RMG- The Leading Earning Sector in Bangladesh

RMG- The Leading Earning Sector in Bangladesh
Md. Tanjim Hossain
Dept. of Textile Engineering,
Northern University Bangladesh, Banani, Dhaka-1213, Bangladesh.

Jannatul Mawa Moon
Dept. of Political Science,
University of Dhaka, Bangladesh



ABSTRACT

RMG (Ready-made Garments) is the leading sector in Bangladesh in terms of foreign currency earnings. Bangladesh is the second largest garments exporter next to china. It contributes 80% of total export earnings. In Bangladesh there are 4 million people, working in around 6000 garments factories and approximately 80% people of them are female. In FY (fiscal year) 2012-2013 Bangladesh reached the export value 21b (billion) USD (21515.73m (million) USD). In FY 2013-2014 the strategic target was 24147.31m USD by export promotion bureau of Bangladesh, but in July‘13-April’14 it reaches 19970.02m USD that is 2.72% more than the strategic target (19441m USD) during this time. RMG sector has set a target to earn 30b USD by 2015 and 50b USD by 2021. Low labor cost, efficient worker, different organizational support and government support are the main strengths of this sector. Bangladesh market share is 5% of total global RMG market of 450b USD. In FY 2012- 2013 Bangladesh exported 1972.89m USD of shirts, 5185.48m USD of trousers, 2634.28m USD of jackets and 5143.22m USD of t-shirts. The major importers are European Union, USA and Canada. Knit garments are exported to 148 countries and woven garments are exported to 132 countries. The major buyers are Wal-Mart, Target, Marks and Spencer, Tesco, Levi’s, Zara, JC Penny, GAP, C & A, UNIQLO etc.

KEYWORDS: RMG, BGMEA, BKMEA, EPB, GSP, SWOT, CPD, WTO.

INTRODUCTION
Bangladesh is a developing country. Its economy is largely dependent on agriculture. However the Ready-made Garments sector has emerged as a biggest earning source of foreign currency. Industries like Bangladesh textile industry, pharmaceuticals, agribusiness, jute, leather, tea, food processing, etc. are contributing to the national economical development of Bangladesh. RMG has secured the first position for earning foreign currency amongst all.

RMG sector not only contributing to the national economy but also working on human development. It contributes significantly to GDP (Gross Domestic Product), women endorsement, reduction of child labor, gender equality and reduction of infant mortality. In three decades RMG shapes itself a good apparel sourcing spot in the world. GDP of Bangladesh is $173.8b (nominal) (37th; 2014 est.) and $419.2b (PPP) 36th; 2012-2013 est.). GDP growth is 6.12% (2013-14 est.) [1]. RMG sector contributes more than 13% of GDP of Bangladesh. Contribution of woven and knit wear is 40.74% and 40.51% (FY 2013-14, July- December) respectively to the total export value of Bangladesh [2]. A McKinsey survey report shows that Bangladesh will be the number one hotspot for apparel sourcing within five years [3].

The dramatic growth of RMG sector is due to RMG entrepreneurs, BGMEA (Bangladesh Garments Manufacturers and Exporters Association), BKMEA (Bangladesh Knitwear Manufacturers and Exporters Association), government support, GSP facility, low labor cost, effective and efficient worker etc. RMG entrepreneurs are encouraged by different tools such as quotas through the WTO. Agreement on Textiles and Clothing (ATC), everything but Arms (EBA) and the US 2009. Tariff Relief Assistance etc. RMG sector providing a lot of females and empowering them to make a social revolution. The RMG sector helps for alleviating poverty from Bangladesh by offering jobs to males and females. 60% western brands of RMG are being exported by Bangladesh with European buyers and 40% with American buyers.

HISTORY AND GROWTH OF RMG SECTOR IN BANGLADESH
Ready-made Garments industry in Bangladesh has started its journey in late 1970s. Reaz Garments, Jewel garments and Paris garments were the biggest ones amongst the nine industries in Bangladesh [6]. In 1978 this sector earned only 69 thousand USD when Reaz garments exported its first consignment in USA. Within a span of three decades exports have gone up to 21515.73m USD by FY 2012- 2013[2]. Since the establishment in 1960, Reaz store manufactured product for local buyers for thirteen years. In 1973, it changed its name to Reaz Garments Ltd. and started to export by selling 10,000 pieces of shirt. Desh Garments Ltd. Bangladesh in collaboration with Daewoo Corporation, S. korea, established the first 100% export oriented company in 1979. In 1980, Youngone (49%) and Trexim (51% equity) formed a company named Youngone Bangladesh, exported the first consignment of padded and non padded jackets to Sweden. In 1983-1984 only 134 garments factories were in Bangladesh and 0.040m workers were working in this sector but in 2013-2014 the number of RMG units increases around 6000 with 4.0m employees [4]. The growth is done as a result of Multi Fiber Agreement (MFA) of General Agreement Tariff and Trade (GATT) and supportive policies of Government of Bangladesh (GoB) [7].  
 
