Attaining competitiveness in RMG
Competitiveness is a prerequisite for maintaining high levels of investment, income and employment. For developing countries like Bangladesh which largely depends on a handful of products for its export earnings, competitiveness is crucial for product diversification. It enables the export earning sectors like readymade garments (RMG) to sustain the pressure of rising wages and other impediments.
According to Michael E. Porter, Professor at Harvard, "the competitiveness of nations depends on their economic creativity. Economic creativity is measured using technology index, innovation index and transfer of technology index and a business start-up index. The start-up index includes the ease of starting a business, access to loan capital without collateral and access to venture capital.
Entrepreneurs expect more government support for different industrial segment. In industries level, companies try to be competitive with scaling up of production and vertical integration through merger, alliance, strategic partnerships, collaboration, and supranational globalisation.
The competitiveness is also expected in business environment and the sophistication of industrial technology as well as in inter-sector cooperation. The business environment has now become global due to globalisation and local businesses' integration to global value chain. It also includes "an expanding base of domestic enterprises able to compete globally; thus, competitiveness is sustained and is generally accompanied by rising incomes" (UNCTAD, World Investment Report, 2002).
According to a researcher, competitiveness attained with the increased productivity of a nation's enterprises as well as through increases in value-addition. To achieve these enterprises must transform their ways of competing. They must shift from comparative advantages (i.e. low-cost labour, etc.) to competitive advantages, namely the ability to compete on cost and quality, delivery and flexibility.
Some experts have described three stages in competitiveness: (1) catching up, (2) keeping up and (3) getting ahead. According to Efendioglu, strategic competitiveness has two main aspects: the ability to stay close to the frontier of technology and of integrated international production systems and the capability and flexibility to accommodate change in old and new industries (catching up/keeping up).
Bangladesh garment industries still making non-brand, traditional and low cost garments without much change in design and test. This sector is surviving without any proper R&D and innovation.
Competitiveness has been taken up with top priority by the World Bank and other organisations. They use to study and publish annual report on competitiveness of most of the countries. Some of these reports are by UNCTAD's World Investment Report (WIR), and the Global Competitiveness Reports, published by the World Economic Forum.
The Global Innovation Index captures seven elements of the national economy that enable innovative activities. These are: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. Two output pillars capture actual evidence of innovation outputs: (6) Knowledge and technology outputs and (7) Creative outputs.
The Global Innovation Index 2017 measures Bangladesh's ranking at 114 in the Global Innovation Index (GII) in 2017 among 127 countries. The country was ranked 99 out of 137 countries in the Global Competitiveness Index (GCI) 2017-18 by the World Economic Forum. In 2016, global FDI flows decreased by 2 per cent to $1.75 trillion owing to weak economic growth and significant policy risks perceived by multinational enterprises.
The present domestic investment of Bangladesh is much below the target of 35 per cent of gross domestic product (GDP), required for achieving more than 10 per cent growth as targetted. It is universally agreed that important element in improving competitiveness is building domestic capabilities. Competitiveness is dependent not only on macroeconomic adjustments or natural endowments but also on the ability to achieve high productivity by deploying and using these assets (human resources, and capital and physical assets) in the most effective manner.
Bangladesh promotes its RMG products to the global buyers branding itself as the "source of cheapest labour", although cost of labour is not the main indicator of competitiveness. The means of competitiveness consists of management, technology and skill of labour. Among the drivers of competitive industrial performance and capability are the technological effort as shown by research and development expenditures by productive enterprises or technology imports and infrastructure.
The difference between the competitiveness of an enterprise and that of a nation is that the enterprise will cease to exist if it remains uncompetitive for long whereas a nation never goes out of business no matter how badly it is managed or how uncompetitive it is.
Different Global survey of Bangladesh such as World Competitiveness index and Corruption index and Cost of doing business are suggesting that Bangladesh is not a competing location of investment. According to World Investment Report 2016 of the United Nations Conference on Trade and Development (UNCTAD), FDI inflows to Bangladesh rose by 4.38 per cent to $2.33 billion in 2016, which was $2.23 billion in 2015. Both domestic investment and FDI is really frustrating.
No nation can prosper in the globalised economic arena without competitiveness. The main goal of a competitiveness strategy is to improve the structural position of the country in the global economy by upgrading current activities and incorporating new skills and capita intensive activities.
The lack of competitiveness in RMG is reflected primarily in its deteriorating welfare conditions including wages of labour, working environment and other social factors. There are growing concerns among global buyers over labour rights and other human rights in Bangladesh. There is a trend of taking over of small garment factories by big factories. Number of garment units is reducing but the production is increasing in Bangladesh. There is no visible investment from home and abroad. This is another sign of moving towards san competitiveness. The creation of new jobs is also declining, according to latest study of BBN. All these indicate that garment industry is not competitive and sale of low cost garments to overseas buyers have negative impact on wages, working and human right condition and employment.
Bangladesh garment started with private initiative of entrepreneurs, namely Zakaria Bhuiyan and Md Riaz and subsequently the sector was given a big boost by a veteran bureaucrat named Nurul Quader. He influenced the government to start the landmark reform in the sector through introducing 'bond license' and 'back-to-back Letter of Credit' etc. These reforms are swallowed by authorities without amending the Customs Act 1969 and Foreign Exchange Regulation Act, 1947.
So it proves that so far, policy support, not competitiveness, has driven the RMG sector towards the growth trajectory.
The writer is a legal economist.