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Transcript of Project Paper
Study Report on
“Analysis of capabilities of footwear industry
to fulfill the future demand.”
Prepared By:
Md. Nuruzzaman
ID No: 80104018
4th Batch, Department of International Business
EMBA Program
University of Dhaka
Supervised By:
Abu Hena Reza Hasan
Professor
Department of International Business
Date of Submission: April, 2013
April 15, 2013
Director
EMBA Program
Department of International Business
University of Dhaka
Dhaka – 1000
Subject: Submission of study report on “Analysis of capabilities of footwear industry to
fulfill the future demand.”
Dear Sir,
It is a great pleasure and privilege to present the study report titled, “Analysis of capabilities
of footwear industry to fulfill the future demand.” which was assigned to me as a partial
requirement for the completion of MBA Program.
Throughout the study I have tried with the best of my capacity to accommodate as much
information and relevant issues as possible. I enjoyed preparing this report because it
provides an opportunity for me to increase my understanding on footwear industry in
Bangladesh. I shall remain deeply grateful if you kindly take some pan to go through the
report and evaluate my performance.
Thanks to you for giving me such an opportunity. I will be available for any clarification at
your convenience.
Sincerely yours,
Md. Nuruzzaman
ID No: 80104018
4th
Batch
ACKNOWLEDGEMENT
For the very first of all I would like to express my gratefulness and harmony to the almighty
ALLAH the supreme authority of the Universe, without whom we would be nothing. Next I
would like to express my kindness to my beloved parent whose continuous inspiration
engages me to make a right move in my life.
Then I want to thank the managers and workers of different companies who gave their
valuable time to interview them. Their provided data is the base of my report and it helped
me a lot to analyze the capabilities of footwear industry.
It will be unfair if I omit some names that helped me a lot during the accomplishment of the
report by sharing their expertise, knowledge and giving suggestions. These persons are
owners, customers, technologists and suppliers who are related with footwear industry.
Without their help it would not be possible to give a proper shape of this report.
Lastly I express my heartiest gratitude to the honorable supervisor Mr. Abu Hena Reza
Hasan, Professor, Department of International Business, whose assistance and guidance was
outstanding for the successful completion of the report.
Abbreviations
JV – Joint Venture
FS – Foreign Subsidiaries
PRICE – Poverty Reduction by Increasing the Competitiveness of Enterprises
BFFLEA – Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association
EPB – Export Promotion Bureau
GDP – Gross Domestic Product
BLSC – Bangladesh Leather Service Centre
ILO – International Labor Organization
ILET – Institute of Leather Engineering and Technology
LFMEAB – Leather goods & Footwear Manufacturers & Exporters Association of Bangladesh
KUET – Khulna University of Engineering and Technology
EPZ – Export Processing Zone
LSBPC – Leather Sector Business Promotion Council
PPP – Public Private Partnership.
TRTA – Trade Related Technical Assistance
SPS – Service Providers
TBT – Technical Barriers to Trade
GSP – Generalized System of Preferences
CONTENTS
Page
Executive Summary
vi
CHAPTER 1: INTRODUCTION 1
- Introduction 1
- Objective of the Study 1
- Rationale of the study 2
- Methodology of the Study 2
- Limitations of the Study 2
CHAPTER 2: OVERVIEW AND STRUCTURE
4
- Recent Trend in Global Footwear Industry 4
- An Overview of Leather And Footwear Manufacturing in
Bangladesh 11
- Footwear Industry Structure in Bangladesh
12
CHAPTER 3: CAPABILITY ANALYSIS 14
- - Present Scenario Of Footwear Industry In Bangladesh 14
- Structure and Capacity 19
- Product and Production process 21
- Market and Customers 24
- Orders and Delivery 26
- Background of workers 27
- Skill level of workers 29
- Growth rate of sample firms
31
CHAPTER 4: FINDINGS AND CONCLUSIONS 34
- Findings 34
- Recommendations 35
- Conclusions
37
REFERENCES 38
APPENDIX
- Questionnaire for Management 39
- Questionnaire for Worker 41
EXECUTIVE SUMMARY:
Bangladesh is an agricultural country with some three fifths of the
population engaged in farming. Jute and tea is two important agricultural products to earn
foreign currency. Along with those few sectors are immerged as growing sector i.e. Shrimps,
Footwear, Pharmaceuticals etc. For higher GDP growth, investments in industrial sector will
need to be accelerated. In Bangladesh there are some international standard footwear
industries; their contribution in earning foreign currency is increasing day by day. The
demand of Bangladeshi footwear is growing in international market which can be a very
potential area in terms of employment generation, quality production and earning foreign
currency.
This report is prepared on footwear industry in Bangladesh. From recent
data it is observed that trend of footwear market is upward. China is the leading footwear
manufacturer and it also one of the highest footwear consumer. As the wages of workers in
China growing rapidly so it is expected that footwear manufacturing will be shifted to other
competitive countries. At this point Bangladesh has huge possibilities to be one of the leading
footwear manufacturers. This report is based on mainly primary data along with some
secondary data. Data is analyzed here by using percentage distribution which helps to present
a comparative scenario of footwear industry in terms of their capability. From study it is
observed that growth rate of footwear industry in Bangladesh is remarkable. Foreign
subsidiaries, Joint ventures and local companies are budding their business every year.
Growth rate of local companies is higher than foreign companies. Local companies have
bright future if proper steps are taken to enhance their growth in future. It will help them to
meet future demand of world market.
CHAPTER 1: INTRODUCTION
Introduction:
The industries which are labor intensive may have glorious prospect in
Bangladesh, since we have huge low cost labor force. Footwear industry is one of such types
of industry, where a huge labor force is necessary to run the footwear making process. Export
volume is increasing every year in footwear sector. Increasing export earnings indicate
enormous possibilities in Bangladesh.
The footwear industry of Bangladesh has put an impressive performance in
last decades in tapping its comparative advantages in brands manufacturing & exporting
quality handmade shoes at most competitive price. The reason behind the higher growth rate
in footwear industry is possible, due to the preferential treatment of GSP facilities in the EU
and Japan.
Bangladesh footwear industry is having almost 40 years experience by now.
