Context: Learning through the success stories of Vietnam and Bangladesh
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- Bangladesh has become the second largest apparel exporter after China.
- Vietnam’s exports in apparel sector has grown by about 240% in the past eight years.
Vietnam’s success stories
- Duty free exports: Signing of Free Trade Agreements (FTAs) with important trading partners like the U.S., the EU, China, Japan, South Korea and India makes their product competitive.
- Incentives to foreign firms: Mending domestic laws to allow Foreign firms to compete for local businesses. For example, EU firms can open shops, enter the retail trade, and bid for both government and private sector tenders. They can take part in electricity, real estate, hospital, defence, and railways projects etc.
- Cheap labour: over the year’s large brands such as Samsung, Canon, Foxconn, H&M, Nike, Adidas, and IKEA have shifted to Vietnam to manufacture their products owing to reduced costs.
Bangladesh Success story
- Duty free exports: Large export of apparels to the EU and the U.S. make the most of the country’s export. The EU allows the duty-free import of apparel and other products from least developed countries (LDCs) like Bangladesh.
- Supporting large firms: Because large firms are better positioned to invest in brand building, meeting quality requirements, and marketing. Whereas Small firms begin as suppliers to large firms and eventually grow.
What are the challenges for Vietnam and Bangladesh?
- Lacks diversification: For example, Most of Vietnam’s exports happen in five sectors.
- Limited Investment sourcing: Due to Lack of developed domestic and capital market.
- Duty free markets: Bangladesh may lose its LDC status in four to seven years as its per capita income rises.
- Small gains: For example, most of Vietnam’s electronics exports are just the final assembly of goods produced elsewhere. In such cases, national exports look large, but the net dollar gain is small.
- Vulnerability: high dependence on exports brings dollars but also makes a country vulnerable to global economic uncertainty.
What are the lessons for India?
- Promote manufacturing and investment by setting up sectoral industrial zones with pre-approved factory spaces.
- Following an open trade policy, signing balanced FTAs, restricting unfair imports, and supporting a healthy mix of domestic champions and MNCs.
- While export remains a priority the focus is should be on organic economic growth through innovation and competitiveness.
- Reforms to promote innovation and lowering the cost of doing business.