Future Competitive Strategy for the Ready Made Garments (RMG) Industry of Bangladesh in the post Multi Fiber Arrangement (MFA) Phase
INTRODUCTIONIn the expiration of the Multi Fiber Arrangement in January 1, 2005, a number of countries will be affected, particularly those in the South Asian regions. Not all of them will be affected in a positive way, some will come out as losers and some in an ambiguous position. It is in the latter category that the country of Bangladesh is perceived to belong ( 2005). This study is focused on the identification and evaluation of competitive strategies that the Bangladeshi RMG industry may adopt in order for the country to retain its position in the global market after the MFA phase. On the side, it is also edged on finding how important are backward linkage industries to the RMG industry.
ABSTRACT
This study is focused on the identification and evaluation of future competitive strategy for the Bangladeshi RMG Industry in the expiration of the MFA in 2005. The rationale behind the study lies in the urgency to identify and evaluate competitive strategies that the country may adopt in order to retain their position in the global market after the MFA phase. The initial review of related literature will touch on such subjects as the background of the RMG industry in Bangladesh, a brief MFA background, the backward linkage industry’s relationship to the Bangladeshi RMG industry, strategic advantages for RMG industry from integrated textiles, the external environment of the industry (with emphasis on the local government and domestic scenario) and a discussion of corporate business strategy and the factors that affect its formulation.
The research plans to adopt the qualitative method of research as the method can produce significant results even with a small sample. The study proposes to adopt the interpretivism position and the abductive approach, mainly for purpose of more accurate and reliable arrival at conclusions based on the research’s findings. Primary data collection is intended to be in the form of an in-depth phone interview with twenty RMG company owners living in Dhaka and Chittagong where the majority of RMG companies are located. Using a self-made open-ended questionnaire, the respondents, purposively selected by the researcher using a sampling criterion, will have to answer questions through phone. Secondary data is planned to come from books, journals, the Internet and other resources relating to the RMG industry of Bangladesh. The credibility of probable findings in terms of validity and reliability has also been briefly discussed in methodology. Proposed questions for the questionnaire are to be found at the end of this research proposal.
RESEARCH OBJECTIVESThe proposed research will aim to identify and evaluate future corporate strategies for the RMG industry in Bangladesh in the expiration of the MFA in January of 2005. Secondary to that objective is the identification of the importance of establishing a relationship between the backward linkage textile and RMG industries to retain their competitive position in the global RMG market and assist in the future development of garments sector in Bangladesh.
INITIAL REVIEW OF RELATED LITERATURE
Textiles, clothing and apparel industry are segmented components to manufacture garments for domestic consumptions and exports. In many countries these segmented industries have developed concurrently like India, China, Indonesia, Thailand, Taiwan etc. The companies of these countries are not importing material like yarn, fabrics and accessories to manufacture garments for exports that is why they have more flexibility to offer reduced lead times and wider product range. But there are countries that export clothing but depend on imported textile items to manufacture clothing for exports. These countries are Sri Lanka, Nepal, Dubai, Mauritius, and Bangladesh. The companies of these countries have been importing textiles from countries like China, India, or Indonesia and so are not as independent in business compared to the others.
The cost of manufacturing textiles and clothing in all these countries, though, are not identical but not very apart in weighted average on the ultimate product cost. The companies in these countries with integrated textiles always possess more strength but their export sector is confined by quota restrictions. The buyers are always searching for countries without such restrictions and which have cheap skilled labor force and other potentialities to manufacture clothing at a competitive price. These determinants have developed export oriented garment industries in countries like Bangladesh based on imported textiles from other countries.
The RMG export industry in Bangladesh commenced during 1977-80 for quota free status to U.S.A. This quota free status was the single largest factor for rapid development of this industry in Bangladesh augmented with the advantages of abundant cheap and skilled labor force. Bangladesh continued to procure fabrics and yarn from textiles surplus countries abroad until 1990. Thereafter, a few companies in Bangladesh have started setting up textile industries to fabric and yarn for export-oriented RMG industry. However, Bangladesh does not produce cotton, therefore they need to import the material while India and China have domestic cotton for their textiles. So, Bangladesh textiles are 10 to 15 % higher priced than those imported price from India or China creating a cost disadvantage for Bangladesh RMG corporate (2000).
Since 1974 many global changes have been taking place under MFA that gave developed countries the opportunities to impose quota restrictions on textiles and clothing whenever they fill necessary to protect their interests. Under such agreements, many exporting countries were receiving differential treatments from developed countries. All these trade regulations so far created advantages one after another for the Bangladeshi RMG corporate. These agreements compensated some of the disadvantages like the higher price of locally manufactured textiles. But the World Trade Organization (WTO) has set a time frame of 1st January 2005 for textile and clothing to be fully liberalized and trade or quota barriers will no longer remain in developed countries to eliminate all deferential treatments imposed on exporting countries. The rule of the game will then be determined by the vectors of price competence, just on time delivery (JIT) and quality standards.
