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PRICE MECHANISMRMG INDUSTRY
TOTAL
$13.22
TOTAL
$3.72
HOW MUCH DOES IT COST TO MAKE A SHIRT IN BANGLADESH vs THE USA
BANGLA...
INDUSTRY OVERVIEW
STRENGTH
• Considerable qualified workforce available at low labor charges
• Energy at low price
• Membe...
INDUSTRY OVERVIEW
WEAKNESS
• Absence of easily on-hand middle management
• A small number of manufacturing methods
• Low a...
INDUSTRY OVERVIEW
OPPORTUNITY
• Excellent Tele-communications network of E-mail, Internet, Fax, ISD, NWD & Cellular
servic...
INDUSTRY OVERVIEW
THREAT
• Lack of marketing tactics
• Lack of training organizations for industrial workers, supervisors ...
INDUSTRY OVERVIEW
CONTRIBUTION TO OTHER SECTORS
Banking and
Insurance
Shipping and
Logistics
Contribution
to Government
Ex...
INDUSTRY OVERVIEW
CONTRIBUTION TO OTHER SECTORS
Professional
Services
Engineering
Sector
Real Estate
Utility
Services
INDUSTRY OVERVIEW
CONTRIBUTION TO OTHER SECTORS
Information and
Communication
Technology
Hotel and
Tourism
Emerging
Consum...
INDUSTRY OVERVIEW
• RMG Exports starts in the late 1970s
• There were only 9 RMG units in 1978
• Estimated 5000 RMG units ...
INDUSTRY OVERVIEW
• Direct employment: 4.0 million (est.)
– Indirect employment: About 1 million (est.)
• Women workers co...
INDUSTRY OVERVIEW
Product Value
(billion USD)
Export Share Growth
1 T-Shirts
4.69
26.22% 49.31%
2 Trousers
4.16
23.24% 37....
SOCIAL IMPACTS OF THE
RMG SECTOR
Women Empowerment
Savings
Child Labor
Population Control
PRICE MECHANISM
History
• Buyers coming over during season
• Agents
• Buying houses
• Setting up of own office
Internal Factors
Scale of operations
Larger operations tend to enjoy economies of scale
PRICE MECHANISM
Internal Factors
Backward and Forward linkages
Leads to cost savings and better control over quality
PRICE MECHANISM
Internal Factors
Cost of Inputs
International prices fluctuate leading to fluctuating
cost prices
PRICE MECHANISM
Internal Factors
Value Added Services
Specialized value added services such as designing,
quality lab, shipping tend to de...
Internal Factors
Future orders
Firms with lacking future orders are more likely to
lower prices than firms who are neck hi...
Internal Factors
Volume of order
Firms are more willing to offer lower prices on orders
with high volume of work
PRICE MEC...
External Factors
Exchange Rate
Weak local currency
Local Currency getting stronger
International Factors
PRICE MECHANISM
External Factors
Hartal
• Days of little to no productivity
• Problems for meeting deadlines
• Goods at risk when being de...
External Factors
Minimum Wage
Government sets minimum wage
Increases the price
PRICE MECHANISM
External Factors
Imperfect Knowledge
Sellers bid among themselves
Do not know the price bid by the competitors
Compete amo...
Looking forward
A gradual shift from buyers market to suppliers
market
PRICE MECHANISM
INDIA
Forward Chain:
 fixed price Internationally
 reluctant to export more
 $20 billion export in 2012-2013
Backward C...
Trade association :
CMAI: 20000 members
deals with government and policies
helps tax and vat reduction
Govt. Initiative...
VIETNAM
Backward Chain:
 3 sectors
 2% fibre from local source
 20% fabric from local source
forward Chain:
2007: Fair...
VIETNAM
Trade association :
VITAS: Non government umbrella : 635
companies, 70% of market
VINATEX: Biggest state owned
o...
MEXICO
Backward chain stakeholders
Protecting labor rights
Gearing for makeover
Forward chain stakeholders
Fashion becomes...
Backward chain stakeholders
Trade unions-ACFTU
Forward chain stakeholders
Changing environment
New distribution channels
M...
Backward chain stakeholders
Procurement of raw Materials
Trade unions and legislations
Forward chain stakeholders
Shift to...
