Picture (figure 9) shows how an exporter proceeds exports arrangement. Once
importer place an order and open an L/C against the importer then importer
starts arrangement of export procedures. When goods are ready to shift the
first job of importer is to prepare the documents for the custom. Mr. Ahmed
said, they
usually do not process the custom themselves, for that they use custom broker.

In the same times, manufacturer or shipper provides copy of invoice/ packing


list to forwarder. After receiving the official invoice and packing list,
forwarder prepares dummy HLB (House Bill of Lading) and delivers to the
manufacturer/Shipper in order to receive the GSP certificate and then
forwarder makes booking reservation to shipping lines.

Forwarder transports the goods to Seaport custom area for examination and
receives documents from custom broker for processing custom.

Once Custom procedure is done then forwarder arrange to stuff the goods into
sea container and after that forwarder prepares original MBL/HBL (Master
Bill of Lading/House Bill of Lading)

Freight gets on board and forwarder delivers the original documents to the
manufacturer/shipper and pre advises respective destination agent or trans-
shipment agent as well as notify to any other party involved.

Shipper/manufacturer forwards the original documents to the


importer/consignee on the base of buying agreement.

Forwarder monitors the shipment all the transit way and follow up until it
reaches to the final destination and forwarder gets free from the
83

responsibilities once goods are released by the consignee upon presentation


the original documents.
84

Import/Export Procedures

Documents for Shipper/Manufacturer


Customs are prepared provides copy invoice/
by Manufacturer packing list to Forwarder

Forwarder prepares dummy


HAWB/HBL & delivers to Forwarder makes
Shipper/Manufacturer to obtain booking reservation
Textile visa/GSP etc. to Shipping lines

Custom documents
process by the Custom
Broker

Cargo transported to Seaport


Custom area by forwarder or
Custom Broker for
examination

Custom Broker delivers


Custom Processed
Documents to Forwarder

Forwarder arrange to load


on to Airline pallet/or stuff
into Sea container

Prepare original
MBL/HBL

Forwarder pre Option to notify the


advises respective same to any other
Freight gets on board; destination agent or
forwarder delivers party concern
trans-shipment agent
original Shipping
Documents to the
Manufacturer/ Shipper
Follow up ends once Update progress
Cargo released by according to set up
Follow up until Consignee upon
reaches destination presentation of proper
Documentation

Figure 9: displays over all export import procedures


(Source: Telephone interview with Mr. Mushtaq Khan 16.08.2007; Export
Manager of Mars International, Dhaka, Bangladesh.)
85

Importer/consignee or forwarder hired by importer arranges the custom


procedure in the destination port and pay necessary charges (VAT) etc in order
to get the goods final released.

(Telephone interview with Mr. Mushtaq Khan 16.08.2007; Export Manager of


Mars International, Dhaka, Bangladesh).

4.4. Import mechanism from Bangladesh to Finland

Importing goods from Bangladesh to Finland meaning importing goods from


Bangladesh to any Eu countries. Generally, import mechanism includes
manufacturer, contractors, sub-contractors, agents or buyer and retailers. In the
following page, entire import mechanism from Bangladesh to Finland or EU
countries is briefly described.

 Manufacturers: Manufacturers are primarily engaged in the design, cutting


and sewing of garments from the fabric. There are both local and foreign
owned manufacturers producing the RMG products in Bangladesh and
there are two kinds of foreign owned subsidiaries performing distributions
in different ways. One of which exporting products just as local
manufacturers and other kind of them are handled directly from the foreign
retailers or outlets. Foreign retailers or distributors import the products
directly (see figure 10) from their own factories situated in Bangladesh and
without any intermediary firms. On the other hands general importers such
as case company (in the future) imports the products by intermediary
firms.

