TERM PAPERExport Import Process

Course # IB 516

Department of International Business

Faculty of Business Studies

University of Dhaka

Analysis of the RMG Sector and Its’

Development Process

Prepared For

Dr. Md. Shahidul Islam

Guest Faculty

Department of International Business

Faculty of Business Studies

University of Dhaka

Prepared By

Raihan Gofur

ID: 03

Session: 2012-13

Department of International Business

Faculty of Business Studies

University of Dhaka

Date of Submission: August 30, 2014.

August 30, 2014

Md. Shahidul Islam

Guest Faculty

Department of International Business

Faculty of Business Studies

University of Dhaka

Dear Sir,

I am submitting the term paper entitled Analysis of the RMG Sector and it’s Development Process.

The purpose of this assignment is to give an overall idea about readymade garments industry and its development process from the Bangladeshi social and economical scenario.

I hope this term paper will prove to be satisfactory

Respectfully yours

(Raihan Gofur) ID: 03Session: 2012-13Department of International BusinessFaculty of Business StudiesUniversity of Dhaka

Table of ContentNo. Topic Page

Number1 Introduction 01

2 Case Study on a Reputed RMG Industry 02

3 Advantage and Disadvantage of Work Environment of RMG Industry

05

5 Recommendations of Development 10

6 The Roles of Government 10

7 The Roles of Business Community 12

8 The Roles of WTO 13

9 The Roles of WCO 13

10 Conclusion 14

Introduction

The economy of Bangladesh is largely dependent on agriculture. However the Ready–Made

Garments (RMG) sector has emerged as the biggest earner of foreign currency. The RMG sector

has experienced an exponential growth since the 1980s. The sector contributes significantly to

the GDP. It also provides employment to around 4.2 million Bangladeshis, mainly women from

low income families.

In the 1980s, there were only 50 factories employing only a few thousand people. Currently,

there are 4490 manufacturing units. The RMG sector contributes around 76 percent to the total

export earnings. This sector also contributes around 15 percent to the GDP, which was only

around 3 percent in 1991. Of the estimated 5 million people employed in this sector, about 50

percent of them are women from rural areas. In 2000, the industry consisting of some 3000

factories employed directly more than 1.5 million workers of whom almost 80% were female.

USA is the largest importer of Bangladeshi RMG products, followed by Germany, UK, France and

other E.U countries

The garment sector is the largest employer of women in Bangladesh The garment sector has

provided employment opportunities to women from the rural areas that previously did not

have any opportunity to be part of the formal workforce. This has given women the chance to

be financially independent and have a voice in the family because now they contribute

financially.

Because the country's labor wage is very cheap, buyers are interested in the garments sector of

Bangladesh. A comparison by Institute for Global Labour and Human Rights shows that the

labour cost to make a Denim Shirt is $0.22 in Bangladesh whereas it is $7.47 in USA.

Case Study on a Reputed RMG Industry

Viyellatex: taking sustainability to the next level

It all started as a small family business of knit apparel manufacturing in 1996. Since then, it has

grown manifolds as one of the leading multi-dimensional business conglomerates of

Bangladesh with spinning, knitting, dyeing, accessories and printing facilities, and emerged as

VIYELLATEX group in 2002. VIYELLATEX is now looking towards a more vibrant future by

diversifying the business in different sectors. Starting as a quality fashion and garment

manufacturer, it has come a long way to venture into logistics, agriculture, power and energy

sectors.

VIYELLATEX considers corporate sustainability as an important edifice of its ethics. It gives

special importance to all its corporate sustainability activities. It values environmental

protection and conservation, and realizes that only by being responsible to nature can we truly

be responsible to the people and planet. It considers corporate sustainability as an investment

for the future, both for business and nature.

VIYELLATEX has one of the best, dedicated and skilled workforces in the country. These are the

people with the best talents, commitments, and expertise with the blend of experience and

enthusiasm. They work hard closely with stakeholders and are fully committed to deliver the

best results, ensuring their satisfaction underpinned by the VIYELLATEX Values.

