_____________________________________________________________________________________________________________________

This case has been prepared as the basis for class discussion on Entrepreneurship rather than to illustrate either effective or ineffective handling
of an administrative situation. It is based on information available on the Internet and is not intended to serve as endorsements, critique or
sources of primary data.

In Search of the Bangladeshi Idol : Noorul Quader
The place is and always will be a basket case. US Secretary of State, Henry Kissinger quoted in 1971 as
dismissing the idea of an independent Bangladesh

As Noorul Quader lay on his hospital bed in London, a faint smile crossed his lips as he read the headlines of the
Bangladeshi Newspaper that his friend had brought from Dhaka : RMG Exports for the Fiscal Year 96-
97 of Crosses USD 3 billion. The revenue figures were remarkable and so were the increasing employment
rates.

As he read through the article, the Ready Made Garment (RMG) sector had become the number one foreign
exchange earner for the country. Initially tea and jute were the most lucrative export sectors. The problem with these
sectors was that they were vulnerable to natural calamities such as droughts, floods & cyclones etc. However, that
had all changed since the 1980s when the garment industry in Bangladesh became the main export sector and a
major source of foreign exchange. This had resulted in the countrys foreign exchange reserve becoming strong
enough to withstand the many deficiencies of other sectors.

It had also provided jobs to more than 1.3 million Bangladeshis. What was more comforting to him was the fact that
these were predominantly women making the Garment sector the largest employer of women in Bangladesh. He
realized that even though micro-finance was being heralded as a triumph for helping Bangladesh alleviate poverty,
work in the RMG factories for young women across the country, who previously did not have any opportunity to be
a part of the formal workforce, had given families the income, health, and independence that they needed to get out
of poverty. What was happening in Bangladesh was a social revolution, instantly empowering women by making
them financially independent, many for the first time in their lives !

Over the last twenty odd years, since he had pioneered this revolution, Bangladeshs garment industry had created a
new burgeoning middle class in a country with one of the worlds largest economic gaps. The wealth generated
from the RMG sector was the single greatest source of economic growth in Bangladesh.

Noorul Quader felt tremendous pride in the fact that he had been able to read the future of newly born Bangladesh.
He had started off with something unconventional which was thought by many to be Utopian in 1974 and had
pioneered the garment industry in Bangladesh. He had been able to turn his dream into reality by overcoming
numerous impediments through his creativity, tenacity & focused actions.

Having done his part for his beloved country, the valiant freedom fighter could now rest in peace ! He passed away
on September 13, 1997 in London.

BANGLADESH ECONOMY POST INDEPENDENCE

Bangladesh gained its independence in 1971 after a nine-month bloody war that claimed 3 million lives and left the
infrastructure of the nation severely battered. The economy was ravaged by acute food shortages and famines during
the early years and reeling from overwhelming war damage to its institutional and physical capital. There was hardly
any Bengali owned industry, and the little that had developed was nationalized. The public sector corporations were


2

largely inefficient. Large fiscal deficits were the order of the day since the government had no choice but to resort to
deficit financing to finance rehabilitation works and to reinvigorate the level of economic activity in the country. As
a result, the money supply increased rapidly and there was very high inflation.

The small size of the domestic market was a major hindrance to industrial growth in the 70s. Other than jute goods
and tea which were export industries, most of the other manufactured goods were produced for the protected
domestic market. Growth of these import-substituting industries was hindered by the small size of the domestic
market. Growth of the two major export industries, jute manufactures and processed tea, was low because of
declining world demand. World demand for jute goods was declining primarily due to the development of synthetic
substitute of jute fibre, while demand for tea was low mainly due to the inferior quality of Bangladeshi tea compared
to say Sri Lanka and Kenyan tea.

To make matters worse, infrastructural support in the country was weak. Factories suffered from acute shortages of
electricity and gas. Communication links were poor and congestion at ports common.

