Competitiveness of the Bangladesh

Ready-made Garment Industry in

Major International Markets

ABSTRACT

T he ready-made garment (RMG) industry of Bangladesh started in the late

1970s and became a prominent player in the economy within a short period
of time. The industry has contributed to export earnings, foreign exchange earnings,
employment creation, poverty alleviation and the empowerment of women. The
export-quota system and the availability of cheap labour are the two main reasons
behind the success of the industry. In the 1980s, the RMG industry of Bangladesh
was concentrated mainly in manufacturing and exporting woven products. Since the
early 1990s, the knit section of the industry has started to expand. Shirts, T-shirts,
trousers, sweaters and jackets are the main products manufactured and exported by
the industry.

Bangladesh exports its RMG products mainly to the United States of America
and the European Union. These two destinations account for more than a 90 per cent
share of the country’s total earnings from garment exports. The country has achieved
some product diversification in both the United States and the European Union.
Recently, the country has achieved some level of product upgrading in the European
Union, but not to a significant extent in the United States. Bangladesh is less
competitive compared with China or India in the United States and it is somewhat
competitive in the European Union.

The phase-out of the export-quota system from the beginning of 2005 has raised
the competitiveness issue of the Bangladesh RMG industry as a top priority topic. The
most important task for the industry is to reduce the lead time of garment
manufacturing. The improvement of deep-level competitiveness through a reduction
in total “production and distribution” time will improve surface-level competitiveness
by reducing lead time. Such a strategy is important for long-term stable development
of the industry, but its implementation will take time.
 In contrast, the establishment of a central or common bonded warehouse will
improve surface-level competitiveness by reducing lead time, but deep-level
competitiveness will not be improved and long-term industry development will be
delayed. Therefore, granting permission to establish in the private sector such
warehouses with special incentives, such as the duty-free import of raw materials
usable in the export-oriented garment industry for reducing the lead time in garment
manufacturing, is a critical issue for Bangladesh.
Second, Bangladesh needs to improve the factory working environment
and various social issues related to the RMG industry. International buyers are
very particular about compliance with codes of conduct. Third, issues related to
product and market diversification as well as upgrading products need to be
addressed with special care. Moreover, the Government of Bangladesh needs to
strengthen its support. The development of the port and other physical
infrastructure, the smooth supply of utilities, a corruption-free business
environment and political stability are some priority concerns for the
Government to consider in its efforts to attract international buyers and
investors.

1. INTRODUCTION
The RMG industry of Bangladesh has expanded dramatically over the last three
decades. Traditionally, the jute industry dominated the industrial sector of the country until
the 1970s. Since the early 1980s, the RMG industry has emerged as an important player in
the economy of the country and has gradually replaced the jute industry. The “export-quota
system”1 in trading garment products played a significant role in the success of the industry.
However, that quota system came to an end in 2004. Therefore, the competitiveness issue
needs to be addressed, with special attention given to the long-term sustainability of the
industry.

1
Unilateral restriction, short-term arrangement (STA), long-term arrangement (LTA), Multifibre Arrangement
(MFA) and finally the WTO Agreement on Textiles and Clothing (ATC) are the chronological steps through
which the “export-quota system” was administered until it was finally abolished on 31 December 2004, making
worldwide textile and garment trade quota-free. The system allowed importers to control the import of textile
and garment products by imposing quantitative restrictions on exporting countries. For details on the system,
see Agency for International Trade Information and Cooperation (1999); Hyvarinen (2000); Smith (1998); and
Thongpakde and Pupphavesa (2000).
 The term “competitiveness” itself is a broad concept. Its meaning, implications,
adaptation and achievement vary from firm to firm, industry to industry, or country to country.
Michael E. Porter is a pioneer of the “competitiveness theory” (Porter, 1990) at the national or
macro level (Cho and Moon, 2000). Firm/industry-level (micro level) competitiveness depends
on various parameters. However, the literature provides no universal agreement on the
definition of competitiveness. For example, some researchers consider the labour cost, unit
cost, exchange rate, interest rate, prices of material inputs and other price- or cost-related
quantitative factors for measuring the competitiveness of a manufacturing firm/industry
(Edwards and Golub, 2004; Fukunishi, 2004; Cockburn and others, 1998; and Edwards and
Schoer, 2002). Some other researchers consider product quality, innovativeness, design,
distribution networks, after-sales service, transaction costs, institutional factors relating to the
bureaucracy of export procedures and other non-price factors for measuring the
competitiveness of a manufacturing firm/industry (Abdel-Latif, 1993; Chen and others, 1999;
and Sachwald, 1994). The influences of both price and non-price factors on the
competitiveness of a firm/industry are reflected by market share and profit (Toming, 2006).
This study attempts to incorporate price, non-price and result (for example, market share)
factors in order to address the international competitiveness of the Bangladesh RMG industry.

