Research paper outline : Role of Garments Industry in the Economy of Bangladesh

Letter Of Transmittal: Term Paper Writing is an obligation for the students of MBA program of University of Information Technology & Science (UITS) Role of Garments Industry in the Economy of Bangladesh . is the topic I have been assigned to prepare a research paper by the faculty member md.Nazmul Hasan . It is an important attempt to present in Bangladesh aspects. At present Garments is the target foreign currency earner industry in Bangladesh. So it is required that new findings and recommendation related to the topic must come out of the presentation of the term paper. I tried my best to present everything analytically within the limit of time. Preparing of this paper I have maintained the norms followed by the students in UITS for the last few years. It will be a great pleasure for me if the future students are inspired together ideas from this research paper.

Acknowledgement
With profound gratitude to the Almighty Allah, I would like to the offer heartiest complements and regard to the UITS authority for giving me an opportunity for preparing such type of Research Paper Role of Garments Industry in Economy of Bangladesh . preparing this research paper helps me some of the student at UITS. It is a praise worthy step for which UITS authority deserves enormous thanks and appreciation. I express my earnest gratitude to the honorable course instructor, Md.Nazmul Hasan, for guiding me to prepare the Research Paper writing in the MBA program. She always encourages and gives me valuable suggestion. I am particularly indebted to the BGMEA and general manager of Esquire Group, Dada Garment and Choity Garments. Whose gave me and supplied me a lot of valuable information and publishers that helped me to prepared this research paper.

Executive Summary: At present Readymade Garments is the largest export sector in Bangladesh, The RMG sector contributes around 75% of total export earning of the country. The Multi Fiber Arrangement (MFA) and Quotas was phased out January 1, 2005. As a result Major change in the Garments industries all over the world is anticipated. Against the backdrop of the over population under employment and mismanagement in public Sector resulting in Financial burden on the Nation, the export oriented garment sector emerged as the savior assuring Job opportunity for the

unemployed and foreign exchange earning to the Nation, the main objectives of this study is to find out the growth of readymade garments, earnings from readymade garments and the export figure of readymade garments.

Index
SL. No 1. 2. 3. 4. 5. 6.1 6.2 6.3 6.4 6.5 7 7.1 8 8.1 8.2 9 9.1 10 10.1 11 11.1 12 12.1 12.2 12.3 Subject Preface Acknowledgement Abstract Acronyms & Abbreviations Introduction Statement of the problem Objectives of the study Scope of the term paper Research Method Limitation of the study Chapter 1 A Historical overview of RMG with reference to its growth Chapter 2 Government Policies Govt. Policy : Recent Significant Chapter 3 Contribution to the economy Chapter 4 Recent trend & prospects of RMG Chapter 5 Research findings Chapter 6 Recommendations Conclusion Reference list Page 4 5 6 7 8 9 10 10 11 11 12-20 21-23 23-25 25-30 31-34 34-38 38-40 41-42 44

Introduction
Readymade garments is an well known concept to all. It means to make various types of dress by cloth and thread to sell in the local market as well as in the global market. Trends of RMG means the situation or condition of RMG. Its growth and development and the present position of exportimport and investment. RMG includes the knit wear, oven, fabrics, sweaters etc. In the Bangladesh economy the RMG has occupied the leading position in export curing .

The economy of Bangladesh is primarily agro based. Agriculture sector represents 40% of GDP and 60% of foreign exchange earning. Its foreign currency earring by export is one third of its import expenditure. and one of the main source of Foreign currency earning by export at present is the Readymade Garments(RMG). The Agriculture sector directly or indirectly absorbs 80% of population it is almost impossible to absorb the vast growing unemployed work force in the Agriculture sector. It is the industrial sector, which can be referring to an alternative to absorb the unemployed workforce. But without industrialization it is doubtful, whether a country like Bangladesh (BD) can break out its cycle of poverty and decrease the even loaded foreign loan. Bangladesh has recently emerged as an important supplier of quality readymade garments in the global market. From a modest start couple of years of back, BD export of RMG increased considerably over the past few years. resulted in an export earning of tk. 99,21,80 million in financial year 2006-2007 from in earning of tk. 59.00 million in 1980-1981. initially the market for this product was limited to a few west European countries . Which have been subsequently expended to the U.S.A. Canada. Scandinavian, Nordic Middle East countries. It is a fact that increasing production and export earning of RMG hold the key to save the country from the present economic depression. the sector has now occupied an important place in our national economy. But all is not well in this sector. It faces number our challenges. The numerous present study makes an attempt to identify the measure necessary solve these challenges for the greater interest of the country.

Purpose of the study Scope of the study, Objectives of the study And Limitations of the study

Statement of the problem

The major problem of Bangladesh Garments is lack of backward linkages that creates other problems like unavailability inadequate supply of inputs and consequently higher production cost. Today customers consider Quota, price, Quality and compliance for selecting the vendor, it is certain that it will be very hard for the Readymade Garments (RMG) sector to maintain todays high profit margin, as prices will fall and shortage of fabrics will increase the production costs. to maintain todays profit the industries have to reduce costs.

