Analysis on footwear industry of Bangladesh - 1

Industry Overview
The Footwear Industry in Bangladesh has started since the colonial era, although its modernization took place only in the late 1980s Bata !ompany esta"lished its manufacturing plant at Tongi in 19#$ The degree of vertical integration in the industry is %ery high "ecause most of the footwear manufactures ha%e their wholesale and retail channel Therefore, the local market is dominated "y small-scale retail manufacturers, only the organized retail manufacturer and distri"utor such as Bata (22%) and Apex Adelchi ( %) ha%e sizea"le market shares Among the ma&or e'porters are Ape', (ennys, )andmark, )eathere', Bay, etc The local !ootwear industry is e'periencing an annual growth rate of $1* annually The footwear sector has earned +,,- -1 million in e'port during the &ust concluded fiscal year ./01 $011-1$ against +$92 8 million of a year ago, 3'port 4romotion Bureau .34B1 data re%ealed, recording a growth o! "2# $% and currently, the local companies make leather footwear worth around Tk 12 "illion yearly, of which %& to %' per cent products are meant for shipment due to e'pansion of local companies and their continuous growth

(lassi!ication o! !irms according to the !our di!!erent roles they might play
The firms of the footwear sector of Bangladesh can "e classified into four different categories according to their roles a"out their target market5 leader, challenger, follower or nicher Market leader The market leader Bata !ompany )td has captured a"out $$* of market share 6t has a huge num"er of outlets all o%er the country, which shows the company is more customers centric Bata wants to make the shopping most convenient in terms of distri"ution Therefore, it has huge influence in price changing, new product and promotions Market Challenger Ape' Adelchi is the second largest company with a"out #* market share in the local retail footwear market The company ser%es the market through 1$0 retail outlets called 78allerie Ape'9 and -0 agents throughout the country Ape' Adelchi has planned to introduce around ,0 new outlets each year

Analysis on footwear industry of Bangladesh - $ Market follower 6n the footwear, industry of Bangladesh (ennys is following the Bata for local market and Ape' for e'port-oriented market (ennys has de%eloped similar type of daily footwear, sandals and shoes with e'port :uality, which are same as design of Bata and Ape' (ennys has a market share of less than -* in the local industry (ennys e'ported 0 # million pairs of shoes last year, while the annual turno%er of the company stood around Tk 800 million Market nicher ;ther than mentioned three footwear companies, )andmark, )eathere', Bay etc are following the market nicher strategy All of these footwear manufacturers ha%e less than $* market share These companies are mostly e'port oriented and they are ser%ing in a %ery little regional area or a %ery negligi"le segment of the target market This companies charge premium prices with high :uality product These companies are selling production run-ons, irregulars, closeout in%entories to the local market

)ature o! competition
/ootwear industry of Bangladesh is attracti%e 6t is fle'i"le due to the nature of the industry, nature of the customers and local rules and regulations <ince the small-scale retailers are the dominant force in the market, com"ined they outperform the growth of "ig manufacturers =owe%er, as none of these micro*manu!acturers has any su"stantial market share, their indi%idual growth is negligi"le >any of these companies get stuck in the same production le%el for a long period "ecause of the lack of capital and e%entually e'it the market 6 will use 4orter?s fi%er forces to analyze the nature of competition Threat of intense segment rivalry There are only two "ig competitors Bata and Ape' (ennys is the "iggest among the market follower Therefore, the ri%alry is %ery negligi"le "ecause these micro manufactures are only follower They focus in e'port rather than local market due to 8<4 in 3@ and the demand is increasing Aue to the plant setup, fi'ed cost for the company is high that does not allow to e'it the industry %ery easily Threat of new entrants There are some unmet demands in the market for the price sensiti%e customers To ser%e that segment, new company may enter in the near future due to the segment?s attracti%eness to the risk lo%ers 6n this industry, entry and e'it "arrier are high due to high production B setup

