Apparel History of BangladeshModule Code-AMT-306

Submitted To: Abdul Hai

Lecturer of SMUCT

SUBMITTED BY:NAME:

ID:

SHUHEL AHAMMED 111011347

6TH SEMESTER,

B GROUP,

16TH BATCH

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SHANTO-MARIAM UNIVERSITY OF CREATIVE TECHNOLOGYAcknowledgement

First and foremost, we would like to thanks to ourteacher of this assignment, Abdul Hai for the valuableguidance and advice. He inspired us greatly to work inthis assignment. His willingness to motivate uscontributed tremendously to our assignment. We alsowould like to thank his for showing us some examplethat related to the topic of our assignment. We wouldalso like to thanks our honorable teachers for hisencouragement and guidance to complete this assignment.Also, we would like to take this opportunity to thanksto Apparel History of Bangladesh. Those gave us anopportunity to participate and learn about theoperation. Finally, an honorable mention goes to ourfamilies and friends for their understandings andsupports on us in completing this project. Withouthelps of the particular that mentioned above, we wouldface many difficulties while doing this.

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Index

Serialno

Object Page no

01 Introduction 0402

History of appeal industry04

03 Methodology 0504 Natural Resources 0505 The Development of Apparel

sector06

06 Low wage rate 0707 Government policy 0908 Back-to-Back Letter of 10

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Credit09 Role of BGMEA 1110 Overview of Garment

Exports from Bangladesh12

11 Garment Exports to the European Union

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12 Worldwide Results of apparel industry

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13Bangladesh’s apparelsin internationalmarket

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14Conclusion

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Introduction

Apparel Industry Large scale production of readymadegarments (RMG) in organized factories is a relativelynew phenomenon in Bangladesh. Until early sixties,individual tailors made garments as per specificationsprovided by individual customers who supplied thefabrics. The domestic market for readymade garment,excepting children wears and men's knit underwear (genji)was virtually non-existent in Bangladesh until thesixties. Bangladesh apparel industry leaders yesterday

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unveiled an ambitious export target of US $ 25 billionand additional 2 million jobs in next five years,keeping well in mind the impacts of possible long-termrecession following the recent global financial crisis.The garment industry of Bangladesh has been the keyexport division and a main source of foreign exchangefor the last 25 years. At present, the countrygenerates about $5 billion worth of products each yearby exporting garment. The Readymade Garments (RMG)sector has a greater potential than any other sector tocontribute to the reduction of poverty in Bangladesh.The sector rapidly became important in terms ofemployment, foreign exchange earnings and itscontribution to Gross Domestic Product (GDP). Despitethe phenomenal success of the RMG sector, poor workingconditions in the factories and a lack of Socialcompliance are serious concerns, which have, since 2006,led to labor unrest and damage to institutions andproperty. As a result, there is a rising fear inBangladesh that the readymade garments sector may face adecline in demand. Social compliance in the RMG industryis a key requirement for most of the world’s garmentsbuyers. It ensures labor rights, labor standards, fairlabor practices and a Code of Conduct.

History of apparel industry

The shift from a rural, agrarian economy to an urban,industrial economy is integral to the process ofeconomic development (Kaldor, 1966, 1967). Althoughpolicymakers in the least developed countries (LDCs)have, at various times, attempted to make agriculture

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the primary engine of economic growth and employmentgeneration, this approach has not worked, not leastbecause of the contributions of the Green Revolution,which has had the dual effect of increasingagricultural productivity in the LDCs and displacingthe rural labor force at the same time. Led by theexample of the East Asian economies, most LDCs nowaccept the need for greater industrialization as thefastest path to economic growth. In particular,countries such as Japan, Taiwan and South Korea havedemonstrated that an export-oriented industrial strategycan not only raise per capita income and livingstandards in a relatively short time; it can also playa vital role in modernizing the economy and integratingit with the global economic system. Bangladesh, one of the archetypal LDCs, has also beenfollowing the same route for the last 25 years. Oncederided as a “basket-case” by Henry Kissinger (TheEconomist, 1996), the country stumbled across an economicopportunity in the late 1970s. New rules had come togovern the international trade in textiles and apparel,allowing low-cost suppliers to gain a foothold inAmerican and European markets. Assisted by foreignpartners, and largely unaided by the government,entrepreneurs seized the opportunity and exploited itto the fullest. Over a period of 25 years, the garmentsexport sector has grown into a $6 billion industry thatemploys over a million people. In the process, it hasboosted the overall economic growth of the country andraised the viability of other export-oriented sectors.

