Scope of Knitwear Garments in Bangladesh until 2020

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Scope of Knitwear Garments in Bangladesh until 2020

OBJECTIVES OF THE STUDY

This report is prepared to serve the following objectives:

  • To know about the knitwear garments industry
  • To know about the present status of knitwear garments in Bangladesh
  • Prospects of knitwear garments in Bangladesh
  • Future status of knitwear garments in Bangladesh
  • Competitiveness of knitwear garments in international markets

METHODOLOGY

Research Methodology

Research Design:

A qualitative research has been used to conduct the study. Focus Group questionnaire were formulated for collecting data. As the time was limited to complete this report, it was not possible to conduct a descriptive research to collect the primary data.

Sources of data:

To carry out the proposed study data has been collected from two sources; Primary and Secondary sources.

Primary data: Primary data for this study has been collected through Focus Group questionnaire, which is combined of both open and close ended questions. Several ways of collecting data have been used like, face to face interview with the experts, questionnaire survey etc.

Secondary data: Secondary data are of two kinds, Internal and external. Internal secondary data has been collected from its broachers. External secondary data gathered from various articles, magazines and internet.

Tools for data collection:

The major tool for data collection was the Focus Group Discussion that includes simple, straightforward, open and open discussion.

The data collection instrument was Xerox copy with the different matters at the time of the survey.

Sampling plan

The outlined sampling plan is given below-

Target Population: The target population for the study has been

Taken are the officials of BGMEA, High profile executives & managers of some industries.

Research Instrument

Focus Group Questionnaire with related factors to get actual answers and find out the result of the research.

Survey Method

Random sampling method is my survey method because it is easy and similar to research.

LIMITATIONS OF THE STUDY

In preparing this OCP report I have faced the following problems, which I consider the limitation of the study.

Resource Constraints

The study requires a good number of experience personnel to accomplish such an intensive research but only one member does it as it was the requirement. Several organizational reports, data and information were necessary which were not available to the researcher. The data and information in a greater extent have not been got in the up to date and proper form. In this case for preparing the report, poor secondary data has been used.

Time constraints

Given time for the research was 8 weeks. During this period the researcher had to accomplish some other works which eaten up the time for research work.

Budget/Fund constraints

For preparing this report budget is a factor. The fund is not sufficient for preparing this report.

Bangladesh Knitwear: Facts & Figures
Export earnings: US$ 2051.30 million up to March 2004-05 (2nd largest sector)
Share of Export earnings: 38.12%
Net Retention Amount: US$ 1230.78 million
Net retention rate: 60%
Value addition: 75%
Share in net export: 32% (Highest)
Quantity exported: 87.40 million dozen (Top sector)
Labor force employed:
Direct: 0.70 million; about 70% of them are women.
Indirect: 0.40 million

History of Development of Knitwear of Bangladesh

The RMG business started in Bangladesh in the 70s but it was then merely a casual effort. The first consignment of knitwear export was made in 1973 and the first consignment of woven garments was made in 1977. Though started later, but it was the woven sector that first dint a spot in the

export pie of Bangladesh. In 1981-82 the contribution of woven garments in the total export was 1.10%. Afterwards it is a story of sustained success for the Bangladesh RMG sector. Within a decade the contribution of woven to the export basket became 42.83% (1990-91) and the knitwear sector’s contribution was 7.64% (1990-91).
Graph 1: Changes in combination of Export Products over time

The entrepreneurs of the knit sector stepped forward with their expertise in the late 80’s. With their earnest efforts they were able to export US$ 14.84 million in 1989-90. Out of this US$ 12.22 million was exported to EU and US$ 2.02 million was exported to US. The trend continued in the knit sector because of the market access opportunity provided to the LDCs under the Generalized Systems of Preference (GSP) benefit.

This is the rejuvenated beginning of the epic story of Bangladeshi knitwear sector RMG sector that in true sense has been able to massive industrialization in a sustainable way with effect on all probable human development aspects which is the encouraging part of the story.

The growth of knitwear sector is increasing at an increasing rate. The cumulative average growth rate of the sector is 27%. And it is continuously grabbing a more portion in the export pie of Bangladesh. This is mainly attributed to the facilities provided under the EC GSP and ROO. The knitwear sector is heavily driven by these favorable policies and took the opportunity to develop a strong backward linkage for the sector.