SYNTHESIS
• Comparison in Government Strategies
• Comparison in Trade Association and Union involvement
• Comparison in En...
Comparison in Government Strategies
Bangladesh China
Existence of business Zones EPZ can be compared with this kind of
mea...
Comparison in Government Strategies
Bangladesh India
Endorsement of cultural uniqueness in
apparel
Bangladesh government h...
Comparison in Government Strategies
Bangladesh Mexico
Import Tariffs
Apparel import in Bangladesh is quite low considering...
Comparison in Government Strategies
Bangladesh Vietnam
Initiatives of Government to create
strong backward link
Government...
Comparison in Government Strategies
Bangladesh Turkey
Existence of Free Zones Moderately open economy in the Export Promot...
Comparison in Trade Association involvement
Bangladesh China
International affiliations Investment assured under Foreign P...
Comparison in Trade Association involvement
Bangladesh India
Material testing by association No centralized quality measur...
Comparison in Trade Association involvement
Bangladesh Mexico
Trade agreements Bangladesh is a member of WTO
and enjoys GS...
Comparison in Trade Association involvement
Bangladesh Vietnam
Reach of trade association Government has not been involved...
Comparison in Entrepreneurial Mind set
Individual profit mentality overall industry growth
Lack of foresight in Bangladesh...
Comparison in Forward Chain Stakeholders
Bangladesh China
Changing environment Bangladeshi garments owners are not keen
to...
Comparison in Forward Chain Stakeholders
Bangladesh India
New orders from overseas buyers In Bangladesh, exporters are ent...
Comparison in Forward Chain Stakeholders
Bangladesh Turkey
High value added items Because of the rigidity in the Value Add...
Comparison in Backward Chain Stakeholders
Bangladesh China
Workforce Bangladesh has a workforce of 4 million workers China...
Comparison in Backward Chain Stakeholders
Bangladesh Mexico
Labour right protection Labour right protection in Bangladesh ...
Comparison in Backward Chain Stakeholders
Bangladesh Vietnam
Sub sectors Bangladesh has mainly two sub-sectors, fabric
pro...
POSSIBLE STEPS TO BECOMING PRICE SETTER
Current Supply Chain :
Too many intermediaries
Intermediary bias becomes a big
m...
Centralized Information Hub
Create a virtual portal for B2B
interaction :
Model to expose buyers to sellers and
vice vers...
THE ALIBABA MODEL
 Suppliers and buyers post listings
Listings searched, contact made and
information is exchanged
Cust...
RISE TO FAME
Product :
Tailored to consumer preference
Picture banks, product displays
3rd party payment system to avoi...
RISE TO FAME
Place :
Different websites for different
countries
Tailored to country culture, language
Promotion :
Targe...
US GSP STATUS
RMG not a part of US GSP
Narrow basket of goods for
Bangladesh
Unfair treatment to an LDC like
Bangladesh...
BENEFITS OF GSP FOR RMG
Market Expansion :
Duty free access to major trading
partner
Can reduce current tariff penalty o...
OTHER MEASURES
Buyer Complaints :
Infrastructure
Compliance
Supplier Performance and workforce
supply
Raw Materials- n...
GOVERNMENT SIDE (PLAN AHEAD!)
Strategically introduce Minimum price
cap of $5.00
Take plans for establishing a deep sea
...
SUPPLIER SIDE (THINK BEYOND!)
Improve management skills
Provide in-house training for lower
and middle management
Adopt...
BUYER SIDE (BE REALISTIC!)
Keep supplier capacity and ability in
mind. The information hub will help
streamline the selec...
THANK YOU
“By 2019, Bangladesh has the potential to become
the largest manufacturer of RMG in the world”
-McKinsey & Co.
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Price mechanism in the rmg industry of bangladesh

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The Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 25 years.

The industry plays a key role in employment generation and in the provision of income to the poor. Nearly four million workers are directly and more than twelve million inhabitants are indirectly associated with the industry. Over the past twenty five years, the number of manufacturing units has grown from 180 to over 5000.

The sector has also played a significant role in the socio-economic development of the country. It continued to show robust performance, competitive strength and, of no less importance, social commitment. RMG’s contribution to Bangladesh economy is well-known, well-appreciated and well-respected.

