Issue of Investment in Sports Shoes Industry in Bangladesh with special reference to Excelsior Shoes Ltd

View with images and charts

Issue of Investment in Sports Shoes Industry in Bangladesh with special reference to Excelsior Shoes Ltd.

Bangladesh Investment Scenario

1.1 Background

Bangladesh came into existence in 1971, when Bengali East Pakistan seceded from its union with West Pakistan. Situated on the northern coast of the Bay of Bengal. Bangladesh is surrounded by India, with a small border with Myanmar in the southeast. The country is low-lying land of 144,000 sq. km. traversed by the many branches and tributaries of the Ganges and Brahmaputra rivers.

Despite sustained domestic and international efforts to improve economic and demographic prospects, Bangladesh remains a poor, overpopulated, and ill-governed nation. Its current population is 140 million with per capita income of USD 380. All of the above is reflected in Bangladesh being ranked 139 [of 175] in the Human Development Index of 2003. Economic reform is stalled in many instances by political infighting and corruption at many levels of Government. Progress also has been slowed due to opposition from the bureaucracy, public sector unions, and other vested interest groups. The present government has the parliamentary strength to push through needed reforms, but the party’s political will to do so have been lacking in key areas. However, there is one very encouraging note about Bangladesh, and that is, its steady growth rate of 5 percent for the past several years.

Sports Shoes Industry has grown in Bangladesh territory since the colonial era although its modernization took place only in the late 1990s. During the Pakistan period, there was no Sports Shoes manufacturing firm producing on a mass scale in East Bengal. However, traditional cottage type Sports Shoes industry with limited production facilities existed in a skeleton form in the district towns at this time. Various types of Sports Shoes were imported, mainly from Calcutta. Many new footwear manufacturing units have been established recently. Notable among them are Excelsior Shoes Ltd., Meenhar Sport Shoes Ltd., Desma Shoes Industries Ltd., Continental Footwear Ltd., Papella Ltd., Youngone Sport Shoes Ltd., UFM (BD) Ltd. and Impact Shoes Ltd.

The number of production units established in the country now represents 8. Three of the units are, however, small and medium in size, and 5 of them are relatively large and have mechanized and semi-mechanized production technology. The annual production capacities, combining all of the industries are about 46 million pairs of footwear. Whereas, the production capacity of ESL itself exceeds 6 million pairs, of this more than 75% are produced by mechanized and semi-mechanized units. The shoes produced annually find their way mainly into the export market. The industry provides direct employment to about 10,000 people. Nearly 50% of them are engaged in mechanized and semi-mechanized units and are classified, on the basis of employees, as large, medium, and small. Women workers are predominant (55%-60%) in the mechanized sector. About 80% of all footwear manufacturing units are located in Chittagong. Production of small units is processed manually on the average.

Sports Shoes units vary in product line, production capacity and exposure to foreign markets. The relatively large ones manufacture multiple items such as Cold cement Shoes, Tennis, Ladies Court Shoes, Slippers etc.

Marketing of footwear manufacturing and Exports are organized through sales to foreign regional wholesalers and through them, to foreign retail traders and consumers.

Bangladesh has gradually been converted from a sports shoes importing country to a sports shoes exporting one. The annual export of sports shoes items has increased from Tk 289.6 million in 1996 to Tk 522.71 million in 2003. The real development, however, has taken place since 1999, when exports exceeded the Tk 2 billion mark. Exports of leather sports shoes grew by 350% to 700% between 1997-98 and 1999-2000. The list of export markets of footwear from Bangladesh includes Japan, the volume leader with a market share of 71%, followed by UK (2.21%), Belgium (18.36%), Korea Rep. (1.26%), Italy (1.82%), Germany (0.69%) and USA (0.13%).

The main authority that controls the Sports Shoes business in Bangladesh is the Ministry of Commerce and Industry, Bangladesh Sports Shoes Manufactures and Export Association (BSSMEA) and EPB (Export Promotion Bureau) play significant roles in promoting export-oriented sports shoes businesses.