The balance of payments position was precarious in the face of a rising import bill and a low level of exports.
Foreign exchange reserves, a vital but scarce resource, were at a very low level. As such, Bangladesh followed an
extremely restrictive import policy as a means of rationing scarce foreign exchange. With a few exceptions, licences
were required for all imports. Procedures for obtaining import-export and business licenses were complicated and
entrepreneurs had to bribe officials to obtain the necessary documents. Complexity of the licensing system,
deficiency in its administration, cumbersome foreign exchange budgeting procedures, rigid allocation of licences
and time-consuming procedures, all resulted in inordinate delays and presented a serious obstacle to efficient
industrial production in the newly born country.

GLOBAL APPAREL INDUSTRY DYNAMICS

Up until the early 1960s, the apparel industry in the developed countries like the US and UK relied on domestic
subcontracting; cutting and stitching operations were subcontracted to small garment factories mostly relying on the
use of cheap female labour, while large-scale merchandising was undertaken by larger firms.

Subsequently, as industrial wages began to rise, the apparel retailers in the developed countries found it more
profitable to relocate production to lower-wage developing countries. In most cases, such out-sourcing took the form
of subcontracting arrangements between the retailer in the developed country and the garment manufacturer in the
developing country. The retailers in the developed countries placed work-orders to the off-shore garment
manufacturers, often through buying agents, and they also helped the garment makers in various ways to produce
and ship the merchandise. Such sub-contracting reduced the risk of doing business with foreign partners since it did
not require any foreign direct investment.

This pattern of relocation of apparel production arising from wage differentials was hastened further by the Multi-
Fibre Arrangement (MFA) under which a developed garment importing country imposed quota restrictions (in
addition to tariffs) through bilateral negotiations with an exporting country. In 1973, the MFA Quota system was
designed to protect the domestic textile and clothing industry of the developed importing countries and the
subsequent loss of jobs. As a concession to global opinion, the MFA did not put quotas on a number of least
developed countries which did not have any garment industry at the time and were therefore no threat to the US. As
an LDC, Bangladesh enjoyed quota-free status in the 1970s, and wages were also low.


3


The MFA quotas also resulted in the spread of the export-oriented garment industry from countries whose exports
were restrained by MFA quotas to quota unrestrained low-wage developing countries. By the seventies, major
garment exporter countries like Hong Kong, South Korea, Taiwan, Thailand, Malaysia, Indonesia and Singapore
were constrained with yearly quota in particular items. Some countries reached their quota and thus companies
looked for countries that still had quota left: sourcing followed quotas. Around the same time, these major garment
exporting countries were experiencing rising labour costs. To overcome these two disadvantages and to retain their
shares in the global apparel market, these countries relocated their production, sometimes under joint-venture, to
those smaller developing countries that enjoyed quota-free status. Quotas on garments exports for these countries
not only affected their garment industry but also sales of fabrics that they produced in their textile industries and
indirectly exported through garments. If they could find alternative sites, they would be able to keep more of their
textile industries going.

Ironically, the relatively poor, developing countries did not have any textile and clothing sector and hence, lacked
the tacit knowledge to set up competitive production - even though their wages were much lower. In light of the
novelty of this technology in these economies and the uncertainty of the time it would take to achieve global
competitiveness, the investments in this sector entailed significant risks for the domestic investors. Foreign firms did
not find it viable to invest in skilling up labour in these poor economies in a low-margin, low technology industry
unless there was some sharing of costs and risks for the foreign firm. Consequently, all global production did not
rapidly shift to the poorest countries with quota-free status and only a handful benefited from MFA.

APPAREL INDUSTRY IN BANGLADESH

Bangladesh had a rich history of textile manufacturing. Its Muslin and Jamdani cloth was reputed for luxurious
garments in Europe and other countries. However, during British colonial rule the industry suffered a brutal
repression to facilitate the flourishing of British textile industries in Manchester.

As such, the domestic market for Ready Made Garment was virtually non-existent in Bangladesh until the 60s.
Until the early 60s, individual tailors made garments as per specifications provided by individual customers who
supplied the fabrics.

