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Threat of MFA Phase out and Counteractions

against It (2014-2020)
Sources of Competitiveness in the RMG




Low Wage Rate

Increase of Sales


Development of Other Sectors




The challenge of growth Foreword


China is losing its attractiveness for new and

established buyers




Challenges of growth
Buyers: Take care
Contributions of RMG industry to national



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Everywhere, the industrial sector has been the driver of growth as countries have moved from low to
middle-income status. Bangladesh as a country with a poor land-person ratio is unlikely to prosper
through agricultural growth alone. The average productivity of industry is higher than in agriculture. As
people move out of agriculture into industry, the sector can provide high-wage employment for large
numbers of workers and can raise social productivity by producing high-value goods on a mass scale.
Besides, poor countries can also earn valuable foreign exchange by exporting manufactured products
and the ensuing foreign exchange can be used to invest in new vintage of machines and
technologies so that a rapid move up the technology ladder becomes possible. The importance of
industrial development as an engine of Bangladesh's economic growth is also reinforced by a growing
realization that the development of agriculture sector, one of the mainstays of the country's economy,
critically hinges on its backward and forward linkage with the industrial sector.
During the post-independence period, Industrial development of Bangladesh has been directed by
several Industrial policies: Industrial Policy of 1973, the New Industrial Policy of 1982, the Revised
Industrial Policy of 1986, Industrial Policy of 1999 followed by a number of other policies, with the latest
being the Industrial Policy of 2010. All these policies have attempted to revamp the sector with a view to
creating a strong manufacturing base in the economy. 1 As a result, according to the latest BBS
data (FY09-10), the contribution of the manufacturing sector to GDP is 17.86 percent, which was
recorded 17.9 percent in FY08-09. The BBS recorded the growth rate of the manufacturing sector at 5.73
percent in FY 09-10. The Industrial Policy, 2010, announced recently, proposes an integrated strategy of
economic growth through rapid industrialization. It envisages an increase in the industry sectors share
in GDP to 40 percent by 2021, with the proportion of the workforce employed in the sector
concurrently rising to 25 percent of the countrys total labor force. Data available from Bangladesh
Bureau of Statistics (BBS) show that the quantum of industrial production, representing medium to largescale industries, rose to 413.40 in FY08-09 from 254.45 in FY02-03. In FY 2009-10 averages QIP stood
at 431.51. This implies that the large industry has come to play an increasingly important role within the
industrial sector in recent years. The rise in the share of large industry in the industrial GDP, however,
conceals the fact that the industrial base has continued to remain rather narrow.

