international business

5/20/2018 International Business

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1. Introduction:

The Electronics Market in Bangladesh is an ever-rising industry. The appropriate

market size has never been determined as it is ever changing. The whole market

can be separated into several segments like:

Semiconductor Market

Electronics Appliances Market

Raw Materials and Spare Parts Market

IT Market

The electronics industry in Bangladesh mostly produces consumer items. Home

appliances include televisions, radios, DVDs and CD players; refrigerators, air

conditioners, ovens, electronic fans, blenders etc. are being assembled to a large

extent. To ensure the performance reliability, the key challenges in this sector

are technical assistance and proper technology orientation of the industry.

Developing the significant capacity and skill in assembly and manufacture of a

wide range of electronic components and parts is crucial.

High skill, low cost labor resource of the electronics sector in Bangladesh offers

companies great returns on investment. Whilst the global market for

semiconductors is worth in excess of $200bn and is dominated by the Asian

economies, Bangladesh has significant financial and economic factors in its favor

that make it the best choice for many companies.

Manufacturing SMEs in Electronics was a thriving sector in Bangladesh in the

nineties. The number of enterprises went over a few thousands, and quite a few

of these came to prominence through innovation, quality of products and after

sales service. However, due to framing of shortsighted import policies to support

the proliferation of computers and solar PV systems in 1998, the whole

electronics sector has been devastated. This has been described to some extent

in the background segment. However, whatever local production is being made

at present is due to very small enterprises who prefer to keep themselves

hidden, in order to avoid visibility. A visible industry in this sector cannot

survive due to the requirement to comply with the faulty taxation regime. No one


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knows the number of such businesses and they do not form any cluster. Neither

any registered associations are theyre representing this sector. BEIMA is the

only association maintaining a low profile. It was formed in 2003 with more than

50 members specifically to plead with the Government with the hope of bringingin changes in favor of manufacture. As all efforts failed, most of the members

vanished or shifted to importing of finished goods.

2. Better Late Than Never:

Manufacturing or assembling air-conditioners, refrigerators and TV sets has

become a simple technology now a day and some Asian and Middle Eastern

countries are successfully doing the jobs. Bangladesh is still far behind in this

area and has been importing these items from Thailand, Malaysia and Taiwan for

the last few decades because it has miserably failed to acquire the technology

and apply it in manufacturing or assembling. Technology transfer did not happen

in the country due to many factors. Other countries like Korea are the home to

Samsung, LG, Hyundai, and other notable technology-driven firms. Phillips, the

major European consumer electronics firm, could enter the flat panel TV market

only through a joint venture with LG. Taiwan is the base for Acer, which recently

acquired Gateway, a major US computer company. Four decades ago, Samsung,

LG, and Hyundai were small firms. Now we all know where they are standing.

Bangladesh is hackneyed in electronics, mobile, ICT and other high-value-added

industries due to absence of technology and innovations application. Bangladesh

lags far behind the emerging economies in reaping benefits from technology

transfer. But things are going to change now. A lot of people start investing in

this electronics sector. A great example is Walton Bangladesh. From this we just

want to say, Better late than Never.


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3. Industry Outlook

Bangladesh's experience in basic electronics spans over two decades. In recent

years, European and Asian electronic firms have established technical

collaboration with their Bangladeshi counterparts to produce some electronic

goods at competitive prices. This has tremendous potentiality for expansion.

The government of Bangladesh has adopted National Telecommunication Policy,

1998. Investment is encouraged through BLT-BOT/BOO/BTO* and other joint

venture schemes which by greatly increasing the capacity, quality and type of

services, will create improved efficiencies in other sectors such as transportation

energy and the textile industry.

To meet the telecommunications' requirements of the country the government

has been developing and expanding the systems and services of Bangladesh

Telegraph and Telephone Board. Private sector operations in the rural

telecommunication, paging, cellular telephones and riverine radio trunking have

already been allowed. At present seven private operators are providing their

services to about 100,000 customers. Government has allowed expanding

300,000 digital telephone lines in Dhaka by private sector participation through

open tendering.