There were of course some small-scale operations consistent with a low technology garment industry going back
many decades in Bangladesh. Located in the old part of the city along the river Buriganga, these handful of small
factories were staffed by locals with obsolescent machines supplying the domestic market especially the demand for
apparel in the then West Pakistan. There were also a few tailoring groups in Dhaka who made a small quantity of
export-quantity shirts and childrens wear on specific orders and supplied to Karachi-based firms. For example,
Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz Store in Dhaka and
served only the domestic market for about 15 years. There was also Mercury Shirts, a company located in Karachi,
sourced a few consignments of shirts during 1965-68 made by some tailoring outfits operating in Dhaka, and then
exported these to some European countries.

Post independence, aspiring first generation Bangladeshi entrepreneurs realized that since the RMG industry
catered to the demand of a global market, its growth was not constrained by the limited size of the domestic market.
Moreover, unlike jute goods and tea, world demand for Bangladeshs garments was growing rather than declining.
All this made the industry lucrative. However, the initial capabilities within the country in the garments and textile
sector were low in terms of what was required to achieve international competitiveness despite the simple


4

technology of making garments, basically involving cutting and making (CM), together with relatively low
investment cost.

There was also little encouragement from the government in such ventures. It was a difficult environment for
exporting garments from Bangladesh; the entrepreneurs were not familiar with the technology, it was difficult and
time-consuming to clear imported machines and input materials from the port, banks were unwilling to issue Letters
of Credit (L/Cs) for the import of fabrics without the importers putting up considerable margins, the bureaucrats
were inexperienced to deal with an export activity that depended on use of imported inputs, and trained workers and
supervisors were scarce. The bureaucratic inefficiency and corruption in the highly regulated economic environment
prevailing in the country was yet another obstacle.

ENTER NOORUL QUADER

Noorul Quader, by education an economist with honors from the University of Dhaka and higher education from
Cambridge University, England, was a career civil servant. He joined the War of Liberation when he was serving as
the DC of Pabna and organised resistance in Pabna which became the first liberated area. At the young age of 35, he
became the first Establishment Secretary after independence, which in other words meant that he was the de-facto
right hand man of the Prime Minister in the Civil Administration. As Secretary to the Government of Bangladesh, he
headed several other ministries like Communication, Railways, Shipping, Civil Aviation etc. He was also the
founder Chairman of Bangladesh Parjatan Corporation, the Tourism Corporation. He commanded respect of the
bureaucrats who were at the helm of power and decision-making and had also made a lot of international
connections by dint of his position.

His patriotism for his country, however, was always overarching in his mind and he was deeply pained by the
devastation of the War of Independence. In his own words, They left us a barren city and a barren land. We had no
electricity, they damaged water supplies, pipe-lines and electricity grids. We have started from the bottom but our
biggest asset is the spirit of the people. For the first time we are working for ourselves. He was a great believer in
the power of the Bangladeshi population which he always saw as an asset and never a liability. He was also a man
of action. The war saw 250 road bridges destroyed, and 220 railway bridges damaged. We now have 180 road
bridges functioning, Quader proudly said. We have established communications in 14 of our 19 administrative
areas. We even have the trains moving.

A valiant freedom fighter, staunch patriot, efficient manager and outspoken officer, Noorul Quader often worked
late hours and then had meetings with the top brass, where he was known to have argued with his seniors quite
vociferously. In 1974, when he was the senior most civil servant, the maverick that he was could not hold back his
entrepreneurial spirit and he left the regimented government job to pursue his talent in the private sector. He
established the Desh Group in 1974 which he believed could fulfill his dreams of taking his beloved country towards
becoming Golden Bengal by setting an industrial unit allowing him global access and exposure.