Increased productivity of the workers may reduce this costs. The owners may follow the most popular way of cost reduction which is to pay workers less and cut their facilities it is certain that those affected the most will be the workers, many of them might lose their jobs and those who will still have them will be offered lower wages with fewer working facilities than now.

Objectives of Study

The main objectives of the study are as follows : (i) (ii) (iii) (iv) To find out the growth of ready made garments. Contribution to the economy of RMG. Growth and developments of RMG Govt. policies to the growth of RMG

Scope of the term paper The recent trend of ready made garments is an important issue to us because it plays on important role to the growth of our economy. It is an wide concept but I just mention here the growth of RMG in the last era contribution to the economy, trend of export import figure, growth and developments of RMG import figure, growth and developments of RMG and the govt. policies to the growth of RMG

Research Method The present study is based on secondary data. The secondary data have been collected through desk study, website of EPB, publications of BGMEA and publications of different journal and from some articles on this topic published in different daily newspapers, weekly-monthly magazines & browsing from Internet.

Limitation of the study I have faced some practical problems in writing this paper . I am a private service holder therefore during the making of this research paper my office is not allowed to work outside to collect various statistics for a long time mainly due to time constrains, thats why I didnt give full attention to work on this research. On the other hand. I could not go to collect information from UITS library due to not available of relevant books. So there are a lot of limitations to prepare the Term Paper.

Chapter One A Historical Overview of RMG with reference to its growth History of Textile Production in Bangladesh

After founding of Bangladesh tea and jute were the most export-oriented sectors. But with the constant threat of flooding, declining jute fiber prices and a significant decrease in world demand, the contribution of the jute sector to the countrys economy has deteriorated. The garment industry in Bangladesh became the main export sector and a major source of foreign exchange starting in 1980, and exported about $12347.77 million USD in 2008-2009. [1] The industry employs about 3 million workers of whom 80% are women.[2] Two non-market factors have played a crucial role in ensuring the garment sectors continual success namely (a) quotas under Multi- Fibre Arrangement1 (MFA) in the North American market and (b) preferential market access to European markets. Source: 1) http://en.wikipedia.org/wiki/Bangladesh_textile_industry

RMG History In the 1950s, labors in the Western World became highly organized; forming trade unions. This and other changes provided workers greater rights including higher pay; which resulted in higher cost of production. Retailers started searching for places where the cost of production was cheaper. Developing economies like Hong Kong, Taiwan and South Korea presented themselves as good destinations for relocations because they had open economic policies and had non-unionized and highly disciplined labor force that could produce high quality products at much cheaper costs. In order to control the level of imported RMG products from developing countries into developed countries, Multi 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. It also allowed developed countries to impose quotas on countries that exported at a higher rate than the bilateral agreements. In the face of such restrictions, producers started searching for countries that were outside the umbrella of quotas and had cheap labor. This is when Bangladesh started receiving investment in the RMG sector. In the early 1980s, some Bangladeshis received free training from Korean Daewoo Company. After these workers came back to Bangladesh, many of them broke ties with the factory they were working for and started their own factories. Facts and Figures

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 75 percent to the total export earnings. In 2007 it earned $9.35 billion.
[8]

This sector also contributes around 13 percent to the

GDP, which was only around 3 percent in 1991. Of the estimated 2 million people employed in this sector, about 70 percent of them are women from rural areas. USA is the largest importer of Bangladeshi RMG products, followed by Germany, UK, France and other E.U countries. Women in the Garment Industry 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. However, the women workers are facing many problems. Most women come from low income families. Low wage of women workers and their compliancy have enabled the industry to compete with the world market. Women are paid far less than men mainly due to their lack 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.

Growth and Development of RMG Against the backdrop of over population, under employment and mismanagement in public sector resulting in financial burden on the nation, the export oriented garment sector emerged as the savior assuring job opportunity for the unemployed and foreign exchange earning to the nation. Entrepreneurs without any help and guide line from any Govt. agency developed this sector exclusively with their own efforts, In early 70s garment as a prospective industry was unknown both to our economic planners and entrepreneurs. In mid 70s when some of the developing countries of South East Asia like Taiwan, Hongkong, South Korea were shifting into the manufacture of High tech products, manufacturing of basic and labor incentive products were being shifted to lesser developed countries of the region. This was mainly due to phenomenal increase in labor cost in the Readymade Garments house of Korea, Hongkong and Taiwan. In this circumstance, many companies had gone out to per capita income. In this context BD was targeted The growth of Garment industries in BD is comparative recent one. During the British period, there was no Garment factory in this part of the Indo-Pak subcontinent. In 1960, the first Garment industry in BD was established at Dhaka and till 1971 the number rose to five. But these Garment factories were intended to serve domestic market only. In the years 1976 and 1977, some entrepreneurs came forward to set up 100% export-oriented Garment factory. Mr. Reaz of Reaz Garments and Mr. Ashrf of Asharf Garments are the pioneers of this sector and started their Garment business much earlier. However the revaluation in this sector came in eighties. Since then, the Garment sector of BD has been playing a dominant role to shape its economy and export trade. After the liberation of BD, when the countries traditional items of port could not yield expected result, in the late 70s the Govt. and a section if entrepreneurs young, educated and dynamic began to emphasize on the development of non traditional items of export. Starting in the late seventies, the Garment sector of BD came into prominence in the middle of eighties. During the last six years, this sector marched onward from its stage of adolescence into matured childhood. By the year 1983, Readymade Garment (RMG) emerged to be a non traditional exportoriented sectors most promising in the socio-economic context of the country. By that time, those entrepreneurs felt the necessity of a sect oral trade body, non Govt. in nature, free from traditional bureaucracy, to help the RMG sector and boost up the foreign exchanges earnings of the country urgently needed at that time. Responding to that necessity, 19 RMG manufacturers and exporters joined together and by their untiring efforts got Bangladesh Garment Manufacturers and exporters Association (BGMEA) in corporate on February 20, 1983. Today it proudly declares registered

