Economic focus on reduced trade barriers for a better balance of trade
Even beyond the health and societal concerns it creates, the adverse financial consequences of the deadly coronavirus outbreak have created serious issues for businesses. In China, economic costs continue to rise, and businesses face massive uncertainty in their daily operations.
Even international giants like Apple, Nike, and Starbucks are worried, and the global implications, especially in nations that rely heavily on China for their foreign trades, have created substantial anxiety, as a rational market reaction.
China is both a major importer and a significant exporter; Bangladesh Bank notes that in the 2018-19 financial year, Bangladesh’s export trade with China reached Tk4,955 crores, together with imports worth Tk114,594cr.
These figures alone are insufficient to depict the true extent of our relationship with China, which also involves vast technology transfers, potential strategic benefits, sources of national development, and employment possibilities.
For example, about 400 graduate and post-graduate Bangladeshi students live in the city of Wuhan alone. Considering these varied and complex interactions, we must accept — China is a prominent, if not our main, trade partner.
Therefore, it is critical for Bangladeshi businesses to understand and predict how the ongoing disaster will affect the business relationship with China, as well as identify some potential next steps. To do so, we need to start by understanding that networks are fundamental to Chinese businesses.
Deeply rooted in Chinese culture, Chinese business relies on guanxi, a philosophy that prioritizes close links and family traditions. To do business with many Chinese firms, foreign companies must prove themselves, as “accepted family members.”
The mandates of guanxi include well-established personal and informal communication, exchanges of faith and goodwill, and strong commitments to the relationship. Even casual interactions of Chinese businesses with small business owners from Bangladesh reveal, whether consciously or not, guanxi practices.
Consider the pillars of trust and commitment for example. In a business world, trust implies an expectation that a trading partner will not exploit any demonstrated vulnerabilities or act opportunistically.
Commitment implies an enduring desire to maintain a stable relationship, even in the face of provocations such as a disaster (eg, coronavirus) that the business counterpart can do little to control.
For business owners, a long view is necessary to realize that the outbreak will come to an end, and even if it creates adverse consequences, China is likely to overcome them.
Therefore, small entrepreneurs, in particular, must take care to maintain their guanxi, which they have developed in recent years. No signals, at the macro or micro levels, should suggest to Chinese counterparts that the network or relationships have been damaged.
Such signals are likely to be remembered by our Chinese counterparts, with negative consequences for our economy.
At the national level, Bangladesh already has provided some anti-epidemic medical supplies to China, under the instructions of the prime minister, which is useful for promoting our mutual commitment.
Turning to long-term goals, the current context creates a valuable opportunity to focus more on export promotions, through diversification. A quick review reveals that more than 45% of Bangladesh’s total exports go to just three countries — the US, the UK, and Germany.
These are obviously major buyers for the kind of products we export; however, concentrating our exports on such selected destinations may not be the best idea. Comparisons with neighbouring countries reveal much more diversified export destinations.
For example, Vietnamese exports to the three countries that receive most of our exports reached only 24.78% in 2018, and Vietnam’s total exports that year were almost seven times higher than Bangladesh’s.
Reduce trade barriers
The most crucial tool for export destination diversification is reduced trade barriers. To lower these barriers, we need multilateral and bilateral trade agreements. Now is a perfect time to review various potential trade deals and reduce trade barriers where possible by entering into more agreements.
The Export Promotion Bureau (EPB) is already working on this effort, and a review of the information it has produced in recent years gives a positive impression of its development efforts. In turn, the EPB should facilitate even more systematic research and information flow to continue lowering trade barriers.
Diversification of imports
The same applies to import activities: We should seek greater diversification, to avoid the situation, in 2015, in which about 34% of our total imports came from just two countries. Can you guess which ones? Of course, it was India and China.
Such dependence on just a couple of countries represents a self-imposed limitation. We must come out from under that restriction.
If multilateral and bilateral trade agreements promise to create foundations for diversified export-import efforts, entrepreneurs must take the lead to accelerate them. Export-import firms should pursue internationalization, actively, and specifically.
International business relations can depend either on contractual relations or on trust and commitment-based relationships. In today’s competitive market system, we need to focus equivalently on both.
Affective forms of commitment — positive emotional attachment — and interpersonal trust (eg, between exporting and importing managers of the trading firms) can energize firms’ performance.
In small firms, chairs or chief executives often serve as boundary spanners ie, the main link, responsible for maintaining the relationship with a foreign counterpart. We thus need to address their critical roles, in which effort the EPB and related organizations can be helpful.
Various statistics and data imply another recession is looming. During such turbulent times, proactively finding the right course of action is the only way to overcome and succeed. The coronavirus and its economic threats represent a wake-up call that we must heed.
Bangladesh is fortunate to have a talented pool of young entrepreneurs and hard workers. We can leverage these resources to move forward with appropriate strategic options that help us achieve an even better future.
Dr AFM Jalal Ahamed is a Senior Lecturer of Marketing at the University of Skövde, Sweden. His research interests include export-import relationships, transaction cost theories, relationship marketing, and consumer behaviour.