Mkt 382

EXECUTIVE SUMMARY Abul Khair Steel Products Limited has been around since 1998 as private company in Bangladesh. The company has long before achieved the summit of their success in the domestic market but it has refused to stop there. In this era of globalization the company realizes that it can no longer be immune to its effect. This report evaluates the potential market for the company’s product namely, Galvanized Plain (GP) sheet and Corrugated Iron (CI) sheet. After carefully reviewing the market conditions it was found that Sri Lanka will prove to be an ideal market for these products for initial exporting. The target market consists mainly of industrial buyers who use GP sheet as their raw materials. But the potential consumer market has not been completely ruled out because CI sheet is used by the villager to build sheds and roofs of their houses. Last but not the least; AKS would be the pioneer in Bangladesh to export GP/CI sheets to Sri Lanka. In addition to easy market penetration the company expects little threat from the local competitors because AKS can manufacture these products at a much lower cost. The report discusses each aspect of the market in detail; analyzing the strengths of the company and also its weaknesses and threats which it might face in the foreign market.

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Company profile Abul Khair Steel (AKS) Industries Limited was incorporated on 21st October, 1998 as a private company limited by the shares in Bangladesh under the companies act of 1994. It is a sister company of Abul Khair group of Companies. Nature of business: the principal activities of the company throughout the year were manufacturing and marketing of CR coils, GP coils Corrugated Iron (CI) sheets and Galvanized Plain (GP) sheets. Board of directors: the company is run by board of directors consisting of eleven members of whom there is a chairman, managing directors, deputy managing directors and other directors with specific responsibilities. AKS maintains an amicable relationship with a number of well established banks in Bangladesh. Among these banks are EXIM, Standard Chartered, City and Pubali Bank. AKS has acquired extensive credit lines form the City Bank and the Pubali Bank, giving them a competitive edge over their competitors. The company is based in Chittagong and has good hold of the market all over Bangladesh. They have a large share of market in some of the most important districts and sub districts such as, Chittagong, Feni, Barishal, Rangpur, and Mymensingh. They control 60% of the overall market in the GP/CI sheet industry.

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Marketing Strategy AKS primarily manufactures what is known as ‘dheu tin’ in Bangladesh. These are used mainly for building roofs and sheds for rural huts. They are more popular among the rural parts of Bangladesh. AKS’s product is more popularly known as ‘Goru Marka Dheu tin’. AKS has based its operation in two places namely, Chittagong and Feni; where they have a good control over the market share. However, they have divided the whole of Bangladeshi market into 3 broad divisions and 14 territories. They have the divisional and regional sales officers (also known as RSO) for the respective divisions and regions. AKS owns 1900 traders all over Bangladesh and depend primarily on their distribution channels to make their presence felt in the local market. Furthermore, they have their own formidable transport facilities that allow them to supply their product efficiently. In fact, AKS boasts that within 24 hours of placing order they are able to complete the delivery to any parts of Bangladesh. In addition to such advantages of AKS, it also has close relationship with many well known banks around Bangladesh. These banks provide it with useful information and advice and also help the company out with extensive credit lines. AKS’s reputation has earned them trust from many banks which are ready to do business with the firm. AKS advertises their product through broadcast and print media. They have emphasized more on the broadcast media because most of their target audience is from the rural parts of Bangladesh where literacy rate is low. So, it is more appropriate for them to advertise their product through visual demonstration instead of written information. In essence AKS has managed to acquire significant ground for them self in

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the local market. They follow a sound strategy of all of their departments. Each SBU’s coordinated effort has taken this company to the pinnacle of their success.

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Sri Lanka’s History The name Sri Lanka was taken formally by the island of Ceylon when a new republican constitution was adopted in 1972. From Sri Lanka, ancient Sanskrit for the ‘resplendent isle’, Rama rescued his wife Sita who had been abducted by its king, as recounted in the great Hindu epic Ramayana. The first historical Sinhalese king of Lanka was Vijaya, who arrived in 483 B.C. The last great king was Prakrama Bahu in the 12 th century A.D. Thereafter the island became the prey of many invaders: Tamils, Arabs (who called it Serendib), Portuguese (who called it Zeylan), Dutch, and British (who modified the Portuguese name to Ceylon). The Sinhalese arrived in Sri Lanka late in the 6th century B.C., probably from northern India. Buddhism was introduced beginning in about the mid-third century B.C., and a great civilization developed at the cities of Anuradhapura (kingdom from circa 200 B.C. to circa 1000 A.D.) and Polonnaruwa (from about 1070 to 1200). In the 14th century, a south Indian dynasty seized power in the north and established a Tamil kingdom. Occupied by the Portuguese in the 16th century and by the Dutch in the 17th century, the island was ceded to the British in 1796, became a crown colony in 1802, and was united under British rule by 1815. As Ceylon, it became independent in 1948; its name was changed to Sri Lanka in 1972. Tensions between the Sinhalese majority and Tamil separatists erupted in violence in the mid-1980s. Tens of thousands have died in an ethnic war that continues to fester. After two decades of fighting, the government and Liberation Tigers of Tamil Eelam began a ceasefire in December 2001, with Norway brokering peace negotiations. The Sri Lankan gained independence in 4th February 1948 from UK. The country is run by a republican government, the capital being Colombo.

