Term Paper Proposal

Managerial
EconomicsE-501

LIGHT ENGINEERING
INDUSTRY AND ITS
IMPACT ON
ECONOMY OF
BANGLADESH

Date of submission : 14th September, 2015

LIGHT ENGINEERING INDUSTRY AND ITS

IMPACT ON ECONOMY OF BANGLADESH
Prepared for:

Professor Dr. A.K.M. Saiful Majid

Director
Institute of Business Administration, University of Dhaka

Prepared by:
Name

Batch

Roll

Tanvir Mohammed
Ahsan

52D

57

Ridwan Al Mahmud

52D

58

Md. Ahshanuzzaman

52D

59

Md. Mehedi Hasan

53D

50

Institute of Business Administration

University of Dhaka
September 14, 2015

2. Letter of Transmittal

September 14, 2015

Dr. A.K.M. Saiful Majid
Professor
Institute of Business Administration
University of Dhaka
Dhaka
Subject: Submission of Project Proposal
Dear Sir
It is an immense pleasure for us to submit the proposal on LIGHT ENGINEERING INDUSTRY AND ITS
IMPACT ON ECONOMY OF BANGLADESH as a partial fulfillment of the requirement of course named
Managerial Economics of MBA program for our course prescribed group project.
We would like to thank you for giving us this unique opportunity to further enhance our knowledge on
the principles and applications of Economics. We are truly honored to have you guiding us with your
immense repository of knowledge and experience. We sincerely hope that we will be able to fulfill your
expectations and do justice in capturing the true essence of your exceptional teachings in our project.
We would like to convey our special thanks and gratitude to you for patronizing our effort & for giving us
proper guidance and valuable advice. We have tried our best to cover all the relevant fields. We will be
honored to provide you any additional information, if necessary.
Thank you.
Sincerely yours,
Tanvir Mohammed Ahsan 52D Roll: 57
Ridwan Al Mahmud

52D Roll: 58

Md. Ahshanuzzaman

52D Roll: 59

Md. Mehedi Hasan

53D Roll: 50

3. Introduction
Light engineering sector (LES) occupies a unique position in the economy of Bangladesh. It practically acts
as feeder or support industry to all other industries and plays a crucial role in the socio-economic
development of the country. LE enterprises have potentials to make significant contribution towards
technological advancement and economic development along with wide opportunities for employment
generation. The sector has been fueling the growth of many other industries by supplying various types
of machineries and spare parts and by providing repairing services
Bangladesh depends on foreign countries for costly capital machinery. Local light engineering industries
can meet a part of the demand at cheaper prices if the industries are given financial support to produce
modern machinery. These industries are already doing a significant part of maintenance works of the
existing industries supplying spare parts fabricated locally and thus saving huge foreign exchange. Light
engineering industries along with other SMEs are considered engines of industrialization. They absorb
more workforces and can help achieve the goal of poverty reduction.
Bangladesh has hardly any heavy industry. The country with about 30 million unemployed people needs
labor intensive industries. Light engineering industries are especially suitable for their high labor intensity,
innovativeness and low capital investment. Stakeholders in the sector want the authorities to create a
special fund to provide loans at low interest rates. The SME Foundation may extend financial support to
them. Policy support for the development of this vital sector would give rich dividends, say experts.
The product lines of the LES are quite large and diversified. This sector is now manufacturing a wide range
of spare parts, casting, molds and dices, oil and gas pipelines fittings and light machinery, as well as repair
services. Various mills and factories like jute, cotton, sugar, paper, textile, garments, fertilizer, tea
plantation and processing etc., use the machinery and spare parts produced by the entrepreneurs of this
sector. In the agricultural sector, all the shallow tube-well spare parts like liner and diesel engines are now
coming from the LES located in the rural areas of the country. The customer industries range from toothbrush and buckets to auto-parts and parts of machine used in textile, pharmaceutical and other sectors
to diesel engines, irrigation pumps, power tillers etc.

4. OBJECTIVES
4.1 Broad Objectives
The broad objective of this paper is to carry out thorough study on light engineering industry of
Bangladesh, to understand the sectors contribution in the GDP and economic growth of Bangladesh.

