RMG Market Study

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1.0 INTRODUCTION

1.1 B ACKGROUND OF THE S TUDY

The development and success of ready made garments of Bangladesh for the last fifteen years had been astonishing andperhaps the most salient feature of Bangladesh economy sinceliberation. The RMG industry now (97-98) accounts for around $4 billion, comprising over 73% percent of total export. Countrysapparel export has been growing at an average rate of 25%over the last few years. Bangladesh presently exports readymade garments to about 30 countries around the world withover 45% to USA and 50% to the EU countries. There are around2200 garment factories in the country situated mainly in Dhakaand Chittagong

One crucial factor that provided ground for the rapid growth of the industry in Bangladesh is the quota and GSP facilitiessanctioned under the GATT and MFA agreement. These facilitiesshield Bangladesh from price competition to a large extent, aswell as they create barriers for major powerhouses like India,China to penetrate in all market segments. The MFA will bephased-out in 2005, creating an open market where allcountries will compete on an even ground. Major apparel

suppliers will then pose considerable threat to the RMG exportof Bangladesh. Another critical phenomenon is that currentlyaround 84% of fabrics used in the RMG sector are imported fromabroad. With the phasing out of MFA, all textile and apparelproducing considerably increase their apparel production;resulting in a huge demand for fabrics. Bangladesh is likely toface difficulty in getting a stable supply of fabrics at acompetitive price. This situation constitutes additional threat forthe RMG sector of Bangladesh. On the other hand, there is ahuge untapped global market for apparel and Bangladesh cantake this opportunity if it can remain as a competitive supplierin the global market of textile and clothing.

1.2 P ROBLEM S TATEMENT

Considering the above background of the readymade garmentsindustry in Bangladesh, the problem statement of this researchproject is:

Assessing the impact of different variables on the market shareof Bangladeshi RMG exports in the Post-MFA situation.

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1.3 O BJECTIVES

The research endeavors to focus on different dimensions of RMG export of Bangladesh. These include current state of RMG

export, international trade agreements on textile and clothing,major factors affecting the textile trade, and the new realityemerging from the phase-out of Multi Fiber Agreement.

So the specific objectives of the study are the following:Identifying the relationships among different variables

those will have impact on the international trade of textileand clothing in the post MFA situation.

Assessing the impact of these variables on the marketshare of Bangladeshi RMG sector.

Assessing the awareness level of garment manufacturersof Bangladesh.

Determining key policy initiatives those will be critical forBangladesh to compete successfully in the post MFAsituation.

1.4 S COPE OF THE S TUDY

This is a study that is mainly an exploratory one. It does notseek to reach in quantitative conclusion. Furthermore, the study

considers only the shirts and T-shirts manufacturers in DhakaCity. This also takes into consideration RMG and textile tradeinformation on the US and EU markets for the last three year.

1.5 L ITERATURE REVIEW

Many researchers have conducted in-depth studies on textileand clothing trade. Summaries of some of these studies havebeen have been provided below:

Hafiz G A Siddiqi: Product diversification in the ready-made garment sector of Bangladesh: why and how?October 1996

The structures and directions of world trade in RMG arechanging fast. With changes in the nature of competition,Bangladesh needs to explore new strategic opinions. One optionis to diversify into high priced and high fashion items for whichthere is great demand in USA, EU, and Japanese markets. Itneeds to improve its image in the world market, and prove thatit is capable making high priced items along with low cost items.For this, it needs to formulate and implement appropriatepromotional and marketing strategies. Quality and price must

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be carefully tuned to international markets. High quality itemshave to be produced at minimum cost. Going for backward andforward integration may solve part of the cost reductionproblems. Adequate number of composite mills supported bydyeing, printing, and finishing facilities must be developed toreduce production cost. Besides, it must develop its designcapability. Appropriate marketing strategies to promote newproducts in the new markets must be formulated andimplemented. For this, extensive market research will benecessary. The Institute of Apparel and Fashion Technology withnecessary government support can undertake this. Bangladeshshould be able to overcome the emerging threats because it hasby this time developed some core competence embodies in theform of entrepreneurial zeal. Bangladeshi entrepreneurs havedemonstrated that they can wade through muddled waters. Itsapparel industry is on a strong footing. If it can be implementedthe strategies suggested above it should not only be able todiversify the products. It should also be able to improve itsposition in the world markets even after MFA is phased out.

In this context, it must be mentioned that the role of ourambassadors, high commissioners, Economic Ministers, TradeCommissioners etc. need to be oriented toward aggressivebusiness diplomacy combined with political diplomacy. Theymust be trained in method of business negotiations and

business promotion.

B.M.M. Mozharul Huq: Policy Framework of aDeveloping Country like Bangladesh to Help itsApparel Industry Fit in the Post-MFA Trade Regime

The writer suggests following action plans for the developmentof textile and RMG sectors.

establishing backward linkage for the RMG industry.attaining self sufficiency in fabrics by 2005.

He also suggested the following strategies to achieve the aboveaction plans.

Organizational restructuring of textile mills.a. to downsize BTMC.b. to privatize BTMC mils.c. to examine organizational strengths and weaknesses of

private sector mills.Financial restructuring of textile mills.d. to rationalize debt burden, both in the public and private

sector.e. to examine issues such as converting debt to equity,

converting to interest free loans, write-offs.f. to arrange bank loans for BMRE, long-tern investment and

working capital.

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Improvement in production and technology.g. to improve capacity utilization by ensuring working capital

and sustained power supply.h. to create new capacity by setting up 199 Dyeing and

Finishing units, 146 Weaving units, and 109 Knitting andSpinning units according priority.

i. to undertake BMRE program in textile industry. j. to develop trained manpower by strengthening the

National Institute of Textile at Savar and also establishinga new Fashion Design Institute in the country.

k. to develop direct marketing linkages and liaison amongvarious organizations.

l. to overcome the child-labor problem.

Mustafizur Rahman: Favored Market Access underWTO: Perspective from Least Developed Countries(LDC) such as Bangladesh, October 1997.

The capacity of the LDCs to cope with the emerging challengeswill critically hinge on their ability to overcome supply sideweaknesses such as, low technological capacity, lack of entrepreneurial and managerial skills, inefficient administrationof incentive schemes, and underdeveloped physicalinfrastructure. Recent experiences with structural adjustment

programs undertaken by several LDCs bear testimony to thefact that these problems are unlikely to be resolved in the shortrun. It appears that in near future the aid-trade nexus will needto be given more emphasis and priority in the donor-recipientrelationship. For their part the LDCs themselves will need togive high policy priority to issues related to human andinstitutional capacity building in order to stimulate export sectorperformance in an increasingly competitive global market.

C. A. F. Dowla: The Consequences of GATT UruguayRound for the Textile And Garments Sector inBangladesh, August 1998.

Bangladesh does enjoy comparative advantage in theproduction of export oriented RMG industry. As the discussionabove demonstrates, over the years, it has already come of edge. But the future of Bangladeshi RMG would depend onproper utilization of the transition period for establishingbackward linkage, on sharp improvement in its product qualityand design, on diversification of products and markets, and on

marked improvement in labor productivity so that it canpenetrate in to high value adding, high priced, highly

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competitive global apparel markets. To succeed in the piercelycompetitive world of tomorrow, the RMG manufacturers as wellas the government must understand that every dollar saved isequivalent to every dollar earned for the economy.

The major challenge for the RMG industry would be to keep itsproducts globally competitive while striving hard to earn greatervalue addition domestically. So far, the government played afacilitative role in respect to the RMG industry. All efforts shouldbe made to keep the matter as such, the less the government isinvolved in the industry, the more will be the chance for theindustry to grow. The major challenge for the government wouldbe to provide an investment climate which will promote bothdomestic as well as international investment in backwardlinkage industries in the textile sector so that the exportoriented RMG industry can reduce its dependence on importedyarn and fabrics.

Feisal Siddiqi: Development of Backward Linkage: PostMFA challenges and opportunities for the RMG sectorof Bangladesh

This paper points out that the amount of woven fabrics procuredfrom local manufacturers by the RMG industry was still below 6

percent of its total requirements. In case of knitwear industry,over 65 percent of the fabrics requirement are made locally. The writer finds four major factors deterring the growth of backward linkage I) price and import tax structure, ii) lack of private capital accumulation and difficulty in mobilizing capital,iii) lack of expertise in quality textile manufacturing, and iv)small local raw cotton corp. The writer further discusses theproblem of capital mobilization and suggests some specificinterventions by the government. The textile sectorsunfavorable price and import tax structures, raw cottonscenario, currency exchange rates and conversion costs, andregional cumulation are also discussed in the article.

ProFound: International Trade in Textiles and Clothing,September 1998

This paper sheds light on different issues like trade agreements

affecting global trade in textile and clothing, major markets,market access, and trade structures and distribution channels. It

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discusses the effects and challenges of MFA phase-out onBangladesh. Non-tariff barriers are becoming increasinglyimportant in the trade of textile and clothing products. Health,safety, and environmental measures are among the mostimportant of the product requirements for exporters of textileand clothing in developing countries. Moreover, consumers arebecoming more critical as to the labor conditions under whichproducts are made.

