History of Garments industry in Bangladesh & Economy of Garments Industry in Bangladesh

The readymade garments industry acts as the backbone of our economy and as a catalyst for the development of our country. We take pride in the sector that has been fetching billions of dollars as export earnings and creating jobs for millions of people in the country.

The “Made in Bangladesh” tag has also brought glory for Bangladesh, making it a prestigious brand across the globe. Bangladesh, which was once termed by cynics a “bottomless basket” has now become a “basket full of wonders.” The country with its limited resources has been maintaining 6% annual average GDP growth rate and has brought about remarkable social and human development.

It is really a matter of great interest to many – how the economy of Bangladesh continues to grow at a steady pace, sometimes even when rowing against the tide. Now we envision Bangladesh achieving the middle-income country status by 2021. We firmly believe that our dream will come true within the stipulated time and the RMG industry will certainly play a crucial role in materializing the dream.

After the independence in 1971, Bangladesh was one of poorest countries in the world. No major industries were developed in Bangladesh, when it was known as East Pakistan, due to discriminatory attitude and policies of the government of the then West Pakistan. So, rebuilding the war-ravaged country with limited resources appeared to be the biggest challenge for us.

The industry that has been making crucial contribution to rebuilding the country and its economy is none other than the readymade garment (RMG) industry which is now the single biggest export earner for Bangladesh. The sector accounts for 81% of total export earnings of the country.

When our lone export earner – the jute industry – started losing its golden days, it is the RMG sector that replaced it.

Our garments product

Bangladesh mainly produces five products – T-shirts, sweaters, trousers, men’s and women’s shirts. Moreover, we are dependent mainly on two markets namely the EU and North America (the US and Canada). Though we reduced our dependency on these two markets from 93% to 85% in last five years (From fiscal 2009-10 to 2013-14), we need to diversify the destinations of our apparel export and concentrate on high-end products like suits, lingerie, etc. More for the sustained growth of our apparel industry.

Inadequate infrastructure, bureaucratic inefficiency and corruption are still the major problematic factors in industrialisation and for growth of an industry. These are also increasing entrepreneurs’ cost of doing business. We are also losing price and delivery competitiveness to our business competitor. The last but not the least, political stability of the country is the key to steady growth of the industry.

Starting from scratch, Bangladesh has come a long way and is now one of 10 new emerging countries in the world. The macroeconomic stability, 6% annual average GDP growth, robust performance of remittance and export, strong foreign currency reserve, and remarkable social and human development over the past decade – all reflect our underlying strengths.

Given the dominance of the RMG industry in the overall economy of Bangladesh, we have to protect this sector. Rather than basking in the glory we should work hand in hand to retain sustainable growth and competitive edge of this industry. 

   

Present condition in garments industry

The garments industry has played a pioneering role in the development of industrial sector of Bangladesh. Though it took a rather late start i.e., in 1976 but it soon established its reputation in the world market within a short span of time. Resultantly garment is now one of the main export items of the country. Besides, enriching the country's economy it has played a very important role in alleviating unemployment. At present there are more than two thousand one hundred garment factories in the country employing more than 12 lack labors. 85 percent of the labor force is women.

With 5,000 factories employing about 3.6 million workers (of a total workforce of 74 million), Bangladesh is clearly ahead of other Southeast Asian suppliers in terms of capacity of the ready-made-garment industry. It also offers satisfactory levels of quality, especially in value and entry-level midmarket products.

Ready-made garments manufactured in Bangladesh are divided mainly into two broad categories: woven and knit products. Shirts, T-shirts and trousers are the main woven products and undergarments, socks, stockings, T-shirts, sweaters and other casual and soft garments are the main knit products. Woven garment products still dominate the garment export earnings of the country. The share of knit garment products has been increasing since the early 1990s; such products currently account for more than 40 per cent of the country’s total RMG export earnings (BGMEA website). 

Diagram of Garment Export from Bangladesh

Besides labour cost and duty advantage, raw materials and real estate costs are also cheaper in Bangladesh. There is also no doubt that Bangladesh is benefitting from various preferential trade agreements providing tax free entry into several dozen countries.

But Bangladesh has its own challenges to overcome. Impediments to investment include unreliable power supply, high real interest rates, corruption, and weaknesses in law and order. So what can Bangladesh do to overcome these challenges and utilise its huge potential?

First, inefficient infrastructure, including transportation and energy supply, is the single largest bottleneck hampering our garments industry. This issue will become even more important in the future, since buyers want to source more fashionable products with shorter lead times. The government needs to prioritise improvement in this area and start to upgrade power systems. Fortunately, a number of steps have been taken in this regard.

Second, although labour and social-compliance standards have improved over the past few years, suppliers vary greatly in their degree of compliance. Environmental compliance is just beginning to get attention.

Third, the suppliers' productivity must improve not only to mitigate the impact of rising wages but also to close gaps with other sourcing countries, such as India and Cambodia, by satisfying new customer needs for more sophisticated products. Lack of investment in new machinery and technologies and the insufficient size of the skilled workforce, particularly in middle management, is also hampering growth in this industry.

