Saga of homegrown light engineering in Bangladesh

Industrial revolution on a national basis has been the driving force of economic growth in the modern era. This is true for a country like ours as well. The territory of Bangladesh saw the expansion of industry during the period of East Pakistan, when the central government led by Ayub Khan was inspired by the growing trend of Import Substitution trade policy.
Even though the machinery and technology were from foreign sources, the development inadvertently sowed the seed of a homegrown industry: light engineering (LE). This is a technical field which developed to exploit the opportunity at value addition by supporting the large industries with spare parts, repair facilities, as well as limited product innovations.
Even though it has been an integral part of industrial development in Bangladesh, successive governments have either remained ignorant or have chosen not to care about this sector-up until recently-due to its marginal nature. Bangladeshi products were regarded as cheap low-quality manufactures with no potential to become something importants.
Even the principal centre of LE, Dholaikhal, used to be stigmatized -- even sometimes back for its alleged association with illegal chop-sshop operations. Places near Dhaka City like Jinjira where local LE industry was taking roots were regarded with suspicion as to the product quality, precision, as well as originality.
 The light-engineering sector (LES) has emerged as a thrust sector by producing at least 50 per cent of the country's demand for industrial spare parts and supplies, forcing the government to pay attention. In the Industrial Policy 2005 and 2009, the LES sector was given thrust-sector status, receiving accompanying benefits. Also, the Export Policy 2006-09 and the Export Policy 2009-12 recognize the sector as a priority sector.
There are about 1,200 light-engineering industries presently enlisted with Bangladesh Small and Cottage Industries Corporation, which are supplying various types of products under sub-contacting schemes. The trade association of the industry, Bangladesh Engineering Industries Owners Association, lobbies for the interest of the entrepreneurs in this industry.
The light-engineering sector is essential because it provides backup support to cement, paper and pulp, jute, textile, sugar, food-sprocessing, railway, shipping and ship-building, RMG,capital machinery etc by manufacturing a wide range of spare parts, castings, moulds, oil and  gas-pipeline fittings and tools.
This sector also provides specialized services like repairs. Both the public and private sector are consumers of LE products and services. The products are spare parts of paper and cement mills, bicycle, fancy light fitting, construction equipment, battery, voltage stabilizer, iron chain, cast-iron article, carbon rod, automobile spares, electronics items, and stainless-steel wares.
The utilities and labour costs are comparatively lesser than in other countries. As such, this particular sector shows high potentiality of growth and development. Current portfolio of available electrical and electronic products in Bangladeshi LES meets 48% to 52% of the country's demands, replacing import. Export growth in this sector now averages around 30 per cent. By 2014, annual export amount is estimated to have reached US$ 400 million.
There are two principal means of production in this industry: Labour i.e. technical manpower and Capital i.e. machinery and tools. A large proportion of the manpower is homegrown in terms of their training: most start their career in the industry as apprentices, gradually moving up the ladder to become foremen of an existing establishment or proprietors in their own outfits in the capacity of entrepreneurs.
Even though there are public and private facilities for such vocational training with certification and accreditation available, various factors keep graduates of such facilities from entering into jobs in the LE sector. Low pay, slow progression, and lack of other opportunities of employment in technical professions are among the drawbacks.
One of the main challenges in technical business is the proprietary status of various technologies and related hurdles in transfers. Since majority of the traditional products are made using standardized machines-based onknowledge available in the public domain, transfer of these are relatively easier. But for highly sophisticated and efficient technologies with proprietary status, this is not the case. India, China, and some other developing countries are investing in developing technological prowess on their own. Through liaisoning with them, Bangladeshi LE enterprises are also getting access to these cheaply made and reliable technologies which are helping to make these businesses efficient and productive.
The quality standards which apply to firms in the LE sector include ISO 9002:2000, ISO 10006 as well as ISO/TS 16949. Although due to the high cost associated with certification, almost no LE enterprise is registered as ISO-certified. As such, foreign importers as well as local customers of these products and services need to rely on anecdotal evidence of superior quality of certain businesses instead of using scientific assessment standards.
