Historical Development and Growth of Bangladesh's Garment Industry

The garment industry in Bangladesh has experienced remarkable growth and transformation
since its inception in the late 1970s. Initially spurred by global quota systems favoring textile
exports from developing countries, Bangladesh quickly emerged as a significant player in the
global apparel market due to its low labor costs and abundant workforce.

Early Beginnings and Rapid Expansion (Late 1970s - 1990s)

In the late 1970s, Bangladesh's garment industry began to take shape with the establishment of
the first factories. This development was largely driven by the Multi-Fiber Arrangement (MFA),
which provided quotas for textile exports from developing countries to developed markets.
Bangladesh's competitive advantage in terms of low wages and a large pool of labor contributed
to rapid growth during the 1980s and 1990s.

During this period, Export Processing Zones (EPZs) were established to attract foreign
investment and facilitate export-oriented manufacturing. Global retailers and brands started
outsourcing their production to Bangladesh, attracted by competitive pricing and the industry's
flexibility in meeting diverse market demands.

Challenges and Reforms (2000s)

Despite its rapid growth, the garment industry in Bangladesh faced significant challenges in the
2000s. Issues such as poor working conditions, low wages, and occasional labor unrest garnered
international attention and scrutiny. These challenges led to calls for reforms in labor laws and
factory safety standards.

One of the most tragic incidents that highlighted these issues was the collapse of Rana Plaza in
2013, a garment factory building in Dhaka. The disaster resulted in over 1,100 deaths and drew
global outrage, prompting urgent reforms in building safety and labor practices. The event served
as a catalyst for industry-wide improvements in workplace safety, worker rights, and
sustainability practices.

Current Status and Global Impact

Today, Bangladesh is the second-largest apparel exporter globally, following China. Garments
constitute more than 80% of the country's total exports and provide employment to millions of
workers, particularly women from rural areas. The industry plays a crucial role in Bangladesh's
economy, contributing significantly to GDP growth and poverty reduction.

In recent years, there has been a notable shift towards adopting sustainable practices and
embracing technological advancements. Initiatives include the adoption of eco-friendly
production processes, improvements in energy efficiency, and the integration of digital
technologies to enhance productivity and competitiveness.
A table:

Future Prospects

Looking ahead, Bangladesh's garment industry faces challenges such as global economic
uncertainties, rising wages, and competition from other low-cost manufacturing countries.
However, ongoing efforts towards sustainable development and technological innovation are
expected to bolster its competitiveness and resilience in the global market.

In conclusion, the garment industry in Bangladesh has evolved from its modest beginnings to
become a cornerstone of the country's economy. Despite challenges, it continues to drive
economic growth, provide employment opportunities, and contribute significantly to poverty
alleviation efforts.

Theoretical Frameworks and Concepts

1. Comparative Advantage

Definition and Explanation: Comparative advantage refers to the ability of a country to

produce goods or services at a lower opportunity cost than another country. It forms the basis for
specialization and trade, leading to mutual gains for all trading partners involved.

Example - Bangladesh's Garment Industry:

Bangladesh's garment sector illustrates comparative advantage due to:

 Low Labor Costs: The country offers significantly lower wages compared to
competitors like China, Vietnam, or India, which attracts global apparel brands seeking
cost-effective manufacturing solutions.
 Skilled Workforce: Bangladesh has invested in training programs tailored for the
garment sector, enhancing workforce productivity and efficiency.

2 . International Trade Theories

Bangladesh's garments industry exemplifies several international trade theories, illustrating how
strategic alignment with these theories has propelled its economic growth:

1. Mercantilism: Mercantilism, an early economic theory, emphasizes the accumulation of

wealth through a favorable balance of trade. It advocates for government intervention to
promote exports and restrict imports to maintain trade surpluses.

Application: Historically, Bangladesh has adopted elements of mercantilism by

promoting export-oriented industrialization through policies such as export subsidies and
protectionist measures to support its garment industry.
 2. Absolute Advantage: Developed by Adam Smith, absolute advantage suggests that
countries should specialize in producing goods where they have an absolute efficiency
advantage, producing more with fewer resources.

