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Readymade Garments Industry of Bangladesh Essay Sample

Readymade Garments Industry of Bangladesh Pages
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1.0 Introduction
1.1 Background of the study
The readymade garments (RMG) industry of Bangladesh is the fastest growing export oriented industry of the country. Starting in late seventies, the ready made garment industry of Bangladesh now accounts for over 64% of the country’s total export earning. A close look at the composition of RMG export of Bangladesh over the last two decades reveals that the woven garments sub-sector constituted the lion’s share. In fact, the beginning of the development of RMG sector started with woven garments in 1985. In the first half the 90s, the share of woven garments was above 80%. However, the share gradually started to decline to about 70% in five years late and to 62% in 2004 and to 38.80% in 2005-2006 (Export Promotion Bureau Bangladesh, 2006). In addition, compared to its double-digit growth in the 90s, the woven garments export grew only about 8% in 2000.

Such a declining growth rate and a steep decline of the share of woven garments export in the total RMG export makes it urgent to re-evaluate the status of the sector of Bangladesh vis-à-vis with that of the competing countries. Moreover, with the dominance of the proponents of free market economy, some changes are taking place in the global trade regulations affecting the readymade garments sector of Bangladesh in general. One example of such change is the phasing out of the apparel quota on December 31, 2004. Under these circumstances, it is imperative to assess the competitiveness of the woven garments sector of Bangladesh in the global market place. Hence the researcher studied the overall woven garment industry in group and this study analyzes the woven garments industry competitiveness of a single organization from strategic management perspectives. 1.2 Rational of the Study

The objectives of the enterprise analysis are the following. •To identify the vision, mission, objectives, and values of the company. •To identify the process of crafting and executive strategy. •To analyze the company’s resources and competitive position. •To find out the application of the five generic competitive strategies. •To find out the application of various complementary strategic options. •To find out the fit of the strategies to the company and the industry situations. •To identify various diversification strategies.

•To find out the application of ethics and corporate social responsibility. •To identify the leadership styles and corporate culture. 1.3 Scope of the Study
The study has some boundaries. The following points delineate those boundaries. •Because of the highly fragmented nature of the industry even in the domestic market (with about 400 woven producers present in different parts of the woven garments value chain), aggregation of enterprises could not be provided. Rather, a whole view point of the enterprise has been taken. This limits the researchers of this study not to use financial aggregation as well since only a few woven garments industries (not more than 5) are enlisted with the stock exchange. •The analysis has been confined to the key markets of the woven markets. The markets where Bangladesh occasionally exports or where the amount of export is very small, those markets are excluded from the scope of the study. 1.4 Methodology

1.4.1 Research design
The study, given the nature of the objectives, has a descriptive research design.Since this study is going to be one of the earliest studies with similar objectives about the woven garments sector, the research would be of ‘reporting’ kind. According to Cooper and Schindler (2003), at the very elementary level a ‘reporting study’ is done to provide an account, or to make a summation of data, or to generate some statistics. They have also argued that a reporting study requires very little inference. However, the current study answers ‘what’ and ‘why’ of Macro environment, industry and competitive conditions, and thus, requires a great deal of inference. Hence, the current study would be more appropriately termed as a descriptive study. Therefore, the research design for the study is descriptive research design. 1.4.2 Data collection

1.4.2.1 Primary sources
The researchers collected the enterprise data organizing and a number of key informant interviews (KII) with the key persons in Rahim Textile Mills Ltd. as I have selected this organization for the enterprise analysis. Due to time limitation, the participants were chosen through personal contacts and participants’ willingness to participate in the discussion. The key informants considered were senior managers of the selected organization and a few bankers related to the organization. 1.4.2.2 Key Informant Interview

The researcher will select at least 7 owners or managers to interview as key informants. This interview will focus on the enterprise level information like the vision, mission, objective, current performance in both local and international markets, the competitors in both markets, products and so on. 1.4.2.3 Secondary sources

The researchers have explored the following secondary sources to meet the objectives of the report. •Data inventory of Bangladesh Export Promotion Bureau Bangladesh (EPB) relating to readymade garments export. •Data inventory of Bangladesh Garments Manufactures’ and Exporters’ Association (BGMEA) •On-line news archive of newspapers and news agencies home and abroad •Annual report of the company

