Though agriculture has always been the one of the most anticipated sectors in budgets, discussions, lectures and books but in true sense garments industry in Bangladesh is the most essential sector in terms of employment of comparatively less educated people.
Employing almost 4.2 million people of whom 80% are women and thus contributing to empowerment of rural women.
Let alone employment even if we consider foreign currency inflow this has been one of the most potential source. RMG covers around 80% of the total foreign exchange earnings of Bangladesh. According to a survey it contributes around 8 billion dollars which is around 13% of GDP. Starting in 1970s earning from it has increased by 8 times which is around 16.5% per annum.
SWOT analysis
Weakness:
1. Limited financial investment,
2. Insufficient infrastructural facility,
3. Less educated work-force
4. Negative impression on foreign buyers due to both political and unrest within the industry among the labor
5. Lack of legal enforcement
6. Lack of brand awareness
7. Poverty
Threats:
1. High level of inflation
2. China, Pakistan and India.
3. Increasing competition
4. Capital investment availability,
5. Political instability
6. Corruption
7. Workplace unrest
Strengths:
1. Labor intensive industry and labor cost is cheaper in Bangladesh compared to most countries
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2. Plenty of labor available
3. Quality products
4. Competitive pricing
Opportunities
1. Becoming a major hub
2. Tax reduction/govt. incentives
3. Planned Infrastructural development should improve supply chain a lot
Company: Elegance
Our company will be a garment company. Estimations are done based on square textile ltd and a small company named triangle fashion wear in Dhaka.
Vision
Provide quality clothing for every class of people and become one of the leading names in garments sector in the country and abroad as well.
Mission
Capture and satisfy the needs of customers through cost leadership and quality assurance and thus expand gradually.
Introduction:
Our company in the initial stage will go for sewing shirts only assuming monthly demand of 4000 shirts. As we will only produce ordered volume so the assumed demand is also our total production in units.
We will take orders from other garments. As we will do the sewing only we won’t be having any inventory cost other than the raw materials.
Reason behind being the designing and the cutting in these scenarios are normally done by the garment giving the order and we will complete the sewing and the collars. Buttons will be done afterwards elsewhere.
For the electrical arrangements such as getting the business line for industrial purpose and placing meters the cost is assumed as 40000 and for wearing, stabilizers for machines sockets and other expenditure 40000 more is added with the initial cost.
We will have 22 machines for which a 1000-1200 square feet space will be require. For hiring the place advance with 1st months’ rent is assumed as 115000.
Loan of 200,000(27.54%of initial investment) will be taken at a rate of 15% which is close to 30% of the total investment amount. (Basic bank)
(Small scale enterprise: The enterprise will be termed as small if in today’s market condition the replacement cost of plant, machinery and other components excluding land and building amounts to tk 15 million or less-Policy strategies for small and medium enterprises development in Bangladesh)
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Inventory:
The raw materials should include, needles, pastes used in collars and threads. Ordering volume will be our production so there will be no additional inventory cost
Machines:
Taking the demand into account we will start with 22 machines of which 18 are single needle plain machines 2 over locks and two three needle machines.
Ratios of plain machine to over locks and three needle is 10:2
Single needle is for basic sewing, three needle takes 1/3 time compared to single needle for obvious reasons but are very expensive, and over locks are sewing machines with blades that cuts the additional threads after sewing.
Changes in demand and consequences:
According to the owner of the triangle fashion wear in the winter time the demand for shirts decrease by 20-25%.duration of this shortage in demand is around 2 months.
During this period there are obvious lay-offs so there is decrease in demand, in salaries and ultimately decrease in COGS and sales as well.
Sales and COGS:
Sales growth for our company is taken as 17%, based on the average of 5 years growth in sales of square textiles which is close to 20% and of triangle fashion wear which is close to 15%.
As for COGS, for our company the growth assumed is 10%.for square text. Average growth in cogs is less than 15.
NWC is assumed as 15% of sale for our company for each of five years. For square text. It is close to 18%.
Salvage value
For the over locks and single needle SV is assumed at an average of 5500tk after 5 years for each of the machines and for the 3 needle machine it is 8000 tk each
Depreciation and tax:
As for depreciation we deducted salvage value from total machine cost and deducted the amount by 10 which is the total lifetime for the machines. We used straight line depreciation for the other years.
Corporate tax rate is assumed as 35% of the EBT amount.
Calculating WACC:
Market return of 10% is taken from the stock Bangladesh web site on 12th April, US risk free rate is taken for the measurement which is close to 3% and beta of 1.26 is taken from the stock Bangladesh website as well for the textile industries.
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Calculating CAPEX:
Capital expenditure is calculated by summing up all the fixed assets for the 1st year which is close to 7% of the total sales for the same year. For the rest of years the growth rate is assumed as same as the sales which is 15%.
After that we deducted fixed asset amount of the previous year from the amount of current year.
4P analysis:
Product:
As we said earlier our only product will be shirts.
Pricing:
Rate for sewing shirts in the market now is close to 90tk per shirt, we will start with 85tk to capture the market in the first place and then will focus on maintaining the quality.
As we will only sew shirts so the calculated cost for each shirt will also be our production cost/unit.it is calculated as 49.5 by dividing COGS by demand. Promotion
Promotion:
We will do it by ourselves as the owner of the business so we won’t be having any additional cost for advertising and there will be experienced supervisors too, to initiate promotion.
Place/Location and delivery:
We will choose a place close to the companies we are expecting to get orders from.
For the delivery of raw products to us and delivery of the sewed shirts to the companies ordering, companies themselves will be responsible.so again there will be no additional transportation cost for our company.
