Project documents

Introduction

The apparels sector of Bangladesh is at a cross-road. It has yet to move beyond the shadow of the Rana Plaza tragedy. Given the overwhelming contribution of the apparels sector on Bangladesh economy in terms of export earnings, employment generation mainly for female workers, women empowerment and poverty alleviation (CPD, 2002), persistence of such poor compliance would cause long term damage to the economy particularly to women employment and empowerment (CPD, 2008). Currently the sector is facing twin challenges – slow progress in undertaking necessary measures towards addressing the compliance related concerns and increasing pressure on restructuring in order to ensure necessary economic upgrading. At the same time, global apparel market is experiencing major changes during this period particularly from the demand side, as a consequence of economic slowdown, leading to demand depression, shifting state of comparative advantages and competitiveness of supplying countries due to change in preferential market access, preferential margins and productivity differential growing South-South trade and new entrants on the supply side. Part of these changes have adverse impact on export performance of apparels enterprises of Bangladesh.

A major global debate now is whether the traditional approach to the development of the value chain through economic upgrading in terms of improvement in productivity and efficiency be able to ensure social upgrading of the value chain. Major global policy forums such as G20 and WTO Bali Ministerial have put emphasis on ‘more and better participation of the developing countries in the value chain’ where the issue of sustainable development remains a major concern. Recently, sustainable development goals (SDG) has put emphasis on greater participation of developing countries in the global value chains.

Moreover, there are debates over effectiveness of various initiatives which have been undertaken – whether changing value chain governance through the initiatives taken are adequate enough to embed the ideas of decent work, labour rights and social protection of workers along the functioning value chain. Global audience including policy makers, development organisations, right-based organisations, consumers as well as local stakeholders are keen to see a quantum shift through targeted initiatives both at the national and global level in the apparel value chain.

In view of this shifting dynamics, Bangladesh apparel sector needs to reach a ‘new equilibrium’ within a foreseeable future. This will need to be informed by higher productivity, greater competitive capacity and better physical and social compliance which will enable the sector operate on the basis competitive strength and long term sustainability.

There is huge knowledge gap at micro, meso and macro levels with regard to understanding the direction of changes and upgrading that are being taken place in the apparels sector. Researches on Bangladesh’s apparels sector during the post Rana-Plaza period put focus mainly on labour related legal, governance and right issues. Most of these researches have been carried out based on either available secondary information or key informants interviews (KIIs), sample surveys and FGDs. Although enterprises stand at the core of industrial restructuring and upgrading, very limited research have been carried out on enterprise level issues and concerns particularly during the post-Rana Plaza period when major restructuring, remediation and compliance related activities have been undertaken. Such initiatives have long term implications at enterprise’s competitiveness as well as sector’s long term sustainability. Because of the knowledge gap with regard to possible development in Bangladesh’s apparels sector,major stakeholders particularly entrepreneurs, government and development partners and international organisations find it difficult to identify appropriate policies and measures with regard to the apparels sector of Bangladesh. Taking into cognizance all these emerging demands, there is a need to undertake thorough investigation of the involved issues through rigorous analytical research and field-level evidence gathering.

Such a study will hopefully provide a better understanding on new dynamics at the apparels enterprises of Bangladesh particularly with regard to economic transformation and improvement of social and physical compliance and thereby possible development of sustainable value chain in the apparels sector of Bangladesh. The outcome of the present study is expected to provide policy directions to major stakeholders for undertaking the required changes in respective segments of the value chain.

Study Objectives

The key objective of the programme is to assess the capacity of apparels enterprises to undertake economic transformation as well as to upgrade physical and social compliances and thereby to continue maintaining its competitiveness in the global market. Economic transformation at the enterprise level is reflected through economic upgrading by upgrading its manufacturing base from low-end and mass-level products towards a combination of low and medium to high end products. This will be related with enterprises ability to raise the level of productivity, efficiency, technological readiness, market and product diversity etc. The social upgrading is more related with the ability to undertake necessary restructuring of physical and social compliances. Based on this assessment, the study would like to put forward necessary policy suggestions with regard to long term economic upgrading along with social upgrading targeting sustainable development of apparels enterprises.

Major Hypotheses

The overall objective of the study is to assess the capacity of apparels enterprises to undertake economic transformation as well as to upgrade physical and social compliances and thereby to continue maintaining its competitiveness in the global market. Hence the study intends to focus on changes in firm level capacity owing to various kinds of initiatives in order to undertake existing and future challenges of competitiveness not only at the national level but also at the international level and also to be able to make necessary upgrading. Moreover, such an assessment of enterprise-level economic and social upgrading will be cross-examined in terms of their gender embedded nature which will reveal possible impact and implications of the upgrading on gender related issues in the apparel value chain of Bangladesh.

The study intends to test three hypotheses. Those are related with social upgrading, economic upgrading and gender embedded upgrading of the apparels value chain.

Hypothesis 1

Changing cost structure owing to upgraded social and physical compliance will raise firms’ overall cost of production. Given the diverse structure of cost and return, not all firms will be able to internalize these additional costs and therefore a part of firms will exit from the market; on the other hand, firms having the capacity to improve their productivity would remain competitive in the market.

 Hypothesis 2

Transformation of the apparels industry will be reflected in firms’ upgrading capacity in the production process by enhancing their growth further in the lower-end segment of the product market and their ability to enter and grow in the upper-end segment. Not all firms will be able to upgrade in full due to differences in cost and return, level of productivity, product specialization, net asset and nature of contractual arrangement.

Hypothesis 3

Given the presence of gender inequality in the apparel sector value chain, economic and social upgrading of apparel enterprises will not be able to reduce the gap between male and female workers both within and across enterprises in terms of entitlements, rights, access to employment and safety and security and job hazards including sexual harassment etc.

Survey related Issues

Out of the total population of RMG enterprises, 84 per cent located in Dhaka and nearby region, 14 per cent in Chittagong and nearby region and the rest 2 per cent in other districts (Table 4).[1]

Table 4: Basic Information about the RMG Industry in Bangladesh
A. Location of factories
Dhaka Chittagong Others Total
3219 (84%) 528 (14%) 61 (2%) 3811 (100%)
B. Membership of Organisations
BGMEA members BKMEA members Non-members Total (incld. double membership
3507 (64%) 2000 (36%) 5507
C. Size of firms (no. of workers)
Large (>1000 workers) Medium (500-999) Small (200-499) Others (100-199)
540 (10%) 765 (15%) 2437 (47%) 1412 (27%)

Source: Prepared by CPD

Database on RMG Enterprises

There is no comprehensive database for Bangladesh’s RMG enterprises which covers important basic information. Two trade bodies such as BGMEA and BKMEA publish directory of their members on a regular basis. Recently, ILO has prepared a database by modifying the databases of BGMEA and BKMEA. On the other hand, national level statistics on RMG sector are not so updated. The Survey of Manufacturing Industries (SMIs) provides firm level detailed information; however, it is available for 2012. The Census of Manufacturing Industries and Economic Census although provide detailed information on industrial units including RMG firms, but were not updated since the last publication in 2005. In this backdrop, selection of sample firms for this study will not be easy. However, these databases have few shortcomings that CPD – RMG Study 2016 will try to overcome.

RMG Workers Population Dataset

 In order to address the gender embedded upgrading, the study need gender-disaggregated data. Hence the population of the apparel units need to be further disaggregated in terms of male and female entrepreneurs and workers. The existing dataset could further disaggregated in terms of production process where women and men are significantly involved. A comprehensive population dataset of RMG enterprises is available at the DIFE and the ILO. CPD intends to use that population dataset in order to ensure harmonization in the databases.