Nader Majid: The Uruguay Round and South Asia: AnOverview of the Impact and Opportunities, July 1995

Majid examines the impact of the Uruguay Round on four SouthAsian countries with similar trade structures: Bangladesh, India,Pakistan, and Sri Lanka. These countries are major exporters of textiles and clothing and some agriculture. Their manufacturingsectors especially textiles & clothing would seem to be themain beneficiaries of the Round.

The writer argues that the Round improves market security forboth exporters and importers, these countries must do muchmore to adjust their domestic policies to the realties of the post-Round global environment. There must be further liberalizationand more integration with both the region and the world. India

has done a lot to open up its economy but has not movedforcefully enough to remove restrictions on most imports of consumer goods. Pakistan retains heavy restrictions of manyimports but is reducing tariff rates and their dispersion.Quantitative restrictions on imported inputs impede efficiency inBangladesh textiles & pharmaceuticals industries. Sri Lankastrade regime is the most liberal in the region, but anomalies stillexists in incentives.

Binding tariffs in the four countries must be greatly reducedbefore these countries can benefit from the Rounds disciplinesin agriculture. The dismantling of the MFA will increase SouthAsias output of textiles by 17 percent, and their exports of textiles by 26 percent. Output on clothing will increase ninefoldand exports more than twentyfold. The region may also benefitfrom the more liberalized post-Round makers for semi-manufacturing exports.

In general, negotiations about new issues trade in services,trade related aspects of intellectual property rights, and TradeRelated Investment Measures (TRIMs) will affect South Asia indifferent ways. The impact on the movement of labor, in whichthe region has a comparative advantage, seems to be moreeffective than in other areas. More disciplined rules to protect

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intellectual property rights and more transparency aboutinvestment and competition policies will benefit the region inthe long run.

D E Moris and M D Crosby: Quality Requirements forTextiles and Clothing in Europe

Quality requirements for textile and clothing sold in theEuropean market are evolving rapidly as competition in thissector increases and consumer concerns for environmentalhealth and safety factors gain momentum. Textile materialsused, health and safety rules, household textiles echo-labeling,management and recycling of non-hazardous waste are comingunder active concern and legislation.

Madhavi Majumdear: The MFA Phase-out and EUClothing Sourcing: Forecasts to 2005 (Textile Outlook International, March 1996)

The phasing-out of MFA will have a significant impact on thepattern of extra-EU trade and sourcing over the next nine years.It will also have a major impact on the evaluation of the EUstextile policy. Unlike the USA, the EU has not published details

of the products it intends to integrate at each stage. This coulddepend on how quickly exporting countries open their marketsto Western imports. However, the EU has considerable leewayas to product choice, and the most sensitive clothing categorieswill probably not be integrates until 2005.

The phase-out program will directly affect only 16.5 percent of import value. Also of importance for the EUs future tradepatterns will be the effects of Turkeys membership of the EUcustoms union, and the full liberalization of imports fromEastern Europe and the CIS.

Clothing import growth will accelerate over the next ten years,with market penetration reaching 55 64 percent by 2005.Large low-cost countries such as India and China will continue todominate the supply of low-cost imports into the EU market, aswill Hong Kong and the preferential countries. Eastern Europewill continue to be important for outward processing, CMT workand niche products.

1.6 IMPORTANCE

OF

THE

STUDY

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The emergence of GATT and globalization of economy hasposed a threat for LDC like us. Specially for those sectors whichdo not have strong infrastructural back up and backwardlinkage RMG Sector is such a sector which contributes 74%[C.A.F Dowlah, August 1998] of our total export earning. So thissector certainly deserves attention from every aspect. Thephase out of MFA by the year 2004 will affect adversely,because currently we enjoy GSP and quota benefit. From thestarting of 2005 we will have to compete with the establishedRMG manufacturing countries. This research will tend to identifysome of our strengths and opportunities that will help our RMGsector overcome the upcoming threat.

1.7 R ESEARCH MODEL

The research model consists of different levels of hypotheses.Each hypothesis again comprises of relationships amongdifferent variables. The variable that is independent in one levelbecomes dependent in the succeeding level. For the researchpurpose, five levels of variables have been identified. The firstlevel variables are considered as individual concepts thoseconstitute a construct at the following level. To reach at the

ultimate objective, the research follows an inductive-deductiveprocess up to the fifth level.

In the post MFA situation, the market share of Bangladeshi RMGwill primarily depend on two factors: positioning of the productin the apparel market, and diversification of product andmarket. Positioning is an important factor in determining marketshare because it is the price along with its desired quality, whichwill determine the survival of a certain product in a competitivemarket. The price of a product essentially depends on the costof fabrics, labor wage, and productivity of labor. The lower cost

of fabrics and labor wage will assure a better cost advantage of our RMG sector over its competitors. A mere cheap labor cannot promise a lower cost. Productivity also plays a vital role incost reduction. Ultimately the productivity of labor brings intoplay when a manufacturer counts how much he pays for a unitproduction. Productivity can be improved through training thelabor, adopting new technology in the floor, and improvingmanagement performance. Age, sex, health, and curriculareducation of labors seem to act as extraneous variables in thiscase. Cost of fabrics depends on how the manufacturers sourcethem. Recent studies show backward linkage and import as themajor sources of fabric. This research also incorporates theconcept of Multi Lateral Agreement in fabric sourcing and its

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impact on costing. In general, relying heavily on import costs amanufacturer more to produce garments.

Product and market diversification is the other majordetermining factor of RMG market share. The researchconsiders that diversification depends on effective use of marketing mix and the profiles of importing countries. Product,price, distribution, promotional activities, and public relationsare the concepts of marketing mix. Product again becomes aconstruct with the composition of three major concepts: quality,design, and packaging. Similarly, promotion is also a constructof advertising, sales promotion, personal selling, and publicity.

The market share of a particular country in the internationaltrade of textile and clothing in the post MFA situation will besubject to an external environment. This external environmentincludes three components. The first is General Agreement on

Trade and Tariff (GATT) which consists of MFA, ATC, TRIM, andother trade regulations. The second component is Tariff.Competitors strategic moves through ERM and price-cuts alsoplay a vital role in the environment. Other environmentalconstraints include eco-labeling, safety and health requirement,and labor condition requirements.

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1.8 H YPOTHESES ON GARMENT MANUFACTURERS

Hypothesis: Big producers know the situation better

Hypothesis: Most products are within quota and GSP facilities.Hypothesis: For Knit products more that 50% of fabrics are

locally produced. For woven products, more than 50%of the products are imported.

Hypothesis: Majority of the workers is not skilled.Hypothesis: Majority of the producers does not provide training.Hypothesis: Age and sex are not important factor forproductivity.Hypothesis: Management plays a crucial role in increasingproductivity.Hypothesis: Majority of the exporters faces some problems inopening L/C.Hypothesis: More than 90% of the RMG products are targeted to

lower market segment.Hypothesis: Majority of the producers face problems inforwarding their products.Hypothesis: Majority of the products falls into below averagecategory.Hypothesis: Most of the stock-lots result from delay in deliverytime.Hypothesis: Majority of the producers does not undertake any

promotional activities.Hypothesis: Political disturbance has high impact on overallbusiness.

1.9 L IMITATIONS

One limitation of the study is that it keeps some factors outsidethe consideration of its framework. These factors include ERM,currency devaluation, etc. those may have crucial role on thetextile and clothing trade. Another limitation is that the study

focuses on a subject a major portion of which is too remote fromthis place. Analyzing a situation from a distant placeconsequently brings some limitations.

1.10 T YPES AND S OURCES OF INFORMATION

The types and sources of information those are necessary forthe study have been identified and presented in the followingtable.

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2.0 RESEARCH METHODOLOGY: A TWO-WAY APPROACH

2.1 R ESEARCH DESIGN

The research project seeks to find out new relationshipsbetween the market share of Bangladeshi RMG in the post MFAsituation and several variables identified in the research model.

The study also focuses to determine key policy initiative thatwill be crucial for Bangladesh to face challenges of the post MFAsituation. The MFA will be phased-out by 2005. This factor willimmensely change the situation. There are many other factorssuch as price and quality of clothing, fabric sourcing, exchangerates, environmental issues, etc. that will have considerableimpact on the international trade of textile and clothing. Thereare many intervening variables that will also have influence onthis issue. All these factors give a very complex shape to theinternational trade of apparel. The research is, therefore,exploratory in type and qualitative in nature. The study alsoincorporates some conclusive analysis based on primary surveyon garment manufacturers.

2.2 D ATA COLLECTION METHOD

Primary information from RMG manufacturers have beencollected through survey questionnaire (please refer toAppendix A). Information on international trade of textile andclothing, GATT, MFA, etc. have been collected from publishedmaterials and Webster of WTO. The EU market statistics havebeen taken from Eurostat CDs, published by the StatisticalOffice of the European Communities. The quota utilizationstatuses in the EU market have been collected from Internetwebsites. The US market information has been taken fromofficial website of US Department of Commerce. Current state of RMG in Bangladesh have been collected from secondary sources

Studies undertaken by various experts on RMG of Bangladeshhave also been used to find relevant information.

