Foreign Direct Investment on Bangladeshi Garments and textiles Sector

Foreign direct investment (FDI) is a potent weapon of economic development, especially in the current global context, which enables a capital-poor country like Bangladesh to help integrate its domestic economy with the global economy. The purpose of this analysis is to show the contribution of FDI in the Bangladeshi garments and textiles sector and in the economic development of Bangladesh so as to know whether the call for more FDI is truly justified. The analysis attempts to identify the prospects of the Bangladeshi ready-made garments (RMG) industry by analyzing its current scenario, strengths and weaknesses, and potential competitiveness in the world market.

In Bangladesh, FDI plays a significant role in GDP acceleration and economic growth. Foreign Direct Investment (FDI) is one of the most recognized components of economic growth for Bangladesh. Being one of the Least Developed Countries with low domestic savings rate for investment, the importance of foreign investment is unquestionable for the country as Foreign Direct Investment (FDI) will create employment, encourage technology transfer and develop new exportable sector. To attract more and more FDI the government of Bangladesh has been creating private investment friendly environment. A number of opportunities have been given by the Government of Bangladesh to attract foreign investors to invest in the country in some prospective sectors but mainly in the RMG sector.

Various positive attributes of Bangladesh is now drawing the attention of the investors all over the world. Foreign investment is the most powerful ingredient for the economic growth of Bangladesh as it lacks sufficient domestic savings for investment. FDI has a remarkable role in the modernization of the Bangladesh economy for the last two decades. FDI is one of the key factors not only for the economical development of Bangladesh but also it opens the door for international business opportunity.

Overall, the study is made to attract the foreign investors to invest in the Bangladesh garments sector and to find out the advantages of investing in the readymade garments (RMG) and textiles in Bangladesh.

In Bangladesh, it is available to get skilled labor at relatively low wages (See Table 1). Bangladesh is one of the best placed in the regions for textiles and garments because of cheap labor and trade status with the EU.

Lowest wage rates and lowest energy cost, tolerable inflation rate, reasonably stable exchange rate and investment friendly custom regulations have made Bangladesh a popular investment destination. Bangladesh has become more open toward FDI policies over the last decades. These above features will certainly attract the foreign investors. The author will be finding out the advantages of FDI in Bangladeshi garments sector which will provide much more information for foreign investors who are interested in investing in the RMG sector in 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 20 years. This thesis will be devoted for the prospects, challenges and strategies for Bangladesh‟s RMG in the world market in order to attract foreign investors.

Borensztein, De Gregorio, and J.W. Lee have marked FDI as an important factor in accelerating economic success and wealth of a country as well as a door in creating jobs, facilitating economy, and creating more competitive environment and contributing productivity to the host country. The world economy is in stream of change in order to integrate itself to achieve desire objectives of the economic globalization for the growth and prosperity for the irrespective of region in all parts of the world. Trends in economic policies in both developed and developing countries have been greatly influenced by the globalization that is free market economy and as a matter of fact foreign investment and trade labialization have become its prime impulses. In this research, the author focuses on the basic fact “why investing in the RMG sector in Bangladesh will make profitable businesses”.

Objective of the study

The fastest growing industry in Bangladesh with RMG accounting for more than 75% of total exports .Within the South Asia region, Bangladesh can gain ground from a changing external policy environment by seizing opportunities for preferential market access, taking advantage of regional accumulation, and, if possible, negotiating free-trade agreements with India and other neighbors (SAFTA, BIMSTEC).

In international business FDI is a significant component for many countries but Bangladesh is comparatively lagging behind of them. Making FDI as a basic component for international business is very demanding for Bangladesh as there are a lot of opportunities to attain economic development by undertaking some initiatives. Bangladesh‟s RMG is now a matured industry, a popular destination for making International business and likely to be able to face successfully the challenges ahead and maintain the competitiveness in the global RMG market.

Considering the above facts the overall purpose of preparing this thesis is to identify the prospect of Foreign Direct Investment in Bangladesh garments and textiles sector.

Significance of the Study

FDI plays a dominant role in the economy of many developing countries through accelerating Gross Domestic Product (GDP), export and domestic investment followed by overall economic growth. So it is vital for the government of Bangladesh to carry out effective measures in protecting the prospective foreign investors so that they can get a congenial atmosphere to invest their capital in the RMG sector in Bangladesh.

