70845 BANGLADESH Development Series Paper No. 29 THE WORLD BANK June 2012 World Bank Office Dhaka Plot # E-32, Agargaon Sher-e-Bangla Nagar, Dhaka-1207, Bangladesh Tel: 880-2-8159001-28 Fax : 880-2-8159029-30 www.worldbank.org.bd World Bank 1818 H Street, N.W. Washington, D.C., 20433, USA Tel: 1-202-473-1000 Fax : 1-202-477-6391 www.worldbank.org All Bangladesh Development Series (BDS) publications are downloadable at: www.worldbank.org.bd/bds This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. Cover Photo: Shehab Uddin Back Cover Photo: Arne Hoel Design & Print: Creative Idea ACKNOWLEDGEMENTS This report was written by Md. Abul Basher (Task Team Leader), Sanjay Kathuria and Lalita Moorty (SASEP). Other team members included: John Arnold (Consultant), Hewitt Associates (Consultant), and Diepak Elmer (SASEP). The team benefited from guidance from Ernesto May, Sector Director; Vinaya Swaroop, Sector Manager; and Ellen Goldstein, Country Director. The report also benefited from comments of peer reviewers Thomas Farole and Muhammad Abdul Moyeen. Nadeem Rizwan provided invaluable research support. Sanjana Zaman also provided data and technical support on request. Mehar Akhter Khan processed the report at various stages. Kirthisri Rajatha Wijeweera, Zeenath Marikar and Daminda Eyrnar Fonseka arranged a very useful visit of the task team to Sri Lanka. A number of individuals provided very useful comments at various stages. These include Miria Pigato, Zahid Hussain, Tenzin Dolma Norbhu, Ishtiaque Ahmed, Jean-Noel Guillossou, Zaidi Sattar, Mustafizur Rahman, Ahsan Mansur, Bhartha Manju Sri Kumar Haththotuwa, Sebastian Saez, S. M. Ashiquzzaman, and Kalpana Kochhar. Abbreviations and Acronyms Currency Equivalents 2012 US$ 1=81.97 Bangladesh Takas (Tk.) Sector Director: Ernesto May xiii Tables Table 1.1: Nominal Protection and Tariff Dispersion (FY07-12).................................................................2 Table 1.2: Use of Supplementary Duties in FY10-12................................................................................... 3 Table 1.3: Bangladesh Merchandise Exports: Share in Total Exports (percent)...........................................3 Table 1.4: Growth of Volume, Price and Value of RMG Exports................................................................4 Table 1.5: Market Share of Top Garment Exporters in World, US and EU-15 Markets (percent)...............7 Table 1.6: Country Wise Exports of Bangladesh (US$ million)...................................................................8 Table 2.1: Container Statistics FY08.......................................................................................................... 17 Table 2.2: Scheduled Airfreight Services................................................................................................... 20 Table 2.3: Current Supply Chain Performance........................................................................................... 23 Table 2.4: Possible Improvements in Schedule for Production and Delivery of Garments (days, cumulative)................................................................................................................................................. 24 Table 2.5: Estimates of Logistics Costs for Basic Garments...................................................................... 25 Table 2.6: Estimates of Logistics Costs for Fashion Basic with Local Fabrics.......................................... 25 Table 3.1: Distribution of Workers in Various Job by Skill Levels........................................................... 29 Table 3.2: Percentage Distribution of Surveyed Enterprise by Prices of Items......................................... 29 Table 3.3: Literacy Rates and Average Years of Schooling in Some Selected Countries.......................... 31 Table 3.4: Percentage Distribution of Firms by Status of in-Housing Training Facility............................ 32 Table 3.5: Number of TVET Institutions in 1998 and 2005....................................................................... 33 Table 4.1: Financial Information (in million US$) of Compliant and Noncompliant Factories................ 39 Table 4.2: Progress on Compliance Reported by Respondents (percentage)............................................. 40 Table 4.3: Percentage Distribution of Worker by Some Selected Compliance Issues............................... 41 Table 5.1: Share of Non-Factor Service Exports........................................................................................44 Figures Figure 0.1: Per Capita Income and Per Capita Garment Exports of Selected Countries........................... xiv Figure 0.2: Graphical Representation of Per Capita Income Threshold for Export of Garments .............. xv Figure 1.1: Rates of Protection in Bangladesh (FY92-12)........................................................................... 1 Figure 1.2: Fashion Pyramid ........................................................................................................................ 6 Figure 1.3: Per Capita Income and Per Capita Garment Exports of Selected Countries (in constant 2000 US$) ............................................................................................................................................................. 9 Figure 1.4: Graphical Representation of Per Capita Income Threshold for Export of Garments............... 10 Figure 1.5: Share of Garments Exports in Total Merchandize Export (percent)........................................ 11 Figure 1.6: Major Constraints to Investment as Reported by Respondents................................................ 13 Boxes Box 1.1: Industria de Diseno Textil (Zara)................................................................................................. 6 Box 3.1: Education and Industry Trajectories: Bangladesh and Sri Lanka.............................................. 32 Box 4.1: Garments Without Guilt: Sri Lanka’s Business Strategy............................................................ 38 Box 5.1: What do Indian ITES-BPO Firms Think of Bangladesh as a Potential Offshoring Destination? .................................................................................................................................................................... 45 Box 5.2: Egypt: Making the Talent Pool “Industry Ready�...................................................................... 46 Box 5.3: Rajasthan Knowledge Corporation Ltd.: An Online Learning Model........................................ 46 Box 5.4: Nigeria: ITES-BPO Skills Certification and Training............................................................... 47 Box 5.5: Developing Ghana as a Destination for ITES-BPO..................................................................... 48 Box 5.6: Philippines: Attracting Investors Using the Special Investor Resident Visa Program...............49 Box 5.7: Orissa: Attracting Investments in the ITES-BPO Sector.............................................................51 CONSOLIDATING AND ACCELERAT ING EXPORTS IN BANGLADESH Overview 1. For Bangladesh to become a middle-income this threshold, a country’s export basket shows a country, growth in exports needs to accelerate. relatively diversified mix of basic-and-higher- Exports of basic garments will continue to be value garments. This is because the important in the near future, but Bangladesh’s increasing pressure on wages and benefits competitive advantage in this area could erode erodes competitiveness in basic garments. As over time. As such, looking ahead, accelerating such, as shown in Figure 0.2, empirical exports will require not only consolidating evidence suggests that growth in per capita existing strengths in basic garments but garment exports is sustained by moving away diversifying gradually into other products such as from basic garments; as a corollary, the decline higher value garment and service exports. in per capita basic garments exports (point A) Forward-looking policymaking requires that must occur before the overall decline in per measures be put in place now to encourage such capita garment exports (point B). diversification in future, while building on existing strengths. How can Bangladesh make this 3. By this reasoning, there is room for the happen? Available research shows that the garment sector in Bangladesh to grow and infrastructure deficit, especially energy, as well capture an increasing share of the world as lack of appropriate skills and the weak market. Exports as a share of GDP were 15 regulatory environment continue to hinder percent on average in the past decade, of which exports from Bangladesh. These weaknesses still garment exports accounted for around 76 percent. persist. To complement work done so far, this Meanwhile, Bangladesh’s share in world garment report focuses on the role of trade logistics, skills exports has edged up, with an increase in market and compliance with labor standards in share from 2.6 percent to 4.3 percent over 2000- consolidating existing strengths and moving to 09. Figure 0.1 shows the steep trajectory of higher value products, using the garment sector as Bangladesh’s success in garments – with its per a lens. In addition, given the growing importance capita GDP of US$482 (in constant 2000 US$) of services in world trade, the report also well below the threshold – can be sustained for a examines prospects for diversifying into a “reach while. However, as per capita income grows and sector� such as IT-enabled services that can reaches closer to the threshold level, Bangladesh provide high-quality jobs. will lose its competitive edge to other countries with lower wages, first in basic, and later in 2. Evidence from garment-exporting countries higher value garments. Therefore, to ensure suggests that there is a “threshold� level of per continued overall export growth, Bangladesh capita GDP, after which per-capita garment would need more contributions from other exports begin to decline (Figure 0.1). For sectors even before reaching the threshold per instance, real per capita exports of garments in capita income. But to do this, apart from Thailand grew until it reached a “threshold� per dealing with the usual constraints to business, capita GDP of about US$2,000 (in constant 2000 Bangladesh needs to focus on improving its trade US$), about US$1,000 in the Philippines, and logistics, skills, and compliance with labor around US$1,150 in Sri Lanka. Before reaching standards. xiii Figure 0.1: Per Capita Income and Per Capita Garment Exports of Selected Countries Thailand Real per capita RMG export 0.80 Philippines Real per capita RMG export 0.40 0.60 0.30 0.40 0.20 0.20 0.10 0.00 0.00 7.89 8.42 9.01 9.59 12.77 15.00 17.11 19.95 20.54 18.95 19.91 21.93 23.87 25.92 25.67 9.89 10.04 8.98 8.17 8.64 9.01 8.57 8.74 9.27 9.29 9.77 9.99 10.73 11.43 12.24 Per capita GDP ( '00 contant 2000 US$) Per capita GDP ( '00 constant 2000 US$) Sri Lanka Bangladesh Real per capita RMG export 1.60 Real per capita RMG export 0.70 1.40 0.60 1.20 0.50 1.00 0.40 0.80 0.30 0.60 0.40 0.20 0.20 0.10 0.00 0.00 2.26 2.28 2.37 2.43 2.45 2.55 2.65 2.77 2.93 3.13 3.46 3.68 4.01 4.42 4.82 4.36 4.66 5.00 5.33 5.41 5.74 6.12 6.76 8.55 9.24 10.09 11.40 12.33 Per capita GDP ('00 constant 2000 US$) Per capita GDP ( '00 constant 2000US$) Note: Last two years’ garments exports of Bangladesh are estimated from national data. Source: WB staff calculations from UN Comtrade, ITC, and WDI Trade Logistics logistics to ensure that exports as well as imported inputs are shipped on time, cost 4. Efficient logistics will give Bangladesh a effectively and reliably. Strengthening competitive edge in exports of basic-and- multimodal connections between the Chittagong medium value garments. So far, low wages in port and the hinterland, improving customs the garment sector have partially compensated for procedures, enhancing air shipment capacity, and poor logistics. To ensure continued fast growth improving rail services by adding new of basic garments and consolidation of existing physical capacity and introducing commercial strengths and slowly move up the value chain, management would be crucial elements of logistics in Bangladesh would need to improve better logistics for the garment sector of the considerably. Even if wages remain competitive, country. Improvements in trade logistics will also as Bangladesh moves up the value chain, this low increase overall external competitiveness of the cost advantage may not be enough to compete country and will have spillover benefits for other globally. Thus, Bangladesh needs to improve existing and potential merchandise export sectors. xiv Figure 0.2: Graphical Representation of Per Capita Income Threshold for Export of Garments Per capita RMG Exports B A C Total RMG Basic Medium and high RMG value RMG Per Capita Income Skills coordination between academia and industry could help improve overall skills in Bangladesh. 5. Lack of skills is becoming a key constraint More analysis is needed to uncover the quantum to growth in exports, and this gap will become and pattern of skill gaps in Bangladesh, through more acute as Bangladesh moves into an in-depth skills-gap survey. This will be producing higher-value garments. Although important for designing specific policy there is no recent hard data to point to a skills interventions for Bangladesh to ensure that its gap, the available indirect evidence on wages exports and manufacturing are not hindered by suggests that the gap between the demand and inadequate supply of skilled labor. supply of skilled workers in garments is growing. The lack of skilled workers could Compliance with labor standards increase the overall costs of production through the high rates of rejection of final products for 6. Compliance with internationally-acceptable defects. Despite the reported unmet demand for labor standards is becoming increasingly skilled labor, firms seem reluctant to incur important for consumers in the US and EU – training costs to raise skill levels because the main markets for garment exports from workers change jobs frequently. The publicly- Bangladesh. Among other reasons, compliance funded Technical and Vocational Education and with labor standards is important because it Training (TVET) is the main vehicle for involves externalities – experience in Bangladesh training workers but it could improve its has shown that even if one firm fails to comply relevance to better meet the needs of with labor standards, the resulting public attention garments and other sectors. Trainee and can have negative repercussions for the entire employer-targeted financing and increased industry.1 But what is optimal from the industry 1 The collapse of the Spectrum sweater factory in April 2005 and the death of workers tarnished the image of the country; buyers in the EU and US created pressure on buying firms to not source their supplies from Bangladesh until compliance with labor standards improved. xv standpoint may not be a rational economic Diversifying into non-factor services– the case decision for an individual firm that sees its for IT-enabled service exports costs increase with compliance while benefits are captured more generally. Given the 7. One possible avenue for diversification is externalities involved, there could be a role for exports related to IT-enabled services -business the government in ensuring compliance. process outsourcing (ITES-BPO). The sector Responding to this need, the Government of helps diversify exports, employs youth, raises Bangladesh adopted a “unified code of conduct� incomes while requiring lower investments in in 2006 and modernized the existing labor laws, human and physical capital compared to the IT but monitoring remains weak. As Bangladesh sector. The lack of a sizeable ITES-BPO sector moves towards higher value garment exports, it in Bangladesh is puzzling, especially when it is becomes even more important to enforce flourishing in neighboring India, Sri Lanka and is compliance as the consumers who buy these taking off in Bhutan. Analysis shows that several products can afford to be more discerning about factors hinder the growth of the sector in their buying decisions. Accordingly, the Bangladesh: lack of soft skills such as fluency government can improve compliance in written and spoken English and general enforcement, work with firms to more communication; poor infrastructure including proactively adjust wages, and help firms the lack of reasonably priced real estate and relocate factories from residential to industrial grade-A buildings, and, until recently, lack of buildings that are better equipped to provide safe VoiP telephony; a weak business environment; working conditions. and the lack of clusters. Much needs to be done to promote this industry in Bangladesh by improving skills and the business environment. Creating an apex organization to represent the sector could greatly help improve sector prospects. xvi CONSOLIDATING AND ACCELERAT ING EXPORTS IN BANGLADESH Chapter 1: Introduction and Stage-Setting 1.1 Bangladesh’s economy has gradually FY90-99). Over this period, exports as a share of become more open. Three distinct regimes GDP grew from 14 to an estimated 19.5 percent can be identified on the basis of the country’s (up from 6.7 percent of GDP in FY91). The trade policy. The first regime (1972-75) was other growth driver was remittances, which grew distinguished by heavy controls on exports and from 4.1 percent of GDP to 9.8 percent of GDP imports, and pervasive price controls. The second over FY00-10. regime (1976-1990) was marked by a move towards a market-based economy, beginning of 1.3 Progress was made in reducing tariffs denationalization, modest downward adjustment since FY92. However, the pace of decline of tariffs, partial elimination of quantitative has slackened since the late 1990s (Figure 1.1) restrictions, and policy support to garment and protection levels remain high in absolute exports. The third regime (1990-to date) terms and relative to neighboring countries. approached trade liberalization in a more For example, average rate of tariffs (without concerted manner. Major progress made so far including para tariffs) declined at an annual rate includes substantial scaling down and of 10.48 percent during FY92-96, from 70.63 rationalization of tariffs, removal of trade-related percent to 28.70 percent. Since then it declined quantitative restrictions, unification of only at an annual rate of 1 percent, from 28.70 exchange rates and the adoption of a managed percent in FY96 to 13.57 percent in FY12. floating exchange rate regime. Average tariff in Bangladesh still remains amongst the highest in the region.For example, 1.2 The trade liberalization coincided with a average applied tariff in Bangladesh was 14.8 secular increase in Bangladesh’s growth since percent in 2008, whereas the same in other South the 1990s. Over the last two decades, GDP Asian countries like India, Pakistan, Sri Lanka, growth was underpinned by exports and, more and Nepal was 9.8, 14, 8.9 and 14.6 percents recently, remittances.GDP growth over FY00-10 respectively (UNCTAD TRAINS Database). averaged a robust 5.8 percent (4.8 percent over Figure 1.1: Rates of Protection in Bangladesh (FY92-12) 80 Rate of Protection 60 40 20 0 FY92 FY93 FY94 FY95 F Y96 FY97 F Y98 FY99 FY 00 FY01 FY02 FY03 FY04 F Y0 5 FY06 F Y0 7 F Y08 FY09 F Y10 FY11 Nominal Rate of Source: WB staff calculations from NBR data 1.4 In fact, in the recent past, protection has the nominal rate of protection, which is a non- increased slightly (Figure 1.1 and Table 1.1) linear sum of tariffs.2 As can be seen from figure and has become more uneven across sectors 1.1, the nominal rate of protection declined from due to increasing use of non-transparent ‘para 74 percent in FY92 to 32 percent in FY 96, and to tariffs.’ For the last five years, average customs 26.5 percent in FY12. Average nominal protection tariffs hovered around 14 percent. In addition to in FY10-12 was higher than in the previous three regular tariffs (customs duties), the use of non- years. Moreover, the standard deviation of transparent para tariffs has expanded in recent nominal protection, as well as the maximum tariff years, from an average value of 2.98 percent in rate was significantly higher than the previous FY92 to 3.24 percent in FY96, and 12.94 percent three years (Table 1.1). in FY12. This has affected the pace of decline in Table 1.1: Nominal Protection and Tariff Dispersion (FY07-12) Fiscal years Average (no minal) Standard Maximum protection Deviation protection rate3 2011-12 26.5 43.8 680.0 2010-11 23.7 37.1 680.0 2009-10 23.9 36.6 680.0 2008-09 20.1 25.5 462.5 2007-08 21.9 24.0 462.5 2006-07 24.3 22.6 465.9 FY10-12 (avg) 24.7 39.2 680.0 FY07-09 (avg) 22.0 24.0 463.7 Source: WB staff calculations from NBR data 1.5 More than 1000 items are subjected to s u p p l e m e n t a r y d u t i e s . Fo r ex a mp l e , Bangladesh’s Exports: Dominated by government imposed supplementary duties on Garments 1095 items (8-digit level classification in the HS code) in FY12. Out of them, 701 were subject to 1.7 The Multi-Fiber Arrangement (MFA) 30 percent or higher supplementary duty (Table in textiles and clothing gave Bangladesh 1.2). The same number was 255 in FY10. All this an opportunity to make up for the decline in means that the anti-export bias in trade policy is jute exports. By the mid-1970s, synthetic likely to have increased in recent years, which is substitutes for raw jute had heavily eroded detrimental for export growth and diversification, Bangladesh’s jute exports. A cap on textile and creates incentives for resources to shift from exports from Korea, Hong Kong SAR, China, and exports towards import substitution. India, imposed through the MFA quotas in 1974, provided Bangladesh an opportunity to enter the 1.6 The forthcoming diagnostic trade global textiles and clothing markets. integration study (DTIS) will analyze trade policy issues in more detail. The DTIS will 1.8 To facilitate this move to garments, analyze trade policy and tariffs including a study Bangladesh introduced special schemes to of the effective rates of protection which may incentivize garment exports, enabling it to have increased and become more diverse across remain relatively immune to the overall high sectors in recent years. protection levels in the country. Bangladesh 2 Nominal rate of protection = (unweighted) average of tariffs (customs duty, CD) + (unweighted) average of para-tariffs, where para tariffs include regulatory duty (RD), protective supplementary duty (P-SD), and protective VAT (P-VAT). 3 The maximum protection rates apply mainly to alcoholic beverages, cigarettes, and luxury cars. In case of 97 percent of items (8-digit classification in the HS code), the protection rate is between 0 to 75 percent. 