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Business analysis of Readymade

Garments industry in context of


Complex Strategic environment of
Bangladesh

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ABSTRUCT
This paper reveals the linkage between the strategic factors of Ready Made Garments and
Bangladesh itself. In order to analyze business and competitive positions of RMG and
Bangladesh, analysis of Bangladeshs situation as whole is being described and analysis of RMG
sector follows that as a supplementary analysis of each other. SWOT analysis, Porters five forces
and porters diamond has given highest priority for the sake of simple analysis of this complex
factor.
An operational business model for RMG sector has been established in the initial part of this
paper. In a later part of this paper, nine competitive forces has been established after the
discussion of the PEST analysis and the Porters Five forces analysis of the RMG industry ob
Bangladesh.
Before we dive on this paper, we must recall that lower cost of labor force is the main
competitive factor for strategy formulation of Bangladeshs business. So, this factor will have a
higher priority in the discussion of this paper. This paper starts its discussion by discussing what
a business model is, and what is strategy for the better understanding of strategic and competitive
factors of Bangladesh. This paper concludes with some recommendations preceded by
establishing Porters Diamond analysis for the RMG industry of Bangladesh.

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Table of Contents
Introduction................................................................................................................ 2
Bangladesh's Ready-Made Garments Industry...........................................................3
OPERATING MODEL FRAMEWORK OF RMG INDUSTRY OF BANGLADES.......................5
Bangladesh garment industry aims for fast growth.................................................6
INDUSTRY ANALYSIS................................................................................................... 8
PEST Analysis of Bangladesh Business environment..................................................9
PEST ANALYSIS FOR RMG INDUSTRY OF BANGLADESH.............................................14
PORTERS FIVE FORCES ANALYSIS FOR RMG INDUSTRY..........................................17
THE NINE FORCES IN BRIEF...................................................................................... 22
SWOT Analysis of BD Business Environment:...........................................................23
A SWOT Analysis on Readymade Garment Industry in Bangladesh..........................30
SWOT ANALYSIS OF RMG INDUSTRY IN BRIEF:.......................................................34
Porters Diamond Model analysis for RMG Industry:.................................................37
Concluding remarks and recommendations:............................................................38
References................................................................................................................ 39

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Introduction
Bangladesh has been witnessing tremendous industrial growth across its industrial sector, textile
and apparel have especially dragged the focus of government bodies and private investors. Vast
availability of lowest manpower, one of the most competitive energy costs and a proven track
record in apparel production and exports have positioned Bangladesh as a regional apparel
industry development hub in the Asian continent. In context of fast increase in labor wages and
raw material prices in other major regional counterparts, such as China, India, Thailand etc,
Bangladesh is well poised to remain most preferred destination for international apparel majors
for sourcing world class fabric and finished clothes.
According to this report, Bangladesh Apparel Industry Analysis, Bangladesh apparel industry has
grown manifold in the last decade. The country's recognition as low cost-high quality apparel
production base resulted in apparel production boom. Both small- and large-sized firms are
booking huge orders from the US and EU buyers and expanding their production capacities. The
study revealed that factors including new plant setups, capacity expansion in existing ones,
technological up-gradation coupled with government favorable policies will enable apparel
production to grow at an unmatched CAGR of 14.3% during FY 2011-FY 2014.
But Bangladeshs RMG industry requires better and improved RMG competitive business
analysis with a mixture of competitive analysis of Bangladesh. This paper reveals the
competitive and business analysis of RMG industry of Bangladesh along with the competitive
forces of Bangladeshs own.

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Bangladesh's

Ready-Made

Garments

Industry
The Ready-Made Garments (RMG) industry contributes to the Bangladesh economy in a
distinctive manner. The last 20 years witnessed unparalleled growth in this sector, which is
also the largest exporting industry in Bangladesh. It has attained a high profile in terms of
foreign exchange earnings, exports, industrialization and contribution to GDP within a
short span of time. The industry plays a significant role in terms of employment generation.
Nearly two million workers are directly and more than ten million inhabitants are indirectly
associated with the industry. In addition to its economic contribution, the expansion of
RMG industry has caused noticeable changes by bringing more than 1.12 million women
into the workforce. Hence it is quite apparent that this sector has played a massive role in
the economic development of the country.
RMGs contribution in terms of GDP is highly remarkable; it has reached 13 percent of
GDP which was only about 3 percent in 1991. It also plays a pivotal role to promote the
development of other key sectors of the economy like banking, insurance, shipping, hotel,
tourism, road transportation, railway container services, etc.
One of the key advantages of the RMG industry is its cheap labor force, which provides a
competitive edge over its competitors. The sector has created employment opportunities for
about two million people of which 70 percent are women who mostly come from rural
areas. Thus the industry helps in the countrys social development, women empowerment
and poverty alleviation.
Currently RMG earns the lion's share of foreign exchange earnings.

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OPERATING MODEL FRAMEWORK OF RMG


INDUSTRY OF BANGLADES

t customer with cheaper RMG products


ucing in cheaper cost using lower cost of labors and selling RMG products in a competiti

mers: Mainly
Offering:
USA and
RMG
Reach:
EU
Product
countries
Bricks
in cheaper
and mortar
Pricing
cost.
+Strategy:Competitive
Bricks
Unique
and Clicks
Resource:
Pricing
Cheaper Human Capital

Unique return which places Bangladesh in a high

Competitive pricing is the unique revenue strategy

Unique competitive advantage on cost of labor

EPZ manufacturing and lower cost of energy


Figure: Operational Business Model OF
Bangladeshi RMG manufacturers.
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Bangladesh garment industry aims for fast


growth
Despite recent, highly publicized wage protests, Bangladesh's apparel industry says it is
gearing up for high speed growth in the New Year, fuelled by new EU GSP rules, new
export markets and government support.According to the Bank, the country's financial
sector regulator, from July to September 2010, exports of woven garments increased by
30% in value terms, while exports of knitwear increased by 31.91% in value terms,
compared to the same period 2009. Exports in the last quarter of 2010 are also expected to
show growth.