The importance of the textile industry in the economy of Bangladesh is very high. Garments industry is the largest contributor to export GDP of Bangladesh. According to the Bangladesh Economic Review, it contributes 16% of the GDP in 2012 and the following year the contribution of RMG in the GDP is 11539 million USD which is the 79.6% of the total export in the fiscal year 2012-13.

RMG is one of the impoverished nation’s biggest industries in Bangladesh which is currently facing great challenges in its growth rate in the world market. The major reasons for these challenges can be the global recession, unfavorable trade policies, high cost of production due to increase in the energy costs etc. Introducing the Foreign direct investment (FDI) is a potent weapon of developing the capital-poor country like Bangladesh. FDI can emerge as a significant vehicle to build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labor through transfer of technology and managerial know-how, and help integrate the domestic economy with the global economy. This thesis provides an assessment of the current situation of FDI in RMG in Bangladesh.

According to Bangladesh Garment Manufactures & Exporters Association (BGMEA) , FDI basically helps to fill-up the capital gap and shortage of the country. Bangladesh is now a recognized name on the globe as a major exporter of garments. The readymade garment industry has become the lifeline of the Bangladesh economy. So much of the nation‟s fortune is riding on this one sector with the two million workforce it employs directly and another one million in linkage industries. It supports the livelihood of some 10 million Bangladeshis who have been lifted out of poverty.

This thesis is about ensuring the advantages of the foreign investing firms in the garments sector in Bangladesh. It provides an analytical perspective for a better understanding of the key issues facing the sector and offers a set of strategic options for the industry in order to attract the foreign investors.

Overview of the economy of Bangladesh

The spirit of free enterprise and the innovative entrepreneurship are the dominant forces in the economic life of Bangladesh. Bangladesh is considered as a economic miracle of this decade as with its pro-investment policies, stability and economic development through international and regional trade with its development partners and increasing remittances by expatriate Bangladeshis, the country has achieved an impressive economic growth during the last 10-15 years. According to the Bangladesh economic review, In last one decade the GDP growth hardly went down below 6%. A strong domestic demand, high export growth and continued expansion of infrastructural facilities helped to accomplish this accelerated economic growth amidst the fragile pace of global economic recovery.

According to Bangladesh Bureau of Statistics, BBS, Bangladesh has an estimated population of 160 million living in an area of about 55,000 square miles. It thus has the unwanted distinction of being the world‟s most densely populated country, and this overpopulation is at the root of many of Bangladesh‟s socioeconomic problems. However, the population is largely homogeneous in terms of ethnicity, language, and religion, and this provides a valuable element of national cohesion.

International Monetary Fund (IMF) ranked Bangladesh as the 44th largest economy in the world in 2011 in PPP terms and 57th largest in nominal terms. The country registered a gross domestic product of US$305.5 billion in 2012, US$288.1 billion and US$270.5 billion in 2011 and 2010 respectively in purchasing power parity (PPP). Sectorally, services constitute the largest portion of GDP with 51.7%. Industry accounts for 27.1% and agriculture 21.2%. However, the distribution of the labour force is reversed, with most people still working in agriculture (61%), followed by services (27%) and finally industry (12%). This imbalance between output and employment is indicative of a large amount of “disguised” unemployment and underemployment. Unemployment is estimated to be about 40%. (Bangladesh Bank, 2012)

In 2012 Bangladesh experienced a satisfactory FDI. World Investment Report 2012 ranked Bangladesh 16th among 74 FDI-recipient countries with a record $1.13 billion FDI inflow. This is only the second time Bangladesh‟s FDI has exceeded the billion dollar mark in a single year. Standard & Poor‟s Rating Services on May 31, 2012 affirmed it‟s „BB-„long term and „B‟ short-term foreign and local currency sovereign credit ratings on Bangladesh with  stable outlook. The transfer and convertibility (T&C) assessment remains „BB-„. The Bangladesh Government has planned a long-term perspective plan, with a target to make Bangladesh a middle-income country by 2021, by raising the real per capita income to US$2000 which now stands at US$848. (Bangladesh Bank, 2012)

