121 Export performance in the world market for Bangladeshi readymade Garment 200 3 Abstract Bangladesh’s recent export performance in the world market for readymade garment has improved markedly. In this study, Constant Market Share Analysis is used in order to determine the competitiveness of Bangladesh and its competitors, which are the main readymade garment producers, in the USA, UK.CANADA AND ALL others markets between 1989 and 1998 periods. Constant Market Share (CMS) analysis is a popular tool for analyzing changes in exports of a country. Nevertheless, its theoretical foundations (and policy relevance) have been questioned. In this paper, we provide such a foundation by relating CMS analysis of export growth. An indication of the empirical relevance of this relationship is given by comparing the CMS analysis. The analysis reveals this improvement to be predominantly the result of competitive advantages of ready made garment industry . Bangladesh is able to export s readymade garment of high and consistent quality at low costs, under conditions which meet the world standards set by the world. In addition to competitive advantages, Bangladesh has benefited from growth in the overall size of the world export market for readymade garment, but has suffered from having only relatively small shares in the important markets of some member States. Market research on consumers’ demand and preferences could further improve Bangladesh’s recent export performance of readymade garment. Keywords: Bangladesh, Competitiveness, Constant Market Share Model. Ready made Garment. Introduction Bangladesh economy experienced a trend rate of growth of 4.8 per cent during 1990s as against 4.4 per cent during the previous decade. The rate of growth of per capita GDP has also been impressive during the 1990s. In addition to the higher growth rate of overall GDP, this was facilitated by a sharp fall in the rate of growth of population. During the 1980s, population grew at an annual compound rate of 2.2 per cent, and the rate of CHAPTER I
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121
Export performance in the world market for Bangladeshi readymade Garment 200
3
Abstract
Bangladesh’s recent export performance in the world market for readymade garment has improved markedly. In this study, Constant Market Share Analysis is used in order to determine the competitiveness of Bangladesh and its competitors, which are the main readymade garment producers, in the USA, UK.CANADA AND ALL others markets between 1989 and 1998 periods. Constant Market Share (CMS) analysis is a popular tool for analyzing changes in exports of a country. Nevertheless, its theoretical foundations (and policy relevance) have been questioned. In this paper, we provide such a foundation by relating CMS analysis of export growth. An indication of the empirical relevance of this relationship is given by comparing the CMS analysis. The analysis reveals this improvement to be predominantly the result of competitive advantages of ready made garment industry . Bangladesh is able to export s readymade garment of high and consistent quality at low costs, under conditions which meet the world standards set by the world. In addition to competitive advantages, Bangladesh has benefited from growth in the overall size of the world export market for readymade garment, but has suffered from having only relatively small shares in the important markets of some member States. Market research on consumers’ demand and preferences could further improve Bangladesh’s recent export performance of readymade garment.Keywords: Bangladesh, Competitiveness, Constant Market Share Model. Ready made Garment.
Introduction
Bangladesh economy experienced a trend rate of growth of 4.8
per cent during 1990s as against 4.4 per cent during the previous
decade. The rate of growth of per capita GDP has also been
impressive during the 1990s. In addition to the higher growth
rate of overall GDP, this was facilitated by a sharp fall in the
rate of growth of population. During the 1980s, population grew
at an annual compound rate of 2.2 per cent, and the rate of
growth of per capita GDP was recorded at 1.7 per cent per annum.
In contrast, population growth rate came down to 1.7 per cent
during the 1990s.Per capita GDP grew at an annual compound rate
of 3.3 per cent during the 1990s.However, in terms of the
absolute level of per capita income, Bangladesh continues to
CHAPTER I
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remain at the lower end of the income scale. Per capita income of
US$370 compares unfavorably against the low-income country
average of US$410.During 1990s, Bangladesh's total exports in
current US$ value grew at an annual compound rate of 14.4 per
cent. In fact, Bangladesh experienced double digit export growth
in most of the years during the 1990s. Imports, on the other
hand, grew at an annual compound rate of 10.9 per cent during
1990s. The gap between export and import widened from -US$1792
million in 1990/91 to -$2814 million in 1999/00, although the
share of export earnings in import payments steadily rose from 31
per cent in 1980/81 to 67 per cent in 1999/00. The openness of
the economy as measured by total external trade as a proportion
of GDP went up from around 22 percent in 1990/91 to nearly 30 per
cent in 1999/00 with the share of export in GDP rising from 7 per
cent to 12 percent during the same period. The structure of
export has changed significantly over the past two decades.
Bangladesh seems to have made the transition from resource-based
to process-based exports. In 1980/81, primary commodity
constituted nearly 29 per cent of total exports. In 1990/91, this
share came down to 17.8 per cent and further down to 8.2 per cent
in 1999/00. There has been shift from jute-centric to garments-
centric export. In 1980-81, raw jute and jute goods together
constituted 68 percent of total exports. Between 1980/81 and
1999/00, export of both raw jute and jute products declined in
absolute terms and their total share came down to only 6 per cent
in 1999/00. In contrast, woven and knit garments together
accounted for less than 1 per cent of exports in 1980/81. Their
combined share in exports rose to nearly 76 percent in 1999/00.A
change in the composition of output and employment away from the
agricultural sector in the direction of manufacturing and service
sectors is often used as a measure of development. In Bangladesh,
the share of agriculture in GDP declined from 29.2 percent in
1990-91 to 25.5 percent in 1999-00 - a decline of 3.7 percent.
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The fall was compensated by an increase in the share of
manufacturing and construction. Despite declining share of
agriculture in GDP, the increase in food production has been
quite satisfactory moving the country from a state of chronic
food deficit to near self-sufficiency level. Manufacturing
industry in Bangladesh achieved respectable growth during 1990s.
