View with images and charts Issue of Investment in Sports Shoes Industry in Bangladesh with special reference to Excelsior Shoes Ltd. Bangladesh Investment Scenario 1.1 Background Bangladesh came into existence in 1971, when Bengali East Pakistan seceded from its union with West Pakistan. Situated on the northern coast of the Bay of Bengal. Bangladesh is surrounded by India, with a small border with Myanmar in the southeast. The country is lowlying land of 144,000 sq. km. traversed by the many branches and tributaries of the Ganges and Brahmaputra rivers. Despite sustained domestic and international efforts to improve economic and demographic prospects, Bangladesh remains a poor, overpopulated, and ill-governed nation. Its current population is 140 million with per capita income of USD 380. All of the above is reflected in Bangladesh being ranked 139 [of 175] in the Human Development Index of 2003. Economic reform is stalled in many instances by political infighting and corruption at many levels of Government. Progress also has been slowed due to opposition from the bureaucracy, public sector unions, and other vested interest groups. The present government has the parliamentary strength to push through needed reforms, but the party's political will to do so have been lacking in key areas. However, there is one very encouraging note about Bangladesh, and that is, its steady growth rate of 5 percent for the past several years. Sports Shoes Industry has grown in Bangladesh territory since the colonial era although its modernization took place only in the late 1990s. During the Pakistan period, there was no Sports Shoes manufacturing firm producing on a mass scale in East Bengal. However, traditional cottage type Sports Shoes industry with limited production facilities existed in a skeleton form in the district towns at this time. Various types of Sports Shoes were imported, mainly from Calcutta. Many new footwear manufacturing units have been established recently. Notable among them are Excelsior Shoes Ltd., Meenhar Sport Shoes Ltd., Desma Shoes Industries Ltd., Continental Footwear Ltd., Papella Ltd., Youngone Sport Shoes Ltd., UFM (BD) Ltd. and Impact Shoes Ltd. The number of production units established in the country now represents 8. Three of the units are, however, small and medium in size, and 5 of them are relatively large and have mechanized and semi-mechanized production technology. The annual production capacities, combining all of the industries are about 46 million pairs of footwear. Whereas, the production capacity of ESL itself exceeds 6 million pairs, of this more than 75% are produced by mechanized and semi-mechanized units. The shoes produced annually find their way mainly into the export market. The industry provides direct employment to about 10,000 people. Nearly 50% of them are engaged in mechanized and semi-mechanized units and are classified, on the basis of employees, as large, medium, and small. Women workers are predominant (55%-60%) in the mechanized sector. About 80% of all footwear manufacturing units are located in Chittagong. Production of small units is processed manually on the average.
Sports Shoes units vary in product line, production capacity and exposure to foreign markets. The relatively large ones manufacture multiple items such as Cold cement Shoes, Tennis, Ladies Court Shoes, Slippers etc. Marketing of footwear manufacturing and Exports are organized through sales to foreign regional wholesalers and through them, to foreign retail traders and consumers. Bangladesh has gradually been converted from a sports shoes importing country to a sports shoes exporting one. The annual export of sports shoes items has increased from Tk 289.6 million in 1996 to Tk 522.71 million in 2003. The real development, however, has taken place since 1999, when exports exceeded the Tk 2 billion mark. Exports of leather sports shoes grew by 350% to 700% between 1997-98 and 1999-2000. The list of export markets of footwear from Bangladesh includes Japan, the volume leader with a market share of 71%, followed by UK (2.21%), Belgium (18.36%), Korea Rep. (1.26%), Italy (1.82%), Germany (0.69%) and USA (0.13%). The main authority that controls the Sports Shoes business in Bangladesh is the Ministry of Commerce and Industry, Bangladesh Sports Shoes Manufactures and Export Association (BSSMEA) and EPB (Export Promotion Bureau) play significant roles in promoting exportoriented sports shoes businesses. 2.1 Investment Scenario In recent years policymakers and multilateral organization have increasingly emphasized the importance of a sound Investment scenario for promoting economic growth in developing countries. Emphasizing Investment used to mean advocating greater quantities of Investment, under the assumption that lack of Finance was a barrier towards development. Indeed, recent research shows surprisingly little correlation between Investment levels and growth rates, at least in the short run. Thus, while this report is concerned with Investment, it does not focus on its product quality matters of standard. Instead, it focuses on the institutional and policy environment which determines whether Investments pay-offs are in greater competitiveness for firms and its sustained growth for economy that resembles the Investment Climate. A productive Investment Climate can be broadly thought of as an environment in which governance and institutional support, entrepreneurship and as well as smooth functioning markets in order to generate growth and development. 2.2.1 Bangladesh offers an unparalleled Investment Climate compared to the other South Asian economies. •
• • •
Bangladesh is a largely homogenous society with no major internal or external tensions and a population with great resilience in the face of adversity (e.g. natural calamities). Bangladesh is a liberal democracy and mostly a one race and one religion country. The population of this country irrespective of race or religion have been living in total harmony and understanding for thousands of years. Broad non-partisan political support for market oriented reform and the most investorfriendly regulatory regime in south Asia. Trainable, enthusiastic, hardworking and low-cost (even by regional standards) labor force suitable for any labor-intensive industry. Geographic location of the country is ideal for global trades with very convenient access to international sea and air route.
