Artistic Surfaces

Bangladesh: A prospective market for Malaysian crude palm oil

0.0 The challenges: For last one decade Palm oil is the leading consumed oil in the world. According to MBOP (February 3, 2010), that shown in appendix table 4, 5 and 6, Palm oil has 27% of world oil and fats production share with annual production growth rate of 5.8% per annum. At 1991/1992 palm oil covered 20.1% of world oil production whether its main competitor soybean had 28.7% of market share. Due to its easy and low production cost at 2008 it become world highest consumed oil having a market share of 33.6% whether soybean oil covered 28.8% and rape oil and sun oil had 15.5% and 8.4%. According to oil world (2008), cited from MBOP (2010), Malaysia is the second largest palm oil producer in the world after Indonesia having 41.3% of market share. As one of the leading palm oil exporter nation Malaysia, export palm oil to major consuming countries like China, US, India, Brazil, Pakistan etc. Bangladesh is a huge market with a 116 million consumer where researcher assume that from 2011 extra 100 thousand tons palm oil will be required to meet its domestic need. For those Malaysian exporters who are new in Bangladeshi market the key challenge is to take their first step in to Bangladesh which is traditionally economically and culturally a diverse market and take the opportunities of its huge market and gain and rapidly increase their market share.

1.0 Customer analysis: Bangladesh is a land constrains country where 116 million people living in an area of 147,570sq-km. As agricultural land is very limited in Bangladesh so lands are use to food crops like rice and pulses. Also as Bangladesh is a populated country with high rate of birth so day by day agricultural lands are shrinking because of habitat area and industrial plots. According to Hussain (2004) the cultivate land in Bangladesh shrank from 620000 hectares in 1994-95 to 525000 hectares in 2003-04. That is why Bangladesh only manages to generate 10% of its local oil demand. These are the cause Bangladesh more and more dependent on imported oil.

The main consumed oil in Bangladesh is palm, soybean and mustard. Although palm oil and soybean oil are exported crude form and refined locally but for some past few years a substantial amount of RBD palm oil has been exported for vegetable ghee production. According to Alam(2009) total import of oil and fats including palm, soybean and mustard from 2000-2009 are shown in appendix table 1. From the table we can see that at 2000 total palm oil import in Bangladesh was 170.1 thousand tones which become 816.0 thousand tones at 2008 increasing 40% in 8 years. On the other hand at 2000 soybean import in Bangladesh was 511.3 thousand tons which decrease 57.26% at the year 2008 and become 217.3 thousand tons. At September 2009 Bangladesh imported 770.5 thousand tones and many businessmen predict that at 2011 it will touch 1000 thousand tones.

2.0 Consumers buying decision process: Another cause of increase consuming palm oil in Bangladesh is its customers buying decision process.  As like many other Asian countries Bangladesh oil market is price sensitive. Before depending on certain product Bangladeshi people like to compare it with its substitutes. And if they find it cheaper and similar to the product they used before than they switch to that product. According to Hussain (2004) that shown in table 2, we can see that at 2000-2001 the price of soybean was $667 and palm oil was $ 601 per ton which increased $940 and $769 at 2003-04. The significant difference between soybean and palm oil price led Bangladeshi customers to switch from soybean to palm oil.

Although palm oil import in Bangladesh increase rapidly for past decade but it still cannot fulfill its consumer needs. According to Alam(2009), oil world report that shown in table 3, at 2000 total palm oil consumed by Bangladeshi customers were 193.7 thousand tons which increase to 956.0 thousand tons at the year 2008. The researcher predicts that if its increase at this booming rate than at 2011 it will reach 1100 thousand tons.

Another cause of this increasing palm oil demand is the growth of food industries and restaurants in Bangladesh. A large portion of palm oil is being used by these sectors. Also the growth of biscuits and bakery industry helps palm oil to develop its rule on Bangladesh.

3.0 Competitor analysis: From the above analysis we can see that with all maximum exporting, Bangladesh will still have a shortage of 100 thousand tons of palm oil at 2011. According to Alam (2009), Malaysia is the highest supplier of palm oil in Bangladesh having 56% market share at 2005 and the other 44% were covered by Indonesia. As Malaysia is one of Bangladesh old trusted friend and exporting from Malaysia is easier and cheaper compare to Indonesia so if Malaysian exporter can offer better product with a competitive price than the researcher believes Malaysia can increase their market share as well as fulfill the extra 100 thousand tons that Bangladesh will need at 2011.