 Contractors/sub contractors: Contractors/sub contractors play rule in the


garment industry as intermediary firms which work is to combine the
distribution process between manufacturers and buyers. Moreover,
sometimes they also work closely with buying agents and manufacturers.
86

RMG Import Model of Finland/EU Countries

Retailers
F
I
N
N
I
Manufacturers S
H

I
M
P
Finnish O
Importers R
T
E
R
S
BORDER
Buyer/Agents
Bangl
ade
Wholly owned shi
Subsidiary Expo
rters

Contractors

Local manufacturers/Sub Contractors

: Direct relationship (without intermediary firms)


: Indirect relationship (through intermediary firms)
Figure 10: EU’s RMG import model displays import mechanism from
Bangladesh to EU countries.
(Source: Telephone interview with Mr. Azizur Rahman 12.08.2007; Export
Manager of Anwara Apparel Ltd, Dhaka, Bangladesh.
87

 EU importers/Distributors: Importers/Distributors usually design and


market clothing, but they make contact with the manufacturers or
subcontractors by the buyers or agents.

 Buyers/agents: Buying agents locate, qualify and inspect


suppliers/producers of garments, negotiate with them (producers/suppliers)
and often monitor production for quality control and compliance with
other standards.

 Retailers: Retailers are primarily engaged in the distribution,


merchandising, and sale of garment to the customers. They are department
stores mass merchandisers, specialty stores, national chains, discount and
off-price stores, outlet, mail-order companies and the new development is
the rise of e-commerce service. Some retailers who sale their own private
labels go beyond of their traditional role as distributors and become
directly involved in the design and sourcing of garments from
manufacturers and contractors. (See figure 10)

4.5. Risks Analysis


Since May 2006, the RMG industry of Bangladesh has been beset with very
serious labor unrest problems which has resulted in large-scale damaging of
garment factories by the workers and has at times appeared to threaten the
very existence of this industry. The major bone of contention between the
RMG factory owners and the workers has been the allegedly low level of
wages paid in this industry, particularly wages paid to unskilled workers,
together with other issues like late payment of wages, lack of security of
workers resulting from absence of a formal contract between the worker and
the employer, nonpayment of maternity and other benefits to female workers,
etc. These issues, which form part of what is commonly known as ‘compliance
with social standards’, have posed problems for Bangladesh’s RMG industry
on the external front for the past few years during which time foreign buyers
of Bangladesh’s garments have insisted on strict social compliance on the part
of RMG enterprises in Bangladesh as a pre-condition for their importation
88

from this country. Bangladesh RMG sector must be careful on ethical issues
otherwise it may loose the foreign market share.
(Source: Bangladeshi Daily Newspapers, published on during September
2006-July 2007)

Corruption is one of the biggest problems in Bangladesh, which is barrier of


doing smooth business and any other activities. Political disputes and
corruptions both are related each other and Bangladesh was not seems to be
recovered from these problem ever but 11 January, 2007 has changed the
county’s face when an interim government came to power. They have already
taken unbelievable action against corruptions and against corrupted political
leaders. An independent Anti Corruption Commission has been formed and
this organization is doing great work against corruption. If the situation goes
such a way for few years then there will be an extreme change in the country
but if Bangladesh goes back to its back way after political government coming
to power in the beginning of 2009 then this country will face the same
problem again.

Suppliers country Bangladesh is quite far from Finland specially a big


logistical gap whereas between these countries yet have no direct businesses.
In this stage, any importer should aware of placing order without having any
pre experience of doing foreign trade.

In Bangladesh, there are also high administrative and hidden costs associated
with importing and exporting goods, which occurs mainly for the corruptions
in the country.

