ceramic industry in bangladesh: A study on RAK ceramics

Assignment On “Strategic Management” Course code: 409 Title: Investment Opportunities in Bangladesh – a critical evaluation on “Ceramics Industry in Bangladesh”

Submitted to: Tanvir M H Arif Associate professor Department of finance and banking University of chittagong

Submitted by: Group “Alpha” 4th year BBA mid-term Department of finance and banking University of chittagong

Date of Submission: 7th march, 2015 1

Name of the Members: Name

Id

Mohammed nurul alam

11303048

Mohammed Abdullah al mamun

11303074

Palash Chandra Roy

11303014

Sumia sultana

11303107

Sabrina Nishi

11303013

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Table of Contents INTRODUCTION................................................................................................................................... 5 OBJECTIVES OF THE STUDY ............................................................................................................. 6 METHODOLOGY .................................................................................................................................. 7 GLOBALIZATION OF CERAMIC INDUSTRY .................................................................................... 8 ANALYSIS AND FINDINGS ............................................................................................................... 10 ABOUT THE COMPANY ................................................................................................................ 10 EXTERNAL ENVIRONMENT ANALYSIS ..................................................................................... 10 PESTLE analysis: .......................................................................................................................... 10 ANALYSIS OF CERAMIC INDUSTRY BY APPLYING “PORTER’S FIVE FORCES” MODEL ...................................................................................................................................................... 13 RESULTS OF INDUSTRY ENVIRONMENT ANALYSIS .......................................................... 16 

OPPORTUNITIES:................................................................................................................ 17



THREATS: ............................................................................................................................ 17

INTERNAL ENVIRONMENT ANALYSIS ...................................................................................... 18 THE VALUE CHAIN PROCESS .................................................................................................. 18 STRENGTHS:............................................................................................................................... 22 WEAKNESS: ................................................................................................................................ 24 Conclusion And Recommendations ....................................................................................................... 24 REFERENCES...................................................................................................................................... 25 APPENDICES ...................................................................................................................................... 26

Figure 1:Growth of Ceramic Tableware Export from Bangladesh ............................................................ 8 Figure 2: Manufacturing Process ........................................................................................................... 19 Figure 3: Distribution channel ............................................................................................................... 20 Figure 4: The Five-Force Model of Competition: A Key Analytical Tool ............................................... 26 Figure 5: Ceramic Export Leaders ......................................................................................................... 27 Table 1: Growth of Ceramic Tableware Export from Bangladesh Year .................................................. 27 Table 2: Major Ceramic Manufacturers and their Annual Capacity. ....................................................... 27 Table 3: Total Export and Ceramics Export (USD MM) ........................................................................ 28 Table 4: Summary Results Of Ceramic Industry Environment Analysis ............................................... 28

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ABSTRACT

Ceramic industry of Bangladesh is a booming sector and the growth potential of both domestic and local market indicates it may become one of the big foreign exchange earners for the country. Therefore, analyzing the industry environment of ceramic sector is of great concern to strategist since defending against the competitive forces of the marketplace and shaping them in a company’s favor are crucial to strategy formation. To address this issue, this paper analyzes the industry environment (competitive environment) of ceramic sector of Bangladesh by using Porter’s five forces model, PESTLE. Beside this value chain model, strength and weakness has been analyzed to assess the internal environment. The analysis of five forces indicates that the collective impact of the competitive forces is moderate to weak; hence, the ceramic industry of Bangladesh is considered to be competitively attractive in the sense that industry members can reasonably expect to earn decent profits and a nice return on investment.

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INTRODUCTION Demand for ceramic is primarily initiated by the increase in construction activities in the world and rising demand for new residential houses in buildings. Asian countries (esp. China & India) dominate the global market for ceramic tiles. Ceramic industry in Bangladesh is now a potential sector to boom. Growing demand for sanitary ware and tiles due to huge commercialization has made this sector more attractive. In the near future, ceramic industry has every potential to become a big foreign exchange earner for the country which is suggested by its growth potential for both domestic and export market. Bangladesh entry into ceramic export market is very new as compare to Jute and Tea. But the industry has witnessed a rapid growth since 1991. For its quality products, this sector has already earned a good name in the global market. Ceramic products have a $20 billion global market, of which Bangladesh has 17% share. Ceramic industry of Bangladesh is a booming sector and the growth potential of both domestic and local market indicates it may become one of the big foreign exchange earners for the country Hence, we have initiated the report toward the investigation of the opportunities for investment in Ceramic industry in Bangladesh.

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OBJECTIVES OF THE STUDY The broad objectives of this study are1) To evaluate the present position of Ceramic industry of Bangladesh in world economy. 2) To find out the existing and upcoming local and global problems and potentials of this industry. 3) To recommend some suggestions to be taken for solving the problem along with some initiative for sustainable growth in local and global market and expanding investment opportunities in Bangladesh.

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METHODOLOGY 1) Information used to prepare this assignment has been collected from secondary sources. These include:  books,  newspaper articles,  journal articles,  Website publications by Export Promotion Bureau and Bangladesh Bank and online articles from different news-based websites. 2) Quantitative and Qualitative methods: In our study, we use those sources which include both quantitative and qualitative information.

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GLOBALIZATION OF CERAMIC INDUSTRY Demand for ceramic is primarily initiated by the increase in construction activities in the world and rising demand for new residential houses in buildings. Asian countries (esp. China & India) dominate the global market for ceramic tiles. 

Why Bangladesh? Does it offer attractive opportunities for investment?