Noorul Quader, like many others, was conscious of the transformations taking place in the Global Apparel Industry.
He sensed a tremendous opportunity in the fact that countries like Hong Kong, South Korea, Taiwan, Thailand,
Malaysia, Indonesia and Singapore were not only experiencing quota restrictions but also losing competitiveness
with increasing labor costs and labor shortages. On the other hand, Bangladesh was fortunate to be outside the
purview of the MFA quota restrictions with extremely low labor costs.



5

In this context, he realized the untapped potential of the large female population (comprising nearly 50% of the total
population) who had been cut off from the formal economy due to historical cultural reasons. He reasoned that if
this group could be unleashed, not only the opportunity at hand could be leveraged at low-cost, but the countrys
development that he had dreamt of, would experience a tremendous boost.

However, he was acutely aware of the fact that this industry was largely unchartered territory for him or for his
country. Despite the apparently simple technology of making garments, basically involving cutting and sewing, he
was apprehensive whether the dated garments making technology and the inexperienced Bangladeshi workers would
be able to achieve international competitiveness in terms of productivity and quality assurance.

He also realized the risk in terms of going head to head against the Brand Equity, Market Power & Networks that
large garments companies in those countries had developed. He lacked the marketing skills & networks for
competing effectively in the international arena against the apparel giants dominating these markets. It would,
therefore, be impossible for him to sell garments in the international market without the marketing networks &
expertise of one of the apparel majors / intermediaries. Given this situation, the only way he could be successful was
to forge a partnership with one of the apparel majors who would not only provide him access to the extremely
competitive international apparel markets but also share with him the technology to improve the productivity &
quality of his endeavour.

The patriot and visionary that he was, Quader just could not let go of his dream of somehow putting Bangladesh on
the world map as a success story. When he sensed the new Administration started making moves away from the
socialistic policies of the previous government to market-oriented ones, he realized that his time had come to act in
earnest. He started talking of his plans with the upper echelon of the new Administration; however, his ex-
colleagues in the civil service viewed his latest plans as nothing but delusions of grandeur!

Around the same time, Bangladeshs new President during the late 70s had a vision of developing the small country
through industrialization. He chose to follow the development model of South Korea, which was considered an
Asian Miracle after Japan. Towards this objective, the President saw the importance of underwriting foreign
investments using informal support at the highest level and projected himself as an investor friendly leader.
Quaders visionary thoughts finally caught the attention of the then President as Quaders vision also coincided
with the Presidents own visions which according to him was a pre-requisite for bringing stability via economic
development in the country.

DAEWOOS INTEREST IN BANGLADESH

Given the rising labour shortage and thereby cost in Korea in the late 70s, the South Korean conglomerate and
major garment exporter, Daewoo was looking for a new base to evade garment import quotas that Americans and
Europeans had imposed on Koreans under the MFA regime thereby limiting their export potential. They were in
search of opportunities in nations, which had hardly used their quotas.

Sri Lanka attracted them first. But when the civil war erupted there, the Koreans switched attention to neighboring
Bangladesh, which was also not covered under the quotas. Daewoos calculations were straightforward.
Bangladeshs access to the US and other markets through MFA was an attractive business proposition which would
enable them to market their textile output.



6

However, Daewoo was conscious of the fact that the policy environment prevailing in Bangladesh clearly would not
allow enterprising Bangladeshis to put their ideas into practice, set up garment factories on the scale they planned to,
and compete effectively with foreign competitors who enjoyed a freer business environment. Moreover, given the
precarious economic situation of Bangladesh, Daewoo was not keen on having in financial stakes in Bangladesh in
the form of investments or lending.

THE MIND OF A BUREAUCRAT TURNED ENTREPRENEUR

When Quader heard that Daewoo had displayed interest in Bangladesh, he decided to contact them. During a visit to
France, Quader visited Daewoos Paris branch, and soon afterwards expressed a desire to collaborate with Daewoo
in a new garment venture in Bangladesh. Towards this end, Quader decided to leverage his earlier connections to get
the support of the President, who later took the initiative of linking up Nurul Quader with Kim Woo-Choong, the
chairman of Daewoo. This support assured the South Koreans that unexpected institutional problems would be
dealt with or at least addressed.

