CREATING VALUE FOR LABOR

IN THE RMG SECTOR OF BANGLADESH

I


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Submitted to:
Sheikh Morshed Jahan
Associate Professor, IBA, University of Dhaka Course Instructor, Bangladesh Studies

Submitted by:
Ayasha Sultana (62)
Salwa Bakht (65)
Nazmul Khan (66)
Farhan Intisar Ahmed (85)
Ruksat Ahmed (86)
Lamia Aroni (87)
Utal Antor (95)
Wasiur Rahman (96)
Ashhab Zaman Rafid (97)
Farhan Khaled (109)
Nazmus Saadat (115)



Date of Submission: 15-05-13

Value Creation for the RMG Workers of
Bangladesh
Insight into the challenges and opportunities from the perspective of
competitive Sustainability



Contents

Industry Overview ......................................................................................................................................... 1
Current Scenario of Labor in Bangladeshs RMG Sector ............................................................................... 3
Value Creation............................................................................................................................................... 8
Challenges ................................................................................................................................................. 8
Opportunities .......................................................................................................................................... 10
KII Checklist ................................................................................................................................................. 11
Works Cited ................................................................................................................................................. 11






1

Industry Overview
The export-oriented readymade garments (RMG) sector in Bangladesh is one of the key
contributors to the countrys net export and henceforth the GDP growth. Starting its journey in
the late 1970s, the sector has experienced tremendous growth in the last 3 decades. The Multi
Fiber Agreement (MFA) signed in 1974, imposed quotas on the amount that developing
countries could export in the form of yarn, fabric and clothing to developed countries. But it
actually increased exports for Bangladesh since the European Union and USA imposed no
restrictions or quota which helped the garments industry grow. It allowed countries to impose
quotas on exporters requiring a higher rate giving Bangladesh the competitive advantage of
cheap labor. The key milestone in this industry was the establishment of Desh Garments Ltd in
collaboration with Daewood of South Korea making it the single-largest and most modern
garment facility in the sub-continent. Another South Korean firm, Youngones Corporation
formed the first equity joint-venture garment factory with a Bangladeshi firm, Trexim Ltd in
1980. Bangladeshi partners contributed 51 percent of the equity of the new firm, named
Youngones Bangladesh. (UNCTAD, 1999) It exported its first consignment of padded and non-
padded jackets to Sweden in December, 1980. However, the MFA was lifted in 2004.
USA is the largest importer of Bangladeshi RMG products followed by Germany, UK, France and
other EU countries.
The RMG industry started its journey in late 1970s and enjoyed a staggering rise from 30
enterprises in 1980 increased to 4825 in 2008. (Source: BGMEA website). It contributed only
0.001 per cent to the countrys total export earnings in 1976, its share increased to about 80
per cent of those earnings in 2010. Bangladesh exported garments worth the equivalent of $6.9
billion in 2005, which was about 2.5 per cent of the global total value ($276 billion) of garment
exports. The countrys RMG industry grew by more than 15 per cent per annum on average
during the last 15 years. The foreign exchange earnings and employment generation of the
RMG sector have been increasing at double-digit rates from year to year
1
.Its contribution to
GDP reaches 13% in fiscal year 2009-2010. There are more than 4,000 RMG firms in
Bangladesh. More than 95 percent of those firms are locally owned with the exception of a few
foreign firms located in export processing zones (Gonzales, 2002).The RMG firms are
concentrated mainly in Dhaka, the port city Chittagong and the industrial city Narayangonj.

The garments produced in Bangladesh are mainly divided into 2 broad categories namely
woven (Shirts, T-shirts and trousers) and knit (socks, stockings, sweaters and other soft casual
items) products. Previously, woven products accounted for the lions share of export earnings.
However, the share of knit garment products has beenincreasing since the early 1990s; such
2

products currently account for more than 40 per cent of the countrys total RMG export
earnings (BGMEA website).

