By Adeba A. Islam
Every day approximately 1.5 billion USD of foreign exchange transactions, 8.9 trillion USD of products and 2.10 trillion USD of services are provided internationally. The definition of globalization is controversial, but all of us agree that it is a driver of change which is causing a global integration of economies, technological innovations and politics.
Bangladesh is not immune to this powerful change. The benefits of globalization have been reaped by the ready-made garments industry with its phenomenal growth. Today it stands proudly as a global leader in the clothing industry. But there is more to be gained from globalization. This time, it is the technological side that can pull the nation into a boom.
It is widely acknowledged that the most important strength of Bangladesh is human capital. Here, the garments industry has provided much-needed livelihood to the masses. Now, the development of information and communication technology (ICT) industry can do the same for the highly educated human capital in the nation. Bangladesh Telecommunication Regulatory Commission (BTRC) reports that the total mobile subscribers exceeded 164 million. On the other hand, the number of Internet users is over 99 million, which is a promising number indeed. This high penetration of ICT proves that Bangladesh is undergoing a technological revolution. So how can this revolution pull the economy to the next level?
Data Analytics: The Next Game Changer
Organizations are generating huge storages of data daily, which can be used to establish patterns and predict customer behaviour. The use of big data has increased efficiency in the health, education, research and financial industry. Retailers around the world, such as Target and Tesco, are using big data analytics. Walmart, the world’s largest retailer, used data analytics since 2004. It found that after Hurricane Sandy, sales of various items such as flashlights and strawberry pop tarts increased. Consequently, when Hurricane Frances hit, Walmart ordered larger stocks of those items from suppliers and they sold perfectly well, avoiding any stock shortages. In this way, retailers are forecasting their customers’ needs with data analytics.
In Bangladesh, data analytics is yet to be utilized to its full potential. It is recently being used only in the banking sector. Although in its preliminary stages, research has shown that banks and non-banking financial institutions in Bangladesh are able to provide better online financial services, as well as core banking services when using big data analytics. Bangladesh Bank has plans to improve its performance with data analytics in the near future and perhaps witnessing the efficiency it brings to the banking sector, other industries may follow suit. It would certainly benefit customers if retailers like Agora, Lavender and Meena Bazar began to make use of their big data in the way Walmart has done.
Outsourcing: The Hope of Many Young lives
Outsourcing has become a powerful driver of change. Information technology (IT) in particular is outsourced to be managed cost-effectively in many industries, including healthcare and finance. Retailers are facing challenges in managing the extensive data being generated daily, hence for better management and efficient data analysis, they are opting for third-party IT support. Many world-famous IT-based businesses, such as Skype, was built on outsourced materials. Even small IT-based businesses are outsourcing non-core activities such as Born To Sell, which hired Eastern European programmers and gained cost savings of up to 600,000 USD.
Bangladesh is the second most popular destination for outsourcing, holding 16.8% of the global market share. This arises from two sources of competitive advantage. Firstly, Bangladesh has a more stable economy compared to other developing nations around the world, for instance, the inflation rate has been consistently within 6-8% over the last decade. Secondly, the average salary of IT personnel in Bangladesh is 50% lower than other Asian countries, hence foreign companies gain significant cost savings. The workforce of Bangladesh certainly benefits from diversifying into this emerging industry. About 40% of the outsourced work is marketing and sales support while nearly 22% is in software development and technology. Also, the benefits of outsourcing are spreading to the lowest income-group of the country. Abu Kahar, a farmer’s son who failed his HSC exams, received digital marketing training from the Bangladesh Association of Software and Information Services (BASIS) under their Learning and Earning Development Project. He then went on to earn more than 1,000 USD per month and has helped his landless father purchase ample farmland for their family’s future. If this technological growth is maintained, then more success stories such as this will become the new norm.
E-Commerce: Our Upcoming Star
Commercialization of the internet in the 1980s and 1990s forced traditional market leaders of the old economy to innovate, as they were threatened by new entrants who seized the new technological opportunities. There are countless examples of online businesses disrupting their respective industries, such as Uber and Apple iTunes. But an unexpected instance of an e-business forcing market leaders to become its followers is Amazon.com and its strategy in the publishing industry.
Amazon is the world’s largest diverse online retailer that began as an online bookstore in 1994. Currently, 70% of e-book sales are through Amazon, which is the largest global e-book distributor. Barnes & Noble Inc., founded in 1886, is the largest physical bookstore chain in America. It opened its own online bookstore in 2009 and introduced its own e-reader, Nook, to compete with Amazon’s Kindle.
