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Erp Bangladesh RMG Sector PDF
Erp Bangladesh RMG Sector PDF
Erp Bangladesh RMG Sector PDF
Techmedian
Submitted By:
RUPAM IT LIMITED
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Table of Contents
Background: .................................................................................................................................................. 4
Bangladesh: The Next RMG Destination ....................................................................................................... 5
Macroeconomic Impact of RMG: .................................................................................................................. 6
Contribution in National Export ................................................................................................................ 6
Growth of the Industry ............................................................................................................................. 7
Labor market ................................................................................................................................................. 9
The need for ERP in the sector.................................................................................................................... 10
Importance for manufacturing: .............................................................................................................. 10
Increase in Productivity: ......................................................................................................................... 11
Competitive Advantage .......................................................................................................................... 12
External factors ....................................................................................................................................... 13
Potential target and affordability ........................................................................................................... 14
Suitability for Indian service providers ................................................................................................... 15
The Need for Survey Conduction: ............................................................................................................... 16
ERP Status Quo in RMG Sector ............................................................................................................... 16
Key Market players: ................................................................................................................................ 17
Underlying Problems: ............................................................................................................................. 21
Need for the Survey conduction: ............................................................................................................ 22
Specific Outcomes of the Survey: ........................................................................................................... 23
Other Important factors about the Survey: ............................................................................................ 23
Conclusion: .................................................................................................................................................. 24
Project Team: .............................................................................................................................................. 25
Conclusion
Background:
Although currently ranked as the 60th country in terms of nominal GDP figure, Bangladesh
is one of the most promising lands for development in the near future. Goldman Sachs has
included the country in their Next 11 to watch following BRIC (Brazil, Russia, India,
China). Price and capacity being its major competitive advantages, the country provides
satisfactory quality levels for entry-level mid-market products in general. The stable GDP
growth rate (near around 6%) even during the global recession only proves the countrys
competency. Beginning from almost nothing in the 1970s, the apparel industry has
experienced very rapid growth in employment, production, and exports so far. It has been a
journey of capacity building in response to growing demand and competition, and we are
already the second largest clothing exporting country in the world.Garments exports,
totaling $19.1 billion in 2012, accounted for almost 16% of national GDP, while the
manufacturing industry had a 17.89% share in GDP.Also, the sector employs around 5
million people directly and indirectly and 80% of them are female. The contribution of the
sector in the national income is increasing with the years piling up and according to the
Mckinsey report 2012, The story of Bangladesh has just begun.
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Bangladesh: The Next RMG Destination
25000 140
120
20000
100
15000 80
20
5000
0
0 -20
1980 1985 1990 1995 2000 2005 2010 2015
Ever since its inception, the sector has experienced very fast moving growth in terms of
export, labor and in numbers as well. At present, 5800 firms of both large and small scale
compete in the market with a huge cumulative labor force. The RMG industry is the only
multi-billion-dollar manufacturing and export industry in Bangladesh. Whereas the
industry contributed only 0.001 per cent to the countrys total export earnings in 1976, its
share increased to about 79 per cent of those earnings in 2012.The industry experienced a
whooping 18.5% growth over the last 28 years. And if we can main this growth rate for
another 10 years, our RMG export will stand at $125 billion, enough to transform
Bangladesh into a middle income country.The foreign exchange earnings and employment
generation of the RMG sector have been increasing at double-digit rates from year to year.
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Growth of the Industry
0.7
0.6
0.5
0.4
Growth of factories
0.3 Growth of Worker
0.2
0.1
0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
As we can infer from the graph that increase in factories and labor force, which increase in
capital investment (both capital goods and human capital in this case) has a direct and
positive co-relation with export volume. In 2011,export growth reached more than 40%.
This boom got deflated again in2012 owing to sudden labor unrest. But proving strong
resilience, this sector has gotten back defying all odds.