Based on Bangladesh Garment Manufacturers and Exporters Association (BGMEA)
data,Mainuddin (2000) found that in 1997 more than 75 per cent of the firms employed a
maximum of 400 employees each.Bangladesh's garment industry provides employment to
about than 3.6 million workers which 2.8 million are women (Mahmud R.B., 2012). Now in
Bangladesh, more than 10 million peoples livelihoods directly or indirectly depend on this
single industry and accounts for 40% of industrial employment (World Bank, 2006). Regardless
to say, this sector is actively helping control the unemployment problems of the country and
also enhancing women empowerment. Undoubtedly, labor remains to be one of the most
important stakeholders of this ever-growing industry and value creation for them needs to be
our industrys important concerns.

Working conditions in the RMG sector are below standard and do not meet the ILO standards.
Labor standards and rights are commonly ignored in the RMG factories in Bangladesh: poor
practices include the absence of trade unions,informal recruitment, and irregular payment,
sudden termination, wage discrimination, excessive work, and abusing child labor. Moreover
workers suffer various kinds of diseases due to the unhygienic environment and a number of
workers are killed in workplace accidents (Savar tragedy), fires and panic stampedes (Tazreen
Garments). Absence of an appropriate mechanism to ensure the enforceability of the available
laws for protecting workers rights and maintaining workplace safety continues to be a concern
in the RMG sector. As the sector is an important foreign exchange earning component, some
changes are required.

The growth of the garments industry at a glance

1977-1980 Early period of growth
1982-1985 Boom days
1985 Imposition of quota restrictions
1990s Knitwear sector developed significantly
1993-1995 Child labor issue and its solution
2003 Withdrawal of Canadian quota restriction
2005 Phase-out of export-quota system

Source: Compiled by the author from Quddus and Rashid (2000), Mainuddin(2000) and databases of the
Bangladesh Garment Manufacturers and ExportersAssociation, and the Export Promotion Bureau, Bangladesh.

3

Current Scenario of Labor in Bangladeshs RMG Sector
Garment sector is one of the major sources of industrial employment in Bangladesh. The size of
employment was about 2 million in 2007 with a 24 percent yearly growth of employment
(Rahman et al., 2008). Moreover, it has created employment opportunities for millions of
women. RMG sector grew by satisfying its clients across the world, including the USA and
Europe (Rahman and Anwar, 2007). Abolition of quota system in 2005 has introduced new
competition for Bangladesh from the rest of the world, especially from India and China. India
and China have an added comparative advantage over Bangladesh since they have skilled labor
forces, advanced technology and more importantly backward linkage support (Abdullah, 2009).
The key advantage of Bangladesh such as cheap labor force has been offset by other countries
through superior productivity of skilled labor forces, modern infrastructure facilities and
political stabilities (Abdullah, 2009). Bangladesh is further challenged because most of the
labors are unskilled with low productivity which results in increased per unit cost of production
(Chowdhury, Ali and Rahman, 2005). A study in RMG sector reported that 20 percent workers in
sample enterprise are unskilled, 30 percent workers are semi-skilled, and who mainly are junior
operators (Rahman, Bhattacharya and Moazzem, 2008). Forty-four percent senior operators are
skilled of total workers and only 5.7 percent are professional and management staff in the total
workforce. The proportion of skilled workers is high in large factories (46-53%) than small and
medium factories. The proportion of unskilled workers is high in small and medium enterprises
(18-26) than that of large enterprises (16-18). (Rahman, Bhattacharya and Moazzem, 2008).
However, the RMG firms in Bangladesh have been facing immense pressure from international
buyers for compliance with their codes of conduct so that it needs to concentrate on improving
the working environment in factories (Haider, 2007). Workers have limited choice of job
environment due to high unemployment rate (Sarker, 1997). Moreover, labor turnover in
garment industry is very high as well (Sarker, 1997). A study has found that 74 percent in knit
factories, 68 percent in woven enterprises, and 81 percent in sweater factories do not provide
appointment letter to the workers (Rahman, Bhattacharya and Moazzem, 2008). The wage rate
in
Bangladesh has increased comparing to other competing countries due to shortage of skilled
labor force. It finally reduces Bangladeshs competitive advantage in terms of labor costs. The
garment industry in Bangladesh is labor intensive, so potential skilled labor force is necessary
(Abdullah, 2005a).
The only abundant resource in the RMG sector is pool of human resource and the workers are
reliable, adaptable and responsive to training (Spinagager, 2001). Competitiveness in the RMG
sector depends on the productivity of RMG workforce (Abdullah,2009). Work environment and
4