‘The Multi Fibre Arrangement (MFA) (a.k.a. Agreement on Textile and Clothing (ATC)) governed the world trade in textiles and garments from 1974 through 2004, imposing quotas on the amount developing countries could export to developed countries. It expired on 1 January 2005. The MFA was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. Developing countries have a natural advantage in textile production because it is labour intensive and they have low labour costs. According to a World Bank/IMF study, the system has cost the developing world 27 million jobs and billion a year in lost exports’ ( 2006).
A glaring example of Bangladesh RMG industry is its gross dependence on imported raw materials when compared with some other exporting countries. A small portion of textiles is now domestically produced. The dependence on external sources for fabrics results to longer lead times to complete apparel export cycle. Although this is so, Bangladesh has held its own in the competitive world textile and clothing market since the end of quotas in early 2005, with the value and volume of its exports rising a modest 2% and 4% says the UNDP (.).
The clothing sector will become more dynamic with the enlargement of domestic textiles offering reduced lead times and additional flexibilities to the buyer. It must be accepted that with the existence of a weakness of a domestic based textile industry, the RMG industry will collapse in the long run. Therefore, all out efforts are necessary to become self sufficient in textiles and to reach the same level with that of other competing Asian countries, those that provide textiles domestically. This will provide the back up strength to the RMG industry to create additional values at its industry and company levels to remain competitive in global export market.
The business opportunities of a company or an industry has always been related with the macro environment of the country and its government. Bangladesh is no exception to that. RMG export businesses are very time sensitive and as a result, domestic time spent for transportation of the products, the transit times for inland sea or airports to the ports of destinations are essential. These businesses are also price sensitive and relate cost of transportations to each of these segments. The RMG industry of other countries is of different cultural environment and human values where the image of exporting country and its peoples are related. An ideal combination of all these aspects has values to determine the business perspective besides other issues of prices and lead times. Again the price competitiveness relates to the macro environment’s strength, service standards and prices for those services. A good macro environment will add business opportunities and a poor environment will erode these prospects.
There are three organization levels involved in the strategic management process; corporate, business unit, and functional. There is a hierarchical relationship among these strategy levels. The first task in the strategic management process is the formulation of a set of goals for the organization (1979), in this case the future of RMG business. The corporate level asks what business the country should be in. The business unit level asks how a firm should compete in a given business. The functional level is concerned with two issues. The first issue is the integration of the functional activities of the firm. The second issue is linking the functional strategies with changes in the functional area environments.
The competitive environment has five basic competitive forces including suppliers, buyers, potential entrants, substitutes and industry competitors (1980). Depending on the firm, it may choose to compete with other firms in the industry using a cost leadership, product/service differentiation, or market segmentation strategy (1980). However, looking beyond the recent crisis, corporations are realizing that in the long term they have to survive in a newly opened market environment. In addition, corporations are finding out that they are less able to depend on political and business relationships to bail them out during bad times in the increasingly democratic Asian economics. Thus, there is a shift in corporate culture “firm ego-driven conglomerate to market-driven niche player” ( 1999).
As a summary, the RMG sector to date is protected by external trade and tariff concessions allowed by importing countries. Bangladesh until now is classified as least developed country in the world of nations. These concessions are extended on the presumption that Bangladesh will make progressive economic development to reach the stage of a developing nation similar to India or China the two other major clothing exporting Asian countries. But the opportunities derived from such protection will not exist beyond the year 2005. What then the corporate should do to save this industry with a very high exit barrier? Based on these backdrop and to answer the research objectives following strategies are identified pertinent to the present and future of the textile and clothing industry of Bangladesh.
To protect this industry from the future threats of the suppliers abroad and simultaneously to reduce lead times in order to make the business more attractive to the buyers, there are no other alternatives other than full backward integration. This will add confidence of the buyers and improve the image. The textile sector thus developed will create supplementary co-operation relationship among textile and RMG industry instead of opposing competing relationship. Both will become interdependent on each other. This should be the core issue of relationship. The development of these two independent but interrelated corporate will create business opportunities for both. The profits gained out of these business opportunities should be equitably shared. One can urge why a company should go for high capital-intensive textile industries in this critical transition stage. The argument against such question is simple; textiles will create synergy for both the industry based on relationship, cooperation and trust. The sum of values added by both industries will exceed the value of each industry. But value of an individual industry will have no or less meaningful value.