New markets
While the bulk of exports are still shipped to the EU followed by the US, the made-inBangladesh label is also slowly going to new places.
During the recession in 2008, the government gave a bailout package on condition that the
industry develops new markets and new products. By now, the industry has started
exporting to new markets like Japan, Russia, Saudi Arabia and Australia. These exports are
still small but there is potential for growth, because our garment industry is very
competitive.
Talks are also on the cards with big neighbor India - to build on the current duty-free quota
of 8m pieces of garments annually, from Bangladesh into India. In 2009, this huge industry,
which provides livelihoods for around 4m people directly and indirectly, accounted for
77% of total country exports at US$12.49bn. Meanwhile, in 2009, the World Trade
Organization listed Bangladesh as the fifth largest clothing exporter to the world, behind
China, the EU, Turkey and India.

Growing EUwards
While the clothing dependent, least developed country does not have preferential access
into the US, the EU is expected to be more accessible from 2011.
We do not get any duty-free access into the US for garments. In some cases they charge us
higher duties than what they charge developed countries like France. We are doing well in
the US because our garment industry is highly competitive. The industry is also expecting
growth in the EU with the new GSP rules.

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Industry sources say that from 1 January 2011, under new EU GSP rules of origin, more
Bangladeshi apparel will qualify for duty-free entry into Europe.
"We have not tested the new system yet, but we are expecting exports to the EU to increase
with the new EU GSP rules," says Mr Annisul Huq, chairman of the Mohammadi Group of
companies, one of the largest apparel manufacturing groups in Bangladesh and a former
president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Under these new GSP rules, the fabric can come from anywhere in the world, to qualify for
duty-free. Because we import a lot of fabric, this will make a lot more garments eligible for
duty-free status.

Government support
Meanwhile, the Bangladeshi government has also started addressing back-end bottlenecks
to apparel industry growth.
For instance, work on gas transmission lines has started in order to increase the supply of
gas for electricity generation over the next few years. Electricity interruptions are an
immediate hold-up to industry growth.
Another speed bump, labour unrest, is also being targeted. The aim is industry stability and
gradual transition to higher value output. Because there is such a massive workforce in the
sector, labour unrest can interrupt growth. So the government is implementing many
welfare schemes and participatory decision making mechanisms for garment workers, to
ensure labour stability in the sector,
The industry has already started shifting into little more high value, higher return areas.
There has been a lot of technology and skill upgrading happening. Government and
industry representatives say Bangladesh is aiming to become the leading manufacturing
destination for apparel over the next decade

INDUSTRY ANALYSIS
The Readymade Garment (RMG) industry of Bangladesh marked the leadership of private
enterprise and the countrys successful transition to a major export-oriented economy. The
key products of this industry are Knit and Woven Shirts and Blouses, Trousers, Skirts,
Shorts, Jackets, Sweaters, Sportswear and many more casual and fashion apparels. RMG
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industry has enjoyed an impressive rise from less than 50 factories in 1983 to over 3600 in
2006.
Garments sectors continual success can be attributed to the following:
Quotas under Multi-Fiber Arrangement (MFA) in the North American market
Preferential market access to European markets
The country has a small textile industry, but the volume and quality of its output are unable
to fully meet the demand of the garments industry. Most of Bangladeshs garments exports
are made from imported textiles. RMG exports have grown rapidly after extensive trade
and other economic reforms were undertaken in the early 1990s. Exports increased by 16.5
percent per year during the past one and half decade. Knitwear sector has performed
particularly well over time. The sectors share in total RMG exports has grown from about
17 percent in 1995 to almost 40 percent in 2003. In context of Bangladeshs total export,
RMGs contribution is approximately 76%. Excepting 2002, the industry has developed
rapidly with significant positive growth. Over the years, it has experienced around 18%
growth rate

PEST Analysis of Bangladesh Business


environment
The PEST analysis is a useful tool for understanding market growth or decline, and as such the
position, potential and direction for a business. A PEST analysis is a business measurement tool.
PEST is an acronym for Political, Economic, Social and Technological factors, which are used
to assess the market for a business or organizational unit.
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Here PEST Analysis is done for evaluating the business environment of Bangladesh focusing
complexities and potentiality-

Tech
nolo
gical

Socia
l

PEST
of BD Business
Environment

Economi
c

Politi
cal
Figure: Pest analysis for Bangladesh Business Environment

Political Environment of Bangladesh:


The political system of Bangladesh is followed by representative democracy. Despite being a
democratic country the safeguards of democracy are not being exercised properly which have
negative impact on business operation. Political unrest is almost a daily occurrence in
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Bangladesh which hinders the daily national and international trading system of the country.
Foreign firms are feared to come in Bangladesh with FDI. Bangladesh is a democratic country in
name but not in action.
The following biased democracy safeguards are some of the main hindrances of international
business in Bangladesh.
Individual right to freedom of expression, opinion and organization are restricted.
Media are more or less biased to the current government.
There is more or less regular election sometimes major parties avoid election.
There are often face to face clashes among the leading political parties.
Despite being the court system is independent most of the times its functions are directed
by current government.
Corrupted political state bureaucracy
Corrupted political police and armed force.
This situation does not support entrepreneurship thats why it can not make a man innovative.
Thats why local business can not be strong. To be competitive in international business such
political system and government is failing to make local business more efficient and more
effective. Thats why Bangladesh is lagging behind in international business competition.
Since that time Bangladesh is facing huge challenges, including a political and economic, serious
poverty problems as one of the world's poorest countries, annual floods on its low-lying coasts,
power shortages and rampant corruption. However, some recent political and economic
developments are encouraging. The economy grew 6.5% during the 2007 fiscal year, following a
growth rate of 6.6% in 2006. According to the World Economic Forum Global Competitiveness
Report 2007-2008, corruption is seemed to be the greatest problem by companies facing
economic development and doing business in Bangladesh. Most of the leaders of the leading
political parties are highly corrupted. The leading parties are dominated mostly by the family
members of the chairperson of the parties.

Economical Environment of Bangladesh:

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The economic system of Bangladesh is characterized by mixed economy in Bangladesh certain


sectors of the economy are left to private ownership and free market mechanism while other
sectors have significant state ownership and government planning. Once there was a large state
sector in Bangladesh but recent tend to privatization has reduced state ownership of various
businesses. Some of the recent privatized sectors are airlines, banking, customs etc. this tend to
privatization is creating a favorable atmosphere for international business. As foreign firms can
invest in the privatized sector there will be a positive impact on the economy of Bangladesh.

