Problem and Prospect of Bangladeshi Readymade Garments (RMG) Industry -Eyasin Arafat
Readymade Garments (RMG) are the main driving force of the Bangladeshi economy, no doubt about it. It has spread the ‘Made in Bangladesh’ tag worldwide. This is a true success for our country. After and before independence jute industry was our country’s only remarkable foreign currency-making industry. But it was the declining period of the jute industry. At that time our RMG industry started to cluster.
Late M. Noorul Quader is called the pioneer of Bangladesh’s RMG industry. In 1977 he founded the first 100% export-oriented garment factory, named ‘Desh Garment Ltd.’ through a joint venture agreement with ‘Daewoo Corporation’ of South Korea. He sent 130 trainees where 18 persons were women, to Daewoo’s South Korean factory in Busan for learning technical and marketing know-how. That was a breakthrough for our garments industry. These 130 skilled trainees further introduced modern management and technology in the RMG sector and many of them exclusively established different factories with their experiences and know-how. At the beginning of 1980 Desh Garment exported its first shipment of men’s shirts to Germany. It was not easy; they had to face many difficulties in export and import as well as implement many new systems.
Now Bangladesh’s RMG sector is an almost $52 billion industry and we are expecting it will be a $100 billion industry by 2030 as well as capture 10% of the global market by 2025. Now we are in the second position globally after China. The USA and Europe are still the main destinations of our RMG export. Besides we are exploring the new market in Asia, East Asia, Australia, and the Middle East which is a positive sign for this industry. RMG sector’s contribution to GDP is almost 10% and accounts for almost 82% of total export. So, we can easily understand why our foreign currency is strongly dependent on the RMG sector. It is the most employment-generating industry which almost 4.22 million and more than 50% of workers are women. RMG is the first sector that brought our women labor into a formal workforce. Thus, RMG plays a vast role in our economy.
But unfortunately, our RMG industry has grown up irregularly. Many tragic incidents hit this industry several times and we had paid a lot for this. In 2012, deadly fire in Tazreen Fashion factory where 112 employees died. Only five months later in 2013 monstrous collapse of Rana Plaza building in Dhaka which contained five garment factories, at least 1,132 people died and more than 2,500 were injured. After these continuous tragic incidents, the real irregularities and mismanagement of the RMG sector were revealed to all. Buyers started canceling the order. Protests and concerns were shown worldwide for worker safety and compliance issues. BD RMG industry fell into an image crisis.
After these deadly costs, real changes started to come in this industry. Some conscious people thought about the future of this industry. They along with some international regulatory organizations like Accord & Alliance as well as with the support of the Bangladeshi government brought transformations in this industry.
Accord was formed by Buyers of Europe and some global buyers to work for Fire and Building Safety in Bangladesh and was signed on May 15, 2013. According to the Accord’s statistics, its engineers have carried out over 38,000 inspections in factories covering two million workers, over 120,000 fires, and building and electrical hazards have been rectified, the initiative has so far inspected more than 1,600 factories and completed over 89 % of remediation work in the units. A total of 172 factories completed 100% remediation while 171 units faced business closure due to their miscarriage in correcting safety faults.
Meantime, the Alliance was formed by 28 North American major global retailers to work for Bangladesh Worker Safety, later in 2013. Accord & Alliance both were formed to work for five years in Bangladesh. Later, the Bangladeshi government formed Remediation Coordination Cell (RCC) to take over the Accord’s and Alliance’s work. The RCC focuses on managing the remediation process for garment factories under the Government of Bangladesh’s National Initiative.
Now, Bangladesh is the leader and pioneer of green garment factories in the world. According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), our country’s RMG sector currently has 176 US Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (Leed) certified green factories, the highest in the world and another 550 factories are in pipeline or registered to get USGBC’s Leed certification. LEED certifications not only developed the image of this industry but it also useful in many aspects as green factories are said to help cut down energy use by 40% and water consumption by more than 30% and also emit less carbon dioxide which further ensures environmental safety.
If the growth trend continues, Bangladesh is going to become the global leader by facing increasing challenges in the area of sustainability, climate change, groundwater depletion, efficiency, and many more. According to BGMEA officials, their focus is to embed a sustainable, energy-efficient, and eco-friendly apparel industry and do more with recycling, circular economy, and innovation.
BD RMG industry has successfully overcome post-covid-19 challenges. But the present world is more dynamic than ever before. It had an increasing growth till August’22. But it has started to decline from September’22. There have several reasons behind this as well as we have also some chronic challenges in the RMG industry of Bangladesh.
Russia- Ukraine War: Firstly, the whole world’s supply chains are facing bottlenecks because of the devastating war between Russia and Ukraine. We are losing orders from Russia and Ukraine. Our exporters will face problems regarding payment because of the SWIFT ban on Russia. They are using alternative routes for payment which is very uncertain. Though the market size for RMG in Russia & Ukraine is not so big, respectively almost $600 million and $12 million, we are anxious if the ongoing war spread to neighboring countries. Because Europe is a big market for us. Oil and Gas prices are increasing worldwide because of war. This has a direct impact on production costs and cuts off the profit margin.
Inflation in Western Country: Secondly, the USA and Europe, our largest destinations of export, are facing unprecedented inflation. The citizens of these countries have to cut off their regular budgets. For this, retailers are experiencing fewer sell as a result they have to cancel or decline the order.