2.3 S AMPLING METHOD

BGMEA maintains an up-to-date list of all garmentsmanufacturers; and this list includes production capacity,products manufactured, employees etc. As the list is thepopulation of our research project, it is clear why it shouldfollow probability sampling. As defended by the scope, theresearch considers only the RMG manufacturers of Dhaka City.

These manufacturers was then classified into two strata based

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on the sourcing of fabrics as fabric constitute 75% of the totalcost of unit clothing. These strata are a) knitwear, and b) wovenproducts. T-shirts and Shirts largely represent these two stratarespectively. Taking other product categories into considerationwould not maximize differences among them in terms of thestratification base. In this way, the sample frame can beidentified as the T-shirts and Shirts manufacturers of DhakaCity. Once strata composition and number have been defined,the next step is to conduct a stratified random sampling with

proportional allocation to each stratum.

2.3.1 Sample Size Determination

On the basis of the data provided in the BGMEA MembersDirectory, mean and standard deviation with respect to theproduction capacity (in dozens of unit clothing per year) havebeen calculated and given below.

Mean of sample frame, SF = 183,258 dozens peryear.Standard Deviation, SF = 67,129 dozens per year.

Total No. of Sample Frame, N= 1028 The researchers assume that production capacity determinesthe size of the manufacturer, provided that no capacity remainsunutilized.

To remain within 10% of the actual mean required a sampleresults within 18326 dozens per year of the actual average;this means that the samples follow a confidence interval of 18326 dozens of unit clothing per year. With 95% confidencelevel and the calculated interval, the sample size (n) neededmust be such that

1.96 x = 18326 dozens per year.x = 9349.9 dozens per year.

With these data, sample size can be determined using the

following equation.n = 52.55 53n/N = 53/1028 = 0.058

Since n/N ratio is less than 0.3, it is not required to consider thePopulation Correcting Factor. Population relative weights forthree strata are as follows.

Wwoven = 0.6Wknit = 0.2Wboth = 0.2

Using proportional allocation, sample size for each stratum iscalculated.

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1n

671299349.9

1n ==

=

SF


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Nwoven =W woven N = 0.6(53) = 31.8 31Nknit =W Knit N = 0.2(53) = 10.6 11Nboth =W both N = 0.2(53) = 10.6 11

2.4 E XPERT OPINION

The RMG exporters, particularly BGMEA officials, and industryexperts constitute a rich information source on RMG exports. Inorder to collect information from these experts, the researchersfind it more logical to go for expert opinion rather than going fora focus group discussion . Because focus group help to get aninsight to the problems from different perspective. The availableliterature on RMG export also serves the purpose to someextent. So, logically, going through their literature means goingthrough their opinion as well as looking at the problem fromtheir perspective.

Other reason of not taking FGD is that Focus Group Discussion isconclusive in nature, but it merely finds any specific conclusionrather than providing a set of conclusions. This set of conclusions again has to be tested by the experts andsituations. Here the set of conclusions for this specific problemhas already been extracted from literature review. Now in orderto find out a specific conclusion, this set of conclusions has to be

validated by the experts. So, it is more logical to go for expertopinion rather than going for FGD.

2.5 F IELD P LAN

A questionnaire, along with its manual, has been designed witha view to delineating the present scenario in the RMG sector,awareness of the manufacturers about MFA phase-out, and theiranswers to the post MFA competition. Pre-testing with tenmanufacturers has been done to clear off the response biases

and non-response biases from the questionnaire. The field planfor pre-testing has been conducted through critical groupdiscussion. Two of the group members were given theresponsibility to reach five respondents each. The respondentswere selected on convenience basis.

The sample frame we have defined includes only Dhaka City. Toreach each respondent within this frame, we first divided DhakaCity into eight specific areas. Each member of the group wasgiven the responsibility to cover each area. Area was assignedto each group member on the basis of his residence.

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We have selected three types of respondents for our study. Type I refers to shirt producers; Type II refers to T-shirtproducers and Type III includes producers who produces boththe products. Through a critical group discussion we haveplaned for three specific ways to approach each type of respondents. Experts were treated as exclusive group and twomembers were given the responsibility to collect their opinion.

After accessing all such things, we have prepared our timecalendar. A calendar of ten days was divided into three stages.Stage I was contact and appointment stage. Stage II wasdefined as interview stage and the final stage, stage III, wascollection stage. The first two stages consist of three days eachand the final stage consists of four days. One of the groupmembers was given the charge of survey co-ordination.

2.6 D ATA ANALYSIS P LAN

For the purpose of analyzing the data collected from samplesurvey, the research project uses some statistical andmathematical tools, such as, frequency distribution, cross-tabulation, correlation, Chi-square test, and factor analysis. Foranalyzing behavioral data, the researchers used interval scale.

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3.0 FINDINGS & ANALYSIS OF INFORMATION

3.1 K NOWLEDGE LEVEL OF THE P RODUCERS

There were two questions on the knowledge level of therespondents. Those who gave correct answers were given onepoint for each question. The results of these two questions havebeen shown in the above figure. The correlation betweenknowledge level and size in terms of total number of workers is0.618 and size in terms of fabrics used is 0.663.

Figure: Frequency Distribution of Knowledge-level.

3.2 T YPE OF RMG MARKETS

The survey shows that 64.14% of the total volume of RMG arequota items, 27.94% are GSP products. So 92.08% of the totalRMG export of Bangladesh are covered by quota and GSPfacilities.

Quota Non-quota

GSP Non-GSP

Volume 72,86 0 31,74 9Percent 64,14 0,00 27,94 7,92Figures in million.

3.3 M AJOR COMPETITORS

Most of the respondents could not mention the names of thecompeting countries. Some of them, however, mentioned thatmajor competitors of Bangladesh are India, China, Pakistan,Vietnam and Sri Lanka.

17

ModeratelyKnowledgable

76%

Knowledgable13%

NotKnowledgable

11%


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3.4 F ABRIC S OURCING

For woven products, the survey found that 17.32% fabrics arelocally produced, 58.76% are imported and 23.92% are from

MLA.. For knitwear, local fabrics are 84.91%, imported 15.09%.

Local Import MLA TotalWoven 12,815

17,32%43,48558,76%

17,723,92%

74

Knit 19,784,91%

3,515,09%

00,00%

23,2

Both 10,468,20%

2,9519,34%

1,912,46%

15,25

Figures in million.

3.5 F ABRIC S OURCING DECISION

The survey finds that the proportion of fabric souring decision madeby foreign buyers is 46.32%. Local buying houses make 40.52% fabricsourcing decision and producers themselves make 13.15% sourcingdecisions.

ForeignFashionDesigne

r

ForeignBuyer

LocalBuyingHouse

Self Decision

Volume 0 52,62 46,04 14,94Percent 0 46,32% 40,52% 13,15%Figures in million.

3.6 W ORKERS S KILLS

Thirty five percent of the workers of the RMG sector are skilledworkers, 55.71% are semi-skilled and 8.95% are unskilled workers.

Skilled Semi-

skilled

Unskille

dNumber 12705,2 20041,2 3221,6Percent 35,32 55,71 8,95

Figures in million.

3.7 T RAINING FOR LABORS

Thirty two percent of the producers provide training for their workersand the rest of the producers do not provide any training. Training ismainly on the job.

3.8 M ANAGEMENT S P ERFORMANCE

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NULL H YPOTHESIS :There is no significant difference other than sampling variationsbetween the agreement on management performance onlabors poor performance and that of better productivity.

Frequency distributions of the agreement on these twostatements are found out and Chi-square is applied test to thathypothesis.

For Betterproductivity, F i

For poor performance,f i

Strongly disagree 12 13Moderately agree 33 29

Disagree 08 11 Total frequency 53 53

Using the Chi-square formula,

2observed = 0.083+0.485+1.125= 1.693

2critical (for 99% significance, degree of freedom=2) = 9.21

Therefore, null hypothesis is accepted

3.9 P RODUCTIVITY

For further testing of these factors, Factor Analysis techniquehas been applied to the data using SPSS. Factor Analysis Outputtable shows that Factor 1 is a good fit on the data fromvariables 3, 4, 5, and 6, but a poor fit on the other variables.

This indicates that these four variables are probably measuringthe same basic attitudes or value system, and therefore, afactor exists. We can use our own judgment to conclude fromthese results that Demographic Profile was the factor that tiedthese variables together. Looking at the responses to eachvariable under this factor, it has been found that the means of these responses were 2.4, 2.4, 2.2, and 2.3 respectively. Thisindicates that most respondents found these variablesmoderately important.

TABLE: FACTOR ANALYSIS OUTPUT

Factors

19

Fi Fi fi

X k

i

2

1

2 )( = =


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Factor 1 Factor2

Co

1 -0.092 0.893 0.8062 -0.114 0.882 0.791

Variable 3 0.916 -0.0003

0.840

Number 4 0.781 0.203 0.6515 0.832 0.0567 0.6966 0.935 -0.020 0.874

EV/No. of Statement

0.5062 0.2700 0.7763

Extracted by Principal Component Method (SPSS)

Second factor has been identified with a good fit on the datafrom variables 1, and 2, but a poor fit on the rest of thevariables. These three variables are also measuring samebasic attitudes and are probably tied up with TechnologicalKnow-how. The means of these variables are 2.3 and 3.0respectively. The respondents felt moderate importance totraining and high importance to technology.

