gp report - mukesh kumar

Title:

Exploration of Opportunities for K.Mohan & Co. (Exports) in SAARC Nations

Background:

The project “Exploration of opportunities for K Mohan & Co. in SAARC nations” itself explains its meaning. This is basically a Exploratory research which aims at finding opportunities of expansion for K Mohan in SAARC nation with a joint venture negotiation in any of SAARC countries.

This project aims to accelerate the idea which management of K Mohan decided to explore 3-4 years back but now it has gone for a back seat.

The project is a product based project. The product what we have chosen for this is women’s shirt made of Linen fabric. We have calculated all costs in this project for 500 pcs as the capacity of 1 line for the same product in K Mohan is 500 pcs. As K Mohan has most of its buyers from EU and USA, so this project also filters countries based on upsurge in garment trade between SAARC countries and US, EU. We have also focused on two destinations for raw material, one China for cheap linen, another Ireland for best quality linen.

Industry selected for Research K Mohan & Co. (Exports)Area selected Expansion of business in SAARC nationProduct Selected Women’s ShirtRaw material LinenFabric Imports China, IrelandTrim Sourcing LocallyExporting To USA, EULegal Relationship Joint Venture Relationships

To go with the flow in project it has been segmented into various parts in Data collection and analysis chapter. We have analysed trade statistics relating to garment trade between SAARC and USA, EU to find which countries are preferred by these buyers. Then we have also looked upon to check feasibility of having Export business in these countries by analysing Export to GDP ratio. In the next sequence we have checked financial feasibility of linen women’s top in SAARC countries by checking on raw material cost, trims cost, operational cost, export duties, corporate taxes. We have also touched the point of GSP and GSP+ to find out which all countries can come under GSP and GSP+ by EU & USA. In the next sequence we have looked upon to find out legal feasibility of expansion of a garment unit considering rules and regulations regarding joint venture in SAARC countries.

Graduation Project Report “ Exploration of Opportunities for K Mohan & Co. in SAARC nations” by “ MUKESH KUMAR- NIFT BANGALORE (2008-12)

Objectives:

To find new avenues and scopes for K.Mohan & Co. in SAARC nations. To explore opportunities of investment and expansion. To understand international trade regulations for Garments. To give a relative ranking to all SAARC nations for garment industry based on

selected criteria.

Significance to Industry:

Give new dimension in garment production by helping it to go global and find other opportunities.

Help reduce cost of production

Methodology:

The methodology we have adopted to carry out our research is as follows:

o Sample Selection:

The organization which we have picked to carry out our project work is K Mohan & Co. (Exports), which is an ISO certified government recognised export house headquartered in Bomanhalli, Bangalore.

o Finding the need:

Firstly we decided to talk to people in K Mohan and try to find out what they want and how they want to expand in SAARC countries. Based on their requirements we came up with some parameters putting time factor into consideration which we could complete in 4 months.

o Parameters Selected to pick up the best destination for expansion:

1.) Legal parameter (mainly a representation of Joint Venture rules of SAARC countries which is governed by Contract Laws)

2.) Economy & Export Trade Statistics of SAARC countries.

3.) Destination Specific Garment Export trade statistics

4.) Financial Feasibility in these countries which included Corporate taxes and destination specific GSP status to various product ranges.

5.) Product Cost:

i.)This included raw material sourcing cost from two most feasible destination for organization.


ii.) This also included transportation cost & import tax.

iii.) Another factor in product cost was taken as Operational cost.

iv.) One of factors was even Export taxes payable by company in these countries.

6.) While handling these issues we also included another factor as availability of EPZ for garment industry in these countries.

o Data Collection tools:

For data collection we have basically banked upon Secondary research and Primary research.

For secondary research we have depended upon Internet sources and magazines which could tell us what all factors can affect this type of expansion planning in SAARC countries.

For primary data we have banked upon Taking interviews of people within Bangalore, Taking Telephonic interview of people from other countries, Sending Questionnaires to relevant people out of Bangalore and get electronic data, Getting cost sheets for GOH packed garments from other countries.

o Results:

The method we utilized to get the result was ranking system. We ranked each country based on the factors chosen and then concluded our research on basis of giving three best preferred option to K Mohan for expansion in the given product class.

o Conclusion:

For conclusion part of this project we have used Weighted mean technique to find out which country is best and which country is not so good in context of K Mohan & Co. for expension.