The contribution of manufacturing to GDP increased from 12.9 per
cent in 1990-91 to 15.4 per cent in 1999-00. However, the
sector's current share in GDP appears rather modest for it to
spearhead sustained high growth of the economy. Thus, for
example, in Thailand the share of manufacturing in overall GDP
was 22 per cent in 1980 and it rose to 32 per cent by 1998. The
growth of Bangladesh’s manufacturing sector has also been rather
narrowly based with readymade garments accounting for nearly a
quarter of the scrotal growth. Other important export industries
contributing to scrotal growth are Fish & seafood, and Leather
tanning. Major import substituting industries experiencing
significant growth during this period include Pharmaceutical,
Indigenous cigarettes (bidi), Job printing and Re-rolling mills.
Other success stories of Bangladesh include maintenance of low
level of inflation, rapid spread of micro credit program largely
at the initiative of NGOs, and significant improvements in the
social sector. However, in spite of such successes, the structure
of production and exports has remained extremely narrow in
Bangladesh. Bangladesh has also failed to attract adequate amount
of FDI into the country. While the opening up of gas, electricity
and telecommunication sub-sectors to private investment has
resulted in the inflow of considerable foreign direct investments
(FDI) in these sectors, the overall inflow of FDI has remained
sluggish. The narrow export base has rendered Bangladesh’s
external sector extremely dependent on global trading environment
and preferential treatment by its main trading partners. The
recent poor performance of exports in the face of global economic
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slowdown has confirmed this vulnerability of the Bangladesh’s
external sector. Other weaknesses of Bangladesh economy include a
dysfunctional banking system overburdened with classified loans,
persistent loss of the state owned enterprises, poor
infrastructure, deficient tax efforts, political disturbances and
unsatisfactory law and order situation.
Now we are going to the Country Competitiveness Indicators of Bangladesh. Because
export growth performance depend on competitiveness factors
Table-1. Overall Performance:
GNP per capita (US$) 1996 $260
Average Annual Growth of GNP per capita (%) 1965-96 1.00%
Standard Deviation of Income Distribution 11.31
Source- World Bank Group
Table 2. Macro and Market Dynamism:
Table 2(a) .Investment and Productivity Growth
Gross Domestic Investment (% of GDP) 1996 17%
Average annual growth of Gross Domestic
Investment(%) 1990-1996
13.6%
Private Investment (% of Gross Domestic Fixed
Investment) 1996
62.5%
Net Foreign Direct Investment FDI (% of GDP)1996 0%
Average annual difference in Net FDI (%) 1980-82 to
1990-92
0%
Average Annual Growth of Real GDP per worker(%)
1980-90
2.4%
Source- World Bank Group
Table-2(b). Overall Trade Dimensions Trade
Surplus/Deficit (% of GDP) 199500% -8%
Export Share of World Trade (%) 1994 0.1%
Average Annual Growth in Export Share (%) 1989-95 6.697%
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Export Concentration Index 1992. 0.246
Percent Change in Export Concentration Index (%) -2.381%
Exports of goods and services (% of GDP) *
( total)
Bangladesh
14.0
Total debt service (% of exports of goods and services)** (total)
9.2
Source- World Bank Group
Figure-1
*
**
Source: World Development Indicators database, July 2000
Chapter 1 gives the introduce the present condition of
Bangladesh.
Chapter 2 gives the statement of the problem, scope of the study
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Chapter 3 -gives the general view about Bangladeshi’s garment
industry.
Chapter 4- is devoted to the methodology and definition used to
assess the export growth of Bangladeshi garment industry. Then it
shows the empirical results of the export growth of Bangladeshi
garment product. This chapter identifies the importance factors
of the export growth of Bangladeshi garment industry usining the
“Constant Market Share Model”
Chapter 5 -Is mostly devoted to explain the results obtained in
chapter 3 concentrating on the competitiveness factors and
explains the market stricture of Bangladeshi garment export and
discusses the relationship between factor requirement of garment
product and their export market.
Chapter 6 gives the summary of the result and conclusions.
3.1. Market structure of Bangladeshi Garment Industry:
Textile Sector in Bangladesh is predominantly made of
natural fiber using cotton. This sector is broadly classified
into the following stages/sectors based on the value addition.
• Yarn
• Fabric
• Apparel
Each of the above sectors is analyzed to generate an overall
perspective on the industry. Apparel is the high Growth Sector
of garments sector. The liberalization of industrial policy of
Bangladesh along with development of export processing zones at
Dhaka and Chittagong, attracted investment in the Ready-Made
Garment (RMG) industry in Bangladesh to set up large plants
CHAPTER-III
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working on higher economies of scale. This enabled Bangladesh to
achieve a phenomenal growth in export of RMG. The export of RMG
from Bangladesh increased from a meager US $ 7 million during
1981-82 to about US $ 1.95 billion during 1995-96. The RMG
Sector achieved a growth of 20% per annum over the past ten
years. Such high growth was catalysed by the low wages along with
Multifibre Agreement (MFA) on textile quotas principally with
U.S.A., Canada and European countries. The Generalised System of
Preferences (GSP) provided import tax breaks worth about 15% of
the import valuation, giving Bangladesh's RMG export a
considerable advantage in these markets. In addition to the
above, the financing arrangements created through a system of
back- to-back Letters of Credit (LOC) covering imported inputs
and finished exports, greatly contributed to the accelerated
growth of RMG sector. The above factors enabled Bangladesh to
become the fifth largest exporter of RMG to the European Union
and Sixth largest to the USA. The apparel industry in Bangladesh
is broadly classified into Knitwear, RMG, speciality/linen
including terry towels and others. The total export of apparel
was about Takas 105.87 billion during 1995-96. The share of RMG
export in this sector is above 75%. The composition of export of
apparel by type is indicated in the following chart:
The further break-up of main items of knitwear and RMG export
is provided in the following charts:
Value of RMG Export: Taka 79.7 Billion
KNITWEAR
(Approx. US $ 2 billion)
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Break-up of main items of export
in apparel sector of Bangladesh
The quality of fabric produced domestically in Bangladesh is
not upto the standard required for the production of export
quality garments. Therefore, exporters of garment, largely have
to depend upon import of quality fabric. There are about 26
weaving mills in Bangladesh reported as in 1996, with a total of
7,179 looms. About half of these mills are government owned.
