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.
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
6.2. Further Manufacturers’ Challenges
6.3. Responsibilities
6.4. The Path Ahead
7. Conclusion
Research Objectives and Themes
The thesis aims to analyze the complex network within Bangladesh’s Ready-Made Garments (RMG) sector, specifically examining the buyer-producer relationships to identify key challenges and opportunities for improving social and environmental standards.
- Comparative analysis of buyer-producer relationship systems.
- The influence of buyer governance (buyer-driven value chains) on manufacturer profitability.
- Evaluation of standard usage and social/environmental compliance.
- Identification of impacts caused by intermediaries (buying houses/agents).
- Assessing the practical feasibility of labor and production standards given competitive price pressures.
Excerpt from the Book
3.3.2. Trade with the United States
In the United States, politics went one step further. In June 2013, president Obama decided to suspend GSP Benefits for Bangladesh while stating that GSP benefits might be restored if workers rights and workplace safety can be implemented. The decision followed a review of Bangladesh’s compliance with GSP eligibility criteria related to worker rights that began in 2007 based on a petition submitted by the American Federation of Labor and Congress of Industrial Organizations. (USTR, 2014)
Despite the abolition of US GSP preferences, export to the US was still growing afterwards from USD 4.99 billion in 2012-13 to USD 5.14 billion in 2013-2014, even though the growth has been significantly slower than EU export growth in the same period (see Appendix H.2).
Summary of Chapters
1. Introduction: Presents the growth and economic importance of the Bangladesh RMG sector, highlighting the shift in sensitivity toward labor rights following industrial disasters.
2. Theoretical Framework: Explains the concepts of Value Chain Analysis and Global Value Chains, including governance types and compliance standards.
3. Bangladesh’s Garment Sector: Provides a historical overview and present-day status of the industry, including trade regulations and stakeholders.
4. Research Design: Details the exploratory research methodology, utilizing semi-structured questionnaires with manufacturers and international buyers.
5. Survey Implementation and Results: Presents the findings regarding challenges, buyer-producer relations, compliance, and financial performance data collected from the field.
6. Discussion: Synthesizes the empirical results within the theoretical context, focusing on buyer power, conflicts, and the role of intermediaries.
7. Conclusion: Summarizes the key findings and highlights the necessity for better cooperation, unified standards, and the path ahead for the industry.
Keywords
Bangladesh, Ready-Made Garments, RMG, Global Value Chain, Buyer-Producer Relations, Compliance, Profitability, Subcontracting, Social Standards, Labor Rights, Rana Plaza, BSCI, WRAP, Trade Policy, Productivity.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis explores the buyer-producer network within the Bangladeshi RMG sector to understand how these relationships affect the industry's ability to maintain social and environmental standards.
What are the primary thematic areas?
The research focuses on business relationships, profitability of manufacturers, the impact of compliance standards, and the specific role of intermediaries like buying agents.
What is the central research question?
It investigates how specific buyer-producer relationship types influence the compliance and economic health of garment manufacturers in Bangladesh.
What methodology was employed?
The author conducted primary research through semi-structured interviews with 26 garment manufacturing firms and five international buyers, supplemented by secondary literature analysis.
What does the main body analyze?
The main body evaluates industry structure, theoretical governance frameworks, survey results on profitability and subcontracting, and discusses conflicts like price pressure and lead time requirements.
Which keywords characterize this work?
Key terms include Bangladesh, Ready-Made Garments, Global Value Chain, Compliance, Profitability, and Subcontracting.
How does subcontracting affect the industry?
Subcontracting is identified as a common but sensitive practice used to manage capacity fluctuations, often complicating the enforcement of social and safety standards.
What conclusion does the author reach regarding power dynamics?
The author concludes that the sector exhibits characteristics of "captive" buyer-driven governance, where international buyers hold significant power, yet there is a trend toward fostering more cooperative, long-term partnerships.
Does the thesis suggest a path forward?
Yes, the author argues that stakeholders must move toward unified, holistic standards rather than fragmented audits, and emphasizes the need to resolve the trade-off between price pressure and productivity.
- Quote paper
- Johannes Bachstädter (Author), 2014, Challenges and Opportunities of Bangladesh's Ready-Made Garment Industry. A comparative value chain analysis, Munich, GRIN Verlag, https://www.grin.com/document/1335437
