Ready-made Garment (RMG) Industry in Bangladesh
RMGs are the finished textile product from clothing factories and the Bangladeshi RMG Sector is one of the fastest growing sectors in the Bangladeshi economy, with a growth rate of 55% from 2002 to 2012. Exports of textiles, clothing, and ready-made garments (RMG) accounted for 77% of Bangladesh's total merchandise exports in 2002. By 2005 the (RMG) industry was the only multibillion-dollar manufacturing and export industry in Bangladesh, accounting for 75 per cent of the country's earnings in that year. Bangladesh's export trade is now dominated by the ready-made garments (RMG) industry. In 2012 Bangladesh's garment exports – mainly to the US and Europe – made up nearly 80% of the country's export income.By 2014 the RMG industry represented 81.13 percent of Bangladesh's total export. Much of the tremendous growth of the sector and its role as an economic powerhouse for the country is attributed to the availability of "cheap" labor. Of the four million workers employed by the RMG industry, 85% are illiterate women from rural villages. The working environments and conditions of the factories that produce ready-made garments has undergone criticism in recent years concerning worker safety and fair wages.
Subcontracting is a major component of the RMG industry in Bangladesh. Many Western companies contract different factories, only requesting that certain quotas be met at certain times. Companies prefer subcontracting because the degree of separation presumably removes them of liability of wage and labor violations. It also makes it easier to distribute production across a variety of sources.
World markets
McKinsey report (2011): Bangladesh as next hot spot, next China
As of 2011 Bangladesh was second largest ready-made garments (RMG) manufacturer after China, by the next five years Bangladesh will become the largest ready-made garments manufacturer. Bangladesh was the sixth largest exporter of apparel in the world after China, the EU, Hong Kong, Turkey and India in 2006. In 2006 Bangladesh's share in the world apparel exports was 2.8%. The US was the largest single market with US$3.23 billion in exports, a 30% share in 2007. Today, the US remains the largest market for Bangladesh's woven garments taking US$2.42 billion, a 47% share of Bangladesh's total woven exports. The European Union remains the largest regional destination - Bangladesh exported US$5.36 billion in apparel; 50% of their total apparel exports. The EU took a 61% share of Bangladeshi knitwear with US$3.36 billion exports.
According to a 2011 report by international consulting firm , 80 percent of American and European clothing companies planned to move their outsourcing from China, where wages had risen, and were considering Bangladesh as the "next hot spot" making it the "next China" offering 'the lowest price possible' known as the the hallmark of China's incredibly cheap, ubiquitous manufacturers, much "dreaded by competitors."
Trade agreements
1974 the Multi Fibre Arrangement (MFA) and the Daewoo of South Korea
Starting in 1974 the (MFA) in the North American market ensured that trade in textiles and garments remained the most regulated in the world. Among other things the MFA set quotas on garments exports from the newly industries country of asia, but had exceptions, most notably the state of Bangladesh. Entrepreneurs from quota-restricted countries like South Korea began "quota hopping" seeking quota-free countries that could become quota-free manufacturing sites. The export-oriented readymade garment industry emerged at this time. Deawoo of South Korea was an early entrant in Bangladesh, when it established a joint venture on 27 December 1977 with Desh Garments Ltd. making it the first export oriented ready-made garment industry in Bangladesh. After only one year in which 130 Desh supervisors and managers received free training from Daewoo in production and marketing at Daewoo's state-of-the-art ready-made garment plant in Korea, 115 of the 130 left Desh Garments Ltd. and set up separate private garment export firms or began working for other newly formed export-oriented RMG companies with new garment factories in Bangladesh for much higher salaries than Desh Garments Ltd offered.
Global restructuring processes, including two non-market factors, such as quotas under (MFA) (1974–2005) in the North American market and preferential market access to European markets, led to the "emergence of an export-oriented garment industry in Bangladesh in the late 1970s."It was uncertain what the phase out of the MFA meant for the Bangladeshi RMG industry. However, surpassing all doubts, the industry continued to succeed and dominate on a global level.
The garment industry in Bangladesh became the main export sector and a major source of foreign exchange starting in 1980, and exported about US$5 billion in 2002. In 1980 an export processing zone was officially established in at the port of Chittagong.
By 1981, 300 textile companies, many small ones had been denationalized often returned to their original owners. In 1982, shortly after coming to power following a bloodless coup, President Hussain Muhammad Ershad introduced the New Industrial Policy (NPI), most significant move in the privatization process, which denationalized much of the textile industry, created (EPZs) and encouraged direct foreign investment. Under the New Industrial Policy (NPI) 33 jute mills and 27 textiles mills were returned to their original owners.
In 1985 the US and Canada actually imposed import quotas of their own, with no international agreement, on Bangladeshi textiles. However, Bangladesh was able to meet demand for every quota each year and was able to successfully negotiate for higher quotas for subsequent years.
The export of ready-made garments (RMG) increased from US$3.5 million in 1981 to $10.7 billion in 2007. Apparel exports grew, but initially, the ready-made garments RMG industry was not adequately supported by the growth up and down the domestic supply chain (e.g., spinning, weaving, knitting, fabric processing, and the accessories industries).
