Chapter One

1) INTRODUCTION
This Chapter covers the followings: 1.1) Origin of the Report 1.2) Objectives of the Report General Objective Project objective 1.3) Scope of the Report 1.4) Methodology Data Collection Primary Sources Secondary Sources 1.5) Limitations

1) Introduction
With the advent of the 21st century, globalization and consolidation, amongst the multinational and foreign companies are making their impact in the third world economy including that of Bangladesh. To address this ever increasing competition, Bangladeshi financial institutions and other companies and firms gearing themselves in order to meet challenges both locally as well as internationally. Due to globalization and expansion of international business, finance plays the major roles for the economic development. The development of a modern economy would not have been possible without the use of money. A fundamental characteristic of money is that it is like a collective commodity. At the very arena of globalization and technological innovation, Garments sector has become more competitive. To cope up with this, employees and executives should have huge theoretical knowledge and professional skill as well as technical basis. As a BBA student, I felt that Garments sector is an excellent area to gather some practical knowledge. With a view to develop skilled professional, Stamford University has undertaken the internship-training program for its BBA students. As a partial and essential requirement of the BBA degree, on authoritys instruction I have selected the South end sweater company limited, one of the prominent and 100% export oriented garments in Bangladesh to acquire some practical experience in this sector, especially in the correspondent program. It would not be out of place to mention here that during the course of the program I had to perform several duties. Before going to the main report I would like to mention that it was not possible for me to cover the entire activity of the 1.5 years old organization in the given limited time.

1.1) Origin of the Report

This report is an internship report prepared as a requirement for the completion of the BBA program. The primary goal of the internship was to provide an on the job exposure to the student and an opportunity for translation of academic conceptions in real life situation. We, the students, were placed in enterprises, organizations, research institutions as well as development projects. In this connection, after the completions of the BBA program, I was assigned to the South End Sweater company Limited at dhour, Asutia for practical orientation.. I chose the topic An overview of readymade garments industry. A case study of South End Sweater Company Limited. for my internship report under the supervision of Md. Shajul Islam, Lecturer (Accounting), Department of Business Administration, Stamford University Bangladesh.

1.2) Objectives of the Report

General Objective: The general objective of the report is to present a general overview of the Ready made garments industry in Context of as a private Limited company as well as its strategy in the marketing arena. Project objective: Objectives regarding this study are as follows: To fulfill academic requirement. To gain practical knowledge in the Garments sector. To collect an overview of the garments industry in our country. To Credit approval process and credit risk management.
To identify major strengths and weaknesses of the South End Sweater company

Limited in respect to other Sweater Companies.

 To assess and evaluate the growth trends in garments products among other

garments factories.

1.3) Scope of the Report

The report is An overview of readymade garments industry. A case of South End Sweater Company limited. This report especially emphasizes on the overview and operation of garments industry, audit procedures of the company, systems and the links to the system.

1.4) Methodology
To make the report more meaningful and presentable, two sources of data and information were used widely. Both primary and secondary data sources were used to prepare this report. The nature of this report is descriptive with some survey or using sampling method, observation method us used to complete this quantitative research. Most of the necessary information has been collected by face-to-face interviews and questionnaire responses of the clients, officers working in different departments, circulars sent by the Head Office and maintaining daily diary, which contains all the activities observed in the factory premises. My questionnaire was mainly focused on what is the companys procedure to work? How the garments sectors performance in Bangladesh till now? What is the companys Accounting and Audit maintenance are done? Who did this and how the audit firms done there audit as well how the company prepares itself for the Audit? 10 samples were taken for the questionnaire, sampling areas were the factory premises and the head office premises and. The questionnaire was designed in a way to get the insight of the authority and its audit maintenance procedure. To rate the products positioning and the changes in the customers wants.

Data Collection: Both the primary and secondary forms of data are used to make the report more rich and informative. The details of these sources are gives below: Primary Sources: Most of the information was acquired by discussing with the officers working in the fact especially Mr. Abdullah al Faruk Sumon (HR and Compliance Manager), Mr. Mahbubur Rahman (Admin Officer), and Mr. Jasim Uddin (Executive Director) Informal conversation with the Auditors and consultative firm. Interview, observation and work experience with different workers and suggestions of many executives of the Factory. Statistical tool like open ended questionnaire were used to analyze the data collected from various sources. Various journals and reports on readymade garments industry in Bangladesh. Secondary Sources: Reports and research papers related to Ready made garments industry. Previous Audit Report of the company Various books, articles, and compliance related codes conducts etc. Instruction circular of Head Office, Audit findings of the consultative firms, newspapers and magazines regarding compliance issues, seminar papers etc. Searching from the internet.

1.5) Limitations
There were certain limitations while conducting the study. These are summarized below: The main obstacle while preparing this report was time. As the tenure of the internship program was very short, it was not possible to highlight everything deeply. Sufficient records, publications were not available as per my requirement. Work pressure in the office was another limitation restricting this report from being more detailed or analytical. The Compliance Managers, Directors, and other members of 5

the concerned department were awfully busy with meeting their targets. So it was rather difficult for me to have long discussions with them and obtain some practical ideas about their expectations and opportunities regarding my topic. Many of the analysis on the obtained data are based upon my sole interpretation. Confidentiality of information was another barrier that hindered the study. Every organization has its own secrecy that is not revealed to someone outside the organization. While collecting data at South End Sweater Company Limited, personnel did not disclose enough information for the sake of confidentiality rule of the organization.

Chapter Two
2) An Overview of Southend Sweater Company Limited
This Chapter covers the followings 2.1) General Information for Southend Sweater Company limited Nature of business Authorized capital Paid up Capital Bank detail Vision Mission Strategies of the company Pricing strategies of the company Objectives 2.2) Organization Structure 2.3) Profile of South End Sweater Company limited 2.4) Innovative Merchandising of the company 2.5) The Financial Situation of South End sweater Company Limited

2) An Overview of South End Sweater Company Limited 2.1 General Information for South End Sweater Company Limited
Sweater manufacturing industries are flourishing and playing a pivotal role in the Economy of Bangladesh, South End Sweater Ltd. has added a radiant chapter of quality and competitiveness to the readymade garment scenario through establishing this factory. The Factory started its work from July 2009 and before this it was named as Valentine Sweater Company. Team limited Bangladesh purchase the ready factory and started its work named as South End Sweater Company Limited. The Factory is situated in Asutia, Turag, Dhaka, 10 kilometers near Shahjalal International Airport.

Nature of business
South End Sweater Company Limited is a 100% export oriented company and it is a manufacturing company also works as whole seller, distributor and etc offers its products to the foreign buyers and produces as the needs of the customers. The productions are done on the basis of the orders of the buyers. Team Sourcing company Limited is the Buying house of Team Limited Company and it receives the orders of the buyers through the Merchandisers and the orders are fulfilled by the Factory.

Authorized capital
The authorized capital of Southend Sweater Company Limited was BDT. 70 million

Paid up Capital

The paid up capital of the Company is 42.86%

Bank detail
Sonali Bank Limited, Local office Motijheel C/A, Dhaka- 1000 Bangladesh Swift: BSNDDHALOD

Vision
Work for the country by the employment of poor people South end sweater Company limited dreams to become the market leader and a role model for the garments industry. They want to be a reliable and trustworthy organization for the foreign buyers and customers. They want to build such an image that whenever people will think of a industry, they will think of South end sweater company limited.. South End Sweater Company limited has started creating a cadre of young professionals (YP) in garments sector. This has helped to create new ways for young people to join in garments industry as merchandisers and strong professionals. All officers are now target driven and more focused on satisfying the customers and to attract foreign buyers to increase revenue of the country.

Mission
Our endeavor will continue to ensure quality and optimum standard in every activity whatever we involve with. South End sweater Company Limited aims to become one of the leading industries in Bangladesh by prudence, elegance and quality of operations in their garments sector. The company has some mission to achieve the organizational goals. To develop and to promote the readymade apparel sector. T o meet customer need through manufacturing and supplying quality products. To set high standards of integrity To reach in 5 billion dollar market share position. To ensure maximization of Shareholders' wealth To create more job opportunities and ensure good work place environment. Ensuring human resource development to meet the challenges of the time. Providing health and safety to the workers.

Strategies of the company

The company has the following strategies to boost export: Simplification of export procedure and work meeting the requirements of the government. Rationalization of the value of Taka to make the export trade more attractive; Creation of an Export Promotion Fund (EPF) for strengthening the export activities;

10

 Helping the national economy through utilization of locally available raw materials and establishment of backward linkage industries Participation in international trade fairs, single country exhibitions and specialized fairs and sending business delegations abroad for expansion and consolidation of existing markets and creation of new markets; Accelerating expansion of improved traditional and semi-intensive methods of for enhancing export off. Taking measures to improve quality, increase production and expand market of exportable products; Expediting steps for export of labor intensive electronic and engineering products keeping in view the market requirements in the EU, USA and other developed countries; Organizing commodity-wise trade fairs of international standard in the country; Cooperating the Government for developing and expanding infrastructural facilities for export trade; and Creating product-development councils for important products.

Pricing Strategies of the company

Value Chain Analysis

Fabrics

----------------------------------------------------- 45--60%

Cutting and stitching charges ---------------------------- 1016%

11

Fittings and accessories ----------------------------------- 69% Finishing and packing ------------------------------------- 57% For Example, if a product which is sold at RS. 100(whole sale price) the value would be

Cloth Linking PQC Finishing and packing Total

50.00 16.00 8.00 6.00 80.00

Pricing strategy

Cloth Linking Cloth Total, 80, 50% , 50, 31% PQC Finishing and packing Linking, 16, 10% PQC , 8, 5% Finishing and packing , 6, 4% Total

12

The cost of production of one sweater is RS.80.00 and selling price is RS.100.00. The gross profit is 25% on production. Net profit is much lower after adjusting the expenses for establishment, electricity, transportation and depreciation.

Objectives of the company

1. To set up export oriented sweater industry, manufacturing sweater for men, women and children of various kinds, sizes and designs made of woolen, cotton, nylon, polyester silk and other fibrous materials and also to buy, sell import and otherwise deal in cotton yarn, agricultural silk, artificial silk, nylon or other fibrous materials and also the products and by-products made thereof. 2. To establish and run a sweater industry for the manufacturer of sweater including all kinds of casual and fashion wear for ladies and gents made of knitted fabrics, cotton textile, synthetic and non synthetic materials and to deal in the same, either of own or in collaboration with parties at home or from abroad. 3. To set up a knit and readymade garments factory with embroidery machine, manufacturing wears and children wears of various kinds, sizes and designs made of cotton 4. to carry on business of Buying house, export, import and indenting, clearing forwarding agents, wholesalers ,distributors and retailers of all kinds or other business as admissible under the act of import and export of the country, specially readymade garments, jute and jute goods, tea, handy crafts, leather, leather goods and other items and other local traders and supply.

13

5. To acquire, construct and maintain factories, ware houses, bonded ware houses, establish buildings, bungalow and other construction for all or any of the purposes of real estate business. 6. to carry on the business of indentors , importers, exporters and commission agents of any other company or organization, whether of foreign or local origin, heather as manufacturers or supplier agents, representatives, executers and assigns. 7. To enter into the business to start a new work system of the cellular telephone, Computer, printers, Computer software, data entry and business of data processing with joint collaboration or self endeavor. 8. to carry on the business of Manufacturing, Knitting, spinning weaving, finishing, dying and printing of all varieties of textiles, fabrics, terry, towels, socks and allied products. 9. To sell, improve, manage, develop, exchange, lease, mortgage, enfranchise, dispose or turn into account or otherwise deal with all or any part of the companys properties and rights of the company.

Organization Structure:

14

A) CHAIRMAN

B) CHIEF EXECUTIVE OFFICER

C) BOARD OF DIRECTORS

D) GENERAL MANAGER

E) MANAGER

15

COMPANY PROFILE OF South End Sweater Co Ltd

16

Sweater manufacturing industries are flourishing and playing a pivotal role in the economy of Bangladesh, South End Sweater Co Ltd. has added a radiant chapter of quality and competitiveness to the readymade sweater scenario through establishing this factory.

Factory Locations situated

: South End Sweater Ltd. is near Uttara,

Dhaka, Bangladesh, approximately 10 kilometers from the ZIA International Airport.

Factory contact details

i) Abdullah Hil Nakib, Chairman Phone: 880-2-8923220, 8923953, 8923034 Email: nakib@team.com.bd ii) Mozaffor Uddin Ahmed , CEO Phone: 880-2-8923220, 8923953, 8923034 E-mail: mozzafor@team.com.bd iii) Jakir Ahmed Khan Shilu, Director Phone: 880-2-8923220, 8923953, 8923034 Email: shilu @sothendsweater.com

Head Office : -1230.

ABC Heritage(5th Floor), Plot # 2&4, 3, Uttara C/A, Dhaka

Jashimuddin Avenue, Sector #

17

Tel: 88-02-8957810, 8914276, Fax: 88-02-8923255. Year of Establish Production Capacity : : July 2009 Total production capacity is 1, 20,000 PCs or Dzn.

On an average per month depending on the styling.

Productivity gauge wise

3 gauge 5 gauge 7 gauge

: 2, 64,000 : 2, 34,000 : 3, 28,000

PCs per year (approximately) per year (approximately) PCs per year (approximately) PCs per year (approximately)

12 gauge : 6, 24,000 Total Work Force : Men 1230

+ Women 750 = Total 1980

:: Our Major Clients::

Defacto Sprider New Yorker Kik Michel Brandon KAPPA TAKKO

jhmbkjkjhbkj

Carry Colins Colizion DDP BJD U.S.POLO Wool Worth TEXMAN

:: Backward Linkage & Production Control:

18

Floor facilities

surrounding glassed windows, sufficient air ventilation,

Conference & Showroom, Inspection facilities in floor, alternate emergency stair provision, full time free medical & first aid for operators, sufficient hygienic toilets, modern fire detection, alarm & rescue system, baby zone for kids of female operators, workers dining hall, all together planned set up provides an excellent working environment. Child labor strictly prohibited in all the departments of our factories, fully in compliance with existing labor law of Bangladesh.

Yarn Facilities

: We have own 1 yarn dyeing factory. Own capacity of all

kinds of Acrylic & cotton based of 2, 00,000 lbs to provide smooth support to manufacturing the Sweaters.

Washing Facilities

: We have washing plant with good sample wash section. All

times we get the support for Piece dyeing, Acid wash, Stone wash, Enzyme wash etc.