Application: While Bangladesh may not have an absolute advantage across all industries,
its garment sector benefits from lower labor costs, contributing to its competitiveness in
global markets.

3. Comparative Advantage: Bangladesh has effectively applied the theory of comparative

advantage by specializing in labor-intensive industries like textiles and garments. The
country's abundant and relatively low-cost labor has allowed it to produce these goods at
a lower opportunity cost compared to many other nations. This specialization has enabled
Bangladesh to become one of the world's leading exporters of ready-made garments
(RMG), accounting for a significant share of global apparel production.

Assume:

 Bangladesh can produce 1 million units of garments per year.

 Each garment unit sells for an average price of $10.
 Total revenue from garment exports = 1 million units * $10/unit = $10 million.

Hypothetically, if Bangladesh were to produce electronics instead:

 Bangladesh can produce 100,000 units of electronics per year.

 Each unit of electronics sells for an average price of $50.
 Total revenue from electronics exports = 100,000 units * $50/unit = $5 million.

Opportunity cost of producing 1 unit of garment instead of electronics:

 Opportunity cost = 100,000 units of electronics / 1 million units of garments = 0.1 units
of electronics per unit of garment.

This calculation shows that Bangladesh has a comparative advantage in producing garments
because it can produce garments at a lower opportunity cost compared to electronics.

4. Factor Proportions Theory: According to this theory, countries specialize in producing

goods that utilize factors of production (land, labor, capital) which they possess in
abundance. Bangladesh's garments sector heavily relies on abundant low-cost labor,
making it a prime example of the factor proportions theory in action. The industry's
growth is fueled by the country's large and productive labor force, which supports
efficient and cost-effective mass production of garments for export markets.

 Assume

 Bangladesh's garment exports grew by 10% annually over the past decade.
 Garment exports in 2010 were $20 billion.
  Garment exports in 2020 would then be approximately $20 billion * (1 + 0.10)^10 =
$54.29 billion.

This demonstrates how export-led growth has significantly boosted Bangladesh's garment sector,
contributing to overall economic expansion and export diversification strategies.

5. Global Value Chains (GVCs): Bangladesh has integrated deeply into global value
chains, particularly in the apparel industry. Global brands and retailers often outsource
different stages of garment production to countries like Bangladesh, where specific tasks
like cutting, sewing, and finishing are performed efficiently and cost-effectively. This
participation in GVCs allows Bangladesh to benefit from economies of scale,
technological advancements, and access to international markets, enhancing its
competitiveness in the global textile and apparel trade.

 Suppose Bangladesh's garment industry receives 40% of its raw materials (fabric,
accessories) from neighboring countries.
 Total value added in Bangladesh's garment sector (including domestic and imported
inputs) is $30 billion.
 Value added domestically within Bangladesh = $30 billion * (1 - 0.40) = $18 billion.
 Value added through imports from GVC partners = $30 billion * 0.40 = $12 billion.

6. Export-led Growth: The garments industry has been pivotal in driving Bangladesh's
export-led growth strategy. By focusing on exporting finished textile products,
Bangladesh has significantly increased its foreign exchange earnings and diversified its
export base. This strategy aligns with export-led growth theories, which advocate for
countries to prioritize expanding exports as a means to achieve sustained economic
development and reduce poverty.
7. New Trade Theory: New Trade Theory, proposed by Paul Krugman, emphasizes
economies of scale and network effects as drivers of international trade. It argues that
countries can benefit from specialization and trade even in the absence of absolute or
comparative advantages.

Application: Bangladesh's specialization in garment manufacturing has enabled it to

achieve economies of scale, attract foreign investment, and become a major player in
global apparel supply chains.
3. Trade Agreements

Bangladesh has leveraged various trade agreements to enhance its garments exports. For
instance, preferential trade agreements such as the Generalized System of Preferences (GSP)
with countries like the United States have provided duty-free access to Bangladeshi garments in
key markets, boosting export volumes and revenues. These agreements reflect the importance of
trade policy in facilitating international trade and supporting economic development strategies
based on comparative advantage.

Definition and Examples:

Trade agreements are formal agreements between countries or regions to reduce barriers to trade,
such as tariffs and quotas, thereby promoting economic integration and cooperation.