Though, at the beginning the market was producing only basic product like sandal, Moccasin,
Espadrille, Pump shoe, Sports shoe etc. As time goes by, this market started making value
added items like Goodyear welted shoe, Bespoke shoe, Horse riding boot in many varieties to
maintain with current market demand in global world. It is matter of hope that some
companies started to produce some accessories of footwear such as last, out soles, insoles,
EVA foam etc which are mandatory for shoe making.
Objective of the study:
Main objective of this report is to explore capabilities of footwear industry in
Bangladesh and there are also some specific objectives which are-
a. To study about product range of footwear industry.
b. To indentify Productivity of different footwear companies.
c. To analyze the skill level of workers of this industry.
d. To find the overall performance of footwear industry in terms of availability of
accessories, delivery time and cost efficiency.
Rationale of the study:
Rationale of this study is to find strengths of footwear industry and ways to
increase our capabilities to enhance footwear export from Bangladesh.
Methodology of the study:
In order to organize primary data collection firstly I categorized the
companies in three classes, they are local small company, local big company and Joint
ventures or foreign subsidiaries. I selected 6 companies in each group, so total 18 companies
were selected to interview. Then I prepared two separate questionnaires, one for official and
one for worker from each company. Then I took direct interview of officials and workers by
meeting them and also sometime over phone. After accumulating data i prepared data to
analyze. To congregate previous footwear related data I had to depend mostly on secondary
data. Sources of this type of data are different websites, publications and reports, relevant
articles in newspaper. From gathered primary data I tried to find out product range,
productivity, skill level, delivery time which helped me to sort out capability of this industry.
I used percentage distribution to display the comparative scenario of footwear companies
depending on the size and type of ownership. From the secondary sources I collected data to
check future market trend of global shoe business. Also from secondary data I got idea about
the trend of footwear sector in Bangladesh. I also met some technical experts, suppliers of
accessories, customers to get additional information about this sector which helped me a lot.
Limitations:
While data collection I faced some difficulties which creates lacking in data
collection process. Firstly officials were unable to share some data as those were trading
confidential matter such as prices, customers‟ names. Secondly workers were not comfortable
to face interview as their managers restricted them to share different data. So I interviewed
workers in front of their managers and some time I interviewed them through their manager‟s
mobile phone. Mangers informed that there is a huge shortage of skilled workforce and every
factory is trying to hire skilled workers from others so they always try to keep separate their
workers from sector related other people. In case of secondary data I found that most of the
data were backdated. So I had do depend on backdated data which did not assist me to get
recent scenario of global and local footwear industry. This study also mostly based on leather
footwear industry so it may not be correspondent to the original scenario of total footwear
industry in Bangladesh.
CHAPTER 2: OVERVIEW AND STRUCTURE
Recent Trend in Global Footwear Industry:
According to popular website of footwear industry published that total
production of footwear was 21 billion pairs while it was 20 billion in 2010. It clearly shows
that production is increasing. Asia continues to be the power house of the footwear industry,
with an overall share close to 90%.
Chart: Distribution of Footwear Production by Continent (quantity) 2011
Seven Asian countries are counted among the world‟s top 10 producers, a
list in which China‟s undisputable. Brazil is the only non-Asian country among the top 5
producers. Italy is the top producer from Europe. Bangladesh is listed in number seven in
case of footwear production.
Table: Top 10 Footwear Producers (quantity) 2011
In footwear consumption at the continental level, apparent consumption seems
to be more dynamic, although no major changes can be expected on a year-to-year
comparison. In 2011, Europe and North America yielded some market share to Asia
and Africa, with South America and Oceania holding their positions.
Chart: Distribution of Footwear consumption by continent (quantity) 2011
China is the world‟s largest market for footwear, in terms of quantity, closely
followed by the USA and India. Compared to the previous year, the USA shared
showed some decrease whereas those of the other two countries increased. In the
second half of the top 10 table there have been some changes in the ranking of
European countries, with Germany and France coming above the United Kingdom
and Spain.
Table: Top 10 Footwear Consumers (quantity) 2011
In footwear export Asia dwarfs all the others containers as a footwear
exporter, with 84% of the world total. Europe is a distant second with 11%. Although
the general picture basically the same as the previous year, North America has slightly
increased its share overtaking Africa in this table.
Chart: Distribution of Footwear Exports by Continent of Origin (quantity) 2011
China alone sells almost three out of every four pairs of shoes exported world-
wide and is followed on the list of the main exporters by its special administrative
area of Hong Kong. However, Hong Kong‟s exports maintained the downward trend
they have shown throughout the last decade and are now less than half of what they
were then years ago. Vietnam, Indonesia and Thailand complete the group of 5 Asian
countries in the top 10 table. The other five top exporters are European, led by Italy,
which has a narrow margin over Belgium and Germany, followed by the Netherlands
and Spain.
Table: Top 10 Footwear Exporters (quantity) 2011
In footwear import Europe leads the ranking of world importers. However
after reaching a maximum of 44% in 2008, its share of the total has been declining for
the last three years. At the other ends of the table. Africa‟s import has been growing
steadily over the last decade.
Chart: Distribution of Footwear Imports by continent of Destination (quantity) 2011
The top 10 importing countries have not changed from last year. The USA
keeps their undisputed leadership, still importing almost one out of every four pairs
traded internationally, even if its share declined. Reflecting Europe‟s importance in
terms of imports, seven European countries make it into this table. The UK no longer
leads this group, having been over taken by Germany and France. Japan and Hong
Kong complete the list of the most significant importers.
Table: Top 10 Importers (quantity) 2011
World footwear trade keeps its strong upward trend. Again in 2011 a new
record was set with total world exports for the first time above 100 billion US dollars,
up 15% from the previous year. The number of pairs exported reaching almost 14
billion. Cumulatively, over the last decade, the quanity exported nearly doubled and
an impressive rise in value of 143% was recorded.
Chart: World Footwear Exports 2001-2011
Prices have also been going up. In 2011 the average export price worldwide
reached 7.39 USD, higher than the maximum of 7.31 USD reached in 2008, over the
decade this represents an increase of 27%. However, as seen in below chart, after a
period of near stability, up to 2005, average prices have shown considerable volatility
rising sharply from 2005 to 2008, only to fall over the next two years and rise again in
2011.