While world trade was severely disrupted by the global recession in last three years with exports of most countries declining sharply, the export of Bangladesh shows satisfactory growth. Bangladesh has emerged as the second largest exporter in the world apparel market. Bangladesh is also doing exceedingly well in the exports of finished leathers and leather goods, frozen foods, jute and jute goods, pharmaceutical products, light engineering products and small ocean going vessels. In 2012 and 2011 Bangladesh posted US$ 25.79 billion and US$ 24.56 billion respectively in export earnings, while at the corresponding periods the country registered import bills of US$ 35.06 billion and US$32.58 billion. Most of the items in the import list are petroleum products, capital goods and industrial raw materials. (Bangladesh Bank, 2010)

Bangladesh has also attained a satisfactory foreign currency reserves in recent months. Until January 2013, reserves stood at US$14.1 billion. Apart from remittances by expatriate Bangladeshis, the increase in export earnings and decrease in import cost played their role in boosting the reserves. Expatriate Bangladeshis remitted US$14.2 billion in 2012. The amount is 21 % more than 2011 and a record itself. (Bangladesh Bank, 2010)

Understanding the economy of Bangladesh is a vital part of this literature. The information about the economy of Bangladesh motivates the author to better understand the contribution of RMG to the national economy, the foreign ownership in Bangladesh and Bangladeshi RMG in the world market.

Foreign Direct Investment (FDI)

‘Foreign Direct Investment – FDI’ The investing company may make its overseas investment in a number of ways – either by setting up a subsidiary or associate company in the foreign country, by acquiring shares of an overseas company, or through a merger or joint venture.The accepted threshold for a foreign direct investment relationship, as defined by the OECD, is 10%. That is, the foreign investor must own at least 10% or more of the voting  stock or ordinary shares of the investee company. An example of foreign direct investment would be an American company taking a majority stake in a company in China. Another example would be a Canadian company setting up a joint venture to develop a mineral deposit in Chile. (Investopedia)

FDI is one of the most important components of international investment which creates a long-term relationship between the direct investor and the enterprise. Direct investment relates the transaction between the investor and the enterprise. FDI shows the transactions among affiliated enterprises, both incorporated and unincorporated. The components of FDI are: 1. Equity capital, 2. Reinvested earnings and 3. Intra-company loans.

Equity Capital is the ownership as well as the share purchasing of an enterprise by a foreign investor. Reinvested earnings demonstrate that portion of earning of an investor which is not distributed back to him. This means the profits that are not given out as dividends is kept within the firm.Intra-company loans include debt transactions and these transactions are regarding lending by the foreign parent company to its affiliates in the form of both short and long-term.

FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. FDI may be undertaken by individuals as well as business entities. Flows of FDI comprise capital provided by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor.

Theories of Foreign Direct Investment

To understand foreign direct investment must first understand the basic motivations that cause a firm to invest abroad rather than export or outsource Production to national firms. Many researchers have explained foreign direct investments (FDI)‟s issues but the main research on the motivations underlying FDI were developed by J. Dunning, S. Hymer or R.Vernon.

 

Theories of FDI may be classified under the following headings:

Production Cycle Theory of Vernon: Vernon believes that there are four stages of production cycle: innovation, growth, maturity and decline. According to Vernon, in the first stage the U.S. transnational companies create new innovative products for local consumption and export the surplus in order to serve also the foreign markets. According to the theory of the production cycle, after the Second World War in Europe has increased demand for manufactured products like those produced in USA. Thus, American firms began to export, having the advantage of technology on international competitors. This theory managed to explain certain types of investments in Europe Western made by U.S. companies between 1950-1970.

The Theory of Exchange Rates: This is another theory which tried to explain FDI. Itagaki (1981) and Cushman (1985) analyzed the influence of uncertainty as a factor of FDI. In the only empirical analysis made so far, Cushman shows that real exchange rate increase stimulated FDI made by USD, while a foreign currency appreciation has reduced American FDI. Cushman concludes that the dollar appreciation has led to a reduction in U.S. FDI by 25%. However, currency risk rate theory cannot explain simultaneous foreign direct investment between countries with different currencies.

The Internalization Theory: This theory basically explains the growth of transnational companies and their motivations to achieve FDI. According to Hymer (1976) the MNE appears due to the market imperfections that led to a divergence from perfect competition in the final product market. In his Doctoral Dissertation, Hymer identified two major determinants of FDI. One was the removal of competition. The other was the advantages which some firms possess in a particular activity (Hymer, 1976).