3.9.1 Evaluating the Results

The right most column Communalities of Factor Output Table shows that the three factors explain 75 percent ormore of the variance in all of the responses to allstatements but one. Three factors explain 66 percent ormore of the variances of al the variables. Since theidentified three factors account for most of the varianceassociated with each of the six variables, it can clearly beconcluded that the three factors fit the data quite well.

The Eigenvalues associated with each of the factors indicate

how well each of the identified factors fit the data from all of the respondents on all of the statements. Moreover, theEigenvalue per statement is the proportion of the variancein the entire set of standardized response scores, which isexplained by that factor. Table 4 shows that Factor 1, and 2explains 50.62 and 27.0 percent respectively of the variancein the standardized response scores from all of therespondents on all six variables. By adding these figures forthe three factors, we see that the three factors together explain0.5062 + 0.270 (or 77.63 percent) of the variance in the entire

set of response data. Since these three factors account for morethan 70 percent of the total variance, the identified factors can

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be considered a good fit to the entire set of data. For thatmatter, Technological Know-how, and Demographic Profile of Labors can explain the productivity of labors quite well.

3.10 P ROBLEM IN OPENING LC S

Thirty percent of the producers face problems in opening LCsand the rest do not any problem.

3.11 T ARGET MARKET SEGMENT

Fifty two percent of the producers produce their products formiddle segment of the market and 47 % produces for lowersegment.

Upper Middle LowerVolume 0 59,47 54,13Percent 0 52,35 47,64

3.12 P ROBLEM IN FORWARDING PRODUCT

Customs and Transportation problems have been identified as

the major problems faced by the producers. This has beenfound by calculating the mean value of each response. Themean was 3.

3.13 F ABRIC QUALITY

The mean of the responses shows that producers usesatisfactory quality fabric for their products. The mean was2.62.

3.14 F ASHION AND S TYLE OF THE PRODUCT

The mean of the responses shows that the fashion and style of the product are of average category. The calculated mean is1.92.

3.15 P ROMOTIONAL ACTIVITIES

The survey found that 67.90% of the producers dont use anykind of promotional tool, 5.66% of the producers useadvertisement, where as 15.10% use direct sales approach.

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Sales promotion is used by 9.4% of the producers and publicityis used by only 1.80% of the producers.

3.16 G OVERNMENT P OLICY ON RMG

The survey shows that producers think that governmentspolicies on RMG and textile are satisfactory. The calculatedmean is 2.19.

3.17 P ROMOTIONAL ACTIVITIES OF THE GOVERNMENT

The producers consider the promotional activities of thegovernment as satisfactory. The calculated mean in this case is1.85%.

3.18 B ARRIERS AFFECTING RMG E XPORTS

Factor Analysis technique has been applied to the data usingSPSS. Factor Analysis Output table shows that Factor 1 is a goodfit on the data from variables 1, 9, 10, 11, 12, and 13, but apoor fit on the other statements. This indicates that these fivestatements are probably measuring the same basic attitudes or

value system, and therefore, a factor exists. Looking at theresponses to each Second factor has been identified with a goodfit on the data from variables 2, 4, and 5, but a poor fit on therest of the variables. A third factor is identified from the factoranalysis output fits on the data from statements 3 and 7, and afourth factor with variables 6 and 8.

TABLE: FACTOR ANALYSIS OUTPUT

FactorsF1 F2 F3 F4 Communaliti

es1 0.521 0.440 0.410 -0.436 0.8242 0.465 0.565 -0.327 -0.282 0.7223 -0.561 0.316 0.572 -0.396 0.8994 0.202 0.682 60.381

E-02-0.262 0.579

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5 -20.308E-02

0.523 -0.349 0.409 0.563

6 -30.769E-02

0.294 -0.658 0.560 0.835

Variable 7 -20.909E-02

-10.775E-03

0.722 0.530 0.803

Number 8

0.142 0.292 0.231 0.568 0.481

9 0.744 -0.445 -80.134

E-02

-0.232 0.813

10 0.722 0.253 0.346 0.345 0.82411 0.538 30.031E-

020.409 0.297 0.545

12 0.678 -0.612 20.082E-02

0.105 0.846

13 0.715 0.108 -0.309 -0.213 0.665EV/No. of Statement 0.2464 0.1672 0.1635 0.1459 0.7203

Extracted by Principal Component Method (SPSS)

3.18.1 Evaluating the Results

The right most column Communalities of the table does notexplain more of the variance in all of the responses to allvariables It can not be concluded that the three factors fit the

data quite well.

The Eigenvalues associated with each of the factors indicatehow well each of the identified factors fit the data from all of therespondents on all of the statements. Moreover, the Eigenvalueper statement is the proportion of the variance in the entire setof standardized response scores, which is explained by thatfactor. Table 4 shows that Factor 1, 2, 3 and 4 explains 24.64,16.72, 16.35 and 14.59 percent respectively of the variance inthe standardized response scores from all of the respondents onall thirteen statements. By adding these figures for the threefactors, we see that the three factors together explain 72.03percent of the variance in the entire set of response data. Sincethese three factors account for more than 70 percent of thetotal variance, the identified factors can be considered a goodfit to the entire set of data.

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4.0 AGREEMENTS ON TEXTILE AND CLOTHING TRADE

International trade of textile and clothing has been subject to anincreasing array of trade agreements over the past fourdecades. The textile and clothing came as a serious matter of GATT negotiations in early 1960s when developing countriesbegan to demonstrate their comparative advantages in thissector. The developed countries introduced Short TermAgreements in 1961 and Long Term Agreement in 1962 in orderto regulate and control textile and apparel trade. Theseagreements empowered developed countries to use widediscrimination and restrictions on the imports of textile productsfrom developing countries.

4.1 T HE MULTI F IBER AGREEMENT (MFA)

In addition to concerns and problems of developing countries, inthe late 60s, the increased use of synthetic fibers andinnovations of knitting technology raised new issues in thetextile trade. The MFA was created as a transitional measuregeared to facilitate the process of structural adjustment thatwas required in the industries of the developed countries inview of the rapid shift of comparative advantage in textile and

clothing productions towards developing countries (Profound,1998). The MFA made significant departures from previousagreements in this sector. Concerns for developing countriesand a substantial increase in their earnings from trade in textileand clothing sector received significant importance under MFA.

The MFA spelled out provisions for ensuring orderlydevelopment of trade in textile and clothing, and containedadequate safeguards avoiding disruptive effects on individualmarkets and line of productions in both importing and exportingcountries. The MFA was highly discriminatory at country andproduct levels. It set the terms and conditions for governing

quantitative restrictions on textile and clothing either throughnegotiations or bilateral agreements or on a unilateral basis. Inentering into bilateral agreements under MFA, the countrieswere expected to adhere strictly to MFA rules:

For the determination of quota and categories;For restraint levels; andFor the inclusions of such provisions as annual growth rates,carry-over of unutilized quota from the previous year etc.

At the end of 1994, when the arrangement was terminated, theMFA had a membership of 39 countries. Eight of these weredeveloped countries and were designated as importers; the

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remaining 31 developing country members were consideredexporters. An important achievement of the GATT/ UruguayRound is the decision to phase out restrictions on imports of textile and clothing. The Agreement on Textile and Clothingreplaced the MFA as of January 1, 1995.

4.2 A GREEMENT ON TEXTILE AND CLOTHING (ATC)

The ATC, which was drafted during the GATT Uruguay Round,called for phasing out of all discrimination and restrictivemeasures taken and implemented by the developed countries ina period of ten years. The MFA had been in operation as aderogation from basic discipline of non-discrimination of GATTfor 20 years. The ATC called for gradual scrapping of all theserestrictions by 2005 so that an era of free and open world tradecan be created. ATC comes as an integral part of the Final Act of the Uruguay Round and the agreement is applicable to all WTOmembers and all there trade in textile and clothing are subjectto its provisions.

Under the ATC, the textile and clothing sector will be fullyintegrated into the GATT by the year of 2005. ATC provides agradual phasing out of all restrictions in four stages. At each of these stages, products should be taken from each of thefollowing categories: tops and yarns, fabrics, made-ups textile

products, and clothing. The members would have freedom toselect the products to be integrated.

Stage 1 (On January 1, 1995): Importing countries wererequired to integrate at least 16% of their 1990 import volumeof the products in the Annex. Growth rates for remaining quotaswere increased by 16%. Thus a quota subject to a 10% growthrate in 1994 will grow by 11.6% a year for the duration of Stage1.

Stage 2 (On January 1, 1998): Members would have to

integrate a further 17% of their product volume chosen from theproduct list. For remaining products subject to quota, thegrowth rates applying in Stage 1 will be uplifted by a further25%. Thus quotas which grew by 10% prior to the phase-outprograms are allowed to grow by 14.5% a year by Stage 2.

Stage 3 (On January 1 2002): A further 18% of products will beintegrated and growth rates of quotas restricting remainingproducts uplifted by 27%. Thus quotas will be allowed toincrease by 18.4% during Stage 3.

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Stage 4 (On January 1 2005): All remaining products,representing at least 49% of 1990 import volume will beintegrated.