Another biggest problem is that compare to other Asian countries Bangladesh


has a quite long lead -time, which might be a risk for importing company.
From the time the Export L/C is received by the producer in Bangladesh,
approximately 90-100 days are required before the buyer receives the
produced goods. In extreme cases, up to 135 days are required to complete the
process. Therefore, for urgent demand, importers will not receive the orders in
short notice.
89
90

Minimum time required completing a single order for RMG in Bangladesh

Step in the production process Minimum time in days to


complete process
Opening back to back L/C 4-6days
Raw material production 15 days
Shipping time for raw materials 21 days
Clearance at the Port 5 days
Production of RMG 20 days
Shipping to importer 25 days
Total 90-92 days
Table 6: displays time required completing a single order for RMG
Bangladesh
Source: Abdullah 2004

Above table 6 shows a general lead-time for completing a single order but
there are some other hidden factors that might cause more delay the delivery
such as, political instability which may cause strikes and other unrest situation
in the country, labor striking for the wage or other facilities, natural disasters
such as flood, monsoon rain, fire accident, shortage of power supply etc.
There is a risk for long distance purchasing if the goods do not meet the
requirement of the company and its customers. This increases the costs and
damages reputation of the business. In addition, lack of logistics knowledge
also occur a problem doing foreign trade as logistic concepts aim at having the
right goods at the right time, in the right volumes at the right place and all that
at a minimum of costs.
91

5. RECOMMENDATIONS

For Exporters:
In the quota free world, the survival of Bangladesh garments industry depends
on improving the trade issues in order to make sure the favorable business
environment. The biggest priority should be for the policy maker to improve
the political situation of the country. Bangladesh is still competitive in low
labor cost but labor training and education is necessary to improve the labor
productivity. One of the great weaknesses of the Bangladesh garment industry
is longer lead-time in supply chain that can be reduced to implement modern
technology and introducing management information system in warehouse
system. Easy access in government credit can play an important role of
increasing both local and foreign investment in garments industries. The
weakness in governance including corruption and weak state of law order
system is one of the major barriers in industry growth in long run. The major
barrier to compete in global trade is collapse in energy sectors. Although
Bangladesh has abundance natural resources of gas, electricity water plant but
lack of proper energy management industrial sector still suffering of sufficient
supply. (Sobhan, Azhar ;2006)

However, Bangladesh’s main challenge is the longer lead-time, which we


talked before. Countries like Cambodia and Vietnam that also import raw
materials from China require only 60-90 days for delivery of the finished
product to the buyers. At the same time, in the region, Sri Lanka requires only
a maximum of 60 days to deliver the products to the buyer. There is therefore
an urgent need for Bangladesh to drastically reduce the lead-time for RMG
exports to enable the industry to be competitive. An effective approach to
decreasing lead-time that is advocated for by the RMG industry in Bangladesh
is the establishment of a Central Bonded Warehouse (CBW). Such a
warehouse would be a customs bonded area that would purchase and stock
commonly used raw materials, consumables, machineries and spare parts in
bulk, and would provide these materials to RMG manufacturers when the
export L/C is submitted. The export L/Cs would also serve as an efficient
regulatory mechanism and prevent manufacturers from withdrawing excessive
92

amounts of materials from the warehouse, thus preventing the sale of excess
materials like thread and fabric back to the local market at reduced prices. As a
result, the local fabric and thread industry would be protected from the
competition posed by imported raw materials. It is estimated that the
establishment of an efficient CBW in Bangladesh would lead to the saving of 4
days on the L/C opening process, as well as remove the need for spending up
to 40 days on the production, shipping and port clearance of export materials.
As a result, lead-time can be brought down to less than 60 days, and can
restore Bangladesh’s competitive edge in global RMG markets. (Sobhan,
Azhar ;2006)

Another way in which lead-time can be reduced is through upgrading and


enhancing the port facilities in Bangladesh. At present, only the Chittagong
port is used by RMG manufactures to receive imported raw materials and
export the finished RMG. The Chittagong Port has a severe draft limitation,
preventing the docking of mother ships, and is constrained by severe
congestion, due in part to problems with management and inadequate loading
and unloading facilities. As a result, RMG producers face difficulties in
ensuring timely shipment of their goods. Therefore, there is a need to
modernize and renovate the Chittagong Port, to enable port facilities to
function more efficiently. The Chittagong Port Authority has been very
responsive to this need for modernization, and has recently introduced rubber
tire gantry cranes to expedite the loading and unloading process. At the same
time, they are in the process of building a new container terminal, which must
be managed by the private sector. (Sobhan, Azhar ;2006)