Meanwhile, Borders Group Inc., an international bookstore chain founded in 1975, failed to adopt technology like its competitor Barnes & Noble and it filed for bankruptcy in 2011. It failed to recognize that demand for e-books is growing in the U.S. and Europe, in fact, digital trade book sales exceeded physical trade book sales in the U.S. since 2011. The case of Amazon, Barnes & Noble and Borders shows how the rise of e-commerce can change an industry. Globally, businesses in all industries are including e-commerce in their business models to avoid the same fate as Borders.
In Bangladesh, many businesses have reaped the benefits of e-commerce. Over 50,000 people are actively engaged in e-commerce and within the next 10 years, the number of people to be employed in this sector is forecasted to be about one million. In fact, the e-commerce market is estimated to be worth over 110 million USD (approximately 925 crore taka). Furthermore, the e-commerce sector has attracted Foreign Direct Investment (FDI), for instance from China’s Alibaba Group which bought Daraz.com, India’s MoMagic Technologies have launched Pickaboo in Bangladesh and Pathao had once received investment from Indonesia’s Go-Jek. Traditional brick-and-mortar stores have experienced significant growth in sales through social media websites such as Facebook, especially for clothing items, jewellery and cosmetics. A survey of 81 companies revealed that those who sold single products had seen a 16% increase in sales through online channels, while companies selling multiple products online experienced almost 25% revenue growth.
Of course, there are certain challenges that must be overcome for e-commerce, outsourcing and other IT-based industry to flourish at its full potential. Firstly, there is an urban-rural divide due to poor internet connectivity in rural areas, a significant obstacle as 65% of the population resides in rural areas.
Secondly, all economic and technological growth must be pursued in a sustainable manner for the sector to survive in the long-term. Development of any kind should be done without disrupting the natural environment. Businesses, as well as the government, will need to come together to address these issues and ensure further growth in the technological revolution.
Sustainability- the Way Forward
It was discovered in the 19th century that accumulated carbon dioxide in the earth’s atmosphere will increase the temperature, causing a “greenhouse effect”. Today, nearly all scientists agree that global warming must be reversed or terrible natural disasters like Hurricane Sandy in the U.S. will hit more frequently and rising sea levels will change the world.
Hence, companies around the world are trying to become “green” and customers are demanding more sustainable business practices. Unfortunately, there is a misconception that becoming environment-friendly will add to costs and fail to provide financial benefits. In reality, research shows that sustainability leads to organizational and technological innovations which increase both revenue and net profit. This is because companies create more products at better quality with fewer inputs, thus lowering their variable costs.
Furthermore, a proactive approach to sustainability gives companies a competitive edge, especially in the technology hardware industry where most of the inputs are non-renewable resources and production methods emit extensive greenhouse gases. In the 1990s, Hewlett-Packard (HP) discovered lead was toxic and predicted that governments will eventually ban lead solders. It experimented with other materials and finally, in 2006, it created solders that are an amalgam of tin, silver and copper. Thus when the European Union’s Restriction of Hazardous Substances Directive took effect, HP complied immediately.
Similarly in Bangladesh, the ready-made-garments industry is beginning to adopt a proactive approach. Clothing factories have begun applying environmentally sustainable production practices, as a result of their recent partnership with NGOs such as Bangladesh Partnership for Cleaner Textiles and Solidaridad. These partnerships have resulted in production methods that reduce both inputs and the quantity of waste generated. For instance, traditional dyeing processes use massive volumes of water and spawn high levels of pollution. Newer dyeing methods imprint the colour into fabrics directly at the molecular level, reducing both pollution and the amount of water consumed. Also, many companies are implementing a closed-loop system, where discarded clothing items are recycled to create new fabrics. In this way, companies in the garments industry can completely eliminate landfill waste.
The banking sector is also experiencing green innovation. Bangladesh Bank has made it compulsory for certain banks to allocate a portion of their budget on green banking. It is also encouraging banks to provide online and mobile banking services. Several banks have begun to issue e-statements instead of paper statements and using email communication over face-to-face meetings. Altogether, the banking sector is minimizing the wastage of resources.
But there are other industries that need to adopt sustainable practices. Bangladesh’s growing ICT sector is resulting in large quantities of waste, especially used batteries and discarded cell phones. Much of this waste has the potential to be recycled for industrial usage, similar to the closed-loop system of the garments industry. This is an area that businesses can easily venture into and should do so for the benefit of both their business and society. Already the garments industry has advanced into a leading position globally and is implementing sustainable practices to ensure it flourishes in the long-term. Similarly, the ICT sector of Bangladesh can rise to become an exemplar tech-hub in the world. The government must take steps to develop the necessary infrastructure and our entrepreneurs must capitalize on this burgeoning opportunity.