The agreement however, states that the ratios mentionedabove are not maximum limit for the members; the countriesare free to integrate their products to the extent they like -provided that the minimum percentages are integrated.

4.2.1. Freedom of Product Choice

As it has been already mentioned, at each stage, the importingcountries are obliged to integrate a minimum of just oneproduct from each sub-sector. This gives them considerablefreedom in their choice of products. Indeed, the availableevidence suggests that the most import-sensitive clothingproducts will remain under quota until the end of the phase-outperiod.

4.2.2. Growth rates of quota

Growth rates of products that remain in the list, the bilateralframework will continue to operate, and this will permitdifferential growth rates to continue for different exportingcountries until the integration process. This is because initial

growth rates differed at the start of the integration process, andsubsequent growth rates are based on those initial rates.

4.2.3. Fare trade policy and safeguards

Once a product category has been integrated, importingcountries are not permitted to reintroduce quotas restrictingimports of that product. However, they are allowed to usesafeguard measures under the GATT Article XIX during thephase-out period. This allows countries to take action in theevent of sudden import surges that threaten their domestic

industries. In addition, importing countries can initiate anti-dumping action against unfairly traded goods.

4.2.4. Tariffs

Tariffs in the textile and clothing sector will continue to be veryhigh despite the Uruguay Round agreement. In the post-Uruguay Round period, the average tariff for all goods will be 4percent compared to 6 percent in the pre-Uruguay Roundperiod. In the case of textiles, however, the average post-URtariff will be three times the average for all goods, 12 percentcompared to 16 percent pre-UR. The textile and clothing sectorwill therefore remain one of the most protected sectors

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4.2.5. Trade liberalization for non-WTO countries

Under the GATT agreement, Importing countries have no

obligation to liberalize imports from non-WTO countries. This isparticularly important with respect to China. Until the country

joins the WTO and undertakes to comply with the rules on tariff reduction and market opening, existing tough controls onChinese exports to the West are likely to remain.

4.3 T HE LOME CONVENTION

The Lome Convention was created to promote and acceleratethe economic, social and cultural development of the 70 African,Carribian and Pacific (ACP) countries based on mutual interestfor both contracting parties. This is the most far-reaching tradeagreement the EU has signed with developing countries. Thefourth Lome Agreement, signed in 1989, nowadays includes 70ACP countries and several other territories, which are all formerEuropean colonies.

In 1995, the Lome IV Convention has been reviewed. The mainoutcome of the review was that in the period up to 2000, moreemphasis will be laid to trade development rather than on tradepreferences. Several decades of preferential import tariffs into

the EU have not brought the expected results of improved tradepreferences of the ACP countries. It was concluded that tariff preferences alone are insufficient to stimulate export from ACPcountries and more needed to be done to improve thecompetitiveness of export oriented enterprises in ACP countries.As such, funds made available to national and regionalprograms under the European Development Fund will primarilybe allocated to improve productivity, efficiency, qualitymanagement, trade information facilities and tradeinfrastructure. At the same time, some more preferences weregranted.

4.4 T HE CARIBBEAN BASIN INITIATIVE (CBI)

The Caribbean ACP countries benefit from the USA CaribbeanBasin Initiative (CBI). The Caribbean Basin Economic RecoveryAct launched the CBI officially in 1982. The CBI is moreadvantageous than the Generalized System of Preferences(GSP) scheme offered by the USA because it has no fixed timelimit and is more relaxed in terms of the rules of origin.Although textiles are excluded from the CBI, Caribbean ACPcountries enjoy special treatment in the USA market under

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5.0 READY MADE GARMENTS OF BANGLADESH

The growth and success of the apparel industry over the last 15years has been spectacular, and perhaps the most salientfeature of the Bangladesh economy. The apparel industry now('97-'98) accounts for over 73% of the countrys total exportearning (Hafiz Siddiqi, 1998). Countrys apparel export rose toUS$ nearly 4 billion FY98 from a mere US$ 6 million in 1981 .Bangladesh exports ready-made garments presently to about30 countries around the world with over 45% to USA, 50% to theEU countries. The industry employs more than 1.4 millionworkers, 90% of them are female.

5.1 N ATURE AND PATTERN OF GROWTH

Countrys apparel export has been growing on an average atthe rate of 25% for last several years. The garments industrybegan to appear in 1977-78 with 8 enterprises. The number of garment factories reached 587 in 1984-85, and now it hasreached around 2650 by September 1998. In fact, this is anexceptional growth rate for any industry anywhere in the world.

The quota restriction in the US markets and completelyunrestricted entries into the EU market have contributed

significantly to this high growth rate.Table: RMG and Total export of Bangladesh

Year RMG Export (Mn$)

TotalExport

% of TotalExport

1991-921992-931993-941994-951995-961996-971997-98

1182.571445.021555.792232.092547.033001.253781.94

1993.922382.892533.903472.563882.004418.285161.20

59.3160.6461.4064.2865.6167.9373.28

Source: Hafiz Siddiqi, 1998, p 12

5.1.1. Marketing trend: EU emerges as the largest buyer

For the last five years, EU has become the largest buyer of Bangladesh's RMG products. The US is continuing to be thesecond largest importer. In FY 98, EU's share of RMG was 51%,US share was 44%. Among the EU countries, Germany importsthe maximum share of RMG.5.1.2. Knitwear: the highest growth rate

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One major factor of high growth rate in the RMG export of Bangladesh has been the knitwear sector. Bangladesh'sknitwear industry has emerged as a competitive supplier in theglobal apparel market. As the table shows, the knitwear exportsto the EU countries has almost doubled in the 1990s - increasedfrom 43% in 92-93 to 79% in 96-97, while the share of the UShas fallen in 16% in 96-97 from 38% in 92-93. In dollar terms,however, the share of the US did not fall. The export income of the knitwear registered about 400% growth during the sameperiod.

Table 3.2: Proportion of woven and knitwear in the RMGexportCommodity 92-93 93-94 94-95 95-96 96-97Woven RMGShare of EU(%)Share of US(%)

1240.54053

1291.649.542.0

1835.143.649.5

1948.8149.045.0

2237.9545.049.0

Knit RMGShare of EU(%)Share of US(%)

204.54338

264.24732

393.366.424.9

598.3274.820.2

763.3079.116.2

Source: C A F Dowla; 1998, p.30.

5.2 E XPORT IN OTHER COUNTRIES

Bangladesh is also making inroads in the high quality consciousRMG market in Japan. Bangladesh exports of RMG to Japanstood at $ 5.6 million in '94-95. Bangladesh's export to Canadaranged between 2-3% of its total export income over the years.

The RMG producers are steadily moving toward high valueitems like quality suits, jackets, branded jeans, embroideredladies wear, increasing over at 25% per year over the last fewyears. They are also diversifying into non-quota items.

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6.0 ANALYSIS OF EU MARKET DATA

6.1 EU I MPORTS

In 1997, the total intra/extra EU imports of ready-madegarments valued at almost Ecu 60 billion (US $ 68 billion at1997 exchange rate). Between 1995 and 1997, importsincreased by 20 percent. Bangladesh has become an importantplayer in the RMG sector. In 1994, it appeared among the topten of extra-EU suppliers for the first time. In 1997, it was the16 th leading supplying country (including intra-EU supplying) interms of value and 9 th in terms of volume. In this year,Bangladesh supplied clothing worth of Ecu 1.4 billion, up almost50 percent from the 1995 level.

Table 4.1: EU intra/extra imports of RMG products (Valuein Ecu thousand, volume in Tons)

1995 1996 1997Value Volume Value Volume Value Volume

Total RMG T-shirtPulloverShirt

BlousesFromBangladesh :

Total RMG T-shirtPulloverShirtBlouses

50,118,6083,446,893

6,296,2233,032,5482679,164

966,891188,263101,193373,31930,324

2,540,074241,518

430,137179,88684,031

27,97827,96111,02143,7402,745

53,842,1243,999,194

7,275,9722,969,1702,579,465

1,131,496276,915138,323343,06232,178

2,715,428278,778348,311

169,43891,073

130,70841,44114,93138,4092,766

59,528,1614,194,800

8,442,5252,989,7402727,775

1,446,087270,007243,158365,29848,360

3,288,651264,931364,256

159,54792,261

146,39438,01321,79737,5113,922

Source: Eurostat 3/1997, 4/1998, 8/1998

6.2 S HIFTS IN THE LEADING SUPPLIERS,Important changes have taken place in the list of top tensuppliers in recent years. In 1988, for example, Hong Kong,

Turkey, Yugoslavia, South Korea and China were among the top

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five, in both value and volume terms. By 1994, China hademerged as the number one supplier, followed by Turkey, HongKong, Tunisia and Morocco in value terms. Bangladeshappeared among the top ten by replacing South Korea(Mojumder, 1995).

