Shahabuddin Rajon :
Bicycle exports are the single largest product export within Bangladesh’s engineering sector, contributing to about 7.5 percent of engineering exports. Exports began around 1995, and have been growing gradually since then. Bangladesh bicycle exports are highly concentrated in three key markets the United Kingdom (64 percent), Germany (14 percent), and Belgium (9 percent). The bicycle and bicycle parts export industry has emerged recently in the industrial landscape of Bangladesh.
Investment opportunities emerged for capturing shares in the EU market after the imposition of antidumping duties (AD) on Chinese exporters. The first AD measures were imposed in 1993: after continuous lobbying from the European Bicycle Manufacturers Association, the EU imposed antidumping duties of 30.8 percent on bicycles made in China.This duty provided an opportunity for existing producers and new investors in other countries to enter the lucrative bicycle market of the EU (estimated at US$7 billion in 2011). Potential linkages with the rest of the economy are potentially substantial in this sector, given the nature of the product as an assembly of a large number of parts.
The bicycle manufacturing sector in Bangladesh is split in two distinct supply chains: (i) modern export-oriented OEM manufacturers; and (ii) the small-scale cottage bicycle and bicycle parts industry catering exclusively to the local market. These two supply chains operate independently with extremely limited interactions and linkages between the two owing to differences in market demands. There are no suppliers in Bangladesh that occupy the middle part of the supply chain consisting of specialized parts and component manufacturers; local suppliers cannot produce parts and components of the quality required for export-oriented OEMs. Suppliers of bicycle parts and components in Bangladesh historically have been exclusively oriented towards the local market, where quality requirements and standards have been low. Local producers of parts and components have few incentives to make significant quality improvements to their products geared solely to export market demands.
There are strong incentives for small firms to be exclusively oriented towards the local market. Bangladesh has a cottage industry of small-scale bicycle assemblers, parts manufacturers, and retailers, with beginnings dating to the 1970s. This cottage industry remains understudied, and statistical information is extremely limited. Nevertheless, an estimated 1,500-2,000 people work in the Bongshal market in businesses directly related to bicycle assembly, component manufacturing, and retailing. Firms are small (typically, up to 10 employees), have extremely old machinery (in many cases over 30 years old), and are limited in their ability to graduate out of the low-quality segment of the market. Typically, many small firms combine parts manufacturing with bicycle assembly and retailing of “complete knock down” (CKD) and/or “semi knock down” (SKD) kits imported from China and India. The strong incentive for firms to focus on the domestic market comes from low tariffs on inputs and high tariffs on output (56 percent), creating effective protection rates that average 219 percent for the domestic market. Suppliers of bicycle parts and components have been exclusively oriented towards the local market, where quality requirements and standards have been low. Local producers of parts and components have few incentives to make significant quality improvements to their products geared solely to export market demands.
The share of labor costs in the production of a bicycle is quite low across all manufacturing stages in Bangladesh. The share of labor costs is about 10 percent at the frame assembly stage, 13 percent at wheel assembly stage, and 2 percent at final bicycle assembly stage. When all stages of production are included, direct labor costs associated with producing a bicycle in Bangladesh range from US$3-US$5 per bicycle, depending on capacity utilization at any given time and on production location.63 Bicycle manufacturing across all stages, including frame and wheel manufacturing and assembly, is relatively capital intensive. As a consequence, bicycle manufacturing can be and is successful in countries with relatively higher labor costs than Bangladesh. In China, for example, the average monthly payroll per employee in the transport equipment industry (including bicycles) is US$500. In Taiwan, the average monthly payroll in the industry is US$1,300.Notwithstanding these comparatively high labor costs, producers in these countries are market leaders in the bicycle industry: China is the world leader in bicycle exports in general, and Taiwan is among the leaders in medium- to high-end bicycles.
The lack of local base of suppliers of quality parts and components has significant implications. First, OEMs that do not have deep-enough pockets for investing in additional parts and components manufacturing must source parts in foreign markets. Currently, two of the three Bangladeshi OEMs import parts worth 60-75 percent of their ex-works bicycles’ export value. Interviews suggest that these producers will likely increase foreign content of parts and components in the future to the maximum allowed by EU rules of origin (RoO).
Second, OEMs that are strong financially, like Meghna, have made significant investments in parts and components manufacturing. For bicycles sold locally, Meghna’s share of own parts and components is estimated at 80 percent, and for exported bicycles, up to 45 percent. This, combined with the issue of scale economies in parts’ manufacture, probably limit opportunities for independent suppliers of export-quality parts and component suppliers to emerge. In modern bicycle production, scale economies and precision engineering are clearly important, and this has allowed China and even higher wage countries to remain competitive in different segments of the bicycle market. In Bangladesh, the modern export firms have vertically integrated to partially overcome the lack of a modern parts supplying industry, but rely on imports for the bulk of their parts’ needs. This approach has meant that their export prices are 10-20 percent higher than China’s export prices.
The third implication stemming from foreign sourcing of export-quality parts is a negative impact on lead times. For example, Bangladeshi exporters’ lead times to the UK market are estimated to be 30-50 percent longer compared to Chinese exporters. It is estimated that the bulk of the lead time gap arises from the Bangladeshi firms’ need to source a large part of parts and components from abroad, which can take up to a month after all the required paperwork and shipping. Chinese exporters can rely on a vast local supplier base that enables them to source parts and components within a few days.
Finally, Bangladeshi OEMs’ competitiveness across all stages of bicycle production also often suffers from unnecessary bureaucratic practices. Giving up all our personal interest we should seize and proper utilize our opportunity so that our exporter can smoothly export their bicycle products in abroad. If we can do this certainly it will additionally add income to our export lead products that further stimulate and increase a share of our economy and can make our economic performance more strong and bounciness.
