The Bangladesh Garment Industry and the Global Supply Chain

Choices and Constraints of Management

Shahidur Rahman

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367720520
• eBook ISBN: 9781000397628
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book analyzes the choices and constraints of management within the Bangladesh garment industry and how management negotiates these challenges to ensure the global garment supply chain is sustainable.

Exploring the international South Asian garment industry and using middle management and the owners of Bangladeshi factories as a case study, the book assesses the limits and costs of globalization for Bangladesh, and outlines the challenges of the fast-fashion business model for the global market. It focusses on the changing dynamics of the entrepreneur class, how they manage factories and their experiences with Accord-Alliance, and the challenges of sustainability. Within these four broader themes, the author critically examines management strategies towards compliance and labour productivity, transnational governance, buyer–supplier relationships, and power dynamics. This book is the first to explore management's perceptions of workers, buyers, and government through an analysis of four factories which demonstrate the role of mid-level management, how supervisors treat production workers, workers' impact on innovation, welfare programmes as well as CSR policies, and the impact of COVID-19.

Offering new perspectives on Bangladesh's garment export industry, this book will be of interest to researchers in the field of policy studies, labour studies, South and South-East Asian studies, development studies, international trade, and political science.

1 From least developed to lower-middle-income country

In the 1970s, development economists Faaland and Parkinson described Bangladesh as a test case of development, and Henry Kissinger, the U.S. Secretary of State, described Bangladesh as an international basket case. The pessimism was based on several predicaments. High population density and rapid growth were some of the key factors behind pessimism regarding the survival of Bangladesh – 70 million people within a geographic area of 14,400 sq km growing at 3% per year. The country had extremely scarce natural resources. The potential for expanding the land frontier was already exploited. Achievement of food security for the growing population was a challenge, as the technology used for food production was traditional. The breakup from Pakistan could have harmed the economy as the country was dependent on the West Pakistan market for its major exports – jute, textiles, and tea – and the industrial entrepreneurs were mostly from the West. The country was predominantly rural, with only 8% of the population living in urban areas. Being agro-based, the level of per capita income was extremely low. There was little surplus that could be saved and invested to promote growth. The country could not mobilize enough resources to finance developmental activities. The pace of development depended on the mobilization of foreign resources. After independence in 1971, the relationship with the USA was poor. The rudimentary infrastructure, such as roads and bridges, that the country had was largely destroyed during the nine-month war of independence. The entrepreneur class was mostly of Pakistani origin who left the country after separation from Pakistan. A group of indigenous entrepreneurs for promoting industrial growth was missing in the country.

However, the pessimistic predictions have been proved wrong. The 49 years of economic performance proved wrong the doomsday prediction by the eminent scholars of development from the developed countries. The economic progress was slow during the first two decades of development experience. But it has made substantial progress since the early 1990s that surprised many development specialists. Most significant progress has been on socio-economic aspects that surpassed even the progress made in India. Defying overwhelming odds, Bangladesh has graduated from Least Developed to Lower-Middle-Income Country. The GDP growth has increased from 2.14% in 1972–1979 to 8.15% in 2019; the size of the economy has grown from US$35 billion in the mid-90s to US$348 billion in 2020, per capita income rose from US$320 in the 1970s to US$2,064 in 2020, foreign aid dependence declined from 8% of GDP in the 1980s to just about 2% by the end of 2018. The new identity of Bangladesh is a Lower-Middle-Income country.¹ In the international forum, Bangladesh is now considered as a “development model” in the development discourse.

1.1 Background history of the Bangladesh economy

East Bengal – the region that became East Pakistan (1947–1971) and later Bangladesh – was once a prosperous region of South Asia. In the early nineteenth century, this region was well known as a major producer of silks, cotton, and muslin (plain-woven fine white cotton) products that were exported throughout Asia and Europe. The cotton textile industry of East Bengal was at that time among the greatest industries in the world (Ahmad, 1976). This sector became one of the key sources of employment. Muslin was popular in Europe because of its quality and affordability. In 1787, the entire trade of Dhaka district was about US$10 million – of which about half a million represented cloth for export to Europe (Ahmad, 1976). Ahmad notes that the total value of goods manufactured for European markets amounted to about 1 million U.S. dollars in 1807; in 1810 it declined to half a million, and in 1813 it declined further to only a quarter of a million. This means that the number of export earnings declined gradually. In Bangladesh as elsewhere in the British Empire, the colonial power was interested in providing raw materials for its factories, particularly in textiles and jute, and dumping cheap domestically manufactured goods in the East Bengal market (Humphrey, 1990). The British introduced machine-made cloth into the market and East Bengal’s native industry collapsed. Kabeer (2000: 55) remarks:

As the British textile industry merchandised, Britain sought to eliminate competition from Bengal’s textiles through an elaborate network of restrictions and prohibitive duties. Duties of up to 70 and 80 per cent had to be placed on Indian goods to protect the nascent British textile industry and, even within India, the sale of Bengal cloth was restricted, so as to favour British products.

In this process, the prosperous weaving industry of East Bengal was destroyed and a large artisan class lost their employment (Humphrey, 1990). Bangladesh was one of the major exporters of textiles, silk, and sugar, but the flow of industrialization was halted during the 200 years of colonial exploitation. Sir Charles Trevelyan of the East India Company wrote in 1840: “Dacca which used to be the Manchester of India has fallen off from a flourishing town to a very poor and small one” (cited in Kabeer, 2000: 56). The British imperial power destroyed the domestic textile industry and transformed the region into one fully dependent on agriculture. Agriculture became the only occupation available to the people of East Bengal. The industrial fame of this region disintegrated as it was pressed into serving the interests of the colonial power.²

In the Pakistani period (1947–1971), East Bengal became East Pakistan. This region was exploited under the colonial power and the same conditions persisted. West Pakistan controlled the economic and political power of the region although a majority of the population lived in East Pakistan. As argued by Humphrey, two salient features of this period were these: like Britain, Pakistan pursued a policy emphasizing the pre-eminent role of the private sector in industrial development, and priority was given to West Pakistan’s development, with East Pakistan providing raw materials and markets for West Pakistan’s products. In other words, in the first post-colonial period of Bangladesh’s history, Pakistan reproduced the powerlessness and economic dispossession that had characterized East Bengal’s position within the British Empire.

At the time of partition in 1947, both wings of Pakistan were primarily producers of raw materials: the west wing producing raw cotton and the east being the world’s largest producer of raw jute (Dutt, Dasgupta and Chatterjee, 1973).³ A negligible number of industrial establishments were located in East Pakistan. West Pakistan developed its industrial sector ignoring East Pakistan. Over 25 years of Pakistan’s history, economic disparity widened between the two regions. Funds were allotted for the West Pakistanis and East Pakistan’s resources were drained for the enrichment of the western region. About 56% of the population of Pakistan lived in the eastern wing although the eastern wing accounted for one-seventh of Pakistan’s total area (Dutt, Dasgupta and Chatterjee, 1973). According to the popular Pakistani newspaper The Dawn (1956), only 51 East Pakistanis were employed in civil service jobs, such as Secretaries, Joint Secretaries, and Deputy Secretaries, etc., while the number of West Pakistanis employed in these jobs was 690. A panel of economic advisers to the Planning Commission of the Government of Pakistan reported that in 1969–1970 the per capita income in West Pakistan was 61% higher than it was in the East (cited in Dutt, Dasgupta and Chatterjee, 1973). The report also found that less than one-fourth of total development expenditure, in both the public and private sector, went to East Pakistan – although East Pakistan’s share of Pakistan’s total foreign exchange earnings varied between 50% and 70%. From 1948 to 1961 there took place a net transfer of about 180 million rupees from East Pakistan to West Pakistan (cited in Dutt, Dasgupta and Chatterjee, 1973).⁴ Funds were allotted for the West Pakistanis, and East Pakistan’s resources were depleted for the enrichment of the western region.

