Bangladesh Textile Industry-solutions
Content
INTERNATIONAL BUSINESS
Assignment on
The Rise of Bangladesh’s Textile Trade – Case Study
EPGP-07 (4th Qtr)
IIMK
Submitted by
Vipin Suresh T
EPGP-07-096
Q 1. Why was the shift to a free trade regime in the textile industry good for
Bangladesh?
Economic growth of the country and employment in Bangladesh depended upon textile products
exports which were allowed through a preferential quota system for textile market export from
poor markets to rich markets. When free trade regime appeared , competition with countries such
as China and Indonesia also started and many predicted a quick collapse of Bangladesh’s textile
industry. However, the opposite occurred. There are three major reasons to explain this:
* Low Labor costs compared to even China and Indonesia. This was possible through
investments by textile manufacturers in productivity-boosting technology. Indeed, this was an
advantage during the recession because big importers increased their purchases at low prices.
* Network of supporting industries was very strong. Due to this, garments manufacturers saved
transport and storage costs, import duties which boosted their productivity.
* Fear of importers to become too dependent on China. Because of this, many Western importers
started looking to diversify their supply sources which proved beneficial for bangladesh.
Q 2. Who benefits when retailers in the US source textiles from low-wage
countries such as Bangladesh? Who might lose? Do the gains outweigh the
losses?
When retailers in the United States source textiles from low-wage countries such as Bangladesh,
it is 1) the low income countries benefit in job creation and in economic growth and 2)
Customers also benefit because prices are more affordable and retailers have benefits too in
having better margins.
Those who might lose are 1)Highly developed countries such as America - because outsourcing
causes job losses, relocations, etc. and 2) Customers – may lose in the quality of the product.
Altogether, gains do outweigh losses because these low income countries are slowly developing.
Also the standard of living is also improving, such as in China where wage rates is growing.
Moreover, if the developed countries want to enjoy product at a low price and allow customers to
afford these products, then these losses are inevitable.
Q 3. What international trade theory (or theories) best explain the rise of
Bangladesh as a textile-exporting powerhouse?
1) Theory of comparative advantage - It is the ability of a country to produce a particular
good or service at a lower marginal and opportunity cost. It refers to the specialization for
a country in producing a certain kind of product because it can produce those more
efficiently. In the case of Bangladesh, it is textile industry production at low labor costs.
2) Porter’s theory of determinants of National competitive advantage - It suggests that a
country can create new advances factor endowments such as skilled labor, a strong
technology and knowledge base, government support, and culture. It illustrates the
determinants of national advantage. One of the competitive advantages of Bangladesh is
the strong network of supporting industries.
Q 4. How secure is Bangladesh’s textile industry from foreign competition?
What factors could ultimately lead to a decline?
Bangladesh is well secured toward foreign competition and attractive due to the following:
- Very low costs labor that leads to low costs products.
- The requirement of western importers to diversify their supply sources as they do not want to
rely solely on China and become dependent to it.
- Investments by Bangladeshi textile manufacturers in productivity-boosting technologies.
The negative factors which could lead to a decline:
- Constant disruptions in electricity because the government has underinvested in power
generation and distribution. This is a major problem for the production of garments and can
reduce significantly the productivity and the competitive advantage of Bangladesh.
- Roads and ports are inferior to those in China and this makes Bangladesh look less attractive
toward this factor.
Assignment on
The Rise of Bangladesh’s Textile Trade – Case Study
EPGP-07 (4th Qtr)
IIMK
Submitted by
Vipin Suresh T
EPGP-07-096
Q 1. Why was the shift to a free trade regime in the textile industry good for
Bangladesh?
Economic growth of the country and employment in Bangladesh depended upon textile products
exports which were allowed through a preferential quota system for textile market export from
poor markets to rich markets. When free trade regime appeared , competition with countries such
as China and Indonesia also started and many predicted a quick collapse of Bangladesh’s textile
industry. However, the opposite occurred. There are three major reasons to explain this:
* Low Labor costs compared to even China and Indonesia. This was possible through
investments by textile manufacturers in productivity-boosting technology. Indeed, this was an
advantage during the recession because big importers increased their purchases at low prices.
* Network of supporting industries was very strong. Due to this, garments manufacturers saved
transport and storage costs, import duties which boosted their productivity.
* Fear of importers to become too dependent on China. Because of this, many Western importers
started looking to diversify their supply sources which proved beneficial for bangladesh.
Q 2. Who benefits when retailers in the US source textiles from low-wage
countries such as Bangladesh? Who might lose? Do the gains outweigh the
losses?
When retailers in the United States source textiles from low-wage countries such as Bangladesh,
it is 1) the low income countries benefit in job creation and in economic growth and 2)
Customers also benefit because prices are more affordable and retailers have benefits too in
having better margins.
Those who might lose are 1)Highly developed countries such as America - because outsourcing
causes job losses, relocations, etc. and 2) Customers – may lose in the quality of the product.
Altogether, gains do outweigh losses because these low income countries are slowly developing.
Also the standard of living is also improving, such as in China where wage rates is growing.
Moreover, if the developed countries want to enjoy product at a low price and allow customers to
afford these products, then these losses are inevitable.
Q 3. What international trade theory (or theories) best explain the rise of
Bangladesh as a textile-exporting powerhouse?
1) Theory of comparative advantage - It is the ability of a country to produce a particular
good or service at a lower marginal and opportunity cost. It refers to the specialization for
a country in producing a certain kind of product because it can produce those more
efficiently. In the case of Bangladesh, it is textile industry production at low labor costs.
2) Porter’s theory of determinants of National competitive advantage - It suggests that a
country can create new advances factor endowments such as skilled labor, a strong
technology and knowledge base, government support, and culture. It illustrates the
determinants of national advantage. One of the competitive advantages of Bangladesh is
the strong network of supporting industries.
Q 4. How secure is Bangladesh’s textile industry from foreign competition?
What factors could ultimately lead to a decline?
Bangladesh is well secured toward foreign competition and attractive due to the following:
- Very low costs labor that leads to low costs products.
- The requirement of western importers to diversify their supply sources as they do not want to
rely solely on China and become dependent to it.
- Investments by Bangladeshi textile manufacturers in productivity-boosting technologies.
The negative factors which could lead to a decline:
- Constant disruptions in electricity because the government has underinvested in power
generation and distribution. This is a major problem for the production of garments and can
reduce significantly the productivity and the competitive advantage of Bangladesh.
- Roads and ports are inferior to those in China and this makes Bangladesh look less attractive
toward this factor.