Bangladesh is one of the world’s most important countries in ceramic production and consumption. As one of the world’s most populated country, ceramic industry of Bangladesh faces huge domestic demand, which indeed push forward the rapid development of BD ceramic industry so as to make BD important country in production and consumption of ceramic tiles in the world. Statistics show that the consumption in the Asian pacific countries exceeds 10% in the recent year. (ceramic asia) Besides, the market in AsiaPacific is projected to witness a CAGR of more than 15.0%, in terms of value, in the next five years. (Global Ceramic Matrix Composites Market 2019 Forecasts and Research Report) Along with its domestic demand, BD has a huge opportunity to export its product since it has improved its production system and quality of its product by importing machines, efficient labor force and the use of natural gas in the production system. Interestingly the use of natural gas in the production has made the ceramic tiles brighter and shiny. BD has earned a lot of foreign currency by exporting ceramic goods to more than 45 countries. The largest export destinations are the United States, the middle-east, Italy, Spain, France, New Zealand, the Netherlands, Australia and Sweden. (The Financial Express, 15 June 2014) Year

Amount in US$

2012-13 (July-March)

27,779,246.64

2011-12

33,748,128.72

2010-11

37,579,260.27

2009-10

30,775,334.51

2008-09

31,167,227.14

Figure 1:Growth of Ceramic Tableware Export from Bangladesh Source: Bangladesh Export Promotion Bureau

Besides, in the first nine months of the 2013-14 fiscal years, Bangladesh exported about US$36 million worth of goods and this is only after meeting 80% of the domestic demand. (The independent, 15 June 2014) Bangladesh ceramic industry has earned its huge potential considering the per capita consumption while providing employment for more than 600,000 people. In ceramic industry, Bangladesh not only owns dozens of big players, but also has some small and medium enterprises. With importing globally advanced technology and equipment from China and Italy, BD ceramic industry has made tremendous development in terms of production efficiency, quality, R&D and designing. This development has earned reputation and strong position for BD in the world ceramic market.

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The ceramics industry sector has already attracted foreign investment. The investments have mainly been from China and the Middle East states. Some of the major joint venture partners are RAK Ceramics, Fu Wang and China-Bangla of which the largest is RAK of the UAE, and who have about 80% of the domestic sanitary ware market.

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ANALYSIS AND FINDINGS To make the assessment we took RAK a ceramics as our case sample. ABOUT THE COMPANY RAK Ceramics is an international consumer Ceramics Company based in the Persian Gulf sheikhdom of Ras Al Khaimah, a member of the UAE. It was established in 1991 under the management of Sheikh Saud Bin Saqr Al Qasimi, who succeeded his father Sheikh Saqr Bin Mohammed Al Qasimi as the Ruler of Ras Al Khaimah in 2010, and the Swiss-Lebanese engineer Khater Massaad. RAK Ceramics is listed on the Abu Dhabi Securities Exchange. Over a period of twenty years the company developed into the world’s largest ceramics manufacturer with a global annual production output of 117 million square meters of ceramic and porcelain tiles, 4.5 million pieces of bathware and 20 million pieces of tableware. The main factory complex in the UAE is located in the Arabian desert about an hour by car from Dubai International Airport. The products are made from local sand, clay and feldspar, as well as imported specialist materials, mostly using equipment made by the Italian Sacmi company. EXTERNAL ENVIRONMENT ANALYSIS PESTLE analysis: Our objectives of finding opportunities and threads of Textile Industry of Bangladesh can be achieved by external analysis. PESTLE analysis is a framework to examine the external environment of an industry. So we can perform external analysis through PESTLE. Here PESTLE stands forP=Political Factors E=Economic Factors S=Social Factors T=Technological Factors L=Legal Factors E=Environmental Factors

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Political environment Political factors play a significant role in the manufacturing and distribution of ceramics products thus in the overall ceramic industry. The Government tax policy and political climate has a contributory impact on ceramic industry in Bangladesh. The industry faces high import duty on certain ceramic raw materials from 7.5 percent to15 percent. (Iftekhar Omer) Since GSP system has recently suspended by the US Government, ceramic product manufacturers have proposed Bangladesh government to cut duty on imported raw materials and increase import duty on finish ceramic products to support them to survive and remain competitive in the global market. The government has assured ceramic manufactures to take effective measures to boost local ceramic industry and thereby it seems government policies and regulations are supportive in ceramic industry. In spite of suffering financial crisis due to political instability, the industry is significantly contributing to the country’s overall development.

Economic environment The economy of Bangladesh is growing at a positive trend despite some of unfavorable events. Although economic factors are not in control of the ceramic industry but the country’s economic growth rate, market factors such as inflation and interest rate, total savings and investment are supportive enough for the rapid growth of the ceramic industry. According to the Export Promotion Bureau ceramic exports moved up by 26 per cent in 2014 financial year. The sector brought in US$47.5 million in FY'14, compared with $37.7 million a year ago. Moreover, more than 40 thousands of workers are directly involved in ceramic industry. As the construction industry including residences, shopping malls and others is growing so fast, the ceramic tiles business is becoming one of the booming and prospective sectors with a staggering annual growth rate of 20 percent (Nusrat Jahan 2010). Therefore, economic environment is favorable for the expansion of this industry.

Social environment Demand for ceramic tablewares has also increased significantly in Bangladesh among middle income groups. This increased demand can be attributed to the fact that people have turned away from the traditional practice of presenting jewellery at wedding ceremonies and have resorted to the next best option, ceramic tableware. Therefore, societal values, attitudes, cultural factors, and lifestyles are supportive for the development and growth of ceramic industry.