Methodology

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An extensive literature survey has been undertaken inorder to review the historical perspective, growth anddevelopment of the garments industry, working conditionsand environment, labor standards and labor rightsissues, as well as this lack of Social compliance. Basedon this literature review, working conditions in the RMGsector are below standard according to the ILO, lawenforcement is weak and HR and IR activities are absent.As a result, workers’ rights are grossly violated in theBangladesh RMG sector. Consumers in the EU or USA mayreject products from Bangladesh and consider they areproduced in abusive and exploitative conditions, whichdo not adhere to labor rights, labor standards andworking conditions.

Natural Resources

Bangladesh has reserves of various important naturalresources such as natural gas, coal, limestone, hardrock, gravel, glass sand, white clay, brick clay, peat,and beach sand heavy minerals. Natural gas is the mostimportant of these resources, on which the Bangladesheconomy largely depends. There are about 22 discoveredgas fields in Bangladesh of various sizes, totalingabout 20 to 25 trillion cubic feet (the ColumbiaEncyclopedia, 2008). Most of the gas fields are dry; afew fields are wet with considerable amounts ofcondensate. Bangladesh is essentially a mono-energycountry: 70% of commercial energy comes from naturalgas. In terms of consumption, the power sector ranks thehighest (44%) the fertilizer sector second (28%); andindustry, domestic, commercial and other sectorstogether rank third (22%).At present 12 gas fields,

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public and private are in production with a gas supplybetween 900 and 930 million-cubic-feet-of-gas-measurement per day.

The Development of Apparel sector

The garment industry is the key export earning sectorand striking force in the field of industrialization forBangladesh. This sector opened up employmentopportunities to millions of unemployed, especiallyuneducated rural women (Rashid, 2006). At present, theBangladesh garment industry is the largest industrialsector of the country. The garment factory, and moreaccurately speaking, the readymade garment sector (RMG),started in Bangladesh in the late 1970s and was completewithin a short period. Bangladesh had a history oftextile manufacturing, though during British colonialrule the industry suffered a brutal repression. Contribution of RMG to the Bangladesh Economy

The export-oriented readymade garments (RMG) industryhas made significant contribution to the economicdevelopment of Bangladesh. It is the largest exportingindustry in Bangladesh, which experienced phenomenalgrowth during the last two decades. By taking advantageof an insulated market under the provision of MultiFiber Agreement (MFA) of General Agreement Tax and Tariff(GATT), this sector attained a high profile in terms offoreign exchange earnings, exports, industrializationand contribution to Gross Domestic Product (GDP) within

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a short period. Bangladesh exported garments worth theequivalent of $12.34 billion in 2009, which wasabout4.47 per cent of the global total value ($276billion) of garments exports. Export of textiles hasbeen the major route to development for most moderneconomics starting with the British back at thebeginning of the industrial revolution. Even as late asthe 1950s textiles were a leading part of Japan’s exportprofile. But of course Britain, Japan, and now China havemoved beyond textiles. An important question is how didthey do it and is Bangladesh following suit? In fact,large producing companies shift their location fromwhere costs have been rising and where MFA quotaavailability is no longer an issue.

Sources of Competitiveness in the apparel Industry

It is evident from the foregoing reviews that overallgrowth of the apparel sector in Bangladesh has beensupported by a regulated international trade regime and

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a proactive domestic policy framework. But theintrinsic competitive components of RMG sector can beattributed to cheap labor supply. However, this raisesconcern for the sector as the potential for Bangladeshto assert its cheap labor-based competitive advantageis circumscribed by the modest share of labor in thecost structure of RMG products and the marginalpresence of backward linkages in processing activities.The present section identifies in depth the crucialfactors in the RMG sector that maintain the globalcompetitive edge of the industry.

