country studies on bangladesh, nepal and sri lanka - Escap

COUNTRY STUDIES ON BANGLADESH, NEPAL AND SRI LANKA 

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STUDIES IN TRADE AND INVESTMENT 70 

ESCAP is the regional development arm of the United Nations and serves as the 

main economic and social development centre for the United Nations in Asia and the 

Pacific. Its mandate is to foster cooperation between its 53 members and 9 associate 

members. ESCAP provides the strategic link between global and <strong>country</strong>-level 

programmes and issues. It supports Governments of the region in consolidating regional 

positions and advocates regional approaches to meeting the region’s unique 

socio-economic challenges in a globalizing world. The ESCAP office is located in Bangkok, 

Thailand. Please visit our website at www.unescap.org for further information. 

The shaded areas of the map are ESCAP Members and Associate members. 

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Cover illustrations and layout by Napidchaya Pichedtanavanich


i


Enabling Environment for the Successful Integration of Small and Medium-sized 

Enterprises in Global Value Chains: 

Country Studies on Bangladesh, Nepal and Sri Lanka 

United Nations publication 

Sales No. E.12.II.F.6 

Copyright © United Nations 2011 

All right reserved 

Manufactured in Thailand 

ISBN: 978-92-1-120640-1 

ISSN: 1020-3516 

e-ISBN: 978-92-1-055300-1 

ST/ESCAP/2610 

For further information on this publication, please contact: 

Mr. Ravi Ratnayake 

Director 

Trade and Investment Division 

Economic and Social Commission for Asia and the Pacific 

United Nations Building 

Rajadamnern Nok Avenue 

Bangkok 10200, Thailand 

E-mail: itid.unescap@un.org 

ii 

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Preface 

Small and medium-sized enterprises (SMEs) have played an important role in South 

Asia and remain a critical source for employment creation as well as income 

generation. SMEs occupy an important position in the development strategy for 

inclusive economic growth and poverty reduction. In this respect, export-oriented 

SMEs, supplying competitive products and services with greater potential for backward 

and forward linkages, would substantially contribute towards higher national income 

and overall socio-economic progress of nations. Therefore, the development of exportled 

SMEs should be promoted through effective policy options in South Asian countries. 

However, SMEs in the subregion typically face considerable resource constraints and 

currently have limited capabilities to compete effectively in global and regional markets. 

It is thus imperative to further expand SMEs’ capacity and competitiveness for survival 

and sustained development, particularly in the current competitive business 

environment. 

Furthermore, one of the most crucial challenges facing SMEs in South Asia is 

how to create new business opportunities in the global and regional markets. Recent 

experiences from a wide range of Asia-Pacific countries, particularly from South-East 

Asia and China, strongly indicate that domestic SMEs can access international markets 

through global (and regional) value chains (GVCs), which provide a full range of value 

added business activities across borders. Such GVCs are expected to help boost SMEs’ 

value added activities in international trade, in which SMEs at present play a limited 

role. In order to participate in GVCs effectively, SMEs in South Asia must remove entry 

barriers by developing capacities in a wide range of increasingly stringent international 

standards with regard to quality, price and timely delivery of products. However, SMEs 

typically lack an environment that would allow them to improve their capacity and 

competitiveness. Such environment should include policy and regulatory framework, 

supporting infrastructure, access to financing, entrepreneurial culture, technology 

incubation and business development services. 

With financial support provided by the Government of Japan, the publication 

aims to propose practical policy interventions in improving business environment by 

targeting three South Asian countries, namely Bangladesh, Nepal and Sri Lanka and 

facilitating SMEs access to global and regional markets, especially through GVCs. 

Consequently, sector based value chain approach was adapted to focus on a few 

product groups with high export potential. Bangladesh chose consumer and industrial 

plastic products, Nepal selected agro-based products, such as ginger and coffee, while 

industrial rubber products, electrical and electronic goods were the focus of Sri Lanka. 

National action plans for these products were developed along with operational 

strategies and the required institutional framework among stakeholders. Constraints 

and opportunities for the promotion of export-oriented SMEs were identified and a set 

of policy recommendations with institutional support mechanisms were suggested. It 

is expected that both the Governments concerned and the private sector would find 

such action plans and recommendations useful and take the necessary steps in this 

regard. 

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Acknowledgements 

This research project was implemented by Masato Abe, working under the overall 

supervision of Ravi Ratnayake, Director of the Trade and Investment Division and 

Marc Proksch, Section Chief, Private Sector and Development Section, Trade and 

Investment Division, United Nations ESCAP. Bhavani P. Dhungana and Bhuban B. 

Bajracharya played advisory roles throughout the implementation of the project. 

Masato Abe and Bhuban B. Bajracharya drafted Chapters 1, 2 and 3. Posh Raj Pandy 

contributed to a section on the value chain approach in Chapter 1. Annex 1 was 

prepared by Sheikh Morshed Jahan and Mohammad Saif Noman Khan, while Posh Raj 

Pandey contributed Annex 2. Annex 3 was written by Ananda K.W. Jayawardane, R.A. 

Attalage and Masato Abe. K. Ramanathan provided valuable advice on different sections 

of the Chapters and the Annexes. Throughout the project implementation and 

finalization stages, members of national steering committees in Bangladesh, Nepal and 

Sri Lanka provided substantive guidance. 

In the course of preparation of this publication, research assistance was provided 

by Paradai Adisayathepkul for all chapters, particularly for Annex 3. Suman Basnyat 

assisted in research for Chapter 1 while Sagar Sen, Asif Javed Rahman, M. Rashedur 

Rahman Raju, Mashref Ul Hoque and Abdullah Al Mahmud contributed for Chapter 3 

and and Neelu Thapa and Paras Kharel for Chapter 4. Fabian Suwanprateep enhanced 

the readability of the publication by improving its outline, while, at the same time, 

providing research assistance. Linghe Ye, Pradeep Kumar Angadi, and Wenru Xie also 

provided research assistance. 

Technical editing was done by Masato Abe, Bhavani P. Dhungana and Bhuban 

B. Bajracharya. Paradai Adisayathepkul, Fabian Suwanprateep and Natthika 

Charoenphon formatted the final manuscripts. Napidchaya Pichedtanavanich provided 

cover and book layout design. Natthika Charoenphon and Napidchaya Pichedtanavanich 

provided secretarial assistance. 

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Contributors 

MASATO ABE is an Economic Affairs Officer in the Private Sector and Development 

Section, Trade and Investment Division, United Nations Economic and Social 

Commission for Asia and the Pacific (ESCAP). He has extensive experience in enterprise 

development with a special emphasis on the SME sector and supply chain management. 

Prior to joining the United Nations, he worked in the global automotive, electronics and 

high-technology industries. He holds degrees in marketing, business administration and 

economics, and is a research fellow at Thammasat University. 

R.A. ATTALAGE is a Professor in the Department of Mechanical Engineering, University 

of Moratuwa, Sri Lanka and has worked in this capacity since 2003. He obtained his 

B.Sc. in Engineering (Honours) Degree from the University of Moratuwa, his MEng in 

Energy Technology from the Asian Institute of Technology (AIT), Thailand, and a Ph.D. 

from the École des Mines de Paris. He has worked as a consultant to the Asian 

Development Bank, the World Bank, and Nexant Inc. on energy related assignments. 

He is also a chartered engineer and has several publications in journals and has made 

presentations in many international and national conferences and seminars. 

BHUBAN B. BAJRACHARYA is an independent development economist. He obtained 

his Ph.D. in Economics from Delhi School of Economics. He was Professor of Economics 

at the Centre for Economic Development and Administration, Tribhuban University, 

Nepal. He has worked in the fields of planning, poverty analysis, economic and sectoral 

policy analysis and monitoring and evaluation. He served as an advisor to the National 

Planning Commission and Ministry of Finance, Nepal. He has worked in different 

capacities for the Asian Development Bank, the Danish International Development 

Agency (DANIDA), the Economic and Social Commission for Asia and the Pacific (ESCAP), 

the International Centre for Integrated Mountain Development (ICIMOD), the 

International Labour Organization (ILO), the Japan International Cooperation Agency 

(JICA), the Swiss Agency for Development and Cooperation (SDC), the United Nations 

Development Programme (UNDP) and the World Bank. 

SHEIKH MORSHED JAHAN is a private sector development specialist, with 18 years of 

experience in teaching, training and research. He provides strategic and advisory 

services to businesses, industry associations and development organizations. His areas 

of expertise include market development, intervention design, sector study, value chain 

analysis, market research, feasibility study, stakeholder mapping and policy analysis. 

Currently an Associate Professor at the Institute of Business Administration (IBA), 

University of Dhaka, he teaches in MBA, Executive MBA and BBA programmes. He holds 

an MA in international development policy from Duke University and an MBA from the 

University of Dhaka. He was a Commonwealth fellow at IIM-Ahmedabad and a Joint 

Japan/World Bank scholar (JJ/WBGSP) at Duke. 

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ANANDA K.W. JAYAWARDANE was Dean, Faculty of Engineering and a Professor of Civil 

Engineering at the University of Moratuwa, Sri Lanka when this project commenced. 

Prof. Jayawardane, a Chartered Engineer, has co-authored textbooks and published and


presented many research papers both locally and internationally. His research interests 

include project management, technology management, technology transfer, national 

innovation systems, disaster management and social management systems. He holds 

a BSc in Engineering from the University of Moratuwa, an MSc in Construction from the 

Loughborough University of Technology, the United Kingdom and a Ph.D. in 

Construction Management from the same university. 

MOHAMMAD SAIF NOMAN KHAN is an Assistant Professor at the Institute of Business 

Administration (IBA), University of Dhaka. He has many years of corporate experience 

working in the financial sector. He has undertaken management and business 

consultancy projects both in the public and private sectors. He has conducted research 

and published research papers on micro, small and medium enterprises and banking 

in Bangladesh. He has also worked for the World Bank in Dhaka. He received an MBA 

in Finance from the IBA, University of Dhaka. He also holds a BA and MA degrees in 

English Literature from the University of Dhaka. 

POSH RAJ PANDEY is the President of South Asia Watch on Trade Economics and 

Environment (SAWTEE), a consortium of South Asian NGOs, working to build capacity 

of concerned stakeholders in the context of liberalization and globalization. He holds 

a Ph. D. in Economics and Master’s Degrees in Business Management and in Economics. 

He was a member of the National Planning Commission of Nepal. He has worked with 

the United Nations Development Programme (UNDP) in Nepal on the issues of 

multilateral trade integration and trade related capacity-building. He has published 

research papers on international trade in various national and international journals/ 

books. 

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Contents 

Page 

Preface .......................................................................................................................................... 

Acknowledgements ............................................................................................................... 

Contributors .............................................................................................................................. 

List of figures ............................................................................................................................. 

List of ta bles .............................................................................................................................. 

Acronyms and a bbreviations ............................................................................................ 

iii 

iv 

v 

ix 

ix 

xi 

Chapter 1 Introduction ................................................................................................. 1 

1.1 Research framework ....................................................................... 2 

1.1.1 Value chain analysis: a diagnostic tool ...................... 3 

1.1.2 Objective and expected outcomes of the study ... 4 

1.1.3 Methodology ...................................................................... 4 

1.2 SMEs development approach and key focus areas ............. 5 

1.3 The emergence of global and regional value chains .......... 8 

1.4 Structure of the publication ......................................................... 11 

Chapter 2 Prospects of Selected SMEs’ Integration in Globa l Va lue 

Chains: A Synthesis of Country Studies on Bangladesh, 

Nepa l and Sri Lanka ................................................................................. 13 

2.1 Summary of economic conditions in Bangladesh, Nepal 

and Sri Lanka and the status of SME sector ............................ 14 

2.1.1 Competitiveness and business environment ......... 15 

2.1.2 Trade and investment situation ................................... 19 

2.1.3 Status of the SME sector ................................................. 21 

2.2 Synthesis of <strong>country</strong> <strong>studies</strong> with a synopsis of main 

findings ................................................................................................ 22 

2.2.1 The plastics industry in Bangladesh ........................... 30 

2.2.2 The agro industry (coffee and ginger products) 

in Nepal ................................................................................. 31 

2.2.3 The industrial rubber and electronic products 

sectors in Sri Lanka ........................................................... 31 

2.3 Subregional Action Programme facilitating SMEs 

integration in global value chains and the lessons 

learned for development agencies ........................................... 33 

Chapter 3 Conclusion ................................................................................................... 41 

vii


Contents (continued) 

Page 

Annex 

I. Country Study on Bangladesh using Global Value Chain Analysis: 

The Plastics Industry ............................................................................................ 43 

Annex Notes ........................................................................................................... 102 

II. Country Study on Nepal using Global Value Chain Analysis: 

The Agro Industry (Coffee and Ginger Products) ...................................... 105 

III. Country Study on Sri Lanka using Global Value Chain Analysis: 

The Industrial Rubber and Electronic Products Sectors ......................... 153 

References .................................................................................................................................. 204 

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Page 

List of figures 

1. A simplified global or regional value chain ....................................................... 9 

2. How do SMEs fit into global value chains .......................................................... 10 

List of ta bles 

1. Macroeconomic indicators ...................................................................................... 14 

2. Poverty and human development indicators ................................................... 15 

3. Global Competitiveness Index (GCI) 2010-2011 .............................................. 16 

4. Rankings on the ease of doing business 2010 ................................................. 17 

5. Logistics Performance Index (LPI) and some of its sub-components 

related to infrastructures (2006-2009) ................................................................ 19 

6. Top 10 export goods of the three South Asian countries by the two 

digits, 2010 .................................................................................................................... 20 

7. Inflow and stock of inward foreign direct investment (FDI) 

(in million US dollars) ................................................................................................. 21 

8. Operational definitions of SMEs in literature .................................................... 21 

9. Contributions of SMEs (2001-2003) ...................................................................... 22 

10. Comparison of three <strong>country</strong> <strong>studies</strong> on value chain analysis ................... 24 

11. Crop specific action plan for Nepal ...................................................................... 32 

12. Subregional action plan facilitating SMEs’ integration in global value 

chains .............................................................................................................................. 34 

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x 

STUDIES IN TRADE AND INVESTMENT 70


Acronyms and Abbreviations 

AAMO 

ADB 

APCTT 

APO 

ASEAN 

B2B 

B2C 

DANIDA 

DFID 

ESCAP 

EPZ 

EU 

FDI 

GCI 

GDP 

GNI 

GSP 

GTZ 

GVC 

Ha 

HDI 

ICIMOD 

ICT 

ILO 

ISFTA 

ISO 

ITC 

JICA 

JEITA 

Kg 

Asian Association of Management Organizations 

Asian Development Bank 

Asia-Pacific Centre for Transfer of Technology 

Asian Productivity Organization 

Association of Southeast Asian Nations 

Business-to-business 

Business-to-households/customers 

Danish International Development Agency 

The United Kingdom Department for International Development 

Economic and Social Commission for Asia and the Pacific 

Economic Processing Zone 

European Union 

foreign direct investment 

Global Competitiveness Index 

gross domestic product 

gross national income 

Generalized System of Preferences 

Gesellschaft für Technische Zusammenarbeit 

global value chain 

hectare 

Human Development Index 

International Centre for Integrated Mountain Development 

Information and communications technology 

International Labour Organization 

Indo-Sri Lanka Free Trade Agreement 

International Organization for Standardization 

International Trade Centre, Joint Agency of the World Trade 

Organization and the United Nations 

Japan International Cooperation Agency 

Japan Electronics and Information Technology Industries 

Association 

kilogram 

xi


xii 

LDC 

LPI 

MNC 

MT 

NGO 

NRs. 

OAM 

OBM 

ODM 

OECD 

R and D 

SAARC 

SAFTA 

SAPTA 

SCI 

SEZ 

SDC 

SIDA 

SL Rs. 

SMEs 

SWOT 

TID 

Tk 

TNC 

TOT 

UNCTAD 

UNDP 

UNIDO 

USAID 

WEF 

WTO 

least developed <strong>country</strong> 

Logistics Performance Index 

Multinational corporation 

metric tonne 

Non-governmental organization 

Nepalese rupees 

Own account manufacturing 

Own brand manufacturers 

Own design manufacturing 

Organization for Economic Co-operation and Development 

Research and development 

South Asian Association for Regional Cooperation 

South Asian Free Trade Agreement 

South Asian Preferential Tariff Agreement 

Small and cottage industries 

Special Economic Zone 

Swiss Agency for Development and Cooperation 

Swedish International Development Cooperation Agency 

Sri Lanka rupees 

Small and medium-sized enterprises 

Strengths, Weaknesses, Opportunities and Threats 


Taka (Bangladeshi currency unit) 

Transnational corporations 

Training of trainers 

United Nations Conference for Trade and Development 

United Nations Development Programme 

United Nations Industrial Development Organization 

United States Agency for International Development 

World Economic Forum 

World Trade Organization


Chapter 1 

INTRODUCTION 

Over the past two decades trade and investment have been the driving forces in 

accelerating economic growth in South Asia. In the recent decade South Asian 

countries have increased export competitiveness and foreign direct investment inflows. 

As a result, new business opportunities have opened up for domestic enterprises. 

Despite their tremendous potential, SMEs 1 in South Asia are still at a disadvantage due 

to a lack of essential business factors such as capital, profitability, managerial skills, 

trained labour, brands and networking. Although SMEs account for more than 90 per 

cent of all private enterprises and employ roughly 60 per cent of the domestic workforce 

in South Asia, relative share of SMEs production in total domestic output is much smaller, 

approximately 35 per cent, as is the direct contribution of SMEs to merchandise export 

earnings, which is around 25 per cent (AAMO 2007). 

Broad-based inclusive and sustainable growth with the active involvement 

of the private sector is one of the most important development strategies in poverty 

reduction opted by many developing countries, including those in South Asia. To attain 

this goal, export-oriented SMEs and supporting industries should be recognized for the 

important role they play in their respective national economies. However, to become 

successful SMEs should be promoted and supported by not isolated and half-hearted 

measures but concerted and coordinated policies and institutional efforts. In smaller 

economies with limited domestic markets, high economic growth and rapid socioeconomic 

transformation can be achieved through export growth, and SMEs, showing 

1 

Having recognized their expected contribution to industrialization in developing countries in Asia 

and the Pacific, this study mainly focused on the development of export-oriented SMEs as well as 

SMEs in supporting industry, including micro enterprises. Those SME segments are typically 

characterized by high technology adaptation and backward linkage, which are key success factors 

for their effective participation in global and regional value chains (Uchikawa and Keola 2009). Other 

major SME segments, namely domestic market-oriented SMEs and cottage industry, which serve 

domestic and local markets, were not discussed extensively in this study although they may share 

some of similar corporate characteristics to export-oriented and supporting industry SMEs. Note 

that the statistics of SMEs in this study are the aggregate data of all SME segments at the regional, 

subregional and national levels. 

1


tremendous potential in that respect, should be supported at both regional and global 

levels. 2 

Within this context, one of the most important challenges facing SMEs in South 

Asia is creating new business opportunities, targeting the foreign markets. Establishing 

effective linkages with global and regional markets, including those of major emerging 

economies in Asia and the Pacific, such as China and India, is a major challenge for SMEs. 

However, recent experiences from a wide range of countries in Asia and the Pacific do 

indicate that SMEs could access international markets through global (and regional) 

value chains (GVCs). They could build efficient networks by establishing linkages with 

large enterprises or even with other SMEs. Such integration in GVCs are expected to 

help boost SMEs’ value added activities in international trade, in which SMEs, at present, 

play a limited role due to a lack of proper networking. In particular, the proposed shift 

would immediately help smaller economies in South Asia, such as Bangladesh, Nepal 

and Sri Lanka, in accelerating their socio-economic development and poverty reduction. 

It should also be noted that the emergence of GVCs has intensified competition 

in value added activities and required continuous skill development. Such competition 

could lead to greater economic and development disparities in South Asia at both the 

company and <strong>country</strong> levels, unless national policymakers in cooperation with business 

practitioners and international development agencies create a business environment 

for the succesful integration of SMEs in GVCs. 

Addressing key policy issues for export-driven SMEs in South Asian developing 

countries, the Trade and Investment Division of ESCAP devised a project to explore new 

ways and means and provide effective tools for SMEs integration into global and 

regional markets through participation in global and regional value chains. 

The introduction presents all four key topics. The first section discusses research 

framework, including value chain analysis, research objectives and methodology. The 

second section reviews the existing SME development approaches of different donor 

agencies, while the third section briefly describes the recent key developments in the 

business community in Asia and the Pacific, particularly the emergence of global and 

regional value chains. The final section explains the overall structure of the publication. 

1.1. Research framework 

2 

The study was conducted as part of ESCAP initiatives on Business for 

Development, a comprehensive programme for private sector development in Asia and 

the Pacific. It was designed as a pilot project adapting value chain analysis to addressing 

possible areas of policy interventions for strengthening exportled SME development 

strategy in South Asia. The next section of the chapter provides a brief outline of the 

value chain analysis. 

2 

While reviewing the prospects for SMEs it should be noted that there are a number of bilateral 

and multilateral agencies involved in developing the private sector in South Asia (e.g., ADB 2000; 

GTZ 2010; JICA 2006; UNDP 2007; UNIDO 2010; USAID 2010; and World Bank 2002), which often focus 

on SME development.


Bangladesh, Nepal, and Sri Lanka were included in the study. Based on the 

outcomes and findings of the study, other technical assistance projects might follow 

to help policymakers’ capacity-building in South Asia and other subregions in Asia and 

the Pacific with the objective of making SMEs an integral part of global and regional 

value chains. The study emphasized issues affecting women and youth entrepreneurs, 

who play an important role in the SME sector in all countries of the ESCAP region. 

1.1.1. VALUE CHAIN ANALYSIS: A DIAGNOSTIC TOOL 

Value chain analysis has been defined by Michael Porter as a diagnostic tool that 

disaggregates a firm into its strategically relevant activities in order to understand the 

behavior of costs and existing and potential sources of differentiation (Porter 1985). He 

claims that value chain analysis allows us to diagnose the competitive advantage of 

a firm or industry and to enhance the advantage by tailoring the value chains. However, 

there have been significant developments since Porter introduced the concept and the 

broader approach to value chains includes the complex range of activities implemented 

by various actors (suppliers, primary producers, processors, traders, service providers, 

etc.), transforming raw material into the final product and delivering it to retail market. 

The broad value chain starts at the production stage and moves along the linkages 

between enterprises engaged in trading, assembling, processing, etc. The wide 

approach includes not only the activities implemented by a single enterprise but also 

all the activities of its backward and forward linkages up until the stage at which the 

raw material, turned into the final product, is linked to the final consumer (Roldan-Prez 

et al. 2009). 

Value chain analysis or commodity chain analysis disaggregates the global 

structure of fabrication, trade and consumption of commodities and allows for the 

identification of factors and geographical divisions (Tuvhag 2008). Value chain analysis 

has been widely adopted by researchers, industry and development practitioners to 

understand the political economy of contemporary global production systems and has 

also served as a tool to analyze different aspects of chain coordination and governance. 

At the most basic level, value chain analysis systematically maps the actors 

participating in the production, distribution, marketing and sale of a particular product. 

While this mapping may be a valuable exercise, it is rather descriptive and, as such, is 

more of a heuristic device (Kaplinsky and Morris 2001). However, according to Kaplinsky 

and Morris (2001), by adding and focusing on three key components, such as (a) barriers 

to entry and rent, (b) governance and (c) value chain type, the value chain approach 

becomes a powerful analytical diagnostic tool. 

The barriers to entry and rent concern the identification and distribution of 

benefits to different actors in the chain. It also means that through a value chain one 

can determine who benefits from the participation in the chain and from the 

government interventions and support. 

3 

The governance of the value chain refers to relationship and coordination 

mechanisms that exist between its various actors. As Schmitz (2005) points out, there 

is often a powerful lead firm in the chain that wishes to control and govern the


relationships. The question then is: what is the lead firm’s motivation to assume such a 

dominant role in the value chain? The answer to the question is in product definition. 

Firstly, the lead firm needs its suppliers to understand certain product specifications in 

great detail and ensure compliance in order to successfully pursue a strategy based on 

e.g. product differentiation. Secondly, while suppliers are facing steadily increasing 

performance and quality standards, controlling the value chain decreases the lead firm’s 

own risk of encountering supplier failure (Schmitz 2005). 

The third component of the value chain analysis suggests distinguishing 

between buyer- and producer-driven chains. Kaplinsky and Morris (2001) link the first 

type to labour intensive industries and deem it very important for developing nations. 

In producer-driven value chains, a number of key producers have critical resources, such 

as technology, at their disposal as well as the ability to coordinate the links in the value 

chain (Kaplinsky and Morris 2001). Furthermore, this type of value chains seems to 

attract a higher number of foreign direct investment and employs a different kind of 

production system (Gerefffi 1999b). In general, while the third component of the value 

chain analysis might not yet be fully explored, it is very valuable as it stimulates the 

generation of helpful analytical questions (Kaplinsky and Morris 2001). 

Value chain analysis was applied in each of the individual <strong>country</strong> <strong>studies</strong> in 

order to assess the selected sectors or products from the respective countries. Particular 

emphasis was placed on export promotion and linkages to global markets. Based upon 

the result of the analysis, national action plans, aimed at improving SMEs business 

environment, were developed. Objectives and expected outcomes are elaborated upon 

in the subsequent section. 

1.1.2. OBJECTIVES AND EXPECTED OUTCOMES OF THE STUDY 

4 

The major objective of the study was to assist South Asian countries, namely 

Bangladesh, Nepal, and Sri Lanka, in developing national action plans for the 

improvement of their business environments to facilitate SMEs access to regional and 

global markets, especially through GVCs. Subregional constraints and opportunities in 

the development of export-oriented SMEs in these three countries were analyzed, 

resulting in the development of a comprehensive action programme. Specific 

objectives of the study included: (a) identifying sectors (or products) with a high export 

potential; (b) evaluating the processes and relationships from the value chain 

perspective by developing sectors/products best suited for export promotion; 

(c) reviewing policy and regulatory framework affecting selected sectors and products; 

(d) identifying constraints for broadening the prospects for the development of effective 

sector/product value chains for SMEs involvement; and (e) preparing and finalizing 

national action plans and a subregional action programme for stakeholders’ further 

interventions. 

1.1.3. METHODOLOGY 

The project included three national <strong>studies</strong> and a synthesis summary. The work 

intended bringing out: (a) potentialities for enhancing value added; (b) national action 

plans; and (c) a subregional action programme for addressing economic cooperation


issues in South Asia. Consequently, the study presented an analytical review of existing 

policy measures, acts, documents, <strong>studies</strong>, and other materials on SMEs. 

As the project also aimed at addressing participating countries’ policy 

frameworks, institutional arrangements, public-private sector cooperation mechanisms 

and technical support, additional primary data collection, adopting qualitative research 

methods, such as semi-structured interviews, site/field visits and observations, focus 

group discussions and other feedback communications, has been conducted to include 

the views and participation of all stakeholders. To support the collaboration and 

improve the overall quality of the study, research teams were established at the national 

level for each target <strong>country</strong> by inviting academics, industry experts and/or researchers. 

