Garment Industries of Bangladesh free essay sample

In the field of industrialization, role of ready-made garments (RMG) 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 RMG industry as an engine for growth and a basis for attaining economic development. Over the past few years garment industry is found to have played such an important role in the process of industrialization and economic growth. The growth of garment industry in Bangladesh is a comparatively recent one. RMG business started in the late 70s as a negligible non-traditional sector with a narrow export base and by the year 1983 it emerged as a promising export earning sector. 2. Presently the RMG sector is the life-blood of Bangladesh economy achieving higher export growth every year. We will write a custom essay sample on Garment Industries of Bangladesh or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The sector is now the largest contributor not only to overseas trade but also to the national economy. Bangladesh textiles and RMG industry comprises 155,557 units 148,000 handlooms units, 3,284 mechanized primary textile units, 5150 export-oriented readymade garments manufacturing units and 273 garments washing-dyeing units. The sector is a major foreign exchange earner for Bangladesh contributing 77 per cent to the countrys net exports. At the end of the fiscal year 2011, total export of Bangladesh garments was worth US$ 23 billion, a 43 per cent increase over the previous year, accounting for almost 25 per cent of the GDP (gross domestic product). The overall impact of the readymade garment exports is certainly one of the most significant social and economic developments in contemporary Bangladesh. Although the industry is one of the largest in Bangladesh and is still expanding, it faces massive challenges, principally because the country does not produce enough of the raw materials necessary, unfavorable trade policies, and inadequate incentives for expansion. However, the potentials in the RMG can be realized only if the challenges in some areas like – infrastructures, compliances, workforces supply, suppliers’ performances, raw materials, political stability are tackled. After giving a bird’s eye view on the RMG sector of Bangladesh, this paper would try to analysis the impact of RMG on the economy of Bangladesh. Then the paper would contemplate critically on the problems faced by RMG sector and solutions. Aim 4. The aim of this paper is to discuss about the ready-made garments (RMG) industry in Bangladesh, problems faced by this sector and plausible options to overcome. An Overview of Ready-Made Garments in Bangladesh 5. The Rise of Ready-Made Garments in Bangladesh. 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. 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. Some important phases of the Bangladesh RMG industry: Period| Event| 1977-1980| Early period of growth| 1982-1985| Boom days| 985| Imposition of quota restrictions| 1990| Knitwear sector developed significantly| 1995-96| Child labor issue and its solution| 2003| Withdrawal of Canadian quota restriction| 2005| Phase-out of export-quota system| Currently, there are more than 4,000 RMG firms in Bangladesh. More than 95 percent of those firms are locally owned with the exception of a few foreign firms located in export processing zones. The RMG firms are located mainly in three main cities: the capital city Dhaka, the port city Chittagong and the industrial city Narayangonj. . Products of RMG, Trade and Contribution in Our Economy. a. Products. Ready-made garments manufactured in Bangladesh are divided mainly into two broad categories: Apparel and knit products. Apparel products are tee-shirt, polo shirt, short pant shirt, pajama, jeans-pant, nightdress etc and also included all kind of RMG products. Knitted products are mainly warm cloths includes socks, trouser, hosiery, bags, mittens, jacket, trouser and sleeves etc. Bangladesh totally exports 35 types of garment products to about 31 countries around the world. Apparel garment products still dominate the garment export earnings of the country. Bangladesh exports its RMG products mainly to the United States of America and the European Union. These two destinations account for more than a 90 per cent share of the country’s total earnings from garment exports. b. Trade and Contribution in Our Economy. The export-oriented readymade garments (RMG) industry has made significant contribution to the economic development of Bangladesh. Bangladesh is the worlds second biggest exporter of clothing after China. Readymade garments make up 80 percent of the countrys $24 billion in annual exports and 15 percent share of GDP in 2012 FY. Also this was about 4. 47 per cent of the global total value of garments exports (EPB, 20011-2012). Currently, the textile industry accounts for 45% of all industrial employment in the country and contributes 5% of the total national income. It is a clear indication of its contribution to the overall economy. The garments industry plays a key role in promoting the development of linkages between small-scale industries. The RMG industry employs nearly three million workers directly and more than ten million inhabitants are indirectly associated with this socio-economic development of the country. 7. Prevailing Situation in RMG Sector. Bangladesh’s textile industry is going through one of the toughest period in decades. Lately, the Bangladeshi Ready-Made Garments Industry is creating headlines in national and international media for the various reasons – massive factory fire, lack of safety measures in work environment, low wages, worker exploitation, etc. In fact, Clothes dyed in blood said by the foreign investors. Over 5000 workers have died in factory fires and other accidents since inception of this sector notably Ashulia unrest, Tazreen garments, Rana Plaza etc. Difficulties Faced by Ready-Made Garments Sector 8. Domestic Level. a. Lack of Modernize Equipment. The inability to timely modernize the equipment and machinery has led to the decline of Bangladesh textile competitiveness. Due to obsolete technology the cost of production is higher in Bangladesh as compared to other countries like India, Pakistan and china. . Safety Problems. Different safety issues especially regarding fire, the carelessness of the factory management and for their arrogance hamper the working environment very much. c. Problems Linked to the Workers. (1)Lack of Knowledge and Skill. There are some problems related to the workers of this sector lack of training organizations for industrial workers, supervisors and managers, absence of easily on-hand middle management, etc. Also most of the illiterate women workers employed in garments are unskilled and so their products often become lower in quality. 2)Wages. Wages in Bangladesh’s apparel industry have been lower than other sector. The average monthly wage of skilled RMG factory workers was 1. 