Global Business and Economics Journal (GBEJ) Papers

Global Business and Economics Journal (GBEJ) Vol.1 Issue 1, October, 2020

ISSN xxxx-xxxx E-ISSN xxxx-xxxx Published by Global Business & Economics

Research Center in Canada (GBERCC) URL: https://gbercc.ca

Publisher: Global Business and Economics Research Center in Canada (GBERCC), Toronto, ON, Canada.

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Global Business and Economics Journal (GBEJ)

Volume 1, Issue 1 (2020)

Papers published in this issue:

1. Convergence or Divergence of Corporate Social Responsibility in emerging countries: A theoretical Analysis Mohammad Nurul Huda Mazumder, Coast Mountain College, BC, Canada, BC, Canada.

2. Participation into the global value chain through Outsourcing: How does it contribute

to value creation for participating SMEs? Md. Samim Al-Azad, & Md. Mamunur Rashid, Laval University, Canada.

3. Hazardous Chemicals in Foodstuffs: Perception of Consumers, Sellers and Doctors in

Bangladesh Masud Ibn Rahman, Daffodil International University, Dhaka, Bangladesh Rumana Parveen, Dhaka University, Bangladesh & Central Queensland University, Australia.

4. Renewable Energy Potential In Pakistan And Barriers To Its Development For

Overcoming Power Crisis Sheeba Habib 1, Kanwar Muhammad Javed Iqbal1,2,*, Muhammad Irfan Khan2 1 Department of Environmental Science, International Islamic University, Islamabad, Pakistan 2 National Institute of Maritime Affairs, Bahria University, Islamabad, Pakistan

5. Impact of LDC Graduation of Bangladesh on its International Trade: An

Analysis Roksana Khan, Economic relation division, Ministry of Finance, Bangladesh.





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Publisher:

Global Business and Economics Research Center in Canada (GBERCC) Toronto, ON, Canada

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Copyright: Global Business and Economics Journal is an open access peer reviewed journal. Published materials remain property of the authors and they remain responsible for their writings, findings and opinions.

For inquiries: please contact us:

Md Mamunur Rashid, MBA, Director, Global Business and Economics Research Center in Canada, Quebec City, Quebec, Canada. E-mail: [email protected]





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Global Business and Economics Journal (GBEJ)

Global Editorial Board

Editor-in Chief

Dr. Long Pham, School of Management, College of Business and Social Sciences, University of Louisiana at Monroe, USA.

Associate Editors Dr. Constance Van Horne, Guangdong Technion-Israel Institute of Technology, China. Dr. Mohammad Nurul Huda Mazumder, Coast Mountain College, BC, Canada. Dr. Md. Samim-Al Azad, School of Business, North-South University, Bangladesh. Dr. William P. Wall, Stamford International University, Bangkok, Thailand. Dr. Osama Jawaid Butt, University of Toronto, ON. Canada. Dr. Slimane El-Dafali, Chouaib Doukkali University, Morocco.

Managing Editor

Dr. S.M. Ahasan Kobir, University of Pittsburgh, Pennsylvania, USA. E-mail: [email protected] Md. Mamunur Rashid Global Business and Economics Research Center in Canada (GBERCC) Email: [email protected] Alternative e-mail : [email protected] Editorial board members Dr. Shammi Ahmed, Victoria Business School, Victoria University, Australia Research Fellow, Global Business and Economics Research Center in Canada (GBERCC), ON, Canada. Dr. Selim Ahmed, World University of Bangladesh, Bangladesh. Dr. Kanwar Muhammad Javed Iqbal, National Institute of Marine Affairs, Bahria University Islamabad, Pakistan





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Dr. Bilal Khalid, King Mongkut's Institute of Technology Ladkrabang Business School, Bangkok, Thailand. Dr. Mark Loo, Associate Professor, Mihalcheon School of Management, Concordia University of Edmonton, AB., Canada. Mohammad Harun-or-Rashid, Research Fellow, Global Business and Economics Research Center, Canada. Dr. Amina Omrane, University of Sfax, Tunisia. Dr. Syed Ehsan Ullah, School of Accounting and Finance, Taylor's University Malaysia. Mast. Afrin Sultan, Green University of Bangladesh, Dhaka, Bangladesh. Fellow, Global Business and Economics Research Center, Canada. Dr. Muhammad Nurul Hassan, Malaysia Multimedia University, Kualalumpur, Malaysia. Dr. Md. Samim Al-Azad, School of Business, Laval University, Canada. Dr. Mst. Nazmunnahar, Iowa State University, Iowa, USA. Dr. Ahasan Kobir, Pittsburgh University, PA, USA. Syeda Sonia Parvin, John Molson Business School, Concordia University, Canada. Dr. Sreenivasan Jayashree, Multimedia University, Malaysia Dr. Li Bo, School of Management, Tianjin University of Technology, Tianjin, China. Dr. Abdulrahman Alqahtani, College of Business Administration, Jazan University, KSA Dr. Yuliang Cao, School of Management, Tianjin University of Technology, China. Dr. Professor Mohammed Masum Iqbal, Daffodil International University, Bangladesh. Dr. Professor Abdul Moyeen, Federation university of Australia, Sydney, Australia. Dr. Elahe Hosseini, Yazd University, Iran. Dr. Aida Mehrad, Castelldefels School of Social Sciences (C3S), Barcelona, Spain. Dr. Daniela Georgieva, International Business School, Sophia, Bulgaria. Dr. Natalie Solveig Mikhaylov, Westminister International University, Uzbekistan. Dr. Madhuri Modekurti Mahato, Amity University Jharkhand, India. Dr. Yasemin Gedik, Istambul, Turkey. Dr. Halia Valladares Montemayor, Simon Fraiser University, BC, Canada. Dr. Soumi Dutta, Institute of Engineering and Management, West Bengal, India. Dr. Kalinga Jagoda, University of Guelph, ON, Canada. Dr. Shrafat Ali Sair, University of Punjab, Pakistan Dr. Slimane Eldafali, University of El-Jadida, Morocco. Dr. Mohammad Mahfuzul Alam Khan, IRC, Birmingham, UK. Rumana Parveen Annie, Dhaka University, and, Central Queensland University. Australia. Masud Ibn Rahman, Daffodil International University, Bangladesh. Dr. Ahmed Hoque, Vancouver Island University, BC, Canada. Dr. Asadul Hoque, American University of Kurdistan, & Waterloo University, Canada





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Contents Pages

1. Convergence or Divergence of Corporate Social Responsibility in emerging countries: A theoretical Analysis ..........................................................pp.6-24 Mohammad Nurul Huda Mazumder. Coast Mountain College, BC, Canada, BC, Canada.

2. Participation into the global value chain through Offshore Outsourcing:

How does it contribute to value creation for participating SMEs?........................pp.25-42

Md. Samim Al-Azad, & Md. Mamunur Rashid, Laval University, Canada.

3. Hazardous Chemicals in Foodstuffs: Perception of Consumers, Sellers and Doctors in Bangladesh………………………………………….………. ……………………….pp.43-59 Masud Ibn Rahman, Daffodil International University, Dhaka, Bangladesh Rumana Parveen, Dhaka University, Bangladesh & Central Queensland University, Australia.

4. Renewable Energy Potential in Pakistan and Barriers to its Development for Overcoming Power Crisis Sheeba Habib 1, Kanwar Muhammad Javed Iqbal1,2,*, Muhammad Irfan Khan2 1 Department of Environmental Science, Int. Islamic University, Islamabad, Pakistan 2 National Institute of Maritime Affairs, Bahria University, Islamabad, Pakistan.…………pp.60-74

5. Impact of LDC Graduation of Bangladesh on its International Trade: An Analysis. ……………………………………………………………………………………….…………..pp.75-95 Roksana Khan, Economic relation division, Ministry of Finance, Bangladesh.





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CONVERGENCE OR DIVERGENCE OF CORPORATE SOCIAL RESPONSIBILITY IN EMERGING COUNTRIES: A THEORETICAL

ANALYSIS Coast Mountain College, BC, Canada, BC, Canada. E-mail: [email protected]

Received: Jan 10, 2020; Accepted: May 11, 2020; Published: October 18, 2020

ABSTRACT

A number of definitions from academicians and practitioners explained CSR as a strategic mean to achieve corporate objectives. On the other side, another group of scholars believe that corporations will not practice CSR without law enforcement. Disputes among the scholars raised the question, why the corporations should practice CSR or what are the factors that influenced corporations to practice CSR. And finally, when a corporation decides to practice CSR, how they should practice CSR, what are the contribution of economy, environment and social dimensions to CSR practice. This paper aims to develop a theoretical framework, which will answer the reasons behind CSR practice and will also answer the ways of practicing CSR in corporation. Key Words: Corporate Social Responsibility, Theories of CSR, Criticism of CSR theories and CSR theoretical framework

INTRODUCTION

Over past few decades, the rhetoric of social responsibility of corporation has become prominent in the business debates all over the world. The main objective of this study is to develop a new framework to investigate why and how the corporate are practicing CSR. To achieve the objective of this study, a theoretical framework has been developed after reviewing plethora of existing literature on CSR framework. There is also an ongoing debate on the scope and area of CSR which can be put into one word i.e. CSR framework. CSR framework refers to the areas, boundaries, issues, or themes that would depict the overall picture of CSR work (Virakul, Koonmee, & McLean, 2009). Different researches have given different frameworks for CSR. In a CSR framework, Bursa, Malaysia (2009), reported that “CSR is a bit like running shoes: One size does not fit all”. Before going to discuss the research framework for this study, it is worth to look at the existing theories of CSR. Dusuki explained five theories of CSR in his work, these are Classical view of CSR, Social contract theory, Instrumental theory, Legitimacy theory and Stakeholder theory (Dusuki, 2008). He explained each theory of CSR in details and then criticized the theories of CSR from religious aspect. To explain the classical view of CSR, he used the well-known speech





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of Milton Freedman, “The Social Responsibility of Business to increase its Profit”. However, Dusuki did not explain the contemporary views (Lantos, 2001) on classical theory of CSR; rather he explained contemporary views as instrumental theory. Garriga and Melé (2004) explained the theories of CSR under four approaches; instrumental theory, integrated theory, political theory or institutional theory and ethical theory (Garriga & Melé, 2004). Using idea of Garriga and Melé, (2004), researcher interprets the major theories of CSR and also presents the criticism of each theory in the following section. Based on the criticism, researcher develops a framework which is suitable to determine the reasons behind CSR practice. Instrumental Theory: The main intention of this theory is based on human nature to get more for self-betterment. According to Instrumental theory, a business organization may support social programmes after considering few reasons; good image, public relations and firm’s competitive advantage (Burke & Logsdon, 1996; Garriga & Melé, 2004; Lantos, 2001). A business cannot spend single penny for social development, unless it is for strategic reasons without jeopardizing the interests of primary stakeholders, e.g., shareholders. There are three major approaches under Instrumental theory maximization of shareholder value, strategies for achieving competitive advantages and cause-related marketing (Garriga & Melé, 2004). In the following section, the paper presents the four approaches briefly; Maximization of Shareholder Value: The scholars used to start explaining maximization of shareholder value theory with the comments of M. Friedman, he said, “there is one and only one social responsibility of business – to use its resources and to engage in activities designed to increase its profit” (Friedman, 1962). Friedman is the pioneer of this theory and the main concern of this theory is that the management should first and foremost consider interest of shareholder in their decision-making process. For example; whether the corporate will practice CSR or not will be depending on the interests of shareholders. Strategies for Achieving Competitive Advantages: To achieve the competitive advantage, resources are allocated in a way that brings long-term business gain (Husted and Allen, 2000). The scholars define deferent types of strategies to achieve the competitive advantages. Burke and Lodgson (1996) pointed out it as, a philanthropic activity which is closer to the company’s mission; it can create greater wealth than others kinds of donations. Porter (1980) argued that investing in philanthropic activities may be the only way to improve the context of competitive advantage. Prahalad explains another kind of strategy to provide all technological benefits and customer service for bottom line customers (Prahalad, 2006). According to him, there is a big market (4000 million people) in the bottom of economic pyramid.





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Figure 3.1 shows the instrumental theory of CSR. The figure shows that the main intention behind the social responsibility is to earn profit. The social responsibility initiatives are working as strategy to achieve competitive advantage and image-reputation. Natural Resource-Based View of the Firm: Resource based theory (RBT) has been developed by Penrose which then becomes a central theoretical perspective in strategic management (Barney, 1991). The RBT focuses on the internal factors of a firm that lead to achieve competitive advantages (Hart & Dowell, 2010). The RBT emphasizes on the resources that provide an opportunity for a firm to sustained competitive advantage, like; a resource which is valuable, rare, inimitable, and supported by tacit skills or socially complex organizational processes (Barney, 1991). Value is found if the resource increases customers’ willingness to buy or reduce the cost of production. Hart (1995) proposes that the existing RBT had a serious omission and ignored the interaction between an organization and its natural environment. Hence, Hart suggests a conceptual framework with three main interconnection; pollution prevention, product stewardship and sustainable development. This framework is known as “Natural resource-based View (NRBV)” which considers the environmental issues. Criticism of Instrumental Theory: The instrumental theory has been criticized since 1970s when M. Friedman negatively explained the social responsibility of corporate executives. It has been widely criticized particularly after late 2000s financial crisis. The theory saved the value of shareholder but does not provide any clear measure of social issues like; environment, ethics, employment, customers’ right and so on. Again the theory has been criticized because of biased intention while doing the social development work (Lyytinen, 1992). As a result, a lot of corporations are now spending more for CSR communication, than the CSR practice (Wanderley, Lucian, Farache, & de Sousa Filho, 2008). The literature review of this study does not prove that the corporation are involved with CSR only for business strategy like image-reputation or competitive advantages, but also for mitigating risk (Kytle & Ruggie, 2005) or to get realization for bad episodes (Våland & Heide, 2005). In other word, corporate involves with CSR to address various

Figure: 3.1 Instrumental Theory of CSR, (Source: Developed by Authors)

Strategy

Profit

Competitive Advantages

Image Reputation

Social Responsibility





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issues or to maintain public relations. Considering the drawback of instrumental theory, this study also looks at the integrative theory of CSR. Integrative Theory of CSR: The main argument behind the integrative theory is that the existence of a business depends on the society. The experts look at how business integrates social demands, arguing that business depends on society for its existence, continuity and growth. According to the theory, the function of the business depends on the space and time of each situation in the society (Garriga & Melé, 2004). There are a number of views under integrative theory of CSR; issue management, the principles of public responsibility, stakeholder management and corporate social performance (Kimiagari, Keivanpour, Mohiuddin, & Van Horne, 2013). Issue Management: The main idea of this concept is to respond to the social issues and process to manage them. According to this view, whenever a firm comes to know about a problem, the management will immediately solve the problem (Sethi, 1975) to avoid the risk. Wartick and Rude (1986) define Issue management as ‘‘the processes by which the corporation can identify, evaluate and respond to those social and political issues which may impact significantly upon it’’. The issue management in the field of strategy has been used by Greening & Gray (1994) and they presented issue management as both an institutional response and a strategy adaptation to external pressure (Greening & Gray, 1994). Wherever, a problem took place, the firm should find-out the gap and choose a response in order to close it (Ackerman and Bauer, 1976). The Principle of Public Responsibility: There is a group of scholars (Jones, 1980; Preston & Post, 1981) who criticize the social responsible approach of a corporate and they encourage public responsibility rather than social responsibility. According to this theory, the scope of managerial responsibility is in terms of the ‘‘primary’’ and ‘‘secondary’’ involvement of the firm in its surrounding. The essential economic tasks are included under primary involvement of the firm, such as locating and establishing its facilities, procuring suppliers, engaging employees, carrying out its production functions and marketing products. The theory also includes legal requirements under primary involvements. Secondary involvements include- career and earning opportunities for some individuals, which come from the primary activity of selection and advancement of employees. Corporate Social Performance: Carroll (1979) has been considered as the introducer of this model. Carroll explains that business has numerous responsibilities as a citizen and he presents business and social relationship as “corporate citizenship”. According to this theory, business has obligations to society, must embody the economic, legal, ethical, and discretionary categories of business performance. Later on, Carroll incorporated his four- part categorization into a ‘‘Pyramid of Corporate Social Responsibilities’’ (Carroll, 1991). Recently, Carroll is talking about CSR2, which covers environment or the idea of green business.





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Based on the above discussion, the researcher develops the figure 3.2 which shows Integrative theory of CSR and explains that the relationship between business and society is combined and has direct relation. Based on issue or public needs corporate and society coordinate each other to solve the problem and both work as a citizen. Criticism of Integrative Theory of CSR: The idea of integrative theory of CSR has been criticized by a number of scholars (DiMaggio & Powell, 1983). According to the scholars, integrative theory is only suitable for developed countries where the corporate bodies are facing lots of challenges. In a highly competitive market, organization makes decisions by taking into consideration the demand of customers. But in a low competitive market, this theory will not work properly and is difficult to work for a combined objective. Literature review also proves that corporate existence is not only dependent on society but also regulation from the government. In Malaysia, it is compulsory for all public listed corporations to publish social reporting (Othman, Alam, Arshad, & Darus). It means a number of corporations are involved with CSR initiation because of government regulation. Hence, it is interesting to have a look on the basis of government regulation or political theories of CSR. Political Theories of CSR: Another group of CSR scholars introduce few theories and approaches which focus on interactions and connections between business and society and on the power and position of business and its inherent responsibility. Among this group, few scholars explain business as power and others explain the need to use the power to implement CSR. Although there is a variety of approaches, the researcher will present only two major approaches in this section, these are; social contract theory and institutional theory. Social Contract Approach: The social contract approach has long historical background; the researcher presents only the brief background of social contract approach. The most prominent theorists of seventeenth and eighteenth-centuries are Hugo Grotius (1583–1645), Thomas Hobber (1588–1679), John Locke (1632-1704), and Jean-Jacques Rousseau (1712–1778), Pierre Joseph Proudhon (1809–1865), John Rawls (1921–2002).

Figure 3.2: Integrative Theory of CSR

Business Society CSR





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Each theorist presents attitude of rational people in different ways. Let’s have a look on the scholars’ view from historical evidence. Hugo Grotius (1583–1645) introduced the modern idea of natural rights of individuals in the early 17th century. He postulates that each and every individual has natural rights that enable self-preservation and employs this idea as a basis for moral consensus. He urges that we should avoid doing harm to one another, which will protect us. Thus, his book ‘nature of right’ is the basis for social contract theory. Thomas Hobbes (1588–1679) is the first modern philosopher to articulate a detailed contract theory. According to Hobbes, the lives of individuals in a state would be solitary, poor, nasty, brutish and short, in absence of rights. He then urges in his book ‘Leviathan’ that the contracts prevented the society and resulted in the establishment of the state, a sovereign entity (like the individuals, business and so on). In today’s business world his idea is providing a separate and sovereign entity for business, which leads to the contract (or responsibility) between business and society. He mentioned an example, person A gives up his or her right to kill person B if person B does the same. Thus, human life is no longer “a war of all against all”. John Locke’s (1632-1704) concept of social contract differs from previous philosophers. Individuals not only willingly come together to form a state; rather they are morally bound to form a state of nature. Early scholars urge that by nature human beings are willing to avoid doing harm to one another, but he urges, without government to defend them against one another, people would have no security. Locke argued that individuals would agree to form a state that would act as a "neutral judge", acting to protect the lives, liberty, and property of those who lived within it. Pierre-Joseph Proudhon (1809-1865) advocated that social contract is not a contract only between individual and government. Rather, the social contract is an agreement of man with man; an agreement from which must result what we call society. In today’s business world this theory can be used as a contract between societies and corporate. Donaldson (1982) shows the business and society relationship from the social contract point of view, mainly from the philosophical thought of Locke (1632-1704). He assumed that a sort of implicit social contract between business and society exists. According to him, business has to follow the norms of the society and, in return, it will get permission to conduct its business. Institutional Theory: The theory was developed by Scoot (2004) and according to the theorist; the Institutional theory focuses on the deeper and more resilient aspects of social structure. It considers the processes by which structures including schemes, rules, norms, and routines become established as authoritative guidelines for social behavior (Scott, 2004). Different components of institutional theory explain how these elements are created, diffused, adopted, and adapted over space and time; and how they fall into decline and disuse. Scholar like Amran and Siti-Nabiha considered institutional theory as a more applicable theory for CSR adaptation in a developing country like Malaysia (Amran & Siti-Nabiha, 2009). Using the early reference (DiMaggio & Powell, 1983), the author mentioned three distinct mechanisms of Isomorphism of Institutional theory. In the first stage, Isomorphism is based on law and regulation. The second stage is based on uncertainty and final stage based on professionalism (education and professional network).





