The Distance Businesses Can Change

Reflections on human capital, business friction, geography, infrastructure and trust

I recently read M.G. Quibria’s Daily Star article, “Bangladesh’s FDI puzzle: Why human capital, not red tape, is the real constraint.”

His distinction between problems that can be addressed relatively quickly and structural constraints that take much longer interested me. He argues that the business environment matters, but human capital places a more fundamental limit on what an economy can do. He also points out that geography affects access to capital, industrial knowledge, and established supply chains, as well as proximity to markets.

That made me think about what a company can do while operating within these constraints. We cannot choose Bangladesh's geography or reform its education system ourselves. Improving ports, redesigning banking, and removing administrative complications are largely beyond an individual business's control. There is still work we can do within our own organizations.

After many years working with European industrial manufacturers in Bangladesh, I have come to think of that work in terms of distance. There is a gap between a qualification and the ability to do a job, and another between starting a transaction and completing it. A European factory is far from its Bangladeshi customer, who may need help long after the equipment has been sold. Trust can take years to develop across those gaps.

A capable local company can reduce several of these distances, even though the geography stays the same.

Human capital: knowing how to do the work

Quibria's discussion of human capital goes beyond literacy and formal education. More sophisticated economic activity requires specialized knowledge and people who can coordinate their work. That reflects my own experience in industrial business.

An engineering qualification does not necessarily tell us how someone will perform. An engineer may have to learn an unfamiliar machine from technical documentation, recognize the limits of their knowledge, and communicate with an overseas manufacturer. Commissioning requires planning and coordination across several parties. When the expected solution fails, the engineer has to work out what to try next.

Technical sales requires additional judgement. The engineer needs to understand the customer's problem, identify what matters, explain the solution clearly, and know how to turn technical knowledge into business.

The shortage I have often encountered is of people who can combine their technical knowledge with analytical thinking, communication, and project management. Curiosity and commercial judgement matter too. A company can recruit and develop people with these abilities, even while the wider education system remains unchanged. Qualifications should help inform that decision, but they cannot substitute for evidence that someone can do the work.

Business friction: getting a transaction completed

"Ease of doing business" sounds abstract until you are trying to complete a transaction. An import letter of credit has to be structured correctly. Shipping documents must satisfy the bank, and a shipment must clear customs. Payment has to be collected. Equipment must move from the port to the factory and arrive when the site is ready for it.

For many European manufacturers, Bangladesh's customs procedures, L/C banking, and collections differ considerably from those in more familiar markets.

Most of our international purchases, for example, have traditionally used letters of credit at sight. This means the overseas supplier does not have to extend unsecured credit. Completing the transaction still requires substantial local knowledge of banking, shipping documents, customs, and the customer relationship.

A capable local organization takes responsibility for understanding these processes so the overseas manufacturer can work with the market without having to master every local requirement. Government efforts to make procedures simpler, faster, and more predictable matter. Companies also need to retain enough institutional knowledge to handle ordinary complications without repeatedly turning them into crises.

Geography: bringing knowledge closer to the customer

Quibria's discussion of geography is especially relevant to industrial business. Vietnam is close to economies that have accumulated capital, industrial knowledge, supply chains, and longstanding commercial relationships. Bangladesh cannot reproduce that location.

We encounter a smaller version of the same problem when supplying European equipment. The manufacturer may be thousands of kilometres from the Bangladeshi factory using its machinery. The engineers who designed it may work several time zones away, with the spare-parts warehouse on another continent.

Those physical distances create delays and difficulties, but how much they affect the customer depends partly on the local partner. A capable organization transfers technical knowledge from the manufacturer to the customer and sends market knowledge in the other direction. It knows which problems can be resolved locally and when the factory needs to get involved.

The work also involves interpreting expectations, commercial practices, and technical context across both sides of the relationship. A local company cannot shorten the journey between Bangladesh and Europe, but it can reduce the difficulties that journey creates.

Infrastructure: supporting what we sell

National infrastructure includes electricity, ports, roads, telecommunications, and logistics. An industrial business also needs to build the support its customers will depend on: trained technicians, field service, and access to the right spare parts. It needs people who retain knowledge of the equipment over years, so every breakdown does not become a new learning exercise.

At Maple Leaf International, we routinely maintained spare parts and resolved equipment breakdowns locally, without waiting for the overseas manufacturer to intervene. Over time, I noticed how little attention either the manufacturer or the customer gave this capability.

If the required part is already on the shelf, the customer has little reason to think about the investment needed to keep it there. When a technician fixes a problem in a few hours, the customer avoids the several days of downtime that might otherwise have followed. If we resolve the issue without involving the European factory, headquarters may never hear how disruptive the alternative could have been.

Maintaining this capability costs money even when there is no breakdown. Spare parts tie up capital. Technicians need salaries and training, and expertise often has to be developed well before anyone knows when it will earn a return. A distributor that neglects these investments risks becoming little more than an equipment importer, with limited ability to support what it sells.

Trust: being there when something goes wrong

Of these distances, I consider trust the most important. It is a form of capital that does not appear on a balance sheet, and it reaches well beyond payment terms. In our business, L/C at sight has traditionally been normal, so an overseas manufacturer can trust its local partner without extending unsecured credit.

The manufacturer still has to believe that a company thousands of kilometres away will represent its technology accurately and protect its reputation. It needs honest market information and a partner who avoids promises the equipment cannot fulfil. When something goes wrong, it needs open communication.

The customer has a different concern. Industrial equipment may operate for many years. The company buying it has to judge whether the people across the table today will still answer the telephone when the machine stops three years from now.

These judgements develop through experience. Banks assess a company's track record. Employees decide how much responsibility they are willing to take. After a difficult project, customers decide whether the problem was an unfortunate experience or a reason never to return. Manufacturers use the same history to decide whether a local partner has earned greater responsibility.

Price complicates these decisions, particularly in Bangladesh, where it can carry considerable weight in industrial purchasing. It may determine who gets the purchase order. The buyer will then depend on the supplier's capability and reliability for much longer.

A low-priced machine can become an expensive purchase if it cannot be commissioned properly, supported locally, or repaired promptly. An excellent European product can also acquire a poor reputation because of weak support in Bangladesh. Contracts, specifications, and price comparisons cannot remove all that uncertainty. A supplier's record of keeping its commitments gives the customer something else to judge by.

What companies can do now?

Better education, predictable administrative systems, and stronger national infrastructure remain important. Geography will continue to affect business too. While those constraints persist, companies can recruit and develop people for their abilities, retain institutional knowledge, and invest in technicians, field service, and spare parts. They can improve the exchange of knowledge between manufacturers and customers, and earn trust through repeated performance.

The strongest local companies make an unfamiliar market easier for an overseas manufacturer to understand and serve. They also give the Bangladeshi customer dependable access to a manufacturer that may be far away. This is the operational distance a business can reduce through its own work.

Making it easier for foreign companies to enter Bangladesh is important. Those of us who operate here also have a responsibility to help them succeed after they arrive.