The opportunity and challenges of Bangladesh RMG Sector in next Five Years

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Shanto-Mariam University of Creative Technology
MIS-482
Assignment On
The opportunity and challenges of Bangladesh RMG Sector in
next Five Years
Submitted To
Mahmud Wahid
Lecturer (SMUCT)
Dept. of AMMT
Submitted By
Nazmul Haque
ID: 132011524
Group: E
Semester: 8th
Batch: 21st
Date of Submission Date- 06th
October 2017

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Acknowledgement
First and foremost, we would like to thanks to our teacher of this assignment, Mahmud Wahid
for the valuable guidance and advice. He inspired us greatly to work in this assignment. His
willingness to motivate us contributed tremendously to our assignment. We also would like to
thank his for showing us some example that related to the topic of our assignment. We would
also like to thanks our honorable teachers for his encouragement and guidance to complete this
assignment. Also, we would like to take this opportunity to thanks to A study is on the threats
and challenges of Bangladesh RMG sector in the next five years. Those gave us an
opportunity to participate and learn about the operation. Finally, an honorable mention goes to
our families and friends for their understandings and supports on us in completing this project.
Without helps of the particular that mentioned above, we would face many difficulties while
doing this.

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Contents
Introduction…………………………………………………………………………………04
Literature Review........................................................................................................…...05
Threat of MFA Phase out and Counteractions against It (2014-2020)……………………06
Sources of Competitiveness in the RMG Industries………………………………………..07
Low Wage Rate………………………………………………………………………………07
Increase of Sales………………………………………………………………………………08
Development of Other Sectors………………………………………………………………09
The challenge of growth Foreword……………………………………………………………09
China is losing its attractiveness for new and establishedbuyers…………………………..10
Challenges of growth…………………………………………………………………………..10
Buyers: “Take care”…………………………………………………………………………..13
Contributions of RMG industry to national economy…………………..……………….15
Conclusion…………………………………………………………………………………..17
Reference……………………………………………………………………………………19

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INTRODUCTION
Everywhere, the industrial sector has been the driver of growth as countries have moved from
low to middle-income status. Bangladesh as a country with a poor land-person ratio is unlikely
to prosper through agricultural growth alone. The average productivity of industry is higher than
in agriculture. As people move out of agriculture into industry, the sector can provide high-
wage employment for large numbers of workers and can raise social productivity by
producing high-value goods on a mass scale. Besides, poor countries can also earn valuable
foreign exchange by exporting manufactured products
and the ensuing foreign exchange can be used to invest in new vintage of machines and
technologies so that a rapid move up the technology ladder becomes possible. The importance
of industrial development as an engine of Bangladesh's economic growth is also reinforced by a
growing realization that the development of agriculture sector, one of the mainstays of the
country's economy, critically hinges on its backward and forward linkage with the industrial
sector.
During the post-independence period, Industrial development of Bangladesh has been directed
by several Industrial policies: Industrial Policy of 1973, the New Industrial Policy of 1982,
the Revised Industrial Policy of 1986, Industrial Policy of 1999 followed by a number of other
policies, with the latest being the Industrial Policy of 2010. All these policies have attempted to
revamp the sector with a view to creating a strong manufacturing base in the economy.1 As a
result, according to the latest BBS
data (FY09-10), the contribution of the manufacturing sector to GDP is 17.86 percent, which
was recorded 17.9 percent in FY08-09. The BBS recorded the growth rate of the manufacturing
sector at 5.73 percent in FY 09-10. The Industrial Policy, 2010, announced recently, proposes
an integrated strategy of economic growth through rapid industrialization. It envisages an
increase in the industry sector’s share in GDP to 40 percent by 2021, with the proportion of
the workforce employed in the sector concurrently rising to 25 percent of the country’s
total labor force. Data available from Bangladesh Bureau of Statistics (BBS) show that the
quantum of industrial production, representing medium to large-scale industries, rose to 413.40
in FY08-09 from 254.45 in FY02-03. In FY 2009-10 averages QIP stood at 431.51. This
implies that the large industry has come to play an increasingly important role within the
industrial sector in recent years. The rise in the share of large industry in the industrial GDP,
however,
conceals the fact that the industrial base has continued to remain rather narrow.