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Criticism of Political Theory: Scholars criticize the political theories of CSR because the concept of CSR is based on voluntary initiative or ethical value. CSR is not simply referring to the few showcase works and reporting, rather the concept addresses the inner feelings of executives to do something for community and society which is good for business and society. The rules, regulations and law can only force corporate to do few social works, publish their social report and so on but will not be able to encourage executives to establish, “Consulting with the employees”, “No Discrimination within the employees”, “Discourage all kinds of pollution”, “Participate in the local community activities” and so on. Hence, this study explains the need of ethical theories in the following section. Ethical Theories of CSR: There are a number of theories or approaches that focus on the ethical requirements that explain the relationship between business and society. They are based on principles that express the right thing to do or the necessity to achieve a good society. Under Ethical theory, this study discusses only two theories; stakeholder theory and sustainable development theory. There are few other ethical theories that talk about religious, Universal Right and so on. This study will not discuss all of the theories under Ethical theory; rather it will only discuss stakeholder theory and sustainable development theory. Stakeholder Theory: In this twenty first century, the corporate are not free from pressure group like, non-government organization (NGO), government, activists, and media (Garriga & Melé, 2004). To address the demand of stakeholders, the practice of stakeholder theory is long established, however, its academic development started only at the end of 70s (Sturdivant, 1979). According to this theory, a corporate body has responsibility not only for shareholder but also for the stakeholder. The theory is oriented to address a group who affect or is affected by corporate strategy, usually known as stakeholder. This theory has been developed by Freeman (1984) by writing a book, namely; ‘Strategic Management: a Stakeholder Approach’. He understood as stakeholders those groups who have a claim on the firm (suppliers, customers, employees, stockholders, and the local community). There are a number of studies that have been conducted using stakeholder theory (Agle, Mitchell, & Sonnenfeld, 1999; Bendheim, Waddock, & Graves, 1998; Donaldson & Preston, 1995; Kaptein & Van Tulder, 2003). Sustainable Development (Triple Bottom Line) Theory: One of the most popular concepts in our time is sustainable development. The term sustainable development came into widespread use since 1987, after the publication of ‘‘Brutland Report’’ by the World Commission on Environment and Development (United Nations). According to the report ‘‘sustainable development seeks to meet the needs of the present without compromising the ability to meet the future generation to meet their own needs’’. Later on, another scholar (Elkington, 1994) presents sustainable development as the combination of economy, environment and society. Elkington (1994) explains this combination as triple bottom line. Triple bottom line (TBL) is an expression referring to three key dimensions of business





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performance: financial, environmental and social (Schilizzi, 2002). Other scholars (Cheney, 2004) mentioned TBL as a method for the organization to show its engaging in legitimate environmentally and socially responsible activities. This instrument emphasizes the same effort and equally weighs the three sustainability spheres; economic, environmental and social in enhancing environmental quality and social equity just as it strives for profits. In other words, triple bottom line means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance. John Elkington expanded and articulated his work in 1998 and produced another book titled Cannibals with Forks: the Triple Bottom Line of 21st Century Business (Brown, Marshall, & Dillard, 2006) . The core theme of TBL is that, the companies are not only responsible towards shareholders but also towards stakeholders. Stakeholders refer to anyone who is influenced, either directly or indirectly, by the actions of the corporation. The Triple Bottom Line is made up of "Society, Economy and Environment "- the "People, Planet, and Profit". "People" (Human Capital) denotes fair and beneficial business practices towards labour and the community and region in which a firm conducts its business. A Triple Bottom Line company visualizes a reciprocal social structure in which the well-being of company, labour, and other stakeholders’ interests are interdependent. As per TBL, it is not allowed for any firm to use child labour, the firm should pay fair salaries to its workers, should maintain a safe working environment and acceptable working hours, and should not otherwise exploit a community or its labour force. A triple bottom line venture seeks to benefit all stakeholders, not to exploit or endanger any of the groups (Elkington, 1994). "Planet" (Natural Capital) denotes sustainable environmental practices. A TBL company always preserves the environment as much as possible or at the least does no harm to the environment. A TBL attempts to reduce its ecological footprint and carefully reduces its consumption of energy. They believe in 3R, i.e., reduce, reuse, and recycle. It is assumed that a TBL company does not produce harmful or destructive products such as weapons, toxic chemicals or batteries containing dangerous heavy metals (McDonell, 2011).





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Figure 3.3: Triple Bottom Line Theory. Source: McDonell (2011)

"Profit" (Economic Capital) consigns the sustainable development to a business corporation. It is the lasting economic impact the organization has on its economic environment. This is often confused to be limited to profit made by a company or organization; rather it is urging to have enough profit without depriving others’ right. Therefore, a TBL approach is explained as traditional corporate accounting plus social and environmental impact (Elkington, 1997). Criticism of Ethical Theory: The stakeholder theory and sustainable development theory or triple bottom line theory have been criticized by numerous scholars. The philosopher Charles Blattberg has criticized stakeholder theory for assuming that the interests of the various stakeholders can be, at best, compromised or balanced against each other. According to Blattberg, it is not possible to give equal priority for all types of stakeholders nor it is essential (Blattberg, 2004). John Baden views the notion of sustainable development as dangerous because the consequences have unknown effects. Like stakeholder approach, the triple bottom line theory also been criticized by the scholars. Fred Robins' work “The Challenge of TBL: A Responsibility to Whom?” finds-out the major challenges of TBL approach. Robin explains, one of the major weaknesses of the TBL framework is its ability to be applied in a monetary-based economic system (Robins, 2006). Because, there is no single way in monetary terms to measure the benefits to the society and environment in terms of profit. So, it will not allow businesses to sum up across all three bottom lines. Theoretical Framework for this study: Based on above discussion, it has been observed that none of the theories is free from criticism or in other words; there exists some limitations in each and every theory evolved until now. Considering this point, this study develops a new framework for CSR practices which is based on mentioned theories. The first part addresses why the corporate should practice CSR (or, the factors that influence





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CSR practice) and later part shows how the corporate executives practice CSR in their respective corporations. For the first part why the corporate practice CSR, this study combines few theories; Instrumental theory, Integrative theory and Political theory, whereas the triple bottom line theory has been employed to explain how the corporate practice CSR under the new approach. The figure 1.1 shows the research framework for this study. There are eight factors or reasons behind the CSR practice. Among the eight factors, three factors at the upper level are strategic factors, the two factors at the midlevel are integrative factors and the other three factors at the lower level are institutional factors. Early literature proves that CSR bring image-reputation (Melo & Garrido‐Morgado, 2012; Saleh, Zulkifli, & Muhamad, 2010; Werther & Chandler, 2005; Yoon, Gürhan-Canli, & Schwarz, 2006), competitive advantage (Branco & Rodrigues, 2006; Fisher, Geenen, Jurcevic, McClintock, & Davis, 2009; Garay & Font, 2011; Utting & Development, 2000), and potential recruitment (Brekke & Nyborg, 2008) Hence, this study considers image-reputation, competitive advantage and potential recruitment as influential factors to practice CSR based on theory of strategy for achieving competitive advantage. Why CSR? How to practice CSR?

CSR

Potential Recruit

Nature of Business

Economy

Environment

Image Reputation

Employee Motivations

Size of Corporate

Competitive Advantage

Society

Risk Mitigation

CSR Awareness

Figure 1.1: Theoretical Framework for this study





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Based on the principle of Public Responsibility approach under integrated theory, it is the primary and secondary responsibility of any corporate body to ensure employees’ better engagement, career and work opportunity for individual (Jones, 1980; Preston & Post, 1981). Another study also urges that the corporate also practice CSR to motivate employees (Baden, Harwood, & Woodward, 2009). Early study proves CSR ensures better risk mitigation (Vergragt and Brown, 2008, Kytle and Ruggie, 2005a), which is main concern of issue management. Scholars explain risk mitigation- wherever, a problem took place, the firm should find-out the gap and choose a response in order to close it (Ackerman and Bauer, 1976). In the lower level of the framework there are three factors, which have impact on CSR practice based on Institutional Theory. Early research found that in Malaysia the CSR practice is significantly influenced by the size of corporation (Rahman, Zain, & Al-Haj, 2011), nature of business (Abdul & Ibrahim, 2002). First stage of Isomorphism of Instrumental theory is the law and regulation. This study urges that law and regulation influence CSR practice in Malaysia. This law and regulation is different from Small to Large Corporation, because of size of the corporation. Hence, it is important to find-out whether the size of the corporate influences CSR practice or not. The law and regulation also differ from manufacturing to service corporations. Thus it is essential to know whether CSR practice has been influenced by nature of business is important. The third stage of Isomorphism is education and professional network. The government and non-government organizations should have policy to improve CSR awareness (Rahman, et al., 2011) through training and network. Thus, this study considers CSR awareness an important factor under institutional theory. In short, this study assumes that the reason behind the CSR practice is the combination of three theories; instrumental theory, integrative theory and political theory. This study used triple bottom line theory as utmost strength theory to determine the contribution of dimensions of economy, environment and society to CSR practice. There have been several studies conducted on the relationship among these three dimensions of triple bottom line (sustainable development) theory (Zadek & Tuppen, 2000). But in short, it is not possible to prove the priority of one dimension over the other, rather each of them has equal importance (Henriques & Richardson, 2004). There are different opinions of experts about CSR framework or how to implement CSR. Carroll proposed a popular four-part (dimension) definition of CSR, suggesting that corporations have four responsibilities or “four faces” (Carroll & Buchholtz, 2008) to fulfil to be good corporate citizens: economic, legal, ethical and philanthropic or humanitarian CSR. Carroll actually divided “social” and “environmental” into legal, ethical and philanthropic. Another scholar mentioned philanthropic as stewardship responsibility (Lantos, 2001), and his CSR framework mentioned four responsibilities, namely; Economic responsibility, Legal responsibility, Ethical responsibility and Stewardship responsibility Another study found that CSR framework should cover five areas that are valued by the market; community, diversity, employee relations, environment, and product (e.g. high





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product quality, high innovation, and development to meet the special needs of the disadvantaged) (Bird, D. Hall, Momentè, & Reggiani, 2007). Bursa Malaysia (2009), in their CSR framework, mentioned the triple bottom line in terms of the economic, social, and environmental bottom-line wellness. They then divided the society into two categories; i.e., the community and the market place. The International Institute for Sustainable Development, Deloitte and Touche (2014) defined sustainable development for business corporation as a process of adopting business strategies and activities to fulfil the present corporation’s needs and the needs of stakeholders as well as protecting, supporting and increasing the human and natural resources needed in the future (Labuschagne, Brent, & van Erck, 2005). Lisbon Agenda highlighted the close link between sustainable economic growth, social cohesion and environmental protection (Tureac, Turtureanu, Bordean, & Modiga, 2010). Thus, it is easy to say that sustainable development does not focus only on ecological issues; rather it covers three dimensions - Economic, Social and Environmental Dimension. The above discussion addresses how the CSR framework should work. The current study intended to examine the contribution of each dimension to CSR practice. In other words, this study focuses on early literature, how researchers feel about each dimension contribution to CSR practice. The later part of the study shows, why the corporate should practice CSR.

ECONOMIC DIMENSION In the 1960s, economic gain was the only responsibility of the business organizations, but later on, the idea has changed. It was found that many CSR activities in the literature review could be put under economic responsibility. These activities are responsibilities to employee, supplier, competitor, partner, customer, stockholder (Virakul, et al., 2009), regular and occasional financial contributions to the welfare organization (Ahmad, 2006), training activities, employee services, and customer satisfaction (Pratten & Mashat, 2009). In this research, responsibilities towards employees mean to give a fair salary (no discrimination), regular training for career development, to take their opinion for decision making. Responsibilities to supplier, competitor and partner, mean having a good relationship with them and paying their dues on time. Responsibilities to corporation mean producing goods and services that fulfil the customers’ basic desires. Responsibility to share holders means to give them a fair return for their investment (Katz, 1960). Firms are also economically responsible to innovating new products, increasing share values, and paying tax to the government from the profit etc. Novak more fully delineated a set of seven economic responsibilities (Novak, 1996). These are to; satisfy customers with goods and services of real value; earn a fair return on the funds entrusted to the corporation by its investors; create new wealth, which can accrue to non-profit institutions which own shares of publicly-held companies and help lift the poor out of poverty as their wages rise; create





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and maintain new jobs; defeat envy through generating upward mobility and giving people the sense that their economic conditions can improve; promote innovation; and diversify the economic interests of citizens (through tax pay and reasonable product price). It is essential to confirm work-life balance or no human right violation as per UN universal Declaration of Human Right (Morsink, 1999) and also need to ensure that there is equal opportunity or no discrimination among the employees as per ILO convention (Cooke, 2001). To encourage suppliers to practice CSR or inspection of supplier’s facilities for health, safety and environment dimensions is an important responsibility of a corporate as per ILO working environment convention (Moraru, 2011). From the above literature, eight most important variables to prove economical dimension of CSR can be summarized. The most important eight variables; Encouraging Long-term career, Consultation with the employees, Encouraging supplier to practice CSR, No discrimination among the employees, Work-life balance for employees, Reasonable product price, Paying TAX on time and Welfare fund

ENVIRONMENTAL DIMENSION Environment is the silent stakeholder of the business organizations because it is greatly affected by the organization. According to Welford, the environmental stock must not be treated as a free good but must rather be protected, which implies minimal use of non-renewable resources and minimal emission of pollutants (Welford, 2005). Organizations must not merely produce products and services to satisfy their numerous clients, they must also go for actions that will ensure the protection of the environment (Okafor, Hassan, & Doyin-Hassan, 2008). Organizations have responsibility to ensure healthy environment, as shown in the following studies. Koontz and Weihrich listed eleven arguments in favour of social involvement of corporate organizations and seven arguments to the contrary (Koontz & Weihrich, 2006). A major argument for CSR is that the creation of a better social environment benefits both society and business. Society benefits through better economic conditions and employment opportunities, while corporate organizations gain from a better community, since the community is the source of its human and natural resources and the consumer of its products and services. Here, the research divides environmental responsibility into two areas; one is internal environment which means the work environment and another one is the external environment which means the natural environment. Other research (Perrini, Pogutz, & Tencati, 2006) mentioned many CSR activities, some of them are safeguarding employees’ health, product safety, controlling environmental impacts of products and environmental protection activities which are put together as environmental responsibility. Research finding showed that in the CSR process of a Swedish company, the most important part is the management of the environmental impact (Wottrich & Sastararuji, 2008); third important part is the health and safety programmes





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and sixth important part is the quality programmes which are the environmental responsibility of the organization. To perform these responsibilities companies should provide such internal environment so that employees become healthy physically and mentally. In order to protect natural environment, organizations should have plantation programmes regularly; they should use environment friendly transportation, recycle the waste, save energy to prevent all kinds of pollution, and produce safe products. Another research suggests that corporate social responsibility must cover four sections namely business principles, health safety security, environment, and human resources (Idowu & Towler, 2004). These are the tasks organizations should do to be environmentally responsible. This study summarizes the variable for environmental dimension are; Discourage all kinds of pollution (water, air and sound), Suitable arrangement for employees’ health and safety, Encouragement to recycle or reuse, Having plantation programmes, Reducing environmental impact in terms of energy conservation, and Offering training to the local community (Conservation of wildlife).

SOCIAL DIMENSION Companies are the main economic and social actors, and their aggregate activities have a tremendous impact on national societies. Being social institutions, they fulfil essential functions: they provide jobs to the greatest part of the society; they represent a decisive factor for the creation and the preservation of social ties; their innovations, their strategic choices influence the fate of societies in which they operate (Lépineux, 2005). As the companies have tremendous impact on society, they should always try to minimize the negative effect and maximize the society’s benefit. According to another study (Lantos, 2001), CSR entails the obligation stemming from the implicit “social contract” between business and society for firms to be responsive to society’s long-run needs and wants, optimizing the positive effects and minimizing the negative effects of its actions on society. Ahmad mentioned collecting donations from employees, sponsoring events, allowing employees to volunteer expertise (Training), providing free use of company facilities, and donating surplus office equipment as activities of being socially responsible by the organizations (Ahmad, 2006). Perrini (2007) gave examples of the social responsibilities such as local community development (scholarship); support of cultural activities; and support of sports activities etc. (Perrini, 2006). From the above discussion, this research can list the few variables to prove the social dimension of CSR. These are; Preference to purchase locally, Employees’ participation in local community activities, Giving financial support to local community, Supporting local homeless people, Offering job for Local Community and Providing donation or scholarship





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JUSTIFICATION USING MULTI THEORIES IN A SINGLE FRAMEWORK The theoretical framework that has been developed in this study has two parts. The left side of the framework explains why the corporate should practice CSR and right side explains how the corporate should practice CSR. In the left side of the framework lies the combination of three theories; instrumental, integrated and political theory. The right side of the framework has been developed based on triple bottom line theory. The use of few theories in a single framework is well accepted by the early studies. One of the most prominent studies was user acceptance of information technology: Toward a unified view (Venkatesh, Morris, Davis, & Davis, 2003). To explain human attitude to adapt information communication and technology (ICT), the study employed eight prominent models in a single framework. These models are the theories of reasoned action, the technology acceptance model, the motivational model, the theory of planned behavior, a model combining technology acceptance model and planned behavior, the model of PC utilization, the innovation diffusion theory, and the social cognitive theory. The paper of Venkatesh et al., (2003) has been well accepted and has been cited more than twelve thousand times to explain human behavior towards ICT. Finally, limitation of this study is that the new framework is not tested using primary data because of the explanatory nature of this study and further research may carry-out using primary data.





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PARTICIPATION INTO THE GLOBAL VALUE CHAIN THROUGH OUTSOURCING: HOW DOES IT CONTRIBUTE TO VALUE CREATION FOR

PARTICIPATING SMES? Md. Samim Al-Azad & Md. Mamunur Rashid

Laval University, Canada. E-mail: [email protected] Received: March 10, 2020; Accepted: June 11, 2020; Published: October 18, 2020

Abstract: Offshore-outsourcing strategy is a widely used mechanism by which firms from the developed countries try to keep their competitivity and market share in the home as well as the export market. However, this strategy is also widely criticized for reducing job opportunities and creating some social problems in the outsourcing originating country. Based on the ‘New Global Division of Labour’ (NGDL) concept and empirical data from the companies involved in offshore outsourcing, this paper tries to shed light on the fact that fragmented production system is distributed depending on the comparative and competitive advantages of different countries. This way of production can create a win-win situation rather than the zero-sum game.

Research fields: International Business, Strategic Management, Management Science.

INTRODUCTION The “Offshore outsourcing” of manufacturing companies have emerged as an important strategy during the 80’s and have increased ever since. Research on offshore outsourcing is, in consequence, a comparatively new theme in International Business (IB) research field. Globalization and accelerated competition as well as increasing consumer demand for value have pushed firms to look for more efficient and cost-effective way of production with limited resources. Offshore outsourcing is one of the ways through which the firms try to address the new requirements of the marketplace. Indeed, there is evidence that outsourcing contributes positively to market value (Alexander and Young, 1996) through reducing cost of production and improving firms’ performances. For outsourcing to be meaningful both value creation and value appropriation processes must be appraised (Alexander and Young, 1996). However, many companies can’t achieve the proposed advantages from offshore outsourcing. Interest in offshore outsourcing is increasing on this highly publicized and very often, politicized topic from all the three field of management research such as in International Business (IB), Supply Chain Management (SCM) as well as from the Strategic Management (SM). At the same time, there are lots of divergences among the practitioners, politicians, researchers and public in general on the offshore outsourcing concepts, factors and performances. Lack of strong theoretical development has accelerated the debate on the pertinence of offshore outsourcing.





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Most importantly, the lack of hard evidence or field data of the impact of off-shoring has allowed the debate to continue without the merit of a strong information base (Ono and Stango, 2005). This paper tries to shed light on this gap with empirical data from four Canadian companies which has experience of more than three years of outsourcing part of their manufacturing activities.

CONTEXT AND OBJECTIVES OF RESEARCH IN OFFSHORE OUTSOURCING

Offshore outsourcing is blamed for job losses and factory closures in many parts of the developed countries including Canada. The data illustrated in the below shows the critical situation in Quebec and Canadian manufacturing sector: -Canada's trade deficit with China has exceeded a record high of 30 billion dollars in 2006 and according to the forecast of the ‘Conference Board of Canada’ (Statistics of Canada, 2005); the situation may deteriorate to a deficit of 50 billion dollars in 2020 with China. - Canada was for a long time the largest merchandise supplier to the United States. However, since 2007, China has taken the position of Canada as the largest supplier (of all goods and services) to the United States (Little, 2007). -Many manufacturing companies are closing partially or even completely their factories because of competition: Cardinal, St. Lawrence Textiles, Shermag …, some decided to manufacture their products in China. -Since the late 2002, more than 124 000 workers have lost their jobs in the manufacturing sectors in Quebec (2007) and 25 000 (20% of total work force) others might follow. On the national scale, only in the textile and clothing industry (90% in Quebec and in Ontario), 200 000 jobs were lost from late 2002 to begining of 2007. Setting aside the effect of the revaluation of the Canadian dollar, the Chinese competition is a major source of job losses and trade deficits in Canada (Desjardins, 2007). The continuous job losses in manufacturing sector created public resentment against offshore outsourcing in Canada like many other developed countries. Some proposes to use all possible means (including the relocation of production to a third country other than China. Whereas some others suggest an outright closure of trade relations with China (Stanford, 2004). Many researchers, policy makers and practitioners consider more innovations as "strategies in response to the competition from China and other advanced emerging countries" (Normand, 2006). It is, however, the offshore outsourcing to China which has been subject to the most vigorous debates. The prime objective of this paper is to see if a win-win case in offshore outsourcing of manufacturing activities is possible. The two sub-objectives are:





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i. To understand the effects of offshore outsourcing of canadian manufacturing

firms to China, ii. To identity the processes of successful offshore outsourcing.

