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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 Company established its manufacturing
plant at Tongi in 1962.

The degree of vertical integration in the industry is very high because most of the footwear
manufactures have their wholesale and retail channel. Therefore, the local market is
dominated by small-scale retail manufacturers, only the organized retail manufacturer and
distributor such as Bata (22%) and Apex Adelchi (6%) have sizeable market shares. Among
the major exporters are Apex, Jennys, Landmark, Leatherex, Bay, etc. The local footwear
industry is experiencing an annual growth rate of 21% annually.

The footwear sector has earned $335.51 million in export during the just concluded fiscal
year (FY) 2011-12 against $297.8 million of a year ago, Export Promotion Bureau (EPB)
data revealed, recording a growth of 12.67% and currently, the local companies make leather
footwear worth around Tk 17 billion yearly, of which 40 to 45 per cent products are meant
for shipment due to expansion of local companies and their continuous growth.

Classification of firms according to the four different roles they might play

The firms of the footwear sector of Bangladesh can be classified into four different categories
according to their roles about their target market: leader, challenger, follower or nicher.

Market leader

The market leader Bata Company Ltd. has captured about 22% of market share. It has a huge
number of outlets all over the country, which shows the company is more customers centric.
Bata wants to make the shopping most convenient in terms of distribution. Therefore, it has
huge influence in price changing, new product and promotions.

Market Challenger

Apex Adelchi is the second largest company with about 6% market share in the local retail
footwear market. The company serves the market through 120 retail outlets called “Gallerie
Apex” and 50 agents throughout the country. Apex Adelchi has planned to introduce around
30 new outlets each year.
Analysis on footwear industry of Bangladesh - 2

Market follower

In the footwear, industry of Bangladesh Jennys is following the Bata for local market and
Apex for export-oriented market. Jennys has developed similar type of daily footwear,
sandals and shoes with export quality, which are same as design of Bata and Apex. Jennys has
a market share of less than 5% in the local industry. Jennys exported 0.6 million pairs of
shoes last year, while the annual turnover of the company stood around Tk 800 million.

Market nicher

Other than mentioned three footwear companies, Landmark, Leatherex, Bay etc. are
following the market nicher strategy. All of these footwear manufacturers have less than 2%
market share. These companies are mostly export oriented and they are serving in a very little
regional area or a very negligible segment of the target market. This companies charge
premium prices with high quality product. These companies are selling production run-ons,
irregulars, closeout inventories to the local market.

Nature of competition

Footwear industry of Bangladesh is attractive. It is flexible due to the nature of the industry,
nature of the customers and local rules and regulations. Since the small-scale retailers are the
dominant force in the market, combined they outperform the growth of big manufacturers.
However, as none of these micro-manufacturers has any substantial market share, their
individual growth is negligible. Many of these companies get stuck in the same production
level for a long period because of the lack of capital and eventually exit the market. I will use
Porter’s fiver forces to analyze the nature of competition.

Threat of intense segment rivalry

There are only two big competitors Bata and Apex. Jennys is the biggest among the market
follower. Therefore, the rivalry is very negligible because these micro manufactures are only
follower. They focus in export rather than local market due to GSP in EU and the demand is
increasing. Due to the plant setup, fixed cost for the company is high that does not allow to
exit the industry very easily.

Threat of new entrants

There are some unmet demands in the market for the price sensitive customers. To serve that
segment, new company may enter in the near future due to the segment’s attractiveness to the
risk lovers. In this industry, entry and exit barrier are high due to high production & setup
Analysis on footwear industry of Bangladesh - 3

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 attractive due to the absence of potential substitute of the product. Footwear
industry has demand that cannot be replaced by other products. Moreover, this industry is
pooling other products i.e. leather belt, leather purse, shoe shiner etc. Therefore, there is no
possibility of falling profitability of the business due to substitute products.

Threat of buyers growing bargaining power

Buyer is not expert about the footwear and they do not have knowledge about the pricing of
the raw materials. Price of Apex’s shoes are almost close to the price of sandals i.e. BDT
2,000 to BDT 1,500 but buyers are not bargaining about it, they buy it at fixed price because
all of the companies in the industry provide quality footwear within reasonable price.
Therefore, there is no possibility of buyers bargaining will deteriorate the industry condition.

Threat of suppliers bargaining power

Suppliers are the most important part of this industry because they are the root of providing
high quality footwear from quality raw material. Here suppliers bargaining power is
somewhat which does not always reflect their dominance because there are three to four big
companies and they are running in the market, so though suppliers have power to bargain,
they have limited choices for choosing customers. Therefore, for developing a long term
relationship suppliers are very helpful to continue with the business in the industry.

Identifying competitors

Bata is the market leader in the footwear industry and there are two competitors; Apex and
newly emerging Jennys. If I only consider these two companies, it may lead to the wrong
foot. Therefore, I have to usage of new technologies, which is very helpful to increase market
share by meeting the demand of lucratively designed footwear within reasonable price.
Therefore, now Bata is using its latest technology to meet the demand of its target segments.

