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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)

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

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

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

INTRODUCTION TO SUPPLY CHAIN………………………….. 4 2.1. 2.2. 2.3. General description of supply chain……………..………… 4 The importance of global supply chain……………………. 7 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. 2.7. 2.8. Supply Chain for the RMG sector in Bangladesh…………. 28 Overview of Bangladesh Logistics industry in RMG sector. 30 Overview of Finnish logistics industry in general…………. 31

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BANGLADESH AND ITS GARMENTS & KNITWEAR INDUSTRIES………………………………………………………... 35 3.1. 3.2. 3.3. 3.4. Bangladesh at a glance…………….………………………. 35 Trade Relationship between Bangladesh and EU…………. 38 Government commitment on Garment business…………... 39 Business climate………...…………………………………. 39

6 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. 3.5.5.2. Bangladesh Garment Manufacturers & Exporters Association (BGMEA)……… 50 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. 4.2. Import procedures from Bangladesh………………………. 66 Documentations……………………………………………. 67 4.2.1. Import documents………………………………….. 67 4.2.2. Export documents………………………………….. 68 4.3. 4.4. 4.5. 5. 6. 7. 8. Documentation procedures for foreign trade………………. 69 Import mechanism from Bangladesh to Finland…….……...71 Risk analysis……………………………………………..… 73

RECOMMENDATIONS………………………………………….... 76 CONCLUSION……...…………………………………………….… 81 SOURCES…………………………………………………………… 83 APPENDICES……………………………………………………….. 88

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8 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?

9  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

10 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).

13 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).

14 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).

15 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

16 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)

17 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

18 or software engineer. (Burt, Dubler & Starling 2003; 180; Weele 2002, 172176) 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.chezalice.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

19 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.chezalice.fr/madoui.purchasing1.html)

20 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)

21 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

22 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:

23  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.chezalice.fr/madoui.purchasing6.html)

24 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

25 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 Options Very Broad Broad Narrow Broad

Speed

Accessibility

Cost

Capacity

Intermodal Capability Very High Very High Moderate Very High Very Low Very Low

Truck Railroad Air Water Pipeline Digital

Moderate Slow Fast Very Slow

High Moderate Low Moderate Low Very High

Moderate Low

Low Moderate

% of US Product Movement 28% 41% <1% 13% 17% ?

Very Very Low High Very Low Very High Low Very High

Very Very Slow Narrow Very Very Fast Narrow

Very Low Moderate

Table 1: Modes of Transportation comparison Source: http://www.knowthis.com/tutorials/principles-of-marketing/managingproduct-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 inbound 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/managingproduct-movement/6.htm) Public Warehouse

The public warehouse is essentially space that can be leased to solve shortterm 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/managingproduct-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/managingproduct-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/managingproduct-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/managingproduct-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.

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(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 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? NO

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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)

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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  Weaving  Knitting  Dyeing / Finishing  Finished Garments (Corporate Solution, Bad Nauheim 2005) We will discuss further details on Bangladesh RMG in chapter 3 of this study. 17 % 15 % 18 % 15 % 28 %

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

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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: Boundary: Area: Territorial water: Official Name: President: Chief Advisor: Capital City: Between 20°34' and 26°38' north latitude 88°01' and 92°41' east longitude. North: India, West: India, South: Bay of Bengal, East: India and Myanmar 56977 SQ. Miles or 147570 SQ. KM boundary12 Nautical Miles Peoples Republic of Bangladesh Professor Dr. Iaajuddin Ahmed Dr. Fakhoruddin Ahmed Dhaka Mymensingh, Comilla, Barisal, Sylhet Standard Time: Language: Demography: GMT+6.00 Hours. State language Bangla. Second language English 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: Economy: Taka Agriculture Based.

