First Round Case
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GENERAL INSTRUCTIONS & GUIDELINES
1. Make no mention of your individual member names, team name, and
university name in any part of the solution. Teams may be disqualified if any
such mention is made.
2. All documents (Excel, PPT, PDF) must be renamed in such manner,
Team Name_Round01_Accfinity23.
Example: Team XYZ_Round01_Accfinity23
3. Make sure to submit your excel file showing all necessary calculations.
4. Submit your analysis, evaluative judgment and decision in both PPT and PDF
format (Maximum 25 Slides).
5. A Google Form submission link will be emailed to the Team Leader’s email
address by 22 August 2023. The last time for accepting submissions will be
11:59 PM, 22 August 2023.
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FOOTWEAR INDUSTRY IN BANGLADESH
As per a report published on Globe Newswire, the global footwear market was worth USD
163.20 billion. By 2030, it is expected to be worth USD 220 billion, owing to a 3.8% CAGR
over the forecast period (2022–30). The size of the local footwear market in Bangladesh
is around BDT 17,000 crore as of 2020, as reported by the Dhaka Tribune.
The largest part of the global footwear market is athletic footwear, which is expected to
bring in more than USD 100 billion by 2025. Enthusiasm for fitness and sports is growing
significantly among the mass population, and consumers in developing countries are
spending more on the products in this segment. Over the upcoming years, the women’s
footwear market is expected to grow because women these days are looking for stylish
and comfortable footwear that can be worn at both formal and casual events. Another
critical factor in the growth of this segment is the growing number of working women.
Due to sluggish economic growth in the countries of Europe and North America, the
global market for shoes is growing at a moderate rate. However, the footwear market is
expected to grow significantly in Asia Pacific and Latin America in the upcoming years
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CONTEMPORARY SCENARIO
Footwear was not a traditional Bangladeshi export. The industry does not have a long
history of recognition in the international market, much like ready-made garments
(RMG) or the jute industry. Non-leather footwear made in China is well appreciated for
its great quality all around the world. However, Bangladesh has had success in this
field. According to the Export Promotion Bureau of Bangladesh, Bangladesh exported
non-leather footwear worth USD 449 million in FY2021-22, a 30% increase in exports
compared to FY2020-21. According to a report published by the Daily Star,
Bangladesh’s leather and leather products industry grew by 17.56% year-on-year in
the first five months of FY2022-23, although the world economy is in bad shape.
According to a recent publication on Prothom Alo, there are 220 tanneries and 3,500
MSMEs in Bangladesh that are active in the processing and manufacturing of leather.
Most of the leather processing units and footwear manufacturers were located at
Hazaribagh previously, and they were shifted to Savar later on. Most of these factories
use traditional machinery and employ traditional workers with a focus on making
quality handmade footwear. Facing fierce competition from major footwear exporters
like China, businesses in Bangladesh’s footwear industry are aiming to create highquality goods to meet consumers’ demand both in the domestic and international
markets. Nowadays, firms emphasize on using advanced manufacturing facilities that
adhere to environmental regulations.
Since the COVID-19 pandemic, international buyers have been considering shifting
their dependency from China to mitigate the risks associated with a single supplier. In
line with that, giant footwear companies have begun to switch their focus to
manufacturing units in Bangladesh and other native Asian countries. The top nonleather footwear export destinations for Bangladesh are Spain, France, the
Netherlands, South Korea, India, Germany, and Italy.
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FORCES CONTRIBUTING TO THE INDUSTRY
The footwear industry has undergone massive transformations over the years, and the
industry is now enjoying steady growth. There are some factors that have contributed
to this feat. Firstly, Bangladesh itself produces a massive quantity of leather as well as
synthetic materials, which are the key raw materials for the footwear industry.
Secondly, the footwear industry is a labor-intensive industry, and the cost of labor is
comparatively low in Bangladesh. The cost of labor accounts for a significant portion
of total production costs in developed countries, but it is much lower in developing
countries and one of the lowest in Bangladesh.
