Introduction

Bangladesh is located in Southern Asia, bordering the Bay of Bengal, between Myanmar and
India. The country has experienced rapid economic growth in recent years mainly driven by
exports of readymade-garments and remittances from migrant workers. The country is
diversifying its export base in terms of products and destinations while tapping into its vibrant
private sector and large pool of inexpensive labour. Bangladeshs major export item is
readymade-garments and others include shrimps, jute, leather goods and tea. Main export
destinations are the United States and the EU. Bangladesh imports mostly fuel, capital goods and
foodstuff originating in China, India, the EU and Kuwait. Bangladesh is a founding member of
South Asian Association for Regional Cooperation (SAARC), Bay of Bengal Initiative for Multi-
Sectoral Technical and Economic Cooperation (BIMSTEC) and a member of World Trade
Organization (WTO).

Current Market Scenario

The current issue of Bangladesh Economic Update attempts to understand the causes of
declining growth in Gross Domestic Product (GDP) against the backdrop of recent under
performances in the external sector due to falling investment demand-induced decreased import
of capital machinery, concentration of productive capacity in readymade garments and lack of
production diversity in other exporting commodities, declining rate of wage earners remittance
inflow and unsatisfactory inflow of Foreign Direct Investment (FDI) in the country.

External sector possesses upward trend in export earnings, despite slower rate of remittance
inflow and import payments during the last fiscal year. Collapse in Rana Plaza and Tazreen
Fashion, political instability challenged the export earnings to grow at a decreasing rate in recent
years. However, despite these challenges, the growth in RMG sector can especially be ascribed
to the increase in knit and woven garments. Moreover, export earnings increased more from non-
traditional markets than that of the traditional markets.

Import payments showed a decreasing trend because of the lower demand for the imports of
crude petroleum and petroleum products. Recent political contestations in the country have
created an uncertain business environment for setting up new industries resulting in decreased
investment demand-induced negative growth in the import of capital machinery. Opening of
letter of credits (LCs) for capital machineries and petroleum products, however, started to
increase due to the calmness after the election in January 2014.

Inflows of remittance slowed in the last few months primarily because of the decline in labour
migration in major markets like Saudi Arabia and Malaysia. As a result, this declining inflow of
remittance is likely to exert adverse impact on rural economy since consumption and expenditure
of people living in rural areas are largely contingent upon remittance sent by their household
members living aboard.

The country now experienced the increasing trend of the net foreign portfolio investment
because of the lower prices of stocks and attractive yield of government securities and
appreciation of taka against dollars in recent months. Large gap between commitment and
disbursement of foreign direct investment (FDI) over the years has been noticed recently, which
can be ascribed mainly to lack of infrastructural facilities and political tumult as well as a good
deal of foreign aid trapped in the pipeline.

(Export, Import, Remittance and FDI: Recent Trends, Bangladesh Economic Update April 2014)