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Technological: Trends in technology can affect numerous industry factors including the product or service and how it is produced and delivers. As new technologies are innovated, the companies in BD are able to increase their productivity and reduce their delivery time and by this way increase their profit margin more than existing. The companies in general use the raw material of Bangladesh, with importing the high- level glaze and technology from China, India, Malaysia and Italy. And those machines adopt the whole set of the raw material facility of China & India. Major firms also import the molding facility from Italy. Furthermore, they also import press and in case of ceramic machines made in Italy deliver best services available. Legal: The law of our country offers very attractive opportunities to invest in this growing sector. In our country ceramic industries enjoyed GSP facilities for a long time. But unfortunately, we have lost this facility. Although the govt. of our country is trying to get this facility back, it also has given some incentives to ceramic industry to help run their business as before and save them from sufferings due to loss of this facility. In a budget proposal for the 2014-15 fiscal to the National Board of Revenue, the association demanded the government to reduce the raw material import duty to from existing 5%-25% on different raw materials of ceramic industry. Currently, 5% import duty is applicable on basic raw materials, 25% on cover coat, bond and silk screen, 10% on milk talc, magnesium sulphate and calcium carbonate, alumina liner, filter cloth and other raw materials. The present investment in the country’s ceramic industry is roughly Tk5000 crore and total annual capacity of ceramic tableware manufacturing companies is 22.2 crore pieces, tiles 687 lakh square meter and sanitary ware 1.14 lakh metric tonnes.

Environmental: Every business should always consider environmental management to be an internal and fundamental part of business strategy. The company must be committed to making sure that comply with all the latest ministry of environment legislative and BSTI standards that affect the activities of ceramic industry. It should be company’s principle aim to continuously improve their approach to the prevention of pollution and to achieve the highest possible environmental standard in all aspects of their company practice. Company has established a waste water treatment plant to make a difference to the environment. BD offers a very handy and helpful environment for businesses including ceramic industry. In our country, construction activities are growing with high living standard. Furthermore, it is also easy to export to other countries.

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ANALYSIS OF CERAMIC INDUSTRY BY APPLYING “PORTER’S FIVE FORCES” MODEL If a company wants to identify its major opportunities and threats that prevail in the industry environment, it becomes necessary to analyze the competitive forces of the company’s industry sector (Hills and Jones 1998). Michael. E. Porter of the Harvard School of Business Administration has developed competitive forces model that effectively facilitates industry analysis. According to Michael Porter’s Five Forces Model, if the company can overcome its threats it becomes easier to sustain in the market within which it operates. “This model holds that the state of competition in an industry is a composite of competitive forces operating in five areas of overall market” (Porter 1980, Thompson et al. 2007): 

Rivalry among competing sellers in the industry;



Competitive pressures associated with threat of new entrants into the market;



Competitive pressures coming from the sellers of substitute products;



Competitive pressures stemming from supplier bargaining power; and



Competitive pressures stemming from buyer bargaining power.

According to Porter the stronger each of these forces is, the more limited is the ability of established companies to raise prices and earn greater return. Within Porter’s framework, a strong competitive force can be regarded as a threat since it depresses profits. A weak competitive force can be viewed as an opportunity, for it allows a company to earn greater profits (Hills and Jones 1998). Competitive Rivalry within the industry Although Bangladesh ceramics industry experiences severe competition from foreign countries like like Sri Lanka, China and Thailand, the domestic marketplace is not strong competitive enough.(Nusrat Jahan 2010). Bangladesh being the low cost labor force economy, developed countries is continuously placing more orders for the production of quality ceramic wares. As a result the demand both in terms of domestically and internationally for Bangladeshi ceramic products is growing increasingly. Addressing this strong growth, the numbers of competitors, roughly of equal size and competitive capability, are increasing in this industry day by day (Khandaker and Alamgir 2006, Khan). According to Bangladesh Ceramic Ware Manufacturers Association (BCWMA), there are approximately 50 ceramic manufacturers including 14ceramic tableware, 20 tiles and 16 sanitary firms are operating in this industry producing tableware, sanitary ware and tiles. Six of them are fairly large and they share more than 90% of the total capacity and they produce over 40,000 tonnes of ceramic products a year. At present Shinepukur Ceramics is leading all the ceramic manufacturers both in terms of production capacity and total revenue. It has about 62% market share in the export market and is only second to Monno Ceramics in the domestic market. The total production capacity exceeds 25 million assorted pieces per year, which is over 6,000 tonnes of ceramic ware (Golam Mohammad Forkan).

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Monno Ceramics Company with the capacity of producing 5,500 tonnes of ceramic products currently manufactures and exports very high quality porcelain tableware and bone china units and Standard Ceramics Ltd has the third largest capacity with 4000 tonnes of ceramics products. Bengal Fine Ceramics Ltd. is the first company in the country to make soft porcelain, which was branded as 'stoneware' (Khandakar Safwan Saad). FARR Ceramics Ltd started operation in 2007 and within a span of two and a half years the company has grabbed more than 10% share in the ceramics export market. Moreover, it is the first Bangladeshi company to enter the export market of Argentina after shoring up its foothold in Europe (Rahman 2009c, 2009f, Bhuiyan 2009, Star Business Report 2009). The competing local manufacturers are also active in making fresh moves to improve their market standing and business performance. For instance, X Ceramics produces ceramic tiles for both interior and exterior usage. Besides, X ceramics is also increasing its production capacity to manufacture 20% more output than their nearest competitors to gain 25% of the market share (Nusrat Jahan 2010). However, increment in the number of new plants, capacity development, product development and market expansion by ceramic ware manufacturers of Bangladesh are still low compared to the robust growth in demand both in export and local market. As there still exit ample growth opportunities in this industry, the rivalry among the existing companies are still weak, thus making this sector more attractive for the potential entrants (Nusrat Jahan, 2010).