Hymer has discussed the problem of information costs for foreign firms respected to local firms, different treatment of governments, currency risk (Eden and Miller, 2004). The result meant the same conclusion: transnational companies face some adjustment costs when the investments are made abroad. Hymer recognized that FDI is a firm-level strategy decision rather than a capital-market financial decision.

The Eclectic Paradigm of Dunning: The eclectic theory which was developed by professor Dunning shows a mix of three different theories of direct foreign investments as O-L-I where “O” from Ownership advantages, “L” from Location and I” from Internalisation.

  1. “O” from Ownership advantages:

To successfully enter a foreign market, a company must have certain characteristics that would triumph over operating costs on a foreign market. These advantages are the property competences or the specific benefits of the company. The firm has a monopoly over its own specific advantages and using them abroad leads to higher marginal profitability or lower marginal cost than other competitors. (Dunning, 1973, 1980, 1988).

To simplify, this theory refers to intangible assets, which may be transferred within transnational companies at low costs, leading either to higher incomes or reduced costs.

  1. “L” from Location:

Location advantages of different countries are the key factors to determining who will become host countries for the activities of the transnational corporations. The specific advantages of each country can be divided into three categories: a) the economic benefits consist of quantitative and qualitative factors of production, costs of transport, telecommunications, market size etc. b) Political advantages: common and specific government policies that affect FDI flows c) Social advantages: includes distance between the home and home countries, cultural diversity, attitude towards strangers etc.

  1. “I” from Internalisation:

Supposing the first two conditions are met, it must be profitable for the company the use of these advantages, in collaboration with at least some factors outside the country of origin (Dunning, 1973, 1980, 1988).

The article by Lorentzen and Barnes on South Africa shows that domestic capacity – in the form of infrastructure or an efficient domestic industrial sector– is a primary determinant of high competence affiliates. They base their analysis on eight case studies in the South African automotive sector, and show that indigenous firms can compete with MNEs, and – given the appropriate domestic capabilities and infrastructure – can maintain and improve their competitive advantages through indigenous innovation.

The above mentioned theories are helpful to understand FDI and its importance. After having proper knowledge about FDI the author proposes to analyze the FDI in the RMG sector in Bangladesh.

FDI and Growth

By reviewing various literatures available on FDI it is found that foreign investment is still viewed as a matter of debate. Opinions are still divided in deciding that whether FDI is boom or bane for host countries economic growth and development because FDI has its own merits and demerits. There are many researches and case studies which provide us so many basic information showing the relationship between FDI and economical growth.

Aitken and Harrison (1999) have evaluated the contribution of FDI to domestic productivity and found positive impacts of FDI on economic development. Again, Levine et al. (2000) found negative results on economic development.

Rothgeb (1984) found an immediate troublesome effect of FDI flows on developing countries. This effect would overcome after a short period of time, with positive impacts on growth. Rothgeb (1984) used his model to explore the impact of foreign investment on the growth of Bangladesh and found that FDI has a positive impact on growth. He also found a strong positive effect of the change in the level of domestic investment on growth.

V.N. Balasubramanyam, M. Salisu, and D. Sapsford (1996) did an examination about the impact of FDI on economic growth in developing economies using ordinary least squares. Applying the export promotion strategy, they found positive and significant impact of FDI on economic growth in developing countries. Simultaneously, it also showed that such relations do not exist in developing countries applying the import substitution strategy.

Bengoa and Sanchez-Robles (1997) showed the positive correlation between FDI and economic growth. In this connection, with a view to getting benefit from long term FDI inflows, human capital, stable economic condition and liberalized markets are required in host countries.

Borenszteina et al (1998) examined the data on FDI inflows of sixty nine developing countries by regression framework and found the importance of FDI as a means of transferring technology that contributes more to growth than domestic investment.

Mottaleb (2007) studied the determinants of FDI and its effect on economic growth in developing countries. He studied panel data of FDI flows of sixty low-income and lower-middle income countries and found that FDI has an important effect on economic growth of third world countries by creating bridge between the gap of domestic savings and investment and familiarizing the up to date technology and management skill from developed countries.

Jung Wan Lee, Gulzada S Baimukhamedova, Sharzada Akhmetova (2008) analyzed the correlation between FDI inflows, exchange rate, and economic growth of Kazakhstan by a multivariate regression model with weighted least squares estimates. The results revealed the minimum significant impact of FDI on GDP growth of Kazakhstan.