Chart: World Footwear Exports Price 2001-2011
From above data we can find that global footwear market has an uptrend for
future. It is expected that global footwear business will grow in coming years. The global
footwear market is expected to reach $195 billion by 2015, according to research from Global
Industry Analysts, with volume sales exceeding 13.5 billion pairs by 2013. Market growth is
predicted to rebound as consumer confidence builds in the post-recession economy.
An Overview of Leather and Footwear Manufacturing in Bangladesh:
An agro based bi-product industry; the Leather Sector is one of the oldest
manufacturing sectors in Bangladesh with a long heritage of over six decades which is
integrated with locally available indigenous raw materials (hides and skins).
Before the partition of Bengal in 1947, almost all the raw hides and skins
available in the former east Bengal exported to West Bengal and West Pakistan, Iran and
Turkey. At that time it was mostly the non-Bengali tradesmen and traders controlling the
tanning industry. A few small tanning units, mostly cottage type belonged to Bengali
entrepreneurs, who used to process the leather for the domestic market. Non Bangladeshi
tanners processed wet blue and sent them to West Pakistan for further processing and value
addition. Till 1960, tanners of East Pakistan were only involved in processing raw hides. The
first formal tannery of this country was established in 1940 by RP Saha at Naraynaganj.
In 1971, after the liberation, the non-Bengali tanners left the country
leaving behind their owned tanneries. After our victory in 1971, the government formed a
Tannery Corporation to convert the units gradually to finished leather manufacturing units.
But they failed. Then again the government tried to run the show by two bodies – BCIC and
Bangladesh Freedom Fighters Welfare Trust, but ended with the same results. The
government imposed export duty on wet blue leather in 1977 to encourage the production of
crust and finished leather. The export from this sector was almost 100% in the form of wet
blue until 1980-81. During this part, reformation of major policies took place in this sector
and with the ban on wet blue export in July, 1990, the leather sector of Bangladesh had
entered into second phase of its development. During the mid „90s modern leather
manufacturing units in set up and in the early 2000 the commercial production of value added
product has started.
Footwear industry is one key industry by which we can produce value
added product shoe from local leather. This footwear sector grew tremendously in last couple
of years. The EU is the biggest destination for footwear exports with a 60% share, following
by Japan with 30%, and the rest of the world accounting for 10%. The businesses view their
products as price and quality competitive. Footwear manufacturers in the country rate
themselves as being able to respond quickly to buyer inquiries, possessing the ability to offer
competitive prices, quality products, and prompt fulfillment of orders.
However quite a few supply side weaknesses were also highlighted. Among
the most important are the inability of the tanneries to supply required quantities and quality
of leather and the weak track record of environmental standards, the lack of availability of
high quality components and accessories, the lack of footwear design and development
capacities, the nascent testing and analyses infrastructure, insufficient shortage of craftsmen
and supervisory-level personnel.
Footwear sector enters into the era of maximum value addition. As an
intermediary product, leather has been among the top three products of Bangladesh‟s export‟s
basket for the last several decades. But the scenario is changing now. Export of finished
leather goods or fully value-added items has surpassed the earnings from intermediary
product leather.
Industry people said fast expansion of export-oriented footwear and fashion
leather goods industries has pushed Bangladesh‟s leather industry into a new era. They said
more expansion would be there as global importers are taking new interest in sourcing from
Bangladesh. Many in the industry say that a billion dollar worth footwear and leather goods
export sector for Bangladesh would emerge before long and would flourish like the apparel
industry in coming days.
Footwear Industry Structure in Bangladesh:
Now there are more than 70 export oriented shoe factories in Bangladesh
concentrated mostly at Gazipur, Savar, Comilla and Chittagong. There are several
multinational companies who established their subsidiaries in Bangladesh. There are some
clusters of handmade shoe manufactures at bongshal, hazaribagh, bhairab who are selling
their products in domestic market. Government established export processing zone to
facilitate foreign investors to set up their factories is specified zones. In recent days foreign
investors are coming to set up their footwear factories in these zones.
CHAPTER 3: CAPABILITY ANALYSIS
Present Scenario of Footwear Industry in Bangladesh
Bangladesh has a host of potential products that can earn substantially large
amounts of foreign exchange, if only the necessary patronage from the overseas buyers is
given for the sake of expanding the country‟s export base and thereby reach a sustainable
status for the country‟s export trade.
Recently, a new opportunity has opened up to further diversify the range of
Bangladesh‟s export base by including footwear in the list of exports particularly to the
European Union (EU) and USA market.
However, the country has already been exporting finished leather and
different kinds of leather products to the overseas markets. These products also enjoyed
considerable demand because of their high quality. The main reason for this was the natural
advantage of leather that Bangladesh produces. Despite the high quality of local animal hides
both in raw and finished form, Bangladesh was still trailing behind Vietnam and China in the
export of footwear and other leather products in the European and other Markets.
Bangladesh is set to emerge as the next manufacturing hub for the global
footwear industry. The cheap labor is prompting top manufacturers to relocate their factories
in the country. The good news is that a number of foreign investors as well as buyers have
already shown interest in Bangladesh's leather and footwear sector. The buyers from EU, as
well as other very highly developed industrial nations like Japan have reportedly been
showing importance in Bangladeshi leather products. All these developments look promising
for the local footwear industry.
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012 -2013(July -Jan)
Leather 211.41 220.93 257.27 266.08 284.41 177.32 226.1 297.83 330.16 198.96
Footwear 50.86 59.51 60.78 98.39 125.02 142.26 146.47 199.39 233.98 189.75
Leather Products 3.64 7.35 7.18 11.03 9.03 17.61 29.07 55.42 99.36 83.96
050
100150200250300350
Axi
s Ti
tle
Chart Title
Source: Direct interview of EPB official
According to a released statistics from the Export Promotion Bureau of
Bangladesh, footwear exports from the country grew from US$199.39 million in the period
of 2010 -2011 to US$233.98 million in the same period of 2011-2012, recording a growth of
17.34 percent. Growth in exports is due to the low production cost in Bangladesh compared
to its neighboring countries: China, India and Vietnam, who also have a very well entrenched
footwear export industry.