The project activities included: (a) preparing three <strong>country</strong> research papers on 

national GVC issues; (b) organizing national workshops on reviewing the <strong>country</strong> papers 

and considering the feasibility of national action plans; (c) preparing a synthesis 

summary of the three <strong>country</strong> papers, which included a strategic framework and 

a subregional action programme; and (d) organizing subregional workshops finalizing 

national action plans and the subregional action programme. 

1.2. SMEs development approach and key focus areas 

Before shifting the focus to the emergence of global and regional value chains, 

it is worthwhile to highlight the strategic importance of SMEs in the overall economic 

development and bring out the role of various development and donor agencies in this 

context. There are six key focus areas for SMEs that deserve particular attention as they 

determine SMEs business environment and capability to successfully tap into global 

markets and access the global value chain. 

The crucial role of SMEs in economic development has been widely recognized 

in the past and became even more evident recently with SMEs fostering job creation, 

generating incomes, improving performance and competitiveness and contributing to 

the economies of both developed and developing countries. 

Therefore, various agencies have designed and implemented SMEs 

development interventions in Asia and the Pacific, particularly in South Asia. The 

strategic approach of 13 major bilateral and multilateral development and donor 

agencies was reviewed in terms of its focus and modalities. It was determined that 

specific and detailed interventions, improving the SME sector value added and 

strengthening its contribution to respective economies, should concentrate on six key 

issues: 

5 

1. Enabling policy and regulatory environment, including introducing 

effective institutional framework and pro-business fiscal policy; 

2. Supporting SMEs business infrastructure; 

3. Promoting entrepreneurship, developing managerial skills and human 

resources; 

4. Improving access to financing;


5. Developing and adapting technology; and 

6. Developing SMEs business services. 

The findings indicate that a comprehensive SME development approach 

typically includes all or some of the above-mentioned six key areas for detailed 

intervention. The key factors are presented below. 

(1) Enabling policy and regulatory environment 

A transparent policy and regulatory environment ensures enterprise facilitation 

for the establishment, operation, promulgation, access to resources and markets and 

exit. To a greater extent the sustainability of policy and regulations – such as enterprise 

registration, corporate governance, fiscal incentives, anti-corruption and labor laws – 

relies on efficient administrative framework. Efficient policy and regulatory directives, 

with adequate implementation and operation modalities, would result in building 

confidence among SMEs entrepreneurs and strengthen their capacity to improve 

linkages with other enterprises. The availability of specialized and formal institutional 

resources for SME development is the foundation for creating a level playing field and 

facilitating their access to finance, skills and knowledge. It must also be noted that 

availability of SME-related public services would also be a strong support in furthering 

SME development. 

(2) Supporting SME business infrastructure 

The basic physical and organizational infrastructure includes, among other 

things, transportation, water supply and sewerage, power grids, telecommunications 

and research and training facilities. Quality business infrastructure facilitates the 

production of goods and services and enhances competitiveness. A number of bilateral 

and multilateral donors are supporting South Asian countries in building such 

infrastructure. However, SME specific infrastructure is still insufficient, particularly in the 

areas of skills development and in providing physical facilities, such as training 

institutions and SME parks. Supporting SME targeted infrastructure would enhance the 

productivity of SMEs and improve their competitiveness in international markets. 

(3) Promoting entrepreneurial culture 

6 

This study defined entrepreneurial culture as a tendency in the society to 

promote or motivate people to become entrepreneurs. Government provisions helping 

and supporting entrepreneurs, including developing their technical skills, play a vital 

role and should become an integral part of entrepreneurship building. An extensive 

programme for entrepreneurial development, with concomitant support through small 

business consulting services, would also result in an enterprise setting-up and 

strengthening. Policy measures, such as entrepreneurship training and education, youth 

entrepreneurial programmes, new business incubation as well as women 

entrepreneurship development would stimulate the entrepreneurial culture. Increased 

donor support would be a significant help in such areas.


(4) Improving access to financing 

Improving access to financing means enhancing the degree to which financial 

services become available to all, through easy and affordable means. The ability of SMEs 

to grow and strengthen their competitiveness over time largely depends on their ability 

to invest in restructuring, innovation, improvement and diversification. All these 

investments require both short- and long-term capital and, therefore, access to financing 

is very important for them. One of the consistently repeated complaints from SMEs 

has been the lack of access to finance (cf., AMMO 2007; ESCAP 2009). In attempting to 

gain access to financial services, SMEs are faced with constraints caused by many factors, 

such as financial sector ineffectiveness, lack of information on financing availability, lack 

of collaterals, poor property rights laws and. lack of financial products. Policymakers 

need to address these issues to make financial resources accessible to small 

entrepreneurs. Interventions by governments and other regulatory institutions should 

include: microfinance; commercial loans; public credit guarantees; and SME specialized 

financial institutions. However, very few donors have directly assisted in these areas. 

Donor assistance in financing SMEs through business incubation programmes and 

targeted financing, particularly in rural areas, could bring concrete results. 

(5) Developing and adapting technology 

One of the critical factors influencing the competitiveness of enterprises is 

technological capability for quality products and services. Technology is comprised of 

both the “hardware” of physical assets, and the “software” of know-how and skills. 

Technology development and adaptation include research and development (R and D), 

dissemination of information and knowledge, matching technology with current needs 

and creative adaptation of technologies for new uses. SMEs in developing countries 

very often produce products and services of moderate quality mostly due to the 

adaptation of outdated technologies and this has resulted in rejection of their products 

in competitive markets at both domestic and international levels. In recent years the 

situation has worsened, because SMEs in developing countries had to survive the 

intense competition of globalization, where countries had to adapt their trade regimes 

and phase out of tariff barriers under the World Trade Organization mandate. The best 

use of technology, no doubt, enables SMEs to reducing cost of production, maintaining 

consistency in quality and standardization, improving productivity and finally enhancing 

their competitiveness. The growing interest of Governments in introducing technology 

policies and bringing up institutional and infrustructural changes is necessary to boost 

the competitive dimension. However, donor assistance in technological capability 

building has been rather limited. This is particularly true of SMEs in South Asian 

countries. Building-up technology related institutions, strengthening R and D facilities 

and increasing assistance in widening skills development programmes could bring 

tangible gains in improving SMEs competitiveness both in domestic and international 

markets. 

7 

(6) Developing SMEs business services 

Inadequate business development (and support) services or their relatively high 

cost has hampered SMEs’ efforts in improving their competitiveness as service providers,


particularly lawyers, accountants, business consultants and technical consultants do not 

provide cost effective management solutions required for SMEs. Furthermore, lack of 

information and accessibility to utilize existing services by SMEs has also resulted in 

weak demand for such facilities. Obtaining information on commercial law, taxation, 

customs regulation, market intelligence, business advisory services, training 

opportunities and financing sources is generally expensive and time consuming; thus, 

most of the SMEs, particularly in South Asian countries are unable to avail themselves 

of those provisions. It is therefore most desirable that governments should take the 

lead in promoting such critical SME development services jointly with business and 

industry associations. Donors particularly can assist by providing financial assistance 

and sharing in successful business experience coming from other countries, including 

professional certificate schemes for service providers. 

The six key areas for SME development, where donors’ assistance is provided, 

require further strengthening. With active involvement of all stakeholders, particularly 

SME associations, chambers of commerce and industry as well as governments soliciting 

large donor assistance, a supportive environment can be fostered for SME development. 

This is particularly important, as the emergence of global value chains poses new 

challenges but also provides opportunities for SMEs. 

1.3. The emergence of global and regional value chains 

8 

One significant development in the Asia-Pacific business sector has been the 

emergence of global and regional supply or value chains. 3 A global value chain refers 

to the full range of cross-border value added business activities, which are required to 

bring a product or service from its conception through design, sourcing raw materials 

and intermediate inputs, production, marketing, distribution and support to the final 

consumer (ESCAP 2007). The rise of these global value chains is the result of two 

interdependent and complementary dynamics: reorganization and relocation. While 

the first involves business decisions about what core competencies the enterprise needs 

to retain and which functions it could outsource, the latter one is about offshoring, i.e. 

moving the firm’s entire or partial operations to another <strong>country</strong> (ESCAP 2007). 

Furthermore, global value chains have also grown as a result of some key developments, 

accompanying the globalization process, and the emergence of international 

production networks. Such developments include trade and investment liberalization, 

the development of low-cost and fast logistics systems and ICT applications that enable 

products and services, including semi-processed outputs, to quickly and efficiently move 

across the world. 

3 

For further details, see United Nations, Globalization of Production and the Competitiveness of 

Small and Medium-sized Enterprises in Asia and the Pacific: Trends and Prospects. Sales No.E.09.II.F.23; 

United Nations., Asia-Pacific Trade and Investment Report 2009:Trade-led Recovery and Beyond. 

Sales No.E.09.II.F.19; United Nations, Linking Greater Mekong Subregion Enterprises to International 

Markets: The Role of Global Value Chains, International Production Networks and Enterprise Clusters, 

Sales No.E.07.II.F.2.


The emergence of global value chains is characterized by increased 

concentration of production and distribution, smaller numbers of tougher competitors 

and independent suppliers and the potential for taking advantage of complementary 

comparative advantages among enterprises or economies involved in the value chain. 

Thereby, the global value chains have spread to various industrial sectors, such as 

automotive, electronic, food and apparel/garment sectors in the region (ESCAP 2007). 

A number of enterprises, including SMEs, participate in global value chains, 

providing services within their expertise and often collaborating with foreign investors 

through joint ventures, strategic alliances and other partnerships. The enterprises 

include, among others, suppliers, distributors and business service providers (e.g., 

third-party logistics providers, financial institutions and market research firms). Value 

chains are normally coordinated by a leading enterprise, typically a transnational 

corporation (TNC), which possesses power through control of business factors, such as: 

brand recognition, indigenous knowledge and technology, production assets, 

distribution channels and control over critical inputs (see Figure 1). Since the end of 

the 1980s, TNCs have invested in the Asia-Pacific region setting up their value chains 

and building on national export-oriented development strategies matched with the 

increasing global demands. 

Figure 1: A simplified global or regional value chain 

3 rd PARTY 

LOGISTIC PROVIDER 

2 nd TIER 

SUPPLIER 

1 st TIER 

SUPPLIER 

LEADING ENTERPRISE 

DISTRIBUTOR 

END 

CUSTOMER 

FINANCIAL 

INSTITUTION 

MARKET 

RESEARCH FIRM 

Cross-Border Movement of Goods and Services 

Source: ESCAP (2007). 

Global value chains have changed the traditional mode of competition among 

enterprises that was based on low costs and prices although these factors are 

continuously important in business-to-business relationships. The new competition is 

no longer taking place among individual enterprises but rather among global or 

regional value chains, based on the efficiency of their entire production and distribution 

networks. Such competition now depends on a wider range of determinants in both 

export and domestic markets, such as brand power, the capacity to meet a variety of 

stringent global product and process standards, the level of flexibility and rate of 

innovation, the speed of design and extent of differentiation, the degree of reliability 

and level of timeliness and the extent and quality of networks with both horizontally 

9


and vertically linked enterprises. 4 Although many Asian and Pacific enterprises have 

participated in various global value chains, only a small number of them, mainly in East 

and North-East Asia, actually control the value chains as leading enterprises; the majority 

of participating enterprises, typically SMEs, are minor members within the value chains 

(ESCAP 2009a). As previously mentioned, a transnational corporation usually assumes 

the role of the lead firm in the global value chain. This lead firm is supported by 

numerous smaller enterprises, which are categorized as higher and lower tier suppliers 

of inputs. The higher the tier, the more value is added by the supplying enterprise and 

thus, the SMEs in the lower tier category contribute rather simple outputs and add less 

value (ESCAP 2007). 

Figure 2: How do SMEs fit into global value chains 

Original equipment 

manufacturer 

(large firm, 

perhaps TNC) 

First tier 

supplier 

(large firm, 

perhaps TNC) 

First tier 

supplier 

(large firm) 

Second tier 

supplier 

(large firm) 

Second tier 

supplier 

(SME) 

Third tier 

supplier 

(SME) 

Third tier 

supplier 

(SME) 

Third tier 

supplier 

(large firm) 

10 

Fourth tier 

supplier 

(SME) 

Fourth tier 

supplier 

(SME) 

Source: United Nations Industrial Development Organization, Integrating SMEs in Global Value Chains. 

Towards Partnership for Development, 2001, p. 60. 

4 

See also World Bank,and IFC. Doing Business 2011: Making a Difference for Entrepreneurs. 

Washington, D.C.: IBRD, 2010.


While the development of global and regional value chains in Asia and the 

Pacific has provided unprecedented business opportunities to export-oriented SMEs 

and its supporting industry, including those in South Asia, they are facing the challenge 

of tier mobility. Ideally, SMEs would access the global value chain in the capacity of 

a higher tier supplier, as the lower tiers are characterized by unstable conditions and 

one SME could be easily replaced by another. Alternatively, if direct access to a higher 

tier is not possible, it would be important for the SMEs to have the chance to move up 

in the global value chain and become a provider of higher value (ESCAP 2007). 

The emergence of global value chains emphasized the need for a new technical 

assistance programme on SME development, particularly in South Asia. Having 

recognized greatly diversified economic status and conditions, as well as different 

natural endowments among the countries of that subregion, the one-size-tailored 

approach may not be workable with all participating countries. However, value chain 

analysis, with a special emphasis on trans-border issues and a focus on specific sectors 

and products can effectively address the six key success factors, identified earlier in the 

chapter. This was done in various sector <strong>studies</strong> undertaken under the present project 

in the three participating countries: Bangladesh, Nepal and Sri Lanka. 

1.4. Structure of the publication 

The publication is comprised of four research <strong>studies</strong> – three national <strong>studies</strong> 

on Bangladesh, Nepal and Sri Lanka, found in the annex and a synthesis of these <strong>studies</strong>. 

Chapter 1 identifies the need for the global value chain analysis, giving specific examples 

of technical cooperation between selected donor partners and SMEs in these countries. 

Chapter 2 presents the background information related to the three countries’ selected 

products; the synthesis, summarizing the major points and findings of the national 

<strong>studies</strong>; and a proposed subregional action plan that includes measures and tools, 

enhancing South Asian SMEs’ integration in global and regional markets. Chapter 3 

concludes the publication providing the direction for research and technical assistance 

activities in South Asia. 

The national study on Bangladesh in Annex I is focused on consumer and 

industrial plastic product sector, while Annex II covers agro-based industry, particularly 

coffee and ginger products sectors in Nepal. Annex III covers two industrial sectors in 

Sri Lanka, namely industrial rubber and electronic goods. The national <strong>studies</strong> offer 

action plans for various stakeholders in their respective countries to improve business 

environment for promoting export-oriented SMEs. 

11

12 



Chapter 2 

PROSPECTS OF SELECTED SMES’ INTEGRATION IN GLOBAL 

VALUE CHAINS: A Synthesis of Country Studies on Bangladesh, 

Nepal and Sri Lanka 

Most of the South Asian countries have significantly improved their economic 

growth rates, with five to six per cent average annual growth during the last 

decade of earlier century and first decade of this new millennium (ESCAP 2009c). South 

Asian countries, perhaps with the exception of Nepal, have improved their trade 

performance, particularly exports, and have been successful in integrating their 

economies in the regional and global markets. Growing intraregional trade and further 

enacting trade and investment liberalization measures, new prospects for cross-<strong>country</strong> 

industrial linkages within emerging international production networks are providing 

new impetus to establishment of regional value chains. Such regional value chains, as 

well as individual enterprises in selected South Asian countries, are also establishing 

networks in global value chains. 

While most enterprises and policymakers in South Asian countries have yet to 

fully understand certain basic fundamentals of conducting international trade, there is 

also a growing need for them to be more familiar with the emerging realities of modern 

business practices and trade transaction procedures as well as realize that higher 

productivity, better technological capability and time-bound delivery of products and 

services are the basic tenets of international business. Furthermore, disintegration of 

production process, either on vertical or horizontal lines, is giving rise to new prospects 

for enterprises to enter global and regional value chains. In this way, SMEs in South 

Asia have growing opportunities to form an integral part in value chains – regional or 

global (UNIDO 2004). 

In this chapter, the prospects for promoting value chains for selected sectors 

and products are analyzed and critical constraints in enhancing value added are 

identified. The analysis is focused on strengthening the value added in sectors and 

products domestically, while adopting value chain approach and looking into regional 

and international perspectives. To address constraints and find opportunities in value 

chains for the products, it is essential to be a familiar with the prevailing national 

economic conditions. Therefore, the chapter starts by reviewing socio-economic trends 

in Bangladesh, Nepal and Sri Lanka, including the status of SME sectors. Then, 

a synthesis of the three <strong>country</strong> <strong>studies</strong>, incorporating the major suggestions evolved 

13


at national and subregional workshops under the project, is presented. 5 Finally, 

a subregional action programme is proposed to promote sectoral value chains for SMEs 

in Bangladesh, Nepal and Sri Lanka 

2.1. Summary of economic conditions in Bangladesh, Nepal and 

Sri Lanka and the status of SME sector 

Bangladesh, Nepal and Sri Lanka are at different levels of development. 

Sri Lanka is well ahead of two other countries. Bangladesh and Nepal are categorized 

as least developed countries, while Sri Lanka is in a category of lower middle-income 

developing countries. As indicated in Table 1, of the three countries, Sri Lanka has the 

highest per capita income of $2,290 (or $5,098 in purchasing power parity). The per 

capita incomes of Bangladesh and Nepal are $640 (or $1,677 in purchasing power parity) 

and $490 (or $1,255 in purchasing power parity), respectively. In terms of the average 

growth rate of GDP (in ordinal term) from 2006 to 2010, Bangladesh (6.1 per cent) closely 

follows Sri Lanka (6.4 per cent), while Nepal shows the lowest rate (4.4 per cent). 

Table 1: Macroeconomic indicators 

Indicators Bangladesh Nepa l Sri Lanka 

GDP growth rate (2006-2010) 6.1 4.4 6.4 

Per capita GDP at current purchasing power 

parity (2010) – (in US$) 1 677 1 255 5 098 

Per capita GNI at current US$ 640 490 2 290 

Share of agriculture (2010) – as per cent of GDP 18.8 35 12.8 

Share of industry (2010) – as per cent of GDP 28.5 15 29.4 

Share of services GDP (2010) – as per cent of GDP 52.6 50.1 57.8 

Exports of goods and services (2010) 18.5 9.8 21.7 

– as per cent of GDP 

Source: ADB (2011). 

14 

The level of development of these countries is also reflected in their respective 

shares in agriculture, industry and services as a percentage of GDP – the share of the 

agricultural sector being the greatest for Nepal (35 per cent) and the lowest for Sri Lanka 

(12.8 per cent), while Bangladesh is occupying the middle position with 18.8 per cent. 

As for the industry sector, Sri Lanka has the highest share of 29.4 per cent of GDP, 

followed by Bangladesh with its 28.5 per cent and Nepal with its 15 per cent. Sri Lanka 

has the largest share in services sector (57.8 per cent of GDP), whereas Bangladesh and 

Nepal show 52.6 per cent and 50.1 per cent of GDP, respectively. In terms of exports 

contributing to higher growth rates, it is noted that exports as per cent of GDP is higher 

for the countries having higher GDP growth rates and higher per capita income. For 

example Sri Lanka having the highest GDP growth rate also has the highest exports at 

5 

See “Methodology” section in Chapter 1 for the information on national and subregional 

workshops.


21.7 per cent of GDP, while Bangladesh exports occupy the middle position with 

18.5 per cent of GDP and Nepal exports lag behind with just 9.8 per cent of GDP. 

While reviewing the economic conditions and SMEs prospects in the value chain 

process, one should look into poverty level and human development status so that the 

potentiality of SME sector contributing to high growth and poverty reduction is clearly 

realized. In terms of poverty and human development indicators, Sri Lanka is clearly 

the most advanced among the three countries in all categories (Table 2). Human 

Development Index (HDI) ranking, adult literacy rate, life expectancy at birth and the 

population living below two dollars a day indicators are all better in Sri Lanka. Broadly 

these indicators not only point out the ways for improving competitiveness but also 

suggest the absorption capacity of the economies. Population living below the level 

of two dollars a day indicator could also be a sign for the need to address employment 

based on less capital-intensive programmes in devising a strategy emphasizing the need 

for SME development. From this perspective, Bangladesh and Nepal call for more 

employment generating development programmes in which SME sector should be 

accorded a higher priority. 

Table 2: Poverty and human development indicators 

Indicators Bangladesh Nepa l Sri Lanka 

Human development index (HDI) – 2010 0.469 0.428 0.658 

HDI rankings – 2010 (out of 169 countries) 129 138 91 

Adult literacy rate (15 years old and above) 55.9 59.1 90.6 

– 2009 (in per cent) (2008) 

Life expectancy at birth – 2009 (in years) 66.6 67.1 74.3 

Population (million) 146.2 28.3 20.7 

Population growth rate 1.3 2.2 1.0 

Population below two dollars purchasing 81.3 77.6 29.1 

power parity per day – in per cent (2005) (2004) (2007) 

Source: ADB (2011). 

2.1.1. COMPETITIVENESS AND BUSINESS ENVIRONMENT 

Given the strategy of private sector led development in the countries under the 

study it is also necessary to assess their prospects for competitiveness and ease of doing 

business. 

First, with the three countries being at different levels of economic development, 

their capabilities are reflected in the global competitiveness index (GCI) (Table 3). All 

the three countries are in the stage 1 category wherein competitiveness is very low and 

the economy is more factor-driven. Even so, they display a large variation of factors 

with Sri Lanka having a 62 nd ranking among 139 countries while Bangladesh and Nepal 

are lagging behind having 107 th and 130 th rankings respectively. These differences will 

affect the ways by which the competitiveness of the economy, including that of SMEs, 

is improved and the possibility of SMEs integration in global value chains. 

15


Table 3: Global Competitiveness Index (GCI) 2010-2011 

Bangladesh Nepa l Sri Lanka 

Global Competitiveness 3.64 (107 th out of 3.34 (130 th out of 4.25 (62 nd out of 

Index – 2009-10 139 countries) 139 countries) 139 countries) 

Basic requirement sub index 3.71 (114 th ) 3.52 (125 th ) 4.42 (73 rd ) 

2009-10 

Efficiency enhancers sub index 3.62 (97 th ) 3.14 (131 st ) 4.01 (69 th ) 

2009-10 

Innovation factors sub index 3.01 (109 th ) 2.67 (133 rd ) 3.97 (40 th ) 

2009-10 

Components of basic requirement sub index: 

Institutions 3.24 (115 th ) 3.03 (130 th ) 4.06 (55 th ) 

Infrastructures 2.15 (133 rd ) 1.81 (139 th ) 3.82 (70 th ) 

Macroeconomic stability 4.49 (80 th ) 4.41 (86 th ) 3.60 (124 th ) 

Health and primary education 4.96 (106 th ) 4.81 (109 th ) 6.18 (35 th ) 

Source: WEF (2011). 

When GCI is decomposed into basic requirements, efficiency enhancers and 

innovation factors, Sri Lanka shows the prospect for innovation-driven competitive 

strength, which can be observed in its <strong>country</strong> study on rubber products sector and 

more explicitly in its electronic industry. The emphasis on new high value product lines 

also indicates the trend. Bangladesh looks to be moving towards the efficiency-driven 

category in which more efficient production processes and increases in quality are relied 

upon. Nepal looks like a factor-driven economy when a <strong>country</strong> relies more on its factor 

endowments – primarily unskilled low-cost labour and natural resources, thus 

demonstrating dependence on the agriculture sector. 

16 

Further decomposition of basic requirement index into two of its four major subcomponents 

(i.e., institutional capacity and infrastructures) shows that Bangladesh and 

Nepal have severe limitations in these two components to be competitive enough – 

while Sri Lanka is in a better position. The <strong>country</strong> <strong>studies</strong> on Bangladesh and Nepal 

and their interactions at national workshops had emphasized the need for infrastructure 

development – particularly electric power and gas lines in Bangladesh and rural roads 

in Nepal. While Sri Lanka shows the highest ranking in health and primary education 

among the three countries, Bangladesh and Nepal demonstrate better rankings in 

macroeconomic stability. 

Second, business environment is closely related to the overall development level 

in these countries. SMEs need to have enabling operational environment, including 

reasonable legal and institutional frameworks, stable macroeconomic policies and 

adequate infrastructures. The World Bank’s Ease of Doing Business Index focuses on 

nine topics that aim to measure the regulation and red tape relevant to the life cycle 

of domestic SMEs. As such, a nation’s ranking is based on the average of the following 

nine sub-indices: starting a business, dealing with construction permits, registering


property, getting credit, protecting investors, paying taxes, trading across border, 

enforcing contracts and closing a business. The rankings of its various components and 

values of their sub-indices reflect how enabling and friendly the conditions are for SMEs 

to operate in these countries. 

In so far as ease of doing business is concerned, the three countries show once 

again similar patterns with Sri Lanka ranked as 102 nd out of 183 countries followed by 

Bangladesh with its 107 th ranking and Nepal occupying the 116 th position (Table 4). As 

for some of indicators on the ease of doing business, such as starting a business 

sub-index, both Bangladesh and Nepal are far behind Sri Lanka – Sri Lanka is ranked 

34 th while Bangladesh and Nepal are in the 79 th and 96 th positions, respectively. One of 

its sub-components, cost of starting a business (as a per cent of income per capita) is 

also the highest in Nepal – 46.6 per cent of the per capita income, while Bangladesh 

and Sri Lanka registered at 33.3 per cent and 5.4 per cent of the per capita incomes, 

respectively. High initial cost generally comes as a discouraging factor to potential 

investors. 

Table 4: Rankings on the ease of doing business 2010 


Ease of doing business (rank) 107 116 102 

Starting a business (rank) 79 96 34 

Procedures (number) 7 7 4 

Time (days) 19 31 35 

Cost (per cent of income per capita) 33.3 46.6 5.4 

Minimum capital (per cent of per capita) 0.0 0.0 0.0 

Dea ling with construction permits (rank) 116 130 169 


Time (days) 231 424 214 

Cost (per cent of income per capita) 194 100.2 51.1 

Registering property (rank) 172 25 155 


Time (days) 245 5 83 

Cost (per cent of property value) 6.6 4.8 5.1 

Getting credit (rank) 72 89 72 

Strength of legal rights index (0-10) 7 6 4 

Depth of credit information index (0-6) 2 2 5 

Public registry coverage (per cent of adults) 0.6 0.0 0.0 

Private bureau coverage (per cent of adults) 0.0 0.3 18.6 

17 

Protecting investors (rank) 20 74 74 

Extent of disclosure index (0-10) 6 6 4 

Extent of director liability index (0-10) 7 1 5 

Ease of shareholder suits index (0-10) 7 9 7 

Strength of investor protection index (0-10) 6.7 5.3 5.3


Table 4: (continued) 


Paying taxes (rank) 93 123 166 

Payments (number per year) 21 34 62 

Time (hours per year) 302 338 256 

Total tax rate (per cent of profit) 35.0 38.2 64.7 

Trading across border (rank) 112 164 72 

Documents to export (number) 6 9 8 

Time to export (days) 25 41 21 

Cost to export (US$ per container) 985 1 960 715 

Documents to import (number) 8 10 6 

Time to import (days) 31 35 19 

Cost to import (US$ per container) 1 390 2 095 745 

Enforcing contracts (rank) 179 123 137 


Time (days) 1 442 735 1 318 

Cost (per cent of claim) 63.3 26.8 22.8 

Closing a business (rank) 101 107 43 

Time (years) 4.0 5.0 1.7 

Cost (per cent of estate) 8 9 5 

Recovery rate (cents on the dollar) 25.8 24.5 47 

Source: 

World Bank (2011a). 