To further reduce the problems with port congestion, the Government must
make a concerted effort to improve another port of Bangladesh called Mongla
Port. If this port could be used to export some volume of RMG and other
goods, it would reduce the pressure on the Chittagong Port and further reduce
lead-time for RMG producers. However, much work needs to be done to bring
Mongla Port up to international standards. Therefore, renovation work on the
port must begin early, to enable this port to effectively serve RMG exporters.
Simply reducing port congestion is not enough, however. The Customs
93

formalities at the Port also have to be improved. Presently, it is estimated that


up to 65 different signatures are required by Customs officials to clear a
container from the Port. Such administrative processes are not only time-
consuming, but also provide opportunities for increased corruption. Customs
formalities need to be reformed, to enable RMG exporters to clear their
imported raw materials faster. Computerization and e-government initiatives
can be of crucial importance to clearing up this logjam. (Sobhan, Azhar ;2006)

In order to boost exports in the niche areas and to take full advantage of the
options afforded by the special economic zones, LDCs require a highly skilled
and trained workforce. There is already an abundance of semi-skilled and
unskilled workers, but as the nations must move on to more complicated
production methods and products, there is a growing demand for skilled labor.
To address the problem, the government and private sector must work together
to increase the options for extensive vocational training. Such training can
provide the labor force with the skills necessary to produce high quality goods
for export, and can boost the interest of potential investors. In addition,
knowledge of the English language must be built up to ensure that more value
added services like business process outsourcing, call centers and software
development can flourish. (Sobhan, Azhar ;2006)

Opportunities for all types of exporters in developing countries still remain, in


particular as long as increased attention is given to quality and reliability in
deliveries. Effective competitive capability by developing countries requires
knowledge of the legal, technical, quality and fashion requirements. In
addition, suppliers must make resources available, not only to monitor and
understand developments in the target countries, but also to use test
laboratories to ensure that quality requirements are strictly met.
In general, it can be said those companies, which are continually adapting new
technologies and have the advantage of low production costs, have definite
advantages.
94

For Importer (Case company)

Since, case company Challenge Trading Corporations Oy yet has not started
clothing business and it is not worthwhile to make any judgment upon its
performance. However, a set of recommendations are provided here, which
may help as a guideline for the company’s startup business.

As a retailer or whole seller or both, whichever case company would like to be


performed, its main activities will be selecting suppliers, placing orders,
receiving shipments, fixing prices, maintaining the good customer service etc.
Selecting the reliable suppliers, ensuring the cheapest price and quality of the
goods will be the most critical factors in the beginning of its operation. To
select a supplier in Bangladesh most important factor is to quality of the
goods. Purchasing from abroad means long distance purchasing and there
should put an extra care to ensure the quality of the goods. To select the
suppliers and as well as to make sure the quality of the goods company should
ask quality certification from the suppliers and also company should keep in
mind the following factors to select a supplier:
 Purchase price;
 Technological capacity;
 Distribution costs;
 Reliability regarding just-in-time deliveries;
 Service by the producer;
 Quick response.
Farther details on supplier selection criteria please look at the chapter 2 under
the paragraph Suppliers selection criteria (section 2.3.3. page 12)

In the beginning of its operation it is recommended that company should use a


buying agent who can do all sort of job on behalf of the company and this will
be very much handy, once company has enough experience doing foreign trade
then it can do all the procedures itself.
95

This study has not been carried out with marketing survey for Challenge
Trading Corporations Oy; there fore, it is strongly recommended that company
should do the marketing research before it starts the business. Company can
review the following checklist as a primary guideline; however, a further
marketing research is required.

(i) Prepare a list of the key competitors


Company should prepare a list of all the competition and then highlight who
are the main competitors.

