RST Terracotta

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RST Terracotta is registered in Bangladesh as a "company limited by guarantee".

Company name: “RST TERRACOTTA” RST Terracotta is likely to be one of the largest craft producing and exporting organizations in Bangladesh, set up for the benefit of traditional terracotta makers. It started its journey with an aim to uplift the socio-economic condition of distressed families.

MISSION STATEMENT: • “RST Terracotta” seeks to serve terracotta importers and enthusiasts by exceeding minimum acceptable quality standards.

• Find a wider market for the products nationally and internationally • To help vitalize the traditional craftsmanship • Offer all our product lines at competitive prices that will create value • Our commitment to our customers will be reflected through honest and responsible business and we strive to become industry leader within the next 10 years • We value our relationships with current and future customers and hope to communicate our appreciation to them through our outstanding, guaranteed product quality, design, and efficient delivery.

VISION STATEMENT: To symbolize cultural and traditional heritage of rural Bangladesh in craft. Our vision is to manufacture and export decorative terracotta products of unique design and quality and position ourselves as the leading terracotta exporter of the country.

KEY PRODUCTS:Terracotta: Fairly coarse, porous clay that, when fired, assumes a colour ranging from dull ochre to red. Terra-cotta objects are usually left unglazed and are often of a utilitarian kind, because of their cheapness, versatility, and durability. Small terra-cotta figures from 3000 BC have been found in Greece and others throughout the Roman Empire from the 4th century BC. The use of terra-cotta virtually died out when the Roman Empire collapsed, but it was revived in Italy and Germany in the 15th century.

Our products are: • Terracotta flower vase • Terracotta Show pieces • Terracotta wall hangings STRATEGIC GOALS AND OBJECTIVES: The Company started with an objective to provide a stable and gainful source of employment for the underprivileged rural artisans. A Company - that symbolizes fairness in the global village. It targets to support the artisans to help themselves by restoring their pride and self-esteem, reviving Bangladesh’s traditional Art and Craft. In the process, RST terracotta contributes greatly to the company’s goal of poverty alleviation and empowerment of the poor.

Company’s Objectives: • To create fair income-generating opportunities for socio-economically deprived artisan families.

• To come up with newer terracotta items of divergent nature.

• To make the target families and the respective producing groups self-reliant through their earnings, savings, and awareness of self help.

• To address gender issues and encourage women's leadership.

• To enhance the skills of disadvantaged artisans by providing various skill development training, to enable producers to earn a good income from their work.

• To introduce savings and local resource mobilization schemes.

• To practice and promote producers' welfare and family development, and the principles of "fair trade".

To provide superior product value and customer service.

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Location selecting is an important factor for the industry. In here we will choice that particular location that is suitable and also minimize the cost and maximize the profit for the industry. Our “RST Terracotta” industry will be located in the Manikganj in Dhaka. It will be approximate 1 hour distance from Dhaka city. It will be the perfect location for our terracotta industry. Handicraft business is the traditional business in our country.

Reason for choosing location: 1.

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Beautiful place Pollution free environment Availability of workforce Easier communication

5. Low cost labor 6. Availability of raw materials 7. Scope for expansion

Overall the Terracotta Industry is well recognized in Bangladesh. So its internal analysis and its external analysis with its five forces and core competencies describe the whole Industry overview. Industries boundaries may change time as customer needs evolve or new technologies emerge that enable companies to satisfy established customer needs in new ways. Industry competitive analysis begins by focusing the overall industry in which a firm competes before market segments or sector-level issues are considered. Tools that managers can use to perform such industry analysis are Porter’s five forces model, strategic group analysis and industry life cycle analysis.

Porter’s Five Forces Model Competitor

Buyers

Substitute

Supplier

Company

BARGAINING POWER OF BUYERS Bargaining power of buyer is high in this terracotta industry.

Bargaining Leverage This industry offers products that are to enhance the beauty of luxurious life. In this industry, the buyers are very much sophisticated and have the ability to afford the higher prices charged by companies in the industry. However, the products must be very lucrative in order to attract the high sophisticated buyers of these companies by offering better quality and differentiated products. However, as this is a fragmented industry and buyers are high in

numbers, the competitors would want to provide their products at a reasonable price while trying to meet the objectives of differentiation through attractive pricing.

Buyer information The buyers in this industry can study the market and can always get information about the upcoming from our web sites. And we will update our websites every six months to give regular advertisements and do promotion campaigns so that the customers have access to information about our company.

