Analysis of Woven Garment Industry of Bangladesh

Introduction

Background

The readymade garments (RMG) industry of Bangladesh is the most important export oriented industry of the country (Ahmed, 2001).  In 2004, the sector’s contribution to GDP was 9.11% alone while the share of the total export of the country was 12.18% only (Bangladesh Bank, 2005).  The export of RMG has been the driver of the enhanced contribution of the export to the GDP over the last two decades (Siddiqi, 2004).

 

In the beginning of the 1980s, Bangladesh’s export stood at US$0.9 billion, which increased to US$1.8 billion in 1990, and then, to US$6.5 billion a decade later.  The annual average growth of real exports in 1980s was slightly higher than the real GDP rate of 3.4% (Bangladesh Bureau of Statistics, 2002).  However, it was in the 1990s when the country’s growth rate of real exports went at a faster pace: 12.5% as against the real GDP growth rate of 4.8%.  The increasing share of RMG exports drove such a growth of export and increasing share of export in GDP in the total export. In 1985, the RMG export constituted only about 12% and increased to an average of 65% in the 90s.  In 2002, the sector directly employed 1.5 million people out of which 80% was female (Rashid, 2005; Siddiqi, 2004).

 

A close look at the composition of RMG export of Bangladesh over the last two decades reveals that the woven garments sub-sector constituted the lion’s share.  In fact, the beginning of the development of RMG sector started with woven garments in 1985.  In the first half the 90s, the share of woven garments was above 80%.  However, the share gradually started to decline to about 70% in five years late and to 62% in 2004 and to 38.80% in 2005-2006 (Export Promotion Bureau Bangladesh, 2006).  In addition, compared to its double-digit growth in the 90s, the woven garments export grew only about 8% in 2000.  Such a declining growth rate and a steep decline of the share of woven garments export in the total RMG export makes it urgent to re-evaluate the status of the sector of Bangladesh vis-à-vis with that of the competing countries.  Moreover, with the dominance of the proponents of free market economy, some changes are taking place in the global trade regulations affecting the readymade garments sector of Bangladesh in general.  One example of such change is the phasing out of the apparel quota on December 31, 2004.

 

Under these circumstances, it is imperative to assess the competitiveness of the woven garments sector of Bangladesh in the global market place.  Hence this study analyzes the woven garments industry of Bangladesh from strategic management perspectives.

 

Objectives of the Study

The objectives of this industry analysis are the following.

  • To present an overview of woven garments industry of Bangladesh in term of companies, products, markets, and key competitors.
  • To identify the general economic conditions, legislations and regulations, population demographics, technology, and societal values and lifestyle related to the industry.
  • To find out the dominant economic features.
  • To apply Porter’s five forces model of competition.
  • To identify the key success factors of woven garments industry.
  • To find out the key driving forces in woven garments industry.
  • To identify the overall corporate social responsibility and ethics practices.
  • To describe the culture and leadership practices.

 

Scope of the Study

The study has some boundaries. The following points delineate those boundaries.

  • The analysis does not consider worldwide comprehensive study of woven enterprises. The reason is that such investigation is not feasible. Moreover, in highly fragmented industries like that of woven garments, companies especially those of Bangladesh do not compete with each other rather compete as a whole industry with the exporting countries in the destination markets.

 

  • Because of the highly fragmented nature of the industry even in the domestic market (with about 400 woven producers present in different parts of the woven garments value chain), aggregation of enterprises could not be provided. Rather, a whole view point of the industry has been taken.  This limits the researchers of this study not to use financial aggregation as well since only a few woven garments industries (not more than 5) are enlisted with the stock exchange.

 

  • The analysis has been confined to the key markets of the woven markets. The markets where Bangladesh occasionally exports or where the amount of export is very small, those markets are excluded from the scope of the study.

 

Methodology

 

Research design

The study, given the nature of the objectives, has a descriptive research design. Since this study is going to be one of the earliest studies with similar objectives about the woven garments sector, the research would be of ‘reporting’ kind.  According to Cooper and Schindler (2003), at the very elementary level a ‘reporting study’ is done to provide an account, or to make a summation of data, or to generate some statistics.  They have also argued that a reporting study requires very little inference. However, the current study answers ‘what’ and ‘why’ of Macroenvironment, industry and competitive conditions, and thus, requires a great deal of inference.  Hence, the current study would be more appropriately termed as a descriptive study.  Therefore, the research design for the study is descriptive research design.

Primary sources         

The researchers collected the industry data organizing one focus group discussions (FGD) and a number of five key informant interviews (KII). The participants of the focused group discussions and the list of key informants are provided below.

Table  SEQ Table * ARABIC 1.1 Participants in FGD and KII

FGD Participants

KII Participants

Mr. Sohel

Mr.Sahiudddin Akbar

Mr. Sabbir

Md. Al-Amin

Mr. Moniruzzaman

Ms. Tamazer Ahmed

Mr. Imran

Syed Mohiuddin Ahmed

Mr. Rahi

Mr. Mustafa Hasan

Mr. Masud

A.K.m Maksud Alam

Ms. Akhi

Mr. Nizamuddin Bhuian

The participants in the FGD was chosen from the industry experts (relationship mangers of banks who look after the woven garments clients) and managers and owners of woven garments companies in Bangladesh. Due to time limitation, the participants were chosen through personal contacts and participants’ willingness to participate in the discussion. Similar method of selection has been applied for interviewing the key informant. The key informants considered were senior managers of banks and senior research officials of Bangladesh Garments Manufacturers and Exporters’ Association. o and the enterprise level data through key informant interview. The list of questions to interview the key informants and to inquire in FGD has been developed by the researchers themselves (please see appendix).

 

Secondary sources

The researchers have explored the following secondary sources to meet the objectives of the report.

  • Data inventory of Bangladesh Export Promotion Bureau Bangladesh (EPB) relating to readymade garments export.
  • Data inventory of Bangladesh Garments Manufactures’ and Exporters’ Association (BGMEA).
  • Reports of the Ministry of Commerce, Government of Bangladesh (GoB).
  • On-line news archive of newspapers and news agencies home and abroad.
  • Books and journals at the library of Institute of Business Administration and University Press Limited.
  • Websites of the statistical departments of various countries (USA and European Union in particular).

Limitations of the Study

The current study is limited by a number of factors.  First, the participants for FGD and KII have been chosen conveniently. Second, the list of questions for FGD and KII has been developed from the scratch by the researchers themselves. However, these limitations are not likely to invalidate the conclusions. The reasons are the following. First, the researchers will depend on both primary and secondary sources. Second, the primary sources have been bifurcated into managers of woven garments companies in Bangladesh, and industry experts. Third, the list of questions has been checked for recasting by the instructor of the course. The refinement of the list of questions following the suggestions of such an expert enhances the relevance and reliability of the questions asked. Hence, these two approaches ensure cross-validation of information needed to fulfill the objectives of the report.

 

Woven Garments Industry of Bangladesh:  an overview

Weaving and Woven Garments: definition

Garments are made from various types of fabrics (Ahmed, 2002; Islam, 2001).  Woven garments are made from the type of fabric that is crafted through weaving (Wikipedia, the free encyclopedia, 2005).  In order to understand the place of woven garments in the realm of garments manufacturing, a holistic look at the entire garments production chain should be taken. The following figure compiled by the USITC (2003) clarifies the matter.

 

The various kinds of fibers are the most basic raw material of any types of garments.  Then, in case of natural fibers, they (fibers) are straightened through a process called carding (Ahmed, 2000).  After that, the fibers go through a further processing called combing through which short strands are taken out.  They are then called silver and processed to give a twisted shape called roving, which is put on spinning frame to be spun around bobbin or cone. Such spun fibers take the name of yarns.  The yarns are then packed and marketed.

 

Various kinds of fabrics are made from the yarns. Two dominant types of fabric are woven and knit.  The woven fabric is produced through a process called weaving (Terde, 1992). Weaving may be simply defined as the art of intertwining of threads, yarns or fibers on a loom at right angles to create a length of textile or cloth.  On the other hand, knitting is the construction of a fabric through interlocking of yarn by means of needles.  The following figures drawn by Shaeffer (1989) show the differences the making of these two fabrics and garments.

In case of woven fabric, the threads go up and down on a loom.  On the other hand, the knitted fabrics are held on knitting needles and stitches are formed which are interlinking.  So, the basic difference in the mechanics of the making of these two type of fabric is that threads go over and under one another in case of woven while they hang from one another in case of knit.  This distinction in the making provides knit fabrics with a stretch as is seen in the knit t-shirts.  So, which fabric to make garments from depends upon what garments are to be made.  For example, to make a loose type of garment any of the two types may be used (Abbey, 1972).  However, in case of making a pair of leggings such as a bathing suit, one would definitely use knit fabric so as to avail enough stretch to make the leggings fit and comfortable.

 

Researchers have always faltered on giving a definition of weaving in paper, as it is almost impossible to do so with sure success.  The technique is much more difficult than it is said as new innovations are taking place to make it finer (Terde, 1992).  However, the report does not aim to give an exhaustive review of technological aspects of weaving.  Hence, the discussion thereof has been kept limited in line with the objective of the report.

 

Garments Industry of Bangladesh: a brief history of development

In the early sixties when Bangladesh was a part of Pakistan, the clothing industry was gradually developing particularly in the West Pakistan (now Pakistan).  However, some emerging garments factories of the West Pakistan such as Mercury Shirts started outsourcing garments making to some tailoring outfits in Dhaka.  These garments were re-exported to the EU through Karachi.  However, no large factories developed in the East Pakistan (now Bangladesh).  The tailoring outfits were mostly meeting the need of the people of Dhaka town (Ahmed, 2001; Siddiqi, 2004).

 

The development of readymade garments industry in Bangladesh has a distinctive feature. It developed from outside pressure rather than emerging to meet local demand as it happened in most countries such as the EU countries, the USA, Japan, Canada, Hong Kong, Canada, Thailand, and Indonesia (Siddiqi, 2004).  The reason was that the domestic demand was too little to allow large-scale investment.  In fact, the increasing wages in the clothing producing countries paved the way for the development of the industry in Bangladesh, as the countries started looking for low-wage situation of factories (Ahmed, 2001).  The first export-oriented factory in Bangladesh was established in 1979.  It was a joint venture between some South Korean entrepreneurs and Desh Garments of Bangladesh (Ahmed, 2001).  These Korean entrepreneurs are known to have come here to take advantage of relatively low labor cost of Bangladesh (Siddiqi, 2004).  Later on, many employees of Desh Garments left it and started their own factories anticipating a big opportunity (Siddiqi, 2004).  This was in a nutshell the start of the garments industry.  Initially, it started with woven garments. Under the quota, which came in place for Bangladesh in 1986, the industry flourished at a rapid pace, being mostly driven by the woven garments manufacturers.

 

Markets for Woven Garments Industry of Bangladesh

The main markets of Bangladesh woven products of Bangladesh are the European Union countries and the United States.  Historically, these two markets have counted for over 90% of the entire woven export of the country.  In the EU, the bigger markets are the U.K., Germany, Sweden, Italy, and the Netherlands.  In the North American region, besides the US, Canada is a substantial market where woven garments export of BD is gradually increasing.  Among the new markets, Japan and Turkey seem to be big potentials, where a greater share of woven export is going every year.  The following table compiled upon the data from Export Promotion Bureau of Bangladesh shows the markets of Bangladeshi woven products and the value of export and the share of total woven garments export in each.

Table 2.1

The Markets for Woven Garments of Bangladesh, and Value of Export and Share of Total Export in Each

 

Countries 2003/2004 2002/2003 2001/2002 2000/2001
Value in US$ % of total Value in US$ % of total Value in US$ % of total Value in US$ % of total
EU Countries
Austria 4904 0.14 3252 0.1 4514 0.14 5932 0.18
Belgium 82803 2.34 84174 2.58 69153 2.21 89351 2.66
Cyprus 184 0.01 89 80 106
Czech Rep. 1152 0.03 1546 0.05 1199 0.04 630 0.02
Denmark 21583 0.61 28855 0.89 23039 0.74 23524 0.7
Estonia 2 1 8
Finland 8102 0.23 11831 0.36 12007 0.38 10626 0.32
France 219152 6.19 198095 6.08 204294 6.54 169721 5.04
Germany 685600 19.38 443332 13.61 380097 12.16 442425 13.15
Greece 2870 0.08 2077 0.06 1827 0.06 1768 0.05
Italy 114633 3.24 108167 3.32 121043 3.87 127956 3.8
Ireland 31698 0.9 22471 0.69 19436 0.62 15607 0.46
Latvia 40 139
Lithuania 10 4 5
Malta 28 22
Poland 2892 0.08 7770 0.24 4956 0.16 2853 0.08
Portugal 2723 0.08 3182 0.1 3019 0.1 2525 0.08
Slovak Rep. 426 0.01 173 0.01 211 0.01 55
Slovenia 172 15 49 39
Spain 106365 3.01 82211 2.52 60896 1.95 45993 1.37
Sweden 63161 1.79 49496 1.52 42580 1.36 47277 1.41
The Netherlands 146157 4.13 146382 4.49 148470 4.75 155001 4.61
U.K 382191 10.8 370349 11.37 301393 9.65 266889 7.93
Total for EU 1876848 53.05 1563633 47.99 1398268 44.74 1408286 41.86
U.S.A 1391637 39.33 1517349 46.57 1591883 50.95 1825366 54.26
Canada 185912 5.25 95942 2.94 62256 1.99 71069 2.11
Japan 15981 0.45 11740 0.36 13028 0.42 7540 0.22
Norway 8178 0.23 16246 0.5 12515 0.4 11667 0.35
Switzerland 15248 0.43 17984 0.55 12538 0.4 9121 0.27
Turkey 3846 0.11 420 0.01 411 0.01 73
Mexico 8986 0.25 8757 0.27 4849 0.16 4854 0.14
Hong Kong 4420 0.12 5549 0.17 6286 0.2 5235 0.16
Korea Rep. 3021 0.09 2648 0.08 2299 0.07 2249 0.07
Australia 2465 0.07 1682 0.05 1833 0.06 2083 0.06
Other Countries 21524 0.6 16324 0.46 18396 0.54 16658 0.48

 

Products of Woven Garments Industry of Bangladesh

The main woven products of Bangladesh are shirts, trousers, and jackets, mostly made from cotton.  Though the products are not categorized by the Export Promotion Bureau according to whether they are woven shirts or non-woven shirts, the following table compiled from data of EPB still testifies that these are the three main woven products of Bangladesh.  These three products, the majority of which are woven, constitute over 40% of the total apparel export of Bangladesh.

 

Table 2.2

Main Apparel Products of Bangladesh (woven and knit mixed)

 

Main items (woven and knit mixed) Total Apparel Export
Year Shirt Trouser Jackets
Value US$ % of Total Apparel Export Value US$ % of Total Apparel Export Value US $ % of Total Apparel Export Value US$
1997-98 961.13 25.4% 333.28 8.8% 467.19 12.4% 3781.94
1998-99 1043.11 25.9% 394.85 9.8% 393.44 9.8% 4019.98
1999-00 1021.17 23.5% 484.06 11.1% 439.77 10.1% 4349.41
2000-01 1073.59 22.1% 656.33 13.5% 573.74 11.8% 4859.83
2001-02 871.21 19.0% 636.61 13.9% 412.34 9.0% 4583.75
2002-03 1019.87 20.8% 643.66 13.1% 464.51 9.5% 4912.1

 

Competitors of Woven Garments Industry of Bangladesh

Identification of competitors of the woven garments sector of Bangladesh can be done in two ways.  First, competitors of the woven garments sector of Bangladesh can be identified through analyzing the market shares of various countries in the markets where Bangladesh exports its woven garments.  Then, the countries with more or closer or increasing market share in a particular market can be identified as competitors of Bangladesh in that market.  The second approach involves measuring the Export Similarity Index (ESI) of the competing countries in a particular market vis-à-vis Bangladesh.  This index takes into account how important the export of the sector is in the total export of the country, and hence, is a more sophisticated one.

 

Identifying competitors by ESI

The formula for the index is as follows:

ESI=SMin {Sj (AC), Sj (BC)}

Here, A is Bangladesh, B is the selected comparator country, C is the specific market (for example the EU), and Sj is the share of industry J’s exports in the exporting country’s total exports.  The ESI can range from zero to unity.  The ESI of some selected countries vis-à-vis Bangladesh has been calculated by taking data available in the World Trade Analyzer by Islam (1997). This has been presented in the following table.

 

Table 2.3

Export Similarity Index for Bangladesh for Clothing Exports

 

Countries USA European Union Total Market
1990 1996 1997 1990 1996 1997 1990 1996 1997
Sri Lanka 0.27 0.78 0.83 0.3 0.72 0.74 0.28 0.74 0.79
India 0.12 0.64 0.61 0.13 0.62 0.64 0.12 0.7 0.7
Pakistan 0.15 0.49 0.56 0.21 0.35 0.39 0.21 0.54 0.55
Indonesia 0.27 0.67 0.68 0.32 0.62 0.74 0.31 0.7 0.75
China 0.29 0.58 0.6 0.35 0.5 0.53 0.25 0.69 0.7
Hong Kong 0.21 0.61 0.59 0.34 0.66 0.73 0.27 0.68 0.7
Korea, South 0.13 0.63 0.59 0.31 0.47 0.55 0.19 0.6 0.6
Malaysia 0.13 0.42 0.42 0.17 0.33 0.36 0.17 0.41 0.42
Philippines 0.29 0.63 0.62 0.22 0.55 0.65 0.26 0.62 0.66
Singapore 0.17 0.48 0.47 0.2 0.48 0.54 0.2 0.61 0.59
Thailand 0.19 0.59 0.51 0.43 0.57 0.64 0.36 0.65 0.64
Taiwan 0.3 0.57 0.58 0.4 0.45 0.52 0.32 0.55 0.59
Vietnam 0.5 0.5 0.55 0.48 0.47 0.62 0.63 0.67
Mexico 0.2 0.66 0.68 0.16 0.41 0.45 0.22 0.71 0.7
Dominican Republic 0.39 0.57 0.55 0.06 0.39 0.39 0.41 0.59 0.58
Jamaica 0.19 0.25 0.36 0.08 0.65 0.2 0.22 0.34 0.47

 

According to the ESI calculation, the close contenders of Bangladesh are Sri Lanka, India, Indonesia, China, Hong Kong, South Korea, Philippines, Thailand, Taiwan, and Dominican Republic etc.

 

Identifying competitors by market share

EU market

There are ten broad categories of woven products that are exported to the EU, according to the data maintained by EuroStat, the statistical agency of the EU.  By consolidating the EU import from different countries in the ten product categories, it has been found that the ominous competitor of Bangladesh in the EU is China. The following table shows the calculations.

 

Table 2.4

Market Share of Various Countries in the EU Market in Ten Categories of Woven Products Export of Bangladesh to the EU

 

January-April 2004 January-April 2005
Value Share (%) Value Share (%)
Australia 1,086,450 0.0 1,315,730 0.0
Bangladesh 531,557,610 8.8 448,406,050 7.3
Bulgaria 187,181,720 3.1 185,419,630 3.0
Cambodia 50,134,420 0.8 37,162,280 0.6
China 747,763,950 12.4 1,451,706,560 23.7
Croatia 55,220,040 0.9 46,742,110 0.8
Egypt 37,478,240 0.6 32,143,720 0.5
Hong Kong 361,800,970 6.0 162,966,320 2.7
India 343,343,130 5.7 362,324,690 5.9
Indonesia 171,197,750 2.8 132,551,280 2.2
Israel 7,887,470 0.1 2,799,860 0.0
Japan 6,812,350 0.1 6,453,150 0.1
Laos 21,574,750 0.4 18,476,030 0.3
Macao 76,917,310 1.3 47,038,160 0.8
Malaysia 25,530,200 0.4 22,684,700 0.4
Mauritius 40,772,520 0.7 31,355,260 0.5
Morocco 459,110,460 7.6 389,447,100 6.4
Myanmar 69,566,710 1.2 37,573,610 0.6
Pakistan 111,942,720 1.9 115,277,290 1.9
Philippines 49,048,990 0.8 33,976,090 0.6
Romania 717,981,440 11.9 658,776,990 10.8
South Korea 45,112,070 0.7 19,204,380 0.3
Sri Lanka 109,504,920 1.8 93,784,460 1.5
Switzerland 90,023,260 1.5 81,058,330 1.3
Taiwan 30,729,390 0.5 10,779,060 0.2
Thailand 101,593,510 1.7 84,893,900 1.4
Tunisia 493,042,840 8.2 478,049,020 7.8
Turkey 861,621,930 14.3 932,998,240 15.2
USA 28,636,610 0.5 34,836,590 0.6
Ukraine 83,560,830 1.4 84,392,320 1.4
Vietnam 108,866,060 1.8 78,675,530 1.3
Total 6,026,600,620 100 6,123,268,440 100

 

The table shows that China is in the leading position. Bangladesh leads the South Asian Countries, holding 7.32% market share of the whole European market in 2005.  In 2004, the market share of Bangladesh was 8.82%.  China leads by holding a market share of 23.71% in European market in 2005.  It was 12.41% in 2004 when the market leader was Turkey, capturing the14.30% market share.  It can also been seen from the table that the difference between China and Bangladesh was not so broad in 2004.  The difference was around 4%. However, in Jan-April 2005 the difference is more than 15%.

 

The US market

There are about 895 woven products exported to the US from 115 countries around the world. Table 3.4 compiled from the data of the U.S. Department of Commerce Office of Textiles and Apparel shows the market share of 30 major woven garments exporters in the US market.   It can be seen that China is the market leader of woven products in the US market followed by Mexico and CBI countries.  Bangladesh holds the seventh position, China, Mexico, CBI region, India, Indonesia, and Hong Kong staying above it. Vietnam, Dominican Republic, Sri Lanka, Thailand, the Philippines, Canada, and Cambodia closely follow it.  However, Canada can be discounted as a competitor as it specializes in the high value added products that Bangladesh does not manufacture.

 

Bangladesh has been able to slightly increase its share in the year ending June/2005 compared to the previous corresponding year while that of the most threatening competitor, China increased by about 50%.  Among other competitors, India, Indonesia, Sri Lanka, and Vietnam have also experienced some growth.  The shares of ominous competitors such as CBI region, and Mexico have declined slightly.

