Global Scenario Of Apparel Trade Economics Essay

Posted on

Harmonizing to Dickerson ( 1999 ) , the dress trade thrives as the planetary export sector in the universe. It was thrived as the antediluvian industries as good ( USTIC, 2004 ) . The garment industry states to be planetary leader by increasing its portion in the fabrication community. During the term of office of 1980-92 the growing supersedes all other activities in fabrication sector ( Ramaswamy and Gereffi 1998 ) . Their growing rate was 10.2 % yearly while the overall growing rate was 4.9 % for the universe trade ( Exim Bank of India, 1995 ) . In fabric and garment ‘s sector, the planetary trade has seen a encouragement of around $ 347 billion over a period of 40 old ages from $ 6 billion in 1962 to $ 353 billion in 2002 ( Appelbaum,2005 ) . The low and in-between income states were the most beneficiary because of the high labor battle. They have shared 70 % of planetary dress export concern, rocketing from $ 53 billion to $ 123 billion in 1993 to 2003 periods ( Sattar et al.2006, p2 ) . However the ready-made garments and fabric industry are one of the few industries in which developed universe states to use typical protectionism through different clause, import revenue enhancement and pact which dates back to the 17th century ( Bardhan 2003 ; Rock 2002 ) . In malice of the developed states difficult clasp on this trade, it managed to do significant impact on economic systems of Newly Industrialized Economies ( NIE ) e.g. south Korea, Taiwan, Hong Kong etc. throughout the 1960 ‘s and 1970’s.Later production was relocated in Indonesia, Thailand and Mexico and Philippines ( Hale 2000 ) . These emerging Asiatic economic sciences have gained high per capita growing rates, comparatively low income inequality, and high instruction accomplishment, record degrees of domestic economy and investing, the flourishing exports from the 1960s to the mid-1990s ( The World Bank 1993 ) . Growth in the fabric sector benefits ‘upstream ‘ agricultural or fabrication sectors through increased demand for natural stuff inputs or machinery and equipment. In add-on, the fabric and dress sectors depend on the prevalence of many modern economic activities. A state fetches other cognition and accomplishments such as advertisement, selling, transit, and communicating through developing export-oriented fabric and dress industries. These singular progresss pinpoint the importance of the fabric and dress industries to a state ‘s ongoing development ( Diao and Somwaru 2001, p2 ) .

The industrialised universe peculiarly the US, restricted imports of garments under the stalking-horse of market break, known as Multi Fiber Arrangement ( MFA ) from 1974. This was a model for bilateral understandings or one-sided actions that established quota restricting imports into states whose domestic industries were undergoing serious harm from quickly increasing imports. Since 1995, Agreement on Textiles and Clothing ( ATC ) has taken over from the MFA ( U.S ministry web site ) for a 10 twelvemonth period, from 1995 to 2004. Gradual backdown of quota system was in topographic point to let clip for both importers and exporters to get by with new fortunes. By 1 January 2005, the quotation marks came to an terminal. The quota system has been an highly cost-efficient method of maintain socio-political stableness to a really destitute portion of the universe ( Peter Craig, 2005 ) .

