International Journal of Economic Issues, Vol. 4, No. 2 (July-December, 2011): 165-170 International Science Press DOMESTIC MARKET ORIENTED GARMENTS SECTOR OF BANGLADESH: AN ECONOMIC STUDY GOLAM AZIZUL HAQUE, MD. SOHAG Economic Graduate, Khulna University, Bangladesh. MOHAMMED ZIAUL HAIDER Associate Professor, Economics Discipline, Khulna University, Bangladesh. This is the first work initiated to chalk out the performance of the domestic market oriented garments sector (DMGS) in Bangladesh. This study conducted using primary data from field survey considering the tailor shops as the units of the DMGS in the south-west region of Bangladesh. The result of regression analysis shows that DMGS is highly labor intensive in the perspective of order based production of dresses and this sector can experience huge demand if there are product diversifications with the concept of recent fashion trends. This study finds the construction of Padma Bridge will ensure the sources of raw materials to be established much closer which will enhance better quality production by the firms beside the RMG sector of Bangladesh. Keywords: Domestic market, Tailor, RMG, Export, Dummy variable, Regression model 1. INTRODUCTION Domestic Market Oriented Garments Sector represents one specific part of the garments market of Bangladesh which is cent percent consumer order based where the consumers order to the tailors providing their pieces of cloth with necessary measurements, then the tailors do the job from cutting to stitching, button sewing, and even ironing to deliver the dress within the given delivery date. There have been tremendous innovations in these past hundred years in fashion and the art of tailoring: sewing machines now do the work on straight seams better than could be done by hand; new fabric technology has history produced more comfortable cloths; fashions have adapted to more leisurely, climate-controlled lifestyles. But tailoring is still, and likely to remain so, an art. The area now constituting Bangladesh had a rich tradition in textiles. Handlooms used to dominate the textile sector producing mostly coarse cloth for consumption by people of Bangladesh. The weaving community of that time having a high level of dexterity produced a variety of cloth known as Muslin (Wikipedia, 2009). Even up to the present time, there is a coexistence of handloom weaving and modern textile factories to meet the clothing need of the people of the country. Despite this, Bangladesh has been an importer of cloth to meet the domestic consumption
166 / INTERNATIONAL JOURNAL OF ECONOMIC ISSUES needs. It also imports cotton for production of yarn in the textile mills. It is, in fact, because the country produces a very scanty amount of cotton. The country entered into the export market of textiles particularly in the readymade garments and knitwear over the last two decades. This entry has brought in opportunities and challenges of multiple dimensions including that of local policies. Since independence, the economy of Bangladesh is dependent on agriculture as most of the people live in rural areas. The goal of the government policy is to reduce poverty by receiving the maximum output from agriculture and attaining selfsufficiency in food production. Beside agriculture, the development of export sector is under greater consideration. Exports from Bangladesh have both grown and changed substantially as time goes on. After the birth of Bangladesh, jute and tea were the most exported items of Bangladesh. But with the constant threat of flooding, declining jute fiber prices and a significant decrease in world demand, the contribution of the jute sector to the country s economy has deteriorated (Spinanger, 1986). After that attention has turned to the role of manufacturing sector, especially in garment industry. According to Haider (2007), The RMG industry of Bangladesh started in the late 1970s and became a prominent player in the economy within a short period of time. The industry has contributed to export earnings, foreign exchange earnings, employment creation, poverty alleviation and the empowerment of women. Bangladesh exports its RMG products mainly to the United States of America and the European Union. These two destinations account for more than a 90 per cent share of the country s total earnings from garment exports. The garment industry in Bangladesh has become the main export sector and a major source of foreign exchange since 1980. It exported about $5 billion worth of products each year during 2001 and 2002 (Mahmood, 2002). According to Begum (2001), the industry employs about 3 million workers of whom 90% are women. Two non-market factors have played a crucial role in ensuring the garments sector s continual success namely (a) quotas under Multi-Fiber Arrangement (MFA) in the North American market and (b) preferential