2.1 Investment Scenario

In recent years policymakers and multilateral organization have increasingly emphasized the importance of a sound Investment scenario for promoting economic growth in developing countries. Emphasizing Investment used to mean advocating greater quantities of Investment, under the assumption that lack of Finance was a barrier towards development. Indeed, recent research shows surprisingly little correlation between Investment levels and growth rates, at least in the short run. Thus, while this report is concerned with Investment, it does not focus on its product quality matters of standard. Instead, it focuses on the institutional and policy environment which determines whether Investments pay-offs are in greater competitiveness for firms and its sustained growth for economy that resembles the Investment Climate. A productive Investment Climate can be broadly thought of as an environment in which governance and institutional support, entrepreneurship and as well as smooth functioning markets in order to generate growth and development.

2.2.1 Bangladesh offers an unparalleled Investment Climate compared to the other South Asian economies.

  • Bangladesh is a largely homogenous society with no major internal or external tensions and a population with great resilience in the face of adversity (e.g. natural calamities). Bangladesh is a liberal democracy and mostly a one race and one religion country. The population of this country irrespective of race or religion have been living in total harmony and understanding for thousands of years.
  • Broad non-partisan political support for market oriented reform and the most investor-friendly regulatory regime in south Asia.
  • Trainable, enthusiastic, hardworking and low-cost (even by regional standards) labor force suitable for any labor-intensive industry.
  • Geographic location of the country is ideal for global trades with very convenient access to international sea and air route.
  • Bangladesh is endowed with abundant supply of natural gas, water and its soil is very fertile.
  • Although Bengali is the official language, but English is generally used as second language. Majority of even moderately educated population can read, write and speak in English.
  • Most Bangladeshi products enjoy complete duty and quota free access to EU, Japan, USA, Australia and most of the developed countries. However, for apparel export to USA, we have certain quota regime which is generally favorable to Bangladesh.
  • As a result of low per capita GDP of only US$ 386, present domestic consumption is not significant. However, it should always be considered that there exists a middle class with some purchasing power. As economic growth picks up, the purchasing power will also grow substantially. And in a country of more than 130 million people, even a small middle class may constitute a significant market. Furthermore, Bangladesh products enjoy duty free and quota free access to almost all the developed countries. This access to the global market is further helped by the fact that policy regime of Bangladesh for foreign direct Investment by far the best in South Asia.

2.2.2 Export, Import and Balance of Trade of Bangladesh

By analyzing the current Export, Import and Balance of Trade statistics of Bangladesh, the real scenario of Economic growth will be visualized clearly, which has shown the over all impact of our Investment Climate, but if there is a sound Investment Climate existed in our country, then the picture will be different. The following graph represents the current Export, Import and Balance of Trade statistics of Bangladesh.

2.3 Invest Scenario Snapshot – Bangladesh (2002)

According to the World Bank’s survey on our Investment Climate, it been found that some constraints creating too many barriers for the overall economic development of Bangladesh. The table below provides a snapshot of the Investment Climate of Bangladesh (based on 1001 organizations surveys). They also include details on how local firms perceive the Economic and Regulatory Climate.

2.4 Some major or severe obstacles

Here the World Bank Survey group also found some major or severe obstacles; those are directly or indirectly liable for the operation and growth of our In-total Investment. Here are few indicators which are showing the major obstacles in percentage.

