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    SWOT Analysis of Garments Industry in Context to Bangladesh

    SWOT Analysis of Garments Industry in Context to Bangladesh
    Ferdus Alam
    Department of Textile Engineering
    Southeast University
    Email: ferdus.j@gmail.com
    Facebook: www.facebook/seu.ferdus
     


    Introduction:
    A SWOT analysis is a structured planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a business venture. A SWOT analysis can be carried out for a product, place, industry or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.
    SWOT analysis
    The Bangladesh Garment Industry:
    Ready made garment is a success story for Bangladesh. The industry started in the late 1970s, expanded heavily in the 1980s and boomed in the 1990s. The quick expansion of the industry was possible because of the following unique nature of the industry.
    • The technology is less complicated (easy to transfer),
    • Machineries are cheap and easy to operate (sewing machines),
    • A large female labor force that is easy to train is readily available.

    Besides the low cost of labor, one of the major factors behind the success of RMG is the availability of offshore financing for world-priced inputs through back-to-back letter of credit (L/C) under the special bonded warehouse scheme. Presence of foreign buyers is also a major factor that introduces the system of international subcontracting. Foreign buying houses not only bring the international market to the doorstep of local entrepreneurs, they also ensure the availability of essential inputs such as imported fabrics and accessories for the industry. They also did the greatest favor for the RMG industry of Bangladesh by bringing the latest designs and by monitoring output quality. These measures especially enabled inexperienced garments entrepreneurs to establish a strong foothold during the 1980s.
    Garments products of Bangladesh
    Garments products of Bangladesh
    Contribution of the Garment Industry
    Although suffering from image crisis after the GSP withdrawal from USA, Bangladesh registered remarkable export growth in the just concluding fiscal year. RMG export grew 12.71% to 21.5 billion USD and total textiles export including RMG rose to 23.7 billion USD which is 11.24% higher than the previous financial year.

    COMPARATIVE STATEMENT ON EXPORT OF RMG AND
    TOTAL EXPORT OF BANGLADESH
    YEAR
    EXPORT OF RMG
    (IN MILLION US$)
    TOTAL EXPORT OF BANGLADESH
    (IN MILLION US$)
    % OF RMG’S TO TOTAL EXPORT
    1983-84
    31.57
    811.00
    3.89
    1984-85
    116.2
    934.43
    12.44
    1985-86
    131.48
    819.21
    16.05
    1986-87
    298.67
    1076.61
    27.74
    1987-88
    433.92
    1231.2
    35.24
    1988-89
    471.09
    1291.56
    36.47
    1989-90
    624.16
    1923.70
    32.45
    1990-91
    866.82
    1717.55
    50.47
    1991-92
    1182.57
    1993.90
    59.31
    1992-93
    1445.02
    2382.89
    60.64
    1993-94
    1555.79
    2533.90
    61.40
    1994-95
    2228.35
    3472.56
    64.17
    1995-96
    2547.13
    3882.42
    65.61
    1996-97
    3001.25
    4418.28
    67.93
    1997-98
    3781.94
    5161.20
    73.28
    1998-99
    4019.98
    5312.86
    75.67
    1999-00
    4349.41
    5752.20
    75.61
    2000-01
    4859.83
    6467.30
    75.14
    2001-02
    4583.75
    5986.09
    76.57
    2002-03
    4912.09
    6548.44
    75.01
    2003-04
    5686.09
    7602.99
    74.79
    2004-05
    6417.67
    8654.52
    74.15
    2005-06
    7900.80
    10526.16
    75.06
    2006-07
    9211.23
    12177.86
    75.64
    2007-08
    10699.80
    14110.80
    75.83
    2008-09
    12347.77
    15565.19
    79.33
    2009-10
    12496.72
    16204.65
    77.12
    2010-11
    17914.46
    22924.38
    78.15
    2011-12
    19089.69
    24287.66
    78.60
    2012-13
    21515.73
    27018.26
    79.61
    2013-14
    24491.88
    30176.80
    81.16