Table 1: Growth of the RMG Industry and Employment.
Source: BGMEA [4].
Chart 1: Growth of RMG Factories in Bangladesh.

Chart 2: Employment Growth in RMG sector. 

CONTRIBUTION OF RMG TO NATIONAL EXPORT
It was recorded that in FY 1983-1984 RMG sector contributed only 3.89% (RMG export value was 31.57m USD and total export value was 811.00mUSD) of total export of Bangladesh [4]. But it changes phenomenally in last three decades. In FY 2012-2013 RMG contributed 79.63% (RMG export value was 21515.73m USD and total export value was 27018.26m USD) [2]. In the month of July’13 to Apr’14, it contributed more than 80% of total export value [2]. So In fiscal year 2013-2014 hopefully it will contribute more than 80% of total export of Bangladesh. 

Chart 3: Export of major products of Bangladesh in FY 2012-13 (July-December) [2].
Source: Export Promotion Bureau [2].
Table 2: Comparative Statement on RMG and Total Export of Bangladesh.
Source: Export Promotion Bureau Compiled by BGMEA [2].
Chart 4: Comparative Statement of RMG and Total Export in Bangladesh.

Chart 5: RMG Export Percentage of Total Exports.

MAJOR PRODUCTS OF RMG EXPORT
Bangladesh manufactures and exports mainly woven garments and knit garments in the form of shirts, trousers, jacket, t-shirt, sweater etc. Woven garments were exported more than the knit garments till 2008 but later on knit garments exceeded woven garments in the FY 2011-2012. In FY 2012-2013 the trend again reverted. In FY 2013-14 (July to April) knit garments export was 9803.35m USD and woven garments export was 10166.67m USD [2].

Table 3: Quantity of Total Apparel Export Vs Fiscal Year.
Source: Export Promotion Bureau & Bangladesh Bank Compiled by BGMEA.
Table 4: Value of Total Apparel Export Vs Fiscal Year.
Source: Export Promotion Bureau & Bangladesh Bank Compiled by BGMEA [4].
Chart 6: Export of Woven and knit Garments in Million DZ.

Chart 7: Export of Woven and Knit Garments in Million USD.

Table 5: Exported items in Million USD Vs Fiscal Year.

EXPORT DESTINATION
Bangladesh export its RMG product mainly in the European Union, United State of America and Canada, Knit garments are exported to 148 countries and woven garments are exported to 132 countries [6]. Major buyers of RMG products are Wal-Mart, Target, JC Penny, Gap, Levi’s, Zara, K-Mart from USA, Marks and Spencer, Tesco from UK, Carrefour from France, C & A from Germany, UNIQLO from Japan, etc.

Figure 1: Brands of clothing importing RMG from Bangladesh.

Table 6: Bangladesh's RMG Export to World (July-December, FY 12-13 & FY 13-14) [4].
Source: EPB, Compiled by: RDTI Cell, BGMEA [4].
SWOT ANALYSIS
Strength
  1. Biggest foreign currency earning industry
  2. Low labor cost
  3. Efficient and effective worker
Weakness
  1. Backward linkage industry
  2. External raw material supply
Opportunity
  1. Next apparel sourcing number one hotspot
Threat
  1. Physical infra structure of garments factory
  2. Political instability
  3. Less concern on human
EVALUATION OF FUTURE PROSPECT OF RMG SECTOR IN BANGLADESH
Opportunity-Threat- Solution
Bangladesh secures second position in terms of RMG export next to china. China's market share is around 31 percent of the total global garment market of $450b, where Bangladesh holds 5 percent. Realizing the prospect in a meeting (February 2014) Mustafizur Rahman, Executive Director, CPD (Centre for Policy Dialogue), uttered to create room for further growth potential [5].

