“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Winston Churchill might as well have been referring to Tau Investment Management, following the New York-based growth-equity venture investment firm’s decision to invest $200m into the Readymade Garments (RMG) sector in Bangladesh. While major corporations are re-evaluating their decision to engage Bangladeshi manufacturers in light of the Tazreen fashion and Rana Plaza disasters, Tau’s CEO, Oliver Niedermaier, has seized the moment in order to transform the supply chain management in this sector.
This decision is a tick of approval for the Bangladeshi manufacturing industry, and it strongly reflects how far the sector has come and how far it can go. It recognises the RMG industry is well-developed and still retains its stature as a leading apparel-sourcing destination for the global market, second only to the dominant force that is China.
This position is set to strengthen: the global management consulting group Mckinsey reported in 2011 that the industry is expected to triple its exports to $42bn by 2020. This investment By Tau reflects the belief that the industry and those within it not only have the capacity, but also the will to make the supply chain process more efficient and effective.
The expectations are high, as Tau’s website states: “Capitalist Solutions to Capitalism’s failures,” one can reasonably conclude this investment requires a capitalist outcome. No CEO from New York will travel all the way to Dhaka to endorse a project which is unable to reap a substantial return on investment.
The modus operandi of Tau is to simultaneously inject capital, knowledge and relationships to create a sustainable business model. Tau specialises in providing both financial capital and knowledge capital to ensure that the business is profitable over the long term.
Niedermaier plans to purchase minority shares in various factories, facilitate relationships with his retail contacts in Europe and the United States and introduce training for mid-level management and workers. The intention is to create both a compliant and highly efficient manufacturing environment in the RMG sector whilst securing profitability.
Interestingly, these initiatives address some of the issues identified by Grameenphone Ltd CEO Vivek Sood at the Leadership Summit 2014. Sood particularly identified a disparity between leadership at the middle management level of Bangladesh and India. He noted that “Bangladesh has spent too much time on educating in terms of content but not educating in terms of behaviour, in terms of developing traits, which can actually help them become leaders.”
The opportunities which present itself from this investment cut across many spheres. The factories can immediately showcase their expertise and in return the new set of eyes can identify those areas which may need up skilling, restructuring and diversifying. The additional training will help push efficiencies throughout the production process while eliminating wastage, and in turn will reduce variable costs in the long term.
Beyond improving the gross margin, the $200m investment in these factories acts as a stamp of approval to garment purchasers. Manufacturers who receive this investment will immediately be capitalised with goodwill, creating brand equity which can be utilised to increase orders, expand production or simply grow the bottom line. The endorsement will signal to the market that the manufacturer pursues transparency and values integrity, thereby making it more attractive as a business partner.
The effects will reverberate well outside the production process and the manufacturers themselves. Engaging with new retailers will require new fashion designers for a variety of markets in addition to dealing with new and exciting brands and cultivating relationships. This will make the industry more attractive to young talented graduates particularly across the art, fashion and business schools.
The initial investment is a test case. Niedermaier himself notes that if successful there is no reason why investments such as this cannot be replicated across other industries such as electronics and agriculture. In turn, this will encourage other foreign investors and other avenues of financing such as domestic and international banks to place their faith in the wider Bangladeshi manufacturing industry.
It is clear that the potential impact of such an investment is far reaching, from workers on the production line to investment analysts undertaking cost/benefit analysis. Tau has provided garment manufacturers and the wider Bangladeshi economy a glimpse into what lies ahead. A hand has been held out in support and it is time to collectively combine our knowledge and financial resources to reach back and switch on this sustainable journey.
