Trade Between Bangladesh and India

Executive Summary

Trade occurs when citizens from one country can buy from another country or sell to another country what they can produce. This allows a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. Trade between Bangladesh and India is playing a vital role in both the countries’ economy.  This report will give you some idea about the current scenarios of the trade between these two countries.

To complete this report we have tried to analyze different strategies these two countries have been following. Here we discussed the trade theories. We also tried to analyze how the macro environmental factor affects this trade, the effects of the WTO policies, and the strategic management of this type of trade and also the international human resource management in these two countries. Today’s trade scenarios are also described here.

The description of all the above-summarized information is written in the report from which one might be able to get a good idea about the Trade between Bangladesh & India.

INTRODUCTION

Our respected teacher Mr. Reyad Ahmed Chowdhury asked us to select two countries to make a comparison and also contrast between the trade of these two countries. We have to apply the theories and concepts that we covered in our Global Trade course to complete the report. After a brain storming session within our group, we have decided to select Bangladesh & India.

Bangladesh & India are in business operation for a very long period of time. The trade between these two countries has significant contribution to the economy. Bangladesh has efficiency in producing some products and India is also efficient in some sectors. So Bangladesh exports those goods where they are efficient and imports the goods from India where India has absolute advantage and so does India. The economies of both the countries depend on the trade between them. Both the countries mission is to meet the needs of the people of those countries. By trading, the products both the countries can maximize the wealth of their countries. The companies of these countries are facilitated with maximum profit. And the people can achieve their maximum satisfaction level because of the trade between Bangladesh & India.

Country Profile

Bangladesh

 India

 Products that are traded

• India is a supplier of staple foods such as rice and live animals which helps keep their prices affordable for the masses of Bangladesh.
• Most of differences are of sharing water resources between the two countries.
• On the other hand, Bangladesh is a supplier of Jute, RMG products to India.

 Macro Environmental Factor

There are some major forces in the company’s macro environment. These forces always have remarkable effect on trade in any country. So a country’s macro environment factors are needed to be considered while doing business; specially when the trade is between two countries.

The forces of macro environment are uncontrollable forces. But still these elements must be adapted.

Political Environment

The political environment consists of laws, government agencies and pressure groups that influence or limit various organizations and individuals in a country. The laws affect the major trends of political environment in a country. Some organizations have made some rules and regulations for trading. These organizations include WTO, SAFTA, and NAFTA and so on. Trade is highly affected by the rules and regulations of these organizations.

The political condition is not under control of any country. Still, India has stable political environment compared to Bangladesh.

Economic Environment

Trades require consumers’ demand, buying power, income, wealth, willingness to pay and also people. The economic environment consists of factors that affect consumer purchasing power and spending patterns. Nations vary greatly in their levels and distribution of income. Some countries consume most of their own agricultural and industrial output. Bangladesh has efficiency in agricultural sector and India has efficiency in industrial sector relative to each other.

Changes in income and change in consumer spending pattern are the major economic trend.

Economic environment is controlled in India compared to Bangladesh.

Demographic Environment

Demography is the study of human population in terms of size, density, location, age, gender, race, occupation and other statistics. This demographic environment is important as it involves people and people make up the markets. So, demographic environment is very important for any type of trade within or outside the country.

In case of trade between Bangladesh & India, demographic environment should be cautiously considered. Because these trades are dependent on the change in age structure of the population and all other factors related to the population. Trade is entirely dependent on the people or population of a country.

This environment is almost uncontrollable for both the countries.

Technological Environment

The technological environment is the most dramatic force that is shaping the destiny of a country. New technologies create new markets and opportunities. The country that is technologically advanced can easily cope up with the changes in any type of environment.

India is very much advanced in technology compared to Bangladesh. So India has comparative advantage and control over Bangladesh in the telecommunication sector.

 Natural Environment

The natural environment involves the natural resources that are needed as inputs for producing outputs, which are traded later. If the natural resources are scarce in any country, the production will be less for sure.

The major trends of natural environment are shortage of raw material, increased pollution, increased government intervention.

Bangladesh has some control over natural resources. Only because of shortage of money, these cannot be utilized properly.