Orders which earlier used to be given to China or India are now being
handed out to footwear manufacturers in Bangladesh because of their ability to produce low-
priced but high quality shoes, which have now found its way in to key markets in EU, Japan
and USA. More over from several recent publications it is clear that Wages are still climbing
rapidly in China and many companies are having trouble filling jobs. Reflecting the tight
labor market, wage income for urban households rose 13% year-on-year in the first half, and
average monthly income for migrant workers rose 14.9%, according to data from China's
National Bureau of Statistics. Rising wages also bring risks, though in china, wages are
starting from a very low base, but they are climbing fast. At current rates, china‟s private
sector manufacturing wages will double from their 2011 levels by 2015, and triple by 2017,
eroding competitiveness and denting the exports that have played a key part in china‟s early
growth. In the above data it is observed that China is the manufacturer of 60% of total shoe
production in the world and it exports 73% of total export of shoes in the world. Shoe
manufacturing process involves a lot of manpower so when the wages will increase in china
then it will lose its competitiveness. As wage level of Bangladesh still lower than other
countries and we are little experience in shoe production, so we have an opportunity to catch
the shoe business which will be shifted from china to other countries.
Technologies/ Machineries Used in this Sector:
A variety of machines are used in the sector. Most of the capital
machineries are imported particularly from Italy, Germany, Korea, Taiwan, China etc.
The footwear industry is heavily dependent on machineries. There is a
wide inter-firm variation of technology levels in Bangladesh footwear industry, ranging from
primitive to highly sophisticated ones.
Both sophisticated and out dated machinery are being used in Footwear
sector. The non-mechanized small and cottage units produce handmade shoes and sandals
mainly for domestic markets using simple paddle operated sewing machines and locally
produced wooden lasts, roughening/buffing machineries and hand tools. On the other hand,
most of the mechanized footwear posses full range imported modern machinery and
equipment.
No capital machine, except few third grade hand tools used by non-
mechanized small cottage units is available in Bangladesh. Footwear industry has to import
capital machineries and hand tools and fittings for shoes, sandals and boots. The capital
machinery required for quality commercial production of footwear are: cutting, splitting,
skiving, single needle and double needle flat and post bed sewing, jig-jag sewing, binding,
strap cutting, toe lasting, heel lasting, brushing and finishing machine. The quantity of
machines is dependent on production capacity and type of products. Both sophisticated and
obsolete machinery are in operation in footwear sector. Almost all the small and cottage units
work with simple sewing machines and locally produced hand tools and use sub-standard
finished leather and locally produced fittings.
Training Culture in Footwear Sector:
Though this sector is one of the highest earner from export, but
unfortunately the formal skill development mechanism is almost absent in the sector. One of
the major reasons shown by the stakeholders is that if someone is trained he/she will leave
and will accept better opportunities as the availability of skilled workforce is very limited.
Other reasons are traditional mindset of the owners who fail to understand the benefits of
investment in training. On the contrary the demand for such training is low from the workers
end as they are not in a position to invest in training. So it depends totally on the mentality of
the owners.
It is to be mentioned that the present facilities to train workers are
only for footwear particularly in the sewing operations. Other than very few (may be 1 or 2)
enterprises, the owners take fresh/raw workers or hire some skilled workers from other
industries when some workers are required. In case of fresh workers, the intake is very
informal and lacks proper planning. The workers are directly or indirectly placed in the
production process without any orientation or basic information. Logic is that they will be
trained on-job.
Only few big companies like Bata, Apex provide long term training
right from orientation to specific skill development before engaging them in the production
process. The probation period is 3-6 months depending on the nature of the job. In the EPZ
based companies, the fresh workers are also given some basic orientation and training before
they are sent to production.
Other than this no formal training were available for the workers in
this sector. But the sector players are realizing the importance of having skilled workers.
Therefore some sporadic initiatives are already in place to give formal training to workers.
Among those, following are important till date-
USAID funded PRICE project is coordinating such few trainings. Some centers are
Bhoirav Training centre, Tangail Training Centre. Few others are in pipe line- at
BLSC, at training centre of Bangladesh Association for Social Advancement, Tangail.
PRICE is in the process of designing a common facility centre to be established in
collaboration with the association in the industrial hub. The initial plan is that PRICE
hired foreign trainers who trained few local trainers to continue the skill development
activities in Bangladesh.
PRICE is also trying to work with some local enterprises in Chittagong to assist in
developing skilled workers for their factories.
ILO arranged training program for the trainers who will train up the workers in the
factories.
Trade Support Infrastructure:
The trade support infrastructure described in this section spans a
technical education institution (Institute of Leather Engineering and Technology – ILET),
umbrella organization (Leather Sector Business Promotion Council – LSBPC), technical
services facility (Bangladesh Leather Service Centre – BLSC), and Bangladesh Finished
Leather, Leather Goods and Footwear Exporters Association – BFLLFEA; and the
Leathergoods & Footwear Manufacturers & Exporters Association of Bangladesh–
LFMEAB).
There are a few other associations that have a role in the footwear sector.
Institute of Leather Engineering and Technology – ILET – Hazaribagh
ILET is the first technical education institution in Bangladesh dedicated
to leather technology. It delivers undergraduate courses (4-year) in leather technology,
footwear technology, and leather goods technology. Located in the tannery centre of
Hazaribag, ILET is a government managed institution of higher learning. It admits 180
students every year, equally divided across the three streams. It has full-fledged laboratories
for testing and analyses. The institution also works with bilateral and multilateral donor-
funded programs.
In 2010 Khulna University of Engineering and Technology (KUET)
opened new department as “Department of Leather Engineering.” It is the second institution
which is offering courses in leather technology.
Leather Sector Business Promotion Council – LSBPC
Created as a PPP initiative mandated in the Export Policy 2003-06,
the LSBPC is the umbrella organization for the leather sector. Meant to act as the link
between industry, institutions and the Government, LSBPC focuses on promoting the local
and international market capacity of the leather sector focusing on compliance issues, skills
development, and export market diversification. This institution has been in existence since
2004.
It is currently working on a business plan to strengthen itself, and
requires TRTA in the areas of market development, market analyses and intelligence, trade
information, building sector related documentation resources, and expertise on SPS and TBT.
