Clothing Sector In Bangladesh

1.1 Title Of the Study

The title of Clothing Study is “WTO and RMG sector of Bangladesh: Growth Implications”.

1.2 Origin of the Study

The term paper on “WTO and RMG sector of Bangladesh: Growth Implications” is assigned by Dr. A. K. M. Saiful Majid as a partial fulfillment of the course “Micro Economics”.

1.3 Background of the study

Ready Made Garments (RMG) industry has been contributing the most to our foreign exchange earnings for the last 2 decades and proved it as the most significant sector for a sustainable economic growth. This labor-intensive industry has shown all positive impacts on our socio-economic milieu by employing a large number of female workers. Though cheap labor force has been one of the major factors for the rapid-growth of this industry, different trade facilities in frame of duty exemption (in EU countries) and quota system (in United States) have also played a vital role in creating the perfectly congenial atmosphere for this sector in the export market.

Even after all these achievements, this industry faces major challenges of global trade adjustment in the coming years when it has to respond to the new trading agreement of WTO in 2005. As a part of the trade globalization, the trade facilities that Bangladesh is currently enjoying in EU and US market will be totally abolished. At that conjunction of time, this particular sector, that has been contributing 75% of the total export earnings, will certainly feel the heat of the severe global competition. And, it is very much worthy to say that this sector will have to pass this acid-test to keep our last ray of hope of rapid economic growth alive.


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1.4 Importance of the Study

1.4.1Bangladesh Opportunity

Textile and clothing account for about 75% of total export earnings of Bangladesh. The share of clothing has increased dramatically from 0.2 % of total exports in 1980 to about 74.8% in 1997-98. From a small exporter of apparel in 1980, Bangladesh became, in 1997, the 18^th largest exporter of apparel in the world. Exports of clothing in Bangladesh are characterized by:

(1) High concentration on low value-added products

            (2) Heavy dependence on imported intermediate inputs, and

            (3) High regional concentration of exports

Liberalization of trade following the Uruguay Round Agreement presents an opportunities as well as challenges for a developing country like Bangladesh. In the Post-Uruguay Round Period, traditional instruments of trade policy such as tariffs, quotas and subsidies will become less feasible and less relevant. In a liberalized trade regime, competition among textile and clothing exporting countries is likely to become intense.  For a developing country like Bangladesh, low relative labor costs may not be sufficient for improving the competitive position of the clothing industry.

The patterns of competitive advantage and hence the structure of exports and imports depend on stage of economic development. A county’s comparative advantage is expected to change as a result of changes in factor endowments, accumulation of human capital, and technological innovations. Countries move along a ladder of comparative advantage as development proceeds: relatively advanced countries will lose competitive advantages in product groups intensive in unskilled labor and will shift to products and processes intensive in capital, skilled labor and innovations. The experience of many countries, especially Japan, and other East Asian countries appears to support the dynamic aspects of comparative advantage.

Bangladesh, being a labor-abundant country, started the process of industrialization by concentrating on labor-intensive products such as textiles and clothing. Since clothing is more labor intensive than textiles, it is logical for Bangladesh to demonstrate its comparative advantage in textile. Over the last decade or so Bangladesh has substantially liberalized its trade regime, moving away from costly protectionist policy toward a more export-friendly trade regime. The Uruguay Round presents opportunities for Bangladesh by liberalizing trade in textiles and clothing over a ten-year transition period. Several factors however, generate uncertainty and present challenges for Bangladesh:

1. Trade diversion induced by regional trade bloc

1. Special trade relationship between trade blocs and some non-member countries

1. Safeguard mechanisms and stringent “Rules of Origin” introduced by developed countries

1. China’s accession to the World Trade Organization in the near future

1. Greater competition from major developing countries such as China and India, which have a well-integrated textiles and clothing industry

Developing countries including Bangladesh, which are at a stage of low industrial development, face many questions and dilemmas:

1.  Should such countries exploit its comparative advantage in labor-intensive clothing rather than develop textiles industry with government support, if necessary?

2.  Should Bangladesh concentrate on augmenting human capital and acquire comparative advantage in high-value added clothing?

3.  Does it make sense for Bangladesh to diversify its exports from textiles and clothing toward some high-tech products such as electronics?

The above questions and apparent dilemmas need to be addressed in the context of a changing world economy and supply constraints in the Bangladesh economy.

1.4.2 Globalization and International Trade Policy Regimes: Implications for Textiles and Clothing

Clothing Study, International trade involving textiles and clothing represents a classic example of “managed trade”. During the 1974-94 periods, international trade in textile and clothing were negotiated bilaterally, and governed by the rules of the Multi-fiber Agreement (MFA). It should be noted that only a part of international trade and clothing were governed by the MFA. International trade in textile and clothing among the developed countries and among developing countries were outside the scope of the MFA. Some developed countries such as Japan, and Switzerland were members of the MFA but did not maintain quotas. However, the importance of the MFA was given by the fact that developed countries had MFA-type arrangements with non-MFA members such as Taiwan and East European countries. On January 1, 1995, the Agreement on Textile and Clothing (ATC) replaced the MFA and became part of the World Trade Organization (WTO) agreements.