• •
•
•
Bangladesh is endowed with abundant supply of natural gas, water and its soil is very fertile. Although Bengali is the official language, but English is generally used as second language. Majority of even moderately educated population can read, write and speak in English. Most Bangladeshi products enjoy complete duty and quota free access to EU, Japan, USA, Australia and most of the developed countries. However, for apparel export to USA, we have certain quota regime which is generally favorable to Bangladesh. As a result of low per capita GDP of only US$ 386, present domestic consumption is not significant. However, it should always be considered that there exists a middle class with some purchasing power. As economic growth picks up, the purchasing power will also grow substantially. And in a country of more than 130 million people, even a small middle class may constitute a significant market. Furthermore, Bangladesh products enjoy duty free and quota free access to almost all the developed countries. This access to the global market is further helped by the fact that policy regime of Bangladesh for foreign direct Investment by far the best in South Asia.
2.2.2 Export, Import and Balance of Trade of Bangladesh By analyzing the current Export, Import and Balance of Trade statistics of Bangladesh, the real scenario of Economic growth will be visualized clearly, which has shown the over all impact of our Investment Climate, but if there is a sound Investment Climate existed in our country, then the picture will be different. The following graph represents the current Export, Import and Balance of Trade statistics of Bangladesh.
2.3 Invest Scenario Snapshot – Bangladesh (2002) According to the World Bank’s survey on our Investment Climate, it been found that some constraints creating too many barriers for the overall economic development of Bangladesh. The table below provides a snapshot of the Investment Climate of Bangladesh (based on 1001 organizations surveys). They also include details on how local firms perceive the Economic and Regulatory Climate.
2.4
Some
major or severe obstacles Here the World Bank Survey group also found some major or severe obstacles; those are directly or indirectly liable for the operation and growth of our In-total Investment. Here are few indicators which are showing the major obstacles in percentage. Firms' Perceptions (Compare all economies) Indicator
Bangladesh
Exporters
Economic and regulatory policy uncertainty Macroeconomic instability Corruption Crime, theft and disorder Anti-competitive or informal practices Legal system/conflict resolution Telecommunications Electricity Transportation Access to land Tax rates Tax administration Customs and trade regulations Labor regulations Skills and education of available workers Business licensing and operating permits Access to financing
45.38 39.51 57.91 .. 29.77 .. 24.65 73.17 24.62 35.40 35.85 50.66 43.17 10.82 19.83 22.53 41.59
37.39 30.52 55.62 .. 23.50 .. 22.25 69.08 21.14 31.32 26.63 44.19 36.34 12.13 18.91 25.39 35.39
NonExporters 48.53 44.12 58.13 .. 33.28 .. 25.69 75.32 26.26 37.87 40.46 53.61 46.37 10.21 19.73 20.96 44.61
Cost of financing
50.05
42.66
53.62
Infrastructure and Services (Compare all economies) Bangladesh
Exporters
NonExporters
79.63
71.06
88.92
248.96
230.10
261.10
Value lost due to electrical outages (% 3.26 of sales)
2.43
3.63
Number of water supply failures 31.61 (days)
31.53
31.72
Value lost due to water supply failures .. (% of sales)
..
..
Delay in obtaining a mainline 150.43 telephone connection (days)
106.33
181.33
Mainline telephone service outages Not Available (days)
Not Available
Not Available
Value lost due to mainline telephone Not Available service outages (% of sales)
Not Available
Not Available
Firms that share/own a generator (%)
71.47
79.39
67.47
Firms using the Web in interaction 31.12 with clients/suppliers (%)
35.67
28.66
Indicator Delay in obtaining connection (days)
an
electrical
Number of electrical outages (days)
Finance (Compare all economies) Indicator New Investment from internal funds or retained earnings (%) New Investment from banks (%) Percentage of firms with an overdraft facility Value of collateral needed for a loan (% of the loan amount) Time to clear a check (days) Time to clear a domestic currency
Bangladesh
Exporters
NonExporters
59.85
56.27
61.91
29.71
32.70
28.00
66.15
64.29
67.36
94.56
85.71
98.67
2.89 1.86
3.02 1.66
2.80 1.97
wire (days) Number of days of kept inventory
38.41
41.19
36.21
Government Policies and Services (Compare all economies) Indicator Consistency/predictability of officials' interpretations of regulations affecting the firm Average time to claim imports from customs (days) Optimal level of employment compared to current level (%) Time spent in meetings with government officials (days) Senior management time spent in dealing with requirements of government regulation (%) Sales amount reported by a typical firm for tax purposes (%) Unofficial payments for typical firm to get things done (% of sales)
Bangladesh
Exporters
NonExporters
78.64
85.63
75.73
11.68
11.16
12.22
..
..
..
19.30
18.86
18.86
4.22
4.56
4.03
..
..
..