Low wage rate

As the industry is highly labor-intensive in nature,the historical evolution of world apparel businessreveals that comparatively lower wage rate countrieswere always the major apparel supplier in the world. Ashuman labor is embodied in the manufacturing process,it makes wage rate as an important determinant ofproduction cost. As quotas were imposed on some apparelexporting countries, a large number of intermediatebuyers shifted sourcing of RMG products to Bangladeshwhich was reinforced by the market access power of thecountry through the US and Canadian markets quotasimposed on imports of apparel garments. Considerablythe then prevailing low wages ensured competitiveprices for the ventures entrepreneurs to shift theirproduction transition process. Although labor

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productivity was an issue, low wages helped Bangladeshfocus 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 inexplaining the attractiveness of Bangladesh-madegarments to foreign buyers but increasingliberalization of the global textiles market createsnew challenges if the industry in the countrycontinuously relies on a low skill/low wage strategy.Because it is widely held that cheap and readilyemployable labor underpins the competitive advantage ofthe country’s export sector. In other words, wage ratesin the RMG sector can be interpreted as market clearingwages established in a more or less flexible labormarket even though inter-industry wage differentialsindicate a depressed wage situation in the RMG sector.In a sense abundant, readily available labor and itslow opportunity cost lead to low wage levels, providinga comparative advantage to female labor in particularoperations in the RMG production cycle. Female workersin Bangladesh were traditionally linked to globalmarkets through export of tea and raw jute. Womenentering the industrial labor force in Bangladeshgenerally find themselves in low skill/low wage jobs.In RMG production, female workers are predominantlyconcentrated in low-skill/low-wage operations and,thus, are low paid. Most women are either productionworkers or helpers. The sectoral distribution of female

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manufacturing employment in Bangladesh remains highlyskewed, according to 1995 labor force survey thewearing apparel sector, categorized under BangladeshStandard Industrial Code (BSIC) 323, alone employsabout 85 per cent of the female industrial employees(which is about 12.9 per cent of total manufacturingemployment). This is followed by textiles manufacturingincluding cotton, synthetic and jute textiles whichaccount for about 6 percent of female industrialemployees or approximately 1 percent of totalmanufacturing employment. Given the low opportunitycost of female labor in Bangladesh, is female laborattractive because women are paid less than menfor similar jobs even when productivity differentialsare accounted for? This particular concern isheightened by the fact that entrepreneurs prefer toemploy young, single, literate women in export-orientedunits.

Government policy

Government role in terms of letting conducive policyenvironment for flourishing the industry in lessdeveloped country has very little success story. Inthis prospect Bangladesh government policy setting hasbeen point on especially in case of RMG sector. Mostextraordinarily Bangladesh government formulate policyin such way it let more or less the sector alone, not

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regulating it while almost everything else in themanufacturing sector was heavily regulated. Mostimportantly the sector‘s success was designed by someinnovative policy designs which enable the externalfinancing through back-to-back letters of credit andthe provision of special bonded warehouses to accessinputs at international prices. Interestingly theseinnovative policies were only effective for RMG sectorwhile the regime was predominantly representing weakdomestic financial sector and Bangladesh’s the thenhigh tariff walls. The innovations actually insulatedthe sector fairly effectively in a policyenclave. Besides, the government helps the industryindirectly by providing other policy support such asthe duty drawback scheme, cash incentives. Some othernotable initiatives taken by the government are theadoption of conducive investment and industrialpolicies, encouragement of foreign direct investment,establishment of export processing zones and organizingtrade fairs inside and outside the country. Morespecifically, there is exemption of corporate taxationon export profits, although this has been weakenedsince 1992 by the imposition of advance income tax.Besides, the industry has enjoyed a concessional dutyrate of 7.5 percent on capital equipment imports forseveral years. This incentive has been improvedrecently by allowing special bonded warehouse licenseesto have their local banks guarantee the duty, with one

