Tuesday, January 25, 2011

Knowledge: Leaks & Plugs

In 1979, Daewoo Corporation of South Korea signed a collaborative agreement with Bangladeshi company named Desh Garment Ltd (DGL), in 1979.  This is essentially to evade import quota`s imposed on the Koreans by the Americans and Europeans. Daewoo`s idea was to train 130  Bangladeshi`s to make and sell garments, in return for royalties and sales commissions, amounting to 8% of the sales value.

The project was a grand success...for the Bangladeshis. Within a few years, garment production exploded - from 43,000 shirts in 1980 to 2.3 million in 1987 - thanks, largely to the Daewoo-trained workers who left DGL to start their own enterprises. These enterprises brought in about $2 billion in garment sales by 2000 -- 54% of all Bangladeshi exports.

The output of this industry was so prolific that by 1985, the champions of free-trade in America had slapped an import quota`s on Bangladesh as well.

William Easterly (2002) refers to this as a case of `knowledge leak`, and points out that one of the most important bits of knowledge transferred by Daewoo to the DGL workers, had more to do with the machinery of trade & administration rather than textiles. This included the `Special Bonded Warehouse System` which helped DGL in persuading the government (with a a heavily protectionist trading system) to allow duty-free imports for exporters. Another skill transferred was the procedure for opening back-to-back letters of credit.

But then, is it really a case of knowledge `leaking`? That part of the world had long been a center for the textile industry.  Even in the early 1700s the exports from industry to Europe had triggered prompted arson & riots in England, prompting the then emerging colonial power to pass a law prohibiting imports on one hand, and to promote local industries on the other. The industrial revolution that followed resulted in the flooding of Bengal`s markets with cheap imports, decimating the local textile industry.

One way of looking at the relatively recent surge in production of trade goods in countries like Bangladesh is that the local players are merely learning to play and old game with a newer set of rules...


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