Structure and Capacity:
Most of the sample firms are established after year of 2000. Most of
the owners came from background of leather business. Some new investors are coming from
different trade. They are feeling interest in this trade as it is a growing business in
Bangladesh.
Table I.1: Distribution Of Companies By Number of Production Lines
Name Local small company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
1 - 2 6 100 1 16.67 1 16.67
3 - 5 5 83.33 2 33.33
5 And More 3 50
All cases 6 100 6 100 6 100
Source: Direct Interview
Table I.2: Distribution of Companies by Total Number of Workers
Name Local small company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
100-500 6 100
501-1000 6 100 1 16.67
1001-1500 2 33.33
1501 And
More 3 50.00
All cases 6 100 6 100 6 100.00
Source: Direct Interview
Table: I.3: Distribution Of Companies By Daily Production Capacity
Name Local small company Local Big Company Foreign Subsidiaries
or Joint Venture
Number % Number % Number %
1 - 500 4 66.67
501 - 1000 2 33.33
1001 - 1500 2 33.33 1 16.67
1501 - 2000 2 33.33 0.00
2001 And More
2 33.33 5 83.33
All cases 6 6 100.00 6 100.00
Source: Direct Interview
Table I.3 presents the distribution of sample enterprises by their
production capacity. It can be seen that the sample enterprises represent enterprises of various
capacities. Enterprises with both smaller and larger capacities are properly represented. Table
I.3 reveals that most of the joint venture companies have greater production capacity than
local companies. 83.33% of joint venture companies have production capacity more than
2000 pairs per day. This feature reflects that joint venture or foreign subsidiaries made more
employment than our local companies.
Table I.1 shows distribution of companies by number of production
lines. Here also it shows that most of foreign companies running their operations with more
lines than local companies as a result their production capacity are high. It present that most
of the companies owned by local nationals‟ have maximum 5 production lines. Here we see
that 50% of JV or FS have more than 5 production lines which are giving facility to produce
more shoes in a day.
Due to technological development all type of production process
already developed and reduced manpower involvement but still leather footwear production
process depends mostly on workers. So involvement of manpower is quiet high in footwear
production. As JV or FS have more lines and more capacity so it‟s natural that they need
more manpower to run their operation. According to Table I.2, 50% of JV or FS run it‟s
process with more than 1500 workers where as local companies have maximum 1000
workers.
Product and Production Process:
In Bangladesh most of the companies are producing gents‟ shoes and
ladies shoes. Table II.1 shows that 100% of companies are producing gents‟ shoes and
significantly they are producing also ladies shoes. Here it is observed that local small
companies are producing shoes with most variations where as local big companies and JV are
trying to produce big quantity with less variations. This table doesn‟t show any significant
variations in product lines as most of the companies producing same type of product which
production process must be known by available workers. As this industry is new there are
only small amount of workers who know the operations of footwear production. So owners
try to take orders of that product which can be produced by his workers easily.
Table: II.1: Distribution Of Footwear Companies By Product Lines
Name Local small company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
Gents Shoe 6 100.00 6 100.00 5 83.33
Gents Boot 5 83.33 3 50.00 4 66.67
Gents Sandal 5 83.33 3 50.00 3 50.00
Ladies Shoe 6 100.00 5 83.33 5 83.33
Ladies Boot 5 83.33 4 66.67 3 50.00
Ladies sandal 5 83.33 3 50.00 3 50.00
All cases 32 533.33 24 400.00 23 383.33
Source: Direct Interview
Table: II.2: Distribution of Enterprise By main Raw Materials
Name Local small company Local Big Company Foreign Subsidiaries
or Joint Venture
Number % Number % Number %
Leather 6 100 6 100.00 6 100.00
Synthetic 2 33.33 2 33.33
All cases 6 100 8 133.33 8 133.33
Source: Direct Interview
Table: II.3: Distribution Of Companies By Type Of Construction
Name Local small company Local Big Company Foreign Subsidiaries
or Joint Venture
Number % Number % Number %
Cemented 6 100.00 6 100.00 6 100.00
Moccasin 4 66.67 5 83.33 4 66.67
Moulded 2 33.33
Strobel 2 33.33
All cases 10 166.67 11 183.33 14 233.33
Source: Direct Interview
Table II.2 present that all the sample firms are using finished leather as
their basic raw material while there only 4 companies out of 18 who are producing shoes with
synthetic. As our country has leather industry who are producing leathers for local footwear
industry and also exporting to different countries. Here we have an advantage of availability
of finished leather, so the owners usually want to use leather as the main raw material. Also
leather footwear has a separate potential market with higher product price.
According to Table II.3 all the companies are using cemented
construction in producing shoes which is the easiest production process in footwear
manufacturing. 66.67% local small companies and 83.33% local big companies are producing
also moccasin shoes which involve huge manpower to hand stitch the shoes. As the labour is
cheaper here so they can produce moccasin in competitive price. 33% of JV or FS are making
shoes in moulded and strobel construction which involves special technical knowledge and
more investment in the machines. Still now our country is not producing any shoes in critical
construction as good year welted, veldschoen etc which can be sold in higher price than
cemented or moccasin shoes.
Market and Customers:
All samples firms are exporting 100% of their production. Only
exception is Apex Adelchi which is a joint venture company is selling 2% of their production
in domestic market.
Table III.1 shows that all local companies are selling their product at
an average price of maximum 20 USD whereas JV and FS are selling their product at a wide
range of prices. But 50% of JV or FS are selling their product at a price higher than 23 USD.
Mainly Foreign subsidiaries are selling their product at a higher price than others.
Table: III.1: Distribution of Companies By Average Price Of Product.