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third liquidated when the equipment is installed andanother third liquidated subsequently. Until theofficial exchange rate was unified with a secondaryrate in 1992 the industry was assisted by an exportperformance benefit designed to close the marginbetween the official and market exchange rates.Government focus on encouraging export-ledindustrialization was the main objective behind suchgovernment initiatives. The government provides theadvantage of duty-free raw material imports usable inthe manufacturing of export products to encourage andaccelerate such industrialization. However, propermonitoring and careful implementation of this duty-freeraw material import strategy is important to protectthe illegal infiltration of imported materials into thedomestic market. Such infiltration hampers thedevelopment of local backward linkage sections. Thisissue is restraining the government from coming to anyfinal decision on allowing the duty-free import of rawmaterials in huge quantities and storing them in commonbonded warehouses for use by export-oriented garmentfactories in order to reduce lead time. In contrast tosuch positive outcomes of policies another concern isthe issue of proper and on-time implementation ofpolicies and strategies. Rules and regulations thatexist only on paper are meaningless if they are notduly and properly implemented. Again such monitoringand implementation are hindered by the

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bureaucratic complexities, corruption within thesector. Hence, political instability and lack of goodgovernance are some areas which the government needs toaddress in order to ensure the proper implementation ofits strategies and policies. Infrastructure developmentis another area where the support of the government isundeniable in a developing country such as Bangladesh.Moreover, the government needs to strengthen itssupport for the development of port and other physicalinfrastructure, for smooth utility supply, improvedsecurity systems, the attainment of a corruption-freebusiness environment and political stability. Suchsteps will contribute to reducing the lead time whilebuilding the confidence of international buyers. In1980, the Bangladesh Bank, the central bank of thecountry, granted the back-to-back letters ofcredit and bonded warehouse facilities toRMG producers/exporters, decreasing their workingcapital requirements and allowing duty-free access toinputs for the sector. In what follows is a succinctanalysis of these facilities.

Back-to-Back Letter of Credit

Under the back-to-back letters of credit schemeextended by commercial banks, the exporters of RMG areable to import inputs (i.e., fabrics and accessories)against the export orders placed in their favor by theRMG importers. The mechanism is like when an order is

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received by the exporter in a master (Export) L/C forms/he then approach her/his bank (the local bank) toopen an import L/C for fabrics and trimmings needed.

Role of BGMEA

During 1982 Bangladesh Garment Manufacturers andExporters Association (BGMEA) was formed to promote andprotect the interests of the manufacturers andexporters of RMG. A model of an industry associationthat is given monopoly over quota and other issues isto be found in the Philippines and in some othercountries. In Bangladesh the model has worked well.During most of its history the organization hasfunctioned moderately efficiently to serve thecollective needs of the factory owners. It is certainlyone of the most important trade organizations in thecountry.

Market Diversification

Bangladeshi RMG products are mainly destined to the USand EU. Back in 1996-97, Bangladesh was the 7th and 5thlargest apparel exporter to the USA and European Unionrespectively. The industry was successful in exploringthe opportunities in markets away from EU and US. InFY06, a successful turnaround was observed in exportsto third countries, which having a negative growth inFY05 rose three-fold in FY06, which helped to record23.1 percent overall export growth in the RMG sector.

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It is anticipated that the trend of marketdiversification will continue and this will help tomaintain the growth momentum of export earnings. At thesame time a recent WTO review points out thatBangladesh has not been able to exploit fully the dutyfree access to EU that it enjoys. While this is pointedout to be due to stringent rules of origin (ROO)criteria, the relative stagnation in exports to EUrequires further analysis.

Product Diversification

The growth pattern of RMG exports can be categorizedinto two distinct phases. During the initial phase itwas the woven category, which contributed the most.Second phase is the emergence knitwear products thatpowered the recent double digit (year-on-year) growthstarting in FY04.

