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Price mechanism in the rmg industry of bangladesh

The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 25 years. <br><br>The industry plays a key role in employment generation and in the provision of income to the poor. Nearly four million workers are directly and more than twelve million inhabitants are indirectly associated with the industry. Over the past twenty five years, the number of manufacturing units has grown from 180 to over 5000. <br><br>The sector has also played a significant role in the socio-economic development of the country. It continued to show robust performance, competitive strength and, of no less importance, social commitment. RMG’s contribution to Bangladesh economy is well-known, well-appreciated and well-respected.

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Price mechanism in the rmg industry of bangladesh

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  1. HOW MUCH DOES IT COST TO MAKE A SHIRT IN BANGLADESH vsTHE USA USA BANGLADESH TOTAL $13.22 TOTAL $3.72 INDUSTRIAL LAUNDRY $0.75 INDUSTRIAL LAUNDRY $0.20 $5.00 MATERIALS PRICE MECHANISM RMG INDUSTRY $3.30 MATERIALS $7.47 LABOR COST $0.22 LABOR COST

  2. INDUSTRY OVERVIEW Considerable qualified workforce available at low labor charges • STRENGTH Energy at low price • Membership of Multilateral Investment Guarantee Agency (MIGA) • Bank interest@ 7% for financing exports •

  3. INDUSTRY OVERVIEW Absence of easily on-hand middle management • WEAKNESS A small number of manufacturing methods • Low acquiescence • Speed money culture • Time-consuming custom clearance •

  4. INDUSTRY OVERVIEW Excellent Tele-communications network of E-mail, Internet, Fax, ISD, NWD & Cellular services • OPPORTUNITY EU is willing to establish industry in a big way as an option to china particularly for knits, including sweaters • Bangladesh is included in the Least Developed Countries • Sweaters are very economical even with china and is the prospect for Bangladesh •

  5. INDUSTRY OVERVIEW Lack of marketing tactics • THREAT Lack of training organizations for industrial workers, supervisors and managers • Speed money culture • Communication gap created by incomplete knowledge of English •

  6. INDUSTRY OVERVIEW CONTRIBUTION TO OTHER SECTORS Contribution to Government Exchequer Banking and Insurance Shipping and Logistics Transport and Communication

  7. INDUSTRY OVERVIEW CONTRIBUTION TO OTHER SECTORS Professional Services Real Estate Engineering Sector Utility Services

  8. INDUSTRY OVERVIEW CONTRIBUTION TO OTHER SECTORS Emerging Consumer Market Information and Communication Technology Hotel and Tourism Waste Recycling Industry

  9. INDUSTRY OVERVIEW TWO MAIN CATEGORIES: RMGExportsstartsin the late1970s • Therewereonly9RMG unitsin 1978 • 1. 2. KNIT: SWEATERS, SOCKS WOOVEN: SHIRT, TROUSER Estimated5000RMGunitsarenowin business • ShareofRMG exporttoGDP:About16% • Contributionin NationalExport: • – 78.96%in FY2011-12 – 78.15% in FY2010-11 – 77.12% in FY2009-10

  10. INDUSTRY OVERVIEW Directemployment:4.0million (est.) • – Indirectemployment:About1million (est.) Womenworkers constitute 80%of work force • 17.77%Averagegrowth rateinlast20years • 14.59%Average growth ratein last10years • Average growth gradually diminished up to 2002-03 then began to move upwards till economic recession and started rising again in the post recessionary period. •

  11. INDUSTRY OVERVIEW Product Export Share Growth Value (billion USD) 1 T-Shirts 26.22% 49.31% 4.69 2 Trousers 23.24% 37.19% 4.16 3 Sweaters 13.89% 38.59% 2.48 4 Shirts 8.74% 57.68% 1.56 5 Jackets 10.54% 39.77% 1.88 Source: EPB

