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Rmg Analysis Of Bangladesh

Essay by   •  January 25, 2011  •  1,674 Words (7 Pages)  •  1,955 Views

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MACROECONOMIC ANALYSIS

The Ready-Made Garments (RMG) industry contributes to the Bangladesh economy in a distinctive manner. The last 20 years witnessed unparalleled growth in this sector, which is also the largest exporting industry in Bangladesh. It has attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP within a short span of time. The industry plays a significant role in terms of employment generation. Nearly two million workers are directly and more than ten million inhabitants are indirectly associated with the industry. In addition to its economic contribution, the expansion of RMG industry has caused noticeable changes by bringing more than 1.12 million women into the workforce. Hence it is quite apparent that this sector has played a massive role in the economic development of the country.

RMG’s contribution in terms of GDP is highly remarkable; it has reached 13 percent of GDP which was only about 3 percent in 1991. It also plays a pivotal role to promote the development of other key sectors of the economy like banking, insurance, shipping, hotel, tourism, road transportation, railway container services, etc.

One of the key advantages of the RMG industry is its cheap labor force, which provides a competitive edge over its competitors. The sector has created employment opportunities for about two million people of which 70 percent are women who mostly come from rural areas. Thus the industry helps in the country’s social development, women empowerment and poverty alleviation.

Currently RMG earns the lion's share of foreign exchange earnings.

INDUSTRY ANALYSIS

The Readymade Garment (RMG) industry of Bangladesh marked the leadership of private enterprise and the country’s successful transition to a major export-oriented economy. The key products of this industry are Knit and Woven Shirts and Blouses, Trousers, Skirts, Shorts, Jackets, Sweaters, Sportswear and many more casual and fashion apparels. RMG industry has enjoyed an impressive rise from less than 50 factories in 1983 to over 3600 in 2006.

Garments sector’s continual success can be attributed to the following:

 Quotas under Multi-Fiber Arrangement (MFA) in the North American market

 Preferential market access to European markets

The country has a small textile industry, but the volume and quality of its output are unable to fully meet the demand of the garments industry. Most of Bangladesh’s garments exports are made from imported textiles. RMG exports have grown rapidly after extensive trade and other economic reforms were undertaken in the early 1990s. Exports increased by 16.5 percent per year during the past one and half decade. Knitwear sector has performed particularly well over time. The sector’s share in total RMG exports has grown from about 17 percent in 1995 to almost 40 percent in 2003. In context of Bangladesh’s total export, RMG’s contribution is approximately 76%. Excepting 2002, the industry has developed rapidly with significant positive growth. Over the years, it has experienced around 18% growth rate.

PORTERS FIVE FORCES ANALYSIS

A. Competitive Rivalry between Existing Players

Bangladesh is the 6th largest apparel and textile supplier in the US & EU market. It is shaping itself as a potential market player by providing the most quality with the cheapest price possible.

Whilst the market is controlled by the bigger players like China and India, the role of Bangladesh is still important. Among the very few suppliers, Bangladesh imports most of its raw materials, but utilizes other factors of production to produce in a cheaper manner. It offers investment friendly atmosphere for the brand names to outsource their production process in Bangladesh.

Bangladesh is putting up a show against other competitors like China and India. by providing available cheap labor. It has been facing tremendous growth even after the alleviation of the quota from the US market. This is due close customer relationship and quality production. Bangladesh has this advantage against its rivals.

Bangladesh is one of those countries who cannot fulfill its quota provided by the larger markets. As a result of that, many foreign companies are merging in to use Bangladesh as a hub to prepare their product by outsourcing in Bangladesh and then gaining entrance to markets which were previously unavailable to them. Bangladesh is taking advantage of this and inviting investors, and foreign companies to place orders to attain this facility. It should focus on placing more orders instead of making its export rates efficient and strong.

B. Bargaining Power of Suppliers

Bangladesh has always been enjoying the upper hand in ordering its inputs from its suppliers. Bangladesh has very few input or raw materials of its own. Most of them are imported. Although this leads to a problem in reducing the opportunity to initiate backward linkage, and thus increasing the supplier power, Bangladesh still manages to acquire the inputs at world price from its suppliers.

But the most importing aspect of Bangladesh’s export industry would always be the enthusiasm and the prospect of growth it provides to the stakeholders in terms of success and prosperity. Bangladesh’s domestic suppliers’ power is increasing in a slow but steady manner as more and more local companies are stepping up to the task. They are creating an integrated system of supply channel management by which the manufacturer’s work load is reduced. Companies are more prone to order through local suppliers who themselves apply to the task of importing raw materials and components necessary for the production process. And the favorable attitude of the government is also helping this growth. The back to back LC process was approved by the government to facilitate the growth of the industry.

Bangladesh has a good reputation in terms of timely payment to the suppliers. This reputation is helping create a longer term relationship with the suppliers (foreign) and is also giving the local firms initiative to step into the supply chain. Bangladesh gives the suppliers a large scale advantage as the industry is quite concentrated in area basis.

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