2 introduced back-to-back Letters of Credit (L/Cs)4 facilitated credit flows and the availability of and special bonded warehouse facilities that inputs at world prices for the garment exports Table 1.2: Use of Supplementary Duties in FY10-12 Table 1.3: Bangladesh Merchandise Exports: Share in Total Exports (percent) 1.9 The garments sector became the main FY00 and 79 percent in FY11. This growing driver of exports and continues to outpace the dominance of garment exports owes partly to growth of other exports; other export sectors trade policies that gave special dispensation to were not treated as favorably as garments. In the sector (see above), which enhanced the FY95, soon after the start of trade policy natural advantage that Bangladesh has in labor- liberalization, garments formed 53 percent of intensive products. Table 1.3 shows that the total exports. This share grew to 75 percent in shares of frozen food, tea (not included in the table) and leather in total exports have declined are imported. This share is about 20 percent in over FY95-11. Other fast growing sectors include case of knit garments. About 70 percent of the engineering products, agricultural products, jute yarn used in knit garments is spun mostly from and jute products. imported raw cotton in local spinning mills. Although there is some inventorying of imported Characteristics of Bangladesh’s Garment grey fabric, most orders are placed after receiving Sector an order for the garments, thereby increasing the total production time by several weeks. 1.10 The garments sector in Bangladesh has about 5000 factories (with about 4400 reportedly 1.12 Growth of garment exports is volume- active), including about 2000 in the knitwear driven. Bangladesh exports mostly basic segment and 3500 in woven, with about 500 garments, with concentration on T-shirts, trousers, involved in both segments. More than 98 percent shorts, shirts, jackets, jerseys, pullovers and of these factories were locally-owned in 2006. cardigans5. The unit price of Bangladeshi garment The sector employs about 3.5 million workers. products is not only low but also declining over Indirect (derived) employment is estimated at time. On average, the unit prices of knitwear around 10 million. woven garments exported by Bangladesh have decreased by 1.2 and 2.2 percent annually 1.11 Although declining, the import between FY05 and FY09, while their volumes dependence of the sector is still high. About 65 have increased by 26.2 and 13.6 percent percent of the fabrics used in woven garments respectively over the same period (Table 1.4). Table 1.4: Growth of Volume, Price and Value of RMG Exports Knitwear Products Year FY05 FY06 FY07 FY08 FY09 Average Growth of volume 31.3 37.7 20.9 21.0 20.4 26.2 Growth of price 0.0 -1.5 -1.6 0.5 -3.7 -1.2 Growth of value 31.3 36.1 19.3 21.5 16.7 25.0 Woven Products Growth of volume 2.0 18.0 22.2 10.6 15.2 13.6 Growth of price -0.3 -3.7 -6.7 0.3 -0.7 -2.2 Growth of value 1.7 14.3 15.5 10.9 14.5 11.4 Source: WB staff calculations from Bangladesh Bank data 1.13 Bangladesh has several advantages in favorable trade arrangements give Bangladesh manufacturing basic garments (See Annex A.1). Generalized System of Preferences (GSP) access First, its labor cost is well below that of its to the EU markets, enabling it to avoid a 12.5 competitors. This is partially offset by lower percent tax that its competitors must pay. Recent levels of productivity, and higher costs and time to liberalization in GSP rules mean that local access major international markets. Second, sourcing is no longer necessary for meeting 5 More than 75% of total garment exports are contributed by (i)T-shirt, singlets and other vests, HS code 6109, (ii) Jerseys, pullovers, cardigans, etc., HS code 6110, (iii) Men’s suits, jackets, trousers and shorts, HS code 6203, (iv) women’s suits, jackets, skirts and shorts, HS code 6204, and (v) Men’s shirt, HS code 6205. 4 value addition norms – this is likely to increase processing of garments, e.g. sorting, labeling, woven exports to the EU.6 Arrangements in the pricing, ironing, and putting on hangers, before US are, however, less favorable, with countries placing them on retail shelves. eligible for the African Growth and Opportunity Act (AGOA) receiving more favorable treatment.7 1.15 Complementing the above growth in Third, many manufacturers have become adept in basics, Bangladesh is likely to see an expanding mass production, which makes them quite demand for medium-value garments, but competitive in the market segment of large, improving logistics will be critical for this uniform orders. Finally, there is growing backward segment. Many of the new buyers over the last integration of inputs such as fabrics, yarn, few years have come from this segment of the accessories, etc., which helps in reducing delivery market, e.g. Marks and Spencer and Marshall times and increasing flexibility available to the Fields. These buyers also face downward pressure industry. on prices and have taken advantage of the growing number of Bangladeshi firms able to deliver 1.14 Future growth in garment exports will higher quality products at lower prices. As this likely see consolidation of existing strengths, production capability is established, this segment requiring an improvement in production of the market is expected to account for an efficiency and logistics. Strong growth in garment increasing proportion of the value of exports, exports is expected to continue (see next section). though not the volume. The primary destination Much of this growth is likely to come from for such medium-value garments will continue to increases in orders for the current core knitted and be Europe, but with a growing share of woven woven products, and from increases in their goods. There is also potential to supply Japan and market share in the two primary markets, the EU South Korea with medium-value garments but this and the US. This growth will be driven by an will require developing a relationship with East expansion of demand for lower cost garments in Asian buyers and designers. Improvements in these markets, with large retail chains contracting logistics will be critical for success in this segment additional production from Bangladesh and of the market because of the smaller order sizes, Vietnam rather than China. In terms of more frequent style changes and shorter order incremental growth, it is possible that regional cycles. It will also be important for capturing the markets such as Japan, China and India will play restocking and rapid replenishment components of an increasing role, but the EU and the US are this market. This requires a variety of supply likely to continue to be dominant and growing chains to meet different market requirements. markets for Bangladesh in the foreseeable future. This increase in Bangladesh’s market share will 1.16 Finally, Bangladesh has also begun to require improvements in both production move further up the fashion pyramid (Figure efficiency and logistics. Efforts to achieve the 1.2) attracting a growing number of retailers of former will initially require improvements in fashion basics such as H&M, Zara and Mango. management of production lines but must These retailers specialize in anticipating trends eventually address the need for greater capital and increasing product value through frequent investment per worker. Improvements in logistics design changes (see Box 1.1). They require a new will allow manufacturers to offer shorter delivery approach to manufacturing which emphasizes times and higher levels of order fulfillment. They flexibility and shorter lead times. Their principal will also allow manufacturers and freight market is Europe in part because of the forwarders to capture more of the value addition prominence of European designers and 6 Earlier, the GSP favored knitwear, which was more likely to meet the required local content. Domestic value addition in knitwear is about 75 percent because of the backward linkage to spinning factories. Local factories supply about 90 percent of the total fabric required. In the immediate past, only about 16 percent of the woven exports to EU qualified for the GSP facility because imported fabric typically accounts for 60 percent of the output price. So far, the EU is the major importer of Bangladesh knitwear accounting for about 75 percent of the total value versus about 16 percent for the US. 7 Average tariff rate for the US is 13 percent on woven clothing and 14 percent-18 percent on knitwear. 5 buyers in this market segment but there is a means that the buyers’ nominated forwarders growing presence in the US market as well. To would upgrade their supply chains but would compete in this market, Bangladesh will have to gradually involve local forwarders working substantially upgrade its logistics capabilities, together with international forwarders. All these providing flexible supply chains and the capacity issues relating to the logistics chain are discussed to handle distribution down to the distribution in detail in Chapter 2. center and even the store level. Initially this Figure 1.2: Fashion Pyramid More Fashion Content Designer More Product Differentiation Fashion Better Greater Demand Uncertainty Fashion Higher Quality Fabric Fashion Basics Higher Price Mid-Value Garments Shorter Product Cycle Basic Commodities Box 1.1: Industria de Diseno Textil ( Zara) Zara, along with H&M, Benetton and Gap are pioneers in the “fast fashion� business model based on spotting trends rather than creating them. It also requires short development cycles, rapid prototyping and small order sizes and thus a highly responsive to supply chain. Originally relying on its manufacturing base in Spain, Zara has gradually expanded its overseas production. Zara currently orders about 80 million units from Bangladeshi manufacturers. The garments are primarily basic knitwear, which minimizes the order cycle time. At present it does not contract for twill or denim but this may change as local production improves. Zara is more demanding in terms of logistics than other fashion retailers. It relies heavily on airfreight to move goods from its suppliers to its global distribution centers in Spain. In the case of Bangladesh, about half the orders are shipped by air. Zara multi-sources each style, with initial deliveries being received from factories that have fabric available and can deliver most rapidly. Slower suppliers are blended in as demand for the style increases. Orders are placed in terms of weekly output rather than total orders with production continuing as long as there is sufficient demand. Since styles change frequently—about 12-16 collections per year—suppliers have to be adept at setting up new production. International Evidence on Prospects for from $198 billion in 2000, to $317 billion in 2009 Continued Growth in Garments (see Table 1.5). This represents an increase in real terms, adjusted by the US CPI, to $254.4 billion in 1.17 The world market for garments is 2009 (at 2000 prices). growing. Overall world exports of garment grew 6 1.18 Bangladesh’s market share in garments market from 3.4 to 5 percent over 2000-09 (Table has grown from 2.6 percent in 2000 to 4.3 1.5; see also evidence on Revealed Comparative percent in 2009. Its share in the EU-15 market Advantage in Annex 1, which demonstrates a grew from 3 percent to 4.7 percent, and in the US similar rise in competitiveness). Table 1.5: Market Share of Top Garment Exporters in World, US and EU-15 Markets (percent) 2000 2 005 2009 Exporter World US EU-15 World US EU-15 World US EU-15 Total RMG Export, in $US 198 - - 277 317 (2000) billions China 18 .2 13.3 9.6 26.8 26.4 17.7 31.7 39.1 24 Turkey 3.3 .. 6.9 4. 3 .. 7.6 3. 5 .. 6.3 Bangladesh 2.6 3.4 3.0 2. 5 3.2 3.5 4. 3 5.0 4.7 India 3.0 3.2 2.8 3. 1 4.2 3.3 3. 6 4.3 3.9 Vietnam .. .. 1.0 1. 7 3.6 0.7 3. 0 7.4 1.1 Indonesia 2.4 3.5 2.0 1. 8 4.0 1.2 1. 8 5.8 1.1 Mexico 4.4 13.1 .. 2. 6 8.0 .. 1. 3 5.0 .. Thailand 1.9 .. 1.1 1 .5 2.9 0.9 0 .9 2.4 0.8 Pakistan .. .. 1.0 1. 3 1.8 0.9 0. 9 2.0 1 Tunisia .. .. 3.9 1. 1 .. 3.2 1. 0 .. 2.7 Cambodia .. .. .. .. 2.3 .. 1.1 2.7 .. Sri Lanka .. 2.4 .. .. 2.2 .. .. 1.8 0.7 Source: UN Comtrade, Eurostat, ITC and WTO 1.19 Even if world garment exports are not the second largest garment exporter with an growing at the same pace as overall world increase in market share from 2.6 to 4.3 percent. trade and face a more difficult trading environment, Bangladesh’s garment exports 1.20 There is much evidence to demonstrate can continue to grow by increasing their that Bangladesh’s garment exports can market share. Globally, exports of garments are continue to grow. There is a body of literature not growing as fast as overall exports. The annual that indicates that long periods of export growth in average growth rates of garments and overall developing countries can be attributed to world exports were 6.7 and 10.3 percent consolidation and growth of existing products.8 respectively over 2000-09. Garment-exporting Exports of the world garment industry grew at an countries also face significantly less favorable annual average rate of 14.2 percent since MFA market access than countries that rely on other was abolished in 2005. This period includes the products (WTI, 2008). China is the clear front- opening up of world garments trade to full runner in the global race for garments exports competition, as well as the global economic crisis during the last decade with an increase of its that started in 2008. There is more room to grow. market share from 18.2 percent in 2000 to 31.7 in Japan is now actively seeking to diversify its 2009. Over the same period, Bangladesh became garments import base away from a focus on China 8 Growth of exports has been analyzed in terms of ‘intensive margins’, i.e., continued growth in existing products, versus ‘extensive margins’, ie, growth via diversification into new products. Brenton and Newfarmer (2007) found that about 80 percent of export growth of developing countries during 1995-2004 can be explained by intensive margins. Amiti and Freund (2008) conclude the same by analyzing growth of Chinese exports during 1992-2007. Helpman, Melitz, and Rubenstein (2008) also found a similar result in their study. Nonetheless, this literature does not seem to be conclusive—for example, Hummels and Klenow (2005), and Kang (2004) found that extensive margins played a more significant role in the growth of exports, the former in a multi-country study, and the latter studying Chinese, Taiwanese and South Korean exports. 7 to “China plus.� Chinese investors themselves 1.22 The study posits that the external are seeking to source from Bangladesh, given rising environment is not a major issue in the growth wages in China.9 Growing diversification away of garments or of exports in general. The global from garments of large countries like India and economic crisis, if anything boosted Bangladesh’s China also gives Bangladesh an opportunity to not garment sector, as buyers worldwide switched to only increase world market share in garments, but less expensive garments—the so-called “Wal-Mart also, as shown in Table 1.6, to find markets in these effect.� In addition, the rise in Chinese wages and countries. And despite recent increases, wages in the currency in recent years have made Bangladesh Bangladesh remain very competitive. a more favorable investment destination. The other often-cited constraints relate to trade barriers such 1.21 In terms of geography, Bangladesh is well as tariffs in the US. Another issue is the relative located between the world’s fastest growing and preferences given to some African countries. The potentially largest economies, which are now African Growth and Opportunity Act (AGOA) changing from competitors to markets for allow duty- and quota-free access of a number of Bangladeshi exports. The US and EU will goods including garments from African countries to continue as the main destination markets for the U.S. market since 2000. However, Bangladesh Bangladeshi exports in the foreseeable future. is a major player in garments and these preferences However, the share of these two markets in do not seem to affect its ability to compete Bangladesh’s total exports has declined whereas the worldwide. This study focuses on internal share of India and China has increased between constraints to growth, positing that these are the FY05 and FY10 (Table 1.6). Bangladeshi exports much more serious issues affecting Bangladesh’s have risen at an annual rate of 28 percent in the garments and overall exports. This is evidenced by Indian and Chinese markets compared to 14 the continuous growth of the garments sector and percent in the US and EU markets over the same the fact that many garment firms report an inability period. Bangladesh needs to make the most of the to service all the orders that they receive on account growth of the Asian giants. In doing so, it will be of power, logistics and skill constraints. helped by the fact that it costs less time and money to export to Asian markets than to the US and EU. Table 1.6: Country wise Exports of Bangladesh (US$ million) USA EU* India China Japan Rest of Asia** Total percent Total percent Total percent Total percent Total percent Total percent Export of Export of Export of Export of Export of Export of Total Total Total Total Total Total FY05 2412.1 27.9 3909.7 45.2 144.19 1.7 57.8 0.7 122.4 1.4 176.0 2.0 FY10 3950.5 24.4 6753.1 41.7 304.6 1.9 178.6 1.1 330.6 2.0 235.2 1.5 FY11 5107.5 22.3 9681.9 42.2 512.5 2.2 319.7 1.4 434.1 1.9 297.4 1.4 Includes Germany, UK, Italy, France, Netherlands and Belgium only; ** Includes Iran, Singapore and Pakistan only, Source: Export Promotion Bureau 9 Wages of the internal migrant workers who fuel China’s export industry rose by 40 percent in 2010 and by about 20 to 30 percent in 2011. Apparel companies and retailers are already feeling the pinch from higher wages in China. Britain’s second-biggest retailer is facing an 8 percent increase in prices due to increase in wages in China. Trading group Li & Fung of Hong Kong SAR, China a top apparel supplier to Wal-Mart, predicts a 15 percent increase in price of Chinese garments export this year. Gerry Weber International, Germany’s No. 2 maker of woman’s clothing, is moving production from China. Chico’s too is seeking to diversify its production base away from China. (Source: http://www.businessweek.com/magazine/content/11_11/b4219009844239_page_2.htm) 8 Figure 1.3: Per Capita Income and Per Capita Garment Exports of Selected Countries (in constant 2000 US$) Thailand Real per capita RMG export Philippines 0.80 Real per capita RMG export 0.40 0.60 0.30 0.40 0.20 0.20 0.10 0.00 0.00 7.89 8.42 9.01 9.59 12.77 15.00 17.11 19.95 20.54 18.95 19.91 21.93 23.87 25.92 25.67 9.89 10.04 8.98 8.17 8.64 9.01 8.57 8.74 9.27 9.29 9.77 9.99 10.73 11.43 12.24 Per capita GDP ( '00 contant 2000 US$) Per capita GDP ( '00 constant 2000 US$) Sri Lanka Bangladesh 1.60 0.70 Real per capita RMG export Real per capita RMG export 1.40 0.60 1.20 0.50 1.00 0.40 0.80 0.30 0.60 0.20 0.40 0.10 0.20 0.00 0.00 2.26 2.28 2.37 2.43 2.45 2.55 2.65 2.77 2.93 3.13 3.46 3.68 4.01 4.42 4.82 4.36 4.66 5.00 5.33 5.41 5.74 6.12 6.76 8.55 9.24 10.09 11.40 12.33 Per capita GDP( '00 constant 2000 US$) Per capita GDP ( '00 constant 2000US$) Note: Last two years’ garments exports of Bangladesh are estimated from national data. Source: WB staff calculations from UN Comtrade, ITC, and WDI 1.23 Evidence from other countries also Philippines. By this reasoning, Bangladesh’s indicates that Bangladesh’s current level of per garments sector should be able to continue to capita income should allow continued grow and capture world market share. Figure 1.3 dynamism in garments exports for the indicates the steep trajectory of Bangladesh’s foreseeable future. Figure 1.3 shows that real per success in garments—its per capita GDP of capita exports of garments in Thailand grew till it US$482 (in constant 2000 US$), well below the reached a per capita GDP of about US$2000 (in apparent threshold, could allow this trajectory to constant 2000 US$). The same ‘threshold’ was be sustained (provided the investment conditions reached in the Philippines at about $1000, and in improve to enable even larger volumes of Sri Lanka at about $1150. On the other hand, production). India, despite its diversification into many other products (garments formed 6.4 percent of total 1.24 Over time, a garment producing country is exports in 2009, versus 13 percent in 2000), likely to see a slowly increasing share of higher- continues to see a growth in per capita garment value garments in its overall export mix. This exports. India appears to be below the apparent will arise largely from an increasing level of income threshold indicated by, say, the wages and benefits, which are a major 9 factor in determining competitiveness in garment exports (point B).10 garments. For example, the export mix in Sri Lanka, whose real (in constant 2000 US$) per 1.25 Policy makers may wish to anticipate capita GDP was US$1,233 in 2009, largely this shift in the composition of garment consists of mid-range garments and above. exports. While overall garment exports should Recent experience in India suggests that it, too, continue to grow, the threshold in basic garments is moving increasingly into higher-range exports will be reached well before the overall garments. Thus, before reaching the apparent turning point. By providing a policy environment threshold where per capita garment exports start that does not discourage individual company to decline, a country’s export basket has a initiatives for moving to higher value relatively diversified mix of basic and higher garments (which should also be more value garments. Figure 1.4 explains this concept profitable), Bangladesh will ensure that it will in graphical terms: growth in per capita garment be better prepared for the threshold ‘A’ and exports is increasingly sustained by moving away ‘B’. Moreover, this will also allow point B to be from basic garments; as a corollary, the decline in further removed from point A, giving Bangladesh per capita basic garment exports (point A) must more time to develop other drivers of exports11. occur before the overall decline in per capita Figure 1.4: Graphical Representation of Per Capita Income Threshold for Export Of Garments Per capita RMG Exports B A C Total RMG Basic Medium and high RMG value RMG Per Capita Income 1.26 Further into the future, Bangladesh will As its per capita income grows and it reaches also reach the overall threshold (point B). closer to point B, other countries with lower wage Wellbefore reaching this point, Bangladesh should and per capita income levels will become be encouraging diversification of its export basket. increasingly competitive in basic and, later, in 10 In the case of Bangladesh, energy costs are also highly subsidized, which is an additional factor in the competitiveness of the garments industry. On the other hand, the shortage of gas means that most if not all firms have a significant backup of more expensive, own-generated electricity. Thus, possible re-pricing of energy costs (if accompanied by more reliable and adequate grid supply) to reflect actual costs could have a mixed impact on the garments sector. 