Discuss about the Opportunities And Challenges In Off Shoring The Manufacturing Facility In Bangladesh.
Initiation of cost leadership is important for the contemporary business organizations due to the reason that it helps the organizations to gain competitive advantages by reducing the cost of operation. On the other hand, the less will be the reduction of the cost of operation, the more will be the profitability of the organizations. This is motivating more business organizations to initiate different strategies of reducing the cost. One of these strategies is off shoring of the manufacturing facilities to a major developing country. This strategy gained momentum in the recent time due to its effectiveness. Some of the developing countries are having lower cost of human resources and infrastructural elements, which is attracting more business organizations from the developed countries to invest (Ellram, Tate and Petersen 2013).
M&S is the largest producer of aboriginal fabrics in the world. They are based in Australia and are having their presence in number of countries around the world. Currently, they are having their offerings in different forms and designs. However, M&S is having their manufacturing facility only in Australia (M & S Textiles 2018). Cost of operation in Australia is increasing with the economical development. Thus, it is becoming more important for them to off shoring their facilities in some of the developing countries in order to reduce their cost of operation.
This report will discuss about the potentiality of Bangladesh as the county of choice for M&S for their off shoring facility. In addition, different advantages and disadvantages that will be faced by M&S in operating in Bangladesh will also be discussed. In accordance to the identified factors, a few recommendations will be provided in this report.
Bangladesh is a country located in South Asian region and part of Indian subcontinent. They are considered as a developing nation and are showing positive growth in the recent time. One of their major developing sectors is the textile industry. According to the reports, Bangladesh is the second largest producer of textiles in the world after China (Habib, 2016). More textile companies are entering the country due to the availability of cheap labor along with having favorable transportation and logistics facilities. Thus, Bangladesh is selected as the most potential country for off shoring the business for M&S. The following sections will discuss advantages and disadvantages that can be gained by M&S in of shoring their business in Bangladesh.
Bangladesh is having democratic republic type of government. Thus, the political scenario in Bangladesh changes after every five years. In some cases, the change may have positive and favorable implications for the business organizations and vice versa (Jahan 2015). However, in the recent time, government is initiating different activities in order to promote more foreign investments in the country. One of the major initiatives take by the government is special economic zones for tax benefits. One of the major advantages that can be gained by the business organizations in operating in Bangladesh is the positive diplomatic relationship with other countries. Bangladesh is trading partner of China and India in the South Asian region. In addition, Bangladesh is also having favorable trade relationship with Australia with trade volume touching the US$ 500 million mark as per 2015. Thus, M&S will have the advantage of running their manufacturing facility in Bangladesh.
Another major advantage that will be faced by M&S in operating in Bangladesh is the strength of investor protection. According to the global competitiveness report, Bangladesh is standing at number of 66 in terms of strengths of investor protection. Thus, it is denoting that Bangladesh is having efficient regulations in maintaining the protecting the rights of investors. This will reduce the risk associated with the foreign investments of M&S in Bangladesh.
According to the above figure, government bureaucracy is one of the major problems to be faced by M&S. Report by world economic forum shows that Bangladesh is having inefficient government policies and practices. Thus the business organization will face the issue of instability in their operation in Bangladesh. Another major political demerit that will be faced by M&S in operating in Bangladesh is instability of government and probability of coup. This will have huge negative impact on the business performance along with having negative implications on the trading pattern. Moreover, it is also reported that instability in policy is another challenge to be faced by M&S in operating in Bangladesh.
Bangladesh is having diverse cultural and social structure in the country with majority of the population is from the Islamic background. However, the major advantage for M&S that they can gain in Bangladesh is the huge population. The rate of population is rapidly increasing in the recent time and it is increasing the availability of cheap labor for the organizations operating there. Moreover, it is also reported that Bangladesh is having majority of the younger population in place. This further is increasing the potentiality of M&S to have eligible labor for their operation due to the reason that the more will be the younger population, the more will be the availability of labor.
Bangladesh is having younger section of the population for maximum of their entire population. The figure is also showing that age groups between 15 to 34 constitute the major section of the society. Thus, M&S will have the advantage of having seamless availability of eligible labor in place. Another advantage that will be gained by them will be the cheaper availability of labor. Moreover, textile sector being one of the major business sectors in Bangladesh, majority of the society is accustomed with the industry pattern. Training and development centers are helping to provide vocational training course for the potential employees. This will also help M&S to have supply of seamless skilled labor for their manufacturing facility.
However, apart from the advantages, there are number of challenges also to be faced by the business organizations in operating in Bangladesh. One of the major social challenges is the quality of education system. Bangladesh is ranked at 84 in terms of quality of education. This lower ranking denotes that they are having poor education system and it will restrict M&S to have eligible and educated employees in place. Another demerit of operating in Bangladesh is lower ranking in terms of training. This will also pose challenge for M&S in having skilled and trained employees for their manufacturing facility in Bangladesh. M&S will also face the issue of favorable relationship between employer and employee. This is due to the reason that Bangladesh is having lower ranking in terms employer and employee relationship.