Firms’ Perceptions (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
Economic and regulatory policy uncertainty 45.38 37.39 48.53
Macroeconomic instability 39.51 30.52 44.12
Corruption 57.91 55.62 58.13
Crime, theft and disorder .. .. ..
Anti-competitive or informal practices 29.77 23.50 33.28
Legal system/conflict resolution .. .. ..
Telecommunications 24.65 22.25 25.69
Electricity 73.17 69.08 75.32
Transportation 24.62 21.14 26.26
Access to land 35.40 31.32 37.87
Tax rates 35.85 26.63 40.46
Tax administration 50.66 44.19 53.61
Customs and trade regulations 43.17 36.34 46.37
Labor regulations 10.82 12.13 10.21
Skills and education of available workers 19.83 18.91 19.73
Business licensing and operating permits 22.53 25.39 20.96
Access to financing 41.59 35.39 44.61
Cost of financing 50.05 42.66 53.62
Infrastructure and Services (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
Delay in obtaining an electrical connection (days) 79.63 71.06 88.92
Number of electrical outages (days) 248.96 230.10 261.10
Value lost due to electrical outages (% of sales) 3.26 2.43 3.63
Number of water supply failures (days) 31.61 31.53 31.72
Value lost due to water supply failures (% of sales) .. .. ..
Delay in obtaining a mainline telephone connection (days) 150.43 106.33 181.33
Mainline telephone service outages (days) Not Available Not Available Not Available
Value lost due to mainline telephone service outages (% of sales) Not Available Not Available Not Available
Firms that share/own a generator (%) 71.47 79.39 67.47
Firms using the Web in interaction with clients/suppliers (%) 31.12 35.67 28.66
Finance (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
New Investment from internal funds or retained earnings (%) 59.85 56.27 61.91
New Investment from banks (%) 29.71 32.70 28.00
Percentage of firms with an overdraft facility 66.15 64.29 67.36
Value of collateral needed for a loan (% of the loan amount) 94.56 85.71 98.67
Time to clear a check (days) 2.89 3.02 2.80
Time to clear a domestic currency wire (days) 1.86 1.66 1.97
Number of days of kept inventory 38.41 41.19 36.21
Government Policies and Services (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
Consistency/predictability of officials’ interpretations of regulations affecting the firm 78.64 85.63 75.73
Average time to claim imports from customs (days) 11.68 11.16 12.22
Optimal level of employment compared to current level (%) .. .. ..
Time spent in meetings with government officials (days) 19.30 18.86 18.86
Senior management time spent in dealing with requirements of government regulation (%) 4.22 4.56 4.03
Sales amount reported by a typical firm for tax purposes (%) .. .. ..
Unofficial payments for typical firm to get things done (% of sales) 2.40 2.66 2.29
Conflict Resolution and Crime (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
Confidence level in the judiciary system (%) 17.02 10.89 19.87
Time spent resolving a dispute (weeks) 13.78 8.05 14.19
Firm’s costs of providing security & protection payments (% of sales) 0.58 0.80 0.44
Losses due to theft, robbery, vandalism, and arson against the firm (% of sales) 0.57 0.66 0.53
Confidence level in the judiciary system (%) 17.02 10.89 19.87
Time spent resolving a dispute (weeks) 13.78 8.05 14.19
Firm’s costs of providing security & protection payments (% of sales) 0.58 0.80 0.44
Capacity and Innovation (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
Firms using technology licensed from foreign companies (%) Not Available Not Available Not Available
ISO certification ownership (%) Not Available Not Available Not Available
Firms undertaking innovation (%) Not Available Not Available Not Available
Labor Relations (Compare all economies)
Indicator Bangladesh Exporters Non-Exporters
Females in senior management (%) Not Available Not Available Not Available
Firms offering formal training (%) 27.15 31.82 24.59

2.5 Investment Scenario and Sports Shoes Industry

According to a recent study of the World Bank, we have had few obstacles of the Bangladeshi Sports Shoes Industries. A sector like Sports Shoes Industry might face the obstacles from the formation of the Company to reach the product up to the consumers, for example – Excelsior Shoes Ltd.

As most of the Sports Shoes Industries owners and as well as workers are Bangladeshi so these Industries face same constrains and obstacles like other existing industries. Prior to any kind of attempt to further Investment, in this sector it is a pre-requisite, to enhance and also to oblige the pre-determined procedures of the Investment regulations, of any sort towards general Investment. Bangladesh has to face huge financial loss in future unless and until problems are solved by the Government and other regulatory bodies. The problem, that facing by Sports Shoes Industry and which are created by recent Investment Climate has been discussed in the chapters onwards.

2.6 Government Policy

2.6.1 Government export policy

It is obvious that country’s export trade is guided by the export policy. In the recent past, policy support was provided on a biennial basis. Keeping pace with port Uruguay round globalize and liberalized trade environment, Government formulated a five year Export Policy (1997- 2002) designed to operate in the imperatives and opportunities of the market economy. This is also aimed at eliminating the uncertainty, resulting from frequent policy changes.

