Running Head: INVESTMENT IN BANGLADESH 1

Investment in Bangladesh

Mohammed Khalid Bin Hossain (10720016)

Taufeque Uz Zaman (10720003)

Syed Adnan Jubayer (10720019)

Md. Wahiduzzaman (10720026)

Army Institute of Business Administration, Sylhet.

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Abstract

This paper presents an in-depth analysis of Cargill Inc.'s strategic approach to entering the

meat industry of Bangladesh through a joint venture with Kazi Firm. The study examines the

key factors that influenced Cargill's decision, the potential benefits of the joint venture, and

the expected impact on the local market.The paper demonstrates how the financial managers

of Cargill will invest in the meat industry of Bangladesh. It also contains a proper business

plan along with why the meat industry of Bangladesh will be perfect for them to invest in.

The method of international business they choose and government support or restriction to

enter the meat industry are also discussed. In essence, the paper shows how the foreign

exchange rate can affect the business.

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Company Overview

Cargill is one of the biggest food companies in the world. It controls much of the world’s

food. Cargill has been responsible for a true revolution in the global food market. It supplies

inputs for companies like McDonald’s, Coca-Cola, and even governments around the world.

Giants like Nestle and Unilever uses their products as raw material for their product. It is the

largest privately held company in the United States. William Wallance Cargill founded

Cargill in 1870. It is headquartered in Minnesota, United States. Cargill Meat Solutions is one

of the subsidiaries of Cargill Inc. Their products are beef, turkey, chicken, and egg. It operates

in 70 countries including Asian countries like China, India, and Pakistan.

Reasons for investing in Bangladesh

Growing Market:

Bangladesh is a country of around 170 million people. A large population of Bangladesh is

growing in the middle class. As it is now a developing country people of Bangladesh have

more disposable income. This presents a significant customer for meat products. Revenue of

the fresh meat market of Bangladesh amounts to us$ 14.52 billion in 2023. The market is

expected to grow annually by 11.20%. (Fresh Meat- Bangladesh, n.d.)

Competitive Advantage:

No other MNC in the meat industry is not operating in Bangladesh. Cargill Inc. has a strong

track record and expertise in the meat industry globally. Leveraging our experience,

resources, and technological advancements, we can establish efficient operations in

Bangladesh, ensuring high-quality products, competitive pricing, and sustainable practices.

The local companies are not that experienced and do not have that much technological

advancement.
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Favourable Market Conditions:

Bangladesh's government has implemented policies to attract foreign investment and has

been actively promoting economic growth. These initiatives create a conducive business

environment for companies like Cargill looking to enter the market.

Political and Economic Stability:

Bangladesh has experienced consistent economic growth in recent years, demonstrating

stability and resilience. This stability provides confidence to invest in Bangladesh and

reduces the risks associated with market fluctuations. Political stability is also good in

Bangladesh.

Favourable Labor Market:

Bangladesh has a large, young, and cost-effective labor force, which can contribute to the

efficient and competitive production of meat products. The monthly minimum wage level in

Bangladesh was 48$ in 2020 which was lowest in Asia. (Hossain, 2023) This advantage can

help maintain cost-effectiveness and competitiveness in the market.

Reasons for Choosing Meat Industry

Changing Consumption Patterns:

As the standard of living improves, there is a shift in dietary preferences towards protein-rich

foods, including meat. This trend is likely to drive the demand for meat products in

Bangladesh. Like restaurants in Bangladesh are serving meat dish like steak, meat balls,

ready made frozen chicken etc. People Now a days wants marinated ready to eat frozen meat

rather than cooking in traditional way.

Limited Domestic Production:

Bangladesh currently faces a supply-demand gap in the meat industry, as domestic

production is insufficient to meet the growing demand. That’s why the price of the meat is
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going high day by day. This presents an opportunity for international companies like Cargill

to establish a strong presence and contribute to fulfilling the market's needs.

Business Plan

Cargill meat solutions have a plant base in India. India is one of the largest meat producers in

the world. Around 20-40% of the population of India is vegetarian. 80% of Indians are Hindu

in religion. So, they do not eat beef for religious purposes. Price of the meat of beef is

cheaper in India than in Bangladesh. In 2014, the Indian government imposed a ban on the

export of cattle to Bangladesh. (Dhaka Tribune, 2023) The plan is to import frozen beef meat

in Bangladesh and process them with the help of a local company and sell them at a high

profit. The meat will be managed by the plant of Cargill meat solutions in India.

Method of International Business:

Cargill Meat Solutions will joint venture with Kazi Farms which is a local company in

Bangladesh. Cargill meat solution will import frozen beef and Kazi Farm will process,

package, and distribute them. Kazi Farm is also a renowned company in Bangladesh for

ready-made frozen chicken and fish and other frozen foods. They have good distribution

channels all over Bangladesh. In This case, the Cargill meat solution is not going for any sort

of production and it will be much cheaper to process and package with the help of Kazi Farm.

Because planting new machinery and building new distribution channels will be much more

expensive. This will create more value for both brands.

