Emerging Issues of Competitive Price Adjustment of Garments Sector Development in Bangladesh

Dr. Sikder Md. Anowarul Islam

[The challenge of the garments sectors in Bangladesh is to grow: to take care of labor safety, increase of average wage due to steady state economic development, creation of independent brand in foreign market and adjustment of modern technology and research and development in RMG sector etc. But one fortunate hope for the global buyer is that the political environment of Bangladesh is still venerable to steady state democratic process, which may keep of labor wage at sustainable price due to high distortion in GDP growth.]

The beginning of RMG in the Western world was 1950. In order to control the level of imported RMG products from developing countries into developed countries, the Multi Fibre Agreement (MFA) was made in 1974. The MFA agreement imposed an export rate 6 percent increase every year from a developing country to a developed country. In the early 1980s, Bangladesh started receiving investment in the RMG sector. Some Bangladeshis received free training from the overseas companies. In the 1980s, there were only 50 factories employing only a few thousand people. Currently, there are 4490 manufacturing units. The RMG sector contributes around 76 percent to the total export earnings. In 2007 it earned $9.35 billion. This sector also contributes around 13 percent to the GDP, which was only around 3 percent in 1991. Of the estimated 4.2 million people employed in this sector, about 50 percent of them are women from rural areas. In 2000, the industry consisting of some 3000 factories employed directly more than 1.5 million workers of whom almost 80% were female. USA is the largest importer of Bangladeshi RMG products, followed by Germany, UK, France and other E.U countries. Recently Japan is included as a source of quality garment export especially for lather garments.

The garment sector is the largest employer of women in Bangladesh. The garment sector has provided employment opportunities to women from the rural areas that previously did not have any opportunity to be part of the formal workforce. This has given women the chance to be financially independent and have a voice in the family because now they contribute financially.

However, women workers face problems. Most women come from low income families. Low wage of women workers and their compliance have enabled the industry to compete with the world market. Women are paid far less than men mainly due to their lack education. Women are reluctant to unionize because factory owners threaten to fire them. Even though trade unionization is banned inside the Export processing Zones (EPZ), the working environment is better than that of the majority of garment factories that operate outside the EPZs. But, pressure from buyers to abide by labor codes has enabled factories to maintain satisfactory working conditions. These issues are still under process for conflict resolution by the government.

Garment workers have protested against their low wages. The firsts protests broke out in 2006, and since then, there have been periodic protests by the workers. This has forced the government to increase minimum wages of workers in a reduced level.

Because the country’s labor wage is very cheap, buyers are interested in the garments sector of Bangladesh. A comparison by Institute for Global Labor and Human Rights shows that the labor cost to make a Denim Shirt is $0.22 in Bangladesh whereas it is $7.47 in USA.

Wage management is tropical in Bangladesh. About 80 percent accessories are producing locally. Competitive price of garments are depending on the choice of buyer and their specifications. Major accessories are importing from overseas, specially cotton from CIS countries. Back born of the garment sectors are depending on the outsourcing of the local industries. About 80 of export of RMG are backed by the same proportionate scale of imports which is the core money creation and supply in world market in developing Bangladesh. Not only labor cost, the cost of infrastructure is also extremely chief in Bangladesh. Electricity is backed by the value added of natural gas, which is very competitive in terms of commercial price in local market. Garments sectors are implicitly exporting natural gas with low price of finished products in foreign counties by value added. In 2021, the per capita income will increase by US$ 1,500 if the steady state of economic growth is sustained by 6.2 percent. At present, the labor cost in informal sector rose by 187.5 US$/month in major metropolitan and cities in Bangladesh, where the most of the garment industries are located. About 80 percent of garments workers are female and they are treated as secondary labor force in a household. Their burden is optional to contribute into their family due to long heritage of cultural constrain.

The opportunity cost of per capita household of the poor family is very high since the female workers are little bit happy to work in low wage due to family constraint. The average wage of the garments unskilled workers is US$ 60/month which is very low in PPP adjustment per household. The future of the garment industries are depending on the female workers attitude of wage demand. It is fortunate for garment sector that 50 percent labor force are supplied in economy by female workers. Government of Bangladesh are still depending on the export earnings by garments products but the future cost benefit analysis is still inadequate to the progress and prospects of the country. Sometimes garments workers are subsidized by the government food stamp which is alarming for the competitive price adjustment and resource drained from the country.

The RMG sector is expected to grow despite the global financial crisis of 2009. As China is finding it challenging to make textile and foot wear items at cheap price, due to rising labor costs, many foreign investors, are coming to Bangladesh to take advantage of the low labor cost. Local accessories are being made including zippers, buttons, labels, hooks, hangers, elastic bands, thread, backboards, butterfly pins, clips, collar stays, collarbones and cartons.

The accessory market is dominated by multinational companies operating in Bangladesh, because in the majority of cases, garment buyers prefer accessories from them over the locally available items.

Five deadly incidents from November 2012 through May 2013 brought worker safety and labor violations in Bangladesh to world attention putting pressure on big global clothing brands such as Primark, Loblaw, Joe Fresh, Gap, Walmart, Nike, Tchibo, Calvin Klein and Tommy Hilfiger, and retailers to respond by using their economic weight to create change. Foreign buyers looking for outsourcing demanded compliance-related norms and standards regarding a safe and healthy work environment which includes fire-fighting equipment and evacuation protocols. RMG insiders in Bangladesh complain about the pressure to comply and argue that RMG factory owners are hampered by a shortage of space in their rental units. In spite of this the industry exports totaled $19 billion in 2011-2012. They expected export earnings to increase to $23 billion in 2012-2013.

The challenge of the garments sectors in Bangladesh is to grow: to take care of labor safety, increase of average wage due to steady state economic development, creation of independent brand in foreign market and adjustment of modern technology and research and development in RMG sector etc. But one fortunate hope for the global buyers are that the political environment of Bangladesh is still venerable to steady state democratic process, which may keep of labor wage at sustainable price in long run due to high distortion in GDP growth.

References:

1. Bazlul Khondhker, Abdur Razzaque, and Nazneen Ahmed (PDF). Exports, Employment  and Working Conditions: Emerging Issues in the Post – MFARMG Industry.”(Report).
2. “BGMEA Upbeat on Export Growth”. Bizbangladesh.com. Retrieved 2010-10-05.
3. Fauzia Ahmed. “The Rise of the Bangladesh Garment Industry: Globalization, Women Workers, and Voice.”
4. (http://en.wikipedia.org/wiki/Bangladeshi_RMG_Sector)

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