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Location: The country is located to the south of India as an island in the Indian Ocean (Geographic co ordinates: 7 00 N, 81 00 E). The land covers an area of 65,610 sq km.

Climate: It’s a tropical monsoon climate with the northeast monsoon prevailing from December to March; and southwest monsoon from June to October.

Terrain and Natural resources: Except for the mountains in the south central interior the terrain is mostly plain and low. The country has been endowed with limestone, graphite, mineral sands, gems, phosphates, clay, and hydropower natural resources.

Population: The total population figure of Sri Lanka amounts to 19,905,165. However, since the outbreak of hostilities between the government and armed Tamil separatists in the mid-1980s, several hundred thousand Tamil civilians have fled the island; as of yearend 2000, approximately 65,000 were housed in 131 refugee camps in south India, another 40,000 lived outside the Indian camps, and more than 200,000 Tamils have sought refuge in the West. Age Structure: 0-14 15-64

years: years:

24.8% 68.2%

(male

2,526,143;

female

2,414,876)

(male

6,589,438;

female

6,976,487)

65 years and over: 7% (male 655,636; female 742,585) The young aged population ranging from 0-14 years constitutes 24.8% of the total population while the adult population, ranging from 15-64 years, is 68.2%. The rest of the population includes people above 65 years of age.

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The population growth rate is 0.81% and a birth rate of 15.88 births per 1000 population. The death rate is 6.47 deaths per 1000 population. However, the total infant mortality rate is as high as 14.78 deaths per 1000 live births. A person is expected to live on average of 72.89 years.

Ethnic groups: The Sinhalese include the majority of the population taking up 74% of the total population, followed by the Tamil which constitute 18% of the population. The Moor constitutes 7% and the Burgher, Malay and Vedda account for the remaining 1% of the population.

Religions: Majority of the Sri Lankan, about 70%, are Buddhist followed by the 15% Hindu population. Christianity and Islam prevail about 8% and 7% respectively.

Languages: The official and national language of Sri Lanka is Sinhala. Other languages spoken in Sri Lanka are Tamil and about 10% of the population can speak English competently, which is also commonly used in government.

Literacy rate: The literacy rate of Sri Lanka is quite impressive which is 92.3%. The population of 15 years and up can read and write.

Economy: In 1977, Colombo abandoned stasis economic policies and its import substitution trade policy for market-oriented policies and export-oriented trade. Sri Lanka's most

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dynamic sectors now are food processing, textiles and apparel, food and beverages, telecommunications, and insurance and banking. In 2003, plantation crops made up only 15% of exports (compared with 93% in 1970), while textiles and garments accounted for 63%. GDP grew at an average annual rate of 5.5% in the early 1990s until a drought and a deteriorating security situation lowered growth to 3.8% in 1996. The economy rebounded in 1997-2000 with average growth of 5.3%, but 2001 saw the first contraction in the country's history, -1.4%, due to a combination of power shortages, severe budgetary problems, the global slowdown, and continuing civil strife. Growth recovered to 4.0% in 2002 and 5.2% in 2003. About 800,000 Sri Lankans work abroad, 90% in the Middle East. They send home about $1 billion a year. The struggle by the Tamil Tigers of the north and east for a largely independent homeland continues to cast a shadow over the economy.

GDP: The purchasing power parity is $73.49 billion while on the per capita basis it amounts to $3,700. The real GDP growth rate is 5.2%. The GDP composition by sector is

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illustrated in the graph below:

GDP- Composition by sector

19.2%

Agriculture Industry

55.5% 25.3%

Services

The inflation rate is 9% and the unemployment rate is 8%. The main Sri Lankan industries are rubber processing, tea, coconuts, and other agricultural commodities; clothing, cement, petroleum refining, textiles, tobacco. Rice, sugarcane, grains, pulses, oilseed, spices, tea, rubber, coconuts; milk, eggs, hides, beef comprise the country’s agricultural products.

Exports: Their exports amount to $5.269 billion and the commodities of exports are textiles and apparel, tea, diamonds, coconut products, petroleum products.