One of the critical issues identified by stakeholders in all the three countries was 

the inadequate access to institutional credit. In this context, Nepal ranked last among 

these three countries occupying the 89 th position while Bangladesh and Sri Lanka both 

ranked at 72 nd . The countries under consideration have particularly low value on the 

index on depth of credit information. 

18 

Trading across border is another important indicator affecting trade 

potentialities of countries, and in this respect Sri Lanka is ahead with the 72 nd ranking, 

followed by Bangladesh with the 112 th and Nepal, a landlocked <strong>country</strong>, with the 

164 th ranking, respectively. However, the rankings of Sri Lanka and Bangladesh change 

when they are viewed from the overall trade facilitation services perspective, as reflected 

in the Logistics Performance Index (LPI) 6 (Table 5). Besides the availability of 

infrastructure, it also takes into consideration the quality and cost of logistics services. 

6 

Logistics Performance Index (LPI) reflects the overall perception of a <strong>country</strong>’s logistics 

environment based on 1,000 responses to a survey of logistics performances evaluated on six key 

criteria – efficiency of customs clearance, quality of transport and transport related infrastructure, 

ease of arranging competitively priced shipments, quality of logistics services and tracking ability 

and timeliness of shipments. It thus combines availability of physical infrastructure with their quality 

and cost.


From this perspective, Bangladesh tops the list followed by Sri Lanka and Nepal, which 

is understandable with both countries having geographical disadvantages, one as an 

island <strong>country</strong> and another as a landlocked <strong>country</strong>. Nepal comes at the top in the 

ranking among the three countries in one of its sub-components on domestic 

transportation costs as a proxy in the diesel price. 

Table 5: Logistics Performance Index (LPI) and some of its sub-components related 

to infrastructures (2006-2009) 

Overall 

Qua lity of Domestic Intertransport 

Logistics trans- nationa l 

and IT infra- competence portation transport 

structures costs costs 

South Asia (trade 2.99 (61.1) 2.74 (62.4) 2.96 (57.7) 3.06 (50.6) 3.06 (53.5) 

weighted average) 

Bangladesh 2.74 (80 th ) 2.49 (74 th ) 2.44 (100 th ) 3.08 (46 th ) 2.99 (62 nd ) 

Sri Lanka 2.29 (142 nd ) 1.88 (145 th ) 2.09 (149 th ) 3.08 (46 th ) 2.48 (123 rd ) 

Nepal 2.20 (155 th ) 1.80 (151 st ) 2.07 (151 st ) 3.25 (20 th ) 2.21 (150 th ) 

Source: World Bank (2010). 

Note: This survey covered 211 countries (1 to 5, best). Figures within brackets indicate the <strong>country</strong> 

rankings. 

Finally, it is noteworthy that the three countries have relatively high rankings 

in some key factors of the ease of doing business. These include protecting investors 

for Bangladesh (20 th ), registering property for Nepal (25 th ) and closing a business for 

Sri Lanka (43 rd ). 

2.1.2. TRADE AND INVESTMENT SITUATION 

As stated earlier, trade and investment have been the driving forces for steady 

economic growth in most of South Asian countries. These countries, typically, have 

increased export competitiveness and have attracted large inflows of FDI, creating 

better business opportunities for local SMEs and additional employment. 

Table 6 presents information on the top 10 export goods of the three South 

Asian countries. The results of the main export goods indicate two types of export 

goods portfolios based on different levels of development and supply-side capacity of 

the countries. The two types of export goods portfolios include: (a) natural endowment 

driven export (e.g., agro-products and minerals); and (b) light manufacturing export 

(e.g., textiles, garments and footwear). Within this classification, Nepal belongs to the 

natural endowment driven export type, while Bangladesh and Sri Lanka are light 

manufacturing export type countries. It is noteworthy, however, that Sri Lanka has 

started exporting value added manufacturing goods, such as electronic equipments and 

parts as well as machineries, indicating its ongoing transition to an exporting <strong>country</strong> 

of advanced manufacturing goods. 

19


Table 6: Top 10 export goods of the three South Asian countries by the two digits, 

2010 

Ranking Bangladesh Nepa l Sri Lanka 

1 Articles of apparel, Iron and steel Articles of apparel, 

accessories, knit or 

accessories, knit or 

crochet 

crochet 

2 Articles of apparel, Manmade filaments Articles of apparel, 

accessories, not knit or 

accessories, not knit or 

crochet 

crochet 

3 Other made textile Carpets and other Coffee, tea, mate and 

articles, sets, worn textile floor coverings spices 

clothing, etc. 

4 Fish, crustaceans, Articles of apparel, Rubber and articles 

mollusks, aquatic accessories, not knit or thereof 

invertebrates 

crochet 

5 Vegetable textile fibres, Manmade staple fibres Pearls, precious stones, 

paper yarn, woven fabric 

metals, coins, etc. 

6 Footwear, gaiters and Edible vegetables and Electrical, electronic 

the like, parts thereof certain roots and tubers equipment 

7 Raw hides and skins Other made textile Fish, crustaceans, 

(other than furskins) articles, sets, worn molluscs, aquatic 

and leather clothing etc. invertebrates 

8 Headgear and parts Coffee, tea, mate and Mineral fuels, oils, 

thereof spices distillation products, etc. 

9 Mineral fuels, oil, Articles of iron or steel Milling products, malt, 

distillation products, etc. 

starches, inulin, wheat 

gluten 

10 Tobacco and Copper and articles Vegetable textile fibres, 

manufactured tobacco thereof paper yarn, woven 

substitutes 

fabric 

Source: ITC (2010). 

20 

One interesting phenomenon that deserves further enquiry is the level of FDI 

inflows in the three countries. FDI is a critical force in the promotion of global and 

regional integration of economies and industrial activities (Dhungana 2009). Although 

Bangladesh and Nepal stand close to each other in terms of global rankings of 

competitiveness and business enabling conditions, Bangladesh has over-performed 

Nepal (and even Sri Lanka recently) in attracting FDI. One visible reason for this 

phenomenon is the security factor, as the political volatility in Nepal is creating the 

unsafe environment and leading to lagging investment and slow policy reforms, 

particularly related to the manufacturing sector. Bangladesh has lately been 

experiencing an encouraging inflow of FDI resulting in a FDI inward stock level 

exceeding that of Sri Lanka. Sri Lanka surpasses the other two countries in the FDI 

inward stock level as a percentage of GDP (see table 7 for details).


Table 7: Inflow and stock of inward foreign direct investment (FDI) (in million 

US dollars) 


2008 2009 2010 2008 2009 2010 2008 2009 2010 

FDI inflows 1 086 700 913 1 39 39 752 404 478 

FDI inflows as 

per cent of gross 

fixed capital 

formation 5.6 3.2 3.7 0 1.4 1.0 7.3 4.3 4.0 

1990 2000 2010 1990 2000 2010 1990 2000 2010 

FDI inward stock 478 2 162 6 072 12 72 205 679 1 596 5 008 

FDI inward stock 

as per cent of GDP 1.7 4.8 6.1 0.3 1.3 1.3 8.3 9.5 9.9 

Source: UNCTAD (2011). 

2.1.3. STATUS OF THE SME SECTOR 

Finally, the status of the SME sector in the three South Asian countries is briefly 

reviewed. Table 8 summarizes operational definitions of SMEs used in the three 

countries. Researchers generally used these SME definitions for commercial entities with 

less than 100 employees in Bangladesh, less than 200 employees in Nepal and less than 

150 employees in Sri Lanka, although the countries also set such definitions based on 

the size of investment. 7 The definitions of what constitutes an SME vary quite widely 

from <strong>country</strong> to <strong>country</strong> in Asia and the Pacific (ESCAP 2009b). Both the number of 

employees and the size of investment are mainly used for such national definitions, and 

some countries also set separate definitions among different SME segments, such as 

manufacturing and services. Developing countries in Asia and the Pacific typically 

define SMEs, including micro enterprises, as commercial entities with less than 100-200 

employees, which is in line with the definitions adopted in Bangladesh, Nepal and 

Sri Lanka. 

Table 8: Operational definitions of SMEs in literature 

Bangladesh Nepal Sri Lanka 

Less than 100 employees Less than 200 employees Less than 150 employees 

Sources: APO (2007); CDR (2006). 

Note: Micro enterprises are included. 

21 

7 

Research literatures, which aim to compare the status of the SME sector among various countries, 

mainly use the number of employees to define SMEs to avoid cumbersome calculation for foreign 

exchange rates among different currencies (cf., AAMO 2007).


It is, however, useful to distinguish between micro enterprises operating in the 

informal sector and small enterprises in the formal sector – particularly in the context 

of their access to financing. Microcredit programmes often address the collateral free 

credit needs of micro enterprises in the informal sector, while small enterprises without 

the adequate collateral base are the ones suffering from the limited access to collateral 

free credit, as many financial programmes facilitating access to credit through 

commercial banks have been unsuccessful because of high operation costs (i.e., high 

transaction costs) dealing with a large number of small enterprises. 

Over the years, SMEs have made significant contributions to the economic 

development of Asia and the Pacific countries, including Bangladesh, Nepal, and 

Sri Lanka (AAMO 2007). The SME sector in developing countries of Asia and the Pacific 

generally: 

(a) 

(b) 

(c) 

(d) 

(e) 

Makes up more than 90 per cent of all enterprises; 

Provides over 60 per cent of jobs in the private sector; 

Generates over 30-40 per cent of total employment; 

Contributes approximately 50 per cent of sales or value added; and 

Generates approximately 30 per cent of total direct exports. 

Table 9 illustrates economic contribution of the SME sector in Bangladesh, Nepal 

and Sri Lanka. SMEs dominated the business community making up more than 95 per 

cent of all enterprises in the three countries. Also, SMEs created the majority of 

employment opportunities with more than 80 per cent of private sector jobs in both 

Bangladesh and Nepal, while 56 per cent of employment depended on SMEs in 

Sri Lanka. SMEs percentage share in GDP, value added and export in the total output 

in these countries were also significant. 

Table 9: Contributions of SMEs (2001-2003) 

SMEs’ Share (per cent) Bangladesh Nepal Sri Lanka 

Total number of enterprises 98 95 96 

Total employment 82 85 56 

GDP/Value Added/Export 5 per cent of 90 per cent of 20 per cent of 

GDP export value added 

22 

Sources: AAMO (2007); APO (2007); CDR (2006). 

2.2. Synthesis of <strong>country</strong> <strong>studies</strong> with a synopsis of main findings 

As the project’s objective was to identify potential export products and conduct 

thorough <strong>studies</strong> on prospects for integration into the value chain process, ESCAP had 

established regular contacts with the Governments in participating countries. National 

steering committees were established with representatives of producers, exporters, 

government officials and business associations members. Senior government officials 

chaired the steering committees and acted as focal points. National research teams,


coming from leading research institutions, were formed to conduct national <strong>studies</strong> in 

the participating countries. Products for national study projects were selected on the 

basis of the following criteria: 

(a) Export potential; 

(b) Value added ; 

(c) Job creation potential; 

(d) Support function in other industrial sectors; 

(e) Level of maturity; 

(f) Impact on gender empowerment; 

(g) Supply-side capacity (e.g., product development and international 

standards and certificates); 

(h) Strategic geographical focus; 

(i) Environmental sustainability; 

(j) Government identified priority area; and 

(k) Government’s need for a national action/business plan for future 

development. 

The <strong>studies</strong> took note of the regional and international trade arrangements 

relevant to the products selected and the possibility of responding to constraints 

through appropriate reform measures. 

After careful consideration and consultations with government officials and 

business associations, Bangladesh identified one product, while the other two countries 

chose two products each. Steering committee in each of the countries facilitated the 

process based on recommendations made by national research team. As a result, plastic 

industry product lines were selected in Bangladesh, while agro-industry (ginger and 

coffee) was chosen for Nepal. Industrial rubber products and electronic/electrics goods 

were identified for Sri Lanka. 

During the preparation of the <strong>studies</strong>, a comprehensive review of existing 

government policies and programmes, as well as a review of earlier <strong>studies</strong> were 

undertaken. Documents on the products under consideration included the analysis of 

sectoral/product value chains and SWOT analysis for all three countries. Structured 

interviews and field visits were undertaken. Focus group discussions were also 

conducted with farmers and traders in Bangladesh and Nepal. 

Draft <strong>studies</strong> were intensively discussed at national workshops organized in 

Colombo, Dhaka and Kathmandu attended by policymakers and private sector 

representatives, including product specific stakeholders. Subsequently, revised <strong>studies</strong> 

were presented at a subregional workshop held in Colombo with participation from 

representatives of the governments and the private sector from participating countries, 

and international organizations, such as ADB and UNIDO. The recommendations of the 

subregional workshop were incorporated into the final <strong>studies</strong>, particularly focusing on 

the programmes for further subregional actions. One of the major limitations of the 

23


24 

Table 10: Comparison of three <strong>country</strong> <strong>studies</strong> on value chain analysis 


Natural rubber and 

Plastic products Coffee Ginger 

Electronics 

rubber products 

Parts and finished 

industrial 

Finished industrial 

Mostly raw and negligible 

in semi processed 

agricultural 

Agro-processed – high 

quality coffee 

Finished industrial 

Product type 

Market type Domestic and export Domestic and export Export 

Domestic and Export Domestic and Export 

Promotion of more 

diversified export oriented 

industries 

No export restrictions and 

licensing requirements 

Priority products for 

export included in Trade 

Policy 2009: subsidy on the 

cost of machinery 

equipments 

Priority products for export 

included in Trade Policy 

2009: interest subsidy and 

subsidy on the cost of 

machinery equipments 

Not first priority product 

for export; lower custom 

duty on pharmaceutical 

grade plastic raw materials 

Government 

policy 

Mainly import. Support to 

global value chain in the 

electronic industry under 

contract arrangement 

Not applicable for raw 

rubber. For rubber 

products both domestic 

and imported 

Domestic 

Domestic 

Domestic and imported 

Sources of raw 

materials 

Electronic components, 

plastic enclosures, metal 

fabricators and chemicals 

Seed and fertilizer 

Suitable land area, seeds 

and manures 

Suitable land area, seeds 

and manures 

Granules and additives 

Major raw 

materials 

Plant and machinery all 

imported 

Not applicable 

Not applicable 

Largely imported (first and 

second hands); some 

domestic moulds; use of 

semi automated injection 

and blow machines; 

automated ones in the 

large factories. 

Sources of 

machinery 

129,243 MT (2008) 

16,1171 MT (2008) 

270 MT (dry cherry) (2008) 

12,761 MT (2007/2008) 

Production level 

(MT)








714 million for domestic 

market and 234 million for 

the export market (2006/ 

2007) 

Production level 

(in US$) 

36 per cent (2004 -2008) 

From 865,000 MT in 1998 

to 1,387,000 in 2007 

Started from low base 

14.4 per cent 

Growth rate of 

production (MT) 

Started from low base 

10.0 per cent 

Growth rate of 

production (US$) 

171 units involved in 

export of electronics 

529 manufacturers 

Farming house holds 

involved; farmers not so 

well organized; only few 

districts having farmers’ 

groups 

Farming house holds 

involved: 750 coffee 

growers’ groups 

About 3,000 units 

No. of 

manufacturing 

units/producers 

10,000 workers in 

exporting manufacturing 

units 

200,000 with 34,000 

directly in the industry. 

66,600 

20,000 farmers affiliated 

with Federation (460,000 

up to the level of farmers) 

One to two million people 

No. of employees 

Skilled 

Unskilled and skilled 

Unskilled 

Unskilled 

Unskilled and semi skilled: 

some in-house trained in 

large factories 

Type of labour 

force 

62 per cent of natural 

rubber used in 

manufacturing industry 

40 per cent sold in 

domestic market 

35 per cent of production 

sold in domestic market 

714 million 

Sales in domestic 

market (US$) 

25


26 







USD 48.9 million; mainly in 

the form of components to 

the branded products 

abroad 

USD 543 million in 2008; 

38 per cent of natural 

rubber products exported 

in raw form 

Fourth largest exporting 

county in the world; export 

to India amounting to NRs. 

403 million in 2008/2009 

65 per cent of production 

sold in export market; 

112,000 kg valued at NRs. 

107 million 

234 million by large 

manufacturers only; SMEs 

for domestic market only 

Sales in export 

market (US$) 

To major electronic hubs of 

the world 

Pakistan, European Union, 

India, Japan, United States, 

Hong Kong, China 

India 

Japan, Germany, Canada, 

some to United States and 

United Kingdom. 

China, India, United States, 

United Kingdom, United 

Arab Emirates, Germany, 

Malaysia 

Major export 

market (countries) 

Pakistan and India 

India 

India, Sri Lanka, Nepal 

Major export 

market in SAARC 

countries 

Preferential treatment in 

India; somewhat less in 

Pakistan; duty free access 

in other countries. 

No 

Any preferential 

treatment? 

● Component 

● Plantation and 

● Planting, growing and 

● Imported granules and 

harvesting 

additives 

Production 

process 

manufacturing for the 

branded products 

collection of field latex 

and field coagulum 

● Planting and harvesting 

● Cleaning ginger 

● Storing without sorting 

● Picking cherry 

● Initial processing – dry 

● Collection and recycled 

● Conversion to raw 

and grading for quality 

waste materials 

rubber and 

concentrated latex by 

rubber manufacturers/ 

compound 

manufacturers 

● Grading done at the 

or wet processing, 

roasting, grinding and 

packaging 

● Moulding – injection, 

district level 

extrusion and blow 

● Collection in Nepal. 

● Wholesales and retail 

● Moulds – locally 

● Export or distribution in 

sales in India 

domestic market 

produced (of low 

quality) and imported 

(of better quality) 

● Polishing of finished 

products








● Access to international 

● Domestic sale through 

● Local traders collect 

● Supplied to 

● Makes products for 

market through 

contract manufacturers 

agents/dealers 

intermediary for export 

contractor under 

contractual 

arrangement 

Marketing 

linkages 

● Exports through 

● Shipping to importing 

wholesalers 

and transfer to district 

level traders and 

wholesalers 

countries 

● Export sale by 

● Obtains raw materials 

auctioning 

● Link to terminal market 

● Importers pass the 

beans to roasters for 

retail sales 

also from contractor 

● Sales and marketing 

● International brands 

of India through 

commission agents 

operating from the 

<strong>country</strong> 

department under 

own account 

production 

● Virgin resin importers 

organized into one 

association 

● No own design and 

● Lacks expertise on 

● Scientific method of 

● Problems with quality – 

● Delay and hassles at 

brand products 

cultivation not followed 

humidity, black and 

broken beans, and 

impurities 

the port while 

importing 

Major issues in 


● Need for development 

product and compound 

development 

of die and mould 

design capability 

● No central rubber/ 

● Inadequate postharvest 

management 

● Inefficient services of 

● No good storage for 

● Ad-hoc and sporadic 

● Insufficient engineers 

fresh ginger even at the 

wholesale level 

coffee cultivation 

without being quality 

conscious 

pre-shipment 

inspection 

and skilled labours 

polymer based product 

and process testing 

facilities 

● Poor collection and 

● Low average days of 

● No processing units 

● Grading and modern 

recycling methods 

rubber tapping due to 

rain 

● Unskilled and untrained 

● No impact/load 

packaging methods not 

practiced 

labour force 

● Absence of proper 

testing particularly for 

SMEs 

● Low quality with high 

storage 

● No training facilities: 

fiber content 

● No institutional 

only apprenticeship 

● Traditional method of 

mechanism for 

technical support 

● High turnover of 

drying not suitable for 

industrial uses 

skilled workforce 

27


28 







● Farmers unaware of 

● Inadequate access to 

● Life of the machine; 

processing technology 

and secondary 

products of ginger 

institutional credit 

● Inadequate automation 

for pulping, washing 

and drying 

● Market information not 

available to the farmers 

inadequate servicing 

facilities for SMEs and 

semi-automated 

machine demanding 

technology 

upgradation 

● Low quality moulds for 

SMEs 

● Limited access to 

institutional credit for 

SMEs 

● Poor electricity supply 

● Poor gas supply 

● Unclear long term 

government policy 

preventing large scale 

investment 

● Low value addition as 

● Potential for new 

● Inadequate quarantine 

● Problem with quality 

● No branded products 

the marketing 

dominated by brand 

owners and/or 

technology leaders 


centres 

● Imposition of sanitary 

certification and 

organic certificate for 

each of the production 

steps; high cost of 

certification abroad. 

and poor finishing from 

SMEs. 

Major issues in 

marketing and 

export for SMEs 

standards in India 

● No standards to sort 

● High commission 

charges by the 

middlemen due to 

inadequate market 

intelligence with the 

traders 

plastic wastes; thus, no 

export potential 

● No market intelligence 

● No quality and market 

● Poor quality recycled 

raw materials 

regulations – no cup 

testing laboratory 

● Large producers leading 

the market








● Extra transportation 

● SMEs having less 

cost for export 

● Branding; barriers for 

bargaining power 

against wholesalers 

entry 

● Inadequate laboratory 

facilities and skilled 

labour with testing 

authority 

● National budget 2009/ 

10 increased import 

taxes on intermediate 

products to 25 per 

cent; custom duty 

increased and VAT 

exemption lifted out for 

plastic 

● Producing more 

● Use of rain guards for 

● Training on farming 

● Improved farming 

● Improvement in 

components for 

electronics 

increasing tapping days 

system 

including intercropping 

● Standardization of 

recycling management 

and improved 

technology 

Prospects for value 

added 

● Training on new 

● Establishing own brand 

tapping technology 

● Product diversification 

● Certification centre 

● Establishment of new 

coffee, quality 

laboratory, certification 

agencies 

● Need for improved 

quarantine centres 

● Exploring new markets 

mould making facilities 

and capacities 

● Skilled workforce 

Yes 

No 

Yes 

No 

Yes 

Yes 

Yes 

Yes 

Yes 

No 

Global/regional 

value chain 

discussed 

Any quantitative 

assessment? 

29


<strong>country</strong> <strong>studies</strong> was their use of secondary sources of information and, therefore, 

quantitative estimates of value added at every stage in processing and distribution chain 

could not be properly assessed, except in the Nepalese study on coffee and ginger. 

A brief summary of findings in the <strong>studies</strong> is presented in table 10. 

Based on the respective outcomes in value chain analyses, national action plans 

were designed with the goal to improve SME business environments and eventually 

facilitate the access of SMEs to regional and global markets. Brief summaries of national 

action plans are presented below. 

2.2.1. THE PLASTICS INDUSTRY IN BANGLADESH 

Bangladesh attaches significant importance to development of plastic products 

and aims to meet the growing demand of both domestic and international markets. 

The <strong>country</strong> has formulated a vision of achieving a market size of $2 billion by 2015 

and $4 billion by 2020 from the level of approximately $1 billion in 2008. In order to 

achieve these targets and create a value chain in plastic products in Bangladesh, an 

action plan is proposed to improve the performance at a firm, industry and sector levels. 

The action plan should include the following activities: 

30 

● Establishing national brands; 

● Collaborating with the Bangladesh University of Engineering and 

Technology for technological support for quality testing and technical 

consulting (as a short-term measure). Creating separate institutional 

arrangement (in the long run); 

● Providing business counseling by the SME Foundation and the Bangladesh 

Small and Cottage Industries Corporation (BSCIC) with separate specialized 

units for plastic products; 

● Conducting feasibility study of high quality local mould-making centres – 

two such centres should be immediately established; 

● Equipping Bangladesh Standards and Testing Institution with modern 

amenities for proper standardization measures and strengthening its 

facilities to outreach the SMEs involved in the plastic sector; 

● Simplifying different government processes including certification process; 

● Setting-up training facilities for developing human resources in plastic 

manufacturing, plastic engineering, heat treatment, mould making and 

design, plastic waste management and recycling; 

● Enquiring into the possibility of exporting degradable plastic products to 

the United States of America and the European Union; 

● Supplying new industrial high value added plastic components for 

computers, electronics, machineries and automobiles; 

● Including the plastics sector in the highly prioritized export development 

sector list by Export Promotion Bureau to ensure easier term loans, income 

tax holidays and other incentives;


● 

● 

Developing provision on collateral free loans by according priority to the 

plastics industry; and 

Conducting awareness campaigns for promoting better collection of waste 

materials/waste management – piloting in Dhaka and Chittagong areas. 

2.2.2. THE AGRO INDUSTRY (COFFEE AND GINGER PRODUCTS) IN NEPAL 

In order to address some of the major and critical problems in promoting value 

added in coffee and ginger production and trade, especially export trade in Nepal, 

several stakeholder actions are proposed at the national level. The action plan aims at 

reaching coffee production level at 3,000 MT and coffee export level at four per cent of 

total exports in Nepal in 10 years. Likewise, with ginger products, the aim is to make 

ginger export five per cent of Nepal’s total export in 10 years by increasing production 

and diversifying the product and, thus, providing full time employment to 200,000 

people in the rural areas. The action plan includes the following: 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

Conducting research and development on both coffee and ginger products 

for improved farming system by establishing coffee and ginger resource 

centres; 

Conducting training of farmers on improved farming system, processing 

and storing, and on new appropriate technologies; 

Making small farmers aware of quality standards by developing and 

maintaining their skills; 

Introducing a certification system, including legal and institutional 

standards and establishing a national accreditation body for agro-products 

exploring new markets and meeting sanitary and phyto-sanitary standards; 

Strengthening organic certification system; 

Improving processing and storage system; 

Developing rural roads reaching coffee and ginger production centres; 

Encouraging contract and lease farming; 

Ensuring easy access to institutional credit; and 

Fostering auction market. 

2.2.3. THE INDUSTRIAL RUBBER AND ELECTRONIC PRODUCTS SECTORS IN SRI 

LANKA 

The industrial rubber sector in Sri Lanka sets a target of increasing supply of 

natural rubber by 50 per cent, increasing rubber export by 50 per cent and achieving 

rubber price sustainability by 2014. In order to achieve these targets, several measures 

are proposed: 

31 

● 

● 

Increasing plantations in non-traditional cultivation areas and launching 

new inter-cropping programmes; 

Temporarily allowing the import of raw rubber to stabilize the supply for 

unmet local demand;


Table 11: Crop specific action plan for Nepal 

Coffee 

Implement Coffee Policy 2003. 

Form Coffee Development Board. 

Develop logo and brand name for 

Nepalese coffee. 

Establish commercial nurseries. 