A recent study conducted by the International Finance Corporation (IFC) shows that LES has in its employment 600,000 people involved in 50,000 micro-enterprises and 10,000 small and medium enterprises. However, another relatively recent study conducted by Bangladesh University of Engineering and Technology (BUET) estimates that LES comprises around 40,000 enterprises employing around 800,000 people.
Even though all the encouraging statistics about growth and employment might look like a rosy picture, there are grave issues of concern facing the light-engineering sector as well. These are related to fields as diverse as human resource, finance, marketing, nature of demand, and quality control of products.
Since a large proportion of these enterprises are of the SME type, with their limited turnover and high probability of default, still today the LE firms are one of the least likely beneficiaries of the banking credit facilities. Bankers are too worried about defaulted payments of SMEs even today, although they seem to have no problem tolerating defaulters with good political and professional connections who are guilty of far greater offences.
As for human resource, the LE enterprises face a two-pronged problem which relates to changing expectation of workers in the sector. Due to increasing standard of living, wages are increasing, becoming an issue of contention between labour and capital owners.
Workers with years of experience are migrating abroad for higher-paying jobs in technical positions. At the same time, turnover and job switching across the industry ruins the investment of the smaller firms investing their own money to train their workforce but fail to keep them working afterwards due to their increased expectation for compensation.
Another problem with our LE industry is its lack of original innovativeness. Economy of Scale is the biggest issue. Since our firms are mostly SMEs with low capital, they are not well-equipped for product and process innovation excepting in very limited ways. The big hurdles faced by those who do get to innovate under these difficult conditions are marketing and patent issues, as Bangladesh is yet to reach that stage of market maturity.
As we need to rely on foreigners for proprietary technologies and machinery we are still not in a position to upgrade our status as a major global LE product-supplier nation. A related problem is that of quality of products. Certifications for quality of engineering products are available, but only the best and the biggest can afford to pay for ensuring compliance with the standards.
To get rid of this problem, industry-level cooperation can be used successfully to achieve economies of scale in quality and technology transfer. Examples of such cooperation are already present.
The issue of skilled manpower can be solved by providing fiscal benefits like tax lowering or subsidization to recruit graduates of vocational institutes as well as to keep skilled workers from their flight abroad. By using Strategic Alliances (between competitors requiring the same technology) and industry association (BEIOA), the development of national technical quality standard for manufacturing and engineering industries can be attained.
Another big problem is that of utilities. Because of poor infrastructure, and very high population density, electricity and gas has been a perpetual problem in Bangladesh. It has been affecting all the manufacturing industries that rely on the national grids for their fuel and power supplies. Smaller firms cannot even use generators due to the prohibitive cost.
The LE sector also suffers from a specific characteristic of its demand: derivation from business clients. As manufacturers and service agencies rely on consumer demand for the sale of their products, LE firms rely on those manufacturers for the sale of their products. The ability of those manufacturers to absorb and survive drastic falls in demand and price is much greater than the LE enterprises serving them. As such, they are left vulnerable to these shocks.
Smart Business Initiative, a Dutch Government-funded drive under the auspices of ILO, is promoting better working conditions to increase labour participation in this industry. Katalyst, another such programme, is also working to promote the industry by patronizing SMEs through financial and technical assistance. The Business Promotion Council of the Ministry of Commerce is also working with industry association and other agencies to promote the LE export market.
In spite of all the problems mentioned above, the LE sector is still growing rather steadily with an outstanding success. The factors which are driving this dynamism are rapid industrialization of agriculture, existing base of highly skilled labor resource, price and supply conditions of labour in this industry, and the growth of overall manufacturing sector.
In order to realize the potential this industry holds, we need to look into ways of solving the problems it currently faces, exploit the opportunities which are present for us to grab, and to continually look out for ways to improve and maintain a sustainable competitive advantage. Bangladesh as a land of unlimited potential has all that takes to be on top -- all we need is a conscious urge to advance the cause of our country's development and prosperity.
The writer is an executive associate at In-House Consultants, a research and consultancy firm. Email:
[email protected]