Lessons from ASEAN in global electronics trade

M. Rokonuzzaman | Published: July 01, 2017 20:08:02 | Updated: October 17, 2017 01:06:07

Electronics is a typical example of linear model of innovation. The journey started with the invention of transistor in 1947. Three American physicists John Bardeen, Walter Brattain and William Shockley invented this device. The American Bell Laboratory supported the research for the purpose of developing solid-state switch to deal with frequent failures of electromechanical telephone switch. For the discovery of solid-state science in explaining the operating principles of this device, the trio was honoured with the Nobel prize in Physics in 1956. Since the invention of this remarkable device, there has been a persistent race in making it smaller and better functioning to support countless innovation around it. The device has been at the core of growth of technology and innovation giving the birth of new phase of industrial economy. 
Over the last more than half a century, competition in making investment in pursuing  journey of innovation, imitation and substitution has been the most noted development in the arena of wealth creation. This fundamental science-driven progression has not only created jobs for highly-qualified science and engineering graduates, it has also created opportunity for high-school graduates. Although many countries in the Association of South-East Nations (ASEAN) have succeeded in developing large-scale industry around electronics, unfortunately Bangladesh's footprint in this remarkable industry is virtually absent. 
The science-driven birth of the electronics industry still dominates the global patent landscape. In the recent past, of the top 30 international patent applicants worldwide, 23 came from electronics. But countries of the ASEAN succeeding in developing large-scale industry and employment in electronics are not visible in such patent filing. These countries are simply leveraging low-cost labour, business- friendly policies and regulations, and investment to keep succeeding. For example, Vietnam's export in electronics is more than US$25 billion. Similarly, the Philippines is generating more than 50 per cent of export revenue from this industry. Malaysia and Thailand are well known for their successes in this industry with export reaching US$85.6 billion and US$55.0 billion, respectively, in 2014. 
According to a study conducted by the International Labour Organisation (ILO), the electronics sector directly employs an aggregate of more than 2.5 million workers in the ASEAN member-countries. Over the past decade, ASEAN's exports in electronics (sometimes termed as electrical and electronics) almost tripled, reaching US$382.1 billion in 2014. On the contrary, Bangladesh has deployed 4.0 million workers to generate an export volume of just US$30 billion in textiles and readymade garment (RMG). This industry not only offers new opportunity, it also opens avenues for increasing per capita income. 
Over the decades, the value chain of this industry has been segmented into numerous pieces and has been distributed across the globe. Both small manufacturers and global giants participate in this industry. It's a very common practice for a single product to be the result of labour carried out by dozens of enterprises across multiple countries. The high value-to-weight ratio of electronic components and most final products make long-distance shipping relatively inexpensive. As a result, air shipment is common, thereby permitting supply chain integration from multiple locations. Although Bangladesh succeeded in developing very low value-to-weight ratio of apparel products, why could not this country make any headway in this industry is a serious question to us. Being crippled with physical infrastructure and port facility, this electronics industry should have been more favourable than other manufacturing activities for Bangladesh to succeed.   
The obvious question is: what are the ASEAN's drivers making it an extremely attractive destination for manufacturers and investors? Despite weakness in high-tech design, research and innovation, the ASEAN members are primarily leveraging low-skilled assembling and packaging and investment through which each member-state brings its own strengths and specialties, allowing the region as a whole to cater to different electronics sub-sectors. Singapore has been pursuing investment-driven manufacturing of integrated circuits, processing silicon and producing printed circuit boards. On the other hand, Vietnam's allure lies in its low labour cost. At the end, ASEAN member countries' competitive labour cost remains the primary attraction for many electronics manufacturers and a key pull factor for investment. Bangladesh, having its labour cost far lower than that of Vietnam and acceptable air connectivity, why could not it connect herself to this regional value chain of electronics? 
The growth of any industry in any country requires a trigger point and subsequent complementary steps to create the momentum of virtuous growth. Carefully taken steps eventually lead to the formation of clusters resulting in additional benefits like economies of scale and scope, proximity and close cohesion of supply chain.  For example, the multi-fibre agreement (MFA) promoted by the European Union and introduced in 1974, triggered the formation of export-oriented textiles and ready-made garments industry in Bangladesh. This MFA addressed the market failure in connecting the low-cost labour of least developed countries with the global value chain of textiles and apparels. To take advantage of globalisation of value chain of electronics industry, governments of individual member-states of the ASEAN played a critical role to address the market failure. But, unfortunately, the government of Bangladesh could not take necessary steps to catalyse the growth of this industry. Rather, private investment, development partners and the government alike remained busy in supporting expansion of only one sector: textiles and RMG. As a result, despite full employment of workers having virtually no or little education, there has been growing unemployment among college and university graduates. Moreover, per capita value addition in electronics is far greater than that in textiles and RMG. 
Although textiles and RMG face serious threat from robotics and automation, such threat to electronics appears to be far less.  It's well understood that product complexity, short product life-cycle and level of automation are inversely correlated. With the given nature of production and life span of products, human perception, flexibility, dexterity and adaptability make them preferable over machines for the time being.
The electronics industry faces typical market failure to take off in Bangladesh. Despite the potential, the activation is not triggered yet. For textiles and RMG, the external force like MFA triggered the launching. But for this case, the government should take necessary steps to address the prevailing market failure. Instead of taking generic step at slow pace, serious business deals need to be made and executed accordingly. For example, in 1990s, the Vietnamese government made a deal with Canon to prepare farmland ready with necessary access roads and utility connection to set up a factory. And Vietnam made it ready within the agreed deadline. 
Bangladesh's long 16 years of dillydallying with highly underdeveloped high-tech park located at Kaliakoir certainly does not represent the sincerity that an investment needs to succeed in this highly globally competitive industry.  It's for the government to engage in serous investment talks with multinationals to set up operations in Bangladesh. To address the market failure, high precision interventions are to be made. It's a golden opportunity for Bangladesh to connect to the regional value chain of this high value-to-weight industry. It does not require massive investment to improve the Dhaka-Chittagong highway or upgrade the Chittagong port. It simple needs to make the Kaliakoir high-tech park ready to use, high-speed rail connectivity with the park, and serious negotiations with potential multinationals to set up factories in the park. Once certain progress is made, an ecosystem will start forming bringing additional advantages on top of the low labour cost making Bangladesh a thriving hotspot in the regional value chain of semiconductor and electronics industry. Why are we waiting for to turn a portion of 40 million students builders of this industry?  
M. Rokonuzzaman Ph.D, academic, researcher on Technology, Innovation and Policy, is Professor, Department of Electrical and Computer Engineering, North South University, Bangladesh.


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