Bangladesh Jute

Industry
Competitiveness in
World Market
Reason and way to regain

Submitted to

Mr. Abu Hena Reza Hasan

Associate Professor
Department of International Business
University of Dhaka

Submitted by

Md. Raquibul Islam Russeau

Roll: 20
M.B.A 2nd Batch
Department of International Business

Date of Submission: 3rd September, 2009

 Jute: Loosing Competitiveness in World Market and way to regain

Introduction
‘Golden Fiber’ of Bangladesh Jute’s production was industrialized as early as in
Pakistan period. During the 60’s and 70’s Jute was the major contributor to the
export of the total country then It also was the important contributor to the Gross
Domestic product.[1] But after the liberation of Bangladesh and as the time
increased it declines to the 2.63% in the recent time(2006-07)[2] which is very
insignificant in comparison with the export volume in the 70’s like this
percentage was 89.9% in the year 1979.[1]

Facing many problem Bangladesh’s jute industry has lost its competitiveness in
the world market as its is facing a declined demand pattern and tough
competition. ‘The term “competitiveness” itself is a broad concept. Its meaning,
implications, adaptation and achievement vary from firm to firm, industry to
industry, or country to country. Michael E. Porter is a pioneer of the
“competitiveness theory” (Porter, 1990) at the national or macro level (Cho and
Moon, 2000). Firm/industry-level (micro level) competitiveness depends on
various parameters. However, the literature provides no universal agreement on
the definition of competitiveness. For example, some researchers consider the
labour cost, unit cost, exchange rate, interest rate, prices of material inputs and
other price- or cost-related quantitative factors for measuring the
competitiveness of a manufacturing firm/industry (Edwards and Golub, 2004;
Fukunishi, 2004; Cockburn and others, 1998; and Edwards and Schoer, 2002).
Some other researchers consider product quality, innovativeness, design,
distribution networks, after-sales service, transaction costs, institutional factors
relating to the bureaucracy of export procedures and other non-price factors for
measuring the competitiveness of a manufacturing firm/industry (Abdel-Latif,
1993; Chen and others, 1999; and Sachwald, 1994). The influences of both price
and non-price factors on the competitiveness of a firm/industry are reflected by
market share and profit (Toming, 2006).’ [1]

Here in this study I have focused on the price and non price aspect of our jute
industry to measure the competitiveness and to indentify the reason causes this
declined competitiveness. Factors I am going to work with in this study are
production, productivity, export trend, cost of production, price of product and
portfolio dynamism. I will also focus on the industry dynamics which will be
based on the competitiveness theory of Michael E. Porter.

Objective of this Study

a) To understand the changes in jute sector’s competitiveness of

Bangladesh.

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch

 Jute: Loosing Competitiveness in World Market and way to regain

b) To study of factors mention earlier in order to identify major factors

responsible for this efficiencies/ inefficiencies.
c) To identify opportunities and challenges that needs to be confronted by
the jute sector in the near future.

Competitiveness of Jute Sector of Bangladesh

Jute sector of Bangladesh losing its competitiveness in the growing world market
several reasons can be put in front for that. As India is now hold the largest stake
of international market in both export and production terms I choose India as
base for comparison. And it can clearly seen by the following two graph.

Graph 2: Major Producer of Jute Goods (Source – FAO) [5]

Graph 2: Major Exporter of Jute Goods (Source – FAO) [5]

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch

 Jute: Loosing Competitiveness in World Market and way to regain

Though the export seems to be rising after the initial drop in the year 2003
Bangladesh jute industry is suffering from other issues which are hindering their
competitiveness in the world market. These factors of competitiveness and their
effect on Bangladesh jute industry are discussed below.

Factors of Competitiveness and their effect

1.0 Production and Export

India has been the leading jute producers since the 1970s. Today it produces
1.977 million metric tons of jute while Bangladesh produces only 963,000 metric
tons in 2003-04. The more recent growers like China and Thailand decreased
output in the 1980s and 1990s. Myanmar, Nepal and Brazil are just some small
producers on the edge. Bangladesh's total production of jute goods decreased by
53.94 percent while India's increased by 42.5 percent. Jute growing area in
Bangladesh reduced by 8.3 percent over the last six years although jute
production increased 3.2 percent mainly because of a yield growth of 12.5
percent. And in 23 years since 1981, Bangladesh's total production of jute goods
decreased by 53.94 percent while India's increased by 42.5 percent. [6]

2.0 Area Wise Production(Hg/Ha)

Graph 3: Area Wise Production (Source – FAO)[5]

3.0 Changes in world financial dynamics

Recent changes in global financial condition declined the price of jute in the
world market. This forces down the jute price below the production cost in
Bangladesh as this reduction of price In the world market is nearly 15%. So
Bangladesh is getting a tough time to cope up with the production cost and
changes in financial dynamics. At the same time India’s rupee got devaluated in
terms of dollar so the importer are moving to the Indian market as their product
become cheap than the Bangladesh product. [4]

4.0 Raw Jute Export

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch

 Jute: Loosing Competitiveness in World Market and way to regain

Bangladesh export jute to India and china in raw form, china and India produces
jute products with those jutes and then export those in the world market. It is
becoming a problem for Bangladesh as Bangladesh is losing a major value of
their goods in the world market. According to the vice chairman of Bangladesh
jute export association Bangladesh is losing TK 22000 per tones for just
exporting raw jute. If they can export jute product they could have fetch more
from the market.