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Imports: Their imports however, exceed their export amount to $6.626 billion and the commodities of import are textiles, mineral products, petroleum, foodstuffs, machinery

Import Partners of Sri Lanka

in a C h

U K

E U A

In d ng ia K o S ng in ga p or e J a S ou pa n th K o re a T ai w a n

16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

H o

Percentage of Import

and equipment. The importing partners of Sri Lanka are shown in the chart below:

Countries

As can be seen from the graph most of Sri Lankan imports come from the Asian countries, especially India.

Culture Music and Dance The Sri Lankan tradition of folk drama includes the kolam, a masked drama, and the sokari and nadagam, stylized dramas with song and dance. Sinhalese classical dance includes the highly athletic Kandyan form, which originated in the central highlands when the region was part of the kingdom of Kandy from the ad 1500s to 1815. The Kandyan performances include representations in dance of animals and birds, as well as stories from the Ramayana, a Sanskrit epic of ancient India. The dances are accompanied by complex drum rhythms. Tamil classical dance includes bharata natyam, a highly

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stylized form that originated in southern India. Baila, a style of song and dance introduced by the Portuguese in the 1500s, is widely popular in Sri Lanka.

Literature Early Sinhalese literature was primarily religious. Buddhist monks compiled what are considered the earliest texts of Sri Lanka. The Mahavamsa (Great Chronicle), written in the ad 500s in Pali (the language of Theravada Buddhism), chronicles the rise and fall of successive Sinhalese kingdoms in Sri Lanka, beginning with the legendary colonizer of the island, Prince Vijaya, in the 500 B.C. Poetry flourished as the earliest literary form in the Tamil language. After Sanskrit, Tamil is the oldest literary language of the Indian subcontinent (see Indian Literature). This strong Tamil literary tradition was part of the cultural heritage of Tamils who migrated to Sri Lanka in ancient times. The earliest known Sri Lankan Tamil poet was Eelattu Poothanthevanar, whose poems were included in the Tamil cankam (sangam) poetry anthologies compiled in southern India before 250 A.D. A distinctly Sri Lankan Tamil literary tradition first developed in the 1940s with the works of the so-called marumalarchi (renaissance) writers Mahakavi, A. Kandasamy, and Varadar. The poetry of Mahakavi, in particular, helped distinguish the literature of Sri Lankan Tamils from that of Tamils in southern India.

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Product market

Product life cycle is a concept that provides a way to trace the stages of a product’s acceptance, from its introduction to its decline. Introductory stage: the full scale launch of a new product into the marketplace. Growth stage: The second stage of the PLC when sales typically grow at an increasing rate, many competitors enter the market, large companies may start acquiring small pioneering firms, and profits are healthy. Maturity stage: A period during which sales increase at a decreasing rate. Decline stage: A long run decrease in sales.

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AKS had been manufacturing GP (Galvanized Plain) sheets and CI (Corrugated Iron) sheets according to JIS G3141 SPCC1B international specifications quite successfully for the past few years. Exploring the market potentials in Sri Lanka, which is explored on the later parts of the report, we propose exporting both GP sheets and CI sheets to Sri Lanka. GP sheet is used widely on a variety of products. Some of the technical specifications of the GP sheet produced in AKS are given below:

Zinc Coating Base metal thickness Width Quality

100 to 275gms/sqm 0.11-0.50 mm 750-1000mm Hard

GP sheet is a thin metallic sheet with a zinc coating that is manufactured from HR coils. GP sheet is used in textile, furniture, construction, decorations, and poultry-just to name a few. CI sheets can best be described as the processed form of GP sheets. Most of the times CI sheets are given the form of wave like pattern for rain waters to run down easily. Sri Lanka had been importing CI sheets for the last twenty five years. CI sheet is one of the most important materials in constructing a rural house. At the same time, most of the manufacturing plants in Sri Lanka, including the edible oil processing plants, extensively use CI sheets in constructions of the plants. Hence CI sheets have long past the introduction stage in Sri Lanka. However, the handful of CI sheets manufacturers in Sri Lanka can hardly meet the local demand. Hence Sri Lanka had been importing CI sheets for a long time. Considering the present market condition it is safe to conclude that the CI sheet in Sri Lanka is still in the growth stage.

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On the other hand, it’s not long since Sri Lanka starting importing GP sheets in large volumes. Most of the industries that use GP sheets were not around five to seven years ago. However, small industries and cottage industries had been importing small volumes of GP sheets for quite some time now. Hence we came to the conclusion that GP sheet have just passed the introduction stage in Sri Lanka. How much the GP sheet and CI sheet market worth is tough to determine. There had not been any reliable market study concerning the matter by any Sri Lankan organization. One or two Indian companies, who used to export GP sheets to Sri Lanka conducted small scale market surveys of their own; but they were reluctant to share any of their findings. Form the data that we have gathered, we estimate an annual demand of 600,000 metric tons of CI sheets in Sri Lanka; a market worth of approximately $371,400,000. For GP sheets the annual market demand stands at 800,000 metric tons. The market is worth around $450,000,000.

