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Attaining competitiveness in RMG

M S Siddiqui | January 29, 2018 00:00:00

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 dive rsification. 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 innovat ion.

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 Banglade sh'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 a chieving 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 t echnological 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 entreprene urs, 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.

mssiddiqui2035@gmail.com