Solved by verified expert :Assignment:Case 3
Action Items
Read the case at the end of
Chapter 6 inInternational Business.
1.
Write a 4-page case analysis. Include section headers in your case
analysis.
2.
Cite resources as
appropriate to support your findings.
3.
Submit your paper toturnitin.com.
Your case analysis is to contain the
following sections:
Section 1: Provide a general
description of the industry.
Section 2: Define the central issue of the case.
Section 3: Define the industry’s goals.
Section 4: Identify the constraints of the problem.
Section 5: Identify all the relevant alternatives.
Section 6: Select the best alternative and provide a
justification for the selection. Note: there is no right answer but it is about
how you justify your selection based on international business theory.
Section 7: Develop an implementation plan.
The Rise of Bangladesh’s Textile Trade
Bangladesh, one of the world’s poorest countries, has long
depended heavily upon exports of textile products to generate income,
employment, and economic growth. Most of these exports are low-cost finished
garments sold to mass-market retailers in the West, such as Walmart. For
decades, Bangladesh was able to take ad- vantage of a quota system for textile
exports that gave it, and other poor countries, preferential access to rich
markets such as the United States and the European Union. On January 1, 2005,
however, that system was scrapped in favor of one that was based on free trade principles.
From then on, exporters in Bangladesh would have to compete for business
against producers from other nations such as China and Indonesia. Many ana-
lysts predicted the quick collapse of Bangladesh’s textile industry. They
predicted a sharp jump in unemploy- ment, a decline in the country’s balance of
payments ac- counts, and a negative impact on economic growth.
The collapse didn’t happen. Bangladesh’s exports of textiles
continued to grow, even as the rest of the world plunged into an economic
crisis in 2008. Bangladesh’s exports of garments rose to $10.7 billion in 2008,
up from $9.3 billion in 2007 and $8.9 billion in 2006. Ap- parently, Bangladesh
has an advantage in the produc- tion of textiles—it is one of the world’s
low-cost producers—and this is allowing the country to grow its share of world
markets. As a deep economic recession took hold in developed nations during
2008–09, big im- porters such as Walmart increased their purchases of low-cost
garments from Bangladesh to better serve their customers, who were looking for
low prices. Li & Fung, a Hong Kong company that handles sourcing and
apparel manufacturing, stated its production in Bangladesh jumped percent in
2009, while production in China, its biggest supplier, slid 5 percent.
Bangladesh’s advantage is based on a number of fac- tors.
First, labor costs are low, in part due to low hourly wage rates and in part
due to investments by textile manufacturers in productivity-boosting technology
dur- ing the past decade. Today, wage rates in the textile in- dustry in
Bangladesh are about $50 to $60 a month, less than half the minimum wage in
China. While this pay rate seems dismally low by Western standards, in a coun-
try where the gross national income per capita is only $470 a year, it is a
living wage and a source of employment for some 3 million people, 85 percent of
whom are women with few alternative employment
opportunities.
Another source of advantage for Bangladesh is that it has a
vibrant network of supporting industries that sup- ply inputs to its garment
manufacturers. Some three- quarters of all inputs are made locally. This saves
garment manufacturers transport and storage costs, im- port duties, and the
long lead times that come with the imported woven fabrics used to make shirts
and trousers. In other words, the local supporting industries help to boost the
productivity of Bangladesh’s garment manu- facturers, giving them a cost
advantage that goes beyond low wage rates.
Bangladesh also has the advantage of not being China! Many
importers in the West have grown cau- tious about becoming too dependent upon
China for imports of specific goods for fear that if there was disrup- tion,
economic or other, their supply chains would be decimated unless they had an
alternative source of sup- ply. Thus, Bangladesh has benefited from the trend
by Western importers to diversify their supply sources. Al- though China
remains the world’s largest exporter of garments, with exports of $120 billion
in 2008, wage rates are rising quite fast, suggesting the trend to shift
textile production away from China may continue. Bangladesh, however, does have
some negatives; most notable are the constant disruptions in electricity
because the government has underinvested in power generation and distribution
infrastructure. Roads and ports are also inferior to those found in China.41
Case Discussion Questions
1. Why was
the shift to a free trade regime in the textile industry good for Bangladesh?
2. Who
benefits when retailers in the United States source textiles from low-wage
countries such as Bangladesh? Who might lose? Do the gains out- weigh the
losses?
3. What
international trade theory, or theories, best explain the rise of Bangladesh as
a textile export- ing powerhouse?
4. How
secure is Bangladesh’s textile industry from foreign competition? What factors
could ulti- mately lead to a decline?