2.40
2.66
2.29
Conflict Resolution and Crime (Compare all economies) Indicator
Bangladesh
Exporters
NonExporters
Confidence level in the judiciary system (%)
17.02
10.89
19.87
Time spent resolving a dispute (weeks) 13.78 Firm's costs of providing security & protection 0.58 payments (% of sales) Losses due to theft, robbery, vandalism, and arson 0.57 against the firm (% of sales)
8.05
14.19
0.80
0.44
0.66
0.53
Confidence level in the judiciary system (%)
10.89
19.87
8.05
14.19
0.80
0.44
17.02
Time spent resolving a dispute (weeks) 13.78 Firm's costs of providing security & protection 0.58 payments (% of sales) Capacity and Innovation (Compare all economies) Indicator Bangladesh Firms using technology licensed from Not Available foreign companies (%)
Exporters Not Available
Non-Exporters Not Available
ISO certification ownership (%) Firms undertaking innovation (%)
Not Available Not Available
Not Available Not Available
Not Available Not Available
Labor Relations (Compare all economies) Indicator Bangladesh
Exporters
Non-Exporters
Females in senior management (%)
Not Available
Not Available
Not Available
Firms offering formal training (%)
27.15
31.82
24.59
2.5 Investment Scenario and Sports Shoes Industry According to a recent study of the World Bank, we have had few obstacles of the Bangladeshi Sports Shoes Industries. A sector like Sports Shoes Industry might face the obstacles from the formation of the Company to reach the product up to the consumers, for example – Excelsior Shoes Ltd. As most of the Sports Shoes Industries owners and as well as workers are Bangladeshi so these Industries face same constrains and obstacles like other existing industries. Prior to any kind of attempt to further Investment, in this sector it is a pre-requisite, to enhance and also to oblige the pre-determined procedures of the Investment regulations, of any sort towards general Investment. Bangladesh has to face huge financial loss in future unless and until problems are solved by the Government and other regulatory bodies. The problem, that facing by Sports Shoes Industry and which are created by recent Investment Climate has been discussed in the chapters onwards. 2.6 Government Policy 2.6.1 Government export policy It is obvious that country’s export trade is guided by the export policy. In the recent past, policy support was provided on a biennial basis. Keeping pace with port Uruguay round globalize and liberalized trade environment, Government formulated a five year Export Policy (1997- 2002) designed to operate in the imperatives and opportunities of the market economy. This is also aimed at eliminating the uncertainty, resulting from frequent policy changes. Export policy have been re-structured and rationalized to make it more compatible to those at neighboring countries. The main objectives and incentives as provided in the export policy (2002-2006) are as follows: • To narrow down the gap between export earning and Import payment gradually. • To develop marketability of exportable through product diversification and quality Improvements. • To take steps, to establish backward linkage with the export oriented industries and services sector, introduction of newer products and export high value-added items. • To simplify export regulations and procedures, rationalize and strengthen export oriented incentives. • To ensure timely production of exportable items at competitive cost for sustaining existing market for further market expansion.
2.7 Export Statistics of Bangladesh ( Sports Shoes) The following tables show the comparative exports of EPZ and out of EPZ factories . Factories in EPZ
(Tk. In Crore)
Sl No.
Name & Type
01-02
02-03
03-04
04-05
05-06
1.
Excelsior Shoes Ltd. (ESL)
16.34
35.70
57.34
-
-
2.
Impact Shoes Ltd.
4.97
10.94
6.51
7.50
5.01
3.
Papella Ltd.
-
-
-
17.40
12.72
4.
Youngone Sport Shoes Ltd.
0.87
10.68
31.43
77.72
48.88
5.
UFM (BD) Ltd.
-
-
17.15
20.25
24.08
Factories outside EPZ
(Tk. In Crore)
Sl No.
Name & Type
01-02
02-03
03-04
04-05
05-06
6.
Continental Footwear Ltd.
-
04.22
-
CLOSED
-
7.
Meenhar Sports Shoes ltd.
06.77
20,22
10.31
CLOSED
-
8.
Desma Shoes Industries Ltd.
-
-
-
CLOSED
-
28.95
77.54
109.85
102.62
66.61
Total
The outcome of the aforesaid statistical-data is absolutely disappointing. In 1999-2000, three factories of EPZ were closing their production and Excelsior Shoes Ltd. is in the stage of complicacy towards Export, because from the year 2002-2003 it was bound to stop its export due to lack of Investment. At present Excelsior Shoes Ltd. is running its factory with receiving sourced orders from other factory. If the present situation carries on, in that case the other four factories fate would be the same as ESL. 2.8 Important Incentives • Recognition of Leather Industries exporting at least 80% of their products as 100% export oriented industries. • Provision for various incentives available to 100% export- oriented industries for 80% export-oriented other industries. • Facilities for import of raw material by export-oriented leather industries. • Enhancement of time limit of export credit from 180 days to 270 days in case of export of frozen foods, tea and leather. • Reduction of Bank interest rate on loan for export is fixed at 8% - 10%. However for Agricultural products, Frozen food, Readymade Garments (RMG) & Leather products interest rate has been fixed at 7%. • In order to encourage export and to widen the coverage of cash incentives the following products are included in incentive package. Product-wise Rate of Cash Incentives Name of the products
Rate