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LITERATURE REVIEW
Despite many difficulties faced by the sector over the past years, it has carved a niche in world
market and kept continuing to show robust performance. 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, and then, to
overtake it. The apparel industry of Bangladesh started its journey in the 1980s and has come to
the position it is in today. The late Nurool Quader Khan was the pioneer of the readymade
garment industry in Bangladesh. He had a vision of how to transform the country. In 1978, he
sent 130 trainees to South Korea where they learned how to produce readymade garments. Since
the early days, different sources of impetus have contributed to the development and maturity of
the industry at various stages. We learned about child-labour in 1994, and successfully made the
industry free from child labour in 1995.
The MFA-quota was a blessing to our industry to take root, gradually develop and mature. While
the quota was approaching to an end in 2004, it was predicted by many that the phase-out would
incur a massive upset in our export. However, the post-MFA era is another story of success.
Proving all the predictions wrong, we conquered the post-MFA challenges. Now the apparel
industry is Bangladesh’s biggest export earner with value of over $24.49bn of exports in the last
financial year (from July 2013 to June 2014). Despite the epic growth of our RMG industry, and
its bright prospects, challenges are still there. One of the biggest challenges currently faced by

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our RMG industry is to ensure workplace safety and better working conditions for the millions of
garment workers. Two major accidents, the Tazreen fire and the Rana Plaza collapse, have
brought the issue of workplace safety to the fore and led all stakeholders to act accordingly.
Following the unfortunate incidents, various platforms such as the Bangladesh Accord on Fire
and Building Safety, the Alliance for Bangladesh Worker Safety and National Plan of Action
have been formed to improve building and fire safety of Bangladesh’s garment industry.
All members of the BGMEA and BKMEA are working all-out to carry out the corrective action
plans suggested by the Accord, Alliance and National Plan of Action after inspections, even
investing huge amount of money.
DATA ANALYSIS
According to the study, the US-based fashion companies are expected to boost their sourcing
from Bangladesh in the next two years. McKinsey, a global management consulting firm,
described Bangladesh as the next hot spot in apparel sourcing. The renowned firm forecasts
export-value growth of 7-9% annually and our apparel export will double by 2015 and nearly
triple by 2020 provided that we can successfully overcome a few challenges including
developing infrastructure and skill workforce.
It is the responsibility of all of us to protect the interest of this industry which has given our
economy a strong footing, created jobs for millions of people, especially for women, lifted them
from the abyss of chronic poverty and given them a dignified life. Now what we need to do is
deal with all the challenges facing our garment industry, paving the way for its further
development. The main highways namely Dhaka-Chittagong, Dhaka-Mymensigh, Dhaka-
Tangail through which our apparel products and the raw materials for apparel and textile are
transported from factories to port, are being widened (from two lanes to four lanes) and drive-
worthy for tapping our export potential. This work needs to be completed as urgently, preferably
by December 2014. BGMEA University of Fashion and Technology (BUFT) is offering graduate
and post-graduate degrees to students on fashion design, knitwear technology and apparel
merchandising related subjects. Nonetheless, to meet the current shortfall of competent
professionals in the mid-level of our garment factories, fashion, textile and industrial
merchandising related departments need to be established at all of our major public and private
universities.
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. 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.

