The Export-Oriented Readymade Garments Sector in Bangladesh - Strategic Management

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It also allowed developed countries to impose quotas on countries that exported at a higher rate than the bilateral agreements. In the face of such restrictions, producers started searching for countries that were outside the umbrella of quotas and had cheap labor. This is when Bangladesh started receiving investment in the RMG sector. In the early 1980s, some Bangladeshis received free training from Korean Daewoo Company. After these workers came back to Bangladesh, many of them broke ties with the factory they were working for and started their own factories.The hundred percent export-oriented RMG industry experienced phenomenal growth during the last 15 or so years. In 1978, there were only 9 export-oriented garment manufacturing units, which generated export earnings of hardly one million dollar. Some of these units were very small and produced garments for both domestic and export markets. Four such small and old units were Reaz Garments, Paris Garments, Jewel Garments and Baishakhi Garments. Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz Store inDhaka. It served only domestic markets for about 15 years. In 1973 it changed its name to M/s Reaz Garments Ltd. and expanded its operations into export market by selling 10,000 pieces of men's shirts worth French Franc 13 million to a Paris-based firm in 1978. It was the first direct exporter of garments from Bangladesh. Desh Garments Ltd, the first non-equity joint-venture in the garment industry was established in 1979. Desh had technical and marketing collaboration with Daewoo Corporation of South Korea. It was also the first hundred percent export-oriented company. It had about 120 operators including 3 women trained in South Korea, and with these trained workers it started its production in early 1980. Another South Korean Firm, Youngones Corporation formed the first equity joint- venture garment factory with a Bangladeshi firm, Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of the new firm, named YoungonesBangladesh. It exported its first consignment of padded and non-padded jackets to Sweden in December 1980.

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Within a short period, Bangladeshi entrepreneurs got familiar with the world apparel markets and marketing. They acquired the expertise of mobilizing resources to export-oriented RMG industries. Foreign buyers found Bangladesh an increasingly attractive sourcing place. To take advantage of this cheap source, foreign buyers extended, in many cases, suppliers' credit under special arrangements. In some cases, local banks provided part of the equity capital. The problem of working capital was greatly solved with the introduction of back-to-back letter of credit, which also facilitated import of quality fabric, the basic raw material of the industry. The government assigned high priority to the development of RMG industry.

Till the end of 1982, there were only 47 garment manufacturing units. The breakthrough occurred in 1984-85, when the number of garment factories increased to 587. The number of RMG factories shot up to around 2,900 in 1999. Bangladesh is now one of the 12 largest apparel exporters of the world, the sixth largest supplier in the US market and the fifth largest supplier of T-shirts in the EU market. The industry has grown during the 1990s roughly at the rate of 22%. In the past, until 1980,jute and jute goods topped the list of merchandises exported from Bangladesh and contributed more than 50% of the total export earnings. By late 1980s, RMG exports replaced jute and jute goods and became the number one in terms of exports.

The history of the Readymade Garments Sector in Bangladesh is a fairly recent one. Nonetheless it is a rich and varied tale. The recent struggle to realize Workers' Rights adds an important episode to the story.

Below, we present a detailed narration of the evolution of the RMG sector from its humble origins to the present day.

BANGLADESH GARMENT INDUSTRY AIMS FOR FAST GROWTH

Despite recent, highly publicized wage protests, Bangladesh's apparel industry says it is gearing up for high speed growth in the New Year, fuelled by new EU GSP rules, new export markets and government support. According to the Bank, the country's financial sector regulator, from July to September 2010, exports of woven garments increased by30% in value terms, while exports of knitwear increased by 31.91% in value terms, compared to the same period 2009. Exports in the last quarter of 2010 are also expected to show growth.

New Markets

While the bulk of exports are still shipped to the EU followed by the US, the made-in-Bangladesh label is also slowly going to new places. During the recession in 2008, the government gave a bailout package on condition that the industry develops new markets and new products. By now, the industry has started exporting to new markets like Japan, Russia, Saudi Arabia and Australia. These exports are still small but there is potential for growth, because our garment industry is very competitive. Talks are also on the cards with big neighbor India - to build on the current duty-free quota of 8m pieces of garments annually, from Bangladesh into India. In 2009, this huge industry, which provides livelihoods for around 4m people directly and indirectly, accounted for 77% of total country exports at US$12.49bn. Meanwhile, in 2009, the World Trade Organization listed Bangladesh as the fifth largest clothing exporter to the world, behind China, the EU, Turkey and India.

Growing EUWards

While the clothing dependent, least developed country does not have preferential accessinto the US, the EU is expected to be more accessible from 2011.We do not get any duty-free access into the US for garments. In some cases they charge ushigher duties than what they charge developed countries like France. We are doing well in the US because our garment industry is highly competitive. The industry is also expectinggrowth in the EU with the new GSP rules.Industry sources say that from 1 January 2011, under new EU GSP rules of origin, moreBangladeshi apparel will qualify for duty-free entry into Europe."We have not tested the new system yet, but we are expecting exports to the EU to increasewith the new EU GSP rules," says MrAnnisulHuq, chairman of the Mohammadi Group of companies, one of the largest apparel manufacturing groups in Bangladesh and a former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).Under these new GSP rules, the fabric can come from anywhere in the world, to qualify for duty-free. Because we