Doing Business in Bangladesh

Foreign companies are attracted to working with Bangladesh for the following reasons:
Abundance of trainable and hardworking manpower at low wages not expected to increase substantially in the near future.
Attractive payback periods (3-4 years) on new projects leveraging the benefits of low wages in the export markets and relatively high prices for most of the goods/services in the domestic market .
Rapidly growing domestic market and potential access to the large South Asian Market.

POTENTIAL INVESTMENT SECTORS IN BANGLADESH

Bangladesh, traditionally known for jute and tea exports, has recently attracted attention for readymade garments and leather exports. Bangladeshi businesses are eager to collaborate with foreign partners and the government of Bangladesh has significantly improved conditions for joint ventures in recent years. Bangladesh has been ranked 88 in the World Bank’s global index for ease of doing business. Local businessmen are particularly receptive to joint ventures in which the foreign partner provides the technology, equipment, expertise and capital if necessary and the local partner provides land, building(s), and local management of the infrastructure and manpower. The Industrial Policy of 1999 ensures equal treatment for local investment, joint venture, and 100% foreign investment. According to the policy, no permission of the government is required to set up a joint venture (JV) project. This could be misleading, however, as licenses, permits, visas, and other authorizations are required from the relevant regulatory and administrative ministries. The joint venture must also register with the Board of Investment (BOI), which enables the enterprise to obtain facilities such as import entitlement for raw materials and spare parts, land, and utility connections.

ESTABLISHING a JV in BANGLADESH

Foreign investors in Bangladesh usually establish a public or a private limited company. The liability of the shareholders of a limited company is restricted to the amount of share capital subscribed by them or held in their name. A minimum of seven shareholders is required to establish a public limited company; there is no upper limit on the number of shareholders it may have. A private company requires a minimum of two shareholders, and its total number of shareholders may not exceed fifty. Any foreign firm incorporated outside of Bangladesh must be registered in Bangladesh in order to carry out business in case a local company is not established. Business firms are registered under the provisions of the Companies Act of 1994. The registration is done by the Registrar of Joint Stock Companies.


BUSINESS OPPORTUNITIES IN BANGLADESH

Agriculture (including fishing) is the dominant sector in Bangladesh, accounting for 20% of the GDP. The manufacturing sector – traditionally based on input from domestically produced agricultural raw materials – take up 16% of the GDP. In order to diversify the country’s industrial base the Government of Bangladesh is trying to promote private sector investments into many different sectors.

Some of the industries offering interesting opportunities for worldwide partners are found especially in garments/textiles, IT & IT related services and food products. However, other sectors in growth and/or in need for being upgraded would comprise:

Clothing/Apparel/Garment/Textile
Leather
Frozen Seafood
Jute goods
Energy
Telecom
Construction
Natural gas
Electronic and Light engineering
Health services
Educational services
Global staffing services.

SPECIAL BUSINESS OPPORTUNITY FOR INVESTORS

Bangladesh is best placed in the region for textiles and garments industry due to cheap labor and favorable trade status with the EU. Again, Government incentives for the spinning and weaving industries in the form of cash subsidy of the fabric cost to exporters sourcing fabrics locally. There is huge yarn and fabric demand supply gap in the RMG industries which is presently met by imports. Thus the potential for backward linkage industry is enormous Prospect for a huge textile industry capable to supply over 3 billion yards of fabrics a year to the export oriented garment industry has also been developed by the industry. Presently, about 85%-90% of this demand is met by import from countries like China, India, Hong Kong, Singapore, Thailand, Korea, Indonesia, Taiwan, etc. Fabric requirement is increasing at 20% per annum. This offers a tremendous opportunity for further investment.

In order to stimulate rapid economic growth of the country, particularly through industrialization, the government has adopted an Open Door Policy to attract foreign investment to Bangladesh. Following this, EPZs have been created to provide complete infrastructural facilities including communication and utility connection where potential investors would find a congenial investment climate, free from cumbersome procedures. The Bangladesh Private Export Processing Act allows establishment in private EPZs entirely through foreign investment or through joint ventures or local initiative.

Followings are the six EPZs of Bangladesh which are in operation now:
Dhaka EPZ
Chittagong EPZ
Comilla EPZ
Mongla EPZ
Ishwardi EPZ
Uttara EPZ (at Nilphamari)
Adamjee EPZ

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Doing Business in Bangladesh

Textile Industry

The textile industry is primarily concerned with the production of yarn, and cloth and the subsequent design or manufacture of clothing and their distribution. The raw material may be natural, or synthetic using products of the chemical industry.

The industrial processes

Cotton is the world's most important natural fiber. In the year 2007, the global yield was 25 million tons from 35 million hectares cultivated in more than 50 countries.

