Garments Structure of Bangladesh

Abstract: This study attempts to investigate the existence and

the structure of labor market of Garments in Bangladesh. To
accomplish this attempt this work employs to study the labor
market and the patterns of Garments along with the problems.
More primary work on collecting data and survey could have
done for this study but wasn’t possible to do for the limitation
of time.

Keywords: Labor Market, Economic Growth, Bangladesh, RMG.

1. Introduction:
Garment has been an important contributor to the growth of economy as well as increasing the
employment in Bangladesh. Garment exports have grown to around US $25 billion by 2014
(Raihan, 2014). Female participation has increased admiringly for major shift with the rise of the
garment industry in Bangladesh. Observing Bangladesh’s neighbor countries as well as the
competitors such as India, Pakistan, Sri Lanka and China have huge amount of unskilled labor, it
impresses that how Bangladesh has been able to keep up with its comparative advantage till now
and continuingly enjoyed export growth. While cheap labor has been the single most important
advantage of Bangladesh, the local industry has flourished in spite of numerous challenges. It
can be said that the growth of the manufacturing sector in Bangladesh over the past two decades
has been the success of the garment sector.
Once the cloth of Bangladesh achieved worldwide fame specially Muslim and Jamdani cloth or
our country was used as the luxurious garments of the royal figures in Europe and other
countries. The British rulers in India didn’t develop our cloth industries at all. Rather they
destroyed them and imported cloths from England. Garment Industry Large-scale production of
readymade garments (RMG) in organized factories is a relatively new phenomenon in
Bangladesh. Most importantly, the growth of RMG sector produced a group of entrepreneurs
who have created a strong private sector. Of these entrepreneurs, a sizeable number is female. A
woman entrepreneur established one of the oldest export-oriented garment factories, the
Baishakhi Garment in 1977. Many women hold top executive positions in RMG industry. The
hundred percent export-oriented RMG industry experienced phenomenal growth during the last
15 or so years. In 1978, there were only 9 export-oriented garment manufacturing units, which
generated export earnings of hardly one million dollar. Some of these units were very small and
produced garments for both domestic and export markets. For such small and old unites were
Reaz Garments, Paris Garments, and Baishakhi Garments.
Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz
Store in DHAKA. It was the first direct exporter of garments from Bangladesh. Desh Garments
Ltd, the first non-equity joint-venture in the garment industry was established in 1979. Desh had
technical and marketing collaboration with Daewoo Corporation of South Korea. It was also the

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first hundred percent export-oriented company. Another South Korean Firm, Youngones
Corporation formed the first equity joint-venture garment factory with a Bangladeshi firm,
Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of the new firm.
Till the end of 1982, there were only 47 garment manufacturing units. The breakthrough
occurred in 1984-85, when the number of garment factories increased to 587. The number of
RMG factories shot up to around 2,900 in 1999. Bangladesh is now one of the 12 largest apparel
exporters of the world, the sixth largest supplier in the US market and the fifth largest supplier of
T-shirts in the EU market. The industry has grown during the 1990s roughly at the rate of 22%
(Dhaka Tribe).

2. Objectives:
I. Broad Objective: The broad objective of the study is to provide the structure of the labor
market in the Garments sector of Bangladesh.
II. Specific Objective:
To attain the broad objective, the following specific objectives are to be pursued.
To identify the labor market strategy of the Garments sector of Bangladesh.
To find out the problems of the labor market faced by the labors in the Garments industry.

3. Literature Review:
Ahmed and Hossain (2006) conducted a research on “Future Prospects of Bangladesh’s Ready-
Made Garments Industry and the Supportive Policy Regime” and they found that Bangladesh
economy at present is more globally integrated than at any time in the past. The MFA phase-out
will lead to more efficient global realignments of the textile and clothing industry. After the
introduction of Agreement on Textile and Clothing (ATC), the RMG industry of Bangladesh is
facing new and unique challenges.
Ahmed (2011) conducted a research on “Working conditions in the Bangladesh Readymade
Garments Industry, Is Social Compliance making a difference?” and found out that despite the
impressive numbers presented, the level of working conditions cannot be described with the
same positive attitude. In fact to an increasing level of profit and continuous expansion, the new
wealth has not been equally distributed and workers are employed in factories that too often can
be categorized as sweatshops. The working conditions do not allow a decent level of living for
garment workers that are exploited and forced to meet exhausting production quota for very little
level of wage and very low social security.
Hoque (2001) conducted a research on “A Study of Labor Market Condition on the Bangladesh
Readymade Garment Industry” and concluded that if the existing problems and the upcoming

