Industry Paper On Rmg Redefined

HISTORY

OF

RMG INDUSTRY

IN

BANGLADESH

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 in Dhaka. 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 jointventure garment factory with a Bangladeshi firm, Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of the new firm, named Youngones Bangladesh. It exported its first consignment of padded and non-padded jackets to Sweden in December 1980. 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.

PRODUCT TREE Bangladesh exports about 63 items to different apparel markets. These products include suits, jeans, embroidery cloths, shirts, trousers, children wares, sweaters, knitwear etc. However, major portions of Bangladesh's exports are shirts, blouses, T-shirt, pullovers and these products are produced mainly to cater middle and lower market segments of US and EU. It needs to be mentioned here that Bangladesh produces a very limited categories of expensive and fashion oriented garments. Main apparel items exported from Bangladesh is shown in the tree – diagram drawn below: Ready Made Garments

Woven Trousers

Shirts

Knitwear Jackets

T – shirt

Sweater

Polo Shirt

Knitwear: The knitwear sub-sector in Bangladesh has made phenomenal progress in the past 10-12 years. In 2002-2003 this sub-sector has made 25.3% contribution to the country’s total export. The fast growth of this sector is resulted from abundant and cheaply available labor and low investment requirement, high demand for knitwear variety in the USA and EU countries. The following table shows the export of knitwear from Bangladesh: Table: 1 Knit Export as a percentage of total National Export

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05*

Woven

Knit

Total

2,844,430 2,984,960 3,081,190 3,364,320 3,124,820 3,258,270 3,358,070 2,907,630

937,510 1,035,020 1,268,220 1,495,510 1,458,930 1,653,830 2,148,020 2,263,320

3,781,940 4,019,980 4,349,410 4,859,830 4,583,750 4,912,100 5,686,090 5,170,950

Value in thousand (‘000) USD Total national export 5,161,200 5,312,860 5,752,200 6,467,300 5,986,750 6,536,880 7,602,990 6,961,170

Knit as % of total export 18.16 19.48 22.05 23.12 24.37 25.30 28.25 32.51

Source: EPB and BGMEA [* the year is July 2004 to April 2005] Woven: In the year 1992-93 the woven export was 86% of the total apparel export of the country, the rest 14% being the knit apparel. During the 80s and early 90s woven export dominated the total apparel export. It still contributes the major portion but the dominance has been substantially reduced by the phenomenal growth in knit garments export. Many countries of the world including the USA, Canada, Japan and Europe are prone to cold weather through out the year and people living in these countries wearing sweaters as a basic item of clothing. Sweaters are traded worldwide under knitwear (HS Code 6110) which includes sweater, pullovers, vests, jerseys. These products are mostly exported from the countries of Asian region because of the low production cost where: the China occupies the largest market share. While the export oriented garments sector extends back almost 24 years, the growth of export oriented sweater industries in Bangladesh is a fairly recent phenomenon. According to BGMEA sources out of a total of 2,429

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garments industries in the country only 175 industries are regularly manufacturing sweaters. The annual export of sweater from Bangladesh shows an increasing trend. The following table shows the main apparel items exported from Bangladesh:

Table 2: Product wise RMG Export from Bangladesh Shirt 961,130 1,043,110 1,021,170 1,073,590 871,210 1,019,870 1,116,570 857,920

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-2005 *

T-shirt 388,500 471,880 563,580 597,420 546,280 642,620 1,062,100 1,092,87

Value in thousand (‘000) USD

Trousers 333,280 394,850 484,060 656,330 636,610 643,660 1,334,850 1,343,520

Jackets 467,190 393,440 439,770 573,740 412,340 464,510 364,770 323,610

Sweaters 271,700 296,290 325,070 476,870 517,830 578,370 616,310 707,870

Source: EPB and BGMEA [* the year is July 2004 to April 2005] The following graph shows the trend of apparel product export in the international market.

