During the late 1980s, Bangladeshi manufacturing activities focused on a new, non-traditional, mainly ready-made garment production, which created numerous market opportunities for export-oriented small enterprises. Garments were mainly exported to the United States and EU markets. The garment industry is highly labour-intensive and employs approximately 2 million workers, out of which 90 per cent are women. Raw materials for the garment industry are mainly imported, as domestic cotton production is very limited. The abolition of the Multi Fibre Arrangement and growing challenges of international competition boosted Bangladeshi garment exports. The Bangladeshi Government responded proactively to trade liberalization and established close ties with China. In order to strengthen trade integration, the local Government established road links between Bangladesh and China through Myanmar and direct air connection with China.
Most garment companies are located in export processing zones (EPZs) where tariffs and quotas are eliminated and bureaucratic requirements are lowered. The most important EPZ is Dhaka Export Processing Zone, established in 1993. Around three-fourths of all foreign direct investment in manufacturing is channeled through export processing zones.
The main foreign investors in Bangladesh are the Republic of Korea, Japan, the United States of America, the United Kingdom, China, Malaysia and India.
The local garment production remains highly competitive on the labour-intensive garment market, focusing on the production of low value garments. The Bangladeshi low value garment sector enjoys lower labour costs than the competitive markets int China or India. However, innovative capacity within domestic firms is very low. Most textile and ready-made garment companies simply assemble final products in accordance with buyer-determined specifications, since they do not possess design-related capacities.