Table 1: Comparative Statistics of Knit Wear & Woven Wear

Volume in Million US$
Year Knitwear Woven Wear Total Export
Volume % change Share in BD Export Volume % change Share in BD Export RMG Bangladesh
89-90 14.84 0 0.77 609.32 29.34 31.67 624.16 1923.70
90-91 131.20 784.00 7.64 735.62 20.73 42.83 866.82 1717.55
91-92 118.57 -9.62 5.95 1064.00 44.64 53.36 1182.57 1993.90
92-93 204.55 72.51 8.58 1240.48 16.59 52.06 1445.03 2382.89
93-94 264.14 29.13 10.42 1291.64 4.12 50.97 1555.78 2533.90
94-95 393.26 48.88 11.32 1835.09 42.07 52.85 2228.35 3472.56
95-96 598.32 52.14 15.41 1948.81 6.20 50.20 2547.13 3882.42
96-97 763.30 27.57 17.28 2237.95 14.84 50.65 3001.25 4418.28
97-98 940.31 23.19 18.22 2843.33 27.05 55.09 3783.64 5161.20
98-99 1035.36 10.11 19.49 2984.81 4.98 56.18 4020.17 5312.86
99-00 1269.83 22.64 22.08 3082.56 3.27 53.59 4352.39 5752.20
00-01 1496.23 17.83 23.14 3364.20 9.14 52.02 4860.43 6467.30
01-02 1459.24 -2.48 24.38 3124.56 -7.12 52.20 4583.80 5986.09
02-03 1653.83 13.34 25.26 3258.27 4.28 49.76 4912.10 6548.44
03-04 2148.02 29.88 28.25 3538.07 8.59 46.54 5686.09 7602.99
04-05 (up to March) 2051.30 38.12 33.64 2676.84 3.77 43.90 4728.14 6097.12
Source: Export Promotion Bureau

EU is the main export region of Bangladeshi Knitwear constituting 83% (US$ 1780.57 million) of total knitwear export in FY 2003-2004 followed by USA (11%, i.e. US$ 236.79 million).

This has become possible because it can satisfy the ROO of EU as value addition is higher (75%) in this sector. After the adoption of the guidelines for the application of the scheme of generalized tariff preferences by EC knitwear export from Bangladesh to EU rose precipitously. The two-stage transformation requirement of ROO in 1999 boosted market penetration in EU further; it contributed a growth of 101.19% since 2000-2001.
Graph 2: Knitwear Export to Major Markets

Bangladesh RMG sector has successfully passed some critical tests and is now sailing with two masts: knit and woven. The sub-sectors are now in healthy competition among themselves to take the role of leadership within the country

In FY 2003-04, knitwear for the first time exceeded woven wear and became the leader in terns of quantity exported with 91.6 million dozens. The amount of woven export was 90.49 million dozens. Knitwear is still leading in terms of quantity exported and is widening the gap day by day. The present difference in favor of knitwear is 18.85 million dozens In FY 2003-04, the contribution of two RMG sub-sectors were as follows:
Graph 3: Comparison of Export Quantity

Woven Garments 47% and Knitwear 28%. In a period of just 9 months (up to March FY 2004-05) the figures have changed dramatically, the share of woven garment to the country’s export has reduced to 43.90%, on the other hand the share knitwear has increased to 33.64%. It indicates clearly that the knitwear is performing well in both ways. In the first 9 months of FY 2004-05 the scenario is as under:

Knitwear export increased by US$ 566.15
National export increased by US$ 676.19

Therefore, the contribution of knitwear in national export increase is 83.73%

Contribution of the RMG Sector in Bangladesh
In the development history of Bangladesh, RMG sector contributed a lot in terms of employment generation, involving women in the formal sector, increased substantial export earnings etc. One significant aspect of the RMG’s contribution in the development is the human development aspect. The sector contributed a lot in the following areas:
Women empowerment
Gender equality
Improved health & nutrition
Reduced child marriage
Reduced infant mortality
The development in the sector also contributed a lot in the growth and development of the backward linkage industry of the country.

Strength of Knitwear Sector of Bangladesh

Competitive wage rate together with easily trainable workforce, entrepreneurial skill, expanding supply side capacity, and government policy support helped to translate the comparative advantages into competitive advantages. The core strength of the knitwear sector is its backward linkage. The entrepreneurs of the sector not only increased their stitching capacity overtime but also invested in the allied industry to augment the overall capacity of the total sector with the same pace. Over the period knitwear sector gradually became almost self sufficient in fabric and yarn. This improvement has become possible because of the integrated growth of spinning factories in line of the growth of country’s stitching capacity and increased need of the yarn and fabric.

As the export increased in the knitwear sector, the capacity of backward linkage also gradually increased accordingly. The result is local suppliers can provide 90% of the total fabric requirement of the sector. The growth of spinning mills also stepped with the growth of knitwear exports. In 1993-94, total number of spindles was 1.38 million that supplied 10.70 million KG yarn. In 2003-04, the number almost tripled and it became 3.77 million that supplies 239.00 million KG yarn. As of now the total investment in the backward linkage industry is more than US$ 2.00 billion.
Graph 4: Comparative Consumption & Local Supply of Fabric & Yarn

Comparative Structure of Gross & Net Exports of Bangladesh (FY 2003-04)

Graph 5: Structure of Gross Export Graph 6: Structure of Net Export

Though woven is the highest contributor (47%) in terms of gross export, but knit becomes the most significant component if we consider net export with a share of 32%. This has resulted because of the backward linkage industry that has grown over time which helped the knitwear sector to have the higher value addition and there fore a much higher net retention rate.