As of now, In January 2013, export value surged nearly 23 percent year-on-year, as some
overseas orders shifted from China to the country.According to the countrys Export
Promotion Bureau, during January 2013, the export value of RMG reached $2.09
billion, compared with $1.7 billion in January 2012. In the first seven months of the
current fiscal year (July 2012 to January 2013) in Bangladesh, the total export value of RMG
amounted to $12.04 billion, up 9.9 percent over the same period last year, among which
that of woven garments was up 13.57 percent to $6.11 billion, while that of knitted ones
was up 6.39 percent to $5.92 billion. Table below shows the growth pattern in recent
timeline:
BANGLADESH'S RMG EXPORTS TO WORLD, FY 2011-12 & 2012-13
October 704.7 761.48 8.06 796.05 873.16 9.69 1500.75 1634.6 8.92
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November 626.91 710.04 13.26 621.73 653.96 5.18 1248.64 1364 9.24
December 890.8 1042.6 17.05 794.23 908.94 14.44 1685.03 1951.6 15.8
8 2
Although the sector is adopting automated technologies for production and other business
functions, the process remains, to date, extremely labor intensive. We can draw a bar graph
showing the sectors contribution to national labor market.Explosive growth of RMG
exports is of course not unique to Bangladesh. Moreover the growth cycles have seen boom
on a continuous manner because of RMG. Quota rents associated with MFA quotas had
aided Bangladeshs RMG entrepreneurs to absorb, at least partly, the higher costs of
production resulting from bureaucratic inefficiency and corruption in the highly regulated
economic environment prevailing in the country during the late 1970s and 1980s when the
industry was in its growing phase. At the same time, low labor costs in Bangladesh had
attracted quota-restrained foreign garment producers to come to this country and act as a
catalyst in the rise of the garment industry in Bangladesh.
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Labor market
60
50
40
10
0
2003 2006 2010
4.5 80
4 70
3.5 60
3 50
2.5 40
Total Number of Workers in Millions
2 30
Percentage Change in growth
1.5 20
1 10
0.5 0
0 -10
1980 1985 1990 1995 2000 2005 2010 2015
50% of available work force of Bangladesh still remains associated with agro-based
services. As we analyze the industry scenario of the country, we can actually understand
how important the RMG sector actually is for the labor market:
RMG sector alone is responsible for 90% of the production workers involved in
different industries. With its high volume, and higher share of female workers (who are
willing to accept less wage than their male counterparts), the industry can afford to pay
fewer wages to its workers compared to other industries in the country. However,
changing economy demands changes in wage-structure as well. This is where the minimum
wage policy comes in. According to a survey conducted by Fair Wear Foundation in 2012,
Before the 2010 law, the monthly average pay of surveyed workers was 3 371 BDT.
Under the new minimum wage scheme, the average increased to 4 027 BDT.
80% of the workers stated that pay slips are given to them.
Most of the workers said that they were paid within the first and second week of the
month; only 4% said that they were paid in the last week of the month.
However, even with the rise in cost and increasing pressure for labor-safety compliance, as
McKinsey report would predict, the pricing will remain competitive and Bangladesh will
remain a hot spot for foreign investment in the years to come.
Increase in Productivity:
6000 70
Revenue Per Worker Per Year In USD
60
5000
50
4000 40
30
3000
20 Revenue Per Worker in USD
2000 10
Productivity Change in %
0
1000
-10
0 -20
1980 1985 1990 1995 2000 2005 2010 2015
YEAR
Competitive Advantage
Before considering this issue, a view of the rapid growth in RMG should be provided:
NUMBER OF FACTORIES
Figure 5:
7000
Exponential
6000
growth curve
5000
of RMG
4000
factories
3000
2000
1000
0 In a growing
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 industry like
RMG in
Bangladesh, it is imperative to gain a competitive advantage over numerous new entrants
for ensuring business sustainability. Despite the ex-post entry barrier caused by high
pricing of technological options, it is in fact the most ideal source for sustainable advantage
in a developing country. As most of its businesses are yet to be automated, in this part of
the world, investing in IS (Information Systems) is considered as a differentiation strategy
for the adopters. ERP facilitates all 3 sources of organizational competency: input-
transformation-output. Viyellatex group has already initiated the trend in 2008. A large
number of major RMGs are in line to adopt their unique, customized ERP solutions to stay
in the game.
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External factors
Followed by catastrophic fire accident in Tazreen garments in 2012, The European
Parliament (EP) is planning to adopt a harsh resolution soon on the labor and safety
standards in the garment sector in Bangladesh. The development in the European region
have caused further worries to both policy-makers of the government and the leaders of
the apparel sector as it comes in tandem with the move of the United States Trade
Representative (USTR) to debar the country from getting any facility under the generalized
system of preferences (GSP) for what it considered, its failure to implement labor standard,
ensure workers' union right and improve safety standard. The EU is the largest export
destination for the country's RMG, as export earnings in the sector from the EU region
aggregated at $11.37 billion in the last fiscal year (FY) 2011-2012. It is nearly 60 per cent of
the total export earnings worth $ 20.13 billion in the RMG sector. The business reputation
is all that matters and now, in order to keep up the demands of the international
organizations, Bangladesh has to comply with the labor-safety issues. These initiatives will
cost a fortune and hence the need for a more controlled cost monitoring than ever. The
benefits of ERP to these issues can be categorized into three:
The analytics ERP systems can provide good visibility into manufacturing performance and
quality, enabling production to stay on track and maintain the highest quality output.
Identifying issues early helps ensure efficient use of production and employee assets.