Lower Switching Cost As it costs less time, money and energy for a customer to switch from the products offered by one company to the products offered by another company in terracotta industry, bargaining power of buyers is high.

Substitute Products Terracotta industry has substitutes, so that customers can switch to that. There are many different kinds of decorative items made from ceramics and glassware and the gap between the substitute products are very much narrowed. Therefore, bargaining power of buyers is high and they can put pressure on our company to lower cost and to provide better products.

BARGAINING POWER OF SUPPLIERS There is no potential threat from supplier as in forward integration. Here, suppliers do not have that kind of bargaining power, as the raw materials or inventories involved in the terracotta industry are not expensive. In general, our company would buy soil at bulks, so we have high bargaining power. And this would not put much pressure on the company as actual purchase of the raw materials and other complimentary things to total investment would be quite low. If the supplier concentration is high in an industry, then the bargaining power of suppliers goes down, as they cannot dictate price. Having bargaining power over supplier is extremely essential for any new company. So, for us, the supplier concentration is high, and we can have good bargaining power over them.

THREAT OF SUBSTITUTES Threat of substitute is quite high in this industry. The other firms in the industry might come up with substitute and innovative products due to the availability and cheaper price of the substitutes. So, the buyer propensity to go for substitute products is high. We have to take this matter into consideration in order to maintain market share. As there are so many similar decorative things for customers, they can easily switch their decoration items if they are not satisfied with the current company. Many potential companies could take away our customers. Ability to supply quality products at competitive price is a key success factor in this business. This is more so in international business where competition is not confined within one country or state. When exporters from various countries compete for same product - price, along with quality and differentiation, play a crucial role in decision-making.

Thereby, in terracotta business it is important to always come up with new concepts to serve the customers at reasonable price with the superior differentiation and come up with new designs.

THREAT OF NEW ENTRANTS At present, the threat of new entrants is relatively high in this industry or strategic group; moreover there are many fragmented industries where competition is not that immense.

Low Capital Requirement The capital requirement in this project is not very high, which can allow any new company to make an investment. The set up costs in this industry would not require high cost. Therefore, it would encourage new entrants, even if a new company faces any loss in this new business that would slightly affect the company, as the loss of the whole initial investment is low.

However, the first action for setting up a company in this industry is to ensure necessary capital. If not done so, the entry barrier will be low which will create problem for the existing companies. So, we have to have proper investment to pursue appropriate strategies and manage in terms of any emergency or unforeseeable situations.

Switching Costs The switching cost in this industry is low, which could encourage some firms to enter in the market and take away our customers by providing better products at a lower cost. However, it must be understood that this kind of industry also needs some expertise and experience, which can be developed over the years. In this industry, a firm must have a clear knowledge regarding customer demands and preferences and how well they can be satisfied. When in an industry, the switching costs are low; the entry barrier goes down for the potential entrants.

So, when a new company enters into the industry, customers will easily shift to its competitors’ products. This is an advantage for us only if we can attract potential customers by offering innovative designs with reasonable price. This way, we can increase barriers to enter into this industry.

Access to necessary inputs Access to necessary inputs is extremely important for any company considering entry barriers. Without proper inputs, firms having a lot of resources can be out of the market in few days. We must have high access to necessary inputs and the raw materials can be gathered from various parts of the country.

Brand Loyalty The threat of new entries in terracotta business is relatively high. The terracotta production and selling industry has not been established commercially as yet. Other than that, there is some small number of terracotta producers in the country. There is a scope of establishing significance in this business by learning from the first mover through producing in a cost

effective way. However, the potential and demand for terracotta business is very high.

Switching cost to new suppliers is low and there is no need for brand loyalty in this industry.

Industries SWOT SWOT analysis of the terracotta sector show that there exist numerous structural flaws - the effect of these flaws needs to be mitigated in order to achieve full potential in this sector.

Strengths The analysis reveals that the handicrafts sector possesses very unique strengths, which are categorized below: • Availability of skilled craftsmen.

• Availability of labor and raw material.

• Demand in both the domestic and foreign markets for the terracotta products of Bangladesh.

• Willingness among women to work.

• Superior product quality and design

Weaknesses In order to explore the available strengths in the terracotta sector to there maximum potential, the following weaknesses must be overcome. As far as the flaws in the development of this sector are concerned, only the major concerns that require immediate attention are mentioned here • • • • •

Lack of support from the government in such areas as: credit availability, planning and management, and provision of technical facilities for the development of new products.