Packing Facilities

: We have Poly & Carton factory. All times we get the support

to pack the sweater smoothly

:: Factory Machinery Details::

Total quantity of Winding Machine (08 Spindles) Total quantity of Knitting Machine

: 15 sets : 1060 Sets

19

Knitting Machine Gauge wise: 3GG 5GG 7GG 12GG Total 120 120 170 650 1060

Total quantity of Dial Linking Machine Quantity of Sewing Machine: Total Plain Sewing Total Over lock Total Button Hole Total Button Stitch Total Bar tuck Snap button attaching machines Flat Lock Quantity of Finishing Machine: Total Washer Total Hydro extractor Total Steam Irons Total Steam & Gas Dryers Total Gas Boilers Quantity of Other Knitting Equipments: Auto Placket Machine

: 480/ sets

: 25 sets : 10 sets : 02 sets : 02 sets : 02 sets : 01 Sets : 02 sets

: 05 sets : 05 sets : 55 sets : 06 sets : 02 sets

: 04sets

20

PRODUCTION FLOW CHART Yarn in store Winding . .. Knitting . .. Linking .. Over Lock Bat Tack Trimming . Mending Appearance Checking .. Wash PQC . Style Checking .. Iron Measurement check Sewing FQC Packing Check Final packing Final Audit Pre - Final Audit Quality Checking Light Check

Lab dip checking Appearance Checking Inspection Inspection

Sample Checking Sample Checking

21

:: South End Inspection Services: Merchandising Team: Organizing new developments, order confirmations, price quotations, and daily update of production status, bulk yarn & trims sourcing is controlled by the efficient merchandising team of South End Sweater Co Ltd. Sampling team: Consists of a team of high quality 25 sample men, which is controlled & organized by Efficient designers . In-house Quality Control: Factory has its own Quality Assurance Team for every single order. For the satisfaction & Assurance of quality, garments several Inspections are conducted (ILC, IPC, MPC & FRI) by The Q.A team of our factory as per desired AQL. Sourcing Collections of Sweaters: We are professionally good in sourcing sweaters for winter season in various types of styles in different types of yarns like Acrylic, Shetland wool, Marino wool, lambs wool & blended fancy yarn (both local & imported yarn) & for the summer in Cotton, Cotton like & various mixed yarns. Our departments have different collections from our shipments to European & US market. Fabric/Yarn Quality Testing: Quality soft line products require quality piece goods. Even the most outstanding manufacturing methods cannot compensate for defective material. Our goal is to create an aggressive piece goods quality control program and eliminate many quality problems before the manufacturing process begins. Yarn quality inspection should start the day the yarn is in house. In Line Check (ILC):

22

In Line Inspections starts the moment the production starts. It includes checks in different stages of production i.e. knitting, linking, trimming, mending, finishing & packing for sweaters.

Initial Production Checks (IPC): The IPC is conducted as soon as the manufacturer has started production and has 50 - 100 pieces completed and ready for packing. The purpose of the IPC is to determine if the initial batch of products produced by the manufacturer complies with the clients specifications. If at this stage, any deviation beyond established tolerance is noticed, timely corrections are made, before bulk production begins. A written inspection report is prepared, confirming observations and a copy is given to the manufacturer. If required a copy can also be sent to the customer. Mid Production Checks (MPC): The MPC is conducted a few days after the IPC, particularly when decencies have been found during IPC depending on the shipment date. For large orders MPC are performed. The MPC is conducted to ensure that any variation / discrepancies previously reported are being corrected during further production and that a satisfactory quality standard is being achieved. Final Random Inspection (FRI): This is the final inspection and is done when goods are ready for shipment. This inspection is conducted by at least two quality control officers, one of who has not been associated with the order before this inspection. This ensures an unbiased report.

QUALITY ASSURANCE

23

Our focus is on quality rather than quantity. We are committed to produce at the highest level and never compromised quantity. we ensure strict quality control measures where each products has to go through a series of thorough scrutiny.

PROCESS OF QUALITY CONTROL

.. Pre production Inspection .. .. .. ..

Raw Material Inspection Machine Inspection Production Status Style and Facial Feature Checking Material Checking Workmanship Examination Function Test Measurement Inspection Packing Inspection General Appearance Sampling Procedure Packing Inspection Style and Facial Feature Checking

In Line Inspection

Final Inspection ( Audit)

24

Materials Checking Color Checking Weight Checking Measurement Checking Workmanship Examination

Our products Our strength in all categories of flat knit department- mans, ladies, boys, girls, toddler, baby from basic to stylish

25

SA 8000 We follow SA 8000 as a benchmark for all the compliance standard. so, as a follower, our responsibility is to make sure all the production place whereby we get our goods produced do maintains all the ethical trade standards.

Innovative Merchandising of the Company

In retail commerce, visual display merchandising means maximizing merchandise sales using product design, selection, packaging, pricing, and display that stimulates consumers to spend more. This includes disciplines in pricing and discounting, physical presentation of products and displays, and the decisions about which products should be presented to which customers at what time. This annual cycle of merchandising differs between countries and even within them, particularly relating to cultural customs like holidays, and seasesanal issues like climate and local sporting and recreation.

Trading industry In Eastern Europe, particularly in Russia, the term merchandising is commonly used within the trading industry and denotes all marketing and sales stimulation

26

activities around POS (point of sale): design, creation, promotion, care and training of the sales staff. Basically a merchandiser is someone who is continuously involved in business promotion by buying and selling of goods.

Licensing In marketing, one of the definitions of merchandising is the practice in which the brand or image from one product or service is used to sell another. Trademarked brand names, logos, or character images are licensed to manufacturers of products such as toys or clothing, which then make items in or emblazoned with the image of the license, hoping they'll sell better than the same item with no such image. For the owners of the intellectual property in question, merchandising is a very popular source of revenue, due to the low cost of letting a third party manufacture the merchandise, while the IP owners simply sit back and collect the merchandising fees. Students in fashion merchandising learn how to manufacture, buy, promote, and sell fashion items, from clothing and jewelry to cosmetics and furniture. They also learn about textiles (fabrics and the fibers used to make them). A merchandiser of ready made garments needs to know-

Learn about fabrics and textiles Study the history of fashion Examine different cultures Master accounting skills Keep tabs on the fashion world

27

Seek out the latest trends

Merchandising has come a long way in the past decade - from wood and metal frames, to acrylics, plastics and Gatorfoam. However, what does the future hold for merchandising? My guess is that it will be in digital content, displays, streaming media, and interactive kiosks. By bridging these devices with the other consumer communication channels, like TV, web, and telephones, manufacturers, retailers, and marketing companies will achieve greater impact than ever before. The danger is overwhelming consumers with too much information and noise. Personally, I think that the tools that are available today still have a lot of life left in them - they just need to be leveraged properly.

Merchandising

What is merchandising? It's as simple as taking the product (or merchandise) from a company, and selling it to the customer. To make sure that the merchandise actually sells, companies take great pains to make sure their products are visible in stores and presented in an appealing fashion. Merchandising Specialist This person actually represents the company in retail stores. By seeing the store layout, they make sure the product is located in an obvious and visible location, also known as product placement. The merchandising specialist also insures that the product is presented in an appealing way. This person must have strong sales and negotiating skills, as well as initiative and an eye for proper placement.

28

Merchandiser The merchandiser coordinates with the design team to effectively present the product or product line. He or she develops colors and specifications, and performs market research to determine the most effective ways to sell and promote the product. This person needs strong communication and negotiation skills and visual and analytical abilities. He or she also needs to be a creative and innovative thinker.

Benefits of Merchandising Management and Targeted Merchandising

Targeted Marketing

Retail merchandising systems improve customer experiences, strengthen customer relationships, and raise customer awareness of available products and services. They substantially impact the sales success of any organization. Retail marketing executives face challenging opportunities due to complex customer demographics and diversified products and services. Right now, a most desirable strategy is merchandising each sale location independently, based on the customer demographics in the surrounding community. With a database, this is an efficient, manageable, and cost-effective option for many retail organizations. The result is an increase in relationship sales success.

Accountable Campaign Success

Increasing the speed of campaign launches and executions maximizes the amount of time your customers are exposed to your messages and promotions. Keeping the sales locations

29

synchronized also provides a more consistent customer experience. Each sales location reports back to management that they have executed their directives, allowing your management team to evaluate the performance of marketing campaigns in real-time. Campaign accountability also results in improved data integrity and the ability to correlate marketing strategies with sales results. Data analysis creates valuable business intelligence for future reference.

Product Development

Long before you buy a garment in the store, it's already been through a process that runs from the drawing board to the board room to the factory floor. In fact, the garment may have been dreamed up as long as a year ago. People who work in product development decide which styles and colors to pursue, even before they may be in fashion. Let's look at some of the most typical jobs.

Trend Analysis

What will everyone are wearing next year? Styles, colors and patterns are determined months in advance by the trend analyzer. This person researches the latest textile trends, and determines the overall look of garments that will be produced by a company during a season. A trend analyzer needs excellent fashion sense and a good deal of experience, most often as a designer.

Product Development Manager

30

This person takes garments from the drawing board to the consumer. The product development manager oversees the entire process, and manages the other people involved in product development. He or she is in charge of a company's product lines, and meets the needs of retailers. A product development manager must have a great deal of experience, know every aspect of the development process, and have strong leadership abilities.

Technical Designer The technical designer translates the vision of the designer into reality. It is their job to make sure a particular garment can actually be manufactured efficiently and within budget. Also he /she have to ensure the final product should be usable. A technical designer helps develop the prototype that subsequent garments are based upon. They must have creativity, excellent color and fashion sense, strong communication skills, and be knowledgeable about computers.

Pattern Maker A pattern maker works closely with the designer to create master patterns for the desired design. In effect, a pattern maker must translate the designer's sketch into the real world. Pattern makers must have good visualization skills, and be familiar with fabric and body construction. Experience is usually gained as an assistant to a pattern maker.

Cost Analyst The cost analyst determines how much it will cost to produce a given item. They must factor in several variables, including the price of material and how much the item will cost to produce. Cost analysts must be good at mathematics. The job often involves travel. Depending on the company, cost analysts may be actual engineers, or the duties may be performed by another employee, such as the designer.

31

Designers Designers create ideas for new styles of clothing, fabric or accessories. Designers work at every level of the industry, from the top fashion firms to volume companies. As you'll see, there are also different types of designers.

Fashion Designer

A designer uses the latest trends and styles to create a company's garments for the next season. He or she does this by drawing a large variety of sketches for a given type of clothing, which are then winnowed down to the best few choices. Designers must have strong artistic abilities with a good sense of color and an excellent knowledge of pattern making. This position requires experience, usually as an assistant designer.

Textile Designer

32

Textile designers help guide fashion even before a single item is produced. It's their patterns that show up on garments, draperies and home furnishings. Textile designers develop the patterns, weaves, and colorations that appear on fabrics. They must be creative, and have a strong knowledge of textiles and fabric construction, and a good sense of color. Textile designers must also have strong computer skills.

Graphics Designer Not all designers create garments or fabric. Graphics designers create the look and feel that accompanies a product, including designs for brands, logos, packaging, and labels. A graphic designer should have idea on the chemical which will be used on the garment. And their work is seen in print ads and television commercials. Graphics designers must have strong artistic abilities, creativity, computer skills, and marketing sense.

Marketing Ever wonder why you know so much about certain companies or products? It's most likely the result of effective marketing. Just like cola or cars, the sewn goods industry markets its products to consumers around the world.

Sales Rep

This person is responsible for marketing a product or company directly to customers. Whether meeting with individual consumers or representatives of large stores, the sales rep must effectively present his or her product, and (hopefully) persuade the customer to buy it.

33

The sales rep must have complete knowledge of the product or services he or she is presenting, and must communicate well with others, gaining their trust and respect.

Direct Marketer

The direct marketer uses specialized methods to inform and persuade consumers. They may be responsible for mailings of catalogs or special offers, or may utilize new technology, such as e-commerce and Web sites. By researching their market niche and knowing their products, direct marketers can reach much larger audiences than traditional sales reps. they must have a strong background in marketing and new technology, as well as excellent people skills. Brand Manager

This person is the shepherd for a particular product or line, and is responsible for its performance. Obviously, the brand manager must have an expert grasp of what that product or line is about. He or she must also know how to perform trend and market analysis, and how to use consumer and product research to effectively measure results. Brand managers must be creative and need to have exceptional organizational and leadership skills.

Customer Service Rep

34

This person is, quite literally, a company's first line of defense when things go wrong, providing customer support. The customer service rep solves problems, resolves concerns, and must always maintain a positive image of his or her company. They must have a tolerance for stress, and a knack for analytical and creative thinking

Sourcing

This section of the sewn goods industry may surprise you. People who work in sourcing do not just sit behind a desk all daythey may be on a plane heading for Asia or South America tomorrow morning. Here are a few of the positions you will find in this exciting field.

Fabric and Trim Buyer This person searches the world to fill fabric and trim requirements for a product or product line. The fabric and trim buyer handles all aspects of the negotiations, including color, pricing, and logistics. This person will put in a lot of airline miles, and must have superior bargaining skills, as well as strong mathematical, visual and analytical abilities; Knowledge of a foreign language is a strong plus. Trade Specialist This person specializes in resolving cultural differences, scheduling production, and negotiating quotas, duties, and tariffs. The trade specialist must have a good deal of experience in the field, know the law, and love international travel. He or she must be multilingual, analytical and adaptable.

35

Production & Operations

There are many different types of jobs within the sewn goods industry. In this section, we will examine a few of the people who help put together the products that others design and sell.

36

Engineer

This person is responsible for establishing the methods by which a product is manufactured. The engineer performs a range of duties, such as developing specifications for jobs, establishing production methodologies and streamlining the production process. He or she must have strong analytical and mathematical abilities, and expert knowledge of the manufacturing environment.

Production Manager

The production manager puts all the pieces together in order to manufacture a product. He or she is responsible for procuring raw materials and labor, while managing production schedules, employee interactions and product delivery. He or she must follow up the production to reduce the rejection and ensure the quality and quantity. The production

Manager must have excellent communications skills, organizational and analytical abilities, and be a strong leader.

Quality Assurance Manager This person makes sure the manufacturing process is running smoothly and that the product is up to standards. The quality assurance manager monitors internal and external construction of the product as well as the status of processes and systems. He or she also oversees such items as contractors, supplier certifications, ISO 9000, and Total Quality

37

Management. The quality assurance manager needs strong organizational and analytical abilities, and must be an effective leader and communicator.

Schedulers Schedulers oversee the many interactions that go into manufacturing a product. They coordinate activities, teams, modules and self-directed work groups. Schedulers are responsible for increasing or decreasing the amount of labor needed to meet production schedules. They need to have strong analytical and organizational skills, and excellent networking abilities.

