You are on page 1of 17

Modal Titles :

Modal Code :
Assignment Of The MBA Of PFM

Prepared
By :Topics : To be a best suitable sourcing country in the world what are prospect & possibilities of
the :RMG
industries.
Name
Md.
Motaleb Hossain (Rashed)
ID No:
Semester: 1st
Batch No : 8th

Submitted To
TM Enam Ahmed
Guest Lecturer AMMT.
Santo-Mariam University of Creative Technology

Table Of Contents
1 - Introduction
1.1 - Aim
1.2 - Objectives
1.3 - Methodology
1.4 - Scope
1.5 - Limitations
2. Body of the Assignment

1: Introduction

The readymade garments industry is the


main source of foreign remittance in
Bangladesh and it is also currently the
biggest sector providing jobs to different
levels of people in the Country.

1:1 - Aim

This paper aims to determine how


Bangladesh can be the best suitable
sourcing country in the world, in regards to
the readymade garments industry.

1:2 Objectives

To determine how to be best sourcing


country, we must focus the research on the
prospects of the RMG industry and what are
the possibilities for Bangladesh in the world
market.

1:3 Methodology

Studying the particular subject, we shall first


know what is RMG business, its use and
importance throughout the world and its current
activities in the world business. Secondly, we will
focus on the current situation of Bangladesh in
RMG sector, study the history of Bangladesh in
this Industry. And finally, analyzing the history,
the world market, Bangladeshs currents situation
and possibilities, and infusing our ideas, we must
derive a conclusion towards our goal of
Bangladesh becoming the best sourcing country
of the RMG Industry.

1:4 - Scope

The scope of the study is vast. RMG is an extremely


huge sector, spread all over the world, from buyers
coming from the USA, Europe, Middle East to
Australia, and suppliers scattered all over Asia and
Latin America. There is yarn coming from one
country, fabric made in another and garments being
cut and sewn in a different country. Not to mention
the end customers being able to buy the products in
different parts of the world. Although we will be
concentrating our study for this paper in Bangladesh,
but we shall also rely on information from around the
world to make our research more relevant.

1:5 Limitations

As because we are talking about a topic


thats really immense in its category, we
definitely will not be able to gathering data
from all sources, specially international.
Therefore we shall limit our study within the
boundaries of buying offices and factories in
Bangladesh, or Dhaka to be more precise.
We will also sort to different government
agencies for accurate data and analyze
information available in the web of outside
Bangladesh.

2 : Body of the Assignment

Ready Made Garments are mass-produced finished textile products of the clothing industry. They are
not custom tailored according to measurements, rather generalized according to anthropometric
studies. They are made from many different fabrics and yarns.[1] Their characteristics depend on the
fibers used in their manufacture.[2] Ready-made garments are divided into the following types:

Outer clothing: work wear and uniform, leisure wear, sportswear (e.g. suits, pants, dresses, ladies'
suits, blouses, blazers, jackets, cardigans, pullovers, coats, sports jackets, skirts, shirts (short- or longsleeved), ties, jeans, shorts, T-shirts, polo shirts, sports shirts, tracksuits, bathing shorts, bathing suits,
bikinis etc.)

Underclothing (underwear): jersey goods, lingerie (e.g. underpants, undershirts, briefs, socks, stocking.

Theeconomy of Bangladesh is largely dependent onagriculture. However the ReadyMade Garments


(RMG) sector has emerged as the biggest earner of foreign currency. The RMG sector has experienced
an exponential growth since the 1980s. [1]The sector contributes significantly to theGDP. It also
provides employment to around 4.2 million Bangladeshis, mainly women from low income families.

1950 was the beginning of RMG in the Western world. In order to control the level of imported RMG
products from developing countries into developed countries, theMulti Fibre Agreement(MFA) was
made in 1974. The MFA agreement imposed an export rate 6 percent increase every year from a
developing country to a developed country. In the early 1980s Bangladesh started receiving
investment in the RMG sector. Some Bangladeshis received free training from the Korean Company
Daewoo. After these workers came back to Bangladesh, many of them broke ties with the factory they
were working for and started their own.

2 : Body of the Assignment

In the 1980s, there were only 50 factories employing only a few thousand people. Currently, there are
4490 manufacturing units. The RMG sector contributes around 76 percent to the total export earnings. In
2007 it earned $9.35 billion. This sector also contributes around 13 percent to the GDP, which was only
around 3 percent in 1991. Of the estimated 4.2 million people employed in this sector, about 50 percent of
them are women from rural areas. In 2000, the industry consisting of some 3000 factories employed
directly more than 1.5 million workers of whom almost 80% were female. USA is the largest importer of
Bangladeshi RMG products, followed byGermany,UK,Franceand otherEU countries.

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.

Below, we present a detailed narration of the evolution of the RMG sector from its humble origins to the
present day.