Formula:

Which means

Here x is average ranking.

The country for which x is least is best for expansion.


Discussion & Analysis:

Trade Statistics:

afghan

istan

Bangla

desh

Bhutan India

Maldive

sNep

al

Pakist

an

Srilan

ka0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%

Export to GDP ratio

Export to GDP ratio

From the above chart we can find that Export to GDP ratio of Afghanistan, Bhutan, Maldives and Nepal is less than 10 %. So we can conclude that these countries are not conducive for opening a export business.

Figure 5.2

afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Srilanka0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

Garment Trade between EU and SAARC Countries

2006 2008 2010

(Stats in million euros)


From the above chart we can find that garment trade relationship between EU and Afghanistan, relation between EU and Bhutan, relation between EU and Maldives, relation between EU and Nepal has not been so good. EUs relationship with Bangladesh, India, Pakistan and Srilanka has been improving for last 6 years. So these countries can be considered conducive for opening a export house for buyer from EU.

afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Srilanka0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Garment trade between USA and SAARC countries

2010 Series2 2011

(Stats in million USD)

From the above chart we can see that trade relationship between USA and Bangladesh, relation between USA and India, relation between USA and Pakistan, relation between USA and srilanka has improves in 2011 w.r.t 2010. The relationship between USA and Afghanistan, USA and Bhutan, USA and Maldives is negligible. But there has been increase of 18.07 % garment export to USA from Nepal. So Nepal can be considered as potential garment exporter for a buyer from USA.

When we analyse all these three charts we can conclude that Srilanka, Pakistan, Bangladesh, Nepal are four countries in which garment export business can looked to be expanded.


Financial Feasibility Statistics:

1.) Yearly corporate tax analysis

Bangladesh India Nepal Pakistan Srilanka Bangladesh (EPZ)

0

5

10

15

20

25

30

35

40

Corporate taxes in SAARC nations (in %)

Corporate taxes

Through the above graphical chart we can conclude that Bangladesh EPZ has got lowest annual corporate tax as being in EPZ gives 5 years tax holiday if a manufacturing unit is opened there. The highest tax corporate tax is paid in Bangladesh by any company. The next in the list is Pakistan and then comes India. In general working condition Nepal has got lowest corporate taxes to be paid. So from this graph also we can say that Bangladesh EPZ is most conducive for opening a export house.

2.) GSP and GSP + status to various SAARC nations:

If we observe the GSP status given by European Union we can observe that only Bangladesh has got GSP status in clothing and clothing accessories, whereas Srilanka has got GSP status for some textile material but it doesn’t include shirt, which is our product. India has got GSP for precious stones & jewellery which is not of our relevance. The product category for which Pakistan & Nepal has got GSP doesn’t include linen products, so it is not in our product category.

If we observe GSP status given by USA we can find that Bangladesh has got GSP status for woven silk product which is not our product category. Sri Lanka has got GSP status for national flag, Handkerchief, shawls which are not of our product category. Nepal has got GSP status for all clothing items whereas Pakistan has got GSP for denim clothing.


So, by analysing GSP status we can say that in case of EU GSP Bangladesh has got an edge over other countries,. In case of GSP by USA Nepal has got an edge over other countries.

3.) Product Cost:

i.) Cost of Raw material

Fabric Cost+ Transportation Cost + Import Duties

Raw materials has to be imported from Ireland and China


$0.00$500.00

$1,000.00$1,500.00$2,000.00$2,500.00$3,000.00$3,500.00

Total Cost of fabric from China

Total Cost of fabric from China

If we see the Total cost of importing fabric for 500 pcs of women’s shirt from China we can see that cost of fabric in Sri Lanka turns out to be minimum. Pakistan has got maximum cost of fabric when importing linen from China.