Social Environment of Bangladesh:


Social value consists of social custom, practice, religion and social moral standard. Social value
shows the moral standard of ours. Without social values we cannot grow up as a complete social
man. In the past social values were more conservative, rigid and strong. We all know that
Bangladesh is a conservative Muslim country. People used to live a more religious. The young
were more respectful to the old and superior. Smoking in front of the superior was forbidden.
People used to believe in joint families. But now people are getting more and more liberal. They
follow religion in a more relaxed way. Men and women now mix frequently. Our social values
are changing fast. There is a clear western influence on our culture and values. Many people now
accept western values. The causes of the present social values are satellite, television,
globalization, free exchanges among the nations and free trade. There are certain effects of our
social values. People now abide by religion in a more relaxed way. Women are now playing a
more important role in different parts of our society. As western music, culture, and modes of life
are getting more and more familiar with us, our social values are also getting westernized. People
now prefer living in a small family. There are frequent exchanges among different communities
in our society. Our social values reflect our moral standard, culture and tradition. We should be
more alert to maintain these values. If we lose our values, we will have no individual identity as
a nation. Our social values show our identity.
Bangladesh is noted for the remarkable ethnic and cultural homogeneity of its population. Over
98 percent of its people are Bengalis; the remainder is Biharis, or non-Bengali Muslims, and
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indigenous tribal peoples. Bangladeshis are particularly proud of their rich cultural and linguistic
heritage because their independent nation is partially the result of a powerful movement to
uphold and preserve their language and culture. Bangladeshis identify themselves closely with
Bangla, their national language.

Technological Environment of Bangladesh:


The need for faster technological development is increasingly felt in Bangladesh. Development
plans of Bangladesh have emphasized science and technological research to develop
technologies through adoption of imported technology as well as development of indigenous
technologies. As the country is heavily dependent on imported technologies, proper planning is
required for its

effective

transfer through

acquisition, assimilation and adoption.

A National Science and Technology Policy has been formulated and adopted by the Government.
It has laid down the directions for S and T activities and research, institutional and manpower
development. Dissemination and documentation facilities. The National Council for Science and
Technology (NCST) determines S and T policies, reviews the activities of different institutions
and provides direction towards S and T research and activities.
Technology dimension plays an important role in enhancing the development activities and
growth of Bangladesh business environment potentiality. The application of new technologies,
particularly computers and software applications, has been a major factor driving productivity
growth in recent decades. It is observed that information and communication technologies (ICT)
development is running rapidly. Basically, at this moment the business people are much more
aware about technology because they know technology can enhance their operation. ICT is seen
as an umbrella term for a range of technological applications such as computer hardware and
software, digital broadcast technologies such as radio and television, telecommunications
technologies such as mobile phones, and electronic information resources such as the world-wide
web.
The present government has recognized IT as one of the priority sectors and is providing all
support to the private sector to enable them to enter the export market for software and data
processing services. Recognizing the bright future of IT, a large number of students, young
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professionals and businessmen are taking keen interest in acquiring knowledge about computers
and its applications. This is reflected in the tremendous enthusiasm generated in the on-going
International Computer Show organized by Bangladesh Computer Samity. It is expected that
within the next 3 to 4 years, IT applications in Bangladesh would not only spread to various
private and public sector offices and industrial units, but Bangladesh would emerge as a regional
hub for software development.

PEST ANALYSIS FOR RMG INDUSTRY OF


BANGLADESH
A PEST Analysis can help us to know about the external environment situation of a particular
industry of a country. The below analysis is the PEST analysis for the RMG industry of
Bangladesh.

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Political analysis:
Among various features of our political situation, most noticeableand important conditions may
be identified as follows

Absence of democratic political culture


Absence the rule of law
Absence of strong civil society
Absence of strong political leadership
Confrontational politics
Corruption and terrorism
Negativity/Double standard despite of many drawbacks, our government has taken some
positive initiatives in favor of foreign investors. There are no distinctions between foreign
and domestic private investors regarding investment incentives or export and import
policies. Incentives for investors include - 100% ownership in most sectors, tax holidays,
reduced import duties on capital machinery and spares, 100% duty-free imports and tax

exemptions.
Government policies for Foreign Investments: The stated policy of the government of
Bangladesh (BDG) is to pursue foreign investment actively, and it has enacted a number of
policies to this end. There are no distinctions between foreign and domestic private investors
regarding investment incentives or export and import policies. Incentives for investors
include: 100% ownership in most sectors; tax holidays; reduced import duties on capital
machinery and spares; duty-free imports for 100% exporters; and tax exemptions.

Economic analysis:
The economy of Bangladesh RMG environment constituted by that of a developing country. Its
per capita income in 2010 was est. US$1,500 (adjusted by purchasing power parity) significantly
lower than India, Pakistan, both which are also lower than the world average of
$10,497.According to the gradation by the International Monetary Fund, Bangladesh ranked as
the 48th largest economy in the world in 2010, with a gross domestic product of US$224.889
billion. The economy has grown at the rate of 6-7% p.a. over the past few years. More than half
of the GDP belongs to the service sector; nearly half of Bangladeshis are employed in the
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agriculture sector, with RMG, fish, vegetables, leather and leather goods, ceramics, rice as other
important produce. The inflation rate in Bangladesh was last reported at 10.2 percent in May of
2011. The Deposit interest rate (%) in Bangladesh was reported at 9.65 in 2008, according to the
World Bank. Bangladesh is considered as a developing economy because of the GDP growth
above 5% during the last few years. Microcredit has been a major driver of economic
development in Bangladesh.
Bangladesh Corporate Tax Rates
The standard rate of corporate tax in Bangladesh is 27.5% in 2008 - 2009 tax years. This is the
standard corporate tax rate applicable to publicly traded companies in Bangladesh, a list
including tax rates for other corporations are as follows:
Publicly Traded Company

27.5%

Non-publicly Traded Company

37.5%

Bank, Insurance & Financial Company

45%

Mobile Phone Operator Company

45%

If any publicly traded company declares more than 20% dividend, 10% rebate on total tax is
allowed.

