Value chain up-gradation strategy of Bangladesh – the proposition of building semi heavy industry

    
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Introduction

Idea, innovation, research and development are the prime mover of a sustainable industry. If the stakeholders of Bangladesh are committed to uphold rigor growth in domestic and international arena, it must emphasize on upgrading in the value chain of the textile and other industries to make sure more value addition. For a country, semi heavy industrialization is needed for making sure vital value addition to secure the prestigious visions.  Semi-heavy industry is industry that concern one or more characteristics which works as supportive industry to support or backward linkage for the large and heavy products. This kind of industries assists large and heavy equipment and facilities such as heavy textile equipment, large machine tools, and huge buildings or complex of various processes.

Value chain up-gradation strategy of Bangladesh – the proposition of building semi heavy industry

In the context of rising cost and global textile and clothing value chain, Bangladesh must find its unique and competent proposition in crafting its future. At this stage, value chain up-gradation is badly needed for maintaining sustainable growth of textile and clothing of Bangladesh. Focusing on establishing semi-heavy industries could be one option of upgrading in the value chain.

Heavy industrialization will make sure building such a sector which will be more strong and sustainable. Current T&C sector is almost buyer driven hierarchy value chain for Bangladeshi companies. If the country can make sure producing corresponding heavy and sophisticated components, Bangladeshi manufacturer’s negotiating scope will increase and the country will be able to gain more from the global and local business.

‘Sustainability’ challenges:

socialSustainability is not only about environment. It is also about economic and social. The cost of the T&C industry of Bangladesh has to be carefully studied before any strategy is crafted. The country has set a target of exporting USD 50 billion USD of RMG by 2021. When we drive to achieve this, we need to carefully look at how is its impact on sustainability spectrum.

T&C industry has already caused severe impact on the water and other environmental issues. Health and safety issues have been well discussed. 4.5 million employees of the sector don’t have a secured future. What will be their fate after they retire? Their current earning is just enough to live the day. They hardly can save anything.

The current ‘value addition’ proposition of the sector cannot mitigate many of such challenges. A higher value proposition is must now. Most of the T&C industries are now running out of profit or very nominal profit.

‘Value Chain Up-gradation’ strategy:

Bangladesh needs to think in a different way about textile industry. The country can focus on idea development, innovation in textile industry, more attention to research and development on the semi heavy industry for reducing dependence to the foreign country.

The central bank’s periodical analysis on RMG sector has showed that local value retention of the industry was 73.12 per cent in fiscal year 2008-09, now it achieved 82 per cent in FY16. The Bangladesh bank calculated the value retention rate on the basis of import of raw materials vis-à-vis earning from export. It has opened US$ 6.92 billion back-to-back L/C only for the raw materials instead of US $ 28.02 billion export. 100 per cent value addition would never happen as the industry still imports some raw materials.

So, local value addition of the country’s readymade garments (RMG) industry has reached its best level, according to the latest statistics. Now it’s the time to upgrade in the value chain.

Usually there are four ways in upgrading in the value chain:

  1. Process upgrading
  2. Product upgrading
  3. Functional upgrading
  4. Chain (or inter-sectoral) upgrading

By understanding its unique proposition, Bangladesh should set its strategy how the country can ensure further value addition by upgrading in the value chain. Things may not be that easy or straight forward.

We need to set up large factories to have more value addition in semi-heavy industrial sector in particular. President of FBCCI and Former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Md Shafiul Islam Mohiuddin gave almost same statement. He highly insisted to the giant RMG entrepreneurs to bring diversity and make high-end products to bring out more value addition. For that we’ve to focus on semi heavy industry like sewing machine industry, knitting machine, dyeing machine, needle industry, small parts industry, chemical industry, man-made fibers and electronic equipment manufacturing, metal sheet processing industry, pressure vessel manufacturing industry, LPG gas industry etc. If Bangladesh want to be attaining the $ 50 billion target and succeeded the vision 2041, the country must make sure more spending in the sector of research and development.

