Assignment on

Prospect and problem of Garments

Company in Bangladesh

Prospects of Garments Industry in Bangladesh

Bangladesh Garment Sector and Global Chain
The cause of this transfer can be clarified by the salary structure in the garment industry, all over
the world. Apparel labor charge per hour (wages and fringe benefits, US$) in USA is 10.12 but it
is only 0.30 in Bangladesh. This difference accelerated the world apparel exports from $3 billion
in 1965, with developing nations making up just 14 percent of the total, to $119 billion in 1991,
with developing nations contributing 59 percent. In 1991 the number of workers in the ready-
made garment industry of Bangladesh was 582,000 and it grew up to 1,404,000 in 1998.

The presented information reveals that the tendency of low labor charges is the key reason for
the transfer of garment manufacturing in Bangladesh. The practice initiated in the late 1970s
when the Asian Tiger nations were in quest of tactics to avoid the export quotas of Western
countries. The garment units of Bangladesh are mainly relying on the ‘tiger’ nations for raw
materials. Mediators in Asian Tiger nations build an intermediary between the textile units in
their home countries, where the spinning and weaving go on, and the Bangladeshi units where
the cloth is cut, sewn, ironed and packed into cartons for export. The same representatives of
tiger nations discover the market for Bangladesh in several nations of the North. Large retail
trading companies placed in the United States and Western Europe give most orders for
Bangladeshi garment products. Companies like Marks and Spencers (UK) and C&A (the
Netherlands) control capital funds, in proportion to which the capital of Bangladeshi owners is
patience. Shirts manufactured in Bangladesh are sold in developing nations for five to ten times
their imported price.

Collaboration of a native private garment industry, Desh Company, with a Korean company,
Daewoo is an important instance of an international garment chain that works as one of the
grounds of the expansion of garment industry in Bangladesh. Daewoo Corporation of South
Korea, as part of its global policies, took interest in Bangladesh when the Chairman, Kim Woo-
Choong, offered an aspiring joint venture to the government of Bangladesh, which included the
growth and process of tyre, leather goods, and cement and garment factories. The Desh-Daewoo
alliance was decisive in terms of getting into world markets of the times when clothing imports
hve been significant reform in this market after the signing of the Foreign Ministry in 1974.
Daewoo, a South Korean exporter of clothing, was looking for opportunities in countries that
barely had their share. Limiting rate for Korea of AMF, the export of Daewoo has been limited.
Bangladesh as an LDC had the opportunity, without constraint and then with the use of Daewoo
for exports hit Bangladeshtheir market. The purpose behind this need was that Bangladesh would
rely on Daewoo for importing raw materials and at the same time Daewoo would get the market
in Bangladesh. When the Chairman of Daewoo displayed interest in Bangladesh, the country’s
President put him in touch with the chairman of Desh Company, an ex-civil servant who was
seeking more entrepreneurial pursuits.

To fulfil this wish, Daewoo signed a collaboration contract with Desh Garment for five years.
The contract also incorporated the fields of technical training, purchase of machinery and fabric,
plant establishment and marketing in return for a specific marketing commission on all exports
by Desh during the contract phase. Daewoo also imparted an exhaustive practical training of
Desh employees in the working atmosphere of a multinational company. Daewoo keenly helped
Desh in buying machinery and fabrics. Some technicians of Daewoo arrived Bangladesh to
establish the plant for Desh. The end result of the association of Desh-Daewoo was important. In
the first six years of its business, i.e. 1980/81-86/87, Desh export value increased at an annual
average rate of 90%, reaching more than $5 million in 1986/87.

It is claimed that the Desh-Daewoo alliance is a significant element for the growth and
achievement of Bangladesh’s entire garment export industry. After getting linked with Daewoo’s
brand names and marketing network, overseas buyers went on with buying garments from the
corporation heedless of their origin. Out of the opening trainees most left Desh Company at
several times to erect their own competing garment companies, worked as a way of moving
knowledge all through the whole garment sector.

It is essential to identify the outcomes of the process of moving production from higher pay to
low pay nations for both developing and developed nations. It is a bare fact that most of the
Third World nations are now on the way to industrialization. In this procedure, workers are
working under unfavorable working environment – minimal wages, unhealthy place of work,
lack of security, no job guarantee, forced labor etc.

The route of globalization is full of ups and downs for the developing nations. Relocations of
comparatively mobile, blue-collar production from industrialized to developing nations, in some
circumstances, can have troublesome effects on social life if – in the absence of efficient
planning and talks between international organizations and the government and/or organisations
of the host nation – the transferred action encourages urban-bound relocation and its span of stay
is short. Another negative result is that the rise in employment and/or income is not expected to
be satisfactorily large and extensive to lessen inequality. In connection with the negative results
of relocation of manufacturing on employment in developed countries, we realize that in
comparatively blue-collar industries, the growing imports from developing nations lead to
unavoidable losses in employment. It is held that the development of trade with the South was a
significant reason of the disindustrialisation of employment in the North over past few decades.

After all employees who are constantly working under unfavorable circumstances have to bear
the brunt. Work is under-control across the Bangladesh garment sector.The Appalling working
atmosphere has been brought to light in the Bangladesh garment industry.