Fourth, access to raw material is crucial for clothing exporters. Lack of backward linkages and Bangladesh's dependence on imports create sourcing risks and lengthen lead times. Compounding the problem is the volatility of raw-material prices in recent years. The development of a local sector could improve lead times.

Fifth, political stability is a prerequisite for attracting foreign investors. Political unrest, strikes, and the absence of ease of doing business are major concerns of foreign investors.

The three main stakeholders the government, suppliers and buyers must work together to realise the potential of Bangladesh's ready-made-garment market. The government's top priorities for investment should be developing infrastructure,maintaining political stability, reducing corruption,and providing education and trade support.

Buyers should help to increase the supply chain's efficiency and transparency and increase their support for lean operations and electronic data exchange. They should also build closer relationships with suppliers and improve their own operational execution. Their long response times, the complexity of internal procedures involving the merchandising and sourcing functions, and a large number of last-minute changes slow down theoverallprocess.

While Bangladesh has some very promising advantages in certain dimensions in the garments industry, a number of challenges remain. Only if these challenges can be overcome will Bangladesh's garments industry continue to prosper. 

Opportunity of garments industry

The hundred percent export-oriented RMG industry has experienced phenomenal growth during the last 15 years. Within a very short period of time, it has attained great importance in terms of its contribution to GDP, foreign exchange earnings and employment and also as a vehicle of social changes. The export earning data of Bangladesh, shows that in 19884-85, ready-made garment sector earned 12.39%( $116 million) of the total export. This was raised to 36.46%($471 million) in 1989-90. This share rapidly went up to 53.36%($1064 million) in 1991-92. Surprisingly, the share showed no increase for the last three years. Bangladesh garments products are facing various barriers and difficulties in the international market.

 

Bangladesh has opportunities of expanding the market through the following strategies.

i) Cost Effective Strategy
ii) New Product Development and Diversification Strategy
iii) Market Diversification Strategy

Combined together these three strategies calls for total quality management (TQM) approach. I have discussed them individually.

1.     Cost Reduction Strategy

a. Backward Integration

The cost reduction strategy should begin with assigning the higher priority to establishing backward linkages. The establishment of backward linkages will reduce our dependence on foreign sources and in turn will reduce total and average production cost of garments. This will make our products more competitive in the world market. Our textile industry is not capable of producing the types of fabrics which the apparel industry needs. This means that we must develop our ability to manufacture quality yarn and fabrics supported by dyeing and finishing facilities by establishing composite mills with adequate capacity to meet the demand of the growing RMG industry. The backward integration will not only reduce our dependence on foreign sources but it should also decrease the total and average unit cost of production. Currently our exporters buy fabrics at international prices with the support of back-to-back L/C. Prices are not necessarily competitive. Besides, while procuring through back-to-back L/C, the importers (our exporters) pay a high charge of interest for a certain period, almost for 120 days. In addition to this interest payment , the charges, commissions, fees for the services of the middlemen involved are also to be paid.

b. Labour Productivity Improvement

However, it is to be noted that the lower material procurement cost may not be enough for Bangladesh to maintain its competitive edge in international markets. Bangladesh must increase productivity which is lower than many of its competitors. It is true that wages are low in Bangladesh, but it does not necessarily mean that relatively low wages automatically lead to higher productivity. Wages are only one of the determinant of labour productivity. Time required by the workers to perform a task is another important determinant. Available efficiencies indicate that Bangladeshi workers are not as those of Hong Kong, South Korea and Sri Lanka. The workers skills and supervision managerial efficiency are higher in those countries than in Bangladesh. In addition, those countries use the latest technology, for example, computerise sewing machines, design facilities, etc. but Bangladesh uses relatively older technology.

c. Productivity of Bangladesh RMG Industry Increasing 

A survey research in 1994-95, aimed to determine the productivity trend of the RMG industry, revealed that the workers needed significantly shorter time to produce a shirt of a given specification than the time.

New opportunities for the garments industry

It is unfortunate that Bangladesh tends to attract international attention only when it is hit by a calamity. It was no different this time. The tragic fire at the Tazreen Fashions Ltd in Savar killed more than a hundred innocent lives. It didn’t have to happen. There are many to share the blame: owners who are more interested in bottom-line profit, government agencies reluctant or unable to enforce existing safety standards and building codes, multinational companies who are looking the other way when it comes to their suppliers, etc.

More manmade tragedies like this would definitely affect the long-term prospects of the garments industry in Bangladesh. This is at a time when new opportunities are opening up for the industry that earns precious foreign exchange and employs a sizeable portion of the labour force.

The migration of low-end manufacturing, such as, textile and apparel, out of China is likely to continue in the near future. Cost alone is not the only factor driving some companies to source elsewhere. An aging population and labour shortages in some regions in China are important factors for securing other sourcing destinations. Vietnam, which has been steadily increasing its market share in recent years, looks set to be the main beneficiary of this trend. Wages are approximately half the level they are in China, while the political scene is stable.

