Joint Venture In

Bangladesh

PREPARED FOR….

Dr. Masud RahmanProfessor & chairmanDepartment of Finance University of Dhaka

What is joint venture? An arrangement in which two or more businesses

agree to combine their resources for some definable undertaking is a joint venture.

Joint venture may be categories into two types:

Equity

joint venture

Non- Equity Joint ventu

re

Why Joint-Venture?

Bangladesh Govt. emphasizes investment in light and Hi-tech industry. The important indicated sectors are:

•Joint-venture helps to share the useful resources in a cost-effective way

Resource share

•If the project is too large, financially, for either party to handle alone

Large Projects

•Neither firm has all of the skills to make a success of the business alone

Limited Ability

Agriculture TelecommunicationGarments & Textile Information TechnologyComputer & Electronics Mining & PetrochemicalPharmaceutical Power Generation

PROSPECT OF JOINT VENTURE IN BANGLADESH

No ceiling on investment Tax holidays Tax exemption and duty-free importation of capital

machinery and spare parts of 100% for export-oriented industries Residency permits for foreign nationals Capital, profit and dividend repatriation facilities 100% foreign equity allowance Exemption on income tax for up to three years for

expatriate employees Term loans and working capital loans from local banks

allowed Re-investment of repatriable dividends treated as

new investment

Sinobangla

ABOUT SINOBANGLA

Dry bulk industries have relied on flexible intermediate bulk containers (FIBCs) Sinobangla produce this industrial bags in both big and small size.

A China- Bangladesh Joint Company Established in 1996 Established by four Bangladeshi & two chinese

entrepreneur, named- Mr. Ma Jiang and Mr. Tsui Ki Lam

Produces product as per customers requirement

OWNERSHIP STRUCTURE OF SINOBANGLA

In 1996 the initial investment was Tk3,30,00,000. Ownership structure was 50% - 50%. In 1999 the company became listed in Dhaka stock exchange and

Chittagong stock exchange. After issuing share in stock market their ownership became 33%

china, 33% Bangladesh and 34% public. At present the ownership structure is given below:

Ownership No. of shares Amount in taka Percentage of ownership

Local Sponsors 42,06,000 4,20,60,000 21.03%

Foreign Sponsors

19,14,600 1,91,46,000 9.58%

Public 1,38,76,000 13,87,60,000 69.39%Total 1,99,96,600 19,99,66,000 100%

TECHNOLOGY TRANSFER PRICING

Import decision Discussion on board meeting

They mainly import their machines from China, India, Germany, USA and Canada. They use locally produced software supplied by CDBL, Setcom and Geno software.

TECHNOLOGY OPERATOR

Since 2011 the technologies are operated by local operators, but before 2011 the machines of the company are operated by the Chinese operators.

In 2009 Sinobangla hired some employees from BUET, BUTEX and SUST and the Chinese operator train up the local employees for three years.

From then the local employees are operating the machineries.

TECHNOLOGY USED BY SINOBANGLA

Best-in-class tape extruder from Starlinger & Co. GmbH: Used to control the quality of the FIBC bag. It was purchased from Japan in 2007. Sinobangla received price quote from three country china, Japan and America. In board meeting they decided to purchase from Japan because of low cost qualitative technology.

Three layer liner extruder: purchased from china in 2009. It is used to give layer on the FIBC bag. It was also purchased by same procedure.

Some other machineries are- Mesh Loom Printing, Baling, Delivery machine etc.

COMMITMENT TO ENVIRONMENT

Waste management: Sinobangla recycle their 100% wastage. From their wastage they produce cotton and the produce bag. So environment has no negative impact from their production.

Pollution: The technology used by Sinobangla is not different from desired technology. There technologies are environment friendly. It doesn’t create loud sound and huge smoke in air.

LAND PROCUREMENT

In January 2011 company acquired a land of about 5 acre at Boro Baluakandi, Gazaria, in Munshigonj.

The land they acquire was not a productive land. No resident was there, so there was no need of rehabilitation.

One local people named Kamrul Hasan says us that Sinobangla was required to pay double price than market price to purchase the land at same location.

Negotiate with brokers Final purchase deed

LOCAL PEOPLE INTEREST

Land price and house rent: As a result of the land procurement the price of land near the factory become valuable and house rent of the area become higher.

Employment opportunity: About 30% worker of the factory are from Munshiganj.

Scholarship support: The meritorious and poor students of local area from primary to intermediate level can enjoy the scholarship support from sinobangla

EXPORT - IMPORT INFORMATION

Sales amount in 2013Percentage of total

sales

Export Tk 911,135,245 86%

Local sale Tk 15,08,68,094 14%

% of Sales

ExportedLocal Market

Sinobangla is mainly a export based producer. In 2013 86% of their total sale is foreign sale.