The shift from a rural, agrarian economy to an urban, industrial economy is integral to the process of
economic development (Kaldor, 1966, 1967). Although policymakers in the least developed countries
(LDCs) have, at various times, attempted to make agriculture the primary engine of economic growth and
employment generation, this approach has not worked, not least because of the contributions of the Green
Revolution, which has had the dual effect of increasing agricultural productivity in the LDCs and displacing
the rural labour force at the same time. Led by the example of the East Asian economies, most LDCs now
accept the need for greater industrialization as the fastest path to economic growth. In particular,
countries such as Japan, Taiwan and South Korea have demonstrated that anexport-orientedindustrial
strategy can not only raise per capita income and living standards in a relatively short time; it can also
play a vital role in modernizing the economy and integrating it with the global economic system.

2 : Body of the Assignment

Bangladesh, one of the archetypal LDCs, has also been following the same route for the last
25 years. Once derided as a basket-case by Henry Kissinger (The Economist, 1996), the
country stumbled across an economic opportunity in the late 1970s. New rules had come to
govern the international trade in textiles and apparel, allowing low-cost suppliers to gain a
foothold in American and European markets. Assisted by foreign partners, and largely
unaided by the government, entrepreneurs seized the opportunity and exploited it to the
fullest. Over a period of 25 years, the garments export sector has grown into a $6 billion
industry that employs over a million people. In the process, it has boosted the overall
economic growth of the country and raised the viability of other export-oriented sectors.
This essay analyzes the processes by which global trading rules came to help out a poor
country like Bangladesh. It demonstrates the impact of the rule changes on the garments
sector, and the response of the sector to multiple challenges and obstacles. It also
discusses what steps Bangladesh should take in order to deal with the full liberalization of
the international garments trade, which occurred in January 2005 and which could
potentially threaten the countrys growth prospects. Finally, it details some of the recent
developments that have occurred since liberalization took effect.

The garment sector is the largest employer of women in Bangladesh.The garment sector
has provided employment opportunities to women from the rural areas that previously did
not have any opportunity to be part of the formal workforce. This has given women the
chance to be financially independent and have a voice in the family because now they
contribute financially.

2 : Body of the Assignment

However, women workers face problems. Most women come from low income families. Low wage of
women workers and their compliance have enabled the industry to compete with the world market.
Women are paid far less than men mainly due to their lack of education. Women are reluctant to
unionize because factory owners threaten to fire them. Even though trade unionization is banned
inside the Export processing Zones (EPZ), the working environment is better than that of the majority
of garment factories that operate outside the EPZs. But, pressure from buyers to abide by labor
codes has enabled factories to maintain satisfactory working conditions.

Garment workers have protested against their low wages. The firsts protests broke out in 2006, and
since then, there have been periodic protests by the workers. This has forced the government to
increase minimum wages of workers

Because the country's labor wage is very cheap, buyers are interested in the garments sector of
Bangladesh. A comparison by Institute for Global Labour and Human Rights shows that the labour
cost to make aDenimShirt is $0.22 in Bangladesh whereas it is $7.47 in USA.

There is that old adage, dont kill the golden goose. Why I compare Bangladesh garments sector with
the golden goose? The reason is the garment sector in Bangladesh has been giving for many years.

Bangladesh is the second largest exporter of readymade garment products trailing China according
to the McKinsey report (2011). Bangladeshs garment exports during July-June 2012-13 period
climbed by about 12.7 percent to US$ 21.515 billion over exports of US$ 19.089 billion made during
the corresponding period of 2011-12. In 2012-13, the top three export destinations for Bangladesh
garments were Europe, which accounted for US$ 12.56 billion, followed by the US and Canada, which
accounted for US$ 4.99 billion and US$ 980 million, respectively. But now it has received bad news.

2 : Body of the Assignment

Recent incidents like fire in the Tazreen Fashions factory in November last year that killed more
than 110 and the collapse of the Rana Plaza garment factory building in April that killed over 1,100
people and more than 2,500 were injured in the disaster. It may be the second biggest industrial
accident in recent history.

As a result, The President Barack Obama-led US government in June suspended Bangladesh from
the Generalized System of Preferences (GSP), which allows duty-free entry of over 5000 goods to
the US market from least developed countries.

Now, RMG products (which make up most of the US import from Bangladesh) are not included in
the list of duty-free products in GSP, there will an export fall of about $40 million .At present,
Bangladesh exports about $5 billion worth of goods (mostly RMG products) to the USA every year
and hence, the suspension from US GSP will account for a fall in export of about 0.8 %.

Losing the GSP facility will cost Bangladesh millions of dollars in taxes. It is also influence the
European Union to take similar action, which would have a much bigger impact on Bangladesh and
its garment sector.

In August 2013, Garment factory workers clashed demanding a Tk 8,000 minimum monthly wage.
Many factories closed for clashing. The owners finally agreed to pay Tk 5,300 as prescribed by a
government-endorsed wage board on Nov 4, 2013.