There are also another 515 thousand hand looms in the country
apart from about 488 hosiery units. About 30 per cent of these
hosiery units produce export quality knit fabric. The local
fabric production is reported to be about 915 million meters
during 1995-96. The total demand for fabrics against this
production level is estimated to be about 3155 million meters
(approximately 3.45 billion yards) during 1995-96. Hence apart
from the quality considerations mentioned earlier, domestic
production is inadequate to meet the fabric demand. The
composition of demand of fabrics for garments for domestic market
and garments for export market is illustrated in the following
chart:
Composition of Demand for Fabric from Garment Sector
Fabric Sector in Bangladesh during 1995-96
Million Meters Total Market Segment
Domestic Export
Demand 3155 1325 1830
Production 915 915
Import 2240 410 1830
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The above chart indicates the importance of export market
for textile sector of Bangladesh. The local demand for fabric,
which is reported to be about 1325 million meters, is largely met
by the traditional hand looms, small power looms and textile
mills in the government and private sector. However as domestic
production falls short to meet even the domestic demand for
fabric, about 410 million meters is imported during 1995-96 to
meet the short fall. The overall scenario of fabric sector in
Bangladesh is indicated in the following table and chart: The
following chart illustrates the interpretation of above table in
graphical form.
The above chart indicates that about 82% of the fabric
imported is consumed in the production of garments for export,
while the balance 18%, is consumed to meet the domestic demand,
which by itself is about 30% of the requirement of domestic
market. This emphasis’s the need for investment in
textile/weaving segment in Bangladesh. After assertazzining the
need for setting-up a weaving unit, the following paras
investigate the prospects and key success factors for such
weaving mill: Yarn is the primary input to the weaving mill.
Yarn is spun in a spinning mill using spindles. Bangladesh has
about 118 spinning mills. About 25% of these mills are owned and
managed by the government. It is reported that about 45% of these
spinning mills are out dated and run at a loss. The production
of yarn in Bangladesh is reported to be about 100,000 tonnes
Million Meters
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during 1995-96. The demand for yarn is, however, as high as
470,000 tonnes. Hence the domestic production meets only about
21% of the domestic demand for yarn. The huge deficit in
production of yarn to meet its demand in Bangladesh, is met
through imports. Bangladesh sources its requirement of yarn
mainly from countries like India. Pakistan apart from China,
Korea, Singapore, Thailand, USA, Canada, Egypt, etc. It is
estimated that about 116 additional spinning units with a
capacity of 25,000 spindles each are required to meet the demand-
supply gap for yarn
Table 1: Apparel Exports from Bangladesh in Value and Volume
YEAR
TOTAL APPAREL EXPORT (Millions of $)
TOTAL APPAREL EXPORT (Thousands of dozens)
Gro
wth in Monthly Totals
Growth in
Monthly
Totals
WOVEN KNIT TOTAL WOVEN KNIT TOTAL To Mon Tot Mon
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Total
Monthly
tal
thly
al thly
Total
Monthly
Total
Monthly
Total
Monthly
1992-93
1,240.48
103.37
204.54
17.05
1,445.02
120.42
36,053.88
3,004.49
10,663.56
888.63
46,717.44
3,893.12
1993-94
1,291.65
107.64
264.14
22.01
1,555.79
129.65
7.67%
34,351.00
2,862.58
10,815.00
901.25
45,166.00
3,763.83
-3.32%
1994-95
1,835.09
152.92
393.26
32.77
2,228.35
185.7
43.23%
47,210.00
3,934.17
15,301.90
1,275.16
62,511.90
5,209.33
38.40%
1995-96
1,948.81
162.4
598.32
49.86
2,547.13
212.26
14.31%
48,820.04
4,068.34
23,185.45
1,932.12
72,005.49
6,000.46
15.19%
1996-97
2,237.95
186.5
763.3
63.61
3,001.25
250.1
17.83%
53,450.33
4,454.19
27,536.07
2,294.67
80,986.40
6,748.87
12.47%
1997-98
2,844.43
237.04
937.51
78.13
3,781.94
315.16
26.01%
65,590.00
5,465.83
32,604.37
2,717.03
98,194.37
8,182.86
21.25%
1998-99(JULY-AUGUST)
561.54
280.77
177.21
88.61
738.75
369.38
17.20%
12,186.00
6,093.00
6,464.00
3,232.00
18,650.00
9,325.00
13.96%
Source: Bangladesh Exports Promotion Bureau (EPB)
Table 2: Major Items of Apparel Exported from Bangladesh(Millions of $)
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Table 3: Export Markets for Bangladesh Apparels
YEAR
EXPORTS TO THE U.S.