11 Of course, the threshold for Bangladesh can vary depending on the world economic environment, but international experience tells us that the threshold is some time away. 10 higher value garments. To enable continued garments as a share of overall exports in overall export growth, Bangladesh would need to Bangladesh have increased from 75 to 79 percent. see more contributions to exports from other In other countries such as Pakistan, Sri Lanka and sectors. Lesotho, where per capita incomes have grown slower than Bangladesh’s over 2000-08, the 1.27 From a risk standpoint as well, reliance on garments has declined substantially. In diversification is a good strategy. The high growth countries like China and India, the concentration in a single product category appears relative decline in reliance on garments has been to be unique to Bangladesh amongst many peer even faster. For Bangladesh, a lower degree of countries. Figure 1.5 shows that not only is the reliance on garments would make it less concentration high, but between 2000 and 2008, vulnerable to industry-specific shocks. Figure 1.5: Share of Garments Exports in To tal Merchandize Export (percent) 79 . 0 75.3 73.1 90.0 6 9.2 75.0 51.8 40 .9 60.0 23.8 23.5 45.0 19 .2 14.5 14.1 1 0.3 30.0 8.4 5.4 6.1 2.4 15.0 0.0 Turkey China B a n g l a de s h L eso tho Sri Lanka India Thailand Pakistan 2000 2008 Source: UN Comtrade 1.28 Diversification into export of non-factor services, especially in the post-GATS liberalized services will help Bangladesh to exploit the environment. emerging export potential in the global market. Globally, services trade has grown faster than 1.29 Bangladesh has so far failed to make a merchandise trade in recent years. Service exports mark in the export non-factor services. Export from developing countries almost tripled in the of services is driven by three forces- technology, last ten years, growing by 11 percent annually transportability, and tradability- the 3Ts (Ghani, from about US$240 billion in 1997 to US$692 2010). Technology, especially information and billion in 2007. There are several reasons why the communication technology, increases the digital export of services will continue growing. First, transportability of services, making them more services account for more than 70 percent of tradable. Information and communication global GDP. Second, the cost difference across technology in Bangladesh is still very countries in the production of services is underdeveloped which affects the export of enormous (Ghani, 2010). The option to narrow services, even though services account for over 50 such cost differentials through migration is limited percent of GDP in Bangladesh. as migration has become heavily regulated. However, the scope for exploiting the cost 1.30 One possibility for diversification is the differentials by making use of internet has ITES-BPO sector. Information technology-based increased. Third, unlike merchandize exports, it is exports, albeit small, are the only significant non- harder to regulate the export of non-factor factor service exports from Bangladesh. There are 11 only about 400 registered IT/ITES firms in for diversification into ITES-BPO; and iv) Bangladesh (BASIS, 2006). Out of them only 100 drawing some more general lessons for overall are engaged in exports, with exports of about export growth. US$35 million in FY10. There are several reasons why the sector has export potential in Bangladesh. Prior Analyses on Constraints to Garments and First, Bangladesh’s large pool of young and Overall Exports trainable people and its competitive wages are an important strength. Many countries like the 1.32 In the last Investment Climate Assessment Philippines, Kenya, Nigeria, Sri Lanka, and Egypt (ICA), top concerns of firms were that have a demographic structure similar to infrastructure, political instability, and access Bangladesh have established themselves as to finance and land. The ICA differentiated attractive outsourcing destinations. Second, between metropolitan and non-metropolitan Bangladesh has the potential to attract large locations. Figure 1.6 shows the major or severe volumes of Indian (and other) FDI, given the investment climate constraints.13Responses were accelerated wage increases seen in the ITES sector more homogeneous for metropolitan firms than for in India.12 Third, the global market for ITES is big others, with 78 percent reporting major or severe and growing faster than world trade, creating constraints arising from lack of uninterrupted opportunities for new entrants. Even a small share power supply, and 73 percent reporting political of this market means large volumes of exports instability. For non-metropolitan enterprise, the from Bangladesh. Fourth, the existence of about top constraint, felt by 41 percent of firms, related 5000 ITES freelancers working for American and to low demand; 31 percent pointed to inflation as European customers points to the potential of the their key concern. ITES sector which can be enhanced through proper policy and infrastructural support. Finally, 1.33 For the garment sector, more specific development of information technology is a high constraints were identified in different studies. priority of the government. Although inexpensive labor is the main engine of growth of the garment sector, Mahumd (2009) 1.31 Focus of this Study. Based on the above examined whether low labor costs of Bangladesh reasoning, the broader focus of this study is to could compensate for its relative disadvantages in analyze the constraints to continued rapid growth marketing skills and infrastructure (including in overall exports. In answering this question, the transport, ports, product standards, and garment sector, which comprises about four-fifths certification facilities). A number of other studies, of total exports, is used as a lens to capture some e.g. World Bank (2007a) and Ara and Rahman of the critical concerns of the merchandize export (2010) also identified poor trade logistics and skill sector. In addition, the ITES-BPO sector is used shortages as the main constraints to the growth of as a “case study� to examine possible constraints the garment sector in Bangladesh. ADB (2007) to non-factor service exports. The traditional analyzed the inefficiency of the Dhaka-Chittagong service exports, migration of workers, are corridor and its impact on country’s export currently being analyzed in a separate World Bank including garments. Staritz (2011), World Bank study on labor-embedded growth. Thus, this study (2005), and Rahman, Bhattacharya and Moazzem seeks to focus on issues relating to i) continuation (2008) highlighted the importance of compliance of fast growth in the basic garment sector; ii) with labor standards. Abdin (2008) brings up these providing an environment for encouraging export and several other concerns such as banking sector of mid and higher-value garments; iii) possibilities issues, and falling competitiveness. 12 India is the leader with a market share of 37 percent in global outsourcing. 13 The 2008 Bangladesh Investment Climate Assessment is based on 2007 survey data for 1,504 firms in metropolitan areas and 2,520 non-farm enterprises in 25 peri-urban areas. 12 Figure 1.6: Major Constraints to Investment as Reported by Respondents Major or Severe Investment Climate Constraints Percent of Firms Reporting Constraints Metropolitan Areas Non-metropolitan Areas Elecricity 75 Low demand 41 Macroinstabolity (inflation) 31 Political Instability 73 Road inaccesibility 19 Corrupotion 55 High interest rates 19 Access to land 45 Electricity 17 Access to financing 42 Road Quality 8 Policy uncertaintly 30 Political instability 8 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 % of firms % of firms Source: World Bank (2008) 1.34 This study focuses on logistics, skills and deserve more attention in light of the gradually- labor compliance.14Overall investment climate changing nature of the industry. In the case of issues are well-analyzed, as seen above, and the logistics, much of the backbone of logistics i.e., solutions are also known. While these issues are infrastructure, is also a critical public important, this report cannot add much value in good/service. For skills, there is a market failure analyzing and making recommendations relating in the provision of more skilled workers and to say, electricity, access to land, access to finance, management, and this could call for a role for political uncertainty and instability, low demand government. Finally, in the case of compliance for goods and services, etc. On the other hand, issues, more recent stock-taking is warranted, after prior conversations with manufacturing firms the flurry of studies induced by the Harkin Bill of revealed that logistics and skill constraints were 1993. Here, too, the possible tarnishing of the critical for continued growth in garments overall country image by a minority of non- including the possible shifts to mid-and-higher compliant firms means that there is a role for value garments. Although some studies identified government in trying to ensure that this does not them as main constraints, as seen above, they are happen. less analyzed from a policy perspective and also 14 We did not distinguish between EPZ and non-EPZ environment in our analysis. Exports are mostly driven by non-EPZ firms (more than 80%) in Bangladesh which are more exposed to logistics, skill and compliance constraints. Therefore, our overall policy suggestions remain valid despite some differences between the EPZ and non-EPZ environment. However, while an in-depth comparative analysis of the performance of EPZ and non-EPZ firms will be valuable, it is beyond the scope of this study. 13 Annex A.1: Revealed Comparative Advantage Indices of 5 top RMG Export Categories of Bangladesh to EU China India Indonesia Mexico Turke y Vietnam Yea r HS Code 6109: T-shirts, S inglets 1990 1.44 0.94 1.36 2.78 0.54 1.52 2000 1.65 1.05 1.44 2.43 0.49 1.65 2008 1.59 0.97 1.49 2.45 0.70 1.46 HS Code 6110: Jersey, Pullovers 1990 0.95 0.92 0.54 3.28 0.18 0.95 2000 1.21 1.04 0.75 2.94 0.46 1.30 2008 1.09 1.42 1.12 2.90 0.97 1.13 HS Code 6203: Man/Boys’ Suits, Jackets, Blazer 1990 0.67 1.00 0.94 2.00 0.23 0.58 2000 1.21 1.28 1.09 1.87 0.48 0.88 2008 1.06 1.17 1.04 1.97 0.71 0.77 HS Code 6204: Wo man/Girls’ Suits, Jacket, Blazer 1990 0.12 -0.40 0.25 1.55 -0.41 0.31 2000 0.64 0.38 0.65 2.14 0.12 0.78 2008 0.63 0.48 0.88 1.92 0.33 0.52 HS Code 6205: Man/Boys’ Shirts 1990 1.74 0.92 1.63 2.98 1.20 0.91 2000 1.75 0.89 1.14 3.26 1.26 0.82 2008 1.19 0.66 0.85 3.29 0.84 0.69 Note: A positive value indicates competitive advantage of Bangladesh for the respective product category Source: WB staff calculations from UN Comtrade. 14 Chapter 2: The Role of Logistics in Acceleration of Exports I. Introduction 2.1 Efficient logistics are critical for competing management would be crucial elements of better in a globalized world. Efficient logistics are logistics for the garment sector of the country. required for ensuring that exports do not suffer from cost increases or time delays vis-à-vis 2.3 Overall trade logistics in Bangladesh is competing countries; ensuring efficient imports poor. The domestic logistic chain -involving the that are needed for exports; and providing collection of the products from producers, road competitive imports for consumption and haulage to the consolidation center or warehouse, domestic production. High logistic costs can be containerization, haulage to the port, and customs seen as an implicit export tax that biases the at port- is still very underdeveloped. Bangladesh economy away from exports. Logistics are ranks 87 in the Logistic Performance Index (LPI), becoming increasingly important for competitive while its South Asian comparators like India and advantage in the wake of increasing globalization, Pakistan rank 39 and 68 respectively. The more production-sharing across countries, and performance of Chittagong port remains poor. shortening product life-cycles, driven by Increase in the capacity of road and rail technology. In case of Bangladesh, logistics will infrastructure between Dhaka and Chittagong has play an increasingly important role as the country been delayed. Air cargo has become an important seeks to diversify into higher-value garment mode for ensuring reliability of deliveries in the exports as well as other products, such as those fashion basics market. However, the regulation of with higher import content. Even in a more airfreight services impedes competition among immediate sense, logistics will need to improve to airfreight companies and causes inefficiencies in allow Bangladesh to maintain its competitive edge the air cargo terminal. During the last five years in current garment exports, not least because many or so, clearance times have changed little in the other competing countries are constantly airport and land border crossings, and these times improving their logistics. Beyond garments, continue to be measured in days rather than hours merchandize trade in general will benefit from a as is typical for most countries. reduction in the ‘export tax,’ and thus help longer- term diversification of exports. 2.4 It is apparent that logistics will play a key role in Bangladesh’s efforts to maintain strong 2.2 Key messages. Low labor costs will continue growth in basic garment exports and move up to provide Bangladesh a competitive edge in the the value chain. Because of the dominance of production of basic garments. Complementing garments in Bangladesh’s exports, overall export this, the country is also likely to see an expanding growth will also require improvement in logistics, demand for medium value garments and fashion for the foreseeable future. Diversification will basics items.15 However, taking advantage of also be encouraged by the reduction in the export these opportunities will require Bangladesh to tax implicit in inefficient logistics. The rest of the improve logistics to better integrate its supply chapter will provide a diagnosis as well as chains and ensure adequate infrastructure. recommendations to improve the quality of the Strengthening multimodal16 connections between trade logistics of the country. Section II focuses Chittagong port and the hinterland, improving on transport; section III focuses on trade customs procedures, enhancing air shipment transactions. Section IV analyzes the supply chain capacity, and improving rail services by adding performance and finally section V provides new physical capacity and introducing commercial summary and policy recommendations. 15 Low, medium, and high value garments are defined on the basis of freight-on-board prices. 16 Use of different modes of transport – air, road, water, and air. 15 II. The Transport Network II.1 Ports smaller feeder vessels, these berths handled about 45 percent of the containers in FY08. Berth 2.5 Chittagong is the country’s only seaport productivity depends on the quality of vessels’ capable of dealing with exports and imports. equipment, but a typical performance with two Bangladesh’s major port, Chittagong, is located on cranes is 20-25 moves per vessel hour. Cargo the right bank of the river Karnafuli, nine nautical handling services at these berth were provided, miles from the Bay of Bengal. Vessels calling at until recently, by 12 private stevedoring firms. It the port are limited by the approach channel to a has a container storage capacity of 240,271 sq. m. maximum length of 186 meters (153 at night) and There is a plan to convert three berths to a proper by the depth in the port to a draft of 9.2 meters. container terminal equipped with SSGs. This The maximum capacity for container vessels is would increase its annual capacity to about 750 1,200 twenty-foot equivalent units (TEU).17 There thousand TEU. are four locations equipped with the essential equipment to handle containers: (i) Chittagong 2.8 NCT has a berth length of 1000 meters and Container Terminal (CCT), (ii) General Cargo alongside depth of 8.8-9.2 meters. It has a Berths (GCB), (iii) New Mooring Container container storage capacity of 220,000 sq. m. It Terminal (NCT), and (iv) more recently, North lacks SSGs and currently serves only self- Container Yard (NCY). Chittagong port handled sustaining container vessels. Although not nearly 45 million tons of cargo in 2010-11 versus officially commissioned, it is operated by the same 27 million tons in 2006-07. company that operates CCT and handles about 15 percent of the container traffic. The terminal is not 2.6 CCT has a 450 meter quay with alongside expected to be fully operational until 2012. When depth of 9.2 meters. It is equipped with 4 Ship-to- fully developed the terminal will be equipped with Shore Gantry (SSG) cranes to serve container 10 SSGs and have a capacity in excess of 1.25 vessels and has a 150,000 sq. m container storage million TEU. yard with static capacity of about 8400 TEU. It also has a rail track to serve unit trains carrying 2.9 Government has more recently completed the containers to the Dhaka ICD. The terminal serves construction of NCY, which has a container the larger feeder vessels. It currently handles about storage facility of 62532 square meters. 40 percent of the containers but this proportion has been increasing. The SSGs are able to handle 2.10 The container traffic at the port has grown about 23 moves per net crane hour18 and the rapidly since the beginning of trade liberalization estimated annual terminal capacity is 750 in the early 1990s at an average rate of 12.9 thousand TEU. CCT is operated by a private percent per annum. The primary direction of company under a three-year operating lease. traffic flow is inbound with 90 percent of the containers loaded, primarily with consumer goods 2.7 GCB has 13 general cargo berths built in the and equipment. Their average weight is 13.3 tons mid-1950s and in varying states of disrepair. Each per loaded TEU, and has been rising over the last berth has a maximum length of 193 meters and two decades.19 In contrast only 62 percent of the alongside depth of 8.6 meters. Although meant for outbound containers are loaded. They carry 17 Vesse ls up to 1300 TEU can be berthed where these are light loaded because the containers have low density fabric and garments. 18 Net hour is exclusive of delays. This contrasts with gross hour which includes delays. 19 The CPA reports weights including the tare weight of the containers. This has been removed for the current discussion 16 mostly garments and thus have a lower weight over the last two decades. averaging 8.8 tons, with the average declining Table 2.1: Container Statistics FY08 Import Full Container Load (FCL) 90 percent Less than full Container Load (LCL) 5 percent Empty 6 percent Tons per Loaded TEU 13.3 Export FCL 62 percent LCL 0 percent Empty 38 percent Tons per Loaded TEU 8.8 Source: Chittagong Port Authority (CPA) Statistics 2.11 Significant improvement was achieved in for efficient operation of trucks fully loaded Chittagong port through administrative with 40 feet long containers, most import reforms but did not sustain. After decades of containers are unstuffed in the port with the resisting efforts to introduce private container contents transported to their destination as loose handling, as had been done in the other major cargo in 5-10 ton trucks. This is one of the ports in the region, the decision was finally made reasons for growing congestion in the port. In to grant an operating lease to CCT. At the same order to solve this problem, the government time, the inefficient and strike-prone public Dock allowed private off-dock container yards (referred Labor Board was replaced by private stevedoring to variously as CFS and ICDs) to be established. companies which function as berth operators. Today there are 14 ODCYs located near the port This privatization increased the efficiency of of Chittagong with storage areas up to 18 hectares. the port. For example, the average turnaround time They are operated by local companies including for vessels decreased from 6.38 days in FY07 to manufacturers, traders and 3PLs 20. They are 5.07 days in FY08. The operating lease to used by buyers to consolidate garments private management ended in May 2009. The shipments delivered from the factory as loose Chittagong Port Authority (CPA) took back the cargo in cartons. However the cartons cannot be port handling responsibility as the lease to opened so it is not possible to do inspection or private management could not be renewed due any modification of the garments. The ODCYs to some legal complications. The progress made cannot clear import containers containing inputs under private management immediately relapsed; for manufacture of RMG thereby preventing the average turnaround time for vessels started competition and improvement in the services climbing back and reached to 6.9 in FY11 (CPA currently provided by CPA. statistics). 