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Industry Profile:

Porters Diamond Model:

Porters diamond model includes the followings:

1. Factor Endowments
2. Demand Conditions
3. Relating and Supporting industries
4. Firm structure, strategy and rivalry
5. The role of chance and the role of Government


1. Factor Endowments:

Factor endowment-the cost and quality of factors of production-are a prime determinant of
the competitive advantage that certain countries might have in certain industries.

The basic factors include land, labor, capital and raw materials

The advanced factors include- technologies, managerial sophistication and physical
infrastructure.

In the export based shoe industry we can see that the availability of raw materials is huge.
Moreover the quality of the leather is also very high. Labor price is very cheap here and
government incentive helps to increase this industry.

But in the advanced factors, the technology is not very high comparing to the competitors in
this industry. Due to lack of specialization in this field the managerial sophistication is not
present and also the physical infrastructure of this industry is rather weak.


2. Demand Conditions:

Demand plays an important role in providing the impetus for upgrading competitive
advantage. Companies are typically most sensitive to the needs of their closest customers.
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Following the information provided by the EPB we can see that the demand for shoes
manufactured in Bangladesh is quite high in the foreign countries. The main reason behind
this is high quality of leather available in Bangladesh. The pictures will be clearer from the
following export amount:
2000-2001: $ 36.75 million
2001-2002: $ 28.46 million
2002-2003: $ 54.50 million

The export target is:
2004-2005: $ 86.00 million
2005-2006: $ 77.00 million

3. Relative and supportive industries:

The third broad attribute of national advantage in an industry is the presence of
internationally competitive suppliers or related industries. The benefits of investments in
advanced factors of production by related and supporting industries can spill over into an
industry, thereby helping it achieve a strong competitive position internationally.

We can see that in our country there is huge supply of leather that is the main raw materials
of this industry. Moreover the labor is very cheap helping the industries to produce with a
very low price. The number of leather processing companies or tanneries present in the
country is enough to support the demand.

4. Firm structure, strategy and rivalry:

The fourth attribute of competitive advantage in Porters model is the strategy, structure and
rivalry of companies within a nation. Different nations are characterized by different
management ideologies that either help or do not help them to build national competitive
advantage.

In the export based shoe industry the firms main strategy is to give quality products in low
price. Most of the firms are privately owned with their own manufacturing plant. Some of the
big firms are capturing the major share of the market. The firms are more co-operated to each
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other than acting as rival. Big firms often give sublet to the small firms to meet up their target
demand.

5. The role of chance and the role of government:

The role of the government is also important in the industry. The government of Bangladesh
gives incentive for promoting the export of shoes. 15% incentive is given for every export.
Moreover upon request 5 years tax redemption is available while starting new exporting
business. So the exporters are gaining more and more competitive advantage.

Industry Value Chain:

In the shoe industry the value is created in different steps.

The first and most important raw material for shoe is leather. This leather comes from cows,
goats etc. So, for this the farming is very important. That is why the first step is the farming and
cattling and it is one of the primary activities.

The quality of the leather in here is a good advantage and addition to the value of the production.
So, the next step is to collect these leathers properly. The tannery plays the important role here.
Proper processes by the tanneries ensure the collection of quality leathers for the shoe
manufacturer. It is the second primary activity.












After the processing of leather it is bought by the shoe manufacturing companies and then in
their production facility it is used for producing shoes. The proper manufacturing ensures the
Farming &
Cattling

Value
Chain

Tannery:
Processing
of leather

Value Chain


Shoe
Manufacturing
& Packaging

Value Chain
Shoe
Retailing

Value
Chain

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higher quality of shoes and thus adds value to the end product. After that most of the companies
have their own packaging capability. After the packaging more value is added. These can be
counted as secondary activity. Upon finishing manufacturing and packaging the products are
moved for retailing thus bringing a conclusion to the chain.




Market Overview:
Potential customers:

European market: The potential customer for Bangladeshs shoe exporters is the European
market. Most of the exporters from our country exports in the European countries. There is huge
demand there for shoes from Bangladesh. Moreover there is GSP facilities available for the
Bangladeshi exporters in Europe and Japan. Currently the main buyers doing business in the
country are Adelki, Bengi,Philandro all of them are from Italy. Moreover the main exporting
countries of shoe are- France, Belzium, Sweden, Netherland, Japan, Italy etc.

The US market: Though USA is a big market for our country. But it is tough for Bangladesh to
enter the USA for intense price competition from China. China has the tax free entry in the US
market as a result the Chinese shoes are very cheap there. So, the Bangladeshi exporters cannot
compete with the price competitiveness as there is no tax benefit for Bangladeshi shoes. So, the
availability of customers in the US market is very low.

For this reason the main customers for Bangladeshi shoe exporters is the European market.