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Threat of MFA Phase out and Counteractions against It (2014-2020)
It may be noted that textiles and clothing are susceptible to trade restrictions caused by trade
friction. From historical trend it was found that after World War II Japan was strongly
encouraged to exercise voluntary restraint on cotton textile exports to the US in 1957 because
rapid expansion of Japanese textile exports frustrated the textile industry in the US
(Yamazawa, 1988). Since then controlled trade has been the norm rather than temporary
regulation of the trade in textiles and clothing. The import restrictions by the US, Canada, and
the European countries were first incorporated as a short-term arrangement regarding
international trade in textiles in 1961, which was followed by a similar long-term arrangement
regarding international trade in cotton textiles between 1962 and 1974. In the sequel, a
restricted trade regime was perpetuated through the Multi-Fiber Arrangement (MFA) on
international trade in textiles, which came into effect in 1974. When the World Trade
Organization (WTO) was launched in 1995, it was assumed that the MFA system of
controlled trade would be phased out by January 1, 2005. At the
RMG exports earn $ 4 billion extra which is 75 percent higher of the RMG export volume of
FY03-04. From the empirical evidence it is evident that Bangladesh comes as winner in the post-
MFA world.
Sources of Competitiveness in the RMG Industries
It is evident from the foregoing reviews that overall growth of the apparel sector in
Bangladesh has been supported by a regulated international trade regime and a proactive
domestic policy framework. But the intrinsic competitive components of RMG sector can be
attributed to cheap labor supply. However, this raises concern for the sector as the potential for
Bangladesh to assert its cheap labor-based competitive advantage is circumscribed by the
modest share of labor in the cost structure of RMG products and the marginal presence of
backward linkages in processing activities. The present section identifies in depth the crucial
factors in the RMG sector that maintain the global competitive edge of the industry.
Low Wage Rate
As the industry is highly labor-intensive in nature, the historical evolution of world apparel
business reveals that comparatively lower wage rate countries were always the major apparel
supplier in the world. As human labor is embodied in the manufacturing process, it makes
wage rate as an important determinant of production cost. As quotas were imposed on some
apparel exporting countries, a large number of intermediate buyers shifted sourcing of RMG
products to Bangladesh which was reinforced by the market access power of the country
through the US and Canadian markets quotas imposed on imports of apparel garments.

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Considerably the then prevailing low wages ensured competitive prices for the ventures
entrepreneurs to shift their production transition process. Although labor productivity was an
issue, low wages helped Bangladesh focus on high volume mass production of RMG items,
competing directly with countries such as China, India, and Vietnam.
Though Low wages go a long way in explaining the attractiveness of Bangladesh-made
garments to foreign buyers but increasing liberalization of the global textiles market creates
new challenges if the industry in the country continuously relies on a low skill/low wage
strategy. Because it is widely held that cheap and readily employable labor underpins the
competitive advantage of the country’s export sector. In other words, wage rates in the RMG
sector can be interpreted as market clearing wages established in a more or less flexible
labor market even though inter-industry wage differentials indicate a depressed wage situation
in the RMG sector (Bhattacharya and Rahman, 1999). In a sense abundant, readily available
labor and its low opportunity cost lead to low wage levels, providing a comparative
advantage to female labor in particular operations in the RMG production cycle.
Female workers in Bangladesh were traditionally linked to global markets through export
of tea and raw jute. Women entering the industrial labor force in Bangladesh generally
find themselves in low skill/low wage jobs. In RMG production, female workers are
predominantly concentrated in low-skill/low-wage operations and, thus, are low paid. Most
women are either production workers or helpers (female workers constitute 40-60 percent
of the total workforce in the latter category).4 The sectoral distribution of female
manufacturing employment in Bangladesh remains highly skewed, according to 1995 labor
force survey the wearing apparel sector, categorized under Bangladesh Standard Industrial
Code (BSIC) 323, alone employs about 85 per cent of the female industrial employees (which
is about 12.9 per cent of total manufacturing employment). This is followed by textiles
manufacturing including cotton, synthetic and jute textiles (BSIC 321 and 322), which
account for about 6 percent of female industrial employees or approximately 1
percent of total manufacturing employment. Given the low opportunity cost of female labor
in Bangladesh, is female labor attractive because women are paid less than men for
similar jobs—even when productivity differentials are accounted for? This particular concern
is heightened by the fact that entrepreneurs prefer to employ young, single, literate women in
export-oriented units. Accordingly, non-wage factors (such as social docility and
amenability to repetitive process functions) prompt entrepreneurs to opt for a distinctive set
of female labor. Thus, non-wage factors clearly influence employment patterns as well.