  12. Women Empowerment Savings SOCIAL IMPACTS OF THE RMG SECTOR Child Labor Population Control

  13. PRICE MECHANISM History Buyers coming over during season Agents Buying houses Setting up of own office • • • •

  14. PRICE MECHANISM Internal Factors Scale of operations Larger operations tend to enjoy economies of scale

  15. PRICE MECHANISM Internal Factors Backward and Forward linkages Leads to cost savings and better control over quality

  16. PRICE MECHANISM Internal Factors Cost of Inputs International prices fluctuate leading to fluctuating cost prices

  17. PRICE MECHANISM Internal Factors Value Added Services Specialized value added services such as designing, quality lab, shipping tend to demand a premium

  18. PRICE MECHANISM Internal Factors Future orders Firms with lacking future orders are more likely to lower prices than firms who are neck high on orders

  19. PRICE MECHANISM Internal Factors Volume of order Firms are more willing to offer lower prices on orders with high volume of work

  20. PRICE MECHANISM External Factors Exchange Rate Weak local currency Local Currency getting stronger International Factors

  21. PRICE MECHANISM External Factors Hartal • Days of little to no productivity • Problems for meeting deadlines • Goods at risk when being delivered on these days Extortion • Extortion where the factory is located • Extortion while the shipment is being sent to the port • These costs add to the overall cost

  22. PRICE MECHANISM External Factors Minimum Wage Government sets minimum wage Increases the price

  23. PRICE MECHANISM External Factors Imperfect Knowledge Sellers bid among themselves Do not know the price bid by the competitors Compete among themselves Buyers take advantage of that

  24. PRICE MECHANISM Looking forward A gradual shift from buyers market to suppliers market

  25. INDIA Backward Chain: Forward Chain: Majority of imports from china steady increase in imports after phasing out of quota cotton knitted fibres are done locally other fabric and fibres varies from 5% to 100% in import  fixed price Internationally  reluctant to export more  $20 billion export in 2012-2013

  26. INDIA Trade association : Govt. Initiatives : CMAI: 20000 members deals with government and policies 1019 crore financial assistance helps tax and vat reduction 30% raise in target

  27. VIETNAM Backward Chain: forward Chain:  3 sectors 2007: Fair trade policy problems with us  2% fibre from local source department of commerce  20% fabric from local source 2009: Failure to prove dumping Apparel export $11.5 billion

  28. VIETNAM Trade association : Govt. Initiatives : 2008: president requested VINATEX to increase VITAS: Non government umbrella : 635 companies, 70% of market local materials by 36% VINATEX: Biggest state owned Strong renovation and economic reform organization, 90 member, helps in Improved trade relations: capturing china’s production process market

  29. MEXICO Backward chain stakeholders Protecting labor rights Gearing for makeover Government strategies Trade policies Entrepreneurial mindset Competitive workforce Strategic locations Supportive environments Forward chain stakeholders Fashion becomes affordable Emergence of new distribution channels Multinational's enter the market Trade association involvement Nafta EU-FTA

  30. CHINA Backward chain stakeholders Trade unions-ACFTU Government strategies Existence of trade zones Entrepreneurial mindset Advantages Challenges Forward chain stakeholders Changing environment New distribution channels Multinational's enter the market Trade association involvement WTO-2001 ITMF

  31. TURKEY Backward chain stakeholders Procurement of raw Materials Trade unions and legislations Government strategies Liberal Trade policies Entrepreneurial mindset Flexibility among production sites Qualified Human resources Developed Sub-category Trade Fairs Forward chain stakeholders Shift to high value added item Designer clothing Strategic locations Trade association involvement Custom unions with EU Free trade agreements-Israel, Romania, Croatia, Macedonia

  32. SYNTHESIS Comparison in Government Strategies Comparison in Trade Association and Union involvement Comparison in Entrepreneurial Mindset Comparison in Forward Chain Stakeholders Comparison in Backward Chain Stakeholders • • • • •