Lack of designing and product development facilities. Emphasis is still placed on old techniques without aligning the product designs and colors to the latest trends.

Lack of training in skill development No networking/linkages among organizations in the country to synergize efforts on national/international level Data is not recorded properly on the types and numbers of terracotta products being sold annually.

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Some crafts are taken as part time jobs, which account for lack of proper concentration, which then impedes idea generation.

Fluctuation of design consistency.

Threats The following factors demand attention for the growth of the terracotta sector: • Rising costs of utilities and raw materials (like ‘paint’) are also infringing on the growth as production costs are high making products not competitive in the domestic and foreign markets.

• Poor image of Bangladesh due to corruption.

• Skills are not being transferred from skilled craftsmen to the new generation resulting in a gap of traditional skills.

• Rising demand of ceramic and glassware products.

• Increase in imitation of terracotta products.

PEST Analysis Political, Economic, Social, and Technological analyses are very important in to start up a new company in any industry in a country. Our country in that case is not an exception.

Political The political situation in Bangladesh is very volatile and unpredictable. If we analyze the political situation related to the terracotta industry, we will see that the political parties are not at all interested in funding and providing subsidies to this industry, even if it has a lot of potentiality. We always have to have contingency planning in case of strikes and other political barriers for the production of our products. The Government seems to be very reluctant about credit availability, planning and management, and provision of technical facilities for the development of new products improvement in this sector of the Bangladeshi industries. The only incentive is: entire export earning from handicrafts and cottage industries will be exempted from income tax.

Economic Economically, Bangladesh is a weak country. But still the buying power for decorative products (like terracotta) is increasing. It is happening for much more involvement of the customers of upper and upper middle levels, having good financial strength. The income level and the living standards of the middle income group are rising as well. Nowadays they have also become art conscious and try their best to have the ability in order to meet their demands.

Technology Technologically Bangladesh is lagging behind our exporting countries. However, it is reasonable considering the terracotta industry. The required machines are always available here. We should have all the essential machineries for the production and utilize them accordingly.

Competitive Advantage • The company can employ a large number of skilled craftsmen and artists while increasing the productivity of the company.

• The product quality and design can be of good quality.

• The customer service can be satisfactory.

• Very low cost regarding raw material.

• Life cycle Analysis Terracotta Art is the earliest form of plastic art in which the Bengal artists excelled. This is a common form of decorative products from ancient period. Traditional terracotta is no new type of craft items. From the beginning of the crafts industry, traditional terracotta products had been occupying a major portion. Through years, traditional terracotta has passed all the earlier stages of industry life cycle and finally now, has reached to its maturity stage During the last decade, traditional terracotta sector has been moving into a new phase. The concept of modern terracotta emerged during the ‘90s. Actually, terracotta (especially the traditional designs) is right now being used on various pottery items like wall-hanging, flower vase, show pieces, etc. These attempts are being very popular in the recent times as people always have a soft corner for traditional designs. More over, these products are elegant and fashionable too. As a result, these products were admired by global customers and slowly but steadily, started to get international exposure through exporting. Therefore, after passing the initial years, it is very clear that the modern terracotta products’ sector has now reached to its growth stage.

Potential Customers Germany is the second largest world market for crafts and decorative products and the largest crafts and decorative products market within the European Union. It is an important market from the perspective of local consumption of crafts and decorative products by the Germans as well. The German market for crafts and decorative products is a highly competitive market. In spite of the tremendous competition, the German market offers good potential to

developing countries that can come up with innovative crafts and decorative and innovative products. Therefore, our target market at the initial stage is Germany Overview of the German market •

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Germany is the second largest world market for crafts and decorative products and the largest crafts and decorative products market within the European Union. It is an important market from the perspective of local consumption of crafts and decorative products by the Germans as well as a gateway to a multitude of different markets within the European Union due to the strong dominance of Germany in intra-trade within the European Union.

The German imports of crafts and decorative products had been showing sluggish growth in the period from 1999 to 2002 mostly due to the pessimistic economic climate. However the improvement in the economic surroundings and the general buoyant ness of the European Union post 2002 has led to increase in imports of crafts and decorative products mostly due to the re-export potential within European Union countries.