Support establishing cup testing laboratory. 

Reduce freight using Nepal-Bangladesh 

land route. 

Introduce new technology for pulping, 

drying, storage, and roasting. 

Develop preliminary processing platforms 

(warehouses). 

Introduce levy on export to fund research 

on coffee. 

Ginger 

Encourage and support exporting 

semi-processed and processed products. 

Establish strategic alliance with ginger 

traders of the region and promote FDI in 

ginger processing. 

Improve warehouse facilities at customs 

points. 

Establish additional quarantine centres at 

customs points. 

Develop ginger collection and processing 

centres. 

32 

● 

● 

● 

● 

● 

● 

● 

● 

● 

Introducing new tapping techniques – improving timing, using mechanical 

devices and training unskilled tappers; 

Attracting FDI for high value latex based products; 

Promoting crepe rubber products (food and pharmaceutical grade 

products); 

Developing skilled workers for rubber production processing and 

manufacturing of rubber based products; 

Strengthening R and D facilities for innovation in rubber industry; 

Expanding present characterization and physical testing facilities at 

research institutions/universities and providing services to SMEs; 

Establishing a national accreditation body; 

Forming a central rubber recycling unit; and 

Encouraging long-term purchase agreements with importers from major 

importing countries 

Sri Lanka aims at creating its own brands in electronic products by expanding 

its export markets to neighbouring countries, such as SAARC and ASEAN countries and 

achieving at least 0.1 per cent of the global market share (equivalent to $2 billion) by 

2020. For moving towards this direction the following actions are proposed:


● 

● 

● 

● 

● 

● 

Attracting FDI for commencing production of basic raw materials (e.g., 

silicon, gallium, etc.), discrete semiconductors, integrated circuits, electronic 

components and/or consumer electronics; 

Promoting electronic technology parks; 

Preparing industry for environmental conservation (e.g., lead free 

soldering); 

Establishing Sri Lankan brands promoting design and manufacture of 

electronic components for niche markets; 

Establishing design service providers in electronic circuits, die, mould and 

rapid prototyping; and 

Promoting Sri Lanka as a suitable destination for own design 

manufacturing in addition to contract manufacturing. 

2.3. Subregional Action Programme facilitating SMEs integration in 

global value chains and the lessons learned for development 

agencies 

This section proposes a subregional action programme, which was designed 

based on critical areas for action identified by national <strong>studies</strong> and recommendation 

and through interactions in national and subregional workshops. Broadly, the 

programme is categorized as follows: (a) actions based on policy reforming and 

lobbying carrying no financial implications; (b) actions requiring considerable financial 

investment in capacity-building, planning, establishing certification/quarantine/ 

accreditation bodies. The activities are outlined in the form of a matrix and are 

presented in table 12. 

In addition, some specific activities under the subregional programme are 

proposed for immediate action by multilateral development bodies to include: 

● 

● 

● 

● 

● 

● 

Reviewing SMEs and activities for strengthening SMEs, recommending 

specific actions in relation to (a) enhancing collateral free access to 

institutional credit, (b) determining value added in products under 

consideration, (c) improving SMEs business environment, (d) providing 

business and innovation incubation services and (e) understanding SME 

trade facilitation and critical infrastructure needs; 

Establishing South Asian Accreditation Council; 

Establishing regional laboratory testing facilities, quarantine centres, and 

certification bodies; 

Strengthening market information dissemination and the use of ICT down 

to farmers’ groups through the United Nations specialized regional centres; 

Training on die and mould making and promoting subregional cooperation 

between Sri Lanka and Bangladesh in the field of technology transfer 

through some regional arrangement; 

Promoting subregional trade in ginger and related products – trade 

facilitation measures to enhance ginger trade in other South Asian 

countries; 

33


34 

Table 12: Subregional action plan facilitating SMEs’ integration in global value chains 


Areas of 

intervention 

Plastics Coffee Ginger Rubber Electronics 

● Policy recognition to 

● Collateral free access to 



● Plastics to be included 

Policy 

provide state support to 

introducing and 

achieving brand image 




● Tax subsidy on the 

import of machinery 

as high priority export 

product in the policy 

documents 



● Lobbying for FDI for 

● Lobbying for FDI for 

● Lobbying for Nepal – 

● Lobbying for providing 

basic raw materials for 


latex based products 

Bangladesh land route 

efficient power 

generation 

● Promoting technology 

Lobbying/ 

coordinating 

infrastructure 

development 

parks 

● Review of SME status to 





develop concrete 

proposal on 

strengthening SMEs, 

including 

entrepreneurial culture 

and business incubation 




including 


and business 

incubation 




including 







including 







including 


Capacitybuilding 

● Training on improved 

recycling management 

● Training of workers 

● Training of farmers 

● Training of farmers and 

● Apprenticeship training 

workers in product 

processing 

to unskilled workers




Areas of 

intervention 

Plastics Coffee Ginger Rubber Electronics 

● Planning action plan for 

● Establishing an 

● Additional quarantine 

● Introducingnational 

● Strengthening BSTI 

obtaining own brand 

for electronic products 

accreditation body 

● Expanding current 

centres at customs 

points 

standards and 

certification system 

with quality testing 

facilities 

facilities of physical 

testing 

Standards/ 

certification/ 

accreditation 

centres/brand 

development 

● Improving warehouse 

● Improving processing 

● Establishing mould 

facilities at customs 

points 

and storage system 

manufacturing centres 

● Strengthening flow of 

● Improving collection 

● Strengthening flow of 

production and market 

information 

and management of 

waste materials 

Improvement in 

production and 

marketing 

processes 

production and market 


35


● 

● 

● 

● 

● 

Training on improved recycling management for plastic products; 

Training on improved farming systems for coffee and ginger products; 

Training on improved tapping methods for rubber products; 

Strengthening/capacity-building of producers’/farmers’ associations by 

organizing study tours and sharing of best practices; and, 

Establishing a South Asian centre for value chain development that could 

facilitate coordinating and follow-up activities among countries in the 

subregion. 

In order to implement the subregional actions as suggested above, the 

following institutional arrangement were recommended: 

(i) SME/GVC working group for the programme (at the subregional level) 

This group will consist of senior technical experts from countries on specific 

products to guide the overall direction of the activities of the subregional programme. 

ESCAP could function as a coordinating body and assist in providing technical assistance 

to the group. 

(ii) Steering committees for the subregional programme (at the <strong>country</strong> level) 

A steering committee led by the focal Government agency with representatives 

from the private sector, trade promotion agencies and governmental and nongovernmental 

agencies, including academia and research institutions, could be set up. 

It would guide the <strong>country</strong>’s activities under subregional programme and serve as a 

follow-up with other governmental and non-governmental agencies concerned to 

include some of the actions identified in providing policy reforms and coordinating 

similar activities. 

(iii) Review of SMEs and activities for SME strengthening in the three countries 

36 

A quick review of SMEs could be made on a regular basis in each of the three 

countries to evaluate plans and policies regarding (a) enabling environment for SMEs’ 

overall business development including the access to institutional credit and finding 

the ways to extending collateral free institutional loans, (b) fostering SME sector by 

providing business and innovation incubation services and (c) identifying critical 

training needs for enterprise development and value chain development. 

(iv) Establishing South Asian Accreditation Council 

Access to global market depends on product certification process for ensuring 

product quality to the buyers. Certification requires highly skilled human resources and 

well equipped test laboratory facilities acceptable to importing countries. Providing 

such services in a cost effective manner and making the best use of regional resources 

would require establishing an accreditation council for South Asia, inviting all counties 

in the subregion. The proposal is a credible one and a feasibility study could be made 

in this respect.


(v) Establishing laboratory testing facilities, quarantine centres and certification bodies 

The availability of in-<strong>country</strong> testing of export consignments for the required 

level of quality and sanitary standards for agricultural products would greatly facilitate 

and reduce the cost of exports. So, a feasibility study on establishing such facilities at 

the regional level could be made to assess their eventual effects. 

(vi) Strengthening market information dissemination and the use of ICT 

The system would provide market information to different actors in the value 

chain process down to farmers or raw material suppliers so that their awareness level 

on the quality aspects, timeliness of supply and negotiation strength can be significantly 

enhanced. It could be achieved through effective use of ICT and, wherever possible, 

should be coordinated with similar efforts by other agencies. Training would be one 

important component of this programme, particularly on ICT use in information 

management. In order to undertake such regional programme, partnerships with 

private sector businesses and industry associations in countries would be helpful. 

(vii) Establishing a South Asian centre for value chain development 

This centre could be responsible for (a) carrying out research on value chain 

development in South Asian countries, (b) networking the institutions of South Asian 

countries involved in the promotion of value chains and (c) following-up and lobbying 

respective Governments and other national agencies to implement agreed upon 

actions. The centre could be stationed in one of the three capital cities. Its 

establishment would be coordinated by ESCAP and the support is expected from 

various other development partners. The centre could work under one of the UN 

regional bodies, preferably under Asia-Pacific Centre for Transfer of Technology (APCTT). 

The lessons learned for development agencies 

With concrete action plans prepared, where multilateral development and 

donor agencies could play a significant coordinating and supporting role, there are a 

few lessons that could be learned for these agencies, particularly important for South 

Asia. These lessons should be kept in mind in order to provide better and more coherent 

technical assistance, regardless of the implementation level, subregional or national. 

First, there seems to be a commonly agreed approach for SME development, 

covering the six key success factors, such as policy and regulatory framework; 

infrastructures; entrepreneurship; access to finance; technology; and business 

development services. However, such a comprehensive approach has not been fully 

adhered to among the development agencies and donors. This has resulted in scattered 

activities in various areas/sectors and the resulting lack of coordination among donors’ 

activities has produced limited success. 

37 

Second, collaboration among development agencies has been weak and should 

be enhanced while developing better coordinated project supporting programmes in


most countries in the subregion. For example in Bangladesh, Katalyst 8 and BICF 9 are 

large-scale, cost-sharing programmes supported by development agencies, which 

typically promote enabling business environment, access to finance and direct support 

to individual enterprises’ business development. The joint programmes help the 

Governments, producers’ associations and individual enterprises by providing business 

development services and financing. Some of them also adopt sectoral development 

and value chain approaches. A large joint programme also tends to establish an 

independent secretariat to manage its activities and funds, which sometimes make the 

projects somewhat isolated from other national stakeholders 

Third, direct support of enterprises and priority areas through SME association 

involvement could be initiated on an experimental basis. 

Fourth, entrepreneurial culture has been recognized as one of the key factors 

for SMEs growth and competitiveness enhancement; however, traditional technical 

assistance has overlooked this issue. A comprehensive “entrepreneurship training 

programme,” on subregional or national level, should be launched with a focus on rural 

areas. Special preferences could be given to women and youth entrepreneurs to further 

their development. 

Fifth, conventional technical assistance to SMEs was less focused on technology 

development and adaptation, and thus SMEs are weak on technical issues and practical 

solutions. 

Sixth, assistance to business development services should be provided for SME 

strengthening, particularly in offering business consultancy services. 

Seventh, donors mainly focus on agro-industry and light-industry. It may be 

desirable to explore opportunities for manufacturing of other resource-based SME 

development. 

Finally, the usefulness of the value chain approach, including cluster 

development, has been attracting more attention. However, in the past value chain 

activities were typically focused on domestic issues. Presently, more attention should 

be paid to the linkages with existing trade and a FDI-driven development strategy. 

38 

8 

Katalyst, which has been funded by SDC, DFID and SIDA, is one of the largest SME development 

projects in Bangladesh. It started in 2002 and aims at pro-poor growth through market-led SME 

development. It has worked with more than 30 manufacturing and agriculture sectors in Bangladesh, 

providing technical assistance in the areas of institutional capacity building, business plan 

development, technology transfer and business development services. It also works with business 

associations to improve the enabling environment for businesses (Katalyst 2010). 

9 

Bangladesh Investment Climate Fund (BICF) was jointly established by DFID, EC and IFC in 2006, 

aiming to assist the Government of Bangladesh to promote pro-poor growth for increasing income 

and employment through improving business environment. BICF has designed and implemented 

programmes to institute more business friendly policies, laws and regulations (Embassy of Japan 

and GTZ 2006).


The subregional action plan provides a non-exhaustive number of concrete 

steps promoting SMEs integration in global value chains. Governments and multilateral 

development and donor agencies should provide increased assistance based on the 

lessons learned to enable SMEs to enter and benefit from global and regional value 

chains. 

39

40 



Chapter 3 

CONCLUSION 

The three national <strong>studies</strong> on Bangladesh, Nepal and Sri Lanka covering plastics 

industry, agro-industry (coffee and ginger products) and industrial rubber and 

electronics products sectors strongly emphasized that SMEs in South Asia, despite 

having tremendous potential for growth and employment creation, were still in 

a precarious situation. Perennial problems such as a lack of financing, inadequate 

infrastructures, inaccessibility of public services and inadequate market intelligence 

were still major constraints hindering SMEs in South Asia. Such problems were further 

aggravated due to a lack of information on the markets, technological backwardness, 

inadequacy of human resources (both managerial and technical) and an intense 

competition coming from large domestic and foreign enterprises as a result of openness 

and economic liberalization measures. 

The <strong>studies</strong> emphasize changing global and regional economic scenarios, 

showing the emergence of growing networks of industrial production processes. These 

national and international industrial production networks, which are typically controlled 

by transnational corporations (TNCs), have offered SMEs from different countries and 

product groups an opportunity to form global (and regional) value chains. However, 

to capitalize on such opportunity, SMEs would require strong support from the 

Governments as well as SME-related institutions. The <strong>studies</strong> further emphasize that 

individual firms seeking to establish partnerships in global value chains should 

understand the governance of specific value chain processes and structures. As 

international trade is largely undertaken by global firms and since the leading firms, 

often TNCs are the key decision makers managing the global production systems and 

trade, they should be the ones influencing the participation of smaller firms in global 

value chains. It is most desirable that the structure of a specific value chain and 

characteristics of lead firms are fully understood. 

It is an established fact that a product’s quality and value depends not only 

on innovations in production process but also on other improvements, such as creating 

new products, developing marketing skills to serve different customers and various 

markets, and increasing capacity to introduce new products into international and 

domestic markets. To reach these goals, SMEs should be provided with support from 

public agencies and industry associations. In the absence of such support, SMEs in 

South Asia would not be able to establish effective value chain connections at local, 

regional and global levels. Therefore, the <strong>studies</strong> focused on the Governments’ leading 

41


role in facilitating SMEs’ growth by providing the necessary support for export-oriented 

SMEs in forming strong partnerships in global value chains. 

Similarly, to help a subregional action programme succesful, some background 

<strong>studies</strong> should be undertaken and the required technical assistance should be provided. 

It is expected that national Governments would initiate actions as soon as possible. 10 

The regional actions could be undertaken by various multilateral and regional donors 

interested in promoting trade and helping South Asian nations in economic 

development and poverty reduction efforts. Well-articulated and thorough action plans 

would still go a long way in the developing and promoting the products considered in 

this publication. The challenges to action plan implementation include managing the 

required resources, creating synergies among stakeholders, government agencies, civil 

society and private sector and coordinating and harmonizing development partners’ 

support. 

As a conclusion, the authors would like to suggest two main points. First, based 

on the <strong>studies</strong> and action plans the participating Governments should take the lead in 

engaging independent market development facilitators who understand targeted 

foreign markets and international marketing, which are not fully covered by this 

publication, to formulate sector-specific policies, outline an intervention scheme and 

implement both. Second, the global value chain approach should also be used for other 

products/sectors with export potential in South Asia and in other developing subregions 

in Asia and the Pacific (e.g., Central Asia and the Greater Mekong Subregion 11 ), where 

SMEs could play a greater role in economic development than they presently do. 

42 

10 

In this connection, the Government of Bangladesh recognized a potential of the plastics industry, 

which provides opportunities for backward- and forward-linkages as well as for exports and foreign 

currency earnings. As suggested in the national study, the industry was included in the national 

industrial policy as one of the 18 thrust sectors (DCCI 2009). 

11 

The Greater Mekong Subregion comprises Cambodia, Lao People’s Democratic Republic, 

Myanmar, Thailand, Viet Nam and two provinces of China (Yunnan and Guangxi).


Annex I 

Country Study on Bangladesh 

using Global Value Chain Analysis: 

THE PLASTICS INDUSTRY 

43

44 




Page 

List of figures ............................................................................................................................. 46 

List of tables ............................................................................................................................... 46 

List of boxes ............................................................................................................................... 46 

1. Introduction ................................................................................................................... 47 

1.1. Objectives of the study .................................................................................... 48 

1.2. Methodology ....................................................................................................... 48 

1.3. Data collection and data sources ................................................................. 49 

1.4. Limitations ............................................................................................................ 50 

2. An Overview of the Plastics Industry ................................................................. 50 

2.1. Global plastics industry .................................................................................. 50 

2.2. The plastics industry in Bangladesh ............................................................ 52 

2.3. Import trends ...................................................................................................... 53 

2.4. Export trends ....................................................................................................... 55 

3. Value Chain Dynamics in the Plastics Industry ............................................. 57 

3.1. An outline of the plastics industry value chain ....................................... 57 

3.2. Current state of the plastics industry value chain .................................. 59 

3.3. Raw materials and modules ........................................................................... 59 

3.4. Additives ............................................................................................................... 61 

3.5. Mould making ..................................................................................................... 61 

3.6. Manufacturing .................................................................................................... 62 

3.7. Technology and efficiency .............................................................................. 65 

3.8. Potential for upgrading and challenges .................................................... 66 

3.9. Quality parameters ............................................................................................ 67 

3.10. Markets and marketing.................................................................................... 67 

3.11. Market access ...................................................................................................... 69 

3.12. Distribution channels ....................................................................................... 70 

3.13. Promotional activities ...................................................................................... 70 

3.14. Value chain governance .................................................................................. 71 

45 

4. Competitiveness of the Plastics Industry in Bangladesh ......................... 72 

4.1. Support industries/services ........................................................................... 72 

4.2. Access to financing............................................................................................ 76 

4.3. Human resources ............................................................................................... 77 

4.4. Standards and certification ............................................................................ 78 

4.5. Policy and regulatory framework ................................................................. 80 

4.6. Infrastructures and utilities ............................................................................ 82



Page 

5. Strategic Analyses ....................................................................................................... 84 

5.1. SWOT analysis ..................................................................................................... 84 

5.2. Triple triangle framework analysis ............................................................... 87 

6. Business Competitiveness Action Plan ............................................................. 89 

6.1. Addressing the firm level factors ................................................................. 89 

6.2. Addressing the industry level factors ......................................................... 90 

6.3. Addressing macro-level factors .................................................................... 91 

Annex Note 1.1 ......................................................................................................................... 102 

Annex Note 1.2 ......................................................................................................................... 104 


1. Triple triangle framework ........................................................................................... 49 

2. Global production of plastic products ................................................................... 51 

3. Market share of global plastic production in 2009 ............................................ 51 

4. Value chain of the plastics industry in Bangladesh ........................................... 58 

5. Value chain dynamics of the plastics industry in Bangladesh ....................... 59 

6. Value chain governance for small contractual manufacturers ..................... 71 

7. Large manufacturers’ control of value chains ...................................................... 72 

8. Plastic recycling process in Bangladesh ................................................................ 75 

9. Dhaka City Map .............................................................................................................. 83 

46 

List of tables 

1. Per capita consumption (kg/year) of plastic products in different 

regions of the world ...................................................................................................... 52 

2. Overview of the plastics industry in Bangladesh (2006/2007) ...................... 52 

3. Raw materials imported for plastic production in Bangladesh) ................... 53 

4. Top 10 raw materials imported for plastic production in Bangladesh 

(in millions of dollars) ................................................................................................... 54 

5. Major export markets for plastic products of Bangladesh in 2007 

(in millions of dollars) ................................................................................................... 55 

6. Top 10 plastic export items of Bangladesh in 2003-2007 

(in thousands of dollars) .............................................................................................. 56 

7. Plastic manufacturing firms by category and location .................................... 63 

8. Profiles of small, medium and large manufacturers ......................................... 63 

9. Business competitiveness action plan for the plastics sector in 

Bangladesh ...................................................................................................................... 95 

List of boxes 

1. RFL plastics – a success story ..................................................................................... 65 

2. Institutional framework for promotion of the plastics industry in 

Bangladesh ...................................................................................................................... 81


1. Introduction 

Plastic-based products currently represent a sizeable subsector in the chemical 

industry in Bangladesh. Starting as a backward linkage industry, manufacturing of 

plastic and plastic-based products is making significant contributions to the economy 

and has become an important segment of the manufacturing industry of the <strong>country</strong>. 

The plastics sector has approximately 3,000 manufacturing units providing an 

employment to more than one million people (Islam 2008; Sakib et al. 2004; Yousuf 

2003). In the fiscal year 2006-2007, the industry manufactured various types of plastic 

products: approximately $714 million worth of varied quality products for the domestic 

market and $234 million worth of high-quality products for the global market (BPGMEA 

2009). Despite this fact, per capita consumption of plastics and plastic-based products 

is still low in Bangladesh, estimated at two kg per person per year. The estimate is rather 

low compared to the global average consumption of 20.4 kg per capita per annum and 

the developed <strong>country</strong> consumption of 80.0 kg per capita per annum. This indicates 

that the consumption of plastic products in Bangladesh is expected to rise as the 

economy develops (Shaheen and Maksudur 2001). 

Plastic recycling has also developed into a sizeable component of the plastics 

industry with major recycling centres in and around Dhaka. Availability of river water 

(used in cleaning) and low transportation costs have made recycling units located 

around Dhaka economically attractive. Current recycling of plastic wastes saves import 

costs for the industry and helps improve overall waste management situation. The small 

units were estimated to recycle nearly 60 per cent of plastic waste, which saved 

approximately $44 million worth of imports in raw materials in 2005 (BPGMEA 2009). 

Many other support and ancillary industrial service providers, such as small machine/ 

equipment makers, distributors, printing and packaging firms and additives importers, 

have also grown significantly. 

Although the plastics industry in Bangladesh has made remarkable progress 

over the years, it still lacks a well-designed approach and a strategic direction for 

achieving long-term, sustainable growth. Without having such strategic approach and 

distinctive competitive strengths, Bangladeshi plastic products find it difficult to 

compete in the global market. The void, if sustained over time, may also lead to 

difficulties in the domestic market as internationally competitive suppliers will likely 

bid for the fast growing Bangladesh market demand. Thus, to achieve global 

competitiveness, the plastics sector needs to have a national strategic action plan for 

ensuring growth and sustainability through distinctive competencies. But unlike the 

apparel and textile sector, the plastic sector in Bangladesh is yet to see any long-term 

policy guideline specifically designed for the development of this burgeoning industry. 

The sector is presently governed by the general industrial and trade policies applicable 

to all industries. A decade ago, the Government agreed to develop a special industrial 

park for the plastics sector and successive governments ‘continue to work on that’. 

47


1.1. OBJECTIVES OF THE STUDY 

The broad objective of the study on plastics industry in Bangladesh is to analyze 

the competitive context in which enterprises (especially SMEs) operate and explore the 

growth potential of the sector within global value chains. Based on the findings, 

a national strategic action plan is prepared for enhancing value added in the plastics 

industry in Bangladesh. 

The objectives of the study are presented below. 

● 

● 

Analysing the plastics industry in Bangladesh, taking into consideration: 

– business prospects and economic impact, including export potential; 

– current supply chain networks; 

– supply-side capacity, including human resources, product 

development, standards and certificates and producers’ associations; 

– policy and regulatory framework; 

– infrastructure and logistics systems (e.g., transportation); and 

– marketing, including brand development, distribution channels and 

quality requirements. 

Developing a national action plan. 

1.2. METHODOLOGY 

In order to analyse the competitiveness potential of the plastics industry in 

Bangladesh, the authors have chosen the global value chain approach. After the value 

chain analysis and the assessment of growth potentials and competitiveness, SWOT and 

triple triangle framework (TTF) techniques were used to synthesize the findings and to 

devise a strategic plan of action. While SWOT analysis is a widely used tool, TTF is 

a new tool developed and used in the analysis of market development interventions 

and policies. 

48 

TTF uses three triangles, each summarizing the factors that affect business 

competitiveness at different levels. The inner triangle – with each of the three sides 

symbolizing either capacity, or capital or culture – explains the internal, largely 

controllable dynamics of firms. The middle triangle – with each of its three sides 

symbolizing either a customer, or a competitor or a collaborator – describes the 

immediate, industry-level context in which firms work. The outer triangle – with each 

of the three sides symbolizing either technology, or state or society and global forces – 

presents the macro environment, a largely non-controllable setting in which firms have 

to operate. Figure 1 below illustrates the TTF.


Figure 1: Triple triangle framework 

Macro Level Factors 

Globalization and International Forces 

Industry Level Factors 

Technology 

Collaborators 

Culture 

Competitors 

Capital 

Capacity 

Customers 

Firm Level Factors 

State and Society 

Source: 

Jahan (2008a). 

1.3. DATA COLLECTION AND DATA SOURCES 

Data were drawn both from primary and secondary sources. Primary data were 

collected through extensive field visits, interviews with key informants and focused 

group dialogue. The research team visited SME plastic manufacturing cluster in Dhaka. 

Interviews and discussions were held with major industry players, including RFL Plastics, 

Partex Plastics and Luna Plastics, involved in different stages of the plastics industry 

value chain. Representatives of plastics sector associations, such as Bangladesh Plastic 

Goods Manufacturers and Exporters Association (BPGMEA) and Bangladesh Plastic 

Importers Association (BPIA) were consulted and interviewed. 

The Government of Bangladesh, Dhaka Chamber of Commerce and Industries 

(DCCI) and the Ministry of Industries have organized a national workshop deliberating 

on the draft study report and obtaining additional information from the stakeholders. 

There were over 60 participants from the government agencies, businesses, universities, 

mass media and the plastics industry sector. The draft study was further enriched with 

additional perspectives provided by plastic goods manufacturers, wholesalers, retailers, 

importers of raw materials and machineries and plastic recycling businesses. 

An extensive review of available <strong>studies</strong> provided the details on the history and 

evolution of the industry, global trade, industry practices, government policies and 

regulations governing the sector. Extensive literature survey was undertaken using the 

Internet and the archives of BPGMEA, Dhaka Chamber of Commerce and Industries 

(DCCI) and newspapers. Reports and publications were provided by Bangladesh Bureau 

of Statistics (BBS) for trade and related data and some additional information by Export 

Promotion Bureau (EPB). Trade database of the United Nations, UNIDO and UNCTAD 

were also explored. 

49


1.4. LIMITATIONS 

Although the draft study provided an extensive research using qualitative 

research instruments, no enterprise-specific survey could be done due to time and 

resource constraints. Access to certain trade databases, such as the World Trade Analyzer 

(WTA), 12 was not possible. However, despite severe time and resource constraints, the 

use of multiple primary research instruments (e.g., field visits, depth interviews with key 

informants and focused group discussions) helped gain very effective and meaningful 

industry assessments. 