The VIYELLATEX Group is composed of a variety of operational and functional units such as

spinning, knitting, dyeing, washing, printing, embroidery, and stitching, all based in the greater

Dhaka area. It supplies knit and woven garments, mainly t-shirts and shirts, for top European

and American brands, including Puma, Calvin Klein and Tommy Hilfiger. Monthly production

varies from 1.5 to two million pieces, and the Group employs around 18,000 people. Vyellatex’s

yearly turnover is close to US$200 million.

The company has not only grown to be a commercial success, but has won plaudits for its

commitment to sustainability by ensuring environmental protection, maintaining robust labour

standards, upholding human rights and combating corruption.

Viyellatex has won several awards from international organizations, private sector forums, local

workers’ organizations, and the government of Bangladesh. For example, in 2010, HSBC, the

leading international bank, and The Daily Star, Bangladesh’s largest English daily

newspaper selected Viyellatex as the winner of their annual Green Business Entrepreneurship

award in recognition of the company’s moves to adopt green and energy-saving technology in

manufacturing garments.

In 2009, Viyellatex signed up to the United Nations Global Compact, and was subsequently

selected by the United Nations Economic and Social Commission for Asia and the Pacific

(UNESCAP) as a model for putting the Global Compact principles into action in the region. The

UNESCAP report stated that Viyellatex “demonstrates that there is an opportunity to make

profits, provide worthwhile and well-numerated labour without the need for forced labour or

other forms of exploitation.”

K M Rezaul Hasnat, CEO and Chairmain of the group explain that, “Workers’ welfare

committees operate in our factories and, for three consecutive years, we have been

commended for our practice by the federation of garment workers’ unions. It is not only about

providing good working conditions, but we also pay 20% more than the national minimum

wage. I told my directors that we have high-end customers, so why should we follow the

government’s minimum wage.”

For Hasanat, the logic behind his company’s progressive approach to labour relations is simple.

“The tangible return is that, over the last 11 years, we have never had a workers’ strike or any

problems with the community.”

Viyellatex is also winning accolades for its commitment to green industry and sustainability.

Recalling how his company first started on the road to sustainability, Hasanat says, “Our first

sustainable initiative was all about steam. Releasing steam from our factories was a waste of

energy. I sat with my directors and said, ‘Let’s use that steam and hot water’. The result is pre-

heated water, free of charge.”

Viyellatex takes steam, which is produced as the output wastage from the steam supply system

for garments and dyeing units, and uses it to heat water boilers to an instant 70-80 degrees.

The company’s 2010 report to the Global Reporting Initiative states that the system saves 40%

of the previous cost of heating water.

Other initiatives followed: more than 300,000 litres of treated effluent water are used for the

toilet flushes every day, saving large volumes of underground water; approximately 45 million

litres of rainwater are collected from one factory roof each year and are then used in textile

processing, saving valuable underground water and avoiding the expenditure on chemicals to

soften the water; and water from workers’ wash basins is filtered and used to irrigate trees that

are planted in patches throughout the factory compounds.

Yet another initiative involves the company diversifying into tea production. Food leftovers

from the workers’ lunches and kitchen waste are mixed with cotton dust from

the spinning mill and are converted into compost fertilizer that is then sent to the company’s

newly purchased tea estate in the north-east of the country. Hasanat explains that there are

clear rewards for greening his company. “We can be environmentally friendly but, unless there

is a return, we can’t continue the initiative. We are saving money.”

Viyellatex committed to become a carbon-neutral company by 2016, and announced that it

would install energy-efficient and smart lighting systems, replace inefficient machines and

invest more in renewable energy sources.

To the question, ‘apart from saving on costs, what drives sustainability at Viyellatex?’, Hasanat

responds frankly, “Membership of the Global Compact, the Global Reporting Initiative and

Sustainable Energy for All provides me with a benefit. All these awards for environmental

initiatives and corporate social responsibility give us a competitive edge. Our customers are

inviting me to speak to their shareholders. They are showcasing me to their customers. When

companies negotiate a price with me, I can get a better price from them, because they don’t

want to lose me. I am in a better bargaining position.”

Bangladesh has so far made a significant progress in improving overall working conditions in the

country’s readymade garment (RMG) sector, but still much work remains to be done.