Government macro-environment has always been the key issues for any business. These issues are more pertinent for an underdeveloped country like Bangladesh. For general economic interest, macro environment must be improved to an international standard. Though RMG industry is domestic based but are conducting global business; so, it demands an efficient good environments. Development of macro environment will not only improve the business opportunities but will further improve the image of Bangladesh creating advantage one after other. The RMG industry has many weaknesses as well as strengths. But the real asset it has is the responsive work force. This asset when intelligently trained and developed will turn into a great force to remove many weaknesses. The RMG firm level competencies are not the same. Some of them have competencies in one form or other. So, firms should identify exploit these competencies first and extend these competencies to the optimum level utilizing all the existing intangible and tangible resources they already have. Next they can add and create new competencies to meet the changing demands. During last twenty years the clothing business developed within confined and protected trade environment. This has lead to an apparent stability. But with the changes to free trade environment, changes are now needed at each organizational level to meet new business demands in an unprotected trade regime of uniform global competition in term of prices, lead times, environments, image and the services.
RESEARCH METHODOLOGYThis chapter describes the procedure with which the author is planning to conduct his case study. It will begin with a description of the chosen research method followed by the selected research approach and strategy, and then it will proceed to present the research instrument which this study plans to use: the questionnaire. This section will also refer to the credibility of the dissertation’s probable findings in terms of validity and reliability. Ethical issues that may arise in the course of doing this study will also be pointed out by the research methodology. Throughout the chapter, the author will attempt to justify the reasons for using such and such method, approach, strategy and instrument.
RESEARCH DESIGNAccording to (1983), data collection and the rules for confirmation is not only the part of research methodology, it is more about the way of explanation and the resources by which explanations are produced. So knowledge of explanation is developed from research methodology. On the other hand, research design provides the plan and structure as how to explanation could be acquired. The research design was influenced by the following factors: (1) The need to meet the learning objectives of the garments industry developments; (2) The requirement for credibility of academic research and; (3) The potential and limitation for development of backward linkage textile industry and its implementation.
The researcher will use the QUALITATIVE METHOD of research in the making of the dissertation. A definition of the method shows that, when broadly defined, means ‘any kind of research that produces findings not arrived at by means of statistical procedures or other means of quantification (1990). The qualitative method is chosen because there are no measurable data available on the subject of business strategies per se. What are capable of measure are the actions translated from these strategies. As business strategy is not measurable by itself, the method proves very adequate to serve its purpose since qualitative methods produce primary data much richer in meaning and – potentially – insight. Additionally, instead of attempting to sample across a large number of garment owners, a small number will be focused on and investigated over a period of two weeks.
This method will help the author describe the present condition of the RMG industry in Bangladesh, and consequently analyze the nature of future competitive strategy that the particular industry will adopt in order to retain its position in the global market after the expiration of the Multi Fiber Arrangement in 2005 and how the integration of the backward linkage textile industries will provide impetus for such retention. As every research project is built on a methodological approach, this study will the philosophical position of interpretivism, which relies on the underlying assumption that the general condition needs to be taken into consideration in order to fully understand a phenomena, in this case, the phenomena being the retention of the position of Bangladesh in the global RMG garment industry market through competitive strategy in a time when forecasts to the county’s industry are showing that the post-Multi Fiber Arrangement effects to Bangladesh are ambiguous (2005). From there, the author will attempt to identify and evaluate competitive strategies from the descriptions of respondents garnered from the survey questionnaires.
The study will use an abductive research strategy that is based on the interpretation and understanding of the subject. Abduction starts with the consideration of particular observations (in this case, the observation will come from the questionnaire results and related literature), then that consideration will give rise to a hypothesis, which relates them to some other fact, or rule that will account for them. This involves correlating and integrating the facts into a more general description, that is, relating them to a wider context (1989). The use of abduction to generate a hypothesis will help the author subsequently formulate a conclusion based on the questionnaire’s findings through development of a theoretical pre-understanding, while still maintaining enough interest to develop a theory (1994). Using the abductive approach will enable the author to gain insight and to develop a theory as resulting data from the questionnaires are gathered.
This dissertation will use a case study as a basis of generating a theory and making use of existing theories against which materials gathered can be compared. According to (1984), the detailed examination of a single example of a class of phenomena, a case study cannot provide reliable information about the broader class, but it may be useful in the preliminary stages of an investigation since it provides hypotheses, which may be tested systematically with a larger number of cases. (p. 34). A case study was chosen as a particular method of this qualitative research because it involves an in-depth, longitudinal examination of a single instance or event, rather than following a rigid protocol to examine a limited number of variables thus providing a systematic way of looking at events, collecting data, analyzing information and reporting the results (2006). According to (2006), case studies lend themselves to both generating and testing hypotheses (2006).