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Despite many difficulties faced by the sector over the past years, it has carved a niche in world market and
kept continuing to show robust performance. The readymade garments industry acts as the backbone of
our economy and as a catalyst for the development of our country. We take pride in the sector that has
been fetching billions of dollars as export earnings and creating jobs for millions of people in the country.
The Made in Bangladesh tag has also brought glory for Bangladesh, making it a prestigious brand across
the globe. Bangladesh, which was once termed by cynics a bottomless basket, has now become a
basket full of wonders. The country with its limited resources has been maintaining 6% annual average
GDP growth rate and has brought about remarkable social and human development. It is really a matter of
great interest to many how the economy of Bangladesh continues to grow at a steady pace, sometimes
even when rowing against the tide. Now we envision Bangladesh achieving the middle-income country
status by 2021. We firmly believe that our dream will come true within the stipulated time and the RMG
industry will certainly play a crucial role in materializing the dream. After the independence in 1971,
Bangladesh was one of poorest countries in the world. No major industries were developed in Bangladesh,
when it was known as East Pakistan, due to discriminatory attitude and policies of the government of the
then West Pakistan. So, rebuilding the war-ravaged country with limited resources appeared to be the
biggest challenge for us. The industry that has been making crucial contribution to rebuilding the country
and its economy is none other than the readymade garment (RMG) industry which is now the single biggest
export earner for Bangladesh. The sector accounts for 81% of total export earnings of the country. When
our lone export earner the jute industry started losing its golden days, it is the RMG sector that replaced
it, and then, to overtake it. The apparel industry of Bangladesh started its journey in the 1980s and has
come to the position it is in today. The late Nurool Quader Khan was the pioneer of the readymade garment
industry in Bangladesh. He had a vision of how to transform the country. In 1978, he sent 130 trainees to
South Korea where they learned how to produce readymade garments. Since the early days, different
sources of impetus have contributed to the development and maturity of the industry at various stages. We
learned about child-labour in 1994, and successfully made the industry free from child labour in 1995.
The MFA-quota was a blessing to our industry to take root, gradually develop and mature. While the quota
was approaching to an end in 2004, it was predicted by many that the phase-out would incur a massive
upset in our export. However, the post-MFA era is another story of success. Proving all the predictions
wrong, we conquered the post-MFA challenges. Now the apparel industry is Bangladeshs biggest export
earner with value of over $24.49bn of exports in the last financial year (from July 2013 to June 2014).
Despite the epic growth of our RMG industry, and its bright prospects, challenges are still there. One of the
biggest challenges currently faced by our RMG industry is to ensure workplace safety and better working
conditions for the millions of garment workers. Two major accidents, the Tazreen fire and the Rana Plaza
collapse, have brought the issue of workplace safety to the fore and led all stakeholders to act accordingly.
Following the unfortunate incidents, various platforms such as the Bangladesh Accord on Fire and Building
Safety, the Alliance for Bangladesh Worker Safety and National Plan of Action have been formed to
improve building and fire safety of Bangladeshs garment industry.
All members of the BGMEA and BKMEA are working all-out to carry out the corrective action plans
suggested by the Accord, Alliance and National Plan of Action after inspections, even investing huge
amount of money.
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According to the study, the US-based fashion companies are expected to boost their sourcing from
Bangladesh in the next two years. McKinsey, a global management consulting firm, described Bangladesh
as the next hot spot in apparel sourcing. The renowned firm forecasts export-value growth of 7-9% annually
and our apparel export will double by 2015 and nearly triple by 2020 provided that we can successfully
overcome a few challenges including developing infrastructure and skill workforce.
It is the responsibility of all of us to protect the interest of this industry which has given our economy a
strong footing, created jobs for millions of people, especially for women, lifted them from the abyss of
chronic poverty and given them a dignified life. Now what we need to do is deal with all the challenges
facing our garment industry, paving the way for its further development. The main highways namely DhakaChittagong, Dhaka-Mymensigh, Dhaka-Tangail through which our apparel products and the raw materials
for apparel and textile are transported from factories to port, are being widened (from two lanes to four
lanes) and drive-worthy for tapping our export potential. This work needs to be completed as urgently,
preferably by December 2014. BGMEA University of Fashion and Technology (BUFT) is offering graduate
and post-graduate degrees to students on fashion design, knitwear technology and apparel merchandising
related subjects. Nonetheless, to meet the current shortfall of competent professionals in the mid-level of
our garment factories, fashion, textile and industrial merchandising related departments need to be
established at all of our major public and private universities.
Bangladesh mainly produces five products T-shirts, sweaters, trousers, mens and womens shirts.
Moreover, we are dependent mainly on two markets namely the EU and North America (the US and
Canada). Though we reduced our dependency on these two markets from 93% to 85% in last five years
(From fiscal 2009-10 to 2013-14), we need to diversify the destinations of our apparel export and
concentrate on high-end products like suits, lingerie, etc more for the sustained growth of our apparel
industry. Given the dominance of the RMG industry in the overall economy of Bangladesh, we have to
protect this sector. Rather than basking in the glory we should work hand in hand to retain sustainable
growth and competitive edge of this industry.
Threat of MFA Phase out and Counteractions against It (2014-2020)
It may be noted that textiles and clothing are susceptible to trade restrictions caused by trade friction.
From historical trend it was found that after World War II Japan was strongly encouraged to exercise
voluntary restraint on cotton textile exports to the US in 1957 because rapid expansion of Japanese textile
exports frustrated the textile industry in the US (Yamazawa, 1988). Since then controlled trade has been
the norm rather than temporary regulation of the trade in textiles and clothing. The import restrictions by
the US, Canada, and the European countries were first incorporated as a short-term arrangement
regarding international trade in textiles in 1961, which was followed by a similar long-term arrangement
regarding international trade in cotton textiles between 1962 and 1974. In the sequel, a restricted trade
regime was perpetuated through the Multi-Fiber Arrangement (MFA) on international trade in textiles,
which came into effect in 1974. When the World Trade Organization (WTO) was launched in 1995, it
was assumed that the MFA system of controlled trade would be phased out by January 1, 2005. At the
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RMG exports earn $ 4 billion extra which is 75 percent higher of the RMG export volume of FY03-04. From
the empirical evidence it is evident that Bangladesh comes as winner in the post-MFA world.
Sources of Competitiveness in the RMG Industries
It is evident from the foregoing reviews that overall growth of the apparel sector in Bangladesh has
been supported by a regulated international trade regime and a proactive domestic policy framework. But
the intrinsic competitive components of RMG sector can be attributed to cheap labor supply. However,
this raises concern for the sector as the potential for Bangladesh to assert its cheap labor-based
competitive advantage is circumscribed by the modest share of labor in the cost structure of RMG
products and the marginal presence of backward linkages in processing activities. The present section
identifies in depth the crucial factors in the RMG sector that maintain the global competitive edge of
the industry.
Low Wage Rate
As the industry is highly labor-intensive in nature, the historical evolution of world apparel business
reveals that comparatively lower wage rate countries were always the major apparel supplier in the
world. As human labor is embodied in the manufacturing process, it makes wage rate as an important
determinant of production cost. As quotas were imposed on some apparel exporting countries, a large
number of intermediate buyers shifted sourcing of RMG products to Bangladesh which was reinforced by
the market access power of the country through the US and Canadian markets quotas imposed on
imports of apparel garments. Considerably the then prevailing low wages ensured competitive prices for
the ventures entrepreneurs to shift their production transition process. Although labor productivity was
an issue, low wages helped Bangladesh focus on high volume mass production of RMG items,
competing directly with countries such as China, India, and Vietnam.
Though Low wages go a long way in explaining the attractiveness of Bangladesh-made garments
to foreign buyers but increasing liberalization of the global textiles market creates new challenges if the
industry in the country continuously relies on a low skill/low wage strategy. Because it is widely held
that cheap and readily employable labor underpins the competitive advantage of the countrys export
sector. In other words, wage rates in the RMG sector can be interpreted as market clearing wages
established in a more or less flexible labor market even though inter-industry wage differentials indicate
a depressed wage situation in the RMG sector (Bhattacharya and Rahman, 1999). In a sense abundant,
readily available labor and its low opportunity cost lead to low wage levels, providing a comparative
advantage to female labor in particular operations in the RMG production cycle.
Female workers in Bangladesh were traditionally linked to global markets through export of tea and
raw jute. Women entering the industrial labor force in Bangladesh generally find themselves in low
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skill/low wage jobs. In RMG production, female workers are predominantly concentrated in low-skill/lowwage operations and, thus, are low paid. Most women are either production workers or helpers
(female workers constitute 40-60 percent of the total workforce in the latter category). 4 The sectoral
distribution of female manufacturing employment in Bangladesh remains highly skewed, according to
1995 labor force survey the wearing apparel sector, categorized under Bangladesh Standard
Industrial Code (BSIC) 323, alone employs about 85 per cent of the female industrial employees (which
is about 12.9 per cent of total manufacturing employment). This is followed by textiles manufacturing
including cotton, synthetic and jute textiles (BSIC 321 and 322), which account for about 6 percent
of female industrial employees or approximately 1 percent of total manufacturing employment.
Given the low opportunity cost of female labor in Bangladesh, is female labor attractive because
women are paid less than men for similar jobseven when productivity differentials are accounted
for? This particular concern is heightened by the fact that entrepreneurs prefer to employ young, single,
literate women in export-oriented units. Accordingly, non-wage factors (such as social docility and
amenability to repetitive process functions) prompt entrepreneurs to opt for a distinctive set of female
labor. Thus, non-wage factors clearly influence employment patterns as well. Available information also
suggests that conventional measures of gender bias (such as wage gaps, access to employment and lack
of job security) are relatively less conspicuous in the organized segment of the manufacturing sector
(Bhattacharya, 1999). These trends are present in units located in both export processing zones and
the domestic tariff area. These are characteristics of the labor force of foreign-owned units in particular
which tend to have the most advanced technology and the highest productivity levels in the country
(Bhattacharya, 1999). Majumder and Begum (2006) show that occupational segregation and gender
discrimination in wage rate was wide.
Export-oriented RMG entrepreneurs in Bangladesh argue that low wages in the RMG sector reflect the low
productivity of workers in the sector. It was found in a study that the average monthly wages of skilled
factory workers in textile and other sectors is 1.4 to 2.0 times that of similar workers in the RMG factories.
However, it is to be noted that there is a limit to the extent to which low wages can be translated into
low unit costs of production. Since the productivity of labor is also relatively low in Bangladesh.
Increase of Sales
A good reputation in RMG sector in global market could make Bangladesh to see the increase of other
products which are lower in export value. It is the influence of Good Reputation of RMG products.
Inflows of FDI
Growing reputation in RMG sectors will make the increase in inflows of FDI (Foreign Direct Investment) in
our country.
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Development of Other Sectors