In accordance with overall national policy, liberalization of the

telecommunications sector will continue. However, the government retains the

sale authority to determine the number of competitions that are economically

viable for certain services. The strategy is to provide equal and rational

opportunities to all competitors.

Skilled, easily trainable and low-cost human resources are the main cost

advantage of setting up electronic industry in Bangladesh. Growing domestic

demand and international market access are some key attractive issues to the

investors. In the economies like Malaysia, Singapore, Korea and Thailand,

electronics contribute a major portion in the GDP. They are encouraging

electronic industry to shift from low-end assembly operations with high import

content of inputs to upstream higher value-added activities. In our country, the

most value added items in electronics industry are:


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Mobile Phone

Television

Computer/notebook/laptop

Refrigerator Home & kitchen Appliances

Air Conditioner etc

4. Growth of the Industry:

Walton is one of the major players in the electronic appliances market. They are

also manufacturing motorcycles alongside home appliances such as television,

refrigerators, air-condition etc.

The market of these products relies heavily on the average household income.

For most people in Bangladesh home appliances had been luxuries they, which

they cannot afford, but recently the situation have been changing. Over the last

10 years, there has been massive economic growth in the country, which has

increased the income of lower- middle and middle class people. So the demand

for home appliances has increased substantially.

If we look at the annual GDP growth of the country in the last 10 years, we can

see that there has been a steady increase.

One of the main reasons of this growth has been because of the increased

investment in the fast growing sectors of the economy, which has reduced therate of unemployment drastically over the years.


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Contribution of electronic industry to the country's Gross Domestic Product

(GDP) has shrunk by 0.19-percentage point in the outgoing fiscal year (FY) 2012-

13 compared to that of the previous fiscal.

The growth of the sector also witnessed a 0.94 per cent negative growthconsidering the GDP at the current market price in the outgoing fiscal, according

to the Bangladesh Economic Review 2013.

The Bangladesh Bureau of Statistics (BBS) data showed that contribution of the

sector to the country's GDP, whose size is worth Tk 10379.91 billion in the

current market price, has shrunk to 14.05 per cent in FY 13, low by 14.24 per

cent than the previous fiscal.

A BBS official told the FE that when the country maintains a 6.0 per centeconomic growth and its per capita income increased to $923, it is natural that

the retail and wholesale trade is also on the rise. But it doesn't happen in the

outgoing fiscal year, as political instability has affected normal trade activities.

Higher inflationary pressure, both food and non-food, also contributed to the

negative growth of the sector.

According to Bangladesh Electronics Merchants Association (BEMA) president

Md Amir Hossain Khan, the FE that sales of various electronics items liketelevision, refrigerator, air conditioner, and computers etc have declined in the

outgoing fiscal year due to hartal and imposition of higher import duty. The

government has imposed 15 per cent VAT in production level of plastic goods

which will increase their prices. The middle-income and low-income people will

be hit hard by the decision and it will also encourage import of these products.

5. PEST Analysis of the Electronics Industry:

Political Factor:

High Import Duty on Imported Home Appliance Products

Export promotion schemes of Bangladesh Government

Tax Incentives on Import of Plants

Constant Government Support


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Economic Factor:

Increase in per capita income

Growing GDP high disposable income

Increase in Spending Power

A huge prospect of a profitable export sector

Socio-cultural Factor:

Manufacturing Eco-Friendly product

Changing lifestyle of middle income people

Technological Factor:

Improvement in Technology made electronics cheaper Increased quality of production

6. Walton At a glance:

Walton Hi-Tech Industries Ltd (Walton HIL) is one of the best companies in the

electronic sector of Bangladesh. Walton is one of those few Bangladeshi

companies that export electronic products since most of the companies in

Bangladesh import products of various famous brands. The company was

established in 1977. Since then, it has been setting new benchmarks in

production of electronic goods in Bangladesh.