2.13 Benapole, the largest land port of the 2.12 Allowing the operation of private off dock country, needs additional physical capacity. container yards (ODCY) is a welcome step The current traffic in this crossing is 300-500 but more policy changes are required to make loaded trucks entering Bangladesh each day and them more effective. Because of the 100-120 loaded trucks exiting. The movement unsuitability of the Dhaka-Chittagong corridor of these trucks is constrained by a prohibition 20 A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides a one stop shop service to its customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions. 17 against trucks from one country delivering the are sent to a separate yard for back-to-back transfer goods to a destination in the other country. For in an unprotected area (Figure 2.). Trucks carrying imports, Indian trucks cross the border and are vehicles are sent to a different yard specifically cleared at the land port. For exports, Bangladesh reserved for this cargo. The remaining cargoes trucks cross the border into a No-man’s land are unloaded at one of 38 small (800 m2) warehouses where the goods are transferred to an Indian operated by the land port. The goods are stored truck using a back-to-back operation. This is a in the land port for several days until cleared by cumbersome procedure since the area is very the importer or his nominated agents. The minimum small, about 0.2 hectares only (Figure 2.). When time in port for cargoes other than perishables is the trucks enter the land port, they are registered 1-3 days once documents are available. and assigned a location for unloading. Perishables Figure 2.1: No-man’s land Figure 2.2: Perishable Tra nsfer 2.14 The port lacks loading docks or any design II.2 Rail and Road Services21 features appropriate for a truck terminal. Furthermore, the port has little cargo handling 2.15 The Bangladesh Railways (BR) network has equipment or systems for managing the cargo 2835 route km and 3900 track km22 but is divided stored in the port. The current users of the port between a meter gauge network in East identified a number of actions to improve the Bangladesh and a broad gauge23 network in efficiency of the port. They include: (i) Western Bangladesh, with a dual gauge construction of more sheds and a cold storage for connection linking the two via the Bangabandhu the perishables, (ii) procurement of new cranes Bridge over the river Jamuna. and forklifts, (iii) expediting completion of the by- pass road to reduce the traffic jam, and (iv) 2.16 The amount of overall freight carried on construction of a new link road to be used the railway has been declining, limited by lack exclusively by the passenger vehicles and of capacity and poor quality of service. The passengers entering into and exiting from amount of freight has been declining not only in Bangladesh. terms of percentage share in total container 21 Some of the sections that follow are treated in greater depth in the forthcoming Diagnostic Trade Integration Study (DTIS). 22 Route km refers to total distance covered and track km refers to total length of rail tracks which will be always bigger than the former as many sections of the rail network have more than one track. 23 Metre gauge and Broad gauge refer to railway of 3 ft 3 3 8 inches and 5 ft 6 inches widespread respectively. 18 movements but also in terms of actual volume. Kamalapur ICD is questionable. The crane This is due to three interrelated factors: (i) limited purchased 10 years ago cannot move because it is supply of aging rolling stock; (ii) congestion on too close to the fence wall. critical links; and (iii) priority given to passenger train services. Currently there are about 34 freight 2.18 Additional capacity and policy shifts are train movements scheduled each day traveling an crucial to enable BR to play a catalytic role in average distance of only 220 km all over the the growth of garment exports. With the country. The transit time is longer than for trucks. growing movement of garment manufacturers out The delays waiting for locomotives and wagons of Dhaka, BR has to play a larger role in carrying and the overall deterioration in the quality of freight to Chittagong port. If the operating service are major concerns. Although the daily capacity is increased and a new ICD opened schedule has been increased to four train outside Dhaka, then rail’s share could increase to movements in each direction between Dhaka and 20 percent This implies at least 5 train movements Chittagong, the actual number is limited by the in each direction with demand increasing to 14 shortages of locomotives to about two trains in within ten years.24 This will not be possible each direction. The trains that do move are without a substantial increase in locomotives and generally full, i.e. 60-80 TEU. rolling stock and providing priority for container trains as well as adopting a commercial approach 2.17 Nonetheless, the transport of containers by towards freight transport. rail between Chittagong port and the Kamalapur Inland Container Depot (ICD) in 2.19 Upgrading Dhaka-Chittagong corridor is Dhaka has been increasing. The Kamalapur ICD critical for improving logistics. The 233 km occupies a 13.5 hectare site within Dhaka. Traffic Dhaka-Chittagong is the main road network has tripled in volume over the last decade and a connecting Chittagong port with the hinterland. It half but has fluctuated in recent years due to the is mostly two-lane (84 percent), with some four- increase in delays as a result of lack of lane segments (16 percent), and heavily congested locomotives. The principal source of demand for in the vicinity of numerous towns along the route. that service is low value imports delivered to the Congestion is growing with the increase in the ICD for clearance. Despite the long delays in country’s overall trade. The average transit time waiting for wagons, importers are willing to use was 6-7 hours in 2005-06 implying an average rail because it is cheaper and the cargo does not travel speed of only 35-40 kmph. Despite the have to be cleared until it reaches Dhaka. The flow growing congestion, the road handles about 83 of containers from the ICD to the port has percent of the cargo moving between Dhaka and experienced a similar rate of growth but less than Chittagong. ADB (2007) recommended a set of half of them are loaded because exporters have comprehensive policy options, based on scenario less tolerance for delays in shipments. Access to analyses, to improve the efficiency of this the container terminal is also controlled during the important network.25 Those recommendations are day to reduce the congestion in Dhaka. The ICD is still relevant but yet to be fully implemented. This also badly congested and difficult to access report did not therefore undertake a fresh analysis especially for the manufacturers located outside of logistics issues relating to the Dhaka- Dhaka city. Efficiency in the operation of the Chittagong corridor. 24 Assuming 12.8 percent growth in container traffic and an average load factor of 95 percent. 25 ADB’s recommendations include: i. Completing four-laning of the Dhaka-Chittagong highway (currently under implementation), ii. Planning and implementing six lane connections in the vicinity of Dhaka and Chittagong cities, iii. Planning and implementing a Dhaka bypass (ring road), iv. Planning for the development of an expressway in the Dhaka-Chittagong corridor, and v. Raising the axle load limitations on all bridges to handle a full 40-feet container and installing weigh stations in the corridor to control overloading, especially at the exit from the port. 19 II.3 Airfreight and air cargo terminal about 30 percent of airfreight shipments in 2010. In the past, airfreight was used by the garments 2.20 Use of airfreight by garment exporters is industry when requested by the buyer or when growing, but is capacity constrained. The production delays resulted in a missed shipment principal gateway for airfreight is Dhaka’s date. The buyer’s request generally involves Shahjalal International Airport. Airfreight is higher value garments and has been very shipped on a combination of scheduled and significant recently. The use of airfreight for chartered air freighters as well as in the belly of missed shipments is also increasing owing to passenger aircraft. Currently there are 9 energy shortages. Lack of physical capacity has scheduled freight services (Table 2.2). The already become a major problem. For example, majority of them fly to hubs in the Middle East the air cargo terminal has a nominal capacity to where cargo is transferred to flights to Europe handle about 300 tons per day but demand has and the US. Passenger planes accounted for risen above 500 tons during peak periods. Table 2.2: Scheduled Airfreight Services Operator Weekly Frequency Aircraft Capacity (in ton) Cathay Pacific 2 B747-400 110 Etihad 2 AB340 60 Qatar 2 A300-600 40 Singapore 1 B747 120 Saudi 2 B747 100 Source: DB Schenker 2.21 In addition to inadequate physical congested, the number of loading bays where capacity, an appropriate policy for airfreight trucks are allowed is limited as are the doors used service is also missing. Despite the importance of to access the aircraft. These restrictions were air courier services for the garments industry, in introduced because of security concerns, but there particular for shipping samples, Bangladesh, is little control over the people working within the unlike its competitors, does not have a policy to terminal. Instead the working area is congested, encourage this service. Specifically, customs does poorly lit and generally disorderly. Cargo is not have de minimus (minimum weight below supposed to be delivered to the terminal no earlier which there is no duty charged) to allow small than 30 hours before the flight time for a charter packages to clear the airport quickly. The clearing and 8 hours for scheduled freighters; however, process for packages and airfreight is the same, so during a site visit, the terminal was observed to be that clearance times are 1-2 days for samples and completely congested with cargo spilling out into 3-5 days for fabric instead of a few hours for both the truck parking area. as in most of the countries in the region. 2.23 The monopoly of Civil Aviation is a major 2.22 The air cargo terminal is poorly constraint. Bangladesh Biman provides the constructed and managed. The air cargo ground handling services through a separate terminal is a large, old structure where cargo is subsidiary that also operates the air cargo terminal. scanned, inspected by customs, palletized and It rents space within the airport to UPS and other loaded on the aircraft. The current layout of the courier services. The three scanners owned and terminal is extremely cumbersome with the cargo operated by Civil Aviation are only about 7 years flow parallel to the apron parking (ramp) area old but appear to be designed for standard ocean rather than direct from truck loading bays to the pallets. Since they are not large enough for doors leading to the apron. Despite being highly airfreight pallets, all shipments must be broken 20 down prior to scanning. Civil Aviation denied the downstream. While this multimodal movement request of Biman to introduce its own scanners. would not offer a significant reduction in cost or Civil Aviation has tentatively agreed to provide time relative to movement of loose cargo by truck, new storage facilities for the cargo, but would still it would provide greater reliability and allow require the use of Biman for ground handling and containers to be shipped directly to and from the Civil Aviation for scanning. Bangladesh is yet to factory. adopt an open skies policy that allows airlines to operate freely in the country without licensing III. Trade Transactions restrictions. In the past, open skies policy was adopted for a limited period, enabling airlines to III.1 Customs Procedures operate additional flights for transporting Bangladeshi workers. The Association of Travel 2.25 The customs clearing process, albeit Agents of Bangladesh (ATAB) and the main changed over the last several years, is still exporters are pressing for an open skies policy, cumbersome. Customs continues to depend on which is expected to reduce costs and provide Pre-shipment Inspection (PSI) performed by 4 more airfreight capacity for the garments sector. firms, Bureau Veritas, Intertek Testing, SGS, and OMIC operating in different countries of origin. II.4 Inland Water Transport They confirm the description, quantity, classification and valuation of the goods being 2.24 Private and public collaborations to build exported to Bangladesh and issue a Clear Report and run inland water terminals are expected to of Findings (CRF). While the PSI program promote multimodal movement of containers. continues to make a valuable contribution in terms An inland water terminal near Pagla (Pangaon) to of improving revenue collection and ensuring service containers on barges is under construction. accurate reporting on the declarations26, it delays It is being built by Bangladesh Inland Water the clearance time by 1-2 days on average by Transport Authority (BIWTA) and financed by the requiring a pre-arrival processing which is not Chittagong Port Authority. This is proposed to be compatible with the ASYCUDA system27. The operated by private operators. A private ICD is interaction with customs requires a licensed proposed at Khanpur, Narayanganj. These barge custom broker. The major improvement has been services would bring import containers from to allow customs brokers to electronically file the Chittagong to the terminal where they would be vessel manifest from their office. The ASYCUDA cleared and transferred to trucks for delivery to selectivity module is used to determine the level of their destination. The reverse would apply for risk and inspection.28 However, in most cases the export containers. The barges would be self- ASYCUDA model is disregarded and it is the propelled bay-crossing barges and are expected to customs officer that determines the actual carry 100-120 TEU stacked three high. The inspection rate by reviewing the cargo declaration, barges would travel at night requiring about 18 the CRF, and other supporting documents and hours from Chittagong but less traveling certificates. 26 “Review of pre-shipment inspection in Bangladesh�, Manzur Ahmed: http://www.thefinancialexpress-bd.com/search_index.php?news_id=17515&page=detail_news 27 The ASYCUDA software is developed in Geneva by UNCTAD. The system handles manifests and customs declarations, accounting procedures, transit and suspense procedures. It takes into account the international codes and standards developed by ISO (International Organisation for Standardisation), WCO (World Customs Organization) and the United Nations. 28 Green-clear without further checks; Yellow –clear subject to the submission of additional supporting documents; Red-physical inspection. 21 2.26 Garment inputs are given preferential fabrics is 2-3 days rather than 4-6 hours. There is treatment. Customs accommodates the garment no de minimus for samples brought in by courier sector by: (i) clearing textiles and other inputs to flights, thus delaying these shipments the garment industry within two days where unnecessarily. possible, which contrasts with three to seven days for other imports; (ii) allowing manufacturers, III.2 Terms of Shipment and Payment buyers and forwarders to establish bonded warehouses;29 (iii) allowing suppliers and 2.28 Terms of shipment and payment do not logistics service providers to establish a Common appear to have posed a problem for the Bonded warehouse which can be used to store garments industry so far. Imports of yarn and inputs for garment manufacture, including fabric are typically shipped by ocean on cost and fabrics, accessories, dyes and chemicals, and yarn, freight (C&F)32terms. Free on board (FOB)33 was and for manufacturers to purchase these imports used in the past, but as the garments industry has duty-free to meet export orders (although so expanded, suppliers have become more far not a single common bonded warehouse comfortable with C&F arrangements. For has been established); and (iv) permitting transit shipments by land from India, the most common movements from the port to EPZs and bonded shipment terms are ex-works (EXW).34 C&F warehouses. By taking advantage of the above terms were rarely used in the past but they are systems, a garment manufacturer can import raw becoming more common with the development materials duty-free up to 75 percent of the value of the land port at Benapole. Deliveries to the of the total export. These imports are cleared garment factory under the terms Delivery Duty using the same documents as for other imports Paid (DDP) or Unpaid (DDU) are occasionally plus a utilization declaration (UD)30 issued by the used for air shipment. Bangladesh Bank Bangladesh Garments Manufacturing and Export discourages DDP since the importer pays the Association (BGMEA). At the time of export of supplier in foreign currency. This is done by finished products, the manufacturer presents the requiring permission beforehand as well as documents for clearance of export together with various information and documentation. the UD.31 2.29 Almost all garment exports are shipped 2.27 Despite these efforts, customs procedures by ocean on FOB terms primarily to retail for imported inputs for garments leave much chains. Less than 5 percent move on C&F terms to be desired. For example, an AEO system and most of these are destined for traders and (authorized economic operator) that would allow small importers. Most exports are transferred to expedited clearance has not been introduced yet. the ODCY rather than the port. The nominated The clearance procedures at the airport are forwarder arranges the movement from the similar to the seaports and continue to require warehouse to the vessel where the goods are paper documentation so that the time to clear loaded on to the vessel. 29 Since the early 1980s, Bangladesh has allowed garments the facilities of bonded warehouses and back-to-back letters of credit to reduce the financial burden of its exporters. 30 UD is used to make sure that the duty free imports of inputs are used only to produce garments for export and not for sale in domestic market. 31 Thomas, Ian (2003), Special Bonded Warehousing in Bangladesh. Paper included in Customs Modernization Handbook, Luc De Wulf, World Bank. 32 An arrangement requiring the sellers (exporters) to deliver the goods to their final destination at their own cost and risk. 33 An arrangement requiring the sellers (exporters) to deliver the goods to the port of departure at their own costs and risks, and the buyers (importers) have to bear all costs and risks from that point. 34 An arrangement requiring the seller (exporters) to deliver goods at his or her own place of business, all other transportation costs and risks are assumed by the buyer. 22 2.30 L/C is the most common mode of payment 2.31 In the future, Bangladesh Bank and the and so far has served the RMG sector well. banking sector may need to become more Most of the trade for both imports and exports are flexible to ensure that the financial system does done using L/Cs. Cash in Advance is sometimes not constrain garment manufacturers’ used for imports of special fabric, but competitiveness. So far, the focus of BB has Bangladesh Bank requires the suppliers’ bank to been on the control side of the equation rather provide a guarantee that the product has been than on facilitation. As the industry evolves, shipped as well as other documentation. Some more flexible supply routes and different options imports are shipped on the basis of Cash against for credit provision will be required. For Documents (CAD) 35 where the parties have a example, factoring of contracts and bills of long-term relationship. The use of sight drafts36 is lading would be required, and foreign currency rare, presumably because of difficulties with credit might become more important. clearing foreign drafts in local banks. The Bangladesh Bank (BB) encourages the use of IV. Supply Chain Improvement L/Cs as an additional check on the value of the goods to prevent under-declaration on high 2.32 A typical supply chain for the garment tariff items and as an additional control on industry is relatively simple (Table 2.3), but foreign exchange transactions. On the other not integrated. hand, commercial banks are increasingly willing to offer L/Cs for imported inputs secured by a contract for supply of exports. Table 2.3: Current Supply Chain Performance Agree on production design Buyer-manufacturer 3-13 weeks Arrange financing Manufacturer-commercial 3-4 days Order inputs Supplier-manufacturer - Domestic 7-10 days - Imports 14-35 days Clear and deliver inputs to bonded warehouse Customs broker-forwarder 2-3 days Produce garments Manufacturer 3-6 weeks Clear cargo, deliver garments to buyer’s Customs broker-domestic 3-4 days Deliver garments to port and load on vessel Nominated buyer 3 days Transport to foreign port Shipping line 26-35 days Clear cargo, deliver to buyer’s distribution Nominated forwarder 3-10 days Source: WB staff calculations through consultation with garment exporters. 2.33 The supply chain has significant room for · Simplifying arrangements for financing improvement. Significant reductions in terms · Maintaining inventory of basic imported of time and cost were achieved during the materials and accessories and advance period 2007-2008, but much remains to be done. ordering from local suppliers and Specifically, the lead time can be reduced by · Tightening the outbound supply chain through about three weeks (Table 2.4) by: better management and simplified regulation. 35 The exporter’s bank sends the export documents to the importer’s bank with an instruction to release the documents to the importer only against full payment of the invoice amount. 36 Sight drafts are financial instruments that are payable on demand, in contrast to the time draft, which cannot be honored until a specified date in the future. 23 2.34 Columns 2 and 3 in table 2.4 show the of the supply chain. Air transport (along with existing and improved supply chain for an local procurement of inputs) can further reduce order size of US$500k. It shows that lead time the overall order cycle to 50 days and the time can be reduced to 113 days from the existing level from start of production to delivery to 26 days of 134 days through some efficient management (column 4). Table 2.4: Possible Improvements in Schedule for Production and Delivery of Garments (days, cumulative) Existing Improved High Most Inputs imported Local Order Size 500k 200k Principal Transport Mode water Air Initial Contact With Buyers 0 0 0 Receive Buyer’s Order 30 23 16 Begin Production 60 44 24 Initial Shipment Loaded On Vessel 79 60 32 Delivery Of Initial Shipment 113 92 49 Delivery Of Final Shipment 134 113 50 Source: WB staff calculations through consultation with garment exporters. 2.35 Improved supply chains will reduce the allow manufacturers to compete for rapid lead time but may not affect overall costs to replenishment of medium value garments as well any significant extent. Table 2.5 shows that for as delivery of fashion basics. basic garments shipped by water, the logistic costs are estimated to represent only 10 V. Summary and policy recommendations percent of the total cost. This includes the costs for transport and clearance of imported fabric, 2.36 The garment industry has demonstrated yarns and accessories as well as the outbound strengths that are likely to persist and grow. movement from the factory to the buyer’s There are at least two reasons to be upbeat overseas distribution center. 