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CeramicBD Jahan PDF
CeramicBD Jahan PDF
Abstract
Michael Porter’s Five Forces Model is one of the famous tools for analyzing an
industry’s environment. According to this model, a company can achieve its
existence and success in an industry only if it can overcome and sustain the
competitive forces of the market within which it operates. Ceramic industry of
Bangladesh is a booming sector and the growth potential of both domestic and
local market indicates it may become one of the big foreign exchange earners for
the country. Therefore, analyzing the industry environment of ceramic sector is of
great concern to strategist since defending against the competitive forces of the
marketplace and shaping them in a company’s favor are crucial to strategy
formation. To address this issue, this paper analyzes the industry environment
(competitive environment) of ceramic sector of Bangladesh by using Porter’s Five
forces model. The analysis of five forces indicates that the collective impact of the
competitive forces is moderate to weak; hence, the ceramic industry of Bangladesh
is considered to be competitively attractive in the sense that industry members can
reasonably expect to earn decent profits and a nice return on investment.
1
Lecturer, School of Business, Independent University Bangladesh, Chittagong,
Bangladesh.
Jahan: Ceramic Industry of Bangladesh 105
excellent fit with the company’s situation and the most powerful tool for such
diagnosis is “Porter’s Five Forces Model” (Porter 1980, Thompson et al. 2007).
This framework has been used in this paper to diagnose the immediate and
competitive environment of ceramic sector. The growth potential of both domestic
and export market indicates that ceramic industry has every potential to become a
big foreign exchange earner for the country in the near future. Traditionally known
for jute and tea exports, Bangladesh entry into ceramic export market is not that old.
But the industry has witnessed a rapid growth since 1991. This sector has already
earned a good name in the global market for its quality products with elegant getup
and design. Bangladesh exported only US$1 million worth of ceramic wares in
1991 before recording a staggering 695% growth in about a decade (Daily Ittefaq
2009). Though the export earning from ceramic sector is growing rapidly, it is no
match in comparison to the readymade garment or leather sectors. Ceramic products
have a $20 billion global market, of which Bangladesh’s share is only 0.17%.
However, a silent revolution has been taking shape in the country’s ceramic sector
for the last few years. This industry contributes a lot to the country’s overall
development by generating direct and indirect employment, attracting foreign
investment and exploring new markets in Europe, the USA, the UAE and the
Middle East (Khan 2009). Therefore, this paper addresses the need to research on
the industry environment of ceramic sector of Bangladesh.
2. RESEARCH METHODOLOGY
Porter’s Five Forces model is used to analyze the industry environment of
ceramic sector. To identify the five forces within which the incumbent’s or
company’s operate in the ceramic industry, information were primarily collected
from the secondary sources. These include books, newspaper articles, journal
articles, website publications by Export Promotion Bureau and Bangladesh Bank
and online articles from different news-based websites.
3. THE FIVE FORCES MODEL
An industry can be defined as a group of companies offering products or
services that are close substitutes for each other. Close substitutes are products or
services that satisfy the same basic consumer needs. It is important to analyze the
competitive forces in an industry’s environment in order to identify the
opportunities and threats confronting a company (Hills and Jones 1998). The
competitive forces operating in a company’s industry are never the same for one
industry to another. The most powerful and widely used tool for systematically
diagnosing the principal competitive forces in a market and assessing the strength
and importance of each is the ‘five forces model of competition’. Michael. E. Porter
106 Journal of Business and Technology (Dhaka)
of the Harvard School of Business Administration has developed this model that
effectively facilitates industry analysis. This model, depicted in Figure 3.1 (in
appendix), holds that the state of competition in an industry is a composite of
competitive forces operating in five areas of overall market (Porter 1980, Thompson
et al. 2007):
(i) Competitive pressures among rival sellers in the industry;
(ii) Competitive pressures associated with threat of new entrants into the
market;
(iii) Competitive pressures coming from the attempts of companies in other
industries to win buyers over their own substitute products;
(iv) Competitive pressures coming from supplier bargaining power;
(v) Competitive pressures stemming from buyer bargaining power;
Understanding these competitive forces and their underlying causes reveals the
roots of an industry’s current profitability while providing a framework for
anticipating and influencing competition (and profitability) over time (Porter 2008).