Export policy have been re-structured and rationalized to make it more compatible to those at neighboring countries. The main objectives and incentives as provided in the export policy (2002-2006) are as follows:

  • To narrow down the gap between export earning and Import payment gradually.
  • To develop marketability of exportable through product diversification and quality Improvements.
  • To take steps, to establish backward linkage with the export oriented industries and services sector, introduction of newer products and export high value-added items.
  • To simplify export regulations and procedures, rationalize and strengthen export oriented incentives.
  • To ensure timely production of exportable items at competitive cost for sustaining existing market for further market expansion.

2.7 Export Statistics of Bangladesh ( Sports Shoes)

The following tables show the comparative exports of EPZ and out of EPZ factories .

Factories in EPZ (Tk. In Crore)
Sl No. Name & Type 01-02 02-03 03-04 04-05 05-06
1. Excelsior Shoes Ltd. (ESL) 16.34 35.70 57.34
2. Impact Shoes Ltd. 4.97 10.94 6.51 7.50 5.01
3. Papella Ltd. 17.40 12.72
4. Youngone Sport Shoes Ltd. 0.87 10.68 31.43 77.72 48.88
5. UFM (BD) Ltd. 17.15 20.25 24.08
Factories outside EPZ (Tk. In Crore)
Sl No. Name & Type 01-02 02-03 03-04 04-05 05-06
6. Continental Footwear Ltd. 04.22 CLOSED
7. Meenhar Sports Shoes ltd. 06.77 20,22 10.31 CLOSED
8. Desma Shoes Industries Ltd. CLOSED
Total 28.95 77.54 109.85 102.62 66.61

The outcome of the aforesaid statistical-data is absolutely disappointing. In 1999-2000, three factories of EPZ were closing their production and Excelsior Shoes Ltd. is in the stage of complicacy towards Export, because from the year 2002-2003 it was bound to stop its export due to lack of Investment. At present Excelsior Shoes Ltd. is running its factory with receiving sourced orders from other factory. If the present situation carries on, in that case the other four factories fate would be the same as ESL.

2.8 Important Incentives

  • Recognition of Leather Industries exporting at least 80% of their products as 100% export oriented industries.
  • Provision for various incentives available to 100% export- oriented industries for 80% export-oriented other industries.
  • Facilities for import of raw material by export-oriented leather industries.
  • Enhancement of time limit of export credit from 180 days to 270 days in case of export of frozen foods, tea and leather.
  • Reduction of Bank interest rate on loan for export is fixed at 8% – 10%. However for Agricultural products, Frozen food, Readymade Garments (RMG) & Leather products interest rate has been fixed at 7%.
  • In order to encourage export and to widen the coverage of cash incentives the following products are included in incentive package.

Product-wise Rate of Cash Incentives

Name of the products Rate
Local Fabrics ( for 2003-2004) 15%
Local Fabrics ( for 2004-2005) 10%
Local Fabrics ( for 2005-2006) 05%
Agricultural Products ( Agro Processing) 15%
Leather goods 15%
Vegetables 15%
Fruits 20%
Crushed Bone 15%
Handicrafts of Cane Coir, Straw & Hogla :

If raw materials are used more than 80%

If raw materials are used more than 50%



Frozen foods 10%
Bicycle 15%
Jute Goods 05%
Jamdani Sharee, Lungi & Gamcha 10%

There are no attempts and facilities given by the Govt. toward incentives or infrastructural support for Sport Shoes Industry, Which is clear by the above table and information laid.

2.9 How Government Policy hampered Sports Shoes Industry

The number of Bangladeshi Exported goods are few in number, and among these goods, Garments is un-doubtfully big one. I do agree with all that, Bangladesh earns a lot of foreign currency with the help of Garments Sector each year. As a result this Industry deserves Govt. incentives and other promotional facilities. But for the overall betterment of the Country and the Economy, one sector can not serve the purpose. That’s why Govt. has to pay attention towards the other growing as well as potential sector in providing incentives and other facilities. Among potential industries Sports Shoes Industries are prospective. I think if Govt. comes forward to take necessary steps to accelerate these Industries then the Govt. might earn a lot of foreign currency as well. But in the irony of fate these industries, which has already invested Tk. 450 crore and employed 10000-15000 employees has been facing an acute problem for a long time, despite hope of having 20% incentive from the Govt. the industry has not yet had any kind of incentive.