    Export Promotion Bureau, EPB of Bangladesh has set an ambitious export target for the financial year 2013-14 that is 30.5 billion USD, 12.85% higher than previous year’s export 27.02 billion USD. Though the country could not achieved the last year target, this time also the country want to chase a big target. But the year has been started with a great uplift at its first month.
    Bangladesh exported textile and clothing (T&C) products worth of 2696.4 million USD in the month of July, 13 which was 2538.8 million USD previous month and 2311.2 million USD in the same month of the previous year. In fact, exports of the country's clothing products witnessed a robust growth of more than 26 per cent in July 2013, amid clothing manufacturers' apprehension that their shipment orders might fall following the tragic Rana Plaza incidents and the image crisis that all were talking about of late aroused from the USA GSP issues.

    SWOT Analysis
    The new environment represents a serious threat to Bangladesh. On the one hand, it is opening a vast market with unlimited export potentials; on the other hand, it signals fierce competition from textile giants like China, India and, from efficient producers like Thailand, Sri Lanka and Vietnam. Competition may also come from Sub Saharan Africa and the Caribbean countries due to preferential treatment from USA through TDA 2000. Different regional agreements like NAFTA also appear to be unfavorable for the RMG sector of Bangladesh.

    Given the changed scenario described above, the following sections focus on SWOT (strengths & weaknesses and opportunities & threats) analysis of the RMG industry of Bangladesh.

    Strengths
    One of the strengths behind the success of RMG of Bangladesh is the availability of low cost labor compared to other countries in the region. The labor rates in textile industry (compiled by Warner International) show that the average hourly wage rates for Bangladesh, India, Pakistan and Sri Lanka were respectively US$ 0.23, $0.56, $0.49 and $0.39 (Bhattacharya 1999a). Being in the manufacturing of RMG for two decades, Bangladesh now possesses a large pool of skilled & semiskilled manpower. Moreover, there are many unemployed young men and women who can easily be converted into a skilled workforce if needed.

    Given the fairly long learning curve in this industry, extensive experience in dealing with foreign buyers, offshore bankers, shippers, and Clearing and Forwarding (C&F) agents is a valuable asset for the exporters of Bangladesh.

    Weaknesses
    Dependence on others for raw materials, low productivity, limited knowledge in international marketing information, poor infrastructure, political instability, disruptive trade unionism, inefficiency in port management, and excessive dependence on RMG sub-sector are the major weaknesses of the industry.

    The industry is heavily dependent on others for outsourcing of raw materials such as clothing and accessories. Bangladesh is currently importing raw materials (gray fabrics) for its RMG factories from countries like India, China and Thailand under back-to-back L/Cs. In a quota free environment, these countries will obviously try to export finished apparels to North American markets rather than sell fabrics to countries like Bangladesh .With equal access to the world market, these direct competitors will either stop selling materials to their competitors like Bangladesh (a strategic move) or charge higher prices for their materials (because of increased internal demand). In either case, Bangladesh will face difficulty in procuring the required raw materials at reasonable prices.

    Another major shortcoming of the apparel sector is the low productivity of its workers. The laborer productivity of Bangladesh is much lower than that of Sri Lanka, South Korea and Hong Kong. Low productivity might erode the advantage of low cost of labor of Bangladesh.

    Exporters of Bangladesh also have limited access to current market intelligence and international trade information because, so far, foreign buying houses have been dominating the marketing part of the business. In a post MFA era, if these buying houses shift their bases to other countries, Bangladeshi exporters may face serious problems in finding their ultimate buyers.

    At present problems in port management is a serious challenge to RMG industry of Bangladesh. The Chittagong Port is the most important entry and exit point for trade and commerce of the country. Almost 90 percent of the exports and 75 percent of the imports of Bangladesh are accomplished through the Chittagong Port. Therefore, it is considered as the country’s economic lifeline. The Chittagong Port is one of the most inefficient and corrupt ports in the world. A World Bank study estimated that handling charges for a 20-foot container were $640 in Chittagong compared with $220 in Colombo and $360 in Bangkok. The study added, inefficiency at Chittagong port could be costing the economy as much as $600 million annually. Besides this, there are numerous demands for “under-the-table” payments that are reportedly required at every step of export processing, from opening of letters of credit to the clearance of goods from Customs. According to a survey, the hidden costs paid by importers per consignment ranged from Tk.4, 700 to Tk.36, 800 (about US$100 to $735). These inefficiencies and corruption seriously hamper the competitiveness of Bangladeshi garment in the world market.