Using FDI Bangladesh can develop the promising sector like IT, seafood etc. to order earn more foreign
Bangladeshs ready-made garments landscape
The challenge of growth Foreword
A growing number of chief purchasing officers (CPOs) in European and US apparel companies are
scrutinizing their sourcing strategies, as margin and supplier capacity pressure building over the last several
years has caused them to search for the next performance improvement opportunity.
While China is starting to lose its attractiveness in this realm, the sourcing caravan is moving on to the next
hot spot. With Bangladesh having developed a strong position among European and US buyers, many
companies are already eager to evaluate the future potential. However, the lure of competitive prices,
available capacities, and supplier capabilities offered is being cautiously weighed against a prevailing
insecurity created by the challenges inherent in Bangladeshs ready-made garments (RMG) market.
McKinsey & Company has initiated a case study that sets out to review Bangladeshs RMG growth formula,
which builds on the countrys strong starting position and the increasing demand of international buyers. This
report provides an overview of the rapid growth being seen in Bangladeshs RMG industry and then describes
the main hurdles that exist for buyers when it comes to sourcing in Bangladesh. The final section of the report
details what the three core stakeholders government, suppliers, and buyers can do to overcome the
challenges of growth in Bangladeshs sourcing market.
The case study and recommendations documented in this report are based on
An extensive interview-based survey of CPOs from leading apparel players in Europe and the US, accounting for USD
46 billion in total apparel sourcing value and covering 66 percent of all apparel exports from Bangladesh to Europe and
the US .