RESEARCH INSTRUMENTThis dissertation will make use of a questionnaire to facilitate the study of competitive business strategies for the Bangladesh RMG industry. This self-made questionnaire was chosen as a method for data collection for reason of its convenience to the author and the respondent, as there exists time constraints. The author could opt to leave the questionnaire for pick-up at a time both convenient for the respondent and within the time plan of the author. While the questionnaire is in the hands of the respondent, the author could attend to the other aspects of the dissertation such as application of the finishing touches to the review of related literature and preparation for how the data to be gathered will be treated. It was also chosen because of the geographical distance of Bangladesh to the author’s current location. The questionnaire for this research has been designed in such a way that would give an insight of the perception of the respondents about the current position of the garment factory, and what are its chances of retaining its current position in the global RMG market when future competitive strategies are adopted.
DATA COLLECTION METHODS
To collect the primary data, in-depth personal interviews over the phone with company owners will be facilitated in order to learn about the judgment, evaluation and their understanding of the weakness and strength of the industry and the future action plans they have in mind using an open-ended questionnaire. Time constraint and geographical distance are the reasons for choosing the particular data collection method. The respondents will be twenty garment factory owners living in Dhaka and Chittagong purposively selected by the researcher using a sampling criterion. Secondary data is planned to come from books, journals, the Internet and other resources relating to the RMG industry of Bangladesh. 20 respondents where the majorities of RMG companies are located were chosen for the survey to get a convincing outcome. Data was collected using purposive sampling. Personal contacts will be used to gain a higher response and to minimize the language problem, and as the author has worked in the RMG industry for a number of years, it will considerably give leverage to his access to the factories.
VALIDITY AND RELIABILITY OF PROBABLE FINDINGSAccording to (1999), validity is the best available approximation to the truth of a given proposition, inference or conclusion (as cited in ‘Designs to rule out threats to internal validity’). Research reliability refers to the repeatability of measurement, and how accurately a technique actually measures the phenomenon under investigation (2006).
The author will relate the findings of the study to existing theories of business strategy and find out which aspects of the findings are generally more valid than the others. Through that way, the findings could contribute to the generalization of some aspects of the theory, while opening another avenue for potential future research. The credibility of the findings will depend mainly on the results of the questionnaire, and as the respondents will be asked to remain anonymous, the impartiality and objectivity of their answers will heighten. The author, however, does not guarantee one hundred percent validity and reliability, as subjective interpretations cannot be simply avoided. This is an ethical issue that may arise from the making of this dissertation. Maintaining impartiality in the formulation of findings is not outright easy. A dissertation is ideally characterized by the maintenance of an attitude of impartiality and objectivity and by extreme care to convey information accurately. Thus, the author, in all aspects of the dissertation, will attempt to maintain an impartial view about the subject and leave the readers to decide if the study has achieved such unbiased position. Another ethical issue that may arise is the respondents’ consent to participate in the study. The author will attempt to address this problem by giving the respondents a clear description of the nature, form and implications of the research, and their role in it should they choose to participate.
POSSIBLE QUESTIONS FOR THE PHONE INTERVIEWThe following are open-ended questions, which will allow the researcher to come up with follow-up queries in the event that it is needed to further clarify an issue.
1. How do you think has the implementation, and the subsequent expiration of the Multi Fiber Arrangement affected the RMG industry of Bangladesh?
3. What are the strengths and weaknesses (internal factors) of the RMG industry in Bangladesh that you think could contribute to competitive strategy formulation?
4. What are the threats and opportunities (external factors) of the RMG industry in Bangladesh that you think could contribute to competitive strategy formulation?
5. What are the parts that suppliers play in the RMG industry of the country? Do you think they will significantly affect the future of the RMG industry in the country?
6. Do you think backward linkage industries help the RMG industry? In what ways?
7. How can backward linkage industries help the RMG industry in the country to retain its position in the global RNG market?
8. In a scale of 1 to 10, 10 being the highest, gauge the chances of Bangladesh in retaining its competitive edge in the global RMG market. Kindly justify your answer.
9. What strategic policies may the government adopt in the future to help the RMG industry in the retention of its position in the global market now that the Multi Fiber Arrangement has expired?
TIME PLAN
Target Date
Month Number
Task To Be Achieved
End Of November
1
Start thinking about the Project and Decided
Beginning of December
2
Resource collection and clearly outlined the work
End of December
3
Literature review written
Beginning of January
4
Further data collected and analyzed
Middle Of January
5
Primary and final draft completed including bibliography
Beginning of March
6
Submission of proposal
March - April
7&8
Further literature review with latest update
May & June
9 & 10
Review the research method and agreed on research strategy and formal access to organization
July
11
Analysis the findings and start writing the report
Middle of August
12
Prepare a final draft for further check with supervisor
End of August
12
Final Submission
Credit:ivythesis.typepad.com
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