(millions, $)
U.S. MARKET SHARE (%)
EUROPEAN UNION SHARE
(%)
CANADA AND OTHERS (%)
1991-1992
581.1 49.14 46.62 4.23
1992-1993
703.96 48.71 46.46 4.82
1993-1994
592.46 38.08 55.96 5.95
1994-1995
1006.08 45.07 49.67 5.08
1995-1996
1001.68 39.33 54.12 6.56
1996- 1245.14 41.49 54.11 2.1
YEAR SHIRT T-SHIRT TROUSERS JACKET SWEATER Mont
hly Average
Monthly Average
Monthly Average
Monthly Average
Monthly
Total
Total
Total
Total
Total
Average
1993-94
805.34
67.11
225.9
18.83
80.56
6.71 126.85
10.57
0 0
1994-95
791.2
65.93
232.24
19.35
101.23
8.44 146.83
12.24
0 0
1995-96
807.66
67.31
366.36
30.53
112.02
9.34 171.73
14.31
70.41
5.87
1996-97
759.57
63.3 391.21
32.6 230.98
19.25
309.21
25.77
196.6
16.38
1997-98
961.13
80.09
388.5
32.38
333.28
27.77
467.19
38.93
296.29
24.69
1998-99 (JUL-AUG)
201.12
100.56
49.05
24.53
60.51
30.26
105.25
52.63
81.61
40.81
Source: Bangladesh Exports Promotion Bureau (EPB)RDTI Cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)Our own calculations of monthly averages and growth factors
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19971997-1998
1494.02 43.6 51.26 5.14
Source: Bangladesh Exports Promotion Bureau (EPB)RDTI Cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)Our own calculations of monthly averages and growth factorsTable 4: Apparel Exports to Major Markets (1997 - 1998)
Source: Export Promotion Bureaus (EPB)Table 5: Top Five European Destinations for Bangladesh Apparel (July 1997- May 1998)
RANK COUNTRIESVALUE
(Millions, $)
1 Germany 434.77
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2 United Kingdom 343.893 France 305.724 Netherlands 183.635 Italy 195.82
Source: Bangladesh Exports Promotion Bureau (EPB)RDTI Cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)Our own calculations of monthly averages and growth factors
3.2. Recent Performance of the Apparel Export Sector
In a liberalized trade regime, competition among textiles and clothing exporting countries
is likely to become intense. The objective of this paper is to identify the prospects of RMG
industry after the MFA phase out by analyzing the current scenario along with different policy
measures and the available options in order to be more competitive in the new regime.The export
made by Garments Industries of Bangladesh is improving year after year except some of the year.
Strike, layout, shutdown of company, political problem, economic problem, inflation etc. are the
prime cause of decreasing export in this important sector. But above it, Readymade Garments
Industries is the leading sector in export sector.
Year Export (in US $ million) Percentage change
1991 – 92 624.16 32.49
1992 – 93 866.82 38.88
1993 – 94 1182.57 36.43
1994 – 95 1445.02 22.19
1995 – 96 1555.79 7.67
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1996 – 97 2228.35 43.47
1997 – 98 2547.13 14.11
1998 – 99 3001.25 17.83
1999 – 00 3781.94 26.01
2000 – 01 4019.98 6.29
2001 - 02 4349.41 8.19
2002 – 03 4859.83 11.74
2003 – 04 4583.75 5.68
2004 – 05 4912.12 7.21
2005 – 06 5686.09 15.83
Year Export by the garments industries (in US $ million)
Average Quota Prices of Selected Garments Items Exported by Bangladesh, 2006
Table: Quota Prices of Selected Garments Items Exported Position of Bangladesh is exporting product in USA is not very satisfactory but this situation is better than any other condition of the previous time. But if our Government take some essential law and break out the wall of biasness then the position of Bangladesh in Garments sector would be hope to better. Table: Exports of Knit and Woven Garments to the United State
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(Source: Export Promotion Bureau of Bangladesh)
Besides the floods, there were several other crises that
impacted the garment industry in 1998. The disruption of the
normal functioning of the Chittagong port due to labor unrest was
certainly one of them. The BGMEA has repeatedly requested the
government to ban labor strikes in the Chittagong port on grounds
of national interests. Another source of disruption was the
perennial problem of hartals (nationwide general strikes) called
upon and enforced by the opposition political parties to protest
government policies. Although, in a major concession to the
apparel exporters, the leader of the main opposition party had
declared that the garment industry would be exempt from such
hartals, in practice the situation is more complex. On the
ground, the firms cannot take chances to send their products on
the road for fear that these will be attacked. The psychological
impact of these events on the existing and potential buyers
cannot be overstated. Buyers in the global garment markets remain
highly sensitive to the risks of unfulfilled orders. The image of
Bangladesh as a somewhat unpredictable supply source may have
been strengthened due to the floods, as the floods received
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considerable world media attention and by the violent political
unrest that spills over in the streets of urban areas. In the
early months of 1999, it has gradually become apparent that there
may have been a substantial reduction in new orders received by
Bangladeshi manufacturers as a result of these problems and also
due to increased competition from the East Asian manufacturers
whose currencies have been severely devalued.Historically,
apparel exports from Bangladesh have grown at an annual rate of
more than twenty percent, roughly doubling every three years. In
1996-1997 the exports in gross terms equaled three billion
dollars. At this rate, these exports could potentially reach six
billion dollars by the year 2000 and possibly exceed ten billion
dollars in the not too distant future. However, in the year 2004,
the Multi-Fiber Arrangement (MFA) quotas will end, ushering in a
globally competitive market for clothing products. One of the
most important factors responsible for the success of this
industry has been dynamic entrepreneurship. In fact, we believe
the garment entrepreneurs should receive a national award for
their creative initiatives in overcoming the crises during this
period. The industry presents a model that entrepreneurs in other
sectors could emulate with benefit. The many hurdles the industry
overcame in 1998 include the floods, the shocks from the most
severe economic collapse and currency devaluation in East Asia
economies in recent history, and other domestic crises.
