A long- or short-run cash cow?

Mohammad Bakhtiar Rana | Published: 00:00, Mar 06,2019 | Updated: 00:04, Mar 06,2019


Inside an apparel factory in Dhaka. — New Age file photo

in the past four decades, we have had success in advancing the apparel industry form simply cutting-making and trimming to original equipment manufacturer stage. Since 2010, a few companies have been trying to internationalise Bangladeshi brands to the United States, Canada and Asian countries while large apparel firms, only a few though, tend to internationalise their operations to relatively competitive locations with an aim to earn global competitive advantage, say in Ethiopia.
The idea is to benefit from cheap labour and quota facilities in Ethiopia and to deliver products from a shorter distance to meet fast fashion trend of buyers so that buyers can enjoy competitive advantage in price and product marketing. Thus, the internationalization drive is more or less driven by buyer’s business policy and supplier’s global strategic vision and entrepreneurial capability, which a few firms in the apparel sectors possess. This sort of drive, in the long run, helps sustain the apparel firms where firms not only expand their upstream (supply chain) value chain but also globally disperse the downstream value chain (global production and sells), depending on the available competitive factors of production and sales.
However, despite success, though limited to the original equipment manufacturers, the industry suffers from occupational health and safety standards, scientific labour management, design and productivity standards, and high level of managerial competency that can take the internationalization of this industry ‘one step’ ahead.
The ‘one step’ is the capability of design development, global production network development, own brand development and establishment of retail networks to foreign markets. Although one may argue that the large firms have begun to develop designs, but this is at a low level, and for low value-added products. In many cases, companies have hired several foreigner designers or set up offices in the United Kingdom, France or Italy and, thereby, have developed designs for buyers in order add a little more value to price quotation. In some cases, companies house units which tend to develop designs based on ‘seasonal fashion trend’ manual that their buyers provide. In most cases, this happens because of buyer’s policy intervention and motivation.
A few companies, however, tend to have proactive strategy for design development to stay ahead in competition, quotation and order reception. These companies are super class companies which are likely to sustain for long. However, they are not more than a fourth of the total companies in the industry belonging to tier one category, all of which are large companies. These companies have relatively superior internal management system to ensure occupational and health standards, implemented lean tools to enhance productivity, and have continuously arranged for training to improve their management capability.
That seems, however, not to be enough in respect of developing and implementing sustainable global strategies, which would help them to build global production network, own brand and global retail network for brand marketing on the global market. The underlying reason is that in order to undertake such global strategies, firms need to have a high level of competency in international management and international marketing, which firms here generally do not have. This is because these functions involve cross-border management competencies, which are not yet taught in Bangladesh’s educational institutions.
Another important question that remains unanswered is what will happen with the remaining number of companies that still struggle to improve the occupational, health, labour management standards, suffering from lower productivity and managerial competency. The overall management capability, including entrepreneurial capability, is the root cause that these firms need ot address. This is because these firms are run by entrepreneurs and (1) they often do not understand the long-term consequences of non-compliance issue; (2) they often do not have strategic foresight and vision for sustainable business growth; and they, instead, focus on immediate cash return; (3) they often do not have management competency to ensure such standards although they try to; (4) very often, these firms are governed by owners with centralised decision making and, thus, development of managerial competency is less prioritised; buyer-driven initiatives are, instead, well addressed; and (5) often entrepreneurial managers are over-occupied with other businesses and national politics and this hampers their focus.
There may be an argument that retailing the local brand on the international market is a long journey; but this is the point at which the highest financial value is created in apparel products, which large Bangladeshi firms should aim for. Many firms from China, Indin, Thailand and Vietnam have successfully internationalized their brands. These are the countries that were once ahead of Bangladesh in apparel export, but now Bangladesh has surpassed them. So, why can we not afford to think of the internationalization of apparel brands from Bangladesh? The retailing of local brands in foreign markets requires high management skills and international marketing competency as well as financial capability, which Bangladeshi firms can achieve.
The greatest weakness that might hinder the achievement is rooted in the institutional system. Educational institutions here offer relatively low-quality management and marketing education while they do not have international standards of research, which could complement teaching to improve its quality. As for firms, not all, from emerging markets such as China, India and Thailand that have successfully internationalised brands, the countries have developed higher quality management education before upgrading their industry capability for internationalisation. European and US brands are the exceptions where they have, for centuries, been championed in internationalizing brands because of high-quality management education and research.
Another concern, as research reveals, which hampers the upgrade of apparel firms from original equipment manufacturer stage to the own brand manufacturer standard is the portfolio investment by apparel factory owners in unrelated sectors. This, which boost owners’ profit through, helps to get large amount of bank loans and provide opportunities for profit reinvestment from one business unit into another and, thereby, gain tax exception. This, however, keeps entrepreneurial managers busy with multiple sectors operation and diverting owner’s strategic focus from apparel firm’s capability upgrade for sustainability. It may result in high profits in the short run but will affect the sustainability of the apparel business in the long run.
The McKinsy survey report predicted that China would lose its attraction from being the top apparel manufacturing spot while orders from China would begin divert to Bangladesh, India, Myanmar, Pakistan, Cambodia and Vietnam. This has come true. Bangladesh has witnessed increased orders since 2013. However, McKinsey further predicted that Bangladesh would begin to lose its attraction for several reasons, as laid out before, and the sub-Saharan African countries would begin to gain attraction as the next apparel production spot together with Myanmar, which is also proving true.
So, do we have any strategic vision and long-term plan to upgrade the capability of the apprel industry for sustainable internationalization? Policy-makers and industry actors should think and act accordingly.

Dr Mohammad Bakhtiar Rana is an associate professor of international business and strategy at the international Nusiness Centre, Aalborg University, Denmark.

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