37 For high value about growth prospects for garment exports of cargo shipped by air, the logistics costs represent Bangladesh. It shows continuing strong about 40 percent of the total cost as shown in performance in some categories of basic Table 2.6. There is very little scope to save on garments, both woven and knitwear products. cost through improved management of the supply The growing market in medium value and basic chain. The benefits from a savings in delivery fashion garments is also expected to create time are more substantial. A reduction in opportunities for both large manufacturers and delivery times allows buyers to adjust them to niche producers of the country. Growing meet anticipated market conditions. This will backward integration and a desire to source 37 These estimates are built up from the current average value of exported garments (for a 40 foot equivalent unit load i.e. FEU) of $7.5 per kilogram, 60 percent of the FOB value of garments accounted for by inputs, the C&F value of imports equal to 35 percent of the FOB value of garment exports, 1/3 of garment exports using imported fabric. 24 more inputs from neighboring countries will also require smaller order sizes and higher quality help reduce lead time and improve the chances of products. The low levels of productivity in the Bangladesh exploiting the medium value and industry and the incipient moves to modern fashion basic markets. Overall, the trends suggest factory and supply chain management in the a gradually increasing diversity in the types and industry suggest that there are considerable value of products that will be exported and an opportunities for improvement and growth. opportunity to expand into new markets that Table 2.5: Estimates of Logistics Costs for Basic Garments Per FEU of Garments tons 000$ Expense Domestic fabric, yarn, accessories 11.0 $30.7 Imported fabric, yarn, accessories 13.8 $42.0 Ocean transport including port 13.8 $1.6 PSI and clearance 13.8 $0.7 Delivery to factory 13.8 $1.0 Production labor and utilities 16 $16.0 Transport to Buyers warehouse 16 $1.1 Outbound transport incl. port 16 $4.0 Delivery to distribution center 16 $0.8 Finance costs $2.5 Total Cost $100.3 Revenues Garments revenues 16 $120.0 10.42 Principal logistics costs 10.4 percent Source: WB staff calculations through consultation with garment exporters. Table 2.6: Estimates of Logistics Costs for Fashion Basic Per FEU of Garments tons 000$ Fabric and accessories 16.8 $84.0 Production 16 $20.0 Air Shipments 16 $65.0 Total Cost $169.0 Garments revenues 16 $200.0 Principal logistics costs 38.5 percent Source: WB staff calculations through consultation with garment exporters 2.37 However, taking advantage of these developments. In addition, it needs to opportunities would require Bangladesh to improve the skills of its workforce to ensure that improve logistics to better integrate its supply efforts for faster growth and to move up the chains, improve work force skills and ensure fashion pyramid are not hampered. And it needs adequate infrastructure. Countries that compete to ensure that crucial factors such as energy and with Bangladesh have seen rapid improvement in land availability do not come in the way of their logistics and supply chain management production and investment. capabilities. Bangladesh needs to keep up with 25 2.38 A focus on multimodal connectivity separate facilities within the airport. between Tongi and Chittagong and Despite the presence of foreign buyers in improvements incustoms procedures would be Bangladesh, it is important to provide a crucial elements of better logistics for the rapid exchange of samples and other garments industry. Theformer would help the documents prior to the start of production. growing manufacturing cluster around Tongi. The 3. Liberalize the role of ODCYs to allow a latter would require a step-up inthe relatively slow greater variety of logistics services to be pace of customs reforms seen so far. provided by the buyers and third party logistic providers including quality testing 2.39 Strengthening multimodal connectivity. and pick and pack for garments, inventory In the short term, it is important to improve the management and distribution of inputs. capacity and quality of container handling services 4. Reduce the rate of inspection for cargo with in Chittagong. The most important initiative is a CRF. This is important because inputs in concessioning and equipping of the New Mooring transit to the bonded warehouses are container terminal to further improve port subject to the same level of examination as performance. At the same time it is necessary to imports. diversify the corridor logistics by developing and 5. Restructure Benapole crossing to allow equipping public and private inland water cross-docking (unloading of materials from terminals (IWTs) and permitting private container an incoming carrier directly onto outbound barge operations between Chittagong and these carriers, with little or no storage in terminals. This will allow containers to move between) and electronic processing of directly between the port and factories (such as declarations at the border. This is an those in the cluster around Tongi) which will important component of the effort to reduce the congestion in the port. Both initiatives increase regional sourcing and reduce order are on going, and quick and transparent cycles by shortening delivery times for completion of these would help reduce delivery inputs from India. timings and enhance reliability of services. 2.41 Strengthen the capacity of Benapole land 2.40 Customs reforms. There are a variety of port. In addition, the construction of more sheds, improvements in customs procedures that have a cold storage for perishables, and enhancing the been recommended but not implemented. Current ability to handle more cargo through procurement procedures have not been a major impediment to of new cranes and forklifts are essential to ensure the garment trade so far, because of the wide better service in this main land port of the country. spread availability of bonded warehouses. However, many of these procedures prevent 2.42 Improvement of rail and road services. integration of supply chains and discourage The current problem with rail services is a distributed processing and the incentivefor combination of lack of commercial management, provision of value-added logistic services to poor condition of rolling stock, and a congested Bangladesh. Given the relative slow pace of ICD. With considerable unmet demand for customs reform, it is important to select the container traffic by rail and a new ICD in prospect, critical reforms to pursue. Five such reforms areas the service could be concessioned. It is important are: to develop additional capacityon the Dhaka- Chittagong road corridor by widening all sections 1. Eliminate duty on containers and of the main road between Narayanganj and restrictions on inland movement of Chittagong to four lanes so that articulated trucks containers to allow cheaper and more rapid with 40 foot containers can move inland freely, and reliable delivery of inputs and exports. and by completing double tracking of the rail line 2. Modernize regulations for courier services connecting Tongi and Chittagong to provide a including providing de minimus and significant increase in rail freight capacity. allowing courier companies to operate 26 2.43 Enhancement of air shipment capacity. increase competition and capacity in air cargo. Increasing use of air shipment is part of the Fabric imported by air also needs to be cleared in move towards medium value garments and a few hours instead of 3-5 days. And the layout, fashion basics. Air freight is constrained by facilities and management of the air cargo inadequate physical capacity and an inappropriate terminal could be improved considerably. policy regime. An open skies policy may help to 27 Chapter 3: Addressing the Skills Constraint to Garments and Overall Export Growth 3.1 Shortage of skilled workers is one of the on basic garments. According to a survey of oft-cited constraints to industrialization and about 80,000 workers in 242 garment firms in export growth in Bangladesh. This chapter 1995, about 48 percent of the workers were either analyses the skill shortage in Bangladesh, unskilled or semi-skilled, 44 percent were skilled especially in the garment sector, based on and only 8 percent were highly skilled. Also, available information. Owing to lack of reliable while 34 percent of female workers were and up-to-date data, the chapter is careful in unskilled, only 9 percent of male workers were drawing its conclusions. This gap in data also unskilled. Table 3.1 shows 67 percent of the highlights the urgent need for an in-depth survey- sewing and finishing helpers were unskilled, while based assessment of Bangladesh’s skill gaps. 27 percent were semi-skilled. Most workers working as cutting helpers, iron and folding men 3.2 Key messages. Despite the reported shortages were semi-skilled while machine operators were of skilled labor, there are few incentives for the skilled. And 49 percent of the cutting private sector to impart training. This is because masters/cutters, supervisors and quality controllers workers change jobs frequently after being trained were skilled while 47 percent were highly skilled. and therefore it is not in the firms’ interest to spend resources on training them. In addition, 3.5 No subsequent comparable survey exists, since the garment workers come from poor but indirect evidence suggests that the share of households, they are unable to pay for training unskilled and semi-skilled workers would still themselves. Publicly-funded Technical and be very large. For example, the industry is still Vocational Education and Training (TVET) is the dominated by basic and low-value garments. The main vehicle for imparting training. But TVET top five (at 6 digit level of export classification) needs to enhance its relevance to the needs of garment exports of Bangladesh—men’s and boys’ garments as well as other sectors. Trainee and cotton shirts, knit as well as non-knit; knit t- employer targeted financing and increased shirts; pullovers of wool; and men’s and boys’ industry-academia coordination at all levels could cotton trousers, non-knit--appear to be basic help improve overall availability of skills in categories of exports. Also, average volume Bangladesh. growth of woven and knitwear exports between FY05-09 was 26.2 percent and 13.6 percent, Skills gap may be growing over time respectively. However, the average value growth of exports of these products during the same 3.3 Hard evidence on the skill mix and gap is period was 25 percent and 11.4 percent difficult to come by. There is a 1995 survey of respectively, implying that their unit price garment workers in Bangladesh, but no hard declined by 1.2 percent and 2.2 percent. evidence exists thereafter. The two industry According to a survey of 84 small, medium, and associations do not appear to have systematic data large enterprises in 2010 (including spinning, on the skill mix and skills gap either. Thus, this weaving and garments units), Bangladesh section relies on indirect evidence from multiple produces mostly low priced items (UNIDO 2010). sources to make the case that the industry is As can be seen from Table 3.2, more than two- dominated by basic and low-value exports, has a thirds of the surveyed garment firms receive very large share of unskilled and semi-skilled orders for low, and low to medium priced items; workers, and that there is a growing shortage of only about 8 percent receive orders for high skilled workers and management. priced items. Only large firms produce some high priced items, and no firm produces very high 3.4 The skill structure of the industry was priced items. To the extent that quality is reflected bottom-heavy in 1995, consistent with the focus in price, it must be that the focus of the industry 28 has continued to be in the basic segment of the unskilled and semi-skilled workers dominate the garments market. In turn, this would indicate that sector.38 Table 3.1: Distribution of Workers in Various Job by Skill Levels Table 3.2: Percentage Distribution of Surveyed Enterprise by Prices of Items 3.6 There is a significant gap between demand be a fairly large gap between demand and supply and supply of skilled RMG workers. The of skilled workers. One of the structural reasons BGMEA estimates that the garment sector is for the shortage of workers arises from the high currently facing a skilled worker shortfall of 25 dropout rate of garment workers, especially from percent, but this seems to be an intuitive number. the permanent exit of female workers from the Nonetheless, even if not calculated scientifically workforce, often at the time of their marriage. on the basis of a survey, for example, the figure The data on minimum wages also provides of a 25 percent shortfall indicates that there must possible pointers to a growing skills gap-in 2006, 38 29 the average wages of the top two grades were the number of foreign workers in EPZs has grown 2.55 times the average of the bottom two grades at an annual rate of about 8 percent between (apart from apprentice); in 2010, this ratio was FY05-11, reaching to 1575 in March 2011. Since 2.65. Also, grade 2, just below the highest garments account for about 90 percent of total skills/grade level, received the highest increase of exports from of EPZs, it can be assumed that it 87.5 percent in minimum wages over the period. employs a growing number of overseas workers, and also accounts for the largest share of overseas 3.7 Other evidence also points to an overall workers. According to local businesses, the shortages of workers. Average real minimum garments sector as a whole employs about 20000 wages in the garments sector increased by 44 foreign workers.39 Anecdotal evidence also percent over 2006-10, about 17 percent higher confirms that there is indeed a growing number of than the growth of real GDP over the same supervisory and management workers from period. Prior to 2006, minimum wages were last abroad, including from Sri Lanka, India, Pakistan, increased in 1994. Over 1994-2006, real wages South Korea, China, etc. According to the were increased by 4 percent but real GDP rose 76 statistics of the Board of Investment (BoI), percent. The large differential between growth of Bangladesh Export Processing Zone Authority real wages and GDP (17 percent over 2006-10 (BEPZA) and Ministry of Home Affairs, 6,308 versus -72 percent over 1994-06) would appear to new work permits for foreigners have been issued indicate a significant reversal in employer in FY11, compared with 5,903 in FY10. Out of perceptions of skill shortages as well as the the total foreign workers, 30.5 percent are Indian, employees’ own perceptions of their value to 12.2 percent Chinese, 11.3 percent Sri Lankan, firms. 10.2 percent Pakistani, 6.0 percent South Korean, 6 percent Filipino and the rest from other 3.8 Relatively high rejection rates in garment countries. The Managing director of Khalifka, a manufacture and price reduction arising from leading knitwear group, indicated that he has defects corroborate the hypothesis of low employed two Sri Lankan experts and one Indian average skills of garment workers. About 21 expert, since people with relevant expertise were percent of the garment firms in the UNIDO study not available locally. The President of BGMEA is experienced more than 5 percent rejection, while also quoted as saying that “we are facing (an) another 17 percent of firms experienced 11-17 acute shortage of experts, mainly (on the) percent rejections of final products, mostly due to production, technical and management sides, sizing, sewing, stitching, and finishing (ironing which forces us to employ foreign experts�40. and packing) defects. At the same time, quality claims of the buyers led to about 64 percent of the What inhibits skill formation in Bangladesh? woven garments and 75 percent of knit garments compromising their agreed price to the extent of 5 3.10 The low level of literacy and years of to 15 percent, at least once a year (UNIDO, schooling of the labor force make skill 2010). This affects small and medium acquisition more difficult. About 46.5 percent enterprises, in particular. A high share of rejects of the population of the country remains illiterate, corroborates the earlier evidence on low average and the average years of schooling among the skill levels of workers. labor force is 4.8 years in the year 2010. As compared to many other Asian countries, 3.9 Growing numbers of foreign workers in Bangladesh has a rather low level of literacy Bangladesh point to a shortage of supervisory (Table 3.3). Moreover, the average years of and management skills. According to BEPZA, schooling is also very low compared to countries 39 The Financial Express, August 20, 2011. 40 The Financial Express, July 31, 2011. 30 that are currently competing with Bangladesh’s production (see Annex A.3 for other initiatives garment sector. The lower time spent in school taken by Sri Lanka). complicates the process of learning and skill acquisition.41 3.12 The skills gap and shortages should have incentivized the private sector to impart 3.11 In contrast, Sri Lanka has provided a training, but there appears to be a market skills environment that allowed garment firms failure in the provision of adequate skills for to quickly move up the value chain. Box 3.1 the garment industry. There are various reasons shows how Sri Lanka’s education system provided why this may have happened, but a major part has its firms with a ready source of skilled and to do with the large-scale job-hopping prevalent in trainable labor, and allowed them to either start the industry combined with private inability to pay garment production at the mid-range or move for training. quickly upscale to mid and even higher value Table 3.3: Literacy Ratesand Average Years of Schooling in Some Selected Countries 3.13 The potential dissipation of benefits of after completion of on-the-job training. This training from an individual firm viewpoint means that manufacturers are very reluctant to leads to reluctance of manufacturers to impart impart formal in-firm training, since there is a in-firm training in Bangladesh. Because of the high probability of losing a just-trained worker. limited opportunity for upward mobility in the Data for 2006 for the industrial sector as a whole same factory, as well as low wages, job hopping is shows that 24 percent of all firms provided either relatively high in the fast-growing garment sector. external (13 percent) or internal training (18 Leaving a job after being trained, without even percent) to their workers (WB 2007b). A recent informing the employer, does not cost the worker survey also finds that a majority of the firms lack anything because of the weak enforcement of in-house training facilities and even what they contracts. One local manufacturer reported that have is self-rated as poor due to lack of only 25 percent of the operators could be retained professional trainers and training equipment 41 A survey of an admittedly limited number of 87 workers from 41 garment factories conducted in 2007 shows that little over half of the workers had completed secondary education and only less than 10 percent had gone beyond grade ten. About one-third of the workers had only studied up to the primary level. The sample was drawn on the basis of proportional distribution of types of factories in the population. See http://www.usaid.gov/our_work/cross- cutting_programs/wid/pubs/Gender_Trade_Liberalization_Bangladesh_03-07.pdf." 31 (Table 3.4). It seems that in the majority of arises from learning-by-doing and learning-by- cases, the only meaningful learning opportunity observation. Table 3.4: Percentage Distribution of Firms by Status of in-Housing Training Facility Availability of training facility Woven Garments Knit Garments Yes and arrangement is good 8 0 Yes but arrangement is poor 25 17 No 58 75 Source: UNIDO (2010) 3.14 Reluctance of firms to sponsor training background. These potential trainees have a high combined with private inability to pay results rate of time preference, which, combined with in inadequate effective demand for external their liquidity constraint, translates into a desire training. As mentioned above, only 13 percent to start working as soon as possible. For both of firms sponsor their employees for external these reasons, the actual number of trainees for training. In addition, available research suggests external training appears to be quite low as a that most students cannot afford to pay for share of the total pool of current and potential private training before starting employment. The workers. This number may also be too low to majority of garment workers are young girls create adequate incentives for the private sector to coming from a poor socioeconomic and rural provide training. Box 3.1: Education and Industry Trajectories: Bangladesh and Sri Lanka Sri Lanka provides free access to education, all the way to tertiary education. This is reflected in its literacy rate of 91 percent in 2009. In Bangladesh, primary education is free, but access was an issue, and quality of education remains a major concern. All this is reflected in Bangladesh’s literacy rate of 54 percent. It became clear from interviews with Sri Lankan and Bangladeshi garment firms that while the former could recruit from a pool of high school graduates, the latter’s choice was restricted to only primary school graduates and high school dropouts. This difference in initial human capital had major implications for the agility and trainability of the workers in the two countries, which in turn resulted in the industries taking very different paths. Sri Lanka was able to take the high value-low volume path, while Bangladesh was largely competitive in the low value-high volume path. These different trajectories are illustrated in the top five garment exports of these two countries below. Thus, Sri Lanka’s top export is rather expensive lingerie whereas for Bangladesh it is male knit cotton shirts. Sri Lanka Bangladesh Lingerie Men's and boy's cotton Women's and girl's Knit T-shirt shirts (knit) cotton trousers Men's and boy's cotton (non-knit) Men’s and shirt Women's and girls boy’s cotton (non-knit) trousers trousers Pullovers of wool of other materials 32 3.15 Thus, the overall skills picture is one of low Initiatives to address market failures trainability of the average worker, reliance on learning on the job, and inadequate external 3.16 In absence of a market response to the skill training. While entering the work force does not gap, government, manufacturers’ associations, necessarily require high skills, the inadequate NGOs, and private institutions supported by education means that hired workers are not easily public financing are the main providers of trainable compared to, say, workers in Sri Lanka. training and skills. Technical and Vocational However, this is an issue for the larger education Education and Training (TVET) is the main stream system and can, at best, only take care of future of education to support training in Bangladesh. A entrants into the labor force. The question for number of public and private (including NGOs) garment firms is whether adequate number of institutions administer three types of skill potential entry level workers in the existing labor development courses namely, basic skills, force can be given some basic training before certificates and diplomas. The number of these entering the factory. For those jobs such as institutions is also growing over time as can be seen supervisors and machine operators, where higher from Table 3.5. The number of public institutions skills are needed on entry, there are insufficient increased from 213 in 1998 to 304 in 2005. By training opportunities both inside the firms as well taking the advantage of government’s salary as externally. subvention of up to 90 percent of total salary bill, the number of total private training institutions increased from 520 to 1860 during the same period. A number of policy actions have been identified in the National Education Policy (2010a) to further strengthen and expand this stream of education42. Table 3.5: Number of TVET Institutions in 1998 and 2005 Level of training Number of institutions Public Private Total 1998 2005 1998 2005 1998 2005 Basic 64 76 3 414 67 490 Certificate 113 174 510 1303 623 1477 Diploma 36 54 7 143 43 197 Total 213 304 520 1860 733 2164 Source: WB (2007) 3.17 Several NGOs provide basic skills training to courses in disciplines related to garments target groups such as underprivileged children, manufacturing, fashion technology and with the notable one being the Underprivileged merchandizing. BIFT also provides 2-6 months Children’s Education Program (UCEP). UCEP has long training to the economically disadvantaged about 44 schools and centers across the country population. that provide vocational, technical and para-trade training. BGMEA Institute of Fashion Technology 3.18 The TVET stream of education lacks the (BIFT), established by Bangladesh Garments relevance to the needs of the garment as well as Manufacturers’ and Exporters’ Association other sectors. Several ministries/organizations (BGMEA) in 1999, administers graduate level administer accredited TVET programs.43 Only a 42 For details, see National Education Policy 2010a, pages 16-18. 