A research reveals that 90 percent of the garment employees went through illness or disease
during the month before the interviews. Headache, anaemia, fever, chest, stomach, eye and ear
pain, cough and cold, diarrhea, dysentery, urinary tract infection and reproductive health
problems were more common diseases. The garment factories gave a bonus of different diseases
to the employees for working. With a view to finding out a link between these diseases and
industrial threats, health status of employees has been examined before and after coming in the
garment work. At the end of examination, it was coming out that about 75 percent of the garment
workforce had sound health before they entered the garment factory. The reasons of health
declines were industrial threats, unfavorable working environment, and want of staff facilities,
inflexible terms and conditions of garment employment, workplace pressure, and low wages.
Different work-related threats and their influence on health forced employees to leave the job
after few months of joining the factory; the average length of service was only 4 years.
The garment sector is disreputable for fires, which are said to have claimed over 200 lives in the
past two years, though exact figures are tough to find. A shocking instance of absence of
workplace safety was the fire in November 2000, in which almost 50 workers lost their lives in
Narsingdi as exist doors were closed.

From the above analysis of the working Atmosphere of the clothing industry, we can conclude
that recall the work environment of most third world countries, in particular the development of
the Garment Industry in Bangladesh before the first world countries. The level of employment in
many (not necessarily) textiles and clothing units in developing countries take us back to set up
in the nineteenth century in Europe and North America. The abuse of workers' clothing during
the period of birth on the development of the head of the United Statesfactories reviewed above
is more or less same as it seen now in the Bangladesh garment industry. Can we state that
garment employees of the Third World nations living in the 21st century? Is it a return of the
Sweatshop?

In a way, the Western companies are guilty of pitiable working atmosphere in the garment
sector. The developed nations want to make more profit and therefore, force the developing
nations to cut down the manufacturing cost. In order to survive in the competition, most of the
developing nations select immoral practices. By introducing inflexible terms and conditions in
the business, the global economy has left few alternatives for the developing nations.

Development of Garments Industry in Bangladesh

In the field of industrialization, role of textile industry is found very prominent in both developed
and developing countries. Economic history of Britain reveals that in the 18th Century the cotton
mills of Lancashire in Britain ushered in the first industrial revolution of the world. Moreover,
during the last 200 years or more many countries of the world have used textile and clothing
industry as an engine for growth and a basis for attaining economic development (Ahmed,
1991). 
 
Over the past few years garment industry is found to have played such an important role in the
process of industrialization and economic growth. This industry is infact trying to put the wheel
of her declining economic back to the track by giving essential life blood to it
(Chowdhury,1991). The growth of garment industry in Bangladesh is a comparatively recent
one. In the British period there was no garment industry in this part of the Indo-Pak-Sub-
Continent. In 1960 the first garment industry in Bangladesh (Then East Pakistan) was established
at Dhaka and till 1971 the number rose to give (Islam, 1984). But these garments were of
different type intended to serve home market only. From 1976 and 1977 some entrepreneurs
came forward to setup 100% export oriented garment industry. 
 
Both domestic and international environment favored the rapid growth of this industry in
Bangladesh. By mid seventies the established developed suppliers of garments in the world
markets i.e. Hong Kong, South Korea, Singapore, Taiwan, Thailand, Malaysia, Indonesia,
Srilanka and India were severely constrained by the quota restrictions imposed by their major
buyers like USA, Canada and European Union. To maintain their business and competitive edge
in the world markets, they followed a strategy of relocation of garment factories in those
countries, which were free from quota restrictions and at least same time had enough trainable
cheap labour. They found Bangladesh as one of the most suitable countries. Available records
show that the first consignment of garments was exported from the country in 1977 by Reaz and
Jewel Garment. Desh Garment was the first biggest factory that started functioning at Chittagong
in 1977. In fact that was the humble beginning of new joint venture garment factory in
Bangladesh. Thereafter many entrepreneurs became interested and started to setup garment
factories following the Desh garment and realising the future prospects globally as well.
Available records also show that one of the reasons of the growth of garment industry in
Bangladesh is the collaboration of a local private garment industry, Desh garment with a Korean
company, Daewoo. As part of its global strategies, the Daewoo Corporation of South Korea
became interested in Bangladesh when the Chairman, Kim Woo-Choong, proposed an ambitions
joint venture to the Government of Bangladesh which involved the development and operation of
tyre, leather goods, cement and garment factories (Rock, 2001). South Korean Company,
Daewoo, a major exporter of garments, was looking for opportunities in countries for using their
quotas subsequent to the signing of MFA in 1974. Because of the quota limitation for Korea after
MFA, the export of Daewoo became restricted. 
 
Bangladesh as a LDC got the opportunity to export without any restriction and for this reason
Daewoo interested to use Bangladesh for their market. The reason behind this desire was that
Bangladesh will depend on Daewoo for importing raw materials and at the same time Daewoo
will get the market in Bangladesh. For this desire Daewoo signed a five years collaboration
agreement with Desh Garment. It included collaboration in the areas of technical training,
purchase of machinery and fabric, plant setup and marketing in return for a specific marketing
commission on all exports by Desh (Rock, 2001). The outcome of the collaboration of Desh-
Daewoo was significant. In the first six years of its operation, Desh export value grew at an
annual average rate of 90 percent reaching more than $ 5 million in 1986-87 (Mahmood, 2002).
Rahman (2004) argued that the Desh-Daewoo collaboration is an important factor to the
expansion and success of Bangladesh’s entire garments export sector. In such a context,
following Table-01 shows the trend of growth and development of garment industry in
Bangladesh.

Contribution of Garments Industry to the Economy

Garments Industry occupies a unique position in the Bangladesh economy. It is the largest exporting
industry in Bangladesh, which experienced phenomenal growth during last two decades. By taking
advantage of an insulated market under the provision of Multi Fibre Agreement (MFA) of GATT, it
attained a high profile in terms of foreign exchange earnings, exports, industrialisation and contribution to
GDP within a short span of time. The industry plays a key role in employment generation and in the
provision of income to the poor. Nearly two million workers one directly and more than ten million
inhabitants are indirectly associated with the industry (Ahmed and Hossain, 2006). The sector has also
played a significant role in the socio-economic development of the country. In such a context, the trend
and growth of garments export and its contribution to total exports and GDP has been examined the
following table shows the position.