Strategies pursued by the industry in 1998 include the following:
the decision to hold monthly meetings between BGMEA officials and
leaders of the labor unions in the industry; efforts to implement
the child labor agreement of 1995; hiring a high-profile American
politician to lobby for the industry in Washington D.C.; and
asking the U.S. government to increase quotas for apparel made in
Bangladesh by thirty percent to reward the progress made in
reducing the use of child labor in the garment factories.
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Manufacturers and Exporters Association (BGMEA); Author's
calculations of monthly averages and growth factors. What
implications does the success of the apparel exports have for the
economy of Bangladesh? The positive impacts are considerable and
widespread. For several years now, apparel exports have been the
largest manufacturing industry, and also the biggest source of
foreign exchange earnings. It may be a "soft goods" industry but
nevertheless it has created positive changes in the economy and
society by creating employment and income for poor women workers
and by bringing in foreign exchange for the country. In terms of
gross foreign exchange receipts, in the most recent period for
which we have data (July 1997- May 1998) export of readymade
garments earned $3392.45 billion or 73.18 percent of the total
export earnings of Bangladesh. The share of apparel products in
total exports has steadily risen for several years. In both
absolute and relative terms, the industry dominates the modern
economy of Bangladesh. In addition, the positive sociological,
demographic, political and economic impact of 1.5 million workers
employed in the manufacturing sector is huge. This is especially
true since ninety percent of these workers are women, many of
whom have migrated from the countryside in search of a life free
of poverty. The forward and backward linkage industries and
services such as textiles, accessories, transportation, and
packaging and the private sector in general have also been
significant beneficiaries. The government has gained tax
revenues, and the foreign investors to a large extent have been
exposed to Bangladesh as a result of the success of garment
exports. However, the biggest winner has been the private
entrepreneur in Bangladesh. Entrepreneurship is alive and well in
Bangladesh. The sustained success of apparel exports underscores
this point. The Future of Garment Exports and the Economy of
Bangladesh The growth rate in overall exports from Bangladesh
peaked in 1994-1995 at 40 percent a year. However, export growth
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3
has remained strong. Currently, the garment exports alone bring
in close to four billion dollars in gross terms. The imports of
fabrics and related intermediate goods account for $2.3 billion
resulting in net earnings of approximately $1.7 billion. The
garment and knitwear exports accounted for the bulk of these
exports. The knitwear sector has been especially dynamic in
recent years. Given the fact that the market for knitwear exports
is unprotected by quotas, this bodes well for the post MFA future
of the industry. Bangladesh apparel exports can now point to a
proven track record of successfully competing in the global
competitive environment. Unfortunately, other potentially
promising exports from Bangladesh- leather, jute goods, frozen
foods - have not fared as well over this period. This has
accentuated the already narrow export base of the country and is
a matter of concern for policymakers. The excessive dependence of
the economy on the garment sector for foreign exchange earnings
and export growth demands policies that would diversify the
export base of the economy. What can be said about the future
performance of the apparel export industry in Bangladesh? What
are the risks for exports of Bangladeshi apparel? First, supply
shocks such as the debilitating floods of 1998 that shaved off
several percentage points from the expected GDP growth this year
and caused widespread disruption in production and transportation
can never be accurately anticipated. The other major crisis the
industry had to deal with in 1998 was external and once again
hardly anticipated. We refer to the East Asian economic debacle
of 1997-1998. The financial panic and the subsequent economic
meltdown that afflicted several economies in the East Asia -
Malaysia, Indonesia, Thailand, Philippines and South Korea-
certainly have been a restraining element in the economic
performance of the regional economies. What are the links between
the East Asian economies and garment exports from Bangladesh?
There are several avenues by which negative economic shocks from
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these emerging economies can impact this export industry in
Bangladesh. First, several of these nations are also big apparel
exporters in same markets to which Bangladesh exports apparel. A
steep depreciation in their currency makes their products more
competitive in both the open and the quota-protected apparel
markets. In the markets protected by quotas, such a development
would be a deflationary force pulling down the unit prices and
the profit margins for Bangladesh apparel exporters. Second,
given the crunch, these economies would try to export themselves
out of their severe recession. In the recent crisis, these
regional and international forces have greatly increased
competition for Bangladesh exports. Third, to help them recover
from their downturn, the U.S. government and others have already
relaxed quota restrictions on exports from the worst affected
economies, making the playing field more difficult for
Bangladeshi exporters. Fourth, prior to this crisis, some of
these nations were potentially big investors in Bangladesh in the
textile and infrastructure projects. Their economic troubles have
meant a dramatic scaling back in their direct investments in
Bangladesh. On the other hand, partly as a result of the East
Asian economic debacle, there was a massive return of Bangladeshi
workers from this region that has swelled the urban labor force
pool from which garment factories recruit their workers. Second,
when some of these economies weakened, their ability to compete
was impaired from the economic or political collapse. This could
mean new opportunities for those competitors who were unaffected
by the economic crisis. Finally, Bangladesh has tried to take
advantage of the crises by demanding from the U.S. equal quota
concessions, pointing to its efforts in reducing the underage
worker problem in the apparel factories. In our view, the biggest
threat to apparel exports in Bangladesh comes from the financial
sector. Although we do not anticipate a financial panic similar
to the Asian crisis since the influx of short-term foreign
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investment (hot money) and borrowing by the private and public
sector has been rather limited in Bangladesh, there are some
similarities. One common element that we share with these
affected economies is a weak banking sector with little
transparency or central bank control. Elements of crony
capitalism and moral hazard are certainly present in Bangladesh,
especially in the nationalized banking sector and in credit
markets. According to the World Bank-Asian Development Bank
report, the financial sector in Bangladesh remains fragile with
33 percent of the portfolios of the NCB's and domestic private
banks in the non-performing category. Notwithstanding the fifty
billion taka of taxpayer money that was used to re-capitalize the
nationalized commercial banks (NCBs) in the early 1990s, the
system-wide capital inadequacy today is estimated to be taka 133
billion. This situation could cause the entire banking system to
collapse as a result of a large external shock or even from a
domestic shock such as a run on a major financial institution.