Countries

Woven July-June July-June 2002-03

2003-04

Total EU 1,553.29 1,871.23 % of Total 47.67% 52.89% Canada 95.94 185.74 % of Total 2.94% 5.25% USA 1,517.00 1,391.80 % of Total 46.56% 39.34% Japan 11.74 16.00 % of Total 0.36% 0.45% Australia 1.68 2.47 % of Total 0.05% 0.07% Other 78.62 70.85 Countries % of Total 2.41% 2.00% Grand Total 3,258.27 3,538.09

% Change 20.47% 93.60% -8.25% 36.29% 47.02% -9.88% 8.59%

Knit July-June July-June 2002-03

2003-04

1,208.43 1,780.60 73.07% 82.89% 48.67 70.66 2.94% 3.29% 350.62 236.79 21.20% 11.02% 3.54 3.79 0.21% 0.18% 1.08 1.27 0.07% 0.06% 41.5

54.92

2.51% 2.56% 1,653.84 2,148.02

% Change 47.35% 45.18% -32.47% 7.06% 17.59% -

Total July-June July-June 2002-03

2003-04

2,761.70 3,651.82 56.22% 64.22% 144.61 256.4 2.94% 4.51% 1,867.63 1,628.59 38.02% 28.64% 15.28 19.79 0.31% 0.35% 2.76 3.74 0.06% 0.07%

% Change 32.23% 77.30% -12.80% 29.52% 35.51% -

32.34%

120.12

125.77

4.70%

29.88%

2.45% 4,912.10

2.21% 5,686.11

15.76%

Source: BGMEA

THE CHARACTERISTICS

OF

RMG SECTOR

IN

BANGLADESH

Growth in the Industry

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The growth in the RMG sector in Bangladesh can be explained by a combination of favorable factors, the abundant availability of cheap but easily trainable labor force and the policy incentives, particularly bonded warehouse facilities for duty free import of inputs. Total number of garment manufacturers in Bangladesh as at the close of fiscal year 2001-2002 was around 3,618. Number of new entrants in this industry followed a steady trend over the last decade. People from all walks of life have undertaken this venture mainly due to the following reasons: •

Low capital intensive

•

Technological involvement is not very high

•

Easy-to-manage operations

•

Opportunities elsewhere is very limited

Trading Pattern Traditionally export in the RMG industry has been done through back to back L/C. However, presently this tradition is changing. The concept of "Open Account Trading" is now in place. Under this situation, large buyers aside themselves from arranging export L/Cs for cost saving purpose . The bargaining power of these large buyers bind the exporters from LDCs like Bangladesh to enter into a contract under which no export L/C is issued and payment is made directly after receiving satisfactory quality shipment of goods. Here lies the risk of performance and accountability. If the buyer is not reputed enough, problems may arise. In Bangladesh, large RMG factories tend to maintain direct contact with the large buyers to safeguard themselves from unforeseen accountability risks. Growth Trend over the Years Graph shown in the figure below shows the growth trend of the RMG sector in terms of export value and quantity:

4000 Woven Export Trend

3000 2000

Knit Wear Export Trend

1000 0 19 92 -9 3 19 94 -9 5 19 96 -9 7 19 98 -9 9 20 00 -0 1 20 02 -0 3 20 04 -0 5

Value in M USD

Export trnd of RMG secotor

Year

Source: EPB and BGMEA [* the year is July 2004 to April 2005] List of Top Players in the Market The following is the list of Knitwear Manufacturer who leads the market:

4

Serial No.

Factory Name

5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Minar Industries (Pvt.) Ltd. N. R. Knitting Knit Concern Ltd. Rahman Knit Garments Ltd. Shovon Silk & Knitting Mills (Pvt.) Ltd Iqbal Texwear Ltd. Samrat & Co. (pvt.) Ltd Wisdom Attires Ltd. Rony Knitwear (pvt) Ltd. Fakir Knitwear Ltd. Miswar Hosiery Mills (pvt) Ltd Fuji Knitwear Ltd. Fakir Apparels Ltd. Adron Fabrics (pvt) Ltd. Crony Apparels Ltd. SP Fashions Ltd. Krishnachura Fashions Ltd. Martin Knitwear Ltd. Knit Asia Ltd. Unit – 2 Niagra Textiles Ltd. Pantex Dress Ltd. Abanti Color Tex Ltd. Taufiq Sweater Ltd. Aboni Textile Limited Anowara Fashions Ltd. Square Knit Fabrics Ltd. Metro Kniting & Dyeing Mills Ltd. M/S Time Sweaters Ltd. Ayman Textile & Hosiery Ltd. Falcon International Knit Composit Source: BKMEA

Following is the list of leaders in woven Product Manufacturering:

Serial No. 1 2 3 4 5 6

Group Name Envoy Group Alana Group Youth Group Mohammadi Group Hamim Group Opex Group

THE CHANGED MARKET SCENARIO At the Global level:

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The country exports about USD 5.5 billion worth of RMG products or 2.6 per cent of the world’s USD 195 billion RMG market. This market has been estimated to reach USD350 billion by 2007. The challenge that Bangladesh faces is two-pronged. It has to retain its present 2.6 per cent market share and then also try to maintain it in fast expanding markets by competing with the world. Indeed, it is a daunting agenda. Bangladesh should continue to press for zero tariff access to the US market. About USD 310.0 million worth of tariff is imposed annually on Bangladesh’s export to the US market. On the process of on going negotiation, BGMEA, at a reception hosted by them to Betsy Stillman, special trade policy advisor for South Asia at the office of USTR reiterated the demand for Duty free access to US market on July 18, 2004. Mr. Stillman suggested continuous lobbying with the US government for getting the duty-free facility. (July 19, 2004; the daily Star) CPD modeling exercise shows that a zero tariff access is likely to substantively enhance Bangladesh’s competitive strength in US market and increase exports by about USD 1.0 billion or 50%. Zero tariff access to Canadian market in 2001 has helped Bangladesh to increase her apparel export from USD 105.8 million in 2002 to D 162.8 million in 2003, a growth of about 54%. Bangladesh has sought a 30 percent increase in market share of all primary and manufactured products of least developed countries (LDCs) in EU, the USA and Japan in line with the commitment made in the Tokyo Round of GATT. To overcome the possible disaster in the LDC exports after the expiry of MFA (Multi-fibre arrangement) regime in 2004, Bangladesh has made the appeal to consider this, official sources said. It was feared that about 30 to 50 percent of the garment factories in Bangladesh and other LDCs will be closed down in the post-MFA era throwing a large number of workers mostly women out of jobs. In last six months after 1st January 2005 no record of such mishap in the country has seen. "So if the market share of LDCs is not retained they will face serious economic and social problems and the existing poverty condition will further be aggravated," commerce minister Altaf Hossain Chowdhury said in separate letters to US Trade Representative Robert B Zoellick, EU Trade Commissioner Pascal Lamy and Japanese Minister for Economy, Trade and Industry Shoichi Nakagawa. The commerce minister in the letters sought special and differential treatments for primary and manufactured products including ready-made garment frozen food, tea, Raw Jute and Agricultural products, sources in the commerce ministry said. Over 90 percent of the country’s total exports go to these three markets, with EU topping the list following by the US. "The LDCs including Bangladesh will benefit much should there be further prolonging of the transition period i.e. an extension of the ATC (agreement on textile and clothing beyond 2004. It is certain that the LDCs will loose guaranteed markets. They will be forced to compete with suppliers from countries with backward linkages and skilled labor force such as Hong Kong South Korea, India, Pakistan and particularly China," the letters read. Awarding such treatment in favour of LDCs will not be against the spirit of the World Trade Organization, agreed upon by the member countries at the Tokyo Round of the General Agreement on Tariff and Trade in 1979, the commerce Minister pointed out. "Notwithstanding the provision of Article 1 of the general agreement contracting parties may accord deferential and more favorable treatments to developing countries without according such treatment to other contracting parties" the GATT signatories decided at the Tokyo Round.

The Commerce Minister felt the need for a decisive strategy to raise the LDCs market share of primary and low-tech labour intensive manufactured goods by 30 percent letter to John McCain, US senator and Chairman, senate committee on commerce, science and transportation sought duty-free market access in the US for ready-made garments to help Bangladesh avert possible debacle after 2005, official sources said. In the letter, he also urged US

