Contents

Introduction................................................................................................................ 2
Analysis:..................................................................................................................... 3
Recommendations:..................................................................................................... 5
Conclusion:................................................................................................................. 5

Title: Analysis of the Bangladeshi Garments Industry on the basis of

the Diamond Model Theory of National Competitiveness

Introduction
In Bangladesh, Ready-Made Garments (RMG) is currently the biggest earner of foreign
currency. From the 1980s, the industry has grown rapidly. Over 4 million people are employed in
the RMG sector and it is made up of mostly women. The United States remains as the largest
importer of Bangladeshi garments while Germany, UK, and France are also major buyers. The
rise of the RMG sector has led to many social and economic developments for the country. It's
rise is very admirable.
By the early 1980s, the garments industry of Bangladesh showed positive potential. Today, it is
responsible for nearly 75% of the country's export earnings. It is also a significant part of the
nation's total GDP, which tells us a lot about its importance to the nation's economy.
Bangladeshi clothing manufacturers produce apparels for internationally famous companies such
as H&M, Gap, Gucci, Nike, Calvin Klein, Tommy Hilfiger, and so forth. The products are wellappreciated around the world and have been sold extensively to different First World countries.
Some issues still remain and must be addressed very soon. From 2012-2013, around five
devastating incidents took place in garments' factories in Bangladesh. This brought up issues
such as worker safety, factory safety regulations, and labor-rights violations. Many foreign
consumers boycotted Bangladeshi-made apparels, and the companies were forced to take certain
measures which are undesirable for the country's RMG sector.
The National Diamond Model, is a theory which examines the reasons and determinants of a
particular country's industry's success. This report analyzes the National Diamond Model on the
basis of the Bangladeshi garments industry.

Analysis:
Michael Porter, the leading authority on competitive strategy, and competitiveness and economic
development of nations, states and regions, has identified four different components of
international competitiveness of nations. They are: (a) Factor Endowment

(b) Demand Conditions

(c) Firm Strategy, Structure,

and Rivalry

(d) Related and Supporting Industries

These components make up the Diamond Model. While this theory has explained the success of
industries in different nations, the rise of the RMG sector of Bangladesh contradicts many of
these points. This is discussed below:

Factor Endowment includes land, labor, capital, enterprise, and natural resources. Porter argued
that a country must have these to succeed in a particular industry. If we look at the automobile
industry of Japan, we see that the country has enjoyed a high level of success in this industry.
Japan has the necessary machinery, entrepreneurs, and skilled labor to produce good quality
motor vehicles and sell them to both local and foreign customers on a large scale. Bangladesh
has an abundant supply of cheap labor, and that has helped the garments industry to prosper.
However, if we look at the Bangladeshi RMG sector, we see that Bangladesh does not have land
or the necessary capital that are required to produce apparel. Even so, the country has thrived on
the production and export of garments. This goes against what Porter has identified.
Porter concluded that a strong domestic demand is necessary for a country to be successful in a
specific industry. Local demand for a product must be significant for any industry to grow and
become competitive. For example, the United States of America has a very strong demand for
fast-food within its borders and so the industry has flourished. But, the demand of local
consumers for clothing and apparel made by Bangladeshi garments is not very high and the
industry was not built on the back of domestic customers. The main buyers of the apparels are
people from the developed world such as the US, Britain, France, Germany, Canada, etc. The
industry relied mostly on foreign demand for its products. This is a complete contradiction of
Porter's theory.

Related and Supporting industries were identified as another component of the National
Competitiveness Framework. Porter stated that an industry needs other industries which support
it to be strong and successful in order for it to thrive. If we look at the footwear industry of Italy,
we can see that it is largely supported by the country's leather industry. The leather producers
provide quality raw materials for footwear and also provide the necessary knowledge of the
different colors of leather, the kind of leather that would suit each type of footwear, and so on.
The theory states that without proper support from such closely related industries, a particular
industry cannot become internationally competitive. Nonetheless, the Bangladeshi RMG sector
has become very competitive on a global scale without related and supporting industries being
present in the country. The materials required for the production of apparels are all imported
from different countries by Bangladeshi businessmen. The chemicals, colors, machinery,
equipment, etc. are not from domestic industries. So, this case clearly shows that an industry has
prospered without strong related and supporting industries existing in Bangladesh.
Firm Strategy, Structure, and Rivalry constitute the fourth and final determinant of National
Competitiveness. This states that a particular country's industry's firms must have a clear set of
goals, managed efficiently, and run by a method that suits the domestic culture in the best
possible way. Intense rivalry among local firms has also been identified as a key to success.
Germany can be a good example of this. The country has thrived in technical industries. Their
firms are generally run by highly skilled specialists who have proper knowledge of the products
being manufactured. This also suits their local culture. The firms are also managed very
efficiently and have been running smoothly for a lengthy period of time. However, the
Bangladeshi garments industry's firms do not have clearly defined goals. The structure is highly
unorganized and many problems such as poor working conditions, underpaid workers, labor
strikes, etc. are common. Hence, this is another evidence of how Porter's theory does not apply to
the Bangladeshi RMG sector.

Recommendations:

Some adjustments can be made to the Diamond Model Theory. It may include instances
where the absence of the four determinants still led to an industry's success in a particular

country.
Other determinants can be identified to give a clearer picture of why industries succeed,

grow or thrive.
The theory should delve further into successful industries of Third World countries. It can
be said that they theory has mainly focused on the developed world's globally
competitive industries.

Conclusion:
Therefore, it can be concluded that the four determinants of the Diamond Model Theory does not
apply to the Bangladeshi Garments industry. The industry has thrived for over three decades
without the factors Porter identified. But the theory is still a useful tool to understand the reasons
for success of a very large number of industries around the world. These determinants were
actually the reasons for the success of other industries in several countries. So, we observe that
Porter's theory has limitations like all other theories. Nothing can ever be perfect and provide an
answer to the different phenomena in the world. This does not mean that such theories should be
abandoned completely, but they should be examined and studied thoroughly to get different
perspectives and insights into different issues.