The interests of this article are numerous. While outsourcing is highly publicized, there are only few empirical studies of effects of this activity on Canadian companies. This article would contribute to a better understanding of the reality of outsourcing as well as its complexity. It would also be useful to help the companies, policy makers as well as general public to better understand the real fact of offshore-outsourcing to on Canadian companies and how Canada and other developed countries can reap advantages from this strategy.

NEW GLOBAL DIVISION OF LABOUR (NGDL) AND OFFSHORE

OUTSOURCING

The globalization of the economy creates a strong interdependence among countries, characterized not only by the increase of trade in goods, services and know-how, but also by multi-localization of fragmented production systems based on the comparative and competitive advantages of participating companies and territory which can be described as the development of new global division of labour (NGDL).This concept refers to the production of goods in several locations around the world in order to take advantage of certain benefits associated with the cost and quality of factors of production (labour, energy, capital), Su (2009). According to Berger (2006), "in the world of fragmented production, the issues are what they have always been: profits, power, security and new opportunities. What has changed is that it is now possible to achieve these goals by positioning itself at any point in the value chain. In the context of a "modular world" (Berger, 2006), a product is now most often “made in world” than manufactured solely by one country. In other words, several countries contribute to its production, based on their strength and all enjoy the benefits. This also applies to products with the label "made in China". They are in fact often the result of a production organized internationally, using elements produced in various countries (Friedman, 2006). The offshore outsourcing falls in this NGDL concept and we believe Canadian firms can reap the advantages with appropriate and efficient offshore-outsourcing strategies and it can be interesting for the outsourcing originator as well as destination fimrs and their respective economies. The “offshore outsouricng” concept was first addresseddevelopped ,in it’s current understanding , by the article of Kotabe et al.(1990), published empirical evidence on the growing importance of international sourcing for firms in the US. They have calculated an offshore sourcing ratio,which measures the share of foreign production activities as a part of the firms total production (sales).They found that the offshore sourcing ratio increased from 6.2% in 1977 to 10.3% in 1989 (Mol, Tulder,Beije,2005).





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Offshore outsourcing is defined as the operation of shifting a transaction previously governed internally to an external supplier through a long-term contract, involving the transfer of staff to the vendor (Barthélemy, 2003, Quélin and Duhamel (2003). According to Casani et al. (1996), Outsourcing is the “Long-term link related to the development of determined activities or tasks that are not essential to the firm by specialized professionals, who, in time, become strategic partners». There are many terms like outsourcing, offshoring, near-shoring, regional production network (RPN), global sourcing and international sourcing which corroborates with the “offshore outsourcing” theme and differ sometimes narrowly and overlap very often. So it can be deduct that offshore outsourcing deals with the intermediary inputs for “finished goods” ready to consumption. The rate of this inputs is ever increasing in most of the developed countries including Canada (OECD, 2008). Offshore outsourcing research like its multi-dimensional characteristics based on multiple economic and social theories. Firm’s decisions to produce in-house or outsource through market contracts are extensive and started with the Coase’s (1937) theory of the firm. Surprisingly little material relating to the principal aspects of international outsourcing has been published in academic journals. Mol et al. (2005) found that from 1989 to 2000 only 7 articles contained the words "global" and "sourcing". Recently, however, the attention on the foreign aspects of the phenomenon has grown (Antràs and Helpman, 2004). The majority of this work has, most commonly, focused on either transaction cost theory or the principal-agent framework (Ono and Stango, 2005). Increased competitive pressure in home as well as in export markets pushed the firms to offshore manufacturing activities, driven essentially by factors like costs of production, distribution and improved productivity. The offshore outsourcing is seen as a part of overall ‘business strategy’ of the firm. For instance, if offshoring enables a firm to relocate its relatively inefficient production processes to external providers with cheaper and perhaps more efficient production capabilities, the firm can turn its focus to core activities and/ or expand output or specialize in certain segment/s of the value chain, or engage in new business activities. This phenomenon is supported by the trade theories such as absolute and comparative advantages of Adam smith and Ricardo, respectively. Much of the dominant literature of offshore outsourcing is based on the Resource Based view (RBV) which can be summarized as the following linear functions: Outsourcing = ƒ (shortcomings in capabilities) (1) Shortcomings = ƒ (resource attributes, allocation and availability of resources) (2) Firms determine their outsourcing strategy on the basis of those shortcomings. Grant (1991, 1996) points out that the organization’s competence depends on it’s capability to combine resources and organizational processes to meet the desired objectives. Grant (1991) also states that the conventional approach to the creation of resources has focused on the company’s lack of resources and capabilities. In other words, in order to exploit certain of





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its resources, the company may need to acquire external complementary resources which it does not possess. Thus, the firm is not limited to exploiting its own stock of resources and capabilities (Das and Teng, 2000), but can cover its shortcomings by purchase or strategic alliance, one form of which is outsourcing. Therefore, suppliers can also be considered resources that consolidate the organization’s internal competencies. The resource-based view (RBV) of the firm has been employed over the last decade to explain the outsourcing strategy. Within that perspective, the core competences approach provides one of the most powerful frameworks for explaining why firms outsource their resources through market agreements (Gilley and Rasheed, 2000). This approach suggests that a firm should invest in those activities that constitute its core competences and outsource the rest (Prahalad and Hamel, 1990; Quinn and Hilmer, 1994). This perspective does not examine, however, the advantages of interrelationships when two or more organizations in the supply network unite to develop relational rents that could contribute to the development and/or maintenance of competitive advantage (Dyer and Singh, 1998). In view of this theoretical limitation, other determining variables in the outsourcing strategy must be considered. When firms outsource, they must consider the possibility of associative advantages for their internal and relational capabilities. The associative advantage would be the competitive advantage (Porter, 2005) achieved through a relationship between firms. This synergetic approach is considered as relationship-based theory (RBT). The framework of the RBT suggests that critical resources can be expanded or built up beyond the confine of the firm and be integrated into inter-firm routines and processes. The use of outsourcing must be considered a strategy in which essential process activities could be outsourced in a framework of long-term cooperation where the suppliers are considered to be partners (Pfohl and Buse, 2000). The greater the competitive advantage that is associated with an activity, the higher that activity’s strategic relational value will be. Strategic relational value is generated by the development of capabilities across organizational boundaries and can be achieved by the creation of complementary resources, defined as “distinctive resources of alliance partners” that jointly generate rents higher than the sum of those generated independently by the resources of each organization (Dyer and Singh, 1998). The development of relational capabilities with customers and suppliers through process integration (Hammer, 2001); relational competitiveness and simplification of activities (Hammer and Champy, 1994; Davenport, 1996) can all be influential when process activities are outsourced. Thus, the relationship-based theory (RBT) expand the capacity of the firms even it does not have all the resources and competencies and even encourage firms to build cooperation in core competence fields. It differs from the resource-based view (RBV) where core competencies should be kept inside the firm and thus keep the firms from enjoying the benefit from cooperative inter-organizational relationships. More and more recent researches in offshore outsourcing are focusing on the knowledge and innovation acquisition from the offshore partner firms based in the advanced emerging countries such as BRICS. Thus, the offshore outsourcing is changing the boundary of firm’s of the industrial age. The offshore outsourcing strategy, thus, allows combining the best practices in the market place and creates a virtual cycle.





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Offshore Outsourcing could also have productivity enhancing effects at a more aggregate level if offshoring would lead to the creation of new firms, and the destruction of old ones (Antràs et al., 2004). This process is often associated with Schumpeter’s theory of ‘creative destruction’. Many empirical studies have provided support for positive impacts of offshore outsourcing on productivity (Bartelsman et al., 2003). Other relevant theories have examined the potential of productivity enhancing effects due to knowledge spill-over as well as firms’ abilities to focus on core competencies by outsourcing relatively inefficient activities. From this literature review, we it can be deduced that offshore out-sourcing can be a win-win case for both the outsourcer and destination firms in their respective value chain.

RESEARCH DESIGN

Offshore outsourcing is a multi-dimensional phenomenon which requires an in-depth approach to get into the heart of the subject and to understand what exactly happening in offshore outsourcing activities. This reality led us to do multiple case studies. The case study is an interesting method, especially when the study question is asked in the form of "what is going on" (Bouma and Rod Ling, 2006). In fact, the multiple case studies are an approach that allows the exploitation of the advantages of the deductive approach and those of the inductive approach to the production of knowledge. It can provide a thorough understanding of the phenomenon of interest in its real context. Indeed, it cannot generalize an existing theory, but it can be used to check whether two variables show an association that we could then test rigorously (Bouma and Ling, 2006). There are plenty of research on benefits of offshore outsourcing to the host firms and economy thanks to job creation and transfer of knowledge and technology. Host firms absorb the source firm’s knowledge during the activities transferring process and become fully capable of utilizing it (Cohen and Levinthal, 1990 and Gupta and Govindarajan, 2000). But the research on benefits for the originating firms and economy out of ‘offshoring outsourcing’ is inconclusive. In order to see if a win-win case in offshore outsourcing of manufacturing activities is possible, we took six key performance indicators (KPI) drawn from various previous works of academic (Prasad Kakumanu and Anthony Portanova, 2006; Anu Gokhale, 2007). as well as professional research of consulting firms like Mckensy, Accenture, industry Canada. KPIs can be defined as «...the vital few metrics that indicate progress towards strategic objectives -where metrics include the numerical measurement, measuring process and frequency.". This KPI s will allow us to test if outsourcing brings any benefits to the source companies i.e those Canadian manufacturing firms that are involved in offshore outsourcing. The seven KPIs are: i) Changes in revenue of the company since start of offshore outsourcing; ii) Changes in profits; iii) Changes in number and quality of jobs; iv) Changes in investment in R&D activities in “core competences”; v) Changes in overall competitiveness of the firm; vi) Changes in level of Customer Satisfaction.





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We have also taken into consideration of variables like “Motivations for offshore outsourcing”, “Nature and quantity of the outsourced activities” as well as “Implications of the company in managing offshore outsourcing”. Selection of companies was done through the chambers of commerce and commercial and manufacturing as well as exporting association. We have contacted several public organizations such as the Ministry of Economic Development, Innovation and Export of the Quebec government, the Chamber of Commerce of Metropolitan Quebec, the Pole Quebec Chaudière-Appalaches and the Chamber of Commerce and Industry, Montreal, for a list of companies that could meet our criteria that the manufacturing firm must have at least three years of experience in offshore outsourcing. We have also studied the various reports, analysis and rhetoric from the different Canadian electronic and press media which very often talk on the outsourcing issues. We found 11 companies which correspond to our criteria but only 4 have agreed to provide us with information for the case studies. In order to keep the confidentiality of their data, we decided to keep only the name of sector of these firms. Their sectoral classifications are: i) Furniture industry; ii) Automobile parts industry; iii) Garments industry; iv) Electronic industry. From this choice of firms, it can be assumed that it represents the major sector of the off-shore outsourcing such as furniture, garments, automobile and electronic sector. This qualitative research based on case study method is an exploratory nature of project. The non-availability of large-scale quantitative data prompted us to use qualitative research methodology in order to understand "what is happening? » (Bouma and Ling,2006). Regarding the collection of data in context of this qualitative research, we used the method of interviewing. We used an interview guide and made either face to face or telephone interview, with at least one senior manager in each of the four companies. The interview guide is composed of 8 open-ended questions around our independent and dependent variables. Our interviews were for a period ranging from 50 minutes to 85 minutes and took place during the months of November and December, 2007. This method was very effective and executives spoke freely with hard data of their experiences in quest of their competitive advantage through outsourcing to China. During the interview, we crossed, very often, boundary of our discussion and listened other information which the respective executives thought important for the outsourcing to China. We also used ‘content analysis method’ of other documents of these firms obtained from public organizations such as annual reports, market analysis and information on the Chinese partners, etc. Knowing that "qualitative research does not always lead to clear conclusion" (Bouma G. and R. Ling, 2006), we were careful to the description and interpretation of the data collected. To do this, we have always kept the transcript right after each interview. An analysis of 4 cases, instead of just one case, has enabled us to raise a better data summarisation.





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DISCUSSION AND ANALYSIS OF RESULTS

We would like to mention that the main objective of this research was to understand the effects of manufacturing outsourcing on Canadian companies and to identify management policies for beneficial offshore outsourcing which may create a win-win situation for both the outsourcer and destination firms. The data collected from the four cases led us to identify some elements of answers to our investigation.

5.1 Cost reduction is the main reason to outsource

According to Dunning (cited by Jacob Pyndt and Torben Pedersen, 2006), there are 4 motivations that drive companies to join into the offshoring boat: i) The market-seeking company aims to supply good in a specific market and, perhaps, adjacent countries; ii) The resource-seeking company strives to acquire certain resources at a lower real cost than can be achieved in its home country: iii) The efficiency-seeking company takes advantage of different factor endowments and tends to locate in markets that offer the company a cost advantage; iv) The competition-seek company follows competitors or clients into foreign markets. The 4 companies that we have studied fall in the resource-seeking categories. In fact, their main motivation for offshore outsourcing was the reduction of production costs (see Table 1 and Table 2). However, while the importance of "the China price" (Pete Engardio and Dexter Roberts, 2004) is supported by 4 companies, this competitiveness in terms of price comes not only from the low-cost labour in China but also from, according to these companies, the productivity, infrastructure, integrated industrial system, economies of scale, government support policy in economic activities, the abundance of several raw materials, and competitiveness of Chinese private enterprises (Table 1). These factors combinedly contributed to the formation of the "China price" and Chinese comparative advantages. From the table 1, we can see that all the four companies agreed on the importance of above mentionned 8 factors of chinese comparative advantages and gave the ‘likert score’ from 3 to 5 (relatively important to very important) except the company ‘Automobile’ for 2 items.





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Table 1: Comparative Advantages of China

Cost of labor and production

Producti- vity

Infrastr-ucture

Industrial system

Size of the Chinese market, so economic scale

Government policy

Availability of raw materials

Chinese competitivity

Furniture 5 5 3 3 5 3 5 5 Automobile 5 4 4 2 2 3 4 3 Garment 5 5 5 3 3 3 3 4 Electonic 5 5 3 5 5 3 3 4

Note: 1. not at all important; 2 not important; 3 relatively important; 4 important; 5. very important We took 6 factors such as ‘cost reduction, maintaining global competitiveness, customer demande for value, access to Chinese market and reorganizing business process’ of motivation to outsource to China. From table 2, we can see that all the four companies gave high impotantance to these factors of motivation to outsource except the ‘the access to the Chinese market’ which was important only for the company ‘Electronic’.

Table 2: Motivations for companies to outsource to China

Cost reduction

Growth of revenues

Maintain global competitive-

ness

Customer pressure

Access to the China

market

Reorganizing business process

Furniture 5 5 5 4 1 4 Automobile 5 3 4 5 1 3 Garment 5 4 5 4 2 5 Electronics 5 5 5 4 4 5

Note: 1. not at all important; 2 not important; 3 relatively important; 4 important; 5. very important It is important to take notice, moreover, that in the case of ‘Furniture company’, ‘Garments company’ and ‘Electronic company’, outsourcing to China is a major strategy for the development of their global competitiveness. In addition, outsourcing to China has enabled ‘Garments company’ and ‘Electronic company’ to reorganize their activities and to concentrate in higher added value activities. This can be termed as a result of the new international division of work.





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5.2 Impact of “outsourcing to China” on the outsourcing firms

After a careful analysis of the situation of 4 companies that we have studied, we have identified fairly positive results of their outsourcing activities to China (see Table 3). We took 7 types of data such as ‘Global competitiveness, evolution of revenues, evolution of profit, evolution of investment in R&D, job increase in Canada, development of core competence of the firm and the most important the ‘customer satisfaction’ of the concerned firm to see the global impact of outsourcing on the respective firm. They all felt that by outsourcing, their global competitiveness has improved significantly and that their clients are actually very satisfied with their competitiveness. We could not get detailed breakdown of financial impacts (profit) from outsourcing for these companies. But they all experienced increases of their revenues substantially, a significant improvement of their R&D activities and the development of the core competences. However, they could not create more jobs in Canada except the one (Automobile company ) (see table 3). It should be noted that outsourcing to China has had a somewhat negative impact on the employment of these companies (Furniture, Garments and Electronics companies) in Canada. While the “Automobile company” has succeeded in creating more jobs in Canada, the “Garments” and “Electronics” company cut jobs, because of their redefinition of business processes and ‘Furniture company’ remains somewhat stable in terms of number of jobs in pre- and post-outsourcing era.

Table 3: Impacts of the Outsourcing to China on source Companies

Global competi

- tiveness

Change of

revenues (+)

Change of profit

(+)

Evolution of R&D

(+)

Increase of jobs

in Canada

(+)

Core competence development

(+)

Customer satisfaction

(+)

furniture 5 5 4 4 2 4 5 Auto 5 4 NA 5 3 4 5

Garment 5 4 3 5 1 5 5 Electronics 5 4 NA 4 1 5 5

Note: 1. not at all important; 2 not important; 3 relatively important; 4 important; 5. very important, NA: non available All the companies seem to have made efforts to preserve jobs in Canada. They all agreed that “at the decision-making process concerning offshore outsourcing, we must also consider the socio-economic and environmental impacts for Quebec and Canada”. They have used various ways to tackle this issue (see Table 4).





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Table 4: Local Jobs Preservation Measures

Jobs Relocated

Redefinition of certain tasks

Expatriation of some staff

Creation of new jobs

Help to ex-employees

Furniture Yes Yes - Yes - Auto - Yes Yes Yes -

Garment Yes Yes - Yes Yes electronic

s - Yes - Yes -

5.3 Win-win Offshore Outsourcing strategy to China The 4 companies studied consider their outsourcing to China as a success. However, during the open discussion with the managers responsible for offshore outsourcing had pointed out that these successes are very much depended on the rigourous and vigilant management policies specially establishing a mutual trust and long term relationship with the partner outsourcing providers in the emerging markets like China. Based on the information obtained and open discussion beyond the interview questions , it seems that the key factors to their success were : 5.3.1 A relevant strategy. The managers of 4 companies that we met all believed that “we must know how to use the competitive advantages of other countries in our interests”; “an effective and responsible offshore outsourcing is one of the major ways to prevent some manufacturing companies from the bankruptcy, and even to avoid the loss of some manufacturing industries in Canada” and “we must take advantage of offshore outsourcing to further develop the activities of higher added value such as research and development in Canada”. The strategic positioning adopted by these companies is very relevant. By outsourcing to China, Furniture and Automobile company seeked to improve their global competitiveness especially in terms of price, while for Garments and Electronics company, outsourcing to China allowed them to specialize only in a few key processes in the production of their products. According to an executive of the Garments company, “we must put away the activities in which we are no longer competitive against the Asian countries and create here in Canada more activities of higher added value”. Another executive from the Electronic Company shared that view: “trying to do everything here is not beneficial at all”. The willingness to engage in a process of international division of labour and the ability to keep and to develop more strategic activities locally are two determinants in the success of these companies. 5.3.2 An adequate management of offshore outsourcing. The Chinese business environment is far from perfect for Western companies. The cultural differences, the issue of product quality, the lack of certain resources, the problem of protecting intellectual





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property rights, etc. are some of the difficulties that the 4 companies have encountered in China.

It is very interesting to note that these companies had invested lots of efforts and used variety of ways to ensure the success of their operations in China (see Table 5). Each of the 4 companies used at least three out of five means for management of offshore outsouricing to China.

