Readymade Garment (RMG) Industry occupies a dominant position in the export-manufacturing sector of Bangladesh. The advent of the RMG sector happened during the early 80s in Bangladesh. Since then, due to supportive policies of the Government of Bangladesh (GoB), this industry has experienced a significant growth. In 1988, the export-oriented RMG sector overtook the traditionally dominant jute sector in terms of gross export accruals. And since then this sector has continued to consolidate it predominant position in the export basket of Bangladesh. According to data of 2003-2004 financial year, the export earnings of the RMG sector was 5686.09 million US dollars, which constituted 74.79 percent of total export earnings. The industry, which started with only a few factory units during 1980s, now boasts 4094 factory units employing around 1.5 million workers.
Composition of Production
The garments products of Bangladesh include both knit and woven wear. Share of knitwear in the total production of garment in Bangladesh is steadily increasing over time. At present, knit wear accounts for about 33 percent of the total production. Of the woven wears, high-value products are shirts, jackets, coats, blouses, sportswear and many more casual and fashion apparels. Recent data shows that production of these high value items either decreased over the years or increased at a very nominal rate compared to other basic low value-added items such as trousers or shorts. Thus, product diversification in the Bangladesh garment industry has been rather slow and products are mainly low value-added or low-fashion items. Of all the produced items in 2001-2, around 40 per cent were exported to USA markets and 53 per cent were exported to the EU markets, with Germany being the highest imported or Bangladeshi garments. However, data of 2003-4 shows that exports to EU has increased to 65 per cent, while exports to USA have decreased to 28 per cent. This drop can be attributed to the abolition of Multi-Fibre Agreement, which will be discussed more in detail later in the paper.
Growth and Challenges of the RMG sector
Two of the main reasons for the growth of this industry can be attributed to (a) comparative advantage of cheap labor and (b) tax-free entrance of Bangladeshi garments to the American and European markets. However, at present, the RMG sector in Bangladesh is facing a debacle due to various national and international reasons. Among them, the phasing out of Multi-Fibre Agreement (MFA), which ensured tax-free entrance of Bangladeshi apparels to the US markets, is one of the main ones. Also, due to high inflation and cost of living increasing in Bangladesh, the workers are demanding higher salaries, which in turn are ruining the comparative advantage of cheap labor of Bangladesh over other countries.
The scenario of international trade has changed to a large extent after the phasing out of MFA. Under the trade agreement, Bangladesh got a tax-free quota facility, which created an ensured market for Bangladeshi garments in the world market. But after the phasing out of the MFA, Bangladesh has been thrown into the open market where there is an acute competition among the exporting countries for global market share. However, it also opened up market opportunities leading to export expansion. The realization of the gains from the expanding market opportunities depends on the capabilities of countries to successfully address the needs arising from acute competition among the exporting countries. Thus Bangladesh, whose comparative advantage is its cheap labor, has to turn this comparative advantage into competitive advantage to compete with other countries.
Recommendations to increase competitiveness of the Industry
Increasing the productivity of the labor remains at the core of increasing competitiveness, which in turn depends on level of technological...