The majority of the competitiveness-related research studies focus on the “competitive

performance” or on the “factors influencing competitive performance”. The studies consider
product price, market share and other indicators to measure competitive performance, while
considering wages, costs, productivity and other issues as factors influencing competitive
performance. However, Fujimoto (2001) puts special emphasis on the “capability” 2 factor that
influences the competitive performance of a firm. According to him, improvement in the
“capability” of a firm enhances its “competitive performance”. This improvement takes time,
but it ensures the long-term sustainability of a firm. In contrast, improving only “competitive
performance” and not “capability” may not be sufficient to ensure the long-term development
of the firm.

This study addresses the competitiveness issue from two broader dimensions: surface-
level and deep-level competitiveness.3 Surface-level competitiveness reflects the “competitive
performance” of a firm or industry that is directly observable to consumers. Deep-level
competitiveness reflects the “capability” of a firm or industry that is not directly observable to
consumers. An improvement in the deep-level performance enhances the performance at the
surface level. The severe competition under the quota-free trading environment pressures the
RMG industry of Bangladesh to enhance its surface-level competitiveness at the earliest

2
“Capability” depends on organizational routine, managerial resources and knowledge held by an economic agent
(Fujimoto, 2001).
3
Three approaches for measuring the competitiveness of a manufacturing firm are proposed by Fujimoto (2000):
deep-level performance, surface-level performance and profit performance. This study considers the same
concepts from the industry perspective and incorporates profit performance (measured by operating profit, return
on invested capital, or stock price) into the surface-level performance because of the nature of the profit
performance-related factors concerned.
convenient time. However, the long-term sustainability of the industry demands enhancement
of deep-level competitiveness. Therefore, the future development of the industry will depend
on how much importance will be given to which factors/dimensions, and how the individual
firms will respond and how government policies will influence the industry. Hence, the
discussion of the competitiveness of the Bangladesh RMG industry requires simultaneous
consideration of both the surface and deep dimensions. In particular, this study uses (a) export
value, product price, market share and lead time as surface-level indicators, and (b) linkage
expansion, factory environment, product/market composition, and “production and
distribution” time as deep-level indicators for measuring the international competitiveness of
the Bangladesh RMG industry.

The paper is structured as follows. Section 1 sets the research agenda. Section 2
provides an overview of the Bangladesh RMG industry. Section 3 discusses the surface level
competitiveness of the Bangladesh RMG industry. Section 4 focuses on the deep-level
competitiveness of the industry. Section 5 deals with the indirect influences of governmental
policies on the competitiveness of the Bangladesh RMG industry. Finally, section 6
concludes the study.

2. AN OVERVIEW OF THE BANGLADESH READY-MADE

GARMENT INDUSTRY
The RMG industry is the only multi-billion-dollar manufacturing and export
industry in Bangladesh. Whereas the industry contributed only 0.001 per cent to the country’s
total export earnings in 1976, its share increased to about 75 per cent of those earnings in
2005. Bangladesh exported garments worth the equivalent of $6.9 billion in 2005, which was
about 2.5 per cent of the global total value ($276 billion) of garment exports. The country’s
RMG industry grew by more than 15 per cent per annum on average during the last 15 years.
The foreign exchange earnings and employment generation of the RMG sector have been
increasing at double-digit rates from year to year. Some important issues related to the RMG
industry of Bangladesh are noted in table 1.4

4
This paragraph is based on Quddus and Rashid (2000), Mainuddin (2000) and databases of the Bangladesh Garment
Manufacturers and Exporters Association, the Export Promotion Bureau of Bangladesh and the World Trade
Organization.
 Table 1. Important issues related to the Bangladesh ready-made
garment industry
Year(s) Issue

1977-1980 Early period of growth

1982-1985 Boom days
1985 Imposition of quota restrictions
1990s Knitwear sector developed significantly
1993-1995 Child labour issue and its solution
2003 Withdrawal of Canadian quota restriction
2005 Phase-out of export-quota system
Source: Compiled by the author from Quddus and Rashid (2000), Mainuddin (2000)
and databases of the Bangladesh Garment Manufacturers and Exporters Association, and
the Export Promotion Bureau, Bangladesh.

Currently, there are more than 4,000 RMG firms in Bangladesh. More than 95 per
cent of those firms are locally owned with the exception of a few foreign firms located in
export processing zones (Gonzales, 2002). The RMG firms are located mainly in three main
cities: the capital city Dhaka, the port city Chittagong and the industrial city Narayangonj.
Bangladesh RMG firms vary in size. Based on Bangladesh Garment Manufacturers and
Exporters Association (BGMEA) data, Mainuddin (2000) found that in 1997 more than 75
per cent of the firms employed a maximum of 400 employees each. Garment companies in
Bangladesh form formal or informal groups. The grouping helps to share manufacturing
activities, to diversify risks; horizontal as well as vertical coordination can be easily found in
such group activities.