The RMG industry is strongly tied to the footwear industry. As labor skills are
transferable, it is possible for large apparel manufacturers to begin footwear
manufacturing operations without much difficulty. Many apparel firms are entering
the footwear industry these days, which may contribute to the expansion of the
footwear industry in the upcoming days.
A consistent supply of raw materials, as mentioned earlier, is also playing a crucial role
in the steady growth of the footwear industry in Bangladesh. Local sourcing of raw
materials is enabling the manufacturer to ensure enhanced value addition. It is to be
noted that Bangladesh has some of the world’s best cattle hides, goat skins, and
valuable buffalo leather.
Being a Muslim-majority country, Eid al-Adha is profoundly observed in Bangladesh.
Nearly 1 crore animals were sacrificed on the Eid al-Adha day of 2022, and this figure
keeps growing every year. Eid al-Adha plays a significant role in meeting the demand
for raw hides, as 70% of the yearly collection of animal skins is collected on Eid al-Adha
alone. Due to the cyclical nature of the footwear industry, sales of footwear also
experience an upsurge during the Eid season. Domestic sellers nowadays generate a
large portion of their sales online through social media and online marketplaces.
Along with the rest of the world, Bangladesh has also felt the gust of wind resulting
from the rapid development of technology.
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HURDLES TO GLORY
The aftershock of the COVID-19 pandemic and rising global inflation resulting from the
Russia-Ukraine conflict may lead to a potential fall in exports of leather 23 of 36 and
leather products. Limited access to bank loans and lengthy procedures for setting up
factories, along with poor infrastructure, are preventing businesses from investing in
this sector. The drive towards compliance, the lack of experienced workers, the
unavailability of training programs, and the lack of effluent treatment plants (ETPs) are
all significant barriers.
Additionally, the lack of certification from the Leather Working Group (LWG) and the
complexity of cross-border trade are imposing major obstacles on the footwear
industry’s ability to flourish. On the other hand, managing lead time is becoming
difficult due to weak backward linkage. As a result, manufacturers are then required to
import raw materials, accessories, and leather from international vendors. Quality
issues often arise from flaws in raw materials coupled with a lack of skilled labor. In
addition to that, weak logistical support leads to an inefficient and costly production
process.
It is well known to everyone that chemical waste from the leather industry poses a
severe hazard to the environment. Hence, liquid wastes are required to be treated with
ETP before entering rivers. As a result of non-compliance, rivers are being
contaminated by the liquid wastes generated by tanneries, and Bangladesh’s tannery
industry is losing international clients.
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OVERCOMING THE HURDLES
There are effective solutions to the problems facing the footwear industry in
Bangladesh. Firstly, access to capital and financial literacy must be ensured to help
strengthen businesses. Additionally, government support and initiatives to encourage
innovation, such as partnerships with universities and research institutes, can help
develop new technologies and foster collaborations between companies. Productivity
and quality can be improved by applying automation and international best
practices. Global companies strictly follow safety and sustainability standards. Hence,
footwear manufacturers must focus on compliance issues.
With an abundance of cheap labor and the footwear industry being a labor-intensive
industry, Bangladesh has the potential to become a global footwear-sourcing hub.
The government is ready to cooperate with investors from home and abroad to
uphold the sector and promote foreign direct investment (FDI) to develop backward
linkages for the industry. The demands of the export market cannot be addressed by
SMEs bringing in foreign orders, manufacturing the proper products, and fulfilling the
large quantities themselves. As some compliant factories are burdened with orders,
subcontracting to SMEs would be more efficient. This will create a market link, allowing
SMEs to integrate into the supply chain and participate in the global value chain. Small
businesses can gradually acquire skills, improve, and grow their business.