Social
Companies are facing the challenges of adapting effectively to the changing environment in the
context of globalization and in particular in the export sector in Bangladesh. Although
Consumer Rights Movement, enforcement of government regulations and a structured view
regarding the economic importance of Social responsibility are not yet so widespread in the
corporate world in Bangladesh, companies have gradually attaching more importance to Social
responsibility in the local market as well. They are increasingly aware that Social responsibility
can be of direct economic value. Companies can contribute to social and environmental
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objectives, through integrating Social responsibility as a strategic investment into their core
business strategy, management instruments and operations. This is an investment, not a cost,
much like quality management. So, business organizations can thereby have an inclusive
financial, commercial and social approach, leading to a long ter m strategy minimizing risks
linked to uncertainty.

Technological
The need for faster technological development is increasingly felt in Bangladesh.
Development plans of Bangladesh have emphasized science and technological research to
develop technologies through adoption of imported technology as well as development of
indigenous technologies. As the country is heavily dependent on imported technologies, proper
planning is required for its

effective

transfer through acquisition,

assimilation

and

adoption. A National Science and Technology Policy has been formulated and adopted by the
Government. It has laid down the directions for S and T activities and research, institutional
and manpower development. Dissemination and documentation facilities. The National
Council for Science and Technology (NCST) determines S and T policies, reviews the
activities of different institutions and provides direction towards S and T research and activities.

PORTERS FIVE FORCES ANALYSIS FOR RMG


INDUSTRY
A. Competitive Rivalry between Existing Players
Bangladesh is the 6th largest apparel and textile supplier in the US & EU market. It is
shaping itself as a potential market player by providing the most quality with the cheapest
price possible.

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Whilst the market is controlled by the bigger players like China and India, the role of
Bangladesh is still important. Among the very few suppliers, Bangladesh imports most of
its raw materials, but utilizes other factors of production to produce in a cheaper manner. It
offers investment friendly atmosphere for the brand names to outsource their production
process in Bangladesh.
Bangladesh is putting up a show against other competitors like China and India. by
providing available cheap labor. It has been facing tremendous growth even after the
alleviation of the quota from the US market. This is due close customer relationship and
quality production. Bangladesh has this advantage against its rivals.
Bangladesh is one of those countries who cannot fulfill its quota provided by the larger
markets. As a result of that, many foreign companies are merging in to use Bangladesh as a
hub to prepare their product by outsourcing in Bangladesh and then gaining entrance to
markets which were previously unavailable to them. Bangladesh is taking advantage of this
and inviting investors, and foreign companies to place orders to attain this facility. It should
focus on placing more orders instead of making its export rates efficient and strong.

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Threat of new
country with
low cost labor
coming into
RMG
production
bargainin
g power
of the Knit
and
cotton
supplier
countries
like china
and India

Competitiv
e rivallry
within the
industry for
getting the
large
buyer's
orders

Bargaining
Power of
the
customers
from the
countries
without
GSP or
qouta
facilities

Threat of the ris


eof synthetic
products, jute or
banana fiber
clothes
Figure: Porters Five forces analysis for Bangladeshs Ready Made Garments Industry

B. Bargaining Power of Suppliers


Bangladesh has always been enjoying the upper hand in ordering its inputs from its
suppliers. Bangladesh has very few input or raw materials of its own. Most of them are
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imported. Although this leads to a problem in reducing the opportunity to initiate backward
linkage, and thus increasing the supplier power, Bangladesh still manages to acquire the
inputs at world price from its suppliers.
But the most importing aspect of Bangladeshs export industry would always be the
enthusiasm and the prospect of growth it provides to the stakeholders in terms of success
and prosperity. Bangladeshs domestic suppliers power is increasing in a slow but steady
manner as more and more local companies are stepping up to the task. They are creating an
integrated system of supply channel management by which the manufacturers work load is
reduced. Companies are more prone to order through local suppliers who themselves apply
to the task of importing raw materials and components necessary for the production
process. And the favorable attitude of the government is also helping this growth. The back
to back LC process was approved by the government to facilitate the growth of the
industry.
Bangladesh has a good reputation in terms of timely payment to the suppliers. This
reputation is helping create a longer term relationship with the suppliers (foreign) and is
also giving the local firms initiative to step into the supply chain. Bangladesh gives the
suppliers a large scale advantage as the industry is quite concentrated in area basis.
A good global reputation is helping Bangladesh match the price with international quoting
with the suppliers both foreign and local ones. Suppliers although having a sort of upper
hand over Bangladesh, also regard Bangladesh as a reliable source of repayment. This
reputation has been helping Bangladesh to ensure prompt supply of raw goods.

C. Bargaining Power of Customers


Bangladeshi manufactures realize that the buyer posses more power than themselves.
Chinas lead and Indias march to the top keep the Bangladeshi manufacturers/ suppliers on
their toes. Bangladesh is providing a large space of choice to the provider in terms of
quality and cost. It is offering the lowest possible production price and also work that is
best in quality. Due to high switching opportunities for the customers, Bangladesh has to

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perform or allow the customers to win in many cases. Bangladesh plans to use costeffectiveness to present itself as the best option to the buyers.
The important factor here is that many of the companies in Bangladesh are either franchises
or subsidiaries. Along with them the local companies are giving Bangladesh a look of the
best outsourcing place of the lot. Many of the reputed companies, brands are outsourcing
their products in Bangladesh as they get the most quality in the cheapest price possible.
Buyers are also interested in the growth aspect of the Bangladeshi suppliers. Bangladesh is
growing as a major player in the textile and apparel industry globally and due to the quota
system it is quite an important player in the field. Bangladesh still has its quota left in the
EU market where countries like China dont have the entry. So, many countries are
planning to use Bangladesh as a hub and buy the service to export under its label. That
gives Bangladesh a comparative advantage against the buyers of its services. And due to
immense quality assurance, Bangladesh is continuing to be the best choice for many buyers
in the industry.