Table: Top Ten Extra-EU suppliers of Clothing, 1995 -1997By Value (Ecu in thousand)

1995 1996 1997Country Ecu %

share

Country Ecu %share

Country Ecu %share

China TurkeyHongkong

TunisiaMoroccoPolandIndiaRomania

BangladeshIndonesia

3,541,2923,188,4012,545,9891,729,4321,631,2

341,602,4011,587,749971,660966,891907,982

12.4311.198.946.075.735.625.57

3.413.393.19



BangladeshIndonesia

4,164,2043,432,3192,498,5731,883,6141,673,4

231,612,6651,541,3931,150,0401,131,662973,583

13.5411.168.126.125.445.245.01

3.743.683.17



BangladeshIndonesia

5,109,7613,958,3892,590,6052,015,3151,878,5

401,641,0691,538,6501,477,9371,446,0871,273,428

14.4111.167.315.685.304.634.34

4.174.083.59

Source: Computed from Eurostat data; details in Appendix.

By Volume (Ton)1995 1996 1997Country Ton %

share

Country Ton %share

Country Ton %share

China TurkeyHongkongBangladeshIndiaMorocco

TunisiaPoland

247,944167,582159,178113,1

71108,0

14.369.709.046.556.255.49

5.393.89

China TurkeyHongkongBangladeshIndia

Tunisia

MoroccoPoland

267,828195,097139,719130,6

92113,1

14.4210.577.577.086.13

5.435.14

China TurkeyBangladeshHongkongIndiaMorocco

TunisiaIndonesia

281,655226,773146,394129,2

01107,5

14.1011.357.336.475.38

5.355.32

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IndonesiaPakistan

1094,87593,03567,22264,50857,905

3.743.35

IndonesiaRomania

61100,08794,83468,76666,39958,982

3.733.603.20

RomaniaPoland

93106,959106,22879,27374,39272,801

3.973.723.64

Source: Computed from Eurostat data; details in Appendix.

During 95-97, positions of top ten suppliers in terms of valueremain same; although their market shares have changed.Shares of China and Turkey have remained same; shares of

Hong Kong, Tunisia, Morocco, Poland and India are decreasing.Shares of Romania, Bangladesh and Indonesia are goingupward. Growth rate of Bangladesh is good; in fact, it may moveone step upward in 1998. In terms of volume, Bangladesh hasbecome third largest supplier in 1997, replacing Hong Kong.Since 1988, Low cost Asian countries, preferential countries(Turkey, Tunisia, and Morocco) and Poland have becomedominant suppliers.

Table: Trends in average unit prices of extra-EU clothing suppliers (Ecu/Kg)

1995 1996 1997China TurkeyHongkong

TunisiaMoroccoPolandIndiaRomaniaBangladeshIndonesia

14.2819.0215.9918.5917.1923.8414.7012.458.5414.06

15.5517.5917.8818.8217.6523.4513.6219.508.6514.66

18.1414.0520.0518.9717.5622.5414.3019.869.8716.06

Source: Computed from Eurostat data.

The average unit prices of leading suppliers don't representtheir competitiveness; rather they represent their targetmarkets. Table shows that average price of preferentialcountries remain higher. Their high price reflects, in part, thefact that a large share of imports from such countries consists of goods made from high value EU fabrics under outwardprocessing arrangements. Poland also falls into this category;however its prices were higher than those of the preferential

countries. Unit prices of Romania (12.45), Indonesia (14.06),

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India (14.70) and China (14.23) indicate that they cater to midand upper segments.

Among low cost Asian suppliers, average unit price of India hasremained same. Prices of China have increased highly; in caseof other countries, it rose modestly. Bangladesh remains thelowest cost supplier among the top ten countries.

6.3 T RENDS AND MARKET SHARE IN T- SHIRT

Total import of T-shirt was Ecu 1775 million in 1995, Ecu 2114million in 1996 and Ecu 2255 in 1996. Bangladesh supplied EcuRMG worth of 188 m in 95, Ecu 276 m in 96 and Ecu 270 m in97. Exports from Bangladesh, Hongkong and India havedecreased in 1997. Exports from Turkey, China and Mauritiushave increased (for full text, please refer to Appendix). Turkeycomprised 22% market share in terms of Ecu; its growth ratewas 16%. Turkey mainly operates in the upper segment (unitprice 16.05 Ecu/Kg) and it might have captured additionalmarket share from India, China and other upper segmentplayers who have lost market shares. One reason of decrease inBangladesh's T-shirt export may be that Bangladesh exports forlower segment and this segment might have become saturated(in 95 and 96, Bangladesh had a high growth rate in T-shirt).

Another probable reason might be competition from China, andIndia that operate in all segments. These countries might havecompensated their lose of market share to Turkey by increasingtheir market share in the lower segment.

Prices of Preferential countries (Turkey, Morocco and Tunisia)have decreased during the last three years. Asian countries stillremain the low cost suppliers. Turkey, Hongkong and USA arerelatively high cost suppliers, reflecting their higher valuespecialization. Bangladesh remains a very low cost supplier inthe list; indicating its status as the low cost bulk supplier.

Bangladesh became the largest supplier of T-shirt in terms of volume in 1997.

Bangladesh has the lowest cost per unit among the top tensuppliers of T-shirt; however some other countries have a lowercost per unit and Bangladesh faces competition from thesecountries. These countries include United Arab Emirates (6.74Ecu/Kg), Bulgaria (7.02 Ecu/Kg). Bangladesh also facescompetition from countries such as Syria (8.55 Ecu/Kg), Pakistan(9.11 Ecu/Kg), Romania (10.55 Ecu/Kg).

Table: Unit Price and Market share of EU's leading T-shirtsuppliers (Ecu/Kg).

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All extra-EU

Source: Computed from Eurostat data; details in Appendix

Bangladesh faces competition mainly from Pakistan (unit price10.03), and to some extent from India (unit price 13.89), ArabEmirates (unit price 13.54), and Bulgaria (Unit price 14.15).

6.5 M ARKET SITUATION AND BANGLADESH

Trends in unit price give some indication of competitiveness;but it mainly indicates the market segment of a particularcountry. High unit prices some suppliers such as Hong Kong,

Turkey, East European Countries reflect to a certain extent theirspecialization in high value-added, design intensive ranges.

Bangladesh has become the third largest supplier of apparel inthe EU market in terms of volume, representing 7.33% marketshare; in term of value, its position is ninth. Several factors havecontributed to this development. First, there are somedifferences between Bangladesh and other countries regardingto export regulation. Bangladesh (as a Least DevelopedCountry) and other preferential countries are enjoying full GSPfacilities under compliance of certain requirements. Thesefacilities provide zero tariff facility for exporting products. Othercountries (India, China) enjoy GSP facilities partially; (they haveto pay 85% of conventional tariff, which is 13%). However, only30% of Bangladesh's export are covered under GSP; the rest isexported without GSP facilities. Another major benefit thatBangladesh enjoy is that it can export any item in an unlimitedamount; there is no quota restriction on Bangladesh inexporting to the EU market. Other countries (except preferentialcountries) are restricted to quota limitation. It can be seen fromquota utilization figures that these countries (particularly Chinaand India which are considered potential competitors of Bangladesh once MFA is phased out) are utilizing their quota to

a full extent. So, quota is definitely binding for these countries.Limited by the quantitative restriction, the European buyersprefer to buy relatively high value added products from thesecountries and place orders for lower segment products inBangladesh and thus maximize the value. The lower averageprice of Bangladesh thus reflects the lower segment basedexport mix of Bangladesh, rather than the highercompetitiveness.

Table: Quota Utilization rate of the apparel suppliers in 1997

Country T-shirt Shirt Pullover TrousersChina 99.90 99.86 99.91 99.84

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IndiaHongkongIndonesiaMacaoPakistan

Thailand

99.7864.8266.1098.6991.2954.38

89.6667.5694.7093.8055.1969.89

99.9399.93100.0099.4991.5290.33

99.8599.8973.2299.9290.8955.01

Source: Website of SIGL

From the statistics presented in different tables, it becomesclear that China has become a formidable player among theextra-EU suppliers. China retains first position in the EU marketboth in terms of value and volume. Preferential countries andIndia are also dominant players. Another major player is Turkey;it is the second largest supplier both in term of value andvolume.

As it has been mentioned above, GSP and quota facilities areshielding the competition in the apparel market. Theserestrictions are expected to continue up to 2004. So Bangladeshis likely to benefit from this quota regime (in terms of shield of price competition) during this time. Though the integration of quota items have started in 1995, and already two phases havebeen completed, most of the items Bangladesh exports arelikely to be integrated in the last phase of MFA phase out.

6.6 M ARKET ACCESS TO THE EU

Table:Tariff and Non-tariff barriers

Tariffs Quota Surveillance

Certificateof Origin

1. Preferential Countries(Morocco and Tunisia)

2. ACP countries

3. Least DevelopedCountries under GSP

( Incl. Bangladesh)4. EFTA countries

(Switzerland, Norway,Iceland)

5. Turkey

6. GSP countries

7. OECD (USA, Japan,Canada, Australia,Mexico, New Zealand)

8. Third Countries not

covered by any specificagreements (NorthKorea, Croatia, Bosnia)

0

0

0

0

085%

0-13.4%

0-

13.4%

No

No

No

No

No

Somecountries

No

Somecountries

Yes

No

Yes (onlyBanglad

esh)No

No

No

No

No

EUR1

EUR1

GSP Form A

EUR 1

No

GSP Form A

No

Yes

Yes

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9. Central and EasternEurope (Poland,Romania, CzechRepublic, Hungary,Bulgaria, SlovacRepublic)

10. WTO/GATT registeredcountries under MFA

11. Special Agreements(Russia)

0-13.4%

0-13.4%

0-13.4%

Yes

Yes

No

No

N/A

No

Yes

Yes

Source: Profound, 1998Remarks

Turkey was accorded custom union status with effect from January 1, 1996. The Central and Eastern European countries: a number of

categories was liberalized and outward processing traffic(OPT) quota increased in March 1997.CSP countries pay 85% of the conventional tariff. This impliesa tariff rate of 0-11.4%.