A telephone survey of 100+ local RMG suppliers in Bangladesh, which represents approximately 10 percent
of Bangladeshs total apparel exports
Potential for rapid growth of Bangladeshs RMG industry
The sourcing of RMG is experiencing a new phase of transition, which is creating the need for companies to
react accordingly in order to secure their cost positions in the apparel market. While China was once
considered the place to be for sourcing, the light is starting to shine ever brighter on Bangladesh.
Current trends on the buying side
For decades, European and US apparel buyers were benefiting from continually decreasing purchasing
prices by moving their sourcing activities to low-cost countries in the Far East and by cutting out the middle
man. Sourcing teams could freely take their pick of the next country sourcing opportunity along the five
main criteria of price, quality, capacity, speed, and risk. Within the last several years, however, European and
US buyers have been faced with a growing number of margin and capacity issues, creating an increase in
sourcing strategy revisions.
Although the European and US apparel markets have regained much of their sales following the slump
brought on by the most recent global financial downturn, market saturation, consumer price sensitivity, and
ongoing economic insecurity continue to put pressure on top-line results.

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China is losing its attractiveness for new and established buyers

In 2010, China dominated RMG imports to Europe and the US, accounting for approximately 40 percent of the import
volume in each region. The macro trends of wage increases and capacity pressure, however, have proven to heavily
weigh on the Chinese RMG sector. McKinseys survey shows that CPOs of leading apparel buyers in Europe and the
US almost unanimously favors moving some of their sourcing away from China. In the survey, 54 percent of CPOs
shared their plans to decrease their sourcing activities in China by up to 10 percent and 32 percent stated that they
sought to decrease their share of sourcing in China by more than 10 percent over the next five years.