Ready-made garments manufactured in Bangladesh are divided mainly into two

broad categories: woven and knit products. Shirts, T-shirts and trousers are the main woven
products and undergarments, socks, stockings, T-shirts, sweaters and other casual and soft
garments are the main knit products. Woven garment products still dominate the garment
export earnings of the country. The share of knit garment products has been increasing since
the early 1990s; such products currently account for more than 40 per cent of the country’s
total RMG export earnings (BGMEA website). Although various types of garments are
manufactured in the country, only a few categories, such as shirts, T-shirts, trousers, jackets
and sweaters, constitute the major production-share (BGMEA website; and Nath, 2001).
Economies of scale for large-scale production and export-quota holdings in the corresponding
categories are the principal reasons for such a narrow product concentration.
3. COMPETITIVENESS OF THE BANGLADESH READY-MADE
GARMENT INDUSTRY: SURFACE LEVEL
The United States was the main export destination for Bangladeshi RMG products
in the early 1990s followed by the European Union, but the European Union has surpassed
the United States over time. These two destinations generate more than 90 per cent of the
total RMG export earnings of Bangladesh (BGMEA and the Export Promotion Bureau
websites; and Quddus and Rashid, 2000). The shares of other importers, such as Australia,
Canada, China, Japan and the Russian Federation as well as countries in the Middle East, in
the total RMG export earnings of Bangladesh are minimal. This section of the paper focuses
on surface-level competitive performance of the Bangladesh RMG industry in the United
States and the European Union markets only. In addition, the performance of China and India
along with Bangladesh as RMG suppliers to international markets is also considered for
comparative analysis.

(a) Export competitiveness in the United States market5

Bangladesh has experienced some product diversification in its export of garments
to the United States market in recent years compared with the early 1990s. 6 However, the
country’s performance in upgrading its products is not significant with regard to the United
States market (Haider, 2006). The country experienced a sharp increase in the export of
garment products to the United States market in the 1990s, but faced declines in export
earnings from that country in 2002 and 2003, followed by slow increases since 2004. The
exports of India also increased rapidly in the 1990s, although that country experienced
comparatively slow progress in the last few years. However, the RMG exports of China to
the United States have increased at a startling rate over the years. For example, the textile
and garment export earnings of China, India and Bangladesh from the United States were
$3.6 billion, $0.8 billion and $0.4 billion respectively in 1990, and increased to $22.4 billion,
$4.6 billion and $2.5 billion respectively in 2005. Such rapid expansion in the exports of
China represents a major challenge to other exporters.
Bangladesh exported a total of 99 types of products in the textile and garment
category to the United States in 2005, but most of the category’s contribution was minimal.
For India and China, the number of textile and garment product categories exported in the
same year to the United States was 161 and 167 respectively. The product diversification
trend of the three countries is illustrated in figures 1 to 3.7

5
The competitive performance analysis of the Bangladesh RMG industry in the United States market is based on
data of the Office of Textiles and Apparel, United States Department of Commerce, if nothing else is mentioned.
6
The top-five products (coats, knit shirts and blouses, trousers, non-knit shirts and blouses, and undergarments)
accounted for an 80 per cent share of the total garment export earnings of Bangladesh from the United States in
1990; that share decreased to 58 per cent in 2001 (Haider, 2006).
7
The three-digit numbers indicate different textile and garment categories. A list of names of corresponding
categories noted in figures 1 to 3 is attached in annex table A1. The inner circles in the figures indicate more
 Category 340 (cotton non-knit shirts, man and boy) was the highest contributor to
the export earnings of Bangladesh from the United States, amounting to $332 million in 2005.
The export earnings of only eight categories8 crossed the $100 million export benchmark in
the same year for the country. A total of 16 categories of exports crossed the $50 million
benchmark and 31 categories crossed the $10 million export benchmark (see figure 1).

Figure 1. Textile and garment exports to the United States from Bangladesh
(United States dollars)

Others D
Silk and vegetable fibre
847 334
C
336

239 B Cotton
669 335 342
339
652 338 345
A
340 349
648
341 351
659 347 348
647 352 363
359
646

635 369
641 640
634
Man-made fibre 639
638 435

Wool

A: More than $100 million The 2005 position corresponds to the circle where the
B: $50 million to $100 million category’s number is located. The 1990 position, if the same
C: $10 million to less than $50 million as for 2005, is indicated by an underline; if it is different, it
is indicated by a small circle. The arrows represent the
D: Less than $10 million
magnitude and direction of change over time.

Source: Compiled by the author based on data of the Office of Textiles and Apparel, United States Department
of Commerce.
For India, the highest contributor was category 369 (miscellaneous cotton
manufactures), accounting for $439 million in export earnings from the United States in 2005.

exports. The author is indebted to Gary Gereffi who incorporated the idea of designing such round figures for
analysing apparel commodity chains. For details, see Gereffi (1999).
8
Categories 338, 340, 341, 347, 348, 352, 647 and 659. See annex table A1 for the names of these categories.
Also in the same year, a total of 12, 20 and 56 categories crossed the $100 million, $50 million
and $10 million export benchmarks respectively (see figure 2).

Figure 2. Textile and garment exports to the United States from India
(United States dollars)

D 313
Others
317
742
735 C 334
229 741 Cotton
736
218 224
222 335
B
219 239
vegetable fibre 899
336
847 338 351
842 A 339 340
341 342
840 348
835 347
361 352
669 363
666 369
665
659 465 359
362
649 360
648 642

647 641
434 433
640 639
636 620 435
448 443
Man-made fibre 638 635
447
634

Wool Silk and

A: More than $100 million The 2005 position corresponds to the circle where the
B: $50 million to $100 million category’s number is located. The 1990 position, if the same
C: $10 million to less than $50 million as for 2005, is indicated by an underline; if it is different, it
is indicated by a small circle. The arrows represent the
D: Less than $10 million
magnitude and direction of change over time.