Published in: Business, Career
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Price mechanism in the rmg industry of bangladesh

  1. PRICE MECHANISMRMG INDUSTRY TOTAL $13.22 TOTAL $3.72 HOW MUCH DOES IT COST TO MAKE A SHIRT IN BANGLADESH vs THE USA BANGLADESH $0.20 $3.30 $0.22 MATERIALS LABOR COST INDUSTRIAL LAUNDRY USA $0.75 $5.00 $7.47 MATERIALS LABOR COST INDUSTRIAL LAUNDRY
  2. INDUSTRY OVERVIEW STRENGTH • Considerable qualified workforce available at low labor charges • Energy at low price • Membership of Multilateral Investment Guarantee Agency (MIGA) • Bank interest@ 7% for financing exports
  3. INDUSTRY OVERVIEW WEAKNESS • Absence of easily on-hand middle management • A small number of manufacturing methods • Low acquiescence • Speed money culture • Time-consuming custom clearance
  4. INDUSTRY OVERVIEW OPPORTUNITY • Excellent Tele-communications network of E-mail, Internet, Fax, ISD, NWD & Cellular services • 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 • Sweaters are very economical even with china and is the prospect for Bangladesh
  5. INDUSTRY OVERVIEW THREAT • Lack of marketing tactics • Lack of training organizations for industrial workers, supervisors and managers • Speed money culture • Communication gap created by incomplete knowledge of English
  6. INDUSTRY OVERVIEW CONTRIBUTION TO OTHER SECTORS Banking and Insurance Shipping and Logistics Contribution to Government Exchequer Transport and Communication
  7. INDUSTRY OVERVIEW CONTRIBUTION TO OTHER SECTORS Professional Services Engineering Sector Real Estate Utility Services
  8. INDUSTRY OVERVIEW CONTRIBUTION TO OTHER SECTORS Information and Communication Technology Hotel and Tourism Emerging Consumer Market Waste Recycling Industry
  9. INDUSTRY OVERVIEW • RMG Exports starts in the late 1970s • There were only 9 RMG units in 1978 • Estimated 5000 RMG units are now in business • Share of RMG export to GDP: About 16% • Contribution in National Export: – 78.96% in FY 2011-12 – 78.15% in FY 2010-11 – 77.12% in FY 2009-10 TWO MAIN CATEGORIES: 1. WOOVEN: SHIRT, TROUSER 2. KNIT: SWEATERS, SOCKS
  10. INDUSTRY OVERVIEW • Direct employment: 4.0 million (est.) – Indirect employment: About 1 million (est.) • Women workers constitute 80% of work force • 17.77% Average growth rate in last 20 years • 14.59% Average growth rate in last 10 years • Average growth gradually diminished up to 2002-03 then began to move upwards till economic recession and started rising again in the post recessionary period.
  11. INDUSTRY OVERVIEW Product Value (billion USD) Export Share Growth 1 T-Shirts 4.69 26.22% 49.31% 2 Trousers 4.16 23.24% 37.19% 3 Sweaters 2.48 13.89% 38.59% 4 Shirts 1.56 8.74% 57.68% 5 Jackets 1.88 10.54% 39.77% Source: EPB
  12. SOCIAL IMPACTS OF THE RMG SECTOR Women Empowerment Savings Child Labor Population Control
  13. PRICE MECHANISM History • Buyers coming over during season • Agents • Buying houses • Setting up of own office
  14. Internal Factors Scale of operations Larger operations tend to enjoy economies of scale PRICE MECHANISM
  15. Internal Factors Backward and Forward linkages Leads to cost savings and better control over quality PRICE MECHANISM
  16. Internal Factors Cost of Inputs International prices fluctuate leading to fluctuating cost prices PRICE MECHANISM
  17. Internal Factors Value Added Services Specialized value added services such as designing, quality lab, shipping tend to demand a premium PRICE MECHANISM
  18. Internal Factors Future orders Firms with lacking future orders are more likely to lower prices than firms who are neck high on orders PRICE MECHANISM
  19. Internal Factors Volume of order Firms are more willing to offer lower prices on orders with high volume of work PRICE MECHANISM
  20. External Factors Exchange Rate Weak local currency Local Currency getting stronger International Factors PRICE MECHANISM
  21. External Factors Hartal • Days of little to no productivity • Problems for meeting deadlines • Goods at risk when being delivered on these days Extortion • Extortion where the factory is located • Extortion while the shipment is being sent to the port • These costs add to the overall cost PRICE MECHANISM
  22. External Factors Minimum Wage Government sets minimum wage Increases the price PRICE MECHANISM
  23. External Factors Imperfect Knowledge Sellers bid among themselves Do not know the price bid by the competitors Compete among themselves Buyers take advantage of that PRICE MECHANISM
  24. Looking forward A gradual shift from buyers market to suppliers market PRICE MECHANISM