Crafts & Decorative Imports Highlights Total Imports (2003) - US $ 19.63Bn. CAGR (1999-2003) - 0.3 % Growth Rate (2002-2003) - 18.9%

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The main growth in imports over the period 1999-2003 has been in product categories like home furnishings, and decorative including art metal ware, basketwork and pottery that can be used to decorate homes and Gardens.

Even when it comes to the consumption of decorative garden articles, Germany is considered the leading gardening market in the EU. Mostly because gardens have an important social, ecological and cultural function for the Germans and Germans’ positive attitude towards nature, environment and recreation will continue to drive the interest in gardening and related décor products in the future.

The other products that have shown increase in demand in 2003 and are expected to continue to increase are Festive and Christmas, Lighting and glassware. The imports of product categories like glassware and ceramics are increasing mainly because the domestic production of the same has continued to decline due to the increase in outsourcing their production to countries like China to reduce the cost of high domestic wages.

However the crafts and decorative products market in Germany is slowly becoming very quality consciousness across range of product groups along with an increasing interest in new-to-market innovative products.

The German consumers have always been very price conscious as reflected by the importance of discount stores in Germany; however an increasing number of consumers especially from West Germany are ready to pay better prices for one-of akind decorative articles.

The purchase of crafts and decorative products in Germany however varies on a seasonal basis with November/December being the period in which the greatest 274 sales volumes are experienced. After Christmas, Easter is the second-most significant gift-giving occasion. May is also a period of reasonable crafts and decorative products sales.

Source: Confidential To Export Promotion Council for Handicrafts © 2005 Frost & Sullivan Size and Growth of the Market • The current effective world market for crafts and decorative stands at an impressive USA. The annual rate of growth of the market has been at 6.2% between 1999 and 2003.

• The top 10markets includes countries such as USA, Germany, United Kingdom, Japan, Hong Kong, France, Canada, Belgium and Spain, that accounted for 77.5% of the total world imports of crafts and decorative products.

• The demand for these products depends on the overall economic climate of a country, which include key aspects like employment, disposable income and changes in spending patterns.

• After the adverse impact of the economic downturn in 2001, the market for crafts and decorative products recovered in the subsequent years. In fact, the rate at which the market has grown post 2001 is relatively better than growth rate of the previous years.

• Imports by countries like Japan and many European countries like UK, France, Italy, Spain and Belgium have also increased. Factors such as rising disposable incomes, favorable changes in demographic profile and most importantly shift in consumer spend on gifts and decorative have been driving the demand for crafts and decorative products.

• Despite the fact that USA is the largest market, the European Union (EU), viewed as a trading block, is fast emerging as a very attractive destination for crafts and decorative products. The 25 countries (especially Germany for terracotta products) that constitute the European Union, account for 40% of the world imports.

Strategic Group Analysis There are a number of firms who are competing in this terracotta exporting industry. Here, we have tried to categorize all of the major layers of this industry in terms of price and quality. Exporting companies like Aarong, Corr-The Jute Works and Karika are at the top most position in terms of both price and quality. Companies like Crafts International and Heed Handicraft stands at the middle position in terms of price and quality. According to our strategy, we will offer our products at a lower price and we will try to maintain high quality.

In terms of these criteria, companies like Shell Crafts as well as Bangla Crafts are our direct core competitors. Companies like Tribal Crafts Emporium and Dhaka Handicrafts are at the bottom line.

Long Term Strategy • •

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Vertical integration through acquiring intermediary firm(s). Through acquiring intermediate firms, our company would be able to have the profit of both direct sales as well as sales through intermediaries.

Horizontal diversification through merger or acquisition. Through acquiring/merging with firms specializing in manufacturing other handicraft products like basket, bag, embroidered quilt etc we would be able to extend our product range successfully.

Market expansion. It would make us capable of identifying new markets as well as raising our sales volume.

Short Term Strategy • • • •

Differentiation strategy. The scope for innovativeness in this sector is huge.

Therefore, we would be able to differentiate our products easily.

Cost leadership strategy. We will minimize our cost through strict factory supervision, wastage reduction, minimum inventory and low cost regarding raw material.

Price leadership strategy. We will be one of the price leaders through offering lower prices compared to our competitors.

Focusing on customers. Through keeping intact with customers, we would be able to understand their needs as well as the recent trends.

Existing Core Competencies • Labor-Availability of reliable and quality craftsmen and designers.

• Availability of good manufacturing facilities.

• Raw material-availability of abundant and quality raw material.

• Up-to-date design according to market preference.

• Quality of product: maintaining high quality.