Source: Compiled by the author based on data of the Office of Textiles and Apparel, United States Department
of Commerce.
 However, the scenario differed significantly for China. The highest contributor for
China in the United States market was category 670 (man-made fibre flat goods/
handbags/luggage), which amounted to $2,066 million in 2005. In the same year, 9, 62, 78
and 124 categories crossed the $500 million, $100 million, $50 million and $10 million export
benchmarks respectively (see figure 3).

Figure 3. Textile and garment exports to the United States from China
(United States dollars)

A: More than $500 million The 2005 position corresponds to the circle where the
B: $100 million to $500 million category’s number is located. The 1990 position, if the same
C: $50 million to less than $100 million as for 2005, is indicated by an underline; if it is different, it
is indicated by a small circle. The arrows represent the
D: Less than $50 million
magnitude and direction of change over time.

Source: Compiled by the author based on data of the Office of Textiles and Apparel, United States Department
of Commerce.
 The market of India seems to be more diversified compared with that of Bangladesh,
and the market of China is significantly more diversified compared with that of Bangladesh
or India. Figures 1 to 3 also indicate that the exports of Bangladesh are concentrated mainly
in cotton or man-made fibre-related products. In contrast, the trade of China and India is
diversified in all the fibre groups.

(b) Export competitiveness in the European Union market9

Bangladesh has experienced both quantitative and qualitative changes in exporting

garment products to the European Union market during the period 1996-2005. The textile
and garment export earnings of Bangladesh from the European Union increased from 1.2
billion euros in 1996 to 3.7 billion euros in 2005. For India and China, the corresponding
earnings increased from 3 billion and 5.3 billion euros in 1996 to 5.3 billion and 21.1 billion
euros in 2005 respectively. Garment products generate the major share of Bangladesh’s
export earnings from the European Union. However, both textile and garment products in
China and India contribute to the export earnings from the European Union. For example,
garment products on average generated more than a 95 per cent share of the total textile and
garment exports to the European Union from Bangladesh during the period 1996-2005. The
corresponding shares for India and China stand at below 75 per cent and 80-90 per cent
respectively.

The top five product groups contributed 76 per cent of the total garment export
earnings of Bangladesh from the European Union in 1996, and that share increased to 82 per
cent in 2005. The corresponding changes for India and China were from shares of 62 per
cent and 34 per cent in 1996 to 54 per cent and 45 per cent in 2005 respectively. This trend
demonstrates that product diversification in Bangladesh is lower than that of India and China
in exporting garment products to the European Union market.

Knit garments from Bangladesh have gained remarkable access to the European
Union market during the period 1996-2005 (see table 2).

Duty- and quota-free access of garment products manufactured under “two-stage

local transformation” (yarn to fabrics, and fabrics to garment) have accelerated the exports of
knit garment products from Bangladesh to the European Union. As the knit textile subsector
is relatively less capital intensive and requires relatively simple technologies, it managed to
undergo rapid expansion, benefiting from the European Union Generalized System of
Preferences. The woven part of the category has failed to utilize that facility owing to a lack
of sufficient backward linkages. In contrast to the European Union, both knit and non-knit
products have entered the United States market simultaneously, as no

9
The competitive performance analysis of the Bangladesh RMG industry in the European Union market is based on
the Market Access Database of the Directorate General for External Trade, European Commission, if nothing
else is mentioned.
 Table 2. Exports of knit, non-knit and made-up products to the European Union
(Millions of euros and percentage)

Source: Compiled by the author based on the Market Access Database of the Directorate General for External
Trade, European Commission.
special tariff or tax reduction incentive was available there for the import of garment products
from Bangladesh.

The product-mix of garment products exported from Bangladesh to the European

Union has changed significantly during the period 1996-2005. The share of shirts in total
garment exports from Bangladesh to the European Union has decreased, whereas the shares
for overcoats, jackets, sweaters, suits and some other garment products have increased in
recent years. These changes demonstrate that Bangladesh is achieving some level of product
diversification in exporting garment products to the European Union. In addition, a gender
analysis indicates that Bangladesh has achieved some upgrading of its products recently in
terms of exporting garment products to the European Union. Garments for females are treated
as upgraded products compared with garments for males, since they add more value on
average. The earnings of Bangladesh from the export of garments for females to the European
Union has increased during the period 1996-2005 (Haider, 2006).