membership of Garment manufacturers and exporters, To establish a healthy business environment for a close and mutually beneficial relationship among the manufacturers, exporters and importers in the process ensuring a steady growth in the foreign exchange earnings of the country. Now BGMEA has been playing a very strong role for development of RMG sector. BGMEA is being run by a 27-member elected Board of Directors. Four Vice Presidents having important portfolios, along with a secretariat of experienced officials, assists the Board in formulating and executing vital policies and programs of the organization. The President is the highest executive authority of the BGMEA. The fundamental objective of BGMEA is to establish a healthy business environment for a close and mutually beneficial relationship between the manufacturers, exporters and importers in the process ensuring a steady growth in the foreign exchange earnings of the country. BGMEA issues UD to its exporters thereby monitors export as well. BGMEA plays a very strong role to lead the industry in concurrence with the government. The following are the regular activities of BGMEA for its members, apparel buyers and other partners. The RMG sector of BD is characterized by small, medium and a few large private owned enterprises, which manufacture goods mainly under contract, as per the foreign buyers designs and specifications. While there were 21 units in the country in 1981, the number of units increased to 3000 in 2000. the following table-1 shows the trends of the growth of RMG sector in BD during a period from 2000-2006. the highest growth was in 1993 due to increase of buyers order surprisingly and liberal govt. policy. Moreover, a number of conducive factors may have helped to

Table 1:Growth of the Industry & Employment

Year 1983-84 1984-85

Number of Garment Factories 134 384

Growth Rate 186.56

Employment in Million 0.040 0.115

Growth Rate 187.50

1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1924-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

594 629 685 725 759 834 1163 1537 1839 2182 2353 2503 2726 2963 3200 3480 3618 3760 3957 4107 4220 4490 4743 4825

54.68 5.90 8.90 5.84 4.68 9.89 39.45 32.16 19.64 18.65 7.83 13.64 8.90 8.69 8.00 8.75 3.97 3.92 5.23 3.79 2.75 6.40 5.63 1.73

0.198 0.283 0.306 0.317 0.335 0.402 0.582 0.804 0.827 1.200 1.290 1.300 1.500 1.500 1.600 1.800 1.800 2.000 2.000 2.000 2.200 2.400 2.800 3.100

72.17 42.93 8.13 3.59 5.68 20.00 44.78 38.14 2.86 45.10 7.50 0.78 15.38 0.00 6.67 12.50 0.00 11.11 0.00 0.00 10.00 9.09 16.67 10.71

Source :- Research Cell of BGMEA Line Chart 1 :Year-wise Growth rate of RMG Factories:

Growth Rate of Garment Factories

200 150 100 50 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27

1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1924-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Line chart -2 : Year wise growth Rate of RMG employees

Year-wise growth rate of RMG employees

200.00 150.00 100.00 50.00 0.00 1 3 5 7 9 11 13 15 17 19 21 23 25

1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 199192 1924-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 200809

Line chart -3 : Year wise growth of RMG Unites

Y e a r w is e g r o w th o f R M G F a c to r ie s
6000 5000 4000 3000 2000 1000 0
19 8 4 85 19 8 6 87 19 8 8 89 19 9 0 91 19 9 2 93 19 9 4 95 19 9 6 97 19 9 8 99 20 0 0 01 20 0 2 03 20 0 4 05 20 0 6 07 -08 83 19

N um b e r o f G a rm e nt F a cto rie G ro w th R a te s

rapid growth of RMG sectors. The factors are as follows : (i) Average high educational background of entrepreneurs who took up garment business, (ii) Relative low capital base (iii) Short gestation period (iv) Easy and liberal bank loan, (v) Easy availability of technical know-how, (vi) Related chief and easy labor, (vii) Appropriate Govt. supports i.e. easy sanctioning procedure from dept. of Textile, bonded warehouse facilities, simplification of administrative procedure, introduction of back to back letters of credit (L/C) facility, tax holiday, allowing import of capital machinery at nominal rate of duty, arrangement of trade delegations and participation on export fair to promote business, arrangement of textile agreement with EEC i.e. issuing textile Certificate of Origin, Concluding of agreement with USA to protect Bangladeshi exporter and (viii) High demand of readymade garments product. Chapter- 2 Government Policies Recently the Govt. has taken some policies, which will also further argument the smooth growth of RMC sector. (a) Permission for importing gray fabric under back to back L/C by both dying and printing industries as well as by garment industries. (b) (c) (d) Permission for importing washing raw materials under back to back L/C. Import of duty free capital machinery. Allowing the BGMEA to issue permission to import raw materials for the garment industries.

