PEST Analysis of the RMG industries in Bangladesh

PEST Analysis of the RMG industries in Bangladesh

Introduction:
The readymade garment sector plays a very significant role in the national growth and socio-economic development of Bangladesh. It’s the world’s second biggest apparel exporter after China. The amount is 80% of total exports of the country. The EU is the largest market for garments from Bangladesh, accounting for 60% of exports. It has attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP(it has reached 13% of GDP which was only 3% in 1991) within assort span of time. It also plays a pivotal role to promote the development of other key sectors of the economy like banking, insurance, shipping, hotel, tourism, road transportation, railway container services, etc. One of the key advantages of the RMG industry is its cheap labor force, which provides a competitive edge over its competitors. In addition the sector has created employment opportunities for about 4.0 million people of which 80 percent are women who mostly come from rural areas. Thus the industry helps in the country’s social development, women empowerment and poverty alleviation. What is PEST Analysis?

The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business. A PEST analysis is a business measurement tool. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organizational unit.

a. Political:

In spite of having favorable business environment for RMG sector with having low labor cost ,duty-free export facilities to 27 European Union countries and 10 developed countries, this sector is facing negative impact in business operations due to unstable political state .Among various features of our political situation, most noticeable and important conditions may be identified as follows:

Absence of democratic political culture

Absence of the rule of laws

Absence of strong civil society

Absence of strong political leadership

Confrontational politics

Corruption and terrorism

Moreover, owing to some industrial accidents and deserters in recent years like April 2005 – 64 garment workers killed in building collapse in Savar ,more than 400 garment workers killed in at least 213 factory fires between 2006 and 2009, according to Bangladesh fire department November 2012 – at least 117 workers killed in fire at Tazreen Fashions in Ashulia, and the most recent ,the eight-storey Rana Plaza building came crashing down on 24 April demonstrating the ugly politics of Bangladesh, The US duty-free trade privileges order suspends Bangladesh’s under the terms of a trade program called the Generalized System of Preferences (GSP), designed to promote economic growth in developing countries suspecting Bangladesh was not taking steps to afford internationally recognized rights to its workers. While the foreign ministry in Dhaka described the move as harsh, saying the government had taken clear measures to improve safety at clothing factories.

b. Economic:

The recent economical trend of Bangladesh is rather satisfying . In 2007-08 while US was facing turnover in economic growth, subsequently in 2010-11 quite a few countries of Europe were in the same state, Bangladesh was having comparatively steady and stable situation. According to BBS ( Bangladesh Bureau of Statistics) In 2010-11 the rate of economic growth was 6.7% , in 2011-12 was 6.3% and in 2012-13 it will be 6.03%. The recent digester of Rana Plaza boosted the garment worker’s anger and frustration and creating negative impact on Garment Industry. China is also stepping back From RMG sector. Meanwhile, India is been in the process of capturing the market. China and Bangladesh is the biggest competitor in the clothing business for India. Regarding to overcome this challenge India is taking initiatives and long term planning. For example: According to India’s apparel export promotion council 12 apparel parks are planned to establish by the Government of India. 4 of them are almost completed. They are planning to earn over 6 billion USD within the year 2017. Also learn which political factors affecting hotel industry

c. Social:

Society and culture is an important factor that must be given emphasis by any business, specifically those who are operating in the global arena. It is important that any industry must operate in compliance with the social systems in order to gain good reputation and effective public image. On the other hand, cultural aspects is equally essential, in order to understand the various needs of different individuals that belongs to different cultures.

– Population growth rate

– Age distribution

– Career attitudes

– Consumer behavior

– Religion and culture itself.

Although Consumer Rights Movement, enforcement of government regulations and a structured view regarding the economic importance of Social responsibility are not yet so widespread in the corporate world in Bangladesh. , business organizations can thereby have an inclusive financial, commercial and social approach, leading to a long term strategy minimizing risks linked to uncertainty. This is an investment, not a cost, much like quality management.

d. Technological:

The manufacturing technology of garment production has been changing from labor-intensive to more sophisticated and capital-intensive production. This change creates dissatisfaction for the lower skilled workers because of their inability to adapt to the new manufacturing process. Work dissatisfaction reduces the performance of workers and, in turn, company performance is negatively affected. On the other hand, the positive relationships to technological change include improvement of task significance, salary increase, improvement of the quality of supervision, improved co-workers relations and increase benefits, in addition, if skilled technicians are available to instruct, prearranged garment is an option because labor and energy cost are inexpensive here. Concluding remarks and recommendations:

After the PEST analysis of the Readymade Garments industry of Bangladesh, we must confess that the Competitive strategic factor for Bangladesh, the human capital or cheap labor, is itself the competitive advantage of the RMG industry. So, the labor cost and human resource is the main part of formulating the business and competitive analysis RMG industry of Bangladesh. In recommendation, we must say that some effective initiative should be implemented as follows:

fair pay
rewards for work
attention to the subordinates’ feelings
work redesign
communicating company goals to workers
sharing information, increasing benefits
increasing promotions
providing more skill training to women garment workers
Bank Interest Rates should be lower.
The success of the export-oriented clothing industry can be attributed to four key factors: (a) quality,
(b) price,
c) lead-time and
(d) reliability.

References:
1. by Badrul Alam published in Bonik Barta.

2. An exclusive interview of AB Mirza Azizul Islam, Former finance adviser to the last caretaker government by S.M Musa published in Bonik Barta.

3. http://www.bbc.co.uk/news/world-asia-23094082

4. www.academia.edu

5. www.thefinancialexpress-bd