Local Fabrics ( for 2003-2004) Local Fabrics ( for 2004-2005) Local Fabrics ( for 2005-2006) Agricultural Products ( Agro Processing) Leather goods Vegetables Fruits Crushed Bone Handicrafts of Cane Coir, Straw & Hogla : If raw materials are used more than 80% If raw materials are used more than 50% Frozen foods Bicycle Jute Goods Jamdani Sharee, Lungi & Gamcha
15% 10% 05% 15% 15% 15% 20% 15% 15% 10% 10% 15% 05% 10%
There are no attempts and facilities given by the Govt. toward incentives or infrastructural support for Sport Shoes Industry, Which is clear by the above table and information laid. 2.9 How Government Policy hampered Sports Shoes Industry The number of Bangladeshi Exported goods are few in number, and among these goods, Garments is un-doubtfully big one. I do agree with all that, Bangladesh earns a lot of foreign currency with the help of Garments Sector each year. As a result this Industry deserves Govt. incentives and other promotional facilities. But for the overall betterment of the Country and the Economy, one sector can not serve the purpose. That’s why Govt. has to pay attention towards the other growing as well as potential sector in providing incentives and other facilities. Among potential industries Sports Shoes Industries are prospective. I think if Govt. comes forward to take necessary steps to accelerate these Industries then the Govt. might earn a lot of foreign currency as well. But in the irony of fate these industries, which has already invested Tk. 450 crore and employed 10000-15000 employees has been facing an acute problem for a long time, despite hope of having 20% incentive from the Govt. the industry has not yet had any kind of incentive. Industry of EPZ has to obey the rules of the Govt. but lack of Governmental support these industries are becoming sick industries. For a developing country like ours, sick Industries are treated as a kind of curse. It is apparent that if our Govt. does not extend it’s helping hand duly, in that case all of the Investment will go in vain and thousands of workers would be unemployed. As a result the ultimate burden will go to the Govt. Generally, it does not appear that the Governmental Business Regulatory bodies are wide spreading the necessity of focusing export oriented issues separately and specifically. To some extent, it has been repeated over and over again that the tendencies of promoting any export oriented goods are only limited by assuming the financial policy or the differences in export based revenue from the past year. Literally there are many aspects to overlook and review in-depth before attempting for a better place in the International market and prior concluding any policies.
Not only the financial policy crisis has been hampering the Sports Shoes Industry, but rather, the core fact lies in the absence of complete structured policy, and also attentive focus of business R & D are required industry wise to enhance the variation of the product. 3.0 Sports shoes industry Sports shoes industry is a labor intensive industry and naturally it keeps on shifting from higher wage region to lower wage region to keep the cost of production at minimal. Bangladesh, being a cheap labor resource country, some of the entrepreneurs in other fields felt it wise to establish Sports Shoes Factories in the country and accordingly, the country’s pioneer and the largest 100% export oriented sports shoes manufacturing factory, Excelsior Shoes Ltd. was established in CEPZ in 1988. Thereafter further 7 Sports Shoes Factories were established in the country, namely: - Meenhar Sport Shoes Ltd. - Impact Shoes Ltd. - Desma Shoes Industries Ltd. - Continental Footwear Ltd. - Papella Ltd. - Youngone Sport Shoes Ltd. - UFM (BD) Ltd. 3.1 Consumption of Sports Shoes Consumption of sports shoes and other casual shoes in the word market accounts for 5 to 6 times more than casual shoes. As such export of sports and the casual shoes comprises a major portion in the footwear sector. China alone exports to the extend of Tk. 30000 crore and Indonesia over Tk. 10000 crore. They have attained this status by virtue of Government help. In the comparison, Bangladesh exports a microscopic fraction of the International demand. 3.2 Potentiality of Sports Shoes Industries • Bangladesh, being the Least Development Developing Country (LDDC), has easy access to the footwear business of the world and particularity being referred because of Generalized System of Preferences (GSP) facility that helps the overseas buyers to get exemption from their import duty. • Import of shoes from Bangladesh into Canada enjoys concessionary duty whereas from other countries is subject to higher duty. • Japan & EEC Countries imposed quota on major shoe exporting countries (like China) except Laos, Cambodia and Bangladesh. The present total production capacity of Bangladesh can hardly meet a small fraction of Word’s footwear demand. • Cheap and abundantly trained labor-force and availability of technical and professional management. • Location of duty-free zone and free from trade unions. • Facility of direct marketing without intermediaries. • Economics of large-scale production having backward linkage process. 3.3 Performance Evaluation Export performance for the period July-June 2003-2004, for Sports Shoes. (In million US dollar)
Export Target Export (2004-2005) Target (20052006)
Export Performance for 20052006
% change of Export performance over Export Target
Export Performance for 20042005
% change of Export performance during July June 2003-2004 over July June 20022003.
52.19
68.30
(+) 39.39
46.60
(+) 46.57
49.00
3.4 Yearly Export of Sports Shoes Footwear (Sports) by Destination
Country Japan Belgium France U.S.A Korea Rep. Taiwan Germany Hong Kong Canada Philippines Italy U.K Russia Sweden Spain Finland China Turkey Thailand Czech Rep. Kuwait Saudi Arabia Ireland Denmark Local Sale
2005-2006
2004-2005
TK.
TK.