  33. SYNTHESIS Comparison in Government Strategies Bangladesh China The garment sector in China is based mainly on the east coast, in Guangdong, Zhejiang and Jiangsu provinces. Most factories are within 'Special Economic Zones'. They are predominantly privately owned and foreign investment is common. For example in Guangdong province, 62% of garment factories are foreign owned, many by HongKongandTaiwanesecompanies. The so-called "Superior Goods Zone" within the fabric market includes overseas textile companies having annual sales of more than US$30 million, international merchandising offices of well-known charitable and welfare institutions;aswell as China's top100textilecompanies andnational- level branded textile companies and the top 10 large operators in China'stopfiveprofessionaltextilemarkets. Existence of business Zones EPZ can be compared with this kind of measures. Though number of foreign companies is quite low the industry enjoysgreatfacilitiesinthezones. Specialized Markets Specialized markets are unavailable in Bangladesh. chain enterprises and

  34. SYNTHESIS Comparison in Government Strategies Bangladesh India Endorsement of culturaluniqueness in apparel Bangladesh government has yet to recognise local craftsmanship as a POD to establish new market abroad Bangladesh has yet to take necessary investments inresearchtomaketheindustrymoresustainable India has endorsed its weavers and the handloom sectortoexportaspartoftheapparelindustry. Investment development in research and The Cabinet Committee on Economic Affairs (CCEA) has approved an Development to make textiles processing units moreenvironment-friendlyandgloballycompetitive Integrated Processing Encouragingnew entrants Sincethe 80s RMGindustryhasenjoyedincentives from tax exemption in importing capital goods as well as exporting them. Even subscription to utility and other government services is easier with respecttootherindustries. The Government of India plans to set up Rs 100 crore venture capital fund to provide equity supporttostart-upsinthetextilessector.

  35. SYNTHESIS Comparison in Government Strategies Bangladesh Mexico Apparel import in Bangladesh is quite low considering the high exports. This kind of initiatives were not necessaryinBangladesh. The Mexican Government formally notified the World Trade Organization that it would increase tariffs to protect its apparel industry. The announced tariff increase, from an average of about 20% to 35%, will apply to apparel imports fromnon-Naftacountries. As a result of the steep tariff decline, Mexican imports of apparel increased 74% from 2005 to 2007. During the same period Mexican domestic production grew just 3% in volume, not keeping pace with growing demands for higher volume, better qualityandlowerprices. Import Tariffs Bangladesh exports after fending for its local market. The growth of the industry outmatches the growth of market size. Growth Plan

  36. SYNTHESIS Comparison in Government Strategies Bangladesh Vietnam Initiatives of Government to create strong backwardlink Governmenthas notbeeninvolved withanyinitiatives but the industry itself has become self-sufficient in many ways In mid-2008, Vietnamese President Nguyen Minh Triet requested that VINATEX increase the amount of domestic textile material it uses from 36 percent to a higher amount to help supporting industriesgrow. Annualincrement in labour wage InBangladeshnosuchlabourlawisatwork There is a mandatory 10% increment every year invietnam

  37. SYNTHESIS Comparison in Government Strategies Bangladesh Turkey Existence of Free Zones Moderately open economy in the Export Promotion Zones. These EPZs are furnished with all possible facilities. As a tool of market orientation, Turkey has given importance to establishment of Free Trade Zones and Industrial Free Zones. Readily, there are 19 Free Zones inoperation. Investment assured under Foreign Private Investment (Promotion and Protection) Act, 1980 which secures all foreign investments in Bangladesh. Terms of investment Foreign companies are treated equally with Turkish companies, in terms of investment in Turkey, transfer of profit and capital and access to incentives.