7

government to include the name of Bangladesh in the list under its Trade Development Act (TDA) 2000 which provided duty-free to 72 sub Saharan and Caribbean basin countries to the US market. Bangladesh export to the US fell about 12 percent over the last two years because of TDA 2000 and signing of a number of bilateral and regional free trade agreements between the US and some apparel producing countries, Sources in the commerce ministry told New Age. The United States International Trade Commission in a recent study said the fate of Bangladesh RMG export to the US will face uncertainty after 2004. Another study report by the American Textile Manufacturers Institute in December 2003 cautioned that Bangladesh will lose 1.05 billion dollars in US market by 2006 due to elimination of Multi-Fibre Arrangement from 2005. Post-MFA Development Strategy & Technical Assistance for RMG sector The warnings for Post MFA era were: Final report on “Post-MFA Development Strategy & Technical Assistance for RMG sector” prepared by Gherzi Textile Organization, Switzerland suggested that Bangladesh will need to set up 45 more spinning mills to meet the challenges after 2004. A meeting of the Commerce Ministry on Post-MFA observed, “Studies by the international agencies, including IMF and World Bank and local think tank Centre for Policy Dialogue, however, apprehended a severe negative impact on the RMG sector and million of unemployment during the quota free regime. But the reality is that neither single factory was closed down nor a single person was jobless in the first three months after the decade old MFA expired December 31, 2004. Even the Ministry could not utilize a fund worth Tk 200 million that was allocated to train and rehabilitate retrenched workers by the Export Promotion Bureau (EPB) as no jobless worker sought assistance from the special cell under the EPB during the last three months and as such the Commerce Ministry finally returned the fund to the Finance Ministry. However, business leaders of the RMG and textile sector, donor agencies, high officials of the different ministries, who attended the meeting noted that no firm conclusion should be drawn evaluating the scenario of such a short period of three months. The Commerce Ministry is preparing the post MFA action plan worth USD 40 million, keeping in mind the long-term effect of the quota free era. According to EPB export statistics, export of knitwear and woven garments have experienced an increase of 38.05% and 6.09% respectively in February in 2005 over the corresponding period of previous year. (Source: The Financial Express, April 2005) In the post MFA period after 2004 the import cost of yarn or fabrics is assumed to be very high, consequently backward linkage would be sine qua non. This is a token of Government’s concern for strengthening Backward Linkage, which in turn, justifies the viability of new spinning units. The freeing of quota from January 2005 would result in additional world trade of USD 100 billion, hence post MFA will offer immense scope of garments export due to decrease in unit price. Bangladesh may be an important player in the international market especially in knit garments because of i. Cheap Labor ii. Available Gas to produce electricity iii. Growth of Backward linkage like spinning mills contributing towards the reduction of lead time from 90-120 days to 30-45 days. With the increase in the volume, the demand of yarn will increase significantly on the other hand the export of the same to Bangladesh from India will decline for the following reason: I. WTO provisions do not allow dumping in a competitive world market II. Increase in price of Indian Yarn due to withdrawal of subsidies III. Increase in demand by their RMG Industries resulting a shortfall in supply of yarn. Moreover, to meet the changes of 2004, Bangladesh will need to set up additional 45 Spinning Mills, 82 Weaving Mills, 81 Knitting & Knit processing unit, 51 Woven processing unit (Source: Final Report on “Post MFA development strategy & Technical Assistance for the RMG Sector” prepared by Gherzi Textile Organization, Switzerland)

Change after January 2005

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Analysis of data shows various interesting findings on RMG industry after the scary January 2005 Value and Volume of RMG Export:

Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05*

Total Apparel Export in Value M USD Woven Knit Total 1240.48 204.54 1445.02 1291.65 264.14 1555.79 1835.09 393.26 2228.35 1948.81 598.32 2547.13 2237.95 763.3 3001.25 2844.43 937.51 3781.94 2984.96 1035.02 4019.98 3081.19 1268.22 4349.41 3364.32 1495.51 4859.83 3124.82 1458.93 4583.75 3258.27 1653.82 4912.09 3538.07 2148.02 5686.09 2907.63 2263.32 5170.95

Total Apparel Export in Qty M Dzn Woven Knit Total 36.05 10.66 46.71 34.35 10.81 45.16 47.21 15.30 62.51 48.82 23.18 72.00 53.45 27.54 80.99 65.59 32.60 98.19 64.79 36.66 101.45 66.63 45.27 111.90 71.48 52.54 124.02 77.05 63.39 140.44 82.83 69.18 152.01 90.48 91.60 182.08 74.55 96.43 170.98

Source: EPB and BGMEA [* the year is July 2004 to April 2005] Trend of Unit Price Change:

9

50.00 40.00 30.00

Unit Price

20.00 10.00 0.00 19 92

-9 19 3 93 -9 19 4 94 -9 19 5 95 -9 19 6 96 -9 19 7 97 -9 19 8 98 -9 19 9 99 -0 20 0 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 5

Unit price in USD/Dozen

Unit Price of Woven

Year

Source: EPB and BGMEA [* the year is July 2004 to April 2005]

35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00

Unit Price

19 92

-9 19 3 93 -9 19 4 94 -9 19 5 95 -9 19 6 96 -9 19 7 97 -9 19 8 98 -9 19 9 99 -0 20 0 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 5

Unit Price in USD/Doz

Unit Price of Knit

Year

Source: EPB and BGMEA [* the year is July 2004 to April 2005] Factors which became crucial as quota is phased-out: ♦

A reduced lead time: from 90-120 days to 30-45 days.

