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ASIAN AFFAIRSCDRBpublication

Asian Affairs, Vol. 30, No. 1 : 21-31, January-March, 2010

DEVELOPMENT OF SMALL INDUSTRIES INBANGLADESH:AN ANALYSIS FROMMANAGERIAL EXCELLENCE AND

STRATEGICALLY MARKETING CONTEXTS

DR. MD. SOLAIMANTAYUB CHOWDHURY

AbstractThis paper attempts to highlight the successful story of some smallindustries in Bangladesh. Small industries are recognized as an importantsource of micro enterprise promotion, innovation, and managementdevelopment through growth with equity in the economy of Bangladesh.The study pinpoints that dynamic and effective market management ofsmall industries ensures better working environment which in turn,may contribute in the process of development of an individual as anentrepreneur, on one hand and growth of a society with equity on theother. The paper, further- testifies that managerial talent, dynamicleadership, effective market management strategies would solve existingproblems there too and ensure the sustained growth of small industriestoo.

IntroductionSmall industries (SI) involving, relatively simple technology, low

investment and having capable or generating larger employmentopportunities, has a vital role to play in the economy of a country, likeBangladesh. Further, SI is recognized as important source ofentrepreneurship, innovation and growth. Again, the factors, such as-inflation, economic recession and changes in technology affect adverselythe growth and development of large- scale industries. In such a context,the strategy for the promotion and development of SI have beenincreasingly attracting the attention of planners in many countries as apotent instrument of reducing the in equality in economic and materialwelfare among the individuals and nations (Sharma, 1979). Further, thesmallness facilities the utilization of small savings for productive usesthat would not otherwise have come into existence as productive capital(ILO, 1962). Schmacher in his book Small is Beautiful, has emphasized

the development of small entrepreneurs and intermediate technology fordeveloping economics. Moreover, SI serves in developing economies notonly by their output of goods but also functioning as a nursery ofentrepreneurial and managerial talent (Chowdhury, 1984). Further, peoplecan achieve the quality of life through SI ownership (Pickle, 1984). InBangladesh, SI provide direct employment to about 2 million peoples,roughly 40% of the manufacturing value but contribute only 4.5% to itsGDP. Dynamic and effective market management has, therefore, becomea vital exigency for the SI sector to meet the new challenges in the marketand better performances in the changing business environment. Again,significant changes in the role and functions of the SI management arerequired for the development of the sector. Further, developmentmanagement means an evolutionary change from the present situationinto a better situation. It is a process of improving, bettering and itgenerates management excellence, ensures better quality of life and meethuman aspirations.

Development Management and Small Industries in BangladeshBangladesh has been pursuing a reform agenda for the purpose of rapid

industrialization to accelerate its present growth rate of 4 percent to 10percent per annum. In industrialization process, SI sector producing goods/services mostly for domestic consumption, with lower capital -employmentratio and higher output-input ratio have a significant importance in theeconomy. Again, the present government offers various incentives to SIsector under present industrial policy, which have been shown in table- 1in the Annexure.

Beside the various types of incentives, one government special agencyviz. Bangladesh Small and Cottage Industries Corporation has beencreated with specific promotional roles. Its major functions are-promotion& registration of SI, conducting advisory and industrial promotion servicesincluding scouting & training of entrepreneurs, construction &development of industrial estates with necessary infra-structural facilitiesand development of linkages between SI and large & medium sizedindustries in the country. Despite these various measures, the desiredlevel of development and target set for could not be achieved as between1962 and 2003; they increase from 16,331 to 67,867 only (BSCIC, 2003).However, it is argued that entrepreneurs are not concerned only with taxor incentive facilities.

Moreover, there is need to improve the management and businessskills of those involved in SI in order to promote efficiency and success.

Again, SI is recognized as an important source of enterprise, growth andinnovation. Further, it ensures quality of life as well as growth of aneconomy with equity. Therefore, effective and efficient management is acritical input in ensuring the development of SI in Bangladesh.