Operations Manager The operations manager coordinates all functions and activities within the manufacturing process. He or she oversees all the other positions examined in this section, and must determine where changes or adjustments in the process are needed. The operations manager needs years of experience, and strong organizational and analytical skills, as well as expert leadership and communication abilities.

Logistics Manager

38

The logistics manager keeps things moving on and off the manufacturing floor, whether it's the materials used to manufacture a garment, or the finished product itself. He or she must coordinate and implement deliveries and pick-ups throughout the manufacturing and Distribution process.

The logistics manager needs strong organizational and analytical abilities, as well as leadership and communication skills.

Garments Manufacturing Technology FabricationFabrics makingWoven fabrics Woven fabrics are made of yarns interlaced in a regular order called a binding system, or weave. Weaving is the process of combining warp and weft components to make a woven structure. The components need neither be parallel to each other nor cross each 39

other at right angles, but most woven structures are composed of two sets of components, both flexible and crossing at right angles. Weaving is differentiated from warp and weft knitting, braiding, and net making in that these latter processes make use of only one set of elements. In addition, There are geometrical differences, one ... (100 of 29424 words Easier - Weaving means to make cloth and other objects. Threads or strands of material are passed under and over each other. Harder - Weaving is the process of making cloth, rugs, blankets, and other products by crossing two sets of threads over and under each other. Weavers use threads spun from natural fibers like cotton, silk, and wool and synthetic fibers such as nylon and Orlon. But thin, narrow strips of almost any flexible material can be woven. People learned to weave thousands of years ago using natural grasses, leafstalks, palm leaves, and thin strips of wood. Today weaving ranks as a major industry in many countries. Weaving is often completed on high speed looms. But weaving is not limited to cloth and textile products. Weaving plays an important part in the manufacture of screens, metal fences, and rubber tire cord. Craft workers also use varied fibers to weave baskets and hats.

Knitted fabrics

There are various types of knitted fabrics but in large we can concluded in two type1. Flat knitted fabrics. . With the flat knit machine normally heavier fabrics (like collar, sweeter) but now a days for designed thinner fabrics are been making with newly introduced flat knit machine.

40

2. Circular knitted fabrics-With circular knit machine is used for making jersey, pique, interlock, Rib type fabrics.

DyeingIts a critical step for fabrication

After making fabrics any manufacturers need to dye the fabrics with merchandisers (as well as buyers or customers).Some times manufactures need to dye the yarn before knit or weaving. After dyeing they need to send for dyeing and finishing as per merchandisers request. They need pass the dyed fabrics through the de-watering machine, drier and compactor. After completing the whole process sewing unit can cut the fabrics for sewing.

The processing step and technology involved in the manufacture garments for large-scale production on called garments manufacturing technology. Garments factories are classified according to their product types are as follows:

Garments Factory Woven garments factory Knit garments Factory Sweater Factory

41

Here, for the production of knit item, specifically for T- Shirt & Polo Shirt is considered as because those are the most common item which is produced in most of the Knit garments factories in our country. To produce garments we need sewing machines but the sewing machines are of different types used for different specific type of stitches.

Names of some common sewing machines used in the garments manufacturing are mentioned bellow:

1. Lock stitch sewing machine/Plain machine. 2. Chain stitch sewing machine. 3. Over lock/ Over edge sewing machine. 4. Flat lock sewing machine. 5. Kancasy sewing machine. 6. Blind Stitch sewing machine. 7. Bar tack sewing machine. 8. Button hole sewing machine. 9. Button attaching sewing machine. 10. Label sewing machine.

42

Stepwise garments Manufacturing sequence on industrial basis is below: Design / Sketch Manual / Computer

Block pattern --- Pattern design

Manual / Computer

Costing ------- Sample making

Manual

Production pattern

Manual

Grading

Manual / Computer

Marker Making

Manual / Computer

Inspection ------- Spreading

Manual / Auto Machine

Cutting

Manual / Computerized

Fusing

Sorting / Bundling

Manual

43

Sewing / Assembling

Manual

Inspection

Manual

Pressing / Finishing

Manual

Final Inspection

Manual

Packing

Manual

Dispatch

Manual

A brief discussing on the knit garments manufacturing sequences are given below:

1. Design / Sketch: For the production of knit garments, a sketch of a particular garments its design factures is essential to produce on paper so that after manufacturing of that garment could be verified or checked whether it looks like the sketch or not.

44

2. Pattern design: Hard paper copy of the each component of the garment of exact dimension of each component is called pattern. The patterns also includes seam allowance, trimming allowance, dirts, pleats, ease allowance, any special design, etc affairs.

3. Sample Making: The pattern is used to cut the fabric. Then the garments component in fabric from is used to sew/assemble the garment components. Sample garments making is to be done by a very efficient and technically sound person.

4. Production pattern: The pattern of the approved sample garments is used for making production pattern. During production pattern making

5. Sometimes it may be necessary to modify pattern design if buyer or appropriate authority suggests any minor modification.

6. Grading: Normally for large scale garments production of any style needs different sizes to produce. From asset of particular size of patterns, the patterns of different size are produced by using grade rule that is called grading.

7. Marker Making: All the pattern pieces for all the required sizes are arranged on a paper in such a way so that maximum number of garments could be produced with minimum fabric wastage. Markers are made for 6,12,18,24, etc. pieces. Marker is also useful to estimate fabric consumption calculation.

45

8. Spreading: It is the process of arranging fabrics on the spreading table as per length & width of the marker in stack from. Normally height of the lay/ fabric is limited up to maximum six inches high. But 4 to 5 height of the lay is safe.

9. Fabric cutting: On the fabric lay/spread, the marker paper is placed carefully and accurately and pinned with the fabric to avoid unwanted movement or displacement of the maker paper. Normally straight knife cutting machine is used to cut out the garment component as per exact dimension of each patterns in stack form. Care must be taken to avoid cutting defects.

10. Sorting/Bundling: After cutting the entire fabric lay, all the garments components in stack from is sorted out as per size and color. To avoid mistake in sorting, it is better to use code number on pattern.

11. Sewing or assembling: it is the most important department/section of a garment manufacturing industry. Sewing machines of different types are arranged as a vertical line to assemble the garments. Sequence of types of sewing machine arrangement depends on sequence of assembling operations. Number of sewing machine per line varies from 15nos. to 20 nos. depending on the style of the garments to be produce. Production per line per hour also varies from 100 to 150 pieces depending on specific circumstances.

12. Inspection: Each garment after sewing passes through the Inspection table/point where the garments are thoroughly and carefully checked to detect/find any defect if present in the garment. The defect may be for example variation of measurement, sewing defect, fabric defects, spots etc. If the defect

46

in possible to overcome, then the garment is sent back to the respective person for correction. If the defect is not correction able, then the garments are separated as wastage.

13. Pressing/Finishing: After passing through the inspection table, each garment is normally ironed/pressed to remove unwanted increase and to improve the smoothness, so that the garment looks nice to the customer. Folding of garment is also done here for poly packing of the garment as per required dimension.

14. Final Inspection: It is the last stage of inspection of the manufactured garments on behalf of the garments manufacturing organization, to defect any defective garments before packing.

15. Packing: After final inspection, the garments are poly-packed, dozen wise bundled & packed in the cartoon. The cartoon is marked with important information in printed from which is seen from outside the cartoon easily.

16. Dispatch: The cartoon of the garments are delivered or placed in the dispatch department or finished product store, from where the garment lot is delivered for shipment.

47

Yarn Manufacturing

Yarn An assemblage of fibers that is twisted or laid together to form a continuous strand that can be made into a textile fabric.

Types of yarn: 1. Staple fiber yarns (Single yarn): Ring Spinning Rotor spinning Friction spinning, Warp spinning, Air-jet spinning, and Twist less spinning.

2. Ply yarn: Single yarn are used in the majority of fabrics for normal textile and clothing application, but in order to obtain special yarn features, particularly high strength and modulus for technical and industrial application, ply yarns are often needed. A folder yarn is produced by twisting two or more single yarns together in

48

one operation, and a cabled yarn is formed by twisting together two or more folder yarns or a combination of folded and single yarns. The twisting together of several Single yarns increase the tenacity of the yarn by improving the binding-in of the fibers on the outer layers of the component single yarns. Ply yarns are also more regular smoother and more hard wearing.

3. Filament yarns: A filament yarn is made from one or more continuous strands called filaments where each component filament runs the whole

4. Length of the yarn. Those yarns composed of one filament are called monofilament yarns, and those containing more filaments are known as multifilament yarns. For

Apparel applications, a multifilament yarn may contain as few as two or three filaments or as many as fifty filaments. In carpeting, for example, a filament yarn could consist of hundreds of filaments. Most manufactured fibers have been produced in the form of a filament yarn. Silk is the only major natural filament yarn.

According to the shape of the filaments in the yarn, filament yarns are classified into two types, flat and bulk. The filaments in a flat yarn lie straight and neat, and are parallel to the yarn axis. Thus, flat filament yarns are usually closely packed and have a smooth surface. The bulked yarns, in which the filaments either are crimped or entangled with each other, have a greater volume thane the flat yarns of the same linear density.

49

Texturing is the main method used to produce the bulked filament yarns. A textured yarn is made by introducing durable crimps, coils, and loops along the length of the filaments. As textured yarns have an increased volume, the air and vapor permeability of fabrics made from them is greater than that from flat yarns. However, for application where low air permeability is required, such as the fabrics for air bags, flat yarns may be a better choice.

Distribution

How do finished products get from the warehouse to the store or customer? It has all made possible by the folks in distribution.

Distribution Center Manager The distribution center manager coordinates all warehouse activities. These include managing the inventory (the actual stock of finished product), and the distribution system (such processes as automation, scanning and tracking). By effectively controlling the inventory, the distribution center manager can make sure that stock is quickly sent to stores and customers. He or she needs outstanding organizational and analytical skills, as well as strong leadership and communication abilities.

Transportation Manager This person manages raw materials coming into the plant, and products leaving the plant. Both the materials and the finished product may involve domestic or international transportation arrangements. The transportation manager needs excellent command of

50

logistics, as well as superior organizational and analytical abilities. He or she should also be an effective leader and communicator.

Distribution Systems Analyst This person is responsible for assessing, acquiring and developing all systems related to the distribution process, including automation, scanning and tracking. The distribution systems analyst also oversees the management of data related to warehousing and distribution. This person needs strong analytical abilities and excellent computer skills.

Working procedure: From beginning (to receive order), our merchandising team worked for order placement, lab dips, fabric quality, accessories, print or embroidery, packaging etc. Technical audit to the factory. Inventory check for raw materials. Regular follow-up to control style & quality. During Production Inspection (DPI) to evaluate the quality. Final Random Inspection (FRI) before shipment.

2.6) the financial situation of south End Sweater Company Limited

(Amount in Taka) SL 1 2 3 4 Particular Paid up Capital ICD Working capital long term loan Loan from directors 2009 3,00,00,000 87,20,000 37696000 821051 2008 2,00,50,000 10895170 40189115 359501

51

5 6 7 8 9

ICD project loan PSC loan Shareholders Fund Turn over Retained Earnings(P/L account)

743000 9077450 101697898 83806375 23210372

1125955 61188766 6776685 95942067

1200 1000 800 600 400 200 0 2009 2008

Paid up capital Icd working capital Long term loan Loan from directors Icd project loan Dsc loan Shareholders fund Turn over Retained Earnings

Figure: Financial situation

Growth of the company: South End Sweater Company is a new company so the
growth of the company is calculated on the basis of export.

Year 2008 2009

Export Amount 67,76,685 8,38,06,375

Export growth

77029690

52

2010

14,07,56,880

56950505

Export Grow th

80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 1969935 2008 1 2009 2 year 2010 3 77029690 56950505

Chapter three
3) An overview of Ready made garments industry in Bangladesh
This chapter covers the followings:

53

3.1 Introduction 3.2Background 3.3Garments industry in Bangladesh 3.4Contribution of garments industry 3.5) Forces behind the development of garments industry 3.6 Bottlenecks Retarding the Growth of the Readymade Garment Sector A) Unstable Political Environment and Law and Order 1.Political Instability 2. Unfavorable Law and Order Situation B) Inefficient Development of Political Measures for RMG 1. Unsuccessful Initiatives for Foreign Direct Investment in the Export oriented RMG sector 2. Inefficient Efforts to Increase Quota in USA and Other Important Countries 3. Insufficient International Marketing Support C) Inefficient Financial Measures 1. Inefficient Financial Support for Backward Linkage Industries 2. Unfavorable Taxes and VAT for RMG Exports 3. Unfavorable Tax for New Investment in RMG Export Sector 4. Inadequate Adjustment of the National Currency with the Currency of international competitors. 5. Unfavorable Value Addition for High Valued RMG Exports 6. Anomalies in the Functions of the Banks 7. Inadequate Cash Support and Export Performance Benefit D) Infrastructural Bottlenecks

54

1. Port Congestion and Crisis 2. Frequent Interruption in Energy Supply 3. Congestion in Road and Railway Communication and Traffic Jam

E) Unfavorable Service Charges for Air Cargo 1. Inadequate Service Support 2. Incompetent, Slow and Corrupt Custom Services F) Inadequate Development Management and institutional Initiatives 1. Inadequate Exchange of Views between BGMEA and the Board of Directors of the Nationalized Commercial Banks 2. Unequal Opportunity for RMG Export Oriented Industry

3.7) Prospects of readymade garments industry in Bangladesh A) Market Diversification B) Product Diversification C) Background integration D) Flow of investment E) Policy regime of government F) Labor productivity Research and training H) Supportive government policy

55

The Readymade Garments Industry in Bangladesh

1. INTRODUCTION The shift from a rural, agrarian economy to an urban, industrial economy is integral to the process of economic development (Kaldor, 1966, 1967). Although policymakers in the least developed countries (LDCs) have, at various times, attempted to make agriculture the primary engine of economic growth and employment generation, this approach has not worked, not least because of the contributions of the Green Revolution, which has had the dual effect of increasing agricultural productivity in the LDCs and displacing the rural labor force at the same time. Led by the example of the East Asian economies, most LDCs now accept the need for greater industrialization as the fastest path to economic growth. In particular, countries such as Japan, Taiwan and South Korea have demonstrated that an export-oriented industrial strategy can not only raise per capita income and living standards in a relatively short time; it can also play a vital role in modernizing the economy and integrating it with the global economic system. Bangladesh, one of the archetypal LDCs, has also been following the same route for the last 25 years. Once derided as a basket-case by Henry Kissinger (The Economist, 1996), the country stumbled across an economic opportunity in the late 1970s. New rules had come to govern the international trade in textiles and apparel, allowing low-cost suppliers to gain a foothold in American and European markets. Assisted by foreign partners, and largely unaided by the government, entrepreneurs seized the opportunity and exploited it to the fullest. Over a period of 25 years, the garments export sector has grown into a $6 billion industry that employs over a million people. In the process, it has boosted the overall economic growth of the country and raised the viability of other export-oriented sectors. This essay analyzes the processes by which global trading rules came to help out a poor country like Bangladesh. It demonstrates the impact of the rule changes on the garments sector, and the response of the sector to multiple challenges and obstacles. It also discusses 56

what steps Bangladesh should take in order to deal with the full liberalization of the international garments trade, which occurred in January 2005 and which could potentially threaten the countrys growth prospects. Finally, it details some of the recent developments that have occurred since liberalization took effect.