Advantage of Work Environment of RMG Industry

1. Monitoring Factory safety and Compliance: Recently around 1720 factories inspected

by the Europe based retailers group Accord and the North American retailers group

Alliance. So far only 27 factories were found non compliant and their operation was

suspended.

2. Training of Industrial police: Industrial police provides security for the worker and

maintains stability in the industrial areas. Government of Bangladesh through the

Ministry of Commerce has taken some initiative to improve the expertise of the

industrial police to develop a quick response system in times of tragedies and labor

unrest. Developing and implementing mechanism for training industrial police who

guard the RMG sector and oversee workers freedom of association at tense moment.

The purpose of the training should be to prevent intimidation, harassment and violence

against labour activists.

3. Improved Fire and Building Safety: Fire and building safety is one of the important

conditions for establishing workplace safety in the RMG sector. Due to the continuous

monitoring by the government and the foreign development partners this sector has

seen much improvement in terms of fire and building safety.

4. Peaceful Functioning of Trade unions: Functions of trade union for the work place

safety is very important. Labour unions of these sectors are co-operating with the

government in providing suggestions and recommendations and setting the wage for

the workers.

5. Ensure Rights for the women workers: women garment workers, various women

groups and activists are working hard in improving the lobour practices through setting

a plan of gender equality. Women groups have been working for garment worker to

change their status through making strategy paper, and writing regular features which

are enhancing the voice of women workers.

Disadvantage of Work Environment of RMG Industry

Five deadly incidents from November 2012 through May 2013 brought worker safety and labor

violations in Bangladesh to world attention putting pressure on big global clothing brands such

as Primark, Loblaw, Joe Fresh, Gap, Walmart, Nike, Tchibo, Calvin Klein and Tommy Hilfiger, and

retailers to respond by using their economic weight to create change. No factory owner has

ever been prosecuted over the deaths of workers. The main disadvantages of work

environment are:

1. Informal Recruitment Process: Although the garments industry belongs to the

formal sector, the recruitment procedure is largely informal compared to western

practice. As there is no contract or appointment letter, millions of garments workers are

vulnerable to losing their jobs at a moment’s notice without benefits. The termination of

an employment relationship is likely to be a pathetic and miserable experience for a

worker and loss of income badly affects his or her family.

2. Gender Issue: Gender discrimination is common. The majority of garment factory

workers are young women. In the RMG sector female workers are considered low-

skill, low workers . Mostly abundant cheap labour and its low opportunity cost lead to

low wage levels, providing a comparative advantage to female labour in particular

operations in the RMG production sector. Moreover, women are generally

discriminated against in terms of access to higher-paid white colour and

management positions. They are generally considered only for helpers, machinists,

finishing helpers and sewing helpers frequently and as line supervisors and quality

controllers. It is rare to find women working as cutting masters, production

managers, supervisors, finishing and machine operators, or as in charges who draw

salaries varying from 2-10 times that of the average operator.

3. Irregular Wage payment: irregular payment practices by some the culprit owners in this

industry has become the major concern. In many cases before the religious we see that

there is a trend among the garments owner of not clear the payment; which maybe in

case of regular wage or in cases of bonus. In some extreme cases the payment due is 3

to five months which eventually creates an unrest in the industry.

4. Low payment for Long work hour: Workers in the Bangladesh RMG sector often work

long hours for unusually low pay, regardless of laws mandating overtime pay or a

minimum wage. The RMG wage level is one of the lowest in the world. Even by South

Asian Standards, it remains very low with average hourly wage in Bangladesh being 42%,

50% and 33% at those in India, Nepal and Sri Lanka. In contrast with US apparel labour

charge per hour (wage and fringe benefits) of US$ 16.00, the RMG worker

receives a minimum wage of US$ 0.15. Whereas unit labour cost of $0.22 per hour is

the lowest in Asia, behind Cambodia ($0.33), India ($0.51) and China ($0.55).

5. Lack of Standard Working hour: Most of the garments factories do not have standard

working hours. Government should take initiatives to set standard working hour for

male and female workers.