From 1995 to 2005 the WTO (ATC) was in effect, wherein more industrialized countries consented to export fewer textiles while less industrialized countries enjoyed increased quotas for exporting their textiles. Throughout the 10-year agreement, Bangladesh's economy benefited from quota-free access to European markets and desirable quotas for the American and Canadian markets.
| export market | USA (textile) | USA (clothing) | EU (textile) | EU (clothing) |
|---|---|---|---|---|
| market share in 1995 | <3% | 4% | <3% | 3% |
| market share in 2004 | 3% | 2% | 3% | 4% |
As the above table shows, the market shares for Bangladeshi textiles in the US and both textiles and clothing in the European Union have changed during the time period of the ATC.
Until FY 1994, Bangladesh's ready-made garments (RMG) industry was mostly dependent on imported fabrics - the Primary Textile Sector (PTS) was not producing the necessary fabrics and yarn.
Since the early 1990s, the knit section expanded mainly producing and exporting shirts, T-shirts, trousers, sweaters and jackets. In 2006, 90 percent of Bangladesh's total earnings from garment exports came from its exports to the United States and Europe.
Although there was concern, noted in an IMF report, that the WTO's Multi Fibre Arrangement, the Agreement on Textiles and Clothing (ATC), phase-out would shut down the textile and clothing (T&C) industry, the Bangladesh textile sector actually grew tremendously after 2004 and reached an export turnover of US$10.7 billion in FY 2007. Bangladesh was expected to suffer the most from the ending of the MFA, as it was expected to face more competition, particularly from China. However, this was not the case. It turns out that even in the face of other economic giants, Bangladesh's labor is "cheaper than anywhere else in the world." While some smaller factories were documented making pay cuts and layoffs, most downsizing was essentially speculative – the orders for goods kept coming even after the MFA expired. In fact, Bangladesh's exports increased in value by about $500 million in 2006.
Textile exports from Bangladesh to the United States did increase by 10% in 2009.
Factory showroom of knitted garments
Denim in a factory showroom
Automatic printing machine
US Tariff Relief Assistance for Developing Economies Act
The United States introduced the Tariff Relief Assistance for Developing Economies Act of 2009 designated Bangladesh as one of the 14 (LDC), as defined by the United Nations and the US State Department, eligible for "duty-free access for apparel assembled in those countries and exported to the U.S." from 2009 through 2019. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA), an industry lobby group, claimed that in 2008 alone Bangladesh paid US$576 million as duty against its export of nearly $3 billion, mainly consisting of woven and knitwear. However, this act was temporarily suspended for Bangladesh by President Obama after the Rana Plaza collapse in 2013.
Effects on exports
Md. Samsul Alam and Kaoru Natsuda's survey of Bangladeshi garment firms, conducted in 2012, found that they almost unanimously credited the low cost of labor as the main contributor to the industry's growth in Bangladesh. Some Bangladeshi companies have purchased machinery and technology to increase efficiency, such as computerized cutting and spreading machinery, sewing machines, and barcode-enable inventory management systems. Market access and tread policy also have played a role in the growth of the Bangladeshi garment industry, as the country's garment exports are mainly concentrated in the United States and the European Union. Alam and Natsuda found that during the (MFA) period, only 21 out of 52 firms exported to a third market, but post-MFA, 66 out of 69 have exported to a third market, which indicates a diversification in the Bangladeshi garment industry. Bangladesh ranked as the second leading exporter in the world after China in 2015 according to an estimate by Khurram Shahzad who applied data derived from the World Trade Organization to Balassa's revealed comparative advantages (RCA) index. Shazad found that Bangladesh fell between Pakistan and India in regards to comparative advantages in textiles, but held the highest RCA for clothing.Private actors maintain a positive outlook on the industry, as the clothing sector has seen a positive growth in terms of RCA. Despite rating highly, Bangladesh's textile and clothing industries face several challenges that make access to their textile and clothing products unstable, such as a weak government and political turmoil.
Women in the garment industry
The structure of gender participation in the economy underwent a major shift with the rise of the ready-made garment industry in Bangladesh. Estimates from the World Bank put the number of female workers in the industry in the 1980s at 50,000; that number was brought up to 2.85 million by 2008 and now probably lies over the 3 million mark. Traditionally the participation of women in Bangladesh's formal economy was minimal. Bangladesh's flagship export-oriented ready-made garment industry, however, with female labor accounting for 90 percent of the work force, was "built to a large extent, on the supply of cheap and flexible female labor in the country." By 2001 the textile industry employed about 3 million workers of whom 90% were women. In 2004 garment sector remained the largest employer of women in Bangladesh. By 2013, there were approximately 5,000 garment factories, employing about 4 million people, mostly women.
The garment sector has provided employment opportunities to women from the rural areas that previously did not have any opportunity to be part of the formal workforce. This has given women the chance to be financially independent and have a voice in the family because now they contribute financially.
However, women workers face problems. Most women come from low income families. Low wage of women workers and their compliance have enabled the industry to compete with the world market. Women are paid far less than men mainly due to their lack of education.Women are reluctant to unionize because factory owners threaten to fire them. Even though trade unionization is banned inside the Export processing Zones (EPZ), the working environment is better than that of the majority of garment factories that operate outside the EPZs. But, pressure from buyers to abide by labor codes has enabled factories to maintain satisfactory working conditions.
Md Sohanur Rahman
Junior Instructor (Textile)
Shyamoli Ideal Polytechnic Institute, Dhaka
Information collected from- Wikipedia