Further, development management of SI sector denote ideas used ina new process to manage evolutionary change from the presentenvironment Into a better environment which ensure development ofindividual on one hand and growth of a society with equity on the other, ina country like Bangladesh. However, one of the notable successes inentrepreneurship and innovation as well as growth & development of smallindustry, which is the subject of this research study. This is the story ofShanta Engineering Industry (SEI)-its management excellence relevantissues and challenges.

ObjectiveThe main objective of this paper is to examine the managerial and

marketing issues in the development process of small industries ofBangladesh. The specific objectives of the study are as follows:

(a) To study the managerial excellence of sample enterprise.(b) To examine the relevant issues for the growth of an enterprise.(c) To suggest some line of actions for the development of small

industries In Bangladesh.

MethodologyBoth primary and secondary data have been used for the purpose of

the study. Primary data have been collected through structuredquestionnaire form sample entrepreneur and other managerial personnelof the industry. In order to collect the detail data, participatory observationmethod has also been used. Beside primary data, necessary secondarydata have been collected from the sample enterprise. Secondary datacovered textbooks, research articles, government publications and variouspublished and unpublished research works on the subject. Beside these,financial, marketing and production data have also been collected fromthe annual statements of the company.

Ownership and ManagementSEI is a family owned and operated small industry. Mr. G.M. Khondoker

is the entrepreneur of this enterprise. He is the son of Late EklasuddinKhondoker who was not a businessman. The entrepreneur of SEI is about50 in age. The key executives of the SEI are family members. Mr. G.M.

Khondoker is married to Hena Khondoker and they have two sons andthree daughters. All of them take interest and influence the managementof the industry directly or indirectly. Mr. Khondoker monitors the businessenvironment and identifies the opportunities and threats of the industry.He is a well experienced in pump business as he has started his career inthis field at a young age. He served 12 years in KSB Pumps BangladeshLtd. Mr. Khondoker is a mechanical engineer and he had his educationin Bangladesh as well as Germany.

Production and ManpowerSEII located in 64/2, Shah Ali Bagh, Dhaka-1210 has been

manufacturing and supplying Centrifugal pump, Vertical turbine pump,Right angle gear and different spare parts of the Jute & Textile Mills since1987. The industry had been registered with BSCIS on 4th October, 1986and since than BSCIC has provided sub-contracting and linkagedevelopment facility to the SEL The centrifugal pump, turbine pump andthe right angle gear of SEI has earned high reputation to the governmentagencies like BMDA (Barendra Multipurpose Authority), Dhaka WASA,Chittagong WASA, and BADC ~Bangladesh Agricultural DevelopmentCorporation). The manpower of the industry is 84 and among them 14 areoffice staff and 60 factory workers. Workers are selected on the basis ofexperience and some mechanical knowledge. Mr. Khondoker offerstraining to up-grade the skills and mechanical knowledge of the workers.

Target Market and Relevant FactorsManagement of an enterprise must match products with target market

needs and then develop corporate and marketing strategies to satisfy thedemand of customer/users. However, at the time of planning for theproducts, the proprietor has to consider various relevant factors. Amongthem, the important ones are govt. import policy, taxation (VAT), tariffstructure, competitive position and demand for the products etc. Again,the demand for the product depends on the various factors viz., thegovernment buying practice, govt. policy towards irrigation managementfor boosting the food production etc. SEI produces pumps, which are usedfor domestic purposes, e.g., supply of domestic water, municipality watersupply disposal of superfluous water etc.

Quality Products and Performance IndicatorsThe technological environment shows accelerating technological

change, unlimited innovational opportunities, high R&D budgets,concentration on minor improvements rather than on major discoveries,and increased regulation of technological change (Kotler & Armstrong,

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1995). However. SEII has not compromised on the technology for producinggood quality pumps. SEI has installed German Lather Machine to producevarious parts relating to pumps and other products. To maintain the qualityof products/services at production level on an ongoing basis, SEI has theirown-trained technicians for monitoring production at various levels. Totest the quality of products and to measure other relevant performanceindicators, SEI is inspected and a team of engineers from BangladeshUniversity of Engineering and Technology (BUET) tests products.