It is revealed from the Table 03 that the value of garment exports, share of garments export to
total exports and contribution to GDP have been increased significantly during the period from
1984-85 to 2005-06. The total garments export in 2005-06 is more than 68 times compared to
garments exports in 1984-85 whereas total country’s export for the same period has increased by
11 times. In terms of GDP, contribution of garments export is significant; it reaches 12.64
percent of GDP in 2005-06 which was only 5.87 percent in 1989-90. It is a clear indication of the
contribution to the overall economy. It also plays a pivotal role to promote the development of
linkage small scale industries. For instance, manufacturing of intermediate product such as
dyeing, printing, zippers, labels has began to take a foothold on limited scale and is expected to
grow significantly. Moreover, it has helped the business of basling, insurance, shipping, hotel,
tourism and transportation. The sector also has created jobs for about two million people, of
which 70 percent are women who mostly come from rural areas. The sector opened up
employment opportunities for many more individuals through direct and indirect economic
activities, which eventually helps the country’s social development, woman empowerment and
poverty alleviation. In such a way the economy of Bangladesh is getting favorably contribution
from this industry.

The Ranking of Export in U.S.A Comparing to Other in 2005

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. 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 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 and Cambodia looks robust compared to what occurred in China
Export-oriented garment exports from Bangladesh were initiated in the beginning of the 1980s
(Bhattacharya and Rahman, 2001; Hoque, Murayama and Rahman, 1995; Murayama, 2006;
Rhee, 1990; Zohir and Paul-Majumder, 1996). A Korean investor was deeply involved in the
inception of the business in Bangladesh. In the first half of the 1980s the number of garment
exports from Bangladesh was almost nil (Figure). But then garment exports grew rapidly, so that
in the beginning of the 1990s garments made up about a half of total exports from Bangladesh.
The growth has continued almost without interruption and the value of garment exports reached
three-quarters of the value of total exports at the end of the 1990s. Though a negative impact
from September 11 is apparent in 2001, garment exports quickly picked up after that. Thus, the
rapid growth of garment exports has continued for a quarter of a century with little disturbance.

Post MFA Scenario in Bangladesh

The textile and apparel industries have led industrializatio n at the early stage of development in
many countries of the world. Most developed countries which have lost competitiveness have
imposed quantitative restrictions on the trade in textiles and clothing since the 1950s, although
there has been progress in trade liberalization as a whole. Over the last thirty years, international
trade and investment in the global textile and garment (T&G) sectors has been influenced by
Multi-Fiber Agreement (MFA) quantitative restrictions (quotas) applied by the major developed
country importers (the United States, the European Union, Canada and Norway) on T&G exports
from (predominantly) developing countries. MFA quotas were negotiated bilaterally and applied
on a discriminatory basis to some exporting countries but not to others, thus differing from
country to country in both product coverage and the degree of restrictiveness. In such a context,
the Multi-Fiber Arrangement governed the trade in textiles and clothing from 1974 to 1994. This
arrangement was superseded in 1995 by the Agreement on Textiles and Clothing (ATC) under
the administration of the World Trade Organization (WTO). From 1 January 2005 all such
quantitative restrictions on the trade in textiles and clothing were phased out, and finally
abolished. Historically speaking that as per requirement of The ATC, all MFA quotas on T&G
products be removed over a ten-year transition period split into three phases and ending on 1
January 2005, thus finally incorporating international T&G trade into general GATT rules that
prohibit discriminatory measures and call for the reduction and elimination of quantitative
restrictions. 
 
The quota system under the MFA has distorted international T&G trade and has resulted in
global welfare losses since quota limits on the exports of selective producers have prevented an
allocation of resources to the most efficient T&G producers and prevented prices in quota
protected developed country markets from falling. Competitive exporting countries with
comparative advantages in T&G production have been restrained from expanding under the
MFA quota system, while relatively uncompetitive producers have enjoyed guaranteed market
access (up to the quota limit) to developed country markets (Spinanger, 1999). In such a context,
there was serious concern that low income countries, such as Bangladesh, Cambodia and the
like, which relied heavily on the garment industry, would suffer from the keen competition
expected to be triggered by the complete liberalization of trade in textiles and clothing from the
beginning of 2005. From the many corners it was predicted that China would expand its exports
and India would follow, and that the other relatively small exporters would suffered seriously
from the competition of these two giants. However, it turned out that some garment-exporting
Least Developed Countries (LDCs), such as Bangladesh, Cambodia and Haiti, faired very well
throughout the year 2005. In this context, an attempt has been made to examine the export data
of selected countries during MFA and post MFA to US and EU markets in order to assess the
indicative impact of post MFA scenario in Bangladesh as well as other largest garments
exporters. The following Tables show the picture in this regard.

Bangladesh overtakes India in RMG exports

Bangladesh has overtaken India in readymade garment exports despite the recent setbacks it received like
instances of building collapses and fire at manufacturing units, says a study by Exim Bank.

Between January and October 2013, readymade shipments by Indian exporters to the US grew 6.3 per
cent to $3.2 billion, while the same by Bangladesh jumped 11.4 per cent at $4.9 billion, the premier
export finance agency said, reports The Economic Times.

“In the absence of latest data, imports by the US are a very good benchmark of understanding the latest
trends. Bangladesh has been aggressively pushing the garment exports and has made a slew of policy
changes to facilitate those,” Exim Bank Chief General Manager Prahalathan Iyer told PTI.