Table 5: Means Used for the Management of Outsourcing to China

Local office for support and control

Presence of Quebec

expatriates in the field

Many travels to China per

year

Development of interpersonal

relations

Partnership and trust

furniture Yes - Yes Yes - Automobile Yes Yes Yes Yes - Garments - - Yes Yes Yes

Electronics - - Yes Yes Yes It seems to us that the ability of these companies to adapt to the cultural difference is another determinant of success. The lesson from the executive of the Garments company is very inspiring in this regard: i) Never lose face to a Chinese; ii) Be aware that Chinese are people suspicious in nature and that the truth does not always come the first time; iii) Do not hesitate to visit often to soak up as much as possible the way of life of the country; iv) We should have a very strong dose of humility, “it is we who have to adapt and not them”;v) Be patient; vi) Our demands should be very clear and precise; vii) Be methodical and meticulous, never mix up two projects; viii) Be part of a participatory and implicative approach as well as building a close "guanxi" (interpersonal network). In our opinion, despite their successes, many challenges still remain for these four enterprises that wish to take advantage of “the China price”. In fact, the Chinese business environment is changing very fast : wages are very rapidly rising since 2004; international pressure for the re-evaluation of the Chinese currency is very strong; environmental problems in China represent a major threat to our planet; “made in China” products are beginning to receive more and more resistance from various countries in international markets. Therefore, these companies should be very vigilant with the evolution of the Chinese business environment. Since China possess many competencies, it would be interesting for these companies to consider the possibility of exploiting Chinese advantages other than the cost of labour for their development. The case of i-phone (The Economist, 30th December, 2008) to use the low-cost-high-value of ‘other’s innovation’ for its competitive advantage can be a good example for the Canadian manufacturing companies. Finally, we would like to note that these four companies had passive attitude regarding social and environmental problems that exist currently in China. It is not enough to simply





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“trust” their Chinese partners on this subject. In fact, companies should select their Chinese business partners not only based on their economic performance but also on their behaviour towards the workers and to the environment. We recommend to the companies which are willing to outsource to China to take into consideration the following 7Rs strategies when making their vital decision of offsore outsouricng: i. The right partner: Choosing the right partner is critical to successful offshore outsourcing deal. Thorough research must be done to choose the right partner. The outsourcing company needs to have an established infrastructure, a competent and highly skilled workforce and strong management team that understand the goals of the client. It must be definitely be capable of delivering high quality services on time. ii. The right deal: The outsourcing party must be very clear about what they need. The more clarity and detail that an enterprise can provide in its Request for Proposal (RFP), the better, as this will give an idea to potential partners on whether they can really provide the solution and what it might entail. It should make sure that the supplier understands the requirements and of delivering exactly what the company needs. iii. The right contract: It’s very important to draw up the contract carefully. Recent research by Gartner recommends customized contracts, drawn with taking into consideration in mind the organization’s specific interests. In addition to fee and payment terms, other issues like audit rights, intellectual property rights, security and confidentiality, and legal compliance, must be dealt with in the contract to avoid the future disagreements. Gartner recommends having a point person for compliance matters. Subcontractors in the deal should be held to the same security standards and confidentiality provisions as the principal contractor. iv. The right strategy: There must be an outsourcing strategy in place. Everything related to outsourcing like how to outsource, where to outsource, whom to outsource from, what to outsource, who will deal with the vendor, the cost factor, the time factor etc; must be decided in advance. Complete risk management process must be in place right from the time of decision to outsource. v. The right level of commitment: Both parties involved must work in tandem to ensure the success of the deal. Need to be involved right from the beginning. It’s important to make sure that work is progressing the way the party wanted. vi. The right location: Geopolitical factors must be taken into account;infrastructure capabilities, laws and other local factors can affect the success of the deal. vii. The right outlook: Cultural differences must be ironed out to ensure smooth functioning. The strategy must be focused on the long term gains and overall benefits over immediate, short term ones and expectations must be on more realistic parameters.





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CONCLUSION

This study shows that offshore outsourcing is not the cause of socio-economic problems of developed economies including Canada from where manufacturing outsourcing is originated. Rather It brings formidable benefits and enable firms more competitive in the market place. On the other hand, these outsourcing firms bring know-hows to the emerging countries, create millions of jobs and upgrade the skills level in those countries. Thus the offshore outsourcing creates a win-win case instead of the zero-sum game. Companies that outsource to China, do it very often, for reducing operating costs, accessing to an abundant and qualified pool of manpower, improving the global competitiveness of the company and most importantly, specializing themselves in more strategic and core activities. Based on the experiences of companies that we have studied, to outsource part of manufacturing activities, for which Canada has no comparative advantages is one of the few ways to preserve the competitivity of these firms in international markets and particularly in the American market. However, it is clear that an efficient and well thought, well studied, offshore outsourcing strategy is needed for companies to strive to generate more socio-economic benefits to Canada. This is one of the fundamental challenges for the Canadian companies to identify precisely the tasks they must perform for themselves and those that they have interests to make others to do for them i.e offshore outsourcing. The appropriate public policy is also vital in this regard. Comparing with the attention offshore outsourcing currently enjoying in the public debate, surprisingly little research on the subject exists. The growing trend in offshoring of services, and the number of jobs potentially affected in Western economies, has directed the main focus towards labour market concerns. As such, most studies address offshore outsourcing from a labour market perspective, while the phenomenon’s impact on productivity has been largely overlooked. The popular media is very often failed to distinguish between the manufacturing offshore outsourcing and the service sector outsourcing. The later has more impact on the white collar jobs than the former. In practice, it seems that few companies have the organizational and financial capacity to reap the full potential of offshore outsourcing, and in this light, offshoring remains a big-company phenomenon at its current stage. Future research including the SME’s (small and medium size Enterprises) process of offshore outsourcing can contribute to this research field. Future research must also address the following concepts: Integral goods vs. fragmented goods, Coordination and proximity vs. technological development and coordination from far away, Goods trade vs. Task trade, Regional production network(RPN) and regional comparative advantages (i.e East-Asia), disruptive innovation from the emerging economies, inter-organization relation and strategic outsourcing and the empirical evidence of productivity gain from the offshore outsourcing. The public policy may implement policies for training and upgrading the skill level of those who lost their jobs because of offshore outsourcing and try to find the way to redistribute the profits





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gained from the offshore outsourcing among the firms, workers and the economy in general. Despite the beneficial impact of the offshore-outsourcing to China which can be observed from this case study, we are also aware that the results of this study do not allow a generalization, as our study is based only on 4 cases. However, this project has opened many interesting paths for future studies. One might consider this issue on a wide range of representative samples, and test the results of this research, to determine the impacts of offshore outsourcing on businesses and on Canadian economy as a whole. We could also conduct a comparative study of different industries in order to better understand the situation and the special needs of each industry. One could also compare the benefits achieved by our companies that outsource to China and those who outsource to other manufacturing outsourcing countries. In addition, we could also consider how the government should help for an efficient and winning offshore outsourcing strategy in order to create a win-win case for both the ordering outsourcing firm as well as the destination firms in the emerging countries such as Brazil, China and India.





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Quélin, Bertrand and Duhamel, 2003, Bringing Together Strategic Outsourcing and Corporate Strategy: Outsourcing Motives and Risks, European Management Journal.

Quinn, Hilmer, 1994, "Strategic outsourcing", Sloan Management Review, summer, pp. 43-55.

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Travail:Défis et Perspectives, Revue Économique et Sociale, volume 67, no. 1.





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HAZARDOUS CHEMICALS IN FOODSTUFFS: PERCEPTION OF CONSUMERS, SELLERS AND DOCTORS IN BANGLADESH

Masud Ibn Rahman, Daffodil International University, Dhaka Bangladesh E-mail: [email protected]

Rumana Parveen, Dhaka University, Bangladesh & Central Queensland University, Australia. Received: April 10, 2020; Accepted: July 11, 2020; Published: October 18, 2020

ABSTRACT: Consumption of chemical mixed hazardous foodstuffs has been a reality now-a- days in

Bangladesh. In the face of many health hazards due to food adulteration, that has

drastically increased, the researchers have paid a lot of attention to the issue recently. This

study attempts to show the perception of both consumers and sellers regarding chemical

mixed hazardous food followed by doctor’s opinions regarding its impact on health. It also

shows that there exists high level of awareness with adequate information among

consumers and sellers but they are ignorant about its severe negative impact on health.

Still they are less motivated to avoid these foods which eventually lead them to embrace

suicidal consumption with dissatisfaction. It also seeks a socio-cultural and legal solution

to the problems from both consumer’s and seller’s point of view. Gender and income level

had significant influence on awareness whereas education had not. Proper execution of

anti-adulteration laws can help people avoid many fatal diseases caused by hazardous

foodstuffs. Key words: Hazardous foodstuffs, food adulteration, perception, awareness, consumers, sellers, doctors.

INTRODUCTION A human must consume food on a regular basis in order to experience health. From food, people obtain energy and materials for body repair and growth. Energy is important for human survival and it is needed so that we can move, grow, and function. We get our energy from food we eat and the food should be hygienic. Without hygienic food, human body cannot meet their needs. The right to get safe and hygienic food is the prime human right. Business person who are basically involved in food business, it is their responsibility to supply hygienic and adulteration free food to their customers. In Bangladesh, all food





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additives should be carefully regulated by Bangladesh Standards & Testing Institution (BSTI). There are so many international organizations such as World Health Organization (WHO), the International Standard Organization and the World Trade Organization who must ensure that food items are safe to eat, hygienic, and adulteration free. Food adulteration is very much common problem both developed and less developed countries. Any food item may be considered as adulterated if its nature and quality are not up to the standard. BSTI established all laws and regulations to protect the food adulteration and to ensure the hygienic food for the people. Even though hazardous chemicals in foods and foodstuffs are very common in Bangladesh. There exists a vibrant situation in Bangladesh where food adulteration is a serious problem. Meanwhile, the issue has got interest of the researchers and the population in general. In Bangladesh businesspeople are basically responsible for these as there is a common tendency to make quick money in this society. They mix dangerous chemicals with food to look attractive for the gullible and ignorant consumers. Almost all over the world to check this kind of anti-social evil and prevention of food adulteration, various laws and regulations are being imposed by the government. From the early 1980s through the late 1990s, autism increased tenfold; from the early 1970s through the mid-1990s, one type of leukemia was above 62 percent, male birth defects doubled, and childhood brain cancer was above 40 percent (Duncan 2006). Some experts suspect a link to the man-made chemicals that pervade our food, water, and air. There's little firm evidence. But over the years, one chemical after another that was thought to be harmless turned out otherwise once the facts were in. Now a days, with the huge increase of cancer patients, the link with hazardous chemicals that are used in food is widely accepted by both the researchers and health experts. This study will gain insight into this paradox that even after good awareness on hazardous chemicals and its implication on health, why and how the people of Bangladesh are captivated into this trap of having such food and foodstuffs.

OBJECTIVE OF THE STUDY The aim of present study is to find out the answer of the following questions:





45

i) What is the perception of consumers and sellers regarding chemical mixed hazardous

products in Bangladesh? ii) What is the present situation of food adulteration in Bangladesh? Why and to what

extent are chemicals used in foodstuffs? iii) What types of chemicals used in the food adulteration and its impact on health

among the large section of people of Bangladesh? iv) What should be the socio-cultural and legal solutions to the problems of food

contamination from both consumer and seller point of view?

LITERATURE REVIEW

At present, to say which food or food item contains no harmful chemicals is very difficult. The condition is so alarming that the educated, wealthy and cautious citizens of the country are also compelled to consume adulterated foods and foodstuffs. (Hossain 2008). Unscrupulous traders normally adulterate food. In the process of adulteration, extraneous matters are directly added to food grains. (Daily Star, Mar 31, 2010). Of course, attractiveness and longevity could also be achieved using health-friendly permitted chemicals and food colours, but these are more expensive than the hazardous chemicals currently in use. Therefore, one could reasonably claim that such producers or sellers process foods with hazardous chemicals simply to increase profits and to conduct business with less capital and equipment (Hossain, et al. 2008). Recent study has shown that a total number of 74.8% of the consumers do not have the capacity to differentiate between natural and chemical mixed hazardous products. Consumers have become used to in using chemical mixed products and they no longer look for natural one rather the consumers pretend to be happy in consuming chemical mixed hazardous products (Choudhury and Rahman, 2009). Study in Bangladesh has shown that hazardous chemicals such as calcium carbide are now being widely used to ripen green tropical fruits, such as bananas, mangoes, guavas, papayas, tomatoes and pineapples (Amin et al., 2004; Prothom Alo, 2005). Chemicals are also being used to color vegetables in an effort to make cucumbers appear greener or tomatoes redder (ripe). Besides using chemicals to ripen fruit, some unscrupulous traders throughout the country have been adulterating food items, such as popular sweetmeats, soft drinks, beverages, confectionaries and others, using low-cost textile dyes to draw customers (Billah, 2007). In addition, unscrupulous fishmongers preserve fish with formalin, which keeps the body of the fish seemingly solid to disguise internal decomposition (Amin et al., 2004; Ullah, 2005; Rashid, 2007b). From the perspective of the sellers or producers, using hazardous chemicals yields many benefits. Artificially ripened fruits have a deceptively attractive appearance; fruits matured with carbide appear





46

ripe longer and are more attractive then natural ones. The use of chemicals in food items has direct consequences for public health and many cause complex diseases, including cancer, in humans (Billah, 2007). However because of the various activities of the Food Safety and Inspection Service under the US Department of Agriculture, the European Union Health and Consumer Protection Division and the WHO, public awareness of food safety has increased in developed countries. In developing countries, however, and especially in Bangladesh, consumer altitudes towards chemically treated foods remain unexplored. Hossain et. all 2009 on their study found that there is no significant difference in terms of consumption of adulterated foods between the different education and income groups while Education of the consumers seems to be a significant factor for the awareness about hazardous chemicals as well as the idea about the effects of chemicals in food. (Chowdhury and Rahman, 2009). Although anti-adulteration drive is going on, the situation of Bangladesh has not much improved. Without the license of BSTI and organization was producing 17 types of food items including vegetable oils, Mango juice, spice etc. where most of the items were produced with hazardous chemicals (Prothom Alo, March 04 2010 pp 7). Some people were punished for mixing 1 mound water with 2.5 mound milk (Jugantor, 13 May 2010 pp 7). Even renowned business person recently gets bail in a food-adulteration case. (January 27, 2011, The daily Prothom Alo). Since the market is flooded with adulterated items and low quality consumer goods Bangladesh (UNB - United News of Bangladesh; August 8, 2010), the necessity of studying the perception of both consumers and sellers is worth mentioning.

METHODOLOGY This research is an exploratory type in nature. To conduct the study, primary data were extensively used and secondary data, sometimes, were used in selective cases. The dearth of secondary data is the main reason for relying heavily on primary data. Basically, secondary data were collected from Bangladesh Bureau of Statistics, different publications of Ministry of Health, and other published sources. 1. Sample A total number of 620 respondents, consumers/sellers/doctors, were surveyed across the country. The country has 7 divisions 64 districts, 7 metropolitan cities, and 599 thanas. For this study, the relevant primary data were collected from all the divisions, metropolitan cities, 45 districts from all over the country. To make the sample representative, respondents were selected from all the different areas from the country. For data collection





47

purpose, 45 districts were chosen randomly, using lottery method. A total number of 300 consumers were selected randomly from different locations of the country. Further, a total number of 300 sellers from different districts were selected applying judgmental sampling method, assuming that the selected respondents seemed to be better responsive, more knowledgeable, and representative following the purpose of the study. Only 20 doctors from metropolitan areas were taken for study purpose. Open-ended questions served mainly in collecting data from doctors and pharmacists, which were later analyzed qualitatively. The survey was conducted from December 2013 to March, 2014 by a set of trained interviewers who were the students of tertiary educational institutes in Bangladesh. 2. Survey instrument A structured questionnaire was developed to collect respondent’s opinion on chemical mixed hazardous products. To find the intensity of the opinion, 5-point Likert Scale was used in some questions. There were 10 other questions, in which 8 were demographic and awareness related, and 2 were open-ended set to elicit respondents’ views and suggestions.

3. Statistical Methods for Calculations Data were then analyzed by using SPSS 17.0 with simple statistical techniques like frequency distribution, percentage etc. Descriptive statistics were analyzed and interpreted on both all the statements and all the questions related to demographic variables. Both frequency and cumulative frequency tables were used to express the certain percentage of different value levels. The missing values/opinions were excluded from the analysis, and the frequencies were calculated from the valid opinions only. Therefore, while preparing the tables the total number of samples undertaken slightly fluctuated due to the missing values. Under certain hypotheses significant association between some important variables of consumers and sellers was tested and established using statistical techniques, like Cross-tabulation, Chi-square tests, and the results were interpreted in light of the opinions of the respondents from open-ended questions.

RESULTS AND DISCUSSIONS 1. Analysis and Findings (Consumer’s part) Data shows that more than 75 percent of the total respondents are aware about the chemical mixed products. Two major interpretations can be made from the frequency table. One, a large scale awareness program is required to let people know about the presence of these poisonous foods. Secondly, mass group knows about the chemical mixed products but they





48

have no other option other than buying those hazardous foods. It is also found that 34% of the consumers do not have the capacity to differentiate between natural and chemical mixed products.

Table 1: Frequency distribution of the Awareness to hazardous chemicals, Idea about effect of chemicals in food and Differentiate between natural and chemical mixed food.

Scale of Reaction by the respondents

Awareness to hazardous chemicals

Idea about the effect of chemicals in food

Difference between natural and Chemical

Frequency Percent Frequency Percent Frequency Percent Yes 227 75.6 98 32.6 179 59.66 No 6 2.04 51 0.17 21 0.07 Yes, I have heard 67 22.3 151 50.33 100 33.33 Total 300 100.0 300 100.0 300 100.0

Large no of respondents (73.33%) marked that they buy both natural and chemical mixed

foods. 25.33% respondents claimed that they buy natural food and only 1.34% consumers

marked for chemical mixed products. According to researcher’s point of view this is a very

logical findings and it can also be said that those who said they buy both categories, actually

they buy chemical mixed foods mostly because they can’t differentiate between the two

food categories. About 69.99% (48.66 + 21.33) of the respondents said that they are very

dissatisfied with the chemical mixed foods. Very small number of respondents has

expressed there satisfaction 7.6% regarding the food and foodstuffs. One thing is clear from

the table bellow is the people of Bangladesh are somehow trapped to buy chemical mixed

hazardous cause only 25% could claim that they buy natural food and foodstuffs although

people are much aware on this issue.





49

Table 2: Frequency distribution of the types of food bought, satisfaction in using chemical mixed products and opinion to stop the production of chemical mixed products (Missing system is not counted in this case).

Variables Category/options Frequency Percentage Types of food Bought

Natural 76 25.33 Chemical mixed 4 1.34 Both 220 73.33 Total 300 100

Satisfaction in using chemical mixed foods

Highly Satisfied 4 1.38 Satisfied 19 6.30 Somewhat satisfied 67 22.33 Dissatisfied 146 48.66 Highly dissatisfied. 64 21.33 Total 300 100

Reason for selling Chemical mixed hazardous products

To make products lucrative 71 23.67 Consumers are demanding for that 34 11.11

Natural good are not available 90 30.0

It is cheaper than natural goods 72 24.0

To make profit 33 11.0 Total 300 100

2. Analysis and Findings (Seller’s part) The data shows that a large segment (84.5%) of the seller is selling chemical mixed products to make more

profit. Again a large chunk (70.3%) of sellers said that they sell chemical mixed foods as those are more

lucrative and thus customers have huge demand (70.3%) for those. Natural products are available but

producers supply them at a small scale thus inducing the sellers to sell chemical mixed products. Probably

this type of products offer more profit to producers even. When asked, 34.66% and 30.33% of the sellers said

that they have some idea and no idea about the effects of chemical used in foods respectively. Only 35%

sellers told that they have ideas about the effects of hazardous products. Fortunately, 93.2% of the sellers

have shown their opinion in favor of stopping mixing chemical to the food stuffs which is a positive intension

of Bangladeshi people to stop such malpractices.





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Table-3: Frequency distribution of opinions of the sellers

Opinions Frequency Percentage Do you know the effects of chemical mixed products

Yes 105 35.0 No 91 30.33

Some idea 104 34.66 Total 300 100 Do you think mixing chemical should be stopped

Yes 280 93.33 No 20 6.67

Total 300 100 3. Comparison between the response of Sellers and Consumers: The chi-square test indicates that the gender of the consumers and idea about chemical in food are

significantly associated. Same result goes for the sellers which show that the idea about the chemical in food

doesn’t depend on gender. It is also found that the satisfaction is related to the income level of the respondents

for both consumers and sellers. An interesting finding show that the awareness of the respondents as well as

the idea of health affects of such food are not significantly associated with the level of education for both

consumers and sellers. This finding differs with the findings of Hossain et all. No significant differences were

found in terms of consumption of adulterated foods between the different education and income group

(Hossain 2008).

In Bangladesh very few women are engaged in selling because of the socio-cultural reasons. And the

education level among the sellers is relatively low but the general awareness among sellers, consumers and

doctors are visible.

In one point both consumers and sellers are united that the mixing of chemical in food should be stopped.

One very important finding the researchers want to disclose that the sellers are just intermediaries and not

that much guilty. Rather producer and supplier are mostly liable for this malpractice.





51

Table 4: Association test between considered variables

Consumers Sellers

Description of the variables

Val

ue o

f Ch

i- squ

are

d.f.

P-V

alue

Val

ue o

f Ch

i -squ

are

d.f.