Bangladesh has what it takes to be the next sourcing hot spot

Since the start of its garment export industry in the late 1970s, Bangladesh has seen its RMG export levels
grow steadily and has become a top global exporter. With around USD 15 billion in export value in calendar
year 2010, the RMG industry is currently Bangladeshs most important industry sector (13 percent share of
GDP and total export share of over 75 percent). With 12 percent average annual growth rates, clothing
exports are the key driving force behind GDP development (7 percent CAGR from 1995 to 2010). The
attractiveness for buyers lies in Bangladeshs long-term experience and strong performance in the sourcing
country selection criteria of price and capacity as well as product portfolio offered. Bangladesh offers the
two main hard advantages - price and capacity. It provides satisfactory quality levels, especially in value
and entry-level mid-market products, while acceptable speed and risk levels can be achieved through careful
Supplier capability ranks third - mentioned by 30 percent of respondents in the survey of European and US
CPOs. However, the current acknowledgment of capability is much focused: Bangladeshs suppliers are
known for supplying good quality and large order sizes for the value and lower mid-market. At the same
time, suppliers have started to expand into more value-added services.
In addition to price, capacity, and capability, a high share of European CPOs strongly emphasize the
advantages of sourcing in Bangladesh due to favorable trade agreements. The broadening of the EU
Generalized System of Preferences (EU-GSP) rules on duty-free imports of garments from Bangladesh to
include products with two stage processing made sourcing from Bangladesh even more attractive. A shift
from the currently dominant knitwear (70 percent of import value to the EU-15) to a more balanced sourcing
product portfolio can be expected (e.g., the US sourced 26 percent knitwear and 74 percent wovens in
In the medium term, Bangladesh looks to be the sourcing country of choice
For the next ten years, McKinsey forecasts a continuation in the high growth of Bangladeshs RMG sector. Driven by the
sourcing trends described previously and Bangladeshs current starting position, European and US buyers will continue
expanding their sourcing activities in Bangladesh. Additionally, new buying markets are becoming increasingly important
as sourcing customers for Bangladesh.

Taking these drivers into account, Bangladeshs RMG industry will continue to face growing demand.
McKinsey has forecast demand growth through 2020, based on its CPO survey, which covers
approximately 66 percent of Bangladeshs total export value to the US and Europe. CPOs of value players
want to increase the value of their sourcing in Bangladesh by about a 10 percent annual growth rate,
whereas mid-market players plan an annual growth rate of around 14 percent. Looking at the demand
side from existing and new markets, an annual value increase of Bangladeshs RMG industry of around 13
percent is likely. The supplier survey paints a similar picture, with some 73 percent of suppliers believing in
strong growth of more than 10 percent per annum within the next ten years.
However, a number of significant challenges brought on by growth exist. Depending on how well the most
severe issues can be managed, the market will realistically develop at an annual rate of 7 to 9 percent within
the next ten years, resulting in an export value of around USD 36 to 42 billion. This means the market will
double by 2015 and nearly triple by 2020.
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Challenges of growth
While Bangladesh represents some very promising advantages in certain dimensions, a number of
challenges could create hurdles for companies seeking to source there. Only if these challenges can be
overcome, will Bangladeshs RMG industry continue to prosper?
For all business stakeholders, infrastructure (transport and utilities supply) is the single largest issue
hampering Bangladeshs RMG industry. Buyers today are forced to carefully select the type of products to
source from Bangladesh, since congested roads, limited inland transport alternatives, and the lack of a
deep-sea harbor add inefficiencies to garment lead time. With the aim to move toward sourcing more
fashionable, shorter lead time items in Bangladesh, reliable and fast transport is becoming extremely
important. The transport issues need to be solved quickly in order to avoid a collapse in the transport
network as volumes continue to grow.
As a developing country, Bangladesh is under close scrutiny by nongovernmental organizations (NGOs) and corporate
social responsibility (CSR) stakeholders regarding compliance. Both CSR experts and buyers compliance standards,
but there is still a broad range of compliance seen across suppliers and, as described in the following, many unsolved
topics still exist. Solving these issues and achieving ethical labor standards and sourcing practices are key
prerequisites in Bangladeshs apparel industry from a McKinsey perspective. Regional concentration of Bangladeshs
RMG industry provides a relatively high visibility of the compliance situation. CSR stakeholders can visit a significant
amount of suppliers within a relatively short time. This situation offers more opportunity to create transparency
regarding supplier conduct than would be possible in countries such as China and India, as their industry locations
are much more spread out. International buyers should also make active use of unannounced visits to achieve
For European and US apparel players, McKinsey sees careful supplier selection, value chain transparency, a tireless
effort, and close relationships with suppliers remaining crucial to ensuring compliance when sourcing in Bangladesh.