Porter argues that the stronger each of these forces is, the more limited is the ability
of established companies to raise prices and earn greater return. Within Porter’s
framework, a strong competitive force can be regarded as a threat since it depresses
profits. A weak competitive force can be viewed as an opportunity, for it allows a
company to earn greater profits. The strength of these five forces may change
through time as industry conditions change profits (Hills and Jones 1998).
4. PRESENT SCENARIO OF CERAMIC INDUSTRY
The global ceramic industry is worth of US$20 billion. Bangladesh is perfectly
positioned to expand rapidly in this sector with its high quality, cost ratio and
creative human resource base. Traditionally, ceramic industry is a labor-intensive
sector and companies in developed countries experience difficulties in remaining
competitive due to rising labor cost and recent global financial crisis. Bangladesh,
being a gas rich, low-labor cost economy and having advanced ‘bone china’
technology, is perfectly positioned to be a strategic partner in production and supply
of ceramic goods (Board of Investment, Bangladesh).
The ceramic industry is surprisingly not quite a new one in Bangladesh. It dates
back to 1962. People Ceramic Industries Ltd (PCI) pioneered the manufacture of
porcelain tableware in Bangladesh (Khandaker and Alamgir 2006). According to
Bangladesh Ceramic Ware Manufacturers Association (BCWMA), there are
approximately 40 ceramic manufacturers operating in this industry producing
tableware, sanitary ware and tiles. A medium scale ceramic plant needs around
Jahan: Ceramic Industry of Bangladesh 107
Taka 10 crore (Taka 100 million) in initial investment and the BCWMA sources say
the present investment in the country’s ceramic industry is roughly about Taka
2,000 crore (Taka 20 billion) and this sector employs some one lakh (0.1 million)
workers. Shinepukur, Monno, Bengal Fine, Standard, Peoples and National Ceramic
are considered as major players in ceramic tableware market. RAK, Fu Wang,
China-Bangla, FARR, Modhumoti, ATI, Sunflower, Great Wall, Dhaka-Sanghai
and Mir are considered as major manufacturers of tiles and sanitary wares and their
share of market is depicted in Figure 4.1 (in appendix). The total capacity of
ceramic tableware manufacturing companies is nearly 24,000 tonnes a year as of
2008, of which an average of 48 percent is exported and the remaining 52 percent is
used in the domestic market. Monno and Shinepukur have the highest production
capacity of nearly 60,000 pieces a day, followed by Standard ceramics with 40,000
pieces a day. According to a market study, the existing tiles factories produced 374
million square feet of tiles in 2008 and the output is estimated to grow at the rate of
17 percent in 2009 and 2010. Of the total production of 322 million square feet of
tiles in 2007, RAK ceramics alone made 74 million square feet followed by China-
Bangla, Fu-wang an Mir, each produced slightly over 30 million square feet of tiles
(M. Islam 2010, Khan 2009, Rahman 2009c, 2009e).
Over the years, the ceramic industry in Bangladesh has flourished immensely
and has gained recognition throughout the world. Local ceramic ware
manufacturing industry is expecting a steady growth with a US $100 million return
from exports by 2015 as the global market favors more shipment from Bangladesh.
The Export Promotion Bureau (EPB) and Bangladesh Bank statistics shown in
Figure 4.2 (in appendix) , put the total value of export earnings from ceramic ware
at $38.33 million in the FY 2007-08, up by 28% from the previous year and in the
last fiscal year, the earnings stood at $31.70 million. After a consistent growth in
last 15 years, this sector is now in a good position to achieve the target of $100
million export earnings (Daily Ittefaq, 2009; Hossain, 2009; Export Promotion
Bureau and Bangladesh Bank).