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Available information also suggests that conventional measures of gender bias (such as wage
gaps, access to employment and lack of job security) are relatively less conspicuous in the
organized segment of the manufacturing sector (Bhattacharya, 1999). These trends are present
in units located in both export processing zones and the domestic tariff area. These are
characteristics of the labor force of foreign-owned units in particular which tend to have the
most advanced technology and the highest productivity levels in the country (Bhattacharya,
1999). Majumder and Begum (2006) show that occupational segregation and gender
discrimination in wage rate was wide.
Export-oriented RMG entrepreneurs in Bangladesh argue that low wages in the RMG sector
reflect the low productivity of workers in the sector. It was found in a study that the average
monthly wages of skilled factory workers in textile and other sectors is 1.4 to 2.0 times that of
similar workers in the RMG factories. However, it is to be noted that there is a limit to the
extent to which low wages can be translated into low unit costs of production. Since the
productivity of labor is also relatively low in Bangladesh.
Increase of Sales
A good reputation in RMG sector in global market could make Bangladesh to see the increase of
other products which are lower in export value. It is the influence of Good Reputation of RMG
products.
Inflows of FDI
Growing reputation in RMG sectors will make the increase in inflows of FDI (Foreign Direct
Investment) in our country.
Development of Other Sectors
Using FDI Bangladesh can develop the promising sector like IT, seafood etc. to order earn more
foreign earrings.
Bangladesh’s ready-made garments landscape
The challenge of growth Foreword
A growing number of chief purchasing officers (CPOs) in European and US apparel companies are
scrutinizing their sourcing strategies, as margin and supplier capacity pressure building over the last
several years has caused them to search for the next performance improvement opportunity.
While China is starting to lose its attractiveness in this realm, the sourcing caravan is moving on to
the next hot spot. With Bangladesh having developed a strong position among European and US
buyers, many companies are already eager to evaluate the future potential. However, the lure of
competitive prices, available capacities, and supplier capabilities offered is being cautiously

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weighed against a prevailing insecurity created by the challenges inherent in Bangladesh’s ready-
made garments (RMG) market.
McKinsey & Company has initiated a case study that sets out to review Bangladesh’s RMG growth
formula, which builds on the country’s strong starting position and the increasing demand of
international buyers. This report provides an overview of the rapid growth being seen in
Bangladesh’s RMG industry and then describes the main hurdles that exist for buyers when it
comes to sourcing in Bangladesh. The final section of the report details what the three core
stakeholder’s government, suppliers, and buyers can do to overcome the challenges of growth in
Bangladesh’s sourcing market.
The case study and recommendations documented in this report are based on
An extensive interview-based survey of CPOs from leading apparel players in Europe and the US,
accounting for USD 46 billion in total apparel sourcing value and covering 66 percent of all apparel
exports from Bangladesh to Europe and the US .
A telephone survey of 100+ local RMG suppliers in Bangladesh, which represents approximately
10 percent of Bangladesh’s total apparel exports
Potential for rapid growth of Bangladesh’s RMG industry
The sourcing of RMG is experiencing a new phase of transition, which is creating the need for
companies to react accordingly in order to secure their cost positions in the apparel market.
While China was once considered “the place to be” for sourcing, the light is starting to shine ever
brighter on Bangladesh.
Current trends on the buying side
For decades, European and US apparel buyers were benefiting from continually decreasing
purchasing prices by moving their sourcing activities to low-cost countries in the Far East and by
cutting out the “middle man.” Sourcing teams could freely take their pick of the next country
sourcing opportunity along the five main criteria of price, quality, capacity, speed, and risk.
Within the last several years, however, European and US buyers have been faced with a growing
number of margin and capacity issues, creating an increase in sourcing strategy revisions.
Although the European and US apparel markets have regained much of their sales following the
slump brought on by the most recent global financial downturn, market saturation, consumer
price sensitivity, and ongoing economic insecurity continue to put pressure on top-line results.
China is losing its attractiveness for new and established buyers
In 2010, China dominated RMG imports to Europe and the US, accounting for approximately 40 percent of
the import volume in each region. The macro trends of wage increases and capacity pressure, however,
have proven to heavily weigh on the Chinese RMG sector. McKinsey’s survey shows that CPOs of leading
apparel buyers in Europe and the US almost unanimously favors moving some of their sourcing away from
China. In the survey, 54 percent of CPOs shared their plans to decrease their sourcing activities in China
by up to 10 percent and 32 percent stated that they sought to decrease their share of sourcing in China by
more than 10 percent over the next five years.
Bangladesh has what it takes to be the next sourcing hot spot
Since the start of its garment export industry in the late 1970s, Bangladesh has seen its RMG
export levels grow steadily and has become a top global exporter. With around USD 15 billion in

