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

INTRODUCTION

At independence in 1971, most observers of the newly emerged country took a pessimistic view about the developmental prospect of Bangladesh. Many thought that the country would remain permanently locked in a ‘below poverty level equilibrium trap’. Although there is little room for complacency Bangladesh has come a long way from there. About two-fifths of the economy is now connected with the global economy through exports, imports, factor and commodity markets; the degree of openness of the economycurrently stands at 40%. Bangladesh can now rightfully claim that she has graduated from a predominantly aid receiving nation to a trading nation. The export-oriented RMG sector has made crucial contribution to this abovementioned transformation of the Bangladesh economy. The role of our RMG entrepreneurs, domestic fiscal and financial, institutional policy support and incentives put in place by successive governments, substantial RMG-supportive linkage activities within the domestic economy and global market opportunities combined to create a story which is, to be honest and true, unparallel in the developing world. When jute and jute goods were losing their traditional markets, with the prospect of drastic fall in forex earnings it is the RMG sector which came in first to replace it, and then to overtake it. While traditional export sector could not yield expected results, the RMG sector gradually injected dynamism in the export as well as in the domestic economy though backward and forward linkage economic activities.

The export-oriented readymade garments (RMG) sector in Bangladesh started its journey in late 1970s as a small non-traditional sector of export. Bangladesh exported RMG worth only US$ 69 thousand when Reaz Garments exported its first consignment to USA in 1978. By FY2002, within a span of about two decades exports have gone up to US$4.5 billion. Over the past decade alone, the sector registered a phenomenal growth rate of 15 percent per annum, which is impressive by any standard2. In fact, this was an exceptionally high growth rate for an emerging industry anywhere in the world. The industrial base which sustained such high growths also enjoyed a robust expansion, from less than 50 factories in 1983 to more than 3,400 in 2002, with the number of RMG workers reaching approximately 1.5 million.

Despite many difficulties faced by the sector over the past years, it continued to show robust performance, competitive strength and, of no less importance, social commitment. RMG’s contribution to Bangladesh economy is well-known, well-appreciated and well-respected. However, often times the magnitude of its multiplier impact and implications will justify the support that this sector has been given over the past years and also the support it is currently seeking from the government. In FY2002 Bangladesh exported RMG products worth 4.5 billion US dollars. Her share in total US imports of apparels was 3.2%; in EU it was 3.3% and in Canada it was 3.0%. Bangladesh is known in these countries as a small country with a strong presence. Everywhere, RMG serves as a flagship product of our country, inducing people’s interest in Bangladesh both as a tourist and investment destination. These are the impacts which are difficult to quantify, yet without which the country perhaps would not have been able to project itself to a trajectory of high growth and higher standards of living. Thus, RMG’s contribution to Bangladesh, both direct and indirect, needs to be recognized for what it is. In the following pages, an attempt is made to quantify the key role that RMG has come to play in the economy of Bangladesh. The RMG sector has also played a significant role in the social metamorphosis in a broader context. This paper attempts to qualify aspects such as women empowerment, population control, education, environmental awareness, elimination of child labor which contributed to overall improvement in the HDI (Human Development Index) Indicators. It should be noted that the study is not exhaustive, and can be further improved upon.

BANGLADESH’S READY-MADE GAEMENTS INDUSTRY

The Ready-Made Garments (RMG) industry contributes to the Bangladesh economy in a distinctive manner. The last 20 years witnessed unparalleled growth in this sector, which is also the largest exporting industry in Bangladesh. It has attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP within a short span of time. The industry plays a significant role in terms of employment generation. Nearly two million workers are directly and more than ten million inhabitants are indirectly associated with the industry. In addition to its economic contribution, the expansion of RMG industry has caused noticeable changes by bringing more than 1.12 million women into the workforce. Hence it is quite apparent that this sector has played a massive role in the economic development of the country.

RMG’s contribution in terms of GDP is highly remarkable; it has reached 13 percent of GDP which was only about 3 percent in 1991. It also plays a pivotal role to promote the development of other key sectors of the economy like banking, insurance, shipping, hotel, tourism, road transportation, railway container services, etc. One of the key advantages of the RMG industry is its cheap labor force, which provides a competitive edge over its competitors. The sector has created employment opportunities for about two million people of which 70 percent are women who mostly come from rural areas. Thus the industry helps in the country’s social development, women empowerment and poverty alleviation. Currently RMG earns the lion's share of foreign exchange earnings.

HISTORY OF RMG INDUSTRY IN BANGLADESH

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In the 1950s, labors in the Western World became highly organized; forming trade unions. This and other changes provided workers greater rights including higher pay; which resulted in higher cost of production. Retailers started searching for places where the cost of production was cheaper. Developing economies like Hong Kong, Taiwan and South Korea presented themselves as good destinations for relocations because they had open economic policies and had non-unionized and highly disciplined labor force that could produce high quality products at much cheaper costs. In order to control the level of imported RMG products from developing countries into developed countries, Multi Fiber Agreement (MFA) was made in 1974. The MFA agreement imposed an export rate 6 percent increase every year from a developing country to a developed country.

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