Besides moving towards heavier manufacturing industries, further automation and process improvement could be done. Designing and product development section would be a great value addition as well. Product branding, marketing and retailing is another scope of value addition. However for up-grading in all these steps, Bangladesh will require to invest huge in research and intellectual property protection. In most cases competing against western countries for achieving more value from the intangible intellectual property would be very difficult. Western developed countries have huge intellectual property protection and research infrastructure and so for a country like Bangladesh competing with them would be truly difficult.

Bangladesh has done tremendous progress in ship building and automobile sector. The country has done well in steel and allied industries as well. Some initiatives are seen in electronics and control equipment manufacturing as well. Now the country can incentivize these sectors and the government can give necessary policy and other supports to such businesses as if they can produce more precise and controlled equipment and technologies. And then businesses will be able to produce technologies here in Bangladesh many of which are now being imported by the T&C industry of the country. The country can easily flourish in chemical and chemical fiber manufacturing.

Machinery import status

Bangladesh Textile Mills Association (BTMA) president Tapan Chowdhury said, “Bangladesh textile millers have imported machinery worth TK 71.19 billion in the last fiscal year of 2014-15, and 2013-14 it was TK 50.63 Billion because many millers went for business expansion and development of the productivity.

Bangladesh Textile Machinery Import Status in Billion Taka
Figure: Textile machinery import by Bangladesh (Source: Bangladesh Textile Mills Association)

As per the association more than 1,300 spinning, weaving, dyeing, printing and finishing mills in the country have invested $ 4.0 billion and the sector’s contribution to the gross domestic product amounts to 13 percent and Bangladesh has a strong position in backward-linkage industry.

However, the industry insiders desperately feel the lack of heavy industrial support because all kinds of spinning, weaving, dyeing and printing machine imported from the foreign country. Even if we didn’t produce some daily necessary parts like spear parts, cylinder bed, needle, bovine cash, thread cutter etc. But we’ve enough capability to produce textile machinery. This sector is a huge opportunity to do business. Bangladesh has not enough capabilities to build-up heavy industry right now but we have capabilities to build-up semi heavy textile industry.

The holistic industrial development:

Heavy or semi heavy industries often sell their products to other industries rather than to end users and consumers. In other words, they usually make products that are used to make other products. Accordingly, when a down economy begins to recover, heavy industry is often first to show signs of improvement. This makes the sector a leading economic indicator. Oil, mining, shipbuilding, steel, chemicals, machinery manufacturing and similar industries are examples of heavy industry. They are very capital-intensive, meaning that they require a lot of machinery and equipment to produce.

Normally Bangladesh import the spinning, knitting, weaving, dyeing and other machineries from Belgium, Brazil, China, Czech Republic, Hong Kong, Indonesia, Ireland, Italy, Japan, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the UK, the UAE, the USA, France, Germany, South Korea, India and also some other country. Last year, at the Dhaka Int’l Textile & Garment Machinery fair 2017 exhibitors sold machinery worth $ 220 million.

If Bangladesh can build its infrastructure of machinery and chemical industry, the country will be able to sell those not only to domestic T&C and other industries; they also will be able to export them to other countries. And this capacity will help the country to diversify its manufacturing industry portfolio. This up-gradation will not only make sure sustainable development of T&C sector it also open opportunities for many other allied industries.

Examples to follow:

The textile machinery manufacturing section is one of the largest segments of the machinery manufacturing industry in India. This industry is nearly sixty years old and has about 1000 machinery and component manufacturing units. Nearly 300 units produce complete machinery and the remaining produces various textile machinery components. The total investment in this industry is around 2000 Crores rupees. The machinery manufacturing operation takes place both in the organized and the unorganized sectors. In the organized sector, in addition to the public limited companies, machinery manufacturing is done in independent units, which have collaborative joint ventures with the foreign entities. In the decentralized sector, there are small-scale industrial units as well as tiny units engaged in the production of accessories pertaining to the textile machinery.

Textile Engineering Goods Industry classified as follows:

  • Ginning & pressing machines
  • Spinning & allied machines
  • Synthetic filament yarn machines
  • Weaving and allied machines
  • Processing machines
  • Hosiery/RMG machines
  • Textile testing equipment
  • Multiple segments (combination of the above)
  • Accessories and parts
  • Others

As per some reports, Bangladesh is one of the right places for its strategic location Bangladesh has huge potential to attract more foreign direct investment as the central point of eastern part of South Asia, being a connector between South and East Asia. And it will be the industrial hub for south east Asia.