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Competitive Analysis Fortunately enough, no other companies in Bangladesh have taken the initiative to export CI and GP sheet to Sri Lanka yet. If AKS can manage itself to take up this decision quickly enough then market penetration for the company will not require a great deal of effort. It will later be discussed in our SWOT analysis that the Indian government has put a restriction on exporting GP sheet to Sri Lanka, making Bangladeshi companies’ effort much easier. However, if AKS succeeds in this industry in Sri Lanka then it is surely to attract attention of the domestic companies. Therefore, it becomes a necessity to study the local competitors and be aware of their potentiality. AKS may face its biggest competition from the PHP group of industries. The two companies have been formidable rivals of each other in the domestic market. Although AKS has managed often to get the upper hand in different markets, PHP is not far lagging behind. AKS has its strongholds in certain districts and sub districts of Bangladesh such as Chittagong, Feni, Rangpur, Barishal and Mymensingh. It enjoys 60% of the total market share in Bangladesh. However, PHP is known to have strong relationships with a number of banks and insurance companies that assist them with extensive credit lines. Such incentives give the company, among other competitors, a competitive edge over the AKS group. Among other competitors of AKS the more competitive ones are Islam steel mills, Chittagong steel mills and Paragon steel mills, all based in Chittagong. It is difficult, however, to solicit information about their company strategies and their market share.

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SWOT Analysis Strength First time exporting is always full of uncertainty. At the same time, first time exporting is also more expensive and exhausting. In the past, some of the local companies incurred considerable amount of loss exporting for the first time to a foreign country. For any company, first time exporting warrants strong financial condition of the exporting company. AKS, being the sister company of one of the most profitable group of companies in Bangladesh-namely Abul Khair Group of Companies, has got the financial blessing to carry on such venture. Fortunately, most of the top level managerial personnel of AKS have previous experience in exporting to neighboring countries. They were previously involved in exporting both consumer and industrial goods to India, Thailand, and Myanmar and so on. Even though the company previously never exported heavy industrial goods to Sri Lanka, as a result of their previous business with the country they have successfully developed contacts that could help them get inside information on market of CP Sheet and GP Sheet. Again, due to the financial backing the company can easily send or hire agents who would conduct an extensive market research for them- a privilege that most of its local competitors would not be able to afford. Incidentally, AKS is currently the biggest importer of HR coils in Bangladesh. Three years ago AKS has bought two machines from Japan, one from Germany and one from Canada that gave them the ability to process HR coils here in Bangladesh. Hence while a number of its competitors are buying the CR coils from Japan, AKS is producing them locally. As a result, they have been able to produce CI sheets/GP Sheets at a lot lower cost, which already gave them a competitive advantage here at home, helping them

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to obtain lion’s share of local market. And now they can use the same advantage when exporting CI sheets and GP sheets to Sri Lanka. Even if their competitors eventually decide to follow them to Sri Lanka it would be very difficult for them to match the competitive price that AKS would be able to offer. Achieving such a decisive competitive edge is no walk in the park for any industry in today’s competitive world. One of the primary reasons for AKS to become the market leader in Bangladesh is their high quality products. The company always has high regard for quality. A highly trained quality control unit is always checking up the quality of the products against international standards. The company hopes to acquire ISO9001 certificate by 2006, which will serve as another testimonial of their quality products.

Weakness First time exporting rarely generates any considerable profit. Ironically, profit earned in first time exporting seems to work as an important motivator for managers who would think of carrying on the exporting business in the future. What happens in case of most of the first time exporters is that they can hardly justify the exporting cost. Most of the companies exporting for the first time dreams of earning a profit which is in a word irrational. Hence when the exporting is done and the real profit is counted, they simply come to the decision that exporting is too much of a hassle generating too less of a revenue to repeat the process. The same phenomenon might come to haunt AKS decision making authorities.

Currently AKS is manufacturing according to market demand. However, they do have excess capacity to produce more. However, exporting CI sheets and GP sheets to Sri Lanka would require manufacturing more than what is currently possible using the

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installed machineries. While buying the required extra machineries should not present itself as a problem, operating them might. Most of these machines are complex to operate and maintain and requires a degree of training. While recruiting non-skilled labor is not a problem in this country, hiring skilled labor is. Thus training non-skilled labor into skilled one to operate the machines would be the best alternative. However, the process is time consuming. Furthermore, upon interviewing some of the personnel of managerial position we come to realize that the company is currently more interested in focusing on the domestic market rather than going for exporting to foreign market. As mentioned before, due to the company’s unique competitive advantage regarding HR coils, AKS has been selling its high quality products at a lower cost, thus becoming the dominant player in the market. The prevailing opinion in the company is that if they concentrate enough on the local market, with the help of their strong sales force they could easily penetrate deep into the market,. As a result, when their unique advantage will eventually be lost, it would be hard for the competitors to regain the lost market shares. Hence some of the upper class managers hold that they should postpone any exporting process for at least two years. However, it might be so that within these two years other companies may take over most of the market share in Sri Lanka, making market penetration a difficult task.

