High and Lows of Bangladesh Textile Industry - Essay Example

High and lows of Bangladesh textile industry This paper highlights the summaryof Bangladesh economy, both the positive and the negatives. It also covers on the measures to be put in place to curb the problems that bring economic recess. Summary Economically, Bangladesh has been ranked as one of the poorest countries in the whole world and has based its economy on the export of textile products. Through this trade, the country can generate income and provide employment to its citizens. The presence of a quota system enabled all the poor countries to reach better markets that consisted of European unions and United States (1). Bangladesh exports its finished garments at a low cost to retailers from the West that includes; Zara, the Gap and H&M. In 2005, free trade came into being and Bangladesh was forced to compete with other producers from other nations including Indonesia and China. The move to join was seen by many as a setback to the economy, but this was not the case. The textile export in Bangladesh continued to grow while, in 2008, the rest of the country suffered economic recess, but Bangladesh enjoyed an export rise. The textile industries rose to 5000 factories that provided employment to about 3 million people (2). The developed countries underwent economic recess in 2008-2009 and were forced to import low- cost garments from Bangladesh to meet the demand of their customers who wanted low prices. These companies included Walmart and as a result, a Hong Kong manufacturing company- Li & Fung enjoyed a 25 % rise in 2009 as compared to China whose sales dropped by 5%. The underlying factors that triggered an increase in the exports were based on the fact that labor costs were low due to the presence of hourly rates of wages. The wages were low in Bangladesh with the minimum of $ 38 a month as compared to China that went up to $138 a month. Other factors included; few regulations that are equivalent to no rules at all, a good network of supplies which saved on transport costs, import duties and time. Bangladesh also benefited from not being China as the importer had become too independent on their imports and wanted an alternative. This came as a result of an increase in costs if the problem was not addressed. All these factors favored Bangladesh, and it became the second largest to China garment exporter (2). Some of the main setbacks to economic development include power disruption, poor infrastructure since the government has underinvested as compared to China. Apart from these, Bangladesh underwent economic crisis after the collapse of the Rana Plaza building that hosted five garment factories. The collapse came as a result of not following construction procedures as the building could only hold five floors. The building also suffered poor grounding as it was constructed in a pond filled with sand rendering it unstable. The collapse claimed the lives of 1100 people and the government of Bangladesh had to compensate the families with $ 250 each. The western retailers called the Gap decided to come up with safety measures to help deal with the accidents caused by fire. The Gap invested $22 million as this came as a result of the fire that occurred and claimed the lives of 112 people. In support of this project, Walmart also invested $ 1.8 million to educate factory managers on fire safety (3). The collapse of Rana Plaza led to the merging of large retailers. They agreed to sign a legal pact to help bring safety. This safety pact was to run for five years where the signatories decided not to hire those who did not meet the safety standards. The board to govern them was to include three representatives from labor, three from retailers and the chairperson was to be chosen by the UN international labor organization (3). Not all the retailers agreed to the terms because some like J.C Peny, Sears, and the Gap did not sign the pact initially as they wanted an amendment to be done. Gap argued that the pact was not language inclusive and that this would affect them if disagreements arose. Walmart on the other had had the view of hiring an external auditor to inspect the 279 factories in Bangladesh and the results to be published publicly on the website by June 2013. Walmart also endorsed that every factory should take the responsibility for renovations and repairs in their factories. These costs were to be felt in an increase in the cost of goods that they purchased (5). Questions The shift of Bangladesh in the textile industry to a free trade regime was economically positive on the country (1). This is mainly explained by the fact that the country relied on textile industry for income generation, the source of employment and as a backbone to boost their economy. This shift was seen as if it would cause unemployment, loss of the country income balance, and have a negative effect on the growing economy. This negativity did not happen, but Bangladesh export continued to grow while the other developed countries faced the crises. As the retailers from Europe and the United States source textile from low-wage countries such as Bangladesh benefited more since it was not China as the Western countries had grown cautious from becoming dependent on imports from China. These western countries feared the disruption either economic or others; they also feared that the supply chain would be charged if no alternative supply was not found. The reasons behind this are that they sold them at higher prices (1). On the other hand, Bangladesh also benefits from these developed countries as it presents low labor costs supported by the presence of hourly rates of wages which were low. For example, in Bangladesh, the minimum is currently $ 38 wage rate a month while that of China goes high to up to $138 on the same monthly basis (2). The availability of few regulations in Bangladesh influencing the textile industries and lack of effective ones help to keep the cost of production down which eventually boosts the profit gained. All these advantages make Bangladesh the second to China in industrial garment produce. The cause of weak safety records in Bangladesh arises as a result of ineffective regulations and lack of sanctions for the offenders that is those who bend the rules goes unpunished. A good example is portrayed by Sohel Rana, who was the owner of Rana Plaza. Western companies that imported garments from Bangladesh did not bear the costs or any responsibilities incurred by these losses hence the government had to carry the full burden on its own. After the collapse of Rana Plaza, the main retailers of Bangladesh who consisted of H&M, Zara chain, Benetton Spencer and Tesco agreed to sign a legal agreement that would lead to the improvement of safety conditions for the garment factories employees (4). According to my point of view, this move would positively help to curb accident to a greater extent and increase the output of the employees and work with more ease. The difference would not go any far if the government of Bangladesh did not come up with laid down rules and regulations that carry sanctions to the offenders. Not all the companies involved would agree to contribute $ 2.5 million for the five-year term. The United States retailer Walmart did not sign the agreement. Instead, Walmart advised on hiring an outside auditor who would help in the inspection of the existing 279 factories in Bangladesh and eventually publish the results on a public website by June 2013 (5). Walmart also stated that every company was to pay for any necessary renovations or risk being removed from the group (5). According to my point of view, Walmart Company has done enough to address the problems affecting Bangladesh economic growth. However, to address these problems fully, all the parties involved should take their responsibilities if the result is to be achieved. In conclusion, the establishment of free trade in Bangladesh helped the economic growth greatly by the opening market for the textile industries. Read More