4.0 Market entry strategy: if a Malaysian exporter plans to supply crude palm oil in Bangladesh so in order to survive in such a competitive market the researcher recommended to go for a joint venture with one of Bangladesh’s leading oil Refineries Company. Traditionally Bangladesh consumed oil and fat distribution channel is controlled by some key players so before going for a joint venture the researcher recommend that Malaysian exporter conduct a further brief market researcher to choose their JV partner. According to Alam (2009), a brief structure of Bangladesh palm oil industry and its key players are presented in appendix table 8. From the table we can see that the main player in Bangladesh palm oil industry is City group with 3 refineries and 2 dry fractionation producing 2300 MT per day. In the year 2008 they hold 17.70% of Bangladesh imported palm oil market share whether another company called ‘Nurjahan Group’ captured 18.75% of Bangladesh palm oil market share. In third position there is another group called ‘MEB group’ who hold 15.75% of market share. They all import a large scale of CPOL and CPO every year. The researcher recommends to choose wisely when come to select joint venture partner and put first step on Bangladesh market.

5.0 PEST analysis:

5.1 Political and legal environment: Bangladesh is a democratic country. From 1971 when it gets independence from Pakistan, it’s gone through 3 periods of army ruling. Finally at 1991 it gets back its democracy and after that two major political parties named BNP (Bangladesh National party) and Bangladesh Awami League form the government. Although political situation in Bangladesh is stable for last twenty years but whenever a new government comes they naturally introduce some new laws. So before entering Bangladesh market one should consider those factors that can effects by government law. According to Bangladesh Customs Act, 1969 (IV of 1969), First Schedule, Section 18 Every five years, an updated guide of import activities is issued by the Customs Authorities. The major factor related to our palm oil exportation is that the necessary commodities like rice, oil price is controlled by Bangladesh government. According to the daily independent (December, 14, 2010), the retail price of palm oil is 86 BDT which is approximately equivalent to $1.20. So before entering this huge market Malaysian exporter should conduct a cost benefit analysis to calculate his profit margin. Another important factor for exporter is Bangladesh custom and duty structure. According to Alam(2009), from July 2007 Bangladesh have withdrawn all import duty on CPO, CPL and CDSBO. Also since December 2008 RBD palm oil which is a raw material of Vanaspati has been allowed to be imported at zero import duty. More information regarding customs duty can be retrieve from Bangladesh customs website.

5.2  Economical environment: Bangladesh is a low-income third world country. According to IMF, Mean wages was $0.58 per man hour at 2009 in Bangladesh. Since the independence on 16th December 1971 Bangladesh economic ground is not sufficient enough to fulfill its huge number of population with its basic needs. Bangladesh is a very small country with a population of 160 million. GDP in Bangladesh has more than doubled since 1975, and the poverty rate has fallen by 20% since the early 1990s. The country is listed among the “Next Eleven” economies. Dhaka, the capital, and other urban centers have been the driving force behind this growth. From 1971 to 2010 Bangladesh economy has gone through several major policy changes. In early 70′s it was dominated by socialist ideologies, then in late 70′s with IMF- World bank suggestion it jumped in to market economy. In a competitive market where substitutes like soya or sunflower oil are more expensive, palm oil is a cost effective choice for its consumers. As Bangladesh is a low income economy with huge market and its customers are very price sensitive so exporting palm oil can be profitable for exporter.

5.3  Social and cultural environment: Bangladesh in the northeastern part of south Asia. The area of Bangladesh is 147570 sq-km, surrounded by India in the west, north, northeast and east, by Myanmar in the southeast and by the Bay of Bengal in the south. Although Bangladesh emerged as an independent nation state in 1971 but is a country with a long recorded history of several thousand years. In its recent past it was part of Pakistan (1947-1971) and was known as East Pakistan. Prior to this, different parts of present Bangladesh were under British India (1765-1947), the Mughals and other Muslim rulers, and before them under Buddhist and Hindu rule. As the researcher mention earlier, Bangladesh is a land of 116 million people where 86% are Muslim by religion and 12% are Hindus and 2% are from other religion. As a Muslim country Bangladesh food industry are based on Halal food where palm oil is rapidly used in both household and commercial food products. Although Dhaka is the capital of Bangladesh but the major export-import business operation based on its main port city called Chittagong. The transportation in Bangladesh is not developed well but as a land of river its major transportation depends on its waterway. According to ministry of communication there is 5150-8046 km of navigable waterways in Bangladesh which is connected to its main port city Chittagong. The second largest use for commercial transportation is Rail way which covers a total length of 2706 km which also well establish connected to the southern port city of Chittagong.