Overview of Garment Exports from Bangladesh

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The whole picture visibly changed due to therestriction on Chinese exports in 2006 (Table 1). Thegrowth in garment exports from China was attenuated,even though the growth rate was as high as 18.19percent. India’s growth rate also declined to 6.00percent which was a little higher than the decline inthe total garment imports in the United States of 3.65percent. On the other hand, other Asian exporters keptor recovered their growth omentum. Bangladesh, Cambodiaand Indonesia accelerated their growth in garmentexports, while Vietnam and the Philippines considerablyenhanced their growth rates in 2006. It is considered

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that the favorable performances of the Asian exportersare at least partially attributable to the renewedimposition of the quantitative restrictions on the mainpart of garment exports from China to the UnitedStates.

Garment Exports to the European Union

China and India also expanded garment exports to the EUin 2005. The growth rates for the two countries up tothe third quarter of the year were 54.41 percent and33.74 percent, respectively (Table 2). China’s growthrate for January-October was lowered and even smallerthan the world average of 10.74 percent in 2006.India’s growth rate was also attenuated to 17.65percent. An interesting fact is that China’srelatively sluggish growth for January-October 2006 waspartially offset by a dramatic increase of 103.91percent in garment exports from Hong Kong. It ispossible that the garments that were crowded out due tothe renewed restrictions might have found a way outthrough Hong Kong. The sum of exports from China andHong Kong, however, grew by a still moderate rate of13.72 percent. Since the value of exports from HongKong is far smaller than for China, such a high growthrate does not look impressive if the trends in garmentexports from the two economies are juxtaposed.

Big buyers and global sourcing

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Apparel retailers are changing: The retail sector inthe United States and other developed economies isundergoing a major restructuring. Global retailing isdominated by large organizations that are developinggreater specialization by product (the rise ofspecialized stores selling only one item, such asclothes, shoes or office supplies) and price (thegrowth of high-volume, low-cost discountchains).Furthermore, keeping the distribution pipelinefilled means these retailers are developing strong tieswith global suppliers, particularly in low-costcountries. Nowhere are these changes more visible thanin apparel. Between1987 and 1991, the five largest softgoods chains in the United States increased their shareof the national apparel market from 35 to 45 per cent.By 1995, the five largest retailers—Wal-Mart, Sears,Kmart, Dayton Hudson Corporation and JC Penneyaccounted for 68 per cent of all apparel sales.

Global sourcing in apparel

The world textile and apparel industry has undergoneseveral production migrations since the 1950s, allinvolving Asia. The first was from North America andWestern Europe to Japan in the 1950s and early 1960s,when western textile and clothing production wasdisplaced by a sharp rise in imports from Japan. Thesecond shift was from Japan to Hong Kong, TaiwanProvince of China and the Republic of Korea, which

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dominated global textile and clothing exports in the1970s and early 1980s.

Worldwide Results of apparel industry

The elimination of the export quotas and hence thequota rent lead to price decreases of textiles andwearing apparel exports. The magnitude of the pricedecreases depend on the fact how restrictive the quotasare and can be up to 30 percent (Base scenario).Indiaand China exports of wearing apparel increase largely,since they have the most restrictive quotas.

Exported Value of Wearing Apparel in Bill $

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Future Prospects of the Apparel in Bangladesh Industry

Despite many difficulties faced by the RMG industry

over the past years, it continued to show its robust

performance and competitive strength. The resilience

and bold trend in this MFA phase-out period partly

reflects the imposition of ‘safeguard quotas’ by US and

similar restrictions by EU administration on China up

to 2008, which has been the largest supplier of

textiles and apparel to USA. Other factors like price

competitiveness, enhanced GSP facility, market and

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product diversification, cheap labor, increased

backward integration, high level of investment, and

government support are among the key factors that

helped the country to continue the momentum in export

earnings in the apparel sector.

Bangladesh’s apparels in international marketAfter elimination of the quota system in 2005, therecent economic recession is reshaping the globalapparel supply chain and importers’ procurementstrategies, which has had a considerable impact onBangladesh, said the World Bank Bangladesh’s garmentindustry has some strengths and many weaknesses,pointed out the World Bank’s just published studytitled, ‘Global Apparel Value Chain, Trade and theCrisis: Challenges and Opportunities for DevelopingCountries’.

