BIG PROJECT

FOOTWEAR INDUSTRY OF BANGLADESH

TEAM MEMBERS Laboni Aktar Tarana (14, 52D)

Md. Touhidur Rahman(39, 52D)Anika Rahman (53, 52D)

Md. Shakil Zaman (21, 52D)Md Rezaul Akhlak (11, 52D)

Md. Golam Sarowar (07,52D)Noman Sabid (42,52D

Ahmmed Imtiaj (45, 52D)

Industry Overveiw1

Woven37%

Knit40%

Frozen Food3%

Jute5%Leather

1%

Agro Products

2%

Engineering Products

2%

Footwear 1%

Others9%

Market Size of Footwear Sector

Footwear sector: 1%

Source: Lightcastle, 2014

$550 million Growth

Profitable SectorAfter RMG, Footwear Positions

Female CustomerMale Customers, Children’s

Leather Vs Non Leather

Local market Global market

Leather Non Leather0

10

20

30

40

50

60

70

Leather Non Leather01020304050607080

Export to Foreign Countries

Bangladesh

Japan

EU Countrie

s

USA

Australia

Market Share, 2014

BATA22%

APEX6%

Others72%

BATA isthe Market Leader

Source: BRAC EPL Investment

Growth Trajectory2

Projected @1.9% CAGR

Source: Transparency Market Research on Footwear

GLOBAL FOOTWEAR DEMAND (USD Bn)

2011 2012 2013 2014 2015 2016 2017 2018170

175

180

185

190

195

200

205

210

215

185

189192

196

200203

207

211

Growth of Footwear Export ( USD mn)

2006 2007 2008 2009 2010 2011 2012 2013 2014

95123

159 183 204

298336

419

550

Source: Lightcastle, 2014

Increasing Growth

Strategic Group Mapping

Value Chain Analysis 3

Profiles of Large, Medium & Small Manufactures

Small Medium LargeBusiness Model

Subcontracting, Low quality

manufacturer

Subcontracting & own

Mostly own

Types of Machines Used

Local Local & Imported Imported

Types of Labour

Unskilled & Semi skilled

Unskilled & Semi skilled

Trained

Channels & Distribution

Sold to wholesaler

Own wholesale shop

Use own channel & distribution

Export Not all Sometimes Majority exports fromo this segment

Value Chain Dynamics

Raw material and Leather

SupplyManufacturin

g Marketing, Sales and

DistributionCustomers

-2 types: Leather processing & assembling - Fluctuations in raw material price affecst small scale shoes the most

-Good factory condition

-Qualified workers vs. Less qualified

- Innovation vs. Les innovation

-Proper distribution channel for big players

-SMEs sells to ditributors

-Promotions: Ad, trade fair, warranty

-Domestic market size is growing

-Demanded by foreign customers

-Mostly B2C: low & middle income for SMEs

-Big players: Upper to middle class

Leather Importer

Additive importers

(Design/color)

Machine imported from

Germany, China

SMEs (own/rented

factory)

Own Assembling Centers

Own factories (Big players)

Principal Wholesaler/

Retailer

Independent Distributors

Company owned showrooms, Sales centers

B2C:Household (Domestic)

B2B: (Domestic)

Direct Export

Input Suppliers

Manufacturers

Marketing

Buyers

Value Chain

Tripple Triangle Framework4

Internal FactorsCulture Very fast

growing companies

Not environment conscious

Capital Depends upon

their market

Bank loans are not much available for SMEs

the bigger the company, the bigger the capital

Capabilities Capabilities of the

firm decides which strategy the firm follows.

Not capable of exporting Footwear to cover a big portion of world market

Except the big players, others not capable of large scale export

Middle Factors

Customers Vary

depending on the type of the company

Segmented based on gender and income level and age

Competitors Fierce

competition

Presence of local and global competitors

Competitor are also segmented in terms of their target market

Collaborators Large parts

are located in the country

Roles begin in the very early stage of operations

Vertical integration tends to reduce the dependence

External Factors

Technology

Except Bata, no other companies are using the latest machineries

This creates a negative impact on environment

Govt. Factors Rising export of

footwear has made the government interested in this sector

Actively trying to stop environmental pollution by the tanneries

Tannery shifting plan is changing the dynamics of the sector

International Factors

China is going away from Footwear export business

Negative growth rate of Romania and Brazil will help Bangladesh to capture more market from US and Germany.