Analyzing competitors

Bata has identified Apex and Jennys as potential competitors. Therefore, the company wants
to make an analysis of these competitors:
Analysis on footwear industry of Bangladesh - 4

Strategies
Footwear industry has full line of manufacturing to retailing and export facilities. They have
low manufacturing cost due to usage of local labor and GSP facilities in EU. These
companies provide customer assistance in their retail store and price is medium.

Objectives

Apex and Jennys’s products have given the local market a very good alternative to Bata.
Although these companies remain a predominantly export-oriented company, they have also
taken the local market very seriously. The growth prospect, sound business model and good
management these companies look sustainable.

Strengths and weaknesses

Customer Product Product Technical Selling


Awareness Quality Availability Assistance Staff
Bata E E G G G
Apex G G G F G
Jennys F G F P F
Others P F P P P
Note: E = excellent; G = good; F = fair; P = poor

Therefore, from analyzing the above attributes Bata turns out to be well known and respected
for producing high quality footwear sold by a good sales force. Significant number of the
segment for good product quality with the help of selling staff knows apex and products are
available with fair technical assistant. Jennys is not well known but product quality,
availability and service is satisfactory though it has to improve in technical assistance.

Selecting competitors

Footwear industry players are good in terms of competing one another. All of the
manufacturers have almost same price for similar design and quality. Moreover, they set
prices by keeping a reasonable margin. Some of them are punished for charging higher price.

Selecting customers

In this industry a large number of customers are valuable but vulnerable; industry players
leave forms during the payment to know about the better service expected them because these
are profitable customers. Some of the customers are not valuable or not vulnerable; these
companies serve them with discount for family buying during occasions. Though the
companies have to incur losses in some of the pairs, it will be beneficial for the long term
profit making activities by making them valuable or vulnerable.
Analysis on footwear industry of Bangladesh - 5

Analysis: Principles followed by firms

Firms can be classified as Market leader, market challenger, market follower and market
nicher. In this part, I am trying to identify as their classification whether they are following
the competitive strategies or not.

Market leader

Bata wants to make consumers to buy more in different occasions i.e. Eid, Diwali etc for
whole family so that more usage will be ensured. Bata has introduced new types of design
i.e. Winbreinner for young buyers, Bubble Shoe for kids and plastic sandals for aged people
and these are also followed by other industry members. Bata also tries to defend its market
share by following position defense strategy because the name Bata has become a superior
brand power which is impregnable and people think about Bata first when they think about
any footwear. Besides that, Bata has introduced keeping new types of products i.e. shoe color,
leather belt, leather men purse etc. Other industry members also started to keep these
products for making a competitive environment.

Market challenger

Apex has started aggressive marketing campaign and opened retail outlet nearby Bata’s retail
outlet which shows that the company is following frontal attack strategy. The company has
made differentiation 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. Ventura. The
company really puts pressure on the Bata’s existing market by introducing different design
that already affected turnover of Bata.

The company manufactures about 5,000 pairs per day for the local market that makes them
the largest leather shoe manufacturer in the country. Although Bata has a capacity of
110,000 pairs a day, they produce only about 4,000 pairs of leather shoes while the rest of the
products are mostly synthetic. Apex, as medium low cost producer, only China and India
can beat them in production cost. The product quality of Apex Adelchi is generally better
than Chinese and Indian manufacturers because it has backward linkage with one of its
sister concerns, Apex Tannery. Their product line is slightly up-scale to that of Bata.

Market follower

Jennys prefers product imitation rather than product innovation. Jennys, market follower
and play the role of imitator because this company likely to copy designs, quality, and
Analysis on footwear industry of Bangladesh - 6

customer service by maintaining a little differentiation i.e. lower price, different color,
environment friendly packaging etc. Most of them like to follow Bata (leader) but some of
them like to follow the Apex Adelchi (challenger) also. Jennys is doing well in the recent
market. The company has set up a new factory in Gazipur recently for bulk production
mainly to meet the increasing orders from Italy, Portugal and the UK. It has also initiated a
move to increase its retail outlets across the country and it has already opened two
showrooms in Chittagong.

Market nicher

As market nicher, Landmark Footwear, Leatherex Footwear, Bay Footwear, etc. have created
their niche market based on different target segments. They are following multiple niching
strategies rather than single niching. Most of them are specialist in vertical level because all
of these companies are doing manufacturing to retailing on their own. Besides that, they are
geographic specialist because all of them concentrate on certain region and export only. It
has made them profitable enough and encourages new entrants. Moreover, they are delivering
superior services & good quality product with premium price.

They have planned to expand their niches based on geography, demography, geo-
demography, psychographic and buying situation. These companies are now identifying new
target segments with existing product that can be fulfilled by satisfying the urgent needs of
the existing segment. Some of these companies were producing only for export buy now they
tend to enter into the Bangladeshi market and started with their regional area.

Promotion is the starting point for these companies, but it’s the last element of the niche
marketing strategy for protecting niche. Their marketing promotions are straightforward.
They do few promotions, coupons and buy-now campaigns with focus on expertise and
commitment to the niche. They will be able to stand out and attract attention by being open,
generous and helpful with their expertise.

After analyzing the whole scenario of footwear industry of Bangladesh, it is obvious that
industry players somewhat follow the principles described in chapter 09 “Dealing with
competition.”