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challenges cannot be faced proficiently, the economy will have to face serious difficulty and
growth will remain stand still.
Mahmud (2012) conducted a research on “Skills development in Bangladesh RMG sector” and found out
that the degree to which households above the poverty remain highly vulnerable and could slide back into
poverty when faced with an economic shock such as loss of working opportunity, food price inflation,
illness, natural disasters and other crises. Therefore, beyond attention to poverty alleviation, addressing
households’ resilience is crucial to make this progress sustainable. Using a case study approach, this study
investigates how a private sector intervention undertaken by NGOs effectively helps the extreme poor
households build their livelihood resilience.

Sikdar, Sarkar and Sadeka (2014) conducted a research paper on “Socio-Economic Conditions
of the Female Garment Workers in the Capital City of Bangladesh” and concluded that women
are doing work on an average 11.12 hours/dayin the garment factory/industry but they receive
average salary less than Tk. 7000 per month. It is notable that they maintain a very critical life
managing hardly for their own and family expenses. So minimum wage should be fixed by the
government for their better standard of living.

4. Methodology:
This is a study which is the requirement of the course. On the basis objectives of the research
secondary data will be used in the study. Secondary data has been taken by the various published
and non-published sources of government, NGOs or other social networking sites. This collected
data will make an overview on the salient features of informal sector and how it contributes to
the economic growth of the country.

5. Structure of Labor Market:

5.1 Perfectly Competitive Labor Market:
Here, the market wage will stay fairly similar independent of how high demand is from the firms.
When firms as a whole demand more labor (as more MRP demand), only employment will have
changed at the new equilibrium. Why, well we need to think of what makes a perfectly
competitive market. Just like a competitive goods market, but with labor. Everything bold is
assumptions of such market.

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The supply to the firm is horizontal (perfectly elastic). All workers will supply to a firm for the
same wage. This is because all workers here are homogenous in skill (the same, picture them as
robots). The employer has access to a large labor pool as there are many workers, employers in
the market and has perfect knowledge of the pool of labor available(hence knows they are all
equal, and the general wage). What this means is eventually, all workers will be working for the
minimum needed to keep them in the market, which is assumed to be the same (before they will
just enter another market, or not work at all). This is why: Say a demanding worker comes along,
who will not work for the wage others will. The employer will probably tell him to just get lost,
as they can get less demanding workers, equally as good, at ease because of the large pool and
knowledge. So to get a job, you must lower you’re expectations, but there will always be one
who underbids you’re wage, and gets hired. In the end, all workers, after underbidding, will
demand a certain minimum which is the same. Any lower then they know they can get better in
another competitive market, any higher than the above occurs. The firm knows of this, and sets
their hiring wage at that level, the lowest they can whilst getting labor.
This minimum will stay the wage, and is because there are no barriers to entry for labor. If a
worker wants to supply here, they do not need any qualifications, not even any previous
experience. Pretty much anyone can work here (it is easy to see why the wage is so low). So say
the demand for such a job rises, as industry is booming. Workers are demanded more, and any
wage rise will be short lived. Almost instantly, labor elsewhere will notice the higher wage, enter
easily (supply will shift too) until the wages are bided down again to this minimum. This follows
another assumption, labor is perfectly mobile to where needed.

5.2 Imperfect Labor Markets:

These are generally those which are higher earning (but not always), and do not have the
characteristics (above in bold) of a perfect labor market. The most important is it has barriers to
entry for the labor supplying. Labor now must have certain skills/qualifications/experience to put
their services up. Labor long run supply is now inelastic, for both firms and the market. Scarcity
of such labor makes inelasticity.
Such jobs include law, financial services, entrepreneurs, scientists etc. Demand can be quite
inelastic too, as in such jobs no more than a few are needed, notably CEO’s, top football players

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(1GK is good 2 for sub, but 4 not needed) tending to perfect inelasticity sometimes. Only one is
needed here which is very high paid, leader etc.