In November, 18,800 people lost their work for fire in Standard Group. The factory was among the
ten biggest in the country and it was the biggest supplier of Gap in Bangladesh. The loss to the firm
could run into more than US$100-million.

2 : Body of the Assignment

In December, The European Parliament has threatened to withdraw GSP, the duty and quota-free access to EU
market that Bangladesh enjoys. The European Union buys more than $12 billion in Bangladeshi garments each
year, or roughly three-fifths of the countrys production. If the EU were to withdraw or suspend the facility, the
price per unit of garment will rise and this may lead to many European buyers turning their backs on our
products. So, Bangladesh would suffer a huge setback.Due to the recent political unrest, Bangladesh RMG
sector losses in billions of taka every day. The blockades have put the garment sector in a tight corner as
exporters are counting losses from order cancellation and rising transport costs.

Buyers are cancelling orders as exporters fail to meet the lead time due to transport crisis. Some buyers are
also imposing penalties in case of delayed shipment, cutting prices of garment products and transport costs
have surged by around 30 percent due to expensive air shipment. Many factories have halted production as
they cant bring imported raw materials from ports.

The BGMEAs research and development team has collected three-day data (December 1-3, 2013) from 10
exporters to assess the overall losses caused by the blockade.
Orders worth $3.96 lakh were cancelled during the period, while the exporters spent $3.08 lakh on air
shipment. Many small factory owners may go bankrupt due to failing shipment on time. So thats the trap: the
golden goose is caught between a rock and a hard.

The RMG sector is expected to grow despite the global financial crisis of 2009. As China is finding it challenging
to make textile and foot wear items at cheap price, due to rising labor costs, many foreign investors, are
coming to Bangladesh to take advantage of the low labor cost. Local accessories are being made including
zippers, buttons, labels, hooks, hangers, elastic bands, thread, backboards, butterfly pins, clips, collar stays,
collarbones and cartons.

The accessory market is dominated by multinational companies operating in Bangladesh, because in the
majority of cases, garment buyers prefer accessories from them over the locally available items.

Recommendation

Currently the RMG industry in Bangladesh is facing innumerous challenges. The political unrest in the country,
cheat mentality of some dishonest Bangladeshi businessman, lack of education and skilled employees in the
industry are according to my opinion, main problems that are dragging the RMG industry of our country
downward.

As RMG industry right now is the major industry of Bangladesh, this is what is keeping our economy running,
and giving us hope of further development. We must work together towards protecting and improving this
sector.

First, we should identify the problems and resolve each problem individually, before combining all aspects to
achieve a common goal.

I believe, first garment factory owners and local buying houses must first develop a strong personality, be
confident of their assets and make the best out of all the facilities already available in the country. It is
definitely a economically wise move to protect and improve the machines and infrastructures already
available before investing further on new ones. As if new technology is brought in the country, but is not
properly maintained or used to its full potential, it would be a losing consumption.

We must not be intimidated by others, confidence is a major factor to stay in this business and continue to be
strong in the industry. And for us to have the confidence, we must have honest mentality to provide better
quality product, employ skilled workers and take care of the industry.

Improving working conditions, building factories that are physically strong and sustainable, equipped with
emergency exists and safety equipments. Providing some facilities to workers such as day care for their
children, proper overtime payments, sick leave, etc. will benefit factories. We have to know that the industry
will not run without the workers. Small investments can lead to huge profits.

Recommendation

Factories should also keep in mind about corporate social responsibilities or CSR. CSR
can involve free trainings to people who want to work in the industry, like establishing
technical learning centers in villages teaching how to operate sewing machines and
other garment related skills. This way the factory is following international regulations of
CSR, and also creating skilled labors for its own industry. Another CSR the RMG sector
must definitely focus on is the protection of environment. In order to continue doing
business, we need a sustainable country and healthy people. The constant deterioration
of the environment is making our country unlivable. Factories can set programs such as
cleaning water bodies, especially flowing water bodies like lakes and rivers. Tree
plantation is a very major aspect. These all steps towards a clean and green
environment will benefit us immensely in the long run. Good CSR means good
international record that would attract expensive buyers, and good environment would
also attract people to visit our country, make business with us. Most of all, its will keep
us healthy and sustain our country and preserve it well for our future generations.

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 20 years. 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,
industrialization 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 are directly and more than ten million inhabitants
are indirectly associated with the industry. Over the past twenty years, the number
of manufacturing units has grown from 180 to over 3600. The sector has also played
a significant role in the socio- economic development of the country.

The objective of this paper is to identify the prospects of RMG industry after the MFA
phase out by analyzing the current scenario along with different policy measures and
the available options in order to be more competitive in the new regime. The export
made by Garments Industries of Bangladesh is improving year after year except
some of the year. Strike, layout, shutdown of company, political problem, economic
problem, inflation etc. are the prime cause of decreasing export in this important
sector. But above it, Readymade Garments Industries is the leading sector in export
sector.