Year 1994 2000 2004
Value Addition: 50% 70% 75%
Net Retention: 40% 55% 60%
Graph 7: Year wise knitwear export and net retention Table 2: Year wise knitwear export and net retention

Year Total Export Net Retention
94-95 393.26 157.30
95-96 598.32 253.69
96-97 763.30 335.85
97-98 940.31 443.83
98-99 1035.36 530.10
99-00 1269.83 695.87
00-01 1496.23 837.89
01-02 1459.24 828.85
02-03 1653.83 965.84
03-04 2148.02 1271.63
04-05

(up to March)

2051.30 1230.78
Advantages of Bangladeshi Knitwear Sector
? Knitwear is a near self-sufficient sector in all respect; currently Bangladeshi Knitwear manufacturing companies are supplying 90% of the knit fabric requirements of the sector.
? Local yarn suppliers provide around 75% of the total requirement of the sector.
? We have more than 100 composite factories; besides the composite units, many garments have their own dying and finishing units. A separate dying and finishing industry also has grown up over the time to support the sector.
? Good capacity exists in the sector.
? Bangladeshi knitwear is almost unbeatable in price advantages.
? Bangladesh provides not only a cheap labor force, which is unbeatable, but they are also unparallel in stitching capability.
? Bangladeshi Knitwear is exported to 90 countries of the world.
Cost of Some Key Production Factors¹
1. The labor costs² incurred in the Textile Industry is the lowest compared to its competitors.
Thailand: $1.00/Hour India: $0.60/Hour Indonesia: $0.40/Hour
Sri Lanka: $0.45/Hour Vietnam: $0.40/Hour Pakistan: $0.40/Hour
China: $0.35/Hour Bangladesh: $0.25/Hour
2. Energy cost³ in Bangladesh is lower compared to India and Pakistan
Pakistan: $0.08/KwH India: $0.095/ KwH Bangladesh: $0.07/ KwH

I. Introduction

Bangladesh had a historical reputation in production of textile products in addition to famous Dhaka muslin. Fabrics from Bengal were found in ancient Egyptian tombs, and were traded with the Roman and Chinese empires in the medieval age. In ancient Bengal, a great deal of expertise existed about weaving of textile products as well as great reverence towards its trade. In rural communities, both men and women were apprenticed in weaving. These skills and disciplines in sewing and weaving are passed down through generations and are quickly transferred to production lines in modern knitwear factories.

In the early 1980s, there were small-scale independent investments in the readymade garments (RMG) sector. At that time, it was not considered viable and received very little government attention. Within a decade, the RMG industry in Bangladesh had flourished and by the early 1990s it had emerged as a major employer. Under the dynamic leadership of the private sector together with policy support from the government, the export oriented RMG

Industry has shown a spectacular growth during the last two and a half decades. The textile sector initially could not keep pace with the requirement of yarn and fabrics particularly by the woven RMG sector as the textile and clothing industry was controlled by a fairly small community of local entrepreneurs. However, the sector grew with vengeance and the country currently exports over US$11 billion in textiles and garments, with a projected target of

US$24 billion dollars by 2020.

II. Development of Knitwear Production in Bangladesh

That knitwear manufacturing activities in Bangladesh have spatiality is evident from the unevenly distribution of these activities over several pockets in the country. However, there is a large concentration of these activities in Narayanganj. Economic history can shed lights behind this geographic concentration of interconnected businesses emerged in the area.

Narayanganj is a town in central Bangladesh, 20 km southeast of Dhaka, the capital. The town was founded on the motive of being a center for trade and commerce by Mr. Bicon Lal Pandey, a Hindu religious leader by leasing in the area from the British East India Company in 1766 following the Battle of Plassey to form a market place. He later donated the market and other lands on the banks of the river as Devottor. In its early stages geographical location of Narayanganj posed a competitive attraction in terms of communications for entrepreneurs as it was flanked by rivers, the Shitalakshya on the east and the Buriganga on the south and southwest. Gradually it became the most

prominent river port of Bengal and then Bangladesh with regular steam communication with Sylhet, Kolkata, Assam, and Kachar of India. The port used to handle an extensive trade with Kolkata, importing cloth, and salt, etc., and exporting agricultural produce of all kinds, especially jute. The port had also substantial trade with Chittagong, importing cotton, timber, oil, hides, etc., and exporting tobacco, pottery, and country produce, etc. Historically this region has very renowned heritage regarding manufacturing of fine clothes. John Crawford, a long time servant of the East India Company, stated to a Committee of the British House of Commons in 1830-31that the fine variety of cotton in the neighborhood of Dhaka, from which the fine muslins were produced, was cultivated by the natives alone and was not at all known in the English market, or even in Calcutta.

The Dhakeshwari Cotton Mill at Narayanganj, established by some Mr. Surya Kumar Bose on the bank of the Shitalakshya in 1927, was the first textile mill in the whole of the British East Bengal. The Chittaranjan Cotton Mill was established in 1929. Some Mr. Ramesh Chandra Roy Chowdhury established the Laxmi Narayan Cotton Mill in 1932. The Dhakeshwari owner opened a second cotton mill in 1937. Narayanganj is also the principal hosiery manufacturing center of Bangladesh. The first hosiery factory, Hangsha Hosiery, was established in 1921 by some Mr. Shatish Chandra Pal in 1921. The factory started its operations at Tanbazar with four hand-driven ribbons machines. A major factor that promoted the expansion of hosiery industry at Narayanganj is its location on the bank of the Shitalakshya, which facilitated transportation of raw materials and the finished products and supplied good quality water to wash knitted clothes. At present, Narayanganj is one of the main centers for the knitwear garments industries.