D. Threat of New Entrants


Bangladesh has yet to reach economies of scale in terms of production. Thus it allows
potential entrants to pose a threat to its growth. But again, if we just analyze the growth of
textile and RMG sector, this threat might seem negligible. Textile in Bangladesh is in a
growing stage. Its growing in a rapid pace and is posing itself as an entrant to the more
established players. Thus the threat of new entrants is quite minimal to its concern.
Moreover, new entrants would have to gain an advantage against Bangladesh whose
growth ratio is almost 20% per year even after the MFA. A newer entrant would thus cause
fewer troubles to Bangladesh. The greatest advantage that Bangladesh has right now is its
cheap labor. Cheap labor would continue to be available until the living standards go up.
Till that happens, labors will have low rates in terms wages and keep Bangladesh safe from
any sort of new entrants.
One factor has to be kept in mind that, due to the unstable political scenario in recent years,
investors and foreign firms are reluctant in investing in Bangladesh. Using this opportunity,
countries like Sri Lanka and other small Latin American countries can steal away potential
buyers from Bangladesh.
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E. Threat of Substitutes
Bangladesh, in terms of substitutes, plays both the roles of an affected and an opportunist.
China and India are growing their customer base at a higher pace than Bangladesh. This is
due to poor country branding, and less power to influence customers. Due to these reasons,
customers sometimes prefer China or India to Bangladesh.
More to add, Bangladeshi products are being substituted due to lack of supplier power and
governments reputation. Many firms, buyers, investors are now hesitating to invest in
Bangladesh due to unstable political scenario. Thus the opportunity for Bangladesh is being
substituted to either China or India. Also, the substitute cost is not that high for buyers to
switch to a Chinese producer or even to a Sri Lankan producer.
On the other hand, due to the lower production cost, Bangladesh plays a major role in
substituting the Chinese and Indian manufacturers. This opportunity has to be nurtured by
the Bangladeshi industry to ensure its growth and profitability. Bangladesh posses the
ultimate weapon of cheap labor and thus at times, it has to use it to substitute opportunities
from its competitors.

THE NINE FORCES IN BRIEF

Political
Stability and
change of the
government.
Changes in Tax
structure and

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Political Stability,
Changes in
regulations.
Changes in
International
Regulation

bargaining
power of the
Knit and
cotton
supplier
countries
like china
and India

Engagement of
women in workforce,
Shift of the consumer
choice for clothes.
Consciousness about
CSR

Threat of
new country
with low cost
labor
coming into
RMG
production

Competitiv
e rivallry
within the
industry
for getting
the large
buyer's
orders

Threat of the
ris eof
synthetic
products, jute
or banana
fiber clothes

Innovation in
capital
machineries for
RMG
manufacturing
and import of

Bargaining
Power of
the
customers
from the
countries
without
GSP or
qouta
facilities

Global recession, Tax


rate changes, Increased
Purchasing power.
Changes in lending
facilities, Shifts in labor
cost structure

FIGURE: Nine forces for RMG Industry of Bangladesh

SWOT Analysis of BD Business


Environment:
OVER the last few decades, Bangladesh has been following a development path that was blazed
by the fast growing Asian economies with export led growth fuelling higher living standards and
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falling poverty. Despite this, it is not too difficult to posit that Bangladesh today has more in
common with the laggards in Asia. Slow growth, rising inequality, and a deprived countryside
deny the vast majority of the Bangladeshi people the opportunity to enjoy happier, healthier, and
more prosperous lives.
For moving forward, Bangladesh needs to identify the opportunities and the key weaknesses that
the country faces and adopt appropriate measures. There are many ways of doing this analysis.
One popular method is to list the Strengths, Weaknesses, Opportunities, and Threats (SWOT)
facing the economy and society at large. Although the SWOT analysis is more often applied to
evaluate the competitive position of a company this can also be applied to a country. In particular,
SWOT analysis is forward looking; it is less for the past than for the future. The exercise
identifies areas that need attention or might emerge as problem areas in future. There may be
success in some areas. But does that mean we should continue to do the same or shift gears and
put more emphasis on other issues? The main purpose of conducting a SWOT is to get a sense
of the relevant issues of taking strategic decisions-- of priorities, of possibilities, and of dangers.
This is important to begin a thoughtful discussion; a serious conversation about the priorities that
we should focus on.

Strengths
In terms of strengths, there is no doubt Bangladesh is in a good geographic location. It provides
an important link between the economies of South Asia and the dynamic Southeast Asian region.
Bangladesh sits on strategic trade lanes and Chittagong can emerge as a major port to service the
regional economies. Although Bangladesh is a new nation, it represents an old and flexible
civilization. Both its ecology and history point to the people's hidden resilience in the face of
adversities, with capacity to produce unexpected social renewals and economic recovery. Another
source of its strength is the rapid advance made by the nongovernmental organizations (NGOs)
and other grassroots bodies, creating alternative delivery mechanisms and acting as vocal civic
institutions especially for the poor. This is an important source of 'social entrepreneurialism' and a
channel of vibrant development of many elements in society. The ongoing process of
mainstreaming women into development is a strategic strength to bring wider and deeper social
and economic changes. Gains in increasing political and electoral participation of women,
enhancing press freedom, and creating a vibrant civil society are important for strengthening
democratic institutions and consolidating human rights.
Page | 24

The country's vulnerability to natural disasters has significantly declined that used to inhibit
greater investment flow and reduce its productivity and return in the past. Several important
structural changes have taken place, such as agriculture becoming more resilient with the spread
of dry season irrigated crop production and rapid expansion of non-crop agriculture; nonagricultural sectors assuming greater importance; infrastructure and market developments
contributing to greater spatial integration and lower price effect of exogenous shocks; and higher
mitigation capacity in responding to natural disasters.
Bangladesh has a fairly good and expanding stock of both physical and human capital, and with
favourable policies, the upgrading potential of both capital is bright. The remittances from
overseas workers have already become a great source of strength and this can be increased
manifold with right policies. Relative stability of the country's economic fundamentals has created
a fairly good macroeconomic environment. As one can see, all the above elements represent
significant strengths of the Bangladesh economy.