Supply chain visibility shrinks the time people spend on busywork and the cost of
expediting materials. ERP automates communication and eliminate much of the overhead
of paperwork and messages. With access to key demand and schedule data, partners can
often answer questions themselves, freeing the employees for other tasks.
The geographical distance that Bangladesh has with its major buyers in EU, is a matter of
concern for timely delivery and relations management. With the common database and
integrated module, constant communication with the buyers and suppliers can be
maintained. Ultimately this will facilitate the establishment of an efficient supply chain
system for the organization.
With management having to spend less time for information procurement, the time and
resources can be better utilized for improved line-balancing, work-flow design. Also this
can bring in transparency in the payroll system that will ensure decreasing discrepancies in
the long run.
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Revenue Per factory in Millions of USD
3.5
Revenue per Factory in Millions
2.5
1.5
0.5
Automation has taken place in almost all of the departments related to manufacturing
process, most of the leading companies are shifting to automated production systems
(involving knitting, dyeing, cutting, packaging etc.) from the traditional ones to be more
competitive in global apparel business. Though such adoption of fresh technology in the
apparel industry is paying dividends to owners, as it helps improve management, quality
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and delivery systems; ERP integration has not become a popular part of automation
process yet now- owing to its huge installation cost added with expensive after sales
servicing cost.Viyellatex Group is countrys first garments factory that has implemented the
expensive Enterprise Resource Planning (ERP) solution from SAP Germany.The group
implemented the ERP in its Gazipur based factory in December 2008 at a cost of $2million.
Following the footstep, Dekko group, SQ group, Base textiles (located in kalurghat,
Chittagong) have adopted ERP, mostly from local software developers. In November 2009
Envoy textiles bought its first ERP from an India Bangladesh venture (Royal Datamatics
Pvt. Ltd, India & CIBL Bangladesh).
Off late, the requirement for real time information and centralized decision making have
gradually increased need for ERP installment among RMGs. According to BASIS, due to the
growing demand from apparel and textile players, Bangladeshs Software Application
market is enjoying 20-30% growth. Significant numbers of local garments are purchasing
ERP software now a day.
But, Local ERP brands no longer meet their enhanced needs; they are looking for
standardized best of breed end-to-end solutions, and are turning to global vendors they
perceive as having an edge in meeting compliance requirements and international
standards. Significant footprints of global brands like SAP, Oracle, and IFS have been
observed within the Bangladesh market in the last 2-3 years. They have now collectively
captured the largest chunk of the Bangladesh ERP segment, edging out local brands. Global
brands offer a large portfolio of products for multiple verticals compared to local vendors
focus on a few specific ones.
1. Local Producers: These are run by local administration, they sell softwareusually in
the local market, software developed by them.
Example: ERP 9 (Tally), Prism ERP (Divine group)
2. Local Partners with International Brands: Run by local administrations, software
developed by famous brands. Sometimes the local companies itself develop
software. In Bangladesh such partnerships have been being created
betweenBangladesh+USA and India+Bangladesh frequently. After sales service is
provided by local team.
Example: Oracle partners with IBCS-Primax, RDPL partnered with CIBL to
produce apparel specific software
3. International Seller: A mere distributor just gets recruited as to penetrate into the
market.
Example: SAP Germany.
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Security, Asset
management etc.
The products of ERP from local and foreign firms are highly dependent on the industry they
are targeting. In this ICT solutions, every operating model from of specific industry is
different, which encompasses their own tiers and specialized ways of inventory, HR,
production planning, financial accounting,security, MIS. So the IT companies with software
solution have to cater the need of the industry with a customized solution. These business
models vary even within the industry because company size, culture etc. For more
certainty,IT firms perform multi-level surveys and a thorough analysis of the players in
every dimension. This is the first step to matching one IT firms resources,software to the
need of the market they want to be in.
The varieties of the companies in existing market are also diverse in there underlying goals.
Their solution in long term depends on the perspective they fixed to think and work from.
The focus area should be on the viewpoint of their R and D goals but not on the existing
common sections of every business models such finance, HR, security etc. These even
helps the market leader like SAP to keep them updated and energized to innovate and
develop. On the other hand, local companies such as STM vision info-tech Ltd., has been
more prone to focusing on low-cost solution with convenience for users and businesses.
Also, the product type induces complex buying behavior and needs after sales service and
support to maintain the product. Other variables such as company culture also important
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determinant of the need. So, any firms should have a thorough study and gather market
intelligence before entering the market or fixing on any strategy to enter.