III. Evolution of Knitwear Exports

The RMG business was initiated with the export of knitwear consignment in 1973. Eventually the RMG sector accelerated exports dominated by woven garments. The knitwear sector’s significant contribution in country’s export share was 1.1% in FY 82. Since then it gradually increased its share in exports. While the contribution of woven garments to the export basket was 42.8% in FY 91, the knitwear sector’s contribution rose to 7.6%. Table 1

presents export performance and the extent of retention rate due to high contents of domestic inputs. In FY 04, knitwear sector for the first time exceeded woven sector and became the leader with an exported quantity of 91.6 million dozens. The sector continues to be the leader in terms of quantity exported with an increasing gap with the woven garments over time.

Export quantity of knitwear items increased to 241.59 million dozens. This is roughly equal to 163.7% growth between FY 04 and FY 08. At present knitwear is the largest export earning sector of Bangladesh contributing 41.8% to national export earnings at the end of FY 09 (July-April).

Table : Total Knitwear Exports and Net Retention in Bangladesh

Exports (US $

million)

Share of Net

Retention

Share of

Year Total

RMG

Knitwear Knitwear

(%)

(US $

million)

Net

Retention

(%)

1994-95 1850.3 393.3 21.3 157.3 40.0

1995-96 2006.6 598.3 29.8 253.7 42.4

1996-97 2316.9 763.3 33.0 335.9 44.0

1997-98 2775.4 940.3 33.9 443.8 47.2

1998-99 2700.0 1035.4 38.4 530.1 51.2

1999-00 3125.4 1269.8 40.6 695.9 54.8

2000-01 3755.6 1496.2 39.8 837.9 56.0

2001-02 3355.4 1459.2 43.5 826.9 56.7

2002-03 3601.4 1653.8 45.9 965.8 58.4

2003-04 4443.3 2148.0 48.3 1271.6 59.2

2004-05 5429.7 2819.5 51.9 1691.7 60.0

2005-06 6041.9 3817.0 63.2 2290.2 60.0

2006-07 7517.2 4553.6 60.6 2732.2 60.0

2007-08 8322.2 5532.5 66.5 3319.5 60.0

Bangladeshi RMG products are mainly destined to the US and the EU markets. With their earnest efforts from late 1980s the RMG exporters were able to export US$ 393.26 million in FY 95. Of this amount, the shares of the EU and the USA were US$ 274 million and US$ 98 million respectively. During FY 97, Bangladesh was the 7th and the 5th largest apparel exporter to the US and EU markets respectively. The cumulative average growth rate of the sector is about 20%. In recent years the EU market was the main export market for Bangladeshi knitwear constituting 76% (US$ 4.2 billion) of total knitwear export followed by the USA (14.59%, i.e. US$ 807 million) in the year FY 08. The impressive growth of the knitwear in the EU market was partly due the market access opportunities provided under the Generalized Systems of Preference (GSP) facility. Further, the two-stage transformation requirement of the rules of origin (ROO) introduced in 1999 accelerated market penetration and deepened it in the EU. Since Bangladesh’s knitwear production has very high domestic content of inputs and value added (around 80%) it is estimated that 95% of knitwear exports to the EU enter free of duty under the EBA initiative, thereby contributing to very rapid growth of Bangladesh’s exports of knitwear. Despite all these successes a recent WTO review points out that Bangladesh has not been able to exploit fully the duty free access to EU that it enjoys. This is an indication of untapped potential of capacity in this sector. In the year FY 08, the contribution of woven garments to the export earnings was 36.2% compared to 39% in the knitwear sector

Table : Recent Export Performance of the Knitwear Sector in Bangladesh

Exports of RMG in the Last Half of FY

09 (in Million USD)

Monthly Growth Rate Compared to

Last Year (%)

Month Woven Knit Total Month Woven Knit Total

January 584.2 562.9 1147.18 January 18.7 21.2 19.9

February 532.8 466.7 999.51 February 11.5 2.6 7.1

March 541.9 480.3 1022.23 March 12.7 8.2 10.5

April 437.8 480.4 918.19 April 5.4 0.3 2.7

May 493.4 578.6 1072 May 11.7 7.9 9.6

June 522.6 619.4 1142.02 June -3.2 2.7 -0.1

However, the strong resilience of this sector is very much evident as already Bangladesh registered a 12.5% export growth in woven products and 25.9% export growth in knit products to the US market at a time when US imports of these items actually shrank by 3.6 and 1.6%. Overall exports to the US grew by 13.6% in the face of a mere 2% growth in total US imports over the July-December, 2008 period. This implies that Bangladesh has been increasing its RMG market share in the US apparel market despite the recession. However,

Bangladesh has been facing problems in the EU market. Its exports to the EU markets grew by 3.6% in July-December 2008.