5.3 Monopsony Labor Markets:

This is where there is one employer in a labor market, and they are the full market demand (their
MRP curve is the demand curve for all). Many workers are in the supply pool to one employer.
Supply curve is the average cost curve that employer faces (as is to wage), and employer faces
market supply curve.

A lower wage and number are employed in this market if unregulated. Employment is up
to where MRP=Marginal Cost of Labor. Look how fast MC is rising though! Think though, to
get one more worker for you (to enter market), you need to raise the wage to induce them. But
the extra cost to hire one more is not just their risen wage. If you have been working somewhere
for years and a new guy comes along earning more than you for doing the same job, just for the
reason that he will not get out of bed for your wage, you will be angry. So will all the other
employees, it cannot be done. The wages of the already hired staff must rise to the same or there
are huge disputes. So the extra cost of getting that worker is a higher salary for one, and rises to
that salary for all the other staff, giving a big MC. Hiring too many workers in this situation is
not too profitable, unlike when there are many hirers.
Monopsonies are rare in reality; really the government and some specialist professions are ones
to quote.

5.4 Monopoly Labor Markets:

One supplier of labor, in the labor market. A trade union can be seen as this, as workers collect
into one unit and act as a sole supplier of labor. Some markets in reality are like this, where to
supply in a profession you must belong to the main union (a closed shop). They all rigidly agree
to not work when the wage goes below a certain value (strikes, although they need a majority
agreement by ballot from all members that they want to strike since the mid 1980’s).

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It is easy to see that the workers have more power over fixing wages/working conditions than the
employers. For if they do not accept what the unit of supply asks, they have no workers at all,
and this can really hurt an industry when it is one people depend upon(such as coal 1970’s, no
coal, no power, and the Royal Mail). How they negotiate, they do this by collective
bargaining, where a representative of the union negotiates with the employer for what the union
wants. Sometimes, the union can have too much power, and negotiate a wage which the
employer cannot afford. The MRP of some workers can become less than the wage offered, and
to survive, the employer must offload some unfortunate few to satisfy the wants of others. Also,
people will hear about the power they enjoy if they worked for, say, the Royal Mail, and want to
work for a constrained employer. Excess supply can result.

6. Prospects of the Garments Industry:

Despite many difficulties faced by the RMG industry over the past years, it continued to show its
robust performance and competitive strength. The resilience and bold trend in this MFA phase-
out period partly reflects the imposition of ‘safeguard quotas’ by US and similar restrictions by
EU administration on China up to 2008, which has been the largest supplier of textiles and
apparel to USA. Other factors like price competitiveness, enhanced GSP facility, market and
product diversification, cheap labor, increased backward integration, high level of investment,
and government support are among the key factors that helped the country to continue the
momentum in export earnings in the apparel sector. Some of these elements are reviewed below.
6.1Market Diversification:
Bangladeshi RMG products are mainly destined to the US and EU. Back in 1996-97, Bangladesh
was the 7th and 5th largest apparel exporter to the USA and European Union respectively. The
industry was successful in exploring the opportunities in markets away from EU and US. In
FY06, a successful turnaround was observed in exports to third countries, which having a
negative growth in FY05 rose three-fold in FY06, which helped to record 23.1 percent overall
export growth in the RMG sector. It is anticipated that the trend of market diversification will
continue and this will help to maintain the growth momentum of export earnings. At the same
time a recent WTO review points out that Bangladesh has not been able to exploit fully the duty

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free access to EU that it enjoys. While this is pointed out to be due to stringent rules of origin
(ROO) criteria, the relative stagnation in exports to EU requires further analysis.

6.2 Product Diversification

The growth pattern of RMG exports can be categorized into two distinct phases. During the
initial phase it was the woven category, which contributed the most. Second phase is the
emergence of knitwear products that powered the recent double digit (year-on-year) growth
starting in FY04. In the globalized economy and ever-changing fashion world, product
diversification is the key to continuous business success. Starting with a few items, the
entrepreneurs of the RMG sector have also been able to diversify the product base ranging from
ordinary shirts, T-shirts, trousers, shorts, pajamas, ladies and children’s wear to sophisticated
high value items like quality suits, branded jeans, jackets, sweaters, embroidered wear etc. It is
clear that value addition accrues mostly in the designer items, and the sooner local entrepreneurs
can catch on to this trend the brighter be the RMG future.