2.3 Theories of Competitive Advantage

One of the cardinal aims of this paper is to decide the suited skeleton to analyze the fight of the Bangladeshi RMG industry by proving a suited manner. It is a really complex subject why some states get success while other fails in geting the competitory advantage in both domestic and planetary competition. ‘Competitiveness ‘ itself is broad impression. Trade understandings have compelled industries to face completion from planetary rivals and hence the significance of competitory advantage is tremendous ( Requier – Desjardins et al. , 2003 ) . This is the present basic state of affairs for Bangladeshi RMG industry. However some theoreticians like Ricardo ( 1817 ) and Smith ( 1776 ) identified authorities shortages, currency strength, exchange rates and other macro- economic factors as the pertinent objects of competitory advantage. But, the practical grounds shows, some states gained success in international concern in malice of holding an unfavorable macro-economic status. Besides, Murphy ( 2001 ) identifies the desire of obtaining concern legerity, comparative cost advantage and the handiness of labor as the factors of deriving corporate competitory advantage. Harmonizing to the Heckscher-Ohlin ( 1991 ) theoretical account fight depends on the hierarchal human ecology, resource and the gifts which a state is inherited ( Subasat, 2003 ) . The two basic trade goods of trade are labour and capital. If a state is endowed with labor, it should hold advantage on labor oriented industry and on the other manus if a state has got copiousness of capital, it can be acquiring competitory advantage on capital intensive industries. But, the theory has been identified as a controversial one by many critics as the trade goods can be freely nomadic in the present epoch of globalization and the trade liberalization. Countries with different gift can do equilibrium by exporting, importing or sharing their copiousness or gifts ( Subasat, 2003 ) . Furthermore, in his analogy Karl Marx ( 2008 ) shows, labor can add an excess value to the bing capital which can work as the formation of capital and harmonizing capital can be the end product of labor. Through the Heckscher-Ohlin theoretical account of trade is in pattern, it can non alone depict the entire form of modern trade and competitory advantage in both the macroeconomic and microeconomic degree. Some theoreticians recognized the authorities policy of a state is extremely responsible for accomplishing the corporate success ( Dunning, 1995 ) . But as an counterpoison, Harling ( 1989 ) and Wint ( 1998 ) states the consequence or end product is frequently negative in economic footings while authorities have focused on a peculiar industry to come on in competiveness. A good concern direction pattern has been identified as the chief determiner of competitory success by many theoreticians. But direction pattern can non be entirely executable as sometimes same direction pattern might hold really different and inefficient result ( Bloom & A ; Van Reneen, 200 ) . Finally, it can be said, most of the theoretical accounts and theories evidently contain some comparative ‘truth ‘ . Nevertheless they entirely failed to account all the comparative factors to explicitly depict the fight in specific concern sphere ( Deraniyagala & A ; Fine, 2001 ) . Bhattacharjea ( 2004 ) provinces, the new strategic theories have endeavoured to set the corporal defects of the traditional theories by kick offing the constructs like merchandise distinction, economic sciences of graduated table and so on. But still, the new theories instilled with many defects like the traditional theories in the manner of depicting the flawlessnesss for competitory advantage.

After reexamining a broad scope of theories, Michael Porter ‘s ( 1998 ) theory of fight has been found as most influential and relevant on order to depict the planetary competitory state of affairs for the Bangladeshi RMG industry. In malice of holding some restriction, Porter ‘s ( 1998 ) theory of competitory advantage explicitly fulfils the demands at national and steadfast degree. The theory non merely analyses the industry degree rivals but besides negotiations about the steadfast degree activities ( O ‘ Shaughnessy, 1996 ) . Porter ‘s competitory advantage theory or ‘Diamond ‘ theoretical account endows with most dynamic and complete position as it integrates more than the factor conditions and notably incorporates both macroeconomic and microeconomic influences to depict fight of a state ( Jin, B. 2004 )

2.4 Bangladesh and its one of the major rivals ( China )

The ready-made garment industry experienced the initial shudder during the early few months after the backdown of the quota system as predicted by the events in the early literature survey such as the World Bank 2003, 2005, Rahman and Raihan 2001, Satter et Al. 2006 ; Satter et al 2005, Montfort and Yang 2004 etc. However, no mark of decline was seen in the overall garment export from Bangladesh in the post-MFA epoch. Rather, harmonizing to Satter et Al. 2006, the gathered information reveals a modest 13 % export growing at the terminal of FY 2004-2005, along with knitting garments exhibiting ebullient growing of 31 % .

China one of the chief rivals of Bangladesh, on the other manus, showed an impressive growing form. Harmonizing to the informations supplied by US section of commercialism, Chinese import of cotton-made pants of US rocketed by 1500 % and knit cotton shirts by 1250 % in the first one-fourth of FY 2005 compared to the same period in FY 2004 following the backdown of quota ( usinfo.state.gov,2006 ) . Detecting this rapid growing, the US authorities had to enforce impermanent quotas ( uninfo.state.gov/usinfo/archive/2005 ) under WTO ( World Trade Organisation ) understandings. Consequently, China had been made to export in some certain classs of dress and fabric with up to a much controlled 7.5 % growing rate each twelvemonth until 2008 ( United Stated International Trade Commission, May 12,2006 ) . The EU market showed a similar booming tendency. Harmonizing to The European Commission record, in general, in the first half of 2005, the export in China has been increased by over 48 % by value to the EU. China ‘s market portion for merchandises liberalised in 2005 saw a notable increase in volume every bit good in value by 145 % and 95 % and it reached 500 % in other classs. On the footing of this record, there is an understanding settled in between EU. The Chinese vesture and fabric growing would be managed until 2008 in 10 classs as a consequence of dialogue ( Europa.eu.int ) . The safeguard steps gave the houses more eupneic infinite. The knitwear entirely showed a 60 % growing in the US market during July-May period of fical twelvemonth 2004-2005 when its exports fetched $ 371 million. The entire exports to USA stood at around $ 2 billion during the period. Anisul Huq, ex-president of BGMEA straight attributed this growing to WTO precaution clause against China and commented this trade growing in the US market would prolong more or less until 2008, when the WTO precaution clause would finally travel.