market access to European markets (Bhattacharya and Rahman, 2001). The whole procedure is strongly related with the trend of relocation of production. Mohiuddin (2008) attempted to identify the prospects of Bangladesh s RMG industry in the post-mfa period by analyzing the current scenario, strength and weakness of Bangladesh s RMG and potential competitiveness in the world market in the coming years. The investment in backward linkages industry, market diversification, favorable government policies, improved governance and infrastructure, preferential access to markets and above all the local entrepreneurial swiftness have kept the Bangladesh s RMG industry vibrant in post-mfa era. Bangladesh has emerged as an important supplier of quality readymade garments in the global market. The spectacular growth of garment sector in Bangladesh in recent years has dramatically changed the landscape of export composition of the country (Nuruzzaman and Haque, 2008). Once heavily dependent on exports of primary products lead by Jute, the economy of Bangladesh is now experiencing almost 76% export contribution from RMG. The sector has now occupied an important place in Bangladesh national economy. Nevertheless, all is not well in this sector. It faces
DOMESTIC MARKET ORIENTED GARMENTS SECTOR OF BANGLADESH: AN ECONOMIC STUDY/ 167 numerous challenges and it is now on the crossroad with the phasing out of quota system, Generalized Standard Preferences (GSP) facilities and new provisions of World Trade Organization (WTO). Bangladesh exports huge readymade garments products to many countries and it has potentiality to export more. Again, the domestic garments sector is capable of meeting up the demand for garments of one hundred and fifty million people. It is the larger volume producer sector than the Ready-Made Garments (RMG) sector of the country. The study has tried to chalk out the performance of this sector in the economy of Bangladesh and provide a guideline that may help in performing better. 2. DATA AND METHODOLOGY Both primary and secondary information has been used to prepare this paper. Field survey is done to collect primary data through structured schedule. In the process of schedule survey, the respondents were requested to answer the questions, carefully and honestly, regarding status of the domestic garments business. Primary data was collected through two ways: (a) (b) Direct Interview: In this process data is collected through face to face interview with the respondent. Field Observation: The Author personally tried to get insight on some issues where the respondents are unwilling to express themselves verbally. Simple random sampling method following the approach of Kothari (2007) has been adopted to conduct sample survey. Tailor shop owners and employees in the study area are the target group. The primary information was collected from representatives of 109 firms and only 100 were valid for final analysis due to outlier nature of certain information. Thus the sample size of the study is 100. Again the study followed both the qualitative and quantitative approaches. Qualitative analysis includes reviewed literature, structural, political and social factors analysis and the domestic demand of garments. Data are analyzed and presented with the help of statistical tools (regression, correlation, mean, frequency etc.), software (Ms Excel, SPSS etc.). The empirical model-1, used in this study, is the Cobb-Douglas production function and other simple statistical tools like mean, total count and percent. This function has been widely used in production related studies because of its simplicity. Furthermore, this function allows either constant, increasing or decreasing marginal productivity, or not all the three and even any two at the same time. And the model-2 comprises the estimation of the relationship of operating profit with production volume, wage and salary, age of firms, initial investment of the firms and two dummy variables set for products. One dummy is set value-1 for male and value-0 for female. And the other is set as value-1 for baby and value-0 for otherwise. Then, a regression is carried on with the help of SPSS software to get the coefficients. 2.1. Empirical Model-1 The model specified is: L β1 K β2 M β3 µ (1)
