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Asian Affairs, Vol. 30, No. 1 : 21-31, January-March, 2010

CDRB publication

ASIAN AFFAIRS

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.

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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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

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DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH

ASIAN AFFAIRS

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. 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. 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. 23

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. 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. 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, 24

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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. 25

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. 26

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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. 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 27

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.

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DEVELOPMENT OF SMALL INDUSTRIES IN BANGLADESH 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. 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.

4 5 Debt-equity ratio Subsidize interest rate SL No. 1

ASIAN AFFAIRS

ANNEXURE

Table ­ 1 Government offers incentive to SI sector in Bangladesh Heads Custom duty on imported machinery Excise duty Income tax rebate Incentives * 10% for developed areas * 5%for undeveloped areas In SI sector, there is no excise duty * 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. * 80: 20 * Fixed capital 10% * Working capital 14%

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[Source: Ministry of Industry, Government of Bangladesh.] Table ­ 2 Production and Sales of SEI Name of the products Yearly production Selling price (per unit) Turbine pumps Centrifugal pumps Vertical gear 200 1000 400 Tk. 7,000 Tk. 3,500 Tk. 25,000 Tk. 140,000 Tk. 35,00,000 Tk. 100,00,000 Total sales

[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 Year 1987 1988 1989 Profit Tk. 5,28,000 Tk. 6,60,000 Tk. 7,92,000 Year 2001 2002 2003 Last 3 years Profit Tk. 15,32,000 Tk. 25,70,000 Tk. 60,50,000

[Source: Accounts statement of sample enterprise]

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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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