4.2 Specific Objectives

To understand the principles of economics and their application in respect of light engineering
industry.
To understand the demand and supply function, market equilibrium, and substitution effects
on light engineering industry.
How price elasticity of demand and supply works in light engineering industry.
Price ceiling and price floor existing in the light engineering sector, consequences of this control
in the city.
Impacts of Govt. regulation and taxation on the light engineering industry.
Recommendations for enhancement and growth for the light engineering industry of Bangladesh

5. Methodology
5.1

Consumer Research Description

5.1.1 Type of Research

The survey will be conducted basing on empirical and literature study basis. To complete this report a
systematic study will be followed. To analyze the problem, the researcher would be required to do a
Descriptive Research to collect primary data by means of interviewing the sample respondents

5.1.2 Sample Design

5.1.2.1 Population:
Consumer of metropolitan area of Dhaka city where light engineering industrys products are sold is the
population of this survey.

5.1.2.2 Sample element/Unit:

An individual consumer of light engineering industry consumed in metropolitan area of Dhaka City.

5.1.2.3 Sampling procedure:

In this research students would be used Non-probability convenience procedure.

5.1.2.4 Sample size:

01

Mirpur

02

Mohamamdpur

10

03

Dhanmondi

10

Total

25

Clustered Sampling method will be used. The sample will be collected from Dhaka Metropolitan City only.
The clusters are:

Consumers Strata:
Garment Industry/ textile

Restaurants/ hotels

Building firm/ developing company

Pharmaceutical

Retailers strata:
Should interview a total of 40 retailers of light engineering industrys products from Mirpur,
Mohamamdpur and Dhanmondi area.

5.1.3 Survey Method

Following popular methods would be used for conducting survey:
In depth interview.
Questionnaire survey.
Observation
a. Number of consumers will be surveyed: Consumers sample, as already mentioned, will include both
the individual consumers and the institutional consumers. The sample size for both the sub-strata is given
below: Institutional Consumers: Institutional consumers sub strata will have the following sample size:
Garment Industry/ textile

Restaurants/ hotels

Building firm/ developing company

Pharmaceutical
b. Number of Competitors to be surveyed: The manager of the existing manufacturers of light engineering
industry, their distributors, wholesalers and retailers of Dhaka. Size of this stratum is specified below:
Manufacturers of light engineering product: Analysis of only the top five manufacturers of light
engineering products to learn about the sales, growth, economic impact, market size and
marketing share etc.
10 Distributors will be observed by the researcher those are presently available in Dhaka city.
5 wholesalers shall be interviewed in taking necessary data regarding this study from Dhaka city.
Retailers: Will take information from 40 retailers from Dhaka city.

5.1.4 Questionnaire Design

5.1.4.1 Questionnaire:
The Questionnaire would be used to find out contribution to GDP, NNP and market equilibrium, supply
and demand of light engineering product -A special focus on the industry. The questionnaire would be
developed with combination of open ended, closed ended and multiple-choice question, rank order scale
would be used for some questions. Students will survey 25 customers and each customer require 18
minute. Some set descriptive types of questionnaires will be developed and this will be to some shop,
manufacturers, distributors, retailers and wholesalers. Questionnaire will be developed and filled up in
such a way so that it can minimize possible errors.

6. Scope
Different products have many different markets and economic impacts. This study was particularly
specified on light engineering products only. The area of the study is within Dhaka Metropolitan City only.
It would have been all the best to collect samples from all over the country. That will not be possible, as
Dhaka being the capital of Bangladesh constitutes the largest market and due to the nature of the survey
it was kept limited within Dhaka city only. The study involves lot of consumers survey, Manufacturers &
their distributors, wholesalers and retailers will be interviewed in all those their places only. Ensuring the
processes is stable, capable of statistical data analysis techniques. Both the primary data and secondary
data will be used in this research. Therefore we will cover market structure, supply and demand analysis,
market equilibrium, production curve, total production utilities used and elasticity of the product in the
market.

7. Data processing and analysis

Data analysis and interpretation will be done in accordance with the
Graphical presentation
Frequency
Percentage
Data Collection: For Data collection we will use both library research and field survey technique.

7.1 Data Collection Instrument

As data collection instrument, the researcher will use structured questionnaires (Face to face interviews
with semi-structured questions). For interview the manufacturers, distributors, retailers and wholesalers.

7.2 Data Collection Technique

The students will use depth Interview technique for collecting data from the manufacturers, distributors,
wholesalers and retailers. For collecting data students would be using the Mall Intercept technique from
the individual consumers.
Primary data will be collected through personal interview to target groups. In the research will be used
survey, observation in consumer survey part.
The secondary data's are this, which are already existed or collected for some purpose other than the
current investigation. Such as reviewing newspapers, catalogues of manufacturing companies, Internet
and some other relevant publication documents, which I used in report.

