_15_ _Ways_ **_Out_** _of Poverty - Diffyusing Best Practices and Creatzn2 Capabilities_

**Box 2: The role of policy reforms and diffusion of good practices in the growth of the Bangladesh garments industry**

The garment industry in Bangladesh grew from nothing in 1979 to about $5 billion of exports per year-a little over three-quarters of the current annual export earnings in Bangladesh. This phenomenal growth is due to the diffusion of good practices, from foreign to one local enterprise and from the local enterprise to many others. It is also due to a number of policy and administrative improvements that opened up investment opportunities for local entrepreneurs.

It all started in 1979 with the collaboration between the Korean company, Daewoo, and the Bangladeshi enterprise, Desh Garments. Daewoo did not make any capital investment in Desh, but it signed a five-year contract to help Desh purchase machinery and fabric (some of it on credit from Daewoo), to set up the factory and market the garments. The contract also included training of Desh employees in Daewoo's plant in Korea and at Desh facilities in Bangladesh. About 130 Desh employees received very intensive training in technical production skills, management, and marketing at Daewoo in Korea. They returned to Bangladesh with technical production and marketing know-how plus an appreciation of the corporate culture required for success in export markets. Daewoo sent its own technicians to Desh-to help set up the machines, oversee quality assurance in production, and train Desh workers who had not been to Korea.

Garment production began in 1980 with 450 machines and 500 workers. By June 1981, Desh already felt that it was ready to operate on its own and terminated its contract with Daewoo. In 1980 Desh produced 43,000 shirts at a value of $56,000. By 1987 sales had risen to 2.3 million shirts worth $5.3 million. The quality of Desh's garments had also improved significantly. The unit export price increased by 75% from $1.30 to $2.30. Between 1980 and 1987, Desh expanded from 450 machines to 750, and its workforce increased from 500 to 1,400. By 1987, Desh was handling its own export marketing and was buying all its raw material from sources other than Daewoo.

More interesting, of the initial batch of 130 employees who visited Korea in 1980, 115 left the company by mid-1981 to start their own garment-exporting businesses and began replicating Desh's success in other factories. By 1985 Bangladesh had 700 garment-export manufacturing factories.

Source: Mahmood (2002).

Many successful small companies are founded by ex-employees of larger companies, where they learned their job. Often they learned about opportunities that their previous employer did not recognize or did not wish to exploit. The former employer might have been stuck in routines that were too hard to change or might have been reluctant to embark on new ventures that would undermine or cannibalize successful product lines.<sup>43</sup> The most detailed attempt at studying the phenomenon comes from the United States: more than 70 percent of new ventures were set up by employees who got their business idea when employed by another company (figure 9).

43 Chnstensen, 1997.