Market Demand and Competitive AdvantageA regular and amply supply of water is a basic requirement of domestic,

agricultural and industrial purpose in a country like Bangladesh. Fromsales track of the company, the production has tended to take the differentforms under different product category with main concentration on theturbine pumps due to its higher demand and being a higher value item. Ithas been shown in Table-2 in Annexure. Further, the deep well turbinepumps of SEI are characterized by steady flow and high efficiency. Thesefeatures bring about considerable savings in power bills. Further, acustomer /user select the water pump on the basis of maximum reliability,durability and economy of operation. Again, SEI offers repair of pumps,which involves lifting, servicing and re-installation of a pump. SEI usesthe most durable materials in their pump production in order to maximizethe working life of the products. It guarantees the availability of all spareparts at their Mirpur factory, Dhaka. SEI pump is designed in such amanner that the delivery flange of the pump may be rotated at any direction.The pumps an available coupled with electric motor and diesel engineeither on two-wheel trolley or steel base frame at customer option. Themobile service of SEI team is available at any place of the country for fieldservices direct to the customer/users.

Pricing Policy and Relevant FactorsSuccessful pricing decisions will always be the result of a combination

of arts & science, but it is increasingly possible to measure the probabilitiesof the effect of external forces in the environment in which a companyoperates (Giles, 1973). Again, if a company follows skillful pricing policyand review ii from time to time, it will ensure prosperity and help theenterprise survive in the changing and competitive environment. SEIconsiders many factors in pricing its products. The important ones aredemand of the customers/users, cost of production and competitiveenvironment of the market. However, cost plus pricing method is followedby SEI to price their products for marketing.

Channel Network and Market StructureThe main competitor in pump market of SEI is Milners Bangladesh

Ltd. But SEI has competitive advantages in context of price as well asquality. Chittagong steel works competes with SEI in the market of RightAngle Gear. However, SEI delivers their products in a professional andpersonalized manner. So these are the competitive advantages of SEIrender installation, delivery, repairs and other services. Again efficientand broad-based channel network is essential for the industries to meetthe competitive and dynamic challenges of the market. SEI follows directas well as indirect channel of distribution, which has been shown inDiagram - 1 in Annexure.

Promotion MixA companys total marketing communication program-called its

promotion mix consists of the sales promotion, and public relation toolsthat the company uses to pursue its advertising and marketing objectives(Kotler & Armostrong, 1995). It is the element in an organizationsmarketing mix that is used to inform and persuade the market regardingthe organizations products and services (Stanton & Futrell, 1987). However,the success or failure of an industrial concern depends to a great extenton effective and efficient promotion management. SEI uses personalselling as a promotion media. Again, it has a limited group of loyal customerwho buys the products either directly or indirectly from the company.

Profit TrendSEI has been maintaining their accounts with Arab Bangladesh Bank

Ltd., Motijheel, Dhaka since 1985 The attitude of bank authority towardsSEI is quite satisfactory. Since it is a sole proprietorship concern. SFI isnot required to produce an audited balance sheet for statutory purpose.However, the profit of the company has been shown in the Table -3 inAnnexure.

Marketing Strategies for better Market ManagementDynamic and innovative market management is essential for the

small industries to meet the new and competitive challenges in themarket. Further, the nature of marketing environment is changing thesellers market is turning to buyers market in Bangladesh and this istruer in case of small industries. Again, customers desire sophisticatedgoods as well as qualitative services too. But, in the absence of efficientmarket management and existence of marketing problems thereof bothcustomers/ users and manufacturers suffered a lot.

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However, in order to prepare an effective marketing strategy, a companymust consider the role of its competitors and satisfy the aspirations ofactual and potential customers It must continuously analyze its competitorsand develop competitive marketing strategies that effectively position itsagainst competitors and give it the strongest possible competitiveadvantage (Kotler & Armstrong. 1995). From the analysis made so far, anumber of problems are identified in marketing of small industrial sectorof Bangladesh in general and in respect of sample SEI in particular. Thefollowing marketing strategies may be offered in order to better marketmanagement of the small industries in Bangladesh.

Product Portfolio StrategyProduct portfolio strategy may play a positive role in the production of

demand -oriented qualitative products thereby competing in export marketand dominating in home market also. BSCIC and other supportiveagencies may arrange need-based trainings for the technicians and otheremployees to develop their skill and efficiency in order to ensure theproduction of quality products of the small industries like sample industry(SEI).