Analysis on footwear industry of Bangladesh - , costs and it leads to high profit potential that makes it more risky Therefore, for profit potential of the industry may attract new entrants Threat of substitute products This segment is attracti%e due to the a"sence of potential su"stitute of the product /ootwear industry has demand that cannot "e replaced "y other products >oreo%er, this industry is pooling other products i e leather "elt, leather purse, shoe shiner etc Therefore, there is no possi"ility of falling profita"ility of the "usiness due to su"stitute products Threat of buyers growing bargaining power Buyer is not e'pert a"out the footwear and they do not ha%e knowledge a"out the pricing of the raw materials 4rice of Ape'?s shoes are almost close to the price of sandals i e BAT $,000 to BAT 1,-00 "ut "uyers are not "argaining a"out it, they "uy it at fi'ed price "ecause all of the companies in the industry pro%ide :uality footwear within reasona"le price Therefore, there is no possi"ility of "uyers "argaining will deteriorate the industry condition Threat of suppliers bargaining power <uppliers are the most important part of this industry "ecause they are the root of pro%iding high :uality footwear from :uality raw material =ere suppliers "argaining power is somewhat which does not always reflect their dominance "ecause there are three to four "ig companies and they are running in the market, so though suppliers ha%e power to "argain, they ha%e limited choices for choosing customers Therefore, for de%eloping a long term relationship suppliers are %ery helpful to continue with the "usiness in the industry Identi!ying competitors Bata is the market leader in the footwear industry and there are two competitorsC Ape' and newly emerging (ennys 6f 6 only consider these two companies, it may lead to the wrong foot Therefore, 6 ha%e to usage of new technologies, which is %ery helpful to increase market share "y meeting the demand of lucrati%ely designed footwear within reasona"le price Therefore, now Bata is using its latest technology to meet the demand of its target segments Analy+ing competitors Bata has identified Ape' and (ennys as potential competitors Therefore, the company wants to make an analysis of these competitors5

Analysis on footwear industry of Bangladesh - D Strategies /ootwear industry has full line of manufacturing to retailing and e'port facilities They ha%e low manufacturing cost due to usage of local la"or and 8<4 facilities in 3@ These companies pro%ide customer assistance in their retail store and price is medium Objectives Ape' and (ennys?s products ha%e gi%en the local market a %ery good alternati%e to Bata Although these companies remain a predominantly e'port-oriented company, they ha%e also taken the local market %ery seriously The growth prospect, sound "usiness model and good management these companies look sustaina"le Strengths and weaknesses !ustomer 4roduct 4roduct Awareness Euality A%aila"ility Bata 3 3 8 Ape' 8 8 8 (ennys / 8 / ;thers 4 / 4 Fote5 3 G e'cellentC 8 G goodC / G fairC 4 G poor Technical Assistance 8 / 4 4 <elling <taff 8 8 / 4

Therefore, from analyzing the a"o%e attri"utes Bata turns out to "e well known and respected for producing high :uality footwear sold "y a good sales force <ignificant num"er of the segment for good product :uality with the help of selling staff knows ape' and products are a%aila"le with fair technical assistant (ennys is not well known "ut product :uality, a%aila"ility and ser%ice is satisfactory though it has to impro%e in technical assistance Selecting competitors /ootwear industry players are good in terms of competing one another All of the manufacturers ha%e almost same price for similar design and :uality >oreo%er, they set prices "y keeping a reasona"le margin <ome of them are punished for charging higher price Selecting customers 6n this industry a large num"er of customers are valua,le "ut vulnera,leC industry players lea%e forms during the payment to know a"out the "etter ser%ice e'pected them "ecause these are profita"le customers <ome of the customers are not %alua"le or not %ulnera"leC these companies ser%e them with discount for family "uying during occasions Though the companies ha%e to incur losses in some of the pairs, it will "e "eneficial for the long term profit making acti%ities "y making them %alua"le or %ulnera"le