One important lesson from the East Asian crisis is that moral
hazard and the resulting financial panic can be very costly for
an economy, even when the fundamentals are sound. Without
fundamental reforms in the banking sector, the financial sector
in Bangladesh remains susceptible to a financial panic where a
speculative price bubble crashing in the real estate sector or
elsewhere in the economy could start a systemic self-fulfilling
crisis. Such a collapse could seriously impact apparel exports,
which are critically dependent on a healthy banking system for
the institutional support in exports and for short-term
financing.Other potential hazards include an overvaluation of the
taka compared to the currency of its competitors. Despite the
repeated devaluation in the recent past, according to the World
Bank, the taka remains overvalued in real terms. This could
undermine the long- term competitiveness of the industry.
Finally, in the year 2004, under the Uruguay Round Agreement on
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Textiles and Clothing, MFA quotas will be phased out. Bangladesh
will lose its preferential access to its most important markets
and will have to compete with India, China and other apparel
exporters in a truly global competitive environment. Many apparel
firms in Bangladesh are not ready for this change, although the
more efficient larger firms that have diversified their products
and markets are expected to do well in the post MFA world.
Finally, we anticipate that the biggest source of problems for
the apparel export industry is likely to be domestic, not
external. The politicians could seriously damage this sector by
creating instability and attempting to achieve their goals by
violent means in the streets instead of the parliament. The
bankers, the bureaucrats, and the politicians remain a source of
threat. In their attempt to further extract rent from this
sector, they could undermine the long-term viability of this
industry. The failure of the law enforcement forces to control
the menace of mastans and toll collectors may create a climate
that debilitates commerce and production in the economy. Labor
disturbances and frequent disruptions in the Chittagong port also
remain a source of concern to exporters in general. Increased
contacts between factory owners and the union leadership would
help the industry. Garment workers remain one of the hardest-
working segments of the labor force in Bangladesh. The working
conditions and benefits for workers should improve as the
industry matures and human capital increases. In the long run,
this is the best defense against labor union agitation. Investing
in worker training and in improved working conditions would
certainly enhance productivity. The apparel factory owners must
be proactive instead of reactive on this important issue.
CHAPTER IV
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4.1. Literature Review:
Several authors have analyzed aspects of the garment
industry in Bangladesh. Of the various aspects of the industry,
the problems and the working conditions of female workers have
received the greatest attention. There are several studies
including the Bangladesh Institute of Development Studies (BIDS)
study by Salma Chowdhury and Protima Mazumdari (1991) and the
Bangladesh Unnayan Parisad ii(1990) study on this topic. Both of
these studies use accepted survey and research methodology to
analyze a wealth of data on the social and economic background,
problems and prospects of female workers in the RMG sector.
Professor Muzaffar Ahmad looks at the industrial organization of
the sector and discusses robustness and long-term viability of
apparel manufacturing in Bangladesh.iii Wiig (1990) provides a
good overview of this industry, especially the developments in
the early years.iv One of the few studies on the Bangladesh
apparel industry to be published in a reputed journal in the U.S.
is that of Yung Whee Rhee (1990) who presents what he calls a
“catalyst model” of development. The Bangladesh Planning
Commission under the Trade and Industrial Policy (TIP) project
also commissioned several studies on the industry. v Hossain and
Brar (1992) consider some labor-related issues in the garment
industry.vi Quddus (1993) presents a profile of the apparel sector
in Bangladesh and discusses some other aspects of the industry.vii
Quddus (1996) presents results from a survey of apparel
entrepreneurs and evaluates the performance of entrepreneurs and
their contribution to the success of this industry.viii Islam and
Quddus (1996) present an overall analysis of the industry to
evaluate its potential as a catalyst for the development of the
rest of the Bangladesh economy.ix
Many economist have wrote about garment sector but I have
observed three presentation papers ( Dr.Khaled Nadvi, Dr.Salma
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Chaudhuri Zohir and Dr.Naila Kabeer.) and one seminar paper (Ms
Simeen Mahmud).Dr. Nadvi’s paper deals with the nature of current
challenges for Bangladesh in the global garment industry and
discusses some of the salient observations from the trade data
analysis illuminating how Bangladesh’s position in the global
garment trade has changed over time. Dr. Salma Chaudhuri Zohir
provided details on findings from Bangladesh garment sector firm
surveys and Dr. Kabir presented some preliminary evidences from
the garment and non-garment workers surveys conducted in Dhaka.
Dr. Nadvi identifies four sets of global challenges that are
especially key for a low- income garment exporting country like
Bangladesh. These challenges are : a) The phasing out of Multi
Fiber Agreement by January 2005 b)Increased competition from
China which at present controls 18 percent of the global trade in
garments and severely quota constrained in leading markets. c)
Growing concerns around meeting global standards. These include
standards that address labor conditions, environmental impacts
and quality assurance as well as wider social and ethical
concerns in production. d) Changes in the retail structure of the
global industry and the new competitive pressures from the global
buyers. Buyers are increasingly seeking to not only outsource
production to local suppliers, but also shift more functions and
risks associated with such task further down the value chain.
More over one of the key demands that is emerging in the
increasingly more fashion driven global industry is the need to
reduce the lead times and to bring about quick changes in
products in keeping with changing market demands.