Bargaining Power of Buyers Individual consumers of ceramic products in this industry have much bargaining power in negotiating price concession or other favorable terms with seller, hence, the individual buyers mostly pay the seller’s posted price. However, it is relatively easy for buyers to switch to comparatively low-priced imported ceramic goods; keeping this in mind, the local manufacturers are aiming for competitive pricing to attract and retain customers (Nusrat Jahan 2010). Bangladesh has got a huge opportunity in ceramic tableware market because of increasing demand from the developed countries where the production cost of ceramic tableware has increased significantly due to an enormous rise in labor cost. At present, Bangladesh is exporting ceramic products to about 50 countries including, the USA, the EU and Canada, tiles to India, Nepal and Bhutan, and sanitary wares to the Middle East, specially the UAE. (Source: The Financial Express, 17 July, 2014) The bargaining power of these international buyers is reasonably strong enough to negotiate for price concession and favorable terms since they can always switch to low-priced suppliers of ceramic wares from China, Sri Lanka, Thailand and Malaysia. But due to increased production cost, these countries are also failing to offer competitive prices and losing their share in the international market. Thus, more international buyers are moving towards Bangladesh as it has cost competitiveness in terms of gas supply, cheap labor cost, skilled labor and also has competitive advantage of possessing “bone china” technology (Khan 2009). As the number of buyers, both in local and international market, is growing, the bargaining power of buyers is weakening.

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Bargaining Power of Suppliers About 95% of raw materials for making quality and exportable ceramic products in Bangladesh are imported from abroad. The materials are imported mainly from China, Japan, Germany, New Zealand, South Korea and India. The prime raw materials of ceramic products are white clay and sand (Banglapedia.search.com). The raw materials account for 35-40 percent of the total production cost of the ceramic products. Since in Bangladesh, there is a shortage of raw materials, equipment and machineries for ceramic industry, it gives the supplier more leverage in bargaining the price (Nusrat Jahan 2010). But the supplier base of ceramic sector is moderately large enough to weaken the supplier power. However, some of the suppliers like India are also showing interest to integrate into the ceramic industry of Bangladesh and perhaps could become a powerful rival (Chowdhury 2004, Islam 2010, Khan 2009). Threat of New Entrants Traditionally, Ceramic manufacturing in Bangladesh is a gas-based, labor intensive and skills-oriented business. Skilled labor force and plentiful natural gas is our great resource in ceramic industry and the industry is using the most advanced Bone China technology and the availability of labor is relatively easy compared with the developed nations (Board of Investment, Bangladesh). Being the low-cost labor economy and the expanded production of ceramic tiles and sanitary ware positioned Bangladesh as a significant exporter while meeting the domestic market demand. Bangladesh Ceramic-ware Manufacturers’ Association (BCMA) sources say the present investment in the country’s ceramic industry is roughly Tk.8.00 billion and total annual capacity of ceramic tableware manufacturing companies is 22.2 crore pieces, tiles 687 lakh square meter and sanitary ware 1.14 lakh metric tones. In 2013-14 internal markets for ceramics products is worth of three thousands and fifty lakh crore. In first nine months of the current fiscal year(2013-2014), export earnings from ceramics products stood over US$36m, an almost 30% rise, comparing to previous year, according to the Export Promotion Bureau. After a consistent growth in last 15 years, this sector is now in a good position to achieve the target of $100 million export earnings (Daily Ittefaq, 2009; Hossain, 2009; Export Promotion Bureau and Bangladesh Bank). Ceramic exports moved up by 26 per cent in 2014 financial year as it showed resilience even after the suspension of Generalized System of Preferences by the US government, industry executives said. The sector brought in US$47.5 million in FY'14, compared with $37.7 million a year ago (Export Promotion Bureau). As it indicates that the local and foreign demand of ceramic products is increasing (due to growing construction industry including residences, shopping malls) resulting in widening the gap between demand and supply, the new entrants can easily expect to earn attractive profit by capturing the untapped demand (Rahman 2009d, 2009e). Therefore, many business companies like X ceramics, Peragon Ceramic Industries Ltd, Akij Group and Dulal Brothers Ltd have entered in this sector within few times. This indicates that the competitive threat of new entry is not strong enough to place significant competitive pressure on the existing manufacturers as the government regulations are supportive for new 15

entrants. However, the number of new entrants and their capacity development is low compared to the growth in domestic and export demands (Nusrat Jahan 2010).

Threat of Substitute Products The ceramic industry in Bangladesh is in aggressive competition with low-priced sanitary ware, tiles and table wares, mostly imported from China. Besides, this sector is also facing strong competitive pressure from firms in other industries offering substitute products (Nusrat Jahan 2010). In Bangladesh, the crockery companies like Bangladesh Melamine, Sharif Melamine, RFL, BRB, and GAZI are growing rapidly with the production of low-priced, attractive and convenient substitutes of ceramic tableware such as melamine wares, aluminum wares, steel kitchen wares, glass wares and plastic wares and substitutes of tiles include bamboo flooring, ply board, marble stones wooden flooring and other artificial stones for both interior and exterior usage. The local large manufacturers of these substitute products are also expanding their existing capacities with concentration on new product lines to attract more customers (Islam 2010). In recent years, large scale manufacturers have entered the crockery market, with their brands competing strongly with both local ceramics products and foreign products of their same kind. Hence, the availability and low cost of substitutes is exerting moderately competitive pressure on the existing companies of ceramic industry. (Nusrat Jahan 2010). RESULTS OF INDUSTRY ENVIRONMENT ANALYSIS The industry environment of ceramic sector is weak to moderate competitive and offers ample growth opportunities for both its incumbents and new entrants. Details of this analysis has been enamurated in TABLE 4.