Internationalization of Bangladeshi companies

In Bangladesh there are is a large number of companies exporting their products to foreign
market and the buyers sell these at their outlets. We would like to develop Bangladeshi originated
companies to operate globally at least in more than one foreign country. Do we have any national
initiative to internationalize local companies or facilitate to go internal? Till now there is a
vacuum or lack of government attention towards this issue. A recent research identified a long
list of barriers / challenges of Bangladeshi companies to go international. These barriers include
the following:
1. Restrictions on investing abroad: There is a restriction on businesses to invest abroad. This
restriction is becoming lose but till ow it is a very complex procedure to send money from
Bangladesh into international investment.
2. Lack of information: Bangladeshi companies are till now having little information regarding
most demanding countries of their products. They have limited ability to identify appropriate
foreign location. They have limited understanding about duty facilities of different
international arrangement under or outside WTO negotiation. Bangladeshi companies are still
 lagging behind regarding achieving international quality certification to make their products
acceptable in foreign market. They are yet to calculate market price of their product around
the world. Where they could get change benefit or where they could make the investment
profitable with available tariff or non-tariff advantages.
3. Lack of competent manpower: Bangladeshi investors are yet to be qualified to contact
foreign joint venture investors, yet to deal with foreign trade procedures; they are not in a
position to dedicate manpower for foreign market. Shortage of trained manpower is a big
challenge for handling international expansion of Bangladeshi
companies.
4. Shortage of bank loan: We do not have any fiscal arrangement to finance working capital for
international market. We do not have arrangement to finance international investment as well.
We dont have ability to grant credit to foreign buyers.
5. Lack of product diversification facility: Bangladesh is yet to develop sectoral lab for
designing new products to promote diversification. At the same time we have limited ability
to meet buyers specification and achieve foreign quality standards.
6. Lack of competencies to promote abroad: We have limited skill to negotiate satisfactory price
with foreign buyers. Limited capacity to advertise our products in foreign market. We are yet
to develop channel of distribution abroad.
7. Difficulty in enforcing contracts: Bangladesh has hardly any arrangement to act as
intermediary to enforce contracted agreement abroad. Cumbersome and costly dispute
settlement procedure is discouraging our investors to go international.
8. Absence of government agencies to assist internationalization of local companies:
Bangladesh does not have any government institutions that could assist investors to go
international. Such a government organization could facilitate movement of people by
negotiating easy visa system, easy movement of goods.
9. Existence of preferential treatments granted to our competitor countries: Bangladesh is still
lagging behind to sign free trade agreement with friendly countries. On the other hand, our
competitor countries are enjoying free trade facilities in most of the potential investment
destinations of Bangladesh through bilateral or regional free trade arrangements.
10. Imposition of non-tariff measures to hinder Bangladeshi trade: Bangladesh is yet to identify
non-tariff measures undertaken by our potential investment destinations to hinder
Bangladeshi trade and investment. We have to identify the barriers and negotiate with
concerned authorities to make the environment friendly to Bangladeshi companies.
(http://www.theindependentbd.com/home/printnews/53678)

Internal Factors

1. Firm Size:
The Industry sector plays an important role in the socio-economic development of Bangladesh.
According to BBS estimates (base year: 2005-06), the contribution of the broad industry sector
to real GDP stood at 29 percent in FY 2012-13, which increased to 29.61 percent in FY 2013 -14.
Among the fifteen sectors of GDP, the broad industry sector includes four sectors namely mining
and quarrying; manufacturing; electricity nd gas and water supply; and construction. The
contribution of the manufacturing sector is the highest in GDP. In FY 2012 -13, the contribution
of manufacturing sector in GDP was 19 percent which reached to 19.45 percent in FY 2013 -14.
The volume and growth performance of the manufacturing sector from FY 2006-07 to FY 2013-
14 is shown in Table 8.1according to the base year 2005-06:
Table 1: Volume and Growth Rate of Manufacturing Sector

(https://globaljournals.org/GJMBR_Volume15/1-Small-and-Medium-Enterprise.pdf)

2. International Experience:
Bangladesh exports gathered pace since the early 1990s, as a direct outcome of trade
liberalization. The share of trade in GDP has been rising since 1990 when it was only at 19%.
Compared to the previous two decades, export performance was exemplary, averaging double
digit growth rates annually for nearly 25 years. In FY2014, total exports stood at US$30 billion,
which were five times exports of FY2000.
The notable feature in this evolving trading pattern is the emergence of readymade garment
exports and RMG industry as the leading sector of the economy. The fact that RMG exports
continue to grow at an average annual rate of 15% while non-RMG exports grow at a much
slower pace of barely 3-4% recently helps to increase the share of RMG leading to further
concentration of exports.