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
$15-$17 3 50.00 3 50.00 1 16.67
$ 18-$20 3 50.00 3 50.00 1 16.67
$21-$23 1 16.67
$23+ 3 50
All cases 6 100 6 100 6 100
Source: Direct Interview
Table: III.2: Distribution of Main Export Clients
Clients Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
Foreign Corporate
Buyers 1 16.67 6 100
Foreign Whole
Sellers 4 66.67 6 100.00 3 50
Buying Agents 6 100.00 5 83.33 0
All cases 10 166.67 12 200.00 9 150
Source: Direct Interview
Table III.2 reveals that why FS and JV are able to get high price from
their customers. Here clients of shoes are divided in three categories, they are, foreign
corporate buyers, foreign whole sellers and Buying agents. Ultimately final clients are the
foreign corporate buyers who are selling their product through their chain shops. Whole
sellers and buying agents are purchasing shoes from the factories and delivering to the
corporate clients. Generally buying house and whole seller is paying fewer prices as they are
making more profit from the business. Local companies are selling their products mostly to
whole sellers and buying agents that‟s why they have to sell their product in lower price. But
FS and JV are selling directly to the corporate buyers. Table III.2 displays 100% of FS and
JV has these types of customers. They also sell to whole sellers. Table III.2 shows that 50%
of FS and JV are selling to whole sellers. On the other hand it presents that 100% local big
companies are selling to whole sellers and among them 83.33% also selling to buying agents.
Here 16.67% companies are selling to corporate buyers but no one from local small
companies is selling to them.
From Table III.1 and Table III.2 it is understood that there is a relation
in the prices with the category of customers. As the foreign corporate buyers are the final
clients so they are the highest price payer. Buying agents are selling mostly to whole sellers,
so usually they pay the lowest price.
From the interview it is found that everybody feels footwear market is
very competitive. In case of offering price to customers every manufacturer is very cautious
as the customer can go to other manufacturer if he feels uncomfortable with the offered price.
Orders and Delivery:
Table IV.1 exposes that local small companies accept minimum order
of 1000 pairs. 83.33% offers MOQ as 500 to 1000 Pairs. But MOQ of FS and JV is
significantly higher than local companies. According to Table IV.1 50% of FS and JV offers
minimum order as more than 2000 Pairs. As they work with final clients typically they get
big orders. Local small companies work mostly for buying agents who are able to give mostly
small orders. So these companies have to accept smaller orders. In this regard they offer
lower MOQ.
Table IV.1: Distribution Of Enterprise By Minimum Order Quantity
Name Local small company Local Big Company
Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
0-500 1 16.67
500-1000 5 83.33 1 16.67
1000-1500 2 33.33 1 16.67
1500-2000 1 16.67 2 33.33
2000+ 2 33.33 3 50.00
All cases 6 100 6 100 6 100.00
Source: Direct Interview
Table: IV.2: Distribution of companies by Time To Deliver Product Per Pair
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
0 - 0.35 2 33.33
0.36 - 0.70 5 83.33 3 50.00
0.7 - 1.05 2 33.33 1 16.67 1 16.67
1.06 - 1.40 1 16.67
1.41 - 1.75 3 50.00
All cases 6 100 100 100
Source: Direct Interview
Table IV.2 expresses the needed time to deliver one pair shoe to the
customers. As already found that JV and FS accept only big orders but here it is clear that
they need lowest time to deliver one pair shoe. 33.33% of FS and JV can deliver one pair
shoe within less than 0.35 days. In the other end local small companies take highest time to
deliver shoes per pair. 50% of local small companies take time within 1.41 – 1.75 days to
deliver shoes per pair.
From the above discussion it is vibrant that FS and JV are the highest
efficient companies and Local small companies are the lowest in this concern.
Background of workers:
Workers of footwear companies are mainly coming from different
villages and they start working from their early age. So usually their education level is low.
Table V.1 demonstrates about the level of workers‟ education. Here it is seen that most of the
workers completed their education up to SSC level. Only 16.67% workers of FS and JV and
33.33% workers of local big companies completed their education higher than SSC. From
this it is clear that education level of workers is very low in footwear companies.
Table V.1: Distribution Of Education Level Of Worker Of Footwear Companies
Class Local Small Company Local Big Company Foreign Subsidiaries
or Joint Venture
Number % Number % Number %
1-5 1 16.67 1 16.67
6-SSC 6 100 3 50.00 4 66.66
HSC-Degree 0 2 33.33 1 16.67
All cases 6 100 6 100 6 100
Source: Direct Interview
Table V.2: Distribution Of Workers By Years Of Schooling
Name Local Small Company Local Big Company Foreign Subsidiaries
or Joint Venture
Number % Number % Number %
5 - 7 Years 2 33.33 1 16.67
8 -10 Years 6 100 2 33.33 4 66.67
11 - 13Years 2 33.33 1 16.67
All cases 6 100 6 100.00 6 100.00
Source: Direct Interview
Table V.3: Distribution of Firms by Their Output of Every Line:
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
300 - 600 4 66.67
600 - 900 1 16.67
900 -1200 1 16.67 1 16.67
1200+ 0 5 83.33 6 100.00
All cases 6 100 6 100.00 6 100.00
Source: Direct Interview
In the same way it is observed in Table V.2 that year of schooling of
workers in footwear manufacturing is low. This issue is a creating a basic problem in the skill
development of workers. As they are not enough educated so they are not capable to
understand technical operations quickly. They also take little bit more time to learn technical
things. Lower education also measured as a barrier to the career growth of workers. If one
properly educated worker works in a company for few years he/she can be a manager of the
company. But if he is not educated then he/she might be a technical expert but can‟t reach up
to the top of possibilities. From the discussion it is understood that education level helps a
worker to learn, to grow and to gain the opportunities.
Skill level of workers:
Table VI.1 presents that most of the companies do overtime to
increase their production. Most of the companies do overtime 10 -15 hours weekly. In this
case FS and JV do less over time while maximum do by Local small companies. 16.67% of
local small companies do 20 – 25 hours per week.
Table VI.1: Distribution of Firms by Their Extra Working Hours per Week:
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
Less Than 10 2 33.33
10 - 15 5 83.33 6 100.00 3 50.00
15 - 20
20 - 25 1 16.67 1 16.67
All cases 6 100.00 6 100 6 100
Source: Direct Interview
Table VI.2: Distribution of Firms by Their Worker’s Skill Level
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
26-40 2 33.33 1 16.67
41-55 4 66.67 2 33.33
56-70 3 50
71-85 3 50.00 2 33.33
86-100 1 16.67
All cases 6 100 6 100 6 100
Source: Direct Interview
In table VI.2 skill level of worker is considered as output of a worker
in each hour. Here it is displayed that skill level of workers of FS and JV is much higher than
workers of local company. 16.67% of workers of FS and JV can produce more than 86 pairs
while 33.33% can produce more than 70 pairs. On the other hand local big company has
variations in skill level. 50% can produce more than 70 pairs but in the same 50% produces
less than 55 pairs. Among them 16.67% produce less than 40 pairs in one hour. Weakest
workers are found in local small companies. Skill level of workers is very poor here. 100% of
them can produce less than 55 pairs in each hour.