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From the analysis of Porter’s five forces model and a thorough analysis of PESTLE model reveal the following “Opportunities” and “Threats” in the ceramic industry of Bangladesh.

 OPPORTUNITIES: Opportunities are the favorable external environmental factors that help the firm to take advantages so that the operation of the firm becomes more profitable. The available opportunities of the ceramic industry of Bangladesh are: 1. The rapid increasing in the construction and housing sectors creates a major source of ceramics product’s demand. 2. As the living standard of people increasing day by day, this creates a positive opportunity for the growth of ceramic industry. 3. The development of Hotel and tourism industry also demands for ceramic and tiles products. 4. Since Bangladesh is growing rapidly towards urbanization, there exists a vast opportunity for the growth of ceramics industry 5. In Bangladesh, ceramic industry is labor intensive. As being the low cost labor force economy, Bangladesh is continuously getting more orders from developed countries.

 THREATS: As oppose to opportunities, threats are unfavorable external environmental factors that endanger the profitability of the business firm. The major threats prevailing in the Bangladesh ceramic industry are: 1. There is a shortage of raw materials for producing ceramic products. Most of the raw materials are imported from china. 2. Lack of continuous supply of electricity and natural gas poses a major threat. 3. Technology barrier in ceramic industry is significant as modern ceramic industry is going towards technological based.

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INTERNAL ENVIRONMENT ANALYSIS THE VALUE CHAIN PROCESS RAK ceramics value chain includes analysis of inbound logistics, operations, outbound logistics, sales and marketing, customer service and supporting activates like: procurement, technological development, R&D program, general administration and human resource management. RAK ceramics is fully backward and forward integrated. The value chain process of RAK ceramics is described below in details. Inbound logistics: The basic raw material of ceramic is different types of clay. For best quality floor covering, RAK select the best quality clay which includes: Indonesian Clay, Malaysian Clay, Indian Clay, China Clay, Bangladeshi Clay, Czech Republican Clay. For glazing or coloring RAK use several raw materials. This material arrives from Italy and Spain. The materials are: Color Pigment, Cerfrit, Adhesive and Chemicals for stabilizing color. Suppliers of raw materials: The main raw materials supplier of RAK is Global Business Association (GBA). The GBA is a sister concern of RAK ceramics. Cerfrit which is a company from Spain supplies “cerfrit” for using in colors. On the other hand “Color pigment” is supplied by GBA which is collected from Italy. Shipment of Raw materials: GBA sends the raw materials by ship to Chittagong port and sometimes to naryanganj from Chittagong port. Spare parts for their machineries are collected from “SACMI”,which is a giant of manufacturing machines and completing plants and it’s an Italian company, by air. Supplier of packing Raw materials: The packets used to pack the final products are supplied by KEA printing and packaging company. This is a subsidiary company of RAK ceramics and is situated right in front of RAK’s manufacturing plant in Sreepur, Gazipur. Hence, collecting cartons from there is easy now. Inventory management: Store department and accounts department mainly involved in inventory management job. Accounts department is in charge of Raw materials inventory whereas Store department is in charge of the management of finished goods. Operations: Manufacturing Process: Using SACMI, the most advance technology which comes from Italy used in the ceramics production, RAK is producing tiles and sanitary ware. RAK’s production plant is fully automated and computer operated that helps to reduce the chance of error. SACMI’s machineries is a sensor based in which it is assigned the specific tasks to be performed with minimum error.

Here below, the whole production process is summarized. So, let’s see HOW DO THEY DO IT!

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Step1: In lab a "master sample is created to maintain the standard of quality tiles.

Step2: The lab gives the composition list instructing percentage of 'clay' to be used to the "Quality Assurance Department"

Step3: Body preparation sector calculates the weight of different clay which will be used to make the tiles.

Step4: Raw materials are given input in BOX FREEDER by the help of wheel loader.

step8: From SLIP TANK, slip is moved to SPRAY DRYER, which forms the slip into powder or granule.

step7: From BALL MILL the present form of clay which is also called slip is stored into "SLIP TANK"

Step 6: In BALL MILL the raw materials are mixed with water to create slip, this procedure is called "milling”.

step5: From BOX FREEDER by the use of conveyr belt, raw materials are passed to BALL MILL.

step9: This powder will be passed into PRESSING MACHINE through SILO where the powder is given five bar pressing to convert the powder or granule in to raw tiles.

step10: In PREFIRING the raw tiles are taken through 200° degree Celsius, to reduce the moisture of the raw tiles.

step11: The raw tiles will now go through the DISC Glazing BOOTH machine, where it will be covered by the first coat of Coloring or Glazing.

step12: After the DISC Glazing BOOTH process the tiles will go through the PRINTING MACHINE and there it will get the necessary designs on top.

step16: after checking by master CPU 0% error and 3% error are categorized as Class A and B respectively.

step15: After passing tiles from B&T KILN LOADING MACHINE every tile have to pass through Master CPU and it also checks the level of tolerance for error

step14: B&T KILN LOADING MACHINE is basically a firing machine which gives huge heat on the tiles to increase the hardness and reliability.

step13: From the PRINTING MACHINE the tiles are loaded into LOADING CAR by a conveyer belt,and then the LOADING CARs take the tiles to B&T KILN LOADING MACHINE.

step17: Tiles are packed by PACKAGING MACHINE attached with sensors. For Class A tiles white box and for Class B brown boxes are used.

step18: After packaging, the finished goods are stored in warehouse.