(Glo
b al

Journal of Management and Business Research: C, Finance, Volume 15, Issue 7, Version 1.0, Year 2015)

3. Products/ Services:

Agriculture
Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary
crops, maize and vegetables are assuming greater importance. Due to the expansion of irrigation
networks, some wheat producers have switched to cultivation of maize which is used mostly as
poultry feed. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally
ample water supply, rice can be grown and harvested three times a year in many areas. Due to a
number of factors, Bangladesh's labour-intensive agriculture has achieved steady increases in
food grain production despite the often unfavorable weather conditions. These include better
flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of
better distribution and rural credit networks. With 28.8 million metric tons produced in 2005-
2006 (JulyJune), rice is Bangladesh's principal crop. By comparison, wheat output in 2005-2006
was 9 million metric tons.

Manufacturing and industry

Many new jobs - mostly for women - have been created by the country's dynamic private ready-
made garment industry, which grew at double-digit rates through most of the 1990s. By the late
1990s, about 1.5 million people, mostly women, were employed in the garments sector as well as
Leather products specially Footwear (Shoe manufacturing unit). During 2001-2002, export
earnings from ready-made garments reached $3,125 million, representing 52% of Bangladesh's
total exports. Bangladesh has overtaken India in apparel exports in 2009, its exports stood at 2.66
billion US dollar, ahead of India's 2.27 billion US dollar and in 2014 the export rose to $3.12
billion every month.

Eastern Bengal was known for its fine muslin and silk fabric before the British period. The dyes,
yarn, and cloth were the envy of much of the pre-modern world. Bengali muslin, silk, and
brocade were worn by the aristocracy of Asia and Europe. The introduction of machine-made
textiles from England in the late eighteenth century spelled doom for the costly and time-
consuming hand loom process. Cotton growing died out in East Bengal, and the textile industry
became dependent on imported yarn. Those who had earned their living in the textile industry
were forced to rely more completely on farming. Only the smallest vestiges of a once-thriving
cottage industry survived.

Other industries which have shown very strong growth include the pharmaceutical industry,
shipbuilding industry, information technology, leather industry, and light engineering industry.

Apparel sector

Bangladesh's textile industry, which includes knitwear and ready-made garments (RMG) along
with specialised textile products, is the nation's number one export earner, accounting for $21.5
billion in 2013 80% of Bangladesh's total exports of $27 billion. Bangladesh is 2nd in world
textile exports, behind China, which exported $120.1 billion worth of textiles in 2009. The
industry employs nearly 3.5 million workers. Current exports have doubled since 2004. Wages in
Bangladesh's textile industry were the lowest in the world as of 2010. The country was
considered the most formidable rival to China where wages were rapidly rising and currency was
appreciating. As of 2012 wages remained low for the 3 million people employed in the industry,
but labour unrest was increasing despite vigorous government action to enforce labour peace.
Owners of textile firms and their political allies were a powerful political influence in
Bangladesh. The urban garment industry has created more than one million formal sector jobs for
women, contributing to the high female labor participation in Bangladesh.

Shipbuilding and ship breaking

Shipbuilding is a growing industry in Bangladesh with great potentials. The potentials of

shipbuilding in Bangladesh have made the country to be compared with countries like China,
Japan and South Korea. Referring to the growing amount of export deals secured by the
shipbuilding companies as well as the low cost labour available in the country, experts suggest
that Bangladesh could emerge as a major competitor in the global market of small to medium
ocean-going vessels.

Bangladesh also has the world's largest ship breaking industry which employs over 200,000
Bangladeshis and accounts for half of all the steel in Bangladesh. Chittagong Ship Breaking Yard
is world's second-largest ship breaking area.

Khulna Shipyard Limited (KSY) with over five decades of reputation has been leading the
Bangladesh Shipbuilding industry and had built a wide spectrum of ships for domestic and
international clients. KSY built ships for Bangladesh Navy, Bangladesh Army and Bangladesh
Coast Guard under the contract of ministry of defense.

