The ready-made garment sector (RMG) in Bangladesh accounts for 75% of the country’s total export earnings, which in 1997-98 stood at US$ 5.2 billion, and 5% of GDP.

The sector currently comprises some 3,000 enterprises, employing 1.5 people (50% of total industrial employment), 90% of whom are women. The sector is estimated to generate indirectly employment for a further 10 million people.

Backward linkages are weak. The local textile industry supplies only 18% of the RMG sector’s fabric requirements for export. The sector is similarly dependent on imports for accessories.

The sector’s "value-added" is consequently significantly less than export performance would suggest.

The development of stronger backward linkages is largely finance and confidence dependent. Bangladesh is particularly weak in the former area.

Bangladesh is positioned at the low price, high volume end of the international market (i.e. at the "commodity" end). A number of the larger exporters have, nevertheless, successfully developed higher value business.

Bangladesh’s RMG sector possesses two distinct competitive advantages which have accounted for the sector’s overall export success. Specifically:

 unlimited (i.e. quota-free) access into the European Community (EC) market and preferential tariff treatment in both the EC and American markets; and

• comparatively low-cost, highly trainable labour.

Comparative Manufacturing Cost of Yarn
(US $ Per kg of yarn)

Other competitive enhancing factors include:

 low rate of duty (2.5%) on imported capital machinery;

 reputation for reliabiity;

 geographically concentration of production units; and

 strong government support programmes

A variety of special incentives are available to the RMG sector. These incentives, which are monitored by a "Special Monitoring Cell" within the Bangladesh Bank, include:

 a fixed concessional rate of interest on export credit up to 90% of the value of a confirmed, irrevocable letter of credit;

 pre-shipment and ost-shipment guarantee schemes;

 provision for back-to-back letters of credit (p to 75% of the foreign buyer’s letter of credit to enable the supplier to import his production requirements;

 duty drawback;

 the "substitute beneft scheme" which provides payment equivalent to 25% of the FOB value to "deemed exporters" using locally manufactured fabrics or to local textile mills supplying the export sector; and

 income tax, insurance remium and freight rebates.

The phasing out of the Multi Fibre Arrangement and the elimination of national quotas by 2005 will create an open international marketplace. Bangladesh’s current (artificial) competitive advantage will disappear.

Other challenges include

 the recent United States moves to reduce tariffs levied on garments from such competing countries such as Vietnam and Cambodia and to approve quota and duty free import of RMGs from 48 countries of Sub-Saharan Africa, Central America and the Caribbean;

 the undermining of foreign investor confidence due to the move to establish trade unions in Bangladesh’s Export Processing Zones;

 the inability of the sector to increase efficiency and competitiveness by acquiring "e-competency".

The use of information technology and its associated tools within Bangladesh’s RMG sector is growing, but from a very low base.

 e-Mail is extensively used as a communication tool;

 several of the larger RMG exporters have introduced computer-based systems for book-keeping and accounting, inventory control, payroll, production accounting and costing/pricing;

 a sizeable number of RMG enterprises have developed web-sites for marketing and promotional purposes

 a few RMG enterprises have installed computer design and manufacturing (CAD/CAM) systems;

 there is wide use of computer-controlled embroidery machines; and

 several exporters are planning to install a "digital camera system" to enable foreign buyers to monitor the status of orders.

H. Buyer demand for e-competency

Foreign buyers expect Bangladeshi RMG exporters to acquire a minimum level of e-competency. E-mail capacity, and its effective use, have become a standard requirement. e-Initiatives such as the "digital camera system" are seen as useful supports to competitiveness. Buyers are not, however, expecting the sector, as a whole, to increase their capacity to engage in e-commerce.

For the timebeing at least, full e-competency and capacity to participate in a "seemless" electronic transaction (from e- contracting to e-payment) are not, considered by foreign buyers as pre-requisites for remaining internationally competitive.

In addition to the above enterprise-specific initiatives, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has developed its own web-site (www.bgmea.com) which contains a sector profile, member database, quota information and status and export market data and export figures. BGMEA plans to convert this site into an interactive one to facilitate exporter-importer contact. BGMEA is also initiating the development of web-sites for all its members.

While buyers are not expecting their Bangladeshi suppliers to acquire CAD/CAM capacities, BGMEA’s Fashion Institute of Technology and the Bangladesh Institute of Design are providing training in computer-supported design, as this capability is seen as a future determinant of competitiveness.)