168 / INTERNATIONAL JOURNAL OF ECONOMIC ISSUES Where, Q = A = Volume of production (in pieces/month) Intercept L = Sum of salary and wage (in tk./month) K = Initial investment (in tk./month) M = Raw material cost (in tk./month) µ = Error term Model-1 can be estimated by using Ordinary Least Square (OLS) method. The Cobb-Douglas Production Function was transferred into log-linear form as: lnq = lna +β 1 lnl + β 2 lnk + β 3 lnm + µ (2) The values of the input coefficients imply their contribution to the production dresses by the firms or the coefficients are the level of determination to the firms production. However the equation (3) shows the estimated form of equation (2) lnq = 6.153 + 0.593InL 0.084lnK 0.673lnM (3) Output elasticity of labor, capital, and raw materials are 0.593, -0.084, and -0.673 respectively. Here, we see that if the cost of salary and wage is increased by taka 1 there is increase in production by taka 0.59 and vice versa. Again for increase in investment by tk. 1 there is decrease in production by tk. 0.84 and vice versa. And, last of all, there is decrease in production by tk. 0.67 if raw material cost increased by taka 1 and vice versa. Thus, the firms are highly labor intensive in case of production. 2.2. Empirical Model- 2 The model specified is: Where, π = Operating profit (per month) Q = π = f (Q, L, K, G, D 1, D 2 ) (4) Volume of production (in pieces per month) L = Sum of salary and wage (in tk./month) K = Initial investment (in tk.) G = D 1 = D 2 = Age of the firms (in years) Dummy for products (1 for male and 0 for female) Dummy for products (1 for baby and 0 for otherwise) πˆ = 0.673Q 0.523L 0.351K 1.235D 2 (5) Elasticities of the volume of production, sum of salary and wage, initial investment, age of the firms and dummy for products type (D 2 ) are 0.673, -0.523, -0.351, 0.098 and -1.235 respectively. The respective elasticities show that operating profit is positively correlated with only with volume of production. The higher the volume of production; the greater the profit and the vice versa. But if the cost of salary and wage is increased
DOMESTIC MARKET ORIENTED GARMENTS SECTOR OF BANGLADESH: AN ECONOMIC STUDY/ 169 by tk. 1 then operating profit will be decreased by tk. 0.52 which clearly indicates a negative relationship between cost of salary & wage and operating profit. Thus lowering the cost of salary and wage is a condition of increasing the operating profit. The model interprets that if there is addition in investment, operating profit will be decreased by 35 per cent. Again, if there is a change in product types there will be change in profit by 123 per cent negatively. Though there is positive relationship between firm age and operating profit the responsiveness is low; 0.098. There are some firms well reputed for their experience in the business but have to compete with the newcomer firms enriched with a high variety of fashion and styles. That is why; the degree of responsiveness is not very much in case of regression of profit and experience of the firms. 3. CONCLUSION Bengalis have century long history of mechanized tailoring and several thousand years of experience in hand stitching. The aptitude and art of sewing has genetically transmitted through the peoples of this land thus, the indigenous tailoring sector of Bangladesh is meeting the nationwide demand for garments from beginning till today. DMGS Sector plays a significant role in the economy of Bangladesh. It provides employment to a vast segment of craft persons in rural & urban areas and meets domestic demand for garments products and capable of generating substantial foreign exchange for the country. Currently, domestic garments sector contributes substantially to employment generation and exports. The domestic garments sector is, however, being suffered due to its being unorganized, with the additional constraints i.e. lack of education, low capital, lack of new technologies, absence of market intelligence, poor infrastructural set up, forward-backward linkages, and a poor institutional framework. Traditional fashion concepts in tailoring are also hindering the development of domestic market oriented garments sector of the study area. Use of information and technology can provide latest ideas about the business. The recent trend of fashion is now a day s tailor oriented, basically for ladies fashion, in Bangladesh. The local market oriented garments sector is highly labor intensive in production. Using labor intensive technology the firms can produce better quality products. That is why product diversification is the way of earning greater amount of revenue. With the nearer sources of raw materials the firms of this sector can earn more revenue. Establishment of Padma Bridge and active operation of Mongla EPZ will be helpful in this perspective. Initiative by the government of Bangladesh to provide technological help and technical training to the firms and labors respectively will ensure better quality products according to modern fashion trend. This all initiatives can proud century long history of mechanized tailoring and several thousand years of experience in stitching of the people of Bangladesh. References Adhikari, R. and Weeratunge C. (2006), Textiles and Clothing Sector in South Asia: Coping with Post-quota Challenges, in South Asian Yearbook 2006. Centre for Trade and Development, New Delhi.
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