2. Background The Readymade Garment Industry of Bangladesh has become the largest foreign exchange earning sector, exporting apparel of all sorts to the USA, Europe and other developed countries. The Readymade Garment (RMG) industry of Bangladesh tells an impressive story about the leadership of private enterprise and the countrys successful transition to a major export-oriented economy. The country registered its first apparel export in 1978, but the progress since the early 1980s has been simply phenomenal. It has by now become a colossal industry, earning the lion's share of the country's foreign exchange and providing the nation's women with the largest formal employment. The role of the RMG sector in our national economy can hardly be over-emphasized. There has been a steady development in our RMG export field during at least the last decade and a half but in the last few years it has been unique. The export of RMG recorded an average growth of 21.53% since 1994-95. The growth of export in the RMG sector from 1993 to 1999 shows that in 1993 it amounted to 61.4% of the countrys total export income, and by 1999 the it was 76.05%. This indicates how rapidly the export of the RMG has grown (see Table 1)

Table-1: Development of the Export of RMG Sector YEAR 1994-95 1995-96 1996-97 1997-98 Export of RMG (in Mln.Total Export (in Mln.Share of RMG's to Total US$) 2228.35 2547.13 3001.25 3781.94 US$) 3472.56 3882.42 4418.28 5161.20 Export 64.17 65.61 67.93 73.28

57

1998-99 4019.98 1999 2810.38

5312.86 3695.46

75.67 76.05

Source: Bangladesh Export Statistics, Export Promotion Bureau (EPB) (Compiled). The share of annual national export income from other sectors such as frozen food and jute goods together is not more than 12% of the annual national export income (see Table 2). Table-2: Development of the Export (in Million Taka) of different Sectors from 1993 to 1999 Commodities 1994-95 Amount % Woven 7360.53 52.85 Knit 1577.37 11.32 Total RMG 8937.9 64.17 Frozen Food 1225.93 8.80 Tea 131.54 0.94 Raw Jute 318.74 2.29 Chemical 2.15 431.65 1995-96 Amount % 7970.65 50.20 2447.12 15.41 10417.77 65.61 1283.01 8.08 135.51 0.85 371.12 2.34 3.10 402.68 1996-97 Amount % 9529.18 50.65 3250.11 17.28 12779.29 67.93 365.65 7.26 162.39 0.86 495.29 2.63 2.54 461.89 1997-98 Amount % 12900.18 55.09 4266.17 18.22 17166.35 73.31 1333.13 5.69 21 5.36 0.92 488.94 2.09 2.46 363.21 1998-99 Amount % 14320.80 56.18 4967.67 19.49 19288.47 75.67 1316.17 5.16 184.99 0.73 344.14 1.35 1.44 380.19 1.49

Product Leather 6.64 810.52 5.82 Jute 11.20 1278.62 9.18 Grand Total 100.00 13928.46 100.00

865.86 5.45 832.35 4.42 863.21 3.69 807.20 3.17 1345.29 8.47 1353.45 7.19 1276.82 5.45 1457.78 5.72 15879.09 100.00 18813.04 100.00 23416.37 100.00 25491.10 100.00

Source: Bangladesh Export Statistics, Export Promotion Bureau (EPB) (Compiled). Back in the 80s, a large number of private sector initiatives were taken in manufacturing sectors like the RMG industry. The RMG industry has enjoyed a meteoric rise from less than 50 factories in 1983 to over 3000 in 1999. In between this period, the level of employment has increased from some 10,000 to approximately 1.5 million today (see Table: 3); with its share of employment in the manufacturing industry increasing from a mere 2% to over 15%.

58

Table-3

Year 1983 No. of Factories 50 Source: Bangladesh Statistics, EPB

1987 629

1991 934

1995 2268

1999 3000

Women are the most disadvantaged section of our population, whereas in the apparel and garment industry they are the prime movers of this labor-intensive industry. About 90 per cent of the workers are women, comprising of almost 70% of all female employment in the nation's manufacturing sector. This industry has also created a vast scope for employment at all levels of production including management, supervision, etc. This sector has uplifted the neglected section of the population, thus radically transforming the socio-economic condition of the country. Bangladeshi entrepreneurs took advantage of the Multi-Fiber Arrangement (MFA) and the Generalized System of Preferences (GSP) to successfully capture a significant market share for Bangladeshi garments in Europe and the US. A substantial number of entrepreneurs, managers, supervisors, technicians, and workers, etc. are reasonably proficient in all relevant aspects of the industry. Almost all major retailers, brands and importers of Europe and the US buy garments from Bangladesh, and many have set up offices here. They have invested time and money in transferring critical know-how, and establishing strong and long-term relationships. Even in trading, Bangladeshi entrepreneurs have made their slow but sure entry. Under these circumstances Bangladesh must look at the future of RMG exports after 2004 with strong optimism. The human capital and customer preference must be leveraged to its full potential, rather than lost due to illogical and unnecessary pessimism about the future. By 2005, the VVTO agreement will become effective and the protection of quotas will disappear so that all countries will have little option but to liberalize imports of garments from any supplying country. On a level playing field Bangladesh garment exports will

59

naturally face strong competition as a result Bangladesh will also have to look carefully at the rules of origin that will be in force at that time. 2. Forces behind the Development The success story of the Readymade Garments sector of Bangladesh is based on employment generation and increasingly high value addition, thus smoothening the path for growth and development of the country. The apparel and garment industry propels sectors such as banking, finance and insurance, cargo, shipping and transport, entertainment and hospitality, research and education and a lot more. The mentioned performance of the industry has been possible due to: The Government of Bangladesh has always been concerned about the sector's growth and has played an active role as a catalyst to solve various complexities, whenever intervention was necessary. The cheap but disciplined and regimented workforce has been key for the success of this industry. The entrepreneur class has been dedicated and motivated to the country's economic prosperity. The quality of the manufactured apparel, which has been increasingly recognized by our international buyers and end users all over the world. Buyers' response has been encouraging through repeat orders. The industry has been producing all sorts of apparels for all seasons and has managed to get repeat orders for every season. The import policy of Bangladesh has been flexible and friendly for import of accessories. Although there are accountable anomalies, the financial institutions, both nationalized and private, have been serving to assist this sector. Readymade garment industries have managed to maintain the confidence of the buying class and others in the business. Although the backward linkage textile industry is not adequate for the needs of the RMG industry, it has been supporting regular manufacturing and supply systems to some extent.

3. Garments Industry in Bangladesh

60

For Bangladesh, the readymade garment export industry has been the proverbial goose that lays the golden eggs for over fifteen years now. The sector now dominates the modern economy in export earnings, secondary impact and employment generated. The events in 1998 serve to highlight the vulnerability of this industry to both internal and external shocks on the demand and supply side. Given the dominance of the sector in the overall modern economy of Bangladesh, this vulnerability should be a matter of some concern to the policymakers in Bangladesh. Although in gross terms the sectors contributions to the countrys export earnings is around 74 percent, in net terms the share would be much less partially because the backward linkages in textile have been slow to develop. The dependence on a single sector, no matter how resilient or sturdy that sector is, is a matter of policy concern. We believe the policymakers in Bangladesh should work to reduce this dependence by moving quickly to develop the other export industries using the lessons learned from the success of apparel exports. Support for the apparel sector should not be reduced. In fact, another way to reduce the vulnerability is to diversify the product and the market mix. It is heartening to observe that the knit products are rapidly gaining share in overall garment exports as these products are sold in quota-free markets and reflect the strength of Bangladeshi producers in the fully competitive global apparel markets. Preliminary data and informal evidence indicate that this sector seems to have weathered the devastating floods relatively well. The industry is one hundred percent export-oriented and therefore insulated from domestic demand shocks; however, it remains vulnerable to domestic supply shocks and the smooth functioning of the banking, transportation and other forward and backward linkage sectors of the economy. The Dhaka-Chittagong road remains the main transportation link connecting the production units, mostly situated in and around Dhaka and the port in Chittagong, where the raw material and the finished products are shipped in and out. Despite increased dependence on air transportation, trucks remain the main vehicles for transporting raw materials and finished products for Bangladesh garment exports. The floods disrupted the normal flow of traffic on this road. Eventually, this road link was completely severed for several days when large sections of

61

the road went under water for a few weeks during the latter phase of the floods. This delinking of the road connection between Dhaka and the port in Chittagong was as serious a threat as one can imagine for the garment exporters. The industry responded by calling upon the Bangladesh navy to help with trawlers and renting a plane from Thai Air that was used to directly fly garment consignments from the Dhaka airport to the Chittagong airport several times a day. The Textile Sector in Bangladesh is prominently made of jute fiber using cotton. This sector is broadly classified into the following stages based on value addition: 1. YARN 2. APPEAREL 3. FABRICS

4. Contribution of Ready Made Garments industry in our Economy RMG business started in the late 70s as a negligible non-traditional sector with a narrow export base and by the year 1983 it emerged as a promising export earning sector; presently it contributes around 75 percent of the total export earnings. Over the past one and half decade, RMG export earnings have increased by more than 8 times with an exceptional growth rate of 16.5 percent per annum. In FY06, earnings reached about 8 billion USD, which was only less than a billion USD in FY91. Excepting FY02, the industry registered significant positive growth throughout this period. In terms of GDP, RMGs contribution is highly remarkable; it reaches 13 percent of GDP which was only about 3 percent in FY91. This is a clear indication of the industrys contribution to the overall economy. 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. A 1999 study found the industry supporting approximately USD 2.0 billion worth of economic activities (Bhattacharya and Rahman), when the value of exports stood at a little

62

over USD 4.0 billion. One of the key advantages of the RMG industry is its cheap labor force, which provides a competitive edge over its competitors. The sector has created jobs for about two million people of which 70 percent are women who mostly come from rural areas. The sector opened up employment opportunities for many more individuals through direct and indirect economic activities, which eventually helps the countrys social development, woman empowerment and poverty alleviation.

In spite of numerous constraints, the economy has been on a steady growth path for the last 15 years, mainly due to private sector dynamism. The constraints include pervasive political instability and violence, endemic corruption and disregard for the law, frequent natural disasters, inefficient state-owned enterprises that are hotbeds of trade unionism, lack of political will to carry through necessary economic reform, inadequate infrastructure at all levels (power generation, roads and highways, port facilities), etc. Nevertheless, the economy has proved to be resilient. Since 1990, it has grown at an average rate of 5% per year. The Asian Development Bank projects that real GDP growth will increase to 6% in 2006 and 2007 (ADB, 2005). Bangladeshs total GDP stood at $275 billion in 2004, and per capita GDP was $2,000 (adjusted for purchasing power).

63

The table below lists some key macroeconomic indicators for the period 2004-2006:

20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2004 2005 2006

Real GDP Growth Export Growth Import Growth Defecit Inflation

64

Figure: Key Macro Economic Indicators

Sector ally, services constitute the largest portion of GDP with 51.7%. Industry accounts for 27.1% and agriculture 21.2%. However, the distribution of the labor force is reversed, with most people still working in agriculture (61%), followed by services (27%) and finally industry (12%). This imbalance between output and employment is indicative of a large amount of disguised unemployment and underemployment. Unemployment (including underemployment) is estimated to be about 40%. The poverty rate, as of 2004 is about 45%. As shown by the above table, merchandise exports have been growing strongly in recent years and this trend is set to continue. While imports also exhibit strong growth, it should be noted that the bulk of imports consists of inputs into the production process, e.g. machinery and equipment, fuel and petroleum products, chemicals, iron and steel, cement, fabric and accessories (for garments production), etc. The breakdown of various exports by sector is given in the table overleaf (Bangladesh Bank, 2005). The figures are for the 20032004 fiscal year.

65

As can be seen from Table 2, garments and textile items are the dominant export product, accounting for 77% of the countrys total export receipts. This is a relatively new phenomenon. For centuries, the chief export of the Bengal economy was jute, a natural fibre which is used in making carpets, sacks and hessian, but whose economic value went into precipitous decline after the advent of plastic bags and synthetic packaging material in the 1960s and 1970s. How the garments sector claimed the position of top export earner in the years since is discussed in Chapter 3.

Bangladesh face the challenge of globalization Bangladesh faces the challenge of achieving accelerated economic growth and alleviating the massive poverty that afflicts nearly two-fifths of its 135 million people. To meet this challenge, market-oriented liberalizing policy reforms were initiated in the mid-1980s and were pursued much more vigorously in the 1990s. These reforms were particularly aimed at moving towards an open economic regime and integrating with the global economy. 66

During the 1990s, notable progress was made in economic performance. Along with maintaining economic stabilization with a significantly reduced and declining dependence on foreign aid, the economy appeared to begin a transition from stabilization to growth. The average annual growth in per capita income had steadily accelerated from about 1.6 per cent per annum in the first half of the 1980s to 3.6 percent by the latter half of the 1990s. This improved performance owed itself both to a slowdown in population growth and a sustained increase in the rate of GDP growth, which averaged 5.2 percent annually during the second half of the 1990s. During this time, progress in the human development indicators was even more impressive. Bangladesh was in fact among the top performing countries in the 1990s, when measured by its improvement in the Human Development Index (HDI) as estimated by the United Nations Development Project (UNDP). In terms of the increase in the value of HDI between 1990 and 2001, Bangladesh is surpassed only by China and Cape Verde. While most low-income countries depend largely on the export of primary commodities, Bangladesh has made the transition from being primarily a jute-exporting country to a garment-exporting one. This transition has been dictated by the country's resource endowment, characterized by extreme land scarcity and a very high population density, making economic growth dependent on the export of labor-intensive manufactures. In the wake of the 2001 global recession, Bangladesh's reliance on foreign countries as a market for exports and as a source of remittances has become obvious. If Bangladesh is to become less vulnerable to the economic fortunes of others, it will need to strengthen its domestic economy, creating jobs and markets at home. A strong domestic sector and an improved overall investment environment will provide a more stable source of income like what the garment industry has provided so far - and will rekindle and sustain Bangladesh's economic growth

67

5. Forces behind the Development of Garments Industry The success story of the Readymade Garments sector of Bangladesh is based on employment generation and increasingly high value addition, thus smoothening the path for growth and development of the country. The apparel and garment industry propels sectors such as banking, finance and insurance, cargo, shipping and transport, entertainment and hospitality, research and education and a lot more. The mentioned performance of the industry has been possible due to: 1. The Government of Bangladesh has always been concerned about the sector's growth and has played an active role as a catalyst to solve various complexities, whenever intervention was necessary. 2. The cheap but disciplined and regimented workforce has been key for the success of this industry. 3. The entrepreneur class has been dedicated and motivated to the country's economic prosperity. 4. The quality of the manufactured apparel, which has been increasingly recognized by our international buyers and end users all over the world. 5. Buyers' response has been encouraging through repeat orders. The industry has been producing all sorts of apparels for all seasons and has managed to get repeat orders for every season. 6 .The import policy of Bangladesh has been flexible and friendly for import of accessories. 7. Although there are accountable anomalies, the financial institutions, both nationalized and private, have been serving to assist this sector.