Analysis on footwear industry of Bangladesh - -

Analysis- .rinciples !ollowed ,y !irms

/irms can "e classified as >arket leader, market challenger, market follower and market nicher 6n this part, 6 am trying to identify as their classification whether they are following the competiti%e strategies or not Market leader Bata wants to make consumers to "uy more in different occasions i e 3id, Aiwali etc for whole family so that more usage will "e ensured Bata has introduced new types of design i e Hin"reinner for young "uyers, Bu""le <hoe for kids and plastic sandals for aged people and these are also followed "y other industry mem"ers Bata also tries to defend its market share "y following position de!ense strategy "ecause the name Bata has "ecome a superior "rand power which is impregna"le and people think a"out Bata first when they think a"out any footwear Besides that, Bata has introduced keeping new types of products i e shoe color, leather "elt, leather men purse etc ;ther industry mem"ers also started to keep these products for making a competiti%e en%ironment Market challenger Ape' has started aggressi%e marketing campaign and opened retail outlet near"y Bata?s retail outlet which shows that the company is following !rontal attack strategy The company has made di!!erentiation in footwear design that is really appealing and it has attracted a lots of consumers attention with in limited period which is continuously increasing i e Ientura The company really puts pressure on the Bata?s e'isting market "y introducing different design that already affected turno%er of Bata The company manufactures a"out -,000 pairs per day for the local market that makes them the largest leather shoe manu!acturer in the country Although Bata has a capacity of 110,000 pairs a day, they produce only a"out D,000 pairs of leather shoes while the rest of the products are mostly synthetic Ape', as medium low cost producer, only !hina and 6ndia can "eat them in production cost The product /uality of Ape' Adelchi is generally "etter than !hinese and 6ndian manufacturers "ecause it has ,ackward linkage with one of its sister concerns, Ape' Tannery Their product line is slightly up*scale to that of Bata Market follower (ennys prefers product imitation rather than product innovation (ennys, market follower and play the role of imitator "ecause this company likely to copy designs, :uality, and

Analysis on footwear industry of Bangladesh - # customer ser%ice "y maintaining a little differentiation i e lower price, different color, en%ironment friendly packaging etc >ost of them like to follow Bata .leader1 "ut some of them like to follow the Ape' Adelchi .challenger1 also (ennys is doing well in the recent market The company has set up a new !actory in 8azipur recently for "ulk production mainly to meet the increasing orders from 6taly, 4ortugal and the @J 6t has also initiated a mo%e to increase its retail outlets across the country and it has already opened two showrooms in !hittagong Market nicher As market nicher, )andmark /ootwear, )eathere' /ootwear, Bay /ootwear, etc ha%e created their niche market "ased on different target segments They are following multiple niching strategies rather than single niching >ost of them are specialist in vertical level "ecause all of these companies are doing manufacturing to retailing on their own Besides that, they are geographic specialist "ecause all of them concentrate on certain region and e'port only 6t has made them profita"le enough and encourages new entrants >oreo%er, they are deli%ering superior services B good /uality product with premium price They ha%e planned to expand their niches "ased on geography, demography, geodemography, psychographic and "uying situation These companies are now identifying new target segments with e'isting product that can "e fulfilled "y satisfying the urgent needs of the e'isting segment <ome of these companies were producing only for e'port "uy now they tend to enter into the Bangladeshi market and started with their regional area .romotion is the starting point for these companies, "ut it?s the last element of the niche marketing strategy for protecting niche Their marketing promotions are straightforward They do few promotions, coupons and ,uy*now campaigns with focus on e'pertise and commitment to the niche They will "e a"le to stand out and attract attention "y "eing open, generous and helpful with their e'pertise After analyzing the whole scenario of footwear industry of Bangladesh, it is o"%ious that industry players somewhat follow the principles descri"ed in chapter 09 7Aealing with competition 9