Bangladesh’s garment exports increased from $6.8 billion in 2005 to $19.9 billion in 2012, recording a
compounded annual growth rate (CAGR) of 16.6 per cent. During the same period, India’s outward
shipments rose from $8.7 billion to $13.8 billion, a CAGR of just 6.8 per cent.

Iyer and his colleagues conducted a study, which revealed that Bangladesh offers sops like uninterrupted
power and a priority at the Chittagong port for shipment. “They have to take it very seriously as the
garment exports contribute 80 per cent of Bangladesh’s total export earnings.”

Asked if recent events like a spate of fires and collapse of garment factories, which led to some anxiety
over safety norms at these units among the Western retailers sourcing goods from the country’s eastern
neighbour, is favourable for India, Iyer replied in the negative.

He said in October 2013, because of these incidents, there was a slowdown in Bangladeshi garment
exports, which grew only 3 per cent. But initial trends point out to a robust growth of over 41 per cent in
November, suggesting a healthy bounce back by the key sector.

Iyer said many of the sourcing companies have South Asia offices situated in India, but they source
garments from either Bangladesh or Sri Lanka.

High Profitability on Average

The similarity is in the high average profitability of the export-oriented garment business. This
observation is based on two firm-level surveys conducted by the Institute of Developing Economies
(IDE) in cooperation with research institutes in Bangladesh and Cambodia (Fukunishi et al., 2006;
Yamagata, 2006b).

Problems of Garments Industry in Bangladesh

Garment industry is a main source of foreign exchange of Bangladesh. It has been the key export division
for the last 25 years. Garment factories provide employment to 40 percent of total industrial workers of
Bangladesh. So garment industry are the source of employment in Bangladesh. But without the proper
laws the worker are demanding their various wants and as a result conflict is began with the industry.
This report made for identify Problems of Garments Industry in Bangladesh and how to recover this
problem.

Introduction

Problems of Garments Industry in Bangladesh

The Ready Made Garments industry of Bangladesh has expanded dramatically over the last three
decades.

The history of the Readymade Garments Sector in Bangladesh is a fairly recent one. Nonetheless
it is a rich and varied tale. The recent struggle to realize Workers’ Rights adds an important
episode to the story.

The RMG industry of Bangladesh has expanded dramatically over the last three decades.
Traditionally, the jute industry dominated the industrial sector of the country until the 1970s.
Since the early 1980s, the RMG industry has emerged as an important player in the economy of
the country and has gradually replaced the jute industry.

Although Bangladesh is not developed in industry, it has been enriched in Garment industries in
the recent past years. In the field of Industrialization garment industry is a promising step. The
sector now dominates the modern economy in export earnings, secondary impact and
employment generated. It has given the opportunity of employment to millions of unemployed,
specially innumerable uneducated women of the country. It is making significant contribution in
the field of our export income.

Bangladesh exports 35 types of garment products to about 31 countries around the world. The
RMG sector is a 100% export-oriented industry.

That Bangladesh today is considered an economic competitor in terms of international garment

manufacturing by other countries of the region and beyond is the country since gaining
independence in 1971. it appers much of the socio-economic development in the first decade of
the twenty-first century for Bangladesh and its approximately 1.5 million women workers
depends on the continuing success of the RMG industry.

Problems surrounding readymade garments sector:

The garment industry of Bangladesh has been the key export division and a main source of
foreign exchange for the last 25 years. National labor laws do not apply in the EPZs, leaving
BEPZA in full control over work conditions, wages and benefits. Garment factories in
Bangladesh provide employment to 40 percent of industrial workers. But without the proper laws
the worker are demanding their various wants and as a result conflict is began with the industry

Raw materials:

Bangladesh imports raw materials for garments like cotton, thread color etc. This dependence on
raw materials hampers the development of garments industry. Moreover, foreign suppliers often
supply low quality materials, which result in low quality products

Unskilled workers: 

Most of the illiterate women workers employed in garments are unskilled and so their products
often become lower in quality.

Improper working environment:

Taking the advantages of workers’ poverty and ignorance the owners forced them to work in
unsafe and unhealthy work place overcrowded with workers beyond capacity of the factory floor
and improper ventilation.

Most of the garment factories in our country lack the basic amenities where our garment workers
sweat their brows from morning to evening to earn our countries the major portion of our foreign
exchange. Anybody visiting the factory the first impression he or she will have that these
workers are in a roost.

Improper ventilation, stuffy situation, filthy rooms are the characteristics of the majority of our
factories. The owners profit are the first priority and this attitude has gone to such an extent that
they do not care about their lives.

Lack of managerial knowledge:

There are some other problems which are associated with this sector. Those are- lack of
marketing tactics, absence of easily on-hand middle management, a small number of
manufacturing methods, 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, time-consuming custom clearance etc.

Gendered division of labor:

In the garment industry in Bangladesh, tasks are allocated largely on the basis of gender. This
determines many of the working conditions of women workers. All the workers in the sewing
section are women, while almost all those in the cutting, ironing and finishing sections are men.
Women workers are absorbed in a variety of occupations from cutting, sewing, inserting buttons,
making button holes, checking, cleaning the threads, ironing, folding, packing and training to
supervising.
Women work mainly as helpers, machinists and less frequently, as line supervisors and quality
controllers. There are no female cutting masters. Men dominate the administrative and
management level jobs. Women are discriminated against in terms of access to higher-paid white
collar and management positions.

When asked why they prefer to amply women foe sewing, the owner and managers gave several
reasons. Most felt that sewing is traditionally done by women and that women are more patient
and more controllable than men.