As Quader prepared for the negotiations with Daewoo, he realized that more than financial support or engagement
from Daewoo, he needed the South Korean conglomerate to help him with (i) training of hiss managers and workers
(ii) marketing of the companys products in the international market efficient as well as (iii) cost-effective
procurement of raw materials. Moreover, Daewoo would have to provide assistance with start-up of the Factory,
which would be managed by Quader with consultation and supervision provided by Daewoo to oversee quality
assurance in production. He also resolved to procure necessary machinery from Daewoo in Korea so that there
would be no chance of confusion relating to quality of machinery and hence, quality of output at a later stage.

To overcome Daewoos reluctance to invest or lend, Quader decided to collect all his savings and more from his
near relatives and put up the necessary equity capital for acquiring the land for his factory in Chittagong. Quader
was conscious of the fact that the equity invested by him would demonstrate top managements commitment
towards putting in high levels of effort in raising competitiveness rapidly.

As he thought through his negotiation strategy further, the one non-negotiable would be for the South Korean
multinational to ensure technology transfer of what appeared to be a fairly simple, labour intensive technology.
Quader knew that this was what would make or break this venture and insisted that Daewoo advanced the cost of
hosting and training a critical number of Desh workers, supervisors and managers at Daewoos state-of-the-art plant
in Busan. This advance would effectively be a loan that would be repaid in the form of royalty of 3% of sales for the
technical training and another 5% of sales for marketing. This modality, in his opinion, would ensure effective
technology transfer since Daewoo interests would be adversely impacted if technology transfer was inadequate and
impact quality & productivity of production. All investments in machinery, salaries and the project costs in
Bangladesh were covered by Quader.

The fact that a retired civil servant from Bangladesh could sit across the table with a global multinational and not
only offer credible equity but also shrewdly negotiate with such dexterity on the crucial aspects of the business and
how to set-up a collaborative venture impressed Daewoo and they agreed to his proposal.

BIRTH OF DESH GARMENTS

Desh Garments was thus formed in 1979 as the first hundred percent export-oriented company which then signed a
collaboration agreement with South Korean conglomerate and major garment exporter, Daewoo Corporation of


7

South Korea to set up the first non-equity joint venture in the garment industry. Daewoo signed a five-year
collaboration agreement with the Desh Garments Ltd. of Bangladesh, under which Daewoo would provide:

(i) 6 months of training for 130 Desh employees in Korea;
(ii) assistance in start-up activities, including the installation of machinery purchased from Daewoo;
(iii) direct transfer of knowledge & skills in areas of sourcing raw materials and access to inputs like
fabrics at world market prices;
(iv) product quality assurance through production line supervision and quality inspection supervision of
production managed by Desh, and
(v) Marketing know-how and access to established marketing network of Daewoo.

In return, Desh would pay royalties and sales commissions to Daewoo in return, amounting to 8 percent of sales
value. According to the agreement, a technical know-how fee at 2.5 % and a technical assistance fee at 1% were
paid for 2 years and 1 year respectively.

Quader immediately set to work by recruiting workers and providing them impressive designations, appointment
letters, attractive salaries almost unheard of at that point of time! As one senior HR professional put it, His HR
policies were extremely progressive and far ahead of its time. A noteworthy feature of this recruitment was that 14
trainees were women. Muslim tradition had precluded females from working in factories in Bangladesh. However,
Quader had been so impressed by the efficiency and sheer numbers of women at Daewoo and other garment
factories in Korea that he persuaded the Bangladesh government to support female trainees and obtained the
necessary permissions from parents and spouses.