IV. Capacity and Actual Production of Knitwear Firms

Bangladesh’s entry into the “modern” textile trade is relatively new, but textile entrepreneurs have been able to quickly adapt to the nature of demands. The knitwear sector in Bangladesh is generating large efficiencies through operating as groups of spinning, fabric knitting, dyeing, finishing. In other words, knitwear firms are effectively operating as conglomerates, there by reaping many of the efficiencies of vertical integration in a sector where individual capital shares and firm size remain relatively small. Table 3 presents the targeted categorization of yarn and fabric production scenario for the year 2009.

Table : Production Targets of Yarn and Fabrics in 2009

Type of textile processing unit Volume of yarn and fabrics to be produced in year 2009

Capacity per year per unit

Spinning unit (25000 spindles/unit) 1075 million kg 4.6 million kg

Weaving (120 shuttle less looms/unit)

2924 million meters 13 million meters

Knitting and knit processing unit 523 million kg (3138 million meters)

1.75 million kg

The major strength of the Bangladesh textile industry is the pool of motivated workers. The sector has created jobs for about 2.5 million people (Table 4) of which 70% are women originating mostly from rural areas. Due to a liberal cultural attitude towards women in the workforce, the RMG sector has transformed a traditionally male dominated society to one where women have an equal status as earners in the household.

The number of factories in the RMG sector increased in tandem from less than a thousand in FY 91 to about five thousands in FY 08. Competitive wage rate together with easily trainable workforce helps transform the comparative advantages into competitive advantage in this sector. Directly employed labor forces in the knitwear sector are 1 million and another 0.5 millions are indirectly employed.

The major impetus behind the phenomenal growth of the knitwear sector is the labor intensity in the production process. As the BKMEA claims, there were more than 2000 thousand establishments in FY 95 which increased to about 5000 thousand in FY 08 implying 5.88% growth per annum. Employment of workers grew in tandem. There were 1.5 million workers in FY 95 which increased to 2.5 in FY 08 implying a growth of 5.62% per annum.

Comparing the number of establishments and the number workers employed one can discern that average size of the firm did not change during the period. So, entry and attrition were more or less simultaneous during the period.

Table: Number of Establishments, Employment, and Firm Size in the Knitwear Sector

Year Number of

Establishments Employment

(In million) Employment per Firm

1994-95 2182 1.20 550

1995-96 2353 1.29 548

1996-97 2503 1.30 519

1997-98 2726 1.50 550

1998-99 2963 1.50 506

1999-00 3200 1.60 500

2000-01 3480 1.80 517

2001-02 3618 1.80 498

2002-03 3760 2.00 532

2003-04 3957 2.00 505

2004-05 4107 2.10 511

2005-06 4220 2.20 521

2006-07 4490 2.40 535

2007-08 4740 2.50 527

V. Organization and Growth: Firm Level Perspectives

Sample Firms

To gauge the development, structure, composition as well as opportunities and

challenges of the knitwear sector a survey was conducted on a purposively selected sample of firms in Narayanganj. The other objective of the survey was to sketch a rough contour of differential value chain links across firm sizes. While choosing firms, it was ensured that the sample includes large, medium and small firms. In deciding size of a firm the number of workers employed was taken into consideration following the guidelines of the Small and Medium Enterprises Policy (SMEP) of the government. Eventually 15 firms were chosen

with 4 from large category, 5 from medium category, and 6 from small category. Both quantitative and qualitative data collection techniques were applied in the survey and formal manufacturing within the industry.

Table : Exports of Different Knitwear Items (in US $ million)

Growth pattern over the period

Year T-Shirt Trousers Sweater

Knitwear Total RMG

2002-03 642.62 643.66 578.38 13.34 7.16

2003-04 1062.11 1334.85 616.31 29.88 15.76

2004-05 1349.71 1667.72 893.12 31.26 12.87

2005-06 1781.51 2165.25 1042.61 35.38 23.11

Bangladesh has experienced some product diversification in its export of garments to the US market in recent years compared with the early 1990s. The top five products (coats, knit shirts and blouses, trousers, non-knit shirts and blouses, and undergarments) accounted for around 80% share of the total garment export earnings of Bangladesh from the US in 1990 which decreased to 58% in 2001. However, the country’s performance in upgrading its

products is not significant with regard to the US market Bangladesh exported a total of 99 types of products in the textile and garment category to the US in 2005, but the contribution of most of the category was minimal. Knitwear garments from Bangladesh have gained remarkable access to the EU market during the period 1996-2005 because mix of RMG products exported from Bangladesh to the EU changed significantly. The top five product groups contributed to 76% of the total garment export earnings of Bangladesh from the EU in 1996, and that share increased to 82% in 2005. The share of shirts in total garment exports from Bangladesh to the EU has decreased, whereas the shares for overcoats, jackets, sweaters, suits and some other knitwear products have increased in recent years. These changes demonstrate that Bangladesh is achieving some level of product diversification in exporting garment products to the EU. less show the direction. Ratios of initial to milestone year reveal that

large firms grow at a faster rate ostensibly due resource base effect.