Dr.Nadvi then tries to map Bangladesh’s position in the
global garment industry by comparing the changes in Bangladesh’s
unit price of exports and market access with those of her major
actual and potential competitors in the EU market. A mixed story
emerged form his analysis. Bangladesh has significantly increased
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its market share during the last decade. But the discomforting
feature is that in most items studied Bangladesh has seen its
unit values decline more or as rapidly over time as those of its
competitors. In this context he cited the example of Vietnam
whose share in the cotton shirt sector in the EU market has gone
up from less than 0.5% in 1990 to 3.7% in 1999 and at the same
time it’s unit value has risen by an average of 6.8% a year
during the 1990s. This suggests significant improvements for
Vietnam which is indicative of some productivity gains. The
decline in Unit value in Bangladesh can be an indicative of the
lowering labor cost and even with large reserve army of labor
there are limits to which labor cost can be reduced. Thus the
challenge at the firm level for Bangladesh to upgrade is critical
if it is to sustain its market share in the long run.
Dr. Salma Chaudhuri Zohir’s paper provided some important
insights from an enterprise survey covering 30 firms of different
size. Initial finding suggests the following overall performance
indicators: Export volume has increased for all but one firm.
Number of buyers has mostly declined to 3 to5. Average unit price
of garment has declined due to local and international
competition. Average product quality has improved Net profit has
declined mostly. Costs are increasing as firms have to set up own
building with facilities .Employment has increased in all but one
firm . On average lead time in woven has declined to 80 to 90
days from 120 days . Average lead time for imported yearn is
90 days and for local yearn is 60 to 70 days for sweater .
Average lead time for knitwear is around 45 days.
She suggested that the firms in Bangladesh are constantly
adapting themselves to the changing demands of the market. They
are responding to the buyers demand in terms of upgrading
products, upgrading plants and compliance with standards. She
then discussed some of the major future challenges for the
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industry and summarized her presentation with the following
observations: Medium and large firm will survive and the small
firm will die. MFA phase out will affect woven garments in both
USA and EU. Women are mainly employed in woven and hence are more
at risk of being unemployed than men. Knitwear and sweater will
survive if GSP continues. Duty free access to USA and EU is
essential for the survival of woven RMG. Rules of Origin should
be carefully considered. Firms need to seek direct orders from
the retailers. We should go for lower and medium price products.
To survive in future the garment industry has to maintain price
competitiveness and reduce the lead-time. Measures must be taken
to avoid balance of payment crisis and mass unemployment of
women. FDI in the garment industry should be welcomed Dr. Naila
Kabeer undertakes a comparison of the condition of the female
workers of RMG sector and that of a non-RMG sector in Bangladesh.
The research was conducted among both types of female workers
living in the same place. Some of the initial findings are as
follows: Although both the RMG and non- RMG female workers come
from the similar social background, the RMG workers are
financially better off than the non-RMG workers. RMG workers
mainly come from moderately poor families while majority of the
non- RMG female workers are coming from extremely poor
families .RMG workers migrate with their friends not with their
close relatives, whereas the non-RMG female workers migrate with
their close relatives and they stay with their families.
Compared to the non RMG female workers the RMG workers have
better education and better access to health care facilities. The
RMG workers perceive themselves to be temporary migrants to the
city and therefore they have higher savings and they send
remittance to their family members in the villages to a large
extent. Female RMG workers face greater problems on their way to
the work place. Most of the RMG workers think the working hours
are increasing day by day. Involvement in trade union among the
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female RMG workers is very limited RMG workers cope with bad
situation by cutting their expenses while the non- RMG workers
cope by borrowing.
Dr. Kabeer opined that through the wider
participation of female workers in RMG the inner capacity of the
female work force has been exposed and recognized in a male
dominated society. The female themselves have also found out that
they can be involved in the industrial production, even with low-
level of education. This discovery will prevail even if the RMG
sector does not exist. By sending the remittances to the rural
area to the poor family members the female RMG workers are
helping the alleviation of rural poverty.They are mention that
already around 40% of the fabric for woven garments is produced
domestically. They argued that textile sector should be provided
some support so that RMG does not become totally dependent on
imported fabric. In this regard some initiatives were suggested:
(a) Our textile producers should be given credit as per the
global rate of interest, which is far lower than the rate
prevailing in Bangladesh, (b) Utilities like electricity, gas
etc. should be provided at a confessional rate to the textile
sector as the prices of these things are lower in countries from
where imported textile is brought, (c) Port facilities should be
improved, (d) duties on import of textile machinery should be
reduced, (e) a green fund on an interest free basis should be
provided to comply with the environmental norms. At this point
some discussant commented that RMG export can be sustained even
without backward linkage industries and cited the example of
Vietnam where despite the presence of large textile sector, the
export of RMG is totally dependent upon imported textile. The
textile secretary informed the participants that the government
is in the process of setting up a training institute where
workers and managers of both RMG and textile sector will be
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trained. He called for the active participation of BGMEA and BTMA
in this regard. Ms Simeen Mahmud have focused on policy issues
regarding the RMG sector of Bangladesh in the context of the
changed global scenario after 2005. In the one hand, the policy
makers got to know the research findings and recommendations made
by different stakeholders and on the other hand they informed the
participants about the approach and the initiative of the Govt.
regarding the challenges that lies ahead of the growth and
sustainability of the RMG sector in Bangladesh.
Improving the market access
Participants strongly demanded greater attention of the
government on improving the market access of Bangladeshi RMG
products. They gave stress on creating facilities so that the
producers can have direct relationship with the buyers, mainly
with retailers. This attempt will reduce the amount of surplus
captured by the buying houses and other middlemen. The need for
exploring the Japanese and other Asian market also received
attention. The secretary for commerce informed the participants
that government is very much concerned about the market access
issue. He gave example of the Canadian market case where
Bangladesh has recently received not only duty free entry but
also soft rules of origin condition. The effort is going on to
get similar facilities from Australia.