Since there was no real experience of shirt production for export in Bangladesh, the newly recruited 130
Bangladeshi garment workers including women as well as marketing and other management staff were immediately
sent off for training in Daewoos state-of-the-art facility in Pusan, Korea. They stayed there for seven months and
received very intensive on-the-job training covering not only technical production skills but various aspects of
management and marketing. Much of the training was practical where trainees worked on actual export production
lines. Then, under the supervision of their Korean trainers, Desh workers set up assembly-lines at Daewoos facility
initially to produce uniforms for Daewoos workers and subsequently to execute some of Daewoos export orders.
Toward the end of their training, Desh workers were able to produce at an impressive rate of about three shirts per
minute from a single production line !

This cohort of Desh employees had garnered in-depth exposure to how a highly successful multi-national company
operated in competitive export markets. They brought back with them not simply a set of valuable technical
knowledge related to production and marketing but an appreciation of the corporate culture required for success in
export markets such as the critical importance of meeting order deadlines, attention to minute quality details all of
which were alien to the general workforce at that time.

In December 1979, the 130 Desh workers trained by Daewoo in the Republic of Korea returned to Bangladesh,
along with three Daewoo engineers assigned to assist start-up activities to set up Deshs factory in Chittagong a
location strategically chosen for its proximity to the port through which the bulk of the Raw Materials & the
Finished Goods would pass. When the construction of the factory was complete in 1980, Desh had the largest
garment factory in Bangladesh with 450 machines and 500 workers.




8

DARK CLOUDS GATHER

With the factory nearly commissioned, Quader sat on the balcony of his residence on a moonlit night and relaxed.
For the first time in many years, he felt closer than ever to realizing his dream of making Bangladesh stand up with
its head held up high amongst the league of nations as a respected industrialized country. His mind wandered back
to the dinner he had attended just a few a days back attended by his friends in the Government who were
congratulating him profusely for having accomplished a miracle. He felt pleased with himself. But he was concerned
with a comment made by a friend who had looked at him enquiringly while congratulating him and had politely
commented, Hope you have figured out how to manage the Government ! With so many friends in the
Government and his years of service in the Government, he was absolutely sure that managing the Government
would be the least of his problems. With that thought in mind, he decided to go to bed.

Next morning, during breakfast, Noorul Quader realized that while he had ensured entry into the international
markets via his agreement with Daewoo, he may have overlooked the critical need for speedy and easy access to
inputs at world market prices as well as access to import financing at competitive rates. Since this involved
importing all the fabrics and accessories, he needed steady and easy access to necessary foreign exchange for
importing fabrics and accessories for his export-based garments production.

Quader, therefore, decided to drop by into the office of his friend who had made the disconcerting remark for a cup
of tea. After the initial greetings and chit chat, Quader asked him what was at the back of his mind that prompted his
intriguing statement the other evening. The friend almost sheepishly replied, Jhilu Bhai (Quaders nickname), are
you aware of the precarious Foreign Exchange Reserves of the country ? We have just about enough Foreign
Exchange to finance 5 weeks worth of imports ! And you will need Foreign Exchange for importing the Raw
Materials for your Factory ! Quader, who was not used to being caught unawares, was suddenly taken aback by the
statistic. He had been aware of the Foreign Exchange constraints of the country. But he had never really thought of it
as major bottleneck for his project. The optimistic person that he was brushed aside his friends comments and
responded Dont worry. I will sort it out with Bangladesh Bank !

However, when he met his friends in senior positions at the Central Bank, he was aghast to find out that the country
was reeling under pressure on how to finance much needed food grains for the country. There was absolutely no
way that scarce Foreign Exchange could be committed for such export based ventures ! A rise in import bill for the
country would have disastrous repercussions on the Balance of Payment for the country with serious socio-economic
consequences in a country still struggling to recover from the aftermath of the War of Independence. As he
approached his ex-colleagues in the Administration for solutions to his problems, it dawned on him that the policy
and bureaucratic environment in the country was clearly not conducive for allowing enterprising Bangladeshis to put
their ideas into practice and compete effectively with foreign competitors who enjoyed a freer business environment.
There was just too much skepticism about the intent of the private business or entrepreneurs.