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export value in calendar year 2010, the RMG industry is currently Bangladesh’s most important
industry sector (13 percent share of GDP and total export share of over 75 percent). With 12
percent average annual growth rates, clothing exports are the key driving force behind GDP
development (7 percent CAGR from 1995 to 2010). The attractiveness for buyer’s lies in
Bangladesh’s long-term experience and strong performance in the sourcing country selection
criteria of price and capacity as well as product portfolio offered. Bangladesh offers the two main
“hard” advantages - price and capacity. It provides satisfactory quality levels, especially in value
and entry-level mid-market products, while acceptable speed and risk levels can be achieved
through careful management.
Supplier capability ranks third - mentioned by 30 percent of respondents in the survey of
European and US CPOs. However, the current acknowledgment of capability is much focused:
Bangladesh’s suppliers are known for supplying good quality and large order sizes for the value
and lower mid-market. At the same time, suppliers have started to expand into more value-added
services.
In addition to price, capacity, and capability, a high share of European CPOs strongly emphasize
the advantages of sourcing in Bangladesh due to favorable trade agreements. The broadening of
the EU Generalized System of Preferences (EU-GSP) rules on duty-free imports of garments from
Bangladesh to include products with two stage processing made sourcing from Bangladesh even
more attractive. A shift from the currently dominant knitwear (70 percent of import value to the
EU-15) to a more balanced sourcing product portfolio can be expected (e.g., the US sourced 26
percent knitwear and 74 percent woven’s in 2010).
In the medium term, Bangladesh looks to be the sourcing country of choice
For the next ten years,McKinsey forecasts a continuation in the high growth of Bangladesh’s RMG sector.
Driven by the sourcing trends described previously and Bangladesh’s current starting position, European
and US buyers will continue expanding their sourcing activities in Bangladesh. Additionally, new buying
markets are becoming increasingly important as sourcing customers for Bangladesh.
Taking these drivers into account, Bangladesh’s RMG industry will continue to face growing
demand. McKinsey has forecast demand growth through 2020, based on its CPO survey, which
covers approximately 66 percent of Bangladesh’s total export value to the US and Europe. CPOs
of value players want to increase the value of their sourcing in Bangladesh by about a 10 percent
annual growth rate, whereas mid-market players plan an annual growth rate of around 14 percent.
Looking at the demand
side from existing and new markets, an annual value increase of Bangladesh’s RMG industry of
around 13 percent is likely. The supplier survey paints a similar picture, with some 73 percent of
suppliers believing in strong growth of more than 10 percent per annum within the next ten years.
However, a number of significant challenges brought on by growth exist. Depending on how well
the most severe issues can be managed, the market will realistically develop at an annual rate of 7
to 9 percent within the next ten years, resulting in an export value of around USD 36 to 42 billion.
This means the market will double by 2015 and nearly triple by 2020.
Challenges of growth
While Bangladesh represents some very promising advantages in certain dimensions, a number of
challenges could create hurdles for companies seeking to source there. Only if these challenges
can be overcome, will Bangladesh’s RMG industry continue to prosper?
Infrastructure
For all business stakeholders, infrastructure (transport and utilities supply) is the single largest
issue hampering Bangladesh’s RMG industry. Buyers today are forced to carefully select the type
of products to source from Bangladesh, since congested roads, limited inland transport