J. e-Facilitation

The ELVIS Programme has been introduced at the Export Promotion Bureau by the United States Government to maintain a quota management service and to facilitate exports of RMG to the American market. Under the ELVIS Programme, an exporter provides EPB the address,quantity, category, per unit value, etc. of all shipments.

Before the introduction of ELVIS it took 173 hours to complete export procedures and to obtain customs clearance. Now it takes only 6 hours.

• Maximize application of IT in the overall activities of RMG sector. These activities can be grouped into several sub-sectors, specifically:

• Technological up-gradation in production: Application of CAD, CAM and installation of a digital cameral capacity on the production floor.

• Marketing up-gradation: Use of appropriate web-sites by individual RMG

• Up-gradation of local customs authority:

• Application of information technology and removal of unexpected custom barriers from the documentation process through introducing wide and local area networking and other information technology based tools.

• Computerization of the entire documentation procedure through Internet, eliminating the need togo to the port and customs authority

• Development of existing human resources: Enhancing productivity and efficiency through application of information technology.

• Introduction of supportive banking and financial services: The sector generated a large volume of banking transactions over the years. For reducing transaction cost as well as to keep the banking charges at a minimum level, effective steps are indispensable, which will encourage the entrepreneurs to take higher amount of risk. Application of IT in the banking sector should be widely introduced to facilitate the transaction of a larger amount of business as required in this sector. Attractive and innovative financial services should also be introduced that draw attention of the foreign investors to set up joint venture units.

• Promote introduction of a relevant Management Information System (MIS) within the enterprise.

• Using IT tools in monitoring operational activities in order to increase productivity and control production time overrun.

• Develop national e-commerce policy with regard to exports and other related activities including banking.

• Minimizing the rate of e-mail for accelerating browsing through the Internet.

• Support capacity of trade bodies (BGMEA, DCCI, MCCI, etc) to assist in the introduction of web sites at the enterprise level.

• Establish a central database development of the prospective clients employ, at sector level, an active e-mail based, client contact programme.

• Reduce costs of web site development and hosting in the domain server.

For proper client servicing, the following things may be required besides electronic mail:

• Electronic banking and e- payment

• Server based client cargo handling service system

• Cargo clearance and time tracking device

• Digital camera system

• Video conferencing system could be an effective IT tool for smooth and timely supply of raw materials and other accessories and their management. Video conferencing system would also reduce the need for frequent (and costly) visits by buyers.

• Development of an "electronic marketplace" will be required to ensure smooth and speedy supply chain management.. Through interactive web page design and hosting, the parties involved could communicate with full effectiveness.

• With a continuous development of fashion design through the application of computerized design software and other production activities, the individual RMG producer can capture a high price product segment in the international market. Design developed by the local designers may be transferred instantly to the foreign buyers through Internet applying appropriate design software and tools. Also, an online facility and an interactive web site can be developed to show various designs of products on a continuous basis.

To facilitate export of RMG the following steps should be taken:

• Second phase of the ELVIS programme should be implemented immediately. Under the second phase, every RMG industry shall be connected through the Wide Area Network (WAN) in order to speed up the ELVIS programme. Once the factories have access to this network and online facilities with ELVIS, paper work will be reduced significantly.

• All related government offices in the process of export and documentation should be integrated through computerization and application of information technology that will facilitate the issuance of different documents, including certificate of origin.

• The Customs authority and other related offices must be computerized. These offices should be brought under a single roof through wide area networking. The move is already on.

• Insurance companies, clearing and forwarding agents, courier services, shipping agents, inspection and survey companies, banks and financial institutions and other offices should be computerized and linked through wide area network.

• Smart Manufacturing: To be successful in the global market, the local RMG enterprises should be equipped with current technology. Smart Manufacturing will be common phenomenon in 2005. The government should take steps to build necessary technology and infrastructure.

• Reducing domestic lead time: In order to speed up transportation and carriage of raw materials and finished goods, the government should introduce an IT based integrated transport management system involving BRTC, Bangladesh Railway and other concerned agencies. Linking up the current and future traffic monitoring systems, processing data on traffic patterns and conditions, and delivering the information quickly to the concerned agencies will help reduce domestic lead time and ultimately minimize the overall lead time of export. Software technology may be developed for road guidance through which large vehicle fleets will be able to plan their routes and respond to unforeseen circumstances.