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.
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.
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”.
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