Wages:

The government of Bangladesh sets minimum wages for various categories of workers.
According of Minimum Wage Ordinance 1994, apprentices’ helpers are to receive Tk500 and
Tk930 per month respectively. Apprentices are helpers who have been working in the garment
industry for less than three months. After three months, Apprentices are appointed as helpers.
Often female helpers are discriminated against in terms of wages levels, and these wages are also
often fixed far below the minimum wage rate. A survey conducted in 1998 showed that 73% of
female helpers, as opposed to 15% of their male counterparts, did not receive even the minimum
wage.

Insufficient of loan:

Insufficiency of loan in time, uncertainly of electricity, delay in getting materials, lack of

communication, problem in taxes etc. Often obstruct the industry. In the world market 115 to 120
items of dress are in demand where as Bangladesh supplies only ten to twelve items of garments.
India, south Korea, Hong Kong, Singapore, Thailand, Taiwan etc, have made remarkable
progress in garments industries. Bangladesh is going to challenge the garments of those countries
in the world market.

Unit labor cost:

Bangladesh has the cheapest unit labor cost in South Asia. It costs only 11 cents to produce a
shirt in Bangladesh, whereas it costs 79 cents in Sri Lanka and 26 cents in India. Clearly,
Bangladesh’s comparative advantage lies in having the cheapest unit labor cost.

Working hours:

Though the wages are low, the working hours are very long. The RMG factories claim to operate
one eight-hour shift six days a week. The 1965 factory Act allows women to work delivery
deadlines; however, women are virtually compelled to work after 8 o’clock. Sometimes they
work until 3 o’clock in the morning and report back to start work again five hours later ar 8
o’clock. They are asked to work whole months at a time the Factory Act, which stipulates that no
employee should work more than ten days consecutively without a break.

Poor accommodation facilities:

As most of the garment workers come from the poor family and comes from the remote areas
and they have to attend to the duties on time, these workers have to hire a room near the factory
where four to five huddle in a room and spend life in sub human condition.

For four to five workers there is one common latrine and a kitchen for which they have to pay
from Tk=2000 to Tk=2500/-.They share this amount among themselves to minimize the
accommodation expense.

One cannot believe their eyes in what horrible condition they have to pass out their time after
almost whole day of hard work in the factory. After laborious job they come into their roost,
cook their food and have their dinner or lunch in unhygienic floor or bed and sleep where they
take their food. They share the single bed or sleep on the floor.

The owners of these factories must not treat the workers as animals. The owners of these
factories who drive the most luxurious car and live in most luxurious house do ever think that
these are the workers who have made their living so juicy. Will these selfish owners ever think of
these workers of their better living for the sake of humanity by providing better accommodation
for these workers in addition to providing with the job.

Safety Problems:

Because of the carelessness of the factory management and for their arrogance factory doors
used to be kept locked for security reason defying act.

Safety need for the worker is mandatory to maintain in all the organization. But without the
facility of this necessary product a lot of accident is occur incurred every year in most of the
company. Some important cause of the accident are given below-

 Routes are blocked by storage materials

 Machine layout is often staggered

 Lack of signage for escape route

 No provision for emergency lighting

 Doors, opening along escape routes, are not fire resistant

 Doors are not self-closing and often do not open along the direction of escape

 Adequate doors as well as adequate staircases are not provided to aid quick exit

 Fire exit or emergency staircase lacks proper maintenance

 Lack of proper exit route to reach the place of safety

  Parked vehicles, goods and rubbish on the outside of the building obstruct exits to the
open air

 Fire in a Bangladesh factory is likely to spread quickly because the principle of

compartmentalization is practiced

Political crisis:

Garments industries often pay dearly for political unrest, hartal and terrorism etc.

The international market has withdrawn quota advantage over garments export form Bangladesh
since December 2005.

Bangladesh has to advance cautiously for getting better position of her garments in the world
market. Finally destruction of twin tower in 11 September 2001. Invasion of Afghanistan and
Iraq and depression in world Economy have seriously affected the export trade of Bangladesh.

Price competitiveness:

China and some other competitors of Bangladesh have implemented sharp price-cutting policies
in exporting garment products over the last few years, but Bangladesh has failed to respond
effectively to such policies. China was able to drop the export price of 29 garment categories by
46 per cent on average in the United States within a year, from $6.23 per sq metre in December
2001 to $3.37 per sq metre in December 2002. Bangladesh needs to respond to such price-cutting
policies of its rivals in order to remain competitive in the quota-free global market.

Lead time

Lead time refers to the time required for supplying the ordered garment products after the export
order has been received.

In the 1980s, the usual lead time in the garment industry was 120-150 days for the main garment
supplier countries of the world; it has been reduced to 30-40 days in the current decade.

However, in this regard the Bangladesh RMG industry has improved little; for example, the
average lead time is 90-120 days for woven garment firms and 60-80 days for knit garment
firms. In China, the average lead time is 40-60 days and 50-60 days for woven and knit products
respectively; in India, it is 50-70 days and 60-70 days for the same products respectively.

Bangladesh should improve its average lead time to compete in the international market.

Conclusion:
The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh
economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal
growth during the last 25 years.

Given the remarkable entrepreneurial initiatives and the dedication of its workforce, Bangladesh
can look forward to advancing its share of the global RMG market.

RMG sector: Challenges versus opportunities

The raging controversy over wage hike in the readymade garments (RMG) sector continues. This
is happening at a time when the industrial structure in China, the world’s largest exporter of
apparel products and one of the major competitors of Bangladesh, is undergoing rapid
transformations. While the China shift could benefit Bangladesh’s RMG in the medium to long
run, the industry faces some short-term challenges largely owing to economic problems in the
advanced economies.