•Books and journals at the library of Institute of Business Administration and University Press Limited 1.5 Limitations of the Study
The current study is limited by a number of factors. First, the participants for KII have been chosen conveniently. Second, the list of questions KII has been developed from the scratch by the researchers themselves. However, these limitations are not likely to invalidate the conclusions. The reasons are the following. First, the researchers will depend on both primary and secondary sources. Second, the primary sources have been bifurcated into managers of woven garments companies in Bangladesh. Third, the list of questions has been checked for recasting by the instructor of the course. The refinement of the list of questions following the suggestions of such an expert enhances the relevance and reliability of the questions asked. Hence, these two approaches ensure cross-validation of information needed to fulfill the objectives of the report. Strategic Planning process for Rahim Textiles Limited

2.0 Company Profile
2.1 Vision
The vision statement of Rahim Textile Mills Ltd is “to create added value to the common wealth and to benefit the society”. From the discussion with company managers, the researcher revealed that by the above stated vision statement they want to mean to improve the well being of valued equity holders, investors, employees and members of the society without interrupting or disordering the universal socio-ecological-economic position and the process of human civilization leading to peaceful co-existence of all the living beings. The vision statement of Rahim Textile Mills Ltd. lacks the important characteristics of a vision statement. First of all, from the vision the kind of company cannot be identified. It is too much generic and fails to identify the business or industry to which it is supposed to apply. This vision can be applied to companies of any kind of industry. Secondly, the vision statement is not focused to provide managers with guidance in making decisions and allocating resources. The vision is also bland and lacks motivational power. Finally, the vision statement of the company is vague in meaning; no concrete objective is mentioned in the vision. 2.2 Mission

Realize the vision; the mission of the company is to play a leading roll in export oriented textile sector through reasonable application of Knowledge and Skills. This mission is also very weak in meaning. There is no description of the company’s present business scope and purpose in the vision statement. 2.3 objectives

The objective Rahim Textile Mills Ltd is to maximize our productivity on strict ethical standards at minimum cost to ensure optimum growth of wealth of the company. This is basically falls in the type of strategic objective. Since the company is making profit satisfactorily and the existing financial condition is healthy enough, they are concentrating on the strategic objective. 2.4 History

Rahim Textile Mills Ltd started its journey in 31 December, 1981. The company commenced production in the year of 1987. Initially the company was producing only woven garments, afterwards with the expansion strategy the company built its capacity in both woven and knit sector as well as in dyeing. They already established huge factory at shafipur, Kaliakar and Gazipur, all outside but very much near to the capital city. The company has four sister concerns. They are as follows: •Malek Spinning Mills Ltd.

•Knit Asia Ltd.
•New Asia Ltd.
•Salek Textile Ltd.
Rahim Textile Mills Ltd. enlisted in Dhaka stock exchange on 29 March, 1988. 2.5 Products
The main woven products of Rahim Textile Mills Ltd are shirts, trousers, hats and jackets, mostly made from cotton. Recently the company are enlarging its product width and producing inner wears for different worldwide famous brands. On the other hand, the company also produces knit garments products, e.g. sweaters and socks. 2.6 Export Volume and Destination

As we discussed with the key persons of the company, the informants were declined to disclose the exact quantity of exports from their production, but they mentioned the proportion of export to total production. They mentioned that the company exports about 92% of its products. Most of the export is sent to USA as well as the other major portion in EU countries. 2.7 Financial Performance

The comparative financial results of Rahim Textile Mills Ltd. are summarized in the following table. (Tk. in million)
2007-082006-2007
Turnover191.442116.094
Gross profit32.94713.222
Operating expenses25.91512.248
Operating profit7.0320.974
Net profit (AT)6.8361.396
Gross margin17.21%11.39%
Net margin3.57%1.2%
Earning per share (Tk.)37.567.67

From figure 2.1, it can be concluded that turnover of the company is consistent and higher in the last year. In the last year Rahim Textile Mills Ltd. diversified its business in knitting sector and the result is increased turnover in the last year. From figure 2.2, it can be concluded that production of the company is consistent and higher in the last year. In the last year Rahim Textile Mills Ltd. diversified its business in knitting sector and the result is increased production in the last year From figure 2.3, it can be concluded that earning per share of the company is consistent and higher in the last year. In the last year Rahim Textile Mills Ltd. diversified its business in knitting sector and the result is increased earning per share in the last year. 3.0 Internal Analysis

