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The Ready-made Garment (RMG) Industry of Bangladesh

The Ready-made Garment (RMG) Industry of Bangladesh

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Published by Boier Sesh Pata
ABSTRACT
The ready-made garment (RMG) industry of Bangladesh started in the late 1970s and became a prominent player in the economy within a short period of time. The industry has contributed to export earnings, foreign exchange earnings, employment creation, poverty alleviation and the empowerment of women. The export-quota system and the availability of cheap labour are the two main reasons behind the success of the industry. In the 1980s, the RMG industry of Bangladesh was concentrated mainly
ABSTRACT
The ready-made garment (RMG) industry of Bangladesh started in the late 1970s and became a prominent player in the economy within a short period of time. The industry has contributed to export earnings, foreign exchange earnings, employment creation, poverty alleviation and the empowerment of women. The export-quota system and the availability of cheap labour are the two main reasons behind the success of the industry. In the 1980s, the RMG industry of Bangladesh was concentrated mainly

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Published by: Boier Sesh Pata on Jan 24, 2010
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ABSTRACT
The ready-made garment (RMG) industry of Bangladesh started in the late1970s and became a prominent player in the economy within a short periodof time. The industry has contributed to export earnings, foreign exchangeearnings, employment creation, poverty alleviation and the empowermentof women. The export-quota system and the availability of cheap labourare the two main reasons behind the success of the industry. In the 1980s,the RMG industry of Bangladesh was concentrated mainly inmanufacturing and exporting woven products. Since the early 1990s, theknit section of the industry has started to expand. Shirts, T-shirts, trousers,sweaters and jackets are the main products manufactured and exported bythe industry. Bangladesh exports its RMG products mainly to the UnitedStates of America and the European Union. These two destinations accountfor more than a 90% share of the country’s total earnings from garmentexports. The country has achieved some product diversification in both theUnited States and the European Union. Recently, the country has achievedsome level of product upgrading in the European Union, but not to asignificant extent in the United States. Bangladesh is less competitivecompared with China or India in the United States and it is somewhatcompetitive in the European Union.The phase-out of the export-quota system from the beginning of 2005 hasraised the competitiveness issue of the Bangladesh RMG industry as a toppriority topic. The most important task for the industry is to reduce the leadtime of garment manufacturing. The improvement of deep-levelcompetitiveness through a reduction in total “production and distribution”time will improve surface-level competitiveness by reducing lead time.Such a strategy is important for long-term stable development of theindustry, but its implementation will take time. In contrast, theestablishment of a central or common bonded warehouse will improvesurface-level competitiveness by reducing lead time, but deep-levelcompetitiveness will not be improved and long-term industry developmentwill be delayed. Therefore, granting permission to establish in the privatesector such warehouses with special incentives, such as the duty-freeimport of raw materials usable in the export-oriented garment industry forreducing the lead time in garment manufacturing is a critical issue forBangladesh.Second, Bangladesh needs to improve the factory working environmentand various social issues related to the RMG industry. International buyersare very particular about compliance with codes of conduct. Third, issuesrelated to product and market diversification as well as upgrading productsneeds to be addressed with special care. Moreover, the Government of 
 
 
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Bangladesh needs to strengthen its support. The development of the portand other physical infrastructure, the smooth supply of utilities, acorruption-free business environment and political stability are somepriority concerns for the Government to consider in its efforts to attractinternational buyers and investors.
INTRODUCTION
The RMG industry of Bangladesh has expanded dramatically over the lastthree decades. Traditionally, the jute industry dominated the industrialsector of the country until the 1970s. Since the early 1980s, the RMGindustry has emerged as an important player in the economy of the countryand has gradually replaced the jute industry. The “export-quota system” intrading garment products played a significant role in the success of theindustry. However, that quota system came to an end in 2004. Therefore,the competitiveness issue needs to be addressed, with special attentiongiven to the long-term sustainability of the industry.The term “competitiveness” itself is a broad concept. Its meaning,implications, adaptation and achievement vary from firm to firm, industryto industry, or country to country. Michael E. Porter is a pioneer of the“competitiveness theory” (Porter, 1990) at the national or macro level (Choand Moon, 2000). Firm/industry-level (micro level) competitivenessdepends on various parameters. However, the literature provides nouniversal agreement on the definition of competitiveness. For example,some researchers consider the labour cost, unit cost, exchange rate, interestrate, prices of material inputs and other price- or cost-related quantitativefactors for measuring the competitiveness of a manufacturing firm/industry(Edwards and Golub, 2004; Fukunishi, 2004; Cockburn and others, 1998;and Edwards and Schoer, 2002). Some other researchers consider productquality, innovativeness, design, distribution networks, after-sales service,transaction costs, institutional factors relating to the bureaucracy of exportprocedures and other non-price factors for measuring the competitivenessof a manufacturing firm/industry (Abdel-Latif, 1993; Chen and others,1999; and Sachwald, 1994). The influences of both price and non-pricefactors on the competitiveness of a firm/industry are reflected by marketshare and profit (Toming, 2006). This study attempts to incorporate price,non-price and result (for example, market share) factors in order to addressthe international competitiveness of the Bangladesh RMG industry.The majority of the competitiveness-related research studies focus on the“competitive performance” or on the “factors influencing competitiveperformance”. The studies consider product price, market share and otherindicators to measure competitive performance, while considering wages,
 
 
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costs, productivity and other issues as factors influencing competitiveperformance. However, Fujimoto (2001) puts special emphasis on the“capability” factor that influences the competitive performance of a firm.According to him, improvement in the “capability” of a firm enhances its“competitive performance”. This improvement takes time, but it ensuresthe long-term sustainability of a firm. In contrast, improving only“competitive performance” and not “capability” may not be sufficient toensure the long-term development of the firm.This study addresses the competitiveness issue from two broaderdimensions: surface-level and deep-level competitiveness. Surface-levelcompetitiveness reflects the “competitive performance” of a firm orindustry that is directly observable to consumers.Deep-level competitiveness reflects the “capability” of a firm or industrythat is not directly observable to consumers. An improvement in the deep-level performance enhances the performance at the surface level. Thesevere competition under the quota-free trading environment pressures theRMG industry of Bangladesh to enhance its surface-level competitivenessat the earliest convenient time. However, the long-term sustainability of theindustry demands enhancement of deep-level competitiveness. Therefore,the future development of the industry will depend on how muchimportance will be given to which factors/dimensions, and how theindividual firms will respond and how government policies will influencethe industry. Hence, the discussion of the competitiveness of theBangladesh RMG industry requires simultaneous consideration of both thesurface and deep dimensions. In particular, this study uses (a) export value,product price, market share and lead time as surface-level indicators, and(b) linkage expansion, factory environment, product/market composition,and “production and distribution” time as deep-level indicators formeasuring the international competitiveness of the Bangladesh RMGindustry.The paper is structured as follows. Section 1 sets the research agenda.Section 2 provides an overview of the Bangladesh RMG industry. Section3 discusses the surface level competitiveness of the Bangladesh RMGindustry. Section 4 focuses on the deep-level competitiveness of theindustry. Section 5 deals with the indirect influences of governmentalpolicies on the competitiveness of the Bangladesh RMG industry. Finally,section 6 concludes the study.

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