Bicycle exports are the single largest product export within Bangladesh’s engineering sector, contributing to about 7.5 percent of engineering exports. Exports began around 1995, and have been growing gradually since then. Bangladesh bicycle exports are highly concentrated in three key markets the United Kingdom (64 percent), Germany (14 percent), and Belgium (9 percent). The bicycle and bicycle parts export industry has emerged recently in the industrial landscape of Bangladesh.
Investment opportunities emerged for capturing shares in the EU market after the imposition of antidumping duties (AD) on Chinese exporters. The first AD measures were imposed in 1993: after continuous lobbying from the European Bicycle Manufacturers Association, the EU imposed antidumping duties of 30.8 percent on bicycles made in China.This duty provided an opportunity for existing producers and new investors in other countries to enter the lucrative bicycle market of the EU (estimated at US$7 billion in 2011). Potential linkages with the rest of the economy are potentially substantial in this sector, given the nature of the product as an assembly of a large number of parts.
The bicycle manufacturing sector in Bangladesh is split in two distinct supply chains: (i) modern export-oriented OEM manufacturers; and (ii) the small-scale cottage bicycle and bicycle parts industry catering exclusively to the local market. These two supply chains operate independently with extremely limited interactions and linkages between the two owing to differences in market demands. There are no suppliers in Bangladesh that occupy the middle part of the supply chain consisting of specialized parts and component manufacturers; local suppliers cannot produce parts and components of the quality required for export-oriented OEMs. Suppliers of bicycle parts and components in Bangladesh historically have been exclusively oriented towards the local market, where quality requirements and standards have been low. Local producers of parts and components have few incentives to make significant quality improvements to their products geared solely to export market demands.
There are strong incentives for small firms to be exclusively oriented towards the local market. Bangladesh has a cottage industry of small-scale bicycle assemblers, parts manufacturers, and retailers, with beginnings dating to the 1970s. This cottage industry remains understudied, and statistical information is extremely limited. Nevertheless, an estimated 1,500-2,000 people work in the Bongshal market in businesses directly related to bicycle assembly, component manufacturing, and retailing. Firms are small (typically, up to 10 employees), have extremely old machinery (in many cases over 30 years old), and are limited in their ability to graduate out of the low-quality segment of the market. Typically, many small firms combine parts manufacturing with bicycle assembly and retailing of “complete knock down” (CKD) and/or “semi knock down” (SKD) kits imported from China and India. The strong incentive for firms to focus on the domestic market comes from low tariffs on inputs and high tariffs on output (56 percent), creating effective protection rates that average 219 percent for the domestic market. Suppliers of bicycle parts and components have been exclusively oriented towards the local market, where quality requirements and standards have been low. Local producers of parts and components have few incentives to make significant quality improvements to their products geared solely to export market demands.
The share of labor costs in the production of a bicycle is quite low across all manufacturing stages in Bangladesh. The share of labor costs is about 10 percent at the frame assembly stage, 13 percent at wheel assembly stage, and 2 percent at final bicycle assembly stage. When all stages of production are included, direct labor costs associated with producing a bicycle in Bangladesh range from US$3-US$5 per bicycle, depending on capacity utilization at any given time and on production location.63 Bicycle manufacturing across all stages, including frame and wheel manufacturing and assembly, is relatively capital intensive. As a consequence, bicycle manufacturing can be and is successful in countries with relatively higher labor costs than Bangladesh. In China, for example, the average monthly payroll per employee in the transport equipment industry (including bicycles) is US$500. In Taiwan, the average monthly payroll in the industry is US$1,300.Notwithstanding these comparatively high labor costs, producers in these countries are market leaders in the bicycle industry: China is the world leader in bicycle exports in general, and Taiwan is among the leaders in medium- to high-end bicycles.
The lack of local base of suppliers of quality parts and components has significant implications. First, OEMs that do not have deep-enough pockets for investing in additional parts and components manufacturing must source parts in foreign markets. Currently, two of the three Bangladeshi OEMs import parts worth 60-75 percent of their ex-works bicycles’ export value. Interviews suggest that these producers will likely increase foreign content of parts and components in the future to the maximum allowed by EU rules of origin (RoO).
Second, OEMs that are strong financially, like Meghna, have made significant investments in parts and components manufacturing. For bicycles sold locally, Meghna’s share of own parts and components is estimated at 80 percent, and for exported bicycles, up to 45 percent. This, combined with the issue of scale economies in parts’ manufacture, probably limit opportunities for independent suppliers of export-quality parts and component suppliers to emerge. In modern bicycle production, scale economies and precision engineering are clearly important, and this has allowed China and even higher wage countries to remain competitive in different segments of the bicycle market. In Bangladesh, the modern export firms have vertically integrated to partially overcome the lack of a modern parts supplying industry, but rely on imports for the bulk of their parts’ needs. This approach has meant that their export prices are 10-20 percent higher than China’s export prices.
The third implication stemming from foreign sourcing of export-quality parts is a negative impact on lead times. For example, Bangladeshi exporters’ lead times to the UK market are estimated to be 30-50 percent longer compared to Chinese exporters. It is estimated that the bulk of the lead time gap arises from the Bangladeshi firms’ need to source a large part of parts and components from abroad, which can take up to a month after all the required paperwork and shipping. Chinese exporters can rely on a vast local supplier base that enables them to source parts and components within a few days.
Finally, Bangladeshi OEMs’ competitiveness across all stages of bicycle production also often suffers from unnecessary bureaucratic practices. Giving up all our personal interest we should seize and proper utilize our opportunity so that our exporter can smoothly export their bicycle products in abroad. If we can do this certainly it will additionally add income to our export lead products that further stimulate and increase a share of our economy and can make our economic performance more strong and bounciness.