(ii) Analyse the main competitors


Company can ask customers about its competitors. If possible, company also
can visit competitors' companies to learn how products are priced and
distributed. It also can prepare a list of its main competitors’ strengths and
weaknesses. Secondary research will give more details of the competitor
analyse.

(iii) Assess whether new competition is likely to enter your market


Despite the enormous competition, the clothing industry is open to new
entrants encouraged by the low threshold caused by relatively low investments
and quick-to-learn skills. Constantly should check with customers, suppliers
and own competition to see if they have heard of any new businesses, which
represent competition.

(iv) Discover where and how the competition is selling their products
Company need to find out which trade channels are used by its competitors,
and why.

(v) Observe activities in the clothing sector


Trade fairs, trade centres, fashion shows, congresses, seminars etc. can be
helpful to get in contact with new customers and learn about market
developments. They can however also be used to find out more about
competition. As a garment seller, take the time to attend specific trade fairs to
see what other competition is offering.
96

All five points above can be considered, as well as own research is important
for all types of companies.
6. CONCLUSION

The study has briefly described supply chain management and its components
as well as it examined competitiveness of Bangladesh’s RMG market. The
study has concluded with summing up some key strategic options to sustain
the market share in global market. It also has given some idea of procedure in
foreign trade between Bangladesh and Finland. Bangladesh has a long history
of doing business with EU countries but so far direct business between two
countries yet has not been established. However, there is definitely some
amount of business opportunity for Challenge Trading Corporations Oy in
importing the RMG products from Bangladesh.

Bangladesh has demonstrated that it is highly competitive in the world’s major


garment markets since the expiration of the ATC (Agreement on Textiles and
Clothing.) Its strong performance to date is attributable to significant
competitive advantages emanating from its abundant low-cost labor, the
flexible exchange rate, and increasingly close ties with major international
buyers that are allowing the industry to benefit from the transfer of knowledge
and technology. The industry’s success has, however, been supported by the
transitional safeguards on exports from China. These safeguards are due to
expire in 2008 and the erosion of Bangladesh’s market share in Canada, its
only major market in which there are no safeguard restrictions on China over
the past two years, suggests that Bangladesh will face much greater
competition in its two largest garment export markets in the relatively near
future. Vietnam’s accession to the WTO in January 2007 poses a challenge for
Bangladesh since Vietnam now has quota-free access to the large markets in
which these two countries compete head-to-head.

Recent labor unrest in Bangladesh’s garment sector is a potential risk to the


industry and highlights the need for continued efforts to raise safety standards,
to improve general working conditions, and to implement wage agreements.
To maximize the likelihood that Bangladesh’s garment industry will continue
97

to thrive the industry and government will need to address a number of issues.
Foremost among these is the development of vocational and other educational
programs that will support the industry’s need for more highly skilled
domestic labor, including line and production managers. Given the clear
constraints imposed on the RMG and other industries by the poor condition of
the country’s infrastructure, it is critical that the government moves to improve
the roads, railways and ports, and to streamline further the customs procedures
applied at all points of entry. A general change for the better in the business
climate from better infrastructure and improved governance may attract more
FDI into the garment sector, including outside the EPZs. This could be
particularly important since there is strong evidence that productivity and
employment is higher in FDI firms and more FDI in the sector would create
additional competition, thereby helping to improve the competitiveness of all
RMG firms. Aside from addressing these constraints to growth, Bangladesh’s
garment industry should more actively explore new markets. Even though
firms report that they are constantly running at maximum capacity and prefer
to deal with known buyers and customers, efforts should be made to develop
new business, at least in large Asian countries such as Japan, China and India.
This may help Bangladesh to sustain its growth in the increasingly competitive
global market, particularly since it is well placed to absorb business in the
low-end and medium garment market as other major producers move up the
supply chain.
98

7. SOURCES

Printed sources

Abdullah, Y. M. 2004. Journal of Business Administration: Post Multi Fiber


Agreement Era and Bangladesh RMG Sector Vol. 30, Number 3 & 4.
Institute of Business Administration, Dhaka University, Dhaka, Bangladesh.

