The Financial Express
Swasti Lankabangla Swasti Lankabangla

Pursuing an endless frontier of growth

| Updated: July 26, 2019 21:00:54

Pursuing an endless frontier of growth

Through successful trading of labour based productive activities in the global value chain, Bangladesh has succeeded in increasing its per capita income close to $2000. Going through different targets set for continued growth, the country wants to grow as a developed country, increasing the per capita income over $10,000. But how to make it happen is an issue.

Like many other developing countries, Bangladesh has been exhausting all conventional means in driving growth of revenue and profit. In addition to adding labour, growth can also take place through ideas of improving products and processes.  But this endless frontier of growth, by adding ideas in an incremental fashion, is often overlooked. Industry leaders are asking for tax cut, lower interest rate, and more cash incentives, among others. But are these scalable, as well as sustainable?

Growth in competitive market economy demands dealing with conflicting variables. Here are seven of them: offering (i) better quality product at (ii) lower cost to make (iii) more profit, while (iv) paying more to employees, (v) paying growing taxes, (vi) causing less pollution, and (vii) creating high paying jobs. It seems that conventional means in driving growth falls short in dealing with these.

Let's take the example of the textile and readymade garments (RMG) sector of Bangladesh. It competes in the globally competitive market. Price-cutting is often the competition strategy to retain and win customers. Producers are expanding the capacity with the hope that demand will keep growing. Such capacity expansion often outstrips demand.  Once supply is more than demand, rivalry between suppliers and buyers bargaining capability leads to erosion of margin, leading to razor-thin profit or even loss. As a result, growth suffers. Moreover, the obligation of paying more to employees for increasing per capita income and complying with regulations also increases cost, and erodes the growth capability.   

In such an industry, how to make more than the average industry profit and grow faster than the cohort is often a difficult question to answer. Leaders can take the strategy of adding ideas, which are partly excludable, to products and processes so that quality keeps growing up and the cost keeps falling in an incremental manner. As the cost of copying the idea is virtually zero, often the minimum efficient scale also increases. If a producer keeps doing it again and again, at the end of each cycle a bit of price-setting capability is attained to make more profit than before. In the language of Jim Collins, such a strategy could be termed Good to Great. By doing it, the performing firm emerges as the industry leader experiencing higher growth and profit than the industry average. Such a strategy of competitiveness improvement through a series of incremental innovation by adding one after another idea leads to a highly desired management capability.

In addressing many conflicting variables, the strategy should change.  The question could be: how are we getting that flow of ideas? We need high creativity and genius. Fortunately, it has been found that once a firm focuses on internal learning and idea management capacity, the idea starts flowing-often endlessly. Moreover, the progression of information technology, particularly the technology stack driving the fourth industrial revolution, offers us an enormous scale of generating ideas to make our productive activities increasingly more competitive. To expand their internal production capacity, firms can collaborate and trade ideas. Similarly, collaboration can expand by partnering with universities and research laboratories-forming the market of idea production, trading, and utilisation. 

What do we need to leverage this endless opportunity of competitiveness and growth? It's for the leadership to think a bit different? Instead of saying we need to have more of those conventional incentives, leaders should focus on internal learning, knowledge, idea, and innovation management capability.  History tells us that once the management of a firm leads to leverage this endless opportunity in driving growth, others will follow. As a result, the industry as a whole of a country will start outperforming its competitors in the global value chain. Such a strategy could be fine-tuned further by taking a lesson from Nobel Laureate economist Paul Romer's theory of economic growth with "endogenous" technological change for attaining "long-run economic growth". It appears that his endogenous growth theory ties the development of new ideas to the number of people working in the knowledge sector in generating ideas, consequently creating innovation jobs. These new ideas make everyone else producing regular goods and services more productive - that is, ideas increasing total factor productivity.

It happens to be that Bangladesh badly needs this leadership capability for building endless internal growth capability. Such capability is vital to augment labour advantage with the flow of ideas of incremental progression. If it just succeeds adding 5.0 per cent additional growth in revenue and profit out of this strategy per year, and we keep repeating it over 10 or 20 years, we will observe a big jump-often termed as magical performance delivered by great leaders.  People are reasonably good at forming estimates based on addition, but for operations such as compounding that depend on repeated multiplication. This incremental growth approach out of innovations has the potential to derive the compounding effect on economic growth.

By leveraging the fourth industrial technology stack and growing number of science and engineering graduates, it appears that we can lead the journey of innovation-led growth in whatever we are producing-- whether shirts, sugar, shoes or software. If we do not lead, someone else in the global value chain will do so, compelling us to take price set by them, eroding out our profit and growth. It's our choice- whether to lead. It's time to show the new generation the pathway to lead the country through technology innovation strategy to grow as a developed country within a foreseeable future. 

M Rokonuzzaman PhD is an academic and researcher on technology, innovation and policy.


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