The Rise Of Bangladesh’s Textile Trade Essay Sample
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Key Summary of Problem
The main factors that contributed to Bangladesh’s continued growth in the industry are low cost labor in the country, the presence of supporting industries in the country that contribute to an optimized and efficient system of textile production and distribution, and the country’s reputation compared to other countries such as China. Many Western businesses adopted outsourcing as one of their strategies not only to increase the rate of production but also to save on production cost. Bangladesh also has an extensive labor pool. Based on the case, more than 3 million people in the country depend on the local textile industry for employment.
The main problem, however, is that Bangladesh, being a poor country, has inadequate infrastructure and transport services. Inadequate infrastructure place limits on electricity and leads to various disruptions. This would affect production in textile factories that depend on electricity to operate. Furthermore, subpar transportation services could also affect logistics – particularly the delivery of materials or sources and the transport and distribution of textiles.
Conclusion and Recommendations for Defined Problems
Based on the case, Bangladesh could still improve its textile production. To address the problem, the government should focus on developing and implementing policies to improve two aspects: infrastructure, specifically power infrastructure, and road and transportation. As mentioned in the case, power disruptions are common in Bangladesh. Disruptions are detrimental to operations because they interfere with production in factories. Hence, disruptions could lead to unmet production quota, late deliveries, and other outcomes that would make Bangladesh unreliable. Transportation and travel issues also affect the delivery of raw materials and finished products for export. Since both factors would affect productivity, it is important that the local government implement policies to improve power infrastructure to provide adequate power supply and avoid disruptions, and also implement road improvement projects to make logistics more efficient for local companies.
Application of Key Themes
The key themes that relate to Bangladesh’s case include the theories in international trade that apply. Bangladesh’s growth compared to other countries showed that the concept of balance-of-trade applies. Bangladesh’s gain in terms of foreign direct investments in the country’s textile industry resulted in other countries’ losses. Other theories that apply to the case include the comparative advantage theory, the Hecksher-Ohlin theory, and new trade theory. All three theories highlight the advantage of focusing on industries or sectors that countries such as Bangladesh are capable of fostering. Bangladesh focused on growing its textile trade industry because of existing resources (i.e. labor pool, raw materials, etc.) and its efficient production of textile. Consequently, Bangladesh succeeded and outdid the competition.
Why was the shift to a free trade regime in the textile industry good for Bangladesh?
The shift to a free trade regime in the textile industry good for Bangladesh because despite the competition, US retailers were able to compare the capabilities in production of existing and potential countries for outsourcing production. US retailers eventually realized that Bangladesh is the most efficient in textile production and trade compared to China, Indonesia and other countries. In a way, the free trade regime highlighted the factor endowments or advantages of investing on textile trade in Bangladesh as opposed to other countries.
Who benefits when retailers in the United States source textiles from low-wage countries such as Bangladesh? Who might lose? Do the gains outweigh the losses?
When retailers in the US source textiles from low-wage countries such as Bangladesh, the retailers themselves, the consumers, and local industries benefit from this practice. Retailers outsource textile production to save on cost of labor and production. Hence, outsourcing allows retailers to adopt cost-effective measures while optimizing the production of textile for consumers. Consumers also benefit from outsourcing. Since retailers save on cost by outsourcing the production of textiles in Bangladesh, they can lower the price of goods and services for consumers. Consequently, consumers can cut their spending due to low cost goods. Outcomes of outsourcing have been most favorable to both retailers and consumers after the economic recession in 2008.
The local industry in Bangladesh also benefits from US retailers’ outsourcing of textile productions. Retailers invest on the textile industry in Bangladesh, which results in the development of businesses to support the industry. Consequently, this development opens up millions of jobs for the locals. Outsourcing, therefore, addresses unemployment rates in host countries, which then leads to upward social mobility and the improvement of people’s quality of life due to employment opportunities. Furthermore, business growth translates to Bangladesh’s economic growth.
Other countries including local businesses will lose from US retailers’ outsourcing strategy. Since US retailers choose to outsource textile production to other countries, the local American textile industry would suffer due to a decline in investments. Other countries would also suffer from this. If US retailers continue to outsource textile production to Bangladesh, other countries that depend on this industry such as China and Indonesia would incur losses in terms of foreign investments. Nonetheless, other countries could focus on developing other industries.
What international trade theory, or theories, best explain the rise of Bangladesh as a textile exporting powerhouse?
The theories of comparative advantage and Heckscher-Ohlin’s theory explain the rise of Bangladesh’s textile exporting powerhouse. The comparative advantage theory argues that countries must focus on producing goods that they are capable of producing efficiently. Bangladesh, being one of the main textile producers in the world, became a textile exporting powerhouse because the country chose to invest on this industry. Bangladesh chose to focus on growing its textile industry because it is capable of doing so efficiently.
On the other hand, Hecksher-Ohlin’s theory suggests that various factors influence trade patterns. If we apply this theory to Bangladesh’s situation, we may surmise that the country thrived in textile export because of the various factors that supported efficient textile production in the country. As formerly noted, the factor endowments that contributed to Bangladesh’s success in the textile industry are the labor employment pool, local business support, and the country’s good reputation in textile production.
How secure is Bangladesh’s textile industry from foreign competition? What factors could ultimately lead to a decline?
Bangladesh’s textile industry is secure from foreign competition because of the advantages of outsourcing production in the country. Many companies prioritize the adopting of cost-efficient measures. Businesses are looking to save on production cost and spending while meeting the demands of consumers. Bangladesh delivers the needs of businesses, which is why many companies still choose to invest in the country.
If the local government in Bangladesh neglect to address infrastructure and transportation issues, then its textile industry would be at risk for a decline. The inadequacy of existing infrastructure and poor transportation facilities affects production, particularly logistics, which is why it is important that the local government address this problem. The local government should implement policies to improve power infrastructure and reduce power disruptions. Road and transportation development should also be prioritized to improve logistics. The rise of other countries that offer low cost labor such as those in South America also threaten Bangladesh’s position.
Hill, Charles W. L. 2013. International business 9e: Competing in the global marketplace. New York, NY: McGraw-Hill/Irwin.
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