Starting with a few items, the entrepreneurs in the RMG sector have widely diversified the product base ranging from ordinary shirt, T-shirt, trousers, shorts pajama, ladies wear and childrens wear to sophisticated high value items like quality suits, branded jeans items, jackets-both cotton and leather, sweater embroidered wear etc. Fetching only US $ 6.4 million in 1981, garment sector of the country has now become an over 2500 million dollar-foreign exchange earner, enjoying the status of 5th largest garment exporter and largest shirt and T-shirt exporter to the EU and 6th largest apparel exporter to USA. Bangladesh now exports 65 categories of readymade garments to as many as 80 countries of the world with EU as the major importer, followed by USA, the single largest importing country. The following Table-2 shows the increasing trends of foreign currency earning by RMG for this period of FY 2003-2004 & 2007-2008). Table 2: Year wise distribution of export earnings from RMG. Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Export (Million Tk.) Export % Change (in Tk.) 29.36 21.90 29.86 22.89 15.95

(Million US dollars) 437098 7416 532831 8679 691950 10315 850309 12334 985931 14372 Source: BD export statistics-2007-08 EPB.

During the sectors early days in late 70s, RMG products and exports had to import all fabrics and accessories. Through the passage of about one and a half-decade the situation has changed a lot. In 1995, RMG sector of the country used local accessories around 70% of the total accessory requirement of the sector. Presently, around 80% of required accessories like elastic, collar band, price ticket, metal clip, zipper, plastic clip, cellophane tape, carton, hangers, poly bags, woven labels, buttons, sewing thread, stead, strapping band, gun tape etc. are being supplied from local source. Local supply of other accessories is also increasing regularly. It can also be noted that we never can look forward to having supplies of all trimming materials from within the country because sometimes the products have to import some accessories according to buyers preferences, from some specific foreign suppliers. Dishonoring such conditions may cause losing valuable

buyers, Considering this point, a six of local accessory industry capable to meet around 90% of total demand is good enough to support smooth development of RMG sector. Our garment export market has now been expanded to all over the world. It is now the 5th largest apparel supplier to the USA and the largest shirt and T-shirt suppliers to the EEC countries. RMG sector today contributes about 73% to total foreign exchange earnings of the country. This sector today employs moreover 3 million workers in about 4800 export-oriented industries [1]. Out of the labor force about 80% workers are female. As about 80% people in BD live under the poverty level, this sector for the first time has provided job opportunities to the extremely neglected and backward female section of the society. This sector is now the largest employer and offers huge investment opportunities in textile sector.

Govt. Policy: Recent Significant

Govt. assures RMG sector of 5pc more cash incentive Finance minister Abul Maal Abdul Muhith on Wednesday,7th April-2010 assured the garment exporters that the government would consider favorably their demand for additional five per cent cash incentive by relaxing a previous condition. He agreed to relax the condition in response to demands by leaders of the Bangladesh Knitwear Manufacturers and Exporters Association and Bangladesh Garment Manufacturers and Exporters Association at a meeting in his secretariat office. The finance ministry had attached the condition for providing additional cash incentive under a stimulus package worth around taka. 4,500 core that was announced last November to protect the local export-oriented industries from the delayed impact of the global recession. According to the condition a readymade garment industry would be qualified to receive additional cash incentive only when it exported products worth more than $3.5 million per year. Following the assurance, the garment exporters are likely to get 10 per cent cash incentive instead of 5 per cent they are getting at present. Besides, the finance minister also responded positively to another demand of the export-oriented garment manufacturers of charging flat rate instead of the increased rate in the peak hours until improvement in the power situation.Another demand by the associations of suspending the

decision of power tariff hike for RMG units was dismissed.The BGMEA president Abdus Salam Murshedy and BKMEA president Fazlul Haque led the delegation. Murshedy said due to power shortage, the garment makers have to operate captive power generators and since these generators are over utilized to make up power shortage; those might be out of order.Considering this, we proposed for the facilities of getting loans for import of captive power generators with 2 percent interest rate and the finance ministry. Chapter- 3 Contribution to the Economy Looking for a success story of Bangladeshs economic development. There it is garments sector. The garments sector whose products are all for exports also is proving employment moreover 30 lac people, 80 percent of them are women who otherwise would not have got any job. The backward womenfolk, utilizing the neglected work force of the country especially the downtrodden, the garments sector has simultaneously contributed to the eradication of poverty thus bringing a change in the socio-economic life pattern of the country. The growth of Bangladeshs export-oriented garments sector has been so fast and impressive that it is billed as the ``magic of Bangladesh. The garment sector of BD has now occupied and important place in our national economy. From a fledgling start in the early eighties this export oriented garment sector today has turned into the most inviolable tower of strength for the countrys economy. Bangladesh is an agricultural country with a very narrow export base. Apart from jute, tea, shrimps, and leather. Bangladesh does not have any other important indigenous export products. Other sectors like RMG, hosiery, petroleum by products, chemical products are import based export industries. Actually, these are the sectors, which earn about 95% of the foreign exchange for eventual use the process of economic development. Admittedly, our vast population is exerting pressure on the scare land capital, but if this population can be utilized properly in the productive sector with a known tilt to the export production we shall be able to earn a lot more foreign exchange giving boost to our economy. The RMG sector, which assures job opportunity for the millions of unemployed and much, needed foreign exchange earning for the Bangladesh.