Quality of products has helped Bangladesh to carve a niche in the global
market; the manufacturers in this sector are taking risks while diversifying their
designs into world-class standards. Furthermore, the natural gas that is used in the
kilns of the Bangladesh's ceramic industry does not contain any sulphur and that is
why the country's ceramic products look brighter and shiny. The close competitors
of Bangladesh are China and India, but they mostly produce traditional items.
Moreover, due to recent global financial crisis and rising labor cost, the developed
countries are placing more orders to low-cost countries like Bangladesh. The trend
of growth rate of this sector since 1991 show that the export market will grow
further. To cope with the increased export demand, all major exporters, such as
108 Journal of Business and Technology (Dhaka)
Monno Ceramic, Shinepukur Ceramic, and Bengal fine ceramic, have been
expanding their plant (Khan 2009).
Though export market of Bangladeshi ceramic industry is growing, the
domestic market share of local ceramic wares is shrinking due to widespread import
of low-priced foreign goods, mainly from China. As overseas demand is going up,
country’s major manufacturers are now pumping 80 percent of the production into
the international market. Moreover, the local companies export much of the
products to the international market, thus creating a demand-supply gap in
Bangladesh. Due to this, imports of ceramic products in Bangladesh are increasing
very fast parallel to the growth in export. In the year 2008-09, for instance, the
country imported finished ceramic products, glass and glass ware products worth of
approximately US$75 million and exported ceramic products worth of US$31.70
million (Kakati 2008, Rahim 2005, Export Promotion Bureau and Bangladesh
Bank).
Of different ceramic products, ceramic tablewares are exported to about 50
countries including the USA and Canada, tiles to India, Nepal and Bhutan and
sanitary ware to the Middle East, especially to the UAE. The industry sells ceramic
products worth of Taka 1,000 crore (Taka 10 billion) annually in the domestic
market and pays taxes close to Taka 300 crore (Taka 3 billion) and Taka 100 crore
(Taka 1 billion) to the utility services, including gas (Khan 2009, Islam 2010).
rivalry among the existing companies are still weak, thus making this sector more
attractive for the potential entrants.
machineries are imported from mainly India, China, Rumania, Indonesia, Italy and
Germany. The Mymensingh clay could be used for producing tiles, but in 2007 the
government put an embargo on cutting hills which stopped the ceramic
manufacturers from procuring raw materials from the Mymensingh hills. Since in
Bangladesh, there is a shortage of raw materials, equipment and machineries for
ceramic industry, it gives the supplier more leverage in bargaining the price. But the
supplier base of ceramic sector is moderately large enough to weaken the supplier
power. However, some of the suppliers like India are also showing interest to
integrate into the ceramic industry of Bangladesh and perhaps could become a
powerful rival (Chowdhury 2004, Islam 2010, Khan 2009).
or six new ceramic factories would be set up in the country with an investment of
around Taka 3,000 crore (Taka 30 billion), which will generate employment for
around 500,000 (0.5 million) workers. Besides, the importers who used to import
low-cost Chinese goods are now coming up to set up manufacturing units of their
own. According to BCWMA, this transformation has resulted as the government
increased the supplementary duty on imports of tiles and sanitary ware to 45 percent
(Islam 2010, Rahman 2009e).
The pool of new entry into the ceramic industry of Bangladesh indicates this
sector has low entry barriers as the government regulations are supportive for new
entrants. However, the number of new entrants and their capacity development is
low compared to the growth in domestic and export demand. Hence, the competitive
threat of potential entry is not strong enough to place significant competitive
pressure on the existing manufacturers.