By analyzing the social and economic history of Bangladesh from the British to the Pakistan period, we find that its economy was consciously stagnated until the gaining of independence in 1971. The British rulers destroyed the skill of the artisan class and turned the region into an agricultural country. During the Pakistani period, there was extreme disparity concerning the economic development between its two regions.⁵

1.2 From nationalization to trade liberalization policy

Before Independence in Bangladesh in 1971, the industrial enterprises were set up and owned by entrepreneurs, mostly of Pakistani origin. The major industries were jute and cotton textiles, paper and steel mills, tea processing, and paper mills. Some big industries requiring large investments such as fertilizer and steel were set up by the government under the East Pakistan Industrial Development Corporation (EPIDC). The objective was that when mature they would be handed over to the private sector companies. In 1971 there were 3,051 industrial units. About 47% of fixed assets were industries owned by entrepreneurs of Pakistani origin and 18% by private entrepreneurs of Bangladeshi origin. After the war of liberation following Independent Bangladesh in 1971, most of the industrialists of Pakistani origin left Bangladesh. The Bangladesh government took control of the management of those industries and decided to nationalize other big industries owned by Bangladeshi entrepreneurs. The new government implemented a socialist economy that had been promised during the independence struggle (Stepanek, 1979). As a first step, the government nationalized all the key industries including the jute, cotton textile, and sugar industries (Karim, 1996). The West Pakistanis who fled during the war owned the majority of these industrial enterprises. The government of Bangladesh seized their plants as abandoned properties. In addition to the industrial sector, the banking and insurance fields were nationalized. The scope of the private sector was limited to small and cottage industries. As a part of an import-substituting industrialization strategy, quantitative restrictions on imports were extensively employed (Rahman and Bakht, 1996).

The debate about the choice of nationalization lingers on. It can be explained in two ways – political choices or a response to the devastating condition of the economy after the war. It was a political decision of the ruling party to nationalize the key sectors of the economy. This policy originated in the political manifesto of the ruling party. In this context, Sobhan (2005: 7) argues: “This party’s political commitment to extend state ownership over the economy dated back to 1954 and was renewed again in 1970 when they won elections to the national and provincial legislatures of Pakistan.” The major contribution to the growth of the state-controlled economy originated in the historical circumstances created by the liberation of Bangladesh. The international political climate also played a role in encouraging a socialist approach to national economic development. In other words, it was the political and ideological links between Bangladesh and national liberation or communist movements in other countries.

In addition to ideology, socio-economic conditions also made socialism the only system capable of helping the country to convalesce. At the time of liberation in 1971, business and commercial sectors were dominated by non-Bengalis. The Pakistanis played a discriminatory role toward Bengalis and did not provide opportunities for the Bengalis to take an active part in the private sector. However, after the war, these non-Bengalis withdrew from Bangladesh. Papanek argued that: “This precipitous withdrawal of the Pakistanis left a major entrepreneurial vacuum at the heart of the Bangladesh economy since this non-Bengalis were largely drawn from a few ethnic communities specializing in commerce” (cited in Sobhan, 2005: 6). Bengali entrepreneurs accounted for 18% of manufacturing assets and Bengali-owned banks accounted for 18% of deposits (Sobhan and Ahmad, 1980). There were 725 enterprises in Bangladesh when the non-Bengalis business class left Bangladesh (Sobhan, 2005). As Bangladesh had not developed a domestic class of entrepreneurs and no efficient management system existed, the government had to grapple with the abandoned enterprises.

However, there was a lot of confusion about the control of the nationalized enterprises (Humphrey, 1990). As part of the nationalization policy, the government established several sectoral corporations to ensure the coordination of government control, such as the Bangladesh Jute Industries Corporation, an industry that included 77 enterprises. According to the Planning Commission, even though it was the responsibility of the corporation to manage enterprises under each corporation, ministers often chose to demonstrate power over the corporations. As a result, the management problem was acute in terms of running these nationalized enterprises. Due to the lack of a Bengali capitalist class, there were no qualified personnel to play the role of managers. Party workers of the government were found to fill the gap (Karim, 1996). Incompetent, inexperienced, and unqualified personnel ran the public enterprises. As a result, mismanagement, pilferage, and corruption became rampant. The prices of goods and services were set by the government which ...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• List of boxes
• Preface
• Acknowledgements
• Glossary
• 1 From least developed to lower-middle-income country
• 2 From million to billion-dollar industry
• 3 From first-generation to second-generation entrepreneurs
• 4 Case study: small garment factory
• 5 Case study: medium and large factory
• 6 Transnational governance: Accord and Alliance
• 7 Challenges of sustainability
• 8 Road ahead
• Bibliography
• Index