343628 91889 18310 16593 16179 8211 5055 5048 4316 3197 2692 2092 1808 1212 1177 621 419 190 71 -
Dollar % of Total 5935 65.74 1587 17.58 316 3.5 287 3.17 279 3.10 142 1.57 87 0.97 87 0.97 75 0.83 55 0.61 46 0.52 36 0.40 31 0.35 21 0.23 20 0.23 11 0.12 7 0.08 3 0.04 1 0.01 -
210896 54424 1354 386 2968 14555 2044 595 6285 378 1184 1198 179 -
Dollar % of Total 3674 71.14 948 18.36 24 0.46 7 0.13 52 1.00 254 4.91 36 0.69 10 0.20 109 2.12 7 0.13 21 0.40 21 0.40 3 0.06 -
(Value in thousand) 2003-2004 TK. 420959 57874 32460 271 7466 2764 2849 10777 13119 1867 622 33 1838 881 39034
Dollar % of Total 7810 71.01 1074 9.77 602 5.47 5 0.05 139 1.26 51 0.46 53 0.48 200 1.82 243 2.21 34 0.31 11 0.10 1 0.01 34 0.31 17 0.16 724 6.58
Total
522708
9026
100.00
296446
5166
100.00
592814
Source: Bangladesh Export Statistics (2003-2004), (2005-2006)
2005-2006
Japan Belgium France U.S.A Korea Rep. Taiwan Germany Hong Kong Canada Philippines Italy U.K Russia Sweden Spain Finland China Turkey Thailand Czech Rep. Kuwait Saudi Arabia Ireland Denmark Local Sale
2004-2005
Japan Belgium France U.S.A Korea Rep. Taiwan Germany Hong Kong Canada Philippines Italy U.K Russia Sweden Spain Finland China Turkey Thailand Czech Rep. Kuwait Saudi Arabia Ireland Denmark Local Sale
10998
100.00
2003-2004
Japan Belgium France U.S.A Korea Rep. Taiwan Germany Hong Kong Canada Philippines Italy U.K Russia Sweden Spain Finland China Turkey Thailand Czech Rep. Kuwait Saudi Arabia Ireland Denmark Local Sale
Year-wise Export of Sports Shoes from Bangladesh (In total) Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006( Raw data balance)
Taka in Thousand 289600 775473 838542 2062320 592814 296446 522708 701516
20 04 2006
2002-
Taka in Thousand
2000-
Export
2500000 2000000 1500000 1000000 500000 0
Year-wise Export
Year With reference to the chart given above, we have come to know that, from the period of 1996-1997 the Sports Shoes Industry’s aggressively pursued their production and played a vital role by exporting their goods to abroad and also our National Income was strengthened. 3.5 Facts Sheet about Sports Shoes This Facts Sheet was prepared for a single time in 1999 by Bangladesh Sports Shoes Manufacturers and Exporters Association (BSSMEA). 1. Starting year
: 1998-2000
2. Major manufacturing Countries
: (1) China, (2) Vietnam ,(3)Thailand ,(4)Indonesia.
3. Number of Industries
:8
4. Export Value of China Indonesia Bangladesh
: US$ 6.00 Billon : US$ 2.00 Billon : Tk. 200 CR and target Tk. 300 Crores.
5. Number of employment
: 11000
6. Total Investment
: Fixed Asset Tk. 300 Cores Working Capital Tk. 150 Cores.
7. Current Status : This sector is in very bad shape, caused by cyclone of 1991, Political disturbances from 1994 to 1996, Port problem; problem is further aggravated by massive devaluation of Currency by Thailand and Indonesia. 8. Sector Future: Garments are contributing 60 % of our total export. Sports Shoes can also be a booming sector like RMG Sector. 9. What is required now? We expect Government support in this form of expansion of interest in bank loan, easy term payment of loan out of export earnings and at least 10% cash subsidy to retain employment of 11000 workers and keep Tk. 450 Cores asset functioning, if we look to the earning size of china and Indonesia and can easily foresee vast market. Support is required to set up backward linkage industry to reduce lead time, such as out sole making plant. Chapter Three Description of Excelsior Shoes Ltd. 3.1 Reason for choosing Excelsior Shoes Limited (ESL) The key purpose of this report is to investigate into the investment opportunities and other pertinent issues related to Sports Shoes industry of Bangladesh. And, Excelsior Shoes Limited (ESL), due to its uniqueness, represents a number of features; and they seemed to be valuable information necessary for developing the research. As such, ESL has been chosen for conducting the research titled: “Issues of Investment in Sports Shoes Industry in Bangladesh with special reference to ESL”. 3.2 Inception of ESL Excelsior Shoes Limited (ESL) is one of the largest 100% export oriented footwear manufacturing companies in Bangladesh. The factory of ESL is located at Chittagong Export processing Zone, is equipped with modern and sophisticated machinery and equipment required for production of highly quality sports shoes, ladies court shoes, indoor slippers, men’s and women’s casual shoes and winter boots. It has an integrated system of production process which includes rubber out-sole making plant, Rubber/Eva assembly plant, Foam making plant, Laminating plant, Cutting, Stitching, Assembling, Designing, Box making, Printing and Research and Development Divisions. 3.3 Production ESL went into commercial operation on 30 April, 1990. At present ESL is operating on one shift basis with 2500 technically skilled manpower extensively and intensively trained at home and abroad and is managed by a group of professionals having experience and expertise in management, production and marketing.