On yet another front, Quader was busy trying to figure out how to release his machinery as well as imported fabrics
and accessories from the Customs authorities. He was appalled by the complex customs duty structures. As per the
DEDO process in place, an exporter had to pay for duties on imported raw materials to release the goods for
manufacturing. After exporting the manufactured goods, the manufacturer had to apply for refund of duty paid at
import stage along with intricate details which was invariably questioned by Customs Officials making it almost
impossible to recover the import duty paid without kick backs! In the process, huge Working Capital would be
blocked. Quader wondered how would he ever be able to claim and recover the duty he was required to pay for
imported inputs which was such an integral part of his financials. In light of the complexity, kick backs were


9

expected at every stage. While he could easily use his contacts from time to time to overcome this issue, this would
be a major bottleneck in the fast moving world of Global Apparel Industry where styles changed every season and
delaying any order due to whatever reason including clearance of imported material would be like committing hara
kiri or suicide!

Suddenly the dark clouds started to gather and Quader wondered whether he had committed a major mistake in
risking his entire lifes savings as well as that of his near and dear ones on this risky venture he had embarked upon.
It occurred to him how little Daewoo had to lose since they had not taken any financial stake in the business. At best
they would lose some orders, credibility and hence some market share Global Apparel Industry.

TURNING ADVERSITY INTO OPPORTUNITY

Quader could not sleep the entire night. He was convinced that if he had a viable and transparent solution to his
problems he could convince his ex-colleagues who were at the helm of affairs in the Government to make necessary
policy changes. He was especially optimistic in view of the investor friendly Presidents backing for the Desh
project.

Next he called for a meeting with the resident Daewoo representatives and his own management staff trying to
figure out a solution. After he explained the precarious situation he had landed himself & the project in, Quader was
relieved to discover that Daewoo had initially experienced similar problems in South Korea as well which might be
resolved via government policy innovations.

Bonded Warehouse Facilities

The Daewoo representative along with members of his own Management staff who had received training in Korea
explained the Customs Duty issue in Korea had been resolved in Korea via the Bonded Warehouse Facilities which
allowed complex customs duties on imported inputs to be avoided.

Under the Bonded Warehouse arrangement, the imported inputs could be cleared through Customs against export
orders without paying any import duty. This ensured that the export-oriented RMG units could access imported
inputs at zero-tariff ! This allowed the industry to circumvent the nightmare involved with paying the duty upfront
and later putting in claims on those taxes via the cumbersome DEDO process to get it refunded post export.

The Bonded Warehouse arrangement also meant that :

i. The imported goods could be stored in Bonded Warehouse maintained by Port Trust and Custom authorities and
located near the port till the importer was able to arrange for the payment of import duty in parts to clear partial
consignments. This obviated the need for importers to pay entire custom duties in one go on imported raw materials
consignment upon arrival thereby unlocking huge Working Capital. Moreover, the importers would not have to
invest in their own godowns.
ii. It would facilitate re-export of goods without much financial expenditure because the imported goods meant for
re-export would be kept in the warehouse.
iii. Goods kept in bonded warehouse could be used as collateral security for bank loan.
iv. Goods kept in bonded warehouse would be safe and free from the fear of being stolen or damaged.




10

Back-to-back L/C

However, the Foreign Exchange criticality remained unresolved. While debating with his team on ways to overcome
this obstacle, Quader then came up with the concept of Back-to-back L/C which would allow Bangladeshi producers
to borrow from local banks to finance their imports of raw materials using their export orders as collateral a novel
idea indeed !

Under the back-to-back letters of credit (L/C) scheme extended by commercial banks, the RMG exporters would be
able to open L/C in a local bank for the import of inputs against the export orders placed in their favor by the off-
shore apparel importers (master L/C). Thus, by showing the export order, firms would be able to get credit to pay for
imported inputs. At the time of payment for the final good, the cost of the imported items along with interest and
other charges would be deducted by the local bank from the proceeds. The banks would accept this system as their
risk would be rather limited if the documents were good and could earn a good profit on the entire transactions.
Hence, manufacturers were spared the financial involvement in the purchase of imported inputs especially that of
scarce foreign exchange, and the financial outlay for apparel manufacturing would be reduced to wages, energy,
transport, and other overhead costs only.