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alternatives, and the lack of a deep-sea harbor add inefficiencies to garment lead time. With the
aim to move toward sourcing more fashionable, shorter lead time items in Bangladesh, reliable
and fast transport is becoming extremely important. The transport issues need to be solved
quickly in order to avoid a collapse in the transport network as volumes continue to grow.
Compliance
As a developing country, Bangladesh is under close scrutiny by nongovernmental organizations (NGOs)
and corporate social responsibility (CSR) stakeholders regarding compliance. Both CSR experts and
buyers compliance standards, but there is still a broad range of compliance seen across suppliers and, as
described in the following, many unsolved topics still exist. Solving these issues and achieving ethical
labor standards and sourcing practices are key prerequisites in Bangladesh’s apparel industry from a
McKinsey perspective. Regional concentration of Bangladesh’s RMG industry provides a relatively high
visibility of the compliance situation. CSR stakeholders can visit a significant amount of suppliers within a
relatively short time. This situation offers more opportunity to create transparency regarding supplier
conduct than would be possible in countries such as China and India, as their industry locations are much
more spread out. International buyers should also make active use of unannounced visits to achieve
transparency.
For European and US apparel players, McKinsey sees careful supplier selection, value chain transparency,
a tireless effort, and close relationships with suppliers remaining crucial to ensuring compliance when
sourcing in Bangladesh.
Supplier performance and workforce supply
In the medium term, McKinsey expects that labor costs will continually increase, that the apparel
export market will grow at between 7 to 9 percent through 2020, and that value buyers are
looking to source more fashionable and sophisticated products from Bangladesh. At the same
time, mid-market buyers have just entered the market and
Raw materials
The high volatility of raw materials prices seen within the last few years has increased buyers’
sensitivity to raw materials prices and ease of access in sourcing countries. Considering this
context, the current lack of any noteworthy own raw materials supply of natural or man-made
fibers in Bangladesh weighs even stronger, beyond the immediate issue of lead time increase.
Bangladesh’s dependency on imports creates sourcing risks and longer lead times. Whereas the
average fabric lead time for woven’s in Bangladesh is seven days, it increased to up to 15 days
when sourced from India and up to 30 days when sourced from China. However, many fabrics
produced in Bangladesh typically are at quality levels mainly suited for the value markets.
Improvement in local capabilities and virtualization would improve lead times. However,
integration is likely to be seen more in knitwear due to the high capital investments needed for
woven’s.
Economy and political stability
In the opinion of European and US CPOs, economy and political stability are the fifth area of risk
when sourcing in Bangladesh. About half of the CPOs interviewed stated that they would reduce
the value of their sourcing in Bangladesh if political stability were to decrease. Planning security,
political unrest and strikes, corruption, and ease of doing business are the topics mentioned most
often.
Although mass strikes (known locally as “hartal”) have less frequently directly affected the RMG

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industry in recent times, political unrest and strikes in the supply chain can lead to significant
delays. In McKinsey’s survey, Bangladesh’s RMG suppliers cited political unrest (50 percent of
respondents) and strikes (21 percent of respondents) as the highest risks in sourcing from
Bangladesh, right after infrastructure. The “hartal phenomenon,” as the local media call it, is not
only a signpost for the continued social changes required, but a risk of which buyers need to be
aware.
Approximately 5 percent of suppliers mentioned high interest rates as a hurdle to capital
investment in the RMG sector. In the past, the International Monetary Fund (IMF) had requested a
reduction in lending interest rates to foster investment.
Buyers: “Take care”
What can European and US buyers do to secure Bangladesh as a sourcing power house? Clearly,
they should think about how to help overcome the hurdles to growth and improve efficiency from
a full value chain perspective. Additionally, buyers need to be attentive to the shift from a buyers’
to a suppliers’ market, as the sourcing landscape in Bangladesh becomes more populated with
Western buyers and new buying countries (e.g., China, India, and Brazil). At the same time,
compliance efforts should never slow down, but should be pursued actively and continually.
Challenges
Opportunities are high in numbers and values but there are challenges, need to be overcome by
Bangladesh Government and BKMEA (Bangladesh Knitwear Manufactures and Exporters
Association). USA has already mentioned what Bangladesh has to do to regain the GSP back.
Actually these points are the Challenges in overall to increase potentially. Bangladesh will have
to follow a 5-poin roadmap to regain GSP.
The 5-points roadmap is:
1. Enforcement of fire and building safely code
2. End to harassment and arrest leaders and activists
3. Labor law reforms
4. Union Registration
5. Upgrading law of EPZs
Challenge of Minimum Wage:
Additionally Bangladesh have increase the wage of workers as Bangladesh is giving the lowest
wage rate the RMG workers the world. From below chart we can Bangladesh is giving only
$0.15/hour to the labors. But our near competitors India is giving $0.35/hour. Increase of Wage
up to 2 times will not affect much but it will increase the productivity of labor and decrease the
violence for wage demand and more.
Productivity Challenge
Productivity Challenge is important in order to increase production within given time for the
demand of important. It is also increase the possibility of higher export capability
When other export countries cannot fulfill their demand in the global market the per hour
productivity level for Bangladeshi workers comparing with others given below:

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Hourly Minimum Wage and Labor Productivity of Garments Worker in 2011 Country Labor
Productivity ($/ Hour) Bangladesh 1.50 Cambodia 1.34 China 1.97 France 15.48 Hong Kong
1.39 India 1.41 Netherlands 16.18 Spain 9.94 Sri Lanka 1.09 United Kingdom 12.61 Vietnam
1.07 Table shows that Bangladesh have lower productivity than its main competitor’s china but
than other developing nations. Moreover from the viewpoint of developed nation, there is
potentially that Bangladesh could increase it productivity at highest level like Spain,
Netherlands, UK, France etc. So, steps should be taken to increase productivity.
Keep Reputation Good:
Keeping Good reputation is all Bangladesh have to do, because if western media publish bad
news about Bangladesh then it will ultimately cause bad effect on our economy which is greater
than GSP suspension.
5.4 Recommendations
A series of recommendations have been drawn in different papers, website and news in order
regain GSP in USA, to sustain GSP in EU markets and in order to increase the overall export
value in the global markets. The gist of the recommendations given below:
1. Basic Improvement
2. ForGovernment
3. ForOwners
4. Right to association
5. Freedom from compulsory labor
6. Minimum wage for employing children
7. Work condition, occupational safety
8. Enforcement of Strict RMG operational law
9. Protection of Workers rights at EPZ
10. Establishments of Minimum Wage compare to living cost
11. Assurance of Security and conducive
12. Fire Safety Law
13. Punishment for accused factories’ owners
14. Assurance of Fire Safety
15. Healthcare initiatives
16. Nutrition and lodging
17. Skill enhancement
18. Recreation
Factors promoting growth of RMG industry
Factors which promoted growth of RMG sector in Bangladesh can be categorized into two
Groups-
1) Domestic and
2) External.
Domestic Factors
Cheap labor
RMG is a labor-intensive sector. Bangladesh is an over-populated country burdened with
unemployment problem. The private entrepreneurs in the late 1970s and early 1980s got an

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opportunity to use cheap labor to flourish this sector over-night. At present, about 3.5 million
people are working in this sector. About 80% of them are women. They got a chance to change
their fate by working in the garment factories which helped boom the sector. Nowhere in the
world is labor as cheap as it is in Bangladesh. The following table shows a comparative study of
per hour labor wage in major RMG exporting countries.
Low production cost
As labor cost is very low, RMG factories in Bangladesh can produce quality garment at lower
cost which has attracted the foreign buyers. International companies like Wal-Mart, JC Penney,
H&M, Zara, Tesco, Carrefour, Gap, Metro, Marks & Spencer, Kohl's, Levi Strauss and Tommy
Hilfiger all import in bulk from Bangladesh. The total export from the sector has doubled from
$6.4 billion in FY 04-05 to $12.5 billion in FY09- 10. The comparative advantage of low
production cost also attracted foreign direct investment. As a result, both backward and forward
linkage industry flourished in Bangladesh. Currently, the backward industry is able to meet up to
85% of the demand for the raw materials, which significantly contributed to the country's growth
of apparel and knitwear exports.
Local Demand
Clothing is a basic need. Bangladesh is one of the most densely populated countries in the world.
Every year Bangladesh needs a huge quantity of garment for its local need. Culturally people of
Bangladesh like to wear new cloths on the eve of various festivals like Eid7, Puja8, Pohela
Baishakh9 etc. Before emergence of RMG industry, people of Bangladesh had to depend on the
tailors for their domestic need of clothing. Though tailoring still exists, ready- made garment
business is very prolific in Bangladesh.
Government Support
The apparel industry received support from the government, which included measures like duty
drawback facilities, tax holidays, cash assistance, income tax rebate, creation of export
processing zones, zero tariff on machinery inputs, rebate on freight and power rate, bonded
warehouse facilities, provision of import under back-to-back letters of credit, loans at
concessional rate, export development fund, etc.
Back to Back Letter of Credit
Back to Back Letter of Credit is one of the important factors in the initial and continuing success
of this sector. It considerably eases the financing requirement of garment business for the local
entrepreneurs. The entrepreneurs are able complete the complicated process of manufacturing
and export with very little of their own funds for working capital. Even if the turnover is Tk. 50
million and the profit is only 5% the returns are still decent since the funds are borrowed largely
from the banks. Therefore the rate of return does not need to be high. In the absence of back to
back L/C, it would have been very difficult for the new entrepreneurs to raise funds from local
financial institutions to import fabrics and accessories.
Private entrepreneurship:
The export- oriented RMG sector started its journey entirely with private initiatives. The journey
was not smooth. The entrepreneurs faced tremendous constraints in terms of power and gas
supply. Political instability, frequent hartals (strikes), poor port facility, and labor unrest created