3.1 Core competencies
By the definition of core competence, it is a competitively important activity that a company performs better than other internal activities. In case of Rahim Textile Mills Ltd. its core competence is the quality of its products. In production the company has been using its highly experienced and skilled professional in its manufacturing process. Therefore it already gained loyalty from its buyers. The company not only concentrates in quality, but also maintains the cost of the product so that the cost becomes competitive among the rivalry in the industry. 3.2 Distinctive competencies

From literature, distinctive competence is a competitively valuable activity that a company performs better than its rivals. The researchers tried to identify distinctive competence of Rahim Textile Mills Ltd. through key informant interview with the top level managers of the company. But from the response of the KII participants, it has been revealed that the company has no distinctive competence to attract the vigorous buyers in the market. 3.3 Key resources

Key resource strengths of a company generally form the cornerstones of strategy and make the company competitive in the industry. From the KII with the top level managers of Rahim Textile Mills Ltd. the researcher identified that key resources of the company are: •Highly experienced professional

•Better technology
•Better market access
3.4 SWOT Analysis
In order to accomplish SWOT analysis the researcher followed the steps below. 3.4.1 Resource strength and competitive capabilities
From primary data of KII and secondary data, the researchers identified the following resource strength and competitive capabilities. •Highly experienced and skilled workforce as its intellectual capital relative to rivals which provides the company learning and experience curve advantages. •Better product quality compared to the medium size competitive rivals •Better customer base as compared to the small garments companies •Technology is on average updated, but not like that of Square textile or Bex-tex •Capacity is well-matched with its production volume.

3.4.2 Resource weaknesses and competitive deficiencies
Potential resource weaknesses and competitive deficiencies of the company, as identified by the researcher, are mentioned below. •The company has no clear strategic vision to direct the company towards specific targets •Behind rivals is using e-commerce for their promotion purpose whereas the company even has no website for the convenience of information gathering by the foreign buyers. •Its product line is narrow compared to the other rivals in the industry. •It has no brand image in local market and very weak influence of brand in the global market, only with the selected suppliers. •Long lead time is another crucial factor for which the foreign buyers are declined to buy its products. 3.4.3 Market opportunities

Although Rahim Textile Mills Ltd. had been running their business in woven sector only, they are now expanding their business horizon in the knit sector also. The company realized that its skilled and experienced workforce can be utilized in the knit sector effectively and efficiently. We foresee a brighter future for us. Print and dyeing orders shall increase overall. We must continue to strive to achieve more orders which shall ensure greater progress and prosperity. It has become essential for us to embark upon capacity enhancement and balancing of our dyeing & printing machineries urgently to meet the stringent quality assurances imposed by the buyers. We need to improve labor productivity and consistency in quality. We will face tougher competition both from within and outside. We need to resolve issues related to bond and customs to ensure faster disposal of imported raw materials. We need to work extensively and pursue the government to have provision of subsidy and other incentives at different stages of production and process to remain competitive in the international market. The concerted and coordinated efforts will ensure higher production, better quality to make the production year 2007-2008 the year of greater progress and prosperity. 3.4.4 Threats to the future profitability

Day by day the strong rivals are capturing the markets available to the industry in Bangladesh. Another threat is coming from technological change. Rahim Textile Mills Ltd. is not large enough to regularly update its technology to compete with other key rivals and so losing market share gradually. Besides, the company is facing cost cut competition from the rivals. 3.5 Prices and costs competitiveness

The rise in the price of chemicals and dyes by over 30% also affected the order acceptance and overall production. Exporting countries of dyes, Chemicals and Colors especially China, India increased their prices making the market very competitive and difficult. Buyers took advantage of the competition amongst similar dyeing printing Factories and offered lower price. Despite such a situation we could improve both export and local market prices. Dearth of the trained manpower had led to poor labor productivity and inconsistency in the quality of textile products. 3.6 Business model