Size and growth of the market:
The market of shoe exporting is growing day by day. From the interviews it is very clear that the
demand for shoes from Bangladesh is very high in the international market especially in Europe.
From the exporting reports from EPB we can see that the export of shoes is increasing every
year. As mentioned before the buyers for the shoes from Bangladesh are France, Belgium,
Sweden, Netherlands, Japan, Italy etc. But this market was rather small years back. Now the
market has increased and it is still growing. There are still options for our exporters and the
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market might grow more. As China has the tax free entry in US now it is not possible to compete
with them in price but US is still a big market for us. The following figures might give a clearer
view-

The export in the last years:
2000-2001: $ 36.75 million
2001-2002: $ 28.46 million
2002-2003: $ 54.50 million

The export target is:
2004-2005: $ 86.00 million
Here we can see that the export is increasing. Though in 2001-2002 the export decreased by
$8.29 million but in the next years there is an increase of $26.04 million dollars. So, from 2000
to 2003 the export has increased by almost 48.30%.

Moreover, the export target for the next year is $86.00 million which is $31.5 million higher
than the previous year. So, we can see that the market of this industry is growing.




Competing Brands in the local market

Radu
Established in 1978 Radu is one of the oldest shoe-manufacturers in Bangladesh. Back then it
was known as Panjab Tannery. Presently the caretaker Samiuddin Wara told us that it started off
as a profession for their ancestors. After the separation from Pakistan operations were set up in
both India and Bangladesh. The same designs are being manufactured both in Dhaka and
Calcutta. The problem is that even though leather is available locally the rest of the materials
have to be imported and the spiralling prices are cutting down on the profits by increasing the
manufacturing costs especially for testing. Despite the hardships the organisation is still doing
well because of a loyal customer base who have been buying their footwear for generations.

Bata
Ask anyone to name a shoe brand and they will invariably mention Bata. Its one of the largest
multinationals doing business in Bangladesh serving everyone from the tiny tots at home to
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oldest members. To top it off this has been going on for generations. In fact it has a selection for
just about anyone in any profession that is unmatched by other manufacturers. There is
everything from plastic shoes for wet seasons as well as leather, artificial leather and cloth. The
company has deep pockets as a result they have some of the best technologies for design,
production as well as training of personnel. In the past few years Bata has stopped creating its
run of the mill designs and has come up with some trendy items based on customer wants. It
seems just being big isn't enough. To stay big a shoe company has to meet the customer demands
and come up with current styles as well as reliability and comfort.

Eastern Progressive Shoe Industry (EPSI)
They have been in the market since 1967 creating unique original leather shoes. Even though it
had a big market back in the 60's at present it is a different story. They make shoes mainly for the
defence personnel such as the army, navy and the air force. In fact they are the only
manufacturers providing footwear for the defence sector. So the civilians who get trampled by
the defence personnel know which brand shoe is imprinted on their backside.

Factory in-charge Nurul Islam explains that the high cost of imported raw materials needed to
create the soft shoes for the regular consumer was not as profitable. To maintain high standards
of quality they have had to face a lot of financial difficulties. These shoes are made completely
out of leather as a result they are heavier than those made of other materials. The general
consumer prefers lighter footwear. Of course a lot of these shoes are used as casual wear by the
general public. Nurul Islam considers it a sad fact that the local people prefer foreign shoes even
though according to him the ones produced locally are of better quality.

Apex galleria
Apex mainly started business for export purposes in 1991 in co-operation with Italy. These are
also marketed locally with foreign personnel maintaining the quality assurance. They started
opening up showrooms locally around 1996 with mainly items for men. Although their quality is
of a world class standard their sales in the local market are limited due to the high prices.

Dhaka Bazaar
This is also another export-oriented company that produces footwear in collaboration with Italy
and Japan. They make shoes alongside many other leather products. They have their showrooms
at Rifles Square, Bihsal Center and on Mirpur Road. They have similar worries regarding the
local market where genuine leather shoes can cost as much as 1000-1200 taka whereas the
general public would want cheaper alternatives such as rexin shoes for less than 400 taka.
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Aarong collection
Aarong has been creating sandals since the 80's. They have been creating designs that
complement special outfits such as kurtas and fatuas. For women they have special selections
that are adorned with silver and gold glitter. Also included in their collection are formal and
casual sandals.

Leatherex
Leatherex started off with a slogan called Healthy Walk that focused on shoes that are tailored
for comfort and health of the feet. They opened their first outlet in Concord Arcadia shopping
centre in Dhanmondi in 2002. At present they have three outlets but their preference lies in
exports.