Abdul Rehman, Orangzab, Ali Raza (2009) conducted an analysis by using the data collected over the period of 1975-2008 and identified the determinants of FDI and its impact on GDP growth in Pakistan through different statistical tests and found positively significant impact of FDI on GDP growth of Pakistan. Furthermore, these results indicate that market size, trade openness / access to international market and quality of labor are the major determinants that have significant affect on the FDI inflow. The study also found no affect of market potential and communication facility on the attraction of FDI inflow in Pakistan.

Quader, Syed Manzur (2009) applied extreme bounds analysis to the data of the various catalyst variables of FDI inflows in Bangladesh. They found FDI and domestic investment have a positive effect on economic growth.

Piotr Misztal (2010) examined the influence of FDI on the economic growth in the Romania in period of 2000-2009 using the Vector Autoregression Model (VAR) and found linear relationship between FDI and economic growth.

Muhammad Azam (2010) examined the impacts of exports and FDI on economic growth of South Asian countries namely Bangladesh, India, Pakistan and Sri Lanka with simple log linear regression model using secondary data ranging from 1980 to 2009 and found that due to promotion of exports, economic growth of each country would increase. He also found FDI as positively significant at 1% level of significance for Bangladesh.

The above mentioned researchers have shown the contribution of FDI to the national economy of a country as well as the growth of economy for both home and host firms. It is clear that FDI has its own merits and demerits. Those studies will motivate the author to relate FDI and Economical growth and to base finding the key issues of the FDI in the RMG sector in Bangladesh .

Present FDI status in Bangladesh

Bangladesh has attracted USD 913 million foreign direct investments (FDI) in 2010 calendar year, a leap by 30 per cent. This upgrades the country’s position to 114 from 119 out of 141 nations in the World Investment Report (WIR). During this period the telecom sector received USD 360 million FDI, the manufacturing sector received USD 238 million in investment from abroad, USD 145 million in the textile and clothing sector, while leather and leather products got USD 46 million. (The financial Express, 27 July, 2011)

The trend of Inflow of FDI in Bangladesh has increased over the 1980s as compared to earlier periods and this same momentum continues in 1990s as well. The total inflow of FDI has been increasing over the years. During the period of 1977-2010, total inflows of FDI were USD 8927.9 million, among which the total inflows of FDI during 2006-2010 was USD 4158.63 million. In 1977, this inflow was USD 7 million and in 2008, annual FDI reached to USD 1086.31 million. Unfortunately, there was a declination in inflows of FDI in 2010 which was USD 913.32 million (Source: Survey Report, Statistics Department, Bangladesh

Foreign Direct Investment on Bangladeshi Garments Sector

The Bangladeshi entrepreneurs will be compelled to improve their working conditions if foreign direct investment (FDI) in the ready-made garment (RMG) industry is allowed on small scale, said the leader of the Foreign Investment Chamber of Commerce and Industry (FICCI). The FICCI leader said if Chinese, South Korean, Indian and Pakistani entrepreneurs set up world standard RMG units in the country, Bangladeshi entrepreneurs will be compelled to improve working conditions and safety measures and give better salaries to workers. The government has stopped FDI in the export-oriented garment industry at the recommendation of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the largest apex body of garment exporters. According to sources, at least 500 RMG units in the country are running with poor safety measures posing a constant threat to security of lives for the workers. These garment units lack adequate fire fighting equipment and emergency fire existence and flout building codes while setting up manufacturing units and godowns. BGMEA leaders have claimed that country requires massive investment in the backward linkage to feed the export-oriented garment industry. Bangladesh imports yarns and fabrics valued at several billion US dollars every year. Foreign direct investment (FDI) in the export-oriented ready-made garment (RMG) industry on a limited scale will put pressure on the local entrepreneurs to improve the existing environment, said a leader of the Foreign Investment Chamber of Commerce and Industry (FICCI). (The daily star)

According to Press Trust of India, India and China are expected to be the largest investors among developing countries by 2030, with the two Asian giants accounting for 38 per cent of global gross investment. Among the developing countries, China and India are expected to be the largest investors, with the two countries together accounting for 38 per cent of the global gross investment in 2030. All this will change the landscape of the global economy. According to the latest edition of the World Bank’s Global Development Horizons (GDH) report, by 2030 half the global stock of capital, totaling USD 158 trillion, will reside in the developing world, compared to less than one-third with countries in East Asia and Latin America accounting for the largest shares of this stock. The high labour costs in China, South Korea, India and Pakistan have cut the competitive edge in the international markets as labour cost is very low in Bangladesh.