Mass-Oriented Communication NetworkMass-oriented communication network between the two, i.e, producers

and users for increased attention to customer complains, grievances andconsultations is essential. Moreover, push strategy that calls for usingthe sales force and trade promotion to push the product to the customersthrough trade channels may be advocated for efficient marketing of smallindustries products of the countries. In this process, the manufacturerpromotes the products to wholesalers, the wholesalers promote to retailersand the retailers promote to customers /users.

Customer-Oriented Marketing StrategyCustomer-oriented marketing approach may be followed with regard

to product development to meet the competition of the market throughensuring the ideal attributes in the content of the products, such asreliability, durability and economy of operation. Thus, this strategy paresthe way for reducing the risk of consumers as well as producers in thecompetitive market of small industries products in the country.

Judicious and Economic Pricing PolicyPricing strategy of an enterprise requires continuous attention

because of a number of factors, such as changing external conditions,actions of competitors and the like. However, a Judicious and economic

pricing policy may play a significant role in ensuring the marketmanagement of small industrial concerns.

ConclusionThus, to conclude SEI is an instance of a successful story in the

development management of Bangladesh in general and in smallindustries sector in particular. Again, the question that remains is whatmore can be done for better market management through growth withequity as well as to stimulate entrepreneurship, innovation, smallenterprise development and growth of the economy of a country likeBangladesh.

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References:Chowdhury, P. K., Financing of Small-Scale Industries in Bangladesh(Ph.D.Thesis) Chandigarh: Punjab University, 1984, p.4.

Giles, G. B., Marketing, London: Macdonald and Evans Ltd., 1973, p.71.I & D Analysis, Role of Small Industry in Economic Development, vol.3, 1962.

Kotler, Phillip & Armstrong, Gary, Principles of Marketing, New Delhi: PrenticeHall of India (Pvt) Ltd., 1995, p.82.

Pickle, Hal. B and Abrahamson, Small Business Management, New York: JohnWiley & Soils, 1984, p.5.

Stanton, J. William & Futrell, Charles, Fundamentals of Marketing, New York:Mc-Graxv Hill Book Company, 1987, p. 96.

Sharma, S.V.S. Small Entrepreneurial Development in some Asian Countries.-A Comparative Study, New Delhi: Light & Life Publishers, 1979, p.1.

ANNEXURE

Table 1Government offers incentive to SI sector in Bangladesh

SL No. Heads Incentives

1 Custom duty on * 10% for developed areas imported machinery * 5%for undeveloped areas

2 Excise duty In SI sector, there is no excise duty

3 Income tax rebate * For developed areas 7 years* For undeveloped 9 years* BSCIC registered units are exemptfrom payment of advance income tax onimport of their row materials.

4 Debt-equity ratio * 80: 20

5 Subsidize interest rate * Fixed capital 10%* Working capital 14%

[Source: Ministry of Industry, Government of Bangladesh.]

Table 2Production and Sales of SEI

Name of the products Yearly production Selling price Total sales

(per unit)

Turbine pumps 200 Tk. 7,000 Tk. 140,000

Centrifugal pumps 1000 Tk. 3,500 Tk. 35,00,000

Vertical gear 400 Tk. 25,000 Tk. 100,00,000

[Source: Production and sales statement of sample enterprise]

Table 3Profit of SEI during the period of 1987-89 and 2001-2003

First 3 years Last 3 years

Year Profit Year Profit

1987 Tk. 5,28,000 2001 Tk. 15,32,000

1988 Tk. 6,60,000 2002 Tk. 25,70,000

1989 Tk. 7,92,000 2003 Tk. 60,50,000

[Source: Accounts statement of sample enterprise]

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DIAGRAM-1CHANNEL OF DISTRIBUTION OF SEI

[Source: Official Memorandum of sample enterprise]

SEI

Direct Channel

WASA: DhakaWASA: Chittagong

Indirect Channel

Middlemen

Barandra MultiPurpose Authority(BMPA)

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