6.3 Flow of Investment

It is plausible that domestic entrepreneurs alone may not be able to develop the textile industry
by establishing modern mills with adequate capacity to meet the growing RMG demand. It is
important to have significant flow of investment both in terms of finance and technology. Figure
3 indicates that the investment outlook in this sector is encouraging, although the uncertainties
before the MFA phase-out period caused a sluggish investment scenario. In part the momentum
in the post-MFA phase-out period is indicative of the efforts underway towards capacity building
through backward integration. This is evident in the pace of lending to the RMG sector and in the
rising import share of RMG related machinery. However further progress would be necessary to
improve and sustain competitiveness on a global scale.

6.4 A Supportive Policy Regime

Government of Bangladesh has played an active role in designing policy support to the RMG
sector that includes back-to-back L/C, bonded warehouse, cash incentives, export credit
guarantee scheme, tax holiday and related facilities. At present government operates a cash
compensation scheme through which domestic suppliers to export-oriented RMG units receive a
cash payment equivalent to 5 percent of the net FOB value of exported garments. The FY04
budget also lowered the corporate income tax rate for the RMG industry from 30 to 10 percent
for the period up to June 30, 2006. From FY05 the tax regime has been further changed, and a
0.25 percent tax at source will be deducted from the value of the export proceeds of Woven and
Knitwear category. At the same time, income tax rate for textile manufacturers were reduced to
15 percent from its earlier level for the period up to June 30, 2008. The reduced tax rates and
other facilities are likely to have a positive impact on the RMG sector.

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6.5 Labor Productivity
The productive efficiency of labor is more important determinant for gaining comparative
advantage than the physical abundance of labor. In Bangladesh, the garment workers are mostly
women with little education and training. The employment of an uneven number of unskilled
labors by the garment factories results in low productivity and comparatively more expensive
apparels. Bangladesh labor productivity is known to be lower when compared with that of Sri
Lanka, South Korea and Hong Kong SAR. Bangladesh must look for ways to improve the
productivity of its labor force if it wants to compete regionally if not globally.

6.6 Cheap Labor Force

The strength of a firm depends on its specific comparative advantages, which its competitors do
not possess. To date the local industry has flourished in spite of the challenges cited above (e.g.,
lead time, infrastructure, and bureaucratic red tape) on the back of cheap female labour. The
wages paid to RMG workers in Bangladesh are the lowest even by the South Asian regional
standard. Figure 4 illustrates the comparative average hourly wages in apparel industry of
selected developed and developing countries.

6.7 Research and Training

The country has no dedicated research institute related to the apparel sector. RMG is highly
fashion oriented and constant market research is necessary to become successful in the business.
Here India has had a head start and Mumbai and Delhi are on line to become fashion centers on a
global scale. At present whatever design work is done in the country, these are mostly carried out
with foreign workers and experts. BGMEA has already established an institute which offers
bachelor’s degree in fashion designing and BKMEA is planning on setting up a research and
training institute. These and related initiatives need encouragement possibly intermediated by
donor-assisted technology and knowledge transfer. A facilitating public sector role can be very
relevant here.

6.8 Health Condition of the Garment Workers

To determine the health condition of the garment workers before and after employment in the
garment industry, the workers were asked whether they suffered more from ill health now than
before joining the garment industry. In response to this question the majority of the workers said
that they had more sound health before entering the garment industry. However, their health
deteriorated after they joined the garment industry. Table 4 compares the health condition of the
workers before and after they joined the garment industry. It can be clearly seen from the table
that 56 percent of the workers had fairly good health before joining in the garment factory. But it

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came down to 16 percent after joining in the industry. Only 6 percent of the workers reported
that they often experienced various illnesses even before joining the industry. But after joining
the industry the figure rose to as high as 21 percent. About 84 percent of the female garment
workers experienced various illness, either often or sometimes after they joined the garment
industry. The reasons for taking leave in a month may be another yardstick to measure the extent
of adverse health impact of wage employment on the garment workers. The most important
reasons for taking leave was own illness that was the highest percentage (73), the second and
third important reasons for leave was to family busyness and went to village.

