A Five-Point Program
(An integrated program for individual exporters, industry associations and the Government of Bangladesh)
Like many programs, the following five-point program is intended as a starting point and can be expanded, modified and trimmed. Our reason to come up with this Program is simple. While we’ve come across a number of academic papers on the status of the Bangladeshi readymade garment (RMG) industry, most of them deal with the problems faced by the sector in the aftermath of the Rana Plaza disaster and other tragedies. There are also a number of papers related to Bangladesh’s suspension from the GSP preferential tariff program by the US. Interestingly, even when GSP status will be reinstated, the American retailers would continue to pay tariffs on Bangladeshi garments. However, we have not come across any papers or Government of Bangladesh documents specifying actionable steps for moving forward with export promotion.
In our experience with duty-free imports from Bangladesh to Canada, removal of tariffs has created a major competitive advantage for Bangladeshi RMGs. It is therefore essential that Bangladesh continue its attempts to persuade the American officials to grant it duty-free status. It is still a friendly least developed country (LDC), and the United States should not deny them this status as the Bangladeshi RMG export to the US in no way competes with the upscale domestic garment industry.
Notwithstanding any future lowering of tariffs by the US, we proffer the following to enhance and expand Bangladesh’s RMG exports to the United States. The advice is also applicable to the European Union and Canada, though Bangladesh enjoys duty free status in these countries.
We also believe that Bangladesh should try to expand its export markets in neighbouring countries, as well as elsewhere in Asia. The strategy would need to be somewhat revised for such an expansion.
As mentioned earlier, this is a beginning. We welcome any collaboration with Bangladeshi organizations such as the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), as well as the Government of Bangladesh. We suggest that the government prepare an executable action plan with significant cooperation from the private sector. We feel that executing under results-based management (RBM) with proper time limits and adequate financing, Bangladesh will be able to double or more the RMG export in the next five years, opening employment opportunities to vulnerable groups such as women workers. At minimum, we hope that the present review provokes thought and enhances understanding of the real challenges and hurdles of the RMG sector.
Proposed Program for Enhancing Garment Exports to the United States
- Expand manufacturing capacity – (a) evaluate the present capacity, (b) plan and strategize expansion, including investment planning, (c) Procure applicable licenses and approvals at all levels of government, (c) secure raw material and equipment suppliers, (d) strategize shipping and government clearances, and (e) finalize agents and distributors in the US and Canada.
- Improve working conditions, including salary/compensation, health, safety and security – (a) encourage employee associations, (b) assist in employee work-life balance, (c) encourage workers in Kaizen (quality improvement), (d) determine the manufacturing unit cost increase for the improvements (e.g., cost increase for producing a tee-shirt), and (e) advertise the happy worker logo.
- Minimize export infrastructure hurdles – (a) improve airport, ports and cargo facilities, (b) streamline licenses and approval for exports, (c) improve the government inspection regime for reliability, (c) establish a government-industry certification process, (d) provide adequate worker housing close to manufacturing sites, and (e) put in place disaster planning.
- Open industry-government marketing offices in the US and Canada – (a) evaluate and position the marketing offices, (b) put in an MOU between the government and the industry associations, (c) determine the funding formula for the operation of the marketing offices, (d) hire the appropriate personnel to run the offices, and (e) evaluate the operation in terms of export expansion.
- Enhance lobbying and public relations efforts – (a) implement lobbying mechanism, (b) improve government to government relations in the US, particularly in Washington, (c) realign efforts in the United Nations to include trade and enhance trade representation in New York and Geneva, (d) train and motivate government officials abroad for trade related work, and (e) realign Bangladesh High Commission officials for trade-related duties.
1. Expand the Present Garment Manufacturing Capacity
- The present RMG manufacturing capacity of Bangladesh is approximately 9 billion units (shirts, etc.). This number has been estimated from the figures provided by the Centre for Policy Dialogue, Dhaka. Some have estimated that around 70% of the products manufactured are exported. The sector is important, as it has been estimated at 15% of total Bangladeshi GDP in 2014.
- The amount of investment in the garment sector is approximately US$10 billion. A modest estimate to double the number of units to be manufactured in the next five years would involve an added investment of USD2 billion per year, of which around US$1 billion would be required for compliance and fire-safety improvements. This does seem to be a formidable task. BGMEA and BKMEA have mentioned that more than 2500 garment owners and members of associations have agreed to make an investment of 80 billion taka for compliance alone.