(c) Price competitiveness

China and some other competitors of Bangladesh have implemented sharp price-
cutting policies in exporting garment products over the last few years, but Bangladesh has
failed to respond effectively to such policies. China was able to drop the export price of 29
garment categories10 by 46 per cent11 on average in the United States within a year, from

10
These 29 garment categories were freed from the quota control system on 1 January 2002. The names of these
categories are noted in annex table A2.
11
The figures stand at 48 per cent for March 2004 and 53 per cent for June 2004. For details, see American Textile
Manufacturers Institute (2004a) and (2004b).
 $6.23 per sq metre in December 2001 to $3.37 per sq metre in December 2002. However, all
other suppliers were able to drop the price by only 2 per cent, from $3.50 per sq metre to
$3.41 per sq metre during the same period. By the end of 2002, China had underpriced all
other exporters to the United States in 22 out of 29 garment categories and it had underpriced
others in 26 out of 29 categories by March 2003 (American Textile Manufacturers Institute,
2003). Moreover, China rapidly managed to be price competitive in the European Union and
other major international markets. For example, the average unit export price of garment
products integrated in the third stage of the Multifibre Arrangement phase-out decreased from
11,600 euros per ton in 2001 to 9,500 euros per ton in 2002 for Bangladesh in the European
Union, whereas the corresponding decrease for China in that market was from 13,500 euros
to 8,800 euros per ton (European Commission, 2003). Bangladesh needs to respond to such
price-cutting policies of its rivals in order to remain competitive in the quota-free global
market.

(d) Lead time

Lead time refers to the time required for supplying the ordered garment products
after the export order has been received. In the 1980s, the usual lead time in the garment
industry was 120-150 days for the main garment supplier countries of the world; it has been
reduced to 30-40 days in the current decade.12 However, in this regard the Bangladesh RMG
industry has improved little; for example, the average lead time is 90-120 days for woven
garment firms and 60-80 days for knit garment firms. In China, the average lead time is 40-
60 days and 50-60 days for woven and knit products respectively; in India, it is 50-70 days
and 60-70 days for the same products respectively.13

Shortening the lead time is the most urgent priority task for Bangladesh. The best
way is to develop domestic backward linkages with the aim of reducing “production and
distribution” time. 14 Such a strategy would contribute to enhancing the deep-level
performance of the industry and would have a positive impact on surface-level performance.
An alternative solution would be to establish a central or common bonded warehouse in the
private sector for storing raw materials usable in the export-oriented garment industry, with
special incentives such as duty-free import. While such a solution is the fastest way to
improve surface-level competitiveness by reducing lead time, it carries the risk of delaying
deep-level competitive performance-enhancing initiatives and the long-term development of
the industry.

12
The Daily Star, daily English-language newspaper of Bangladesh, <[Link]/>, accessed during the
period 2003-2007.
13
Gherzi Textile Organization, as noted by the Ministry of Commerce, Cambodia (2004).
14
“Production and distribution” time refers to the total time required for the whole process, starting from textile
production to garment shipment.
 4. COMPETITIVENESS OF THE BANGLADESH READY-MADE
GARMENT INDUSTRY: DEEP LEVEL
While the export-quota system cushioned the Bangladesh RMG industry enabling it
to remain competitive as a prominent garment supplier in international markets until 2004,
the phase-out of this system has posed a big challenge for the industry. The industry needs to
find proper strategies to remain competitive in international markets. Linkage expansion,
meeting compliance standards, product/market diversification and upgrades, and reduction of
“production and distribution” time are some important strategies for the industry to improve
deep-level competitiveness.

(a) Linkage expansion

Table 3 indicates that the yarn-manufacturing capacity of Bangladesh doubled in
2003/2004 compared with 1999/2000.

Table 3. Backward linkage expansion of the Bangladesh RMG industry

Year
1999/00 2000/01 2001/02 2002/03 2003/04
Unit
Production 145 174 192 275 290
Yarn Consumption Thousand 488 495 500 525 532
tons
Gap 343 321 308 250 242
Production 1 160 1 180 1 190 1 230 1 260
Million
Fabric Consumption 3 650 3 675 3 690 3 740 3 800
metres
Gap 2 490 2 495 2 500 2 510 2 540
Source: Global Agriculture Information Network (2004).
Note: The period from August to July of the following year is treated as a market year in this table.

The consumption-production gap of yarn decreased over time, although actual

consumption increased every year. The fabric-manufacturing capacity of the country also
increased over time. Such a trend indicates that the linkage expansion process of the
Bangladesh RMG industry has already started, while the pace of expansion varies from stage
to stage. Still, many garment manufacturers in Bangladesh are interested in using imported
raw materials instead of using local raw materials owing to price differences. The price of
RMG inputs supplied by local sources is relatively high. According to The New Nation,
Bangladeshi businessmen bought yarn at the equivalent of $2.80 per kg on the local market,
whereas Indian businessmen bought the same quality yarn at $2.10 per kg in June 2004. 15

15
The New Nation, daily English-language newspaper of Bangladesh, <[Link] accessed during
the period 2003-2007.
Bangladesh is just a price taker in sourcing RMG inputs from external sources, whereas
competitor countries such as India and China have a certain level of influence on RMG input
pricing, as they themselves are prominent textile suppliers in the world market. Hence,
strengthening the linkage expansion is very important for Bangladesh. Such an expansion will
contribute to higher value addition in the local economy and facilitate the easy availability of
raw materials. However, radical or overnight expansion of backward linkage industries is not
possible, because it requires huge investments, modern machinery, a skilled workforce and
experienced management. Therefore, the most important step that needs to be taken at this
moment is to accelerate the existing pace of expansion.