16. Page 16 of 18
longer lead time, which became another barrier in competing with neighboring nations. Amidst
all the constraints, the RMG entrepreneurs lived up to the buyers' expectations of reduced price
margin, improved compliance standards, and quality assurance. There were also significant
investments in backward integration.
External Factors
Quota facility
The key factor behind the growth was the quota system under the Multi-Fibre Arrangement
(MFA). The General System of Preferences (GSP) facilities and RoO (Rules ofOrigin) offered
by the developed nations also helped Bangladesh to accelerate its export.
.
Civil War in Sri Lanka
Civil War in Sri Lanka which started in late 1970s proved to be boon for Bangladesh in respect
of RMG industry, though it was a bane for Sri Lanka. Sri Lanka was a leading country in
exporting RMG among Asian countries. But due to the civil war, the western buyers turned away
from Sri Lanka and were looking for substitute of Sri Lanka. Finally Bangladesh came forward
to replace Sri Lanka in RMG business based on its huge cheap labor force.
Supply Side Factors
On the supply side, several factors can be mentioned that have contributed to the growth of
Bangladesh as an apparel exporter. First as the wages of the East Asian Countries rose and quota
restrictions limited shipments from these countries to particularly the US markets, apparel firms
from those countries established production operations in other countries with cheaper labor and
with few or no quota restrictions. In the second half of 1970s, business houses from the Republic
of Korea, Daewoo in particular, ventured into Bangladesh to transfer the technology of
production and to provide marketing channels. The number of garment exports business from
this arrangement remained small but awareness as regard the prospects developed within the
garment industry. In 1978, fewer than a dozen companies were in operation. The number grew to
80 just in three years. Since then, the growth of the industry has been fabulous. The Korean
investment provided the garment industry the decisive advantage without which a much longer
time would have been taken by the Bangladesh garment industry to attain its present status.
Contributions of RMG industry to national economy
Garments Industry occupies a unique position in Bangladesh economy. It is the largest exporting
industry in Bangladesh, which experienced phenomenal growth during last three decades. The
industry plays a key role in employment generation and in the provision of income to the poor.
More than 3.5 million workers are directly and more than ten million people are indirectly
associated with the industry. The sector has also played a significant role in the socio-economic
development of the country.

17. Page 17 of 18
LIMITATIONS
Finally, it is important to recognize the scope and limitations of this study and define logical
extensions to this research. We used student subjects, rather than experienced buyers and we did
administer our study in the field. This may limit generalize ability to professional buyers and
sellers in real companies. However, the research objective necessitated trading off some
generalizes ability in order to gain experimental control. Using an experimental design under
controlled conditions allowed us to hold constant commodity and market characteristics and to
control price outcomes.
Second, our research investigated the use of a single communication medium during the price
determination process. But as we discussed earlier, when trust-building is important, using
digitally mediated sourcing tools alone is not enough. An effective approach—one that some
companies use--might be to conduct pre-event, face-to-face meetings to establish trust prior to an
email negotiation or reverse auction.
Thirdly, I cannot collect data properly because of political situation. But I have many opportunity
data collected from my background.
CONCLUSION
In terms of GDP, RMG’s contribution is highly remarkable; it reaches 13% in FY 2009-10 which
was only 3% in FY 1990-91. This is a clear indication of the industry’s contribution to the
overall economy. It plays a vital role to promote the development of other key sectors of
economy like banking, insurance, shipping, hotel, housing, transport, etc. Till now Bangladesh is
known as an agricultural country. Except, RMG sector, there is no other mention-worthy
industrial establishment. It is the RMG sector which has accelerated the process of
industrialization in the country. Bangladesh is one of the most densely populated countries of the
world. With limited land area and natural resource, the increasing population is creating heavy
burden on unemployment problem. The RMG sector has been able, to a great extent, to relieve
the country from the burden of unemployment by creating employment opportunities for more
than three million people. Bangladesh is known as a poor and over-populated country stricken
with a lot of problems. RMG carrying the label of “made in Bangladesh” is working to create a
positive image of Bangladesh in the world. It has also proved that the heavy burden of
population can be turned into an asset by using them as workforce.

18. Page 18 of 18
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