 

Table 2.5

Market Share of Woven Garments Exporters in the US Market

 

Year Ending 6/2004 Year Ending 6/2005
Country Value US $ Market Share (%) Value US$ Market Share (%)
World 34,065,457,172 100 38,159,472,206 100
CBI 3,613,375,527 10.6 3,695,244,008 9.7
Bangladesh 1,291,193,975 3.8 1,602,458,912 4.2
Costa Rica 275,053,023 0.8 269,246,673 0.7
Cambodia 763,527,264 2.2 846,956,380 2.2
Canada 855,949,099 2.5 802,440,708 2.1
China 5,768,137,879 16.9 8,815,979,893 23.1
China (Taiwan) 523,847,612 1.5 438,996,358 1.2
Colombia 355,799,911 1.0 440,065,294 1.2
Dominican Republic 1,145,802,203 3.4 1,168,744,819 3.1
Guatemala 685,054,678 2.0 687,697,118 1.8
Haiti 32,808,076 0.1 38,202,907 0.1
Hong Kong 2,040,940,047 6.0 1,688,836,836 4.4
Honduras 686,095,402 2.0 737,789,443 1.9
India 1,524,645,566 4.5 1,967,129,479 5.2
Indonesia 1,621,263,063 4.8 1,919,580,212 5.0
Italy 1,188,345,700 3.5 1,188,161,829 3.1
Korean Republic 808,100,484 2.4 695,014,033 1.8
Lesotho 162,285,573 0.5 169,629,410 0.4
Macau 552,094,780 1.6 521,713,407 1.4
Malaysia 299,817,124 0.9 271,476,682 0.7
Mauritius 178,047,206 0.5 127,057,408 0.3
Mexico 4,161,758,421 12.2 4,229,829,595 11.1
Nepal 74,706,802 0.2 63,091,923 0.2
Nicaragua 375,021,963 1.1 434,912,226 1.1
Pakistan 273,679,217 0.8 339,838,175 0.9
Philippines 1,100,221,796 3.2 1,036,797,645 2.7
El Salvador 380,760,010 1.1 322,264,301 0.8
Sri Lanka 1,038,617,944 3.0 1,176,853,861 3.1
Thailand 852,370,351 2.5 908,023,492 2.4
Turkey 520,926,664 1.5 597,947,864 1.6
Vietnam 1,212,353,629 3.6 1,544,730,493 4.0
Others (86 countries) 3,316,231,710 9.7 3,108,004,830 8.1

 

The Canadian and Japanese market

For these two markets, the researchers found no separate database exclusively for woven garments. However, based upon the overall clothing imports in these two markets as found from WTO database, the following discussion is undertaken.

 

In the Canadian market, competitors of Bangladesh which are doing better than Bangladesh are China, United States, Hong Kong, India, and , Mexico.  The market leader is as usual China with about 30% market share.  The market share of Bangladesh is however displayed an increasing trend between 2000-2003.  In 2003, Bangladesh held the seventh position.  Sri Lanka, Indonesia, Thailand, Philippines, Malaysia, and Pakistan closely follow Bangladesh in this market.

 

The Japanese clothing market is under Chinese monopoly with 80% market share in 2003.  Bangladesh held only 0.1% market share in 2003.  Viet Nam, United States, Thailand, Indonesia, Malaysia, India, Philippines, Taiwan, Hong Kong, and Korea however are doing better than Bangladesh.

 

Performance of Woven Garments Sector: a postmortem

A quick measurement of the performance of the woven garments sector of Bangladesh could be done in two ways.  The first way is to investigate the trend in its share of total garments export, total export, and GDP.  The following table calculated from data collected from Bangladesh Statistical Yearbook 1990, Bangladesh Statistical Yearbook 1995, Bangladesh Statistical Yearbook 2003, Economic Trends April 2005, and data inventory of Export Promotion Bureau addresses the first way.  The second way would be to follow the trend of growth of the woven garments export of BD vis-à-vis that of total garments and total export of BD as revealed in Table 3.5 from the same data used for compiling Table 3.6.

 

In the very initial year such as that of 1985, export was 6.19% of GDP at current market prices and 12.44% of it was contributed by the readymade garments export. The share of total export in GDP varied from 5% to 6% till the beginning of 90s. However, in the early 90s the surge of garments export started and its share of total export rose to 50%. The portion of woven garments of the total garments was more than four fifth. This trend of the share of woven garments remained the same till the mid 90s, while the total garments export increased its share of total export from Bangladesh to around 65% from its 50% share in 1991. The share of total garments in GDP at current market prices was then 5.53%. In the years from 1996 to 1999, the share of total garments export in the total export grew very slowly to be of 75.67% in 1999. But the share of woven garments in the total garments export fell gradually to 74.15% in 1999 from its four fifth share in the mid 90s. In the year between 2000 and 2004, the share of garments export in total export fluctuated around 75% while the contribution of woven export to the total garments export fell gradually to be only around 62% in 2004.

Table 2.6

Share of Woven Garments in Total Export, Total Garments Export, and GDP (Values in MN US$)

Year Total Export of BD Total Garments Export Total Woven Export
Value Share of GDP Value Share of Total Export Share of GDP Value Share of Total Garments Export Share of Total Export Share of GDP
1985 934.43

6.19%

116.20 12.44% 0.77%
1986 819.21 5.83% 131.48 16.05% 0.94%
1987 1076.61 5.69% 298.67 27.74% 1.58%
1988 1231.20 6.24% 433.92 35.24% 2.20%
1989 1291.56 6.47% 471.09 36.47% 2.36%
1990 1523.70 6.97% 624.16 40.96% 2.86%
1991 1717.55 5.54% 866.82 50.47% 2.80% 735.62 84.86% 42.83% 2.37%
1992 1993.92 6.29% 1182.57 59.31% 3.73% 1064 89.97% 53.36% 3.36%
1993 2382.89 7.02% 1445.02 60.64% 4.26% 1240.48 85.85% 52.06% 3.65%
1994 2533.90 7.24% 1555.79 61.40% 4.44% 1291.65 83.02% 50.97% 3.69%
1995 3472.56 8.61% 2232.09 64.28% 5.53% 1835.09 82.21% 52.85% 4.55%
1996 3882.00 8.33% 2547.13 65.61% 5.47% 1948.81 76.51% 50.20% 4.18%
1997 4418.28 9.17% 3001.25 67.93% 6.23% 2237.95 74.57% 50.65% 4.64%
1998 5161.20 10.19% 3781.94 73.28% 7.47% 2844.43 75.21% 55.11% 5.61%
1999 5312.86 9.49% 4019.98 75.67% 7.18% 2984.96 74.25% 56.18% 5.33%
2000 5752.20 10.51% 4349.41 75.61% 7.95% 3081.19 70.84% 53.57% 5.63%
2001 6467.30 12.79% 4859.83 75.14% 9.61% 3364.32 69.23% 52.02% 6.65%
2002 5986.09 11.32% 4583.75 76.57% 8.67% 3124.82 68.17% 52.20% 5.91%
2003 6188.50 11.07% 4912.09 79.37% 8.79% 3258.27 66.33% 52.65% 5.83%
2004 7602.99 12.18% 5686.09 74.79% 9.11% 3538.07 62.22% 46.54% 5.67%

 

Such a declining trend of woven garments share in total garments export happened due to the quick uprising knit garment which has less capital intensive backward-linkage.  As it can be seen in Table 3.6, with its negative growth in the early 90s, the export of knit garments grew at a stupendous rate of over 50% in the mid 90s. Simultaneously, the woven garments export which was growing at a pace thrice that of the growth of the total export and much faster than the total garments export ceased it growth rate to only about 6% in 1996. In the later years the growth rate of the woven garment did not go above 15% recording even a negative growth of 7.12% in the year 2002. But, in the same period, knit garments export displayed a remarkable growth of around 20% with one year of negative growth of 2.45% in 2002.

 

Table 2.7

Comparison of Rate of Growth of Total Export, Total Garment Export, Total Woven Garments Export, and Total Knit Garments Export (Values in MN US$)

 

Year Total Export of BD Rate of Growth Total Garments Export of BD Rate of Growth Woven Garments Export of BD Rate of Growth Knit Garments Export of BD Rate of Growth
1991 1717.55 866.82 735.62 131.20
1992 1993.92 16.09% 1182.57 36.43% 1064 44.64% 118.57 -9.63%
1993 2382.89 19.51% 1445.02 22.19% 1240.48 16.59% 204.54 72.51%
1994 2533.90 6.34% 1555.79 7.67% 1291.65 4.13% 264.14 29.14%
1995 3472.56 37.04% 2232.09 43.47% 1835.09 42.07% 397.00 50.30%
1996 3882.00 11.79% 2547.13 14.11% 1948.81 6.20% 598.32 50.71%
1997 4418.28 13.81% 3001.25 17.83% 2237.95 14.84% 763.30 27.57%
1998 5161.20 16.81% 3781.94 26.01% 2844.43 27.10% 937.51 22.82%
1999 5312.86 2.94% 4019.98 6.29% 2984.96 4.94% 1035.02 10.40%
2000 5752.20 8.27% 4349.41 8.19% 3081.19 3.22% 1268.22 22.53%
2001 6467.30 12.43% 4859.83 11.74% 3364.32

9.19%

1495.51 17.92%
2002 5986.09 -7.44% 4583.75 -5.68% 3124.82 -7.12% 1458.93 -2.45%
2003 6188.50 3.38% 4912.09 7.16% 3258.27 4.27% 1653.82 13.36%
2004 7602.99 22.86% 5686.09 15.76% 3538.07 8.59% 2148.02 29.88%

 

The trend of declining share and growth rate of woven garment sector of Bangladesh can be further substantiated by its declining trend in the growth of factories.  Table 3.7 compiled upon the data of BGMEA shows that the trend of growth in the number of woven factories was on rise to attain a growth of 38.76% in 1992.  However, the trend reversed in the following year to hit a meager growth of 1.22% in 1996.  Then the growth trend went up a bit and rose to 8.7% in 1998 but then again followed the previous path of decline to hit a rock-bottom growth of only 1.68% in 2003.  It goes without saying that though the factories differ in their capacities, any low trend in the growth of factories indicates the loss of attractiveness of the sector for new investors.

 

Table 2.8

Trend in the Growth of Woven Factories

Year No of woven factories % Increase in the number of factories
1990 651
1991 756 16.13%
1992 1049 38.76%
1993 1249 19.07%
1994 1409 12.81%
1995 1552 10.15%
1996 1571 1.22%
1997 1656 5.41%
1998 1800 8.70%
1999 1899 5.50%
2000 2000 5.32%
2001 2099 4.95%
2002 2145 2.19%
2003 2181 1.68%

 

Analysis of Key Macroenvironment Factors

Analysis of Key Macroenvironment Factors

This section of the report analyzes the general economic conditions facing the woven garments industry of Bangladesh. As it has been identified in the earlier sections, the key markets for the woven garments products of Bangladesh are the following few countries, the general economic conditions of the countries are the economic conditions facing the woven garments companies.

  • USA
  • Germany
  • UK
  • France
  • Canada
  • Italy
  • Spain
  • Netherlands
  • Belgium
  • Sweden

 

Particularly, from the perspective of the market opportunities and sustained profitability, the following factors of macroeconomic conditions of the destination markets must be investigated: income, growth, inflation rate, and exchange rate. Various Bangladeshi economic conditions of Bangladesh are relevant too since various fiscal and monetary policies in the producing countries have a significant impact on the operations of business. So, this report adopts the following as the appropriate framework of discussion on general economic conditions.

3.1.1 Economic conditions in the destination economies

USA Market: The economic conditions of this market are explained next. The USA market is becoming less attractive than it was before. The following graph shows the purchasing power GDP growth rate of the country over the last seven years.

 

Though USA had a healthy PPP GDP growth for a few years after the debacle of September 9/11, the economy experienced a decline thereafter. In 2007, the country experienced the worst hit by the widespread default of sub-prime loans. As the graph illustrates the country’s GDP growth fell to 2% in 2007 to stand at about 13.33 trillion US dollars.

 

To better understand the economic conditions of USA, the following two graphs have been plotted.

 

The figures above shows that there has not been significant growth in the per capital income of US economy, if measured in PPP. Moreover, due to consistently increasing rate of inflation, the growth in per capita income has been eroded to some extent.

 

As the graph above shows, the US dollar is strengthening against Bangladeshi taka and thus, it reduces increase the attractiveness of Bangladeshi products to the US market. However, the exchange rate of dollar versus BDT has recently stagnated. In recent days, the BDT has been observed to be strengthening against US dollar.

 

Overall US economy can be summed up in the following manner.

 

  • The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $45,700.

 

  • In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace.

 

  • US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals’ home markets than foreign firms face entering US markets.

 

  • The onrush of technology largely explains the gradual development of a “two-tier labor market” in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits.

 

  • Since 1975, practically all the gains in household income have gone to the top 20% of households. The response to the terrorist attacks of 11 September 2001 showed the remarkable resilience of the economy. The war in March-April 2003 between a US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military.

 

  • The rise in GDP in 2004-07 was undergirded by substantial gains in labor productivity. Hurricane Katrina caused extensive damage in the Gulf Coast region in August 2005, but had a small impact on overall GDP growth for the year. Soaring oil prices in 2005-2007 threatened inflation and unemployment, yet the economy continued to grow through year-end 2007. Imported oil accounts for about two-thirds of US consumption. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. The merchandise trade deficit reached a record $847 billion in 2007. Together, these problems caused a marked reduction in the value and status of the dollar worldwide in 2007.

 

German Market:

As an aggregate market, Germany’s economic conditions seem to be favorable for Bangladesh. The following graph shows that overall purchasing power GDP growth of Germany has been on the rise for the last three years. This is a good economic omen.

Figure 3.6: PPP GDP Growth Rate of Germany

 

The following figure indicates that German consumers on an average my cut lower their expenses than those of the previous years. The reason is that the per capital purchasing power parity income has slightly fallen in the year 2007. If there is not rise in the per capita income in the year 2008, the luxurious clothing items may suffer a blow in overall earnings. Since the woven export basket of Bangladesh does not comprise of expensive and luxurious items, Bangladesh woven garments companies exporting to Germany can expect to be on the safer side. Adding to that is the low inflation rate.

 

As the above figure illustrates Euro has been falling in its strength against taka. So, it can be inferred that to some extent at least, falling fall of euro against BDT makes the exports of Bangladesh expensive to the European consumers. However, a large number of factors operate in between and hence, no clear-cut conclusions can be made from here.

 

The key points about the German economy are summarized below.

 

  • Germany is affluent and technologically powerful economy – the fifth largest in the world in PPP terms – showed considerable improvement in 2007 with 2.6% growth.

 

  • After a long period of stagnation with an average growth rate of 0.7% between 2001-05 and chronically high unemployment, stronger growth led to a considerable fall in unemployment to about 8% near the end of 2007. Among the most important reasons for Germany’s high unemployment during the past decade were macroeconomic stagnation, the declining level of investment in plant and equipment, company restructuring, flat domestic consumption, structural rigidities in the labor market, lack of competition in the service sector, and high interest rates.
  • The modernization and integration of the eastern German economy continues to be a costly long-term process, with annual transfers from west to east amounting to roughly $80 billion. The former government of Chancellor Gerhard SCHROEDER launched a comprehensive set of reforms of labor market and welfare-related institutions. The current government of Chancellor Angela MERKEL has initiated other reform measures, such as a gradual increase in the mandatory retirement age from 65 to 67 and measures to increase female participation in the labor market. Germany’s aging population, combined with high chronic unemployment, has pushed social security outlays to a level exceeding contributions, but higher government revenues from the cyclical upturn in 2006-07 and a 3% rise in the value-added tax pushed Germany’s budget deficit well below the European Union’s 3% debt limit.

 

  • Corporate restructuring and growing capital markets are setting the foundations that could help Germany meet the long-term challenges of European economic integration and globalization, although some economists continue to argue the need for change in inflexible labor and services markets. Growth may fall below 2% in 2008 as the strong euro, high oil prices, tighter credit markets, and slowing growth abroad take their toll.

 

UK Market:

The following graphs show the PPP GDP growth rate of UK. As an aggregate, the economy has been experiencing a steady growth after the slump in growth in 2005.

 

Unlike Euro, the pound sterling has gained strength against BDT and thus, some strengthening of pound has contributed to some extent to the favorableness of Bangladesh woven exports to the UK market.

 

The following are the key features of UK economy upon postmortem as of the year 2007.

 

  • The UK, a leading trading power and financial center, is one of the quintet of trillion dollar economies of Western Europe. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs.
  • Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance.

 

  • Since emerging from recession in 1992, Britain’s economy has enjoyed the longest period of expansion on record; growth has remained in the 2-3% range since 2004, outpacing most of Europe.

 

  •  The economy’s strength has complicated the Labor government’s efforts to make a case for Britain to join the European Economic and Monetary Union (EMU). Critics point out that the economy is doing well outside of EMU, and public opinion polls show a majority of Britons are opposed to the euro. The BROWN government has been speeding up the improvement of education, health services, and affordable housing at a cost in higher taxes and a widening public deficit.

 

French Market:

 

As it is with other European Union countries discussed in this section, per capita PPP income of France has also declined in the year 2007.

 

The optimism is that the rate of inflation has fallen simultaneously with the fall in per capita income, as the figure above and the figure below illustrate.

 

The key features of French economy are provided below.

 

  • France is in the midst of transition from a well-to-do modern economy that has featured extensive government ownership and intervention to one that relies more on market mechanisms.

 

  • The government has partially or fully privatized many large companies, banks, and insurers, and has ceded stakes in such leading firms as Air France, France Telecom, Renault, and Thales. It maintains a strong presence in some sectors, particularly power, public transport, and defense industries. The telecommunications sector is gradually being opened to competition.

 

  • France’s leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that reduce income disparity and the impact of free markets on public health and welfare. Widespread opposition to labor reform has in recent years hampered the government’s ability to revitalize the economy. In 2007, the government launched divisive labor reform efforts that will continue into 2008. France’s tax burden remains one of the highest in Europe (nearly 50% of GDP in 2005).

 

  • France brought the budget deficit within the eurozone’s 3%-of-GDP limit for the first time in 2007 and has reduced unemployment to roughly 8%. With at least 75 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism.

 

Canadian Market:

The following figure shows the PPP GDP growth rate of Canada. As the figure illustrates the PPP GDP growth rate of Canada has been on the wane over the last three years.

 

However, the per capita PPP income of Canada was on the rise upto the year 2006. The income declined in 2007.

 

Table 3.1

Inflation Rate of Canada Using CPI

 

2005 2.2%
2006 2.2%
2007 2.8%

 

The following are some key economic features of the country.

 

  • As an affluent, high-tech industrial society in the trillion-dollar class, Canada resembles the US in its market-oriented economic system, pattern of production, and affluent living standards.

 

  • Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes Mexico) touched off a dramatic increase in trade and economic integration with the US.

 

  •  Given its great natural resources, skilled labor force, and modern capital plant, Canada enjoys solid economic prospects. Top-notch fiscal management has produced consecutive balanced budgets since 1997, although public debate continues over the equitable distribution of federal funds to the Canadian provinces. Exports account for roughly a third of GDP. Canada enjoys a substantial trade surplus with its principal trading partner, the US, which absorbs more than 80% of Canadian exports each year. Canada is the US’ largest foreign supplier of energy, including oil, gas, uranium, and electric power.

 

Italian Market:

Unlike other European countries, Italy has experienced rising economic growth in terms of the growth rate of the PPP GDP. The following figure illustrates this happening.

  • Italy has a diversified industrial economy with roughly the same total and per capita output as France and the UK. This capitalistic economy remains divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with 20% unemployment.

 

  • Most raw materials needed by industry and more than 75% of energy requirements are imported. Over the past decade, Italy has pursued a tight fiscal policy in order to meet the requirements of the Economic and Monetary Unions and has benefited from lower interest and inflation rates.

 

  • The current government has enacted numerous short-term reforms aimed at improving competitiveness and long-term growth. Italy has moved slowly, however, on implementing needed structural reforms, such as lightening the high tax burden and overhauling Italy’s rigid labor market and over-generous pension system, because of the current economic slowdown and opposition from labor unions. But the leadership faces a severe economic constraint: Italy’s official debt remains above 100% of GDP, and the government has found it difficult to bring the budget deficit down to a level that would allow a rapid decrease in that debt. The economy continues to grow by less than the euro-zone average and growth is expected to decelerate from 1.9% in 2006 and 2007 to under 1.5% in 2008 as the euro-zone and world economies slow.

Dutch Market:

The Netherlands have shown an increasing growth rate in PPP GDP. The following table presents the data necessary to back up this statement.

 

Table 3.2

PPP GDP Growth Rate of the Netherlands

 

2001 0.30%
2002 0.20%
2003 -0.70%
2004 1.25%
2005 1.50%
2006 3.00%
2007 2.80%

 

The following table shows that the country has experienced a high per capita PPP income in 2006 which declined in the following year.

 

Table 3.3

Per Capita PPP Income of the Netherlands (in US Dollars)

 

2001 $26,900.00
2002 $27,200.00
2003 $28,600.00
2004 $29,450.00
2005 $30,300.00
2006 $45,425.00
2007 $38,600.00

 

The country’s inflation rate, as the following table illustrates, has been falling.

 

Table 3.4

Inflation Rate of the Netherlands

 

2001 3.4
2002 3.4
2003 2.1
2004 1.9
2005 1.7
2006 1.8
2007 1.8

 

The following are some key features of the economy of the Netherlands.

 

  • Tourism, petroleum refining, and offshore finance are the mainstays of this small economy, which is closely tied to the outside world. Although GDP has declined or grown slightly in each of the past eight years, the islands enjoy a high per capita income and a well-developed infrastructure compared with other countries in the region.

 

  • Most of the oil Netherlands Antilles imports for its refineries come from Venezuela. Almost all consumer and capital goods are imported, the US and Mexico being the major suppliers. Poor soils and inadequate water supplies hamper the development of agriculture. Budgetary problems hamper reform of the health and pension systems of an aging population.

 

Belgian Market:

The following table shows PPP GDP growth rate of Belgium was the highest in the year 2006 which slightly fell in 2007.

 

Table 3.5

PPP GDP Growth Rate of Belgium

 

2001 0.60%
2002 0.70%
2003 1.10%
2004 2.70%
2005 1.50%
2006 3.00%
2007 2.70%

 

The per capita PPP income of Belgium (please see the following table) rose very high in 2006 and then fell in 2007.

Table 3.6

Per Capita PPP Income of Belgium (in US Dollars)

 

2001 $29,000.00
2002 $29,200.00
2003 $29,100.00
2004 $30,100.00
2005 $31,100.00
2006 $41,605.00
2007 $36,500.00

 

 

Inflation rate of Belgium has remained steady over the last few years.

 


Table 3.7

Inflation Rate of Belgium

2001 1.7
2002 1.7
2003 1.6
2004 2.1
2005 2.8
2006 2.2
2007 1.7

 

The following are some key features of Belgian economy.

 

  • This modern, private-enterprise economy has capitalized on its central geographic location, highly developed transport network, and diversified industrial and commercial base. Industry is concentrated mainly in the populous Flemish area in the north.

 

  • With few natural resources, Belgium must import substantial quantities of raw materials and export a large volume of manufactures, making its economy unusually dependent on the state of world markets. Roughly three-quarters of its trade is with other EU countries.

 

  • Public debt is more than 85% of GDP. On the positive side, the government has succeeded in balancing its budget, and income distribution is relatively equal. Belgium began circulating the euro currency in January 2002. Economic growth in 2001-03 dropped sharply because of the global economic slowdown, with moderate recovery in 2004-07. Credit tightening, falling consumer and business confidence, and uncertainty surrounding delays in government formation could slow growth and reduce foreign investment in 2008.

 

Swedish Market:

Swedish economy experienced a rising growth rate in the PPP GDP. The following table provides the necessary support for such argument.

 

Table 3.8

PPP GDP Growth Rate of Sweden

2001 1.80%
2002 1.90%
2003 1.70%
2004 4.10%
2005 2.70%
2006 2.70%
2007 3.40%

 

As the following table shows, per capita PPP income of Sweden rose very high in 2006 and then fell in 2007.