8. FUTURE OUTLOOK
The ceramic industry of Bangladesh could become a basic building block for
the country’s construction and housing sector; however, this sector is already
contributing to the country’s economic progress through export earnings, foreign
currency savings and generating employment. The industry people say this is
possible provided the government supports this sector with due diligence. The
government has promised to extend all sorts of cooperation to make Bangladesh the
hub of ceramic goods production in the world. Bangladesh government has already
drawn a policy to prevent the import of low quality ceramic products having health
hazard ingredients. To discourage import of tiles and sanitary ware items,
supplementary duty on imports has already increased to 45 percent in place of
existing 20 percent. Besides, the government has also promised uninterrupted power
and gas supply for this sector. Moreover, the certain provisions of the Budget 2009-
10, for instance, providing accommodation for all by 2021, would have positive
impact on the ceramic industry as well (New Age 2009, Islam 2010).
If the ceramic industry of Bangladesh can overcome the stated limitations, it has
every potential to grow and become a big foreign exchange earner for the country
with its dazzling products in the era of globalization.
116 Journal of Business and Technology (Dhaka)
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Chowdhury, T. A. ed. 2004. “Budget proposal for 2004-05 Fiscal, Ceramic Industry for
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Islam, K. A. 2010, March 5. “Changing Lifestyle Gives Crockery Industry a Boost.” New
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118 Journal of Business and Technology (Dhaka)
APPENDIX
Figure 3.1: The Five Forces Model
Figure 4.1: Market Share of Ceramic Tiles Manufacturing Companies (in percentage)
10.32
13
China-Bangla
Dhaka-Shanghai
7.15 Fu-wnag
Modhumoti
9.31 Sunpowe
Greatwall
9.68 Mir
Imported Goods
9.31
2.6
6.72
$50.00
$38.33
US$ in million
$40.00 $31.70
$29.47 $27.55
$30.00 $23.65 $29.95
$19.07$17.50 $18.82
$20.00
$10.00
$0.00
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
01 02 03 04 05 06 07 08 09
Year
18.5 18
18 17
Percent
17.5
17 16 16
16.5
16
15.5
15
)
07
08
09
ed
20
20
20
ct
je
ro
(P
10
20
Year
TABLE 6.1
SUMMARY RESULTS OF CERAMIC INDUSTRY
ENVIRONMENT ANALYSIS
Parameter Competitive Rivalry within the industry Condition Effect
Primary investment High Rivalry ↓
Market growth: Export High Rivalry ↓
Market growth: Domestic High Rivalry ↓
Probability of competing rivals making fresh moves Medium Rivalry ↑
Existing product diversity / differentiation Medium Rivalry ↑
Possibility of production capacity development by competitors Medium Rivalry ↑
Bargaining Power of Buyers
Number of potential customers High Buyer Power ↓
Number of actual customers Medium Buyer Power ↓
Imposed cost for switching to an alternative product Low Buyer Power ↑
Probability of potential customers using another High Buyer Power ↑
company’s product
Company’s financial dependency on selling to customers High Buyer Power ↑
Bargaining Power of Suppliers
Number of key suppliers Medium Supplier Power ↓
Suppliers ability to bargain for prices and favorable terms Medium Supplier Power ↓
Switching cost from one supplier to another Medium Supplier Power ↓
Suppliers power on product quality Medium Supplier Power ↓
Threat of Substitutes
Switching cost of end users Low Threat of
substitutes ↑
Availability of substitutes High Threat of
substitutes ↑
Attractiveness of substitutes price Medium Threat of
substitutes ↓
Probability of end-users growing more comfortable with substitutes Medium Threat of
substitutes ↑
Threat of New Entrants
Pool of new entrants Medium Threat of New
Entry ↑
New entrants immediate access to industry’s required technology and Low Threat of New
technical knowledge Entry ↓
New entrants immediate access to suppliers Medium Threat of New
Entry ↓
Probability that new entrants would earn attractive profits High Threat of New
Entry ↑
Primary Investment High Threat of New
Entry ↓
Jahan: Ceramic Industry of Bangladesh 121
30
24.5
25 21.06
Crores of Taka 20 16.61
15
10
5
0
be
r er er
ob eb
em ct m
pt O e
Se ov
N
Year 2008