  25. INDIA Forward Chain:  fixed price Internationally  reluctant to export more  $20 billion export in 2012-2013 Backward Chain: Majority of imports from china steady increase in imports after phasing out of quota cotton knitted fibres are done locally other fabric and fibres varies from 5% to 100% in import
  26. Trade association : CMAI: 20000 members deals with government and policies helps tax and vat reduction Govt. Initiatives : 1019 crore financial assistance 30% raise in target INDIA
  27. VIETNAM Backward Chain:  3 sectors  2% fibre from local source  20% fabric from local source forward Chain: 2007: Fair trade policy problems with us department of commerce 2009: Failure to prove dumping Apparel export $11.5 billion
  28. VIETNAM Trade association : VITAS: Non government umbrella : 635 companies, 70% of market VINATEX: Biggest state owned organization, 90 member, helps in production process Govt. Initiatives : 2008: president requested VINATEX to increase local materials by 36% Strong renovation and economic reform Improved trade relations: capturing china’s market
  29. MEXICO Backward chain stakeholders Protecting labor rights Gearing for makeover Forward chain stakeholders Fashion becomes affordable Emergence of new distribution channels Multinational's enter the market Trade association involvement Nafta EU-FTA Government strategies Trade policies Entrepreneurial mindset Competitive workforce Strategic locations Supportive environments
  30. Backward chain stakeholders Trade unions-ACFTU Forward chain stakeholders Changing environment New distribution channels Multinational's enter the market Trade association involvement WTO-2001 ITMF CHINA Government strategies Existence of trade zones Entrepreneurial mindset Advantages Challenges
  31. Backward chain stakeholders Procurement of raw Materials Trade unions and legislations Forward chain stakeholders Shift to high value added item Designer clothing Strategic locations Trade association involvement Custom unions with EU Free trade agreements- Israel, Romania, Croatia, Macedonia TURKEY Government strategies Liberal Trade policies Entrepreneurial mindset Flexibility among production sites Qualified Human resources Developed Sub-category Trade Fairs
  32. SYNTHESIS • Comparison in Government Strategies • Comparison in Trade Association and Union involvement • Comparison in Entrepreneurial Mindset • Comparison in Forward Chain Stakeholders • Comparison in Backward Chain Stakeholders
  33. Comparison in Government Strategies Bangladesh China Existence of business Zones EPZ can be compared with this kind of measures. Though number of foreign companies is quite low the industry enjoys great facilities in the zones. The garment sector in China is based mainly on the east coast, in Guangdong, Zhejiang and Jiangsu provinces. Most factories are within 'Special Economic Zones'. They are predominantly privately owned and foreign investment is common. For example in Guangdong province, 62% of garment factories are foreign owned, many by Hong Kong and Taiwanese companies. Specialized Markets Specialized markets are unavailable in Bangladesh. The so-called "Superior Goods Zone" within the fabric market includes overseas textile companies having annual sales of more than US$30 million, international chain enterprises and merchandising offices of well-known charitable and welfare institutions; as well as China's top 100 textile companies and national- level branded textile companies and the top 10 large operators in China's top five professional textile markets. SYNTHESIS
  34. Comparison in Government Strategies Bangladesh India Endorsement of cultural uniqueness in apparel Bangladesh government has yet to recognise local craftsmanship as a POD to establish new market abroad India has endorsed its weavers and the handloom sector to export as part of the apparel industry. Investment in research and development Bangladesh has yet to take necessary investments in research to make the industry more sustainable The Cabinet Committee on Economic Affairs (CCEA) has approved an Integrated Processing Development to make textiles processing units more environment-friendly and globally competitive Encouraging new entrants Since the 80s RMG industry has enjoyed incentives from tax exemption in importing capital goods as well as exporting them. Even subscription to utility and other government services is easier with respect to other industries. The Government of India plans to set up Rs 100 crore venture capital fund to provide equity support to start-ups in the textiles sector. SYNTHESIS