The recent trend of inflow of foreign direct investments in Bangladesh is showing increasing trend with maximum investments came in 2016. Thus it also denotes that Bangladesh is having the positive business environment in the country. In terms of government budget balance, Bangladesh is having the ranking of 78, which is moderate. This can be concluded that M&S will have minimal risk in terms of economical and fiscal risk in the country. The providence of special economic zones and providing tax incentives for manufacturing in Bangladesh will also help M&S to regulate their manufacturing cost in the country.
However, on the other hand, there are some challenges also to be faced by them in terms of economical factors in Bangladesh. One of the major economical challenges will be tax rates in the country. According to the global competiveness report, tax rates are one of the major challenges for M&S in operating in Bangladesh. They may have to face stringent tax regulations in operating Bangladesh, which will dent their business effectiveness. Another major challenge for them in operating in Bangladesh is access to finance (Alam et al. 2013). It is also reported by world economic forum. M&S may face difficulty in sourcing finance in the country for their manufacturing facility. Bangladesh is currently standing in 95 in terms of country credit rating. It denotes that investing in Bangladesh will be a risky affair for M&S and it will have negative implication on the future business potential for M&S. Trade tariff is also another major challenge for M&S in operating in Bangladesh. Negative implication of trade tariff will be more for M&S due to the reason that they are going to have their manufacturing facility in the country and will export their goods to the foreign countries. Thus, the cost of operation will get increased and M&S may not gain the competitive advantages from off shoring their manufacturing facility in Bangladesh.
Ethical factors are also important to consider in off shoring the facilities in Bangladesh due to the reason that this is have long term implications on the business effectiveness of M&S. According to the global competitiveness report, poor work ethic in the national labor force is one of the major ethical challenges in doing business in Bangladesh (Kamal and Deegan 2013). It is also being stated that Bangladesh fare poor in terms of ethical behavior of the firms. They are ranked at 106 in terms of the ethical organizational behavior (Wadud, Huda and Ahmed 2014). This will have negative implication on the business performance of M&S due to the reason that unethical business practices will contradict with the global organizational practices of M&S. This will also reduce the long term viability of off shore facility of M&S.
Thus, Bangladesh is having a few opportunities as well as challenges for business organizations including M&S. the availability of the cheap and huge number of labors will be the most effective advantage for M&S in operating in Bangladesh. Cost of human resource is one of the major costs in running the manufacturing facility. Thus, reduction of this cost in off shoring the manufacturing facility will help M&S to have much less cost of operation in place. On the other hand, the barriers in relation of the trade regulations and poor working environment are the major challenges that will be faced by them in operating in Bangladesh (Curran and Nadvi 2015). The following sections will discuss about some of the recommended steps that should be initiated by M&S in overcoming the barriers in operating in Bangladesh along with leveraging effectively the advantages.
Conclusion
Thus, it is concluded that off shoring the manufacturing facility of M&S in Bangladesh will have multiple benefits. This report discussed number of benefits and challenges that will emerge in doing business in Bangladesh. Different parameters are being used to evaluate the opportunities and challenge that to be faced by M&S in doing their business in Bangladesh. A few recommended steps are being discussed in this report in order to have most advantages from their operation in Bangladesh.
References
Alam, K., Tanner, T., Shamsuddoha, M., Rashid, A.M., Sultana, M., Huq, M.J., Kabir, S.S. and Ullah, S., 2013. Planning “exceptionalism”? Political economy of climate resilient development in Bangladesh. In Climate Change Adaptation Actions in Bangladesh (pp. 387-417). Springer, Tokyo.
Cia.gov. (2018). www.cia.gov. [online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html [Accessed 27 Apr. 2018].
Curran, L. and Nadvi, K., 2015. Shifting trade preferences and value chain impacts in the Bangladesh textiles and garment industry. Cambridge Journal of Regions, Economy and Society, 8(3), pp.459-474.
Ellram, L.M., Tate, W.L. and Petersen, K.J., 2013. Offshoring and reshoring: an update on the manufacturing location decision. Journal of Supply Chain Management, 49(2), pp.14-22.
Habib, M.R.I., 2016. Backward Linkages in the Ready Made Garment Industry of Bangladesh: Appraisal and Policy Implications. The South East Asian Journal of Management, pp.129-146.
Jahan, R., 2015. The parliament of Bangladesh: representation and accountability. The Journal of Legislative Studies, 21(2), pp.250-269.
Kamal, Y. and Deegan, C., 2013. Corporate Social and Environment?related Governance Disclosure Practices in the Textile and Garment Industry: Evidence from a Developing Country. Australian accounting review, 23(2), pp.117-134.
Kamal, Y. and Deegan, C., 2013. Corporate Social and Environment?related Governance Disclosure Practices in the Textile and Garment Industry: Evidence from a Developing Country. Australian accounting review, 23(2), pp.117-134.
M & S Textiles. (2018). www.mstexaustralia.com/. [online] Available at: https://www.mstexaustralia.com/aboutus/ [Accessed 27 Apr. 2018].
Tradingeconomics.com. (2018). Tradingeconomics.com. [online] Available at: https://tradingeconomics.com/bangladesh/foreign-direct-investment [Accessed 27 Apr. 2018].
Www3.weforum.org. (2018). Www3.weforum.org. [online] Available at: https://www3.weforum.org/docs/GCR2017-2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf [Accessed 27 Apr. 2018].
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