Ready-made garment industry in   Bangladesh.

Bangladesh textile sector actually grew tremendously after 2004 and reached an export turnover

of US$10.7 billion in FY 2007. Bangladesh’s export trade is dominated by the RMG industry.

The sector currently employs 2.5 million people—about 40% of total manufacturing (85% of

these employees are women)—and accounts for 76% of the country’s export earnings and 10%

of its GDP.

Bangladesh was the sixth largest exporter of apparel in the world after china, the EU, Hong

Kong, Turkey and India in 2006.[citation needed] In 2006 Bangladesh’s share in the world

apparel exports was 2.8%.The US was the largest single market with US$3.23 billion in exports,

a 30% share in 2007. Today, the US remains the largest market for Bangladesh’s woven

garments taking US$2.42 billion, a 47% share of Bangladesh’s total woven exports. The

European Union remains the largest regional destination – Bangladesh exported US$5.36 billion

in apparel; 50% of their total apparel exports. The EU took a 61% share of Bangladeshi knitwear

with US$3.36 billion exports. Currently Bangladesh is now second largest readymade garments

manufacturer after china, by the next five years Bangladesh will become largest readymade

garments manufacturer.

The world set the spotlight on Bangladesh and strongly questioned the integrity of the garment

industry after the country’s one of the most shocking tragedies on April 24. Fear of GSP

cancellation by the EU made the business mood gloomy and anxiety increased as the country’s

industrial backbone and mightiest pillar of foreign exchange came under threat. Is the garment

industry strong enough to endure this pressure? Are the problems toxic enough to jeopardize the

future health of the industry? What are the prospects and scopes of improvement? Let’s have a

look.

The industry generates a total of $19 billion in exports and employs 3.6 million workers

dispersed among 5,400 factories. Currently the sector accounts for 78 percent of exports and

contributes 16 percent to the gross domestic product.

Expectations of rapid industrialization in future years invariably indicate further growth of the

garment sector. This is also because China, the largest exporter of manufactured garments in the

world, is losing its appeal in the apparel realm due to labor shortages and higher wages. A

McKinsey report suggests that 86 percent of the chief purchasing officers in their survey wanted

to move out of China, and Bangladesh is their next preferred destination. The country is expected

to gain much of China’s share in the cut-throat apparel terrain.

Cheap labor is abundant, some of them willing to work at a wage rate of $0.20 an hour. This is

less than a fifth of the labor costs in China. Capacity is another primary advantage. With a total

of 5,400 factories, Bangladesh is clearly ahead of other garment suppliers, for instance,

Indonesia has 2,450 factories, Vietnam 2,000 and Cambodia 260.

Another key prospect lies in the size of the global apparel business which is worth $1 trillion a

year. According to Bangladesh Knitwear Manufacturers and Exporters Association, the EU and

the US are the two largest importers of Bangladeshi garments and 86 percent of the total exports

are serving these two giants. But how big is our 86 percent in the sphere of total garment demand

in the EU and US? The number may seem meager, because Bangladesh caters to only 6 percent

of their total apparel demand, as opposed to China, which serves 30 percent.

The current average wage rate in the sector is one of the lowest in the world. Though minimum

wages were raised in November 2010, a study by the Fair Wear (a non-profit lobby group) found

that some workers were receiving less than the new minimum; nearly a quarter were reassigned

to lower pay grades. Recipients of the new minimum wage salaries were not necessarily better

off, since inflation soared as high as 12 percent the following year. Yearly ramp-up of wage rates

which help negate the effects of rising inflation are absent in the sector.

Low levels of work safety also pose a massive problem. Between 2000 and 2013, more than

1,500 lives perished in garment industrial disasters caused by fire, building collapses or

stampedes. Fire breakouts are the most common, with two out of three accidents recounting to

faulty fire extinguishers and electrical short circuits. Though industrial accidents are a recurring

phenomenon, the trend is not exclusive to Bangladesh.

British magazine ‘The Economist’ called garment factory fires ‘a distinctly South Asian’ tragedy

when Pakistan experienced the death of 300 people in two separate factory blazes in Karachi and

Lahore in September 2012.

There is a reason why this vicious cycle continues. Foreign buyers squeeze the suppliers every

year to sliver the cost per unit of garment; garment manufacturers, on the other hand, compete

with each other by under-cutting one another’s prices; consequently price declines further. Now

with a lower profit margin, manufacturers refuse to undertake costly renovations and discover

different means of maximizing profit. One way they do this is by subcontracting their production

to smaller non-complaint factories. Sometimes this is carried out without the knowledge of the

foreign buyers and that is why a lot of global clothing brands deny their authorisations in the

factories even though their labels were found in the rubble after accidents.

The majority of workers receive training on the job or in regional basic sewing schools, as

vocational training institutions currently do not exist. Since it has been announced that minimum

wages will be adapted in two-year rhythms, the manufacturers require significant efficiency

increases to offset the rising costs in the future. These require investments in vocational training

institutions. If not, the manufacturers will keep on discovering loopholes in order to decrease

costs.

McKinsey & Co reports that the garment sector could triple by 2020, employing six million

people. This depicts that the productivity of the industry may rise as it moves towards high value

exports. To address the current problems the government can develop a system where tax

holidays are attached to factory compliance. Moreover, vocational training schools and a clear

roadmap of wage increments is crucial so that manufacturers can adjust costs with having future

wage increments in mind. If not, problems will lead to losing EU’s GSP status, leaving

Bangladesh to lose its competitiveness in the global garment business.