Although Vietnam may lack China’s sophisticated supply-chain network, as a member of the ASEAN free-trade area, it can import raw materials such as denim and cotton duty free to be stitched together and shipped abroad. Moreover, given its close proximity to China, Vietnam is still able to benefit from existing supply-chains.

However, Vietnam will not be the only beneficiary. Poor infrastructure, especially port facilities, remains a potential bottleneck on future expansion. And while labour costs in Vietnam may be half the level they are in China, they are rising rapidly too. The textile trade is notoriously footloose. Therefore, it may not be long before suppliers look for a cheaper alternative to Vietnam.

This is where Bangladesh comes into the picture.  A recent survey by the consulting firm McKinsey found that although Western buyers are evaluating a considerable number of sourcing options in the Far East and Southeast Asia, including Cambodia, India, and Pakistan, many of them view Bangladesh as the next hotspot.

Besides labour cost and duty advantage, raw materials and real estate costs are also cheaper in Bangladesh. There is also no doubt that Bangladesh is benefiting from various preferential trade agreements providing tax free entry into several dozen countries.

But Bangladesh has its own challenges to overcome. Impediments to investment include an unreliable power supply, high real interest rates, corruption, and weaknesses in law and order. So what can Bangladesh do to overcome these challenges and utilise its huge potential?

First, inefficient infrastructure including transportation and energy supply is the single largest bottleneck hampering our garments industry. This issue will become even more important in the future, since buyers want to source more fashionable products with shorter lead times. The government needs to prioritise improvement in this area and start to upgrade power systems. Fortunately, a number of steps have been taken in this regard.

Second, although labour and social-compliance standards have improved over the past few years, suppliers vary greatly in their degree of compliance. Environmental compliance is just beginning to get attention. The Tazreen tragedy only highlights the importance of meeting the minimum safety codes. Vigilance on the part of the government is necessary but not enough. Individual garment owners must make sure that their facility conforms to the safety standards necessary to safeguard the life of everyone who works there.

Third, the suppliers’ productivity must improve not only to mitigate the impact of rising wages but also to close gaps with other sourcing countries, such as, India and Cambodia by satisfying new customer needs for more sophisticated products. Lack of investment in new machinery and technologies and the insufficient size of the skilled workforce, particularly in middle management, is also hampering growth in this industry.

Fourth, access to raw material is crucial for clothing exporters. Lack of backward linkages and Bangladesh’s dependence on imports creates sourcing risks and lengthens lead times. Compounding the problem is the volatility of raw-material prices in recent years. The development of a local sector could improve lead times.

Fifth, political stability is a prerequisite for attracting foreign investors. Political unrest, strikes, and the absence of ease of doing business are major concerns of foreign investors.

Prospects and challenges of garment industry

The readymade garment sector in Bangladesh is a multi-billion-dollar manufacturing and export industry. With about 4.4 million workers employed in the sector, about 80 percent of whom are women, the growth of the garment industry has far-flung implications for the economy. The RMG sector alone does export worth $21.5 billion a year, which is 79 percent of the total export earnings of our country.

There are several external factors that have been playing an important role in facilitating the growth of the sector. One of these crucial factors is gradual reduction in China's bulk production due to labor shortages and higher wages, which also contribute to a decline in its appeal in the apparel realm. Moreover, China is now interested in manufacturing products that require greater skills, better technology and more investment in advanced equipment.

Another key prospect for growth of our garment industry lies in the size of the global apparel market, which is gradually growing bigger. According to a recent report, the global apparel market will cross the $2 trillion mark by 2025 from the current value of $1.1 trillion. So there is a great opportunity for us to further penetrate the global apparel market and boost our export earnings.

The legal requirements for trade union formation are more flexible now. The number of trade unions at the garment factories has increased significantly in recent times. Besides, the government promptly takes steps to investigate any complaint of violation of labour rights.
The huge expansion of the garment industry has reinforced the need for development of infrastructure, which is quite a big challenge for us. Ensuring energy and power supply to the industry has also appeared as a major challenge.

Skilled workforce is a prerequisite for the development of an industry.
But unfortunately we have a shortage of skilled workforce, especially at mid-management level, as we do not have sufficient number of vocational institutes and textile universities though our industry has started its journey in the early 1980s.

We have realised there is no best alternative but to improve productivity in order to compete in the global market since the prices of garments in the world market have gone down to such an extent that there is hardly any scope for a further decrease in the price level. Keeping the fact in mind due emphasis should be put on developing the skills of our workers.
Practically saying one word that describes our garment sector is 'resilience'. Even after many external and internal challenges, we have come out successful and still going strong.

We may have had disruptions in our supply chain but still we met our shipments and deliveries, though they have cost more than usual but at least we kept our words. No one can deny our commitment that buyers have enjoyed all these years by importing from us. Unfortunate incidences happened but with time and effort we can avert such incidents. It is good to see that even during our difficult time in the wake of Tazreen and Rana Plaza tragedy, buyers have not lost their confidence in us and they are still supporting.

The RMG industry has the potential to grow more in the coming years. With tangible support from our government, buyers and all other organisations concerned.