    Besides numerous procedural, physical and/or infrastructure related bottlenecks; some sociopolitical consequences have added fuel to the chronic go-slow and congestion problem at the port. Some of these problems are:
    • Frequent work stoppage by different service providers, dock laborers, transport workers etc.
    • Excessive dock labor unionism (there are about 30 different agencies/groups including 22 workers unions).
    • Politicization of Collective Bargaining Agents (CBA).
    • Direct involvement of powerful local politicians, elite and musclemen
    • Illegal gratification practices (it has been a common phenomenon since long).

    These vested interest groups are so powerful that they were able to stop the Government’s attempts to construct a private container terminal near the Chittagong Port and another at Patenga which were supposed to be funded by the Asian Development Bank. This and many similar activities of different groups are undoubtedly unlawful but it seems that nobody has the ability to stop it. For undue delays due to these sociopolitical factors, several times had the Singapore based CFTC imposed “Congestion Surcharge”. In a recent message (July 2000) to concerned ministries, K-mart Far East Ltd. has expressed deep concern over the deterioration of the management of Chittagong Port. The fax message says: Kmart can no longer sit on the sidelines without making our concerns known to the Bangladesh government. Kmart cannot afford to lose even one day of selling time due to inefficiencies and strikes at the Chittagong Port. Kmart cannot and will not accept a 5% reduction of shelf life due to outside issues such as inefficient port facilities and operations. Kmart will be watching very closely how the Bangladesh government reacts to recent events (strikes), and how much investment is made into upgrading the Port of Chittagong into a world class port. Without positive response and actions (not words) from Bangladesh government, Kmart merchants will be forced to reduce our investment in the Bangladesh garment industry and place future business in India, Central America, Africa, etc. The message clearly shows the severity of the problem and the reactions of valued customers. Poor infrastructure, frequent power failures, unfair dealings in government offices and political instability with frequent and unscheduled hartals (strikes) are additional problems. The potential danger is that if we fail to take immediate corrective action against these practices, Chittagong Port might be declared as an exclusion zone by international shipping concerns.

    Opportunities
    The greatest opportunities lie on the unlimited market outside Bangladesh. In a quota free world, the United Nations Commission for Trade and Development estimated that removal of the MFA and tariffs by developed countries will expand exports of clothing by 135 percent and textile by 78 percent. Trela and Whalley using a global general equilibrium model, estimated that the change will be much larger: the value of imports of textiles and clothing will rise by 305 percent in the US, 200 percent in Canada, and 190 percent in EU. This indicates that phasing out of quota will expand the market tremendously. Asia by far is the largest player in the world textile and clothing market and, industry experts are confident that, overall, Asia still will dominate.

    Although Bangladesh lags behind in the textile sub-sector, it is very likely that the sector will get a boost through forward integration with RMG.

    In the knitting sector, Bangladesh gained substantial competitive advantage over her competitors. According to the Bangladesh Knitwear Management and Exporters Association (BKMEA), the cost of yarn production per kg. In the private sector of Bangladesh is only US$1.48, whereas in India it is $1.78, in Pakistan $1.60, in Japan $2.38, in Korea $1.73 and in Thailand $2.78 (IFC 1998 cited in Bhattacharya 1999). Therefore, knit-RMG has a good prospect for Bangladesh in post MFA period.

    The apparel sector of Bangladesh mainly exports low-cost products to the international market. But she can move into high value added products through diversification. This is not impossible given her two decades of experience, good relationship with buyers, worldwide reputation, and presence in quality-conscious United States and EU markets. Recently it has already penetrated the difficult but lucrative quality-conscious Japanese market.

    Threats
    India & Pakistan biggest threat for Bangladeshi RMG & textile export. The threat also will be the fierce competition from efficient producers like Hong Kong, China, Thailand, and Sri Lanka, Vietnam and many SSA and Caribbean countries. Threats might come not only from marketing but also from outsourcing. As mentioned earlier, more than 95 percent fabrics are imported from direct competitors. The potential danger after 2005 is that these countries might either stop selling their raw materials to Bangladesh or increase the price of their materials tremendously. Whatever may be the case, Bangladesh will lose some competitive edge in the world market.