(b) Compliance issues

In addition to speedy supply, the social dimensions of the RMG industry are getting
more attention from consumers, social workers, welfare organizations and brand name
international buyers. Currently, many international buyers demand compliance with their
“code of conduct” before placing any garment import order. Although Bangladesh was able
to solve the problem of child labour very successfully in the mid-1990s, the country’s
performance in improving the factory working environment is not yet satisfactory. Informal
recruitment, low literacy levels, wage discrimination, irregular payment and short contracts
of service are very common practices in the RMG factories in Bangladesh. It is true that the
country still enjoys some comparative advantage in manufacturing garment products based
on low labour costs. The average garment manufacturing labour cost of Bangladesh was
$0.16 per hour in 1993, while the corresponding figures for India and China were $0.27 and
$0.25 respectively in the same year (Delahanty, 1999). The corresponding data for 2002 were
$0.39, $0.38 and $0.68 for Bangladesh, India and China respectively (Jassin-O’Rourke
Group, 2002). However, such advantages cannot be sustained forever nor can they be
expected from a humanitarian perspective. Labour organizations, social welfare
organizations and humanitarian organizations are raising their voices against such low wages,
which are considered labour exploitation. Rented factory premises, narrow staircases, low
roofs, closed environments, absence of lunch rooms, unavailability of clean drinking water
and no separate toilets or common rooms for female workers are other concerns in the
garment factories of Bangladesh (Paul-Majumder, 2001). Bangladesh RMG firms need to
deal with these issues in order to remain competitive in the global market.

(c) Product and market composition

The product and market composition of garments from Bangladesh requires special
attention to ensure the long-term sustainability of the Bangladesh RMG industry as a
prominent supplier in the global market. The export-quota system diverted the attention of
some international garment suppliers from quantitative expansion to qualitative improvement
of exportable garment products. China and other competitor countries took that opportunity,
but Bangladesh failed to do likewise. The country stands far behind in the race to upgrade
products compared with its rivals. Bangladesh is still focused on manufacturing lower-end
products, although recently the country has emerged slowly from being a lower-end producer
towards becoming a middle/high-end producer, from being a simple male-wear producer to
become a producer of fashionable female wear. 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 the 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. In addition to upgrading
products, the country should try to achieve product and market diversification in order to
diversify risks, gain access to new markets/buyers and increase export volume.

(d) “Production and distribution” time

A shorter “production and distribution” time improves deep-level competitiveness.
A few alternative hypothetical scenarios for the woven RMG industry of Bangladesh are
illustrated in figure 4.16

Scenario 1 indicates the current situation of Bangladesh. In this stage, the country
has to depend mostly on foreign sources for inputs such as textiles. For this very reason, both
the lead time and total “production and distribution” time are longer in this case. Scenario 2
considers the establishment of common bonded warehouses in Bangladesh, which will play
a significant role in reducing lead time. Such lead-time-cutting initiatives will improve
surface-level competitiveness, but total “production and distribution” time will not be
shortened; rather it may deteriorate further owing to the additional time required for storing
inputs in local warehouses. Therefore, common bonded warehouses will not create any
positive impact on deep-level competitive performance.

Scenario 3 is the primary stage of establishing a domestic textile industry, which will
reduce both the lead time and total “production and distribution” time compared with the
present situation (scenario 1). As a result, both surface and deep-level competitiveness will
be improved. However, the lead time will remain longer at this stage than that of scenario 2.
The textile firms will produce textiles only after getting an order from garment Figure 4.
Deep and surface-level competitiveness under different scenarios

16
The figure assumes the absence of a domestic textile industry and this assumption is true generally for the
Bangladesh woven RMG industry. It considers “time” as the representative tool for measuring deep and surface-
level competitiveness. In particular, lead time represents surface-level competitiveness and “production and
distribution” time represents deep-level competitiveness. Under such assumptions, the figure illustrates the deep
and surface-level competitiveness of the Bangladesh woven RMG industry under different hypothetical
scenarios. Scenario 1 states the present situation. Scenario 2 states the immediate response of the industry to
the competitive pressures and corresponding impacts. The more advanced scenarios state the long-term
responses and the impact concerned.
 Source: Compiled by the author.
Notes: The horizontal axis indicates time (hypothetical). For a concrete idea about time, the lead time of
scenario 1 may be considered 90-120 days, which is the lead time of the Bangladesh woven RMG industry (Ministry
of Commerce, Cambodia, 2004).
The vertical axis indicates various scenarios.
The arrows indicate the receiving time for export orders.

firms at this stage. Scenario 4 is the intermediate stage of domestic textile industry
development. Local textile firms will be able to bear the risk of producing and storing some
basic textile items to supply the garment firms just after getting the demand order. Such
capability will reduce the lead time and offset the necessity of common bonded warehouses.
Total “production and distribution” time is longer here as it contains the time required for
both the production and storing of textiles. Even after that, it will not be worse than the
present situation. Rather, such improvements will increase the local contribution.
 More advanced scenarios resulting from the further development of the domestic textile,
garment and infrastructure sectors will contribute to further improvement of both deep and
surface-level competitiveness of the Bangladesh RMG industry.