The natural contamination of leather factories can be minimized by setting up ecofriendly plants. The central ETP in the industrial areas must be functional so that
contamination-related issues are solved. In order to remain globally competitive,
more leather training institutions should be established in the country to train
employees in this sector. An environment that is conducive to entrepreneurship needs
to be created by providing incentives and resources so that it can help grow more
small businesses in the sector. Additionally, investing in new digital technologies, such
as 3D printing, can open up new opportunities for businesses in this sector. Finally,
creating a favorable business environment by reducing red tape and improving
access to international markets will help foster growth and improve efficiency.
With the aim of diversifying the export basket, the footwear industry is emerging as an
eminent sector. Bangladesh can avoid being heavily reliant on the RMG sector as its
core foreign currency earner by taking initiatives to develop the footwear industry.
Global certifications, compliant factories, and advanced footwear design studios are
essential for long-term growth. In light of the growing demand for synthetic footwear
around the world, Bangladesh has the potential to be a key exporter of footwear to
global markets in the foreseeable future
Source: IDLC Monthly Business Review (February 2023)
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CHALLENGES IN BANGLADESH
In 2020, the global footwear market was estimated at USD 365.5 billion and by the end
of 2021; the market is expected to reach a value of USD 430 billion and rising at over 4%
CAGR through 2031. Bangladesh is currently ranked 8th in the world footwear market in
terms of production volume. According to EPB, Bangladesh had exported $669.91
million worth of footwear FY20-21 (July-March). The domestic market size of footwear
is about USD 170 million. Of the total footwear production in Bangladesh, 20-25 percent
is used to meet domestic demand, while the rest is exported.
Last year, the financial loss of the footwear industry in Bangladesh was about TK 20
crore. The plight of the footwear industry began at the end of March last year. The
owners closed the factories on official orders of lockdown due to the coronavirus.
Footwear production fell by about 40 percent as workers did not come to work and
demand in the market was low. Later, when the factories opened in June of that year,
the pandemic even then did not subside. As a result, factory owners could not catch
last year’s season.
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After that, the workers of the footwear factory also spent lazy time in the winter season.
As a result, factory owners are looking forward to the summer in the footwear industry.
Nevertheless, even in these difficult times, the owners have to bear all the expenses,
including the rent of the factory and the wages of the permanent workers, which causes
financial loss to the footwear industry. Also, due to the ongoing lockdown, buyers are
confused about the market demand and domestic wholesalers are not able to come to
the factory to buy footwear. Besides, prices of other raw materials have also gone up.
Some raw materials have to be imported. However, importers have increased the price
of raw materials as shipments have stopped.
Manufacturers are hesitant as the price of raw materials for making footwear has gone
up due to the lockdown. The prices of raw materials required for making footwear have
also gone up. Last year, the price of a chemical that was $2 per liter is now $3.54. Before
the lockdown, the price of one yard of foam was 380-390 Tk, now that foam has to be
bought for 500 Tk. At this time, the big factories sell footwear on an average of Tk 1 to 1.5
crore and small factories sell footwear worth Tk 20-25 lakh. Footwear brands like Bata,
Apex Footwear, Fortune Shoes, Fortune, Bay, Hamco, Jennys, Crescent, Vibrant, Leatherex,
etc. are having a hard time with the thin presence of customers. Bangladesh
government has already taken several initiatives to support the footwear industry under
project EC4J (Export Competitiveness for Jobs (EC4J) Project). The Ministry of Commerce
has launched a $10 million fund for the footwear industry under the EC4J project in the
first month of 2021.
"The epidemic situation was improving at the beginning of the year but sales of footwear
products in both domestic and foreign markets have not increased yet" said Mohiuddin
Ahmed Mahin, Chairman of the Bangladesh Finished Leather, Leather Goods, and
Footwear Exporters Association. Now that the epidemic is getting worse, the Bangladesh
government has issued a lockdown. Most domestic sales are based on two major events
in Bangladesh Eid al-Fitr and Eid al-Adha. So, if the epidemic impacts continue like this,
the footwear industry will face a decline from both domestic and foreign buyers.
Source: Textile Today (May 2021)
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BATA ON A BUMPY RIDE
Bata, the country's renowned and oldest footwear manufacturer, is shifting to retailing.