2. An Overview of the Plastics Industry 

The plastics industry can be viewed from the three perspectives, including: 

(a) end-user/market; (b) production technology; and (c) support industry. The end-users 

and markets of the plastics industry can be classified into five categories: automotive; 

construction; packaging; medical supplies; and (v) consumer products. Based on the 

technology platform being used in plastics production, plastic products can be classified 

as: thermoformers; injection moulders; pipe, profile and tubing extruders; rotational 

moulders; film and sheet manufacturers; and blow moulders. Notable support industry 

players are: raw material suppliers; machinery importers; mould makers; additive/ 

chemical suppliers; and plastic products recyclers. 

2.1. GLOBAL PLASTICS INDUSTRY 

In the modern world life without plastic products would be difficult, if not 

impossible. Ranging between kitchenware and medical supplies, construction materials 

and automotive supplies, safety and security devices and packaging materials and, 

finally, home decorations – plastic products are widely used in almost every facet of 

modern life. 

50 

Consumers choose plastic products for their versatility, durability, lightness and 

excellent insulating properties. Manufacturers like to produce plastic goods because 

of low production costs and energy-efficient production processes. Driven by these 

forces, the global production and consumption of plastic goods have significantly 

increased from a mere 1.5 million tonnes in 1950 to 230 million tonnes in 2009 (Plastic 

Europe 2009). Figure 2 depicts this exponential growth trend in global plastic 

production over the last 60 years. 

Global production of plastic products is dominated by developed nations, with 

the European Union producing about 24 per cent and North America producing about 

23 per cent of total global plastic production in 2009. The plastics industry is ranked 

as the third largest manufacturing industry in the United States of America. In 

comparison, China as the largest manufacturer of plastic goods among developing 

12 

The World Trade Analyzer (WTA) is a trade database that contains trade data on United Nations 

member countries. Statistics Canada created it from the data reported by member countries to the 

United Nations Statistical Office. See some more details at http://www.statcan.gc.ca/dli-ild/datadonnees/ftp/worldtrade-commerce_mondial-eng.htm.


Figure 2: Global production of plastic products 

Million tonne 

300 

250 

200 

150 

100 

50 

1950: 1.5 

World 

1976: 50 

Europe 

1989: 100 

2009: 230 

2002: 200 

1985: 25 

2009: 55 

Source: Plastic Europe (2010). 

1950 1960 1970 1980 1990 2000 2010 

countries, contributed about 15 per cent to the world’s total plastic production in 2009. 

Other large plastic manufacturing countries in Asia are India and Thailand. Recently, 

developed nations have opened their markets for plastic products from developing 

nations, such as Bangladesh. One of the reasons for this shift is the low cost of 

production in developing countries due to cheap labour and low transportation costs. 

As developing countries are increasingly moving towards accelerated industrialization, 

the plastics sector becomes an important backward linkage industry in manufacturing. 

For example, over the past two decades, the apparel sector in Bangladesh has 

increasingly relied on the local sources not only for cost advantages but also for 

‘flexibility’ and ‘lead time’ factors. As a result, the <strong>country</strong>’s reliance on imported 

packaging materials and other plastic-based accessories have decreased. Figure 3 

shows the global market share (2009) of plastic production for different countries. 

Figure 3: Market share of global plastic production in 2009 

Europe (WE + CE) 24.0%, 55 milion tonne 

China 

15.0% 

Rest of Asia 

16.5% 

Japan 

5.5% 

Latin America 

4.0% 


230 

million tonne 

Germany 

7.5% Spain, 1.5% 

UK, 1.5% 

Italy, 2.0% 

France, 3.0% 

NAFTA 

23.0% 

Benelus, 4.5% 

Other EU 27 + N, CH 

4.0% 

CIS, 3.0% 

Middle East, Africa 

8.0% 

51


Table 1 presents the past, current and estimated future plastic consumption in 

some major economic regions of the world. As one can notice, developed countries 

far outweigh the developing and the least developed countries in plastic per capita 

consumption and use. 

Table 1: Per capita consumption (kg/year) of plastic products in different regions 

of the world 

Regions/Countries 1980 2005 2015 (estimated) 

North America 46 105 139 

Western Europe 40 99 136 

Central Europe + CIS 9 24 48 

Latin America 7 21 32 

Middle East/Africa 3 10 16 

Japan 50 89 108 

Asia (excl. Japan) 2 20 36 

World 11 30 45 


2.2. THE PLASTICS INDUSTRY IN BANGLADESH 

Plastic products were introduced in Bangladesh in the later half of the 1940s. 

However, significant commercial growth in plastic production took place much later, 

in the early 1980s. The industry experienced gradual growth as large numbers of 

injection grade and film grade plastic companies were set up during the 1980s (Hasan 

2008). Initially, processing technologies and equipments came from India and later from 

Thailand, the Republic of Korea, Japan, China, Singapore and some of the European 

countries. 

Table 2: Overview of the plastics industry in Bangladesh (2006/2007) 

52 

Domestic plastic use 

Per capita plastic consumption 

Export earnings 

Number of manufacturing units 

Growth 

Employment 

Plastic waste recycling sector 

Approximately $714 million worth of plastic goods. 

Two kg per year 

$234 million, of which 41.6 per cent came from direct 

exports and 58.4 per cent came from deemed exports. 

Approximately 3,000 small, medium and large plastic 

manufacturing units operate across the <strong>country</strong>. 

The industry expanded its output by over 20 per cent per 

annum during the 1990s. 

About half a million workers are directly employed in the 

sector. 

There are 300 small units in and around Dhaka city, which 

recycle about 138 tonnes/day of plastic waste. 

Sources: BPGMEA (2009); Hasan (2008).


Currently, the industry adopted relatively modern manufacturing processes, 

such as using several types of extrusion materials, injection and blow moulding, 

rotational moulding and thermosetting conversions. The <strong>country</strong> also produces a wide 

range of products, such as PVC pipes, shopping bags, woven bags, PET/PE bottles, 

laminated packages, rigid sheets, garment accessories, household products and 

medicine packs (BPGMEA 2009). Table 2 gives an overview of the plastics industry in 

Bangladesh in 2006-2007. 

2.3. IMPORT TRENDS 

Value creation in plastic products starts with the import of polymers. Since the 

<strong>country</strong> does not have polyolefin production, nearly 100 per cent of its required 

polymers are imported (BPGMEA 2009). According to BPGMEA, in the fiscal year 2001- 

2002 approximately $138 million worth of plastic raw materials were imported, which 

increased at a compound average growth rate of 27.1 per cent and reached $458 million 

in the fiscal year 2006-2007. Over the same period, the volume compound average growth 

rate was around 8.0 per cent, with imports rising from 196,000 metric tonnes in the fiscal 

year 2001-2002 to 288,000 metric tonnes in the fiscal year 2006-2007. Table 3 illustrates 

the growth trend in raw materials import in both volume and value terms. 

Table 3: Raw materials imported for plastic production in Bangladesh 

Volume 2001- 2002- 2003- 2004- 2005- 2006- 

(in million tonnes) 2002 2003 2004 2005 2006 2007 

CAGR* 

(in per 

cent) 

Bonded Category 74 637 60 606 57 477 85 365 80 628 103 853 6.8 

Non-Bonded Category 121 532 126 571 157 053 295 168 193 246 184 611 8.7 

Grand Total 196 169 187 177 214 530 380 532 273 874 288 464 8.0 

Value 2001- 2002- 2003- 2004- 2005- 2006- 

(in million US$) 2002 2003 2004 2005 2006 2007 

CAGR 

(in per 

cent) 

Bonded Category 43 40 43 92 96 153 28.6 

Non-Bonded Category 95 143 143 175 287 305 26.4 

Grand Total 138 182 187 267 382 458 27.1 

Source: BPGMEA (2009). 

Notes: 1) Bonded import implies the type of import where a bank provides a guarantee for the 

payment of raw materials in case the importer fails to make the payment for the shipment. In the 

case of non-bonded import no such guarantee is required; 2) CAGR is a compound average growth 

rate. 

53 

According to the United Nations Commodity Trade Database, the total value of 

raw materials imported for plastic production 13 in Bangladesh amounted to $574.6 

million in 2007. It has grown at a steady growth rate of 26.0 per cent from 2003 to 2007. 

Commodity-wise, polymers of polyethylene, propylene and polyacetal are the three 

13 

Fifteen broad categories of materials in primary form (HS Code -3901 to 3915) were considered 

as raw materials for plastic production.


largest imported resins. The polyacetal resin had the highest import growth rate of 

37.4 per cent from 2003 to 2007. Overall, all imported items demonstrate a steady 

positive growth rate. Table 4 summarizes the top 10 raw materials for plastic production 

(in terms of import value) imported in Bangladesh. 

Table 4: Top 10 raw materials imported for plastic production in Bangladesh 

(in millions of dollars) 

54 

Per- 

HS 

centage 

Commodity 2003 2004 2005 2006 2007 

Code 

Share 

(2007) 

3901 Polymers of ethylene 59.6 67.8 79.9 105.1 147.8 25.7 

3902 Polymers of 56.2 53.7 64.8 122.0 144.7 25.2 

propylene or of other 

olefins 

3907 Polyacetal, and other 30.1 46.2 67.5 78.9 107.2 18.7 

polyether and 

epoxide resins 

3904 Polymers of vinyl 31.1 42.0 55.4 55.0 62.9 11.0 

chloride or of other 

halogenated olefins 

3903 Polymers of styrene 14.2 10.8 14.1 25.4 31.5 5.5 

3909 Amino-resins, 9.0 11.1 14.4 21.8 28.7 5.0 

phenolic resins and 

polyurethanes 

3906 Acrylic polymers 7.8 9.9 12.8 17.2 18.2 3.2 

3905 Polymers of vinyl 5.9 6.2 7.6 7.8 9.6 1.7 

acetate or of other 

vinyl esters 

3912 Cellulose and its 3.7 5.1 5.8 6.9 7.5 1.3 

chemical derivatives 

3908 Polyamides 4.6 7.8 8.7 5.6 6.3 1.1 

3901- Total Raw Materials 227.6 267.1 337.9 455.3 574.6 100.0 

3915 Imported 

Source: BPGMEA (2009); BBS (2007).


2.4. EXPORT TRENDS 

The plastic sector is gradually emerging as an important source of export 

earnings in Bangladesh. During the fiscal year 2006-2007, total export earnings from 

the industry stood at $234 million, of which 41.6 per cent came from direct exports and 

58.4 per cent came from deemed exports. 14 Major export items constitute poly bags, 

polyethylene sheets, plastic hangers, toys, toothbrushes and ballpoint pens. Direct 

export earnings from the plastic sector demonstrate a remarkable increase of over 300 

per cent in its total GDP share – rising from 0.25 per cent of GDP in the fiscal year 2002- 

2003 to 1.07 per cent in the fiscal year 2006-2007 (BPGMEA 2009). 

Currently, Bangladesh exports plastic products to 23 countries in North America, 

Europe, Asia and the Pacific and the Middle East. Major export countries are China, India, 

Germany and Poland (Table 5). In South Asia, Bangladesh is exporting plastic products 

to India, Sri Lanka and Nepal (BPGMEA 2009). Seven eastern states in India represent 

Table 5: Major export markets for plastic products of Bangladesh in 2007 

(in millions of dollars) 

Country 2006-2007 2005-2006 

Per cent Per cent 

Growth Share 

China 8 550 8 101 5.5 29.5 

India 4 116 4 391 -6.3 14.2 

Germany 2 615 2 142 22.1 9.0 

Poland 2 280 2 165 5.3 7.9 

Belgium 1 426 1 792 -20.4 4.9 

United Kingdom 1 340 1 653 -18.9 4.6 

Ukraine 1 196 1 401 -14.6 4.1 

United Arab Emirates 908 19 4 690.4 3.1 

Greece 898 543 65.3 3.1 

Netherlands 887 332 167.4 3.1 

France 800 957 -16.5 2.8 

Tunisia 633 138 357.7 2.2 

Others 427 33 1 177.1 1.8 

Viet Nam 421 40 959.8 1.5 

Spain 345 340 1.5 1.2 

United States of America 306 205 49.6 1.1 

Source: BPGMEA (2009). 

55 

14 

Direct exports mean exports of finished plastic products. Examples are – plastic kitchenware 

and utensils including crockery, plastic furniture, toys, garbage bags, oven sacs, industrial films, PVC 

pipes, polyethylene sheets, belts, tableware, toothbrushes, ball pens, artificial flowers, electric 

switches, computer accessories and so on. Deemed exports mean plastic products as embedded 

parts of other exports. Examples are – buttons, hangers Used in ready-made garment industry, 

packaging materials and plastic accessories used virtually in all industries (BPGMEA 2009).


a major market for Bangladeshi plastic goods. Bangladesh has a cost advantage in 

exporting plastic products to these areas as Indian manufacturers from central and 

western parts of India have higher transportation costs delivering their products in these 

areas. 

Table 6 below summarizes top 10 plastic items exported from Bangladesh 

over the period of 2003-2007. The largest export earner, plastic articles for packaging 

goods, constitutes about 48.8 per cent of the total export volume in 2007. This deemed 

export is mainly driven by the strong ready-made garment industry (RMG) demand in 

international markets. 

Table 6: Top 10 plastic export items of Bangladesh in 2003-2007 (in thousands of 

dollars) 

HS Code Article Description 2007 2006 2005 2004 2003 

56 

3923 Articles for the 23 993 20 665 19 052 13 615 6 448 

conveyance or 

packaging of goods, 

of plastics 

3915 Waste, parings and 10 391 6 585 8 249 6 418 600 

scrap, of plastics 

3926 Other articles of plastics 8 467 11 099 9 717 4 564 1 508 

and articles of other 

materials 

3917 Tubes, pipes and hoses 1 977 170 210 176 56 

and fittings 

3920 Other plates, sheets, 1 713 458 478 88 39 

film, foil and strip, of 

plastics 

3906 Acrylic polymers in 900 1 121 1 059 626 12 

primary forms 

3904 Polymers of vinyl 614 71 8 40 0 

chloride 

3924 Tableware, kitchenware, 195 159 473 491 564 

other household articles 

and toilet articles 

3916 Monofilament of which 162 116 521 452 402 

any cross-sectional 

dimension exceeds 

1 mm 

3902 Polymers of propylene 139 562 182 94 41 

or of other olefins, 

in primary forms 

Total exports 49 145 41 719 49 382 28 141 10 127 

Source: UNCOMTRADE (2009).


3. Value Chain Dynamics in the Plastics Industry 

This section provides value chain analysis of the plastics industry in Bangladesh. 

The analysis helps identify major opportunities and obstacles for the development of 

the plastics industry. Various measures for improving competitiveness in the 

international markets are suggested on the basis of value chain analysis and an action 

plan is formulated. 

3.1. AN OUTLINE OF THE PLASTICS INDUSTRY VALUE CHAIN 

Raw Materials: The value chain for plastic industry begins with raw materials 

selection. Two major types of raw materials used for plastic products are granules 

(commonly known as resin and locally as ‘dana’) and additives. There are two sources 

of granules: virgin and recycled. Virgin granules are mainly imported from the Middle 

East, while the recycled raw materials are both imported and locally produced. 

Production: Factories vary according to the types of machines they use, i.e., 

injection, extrusion or blow machines. Injection moulding machines produce solid 

plastic goods, such as buttons and furniture. Blow machines produce such goods as 

bottles and polythene. Moulds used in these machines are usually imported, though 

there are some exceptions. It takes approximately seven days to produce a new mould 

locally and more than two weeks to import it. A mould with plastic granules is placed 

inside the injection (or blow) moulding machine to produce a finished product, which 

takes a maximum of three minutes per item. However, a machine takes half an hour to 

warm up to its full production capacity. One machine would engage two to four 

workers, depending on their skills and the type of the machine. After the production 

is complete, some finishing work (e.g., polishing the surface of the product) is required 

before the product is ready for the market. 

Marketing: The Mitford Market (in Old Dhaka) and the New Market (close to Old 

Dhaka) are considered the two largest wholesale markets for plastic products in the 

<strong>country</strong>. These markets are used by ‘sub-wholesalers’/retailers, who then resell these 

products locally to final consumers. Although most of retail sales occur through retail 

outlets, a certain portion is sold or exchanged for used utensils by door-to-door vendors, 

especially in rural areas. Business-to-business (B2B) sales and distribution rely on 

corresponding contracts. Major B2B transaction parties include: RMG; pharmaceutical 

companies; real estate companies; and construction firms. Most of RMG transactions 

are treated as deemed export. While large manufacturers and intermediaries are 

involved in direct exports only, SMEs are usually not. 

Recycling: In case of recycled materials value chains work in a different way. 

After customers dispose of used plastic products, street garbage collectors gather those 

wastes and sell them to larger collectors. These waste collectors also get plastic wastes 

from another group of waste collectors called hawkers, who collect the disposables from 

houses. The larger collecting groups wash and prepare used plastic products to be used 

as raw materials for recycling. After recycling, recycled granules are produced and sent 

to the wholesale market to be sold to SMEs as raw materials for plastic products. Such 

raw materials are used mostly to produce cheap plastic products (e.g., toys, waste bags 

and household items). 

57


Figure.4 below shows a comprehensive value chain for the plastics industry in 

Bangladesh. 

Figure 4: Value chain of the plastics industry in Bangladesh 

Input Suppliers 

Granules 

Importers & 

Wholesalers 

Additives 

(Colours, etc.) 

Importers/ 

Wholesalers 

Moulds 

Importers/ 

Suppliers 

Machines 

Importers/ 

Suppliers 

Manufacturers 

SME 

(Contract 

Manufacturers) 

SME 

(Own Account 


Large 

(Own Brand 


Marketers 

Principal- 

Wholesalers/ 

Retailers 

Wholesalers/ 

Retailers 

Independent 

Distributors 

(company 

managed) 

Company-Owned 

Showrooms, 

Sales Centres 

Buyers 

B2C/ 

Household 

(National) 

B2B/ 

Institutional 

(National) 

Deemed 

Export 

Direct 

Export 

58 

Recyclers 

Recycling Sub-sector 

(Collection of waste is unorganized as disposal is unorganized; 

processing is somewhat organized with many players involved in different stages; 

marketing is relatively better organized as output goes to granules wholesalers.)


3.2. CURRENT STATE OF THE PLASTICS INDUSTRY VALUE CHAIN 

The current state of the plastics industry value chain in Bangladesh is briefly 

summarized in figure 5. 

Figure 5: Value chain dynamics of the plastics industry in Bangladesh 

Raw 

Materials & 

Mould 

Supply 

Manufacturing 

Marketing, 

Sales and 

Distribution 

Markets 

✓ Two types – virgin 

(imported) and 

recycled (local and 

imported) 

✓ Sixty per cent of raw 

materials used by 

SMEs are recycled 

materials. 

✓ Fluctuation in raw 

material price 

affects SMEs the 

most. 

✓ 100 per cent bank 

guarantee 

requirement affects 

small raw material 

importers. 

✓ Second-hand 

modules are mostly 

used. Moulds are 

mainly imported 

from China; low 

quality local moulds 

are also available 

✓ Around 3,000 

manufacturing units; 

98 per cent are SMEs 

(biggest cluster – 

Islampur, Old Dhaka) 

✓ Technological 

platform: injection 

moulding, blow 

moulding and 

extrusion. 

✓ Machineries are 

imported from China 

and Germany and 

moulds from China. 

✓ Lacks expertise in 

machine and mould 

maintenance. 

✓ Product design and 

mould making 

facilities are largely 

absent locally. 

✓ Power blackouts 

affects production 

schedule 

enormously. 

✓ In B2C market, own 

account manufacturing 

SMEs sell their output 

to wholesalers, mostly 

on credit. Retailers buy 

from these wholesalers, 

mostly in cash. Only 

larger players have 

proper distribution 

channels. 

✓ On the other hand, the 

contract manufacturing 

firms do not get 

engaged in such kind of 

marketing, as they rely 

on relationship to get 

work orders from their 

principals. 

✓ In B2B market, goods 

are delivered directly to 

client locations. 

✓ Promotion: lifetime 

warranty, trade fair, 

customer relationship 

development 

✓ Domestic market 

size is US$ 714 

million; growing 

very fast. 

✓ Export market is 

US$ 234 million: 

deemed export 

(58 per cent) and 

direct export 

(42 per cent) 

✓ Local B2C market: 

low and middle 

income households 

(kitchen utensils), 

and middle income 

group (furniture) 

✓ Local B2B market: 

RMG (matured), 

pharmaceuticals, 

food processing, 

real estate, 

agriculture 

(emerging) 

3.3. RAW MATERIALS AND MOULDS 

Oil-based resins are mainly manufactured in oil-producing countries, particularly 

in the Middle East. Resins are produced in two forms: (i) virgin resins (come directly 

from petroleum processing), and (ii) recycled resins (come from recycling of used plastic 

products). Though specific types of resins should be used for different quality and 

functional requirements, SME manufacturers in Bangladesh use only resins such as 

59


polyvinyl chloride (PVC), polypropylene (PP) and polystyrene (PS) for all the products 

they manufacture. 15 Few large manufacturers are exceptions to this practice. 

Virgin resins: Virgin resins are imported mostly from the Middle East. These 

resins are of better quality and food grade plastic products are made only from such 

virgin resins. Since virgin raw materials are expensive, recycled raw materials are often 

used for products serving the low-end market. However, SME manufacturers in 

Bangladesh sometimes mix virgin resins with recycled ones to make quality and cost 

adjustments. Large manufacturers use recycled raw materials too; but those recycled 

resins are produced from the residual plastic waste generated by their own 

manufacturing process. Such recycled resins are as good as virgin resins since they do 

not get contaminated or mixed with any other materials. 

The price of resins in the local market was around $1,200 per tonne in 2007. 

But during the past few years prices started to fluctuate between $700 and $3,000 per 

tonne. This happened because the price of resin is directly correlated with the price of 

crude oil and as the price of crude oil varies depending on the stage of business cycle, 

so does the price of resins. For example, at the end of 2008, the global recession made 

the oil price drop from $150 to $50 per barrel, causing a simultaneous drop in the price 

of virgin resins to about $700 per tonne. 

Recycled resins: Recycled raw materials are imported as well as produced locally. 

The import chain of recycled resins does not vary much from that of virgin resins. In 

the case of locally recycled resins, most of producers and suppliers are located in and 

around Dhaka. The demand for recycled resin is increasing because of the attractive 

price 16 and availability, and so is the number of recyclers. Currently, recycled raw 

materials account for almost 60 per cent of the total raw materials used by SMEs in 

Bangladesh, and this trend is upward. 

Value added potential: In the case of virgin raw materials, there is hardly any 

value added potential since the plastics industry in Bangladesh has always been using 

60 

15 

Major types of resins are: i) polyethylene (PE) with a wide range of uses and a low cost advantage; 

ii) polypropylene (PP) used for food containers and kitchen appliances; iii) polystyrene (PS) used for 

packaging foam, food containers, disposable cups, plates and cutlery; iv) polyethylene terephthalate 

(PETE) used in producing beverage containers; v) polyamide (PA) (nylon) widely used in producing 

fibers, toothbrush bristles and fishing line; vi) polyester, popular in producing garment accessories 

like fibers and textiles; vii) polyvinyl chloride (PVC) widely used in plumbing pipes, flooring and 

clothing; viii) polycarbonate (PC) used for compact discs, eyeglasses, etc.; ix) acrylonitrile butadiene 

styrene (ABS) used widely in producing electronic equipment cases (e.g. housing for computer 

monitors, printers and keyboards); and x) polyvinylidene chloride (PVDC) (saran) for food packaging. 

Some special purpose plastics are: i) polytetrafluoroethylene (PTFE) (teflon) for heat resistant and 

low-friction coatings, used in frying pans and water slides; ii) bakelite used in insulating parts in 

electrical fixtures, a thermosetting plastic, a.k.a. phenol formaldehyde or phenolic resin that can be 

moulded by heat and pressure when mixed with a filler-like wood flour or can be cast in its unfilled 

liquid form; and iii) polylactic acid: biodegradable, thermoplastic, aliphatic polyester derived from 

lactic acid which in turn can be made by fermentation of various agricultural products such as corn 

starch. 

16 

The price of recycled raw materials, including the imported materials, is only half the price of 

virgin raw materials.


the best possible virgin raw materials. However, recycled raw materials remain a major 

possible value upgrading area as nearly 60 per cent of raw materials used by SMEs in 

the plastics industry come from low-quality recycled material. It is worth mentioning 

that the substitution of virgin resins by recycled ones could reach 100 per cent in certain 

cases, provided that the recycled resins are of very good quality. 

Raw material suppliers: Usually SMEs producing for independent contractors get 

raw materials directly from them. In Bangladesh, SMEs marketing their own products 

buy the raw materials directly from the local market, i.e., from importers and wholesalers. 

Most large firms import directly from abroad. Some of the major problems related to 

the import of raw materials are as follows: 

● 

● 

Delays at ports. The most common problem is unnecessary delays and 

hassles at the ports. Because of operational inefficiency and political 

unrest, containers tend to be stuck at the port warehouses, causing rental 

costs and delayed delivery. Consequently, the price of virgin plastic 

granules increases. However, recently the Government has initiated various 

measures to solve these problems. 

Pre-shipment inspection (PSI) procedure. The PSI procedure, involves 

a government appointed agent inspecting imported raw materials. 

Importers made several complaints against the agency regarding it being 

inadequately staffed and not being client-oriented, resulting in long lead 

time in import and distribution procedures. 

To address this and related issues virgin plastic granule importers have 

organized Bangladesh Plastic Importers Association, which is mandated to negotiate 

with the Government on policy matters. 

3.4. ADDITIVES 

Additives are used with plastic granules to alter and improve mechanical, 

physical or chemical properties of the final product and protect it from the degrading 

effects of light, heat or bacteria as well as improve product value through enhanced 

durability, smoother surface and overall better look. However, the smart use of such 

additives is still restricted only to large manufacturers. 

For colouring of plastic products, powdered colours were used until the 1980s. 

However, master batches (colour granules) made their way into the market ever since. 

Different types of master batches and chemicals are imported from abroad, mainly from 

Germany and China. Of course, China is the leading exporter in the Bangladesh market 

due to its low price offer. 

61 

3.5. MOULD MAKING 

Since the introduction of handmade local moulds, technological change of any 

significance has yet to come to mould manufacturing in Bangladesh. Large 

manufacturers mainly import moulds directly from China and Thailand, whereas SMEs 

rely on local sources. However, the locally manufactured moulds are quite substandard


and produce products of poor quality. The nascent light engineering sector of the 

<strong>country</strong> has come up with some solutions but the initiatives are very far from what the 

burgeoning plastics sector requires in terms of quality. Neither the light engineering 

sector SMEs nor the plastics sector firms are capable, both financially and technically, 

of making any significant progress in this venture. However, knowing the fact that each 

of the large manufacturers requires almost 50 moulds a year, made a couple of large 

players contemplate on it. 17 But again, confidence is running low due to uncertainties 

regarding government policy directions, inadequate infrastructural development 

(particularly gas and electricity supply), and perceived market risks in the absence of 

proper market intelligence. However, the availability of Chinese and Thai moulds makes 

the plastics sector players somewhat complacent and prevents the sector from 

achieving long-term competitiveness. The absence of such a vital manufacturing 

linkage could preclude research and development in product design and other 

innovative solutions. 