job satisfaction are two primary factors that influence the productivity in the RMG sector
(Abdullah 2009). RMG manufacturing companies can increase productivity by increasing job
satisfaction and by improving work environment. Competitiveness in the RMG industry
depends on enhancing workers productivity that also depends on improving working
environment and job satisfaction. Job satisfaction increases the employee morale through
giving workers psychological comfort and incentives. Working environment increases the
mental motivation. The factories with lower productivity have workers with low job satisfaction
and poor working condition. However, job satisfaction has more influence on the productivity
of workers compared with working condition (Abdullah, 2009).
The garments sector in Bangladesh expanded with unprecedented success. However, poor
working conditions and the lack of social compliance continues to be a cause for serious
concern. Since May 2006, the Bangladesh RMGI has been beset with very serious labor unrest,
resulting in large-scale damage to garments factories by the workers and at times threatening
the very existence of this industry.
The major disputes concern wages, working hours, appointment procedures, forced labor, child
labor, health and safety, security, gender discrimination and sexual harassment, and trade
unionism. Non-compliance of workplace health, safety and security regulations lead to
hazardous work environments in which many workers become sick or injured, or lose their lives
through accidents, fires and stampedes.
One of the reasons for this unrest in the garment industry is legal and institutional failures to
ensure labor rights (Islam and Ahmed 2010). Most of the garment factories in Bangladesh do
not follow the labor law and ILO conventions (Islam and Ahmed 2010). The Labor Act 2006
(called Labor code) clearly mentions that the wage of a worker must be paid within seven
workings days [Section 123 (1)]. Majority factories do not provide appointment letters/contract
letters, identity cards and employee handbooks. Health safety and security condition in this
sector are also insufficient. The workers do not have a clear idea about their rights and labor
laws (Islam and Ahmed 2010).
As they do not know the legal provisions on employment contracts an excessive working hour is
one of the most common labor standards problems in Bangladesh. Equally, worker has no
choice; they are compelled to take up the excessive workloads. According to the Factory Act
1965, a worker being employed for 12 months is entitled to annual leave, casual leave, sick and
medical leave, festival leave and maternity leave with pay (ILO and BGMEA, 2003). Women are
entitled to leave during pregnancy period. In reality Pregnant women are worried about losing
their jobs and hide their pregnancy, as they do not know the legal provisions of their
employment contract. The factory owners dismiss a woman worker if they discover that she is
5

pregnant or if she applies for maternity leave (Majumder, 1997). As a matter of fact garments
manufacturing factories in Bangladesh frequently violate the labor laws of 1965 by not
providing an appointment letter, and in the areas of working hours and breaks, leave, minimum
wages and fringe benefits (Begum N., 2001).
There are some important causes that reduce productivity in the garment sector. Issues like
unresolved labor conflict and poor teamwork result in firms ineffectiveness, low motivation,
boredom for specialized work, rapid technological change and high cost that reduced
innovation (Abdullah 2005b). The most common reasons of labor unrest in the garment sector
are wage rate and unpaid wage. Some garment owners do not pay salaries and overtime
allowance to the workers on time (Uddin and Jahed 2007). However, owners claim that more
than 90 percent factories pay workers wages within 1st and 2nd week of the month (Rahman,
Bhattacharya and
Moazzem, 2008). Political unrest at the national level often influences violence at the RMG
sector (Uddin and Jahed 2007).
Sometimes women workers work until 3 oclock in the morning for meeting their shipment
deadlines (Jamaly and Wickramnanyam 1996). In most of the factories in the RMG sector, daily
working hour is 8.28 hours (excluding overtime working hours) (Rahman, Bhattacharya and
Moazzem, 2008). Women generally choose to work in the RMG sector due to their poor
economic condition with little or no control over their income (Paul- Majumder, 1998). In fact,
women face discriminations at work in terms of wage differentials and gender differences. They
are working in poor condition and feel insecurity. (Hossain, Jahan and Sobhan 1990). The
women workers are living under the poverty line because of their low wage. They cannot
maintain their basic cost of living so that they try to increase their income by working overtime
(Absar 2001). Until 2010, the minimum wage of US$ 43 per month has not yet implemented.
Still they are living below poverty line (Clark and Kanter 2010/2011). 112211
Most of the garments factories do not have standard working hours. Forced labor is common in
Bangladesh especially in the RMG sector. Workers are often given a quota to fulfill. In the case
of workers unable to fulfill their quota during work hours, they have to stay behind and work
without pay. Regular two hours overtime is compulsory, and if any one refuses to work him or
she is dismissed, terminated, has wages deducted or receives verbal harassment, sometimes
escalating into physical punishment. Furthermore the factory management rarely informs
workers in advance if they have overtime; it is only announced at the end of the working day.
Workers dont receive any notice of overtime. In some of the factories, workers are forced to
do night shift duty, up to 12 to 3am.and then start the next shift at 7am. In many factories, the
6