♦

Ability to service Full Spectrum of Supply Chain Management (Vertical Capabilities)

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♦

♦

Raising Price Competitiveness (it means either reducing wage arte) or raising productivity and lowering cost of doing business. Ethical Sourcing (Introduce of Compliance stickers: SA-8000, ISO-9000, ISO-14000; Minimum Wage, Freedom of Association, Working Environment, Health & Safety concerns). Creation of Central Bonded Warehouse.

♦

Economies of Scale (Small may not be beautiful).

♦

New concepts Documents on Payment / Documents on Acceptance (DP/DA) are going to replace LC mechanism.

♦

Present Situation (as on July 2005): (source – Financial Express 23 July 2005) ♦

♦

The knitwear export registered a 169 percent growth and oven 18 percent in the USA market in the first five months of the quota free era compared to the corresponding period of last year, reports BDNEWS. Up to the month of May 2005 during the last 11 months, knitwear of USD 370 million and oven worth USD 1.44 billion were exported to the USA. During these 11 months exports increased by 78.85 % and 15.47% in Knitwear and Oven respectively. [EPB]

♦

Total Knit export to USA in Jan – May 2005 is USD 150 million.

♦

Causes for No Negative Change: (RD, CPD, Mr. Mustafizur Rahman – FE 23 July2005) ♦

RMG has achieved more expertise than its competitors due to the depreciation of money.

♦

High growth rate in US economy, the purchasing capacity of Americans has risen resulting in positive influence on both the sections.

RMG growth Continues: (FE – 25 July 2005) ♦

84 new garment units were established since the beginning of the quota free era in 1 January 2005.

♦

BGMEA members stood at 4,107 until July 2005 where the same was 3,957 in the corresponding period of the previous fiscal. New set up: 13 knit units, 24 sweater factories, 8 jacket factories, 1 dyeing factory and 7 woven and knit factories.

♦

An article published in The Daily Star on Sunday, the 30th July 2005 says the country’s exporters have put the post MFA doomsayers to shame by fetching approximately US$ 8.58 Billion in fiscal year (FY) 2004-2005 or nearly US$ 1.0 Billion more than US$ 7.60 Billion in FY 04. According to Export Promotion Bureau (EPB) the total export earnings in the 11 months of FY 05 was US$7.785 Billion. The EPB is yet to finish calculating June’s export figure but estimates it to be more than US$ 800 Million, which puts the annual earnings at US$8.585 Billion, slightly more than the targeted US$ 8.565 Billion. The reporter has detected following reasons behind the growth although prominent doomsayers, international monetary fund had forewarned of Bangladesh losing a quarter of its exports and a huge number of jobs in 2005 due to quota elimination.

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♦

♦ ♦

Bangladesh has become well known in the Global apparel market as reliable sources of cheap garments. Unit cost of apparel in Bangladesh is the cheapest in the South Asian region. For Bangladesh the unit cost of shirts comes to 11 cents, which is 26 cents for India, 43 Cents for Pakistan and 79 Cents for Srilanka. Bangladesh labour force is also skilled for the low end products, which comprise the bulk of its exports. Another big reason is that China was unable to immediately cash in on the open market system because of the special safe guard clause the US imposed on its exports.

Fiscal Years FY 05 FY04 FY03 FY02 FY01

SWOT

EXPORT EARNINGS IN LAST FIVE YEARS Income in Million USD. Growth in Million USD. 8,585 Around 1,000 7,603 1,055 6,548 562 5,986 (-481) 6,467 715

ANALYSIS:

Strengths 1. The biggest foreign currency earning industry.

Weaknesses 1. Backward Linkage industry is absent.

2. Ancillary services, fees, commission are more.

2. Automation is not cost effective in our country.

3. RMG credit experts are available.

3. External raw materials supply.

4. Competitors like China doesn’t have vertical integration

Opportunities 1. Investment in Backward Linkage Industry.

Threats 1. WTO agreement

2. Liberalized Globalization will push to improve the quality of the RMG products.

2. Pressure on Compliance issues from consumer groups.

3. Composite plants will get advantage by reducing lead time.

3. Negative image of Bangladesh in the international market for less concern on human and social issues.

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VALUE CHAIN

Raw Material (Cotton) Marketing / Show (Finished Goods)

Spinning Mill (Yarn)

Knitting Mill for Knit Products Weaving Mill for Oven Finished Fabrics

Knitting Garments Oven Garments

Washin g & Dyeing

International Market (Consumer) Sources of Raw Materials:

1. America

2. Uzbekistan

3. India

♦

Cotton and Yarn are imported from different countries of the world.