68

8 .Readymade garment industries have managed to maintain the confidence of the buying class and others in the business. Although the backward linkage textile industry is not adequate for the needs of the RMG industry, it has been supporting regular manufacturing and supply systems to some

6. Bottlenecks Retarding the Growth of the Readymade Garment Sector This vital and vibrant export oriented industry has been facing some problems from local forces, which may be termed weaknesses (or the Nation's weakness), and some problems caused by forces beyond our geographical/political boundary, which may be termed as threats to our industry. The Readymade Garment Industry is already 20 years old but during the last two decades no planned, fruitful policy to build up a backward linkage textile industry to feed the RMG industry has been taken by the authorities. Even the existing textile industries are not capable of producing high standard fabrics to offset the foreign ones from the market. Shortage of capital necessary to develop local sources for quality fabrics/yam is a major weakness. The reason behind the shortage of capital, however, can be attributed to the socio-economic condition of the country; enabling foreign direct investment could however, compensate for this. Furthermore although the Government has responded to the RMG industry's requests for devaluation of the local currency the Taka from time to time, it has failed to decrease the current rate of interest. At the same time, our financial policy measures are not sufficient to attract entrepreneurs to invest in the textile industry. Anomalies in the banking sector, problems at the port, vindictive political environment, bureaucratic shackles, electricity crisis, and currency adjustment policy pursued by the country, and the lack of some policy support from the government to sustain the country's falling competitiveness against its competitors in the international market are other serious weaknesses. Without miscellaneous expenditures no file moves, no UC is cashed, no imported raw material released. There are many eager hands in the public service agencies that the

69

industries have to fill with ready cash. Without this practice no job can be done timely. The public service agencies work very slowly and speed money becomes the only solution to hasten the procedure. This is however done increasing by miscellaneous expenditures. The raw materials the industry imports, say, within 7 days, take an additional 15 days to reach warehouses from the Chittagong port. About 54 formalities (with miscellaneous expenditure) have to be observed to release a shipment of raw materials. These formalities increased the industry's lead-time against overseas competitors. The weaknesses, which have been mentioned above, could be classified in following categories:

Unstable political environment and unfavorable law and order Insufficient development of political measures for the RMG sector Inadequate financial measures Infrastructural bottlenecks Inefficient service support Inappropriate development management and institutional initiatives

6. A) Unstable Political Environment and Law and Order

6. A).1 Political Instability Due to the last non-cooperation movement in 1995-96 the industry suffered a loss of about Tk. 4,500 crore (Tk. 45 billion) and about 300 factories were forced to take loans of over Tk. 200 crore (Tk. 2 billion). Due to hartal (general strike) and other such political programs, problems such as order cancellations and stock-lot gluts arose in the ready-made garment industry. Banks started showing its reluctance to open L/Cs. Ultimately many affected factories were on the verge of winding-up and declaring bankruptcy. The export oriented garment industry bore production losses equivalent to Tk 6-9 crore (Tk. 60-90 million) per hour.

70

During the last three years, the country went through about 200 working days of hartal. In the interest of 1.5 million workers and owners of over 3000 garment factories, the political differences should be solved politically in the parliament.

6. A).2 Unfavorable Law and Order Situation The disrupting law and order situation is another heavy constraint which hinders not only the development of the national economy but also the development of the export- oriented RMG sector. Due to the depreciating law and order situation, the interest of both the employers and the employees are being affected. In this relation it should be mentioned that the Factories' Act and labor laws of the country are old and do not support the development of the export-oriented RMG sector. The changed environment must be reviewed and in this process all interested and involved parties should be integrated.

6. B) Inefficient Development of Political Measures for RMG

6. B).1 Unsuccessful Initiatives for Foreign Direct Investment in the Export Oriented RMG Sector The proper authorities have duly resolved that the Board of Investment (BOI) would not approve any Foreign Direct Investment (FDI) proposal in the RMG sector without seeking recommendation from the BGMEA. However, it is being observed that the BOI continues to decisions without seeking any BGMEA recommendations. Any further foreign investment in the garments industry must be considered in light of the technological modernization in this sector, i.e. whether the foreign investment is promoting technology transfer. The export-oriented RMG sector would welcome foreign direct investment and

71

encourage foreign financial and technical assistance in the backward linkage textile sector as there is a dearth of fabric, both in quantity and quality, in the country. 6. B).2 Inefficient Efforts to Increase Quota in USA and Other Important Countries This is a topic that is not only an integral part of US Senator Harkin's personal political agenda but is also an issue of vital importance to the fate of Bangladesh's readymade garment industry. BGMEA has been trying to enter the US market with an additional 30% quota over the present level. Although, on the face of it, a 30 percent raise might seem too large in actuality it would comprise an increase of less than one percent of the total amount of imports entering the United States. The increase would, however, be very vital and beneficial for Bangladesh. The increase is being pursued so as to compensate the apparel export losses Bangladesh suffered due to the anti-child labor propaganda that followed the introduction of the Child Labor Deterrence Act, popularly known as the Harkin's Bill. After suffering export losses since 1992 with the signing of the historic MOU on elimination of child labor from the garment industry of Bangladesh, the country's RMG industry started recovering in late 1996. Due to the Bill, it has been roughly estimated that the industry lost its market in the USA and other parts of the world by about 15-20% annually. While the BGMEA is trying for such a compensatory quota increase, the US House of Representatives has passed a Bill liberalizing trade with Sub-Saharan Africa (SSA) by a vote of 233 to 186, a smaller majority than the 350 votes projected by the Bill's backers. The measure now goes to the Senate, while there are doubts whether the body would even act on the Bill this year. The measure is aimed at 48 SSA countries that have committed to market-based economic reforms and trade liberalization, and grants them free-access to the US market for a range of products. The US would also lift the textile quotas currently imposed on Mauritius and Kenya.

72

As a direct result of the SSA (Sub-Saharan Africa) Bill, Congressman Philip Crane, a backer of the Bill, estimates that Sub-Saharan African countries will immediately be able to double their present volume of export to the USA. SSA countries presently share about 1% of the USA's apparel imports. Within a decade, they will be able to triple their present export to the USA. If the SSA Bill is passed, the benefits to the SSA countries will be at the cost of developing countries like Bangladesh. Experts say the Bill would encourage textile and apparel producers in China and other Asian countries to flood the US market with garments partially assembled in Africa from Asian fabrics, as well as to Trans-ship apparel made in the Far East to the US market via SSA. Experts see in the legislation a rule of origin requirement that is far weaker than the rule of origin in effect between NAFTA partner countries. That is, by means of transshipments and other unfair means other textiles exporting countries will try to enter the US market through SSA countries. LDC like Bangladesh that lack in sound backward linkage industries will suffer terribly. Considering all these points, the BGMEA has been pursuing for a 30% quota increase for the US market. It will provide the garments industry in Bangladesh with an opportunity to export apparel worth about US$ 400 million and to employ another one million workers. Although BGMEA representatives have initiated a strong drive towards achieving this target, visited the USA and met key Congressmen, Senators and other government representatives, it is still not considered sufficient effort to achieve such a large national interest issue; concerted efforts from the proper levels of Government are needed. Accordingly during the March 2000 visit to Bangladesh by President Bill Clinton of the United States, both the Government of Bangladesh and the BGMEA had requested for an increase in the textile quota and for the merger of certain categories, inline with the formal proposal submitted to U.S Government in November 1998. It is certainly a step in right direction.

6. B).3 Insufficient International Marketing Support

73

In order to expand the market share and survive in the up coming free global competition in the international market, product diversification appears to be an indispensable strategy. The more varied the product line and range, the better the competitive strength. As for our access to other markets, efforts are being made to enter Japan and other Far East markets; however, presently we are mainly dependent on EU markets and the U.S. We know that if we put all our eggs in one basket, our risk is higher. We can reduce the risk by putting our eggs in several baskets. When the GSP crisis arose we knew that our whole EU market was going to be disturbed, when quota matters created a problem we had to give extra efforts to keep our export earnings from falling. The EU market share accounts for 50% and the U.S. market shares for over 40% of our RMG exports. The above statistics justifies further market diversification. The government should ensure assistance from international organizations like WB, IMF, UNDP, WTO and international Chambers to support the export-oriented RMG sector. 6. C) Inefficient Financial Measures

6. C).1 Inefficient Financial Support For Backward Linkage Industries Since 1974 international trade in textiles and clothing has been guided by various restrictions on a global or regional basis under MFA. The entire business in apparel and garment industry has been subjected to bilateral quota negotiated under MFA. The arrangement of bilateral quotas and restrictions on import under MFA has begun phasing out from January 1995 and the process will be complete by 2005. Therefore there will be no more quotas and the only barrier to import penetration will be the normal rules of competitiveness such as price, quality, service, fashion and tariff. Again, the GSP scheme is keen on the basic rules of origin and to meet this rule we need to mobilize the textile sector to feed the RMG sector. Investment in a textile industry will not be viable unless the government reforms its policies for financial support. The cost of financing the linkage projects must be brought down, as was done by India and other competitors of Bangladesh during the initial period of developing their textile sector. Cash

74

incentives should continue. In addition, long term loans must be available at reasonable interest rates. Although the current nominal rates are around 12%, the actual cost of fund to the entrepreneurs amounts to between 20% and 24% after various adjustments. This is quite high a rate and discourages investment in this sector. The Commercial Banks need not maximize its profits at the cost of the RMG industry. The government may direct the Banks to make reasonable profit and lessen the rate of interest for the RMG sector substantially, say, to 6% to 7%. This of course does not mean that the Bank should not take necessary precautions against possible defaulters. Investment in backward linkage industries for greater supply of raw materials to the RMG sector, particularly in composite textile mills, is quite large. The entrepreneurs will need equity capital from financial institutions. Currently a 50:50 debt-equity ratio is enforced. To encourage investment in this sector, the Government should moderate the ratio to a reasonable 80:20 level. If all the backward linkage industries in spinning, weaving, dyeing, printing and processing are to be developed by 2004, a total of Tk. 210 billion will be needed for investment. The Government should create a special fund of at least Tk. 150 billion to provide equity capital to sound entrepreneurs who can come up with the balance 20% equity. It is worth mentioning here that similar support is available in many countries including India. Given the investment needs and future uncertainty, it is questionable if Bangladesh will be able to invest Tk.210 billion in order to develop the total capacity in the backward linkage industries required to meet the RMG demand in 2005. To be self-sufficient in the production of export quality yam and fabrics is neither necessary nor feasible nor wanted. The traditional supply of cotton yarn and fabrics from foreign countries may decline due to the phasing out of MFA. Some of Bangladeshs fabric supplying countries, facing the competition of total globalization after 2004, may not have the surplus to export while others may find it more profitable to expand their own garment industry. Subsequently Bangladesh must create opportunities to generate a certain new capacity to spin yarn, weave cloth and process Grey fabric. Like Hong Kong and Singapore, which

75

trade quite normally, RMG will have to remain partly dependent on imported yarn and fabric. This, however, should not create a serious problem for Bangladesh to remain competitive in the world market after 2004. Therefore the RMG industry needs to be restructured only partially; a limited number of composite mills, a large number of independent spinning mills and processing units need to be established. One of the easier avenues of gaining success in this respect may lie in modernization of dying or decadent mills. 6.C).2 Unfavorable Taxes and VAT for RMG Exports The tax burden on the export oriented garment sector is reducing the competitiveness of Bangladesh-made garments in the international market against products from competing countries. In Addition to incentives for aggressive marketing, several countries, including our neighboring ones, are totally exempting their export sectors, including RMG, from all export taxes to help supplement competitiveness and boost exports in the international market. Although included in the 1996-97 Export Policy, the export oriented RMG industry has not yet been brought within the purview of taxation. While the world is in transition from MFA to GATT to WTO, the country is still being constrained further, partly through old ideas. The industry has got to take its best lead before the international players in the industry are at full pace, otherwise there will be little scope for recovery. 6. C).3 Unfavorable Tax for New Investment in RMG Export Sector International experiences show that facilities like a tax holiday could promote national and foreign investment. For the sake of a healthy economic development of the country, it is expected that with proper taxation policies in place investment in the export-oriented RMG sector in the country can be canalized. 6.C).4 Inadequate Adjustment of the National Currency with the Currency of International Competitors

76

With Bangladesh's competitor countries adjusting their currencies downward, ranging from 25 percent to even as high as 550 percent, the downward adjustment of our local currency the Taka has become imperative. Considering currency devaluation by competitor countries like Indonesia, Thailand, Korea, Philippines, India, Pakistan, Sri Lanka etc., to successfully pursue the export-led growth, our government should have a similar strategy to increase the countrys external competitiveness. Against aggressive currency devaluation by our competitor countries, our real trade-weighted effective exchange rate is still insufficient to maintain competitiveness vis--vis our neighbors and potential competitors in the world export market. It must be properly adjusted. We cannot back step from steadily adjusting our currency by observing the strategy our competitors are taking. If devaluation is not conducive to the general national economic development of the country, an alternative must be worked out which best make more of our exporters competitive in the international market. 6. C).5 Unfavorable Value Addition for High Valued RMG Exports Just because of the rigidity in the Value Addition criteria, high value items manufactured in the country are failing to enter the international market. For example, the margin that we can retain by producing one gown may not be secured by producing even 10 basic shirts. We had potential but because of our rigid value addition policy we are losing a huge amount of foreign currency. Besides earning foreign currency for the nation, relaxing this criterion could further develop the skill of the workforce, which in turn would not only support the economic development of the country but would make it one of the nations most valuable resources. 6. C).6 Anomalies in the Functions of the Banks The RMG sector has been one of the main catalysts contributing to the tremendous development of the banking and insurance sector of the country. While foreign banks, under different heads, charge only 0.25% for first the US$50,000 + 0.125% for whatever rest amount, our banks charge rates from 10-16% straight. Presently our commercial banks are earning over Tk 2,000 corer (Tk. 20 billion) per year from the export-oriented sector. 77

Over the years some bank charges have increased to even three times the charges from 1985. Even now there are some regulations and services which hinder performance of the export-oriented RMG enterprises. These are: 1. Regulating approval from the Bangladesh Bank for creating Forced/Demand Loan by lien banks. 2. Considering of Back-to-Back PAD/Forced Loans as default loans. 3. Considering overdue FBP against the liability of any UC as default loans. 4. Enforcing mandatory compulsions in the ECG policy. 5. Regulating the obtaining of prior permission from the Bangladesh Bank for exporting goods against stock-lot. 6. Regulating prior approval for discount from the Bangladesh Bank and EPB. 7. Allowing 45 days from the date of document negotiation for fund remittance in the event of remittance being delayed. 8. Allowing private commercial banks to charge "UC Acceptance Charges" fees which the Nationalized Banks do not. 9. Applying the Banking Companies Act, passed by Parliament on 13 March 1997, also for the export-oriented Readymade Garment Sector of the country. 10. Holding the readymade garment exporters responsible if the proceeds against their exports are not realized owing to the reasons beyond the exporters control. 11. Banning of the Realization Clause when opening L/Cs. 6.C).7 Inadequate Cash Support and Export Performance Benefit The disbursement of alternative cash assistance has increased recently. This should not be a cause for alarm; however, stringent measures to ensure that genuine users of local yarn are being benefited should be put in place. Till date, less than 15 percent of the yarn and fabric demand in the RMG industry is being met from local sources. Hence the Alternative Cash Assistance scheme deserves to be continued until the industry achieves a sustainable development in the backward-linkage industry.