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The World Bank’s researchers say that the country’sfuture is full of potential due to enhancedavailability of accessory products such as local yarnsand packaging materials, and importers now thinkBangladesh to be a package supplier.

Global Market Review of Technical Textiles in Apparel –Forecasts to 2011

Technical textiles are one of the fastest-growing andchanging areas of the global textile and apparelindustry. In fact, just-style predicts that globalusage of technical fabrics for apparel will increasesteadily over the next six years with market volume andvalue set to increase by 23% and 17% respectively. Thisincrease will be due to the increasing marketpenetration of more technical fabrics, such as Kevlarand Nomex, into mainstream apparel either as a blend oras ant. This comprehensive report outlines thefundamental techniques and raw materials behindtechnical apparel, examines the growth areas andcurrent areas of research, reviews some of the worldleaders in the sector and provides market forecasts to2011.

Conclusion

Bangladesh has earned nearly $8 billion in 2005-06 byexporting garment products, mainly to Europe and theUnited States. This is about 75 percent of total export

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earnings of the country. The RMG industry has around4,250 units across the country. It employs more than 2million workers, most of whom are poor women. Wheneverthe country is criticized for its high level ofcorruption and confrontational politics, its garmentindustry is held up as a success story. After the endof the Multi-Fiber Agreement at the beginning of 2005and the changeover to the new World Trade Organizationregime, it was feared that the Bangladesh’s boomingtextile industry would suffer as it would lose businessto countries like China and India. But fortunately forBangladesh, so far this prediction has been provedwrong. In fact, the industry has continued to grow at ahealthy rate of 20 percent. However, this does notindicate that the Bangladesh garment industry hasbecome more competitive. The reality is that thisincrease has been largely due to restrictions imposedon China by the Western nations. As the quotas underMFA had led to an artificial trade structure, theinternational RMG market faces a restructuring process.Bangladesh’s exports are heavily concentrated in theRMG sector, which has been a main driver of growth andpoverty reduction. With more than three-quarters ofexports RMG related, the country is vulnerable to theMFA shock, in particular since it is confronted withother problems that affect its competitiveness. Theseproblems are not limited to the RMG sector, but will beexposed more fully there in the post-MFA world. The

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challenge is therefore to improve competitiveness, bothin the RMG sector and economy wide, and diversifyexports. Garment industry in Bangladesh has been facingmultidimensional problems since its establishment. Onthis backdrop, a study on the working conditions andenvironment in the garments industry of Bangladesh isimperative. The analyses of working conditions inrelation to labor rights and labor standards have beenthe subject matter of many discussions and studies. Anumber of issues that especially concern and effectemployment, fair labor practices, global laborstandards, labor rights, Code of Conducts, Decent work,international communities and other stakeholder roles,buyer demand, weak law enforcement and labor unrest(cause of law wages, working hours, overtime, healthand safety, job security, the right to form tradeunions and environment security), are identified anddiscussed in this research. These issues address laborrights and labor standards with links to Socialcompliance. Generally, labor rights and labor standardsissues are associated with Human Resources (HR) andIndustrial Relations (IR) activities that arecontrolled by government mechanisms, and internationallaw and policy. Therefore this research pays particularattention to government mechanisms, national laws andregulations, international laws and policies, laborstandards according to the ILO conventions, the FactoryAct 1965 and the Fair Labor Act according to the WTO

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Code whether following in the RMG sector or not.Moreover, the research also examines the roles ofgovernment, trade unions, multinational-agencies andother stakeholders. In addition, it also discussesrelevant international treaties and agreements, andthreats or pressures for better treatment to improveworking conditions in the RMG sector. The researchidentifies ways to improve the working conditionsleading to the mitigation of labor unrest throughestablishing Social compliance in the RMG industry. Theestablishment of HR or PM units throughout the RMGI isa high priority for the improvement of workingconditions.

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http://grips.proinnoeurope.eu/knowledge_base/view/549/.

4. http://www.designfactfinder.co.uk/.

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6. http://www.wikipedia.com

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