factory gates are locked to enforce overtime (Majumder P., 1998). Forced labor constitutes the
antithesis to decent work and violates all core labor standards.
Though most work until after dark, there are no safety measures for them and no residential
facilities or transportation facilities provided. As a result, they frequently feel insecure, and for
good reason many female garments workers are raped and abused (Shimu, 1999).
The working environment in Bangladesh RMG sector is below standards. Health and Safety
regulations, as prescribed in Factory Rules 1979 (Absar S.S., 2001; Begum A., 1995) are routinely
ignored by management and are hardly enforced by government. Most factories do not have
adequate ventilation and exhaust fans that leave the garments workers exposed to toxic
substances and dust. Raw materials contain dust and fibre particles that hang in the air. Dye, a
toxic substance emitted from colored cloth, spreads in the workroom. As a result, many
workers suffer from constant fatigue, headaches, anemia, fever, chest, stomach, eye and ear
pain, cough and cold, diarrhea, dysentery, urinary tract infection and reproductive health
problems due to overwork, uncongenial working conditions, and wide-ranging labor law
violations. In fact the Factories Act of 1965 sets the occupational safety and health standards in
Bangladesh, but like every other aspect of the Labor Code, it is rarely enforced due to the lack
of resources and corrupt practices in the system (Doshi G., 2008).
Moreover, many of the factories do not meet the minimum standards prescribed in building
and construction legislation (Factory Rules 1979). As a result, fire is common, buildings often
collapse and faulty building design regularly results in the death of workers. Compensation
following an incident is rare. The recent Savar tragedy of the Rana Plaza collapse lead to a death
toll of about 1100 workers and is a grave example of this scenario. In addition, as for working
conditions, they are one of the worst in the world frequent garments factory fires taking many
of lives due simply to lack of safe exits being the burning example. Moreover, compensation
following an incident is rare in this area (Muhammad A., 2008; Meghbarta). The violations of
the occupational safety and health codes are flagrant, as evidenced by the types of tragic and
preventable accidents that occur in Bangladesh factories (Majumdar, 2002).
Bangladesh already has labor laws such as the Factory Rules 1979 that prescribe minimum
standards and health and safety regulations (Absar S.S., 2001). But the proper application of
labor legislation depends on an effective labor inspectorate.
Most of the garments workers are not satisfied with their present job in the RMG sector. The
level of wages is the most significant source of dissatisfaction for workers in the RMG industry.
RMG owner often deny that they have the power to improve the wages or conditions of
workers. On the other hand, prospects of promotion in the RMG industry of Bangladesh are
7