Underlying Problems:
ERP installation cost is extremely high. Not only the initial cost but also even the
subsequent maintenance and upgrading cost is higher than average maintenance
expenditure for any capital good. Moreover the company has to undergo several
hardware upgrades as a result of ERP implementation. Bangladeshi entrepreneurs
with traditional myopic mindset tend to take decisions on the basis of profit margins
instead of future sustainability. So, even though many RMG companies (Around 500
companies with yearly profit more than $5 million) have the affordability to invest
for ERP, They rather continue to extract the cheap labor and increase the profit
margin
Bangladesh has a centralized labor-intensive system of management where
managers rely on various types of paper-based reports, unstructured decision
making, changing roles, and manual authorization procedures etc. By contrast, ERP
systems inscribe modern management concepts and values using online services
and highly structured processes, data, and roles. Hence the entire workforce who
are used to working in isolation will be required to work in an integrated working
environment which is some times non-adjustable as perceived my
mangers/administrators.
Most of the companies inhibit a hierarchical organizational culture having
seniors/top management as the ultimate decision maker. Decision-making is low
between junior and middle management. However, ERP demands decision making
at all levels of operations. Hence some companies dont want to adopt ERP, which
might go against a senior managers consent in future.
Most of the management level employees in Bangladeshi RMG sector are
accustomed to being employed by one organization for a long period of time, and
often to working within a particular function within that organization. With
experience, they become managers and owners of departments, not team players.
Again, this goes against ERP culture, which promotes shared environments.
Bangladeshi Garment industry has a low-wage work force. Savings achieved through
staff reductions are negligible compared to the cost of purchasing and implementing
the ERP software.
Though many local companies are providing ERPs at a lower cost, low quality after
sales service and point of parity while purchasing from among them ultimately leads
to dissatisfaction from the company perspective.
Thought the industry is growing at a much faster rate, adoption of ERP is not as fast
as the optimum level should be. Anecdotal evidence suggests that some large
organizations in this sector have successfully implemented full functional ERP
modules, some have customized it only to one portion only i.e. Financial functions
such as financials, assets planning and budgeting (usually without integrating the
main business functions, such as purchasing, inventory and sales) excluding the
overall functional activities. Some accumulate only the pay role and Supply chain
continuum in the ERP. Such examples focus on neither the fact that though the
industry is same, industry competitors needs are not identical nor their business
philosophies. Hence, as to operate profitably by targeting the right market with the
right level of software features; we have to conduct an exploratory survey.
Given the growth potential and market trend of RMG sector in Bangladesh, it is
pretty evident that the need for ERP will soon turn into substantial demand, but
after tackling several hurdles. Instead of traditional distinct SBUs promoting
standalone working environment, manual integration among functional areas have
started to take place in the garments industry. Initially we need to filter out the
effective target groups from among around 5000 companies; who would be willing
to pursue the expensive software-hardware change and re-skilling of the existing
workforce as to earn long-term profitability. And the entire decision depends more
on the top managements, board members etc. Whether they are ready to welcome
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ERP or yet to get IT-matured is a vital question to get answer via organization level
survey conduction.
Several foreign companies are having their local partners successfully operating in
Bangladesh. Even a few Indian IT firms have partnered with Bangladeshi software
developers few years ago as to (RDPL-CIBL venture APPS software) provide middle-
upper quality software for companies with varied portfolios. A properly conducted
survey with companies experienced as such; will definitely provide us some
important data.
Almost 20 local software developers are providing low cost ERP software with a
view to tapping the influential RMG sector. Added to that 10-15 local
distributor/partner based foreign software firms (Microsoft, SAP, Oracle); being
imported on regular basis as to serve the premium clients (big garment companies).
Moreover open source ERP has made its entrance in some of the local industries
(Poultry-Kazi&Kazi firms) having low cost and constant availability as its Unique
selling and proposition. In a nutshell, the market is not an absolute blue ocean; here
price elasticity will be a major decisive; since buyers are involved is Complex buying
behavioral process. So, Survey with all the key market players sampled according to
varied strata, will provide us the proper pricing answer.
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Project Team:
Zamil Rashid Economics, Statistics, Team Leader Overall Coordination of the Project,
Qualitative Research, M&E, Maintain Client Relationship
Quantitative Data
Analysis, Project
Management
Ayesha Sabirna Desk Research, Analysis, Research Facilitator Secondary research, Data Analysis,
Content writing, Intra Content developing
team communication
MuntasirTahmeed Research, Content Research Assistant Coordinating Field Team, FGD &
Chowdhury Writing, FGD KII, Managing Data checking and
Quality
Amitabh Guha Roy Planning, Field Strategic Partner- Project monitoring and Evaluation,
Operation Monitoring, Monitoring and Developing key strategies
Evaluation evaluation
Hisham Uddin Field research, KII, FGD Research Assistant Coordinating Field Team, FGD &
Khan and Content writing KII, Managing Data checking and
Quality
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