$0.00$1,000.00$2,000.00$3,000.00$4,000.00$5,000.00$6,000.00

Total Cost of fabric from Ireland

Total Cost of fabric from Ireland

From the above Chart we can find that we can find that Total cost of importing linen fabric from Ireland to Pakistan and Bangladesh is maximum where as Nepal comes next in the list.


The cost of importing linen to Srilanka and Bangladesh (EPZ) is lowest. So, Srilanka and Bangladesh (EPZ) can be considered for importing fabric from Ireland.

Trims Cost (To be sourced locally):


$0.00$100.00$200.00$300.00$400.00$500.00$600.00$700.00$800.00$900.00

Tota cost of trims

Tota cost of trims

From the above chart we can observe that sourcing trims locally for 500 pcs of linen women’s top from Nepal will cost maximum. The cost of trims locally in Bangladesh is minimum. The cost of trims in Pakistan and Srilanka next to Nepal.


$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

$4,000.00

$4,500.00

Total Raw material Cost (fabric from China)

Raw material Cost


Total cost of raw material for 500 pcs of linen women’s top is minimum in Bangladesh (EPZ) and Srilanka.So these two places can be best option to have operations if fabric is imported from China. Total cost of raw material in Pakistan is maximum when fabric is imported from China.


$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

Total Raw material Cost (fabric from Ireland)

Raw material Cost

Total cost of raw material for 500 pcs of linen women’s top is minimum in Bangladesh (EPZ) and Srilanka.So these two places can be best option to have operations if fabric is imported from Ireland. Total cost of raw material in Pakistan is maximum when fabric is imported from Ireland.


76

ii.) Operational Cost:


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Labour Cost/ Day

Skilled worker semi Skilled Worker Un Skilled Worker Helper


$0.00$50.00

$100.00$150.00$200.00$250.00$300.00$350.00$400.00$450.00$500.00

Total labor cost for 500 pcs/day

labor cost

If we look upon to above 2 charts we can observe that average labour cost/day in Nepal is minimum. Average labour cost/ day in Srilanka appears to be maximum. The labour cost/day in Pakistan in is second highest. Labour cost/day in Bangladesh (EPZ) is more than that of Bangladesh in normal situations.

But if we observe Total labour cost for 500 pcs then we can observe contrasting result than labour cost/day. The total labour cost in Nepal is maximum where as labour cost in Bangladesh is minimum. This can be credited to low labour efficiency of Nepalese labour in case of linen women’s top. Whereas skill level of Srilankan labour is maximum.



$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

Electricity Cost for 500 pcs

Electricity Cost

From the above graphs we can conclude that Electricity cost in Srilanka is maximum whereas a factory in Bangladesh has to pay minimum electricity charges, the cost of electricity in Bangladesh (EPZ) is more than that of Bangladesh.


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Water Cost for 500 pcs

Water Cost

From the above graphs we can conclude that water cost in Bangladesh (EPZ) is maximum whereas a factory in Srilanka has to pay minimum Water charges, the cost of water in Bangladesh (EPZ) is twice that of Bangladesh.


Bangladesh India Nepal Pakistan Srilanka Bangladesh( EPZ)$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

$400.00

$450.00

$500.00

Total Operating Cost For 500 pcs/day

Total Operating Cost

From the above graph we can observe that Total Operational cost in Bangladesh is minimum. The operational cost in Nepal for 500 pcs of women’s linen top is maximum. The Operational cost of Pakistan comes second lowest. Whereas the operating cost for Bangladesh (EPZ) comes next in line. So on the basis of operational cost Bangladesh can be considered as the best destination for expansion of manufacturing units.


iii) Export Cost:


$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

Export Taxes

Export Taxes (Fabric Shanghai) Export Taxes (fabric Belfast)

The Export taxes for 500 pcs of Women’s linen top are maximum in Pakistan. The Export taxes in Bangladesh (EPZ) are nil as government promotes tax free import of products from EPZ. The Export taxes in Bangladesh is more than India when fabric is imported from China, but situation gets reversed i.e. Indian Export taxes overtakes Bangladesh when fabric is imported from Ireland.