Weaknesses
One uncomfortable feature is that Bangladesh is one of the few countries where income poverty is
falling slowly even though economic growth has picked up. Even after three decades, most of the
economic sectors (especially agriculture) are still weak; health and education indicators are low.
Infrastructure, while improving, is still poor especially in electricity, having a per capita use
which is among the lowest in the world. Corruption is certainly high. The economic and
administrative cost of securing business is high as well. A feature of both a weakness and a threat
is the rapidly rising inequality in income and wealth, which neither supports economic efficiency
nor social equity. This is socially destabilising as underemployed urban masses and a swelling
rural landless people are much more volatile than a well-rooted community of employed non-farm
workers and landed farmers.
The absolute size of the population, despite success in lowering the growth rate, is increasing fast
that creates tremendous pressure on resources as well as on provision of essential services.
Looking forward, what advantages or opportunities does Bangladesh have? In a sense, many of
the weaknesses that can be remedied are opportunities. If agricultural productivity is low,
investments in irrigation, improved agricultural systems, markets, and infrastructure can raise
production and productivity. If foreign direct investment (FDI) is low, then improvements in
Page | 25

governance, infrastructure, and investment climate can attract more investments. A higher demand
for skilled workers can create an incentive for better training and education. Services sector
development including export of skilled manpower is a real possibility. There is a promising
private sector and the dynamism of this sector, especially in information communication
technology (ICT), can be an important opportunity.
Corruption and waste: A great deal of attention has been placed on corruption in Bangladesh. This
is entirely justified since corruption is a serious problem in the country. Much less attention,
however, has been placed on a related but equally serious problem which is the issue of waste.
Waste occurs when an unnecessary and inappropriate investment is made.
One important difference between corruption and waste is that with waste, there may or may not
be a transfer of resources to a corrupt person but there is certainly a loss to everyone! If a highcost factory were built or equipment procured for its proper cost, with nothing added in
improperly padded costs or commissions, it would still create a loss for Bangladesh and its
people. Higher prices have to be paid to cover the costs of the factory or the services of the
equipment, or it is to be shut down. If it is shut down, there is a huge loss. If it operates, the price
of the product or the service would be higher than it need be. Thus nobody benefits.

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Weak ness
Not inclusive growth
Weak HDI
performance
Poor Infrastructure
Lower percapita
productivity
limited resource
limited physical
capital
Unskilled workers
Corruption

Geographic Location
Strong agricultural
backup
Rapid development by
NGO and private
organizations
Economic Reform
Remittances from
overseas
mainstearming Women
Large Human capital

Strengths

SWOT

Banglades
h

Opportunities

Global Financial Crisis


Lower FDI growth
Higher skilled foreign
workers
Regulations og
international
organizations
Rise of the
Neighbouring
countries
World political unrest

Declining vulnarability to
natural diasters
Comparatively Lower cost
of capital
Young labor force in
cheaper cost for the
world market
Sharing the growth of
neighbouring countries.
Global Recession
Unpenetrated markets

Threats

Figure: SWOT Analysis of Bangladeshs Business environment


When waste and corruption are combined, those who profit from a bad project derive benefit but
society still loses. Corruption must be fought, but we must remember that it exists in all societies.
Page | 27

Waste is easier to avoid if there is a serious review of public investments and limited protection,
subsidies, or guarantees to private projects. As there are large losses from bad project selection, a
nation genuinely concerned with growth and stability will try to ensure that public investments
are well chosen.
For selecting appropriate project, an effective review of the economic feasibility of the project is
essential. While this no doubt may involve some extra cost, it is much less costly than the 'free'
feasibility studies provided by potential contractors or financiers who stand to benefit if the
project is built. Such free feasibility studies examine what kind of project should be built rather
than if it is sensible to build the project. These studies are often a rich source of technical data but
a poor and weak guide to underlying economics of the project. Bangladesh must manage to
insulate investment choices from corruption; we should build what should be built at about the
right cost, rather than what should not be built at a wildly inflated cost. We must also avoid wildly
inflated costs even on well-chosen projects.

Opportunities and threats:


Ironically enough, opportunities can turn into potential threats. In the past, Bangladesh achieved a
slow progress in poverty reduction. In the future, improper management of development may
accentuate poverty and inequality leading to social instability. The threat is that governance would
become worse and economic decisions would further concentrate wealth, fund capital flight, and
increase social tensions. The efficiency in use of resources, and a political strategy for stability,
equity, and growth is of greater priority in the coming years than it is now. Several other
developments also threaten to undermine the socio-political stability and future economic
progress, such as the challenge to ensuring good governance and stable law and order situation,
reducing corruption and ensuring political stability, and adverse global developments including
terrorism and sharp increase in commodity prices in the global market.
What of other threats? The loss or reduction in garment exports is one such possibility. Building
up a real competitive advantage by lowering port and other transport costs and informal charges
and bringing in more efficiency in garments production is the best and only response. Similarly,
any development that adversely affects the healthy growth of remittances will create a serious
threat to economic and social progress.

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It is very hard to improve the quality of education and skills within a short time, just as it is hard
to provide good health services. The failure to enhance the supply of quality education and good
health is likely to create another threat. For the majority with poor education, the prospects for
earning a decent income to move and stay out of poverty are not good. For them, indeed jobs will
remain insecure and low paying. To help the growing number of young workers find decent jobs,
to increase competitiveness, and to improve poverty situation, finding a way to improve critical
services, including quality education and health services, is necessary. Perhaps, at this stage, we
can put these general points together into a comprehensive format as in Table 1 and Table II
various elements; but it is a beginning to visualising the overall situation.
Policy implications and interactions: As we have done, it is useful to list all elements but like a
good recipe a well-functioning economy or society requires the proper mixture and sequencing of
policies to be just right. Furthermore, the outcomes (e.g. high poverty) are distinct from and rely
upon the causes (e.g. lack of decent employment, poor health and education, high corruption) that
contribute to them. Of course, poor health and education and rising corruption create many other
ills in society. Thus getting the causality clear, which can and often does flow in both directions,
helps to understand the importance of combination of different policies. Rather than trying to do
everything equally all at once, it helps to have a sense of priority. Putting the prioritised elements
together in a mutually supportive and logical package creates a strategy. The desirable outcome of
a SWOT should be a strategic plan to address the challenges.
Moreover, there is also the question of feasibility and timing. Lowering corruption is an excellent
idea, but this requires a complicated set of policies and building institutions that take effect only
over time. Raising educational quality (as opposed to coverage) requires training of teachers,
developing curricula that fit current circumstances, providing better incentives, improving
supervision and management, and other measures that can take several years.
A further element concerns the urgency or pace of change of negative or positive developments. Is
income inequality rising very fast? That would suggest moving aggressively to deal with it. Is the
garment industry in need of sizeable cost reductions in transport and port charges? This too could
be dealt quickly through increasing efficiency and improving management, so that more of the
existing base can be preserved and expanded in future. Thus, by identifying the key issues and

Page | 29

establishing their relation with each other, a degree of clarity is possible that helps to make one
clear about priorities and the time a policy will take to bring the outcomes.