 Examples and Impact on Bangladesh:

o Generalized System of Preferences (GSP): Bangladesh benefits from GSP
schemes offered by developed countries like the US and EU, providing duty-free
or reduced tariff access for Bangladeshi garments in these markets.
o Regional Trade Agreements (RTAs): Participation in SAFTA and other
regional agreements facilitates trade with neighboring countries, reducing trade
barriers and expanding market access.

4. Competitiveness

Definition and Factors Affecting Competitiveness:

Competitiveness refers to a country's ability to sell goods and services in international markets
while maintaining or expanding its share of those markets.

 Factors Affecting Bangladesh's Competitiveness:

o Labor Cost Advantage: Bangladesh's lower labor costs compared to competitors
enhance its attractiveness for global apparel manufacturing.
o Government Policies: Supportive policies promoting export-oriented
industrialization, infrastructure development, and regulatory reforms are critical.
o Infrastructure and Logistics: Investments in EPZs, ports, and transport
networks improve efficiency in garment exports.
Mathematical Illustration of Comparative Advantage

Let's illustrate comparative advantage using a hypothetical scenario:

Assume:

 Bangladesh can produce 1 unit of garments with 5 hours of labor.

 China can produce 1 unit of garments with 10 hours of labor.

Opportunity Costs:

 In Bangladesh, the opportunity cost of producing 1 unit of garments is 5 hours of labor.

 In China, the opportunity cost of producing 1 unit of garments is 10 hours of labor.

In this scenario, Bangladesh has a lower opportunity cost (5 hours of labor) compared to China
(10 hours of labor) in producing garments. Therefore, Bangladesh has a comparative advantage
in garment production due to its lower labor requirements.

Garment Industry Dynamics: A Comprehensive Review

1. Trade Policies: Trade policies significantly influence the global garment industry's
dynamics. The Generalized System of Preferences (GSP), particularly for countries like
Bangladesh and Cambodia, has been instrumental in facilitating their exports of garments
to major markets without tariffs. This policy advantage has propelled these countries to
become key players in the global apparel supply chain. Moreover, trade agreements such
as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
have opened new avenues for garment exporters in Asia-Pacific to access diverse
markets, enhancing their export capabilities and economic stability.
2. Market Diversification: Market diversification strategies are critical for mitigating risks
and expanding market reach. For instance, Chinese garment manufacturers have
diversified their export destinations beyond traditional markets in North America and
Europe to include growing consumer bases in Latin America, Africa, and the Middle
East. By tapping into these emerging markets, Chinese exporters have reduced
dependency on any single market and diversified their revenue streams, thereby
enhancing resilience against economic fluctuations and geopolitical tensions.
3. Supply Chain Integration: The integration of global value chains (GVCs) is essential
for optimizing efficiency and competitiveness in the garment industry. Companies like
Nike and Adidas exemplify robust supply chain integration by leveraging advanced
logistics systems and digital technologies for seamless coordination across production
stages, from sourcing raw materials to delivering finished products to global markets.
This integration not only reduces lead times and operational costs but also enhances
responsiveness to consumer demands, ensuring sustained market competitiveness.
4. Technological Advancements: Technological innovations have revolutionized garment
manufacturing processes, driving efficiency and sustainability. For example, 3D printing
technology has enabled designers to create prototypes and customized apparel swiftly,
reducing waste and production costs. Furthermore, smart textiles embedded with sensors
 are transforming the functionality of garments by monitoring health metrics and
enhancing performance in sports and healthcare sectors. Such advancements underscore
the industry's commitment to innovation and sustainability, meeting consumer
preferences for eco-friendly and technologically enhanced products.
5. Sustainability Initiatives: Sustainability has emerged as a core strategy for garment
brands aiming to reduce environmental impact and enhance social responsibility.
Companies like H&M and Levi Strauss & Co. have implemented sustainable sourcing
practices, using organic cotton and recycled fibers to minimize water consumption and
carbon emissions. Additionally, initiatives promoting fair labor practices and worker
welfare in garment factories have gained prominence, driven by consumer activism and
regulatory pressures for ethical supply chain management. These efforts not only enhance
brand reputation but also contribute to long-term sustainability goals in the fashion
industry.
6. Resilience Strategies: Building resilience is essential for mitigating risks associated with
global disruptions and uncertainties. During the COVID-19 pandemic, agile
manufacturers with diversified sourcing locations and flexible production capabilities
were better equipped to navigate supply chain disruptions and meet shifting consumer
demands. Moreover, digital transformation initiatives that enable remote collaboration
and virtual showroom experiences have empowered garment businesses to adapt to new
market conditions and sustain operations amidst global crises.
7. Policy Implications: Effective policy frameworks are crucial for fostering sustainable
growth and innovation in the garment industry. Governments can support industry
resilience by investing in infrastructure development, promoting skills training programs
for workforce development, and incentivizing research and development (R&D) in textile
technologies. Countries like India and Vietnam have implemented industrial policy
initiatives that encourage foreign direct investment (FDI) in garment manufacturing,
creating employment opportunities and promoting technological advancements to
enhance global competitiveness.