The market is comprised of a huge assortment of local as well as foreign manufacturers. In
Dhaka most of the shops are situated in Elephant Road. All kinds of shoes are made here
including some amazing designs with glass heels, embroidery work and lace. But many of the
shopkeepers sell these as foreign made items because customers consider that to be of better
quality. It seems what the customer does not know won't hurt them. The customers are more into
the design than comfort.

Another big shoe market in Dhaka is the Pallwell market near the Jonaki Cinema hall in Nowa
Paltan. Many different branded items are found at relatively low prices.



Competitors: Some weaknesses and hopes

According to a recent news report published by the Bangladesh Sangbad Sangstha (BSS), the
Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association (BFLLFEA)
and Bangladesh Tanners' Association faces a terrible objective of erasing the information gap
that they face against their competitors in the international market.

The leather industry of the country has blossomed over years and has already emerged as the
third- largest foreign currency earner of the country after ready-made garments and frozen foods.

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But foreign users, the main target of its goods, know very little about the leather industry of the
country, according to the sources from the two associations.

The organisations cannot attract foreign buying houses due to the lack of proper marketing.

This however, is there in the hands of key competitors like India, China, Vietnam, Pakistan, Sri
Lanka and some other South Asian countries.



















PEST Analysis:

Political:

The political condition of Bangladesh is not very much stable. There have been many ups and
downs in the political situation of the country since independence. The export based shoe
industry is not very old in our country. It evolved in only last 10-20 years. So, the after instability
of independence does not affect this industry that much. From political only two things can affect
this industry:

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1. Governments attitude towards the industry and

2. Political chaos likes strike etc.

From the interview taken it is clear that the governments attitude toward the export based shoe
industry did not change a lot over the years. The exporters are getting the same benefits they
were used to get before. Every government tries to boost the exporting sector a lot. Though some
games are sometimes played but mostly the export industry remains untouched.

Political like strike and hartals were a big issue for the industries once. They used to cost huge
losses in the business. But according to the exporters now the situation has changed. Because the
trend of giving hartal has changed. Before there were hartals/strikes for consecutive 3/4 days but
now there is hartal/strike for one day or maximum for two days. So the effect is much lesser than
before. The production is not hampered, as the factories remain open during hartal/strikes.


Economy:
(source: Statistics year book :BBS)

The economical factors are also very important for the exporting sector of a country. We can see
from the trend that there has always been a gap between the Real GDP and Nominal GDP of the
country. Moreover the nominal GDP is higher than the Real GDP. This is bad for the economy
of the country and in bears the indication of bad inflation.

The Nominal GDP increased by: (3684.8-1354.1/1354.1)*100 = 172.23%

On the other hand

The Real GDP increased by: (2655.1-1515.1/1515.1)*100 = 75.24%

Through out the years we can see that the inflation rate of the country has increased. The current
inflation rate is 6.32 while in 1993-94 the inflation rate was 3.3. So, the

Increase of inflation rate is: (6.32-3.3/3.3)*100 = 91.5%

This is certainly bad for the economy.
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Moreover the per capita GDP is only Tk 26898 billion, which was Tk 11583.6 billion in year of
1993-94. So, the

Change in per capita GDP is: (26898-11583.6/11583.6)*100 = 132.21%

The total import of the country for the year 2004-05was: Tk 505.5 billion

The total export of the country for the year 2004-05was: Tk 371.6 billion

So, there is around Tk 133.9 billion-trade deficiency.

The reserve of foreign currency is $2975 million only.

But on the other hand the labor cost is very cheap in our country. Raw labor is available for only
Tk 1500-2000 per month. This is very helpful to keep the cost low.

Moreover as the price of petroleum increased recently the price of everything in increasing
including the transportation cost, as a result the cost of production will increase there by.
Nominal Vs Real GDP
0
500
1000
1500
2000
2500
3000
3500
4000
1
9
9
3
-
9
4
1
9
9
5
-
9
6
1
9
9
7
-
9
8
1
9
9
9
-
0
0
2
0
0
1
-
0
2
2
0
0
3
-
0
4
Year
Real GDP
Nominal GDP
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So, we can see from the above data that the country is facing a bad economic condition. A good
economic condition is needed for the uplift in the exporting sector.


Social:

The sociological condition of the country is not that much beneficial for the prospect of this
industry. The main problem that is faced by the industry is the lack of trained and skilled labor
force. Though the labor is cheap in this country but as the education rate is very low the there is
not enough educated and skilled work force.

There is another minute problem is that not many people are aware of this industry and its
contribution in the economy. If more people are aware about the industry the prospect for this
industry will increase.

Technology:

Technology is also a very important thing for any industry. Comparing to the competitors of the
other countries the technology of Bangladesh in this sector is not very high. There is no last
factory in the country, which is very important for shoe industry. But India has the last factory
and gaining competitive advantage over us.

Moreover for the high tech technology China is able to keep the price of production very low and
creating a strong price competition for our exporters.