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Strategies for Promoting Motorcycle Industry Development in Bangladesh
Submitted by Kohei MISHIMA, Faculty of Economics, Keio University Keio University on 29 févr. 2016 - 20:39
Type de publication:Conference Paper
Source:Gerpisa colloquium, Puebla (2016)
What are the things needed for developing the motorcycle industry in Bangladesh? This presentation is intended as an investigation of the finding ways to promote development of the motorcycle industry in Bangladesh. There are a variety of policy options to develop the industry. Above all, a choice may need to be made on whether to focus on the overseas market or the domestic market (whether export-oriented or import-substitution). No country in history has achieved success in the export of motorcycles from the beginning of the industry development stage. All countries followed a process of development that is supported by success in the domestic market. It is believed that achieving export-oriented success from the beginning of the industry development stage is unlikely. This is because the existing competitors are already there in the global market and have competitive advantages. Therefore, the motorcycle industry in Bangladesh would have to follow the import-substitution development process. What is needed for the policy of import-substitution industry development is expansion of the domestic market. This is definitely of crucial importance. For export-oriented industry, the size of the domestic industry is not restricted by the narrowness of the domestic market.
In the emerging markets like Bangladesh, considering the various phases of each industry, one comes across two major research trends. One is examining the ability of MNCs to transport and utilize their organizational capability. Some studies have considered the competitive advantages of MNCs from the perspective of architectural and organizational ability. The other trend is to focus on local firms’ original business pattern and managerial environment. Also this presentation is based in a case study designed to gather evidence on firms within the supplier network in the motorcycle industry led by Indian firms, Japanese firms, Chinese firms and local firms in Bangladesh.
We shall discuss characteristics of the motorcycle industry in Bangladesh from the consumer perspective. Bangladesh’s annual sales of motorcycles grew to the 200,000 to 300,000 level. However, the market size started to shrink due to the government policy. The Price of Bangladesh motorcycles was high (about two times that of India). One of the reasons for the high price was high customs duties (Semi-Finished part at 59%, CKD at 89%, CBU at 131%).
Up until 2010, importing CKD and assembling them at a plant in Bangladesh was the mainstream business form. However, after 2008 when the market expansion became real, companies that perform production (to be discussed later) not only performing the assembly work have started appearing in the market. The motorcycle sales price is high in Bangladesh, almost twice as much as in India. In order to achieve further expansion of the market, it is believed that lowering the sales price is essential. Considering the market size, Bangladesh’s motorcycle industry is currently in the phase where the localization has begun, although it is limited only to the assembly of complete build-up vehicles. Furthermore, in addition to such progress in the localization process, withdrawal of merger of Hero and Honda and their separation in 2011 has caused a significant impact on the motorcycle industry in Bangladesh. This is because the separation resulted in a sudden decrease in the number of sales of Atlas, which held the top market share in the industry, and nearly ruined the company. Uttra, which sells Bajaj’s products, has taken over the number one position from Atlas. However, Uttra’s management is not really stable, because Bajaj is believed to be planning on starting independent operation in Bangladesh by constructing their own plant.
Turning now to the view of suppliers, these components were provided by two types of companies, (1) nine assembling companies and (2) two manufacturers. In Bangladesh, localization is progressing as the market expands. Localization was implemented by manufacturers who imported parts and materials from China with their technical support. On the other hand, assembling companies which imported CKD and specialized in assembling process were on a long-term declining trend.
Manufacturing companies that have started to appear the industry in the past five years have been actively making investments for the purpose of achieving local production. As one of the characteristics of Bangladesh, the companies exploring the local productions are dependent on the technologies and brands of China-based companies. However, the stagnation of the market condition and weakness of the brand power are believed to be the causing factors for the decrease of the production rate. Japan or India-based local production is getting behind.
Based on the above consideration, how can Bangladesh develop its motorcycle industry? There are two political options.Firstly, Bangladesh has three options of China, India, and Japan, which is different from the case of Southeast Asian countries, where Thailand had one and Vietnam had two. The Bangladesh government should aim to reduce a development period by leveraging three options through intensifying competition and diversification. Secondly, the Bangladesh government should improve the competition environment not only for price competition but also by enhancing organizational capacity to compete with competitors. Since the diversity of competitors is one of Bangladesh’s characteristics, it has ample potential for rapid expansion of the market, like Vietnam. Hence, in the beginning, localization starts with labor-intensive and low added value processes such as assembling finished motorcycles. However, if the market continues to expand, local production will gradually progress and localization of high added value process and parts and materials that require technologies will be promoted. In the first place, it is necessary to build capacity of mass production at a certain quality, at a certain cost, and on delivery time.
The main contribution of this presentation consists in the Things needed for developing the motorcycle industry in Bangladesh. Illustration from Bangladesh motorcycle industry may be informative for political push for the emerging countries.