♦

This is one of the advantages for our RMG industry.

♦

Depending on the buyer’s requirement Bangladesh can import raw materials from best sources.

♦

Moreover to set up a spinning mill huge investment is required.

♦

About 70% knit raw materials are produced in Bangladesh

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CONCLUSION ♦

Optimists see opportunities in challenges; pessimists see only challenges in opportunities.

♦ ♦

With MFA phase-out US market for apparels is going expand dramatically as uncompetitive US firms are compelled to make their exit. There will be enormous opportunities for competitive players to make new breakthroughs in US market.

♦ ♦

Bangladesh’s objective should be to retain the current share of 2.5% in US market during the first 3 years of phase-out (2005-8). Then enhance the market share to 3% and above.

♦ ♦

Bangladesh should take the strategy of cautious Optimism.

It is possible for Bangladesh to survive, Consolidate, Sustain and Expand Banking Sector in Bangladesh is significantly exposed to Textiles and Apparels: T&A account for about 12% of all loans. Advances in T & A Sector in 2003 Government Policy ♦ ♦ ♦ ♦ ♦ ♦

Government is aware of the significance of garment industry in Bangladesh and is supportive for its growth. Mentionable supports extended to RMG sector are provided below: Tax Holiday: Government has allowed 5-year tax holiday to all garment-manufacturing companies. Duty Structure: All raw materials imported for export oriented RMG industry is duty free. GOB has also withdrawn all kinds of VAT on export support services for exporters. Bonded Warehouse: Bonded warehouse facility is extended to all 100% exports oriented RMG manufacturing companies. Cash Incentive: Cash incentive up to the extent of 25% is extended to back ward linkage units for feeding raw material to 100% export oriented RMG manufacturing companies. Backward Linkage: GOB is in the process of investing to set up the backward linkage facility before year 2005.

The Backward Linkage Scenario 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. But, the textile (Spinning, Weaving, Finishing etc.) industry is just budding. 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. Prospect for a huge textile industry capable to supply the yearly requirement of fabrics to the export oriented garment industry has also been developed by the industry. According to the market observers, taking the global context within the purview of open market economy by the year 2005, Bangladesh 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.

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From raw material point of view, the cost of cotton represents some 60-70% of the final cost of yarn. The conversion costs consist of direct wages and salaries, power, repairs, spares and maintenance, factory overheads, working capital cost, depreciation. The conversion cost of cotton yarn is relatively low in Bangladesh. Bangladesh enjoys a competitive edge over many of the south Asian and South East Asian countries as far as conversion costs of cotton yarn is concerned. The same is about 20% higher in India and 8% higher in Pakistan. Our dependence on cotton import can however be mitigated by efficient sourcing from countries like USA where this material is in abundance. At a shorter distance we can even import from Pakistan. The cost advantage that Pakistan will enjoy by exporting cotton, will be subsided by our cheap labour and lower energy cost. However, the successful sourcing of cotton lies with a planned process whereby the production cycle of different cotton exporting countries is taken under consideration and thus the lead time in receiving this raw material is controlled.

New textile mills in Bangladesh are cost competitive compared to imports from Korean and Indian spinning mills. Given the choice, domestic weavers and spinners prefer to use locally produced yarn as prices are slightly lower and since there is no involvement of shipping costs and delivery is more reliable. Key Success Factors for the Industry Labor costs

Delivery time

Prices

Long business relationship with key buyers

Quality

Energy Cost

Technical maturity level (both manpower and machinery) Key Risks and Mitigation Risks: 



Single Market Concentration: Market concentration in the US – 46% RMG export are targeted towards the United States making the industry vulnerable to changes in the US economy, trade policies and demand pattern. Oven sector is subject to Sophisticated and High cost machineries which require huge investment. Our competitors like China are in advantageous situation.

 Mitigation:





Well-established relationship with major buyers in US market market will remove this barrier. Slowdown of sales in the aggressive marketing campaign through establishing office buyers on a daily basis. At the same time active solicitation parts of the world will reduce the concentration in US market. Our economy supports labor oriented knit sector.

having commendable position in US US market could be overcome by in USA and directly liaise with the to new buyers in Europe and other

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