P-V

alue

Gender of the respondents’ and their ‘Idea about the effect of chemical in food’ 8.67 2 0.22 9.35 2 0.19

‘Income level of the respondents’ and ‘Satisfaction in using chemical-mixed food’ 34.29 20 0.73 45.30 20 0.32

‘Education of the respondents’ and ‘Awareness to hazardous chemicals’ 249.71 5 0.00 259.01 5 0.01

‘Education of the respondents’ and ‘Idea about the effect of chemical in food’ 246.39 8 0.03 238.89 8 0.00

From chi-square test, it can be concluded that the education of consumer seems to be a

significant factor for the awareness about hazardous chemicals as well the idea about the

effect of chemicals in food. There is a strong evidence of association between Education

of the respondents’ versus awareness and idea about the effect of chemical in food’.

Interestingly, income was found a insignificant factor regarding the awareness and

satisfaction of chemically treated food for both the consumers and sellers. This indicates

that no matter how the income level is, the respondents are engaged in both selling and

consuming chemical mixed hazardous food and foodstuffs.

4. Discussions

Eating contaminated food may cause diarrhoea, dysentery and other diseases. Consumer

Association of Bangladesh (CAB) — Bangladesh’s only consumer rights group —

confirms that wholesalers do indeed use urea fertilizer in rice to make it whiter.





52

In a survey conducted by DCC officials found that 100 percent of examined samples of

Rasogolla, kalojaam, chamcham, curds and sandesh were adulterated. Bangladesh’s Pure

Food Ordinance (1959) states that at least 10 percent milk fat is mandatory in sweetmeat.

But in most cases, the percentage of milk fat is not more than five percent.

Sources at the Bangladesh Standards and Testing Institute (BSTI) — the government

agency responsible for enforcing standards and issuing permits for the manufacture of

processed foods — admit that a wide variety of products such as soybean oil, butter oil and

mustard oil are being sold in the markets with fake BSTI seals.

The producers responsible for food adulteration generally establish their factories with little

capital and without proper permission from the relevant authorities. They adulterate food

items such as bakery products, noodles, chanachur (fried nuts and other salted and spiced

foods), different spices, oil and others. Hydrogenated oil and animal fats are used to adulterate ghee (butter oil). Small amounts of

cyanide and artificial colour are added to soybean and palm oils to prepare (adulterated)

mustard oil (Amin et al., 2004). Muri (puffed rice) is whitened with urea. Harmful

substances are added to brighten turmeric powder and to make chilli powder spicier.

FINDINGS FROM THE DESK OF DOCTORS AND NUTRITIONISTS

In a single word the doctors and nutritionists are just against the use of these chemical

mixed hazardous products due the ill effects over human body.

Hazardous chemicals in foods cause neurological damage in children, shaving off IQ

points. The chemical used to ripen the fruits is called Calcium Carbide and is extremely

hazardous to the human body because it contains traces of arsenic and phosphorous. The

nutritional elements that should be in fruits and vegetables, if adulterated with dyes and

synthetic colors, are destroyed. Eventually the digestion of those poisonous fruits or





53

vegetables may cause diarrhoea, dysentery and even death. Meanwhile children are fast

becoming the greatest casualty of the widespread adulteration. If children don’t get the

vitamins and minerals from fruits and vegetables to rebuild tissues, the result could be

severe malnutrition.

According to the doctors, the awareness level among the community, specially awareness

regarding the depth and severity of the health hazard of food adulteration is not up to the

mark. People are likely to be tolerant to the fact that they will have to live with chemically

treated and few natural foods simultaneously. There have been huge health problem in

Bangladesh as well as health related business has tremendously increased in the last

decade. Disease like caner, kidney failure, liver cirrhosis etc. has significantly increased

than any other time in Bangladesh. And the root cause of most health hazards are the

scarcity of safe food. There exist vicious cycle of ill-business in many consumer goods

including foods and food stuffs in Bangladesh and the people of Bangladesh are the worst

victim of food adulteration side by side. Even there exists significant awareness in the

metropolitan city areas, people has no way out except buying chemically treated foods.

Although philanthropists and some social organizations are much vocal with this issue, but

the steps taken by the government is never satisfactory. The anti-adulteration drives are

always insignificant in terms of the number of incidents of adulteration by the sellers and

middleman.

Here are few chemicals and problems that the mass people can face by using those chemical

mixed products.

-Dyes: Eating foods containing industrial dyes and colors causes violent allergic reactions,

respiratory problems, asthma, liver disorders and kidney dysfunction and bone marrow

disorders. Nowadays, coal tar dyes are being used in sweetmeats. Asthma Caused by toxic

dyes used in most Chinese restaurants.

-Erythrosine: Red food coloring that can lead to tumor in thyroid gland, asthma, bronchitis

and hyperactivity.





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-Formaldehyde: Formaldehyde - normally used to preserve dead-bodies - is used to

preserve fish bound for city markets.

-Iodine: Found in high quantities in most condensed milk brands. Indicate use of vegetable

fat.

-Pesticides: When pesticides enter the body on a regular basis, they affect the liver until it

is damaged permanently. Quality Seal Many products use forged and/or expired BSTI seals

-Tartrazine: Yellowish orange food color that can lead to cancer, headaches, allergies such

as asthma, inflammation, eye irritation and runny nose. (Mubin S Khan and Adnan

Khandker, Slate, October 2006).

STEPS TAKEN BY BANGLADESH GOVERNMENT AGAINST

ADULTERATION OF FOODS

Article two of the European Union Human Rights Act 1998 saying that ‘Everyone’s right

to life shall be protected by law’. Now it is thinkable that, how the people of Bangladesh

are protected with regard to the above basic necessities, in real life situation, to comply

with the fundamental rights of the Constitution of the country.

In recent months, we see that the legal actions taken by the Government against food outlets

on the ground of adulteration, contamination and other health hazards. Legal actions, like

fines, warrant for arrest to the concerning owners and managers and cases against

adulterators are taken on the basis of examination of foods using only senses like taste,

flavor, color, texture etc.; other than the general Health & Safety of the food premises.

Very recently a famous ‘social business’ personality is accused of food adulteration (27

January 2011, Prothom Alo).

People in general, seriously lack of basic knowledge on Health and Safety and Food

Hygiene; traders hardly know about the laws and restrictions related to their businesses;

consumers hardly know about their rights; government hardly undertook any awareness





55

campaign for the traders and consumers; government’s concerning departments hardly

took any venture to train the food handlers.

Laws like Pure Food Ordinance of 1959, BSTI Act of 2003 and Bangladesh Penal Code of

1860 (sections 272-273); in addition to the Constitutional rights, duties, responsibilities

and various provisions. BSTI is an appreciable initiative by the government for the purpose

of formulating, adopting and monitoring a national standard for Bangladesh. Under the

laws, the mobile courts visit various cities and towns to enforce laws and punish the trader

for adulterating the food products. But still the drive is not satisfactory irrespective of the

severity and dimension of the misdeed.

CONCLUSION

Food adulteration in common in Bangladesh and a significant part of both the consumers

and sellers are well aware about this issue at the same time they have become used to such

events. The form, intensity, diversity of using hazardous chemicals in foods and food stuffs

has increased beneath the awareness of mass people. There exists huge dissatisfaction

regarding the use of such chemicals among consumers, seller and general people but people

seem to be trapped in a vicious cycle of ill-business. The government has very less drive

on anti-adulteration of foods which is not up to the mark. Health hazard and health related

problems die to chemical mixed food and foodstuffs is acute in the country while there is

increasing trend of health hazards among all walks of people. Severe disease like asthma,

diarrhea, cholera, cancer, kidney failure, liver cirrhosis etc. can occur due to hazardous

chemical use whereas consumers are not very aware and sellers are dauntless to some

extent. Income is a significant factor of the awareness on chemically treated foods and





56

foodstuffs but interestingly education was identified as a non-significant factor regarding

the awareness in general. There also exists a significant difference between the opinion of

male and female sellers and consumers.

One clear conclusion can be made that the consumers are easily deceived by the sellers due

to the ignorance of the consumers. It may even be possible that consumers become used to

in using chemical mixed products and they no longer look for natural one rather the

consumers pretend to be happy in consuming chemical mixed hazardous products. The

wide availability of chemicals, synthetic colours and flavours makes the adulteration

comparatively easy, while making it difficult for consumers to detect. The reasons that a

businesspeople/seller use harmful chemicals with their products are to make the product

more attractive to the customers, to extend the products life time, natural raw materials are

not available and very costly, consumer demands because it is cheaper than natural food

products. So it is clear that the seller use hazardous chemicals with food to maximize their

profit.

Consumers in Bangladesh are at the mercy of unscrupulous producers and sellers. Although

laws and government initiatives exist to eradicate food adulteration, the government is

unable to enforce these laws or eliminate corrupt practices and alliances. Better law

enforcement and scientific food testing is needed along with current efforts to harmonize

global food safety legislation.

Acknowledgement: The authors are indebted to Dr. Tamgid Ahmed Chowdhury, Assistant Professor, Daffodil International University for his important contribution of preparing some related material in an earlier article.

REFERENCES Amin, A. M., Avik, S. R., Ahsan, & Khan, I. H. (2004). Eating Hawai Our Health. Star Weekend Magazine, The Daily Star, 5, November, pp. 8-13. Billah, W. (2007). Kaporer Lal Ronge LAl Chal, (Red rice with red textile die). Prothom Alo 14 June, p. 3.





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Choudhury & Rahman. (2009). Perceptions of Consumers & Sellers and Sellers on Chemical Mixed Hazardous Food Items and Its Implications on Health. South Asian Journal of Population And Health (Jph). (Vol. 2 No. 1 January 2009 pp 59-71). Duncan, D. E. (2006). The Pollution within National Geographic magazine October 2006 http://science.nationalgeographic.com/science/article/toxic-people.html Food Security Situation: Bangladesh Context (March 31 2010), article published in http://www.conveylive.com/a/Food_Adulteration Hossain, M. M. et al. (2008). Consumption of foods and foodstuffs processed with hazardous chemicals: A Case study of Bangladesh. International Journal of Consumer Studies 32. P 588-595. Khan, M. S. & Khandker, A. (October 2006). Slate, Using chemicals and industrial dyes to look food fresh and tasty http://www.sos-arsenic.net/english/environment/food-poison.html Rashid. S. (2007). Sorbotro Sorbonasha Formaline (Everywhere the dangerous formalin). The Daily Janakantha, 09 March pp.1-2 The Daily Jugantor, 13 May 2010 pp 7 The Daily Prothom Alo (2005) Chemical Die aam pakanor ovijoge soyjoner saja (six were punished for ripening mango using chemicals). Staff Reporter 20 June, pp 19-1-20. The Daily Prothom Alo (Jan 27 2011), Staff Reporter pp-9 The Daily Prothom Alo (Mar 04 2010), Staff Reporter pp-7 The Daily Star (January 27, 2011). Yunus gets bail in food adulteration case ... www.thedailystar.net/newDesign/latest_news.php?nid=28171 and http://www.bdcan.ca/banglanews/news.details.php?news=1534 Trentmann, F. (ed) (2006). The Marketing of the Consumer, Knowledge, Power and Identity in the Modern World. King’s Lynn, Berg, Oxford and New York. Ullah, H. (2005). Adulterated food: thought from an expatriate. The Daily Star, 21 October. (www document) URL: http://www.thedailystar.net/2005/10/21/d510211502102.htm UNB-United News of Bangladesh (August 8, 2010) , Article: BSTI begins anti-adulteration drive. Found in http://www.highbeam.com/doc/1P3-2104299141.html





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APPENDIX 1

A Rapid Action Battalion personnel shows red chillies, mixed with powdered bricks and bran, kept for packaging at a factory in Khatunganj Ilias Market in Chittagong.

Photo: The Daily Star, 11 August 2009

APPENDIX 2

A mobile court accomplished by Rab-2 and BSTI officials in an anti-adulteration drive conducted a raid on the factory of Enni Food Product Company Ltd in the city’s Badda and recovered different food items in unhygienic condition. The court arrested Mohammad Enayet Hossain from the spot and awarded him three months’ imprisonment along with a fine of Tk 1 lakh, in default of which he will have to suffer one more year in jail.

Photo: The Daily Star, 19 August 2009





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APPENDIX 3

Hormone are being given to ripen tomato

Photo: The Daily Prothom Alo, 11 November 2009.

APPENDIX 4 Sample districts under study:

Name of the districts Name of the districts 01. Panchagarh 02. Thakurgaon 03. Dinajpur 04. Lalmonirhat 05. Kurigram 06. Nilphamari 07. Rangpur 08. Bogra 09. Jaipurhat 10. Gaibandha 11. Naogaon 12. Rajshahi 13. Nawabganj 14. Sirajganj 15. Natore 16. Pabna 17. Meherpur 18. Kushtia 19. Chuadanga 20. Jhenaidah 21. Magura 22. Narail

23. Jessore 24. Pirojpur 25. Satkhira 26. Khulna 27. Bagerhat 28. Bhola 29. Jhalakati 30. Barisal 31. Barguna 32. Patuakhali 33. Jamalpur 34. Netrokona 35. Kishoreganj 36. Sherpur 37. Tangail 38. Mymensingh 39. Manikganj 40. Narayanganj 41. Gazipur 42. Dhaka 43. Munshiganj 44. Narsingdi 45. Rajbari





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RENEWABLE ENERGY POTENTIAL IN PAKISTAN AND BARRIERS TO ITS

DEVELOPMENT FOR OVERCOMING POWER CRISIS Sheeba Habib 1, Kanwar Muhammad Javed Iqbal2,*, Hafiz Muhammad Naseer3, Wajih ur

Rehman4, Muhammad Irfan Khan5 1 Department of Environmental Science, International Islamic University, Islamabad, Pakistan

2 National Institute of Maritime Affairs, Bahria University, Islamabad, Pakistan *Corresponding author: e-mail: [email protected]

Received: July 10, 2020; Accepted: October 9, 2020; Published: October 18, 2020

ABSTRACT

This paper has critically analyzed barriers to development of potential renewable energy resources to resolve power crisis in Pakistan. The study was limited to electric power sector and based on secondary data, experts’ opinions and stakeholder consultations. The study tried to explore the question: why the available substantial renewable energy sources in the country are not being tapped to produce electricity and what are the barriers in development of power sector of Pakistan? Energy experts and stakeholders including government officials and environmental experts were consulted. Focused group discussions and individual consultations were made for seeking opinions and ideas about development and promotion of renewable energy for power sector. Results showed that although Pakistan is endowed with a huge potential of renewable energy, the renewable energy-based installed power generation capacity is very low as compared to conventional sources i.e. 6,876 MWt out of 23,663 MWt, on June 30, 2013. There are political as well as technical, financial and social issues which marginalized the renewable energy in the country. In order to improve the situation, there is a dire need to prioritize options in energy sector and to promote renewable energy by providing strong financial, technical and legal support. Moreover, political stability, visionary leadership and practical power policy is required to promote renewable energy exploitation in country. It is hoped that this study will help to pinpoint the loopholes and gaps in the development of power sector along with factors hindering the development and promotion of renewable energy in the Pakistan. Based on the findings, it is suggested that improved governance with strategic planning in the power sector of Pakistan is needed for sustainable energy development. KEY WORDS: Power Crisis, Power Sector, Energy Governance, Barriers, Renewable Energy, Pakistan

INTRODUCTION

A balance between demand and supply of energy has to be maintained for any country’s economic growth (Ozcan & Ozturk, 2019). In case of Pakistan there is a huge shortage of energy. Specifically with reference to power sector, if we look back in the history about development of electric power in the mid-seventies, the electric power generation from





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Mangla and Tarbela Dams were enough to meet the energy demand in the country (Abas et al., 2019). Besides fulfilling electric power demand for industrial and domestic consumption, the surplus supply was also available that Pakistan Railways electrified Lahore to Khanewal section of rail track. Since then, the pace of electric power generation could not cope with the pace of development in the country, thus resulting the current power crisis with a demand - supply gap of up to 4,500-5,500 MWt (GoP, 2013a) which is lethal for the economy of Pakistan.

All the available sustainable energy resources can be utilized to generate more power to fulfill the need of the time, but unfortunately it is a neglected fact in Pakistan. Pakistan currently relies disproportionately on thermal power generation from local gas fields and expensive imported oil to fuel both government and privately owned and rented power plants (Aized et al., 2018). It is not only increasing burden on economy of country as well as have excessive environmental impacts. As fossil fuels are depleting rapidly; power production of the country is dependent on imported fuel and an increase in its price in international market results in the expensive power generation (Asif, 2009). Almost all countries are concerned about renewable energy (RE) resources for power generation and formulated laws and policies for RE promotion to achieve sustainable future. RE is the energy obtained from regenerative or almost inexhaustible resources of energy occurring in the natural environment (Munir & Khalid, 2012). Wind energy, Hydro energy, Solar Thermal, Solar Photovoltaic (PV), Geothermal energy, Biomass and Tidal power are RE resources. Pakistan has been reported to have the following potential of RE resources; solar (PV and thermal) is 2,900,000 MWt, wind is 340,000 MWt, hydro (large) is 50,000 MWt, hydro (small) is 3,100 MWt, bagasse cogeneration is 1,800 MWt, geothermal is 550 MWt and waste to power production is 500 MWt; total of 3,295,950 MWt (AEDB, 2014).

POTENTIAL AREAS OF RENEWABLE ENERGY RESOURCES 1. Solar Southwestern province of Balochistan and North Eastern part of Sindh with sunshine between 7 and 8 hours daily offer excellent conditions for exploitation of solar energy. Photovoltaic systems of 100-500 W/unit have been used for producing electricity in some rural areas (Sheikh, 2010). Currently, there are 40,000 villages which are far from national grid for which the government of Pakistan (GoP) launched Rural Electrification Program; solar home systems (SHS) will be used for this purpose (GoP, 2013b). Pakistan Council for Renewable Energy Technology (PCRET) has also started to ensure the establishment and maintenance of solar and other RE based projects. Alternative Energy Development Board (AEDB) also participated in this effort 2003 onward. But finance and technical knowledge appeared a great hindrance in this effort (Sheikh, 2010).





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2. Wind power Wind power potential be real in the southern and coastal areas of Sindh and Balochistan provinces. Nearly 1050 km coastline has stable winds with average speeds of 5-7 m/s throughout the year (Hasan, 2013). Moreover, AEDB estimated that the wind power generation potential of Pakistan is about 340,000 MWt. Having such a large potential and suitable wind speed, the GoP could not tap the wind power potential proficiently. It is pertinent to mention that, according to India Renewable Energy Market Report, India has World’s fourth largest number of wind turbines installed on 7,093 MWt. While Germany has the highest at 21,283 MWt; Spain is at second number with 13,400 MWt and the US stands at the third number with 12,934 MWt. 3. Hydro power Pakistan has huge potential of hydropower especially in Northern part of the country. Pakistan has approximately 54,000 MWt potential of hydropower generation, but has only 6,826 MWt installed capacity of electricity generation through hydro power (NEPRA, 2013). Hydro is the cheapest source of power generation which can provide tariff relief and economic benefits to the consumers and is far less polluting. Except the two main hydropower generation projects of Mangla and Tarbela, the GoP could not develop any other significant source of hydropower generation. 4. Geothermal reservoirs Geothermal reservoirs exist in Pakistan (Gondal et al., 2017). Numerous hot springs with temperature ranging from 30-170 ˚C have been identified in the vicinity of Karachi and Pakistani part of the Himalayas (Sheikh, 2010). But, still not a single attempt has been made to utilize geothermal energy. Many countries like Australia, Austria, China, Ethiopia, Germany, Iceland, Indonesia, Italy, Japan, Kenya, Mexico, New Zealand, Philippines, Russia, Thailand, Turkey and USA are utilizing their indigenous geothermal energy. 5. Waste to energy As far as waste to energy is concerned, Pakistan has its considerable potential; both for municipal solid waste and agricultural solid waste in the form of bagasse, but its contribution in power production is zero (Syed Ahsan Ali Shah et al., 2021). Huge amount of solid waste is produced daily throughout the country, e.g., Karachi 9,000 tons /day and other cities about 2,000 - 6,000 tons/day (AEDB, 2014). 6. Bioenergy Areas having biomass energy production have been identified which can provide energy for electricity. In addition, Pakistan has a suitable climate and soil properties for energy plantation i.e. Jatropha curcas (Jamal Ghotta), Ricinus communis (Castor), Pongamia pinata (Sukh Chain) etc. These plants can be used to produce biodiesel which will ultimately cut-off diesel import bill. Also, a Jatropha nursery and a Jatropha Model Farm at 22 acres land at Pipri Marshalling Yard (PMY), Karachi has been established in collaboration with AEDB and Pakistan State Oil (PSO) Limited (Bhutto et al., 2011). Biogas can also be used in a more energy efficient way throughout the whole year. In many





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European Union (EU) countries, state ordinance guarantee access to the grid. Quality standards have also been defined by many developed countries for biogas injection into the national grid. These countries include Germany, Sweden and Switzerland (Weiland, 2010). 7. Institutions working on RE Many organizations have been established by the GoP to develop and promote renewable energy technologies (RETs). Public sector organizations are at the forefront in research, development, promotion and dissemination of RE. For example Pakistan Council for Appropriate Technology (PCAT) was established in 1975, National Institute of Silicon Technology (NIST) in 1981 after that in 2001 GoP established PCRET by merging NIST and PCAT (Sheikh, 2010). In 2003, for the first time, the GoP created an autonomous Alternative Energy Development Board (AEDB), to promote the use of RE in Pakistan. Before it, there was no use of RE at large scale. National Environment Action Plan-Support Program (NEAP-SP) is also concerned about energy conservation and RE resources. It was signed between GoP and United Nations Development Program (UNDP) in 1997 (Sheikh, 2010). In the past, in late 1970s and early 1980s, different programs for new RETs dissemination had started in Pakistan, but lack of technical know-how, limited financial support, operational difficulties and high cost of systems proved to be huge barriers to the failure of these programs (Hasan, 2013). Currently, the GoP is also taking some initiatives to solve the issue but the results are not much satisfying. Development of RETs is influenced by a variety of techno-socio-economic factors including the financial and fiscal incentives provided by the federal and provincial governments (Hasan, 2013).