5. INDIRECT INFLUENCES ON COMPETITIVENESS

The Government of Bangladesh does not play any direct role in the garment
business. However, the Government helps the industry indirectly by providing some basic
policy support such as back-to-back letters of credit, the duty drawback scheme, bonded
warehouse facility and cash incentives. 17 Some other notable initiatives taken by the
Government are the adoption of conducive investment and industrial policies, encouragement
of foreign direct investment, establishment of export processing zones and organizing trade
fairs inside and outside the country. Encouraging export-led industrialization is the main
objective behind such government initiatives. The Government provides the advantage of
duty-free raw material imports usable in the manufacturing of export products to encourage
and accelerate such industrialization. However, proper monitoring and careful
implementation of this duty-free raw material import strategy is important to protect the
illegal infiltration of imported materials into the domestic market. Such infiltration reduces
tax earnings for the Government and hampers the development of local backward linkage
sections. These two issues are restraining the Government from coming to any final decision
on allowing the duty-free import of raw materials in huge quantities and storing them in
common bonded warehouses for use by export-oriented garment factories in order to reduce
lead time. Another concern is the proper and on-time implementation of policies and
strategies. Rules and regulations that exist only on paper are meaningless if they are not duly
and properly implemented. Bureaucratic complexities, corruption, political instability and
lack of good governance are some areas which the Government needs to address in order to
ensure the proper implementation of its strategies and policies. Infrastructure development is
another area where the support of the Government is undeniable in a developing country such
as Bangladesh.

6. CONCLUDING REMARKS
The surface-level competitive performance of the Bangladesh RMG industry is
rather good, as indicated by quantitative expansions of its exports to major international
markets over the time period. Moreover, the industry has already initiated the process of

17
Such policies provided the opportunity for conducting the garment business in a favourable atmosphere. Back-to-
back letters of credit helped the RMG manufacturers to deal with the problems associated with the availability
of credit; the duty drawback system provided the option of getting back the money paid as import duty on the
importation of raw material; the bonded warehouse facility provided the chance to import raw materials on free
of duty payment; and the cash incentive system enabled the garment manufacturers to get some financial
support. Garment manufacturers are eligible to enjoy such facilities subject to certain conditions. For details,
see Quddus and Rashid (2000); Centre for Policy Dialogue (2000); and Quasem (2002).
 enhancing its deep-level competitive performance. For example, the Bangladesh RMG
industry has achieved some product diversification in both the United States and the European
Union as a garment supplier. Recently, the industry has achieved some upgrading of its
products in the European Union, but this has not occurred to a significant extent in the United
States. Some important areas which require more attention to sustain and enhance deep-level
competitiveness of the industry are reduction in “production and distribution” time, expansion
of linkages, compliance with code of conduct of buyers and changes in product/market
composition. The Government of Bangladesh should also provide more active policy support.
Figure 5 illustrates a simple competitiveness enhancement model for the Bangladesh RMG
industry.

The most urgent and important task for the Bangladesh RMG industry is shortening
the lead time; otherwise, international buyers may divert their attention towards other
suppliers for the importation of garment products in the current quota-free business
environment. The best option for Bangladesh is to improve its deep-level competitiveness
by reducing total “production and distribution” time, which will improve surface-level
competitiveness by reducing lead time. An important precondition for implementing that
strategy is the existence of a strong domestic textile industry. Bangladesh faces significant
constraints in this regard and hence it is not possible to establish strong backward linkages
overnight. Therefore, to retain competitiveness in the global market, Bangladesh has to think
of other alternatives. The establishment of common bonded warehouses in the private sector
for storing raw materials for use in export-oriented garment factories under some special
incentives, such as duty-free imports, could play a significant role in reducing lead time. Such
a policy runs the risk of delaying the initiatives that are necessary in order to strengthen deep-
level competitiveness. However, globalization is putting pressure on the country to accept
that risk. The establishment of common bonded warehouses and the expansion of backward
linkages are two options for the Bangladesh RMG industry. While the establishment of
common bonded warehouses will improve only surface-level competitiveness, the latter will
improve both surface and deep-level competitiveness. A good balance between these options
will sustain and enhance Bangladesh’s position in the world market, and at the same time
upgrade the country’s current status of being only an assembler so that it could become a full-
package supplier of garment products.

Second, Bangladesh needs to concentrate on improving the working environment in

factories and address other social issues related to the garment industry. The RMG firms in
Bangladesh have been facing immense pressures from international buyers for compliance
with their codes of conduct. In contrast, the big buyers are interested in continuing and
expanding their business with Bangladesh if shorter lead time and compliance standards can
be met. Therefore, Bangladesh should address these two issues very carefully and
immediately, which are the least conditions necessary to survive the competition.
Figure 5. Competitiveness enhancement model for the Bangladesh ready-made
garment industry

Source: Compiled by the author.