5.4  Technological environment: Technology is another important factor one need to consider before entering in to Bangladesh market. As a low income economy Bangladesh is not well develop in IT sector. Although it’s major cities like capital Dhaka or port city Chittagong and divisional headquarters are moderately developed but the rural areas are still developing. Bangladesh with its high illiteracy rate (18%), assume that it will take a long time to become a high tech country. According to Hussain ( 2004) only 7% of Bangladesh population where most of them are young generation ( generation Y) use internet for their daily needs. But recently government takes some initiative to improve its IT sector. Major Banks and financial institute develop their IT department and use internet banking for their daily operation. Although foreign money transfer still depend on traditional telegraphic transfer but now a day user can access their account from anywhere in the world through internet. For advertisement Bangladesh still depends on its newspaper and human advertisement and direct advertisement but with a growing technological improvement more and more consumers are attracted by television and online advertisement.

6.1 Marketing plan: Before entering to Bangladesh market companies should first segment their market and identify their target market. As the product is the CPO (crude palm oil) and the company will straight supply it to its local partner, not the end user so refining will not be their main concern. Beside that company should be more concern on improve its brand value with quality product, distribution channel and logistic support.

6.2 Target market: As the mention earlier, Bangladesh is a land of 116 million people where at 2008, 816 thousand tons palm oil was imported for its domestic needs. Although 56% people of Bangladesh are still living behind poverty line but its improving 20% from the early 90′s. As palm oil is cheaper than its substitutes like soybean or fats it’s always been the first choice for poor or low income inhabitants. Also many restaurants and snakes bakery industry use palm oil for their production. So the target market is the approximately 65 million of Bangladeshi people and their growing restaurants and bakery industry.

6.3 Strategy: We can use Ansoff matrix strategy ( Kotler, Keller (2010) when developing our strategy for Bangladesh.

As the company already successful in home country which is Malaysian market and now planning to expand its business in Bangladesh so market development strategy is suitable for apply.

As the researcher mention earlier Bangladesh edible oil market is ruled by some big companies and for the organizations that are new in Bangladesh market so it will be the best choice for them to go for a joint venture with any of those key players rather than start their own subsidy company. In order to reach the target market companies can use their joint venture partner to refine the crude palm oil and use their distribution channel to reach retailers.

But before going to the joint venture one should review his strategy especially pricing, advertisement and packaging. For example, as Bangladesh is a price sensitive market and edible oil price is controlled by government so the company has to make sure that after refining the product partner set the price which is competitive and market oriented.

As Bangladesh is a country with a long history of several thousand years to before going to that market company further need some research to understand the cultural factors that can affect the business. As a Muslim country Bangladesh is very sensitive in some cultural/religion factor like Malaysia and the researcher believes this similarity can be a benefits for Malaysian companies.

In Bangladesh direct advertisement, newspaper and television is very popular. In order to reach the target customers companies can use newspaper and television as well as online advertisement. It will help them to establish the brand value as well as increase sells revenue. But before that companies should consider government regulation and cultural aspect before launching the advertisement program. For example Bangladeshi people like to see their own people so it’s better to use local marketing people for the advertisement. Another precaution companies should take is using female artist in advertisement. As a Muslim country Bangladesh is moderately conservative when presenting the female artist. For that companies can hire some local advertisement agency that has better understanding about this socio-cultural issue to handle the advertisement activities.

6.4 Alternative market strategies: Traditionally Bangladesh people are favorable to Malaysian palm oil so re-branding is not necessary for the product but companies can improve their packaging to attract the customers.

Bangladesh is very rich in garments industry. According to Ahmed. M (2009) “In 2004-05, Bangladesh exported largest volume of merchandise and commodities to US and held the top position in respect of importing Bangladeshi commodities. During this period, goods worth of US$ 2,412.05 million were exported to the US, which was 27.87 percent of the total export of the country.” It’s a remarkable improvement for a low developing country like Bangladesh. So after establishing the business in Bangladesh companies can consider a barter trading by importing garments good from Bangladesh in exchange of the palm oil.

