1. 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 20 th 2011 Upgrading in Bangladesh RMG Value ChainDecember 2011

2. Two interconnected projects: Project overview Upgrading in RMG Bangladesh Value ChainsDecember 2011 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

3. 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 value Chains Upgrading in RMG Bangladesh Value ChainsDecember 2011

4. 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)). Two Questions Foreign Buyers and Upgrading in Value ChainsDecember 2011

5. 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. Context of the Analysis Foreign Buyers and Upgrading in Value ChainsDecember 2011

6. 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. Some Preliminary Results from Input-Output Matches Foreign Buyers and Upgrading in Value ChainsDecember 2011

7. 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 Some Preliminary Results from Input-Output Matches Foreign Buyers and Upgrading in Value ChainsDecember 2011

8. 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. One Interpretation Foreign Buyers and Upgrading in Value ChainsDecember 2011

9. 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 Future Work on Administrative Records Foreign Buyers and Upgrading in Value ChainsDecember 2011

10. 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

11. 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 The GIZ Female Operator Training Program Evaluation of GIZ Female Operator Training Program December 2011

12. 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 Research Design Evaluation of GIZ Female Operator Training Program December 2011

13. 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. Timeline Evaluation of GIZ Female Operator Training Program December 2011

14. 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 Main Research Questions and Data Evaluation of GIZ Female Operator Training Program December 2011

15. 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. Next Steps Evaluation of GIZ Female Operator Training Program December 2011

16. 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: r.macchiavello@warwick.ac.uk and c.woodruff@warwick.ac.uk r.macchiavello@warwick.ac.ukc.woodruff@warwick.ac.uk A Final Word Evaluation of GIZ Female Operator Training Program December 2011