(i)

The employment effect of garment sector is also significantly favorable. this sector has created large-scale employment opportunity for the womenfolk who could not so long find

any suitable employment. The overwhelming success is well reflected also in the sectors contribution to employment generation which from a mere 5000 workers force in 1981, has grown to about 3 million workers in 85% of whom are women. This accounts for approximately 85% of the total labor force in the manufacturing sector of BD. In fact employment of the RMG sector is contributing to the socio-economic well being of the labor force and raising the living standard of the poor people of BD.

(ii)

The shipping business in BD increased manifold because of this sector. As a result, the port authorities had to set up a vast container yard and expending the port facilities to handle large containers required to load cargo of the garment sector. An Inland Container Yard was established at Dhaka by the BD Railway mainly to cater to the need of the garment sector. Special container carrying trains have been introduced by BD railway to cope with increased inland transportation activities created by the garment sector. Again a large expansion has been made in the cargo handing and storage facilities at the Hazrat Shahjalal International Airport to handle business created by the garment sector.

(iii)

The increased prosperity of C & F agency and stevedoring business is connected with huge import of garment raw materials & export of ready-made garments by the scaport on all export and imports.

COMPARATIVE STATEMENT ON EXPORT OF RMG AND TOTAL EXPORT OFBANGLADESH

YEAR EXPORT OF RMG(IN MILLION US$) TOTAL EXPORTOF BANGLADESH(IN MILLION US$) 1983-84 1984-85 31.57 116.2 811.00 934.43 3.89 12.44 % OF RMG'S TOTOTAL EXPORT

2000-2001 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

4859.83 4583.75 4912.09 5686.09 6417.67 7900.80 9211.23 10699.80 12347.77

6447.30 5986.09 6548.44 7602.99 8654.52 10526.16 12177.86 14110.80 15565.19

75.14 76.57 75.01 74.79 74.15 75.06 75.64 75.83 79.33

(iv)

The RMG sector has helped the growth of the sectors like Banking and Insurance. More than half of foreign exchange business of the banks occurs from of the garments sector. Our commercial banks are earning over Tk. 1600 crore per year from this sector. General Insurance companies have also grown substantially depending on the garment sector. The companies are earning about 150 crore year from the RMG sector. As a result a large employment opportunity has been created for BD youths to provide staff support for these offices. v) The RMG sector has created enormous demand for real estate to accommodate the offices and factories of garments units. The revenue of utility services has also increased manifold during the past decade. Moreover, one study shows that real estate

industry could now look forward to launching prospective housing projects feasible and viable in both financial terms for 0.9million single women working in garment sector. BGMEA shows that the garment workers spend core tk. as mess rental per month. vi) Credit of manifold increase in the revenue of utility services also goes to the RMG sector to a great extend. For example, this sector pays on an average US$ 2.35 million per month. As telephone and fax bill, this industry is paying USS 0.56 million per month. vii) The creation of intense economic activities in the road transport business as the lion's share of cargo, moving between Dhaka-Chittagong and Dhaka-Benapole. by road, is on account of the garment sector. As blessing of this sector each day, on an average, trucks are taking about 2834 shipping trips, generating shipping' companies income of about tk. 2 core a day. Those who once started transportation business with rented trucks, many of them by now are the proud owners of even 10/12 trucks. viii) More than two hundred buyers have opened their office in BD; they are bringing in foreign exchange to support their expatriate staff. In addition, a large employment opportunity has been created for BD youths to provide staff support for these offices. ix) About 20000 overseas RMG buyers and their representatives visit Bangladesh each year to meet the local manufacturers and exporters. Taking an average stay of three days and spending approximately US$ 500 per day, this sector earns about Tk. 140 core annually. As a result hotel and tourism sector has been developing and more employment opportunities have created for BD youths. x) An increasing demand for moderate cost cosmetics, saree, footwear, fast food, and other consumer products is also a direct result of about 2 million new consumers' entering into the market with new living standard backed by their increasing purchasing power. In a recent estimate supplied by BGMEA shows that garment workers spend about 7 core taka daily in consumer market. xi) Having blessed with more purchasing power, the workers now want to enjoy their lives. A change of attitude helped these girls avoid early marriage and frequent pregnancy. It is contributing to the success of birth control program in our country. From 1985-86 till date, the country has been saved from a burden of at least 4 million new mouths to feed due to change of outlook towards small family size among the RMG workers.

xii)