The new move will lessen the company's dependence on dealers.
Bata Shoe Company (Bangladesh) Limited says it is now focusing on cash sales.
However, the decision to shift has meant Bata's being on a bumpy ride. The business
has been dull following its suspension of wholesale on credit.
The company witnessed a 12 percent fall in sales in the first nine months of this year.
Bata also recorded a 61 percent drop in profit owing to deferred tax during the period.
It led to a fall in Bata's share by 4.09 percent. The footwear manufacturer traded a
total of Tk 630 crore in the period January-September 2019, while the year-on-year
sale amounted to Tk 715 crore. Mohammad Hashim Reza, Company Secretary of Bata
Shoe (Bangladesh) Ltd, stated that Bata owes a considerable amount to dealers. "The
footwear manufacturer, therefore, decided on cash sales from this year. The shift has
led to a decline in trade," Reza added.
Till December 31, 2018, Bata owed the dealers a total of Tk 201 crore. The auditor of the
company suggested that the company emphasize a realization of the dues. Bata has
realized Tk 60 crore in the last nine months, while its pending dues are still at a figure
of Tk 141 crore. Hashim Reza says Bata is shifting toward retail sales under its own
management. The company will gradually reduce its dependence on dealers. "The
footwear market is currently going through a bumpy ride. With many dealers and
businessmen flooding the market with illegally imported shoes from China and India,
local producers are feeling the pressure," claimed Reza.
Bata posted a net profit of Tk 33 crore in the last nine months while its Earnings Per
Share (EPS) stands at Tk 24.06. The company's year-on-year net profit was Tk 84 crore
while the EPS amounted to Tk61.51. The year 2017 was good for the footwear
manufacturer as it gained a net profit of Tk 115 crore. It handed over a 335 percent
cash dividend to shareholders in that year. Despite the net profit edging down to Tk 99
crore the following year, Bata gave a 345 percent cash dividend to shareholders.
On Tuesday, riding on news of dull sales, Bata's share price at the Dhaka Stock
Exchange dropped 4.09 percent. The closing rate of the share was Tk 879.80 on the
day. It is noteworthy that Bata's share dropped 15 percent, or Tk 1,033, in the last three
months. The company, listed with the share market in 1985, has a paid-up capital of Tk
14 crore. Bata UK holds 70 percent of the total shares of Bata Shoe Company
(Bangladesh) Limited. Institutional, foreign and general investors hold 19.36 percent,
1.83 percent and 8.81 percent shares, in that order, of the company.
Source: The Business Standard (October 2019)
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BATA INCURS FIRST LOSS IN 59 YEARS OF
BANGLADESH OPERATIONS
Bata Shoe Company (Bangladesh), one of the country's most widely known footwear
brands, suffered losses for the first time in 59 years of operations as it had to shutter
outlets during the main sales seasons amid the coronavirus outbreak.
The multinational company, which launched operations here in 1962 in the then East
Pakistan, saw its sales dip 41 per cent, or Tk 350 crore, year-on-year to Tk 508 crore in
2020 from Tk 857 crore. Despite incurring losses, it announced a 25 per cent cash
dividend for shareholders.
Bata, a subsidiary of Bafin (Nederland) BV in the Netherlands that holds a 70 per cent
share, incurred losses of Tk 132 crore in 2020 just after logging Tk 49 crore in profits the
previous year. "Bata Bangladesh has been going through a crisis in overall business in
2020, which has pushed the company's earnings down," the company said in its
disclosure. The earnings took a drastic fall due to the loss of retail business during
2020's major festivals -- Eid-ul-Fitr, Eid-ul-Azha, Puja and Pahela Baishakh -- due to a
countrywide lockdown for the Covid-19 pandemic. The festival sales cover 25 to 30 per
cent of the company's yearly business.