Sources of Finance

Retained earnings are the single most source of financing for the knitwear firms. During FY 08 about 71.46% of the total finance (about Tk.195 million) originated from retained earnings or internal source. On average large firms retained Tk.35 million in FY 08.

The rest were generated from other sources including bank loans and overdraft facilities. Only 3.08% of total fund was for used for new investment by the large firms in FY 08. Medium firms source about Tk.100 million a year and, bank loans are the prime sources of finance for medium firms which contribute to 49.26% of funds. Suppliers’ credit constituted 4.92% of funds and only 1.47% originates from family and friends; all of the funds were used

for working capital and only 0.49% was used for new investment in FY 08.

Small firms sourced Tk.20 million in FY 08; about 41% of total fund originated from retained earnings and 40% from banks and financial institutions. The rest originate from suppliers credit (15%) and family and friends (4%). Most of the funds sourced were used for working capital and only 5% was used for new investment in FY 08. Global recession might be one of the reasons for reluctance of the entrepreneurs towards new investment.

Competitiveness and Efficiency Perceived by Firms

Most of the large firms consider themselves as more competitive than their

competitors. About three-fourth revealed this opinion and another two-thirds consider themselves as equally efficient as their next large firms. About 60% medium firms think that they are more efficient in intra-market segment competition and the rest consider themselves as equally efficient. The perception is quite different among small firms; only 30% firms

think that they are equally efficient with their market competitors and the majority of the rest think that they are less efficient than their next large competitors. Perception of large and medium firms indicates that majority of these firms spend time and resources for innovative activities to gain cutting edge competition. They often do so without specific financial and managerial resources. Thus, they tend to undertake a significant amount of innovative activities in their design, production and sales departments

rather than in form of R&D expenditure which often do not exist at all.

Table : Number of Establishments, Employment, and Firm Size in the Knitwear Sector

Year Number of Establishments Employment (in million) Employment per Firm

1994-95 2182 1.20 550

1995-96 2353 1.29 548

1996-97 2503 1.30 519

1997-98 2726 1.50 550

1998-99 2963 1.50 506

1999-00 3200 1.60 500

2000-01 3480 1.80 517

2001-02 3618 1.80 498

2002-03 3760 2.00 532

2003-04 3957 2.00 505

2004-05 4107 2.10 511

2005-06 4220 2.20 521

2006-07 4490 2.40 535

2007-08 4740 2.50 527

Table : Capacity of Different Components of the Knitwear Industry

No

of

mills

Installed

machine

capacity

Unit Production

capacity/year

(in million)

Spinning mills (public) 24 460000 Kg 40

Spinning mills (private, cotton) 312 8230104 Kg 1495

Spinning mills (private, synthetic yarn) 27 673276 Kg 180

Terry towel 72 1896 Meter

Dyeing finishing 359 6755 Eqv Meter 6084

Sweater 607 306848 Pcs 6568

Knitwear 462 148448 Pcs 5378

Knitting and knit dyeing 822 12891 Eqv Meter 7414

Table : Exports of Different Knitwear Items (in US $ million)

Growth pattern over the period

Year T-Shirt Trousers Sweater

Knitwear Total RMG

2002-03 642.62 643.66 578.38 13.34 7.16

2003-04 1062.11 1334.85 616.31 29.88 15.76

2004-05 1349.71 1667.72 893.12 31.26 12.87

2005-06 1781.51 2165.25 1042.61 35.38 23.11

Bangladesh has experienced some product diversification in its export of garments to the US market in recent years compared with the early 1990s. The top five products (coats, knit shirts and blouses, trousers, non-knit shirts and blouses, and undergarments) accounted for around 80% share of the total garment export earnings of Bangladesh from the US in 1990 which decreased to 58% in 2001. However, the country’s performance in upgrading its

products is not significant with regard to the US market .Bangladesh exported

a total of 99 types of products in the textile and garment category to the US in 2005, but the contribution of most of the category was minimal.

Knitwear garments from Bangladesh have gained remarkable access to the EU market during the period 1996-2005 because mix of RMG products exported from Bangladesh to the EU changed significantly. The top five product groups contributed to 76% of the total garment export earnings of Bangladesh from the EU in 1996, and that share increased to 82% in 2005. The share of shirts in total garment exports from Bangladesh to the EU has decreased, whereas the shares for overcoats, jackets, sweaters, suits and some other knitwear products have increased in recent years. These changes demonstrate that Bangladesh

is achieving some level of product diversification in exporting garment products to the EU. In addition, a gender analysis of products indicates that Bangladesh has achieved some upgrading of its products recently in terms of exporting garment products to the EU.