Annual rated capacity of the project based on double shift of ESL Sl.No Plant Capacity (Pair) 1. Cold cement shoes, Joggers, Tennis, Ladies Court Shoes, 6,000,000 Slippers, etc. 2. Rubber out-sole making 8,000,000 3. Laminating for uppers 16,000,000 4. Foam Making 8,000,000 5. Rubber / EVA assembly 8,000,000 3.4 Land and Location The project is situated at Export Processing Zone (EPZ), Chittagong on a plot of land measuring 275400 sq feet with a build-in area of 15000 sq feet approx. The site is well connected by roads and highways and enjoy all infrastructural facilities of CPEZ including incentives both the fiscal and non fiscal. Location has additional advantage of uninterrupted power supply within the Export Processing Zone 3.5 Technical Service and Quality Control Experienced technicians and skilled workers both foreign and local are constantly monitoring quality of the products up to the international standard. In order to take care for quality control, equipment for wear-test, Bonding test for shoes thickness, texture & hardness test for material along with competent and experienced technical personnel are maintained since the inception of the project. 3.6 Marketing Policy ESL has developed its own strategy based on market information, market trend and direct contact with world famous shoe marketing groups with brand names setting up of overseas liaison offices for the marketing its products in the international market. Marketing department is structured to cater to the needs of the buyers based on business potentiality and geographical areas and Brands. 3.7 Financial Performance of ESL The financial scenario of ESL has been highlighted by representing the Balance Sheet followed by the Income Statement and Cash Flow Statement of 1999-2000 and 2000-2001. The following statements exhibit the Financial Performance of Excelsior Shoes Ltd. in general. • •
Authorized Capital of ESL: Tk. 100, 00, 00,000 (100, 00,000 Ordinary Shares of Tk. 100 each) Reserve & Surplus represents inappropriate accumulated profit/ Loss and Tax Holiday reserve.
Excelsior Shoes Limited Balance Sheet
Year 2004-2005 Taka
Year 2005-2006 Taka
300,000,000 (115,882,037) 184,117,963
300,000,000 (167,333,958) 132,666,042
681,151,987 681,151,987
675,963,723 675,963,723
865,269,950
808,629,765
612,002,881 93,710,889 518,291,992
618,253,457 100,911,637 517,341,820
48,341,710
47,674,594
220,568,280 71,485,339 25,417,320 4,424,780 321,895,719
178,412,479 57,621,504 23,467,320 4,915,562 264,416,865
12,773,953 10,485,518 23,259,471
11,726,736 9,076,778 20,803,514
298,636,248
243,613,351
865,269,950
808,629,765
1.Sources of Fund: Share Holders funds : Share Capital Reserve & Surplus Loan Fund Long-Term Loan (Secured) Capital Employed 2.Application of Fund Fixed Assets (a) Gross Block (b) Less: Accumulated Depreciation Intangible Assets Deferred Revenue Expenses Current Assets (a) Inventories (b) Trade Debtors (c) Loans, Advances & Deposit (d) Cash & Bank Balances Less: Current Liabilities (a) Trade Creditor (b) Sundry Creditor NET CURRENT ASSETS NET INVESTMENT
Excelsior Shoes Limited Income Statement
Year 2004-2005 Taka
Year 2005-2006 Taka
Sales Less: Cost of Goods Sold
260,569,388 277,743,772
105,243,836 121,644,784
Gross Profit Add: Misc. Income
(17,174,384) 6,102,893 (11,071,491)
(16,400,948) 4,707,496 (11,693,452)
Operating Profit/(Loss)
15,804,141 1,625,948 17,430,089 (28,501,580)
14,990,785 667,116 15,657,901 (27,351,353)
Less: Financial Expenses Net Profit/(Loss) before Depreciation Less: Depreciation Net Profit/(Loss) after Depreciation Add/(Less): Extra ordinary Item
32,055,133 (60,557,133) 16,791,778 (77,348,911) --------------
--------------(27,351,353) 7,200,748 (34,552,101) (16,899,820)
Net Profit/(Loss) Add: Accumulated Profit/(Loss) up to last year
(77,348,911) (64,919,531)
(51,451,921) (142,268,442)
Less: Operating Expenses Selling and Admin. Expenses Amortization of Deferred Rev. Expenses
Unappropriated Accumulated Profit/(Loss) (142,268,442) Transferred to Balance Sheet as Reserve & Surplus
(193,720,363)
Cash Flow Statement Year 2004-2005 Taka
Year 2005-2006 Taka
(77,348,911)
(51,451,921)
Cash Flow from Operating Activities Net Profit/ (Loss)
Adjustment for : Depreciation / Amortization Increase /(Decrease) in Current Liabilities Increase /(Decrease) in Current Assets
18,417,726 (386,394,573) 58,776,350
7,867,864 (2,455,957) 57,969,636
(386,549,408)
11,929,622
(5,043,053)
(6,250,576)
(5,043,053)
(6,250,576)
390,954,646
(5,188,264)
390,954,646
(5,188,264)
Cash Flow from Investing Activities Acquisition of Fixed Assets
Cash Flow from Financing Activities Long-Term loans
Net Increase /(Decrease) in cash and bank (637,815) balances
490,782
Cash and bank balances on opening
5,062,595
4,424,780
Cash and bank balances on Closing
4,424,780
4,915,562
Production Capacity Utilized by ESL Sl. No.
Year 2004-2005
Year 2005-2006
1.
Name of products
Sport Shoes
Sport Shoes
2.
Installed Capacity (Pairs)
60 lac. (2 Shifts)
60 lac. (2 Shifts)
3.