REGULATORY FRAMEWORK FOR RENEWABLE ENERGY PROMOTION

As far as the regulatory framework for RE promotion is concerned, according to RE policy network for the 21st century (REN21) 2013 Global Status Report, Pakistan has regulatory policies and targets, fiscal incentives and public financing for the propagation of RE resources. RE targets, feed in tariff/premium payment and net metering exists at national level under the regulatory policies and targets. In addition, public investment loans and grants also exist under public financing (Al Jaber et al., 2010). Despite having policies and plans, what are the reasons for the power crisis in Pakistan in the context of available RE potential? These questions are the subject of the present study.

METHODOLOGY

The present study is a qualitative study based on both primary as well as secondary data collected from three sources: academic literature, government official documents (secondary data) and expert’s opinions/ consultation (primary data).





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Academic Literature A review of the research work available in the scientific literature, i.e., research articles, books and reports on the subject of RE was carried out to establish a link with the potential of development of RE resources in the present scenario of energy crisis in Pakistan.

Government’s Official Documents The reports published by the public sector organizations concerned with power were obtained from various sources and were reviewed to get insight. These reports included 1. State of Industry (SOI) Report prepared by National Electric Power Regulatory Authority, Islamabad. 2. Renewable Energy Prospects, Policies and Projects prepared by Alternate Energy

Development Board, Islamabad. 3. Pakistan Energy Year Book, 2013 prepared by Hydrocarbon Institute of Pakistan, Islamabad. Critical Review of other Official Documents Information about available potential of energy resources and their utilization in power sector were obtained from the departments listed below and examined in the context of the nexus between research and policy related to RE development.

§ Alternative Energy Development Board (AEDB) § Pakistan Council for Renewable Energy Technology (PCRET) § Water and Power Development Authority (WAPDA) § National Electric Power Regulatory Authority (NEPRA) § Hydrocarbon Development Institute of Pakistan (HDIP) § Private Power Infrastructure Board (PPIB) § Planning Commission of Pakistan

Experts’ Opinion/Consultations There was a consultation process with different stakeholders e.g. government officials and energy experts. Individual and collective focused group discussions and interviews have been arranged with concerned government departments dealing with power for their opinions and ideas about development of power sector. Interviews were both open and closed ended aiming at receiving a deep insight of power crisis. Expert opinion from various segments of the power sector were also obtained, detail of contacted stakeholders is given in annexure 1.

RESULTS AND DISCUSSION

Presently the power sector of Pakistan is in immense crisis. Public sector organizations like Water and Power Development Authority (WAPDA) and Karachi Electric Supply





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Company (KESC) have to face high system losses, mismanagement, poor recoveries, poor service delivery and inefficiency. The combined potential of all R.E resources in Pakistan is 3,295,950 MWt (AEDB - Pakistan, 2014) which is much greater than the present and future power demand of the country. This shows that all these RE resources have great potential to fill the 4,500 – 5,500 MWt demand supply gap of power faced by Pakistan. But their share in power generation of Pakistan is only 6,876 MWt (NEPRA, 2013). Total power generation capacity of Pakistan as of June 30, 2013 was 23,663 MWt; of which 16000 MWt was thermal, 6,826 MWt was hydroelectric, 787 MWt was nuclear, and 50 MWt was wind (NEPRA, 2013). Utilization of RE resources for power generation is an option Pakistan is blessed with, it also leads to sustainable development (Farooq & Kumar, 2013). Being a power-deficient country, Pakistan needs to exploit its indigenous RE resources, as RE potential of Pakistan can make attractive contributions to its power supply mix (AEDB, 2014).

Pakistan’s energy supply market can be diversified easily through the exploitation of R.E resources. The long term sustainable energy supplies can also be maintained and import dependency for fuel can be cut down in addition environmental pollution (Asif, 2009). The government is now taking some initiatives to solve the issue, but the results are not much satisfying. Pakistan has tremendous opportunities for exploiting RE resources due to its favourable climatic conditions, coastline and plentiful fresh water resources. Pakistan is yet to take maximum advantage of these gifts of nature.

Difference between total primary energy production 1.82946685×1018 joules and total primary energy consumption 2.70094298 × 1018 joules i.e. 8.71476134 × 1017 joules (EIA, 2014) shows that Pakistan is a net importer of energy. The reason is imbalance energy mix of country (Aized et al., 2018). Electricity production is mainly achieved by utilizing thermal resources while having huge RE resource potential. According to the Pakistan Energy Year Book 2013, country’s energy needs are heavily dependent on oil and gas. Pakistan is a net importer of energy and is importing around 30% of energy requirements in the form of crude oil, petroleum products, coal, LPG etc., which costs over US$ 14.45 billion on imports and every increase in oil prices in international market results an increase in fuel prices in the country (GoP, 2013b). Thus, increasing fuel price results in increased cost of electricity production, which also enhanced power crisis. Per unit cost of electricity is very high in Pakistan due to lack of appropriate funding to the concerned authorities, inflation and poor government policies (Ali, 2011). It shows a very desperate situation in terms of RE exploitation. There are surely many political, technical and social issues related to this negligence which have evoked the power crisis.

Analysis of Stakeholder’s Views

On analysis of the response of stakeholders, various hindrances in the development of renewable energy resource in Pakistan were identified, which are summarized below.

Although, many technical, political, financial and social issues were identified, the lack of visionary leadership was found to be the root cause of all hindrances in the development





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of RE resources in the power sector as it was not the first priority of the past governments. Due to mismanaged law and order situation and terrorism in the country after 9/11, the attention of government remained diverted to other issues like security and terrorism. Due to the poor law and order situation of country, investors did not invest in the power sector of Pakistan. In addition, lack of pre planning due to non-availability of demand and supply data was also a deficiency of government which led to non-fulfillment of power demand. It was also configured that there is a lack of implementation of power policies and government should take this matter seriously. Also, there is lack of coordination in national power policy making which leads to future conflicts of provinces. As a result RE based power projects cannot be established in the country. Moreover, policies are declared as just commitments lacking practical implementation, one example is metering system mentioned in RE policy 2006, but it is still not implemented. Non-payment of circular debt from GoP to independent power producers (IPPs) was another contributing factor to power crisis. Institutional inefficiency and corruption were also identified as a big hindrance in the way of RE promotion in the country.

Moreover, high capital cost of RE based power projects was recognized as the main hindrance for RE promotion in the country. Lack of technical knowledge is also a problem, and the available technical human resource is not provided with job opportunities to work in RE sector. On the other hand, administrative mismanagement is also playing a big role in RE marginalization. Side by side transmission and distribution loss/electricity theft is enhancing power crisis. It is a governance issue; government should make suitable strategies in order to control such illegal activities. IPPs were identified as great hindrance in the way of RE promotion in the country because they cannot get urgent profit by investing in RE based power projects. So, they prefer thermal electricity production to gain profit in short time. Also, the grid code was acknowledged as a worthwhile issue related to RE based power generation. Low voltage wires are also a problem to evacuate electricity from RE based power production systems. In addition, absence of base load plants in case of RE based power generation systems is also a big issue to be considered by government. Inconsistency of RE resources is a major hindrance for power production through RE resources. Additionally, lack of awareness and social acceptance hinder RE promotion in country. The RE is restricted to some parts of country; for example biogas potential is abundant in Punjab, solar in Balochistan, wind potential resides in Sindh and hydro potential is mostly restricted to northern part of the country. So, it is expensive to deliver transmission lines to all over the country, which results in issue of power evacuation especially in mountainous areas, where provision of transmission lines is very costly.

There were also some recommendations from the side of stakeholders that include; RETs should be imported from developed countries. But, the political instability and bad governance were identified as main hurdles in the way of technology import. It was also suggested that there should be international exposure of students for technical trainings in power sector. There is a lack of scientific culture in the country. There is a need to develop manufacturing industry of RET in the country so that RET import expenses can be cut down which will ultimately lower the electricity production cost. Campaigns should be





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started at all levels to aware masses about RETs in order to increase its acceptability and mainstreaming.

As far as power policies are concerned, some changes were recommended by stakeholders, for example, bagasse was not included in the scope of RE policy 2006, but now it is also added. In addition, standalone projects were recommended as a favourable solution for the areas not connected to grid. Moreover, power conservation was declared as an approachable strategy to cope energy crisis. Most important of all, it was emphasized to make practical power policies in right direction.

While endorsing the views of stakeholders following barriers have been identified in the development of power sector of Pakistan in the context of RE.

BARRIERS IN THE DEVELOPMENT OF POWER SECTOR OF PAKISTAN

1. Bad governance The reason for the energy crisis in Pakistan, as in other developing countries, is generally the low priority given to the energy sector by the government. There is a lack of visionary leadership; the government is not considering the power sector as a first priority. Power produced by the public sector has higher production cost than the private sector. The reason is that the public sector is not willing to invest in upgrading its power plants which results inefficiency in power production. This bad management of government can be referred as criminal negligence because it is playing a great role in welcoming energy crisis. Moreover, political instability of Pakistan also hinders private investment in power sector. Fund allocation for the development of RE is not satisfactory. Government can attract technical human resource to the energy sector by benefitting them with handsome incentives, but is not doing so. 2. Electricity theft and line losses WAPDA is facing problem of huge line losses due to electricity theft or illegal usage of electricity. According to NEPRA, transmission and distribution loss accounts for 16% and the electricity theft alone is estimated to be over PKR140 billion annually (NEPRA, 2013). This burden is borne by the GoP, which pushes the government towards financial crisis. 3. Circular debt As a consequence of aforementioned reasons, government cannot release payments to IPP’s; IPP’s in turn cannot pay off their petroleum import expenses which affect their production capacity and they have to stop electricity production or have to import fuel on credit under pressure, which leads to circular debt. As a result, consumers have to bear long hours of load shedding and to pay higher per unit price to the IPP’s. Almost half of the country’s electricity is provided by IPP’s due to which, not only our local industries and homes are getting affected, but also our exports of manufacturing goods are going down. Currently the circular reached around PKR 500 billion at the end of 2012 (NEPRA, 2013).





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It is government’s failure to provide promised incentives to investors, which hinder them to invest in power sector, ultimately affecting RE promotion in the country. To overcome such crisis, the circular debt must be paid by the government. 4. IPPs and current power crisis According to 1994 power policy, GoP permitted private sector to invest in power sector with the aim to ensure continuous electricity supply, and 19 IPPs were commissioned. These IPPs brought over $3.0billion investment in power sector. In addition to lavish tariffs, power purchase and fuel supply was also guaranteed to IPPs by GoP. Power policy 1994 has ruined the financial performance of WAPDA and KESC. For the first 10 years, the GoP offered to purchase electricity from IPPs at $ 0.060/Kwh that was twice the KESC thermal generation and four times WAPDA’s average hydropower generation. This high front-end tariff resulted in high tariffs i.e. $ 0.083/kWh in initial years. An additional premium of $0.0025/kWh for the first 10 years was also offered for projects commissioned by1997. This exacerbation of power purchase from IPPs also led to underutilization of indigenous capacities within WAPDA and KESC. In addition to this, according to the 1994 power policy, if the Government does not purchase power from IPPs, the GoP would still pay the IPPs for 60.0 percent of their plant capacity. In this way, IPPs affected power sector of country seriously. Also the location of IPPs being far from load centers laid severe stress on country’s physical infrastructure, including electricity transmission system. Therefore, the introduction of IPP’s was only an addition to already growing problem of power crisis rather than any relief (SDPI, 2014). As far as RE resource marginalization in power sector is concerned, following challenges are faced by RE resources. 5. Lack of concurrent planning Existing policies are mere commitments, but not practical. Incentives promised to IPPs are not provided to them. A big example is of circular debt, which is a big issue to be solved between government and IPPs. In addition, at the time of planning and policy making, government overlooks the availability of energy infrastructure which will become the reason for the long time period required or failure to complete RE based power projects. Moreover, pre planning on the basis of future demand and supply is required so that before the occurrence of expected energy shortfall, projects will complete. Unfortunately, there is lack of concurrent planning which should involve all the organizations dealing with power. 6. Tariff determination issue There is no logical tariff determination mechanism adopted by NEPRA. Government officials with irrelevant qualification do not have capability to deal with tariff decision of all RE resources. Every RE has its own requirements which are neglected while determining tariff. Technological issues and capital cost investment is not considered while determining tariff. Due to lack of expertise of regulators, tariff determination remains a problem as a result investors hesitate to invest in RE power production.





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7. Corruption Preference of the personal benefits of responsible authorities over national interest is also a great hindrance in RE promotion. There is no proper monitoring and evaluation system where honesty and dedication to national interests is certified by government through proper check and balance. Mere demand of finances and release of funds for RET projects is insufficient to bring technological revolution (Sheikh, 2010).

8. Inconsistent resources Some RE resources are inconsistent as they are not available all the time, e.g. wind speed varies with time but to generate electricity through wind, steady speed of wind should be maintained to run a turbine. Moreover, other characteristics of wind like humidity also affect electricity production. In case of hydro, there is involved risk of seasonal variation. 9. High capital cost RE has a high initial cost due to import of RETs e.g., wind turbine and solar panel import. For example; estimated cost of wind power projects in 50MWt or higher denomination accounts US$120-130 million /50MWt with the 20 years project life. Similarly, the estimated cost of small hydro power projects accounts US$ 1.5-2.0 million per MWt and the estimated cost of the waste to energy (WTE) plant would be US$ 2.5-3.0 million/MWt with the project life of 25 years. Likewise, for PV/Thermal power projects it costs US$ 200 – 240 million per 50 MWt with project life of 20 years (AEDB, 2014). R.E development depends on the capital cost of RE based projects and technological progress, both of which are driven by energy policy priorities.

10. Financial barriers Although RE is exempted from tax, but still its capital cost is high. Investors are also not interested much to invest in power projects based on RE due to non-reliability of resource assessment data for example, unreliable wind speed projections (Yazdanie & Rutherford, 2010) and water flow data. Due to these limitations, there is no appreciable international investment on RE based power projects and problem of finance persists. Also, old technology should be replaced with new one, but it is expensive (S. A.A. Shah et al., 2019).

11. Lack of technical knowledge Lack of technical knowledge is a great hindrance in the propagation of RE. History is a witness that in early 1980s, the Government of Pakistan had 18 PV systems with a composite output of 440 kW installed in various parts of the country. In 1990s, these systems collapsed due to lack of know-how about operation and maintenance (Sheikh, 2010). RE based power plants are not manufactured in the country and are still imported from other countries. Unfortunately, due to lack of planning and co-ordination with other countries at government level, RETs are not still imported (Sheikh, 2010). Research and development activities are also needed to support RETs promotion in the country. Practical information about RETs installation is also missing. Similarly, there is lack of scientific





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culture in Pakistan. Technical exposure of human resource through foreign trainings is missing which has much significance for the promotion of RETs. 12. Lack of RET manufacturing industry Due to the financial crisis, it is difficult for Pakistan to develop a RET manufacturing industry and have to import it from other developed countries. Ultimately, the cost of RE based power projects become so high that it is not affordable by people which is one of main hurdles in dissemination of RE in the country. If manufacturing industry is established in Pakistan, this cost will be in the affordable range. Currently, solar panels are assembled in Pakistan, but not at large scale. Another option is to import only solar cells and assemble solar panels in Pakistan. It will also reduce transportation cost ultimately minimizing power cost per unit (Raza et al., 2020).

13. Institutional inefficiencies Another issue is that there is not sufficient cooperation among different governmental agencies. Before the formation of AEDB and PCRET, there was not a single responsible institute for the RE policy making and RET research. But, these institutions are also not empowered with suitable technical human resource and adequate finance. 14. Poor energy infrastructure Lack of supportive infrastructure is another reason for the marginalization of RE. As high-voltage transmission lines cost very high, rural areas of Pakistan are not provided with sufficient transmission and distribution lines where demand is low and dispersed (Yazdanie & Rutherford, 2010). Poor energy infrastructure is also adding severity in energy crisis and needs to be upgraded. In addition transmission, distribution is also inefficient. There is need of more investment in infrastructure, equipment and in research and development so that energy mix can be moved from fossils to RE (Bhutto et al., 2011). As RE is restricted to some specific areas in Pakistan, for example, wind corridors are present in Jhumpir and Gharo, solar exploitation is suitable in desert areas to save agricultural lands; hydro resources mostly exist in mountainous areas. So it is very much expensive to connect the power plants of various R.Es to the national grid.

15. Lack of base load plants RE is not able to provide base load power, i.e. power availability at all times on all days. A base load power plant provides electricity continuously throughout the year. Base load power plants are only turned off for maintenance or up gradation purpose, for example, coal based and nuclear power plant. Geothermal power plants provide base load power which is not yet exploited in Pakistan. Other forms of RE do not provide base load power.

16. Competitive gap between RE and non REs One of the main reasons for slow uptake of RE is its lack of competition with nonrenewable energy. Subsidy on fossil fuels brings down the prices of fossil fuel, further damaging the market of RE (Yazdanie & Rutherford, 2010), hence, decreasing the competitive gap





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between RETs and conventional energy. Moreover, negative externalities related to fossil fuels like health impacts and environmental pollution are neglected while considering energy prices (Rehman et al., 2019). Also, positive externalities related to RE like social and environmental benefits are overlooked which effects the market penetration of RETs (Østergaard et al., 2020).

17. Power conversion problem Another issue is power production through RE results in direct current (DC), which will have to convert in alternative current (AC). In this process, a lot of power loss occurs.

18. Social barriers Land availability is also another social barrier in the way of RETs acceptance as there is a lack of social awareness regarding benefits of RETs which make local people reluctant to accept RETs in their area (Irfan et al., 2021). One of the main examples of such case is Kalabagh Dam (Sabir et al., 2017), the first hand beneficiaries of which i.e., Khyber Pakhtunkhwa and Sindh are denying it. Moreover, ideal locations for wind and solar energy projects often located on traditional lands. In order to convince local people, expensive compensations are required.

19. Large area requirement In case of hydro power production there is problem of population displacement and resettlement. People are not willing to migrate from their land. Similarly in case of wind mill, establishment area requirement increases with the increase of production capacity. Same is the case with power production through solar energy. These are some bitter issues related to RE establishment.

20. Long time required for project completion Due to long time requirement for the completion of RE based power projects, investors move toward thermal power generation to get output in a short period of time.

CONCLUSION

Economic and social stability of a country has a direct link with its energy availability. No doubt RE resources have a high capital cost, but they are economical in long run. There is a dire need to understand the importance and benefits of alternate RE resources as RE has a potential of national development by improving social, environmental and economic growth. RE can be exploited to cope with current power crisis. But, it is not taking much part in electricity production. There is a necessity to increase electricity production in order to fill the supply demand gap. RE can play a great role to cope with power crisis of country, but it is getting neglected due to some reasons like lack of finance. In order to increase the finance to exploit RE, private sector involvement is compulsory. There are also many other reasons which are welcoming power crisis like poor institutional arrangements, bad administrative management, criminal negligence of government towards power production through RE resources, inefficient transmission and distribution system, population





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explosion, lack of technology, lack of institutional cooperation, lack of political will towards RE exploitation, political instability, law and order situation of country, defective policies and lack of social consensus. But in spite of all these issues, RE resources have more positive sides for the economic, social and environmental sector of Pakistan. RE can be established in the country by eradicating the existing hurdles. Currently, Pakistan’s energy sector depends on local gas fields and expensive imported oil. It is not only an increasing burden on the economy of the country, but also has extreme environmental impacts. Pakistan is not economically a strong country, and therefore needs such energy resources which are cost effective, unlike non-renewable energy resources, which are not cost effective in the long run as they deplete once used. Comparatively, RE resources are economical in the long run as their use can reduce dependency on costly imported fuel; help in health improvement and gender equality through supporting job creation.