As a developing country, Bangladesh needs Foreign Direct Investment (FDI) for its ongoing development process. Since independence, Bangladesh is trying to be a suitable country for FDI. In order to accelerate economic growth, Bangladesh opened her economy in the late 1980s to reap the benefits of FDI. In 1989 the government set up Board of Investment (BOI). The primary objective of which is aimed at attracting and facilitating investment from abroad. Foreign investors have set up world standard garment units in the export processing zones (EPZs) in which labourers are working in sound environment and getting good salaries. The Bangladesh government has developed EPZs in different parts of the country to woo foreign investments in the 80s and 90s. The safety measures in the factories in the EPZs are international standard. Bangladesh is the second largest supplier of RMG products in the international markets after China said a foreign ministry official of Bangladesh Govermnet.(The daily star)

Most of the garments firms in Bangadesh are part of some larger multinational corporations in the form of FDI but small amount of Bangladesh garments firms have also foreign equity beacuse of the industrial policies of Bangladesh in order to safe guard quota allocations of garment export to US to the domestic firms. Furthermore, foreign firms are allowed to invest in Bangladesh garment sector only if they locate the plants in the export processing zones, and are not competing with the subcontracting domestic firms supplying to the exporting firms who have quota access. Thus, almost all FDI firms export all of their products from Bangladesh.

Prospects & Contribution

Export Promotion Bureau, Bangladesh (EPB) releases that RMG Contributes 76% of total exports in Bangladesh. Major products of apparels include knit and woven shirts, blouses, trousers, skirts, shorts, jackets, sweaters, sports wears and many more casual and fashion items. The sector currently employs approximately 1.5 million workers, mostly females from underprivileged social classes. Relatively inexpensive and easily available machineries, requirement of smaller premises, abundant supply of cheaper work force, low tariffs on imported machineries and, most significantly, benefits of reserved markets by MFA quota have spurred the growth of the garment industry. Presently the country exports to around 90 countries in the world which include USA, Canada, Germany, UK, France, Italy, Netherlands, Spain and Belgium. In fact, Bangladesh is the 6th largest supplier of apparels in the US market. In order to protect human rights working saftey is being developed in almost all firms located in EPZ. Thus, Bangladesh has a stiff challenge to meet the demand of world market.

Contribution of the RMG industry of Bangladesh to The National Economy

The role of the RMG sector in national economy is undoubtedly in high importance. There has been a steady development in the RMG export field during at least the last decade and a half but in the last few years it has been signicant.

About 76 percent of total export earnings of Bangladesh come from RMG sector. Export statistics from RMG sector in the last five years were US$ 5,686.06 million in FY 2003-04, US$ 6,417.67.67 million in FY 2004-05, US$ 7900.80million in FY 2005-06, US$ 9,211.23 million in FY 2006-07, US$ 10,699.80 million in FY2007-08 and US$ 12.35 billion in FY 2008-09. (Export Promotion Bureau, Bangladesh , EPB).

Readymade garment (RMG) is the key export item and a main source of foreign exchange for the last 25 years. Bangladesh textile garments sector has been expanded in a vigorous way and maintained its maturity by holding 2nd position globally with 5% market share in Readymade Garments production and export in 2012. During the Fiscal Year (2011-12) our total export volume was USD 24.23 billion. Out of the total export, export from the RMG sector was USD 19.08 billion which is 78.7%. Global market size export of RMG (Woven & Knit) is US$ 400 billion. Bangladesh share in the global market is about 5 %. This mere 5% share alone is literally strong to indicate that there is a great opportunity of expansion. That means more and more fashion retailers and brands will be looking to source from Bangladesh and the trend has already been started. Bangladesh has been successfully supplying apparel products consistently to the premier international fashion brands like H&M, C&A, M&S, Wal-Mart, GAP, Levi’s, s.Oliver, Tesco, Zara, Carrefour, JCPenney and many more. In November last year, McKinsey & Company, a global management consulting firm forecasted Bangladesh’s apparel exports could grow double by 2015 and triple to $42 billion by 2020 (McKinsey CPO Survey, November 2011). They also mentioned that Bangladesh will be the apparel sourcing hot spot over the next 5 years. (Export Promotion Bureau, Bangladesh , EPB).