Another most vital contribution of the RMG sector is that this sector has given birth to a new generation entrepreneur class who are competent enough to meet the demand for top managerial skills. Chapter - 4 Present trends and prospects of RMG

i)

The main challenge faced by the RMG sector of BD is production problem. Due to short supply of local fabrics and accessories, this sector could not handle production smoothly, The performance of the local fabric producers and suppliers is not so satisfactory. The projected fabric demand for- 1994-95 was around 2,250 million yards. Reportedly the local producers can meet only 3% to 4% of total demand for fabric. So the rest has to be imported from abroad. Currently the RMG sector spends approx, 65% of their export earning on import of these fabrics.15 Presently, the total fabric requirement in our captive market is for about 3 billion yards, of which about 85-90 percent we import from countries like China, India, Hong Kong, Singapore, Thailand, Korea, Taiwan etc. Fabric requirement is increasing @20 percent per annum. So a lot of foreign currency we had to spend every year for fabric import. Last year (2005-2006) our export income was 360 crore US$ but import cost for fabrics and others were 200 US$. So real export income was 160 crore US$. Taking the global context within the purview of open market economy by the year 2005, we have to lose profit and market share if we do not establish backward- linkage textile industries. Because due to rises import cost, our production cost per unit will be higher than that of other country and we will not be, compete with the competitors effectively.

ii)

Limited scope. for product diversification, power failure. high labor turnover, labor unrest, under utilization of capacity. Lack of skilled workers etc, arc the main factors for hampering production and delivery of goods. The RMG product of BD presently are faced with the recent rises global competition from the Far East, Caribbean, East European and Central American Countries. However, BD is most likely to face suffer competition from upcoming competitors like Vietnam, Cambodia etc. having abundant cheap labor like BD.

iii)

The RMG sector is facing terrible challenge due to the imposition of quota from some western countries specially USA from 1985. It may be mentioned that about 80% of international trade in textiles are regulated through Multi Fiber Arrangement (MFA).'6 Under the terms of this arrangement, textile trade is subject (to the provision of bilateral

arrangement with power to impose quota on agreement of both the parties. The arrangement also provides unilateral measures for imposition of quota at the interest of importing country. As a result BD has become subject to quota restriction and her garment export has been severely hit, even it resulted in lay off in some factories. Again due to Cumbersome custom formalities, delay in quota distribution, failure to deliver order in time, sudden change of order by the buyers, mischievous role of the buyers agents and etc., the RMG sector have been facing challenges in the marketing of their products. In case of garment if an order is refused by buyer due to delay in making shipment within L/C validity, hardly it could be sold to another buyer without 30 to 50% discount and the search to locate buyers to buy stock lot would take a considerable time. iv) According to our survey in five leading Company we found some problem which are given in a chart with their percentage Table 1
Primary Problems Problems 1.Raw-materials Height 3 60% 2. Marketing problems 1 20% 3. Machinery problem 5 100% 4. Inefficient workforce 3 60% 5. Licensing problem 1 20% 6. Quota problem 4 Medium 2 40% 3 60% 0 2 40% 1 20% 1 Low 0 1 20% 0 0 3 60% 0 total 5 100% 5 100% 5 100% 5 100% 5 100% 5

80% 7. Poor government policy 3 60% 8.Labor unrest/strike 5 100%

20% 2 40% 0 -

0 0 -

100% 5 100% 5 100%

v)

The banking problems constitute formidable hurdles that the garment manufacturers are facing at present. If the non-cooperation of the banks continues, the garment sector will collapse. It is unfortunate that the manufacturers are being held hostages by the bankers for gratifying their ends. Despite meeting a lot of unjust demands of the bank officials, the manufacturers can not escape harassment. As such, commercial banks in many cases take recourse to stop opening new L/C. In such situation banks generally take very conservative attitude for obvious reasons. So many factories have been closed due to these problems. Chapter 5 Research Findings

i)

Marketing is an important functional area in garment business. Except proper marketing a manufacturer can not operate his business smoothly. Again it is very tough for a manufacturer to control marketing activities besides production. So a manufacturer needs some professional persons, who can regulate or control this activities properly. A buying house can do this properly. It has been playing very important role in garments marketing area in return of commission: There are many buying houses in Dhaka and Chitagong. Foreign national own most of the buying houses. They are establishing link between the foreign buyer and Bangladeshi maker.

ii)