 

Table 3.9

Per Capita PPP Income of Sweden (in US Dollars)

2001 $25,400.00
2002 $26,000.00
2003 $26,800.00
2004 $28,300.00
2005 $29,800.00
2006 $47,605.00
2007 $36,900.00

 

The rate of inflation of Sweden rose high in 2007 over that of the year 2006. This shows substantial erosion in purchasing power.

 

Table 3.10

Inflation Rate of Sweden

2001 2.2
2002 2.2
2003 1.9
2004 1.8
2005 0.5
2006 1.5
2007 2

 

The following features of the Swedish economy are noteworthy.

 

  • Aided by peace and neutrality for the whole of the 20th century, Sweden has achieved an enviable standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. It has a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade.

 

  • Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. Agriculture accounts for only 1% of GDP and 2% of employment. Sweden is in the midst of a sustained economic upswing, boosted by increased domestic demand and strong exports. This and robust finances have offered the center-right government considerable scope to implement its reform program aimed at increasing employment, reducing welfare dependence, and streamlining the state’s role in the economy.

 

  • The government plans to sell $31 billion in state assets during the next three years to further stimulate growth and raise revenue to pay down the federal debt. In September 2003, Swedish voters turned down entry into the euro system concerned about the impact on the economy and sovereignty.

 

3.1.2 Analysis of Local Economic Conditions

Currently the readymade garments (RMG) sector contributes two thirds of the Bangladesh’s total export earnings. But the market of the readymade garments is limited. The North America and European Union are the main destinations of our export items. Though Japan has a good market of garments, we are yet to actively enter into that market. There is a possibility of major changes of the role of RMG sector in Bangladesh’s export trading from 2005 or in the post MFA era. We need to undertake necessary measures: Incentives/Financial facilities so that the changes become favorable for Bangladesh.

 

Incentives/Assistance

  • Government has declared the following package of incentives/facilities:

Fiscal facilities:

  • Income tax exemption for export earning: Under the income tax law other than the owners of factories not registered in Bangladeshi, all exporters will get 50% exemptions in their income taxes.

 

  • Exemption in insurance premium.

 

  • Bond facilities for export oriented industries.

 

  • Facilities for duty free import of capital machineries for export – oriented industries.

 

  • The export-oriented industries will get the advantage of importing 10 percent spare parts of their capital machineries without duty in every two years.

 

  • Providing alternative facilities to export-oriented local textiles and RMG other than duty-bond or duty-draw-back.

 

  • Tax holiday.

 

  • Duty-draw-back scheme.

Financial facilities

  • Use of foreign currency: The exporters can deposit a certain amount of their export earning in foreign currency under a retention quota in their foreign currency account in the forms of US dollar, pound sterling, Japanese yen or euro. The amount of the retention (in terms of percentage) will be fixed by the government/Bangladesh Bank. This foreign currency can be used to fulfill real business needs like business trips abroad, participation in export fair or seminars in foreign countries, import of raw materials and spare parts and setting up office abroad. Presently 10% has been fixed for lower value added products like RMG.
  • Export Promotion Fund (EPF) :

(i)           Offer venture capital with less interest rate and easy term for production;

(ii)         Assist in getting foreign technical assistance, service and technology in product development and diversification

(iii)       Assist in sending marketing missions abroad and taking part in international fairs for market promotion in foreign countries

(iv)       Assist in setting up sales and display centre abroad and warehousing facilities

(v)         Assist in participating product development and marketing training programme for export promotion through attaining technical and marketing efficiency ; and

(vi)       Facilitate in other activities for product and market development.

  • Providing fund for export :

(i)     Interest free loans will be provided under duty-draw-back credit scheme

(ii)    Import process of raw materials and related products will be made easier under the export promotion fund (EPF).

(iii) Facilities will be provided to open back to back LC for all exportable; and

(iv) The proposals for importing capital machineries with soft term loan with lesser interest rate can be considered for export promotion.

 

 General facilities:

  • The enterprises that export 80 percent of their products will get the facilities given to export-oriented industries.

 

  • Reduced plane fare for priority products including vegetables and fruits. Biman will consider measures for reduced plane fare for exporting fruits, vegetables and ornamental plants by air.

 

  • Withdrawal of royalty for expansion of cargo services of foreign airlines for export promotion.

 

  • Fixing of limit for sending sample of export products annually.

 

  • Arrangement and participation in international and single country trade fairs and other market development programmes abroad.

 

  • Incentives will be given for organizing and participating in international trade fairs, single exhibition and other market development programme and arranging single country trade fairs jointly by government and non-government organizations.

 

  • Every year product-wise Commercially Important persons (CIPs) will be selected on the basis of the exporters’ extra ordinary contributions to export promotion.

 

  • National Export Trophy (NET) will be given in recognition of extra ordinary contribution to export.

 

  • The Export Credit Guarantee Scheme (ECGS) will be restructured, activated and made efficient.

Legislation and regulations

Legislation and regulations of US Market

Since 1986, with the exception of 1988-89, when an aircraft purchase made the trade balance even, the U.S. trade balance with Bangladesh has been negative, due largely to growing imports of readymade garments. Jute carpetbacking is the other major U.S. import from Bangladesh. Total imports from Bangladesh were about $2.5 billion (excluding services) in FY 2005, up from the $ 2.1 billion in 2002. U.S. exports to Bangladesh (some $333 million, excluding services in 2005) include wheat, fertilizer, cotton, communications equipment, aircraft, and medical supplies, a portion of which is financed by the U.S. Agency for International Development (USAID). A bilateral investment treaty was signed in 1989.

 

Licensing Requirements and Exemption in respect of Textile Imports

 

a) Under the Import and Export (General) Regulations, imports of textile articles are required to be under and in accordance with valid import licences issued by the Director-General of Trade. Exemptions from import licensing requirement are only provided in respect of the following :

 

b) Textiles traders who have been registered under the Textiles Trader Registration Scheme are granted exemption from import licensing requirements under the Regulations.

 

c) Textile articles imported by a person which are for his personal use or as gifts and are in a quantity which is reasonable having regard to the purpose for which they are imported are exempted from import licensing.

 

d) Woven or knitted fabric swatches and sample yarn imported by air and not exceeding 0.8 m2 in size in respect of fabric swatches and 1.2 kg in weight in respect of each type of yarn are exempted from import licensing.

 

e) Textile articles constituting part of the provisions required for consumption by the crew or passengers of the vessel, aircraft or vehicle on which the articles are carried are exempted from import licensing.

 

 

For the purpose of this legislation, textiles are defined as any natural or artificial fibre products, and any combinations of natural and artificial fibre products in the form of yarn, fabrics, garments or other manufactured articles. Importers of textiles which qualify for exemption from import licensing are not required to present the original copy of the relevant shipping documents to the Trade Department for an exemption endorsement before seeking release of the goods from the relevant carriers.

 

Threat from US Government:

The US government is unlikely to continue the Generalized System of Preference (GSP) facilities to Bangladesh even the Bangladeshi government forms Workers’ Welfare Association in the country’s export processing zones (EPZ).

US officials in Washington indicated that it is against the policy of the US government to provide GSP facilities to a country where workers’ rights are not protected as per the convention of International Labor Organization (ILO).

They were quoted as saying that prohibition of trade union activities in two EPZs in Bangladesh is contradictory to the ILO convention and to the fundamental rights of workers and employees as well. The US government is unable to continue GSP to Bangladesh if trade unions are not allowed in EPZs.

The Bangladesh government has already taken an initiative to form Workers’ Welfare Association in the EPZs instead of allowing trade unions. The government is also trying hard to make the US government understand that the proposed welfare association will protect workers’ rights in the EPZs.

3.2.2 Legislation and regulations of EU Market

EU Trade Agreements and GSP

 

As a member of EU, Germany, UK, France, Italy, Spain, Netherland, Belgium, Sweden follow the same rules and regulations and applies the Common Customs tariff of the EU. An extended set of trade agreements between the EU and non-EU countries represent a complex set of exceptions to the general rules. The EU grants a non-reciprocal trade preference to all developing countries. As a general rule, the General System of Preference (GSP) allows for duty free imports into the EU from the Least Developed Countries (LDC). Other developing countries benefit from a reduction of

the duty.

 

Documentation

In order to obtain preferential customs treatment when importing to the EU, it has to be documented that the product originates in a country, which has a preferential agreement with the EU. In order to claim GSP-status, a GSP certificate of origin (Form A), signed and stamped by the authorities in the exporting country, must accompany the products. The certificate is valid for 10 months. To obtain the GSP certificate of origin, two stages of production within the country are required: For woven garments, weaving has to be carried out in the country, and for knitwear, knitting and sewing has to be carried out in the country as well. At present, exceptions are only granted for goods from Bangladesh, Nepal, Laos and Cambodia and only to a limited extent.

 

If the garments are hand-made, a special type of documentation is needed.

 

For full customs clearance, a customs declaration form must be filled out with information about the importer, the customs value, the tariff position etc. It is the responsibility of the exporter to ensure that the proper documentation is available. It is very important to have settled all documents, as prior to importation of the product, the Community Customs administration will verify that the goods satisfy the rules of origin. If the goods are not entitled to preferential treatment, the importer becomes liable to pay the full rate of duty.

 

Rates of Duty

 

European Union applies special rates of duty to countries under the GSP scheme. However, apply Countries, which are classified as least developed countries as well as countries included in the special program to fight narcotics, all enjoy duty free access to the EU market. For other developing countries it is possible to obtain a 20 percent reduction of the normal duty

rate. The following table shows a list of countries eligible for preferential treatment.

 

Table 3.11

Categorization of GSP Countries

Classification                  Country

Least Developed CountriesAfghanistan, Angola, Bangladesh, Burkina Faso, Burundi, Benin, Bhutan, The Democratic Republic of Congo, The

Republic of Central Africa, Cap Verde, Djibouti, Eritrea,

Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Cambodia, Kiribati, Comoro , Laos, Liberia, Madagascar, Myanmar, Mongolia, Montserrat, Maldives, Malawi, Mozambique, Niger, Nepal, Rwanda, Solomon Islands, Sierra Leone, Sudan, Senegal, Somalia, São Tomé and Príncipe, Tchad, Togo, Tuvalu, Tanzania, Uganda, Vanuatu, Samoa, Yemen, ZambiaCountries under the special

programme to fight narcoticsBolivia, Colombia, Costa Rica, Ecuador, El Salvador,

Guatemala, Honduras, Nicaragua, Panama, Peru,

Venezuela, Pakistan

 

For a few countries, the GSP rules do not apply: China, Macao, Malaysia, and

Thailand does not benefit from the preferential treatment, but have to pay duty at full rate.

 

Legislation and regulations of Canada Market

 

Guide to the Textile Labeling and Advertising Regulations

VIII. FORM AND APPLICATION OF LABELS

1. Form Sections 7, 14, 15 and 16 Regulations

A disclosure label must be applied to a consumer textile article in such a manner that the label is legible and accessible to the prospective consumer at the time of purchase.  The permanency of the label is dependant on the type of article to be labelled (Section 2 – Application). Labels may take a variety of forms, such as:

  • woven or printed labels that are sewn flat or along one edge;
  • printed labels applied by an adhesive or otherwise attached (eg. stickers, hang tags);
  • printing the required information on a wrapper, package or container;
  • Imprinting the required information directly on the article (providing the information is together in one place).

 

In general, generic names must be stated in order of predominance by mass.

However, where the article is included in Schedule III, the non-permanent disclosure label may consist of a pre-printed alphabetical list of generic names with blank spaces beside each name for the insertion of percentages.

 

When a consumer textile article is custom-made, or a floor covering cut to a consumer’s specifications, the required information may be presented on an invoice or other document accompanying the article when it is delivered rather than on a label.  However, in these circumstances the consumer must have had the opportunity of examining a properly labelled sample or swatch prior to making a commitment to purchase.

 

2. Application Sections 5, 7, 15 Regulations

Labels on consumer textile articles must be applied as follows:

a) Permanent Labels

Consumer textile articles included in Schedule I of the Regulations, but not in Schedule III, require a label of such material and attached in such manner that it can be expected to withstand and remain legible throughout at least ten cleanings of the article.  These are commonly referred to as permanent labels. The National Standard of Canada Textile Test Methods (CAN/CGSB-4.2) are recommended for testing the durability of the labels.

 

When a permanent label is attached to an article so as to leave both sides easily accessible, the label may have part of the required information on one side and the remainder on the other.  The information may also be placed on two different labels provided that the labels are adjoining or contiguous.

 

b) Non-permanent Labels

Consumer textile articles included in Schedule III of the Regulations may bear a non-permanent label such as a hang tag, wrapper, sticker, etc. or, if the dealer desires, a permanent label. The required information may be disclosed on more than one label. Where the labels used are not together in the same location, all the English fibre content information may appear on one label and all the French fibre content information on another label. The dealer identity information may appear on either of the two labels or another separate label. A bilingual English/French fibre content declaration cannot be separated with part of the bilingual information on one label and the remainder on another unless the labels are contiguous.

 

IX. VARIATIONS IN THE REQUIREMENTS

1. Second-hand Articles (Section 9 Regulations )

Consumer textile articles that are clearly identified by means of a label, sign, mark, etc. as “second-hand” do not require labelling. However, where a second-hand article is labelled, it must be labelled in a manner which is neither false nor misleading. 2. Labelling of Prepackaged Consumer Textile Articles

 

2. Labeling of Prepackaged Consumer Textile Articles (Section 21 Regulations)

When a consumer textile article is sold in a wrapper, package or container and the disclosure label attached to the article is clearly visible to the prospective purchaser, no further labelling is required.  However, if the article is wrapped, packaged or contained so that the disclosure label is not visible, the information required to be shown in the label must be repeated on the wrapper, package or container in the prescribed manner.

 

When an article sold to the consumer in a wrapper, package or container is included in Schedule III, or is enclosed in the wrapper, package or container only as a premium and the main product being sold is not a textile fibre product (e.g. a towel in a box of detergent), the wrapper, package or container serves as the disclosure label for the consumer textile article. The textile article itself does not have to be labeled.

 

3. Alternatives to Commercially Printed Labels for Home-crafted Articles

As home-crafted consumer textile articles are usually made in very limited quantities, with each article being unique and different, it may be difficult to purchase preprinted disclosure labels in suitable quantities.

 

Permanent disclosure labels may be created simply and inexpensively by using blank labels purchased from a label or garment manufacturer and India Ink, indelible stamp pads or permanent ink felt pens available from stationary stores.  During experiments using these methods, it was found that India Ink remained legible after ten washings or dry cleanings while the other two methods remained legible after ten washings but were illegible after ten dry cleanings.

 

When using any of the above-mentioned methods, test the labelled article by washing and/or dry cleaning, as appropriate, to be certain that ink from the label will withstand ten cleanings and will not stain the article.

 

X. NON-REQUIRED INFORMATION

1. Trade Marks and Descriptive Terms(Section 40 Regulations)

Where a textile fibre must be shown by its generic name, such as in a disclosure label, the Canadian registered trade mark for that fibre, yarn or fabric or a factual descriptive term, may be shown immediately preceding or following the generic name of the fibre(s). The trade mark or descriptive term must not be larger or more prominent than the type in which the generic name is shown. For example, an appropriate label for a comforter with a “combed” cotton outer shell and a filling of “Dacron” polyester is:

 

Outer Shell/Extérieur: 100% Combed Cotton/Coton peigné

 

Filling/Remplissage: 100% Dacron Polyester/Polyester Dacron

 

A Banlon yarn could be labelled as: 100% Banlon Nylon/Nylon Banlon

 

Fabric trade marks such as Viyella and Ultrasuede could be used as in the following examples:

 

Viyella: 55% Wool/Laine; 45% Cotton/Coton

 

Ultrasuede: 60% Polyester; 40% Polyurethane/Polyuréthane

 

It is important to note that the registration of a mark under the Trade Marks Act does not imply that its use will necessarily comply with the requirements of other federal statutes. The use of a registered trade mark or of a coined, trade or brand name may provide a false or erroneous impression as to the actual fibre content, origin, performance, etc. of the textile fibre product, and could therefore be considered as a false or misleading representation relating to a textile fibre product and in contravention of Section 5 of the Textile Labelling Act. Generally, labels must not use the name of another fibre of which it is an imitation or substitute, or which it resembles in a manner likely to mislead.

 

2. Sizing

Manufacturers are not required under the Textile Labelling Act and Textile Labelling and Advertising Regulations to manufacture garments that conform to specific size dimensions or use specific size codes. The determination of garment dimensions and designation of size codes or “sizes” are left to the discretion of the dealer. However, in accordance with Section 5 of the Act, where a size dimension has been identified (e.g. size 36 waist dimension), it must be accurate.

 

Dealers wishing information and/or data regarding body dimensions for women, infants and children, as well as garment dimensions and size designations for specific articles of clothing for women, infants and children, should consult the standards published by the Canadian General Standards Board.

 

3. Care Information

The provision for care information in the form of either written words or symbols (Canadian, ASTM or International) is not mandatory. However, in accordance with Section 5 of the Act, where care information is provided, the information must appear in a manner which is neither false or misleading and must accurately reflect an appropriate method of care for the article to which it applies.  Written care instructions may be provided in English or French. It should be noted, however, that the Province of Quebec has additional requirements concerning the use of the French language. Information on these requirements may be obtained from l’Office québécois de la langue française.

Population and demographics

 

The subsection will briefly describe the population and demographics of the major markets of woven garments companies of Bangladesh.

 

Population and demographics of US market

Population:      According to an estimate of CIA fact book, the USA has a population size of about 301,139,947 (July 2007 estimate). The growth of population has been estimated to be 0.894%.

 

Age structure: The age structure of the US population is the following (according to CIA estimated in 2007).            

 

Table 3.12

Age Distribution of US Population

Age category Percentage of total No of males No of females
0-14 years 20.2% 31,152,050 29,777,438
15-64 years 67.2% 100,995,752 101,365,035
65 years and over 12.6% 15,858,477 21,991,195

 

The overall median age for both male and female is 36.6 years. The median age for male population is 35.3 years. The median age for the female population is 37.9 years.

Birth rate: 14.16 births/1,000 population (2007 estimate)

Death rate: 8.26 deaths/1,000 population (2007 estimate)

Net migration rate:      3.05 migrant(s)/1,000 population (2007 estimate)

Sex ratio:

Table 3.13

Sex Ratio of US Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.05  male(s)/female
Under 15 years 1.046 male(s)/female
15-64 years 0.996 male(s)/female
65 years and over 0.721 male(s)/female
Total population 0.967 male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 6.37 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 7.02 deaths/1,000 live births and that of female was5.68 deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 78 years for the whole population in 2007. The life expectancy of male population was 75.15 years in 2007 and that for female population was 80.97 years.

Ethnic groups: The composition of population across various ethnic groups is as follows: white 81.7%, black 12.9%, Asian 4.2%, Amerindian and Alaska native 1%, native Hawaiian and other Pacific islander 0.2% (according to 2003 estimate).

Religious groups: The composition of population across various religious groups is as follows: Protestant 52%, Roman Catholic 24%, Mormon 2%, Jewish 1%, Muslim 1%, other 10%, none 10% (according to 2002 estimate)

Languages:       The composition of population in terms of the various language groups is as follows: English 82.1%, Spanish 10.7%, other Indo-European 3.8%, Asian and Pacific island 2.7%, other 0.7% (according to 2000 census)

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male and female  population is 99% (according to 2003 estimate).

 

Population and demographics of German market

Population:      According to an estimate of CIA fact book, Germany has a population size of about 82,400,996 (July 2007 estimate). The growth of population has been estimated to be -0.033%.

 

Age structure: The age structure of the Germany population is the following (according to CIA estimated in 2007).              

 

Table 3.14

Age Distribution of Germany Population

Age category Percentage of total No of males No of females
0-14 years 13.9% 5,894,724 5,590,373
15-64 years 66.3% 27,811,357 26,790,222
65 years and over 19.8% 6,771,972 9,542,348

 

The overall median age for both male and female is 43 years. The median age for male population is 41.8 years. The median age for the female population is 44.3 years.

Birth rate: 8.2 births/1,000 population (2007 estimate)

Death rate: 10.71 deaths/1,000 population (2007 estimate)

Net migration rate:      2.18 migrant(s)/1,000 population (2007 estimate)

Sex ratio:

Table 3.15

Sex Ratio of Germany Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.06  male(s)/female
Under 15 years 1.054  male(s)/female
15-64 years 1.038  male(s)/female
65 years and over 0.71  male(s)/female
Total population 0.966  male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 4.08 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 4.51 deaths/1,000 live births and that of female was 3.62 deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 78.95 years for the whole population in 2007. The life expectancy of male population was 75.96 years in 2007 and that for female population was 82.11 years.

Ethnic groups: The composition of population across various ethnic groups is as follows: German 91.5%, Turkish 2.4%, other 6.1% (made up largely of Greek, Italian, Polish, Russian, Serbo-Croatian, Spanish).

Religious groups: The composition of population across various religious groups is as follows: Protestant 34%, Roman Catholic 34%, Muslim 3.7%, unaffiliated or other 28.3%

Language:        German

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male and female population is 99% (according to 2003 estimate).

 

Population and demographics of UK market

Population:      According to an estimate of CIA fact book, the UK has a population size of about 60,776,238 (July 2007 estimate). The growth of population has been estimated to be 0.275%.

 

Age structure: The age structure of the UK population is the following (according to CIA estimated in 2007).           

 

Table 3.16

Age Distribution of UK Population

Age category Percentage of total No of males No of females
0-14 years 17.2% 5,349,053 5,095,837
15-64 years 67% 20,605,031 20,104,313
65 years and over 15.8% 4,123,464 5,498,540

 

The overall median age for both male and female is 39.6 years. The median age for male population is 38.5 years. The median age for the female population is 40.7 years.

Birth rate: 10.67 births/1,000 population (2007 estimate)

Death rate: 10.09   deaths/1,000 population (2007 estimate)

Net migration rate:      2.17 migrant(s)/1,000 population (2007 estimate)

Sex ratio:

Table 3.17

Sex Ratio of UK Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.05   male(s)/female
Under 15 years 1.05   male(s)/female
15-64 years 1.025  male(s)/female
65 years and over 0.75   male(s)/female
Total population 0.98    male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 5.01 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 5.58 deaths/1,000 live births and that of female was 4.4 deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 78.7 years for the whole population in 2007. The life expectancy of male population was 76.23   years in 2007 and that for female population was 81.3 years.

Ethnic groups: The composition of population across various ethnic groups is as follows: white (of which English 83.6%, Scottish 8.6%, Welsh 4.9%, Northern Irish 2.9%) 92.1%, black 2%, Indian 1.8%, Pakistani 1.3%, mixed 1.2%, other 1.6% (2001 census).

Religious groups: The composition of population across various religious groups is as follows: Christian (Anglican, Roman Catholic, Presbyterian, Methodist) 71.6%, Muslim 2.7%, Hindu 1%, other 1.6%, unspecified or none 23.1% (2001 census).

Languages:       English, Welsh (about 26% of the population of Wales), Scottish form of Gaelic (about 60,000 in Scotland)

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male and female population is 99% (according to 2003 estimate).

 

Population and demographics of France market

Population:      According to an estimate of CIA fact book, the France has a population size of about 63,718,187 (July 2007 estimate). The growth of population has been estimated to be 0.588%.