• Customer responsiveness: providing products according to customers’ needs and orders.

• Reasonable and competitive price of products Future Competencies

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Wider product variety and design range.

Structured outbound logistic system.

Structured inbound logistic system.

Warehouse facilities - well networked (inland).

Warehouse facilities - well networked (overseas).

Building pool of loyal customer.

Building a specific R&D dept. regarding product innovation and design development.

Products Terracottas are popularly perceived mainly as ethnic products with little utilitarian value.

Primarily the terracotta products can be of two types: traditional terracottas and modern terracottas. Modern terracottas consists of both decorative and utilitarian products that contains traditional designs and outlook. The products we will be manufacturing are mainly decorative products. They are: • Flower vase •

Show Pieces

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Wall hangings

Facilities Our factory will be located at Ashulia. There are certain reasons for setting up the production facilities there. There are already many terracotta manufacturing plants in that location. This has ensured the necessary supply of power, gas and other utilities. It is a few kilometers from the international airport, so transportation is easy and logistic facilities already exist well. The factory is going to be made keeping the long-term program of the company in mind.

We will rent an office space near the plant. Our office will have all the necessary facilities.

This includes security, water, gas, power, telephone connections and other utilities. There will be a garage space as well.

Equipment and Machineries The equipments and machineries required to manufacture our products are: • Dices which are required to shape the clay and are made of iron.

• Special instruments for designing the shaped clay. The instruments will be custom made. The blacksmith will provide us the instruments based on our specifications.

• Furnace that is required for heating and concentrating the shaped clay. The furnaces will be built upon order.

• Various kinds of brushes to paint the products.

Productions and Manufacturing Process All kumars, whether of ancient or modern times, employ a simple technology in making the earthenware. The clay dug from the earth's surface is prepared by beating and kneading with the hands, feet or simple mallets of stone or wood.

The steps usually followed include:

Clay collection and preservation.

Preparing the clay for production.

Drying the ware in the sun.

Modeling the shape and size of the wares using dices.

Firing and coloring it.

In ancient pottery, the clay well tempered with water was invariably used without any additional material. Vessels were shaped by scooping out or cutting a solid lump or ball from this pure clay, by building up piece by piece, or by squeezing cakes of clay on to some natural object or a mould or form. The potter's wheel (chak) is a comparatively later invention. Kumars now use dices with which they fashion various kinds of pottery, which then dried in the sun and later are heated in the kiln (panja). The wheel in its simplest form is a heavy disk pivoted in a central point to be set going by the hand of the workman squatting on the ground. After the processing in rotation is complete, the piece is removed from the wheel and set aside to dry. The neck and shoulders of all globular vessels are made with the wheel, but the body is fashioned by hand, often by women. A round ball of hardened clay

(boila) is held inside, while with a wooden mallet (pitna) the material is beaten from the outside into requisite shape and thinness.

Kumars use two kinds of earth: bali (sandy soil) and kalamati (blackish sticky soil). The former is mixed with the latter in a proportion of 1:2 for production of strong pottery. The red laterite earth from Bhowal is used for making the common red earthenware vessels. The cheap red and black earthenware are both prepared with the same clay, the latter being blackened by covering up the kiln at a certain stage and by adding oil-cake to the fire. Many potters cannot glaze or fix the colors on the wares, but are content to paint the vessel after it has been baked. The colors are always made from different chemicals and metals such as copper, manganese, lead, arsenic etc. Red paint are prepared with red leads, yellow with arsenic, green by copper, blue from manganese, and black with the mixture of different chemicals.

Quality Assurance Quality assurance at every input will be conducted in the process of output. There will be a production supervisor to ensure product quality at each and every step. The market we are trying to penetrate has high competition. So, we must be able to meet the standards of the world market of. We will focus on Total Quality Management system and continuous evaluation of produced output. It will be done to adopt to give the maximum possible quality to our valuable customers.

Sales and Marketing Marketing encompasses all activities leading to and including mutually beneficial exchanges between buyers and sellers. We consider this as one of the most important key factors for the company to be successful. No matter how good our products are, it would not matter if we cannot market them properly. The crucial factor in marketing is that we will be focusing on the reliability on us by the customers.

In the terracotta industry it would be reasonable to assume that marketing issues and strategies are generally overlooked. While the terracotta market is expanding continuously, intense competition among the developing countries suggests that marketing superiority can create real advantages in the trade. As the market becomes more complex and competitive marketing activities such as planning, packaging and physical distribution requires greater importance. Enterprises excelling in these activities have an edge over their competitors. In intensely competitive market, efficient marketing activities are indispensable.