Garments for females are treated as upgraded products compared with garments for males, since they add more value. The earnings of Bangladesh from the export of garments for females to the EU have increased during the period 1996-2005.Consistent with this analysis, products in our sample firms vary with T-shirt, ladies top, nightwear, pajamas, underwear, ladies wear, and polo shirts, etc. Firms that reported achieving milestone performance within the period 2000-2005 are common in ladies wear product category and emphasized on more value addition within the industry.

Employment Pattern and Wage Structure

Employment in the knitwear sector crucially varies with the flow of orders. With this caveat in mind it was found that large firms employed about 760 workers compared to 300 workers in medium firms and only 16 workers in small firm. Of the total labor force, large firms employed 46% as temporary workers compared to 57% in the medium firms. For small firms this rate is meager at less than 5%. The higher rate of temporary labor absorption within

the medium firms is quite evident from lower receipts of contracts by these firms and is consistent with the nature of seasonal effects of their production. Large firms also encounter the same type of seasonality but the magnitude is smaller due to scale and integration effect. As a result, temporary employment is quite high for the both large and medium firms. The gender distribution of labor force shows diverse pattern; administrative and managerial jobs, and those that need special technical skills are highly skewed towards male

employment. Activities such as machine operation, quality control, and cutting, etc., where skills increase with experiences show more equal distribution pattern. Causal labor involvement is not frequent at all. Employments of unpaid proprietors are higher (60%) in medium firms. The corresponding rates for large and small firms are 25% and 33% respectively.

Usually small firms do not provide any technical training to their employees. The concept is also not common in medium firms. Large firms usually provide training in the form of apprentice but they constitute less than 5% of the total workers. Consequently the concept of stipend is not common; instead the apprentices receive wage around Tk.1800 to Tk.2000 per month.

Working hours vary across firms and the types of job assignments. In large firms managerial and administrative employees have to work about 42-48 hours a week. In contrast, production workers such as machine operator have to work for 72 hours a week. Working hours in medium firms increase to 60 hours for the administrative and managerial employees and decrease to 66 hours for the workers. Working hours of the executives in the small firms are comparable with the large and medium firms but production workers have to work longer.

Table : Wage Structure across Knitwear Firms

Ranges of Monthly Wages across Firms (in thousand taka)

Large firm Medium firm Small firm

Male Female Male Female Male Female

Managerial 21-35 Same Administration 20-37.5 Same 10-25 NA

section Other Officers 10-25 Same 6-27 8-15 8-15 8-12

Engineer 8-28 Same 13-25 NA NA NA

Supervisor 6-23 Same 3-22 3-18 10-20 Same

Quality Controller 4-20 Same 3-18 Same 8-15 Same

Operator 3.5-15 3.5-12 2.1-15 3-12 2.5-10 Same

Garment section

(sewing and knitting

sweaters/socks)

Helper 2-5 Same 1.5-4 1.2-3 2-3 Same

Engineer 8-28 Same 11-23 NA NA NA

Supervisor 6-25 Same 5-22 6-15 NA NA

Quality Controller 4-20 Same 6-18 Same NA NA

Operator 3-15 3.5-12 3-15 3-12 4.5-6 Same

Other production

sections (knitting

fabrics, dyeing and

finishing)

Helper 2.5-5 1.8-4 2-4 1.5-3 2.5-4 1.5-3

VI. Rise and Fall and Rise …of the Knitwear Manufacturing Firms in Bangladesh

Knitwear manufacturing firms in Narayanganj comprises of small and medium size units operating with limited capital and low capacity. These firms depend entirely on regular turnover for generation of resources. Three factors were found responsible for their emergence and development: (a) pull factors (good prospect, ever increasing demand, etc.), (b) push factors (previous experience, family business, etc.) and (c) distress factors (low capital or skill required, etc.). According to the push factors many of the employees previously working in such units start new firms of their own after acquiring some training and experience. Such a step provides them with marginally higher income (from wages and profits) compared to the low wage paid by their ex-employers; about three-fourth of the firms initiated business due to push factors. But at mature stage many firms fall behind due to distress factors with low capital per units. Many of these firms report to suffer from both resource and marketing problems. At the opposite end, the relatively better off units are those

that are enjoying higher capital and returns per capital. Recently established firms came into being due to pull factors.

Both composition and growth pattern of the knitwear industry have shown

tremendous heterogeneity. There are segments of firms with linkage to the organized sector; fortunes of these types of firms vary with the whole industrial sector in the country. In contrast, there are segments that grow when the organized sector is slackening as people without alternative employment opportunities get deposited therein. While certain segments of them cater to the industrial demand for intermediaries, some others fulfill the demand of the final consumers. This heterogeneity is not only across size class of the units but across product groups also. As a result, their growth is influenced by diverse economic processes.

Requirement of Knitwear garments in BD & World

According to statistics of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), Bangladesh exported 7.78 billion pieces of knitted garments in 2010, amounting to Taka 61.9 billion (approximately US$855.0 million) in value.

In terms of export volume, Bangladesh became the world’s second largest knitwear exporter, surpassing Turkey, which exported 7.74 billion pieces in 2010. China remains to be the world’s biggest exporter of knitwear in terms of both export volume and value, making up 50% of the world’s knitted garments market.