Labor cost is lower than average labor cost of other countries

Porter’s Diamond Framework

Nation’s Competitive Advantage

5

6 Factors in Porter’s Diamond

Firm Strategy and Rivalry

SMEs Exposed to international

competition

More flexible

lack investment capability

Often does contract work for large companies

Intense rivalry among the SME’s to gain local market

Large Companies Constant growth in annual

turnover, employability and profitability

Focused around employing cheap labor and using low cost resources

Aside from Bata, all the other top players are export oriented

Rivalry is high between Bata and Apex, but the rest don’t have enough market share

Factor Conditions

▪ Availability of Raw materials

▪ Cheap manpower

▪ Cost of production continues to be a challenge

▪ Interrupted electricity supply is a huge burden

▪ Sector requires high investments into equipment, highly qualified professionals and qualified workers

Demand Conditions Market demand of footwear is rising both locally and globally

Rise of dispensable income has created a huge demand for high quality products

Firms are expected to innovate new designs at a rapid pace

Most local big companies are focused on international market

Less concerned with setting own trends

Local market demand remains unfulfilled

Related & Supporting Industries▪ Advantage comes from existing basic industries (leather and soles)

▪ Production of leather is the most important support industry

▪ Tannery industry is very competitive

▪ Close proximity of the tanneries create national advantage

▪ Lack of local machineries manufacturer is an obstacle

▪ Big players have robust backward linkage

SWOT Analysis6

SWOT ANALYSIS (1/2)

• Growing footwear exports• Lower wage compared to competitors• Robust backward linkage• Government Incentive• Established International Trading • No import duty on capital machinery for export oriented industry• 100% duty free footwear export facility to Japan

STRENGTH

• Lack of skilled designers for product design and development• No institutional support available for the industry (Such as FDDI in India)• Lack of QC system, reliance on foreign certification with penalized lead time• High rate of interest on term loan

WEAKNESS

SWOT ANALYSIS 2/2

OPPORTUNITY• Asian Market to drive

demand due to increasing economic growth

• Local productions of sandals and slippers are in high demand in Middle-East and Southern Africa

• China shifting focus from footwear exporting

Threats• India might stop

exporting cattle• Rise of Vietnam in the

global footwear sector• Political Instability

BIG CONCEPTGAP ANALYSIS

Where we are now?

2 Big Questions

Where we want to go?

Where we are now?

Market size of footwear sector : 1% Increasing growth in export Bata is the market leader in the

domestic market Apex is the leader in export Apex is the largest leather shoe

manufacturer Low labor cost in Bangladesh over China

Positive Sides

Where we are now?

Lack of training facilites for SME footwears

High Rent Low innovation for SMEs Limited leather made accessories Due to tanneris in Hajaribag, wastes

are dumped into Burganga River Dependent on India’s Leather

Problems

Where we want to go?

Market Diversification Increased Market Share Increased Export Jute/cloth made products

Identified Gaps in the footwear Sector

01

Limited Leather Made Accessories

02

Underutilization of SMEs

03

Lack of training for SME workers

04

Idenfiying the substitute of Leather

Framework For Overcoming Gap Analysis

Training workers

Leather made Product line exention:-Wrist watch-Bags-Jackets

Capitalizing SMES

- Product Innovation- Jute/Cloth

made Products

ResourceDevelopment Innovation Sector

Development

Outcome

Want big impact?

See bigger picture….

Recommendations (1)Increased leather

made products(2)Taking care of SME

sector (3)Financial incentives

for SMEs(4)Supporting Market

Diversification(5)Shift from hazaribag

to Savar

THANK YOU!