4 to 2 times lower than that of similar factory workers in the textile and other sectors by 30. d. Financial Crisis. (1)Finance Bill. The provisions of Finance Bill 2012-2013 have the provisions like reintroduction of 0. 5% minimum tax on domestic sales, withholding tax on import of textile and articles etc. This would invite unavoidable liquidity problem. (2)Raw Material Prices. Prices of cotton and other raw material used in textile industry fluctuate rapidly in Bangladesh. Due to increase in the cost of production the demand for export and home as well decreased which result in terms of downsizing of a firm. e. Energy Crisis. As a consequence of electricity load shedding the textile production capacity of various sub-sectors has been reduced by up to 30 per cent. Bangladesh Textile Mills Corporation (BTMC) claimed that 60 to 70 per cent of the industry had been affected due to gas load-shedding. Thus the cost of production has risen. . Political Unrest and Social Crisis. Garments industries often pay dearly for political unrest, hartal and terrorism etc. The current political turmoil will lead garment industry to lose out to South and Southeast Asian competitors, including India. Exports and even manufacture of readymade garments have suffered due to the rail-road-port blockade that marked last two months of agitation and also labor disturbances and freque nt disruptions in the Chittagong port remain a source of concern to the apparel exporters. 9. Global Level. a. Lack of New Investment. The unpredictable internal conditions of Bangladesh cause a rapid decrease in foreign investment in textile industry. Due to obsolete textile machineries RMG will require high new investments to stand in competition. b. Lead Time. Lead time refers to the time required for supplying the ordered garment products after the export order has been received. 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. . Effect of Global Recession. Bangladesh is developing economy in the world, and one of the lowest in terms of the dollar. Bangladesh is actually a very economically diverse country with boasting industries of textiles, agriculture, etc. The recent global recession cause textile product to cut down locally and internationally as well. Plausible Solutions of Difficulties 10. Domestic Level. a. Backward Linkage Development and Capacity Bui lding. This important area needs serious attention for necessary development. Bangladesh needs to produce textile items competitively at home through the establishment of backward linkage with the RMG industry (Composite textile mills). As part of the capacity building some dire issues must be addressed like, management labor conflict, proper management policy, efficiency of the manager and worker, gender discrimination, maintainable time schedule for the product, etc. b. Improvement of Working Environment. Bangladesh needs to concentrate on improving the working environment by establishing HR or PM units throughout the RMGI. Other prerequisites include fair labour practices, suitable building codes for improving health and safety, comprehensive labour legislation and regulation, stricter enforcement of factory laws and more effective procedures for ensuring compliance with them, and effective monitoring mechanisms. c. Finance and Tariff. Bangladesh government should initiate various policy measures such as rationalization of tariffs and taxes on imports of capital machinery, raw materials, dyes and chemicals, and reduction of interest on long- and short-term loans. This will ultimately help to have significant flow of investment both in terms of finance and technology. d. Stable Social and Political Environment. Bangladesh government should initiate various measures such as increase wage, leave the RMG sector out of political crisis to stable the social and political environment in the country. Otherwise RMG will lose the foreign entrepreneurs and their investment. 11. Global Level. a. Reducing Lead Time. Shortening the lead time is the most urgent priority task for Bangladesh. The best way to do that is to develop domestic backward linkages with the aim of reducing â€Å"production and distribution† time. Also by establishing a central or common bonded warehouse in the private sector we can reduce the lead time. b. Product Upgrading and Diversification and Market Diversification. Product upgrading and diversification and market diversification are the next priority tasks for Bangladesh in order to diversify risks and to increase its market share. Bangladesh needs to diversify its markets to include Japan, Australia and other important international markets. c. Specialized Technical and Marketing Research. RMG is highly fashion oriented and constant market research is necessary to become successful in the business. 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. Conclusions 12. 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. 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 one directly and more than ten million inhabitants are indirectly associated with the industry. The sector has also played a significant role in the socio-economic development of the country. 13. Bangladesh’s exports are heavily concentrated in the RMG sector, which has been a main driver of growth and poverty reduction The challenge is therefore to improve competitiveness, both in the RMG sector and economy wide, and diversify exports. Garment industry in Bangladesh has been facing multidimensional problems since its establishment. Acute power crisis followed by non-tariff restriction, chronic labor unrest, lack of infrastructural facilities, inadequate supply of material and accessories, inability or lack of efforts to diversify the products and markets, irregularities relating to customs, bond, and the cost of production significantly. Due to power shortage shipments are sent through air, thereby increasing its cost. 14. To remain competitive in the post-MFA phase, Bangladesh needs to remove all the structural impediments in the transportation facilities, telecommunication network, and power supply, management of seaport, utility services and in the law and order situation. The government and the RMG sector would have to jointly work together to maintain competitiveness in the global RMG market. Given the remarkable entrepreneurial initiatives and the dedication of its workforce, Bangladesh can look forward to advancing its share of the global RMG market. Recommendations 15. Basing on the paper, following recommendations are made to meet the challenges of RMG sector locally and globally: a. Market diversification through exploring and penetrating into new prospective markets. Product diversification through producing and exporting non-traditional and high value apparels. b. Backward linkage development through producing raw materials locally, while reducing dependence on import of the same. c. Institutional and procedural reform through revision of government policies and management of garments sector by a separate government agency.