Alan Rushton, John Oxley, Phil Croucher, 2001.


The handbook of logistics and distribution management. 2nd. Edition. London.

Arjn J. van Weele 2002. Purchasing and Supply Chain Management.


Third edition, Thomson, London.

Bad Nauheim 2005; Corporate Solution, Value Chain Analysis of the Ready-
Made Garment Sector in Bangladesh.

Boyson, S., Corsi, T., Dresner, M., & Harrington, L., 1999.
Logistics and the Extended Enterprise, John Wiley & Sons, Inc. New York.

Cooper, M., Lambert, D. & Pagh, J., 1997.


The International Journal of Logistics Management
Supply chain management: More than just a name for logistics, vol. 8, no. 1.

Coyle, J., Bardi, E., & Langley, J., 1996. The Management of Business
Logistics. Sixth edition, West Publishing Company, Minneapolis

David N. Burt, Donald W. Dobler, Stephen L. Starling, 2003.


World Class Supply Management: The Key To Supply Chain Management.
7th edition. Boston McGraw-Hill, Irwin

Debapriya Bhattacharya, Mustafizur Rahman, Ananya Raihan 2002;


Contribution of the RMG Sector to the Bangladesh Economy; CPD; Paper 50,
Dhaka
99

Dr. Salma Chaudhuri Zohir, 2001


Growth of Garment Industry in Bangladesh: Economic and Social Dimensions.
Edited by, Pratima Paul-Majumder, Binayak Sen.

Farooq Sobhan, Shihab Ansari Azhar, 2006, Competing with India and
China in the Post-MFA Era. Bangladesh Enterprise Institute.

Johnson, E., & Pyke, D. 2000. Supply Chain Management:


Innovations for Education, Production and Operations Management Society.
Miami, Florida, USA

Keith, O., & Webber, M. 1992. Supply-Chain Management:


Logistics Catches Up with Strategy, The Strategic Issues.
Chapman and Hall, London.

Kent N. Gourdin 2001; Global logistics management:


A Competitive Advantage For The New Millennium, Oxford Blackwell.

Lambert, D., Cooper, M. & Pagh, J. 1998.


The International Journal of Logistics Management:Supply Chain Management;
Implementation issues and research opportunities, vol. 9, no. 2.

Lancioni, F. 2000. Industrial Marketing Management:


New developments in supply chain management for the millennium, vol. 29, no.
1,

Lee, H., & Billington, C.1995.


The evolution of Supply-Chain-Management:
Models and Practice at Hewlett-Packard, Interfaces vol. 25, no. 5.
100

Lummus, R. 1999. Defining Supply Chain Management:


A Historical perspective and practical guidelines.
Industrial Management and Data Systems, vol. 99, no.1,

Lysons, Kenneth 2000, Purchasing and supply chain management.


5th edition. Harlow Prentice-Hall

Michiel R. Leenders, Harold E. Fearon, Anna E. Flynn, P. Fraser Johnson, 2002.


Purchasing and supply management. 12th edition.
McGraw-Hill Higher Education New York

Oliver, R., & Webber, M., 1982


Supply Chain Management: Logistics catches up with Strategy. Allen &
Hamilton: Outlook

Stevens, G.1989. Integrating the supply chain,


International Journal of Physical Distribution and Logistics Management,
vol. 19, no. 8.

Swaminathan, J., Smith, S. & Sadeh. N. 1996.


A multi agent framework for modeling supply chain dynamics.
Technical Report, The Robotics Institute, Carnegie Mellon.

Tan, K. 2001. A framework of supply chain management literature:


European Journal of Purchasing and Supply Management, vol. 9, no. 1.

Tatsufumi Yamagata. 2007. Prospects for Development of the Garment Industry


in Developing Countries: What Has Happened Since the MFA Phase-Out?
Institute of Developing Economies, JETRO, JAPAN; Discussion paper no. 101
101

Waller, Derek L. 2003. Operations management a supply chain approach.