Opportunity A destructive civil war had been plaguing Sri Lanka for more than twenty years Most of the victims of the civil war are the Tamils- people belonging to a demography consisting of inherently poor rural people. The age long civil war has left hundreds of villages completely or partially destroyed. Now that a cease fire agreement has been signed, the destroyed houses are expected to be rebuilt. The Lankan government also

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promised to help rebuilt most of the effected villages. Being a tropical country, rooftops of most of the houses of Sri Lanka are made of CI sheets. At the same time, due to the civil war Sri Lankan industries sustained significant damage. The development of the industrial sector of Sri Lanka had been repeatedly hindered by the civil war. Taking advantage of the cease fire agreement it is expected that the Sri Lankan industries will try to flourish. Most the industries of the subcontinent use CI sheets extensively for rooftops and as fences. They also often use GP sheet to make smooth floors, especially in the warehouses. Thus given the present condition the demand for GP sheets and CI sheets in Sri Lanka is expected to go up dramatically. Previously India was the biggest exporter of CI sheets and GP sheets in Sri Lanka. However, India is currently one of the fastest growing countries in the world. Naturally there is a huge demand of CI sheets and GP sheets in India. The central government is not interested in importing either of them, rather it believes that it would be best to manufacture them locally and meet the demand. Still, due to a number of reasons, some of the Indian industries are more interested in exporting CI and GP sheets rather than selling them in the domestic market. Thus to discourage such behavior, the Indian government has recently imposed high tariff on exporting CI sheets and GP sheets to foreign countries. Previously India was the chief supplier of the products in Sri Lanka. However, now that the price of CI and GP sheets have gone up, Sri Lankan importers are looking for cheaper alternatives. Hence the new tariff has opened a window of opportunity for our country, or to be more precise, for AKS; since AKS is still the biggest manufacturer of CI sheets and GP sheets in Bangladesh. In the light of the facts we believe its high time AKS seriously thought of starting exporting CI sheets to Sri Lanka. Once the company has secured the market, it can easily reap off the profit of a timely decision.

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In addition to India’s tariff on exporting GP sheets and CI sheets to Sri Lanka, Bangladesh government has recently declared duty drawback and other incentives on export of CI sheets and GP sheets. Hence for every metric ton of CI sheets and GP sheets exported, the exporting company will be returned the tariff that it had to pay when it imported the raw materials and the chemicals needed to manufacture those sheets. Thus AKS is in a position to export CI sheets and GP sheets to Sri Lanka at a cheaper price than some of its foreign competitors located in countries such as India, Thailand or Myanmar where GP sheets and CI sheets still don’t enjoy any duty drawback. While looking for more opportunities in Sri Lanka we came across an interesting fact; unconfirmed sources have reported that Sri Lankan government is considering manufacturing ammunition locally. The government intends to import all the necessary accessories needed and then assemble them locally, utilizing the cheap labor. Considering their limited capability it would not be irrational to speculate that Sri Lankan government will manufacture ammunitions mostly for handguns and semi-automatic and automatic weapons. The outer shells of most of the varieties of these weapons use GP sheet to do the final coating. As with most of the ammunition assembling countries it is expected that the Lankan government would be interested to produce the outer shells locally. Hence if AKS can acquire a significant amount of GP Sheet market in Sri Lanka, chances are very good that they will be able to get the contract to supply GP Sheets to Sri Lankan government, which should generate a handsome amount of revenue every year.

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Threats

Sri Lanka had been fighting the civil war for nearly twenty years. Even though there is a cease fire agreement going on between the two fighting parties, many fear that the fighting may erupt again at any time. Hence Sri Lanka has always been considered a risky place to do business at. If the war does start again, AKS might face a substantial loss due to it. Even though we don’t fear that all the exporting activities that AKS would have with Sri Lanka would be ceased, (since Sri Lanka had been importing CI sheets from India even when the war was still going on) it would be quite natural to expect that most of demand for CI sheet will be gone at least until the next long term cease fire agreement. And also there is a chance that some of the importers of Sri Lanka may default due to the war. There might be trouble at home too. As we all know, export businesses always need to maintain its schedule very strictly. Due to political restlessness nature of Bangladesh, maintaining schedule is often an impossible task. This phenomenon has made some local companies loose export contracts in the past and it may come to haunt AKS in the same way.

