Relocation of Clothing Industry of Dhaka must to create Com...

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Issue: June , 2012

Relocation of Clothing Industry of Dhaka must to create Competitiveness and returning Normalcy in Dhaka
Abrar A Apu, MSc
The article is inspired by McKensey reports on Bangladesh Clothing industry, demand of time to restructure the capital of the country, and most importantly creating business competitiveness in the clothing industry-the life board of the country. Clothing industry is footloose industry and its relocation usually more common. Components of employment change due to relocation of any industry are: birth, death, growth and concentration of jobs; in-migration and out-migration of workers. Relocation through creating industrial district or industrial cluster ensures long-term business competitiveness through productivity; increase capacity for innovation and higher rates of business formation (Porter 1998). Clothing industry is the last player of the complex textile chain and a pivotal industry of Bangladesh. The journey of our clothing sector started in 1983-84 with 134 factories, which employed around 40000 workers and earned only 31.57 million, contributing 3.9% of countrys total exports. Now, the higher contribution of this sector has been realized when export value pronounced to $17.9 billion in 2010-2011. This export accounts for around 80% of national exports, 13%of GNP, and 40 percent of manufacturing value addition. The process could directly employ 3.6 million workers in around 5000 factories (McKinsey Report, Dec 2011 & EPB) More than 2000 clothing factories is primarily scattered inside the capital (Directorate of Labor, Bangladesh), where about more than 1 million workers are additionally necessary to meet labor shortage. Thus, it is clear from the present shortage of workers in Dhaka that it would have to accommodate all basic necessity (food, clothing, shelter, medicine, and etc.) for not less than two hundred thousand additional labors in coming time. This labor-intensive and footloose manufacturing sector has contributed significantly in creating infamous mega-city Dhaka! By fetching rural unemployed, uneducated, untrained and needy population inside the city for direct employment in the factories, manpower shortage is getting managed. To support these migrated workers, millions of people are also living here and there inside Dhaka, creating human deadlocked and changing ineligible to live in Dhaka. In this situation, it is very difficult for clothing industry to bring changes through expansion, centralization, or concentration of industry to create competitiveness in order to fight competitors. Mckinsey report forecasts that Bangladeshi clothing export may reach $42 billion in the coming decade, which is about multiple 3 times higher than present export value. Now the vital question is: how to grab 3 times multiple export figures with this present existing facility, while it is impossible to expand existing facilities inside Dhaka. Relocation of these clothing manufacturing units out of Dhaka, might give entrepreneurs an opportunity to restructure and expand present facilities. Thus; to fight business competitors along with making path for those working people to leave Dhaka, normalcy in the capital can be obtained. Relocation of industry can be done to create or retain jobs or deleting more serious problems an industrial area faces. Here relocation is sought for two main purposes: restructuring and relocating clothing sector to grab and retain global opportunity that are coming every moment due to chinas reluctances in producing basic clothing, while Bangladesh as third world has been most preferential for international clothing buyers. The second purpose is to bring back normalcy in the capital by relocating migrant workers out of Dhaka, through offering the same job and or opportunity outside Dhaka to other cities or towns. Bangladesh clothing sector has been facing innumerable problems like energy crisis, lingering licensing process, weaker road infrastructures, deadly traffic jam etc. that saps the buyers interest of doing business. Higher cost of doing business, poor capacity uses of the factory (only about 60%), regular fluctuation of dollar, scarcity of skilled manpower, poor labor productivity resulted from inadequate space and poor layout, unhygienic working condition of labor, labor unrest and many more problems entrepreneurs are facing. The relocation of clothing sector outside of Dhaka may not solve the problems directly; those mentioned problems; but may indirectly contribute to solving them, along with its primary purpose of building competitiveness in business and keeping Dhaka free from uncountable noted problems. This sector has its technology and money to take the challenge of any development that helps the sector in building its competitiveness (BGMEA). This mega city is populated with 16 million people in the area of 360-kilometer square meaning population density of about 44444 people per square kilometer. Dhaka, the capital city of Bangladesh is well known to us for its deadly traffic congestion. Every day, more than 2,000 people from impoverished rural areas across the country join into the city in search of a better life. Dhakas contribution is about 13 percent of the countrys GDP, but more than 50 percent of the nations industries and services are clustered in and around the capital. A large number of large and small clothing units are on non-conforming areas inside Dhaka. Now, this city has reached more than its saturated points and there is no place for promotion of small scale or medium scale industry. Dhaka is the most popular though the first choice of any entrepreneur as the city is the hub of national and international communication, trained technical manpower, all financial institutions, ICD (Island Container Deport), easy for buyers to visit, inspect etc, better availability of utilities such as gas, electricity, water. In the wake of the minimum wage policy, clothing sector relocation may give relax to both laborers and investors. Most of the clothing industries in Dhaka are located in rented buildings, building made for the purposes of either housing or offices uses. Due to higher demand of manufactured clothing from Bangladesh since more than two decades, the investors of this
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Relocation of Clothing Industry of Dhaka must to create Com...