78

In the past, the Alternative Cash Assistance was used to give garment manufacturers and exporters help to increase garment exports. But since early the 1990s it has been given to the local fabric producers to encourage direct export or use of local yarn fabrics in the RMG industry. Appreciating the Government's gesture toward the local yarn and fabric manufacturers, our observation are that since the garment manufacturers and exporters are the ultimate exporters of local yarn and fabrics, if they were encouraged to use local yarn and fabrics under the same scheme, as in the past, the ultimate objective of this scheme would be achieved through further usage of local yarn and fabrics. While transaction and overhead costs have increased considerably, the garment manufacturers and exporters are still buying local fabrics and yam at higher prices in comparison to the prices of imported fabrics/yarns. In the international market, we are losing our market share to our competitors, who besides enjoying several export-benefits also enjoy tax-free status for all their export income. Moreover, in the past, the Export Performance Benefit (XPB) used to be provided to the RMG manufacturers and exporters to encourage export earnings. Presently in the international market, competition has been intensified due to the entry of new competitors. Without such a benefit scheme, garment manufacturers and exporters of Bangladesh are losing their competitiveness in the international market. 6. D) Infrastructural Bottlenecks 6. D).1 Port Congestion and Crisis Due to unchecked interest by a section of politicized dock laborers, the Chittagong Port has remained closed for about 30 days during the last three years. Go-slow and congestion are chronic problems. Chittagong port being the largest seaport in the country contributes to 80% of import and 75% of export of the total international trade. As the normal activities in export and import are hampered due to the complexity created by various reasons like dock labor unionism, go slow principle, strike etc. usage of the seaport by traders has been disturbed and declining. This is definitely influencing the national economy negatively. The Garment Exporters and Garment input importers have been facing problems in export 79

and import for years. It is worth mentioning that due to delay in unloading of raw materials for the Garment Industry, it is not possible for the entrepreneurs to produce the garments within the Letter of Credit (L/C) period. Thus the L/C becomes invalid and the exporters face great financial loss. Consequently, buyers are losing interest in trade with Bangladesh. Moreover the entrepreneurs have to take the responsibilities of the loss on their own shoulders. A large number of garment factories are classified as sick as they have been unable to recover from the stock-lot problem, which is also one of the causes for bottlenecks in the port area. Heavy congestion in the Chittagong port has been prevailing for the last four years. This congestion affects the normal activities of the port. Loading and unloading of goods are always delayed and ships remain in the outer anchorage for long periods of time. As a result, port utility has been lessened which is also damaging the reputation and image of the port internationally. The handling equipment at the port is insufficient to cope with the rising volume of the export-import business from the garment industry and other export oriented industries. The country should start setting up new jetties immediately to increase the loading and unloading capacity of the Chittagong Port because an average size jetty takes about 4 years to be set up. The port is taken hostage by a handful of people for their egotistic interest, posing a serious threat to the export-trade of the country. The government should play a stronger role in addressing the port crises. Handing over port activities to private sector enterprises perhaps can ensure a sustainable solution. 6. D).2 Frequent Interruption in Energy Supply For nearly the last two years the electricity crisis has been unparalleled. To better describe the situation it would be safe to say that the power grid has been at its peak capacity for the last decade or two. A survey in the RMG sector in May 1997, indicated that in Jan-May 1997, the RMG sector had already suffered losses in excess of Tk.1700 crore (Tk.17 billion). Presently on an average, we are losing production worth about US$ 1.6 million per day (or, US$ 46.4 million per month and US$ 561.6 million per year) just owing to the

80

electricity crisis alone. For obvious reasons the chain-effect is more serious. RMG production could be increased by 10-15 % if reliable power supply was available. 6. D).3 Congestion in Road and Railway Communication and Traffic Jam A good transport system is a prerequisite for economic development. A lack of it creates road congestion, as a result it may take a longer time to get imported raw materials from the port and transport the finished product to the port from the factory. It also causes additional transport costs. A congestion-free road and rail communication, especially between Dhaka and Chittagong, linking the garment industry is vital for further development of the export-oriented RMG sector. 6.E) Inadequate Service Support

6.E).1 Unfavorable Service Charges for Air Cargo It is a common practice that garment factories import goods by air, paying very high freight rates, only when the speedy delivery of finished goods is the prime requirement of the buyer. Thus, damage, misplacement, dislocation of raw materials and delay in clearance thereof grossly affect the delivery schedule of the finished goods. The replacement of damaged or missing raw materials is not only expensive, but also time consuming and involves onerous Customs/Bank formalities. The irony of the whole system is that the importer is not spared from the onus of paying duties/taxes for non-export of finished goods due to damage in fabric. In the seaport at Chittagong, the Port Authority acts as Bailee on behalf of all carriers and thus goods land under the port's tally along with remarks as to the condition in which goods have out-turned, stored consignment-wise/shipping mark-wise etc., no such system prevails at ZIA. Neither the neither Civil Aviation nor Bangladesh Biman act as Bailee and as such there remains a vacuum of accountability for misplacement and/or damage to goods. Unlike the seaport at Chittagong or Mongla, at ZIA the importer or their C&F agents are unable to see the condition or storage position of the goods and have to depend on Biman

81

Loaders for "produce of goods". In the examination section a highly irregular practice is being followed by Biman when certain a percentage of goods are required to be produced for inspection purpose, the C&F agents are made to sign that all goods have been duly produced before the actual inspection. Only then does Biman produce the goods. Therefore at the time of delivery if the loaders fail to detect any goods, in that case only tally marks are made on the reverse side of the photocopy of Air Way Bill which is retained by Security and only an entry for short received is made in their Delivery Register. The C&F agents are not given any official documents for the short receipt. Even inside the canopy area there are storage tracks where goods are required to be stored according to the last digit of Air Way Bill Number, but the loaders for obvious reasons scatter single consignments in different tracks while stacking. 6. E).2 Incompetent, Slow and Corrupt Custom Services It is obvious that with the rapidly expanding export business of the country the pressure on customs office has increased immensely. The globalized export business demands not only prompt but qualified services, because missing documentation could cause loss of international customers. Therefore it is not enough to employ sufficient personnel in the custom office but they must also be trained. The custom office must be provided with modern technical support and its services must be computerized. The government has already taken some steps in this direction, but it has to be strengthened. 6. F) Inadequate Development Management and institutional Initiatives

6. F).1 Inadequate Exchange of Views between BGMEA and the Board of Directors of the Nationalized Commercial Banks BGMEA, the single largest trade organization, has been leading the RMG industry to become the biggest export-earning sector in Bangladesh. This sector has propelled the financial sector of the country to new heights. The sector also involves a huge amount of

82

capital investment from the Nationalized Commercial Banks (NCB). The Bank's recovery of loans from this sector has been positive and the sector's contribution to the Bank's earning has been quite considerable. But the financial activities of the NCBs are not sufficient to fasten the export-import procedure for this industry. Moreover, the government's policy to reform the public sector banking institutions has not been working to simplify the complex system. If representatives from the BGMEA could be included in the Board of Directors of Nationalized Banks and the Bangladesh Bank, this would help solve the different banking problems faced by the garment industry and thus help the economy in a positive way. 6. F).2 Unequal Opportunity for RMG Export Oriented Industry The government's policy to attract foreign investment in Bangladesh is quite impressive. This policy, however, show some inequalities. Under the bonded warehouse system every export oriented garment factory is an EPZ, but factories in the EPZ enjoy more benefits than those outside the EPZ. Even in Japan, all export-oriented factories enjoy such benefits. If these

7 Prospect of the readymade garments industry Despite many difficulties faced by the RMG industry over the past years, it continued to show its robust performance and competitive strength. The resilience and bold trend in this MFA phase-out period partly reflects the imposition of safeguard quotas by US and similar restrictions by EU administration on China up to 2008, which has been the largest supplier of textiles and apparel to USA. Other factors like price competitiveness, enhanced GSP facility, market and product diversification, cheap labor, increased backward integration, high level of investment, and government support are among the key factors that helped the country to continue the momentum in export earnings in the apparel sector. Some of these elements are reviewed below:

83

A).Market Diversification Bangladeshi RMG products are mainly destined to the US and EU. Back in 1996-97, Bangladesh was the 7th and 5th largest apparel exporter to the USA and European Union respectively. The industry was successful in exploring the opportunities in markets away from EU and US. In FY07, a successful turnaround was observed in exports to third countries, which having a negative growth in FY06 rose three-fold in FY07, which helped to record 23.1 percent overall export growth in the RMG sector. It is anticipated that the trend of market diversification will continue and this will help to maintain the growth momentum of export earnings. At the same time a recent WTO review points out that Bangladesh has not been able to exploit fully the duty free access to EU that it enjoys. While this is pointed out to be due to stringent rules of origin (ROO) criteria, the relative stagnation in exports to EU requires further analysis B).Product Diversification The growth pattern of RMG exports can be categorized into two distinct phases. During the initial phase it was the woven category, which contributed the most. Second phase is the emergence of knitwear products that powered the recent double digit (year-on-year) growth starting in FY04. In the globalized economy and ever-changing fashion world, product diversification is the key to continuous business success. Starting with a few items, the entrepreneurs of the RMG sector have also been able to diversify the product base ranging from ordinary shirts, T-shirts, trousers, shorts, pajamas, ladies and childrens wear to sophisticated high value items like quality suits, branded jeans, jackets, sweaters, embroidered wear etc. It is clear that value addition accrues mostly in the designer items, and the sooner local entrepreneurs can catch on to this trend the brighter be the readymade goods future.

C).Background integration

84

RMG industry in Bangladesh has already proved itself to be a resilient industry and can be a catalyst for further industrialization in the country. However, this vital industry still depends heavily on imported fabrics. After the liberalization of the quota regime some of the major textile suppliers Thailand, India, China, Hong Kong, Indonesia and Taiwan increased there own ready made garments export. If Bangladesh wants to enjoy increased market access created by the global open market economy it has no alternative but to produce textile items competitively at home through the establishment of backward linkage with the RMG industry. To some extent the industry has foreseen the need and has embarked on its own capacity building D).Flow of investment It is plausible that domestic entrepreneurs alone may not be able to develop the textile industry by establishing modern mills with adequate capacity to meet the growing RMG demand. It is important to have significant flow of investment both in terms of finance and technology. Figure 3 indicates that the investment outlook in this sector is encouraging, although the uncertainties before the MFA phase-out period caused a sluggish investment scenario. In part the momentum in the post-MFA phase-out period is indicative of the efforts underway towards capacity building through backward integration. This is evident in the pace of lending to the RMG sector and in the rising import share of RMG related machinery. However further progress would be necessary to improve and sustain competitiveness on a global scale.

E).Policy regime of government Government of Bangladesh has played an active role in designing policy support to the RMG sector that includes back-to-back L/C, bonded warehouse, cash incentives, export credit guarantee scheme, tax holiday and related facilities. At present government operates

85

a cash compensation scheme through which domestic suppliers to export-oriented RMG units receive a cash payment equivalent to 5 percent of the net FOB value of exported garments. At the same time, income tax rate for textile manufacturers were reduced to 15 percent from its earlier level for the period up to June 30, 2008. The reduced tax rates and other facilities are likely to have a positive impact on the RMG sector.

F).Infrastructural impediments The existence of sound infrastructural facilities is a prerequisite for economic development. In Bangladesh, continuing growth of the RMG sector is dependent on the development of a strong backward linkage in order to reduce the lead time. However, other factors constraining competitiveness of Bangladeshs RMG exports included the absence of adequate physical infrastructure and utilities.

G).Labor productivity The productive efficiency of labor is more important determinant for gaining comparative advantage than the physical abundance of labor. In Bangladesh, the garment workers are mostly women with little education and training. The employment of an uneven number of unskilled labors by the garment factories results in low productivity and comparatively more expensive apparels. Bangladesh labor productivity is known to be lower when it compared with of Sri Lanka, South Korea and Hong Kong. Bangladesh must look for ways to improve the productivity of its labor force if it wants to compete regionally if not globally. Because of cheap labor if our country makes the labor productivity in the apex position, then we think the future of this sector is highly optimistic.

