The support is needed for the industry is to increase shock absorbency
Novel Coronavirus does not kill all infected persons. In most cases, people having underlying diseases are more vulnerable to the virus. Such patients need hospitalization, ICU support and some of them die. Of course, there are cases when healthy persons also died which is less in number and could be told exceptionally.
Similarly, businesses having underlying diseases are more vulnerable to the situation like this (current economic and trade disruption). It is true it is an extraordinary pandemic situation and survival of non-essential product line businesses will be severely difficult. However normally already weak companies will have more possibility to become handicapped, bankrupt or may even die. Companies that have good health are like having a better immune system to fight with the virus.
Now the question would be what are the qualities that would indicate having a better immune system making the company capable of fighting in the economic and trade disruptions like now?
Some points are mentioned below considering the textile and apparel industry:
Core competence and the business case
In the free market economy and under the global mechanism of globalization, businesses unnecessarily (most cases) became too much global. It eventually has increased risk and companies had to fine-tune more and had to become more delicate and tinier in defining ‘core competence’ and so outsourced most of the
things and kept only a few things (operations) in house.
It has increased enormous control points and pressure in supply chain management, partner management, logistics and a huge amount of internal and external communication. Companies lost real business cases and became dependent on many other factors on which they have no control.
Eventually, some core companies having more control over the core raw materials and core markets could gain the market and most others remained vulnerable. And in a situation like today (on the effect of COVID-19 pandemic) if the chain collapses, everybody collapses (whether a weak company or strong company), as the chain was too long and so there were a lot of weak points.
So that to reduce weak points in the value chain, it is the time to think about reducing the size of the chains. Making a combination of smaller chains concentrating within the country, regions or blocks will reduce risk and reduce vulnerability.
Particularly for the countries like Bangladesh-which are not much rich in intellectual property or weak in intangible value addition- will naturally have less capacity to compensate operational or market interruptions like what is happening today. Our core competence is our tangible assets like manpower, natural resources (water, fuel, power, etc.) So, we should build our industry in such a way that we will be having smaller value chains connected, closer partners, building on stronger bonds.
So far, we have been working on opposite directions. The BDT 5000 crore rescue fund declared by the government recently is also declared to be spent on the long-chain export-oriented companies, encouraging the build further on the prevailing weaknesses. The fund or any other support given by the government should go more to encourage closer, regional or blockchain-based companies.
Access to market
As per the commitment of WTO or main global leading countries the global supply chains were supposed to be completely free. The products and services were supposed to flow free without barriers. But the reality was quite different, many countries imposed many tariff and non-tariff barriers and protected and controlled many markets.
Building a company based on a market- which has an abundance of suppliers and also the governments has more privilege to control and impose more and more barriers whenever they want- is riskier than the companies built on markets that are more easily accessible. Also, has fewer controlling scopes either by the government or by the giant market players.
In the case of the global mainstream apparel value chain, the market is almost fully controlled by the top brands and also governments put many regulations and controls. This market has very fewer scopes and freedom for the manufacturers.
In recent times alternative markets have been developing. When consumers are more moving towards online platforms, some scopes have been created to small companies and the market size is likely to be increased. A portion of the industry could be built like the wholesale shopping mall model, which will increase the role of manufacturers in the supply chain.
So, any government support if goes to the companies- which built on small quantity markets linked to e-commerce or online or offline based markets- would reduce the risk of the industry. The country would get pathways to sustainable growth.
Access to raw materials
In the current global mechanisms, raw materials are being transported to thousands of kilometers to be processed into finished goods. It increases unnecessary handling and transportation of the goods, increase cost, increase risk and reduces sustainability. Industries built on the raw materials available nearby should have been encouraged by any government support.
The government should have crafted policy to increase the value-added application of raw materials available in Bangladesh like jute and leather. The country also could build on certain synthetic fibers by producing core fiber or material manufacturing facilities. Independent analysis also could be done on the easily and readily available raw materials and companies, also should build their core competencies accordingly. Bangladesh government could invest and could facilitate businesses to invest in the steps to get more access and control on the cotton fields located in many regions in the world.
Product and market diversification
Making a portfolio is always the right idea. Companies building on product portfolio should have been encouraged. Normally apparel manufacturers have become lazy and build only on few products and few customers. They hardly planned or worked to build on a product portfolio.
Today, when the world needs more protective clothing than fashion clothing companies and countries having such capacity, will do the business. Bangladesh’s government when providing rescue supports such companies should be encouraged.
Value addition and profitability
In the current mechanism, intangible things are valuable and tangible things are cheap. So natural resources are sold or used like free and so we are destroying our world depleting the resources and bringing calamities after the calamity. Intangible things are protected by Intellectual Property Right or Patent or Copy Right but countries like Bangladesh are selling out natural resources like manpower, water, gas, etc. very cheap.
Most of the companies while doing there costing don’t put enough price for the manpower (one of the cheapest in the world), water, gas, etc. And so, their value addition is very low and so their profitability is also low. These companies don’t have enough strength to withstand shocks like a current pandemic.
Any government support should help companies building further on intangible assets. Knowledge and skills of manpower should be the priority of the companies. The government could have given interest-free loans or even grants for the human capital transformation of the companies. Professional development has been mentioned a lot. But till now we could not realize the importance and still, it is some extent overlooked by the policymakers.
Consumption of natural resources and protection of the environment must be monitored. Mechanisms should be brought in place to protect these. Companies doing such conservation should have to go encouragement and more support from the government.
Value chain partnership build-up
Interdependence and trust are very important to prevail within the value chain partners. Companies providing values to the customers and suppliers should have awarded. Trading and supply between companies should be safer and easier. Trustworthy partners can provide support to companies in a critical time.
In a situation like today when cash flow is very important, companies who built on trust and maintain quality and commitment with the suppliers and customers will get support from them. They are more likely to survive. Any rescue fund should encourage companies in building commitment and trust with the suppliers and customers.
Flexibility and innovativeness
The cruel culture of cost-cutting reduces the flexibility and innovativeness of the companies. It increases risk and creates tension and rigidity within the system. Besides being productive and effective, innovativeness must be practiced within the company. Companies that encourage research and development should get support from the governments. Such companies not only reduce their own risk but also create pathways for others to follow.
Reckless reduction of management cost, less concentration on mid-level management is reducing the flexibility and innovativeness of the companies. Such companies are being captive by the dominating partners of the value chain.