From the view point of labor cost China is paying high price compared to that of Bangladesh. The monthly salary of a Bangladeshi worker would be Rmb 500 to Rmb 600 ($80 to $95), while one Chinese worker now is being paid at least Rmb 2,000 per month [6]. China is now using Bangladesh to outsource its RMG products. China has already placed some orders for manufacturing apparel items in Bangladesh. If the Chinese companies engaged themselves here, it will be a great opportunity for RMG sector of Bangladesh [6]. A survey found that European and US companies are planning to expand the share of their sourcing from Bangladesh from 25 to 32 per cent by 2020, from an average of 20 per cent [6]. From the above perspectives we can say that Bangladesh has a great opportunity to become the hotspot of apparel sourcing.

Bangladesh apparel sector has some shortcomings. To become the hotspot and sustainable this sector needs to be developed in different areas.

Rana Plaza collapse and Tazreen Fashions fire are two serious and catastrophic occurrences damaging the reputation that Bangladesh has earned in the global RMG sector previously. These events are brought into question about the safety and infrastructural standards of the factories of Bangladesh. Subsequent to these occurrences the committed orders are left withheld in this FY 2013-2014. The factory safety concern is the reason why foreign buyers, especially Western brands, are cancelling their orders from Bangladesh. So RMG sector needs to improve infrastructure. In CPD meeting, Atiqul Islam, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), acknowledged that the apparel sector has a significant deficiency in productivity. 

Table 7: Monthly wage Vs Productivity of different countries [5].

Analysts said that without improving productivity and technological upgradation Bangladesh will not be able to reach target of 30 billion USD by 2015 and 50b USD by 2021 [5].

RMG industry of Bangladesh needs to shorten the lead time, otherwise, international buyers may divert their attention towards other suppliers for import of garment products in the current quota-free business environment.

RMG sector of Bangladesh maintains a lead time of 66 to 95 days to export the garments. Only 26.6% of the exporter’s have said that they take 35 to 65 days to export their products which are the global benchmark for exporting garments products [8].

Again Bangladesh needs to develop the product in the competitive world and make a competitive manufacturing location and should diversify its export basket.

Strengthening the process of upgrading products is very important for the Bangladesh RMG industry if it is to enhance its competitiveness. As with China and other prominent garment suppliers, Bangladesh needs to address both qualitative and quantitative expansion of its RMG industry simultaneously in order to sustain the business in the long run. The country needs to be capable of adjusting its manufacturing capacity to frequent changes in customer demand.

Bangladesh needs to expand its capacity for manufacturing high quality, high-priced garment products. Manufacturing simple shirts or t-shirts will not enable the country to remain internationally competitive in the long run.

Thus, product diversification and upgrading processes need to be accelerated. Bangladesh also needs to diversify its markets to include Japan, Australia and other important international markets.

Moreover, Bangladesh needs to be political stable. The European and the US buyers have identified political instability as the key area of risk in Bangladesh. Consequently they would reduce the value of their sourcing in the country if political unrest persists.

CONCLUSION
To revivify RMG (The Golden Goose) we need to fulfil the buyer’s requirement. For this the Govt. has to take necessary actions. Garments entrepreneurs should follow the building code for protecting building collapse and to ensure worker safety, give proper facility to worker, try to make branding of RMG sector in the world by making high quality product. RMG sector needs to improve overall operational efficiency and technological upgradation, reducing lead time, markets diversification, appropriate strategy formulation and new policy implementation. To become the world number one apparel sourcing hotspot Govt. and private sector should work parallely.

REFERENCES
  1. http://en.wikipedia.org/wiki/Economy of Bangladesh.
  2. www.epb.gov.bd.
  3. http://www.mckinsey.com/insights/consme r_and_retail/bangladesh_the_next_hot_sp ot_in_apparel_sourcing.
  4. www.bgmea.com.bd.
  5. http://www.thedailystar.net/business/30- garment-exports-hinge-on-tech-upgrade- 12268.
  6. http://www.thefinancialexpress-bd.com/ 2014 / 03/28/25672.
  7. Ferdous Ahmed, “Improving Social Compliance in Bangladesh Ready-Made Garments Industry” www.academia.edu.
  8. Jahid Hasan, “The competitiveness of Ready-Made Garments Industry of Bangladesh in Post MFA Era How does the Industry Behave to Face the Competitive challenge?” British Journal of Economics, management and Trade 3(3) 296-306, 2013. 
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