Second edition. London Thomson Learning

Interview:

Telephone interview with Mr. Azizur Rahman 12.07.2007; Export Manager of


Anwara Apparel Ltd, Dhaka, Bangladesh.

Telephone interview with Mr. Mushtaq Khan 16.08.2007; Export Manager of


Mars International, Dhaka, Bangladesh

Web Sources:

Baldiwala, Quraish. October-December 2001. Logistics Spectrum:


Developing a global supply Chain. www.findarticles.com

BGMEA: www.bgmea.com

BIDS: www.bids-bd.org

BKMEA: www.bkmea.com

Dr. Brian Slack, Dr. Jean-Paul Rodrigue and Dr. Claude Comtois;
The Geography of Transport Systems; Transportation Modes, An Overview:
Managing Product Movement. New York: Routledge
http://people.hofstra.edu/geotrans/

EPB Bangladesh: www.epb.gov.bd

Finland; International Trade: http://www.enterprisefinland.fi

http://ec.europa.eu

IMF Country Report No. 07/230 http://www.imf.org

Opportunities in Logistics Services in Finland. www.investinfinland.fi


102

R. Michael Donovan; Customer Service Improvement:


It’s Mission Critical To Your Future; www.rmdonovan.com

Re´my Madoui; Global Strategic Purchasing.


http://madoui.chez-alice.fr/madoui.purchasing1.html

The New Nation, published on August 7, 2007.


Enforcement of implementation on minimum wage for RMG factory workers.
http://nation.ittefaq.com/new/get.php?d=07/08/07/w/n_zkrr

The New Nation, published on July 6, 2007. Bangladesh to overtake India in


RMG export.
http://nation.ittefaq.com/artman/publish/article_37359.shtml
103

8. APENDICES

Appendix 1: Bangladesh: EU 25 Imports of Knitwear, 2001–06

Sources: Eurostat; and IMF staff calculations.

Appendix 2: Bangladesh: EU 25 Imports of Woven Garments, 2001–06

Sources: Eurostat; and IMF staff calculations.


104

Appendix 3: Bangladesh’s Total Apparel Export 1994- 2006 in value &


quantity

VALUE AND QUANTITY OF TOTAL APPAREL EXPORT


CALENDAR YEAR BASIS
TOTAL APPAREL EXPORT TOTAL APPAREL EXPORT
IN MN.US$ IN '000 DZ

YEAR WOVEN KNIT TOTAL WOVEN KNIT TOTAL


1994 1544,89 341,53 1886,42 41642,49 13768,85 55411,34
1995 1976,40 512,18 2488,58 49377,11 19828,10 69205,21
1996 1942,37 686,27 2628,64 47536,84 26107,21 73644,05
1997 2621,33 810,49 3431,82 60560,49 27997,84 88558,33
1998 2871,06 976,29 3847,35 64229,77 34587,54 98817,31
1999 2987,73 1169,90 4157,63 64938,82 41303,64 106242,46
2000 3376,49 1448,22 4824,71 71634,03 51588,27 123222,30
2001 3162,28 1432,72 4595,00 67724,50 50180,09 117904,59
2002 3076,28 1573,40 4649,68 83443,78 70714,60 154158,38
2003 3398,84 1850,36 5249,20 85829,29 80503,80 166333,09
2004 3686,78 2532,62 6219,40 94223,23 104904,34 199127,57
2005 3689,60 3210,48 6900,08 96387,06 138190,49 234577,55
2006
(Dec) 4544,79 4388,72 8933,51 125648,96 190595,40 316244,36
Source: BGMEA (www.bgmea.com)

Appendix 4: Labor and power cost in selected countries.