Growth rate of sample firms:
In Table VII.1 growth rate is considered for last three years. Here it is
displayed that growth rate of local companies is higher than FS or JV. As these foreign
companies are producing already in their highest capacity so they are not able to accept any
additional order. Generally these orders are going to local big factories who have unused
capacity. So every year production of local big companies is increasing. Local small
companies also unable to accept more orders as they have limited production capacity. But
they are growing slowly. One of local small companies, Legacy footwear faced negative
growth in 2010 – 2011. But next year in 2011 – 2012 they returned in the track. Table VII.1
shows that 50% of local big companies have a growth rate of more than 45%. More over
16.67% companies have a growth rate of more than 60%. One of FS and JV has same growth
rate but it happened as it is a new company. This company took time to install their machines
and every year they are expanding their operation to increase their production.
Table VII.1: Distribution of Firms by Their Growth Rate of Production
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
0 -14 3 50.00 1 16.67 2 33.33
15 - 29 2 33.33 1 16.67 3 50.00
30 - 44 1 16.67 1 16.67
45 - 59 2 33.33
60 - 74 1 16.67 1 16.67
All cases 6 100 6 100 6 100
Source: Direct Interview
Table VII.2: Distribution of Firms by Their Growth Rate in Annual Sales
Name Local Small Company Local Big Company Foreign Subsidiaries or
Joint Venture
Number % Number % Number %
1 - 20 4 66.67 2 33.33 3 50
21 - 40 1 16.67 1 16.67 2 33.33
31 - 60 1 16.67 1 16.67 0.00
61 - 80 0.00 2 33.33 1 16.67
All cases 6 100.00 6 100.00 6 100.00
Source: Direct Interview
In case of annual sales, growth rate seems to be same like growth in
production. Here also local big companies‟ growth rate is higher than others. Table VII.2
represent that 50% of local big companies have a growth rate in annual sales more than 30%.
Among them 33.33% have growth rate more than 60%. On the other hand growth rate of
local small companies‟ growth rate is less than local big companies. As from data it is found
that price of product is very competitive, so who are increasing their production are getting
higher growth rate. So naturally growth rate of production matches growth rate in sales in
same direction. So only way to increase growth rate is to increase production of shoes.
CHAPTER 4: FINDINGS & CONCLUSIONS
Findings:
From the data analysis it is witnessed that performance of FS and JV
companies is better than local companies. Also below points are observed in that analysis.
1. Capacity of FS and JV companies is higher than local factories. Foreign investors
come to Bangladesh for cheap labor and they try to produce as much as possible. So
in most cases they set up their factories with greater capacity. It also creates more
employment for the workers.
2. All the footwear companies in Bangladesh are producing mainly basic gents‟ leather
shoes including other articles in small quantity. Companies are using finished leather
as their basic raw material as local finished leather has a considerable demand in
international market. Also leather shoes can be sold at a higher price than shoes with
synthetic materials. Most of the companies are following cemented lasting process
which is the easiest method in shoe manufacturing. Companies can produce more
shoes per day by following this process. Workers also can learn this method very
easily. But shoes produced in this method considered as cheap shoes in international
market.
3. According to all respondent market is very competitive. Everybody has to be
professional while dealing with the customers. Here final customers are the corporate
buyers, so who are selling to them directly are getting better prices. FS and JV has the
facility to sell to them directly whereas local companies are selling to them through
foreign whole sellers or buying agents where they have to share profit with mid
parties.
4. MOQ of FS and JV is higher than local companies as their capacity is very big. So
they only accept big orders to feed their process which also help them to increase their
productivity. From the study it is also found that FS and JV can deliver the shoes in
quickest time which indicates better efficiency of their operations.
5. Education level of workers of footwear companies is very low. It is a barrier of their
skill development which results lower productivity of a worker. Skill level of workers
of FS and JV is pointedly higher than local companies. Reason of this may be workers
of FS and JV are mostly trained by foreign experts and these companies are running
their operation in a perfect way whereas facility of training in local companies is very
limited.
6. Most of the companies are working for extra time to complete their orders which
resembles that orders are coming more than capacity of companies. Growth rate of
footwear companies also support it. Growth rate in production of FS and JV is lower
than local companies in recent years as they are already full with their orders.. Highest
growth is found in case of local big factories as they have installed capacity to accept
more orders. Growth rate in annual sales follows the same direction of growth in
production.
7. Overall it is observed that joint ventures or foreign subsidiaries perform better than
other local companies. But with the global uptrend of footwear market, customers are
entering in Bangladesh to source potential suppliers. So local factories have great
opportunity to meet their demand by expanding their operations and increasing
efficiency.
Recommendations:
From the foregoing evidence and analysis, the recommendations that
follow may be summarized as below:
1. Bangladesh may be one of the biggest sourcing hubs for footwear in coming years.
Uptrend of international footwear market seems that more orders will come to
Bangladesh. There is also another reason why orders are expected to move to
Bangladesh. Wages of workers in China who produces 60% of total footwear
production is growing rapidly and footwear manufacturing involves huge manpower.
So China will lose its competitiveness in footwear manufacturing. On the other hand
Bangladesh has low waged labor which will help it to be more competitive than other
countries. Now opportunity for local companies is to increase capacity and
productivity to meet future demand.
2. Companies should invest more in R&D to develop new designs and technologies to
enrich their collection which can be sold in higher prices. New technologies might
help the companies to increase their productivity as well as it will help to develop
more valuable product like goodyear welted shoes. As the market is very competitive
so owners must arrange proper training for the managers and workers to teach them
about new production process and how to increase productivity and efficiency of
company. It will help company to produce more which will decrease their cost of
production.
3. Companies must introduce more flexibility in production to facilitate to accept any
quantity of order. So that all types of customers can work in Bangladesh. Use of raw
materials must be diversified to other synthetic materials which will help to produce
wide range of shoes to attract other customers who are buying shoes with synthetic
materials.