Highest priority sectors will refer to those sectors which have special export potentials, but such
potentials could not be utilized properly due to certain constraints, and more success is
attainable if adequate support is rendered to them. The sectors are:

1) Agro-products and agro-processed products;

2) Plastic Products; 3) Footwear and leather products;

4) Pharmaceutical products;

5) Software and ICT products;

6) Home textile;

7) Ocean going Ship Building Industries;

8) Furniture Industries;

9) Terri Towel; and

10) Tourism Industries.

(https://en.wikipedia.org/wiki/Economy_of_Bangladesh#Macro-economic_trend)

External Factors:

1. Sociocultural distance between home country and host country:

Western European business culture

All six countries have the Euro as their common currency, they are all within the same time zone
(CET: 0) and the political and economic structures are relatively stable. The transport
infrastructure and public transportation schedules are well developed and maintained. The
educational systems are also compatible with a high level of educated work force. When it comes
to business etiquette, these countries tend to favour formal arrangements where documentation
and formalities are preferred over personal relationships in business. Punctuality in Western
European countries tends to be valued. (http://businessculture.org/western-europe/)

Differences in Western European business culture

However, even though these countries are located quite close to each other and have a number of
commonalities, it is also important to note that their business cultures have some differences. For
example, when addressing someone formally in a work setting, location should be born in mind
to avoid offence. In Austria, France, Germany and Luxembourg it is common to use the complete
title of a person together with his last name to address him or her. However, in Belgium and the
Netherlands this is not the case rather, the title is not necessary, only the name.

Most of the individuals in these countries could speak English as their business language as well
as German. However, in France, an effort to speak French is appreciated since it is considered to
be a major part of the national culture.

Another example of differences can be found in the use of social media networks for business
purposes. While LinkedIn is one of the primary professional social networks in Luxemburg and
the Netherlands, Germanys most used business network is called Xing and in France it is
Viadeo.

Corporate culture in US
In a country that prides it on its individualism, companies are organized and structured with
many different styles depending on the industry, the company's history and its current leaders. In
the United States, business relationships are formed between companies rather than between
people. Americans do business where they get the best deal and the best service. It is not
important to develop a personal relationship in order to establish a long and successful business
relationship. (http://www.ediplomat.com/np/cultural_etiquette/ce_us.htm)

Doing Business in the Middle East

Business in the Middle East runs on a very different track as compared to other regions
worldwide, especially the Western world. In the points below, there are some tips that will prove
helpful for international marketers while conducting business the Middle East.
a) Do not rush while greeting people
b) Building trust is important since personal and professional relationships are not
considered separate
c) Remember that verbal commitments are valued more than contracts and agreements
d) Have patience before and during business meetings
e) Negotiations will be tough and sales cycles will be long
f) Best way to communicate is face-to-face
g) Avoid business talk at social gatherings

(http://www.arabbusinessreview.com/en/article/seven-tips-doing-business-middle-east)

2. Country risk:
a) External threats that are unpredictable and uncontrollable: Regulatory (unanticipated
government intervention); Natural hazards (storms, floods, earthquakes, etc.); Accident,
vandalism or sabotage (e.g. tampering with medicines); Unanticipated environmental or
social impacts as a result of the venture; Failure to complete project because of failure in
infrastructure, design, financing (bankruptcy of one of the parties), or planning; Failure
because of political unrest; and Threats to health or public safety from contamination or
disease.
b) External threats that are predictable but uncontrollable: Market risks (availability of
inputs, cost fluctuations, competition, honouring of agreements); Operational (maintenance,
suitability, safety); Environmental or societal impacts of the companys activities; and
Currency fluctuations, inflation, changes to taxation.
c) Internal threats that are non-technical but generally controllable: Management
(insincerity, incapacity, inadequacy, loss of control, incompatibility of goals, staff changes,
inappropriate structure, poor policies, inadequate planning, unrealistic scheduling, no
coordination); Excessive reliance on one individual for a critical part of the project
(especially in smaller firms); Human error (e.g. confusing Imperial and metric systems of
measurement); Delays due to regulatory approvals, labour shortages, poor productivity, work
stoppages, material shortages, late deliveries, unforeseen conditions, accidents, sabotage,
start-up problems; Cost overruns due to delays, inappropriate procurement, pay negotiations,
poor management, contractor claims, under-estimates; Cash flow squeezes, interruptions or
insolvency; and Loss of profits or other benefits arising from other risks.
d) Legal threats that are generally controllable: A companys licenses and patent rights are
not respected: IP is copied by others because of inadequate legal protection; Contractual
difficulties due to misinterpretation, misunderstanding, inappropriate contracting strategy,
wrong contract type; Outsider or insider suits; Suits against competitive practices or
monopolies; and Force majeure.