A company’s business model relates to whether the revenue-cost-profit economics of its strategy demonstrate the viability of the business enterprise as a whole. In case of Rahim Textile Mills Ltd. business model of the company is not only viable but also it shows its success in many consecutive year as the company is making huge amount of profit regularly. The business model of Rahim Textile Mills Ltd. is a proven model which ensures the company’s viability in the market for a long period- from 1986. 3.7 Value chain of the company

The value chain of Rahim Textile Mills Ltd. is similar to the following value chain model. On the value chain model, Rahim Textile Mills Ltd. lacks efficiency in sales and marketing. Therefore the company is loosing market share to the competitive rivals. Also there is no R & D department in the company. This is why they are lacking in product innovation and product differentiation. 3.8 Dimensions of organizational culture

Culture of an organization consists of the characteristics as described in the following figure. From the perspective of the woven garments industry in Bangladesh, most of the employees in the industry come from inferior background in terms of both academic and social status. Almost all the workers’ educational background is either SSC or below SSC. They are mostly unaware about the culture of the organization. Even the managers are very little concerned about the culture of their organization. From our focus group discussion, the discussants give importance on the following characteristics of organizational culture: Aggressiveness

The managers are aggressive with their workers rather than easygoing. The managers always give pressure to the workers about their performance. Even a worker is performing satisfactorily; she or he is not given any kind of motivational incentive or compliments to continue his performance. Team orientation

In this industry team orientation among the employees is nearly absent. The managers, in most of the cases being unaware about synergy, do not bother about the performance of team, rather always prefer individual performance. People orientation

People orientation reflects the degree to which the management decisions take into consideration the effect of outcomes on people within the organization. By definition and comments of the discussants of FGD, this characteristic of organizational culture is rarely practiced by the managers in planning, design and implementation of production. Outcome orientation

Outcome orientation measures the degree to which management focuses on
results or outcomes rather than on the techniques and processes used to achieve those outcomes. In most of the woven garment industry the production managers are outcome oriented. They attach importance to the quality of the products rather than their production process and technology used in production. Attention to detail

Attention to detail is the degree to which employees are expected to exhibit precision, analysis, and attention to detail. Since most of the workers in the garment industry are unskilled and even they are not provided any kind of training, they must follow the guidelines of their work literally as mentioned by the managers. 4. External Analysis

4.1 Competitor Analysis
Major competitors of the Rahim Textile Limited is given below The factors of similarity are mostly activism in marketing and selling, availability of local raw materials, delivery reliability, and level of backward linkage. 4.2 Competitive Positioning

In order to identify the competitive position of the company, the researcher used strategic group mapping considering the selected 7 companies by the group. In strategic group mapping researchers has given importance to the cost of the products, product quality, active marketing, lead time, delivery time, and export quantity. The figure above shows that Monno fabric, Rahim textile, Babylon Garments, Desh garments and Viella-tex have similar ranking on the basis of the two attributes. All these five companies have higher quality while they are low in price. So, these five companies emerge as a strategic group. On the other hand, Square and Bex-tex have average performance on each of the considered factors of the mapping and hence, they can be said to fall in the same group. 4.3 Textile Industry:

The textile industry in Bangladesh occupies a prominent position within the country’s industrial structure. It is the largest manufacturing sector, providing jobs for some 50% of the total industrial workforce and contributing 9.5% of the country’s GDP. Also, it accounts for almost 77% of total exports, making it Bangladesh’s leading foreign exchange earner.

In the early 1980s exports were dominated by jute while garment sales were insignificant. But today garment exports are by far the leading export category. In 2001/02 the clothing sector generated as much as US$4.58 bl in foreign exchange. The industry benefits from special access to markets in the EU, Canada, Norway and Japan. Because Bangladesh is a least developed country, its textile and clothing exports enter these countries quota-free and duty-free. This concession, together with low labour costs, provides the garment sector with a strong competitive advantage. But in order to produce garments for export, the sector has to purchase a large share of its yarn and fabric needs from abroad, especially woven fabrics. Few local textile firms are able to produce materials of the required quality or in adequate quantities. The Bangladeshi government is attempting to remedy this situation. To reduce the country’s import bill, it is offering tax concessions and incentives aimed at encouraging investors to develop the necessary backward linkages. Profitability of a market/industry depends on strength of five threats to profitability: 4.4 Porter’s Five Factor Analysis:

