Challenges and Opportunities of Bangladesh's Ready-Made Garment Industry. A comparative value chain analysis

Master's Thesis , 2014 , 130 Pages , Grade: 1.3

Design (Industry, Graphics, Fashion)

The thesis explores the value chain of Bangladesh's ready-made garments industry at a crucial point: The link between internationally operating brands and retailers and locally operating garment manufacturers. The research problem arose from the discussions about the question who can bear which responsibilities for improving the working conditions in the sector. By illustrating the various differences in the buyer-producer relations, the author sought to better understand the complex interdependencies of this network and thereby contribute to a better insight to aid all involved stakeholders to move the sector forward.

Various types of relations between garment manufacturers and international buyers could be identied: Some manufacturers are relying on a wide choice of buying agents, buying houses and direct buyers. Other companies are producing mainly for direct buyers. The latter can benefit from a slightly higher profit margin but in both cases, the relations are based on oral contracts and the factories' capacity utilisation is subject to a great order fluctuation.

A third and most noticeable group is characterized by very close ties to the buyers. These ties enable producers to re-negotiate order conditions in case of difficult circumstances and the first buyers are concluding long-term contracts with the manufacturers. The companies that rely on strong long-term contracts have a smaller profit margin but can manage their companies easier nevertheless because their capacity fluctuation is close to zero.

At the same time, price and compliance pressure are stated as the most important challenges by the manufacturers. The enforcement of high standards on building and fire safety has become a number one topic in Bangladesh's RMG sector. According to a large part of the interviewed manufacturers, the regulations are rising too fast. They often complain about shrinking profit margins that would not allow them to invest in compliance. The international buyers on the other hand refer to
the low productivity that should be raised by the manufacturers as a first step to gain more profitability.

It can be concluded that the value chain of ready-made garments in Bangladesh shows eminent characteristics of a captive governance but there are several important distinctions to make within this category. The interviews showed evidence that the buyer-producer relations are developing towards a more cooperative relationship based on partnership.

Editor's Note:
Due to data privacy and the sensitiveness of certain information, parts of the thesis and appendix were removed.

Inhaltsverzeichnis (Table of Contents)

• 1. Introduction
• 2. Theoretical Framework
  • 2.1. Value Chains and Value Chain Analysis
    • 2.1.1. Value Chain Concept
    • 2.1.2. Global Value Chains
    • 2.1.3. Value Chain Analysis
  • 2.2. The Global Value Chain of Ready-Made Garments
  • 2.3. Social and Environmental Standards
    • 2.3.1. BSCI
    • 2.3.2. WRAP
    • 2.3.3. International Buyers' Code of Conduct
    • 2.3.4. Other Systems
  • 2.4. Summary and Conclusion
• 3. Bangladesh's Garment Sector
  • 3.1. Historical Development
  • 3.2. Present-Day Status
  • 3.3. International Trade and Customs Regulation
    • 3.3.1. Trade with the European Union
    • 3.3.2. Trade with the United States
  • 3.4. Key Stakeholders
  • 3.5. Social and Environmental Standards
  • 3.6. Summary and Conclusion
• 4. Research Design
  • 4.2. Research Purpose and Goals
  • 4.3. Research Questions
  • 4.4. Methodology
    • 4.4.1. Approach and Reasoning of Research
    • 4.4.2. Research Options and Strategy
    • 4.4.3. Research Method
    • 4.4.4. Sampling
    • 4.4.5. Quality Criteria
  • 4.5. Questionnaire Design
    • 4.5.1. Types of Data Collection
    • 4.5.2. Order of Questions and Funnelling
    • 4.5.3. Open vs. Closed Questions
    • 4.5.4. Ethical Considerations and Non-Disclosure
  • 4.6. Manufacturer Questionnaire Development
    • 4.6.1. Necessary Background Data
    • 4.6.2. Questions Module Buyer Relation
    • 4.6.3. Questions Module Business Situation and Cost Structure
    • 4.6.4. Questions Module Compliance
    • 4.6.5. Final Design
  • 4.7. International Buyer Questionnaire Development
  • 4.8. Interview Preparation
  • 4.9. Delimitations and Conclusion
• 5. Survey Implementation and Results
  • 5.1
    • 5.1.2. Selection and Approach of Participants
    • 5.1.3. Interviewing of Manufacturers
    • 5.1.4. Approach and Interviewing of Buyers
    • 5.1.5. Main Challenges in the Data Collection Process
  • 5.2. Results on Challenges
  • 5.3. Results on Buyer-Producer Relations
    • 5.3.1. Long Term Relations and Contractual Agreements
    • 5.3.2. Subcontracting
    • 5.3.3. Renegotiation
  • 5.4. Results on Compliance and Standards
  • 5.5. Results on Profitability and Company performance
    • 5.5.1. Correlation between Number of Buyers and Profit Margin
    • 5.5.2. Influence of Company Size
    • 5.5.3. Price Pressure
  • 5.6. Productivity
  • 5.7. The Country's Challenges
  • 5.8. Conclusion
• 6. Discussion
  • 6.1. The Buyers' Power
    • 6.1.1. Conflicts
    • 6.1.2. The Intermediary's Role

