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.

http://www.reportlinker.com/p0397838/Global-Footwear-Industry.html?utm_source=prnewswire&utm_medium=pr&utm_campaign=e-Commerce

http://www.reportlinker.com/p0397838/Global-Footwear-Industry.html?utm_source=prnewswire&utm_medium=pr&utm_campaign=e-Commerce

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


Joint Venture


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


Table: I.3: Distribution Of Companies By Daily Production Capacity

Name Local small company Local Big Company Foreign Subsidiaries

or Joint Venture


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


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


Joint Venture


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


Table: II.2: Distribution of Enterprise By main Raw Materials


or Joint Venture


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


Table: II.3: Distribution Of Companies By Type Of Construction


or Joint Venture


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


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


$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


Table: III.2: Distribution of Main Export Clients

Clients Local Small Company Local Big Company Foreign Subsidiaries or

Joint Venture


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


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


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


Table: IV.2: Distribution of companies by Time To Deliver Product Per Pair


Joint Venture


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


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


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


Table V.2: Distribution Of Workers By Years Of Schooling

Name Local Small Company Local Big Company Foreign Subsidiaries

or Joint Venture


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


Table V.3: Distribution of Firms by Their Output of Every Line:


Joint Venture


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


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:


Joint Venture


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


Table VI.2: Distribution of Firms by Their Worker’s Skill Level


Joint Venture


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


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


Joint Venture


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


Table VII.2: Distribution of Firms by Their Growth Rate in Annual Sales


Joint Venture


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


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? ……………………………………………………………………

project paper

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