The innovation of the back-to-back L/C system would eliminate the need for cash in scarce foreign exchange for
working capital and the need for foreign exchange in the RMG industry. This would allow the entrepreneurs to set-
up factories with low capital investment and thus allow rapid growth of the industry. As consequence, this policy
would ensure net foreign exchange earnings for the country.

Quader realized the gold mine he had stumbled upon through this brain storming session with the team. If he
could drive through the necessary policy innovations with the Administration, he would not only successfully
resolve the Foreign Exchange problem but also solve his Working Capital requirements since this would entail
doing business mostly on credit with only local expenses incurred on a recurring basis.

With Quaders excellent network in the Government circuit especially the Presidents backing and exceptional
tenacity to drive towards his Vision of making a difference for his country, the government agreed to introduce the
Bonded Warehouse system for such export oriented factories. First, the government introduced the system of bonded
warehouses, through which firms could delay the payment of tariffs until they were ready to consume inputs
imported earlier; and if the inputs are used for producing exports, they were not required to pay the tariff. Later, the
government modified import policy regime for 100 percent export oriented garments industries to provide them with
the scope of bonded warehouse facility instead of duty drawback system. The policy modification permitted 100
percent export oriented RMG establishments to import fabrics, accessories at ease in duty free environment. This
policy modification added extra edge towards the industrys competitiveness as it readily removed the bottleneck.

More importantly, the government unable to provide any import financing facility in light of the foreign exchange
crisis, allowed local banks to open back-to-back import letters of credit (L/Cs) based on garment exporters' export
L/Cs under the system of strict foreign exchange controls.

The Bonded Warehouse system and the Back-to-Back Letter of Credit system became the back bone of the financial
structure of the RMG industry, without which RMG would have never taken off in Bangladesh and gave a
tremendous impetus to the export scenario of Bangladesh.




11

THE DESH JOURNEY BEGINS

In April of 1980, armed with the policy innovations in the making, Noorul Quader watched as his brand-new
factory, Desh Garments Ltd. produced its first shirts with 500 employees and 450 machines. Quader's machines kept
humming the rest of 1980, producing 43,000 shirts in his first year of operation. A factory that produced this many
shirts, exported goods worth $ 55,500. It initially exported mens shirts and subsequently diversified into other
woven items, such as trousers and womens blouses. This was the beginning of a relatively small Bangladeshi firm
led by a motivated investor who clearly had the capability to motivate his team of enthusiastic middle managers.

Daewoo received orders from large retailers in the USA and Europe through its worldwide marketing network.
Following that, the orders were produced in Desh garments in Bangladesh and shipped to their destinations.

Business was great for Desh after production started in April 1980 and Quader cancelled the collaboration with
Daewoo by June 30, 1981. Production increased from 43,000 shirts in 1980 to 2.3 million in 1987. The end result of
the association of Desh-Daewoo was important. In the first six years of its business, i.e. 1980/81-86/87, Desh export
value increased at an annual average rate of 90%, reaching more than $5 million in 1986/87.

Of the 130 Desh employees trained by Daewoo, 115 of them left Desh during the 1980s along with the policy
innovations that Quader had spear headed to set up their own garment export firms thereby starting the RMG
revolution in Bangladesh. While Quader was initially sad & disturbed to witness this exodus, he was quick enough
to recognize that this was yet another step forward to the realization of his Vision for his country !

In Quaders words, Within a year the collaboration succeeded in transferring a large part of the tacit knowledge
required to actually produce garments using modern production techniques. The Bangladesh garments industry
would not have succeeded if it had simply produced garments using existing capabilities under the protective barrier
created by the MFA. The latter may have allowed Bangladesh to be successful up to a point, but the removal of
MFA would have resulted in the collapse of the industry.