Industry of EPZ has to obey the rules of the Govt. but lack of Governmental support these industries are becoming sick industries. For a developing country like ours, sick Industries are treated as a kind of curse. It is apparent that if our Govt. does not extend it’s helping hand duly, in that case all of the Investment will go in vain and thousands of workers would be unemployed. As a result the ultimate burden will go to the Govt.

Generally, it does not appear that the Governmental Business Regulatory bodies are wide spreading the necessity of focusing export oriented issues separately and specifically. To some extent, it has been repeated over and over again that the tendencies of promoting any export oriented goods are only limited by assuming the financial policy or the differences in export based revenue from the past year. Literally there are many aspects to overlook and review in-depth before attempting for a better place in the International market and prior concluding any policies.

Not only the financial policy crisis has been hampering the Sports Shoes Industry, but rather, the core fact lies in the absence of complete structured policy, and also attentive focus of business R & D are required industry wise to enhance the variation of the product.

3.0 Sports shoes industry

Sports shoes industry is a labor intensive industry and naturally it keeps on shifting from higher wage region to lower wage region to keep the cost of production at minimal. Bangladesh, being a cheap labor resource country, some of the entrepreneurs in other fields felt it wise to establish Sports Shoes Factories in the country and accordingly, the country’s pioneer and the largest 100% export

oriented sports shoes manufacturing factory, Excelsior Shoes Ltd. was established in CEPZ in 1988. Thereafter further 7 Sports Shoes Factories were established in the country, namely:

– Meenhar Sport Shoes Ltd.

– Impact Shoes Ltd.

– Desma Shoes Industries Ltd.

– Continental Footwear Ltd.

– Papella Ltd.

– Youngone Sport Shoes Ltd.

– UFM (BD) Ltd.

3.1 Consumption of Sports Shoes

Consumption of sports shoes and other casual shoes in the word market accounts for 5 to 6 times more than casual shoes. As such export of sports and the casual shoes comprises a major portion in the footwear sector. China alone exports to the extend of Tk. 30000 crore and Indonesia over Tk. 10000 crore. They have attained this status by virtue of Government help. In the comparison, Bangladesh exports a microscopic fraction of the International demand.

3.2 Potentiality of Sports Shoes Industries

  • Bangladesh, being the Least Development Developing Country (LDDC), has easy access to the footwear business of the world and particularity being referred because of Generalized System of Preferences (GSP) facility that helps the overseas buyers to get exemption from their import duty.
  • Import of shoes from Bangladesh into Canada enjoys concessionary duty whereas from other countries is subject to higher duty.
  • Japan & EEC Countries imposed quota on major shoe exporting countries (like China) except Laos, Cambodia and Bangladesh. The present total production capacity of Bangladesh can hardly meet a small fraction of Word’s footwear demand.
  • Cheap and abundantly trained labor-force and availability of technical and professional management.
  • Location of duty-free zone and free from trade unions.
  • Facility of direct marketing without intermediaries.
  • Economics of large-scale production having backward linkage process.

3.3 Performance Evaluation

Export performance for the period July-June 2003-2004, for Sports Shoes.

(In million US dollar)

Export Target (2004-2005) Export Target (2005-2006) Export Performance for 2005-2006 % change of Export performance over Export Target Export Performance for 2004-2005 % change of Export performance during July June 2003-2004 over July June 2002-2003.
52.19 49.00 68.30 (+) 39.39 46.60 (+) 46.57

3.4 Yearly Export of Sports Shoes

Footwear (Sports) by Destination (Value in thousand)