Sinobangla export mainly In Europe, Canada, China, America and Japan. The European market is the main focus of the company.

The company imports all the raw materials from abroad mainly from Japan, china and America.

Source: website of sinobangla industries limited

EMPLOYMENT FACILITIES

Salaries and Wages: The salary range of their employees at workers level is from Tk. 5000 to Tk10, 000 and in case of executive level the range is from tk.20,000 to tk. 1,15,000.

House and Health: Has housing facility and medical support in Gazaria for their employees.

Training facilities: In case of technical knowhow most of the trainers are from china. Other than technical knowhow the trainer are local.

Human Recourses 2014 2013 2012 2011 2010

Executive and staff 110 100 97 92 95

Workers 1362 1107 933 949 925

total 1472 1207 1030 1041 1020

Foreign 2 2 2 2 2

All the employees except chairman and one director are Bangladeshi. 30% of the worker of the factory is hired from Gazaria of Munshigong. Every family of factory side locality has at least one person working in this factory.

GOVERNMENT SUPPORT

The government of Bangladesh provide initial five years tax holiday on export to sinobangla. The good relationship between china and Bangladesh gives the company some benefit. The Chinese party of the company can transfer their profit earned in Bangladesh to china by giving only 10% withholding tax, but in case of other country transaction it is required to pay 25% withholding tax on their transferred amount.

PROFIT REPATRIATION

The foreign investor of the joint venture company only can transfer their profit to their home country. The principal amount cannot be transferred rather they are required to reinvest their fund in Bangladesh. The investor of china can receive their profit by cash dividend.

2013 2012 2011 2010 2009 2008 2007Cash Dividend (%) 10% 11% 10% 5% 10% 5% 5%

Amount received after withholding tax

1723140 1895454 1555740 777870 1555740 777870 777870

Cumulative amount received

17931402 16208262 14312808 12757068 11979198 10423458 9645588

2006 2005 2004 2003 2002 2001 2000Cash Dividend (%) 7% 5% - 10% 15% 15% 5%

Amount received after withholding tax

1089018 777870 0 1555740 2333610 2333610 777870

Cumulative amount received

8867718 7778700 7000830 7000830 5445090 3111480 777870

BENEFIT FROM JOINT VENTURE WITH CHINA

Technological knowhow that can be easily achieved in this way. The idea of this industry was introduced first in Bangladesh Sinobangla have received the first mover advantage in

Bangladesh by making joint venture. Low labor cost in Bangladesh is the main target of Chinese

investors. Export huge amount of products in china by the support of their

Chinese investors.

KHAN BROTHERS PP WOVEN BAG INDUSTRIES LTD.

SINOBANGLA KBPPWBIL

Incorporated 1996 2006

Listed in stock market

1999 2011

Initial investment Tk 3,30,00,000 Tk 10,00,00,000

Industry Industrial bag producer

Industrial bag producer

Khan Brothers PP Woven Bag Industries Ltd (KBPPWBIL) is a domestic firm produce industrial bags. It is the second company in Bangladesh who produce FIBC bag.

EMPLOYMENT CREATION

Sinobangla Khan brothers

Executive and staff 110 29

workers 1362 565

Total 1472 594

Nationality of employees

All except two are Bangladeshi

All are Bangladeshi

In case of Sinobangla The salary range of their employees at workers level is from Tk5000 to Tk10000 and in case of staff and executive level the range is from tk.20000 to tk. 115000. but in case of khan brothers the minimum wage of Each of the workers is Tk. 4500. in case of officials the salary lies between Tk. 14,000 to Tk. 3, 00000.

FACILITIES FOR EMPLOYEES

Sinobangla provide house facilities, training, medical support but not provide transportation facilities for their employees.

Khan Brothers provide transportation facilities, training, medical support but not provide house facilities for their employees.

LOCAL PEOPLE INTEREST

In case of hiring local people has the priority. About 30% worker of the factory are local. Sinobangla also provide scholarship support to the local students. As a result of the land procurement the price of land near the factory become valuable and house rent of the area become higher.

The land price and house rent near the factory of khan brothers become rises but they don’t provide any extra support to local people

TECHNOLOGY

Most of the technology of sinobangla are purchased from china and india. they receive price quote from suppliers in different countries and import from low cost and qualitative machineries They use locally produced software supplied by CDBL, Setcom and Geno software.

All the necessary machineries to produce the products of Khan Brothers PP Woven Bag Industries Ltd. are imported from abroad and mainly from china. The company uses a software named “TALI“ which was coded by an Indian software company.