Bangladesh launched a deep and wide-ranging trade reform strategy in the early 1990s. Rapid RMG export growth has been observed from the fiscal year 1994-95 to 2013-14. In the fiscal year 2010-2011, robust growth 43.35% compared to previous fiscal year has been experienced. RMG export has been remained stable and export volumes have continued their robust growth. Commitment, competitive price and high quality of products are the main driving forces behind the rise in exports of garment items to the new destinations. Prominent presence of top retailers and fashion brands in Bangladesh has been realized and it’s also been realized that present top retailers have long-term policy to increase the sourcing volume at a greater extent from Bangladesh. New giant retailers and fashion brands are routing for Bangladesh and already they have started to visit factories as well as set up their liaison offices.

Buyers of garments and textile industry of Bangladesh

From the above mentioned infomations, it is noticed that Bangladesh is becoming more and more popular destination for the apparel retailers and fashion brands worldwide as the country is consistently providing most competitive price maintaining acceptable quality standards. Existing merchants and brands are expanding their work order as well as new ones are coming to utilize the opportunities in order to make their products more competitive in the global apparel market. The daily star releases that renowned fashion brands like H&M and Wal-Mart are intended to increase their sourcing from Bangladesh to a great extent. Many other retailers are also following the trend. Thus Bangladeshi RMG is very competitive in the world market.

Present condition of RMG sector in Bangladesh

The garment industry is playing a pioneering role in the development of industrial sector of Bangladesh that has been established with reputation in the world market within a short span of time. Besides, enriching the country’s economy it has played a very important role in alleviating unemployment.

With 5,000 factories employing about 3.6 million workers (of a total workforce of 74 million), Bangladesh is clearly ahead of other Southeast Asian suppliers in terms of capacity of the ready-made-garment industry. It also offers satisfactory levels of quality, especially in value and entry-level midmarket products. Ready-made garments manufactured in Bangladesh are divided mainly into two broad categories: woven and knit products. Shirts, T-shirts and trousers are the main woven products and undergarments, socks, stockings, T-shirts, sweaters and other casual and soft garments are the main knit products. Woven garment products still dominate the garment export earnings of the country. The share of knit garment products has been increasing since the early 1990s; such products currently account for more than 40 per cent of the country‟s total RMG export earnings (BGMEA).

Although various types of garments are manufactured in the country, only a few categories, such as shirts, T-shirts, trousers, jackets and sweaters, constitute the major production-share

With about $15 billion in exports in 2010, ready-made garments are the country’s most important industrial sector; they represent 13% of GDP and more than 75% of total exports. Recent surveys carried out by the consulting firm McKinsey and the accounting firm KPMG identified attractive prices as the most important reason for purchasing in Bangladesh. Price levels will remain highly competitive in the future, since significant efficiency increases will offset rising wage costs. (BGMEA).

 

CONCLUSION

This research studies the relationship between foreign equity and firm productivity of Bangladeshi RMG sector. Firms productivity was measured by the total sales and exports increase . The author shows that FDI firms have larger sales and exports than the domestic firms in the same industry and location. So finally it has been found from this research that FDI firms are more productive than the domestic firms. Furthermore, all scholarly articles, case studies and statistics discussed in this research suggests that FDI firms are more productive than the domestic firms and the domestic firms may benefit from the productivity of the FDI firms in the RMG sector in Bangladesh. The findings of this research support a more open FDI policy in Bangladesh garments and textiles sector. More FDI in the RMG sector in bangladesh will bring much more economical growth for the country and both of the investors and the investing companies will make profitable businesses worldwide. In addition, if a domestic firm allows foreign capital the infrastructure of the investng companies will be high standard as it has been found from this study that foreign ownership makes the domestic firms to improve the production, work and safety and the quality of products.

In a conclusion, the author tends to describe briefly what information a reader can get and learn from this thesis. The readers can know information about reliability and validity that deals with the authenticity of thesis and evaluation of usefulness. There are some suggestions and future researches also pointed out in the conclusion.

 

Courtesy: Razib Hossain

 

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