  38. SYNTHESIS Comparison in Trade Association involvement Bangladesh China When China became a WTO Member in 2001, it committed to loweringits tariffrates, opening its domestic retail and distribution market, granting trading rights to qualified enterprises and individuals, and providing access to foreign-funded retailers interestedindoingbusinessinChina’ssecond-tiercities. Investment assured under Foreign Private Investment (Promotion and Protection) Act, 1980 which secures all foreign investments in Bangladesh. Overseas Private Investment Corporation, USA insurance and finance agendas operable Bangladesh is a member of Multilateral Investment Guarantee Agency (MIGA) under which protection and safety measures are available. International affiliations International Exposure BGMEA also organizes international events but all in a verysmallscale. In April 2008, the China National Textile and Apparel Council, which represents China's textile industry, joined the Switzerland-based International Textile Manufacturers Federation (ITMF) as a member association, and in October 2009 hosted the ITMF Annual ConferenceinShanghai. It is rumoured that their compliance scenario is worse than Bangladesh. Accusations of physical torture has been denied by China Worker Conditions Bangladesh is trying its best to regain the confidence after Rana plazaincident.

  39. SYNTHESIS Comparison in Trade Association involvement Bangladesh India Material testing by association No centralized quality measurement by BGMEA. They are planningto openuponesoon. The Association runs a well-equipped testing laboratory to test the Physical and Chemical characteristics of Yarn, Fabrics and Garments. The services of the Laboratory are open to Members as wellas Non-Members. Trade Association involvement in supply chain BGMEA consists of 4000 members but almost all of them only are the manufacturers and forward chain members. The numberofbackwardchainsmembersare quitelow CMAI has a membership base of over 20,000 companies, including RMG Manufacturers, Exporters, Retailers and Ancillary Industry. It consists of all the partsofthesupplychain Centralized labour union No centralized labour union was allowed but the path has been pavedforthisintherecentyears. Garments and Textile worker union (GATWU) advocates forlaboursinthewholeindustry.

  40. SYNTHESIS Comparison in Trade Association involvement Bangladesh Mexico Mexico had a huge upswing in 1990s after entering into NAFTA (North America Free Trade Agreement) with Canada in 1994, becoming the world's one of the largest textile manufacturers. With the NAFTA agreement the sales hiked and Mexico attained large chunk of market share. Under Nafta, for textiles and apparel to be considered North American, it must generally be made from North American yarn -- allowing only the fibers to be imported from outside North America. This is termed the "yarn forward" rule, and requires "triple transformation:" fiber transformedtoyarn,transformedtofabric,transformedtoapparel. Under Nafta, duties on almost all North American textiles and apparel traded between the United States and Mexico will be eliminated within 6 years. The remainderwill be eliminatedwithin ten years.All quotaswill be phasedout. Tradeagreements Bangladesh is a member of WTO and enjoys GSP benefits under itsumbrellainmanycountries. LocalBlocks Bangladesh has not made any local trading blocks in south Asia. SAARC is trying to evolve intoone. TradeBenefits Bangladesh has lost its GSP status in USA. It is trying to get backthisstatus.

  41. SYNTHESIS Comparison in Trade Association involvement Bangladesh Vietnam Reach of trade association Government has not been involved with any initiatives but the industryitselfhasbecome self-sufficientinmanyways The Vietnam Textile and Apparel Association (VITAS) is a non‐governmental umbrella association working in thefield of textile and garment industryinVietnam with 15 branches in Vietnam and in total of 635 members, accountfor70%ofthetotal capacityoftheindustry. Centralized labour union No centralized labour union was allowed but the path has been pavedforthisintherecentyears. VIET labour federation also works in the Garments industry. They have pushed a law to increase worker salaryby10% everyyear.

  42. SYNTHESIS Comparison in Entrepreneurial Mind set Individual profit mentality overall industry growth Lack of foresight in Bangladeshi small manufacturers India and Mexico and Turkey has open minded entrepreneurs China and Vietnam are quiet conservative in Business practices

  43. SYNTHESIS Comparison in Forward Chain Stakeholders Bangladesh China Changing environment Bangladeshi garments owners are not keen to change the technology used for more environmentfriendly technologies Due to pressure from the population and also from the international market, environment technologiesaremakingheadway China has increased the distribution channels, especially apparel specialty stores Leading international fast fashion players are expanding in the country ataveryfastrate friendly Distribution channels Bangladesh distributionchannels have fairly established Multinational entries Leading international fast fashion players are expanding in the country though at not a veryfast rate