Supplier performance and workforce supply

In the medium term, McKinsey expects that labor costs will continually increase, that the apparel export
market will grow at between 7 to 9 percent through 2020, and that value buyers are looking to source more
fashionable and sophisticated products from Bangladesh. At the same time, mid-market buyers have just
entered the market and
Raw materials
The high volatility of raw materials prices seen within the last few years has increased buyers sensitivity to
raw materials prices and ease of access in sourcing countries. Considering this context, the current lack of
any noteworthy own raw materials supply of natural or man-made fibers in Bangladesh weighs even
stronger, beyond the immediate issue of lead time increase. Bangladeshs dependency on imports creates
sourcing risks and longer lead times. Whereas the average fabric lead time for wovens in Bangladesh is
seven days, it increased to up to 15 days when sourced from India and up to 30 days when sourced from
China. However, many fabrics produced in Bangladesh typically are at quality levels mainly suited for the
value markets. Improvement in local capabilities and virtualization would improve lead times. However,
integration is likely to be seen more in knitwear due to the high capital investments needed for wovens.
Economy and political stability
In the opinion of European and US CPOs, economy and political stability are the fifth area of risk when
sourcing in Bangladesh. About half of the CPOs interviewed stated that they would reduce the value of their
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sourcing in Bangladesh if political stability were to decrease. Planning security, political unrest and strikes,
corruption, and ease of doing business are the topics mentioned most often.
Although mass strikes (known locally as hartal) have less frequently directly affected the RMG industry in
recent times, political unrest and strikes in the supply chain can lead to significant delays. In McKinseys
survey, Bangladeshs RMG suppliers cited political unrest (50 percent of respondents) and strikes (21
percent of respondents) as the highest risks in sourcing from Bangladesh, right after infrastructure. The
hartal phenomenon, as the local media call it, is not only a signpost for the continued social changes
required, but a risk of which buyers need to be aware.
Approximately 5 percent of suppliers mentioned high interest rates as a hurdle to capital investment in the
RMG sector. In the past, the International Monetary Fund (IMF) had requested a reduction in lending interest
rates to foster investment.
Buyers: Take care
What can European and US buyers do to secure Bangladesh as a sourcing power house? Clearly, they
should think about how to help overcome the hurdles to growth and improve efficiency from a full value chain
perspective. Additionally, buyers need to be attentive to the shift from a buyers to a suppliers market, as the
sourcing landscape in Bangladesh becomes more populated with Western buyers and new buying
countries (e.g., China, India, and Brazil). At the same time, compliance efforts should never slow down, but
should be pursued actively and continually.
Opportunities are high in numbers and values but there are challenges, need to be overcome by
Bangladesh Government and BKMEA (Bangladesh Knitwear Manufactures and Exporters Association).
USA has already mentioned what Bangladesh has to do to regain the GSP back. Actually these points are
the Challenges in overall to increase potentially. Bangladesh will have to follow a 5-poin roadmap to regain
The 5-points roadmap is:
1. Enforcement of fire and building safely code
2. End to harassment and arrest leaders and activists
3. Labor law reforms
4. Union Registration
5. Upgrading law of EPZs
Challenge of Minimum Wage:
Additionally Bangladesh have increase the wage of workers as Bangladesh is giving the lowest wage rate
the RMG workers the world. From below chart we can Bangladesh is giving only $0.15/hour to the labors.
But our near competitors India is giving $0.35/hour. Increase of Wage up to 2 times will not affect much but
it will increase the productivity of labor and decrease the violence for wage demand and more.
Productivity Challenge
Productivity Challenge is important in order to increase production within given time for the demand of
important. It is also increase the possibility of higher export capability

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When other export countries cannot fulfill their demand in the global market the per hour productivity level
for Bangladeshi workers comparing with others given below:
Hourly Minimum Wage and Labor Productivity of Garments Worker in 2011 Country Labor Productivity ($/
Hour) Bangladesh 1.50 Cambodia 1.34 China 1.97 France 15.48 Hong Kong 1.39 India 1.41 Netherlands
16.18 Spain 9.94 Sri Lanka 1.09 United Kingdom 12.61 Vietnam 1.07 Table shows that Bangladesh have
lower productivity than its main competitors china but than other developing nations. Moreover from the
viewpoint of developed nation, there is potentially that Bangladesh could increase it productivity at highest
level like Spain, Netherlands, UK, France etc. So, steps should be taken to increase productivity.
Keep Reputation Good:
Keeping Good reputation is all Bangladesh have to do, because if western media publish bad news about
Bangladesh then it will ultimately cause bad effect on our economy which is greater than GSP suspension.
5.4 Recommendations
A series of recommendations have been drawn in different papers, website and news in order regain GSP
in USA, to sustain GSP in EU markets and in order to increase the overall export value in the global
markets. The gist of the recommendations given below:
1. Basic Improvement
2. For Government
3. For Owners
4. Right to association
5. Freedom from compulsory labor
6. Minimum wage for employing children
7. Work condition, occupational safety
8. Enforcement of Strict RMG operational law
9. Protection of Workers rights at EPZ
10. Establishments of Minimum Wage compare to living cost
11. Assurance of Security and conducive
12. Fire Safety Law
13. Punishment for accused factories owners
14. Assurance of Fire Safety
15. Healthcare initiatives
16. Nutrition and lodging
17. Skill enhancement
18. Recreation
Factors promoting growth of RMG industry
Factors which promoted growth of RMG sector in Bangladesh can be categorized into two
Groups1) Domestic and
2) External.
Domestic Factors
Cheap labor