While the emerging markets returned to the high growth path following the great recession of
2008-09, the advanced countries’ economic outlook remains gloomy. The hope of economic
recovery is overshadowed by continuous job losses in the United States (US) and the sovereign
debt problem on the both shores of the Atlantic.

Further, most countries in Europe are announcing a series of austerity measures that could slash
their demand for imported goods and services significantly. Both Europe and the US remain
Bangladesh’s major exports markets.

Amidst the global financial crisis Bangladesh’s apparel exports have not had much impact
largely owing to the massive fiscal stimulus packages in the advanced world. However, the
recent austerity measures and a less than rosy outlook of advanced economies could affect
Bangladesh’s apparel sector adversely. This indeed limits the RMG owners in Bangladesh
revising labour cost upward, particularly at the scale the workers have been demanding.

However, there is also a silver lining as far as the industry’s prospects are concerned. China is
increasingly focusing on the development of high-end manufacturing and services, given the
structural needs of its economy. Beijing has also decided to allow a gradual appreciation of its
currency in the wake of relentless pressure from the US and Europe. China’s undervalued
exchange-rate policy is believed to be a cause of strain in the global economy.

The rising unit labour cost and upward adjustment in its currency mean that a plethora of low-
end manufacturing jobs will eventually be moving out from China. Indeed, many jobs have
already moved inland from China’s coastal areas and some low-end manufacturing units are
relocating to Vietnam.

The shortage of workers is particularly acute in the country’s two major manufacturing hubs —
the Pearl River Delta and the Yangtze River Delta. In Guangdong province there was a shortage
of half a million workers in 2009. Following this development, of late, the minimum wage in
Beijing has increased to 960 Yuan ($142, Tk. 9,800). There is no unique minimum wage in
China. It is set locally according to standards laid out by the central government.

Moreover, following the recent financial crisis, there is a realisation in China that the country’s
current growth model that relies excessively on exports and investment needs to be rebalanced,
with a greater emphasis on consumption. Development of high-end manufacturing and service
sectors is the key in this regard.

China’s move towards a vertical economy could create much room for Bangladesh, given the
latter’s abundant supply of labour. Bangladesh’s other competitors in the neighbourhood, India
and Pakistan, are not in a good shape owing to the former’s dilemma with its economic openness
and the latter’s overwhelming political problems.

India’s economic openness bars its apparel sector taking the currency advantage — undervalued
exchange rate — that the Bangladeshi RMG sector enjoys, given the huge capital inflows in the
country that makes the Rupee exchange rate highly volatile. Moreover, India’s labour market is
highly inflexible, a major problem in its industrial structure. This leaves Bangladesh, Indonesia
and Vietnam to augment their market shares in the wake of the China shift.

Given the structural shift in China and a bleak economic outlook of the advanced countries, the
authorities in Bangladesh must understand the changes clearly before taking ad hoc decisions.
There are three stakeholders as far as the RMG sector is concerned — the plant owners, the
workers and the government.

The workers’ fight against unsustainably lower wages in RMG is understandable given the
growing cost of living in Dhaka. Nevertheless, they must accept the fact that it is the cheap
labour cost that has made Bangladesh a competitive place for apparel manufacturing.
Nonetheless, the recent hike in China’s minimum wage will help Bangladesh to maintain its low
cost advantage despite the likely upward wage adjustment in the RMG sector.

The government cannot escape its responsibility by merely announcing a minimum wage and
letting the law enforcers go after the protesters. The successive governments in Bangladesh have
failed to provide the required infrastructure and uninterrupted energy supply, making per unit
production cost in Bangladesh more expensive than most of its competitors, if one isolates the
wage cost effects.

The high energy cost and the poor infrastructure are neutralising Bangladesh’s cheap labour
advantage — leaving a squeezed margin for the producers. Unfortunately, the deadweight loss
arising from the government’s poor service delivery is mostly shared by the workers.

The situation in the global economy should be researched carefully. The owners and the
government should explore new markets for apparel products, particularly focusing on emerging
markets. More than half of global economic growth is now driven by emerging markets.
However, Bangladesh’s PR skills are relatively underdeveloped. This is reflected by the fact that
it has failed to showcase the country in the 2010 Shanghai Expo, the largest business gathering
ever.

The emerging markets may not substitute the advanced world as the consumer of last resort, at
least in the short run, but in the medium to long run they could become significant markets for
Bangladesh’s RMG products. Many emerging markets including China are developing domestic
markets offering various incentives. The expansion of the auto market in China in 2008-2009 is
the prime example.

Moreover, as we observed in the case of China, an economy cannot suppress the prices of its
non-tradables (housing, for instance) for long if the concerned economy undergoes a steady
growth for decades. So, the exchange rates in China, Brazil and other emerging markets will
gradually appreciate with their strong economic growth. The real exchange rate is nothing but
the ratio of the goods and services that can be traded in international markets (e.g. an iPod) and
those that cannot be traded (e.g. a haircut).

Bangladesh’s autarkic financial system can continue to afford offering the exchange rate
advantage to its exporters. Economic literature suggests that undervaluation is a second-best
mechanism for alleviating institutional weakness and market failures that tax the tradables.
Market failure in Bangladesh is rampant and its institutions remain weak.

This also means that owing to high opportunity costs, China, Brazil, South Africa and even India
will increasingly abandon low-end manufacturing plants and start buying such products,
including apparel, from Bangladesh, Indonesia and similar low cost producers. Such a scenario is
not very unlikely in the near future. Bangladesh is one of the few countries that stand to benefit
from such changes if the respective stakeholders act prudently.