Investment is not the barrier:

Indian textile machinery investment 2000 crores rupee mean 400 million USD, this little investment should not a potential problem for developing semi-heavy industry whereas lots of giant industrialist quite interested to build this types of industry like Runner, Walton, Jamuna, Envoy textile other so on. Bangladesh already has demonstrated strong economic fundamentals with a consistent GDP growth 7.05% in 2015-16 and 6.16% over last five years. This growth in GDP is supported by expanding domestic market and a significant growth of reliability in FDI. In addition to the domestic demand demand for textile machinery is increasing at a 10.90% over the year. And this types of industry build up will be easier than other countries because low-cost engineer, labour with growing skills provide Bangladesh potential competitive advantage to attract labour-intensive industries and serve as a hub to cater the export demands.

Moreover, the cost of doing business in Bangladesh is considered to be one of the lowest when compared to the other major country. A study by Japan External Trade Organization (JETRO) illustrates that the cost of doing business in Bangladesh is lowest among 28 south Asian countries.

Figure 2: Bangladesh’s competence in doing business and cost of doing business in Bangladesh.
Figure 2: Bangladesh’s competence in doing business and cost of doing business in Bangladesh.

Next business opportunities at SEZs:

At Anwara in Chittagong, Bangladesh government is set to approve a project for building infrastructure for the proposed Chinese Economic and Industrial Zone (CEIZ). The CEIZ will be developed under the Chinese government soft loan of US $ 280.71 million. The Seventh Five Year Plan and achieving the Vision 2021 of the government of Bangladesh, The Bangladesh Export Zones Authority (BEZA) has set a target to build 100 economic zones under public-private arrangement by 2030. The special economic zones (SEZs) will be developed on 75,000 acres of land that will create 10 million jobs for the people. The SEZs will have the capacity to produce products and services worth $ 40 billion, according to BEZA sources. Twenty-two more private companies have applied to the BEZA for developing such economic zones. About land price at the SEZs, the BEZA official said the government is committed to providing lands to the entrepreneurs at SEZs at the cheapest possible rates. Local private entrepreneurs have long demanded lands at reasonable prices. They have been calling upon the government to provide uninterrupted supplies of gas, water and power to their industries for maintaining smooth industrial production.

Need more research based subjects in universities:

Bangladesh needs more research-based subjects on the public and private universities of engineering and technology. A research and development job allows graduate engineers to apply knowledge and skills to spark innovation and push the frontiers of science forward.

The main objective of a research and development (R&D) is to upgrade the current technologies offered and to acquire innovations that strengthen the nation’s position in the world. And it carries the leadership over the other nations.

Below subjects will be required to be offered more to build semi-heavy to heavy industry:

Process engineering: Design, operation, control, and optimization of chemical, physical, and biological processes.

System engineering: An interdisciplinary field of engineering that focuses on how to design and manage complex engineering systems over their life cycles.

Value addition engineering: A systematic method to improve the “value” of goods or products and services by using an examination of function.

Quality engineering: A way of preventing mistakes or defects in manufactured products and avoiding problems when delivering solutions or services to customers.

Management engineering: A specialized form of management that is concerned with the application of engineering principles to business practice

Ergonomics: The practice of designing products, systems or processes to take proper account of the interaction between them and the people that uses them.

Operations research or management sciences: Discipline that deals with the application of advanced analytical methods to help make better decisions.

Engineering design process: Formulation of a plan to help an engineer build a product with a specified performance goal.

Subjects like Project management, Industrial plant configuration, Operations management and Supply chain management are also important for value chain up-gradation.

Conclusion:

In the globalized world the world is a global village. Developed countries are using under developed countries to manufacture resources and labour intensive products. On the contrary they are producing more value added high-tech products. And so day by day the gap in the developed and developing country economy is increasing. Bangladesh, if want to come out of this wicked circle, requires to take strong strategy and policy to build a sustainable dependence free diversified industry. Building semi-heavy to heavy industry will help Bangladesh to become a prestigious and important country in textile and other industrial value chain.

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