Financial Plan:

Primary investment will be 20 million USD from the Kazi farm and 70 million USD from

Cargill to process only beef meat. Cargill will also invest in poultry and fish hatchery. Net

profit will be divided into 30% for Kazi farms and 70% for Cargill.
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Operations:

Bangladesh and India Have multiple land ports Which can be easily accessed. Cargill will

collect the meat in their Indian plant. After cutting the meat it will be frizzed for a certain

period. Then it will come to Bangladesh by land port or seaport. Then Kazi Farm will use our

recipe to make ready-to-eat meat. They will package the meat and distribute it through their

freezer van. These products will be sold in retail shops. Kazi Farms already have their fridges

in retail shops where they store only Kazi Farms products.

Documentation:

1. Halal certification from " Halal India Private Limited". Because we are the importer

of a Muslim oriented country. Before importing it is necessary to take halal

certification.

2. Health certificate from Export Inspection Council (EIC) India.

3. Must take import permission from the Department of Livestock Services (DLS).

4. Customs clearance document.

5. Take permission from the Bangladesh food safety authority (BFSA) to ensure that

meat is safe to eat.

6. Again, halal certification from BSTI.

7. Trade Licence.

Competitors of Meat industry in Bangladesh

Although there is no MNC competitor in the meat industry of Bangladesh. Bengal Meat is the

local competitor of Cargill. Bengal meat has beef poultry and fish products. They sell their

products through their outlet and in retail shops also. Another competitor would be

traditional meat shops. Customers have trust issues with them.

Running Head: INVESTMENT IN BANGLADESH 7

Strategy: Bengal Meat follows the growth strategy they want to expand in their market more

because there is no major competitor for them that’s why they don’t think about a cost-

cutting strategy.

Strength: Bengal Meat has its outlets. So, customers can easily reach them out it will also

ensure better customer service.

Weakness:

Bengal meat only collects their raw material of meat from locally that will cost them more.

Government Facilities or Restrictions

Bangladesh's government follows an open market economy. There are no restrictions to the

purchase of any property. According to the Foreign private investment Act of 1980, Foreign

investment is protected against expropriation and nationalization. Corporate Tax holiday of 5-

7 years for foreign investment. Income tax, value-added tax (VAT), customs duties, etc. are

the restrictions of the Bangladesh government. How Volatile

Effect of Volatile Exchange Rate in Business

Volatile Exchange rate of any currency related to Business can affect harmfully.

Cost or Revenue fluctuation: When Cargill sell products in Bangladesh and the rate of Tk is

volatile automatically cost and the revenue of the company in us dollar will fluctuate.

Investment Decisions: Volatile exchange rates can influence investment decisions. Cargill

may hesitate to make long-term investments or expand operations in Bangladesh. Highly

volatile currencies increases risk and uncertainty.

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Profitability: Volatile exchange rates can significantly impact on profitability. Cargill’s

revenue is in Foreign currency (TK), a depreciating local currency can result in lower

revenue when translated back into the domestic currency (USD).

Use of Currency Derivatives in Business

Currency derivatives can be effectively utilized to hedge against foreign exchange risk in

Business.

Forward Contract:

It is an agreement to exchange a specified amount of currency at a specific exchange rate

(forward rate) and at a specific date. Cargill can use this derivative to make payments of its

import from India in the next month. For example, Cargill have purchase meat of worth

100,000 RS. However, we are unable to pay the money now to the supplier. At present, the

spot rate is 1 RS = 0.80 BDT. If we had made the payment today, we TK 80,000

(100000*.80). However, if RS appreciates to 0.90 TK, We would need Tk 90,000

(100000*.90). This means we require Tk 10,000 more to purchase RS. It can be helpful to

risk management.

Future Contract:

The future contract works same as forward contract. The only difference is it requires a

standard specific amount of currency to be exchanged at a specific future rate at a specific

date.

Option Contract:

It is also a contract to exchange a specific amount of currency at a specific exchange rate at a

specific date. The difference is the Cargill may exercise the option if they require or may not

if they do not require it. There is not obligation that the company has to exercise the call
Running Head: INVESTMENT IN BANGLADESH 9

option. This means the company can use option contract when they are unsure of whether

there will be any such transaction soon or not. However, the only disadvantage is that

whether they exercise the call option or not the company will have to pay a certain amount of

premium fee. There are mainly two types of options- put option and call option.

1. Call Option: It is the agreement of buying a specific amount of currency at a specific

exchange rate at a specific time.

2. Put Option: It is the agreement of selling a specific amount of currency at a specific

exchange rate at a specific time. The Timberland Subsidiary can use these two call contacts

when they either must purchase or sell a specific amount of currency.

Conclusion

Cargill meat solution has the potential to use the growing meat market in Bangladesh. The

market is not that much clattered also. If Cargill can finance their investment properly, they

can easily earn customer satisfaction. They have to maintain the product quality and customer

service.
Running Head: INVESTMENT IN BANGLADESH 10

References
Dhaka Tribune. (2023). Why is red meat in Bangladesh more expensive than the global average?

Freash Meat- Bangladesh. (n.d.). Retrieved from www.statista.com.

Hossain, M. (2023). Bangladesh monthly minimum wage. The Business Standard .

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