Download development of small industries in bangladesh:an analysis

Asian Affairs, Vol. 30, No. 1 : 21-31, January-March, 2010
CDRB
publication
DEVELOPMENT OF SMALL INDUSTRIES IN
BANGLADESH:AN ANALYSIS FROM
MANAGERIAL EXCELLENCE AND
STRATEGICALLY MARKETING CONTEXTS
DR. MD. SOLAIMAN
TAYUB CHOWDHURY
Abstract
This paper attempts to highlight the successful story of some small
industries in Bangladesh. Small industries are recognized as an important
source of micro enterprise promotion, innovation, and management
development through growth with equity in the economy of Bangladesh.
The study pinpoints that dynamic and effective market management of
small industries ensures better working environment which in turn,
may contribute in the process of development of an individual as an
entrepreneur, on one hand and growth of a society with equity on the
other. The paper, further- testifies that managerial talent, dynamic
leadership, effective market management strategies would solve existing
problems there too and ensure the sustained growth of small industries
too.
Introduction
Small industries (SI) involving, relatively simple technology, low
investment and having capable or generating larger employment
opportunities, has a vital role to play in the economy of a country, like
Bangladesh. Further, SI is recognized as important source of
entrepreneurship, innovation and growth. Again, the factors, such asinflation, economic recession and changes in technology affect adversely
the growth and development of large- scale industries. In such a context,
the strategy for the promotion and development of SI have been
increasingly attracting the attention of planners in many countries as a
potent instrument of reducing the in equality in economic and material
welfare among the individuals and nations (Sharma, 1979). Further, the
smallness facilities the utilization of small savings for productive uses
that would not otherwise have come into existence as productive capital
(ILO, 1962). Schmacher in his book “Small is Beautiful, has emphasized
Copyright©CDRB, ISSN 0254-4199
ASIAN AFFAIRS
the development of small entrepreneurs and intermediate technology for
developing economics. Moreover, SI serves in developing economies not
only by their output of goods but also functioning as a nursery of
entrepreneurial and managerial talent (Chowdhury, 1984). Further, people
can achieve the quality of life through SI ownership (Pickle, 1984). In
Bangladesh, SI provide direct employment to about 2 million peoples,
roughly 40% of the manufacturing value but contribute only 4.5% to its
GDP. Dynamic and effective market management has, therefore, become
a vital exigency for the SI sector to meet the new challenges in the market
and better performances in the changing business environment. Again,
significant changes in the role and functions of the SI management are
required for the development of the sector. Further, development
management means an evolutionary change from the present situation
into a better situation. It is a process of improving, bettering and it
generates management excellence, ensures better quality of life and meet
human aspirations.
Development Management and Small Industries in Bangladesh
Bangladesh has been pursuing a reform agenda for the purpose of rapid
industrialization to accelerate its present growth rate of 4 percent to 10
percent per annum. In industrialization process, SI sector producing goods/
services mostly for domestic consumption, with lower capital -employment
ratio and higher output-input ratio have a significant importance in the
economy. Again, the present government offers various incentives to SI
sector under present industrial policy, which have been shown in table- 1
in the Annexure.
Beside the various types of incentives, one government special agency
viz. ‘Bangladesh Small and Cottage Industries Corporation’ has been
created with specific promotional roles. Its major functions are-promotion
& registration of SI, conducting advisory and industrial promotion services
including scouting & training of entrepreneurs, construction &
development of industrial estates with necessary infra-structural facilities
and development of linkages between SI and large & medium sized
industries in the country. Despite these various measures, the desired
level of development and target set for could not be achieved as between
1962 and 2003; they increase from 16,331 to 67,867 only (BSCIC, 2003).
However, it is argued that entrepreneurs are not concerned only with tax
or incentive facilities.
Moreover, there is need to improve the management and business
skills of those involved in SI in order to promote efficiency and success.
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DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH
Again, SI is recognized as an important source of enterprise, growth and
innovation. Further, it ensures quality of life as well as growth of an
economy with equity. Therefore, effective and efficient management is a
critical input in ensuring the development of SI in Bangladesh.