Woven exports besides experienced growing after a downward tendency in the last twosome of old ages. Tipu Munshi, President of BGMEA, asserted that the growing in woven exports slumped up to September 2005 after the backdown of the quota. The inexorable state of affairs bit by bit started to better in ulterior period, with a growing of 8.35 % . He commented that knit holding their ain backward linkage, is turning faster than woven, which is to a great extent dependent on imported cloth ( The Daily Prothom Alo, 23 April issue, concern subdivision ) . This survey besides indicates the same ; the houses were spread outing their capacity, even up to 300 % in some instances, to run into this ever-growing immense demand. Bangladesh is demoing a enormous tendency in growing now ( Apparelmag.com, in October 2005 ) . So foretelling the hereafter in truly disputing in a state of affairs which is more dynamic than any other industry. Furthermore, the tenseness between US and EU trade with China made the state of affairs more critical, as China ‘s rapid rush of growing in vesture and garments is the chief concerns. Many of the importers presently consider China as the ‘best topographic point ‘ ( Bod Mckee, Fashion industry solutions Director for Intentia, a planetary Mid-market ERP system seller ) . Neither quality nor production costs that are identified by most garment manufacturer as biggest challenge, as Bangladesh is cheaper in some ategories than China, lead clip is their chief job ( Source Apparel magazine )

But when aggregated wholly all the factors like nice mills, political stableness, clip, handiness of cloth and comparative velocity to market, China has decidedly some more favorable constituents compared to other Asiain opposite numbers ( Tom Glaser, Vice president of Global Sourcing and Managing Director, VF Asia ) . However, hope sustains every bit good in footings of inclination of outsourcing, as ‘Nobody is traveling all their sourcing to China ‘ says Kurt Cavano, Chairman and CEO of TradeCard, a company that automated fiscal trade dealing from procurance though payment. What are looking for, is a set of sellers in appropriate strategic locations to let them to fabricate if safeguard-or anything else-become an issue ( Kusterbeck, 2005 ) . Peoples seem to follow the slow and steady manner of covering the state of affairs by the retail merchants and others purchaser, which make them lodge with their traditional supply concatenation beginnings alternatively of any dramatic displacement. This is non the terminal though, Tom Glaser besides commented that China can non take the all universe, and at that place would decidedly be some other topographic points which could be better for certain merchandises excessively.

2.5 RMG part to other sectors of Bangladesh

The influential growing of read-made garments enormously benefitted by some factors. Those are, accoutrements, fabrics, transit, packing etc. Harmonizing to Quddus ( 1996 ) , the garments export industry of Bangladesh has spread its laterality over the fabrication and export related economic scenario in a comparatively really margin clip. Areas such as banking, conveyance, packing, existent estate, public-service corporation services and client goods have embraced an economic activity worth of about $ 2 billion ( Hiller and Olfames 2003, p.2 ) . Approximately 70 % of concerns are dressing related in port metropolis Chittagong ( Anisul Haque, 2006 ) . The port authorization earn 40 % of their entire income from the garments sector histories as a port usage fee. In FY 2002, the sipping concern earned $ 65 million through RMG by allow them utilize their port, from C & A ; F, cargo charges etc. RMG sector plays a large axial rotation over insurance and banking sector. There is a large portion between commercial bank and RMG and fabric sector. Almost tenth part of the commercial Bankss ‘ assets are because of RMG and fabric sector of Bangladesh. 46.14 % of the entire export had been financed by commercial bank went for RMG in 2001-02. , the commercial bank has got about all houses ( around 98 % ) as client and this bank works for working capital and procurance of machines and equipment ( 57 % ) for all houses or sectors ( World Bank study ) . Another large donee from garment sector is insurance. It is really much of import to acquire insurance for machines and workss of the sectors. In entire, the consequence of dress trade for Bangladesh is rather significant. In malice of tremendous obvious growing, the negative impact is that our state has become excessively much dependant on this sector. Harmonizing to Sattar et Al. ( 2006 ) that the RMG sector has become the back bone of Bangladesh ‘s economic system. The full state ‘s luck is siting slightly precariously on this one sector. With the two million direct employees, and another one million in linkage industries, it supports the support of some 10 million Bangladeshis who managed to relieve to a singular extent.

2.7 Product Concentration

Merchandise concentration has been another worrying fact for dress industry. Harmonizing to BGMEA and Export Promotion Bureau, the export history of Bangladesh says that chiefly five points are taking the export market. For RMG industry part analysis shows that approximately 80 % of entire vesture exports are constituted from this dominated five points. Even in the unfastened market, in two months of FY 2005-06 the export market was dominated by them. The safeguard limitation and the related houses are chief ground of this leading ( Debapriya Bhattacharya, Mustafizur Rahman and Ananya Raihan, 2002 ) .

