Bangladesh's Leather Industry

This section introduces into the dynamics of global production networks from the perspective of Bangladesh’s little diversified economy. It puts recent disasters such as the collapse of Rana Plaza in April 2013 into a larger perspective of low-cost sourcing strategies of northern multinational companies. Against the backdrop of the garment industry being the central driver of Bangladesh’s economy, the leather sector has been picked as a case study to showcase the coordination of inter-firm linkages in a marginalised but globally integrated industry. This work identifies institutional limitations that constrain competitiveness, points to adaptation strategies of local producers and presents the potential for improvement along the supply chain. Questions are raised as to what enterprises are actively involved in the global leather production network. Different from studies examining trade flows from the Global South to northern consumption markets, this book focuses on power relationships between local lead firms and micro, small and medium-sized enterprises (MSME) supplying and being subcontracted within local production networks. In particular, the conditions under which local MSMEs achieve exports are often overlooked and will be subject to analysis.

The theoretical framework of this study draws on the global value chain (GVC) perspective that is complemented by considerations of informality, subcontracting and middlemen to explore and to uncover the informal dynamics in inter-firm linkages at the lowest end of the leather value chain. Strategies to overcome development constraints are drawn from the debate on economic upgrading in GVCs and embedded in the institutional context to achieve sustained competitiveness. Given its limited practicability, the global production networks (GPN) approach is deemed inappropriate for the extent of this study, although its notion of power, being negotiated in social interaction regardless of the firm’s position in the chain, has been integrated. In the end of this section four research questions are outlined to analyse the complexities of inter-firm relationships in Bangladesh’s leather industry, their informal dynamics and potential strategies to overcome structural constraints and to reposition themselves within GVC governance.

Qualitative research complemented by specific quantitative methods has been chosen as an approach to explore and understand specific dimensions of the complexly governed leather value chain. The data source of this study is drawn from empirical field studies in Dhaka, Bangladesh and other sections of the international leather value chain in 2010–2014. Conceptualising the Bangladeshi leather industry within a global value chain served as an analytical framework to define the coordination of inter-firm activities, their business dynamics and power asymmetries at the corresponding nodes in the chain. The complexity of transactions in the chain, the ability to codify these transactions and the capabilities in the supply base were key determinants for an analytical understanding of the value chain. After introducing the research design, which links the development of a conceptual framework, the definition of research questions and data collection coherently, the study site and research methods will be presented. Ultimately, limitations that are inevitably entailed by research in a socio-cultural environment that differs greatly from the author’s will be addressed.

This section gives a brief overview of the historic development of the leather industry in Bangladesh, describes its internal organisation and delineates the institutional framework it is embedded within. Bangladesh’s export-oriented leather processing subsector originates from the East Bengal and East Pakistan periods. After Bangladesh’s independence in 1971, the tanning industry underwent a restructuring process accompanied by public policies that paved the way for more value addition. Thanks to these policies being inadequately implemented, the tanneries in Hazaribagh, Dhaka keep operating under conditions beyond their capacity and sustainability, while growth of the leather goods and footwear subsectors has been picking up in recent years. Institutions and organisations related to the leather sector were devised to pursue an outward-oriented strategy but failed to boost export earnings. As a result of the deficient institutional framework, both subsectors leather processing and manufacturing suffer from underfunding and require a high level of investment.

The main part of this study draws on empirical findings on structures, processes and dynamics of the leather value chain. It looks into the organisation of the industry by analysing interactions of the dominant actors and tracing product flows within both subsectors leather processing and leather goods/footwear. In the leather processing industry emphasis is placed on the procurement of raw material the coordination of which is modified during the Muslim festival Eid-ul-Azha. The access to the international market will be analysed in light of trade and domestic policies and the power asymmetries within the tannery sector. Three areas have been identified as having strategic importance for leather processors to turn to informal practices and strategies to counteract dysfunctional institutions and power asymmetries on the way to global market entry: chemical imports, leather exports, and environmental regulation. Particular importance is attached to subcontracting schemes in the coordination of the leather goods and footwear subsector. The analysis of both subsectors leather processing and manufacturing ends with suggestions to improve their competitiveness. Upgrading strategies in the tanning industry will be assessed against the backdrop of the reality of informal dynamics in the export related areas. As for the leather goods and footwear subsectors, it is explored the extent to which the MSMEs interviewed learn and receive assistance to upgrade from local lead firms. Learning effects by foreign market integration will be examined to the extent that MSMEs have benefited from external development projects.

The last section synthesises core results by relating to the research questions this work has drawn on. It gives account of what has been brought to light, shows where more research is needed and suggests what lessons can be learned. It concludes that the discussion of the research questions revealed a number of specific phenomena and strongly interwoven dynamics in Bangladesh’s leather industry that ensure price competitiveness on the international market but impinge on sustained competitiveness. Other countries’ strategies to improve the competitiveness of MSME suppliers cannot be taken prescriptively. The author suggests an individual but holistic approach that takes into account the role of informal institutions for the industry’s competitiveness. Much of the future of Bangladesh’s leather industry depends on the relocation of the tanning estate to Hemayetpur/Savar.