(http://www.tradeready.ca/2012/fittskills-refresher/identifying-key-risks-to-market-entry/)

3. Market growth & Size

The US Market
The USA is the largest importer of the world with a total import bill of about $1.9 trillion in 2010
($1.5 trillion in 2009) or about 12 percent world imports. This is the amount that the rest of the
world exported to the USA, and hence, the export performance of these countries depends
crucially on the size of the US import bill. Figure 7 shows the value of US total import measured
on the left vertical axis and the value of US imports from Bangladesh only on the right vertical
axis. Total import of USA increased by 58 percent during the new millennium, but its import
from Bangladesh increased by 77 percent. Until before the recession, import of the USA from
Bangladesh moved in line with its total import. But during the recession US total import
nosedived, but its imports from Bangladesh remained almost unchanged. After the recession both
seem to have again moved in line. Hence, it would appear that the growth of the US import of
Bangladeshi products roughly follows the growth of the total import of the USA. Whatever be
the other determinants of export growth, it would seem that the total import bill of the USA has
an overriding influence on the total export of Bangladesh to the USA.

The EU Market
As indicated earlier, the European Union went into a recession during the fourth quarter of 2008
and reached the trough of the downturn in the first quarter of 2009 (see Figure 2). It moved out
of the recession in the first quarter of 2010. The recession dragged the total import volume of the
EU to the negative zone in the fourth quarter 2008 (Figure 4). However, on an annual basis, the
import bill of the EU maintained the trend growth till 2008 as shown in Figure 11. The negative
impact of the recession on import was no less severe than that in the USA. Monthly imports of
the EU started declining slowly from November 2008, but from January 2010 the reductions
became really large (year-on-year basis). Imports declined by 23.4 percent for the whole year
2009.
(Export Performance of Bangladesh Global Recession and After, M. A. Taslim M. S. Haque, Bangladesh
Foreign Trade Institute)

SWOT Analysis

The new environment represents a serious threat to Bangladesh. On the one hand, it isopening a
vast market with unlimited export potentials; on the other hand, it signals fiercecompetition from
textile giants like China, India and, from efficient producers likeThailand, Sri Lanka and
Vietnam. Competition may also come from Sub Saharan Africaand the Caribbean countries due
to preferential treatment from USA through TDA 2000.Different regional agreements like
NAFTA also appear to be unfavorable for the RMGsector of Bangladesh.Given the changed
scenario described above, the following sections focus on SWOT(strengths & weaknesses and
opportunities & threats) analysis of the RMG industry of Bangladesh.

a) Strength
One of the strengths behind the success of RMG of Bangladesh is the availability of low cost
labor compared to other countries in the region. The labor rates in textile industry(compiled by
Warner International) show that the average hourly wage rates for Bangladesh, India, Pakistan
and Sri Lanka were respectively US$ 0.23, $0.56, $0.49and $0.39 (Bhattacharya 1999a). Being
in the manufacturing of RMG for two decades, Bangladesh now possesses a large pool of skilled
& semiskilled manpower. Moreover, there are many unemployed young men and women who
can easily be converted into as killed workforce if needed. Given the fairly long learning curve in
this industry, extensive experience in dealing with foreign buyers, offshore bankers, shippers,
and Clearing and Forwarding (C&F) agents is a valuable asset for the exporters of Bangladesh.

