Upgrading in the Bangladeshi RMG Value
Chain: an Overview of Research in Progress
R. Macchiavello and C. Woodruff (Warwick)
in collaboration with
J. Cajal-Grossi, A. Menzel, N. Pavanini (Warwick) and
K. Mozumder (BPC)
IGC – Bangladesh Conference,
December 20th 2011
Upgrading in Bangladesh RMG Value Chain
December 2011
Project overview
•
Two interconnected projects:
Foreign Buyers and
Upgrading in Value Chains
Evaluation of GIZ Training
Program
Administrative data
collected by customs on the
universe of the industry
A RCT evaluating the
effectiveness of program
training female operators
to become supervisors in
about 100 factories
Upgrading in RMG Bangladesh Value Chains
December 2011
Upgrading in value Chains
•
Policy makers in developing countries care about exports for (at
least) two reasons:
1. export revenues generate FX
2. export activity increases incomes
- job creation in contexts with low domestic demand,
- export activity is (believed to be?) associated with
higher productivity
•
Increased availability of firm level data has allowed significant
progress in the analysis of export success in developing countries
=> exporters use better inputs to produce better outputs and
vary the quality of their exports to the destination market
Upgrading in RMG Bangladesh Value Chains
December 2011
Two Questions
1. As firms move up the value chain, does domestic value addition
increase?
Trade is normally studied through the lens of revenues – not value addition. From
the point of view of income generation for the domestic economy, however, value
addition is what matters. Upgrading might require access to inputs for which
suitable domestic substitutes are not available.
2. What is the role of large foreign buyers in this process?
Exporters access rich foreign consumers indirectly. Design and distribution
capabilities reside with large foreign buyers. Do large buyers simply pick winners,
or do they develop exporters? What are the rewards associated with accessing
higher value added chains?
“Buyer-Driven Chains” (Gereffi (1999)).
Foreign Buyers and Upgrading in Value Chains
December 2011
Context of the Analysis
• We hope to make progress on these questions by studying Ready
Made Garment (RMG) in Bangladesh.
1. Virtually all countries that have industrialized have started by
developing textile sectors
- entry into cutting woven, move into more sophisticated knitwear, then
backward linkages into textiles, accessories (chemicals and plastic) and,
eventually, machines.
2. Bangladesh is the third larges exporter of RMG in the World
(after China and Turkey).
- Sector employs an estimated 3.5 million workers, mostly women, earning
about 2$ per day. 3000+ exporters, phenomenal growth in recent years.
Foreign Buyers and Upgrading in Value Chains
December 2011
Some Preliminary Results from Input-Output Matches
Results are still preliminary, as the cleaning of the dataset hasn’t been
completed yet. An extremely long (and tedious) task.
Focus on a particular product: men’s and boy’s shirts.
More work is needed to define inputs use.
More work needed to estimate (domestic) value addition at the product
level.
Foreign Buyers and Upgrading in Value Chains
December 2011
Some Preliminary Results from Input-Output Matches
1. Input prices positively correlate with output prices. This correlation
is driven by exporter effects and disappears once buyer effects are
controlled for. Controlling for buyer and exporter effects, the
elasticity of output price w.r.t. price of the main input is also small.
2. The elasticity is higher for:
i) larger (and more high-end) buyers,
ii) exporters with more buyers,
3. Input prices ↘ and output price ↗ with relationship age.
4. These correlations are unlikely to be driven by input changes and are
unlikely to be entirely driven by product quality
Foreign Buyers and Upgrading in Value Chains
December 2011
One Interpretation
Larger and higher-end buyers exercise more control on the sourcing
of inputs;
This control comes with low negotiating power of exporters w.r.t.
price;
But provides incentives to buyers to
1. transfer capabilities to suppliers;
2. search for new suppliers.
Foreign Buyers and Upgrading in Value Chains
December 2011
Future Work on Administrative Records
a) continue the process of data cleaning and collection,
b) confirm results above exploring dynamics and other products,
c) estimate a structural model of buyer search
Foreign Buyers and Upgrading in Value Chains
December 2011
Evaluation of GIZ Female Operator Training Program
One of the central organising questions of the IGC Firm Capabilities
group is productivity dispersion
Discussions with many organisations involved in the Bangladeshi
garment sector suggest management training in the lower levels –
particularly at the line supervisor level – is needed
GIZ program
DFID-supported programs
Various foreign buyers (ASDA, H&M, etc.)
Evaluation of GIZ Female Operator Training Program
December 2011
The GIZ Female Operator Training Program
6 – week (36 day) training program developed by local consultants in
conjunction with GIZ.
- Production process
- Quality control
- Social compliance
- Leadership
GIZ piloted in 2009, with ~10 factories
Evaluation of GIZ Female Operator Training Program
December 2011
Research Design
1. Sample of 96 factories: Dealing with heterogeneity of producers
- Working with large foreign buyers, highly demanding but below
the top end
- Identify producers who are ‘almost good enough’ for them
2. Sample of workers: each factory identifies 20 production workers as
candidates
- Simple diagnostic (literacy/numeracy/Raven test), ranking
- Select top two plus 3 of the next six for training
- 4 female and 1 male, to disentangle gender from training
Evaluation of GIZ Female Operator Training Program
December 2011
Timeline
1. 08-10/ 2011: recruitment of factories,
2. 11/2011: baseline for the first 12 factories,
3. 12/2011- 01/2012: first batch of factories receiving training, baseline
of “next” factories continue
4. … last batch of factories receive training in 02-03/2012.
Evaluation of GIZ Female Operator Training Program
December 2011
Main Research Questions and Data
1. Firm level effect of the training
2. Production-line level effect (and mechanism)
- there is no randomization at the production line,
3. Worker-level effects: on trainees, line co-workers and line
supervisor.
To answer these questions we are undertaking a major data collection
effort:
- innovative survey of workers (20 per factory)
- administrative records on production and labour force from the
factories
Evaluation of GIZ Female Operator Training Program
December 2011
Next Steps
We see this project as a first step of a prolonged engagement with
several industry stakeholders:
1. Training existing supervisors,
2. Training existing managers,
3. Who should pay for the training?
4. Deeper engagement with few factories on labor practices,
incentives, etc.
5. Deeper engagement with foreign buyers.
Evaluation of GIZ Female Operator Training Program
December 2011
A Final Word
After so much work, it is frustrating not to have yet results. They will
come soon with much more hard work!
None of these projects would be possible without the incredible
cooperation we are receiving in Bangladesh: from factories, buyers,
public institutions, and the generosity of IGC and other sponsors.
We look forward to a continued engagement with the country with the
hope of contributing to the further upgrading of the RMG sector in
Bangladesh
Local Researcher interested in collaborating are welcome to contact us:
[email protected] and [email protected]
Evaluation of GIZ Female Operator Training Program
December 2011
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Value Chain Upgrading, Management and Productivity