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This thesis aims to shed light on the intricate network within Bangladesh's Ready-made garments (RMG) sector, encompassing local manufacturers, international brands and retailers, as well as buying houses and agents. It explores how pricing, profitability, and compliance with increasingly crucial international standards interact. This thesis analyzes the challenges and opportunities facing Bangladesh's RMG sector, investigating the complex interplay of global value chains, social and environmental standards, and the evolving dynamics between buyers and manufacturers.

• Global Value Chains and their influence on the Bangladesh RMG sector
• Social and environmental standards in the context of garment production
• The relationship between pricing, profitability, and compliance with international standards
• Challenges and opportunities for manufacturers and buyers in the RMG sector
• The role of international buyers in shaping the industry landscape

Zusammenfassung der Kapitel (Chapter Summaries)

The first chapter introduces the topic of Bangladesh's RMG industry and its significance for the country's economic development. Chapter two delves into the theoretical framework, exploring the concept of value chains, global value chains, and value chain analysis. It also examines the role of social and environmental standards within the RMG industry, focusing on specific frameworks like BSCI, WRAP, and the International Buyers' Code of Conduct.

Chapter three provides an in-depth analysis of the Bangladesh RMG sector, tracing its historical development and current status. It explores international trade regulations, particularly those related to the European Union and the United States, and examines key stakeholders within the industry. The chapter further discusses the importance of social and environmental standards in the context of Bangladesh's RMG sector.

Chapter four outlines the research design employed for this thesis. It details the research goals, questions, methodology, and data collection strategies, including the development and administration of questionnaires for manufacturers and international buyers. The chapter also addresses ethical considerations and non-disclosure issues.

Chapter five presents the results of the surveys conducted with both manufacturers and buyers. The findings highlight key challenges faced by the industry, explore the nature of buyer-producer relationships, analyze the implications of compliance and standards, and examine factors influencing profitability and company performance. The chapter also addresses the impact of price pressure and the role of productivity on the sector's competitiveness.

Finally, chapter six delves into a discussion of the findings, focusing on the power dynamics between buyers and manufacturers, the role of intermediaries, and the potential for conflict resolution. It also examines the implications of these dynamics for the future sustainability and development of Bangladesh's RMG sector.

Schlüsselwörter (Keywords)

This thesis primarily focuses on the Bangladesh Ready-made garments (RMG) sector, encompassing global value chains, social and environmental standards, buyer-producer relations, pricing, profitability, compliance, challenges, opportunities, and the role of international buyers in shaping the industry landscape.

• College: RWTH Aachen University
• Grade: 1.3
• Author: Johannes Bachstädter (Author)
• Publication Year: 2014
• Pages: 130
• Catalog Number: V1335437
• ISBN (PDF): 9783346846990
• ISBN (Book): 9783346847003
• Language: English
• Tags: Bangladesh, Garment Industry, RMG industry, Value Chain Analysis, International Business Relations