Distributions Distribution is the means of providing the product to the customers.

Importance of indirect and direct distribution The distribution channels for crafts and decorative products are till date to a large extent indirect. The importers and large retailers have a tendency to use agents as they do not like to deal directly with producers. Direct distribution ensures greater profit compared to indirect.

Advertising and Product Promotion Promotion is one of the most important parts of core marketing activities. Through promotional campaigns, actually the product becomes familiar with the target customers. It is a must in this sector to create the market awareness of our products. Advertising will be playing the role of creating the perception of the availability of good quality products.

The total plan as well as the allocated weight regarding spending in this sector is summarized bellow: Media category Internet and Tele-marketing

Frequency Weight Website updated semi- 30% annually and tele-marketing would be done accordingly.

Sample products, 15 pieces of sample 45% Brochures, Catalogues products in the first year and this figure would decrease eventually in the next years.

Personal selling

One of our board of 10% directors would be staying abroad and she would be covering this frequently.

Print media: journals and Once or twice in a year after 0% brochures published by getting enlisted as exporting EPB and Bangladesh Small co.

Cottage Industries Corporation.

Participating international and fairs

in Once or twice in a year. exhibitions

15%

Customer Service Customer service will be our supreme concern. Customers will be looking for regular service availability for this product. In fact, our way of doing business is kind of a customer service, as we will be meeting customers’ needs and preferences. We will also design our products according to their orders if they want a specific design. Besides, we will have a customer care option in our website. Through this, the company will always maintain relationship with the potential customers both before as well as after the transactions are made. We will send

seasonal greetings to the customers too. Moreover, we will provide customer service as fast as possible. This will help us creating good and strong customer responsive image for the company.

To effectively run our terracotta export business we have to have effective human resources so that we can delivery our ordered products on-time. Time management will be very important in our business. We can recruit the sales people who previously worked for similar company so that we could gather their strategies from them. This way, we can have experienced sales personnel and operate efficiently. Employees at our company should be enjoying their work and should be given the opportunity to contribute in the creative side of the business aspect. They will be given the flexibility to plan the innovation for the foreign customers and to find the ways to attract and retain the foreign customer base.

Key Issues Human resource base of our company will play a crucial role in the success of the organization. Employees need to feel the belongingness for the organization and thus should be pro-actively working for the success of the whole work execution. The organizational culture is demonstrated only by the attitude of its employees, therefore the company culture should be very flexible, timely, customer responsive and innovative. The employees will be given the platform to contribute in generating idea and improving the performance of the organization as a whole. The employees will also be able to recognize their contribution in the organization and thus will be motivated to generate better output through their performance.

Staff Requirements The top management of our company will comprise of three of the partners. We are all qualified and experienced individuals in our own fields. Production manager will supervise the artists and labors.

Officer 1

Peon 1

Manager 1

Director 6

Labor 6

Artists 2

Marketing manager will develop marketing plans and foster sales through intermediaries.

These people have to have adequate knowledge in how to have customer attention. There will be 1 Admin Officer who will be responsible for administration of our office building at Ashulia.

Structure The top management of the company till the ground level workers will maintain this hierarchy. The following chart consist the required hierarchy and the chain of command maintained by the human resources for running the operation efficiently and smoothly.

Board of Director 26% share

Board of Director 32% share

Board of Director 42% share

Finance & Accounting Dept.

Administrative officer

Craftsmen

Production & Operation Dept. and Marketing & Sales Dept.

Production supervisor Artists

Figure: Organizational structure

In order to implement our strategy, we have to analyze what are the possible foreseeable and unforeseeable risks we might have to encounter.

Foreseeable Barriers • Lack of support from the government in such areas as: credit availability, planning and management.

• Lack of designing and product development facilities. Emphasis is still placed on old techniques.

• Toll Extraction by local terrorists.

• No networking/linkages among organizations in the country to synergize efforts on national/international level.

• Unstable political condition resulting in hartals and strikes might affect our business.

• Lengthy bureaucratic procedure.

Unforeseeable Barriers

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Probability of imposing tax on the export earnings of terracotta and handicraft industry.

• Probability for terracotta industry to lose popularity.

• Risk of entry by large players like Monno Ceramic, Bengal Ceramics into this sector in an attempt to diversify their product.