- The number of manufacturing units in 2015 is approximately five thousand with approximately 4.5 million workers (80% women). This does not have to be doubled. An increase of one thousand manufacturing units could be sufficient, as the outputs from the existing units can be increased. Some have estimated that the manufacturing units operate at less than 40% of their capacity. In addition, a technical evaluation of a joint ILO/UNDP project computed that person-minutes required per basic product in Bangladesh’s RMG sector is 25.0 minutes, compared to 14.0 in the USA and 19.7 in Hong Kong. Thus, worker productivity can be increased significantly.
- The Bangladesh RMG manufacturers do not think that procuring license and approvals is possible. They feel that BGMEA and BKMEA need to be more effective in liaising with government officials to reduce red tape.
- Securing raw materials and equipment is not difficult, but will increase the unit cost as per supply and demand rules. However, all competitors will face a similar price increase.
- Shipping and streamlining, in our opinion, will not be a major difficulty as Bangladeshi RMG manufacturers have shown that they can meet deadlines through hartals and other difficulties.
- While exporters are highly dependent upon buyers (western retailers), the opening of marketing offices can give exporters the ability to procure their own agents and distributors in the US and Canada.
2. Improve Working Conditions
- A number of manufacturers have already made major improvements. Others can follow suit, though they must strike a balance to maintain competitiveness despite higher unit costs.
- As mentioned earlier, 2500 garment owners and members of BGMEA and BKMEA have agreed to make an investment of 80 billion taka in this area.
- In addition to the investments in safety, wages, living conditions, health and welfare, management must show more respect to workers and recognize their right to organize.
- In conversations with RMG owners, almost all claimed to be making sincere efforts in this aspect. They all pointed out that the overall condition of women has improved in Bangladesh because of the RMG sector, and they are proud to be part of this advancement. However, they also reiterate the vulnerable nature of the RMG export business, where changes in unit price and missed delivery dates can cause buyers to go elsewhere.
- Some RMG manufacturers did not agree that the average wage in the RMG sector is half of that in other manufacturing sectors, though they all agreed that RMG wages need to improve (with the proper understanding of the buyer).
3. Minimize Export Hurdles
- While export infrastructure hurdles seem difficult to overcome, Bangladeshi RMG exporters have been able to achieve them in the past. If one compares the situation in 1995 to 2005 and to 2015, their ability to meet delivery deadlines seems miraculous
- Proper development of export processing zones (EPZs) and development of other areas outside of Dhaka, Chittagong and Khulna should be considered a priority.
- The worker housing is an essentially South Asian way of managing manufacturing industries. A number of other Bangladeshi industries follow this example.
- The cost per unit will increase with wage increases, subsidizing of living quarters and improving health conditions. However, these improvements will help minimize the negative image of Bangladeshi exports.
- While Bangladeshi manufacturers are becoming more aware of the need to enhance productivity in manufacturing, it is our understanding that the flow chart of the export process needs to be given more importance. Similarly, BGMEA and BKMEA need to comprehend the global value chain and influence the government to enhance the value, quality and image of the Bangladeshi garment sector, as it is a major part of the country’s GDP and foreign exchange earnings.
4. What Can Marketing Offices Do?
- Promote the Bangladeshi apparel industry – the quality of manufacturing and delivery standards
- Communicate with the press about the benefits of manufacturing garments in Bangladesh
- Lobby local politicians
- Liaise with buyers and potential buyers
- Assist garment manufacturers in commercial issues
Proposed Cities for Marketing Offices
- New York
- San Francisco
5. Enhance Lobbying and Public Relations Efforts
- This is a difficult area, as the kinds of services normally taken for granted by the governments of western developed countries are often not provided by Bangladesh. The Bangladesh foreign missions are so bogged down with consular services that special efforts must be made to foster commercial and political activities.
- We propose that the Bangladeshi government promote an organization like the Hong Kong Trade Development Council (HKTDC) or Japan External Trade Organization (JETRO) in a selected number of markets.
- We would have suggested that the proposed marketing offices perform the services generally provided by organizations like JETRO, but feel that overt government controls on the marketing offices could make them less effective.