H). Research and training

86

The country has no dedicated research institute related to the apparel sector. RMG is highly fashion oriented and constant market research is necessary to become successful in the business. BGMEA has already established an institute which offers bachelors degree in fashion designing and BKMEA is planning on setting up a research and training institute. These and related initiatives need encouragement possibly intermediated by donor-assisted technology and knowledge transfer. A facilitating public sector role can be very relevant here. I). Supportive government policy In contrast to the public sector-led import-substituting industrialization strategy pursued during the first few years after independence, the industrialization philosophy of the government changed rather dramatically from the late 1970s when the emphasis was on export-oriented growth to be spearheaded by the private sector. Towards this end, various policy reforms were implemented in the 1980s and 1990s. Some of these reformed policies contributed considerably to the growth of the RMG industry in Bangladesh. During the 1980s, a number of incentives were introduced to encourage export activities. Some of them were new like the Bonded Warehouse Facility (BWF), while others like the Export Performance License (XPL) Scheme 37 were already in operation and were improved upon. Also, rebates were given on import duties and indirect taxes, there were tax reductions on export income, and export financing was arranged. Under the XPL scheme, exporters of non-traditional products received import licenses for specific products over and above their normal percentage allotment based on the f.o.b. value of their exports. Under the Duty Drawback System, exporters of manufactured goods were entitled to get refund of duties and taxes paid on imported inputs used in export production, and also all excise duties paid on exported finished goods. For certain fast-moving items such as RMG, a notional system of duty payments was adopted in 1982-83. Under this system, exporters were exempted from paying duties and taxes on imports used in export production at the time of importation, but were required to keep records of raw and 21packaging materials

87

imported. The duties and taxes payable on the imports were kept in a suspense account. Liabilities to pay the amounts in suspense were removed on proof of exports. The discussion in this section clearly points to the positive contribution made by policy reforms to the growth of the RMG industry in Bangladesh. In particular, two policies the SBW facility and the back-to-back L/C system- led to significant reduction in cost of producing garments and enhanced competitiveness of Bangladeshs garments exports. It also allowed garment manufacturers to earn more profit which, when necessary, could be used to overcome difficulties arising from weak governance. Furthermore, poor governance, reflected in the leakage of duty-free imported fabrics in the domestic market, paradoxically enough also helped the garment manufacturers to earn extra profit and thereby enabled them to absorb the high cost of doing businesses a fall out of bad

Chapter Four
The audit procedure of Garments industry
4. This chapter covers the followings:

88

4.1 Auditing 4.2 Types of Audits 4.3 Who are internal auditors? 4.4 internal Auditors role 4.5 The Audit process 4.6 Audits done in the factories 4.7 Audit findings in south End Sweater company Limited

89

Auditing?
Auditing is the inspection of the accounting records and procedures of a business or organization, by a trained accountant, mainly for the purpose of forming an opinion on the fairness and truth of the financial statements. Usually an audit is conducted by someone from the company itself, an internal audit or by a third-part auditor - an independent or external audit. An independent audit examines not just the finances of a business, but every other area as well. This is generally to make sure that the companys procedures are being followed, and to determine whether illegal activity such as embezzlement took place. A tax audit determines whether the appropriate tax was paid. Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.

Types of Audits
Certified public accountants perform three types of audits. They are: 1. Financial Statement audit 2. Operational audit

3. Compliance audit
The later two services are called audit activities even though they are most similar to assurance and attention services. Financial statement audit

90

A financial Statement audit is conducted to determine wheatear the overall financial statements are stated in accordance with specified criteria. Normally the criteria are Generally accepted accounting Principles, although it is also common to conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization, the financial statements most often included are the statements of financial position, income statement, and statement of cash flows, including accompanying footnotes. Example-Annual Audit of Prime Banks Financial statement.

Compliance Audit
The purpose of compliance audit is to determine whether the auditee is following specific procedures, rules or regulations set by some higher authority. a private business could include whether accounting personnel are following procedures prescribed by the company controller, reviewing wage rates for compliance with minimum wage laws

WHO ARE INTERNAL AUDITORS?

Internal auditors step up with bold ideas to solve tough problems. Continually striving for the best, constantly polishing their skills, and consistently modeling integrity and ingenuity.

Internal auditors are, to a great extent, key to an organizations success in todays business world. They are involved in reviewing an organizations processes, operations, and goals. They provide objective, independent, professional advice to all levels of management and pave the path toward continuous improvement. They are explorers, reporters, and analysts. They discover, interpret, and question.

91

The most valuable and effective internal auditors anticipate and stay abreast of business trends and continually update their knowledge to stay on top of key issues. They are proactive, responsive, and reactive. Internal auditors bring a variety of skills to the organization. Their education and expertise differ broadly. They come from diverse areas such as engineering, operations, finance, and information technology. And todays internal audit professionals, regardless of their industry, have extensive knowledge of computer systems and the Internet, and work to mitigate risks posed to the organization by technology and electronic commerce. Professional internal auditors address problems and improve performance. They help the organization function at the highest, most ethical level and constantly cast their eyes to the horizon to scan for signs of trouble. They bring to the organization a sense of well-being and comfort, providing the secure knowledge that if there are glitches, they will find them. INTERNAL AUDITORS ROLES Internal auditors are grounded in professionalism, integrity, and efficiency. They make objective assessments of operations and share ideas for best practices; provide counsel for improving controls, processes and procedures, performance, and risk management; suggest ways for reducing costs, enhancing revenues, and improving profits; and deliver competent consulting, assurance, and facilitation services. Internal auditors are well disciplined in their craft and subscribe to a professional code of ethics. They are diverse and innovative. They are committed to growing and enhancing their skills. They are continually on the lookout for emerging risks and trends in the profession. They are good thinkers. And to effectively fulfill all their roles, internal auditors must be excellent communicators who listen attentively, speak effectively, and write clearly. Sitting on the right hand of management, modern-day internal auditors are consulted on all aspects of the organization and must be prepared for just about anything. They are coaches,

92

internal and external stakeholder advocates, risk managers, controls experts, efficiency specialists, and problem-solving partners. They are the organizations safety net. Its certainly not easy, but for these skilled and competent professionals, its all in a days work.

1. EVALUATING RISK

An organization cannot shrink its way to greatness. It must grow, and one of the keys to successful growth is effective risk management. Risk assessment, as defined by the IIA Standards for the Professional Practice of Internal Auditing, is a systematic process, for assessing and integrating professional judgments about probable adverse conditions or events. Risk impacts an organizations ability to compete and to maintain its financial strength and the quality of its products and services. Its the internal auditors job to identify all auditable activities and relevant risk factors and to assess their significance.

The polished skills internal auditors possess assist them in accurately identifying the risks an organization faces, put a relative value on each, and keep the lines of communication open in the process. This not only fosters a close and invaluable relationship with management but also enables the auditor to anticipate emerging issues and opportunities.

Changing trends impact the way an internal auditor assesses risk. Todays internal auditing has changed from a reactive, control-based form to one that is risk-based and proactive.

93

This means that greater emphasis is placed on the internal auditors role in mitigating risk. By focusing on effective enterprise risk management, the internal auditor not only offers remedies for current trouble areas but also anticipates problems and plays an important role on protecting the organization from catastrophes or missed opportunities in the future. Internal auditors must be flexible to the changing tides of todays business environment. Evaluating risk in a rapidly changing world means that auditors have to stay abreast of global and workplace issues such as mergers and acquisitions, new computer systems, and electronic commerce. Internal auditors are in the unique position to protect their organizations from potential disasters today and in the future.

2. CONFIRMING INFORMATION Confirming information is a critical step in the audit process, and if compromised, diminishes the value of the audit. It is the responsibility of the internal auditors to keep their organizations informed of all discoveries and research observations made during the audit process. They must be careful to keep the lines of communication open with those in the organization who are directly involved in the audit. Therefore, the importance of excellent communication skills to the professional audit practitioner cannot be overemphasized.

As internal auditors research and gather information, they must make absolutely sure it is factual and complete. They also must remain aware that senior management and the audit committee are interested in receiving constant feedback on the status of the audit process. Continuing confirmation of all information with the client assures that the audit is accurate and concise. It keeps the internal auditor focused on the material that is vital to the audit.

94

By confirming information with the client on a continual basis, the internal auditor can analyze information quickly and make sound and accurate judgments. Working closely with the organization results in smaller error margins and an audit that is representative and conclusive.

The confirmation process in internal auditing requires auditors to be inquisitive, speculative, and observant. Internal auditors have an aptitude for problem solving and for making sure that things are in order.

By modeling communication and making suggestions, the internal auditor operates as a team player, constantly adding value to the organization. This means todays audit professional a coach, not a cop can vastly impact the effectiveness and efficiency of operations and help set the tone for ethical practices and behavior throughout the organization.

3. ANALYZING OPERATIONS When an organization creates corporate objectives and goals, it must follow the appropriate procedures to make sure those goals are reached. Internal auditors review operations closely, confirming that the correct protocol is being followed and the goals are being met. This is vital to the organizations health and well-being.

The internal auditors must be well versed in the objectives of their organization and have the ability to examine and analyze to make sure operations are effective. After investigating the process, they report their findings and recommend appropriate courses of action. They

95

may also have to establish criteria, based on their objective opinion, for meeting their organizations goals. Competent professional internal auditors accurately interpret facts and figures of the organizational process quickly and strive for continuous improvement. Through a strong commitment to the organizations corporate values and goals, their understanding of the big picture plays a crucial role in the overall success of the organization.

Today, internal auditors work closer than ever with their customers. By doing so, they can be more accurate in their recommendations and help the organization adhere more closely to its objectives. As valuable resources for internal processes and operations, internal auditors continue to prove themselves vital.

4. REVIEWING COMPLIANCE Compliance conformity to fulfill obligations in the audit world ensures that organizations adhere to rules and regulations. When those in an organization ignore guidelines, the structure can crumble. Part of an internal auditors job is to review compliance and ensure that the structure stays solid Managements role is to implement policies and maintain extensive knowledge of the compliance requirements of all applicable laws, regulations, and contracts.

The internal auditors provide a valuable service to management and the Board by staying fully educated about the intricacies of, implementation strategies for, and compliance with all current regulations and such legislation as the Sarbanes-Oxley Act.

96

In reviewing compliance, the realm of responsibility over which internal auditors preside is large. Specifically, internal auditors are responsible for reviewing objectives, providing insight into the impact that noncompliance would have on an organization, and informing senior management of indications of significant noncompliance. In short, they make sure the base structure of an organization is strong so that it can hold steady during potentially turbulent times. Compliance issues are always changing. As organizations alter policies, internal auditors have to be prepared to deal with the onset of new challenges. They not only need to identify areas that do not comply with policies and guidelines but also see that objectives set by management adhere to the organizations overall mission, culture, and climate.

Whether determining if an organization fulfills its legal and ethical obligations or its members comply with the proper guidelines, internal auditors areas of expertise are constantly growing. By ensuring that an organizations structure is strong and can withstand the tests of negative weathering from outside and inside, it is the internal auditors who help senior management sleep well at night.

5. RECOMMENDING CONTROLS

Controls refer to ethical values, consistency in meeting goals, performance measures, and much more. Everybody within the organization from the mailroom to the boardroom plays an important role in internal control. Internal control is at the very center of the

97

internal auditors world. It is also integral to effective corporate governance, and thereby is critical to management and the Board.

According to the Committee of Sponsoring Organizations of the Tread way Commission (COSO), internal control consists of: (1) the control environment that sets the tone of the organization, (2) risk assessment, or the identification and analysis of relevant risks, (3) the policies and procedures or control activities that help ensure management directives are carried out, (4) the identification and communication of pertinent information, and (5) a monitoring process that assesses the quality of the internal control systems performance.

The internal auditors evaluate control efficiency and effectiveness and determine whether the controls in place are adequate to mitigate the risks that threaten or have the potential for threatening the organization.

Frameworks such as COSO provide guidelines for effective internal control implementation and monitoring.

Today, a broad array of successful internal control practices is available to practitioners who want to stay on the leading edge of the profession. Control Self-Assessment (CSA) is just one such practice. And, with advanced control implementation and, ideally, the cooperation of those throughout the organization, internal auditors can broadly address problems quickly and work to prevent disasters in the future. Modern internal auditings role in internal control is essential. Working in partnership with management, the internal audit function can be invaluable to every aspect of the organization.

98

6. ASSURING SAFEGUARDS

Organizational resources are valuable. Its in the companys best interest to defend and guard them against potential damage. Since most holdings can be pricey and even priceless, there is a great risk of loss if they arent safeguarded appropriately.

Enter the internal auditors. By reviewing the means used by the organization to protect its assets, internal auditors can determine whether appropriate safeguards are in place. They must be able to evaluate the procedures used to safeguard assets from different types of losses like theft, fire, activities that are illegal or improper, and exposure to elements.

Section 404 of the Sarbanes-Oxley Act requires an annual assessment of internal control to ensure financial statement accuracy. The internal auditors fill this need by evaluating the adequacy and effectiveness of controls throughout the organization. Their work includes an examination of the reliability and integrity of financial and operational information, the effectiveness and efficiency of operations, and the ways in which the organization safeguards assets and complies with laws, regulations, and contracts. Based on their findings, the internal auditors can provide assurance to management, so that the CEO and CFO can certify, as required by law, the accuracy of the financial statements with confidence.

If the assets in an organization arent protected appropriately, then internal auditors must make recommendation to ensure that they are.

99

Assets arent just tangible items such as computers, printers, and copiers. Employees and information are also important assets to be safeguarded. A high turnover in staff results in loss of human assets: good, educated employees and the cost of time and training for new hires. Information, knowledge management, and information technology are just as imperative. And, as technology continues to develop, so do challenges in safeguarding it. New dimensions include product support, advisory and consulting engagements, and active involvement in the process of restructuring. Internal auditors must be accomplished in anticipating emerging issues and creating solutions.

The Audit Process

The internal audit process is something that most people that are audited are often only aware of when the auditors are on site and this can often give a limited picture of our whole cycle of work. The Internal Audit Service at the University of Birmingham is committed to providing a service that includes constructive involvement and communication between you (our audit client) and us. The step-by-step guide provided below identifies the stages of an audit and highlights the potential for you to become involved in the process. We have found that things work best when unit managers and Internal Audit develop a good working relationship based on clear and continuing communication. Most audits follow a fairly well-established pattern that consist of: Planning Fieldwork Reporting Follow-up Your involvement is crucial to us at each of the four stages identified above. Specifically, audits are often viewed as something that happens to a section or service but you do have a significant input and influence upon the whole process. As a result, this does mean a small amount of time may be diverted from your usual routines. However, we are committed to minimizing the impact of this and any disruption to your activities.