Country 2005-2006 2004-2005 2003-2004
TK. Dollar % of Total TK. Dollar % of Total TK. Dollar % of Total
Japan 343628 5935 65.74 210896 3674 71.14 420959 7810 71.01
Belgium 91889 1587 17.58 54424 948 18.36 57874 1074 9.77
France 18310 316 3.5 1354 24 0.46 32460 602 5.47
U.S.A 16593 287 3.17 386 7 0.13 271 5 0.05
Korea Rep. 16179 279 3.10 2968 52 1.00 7466 139 1.26
Taiwan 8211 142 1.57 14555 254 4.91
Germany 5055 87 0.97 2044 36 0.69 2764 51 0.46
Hong Kong 5048 87 0.97 595 10 0.20 2849 53 0.48
Canada 4316 75 0.83
Philippines 3197 55 0.61
Italy 2692 46 0.52 10777 200 1.82
U.K 2092 36 0.40 6285 109 2.12 13119 243 2.21
Russia 1808 31 0.35
Sweden 1212 21 0.23 1867 34 0.31
Spain 1177 20 0.23 622 11 0.10
Finland 621 11 0.12
China 419 7 0.08 378 7 0.13
Turkey 190 3 0.04
Thailand 71 1 0.01
Czech Rep. 1184 21 0.40
Kuwait 1198 21 0.40
Saudi Arabia 179 3 0.06 33 1 0.01
Ireland 1838 34 0.31
Denmark 881 17 0.16
Local Sale 39034 724 6.58
Total 522708 9026 100.00 296446 5166 100.00 592814 10998 100.00

Source: Bangladesh Export Statistics (2003-2004), (2005-2006)

Year-wise Export of Sports Shoes from Bangladesh (In total)

Year Taka in Thousand
1998-1999 289600
1999-2000 775473
2000-2001 838542
2001-2002 2062320
2002-2003 592814
2003-2004 296446
2004-2005 522708
2005-2006( Raw data balance) 701516

With reference to the chart given above, we have come to know that, from the period of 1996-1997 the Sports Shoes Industry’s aggressively pursued their production and played a vital role by exporting their goods to abroad and also our National Income was strengthened.

3.5 Facts Sheet about Sports Shoes

This Facts Sheet was prepared for a single time in 1999 by Bangladesh Sports Shoes Manufacturers and Exporters Association (BSSMEA).

1. Starting year : 1998-2000

2. Major manufacturing Countries : (1) China, (2) Vietnam ,(3)Thailand ,(4)Indonesia.

3. Number of Industries : 8

4. Export Value of

China : US$ 6.00 Billon

Indonesia : US$ 2.00 Billon

Bangladesh : Tk. 200 CR and target Tk. 300 Crores.

5. Number of employment : 11000

6. Total Investment : Fixed Asset Tk. 300 Cores

Working Capital Tk. 150 Cores.

7. Current Status : This sector is in very bad shape, caused by cyclone of 1991, Political disturbances from 1994 to 1996, Port problem; problem is further aggravated by massive devaluation of Currency by Thailand and Indonesia.

8. Sector Future:

Garments are contributing 60 % of our total export. Sports Shoes can also be a booming

sector like RMG Sector.

9. What is required now?

We expect Government support in this form of expansion of interest in bank loan, easy term payment of loan out of export earnings and at least 10% cash subsidy to retain employment of 11000 workers and keep Tk. 450 Cores asset functioning, if we look to the earning size of china and Indonesia and can easily foresee vast market. Support is required to set up backward linkage industry to reduce lead time, such as out sole making plant.

Chapter Three

Description of Excelsior Shoes Ltd.

3.1 Reason for choosing Excelsior Shoes Limited (ESL)

The key purpose of this report is to investigate into the investment opportunities and other pertinent issues related to Sports Shoes industry of Bangladesh. And, Excelsior Shoes Limited (ESL), due to its uniqueness, represents a number of features; and they seemed to be valuable information necessary for developing the research. As such, ESL has been chosen for conducting the research titled: “Issues of Investment in Sports Shoes Industry in Bangladesh with special reference to ESL”.

3.2 Inception of ESL

Excelsior Shoes Limited (ESL) is one of the largest 100% export oriented footwear manufacturing companies in Bangladesh. The factory of ESL is located at Chittagong Export processing Zone, is equipped with modern and sophisticated machinery and equipment required for production of highly quality sports shoes, ladies court shoes, indoor slippers, men’s and women’s casual shoes and winter boots. It has an integrated system of production process which includes rubber out-sole making plant, Rubber/Eva assembly plant, Foam making plant, Laminating plant, Cutting, Stitching, Assembling, Designing, Box making, Printing and Research and Development Divisions.

3.3 Production

ESL went into commercial operation on 30 April, 1990. At present ESL is operating on one shift ba