• Natural calamities like cyclone, flood, earthquake etc. might affect our business as well.

Assumptions The assumptions for the items of the income statement are given below.

• Each unit of product needs paint worth Tk. 80.

• The factory rent is estimated to be Tk. 10000 per month.

• The office rent is estimated to be Tk. 15000 per month.

• Each craftsmen will be paid Tk. 6000 to manufacture an order of 200 units. The factory supervisor will be paid Tk. 15000 and the artists will be paid Tk. 15000 each.

• Depreciation expense will be 8% on a straight line basis on both machineries and equipment.

• The packaging cost of 200 units is Tk. 4000.

• The shipping cost is $5 per sft.

• Bank’s commission is 0.20 paisa per 100Tk. • Tk.300, 000 loans will be taken from BRAC Bank at 10% interest rate.

• The utilities expense (gas, water, telephone, electricity etc.) is estimated to be Tk. 12,500 per month for the office.

• The factory utility expense is estimated to be Tk. 3000 per month.

Financial Plan Financial planning is a must before forming any form of businesses. “RST Terracotta” will begin its business with three partners. They will also be the directors of the company.

The startup requirement of the company is given below: Start-up Requirements Start-up Expenses Legal Stationery etc.

Samples (15 pieces) Internet Web page Others Total Start-up Expense

30,000.00 5,000.00 50,000.00 25,000.00 30,000.00 140,000.00

Start-up Assets Cash Balance on Starting Date

100,000.00

Start-up Inventory

20,000.00 120,000.00

Rent in advance Factory (6months) 60,000.00 Head Office (6months) 90,000.00 Total short-term assets 270,000.00 Long-Term Assets Furnaces (Tk. 20000*5) 100,000.00 Instruments (Tk. 5000*10) 50,000.00 Iron Dices (Tk.25000*10) 250,000.00 Total Equipment 400,000.00 Office Equipment AC 30,000.00 Computer 50,000.00 printer 6,500.00 Scanner 5,000.00 Other Furniture 30,000.00 Total 121,500.00 Total long Term Asset 521,500.00 Total Assets 791,500.00 Total Requirements (Asset + Startup Exp.) 931,500.00 As shown above, the total startup expense of the company will be Tk. 140,000. The total asset of the company at startup amounts to Tk. 791,500. Therefore, our total requirement for starting up this business is Tk. 931,500.00.

Financing Investment Owner #1 Owner #2 Owner #3 Total Investment Short-term liabilities Accounts payable Long-term Liabilities Bank loan Total Liabilities Total Capital and Liabilities

200,000.00 150,000.00 150,000.00 500,000.00 30,000.00 300,000.00 230,000.00 730,000.00

The above table shows how are business will be financed. The three owners of the business will contribute Tk. 200000, Tk. 150000, and Tk. 150000 respectively. The profit will be shared among the investors in proportion to their investments. We will also take a bank loan of Tk. 300,000 from BRAC Bank.

Forecasted Income Statement Total Sales Revenue Cost of goods sold Direct Cost Flower Vase Show Pieces Wall hangings Manufacturing Overhead Factory Rent Salaries(Indirect Labor) Factory Utilities Expenses Insurance, Production Depreciation Expenses, Production COGS Gross Margin Selling and Administrative Expenses Office rent Salaries and wages Depreciation expense Utilities expenses Packaging cost (for 200 units Tk. 4000) Shipping cost ($5 per sft.)

Startup expense Bank's commission (0.20 paisa per Tk. 100) Total selling and administrative expense Income before interest and tax (EBIT) Interest expense Income before tax

2007 2234000

2008 2345700

2009 2477924

2010 2635543

149760 150675 131040

157248 158208.75 137592

165110.4 167701.28 145847.52

176668.13 177763.35 154598.37

120000 750000 36720 8000

123012 759027 37454.4 8000

125472.24 763581.16 38203.488 8000

127981.68 768162.65 38967.558 8000

24400 1375695 858305

24400 1404942 940757.9

24400 1438316 1039608

24400 1476542 1159002

180000 144000 8760 144900

190962 161798.4 8760 152145

196690.86 171506.3 8760 159752.25

202591.59 181796.68 8760 167739.86

80640 119737.28

84672 126921.52

88905.6 135806.02

93350.88 145312.44

4468

4490.34

4512.7917

4535.3557

696545.3

729749.3

765933.8

804086.8

161759.7 30000.00 136673.2

211008.6 19681.69 191326.9

273674.5 13736.38 259938.1

354914.8 7196.54 347718.2

Income tax Net Income

0 136673.2

0 191326.9

0 259938.1

0 347718.2

The above table shows our forecasted income statement from year 2007 to 2010.