There are five stages

Cultivating and Harvesting
Preparatory Processes
Spinning
Weaving
Finishing

Fibers

Artificial fibers can be are made by extruding a polymer, through a spinneret into a medium where it hardens. Wet spinning (rayon) uses a coagulating medium In dry spinning (acetate and triacetate), the polymer is contained in a solvent that evaporates in the heated exit chamber. In melt spinning (nylons and polyesters) the extruded polymer is cooled in gas or air and then sets. All these fibers will be of great length, often kilometers long.
Natural fibers are either from animals (sheep, goat, rabbit, silk-worm) mineral (asbestos) or from plants (cotton, flax, sisal). These vegetable fibers can come from the seed (cotton), the stem (known as bast fibers: flax, Hemp, Jute) or the leaf (sisal). Without exception, many processes are needed before a clean even staple is obtained- each with a specific name. With the exception of silk, each of these fibers is short being only centimeters in length, and each has a rough surface that enables it to bond with similar staples.
Artificial fibers can be processed as long fibers or batched and cut so they can be processed like a natural fiber.

Cotton Manufacturing Processes (after Murray 1911)

History

Cottage stage

There are some indications that weaving was already known in the Palaeolithic. An indistinct textile impression has been found at Pavlov, Moravia. Neolithic textiles are well known from finds in pile dwellings in Switzerland. One extant fragment from the Neolithic was found in Fayum at a site which dates to about 5000 BC.
The key British industry at the beginning of the 18th century was the production of textiles made with wool from the large sheep-farming areas in the Midlands and across the country (created as a result of land-clearance and enclosure).This was a labor-intensive activity providing employment throughout Britain, with major centres being the West Country; Norwich and environs; and the West Riding of Yorkshire. The export trade in woolen goods accounted for more than a quarter of British exports during most of the 18th century, doubling between 1701 and 1770. Exports of the cotton industry – centered in Lancashire – had grown tenfold during this time, but still accounted for only a tenth of the value of the woolen trade. Prior to the 17th century, the manufacture of goods was performed on a limited scale by individual workers. This was usually on their own premises (such as weavers' cottages) – and goods were transported around the country. clothiers visited the village with their trains of pack-horses. Some of the cloth was made into clothes for people living in the same area, and a large amount of cloth was exported. Rivers navigations were constructed, and some contour-following canals. In the early 18th century, artisans were inventing ways to become more productive. Silk, Wool, Fustian, and Linen were being eclipsed by Cotton, which was becoming the most important textile. This set the foundations for the changes.
In Roman times, wool, linen and leather clothed the European population, and silk, imported along the Silk Road from China, was an extravagant luxury. The use of flax fiber in the manufacturing of cloth in Northern Europe dates back to Neolithic times.
During the late medieval period, cotton began to be imported into northern Europe. Without any knowledge of what it came from, other than that it was a plant, noting its similarities to wool, people in the region could only imagine that cotton must be produced by plant-borne sheep. John Mandeville, writing in 1350, stated as fact the now-preposterous belief: "There grew in India a wonderful tree which bore tiny lambs on the endes of its branches. These branches were so pliable that they bent down to allow the lambs to feed when they are hungry." This aspect is retained in the name for cotton in many European languages, such as German Baumwolle, which translates as "tree wool". By the end of the 16th century, cotton was cultivated throughout the warmer regions of Asia and the Americas.
The main steps in the production of cloth are producing the fiber, preparing it, converting it to yarn, converting yarn to cloth, and then finishing the cloth. The cloth is then taken to the manufacturer of garments. The preparation of the fibers differs the most, depending on the fiber used. Flax requires retting and dressing, while wool requires carding and washing. The spinning and weaving processes are very similar between fibers, however.
Spinning evolved from twisting the fibers by hand, to using a drop spindle, to using a spinning wheel. Spindles or parts of them have been found in archaeological sites and may represent one of the first pieces of technology available. They were invented in India between 500 and 1000 AD.

History during the industrial revolution

Shuttles

The textile industry grew out of the industrial revolution in the 18th Century as mass production of yarn and cloth became a mainstream industry.
In 1734 in Bury, Lancashire, John Kay invented the flying shuttle — one of the first of a series of inventions associated with the cotton industry. The flying shuttle increased the width of cotton cloth and speed of production of a single weaver at a loom. Resistance by workers to the perceived threat to jobs delayed the widespread introduction of this technology, even though the higher rate of production generated an increased demand for spun cotton.
In 1761, the Duke of Bridgewater's canal connected Manchester to the coal fields of Worsley and in 1762, Matthew Boulton opened the Soho Foundry engineering works in Handsworth, Birmingham. His partnership with Scottish engineer James Watt resulted, in 1775, in the commercial production of the more efficient Watt steam engine which used a separate condensor.
In 1764, James Hargreaves is credited as inventor of the spinning jenny which multiplied the spun thread production capacity of a single worker — initially eightfold and subsequently much further. Others credit the original invention to Thomas Highs. Industrial unrest and a failure to patent the invention until 1770 forced Hargreaves from Blackburn, but his lack of protection of the idea allowed the concept to be exploited by others. As a result, there were over 20,000 Spinning Jennies in use by the time of his death. Again in 1764, Thorp Mill, the first water-powered cotton mill in the world was constructed at Royton, Lancashire, England. It was used for carding cotton. With the spinning and weaving process now mechanized, cotton mills cropped up all over the North West of England.