Further, development management of SI sector denote ideas used in
a new process to manage evolutionary change from the present
environment Into a better environment which ensure development of
individual on one hand and growth of a society with equity on the other, in
a country like Bangladesh. However, one of the notable successes in
entrepreneurship and innovation as well as growth & development of small
industry, which is the subject of this research study. This is the story of
Shanta Engineering Industry (SEI)-its management excellence relevant
issues and challenges.
Objective
The main objective of this paper is to examine the managerial and
marketing issues in the development process of small industries of
Bangladesh. The specific objectives of the study are as follows:
(a) To study the managerial excellence of sample enterprise.
(b) To examine the relevant issues for the growth of an enterprise.
(c) To suggest some line of actions for the development of small
industries In Bangladesh.
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Khondoker is married to Hena Khondoker and they have two sons and
three daughters. All of them take interest and influence the management
of the industry directly or indirectly. Mr. Khondoker monitors the business
environment and identifies the opportunities and threats of the industry.
He is a well experienced in pump business as he has started his career in
this field at a young age. He served 12 years in ‘KSB Pumps Bangladesh
Ltd. Mr. Khondoker is a mechanical engineer and he had his education
in Bangladesh as well as Germany.
Production and Manpower
SEII located in 64/2, Shah Ali Bagh, Dhaka-1210 has been
manufacturing and supplying Centrifugal pump, Vertical turbine pump,
Right angle gear and different spare parts of the Jute & Textile Mills since
1987. The industry had been registered with BSCIS on 4th October, 1986
and since than BSCIC has provided sub-contracting and linkage
development facility to the SEL The centrifugal pump, turbine pump and
the right angle gear of SEI has earned high reputation to the government
agencies like BMDA (Barendra Multipurpose Authority), Dhaka WASA,
Chittagong WASA, and BADC ~Bangladesh Agricultural Development
Corporation). The manpower of the industry is 84 and among them 14 are
office staff and 60 factory workers. Workers are selected on the basis of
experience and some mechanical knowledge. Mr. Khondoker offers
training to up-grade the skills and mechanical knowledge of the workers.
Methodology
Both primary and secondary data have been used for the purpose of
the study. Primary data have been collected through structured
questionnaire form sample entrepreneur and other managerial personnel
of the industry. In order to collect the detail data, participatory observation
method has also been used. Beside primary data, necessary secondary
data have been collected from the sample enterprise. Secondary data
covered textbooks, research articles, government publications and various
published and unpublished research works on the subject. Beside these,
financial, marketing and production data have also been collected from
the annual statements of the company.
Target Market and Relevant Factors
Management of an enterprise must match products with target market
needs and then develop corporate and marketing strategies to satisfy the
demand of customer/users. However, at the time of planning for the
products, the proprietor has to consider various relevant factors. Among
them, the important ones are govt. import policy, taxation (VAT), tariff
structure, competitive position and demand for the products etc. Again,
the demand for the product depends on the various factors viz., the
government buying practice, govt. policy towards irrigation management
for boosting the food production etc. SEI produces pumps, which are used
for domestic purposes, e.g., supply of domestic water, municipality water
supply disposal of superfluous water etc.
Ownership and Management
SEI is a family owned and operated small industry. Mr. G.M. Khondoker
is the entrepreneur of this enterprise. He is the son of Late Eklasuddin
Khondoker who was not a businessman. The entrepreneur of SEI is about
50 in age. The key executives of the SEI are family members. Mr. G.M.
Quality Products and Performance Indicators
The technological environment shows accelerating technological
change, unlimited innovational opportunities, high R&D budgets,
concentration on minor improvements rather than on major discoveries,
and increased regulation of technological change (Kotler & Armstrong,
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DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH
1995). However. SEII has not compromised on the technology for producing
good quality pumps. SEI has installed ‘German Lather Machine’ to produce
various parts relating to pumps and other products. To maintain the quality
of products/services at production level on an ongoing basis, SEI has their
own-trained technicians for monitoring production at various levels. To
test the quality of products and to measure other relevant performance
indicators, SEI is inspected and a team of engineers from Bangladesh
University of Engineering and Technology (BUET) tests products.
