Building idea-intensive light engineering sector
We often look at light engineering as a labour-intensive manufacturing sector. But both light engineering products and processes are amenable to progression due to creation and integration of ideas. Invariably, increasing the role of ideas has been reducing labour in production. As a result, quality has been improving. Most importantly, the cost of adding per unit of value has decreased due to higher precision and lower wastage. Consequently, the importance of the role of labour in the light engineering sector has been eroding. To cope with this reality, like many least developed countries (LDCs), Bangladesh has been depending on imported technology in capital machinery and product design. If this trend continues, what would likely be the result? There is no denying that more accessibility to loans, growing tax differential, and expanding cash incentives will keep extending the lifeline of the weakening light engineering sector. But what could be the sustainable solutions for the sector? Should we draw lessons?
Creation of rconomic value depends on four significant inputs: (i) natural resources or raw materials, (ii) labour, (iii) knowledge, and (iv) ideas. For the light engineering sector, Bangladesh relies on the import of natural resources like materials and energy. Due to the abundance of low-cost labour, Bangladesh focused on adding value through labour. But the role of labour has been diminishing due to the growing role of ideas. So far, Bangladesh has relied more on imported ideas. On the other hand, software-based automation has been rapidly transferring the role of knowledge to machine or production process capability. As a result, the labour-intensive scope of adding value in the light engineering sector of Bangladesh has been diminishing, thus, weakening firms and the sector as a whole. But how have advanced economies succeeded in developing high-performing firms out of light engineering? To draw a lesson, let's look at two examples.
Bicycle parts manufacturing is perceived to be a light engineering activity. Bangladesh's light engineering sector aspires to be a producer and exporter of bicycle parts. Despite some success, the achievement is not significant and the sector is unable to create high-paying research and development (R&D) jobs. On the other hand, despite the high labour cost, Japanese Shimano is the world's largest bike component manufacturer. It has a 50 per cent market share for all parts and 70 per cent for the high-end range.
Furthermore, while Bangladesh's light engineering cluster in Bogra has been producing products worth $50 million annually by employing 15,000 people, Shimano's 13,000 employees made $2.93 billion in revenue and $462 million net income in 2017. What is the underlying reason for such a gulf of difference in revenue generation --- 60 times higher per employee? Instead of focusing on adding value through labour, Shimano's strategy has been application of ideas. Hence, it's no surprise that Shimano, with 69 patent applications in 2022, topped the list of bicycle industry in the US patent office. But how did Shimano attain this position? Did it start the journey on breakthrough invention, huge investors' fund, tax differential, easy loan or cash incentives?
Like many other light engineering workshops in Bangladesh, Shimano started the journey humbly. In 1921, Shozaburo Shimano established Shimano Iron Works in Higashi Minato in Sakai City. It was a rented, nearly 40-square-meter area. This newly established facility had only a single lathe measuring 1.8 meters long. More interestingly, Shozaburo Shimano borrowed it from Sano Iron Works. Its first product was bicycle component freewheels. Notably, the beginning of Shimano is in parallel with those of many entrepreneurs in the light engineering sector of Bangladesh. But why has not any Bangladeshi light engineering firm grown like Shimano? What is the underlying reason?
Shimano's success is rooted in two major factors. The first one is the culture-the endless desire for perfection. Instead of just making copies of existing bicycle products like Bangladeshi workshops do and profiting from low-cost labour and government incentives, Shimano focused on ideas of incremental advancement. Of course, it started due to the cultural background of Japanese society. Initially, it was driven by internal desire, intuition, and tinkering. But such idea accumulation in increasing quality, lowering cost, and improving precision, often through automation, seeded the gaining of competitive advantage out of ideas instead of the labour and government incentives. But generation of idea also reaches a saturation point. Hence, over time, Shimano focused on a scientific approach of R&D for systematically leveraging science and technology to create an endless flow of ideas to increase competitiveness. Consequently, Shimano has succeeded in outperforming competitors, including early pioneers and inventors from Germany and the USA. Shimano has turned the bicycle parts business into an opportunity of creating economic value through a flow of ideas. Unfortunately, the input of idea is missing in Bangladesh's light engineering sector. Despite continued erosion, low-cost labour and government incentives have been prioritised. Value addition is thus hampered.
Another notable example is John Deere's rise from a humble blacksmith shop. This is an American company with a revenue of $52 billion and a $9.0 billion net income. This company employing 82,000 people, started the journey in the blacksmith shop of John Deere. In 1837, blacksmith Deere opened a 1,378-square-foot (128 m2) shop in Grand Detour. He used this shop to serve as a general repairman in the village and a manufacturer of tools such as pitchforks and shovels. Soon after, in 1837, John Deere fashioned a Scottish steel saw blade into a plough. With the growing popularity of the plough, he started manufacturing and stockpiling them instead of producing them after receiving orders. Of course, such a change in the business model contributed to expanding business of plough-making. John Deere focused on continuously improving and innovating more appropriate tools for farming. The journey has led to the rise of the humble agricultural machine repairing and plough-making workshop to an intelligent high-precision agricultural machinery firm. Hence, John Deere's success in building high-tech farming machinery is due to the continued focus on creating value from idea generation and cumulative effects as product and process features. Unfortunately, this vital element is missing from Bangladesh's light engineering firms producing agricultural machinery.
Following other industrial sectors, firms in the light engineering sectors in advanced economies have been progressing on newer ideas. Their success has been due to creating economic value out of ideas. Reducing the role of labour, quality has been improved and cost of producing per unit value lowered. Thus a blacksmith's or a simple lathe workshop's humble beginning ended up creating high-paying jobs for university graduates and inspiring generation of knowledge and ideas. Their success makes labour-based value-addition scope in Bangladesh and other less developed countries less likely. Unfortunately, this fundamental reality is overlooked by industry players, sector development experts, lenders, and the governments of poor-performing countries.
Rokonuzzaman, Ph.D is an academic, and researcher on technology, society and policy.