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. 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.

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.

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 Asia-Pacific
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

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
June2014)

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.

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
EXTERNAL ENVIRONMENT ANALYSIS PESTLE analysis:

Our objectives of finding opportunities and threats of Ceramic Industry of Bangladesh can be achieved
by external analysis. PESTLE analysis is a framework to examine the external environment of an industry.

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 of20 percent (Nusrat Jahan 2010). Therefore, economic
environment is favorable for the expansion of this industry.

Social environment

Demand for ceramic table wares 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 table ware. Therefore, societal values, attitudes, cultural factors, and lifestyles are
supportive for the development and growth of ceramic industry.

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.

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 Jones1998).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):

1. Rivalry among competing sellers in the industry;

2. Competitive pressures associated with threat of new entrants into the market;
3. Competitive pressures coming from the sellers of substitute products; 
4. Competitive pressures stemming from supplier bargaining power; and
 5. 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 Sri
Lanka, China and Thailand, the domestic marketplace is not strong competitive enough.(Nusrat
Jahan2010).

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

approximately50 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)

 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 ahalf years the company has grabbed more than 10% share in the ceramics export market.
Moreover, it isthe first Bangladeshi company to enter the export market of Argentina after shoring up its
foothold inEurope (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.

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 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 described
below.

 SUMMARY RESULTS OF CERAMIC INDUSTRY ENVIRONMENT ANALYSIS

Parameter Competitive Rivalry within the industry Condition Effect

 Primary investment  High  Rivalry↓

 Market growth: Export High  Rivalry↓

 Market growth: Domestic  High Rivalry↓

 Probability of competing rivals making fresh moves  Medium  Rivalry↑

 Existing product diversity / differentiation  Medium  Rivalry↑

 Possibility of production capacity development by competitors  Medium  Rivalry↑

 

Bargaining Power of Buyers Condition Effect

Number of potential customers  High  Buyer Power↓

Number of actual customers  Medium  Buyer Power↓

Imposed cost for switching to an alternative product  Low  Buyer Power↑

Probability of customers using another company’s product  High  Buyer Power↑

Company’s financial dependency on selling to customers  High  Buyer Power↑

Bargaining Power of Suppliers Condition Effect

Number of key suppliers  Medium  Supplier Power↓

Suppliers ability to bargain for prices and favorable terms  Medium  Supplier Power↓

Switching cost from one supplier to another  Medium  Supplier Power↓

Suppliers power on product quality  Medium  Supplier Power↓

Threat of Substitutes Condition Effect

Switching cost of end users  Low  Threat of substitutes↑

 Availability of substitutes  High  Threat of substitutes↑

 Attractiveness of substitutes price Medium Threat of substitutes↓

Threat of New Entrants Condition Effect

Pool of new entrants  Medium  Threat of New Entry↑

 New entrant immediate access to suppliers  Medium  Threat of New Entry↓

 Probability that new entrants would earn attractive profits  High  Threat of New Entry↑

 Primary Investment  High  Threat of New Entry↓

 Source: (Nusrat Jahan, 2010)

 

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

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.