 

Age structure: The age structure of the France population is the following (according to CIA estimated in 2007).      

 

Table 3.18

Age Distribution of French Population

Age category Percentage of total No of males No of females
0-14 years 18.6% 6,063,181 5,776,272
15-64 years 65.2% 20,798,889 20,763,283
65 years and over 16.2% 4,274,290 6,038,011

 

The overall median age for both male and female is 39 years. The median age for male population is 37.5 years. The median age for the female population is 40.4 years.

Birth rate: 12.91 births/1,000 population (2007 estimate)

Death rate: 8.55    deaths/1,000 population (2007 estimate)

Net migration rate:      1.52 migrant(s)/1,000 population (2007 estimate)

Sex ratio:

Table 3.19

Sex Ratio of France Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.05    male(s)/female
Under 15 years 1.05    male(s)/female
15-64 years 1.002   male(s)/female
65 years and over 0.708   male(s)/female
Total population 0.956   male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 3.41 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 3.76   deaths/1,000 live births and that of female was 3.04 deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 80.59 years for the whole population in 2007. The life expectancy of male population was 77.35    years in 2007 and that for female population was 84   years.

Ethnic groups: The composition of population across various ethnic groups is as follows: Celtic and Latin with Teutonic, Slavic, North African, Indochinese, Basque minorities overseas departments: black, white, mulatto, East Indian, Chinese, Amerindian.

Religious groups: The composition of population across various religious groups is as follows: Roman Catholic 83%-88%, Protestant 2%, Jewish 1%, Muslim 5%-10%, unaffiliated 4%, overseas departments: Roman Catholic, Protestant, Hindu, Muslim, Buddhist, pagan

Languages:       French 100%, rapidly declining regional dialects and languages (Provencal, Breton, Alsatian, Corsican, Catalan, Basque, Flemish),
overseas departments: French, Creole patois.

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male and female population is 99% (according to 2003 estimate).

 

Population and demographics of Canada market

Population:      According to an estimate of CIA fact book, Canada has a population size of about 33,390,141 (July 2007 estimate). The growth of population has been estimated to be 0.869%.

 

Age structure: The age structure of the Canada population is the following (according to CIA estimated in 2007).     

Table 3.20

Age Distribution of Canada Population

Age category Percentage of total No of males No of females
0-14 years 17.3% 2,967,383 2,824,189
15-64 years 69.2% 11,604,723 11,490,839
65 years and over 13.5% 1,927,035 2,575,972

 

The overall median age for both male and female is 39.1 years. The median age for male population is 38.1 years. The median age for the female population is 40.2 years.

Birth rate: 10.75   births/1,000 population (2007 estimate)

Death rate: 7.86    deaths/1,000 population (2007 estimate)

Net migration rate:      5.79 migrant(s)/1,000 population (2007 estimate)

Table 3.21

Sex Ratio of Canada Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.05    male(s)/female
Under 15 years 1.051   male(s)/female
15-64 years 1.01     male(s)/female
65 years and over 0.748    male(s)/female
Total population 0.977    male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 4.63 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 5.08    deaths/1,000 live births and that of female was 4.17   deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 80.34 years for the whole population in 2007. The life expectancy of male population was 76.98     years in 2007 and that for female population was 83.86   years.

Ethnic groups: The composition of population across various ethnic groups is as follows: British Isles origin 28%, French origin 23%, other European 15%, Amerindian 2%, other, mostly Asian, African, Arab 6%, mixed background 26%

Religious groups: The composition of population across various religious groups is as follows: Roman Catholic 42.6%, Protestant 23.3% (including United Church 9.5%, Anglican 6.8%, Baptist 2.4%, Lutheran 2%), other Christian 4.4%, Muslim 1.9%, other and unspecified 11.8%, none 16% (2001 census)

Languages:         English (official) 59.3%, French (official) 23.2%, other 17.5%

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male and female population is 99% (according to 2003 estimate).

 

Population and demographics of Italy market

Population:      According to an estimate of CIA fact book, Italy has a population size of about 58,147,733 (July 2007 estimate). The growth of population has been estimated to be 0.01%.

 

Age structure: The age structure of the Italy population is the following (according to CIA estimated in 2007).          

 

Table 3.22

Age Distribution of Italy Population

Age category Percentage of total No of males No of females
0-14 years 13.8% 4,121,246 3,874,971
15-64 years 66.4% 19,527,203 19,059,897
65 years and over 19.9% 4,823,244 6,741,172

 

The overall median age for both male and female is 42.5 years. The median age for male population is 41.1 years. The median age for the female population is 44.1 years.

Birth rate: 8.54    births/1,000 population (2007 estimate)

Death rate: 10.5   deaths/1,000 population (2007 estimate)

Net migration rate:      2.06 migrant(s)/1,000 population (2007 estimate)

Sex ratio:

Table 3.23

Sex Ratio of Italy Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.07     male(s)/female
Under 15 years 1.064    male(s)/female
15-64 years 1.025    male(s)/female
65 years and over 0.715    male(s)/female
Total population 0.959    male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 5.72  deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 6.3     deaths/1,000 live births and that of female was 5.1   deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 79.94   years for the whole population in 2007. The life expectancy of male population was 77.01      years in 2007 and that for female population was 83.07   years.

Ethnic groups: The composition of population across various ethnic groups is as follows: Italian (includes small clusters of German-, French-, and Slovene-Italians in the north and Albanian-Italians and Greek-Italians in the south)

Religious groups: The composition of population across various religious groups is as follows: Roman Catholic 90% (approximately; about one-third regularly attend services), other 10% (includes mature Protestant and Jewish communities and a growing Muslim immigrant community)

Languages:         Italian (official), German (parts of Trentino-Alto Adige region are predominantly German speaking), French (small French-speaking minority in Valle d’Aosta region), Slovene (Slovene-speaking minority in the Trieste-Gorizia area)

Literacy: The percentage of population between age 15 and over, who can read and write is 98.4% of the total. The literacy rate of male is 98.8% and that of female is 98% (according to 2001 census).

 

Population and demographics of Spain market

Population:      According to an estimate of CIA fact book, Spain has a population size of about 40,448,191 (July 2007 estimate). The growth of population has been estimated to be 0.116%.

 

Age structure: The age structure of the Italy population is the following (according to CIA estimated in 2007).          

Table 3.24

Age Distribution of Spain Population

Age category Percentage of total No of males No of females
0-14 years 14.4% 3,005,818 2,826,805
15-64 years 67.8% 13,758,869 13,661,295
65 years and over 17.8% 3,002,585 4,192,819

 

The overall median age for both male and female is 40.3 years. The median age for male population is 39 years. The median age for the female population is 41.7 years.

Birth rate: 9.98    births/1,000 population (2007 estimate)

Death rate: 9.81   deaths/1,000 population (2007 estimate)

Net migration rate:      0.99 migrant(s)/1,000 population (2007 estimate)

Table 3.25

Sex Ratio of Spain Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.07      male(s)/female
Under 15 years 1.063    male(s)/female
15-64 years 1.007     male(s)/female
65 years and over 0.716     male(s)/female
Total population 0.956     male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 4.31 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 4.7    deaths/1,000 live births and that of female was 3.9   deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 79.78 years for the whole population in 2007. The life expectancy of male population was 76.46      years in 2007 and that for female population was 83.32   years.

Ethnic groups: The composition of population across various ethnic groups is as follows: Mediterranean and Nordic types

Religious groups: The composition of population across various religious groups is as follows: Roman Catholic 94%, other 6%

Languages:         Castilian Spanish (official) 74%, Catalan 17%, Galician 7%, Basque 2%, are official regionally

Literacy: The percentage of population between age 15 and over, who can read and write is 97.9% of the total. The literacy rate of male is 98.7% and that of female is 97.2% (according to 2003 estimation).

 

Population and demographics of Netherlands market

Population:      According to an estimate of CIA fact book, Netherland has a population size of about 16,570,613 (July 2007 estimate). The growth of population has been estimated to be 0.464%.

 

Age structure: The age structure of the Netherland population is the following (according to CIA estimated in 2007).              

 

Table 3.26

Age Distribution of Netherlands Population

Age category Percentage of total No of males No of females
0-14 years 17.8% 1,505,931 1,436,532
15-64 years 67.8% 5,683,877 5,557,745
65 years and over 14.4% 1,015,731 1,370,797

 

The overall median age for both male and female is 39.7 years. The median age for male population is 38.9 years. The median age for the female population is 40.5 years.

Birth rate: 10.7    births/1,000 population (2007 estimate)

Death rate: 8.69   deaths/1,000 population (2007 estimate)

Net migration rate:      2.63 migrant(s)/1,000 population (2007 estimate)

Table 3.27

Sex Ratio of Netherlands Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.05    male(s)/female
Under 15 years 1.048    male(s)/female
15-64 years 1.023     male(s)/female
65 years and over 0.741  male(s)/female
Total population 0.981    male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 4.88 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 5.43   deaths/1,000 live births and that of female was 4.31  deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 79.11 years for the whole population in 2007. The life expectancy of male population was 76.52      years in 2007 and that for female population was 81.82   years.

Ethnic groups: The composition of population across various ethnic groups is as follows: Dutch 83%, other 17% (of which 9% are non-Western origin mainly Turks, Moroccans, Antilleans, Surinamese, and Indonesians) (1999 est.)

Religious groups: The composition of population across various religious groups is as follows: Roman Catholic 31%, Dutch Reformed 13%, Calvinist 7%, Muslim 5.5%, other 2.5%, none 41% (2002)

Languages:         Dutch (official), Frisian (official)

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male & female is 99% (according to 2003 estimation).

 

Population and demographics of Belgium market

Population:      According to an estimate of CIA fact book, Belgium has a population size of about 10,392,226 (July 2007 estimate). The growth of population has been estimated to be 0.12%.

 

Age structure: The age structure of the Belgium population is the following (according to CIA estimated in 2007).    

 Table 3.28

Age Distribution of Belgium Population

Age category Percentage of total No of males No of females
0-14 years 16.5% 873,130 836,785
15-64 years 66.1% 3,467,044 3,406,030
65 years and over 17.4% 746,969 1,062,268

 

The overall median age for both male and female is 41.1 years. The median age for male population is 39.9 years. The median age for the female population is 42.4 years.

Birth rate: 10.29 births/1,000 population (2007 estimate)

Death rate: 10.32   deaths/1,000 population (2007 estimate)

Net migration rate:      1.22 migrant(s)/1,000 population (2007 estimate)

Table 3.29

Sex Ratio of Belgium Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.05    male(s)/female
Under 15 years 1.043   male(s)/female
15-64 years 1.018   male(s)/female
65 years and over 0.703   male(s)/female
Total population 0.959    male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 4.56 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 5.13    deaths/1,000 live births and that of female was 3.96 deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 78.92 years for the whole population in 2007. The life expectancy of male population was 75.75       years in 2007 and that for female population was 82.24    years.

Ethnic groups: The composition of population across various ethnic groups is as follows: Fleming 58%, Walloon 31%, mixed or other 11%.

Religious groups: The composition of population across various religious groups is as follows: Roman Catholic 75%, other (includes Protestant) 25%.

Languages:         Dutch (official) 60%, French (official) 40%, German (official) less than 1%, legally bilingual (Dutch and French)

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male & female is 99% (according to 2003 estimation).

 

Population and demographics of Swedish market

Population:      According to an estimate of CIA fact book, Sweden has a population size of about 9,031,088 (July 2007 estimate). The growth of population has been estimated to be 0.159%.

 

Age structure: The age structure of the Sweden population is the following (according to CIA estimated in 2007).     

Table 3.30

Age Distribution of Sweden Population

Age category Percentage of total No of males No of females
0-14 years 16.4% 759,488 717,812
15-64 years 65.7% 3,007,899 2,926,220
65 years and over 17.9% 707,687 911,982

 

The overall median age for both male and female is 41.1 years. The median age for male population is 40 years. The median age for the female population is 42.2 years.

Birth rate: 10.2 births/1,000 population (2007 estimate)

Death rate: 10.27   deaths/1,000 population (2007 estimate)

Net migration rate:      1.66 migrant(s)/1,000 population (2007 estimate)

 

Table 3.31

Sex Ratio of Sweden Population (CIA 2007 estimate)

Condition Sex ratio
At birth 1.06    male(s)/female
Under 15 years 1.058    male(s)/female
15-64 years 1.028      male(s)/female
65 years and over 0.776  male(s)/female
Total population 0.982     male(s)/female

 

Infant mortality rate:  The overall infant mortality rate stood at 2.76 deaths/1,000 live births (according to 2007 estimate). The infant mortality rate of male population in 2007 was 2.92    deaths/1,000 live births and that of female was 2.59   deaths/1,000 live births (2007 est.)

Life expectancy at birth: The life expectancy at birth was 80.63  years for the whole population in 2007. The life expectancy of male population was 78.39       years in 2007 and that for female population was 83    years.

Ethnic groups: The composition of population across various ethnic groups is as follows: indigenous population: Swedes with Finnish and Sami minorities; foreign-born or first-generation immigrants: Finns, Yugoslavs, Danes, Norwegians, Greeks, Turks.

Religious groups: The composition of population across various religious groups is as follows: Lutheran 87%, other (includes Roman Catholic, Orthodox, Baptist, Muslim, Jewish, and Buddhist) 13%.

Languages:         Swedish, small Sami- and Finnish-speaking minorities

Literacy: The percentage of population between age 15 and over, who can read and write is 99% of the total. The literacy rate of both male & female is 99% (according to 2003 estimation).

 

Societal values and lifestyle

 

Societal values and lifestyle in USA & Canada

 

Both USA & Canada are located in north America is characterized by mainly two values & life styles: Conservative & Liberal. Conservative Peoples are bound by various social rules & traditional behavior while  the liberal peoples are not supposed to care about the traditional rules  & Behavior:

 

Conservative values and lifestyle

During the 20th century, a host of social ills from divorce to teen pregnancy battered the families of America. Social conservatives would like to reverse those trends and once again strengthen the family as the backbone of a healthy nation.

 

The family

Social conservatives believe the family is the backbone of a healthy society. The ideal family structure is a home where children are raised by both biological parents. A child raised in a home with both parents has the best chances of growing up into an emotionally healthy, educated, successful adult.
In defense of the family

 

Conservatives recognize there are loving alternative families, and dysfunction does occur in biological families. However, with things like location and financial status taken into consideration, children raised in single-parent or stepparent homes are far more likely to:

  • use alcohol or drugs
  • experience emotional or anger problems
  • experiment with sex at a young age
  • attempt sucide
  • suffer physical or sexual abuse.

Parents rights

Conservatives believe parents have a primary responsibility for the health and welfare of their children. In general, parents know and love their children best. Parents’ wishes should therefore be given top priority. Parents should be involved in decisions that affect their children, such as which materials public schools expose to them, and whether their children undergo potentially dangerous medical procedues, like abortions.

 

Life issues

Social conservatives believe that human life has intrinsic value.

  • The abortion of unborn human babies is the murder of human life and should not be allowed in a civilized/ moral society.
  • Euthanasia devalues human life. It encourages society to decide the “worth” of human life based on perceived enjoyment of life rather than life’s intrinsic value.
  • Stem cell researchers should use only adult cells.

 

Pro-Life issues

The Death Penalty: People who commit willful murder have shown their disregard for human life, and therefore have forfeited their own right to life. The death penalty offers justice and upholds society’s intolerance of murder. The death penalty is not necessary or just in every situation, but capital punishment should remain legal, especially for extreme cases.

Sex Education:

Social conservatives believe that children should be given information that will help them make wise choices about sexual behavior. The healthiest decision a teenager can make is to remain sexually abstinent until marriage. Abstinence is the best way to avoid unwanted pregnancy, disease, and a host of emotional, relational and spiritual problems that accompany sexual promiscuity.
On Abstinence

 

Morality:

Conservatives believe that traditional morality serves as the best protection against the ills that plague society. The government should encourage policies that promote morality and discourage immorality. Personal freedom demands personal responsibility, and liberty is no excuse for irresponsible behavior.

 

Compassion:

Human beings all have value and should be cared for and protected. The promotion of a healthy society is the first step toward the care of the individuals within that society. Individual citizens should reach out to help their needy neighbors and should not depend on the government to care for them.

 

Homosexual Issues:

The majority of conservatives do not hate homosexuals, contrary to leftist propaganda. In fact, many conservative groups offer ministries to reach out to the homosexual community. At the same time, conservatives believe that:

  • Homosexuality is not necessarily inborn. Environmental factors contribute to the development of same-sex attractions.
  • Homosexuality is not a healthy alternative lifestyle. In fact, homosexual behavior is highly dangerous, and the homosexual life expectancy is at least 20 years less than that of the monogamous heterosexual.
  • Many religious conservatives believe the homosexual lifestyle is immoral.
  • Homosexuals should not be faulted for their feelings, but they are responsible for their behavior.
  • The homosexual agenda is harmful both to society and to the sexually confused individual in need of real help. The government should not legalize gay marriage or special rights for homosexuals.

 

Societal values and lifestyle in EU countries

The countries other than USA & Canada are Germany, UK, France, Italy, Spain, Netherlands, Belgium, and Sweden are European countries. The European life style also similar to the North American but there are some difference as the many classes of people are living across Europe. VALS stand for Values and lifestyles – is a way of viewing people on the basis of their attitudes, needs, wants, beliefs, and demographics.  The VALS program is “put people” into the thinking of those of us trying to understand the trends of our times – in the marketplace, economically, politically, sociologically, and humanly. The approach is holistic, drawing on insight and many sources of data to develop a comprehensive framework for characterizing the ways of life of Europeans. This kinds  of differentiation is currently being applied in many areas of business and is evoking interest in circles as diverse as sociology, politics, law, education, and medicine.

 

A basic tool of the VALS program is the VALS typology. This typology is divided into four major categories, with a total of nine lifestyles. These are:

  • Need-Driven
    • -Survivor lifestyle
    • -Sustainer lifestyle
  • Outer-Directed
    • -Belonger lifestyle
    • -Emulator lifestyle
    • -Achiever lifestyle
  • Inner-Directed
    • -I-Am-Me lifestyle
    • -Experiential lifestyle
    • -Societally Conscious lifestyle
  • Combined Outer- and Inner-Directed
    • -Integrated lifestyle

It should be understood from the start that these lifestyle categories are not fixed and immutable. Many people grow from one level to another as children, as adolescents, and as adults. Some very few may start at the bottom and reach the top within a lifetime, but far more common is movement of a level or two.

The VALS typology is hierarchical. The prime development thrust is from Need-Driven through Outer- Directed and Inner-Directed phases to a joining of Outer- and Inner-Direction. These major transitions are seen as crucial way-posts in the movement of an individual (or a society) from immaturity to full maturity. Three of the four major developmental categories are subdivided into lifestyle phases representing stages of advancement within the main category.

 

By “maturity,” we specifically mean psychological maturity. Very generally, psychological maturation is marked by a progression from partial toward full realization of one’s potential. It involves a steady widening of perspectives and concerns and a steady deepening of the inner reference points consulted in making important decisions. Thus, the role of habit and “stock answers” abates as a person matures, and the person becomes increasingly more complex and self-expressive in a values sense.

 

This hierarchy should be thought of as a nested model, with each stage “burying,” as it were, previous stages. This means that an individual’s totality – like the layers of an onion – consists of inner “spheres” of values relating to stages of development that often date back to childhood or adolescence. Hence, the more developed a person is, the more complex his or her value structure and the more diverse the range of value-based reactions. This is why highly developed people often identify with many – even all – of the VALS levels: They are all of them!

 

In the paragraphs that follow, we have tried to describe the psychological essence of each segment of the typology and, in so doing, to provide a feeling for the widening concerns and multiplying values of people as they move through the typology.

 

The Need-Drivens: The Need-Drivens are people so limited in resources (especially financial resources) that their lives are driven more by need than by choice. Much evidence shows that they are the furthest removed from the cultural mainstream, are the least aware of the events of our times, and are most inclined to be depressed and withdrawn. Values of the Need-Driven center around survival, safety, and security. Such people tend to be distrustful, dependent, unplanning. Many live unhappy lives focused on the immediate specifics of today, with little sensitivity to the wants of others and little vision of what could be. We divide the Need-Driven category into two lifestyles: Survivor and Sustainer.

 

Survivors: (4% of the population aged 18 and over in 1981) are the most disadvantaged in American society by reason of their extreme poverty, low education, old age, and limited access to the channels of upward mobility. They are people oriented to tradition but marked by despair and unhappiness. Many, now infirm, once lived lifestyles associated with higher levels of the VALS hierarchy. Other generation-after-generation Survivors are ensnared in the so-called “culture of poverty.”

 

Sustainers: (7% of population) are a group struggling at the edge of poverty. They are better off and younger than Survivors, and many have not given up hope. Their values are very different from those of Survivors in that Sustainers have advanced from the depression and hopelessness typical of Survivors to express anger at the system they see as repressing them, and they have developed a street-wise determination to get ahead. Many operate in the underground economy.

 

The Outer-Directed: This large and diverse category is named to reflect the central characteristic of the people within it: The Outer-Directeds conduct their lives in response to signals – real or fancied – from others. “Out there” is what is most important. Consumption, activities, attitudes – all are guided by what the outer-directed individual thinks others will think. Psychologically, Outer-Direction is a major step forward from the Need-Driven state in that the perspective on life has broadened to include other people, a host of institutions, shared goals, and an array of personal values and options far more complex and diverse than those available to the Need-Driven. In general, the Outer-Directeds are the happiest of Americans, being well attuned to the cultural mainstream – indeed, creating much of it. The VALS typology defines three principal types of outer-directed people: Belongers, Emulators, and Achievers.

 

Belongers: (39% of population) constitute the large, solid, comfortable, middle-class group of Americans who are the main stabilizers of society and the preservers and defenders of the moral status quo. Belongers tend to be conservative, conventional, nostalgic, sentimental, puritanical, conforming. The key drive is to fit in – to belong – and not to stand out. Their world is well posted and well lit, and the road is straight and narrow. Family, church, and tradition loom large. Belongers are people who know what is right, and they adhere to the rules. They are not much interested in sophistication or intellectual affairs. All the evidence suggests that Belongers lead contented, happy lives and are relatively little vexed by the stresses and mercurial events that swirl around them.

In terms of psychological maturity, Belongers are ahead of the Need-Drivens in having a much wider range of associations (both personal and institutional), a longer term focus for planning their lives, and a less opportunistic pattern of behavior. These are people well integrated with their surroundings.

 

Emulators: (8% of population) live in a wholly different world from that of Belongers. Emulators are trying to burst into the upper levels of the system – to make it big. The object of their emulation is the Achiever lifestyle. They are ambitious, upwardly mobile, status-conscious, macho, competitive. Many see themselves as coming from the other side of the tracks and hence are intensely distrustful, are angry with the way things are, and have little faith that “the system” will give them a fair shake. Emulators tend not to be open in their feelings for fear of alienating those in authority, on whom they depend to get ahead. The Emulator group contains a higher fraction of minorities (24%) than any VALS group other than the Need- Drivens.

 

Psychologically, Emulators are a step ahead of Belongers in that they ask more of themselves and the system and have assumed greater personal responsibility for getting ahead instead of drifting with events in the style of many Belongers. On the other hand, Emulators seem often to have unrealistic goals. In truth, many are not on the track to make them Achievers, but they appear not to realize this.