Figure 2: Manufacturing Process

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Outbound logistics: Distribution channel: The four level distribution channel followed by RAK is given as follows:

RAK

manufacturer

Dealer

Sub Dealer

Consumer

Figure 3: Distribution channel

They use dealers to distribute their products as they do not maintain own distribution channel. Currently RAK has 32 dealers all over Bangladesh. They directly control their dealers through 4 state managers in six divisions. Dealers are allowed to appoint sub dealers to sell RAK’s product but RAK does not control them. Sales and Marketing: RAK ceramics uses sales force for industry buyers and dealers reference for normal customers. The company mainly produces for commercial demand. However, if a company places order for industrial tiles they fulfill their demand. RAK ceramic doesn’t use any direct selling in marketing, if a customer place order from RAK head office where they have a showroom, then instead of selling directly to them RAK provides reference of nearby dealers to their location for providing convenient support. Customer Service: RAK ceramics doesn’t have a specialized service center for customers because it isn’t required in that extend. But they provide full support to the customers by providing information and details of tiles before purchasing to avoid deceptive selling. Supporting Activities: The support activities of value chain analysis includes   

Procurement Technology development Human Resource Management & Infrastructure

Procurement: Purchase managers visit to Indonesia, Malaysia, India, China and Czech Republic to monitor Class A and B raw material (clay) and check quality report and sent it to laboratory more researching on clay about the quality. An active team of ceramist is dedicated to find more cost effective solution for gaining competitive advantage over competitors. Due RAK’s huge investment and dedication on R&D, enables them to compete with competitors and gain competitive advantage RAK key raw materials include(a) body materials comprising various types of clays, sands and minerals and (b) glaze materials comprising additives, bonding agents and finishes. 20

RAK Ceramics follows a global sourcing and vendor development policy under which supply sources are identified, supplier capabilities are assessed and competitive supply terms are negotiated through competitive bidding for key supplies. RAK has built up a database of over 2,500 suppliers that provide industry specific supplies. The major raw materials of RAK Ceramics (Bangladesh) Limited are imported from overseas, mainly India, China, UAE, UK, Singapore, Thailand, few other European countries etc. Suppliers are evaluated periodically on supply reliability, quality and prices with new suppliers being added after they meet the required quality and reliability benchmarks through supplier appraisals and track record. Key suppliers: SACMI Imola, Gruppo B&T, Cerfrit, Hindalco, FERRO Local supplies from Clay Local sand/ lime stone/ silica sand from various suppliers in Shepur, Sylhet. Technology Development: RAK makes a huge investment on R&D. RAK is the only ceramic company in Bangladesh to spend 150 crore in R&D. RAK use SACMI manufacturing machines and complete plants for the Ceramics making which is the best technology for making ceramics. RAK uses Effluent Treatment Plant (ETP) to reduce environmental hazard. RAK ceramics factory have computer controlled guided vehicles which transfers semi-finished good from station to station, all of the machines are controlled by laser sensors, skilled technician to operate sophisticated operations. Furthermore, RAK has built a motivated team to make continuous innovation on design and laboratory to focus on designing new tiles and sanitary wares. RAK Ceramics also has the latest machinery housed in the sanitary ware plants like a high-pressure casting mould bench. A robot-spraying machine is used to give each piece of sanitary ware a perfectly even finishing. They have latest technology in both tiles ware and sanitary ware. Human Resource Management: Since its creation in 1991, RAK Ceramics in the UAE has relied on European machinery and Asian migrant workers. At present, around 8,000 employees work for the company in the UAE. Infrastructure: The success behind the continuous innovative product range being launched by RAK Ceramics is its unparalleled production facilities extending over an area of 1,500,000 square meters. On this vast area of land are 10 state-of-the-art tiles factories along with 2 sanitary ware plants, raw material warehouses, CNC workstations, showrooms, office buildings, showrooms, research & development laboratories, and silkscreen & digital printing facility. The plants at Ras Al Khaimah are equipped with some of the longest kilns in the world. The largest press in the ceramic industry - the PH 7200 (tons) is housed at& produces Gres Porcellanato slabs of large format up to 125 x 185 cm - the largest size in the industry. The plants are also equipped with other sophisticated equipment such as a water jet cutting machines used to create various designs & patterns, rotomatrix color decoration machines that give tiles natural perfect prints, and diamond cutting machine used in the production of special items like vanity and kitchen tops. With the introduction of its Nanopix digital printing technology, RAK Ceramics’ latest tile designs have floored its customers in over 160 countries where RAK Ceramics distributes its products range.

During these value chain activities RAK becomes most prominent in the industry satisfying consumers. The company has four folded margin between 2001 and 2006. Revenue from ceramic products increased by 3.9 per cent and accounting for 84.9 per cent of the total revenue. The new focus follows the private equity firm Samena Capital’s acquisition of a 30.5 per cent of the company from Ras Al Khaimah(RAK)’s ruling family in 2014. Besides the profit rose by 22% in 2013.