    Environmental issues, labor standard, Trade Related Aspects of Intellectual Property Rights (TRIPs) etc. might also appear as a deadly threat to developing countries like Bangladesh. In the words of Reza.

    Although developing countries are not being singled out for environmental issues, being poorer, they cannot obviously maintain rigorous environmental standards. Moreover, the fact that their competitive advantage often lies in natural resources and pollution-intensive industries implies that they are vulnerable to being pressured to enforce stricter standards or face less market access for their exports to developed countries.

    Other issues like child labor have already proved as a sensitive issue in the western market. Compliance to the Rules of Origin4 (ROO) may threaten the future market access and performance of RMG sector of Bangladesh. In the case of woven-RMG, a two-stage, and in the case of knit-RMG, a three-stage transformation (cotton to yarn, yarn to fabrics, and fabrics to RMG) process is required for imported yarn from India. Bangladesh exporters also had to pay back exempted duties amounting to about US$60 million (as per an agreement in October 1997) to EU on the grounds of ROO violation and circumvention (Bhattacharya 1999).

    Regionalism is another threat to the industry. The World Bank country study (1995) expresses its concerns that “Over the medium term it is also possible that NAFTA may lead to a displacement of East Asian RMG imports into the U.S. and Canada. To the extent these exports by the more efficient East Asian producers are then diverted to the European Community, they may tend to displace Bangladesh’s RMG exports into Europe”. In the US market another challenge will come from Mexican apparel industry where it has zero tariff access because of NAFTA. Mexico’s share in US clothing imports increased by over 200% in the period 1993-98. Extension of NAFTA membership to the other Latin American and Caribbean countries may aggravate the situation further.

    Conclusion:
    No hurdles could resist Bangladesh achieving a modest growth in the first six month of the financial year 2013-2014. The country has registered 19.55 % growth in knitwear export and 20.37% growth in woven wear export despite so many political troubles. Amid great internal tension & month long blockade, the sector could keep their momentum going. Countries export growth in July to December hence now comes with a great inspiration for the rest of the year to achieve even more. But such a well-built sector could not really grow as the sector anticipated due to many reasons- most of which are not abnormal for developing countries. Huge infrastructure deficiency, political instabilities, high bank interest, frequent labor insurgency, unexpected accidents; Bangladeshi RMG & textile sector is coping up everything very well. Now the country is to face another big threat from the two big subcontinent countries due to the extra leverages they are gaining. Bangladesh should penetrate into new markets, diversify into new items, and relocate into new territories. If these measures are not taken in time, as Spinanger concludes, “The rapid growth rates that Bangladesh exhibited in world trade will be a thing of the past”.

    References:
    1. http://www.investopedia.com/terms/s/swot.asp
    2. http://en.wikipedia.org/wiki/SWOT_analysis
    3. http://ctb.ku.edu/en/table-of-contents/assessment/assessing-community-needs-and-resources/swot-analysis/main
    4. http://www.bangladesh-web.com/view.php?hidRecord=261807
    5. http://moshiur008.blogspot.com/2011/08/swot-analysiss-of-bangladesh-economy.html
    6. https://mkastleyvisuals.wordpress.com/tag/swot-analysis-of-bangladesh-textile-industry/
    7. http://wiki.answers.com/Q/SWOT_of_RMG_sector_of_Bangladesh
    8. http://www.academia.edu/3314975/Competitive_and_Business_Environment_analysis_of_RMG_industry_of_Bangladesh
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    10. http://mygoldenbengal.wordpress.com/2014/03/30/india-pakistan-biggest-threat-for-bangladeshi-rmg-textile-export/
    11. http://textilebulletin.com/present-situation-rmg-sector-bangladesh-2013/
    12. http://bgmea.com.bd/home/pages/TradeInformation#.U_FuxqPT31U
    13. http://www.textiletoday.com.bd/magazine/698
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