 

Achievers: (20% of population) include the leaders in business, the professions, and government. Competent, self-reliant, efficient, Achievers tend to be materialistic, hard-working, oriented to fame and success, and comfort loving. These are the affluent people who have created the economic system in response to the American dream. As such, they are the defenders of the economic status quo. Achievers are among the best adjusted of Americans, being well satisfied with their place in the system. Only 5% of Achievers come from minority backgrounds.

 

Achievers are psychologically more advanced than Emulators in having a wider spectrum of values, in being more open and trusting, and in clearly having brought their ambitions into better alignment with reality. Achievers are supporters of technology and are open to progress, but they resist radical change. After all, they are on top and too radical a change might shake them off!

 

The Inner-Directed

People that are called the Inner-Directeds contrast with the Outer-Directed in that they conduct their lives primarily in accord with inner values – the needs and desires private to the individual – rather than in accord with values oriented to externals. What is most important to such people is what is “in here” rather than what is “out there.” Concern with inner growth thus is a cardinal characteristic. Inner-directed people tend to be self-expressive, individualistic, person-centered, impassioned, diverse, complex.

 

It is important to recognize that, in American society today, one can hardly be profoundly Inner-Directed without having internalized Outer-Directedness through extensive and deep exposure as a child, adolescent, or adult. One implication is that inner- directed people tend not to come from need-driven or inner-directed families. Some measure of satiation with the pleasures of external things seems to be required before a person can believe in or enjoy the less visible, incorporeal pleasures of Inner-Direction. This means not that the pleasures of the outer world disappear (for the VALS typology is a nested model), but that inner needs become more imperative than outer needs. From the psychological standpoint, then, Inner-Direction in today’s Western culture represents an advance over Outer-Direction in that it adds new values to old, thus increasing the range of potential responses and the number of channels available for self-expression. For children raised in strongly inner-directed families, however, the psychological advance would involve the shift from Inner-Direction to Outer-Direction. This would be true, for example, of people raised according to the tenets of the great inner-directed Eastern cultures.

VALS has identified three stages of Inner-Directedness: I-Am-Me. Experiential, and Societally Conscious.

 

I-Am-Me: (3% of population) is a short lived stage of transition from Outer- to Inner-Direction. Values from both stages are much in evidence. Typically, the I-Am-Me person is young and fiercely individualistic to the point of being narcissistic and exhibitionistic. People at this stage are full of confusions and emotions they do not understand; hence, they often define themselves better by their actions than by their statements. I-Am-Mes tend to be dramatic and impulsive. Like cats, they have whims of iron. Much of their Inner-Direction shows up in great inventiveness, a willingness to try anything once, and an often secret inner exploration that will later crystallize into lifelong pursuits.

 

As the I-Am-Mes mature psychologically, they become the Experientials (6% of population). At this stage of Inner-Direction, the focus has widened from the intense egocentrism of the I-Am-Me to include other people and many social and human issues. Experientials are people who most want direct experience and vigorous involvement. Life is a light show at one moment and an intense, often mystic, inner experience the next. They are attracted to the exotic (such as Oriental religions), to the strange (such as parapsychology), and to the natural (such as “organic” gardening and home baking). The most inner-directed of any VALS group, these people also are probably the most artistic and the most passionately involved with others. Although intense, this is a thoroughly enjoyable stage of life, full of vigorous activity (although less so than at the I- Am-Me stage), and marked by a growing concern with intellectual and spiritual matters.

 

The Societally Conscious: (11% of population) have extended their Inner-Direction beyond the self and others to the society as a whole – in fact, sometimes to the globe or even, philosophically, to the cosmos. A profound sense of societal responsibility leads these people to support such causes as conservation, environmentalism, and consumerism. They tend to be activistic, impassioned, and knowledgeable about the world around them. Many are attracted to simple living and the natural; some have taken up lives of voluntary simplicity. Many do volunteer work. The Societally Conscious seek to live frugal lives that conserve, protect, and heal. Inner growth remains a crucial part of life. Consequently, many Societally Conscious people assume a high degree of self-reliance, which extends to holistic health and a sense that they are in touch with inner forces that guide them.

 

Technology

A  firm’s  quick  response  to  compete  in  the  global  market  depends  on  the  extent  of manufacturing technology adopted and its integration of this technology into business operations (Mechling,  et.  al,  1995).  Constant  innovation  and  adoption  of  new  technology  becomes  an essential  element  for  competitive  advantage  in  the  global  market  because  firms  can  maintain quick and flexible responses to market demand using the technologies (Cooper, 1996; Mechling et  al.,  1995;  Özçelik  &  Taymaz,  2004).  While  developing  countries  have  disadvantages  in developing  and  exporting  advanced technologies  due  to  capital  intensiveness,  adoption  of  the technologies can increase their manufacturing industries’ performances (Kumar & Siddharthan, 1994).   A   firm   may   adopt   or   borrow   technology   already   in   use   within   the   industry (Gopalakrishnan & Damanpour, 1994).

There are two groups of technologies in the manufacturing industries (Wiarda, 1987):

 

  1. Hardware technology and
  2. Software technology.

Typically, the hardware technologies include: automated  identification  stations;  automated  inspection  stations;  automated  material  handling devices;  computer  aided  design  work  stations;  computerized  numerical  control  machine  tools; numerical  control  machine  tools;  programmable  production  controllers;  robots;  and  shop-floor control  systems  (Wiarda,  1987).  Example  of  software  technologies  include:  computer-aided manufacturing;     computer-aided     engineering;     statistical     process     control;     production planning/inventory   management   software;   engineering   data   management;   computer   aided process planning; local area networks; and group technology (Wiarda, 1987).

 

Traditionally,  high  technology  and  R&D  activities  have  been  less  prioritized  in  the garment manufacturing industry. The industry runs on three basic operations: cutting, stitching, and pressing/finishing. While the typical production is a combined process of various specialized and/or general machines operated by manual/mechanical/electronic devices by skilled and unskilled labor of diversified organizational production activities (Bhavani & Tendulkar, 2001). However,  in  many  instances,  the  production  involves  manual  operations  of  machines  and materials  of  automated  assembly.  Since  the  material  need  proper  feed  through  the  machines, automation  is  limited  (Bailey,  1993).  Therefore,  the  technology  adoption  in  the  industry  has primarily  been  mass-production  focused,  and  technology  development  and  usages  have  been limited.

 

In recent days, however, the change in the market trends and fast fashion styles reduced demands for mass production models. It has been reported that apparel executives believe that industry competitiveness depends upon the ability to quickly respond to demand with a variety of practices and better engineering practices (Bailey, 1993).  Desired  levels  of  production  and quality  can  be  achieved  by  adoption  of  newer  technologies  and  techniques.  Apparel makers strive to cope with ever-changing fashion styles by reducing the time it takes to design, produce, and deliver the goods (Bailey, 1993).  In  this  environment,  technology  to  support  such  needs emerged  as  an  important  source  of  competitiveness.  Accordingly, the industry began to place greater emphasis on advanced technologies to fulfill the extended demand for production, speed, and quality requirements for the competitive export market.

 

Recent technology changes in clothing manufacturing include: development of robotics for automation  assembly line for  garment making; high-speed  sewing machines; new pressing and  fusing  techniques;  computer-aided  design;  computer-aided  manufacturing;  and  computer- aided  marketing.  These technologies can be used individually or in combination with other technologies to achieve the desired economies.

 

The intensified global competition has pushed the firms to meet demands and standards quickly and effectively. Flexibility, quality, inventory reduction, efficient production cycle, and shorter lead time in manufacturing became essential for firms to achieve global competitiveness (Mechling et al., 1995). The adoption of advanced technology is a way to improve these areas and meet the export standards.

 

One expert referred to a study conducted by the Ministry of Commerce, Cambodia (2004) and explained further that there are three levels of technology in the garments sector. The most superior technology is termed as Level 3 Technology, which entails fully automated operations wherever possible and advanced handling methods and equipment.  Germany, Italy etc. are the users of such technology.  The next level is labeled as Level 2 Technology, which encapsulates automated features on sewing machines (for quality consistency), engineered work places (for smarter working) and designed handling methods (for efficiency of handling).  Mexico, Thailand, Turkey etc have the use of this type.  The lowest level is identified as Level 1 Technology.  This type indicates manual laying and cutting with basic sewing machines without work aids (for quality consistency) or labor saving sewing features (for efficiency of handling).  This level of technology is to be found, for example, in Cambodia, Bangladesh, and Pakistan.  A study conducted by Gherzi Textil Organization presented by the Ministry of Commerce, Cambodia (2004) showed labor productivity of some textile and garments producing countries while setting the productivity of the garments and textile labor productivity of Germany, a user of Level 3 Technology, at 100.  The results of the study for the labors of woven garments of Bangladesh and its competing countries are displayed below.

 

Germany                                                                                                             100

Italy                                                                                                                 95

USA                                                                                                              90

Hong Kong                                                                                                    90

Portugal                                                                                                    85

Turkey                                                                                                     85

Mexico                                                                                                               75

China South                                                                                           75

Thailand                                                                                            65

South Korea                                                                                      65

Brazil                                                                                             60

Indonesia                                                                                50

India                                                                                    40

Pakistan                                                                          30

Cambodia                                                                    25

Bangladesh                                                              20

 

Figure3.25. Level of Technology  of Competing Woven Garment Supplier

 

 

Another measure on the basis of installed capacity in woven garments for several countries is given below**.


Table 3.32

Installed Capacity of Woven Garment Industry of Various Countries

Country Shuttleless Loom Shuttle Loom Total Level of Technology* (%) Year
China 82900 578400 661300 12.54 2001
Hong Kong 4670 370 5040 92.66 2000
Korea 1800 5000 6800 26.47 2001
Taiwan 20800 1220 22020 94.46 2001
Bangladesh 3200 4700 7900 40.51 2001
India 11800 129400 141200 8.36 2001
Pakistan 17500 10100 27600 63.41 2001
Srilanka 1500 11000 12500 12 2001
Indonesia 27000 200000 227000 11.89 2001
Malaysia 4000 1200 5200 76.92 2001
Philippines 2500 7000 9500 26.32 2001
Thailand 52000 78000 130000 40 2001
Mexico 14500 35000 49500 29.29 2001
Costa Rica 100 1000 1100 9.09 2001
Domican Republic 150 500 650 23.08 2001
El Salvador 200 3000 3200 6.25 2001
Colombia 4000 8500 12500 32 2001
Egypt 2600 8000 10600 24.53 2000
Turkey 16000 3000 19000 84.21 2001

* Percentage of shuttleless looms in the total numbers of looms.

** Measure adopted by Samar Verma, November, 2002, “Export competitiveness of Indian textile and garment industry”, Indian council for research on international economic relations

 

The table shows Bangladesh is lagging in technology over some of its key rival like Hong Kong, Pakistan, Malaysia and Thailand. On the other hand china and India also lagging in terms of technology. China is trying rigorously to acquire technology to have the competitive edge in the post MFA scenario. The latest statistics by Chinese Customs reveal that, China imported textile machinery worth USD 2.19 Billion by July, 2006, an increase of 8.58% compared to the same period of last year: China’s import of knitting machinery was worth USD 600 million, up by 33.76% year-on-year, whilst import of weaving machinery amounted to USD 385 million, up by 14.46% compared to the same period. India is also encouraging its entrepreneurs to acquire technology. Govt. of India (GOI) has made machinery for textiles and apparels duty free. It also has created Technology Upgradation Fund (TUF) and is giving loans with less interest rate to acquire advance technology.

E-Competency for woven sector of Bangladesh

The use of information technology has been extensively increased over the last few years. Usage of information technology and its associated tools within Bangladesh’s woven sector is growing, but from a very low base. Followings are the characteristics of IT usages of Bangladesh:

  • e-mail is extensively used as a communication tool;
  • Several of the larger woven garments exporters have introduced computer-based systems for book-keeping and accounting, inventory control, payroll, production accounting and costing/pricing;
  • A sizeable number of woven garments enterprises have developed web-sites for marketing and promotional purposes
  • A few woven enterprises have installed computer design and manufacturing (CAD/CAM) systems;
  • There is wide use of computer-controlled embroidery machines; and
  • Several exporters are planning to install a “digital camera system” to enable foreign buyers to monitor the status of orders.

 

Political environment

The key points about the political environment of the market destination countries of Bangladesh are the following.

  • The countries are democratic.
  • As for EU market political risk is low as the changes in rules and regulations do not occur suddenly. However, the US market poses a significant risk as changes occur suddenly.

Chapter Four

Dominant Economic Features

 

Dominant Economic Features

Market size and growth rate

Market size and growth rate are the two most leading economic features for any industry. Especially in the woven garments sector market size and growth rate relate all the other features in a very meaningful manner. These two important features are discussed below.

 

Market size

To understand the market size of the woven garments industry of Bangladesh, it is likely to have a bird’s eye view earlier. So, first, the focus will be on the global scenario of the garments industry. Second, the focus will be up on the garments industry of Bangladesh where woven versus knit industry will be illustrated. Third, the focus will be wholly upon the woven industry of Bangladesh.

 

Looking at the global apparel producing countries and their export volume, a clear idea about the market size of the garments industry can be achieved. The following figure gives the overview.

 

The figure above shows that Bangladesh exports only 2.30% of the total world export. But, as a small country this contribution is quite pronounced. The export data of Bangladesh supports this. The official site of Bangladesh Garments shows that from July 2005 to April 2006, RMG’s contribution was 74.28% in the total export volume. Also the figure shows it clearly that the biggest contributor in the apparel export industry is China. Also, it is to be noted that China is a very big country in terms of land and population. And the other major contributors are EU, Turkey, India, Mexico, Indonesia, and USA. Another important observation is that though India is a large country in term of population and though labor is cheap at India, India’s contribution is only 3.00 %. So, the conclusion is that Bangladesh is doing quite good in terms of export volume in the apparel industry.

 

Now the contribution of both knit and oven industry of Bangladesh will be discussed. The following table shows the contribution of woven and knit sector to the apparel export of Bangladesh.

 

Table 4.1

Contribution of Woven and Knit in total apparel export of Bangladesh

 

Year Total Apparel Export in Million US$
Woven Knit Woven’s Contribution
1992-93 1240.48 204.54 85.85%
1993-94 1291.65 264.14 83.02%
1994-95 1835.09 393.26 82.35%
1995-96 1948.81 598.32 76.51%
1996-97 2237.95 763.3 74.57%
1997-98 2844.43 937.51 75.21%
1998-99 2984.96 1035.02 74.25%
1999-2000 3081.19 1268.22 70.84%
2000-2001 3364.32 1495.51 69.23%
2001-2002 3124.82 1458.93 68.17%
2002-2003 3258.27 1653.82 66.33%
2003-2004 3538.07 2148.02 62.22%
2004-2005 (July to April) 2907.63 2263.32 56.23%

Source: http://www.bangladeshgarments.info/bgmea/home/export.cfm

 

The table shows that in 2004-2005 (July to April), woven’s contribution was 56.23% in the Bangladeshi apparel market. But in the same time, the table shows that woven’s contribution in the apparel export of Bangladesh is in s declining trend. But looking at the following figure, one can have a different picture of the woven garments industry of Bangladesh.

 

The figure above shows that the woven sector is still growing in Bangladesh but the growth rate of knit sector is comparatively higher than that of woven. Another important observation is that though oven sector is not growing at a large rate, the woven sector dominates over the knit sector regarding to export volume of apparel industry of Bangladesh still now.

 

Now, having this bird’s eye view of the woven garments industry, one can concentrate on this particular sector.  In Bangladesh, the woven products are produced only for export purpose. A very small fraction of the woven products are locally sold. So, the market size of the woven industry is properly reflected by the woven export volume of Bangladesh. Figure 4.3 shown below is a bar diagram illustrating the woven export volume (in USD) of Bangladesh.

The figure above (Figure 4.3) shows that the export volume of woven garments industry is increasing in a linear fashion from the year 2001. Though this increasing trend is shown on the graph by the line AB. The line AB has a positive slope with satisfactory magnitude which implies that the growth of woven garments export of Bangladesh is considerable. So, the market size of the woven garments industry is increasing. At present, the market size of the woven garments industry in Bangladesh is US$4,736,140,000.

 

But this market size is not the accumulation of the market served by the local firms only. The following pie-chart shows the scenario of 2005-06 in Bangladesh.

 

At last, it becomes important to mention the market size geographically. That means what are the major countries where Bangladesh exports woven garments and to what amount. This is answered in the following figure.

 

Market growth rate

For any industry the market growth rate is very good and reliable information for setting up a strategy. To better understand the market growth rate of the woven garments industry, the global scenario has also been incorporated in this study.

 

The following figure shows the growth rate of oven industries in Bangladesh. It is to be noted that the line indicates growth rate which has been calculated by comparing the export amount of a year with that of the last year.

 

Figure 4.7 above shows that the growth rate of woven industry of Bangladesh is of fluctuating nature and it is pretty difficult to understand its nature of fluctuation. From the focused group discussion it was found that the growth rate of this industry is unpredictable as the political and economic condition changes, it affects the industry. Also the export regulation plays a significant role upon the rate of growth of this industry.

 

Scope of competitive of rivalry

Competitive rivalry in an industry or sector concerns who the present and potential competitors are, and how intensive the competition is between them. This competition may take place inside the country or outside the country. So, the competitive rivalry must be viewed from international and national perspectives.

 

International Competition

In the context of textile, a clothing export, international competitiveness had often been evaluated by using such indicators as growth or capacity or export supply, employment, infrastructure, economic power, political stability, government support, and clear strategy. These indicators will be discussed in the following paragraphs.

 

First, growth, as an indicator of competitive rivalry, will be discussed. The following table shows the percentage growth of the different countries’ garments industry.

 

Table 4.2

Percentage Growth of Different Countries’ Garments Industry

Country Percentage of World Garments Export
China 26.90%
EU 8.20%
Turkey 4.30%
India 3.00%
Mexico 2.60%
Bangladesh 2.30%
Indonesia 1.90%
USA 1.80%

 

Table 4.2 above shows that Turkey, India, Mexico, Indonesia, and USA have lower than 5% share in world garments export, where as Bangladesh has a share of 2.30%. So, the above mentioned countries are competitors of Bangladesh in terms of growth.

 

Employment is another vital issue that plays crucial role in competitive rivalry. But as Bangladesh is a developing country with high rate of unemployment, this factor is not crucial here. On the other hand, in USA, the employment or the labor issue is the most critical issue that creates rivalry among the US companies producing garments for export.

 

Infrastructure and economic power are the two major components of competitive rivalry. If two different countries have same level of infrastructure, both physical and social, and also have same economic power, which can be measured as GDP, the two countries will fight in the same market irrespective of their market share and growth in the industry.

 

Political stability was given the first priority as an indicator of competitive rivalry in the focused group discussion conducted for investigating the woven garments industry of Bangladesh. Ms. Naima said that due to political instability in Bangladesh we are fighting with the small players in the global market. She also mentioned that if Bangladesh experienced a stable and helpful political situation with high level of certainty, Bangladesh would fight with Chine in the market rather than with the small and tiny rivals.

 

Government support and clear regulatory strategy was also given importance in the focused group discussion conducted by the authors. Mr. Sabbir, a banker working for Standard Chartered Bank Limited, said that if Government of Bangladesh could provide the entrepreneurs with clear regulatory directions the entrepreneurs would be able to conduct business in a more efficient fashion. And hence he concluded that Bangladesh would be the second largest in the woven industry if we had all these things we dreamt.

 

Bad Nauheim, in his article “Corporate solution” found the following results. His result is shown in the following table. He identified the following strengths of different countries that plays role for competitive rivalry.

 

Table 4.3

 Findings of Bad Nauheim on International Competitive Factors

Country Competitive Factors
Infrastructure Integrated Production Economic Power Political Stability Government Support Clear Strategy
China Strong Strong Strong Strong Strong Strong
India Strong Strong Strong
Pakistan Strong
Thailand Strong Strong Strong
Turkey Strong Strong Strong Strong Strong
Poland Strong Strong
Egypt Strong

Source: Corporate Solution, Bad Nauheim (2005)

 

Bad Nauheim also found the following things.

  • Continuous decrease of domestic garment production as well as rising garment imports In most of the major markets in Western Europe and the USA (increasing dependence on ‘garment imports)
  • Increasing international demand for ready-made) g ‘rments in terms of RTS busi-ness (development of basic product lines / mix-and-match products, procurement and marketing system) – financing and financial resources of supplier companies will be more important than machinery park or “newest technology standards”
  • Increasing; international competition (e.g.. China, India, Eastern Europe or even “new markets” such as Central Asia) as well as increase in mergers / concentra-tion among industry and trade companies ‘
  • Two major procurement strategies by, ELI customers
  • CM / CMT business in Eesterrl Europe (OPT)
  • RTU / RTS business in Asia
  • Rising demand for qualified machine operators, quality control personnel and productionm middle management within supplying companies
  • Increasing importance of short and flexible Ilea`d times as well as competitive price-performance especially for EU market
  • Reduction of suppliers pbol’by international customers (concentration on limited number of suppliers) but likewise constant, de mand,for qualified and specialized new suppliers as substitution of unprofitable production companies / suppliers
  • Complete liberalization of international markets (quota phase-out)

 

In 27 January 2005, at the winter garden of Dhaka Sheraton Hotel, BGMEA organized a seminar to exchange their views with the Bangladeshi financial Institutions. In this seminar BGMEA pointed out the following key points that hinder woven industry of Bangladesh from being competitive in the global market and thus to exercise competitive rivalry. These key points are:

  • Woven garments industry of Bangladesh is 100% export oriented and to a great extent it is import oriented
  • This industry is highly capital intensive
  • Domestic capacity is less than adequate
  • MFA (Multifibre Arrangement) issues

 

Now the Post-MFA threats and opportunities of Bangladesh will be discussed here.

 

Post-MFA Threats

The post–MFA threats are listed below.

  • No more quota
  • Sourcing pattern will change
  • Rich country protectionism still remains
  • Rules of origin, biased against poor countries
  • Established textile exporting countries in East and Southeast Asia will be main beneficiaries

 

Post-MFA Opportunities

The post-MFA opportunities are listed below.

  • Lower apparel prices will lead to higher consumption
  • Countries with matured industry will avail of this extra business
  • Although Chinese industry has the best preparedness, it may not necessarily monopolize this extra business
  • Retailers have already taken preparations not to become over-dependent on single country
  • China may also be restrained from too rapid expansion of exports to US and EU because of conditions it agreed to as part of its WTO accession deal
  • US commerce department is already considering nine petitions seeking safeguard limits on goods ranging from pants to underwear from china
  • EU is also pushing for progressive rather than sudden textile and clothing trade growth after quota removal in order not to have severe consequences on third country suppliers to the EU. Keeping that in view they have set up a WTO-compatible monitoring system for Chinese textile and clothing inputs from January 01, 2005
  • Bangladesh will enjoy duty free with no restrictions on raw material sources from Japan for a size of USD20 billion
  • Duty free in Canada with almost no restriction up to USD5 billion
  • Duty free in Australia with restrictive clauses for a size less than USD4 billion
  • In EU Bangladesh will enjoy duty free access in knit up to USD84 billion
  • A joint bill by the leftover LDCs seeking duty free access will placed in congress soon in USA
  • For the case of EU new GSP rules of origin has made some welcome changes

 

Domestic Competition

The picture of domestic competition was fully illustrated in the focused group discussion conducted by the authors. In the discussion the following key points about the domestic competition were identified.