b) Weaknesses
Dependence on others for raw materials, low productivity, limited knowledge in international
marketing information, poor infrastructure, political instability, disruptive trade unionism,
inefficiency in port management, and excessive dependence on RMG sub-sector are the major
weaknesses of the industry.
The industry is heavily dependent on others for outsourcing of raw materials such as clothing
and accessories. Bangladesh is currently importing raw materials (gray fabrics)for its RMG
factories from countries like India, China and Thailand under back-to-back L/Cs. In a quota free
environment, these countries will obviously try to export finished apparels to North American
markets rather than sell fabrics to countries like Bangladesh (Bhattacharya 1999b). With equal
access to the world market, these direct competitors will either stop selling materials to their
competitors like Bangladesh (a strategic move)or charge higher prices for their materials
(because of increased internal demand). In either case, Bangladesh will face difficulty in
procuring the required raw materials at reasonable prices. Another major shortcoming of the
apparel sector is the low productivity of its workers. The laborer productivity of Bangladesh is
much lower than that of Sri Lanka, South Korea and Hong Kong (Reza, Rashid and Rahman
1998). Low productivity might erode the advantage of low cost of labor of Bangladesh.
Exporters of Bangladesh also have limited access to current market intelligence and international
trade information because, so far, foreign buying houses have been dominating the marketing
part of the business. In a post MFA era, if these buying houses shift their bases to other countries,
Bangladeshi exporters may face serious problems in finding their ultimate buyers. At present
problems in port management is a serious challenge to RMG industry of Bangladesh. The
Chittagong Port is the most important entry and exit point for trade and commerce of the country.
Almost 90 percent of the exports and 75 percent of the imports of Bangladesh are accomplished
through the Chittagong Port. Therefore, it is considered as the countrys economic lifeline. The
Chittagong Port is one of the most inefficient and corrupt ports in the world.

c) Threat
The biggest threat will be the fierce competition from efficient producers like Hong Kong,
China, India, Thailand, and Sri Lanka, Vietnam and many SSA and Caribbean countries. Threats
might come not only from marketing but also from outsourcing. As mentioned earlier, more than
95 percent fabrics are imported from direct competitors. The potential danger after 2005 is that
these countries might either stop selling their raw materials to Bangladesh or increase the price
of their materials tremendously. Whatever may be the case, Bangladesh will lose some
competitive edge in the world market. Environmental issues, labor standard, Trade Related
Aspects of Intellectual Property Rights (TRIPs) etc. might also appear as a deadly threat to
developing countries like Bangladesh
Although developing countries are not being singled out for environmental issues, being poorer,
they cannot obviously maintain rigorous environmental standards. Moreover, the fact that their
competitive advantage often lies in natural resources and pollution-intensive industries implies
that they are vulnerable to being pressured to enforce stricter standards or face less market access
for their exports to developed countries. Other issue like child labor has already proved as a
sensitive issue in the western market. Compliance to the Rules of Origin4 (ROO) may threaten
the future market access and performance of RMG sector of Bangladesh. In the case of woven-
RMG, a two-stage, and in the case of knit-RMG, a three-stage transformation (cotton to yarn,
yarn to fabrics, and fabrics to RMG) process is required for imported yarn from India.
Bangladesh exporters also had to pay back exempted duties amounting to about US$60 million
to EU on the grounds of ROO violation and circumvention
Regionalism is another threat to the industry. The World Bank country study expresses its
concerns that Over the medium term it is also possible that NAFTA may lead to displacement of
East Asian RMG imports into the U.S. and Canada. To the extent these exports by the more
efficient East Asian producers are then diverted to the European Community, they may tend to
displace Bangladeshs RMG exports into Europe. In the US market another challenge will come
from Mexican apparel industry where it has zero tariff access because of NAFTA. Mexicos
share in US clothing imports increased by over 200% in the period 1993-98