The Textile Industry in Bangladesh is growing fast despite the fact of the global economicslowdown. In current situation, businesses like Wall Mart and their customers look very cautiously towards the product necessity, value and price. Firms are more focused to lower the operational and transaction costs and to maintain their profit margins. In this global condition, various factors contributed that Bangladeshi textile industry move towards the path of growth and leaving noticeable footprint in the global textile industry as a success story. General description of the Bangladeshi Textile Industry
Bangladeshi Textile Industry has pivotal role to the country’s economic growth for several reasons. First, the exports contribute to the balance of payment accounts of the country with almost 80 percent which is around $5 billons per year just to European Countries, Canada and the US. This industry provides 45 percent of all industries employment (over four million people) and contributes largely to the gross national income. As perRaymond Vernon, after the independence of Bangladesh in 1971, West Pakistanisdeserted their firms and the new socialistic government took the ownershipover these companies.After ten years, with the denationalization by the Government,around 300 companies are returned to their previous owners.(Vernon,1997, p128).
This sets textile industry to operate in three main areas as Public, Private and Handloom segment. The private segment, supported with some foreign direct investments, is increasingly growing but the handloom is providing the most employment as wellin sources significant partof required quantities of fabrics to local market.(Malhotra, 2012). By end of 2004 the Bangladeshi phenomenon,even one of the poorest countries in the world, was raising the textile industry exports exponentially utilizing the situation over the export quota system and gaining market at Western countries. This trend continues after 2004even these quotas are seized and the free trade waive took place. In 2009 jump of 15 percent export increased for the textile business in Bangladesh.(TWB,2012, p206) Central issue of the case analyses
Bangladeshi Textile Industry is typical case where it proves the principle that international trade is beneficial to the country’s economic growth. Furthermore I’ve observed few factors that are in favour of the textile industry growth are linked to low labour cost, low salaries of the workers and on the other side the first movers philosophy and specialization in the textile manufacturing that leads to efficiency increase (in this case more static then dynamic efficiency). Also, the development of domestic sourcing businesses to the textile industry is important factor that supports and enhance the domesticsupply chain (reduced transportation and storage cost and reduced impact of cost from the import tax). Thus, for the Bangladeshi textile industry that meanshigher comparative advantage and move towards the free trade business methodology and positive-sum game.I trust that another contribution to this development was the approach of the Western countries by weighting carefully the growth of China and attempt to balance andspread the risk of source of supply dependency from China. That benefited Bangladesh to move forward with increased supply of their product to the well developed countries of West Europe, Canada and United States. Industry’s goals overview
I think the major goal of this industry is to create not just comparative advantage but also competitive advantage on a global scale and at the same time largely will contribute to combat the extreme poverty and hunger in Bangladesh. This stimulates economic growth and move towards the marked based economic system (privatization, deregulation, improving the legal system and protect the private property).As part of the above the goal in the textile industry isto move from command economy to market economy and this is evident with the Privatization process of the textile businesses and encouraging the entrepreneurship and investments in technology within the industry. In addition, stimulating businesses that will decrease the import of raw materials and the same will lower the transaction cost and dependency from suppliers outside the country. Again this goals lead to the common objective – that this industry will move to the path of competitiveadvantage over their competitors from China, India or Indonesia. Constraints of the problem
Despite the fast-track growth of the textile industry in Bangladesh, the privatization process, low labour and transaction cost there are some constraints to this progress. Initially, lifting quotas was seen as an issue to theireconomic expansion but in practice did not influence much this progressive growth of this industry. On the other side the infrastructure is not sufficient to respond to the growth pace, especially deficiency in power supply. Similarly, roads, railways, ports are not in good shape and continually are affected by the ageing factor as well the natural. Also, the government budget has not benefited from the Privatization, as expected, and as consequence of that the investment in infrastructure is very poor. Also, the dynamic efficiency of privatized companies had small or no net advantage in comparison to the public owned companies as the investment in newtechnology, modernisation or in human capital was little or equal to none. Moreover the political unrest throughout the years, as well lately the increased Islamic fundamentalist movements, recurring strikes and street raids, raised some concern to the investors but still we could read of investments in Bangladesh. (The Daily Star, 2012) Relevant alternatives to the issue
I believe that the following alternatives would maintain the upward trend of Bangladesh’s textile trade: First, increase the investment rates with attracting and realizing more FDI, to improve trade scenarios (focus on the other markets rather than USA or Europe- less dependent on these markets), to improve the energy policy (different source of power and regulatory policy for private participation in power distribution and generation), to introduce a wage policy (will control over-employment and provide competitive and fair salary and could decrease the dissatisfaction and potentially demonstration on the streets). Infrastructure improvements investments that will include the electricity grid, roads, railway and freight transport and new ports that will allow exporting their goods globally.Finally, Government to provide better conditions and access for financial grants and loans to the business in area of raw materials for the textile businesses, modernization and new technology to existing businesses and to keep the expansion pattern of Bangladeshi Textile Industry. Best alternative and implementation plan
I strongly believe that the last alternative is the most feasible in the current global business and economic development. I recommend that the Implementation Plan for this alternative contains two steps: Short-term and Long-term. For both steps is required, to form task-forceteam or team of financial and business independent advisors to support these groups in providing guidance and support in establishing the new business, improving the existing and develop better networking and exchange of information. Also,easier access to already provided funds from IMF or support from WTO for building trade capacities.For short-term alternative the first step is to focus in two areas as existing and/or potential new businesses.
This would happen,for existing companies,with prompt access to potential funds to focus on the dynamic efficiency (invest in modernization or new technology that will improve the productivity and capacity of the manufacturing facilities). Next step is to establish microeconomic business execution policy withrequirement for proper planning, sequence of execution of the investments, control and monitoring mechanisms and measuring the effect of the particular business to the country’s economic growth, alignment with the macroeconomic policy as well feedback loop for improvements or adjustments. This could prompt the “invisible hand of market mechanism” to regulate the goods of imports and exports which will drive maybe not absolute advantage (Hill, 2012, p.176) but would support the drive that the Bangladeshi textile industry advances to the solid comparative advantage.
Charles W.L. Hill (2012). International Business: Competing in the Global Marketplace, (9th ed.). McGraw Hill/Irwin. Ravi Ramamurti, Raymond Vernon (1997) Privatization and Control of State-Owned Enterprises(4th ed.).Retrieved fromhttp://elibrary.worldbank.org/content/book/9780821318638 Textile World Asia, T.C. Malhotra (2012) Bangladesh: A Growing Textile Economy, Retrieved from http://www.textileworldasia.com/Articles/2006/January/Features/Bangladesh_Country_Profile.html The Daily Star (2012) Political unrest makes H&M wary of Bangladesh, Retrieved from http://www.thedailystar.net/newDesign/news-details.php?nid=236149 The World Bank (2012), Bangladesh Economic Update October 2012: Resilient Growth Likely to Continue, Retrieved from http://www.worldbank.org/en/news/2012/10/21/bangladesh-economic-update-october-2012-resilient-growth-likely-to-continue-in-bangladesh