The ATC is a transitional trade regime. It provides for the elimination of the quotas and the complete integration of textile and clothing in to the WTO regime over a 10-year period ending on January 1, 2005. All WTO members are subject to ATC disciplines and only member countries are eligible for ATC benefits. In contrast, only 55 countries were member of the MFA with only 4 members (Canada, European Union, Norway and USA) maintaining import restrictions. The main features of the ATC include:

1) The product coverage involving 4 major groups: yarns, fabrics, made-up textile products, and clothing.

2) A program for the progressive integration of the textile and clothing in to the GATT 1994 rules.

3) A special safeguard provision to deal with import surges during the transitional period, and

4) Establishment of a Textile Monitoring Body (TMB) to supervise the implementation of the Agreement.

1.4.3  Backward Linkage of Garments Sector

Clothing Study Estimate shows that about 80 percent of garment accessories like cartons, threads, buttons, labels, poly bags, gum tapes, shirt boards, neck boards etc. are now being produced in our country, contributing to the national GDP. But, the textile (Spinning, Weaving, Finishing etc.) industry is just budding. Prospect for a huge textile industry capable to supply over 3 billion yards of fabrics a year to the export oriented garment industry has also been developed by the industry.

Presently, the total fabric requirement in our captive market is for about 3 billion yards, of which about 85-90 percent we import from countries like China, India, Hong Kong, Singapore, Thailand, Korea, Indonesia, Taiwan, etc. Fabric requirement is increasing @ 20 percent per annum. This offers a tremendous opportunity for further industrialization in our country.

Taking the global context within the purview of open market economy by the year 2005, we can exploit the benefit of the potential textile industry of the country by immediately establishing 60 moderate-size composite textile mills, capable of producing 30 million yards of fabrics per year per factory.

1.4.4  Recent Trends
But in the last 2 years, Garments Sector of Bangladesh has been undergoing a major turmoil.
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As a result of withdrawal of Quota System and GAAT, Bangladesh has lost its major shares in the international market. Also the quick emergence of competitive countries like Vietnam, Myanmar, Mexico, Peru, Indonesia etc has put on tremendous competition on the Garments Sector of Bangladesh. We believe that Clothing Study will provide the correct information about the growth and competition of the Garments Sectors in Bangladesh & make necessary recommendation so that the management can take the appropriate tool in developing and designing corrective measures, which as a result will help to uphold the increasing prosperity of the sector. Total Garments Study will also provide information to the government organizations as well as management training institutes about the growth and competition of the Garments Sectors, which in the long run will contribute to overall development of the society and country.

1.5   Objective of the Study

The primary objective of this study is to fulfill the requirements if the Microeconomics Course. The secondary objective of this study is to identify the growth of the Garments Sector over the last few decades and competitiveness of this sector as a whole in the local as well as in the global market. It will highlight the growth implications due to WTO.

Therefore, Clothing Study report will focus mainly on the following areas:

v     Presentation of an introduction to the Garments Sector of Bangladesh

v     Presentation of current export-market situation of the RMG industry of Bangladesh.

v     Analysis of the  effect of the trade globalization in the future growth of this  industry.

v     The current position and potential market penetration capability of the competing countries.

v     Analysis of the factors affecting the growth and competitiveness of Garments Sector in Bangladesh

v     Scanning the micro environment forces to identify the opportunities and threats to this sector

1.6  Scope of the Study

The scope of this survey is as follows:

☼   The target group includes the Senior level Managers, Mid level Managers and Junior level Managers of various Garments companies under BGMEA

☼   The working force those who are deployed in Dhaka are considered only

☼   The target group is 15 selected randomly

1.6 Mythology of the study:

The main study is based on primary source of data collected using a number of methods like self-administered questionnaire, discussion & structured interviews. However, secondary sources are equally emphasized for determining the most appropriate methodologies. The methodology is described in following diagram

Source of data

Methodologies

Primary

Þ Interviews Þ Discussion            Þ Questionnaire

Secondary

Þ BGMEA reports & publication Þ Organizational Infrastructure Design Handbooks of BTMA, BGMEA, EPB etc. Þ Journals & Newspapers Þ WebPages Þ Internet Þ Annual reports Þ Competency based training road map, et

Questionnaire by task analysis has been used for Junior & Mid level Managers & on the other hand, structured interviews have been taken for Senior level Managers to get primary data.

1.7. Design of Questionnaire:

The key tools used for Clothing Study is the questionnaire. The questionnaire has been designed with attention to the following facts:

1.       Involvement of the target group

2.      Nature of the business

3.      Organizational Structure

4.      Strength and weakness of the company

5.      Opportunities and threats faced by the company and the sector as a whole

6.      Managerial Skill & knowledge required

7.      Turnover, profit, cost and other important financial ratios

Questionnaire has also been designed describing Managerial skill & job performance skill. The questionnaire contains rating scale on the left hand side

Information for age, duration of holding present position and academic qualification of the individual are mentioned, which provide important information about the target person those who are involved.
If you learn more about garments sector visit this link Garments Sector In Bangladesh  Garments Sector