7.0 Selected marketing strategy: when selecting the strategy companies should be careful if it follow Marketing Mix or not. Without adopting marketing mix companies cannot be successful in any market. The marketing mix for Malaysian companies is given below: (here ‘we’ refer to the Malaysian companies)

• Product: As our main product is crude palm oil which we are going to export from Malaysia to Bangladesh. In order to compete with our competitors especially those are from Indonesia, we will offer a High Quality palm oil with a reasonable price. Although we are already an established brand in market but this will help us to build our brand value as well as develop our market share. We also have to concern the life cycle of our product and we will introduce a new product when from the market research we will find that now consumers wants something new. In order to give consumer the best value of their money we will ensure that they get our product at its best position.
• Price: pricing is one of the important factor in our business because it is only the pricing which will generate revenue for our business. As Bangladesh edible oil market price is controlled by government so we have to set a price level which will generate profit as well as follow the government rules and regulation. Research shows that south Asian especially India, Pakistan and Bangladesh are not good in credit payment. Keeping this in mind we have to contract a payment system with our partners where they will encourage buying cash rather than credit. For this we can offer them a best price when they buy cash from us or charge extra for late payment.
• Physical distribution: in this section we will focus on our distribution channel. As we are new in Bangladesh market so primarily we will use the channel our joint venture partners provide us. But for improving our sales we can set a selling margin so that our partners handle our product seriously. We will also provide them some necessary logistic support like new technology or refine machineries in order to produce a better product and high sales revenue. Also we will share our market research with them to find the best location for our business.
• Promotion: We will introduce some creative A&P activities to support our sales. For example research shows that like Malaysia use of oil and fats increase during the two Muslim celebration Eid-ul-fithar and Eid-ul-azha and Hindu celebration like Durga puja and Dipawali. So we will concern more on advertisement during this times rather than giving promotion. Beside these times we will offer promotional prize for large scale buy as well as advertise on newspaper, television or street side advertisement. As we are a new company so when advertising our product on television we will more does it on prime time which is from 8pm to 11pm.
• Packaging: For our product we will use some creative ideas so that it can attract our customers. As oil is a sensitive commodity so we also have to make sure that our packaging keeps our product fresh and safe for our consumers. In order to maintain our brand value, gain higher market share and most of all response to public demand we can offer a ‘Green product’ by collect and recycle our empty bottles. It will help us to come closer to our consumers as well as save a huge production cost.
• Place: our target market is approximately 100 million of Bangladeshi inhabitants who are living in mid level or lower level economic line. Also booming restaurants and bakery industry of Bangladesh will be one of our concerns. For our sales we will use both big hypermarkets like ‘agora’ and small grocery shops so that our consumers find our product everywhere.
• People: As our product palm oil use mainly for household use and research shows that in Bangladesh females are always do this household operation like cooking or taking nutrition decision for their family so our main target market will be those females. Beside that we also have to focus on restaurants and bakery owners.
• Product concept: We use joint venture for our market entry method. Keeping cultural factors in our mind we develop and advertise our product as a ‘Halal’ product so that our consumers get attracted with it.

7.1 Short & long term projections: In order to export from Malaysia to Bangladesh to have to go through some fixed cost like transportation and warehouse cost. As the researcher mention earlier Bangladesh has a big port which is established in its port city Chittagong so Malaysian companies can ship their product from Penang port to Chittagong. The market price of palm oil is $1.20 per liter in Bangladesh which cost the companies $.80 per liter including all fix and variable cost. So they can make profit of $.40 which is half of their expense (shown in appendix table-9). The initial investment will be needed RM100 million (approximately) and after 2 years companies can reach their break event point.

Conclusion: If the Malaysian companies can manage to follow the strategy described above, the researcher assumes that they can get a high benefit in long term. As Bangladesh is a huge market and Malaysian palm oil already have a high image on people mine so the success depends on the strategy and partners sincerity. As the researcher mention earlier from 2011 every year Bangladesh will need an extra 100 thousand tons of palm oil which is increasing 10% every year so if the Malaysian companies get that market they can earn a huge profit as well as gain a high market share. Also they need to ensure presence in the Bangladesh market and establish strong links with importers and refinery owners. Beside that the companies can also set up a bulk offshore storage facility in Bangladesh for those local refinery owners who prefer to buy from such a facility to avoid the hassle of import.

 

 

 

About the Author

The author is doing his masters in business administration and want to build up his career as an academician. He also likes to assist writing non-plagiarise academic paper. For more information contact: jami@live.com.my

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