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RMG is a labor-intensive sector. Bangladesh is an over-populated country burdened with unemployment

problem. The private entrepreneurs in the late 1970s and early 1980s got an opportunity to use cheap labor
to flourish this sector over-night. At present, about 3.5 million people are working in this sector. About 80%
of them are women. They got a chance to change their fate by working in the garment factories which
helped boom the sector. Nowhere in the world is labor as cheap as it is in Bangladesh. The following table
shows a comparative study of per hour labor wage in major RMG exporting countries.
Low production cost
As labor cost is very low, RMG factories in Bangladesh can produce quality garment at lower cost which
has attracted the foreign buyers. International companies like Wal-Mart, JC Penney, H&M, Zara, Tesco,
Carrefour, Gap, Metro, Marks & Spencer, Kohl's, Levi Strauss and Tommy Hilfiger all import in bulk from
Bangladesh. The total export from the sector has doubled from $6.4 billion in FY 04-05 to $12.5 billion in
FY09- 10. The comparative advantage of low production cost also attracted foreign direct investment. As a
result, both backward and forward linkage industry flourished in Bangladesh. Currently, the backward
industry is able to meet up to 85% of the demand for the raw materials, which significantly contributed to
the country's growth of apparel and knitwear exports.
Local Demand
Clothing is a basic need. Bangladesh is one of the most densely populated countries in the world. Every
year Bangladesh needs a huge quantity of garment for its local need. Culturally people of Bangladesh like
to wear new cloths on the eve of various festivals like Eid7, Puja8, Pohela Baishakh9 etc. Before
emergence of RMG industry, people of Bangladesh had to depend on the tailors for their domestic need of
clothing. Though tailoring still exists, ready- made garment business is very prolific in Bangladesh.
Government Support
The apparel industry received support from the government, which included measures like duty drawback
facilities, tax holidays, cash assistance, income tax rebate, creation of export processing zones, zero tariff
on machinery inputs, rebate on freight and power rate, bonded warehouse facilities, provision of import
under back-to-back letters of credit, loans at concessional rate, export development fund, etc.
Back to Back Letter of Credit
Back to Back Letter of Credit is one of the important factors in the initial and continuing success of this
sector. It considerably eases the financing requirement of garment business for the local entrepreneurs.
The entrepreneurs are able complete the complicated process of manufacturing and export with very little
of their own funds for working capital. Even if the turnover is Tk. 50 million and the profit is only 5% the
returns are still decent since the funds are borrowed largely from the banks. Therefore the rate of return
does not need to be high. In the absence of back to back L/C, it would have been very difficult for the new
entrepreneurs to raise funds from local financial institutions to import fabrics and accessories.
Private entrepreneurship:
The export- oriented RMG sector started its journey entirely with private initiatives. The journey was not
smooth. The entrepreneurs faced tremendous constraints in terms of power and gas supply. Political
instability, frequent hartals (strikes), poor port facility, and labor unrest created longer lead time, which
became another barrier in competing with neighboring nations. Amidst all the constraints, the RMG
entrepreneurs lived up to the buyers' expectations of reduced price margin, improved compliance
standards, and quality assurance. There were also significant investments in backward integration.
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External Factors
Quota facility
The key factor behind the growth was the quota system under the Multi-Fibre Arrangement (MFA). The
General System of Preferences (GSP) facilities and RoO (Rules ofOrigin) offered by the developed nations
also helped Bangladesh to accelerate its export.
Civil War in Sri Lanka
Civil War in Sri Lanka which started in late 1970s proved to be boon for Bangladesh in respect of RMG
industry, though it was a bane for Sri Lanka. Sri Lanka was a leading country in exporting RMG among
Asian countries. But due to the civil war, the western buyers turned away from Sri Lanka and were looking
for substitute of Sri Lanka. Finally Bangladesh came forward to replace Sri Lanka in RMG business based
on its huge cheap labor force.
Supply Side Factors
On the supply side, several factors can be mentioned that have contributed to the growth of Bangladesh as
an apparel exporter. First as the wages of the East Asian Countries rose and quota restrictions limited
shipments from these countries to particularly the US markets, apparel firms from those countries
established production operations in other countries with cheaper labor and with few or no quota
restrictions. In the second half of 1970s, business houses from the Republic of Korea, Daewoo in particular,
ventured into Bangladesh to transfer the technology of production and to provide marketing channels. The
number of garment exports business from this arrangement remained small but awareness as regard the
prospects developed within the garment industry. In 1978, fewer than a dozen companies were in
operation. The number grew to 80 just in three years. Since then, the growth of the industry has been
fabulous. The Korean investment provided the garment industry the decisive advantage without which a
much longer time would have been taken by the Bangladesh garment industry to attain its present status.
Contributions of RMG industry to national economy
Garments Industry occupies a unique position in Bangladesh economy. It is the largest exporting industry in
Bangladesh, which experienced phenomenal growth during last three decades. The industry plays a key
role in employment generation and in the provision of income to the poor. More than 3.5 million workers are
directly and more than ten million people are indirectly associated with the industry. The sector has also
played a significant role in the socio-economic development of the country.