7. Conclusion
Bangladesh economy at present is more globally integrated than at any time in the past. The
MFA phase-out will lead to more efficient global realignments of the textile and clothing
industry. The phase out was expected to have negative impact on the economy of Bangladesh.
Recent data reveals that Bangladesh absorbed the shock successfully and indeed RMG exports
grew significantly both in FY05 and (especially) in FY06. Due to a number of steps taken by the
industry, Bangladesh still remains competitive in RMG exports even in this post phase-out
period. Cheap labor is no longer seen to be a mainstay of comparative advantage. The need for
establishing strong backward linkage was appropriately realized and accordingly necessary steps
were taken by all quarters of the RMG industry, which has been reflected in the decreased
pattern of back-to-back import supported by increased domestic value addition. However further
progress is in order, and a strong public sector role is necessary to mediate the establishment of
textile mills with global standards. An appropriate policy regime is needed to encourage the
importation of technology, intermediate and raw materials, so that the local industries get a
chance to reduce its average cost to international level and narrow the lead time. Presently,
Bangladesh’s apparel sector operates mainly at the lower-end segment of the international
market. Although knitwear products achieved tremendous growth but these are low-value
products with small profit margins. Bangladesh can enhance its value addition capacity
substantially through diversification of apparel products and by moving into more value-added,
high-priced, high-fashion products. Woven category can be more attractive via large capital
investment. If cost effective investment can increase in the spinning and weaving sub-sectors, as
it has been in the past few years, Bangladesh has the possibility of building a competitive export-
oriented RMG sector with strong backward linkages in the textiles sector.
RMG sector has already recognized as the most important economic strength of Bangladesh
which is contributing three-fourth of export earnings and where 3.6 million people are working,
of which 85% are women. Due to participation in this income generating sector their life and
status in the society got upgraded. But still majorities of women are disadvantaged and
economically poverty stricken categories women folk. However, largely, the condition of female
garment workers is very frustrating because of mainly low wage and salary, poor working
environment, limited housing facilities, lack of medical facilities, low level incentives and so on.
Therefore this study suggests some recommendation which will improve their livelihood.

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8. References
Ahmed, N. and Hossain, S. (2006), “Future Prospect of Bangladesh’s Ready Made Garments
Industry and the Supportive Policy Regime,” Policy Note Series: PN 0702, Policy Analysis Unit
(PAU), Research Department, Bangladesh Bank, Dhaka, Bangladesh.
Ahmed, F (2011), “Working conditions in the Bangladesh Readymade Garments Industry, Is
Social Compliance making a difference?” PhD. Thesis, LaTrobe University, Australia.
Haque, A. (2001), “A Study of Labour Market condition on the Bangladesh Readymade Garment
Industry”.
Haque, A. (2001), “A Study of Labour Market condition on the Bangladesh Readymade Garment
Industry”.
Khan, S.I., (2001), “Trade Unions, Gender Issues and the Ready Made Industry of Bangladesh”,
Report of the United Nations Research Institute for Social Development, Geneva.
Mahmud, RB (2012), “Skills development in Bangladesh RMG sector”, The News Today.
Raihan, S. (2014), “Workers – the heart of the garment industry in Bangladesh” , the BGMEA
Souvenir for the Dhaka Apparel Summit, 7-9 December, 2014.
Sikdar, M.M.H, Sarkar, M.S.K & Sadeka, S (2014), “Socio-Economic Conditions of the Female
Garment Workers in the Capital City of Bangladesh”, Vol. 4 No. 3; February 2014.
Soeb Md. & S. Noman (2013), “Determination of Minimum Wage for Garments Worker in
Bangladesh Ensuring Firms Profitability”, International Journal of Economics, Finance and
Management, VOL. 2, NO. 3, May.
World Bank (2002), “Bangladesh Growth and Export Competitiveness”, Report No. 31394BD,
Poverty Reduction and Economic Management Sector Unit, South Asia Region.

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