Major Administrative Units: Dhaka, Chittagong, Khulna, Rajshahi,

46 Principal Industries: Jute & cotton textiles, garment making, tea processing paper, newsprint, cement, chemical fertilizers, light engineering, sugar. Principal Minerals: Principal Exports: Natural gas, lignite coal, limestone, ceramic clay and glass sand. 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: Inland River: Chittagong and Mongla Dhaka, Chandpur, Barisal, Khulna, Baghabari, Sirajganj, Sharishabari, Narayanganj, Bhairab Bazar, Ashuganj. Airway: International: Domestic: Dhaka, Chittagong and Sylhet 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)

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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 1996/7 2,503 1,300,000 1997/8 3,618 1,800,000 2005/6 4,220 2,200,000 Memorandum items (end-2006) Total employment in EPZ garment factories Of which: In wholly and partially foreign-owned Firms in EPZs Number of wholly and partially foreign owned- firms 95,559 Employees/F 519 498 521 122,098

in EPZs 83 Table 2: Employment in RMG Factories in Bangladesh Source: BGMEA, BEPZ Authority; and IMF Stuff calculations

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Garment and Textile Investment in the EPZs*
(In millions of U.S. dollars; cumulative for 1983–2006)

Investor 100% Foreign Owned Joint Venture 100% Domestically Owned Total

Woven Knitwear Textiles Garments 247,20 50,50 54,10 351,80 65,60 5,90 12,00 83,50

Total 481,40 75,00 108,10 664,50

168,60 18,60 42,00 229,20

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).

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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)

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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

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59 3.5.3. Situation of the RMG sector of Bangladesh after the MFA phaseout 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
Cost item Waste (US $ Per kg of yarn) Bangladesh India Pakistan Japan (Private sector) 0.17 0.27 0.33 0.32 (11) Labor 0.54 (36) Power 0.15 (10) Interest 0.31 (21) Total 1.48 (100) Index 100 (15) 0.02 (01) 0.28 (07) 0.56 (31) 1.78 (100) 120 (21) 0.20 (12) 0.28 (07) 0.45 (28) 1.60 (100) 108 (14) 0.45 (19) 0.05 (07) 0.24 (10) 2.38 (100) 161 Korea 0.33 (18) 0.08 (05) 0.17 (08) 0.42 (24) 1.73 (100) 117 Thailand 0.33 (19) 0.05 (03) 0.19 (10) 0.50 (28) 2.74 (100) 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, nongovernment 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-NetworkSystem 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.

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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 lessremunerative 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)

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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 microcredit 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)

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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)

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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 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 leadtime as well as total cost will be decreased.

 EU is willing to establish industry in a big way as an option to china

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 has relatively high labor productivity and applies more capitalintensive 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.

 China is a most likely the biggest threat for Bangladesh as this country

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

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      

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

Forwarder prepares dummy HAWB/HBL & delivers to Shipper/Manufacturer to obtain Textile visa/GSP etc. Custom documents process by the Custom Broker

Forwarder makes booking reservation to Shipping lines

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

Freight gets on board; forwarder delivers original Shipping Documents to the Manufacturer/ Shipper

Forwarder pre advises respective destination agent or trans-shipment agent

Option to notify the same to any other party concern

Follow up until reaches destination

Follow up ends once Cargo released by Consignee upon presentation of proper Documentation

Update progress according to set up

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 S H I M P O R T E R S

Manufacturers

Finnish Importers

BORDER Buyer/Agents

Wholly owned Subsidiary Contractors

Bangl ade shi Expo rters

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

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.

Step in the production process

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 timeconsuming, 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 ReadyMade 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

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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.

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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

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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

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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 IN MN.US$ YEAR 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (Dec) WOVEN 1544,89 1976,40 1942,37 2621,33 2871,06 2987,73 3376,49 3162,28 3076,28 3398,84 3686,78 3689,60 4544,79 KNIT 341,53 512,18 686,27 810,49 976,29 1169,90 1448,22 1432,72 1573,40 1850,36 2532,62 3210,48 4388,72 TOTAL 1886,42 2488,58 2628,64 3431,82 3847,35 4157,63 4824,71 4595,00 4649,68 5249,20 6219,40 6900,08 8933,51 TOTAL APPAREL EXPORT IN '000 DZ WOVEN 41642,49 49377,11 47536,84 60560,49 64229,77 64938,82 71634,03 67724,50 83443,78 85829,29 94223,23 96387,06 125648,96 KNIT 13768,85 19828,10 26107,21 27997,84 34587,54 41303,64 51588,27 50180,09 70714,60 80503,80 104904,34 138190,49 190595,40 TOTAL 55411,34 69205,21 73644,05 88558,33 98817,31 106242,46 123222,30 117904,59 154158,38 166333,09 199127,57 234577,55 316244,36

Source: BGMEA (www.bgmea.com) Appendix 4: Labor and power cost in selected countries. 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. Country

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: 8802-500865 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: 88-028614548, 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: 8802-9552515, 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: 88-029552515, 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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