In the absence of sound mould making facilities, the capital constrained SMEs 

are forced to use locally made, low-quality moulds and end up producing low quality 

plastic products with poor finishing, serving the low-end segment of the market. Such 

products, lacking the desirable precision and fine finishing result in poor profits for SMEs. 

Low quality product excludes local SMEs from joining the export market. Thus, the 

vicious circle of industrial backwardness continues. 

However, the situation might offer an opportunity for technology upgrading by 

developing local mould making facilities. Seizing this opportunity could help the 

plastics sector not only serve the domestic market better (particularly by fighting off 

imports), but also enter the export markets, which is crucial for long term industry 

competitiveness. 

3.6. MANUFACTURING 

62 

The plastics industry sector in Bangladesh displays a significant diversity of 

enterprises ranging from large ‘integrated’ players to very small ‘specialized’ 

manufacturing units. According to BPGMEA, of the 3,000 plastic manufacturing firms 

66 per cent fall into ‘small’ enterprise category, 1.7 per cent into ‘large’ enterprise 

category and the rest belong to medium enterprises as defined by the Bangladesh 

Bureau of Statistics. Large firms are mostly located in major cities of the <strong>country</strong>. Some 

of the large players are RFL Plastics, Bengal Plastics, Navana Plastics, Gazi Tanks, 

Boss Plastic Industries, Leos Plastic, Bismillah Plastics and N. Mohd. Plastics. Small 

and medium manufacturing firms consist of highly fragmented clusters scattered 

around the <strong>country</strong> with the largest cluster being the Lalbagh-Islambagh cluster in 

Dhaka. Table 7 provides information on plastic manufacturing firms. 

17 

One such plant is expected to be in place by 2011.


Table 7: Plastic manufacturing firms by category and location 

Category Small Medium Large 

Definition 18 Less than 10 workers. More than 10 workers More than 50 workers 

and less than 50 workers. 

Numbers 1,965 (65.6 per cent) 980 (32.7 per cent) 52 (1.7 per cent) 

Location Dhaka City (Old Dhaka), Dhaka City, Tongi, Dhaka City, Tongi, 

Keranigonj, Gazipur, Savar, Gazipur, Savar, 

Narayangonj, Khulna, Munshiganj, Narayangonj, Chittagong 

Chittagong 

Chittagong, Khulna 

Sources: BPGMEA (2009); BBS (2007). 

The common characteristics in each category of the plastics producers are 

summarized in Table 8. 

Table 8: Profiles of small, medium and large manufacturers 

Small Manufacturers Medium Manufacturers Large Manufacturers 

Business Subcontracting and low Both subcontracting and Own account 

model quality own account own account manufacturing 

manufacturing 

manufacturing 

Control over In subcontract Raw materials are Manufacturers 

raw material manufacturing raw bought from importers. themselves import raw 

materials are supplied 

material. 

by the principal. 

Types of raw Sometimes low quality Imported raw materials Recycled raw materials 

materials recycled raw materials are preferred. are never used. 

used 

are used. 

Types of Semi-automated Semi-automated Automated injection 

machines injection and blow injection and blow and blow machines 

used machines machines 

Types of Unskilled and Unskilled and Trained (in-house 

labour semi-skilled semi- killed training) 

Types of Local moulds of Local moulds used in Imported moulds 

moulds low quality most cases. Some 

used 

imported moulds 

Channels and Sold to a wholesaler. Have own wholesale Use own channels and 

distribution shops. distribution. 

Export Do not export Hardly ever export Majority of exports are 

from this segment of 

manufacturing units 

63 

18 

The definitions of SMEs and large enterprises in the plastics sector in Bangladesh are different 

from those in existing literature (cf. section A, chapter 1). However, the co-existence of different 

SME definitions in a developing county is not unusual in Asia and the Pacific (AMMO 2007; ESCAP 

2009b).



Small Manufacturers Medium Manufacturers Large Manufacturers 

Location Mainly located in Mainly located in Different, depending on 

Old Dhaka (Lalbagh- Old Dhaka (Lalbagh- corporate 

Islambagh cluster) Islambagh cluster) and considerations 

Mirpur area. 

Source: 

Primary (interviews, discussions, etc.). 

Most firms in the micro- and small manufacturer categories are run by a sole 

proprietor, which is an indication of the dominance of such single owner-managed units 

in SME category. According to industry sources, the amount of start-up equity capital 

varies, on average, from $14,000 for micro firms to $578,000 for large firms. SMEs 

entrepreneurs have to rely on equity financing and other forms of non-institutional 

loans. However, there is little information on term structure of non-institutional loan 

arrangements that SMEs entrepreneurs may use. The larger tier firms use bank loans 

to meet their financing needs. 

In general, manufacturing units in the plastics sector follow either Own Account 

Manufacturing (OAM) or Contract Manufacturing (CM) business models. Own account 

manufacturers produce their own products, market them and have the full authority 

over the process. In the local plastics industry most manufacturers operate their own 

accounts. Own account manufacturers are actively involved in every stage of a product 

life-cycle, i.e., conceiving business idea, making business plan, setting up production 

unit, buying raw materials, accessing finance, planning batch production, determining 

costs and marketing the final product. Larger manufacturers predominantly rely on the 

OAM business model and market goods under their own brand names. 

64 

Contract manufacturing is another business model in which small 

manufacturers essentially work as third party subcontractors without taking the risk of 

finding buyers and facing much of uncertainties arising from sales and distribution 

processes. Under this business model, a CM firm requires a machine and a small place 

to house that machine, while the principal (i.e., a contractor, who markets the final 

product) provides moulds and granules. Recently, the industry has experienced 

a significant rise in this type of business practice as more and more SMEs are accepting 

this business model as it requires small start-up capital and represents low risk exposure. 

However, businesses using CM model usually do not enjoy the economies of scale and 

have little control over the industry value chain. Until CM model firms become big 

enough to switch to OAM model firms or form alliances establishing common platforms 

of shared business goals, it is very unlikely that they would enjoy any greater control 

over the plastics industry value chain. 

Although most CM firms produce low-end products using recycled granules 

supplied by the principals, some CM firms are switching to higher-end product 

categories. However, as most CM units use relatively low-quality machines, it is difficult 

to get into the high-end product segment unless they upgrade the equipment.


Bangladesh is experiencing substantial infrastructure and logistics challenges, 

particularly in Dhaka, where there is the biggest concentration of CM firms. Power 

outage is rampant and, because of narrow streets, transportation is a major problem. 

The Government is currently contemplating on setting up an industrial park for the 

plastics sector SMEs that will include the required infrastructure, utility services and 

logistic support as well as some other fiscal and financial incentives. It is expected that 

SMEs of Old Dhaka area will eventually move their facilities to the park. If that happens, 

positive externalities, including business and technical knowledge spillover, will be 

enormous. Also, it will be easier for the Government to support SMEs with, among other 

things, preferential utility supply, the lack of which is a major obstacle for improving 

productivity and competitiveness of SMEs. 

Box 1: RFL plastics – a success story 

RFL Plastics Limited is one of the leading manufacturers of moulded household 

and furniture products in Bangladesh. The company started the operation in 2003, focusing 

on manufacturing and marketing plastic household products and furniture at an affordable 

price. It produces more than 300 items of reasonably high quality and superior design. In 

the manufacturing process the company uses fully automated injection moulding 

machines, operated by skilled and experienced local and foreign technicians. Due to 

superior quality, innovative design and product variety, RFL has been established as one 

of the most preferred brands in the plastics sector in Bangladesh. Recently, RFL has also 

started exporting its plastic products. 

The manufacturing plant is located at Ghorashal, Narshingdhi, in the outskirts of 

Dhaka, and is equipped with more than 70 injection mould machines operated by 3,000 

workers under the supervision of more than 100 technical experts. The company has its 

own R and D facilities, creating new product design and making simpler moulds. Driven 

by its success, RFL is currently planning an expansion but is unsure of additional utilities 

(gas and electricity) supply – ‘the most significant obstacle’ faced by the industry in general. 

3.7. TECHNOLOGY AND EFFICIENCY 

At an earlier stage of the plastics industry development in Bangladesh, hand 

moulding was the standard practice. However, recently machine moulding has largely 

replaced hand moulding, as it is cheaper and makes superior product. In most cases, 

mould machines are imported from China, Germany and Taiwan Province of China. 

Reconditioned machines are also in demand because of a low cost and a quick payback 

period. 

65 

In terms of design, small players usually copy the patterns from larger 

manufactures’ plastic products. SMEs order local mould manufacturers to make moulds 

replicating the products of large manufacturers. Even large manufacturers often copy 

design patterns from other manufacturers or imported products. Manufacturers give 

sample products to mould makers located outside the <strong>country</strong> (usually in China) and 

order the necessary number of moulds required.


Presently, capacity utilization of the plastics industry, particularly of SMEs, is 

suboptimal. A number of factors are contributing to the inefficient operation. The most 

prominent of the factors are: frequent power failures (locally known as “load shedding”); 

semi- or unskilled labour; frequent breakdowns of machines; and a severe shortage of 

technical personnel for maintenance. 

The situation is particularly bad in the Dhaka area, where the largest clusters of 

the plastics sector SMEs are located. Frequently, particularly in summer, the firms 

experience five to six hours of ‘load shedding.’ Productivity is badly affected by sharp 

fluctuations in power supply and frequent energy shortages. However, large firms rely 

on generators (primarily gas-based) to ensure uninterrupted power supply and hence 

enjoy higher productivity. Since early 2009, even large firms have experienced 

difficulties with their planned expansion projects as the Government stopped providing 

new gas supply connections. 

In most SMEs, workers are hired untrained and placed under the supervision of 

an experienced worker for about a year before they can start working independently. 

The productivity of such labourers is rather low as they are not adequately trained and 

frequently rely on trial and error in their work. Unfortunately, unskilled workers 

constitute a significant portion of the total workforce of SMEs. As soon as the workmen 

acquire the skills, they leave for higher salaries in larger enterprises. As a result, SMEs 

continue to suffer due to a lack of skilled workers. The situation contributes to constant 

low productivity and low capacity utilization in most of the smaller production units. 

Since SMEs in the local plastics sector usually use reconditioned machines 

(typically five to 10 years old), the technological production level is pretty low. As 

a result, frequent breakdown of machines is a common phenomenon. But 

unfortunately, the sector suffers from a severe shortage of technical personnel for repair 

and maintenance. Sometimes it takes days and even weeks to get a broken machine 

repaired, which keeps the machine idle and leads to low capacity utilization. 

3.8. POTENTIAL FOR UPGRADING AND CHALLENGES 

66 

The plastics sector in Bangladesh has an enormous potential for upgrading 

machinery and making quality improvements in mould manufacturing. Only a handful 

of manufacturers use new machines mostly imported from China. Machines from 

Germany are considered expensive and require long payback periods. All long-term 

investment decisions are considered risky and full of uncertainties. Entrepreneurs are 

reluctant to invest in costly technology because of the low confidence in the 

Government policies and regulations. For example, in the early 2000s the Government 

abruptly banned thin plastic shopping bags. While the rationale for the Government 

decision could be explained, its hasty implementation was highly detrimental for the 

sector as many SMEs suddenly went bankrupt, losing their source of revenue. Such 

rushed Government decisions make entrepreneurs feel uneasy when they contemplate 

substantial investment by purchasing brand new machines required for producing 

high-end products to compete in premium market segment. Other major negative 

impacts are the shortages in electricity and gas supply, the unavailability of skilled 

labour and a lack of access to capital.


3.9. QUALITY PARAMETERS 

Maintaining quality of plastic products requires a presence of certain factors that 

are elaborated upon below. 

● 

● 

● 

● 

● 

Raw materials: Low quality raw materials make products fragile. Products 

made from low quality recycled raw materials become inferior quality 

products and break down easily. Another problem with recycled raw 

materials is the loss of elasticity during recycling. As a result, products 

made of recycled raw materials often fail the load test, a major quality 

parameter for such products as plastic furniture. 19 For this reason, producers 

of high-end goods do not use recycled raw materials. 

Additives: Poor quality chemicals and additives reduce the smoothness 

attribute of a product. Chemicals imported from Germany are of superior 

quality though rather expensive. Chinese additives are cheaper but they 

do not provide as much smoothness as the German additives do. 

Design: Customers look for products with superior design, wide variety and 

high quality finishing. However, local SMEs fail not only to produce 

innovative designs but also to come up with nice finishing. Nevertheless, 

though plastic products of larger firms are a better quality, large firms’ 

production capacity at present is insufficient to cover the market demand. 

Machinery: Use of reconditioned machines affects product quality. To 

protect the premium segment of domestic market from foreign 

competition and to capture the export market, manufacturers need to use 

new, state-of-the-art machines. 

Workforce: Machine-operating skills are important for producing smooth 

and well-finished products. Workers with such skills are not readily 

available in Bangladesh and, therefore, SMEs are particularly affected by 

the situation because, unlike large manufacturers, they cannot provide 

in-house training or employ formally trained technicians. 20 Consequently, 

SMEs have to rely on whatever labour force is available in the job market 

and train them through informal apprenticeship. An untrained workforce 

costs SMEs dearly in terms of consistency in product quality. 

3.10. MARKETS AND MARKETING 

The plastics market in Bangladesh can broadly be divided into two segments: 

domestic market and export market. Both the domestic and the export market can 

further be subdivided into two segments: business to households/customers (B2C) 

market and business-to-business (B2B) market. B2C market carries no specifics: 

household customers irrespective of their age and sex use plastic products. However, 

the desired product quality varies according to customer income and social status. All 

67 

19 

Usually extra amounts of raw materials are added to offset the lack of elasticity. 

20 

Large manufacturers occasionally hire technical experts from abroad, mainly from India to train 

local staff.


B2C transactions are made at the retail level. In contrast, B2B customers buy directly 

from producers: they buy wholesale and receive a discount that reduces the cost. Many 

of them call for competitive bids, known as ‘tenders’, asking the interested parties to 

quote prices against a given specification. The manufacturers submit price quotes. The 

B2B buyers then select the party that meets both the technical and the financial criteria. 

Such competitive bidding is popular among B2B clients from sectors such as edible oil, 

RMG and fast moving consumer goods. However, once a trustworthy relationship is 

established with a B2B client, the client relies on the same producer and place repeat 

orders. Popular B2B products include office furniture, pharmaceutical accessories, RMG 

accessories, containers, PET bottles, packaging materials, construction pipes and 

wristwatch bodies. However, the RMG sector has been the largest B2B market segment 

that essentially drives up the deemed export of plastic. 

The domestic market for plastic products in Bangladesh is likely to grow for 

several reasons. First, given a large number of population and, therefore, a big domestic 

market 21 for mass consumer goods, the plastics sector in Bangladesh could enjoy high 

growth potential. Second, Bangladesh so far has very low per capita consumption of 

plastic products. Third, further economic growth and development in Bangladesh as 

well as in the region are expected to continue in the coming years, which would result 

in an increased demand for plastic products. Fourth, new types of plastic products 

should be introduced in the market and consumers are most likely to purchase these 

new products for their usefullness, cost, durability, functionality and design Many 

domestic entrepreneurs are considering expansion to take advantage of the unfolding 

opportunities in the plastics industry development. 

68 

Domestic business consumers/markets for plastic products can be classified into 

subsectors such as packaging, construction, pharmaceutical, consumer products, 

agriculture, transportation and other industries. The packaging industry has been under 

strict regulation after the ban on the use of thin polythene shopping bags in 2001. Both 

the local and export markets for packaging materials are growing steadily. The RMG 

sector continues to be the largest consumer of packaging materials while the growth 

in packaged food market has led to a surge in the demand for food grade packaging. 

In the pharmaceutical industry, there is also a huge demand for high quality food grade 

packaging materials. So far, only a few manufacturers have managed to enter the 

pharmaceuticals market and than only in packaging products for insecticides and 

pesticides. The agricultural sector is also becoming a major consumer of plastic 

products as plastic pipes are used extensively for irrigation purposes. Also, farmers are 

now using plastic film for shedding crops. Plastic containers, boxes and cartons are 

gaining popularity for bulk packaging and transportation of agricultural products. In 

the construction sector PVC pipes, plastic fittings, plastic doors and other products are 

the major items consumed. In the consumer goods category major items constitute 

domestic utensils, kitchen and tableware, toys and plastic furniture. 

The current scenario of the plastics sector in Bangladesh could be seen as both 

a mine of opportunities and threats. On one hand, impressive growth is highly likely 

21 

Export market was discussed in detail in section B of this chapter.


even if the sector is driven only by the domestic market. Of course, the emerging export 

trend indicates numerous market opportunities abroad as well thanks to the 

Bangladeshi advantage of low-cost labour. On the other hand, the plastics sector could 

face fierce competition from other Asia-Pacific countries both at home and abroad, as 

international trade barriers are eroding fast. Domestic market for the plastics industry 

in Bangladesh is quite large and, according to industry players, demand far outweighs 

supply. 22 As a consequence of persistent supply shortages, a great volume of plastic 

products (particularly for B2C market) is imported, mainly from China. Although the 

market for plastic products have grown quite rapidly, Bangladeshi entrepreneurs are 

yet to avail themselves of these opportunities as customers find the imported items to 

be of better quality and lower priced. 

3.11. MARKET ACCESS 

SME manufacturers are facing significant difficulties in accessing the market 

while large manufacturers are in a better position in overcoming such difficulties and 

getting an access into the plastic markets. The difference between large companies 

and SMEs lies in the former financial strengths, entrepreneurial capabilities and vision, 

marketing wisdom and fair business model. SME manufacturers, typically non-brand 

manufacturers, often have to sell their products at a 100 per cent credit to wholesalers 

because they have no other distribution channel for their non-brand products. Large 

companies sell their products for a 100 per cent advance cash payment. They have 

created brand names for their products over the years through promotional campaigns, 

dedicated sales force and consistently good quality product. Unfortunately, this is not 

the case for most SMEs, which constitute more than 98 per cent of all manufacturing 

units in Bangladesh. As these manufacturing SMEs fail to control a value chain, they 

are unable to create value for themselves and all the benefits go to other players along 

the industry value chain. Thus, sadly for SME manufacturers, the vicious circle continues. 

As for the export market, SMEs are not present there because of the obvious 

constraints already discussed. Large manufacturers are also facing problems in 

accessing export markets. Their problem is rooted in market intelligence, trade 

negotiation capability and quality perception associated with the label ‘made in 

Bangladesh.’ Large firms in Bangladesh have neither sound international business 

network nor an access to a well-researched market information bank. There are no 

professionally trained negotiators to conduct business talks. Bangladesh missions 

abroad and the related ministries cannot support export promotion and bilateral trade 

negotiations. Bangladesh Standard and Testing Institution (BSTI), the only quality 

certifying authority in the <strong>country</strong>, is not adequately equipped with either laboratory 

facilities or skilled personnel. As a result, their quality testing process tends to be lengthy 

and lacks the required credibility. 

69 

22 

Although no verified data on import of final plastic goods is found, industry insiders unanimously 

confirmed the fact of a huge demand-supply gap.


3.12. DISTRIBUTION CHANNELS 

There are several types of independent market intermediaries, such as importer, 

wholesaler, retailer and hawker. 23 These intermediaries usually deal with imported 

products and the products of SMEs (having either OAM or CM arrangements). Large 

manufacturers have their own distribution channels – of varying nature and depth – 

to cover the whole national market. The usual channel is a distributor-dealer-retailer 

network, which is nurtured by a manufacturer in-house sales and distribution teams. 

These intermediaries are independent business entities working closely with 

manufacturing companies acting as real partners in the business. Some of the large 

companies run their own showrooms in important locations all over the <strong>country</strong>. Also, 

in case of B2B, products are delivered directly to the client firms. 

Small manufacturers search for the wholesalers to sell their products. Medium 

manufacturers typically use the same marketing channel as small manufacturers 

(i.e., wholesalers); however, some of them sell goods in their own names and have their 

own shops in major wholesale markets. Large players employ distributors for marketing 

their products. For example, RFL Plastics, the biggest consumer plastic products maker 

in Bangladesh, has (approximately) 1,500 dealers around the <strong>country</strong>. These dealers 

deliver the products to retailers. 

3.13. PROMOTIONAL ACTIVITIES 

Trade fairs have so far been a major collective promotional tool for Bangladeshi 

plastic manufacturers. This initiative is helpful in gaining an access to the export market. 

Although deemed export constitutes a major portion in the export of plastic products 

from Bangladesh, some large manufacturers have embarked upon identifying the ways 

of accessing the global market through direct export of plastic products. Recently, 

a number of plastic manufacturers from Bangladesh participated in international trade 

fairs abroad, particularly in developed countries, and received orders from new 

customers. Participation in foreign trade fairs and exhibitions is an effective tool in 

exploring the new markets and strengthening trade relationships in the old markets. 

Similar and related activities, serving the same purposes include trade missions, buyerseller 

meetings and new product launching events. 

70 

Trade fairs have also been arranged in Bangladesh. Some of these fairs are 

general trade fairs, open to all industries, and some are industry-specific fairs. One of 

the largest trade fairs is Dhaka International Trade Fair (DITF), which is held every winter 

and it lasts a full month (usually January). The plastics sector industry in Bangladesh 

organizes industry fairs regularly and plans to have them more frequently. Such trade 

fairs provide the local plastics industry with an opportunity of presenting their products 

to both the local and global markets. 

Mass media, such as television and print media have helped large manufacturers 

to promote their plastic products to domestic market audience. But advertising is 

something SMEs cannot afford. 

23 

A small, door-to-door, retailer.


Some companies offer warranties for their products. For instance, Tanin and RFL 

Plastics (two very popular names in the plastic furniture market) offer ‘life time warranty’ 

for their products. This mechanism allows customers to pay only half of the original 

price of the damaged product and obtain a replacement. Such promotional offers are 

increasing as the industry matures. 

Relationship marketing has been another vital element particularly used for B2B 

markets. Entrepreneurs hire skilled marketing professionals to find potential corporate 

buyers and develop long-term relationships with these corporate clients. Sometimes 

entrepreneurs develop personal contacts with corporate buyers to procure large or 

strategically significant orders. Good and long-term business relationships with 

corporate buyers help manufacturers secure an uninterrupted order flow for many years. 

3.14. VALUE CHAIN GOVERNANCE 

Governance of a value chain (i.e., a degree of control by an agency over an entire 

value chain, supply chain or production network) in the plastics sector in Bangladesh 

varies, depending on the size of a manufacturer and the business model (CM and/or 

OAM) used. With small contractual (CM) production, the contract principal (a wholesaler 

or a corporate buyer) supplies raw materials and necessary mould/s to SME 

manufacturer. The manufacturer’s role is limited to final product manufacturing as 

required by the principal. In most cases the principal would even make transport 

arrangements for delivering raw materials and moulds and picking up the finished 

goods as it guarantees full adherence to the schedule. In this case, the value chain is 

fully governed by the principal who only pays the CM unit for labour and production 

facilities and utilities costs plus the margin. Such principals control the entire value 

chain. However, there are uncertainties still faced by value chain players, such as the 

international market price fluctuation, lead-times and so on. The value chain 

governance is further illustrated in figure 6. 

Figure 6: Value chain governance for small contractual manufacturers 

Raw Material 

Importers, Vendors, 

Principals 

Distributors/ 

Wholesalers, 

Retailers 

Raw 

Materials 

Supply 

Mould & 

Chemical 

Supply 


Marketing 

71 

Mould Makers, 

Chemical Suppliers 

Controlled by principals 

Controlled by contract manufacturers


Large manufacturers usually import raw materials themselves. They also import 

moulds and produce plastic goods on their own account. They mainly use their own 

brand name and market their products in Bangladesh through either their own 

distribution channels or through designated agents or some kind of hybrid 

arrangement. Large manufacturers are mostly vertically integrated companies and 

therefore govern the majority of their value chains. However, manufacturers who do 

not import raw materials directly are dependent, to some extent, on raw materials 

importers. The balance of governance in the latter case depends, among other things, 

on the fluctuation of raw materials prices in the international market, purchase volume 

and timing. The value chain governance for large firms is illustrated in Figure 7. 

Figure 7: Large manufacturers’ control of value chains 

Raw material 

Importers, Vendors 

Retailers 

Raw 

Material 

Supply 

Mould & 

Chemical 

Supply 


Wholesale 

Distribution 

Retail 

Sales 

Mould makers, 

Chemical Suppliers 

Occasionally controlled by manufacturers 

Largely controlled by manufacturers 

Minimally control by manufacturers 

4. Competitiveness of the Plastics Industry in Bangladesh 

72 

The competitiveness of any industry depends on several key factors, including 

the availability of support industries/services, access to finance, human resources, 

quality standards and certifications, policy and regulatory framework and 

infrastructures. If any of these factors are missing, the industry may loose its 

competitiveness. Several key factors, determining the competitiveness of the plastics 

industry in Bangladesh, are presented below. 

4.1. SUPPORT INDUSTRIES/SERVICES 

Support industries play an important role in the plastics sector in Bangladesh. 

That is particularly true of equipment suppliers and recyclers, two important support 

players, as the quality and, in turn, the competitiveness of plastic products largely 

depends on them.


Mould making industry 

Besides the presence of the skilled workforce and plastic granules and additives 

fine attributes, the quality of final plastic products depends on the quality of moulds. 

However, the mould making industry in Bangladesh is still at its nascent stage and high 

quality moulds are largely imported from foreign countries. Many local mould makers 

in Bangladesh work using traditional methods. Only a few of them have modern mould 

making equipment such as EDM, pantographs and CNC milling machines. 

There are mainly two types of customers using moulds in the plastic goods 

manufacturing industry in Bangladesh; (i) small and medium plastic goods 

manufacturers; and (ii) large plastic goods manufacturers. 

Small and medium plastic goods manufacturers depend on moulds supplied 

by local mould makers – directly in the OAM model and indirectly (i.e., through 

principals) in the CM model. Made of low quality steel, 24 using traditional trial and error 

production method, these moulds cannot provide precision and quality required for 

certain types of plastic products. 

However, as large manufacturers aim to produce export-quality product made 

with high precision, they depend mainly on imported moulds, which are more reliable 

and longer lasting than the local ones. Before a large plastic goods manufacturer 

introduces a newly designed product in the market, the firm sends a sample product 

design to a foreign mould maker, who produces the mould in accordance with the 

sample. Most new moulds are imported from China and India. It is a known fact that 

Chinese moulds have advantages over the Indian ones both in quality and cost. 

The sizes and shapes of imported moulds vary from small (used for production 

of household items) to large (used for production of furniture). Prices for moulds also 

vary from $2,890 (small size mould) to $72,254 (large size mould). However, imported 

moulds include problems such as longer lead times, higher costs and the absence of 

after sales services. Local manufacturers cannot change product designs rapidly using 

imported moulds. 