 Cultural Environment

The cultural environment is made up of institutions and other forces that affect a country’s basic values, perceptions, preference and behavior. This environment shows long- term trend toward a lessening trust of institution, increasing patriotism, greater appreciation for nature, a new spiritualism and the search for more meaningful and enduring values.

The cultures of the two countries are similar; in particular India’s West Bengal state and Bangladesh are both Bengali speaking.

Trade Theory

When we talk about the trade between two countries, there must be application of some trade theories. In case of Bangladesh & India, there are also some trade theories that are applied.

In case of Trade between Bangladesh & India, the Country- based theory, i.e.  Absolute Advantage, Comparative Advantage, Rivalry theory and Endowment…. are applied. And in some of these trades, Firm-based theory is not that much applicable.

 Country- based theory

 Absolute Advantage

When one country is fully efficient in producing one product, in that product’s production, the country has absolute advantage.

In Ready-made garments (RMG) business, Bangladesh has absolute advantage, when India has absolute advantage on industrial product.

Comparative Advantage

When one country’s efficiency rate of producing a product is much higher than another country’s efficiency rate, then this highly efficient country has Comparative advantage.

Bangladesh has comparative advantage on the agricultural sector compared to that of India.

Rivalry Theory

When one country has some competitive advantage over another country, this is known as Rivalry Theory.

This competitive advantage includes technological advancement, differentiation strategies, operational excellence and so on.

So India in producing many products can also be fall under this theory. India has competitive advantage on toiletries, cosmetics, food items, electrical alliances and telecom sectors.

Relative Factor Endowment

Bangladesh has many natural resources that can be utilized to have a tremendous production. Mainly in the agricultural sector, Bangladesh has many resources that should be utilized properly.

In addition, India does not have that many natural resources but they can utilize their limited resources in a very effective manner.

Strategy

Strategy is the action that managers must take to attain the goals of the firm. We have chosen mainly four products for finding out the strategic implication. These products are:

• Shipping container from India
• Cosmetics & toiletries from India
• Leather product of Bangladesh
• ready made garments of Bangladesh

Businesses use Strategic Alliance to:

• achieve advantages of scale, scope and speed increase market penetration
• enhance competitiveness in domestic and/or global markets
• enhance product development
• develop new business opportunities through new products and services
• expand market development
• increase exports
• diversify
• create new businesses
• reduce costs.

Choosing a Strategy:

International Strategy:

Create value by transferring valuable core competencies to foreign markets.

Weak pressure for local responsiveness and cost reduction is needed to be effective.

Here, Shipping Container falls under this strategy.

Multidomestic Strategy:

Main aim is to maximize local responsiveness.

Customize product offering, market strategy including production & R&D.

Here Leather products and cosmetics falls under this strategy.

Transnational Strategy:

Firms aim to reduce cost, transfer core competencies while paying attention to pressure for local responsiveness.

Ready-made garments (RMG) fall under this strategy.

Choosing an Approach

There can be three different IHRM orientations in MNCs:

Adaptive, exportive and integrative. These orientations determine the company’s overall HR approach to managing the tension between integration or the pressure for internal consistency and differentiation or the pressure for external consistency.

An adaptive IHRM orientation is one in which each affiliate develops its own HRM system, reflecting the local environment.

 The second, an exportive IHRM orientation is one in which the parent firm’s HRM system is being transferred to its different affiliates. This approach emphasizes integration across all affiliates, developing a highly internal consistent MNC.

 The third, an integrative IHRM orientation attempts to take ‘the best’ HRM approaches and uses them throughout the organization in the creation of a worldwide system. The focus here is on substantial global integration with an allowance for some local differentiation.

The three orientations of an adaptive, exportive or integrative approach represent three basic choices for IFIR managers, reflecting an overall approach towards IHRM. However, in practice, IHR managers may have the option to choose for a mix of the three approaches. Because the LHR function consists of several tasks and is oriented towards different types of employees, choices may differ for the different tasks or employee groups.

Countries that trade together can choose the mixture of these three approaches to be successful by sharing core competencies and innovative ideas with each other.

Necessary Skills and Abilities for International Manager

When an expatriate goes for work in a foreign country, he needs to have adaptability skill; so that he can easily cope up with that culture.

An expatriate should learn the language of that foreign country to mix up with the foreign people.