  • Bangladesh, the established industries enjoy some extra benefits while conducting the business. These benefits include mainly the different features.
    • ØEstablished companies do have very good relationship with the financial institutions and they get loan when they need
    • ØBig companies can easily open an LC
    • ØLarge companies can provide their employees with some extra benefits and they can easily attract skilled workers in their companies
    • As new days are coming up, new industries are also coming up. The following figure illustrates the scenario.

 

The most important thing that was discussed in the focused group was that some of the politically biased companies in this industry get illegal benefits from the governments and hence can compete in the market and enhance rivalry without having any kind of competitive advantage over the other companies.

 

Number of rivals

As we have discussed earlier, the number of rivals in the international market is not too much. There are about 10-15 major rivals in the woven industry. Of them China is very very large. But the real rivals are Turkey, India, Mexico, Indonesia, and USA that have almost the equal market share.

 

Also in Bangladesh there are rivals who are competing inside the country. Figure 4.8 above shows that the current no of factories (all garments companies) is very large (4,490 factories as on December 2007).

 

But an important scenario was illustrated in the focused group discussion. Ms. Akhi, the owner of a oven company, mentioned that the original rivals are those who have that favor from the government’s side. So, rivalry is important when someone does not get any favor from the government.

 

Buyer needs and requirements

According to the discussion organized by BGMEA, there are six major needs to be fulfilled by the company to meet the need of the customers. These are:

  • Low price: Usually the customers like customers of all other sectors prefer low price and they found that this is the only major component that determines sales.
  • Quality of the fiber content: The quality if the fiber is a very important issue for our country. In the focused group, discussers also pronounced their avocation with these top level mangers.
  • Laundry Instructions: There are some other laundry instructions provided from the buyers. All these instructions must be done properly or the company must lose its image and goodwill in the market.
  • Country of origin: The country of origin matters significantly while going for new buyer. The buyers usually do not come to this subcontinent, when the order is much more realistic and meaningful.
  • Brand name: As, Bangladesh exports almost all the woven garments, the brand name is not a very good concern.
  • Environmental Friendliness: Environmental friendliness is getting more and more important now a days. The companies with an ISO certificate get preference in the world market.

 

Production capacity

The most important factor that contributed to the growth RMG specially is the competitive advantage Bangladesh enjoys in garments production because of low labor cost and availability of almost unlimited number of quickly trainable cheap labor. The domestic policies of the government contributed to the rapid growth of the garments sector.

 

The RMG industry is highly dependent on imported raw materials and accessories because Bangladesh does not have enough capacity to produce export quality fabrics and accessories. About 90% of woven fabrics and 60% of knit fabrics are imported to make garments for export. The industry is based primarily on sub-contracting, under which Bangladeshi entrepreneurs work as sub-contractors of foreign buyers. It has grown by responding to orders placed by foreign buyers on C-M (Cut and Make) basis. During its early years, the buyers supplied all the fabrics and accessories or recommended the sources of supply from which Bangladeshi sub-contractors were required to import the fabrics. However, situation has improved. At present, there are many large firms, which do their own sourcing.

 

Bangladeshi suppliers need to increase factory productivity to uphold long-term competitiveness. Experts estimate that an average factory in Bangladesh runs at 50%–60% of its potential productive capacity. This can be improved with process reengineering, investment in modern technology and machinery, and labor skills development. Bangladesh currently equals or outperforms India in flexibility with orders, quality, and price. But India surpasses Bangladesh in innovation and design services, compliance with labor standards, consistency and reliability, and delivery time. To improve in these areas, Bangladesh needs an adequate supply of skilled managers and workers, and investments in textiles, the critical backward linkage industry for woven garments. Regional cooperation among South Asian countries can play a pivotal role in training managers, quality control and technical personnel, and designers.

 

An average knitwear firm in Bangladesh has 10% higher productivity than a woven firm and 17% more productive than a sweater firm.

 

Pace of technological change

“Technology is taken to include the physical processes of transformation of inputs into output, organizational methods that structure these processes and information flows required to carry out these processes.”

 

It is well accepted in the economics literature that technology plays a significant role both in macro (economic growth) and microeconomic spheres (such as competitiveness of firms). Partly because of increasingly integrated world economies that are necessitating further improvements in the competitiveness of the economic organizations and partly due to its fast changing nature that is shifting its own frontiers radically, technology per se has moved centre stage. Consequently, one finds voluminous literature on the economics of technology.

 

The figure below identifies the scope of IT adaptation for an industry. The degree of IT adaptation will be discussed using the following water fall diagram.

 

SHAPE  * MERGEFORMAT

Degree of IT adaptation

Database Management

Order Processing System

L/C Management System

Transaction processing System

Management Information System

 

Video Conferencing

 

Computer aided design and manufacturing

 

E-mail and internet

 

Figure 4.8: The Waterfall Approach for IT adaptation

 

Figure 4.9 identifies some specific areas where an industry is likely to adapt IT for increasing productivity and efficiency. The points identified in the figure will be discussed briefly in the following paragraphs.

 

Database Management

Most of the companies in the woven garments industry of Bangladesh use locally developed software to keep its database and some of the companies use more sophisticated software that manages the database also. In the focused group discussion Ms. Akhi, an owner, shared her views in this regards.

 

Order Tracking System

Only a few companies in this industry track the order by order tracking system. In most of the cases the order tracking is done manually by the employees.

 

Letter Of Credit Management System

Letter of Credit (LC) management system is absent in Bangladesh. But the companies get enough technological help from the Banks regarding to opening an LC. Mr. Sabbir, a banker, shared his knowledge in this regard in the focused group discussion.

 

Transaction processing System

The participants in the focused group discussion agreed upon the fact that almost all the companies in the industry have to some extent their own transaction processing system. But, no company has its own transaction processing system that can process each and every transactions of the company.

 

Management Information System

Almost 50% of the companies have their own management information system, but in the focus group discussion it was found that what they are calling a management information system is not a real one. They just store their information in the computers and call it as a management information system. So, in reality a very few companies have a real management information system.

 

Video Conferencing

Some of the companies have their own video conferencing system and the others do not use it. But it was revealed from the focused group discussion that within a couple of years almost all the companies will have their own vedio conferencing system.

 

Computer Aided design and Manufacturing

Almost all the companies have computer aided design and manufacturing facilities. With the help of the vendor, general employees with a bit good knowledge can operate these types of machineries. So, computer aided design and manufacturing has become more and more popular as it is not very expensive to operate.

 

E-mail and internet

All the companies of this industry have e-mail and internet facilities. They use high speed broadband internet lines and also keep an extra internet back up through the mobile phone. The top managers check their e-mails at least once a day and communicate with their stakeholders.

 

Vertical integration

There are currently three types of garment manufacturers in Bangladesh. The first are the integrated factories that spin some of their own yarn, produce some of their own fabrics and sew their own garments. The second type imports the yarn that they use, while using it to make some of their own fabric that is used in the garments that they sew. The third type of producer, known as “cut, make and trim” (CMT), imports the fabric that is used to sew their own garments. In all cases, most of the accessories are purchased locally.

 

There is currently a debate among the industry as to which “model” is best for Bangladesh. Most woven industries fall in the first or second categories. Clearly, in the first model the most value-added takes place inside Bangladesh. However this may not be the most cost-effective means by which Bangladesh can become most competitive. According to interviews conducted for this report, for instance, it actually costs more money to use the yam produced in Bangladesh than it does to import from India and China.  This is even the case when an integrated factory produces its own yarn. The biggest advantage to producing the yarn in country is that lead time to obtain yarn drops’ to practically zero days. This is a crucial savings of time and money in an increasingly competitive global market. According to some international buyers interviewed for this report, low and decreasing lead times are becoming one of the most important aspects for sourcing decisions.

 

Experts have unanimously identified an underdeveloped backward linkage of the woven garments sector as a great holdup of the sector.  However, differences in opinions on this issue exist among the factory managers.  The managers of the upper tier factories opine that a poor backward linkage is not a problem for them at all.  On the other hand, the mid-tier and the lower tier garments factories have identified it a major setback in the post-MFA era. They reasoned that they do not have large sales as the ones on the upper-tier and thus, outsourcing materials from abroad reduce profit exorbitantly. A study of The Ministry of Commerce of the GOB (2002) substantiates the fact of underdeveloped backward linkage of the woven sector of the country vis-à-vis that of the competitors.

 

To broaden the existing client base, Bangladesh needs to explore new export destinations based on market size, per capita income and clothing consumption, and competitive advantage in those countries. Strengthening forward market integration is important to face challenges from emerging competitors such as Cambodia and Viet Nam. The industry should strive to have a portfolio of buyers across regions to reduce dependency on the European Union and US markets. South Asian countries need to create an integrated regional market by removing high tariff and non tariff barriers, sensitive lists, and institutional inertia; and by encouraging joint ventures under the South Asia Free Trade Agreement (SAFTA).

 

Product innovation

Undoubtedly product innovation is one of the most important tools for striving in the consumer market. But in the focused group discussion it was found that most of the export deliveries are order based. So, the scope for product innovation is not available in the woven garments industry. Because the buyers give their order according to their need and the companies jus follow their demands. So, basically the innovation part is done by the buyers and the companies just follow their instruction. But innovation is still there. For example, the owner of woven company, Ms. Akhi, said that innovation takes place while carrying out the orders. Especially while going through the orders, the factory people sometimes innovates new idea of completing their works. Innovation takes place in the order processing stage. Also innovation takes place in the delivery system and attracting buyers. But product innovation is basically done by the buyers themselves. Mr. Msud, a garments specialist, also agreed with Ms. Akhi in the focused group discussion saying that the companies basically supply standard goods to the foreign market as the demand for standard goods are higher in the foreign market, and hence, the scope for product innovation is very little there.

 

Degree of product differentiation

Product differentiation is important for the woven garments industry to some extent. Product differentiation mainly takes place in designing the standard clothing, like shirts, and also designing the type of woven technique. The only scope for differentiation is obtained when a company takes initiatives to attract buyers. Companies create new designs to attract buyers. These designs includes, designing on the clothing with different colors, designing other accessories like buttons and chains, designing by using different types of woven clothes etc. In the focus group discussion, Mr. Sohel said that product if a company can successfully design a standard shirt using attractive colors and can communicate properly with a foreign buyer regarding that they are unique in designing this type of products, and then one differentiation technique can make a lot of profit for the company. So, the companies are now emphasizing on employing fashion designers to attract new buyer and retain them by providing world class fashion design. Ms. Akhi added that she particularly adapt differentiation strategy to attract foreign buyers by delivering unique design to her foreign buyers.

 

Economies of scale

The size and operation of the firm may have its distinct economy, which is specific to the industry. Obviously economies of scale will play significant role in actual costs involved for each of the value chain activities of a firm. It has been observed in the RMG sector of Bangladesh that large factories having high volume production capacity enjoy advantage and efficiency of scale as compared to small factories. Their overhead cost, is less and they get all the advantage of bulk purchases and shipment. Firms having these economies of scale can gain a substantial cost advantage.

 

Also a large volume of empirical work has sought to investigate the relationship between export growth and economic performance. This relationship, which has commonly known as export led growth hypothesis, has remained a subject to export-led growth hypothesis, and has remained a subject of considerable debate. The “Asianmiracle”, attributed to the Asian high-performing economies due to their successful growth record, has generated even greater interesting this topic and has revived the debate on optimal growth strategies for developing economies. While it is generally accepted that export growth has been an important reason behind the economic success of these fast-growing economies in Asia, the link between their productivity and export growth is less clear. In particular, there is a large literature, led by Alwyn Young and Paul Krugman, which shows that these economies had achieved rapid economic growth without a Corresponding rise in   productivity (Krugman, 1994; Young, 1992, 1995).

 

In the focused group discussion the authors asked the discussers to illuminate on this topic. Mr. Sohel, a banker, said that though economies of scale lower cost for a company, the situation in this industry is pretty different here. Small scale companies are still growing in this country. This contradiction was well explained by Ms. Akhi. She said that due to political unrest and change in the government, no entrepreneurs like to increase production capacity of his/her firm. Rather they try to take as much orders as they can and then outsource the orders and monitor these. That is they prefer outsourcing to going for large scale production due to political risk, or risk from the buyers. So, though economies of scale are a good practice to reduce cost, they don’t use it in production. On the other hand, Mr. Sabbir, a banker, said that the companies in this industry use the economies of scale as a tool while importing their machineries and raw materials together to get a cost benefit.

 

Learning and experience effects

In the 1960’s, management consultants at The Boston Consulting Group observed a consistent relationship between the cost of production and the cumulative production quantity (total quantity produced from the first unit to the last). Data revealed that the real value-added production cost declined by 20 to 30 percent for each doubling of cumulative production quantity.

 

The vertical axis of Figure 4.11 is the real unit cost of adding value, adjusted for inflation. It includes the cost that the firm incurs to add value to the starting materials, but excludes the cost of those materials themselves, which are subject the experience curves of their suppliers.

 

Note that the experience curve differs from the learning curve. The learning curve describes the observed reduction in the number of required direct labor hours as workers learn their jobs. The experience curve by contrast applies not only to labor intensive situations, but also to process oriented ones.

The experience curve relationship holds over wide range industries. In fact, its absence would be considered by some to be a sign of possible mismanagement. Cases in which the experience curve is not observed sometimes involve the withholding of capital investment, for example, to increase short-term ROI. The experience curve can be explained by a combination of learning (the learning curve), specialization, scale, and investment.

 

The experience curve has important strategic implications. If a firm is able to gain market share over its competitors, it can develop a cost advantage. Penetration pricing strategies and a significant investment in advertising, sales personnel, production capacity, etc. can be justified to increase market share and gain a competitive advantage.

 

When evaluating strategies based on the experience curve, a firm must consider the reaction of competitors who also understand the concept. Some potential pitfalls include:

 

  • The fallacy of composition holds: if all other firms equally pursue the strategy, then none will increase market share and will suffer losses from over-capacity and low prices. The more competitors that pursue the strategy, the higher the cost of gaining a given market share and the lower the return on investment.
  • Competing firms may be able to discover the leading firm’s proprietary methods and replicate the cost reductions without having made the large investment to gain experience.
  • New technologies may create a new experience curve. Entrants building new plants may be able to take advantage of the latest technologies that offer a cost advantage over the older plants of the leading firm.
  • The learning curve mainly deals with the operating efficiency that a firm gains with experience by doing the same thing repeatedly. Due to learning there may be considerable drop in the costs of operation of each of the value chain activities.

 

The RMG sector in Bangladesh now has mote than two decades experience in operation. Over the years this sector has learnt a lot and changed a lot to respond to the Learning experience into reality. However, in the absence of systematic research in this sector many opportunities have been missed in the past and a conscious effort by the entrepreneurs can substantially reduce the production cost to remain competitive in the global market.

 

Industry life cycle

Industry life cycle is a very useful tool for making strategic decisions of a company. Hill, C. W. L. and Jones, G. R. (2004) identifies five phases of life cycle of an industry as illustrated below.

SHAPE  * MERGEFORMAT

Embryonic

Growth

Shakeout

Mature

Decline

Time

Demand

Figure 4.11: Stages in the industry life cycle

 

In case of woven garments industry of Bangladesh we found the result in figure 4.2 upon which we can take decision of the industry’s life cycle. Figure 4.2 shows that growth in the woven garnets sector is not very high, but the industry is still growing. So, comparing with the above figure we can conclude that the industry is at the initial position of mature stage, where as the knit garments industry is at the shakeout stage.

 

So, although the woven garments industry still contributes more in the RMG sector compared to knit, the industry is at the starting point of the mature stage in its life cycle. So, any further heavy investment must not be appreciated in the woven industry. In the focuse group discussion, Mr. Sabbir, a banker, made the same comment about the woven industry.

 

Application of Porter’s Five Forces Model of Competition

 

The following figure presents the Porter’s five forces in the woven garments industry.

 

Rivalry among the Existing Competitors (High)

-Intense rivalry propagated by barriers to exit such as heavy capital investment.

-High fixed cost leads to price war as all want to run at full capacity.

 

-On the domestic level firms do not have high difference in their size.

 

-On the international level, Chinese and Indian producers enjoy a monopolistic advantage over the others which do not have domestic cotton production.

 

Threat of New Entrants (Low)

-Large start-up costs

-Low current prices relative to high capital investments

-Long time needed to pass test of quality.

Threat of Substitute Products (High)

Knitwear is the main substitute product for woven garments. Over the last few years demand for knit is growing faster than woven wear.

 

Bargaining Power of Buyers (High)

European can buy from home textile producers of many other countries such asChina,India, andPakistan.

-Due to the long-existing nature of the business, the buyers have information about cost of production

 

 

Bargaining Power of Suppliers (High for cotton but low for labor)

-Domestic cotton production is very low inBangladeshcompared to its demand.

 

-Escalating growth in textiles and garments ofChina,India, and other countries always keep the demand for cotton up.  For example,Chinaalone eyes an increase of 77% in its demand for cotton.

-Labor surplus in the country does not allow the labors ofBangladeshto bargain over wage. In the year 2005, unemployment rate is 40% (includes underemployment).

 

 

Rivalry among the Existing Competitors (High)

The following woven garments industry characteristics make the industry more competitive among the existing rivals:

 

  • Existence of a larger number of firms: It increases rivalry because more firms must compete for the same customers and resources. The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership.

 

  • Slow market growth: causes firms to fight for market share. In a growing market, firms are able to improve revenues simply because of the expanding market. On the contrary on a stagnant market existing rivals struggle to survive or expand the market share. The following table provides the U.S. import in woven garments from exporting countries.

 

Table 5.1

US Import in Woven Garments

Product 2005 2006 2007
Apparel

71950.84774585.63071447.529Woven Garments*6.0135.5885.257

OTEXA Trade data (Values are in Mn. US $)          * Product code 9912.62

 

The table shows a declining import trends. U.S. apparel market is the largest export market for Bangladesh.

 

  • High fixed costs: result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry.

 

For woven garments industry the start-up cost is high. Typical minimum cost for a single line to sew parts of garments for final sewing assembly at local garment factory is as follows:

Table 5.2

Start-up Cost of Woven Factories

Description Qty Cost/Qty Total
Sewing Machines 10 $300 $3,000
Metal Case to safe keep goods 2 $100 $200
Over Lock Machine 1 $600
Rent Advance – (1 room) 1 $1,450
1 Generator 1 $1,400
Transportation and Sales $300
Deposit for Inventory of Garments & Materials $1,400
Legal registration, Tax & TIN No. $400
Furniture: Table & Almirah Fixture $700
Electricity, Air conditioner & other equipment $2,800
Phone, Computer & other communication equip $2,200
Total $14,450

Source: Wikipedia Search (2008)

  • Low switching costs: Low switching cost increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers. Bangladesh, India, China, Srilanka, Nepal etc. are competing with each other for the same market. Firms’ size and structure also almost same. So, the switching cost for the buyer is very low.

 

  • Low levels of product differentiation: Woven garments industry is a industry of low levels of product differentiation.  This kind of industry associated with higher levels of rivalry. Brand identification, on the other hand, tends to constrain rivalry. Over the years woven products remain the same. The main woven products of Bangladesh are shirts, trousers, and jackets, mostly made from cotton. These three products, the majority of which are woven, constitute over 40% of the total apparel export of Bangladesh. Usually buyers specify the fabric and design which make the industry of low level of product differentiation.

 

  • High exit barriers: high exit barriers place a high cost on abandoning the product. The firm must compete. High exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A common exit barrier is asset specificity. When the plant and equipment required for manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in another industry. Litton Industries’ acquisition of Ingalls Shipbuilding facilities illustrates this concept. Litton was successful in the 1960’s with its contracts to build Navy ships. But when the Vietnam war ended, defense spending declined and Litton saw a sudden decline in its earnings. As the firm restructured, divesting from the shipbuilding plant was not feasible since such a large and highly specialized investment could not be sold easily, and Litton was forced to stay in a declining shipbuilding market.

 

  • A diversity of rivals with different cultures, histories, and philosophies: This makes an industry unstable. There is greater possibility for mavericks and for misjudging rival’s moves. Rivalry is volatile and can be intense. The hospital industry, for example, is populated by hospitals that historically are community or charitable institutions, by hospitals that are associated with religious organizations or universities, and by hospitals that are for-profit enterprises. This mix of philosophies about mission has lead occasionally to fierce local struggles by hospitals over who will get expensive diagnostic and therapeutic services. At other times, local hospitals are highly cooperative with one another on issues such as community disaster planning.

 

Threat of Substitute Products (High)

In Porter’s model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product’s demand is affected by the price change of a substitute product. A product’s price elasticity is affected by substitute products – as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products outside the industry. The woven garments industry is facing challenge from knit garments.

 

Bargaining Power of Buyers (High)

The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony – a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers. The following tables outline some factors that determine buyer power.

 

Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European markets dominate the global textile trade accounting for 64% of clothing and 39% of textile market. With the dismantling of quotas, global textile trade is expected to grow (as per Mc Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become the ‘supplier of choice’, other low cost producers like Bangladesh would also benefit as the overseas importers would try to mitigate their risk of sourcing from only one country.

 

The key apparel market for Bangladesh and other apparel exporting countries are U.S. and EU Markets. Both the markets have the opportunity to buy from Asia, Africa or Latin America. More over the buyers are in the market for a long time due to the long-existence nature of the business. The opportunity to switch the market for low cost and knowledge about the cost of production enable the buyer with high bargaining power. The buyers are always demanding for better quality and lower costs from the garments manufacturer. The following recommendation in Bangladesh National MFA Forum conference action point depicts the immense buyers’ bargaining power over the manufacturers.

Buying practices need to be reviewed, collaboratively, to ensure that a fair price is paid for sourced products and to minimize the detrimental impact on suppliers, specifically from unrealistic delivery schedules.”

 

Bargaining Power of Suppliers (High for cotton but low for labor)

A producing industry requires raw materials – labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits.

 

Cotton, a key raw material in the textile and garment industry, accounts for about 30% of the fabric cost and 13% of the garment cost. Bangladesh produces cotton very low volumes. It Domestic cotton production is very low in Bangladesh compared to its demand.  Escalating growth in textiles and garments of China, India, and other countries always keep the demand for cotton up.  For example, China alone eyes an increase of 77% in its demand for cotton.

 

India has an abundant supply of locally grown long staple cotton, which lends it a cost advantage in the home textile and apparels segments. Bangladesh including other countries, like China and Pakistan, have relatively lower supply of locally grown long staple cotton. The following graph shows the cotton production and cotton required for textile and apparel by India, China, USA and Pakistan. China, USA and India ranked 1,2 and 3 in terms of production in the world market. Bangladesh produce only 15 Mn kg of Cotton where as its annual requirements is 450 Mn kg.

 

Labor surplus in the country does not allow the labors of Bangladesh to bargain over wage. In the year 2002, unemployment rate is 40% (includes underemployment).

 

Threat of New Entrant

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.