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IMPACT OF LDC GRADUATION OF BANGLADESH ON ITS INTERNATIONAL TRADE: AN ANALYSIS

Roksana Khan, Economic relation division, Ministry of Finance, Bangladesh.

Received: April 20, 2020; Accepted: August 15, 2020; Published: October 18, 2020

ABSTRACT

Bangladesh reached to the threshold level of three LDC criteria (GNI, HAI and EVI) and

declared to be eligible for graduation from LDC in 2018 by UN-CDP. Bangladesh will be

graduated finally in 2024 following two successive triennial reviews of CDP in the year of

2021 and 2024. After the final graduation next 3 years will be transition period (CDP

website). However, graduation may have some challenges particularly in international

trade which are analyzed by the author in this article. It has been observed that negative

impact of LDC graduation in the global business market is a great challenge for

Bangladesh. Preferential trade loss, loss of special facilities under RTA, loss of special and

differential treatment related under WTO obligations, loss of trade related capacity

building, withdrawal of export subsidy cash incentive and TRIPS exemptions will be a

great concern for Bangladesh. To mitigate the trade losses Bangladesh should strive to

product diversification, productivity enhancement, improve capacity of private sector and

involvement of the private sector in graduation process, pressure of private sector versus

WTO provision to withdraw cash subsidy. No assessment and insufficient data for better

understanding or analyzing negative impact, less preparation to mitigate challenge of LDC

graduation, role of Development Partners, proper utilization of UN support in the process

of graduation and less local market access in the international market and poor FTA

relation of Bangladesh are some of the challenges. However, some recommendations have

also been suggested in this field through this paper.

Keywords: LDC graduation, LDC criteria, Graduation Status, Graduation Challenge,

International Trade.





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INTRODUCTION

The notion of Least Developed Countries (LDCs) first came into discussion in the later part of 1960s. However, ‘in the resolution of 2768 (XXVI) on 18 November 1971’, initial cluster of LDCs had been scheduled by the United Nation (UN). Generally, ‘low-income countries’ having ‘severe structural impediments to sustainable development’ are categorized as LDCs. Countries less than the ‘threshold’ of ‘Gross National Income (GNI), Human Asset Index (HAI) and Economic Vulnerability Index (EVI)’ laid by UN are identified as LDCs. The purpose of forming LDCs was to provide them ‘special international support’ (IPoA, 2011). On the other hand, various ‘international organizations’ categorize different states upon ‘income, social indicators etc.’ For instance, ‘the World Bank classifies its member countries based on per capita income into four categories: low-income, lower-middle income, upper-middle-income and high-income economies for the better strategy in providing loans to different countries’. This categorization of the World Bank is only depends upon ‘per capita income’ (ERD, 18). Now 47 countries are listed for LDCs. In 1975 Bangladesh was initially declared as LDC by the UN. Four advanced ‘summits on LDCs’ were conducted in 1981, 1990, 2001 and 2011 consecutively. Recent ‘LDC Conference (LDC- IV)’ conducted on 9 to 13 May, 2011 in Istanbul, Turkey. A high level delegation from Bangladesh led by Hon’ble Prime Minister Sheikh Hasina participated the meeting. The meeting ended up with endorsement of ‘a comprehensive action plan called Istanbul Program of Action’ (IPoA, 2013). Prime purpose of the IPoA was to excel half of the LDC countries to ‘the threshold of graduation by 2020’. By this time, five countries have received their status of developing countries being graduated from LDC. The countries are- Botswana (1994), Cape Verde (2007), Maldives (2011), Samoa (2011) and Equatorial Guinea (2017) (ERD, 18). Committee for Development Policy (CDP), ‘a subsidiary body of the ECOSOC’, has an obligatory function of reviewing LDC countries in ‘every three years’ and post-graduation monitoring. The nature of three criteria upon which LDCs are identified: 1. Income criterion, based on a three-year average estimate of GNI per capita for the period 2014-2016, based on the World Bank Atlas method. 2. HAI: Health Index & Education Index; based on indicators of: (a) percentage of population undernourished; (b) health: mortality rate for children aged five years or under; (c) Maternal mortality rate; (d) the gross secondary school enrolment ratio; and (e) adult literacy rate. 3. EVI based on indicators of: (a) population size; (b) remoteness; (c) merchandise export concentration; (d) share of agriculture, forestry and fisheries; (e) share of population in low





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elevated coastal zones; (f) instability of exports of goods and services; (g) victims of natural disasters; and (h) instability of agricultural production’. To be qualified for the graduation of LDC, ‘a country must reach threshold levels for graduation for at least two of the aforementioned three criteria, or its GNI per capita must exceed at least twice the threshold level” and ‘’to be recommended for graduation, a country must be found eligible at two successive triennial reviews by the CDP’. Graduation of Bangladesh from LDC was first announced in 2018 by CDP. Bangladesh will be able to be graduated from LDC lastly in 2024. After ‘the two successive triennial reviews by the CDP in 2021 and 2024’ Bangladesh will get another 3 years to adjust the ‘transition’ period (CDP website). Bangladesh is first LDC to ‘graduate with large population, sizable economy, exports and progress in poverty alleviation and one of the first LDCs to meet all three graduation criteria at the time of graduation’ (UNCTAD, 18). Attaining a success of becoming 'developing country' doesn’t mean that Bangladesh will not face challenges. The country will be in vulnerable situation in terms of ‘international trade along with the areas of development assistance and other forms of assistance’ (Ministry of Commerce, 2019, BDF,18). After graduation, ‘Bangladesh will lose the benefits of special preference for International Trade. Contribution to International Organization will be double. Organization for Economic Cooperation and Development (OECD) countries committed portion (0.15% to 0.20%) of their GNI to LDCs (ODA), will not be provided anymore. Technical Cooperation have special program for LDC in international arena that will also not be provided. International Travel Benefits will not be available too” (IPOA Bangladesh, 2013). As a result, Bangladesh will be ‘in a more competitive situation’ in global market. In International Trade, ‘Special and Differential Treatment, Generalized system of Preference, Regional Trade Agreements and Bilateral Trade Initiatives’ lose will pose a great challenge (ERD 18, Nazneen 18). Unawareness and uncertainty of withdrawal of International Support Measures (ISMs) will lead to further challenge. Therefore, conceptualization of the effect of graduation having analytical ability and effective negotiation (Tateno, 2019) along with increasing ‘capacity of international trade for tackling post graduation challenges are essential (Ministry of Commerce, 2019). If Bangladesh is able to maintain the current dynamics, graduation will take place in the year of 2024 with significant momentum. Graduation with momentum will enable Bangladesh to ensure that graduation remains sustainable as Bangladesh embarks on its post-2024 developmental journey. At this juncture, graduation with momentum is so critically important for Bangladesh. If this is to be ensured, Bangladesh will need to take adequate preparation so that graduation with momentum leads to sustainable graduation (Nazneen, 18) and the country will require major breakthroughs in the development of productive capacities (ERD, 18).





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METHODOLOGY

Necessary data for the study has been collected from secondary sources especially from Ministry of Commerce and Economic Relations Division (ERD). Output of the workshops, seminars that were held by the UNESCAP and other organizations including ERD have been reviewed. In addition, research papers, books and government documents were an important source.

LDC GRADUATION: CONTEXT OF BANGLADESH

The following table shows that Bangladesh attained threshold of all three criteria for LDC graduation reviewed by the CDP in the last ‘triennial review held on March 12-16, 2018’. The review was done as per the World Bank Atlas method. In 2018, GNI was set for 1230 US$ or above and Bangladesh achieved 1272 US$, the threshold of HAI was for 66 or above and Bangladesh achieved for HAI 72.8; EVI was set for 32 and less, and Bangladesh achieved 25.

Indicator Threshold level 2018 CDP

GNI per capita 1230 US$ = or > 1272 US$

HAI 66 = or > 72.8

EVI 32= or < 25.0

Table 2.1 (source: CDP, 2018)

Benefits for Bangladesh of Graduating from LDC status are improve country-image, higher rating for investment by international rating agencies which may attract larger foreign direct investment and country experiences (Raihan, 18). However, Bangladesh being a LDC is enjoying the facilities of International Trade support, less contribution to International Organization, OECD/DAC countries commitment for ODA to provide 0.15% to 0.20% of their GNI, Concessional Financing based on World bank’s lower income country, technical cooperation: have special program for LDC internationally, and some travel benefits (IPoA, 2011).

As per Ministry of Commerce, Bangladesh, being an LDC, is enjoying following special facilities relating to international trade:





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(1) Preferential market, access: Currently Bangladesh is enjoying preferential market

access facilities which include:

a. Duty-free & quota-free (DFQF) market access facilities: Bangladesh, being a member of the World Trade Organization (WTO), is enjoying duty free market access or reduced tariff rate facilities for exporting its product to developed and developing member countries of WTO.

b. Generalized System of Preference (GSP) facilities: The GSP allows LDCs to pay lower or no duties on export the EU and some other countries. Currently, being an LDC, Bangladesh is getting GSP facilities from 38 countries c. European Union - 28 countries. EU GSP scheme grants duty free access for the LDCs under EBA (Everything but Arms) Initiative. d. Others (10 countries) - Australia, Belarus, Canada, Liechtenstein, Japan, New Zealand, Norway, Russian Federation, Switzerland and Turkey e. Special market access facilities under various Regional Trade Agreements (RTAs): Bangladesh being member of SAPTA, SAFTA, APTA, TPS-OIC (Trade Preferential System among OIC member states), APTA are enjoying preferential market access to the member countries. Being, an LDC, Bangladesh is also getting benefits in terms of 'rules of origin'. f. Preferential market access for trade in services under DC Services Waiver. (2) Special and Differential Treatment (S&DT) related to WTO obligations: In the WTO system and Agreements, various S&DTs are available for developing countries and LDCs. Currently around 140 such S&DTs are available, among which around 15 are exclusively for LDCs. (3) Trade-related capacity building: An important initiative in support of the LDCs is the Enhanced Integrated Framework (ElF), the successor of the Integrated Framework (IF) created in 1997. The ElF is a multi-donor programme which supports LDCs to increase their participation in the international training system. It focuses on three main activities: (i) mainstreaming trade into national development strategies; (ii) setting up structures needed to coordinate the delivery of trade-related technical assistance; and (iii) building capacity to trade, including addressing critical supply-side constraints. (4) Export subsidy Cash incentive: As an LDC, Bangladesh is allowed to provide export subsidies under the relevant WTO Agreement, and Bangladesh has been providing cash incentives to various products in order to encourage exports. Cash incentives amounting to Tk. 4,400 crore for all and 2,200 crores for RMG. (5) Trade-Related Aspects of Intellectual Property Rights (TRIPS) exemptions: Under the WTO TRIPS Agreement, LDCs have been exempted from providing protection to Intellectual Protection Rights (IPRs) until 01 July 2021 in general; and until 01 January 2033 for pharmaceutical products. Bangladesh has been benefiting from the TRIPS





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exemptions, particularly from the exemption relating to pharmaceutical products, which exempted LDCs from providing patent protection for medicines. Bangladesh has been able to make use of this exemption very effectively. As a result, pharmaceutical industry of Bangladesh has been able to meet around 95% of domestic requirements and also export medicine in many countries around the world. The most significant factor is that due to exemption of patent protection; price of medicines in Bangladesh is comparatively low and affordable, which has provided enormous benefits to citizens of the country (Ministry of Commerce, 2019). Bangladesh exports Readymade Manufacturing Garment (RMG) to various countries more than 80% of their total export because of special support being LDC (Nazneen, 2018; Moazzem 2018). The following figures show benefits enjoyed by the RMG export of Bangladesh in the European Union (EU) market as LDC:

Figure 2.4: EBA preferential EU imports, 2016 (thousand euro).





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Figure: 2.5: GSP preferential EU imports from all GSP beneficiaries, 2016.

A ‘vulnerability profile’ and an ‘ex-ante impact assessment’ of Bangladesh by United Nations Conference on Trade and Development (UNCTAD) and United Nations Department of Economic and Social Affairs (DESA) will be arranged respectively with duration of 2018-2020 previous to ‘the next triennial review of 2021’. The purpose of vulnerability profile is ‘giving an overall background of Bangladesh’s economic and development situation’. The ex-ante impact assessment will be done for ‘the possible implications of graduation, in particular with respect to those special support measures related to development finance, international trade and technical assistance provided to Bangladesh as a LDC’. By the period of 2021-2024 Bangladesh will implement a ‘transition strategy’ with cooperation of ‘development partners'. Implementation of the strategy will be started immediate after the graduation having duration of 2024-2027. The purpose of the strategy is to plan for removal of barriers due to withdrawal of ISMs so that changing scenario cannot hamper the growth process of Bangladesh (ERD, 18). Assistance provided to Bangladesh as a LDC will not be stopped immediate after graduation. ISMs will be systematically phased out as Trade-related ISM, Finance-related ISM, Technology-related ISM, Technical assistance, other general ISM. Some ISMs can be available for extended period of time (smooth transition measures) (Tateno, 18). Various specific time periods are set for various types of supports. Such as: ‘EBA scheme will be





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continued three years after graduation, Enhanced Integrated Framework will be continued five years after graduation, Least Developed Countries Fund (LDCF) projects are approved and before graduation it will be funded, LDC Technology Bank facility will be available five years after graduation, Investment Support Programme will be continued five years after graduation, UN Capital Development Fund will be continued three years after graduation and two more years on a cost sharing basis, UN travel support will remain three years after graduation’ (Alim, 2019). But as soon as support measures are stopped, Bangladesh will be in trouble (ministry of commerce). As for example, RMG became lead manufacturing industry in Bangladesh since 1990 and it has protection in the global market through special support. In FY 2015-16, 72% of overall export of Bangladesh came from RMG and for this reason, preferential treatment, GSP schemes and RTAs and bilateral initiatives have special significance (BDF, 18).

SITUATION ANALYSIS

In the situation analysis and result, ERD as a focal point of LDC graduation matter and Ministry of commerce as prime actor of the Bangladesh Government in trade and commerce both locally and internationally, have their priorities to take various types of initiatives. Since, LDC graduation will have a great impact on trade and business, business personal’s opinion is a great concern here along with international experts and national researchers. The 2018 declaration is just the beginning of the graduation process, based on the final review in 2024. After 2024, Bangladesh will get another 3 years to adjust with various transition processes. Thus, the real challenges will begin after 2027 (Nazneen, 18). In this context, through situation analysis from the different view point way of mitigation is tried to be analyzed below. Bangladesh due to ‘graduation’ will be in challenge of entraining in the ‘international capital market’ due to ‘poor sovereign credit ratings and currency risks’. Specifically, various ‘business and trade’ oriented regulations for decreasing ‘cost of doing businesses and export diversification are necessary to mitigate the challenge. ‘DFQF withdrawal’ and ‘special preference’ will increase competitiveness in the global market by rising product’s price of Bangladesh in the international market. As estimated, Bangladesh will loss 6.7% ‘tariff’, equivalent to $2.7 billion because of graduation. According to UNCTAD, Bangladesh might lose 5.5% to 7.5% of preferential treatment (BDF,18). Exploration of different type of trade facilities, other than LDC such as various type of ‘GSP’ and skill on trade negotiation are necessary to avoid ‘Most Favoured Nation (MFN) tariff rates’. Prudent borrowing policy focusing on blending of loans from concessional and non-concessional sources/types’ should also be a matter of concern. Regional integration is needed to be explored. Less skilled ‘human capital and weak governance’ need to be managed efficiently. Public Private Partnership will also be a wise strategy and





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international support is necessary for facilitating ‘trade and exports’ for the interim period of graduation (ERD, 18). According to Ministry of Commerce, the challenges of Bangladesh regarding global trade are ‘high Concentration of Market’ and ‘high concentration of product’ which are shown by the following two charts:

Figure 3.1: High Concentration of Market (Source: Ministry of Commerce)

Figure 3.2: High Concentration of Product (Source: Ministry of Commerce)

Série1; EU; 59%; 59%

Série1; USA; 17%;

17%Série1; Japan; 3%;

3%

Série1; India; 3%; 3%

Série1; Canada; 3%; 3%

Série1; Australia; 2%; 2%

Série1; China; 2%; 2%

Série1; Others; 11%; 11%

Export Market Share

Série1; Knitwear (61); 45%; 45%

Série1; Woven (62); 46%; 46%

Série1; Jute (53); 3%; 3%

Série1; Home Textile (63); 3%;

3%

Série1; Footwear (64);

2%; 2%

Série1; Fish & seafood

(03); 1%; 1%

Export Composition





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Ministry of Commerce identified that post-graduation trade failure in Bangladesh will be loosing of ‘preferential market access, DFQF and RTAs (2024), Ineligible to enjoy preferential “Rules of Origin” (RoO), single transformation or simply 30% value addition’ that apprehend for 1.8- 2.7 billion trade deficit. The table below shows that after graduation how GSP and MFN tariff will be imposed:

Table 3.1: GSP and MFN tariff Picture after graduation

EU Market

HS Chapter Product Share in Export

in EU (2016)

GSP Tariff GSP+

Tariff

MFN Tariff

(mostly)

61 Knitwear 53% 6.4%-9.6% 0 12%

62 Woven garments 38% 5%-9.6% 0 12%

63 Home textile 2% 1.6%-9.6% 0 12%

64 Footwear 2% 0%-11.9% 0 8% or 17%

3 Fish, crustaceans 2% 0%-18.5% 0 12-20%

More specifically, the issues are: once Doha Round is completed, tariff will be reduced under WTO, faster tariff reduction in Free Trade Agreements (FTAs) & RTAs, removal of specific duties, especially regulatory duties and supplementary duties will lead to more import and worsen Balance Of Payment (BoP), stringent Rules of Origin to comply for GSP and assessment is yet to be available for withdrawal of TRIPS exemption. Ministry of Commerce also reveals that ‘policy dilemma’ as ‘cash incentives’ are being facilitated by the country which is not aligned with WTO provision. Effect of acceleration to the developing country from LDC is not properly grasped by the ‘private sector’, and research is not available in this field. ‘Phasing out’ of ‘Cash Incentives (Tk. 4,400 crore)’ will take place after graduation. From this total amount, ‘RMG’ gets assistance of 2,200 crore and for this reason oppose of ‘the private sector vs. pressure from the WTO members’ will be a prominent issue.





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Ministry of Commerce, therefore, urges for having policy initiatives to get GSP, especially to have GSP+ (6.5% import threshold+ Minimum working age, good governance, compliance), enhance productivity of the private sector to become more competitive, improve ease of doing business, IP enforcement, awareness of the private sector, quality improvement, development of port capacities, infrastructure and social compliance of worker’s rights and working environment. Ministry of Commerce gives emphasis on effective negotiation with WTO Members for extension of ‘TRIPS Transition Period until 2033’ and EU GSP for another 03 years. However, current EU ‘GSP scheme’ will expire in 2023. GSP+ negotiation and signing FTA are also necessary. According to Ministry of Commerce, the way forward should be focus on better market access efforts for obtaining GSP+ in EU, initiate FTA/RTA negotiations with potential countries, diversifying export baskets & diversifying markets, enhancing productivities, ensure better compliance in factories, enhancing overall trade-related capacity, develop theoretical framework for LDC graduation. Graduation may increase FDI, but needs strong professionalism and conducive economic and political regime to attract FDI. Graduation should be accompanied with structural shifts towards high value added industries, strengthening governance, mobilizing domestic resources, develop infrastructure, investment in human development and Improvement of ease of doing business (Ministry of Commerce, 19). Md. Shafiul Islam Mohiuddin, former President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) in ‘Textile Today’ said, “there are some challenges, which we have to face carefully.” He then added “for the graduation, Bangladesh will lose duty-free and tariff-free facility in the European countries.” He further said “to overcome the challenges the government should emphasize on doing ‘Free Trade Agreement’, ‘GSP Plus’ and ‘Regional Trade Agreement’ with developed countries.” Abul Kasem Khan, President of the Dhaka Chamber of Commerce and Industry (DCCI), in the same online newspaper said, “We need to reform our policy, increase private investment, develop infrastructure and enhance manpower skills. He further added “as some facilities in export will be decreased, so that, we need to formulate a proper export policy and search new sector of export. “Since the production costs have gone up due to improved wages and safety improvement, manufacturers have to increase productivity through skills training and enhancement,” said Abdus Salam Murshedy,(18 ) President of Exporters Association of Bangladesh.