uncommon. Without full payment or being paid on time, worker often worry and are anxious
about the future. This results in low work productivity and job dissatisfaction (Morshed, 2007).
Unhappy employees are motivate by a fear of job loss, and will not give 100% of their effort for
very long. A satisfied worker is more likely to be creative, flexible, innovative and loyal, which
serves as the basic tenets of value creation.
There is also no mechanism for benefit sharing in RMG industry. They do not have a bonus
payment system for workers as provisioned in the labor laws nor do they have provision to
increase salaries for changing profitability and inflation. Employee benefit plans or incentives
are voluntary offerings by the firm. Expenditure on benefits contributes to employee retention
through increasing job satisfaction and improved productivity. Many industries provide workers
certain tangible benefits over and above the basic pay. Some benefits help fulfill the social and
recreational needs of workers, for example, a festival bonus, a target bonus or a production
bonus. They may provide extra leisure, extra income and a better work environment. Such
incentives enhance employees loyalty and build a positive attitude towards the company and
workers feel that they have a role in the success of the organization. Thus incentives are
important in reducing dissatisfaction and unrest in an industry.
Gender discrimination is common. The majority of garment factory workers are young women.
In the RMG sector female workers are considered low-skill, low workers. Mostly abundant
cheap labor and its low opportunity cost lead to low wage levels, providing a comparative
advantage to female labor in particular operations in the RMG production sector.
Gender differentials in Wages in RMG
industry Categories of workers
Male wages
Tk/pm
Female wages
Tk/pm
Operator 2,254 1,536
Cutting Master 3,935 -
Ironer 1,894 1,106
Sewing helper 1,200 762
Cutting helper 1,512 837
Finishing helper 1,209 1,023
Folder 1,528 1,157
Source: Absar, S.S. (2001). Problems surrounding wages: the readymade garments sector in Bangladesh, LMD,
Volume2, No.7, pp-5
Moreover, women are generally discriminated against in terms of access to higher-paid white
color and management positions. They are generally considered only for helpers, machinists,
8

finishing helpers and sewing helpers frequently and as line supervisors and quality controllers.
It is rare to find women working as cutting masters, production managers, supervisors, finishing
and machine operators, or as in-charges who draw salaries varying from 2-10 times that of the
average operator (Absar S.S., 2001). Although the above table is 12 years old, the situation has
changed little in the intervening period.
However, all is not bleak. Bangladesh is committed to securing labor rights for the well-being of
workers by virtue of ILO membership. In response, the Bangladesh government formed a Social
Compliance Forum (SCF) and also constituted two task forces on a) labor welfare, and b)
occupational safety in the readymade garments (RMG) sector along with a Compliance
Monitoring Cell (CMC) to encourage compliance in the RMG sector. Inaddition, BGMEA has also
formed a Safety Cell to protect fire-related emergency problems. With respect to the tripartite
MOU (Memorandum of Understanding) BGMEA monitors started visiting factories to measure
of Compliance and to ensure the implementation of minimum wages and other basic labor
rights and to monitor the application of Labor Law in RMG factories (Choudhury R.S and
Hussain G., 2005). But the concern is that both agencies are failing to perform their activities
due to a lack of trained staff and labor inspectors, rigid structure and because they are
overloaded by other responsibilities.
Value Creation

Value creation is the performance of such activities or the addition of such benefits/features
which add worth to the goods, services, and business.Today value creation is not only exclusive
for the customers but also for the employees or labor force. Companies can develop and deliver
outstanding goods and services only if they tap the commitment, energy, and imagination of
their employees and labor force. Value creation for the labor force or employees is to motivate
and enable them. Value for labors includes being treated respectfully and being given proper
working condition, minimum wage, life security and basic amenities of life which will motivate
them to work. Employees and labor also like meaningful and rewarding work; excellent
compensation opportunities; and continued training and development.

Challenges

In Bangladesh when the question of value creation for labor force comes then a lot of
challenges are posed. The current scenario reflects that our factories are much in need of safe
working conditions and the labor force is undervalued in terms of wages, benefits and working
9

conditions. But there are a lot of challenges which need to be tackled in order to create such
values for the labor force in Bangladesh.

1. Challenge for the Government:

For the government, the process of value creation for the labor means formulation of
mandatory new policies and regulations which all the factory and garments owners must abide
by. Also proper monitoring and inspection are needed to ensure that these regulations are
being followed. All these involve proper utilization of time, resources and manpower from the
governments part which will be a challenge for the government.