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Finally, it is important to recognize the scope and limitations of this study and define logical extensions to
this research. We used student subjects, rather than experienced buyers and we did administer our study
in the field. This may limit generalize ability to professional buyers and sellers in real companies. However,
the research objective necessitated trading off some generalizes ability in order to gain experimental
control. Using an experimental design under controlled conditions allowed us to hold constant commodity
and market characteristics and to control price outcomes.
Second, our research investigated the use of a single communication medium during the price
determination process. But as we discussed earlier, when trust-building is important, using digitally
mediated sourcing tools alone is not enough. An effective approachone that some companies use--might
be to conduct pre-event, face-to-face meetings to establish trust prior to an email negotiation or reverse
Thirdly, I cannot collect data properly because of political situation. But I have many opportunity data
collected from my background.

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In terms of GDP, RMGs contribution is highly remarkable; it reaches 13% in FY 2009-10 which was only
3% in FY 1990-91. This is a clear indication of the industrys contribution to the overall economy. It plays a
vital role to promote the development of other key sectors of economy like banking, insurance, shipping,
hotel, housing, transport, etc. Till now Bangladesh is known as an agricultural country. Except, RMG sector,
there is no other mention-worthy industrial establishment. It is the RMG sector which has accelerated the
process of industrialization in the country. Bangladesh is one of the most densely populated countries of the
world. With limited land area and natural resource, the increasing population is creating heavy burden on
unemployment problem. The RMG sector has been able, to a great extent, to relieve the country from the
burden of unemployment by creating employment opportunities for more than three million people.
Bangladesh is known as a poor and over-populated country stricken with a lot of problems. RMG carrying
the label of made in Bangladesh is working to create a positive image of Bangladesh in the world. It has
also proved that the heavy burden of population can be turned into an asset by using them as workforce.

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2. Absar , Syeda Sharmin, Problems Surrounding wages : The Ready-made Garment Sector
inBangladesh, Labour and Management in Development Journal, Vol. 2, No. 7.
3. Haider, Mohammed Ziaul, Competitiveness of the Bangladesh RMG Industries in
majorInternational Markets. Asia Pacific Trade and Investment Review, Vol. 3, No. 1,
June 2007.
4. Uddin, Md. Salim and Jahed, Mohammad Abu, Garments Industry: a prime mover of
socioeconomic development of Bangladesh.
5. Ali, Muhammad Mahboob, Profile of women labor force in the RMG Industries: A
Supply and Demand side analysis, Bangladesh Arthonaitik Samity Samoiky, 2007.
6. Mainuddin, Khandaker (2000), Case of the Garment Industry of Dhaka, Bangladesh,
Urban and Local Government Background Series, No. 6, Washington, D.C., World Bank.

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