6. Forced Labour: Forced labour is common in Bangladesh especially in the RMG sector.

Workers are often given a quota to fulfill. In the case of workers unable to fulfill their

quota during work hours, they have to stay behind and work without pay. Regular two

hours overtime is compulsory, and if any one refuses to work him or she is dismissed,

terminated, has wages deducted or receives verbal harassment, sometimes escalating

into physical punishment. Furthermore the factory management rarely informs workers

in advance if they have overtime; it is only announced at the end of the working

day. Workers don’t receive any notice of overtime. In some of the factories, workers are

forced to do night shift duty, up to 12 to 3am. And then start the next shift at 7am. In

many factories, the factory gates are locked to enforce overtime. Forced labour

constitutes the antithesis to decent work and violates all core labour standards. In

Australia, the law does not explicitly prohibit forced or compulsory labour,

including by children.

7. Lack of Residential and Transportation Facilities: Though most work until after dark,

there are no safety measures for them and no residential facilities or transportation

facilities provided. As a result, they frequently feel insecure, and for good reason

many female garments workers are raped and abused. Sexual harassment as well as

killing by management is also found in the Lani Fashion Limited is an example of

such violence. The liability for a safe life and safety environment in both cases is that of

the employer. The employers are allegedly not taking care of the workers but exploiting

them for their business interests.

8. Political Influence: Around two dozen factory owner are parliament member, there is

always a political influence in fulfilling with the compliance in this sector

9. Lack of Mechanism for Benefit Sharing: There is also no mechanism for benefit sharing

in RMG industry. They do not have a bonus payment system for workers as provisioned

in the labour laws nor do they have provision to increase salaries for changing

profitability and inflation. Employee benefit plans or incentives are voluntary offerings

by the firm. Expenditure on benefits contributes to employee retention through

increasing job satisfaction and improved productivity. Many industries provide

workers certain tangible benefits over and above the basic pay. Some benefits help

fulfill the social and recreational needs of workers, for example, a festival bonus, a

target bonus or a production bonus. They may provide extra leisure, extra income

and a better work environment. Such incentives enhance employees’ loyalty and

build a positive attitude towards the company and workers feel that they have a

role in the success of the organization. Thus incentives are important in reducing

dissatisfaction and unrest in an industry.

10. Health and Safety regulations: Health and Safety regulations, as prescribed in Factory

Rules 1979 are routinely ignored by management and are hardly enforced by

government. Most factories do not have adequate ventilation and exhaust fans

that leave the garments workers exposed to toxic substances and dust. Raw materials

contain dust and fibre particles that hang in the air. Dye, a toxic substance emitted from

coloured cloth, spreads in the workroom. As a result, many workers suffer from

constant fatigue, headaches, anaemia, fever, chest, stomach, eye and ear pain, cough

and cold, diarrhoea, dysentery, urinary tract infection and reproductive health problems

due to overwork, uncongenial working conditions, and wide-ranging labour law

violations. In fact the Factories Act of 1965 sets the occupational safety and health

standards in Bangladesh, but like every other aspect of the Labour Code, it is rarely

enforced due to the lack of resources and corrupt practices in the system.

Recommendation for Development

The Role of Government Body

Government role in terms of letting conducive policy environment for flourishing the industry in

less developed country has very little success story. In this prospect Bangladesh government

policy setting has been point on especially in case of RMG sector. But there are many areas

where government still can play a vital role. Such as

I. Policy should be formulated in a way that enables the external financing. There is still

some defect in terms of

II. Bangladeshi RMG products are mainly destined to the US and EU. In this regard the

government can play vital role in market diversification and encouraging new buyer and

investors to get involved with the RMG sector

III. Government should be strict about the workers safety issue. They should regularly

monitor the working conditions to the factories.

IV. Government needs to make finance available for the R&D of this industry because RMG

is fashion oriented industry. Without regular research it’s not possible to cope with the

latest global trends.

V. Government should organize trade fair on a regular basis nationally and internationally

to attract both buyer and investors

VI. To increase the productivity level government should provide different incentive to

private sector from time to time so that they can arrange different training and

awareness program for the workforce.

VII. Pass draft environmental laws and see that they are implemented.

VIII. Supervise and monitor the emissions and soil management systems of RMG companies

IX. Establish a central ETP that can be used by smaller companies.

X. Link companies producing waste to recycling facilities. Increase the number and capacity

of recycling facilities to process waste

XI. The government of Bangladesh and the BGMEA should immediately develop and

implement tough and effective sanctions against factory owners who engage in

anti-union activity, and advance progress in sanctioning owners who do not

comply with required safety standards.