2. Challenge for the RMG market:

As mentioned earlier the labor wage in the RMG sector of Bangladesh is cheapest in the world.
Value creation, for the labor force, means increasing their current minimum wage. We provide
the worlds cheapest labor force in the world resulting in such a huge demand of our cheap
garments in the global market. Besides providing better working conditions and benefits will
increase cost for the owners and increase the price of the goods as well. Thus this increase in
the price of our garments will make us lose our competitive edge to our foreign buyers. This
might result in the buyers to shift to our competitors such as India, China, Vietnam who also
provide cheap garments. This is a big challenge from the market as a stake holder.

3. Challenge for the owners and buyers:

The two most important stakeholders, the garments owners and buyers have much to
compromise on in order to create value for the labors. To increase wages, benefits and provide
better working conditions means that the garments owners have to increase their expense and
price or cut down on their profits. This will be a challenge for the owners while creating value
for the customers. Besides due to increase in expenses, increased labor cost and thus the price
of the goods will force the (foreign) buyers to buy the garments at a higher price. So the buyers
will be affected by this process as well.

4. Social Challenges:

Trade associations, NGOs, media etc are all part of the society. Associations such as BGMEA or
BKMEA are still owner centric. This means that they mostly serve and reflect the causes of the
garments owners. In order to create value for the labor force these associations will have to
deviate from this and push the owners to meet the needs and demand of the labor force.
10

Besides the media has a role in this as well. The media needs to take the responsibility of
revealing the stories of the deprived labor force and in spreading awareness. But while doing so
they must also be very intelligent about not promoting the wrong message to the outside world
as well.

5. Awareness of the need:

Another very important challenge particularly in RMG sector of Bangladesh is the lack of
awareness or better said the ignorance of the owners regarding the basic rights or value
creation of the labor force. What happened during the Tazrin fashion house disaster, the Rana
Plaza tragedy or the countless other disasters in the RMG sector of the country was actually
due to the lack of ignorance or carelessness of the garments or factory owners. The owners
here, know very little about work place security or safe working conditions. The concept of
valuing the labor force to motivate them is still very foreign to them. Their basic aim is to gather
a supply of cheap labor to provide cheap garments in the global RMG sector. Thus they force
their labor force to extreme conditions and bring about the many disasters with have been
marking our RMG sector for years. Bringing the factory owners out of this state of ignorance
and carelessness and stilling the awareness about the value of the labor force is a big challenge.

Opportunities
The current situation of the RMG industry of Bangladesh enables greater opportunities for
value creation in labor than ever. Savar tragedy, the deadliest disaster in the industry's history,
demands improvement of the working conditions and safety issues of the workers. Several of
the worlds largest apparel companies have agreed to invest in fire safety and building
improvements of the garment factories after the accident. Worldwide retailers are pressing for
increasing the labor standards of the RMG workers in accordance with the international labor
standards. Bangladesh government is also planning to make changes in the labor laws - an
effort to come into compliance with international standards and improve the working
conditions. Poor working conditions, regular fatal accidents and labor unrests have negatively
affected the industrys image over the years. Many international buyers are thinking of shifting
their market from Bangladesh, which is an indicator of great concern for the industry. So the
industry must ensure the safety issues of the workers and start building a positive reputation of
the industry.

Value creation from within can be initiated through various skill development programs
conducted by BGMEA. These programs are organized by BGMEA in collaboration with
Bangladesh government and local and international NGOs. BGMEA has a training center in
11

Savar with a capacity of 3200 trainees each year. Theses skill development projects and training
centers can increase productivity and efficiency of the labor, creating value from within.
KII Checklist

Key informants comprise stakeholders and beneficiaries that are directly or indirectly affected
by the value creation for the RMG workers of Bangladesh. They can be organized into
individuals or groups at the macro level (expert knowledge), meso level (interest groups) or
micro level (household information). A sample of prospective key informants is listed below:

Macro level stakeholder Meso level stakeholder Micro level stakeholder
RMG factory workers
RMG factory owners
RMG factory top
management
Government Officials
Trade Union
Workers Welfare Group
Community Associations
Local Leaders
Unemployed
Workers of subsidiary
industries


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