 

We have seen the start-up cost for woven garments is very high which made the industry unattractive in nature. There exist economies of scale also. To be competitive the factory will require a number of production lines. Such large start up cost discourages new entrants in the industry. The following table shows the growth in export is not proportional to the growth in number of woven factory. The existing firms are more competitive in terms of passing the test of quality with the buyer over a long period. So, the existing firms are enjoying incremental export opportunity.

Table 5.3

Factories Growth and Export per Factory

Year No of woven factories % Increase in the number of factories Avg. Export per factory
1992 756 16.13% 1.41
1993 1049 38.76% 1.18
1994 1249 19.07% 1.03
1995 1409 12.81% 1.30
1996 1552 10.15% 1.26
1997 1571 1.22% 1.42
1998 1656 5.41% 1.72
1999 1800 8.70% 1.66
2000 1899 5.50% 1.62
2001 2000 5.32% 1.68
2002 2099 4.95% 1.49
2003 2145 2.19% 1.52
2004 2181 1.68% 1.62

Source: BGMEA Research Department

Key Driving Forces

 

It is very important to understand the key driving forces of an industry to decide upon the strategy of any company inside the industry. By searching the internet, reviewing related literatures, implementing key informant technique, and by organizing focused group discussion the following key forces have been identified.

  • Growing use of internet technology and applications
  • Increasing globalization
  • Changes in the buyers’ requirements
  • Changes in cost and efficiency
  • Changes in global regulations in the textiles and apparels industry

These above mentioned key driving forces will be discussed in the following subsections.

 

Growing use of internet technology and applications

The network of infrastructure development in telecommunications through submarine cable and satellite connection have revolutionized the system and immensely increased the scope for building global partnership. Under the new set up the list of possibilities is endless. Global partnership in the information technology is a reality now where unique features of comparative advantage exist along with decreasing labor cost.

 

In Bangladesh internet technology and web applications play a vital role in establishing collaboration between importers and buyers abroad. Exporters communicate with Importers though internet where buyers put their proposal and ask for bidding. Prospective sellers bid through the internet and the lowest bidder is rewarded with sales contract This is how internet technology acts as a bridge in connecting business people across different parts of the world.

 

In domestic market there is no such seller who uses websites as a part of their supply chain. Amazon uses website as a competitive tool in gaining customers. But such facilities haven’t yet gained prominence in a developing country like Bangladesh.

 

Besides acquiring buyers, woven garments in Bangladesh have made IT application a part of their daily operation process.

 

Increasing globalization

At present the world is witnessing a rapid change in all fields of human civilization. The world we knew is shrinking fast paving the way for globalization. In the era of International trade political, geographical obstacles are being leveled down. Economic integration among regional blocks is emerging one after another; political boundaries are transcended by such collaboration and cooperation among nations, governments, business houses and social and cultural organizations.

 

The overall global trade is increasing phenomenally every year and after. In business the process of going global is largely marked by increasing volume of export and import and greater number of licensing, franchising, strategic alliances, joint venture and setting up of foreign subsidiaries by business houses. Thomas Friedman while describing the trend of globalization summed it up in one sentence that globalization is “farther, faster, cheaper, and deeper.”(Hossain and Sandhir 2004)

 

From the 1st of January, 2005 the multi fiber agreement has come into effect removing the quota system of RMG products in USA. For Bangladeshi RMG companies this is a big challenge. They no longer enjoy the quota and have to compete with China and India for the same products in a free market. Competitions shifts from national focus to an international focus when production activities begin to migrate to the countries where costs are the lowest.

 

Focus group discussions with industry experts reveal that trade liberalization has made it much easier for entering into new market and carry out manufacturing activities by out sourcing them. Brands like Reebok, Marks & Spencer, Denim, Wall Mart, Levies, Nike etc. out source their manufacturing activities to countries like Bangladesh where they can get value chain activities done cheaper than any other part of the world.

 

This subcontinent is a perfect testimony to the fact that government policies affect the process of globalization. To attract global capital or foreign investment countries in our subcontinent have laid down attractive concessions and investment packages. The government of Bangladesh has set up Export Processing Zones (EPZ) with most liberal incentives and policies for investment and has obtained a remarkable success. China and India have also opened up there economy for the foreign investment with phenomenal success.

 

Changes in the buyers’ requirements

Focus group discussion reveals that buyers or importers are the most vital players in RMG industry. So their preferences and requirements shape the Rules of the Game. Buyers want to import from fewer and large suppliers. Compliance to standards, maintaining high quality, on time delivery, lead time or faster delivery time, flexibility, duty free access etc. are the pivotal factors that are central to buyers changing preferences.

Changes in cost and efficiency

Spinning, dyeing, knitting, confection of knits and garments fashioning all are done in the country-some of the factories in Bangladesh. Some of the companies in the country are fully vertically integrated. But the situation in woven garments industry are completely different. The self sufficiency of garments production in Bangladesh is quite high in the knitwear sector (Approx 80%) where as the woven garments sector shows only a self sufficiency of about 25%. The following table represents comparative self sufficiency in different parts of production process.

Table 6.1

 Self sufficiency of woven garments industry in Bangladesh

Production

stepsBangladeshChinaIndiaIndonesiaPakistanSrilankaSpinning2070103010020Weaving2070953010020Finishing2070953010020Garment P.100100100100100100

Source: H.G.A. Siddiqui (2004)

 

Table 6.2:

Self sufficiency of Cut and Sew Knitted garments Bangladesh

Production

stepsBangladeshChinaIndiaIndonesiaPakistanSrilankaSpinning70901008010030Knitting95901008010070Finishing95901008010080Garment P.100100100100100100

Source: H.G.A. Siddiqui (2004)

 

Table 6.3:

 Self sufficiency of Knitted garments Bangladesh

Production

stepsBangladeshChinaIndiaIndonesiaPakistanSrilankaSpinning101001006010040Yarn Dye201001009010070Knitting100100100100100100Finishing100100100100100100

Source: H.G.A. Siddiqui (2004)

 

Analysis reveals that in order to ensure more efficient production in woven sector, capacity building should be considered as an effective alternative.

 

Cost structure is directly dependent on value chain activities. Focus group discussion leads to the conclusion that the garments industry has a much higher contribution to the value addition within the value chain than the textile industry.

 

Definitely an addition or removal any of the supply chain activity can change the cost structure. To out perform the competitor, if a supply chain based on internet can be established then a competitor in woven garments industry can gain a competitive advantage. But such technology is growing now. If Akiz textiles adopt such innovation it can easily outperform Opex group in value chain activities.

 

Changes in global regulations in the textiles and apparels industry

Like any industry, RMG industry must adhere to several standards so that interest of different stakeholders will be preserved.

 

The standards and regulations that are in practice are discussed in the following subsections.

 

Elimination of Child Labor from the Garment Sector of Bangladesh

BGMEA has wholeheartedly responded to the international requirement of elimination of child labor from the garment sector of Bangladesh and has successfully achieved the objective in association with the signatories of the Memorandum of understanding(MOU), the US mission in Bangladesh and the Government of Bangladesh to the satisfaction of all concerned.

 

On 4 July 1995 Bangladesh created history by signing a MOU on elimination of child labor from the garment sector. It was the culmination of long and arduous negotiations with ILO and Unicef and concentrated effort of BGMEA. BGMEA takes pride in declaring the garment sector of Bangladesh child labor free since 1 November 1996.

 

The main objective of such a program of BGMEA with active collaboration of Unicef and ILO is to establish the basic right of the children by rehabilitating and providing elementary schools for the under age workers eliminated from the garment factories.

 

Earn and Learn program

BGMEA started a new education program for the 14 plus age group of the former child labour students who have completed their schooling under Memorandum of Understanding (MoU) but now willing to further continue their studies. The new program, Earn and Learn, started from July4, 1998 on the third anniversary of signing of the historic MoU on Elimination of Child Labor from the garment industry of Bangladesh signed among BGMEA, ILO and UNICEF.

 

Family Welfare & Reproductive Health program

BGMEA signed a Project Document with the Government of Bangladesh (GOB) and the UNFPA on 28 October 1998 to provide family welfare and reproductive health education and services to the garment workers. The objective of this technical assistance project is to increase greater involvement of the garment workers in the garment workers in the reproductive health practices for improving their own health, the health of their partners and their families.

 

Sweatshops

The apparel industry is one industry particularly affected by sweatshops. Sweatshops infringe upon some of the most basic rights of individuals concerning working conditions such as wages, safety, and overtime. Furthermore, sweatshops often employ children. A large importer like American sets standards against sweatshops.

 

Environmental Problems

A number of different environmental problems have been caused by the textile and apparel industry. As previously stated, a large amount of wastewater and polluted air is generated during production. A number of other problems arise that are not simply related to the output waste produced. For example, a large amount of water, energy, and other valuable resources are consumed during the production process.

 

Additionally, many facilities are not as environmentally sound as they could be due to outdated equipment that is difficult and extremely expensive to replace. Machinery is often very loud and disrupts surrounding communities. Many employees are unqualified for their jobs and lack the training necessary to understand the most efficient way of carrying out an assigned task. Moreover, they do not have the skills needed to improve or recognize harmful practices. The assistance of the government is crucial if this industry is to continually make strides in decreasing waste. However, most businesses are currently limited by the lack of support expended by the government.

Other internationally recognized standards that Bangladesh RMG sector sticks to are:

  • Conformity to minimum wage structure.
  • Working hours, weekly holidays and overtime
  • Leave facilities
  • Freedom of association and rights of bargaining

Market Position of Rivals

 

Market share of Bangladeshi companies

The market share of Bangladeshi woven garments companies in the two key markets are provided in the following table.

 

Table 7.1

Market Share of Bangladesh in the US and the EU Market

Market 2001 2004 2005
USA 6.26% 5.20% 5.83%
EU 2.5% 1.3% 1.1%

 

The table above shows that Bangladesh has falling market shares in both the US and the European Union market. As this Chapter continues, it becomes clearer why such decline in market share took place.

 

Market position of competing countries

The market position of the competing countries of Bangladesh has been depicted in this section. Two views have been considered in discussing market position. The first view is the growth of the key competitors in the key markets. The US market is the key focus here as it along constitutes about half of the woven export basket of Bangladesh.

 

Market position in the US market

The following table shows that both China and India have marked a sharp growth, respectively, 56.52 percent and 34.47 per cent, of products under HTS 62 category (the category that includes all woven garments products) in 2005 as the quota phased out whereas Bangladesh’s exports in this category surged in last couple of years after conceding consecutive slide in the preceding years. Both the countries have raised their shares in total US imports of items under the category, respectively, to 34.36 per cent and 7.27 per cent in 2005 from 17.67 per cent and 5.39 per cent in 2001. The share of Bangladesh has declined to 5.83 per cent in 2005 from 6.26 per cent in 2001, giving an indication that China and India are becoming more competitive.

 

Table 7.2

Rate of Growth of Woven Exports to the US Market

2001 2002 2003 2004 2005
Bangladesh -1.45% -12.78% -0.39% 9.04% 22.47%
India -7.42% 8.87% 6.91% 7.32% 34.36%
China -0.64% 8.42% 23.17% 16.75% 56.52%
Pakistan -2.77% -14.97% -6.21% 19.52% 20.98%
Cambodia 6.85% 13.37% 23.34% 7.35% 6.57%
Vietnam -16.43% 20.16% 187.81% 14.89% 8.17%
Sri Lanka -0.77% -6.02% 2.67% 6.96% -3.45%
Indonesia 6.56% -8.72% 6.61% 13.35% 14.28%
Thailand 2.42% -5.05% 3.58% 5.17% -0.23%
Overall rate of growth woven garments export -6.89% -4.07% 11.11% 7.00% 9.18%

Now market position of rivaling exporting countries has been explained in terms of the market share of each country. The period covered for discusses is 2000 to 2005.

China captured further market share and Vietnam acquired similar market share as that of Bangladesh. Over the few years considered here, the market share of Bangladesh seems to have remained constant.

 

Market Position in the EU Market:

The market share and growth rate of various woven garments exporting countries in the European Union Market.

 

The table yields the following findings related to the market position of woven garments exporting countries in the European Union Market.

 

  • Raking over the years: China has ranked first over period 2001 to 2005. The market share of China has rapidly increased over this period. In 2001, the share of China stood at about one fourth of the total EU market. After 4 years, the market share of China stood at more than three fifths of the total EU market. Turkey stood second in all the yearly points (i.e., 2001, 2004, and 2005) considered in the table. India secured the third position while Indonesia stood at the third position in 2001 jointly with India, and at the fourth position the years thereafter. The position of Bangladesh has been below the seventh position.

 

  • Growth rate over the years: Over the years considered, Bangladesh experienced a declining growth rate, while China tremendously grew over the period from 2001 to 2005. China expanded its market so rapidly and aggressively that almost all the exporting countries had negative growth rate over the period from 2001 to 2004 and in thee year 2005.

 

Likely strategic moves of rivals

 

India

Several programs to help the textile and apparel industry adjust to the new trade environment. On November2, 2000, the GOI unveiled its National Textile Policy (NTP) 2000, aimed at enhancing the competitiveness of the textile and apparel industry and expanding India’s share of world textile and apparel exports to 10 percent by 2010 from the current 3-percent level. The study identifies the following measures taken by the GOI to achieve these objectives:

  • Under the NTP 2000, the GOI removed ready-made apparel articles from the list of products reserved for the SSI sector. As a result, foreign firms may now invest up to 100 percent in the apparel sector without any export obligation.
  • The GOI grants automatic approval within 2 weeks of all proposals involving foreign equity up to 51 percent in the manufacture of textile products in the composite mills and in the manufacture of waterproof textile products.
  • On April1, 1999, the GOI implemented the Technology Upgradation Fund (TUF) to spur investment in new textile and apparel technologies. Under the 5-year$6 billion program, eligible firms can receive loans for upgrading their technology at interest rates that are 5 percentage points lower than the normal lending rates of specified financial institutions in India. According to GOI officials, this interest rate incentive is intended to bring the cost of capital in India closer to international costs.
  • The GOI created a $ 16million “cotton technology mission” to increase research on improving cotton productivity and quality.
  • EOUs and composite mills that produce yarn for captive consumption are exempt from the GOI’s hank yarn obligation, which requires each spinning mill to produce 50  percent to fits yarn for the domestic market in hank form(80percentof which must be in counts of 40s and lower) for use in the hand loom sector. The GOI plans to reduce the hank yarn obligation from 50 percent to 30 percent for all other spinning units.
  • To boost exports and encourage new industry investment, the GOI under the quota entitlement policy increased the share of quotas ear marked for units investing in new machinery and plants.
  • To  promote  modernization  of  Indian  industry,  the  GOI  set  up the  Export Promotion Capital Goods (EPCG) scheme, which permits a firm importing new or secondhand capital goods for production of articles for  export to enter the capital goods at preferential tariffs, provided that the firm exports at least six times the c.i.f. value of the imported capital goods within 6 years. Any textile firm planning to modernize its operations had to import at least $4.6 million worth of equipment. To qualify for duty-free treatment under the EPCG scheme.  In an effort to spur investment in the textile industry, on April 1, 1999, the GOI reduced the amount to $230,000  and  eliminated  preferential  treatment  for  imports  of  secondhand equipment under the EPCG scheme.

 

China

Since 1995, China has been the world’s largest textile and apparel exporter. In 2005, China’s share of global trade in textiles and apparel products reached 24 percent. Its large market share demonstrates the present competitiveness of China’s textiles and apparel industry, 95 percent of which is now privately owned.

 

The   11th  5-Year  Plan  for  the  Textile  Industry,  issued  by  the  State Development  and  Reform  Commission  in  June  2006,  lays  out  a  comprehensive development strategy for the industry.  Three policy objectives listed in the Plan are regarded as key to maintaining the competitiveness of the industry.  These are (1) enhancing the industry’s independent innovation capacity, and developing brand names on the world market; (2) optimizing the industrial structure and upgrading the  technologies  and  equipment  of  the  industry;  and  (3)  restricting  inefficient, polluting, and energy-wasteful manufacturing facilities.  The  Plan also calls for industry revenues to increase from RMB 3.3 trillion in 2005 to RMB 6 trillion in 2010.

 

In all these plans, technology and innovation capacity development were given the highest priority.  The  Circular on Relevant Policies to Promote Chinese Textile Industry to Shift to New Ways of Growth in Foreign Trade and Support Chinese  Textile  Enterprises  to  Go  Global  expressly  authorized  the  allocation  of government funds to support technology innovation.  Reportedly, a special fund was established in 2006 in accordance with this notice, with RMB 560 million dedicated to projects related to technology innovation purposes.  It has also been reported that local governments are providing loan interest subsidies to support technological innovation projects.    Zhongshan City, for example, has provided loan interest subsidies that cover 30-40 percent of the actual interest payments on loans.

 

The building of brand names is another priority for government support to the textiles and apparel industry.  The government has launched a campaign titled

“Ten Thousand Miles March for Brand Building,” under which companies whose brand names are certified as “famous” will  be given free media publicity.  Public funds are awarded to cover part of the brand-building expenditures.    Local government assistance for brand name building is also available to textiles and apparel companies.  For instance, Ningbo City, home to several leading textile manufacturers, has been providing awards to companies that export textiles and apparel products under their own foreign-registered brand names.

 

Sri Lanka

In  its  Five-Year  Strategy,  Sri  Lanka  Joint  Apparel  Association  Forum  (JAAF)  has  argued  that  Sri  Lanka  should  now  shift from the low end of the market to the middle and upper levels. Currently, only 10 per cent of local manufactures end up in specialty brands, while 50 per cent is taken by foreign department stores and the balance by foreign discount stores. During the five- year  period  ending  in  2009,  the  industry  plans  to  increase  penetration  into  specialty stores  by  20  per  cent  and  department  stores  by  60-70  percent  and  reduce  the dependence on discount stores by 10-30 per cent.

 

The  plan  outlines  a  format  for  achieving  these  objectives  with  a  detailed discussion on: (a) a strategic framework for implementation; (b) a strategic initiative and relevant action plans for the industry; (c) an additional strategic initiative in support of small and medium-scale enterprises; (d) implementation plans; and (e) cost estimates for the  strategic  plan.  The industry has formed eight committees to look into various aspects of the industry: (1) bilateral and multilateral issues; (2) marketing; (3) logistics and infrastructure; (4) backward integration; (5) small and medium-scale enterprises; (6) human resources, technology and productivity; (7) labor and (8) finance. The government has allocated Rs.  100 million to increase productivity in the garment industry through the Five-Year Strategy. The Sri Lanka Joint Apparel Association Forum coordinates the strategy management.  The Association has hired a number of experts to coordinate and support its work.

 

Positions of key competitors in strategic group maps

This subsection attempts to draw the strategic group maps of the competing countries of the global woven garments industries of the world.  A number of strategic group maps have been drawn here. Each map assumes that the variables used on the axes to plot the group are not closely related. The mapping uses the data of the benchmarking study of Gherzil Textil Organization so as to achieve some objectivity in the mapping process. The relevant data of the benchmarking study are presented in the following two tables.

 

Table 7.4

Benchmarking of Market Performance in Garments among Some Selected Competing Supply Countries

 

Factor Cambodia Bangladesh China India Indonesia Pakistan Sri Lanka Viet Nam
Delivery reliability 4 to 5 2 to 4 3 3 3 to 4 2 to 5 3 to 4 3
Active marketing 5 4 3 3 to 4 4 3 to 4 4 4
Active selling 5 4 3 3 4 to 5 4 4
Perceived market image 4 4 3 3 3 to 4 4 3
Own product styling 5 5 2 3 4 4 3

**Note:  1=excellent; 2=good; 3=average; 4=less than average; and 5=weak or poor

 

Table 7.5

Benchmarking of Availability of Raw Materials

Fibers Cambodia Bangladesh China India Indonesia Pakistan Sri Lanka Viet Nam
Cotton 5 5 1 1 4 to 5 1 5 2
Wool 5 5 3 3 to 4 4 4 to 5 5 4
Silk 5 4 to 5 1 3 5 4 to 5 5 4
Polyester-staple 5 5 1 3 1 2 5 5
Polyester-filament 5 5 1 2 1 2 5 5
Polyester-micro 5 5 1 4 1 4 5 5
Acrylic 5 5 1 3 3 5 5 5
Nylon (polyamide) 5 5 3 to 4 3 3 3 5 5

**Note:  1=excellent; 2=good; 3=average; 4=less than average; and 5=weak or poor

 

For development of group maps, the level of backward linkage in the industry and the lead time have been investigated and presented in the following table.

Table 7.6

Lead Time of Competing Garments Supply Countries

Country Woven Garments Circular Knit Garments
Cambodia 90-120 90-120
Bangladesh 90-120 60-80
China 40-60 50-60
India 50-70 60-70
Indonesia 60-90 60-70
Malaysia 60-90 50-60
Thailand 60-90 50-60
Vietnam 60-90 60-70

 

 

Table 7.7

The Status of Backward Linkage in Woven Garments (Values refers to the percentage of self sufficiency)

Bangladesh China India Indonesia Pakistan Mauritius Sri Lanka
Spinning 20 70 100 30 100 10 20
Weaving 20 70 95 30 100 10 20
Processing 20 70 95 30 100 10 20
Garmenting 100 100 100 100 100 100 100

 

A number of strategic group maps are developed here. They are described next along with the figures.

 

Active Marketing versus Availability of Raw Materials (cotton):

The following figure shows the strategic group mapping of the key rivals of the global woven garments industry. Two almost unrelated factors: active marketing and availability of raw materials have been considered as the parameters for the axes.

 

The map above shows that India and China have mid level of marketing activism while they have a high level of raw materials available. The condition of Vietnam is very close to those of India and China. Pakistan is high of raw materials availability, though the country performs very poor in the marketing activism. The map also shows that Bangladesh, Sri Lanka, Cambodia, and Indonesia have similar ranking in terms of active marketing and availability of raw materials.

Active Selling versus Availability of Raw Materials (cotton):

The following strategic group mapping has been done on the basis of two factors: active selling and availability of raw materials. The emerged groups are very similar to the ones found in the previous map.

The figure above shows that Bangladesh, Sri Lanka, Pakistan, and Vietnam have almost similar delivery reliability and own product styling, i.e., a very low presence in own product styling and a middle lever of delivery reliability. India and China have similar performance on the two attribute here: middle level delivery reliability and above average own product styling. On the other hand, Cambodia and Indonesia perform very low in terms of both delivery reliability and own product styling.

Active Marketing versus Lead Time:Bangladesh Pakistan, Bangladesh, Indonesia, and Sri Lanka have similar ranking on the basis of the two attributes. All these four countries have higher lead times while they are low on active marketing. So, these four countries emerge as a strategic group. On the other hand, India and China have average performance on each of the considered factors of the mapping and hence, they can be said to fall in the same group.

Perceived Market Image versus Level of Backward Linkage in Weaving:

The strategic group mapping on the basis of two unrelated factors: perceived market image and level of backward linkage.

The figure above shows that Chin and India fall in the similar group which enjoys a mid level of perceived market image but an above average level of backward linkage in the woven garments. On the other hand, with a low level of perceived market image and a low level of backward linkage, Bangladesh and Sri Lanka fall in the same group.