SME manufacturers repair moulds (and machines) hiring technicians who are 

not readily available locally. Large manufacturers normally have in-house engineers and 

technicians for repair and maintenance work. Large manufacturers’ expert technicians 

usually receive their technical training (in most cases facilitated and funded by their 

employers) in China. Some of technicians come from other machine exporting countries 

to Bangladesh. 

73 

Machine importers generally offer three years of replacement warranty for both 

electronic and hydraulic brand new mould machineries imported from China. They also 

offer one-year free service that is provided by Chinese producers and can be extended 

to up to five years at their expense, creating goodwill in the market. 

24 

Scrap metal from old vessels.


Recycling 

Recycling is a crucial support industry for the plastics industry all over the world 

and it is one of the most important factors for the long-term growth and survival of 

the plastics industry. As large numbers of manufacturers, especially in the SME segment, 

are using recycled raw materials, recycling carries a lot of economic (besides 

environmental) importance. By using recycled granules manufacturers can cut the cost 

of raw materials by almost half. Although there are ample examples of good practices 

in plastic recycling around the world, Bangladesh is yet to learn from such cases. 

Recycling in Bangladesh is hindered by poor waste disposal and management culture 

and the use of primitive processing technologies. 

There are three technical/operational aspects involving recycling that determine the 

quality of recycled granules. These aspects are the following: 

● 

● 

● 

Proper washing of contaminated plastics; 

Manual or mechanized sorting; and 

Quality of processing equipment. 

In addition, there are some significant compliance issues, including: 

● 

● 

● 

Health and safety of plastic collectors, sorters and recycling factory workers; 

Environmental consequences of recycling process; and 

Rules and regulations involving use of recycled granules. 

Unfortunately, the recycling subsector in Bangladesh demonstrates poor 

compliance on most of these issues. Although, on the environmental issue the recycling 

subsector, to some extent, is keeping the plastics industry afloat by reducing the likely 

environmental damage and this is in spite of the fact that plastic waste disposal and 

recycling system are yet to be standardized and modernized, which pose a tremendous 

threat to the economy. The recycling subsector deserves an immediate attention from 

all parties concerned, particularly from the Government of Bangladesh. 

The recycling practice in Bangladesh is still highly dependent on manual 

processing. The process can be broken down to a number of steps. Figure 8 presents 

the flow diagram of a typical recycling process of plastic waste in Bangladesh. 

74 

In developed countries wastes are disposed of and collected in accordance with 

different categories. This means different types of waste are disposed of separately. In 

Bangladesh, all types of waste – starting from kitchen waste to paper waste to plastic 

waste to metal waste – are disposed of and collected together. Plastic wastes are 

generally collected from households by hawkers and from waste disposal bins by street 

collectors. 

After plastic waste is collected, it is sorted out manually according to categories, 

which is very time consuming and inefficient. Plastic wastes are sorted out by the 

degree of cleanliness (dirty or clean), by plastics type (thermoplastic or thermoses), by 

category (PP, PE, PS, PVC), by colour and by product type (bottles, bags, films and sheets).


Figure 8: Plastic recycling process in Bangladesh 

Collection of Disposed 

Plastic Waste 

(from households, 

dustbins, landfills, rivers, 

and street) 

Wholesale Collection 

Sorting of Procured 

Plastic Waste 

Palletizing 

Shredding & Extrusion 

Cleaning & Drying of 

Procured Plastic Waste 

Mechanical Recycling 

(Granules Production) 

Wholesaling of Recycled 

Granules 

In Bangladesh, labourers who sort the plastic wastes do not often have adequate 

knowledge on the plastic type and category. They sort out wastes by product type 

(e.g., plastic bottles and plastic packs). They can not differentiate among materials of 

which similar types of products are made. For example, different plastic bottles are 

made of different types of plastics. As a result of this type of sorting, different types of 

plastic materials stay together, which affects the quality of recycled granules. 

After sorting according to types, plastic waste is sent to a mechanical recycler 

for cleaning and drying. Plastic waste is washed with the water coming from the nearby 

water sources, such as rivers, canals and ponds. Drying is done naturally by exposing 

the washed plastic waste to the sunlight. However, substances like dust, germs and 

other contaminated materials remain on plastic waste after poor and inadequate 

washing. 

After the drying, plastic waste goes through shredding and extrusion and is 

prepared for palletizing. Shredding can be done by scissors, shears, saws and so on. 

Shredding is done for the following reasons: 

● 

● 

● 

To reduce larger plastic waste to smaller fraction sizes that could be 

managed by smaller machines; 

To make storage and transportation easier; and 

To prepare plastic waste for further processing. 

75 

After shredding the plastic waste goes through palletizing, the final step in 

recycle process. Here the shredded materials are melted in a palletizing machine and 

transferred into recycled plastic granules.


However, the recycling process, as discussed above, does not produce highquality 

recycled granules. The reason for that is the absence of automated sorting and 

cleaning. The existing practice of plastic waste processing yields granules of inferior 

quality (compared to imported recycled granules). Inferior quality recycled granules 

also mean inferior quality finished products. That is why locally recycled granules are 

used mainly by SMEs producing non-branded, low quality products. 

Nearly all the equipment used by recycling sector SMEs in Bangladesh is made 

locally. Since the recycling equipment is not technologically complex and the recycling 

subindustry is at its nascent stage, locally made machineries have so far proved to be 

good enough to support the recycling SMEs. However, as the plastics industry matures 

and waste management culture improves the demand for better recycling machineries 

is expected to grow. And, this is another area of potential technology upgrading. 

4.2. ACCESS TO FINANCING 

Like any other SMEs, the plastics sector SMEs are facing severe constraints when it comes 

to access to financing. Bank loans that could have been the main source of financing 

are extremely hard to obtain. There are a number of reasons for this, including: 

(i) Banks’ reluctancy to provide loans to SMEs; 

a. Loan sizes are too small to deal with. Given the fixed interest rates, 

the profit received from such a small loan is not attractive enough. On the 

other hand, banks cannot charge a higher interest rate both for market and 

non-market reasons. The market reason — a higher price would result in 

low demand — and the non-market reason – numerous requirements and 

formalities would have to be complied with. 

b. The perceived risk is quite high. SMEs hardly possess the collaterals 

required by the banks as security. 

c. Accounting practice is poor. Proper financial documentation and 

accounting are not part of the SMEs business culture. Most of SMEs 

follow the traditional way of bookkeeping, writing down all the entries in 

a notebook and performing some simple computations at the end of 

a certain period. 

76 

(ii) SMEs’ reluctancy to ask banks for loans. 

a. Banking environment is too complex for SME entrepreneurs. SMEs perceive 

banks as inaccessible and banking officials as unapproachable. 

b. The low educational level of SME entrepreneurs is a major obstacle. Lack 

of education prevents them from becoming accustomed to official 

requirements and formalities of the bank. 

Although there are state-owned commercial banks mandated to finance SMEs, 

their performance is rather poor. However, there are some positive developments. For 

example, BRAC Bank, a local commercial bank, is aggressively marketing SME loan 

schemes. For the past four decades the bank has successfully managed one of the


world’s largest micro-finance institutions. Seeing BRAC Bank’s apparent success with 

SME loan schemes, more commercial banks are moving in this direction. This shift is 

also triggered by policy interventions and incentive schemes recently declared by the 

Government. For example, the central bank of the <strong>country</strong> provides commercial banks 

with low rate funds to be offered to SMEs as loans at an interest rate of 10 per cent 

(as opposed to the regular rate between 14 per cent and 16 per cent). However, there 

is a ceiling on SME loan amount – it cannot exceed $15,000, which is considered 

insufficient to make a serious investment. Furthermore, small enterprises are finding 

even such loan programmes difficult to access for the reasons mentioned earlier. 

Consequently, the government policy interventions and incentives have remained 

ineffective. 

4.3. HUMAN RESOURCES 

Like the SMEs in any other sectors, the plastics sector SMEs are constrained by 

the shortage of skilled workforce in many important areas, including technical, 

entrepreneurial and business management. Although the <strong>country</strong> has an old-fashioned 

vocational/technical education system, the number of graduates is small and the quality 

of education is poor compared to the real market demand for skilled manpower both 

at home and abroad. 25 Of course, some SME sectors enjoy good specialized training 

institutions. These sectors are: glass and ceramic industry; leather industry; textile 

industry; and garment industry. 

The plastics sector does not have any formal training institution and has to deal 

with unskilled (and, in the case of SMEs, uneducated) workforce. Only a few large 

enterprises can afford to invite expatriate trainers (primarily from India) to offer in-house 

technical training. SMEs have to place their unskilled employee under a supervision of 

an experienced worker for on-the-job training hoping that the new employee, once 

trained, will continue to work for them. Sometimes SMEs are lucky, but most of the 

time they are not. Many SME workers, after acquiring the necessary skills, tend to leave 

the firm and join larger companies at higher salaries that SMEs cannot afford to pay. 

As a result, SMEs have hardly any return on their investment in human development 

struggle with the low productivity of unskilled workers. 

25 

Two major factors contributing to this dismal scenario are capacity constraints and systemic 

failures. With regards to capacity, the <strong>country</strong> has a significantly smaller amount of technical/ 

vocational institutes than it requires. Moreover, most of the technical/ vocational institutes are 

constrained by either its physical infrastructure or human resources or both. With regards to systemic 

failure, there are at least two issues that need immediate attention. First, the system has largely failed 

to attract potential students to the vocational/technical training stream. Second, the macro level 

failure in the reduction of the widespread poverty has resulted in low educational attainment 

becoming a bottleneck to demand-driven education and training. The search of means for survival 

forces most of the students of these vocational/technical institutes look for any kind of job – be it 

a low paid job or an easy, less costly certificate or degree. Ironically, the good news for SMEs is that 

these young people can be hired for a low wage but the bad news that comes together is that these 

new recruits are not skilled/educated or, at best, ‘inappropriately educated’ (in areas that has no 

relevance to the work where s/he is put in). 

77


There is no specialized institution for entrepreneurship development training 

in the <strong>country</strong>. Although there has been a burgeoning growth in the number of 

business schools since the 1990s, their contribution to entrepreneurship development 

is insignificant, if existing at all, particularly regarding entrepreneurship training for the 

plastics sector. Though there are graduates in business administration coming from over 

50 business schools but the plastics sector SMEs cannot hire them as SME salaries are 

too low. 

Under such circumstances, the plastics sector SMEs is severely constrained in 

building up its competitive strength. All the constraints hinder market access for SMEs 

both domestically and internationally. 

4.4. STANDARDS AND CERTIFICATION 

Standardization and industrial certification are mandatory requirements for 

SMEs willing to become globally competitive. SMEs in Bangladesh, mainly serving the 

local markets, however, have yet to become seriously involved in the standardization 

and certification processes. The Bangladeshi plastics industry needs to adopt adequate 

standardization system and obtain international industrial certification in line with 

quality improvement. Currently, no international standard certification (such as ISO) is 

adopted in the local plastics sector, except for some large enterprises. Also, consumers 

are unaware of quality certification issues. 

National 

78 

Appropriate standardization techniques for plastic products are yet to be 

developed in Bangladesh. Bangladesh Standards and Testing Institution (BSTI) is 

responsible for certifying product standards in Bangladesh. BSTI is incorporated under 

the law entitled “The Bangladesh Standards and Testing Institution Ordinance, 

No. XXXVII of 1985.” Tasks of BSTI include preparation of standards for all articles, 

products, methods and services. To protect consumer rights, BSTI often comes up with 

a mandatory certification scheme under which certain products need approval from 

BSTI before they are marketed. Food items, chemicals and jute-related products are 

mostly certified under this scheme. Unfortunately no standardization benchmark has 

been set to measure the quality of plastic products in Bangladesh. Only one product, 

namely “table wear made of melamine plastic” is brought under mandatory certification 

under BDS (Business Development Services) code 1425:1993. 

International 

Some trade organizations have come up with standards for plastic products. In 

1988, Society of the Plastics Industry (SPI) developed resin identification code (RIC) 

system, identifying six thermoplastic resins most commonly used in manufacturing 

bottles and containers, in order to facilitate sorting during recycling process. 26 The resin 

types, identified in the SPI system, are as follows (PackagingLaw.com): 

26 

Society of the Plastics Industries (SPI): SPI is a body for monitoring and developing codes and 

standards for the plastics industry at a global level. SPI is a United States-based trade association,


● 

● 

● 

● 

● 

● 

Polyethylene terephthalate (PETE) 

High density polyethylene (HDPE) 

Polyvinyl chloride (PVC or vinyl) 

Low density polyethylene (LDPE) 

Polypropylene (PP) 

Polystyrene (PS), etc. 

SPI is working with the American Society for Testing and Standards (ASTS) 

International to adapt the RIC system to international standards for the universal 

application. ASTS has been developing standards for marking plastic products based 

upon the RIC system developed by SPI in the 1980s. The proposed new standard 

WK20632 “Practice for Marking Plastic Products for Identification in Reuse and Recycling” 

is intended to facilitate the recycling of plastic articles through increasing the number 

of recyclable materials while expanding the types of covered products to other resin 

types. 

It is clear that developed countries, such as the United States of America and 

the European Union countries are adopting standards mainly for sorting and recycling 

purposes. If sorting is not done according to the resin type and the recycling process 

continues regardless of the type of plastics, the quality of the recycled resins will 

degrade. Unfortunately, Bangladesh has not yet developed such standards to sort 

various types of plastic wastes properly. Therefore, locally recycled plastic granules are 

not on par with international standards and, as a result, most of small and medium 

manufacturers are losing export competitiveness. 

Compliance 

Bangladesh lacks resin identification code (RIC) system for efficient recycling 

and, so far, no steps have been taken to develop this standard. Global standards of 

recycling practices should be adopted to ensure the long-term sustainability of the 

sector. Many manufacturers are unaware of the requirements of such standards that 

would ensure environmental protection. 

It should be noted that full compliance with environmental and health 

regulations is a serious concern for the plastics sector because of the very nature of the 

plastic products. Poor waste disposal and management system and the harmful impact 

caused by the inefficient and improper treatment of plastic wastes are two other serious 

issues. The health effect on both consumers and workers, particularly in the recycling 

segment, is a major source of concern. Many research <strong>studies</strong> and advocacy campaigns 

have been conducted to ensure occupational safety and good working conditions for 

79 

with headquarters located in Washington DC. SPI’s member companies include the entire plastics 

industry supply chain: processors, machinery and equipment manufacturers and raw materials 

suppliers (www.plasticsindustry.org). SPI’s activities include alerting its members about code and 

standard based issues that may impact plastic industries, ensuring that the members express their 

opinions in code and standard making processes. It also cooperates with the WTO in implementing 

regulations, codes and policies for plastic industries. Bangladeshi manufacturers are still not very 

aware of all those provisions of SPI.


the garment industry workers, but little attention has been paid to those working in 

the plastics sector. Although the <strong>country</strong>’s labour laws are applicable to the plastics 

sector as well, awareness is depressingly low, and enforcement of the laws is severely 

weak. 

4.5. POLICY AND REGULATORY FRAMEWORK 

The plastics industry in Bangladesh, operating under regulatory and institutional 

framework encouraged by the Government, is promoted through various incentives. 

Achieving global value chain competitiveness largely depends on how the framework 

facilitates and promotes the future development of the plastics industry. 

Bangladesh Investment Regime 

To promote investment, the Government of Bangladesh has liberalized its 

industrial and investment policies over the past couple of decades by introducing probusiness 

policies, reducing administrative control and opening up many areas for private 

sector investment. Major incentives for all kinds of industrial enterprises are as follows: 

80 

● 

● 

● 

● 

● 

● 

● 

SME Policy Strategies 

Tax exemptions: Generally five to seven years. However, for power 

generation, exemption is allowed for 15 years. 

Export/Import Duties: No import duty on raw materials (and in some cases 

machinery) for export-oriented industries. For other industries it is at five 

per cent ad valorem. 

Tax law: Double taxation can be avoided when foreign investors operate 

on the basis of bilateral agreements. 

Exemption of income tax: Up to three years for the expatriate employees 

in industries specified in the relevant schedule of income tax ordinance. 

Remittance: Facilities for the full repatriation of invested capital, profit and 

dividend. 

Exit: An investor can wind up an investment either through a decision of 

an annual general meeting (AGM) or an extraordinary general meeting 

(EGM). Once the foreign investor completes the formalities to exit the 

<strong>country</strong>, he can repatriate the sales proceeds after securing a proper 

authorization from the central bank. 

Ownership: A foreign investor can set up a venture either as a wholly 

owned operation or as a joint collaboration with local partners. 

Bangladesh aims to create a market-based economy with a level playing field 

for all enterprises, where SMEs can aspire to grow and create wealth using their own 

endowments, diligence, innovation and management. Some of the key objectives of 

the current SME policy include: 

● 

Accept SMEs as indispensable players in growth acceleration and poverty 

reduction;


● 

● 

● 

● 

● 

● 

● 

● 

Encourage and induce SME development and promote the growth of FDI, 

develop code of ethics and establish good governance, ICT-based 

knowledge management and customer supremacy in the market; 

Identify and establish an appropriate physical and ICT network of 

infrastructure and institutional delivery mechanism that facilitate the 

promotion of SMEs; 

Reorient the existing fiscal and regulatory framework and government 

support institutions towards facilitating the achievement of SMEs policy 

goals; 

Nurture and partner civil society institution(s) with credible management 

teams providing the required services, leadership, initiation, counseling, 

mentoring and tutoring; 

Create innovative and meritocratic arrangements so that small enterprises 

with the proven entrepreneurial track record and/or promise could be 

offered financial incentives; 

Help implement dispute settlement procedures that proactively shield 

small enterprises, especially from the high legal costs and insidious 

harassment; 

Take measures to create possibility of providing credit without collaterals; 

and 

Systematically accord precedence to small enterprises over medium 

enterprises, especially with regards to limited government resources. 

While SMEs development policies and strategies in Bangladesh are sound and 

progressive, the implementation mechanism and institutions, responsible for enacting 

these policies, require further strengthening in terms of resources, including human 

resources and financing. 

Box 2: Institutional framework for promotion of the plastics industry in Bangladesh 

(i) Bangladesh Plastic Goods Manufacturers and Exporters Association (BPGMEA): 

BPGMEA is a leading private sector association for all plastic goods manufacturers 

in Bangladesh responsible for safeguarding the interests of the plastics sector in Bangladesh 

and developing trade opportunities both nationally and internationally. It deals with 

matters relating to government regulations, patent rights and import and export 

regulations. The association also serves as a contact point for overseas companies who 

want to buy or sell Bangladeshi plastic products. 

81 

(ii) Dhaka Chamber of Commerce and Industry (DCCI): 

DCCI is the largest and most active Chamber of Commerce and Industry in the 

<strong>country</strong> for SMEs. It was established in 1958 and serves as a nonprofit, service-oriented 

organization. DCCI basic functions include promotion and development of trade, 

commerce and industry. DCCI provides market-oriented inputs to the Government in the 

formulation and implementation of policies regarding import, export, industry, investment, 

banking, insurance, fiscal measures and annual budget. DCCI also liaises with other


international trade related organizations and frameworks, such as WTO, UNCTAD, SAPTA, 

SAFTA and BIMST-EC. DCCI is an important stakeholder in the plastics industry and other 

major industries in Bangladesh. 

(iii) Small and Medium-sized Enterprises Foundation (SMEF): 

SMEF is created as an independent centre for the betterment of SMEs in 

Bangladesh, under the auspices of the Ministry of Industries (MOI), the Government of 

Bangladesh. The main objective of the foundation is to promote, support, strengthen and 

encourage the growth and development of SMEs in all productive sectors of the economy 

and to plan, programme and finance private sector organizations, including chambers, 

associations, trade bodies and research and development institutions. It is mandated to 

facilitate SMEs access to finance by creating and supporting appropriate strategies and 

institutions. The foundation assists the plastics sector development along with 11 other 

industrial sectors outlined in SME Policy Strategies 2005 as thrust areas. 

(iv) Bangladesh Small and Cottage Industries Corporation (BSCIC): 

BSCIC is the prime mover organization entrusted with development of small and cottage 

industries (SCI) in Bangladesh. It is an autonomous corporation that was established in 

1957 by an Act of the Parliament, and it operates under the auspices of the Ministry of 

Industries. It is the successor organization of East Pakistan Small and Cottage Industries 

Corporation (EPSCIC). BSCIC is mandated to provide: pre-investment counselling, postinvestment 

extension services, technical information, design and prototype of handicrafts, 

industrial profiles and fact sheets, marketing information, infrastructural facilities, skill 

development training, entrepreneurship development training, in-plant advisory services 

and credit facilities to various industrial enterprises, including the SMEs in the plastics sector. 

4.6. INFRASTRUCTURES AND UTILITIES 

82 

Adequate provision of infrastructural facilities and the supply of basic utilities 

for the industries are considered a primary requirement for the industrial promotion 

and growth. As the plastics industry is maturing, becoming one of the key export 

sectors in Bangladesh, it is most desirable that it be adequately supplied with the 

required infrastructure for future development. Such key infrastructure, including the 

transportation and public utilities systems are essential for facilitating effective business 

activities. 

Bangladeshi plastics sector, however, is constrained with constant electric power 

crisis, as well as insufficient gas and water supply. Currently, electricity is the major 

hurdle for the accelerated industrial growth in Bangladesh. The plastics industry is 

highly automated compared to many other industries in Bangladesh, including SMEs 

sector, and requires stable and constant electricity supply without which the production 

is impossible. The situation becomes worse in the hot season when electricity demand 

reaches its peak. Due to the lack of adequate supply of electricity, larger plastic goods 

manufacturers often run their factories on gas generators. However, due to a heavy 

load shedding of electricity and an interrupted supply of gas (both of which cause 

frequent generator shutdowns), plastic producing units have low capacity utilization.


Figure 9: Dhaka City Map 

Source: www.banglapedia.org. 

Besides electricity problem, SMEs have to deal with irregular water supply and 

severe congestion of transport infrastructure. As most of the plastic procuring and 

production units are located in Dhaka area (figure 9) and Dhaka area has dense 

population, narrow roads, poor traffic management system, outdated and overused 

water supply system and old building structures, the plastics industry enterprises are 

experiencing difficulties in developing efficient production and distribution systems. 

Incidentally, except for the plastics recycling subindustry, water is not a direct element 

of production process of plastic goods, and therefore the water supply shortage is not 

such a serious a problem as the crisis of power supply. But if the plastics sector is to 

thrive at the backdrop of recycling industry, for both economic and environmental 

83


reasons, and at the backdrop of other industries, such as light engineering, it must have 

access to all necessary infrastructural support required for its core operations as well 

as for its support industries. This very fact makes a strong the case for a development 

of an independent special industrial park for the plastics sector (along with its core 

linkage industries). 

5. Strategic Analyses 

This section of the study presents SWOT and triple triangle framework (TTF) 

analyses and identifies major impediments to the growth of the plastics sector in 

Bangladesh. Both types of analyses create a basis for business competitiveness action 

plan proposed in the next section. 

5.1. SWOT ANALYSIS 

Strengths 

The major strengths of the plastics industry in Bangladesh include, among other 

things, a large pool of entrepreneurs, simple technology and trusted collaboration 

among value chain partners. 

84 

● 

● 

● 

● 

● 

● 

One of the main reasons the plastics industry in Bangladesh is developing 

at both the small and medium levels is the availability of cheap labour. In 

general, SME entrepreneurs in Bangladesh work with relatively low profit 

margins and low wages compared to not only developed countries but also 

to many developing countries in Asia and the Pacific, particularly India and 

China. 

The number of SME plastic manufacturers in Bangladesh is as high as three 

thousand. In addition, many other industries SMEs are engaged at various 

levels of the plastics industry value chain. Altogether, this presents an 

indication of enormous entrepreneurial interests within the plastics 

industry in Bangladesh. 

Increasing trust and collaboration among value chain partners and 

competitors has resulted in smooth operation within the sector. Also, there 

is a growing dependence on value chain partners, particularly among SMEs. 

Increasing exposure to external markets has allowed large industry players 

to benefit from international exposure contributing to deeper 

understanding of global market dynamics and helping to establish a longterm 

strategy for export marketing. 

Large fast growing domestic market and domestic demand for low-end 

plastic products has facilitated the development of local plastic industry, 

particularly the SME sector. It should be noted that low priced items are 

in huge demand compared to the existing supply capacity. Also the 

demand for higher end domestic plastic utensils is increasing and most of 

large players are expanding their existing projects. 

The plastics industry adopts simpler technologies compared to other heavy 

industries. Adoption of less sophisticated technologies has led to a growth


● 

of plastic products used by other sectors, such as light engineering sector 

in Bangladesh. 

A large amount of export earnings (deemed export) from the plastic goods 

sector comes from RMG export. As the RMG industry in Bangladesh is a 

mature sector and is expected to grow further, the plastics industry should 

benefit strongly from the trend. 

Weaknesses 

Major weaknesses of the plastics industry include weak backward linkages 

(particularly mould-making facilities), lack of skilled manpower and rudimentary 

recycling practices. These and other difficulties are elaborated on below. 

● 

● 

● 

● 

● 

Absence of equipment and machinery manufacturing facilities, particularly 

mould-making units, puts Bangladesh at a disadvantage, as reliance on 

exports from China and India is pretty costly. This weakness remains 

a serious one as entrepreneurs are reluctant to invest in equipment/ 

machinery in an uncertain environment of long-term prospects for 

gas/electricity supply and the Government policy direction. 

There is a serious shortage of skilled labour in the plastics industry. The 

situation worsens when it comes to equipment repair and maintenance. 

The problem is particularly serious for small and medium-sized enterprises 

because (i) they cannot afford in-house professional training for their 

workers and (ii) trained labourers leave SMEs to join larger firms to get 

higher salaries and compensation packages. 

Relying on outdated and traditional technologies makes plastic recycling 

process unclean and inefficient. The problem gets exacerbated with 

the existing waste disposal and management system that is not 

environmentally friendly. As a result, the quality of recycled raw materials 

remains low. 

The industry lacks uniform quality standards and modern quality control 

practices, particularly as it relates to the use of raw materials and labelling 

of material codes. As a result, the absence of level playing field affects fair 

competition. 

Thare is a lack of long-term vision among entrepreneurs. Most of 

entrepreneurs in the SME segment of the plastics industry are satisfied with 

the current level of earnings. They do not actively seek new markets or 

product diversification. They do not think of exporting their products since 

the domestic market is large enough for survival. When the local market 

gets competitive, only then they might look for new markets for survival. 

This attitude is prevalent in small and medium sized units. 

85 

Opportunities 

The plastics industry in Bangladesh has good potential for development in both 

domestic market and export markets. If these opportunities could be capitalized on 

through policy reforms and other support services, the plastics industry in Bangladesh


could achieve significant growth in the future. The opportunities in domestic market 

and international markets are described below: 

86 

● 

● 

● 

● 

There are still good prospects in the domestic markets where plastic 

manufacturers can enter profitably. In the household segment, more 

expensive wood-based products can be replaced by less costly plastic 

products. For instance, in the recent years the local market has seen an 

exponential growth in the demand for plastic furniture. There are other 

areas where manufacturers can explore the needs and expand the market. 