Poor Skill & Efficiency: Thirdly, our competitors are more efficient than us. They are introducing new and updated technologies which are helping them to reduce production costs. They are transforming the RMG sector from a labor-intensive into a capital-intensive industry. So, we have to focus on efficiency and technology.
Absences in Value addition and Product Development: Fourthly, we are only using our vast and low-cost labor in the RMG sector, there is less value addition in the supply chain. According to Geneva-based ITC’s recent research, we export, almost 83%, only a vast number of chief and basic garments items, which are limited to five items, giving less focus on product development and product diversifications. Our garments business is buyer-driven not market driven. As a result, we are getting 32%-83% lower cost than the global average market. Retailers get 2/3 times more profit margin than manufacturers. Due to the recent increasing labor cost of garments worker and others factors manufacturing cost has increased almost 30% according to insiders. But buyers are not increasing product prices.
Weak backward linkage industry: Fifthly, still, now the backward linkage industry of our RMG sector is not so efficient, have to import a large portion of raw materials from overseas. Though, it’s developing rapidly, getting less priority from the government and others. We have realized its importance during covid-19, couldn’t deliver orders on time because of disrupted backward linkage supply. ’Lead time’ in our RMG sector is comparatively higher than other competitors.
Shortage of power supply: Because of geopolitical turmoil, war, and global inflation energy crisis are intensifying worldwide. Our foreign reserves also decreasing gradually as a result we are also facing an energy crisis. According to the exporters, production in many RMG factories had declined by at least 40 % after the gas and electricity supply situation deteriorated sharply in the recent crisis.
Dependency on Foreigners: Finally, we have a serious shortage of skilled manpower in middle-level management in this promising industry though have plenty of skilled and semi-skilled workers. Still now a large portion of foreigners working here and draining currency outside though we are also learning from them and this trend is decreasing gradually, that’s a positive sign. Foreigners are mostly from India, China, South Korea, Turkey, Philippines, Pakistan, and Sri Lanka, mainly working in top & middle management, merchandising, marketing, Research& Development, and in technical fields.
There has a huge gap between our education curriculum and job market requirements. The RMG industry is the main contributor to our economy but no RMG business-related courses are included in university curriculum except for very few specialized institutions which are very limited and need to be more practical and market-driven.
Prospects of the RMG industry:
Bangladesh is one of the most densely populated country in the world with a small piece of land. Though our economy is agriculture-based, cultivable land is decreasing due to the massive population. But this large population gives us a prime competitive advantage in our RMG industry. Besides available low-cost workers, we can use many other factors to flourish our RMG industry.
International Politics: Present world is going through deep uncertainty due pandemic, economic turmoil, and geopolitics. It is transforming from a bipolar world into a multipolar world. The trade war between China and USA is at its apex. This has brought an opportunity for our RMG industry. Still now China is the world leader in this industry and USA is a big market. Because of their political tension, the USA is changing its sourcing destination from China to Bangladesh. For the same reason, Myanmar also losing its market.
Technology: China, Vietnam, the Philippines, and some of our other competitors are going to diversify because of technological advancement. As RMG is a labor-intensive industry and labor cost is increasing, these countries are moving to the technology-based industry as well as decreasing focus on the RMG sector. Bangladesh can capture its market.
Image recovery: We have several scandals regarding worker safety, compliance, working environment, and labor right in our RMG industry. The positive news is we are regaining our image and getting recognition internationally for green factories and safety issues by some collective measures. These will help us get more value for our product.
Employment Generation: According to an ILO report, the youth unemployment rate currently stands at 10.6 % in Bangladesh, which is more than two times the overall national unemployment rate of 4.2 %. Due to a lack of employability, skills, and a stereotypical mindset, a large number of foreigners are working in this industry. We can replace them by training our graduates, setting up specialized institutions, and reducing the gap between job market requirements and university curricula. It is easy to work with local people because of fewer communication barriers.
Product Diversification and value addition: Today or tomorrow we must have to go for product development and product diversification otherwise it will be difficult to survive the industry. Some factories have started these practices, we must have to focus and give priority here. It will help us to get higher prices.
Government and others’ initiative: The government and other organizations are more aware than before of developing this industry. Bangladesh’s government is giving different incentives for this industry. It has taken initiative to create different economic zone countrywide which is praiseworthy. BGMEA and other relevant organizations are shown more active. They, collectively, have to take long-term plans for infrastructural development, smooth power supply, and development of proper facilities and environment for attracting buyers and foreign direct investment (FDI).
From the aforementioned discussion, we can realize the worth of the RMG industry for our economy as well as we have been informed about the problems and prospects of the BD RMG industry. To survive in a competitive market our government, related organizations, and authorities have to work collectively. They must have to solve the limitations and problems as well as take action for grabbing prospects. Creating a good image to consumers, value addition in the supply chain, product development, and diversifications, new market exploration, creating skilled manpower, technological upgradations, and market-driven business strategy are must for remaining competitive and getting business success.
A country’s large amount of economic dependency on one sector is not a good sign and we can’t say it’s a healthy economic development. We have to flourish in other industries and bring diversified economic development. Only then sustainable economic development will be possible.
The writer of this article is studying at the Department of Management Studies, Jagannath University