Actual Production (Pairs)
14,67,812
5,52,077
4.
Capacity utilized in terms of Production 32.54% time ratio
13.80%
Company Statistics 3 Years at a Glance (Taka in lac)
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Particulars
2003-2004
2004-2005
2005-2006
Authorized Capital Paid-up Capital Retained Earning Tax-Holiday Reserve Net Investment Fixed Asset (Cost) Sales Gross Profit/ (Loss) Net Profit/ (Loss) Production (Pair) No. of Employees No. of Shareholders
10,000.00 3,000.00 (649.20) 263.86 5,516.64 6,069.60 3,289.49 144.26 (691.74) 11.96 2,552 26,008
10,000.00 3,000.00 (1,433.68) 263.86 8,652.70 6,120.03 2,605.69 (171.74) (773.74) 14.68 2,493 25,510
10,000.00 3,000.00 (1,937.20) 263.86 8,086.30 6,141.95 1,052.44 164.01 (514.52) 5.52 1,433 25,244
The current Govt. policies are playing a supportive role in manufacturing of ESL. The government has introduced a number of incentive programs to encourage manufactures and marketers of sports shoes, ESL. Export policy have been re-structured and rationalized to make it more compatible to those at neighboring countries. Chapter Four Problem Analysis and Searching Solutions 4.1 Status of Sports Shoes Industry This sector had to overcome enormous difficulties in the face of tough international competition especially against China without any local infrastructural support. The entrepreneurs set up these projects considering the relative advantages of country’s cheap labor, when Taiwan and Korea were the major producers of Sports Shoes and China was almost absent in the International market. Our Bangladeshi companies trying with their most sincerity and to the best of their capabilities, to run their factories profitable. But the actual picture is totally different; the exports of this sector are completely knocked down. Four out of eight factories are completely closed and rest factories are limping and are on the verge of closure. The completely closed factories are; Meenhar Sport shoes Ltd., Desma Shoe Industries Ltd., Impact Shoes Industries Ltd, and Continental Footwear Ltd. For this reason, a large amount of Investment will go abortive. The main problems for this ineffective Investment Climate for Sports Shoes Industries are as follows. Loan Liability The loan liabilities of all the factories have mounted beyond their repayment capabilities. According to present banking laws the banks are bound to file case against the defaulters in the courts of bankruptcy. If banks take proper action, repayment of bank’s loan will be uncertain, the country will be deprived of foreign exchange, thousands of poor workers working in this sector and their sister concerns will lose employment and the Investment of
450 crore (apporx.) will turn into unproductive asset in this sector. Further the ongoing other business of the same entrepreneurs will suffer huge loss or bankruptcy. Government Subsidy Absence of Government Subsidy to the Sports Shoes sector. Manufactures and Exporters are failed to bring balance in their high production cost leading to closure of factories. Money Devaluation The recent economic crisis in Southeast Asia and massive currency devaluation by the countries in the region put Bangladeshi entrepreneurs in a difficult situation in the world export market and the competitors of Bangladeshi exporters can sell their products at lower prices because of higher currency devaluation in their countries. Development Financing Institutions (DFI) Since last 28 years the Development Financing Institutions (DFI) are ruined headed by the bureaucrats. The bureaucrats MDs could not take appropriate measures of the projects financed by the DFI’s,as a result ,most of the shoe industries become sick. Most of the development financing institutions MDs had no banking experience and they could not disburse loans and working capital in time. Professional bankers have the knowledge of funding working capital of the projects and they can decide how much to invest and when to call back the money. Lastly the golden rule of bankers was not in practice by the DFI’s due to bureaucrats MDs. But the situation has started changing after a press briefing of the BSSMEA President Mr. Ruhul Ameen, FCMA. Conflict between EPZ and out of EPZ factories Out of eight, five Sports Shoes industries are situated in EPZ and rest of them are out of EPZ. One can believe that the factories which are in EPZ enjoy various government facility, the answer is no, the facilities availed by enterprises in EPZ are almost same as other with bond facilities outside EPZ. There are no significant extra facilities to EPZ enterprises rather the EPZ enterprises are subject to the following additional costs/ drawbacks: • • • • • •
Minimum wages for worker is fixed by EPZ in US$ and increases with the devaluation which is not applicable outside EPZ. Wages are higher than outside EPZ. The women workers are not allowed to do overtime beyond 8 PM in EPZ, whereas 90% of the workforce are women, this is not applicable outside EPZ. Two festival bonus and 10% yearly increment is mandatory in EPZ whereas the factories outside zone are not liable to such compulsory payments. EPZ enterprises have to bear 10% service charges on all utilities bills which are not applicable for outside zone. Investors in EPZ are not the owner of land as such they have to pay lease rent to EPZ in a accelerating rate of changes as the rent is fixed in UD$ and our currency is devaluating every year. Investors do not get the benefit of the value appreciation of land as received by investors outside zone rather they bear the depreciation in Investment in building & other constructions.