Chapter 2

Analyzing the trade dynamics of Bangladesh’s garment industry,

particularly with a focus on exports and imports, involves delving
into several critical aspects. Bangladesh is renowned globally for its
garment manufacturing sector, which heavily relies on exports. To
begin, comprehensive data collection from primary sources such as
the Bangladesh Bureau of Statistics (BBS) and the Bangladesh
Garment Manufacturers and Exporters Association (BGMEA) is
essential. This data will provide insights into the volume, value, and
trends of garment exports, highlighting key markets such as the
United States, European Union countries, and other major
destinations. Understanding export dynamics involves examining
product categories—like knitwear and woven garments—and their
respective shares in total exports. Import patterns, particularly of
raw materials such as cotton, yarn, fabrics, and accessories, are
equally crucial as they directly impact manufacturing costs and
competitiveness. Analysis of import sources—primarily China, India,
and other Asian countries—provides insight into supply chain
dependencies. Moreover, evaluating tariff structures, trade
agreements (such as Generalized System of Preferences), and
regulatory frameworks is essential to grasp the external factors
influencing Bangladesh’s garment trade. This comprehensive
approach allows for a thorough understanding of how Bangladesh
navigates global trade dynamics, identifies challenges such as labor
issues and infrastructure constraints, and leverages opportunities
for sustainable growth in the global garment market.

Examining the trade dynamics of Bangladesh's garment industry involves analyzing historical
trade patterns, current market conditions, key export destinations, import sources, tariff impacts,
and regulatory influences.

Historical Trade Patterns: Bangladesh's garment industry has seen significant growth over the
past few decades, becoming a global leader in garment exports. Historical data reveals
exponential growth in export volumes and values, with the industry contributing substantially to
the country's GDP and employment. The sector initially focused on basic garments but has
expanded to include a wide range of products, catering to diverse global markets.

Current Market Conditions: Presently, Bangladesh remains a major player in the global
garment market, exporting a variety of products including knitwear, woven garments, and
accessories. The industry faces competition from other low-cost manufacturing countries like
China, Vietnam, and India. Key market conditions include fluctuating global demand, changing
consumer preferences, and economic factors impacting major export destinations.

Key Export Destinations: The United States and the European Union are primary export
destinations for Bangladeshi garments, accounting for a significant portion of total exports.
These markets value Bangladesh's competitive pricing, although compliance with stringent labor
and safety standards remains crucial for market access.

Import Sources: Bangladesh relies heavily on imported raw materials such as cotton, yarn,
fabrics, and accessories to support its garment manufacturing sector. Major import sources
include China, India, and other Asian countries, with the quality, availability, and cost of these
materials influencing production costs and competitiveness.
Tariff Impacts: Tariff structures and trade agreements significantly impact Bangladesh's
garment exports. Preferences under trade agreements like the Generalized System of Preferences
(GSP) provide tariff concessions, enhancing competitiveness in key markets. Changes in tariff
rates and trade policies in major markets can affect export volumes and profitability.

Regulatory Influences: Regulatory frameworks, including labor standards, safety regulations,

and compliance requirements, shape Bangladesh's garment industry. Initiatives to improve
working conditions and environmental sustainability are increasingly important for maintaining
market access and enhancing industry reputation.