Factors Affecting FDI In Bangladesh

Outflows: Though there are too many opportunities for the inflows 0f FDI in leather and leather
products sector but the outflows are still not standardized. After the independence of the country three
particular industries were selected to enhance export diversification. Those three industries were tea,
jute and leather. Among these three industries the leather industry was the most rapidly growing one,
as the global demand for leather and leather product has increased. The leather and livestock industry
started to grow very rapidly. To make the industry more ready for the future a Tannery co9rporation
was formed with 24 tanneries.by the 90’s the local companies started diversifying and started to add
more value to the leather products. This evolution resulted in creating direct employment. Leather,
leather goods and footwear industries are creating more than eight hundred thousand people. Currently
Bangladesh is pursuing a development strategy of inclusive growth. That means employ oriented growth
and, in that sense, leather good industry is playing a big role in terms of employee generation.

Over the years, Bangladesh grew gradually and the industry of leather and footwear has become the
second largest export earner. Currently Bangladesh has an 8% share in the global leather market. With
the improved quality and product development has made this industry to produce leather goods for the
renowned companies of the world like Clarks, Hugo Boss, Timberland, Picard, Aldo, Michael Cors and
many more. Bangladesh is producing and exporting leather goods for these brands. Leather goods and
footwear is contributing well over 1.2 billio0n USD to export revenue of Bangladesh. It is about to 1% of
international requirement. This can be taken to 5 billion USD with proper support and logistics.

The leather industry in Bangladesh, the ternaries specifically, are basically divided into three major
camps. The raw to wet blue, the wet blue to crust, and from crust to finished tanneries. The people who
are associated with the finished goods are a bit ahead from the others. Because of their skilled working
experience.

The leather industry has a lot of opportunities to get foreign direct investment for the good quality of
production and lower production cost. The manufactured leather goods have a high demand in foreign
countries. Currently Bangladesh is exporting its leather manufacture goods to USA, France, Germany,
Spain, Belgium, Italy, South Korea, Japan, china, Hong Kong, Taiwan and several other countries. While
recently demand for leather goods and leather footwear has increased in Japan, India, Nepal and
Australia.

Leather and leather goods industry is the 2 nd largest exporting sector of Bangladesh after the apparel
sector. The total global market size is over USD 250 Billion. Competing the other market giants 110
companies of Bangladesh is producing leather goods and footwear. 200 to 250 million pairs of shoes
have been sold in the global market per year. Apex, FB, Picard Bangladesh, Jenny’s, Akij, RRM
Bangladesh and bay are the market leaders of Bangladesh. They are producing the leather goods and
footwear in their own manufacturing plants, tanneries and processing plants.

Bangladeshi leather is considered the best leather in the world after their French counterparts. This is
why there is a huge demand for Bangladeshi leather goods. But the problem is the final processing of
leather from the raw materials is very little in amount. It is only 20% of the total raw material. This is
why Bangladesh has to export its major part of raw material without transformed into any goods. But
Bangladeshi foreign invest policy is been increased with the benefits for the foreign investors. For this
reason, many foreign investors are investing in Bangladesh for the finished processing plant and high-
quality leather goods. Hush Puppies, the world-famous footwear brand has opened a plant in
Bangladesh. They are making their products in Bangladesh for many reasons like skilled employees, low-
cost labor, high quality leathers, low operational cost, lower trade barriers and many more. For this
reason, it is easy to attract the inflow of FDI in this sector.

But there are many reasons for not being able to operate any outflow of FDI in this sector. One of the
main reasons is the lower amount of finished leather production in Bangladesh. 80% of raw materials
are being export for processing it into the finished leather. And after then it is again exported with
higher price for transforming those into finished leather goods. Only for this major reason Bangladesh
can not operate their outflow of FDI in any other foreign country. There are also many other reasons for
not being able to maintain the outflow with the increased number of inflows of FDI.

The Government of Bangladesh has established many economic zones to increase and attract the FDI.
This is attracting the inflow of the foreign investments. But to attract the and to increase the outflow of
FDI in leather and leather product industry government has to initiate the G-to-G agreements to
establish some Bangladeshi Economic Zones in foreign shores. This kind of agreement can solve the
long-term problems in leather sector of this country. This industry has a lot of opportunities to expand
in foreign country and it has gained some surplus expertise to invest in the foreign countries too. This
industry can make preferential treatment in the country where there is better infrastructure facilities.

There are many more issues like this one in this industry which are affecting the opportunities of the
outflows of FDI. Some major issues are:

2.2.1: Insufficiencies of technology: There is a huge lack of technological support in this sector. This
is why many of the operations of processing leather is done manually which is both harmful for the
workers and the environment too. The washing plant, the treatment plant and in the preservation plant
almost 80% of the works are done manually by hands. This is a huge lockage for this industry. Because it
decreases the work speed and degrades the quality of the product.

2.2.2: Appropriate Production Method: Most of the production plant is still running in the analogue
system. Maximum of them do not follow any international standards. These products are only sold in
local markets. But the inappropriate process of production is killing the golden opportunity to earn
foreign currency. If the final product is up to mark it can be export and also can meet the global demand.

2.2.3: Lack of R&D: There is a huge lack age in the in the research and development of leather and
leather goods. The traditional and the same quality of downgraded production is decreasing the
opportunity to outflow the FDI.

2.2.4: Lack of Training: Bangladeshi workers are not skilled. Most of them are not able to perform
their best to make the best quality of leather goods as there is a lack of technological supports too. If
there is a huge number of skilled workforces this industry can move into foreign shores to compete the
other market giants who are existed in the market and also can ensure the outflow of the FDI.

2.2.5: Dependence on imported Raw Materials: The number of raw materials processing is still very
small in amount. Only 20%of the total raw materials are processed to final goods by the market giants.
And 80% of the raw materials are exported for the processing into finished goods and again it is
imported at an expensive rate. This is one of the major drawbacks for the outflow of FDI in leather
industry.

2.2.6: Lack of Market Information, Marketing Strategies and Business Knowledge: Most of the
Bangladeshi firms do not have any global market information about what the market wants and what is
the current trend of the product. They produce their product in the ancient traditional way and sell
them in the local market. Most of firm owners do not have business knowledge that how to operate
business in a foreign country or running the business globally.

2.2.7: Stricter International Standard: As most of the firms do not have any technological and skilled
labor support, it is very much hard and almost impossible to meet the international standards for the
Bangladeshi firms. It is a great loss for the industry and for the fore4ign earning of Bangladesh. Because
80% of the Bangladeshi Firms operate their production in associated with the older processes which can
not meet the international standard.

2.2.8: High Cost of Doing Business: To operate a business in a foreign country is very costly and
there is also lack of many supports like the native country. The operating cost, high labor wages, strict
legal policies and tax are also major road blockers for the outflow of FDI.

If Bangladesh government can make G-to-G agreements with several countries where the leather
business is beneficial and can make earn more foreign currency and the firms can ensure processing the
final goods by themselves maintaining proper international standards instead of importing the
expensive foreign processed leathers, the opportunity of outflow of the leather and leather goods in
foreign shores is very potential and highly promising.