 

Outlook for the Woven Garments Industry of Bangladesh

The average profits-to-sales ratio for surveyed apparel factories (only those with positive value added) in Bangladesh is as high as 8.7 per- cent, while the median is 15.9 percent according to the data collected from July to October 2001. In the post MFA the profitability ratio has declined. Because buyers have now more options to choose. This gives them the potential buyers bargaining powers. Exercising the power the buyers are demand price reduction more and more.

 

China is the largest exporters in the woven market and growing its market share day by day. They enjoyed the advantages of Raw material availability. China is the largest cotton producing country of the world which is the key element for woven garments production. US and India ranked 2nd and 3rd respectively. Bangladesh has to import raw materials from these countries. But china and India are the key competitors in the market. This dependency for raw material on the rivals creating a potential weakness on our woven garments industry.

 

Bangladesh now gets advantages of quota imposed by U.S. and EU on Chinese apparels and textiles. Quota imposition on several products will be removed on 31st December 2008. China gets the first preferences from the buyer because of their technological, raw material competitive edge over others. This is going to be a potential threat on the woven garments industry of Bangladesh.

The sustainability of exports of woven garments in Bangladesh remains under question as the sector lacks backward linkages far from the requirements. At present, around 20 to 25 per cent of the raw materials required for the woven garments are supplied domestically whereas the same for the kit garment is 75 to 80 per cent. The manufacturers depend on the international market for the rest of the raw materials required for both the sectors. Given the pattern of growing demand for T&C in the international market and the increasing competitiveness from the major exporting countries it would be difficult for Bangladesh to stand in the competition with her limited supply-side capacity. Bangladesh may supper a serious setback in outsourcing raw materials from the international market.

 

Ethics and Social Responsibility

Business ethics in woven garment industry in Bangladesh

Ethical practice in any company comes along with the organizational culture. Culture posses some values that guides the ethical behaviors. The following diagram shows the components of shared organizational values that help to maintain ethical standards.

 

RMG (Woven) industry analysis concludes that most of the players in this industry don’t show ethical responsibility to their vital factor of production that is labor. Labor is the major driving force for economic growth. But the wages paid to them are too low for their contribution. The minimum wage for a garments industry labor is Tk.1662 only.  The amount shows how negligible the amount is relative to their contribution. Besides all these not paying wages timely makes the situation worse leading to frequent labor unrest.

From the discussion of FGD the researchers revealed that the entrepreneurs of the garment industry consume about eighty percent profit form the business. From the rest twenty percent, ten percent goes to the pocket of higher officials and only ten percent of the profits go to the largest number of contributors as their wage.

A postmortem of the industry reveals the following

Table 8.1

A postmortem of Industry

Factors
Accountability X
Open Communication X
Profitability
Teamwork
Change X
Continuous learning
Positive work environment
Trust X
Ethics `
Justice X
Social responsibility
Safety
Empowerment X
Employee Job satisfaction X

 

Although it has been found from the post mortem that woven garment industry maintain ethics in its operation and maintenance, a conflict arises from the discussion of FGD. The discussants concluded that most of the companies follow unconcerned approach of ethical conduct, i.e. managers in the industry are out to make the greatest possible profit at most at any cost whether it hampers the personal life of the employees in the organization. The managers believe that the business is business only, not ethics. Ethics has no place in the business. Only the rights of the shareholders are protected at the cost of the labor interest.

 

Drivers of unethical strategies and business behavior

Classical view argues that Management’s only social responsibility is to maximize profits (create a financial return) by operating the business in the best interests of the stockholders (owners of the corporation) where as socioeconomic view suggests that Management’s social responsibility goes beyond making profits to include protecting and improving society’s welfare. There is a clear contradiction between which view to support. Most of the cases in Bangladesh we observe a clear deviation from ethical behavior which leads to labor unrest. There are number of occasions in last two three years where labor association went into strike suspending production activities. In Most of the cases such things happen when labor demands are unmet or any irregularity relating to wage and benefits arises. In most of the cases Garments industry manager acts as agents of the shareholders and try to maximize shareholder’s wealth. While maximizing shareholders wealth leads to ill treatment of main productive force of the industry-Labor.

The major drivers of unethical behaviors in woven garments industry in Bangladesh are-

  • Obsessive pursuit of profit
  • Achieve earning targets
  • Culture of the company that emphasizes more on profit maximization than on ethical behavior
  • Lack of accountability
  • Too much power of administration

 

Practices of corporate social responsibility

 

Corporate social responsibility in RMG industry should be ensured for

  • Better public expectations
  • Long-run profits
  • Ethical obligation
  • Public image
  • Better environment
  • Discouragement of further governmental regulation
  • Balance of responsibility and power
  • Stockholder interests
  • Possession of resources

 

 

The social responsibility strategies. Unfortunately, without some exceptions, in most of the cases social responsibility strategies are not practiced by the RMG industry like that of other industry (e.g. Telecommunication industry, Banking industry etc.), though certain things are meant to be regulated by law.

 

Corporate culture and leadership in woven Garments industry in Bangladesh

 

This section will discuss the corporate culture and leadership style of the woven garments industry of Bangladesh. This discussion is subdivided in to the two following points.

  • Culture practiced in woven garments industry of Bangladesh
  • Leadership style in woven garments industry of Bangladesh

 

Culture practiced in woven garments industry of Bangladesh

Industry culture is the reflection of cultures practiced in individual organization of the industry. In woven garment industry in Bangladesh, organizational culture varies from organization to organization due to their scale of production, reputation in the export market as well as in local market and other factors. By definition, organizational culture is a system of shared meaning held by members but distinguishes the organization from other organization.

 

Dimensions of organizational culture

Culture of an organization consists of the characteristics as described in the following.

 

From the perspective of the woven garments industry in Bangladesh, most of the employees in the industry come from inferior background in terms of both academic and social status. Almost all the workers’ educational background is either SSC or below SSC. They are mostly unaware about the culture of the organization. Even the managers are very little concerned about the culture of their organization.

From our focus group discussion, the discussants give importance on the following characteristics of organizational culture:

Aggressiveness

The managers are aggressive with their workers rather than easygoing. The managers always give pressure to the workers about their performance. Even a worker is performing satisfactorily; she or he is not given any kind of motivational incentive or compliments to continue his performance.

Team orientation

In this industry team orientation among the employees is nearly absent. The managers, in most of the cases being unaware about synergy, do not bother about the performance of team, rather always prefer individual performance.

People orientation

People orientation reflects the degree to which the management decisions take into consideration the effect of outcomes on people within the organization. By definition and comments of the discussants of FGD, this characteristic of organizational culture is rarely practiced by the managers in planning, design and implementation of production.

Outcome orientation

Outcome orientation measures the degree to which management focuses on results or outcomes rather than on the techniques and processes used to achieve those outcomes. In most of the woven garment industry the production managers are outcome oriented. They attach importance to the quality of the products rather than their production process and technology used in production.

Attention to detail

Attention to detail is the degree to which employees are expected to exhibit precision, analysis, and attention to detail. Since most of the workers in the garment industry are unskilled and even they are not provided any kind of training, they must follow the guidelines of their work literally as mentioned by the managers.

Innovation and risk taking

It is the degree to which employees are encouraged to be innovative and take risks. In Bangladeshi garment industry creative decisions that incur significant change or risk are not encouraged. Because managers or any other employees of failed projects are openly criticized and penalized, managers try not to implement ideas that deviate much from the status quo. One lower-level manager quoted an often used phrase in the company: “If it ain’t broke, don’t fix it.”

Stability

It is the degree to which organizational activities emphasize maintaining the status quo in contrast to growth. Most of the organizations in the industry do not possess any global status. Therefore, the organizations are little bothered about their status. On the contrary, the managers are bound to maintain the existing status of the organization. They cannot take any step or implement any idea deviating from the existing status of the organization whether the idea may be fruitful for the organization.

Types of Culture exist in the industry

On the behavior and turnover pattern of the employees, culture can be differentiated into two categories: strong culture and weak culture. In strong culture the organization’s core values are both intensely held and widely shared as well as the employee turnover ratio is very small. From the focus group discussion, the researchers identified that the culture practiced in woven garment industry in Bangladesh is very weak in nature. The employee turnover ratio is very high. The low level workers are frequently moving from one organization to another searching for better opportunity. They can move from one organization to another as their salary range is low and there is huge number of position in the industry for them. On the other hand, the top level employees are little bit loyal to the organization as they are drawing comparatively higher salary and for them option is limited.

Culture can also be of other types as mentioned below.

Academy Culture

Usually organizations recruit young graduates and rotate their jobs to make them generalist when they are following academy culture. In the garment industry this kind of culture is not practiced at all. There is no opportunity for job rotation. Besides, the organizations usually do not provide training to the newly recruited employees.

 

Baseball Team Culture

They don’t go for age barriers in recruiting employees. They are in high demand and can rather easily get jobs elsewhere. This type of culture exists in fast-paced, high-risk organizations, such as investment banking, advertising, etc. Therefore, this type of culture is also absent in woven garment industry in Bangladesh.

 

Club Culture

The most important requirement for employees in this culture is to fit into the group. Make them specialist in specific areas usually employees start at the bottom and stay with the organization. The organization promotes from within and highly values seniority. Since team work is not necessary in woven garment industry the organizations do not try to develop the employee specialist in any sector. Rather they fear that if anyone becomes specialist in a certain section he will deserve more incentive from the organization and there will be a chance of loosing service from this employee with little bit lower compensation compared to the other organizations.

 

Fortress Culture

This type of culture exists when the environment is dynamic or the organization is struggling to survive. Employees don’t know if they’ll be laid off or not. These organizations often undergo massive reorganization. There are many opportunities for those with timely, specialized skills. Since the industry is growing rapidly and sometimes few organizations are reorganizing to enhance their capacity, some organizations are practicing this kind of culture.

 

Development of corporate culture in the industry

Corporate culture is defined as organization’s norms and value systems. It is developed in an organization from the practice of the following activities, as the discussants of the focus group discussion mentioned.

 

Selection of employee

Management should hire people with the personality and attitudes consistent with a high service orientation. Job applicants should go through an extensive interview process and carefully assess their personality and attitude. In woven garment industry in Bangladesh selection process is very simple. In this simple interview process there is very little opportunity to identify personality and attitude of the applicants. Even sometimes the workers are hired without any interview.

 

Training and socialization

To develop corporate culture in the organization management should provide training to the newly hired and even the existing employee for improving their product knowledge, active listening, showing patience and displaying emotions. In the garment industry no organization provides this kind of training to their employees. Therefore the employees are not well informed the organization’s goals and values.

 

Structural design of the organization

Employees are better able to perform their work satisfactorily when they have some control over the working process. So management needs to allow employees to adjust their behavior with the changing environment of the business relationship with the customer as well as with the suppliers. In woven garment industry in Bangladesh, the employee has not the least control over their job, the bosses are always dominating the employees compelling them to accomplish the job as they wish.

 

Empowerment

Consistent with low formalization is empowering employees with the discretion to make day-to-day decisions about job related activities. It is a necessary component of corporate culture because it allows employees to make on the spot decisions to satisfy the customers. Workers of woven garment industry have no authority regarding empowerment.

 

Leadership

Leadership is also a crucial factor in developing the culture of the organization. Leaders can show the new employees the way of gaining the skill in his work. In case of garment industry in Bangladesh, leadership in most times is misleading for a new employee. They may be derailed from the goals and values of the organization just influencing from the bad leader.

 

During discussion in FGD, one owner of the woven garment industry affirmed that day by day organizational culture in this industry is reshaping towards corporate culture as demanded from the buyers around the world. On a whole, the researchers revealed from the FGD that destabilizing culture is existing in the industry. Employees are laid off or terminated without giving prior notice, no specific criteria or specific path of having promotion, winners/losers position in the industry e.g. executive get big bonuses while cutting others positions. Besides the goal are set without any discussion with the workers and even with the managers.

 

Leadership style in woven garments industry of Bangladesh

Leadership is defined as the ability to influence a group toward the achievement of goals. The source of this influence may be formal, such as that provided by the profession of managerial rank in an organization. By definition of leadership, the leadership in woven garment industry is not dynamic at all.

 

From the focus group discussion, the researchers remarked that the leader should possess the following characteristics to make his followers efficient and spontaneous in doing the corresponding job as described in the figure 9.2 below.

In the different segment of woven garment industry different type of leadership exists. Mr. Sohel, one of the discussant in FGD performed stated that employee oriented leader exists in the workers level. These leaders possess the confidence, trust and respect from the followers. These leaders can easily motivate their followers in order to achieve their claim against the entrepreneur. Since most of the workers in garment industry are low educated persons, sometimes the leaders can easily captivate the workers for their own benefits. Even they can make disturbance to the industry and thereby hamper the production of the industry. This sometimes leads to low image of the industry to the buyers. But these leaders have no power in hiring, firing, discipline, promotions and salary increases.

 

Ms. Akhi, owner of an enterprise, participated in the focus group discussion. She gave an informative comment that the leaders sometimes behave like coach in the respected job. This kind of leadership exists among the experienced designers of different fashions. These leaders help her/his subordinates gain skill design and cutting and provide knowledge about the trend in global fashion. This coach type leader sometimes acquires the power of hiring, promotions and salary increase from the higher authority.

 

Mr. Sabbir, a discussant in FGD, having long experience with the foreign buyers, stated that the leadership, in case of the local buyer and the foreign suppliers, falls in the group of the leaders having high relationships and low task schedule. On the other hand, the leaders of the workers fall in the group of leaders having high task and low relationship with top management. These types of leadership are shown in the following figure 9.3.

 

From the discussion of FGD, the researchers revealed that leadership style in woven garment industry vary from one organization to another on the basis of the size of the organization, its culture, its relationship with the suppliers and buyers and many other factors. The key finding from the FGD is that the leaders in the industry lack integrity, the most fundamental characteristics of leadership. Besides the leaders have no competence and consistency. Due to absence of these qualities, the leaders cannot manage their boss even the issue is their legal right, like minimum compensation, maximum working hour etc. The leaders have no consistency between words and actions. This is why the leaders are loosing trust from their followers. At the end, the discussants confirmed the lacking of loyalty of the leaders.

 

Conclusion

The analysis of woven garments industry of Bangladesh leads to the following important conclusions.

 

  • The key markets of woven garments of Bangladesh are the following: the USA, UK, Germany, Germany, UK, France, Canada, Italy, Spain, Netherlands, Belgium, Sweden etc. These countries account for more than 95% of the woven garments export of Bangladesh. Various economic, social, political, legal, social values and lifestyles, technology, and demographics of these countries constitute of the external environment of woven garment industry of Bangladesh, coupled with various domestic fiscal and monetary policies of the country. As for political and legal aspects of the importing countries, the USA seems to be more volatile with sudden changes in rules especially preferring the countries in the Caribbean basin and African countries.

 

  • There are also threat from USA for social and safety compliance in the factories of Bangladesh. On the other side, political and legal aspects of European Union countries seem to be favorable for Bangladesh by dint of Bangladesh’s enlistment in the generalized system of preferences. The social values and lifestyle of these countries seem to be encouraging for Bangladesh (provided that it can enhance its own styling). On the demographics side, both market shows aging population and almost stalled population growth. Technology, such as various highly automated loom factories create concern if Bangladesh wants to compete in the high-end valued added products.

 

  • The buyers’ preferences are mainly to low price, quality of the fiber content, laundry instructions, country of origin, brand name, and environmental friendliness. There are currently 4490 garnets factories in Bangladesh and they use their political lobbying and to some extent product differentiation to attract these buyers.

 

  • Technological change is mainly in the communication side of the industry. But in the production side change is not playing the vital role. Also the economies of scale are not used by the current factories. Due to different risk factors the entrepreneurs mainly outsource their orders rather than increasing capacity. But learning and experience is playing vital role in increasing the productivity of workers and efficiency of the industry as a whole.

 

  • The dominant economic features of the industry are the following. First, in terms of market size Bangladesh woven garments export had a very robust position in 2001 right after China, head to head with countries like India. However, over the years 2004 to 2005, such share has been declining in both the US market and European market. Once underdog in woven exports, Vietnam by the year 2005, caught up early starters like Bangladesh and India. Second, in terms of market growth rate too, Bangladesh has experienced declining growth rate over the last few years, while China had a very high growth in the years 2003 and 2004. Third, the woven enterprise of Bangladesh is mostly occupied by the shareholders in Bangladesh. Only one sixth of the factories are contribution of foreign direct investment. Fourth, the striking feature of this industry of Bangladesh is that the fierce competition did not arise domestically; rather the increasing efficiency of the woven factories in countries like China, India, Vietnam, Sri Lanka, and preferential treatment offered for substantial value addition locally (the generalized system of preference of European Union) have escalated the competition from other countries.

 

  • The industry’s outlook in terms of Porter’s five forces model does not seem to be a very hopeful one, if Bangladesh cannot overcome certain constraints. First, though threat of new entrants may be low in the local market, international the situation is otherwise. Second, woven garments face constant threats of substitutes like knit. Moreover, since the woven garments of Bangladesh are mostly cotton-based, the threats of substitutes also come from garments from artificial fibers. Third, bargaining power of suppliers may be very low (though now a days voice of labors are getting louder) for labor, the bargaining power of suppliers of cotton is very high. The reason is that Bangladesh has to rely completely on foreign cotton production. Fourth, bargaining power of buyers are increasing as countries are competing with each other in terms of price and quality and thus buyers have more options than before.

 

  • In terms of strategic group mapping Bangladesh has striking similarities with countries like Sri Lanka, Indonesia, and Cambodia. The factors of similarity are mostly activism in marketing and selling, availability of local raw materials, delivery reliability, and level of backward linkage. On the other side, India and China falls on the same group for various combinations of these factors, while Vietnam remain close to them.

 

  • Organizational culture in woven garment industry is weak in nature. The workers do not get any kind of recognition or extra incentive against their out standing performance in the production process. Rather the entrepreneur consumes about all the cream of outcome from the industry. The employees have no control over their work. They are bound to follow the process provided by the managers. Organizations provide no training to enhance the skill of the employees.

 

  • Leadership style of the industry falls within the dominant leadership. The managers always try to maximize their profit at any cost without considering the benefits of the employees. The leaders of the workers sometimes misguide the workers for the sake of their own benefit. The leaders lack integrity, competence, consistency between word and actions, and loyalty, i.e. all the deserved qualities of leadership.

 

Recommendation

Item Identification

Bangladesh enjoys price competitiveness over its rivals for a number of apparel items. China is the potential threats for Bangladesh. China is at present concentrating on upper end segment of the market for these items (higher quality, fashion, design) driven by quotas under the MoU. Once these quotas are removed China will start to penetrate the lower end of the market for these same items. She will put the Bangladeshi exporters under increased competitive pressure. But as Bangladesh has some competing advantages with certain product she can further strengthen her competitive advantages in view of the expiry of the MoU by end 2008.

 

Productivity Enhancement

Through the analysis it is evident that Bangladesh is lagging with other countries in terms of technology. The key competitors of Bangladesh in world market both China and India have taken to upgrade their current technology and investing for upgradation. In Bangladesh some technological upgradation has also been taken place in the recent years. It is reflected by the dynamics of machinery imports from the textiles/apparels sector of Bangladesh. However, in the view of the ongoing upgradation the pace of restructuring ought to be speeded up. If Bangladesh is to diversify along the value addition chain of the products in which it has comparative advantage, technology will be the key to her success. A ‘Technological upgradation Fund’ can be established to provide financial and technical support to and promote technological upgradation for apparels/textile sector. This issue becomes all the more important also in view of the need for encouraging the establishment of backward linkages in the apparels sector, particularly in the woven sector.

 

Reducing the lead time

In global market, along with price it is the lead tiem that decides whether the international buyers will place an order or not. One major advantage of China, African and Latin American countries is the short lead time they need to meet an export order. China and India have the key ingredient for woven garments the cotton in their own countries. Their ports are also capable of working speedily when import of cotton is called for. For Bangladesh, lead time is fast emerging as a serious bottleneck to her continuing competitiveness in Us and the global market. Whilst the demand in the mass produced, volume driven segment of the apparels market is quite stable, the more value-added part of the demand curve is characterized by frequent changes in fashion and design. A transition and graduation to this segment will invariably call for shorter lead time, particularly also taking cognizance of the fact that the duration of fashion seasons in the USA have come down. Two factors will be important for Bangladesh in terms of reducing the considerably in recent years lead time: strengthening of the backward linkage in woven-textiles (where there is comparative advantage) and substantial improvement in port clearance and infrastructure. In recent years, the idea of the central bonded warehouse has been floated as a way to reduce the lead time. The debate here is pretty well known. However, Bangladesh should get on with addressing this not so easy to decide policy question by carefully balancing the interests of the apparels and textile sector. For a start, import of man-made synthetic grey fabrics (where domestic capacity is limited) under such arrangements could be put in place. On the other hand, the limitation of the country’s major port (Chittagong port) is also becoming quite apparent. It has one of the longest turnaround times in the world (which also leads to cost escalation). From a medium term perspective, the construction of a deep sea-port appears to be the only viable solution. From a short-term perspective both procedural and infrastructural-logistics facilities at the port will have to be significantly improved. In recent years many of the cumbersome administrative procedures have been streamlined leading to reduction in clearance time. However, modernization of the port and its computerization, establishment of green channel and putting in place an effective pre-shipment inspection system appear to be some of the tasks that Bangladesh should urgently address.   Recent steps taken by the interim government had been very much appreciated for reducing port stay time.

 

Compliance Assurance

Current global trading regime in apparels is increasingly being characterized by a rising demand with regard to compliance with various standards. One of China’s advantages in the global apparels market emanate from the support the sector receives from the state, both explicit and implicit, to implement the stringent requirements of the buyers, and demands of consumers in the developed world. Although Bangladesh has gone some way in this respect, many factories are yet to fully carry out the necessary measures to comply with buyer requirements. Doing the needful requires allocation of substantial resources which raises cost. However, to remain in competition all apparels units in Bangladesh must strive to be ‘compliant’ as early as possible. Private entrepreneurs will need to do their part of the deal particularly in the area of ergonomics, creating conducive working environment, and protecting workers’ rights. However, government support is also called for in this regard, particularly by way of setting up clusters, establishing affluent treatment facilities (particularly for knitwear-sector), and providing common facilities. Bangladesh will also need to strictly implement factory inspection and other regulatory measures to ensure that compliance requirements are strictly followed by the apparels enterprises.

 

Preferential Market Access

Bangladesh’s apparels could have enjoyed a significant advantage over some other countries including Chinese exports had there been preferential market access for her products in the US market. As is known, the US GSP scheme for the LDCs does not include apparels. Moreover, regrettably, the Hong Kong Ministerial Decision of the WTO on the duty-free, quota-free market access for the LDCs allows Bangladesh and. In all other LDCs to have preferential (zero-tariffed) access only for 97 per cent of their product likelihood, the USA will take advantage of this flexibility to include all (or almost all) apparels items in the 3 per cent exclusion list. Bangladesh’s strategy in view of this should be to negotiate with the US in a manner that allows exclusion of at least some of the apparels items of her major interest from the ‘3 per cent exclusion list’ of the US and to gradually work towards an all embracing DF-QF decision. Given that, many of the apparels items of Bangladesh face tariff peaks within the ambit of the WTO such DF-QF market access will provide her with considerable competitive edge vis-à-vis in the US.

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