Despite viewing Bangladesh as a competitor in the garment market, Turkey is also a significant export market of Bangladeshi apparel, given its fast growing economy. As a result, Turkey has started to step up preventive measures, for instance, it has imposed 27% tariff on garments imported from Bangladesh.

BKMEA is confident about the potential of the country’s garment industry. It noted that if the country’s apparel export can grow by this year’s rate of 40%, it will beat Turkey to be the world’s second largest knitwear exporter by value next year.

Bangladesh requires near about 3.15 billion pieces. Of knitwear garments that amounts 21.5 billion taka (approximately 302.5 million US dollars) in value.

Growth rate now & in future

Until the early 1980s, India and Sri Lanka were the major South Asian suppliers of RMG to USA and Western Europe. After the onset of political problems in Sri Lanka and a consistent anti-export environment in India, Western buyers and Eastern producers became interested in trying their luck in Bangladesh, which was able to respond quickly . The industry demonstrated spectacular growth since the 1980s. In 1983 only 21 units were registered with the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), which generated sales of only about US$10 million. The volume of export was exciting throughout the 2000 and was $1,201 million in 2002-04, $2,608 million in 2005-06 and $4,149 million in 2007-08. In FY 2007-08, the share of RMG in total exports earnings was 73 percent (World Bank 2009). Bangladeshis own more than 95 percent of the garment factories. The industry directly employs 1.5 million people (majority of whom are female) and it is estimated that another 10-15 million benefit indirectly. There are 15 companies/groups, which are the major holders of quotas and are capable of producing in excess of 10,000 doz. of garment per month with fabric outsourcing capabilities. Around 500 companies producing between 5,000 to 10,000 doz. per month work mainly for importers and agents and produce about half their work on Cost of Manufacture (CM) basis and half on FOB basis. Some 1500 units, producing up to 5,000 dozen per month, work mainly on sub-contracting basis. The remaining 200 companies are classified as sick usually as a result of financial problems. The exports of Bangladesh are highly concentrated in two major markets: EU and USA. In 1998-99, Bangladesh exported 52.4 percent of its RMG to EU. In 2008-09, Germany was the main buyer (14.5%) followed by UK (10%), France (8%), Netherlands (5.4%) and Italy (5.3%). During the same year, Bangladesh exported 43.2% of its exports to USA, while to Canada it was only 2.3 percent .The high concentration in a few markets is risky; consequently Bangladeshi RMG must diversify into different markets. This is measured by the specialists that if there is no problem in the operations of the knitwear industry then the exports are supposed to be than now that is if the sector grew with vengeance and the country currently exports over US$11 billion in textiles and garments, with a projected target of US$24 billion dollars by 2020.

LIMITATION

Bangladesh Capacity

The industry directly employs 1.5 million people (majority of whom are female) and it is estimated that another 10-15 million benefit indirectly. There are 15 companies/groups, which are the major holders of quotas and are capable of producing in excess of 10,000 doz. of garment per month with fabric outsourcing capabilities. Around 500 companies producing between 5,000 to 10,000 doz. per month work mainly for importers and agents and produce about half their work on Cost of Manufacture (CM) basis and half on FOB basis. Some 1500 units, producing up to 5,000 dozen per month, work mainly on sub-contracting basis. The remaining 200 companies are classified as sick usually as a result of financial problems .

SWOT Analysis

The new environment represents a serious threat to Bangladesh. On the one hand, it is opening a vast market with unlimited export potentials; on the other hand, it signals fierce competition from textile giants like China, India and, from efficient producers like Thailand, Sri Lanka and Vietnam. Competition may also come from Sub Saharan Africa and the Caribbean countries due to preferential treatment from USA through TDA 2009. Different regional agreements like NAFTA also appear to be unfavorable for the RMG sector of Bangladesh.

Given the changed scenario described above, the following sections focus on SWOT (strengths & weaknesses and opportunities & threats) analysis of the RMG industry of Bangladesh.

Strengths

One of the strengths behind the success of RMG of Bangladesh is the availability of low cost labor compared to other countries in the region. The labor rates in textile industry (compiled by Warner International) show that the average hourly wage rates for Bangladesh, India, Pakistan and Sri Lanka were respectively US$ 0.23, $0.56, $0.49 and $0.39. Being in the manufacturing of RMG for two decades, Bangladesh now possesses a large pool of skilled & semiskilled manpower. Moreover, there are many unemployed young men and women who can easily be converted into a skilled workforce if needed. Given the fairly long learning curve in this industry, extensive experience in dealing with foreign buyers, offshore bankers, shippers, and Clearing and Forwarding (C&F) agents is a valuable asset for the exporters of Bangladesh.

Weaknesses

Dependence on others for raw materials, low productivity, limited knowledge in international marketing information, poor infrastructure, political instability, disruptive trade unionism, inefficiency in port management, and excessive dependence on RMG sub-sector are the major weaknesses of the industry.

The industry is heavily dependent on others for outsourcing of raw materials such as clothing and accessories. Bangladesh is currently importing raw materials (gray fabrics) for its