A SWOT Analysis on Readymade


Garment Industry in Bangladesh
RMG is the leading industry in Bangladesh. It is basically a labor-intensive industry and it needs
limited financial investment and relatively simple technology compared to other high technical
industries. The success story of Garment Industry in Bangladesh is the story as to how the
readymade garments starting in the late seventies as an insignificant non-traditional item of export.
In 1998-99 this sector has earned 4019.98 million US$ through exporting which is 75.67% of the
total export (Redwan, 1995).
The tremendous success of Readymade Garment (RMG) exports from Bangladesh over last two
decades has surpassed the most optimistic expectations. At present Bangladesh is the 6th largest
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exporter to USA and in 1997 Bangladesh becomes 18th largest exporter in the world. Now
Bangladesh ranks first export of T-shirts to Europe (BGMEA, 1997-98)
The overall impact of the readymade garment export industry is certainly one of the most
significant social end economic developments in contemporary Bangladesh. The remarkable
achievement of RMG sector is now exposed to each and every country. Despite these impressive
achievements and the probable challenges in the near future, if properly managed, the prospects for
further expansion and growth for this sector remain bright. There are some major threats still exits
in this sector but Bangladesh has the ability to overcome these threats.
Readymade Garment (RMG) industry holds a key position in the economy of Bangladesh in terms
of foreign exchange earning, employment generation and poverty alleviation. Right now RMG
sector is the highest foreign currency earner in Bangladesh. Apart from contributing to huge
foreign exchange earnings, RMG industry has become the largest source of employment
generation. Around 2 million people are presently involved of whom 90% are distressed women in
the RMG industry of Bangladesh. In addition a rough estimate shows that the sector through
linkage effects is currently generating about US$ 2 billion worth of domestic economic activities
(Bhattacharya, 2000)
RMG industry is the most important sector for the economy of Bangladesh. It accounts for 75.14%
in 2000-2001 of the countrys total export earnings (BGMEA Newsletter, 2001) About 1.5 million
workers of whom 90% are distressed women are engaged in about 3200 garment factories as on
June 2000(BGMEA, 1997-98).
It is largest manufacturing sector contributing about 5% to the GDP. But this RMG sector is now
facing some challenges especially after 2004. Bangladesh is still at its infancy in terms of quantity
production in the readymade garments industry. We still have problems in our country for the
production of quality goods. Standard is also not satisfactory. The quality of the readymade
garments of Korea, Hong Kong, Taiwan and other countries is far superior to that of ours.
In RMG sector, value-addition is 30% only because a RMG unit has to import 70% of the total
value of the product. The low value added represented that the backward linkage industries such as
fabrics and accessories, which directly feed into the garment sector, have not satisfactorily
developed. The weakest point of the Bangladeshi apparel industry is that it is still at the mercy of

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the exterior suppliers of its main raw materials namely the fabrics. Right now Bangladesh has a
very limited capacity to produce fabrics required by the RMG factories. Her competitors India,
Pakistan, Thailand, Malaysia and other countries have their textiles mills that can produce quality
fabrics for the respective apparel industries.
This sector will remain in intense competition in the context; it is very necessary to find out
opportunities and challenges of RMG industry of Bangladesh in order to face firm competition in
the free market environment. Japan is one of the potential markets for exports from Bangladesh.
Quality and fashion conscious Japan is importing readymade garments from Bangladesh at an
increasing rate even though this increase is very negligible. An extremely large program has to be
taken to increase the exports. There exists supportive policy environment in the RMG sector of
Bangladesh. The package of textile sector incentive has been aimed at primarily to boost up the
exporters. Government has extended some major incentives and facilities for the local and foreign
investors to help increase investment in the country for all industrial sectors including textiles and
clothing
Still there are some threats existing in our RMG sector. According to the Ministry of Textiles, the
local fabric manufacturers currently supply less than 19% of total woven fabric requirement. About
70% of the total fabric requirement of the knit sector is domestically produced as reported by the
BTMA. Textile policy 1995 envisages established of 246 spinning mills with 25000 spindles each,
481 weaning mills each with capacity to produce 17 million meters of fabrics, 481 dyeing-printingfinishing units each with same capacity for yarn and woven fabric by the year 2005. Thus it is a
challenge for RMG sector in Bangladesh to get right quantity of fabrics. The recent US Trade and
Development Act 2000 provide duty free and quota free access to the US market from 48 countries
of Sub-Saharan African (SSA) from October 1, 2000 to September 13, 2008.Though after 2004
quota system will be benefited for access duty free to USA till 2008. As USA is the single largest
importer of Bangladesh RMG, Bangladesh will lose competitive position relative to those 72
countries.
A lot of research works should be done cordially how to face challenges of the coming changes in
the world business for the continued existence of this sector. From the above discussion we have
found some weaknesses and threats of RMG sector. Bangladesh can overcome its weaknesses if it
formulates and implements some strategies like cost reduction strategy, product diversification
Page | 32

strategy, market diversification strategy. The findings show that the workers needed significantly
shorter time to produce a shirt of a given specification than the time presented in another study
completed by Khan and Chowdhury in 1986.
This means that labor productivity in RMG factories has improved during the last 9 years. The
experiences of Japan, Hong Kong, South Korea and other suppliers of RMG confirm this type of
relationship between productivity and wages. Unlike in the public sector of Bangladesh, in RMG
sub sector, wages have increased during the last 9 years but productivity has increased more than
wages have. Quality and standard of RMG products can be improved by practicing Total Quality
Management, preparing and following a quality manual for the products, training Quality Control
and Quality assurance Personnel etc.
The growth and development of Bangladesh Ready Made Garment is highly satisfactory as it is
found in number of factories, share in total foreign exchange earnings and value added to the
economy. The major problems of RMG are low net exporting, low value addition, low quality and
standard, low productivity, elimination of quota and GSP, intense competition, scarcity of
backward linkage industries etc. to comply with the set standards by the importing countries and
global RMG marketers, Bangladesh need to improve its working condition. Appropriate training to
the workers focusing on awareness of safety and what is to be done during the time of emergency
will be effective in improving employee morale. Government of Bangladesh, Ministry of
commerce, Ministry of textile, Export Promotion Bureau, BGMEA, Institute of Fashion
Technology and other concerned authorities should work strengthening the RMG industry of
Bangladesh.