Workers’ welfare considerations
The discussion concerning the workers’ welfare covered the
following issues— workers should be given prior notice before
closing any factory .Employers should give attention to improve
the skills of existing workers, otherwise when the RMG sector
moves to higher value products the low skilled workers will lose
job as higher value products require higher skill. At this point
Dr. Salma C. Zohir mentioned that during the survey of factories
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she found that even with the present level of skill, workers are
capable of producing quality products and thus moving to high
quality products is very much feasible. trade union should be
permitted in the RMG sector. However unholy alliance of trade
unions with the non- trade union people has to be stopped.
Democratic trade union laws have to be implemented. Dr. Rehman
Sobhan suggested that workers might be given equity share in
their companies to ensure that they benefit properly from the
value chain. At this point some discussants also mentioned that
too much of emphasize on the distribution may indeed harm the
interest of the industry. They argued that if competition is
ensured by say, allowing FDI, the condition of the workers will
improve automatically as the market will drive their wages up.
Foreign Direct Investment in the RMG sector
Most of the participants welcomed FDI in the RMG sector of
Bangladesh. They gave example of Sri Lanka where welcoming FDI
lessened the worry about developing the backward linkages. It was
argued that FDI would not only ensure higher investment in this
sector, but also transfer technology and ensure bigger market
access by providing direct linkages with the retailers at the
export market. The minister informed the participants that
decision on whether or not FDI will be allowed in the RMG sector
will be taken soon. He told that FDI will be welcomed if interest
is shown to develop at least one backward linkage by each
investor. But some discussants also pointed out that putting a
stringent condition for FDI will indeed be self defeating as
foreign investors will switch to other countries where the
investment regime is more liberal. Increase in Efficiency in RMG
production Discussants unanimously agreed that production of
quality product is a must in the post MFA period. Therefore
increasing labour productivity is required. It was argued that
low skilled labour is not really cheap if we consider the low
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level of productivity of those workers. Dr.Zaidi Satar of World
Bank argued that we have to ensure that the producers get the
inputs at the world price during the free trade environment of
post MFA era. He decries the tendency of linking RMG with textile
at the excuse of promoting backward linkage and called for
independent formulation of policies for the RMG sector. He gave
the example of Sri Lanka in this respect where the degree of
backward linkage is almost as it is in Bangladesh but the RMG
producers get textile at zero percent duty. Improvement of the
infrastructure and the need for better shipment facilities also
drew considerable attention. These steps were considered
necessary for Bangladeshi exporters to move at FoB level instead
of the existing CM/CMT level.
Mr. Suhel Ahmed Chowdhury, Secretary, Ministry of Commerce
raised the issue of viability of many of the small RMG units
during the globally competitive environment of post MFA period.
He stressed the need of merger and acquisition among the existing
RMG units so that they can benefit from the economies of scale.
Some of the discussants also argued for technological up
gradation. But the suggestions faced objection from Dr.Naila
kabir as she thought that disappearance of small factories and
introduction of capital intensive technology might lead to loss
of employment by the women workers. At this point some of the
discussants emphasized the need for skill up gradation so that
the existing workers can be assimilated in the newly formed
improved technology based and relatively large RMG units. Some
discussants argued for discontinuation of cash incentives for RMG
exporters after 2005 as they need to become competitive to
survive at that stage. Concern was also raised that after 2005
cheap import from China may pose a threatening challenge to the
industry. But some discussants argued that China couldn’t
continue with her present policy of veiled subsidy after 2005, as
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they have to come under strict scrutiny on the basis of the
Agreement on Textile and Clothing (ATC). ATC does not allow for
subsidization of primary textile, which China is currently
practicing. It was also mentioned that the US has reserved some
safeguard against Chinese flooding of market after 2005. This may
provide a certain level of protection to our export also.
4.2. Conceptual Framework:
THE EXPORT GROWTH FACTOR OF BANGLADESHI GARMENT PRODUCT:
(CONSTANT-MARKET-SHARE MODEL)
In discussion and explaining the export growth of
Bangladeshi garment products an analytical device as the constant
market share model is employed. To examine a country’s export
growth, this model basically ascribes favorable or unfavorable
export growth either to a country’s export structure or to it’s
“competitiveness”. The basic assumption of constant market share
model is that a country’s export share in world market should
remain unchanged over time. The difference between the export
growth implied by this constant share norm and the actual export
performance is attributed to the effect of competitiveness, and
actual growth in exports in divided into competitiveness,
commodity composition and market distribution effect. Demand for
exports in a given market from two competing sources of supply
Total 3388822420 8587852106 171957224 232888036 0.649( r)
111600238.40 111600238.4 263811614
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Analysis
Bangladeshi Exports in 1998----------------------$232888036
Bangladeshi Exports in 1969----------------------$171957224 Change in Exports $60930812
100%
1. Due to increase in world trade: $ 110382381.60 18.12
2. Due to commodity composition: $1975483.20 3.24
3. Due to market distribution: $ -1963250.60 -3.22
4. Due to increase competitiveness: $ 50536197.80 82.94
Notation- ijV = value of A’s exports of commodity to country j
in period 1, ijV = value of A’s exports of commodity I to country j in period 2, r= percentage increase in total world exports from period 1 to period 2, ir = percentage increase
in world experts of commodity i from period 1 to period 2, ijr
= percentage increase in world exports of commodity i to country j from period 1 to period 2.
* ijr was first computed from the cross classification of
actual world exports by market destination and commodity
i
ii
iii
iv
v
vi
vii
viii
ix
x
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groups and multiplied by ijV , the cross classification of
change in actual Bangladeshi exports by market destination