4.5 Industry life cycle Analysis:
A useful tool for analyzing the effects of industry evolution on competitive forces is the industry life model, which identifies five sequential stages in the evolution of an industry that lead to five distinct kinds of industry environment embryonic, growth, stakeout, mature and decline. Textiles industry is at maturity stage in the industrial product life cycle stage. 5.0. Strategy Analysis

5.1 Generic Competitive Strategy
A competitive strategy concerns the specifics of management’s game plan for competing successfully and achieving a competitive edge over rivals. A company achieves competitive advantages whenever it has some type of edge over rivals in attracting buyers and coping with competitive forces. There are countless variations in the competitive strategies that companies employ. Mainly because each company’s strategic approach entails custom-designed actions to fit its own circumstances and industry environment. The mostly used five competitive strategies are shown in the following figure. 5.2 Low-cost provider strategy

Among the five mentioned competitive strategies, Rahim Textile Mills Ltd. achieve overall low-cost provider strategy. The company is the lowest cost provider rather than just being one of perhaps several competitors with comparatively low costs. The company’s strategic target is meaningfully lower costs than rivals but not necessarily the absolute lowest possible cost. 5.3 Fitness of the strategy

Ready made garment industry is moving very fast, new competitors are emerging in the market frequently; growth rate is decreasing year after year. To cope with changes Rahim Textile Mills Ltd. must tailor its strategy so that the company can become profitable and competitive to surrounding rivalry establishing a distinctive competence. 5.4 Strategies for entering the market

More and more companies are finding themselves in industry situations characterized by rapid technological change short product cycles because of entry of important and fast-evolving customer requirements and expectations -all occurring at once. Due to the entrance of new competitors the market for Rahim Textile Mills Ltd. is shrinking. To compete with these fast moving changes, this company has to be technologically sound, product innovative to attract the change-demanding customer and product diversification. 5.5 Strategies for coping with rapid changes

It is very important to understand the key driving forces of an industry to decide upon the strategy of any company inside the industry. By searching the internet, reviewing related literatures, implementing key informant technique, and by organizing focused group discussion the following key forces have been identified. •Growing use of internet technology and applications

•Increasing globalization
•Changes in the buyers’ requirements
•Changes in cost and efficiency
•Changes in global regulations in the textiles and apparels industry In Bangladesh internet technology and web applications play a vital role in establishing collaboration between importers and buyers abroad. Exporters communicate with Importers though internet where buyers put their proposal and ask for bidding. Prospective sellers bid through the internet and the lowest bidder is rewarded with sales contract This is how internet technology acts as a bridge in connecting business people across different parts of the world. In domestic market there is no such seller who uses websites as a part of their supply chain. Amazon uses website as a competitive tool in gaining customers. But such facilities haven’t yet gained prominence in a developing country like Bangladesh. So Rahim Textile Mills Ltd. can take an initiative eto develop website for buyers and suppliers. The overall global trade is increasing phenomenally every year and after. In business the process of going global is largely marked by increasing volume of export and import and greater number of licensing, franchising, strategic alliances, joint venture and setting up of foreign subsidiaries by business houses.

Thomas Friedman while describing the trend of globalization summed it up in one sentence that globalization is “farther, faster, cheaper, and deeper.”(Hossain and Sandhir 2004) Key informant interviews reveal that trade liberalization has made it much easier for entering into new market and carry out manufacturing activities by out sourcing them. Brands like Reebok, Marks & Spencer, Denim, Wall Mart, Levies, Nike etc. out source their manufacturing activities to countries like Bangladesh where they can get value chain activities done cheaper than any other part of the world. Although the ready made garment sector is not so much speedy changing, it has to be proactive about the market demand and thereby make itself prepared for the market demand. Other option is the company can react with the change. Rahim Textile Mills Ltd. is considering the latter approach. It is reacting with the changes. When the other companies are fighting to reduce lead time and improve delivery time, this company also trying to walk in the same way. The company is trying to incorporate new technology for its production process. 5.6 Strategies for sustaining rapid company growth

As Rahim Textile Mills Ltd. is medium size company in the woven sector industry in Bangladesh, the company is following “horizon 1: short-jump” for sustaining rapid company growth. By this technique, the company is adding new items to the company’s present product line, expanding into new geographic areas where the company does not yet have a market presence and launching offensives to take market share away from rivals. The objective of this short jump is to capitalize fully on whatever growth potential exists in the company’s present business arenas. The sustainability of exports of woven garments in Bangladesh remains under question as the sector lacks backward linkages far from the requirements.