43 They include: i. Ministry of education; ii. Ministry of labor and manpower; iii. Ministry of local government; iv. Ministry of agriculture; v. Ministry of forestry, vi. Ministry of textiles, vii. Ministry of defence; viii. Bureau of Manpower, Employment and Training. However, the National Education Policy 2010 has recommended bringing all technical and vocational education institutes of the country under the control of the Technical Education Directorate to consolidate this education stream. 33 few courses administered by ministries of and private. India’s Industrial Training Institutes, textiles and education, and the Bureau of which are managed by Institute Management Manpower, Employment and Training have some Committees (IMCs) comprising of local industry level of relevance for the garment sector. But the representatives, could be an example in this curricula in these courses pay insufficient attention regard. UCEP, which has been singled out by the to practical problems and as such have been a bit employers for the market relevance of its training distant from the needs of the garment sector. programs, can be another example. In both cases, Employers in general are not consulted in setting curricula are designed in consultation with the policy, curriculum design or vetting accreditation employers. The textile college, institutes, and the procedure. This was identified as the main reason private universities which provide bachelor level for failure of the TVET system to evolve in line technical courses should design their curricula in with market demand in an employer survey consultation with the BGMEA and BKMEA. conducted by the World Bank (WB 2007b).44 However, to allow the employers to play an However, employers’ participation in the effective role in making the training more relevant, management of training institutions is now these institutions would need autonomy. increasing, albeit slowly. 3.21 Introduce trainee targeted financing. As 3.19 Due to lack of employers’ confidence in the mentioned before, private inability to payfor TVET system, skill shortages and training is one of the reasons for market failure. unemployment amongst TVET graduates To address this problem, government can think of coexist. A survey of 2302 TVET graduates found providing “training vouchers� to interested about 47 percent of them unemployed in 2005 trainees to finance part of their training cost. Of (WB, 2007). About 50 percent of those who were course, it may create incentives for private training employed took more than six months to find a job, institutions to enroll fake students to redeem their 45 percent took more than a year after their vouchers and share a portion of the money with graduation. Over 60 percent of the respondents them, with the students leaving the program identified the failure of the TVET system to align incomplete. Addressing this will put the onus on training materials with local needs and government’s monitoring and auditing ability. opportunities as the main reason for their difficulty One way to check the moral hazard problem will in finding a job. Thus the business community is be to make the voucher redeemable only after the inadequately served by the TVET system. trainee has found a suitable job. Policy recommendations 3.22 Introduce employer-targeted financing. Job hopping of skilled or trained workers is 3.20 Make training relevant to the needs of the another reason for market failure and may require garment sector. To make the current TVET collective action. Over 30 countries have stream of education garment sector friendly, undertaken a levy scheme,45 under which all employers have to be closely involved in the employers pay a levy of a certain percentage of management of TVET institutions, both public their wage bills and are eligible to claim a certain 44 The survey involved group consultation and structured discussions with three employers’ associations, BGMEA, Bangladesh Knitwear Manufacturer’s and Exporter’s Association (BKMEA) and Bangladesh Textile Manufacturer’s and Exporter’s Association (BTMEA), and seven employers from garments, textile, electronic and automobiles sectors were also consulted. 45 It is similar to the ‘comprehensive village development’ program once practiced in Bangladesh under “Comilla Model�. Under this program, every villager contributed to a common fund which was used to provide loans to finance an agreed action on the basis of some agreed rules and principles. The Comilla Model could not succeed as reimbursement from the common fund became inequitable, skewed in favor of the large farmers. 34 portion of allowable training cost from this fund. development for continued growth of the sector, The benefits of the levy scheme in many countries and the market failure in the supply of training, have been inequitable; large employers have government could actively seek to make a benefited more than the small employers. collective type of scheme workable. This can be Therefore, it is highly likely that small employers topped up with government funding, at least until will resist the introduction of the levy scheme. the time that sufficient funds are collected within However, considering the importance of skill the industry for the scheme. 35 Annex A.3 : Government and industry JAAF initiated a four year degree course on collaboration to strengthen the apparel sector in Fashion Design and Development at the Sri Lanka department of Textile & Clothing technology at the University of Moratuwa in collaboration with the The Joint Apparel Association Forum (JAAF), London College of Fashion to strengthen the formed by the government and the industry design capabilities of the industry in 2002. association undertook a five-year strategy in 2002 Similarly, to strengthen the marketing focusing on key areas such as backward competencies of the industry, JAAF initiated a integration, human resource and technology postgraduate diploma course on industry specific advancement, trade, small and medium sized professional marketing in the same year in enterprises, finance, logistics and infrastructure, collaboration with the Chartered Institute of and marketing and image building. The main Marketing (CIM-UK). A Productivity objectives of this strategy were (i) to transform the Improvement Program (PIP) was also undertaken industry from a contract manufacturer to a provider in 2004 in selected apparel firms to increase their of fully integrated services, offering input sourcing productivity, reduce their cost, and improve their and at least an understanding in product quality and ability for on-time delivery. JAAF also development and design, (ii) to increase the share entered into an agreement with North Carolina of high value added items in total apparel exports, State University (NSCU) College of Textile in (iii) to establish an international reputation as a 2004 to deliver a NSCU affiliated diploma to superior manufacturer in four product areas: strengthen the technical capacity of the industry. sportswear, casual wear, children’s wear and As an international image building endeavor, JAAF intimate apparels, and (iv) consolidate and also initiated the “Garments without Guilt� strengthen the industry. campaign (see box 4.1 in chapter 4). Different initiatives at three levels to accomplish These efforts enabled the large manufacturers like these objectives were taken. First, at the macro Brandix and MAS to establish their own design level, actions included reduction in the costs of center with in-house designers. The designers utilities, labor reforms, development of electronic work closely with the design teams of brand- data interchange facilities at ports and customs, owners, interpreting their design, making infrastructure development and building of strong suggestions and sometimes even giving ideas. lobbies in Sri Lanka’s main markets. Second, at the MAS has even established design studios in the industry level, the strategy focused on branding United Kingdom, the United States and Hong and promotion, R&D, market intelligence, greater Kong SAR, China to offer design solutions to its market diversification, backward linkages, main customers, viz., Victoria’s Secret, Gap and technological upgrading, building design and Speedo. Brandix does not have design centers product development skills, and reduction of lead abroad but has opened marketing offices in New times. Third, at the firm level, the focus was on York and London to improve its links with buyers. reduction of manufacturing costs, upgrading of MAS and Brandix have also developed a range of technology and human resources, and strong own brands of intimate wear that caters to the strategic alliances. middle income and upper income class and competes with international brands such as Triumph, Etam and La Senza. 36 Chapter 4: The Growing Importance of Labor Standards 4.1 For buyers worldwide, compliance with civil society, buyers, and development partners. internationally-acceptable labor and The unified code of conduct related to: 1. payment environmental standards has become according to minimum wage legislation; 2. important in their sourcing decisions. So far, issuance of appointment letter; 3. issuance of the problems of labor standards and poor working identity card; 4. timely payment of salary; 5. conditions appear to be more pronounced than the timely overtime payment; 6. practice of weekly environmental problems in the garment sector of holiday; 7. practice of annual leave; 8. practice of Bangladesh. This is partly due to heavy sick leave; 9. practice of festival leave; 10. practice dependence of the sector on imported raw of maternity leave; 11. formation of participation materials and very limited vertical integration. committee; 12. formation of welfare committee; While not discounting environmental concerns, 13. absence of child workers; 14. existence of this chapter focuses on labor compliance in the emergency exit; 15. maintenance of service log garments sector. books; 16. installation of fire fighting equipments; 17. availability of child room or day care facility; 4.2 Key messages. Consumers, especially in the 18. availability of first aid facility; and 19. US and EU, can create pressure on buying firms to availability of separate toilet facilities for male and avoid sourcing from non-compliant countries. female workers. This can affect the growth potential of the sector. As seen in 2005, notable compliance failures in 4.4 In addition, the government updated and one or more factories46 can jeopardize prospects of consolidated the old labor laws into one to the entire sector. The Government of Bangladesh make them more relevant. The new labor law, has become proactive since 2006 in improving enacted in 2006, eliminated inconsistencies in compliance with labor standards in the garment earlier laws and set a clear regulatory framework sector by adopting a “unified code of conduct.� for the employers. However, strengthening the government’s capacity to monitor and enforce this code is important. Compliance with labor standards is becoming more important in the garments sector Labor standards – how are they defined in Bangladesh? 4.5 First, the growing penetration of the garments sector of Bangladesh into the global 4.3 A “unified code of conduct� was developed market draws the attention of international to set the labor standards. Before 2006, there social and political activists. Low costs are the were no uniform set of labor standards in main drivers of the fast growth of the garments Bangladesh – buyers had different standards based sector in Bangladesh, which raises a concern on concerns of their domestic consumers. After among buyers as to whether this low cost is 2006, under pressure from the governments of the founded on unfair treatment of workers. importing countries, the Government of Organizations like American Federation of Labor Bangladesh adopted a “unified code of conduct� and Congress of Industrial Organizations, National pertaining to workers’ rights and safe working Labor Committee, Clean Cloth Campaign, conditions. This code was developed by a Social American Center for International Labor Compliance Forum, consisting of representatives Solidarity, American Apparel and Footwear from different ministries, manufacturers, workers, Association, Worker Rights Consortium and their 46 The collapse of the Spectrum-Sweater Factory building in April, 2005, was preceded by a string of fire incidents at KTS Textile Industries, Phoenix Building, Imam Group, and Sayem Fashion in February and March of the same year. 37 country offices became vigilant to ensure that 1.4 percent, with woven garments declining by 4.7 exploitation of workers does not occur to provide percent during the first six months of 2005. an “unfair� competitive edge to Bangladesh in the Realizing the severity of the crisis, government global market. formed the Social Compliance Forum (SCF) in July 2005. 4.6 Failure to ensure workers’ rights and a safe working environment has increased the 4.7 Second, with the phasing out of the MFA, international spotlight on the garment sector of buyers have more flexibility to move out from a Bangladesh. For example, the collapse of one noncompliant country. Until 2004, access to firm, Spectrum-Sweater Factory, in April 2005, USA and EU garment markets was regulated tarnished the overall image of the country. The through use of quotas. Under that environment, incident led to the questioning of the integrity of many international buyers had to come to buyers who claimed to have policies and Bangladesh after exhausting the quotas allocated procedures in place to monitor labor practices at to other countries. But in the current environment, their supply facilities in Bangladesh. The country Bangladesh will lose buyers if the level of was facing a looming threat of boycott of compliance is not acceptable. The emergence of a Bangladeshi garments by concerned consumers. number of new exporters in the post-MFA According to the Export Promotion Bureau, environment has provided greater choice to buyers. overall exports of textiles and clothing were down Thus the importance of compliance has increased. Box 4.1: Garments Without Guilt: Sri Lanka’s Business Strategy Following the phasing out of the Multi Fiber Arrangement (MFA), Sri Lanka’s Joint Apparel Association Forum (JAAF) adopted the “Garments without Guilt� initiative as a business strategy to face new global competition. This initiative was expected to give the country a competitive edge as an ethical producer in a crowded international market. The codes of garments without guilt were developed after consultation with different stakeholders and include: · Free of Child labor · Free of Forced labor · Free of Discrimination · Free of Sweatshop Practices including: Providing limits on working hours within those prescribed in law Guaranteeing workers the right to Freedom of Association Requiring that workers receive all legally required pay and benefits Ensuring that the workplace is safe, with specific requirement for the management of the workplace The country has signed up an international auditing company SGS to certify that factories comply with these codes. Because of this initiative, Sri Lanka today is identified as a low risk sourcing destination when it comes to ethical trading practices. It has helped Sri Lanka not only to withstand the post-MFA competition but also to carve out and consolidate a niche among high- end clients in casual wear, intimate apparel, active and sportswear, and children’s wear. The country supplies garments to many well-known and prestigious brands such as Gap, Nike, Victoria’s Secret, Next, Liz Claiborne, Tommy Hilfiger, Triumph, Marks & Spencer, and Speedo. It has become the foremost supplier of world renowned intimate apparel to the world, which has made it the Lingerie Capital of the World. http://www.garmentswithoutguilt.com/ 4.8 Third, the importance of compliance will garments, Bangladesh will compete with also grow as Bangladesh gradually moves up incumbents like Sri Lanka, Turkey, and Vietnam the value chain. In graduating from its current etc., and has to match their compliance levels as production of basic to medium and high value well. Retailers of medium and high value products 38 serve the more compliance-conscious consumers, compliance of the medium and high value who tend to avoid the products of a country that garments retailers is higher than that of basic has a bad reputation for low wages, long working garments retailers. Better compliance may also hours, irregular payments, limited freedom of help a country to develop a niche market for its workers, insecure and hazardous working products (Box 4.1). conditions etc. As a result, the threshold for Table 4.1: Financial Information (in million US$) of Compliant and Noncompliant Factories Factory (A) (B) (C) (D) (E) (F) (G) name Initial Initial Annual Annual Annual Annual Profit-to- investment investment running running Turnove r Profit initial for cost (C) cost for (E) (=E-C-D) investment compliance compliance ratio (= (B) (D) F/A+B) Compliant Factories Shine 305.31 43.75 173.52 3.36 1000 836.58 2.40 fashion Mascot Knit 284.76 9.52 162.34 1.08 1000 716.4 2.44 Ltd. Zaara 280.88 3.57 199.88 0.72 917 676.76 2.38 Composite Knit Plus 274.82 0.71 196.56 1.68 875 789.75 2.87 Ltd. Knit Asia 273.83 0.29 159.41 0.84 950 768.52 2.80 Ltd. Average 283.92 11.57 178.34 1.54 948.4 757.60 2.58 Noncompliant Factories Harun 92.14 44.3 267 222.70 1.97 garments Ltd. Alim Knit 113.10 64.43 250 185.57 1.23 Wear Ltd. Green Knit 151.40 64.28 350 285.72 2.33 Wear Step Two 122.86 63.09 300 236.91 1.66 Garments Texcon 142.75 64.68 375 310.32 2.49 Textile Ltd. Average 124.45 60.16 308.40 248.00 1.94 Source: Baral (2010) 4.9 Fourth, compliance results in economic and equipment, but may also enhance worker social benefits. Compliance with labor standards productivity (Table 4.1). A comparative study of imposes costs on firms, but is probably five compliant and five noncompliant garment outweighed by the sum of private and social firms found that the profit-to-initial investment benefits. Cases of noncompliance like low wages, ratio of the former group was higher than the latter irregular payments, safety hazards, and inaccurate group of firms. The average profit-to-initial payments for overtime lead to frequent labor investment ratio of the compliant factories was unrest and disruptions in work. Very often, the 2.58. The same for the noncompliant factories was anger of the workers culminates in organized 1.94. While this is by no means conclusive, it damage of capital machinery and factory does indicate that compliance does have positive buildings. Better compliance not only helps to and tangible payoffs, even for the individual firm. prevent such losses of working hours and capital Whether the productivity and overall economic 39 benefits will override the costs of compliance 4.11 In general, EPZs have a better record of could be a useful question for further analysis. compliance. Wages in EPZs are set in US$ and Also, if the economic and social benefits (such as the gross wage is increased by 10 percent worker health and safety, the positive externalities annually. In addition, the factories are located in for the sector as a whole) of compliance are added industrial buildings with adequate fire exits, up, the case for compliance can become quite spacious stairs, lighting, ventilation, toilets etc. strong. Workers’ complaints are quickly arbitrated with the help of around 60 labor counselors47 who work 4.10 Finally, noncompliance can potentially only in the EPZs. Regular monitoring has shown increase the non-production costs of a firm. The an improvement in compliance with labor government has enacted a number of laws and acts standards over the years. like “Bangladesh Labor Law 2006�, “Bangladesh Labor Welfare Foundation Act, 2006� and 4.12 Compliance outside EPZs differs “Bangladesh Building Code 2006� in recent years. according to government and independent With the enactment of these laws and acts, surveys, but both highlight the need for further compliance is no longer an issue of compassion improvement. The Ministry of Labor and and moral persuasion, but has become a legal Employment surveyed 295 garment factories obligation for the garment manufacturers of during March-May 2010. According to this Bangladesh. A firm will be subject to penalty survey, reasonable progress was made in case of and/or legal action if caught violating these laws. most of the compliance issues (Table 4.2). How is compliance working in practice? Table 4.2: Progress on Compliance Reported by Respondents (percentage) Issues Percentage of firms reporting compliance Issue appointment letter 72.9 Issue ID card 77.7 Pay according to pay structure 66.7 Pay for overtime in time 79.7 Follow holiday calendar 74.2 Provide maternity leave 67.1 Source: SCF, Ministry of Commerce, Government of Bangladesh, 2010b 4.13 However, an independent survey (UNIDO installments throughout the month instead of 2011) conducted in 2011 does not corroborate paying it on a specific date of the month. the findings of government compliance audits. Similarly, about 42 percent of woven garment The findings of a survey of 84 firms shows that firms do not provide workers with the wage sheet although appointment letters are issued for almost containing payment details. The same share for 100 percent of officers/executives, the same share knit garments is about 58 percent. There are is only about 17 percent for woven garment several reasons why the compliance situation in workers and 13 percent for knit garment workers the garment sector failed to improve up to a (Table 4.3). The same survey finds that about 30 satisfactory level, as indicated below. percent of the firms pay the salaries/wages in 47 The labor law is not applicable to the EPZs. Around 60 government-employed counselors help monitor and enforce labor standards in the factories located in EPZs. The counselors work in a team of two and are responsible to provide orientation to management on compliance, raise awareness among workers, and arbitrate between workers and management in cases of disputes. The labor counselors also gather data on compliance issues including contracts, wages, overtime and bonus payment and leave provisions, which they submit to BEPZA on a monthly basis for each firm in the EPZ for review and follow up action. 