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Issue: June , 2012
sector have started to uses rented spaces inside of Dhaka for setting up clothing manufacturing units. All the resources for industrial location are easily available in Dhaka, like energy sources, technical and cheap manpower, technology, raw materials, supporting industries, financial institutions, best transport facility, government establishments. Dhaka is still the most lucrative location for investment and setting up production units in the country, but the entire city has been exhausted more than its capacity. Since long, different leading organizations like BGMEA, BKMEA, and BTA (Bangladesh Tanners Association) asking the government to take initiative to relocate its member units to different location out of Dhaka. Experts advices are to relocate those industries to Keraniganj and Gazaria; at southwest side of Dhaka. These are the districts, where basic model of industrial districts or industrial cluster are present. This area may convert into model of industrial districts, which may be considered as long-term competitiveness factor. Industrial clusters are logically considered as an effective platform to enlarge production & improve quality base, trigger growth, increasing job opportunity & thereby contribute in alleviate national poverty. In both already Industrialized Countries (like, Italy) and Newly Industrialized Countries (like, India), there are their competitiveness. The advantages of cluster as- inter-firms cooperation, importance of local systems, cooperation blended with competition, flexibility and innovative capacity, geographical proximity, sectoral specialization, perfect utilization of local skilled labors, to resolve potential clashes, promotion of social compromise, economic of scale and scope, sharing of information, resources and knowledge, joint action reduce transactional costs, better identification future markets, sustainable growth, and a good deal of competitive advantages lies outside firms. Porter (1998) defined clusters competitiveness in main three ways. First, they raise productivity by allowing access to specialized inputs and employees; second they increase firms capacity for innovation by diffusing technical knowledge and third stimulate higher rates of business formation as employees become entrepreneurs in spin-off ventures. To relocate the clothing sector, government should play primary and most important role. To develop Infrastructure the support of the Government is undeniable in Bangladesh. The activities of this primary and important role could be: ensure proper modes of transports; ensure adequate water and power supply in these areas, telecommunication facilities, support infrastructure facilities like residential areas for its labor forces, medical facilities, and ensure other accessory like banks, post office, shops, service stations and others. To promote relocation of infrastructure, the government should announce some motivational and incentive packages like: announcement of relocation of the zones as tax-free zones, higher export incentive for the goods and articles manufactured in the relocated areas, first priority for allotment of land be given to existing units who are willing to shift both within Dhaka and outside with concessional rate, proper infrastructure be provided on priority, soft loan for the industry willing to relocate their units. At the same time, strict rules should be formed and implemented to discourage industry inside Dhaka like-strong environmental and social policy, do must few CSR activities. Related organizations (BGMEA, BKMEA, GIZ, UNIDO) along with government support may conduct awareness program for investors and prospective investors. Why to relocate clothing sector: the obvious reason for the relocation of the clothing sector is to keep Dhaka free from several deadliest national concerns like; population explosion, traffic jams, shortage of basic utilities, and necessities and the other arguments are: Relative importance of the sector: The clothing sector is the premier and the backbone sector in terms of export earning, GDP, industrial value addition, and employment generation. The increase of export is going to be 3 times higher within a decade (McKinsey Report, Dec 2011), as the prospects indicate. Over concentration of the sector: It is clear that about 50% clothing manufacturing units are situated in and around Dhaka. This sector has been competing for laborers, especially skilled and semi-skilled workers, in a limited geographical area. Labor unrest due to pressure on wages is very common phenomenon. Due to overconcentration in Dhaka area, almost all-fast growing clothing manufacturing groups cannot even expand their capacity. Relocation of this sector would give better solution to the existing non-solving problems. Cost minimization pressure on the sector: The clothing sector of Bangladesh is under heavy cost pressure due to its international competitors (India, Sri Lanka, Cambodia) while higher wage scale has been announced from government. Therefore relocation would give cost reduction in the total manufacturing chain. Use of low technology in the sector: In Bangladesh, clothing sector is relatively low technology based sector with minimum efficient production scale, and this adds to the easier mobility or relocation of the sector. However, sub-contracting (inter-firm dependency), for specific tasks; e.g. simple sewing; especially among small garment companies might be a hindrance to relocate the clothing sector. Most labor intensive-the clothing sector: The clothing industry, which is the most labor-intensive subsector, is therefore the most important employment creator in the manufacturing industry (Suphachalasai, 1992:9). As; this sector is one of the least technology based, there no chances to lose its labor-intensive character. Additionally, the sector is growing and will grow and this will force to relocate the sector to accommodate prospective labors and its workforces.