7.3 Data Analysis Technique

This technique will be qualitative and quantitative data analysis techniques. The data generated from the
questionnaire would be input in a statistical tools and computer software for analyzing and reporting such
as Microsoft Excel, Microsoft word. We would then try to identify trends in the data, if any, and interpret
the findings of the research in the main report.

8. Limitations
The light engineering enterprises are scattered throughout the country but do not have any center of
operation. The availability and acquisition of land in different areas is the prime obstacle faced by the
entrepreneurs. Setting up of an industrial park for this industry has become essential to boost investment
and production.

Motivating investment: due to the small nature of these businesses, most of the LE enterprises
are ventured through self-finance. The lending rates of 14-15 percent in this sector also
demotivate the investors;
Getting land for construction: Ninety per cent of LE entrepreneurs have suggested creation of an
industrial park for this sector.
Price and reliability of utilities: This is an acute problem deepening further as time progresses.
Proper support for business is absent.
Accessibility and cost of credit: It is also another major problem. Due to the small nature of these
businesses, they initiate their business venture through self-finance, and due to administrative
difficulties, most of them try to avoid borrowing.
Tax structure: Like any other manufactured goods, 15 per cent VAT is imposed on finished LE
products and 10 per cent duty on repairing services. In addition, customs duty is charged at the
rate of 35 per cent, which consists of import tariff (15 per cent), VAT (15 per cent), advance income
tax (2.5 per cent), and import permission fee (2.5 per cent), on imported raw materials (e.g.,
metal). All small LE enterprises purchase their raw materials and components from bulk importers
who pay 15 per cent VAT at import and again 1.5 per cent retail VAT, which is estimated on the
basis of a 10 per cent value addition at retail sale. Tax laws prohibit claiming VAT rebates on
commodities for which 1.5 per cent retail VAT has been paid. Now because of the above situation,
the small manufacturers are to pay full 15 per cent VAT on the above raw materials and
components at the production stage where they cannot claim any rebate on these items. Thus,
effectively more than 30 per cent VAT is being paid against imported raw materials and
components, which increase the cost of production significantly.
Production cost of finished products: Thousands of LE products of a wide variety are
manufactured in Bangladesh. As such, the cost of production of any particular product depends
on the type and quantity of raw materials, cost of labor, utilities, etc.

9. Sector Overview
This industry comprising around 40,000 firms produces motor launches and marine transport spares, and
machinery and spares for agro-processing, textile, jute, construction, bread, biscuit and food processing
sectors. In 2009-10 financial year, export from the light engineering sector was $311 million, which
constituted nearly 1.89 percent of the country's total exports worth $16.5 billion. In 2012, this sector met
about 48 percent of the countrys demand for electrical goods switches, sockets, light shades, channels,
cables and electrical fans; that were earlier met through imports. Besides, the sector's contribution to
production, maintenance and repair of automobile spare parts was worth about USD 75 million in the
same year. In addition to supporting the local industries, the LEPs contributed to export earnings by
exporting bicycle, automobile spares, iron chains, machine tools etc. In the past few years, European
countries and USA have been the main clients for LEP exports. The export earnings from the LEPs are given
in the table I below.
Table I: Export of light engineering products (in million USD)
Year

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Export
earnings

148.40

203.47

293.93

222.65

190.70

311.10

309.55

375.49

1.Bicycle

40.98

67.26

54.05

64.28

84.54

110.86

99.83

105.59

2.Engineering 85.02
products

111.02

236.91

155.40

104.94

174.12

173.69

220.36

3.Electronics
and Electrical
products

25.19

2.91

2.97

1.19

26.11

36.03

49.54

22.40

According to a study conducted by Bangladesh University of Engineering and Technology (BUET) in 2012,
there are 40,000 light engineering enterprises in the country employing about 800,000 people and
generating annual revenue of BDT 95 billion (USD 1.2 billion). Another study conducted by International
Finance Corporation (IFC) in partnership with UK Department of International Development and the
Norwegian government estimates that there are about 50,000 micro enterprises and 10,000 small and
medium enterprises in LES, employing about 600,000 people. The major enterprises are located in Dhaka,
Chittagong, and Bogra.