The import tariff depends on the origin and the composition (HScode) of the product, and whether the country that exports aproduct to the EU has an agreement with the EU. The tariff hasto be paid by the importer when the product enters the EU. Thisincludes a Customs Union around which the Common External

Tariff ensures that duties will be paid when goods enter thatUnion.

6.7 A CCESS OF BANGLADESH TO THE EU MARKET

Bangladesh has access to the EU market under the GSP schemeas least-developed developing country. This means that it doesnot have to pay customs duties on products covered by thescheme, which include textile and clothing products, under thecondition that a certificate of origin accompanies the importedgoods. Furthermore, Bangladesh is subject to surveillance forthe categories 4 (T-shirt), 6 (trousers), and 8 (shirts).Surveillance means that importers have to submit exportlicenses (specifying the member state for which the goods aredestined) in support of their application for import licenses. Thisdual-licensing system enables the EU authorities to superviseimports to take action in the event of surges and to checkfraudulent imports.In November 1997, Bangladesh was granted derogation fromRegulation EEC/2454/93 in respect of the definition of the

concept of originating products used for the purposes of theGSP scheme. A range of textile and clothing products which are

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manufactured in Bangladesh from woven fabric or yarnimported into that country and originating in a countrybelonging to ASEAN, SAARC or the Lome Convention shall bedeemed to originate in Bangladesh in accordance with certainarrangements.

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7.0 ANALYSIS US MARKET DATA

Table: Leading suppliers of clothing in the US market.By Value, (Million US$)

1996 1997 1998Country US

$%share

Country %share

Country %share

HongkongChinaMexico

TaiwanDom.Rep.

PhilippinesS. KoreaHondurasIndiaItalyBangladesh

Thailand TotalMkt.

386037693559197

31753150213801219118711481124104936389

10.6110.369.785.4

24.824.133.793.353.263.163.092.88

MexicoChinaHongkongDom.Rep.

Taiwan

HondurasIndonesiaPhilippinesS. KoreaBangladeshIndia

Thailand TotalMkt.

505044873934221

52071165915961596151714471347125642827

11.7910.489.195.1

74.863.873.733.733.543.383.152.93


Taiwan

PhilippinesHondurasIndonesiaS. KoreaIndiaBangladesh

Thailand TotalMkt.

272025651889121

1110590190086980079578568026762

10.169.587.064.5

34.133.373.363.252.992.972.932.54

Source: www.otexa.gov

By Volume (Million m 2)1996 1997 1998 *

Country US$

%share

Country %share

Country %share


TaiwanBangladeshHondurasPhilippin

1099862759653573529

11.388.937.866.765.935.485.454.563.413.122.97

MexicoChinaDom.Rep.HongkongHondurasBangladesh

TaiwanPhilippines

1555947796736725671589445433393322

13.708.347.016.496.395.915.193.923.823.462.842.82

MexicoChinaDom.Rep.HondurasBangladeshHongkong

TaiwanPhilippin

847558435401377367

11.597.635.955.495.165.024.383.573.243.022.752.56

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esIndonesiaIndiaS. KoreaSriLanka

Thailand TotalMkt

5264403293012872842399658

2.942.48

SalvadorIndonesiaSri LankaSouthKoreaIndia

Total Mkt

32031511349

2.78 esSalvadorIndonesiaIndiaSriLankaCostaRica

TotalMkt

3202612372212011871707310

2.33

* (Up to July)

Total market for apparel in the US in terms of value increased17% in 1997. Out of the leading suppliers, Mexico appeared tobe the most benefited player; it has increased its market shareby 1.18%. China, India, Bangladesh and Honduras havemodestly increased their exports. Growth rates of othercountries have decreased in most of the cases. Bangladeshbecame 10 th largest suppliers in the US market in 1997 in termof value and 6 th largest supplier in terms of volume.

Table: Unit prices of leading suppliers in the US market

96 97 98Mexico 3.24 3.25 3.21HongKong

5.09 5.35 5.15

China 4.37 4.79 4.60

Dom.Rep. 2.68 2.78 2.78 Taiwan 3.44 3.52 3.45Honduras 2.31 2.29 2.24Indonesia 4.03 4.06 3.93SouthKorea

4.81 4.74 4.79

Philippines

3.41 3.58 3.45

Bangladesh

2.12 2.16 2.08

India 3.94 4.28 3.96 Thailand 4.39 4.49 4.17

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Sri Lanka 3.54 3.79 3.58VietnamCostaRicaPakistan

1.812.653.49

1.782.793.20

1.792.683.15

Source: computed from table 5.1

Out of the leading suppliers, unit price of Bangladesh is one of the lowest. Unit price of Bangladesh indicates that it iscompeting in the lower segment of the US market. Bangladeshis competing against China, India, Pakistan, Sri Lanka, Vietnam,Philippines, and in some cases with Indonesia. China alsoproduces a range of items serving upper and middle segments.Bangladesh also competes against Mexico and some centralAmerican countries (mainly Costa Rica, Dominican Republic,Honduras). Like the EU market, lower price of Bangladesh in theUS Market does not necessarily reflect the pricecompetitiveness of Bangladeshi export. Rather it marks theproblem of reaching the upper markets.

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8.0 WAGE, PRODUCTIVITY AND BACKWARD LINKAGES

8.1 W AGE AND P RODUCTIVITY

Wage costs are a key component to total costs in clothingmanufacture. Werner International data on hourly wage costs inthe clothing industry (inclusive of social contributions) show thefollowing Asian countries as having the lowest costs in 1993:Bangladesh ($ 0.16), China ($ 0.25), Vietnam ($ 0.26). AmongEast European countries, only Romania ($ 0.25) appears in thesame category.

Table: Hourly Wage costs in the clothing industry,selected countries, 1993, ($)

NorwayDenmarkGermanyBelgiumSwedenNetherlandsFranceAustriaItaly

JapanFinlandUK USAIrelandSpainGreece

TaiwanHongkong

TurkeySingapore

18.0917.2917.2216.2015.8415.4114.8414.3012.31

10.649.258.428.137.446.415.854.613.853.293.06

PortugalSouth KoreaHungaryFormerCzechoslovakiaMexicoMoroccoMauritiusMalaysia

ThailandPhilippinesPolandSri LankaIndonesiaIndiaPakistanVietnamRomaniaChinaBangladesh

3.032.711.621.291.081.061.040.770.71

0.530.440.350.280.270.270.260.250.250.16

Source: Majumder 1995

Cost comparisons have also made by Kurt Salmon Associates(KSA). However, the KSA data, for 1995, go further than theWerner figures by calculating the cost of actual work contentrather than hourly wages. On the basis of KSA figures, thedisadvantage of East European countries relative to South Asiansuppliers appears to be smaller, in many cases disappears. Also,the competitiveness of East European countries appears toimprove in comparison with preferential countries. Poland, theCzech Republic and Romania, for example, fare marginallybetter than India. However, the lowest cost countries are stillChina, Vietnam and South Korea (Table 6.2).

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Although wage cost in Bangladesh is the lowest, it does notindicate much of comparative advantage. The wage costsshould be examined in terms of comparative productivity. Interms of productivity, Bangladesh does not have any specialadvantages. The total working hours in the RMG industry cannot be used optimally in Bangladesh duo to a number of factors.

There are some

Table: Cost per standard minute produced of a standardclothing item

Country DM/StandardMinite

TunisiaMorocco

TurkeyHungaryPolandCzech RepublicRomaniaHong KongIndia (Bombay)India (North)Indonesia

Sri LankaVietnamSouth KoreaChina (south)China (north)

0.230.220.210.250.230.220.200.250.250.230.21

0.200.200.150.140.14

Source: Majumber 1995, p 54

"hidden" costs that are not included in the wages. In many of itscompetitor countries, productivity is much higher. For example,the total man-hour required to produce a shirt of a particularspecification is Bangladesh is higher than the man-hour requiredin Indonesia. One may note that the wages in most of theSoutheast Asian and other competing countries are increasingat much faster rates than that in Bangladesh. This may possiblyallow Bangladesh to maintain its strength in terms of costadvantages for longer time in future. But wages eventually willbe high in this country as well. Therefore, Bangladesh may losethis comparative advantage in cheap labor in the long run if itdoes not increases it productivity (Hafiz Siddiqy; 1996, p 5).