Forecasted Cash Flow Statement Cash flows from operating activities Net income Adjustment to reconcile net income to net cash provided by operating activities Depreciation expenses Gain on sale of plant assets Decrease/increase in inventory Less: Drawings Tax Payment Net Cash provided by operating activities Cash Flows from investing Activities Purchases of equipment and machinery Net cash provided (used) by Investing activities

2007

2008

2009

2010

136673

191327

259938

347718

0 22175 0 -815 2665 0

0 22175 0 -965 -103495 0

0 22175 0 -1147 -155963 0

0 22175 0 -1359 -208631 0

160699

109042

125003

159903

-15000

-20000

-20000

-30000

-15000

-20000

-20000

-30000

-79135

-79135

-79135

-79135

-79135

-79135

9907 93232 103139

25868 103139 129007

50769 129007 179776

Cash flows from financing activities Repayment of borrowing -79135 Net Cash Provided By Financing Activities -79135 Net Increase (decrease) in Cash Cash at the Beginning of the Year Cash at the End

66564 26668 93232

Forecasted Balance Sheet Asset Current Asset Cash Advance Rent Inventory(Raw Materials) Total Current Asset Long Term Asset Machineries & Equipment Accumulated Depreciation: Machinery & Equipment Net Machineries & Equipment Office Equipments Accumulated Depreciation: Office Equipment Net Office Equipment Total Long Term Asset Total Asset Liabilities and Owner's Equity Current Liabilities Accounts Payable Total Current Liabilities Long Term Liability 5 years Bank loan @10% Total Liabilities Owners' Equity Capital Retained Earning Total Owners' Equity Total Liabilities and Owner's Equity

Day 1

2007

2008

2009

2010

100000 150000 18500 268500

93232 150000 19313 262545

103139 150000 20278 273417

129007 150000 21421 300429

179776 150000 22784 352560

305000

320000

340000

360000

390000

305000 109500

50000 270000 109500

77200 262800 109500

106000 254000 109500

137200 252800 109500

109500

16760 92,740

414500 683000

362,740 625285

24760 84,740 347,54 0 620957

32760 76,740 330,74 0 631169

40760 68,740 321,54 0 674100

15500

16181

16990

17948

19089

300000 315500

196817 212998

137364 154354

71965 89913

27 19116

475000 107500

365809

463692

469310

492012

46478

367500 683000

412,287 625285

2911 466,60 3 620957

71946 541,25 6 631169

162972 654,98 4 674100

Breakeven Analysis Fixed cost

(1st year)

Rent Salary Interest Premium Dep. Startup expense Total

300000 894000 30000 8000 33160 140,000 1372660

(P-VC) = 423.29 Per year breakeven quantity = 1372660/423.29 Breakeven no. unit = 3243 units/year The breakeven number of units we need to produce to at least cover the operating expenses is 3243.

Loan Repayment Schedule Rate of interest: 10% per annum calculated yearly Total loan: Tk.300000 300000 Loan repayment in five years in five equal payment 300,000 = PMT(PVIFA 10%, 5 yrs) 79134.7929 therefore PMT= 3 Principal Outstanding Year Installment Interest pmt pmt loan 1 79,134.79 30000 49,134.79 250,865.21 2 79,134.79 25086.52 54,048.27 196,816.93 3 79,134.79 19681.69 59,453.10 137,363.84 4 79,134.79 13736.38 65,398.41 71,965.43 5 79,134.79 7196.54 71,938.25 27.18

From the above findings, it is very much clear that terracotta industry is right now shifting from its ancient traditional form to a new form. These new trendy products are increasingly attracting the eyes of customers. Besides, from our findings it is very clear that this new trend will gain global recognition at a rapid pace. The market growth rate is not that much sluggish while the profit margin is also satisfactory. Moreover, our projected performance gives us positive signal regarding entering into this terracotta manufacturing and exporting industry.

Therefore, the decision regarding conducting this business is right.

Bibliography Mr. Akram Khan Marketing Manager, “RST industries” Ms. Sharmin Akter Operating Manager, “RST industries” Web: WWW.Google.com WWW.Wikipedia.org WWW.RST Industries.com.bd