In every year an Export fair and BD apparel & Textile Exposition (BATEXPO) are held under the sponsorship of EPB and BGMEA. Such fair and exposition. make scope for' the manufacturers to display their' goods to prospective buyers. Some big manufacturers always participate in Apparel fair held in other countries with the help of EPB and some times EPB itself put up Bangladesh"' stall in foreign export fair displaying Bangladesh made garments. These' create" more opportunities for RMG in the global market and also

convince the prospective foreign investors about Bangladesh's huge potentials in RMG's backward linkage industries. iii) The first big challenge encountered by the garment sector and BGMEA was the child labor issue which arose in 1994 when some major buyers mainly USA had threatened to boycott local garments on the issue of employment of child labor in garment factories. After a series of discussion a memorandum of understanding-'(MOU)"was signed between BGMEA, ILO and UNICEF on July 1995-for eliminating 10,546 child labors from the garment sector and sending them to schools funded by BGMEA and UN1CEF. iv) The second big challenge in the RMG sector is issuing false GSP certificate to the exporter. Taking prompt decision on 7th September '97, the Govt. of BD has eliminated the second big challenge. After a fruitful discussion with the European commission officials, the Govt. of BD cancelled 9610 GSP certificates issued by EPB. If the Govt. did not cancel GSP, the EU would probably withdraw the GSP facility for entire exports from BD. Hailing the decision of cancellation of the certificates, the European Commission would request the EU Govt. to back the Bangladesh request for a derogation from the rule of origin of raw materials in Bangladeshi garment industry. After cancellation of fraudulent GSP, European Commission agreed to Bangladesh appeal for two-stage derogation in the rules of origin for knitted products to be exported from this country. v) For the development of smooth global marketing of garments, side by side with the expansion of garment industry in BD, the service of air express industry also is developed. vi) The country enjoys most favored Nation status and has signed bilateral . trade and investment treaties with 16 countries in N. America, Asia, and Europe, Investors can also take advantage of the GSP which allows duty free access to the European Markets. Since 1990, the Govt. has embarked on a highly successful macroeconomic stabilization program which resulted in improve .balance of payment position. vii) The present rate of development in the overall textile sector in the country is expected to continue and the country may cross USS 4 billion before 2001 by exporting RMG. If greater foreign investment takes place in the export oriented textile industry, situations will be far better no doubt. As the formation of local capital is very negligible as compared to the requirement in the export oriented textile sector, foreign investors are most welcome to come up and weigh the prospects awaiting for them in our textile sector. viii) Yet, the potentials of the sector are not fully utilized. According to the leaders of BGMEA the export earning can be doubled provided there is no bureaucratic reputation 'and raw

materials like fabrics are produced locally. Currently, local fabrics can meet only 3-4% of the total demand for fabrics. ix) EU and Canada might not be going for lifting regulations from the sensitive products in the1 second phases, which started from January 1998." If that was the case, the GAAT agreement might not have any direct serious adverse impact on Bangladesh's RMG exports to Canada up to 1998 and to EU up to 2007. On the other hand, no such indication for US is available, as a result, the possibility of adverse effect of the GATT Textile Agreement on RMG exports from ED to US during the beginning of the transition period can not be ruled put totally. x) Taking the global context within the purview of open market economy by the year 2005, we can exploit the benefit of the potential textile industry of the country by immediately establishing 60 moderate-size composite textile mills to supply over. 3 billion yards of fabrics a year to the export oriented garment industry. For establishment textile industry, our Govt. has taken an extensive program of incentives, these are; No ceiling for investment, Tax holiday up to 10 years, Tax exemption and duty free importation of capital machinery and spare parts for 100% export oriented industries, Residency permits for foreign nationals including citizenship. Easy capital profit and dividend repatriation facilities. Double taxation avoidance, Tax exemption on the interest payable on foreign loans and Taka convertible on current account etc. xi) The Govt. of BD offers 25% export incentives for encouraging the use of local fabrics in the export oriented Garment industries. Besides these major' opportunities there arc many remarkable opportunities like, Initially liberal, bank loan, Govt. encouragement, comparatively low investment requirement, cheap labor, provisions for technical staff assistance from abroad, Quota" restrictions on Korea's Textile, Ethnic problem of Srilanka, Imposition of Quota on neighboring Countries, High educational background of entrepreneurs bonded ware house facilities, Allowing import of capital machinery; Arrangement of trade delegations and participation on export fair, .Arrangement of textile agreement etc. will, encourage- the entrepreneurs and increase the share of global business through increasing production of RMG. Chapter- 6 Recommendations

i) Bangladesh need to restructure its textile and RMG industries with appropriate backward and forward linkages and improve substantially its labor productivity and efficiency. It must implement well-formulated cost reduction and product diversification strategies. ii) The Govt. should help to solve the banking problem immediately for the survival of the country's top foreign exchange earning sector and should devaluate the country according to the competitors to keep up the competitive edge of garment export. Selective bank financing may be extended to increase production capacity of small units. There should not be any restriction on the import of capital machinery by existing units. iii) Urgency or political stability came up as the second most important condition for the survival and growth of the garment industry, which has to go by strict deadlines -of the international buyers. The undesirable blockades at ports and airports should also be removed by taking corrective measures. iv) The economic and social status of the garment workers should be upgraded, then it will have a tremendous effect of the production and consumption in the economy. v) All parts of the machinery, spares and raw materials, including clothing of different .types, should be manufactured and supplied to existing and also closed units. The textile sector in this country, including the units of production that produce silk'cloths, has to be refurbished and made productive for providing part of the raw clothing's needed by the garment industries. It needs hardly be said that a review of the entire network has to be ordered now and corrective measures be taken to keep this profitable export sector active and competitive. vi) The GSP certificates should be issued by EPB after rigorous verification and authentication of the documents for exporting textile & garment products and rules of origin. vii) Authorities mast be careful about the politically connected union leaders who have already done enough damage to the economy of this country. viii) A training Institute with necessary facilities and support should be setup to impart exclusive training on garments business. Bangladesh Management - Development Center (BMDC), Bangladesh Institute of Administration and Management (BIAM) and Textile Institute may offer certificate courses on different aspects of RMG though a fashion institute has been set up under BGMEA.