  35. Comparison in Government Strategies Bangladesh Mexico Import Tariffs Apparel import in Bangladesh is quite low considering the high exports. This kind of initiatives were not necessary in Bangladesh. The Mexican Government formally notified the World Trade Organization that it would increase tariffs to protect its apparel industry. The announced tariff increase, from an average of about 20% to 35%, will apply to apparel imports from non-Nafta countries. Growth Plan Bangladesh exports after fending for its local market. The growth of the industry outmatches the growth of market size. As a result of the steep tariff decline, Mexican imports of apparel increased 74% from 2005 to 2007. During the same period Mexican domestic production grew just 3% in volume, not keeping pace with growing demands for higher volume, better quality and lower prices. SYNTHESIS
  36. Comparison in Government Strategies Bangladesh Vietnam Initiatives of Government to create strong backward link Government has not been involved with any initiatives but the industry itself has become self-sufficient in many ways In mid-2008, Vietnamese President Nguyen Minh Triet requested that VINATEX increase the amount of domestic textile material it uses from 36 percent to a higher amount to help supporting industries grow. Annual increment in labour wage In Bangladesh no such labour law is at work There is a mandatory 10% increment every year in vietnam SYNTHESIS
  37. Comparison in Government Strategies Bangladesh Turkey Existence of Free Zones Moderately open economy in the Export Promotion Zones. These EPZs are furnished with all possible facilities. As a tool of market orientation, Turkey has given importance to establishment of Free Trade Zones and Industrial Free Zones. Readily, there are 19 Free Zones in operation. Terms of investment Investment assured under Foreign Private Investment (Promotion and Protection) Act, 1980 which secures all foreign investments in Bangladesh. Foreign companies are treated equally with Turkish companies, in terms of investment in Turkey, transfer of profit and capital and access to incentives. SYNTHESIS
  38. Comparison in Trade Association involvement Bangladesh China International affiliations Investment assured under Foreign Private Investment (Promotion and Protection) Act, 1980 which secures all foreign investments in Bangladesh. 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. When China became a WTO Member in 2001, it committed to lowering its tariff rates, opening its domestic retail and distribution market, granting trading rights to qualified enterprises and individuals, and providing access to foreign-funded retailers interested in doing business in China’s second-tier cities. International Exposure BGMEA also organizes international events but all in a very small scale. In April 2008, the China National Textile and Apparel Council, which represents China's textile industry, joined the Switzerland-based International Textile Manufacturers Federation (ITMF) as a member association, and in October 2009 hosted the ITMF Annual Conference in Shanghai. Worker Conditions Bangladesh is trying its best to regain the confidence after Rana plaza incident. It is rumoured that their compliance scenario is worse than Bangladesh. Accusations of physical torture has been denied by China SYNTHESIS
  39. Comparison in Trade Association involvement Bangladesh India Material testing by association No centralized quality measurement by BGMEA. They are planning to open up one soon. The Association runs a well-equipped testing laboratory to test the Physical and Chemical characteristics of Yarn, Fabrics and Garments. The services of the Laboratory are open to Members as well as Non-Members. Trade Association involvement in supply chain BGMEA consists of 4000 members but almost all of them only are the manufacturers and forward chain members. The number of backward chains members are quite low CMAI has a membership base of over 20,000 companies, including RMG Manufacturers, Exporters, Retailers and Ancillary Industry. It consists of all the parts of the supply chain Centralized labour union No centralized labour union was allowed but the path has been paved for this in the recent years. Garments and Textile worker union (GATWU) advocates for labours in the whole industry. SYNTHESIS
  40. Comparison in Trade Association involvement Bangladesh Mexico Trade agreements Bangladesh is a member of WTO and enjoys GSP benefits under its umbrella in many countries. Mexico had a huge upswing in 1990s after entering into NAFTA (North America Free Trade Agreement) with Canada in 1994, becoming the world's one of the largest textile manufacturers. With the NAFTA agreement the sales hiked and Mexico attained large chunk of market share. Local Blocks Bangladesh has not made any local trading blocks in south Asia. SAARC is trying to evolve into one. Under Nafta, for textiles and apparel to be considered North American, it must generally be made from North American yarn -- allowing only the fibers to be imported from outside North America. This is termed the "yarn forward" rule, and requires "triple transformation:" fiber transformed to yarn, transformed to fabric, transformed to apparel. Trade Benefits Bangladesh has lost its GSP status in USA. It is trying to get back this status. Under Nafta, duties on almost all North American textiles and apparel traded between the United States and Mexico will be eliminated within 6 years. The remainder will be eliminated within ten years. All quotas will be phased out. SYNTHESIS