An estimated 77 per cent of rural business leaders like dealers and/or wholesalers
have been particularly impacted due to Covid-19, which led to them losing their
business, it said. The company's business went down by 41 per cent in 2020, the
disclosure added. "As all our export markets were closed due to Covid-19, we could
hardly export anything in 2020 [Tk 11 million]," said Iftekhar Mallick, head of marketing
at Bata Bangladesh. Responding to a question on the steps being taken to return to
profits, he said Bata was categorically focusing on its omnichannel approaches to be
present at all customer touchpoints.
"We're proud to say that we have the largest online footwear store in Bangladesh," he
said, adding that batabd.com has more than 2,000 assortments and remains open
24/7. Customers can order anytime and get products delivered home for free. "We're
noticing a rise in demand lately, especially post Ramadan and the trend is expected to
continue as consumer confidence improves. If there's no Covid restriction in the
coming quarters, we're hoping to turn around by the end of this year," Mallick added.
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Sales revenue slightly rose in the first quarter of 2021 by 13 per cent year-on-year to Tk
184 crore. Clearing of aged merchandise through offers of bulk discounts also gave a
boost to sales, the company said. However, Bata incurred losses of Tk 4.90 crore in the
quarter. It was in profits of Tk 2.83 crore in the same period the previous year.
The company said the loss was incurred due to discounted sales and increased
unavoidable expenses due to the second wave of Covid-19. In the quarter, net
operating cash flow per share increased year-on-year mainly for increased business.
A top official, preferring anonymity, said it has been trying to return to profits but the
emergence of the pandemic's second wave meant that it would take time.
Source: The Daily Star (June 2021)
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TASKS
Assume you are being appointed as a Chief Strategy Officer (CSO) of Bata Shoe
Company (Bangladesh) Limited. You are tasked with walking through the last 5 years
journey of the company and making a critical assessment of its business performance.
Analyze and evaluate the business and financial performance of Bata Shoe Company
(Bangladesh) Limited, over a five-year period starting from January 01, 2018 to
December 31, 2022.
Your response should prioritize the following areas:
1. A horizontal trend analysis focusing on Bata’s ability to generate return, changes in
capital
structure,
solvency
conditions,
working
capital
management
&
operating/business efficiency. You should also explore any other business areas that
are critical for a company, that is operating in a capital-intensive industry, like
footwear industry.
2. The magnitude of impact (both positive and negative) that the external influential
factors have had on the company’s business & financial performance at different
stages during the discussant years.
3. Evaluate the major strategic business decisions taken by the company during the
discussant years that led the company to the crisis, if any, and the way the company
weathered the storm.
4. Performance of Bata in terms of its stock/share price & market capitalization during
the period under consideration. Apply various relative valuation techniques (e.g., P/S,
P/E, P/B, P/NAV) of the company during the discussant years in comparison to its
listed competitors (e.g., Apex Shoes, Fortune Shoes & Legacy Footwear Limited) and
comment on your findings.
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ASSESSMENT CRITERIA
Categories
Marks
Notes
Task 1
20
a)
Task 2
15
b)
Task 3
15
c)
Task 4
20
d)
Professional skills
20
e)
Presentation & innovation
10
f)
NOTES
a) Only 1/4th of the marks in this task is allocated for calculation. Remaining 3/4th of the
total marks is allocated for making sense of the calculation/metrics & justifying the
reasons behind their changes. Respondents must focus on relating the numbers to
the stories/business events of Bata.
b) Respondents must focus on the external situational analysis and its impact on Bata.
c) It is required to analyze and evaluate different initiatives taken by the management
of Bata and its knock-on effect.
d) Only 1/4th of the marks in this task is allocated for calculation. Remaining 3/4th of the
total marks is allocated for making sense of the calculation/metrics & justifying the
reasons behind their changes. Respondents must focus on relating the numbers to
the stories/business events of Bata.
e) Response must be in a succinct business tone. Overall demonstration of professional
skills in terms of communication, commercial acumen, analysis & evaluation will be
judged in all responses.
f) Marks to be awarded for demonstration of innovative skills.
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