40 Table 4.3: Percentage Distribution of Worker by Some Selected Compliance Issues Compliance issue Woven RMG Knit RMG Issuance of appointment letter Workers 17 13 Assisting staffs 81 77 Officer/executives 100 100 Providing salary sheet to workers 58 42 Source: UNIDO (2011) What inhibits compliance with labor standards? do not share in this. The price and compliance decisions of buyers are not synchronized. Buyer- 4.14 Infrastructure bottlenecks intensify nominated audit teams compel manufacturers to noncompliance. Because of problems like power improve the overall environment of their factories and gas shortages, poor connectivity with the port, which involve costs. However, the purchase team and inefficient port management, the timely makes decisions on the basis of price and quality shipment of goods is very often difficult. Delayed of the product, not the quality of the factory shipment delays the payment to the manufacturers, environment. As a result, manufacturers’ which in turn, delays the payment to their workers. incentives are to offer the most competitive price Sometimes delayed shipment also obligates the and pay little attention to compliance, if not forced manufacturers to send the goods either by air to do otherwise. instead of sea at their own cost or at a discounted price, which they try to recoup by paying less to 4.17 Coordination failure leads to noncompliance the workers. In addition, limited scope for bridge as well. Given that some of the most significant finance through short-term loans from banks competition for Bangladeshi garment firms comes increases the severity of these problems. from within the country rather than abroad, firms’ incentives dictate delaying compliance until they 4.15 Poor enforcement of the law also results in are assured that all other firms are also complying. poor compliance. In the early phase of growth of This puts the onus on government agencies for the sector, many garment firms were set up in ensuring that all firms comply with the law, and residential buildings. Unless relocated, they that no firm receives an unfair advantage over cannot comply with industrial building codes. another. Moreover, the overall enforcement of the labor law and building code is still very low. The Policy recommendations Government has established a compliance monitoring cell within the Export Promotion 4.18 Increase enforcement of law. Currently, Bureau (EPB) to increase the enforcement of the Bangladesh has adequate laws and rules in place law by regularly monitoring factories. But it lacks for an effective regulatory environment to sufficient numbers of trained inspectors. In improve the compliance situation. But because of absence of any credible threat of consequences for coordination failure, as well as other reasons cited violating the law, the mid-level management of above, firm incentives may be aligned against many firms becomes apathetic to compliance. compliance, at least in the short run. Therefore, government has to ensure the enforcement of 4.16 Another reason for manufacturers’ apathy laws. Capacity of the compliance monitoring cell to compliance is the “unfair� distribution of its and inspection teams has to be strengthened to premium. Many manufacturers think that they monitor and improve the overall enforcement of bear the full costs of compliance while the buyers law in the garment sector. 41 4.19 About 20 percent of the firms are engaged in sector as a whole for two reasons. First, the five subcontracting. Much of the labor unrest initially year lag in adjustment of minimum wages may starts in these firms, due to their poor compliance make workers unhappy and lead to strikes and situation, and then spreads over to other firms, violence. An annual adjustment will reduce the which tarnishes the image of the country. In most probability of this happening and also help to cases these firms are not members of any provide workers with a smoother consumption associations like BGMEA or BKMEA, and cycle. Secondly, it may be the case that lack of therefore remain outside the ambit of the annual adjustment results in a larger minimum associations’ inspections. Strengthening of wage award, when that occurs. For example, the Compliance Monitoring Cell with additional last minimum wage adjustment was after four staffing and training is also important to monitor years. Cost of living increased by 36.70 percent the compliance situation of these factories. during 2006-10, but the average wage was increased by 80.45 percent to meet workers’ 4.20 Reduce the probability of labor unrests by demand. While an annual adjustment is no regularizing the adjustment of wages in line guarantee that there will not be a large minimum with the rise in the cost of living and promoting wage award, it may help to keep this award to a its implementation. In the past, wages in the more reasonable level, and so also help cushion garment sector were adjusted intermittently, for the sudden impact on employers’ finances. example, in the years 1994, 2006 and 2010 after 10, 12 and 4 years respectively. According to the 4.22 Facilitate relocation of factories from Bangladesh Labor Law 2006, the minimum wage residential to industrial buildings. Many small for the workers of a sector has to be reviewed and medium garment factories were set up in the every five years. In many cases, labor unrest is residential buildings without adequate facilities in triggered from the poor implementation of the the early 1980s. These factories have to be minimum wage. For example, as per the official relocated in industrially compliant buildings. Gazette notification, the new minimum wage Government has decided to set up a garment structure was supposed to be implemented from village in Munshiganj, where the noncompliant November 2010. In December 2010, ten factories factories are expected to relocate. Given their witnessed labor unrest (Islam 2011) as they had financial insolvency, the small and medium failed to implement minimum wages. garment factories would require access to finance to relocate. Government can also build the factory 4.21 Although the new labor law requires buildings and lease them out to the manufacturers adjustment of minimum wage every five years, an at agreed terms and conditions following the EPZ annual adjustment could be better for the garments model. 42 Chapter 5: The Potential for Diversifying Exports - The Case of ITES-BPO 5.1 One possible avenue for export environment; and lack of adequate clusters. Much diversification is the ITES-BPO48 sector. The needs to be done to set the stage for promoting lack of a sizeable information technology enabled this industry in Bangladesh by improving skills services – business process outsourcing (ITES- and the business environment. Creating an apex BPO) sector in Bangladesh is puzzling, especially business organization to represent the sector on a when the sector is thriving in neighboring India global platform could also improve the prospects and Sri Lanka. Given the large and growing size of this sector. of the global ITES-BPO market, even a small share for Bangladesh could result in significant I. Background benefits in terms of generating employment, raising incomes and diversifying exports. Despite 5.3 Several countries have positioned its large pool of young and trainable people and its themselves as attractive ITES-BPO destinations competitive wages, why hasn’t Bangladesh to capture the large and growing global become an important offshoring destination? Why market. According to the McKinsey Global hasn’t Bangladesh attracted foreign direct Institute, the global potential IT/ITES market in investment in this sector, especially from Indian 2008 was estimated to be around US$500 billion firms seeking to lower wage costs that are rising and the potential BPO market around US$150 rapidly in India? What does Bangladesh need to billion. The demand for these services comes do to position itself as the next ITES-BPO from the Americas, followed by Europe/Middle destination? These issues are examined in this East/Africa and Asia Pacific regions. While cost section. savings are the primary reason for outsourcing, other reasons such as access to worldwide talent 5.2 Key messages. The ITES-BPO sector provides and potential new markets play an important role an important avenue for diversifying exports, as well. On the supply side, several countries in employing the youth, and raising incomes. But Asia, Latin America and Eastern Europe have this sector has not taken off in Bangladesh for established themselves as attractive offshoring several reasons: lack of soft skills such as fluency destinations using differentiating factors such as in written and spoken English and time, distance and language skills to make their professionalism; poor infrastructure including lack case.50 India is one of the early movers in this of reasonably-priced real estate and grade A49 area and is a major offshoring destination in Asia, buildings, adequate power supply, fast along with the Philippines and Sri Lanka. internet/broadband connectivity, and, until Countries such as Kenya, Nigeria, and Egypt are recently, VoiP telephony; weak business also attempting to break into this area. 48 ITES-BPO refers to all outsourcing needs whether it is customer relationship management, back office operations/revenue accounting/ data entry, data conversion, finance and accounting/human resource services, transcription/translation services, content development/animation/engineering and design/GIS, other services including remote education, data search market research, network management and consultancy services. ITES-BPO industry is distinct from the IT industry. ITES-BPO can range from the simple (data entry, scanning etc) to the complex (equity research, knowledge management etc). In contrast, while IT firms service multiple sectors, the range of work is fairly limited and very technical. Some other terms used in this section are: Outsourcing, which refers to the contracting out of a business function - one previously performed in-house - to an external provider. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called nearshore outsourcing. 49 Grade A specifications refer to internationally acceptable real estate standards with respect to floor space, construction, etc. 50 Language capability and same time zone in case of Africa, nearshoring in the case of Eastern Europe, and all three in the case of Latin America. 43 5.4 Significant benefits accrue to developing located in Tier 2 and 3 cities as Tier 1 cities52 countries positioning themselves as ITES-BPO become more expensive. destinations. By encouraging this sector, developing countries can provide direct and 5.5 Bangladesh has not yet made a mark in this indirect employment to the increasing number of sector. Exports from Bangladesh are dominated young people entering the job market.51 by readymade garment exports, with non-factor Destination ITES-BPO countries have seen an service exports accounting for a low share of 13.2 increase in the rate of female participation in the in FY10. Of this, the IT/ITES BPO exports in labor force. Moreover, this sector requires low Bangladesh are small, only about $35 million capital investment and skill levels compared to the which accounts for only about 0.2 percent of total IT sector. Finally, in addition to bringing in export compared to 27.5 percent from India. foreign exchange and helping build IT skills in Many of the existing 400 firms are small (with 10- people, the sector also helps reduce spatial 200 employees), and have been around for a while inequalities as more of these activities are being without growing much. Table 5.1: Share of Non-Factor Service Exports Table 1: Share of Non-Factor Service Exports FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Exports of Goods and Non Factor Services (US$ million) 7249 6794 7379 8445 9750 11752 13537 16042 17413 18707 Total Non Factor Service Exports (US$ million) 772 865 887 924 1177 1340 1484 1891 1832 2471 Share of Non Factor Service exports in total exports (%) 10.6 12.7 12.0 10.9 12.1 11.4 11.0 11.8 10.5 13.2 Share of ITES-BPO exports in Non Facotor Service .. .. .. .. 1.1 2.0 1.8 1.3 1.8 1.4 exports(%) Memo items Share of exports of goods and services in GDP (%) 15.4 14.3 14.2 14.9 16.2 19.0 19.8 20.2 19.5 18.7 Share of Non Factor Service export in GDP(%) 1.6 1.8 1.7 1.6 2.0 2.2 2.2 2.4 2.1 2.5 Source: Bangladesh Bank, BBS and BASIS II. What explains Bangladesh’s lackluster that a key factor affecting the sector was the global performance in this sector? perception that Bangladesh was not a favourable destination for outsourcing of IT or related 5.6 Views expressed by IT and ITES-BPO services (also see Box 5.1, which summarizes incumbents firms in an online survey53provide views of some Indian companies interviewed for clues about why this sector has not taken off in this study, which underscores this point). a major way in Bangladesh. Respondents said that inadequate power supply, poor internet 5.7 We examine this question in detail along connectivity, paucity of skills, and lack of four dimensions: (i) Talent: refers to the cost, supportive government policies were the main quality and availability of human resources who constraints to their businesses. Specifically, for the are employable in the sector; (ii) Infrastructure: ITES-BPO sector, Bangladeshi respondents refers to the cost, quality and availability of pointed to infrastructure as the key constraint, support infrastructure including telecom, power, followed by lack of government support and skills. connectivity, etc.; (iii) Policy and business Interestingly, 62 percent of the respondents felt environment: refers to aspects of policy, access to 51 According to some estimates, every job created in the ITES-BPO sector creates 3-4 jobs in supporting sectors. 52 The tier of a city depends on the facilities like infrastructure, hotels, roads, utilities etc. 53 The survey included 26 firms. Around 54 percent of the respondents were from the IT services, 27 percent were IT/ITES, 15 percent were ITES-BPO and the remaining 4 percent were from the hardware sector. Of the surveyed firms, only 15 percent had no revenues from exports. Around 35 percent had export revenues in excess of 75 percent of their total revenues, 31 percent had less than 25 percent, 4 percent had between 26-50 percent, and 15 percent had between 51-75 percent. 44 finance, fiscal and non-fiscal incentives, social supporting industries such as training, security, infrastructure etc; and (iv) Clusters: refers to recruitment firms etc. Box 5.1: What do Indian ITES-BPO Firms Think of Bangladesh as a Potential Offshoring Destination? Indian companies have considered Kenya, Ghana, Mauritius and Nigeria as potential low-cost options for expansion. Why have they not looked at Bangladesh as a potential offshoring destination? Interviews with some Indian firms shed some light on this: · Issues around perception of the country: The common perception among Indian firms was that the ITES-BPO industry does not really exist in Bangladesh. While the country is known for its excellent textile industry, and its cheap labor, it is not seen as a country with talent suited for ‘services’ industries. · Lack of promotion by Industry: While some of the local Indian companies had met with BASIS and some of the other industry representatives, most of the larger firms had not interacted with any Bangladesh-based ITES-BPO company, not even at major events such as the International Outsourcing Forum, nor the local events conducted by NASSCOM. This means that they were unaware of the availability of accounting talent, graphics capability, etc. in Bangladesh. · Lack of promotion by the Government: Senior executives from the Indian firms interviewed said governments of countries like Botswana and Kenya had reached out to them and offered different incentives for setting up operations in their countries. However, none of the Indian firms were ever contacted by the Government of Bangladesh or its representatives for attracting investment. This worries Indian firms since they are not sure whether the Government actually supports the growth of the industry. · Tedious procedures for talent movement: One of the key issues that have stopped Indian companies from investing in Bangladesh is the difficulty in obtaining a business visa. Also, repatriation of salaries, capital, dividends, and profits between the countries is not possible, thus reducing the incentive for talent to move across the border. All the above issues withstanding, the conclusion of most of the interactions was also that while the firms had never evaluated Bangladesh as an option for expansion, they are quite open to carrying out some further interactions with their Bangladesh counterparts. The overall feeling was that if more information was made available regarding the opportunities, and some of the procedural issues ironed out, Bangladesh might be an interesting option to expand into. This is especially true of firms thinking of expanding into the Far East (Philippines, China) or Africa. (i) Talent54 graduates with engineering degrees, an equally large number of graduates from other backgrounds 5.8 Bangladesh has a sizeable talent poolthat were also hired. In addition, there are around 5000 can work in the labor-intensive ITES-BPO freelancers in Bangladesh working for European industry. While the number of graduates in the and American individuals/companies. They form a country is small (number of tertiary enrolments in latent pool that can be tapped because they have 2007 is 1.14 million), many students drop out after experience as well as industry-specific knowhow. the secondary level (number of secondary Finally, Bangladesh has a cost advantage enrolments in 2007 is 10.44 million). These compared to other Asian countries – the average secondary school graduates can be trained to work salaries (per year) of people with 2-3 years’ work in the ITES-BPO industry because the skill levels experience is US$ 2,137 in Bangladesh, compared needed are much lower than in the IT industry. to US$8,400 in the Philippines, US$6,250 in India Similarly, while some firms mainly recruited and US$2,400 in Nigeria. 54 Data on this issue was gathered from primary interactions with the incumbents in Bangladesh and from secondary desk research. 45 Box 5.2: Egypt: Making the Talent Pool “Industry Ready� The government of Egypt – via the Ministry of Higher Education (MoHE) and the Ministry of Communication and Information Technology (MCIT) – has launched a program, ‘the Education Development Program for Egyptian Universities’ (EDU Egypt), to increase the employability and industry readiness of the talent pool of the nation. This has been done to provide employment options to the youth – 330,000 of whom are graduating every year in Egypt. Of this roughly 5 percent graduate in engineering and a further 4 percent graduating in other scientific degrees, while 20 percent graduate in commerce. EDU Egypt has been two pronged in its approach and focus towards upgrading the skills of the talent pool – one area of focus is the BPO industry and the other focuses on IT sector. The BPO program is aimed at improving the soft skills (language skills, customer service, culture sensitization) and also basic computer and data skills. The IT program focused on the technical know-how that is required by the IT industry and introduces advanced training to graduates to plug the demand-supply gaps for the industry. This endeavor has been implemented with the support of many leading players in the industry – leading global players such as Infosys, IBM and Firstsource – and also domestic firms such as New Horizons. EDU Egypt has grown from the initial phase when it covered just 2 universities, to the current scale where it encompasses 10 universities with 35 faculty and 10,000 students. 