  41. Comparison in Trade Association involvement Bangladesh Vietnam Reach of trade association Government has not been involved with any initiatives but the industry itself has become self-sufficient in many ways The Vietnam Textile and Apparel Association (VITAS) is a non‐governmental umbrella association working in the field of textile and garment industry in Vietnam with 15 branches in Vietnam and in total of 635 members, account for 70% of the total capacity of the industry. Centralized labour union No centralized labour union was allowed but the path has been paved for this in the recent years. VIET labour federation also works in the Garments industry. They have pushed a law to increase worker salary by 10% every year. SYNTHESIS
  42. Comparison in Entrepreneurial Mind set Individual profit mentality overall industry growth Lack of foresight in Bangladeshi small manufacturers India and Mexico and Turkey has open minded entrepreneurs China and Vietnam are quiet conservative in Business practices SYNTHESIS
  43. Comparison in Forward Chain Stakeholders Bangladesh China Changing environment Bangladeshi garments owners are not keen to change the technology used for more environment friendly technologies Due to pressure from the population and also from the international market, environment friendly technologies are making headway Distribution channels Bangladesh have fairly established distribution channels China has increased the distribution channels, especially apparel specialty stores Multinational entries Leading international fast fashion players are expanding in the country though at not a very fast rate Leading international fast fashion players are expanding in the country at a very fast rate SYNTHESIS
  44. Comparison in Forward Chain Stakeholders Bangladesh India New orders from overseas buyers In Bangladesh, exporters are enthusiastic about taking orders from overseas buyers. Due to volatility of raw material prices, exporters are reluctant to take new orders from overseas buyers. Bangladesh Mexico Affordability Fashion has generally been affordable in Bangladesh Advent of new competitors in 2012 led to reduction in market price of fashion products in Mexico Distribution channels Retailers are the most prominent distribution channel followed by apparel specialist stores Apparel specialist stores are the most extensive distribution channel SYNTHESIS
  45. Comparison in Forward Chain Stakeholders Bangladesh Turkey High value added items Because of the rigidity in the Value Addition criteria, high value items manufactured in the country are failing to enter the international market. Shift to high value added items resulted in Turkey being very competitive in high quality products in the international market Designer clothing In Bangladesh whatever design work is done in the country, these are mostly carried out with foreign workers and experts. Turkey has lots of investment in fashion and designing. Strategic location Compared to Turkey, shipments take longer to be delivered from Bangladesh. One of Turkey’s key competitiveness stems from its strategic location being very bear to both Asia and Europe. SYNTHESIS
  46. Comparison in Backward Chain Stakeholders Bangladesh China Workforce Bangladesh has a workforce of 4 million workers China, with the advantage of larger population, has workforce of 15 million workers Dedicated association Bangladesh has BGMEA for all garments related issues China has only one trade union, the ACTFU Bangladesh India Import of man-made fabrics Bangladesh is becoming more and more independent in terms of providing fabric India imports most of its fabrics from China due to low cost. Indigenously produced fabrics Imported fabrics are generally cheaper due to transaction and overhead costs Price of indigenously produced fabrics are very high due to low labour productivity, high power and labour cost, etc. SYNTHESIS