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Recommendations In order to start exporting CI sheets and GP sheets to Sri Lanka we recommend contacting N. Vaitilizgan & Company. N. Vaitilizgan & Company is the biggest importer of industrial materials in Sri Lanka, and the sole importer of CI sheets in the country. At the same time, the company had been importing CI sheets from India before the imposition of higher tariff. Presently all the small industries that use GP sheets are entirely depended on its imports. We came to know from AKS that recently N. Vaitilizgan & Company has shown great interest in importing AKS’s product, namely CI sheet and GP sheet that AKS produces. N. Vaitilizgan & Company has a long business relationship with Nowrasia Container Lines Ltd., a very reputed container line company in the South East Asia. Ironically, or to be more precise, naturally, Abul Khair group of industries in the course of business has dealings developed a good relation with the container lines company. Abul Khair group of industries had been utilizing their services for importing chemicals and other industrial raw materials for the different industries that it operates. Recently N. Vaitilizgan & Company has placed an unsolicited order for a small quantity of CI sheets and GP sheet. Apparently the agents of Nowrasia in Sri Lanka had recommended AKS to N. Vaitilizgan & Company. Naturally, the company has insisted that the export should be made through Nowrasia Container Lines Ltd.

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Target market We believe that most of the buyers of AKS GP sheets would be small to medium size business ranging on buying capacity of high to moderate .There are a number of packaging companies in Sri Lanka that use GP sheets for producing various kinds of containers. We expect about 65% of the buyers of GP sheets would belong to such category.

Another type of potential customers of exported GP sheets are cottage

industries. They are expected to buy GP sheets in small volumes. And like most of the industrial products that are sold in small volumes, selling GP sheets to them should involve a long distribution channel involving various categories of wholesalers and retailers. Another category of buyers that we expect to buy GP sheets are industries that produce CI sheets. As mentioned before, CI sheets are the primary materials that are used as rooftops on both manufacturing industries and rural houses. So far we could find five such companies that would be interested to buy GP sheets in order to process them into CI sheets and sell them in local market. Before the Indian tariff imposition, they would buy the imported GP sheets from N. Vaitilizgan & Company. These companies should be the primary buyer for the exported GP sheets. They have medium to high inventory carrying capacity and should buy high volume of sheets. We believe that most of the CI sheets would be bought for commercial purpose rather than for personal consumption. As mentioned before, Sri Lankan manufacturing industry, especially the edible oil processing industry is expected to flourish in the upcoming years. Considering the construction patter of the existing edible oil processing plants, we concluded that CI sheets would be used extensively to construct the upcoming plants as well. Other than the edible oil processing plants, other manufacturing plants that will very soon emerge taking the advantage of the cease fire agreement, should also be using CI sheets for their constructions. Considering the reputation that AKS CI sheets

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have on Bangladeshi market and the quality and price they can offer, we can safely infer that these potential clients will choose AKS CI sheets if they have it available. There should be good number of households too who would be willing to use CI sheets for their homes. Hence CI sheets exported would act as both consumer and industrial product. However, in this case AKS would be indirectly competing against itself. The GP sheets that we propose to export to Sri Lanka would be processed into CI sheets and then would compete against AKS CI sheets. We do not expect these locally processed CI sheets to compete against AKS CI sheets when it comes to industrial buyers, since AKS can sell the CI sheets to industrial buyers at a much lower cost. Not to mention that the industrial buyers would place a very high confidence on AKS CI sheets due to the company’s wide spread reputation on the Bangladeshi market. Besides there is currently no GP sheet processing company in Sri Lanka that has the capacity to supply the amount of CI sheets that each industrial buyers would require. As for competition on the local market, it should not even remotely be threatening. First of all, none of those local GP sheet processing industries can supply enough to cover the entire market. They are known for producing low quality products. During the civil war, a large portion of Sri Lankan market share was occupied by Indian CI sheets, not the locally produced CI sheets. If the Indians can beat the Lankan on their own ground, we are confident AKS could do the same. Besides, if those local companies every pose any serious threats, AKS can always cut off its supply of GP sheets to them and thus leaving them with scarcity of raw materials which is sure to hike up their products cost; rendering the products incompetent against AKS CI sheets.