ix)

Good performer should be recognized and rewarded so that they feel honored in the society,

x)

Low cost dormitory type home should be constructed in big cities so those new girls coming from village could stay there safely at least in initial few months.

xi)

Appropriate time framed support must be extended to RMG markets by port, custom, banks insurance and transport authority so that they can import, make and re-export within 120 days time,

xii)

The exporter should maintain all the rules and regulations and the quality of Bangladeshi RMG should be increase to survive in the global market.

xiii) xiv)

Duty on garment spares should be reduced and the production cost should be minimized, The Govt. should not impose any restriction that we can not afford at this stage. The Govt. should be more liberal and dynamic and should provide necessary encouragement to the RMG sector for more earnings and should allow bonded warehouse for saving time.

xv) Garment manufacturers in the country must stop the use of carbon tetrachloride in production to safeguard international markets for their goods, as its use will be banned from the world soon. I believe if we can remove red-tapism and dishonesty from the society particularly from the Govt. machinery, we can achieve economic and industrial uplift speedily. The economic condition of our country is not good, but we have resource, We should utilize our resources properly. We should train unskilled labors and give them basic education. In this study a lot of challenges have been identified but it is not possible to make suggestions for overcoming all these challenges. As such some suggestions were offered to face some major challenges. If the national policy makers execute these suggestions, the future development of RMG may be facilitated. Conclusion:The Garment sector has tremendous impact on socio-economic structure of the country. It also brings economic prosperity for the poor women. We believe that there must be a saturation point for any industry. But for our .garment industry, still we are away from it. With the conclusion of the Uruguay round of negotiations, the MFA is going to be phased out within a decade and the same integrated into the free trade regime of the GATT. In that situation,

without BD's own fabrics, it would be very difficult for BD to even retain its present position in the quota free developed! countries, not to speak of any further growth. A developing country like BD is expecting much more from the promising garment sector, the sector which assures job opportunity for the millions of unemployed and much needed foreign exchange earning for the country. After entering in a new Quota free market BD faced a big competition with many countries like Vietnam, Cambodia and some Caribbean countries where labor are very chief. So the manufacturers should keep it in their mind that without quality control, cost control and timely shipment they can never compete with the competitors and survive in the global market of RMG. Again we should keep it in our mind that the workers employed in the Garment factories are given suitable wage and other facilities, the labor unrest might swallow up the industry wholly including the proprietors. Hence timely .and adequate action is to be taken for solving the problems with which the industry has now been plagued. The Govt. also is anxious to save the foreign exchange earning garment industries from falling into the clutches of dishonest trade union leaders who are a new breed of exploiters. If the garments sector collapses due to lack of policy support of the Govt. and manufacturers, the sector will lose the global market and Dhaka City would turn to a ghost city. As a result the total social stability will tumble as millions of people directly or indirectly make their living from the sector. The families, which depend on this sector for their existence, will be unseated from employment and deprived of their only means of survival. Reference list 1. Hossain Afzal Md, ``Export marketing of Readymade Garments from Bangladesh Pattern, problems and prospects Dhaka University studies, December, 1990. 2. 3. 4. 5. 6. Qayum M.A. ``Developing Garment sector The monthly C& I, May 1993. Bangladesh Export statistics 2007-08, Dhaka, Bangladesh. A report of Garments published in the magazine, ``Friday April 2006. Ahmed Redwan, Readymade Garments Industry of Bangladesh, 1998. `` Problems and Prospects of RMG sector of Bangladesh-A report of BGMEA research cell on Oct. 2005. 7. 8. C & I monitoring ``Crisis in Bangladesh garment Industry, October, 2005. Mohiuddin Mohammad, ``Readymade garments-A Wonder Industry Of Bangladesh 3rd edition-1999.

9. 10.

Rahman Mahbubur implication of Uruguay Round. Yongzheng Yong and Montfort Mlachila,The end of Textiles Quatas : A case study of the impact on Bangladesh Policy Department and Review Department - IMF

11. 12.

Bangladesh Textile Today March-April 2011 BGMEA today August 2010

Methodology of Information CollectionSignificant Recent Events of the IndustryResearch Project On

Role of Garments Industry in the Economy of Bangladesh

Course Code: MBA 700 Course Title: Research Project

Prepared By Name: Kh.Mazharul Islam ID No: 09315012

Prepared For Md. Nazmul Hasan Assistant Professor of Finance and Head of MBA Program School of Business University of Information Technology & Sciences (UITS).

[A Research Submitted in partial Fulfillment of the IMBA Program in the University of Information Technology and Sciences (UITS)]

Date of Submission: UNIVERSITY OF INFORMATION TECHNOLOGY & SCIENCE (UITS)