4. Local companies should invest in developing new collection and attending in
international footwear fairs. It will facilitate them to meet final clients and to sell
directly to the final corporate buyers by offering their own collection at a superior
price.
5. As the education level of workers is low, so owners should invest in the skill
development of the workers. They may arrange training of workers by foreign
experts. Also they should take proper steps to enrich technical knowledge of the
managers of companies.
6. Duty should be removed from importing shoe accessories. It will help local small
companies to buy the accessories in lower price which will help them to produce
shoes at a competitive price. On the other hand Government should impose higher
duty in importing complete shoes which will create more demand for local shoes as it
will be more competitive.
7. Government should give extra facilities to entrepreneurs of footwear to make the
product more competitive in global market, such as cash incentive against export
value, supplying electricity in a subsidies price, offering lower bank interest etc.
Bangladesh Bank declared sealing price as USD 20 for one pair shoe. Cash incentive
is provided against this sealing price. For this reason owners are not interested to
produce ladies boots which price is higher than USD 20 and also its productivity is
less than gents‟ shoes. BB should consider sealing price of shoes in different
categories, for long boots it must be around 30 USD. It will increase interest of the
owners to produce higher valued products.
8. Government can also offer these facilities to manufacturers of shoe accessories. Still
shoe industry is facing difficulty in sourcing of accessories. Development is very
necessary also in accessories manufacturing which will help shoe manufacturers to
reduce lead time and price of product. It will help to offer shoe in more competitive
price with lower lead time.
Conclusions:
Having the basic raw materials for leather footwear as well as for the
production of leather footwear, a large pool of cheap but trainable labor force together with
tariff concession facility to major importing countries under GSP coverage, Bangladesh can
be a potential offshore location for footwear manufacturing with competitive cost but high
quality. Bangladesh is set to emerge as the next manufacturing hub for the global footwear
industry. The cheap labor is prompting top manufacturers to relocate their factories in the
country.
From this study we got several strengths and weakness of footwear
industry. Owners must try to enhance its strengths and should arrange proper training for
managers and workers to enrich their technical knowledge. Foreign subsidiaries and joint
ventures are performing better than local companies but on the other hand with the growth of
footwear industry local companies have more opportunities to expand their business. Also
growth rate analysis supports this observation. So it‟s time to set up future plans which will
help to grow footwear industry rapidly. Government should take necessary steps to facilitate
growth of footwear industry to meet future demand.
REFERENCES
1. Levin & Runin: Richard I. Levin and David S. Rubin, “Statics for Management”
2. EPB: Export Promotion Bureau, Annual Report 2011-12, Dhaka
3. Mondol: Abdul Hye Mondol, Technological Competitiveness of Leather and Leather
Goods Manufacturing in Bangladesh, Bangladesh Institute of Development Studies,
Dhaka - 1207
4. www.online.wsj.com
5. www.globalfootwear.com
6. www.epb.gov.bd
Questionnaire
Footwear (Management)
1. Respondent:
1.1 Name & Designation: …………………………………………………………………………………………
1.2 Company & Section: …………………………………………………………………………………………….
1.3 Contact information: Address:………………………………………………
…………………..………………………………………………………………..………………………………………………………………
2.Product:
2.1 What are the major product lines?
Gents Shoes Gents Boots Gents Sandal
Ladies Shoes Ladies Boots Ladies Sandal
2.2 What is the main Raw material of the product?
Leather Synthetic
2.3 What is the type of construction?
Cemented Good year welted Californian
Moccasin Veldschoen Strobel
Moulded
3. Productivity:
3.1 How many lines in your factory? …………………………………………………………………………..
3.2 What is the total numbers of workers? ………………………………………………………………..
3.3 What is the total production of your factory (in pairs)? ……………………………………….
3.4 What was actual production volume in the last 3 years?
YEAR 2009 - 2010 2010 - 2011 2011 – 2012
PRODUCTION VOLUME
IN PAIRS
4. Market:
4.1 What was your annual sales turn over last three years?
YEAR 2009 - 2010 2010 - 2011 2011 – 2012
EXPORT VOLUME
IN USD
4.2 Of your total output, please indicate what share is:
Sold Domestically (In %) ………………………..
Exported (In %) ………………………….
4.3 What is the average price of your product? …………………………… USD/Pair
4.4 Do you find your market is very competitive?
Yes No
4.5 If the company is exporting, who are the main export clients?
Foreign Corporate Buyers………………………………………
Foreign whole sellers……………………………………………..
Buying Agents ………………………………………………………
Others …………………………………………………………………..
5. Lead Time:
5.1 What is the minimum order quantity? …………….............................Pairs
5.2 How much it takes to source raw materials? ………………………………. Days
5.3 How many days you need for production?.…………………………………... Days
5.4 What is the lead time to deliver MOQ? ………………………………………... Days
Questionnaire
Footwear (Worker)
1.Respondant:
1.1 Name & Designation: ……………………………………………………………………………………………………
1.2 Company: …………………………………………………………………………………………………………………….
1.3 Section: ………………………………………………………………………………………………………………………
1.4 Contact information: …………………………………… Address:………………………………………………
……………………………………………………………………………………………………………………………………………………
1.5 Years of schooling: ……………………………………………………………………………………………………….
1.6 Completed level/class: ………………………………………………………………………………………………….
2.Product:
2.1 What are the major product lines?
Gents Shoes Gents Boots Gents Sandal
Ladies Shoes Ladies Boots Ladies Sandal
2.2 What is the main Raw material of the product?
Leather Synthetic
2.3 What is the type of construction?
Cemented Good year welted Californian
Moccasin Veldschoen Strobel
Moulded
3. Productivity:
3.1 How many lines in your section? ……………………………………………………………..
3.2 Numbers of workers in your line? ……………………………………………………………
3.3 How many pairs produced by your line daily? …………………………………………
3.4 Do you work extra hours after regular working time? If yes tell
how many hours per week? ………………………………………………………………………………………………….
4. Skill Level:
4.1 Which machine are you operating? ………………………………………………………………………..
4.2 How many pairs can you complete per day? ………………………………………………………….
4.3 How many hours you work per week? ……………………………………………………………………