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Promotion Even though this would be the first time AKS is exporting GP sheets and CI sheets to Sri Lanka, we do not feel any extensive market penetrating promotional activities are necessary. Moreover, Sri Lankan market is more accustomed to the dealer conducting the promotional activities rather than the original manufactures. Since AKS’s primary target market is industrial users, we feel a different approach would be more appropriate. For attracting potential GP sheets buyers, AKS should work its promotional activities in co ordinance with N. Vaitilizgan & Company. Most of these promotional activities should be focused on the wholesalers and retailers who would sell the products to small industries. The wholesalers and retailers exercise immense influence over the buying decision of most of the industrial buyers. Hence they should be convinced that promoting AKS products would be most profitable for them. With that end in view, with the help of N. Vaitilizgan & Company, AKS may introduce modest volume discounts for the wholesalers. Later on, when the exporting business is up and fully operational AKS can introduce other promotional activities such as raffle draws and sweepstakes. At the same time N. Vaitilizgan & Company, being the importer of AKS products, is expected to exercise its influence over the wholesalers to carry and promote AKS products. As for the few commercial buyers who usually buy directly from N. Vaitilizgan & Company through their own agents, we recommend personal selling approach. AKS might consider sending two to three members of its well trained sales force to Sri Lanka. Before approaching the companies, the sales team should be thoroughly briefed by N. Vaitilizgan & Company about the differences in “ways of doing things” between Bangladesh and Sri Lanka. However, considering the degree of similarities between the target markets of the two countries, we do not suspect the sales team would face many difficulties in Sri Lanka.

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As mentioned before, we believe that AKS should focus more on industrial buyers rather than on final consumers for selling CI sheets to Sri Lanka. As with the GP sheets AKS should use a sales team, with the help of N. Vaitilizgan & Company, to penetrate the target market. However, AKS should try to make its brand of CI sheets a popular name among the normal population. Let’s not forget that the industrial buyers also belong to the Sri Lankan population. Hence, if they find AKS’s brand of CI sheets a popular and assuring name, it would take little convincing by the sales team to make them opt for AKS CI sheets. Hence as we can see, even though AKS’s target market is the commercial users, in order to easily convince them AKS should popularize its brand name among the common people. It must create an image of prestige and confidence among the people. They very brand name should convey a perception of class, reliability and quality. AKS has extensive knowledge in conducting promotional activities in Bangladesh. It has been successful in making its brand out-shine a wide array of CI sheets of other brands. Considering the similarities of market characteristics of the two countries, AKS should be able to successfully use the same promotional strategy in Sri Lankan market. However, it would be wise if all the promotional activities are coordinated with N. Vaitilizgan & Company. Given the in depth knowledge the company has on Sri Lankan market, they can help AKS fine tune their promotional activities to better suit the Sri Lankan market.

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Distribution channels The distribution channel that AKS has been able to set up in Bangladesh is undoubtedly one of the most efficient distribution channels of the country. The company has divided the entire country into three divisions with fourteen territories. Each territory is maintained by one territorial sales manager who works under the guideline of the territory’s corresponding divisional sales manager. There are a total of nineteen hundred traders throughout the country that sell the CI sheets to the final consumers. The company has got its own transport fleet capable of delivering goods within 24 hours from any of its two bases of operations. However, setting up the same kind of distribution channel is quite impossible for a company like AKS. Instead, at least for the time being AKS can help N. Vaitilizgan & Company to have a more efficient distribution channel, taking advantage of the experience that AKS has in setting up such channel in Bangladesh. However, AKS should keep in mind that any importer may feel threatened when an outsider try to modify its distribution channel. Hence AKS should not consider taking any other actions to modify the channel in Sri Lanka other than occasional friendly advices, at least until AKS’s products is dominating the Sri Lankan market.

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The expected distribution channel in Sri Lanka

Abul Khair Steels

Nowrasia Continers Line Ltd

N. Vaitilizgan & Co.

Wholesaler GP sheet

Wholesaler CI Sheet

Small industries

Retailers

Agents

Final Consumer

Commercial users

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Budget Chalking up a budget for an export activity is a very hard one, even for professionals. The task gets even harder when one is not a member of the company; thus lacking access to relevant information. Hence the budget drawn here should be considered as a framework to estimate an approximate cost and revenue. Since this would be the first time AKS is exporting to Sri Lanka, it is justified to export only a small quantity of its product. In this way the company can monitor all the channels its products have to go through in order to reach the target market. Hence we would recommend exporting 400 metric tons of both CI sheets and GP sheets. The reason for recommending exporting both CI and GP sheet is that if it is found that the Sri Lankan market has demands for both the product (which is very likely) then AKS can enjoy economy in all the steps of exporting. Since AKS manufactures according to market demand, it usually have a high rate of inventory turnover. Hence Exporting 400 metric tons of CI sheets and GP sheets would mean that AKS would have to produce this extra amount of product. After consulting with the operations manager of AKS, we gathered that AKS can produce 400 metric tons of CI sheets and GP sheets without facing any extra pressure. However, instead of producing the products at the same time, it would be wise to produce such amount of products over a period of one month time. In this way the workers don’t have to be under any extra pressure and at the same time the chances of drying up the raw material too quickly too soon would be minimized. Since storing CI sheets and GP sheets do not require any extra caring and AKS already has a storehouse big enough to store the extra amount of products that would be produced over the month, storage cost should be a minimum.