The apparel industry of Bangladesh is in a double bind: continuous high inflation has led to a
wage pressure and a gloomy global economy has left the garment owners in a tight financial
situation.

The garment workers had a pay hike less than two years ago, but they are already finding it hard
to meet their expenses.

Financially, the garment owners are in a bad shape too as work orders have dipped alarmingly.

Take Rahima (her real name withheld), for instance. She earns 4,500 taka (US$54.91) a month,
and pays 1,000 taka ($12.20) per month for her one-room shanty. Her landlord now wants 1,400
taka ($17.08).

Over the past several months, she had to skip eggs, the almost one and only source of protein for
low-income group people.

“Four eggs cost 40 taka now. When my wages were increased [in late 2010] they cost 24 taka,”
she says as she explains why she cannot afford eggs any more.
With such a price spiral, the inflation graph has swung wildly and remains at a high level. On a
12-month average basis, the inflation rate accelerated to 10.76 per cent in May, up from 8.67 per
cent in the same month a year ago, according to the Bangladesh Bureau of Statistics.

Rahima and her fellow workers were shattered by the skyward journey of inflation.

“The workers did not get any benefit of the pay raise as the house owners increased rents four
times a year,” said a worker at Ha-Meem Garment at Ashulia on the outskirts of the capital.

Rahima’s employer, Arif (again, not his real name), sandwiched between inflation and global
financial crisis, also feels helpless.

He found prices of his product — basic T-shirts — falling to $2 now from $4 a piece two years
ago, while his interest rate remained high at 15 per cent. In a time of high inflation, one cannot
expect banks to charge low.

“Inflation is cutting into workers’ purchasing power,” says Ahsan H. Mansur, executive director
of the Policy Research Institute, adding that food and housing are the two major expenditure
items for the garment workers.

A garment worker spends 60 per cent of his income on food, which is the same as the national
average; and nearly 25 per cent on accommodation, which is 7 percentage points higher than the
national average of 18 per cent in urban areas, he adds.

Prices of firewood also shot up due to higher demand among the workers in Ashulia in the
absence of gas burners.

On November 1, 2010, the wage board for garment industries nearly doubled the minimum
wages to about 3,000 taka ($36.61) a month at the entry level. In dollar terms, the minimum
wage was $43, the lowest in the world, at the exchange rate in 2010, which is now $36.4, as the
taka has lost its value against the dollar.

Facing severe protests by workers over the last six days, the owners of more than 300 garment
factories in the industrial hub of Ashulia closed down their units from yesterday for an indefinite
period.

The latest spell of labour unrest started with the rumour of the death of Salman, a storekeeper at
a unit of Ha-Meem Group, on May 11. Later, Salman was found alive with minor injuries he had
suffered in clashes with factory officials.

The Salman issue over, factories in Ashulia resumed production on May 14.

But street violence returned to Ashulia on June 11. This time, the workers made a demand for a
pay hike.
During a meeting with Labour and Employment Minister Khandker Mosharraf Hossain at the
Ha-Meem factory on June 13, the workers pressed their clear demand for a wage raise.

Slowing export

With the country’s main export earning garment sector mired in labour unrest, exporters look to
a bleak future as the financial crisis in Europe, the major export destination, cut into export
growth.

Export Promotion Bureau data show Bangladesh’s export growth to have slipped 7.52 per cent
below the target in July-May period of the current fiscal year, compared to the same period a
year ago.

In the 11 months through May this year, knitwear exports were calculated at $8.58 billion, which
is 11.5 per cent below the target. During the same period, woven exports were calculated at $8.7
billion, which is 1.45 per cent more than the target, the data show.

Asked, Shafiul Islam Mohiuddin, president of Bangladesh Garment Manufacturers and Exporters
Association (BGMEA), said the organisation had held several meetings with the stakeholders
over the last one month, but nobody came forward with any charter of demands.

“I did not get any list of demands from any quarter,” Mohiuddin told The Daily Star yesterday.

“We are still saying we are the victims of a conspiracy.”

“Many owners will go bankrupt because of the closure of the factories as they are losing
production every day,” he said, adding that the shutdown would hamper export growth.

Referring to the recent vandalism in at least 200 factories at Ashulia, the BGMEA president said,
“The government should punish the culprits who are involved in the vandalism.

“The highest loss of the country is that it will lose its image before the buyers.”

The Wage Board on garments in Bangladesh nearly doubled minimum wages on July 29, 2010.
The minimum wage at the entry level will be raised to Tk 3,000 a month (or about $43) from Tk
1,662.50 ($24). The new pay structure, proposed to be effective from November 1, maintains the
existing seven grades with the highest pay fixed at Tk 9,300 ($140) per month. About 3.5 million
Bangladeshis work in the garment industry, which accounts for 80 percent of the country’s
exports. 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.

Garment workers apparently are unhappy over their wages, even after the proposed increase.
They protested by smashing vehicles and blocking traffic in various garment sites in Dhaka
following the announcement of the wage increase. Why has the frequency of violence increased?
Some observers attribute it to rising prices of essentials; unpaid salaries; absence of responsible
trade unions and good relations between workers and owners; misbehavior of mid-level officials;
and deferred payments to workers. Some RMG entrepreneurs blame the administrative failures
of the government; “conspiracy” from outside and lax implementation of law and order. There
are also allegations that a vested group is behind the violence. Very often, the agitating workers
are aided by mysterious outsiders. There is no denying that a fairly widespread undercurrent of
discontent does exist amongst the workers.