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STRENGTHS:

1. Financial Resources:  Equity - accounted investees of BDT 62748110.  Loan to associates (short term) of BDT 28701662.  Loan to associates (long term) of BDT 39740582.  Cash and cash equivalents of BDT 1491937675.  Advance income tax of BDT 2049203419.  Trade and other receivables of BDT 569321814 and so on. 2. Physical Resources:  Property, plant and equipment of BDT 2594796721.  Inventories of BDT 1803388526.  Work-in-progress of BDT 50533256 and etc. 3. Human Resources:  Trained store associates.  A team consisting of 1106 members. 4. Intangible Resources:  Intangible assets of BDT 101282953. 5. Structural-cultural Resources:  Customer satisfaction.  Team work.  Integrity.  Aiming for excellence.  Thinking green responsive. These are the resources of RAK Ceramics (Bangladesh) Ltd which in turn will help us to explore the ability, competence, core competencies and distinctive competencies of the firm.  ABILITY: follows; i. ii. iii. iv. v. vi.

Ability of a firm refers to the usual things a firm does. In relation to RAK these are as RAK try to generate a like to like growth. It tries to improve in cost reduction at each of its business units. It deepens its presence in the mind of its customer by introducing several new tile products across various popular sizes and infinity range of sanitary ware products. RAK tries to provide improved customer service. It tries to increase market share every year. It announces dividends to reflect its financial soundness.

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 CAPABILITY/COMPETENCE: It’s the level of ability which is actively consistently well and that too at an acceptable cost. In case of RAK these are; i. Strong understanding of the business. ii. Active product range. iii. Deep customer connection. iv. Robust operations management. v. A motivated staff. According to RAK Chairman Abdallah Massaad, the result is that despite a challenging business environment, RAK was able to grow their turnover by 7.17 percent to BDT 4,908.17 million reflecting the strong affinity for their products among their customers, leading to both growths in tiles and sanitary ware volumes as well as realizations during 2012. Moreover, strong company-wide initiatives to control costs, reduce wastages and maximize efficiencies led to a healthy operating profit margin of 18.55 percent and net profit of BDT 608.12 million in the year of 2012.  CORE AND DISTINCTIVE COMPETENCIES: These are the valuable company resources that reflect company or firm’s comparative internal activities. These are the genuine strengths of the company. In relation to RAK there are five core strengths of it. i. First of the five core strengths is high quality production asset paired with unrivalled knowledge of ceramics which resulted in a higher-than-industry margin profit of 18.55% in the year of 2012. ii. Second one is dominant market share. iii. Third one is RAK’s world-class display centers engaged with their customers in several ways, facilitated by their trained store associates, who are informed of product range, benefits and costs, and by this means, enable customers to make the most informed purchase. It increased sales as high as 83 percent for tiles and full capacity utilization of sanitary ware. iv. Fourth one is optimized raw material resource cost say robust ability to manage gas (fuel) cost. Evidently it had a 15% decline in fuel cost in the year of 2012. v. At last but not the least the fifth strength of RAK is one of the biggest shareholder-centric strengths is it is a zero debt company with no long-term debt on their standalone books, which helps protect fortunes from a high interest rate environment.

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WEAKNESS: Through examining various available information of RAK ceramic firm's including their annual report we have identified the following weaknesses that the company is currently encountering: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

They have less control over sub dealers The brand quality is yet to adjust to the emerging economies. They have more price fluctuation and lack of access to key distribution channels relative to others The cost of importing raw materials are generally high Capacity development and product development are low compared to meet the demand both in export and local market. Lack of skilled labor forces for producing quality and sustainable products Technology barrier compared to other ceramic firms in the industry is significant. Low productivity, as a result of a poor raw materials quality and low automation in some production phases (especially in sanitary ware). Lack of efficient supply chain integration for collecting non natural raw materials. The level of customer relationship is limited in terms of constancy, packaging, respect of international quality targets, lack of “culture” for services, etc. Deep dependency on the local and neighboring markets.

Conclusion And Recommendations Analyzing the external and internal Environment of Ceramics industries in Bangladesh we have reached in a conclusion that this sector is allured with great prospects with its resources and opportunities. In Bangladesh it is one of the most prospective industries. However, Government’s good willingness to incentivize to boom this sector is in great demand.