The company has a yearly production capacity of 1.4 million pieces of fridge,

300,000 pieces of air conditioner and 300,000 pieces of motorbike. In its early

stage, the company used to produce home appliances. Today their product mix

includes Mobile Phone, Generators, and Motorbikes. In 2009 the company signed

an agreement with the Malaysian auto manufacturer Ageth to set up an

automobile plant in its factory premises. After meeting the local demand the

company is exporting its products to Qatar, Dubai, Abu Dhabi and Kuwait of

Middle East, Ghana of Africa and India, Nepal and Bhutan of South Asia, and

U.S.A. It also wants to export its products to France, Italy, Germany, Spain and

other European countries. Walton has been successful in capturing this large

international market because of its high quality products. To ensure this high


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quality of products all the members of the Walton family, both factory and

administrative members, work very hard round the year.

Expected market growth of Walton in the next five years:

Table : Future growth of Walton HIL

Waltons main target market has always been middle-income group. So they

have been very careful in setting their price of product. Also the fact that they

manufacture their products, it allows them to set a lower price than their

competitors, as they dont have to pay heavy import duty. Below is a comparison

of the prices of different products of different brands-

Price comparison of TV:

7.INVESTMENT STRATEGIES OF ELECTRONIC BUSINESSS INBANGLADESH

As we know, there are may value added products here in electronic industry. But

due some constraints we have to choose the most value added product like

mobile phone & television.


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Electronic businesses in Bangladesh are in many forms and most of them are

usually imported items. Few industries that manufactures Television are

Bangladesh Telecom Limited, Prime Electronics Ltd, Videocon International,

Sears Electronics, Rangs Group of Co. Phillips Bangladesh Limited, Kallol Groupof companies, Nipun electronics. The televisions produced by the above-

mentioned manufacturers, are of inferior quality compared to foreign TVs.

However, the price is also much cheaper than the foreign items. Their target

customers are usually low-income group. Most of their products are sold at small

shops of our country.

One of the most leading and giant manufacturers of Television and Mobile

phones in Bangladesh is Walton. Walton also manufactures, other electronicsitems like Refrigerators, Blender, and many other electronics stuffs. Walton have

also specialized themselves in manufacturing smart phones and led TVs. Their

upcoming project is to manufacture Smart TV like Samsung. Since Walton is

producing mobile phones in Bangladesh, their price is much cheaper compared

to phones like Samsung, Nokia, or Sony Xperia. The quality of their phones does

not differ significantly with the foreign brands. Walton is also providing

customer support for their products.Another mobile phone giant of Bangladesh is Symphony manufactured by Edison

group. Symphony is not only competing effectively with its local competitor

Walton but it has also pointed out a gap between market demand and market

offerings as global brands were charging high price for smart phones. Their price

and quality of cell phones is very much similar to Walton mobile phones.

Transcom is the importer of Samsung products in Bangladesh. The price of their

imported Samsung phones and Samsung televisions are exorbitantly highcompared to the price in the international market. Their products are distributed

among different authorized dealers across the country, which not only sell

Samsung phones and televisions but also claims to provide Service warranty.

Other well known local importers in Bangladesh such as Gadgets & Gears

imports brand mobile phones but do not provide any service warranty as their

price is relatively lower than the authorized dealers of the country.


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There are other multinational companies such Singer operating and

manufacturing electronic items such as Television along with other electronic

items in Bangladesh.

8.RECOMMENDATION

Investment strategies like Merger & Acquisition, Joint Venture and Strategic

Alliance is very popular in the electronic business. Recently, there was a Joint

venture agreement between Venezuela government and South Koreas Samsung

electronics For a local electronic company in Bangladesh that wants to

manufacture and launch products like Television and Mobile phones a Joint

Venture strategy with a foreign company would be an ideal move.

A joint venture is a strategic alliance where two or more parties, usually

businesses, form a partnership to share markets, intellectual property, assets,

knowledge, and profits. The purpose of selecting a Joint-Venture strategy is to

minimize the investment costs and to learn the strategies and expertise from

foreign firms and also to survive the competition from large competitors like

Walton.

Through joint venture, our local electronic company can get access to

technologies and resources required to produce sophisticated mobile phones

and televisions, as Bangladesh barely have the machineries and manpower to

produce world class products at low cost. However, our local company can

provide support on government workings, regulations, marketing, and

distribution know-how and also share the investment costs with the foreign firm.

The joint venture seal can be model of how business should be done, rather than

letting unscrupulous small companies import goods especially from China and

Korea and sell them at a big mark up.

international business

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