100

Take a look at our step-by-step guide: Stage 1: Planning Stage 2: Field Work Stage 3: Reporting Stage 4: Follow up

Audits Done in the Factories

In Bangladesh the manufacturing organizations held compliance audit. Sometimes inventory audit is done in the manufacturing firms. It is not mandatory for the factories to maintain social compliance audit. But Bangladesh needs to improve the factory working environment and various social issues related to the ready made garments industry. International buyers are very particular about the compliance with codes of conduct. In Bangladesh Lucky Corporation does the social compliance audit.. As most of our companies products are exported to European Union so for their buyers preferences, we need to work in compliance with BSCI codes of conduct. The BSCI- the business social compliance initiatives certification is required by most of the buyers. The companies need to follow those codes of conducts given by BSCI. These are given below:

BSCI Code of Conduct

In accordance with the ILO Conventions, the United Nations' Universal Declaration of Human Rights, the UN's Conventions on children's rights and the elimination of all forms

101

of discrimination against women, the UN Global Compact and the OECD Guidelines for Multinational Enterprises, the BSCI Code of Conduct aims to attain compliance with certain social and environmental standards. Supplier companies must ensure that the Code of Conduct is also observed by subcontractors involved in production processes of final manufacturing stages carried out on behalf of BSCI members. The following requirements are of particular importance and are implemented in a developmental Approach: 1. Legal Compliance Compliance with all applicable national laws and regulations, industry minimum standards, ILO and UN Conventions, and any other relevant statutory requirements whichever requirements are more stringent. 2. Freedom of Association and the Right to Collective Bargaining The right of all personnel to form and join trade unions of their choice and to bargain collectively shall be respected. In situations or countries in which the rights regarding freedom of association and collective bargaining are restricted by law, parallel means of independent and free organization and bargaining shall be facilitated for all personnel. It shall be ensured that representatives of personnel have access to their members in the workplace. - In accordance with ILO conventions 87, 98, 135 and 154. 3. Prohibition of Discrimination No discrimination shall be tolerated in hiring, remuneration, access to training, promotion, termination or retirement based on gender, age, religion, race, caste, social background, disability, ethnic and national origin, nationality, membership in workers organizations including unions, political affiliation, sexual orientation, or any other personal characteristics.

102

- In accordance with ILO conventions 100, 111, 143, 158 and 159.

4. Compensation Wages paid for regular working hours, overtime hours and overtime differentials shall meet or exceed legal minimums and/or industry standards. Illegal, unauthorized or disciplinary deductions from wages shall not be made. In situations in which the legal minimum wage and/or industry standards do not cover living expenses and provide some additional disposable income, supplier companies are further encouraged providing their employees with adequate compensation to meet these needs. Deductions from wages as a disciplinary Measure are forbidden. Supplier companies shall ensure that wage and benefits composition are detailed clearly and regularly for workers; the supplier company shall also ensure that wages and benefits are rendered in full compliance with all applicable laws and that remuneration is rendered in a manner convenient to workers. - In accordance with ILO conventions 26 and 131.

5. Working Hours The supplier company shall comply with applicable national laws and industry standards on working hours. The maximum allowable working hours in a week are as defined by national law but shall not on a regular basis exceed 48 hours and the maximum allowable overtime hours in a week shall not exceed 12 hours. Overtime hours are to be worked solely on a voluntary basis and to be paid at a premium rate. An employee is entitled to at least one free day following six consecutive days worked. - In accordance with ILO conventions 1 and 14. 6. Workplace Health and Safety

103

A clear set of regulations and procedures must be established and followed regarding occupational health and safety, especially the provision and use of personal protective equipment, clean bathrooms, access to potable water and if appropriate, sanitary facilities for food storage shall be provided. Workplace practice and conditions and conditions in dormitories which violate basic human rights are forbidden. In particular young workers shall not be exposed to hazardous, unsafe or unhealthy situations. - In accordance with ILO Convention 155 and ILO Recommendations 164 and 190. In particular, a management representative responsible for the health and safety of all personnel and accountable for the implementation of the Health and Safety elements of the BSCI shall be appointed. All personnel shall receive regular and recorded health and safety training, moreover, such training shall be repeated for new and reassigned personnel. Systems to detect avoid or respond to potential threats to health and safety of all personnel shall be established.

7. Prohibition of Child Labor Child labor is forbidden as defined by ILO and United Nations Conventions and/or by national law. Of these various standards, the one that is the most stringent shall be followed. Any forms of exploitation of children are forbidden. Working conditions resembling slavery or harmful to children's health are forbidden. The rights of young workers must be protected. In the event that children are found to be working in situations which fit the definition of child labor above, policies and procedures for remediation of children found to be working shall be established and documented by the supplier company. Furthermore, the supplier company Shall provide adequate support to enable such children to attend and remain in school until no longer a child. - In accordance with ILO Conventions 79, 138, 142 and 182 and Recommendation 146. 8. Prohibition of Forced Labor and Disciplinary Measures

104

All forms of forced labor, such as lodging deposits or the retention of identity documents from personnel upon commencing employment, are forbidden as is prisoner labor that violates basic human rights. The use of corporal punishment, mental or physical coercion and verbal abuse is forbidden. - In accordance with ILO Conventions 29 and 105. 9. Environment and Safety Issues Procedures and standards for waste management, handling and disposure of chemicals and other dangerous materials, emissions and effluent treatment must meet or exceed minimum legal requirements. 10. Management Systems The supplier company shall define and implement a policy for social accountability, a management system to ensure that the requirements of the BSCI Code of Conduct can be met as well as establish and follow an anti-bribery / anti-corruption policy in all of their business activities. Management is responsible for the correct implementation and continuous improvement by taking corrective measures and periodical review of the Code of Conduct, as well as the communication of the requirements of the Code of Conduct to all employees. It shall also address employees concerns of non compliance with this Code of Conduct.

Terms of implementation:

All suppliers are obliged to take the measures necessary to implement and monitor the BSCI Code of Conduct:

105

Management Responsibilities: To inform management and farms about the content of the BSCI Code of Conduct. By establishing where responsibility lies within the company's organization regarding all BSCI Code of Conduct issues. To appoint one or more management workers to be responsible for implementation of the BSCI Code of Conduct. By monitoring company compliance with the BSCI Code of Conduct and implementing necessary changes both at its processing units and at all farms. Worker Awareness: By giving a statement of their support for the principles of the BSCI Code of Conduct to their workers, and by informing and instructing their workers and those of the farms regarding the contents of the BSCI Code of Conduct. The company must have the BSCI Code of Conduct translated in its entirety into the appropriate local language(s) and have it displayed in a prominent position at both its processing units and farms. Workers must also receive verbal orientation and information regarding the Code of Conduct in a language they understand. By regularly training workers in workplace, safety and on the impact of their activity on mankind and the environment. Record-Keeping: By keeping records of the names, ages, working hours and the wages paid to all workers and making these documents available to BSCI auditors on request. By documenting the location of dangerous materials and other potential hazards

106

By monitoring and maintaining safety equipment and materials Keeping up to date documentation regarding relevant national labor and other relevant regulations and requirements. Complaints and Corrective Action: By appointing a worker responsible for handling complaints related to BSCI issues. By documenting and investigating complaints from workers or third parties related to BSCI issues, and reporting on their substance and any necessary corrective measures arising from them. To make the resources available for implementing necessary corrective measures. Refraining from dismissals or other disciplinary measures against workers who pass on information regarding compliance with the BSCI Code of Conduct. Farms: By making the introduction of social standards and compliance with the BSCI Code of Conduct a condition of all contracts that it enters into with farms. By integrating all farms in the social management system, including monitoring and auditing activities and the implementation of corrective actions towards improvement By asking farms to report regularly about their progress in implementing the BSCI Code of Conduct.

107

Monitoring: By providing BSCI Members with relevant information about their activities and the locations of processing units and farms. By allowing audits of their business premises and activities and those of their farms to be carried out at any time with or without prior notice by organizations acting on behalf of BSCI members.

Audit findings in south End Sweater company Limited

Some Buyers also do the social compliance audit to the supplying firms and factories by the supervision of there own audit committee. Our valued customer KIK, Defecto has done their respective audit programs in South End Sweater premises and after that they choose to buy products from the company. For South End the Audit consulting firm is FOUR-D. The findings of the audit firms which should be changed and taken care off are given below: *Factory employees are aware about the BSCI codes of conduct *Factory did not introduced capacity planning method. *Factory did not introduce cost Accounting method. *No pay slip issued to the employees. *Factory was not compensating for overtime work after working 8 hours normal work. Factory pays only for the pieces which produce at the overtime hours.

108

*It was noted that factory maintaining manual attendance record keeping. The manual attendance record keeping system is one of the main reasons for rating the factory ZERO tolerance position in social & other compliance audit. It is recommended to install automated attendance & payroll system in the factory. *It was noted that dinning area missing evacuation plan. *It was found that some doors of the rooms were inward direction. *It was noted that exit box & arrow mark missing BSCI color code *It was noted that appropriate patients bed not provided to the medical room *Health & safety training provided to the employees. *chemicals are properly labeled & safely stored. *There was no Environmental Management system in the factory * Factory did not determine minimum wages for the workers. Minimum wages did not guaranteed. Factory paying wages on the basis of pieces of production. The consultancy firm FOUR-D and the Audit firm from BSCI done their audit in the factory through physically visit, Planning, field work, Reporting and Follow up and found the mentioned scenario. BGMEA, BKMEA also does audit programs on the factories of their concern. For getting the membership of BSCI and also to be the certified suppliers of renowned buyer companies, South End Sweater Company Limited needs to check and review their services and facilities .If the authority found any mis-conduct then it should immediately take the corrective actions for the betterment of the company.

109

Chapter Five
5) Strategic Analysis
This Chapter covers the followings:

5.1 SWOT Analysis of South End Sweater Company Limited

110

5) Strategic Analysis 5.1) SWOT Analysis

From my practical observations, I understood the followings as the strength, opportunity, weakness and threat (SWOT) of the South End Sweater Company Limited:

Strength:
It has excellent reputation in the market. Not engaged in unfair business practices. Concentrated market. Officers are highly qualified. Executives are highly qualified and experienced. Easy availability of skilled manpower Ability to develop a new item as per customer requirement. Highly developed relationship with the customers Flexible operating practice. Easy availability of raw materials and other inputs. Easy availability of domestic and imported machines Vast pool of skilled laborers. Most of the workers are paid at piece rate so labor urge is not made easily Demonstration effect Stable business environment

Weakness:
Lack of brand image In adequate information on changing customer preferences Traditional method of production Not aware of the market potential

111

 Traders enjoy most of the profits in value chain unhealthy competition Delayed and irregular payment Low level of technology development Dependence on others for raw materials. Limited knowledge in international marketing information. Inefficiency in port management. High rejection and rework rate. problem with productivity and quality No suitable training courses by the institutions shortage of power High rate of interest

Opportunities:
Cost of yarn production is lower than other countries The Knitting section has the substantial competitive advantage over its competitors. Has the prospect to move into high value added products through diversification. Worldwide reputation and presence in quality conscious EU and USA market. Good relationship with the buyers. Cheaper price of labors. Availability of labor force.

Threat:

112

 There are many competitors in the market. Competitors have more capitals and investments Import of raw materials can be stuck by the competitors. Ruling government is not conducive in the viewpoint of the bank. Government imposes high taxes and VAT on profit and earnings. Environmental issue, labor standard, trade related aspects of intellectual property rights might appear as a delay threat as a company of Bangladesh Bargaining power of buyer is higher than the bargaining power of supplier.

113

Chapter Six
6) Recommendation and Conclusion
This Chapter covers the followings:

8.1) Recommendation 8.2) Conclusion

114

Recommendation
Recommendation for South End Sweater Company Limited # The South End Sweater Company Limited as a new company most of its Accounting related works and reporting are done at the head office. The factory only prepares and maintains the petty cash and receipts payments statement. But it should start to prepare the financial statement at the factory office #. The Accounts Section of the factory follows the traditional system of recording. It should introduce comprised system. # The Company pays wages on the basis of pieces of production but there should be a minimum wage rate for the workers # Company does not maintain sufficient cash balance in the factory; it should maintain liquidity to face the emergency and uncertainties # the amount allotted for the petty cash for 10 days should be increased.

Recommendation for the Readymade garments industry Bangladesh economy at present is more globally integrated than at any time in the past. The MFA phase-out will lead to more efficient global realignments of the Garments and Clothing industry. The phase out was expected to have negative impact on the economy of Bangladesh. Recent data reveals that Bangladesh absorbed the shock successfully and indeed RMG exports grew significantly both in FY06 and (especially) in FY07. Due to a number of steps taken by the industry, Bangladesh still remains competitive in RMG

115

exports even in this post phase-out period Our Garments Industries can improve their position in the world map by reducing the overall problems. Such as management labor conflict, proper management policy, efficiency of the manager, maintainable time schedule for the product, proper strategic plan etc. Government also have some responsibility to improve the situation by providing- proper policy to protect the garments industries, solve the license problem, quickly loading facility in the port, providing proper environment for the work, keep the industry free from all kind of political problem and the biasness. Credit must be provided when the industry fall in need. To be an upper position holder in the world Garments Sector there is no way except follow the above recommendations. We hope by maintaining proper management and policy strategies our country will take the apex position in future. Suggestions Regarding Fire Safety we need to remember that when there is a fire, the first thing one should do is to run away from it. And this is what everyone does in such a situation. But the situation become dangerous and tragic when the escape doorways and gates are found locked. Precautionary should need to be adopted are given below: 1. Building should be constructed with fire resisting materials 2. Adequate exits and proper escape routes should be designed 3. Protection against fire and smoke should be ensured 4. Electrical wiring must be properly designed, installed and maintained 5. Escape routes should be lighted at all times, kept clear is indicated by signs 6. Regular fire drills should be held 7. Doors should be protected and should open along the direction of escape

116

8. Doors should not open on the steps and sufficient space should be provided. 9. Smoke/Fire alarm systems must be installed 10. Adequate number of extinguishers should be provided 11. Prior relationship with local Fire services should be established

Conclusion
the Ready-Made Garments (RMG) industry occupies a unique position in the Bangladesh economy. It is the largest exporting industry in Bangladesh, which experienced phenomenal growth during the last 25 years. By taking advantage of an insulated market under the provision of Multi Fibre Agreement (MFA) of GATT, it attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP within a short span of time. The industry plays a key role in employment generation and in the provision of income to the poor. To remain competitive in the post-MFA phase, Bangladesh needs to remove all the structural impediments in the transportation facilities, telecommunication network, and power supply, management of seaport, utility services and in the law and order situation. The government and the RMG sector would have to jointly work together to maintain competitiveness in the global RMG market. Given the remarkable entrepreneurial initiatives and the dedication of its workforce, Bangladesh can look forward to advancing its share of the global RMG market.

117

References

# Haider, Mohammad Z.(2006). Export performance of Bangladesh textile and Garments industry in major international markets. The Keizai Gaku Annual report of the Economic society, vol. 68, No.1( Sendai-Shi, Japan, tohoku University)

# Competitiveness of the Bangladesh readymade garments industry in major international markets. Asia pacific trade and investment review, Vol.3. no. 1, june 2007

# Bangladesh Garments manufacturers and Exporters Association (BGMEA)Government recognized trade body, of garments factories bangladesh, www. Bangladesh garments.info>accessed during the period 2003-2007 # Memorandum of Association of South End Sweater Company limited # Research on Ready made Garments Industry in Bangladesh.

118

119

120