Market Demand and Competitive Advantage
A regular and amply supply of water is a basic requirement of domestic,
agricultural and industrial purpose in a country like Bangladesh. From
sales track of the company, the production has tended to take the different
forms under different product category with main concentration on the
turbine pumps due to its higher demand and being a higher value item. It
has been shown in Table-2 in Annexure. Further, the deep well turbine
pumps of SEI are characterized by steady flow and high efficiency. These
features bring about considerable savings in power bills. Further, a
customer /user select the water pump on the basis of maximum reliability,
durability and economy of operation. Again, SEI offers repair of’ pumps,
which involves lifting, servicing and re-installation of a pump. SEI uses
the most durable materials in their pump production in order to maximize
the working life of the products. It guarantees the availability of all spare
parts at their Mirpur factory, Dhaka. SEI pump is designed in such a
manner that the delivery flange of the pump may be rotated at any direction.
The pumps an available coupled with electric motor and diesel engine
either on two-wheel trolley or steel base frame at customer option. The
mobile service of SEI team is available at any place of the country for field
services direct to the customer/users.
Pricing Policy and Relevant Factors
Successful pricing decisions will always be the result of a combination
of arts & science, but it is increasingly possible to measure the probabilities
of the effect of external forces in the environment in which a company
operates (Giles, 1973). Again, if a company follows skillful pricing policy
and review ii from time to time, it will ensure prosperity and help the
enterprise survive in the changing and competitive environment. SEI
considers many factors in pricing its products. The important ones are
demand of the customers/users, cost of production and competitive
environment of the market. However, cost plus pricing method is followed
by SEI to price their products for marketing.
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Channel Network and Market Structure
The main competitor in pump market of SEI is Milners Bangladesh
Ltd. But SEI has competitive advantages in context of price as well as
quality. Chittagong steel works competes with SEI in the market of Right
Angle Gear. However, SEI delivers their products in a professional and
personalized manner. So these are the competitive advantages of SEI
render installation, delivery, repairs and other services. Again efficient
and broad-based channel network is essential for the industries to meet
the competitive and dynamic challenges of the market. SEI follows direct
as well as indirect channel of distribution, which has been shown in
Diagram - 1 in Annexure.
Promotion Mix
A company’s total marketing communication program-called its
promotion mix consists of the sales promotion, and public relation tools
that the company uses to pursue its advertising and marketing objectives
(Kotler & Armostrong, 1995). It is the element in an organization’s
marketing mix that is used to inform and persuade the market regarding
the organizations products and services (Stanton & Futrell, 1987). However,
the success or failure of an industrial concern depends to a great extent
on effective and efficient promotion management. SEI uses personal
selling as a promotion media. Again, it has a limited group of loyal customer
who buys the products either directly or indirectly from the company.
Profit Trend
SEI has been maintaining their accounts with Arab Bangladesh Bank
Ltd., Motijheel, Dhaka since 1985 The attitude of bank authority towards
SEI is quite satisfactory. Since it is a sole proprietorship concern. SFI is
not required to produce an audited balance sheet for statutory purpose.
However, the profit of the company has been shown in the Table -3 in
Annexure.
Marketing Strategies for better Market Management
Dynamic and innovative market management is essential for the
small industries to meet the new and competitive challenges in the
market. Further, the nature of marketing environment is changing the
sellers market is turning to buyers market in Bangladesh and this is
truer in case of small industries. Again, customers desire sophisticated
goods as well as qualitative services too. But, in the absence of efficient
market management and existence of marketing problems thereof both
customers/ users and manufacturers suffered a lot.
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DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH
However, in order to prepare an effective marketing strategy, a company
must consider the role of its competitors and satisfy the aspirations of
actual and potential customers It must continuously analyze its competitors
and develop competitive marketing strategies that effectively position its
against competitors and give it the strongest possible competitive
advantage (Kotler & Armstrong. 1995). From the analysis made so far, a
number of problems are identified in marketing of small industrial sector
of Bangladesh in general and in respect of sample SEI in particular. The
following marketing strategies may be offered in order to better market
management of the small industries in Bangladesh.
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pricing policy may play a significant role in ensuring the market
management of small industrial concerns.