Nineteenth century developments

A Roberts loom in a weaving shed in 1835. Note the wrought iron shafting, fixed to the cast iron columns

With the Cartwright Loom, the Spinning Mule and the Boulton & Watt steam engine, the pieces were in place to build a mechanised textile industry. From this point there were no new inventions, but a continuous improvement in technology as the mill-owner strove to reduce cost and improve quality. Developments in the transport infrastructure; that is the canals and after 1831 the railways facilitated the import of raw materials and export of finished cloth.
Firstly, he use of water power to drive mills was supplemented by steam driven water pumps, and then superseded completely by the steam engines. For example Samuel Greg joined his uncle's firm of textile merchants, and, on taking over the company in 1782, he sought out a site to establish a mill.Quarry Bank Mill was built on the River Bollin at Styal in Cheshire. It was initially powered by a water wheel, but installed steam engines in 1810.Quarry Bank Mill in Cheshire still exists as a well preserved museum, having been in use from its construction in 1784 until 1959. It also illustrates how the mill owners exploited child labor, taking orphans from nearby Manchester to work the cotton. It shows that these children were housed, clothed, fed and provided with some education. In 1830, the average power of a mill engine was 48 hp, but Quarry Bank mill installed an new 100 hp water wheel. William Fairbairn addressed the problem of line-shafting and was responsible for improving the efficiency of the mill. In 1815 he replaced the wooden turning shafts that drove the machines at 50rpm, to wrought iron shafting working at 250 rpm, these were a third of the weight of the previous ones and absorbed less power.
Secondly, in 1830, using a 1822 patent, Richard Roberts manufactured the first loom with a cast iron frame, the Roberts Loom. In 1842 James Bullough and William Kenworthy, made the Lancashire Loom . It is a semi automatic power loom. Although it is self-acting, it has to be stopped to recharge empty shuttles. It was the mainstay of the Lancashire cotton industry for a century, when the [ Originally, power looms were shuttle-operated but in the early part of the 20th century the faster and more efficient shuttleless loom came into use. Today, advances in technology have produced a variety of looms designed to maximize production for specific types of material. The most common of these are air-jet looms and water-jet looms. Industrial looms can weave at speeds of six rows per second and faster.

Roberts self acting mule with quadrant gearing

Thirdly, also in 1830, Richard Roberts patented the first self-acting mule. Stalybridge mule spinners strike was in 1824,this stimulated research into the problem of applying power to the winding stroke of the mule.[11] The draw while spinning had been assisted by power, but the push of the wind had been done manually by the spinner, the mule could be operated by semiskilled labor. Before 1830, the spinner would operate a partially-powered mule with a maximum of 400 spindles after, self-acting mules with up to 1300 spindles could be built.

The industrial revolution changed the nature of work and society The three key drivers in these changes were textile manufacturing, iron founding and steam power.The geographical focus of textile manufacture in Britain was Manchester, England and the small towns of the Pennines and southern Lancashire.
Textile production in England peaked in 1926, and as mills were decommissioned, many of the scrapped mules and looms were bought up and reinstated in India. The demographic change made by the Great European War, had made the labor-intensive industry un-profitable in England, but in India and later China it was an aid to development.

Commerce and Regulation

The Multi Fibre Arrangement (MFA) governed the world trade in textiles and garments from 1974 through 2004, imposing quotas on the amount developing countries could export to developed countries. It expired on 1 January 2005.
The MFA was introduced in 1974 as a short-term measure intended to allow developed countries to adjust to imports from the developing world. Developing countries have a natural advantage in textile production because it is labor intensive and they have low labor costs. According to a World Bank/International Monetary Fund (IMF) study, the system has cost the developing world 27 million jobs and $40 billion a year in lost exports.
However, the Arrangement was not negative for all developing countries. For example the European Union (EU) imposed no restrictions or duties on imports from the very poorest countries, such as Bangladesh, leading to a massive expansion of the industry there.
At the General Agreement on Tariffs and Trade (GATT) Uruguay Round, it was decided to bring the textile trade under the jurisdiction of the World Trade Organization. The Agreement on Textiles and Clothing provided for the gradual dismantling of the quotas that existed under the MFA. This process was completed on 1 January 2005. However, large tariffs remain in place on many textile products.
Bangladesh was expected to suffer the most from the ending of the MFA, as it was expected to face more competition, particularly from China. However, this was not the case. It turns out that even in the face of other economic giants, Bangladesh’s labor is “cheaper than anywhere else in the world.” While some smaller factories were documented making pay cuts and layoffs, most downsizing was essentially speculative – the orders for goods kept coming even after the MFA expired. In fact, Bangladesh's exports increased in value by about $500 million in 2006.

Source : Wikipedia

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