5.9 But there are challenges as well, with But, given that the enrolment ratio for tertiary employability being low. According to industry education is amongst the lowest in the South Asia incumbents, although talent is available, in region (at 7 percent, it is only higher than only practice its employability in the ITES-BPO sector Pakistan and Bhutan, both at 5 percent), the is only 10-15 percent. While the quality of basic overall quality of English language diction and and technical computing skills is adequate, the grammar is quite low in the potential talent pool. problem lies in lack of soft skills such as quality This lack of English language skills creates of written and spoken English in particular and challenges in terms of low employability levels, written/verbal communication skills in general. low level of IT usage since the primary language This gap in quality is primarily attributed to the of computing is English, and investment of time fact that the medium of education in most schools and money to train students to make them ready is the local language, with English being just one for the ITES-BPO industry (see boxes 5.2, 5.3, of the subjects. English becomes the medium of and 5.4 for different models of training young instruction only at the tertiary education level. people to make them ready for the ITES-BPO Box 5.3: Rajasthan Knowledge Corporation Ltd.: An Online Learning Model The Rajasthan Knowledge Corporation Ltd. (RKCL) is a joint venture of Government of Rajasthan, Maharastra Knowledge Corporation Limited (MKCL), Pune, University of Rajasthan, Jaipur, Maharana Pratap University of Agriculture and Technology, Udaipur, Vardhaman Mahaveer Open University, Kota, Rajcomp and centre for e- governance. It runs courses on basic IT skills through ICT-enabled infrastructure without involving instructors. As a result, participation in these courses becomes relatively easy. The participants are tested at the end of the course, and if they show sufficient aptitude to pass the test, are awarded certificates from recognized universities. In order to carry out this model the RKCL has tied up with many channel partners. To become a partner one needs to have a basic server and a few computers to set up a center known as an ‘IT Gyan Kendra’ (IT Knowledge Center). The courses can be transmitted over low bandwidth internet connections and can be learned by students without the presence of a trainer. This ensures participation even in remote rural areas that may not have high speed internet access and / or highly trained instructors. 46 industry). Moreover, the alignment between needed for ITES-BPO sector. Around 90 percent academic/training institutions and the ITES-BPO of the respondents in the survey found the training industry is low. While there are many training institutes or universities inadequate and felt that institutes operating locally in Dhaka, they mostly the training needs to be further refined to produce provide training on core IT aspects such as talent more in line with sector requirements. programming, networking and not for skills Box 5.4: Nigeria: ITES-BPO Skills Certification and Training Given its large, young, and educated English speaking population, Nigeria has the potential to develop as an ITES-BPO location. The project is aimed at creating a program that would ensure a steady pipeline of employable talent to the country’s BPO industry. The program comprises creation of an internationally benchmarked (but customized) Standard Assessment and Certification Program coupled with a training program using standard training content. (ii) Infrastructure infrastructure that has been developed specifically for ITES-BPO companies. Apart from the 5.10 Quality of infrastructure is important for proposed Kaliakoir Hi-Tech Park,55 no other the ITES-BPO industry. Among the major technology parks or Special Economic Zones have factors influencing this sector are: reasonably- been developed for the ITES-BPO sector. But priced real estate and grade A buildings, efforts to set up the Kaliakoir park have also faced uninterrupted power supply, and fast internet / resistance due to land litigation, poor road broadband connectivity. Bangladesh is yet to connectivity, and other political/security related develop itself as an attractive destination from issues. each of these perspectives. 5.12 As with other sectors, lack of reliable 5.11 Real estate costs in Bangladesh are power supply continues to constrain the ITES- relatively competitive when compared to other BPO firms. Due to acute power deficit, there are emerging/established ITES-BPO locations frequent outages throughout the country. Firms around the world. Rental costs for commercial incur additional costs to run expensive generators real estate are relatively low at USD 1.0 per square to keep operating during power cuts, and this adds foot (perhaps comparable to tier 2 cities in South to overall costs. Asia) – although much depends on the quality of space and whether it is inclusive of utilities. Low 5.13 Available capacity needs to be increased to rents, by themselves, may not be attractive to the improve internet connectivity. In 2004, ITES-BPO companies because there is a dearth of Bangladesh was connected with the submarine grade A buildings in the country. The grade A cable South East Asia-Middle East-West Europe-4 infrastructure currently existing has been (SEA ME WE 4), which resulted in the internet developed primarily by garment manufacturers connection becoming 68 times faster. This and a few IT firms. Currently there is no grade A submarine cable connected Bangladesh and 12 55 This park is envisioned as an integrated, ultramodern, techno-township of 232 acres and will be situated at Gazipur, alongside the Dhaka-Tangail expressway. It has been 11 years since the planning for this park commenced and may still take another 5-6 years to complete. The Bangladesh Computer Council which has the responsibility of developing the Tech Park is now looking at new developers to develop the park through a Public-Private-Partnership (PPP). Another ICT village was initially planned at Mohakali as a PPP, but did not take off owing to political and security issues. 47 others countries with high speed data (iii) An enabling policy and business communication facilities. However, although the environment total capacity of SEA-ME-WE-4 is 24,120 Mbps for Bangladesh, only 4,620 Mbps capacity is 5.15 Apart from the infrastructure deficit presently available.56 Moreover, in the first two described above, other aspects of the business years of landing, the submarine cable was environment are important for the ITES-BPO sabotaged around 22 times, affecting business sector. Most important in this regard is a robust seriously. policy environment that encourages growth in this sector and takes measures that are in line with the 5.14 The absence of VoiP telephony until long-term objectives (see Box 5.5 for an example recently constrained the growth of the call from Ghana). Bangladesh’s National ICT Policy center industry but the government is now 2006 was updated with the National ICT Policy giving this some attention. The regulatory body, 2009. The overall focus of the 2009 policy shifted Bangladesh Telecommunication Regulatory towards viewing the ICT sector as a platform for Commission (BTRC), is providing call center other key sectors of the economy. licenses for a low cost of Tk.5000, with a five year validity. Licenses are renewable for a further duration of 5 years, subject to terms and conditions. Box 5.5: Developing Ghana as a Destination for ITES-BPO In 2006, the Government of Ghana undertook the eGhana project to create a five year roadmap for development of the IT and ITES-BPO sector in the country. This project included: · Creation of a strategy document for the country to increase its competitiveness and capability as an ITES- BPO destination · Building a roadmap including a skills development plan, policy framework and an investment promotion strategy · Creation of a monitoring and evaluation framework for the ITES-BPO sector with baselines and targets. Once the roadmap had been created, the country took a phased approach towards implementing the recommendations. This includes: · Creation of an Industry body: GASSCOM (Ghana Association of Software and IT Services Companies) · Investing in usage of ICT in public communications · Creating a standardized curriculum framework for training for ITES-BPO (Customer Service, Software, Web and Applications, Data Entry, Data Conversion, and Medical Transcription) · Cascading the curriculum through a ‘Train the Trainers’ program The project was expected to create 6000 jobs in the ICT and ITES-BPO sector by 2011, of which 3000 had been created until 2010 through activities undertaken by GASSCOM. 56 Out of the total available capacity, 40 percent is allocated for data communication and 60 percent for voice communication. 48 Box 5.6: Philippines: Attracting Investors Using the Special Investor Resident Visa Program The Philippines has become one of the leading outsourcing destinations for companies across the world, not only due to its substantial English speaking talent, but also to government’s initiatives to attract foreign investment. One such measure taken by the Board of Investments is the Special Investor Resident Visa (SIRV) that allows investors to stay as residents as long as they maintain their investments in the country and pay taxes that are applicable to domestic nationals. The SIRV is granted to any alien who is at least twenty-one (21) years of age and has not been convicted of a crime, provided that he or she: · Is not afflicted with any dangerous or contagious disease · Has not been institutionalized for any mental disorder or disability · Is willing and able to invest the amount of at least US$75,000.00 These visas are renewable and are also granted to legal spouse and children below the age of 21. 5.16 The National ICT Policy 2009 addresses a 5.17 Although the 2009 Policy is a considerable few shortcomings of the previous policy. These improvement over the previous one, some changes could help increase the attractiveness of shortcomings still exist: the industry both to investors as well as prospective talent, provided at least some of them a. Although the Policy emphasizes the are implemented. Some comments on the policy: importance of a talent pool and also allows for tracking the demand and supply of a. The 2009 ICT Policy emphasizes IT talent, it focuses primarily on IT/ICT skills. education to make people “industry ready.� However, the majority of the current talent To facilitate this, the policy outlines the pool – which lacks these skills – can be need for easy loans and planning manpower trained and employed by the ITES-BPO requirements to bridge the supply-demand sector if there was sufficient focus on gap. language (English speaking workforce) and b. The Policy clearly outlines its intent to soft skills. Shifting focus towards IT safeguard intellectual property and data education is good from a medium to long privacy. Such measures will reassure term perspective, but there also needs to be foreign investors who may have stayed a focus on the current state of talent and away because of the perception that current industry needs that are better suited intellectual property rights were not to ITES-BPO sector. guarded in Bangladesh. Implementing b. The 2009 Policy seeks to allow online these measures will require concerted application of work permits and visas to efforts by the government and affiliated attract foreign investors. But the application bodies. process and requirements are still very c. The Policy also outlines several measures to cumbersome and should be relaxed for improve the overall business environment. foreign nationals who may want to invest or Among the measures announced are: work in Bangladesh including in the ITES- ensuring that small and medium enterprises BPO sector (see Box 5.6 for the Philippines have adequate access to capital (through example). entrepreneurship funds, venture capital funds and easy loans); and providing (iv) Clusters infrastructural support for the sector (through tax rebates on electricity, better 5.18 Multiple associations represent the ITES- and cheaper connectivity and incubator BPO sector in Bangladesh, leading to weak support for IT and ITES-BPO companies. coordination and duplication of efforts without 49 necessarily benefiting the industry. There are confidentiality, data security etc); and many industry bodies in Bangladesh for IT/ITES, providing customized infrastructure (such call centers, Internet Service Providers etc. Each as grade A office space, reliable utilities, IT of these industry bodies seeks to improve the and physical connectivity) that can be existing condition of the IT/ITES-BPO industry in leased to companies in the sector (as in Bangladesh. Although the initiatives being taken Economic Zones). by each of these associations are good, there is weak coordination as well as duplication of 5.20 Seven practical interventions can help to efforts, with no significant impact on the sector. address some of the core gaps in the above There is a need for an overarching framework or policy areas (Box 5.7 summarizes the success of one central regulatory body that either defines the Orissa in attracting ITES-BPO investment): clear roles for each of these bodies or develops a strong linking mechanism to help share a. At the highest levels, the government should knowledge, data and research. A greater effort also invite 2-3 top foreign ITES-BPO needs to be made to better portray Bangladesh as a companies to locate in the new high-tech destination market for the ITES-BPO sector. park in Kaliakor. b. Begin a government-sponsored ITES III.What can be done to encourage the ITES- assessment, training and certification BPO sector in Bangladesh? program to create a cadre of skilled workers in ITES-BPO in line with internationally- 5.19 Government can encourage the recognized standards. development of the ITES/BPO sector in three c. Create an umbrella industry body to unify key policy areas, relating to skills, promotion the fragmented industry into a powerful and the business environment: coordinating body and lobbying force, capable of promoting and positioning a. Address the skills gap among high school Bangladesh internationally at the highest students and dropouts as well as graduate fora. students to make them employable in the d. Create a network of industry contacts and IT/ITES-BPO sectors, with a focus on soft skills within the "freelance" IT/ITES skills as the specific product skills are workers to immediately scale up local typically imparted by the employer. capabilities. b. Demonstrate long-run commitment to the e. The highest levels of government could sector, which would boost investor invite NASSCOM to hold one of its major confidence. This commitment can include, events/retreats in Dhaka to showcase for example, partnership with the private Bangladesh’s potential for foreign direct sector to undertake a sustained promotion investment or joint ventures in ITES. campaign (both country branding and f. Complement parks like Kaliakor with some sector branding) and high profile other leased buildings, also designated as networking events aimed at proactively Economic Zones, to provide high-quality addressing the main concerns of industry office infrastructure that would allow for players in target markets. possible growth in the short term whilst the c. Tackle the main hurdles to "doing business' Economic Zones are still being built. in Bangladesh – executing standard legal g. Put in place incentives to attract investment provisions (Intellectual Property Rights, of Bangladeshi Diaspora into this sector. 50 Box 5.7: Orissa: Attracting Investments in the ITES-BPO Sector The state of Orissa in eastern India has achieved major success in attracting investments in the ITES-BPO sector. The state capital – Bhubaneswar – has become the hub for a few of the leading Indian ITES-BPO companies. Total IT/ITES-BPO exports of the state amounted to USD 275 million in 2008-09. This growth of the ITES-BPO sector was due to a concerted effort including: · Creation of an IT park and attracting an anchor client: One key requirement for any SEZ or IT Park to succeed is the need for an anchor client to set up operations in the area. By attracting an anchor client early in the process, the government has ensured the success of the basic mission of setting up IT parks in Rourkela, Behrampur and the recent one in Bhubaneswar. · Setting up a nodal agency for the IT/ITES sector: The Orissa Computer Application Centre (OCAC) was set up as the nodal agency to carry out various training programs, both long and short term, to cater to the needs of the IT/ITES-BPO sectors. The OCAC has also effectively differentiated between IT and ITES and has helped in promotion of these in international fora. It has also undertaken assessment tests and initiated placement drives in association with some of the leading ITES-BPO players. · Infrastructural support: The Orissa Industrial Infrastructure Development Corporation (IDCO) effectively handled all infrastructure requirements of the sector. All these factors have enabled Orissa to attract some of the largest IT and ITES-BPO players into the state. 51 References Abdin, M. J. 2008. “Overall Problems and Prospects of Bangladeshi Ready-Made Garments Industries,� http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1117186 Amiti, M. and C. Freund. 2008. “An Anatomy of China’s Export Growth.� Ara, L. A. and M.M. Rahman. 2010. “The Competitiveness and Future Challenges of Bangladesh in International Trade,� http://www.wto.aoyama.ac.jp/file/090126laila_paper.pdf Arnold, J. 2010. “Effects of Trade Logistics on the Strategy of the Garments Industry for Product and Market Diversification,� Background paper for “Consolidating and Accelerating Exports in Bangladesh� Dhaka, Bangladesh. Asian Development Bank. 2007. “Improving the Efficiency of transport Logistics in the Dhaka- Chittagong Corridor,� Asian Development Bank, TA 4506-BAN. Baral, L.M. 2010. “Comparative Study of Compliant & Non-Compliant RMG Factories in Bangladesh,� International Journal of Engineering & Technology, IJRT-IJENs, Vol. 10, No. 2. Basher, M.A. 2010. “Compliance in the RMG sector: What has been done so far, and what more needs to be done?� Background paper for “Consolidating and Accelerating Exports in Bangladesh� Dhaka, Bangladesh. Brenton, P. and R. Newfarmer. 2007. “Watching More Than the Discovery Channel: Export Cycles And Diversification In Development,� Policy Research Working Paper 4302, The World Bank, Washington D.C. Chittagong Port Authority. 2010. “Container Handling Equipment,� http://cpa.gov.bd/index.php?option=com_content&view=article&id=66&Itemid=39 _____. 2010. “Port Performance Indicators.� http://cpa.gov.bd/index.php?option=com_content&view=article&id=32&Itemid=58 _____. 2010. “Port Statistics.� http://cpa.gov.bd/index.php?option=com_content&view=article&id=39&Itemid=175 Elmer, D. 2010. “The RMG Skills Formation Regime in Bangladesh,� Background paper for “Consolidating and Accelerating Exports in Bangladesh� Dhaka, Bangladesh Gereffi G. and S. Frederick. 2010. “The Global Apparel Value Chain, Trade and the Crisis: Challenges and Opportunities for Developing Countries.� Policy Research Working Paper 5281, The World Bank, Washington D.C. Ghani, E.2010. “The Service Revolution in South Asia,� Oxford University Press, New Delhi, India. Government of Bangladesh. 2006. “Bangladesh Labour Law 2006,� Ministry of Labour and Employment http://www.mole.gov.bd/index.php?option=com_content&task=view&id=429&Itemid=491 52 _____. 2006. “Bangladesh Labour Welfare Foundation Law 2006,� Ministry of Labour and Employment. http://www.mole.gov.bd/index.php?option=com_content&task=view&id=432&Itemid=514 _____. 2009. “The National ICT Policy 2009,� Ministry of Science, Information and Communication Technology. http://www .mosict.gov.bd/index.php?option=com_content&task=view&id=350&Itemid=1 _____. 2010a. “National Education Policy 2010� Ministry of Education. http://www.moedu.gov.bd/index.php?option=com_content&task=blogcategory&id=122&Itemid=426 &limit=4&limitstart=0 _____. 2010b. “Working Paper of 15th Meeting on the Social Compliance Forum for RMG,� Ministry of Commerce. Helpman, E., M.Melitz, and Y.Rubenstein. 2008. “Estimation Trade flows: Trading Partners and Trading Volumes.� Quarterly Journal of Economics, Vol. 123, pp. 441-487. http://www.nber.org/books_in_progress/china07/amiti-freund2-1-08.pdf Hewitt Associates, 2010. “Growth of ITES-BPO in Bangladesh,� Background paper for “Consolidating and Accelerating Exports in Bangladesh� Dhaka, Bangladesh. Hummels, D. and P.J. Klenow. 2005. “The Variety and Quality of a Nations Export,� The American Economic Review, Vol. 95, pp. 704-723. Islam, S. 2011. “Challenges of Implementing the Minimum Wages Structure (2010) for the Readymade Garment Workers in Bangladesh,� Bangladesh Garment Manufacturers & Exporters Association, mimeo. Kang, K. 2004. “The Path of the Extensive Margin (Export Variety), Theory and Evidence,� University of California, Davis, Working Paper, mimeo. Khan, M.A.N. 2007. “Education and Training in Bangladesh Textile Sector.� http://www.cottonbangladesh.com/July2007/Education.htm Mahmud, W. 2009. Panel discussion on “Emerging Challenges and Policy Options for Bangladesh’s Development,� in Development Experience and Emerging Challenges, The University Press Limited, Bangladesh. Rahman, M., D. Bhattacharya, and K. G. Moazzem. 2008. “Bangladesh Apparel Sector in Post MFA Era, A study of the Ongoing Restructuring Process.� Centre for Policy Dialogue, Dhaka, Bangladesh. Staritz, C. 2011. “Making the Cut?� The World Bank, Washington D.C. Tewari, M. 2008. “Intraregional Trade and Investment in South Asia: The case of the Textile and Clothing Industry.� Asian Development Bank, Manila, Philippines. Thomas, I. 2005. “Special Bonded Warehousing in Bangladesh,� in L. D. Wulf (eds.) Customs Modernization Handbook. The World Bank, Washington D.C. Tokatli, N. 2008. “Global Sourcing: Insights from the Global Clothing Industry—the Case of Zara, A Fast Fashion Retailer,� Journal of Economic Geography, Vol. 8, pp. 21–38. 53 UNIDO 2010. “Baseline Survey for Better Work in Textile and Garments,� Dhaka, Bangladesh. World Bank. 2005. “End of MFA Quotas: Key Issues and Strategic Options for Bangladesh Readymade Garment Industry,� Bangladesh Development Series Paper No. 2, PREM Unit, Washington D.C. _____. 2007a. “Bangladesh: Strategy for Sustained Growth,� Bangladesh Development Series Paper No. 18, PREM Unit, Washington D.C. _____. 2007b. “Learning for Job Opportunities: An Assessment of the Vocational Education and Training in Bangladesh,� Bangladesh Development Series Paper No. 19, SASHD Unit, Washington D.C. _____. 2008. “Harnessing Competitiveness for Stronger Inclusive Growth. Bangladesh Second Investment Climate Assessment,� Bangladesh Development Series Paper No. 25. Washington D.C. _____. 2009. “Leveraging ICT for Growth and Competitiveness in Bangladesh: IT/ITES Industry Development,� Mimeo, Washington D.C. _____. 2010. “Connecting to Compete 2010: Trade Logistics in the Global Economy,� Washington D.C. World Economic Forum. 2010. “The Global Enabling Trade Report 2010,� Geneva, Switzerland. World Trade Indicators. 2008, Benchmarking Policy and Performance, The World Bank Institute, Washington D.C. Zohir, S. C. and P. Majumdar. 2008. “Garment Workers in Bangladesh: Social and Health Condition,� Bangladesh Institute of Development Studies (reprint), Dhaka, Bangladesh. 54