Total Cost :( Raw material cost+ Operational cost+ Export Cost)

Bangla

desh IndiaNep

al

Pakist

an

Srilan

ka

Bangla

desh (E

PZ)$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00$3,500.00

$4,000.00

$4,500.00

Fabric Sourced from China

Raw material Cost Operating CostExport Cost

Bangla

desh IndiaNep

al

Pakist

an

Srilan

ka

Bangla

desh (E

PZ)$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

Fabric Sourced from Ireland

Raw material Cost Operating CostExport Cost

Both the graphs explain how raw material cost, Operating cost & Export Cost vary between SAARC countries when fabric is imported from China & Ireland.



$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

$8,000.00

$9,000.00

$10,000.00

Total Product Cost

Total Product Cost ( China) Total Product Cost (Ireland)

From the above chart we can say that Total product cost in Pakistan is maximum whereas total Product cost in Bangladesh (EPZ) in minimum. By these graphs we can say that the expansion opportunities for K Mohan are maximum in Bangladesh (EPZ), followed by Srilanka, and then the number of Bangladesh comes. Nepal & Pakistan can be lowest preferred in terms of total product cost.

Legal Feasibility Analysis:

As Joint Venture companies are governed by contract law of respective country. So, we have treated joint venture laws of each countries same as we are technically incapable to comment about laws prevailing in any country.


Results & Conclusion:

From the data we have collected and analysed we can reach to following result:

On the basis of trade statistics:

Ranking can be given to SAARC countries as follows: (1-best, 7- worst)

Country GDP to export ratio Garment Trade with EU Garment Trade with USA

Afghanistan 6 5 5Bangladesh 2 1 1

Bhutan 7 6 5Maldives 4 7 5

Nepal 5 4 4Pakistan 3 3 2Srilanka 1 2 3

On the basis of above result we can find that only Bangladesh, Nepal, Pakistan, Srilanka are conducive for expanding a garment export manufacturing unit to these countries.

On the basis of financial feasibility Analysis: (1- best, 5- worst)

Countries Corporate Taxes GSP by EU GSP by USABangladesh 5 1 2Bangladesh (EPZ) 1 1 2Nepal 2 2 1Pakistan 4 2 2Srilanka 3 2 2

On the basis of product Cost: (1- best, 5- worst)

Countries Raw material Cost

Operational Cost

Export Cost Total Cost

Bangladesh 4 1 3 3Bangladesh (EPZ) 2 3 1 1Nepal 3 5 4 4Pakistan 5 2 5 5Srilanka 1 4 2 2

On the basis of Legal feasibility Analysis: (1- best, 5- worst)

Countries Joint Venture Policy Bangladesh 1Bangladesh (EPZ) 1Nepal 1Pakistan 1Srilanka 1


To reach to the final outcome of ranking of countries we are following weighted Mean technique (mentioned in methodology).

Formula=

For Bangladesh:

{(20*1)+(30*3)+(15*5)+(15*1)+(15*2)+(12*2)+(8*1)}/115 =2.27

For Bangladesh (EPZ):

{(20*1)+(30*1)+(15*1)+(15*1)+(15*2)+(12*2)+(8*1)}/115 = 1.234

For Srilanka

{(20*1)+(30*2)+(15*3)+(15*2)+(15*2)+(12*1)+(8*2)+(8*3)}/123 = 1.92

For Nepal:

{(20*1)+(30*4)+(15*2)+(15*1)+(15*2)+(12*5)+(8*4)}/115 = 2.66

For Pakistan:

{(20*1)+(30*5)+(15*4)+(15*2)+(15*2)+(12*3)+(8*3)+(8*2)}/123 =2.97

By the above calculations and all the data collected both primary and secondary, it is

throwing light upon the fact based on research that most favourable place for expansion for K Mohan for linen women’s top is export processing zone in Bangladesh. Then next comes Sri Lanka. It is followed by Bangladesh in normal circumstances. Pakistan is least preferred for linen women’s top production while Nepal is second least favourable. So we can give ranking to countries in SAARC as follows:

Table 8.1 Final ranking of Countries

Ranking Country Points in Weighted Mean

I Bangladesh (EPZ) 1.234II Sri Lanka 1.92III Bangladesh 2.27IV Nepal 2.66V Pakistan 2.97


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gp report - mukesh kumar

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