Page | 33

SWOT ANALYSIS OF RMG INDUSTRY IN


BRIEF:
Strength

Low labor cost.


Energy at comparatively lower price.
Easily accessible infrastructure like sea road, railroad, river and air communication.
Wide ranges port facilities.
Accessibility of fundamental infrastructure, which is about 3 decade old, mainly

established by the Korean, Taiwanese and Hong Kong Chinese industrialists.


FDI is legally permitted.
Moderately open Economy, particularly in the Export Promotion Zones.
GSP under EBA (Everything But Arms) for Least Developed Country applicable
(Duty free to EU).
Improved GSP advantages under Regional Cumulative.
Looking forward to Duty Free Excess to US, talks are on, and appear to be on
hopeful track.
Investment assured under Foreign Private Investment (Promotion and Protection)
Act, 1980 which secures all foreign investments in Bangladesh.
OPIC's (Overseas Private Investment Corporation, USA) insurance and finance
agendas operable.
Bangladesh is a member of Multilateral Investment Guarantee Agency(MIGA)
under which protection and safety measures are available.
Adjudication service of the International Center for the Settlement of Investment
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Dispute (ICSID) offered.


Excellent Tele-communications network
Weakness of currency against dollar/euro and the condition will persist to help
exporters.
Bank interest@ 7% for financing exports.
Convenience of duty free custom bonded w/house.

Weakness

Long lead-time
Lack of marketing tactics.
The country is deficient in creativity.
Absence of easily on-hand middle management.
A small number of manufacturing methods.
Low acquiescence: there is an international pressure group to compel the local
producers and the government to implement social acquiescence. The US GSP may

be cancelled and purchasing from US& EU may decrease significantly


The machinery required to assess add on a garment or increase competence are

missing in most industries.


Lack of training organizations for industrial workers, supervisors and managers.
Autocratic approach of nearly all the investors.
Fewer process units for textiles and garments.
Sluggish backward or forward blending procedure.
Incompetent ports, entry/exit complicated and loading/unloading takes much time.
Speed money culture.
Time-consuming custom clearance.
Unreliable dependability regarding Delivery/QA/Product knowledge.
Communication gap created by incomplete knowledge of English.
Subject to natural calamities.

Opportunity
EU is willing to establish industry in a big way as an option to china particularly for
knits, including sweaters.
Bangladesh is included in the Least Developed Countries with which US is
committed to enhance export trade.
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If skilled technicians are available to instruct, prearranged garment is an option


because labor and energy cost are inexpensive.
Foundation garments for Ladies for the FDI promise is significant because both, the
technicians and highly developed machinery are essential for better competence and
output
Japan to be observed, as conventionally they purchase handloom textiles, home
furniture and garments. This section can be encouraged and expanded with
continued progress in quality.
Chittagong port is going to be handed over to the foreign operator ,which will make
the ports service much faster, it will also reduce lead-time as well as total cost will
be decreased.77
Bangladesh is going to gain its political stability, which will make foreign trade
much smoother and will foreign buyers will be more convinced.

Threats
China is a most likely the biggest threat for Bangladesh as this country has relatively
high labor productivity and applies more capital-intensive modern technology and it
has less lead-time because of its relative advantages in getting locally available raw
materials like fabrics, various RMG accessories.
China has also relatively better infrastructural facilities like energy supply,
transportation and communication system.
Some African and Caribbean countries have enjoyed zero-tariff facility under AOA
act (Agreement On Agriculture) that helps them to be more competitive relative to
Bangladesh

Porters Diamond Model analysis for RMG


Industry:

Page | 36

Supporting Industries

Rivalry, Strategy, Structures

Accessories
Power plants
Packaging
Transportation
Shipping
Bank and financial institutions

Strong Rivalry among the Foreign manufacturers


Good Syndication among the main manufacturers
and sub-contract manufacturers.
Good syndication among the supporting industry
Good forward and Backward linkage as strategic
advantage

Factor Conditions:

Demand Condition:

Competitive advantage in lower cost of labors


Good FDI inflow
Good condition in capital collection.
Availability of lands for establishment of industry
EPZ facility with tax benefits
Relaxed regulations for RMG organizations.

Strong demand for cost benefits


Strong Demands under GSP facilities
Positive demand condition in local market along
with the cross border market
Increasing demands for Bangladeshi RMG products
in new markets.

Concluding remarks and


recommendations:
In my concluding remarks I must say that the SWOT of Bangladesh itself works as a
complementary profile for the SWOT of the readymade garments industry of Bangladesh. After
Page | 37

the strategic, business and competitive analysis of the Readymade Garments industry of
Bangladesh, we must confess that the Competitive strategic factor for Bangladesh, the human
capital or cheap labor, is itself the competitive advantage of the RMG industry. So, the labor cost
and human resource is the main part of formulating the business and competitive analysis RMG
industry of Bangladesh.
In recommendation, we must say that

RMG manufacturers should look for other strategic factors other that the human capital

of lower cost.
Opportunities of RMG industry must be converted to strength with the support of the

government.
Manufacturers should look for other strategy like value chain competitiveness rather that
only price competitiveness.

Rather than trying to do everything equally all at once, it helps to have a sense of priority. Putting
the prioritized elements together in a mutually supportive and logical package creates a strategy.
The desirable outcome of a SWOT should be a strategic plan to address the challenges.
Thus, by identifying the key issues and establishing their relation with each other, a degree of
clarity is possible that helps to make one clear about priorities and the time a policy will take to
bring the outcomes.

References
http://www.thefinancialexpress-bd.com/2008/04/16/30828.html
http://en.wikipedia.org/wiki/Bangladesh_textile_industry

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http://www.mightystudents.com/search?
q=A+SWOT+Analysis+on+Readymade+Garment+Industry+in+Bangladesh
http://www.businesswire.com/news/home/20110511006349/en/Research-MarketsBangladesh-Apparel-Industry-Analysis
http://www.just-style.com/analysis/bangladesh-garment-industry-aims-for-fastgrowth_id109958.aspx
http://moshiur008.blogspot.com/2011/08/swot-analysiss-of-bangladesheconomy.html
http://e.unescap.org/tid/publication/aptir2456_haider.pdf

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