 Product upgrading and diversification and market diversification are the next
priority tasks for Bangladesh in order to diversify risks and to increase its market share.
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, the 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, the Government of Bangladesh needs to strengthen its support for the
development of port and other physical infrastructure, for smooth utility supply, improved
security systems, the attainment of a corruption-free business environment and political
stability. Such steps will contribute to reducing the lead time while building the confidence
of international buyers.
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 Annex
Table A1. List of categories for figures 1 to 3

Category Item Category Item

218 Fabrics of yarns of different colours 445 Wool sweaters, MB

219 Duck fabric 446 Wool sweater, WG
222 Knit fabric 447 Wool trousers/breeches/shorts, MB
224 Pile/tufted fabric 448 Wool slacks/breeches/shorts, WG
229 Special purpose fabric 459 Miscellaneous wool apparel
237 Playsuits, sun suits, etc. 465 Wool floor coverings
239 Baby garments 620 Other synthetic filament fabric
313 Cotton sheeting fabric 631 MMF gloves and mittens
315 Cotton print cloth fabric 632 MMF hosiery
317 Cotton twill fabric 634 MMF other coats, MB
331 Cotton gloves and mittens 635 MMF coats, WG
333 Cotton suit-type coats, MB 636 MMF dresses
334 Cotton other coats, MB 638 MMF knit shirts, MB
335 Cotton coats, WG 639 MMF knit shirts and blouses, WG
336 Cotton dresses 640 MMF non-knit shirts, MB
338 Cotton knit shirts, MB 641 MMF non-knit shirts and blouses,
339 Cotton knit shirts and blouses, WG WG
340 Cotton non-knit shirts, MB 642 MMF skirts
341 Cotton non-knit shirts and blouses, 644 MMF suits, WG
WG 646 MMF sweaters, WG
342 Cotton skirts 647 MMF trousers/breeches/shorts, MB
345 Cotton sweaters 648 MMF slacks/breeches/shorts, WG
347 Cotton trousers/breeches/shorts, MB 649 MMF brassieres and other body
348 Cotton trousers/slacks/shorts, WG support garments
349 Cotton brassieres and other body 650 MMF dressing gowns, robes, etc.
support garments 651 MMF nightwear and pajamas
350 Cotton dressing gowns, robes, etc. 652 MMF undergarments
351 Cotton nightwear and pajamas 653 MMF down-filled coats, MB
352 Cotton undergarments 654 MMF down-filled coats, WG
359 Miscellaneous cotton apparel 659 Miscellaneous MMF apparel
360 Cotton pillow cases 665 MMF floor coverings
361 Cotton sheets 666 MMF other furnishings
362 Cotton bedspreads and quilt 669 Miscellaneous MMF manufactures
363 Cotton terry/other pile towels 670 MMF flat goods/handbags/luggage
369 Miscellaneous cotton manufactures 735 Silk coats, WG
433 Wool suit-type coats, MB 736 Silk dresses
434 Wool other coats, MB 738 Silk knit shirts, MB
435 Wool coats, WG 739 Silk knit shirts and blouses, WG
438 Wool knit shirts and blouses 740 Silk non-knit shirts, MB
443 Wool suits, MB 741 Silk non-knit shirts and blouses, WG
 Table A1. (continued)

Category Item Category Item

742 Silk skirts 845 Vegetable blend sweaters

748 Silk trousers/breeches/shorts, WG 847 S/V blend trousers/breeches/shorts,
758 Silk neckwear MB
759 Other silk apparel 859 Miscellaneous silk/non-cotton
835 S/V blend coats, WG vegetable apparel S/V blend
836 S/V blend dresses 870 luggage Miscellaneous S/V
838 S/V blend knit shirts and blouses 899 blend manufactures
840 S/V blend non-knit shirts and blouses
842 S/V blend skirts
Source: Office of Textiles and Apparel, United States Department of Commerce.
Abbreviations: MMF: man-made fibre; S/V: silk and vegetable; MB: man, and boy; WG: woman and girl.

Table A2. List of 29 categories integrated on 1 January 2002

Category Item Category Item

239 Baby garments 833 S/V blend suit-type coats, MB

330 Cotton handkerchiefs 834 Miscellaneous S/V blend coats, MB
349 Cotton brassieres and other body 835 S/V blend coats, WG
support garments 836 S/V blend dresses
350 Cotton dressing gowns, robes, etc. 838 S/V blend knit shirts and blouses
431 Wool gloves and mittens 839 S/V blend baby garments
432 Wool hosiery 840 S/V blend non-knit shirts and blouses
459 Miscellaneous wool apparel 842 S/V blend skirts
630 MMF handkerchiefs 843 S/V blend suits, MB
631 MMF gloves and mittens 844 S/V blend suits, WG
632 MMF hosiery 847 S/V blend trousers/breeches/shorts,
649 MMF brassieres and other body MB
support garments 851 S/V blend nightwear and pajamas
650 MMF robes, dressing gowns, etc. 858 S/V blend neckwear
653 MMF down-filled coats, MB 859 Miscellaneous silk/non-cotton
654 MMF down-filled coats, WG vegetable apparel
831 S/V blend gloves
Source: Office of Textiles and Apparel, United States Department of Commerce.
Abbreviations: MMF: man-made fibre; S/V: silk and vegetable; MB: man, and boy; WG: woman and girl.