At present, around 20 to 25 per cent of the raw materials required for the woven garments are supplied domestically whereas the same for the kit garment is 75 to 80 per cent. The manufacturers depend on the international market for the rest of the raw materials required for both the sectors. Given the pattern of growing demand for T&C in the international market and the increasing competitiveness from the major exporting countries it would be difficult for Bangladesh to stand in the competition with her limited supply-side capacity. Bangladesh may supper a serious setback in outsourcing raw materials from the international market. 5.7 Diversification Strategy

The big risk of a single-business company is having all of rhe firm’s eggs in one industry basket. If the market is eroded by the appearance of new technologies, new products, or fast-shifting buyer preference, then a company’s prospects can quickly dim. For these reasons the company takes diversification strategy to broaden its business horizon. In the researcher’s case analysis, Rahim Textile Mills Ltd. has also realized the risk of single-business Company and also realized that the existing potential resources can be utilized efficiently if the business is broadened with the similar sectors. From this view point, Rahim Textile Mills Ltd. has extended its business in knitting sector as well as spinning. 5.8 Strategies for entering new businesses

From the view point of input side, Rahim Textile Mills Ltd. considered the following factors in expanding its business horizon in new businesses. •Existing technologies and expertise complement to the expanded business •Existing competencies and capabilities are same valuable competitive assets for the expanded business •New business in spinning and knitting is closely related to existing woven garments and so opens new avenues for reduction of cost •The existing suppliers expanded their supply in spinning and knitting raw materials as well as buyers demanding products of knitting garments. Besides the management of Rahim Textile Mills Ltd. has thought about the outcome and the benefit of shareholders so that value is added to them.. There were three different choices for the company to diversify in the new business. The choices are as follows: •Acquisition of an existing business

•Internal startup
•Joint venture and strategic partnership
5.9 Ethics and Social Responsibility
Corporate social responsibility in RMG industry should be ensured for
•Long-run profits
•Ethical obligation
•Public image
•Better environment
•Discouragement of further governmental regulation
•Balance of responsibility and power
•Stockholder interests

6.0 Conclusion & Findings
The analysis of Rahim Textile Mills Ltd. leads to the following important conclusions. •The key markets of Rahim Textile Mills Ltd. are the following: the USA, UK, Germany, Germany, UK, France, Canada, Italy, Spain, Netherlands, Belgium, Sweden etc. These countries account for more than 95% of the woven garments export from this company. •The social values and lifestyle of the exporting countries seem to be encouraging for this company (provided that it can enhance its own styling). On the demographics side, both market shows aging population and almost stalled population growth. Technology, such as various highly automated loom factories create concern if Rahim Textile Mills Ltd. wants to compete in the high-end valued added products. •The buyers’ preferences are mainly to low price, quality of the fiber content, laundry instructions, country of origin, brand name, and environmental friendliness. •Technological change is mainly in the communication side of the industry.

But in the production side change is not playing the vital role. Also the economies of scale are not used by the current factories. Due to different risk factors the entrepreneurs mainly outsource their orders rather than increasing capacity. •In terms of strategic group mapping Rahim Textile Mills Ltd. has striking similarities with Monno fabric, Babylon Garments, Desh garments and Viella-tex. The factors of similarity are mostly activism in marketing and selling, availability of local raw materials, delivery reliability, and level of backward linkage. •Organizational culture in Rahim Textile Mills Ltd. is weak in nature. The workers do not get any kind of recognition or extra incentive against their out standing performance in the production process.

Rather the entrepreneur consumes about all the cream of outcome from the industry. The employees have no control over their work. They are bound to follow the process provided by the managers. Organizations provide no training to enhance the skill of the employees. •Leadership style of the industry falls within the dominant leadership. The managers always try to maximize their profit at any cost without considering the benefits of the employees. The leaders of the workers sometimes misguide the workers for the sake of their own benefit. The leaders lack integrity, competence, consistency between word and actions, and loyalty, i.e. all the deserved qualities of leadership.

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