4.2 Solution to overcome this situation With a view to overcome this critical condition and to develop a good Investment Climate for Sports Shoes Industry, Government as well as BSSMEA’s interference is highly needed. The roles which might be played by the Government and BSSMEA are discussed below. 4.2.1 Government Devaluation of Currency To make Bangladesh market more competitive in the world market our currency is to be devaluated at par with Indonesia, because the massive devaluation of the currency by South Asian countries had put the Bangladeshi exporters in an uneven status competition in the world market. Cash Incentives According to the circumstances and their demand, 15% - 20% cash incentives are badly needed to save this Industry. Resource mobilization We have a lot of resources but our Government does not know the perfect utilization of those resources. Resource Mobilization of a country depends on its mission and long – term vision. A Goal oriented Resource Mobilization is sought everywhere. Resource Mobilization means Income and Expenditure Management through a country’s fiscal Policy and budgetary control. Equivalent facilities for EPZ and out side EPZ Factories There are some differences finding in the regulatory rules of EPZ and out side EPZ Factories. I think both should enjoy equivalent regulatory rules, than it will be better for fixation of price and quality. Research & Development Not only the financial policy crisis has been hampering the Sports Shoes Industry, but also the industry based, Product based Research & Development is liable for this critical situation. Firms in the developed countries spend large amount on R & D to maintain their competitiveness, but there are no such R & D departments flourished yet, either way, Corporate or Governments. The strong initiative to remove Constraints and Obstacles It is not so easy to remove all Constraints and Obstacles in a day, which are directly or indirectly, hampered our Investment Climate. But Government can easily decrease its impact on our Industry, if Govt. is interested to develop a good Investment Climate. Also taking strong initiatives by setting up specialized task-forces to handle and remove all the Constraints and Obstacles Labor Cost The Labor force involved with the sector, the labor that works in the Sports Shoes Industries are poor and they are not satisfied by their Income, So a variance was created with budgeted capacity and actual work, and it hampered the Industrial growth. To pin-point this problem, disclosing here one workers statement refers as follows.
“I made elegant Reebok, Puma and Nike shoes for 11 years. But look at what I wear on my feet - a cheap pair of plastic sandals. I am like those who build but are Homeless and Those who till the soil but are hungry.” Laura, sacked Filipino factory worker Others • • •
•
Exporters need to be allowed to make duty free emergency air shipment of Shortages replacement wasted materiel. Commercial banks to be ordered to open L/C’s for raw material for exporters without Margin, without delay and harassment. Government’s double standard policy, i.e. Import of some items are open for Garments and Hosiery sectors but restricted for other export sectors, such discrepancies must not be there. Government should make it same for all export sectors under bonded warehouse system. Government must on emergency basis publish the much publicized rehabilitation policy of sick industries, which is in fact awaiting only the final approval of the highest Government authority. Concerned industries fear the total collapse of such goslow activities of the finance ministry bureaucrats. This has already started spreading despairs among the concerned. It is quite easier to rehabilitate a sick industry then to start anew one. How would somebody say that new one would not turn into a sick industry in future? The industry will gain momentum if the Bank allows : 1. Interest free new working capital till the industry gains profit. 2. Blockage of present Loan. 3. Allow the factories to pay on the basis of “Pay as you earn” policy.
4.2.2 Bangladesh Sports Shoes Manufactures and Export Association (BSSMEA) BSSMEA is the association of Sports Shoes Manufacturers and Exporters, which has to play a vital role in solving the present situation, by resolving the gaps in the aspect of co-operative liaison between Governmental bodies; Export & Promotion oriented institutions and Investment regulatory. Also it has to emphasis to create a bridge among the manufactures, Exporters and the Buyer’s representatives both International and Local. BSSMEA should express the demand of “Sports Shoes Industrial bodies” to the concerned authorities and as well as design the ground structure for good export based business. It is true that, a strong BSSMEA planned objectives, activities and operations might turn up towards forthcoming development in this sector. So therefore, the countries over all Investment Climates might be changed. Chapter Five CONCLUDING REMARKS Unlike in neighboring and competitive countries of China, Indonesia, Vietnam and Thailand, where the Sports Shoes Industry saw varying degrees of success over the last decade, the Sports Shoes Industry in Bangladesh seems to have been stagnant in a seriously inefficient manner.
Sports shoes is a potential product for earning more foreign currency, but these industries are now counting their date of closing. Solution needed very early, so once again I would like to draw the attention of Government as well as concerned authorities that, they should pay deep attention in a highly potential industry like ESL for the betterment of the country. Otherwise the total Investment in this sector will be smashed and thus the Investment Climate, investing in Sport Shoes Industry will be blocked. Now a days Bangladesh has come to a much better Investment environment, Foreign Direct Investment Boards (FDI), as well as Board of Investment (BOI), and other business bodies of Bangladesh are much aware in the field of Investment and promotion of Bangladesh Business status. In the upcoming days, the over-all engagement. Export & Import duties of the Business bodies and authorities are becoming much more co-operative, together with the Government towards a better developed business Investment Environment. Bibliography o Business Correspondence and Report Writing RC Sharma & Krishna Mohan o Business Communication L E Boone & DL Kurtz o Bangladesh Export Statistics (2001-2002) , (2002-2003) o Annual Report ,Export Promotion Bureau, Bangladesh (2002-2003) o Annual Reports of ESL o BSSMEA Report o Souvenir, Dhaka International Trade fair,2005 o www.rru.worldbank.org o www.epb.gov.bd o www.banglapedia.com.bd o www.sportshoes.com o www.thesportslife.com o www.boi.gov.bd