The challenges facing the Bangladesh garment industry are formidable. The industry needs to get
regular orders from international buyers in order to thrive. These buyers are primarily interested
in price, lead time, and quality. The cost of labor is one of the key factors for Bangladesh’s
success in garments. Workers and labor leaders say the raise is inadequate and does not match
the high cost of living. The manufacturers complain they continue to be squeezed by a slump in
world market prices because of a still fragile recovery from the global economic crisis. They also
point to higher production costs due to energy crisis and poor infrastructure. One industry leader
observed the wage increase would be especially hard on smaller factories. There is truth in all of
these.

There are two questions that we need to understand.

First, the extent of the impact on the owners would depend on how much more companies like
Wal-Mart and H & M are willing to pay to offset the rise in cost of production. Second, even if
the buyers refuse to increase their price offers, the owners may have the capacity to take a hit on
profits depending on the impact of the proposed increase on the wage bill.

Turning to the first question, the key information in assessing how much more they should be
willing to pay is the percentage of the retail price of garment that is accounted for by labor costs.
Although estimates vary by product and location of production, it is clear from published
academic research, that labor costs typically constitute 1-3 percent for a garment produced in the
developing world. Hence, large increases in labor costs do not require correspondingly large
increases in retail price. For example, for a typical sportswear garment, doubling wages would
increase retail price by roughly 1-3 percent; tripling wages would result in price increases of 2-6
percent. These estimates assume that all of the increased cost is passed along to the consumer. If
some of the costs are absorbed by exporters, retail price increases would, of course, be
commensurately smaller.

Here are a few more illustrations based on academic research on the relationship between apparel
production costs and retail prices.

• For men’s casual shirt manufactured in Mexico and sold in U. S., direct labor accounts for 1.6
percent of the final retail price. Doubling the wages of all non-supervisory workers would result
in an increase of roughly 1.6 percent.
• For men’s knit shirt manufactured in the Philippines and sold in the U.S., labor costs, including
the salaries of floor supervisors but not higher management, represent 1.56 percent of the final
retail price. Doubling wages would result in a retail price increase of 1.54 percent.
• For an embroidered logo sweatshirt manufactured in the Dominican Republic and sold in the
U.S., the production costs accounted for by direct and supervisory labor represent 1.29 percent of
the final retail price of the garment. Doubling wages would result in an increase of 1.27 percent.

Bear in mind that Mexico, the Philippines, and the Dominican Republic have relatively high
labor costs. Prevailing wage rates in countries such as Bangladesh, Cambodia, China, Indonesia,
India, and Pakistan are substantially lower. As a result, the required increase in retail prices due
to labor cost increases in these countries would be somewhat lower for products produced in the
same countries. Surely, buyers can afford to bear at least a part of the required increase.

Turning now to the second question, the key information is the increase in average wage for the
industry as a whole taking into account the distribution of the garment work force by grades.
Based on conversation with one insider, we assume that grades 1-5 each account for 10 percent,
grade 6 accounts for 15 percent, grade 7 accounts for 30 percent and the remaining 5 percent are
apprentices. This gives a weighted average wage of about Tk 2409 per month before the increase
and Tk 4290 per month after the increase, representing 78.1 percent growth in average nominal
wage and 33 percent growth in average real wage.

Note that the extent of the average real wage increase exceeds the 19.8 percent growth in real
GDP per capita since the last wage adjustment in 2006. Thus, the proposed increase puts the
average garment worker ahead of the typical Bangladeshi in terms of income growth. This is
even more so for grade 7 entrants where real minimum wage is proposed to increase by nearly
46.5 percent.

Given the 3.5 million workers in the industry, the increase in average nominal wage from Tk
2409 per month to Tk 4290 per month would lead to a maximum increase in the annual wage bill
of the industry by about Tk 79 billion(equivalent to about $1.1 billion). This is the maximum
possible increase because the initial average wage of Tk 2409 per month is based on the
assumption that workers were paid the minimum wage in each grade, which generally may not
be true. This maximum possible increase constitutes 9.2 percent of total FY10 garment exports.
Data on average profit margin in the garment industry as a whole is not available. Guesstimates
are that it is unlikely to be more than 8 to 10 percent of the value of exports. In the absence of
any price increase from the buyers, the contemplated wage increase is therefore likely to hit
profits significantly in Bangladesh’s garment industry.
Conclusion
Bangladeshi Garment Industry is the largest industrial sector of the country. Though the history of
Readymade Garment Industry is not older one but Bangladeshi clothing business has a golden history.
Probably it started from the Mughal age in the Indian subcontinent through Dhakai Musline. It had global
reputation as well as demandable market around the globe especially in the European market.

After industrial revolution in the west they were busy with technological advancement & started
outsourcing of ready made garments to meet up their daily demands. Many LDC's took that chance &
started ready made garment export at that markets. As an LDC Bangladesh took this chance enjoyed
quota & other facilities of them. Thus ready made garment industry started to contribute in our economy
from late eighties (1977).

The history of the garment industry dates back to 1977 when the first consignment was exported to then
West Germany by Jewel Garments. The number of units, however, remained a meager 46 until the end of
1983. From a humble beginning the sector has thus made phenomenal growth over the last two decades,
the number of units growing to around 4500. The RMG industry achievement is noteworthy, particularly
for a country plagued with poor resource endowments and adverse conditions for industrialization.
Exports increased from approximately 32 million US dollars in 1983/84 to 1.4 billion dollars in 1992/93.
In 1987/88, the RMG export share surpassed that of raw jute and allied products. The figure further rose
to 5.7 billion dollars in 2003/04, representing a contribution of about 75 percent of the country's total
export earnings in that year. The employment generated by the sector is estimated to be around 1.5
million workers.