  44. SYNTHESIS Comparison in Forward Chain Stakeholders Bangladesh India Due to volatility of raw material prices, exporters are reluctant to take new orders fromoverseasbuyers. New ordersfromoverseasbuyers In Bangladesh, exporters are enthusiastic about takingordersfromoverseasbuyers. Bangladesh Mexico Affordability Fashion has generally been affordable in Bangladesh Advent of new competitors in 2012 led to reduction in market price of fashion productsinMexico Apparel specialist stores are the most extensivedistributionchannel Distributionchannels Retailers are the most prominent distribution channelfollowedbyapparelspecialiststores

  45. SYNTHESIS Comparison in Forward Chain Stakeholders Bangladesh Turkey Highvalue addeditems Because of the rigidity in the Value Addition criteria, high value items manufactured in the country are failing to enter the international market. In Bangladesh whatever design work is done in the country, these are mostly carried out with foreignworkersandexperts. Shift to high value added items resulted in Turkey being very competitive in high quality products in the international market Turkey has lots of investment in fashion anddesigning. Designer clothing Strategiclocation Compared to Turkey, shipments take longer to bedeliveredfromBangladesh. One of Turkey’s key competitiveness stems from its strategic location being verybeartobothAsiaandEurope.

  46. SYNTHESIS Comparison in Backward Chain Stakeholders Bangladesh China Workforce Bangladeshhasaworkforceof4millionworkers China, with the advantage of larger population, hasworkforceof15millionworkers Dedicated association BangladeshhasBGMEAforallgarmentsrelated issues Chinahasonlyonetradeunion,theACTFU Bangladesh India Import of man-madefabrics Bangladesh is becoming more and more independent interms ofprovidingfabric India imports most of its fabrics from China dueto lowcost. Indigenously produced fabrics Imported fabrics are generally cheaper due to transactionandoverhead costs Price of indigenously produced fabrics are very high due to low labour productivity, high power andlabourcost,etc.

  47. SYNTHESIS Comparison in Backward Chain Stakeholders Bangladesh Mexico Labourrightprotection Labour right protection in Bangladesh is not implementedatall Mexico implementations protection has one of the best right of labour Workforce WorkforceofBangladeshareveryunqualified Mexico offers qualified and competitive workforce manufacturingandmarketingexpertise. with considerable Finished garmentproducts Bangladesh has been producing finished garmentproductsforalongtime Mexico has recently shifted their attentiontofinishedgarmentproducts

  48. SYNTHESIS Comparison in Backward Chain Stakeholders Bangladesh Vietnam Sub sectors Bangladesh has mainly two sub-sectors, fabric productionandgarmentmanufacturing. Bangladesh produces a huge portion of the cotton that isrequired Vietnam has three sectors, fiber production, fabricproductionandgarmentmanufacturing. Though Vietnam has potential, it only produces 2%ofthe cottonrequiredandimportsthe rest Cotton production CMT garmentproduction Bangladesh has been using the CMT process for value addition Vietnam has moved from CMT to better technologies,increasingtotal yield Bangladesh Turkey Cotton production Bangladesh has been using the CMT process as value addition Turkey is also a major producer of cotton, they rank8thinthe world

  49. POSSIBLE STEPS TO BECOMING PRICE SETTER Current Supply Chain : Possible remedies: Ensure flow of information between businesses Too many intermediaries Intermediary bias becomes a big Re-establish US GSP and advocate inclusion of management challenge RMG Minimum Price Caps Policies and other measures

  50. Centralized Information Hub Create a virtual portal for B2B THE ALIBABA STORY : E-commerce business interaction : Model to expose buyers to sellers and Started in 1999 –relatively new vice versa One of the 20 most visited websites in the Secure platform for information world exchange Accounts for 60% of parcels delivered in China Alibaba.com used as model- custom tailored for Bangladesh RMG sector

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