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For exporting AKS have two types of containers to choose from: twenty feet containers and forty feet containers. Some sources have reported that dealing with twenty feet containers is complicated and physically difficult at Colombo port. Hence we recommend using twenty feet containers. Each twenty feet container is capable of carrying twenty to twenty two metric tons of CI and GP sheets. Various cost related to exporting per metric ton of CI and GP sheets is shown below:

Container handling(per 20 ft. container) Labor charge (per metric ton) C&F commission (per metric ton) Miscellaneous expenses (per metric ton) Total

1,000Tk 115Tk 110Tk 275Tk 1,500Tk

The cost of exporting four hundred (400) metric tons of CI sheets and GP sheets in given below:

Material cost (400m.t.*31,700Tk) Container handling (20containers@1,000Tk/container) Labor charge (400 m.t.@115Tk/metric ton C&F Commission (400 m.t.@110Tk/metric ton Miscellaneous Expenses (400 m.t.@275Tk/metric ton) Total Cost

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12,680,000Tk 20,000Tk 46,000Tk 44,000Tk 110,000Tk 12,900,000Tk

Selling one metric ton@ 36,000Tk the total revenue that would be generated from selling 400 metric tons is 14,400,000Tk. This gives rise to a profit of approximately 1,500,000Tk, which is of course, is subjected to radical changes. The budget does not contain any promotional cost for the sake of simplicity.

TERMS OF SALE Ideally for any exporter the “cash in advance” method of payment is the least risky. This method, however, is rarely used. Cash in advance is preferred over other modes of payment when the exporter has reasonable doubt on the importer’s ability to pay. For AKS the Sri Lankan market is new and it would be more favorable for them to opt for cash in advance method. However, the cash in advance as a mode of payment is as difficult for the importer as it is convenient for the exporter. Cash in advance as a mode of payment is a good and safe choice only when the importer has no other way but to comply with any demands of the exporter. Since this is not the case here, cash in advance as a mode of payment is out of the question. Other options that are available to AKS are: 1. Free on board (FOB)

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Under this term of sale, AKS has the option to quote a price covering all expenses up to, and including, delivery of goods on an overseas vessel provided by or for the Sri Lankan importer.

2. Cost and freight (CFR) Under this term of sales, AKS can quote a price of the goods including the cost of transportation to Colombo port. The cost of insurance and the choice of insurance are left to the importer. 3. Cost, insurance and freight (CIF) In this case AKS can quote a price including insurance, all transportation, and miscellaneous charges to the point of debarkation from the vessel. We would recommend choosing either FOB or CFR. Both of the methods relieve AKS from the burden of insurance. However, AKS can opt for any one of the three; since it has a history of dealing all of them.

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CONCLUSION AKS being the first company from Bangladesh to export GP/CI sheets to Sri Lanka definitely has the upper hand. As we have seen in our SWOT analysis, the company has previous experiences in the foreign markets, which will go a long way to bring success for this company in the international arena. AKS has a better chance of surviving in the foreign market because it can produce the sheets at a much lower cost. This is because, where the domestic competitors have to buy the HR coils, from which these sheets are manufactured, from Japan AKS can manufacture them locally. The local market will pose little threat to the company because after being torn apart by a long lasting civil war, the country is not in a better position for the time being to compete against AKS. Furthermore, the Indian tariff on exporting GP/CI sheets to foreign countries has opened up a whole new window of opportunities for AKS. AKS intends to team up with the local distributor to establish an efficient distribution channels. The channel is expected to be less complex because the company aims at the industrial buyers more than the end - consumers. After determining the budget for the whole campaign, it was estimated that the company’s rise in profit is projected at 1,500,000Tk. This may be far from the exact profit the company may earn; however, this gives a good incentive to take up the initiative take on the Sri Lankan market by the horns!

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Bibliography

1. The New Caxton Encyclopedia. Vol. 17. London. The Caxton Publishing company 2. Lamb, Charles.W. Marketing. 5th Ed. South Western College Publishing 3. Encarta Reference Library 2004 4. The virtual Library of Sri Lanka. www.lankalibrary.com 5. CIA Factbook. http://www.cia.gov/cia/publications/factbook/geos/ce.html 6. USGS Mineral Resources Program. http://minerals.usgs.gov/minerals/pubs/country/2000/9303000.pdf 7. http://www.barighar.com/Steel/STEELMILLS.htm 8. Czinkota, R. Michael and Iikka A. Ronkainen. International Marketing 6th Edition, Harcourt College Publishers, 2001. 9. Stevenson, William J., Production Management, 8th Edition, McGraw-Hills, 2002.

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