Therefore, a assortment of surveies have been carried out to analyze the significance of the fabric and ready-made garments industry in Bangladesh. Some research workers ( Paul-Majumder and Begum 2000 ; Rock 2002 ; Sajeda Amin et Al. 1998 ; Paul-Majumder 2002 ; Khunder 2002 ; Afsar 2000 ; Grumiau 2000 ; Heweet and Amin 2000 ; Hossain, Jahan and Sobhan 1990 ; kebber 2004 ) emphasized the impact of garment industry in footings of migration of rural adult females towards urban metropolis and how the RMG industry brings forth drastic alterations in adult females ‘s life in every facets from authorization in family work to their economic rights. These research worker besides depicted how the inexpensive labor peculiarly of adult females worker, have been exploited by lower rewards, more on the job hours and unhealthy conditions. Other surveies focus on trade unionism in the garment industry ( khan 2002 ) or see the firing issue of ‘sweatshops ‘ in the garment industry ( Kearney 2003 ; Wilkins 2003 ; Frynas 2000 ) . Appelbaum ( February 5, 2005 ) praised two universities for taking base against the sweatshop production for their logoed dress. A batch figure of research worker has painted the fabulous addition in growing of garment industry, as for illustration the export has increased from 0.2 % to 75 % in between 1980 ‘s to 2004-05 and the consequence on globalisation has come out as a point ( Bow 2001 ; Muqtada, Singh and Rashid 2002 ; Ahmed 1989 ; Dowlah 1999 ; Haider 2003 ; Mohmood 2002 ) . These surveies besides describe how MFA and GSP strategies of EU nurtured the growing of RMG industry with a fixed market and at the same clip developed a ‘segmented ‘ backward linkage. The gross part of garment industry towards Bangladesh economic system in conformity with pulling Foreign Direct Investment ( FDI ) , to banking, insurance, instruction transportation and logistic has been investigated by Bhattacharya, Rahman and Raihan ( 2002 ) . Rhee ( 1990 ) analysed entrepreneurial accomplishment moving as a accelerator along with the MFA. Quddus ( 1996 ; 1993 ) extended this farther to demo the superb entrepreneurship as one of the chief factors for this tremendous growing. Kathuria, Martin and Bhardraj ( 2001 ) asserted that the unbelievable growing of Bangladesh dress industry was a consequence of combined attempt of MFA and favorable governmental policy with equal substructure. Other research workers ( Khundker 2002 ; Dowlah 1999 ; Haider 2003 ; Mohmood 2002 ) identified similar forms on the Ascension of the RMG industry.

The other surveies singled out the job associated with the RMG industry substructure restraints are found to be the chief constriction ( Bow 2001 ; Sattar et Al. 2005 ; Montfort and Yang 2004 ) . But in instance of capacity edifice constrained much of the research to day of the month has focused on occupation preparation and primary instruction for labors. Khundker ( 2002 ) looked for the capacity edifice through preparation and debut of accomplishment related class, while World Bank put funding on manner and design development. Bhattacharya and Rahman ( 2002 ) suggested for accomplishment development, easing engineering transportation through short term inducement bundles.

A good figure of research workers focused on quota issue of MFA and concentrated on the branching of station quota period. This includes different organisation like The World Bank ( 2003, 2004, 2005 ) through separate single survey, United Nations ( 2005 ) , USITC ( 2004 ) , BIDS ( 2004 ) to single such as Appelbaum ( 2004 ) , Bhattacharya and Rahman ( 2002 ) , Toai ( 2004 ) , Nordas ( 2004 ) , Naumann ( 2005 ) , Sattar et Al. ( 2005 ) , Minor ( 2002 ) , Montfort and Yang ( 2004 ) , Hayashi ( 2005 ) , Islam ( 2001 ) , Dowlah ( 1999 ) , Bow ( 2001 ) etc. all of these surveies predicted more or less, extreme to chair ruin of Bangladesh dress exports after the quota free period. However, western research workers indicated negative consequence while the local research worker ‘s result was instead disputing. The local research worker Islam ( 2001 ) , Dowlah ( 1999 ) , Bhattacharya and Rahman ( 2002 ) , Khundker ( 2002 ) took cautious attack in analyzing the station MFA state of affairs. In malice of others ‘ concern about the autumn of the garment export, their surveies concentrated on endurance and growing by policy reforms, infrastructural development, conformity and labour jurisprudence execution but with local tacit cognition.