8.2 B ACKWARD LINKAGE

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The cost of fabric and accessories comprises 75% of the totalcost of an RMG. Bangladesh has to depend immensely forfabrics to be used in the RMG. In 95-96, over 26 billion yards of fabrics were used in the garments sector - a lion share of that,around 86%, was imported from countries like India, China,

Taiwan, Hongkong, Pakistan, Sri Lanka, Indonesia, Japan etc. Incase of knitwear, the imported fabric is 35% and in case of woven, it is 96%. Currently, almost 65% to 75% of the exportearnings of the RMG industry ends up with the importing of thefabric requirement. There are some crucial reasons fordeveloping an effective backward linkage of fabrics. First,manufacturers buy fabrics at international prices with thesupport of back-to-back LC, but prices are not necessarilycompetitive. They also have to pay high interest for a certainperiod ( C A F Dowlah, 1997, p 47). Second, with the phasing outof garments quotas post MFA, textile power houses like China,India and Pakistan are likely to become formidable suppliers of RMG in the world market and this will result in an overwhelmingdemand for fabrics. Getting fabrics at a competitive price maybecome impossible for Bangladesh. Third, in order to expandinto new and potentially more lucrative segments of the globalapparel market, getting fabrics at a competitive price is crucial.All these reasons indicate that unless Bangladesh establish astrong base of backward linkages, it may face serious problemsin the future.

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9.0 POLICY SUGGESTIONS

Bangladesh's export caters mainly to the lower marketsegments of both EU markets and US. The performances of themajor suppliers in the EU and US markets during the last threeyears indicate that quotas and preferential treatments areheavily shielding the price competition among the suppliers. In1996, in terms of value, export of Bangladesh to the EU grew by17% from the previous year; in 1997, the growth rate was 27%.

The overall performance is good; but there are some factorsthat should be considered. One of Bangladesh's mostly exporteditems, T-shirt, has reached its market saturation point. In fact,exports of T-shirt from Bangladesh have decreased from theprevious year. This phenomenon indicates that Bangladeshshould concentrate more on other products and should go forproduct diversification.

In the US market, apparels of different categories are exportedunder the quota arrangements. The BEXIMCO Research Cellestimates that in 1997, Bangladesh exported 63 categories of apparel to the US market. Out of these, 21 categories are quotaitems; but 98.5% (in terms of quantity, not value, in value term,it will be slightly lower) of the total export were within these 21categories. So, quotas cover almost all exports of Bangladesh to

the US and quotas are definitely shielding the price competition.

In the EU market, Bangladesh is allowed to export unlimitedamount of products where as most of the major clothingsuppliers are restricted by quota. Again, Bangladesh getspreferential GSP facilities which major suppliers don't get.Although, the average unit prices of Bangladesh's apparel arelower than most of the major suppliers in both EU and USmarket, these unit prices dont reflect price competition. Quotasare imposed on the basis of volume imported, not on value;consequently major suppliers maximize their value by exportinghigh value, highly specialized items. As a result, their unit pricesare indicative of market segment they operate. The quotautilization figures indicate that all major suppliers fulfil theirquota fully over the years. Being limited by quota restriction,Major supplies don't operate mainly in the lower segment of apparel market. But, if they want to compete in this segment orif they get the opportunity (which they will get after 2004), theywill produce clothing at a lower unit price. Bangladesh, in thatsituation, will face serious competition from these suppliers andmay lose considerable chunk of market share. As Dr. MustafizurRahman, Project Director of CPD and a reputed trade economist,says, " this sector - the RMG and the knitwear sector(constituting more than 70% of out export) - is subject to

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various quota and non-quota international trade arrangementswhich has shielded our RMG sector from price competition to alarge extent. Had their been no quota, it would be difficult for usto compete with other low cost bases in the East and SouthAsian countries."

But, for the time being (that is up to 2004), the prospect of Bangladesh's RMG appears to be sound. As both of the EU andUS will not integrate the most sensitive product item until theend of 2004, Bangladesh is not expected to face any seriouschallenge during this period.

However, the real challenge for will come on 2005 when theMFA will be phased out and textile and clothing trade will befully integrated into GATT. Bangladesh will compete with otherapparel suppliers in a non-restricted, free international traderegime. The following policy inititatives can be considered ascrucial for the RMG sector of Bangladesh in the post MFAsituation:

9.1 P RODUCT DIVERSIFICATION

In order to compete successfully, Bangladesh must

concentrated on middle and upper segment of the apparelmarket. Currently Bangladesh focus on lower market segment.In the post MFA situation, Bangladesh much produceddiversified products. By offering new products that have highvalue, high specialization in term of fashion and design, itshould try to penetrate in the mid market segment in thecoming years. This will safeguard Bangladesh's prospect toremain as a leading supplier of clothing.

9.2 E STABLISHING BACKWARD LINKAGE

At present, local fabrics meet only 14% of the need of the RMGsector. When textile trade will be completely integrated intoGATT, there will be a huge demand for fabric all around theworld among clothing producing countries, Unless, Bangladeshestablishes a strong supply base of fabrics, surviving in the postMFA situation will be tough for Bangladesh.

9.3 I NCREASING MARKETING EFFORT

Marketing effort will also play a crucial role in the coming years.Currently Bangladesh does not have a strong marketingmechanism that can comprehensively promote RMG of Bangladesh in the EU and US markets. To compete successfully

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in a free and open market, increased marketing activities playvery important role. Bangladesh must develop a strongmarketing program for its apparel export.

9.4 I NCREASING P RODUCTIVITY OF LABOR

Productivity of labor is also another critical factor that will playcrucial role. Productivity of labor in Bangladesh is very low.Bangladesh must give emphasis on increasing its laborproductivity through improving technological know-how anddemographic profile.

REFERENCES

Boyd, Westfall, and Stasch , Marketing Research: Text and Cases, Richard D. Irwin, Inc. 6 th Edition, 1985

Hafiz G A Siddiqi: Product diversification in the ready-madegarment sector of Bangladesh: why and how? October 1996

Hafiz G A Siddiqi: Globalization versus Regional Trade, 1998

B.M.M. Mozharul Huq: Policy Framework of a DevelopingCountry like Bangladesh to Help its Apparel Industry Fit in thePost-MFA Trade Regime

Mustafizur Rahman: Favored Market Access under WTO:

Perspective from Least Developed Countries (LDC) such asBangladesh, October 1997.

C. A. F. Dowla: The Consequences of GATT Uruguay Round forthe Textile And Garments Sector in Bangladesh, August 1998.

Feisal Siddiqi: Development of Backward Linkage: Post MFAchallenges and opportunities for the RMG sector of Bangladesh

ProFound: International Trade in Textiles and Clothing,September 1998

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Nader Majid: The Uruguay Round and South Asia: An Overviewof the Impact and Opportunities, July 1995

D E Moris and M D Crosby: Quality Requirements for Textilesand Clothing in Europe

Madhavi Majumdear: The MFA Phase-out and EU ClothingSourcing: Forecasts to 2005 (Textile Outlook International,March 1996)

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TABLE OF CONTENTS

1.0 INTRODUCTION.....................................................................................................................1

1.1 B ACKGROUND OF THE STUDY .................................................................................................11.2 P ROBLEM STATEMENT ..........................................................................................................11.3 O BJECTIVES ........................................................................................................................21.4 S COPE OF THE STUDY ...........................................................................................................21.5 L ITERATURE R EVIEW ............................................................................................................21.6 I MPORTANCE OF THE STUDY ...................................................................................................71.7 R ESEARCH MODEL ...............................................................................................................81.8 H YPOTHESES ON GARMENT MANUFACTURERS .........................................................................111.9 L IMITATIONS .....................................................................................................................111.10 T YPES AND SOURCES OF I NFORMATION ................................................................................11

2.0 RESEARCH METHODOLOGY: A TWO-WAY APPROACH.......................................13

2.1 R ESEARCH DESIGN .............................................................................................................132.2 D ATA COLLECTION METHOD ................................................................................................132.3 S AMPLING METHOD .............................................................................................................13

2.3.1 Sample Size Determination..........................................................................................142.4 E XPERT OPINION ...............................................................................................................152.5 F IELD PLAN ......................................................................................................................152.6 D ATA A NALYSIS PLAN .......................................................................................................16

3.0 FINDINGS & ANALYSIS OF INFORMATION................................................................17

3.1 K NOWLEDGE LEVEL OF THE PRODUCERS ................................................................................173.2 T YPE OF RMG MARKETS ....................................................................................................173.3 M AJOR COMPETITORS .........................................................................................................173.4 F ABRIC SOURCING .............................................................................................................183.5 F ABRIC SOURCING DECISION ................................................................................................183.6 W ORKERS SKILLS ..............................................................................................................18

3.7 T RAINING FOR LABORS .......................................................................................................183.8 M ANAGEMENT S PERFORMANCE ...........................................................................................183.9 P RODUCTIVITY ...................................................................................................................19

3.9.1 Evaluating the Results.................................................................................................203.10 P ROBLEM IN OPENING LC S................................................................................................213.11 T ARGET MARKET SEGMENT ................................................................................................213.12 P ROBLEM IN FORWARDING PRODUCT .....................................................................................213.13 F ABRIC QUALITY ..............................................................................................................213.14 F ASHION AND STYLE OF THE PRODUCT .................................................................................213.15 P ROMOTIONAL ACTIVITIES .................................................................................................213.16 G OVERNMENT POLICY ON RMG........................................................................................223.17 P ROMOTIONAL ACTIVITIES OF THE GOVERNMENT ....................................................................223.18 B ARRIERS AFFECTING RMG E XPORTS ........................

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