Country Labor cost per Power cost U$ cent /


hour U$ Kwhr
China 0.69 7.10
India 0.58 8.33
Indonesia 0.32 3.65
Pakistan 0.37 6.00
Sri Lanka 0.46 7.78
Bangladesh 0.30 6.75
Source: Ministry of Commerce, Government of Bangladesh.
105

APPENDIX 5: Addresses of famous Shipping Lines Companies in


Bangladesh

SHIPPING LINES
Aquamarine Ltd., Ahmed Mansion (1st floor), 24, Santinagar, Chamelibagh, Dhaka-1217,
P.O.Box. No. 3241, Bangladesh. Tel: 88-02-8316548, 8316547; Fax: 88-02-8313929

Angel Shipping Limited, Paribahan Bhaban (6th floor), 21, Rajuk Avenue, Dhaka,
Bangladesh. Tel: 88-02-8613691, 8614678; Fax: 88-02-8613409, 9565726

APL (Bangladesh) Agencies Ltd., Sena Kalyan Bhaban, 195, Motijheel C/A, Dhaka,
Bangladesh. Tel: 88-02-235188-89, 258997

Atlas Shipping Lines Ltd., Hadi Mansion (9th floor), 2, Dilkusha C/A, Dhaka-1000,
Bangladesh. Tel: 88-02-9550332, 9557025; Fax: 88-02-8313308

Bangladesh Shipping Agencies (Pvt.) Ltd., 256, Elephant Road, Dhaka, Bangladesh. Tel: 88-
02-500865

Bangladesh Shipping Corporation, BSC Bhaban, Saltgola Road, P.O. Box No. 641,
Chittagong, Bangladesh, Tel: 88-02-505061-9, 501855; Fax: 88-02-8613950

Birds Bangladesh Agencies Ltd., 103, Motijheel C/A, Dhaka-1000, Bangladesh. Tel: 88-02-
8614548, 8614549; Fax: 88-02-8613734

Bangladesh Shipping Lines ltd., 19/F, Sena Kalyan Bhaban, 195, Motijheel C/A, Dhaka,
Bangladesh. Tel: 88-02-8614546, 8614547; Fax: 8613734

Continental Traders, Bengal Shipping House, 73, Agrabad C/A, Chittagong, Bangladesh.
Tel: 88-02-501976, 504244; Fax: 88-031-225243

Container & Terminal Services Ltd., Isphahani Building (2nd floor), Sk. Mojib road,
Agrabad C/A, Chittagong, Bangladesh. Tel: 88-031-8315997, 8315998; Fax: 88-02-8811967

CMS Navigation, 355, Dilu Road, Moghbazar, Dhaka-1000, Bangladesh. Tel: 88-02-411432,
405284; Fax: 88-02-8313516

Everbest Shipping Agencies Ltd., J.K. Bhaban (3rd floor), 30, VIP Road, Kakrail, Dhaka
1000, Bangladesh. Tel: 88-02-8315558, 415014

The Eastern Navigation Co. Ltd., J.K. Bhaban (3rd floor), 30, VIP Road, Kakrail, Dhaka
1000, Bangladesh. Tel: 88-02-8313709, 418718; Fax: 88-02-8314933

Eastern Overseas Shipping Lines Ltd., 56, Dilkusha C/A, Dhaka-1000, Bangladesh. Tel: 88-
02-9552515, 9551974, 9557019; Fax: 88-02-9564182

Eastern Inspection & Testing Co. Limited, 56, Dilkusha C/A, Dhaka-1000, Bangladesh.
Tel:88-02-9552515, 9551974; Fax: 88-02-9564182

Everett Bangladesh (Pvt.) Ltd., 3/3E, Bijoynagar (2nd floor), Dhaka 1000, Bangladesh. Tel:
88-02-8314605; Fax: 88-02-8312565

Singapore Eastern Agency Ltd., 56, Dilkusha C/A, Dhaka-1000, Bangladesh. Tel: 88-02-
9552515, 9551974; Fax: 88-02-9564182

Hudson & Higgins Ltd., 7 Mohakhali C/A, Dhaka, Bangladesh. Tel: 88-02-8822817,
603603; Fax:88-02-8823247

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