For achieving GSP+ status, a country needs to fulfill some requirements such as important requirements, among others, are fulfilling ‘vulnerability’ criteria and ratification of 27 International Conventions. For vulnerability criteria (GSP +), first, exports under the EU GSP of the seven largest products from a country must represent more than 75% of the country’s total exports under the EU GSP over a three-year period . Secondly, country's three-year average exports under the EU GSP must represent less than 6.5% of the value of the EU's total GSP imports from all GSP beneficiaries. Bangladesh does fulfill the first criteria of vulnerability as the RMG sector alone accounts for more than the stipulated





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threshold by the EU. But, Bangladesh currently does not fulfill the second criteria as Bangladesh’s share to total EU imports under GSP is around 9% and in case of ratification of 27 international conventions, Bangladesh ratified all the conventions except the minimum age convention of ILO (Ahmed, 18). Dr. Raihan, Executive Director of SANEM said that there will be a loss of preferences in the markets of European Union, Canada, Australia, Japan, India and China in 2027, reduction in export might lead to an annual reduction in total exports of Bangladesh by 11%, equivalent to around 6 billion US$ in 2027. Many of the exemptions of WTO provisions, including the cut in tariff and subsidies will no longer be available after 2027. He further said that TRIPS exemptions, especially for pharmaceuticals sector and prospective benefits are not ‘automatic’, but the possible losses would be ‘automatic’ and Bangladesh's experience with FTA is poor and it would be a challenge, he added. However, creating new market access, obtaining GSP+, duty-free facilities to 66% of total products, negotiating FTA/RTA with potential countries, diversifying products, diversifying markets and enhancing compliance capabilities in all areas of trade are necessary. He further said that increasing labour productivity, reducing cost of production and cost of doing business, improving trade-related infrastructure, improving trade facilitation system, enhancing overall trade-related capacity, improving IPR regime and a detailed road-map needs to be formulated for the next 6 years. According to Senior Economic Affairs Officer, an international expert of UN-OHRLLS, Mr. Alim said that graduated countries are vulnerable to economic and climate shocks and dependent on Intellectual Property Protection. Graduation implications are possible reductions in ODA from bilateral and multilateral donors, loss of Market Access preferences, Loss of LDC-specific Special and Differential Treatment in the WTO, WIPO, UNFCCC etc. According to DESA Impact Assessment and UNCTAD Vulnerability Profile Study, by consulting stakeholders and by negotiating with development and trading partners, a Smooth Transition Strategy linked to national development plan needs to be prepared and its proper implementation is necessary (Alim, 2019). To ensure preparedness Bangladesh needs to understand implications of graduation beyond trade, trade related issues and transition periods (Ratna, 19). Government can actively engage private sector, national authorities and development partners could work together to make Sustainable Development Goal (SDG) costing a useful tool, more research is needed for synergies and economy wide impacts, available financial resource mobilization are also needed with alignment of SDG investment. A better understanding of impacts of graduation with sufficient data and analysis, good preparation, and proactive engagement with development partners are critical. Greater focus should be placed on enhancing domestic resource mobilization, strong international support and development cooperation, improve tax and other revenue collection are necessary (Tateno, 19). Efforts towards SDG implementation may facilitate graduation since several objectives of the IPoA and the SDGs have commonalities (UN-OHRLLS, 2016). support to address the challenges, information on





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available sources of concessional finance, including private finance, green bond financing and GDP-indexed bonds, dedicated support for the preparation of bankable projects in priority sectors, inform other actors like credit rating agencies about graduation, debt sustainability of graduated countries, capacity building for government officials and capacity building for exporters to navigate different types of market access can be possible international support measures for graduated countries. Graduation support by UN are graduation Assessment, capacity development/policy advice, extension of the preparatory period to five years from the current three years before effective graduation (demand by LDCs), undertaking intergovernmental follow-up and monitoring of the implementation of smooth transition strategies for graduated countries, developing smooth transition strategy, undertake comprehensive appraisal of the implications of graduation and developed a nationally-owned smooth transition strategy, identify niche sectors that are sensitive and identify type of support needed to address potential loss of LDC-specific support development and trading partners and OECD to review consequences of graduation on access to development finance, and develop policy toolkit (Alim, 2019). Dr. Nazneen Ahmed, a senior research fellow of BIDS said that the most crucial challenge for Bangladesh is erosion of preferential market access, adverse impacts will be most in the EU market where 95.8% of Bangladesh’s exports currently enter duty-free. After Graduation, Bangladesh will not be eligible for support measures accorded to LDCs, special and differential treatment for the LDC members will no longer be available to Bangladesh (in the form of market access, technical assistance, waivers from obligations, protracted implementation period in view of implementing obligations and commitments). Dr. Nazneen further said that Bangladesh will also not be eligible for support for ‘aid for trade, aid for trade facilitation and support under the enhanced integrated framework (EIF) window of the WTO’. USD 6-8 billion of total financial loss will be incurred in 2027, she added. She then figured out status of trade before and after graduation by the following table:





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Table: 3.3. Status of trade before and after graduation

She further added that Bangladesh needs to prepare for a smooth graduation by taking into account few issues of 'Standard GSP' grants duty reductions for around 66% of all EU tariff lines to low-income or lower-middle income countries. The special incentive arrangement for Sustainable Development and Good Governance ('GSP+') grants full duty suspension for essentially the same 66% of tariff lines as Standard GSP to eligible countries vulnerable in terms of economic diversification and export volumes. In return, beneficiary countries must ratify and effectively implement 27 international conventions, as listed in the GSP Regulation, which cover human and labour rights, environmental protection and good governance. Other than Standard GSP and GSP+, countries do not lose EBA status by entering into a FTA. Negotiation matters to retain some benefits by accepting the withdrawal of GSP but asking for alternative facility in return. In the ‘Ease of doing Business’ index, we ranked 177th out of 190 which needs to be improved. Moazzem (2018) researcher of CPD, told that challenges confront by other LDCs can be lessons for Bangladesh. LDC graduated cross county experience of economic indicators are shown by the following table:





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Table: 3.4. Vulnerability following LDC graduation

The table indicates that after graduation countries were in vulnerable situation.

Moazzem (2018) has taken RMG sector of Bangladesh as case study. He said based on Terms of Competitiveness of RMG Sector after Graduation there could be changes “in the duty structure: from zero duty to MFN tariff, in the product coverage under duty-free access: from all to limited number of products, in the conditionalities: from no conditions to conditions, in preferential access to markets: from unilateral to conditional and bilateral, Changes in compliance of labour standards: from local rules to comply with ILO conventions and Changes in terms and conditions of foreign aid: from concessional to blended/commercial loans). He further said that without undertaking concrete steps to address the changing terms, some adverse impact may result in the RMG sector. Those are: pressure on price competitiveness due to payment of MFN tariffs on BD products by buyers, risk of reduction of export of specific apparels products to be kept outside the preference list (EU countries), reduction of export of apparels for not having preferences (non-EU countries), reduction of export from non-compliant factories (e.g. small, medium and sub-contracting factories), rise in pressure on price competitiveness with apparel

Country Reference year Real GDP growth (%)

Current account (% of GDP)

FDI (% of GDP)

ODA (% of GNI)

Remittances (% of GDP)

Tax revenue (% of GDP)

Merchandise exports (% of world trade)

Botswana Before graduation (5 yrs)

10.55 7.78 –0.66 3.67 2.01 26.15 0.0510

After graduation (5 years)

5.05 7.93 1.32 2.06 1.16 17.21 0.0430

Cape Verde

Before graduation (5 yrs)

6.18 –8.50 6.66 15.92 13.14 21.91 0.0002

After graduation (5 years)

3.89 –13.74 10.46 14.04 8.64 20.20 0.0003

Maldives Before graduation (5 yrs)

9.09 –16.67 7.83 3.08 0.26 11.56 0.0020

After graduation (4/5 yrs)

7.40 –8.14 12.14 1.70 0.12 18.47 0.0020

Samoa Before graduation (5 yrs)

0.43 –4.70 1.73 16.44 21.05 20.68 0.0004

After graduation (1/2 yrs)

1.53 –5.90 2.41 11.98 18.91 23.06 0.0003

Bangladesh Average (2011–16)

6.45 0.93 1.28 1.30 9.15 8.76 0.1663





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manufacturing developing countries, rise in pressure on price competitiveness with apparel manufacturing non-graduated LDCs. If investment remain conditional to growth of apparels sector, overall investment may slow down, closure of non-compliant factories, risks of rise in retrenched workers and slowing down growth of employment and strong adverse linkage effect to other sectors (e.g. having small volume of export). He again stated that RMG sector needs to address challenges of competitiveness issues (Static and Dynamic) and issues of stakeholders of Entrepreneurs, Associations, Government, Brands/buyers, and Workers are also necessary to be addressed. By the following table showed initiatives require to undertake for retaining the competitiveness of a particular export product like RMG:

Table 3.5. Competitiveness factors of RMG after graduation

Stakeholders Technology Products Traditional

markets

New

markets

Workers Social

Compliances

New

conditions

Entrepreneurs yes yes no yes yes yes yes

Associations no no yes yes yes yes yes

Workers yes no no no yes yes yes

Government yes no yes yes yes yes yes

Brands/

buyers

yes yes yes yes no yes yes

Sourcing

country

no no yes yes no yes yes

Development

partners

yes yes no no yes yes yes

Moazzem (2018) further said Bangladesh was passing a ‘transition’ period till final announcement of graduation in 2024. This period can be divided into three parts considering the preparedness of RMG. These are: First period (2018-2021) Identification of issues and concerns, taking responsibilities by different stakeholders, developing awareness raising materials, raising awareness at different levels, setting up a secretariat at BGMEA/BKMEA, developing capacity building programmes by the government (technology, products, management, workers, entrepreneurship development),





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communication and coordination with development partners, increasing network building measures with brands and buyers of non-traditional markets, initiating market access related issues with major developed and advanced developing countries, identifying ‘natural partners’ for bilateral agreements on trade in goods, services, investment and energy and discussion on preferential terms for credit from development partners. Second period (FY2022-FY2024) Follow-up of activities undertaken by the stakeholders, strengthening awareness building measures, implementing development program at the enterprise levels, continued discussion on terms and conditions of market access after graduation, Initiate discussion of bilateral agreements with most important ‘natural partners’, follow up on preparation by the entrepreneurs, undertaking development projects targeting international labour standards, preparation for compliance with EU’s EBA Plus and discussion on debt burden. Third period (FY2018-FY20121) Discussions with major trade partners regarding immediate concerns on export of RMG, developing infrastructure in order to comply with EU’s EBA plus and monitoring the immediate concern after graduation. Institutional Arrangement targeting LDC graduation might be figured out as follows:

Figure: 3.3. Institutional Arrangement targeting LDC graduation.

He further said that by taking these types of inclusive initiative in different sector specially in RMG sector, Bangladesh will be able for handling LDC graduation challenge.

Prime minister office

Ministry of Foreign Affairs

ERD Ministry of

Employment

Private Sector

Ministry of Commerce





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FINDINGS

According to Ministry of Commerce main challenges are: high concentration of market and product, lose of ‘preferential market access and DFQF, ineligibility to enjoy preferential ‘Rules of Origin’, loss of single transformation, tariff reduction under WTO, faster tariff reduction in FTAs & RTAs, removal of specific duties; specially regulatory duties and supplementary duties will lead to more import and worsen BOP, stringent Rules of Origin to comply for GSP and assessment is yet to be available for withdrawal of TRIPS exemption, conflict of ‘cash incentives’ and WTO provision, effect of graduation is not properly grasped by the ‘private sector’ and research is not available in this field. According to business personnel, Bangladesh will lose duty-free and tariff-free facility in the European countries. It would be tough for Bangladesh to attain GSP+ and market will be more competitive. According to international experts, challenges will be loss of preference following reduction of export and poor FTA relationship. A better understanding of likely impacts of graduation with sufficient data and analysis, good preparation, and proactive engagement with development partners are also be a challenge. Researchers have shown that after graduation, most crucial challenge for Bangladesh is erosion of preferential market access, especially adverse impacts will be in the EU market where 95.8% of Bangladesh’s exports currently enter duty-free. According to the report published by ERD, to remove the barrier in international trade due to LDC graduation, the recommended areas to improve are: establish ‘business and trade’ oriented regulations for decreasing ‘cost of doing businesses’, export diversification, attain different type of trade facilities, explore various type of ‘GSP’, skill on trade negotiation to avoid ‘MFN tariff rates’, prudent borrowing policy , ‘regional integration’, manage ‘low human capital and weak governance’ and Public Private Partnership. According to Ministry of Commerce, policy initiatives to get GSP; specially to have GSP+, competent productivity of the private sector, IP enforcement, awareness of the private sector, ensure quality, development of port capacities and infrastructure and social compliance of worker’s rights and working environment are necessary. Negotiation with WTO Members for extension of ‘TRIPS Transition Period until 2033’ and EU GSP for another 03 years, GSP+ negotiation and signing FTA are also essential. Way forward should be better market access for obtaining GSP+ in EU, initiate FTA/RTA negotiations with potential countries, diversifying export baskets & diversifying markets, enhancing productivities, ensure better compliance in factories, enhancing overall trade-related capacity; develop theoretical framework for LDC graduation, strong professionalism and conducive economic and political regime in attracting FDI, structural shifts towards high value added industries, strengthening governance, mobilizing domestic resources, develop infrastructure, investment in human development and Improvement of ease of doing business are also necessary. According to Business Personnel, policy reform, more private sector’s investment, increase productivity, infrastructural development and skilled manpower through training are necessary. According to international experts, creating new market access, obtaining GSP+, duty-free facilities to 66% of total products, negotiating FTA/RTA with potential countries, diversifying products, diversifying markets and enhancing





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compliance capabilities in all areas of trade are necessary. There is further urged for increasing labor productivity; reducing cost of production and cost of doing business; improving trade-related infrastructure; improving trade facilitation system, enhancing overall trade-related capacity; improving IPR regime and a detailed road-map needs to be formulated for the next 6 years. Supported areas should be to consult stakeholders, build awareness, negotiation with development and trading partners, prepare a Smooth Transition Strategy linked to national development plan, implement the Smooth Transition Strategy and report to the Committee for Development Policy are also necessary. Bangladesh needs to understand implications of graduation beyond trade and technical assistance needs. Actively engagement of private sector, National authorities and development partners could work together to make SDG costing a useful tool, more research and available financial resources with alignment of SDG investment needs are necessary. Enhancing domestic resource mobilization, international support and development cooperation, improve tax and other revenue collection, synchronization of the implementation of IPoA and SDG, explore available sources of concessional finance, inform other actors like credit rating agencies about graduation, capacity building for government officials and capacity building for exporters to navigate different types of market access are essential. Researchers emphasized that Bangladesh should try to get Standard GSP and GSP+, enter into a Free Trade Agreement (FTA) so that EBA is not lost. Negotiation to retain some benefits, improve ease of doing business are necessary. Sector based (for example RMG sector) comparison, analysis of before and after graduation impact following a preparation of strategic sectoral plan and proper implementation by fragmenting time periods (that could be three time period divisions during transition period of graduation) should be prioritized fixing organizational set up with better coordination of related ministries, private sector and development partners.

RECOMMENDATION

The challenges identified above could be resolved by taking following initiatives: • Proper implementation of export-oriented product or sector based strategic plan

with involvement of all stakeholders. • Ensure international support in policy advise, data analysis, monitoring and

evaluation • Increase better negotiation skill for WTO, FTA and RTA and to get different type

of trade benefits being developing country. • Improve productivity and marketing with innovation, exploration and upgraded

technology • Enhance manpower skill and capacity development of government official • Attract FDI and provide infrastructural facility • Assessment, analysis and research.





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CONCLUSION

It is obvious from the situation analysis that Bangladesh will face severe challenge in international trade because of withdrawal of various international support measures in trade due to LDC graduation. UN will provide various assistance of advice in policy decision, vulnerability analysis, technical cooperation, etc. so that Bangladesh can overcome the challenge in the transition period and after graduation. Bangladesh needs full utilization of UN support for overcoming its vulnerability. Besides, Private sectors need to increase capacity and capability of their export products so that without international support measures, export baskets of Bangladesh are not in vulnerable position. Government needs to take special export product based initiatives as example of RMG sector is given by Dr. Moazzem in the situation analysis and Results chapter to retain export earnings of RMG sector. Bangladesh will prepare a transition strategy in cooperation with its development partners. For this effort inter-ministerial close coordination in planning, implementation, frequent monitoring and evaluation are necessary. Ministry of Commerce needs to take export product-based initiative of holistic approach so that Bangladesh can mitigate the vulnerability after graduation.

REFERENCES

Ahmed, Ali, 18, Chief Executive Officer, Bangladesh Foreign Trade Institute, LDC Graduation Challenges. Ahmed Nazneen, 18, Senior Research Fellow, Graduation from the LDC Status: Impact on RMG Industry in International Trade Market, BIDS, Agargaon, Dhaka. Alim , Abdul, 2019, Inception Workshop And Consultation On Graduation Of South Asian LDCs, UNHRLL, Newyork, USA. Bangladesh Development Forum, 18, Economic Relations Division (ERD), Ministry of Finance, Sher-e Bangla Nagar, Dhaka. BDF, 18, LDC Transition: Turning Challenges into Opportunities, Economic Relations Division, Ministry of Finance, Shere-e Bangla Nagar, Dhaka. ERD, 18, Bangladesh Graduation from LDC Status: Opportunities and Way Forward, Sher-e Bangla Nagar, Dhaka. ERD, 18, Bangladesh on the path towards LDC Graduation, Sher-e bangla Nagar, Dhaka. ERD, 2018, Bangladesh on the Path Towards LDC Graduation, Sher-e Bangla Nagar, Dhaka. Government of Bangladesh, 2013, IPoA for Bangladesh, Economic Relations Division, Ministry of Finance, Sher-e Bangla Nagar, Dhaka. George, Joseph, 19, Review of Trade Patterns: Market and Product Structure & Implications for LDC Graduation, UN-ESCAP, Thailand. Ministry of Commerce, 2019, Report on International Support Measures on LDC Graduation, Bangladesh Secretariat, Dhaka.





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Moazzem, Golam, Khondokar, 18, Challenges for Maintaining Competitiveness in the RMG Sector in Post-Graduation Period: Policy Perspectives, Research Director, Centre for Policy Dialogue (CPD), Ratna, Sudesh, Rajon, 19. Assessing the impacts of the loss of non-reciprocal preferences and S&D under RTAs: Policy options, UN-ESCAP, New Delhi, Raihan, Selim, 18, Looking beyond LDC Graduation, Executive Director, SANEM. Tateno, Yusuke, 2019, Challenges of graduation and their relevance with development priorities of the 2030 Agenda, ESCAP, Thailand. Tateno, Yusuke, 2019,Economic and Social Survey of Asia and the Pacific 2019 Ambitions beyond growth, ESCAP, Thailand. United Nations, 2011, Istanbul Program of Action (IPoA), Istanbul, Turkey. Website: Economic Analysis and Policy Division, 2018, Handbook on Least Developed Country Category: Inclusion, Graduation and Social support, Committee for Development Policy. Available from https://www.un.org/development/desa/dpad/resources.html?target=major-publications [25 June, 2019]. Akhter, A 2018, ‘LDC to DC, preparation to triumph over the upcoming challenges’, Textile Today, 28 March.Available at:https://www.textiletoday.com.bd/ldc-dc-preparation-triumph-upcoming-challenges/ [24 June, 2019] Ovi, H, Ibrahim 2019 ‘Graduation from LDC: Bangladesh to face tougher export challenges’ Dhaka Tribune, 29 June. Available at https://www.dhakatribune.com/business/2018/03/22/graduation-ldc-bangladesh-face-tougher-export-challenges [24 June, 2019] United Nations Conference on Trade and Development, 2018. Available from https://unctad.org/en/Pages/Home.aspx [19 June, 2019].





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• Reviewer Acknowledgements

Global Business and Economics Journal (GBEJ) would like to thank the following reviewers for reviewing manuscripts from January 1, 2021, to March 31, 2020. Their comments and suggestions were of great help to the authors in improving the quality of their papers. Many authors, regardless of whether GBEJ publishes their work, appreciate the helpful feedback provided by the reviewers. Global Business and Economics Research Center in Canada (GBERCC) Publishing appreciates the following reviewers’ rigorous and conscientious efforts for this journal. Each of the reviewers listed below returned at least one review during this period.

Dr. Professor Mohammed Masum Iqbal, Daffodil International University, Bangladesh. Dr. William P. Wall, Stamford International University, Bangkok, Thailand. Dr. Professor Abdul Moyeen, Federation university of Australia, Sydney, Australia. Dr. Elahe Hosseini, Yazd University, Iran. Dr. Aida Mehrad, Castelldefels School of Social Sciences (C3S), Barcelona, Spain. Dr. Daniela Georgieva, International Business School, Sophia, Bulgaria. Dr. Natalie Solveig Mikhaylov, Westminister International University, Tashkent, Uzbekistan. Dr. Madhuri Modekurti Mahato, Amity University Jharkhand, India. Dr. Yassir yagfouri, American University of the Middle-East, Kuwait. Dr. Yasemin Gedik, Istambul, Turkey. Dr. Osama Butt (ABD), University of Toronto, ON, Canada.

Md. Mamunur Rashid Managing Editor, On behalf of Global Business and Economics Journal (GBEJ).





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