XII. The government of Bangladesh and the BGMEA, in coordination with the ILO,

should undertake a program to educate garment factory owners on the constructive

role of labor unions in garment factories and endeavor to ensure that anti-union

activity is eradicated.

XIII. The government of Bangladesh and the BGMEA, in coordination with the ILO and

representative unions, should sponsor a program to educate garment factory workers

about their rights and responsibilities with respect to freedom of association,

organization, and collective bargaining.

The Role of Business Community:

I. RMG manufacturer should look for other strategic factors other than the human capital

of lower cost.

II. Opportunity of RMG industry must be converted to strength with the support of the

government

III. Manufacturer should look for other strategy like value chain competitiveness rather

than only price competitiveness.

IV. Business community should respect their worker because workers are the primary

stakeholder of the business

V. Business community of the industry should be careful in making the in time wage

payment

VI. Business community should be more responsible and they should work with the

government in completely eliminating the forced labour or child labour

VII. Workplace safety should be ensured and all compliance should be complied timely

VIII. Government and the business community should work align for the development of the

RMG sector of the country

IX. Apparel brands and retailers should aggressively continue implementing inspection

and remediation programs focused on fire and building safety in their suppliers

factories in Bangladesh.

X. Apparel brands and retailers, especially those with very large operations in

Bangladesh like Wal-Mart, Gap, and others in the Alliance for Bangladesh Worker

Safety, should, in coordination with the ILO, launch long-term, well-resourced

programs to educate their suppliers of their expectation for compliance with laws

allowing the right to organize unions and bargain collectively.

XI. Apparel brands and retailers, in coordination with the ILO and representative unions,

should launch a program to educate garment factory workers about their rights and

responsibilities with respect to freedom of association, organization, and collective

bargaining.

The Role of WTO:

I. Trade Negotiation: WTO can help in trade negotiation when bargaining with the foreign

trade associations and international garments buyer. The can facilitate the trade

different procedure. The WTO should facilitate the implementation, administration and

operation and further the objectives of different Agreement and of the Multilateral

Trade Agreements, and should also help this sector provide the frame work for the

implementation, administration and operation of the multilateral Trade Agreements

II. Implementation and Monitoring: The WTO should provide the forum for negotiations

concerning their multilateral trade relations in matters dealt under the Agreement

III. Building Trade Capacity: WTO can help in building trade capacity by giving

infrastructural and policy support for the development of RMG sector.

The Role of WCO:

I. As a forum for dialogue and exchange of experiences between national Customs

delegates, the WCO can offers Bangladesh one of its Member country international

instruments, technical assistance and training services either directly by the

Secretariat, or with its participation.

II. WCO Secretariat can also actively support Bangladeshi RMG Sector in their

endeavours to modernize and build capacity within their national Customs

administrations.

III. WCO also play a role in combating the fraudulent activity in its member country, so

it can help Bangladesh to reduce the customs fraud.

IV. WCO should help in increasing awareness of the importance of Customs as a key

vehicle for economic growth, social development and national security, and the

resultant need for governments and donor organizations to invest in sustainable

capacity building activities in Customs, supported by research-based strategy and

professionalism

Conclusion

The various worker safety programs initiated in the wake of Tazreen and Rana Plaza have the

potential to considerably improve the safety of Bangladesh’s garment factories in the short

term. But these gains may be lost without strong worker oversight in the form of

independent unions. Some progress has been made recently by Bangladesh’s fledgling unions,

but much more remains to be done.

To sum up, the new trading environment is going to pose serious challenges for the RMG

industry in Bangladesh. Time is also of essence (five years have already gone). Unfortunately,

Bangladesh has been slow to respond. Given the strengths, weaknesses, opportunities and

threats, establishing backward and forward integration should get first priority. All inefficiencies

and irregularities also have to be removed from production and export processing. Bangladesh

should penetrate into new markets, diversify into new items, and relocate into new territories.

If these measures are not taken in time, “The rapid growth rates that Bangladesh exhibited in

world trade will be a thing of the past”.