Conclusion
Thus, to conclude SEI is an instance of a successful story in the
development management of’ Bangladesh in general and in small
industries sector in particular. Again, the question that remains is what
more can be done for better market management through growth with
equity as well as to stimulate entrepreneurship, innovation, small
enterprise development and growth of the economy of a country like
Bangladesh.
Product Portfolio Strategy
Product portfolio strategy may play a positive role in the production of
demand -oriented qualitative products thereby competing in export market
and dominating in home market also. BSCIC and other supportive
agencies may arrange need-based trainings for the technicians and other
employees to develop their skill and efficiency in order to ensure the
production of quality products of the small industries like sample industry
(SEI).
Mass-Oriented Communication Network
Mass-oriented communication network between the two, i.e, producers
and users for increased attention to customer complains, grievances and
consultations is essential. Moreover, push strategy that calls for using
the sales force and trade promotion to push the product to the customers
through trade channels may be advocated for efficient marketing of small
industries products of the countries. In this process, the manufacturer
promotes the products to wholesalers, the wholesalers promote to retailers
and the retailers promote to customers /users.
Customer-Oriented Marketing Strategy
Customer-oriented marketing approach may be followed with regard
to product development to meet the competition of the market through
ensuring the ideal attributes in the content of the products, such as
reliability, durability and economy of operation. Thus, this strategy pares
the way for reducing the risk of consumers as well as producers in the
competitive market of small industries products in the country.
Judicious and Economic Pricing Policy
Pricing strategy of an enterprise requires continuous attention
because of a number of factors, such as changing external conditions,
actions of competitors and the like. However, a Judicious and economic
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DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH
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References:
Chowdhury, P. K., Financing of Small-Scale Industries in Bangladesh
(Ph.D.Thesis) Chandigarh: Punjab University, 1984, p.4.
Giles, G. B., Marketing, London: Macdonald and Evans Ltd., 1973, p.71.
I & D Analysis, “Role of Small Industry in Economic Development”, vol.3, 1962.
Kotler, Phillip & Armstrong, Gary, Principles of Marketing, New Delhi: Prentice
Hall of India (Pvt) Ltd., 1995, p.82.
Pickle, Hal. B and Abrahamson, Small Business Management, New York: John
Wiley & Soils, 1984, p.5.
ANNEXURE
Table – 1
Government offers incentive to SI sector in Bangladesh
SL No.
Heads
Incentives
1
Custom duty on
imported machinery
* 10% for developed areas
* 5%for undeveloped areas
2
Excise duty
3
Income tax rebate
* For developed areas 7 years
* For undeveloped 9 years
* BSCIC registered units are exempt
from payment of advance income tax on
import of their row materials.
4
Debt-equity ratio
* 80: 20
In SI sector, there is no excise duty
Stanton, J. William & Futrell, Charles, Fundamentals of Marketing, New York:
Mc-Graxv Hill Book Company, 1987, p. 96.
Sharma, S.V.S. Small Entrepreneurial Development in some Asian Countries.A Comparative Study, New Delhi: Light & Life Publishers, 1979, p.1.
5
Subsidize interest rate
* Fixed capital 10%
* Working capital 14%
[Source: Ministry of Industry, Government of Bangladesh.]
Table – 2
Production and Sales of SEI
Name of the products
Yearly production
Selling price
Total sales
(per unit)
Turbine pumps
200
Tk. 7,000
Tk. 140,000
Centrifugal pumps
Vertical gear
1000
Tk. 3,500
Tk. 35,00,000
400
Tk. 25,000
Tk. 100,00,000
[Source: Production and sales statement of sample enterprise]
Table – 3
Profit of SEI during the period of 1987-89 and 2001-2003
First 3 years
Last 3 years
Year
Profit
Year
1987
Tk. 5,28,000
2001
Tk. 15,32,000
1988
Tk. 6,60,000
2002
Tk. 25,70,000
1989
Tk. 7,92,000
2003
Tk. 60,50,000
[Source: Accounts statement of sample enterprise]
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Profit
DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH
DIAGRAM-1
CHANNEL OF DISTRIBUTION OF SEI
SEI
Direct Channel
Indirect Channel
WASA: Dhaka
WASA: Chittagong
Middlemen
Barandra Multi
Purpose Authority
(BMPA)
[Source: Official Memorandum of sample enterprise]
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