  47. Comparison in Backward Chain Stakeholders Bangladesh Mexico Labour right protection Labour right protection in Bangladesh is not implemented at all Mexico has one of the best implementations of labour right protection Workforce Workforce of Bangladesh are very unqualified Mexico offers qualified and competitive workforce with considerable manufacturing and marketing expertise. Finished garment products Bangladesh has been producing finished garment products for a long time Mexico has recently shifted their attention to finished garment products SYNTHESIS
  48. Comparison in Backward Chain Stakeholders Bangladesh Vietnam Sub sectors Bangladesh has mainly two sub-sectors, fabric production and garment manufacturing. Vietnam has three sectors, fiber production, fabric production and garment manufacturing. Cotton production Bangladesh produces a huge portion of the cotton that is required Though Vietnam has potential, it only produces 2% of the cotton required and imports the rest CMT garment production Bangladesh has been using the CMT process for value addition Vietnam has moved from CMT to better technologies, increasing total yield Bangladesh Turkey Cotton production Bangladesh has been using the CMT process as value addition Turkey is also a major producer of cotton, they rank 8th in the world SYNTHESIS
  49. POSSIBLE STEPS TO BECOMING PRICE SETTER Current Supply Chain : Too many intermediaries Intermediary bias becomes a big management challenge Possible remedies: Ensure flow of information between businesses Re-establish US GSP and advocate inclusion of RMG Minimum Price Caps Policies and other measures
  50. Centralized Information Hub Create a virtual portal for B2B interaction : Model to expose buyers to sellers and vice versa Secure platform for information exchange Alibaba.com used as model- custom tailored for Bangladesh RMG sector THE ALIBABA STORY : E-commerce business Started in 1999 – relatively new One of the 20 most visited websites in the world Accounts for 60% of parcels delivered in China
  51. THE ALIBABA MODEL  Suppliers and buyers post listings Listings searched, contact made and information is exchanged Customers negotiate to finalize transaction Communication through alibaba’s software Points of Difference : Provides credit rating (trustpass) to protect buyers and sellers from fraud Payment through secure AliPay Websites translated to multiple languages
  52. RISE TO FAME Product : Tailored to consumer preference Picture banks, product displays 3rd party payment system to avoid fraud Credit rating system Price : Free registration in early years Pricing introduced when client base increased
  53. RISE TO FAME Place : Different websites for different countries Tailored to country culture, language Promotion : Targeted SME’s from the start Directly linked with their success Goodwill and word of mouth
  54. US GSP STATUS RMG not a part of US GSP Narrow basket of goods for Bangladesh Unfair treatment to an LDC like Bangladesh Pre GSP Status: Not favorable due to narrow basket RMG denied access due to import sensitivity Only duty free access of sleeping bags revoked in 2010
  55. BENEFITS OF GSP FOR RMG Market Expansion : Duty free access to major trading partner Can reduce current tariff penalty of $652 million Quantitative gains : Allows price leverage for up to 15% of export value Bangladesh can gain as much as 0.8 billion USD in tariff exemptions which accounts for 3.2% of national budget Allows for mark-up up to the tariff range
  56. OTHER MEASURES Buyer Complaints : Infrastructure Compliance Supplier Performance and workforce supply Raw Materials- nationalized backward linkage for woven products Economic and Political Stability
  57. GOVERNMENT SIDE (PLAN AHEAD!) Strategically introduce Minimum price cap of $5.00 Take plans for establishing a deep sea port Investment in management and vocational training Regulate illegal establishments Encourage use of technology to vendors with high turnover and investment Improve Public Relations management
  58. SUPPLIER SIDE (THINK BEYOND!) Improve management skills Provide in-house training for lower and middle management Adopt clever CSR schemes for compliance e.g. Garments without Guilt (GWG) in Sri Lanka Take fair wages and incentive scheme Pursue lean workshops, streamline production Incorporate ERP, PPS, ETP into the system to increase efficiency
  59. BUYER SIDE (BE REALISTIC!) Keep supplier capacity and ability in mind. The information hub will help streamline the selection Governance and monitoring within own setup Cooperate with NGO’s to promote compliance. Actively participate to shape the industry. Incentive is a tailor made industry. Honor supplier efforts instead of wrong comparisons at the negotiation table.
  60. THANK YOU “By 2019, Bangladesh has the potential to become the largest manufacturer of RMG in the world” -McKinsey & Co.

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