5.0 Product Portfolio

Bangladeshi product are more conventional than the other exporter in the world
market they still relying on the raw jute, sacking cloth, sacking bag, hessian
cloth, hessian bag etc. But they do little focus on the diversified products and
handicrafts made of jute, which is experiencing a growing demand in the world
market.

6.0 Price Comparison

Graph 4: Price (Source – FAO)[5]

Here from the graph we can see that India and Myanmar is giving a tough
competition in pricing terms. But still India mane to keep it price low and the
quality and the diversification in jute production is also giving them an edge to
score a critical hit to the competitiveness of Bangladeshi market.

7.0 Technology

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch

 Jute: Loosing Competitiveness in World Market and way to regain

Jute industry is also starving for new technologies as maximum machinery are of
1960 models some are even running from 1930. So now a days it take 40 man-
days to produce a ton of yarn or fabrics[6]. It is because Bangladeshi
entrepreneurs had imported second hand machinery from the Europe, Pakis tan
and some other where they had already abandoned those things.

8.0 Lack of Motivation among farmers

Price to Farmer/tonnes (in US $)

Prod 2001 2002 2003 2004 2005 2006
uct
Jute 125.25 128.78 136.78 127.9 119.64 219.86
Rice 108.05 114.01 103.18 142.84 143.86 139.03
Hector wise Yield
Prod 2001 2002 2003 2004 2005 2006
uct
Jute 18 18 19 18 20 21,
,803 ,320 ,464 ,692 ,796 097
Rice 34 34 35 35 37 38,
,020 ,902 ,768 ,358 ,813 541
Total revenue to Farmer (in US $)
Prod 2001 2002 2003 2004 2005 2006
uct
Jute 2,355,07 2,359,24 2,662,28 2,390,70 2,488,03 4,638,38
5.75 9.60 5.92 6.80 3.44 6.42
Rice 3,675,86 3,979,17 3,690,54 5,050,53 5,439,77 5,358,35
1.00 7.02 2.24 6.72 8.18 5.23
Table 1: Yield from jute (Source – FAO)[5]

This table shows that farmers earning more if they produce rice in the same area
of land than they will get from the jute’s production. Though jute gives them a
initial payment of high price per tones than rice but ultimately they gain less in
producing jute. That’s one of the major drawback Bangladesh’s jute market is
experiencing in recent times. That is why farmers’ are not getting interested in
producing jute more.

Industry Dynamics
1.0 Threats of New Entry:

Market we are concerned here is the world market and it’s a free market here
the quality, price and availibility is the determinent of market entry if any

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch

 Jute: Loosing Competitiveness in World Market and way to regain

country thinks that they can comply with these charecteristics they can make
their entry into the market without any obstacle.

2.0 Intensity of Competition among competitors:

Competiotion’s intensity is low rathe bangladesh is facing competition from their

inner forces more than the outer forces. But in recent time the financial crisis
and devaluation in Indian Rupee made india more lucrative interms of exporting
jute and jute goods.

3.0 Bargain power of Buyer and suppliers:

Here the power is equalized because buyers are large quantity buyers and good
in number but the approximately Bangladesh and india contribute 90% to the
total market’s supply. So in that terms they are also powerful so this market is
not dominated by neither parties.

4.0 Threat from substitute product:

Synthetic is becoming substitute for jute in many industries. But at the same
time there is a concern rising to protect our environment. And synthetic is one of
the reasons why environment is getting polluted. That is the reason of not facing
competition from synthetic even after being closest competitor of jute.

How to regain world market competitiveness

Here is some measures which could be taken as a matter to be competitive in
the world market again:
• Bangladesh should get out of the Old Stone Age farming techniques and
should adopt some more scientific manner to produce effectively and to
increase the per capita yield.
• Bangladesh should maintain a good stable farm gate price for producers
which will encourage them to produce jute.
• Bangladesh should diversify their product portfolio and develop more of
those products which are highly demanded in the world market.
• Bangladesh should focus on producing more jute goods on its own rather
exporting raw jutes to their competitor.
• Govt should subsidize the jute sector in order to maintain the production
cost at a stable level.
• It should capitalize the concern for using more environment safe product.

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch

 Jute: Loosing Competitiveness in World Market and way to regain

• Should ensure the sources of resources (e.g. land, labor, fertilizer, water)
are consistent in the production season.

Conclusion
As Bangladesh is facing problem more from inner side than the outer side
Bangladesh has to solve this problem in restructuring some of their traditional
views and thoughts about jute market. India inspite of being the largest
producer almost 60% of their portion are internally consumed so if Bangladesh
can mobilize their resources in a good manner than it will be soon when this
‘Golden Fiber’ will bring golden foreign currency to them. So it is high time to
pick up and take some positive steps to develop this market before it is too late
and other producer build their capacity.

References:

1. Jute Manufacturing Sector of Bangladesh Challenges, Opportunities and Policy Options, by

Khondaker Golam Moazzem, Md. Tariqur Rahman and Abdus Sobhan, paper 78 Published
by CPD
2. http://www.epb.gov.bd/export_Trend.php
3. Competitiveness of the Bangladesh Ready-made Garment Industry in Major International
Markets by Ziaul Haider, Asia-Pacific Trade and Investment Review, Vol. 3, No. 1, June 2007
4. Series of Crises Hit Industry, Jute export prices lower than production cost, The Daily Star,
22nd November, 2008
5. http://faostat.fao.org as on 2nd September, 2009
6. From heyday to doomsday, The Daily Star, August 01, 2007,
http://www.thedailystar.net/2007/08/01/d7080101044.htm

Md. Raquibul Islam Russeau | Roll: 20 | M.B.A 2nd Batch