When Bangladeshi labor goes to India or an Indian labor is hired for Bangladesh, those expatriates face many difficulties that include:

• Differing Culture
• Legal systems of the countries
• Training & development in an international firm is more complex than a domestic firm
• Compensation system is also different

Managing & Selecting Expatriates

For both India and Bangladesh, it’s very much important to consider the cost while it’s a matter of IHRM.

• Bangladesh selects expatriates from India mainly on technical competence.
• India selects expatriates from Bangladesh based on functional skill and ability of acclimate.

WTO (World Trade Organization)

WTO plays a key role in the trade between Bangladesh & India.

• It encourages trade between member nations,
• Administers global trade agreement and
• Resolves disputes when they arise.

WTO mainly focuses on__

• Agriculture
• Textile & Clothing
• Trade related investment measure
• Dispute Settlement

Principles of the trading system:

• Transparency
• Non discrimination within countries
• Free trade principle: Optimal utilization of resources
• Decreasing trade barrier
• Fair competition

These policies are applicable for trade between Bangladesh & India. Both the countries have to maintain this.

Bangladesh will sign a deal with India on duty-free export of eight million pieces of Bangladeshi readymade garments (RMG) to India annually.

A meeting of the country’s council of advisers of Tuesday approved a proposal for signing the Memorandum of Understanding on duty-free import of the RMG products by Indian government through Tariff Rate Quota (TRQ) system under the purview of the South Asia Free Trade Agreement (SAFTA).

A meeting of the country’s council of advisers of Tuesday approved a proposal for signing the Memorandum of Understanding on duty-free import of the RMG products by Indian government through Tariff Rate Quota (TRQ) system under the purview of the South Asia Free Trade Agreement (SAFTA).

Compare and Contrast between Bangladesh and India

 534(billion TK.)

 Conclusion

All the countries want to be wealthy and economically developed to enjoy the moment when anything seems possible. And that’s just what trade between two countries gives.

Trade between Bangladesh & India can be successful, if the trade barriers are reduced. The focus of bilateral cooperation should be on Indian investment in Bangladesh. Indian investment in the country would largely help reduce Dhaka’s trade deficit with India. So, Indian trade with Bangladesh should take place in a mutual manner.

Justification

From the analysis, we can say that trade between two countries can be very much lucrative, if there is less trade barrier. Moreover, the trade between Bangladesh & India can also be successful. But there exists some lacking. These are:

• There is a wide gap between the two countries with India’s exports of $1,100 million to Bangladesh and Bangladesh’s exports of only $70 million to India.
• The inflation rate of Bangladesh is also high compared to India.
• Although there are many types of trade are being done, there still exists a trade imbalance between these two countries.
• Should adopt an approach to tariff allowance to resolve the trade imbalance, which is heavily in India’s favor.

These two countries are very successful in trading different products since many years and we are hopeful that they will continue their success if they try to implement their innovative and co-operative ideas.

Recommendation

• Further trade liberalization and for adopting a fast track approach to tariff concessions to rectify the trade imbalance, which is heavily in India’s, favor.

• The focus of bilateral cooperation should be on Indian investment in Bangladesh.

• The laws and incentives for foreign investment in Bangladesh were among the most attractive in the world and Indian investment in the country would largely help reduce Dhaka’s trade deficit with India.

• There is a wide gap between the two countries with India’s exports of $1,100 million to Bangladesh and Bangladesh’s exports of only $70 million to India. So it should be taken into concern.

• To promote exports from Bangladesh and reduce the trade gap, there is need to revise and relax the rules of origin. WTO can play a tremendous role in this regard.

• It can be recommended that India should provide zero tariff access to Bangladesh to reduce the trade gap.

• Bangladesh should opt for selling its services, allowing Indian traders to use its roads, waterways and ports to fill the gap in trade.

• Transit facilities for India would immensely benefit both countries. Not using Bangladesh’s port facilities to transport goods to its northeastern states was costing India about Rs 8,000 crore annually. Of the estimated 3.5 million tons of goods transported to the northeastern states from the rest of India, less than one per cent passed through Bangladesh.

• Further easing of visa restrictions and promoting tourism and travel between the two countries.

• Both countries recommend up gradation of infrastructural facilities, including
  • provision of improved rail links,
  • creation of warehousing facilities,
  • easier cross-border movement of vehicles and
  • Improved shipping infrastructure.