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REFERENCES 1. Bhuiyan. M. M.2009, July 5. X-Ceramics to Go for Trial Production by end of Next Month. The Financial Express. 2. Board of Investment “Bangladesh. Ceramics Sector Highlights.” Retrieved from http://www.boi.gov.bd/key-sectors/ceramics. 3. Daily Ittefaq .2009 November 7. “Ceramic Wares Export Potential.” 4. Chowdhury, T. A. ed. 2004. “Budget proposal for 2004-05 Fiscal, Ceramic Industry for Minimum Duty Slab on Raw Materials.” 5. Export Promotion Bureau. Retrieved from http://www.epb.gov.bd/ 6. The Financial Express.2007 June 27. “Some Budgetary Measures to Hit Ceramic Industry.” 7. Hossain, S. 2009, August 3. “Ceramic Ware Exporters Aim Sturdy Business”. Daily New Age. Dhaka. 8. Hill, C.W. and G. R. Jones. 1998. Strategic Management: An Integrated Approach. 4th ed. Boston: Houghton Mifflin Company. 9. Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press. 10. Thompson et al. 2007. Crafting and Executing Strategy: The Quest for Comparative Advantage.15th ed. Boston: McGraw-Hill/Irwin. 11. Khandaker, N. and R.Alamgir. 2006, August 1. “Not Just Your Average Cup of Tea.” The Daily Star. 12. Iftekhar Omer 2012, “GSP Suspension Affects Ceramics Industry Growth” Retrieved from businessoutlookbd.com 13. Khan, K. 2005. September 17. “Ceramic Industry Seek Policy Support.” The Daily Star. 14. Kakati, W. 2008. July 15. “Ceramic Sector in Bangladesh: Opportunities Unbound”. The Daily Star. 15. Rahman, S. 2009a, January 29. “Recession Creeps into Ceramic Tableware. The Daily Star. 16. Rahman, S. 2009b, March 5. “Six Firms Eye Tiles Market.” The Daily Star. 17. Rahman, S. 2009c, July 7. “Local Ceramics Maker Rides out Global Recession.” The Daily Star. 18. Rahman, S. 2009d, August 31. “Ceramics Brace for High Demand.” The Daily Star. 19. Rahman, S. 2009e, November 7. “Tiles Market Heats up.” The Daily Star. 20. Nusrat Jahan, 2010: Ceramic Industry of Bangladesh: A Perspective from Porter’s Five Forces Model 21. "Ceramic industries seek duty cut on raw materials import". Dhaka Tribune. Retrieved 15 January 2015. 22. "Ceramic industry witnesses over 200pc growth in five years". The Financial Express. Retrieved 15 January 2015. 23. Khandakar Safwan Saad (November 7, 2010) “Shinepukur Ceramics Limited-BRAC EPL”. 24. Nusrat Jahan (2010),Ceramic Industry of Bangladesh: A Perspective from Porter's Five Forces Model, Volume -V, Issue - 02, July -December, Journalof Business and Technology (Dhaka). 25. Khan, S. 2009. February 9. “Ceramic Industry on Road to a Modest Growth.” The Financial Express 26. RAK Ceramic (Bangladesh) Ltd : Annual Report 2012

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27. Md. Mahbudur Rahman, Fariha Bahar Chowdhury, Priyanka Paul and Md. Monirul Islam (2014) : Report on Performance Analysis of Ceramic Industry in Bangladesh. 28. Global Ceramic Matrix Composites Market 2019 Forecasts and Research Report”; retrieved from http://www.prnewswire.com/news-releases/; 15 January, 2015. 29. Retrieved from http://www.ceramicsasia.net/En/main/index.asp; 15 January, 2015. 30. "Ceramic goods export fetches $ 37.69m in last fiscal year". The Financial Express. Retrieved 15 June 2014. 31. "China-Bangla Ceramic dealers to visit China". The Independent. Retrieved 15 June 2014. 32. "RAK Ceramics takes on first IPO under book building". The Daily Star. Retrieved 15 June 2014 33. "Ceramic industries seek duty cut on raw materials import". Dhaka Tribune. Retrieved 15 June 2014

APPENDICES

Figure 4: The Five-Force Model of Competition: A Key Analytical Tool

Source: Thompson et al. (2007)

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10%

Shinepukur

10%

Monno 18% 62%

FARR Others

Exports

Figure 5: Ceramic Export Leaders

Table 1: Growth of Ceramic Tableware Export from Bangladesh Year

Year Amount in US$ 2012-13 (July-March) 27,779,246.64 2011-12 33,748,128.72 2010-11 37,579,260.27 2009-10 30,775,334.51 2008-09 31,167,227.14 Source: Bangladesh Export Promotion Bureau

Table 2: Major Ceramic Manufacturers and their Annual Capacity.

Name Shinepukur Ceramics Monno Ceramics Standard Ceramics Bengal Fine Ceramics Peoples Ceramics FARR Ceramics

Annual Capacity(Tonnes) 6300 5500 4000 3300 3000 2500

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Table 3: Total Export and Ceramics Export (USD MM)

Total Export Ceramics Export % of Total Export:

12177.86 29.95 0.25%

14110.8 38.33 0.31%

15565.19 31.7 0.26%

16204.65 30.78 0.25%

Table 4: SUMMARY RESULTS OF CERAMIC INDUSTRY ENVIRONMENT ANALYSIS

Parameter Competitive Rivalry within the industry Primary investment Market growth: Export Market growth: Domestic Probability of competing rivals making fresh moves Existing product diversity / differentiation Possibility of production capacity development by competitors

Condition High High High Medium Medium Medium

Effect Rivalry ↓ Rivalry ↓ Rivalry ↓ Rivalry ↑ Rivalry ↑ Rivalry ↑

Bargaining Power of Buyers Number of potential customers Number of actual customers Imposed cost for switching to an alternative product Probability of potential customers using another company’s product Company’s financial dependency on selling to customers

High Medium Low

Buyer Power ↓ Buyer Power ↓ Buyer Power ↑

High High

Buyer Power ↑ Buyer Power ↑

Medium Medium Medium Medium

Supplier Power ↓ Supplier Power ↓ Supplier Power ↓ Supplier Power ↓

Bargaining Power of Suppliers Number of key suppliers Suppliers ability to bargain for prices and favorable terms Switching cost from one supplier to another Suppliers power on product quality

Threat of Substitutes Switching cost of end users Availability of substitutes Attractiveness of substitutes price

Low High Medium

Threat of substitutes ↑ Threat of substitutes ↑ Threat of substitutes ↓

Threat of New Entrants Pool of new entrants New entrants immediate access to suppliers Probability that new entrants would earn attractive profits Primary Investment Source: (Nusrat Jahan, 2010). 28

Medium Medium High High

Threat of New Entry ↑ Threat of New Entry ↓ Threat of New Entry ↑ Threat of New Entry ↓