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FDI inflow in the sector: This sector is one of the lucrative sectors for foreigners to invest. The sector has already attracted considerable share of inward Foreign Direct Investment (FDI). The new location gives new opportunities to foreigners to invest, as Dhaka offers no new facility. Clothing sector with traditional skills and activities: The principal activities and skills of the clothing industry are traditional. It is easier to relocate traditional skills and activities based industry (clothing) than completely new activities. Conclusion: Faster growth of our clothing industry is backed by external or international and internal or national factors. Multi Fiber Agreement (MFA), Quota Systems, and Generalized System of Preferences (GSP), Everything But Arms (EBA) agreement, and Duty-Free- Quota-Free Market Access (DFQFMA) are external factors while private initiative backed by cheap and abundant labor and government supports (tax holiday, cash incentive on export, zero tariff on machinery import, rebate on freight, bonded wear house facility, back to back L/C, retention of Forex earned by entrepreneurs). The principal reason behind the relocation (interstate/international) of clothing industry is available and cheap labors. The country has been enjoying cheap labors since its inception. Therefore, during the past two decades Dhaka has witnessed an unprecedented population explosion. Consequent of these industrial units have multiplied and mushroomed over the entire city. Dhaka has been suffering with deadly concerns like-huge number of rickshaws, and traffic jams; obstructing trade and commerce; water crisis, and power shortage. To relocate industry parks, agriculture land and/or forest areas should not be used; only wasteland can be utilized for the industrial purpose. Industrial development should not disturb the regional ecosystem and socio-cultural norm. The relocation will reduce pollution and traffic congestion of Dhaka, and contribute immensely in bringing normalcy in Dhaka. Public-Private-Partnership (PPP) policy could be better to allocate new relocation/industrial districts, and to enrich infrastructures. Industrial district ensures knowledge transfer, stimulates economics of scale. However, there is no study and data available that would help in providing cost analysis of shifting or relocating its production units to new locations.

Reference:

1. Abrar A Apu, Support Possibilities of NITTRAD for the Integration of the Handloom Weaver Smallholders into the Bangladesh Export-Oriented Production Chain (Master Thesis, HS Niederrhein, Germany) 2. Abrar A Apu, Bangladesh: Transforming into Global Clothing Sourcing Hub 3. D Neumark, J Zhang, J Kolko, Interstate Business Relocation: An Industry-Level Analysis (Public Policy Institute of 4. 5. 6. 7. 8.
California, June 19, 2006) M Z Haider, Competitiveness of the Bangladesh Ready-made Garment Industry in Major International Markets (AsiaPacific Trade and Investment Review, Vol. 3, No. 1, June 2007) McKinsey report on RMG exports of Bangladesh, visit: www.mckinsey.com N Wattanapanom, P D Lombaerde, P Withisuphakorn P Wanarat, The relocation of the garment industry as an instrument for regional development in the Northeastern region of Thailand (CAS Discussion paper No 11, April 1997) SAAPE & PILER, Organizing for Labor Rights- women workers in Textile/Readymade Garments Sector in Pakistan and Bangladesh O Saigal, P Kumar, RK Gupta, R Mudgal, Problems & Prospects of Industrial Development in a Metropolitan City

About the Author: Mr. Abrar Ahmed Apu, is Assistant Professor in the Department of Textile Engineering, Daffodil International University, Bangladesh. He is also Bangladesh Representative for Institute for Market Ecology (IMO), Switzerland. He can be reached at: mail@abrarapu.com visit him at: www.abrarapu.com

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