In case of Both the companies, the source of technological knowhow to produce the product from China.

COMMITMENT TO ENVIRONMENT

Waste management: Sinobangla recycle their 100% wastage. From their wastage they produce cotton and the produce bag. On the other hand khan brothers sells its wastage in the local market at a lump sum rate So environment has no negative impact from their production.

Pollution: The technology used by sinobangla is not different from desired technology. There technologies are environment friendly. It doesn’t create loud sound and huge smoke in air.

LAND PROCUREMENT

The land procurement process for both the companies are same.

Negotiate with local brokers Final purchase contract

EXPORT INFORMATION

Both Sinobangla and KBPPWBIL are export based producer. In 2013 86% sale of sinobangla and 60% sale of KBPPWBIL are foreign sale.

86%

14%

SINOBANGLA

Export local sale 60%

40%

KBPPWBIL

Export local sale

PROFITABILITY

SINOBANGLA 2011

KBPPWBIL 2011 SINOBANGLA 2012

KBPPWBIL 2012 SINOBANGLA 2013

KBPPWBIL 20130.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Net income Ratio

ROE

ROA

2011 2012 2013

SINOBANGLA KBPPWBIL SINOBANGLA KBPPWBIL SINOBANGLA KBPPWBIL

Net income Ratio

2.34% 4.88% 3.50% 3.24% 3.10% 7.05%

ROE 5.25% 11.30% 7.61% 4.59% 6.31% 11.26%

ROA 1.60% 6.43% 2.54% 3.47% 2.53% 9.73%

LANKABANGLA FINANCE LIMITED

its journey long back in 1997 as a joint-venture financial institution

The company got listed in both DSE & CSE in 2006.

LankaBangla is a primary dealer of government securities since November 2009.

Its subsidiary are : 1) LankaBangla Securities Limited 2)LankaBangla Investments Limited 3) LankaBangla Asset Management Company Limited

OWNERSHIP STRUCTURE OF LANKABANGLA FINANCE LIMITED

The present ownership structure of the company is

EMPLOYMENT CREATION

All the employees except two directors are Bangladeshi

PROFITABILITY OF LANKABANGLA FINANCE LIMITED

Financial Position 2009 2010 2011 2012 2013

Gross Profit Ratio 33.19% 63.48% 50.42% 69.04% 64.31%

EPS 1.84 2.13 5.65 2.05 2.98

Return on Equity (%) 32.95% 30.62% 43.39% 10.95% 14.54%

Return on Assets (%) 2.94% 3.15% 6.98% 1.94% 2.21%

Profit repatriation

2013 2012 2011 2010 2009 2008 2007

Cash dividend(%) 10% 15% 15% 15% 15% 10%

Foreign investment 207,207,000 197,340,000 179,400,000 78,000,000 78,000,000 78,000,000 78,000,000

Cash

Dividend(amount)

20,720,700 29,601,000 - 11,700,000 11,700,000 11,700,000 7,800,000

Withholding tax

rate

10% 10% 10% 10% 10% 10% 10%

Withholding tax

amount

2,072,070 2,960,100 - 1,170,000 1,170,000 1,170,000 780,000

Amount received by

foreign investor

18,648,630 26,640,900 - 10,530,000 10,530,000 10,530,000 7,020,000

Cumulative amount

received

83,899,530 65,250,900 38,610,000 38,610,000 28,080,000 17,550,000 7,020,000

IDLC FINANCE LIMITED

IDLC was initially established in 1985.

OWNERSHIP STRUCTURE OF IDLC FINANCE LIMITED

EMPLOYMENT CREATION

PROFITABILITY OF IDLC FINANCE LIMITED

COMPARISON BETWEEN LANKABANGLA AND IDLC FINANCE LIMITED

EMPLOYMENT CREATION

2010 2011 2012 2013 20140

100

200

300

400

500

600

111135

156

425

534

253

353

409

481

525

Employment Creation

LankaBangla Finance Limited

IDLC Finance Limited

PROFITABILITY OF LANKABANGLA FINANCE AND IDLC FINANCE LIMITED

2010 2011 2012 2013 20140.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

32.95%30.62%

43.39%

10.95%

14.54%

35.99%

27.51%

16.76%19.24%

22.37%

Return on Equity (%)

LankaBangla Finance Limited

IDLC Finance Lim-ited

PROBLEMS OF JOINT VENTURE IN BANGLADESH

Bangladesh is currently confronted with an energy crisis, especially due to a shortage of gas for electricity generation.

The transport infrastructure of the country requires improvements in different areas.

Corruption can sometimes be a barrier for doing business in Bangladesh

Any queries?