Presently, Bangladesh produces mainly basic plastic products and 

possesses a nominal share in the global production. Therefore, there is 

a huge potential to compete in the international market through product 

diversification and quality improvements. It should be noted that plastic 

products global demand has been growing steadily at around 20 per cent 

a year (in the period between 2003 and 2007). Moreover, deemed export 

(along with RMG, pharmaceuticals and other products) is also growing at 

a steady rate. In fact, the growth is seen mostly at the deemed export 

category. The fact that the developed world is moving away from such 

export category (particularly in the low-value segment) is creating 

opportunities for countries such as Bangladesh. The cost advantage in 

transportation to the eastern India is also a big opportunity to expand the 

export market in that region. 

Deemed export of plastic goods, influenced by the growth of the RMG 

sector,is becoming very important over time. The fact that the plastics 

industry is now working as a backward linkage industry for many local 

industries, especially the RMG and pharmaceuticals, has created a lot of 

opportunities for value added within the <strong>country</strong>. If more forward linkage 

industries such as food processing, agriculture, electrical and electronics 

develop and mature, the plastics sector will experience a robust growth. 

Conversely, if the plastics sector becomes competitive, these forward 

linkage industries will enjoy cost advantage. 

During the period of July 2007 – January 2008, Bangladesh exported plastic 

wastes amounted to $6 million. Despite huge demand for recycled raw 

materials inside the <strong>country</strong>, these products were exported because of 

a lack of proper technology for waste recycling in Bangladesh. This also 

forces the industry to raise the quality of recycled raw materials. 

Introduction of better technology would not only save the environment 

but also create huge opportunities for recycling these products 

domestically and would significantly reduce the reliance on plastic raw 

materials imported from abroad at high prices. 

Threats 

The plastics sector in Bangladesh faces threats that constrain its growth. The 

most immediate threats that should to be addressed are presented below.


● 

● 

● 

● 

● 

The principal constraint for the growth of the plastics sector in Bangladesh 

is the recurring energy crisis and frequent electricity blackouts. Despite 

huge market potential and unsatisfied demand, the industry is unable to 

produce and expand due to its inability to utilize the existing capacity as 

the supply of energy has been limited and uncertain. Many SME units are 

actually finding it difficult to survive because of constant power failures that 

they experience four to six times a day. Though large manufacturers deal 

with daily power disruptions by installing power generators, SMEs are not 

in a position to do so. 

Many of the government policies and practices do not provide enough 

support to domestic plastic producers. For example, while some 

government institutions (such as Ministry of Defense) offer purchase 

tenders, importers of finished products usually get an advantage over the 

local producers due to a requirement to pay 15 per cent VAT in addition to 

import tariffs on imported raw materials. Enterprises producing packaging 

materials for the pharmaceutical industry are facing similar problems. Such 

policies have a negative impact on the growth of domestic enterprises. 

Bangladesh does not have a proper waste disposal for the used plastics 

products similar to that of developed countries. As a result, plastic wastes 

get mixed with other wastes making it difficult to use for recycling. Plastic 

waste, if not collected and recycled properly, could pose a serious threat 

to environment and health. 

Since plastic granules price is directly correlated with crude oil prices, a hike 

in crude oil prices affects SMEs greatly and puts them at a disadvantage in 

import competition compared to large enterprises. 

The industry might face embargo at any time on the grounds of social and 

environmental incompliance. The threat is significant for SMEs involved 

in direct or deemed exports. 

5.2. TRIPLE TRIANGLE FRAMEWORK ANALYSIS 

The SWOT analysis could be further structured using the elements of the triple 

triangle framework (TTF), which was mentioned earlier in the introduction (Figure 3.1). 

The framework focuses on the factors affecting business environment at three different 

levels. The first level deals with firm’s internal factors, i.e., micro-level factors that affect 

some of the firms more than the others. The second tier deals with industry-level factors, 

which affect all the firms across the industry. The third tier deals with macro-level factors 

which include, among other things, the required policy and infrastructural framework. 

87 

Firm’s internal or micro-level factors 

The factors that constrain growth and expansion of firms, include: i) lack of 

trained and experienced human resources, particularly mould makers, machine 

operators, and skilled technicians for the repair and maintenance of machines; ii) limited 

access to formal institutional loans and a requirement of bank guarantee for bonded 

import of raw materials; and iii) limited current operational activities aimed at survival, 

lack of plans for future expansion and growth.


Industry-level factors 

Competition and non-branded products: Currently, except for some large 

manufacturers, many plastic sector SMEs in Bangladesh are producing non-branded 

items. As the local demand is very high, most producers are not concerned with 

creating a brand name and improving the product quality. Although presently plastics 

sector SMEs do not experience any problems in the domestic market, they cannot 

compete at the global level due to a lack of brand names as well as low product quality. 

The growth could have been much faster and robust, including in the global market, 

had SMEs put more efforts in product quality improvements and creating brand names. 

Collaboration and quality certification: Due to a lack of proper standardization 

and quality certification facilities, plastic products in Bangladesh are unable to attain 

recognition in international markets. Though there are institutions willing to assist in 

quality improvements and certification, but due to the absence of formal collaborative 

long-term arrangements, the possibilities are yet to be explored. 

Improved recycling practices: Poor collection of waste materials and improper 

recycling practices has been responsible for the poor quality of recycled materials and 

hence poor quality products. This in turn forces the plastics industry SMEs to rely on 

expensive virgin raw materials raising the cost of production. 

Innovation in production and marketing: There is a huge opportunity to create 

new demand in the domestic market by introducing new plastic products. Also, large 

B2B customer segments could be captured if plastic items that are currently imported 

could be produced locally. Likewise, the role of the <strong>country</strong>’s foreign missions, to 

promote Bangladeshi products through economic diplomacy, need to be strengthened. 

Of course, some of government agencies (e.g., Export Promotion Bureau) do 

occasionally arrange trade fairs and exhibitions abroad to attract foreign buyers; yet 

these efforts are limited compared to what needs to be done to enter foreign markets 

and capture the untapped export opportunities. 

Technological upgrading: Technology transfer and technology upgrading are 

necessary to maintain and promote competitiveness. There are enormous technological 

lags in mould making and recycling in Bangladesh. 

Macro-level factors 

88 

Macro-level factors affecting the company emerge from a complex 

interrelationship among the factors that are beyond the control of any specific industry 

or its constituent firms. The outcome of this interplay influences all the firms in the 

industry. These factors – mainly linked to governance and state support, globalization 

dynamics and the interaction of international forces – are the major determinants of 

the macroeconomic environment in which the industry and its constituent firms 

operate. 

State support: Although Bangladesh offers a predictable policy direction 

involving the role of market vis-à-vis state (Jahan 2008b), the plastics industry needs 

a comprehensive and consistent policy guideline from the government to keep up and


accelerate the existing rate of growth. The plastics industry needs a proper government 

arrangement of an uninterrupted power supply,, the single most important obstacle 

affecting industry growth. Furthermore, the government should introduce favourable 

tax policy, establish of specialized industrial zones and increase government purchase. 

These initiatives would certainly give a huge boost to growth in this sector. 

Although the plastics sector is in the list of thrust sectors, it is not included in 

the first list of Highest Prioritized Export Development Sectors declared by Export 

Promotion Bureau. As a result, the industry fails to receive such benefits as tax 

concessions, better access to institutional credit and other preferential facilities awarded 

to the industries included in the first list of Highest Prioritized Export Development 

Sectors. 27 

To compete globally, local manufacturers must be proficient in understanding 

foreign market dynamics and the issue of compliance to international mandates and 

requirements. Lack of skill and knowledge in these areas makes the plastics industry 

less competitive globally. Most of entrepreneurs are completely unaware of the relevant 

provisions in international trade treaties of which Bangladesh is a party. They hardly 

see any relevance of regional agreements and facilities such as SAPTA, BIMSTEC, 

EU-GSP, etc. Many of entrepreneurs are unaware of many specific requirements and 

benefits under the provision of multilateral trade system, particularly the World Trade 

Organization. 

6. Business Competitiveness Action Plan 

To accelerate the growth of the plastics industry in Bangladesh, the obstacles 

discussed above should be removed or minimized and the strengths should be further 

augmented. To reach this aim, the following actions should be initiated. 

6.1. ADDRESSING THE FIRM LEVEL FACTORS 

Capacity building 

● 

Skills development programme: To meet the immediate need for the 

skilled workforce, plastics industry specific training and skills development 

programme should be initiated, particularly focusing on: 

a. Plastics industry machines operation and maintenance; 

b. Plastics engineering; 

c. Heat treatment; 

d. Quality control; 

e. Mould design and making; 

f. Product design; 

g. Work safety issues; 

h. Waste management; and 

i. Standardization and quality control. 

89 

27 

The benefits are granted to the sectors that are included in the official list of Highest Prioritized 

Export Development Sectors as decided by the Government of Bangladesh from time to time.


Although firm-level actions are required in most of these cases, capacitybuilding 

efforts should be launched primarily on a basis of public-private partnerships. 

BPGMEA, BSCIC, DCCI, SMEF and Ministry of Industries could act as collaborating 

partners. Special SMEs requirements should be assessed and priority programmes 

should be organized with the Government support in a cost-effective manner. 

If experts are needed from the developing economies having advanced plastics 

sectors such as China, India, Taiwan Province of China and Thailand, such experts should 

be hired to organize workshops to provide hands-on training to the local employees. 

In addition, business visits to those economies can help entrepreneurs get an idea of 

modern plastics industry practices and assess their applicability in Bangladesh thus 

improving the local industry practices. In the long-term, a separate department/ 

institute, like the ones already existing in textile engineering, leather engineering or 

fashion design should be established to facilitate product development, standardization 

of production, innovation and market research. The project should be undertaken as 

either a public sector project or as a public private partnership (PPP). 

Capital: access to finance 

● 

● 

● 

Access to credit and availability of financing should improve significantly 

for the plastics industry SMEs. It could prove beneficial to reduce collateral 

requirements, educational qualifications and technical conditions so that 

enterprise growth potential could be the only basis for financing SMEs. In 

this case the Government could guarantee such loans to SMEs perhaps 

through public loan guarantee scheme. 

Dialogue could be organized to ensure credit at a lower rate for the plastics 

industry SMEs. Implementation partners for this project could be Ministry 

of Finance, Ministry of Industries, Ministry of Commerce, Bangladesh Bank, 

Commercial Banks, EPB, SMEF, BPC, FBCCI and DCCI, as well as trade bodies, 

professional associations and Chambers. 

In case of raw materials import, bank guarantee requirement for bonded 

import should be reduced to facilitate working capital to SMEs 

manufacturers. 

6.2. ADDRESSING THE INDUSTRY LEVEL FACTORS 

90 

Industry-wide customer oriented fair competition and strategic collaboration 

with value chain partners and other stakeholders are critical success factors shaping 

the sector’s competitiveness. These factors are discussed below. 

Customer and market access 

● 

Capacity of plastics sector SMEs in Bangladesh should include a wide range 

of products for domestic and international markets. Creation of new 

product categories has proven to be a key to success. Some of examples 

include wood furniture substituted with plastic furniture and metal pipes 

substituted with PVC pipes. These examples demonstrate the willingness 

of the local market to accept new products that makes good economic 

sense.


● 

● 

● 

Encouraging local industries and institutions (i.e., B2B clients) to use locally 

made intermediate and finished plastic goods is a smart way of enlarging 

the market size. 28 Although this is a pure business proposal, the 

Government has a big role to play in this plan. For example, the 

Government could facilitate this plan by ensuring, among other things, 

a level-playing non-discriminatory tax regime. 

Campaigns to identify new and enter the existing export markets should 

be undertaken under a strategic framework. Campaigns should be 

supported by extensive market research and should be conducted with the 

help of private sector firm(s). BPGMEA, DCCI, EPB and the Chambers should 

take the lead in this regard. 

Trade-fairs and exhibitions at national and international levels should be 

arranged reach new markets and expand the existing ones. Industryspecific 

fairs for plastic products should be arranged more frequently 

domestically and internationally. DCCI, SMEF, BPGMEA, Ministry of 

Commerce and Ministry of Industries ought to collaborate in arranging 

such events. 

Competition and branding 

● 

● 

Efforts should be taken to create a level-playing field for fair competition 

for the plastics industry in Bangladesh, particularly addressing the issues 

of quality, standards and competitive international prices. Such drive 

should be led by BPGMEA, the main industry association of the plastics 

sector. 

Establishment of national brands – individually at a firm level and 

collectively at a national level (“Made in Bangladesh”) – is crucial to 

promote competition domestically and internationally. 

6.3. ADDRESSING MACRO-LEVEL FACTORS 

Macro level factors, such as technological level, government policies and access 

to information have an impact on all industries operating within an economy. This is 

particularly important for the plastics industry, as the sector is emerging as one of the 

most promising manufacturing sectors in Bangladesh. 

Technological support 

● 

Mould making technology: Proper mould preparation and maintenance 

should be achieved in the mould-making industry. Feasibility study of local 

high-quality mould making industry should done to minimize costs. 

Institutions such as Bangladesh University of Engineering and Technology 

should be asked to participate in the study together with plastics industry 

representatives. 

91 

28 

It should be mentioned that, besides the RMG industry, the pharmaceutical industry has recently 

started procuring locally made plastic packaging materials. Although scores of challenges still exist, 

the general picture is quite encouraging.


● 

● 

● 

Recycling technology: Introduction of better technology in the recycling 

industry has become essential for the long-term sustainability of the plastic 

industry. Proper workshops and training should be arranged to 

disseminate the technological know- how of quality recycling procedures. 

Product design technology: Training services on the use of CAD/CAM and 

designing software should be arranged to improve product design and 

innovation. A central research and development cell in BPGMEA should 

be established to provide support to SME manufacturers. 

Quality and standardization: BSTI should be equipped with modern 

amenities and trained professionals in order to facilitate standardization 

and quality improvement measures. In the Export Policy 2009-2012, the 

Government promised to establish proper laboratory facilities and means 

for standardization (EPB 2009). This factor has a high priority. 

State support: policy, infrastructure and institution 

92 

● 

● 

● 

● 

● 

Uninterrupted energy supply: The Government should undertake every 

effort to ensure uninterrupted power and energy supply for at least eight 

to twelve hours a day. This is a must in order to minimize labour and raw 

material waste. The industry should have the facility of getting priority 

power connection and gas supply. Uninterrupted power supply could be 

achieved by establishing separate power plants – Common Commercial 

Power Plants – for industrial clusters. 

Industrial parks: Establishment of industrial parks for the plastics industry 

has become a must for several reasons, including: i) ensuring proper 

infrastructure; ii) nurturing SME producers; iii) providing special 

uninterrupted utility services; iv) avoiding environmental hazards; and 

v) ensuring compliance. The decision regarding the establishment of such 

cluster park should be implemented without delays. 

Tax regime: The government should introduce consistent, coherent and 

pro-business tax regime. It should follow a procurement system (for its own 

agencies) that ensures level-playing field for all types of industry players. 

To make the local plastics industry more competitive, the Government 

could consider offering certain incentives for the firms that are the plastics 

sector’s B2B clients from other industries and that use locally made plastic 

intermediate goods. Such incentives could be provided in the form of 

reduced corporate income tax, and/or in any other way that do not conflict 

with international trade treaties and obligations. 

Plastic waste disposal: The Government, in collaboration with other 

stakeholders, should support public awareness campaigns in order to 

change the negative attitude that people have about plastic and to educate 

people about the proper use and disposal of plastic products. The 

campaigns should be backed by an introduction of an innovative plastic 

waste disposal-collection-recycling mechanism. 

Research-based database: A nationwide sample survey should be 

conducted in order to create a database for taking informed policy


● 

● 

decisions and providing priority assistance. 

Sector-specific policy: There is hardly any coordinated sector-wide policy 

available for the plastics industry in Bangladesh. Given the sector’s 

potential, the Government should formulate sector-specific industry policy 

to ensure all-out support for the growth of this burgeoning sector. 

Certification process: Registration and other related requirements and 

processes should be simplified. Currently SMEs are required to have 

30 different registration documents, such as registration certificate, trade 

license, BSTI certification, VAT registration, fire license, boiler license, 

environmental clearance certificate, etc. from different governmental 

bodies. SMEs documentation process should be brought under one 

umbrella in order to reduce the cost of doing business. 

International dimension: compliance and beyond 

● 

● 

Compliance: Institutional arrangements for foreign markets compliance 

and requirements should be provided to make local manufacturers aware 

of the global market mandates and multilateral trade systems. Such 

counseling should focus on: i) compliance issues; ii) certification 

requirements; and iii) global business practices. 

Trade and commercial diplomacy: Trade and economic sections of 

Bangladesh’s foreign missions should be staffed with business professionals 

who could represent and protect the <strong>country</strong>’s business interests in 

bilateral and multilateral trade negotiations and treaties. The trade 

missions should be backed by proper research-driven market intelligence 

and sound strategic framework. 

National action plan 

Table 3.9 presents a comprehensive business competitiveness action plan for 

the plastics sector in Bangladesh. It outlines strategic goals, objectives, current scenario, 

actions recommended and parties involved. The Government in collaboration with 

development partners (e.g., UNESCAP, UNIDO, ADB, etc.) and industry associations 

(e.g., BPGMEA) should take actions strengthening the value chain competitiveness in 

the plastics industry and making it a prominent export-earning source. 

To reach this goal, a few critical areas that require immediate attention are 

identified and presented below. 

(a) 

(b) 

Help SMEs attain cost competitiveness, particularly by ensuring proper 

infrastructural support through creating industrial parks and providing 

uninterrupted electricity supply, as well as by undertaking a business 

feasibility study on mould making in line with public-private partnership. 

Ensure sustainable competitive advantage by designing and launching 

a sound, strategic campaign promoting ‘green plastic’ in collaboration with 

other stakeholders. 

93


(c) 

Develop human resources engaged in manufacturing activities by 

providing technical skill development programmes. Special training 

programmes for SMEs entrepreneurship development, mastering 

managerial and marketing as well as accounting techniques should also 

be organized. 

94


Table 9: Business competitiveness action plan for the plastics sector in Bangladesh 

To become a global market player in the plastics industry reaching a market size of USD two billion by 2015 and USD four billion by 2020 

from the current level of USD one billion through sustainable competitive advantage. 

Strategic Goals Strategic Objectives Current Scenario Strategic Actions Agencies Involved 

Initiation: GoB, JICA ESCAP, 

BPGMEA 

● Initiate a feasibility study for 

● Some small SME mould making 

factories are currently 

producing low quality moulds. 

These moulds are primarily 

being used to produce low-end 

plastic products from recycled 

granules. All big players are 

importing moulds from abroad. 

This, in turn, causes the price of 

end products to go up as 

imported moulds are costly. 

Developing backward 

linkage capability in 

mould making 

Action: IBA, BSCIC, business 

associations 

developing a mould making 

facility to cater to the mid- and 

high-end market (Explore 

public private partnership or 

FDI joint venture options for 

establishing a central mould 

making facility). 

Goal #1 

Achieving the 

plastics industry 

sustainability 

● Arrange training programmes 

to develop capable mould 

manufacturing workforce 

GoB and/or 

GoB-patronized private sector 

(through PPP arrangement with 

the support from organized nonresident 

Bangladeshis (NRBs) and 

capital markets 

● Take immediate actions to 

● Power blackout is rampant: it 

increase power generation and 

industrial gas supply. 

Guaranteeing smooth 

supply of electricity/gas 

happens four to six times a day 

lasting one hour or so and 

hampers SMEs production 

schedules. 

● Big players are not getting gas 

supply for extension projects. 

Goal #2 

Creating 

favourable 

business 

environment for 

low-cost 

competitive 

advantage 

Initiation: GoB, BPGMEA 

● Businesses have no knowledge 

Action: Market development 

experts/policy analysts 

● Devise and stick to the longterm 

policy direction, 

particularly in the fiscal (tax 

regime) and industrial policy 

issues. 

of the Government’s future 

policy direction and, therefore, 

prefer short-term investment 

projects to long-term ones, 

depriving themselves of the 

benefits of economies of scale. 

Ensuring policy 

consistency and 

providing a long-term 

policy direction 

95


96 



MoF, 

Government Agencies, 

BPGMEA 

● Government purchase 

● Although the official tariff on 

decisions and support to other 

industries (e.g., 

pharmaceuticals) should not 

adversely impact local plastic 

production. 

finished products is higher 

than on intermediate goods 

and raw materials, 

government purchase clause 

often favours imports over 

local production, as the latter 

is subjected to a 15 per cent 

VAT. 

Removing anti-production 

(and pro-import) tariff bias 

● Rationalization of tariff 

structure creating a nondiscriminatory 

level playing 

field for domestic producers 

and importers. 

Initiation: BPGMEA & MoI/GoB 

● Sensitization campaign should 

● Government officials have 

Action: Professionals/private 

firms 

be designed and run to 

improve the situation. 

negative attitude to business 

and demonstrate rent-seeking 

behaviour. 

Promoting pro-business 

government machineries 

Initiation: GoB/EPB/MoI 

● Given the sector’s enormous 

● Although the Government is 

potential the Government 

should declare it as a strategic 

sector and make it a part of 

the bigger export-oriented 

industrialization (EOI) strategy. 

Formulating dedicated 

plastics industry policy 


firms 

impacting this sector through 

numerous policy 

interventions, there is no 

comprehensive plastics 

industry policy. 

Initiation: Local government/city 

corporations/BPGMEA/ MoI/ 

development partners and other 

stakeholders (media) 

● Specialized plastic waste 

● People are not aware of proper 

management system MUST be 

developed. 

● Sensitization campaigns 

waste disposal and no sound 

waste management 

mechanism exists. 

Promoting a sound 

recycling culture 

Goal #3 

Promoting ‘Green 

Plastic’ for 

sustainability 


firms 

should be designed and run.




● If such practice continues, 

extraordinary pressure will 

come from environmental and 

social groups and the industry’s 

sustainability will be at 

jeopardy. 

Initiation: BPGMEA and MoI 

● Highlight eco-friendly aspects 

● People are largely ignorant/ 

Action: professionals/private 

firms 

of plastic products. 

● Partner with anti-deforestation 

unaware of plastic’s 

contribution to saving natural 

resources in replacing things 

like wood and iron. 

Developing positive 

mindset among 

stakeholders 

and resource conservation 

campaigns. 

Initiation: GoB ministries (MoI, 

NBR/MoF), city corporations, 

BPGMEA and other industry 


● Make “Raw Materials 

● Currently, raw material 

Identification Code” legally 

binding. 

identification code is not used 

in many cases. As a result, 

recycling gets inappropriate. 

Supporting health and 

environmentally-friendly 

production and recycling 

● Subsidize business operations 


firms 

that promote sound disposal 

of plastic goods and health 

and environmentally-friendly 

recycling. 

● Also, due to improper disposal 

system and non-availability of 

sound recycling technology, 

recycled raw materials are not 

of high quality and thereby 

create health and 

environmental problems. 

97


98 



Initiation: GoB (MoI), SMEF, 

Bangladesh Bank 

● Provide low-cost SME loan. 

● SMEs do not have access to 

institutional loans due to 

collateral requirements and 

a lack of capacity to prepare 

a business plan. 

Providing easy access to 

finance 

Goal #4 

Supporting SMEs 

● Offer government guarantees 

Action: Commercial banks 

(in lieu of collateral) for 

deserving SMEs.’ 

● A good number of SMEs had 

to face bankruptcy even for 

a small loan. 

Initiation: BPGMEA – MoE/Univ. 

Grants Commission (UGC) 

Technical & Vocational and 

Education Board 

● Provide technical training for 

● The sector has severe 

machine operators on 

operation, trouble shooting 

and maintenance of 

machineries. 

Supplying skilled technical 

workforce 

Action: Tech Univ. Departments, 

polytechnic institutes/training 

institutes, BSCIC, private firms etc. 

● Provide advanced training in 

mould-making in technical 

universities (e.g., BUET, CUET, 

KUET, DUET, etc.). 

shortage of skilled workforce 

(machine operators). Currently 

SMEs hire unskilled workers 

who learn on the job. 

However, good workers leave 

for big players paying higher 

salary. So, SMEs continue to 

suffer. The big players in 

general train their workforce 

inviting international trainers 

from India/China. 

● Industry-University 

collaboration. 

● Seek technical assistance (e.g., 

from ESCAP) in this regard. 

● Explore a possibility of 

bringing in experts from 

developed countries to 

provide training services.




Initiation: MoI, ESCAP, BPGMEA 

● Capacity building through 

● Most of the entrepreneurs are 

Action: Institute of Business 

Administration (IBA), University of 

Dhaka 

business development 

workshops/training. 

first-generation businessmen 

and are entrepreneurs by 

chance. Nearly all SME 

entrepreneurs lack proper 

business background. 

Supporting 

entrepreneurship 

development 

● Sensitization campaign for 

developing positive 

entrepreneurial mindset. 

● Many entrepreneurs are happy 

with whatever they have and 

do not plan their businesses’ 

long-term growth. 

Initiation: GoB, in collaboration 

with ADB, BPGMEA 

● Implement proposed SME 

● Most of SMEs are located in old 

Action: IBA and BUET 

industrial park (SEZ) for the 

plastics sector (and light 

engineering and electronic 

goods as well). 

Dhaka that is not an industrial 

area and lacks basic 

infrastructure. 

Providing essential 

physical and softinfrastructure 

● There is no central quality 

● Establish quality management 

management mechanism. 

institute. 

Initiation: GoB (MoF, EPB, Foreign 

Ministry), BPGMEA 

● Make cash incentives for 

● Currently only PET bottle 

plastic goods exports. 

manufacturers get 10 per cent 

cash incentive. 

Action: Local business 

development service providers 

(consulting firms), as applicable 

● Identify profitable market 

Facilitating international 

market access and 

national marketing 

endeavors 

segments (through market 

research/intelligence), 

particularly international outsourcing 

opportunities. 

● SMEs are not aware of 

international market 

opportunities; SMEs and large 

firms face sever information 

insufficiency. 

99


100 



● Help SMEs build capacity in 

● SMEs lack capacity in meeting 

terms of human resource skill 

development, technological 

upgrading, product design 

market intelligence and 

marketing. 

international quality standards. 

● Bangladeshi businesses suffer 

from inappropriate <strong>country</strong> 

brand image. 

● Assist brand building 

initiatives (capitalize on RMG’s 

“made in Bangladesh” success). 

● Arrange national and 

international trade fairs (ITFs) 

and assist SME participation in 

such fairs. 

GoB, BPGMEA, ESCAP (to provide 

with technical assistance to 

initiate research) 

● Improve trade diplomacy. 

● Although large firms are ready 

● Help SMEs achieve 

international quality 

standards. 

to access international markets 

using existing quality 

standards, SMEs are far away 

from that. 

Introduce existing 

products to new markets, 

at both regional and 

global levels. 

Goal #5 

Achieving higher 

share of global 


● Promote environmental and 

social compliant enterprises. 

● Trade relationships with 

● Initiate a study to explore 

neighbouring countries are 

not very smooth, particularly 

since the advent of NTBs. 

export potential of plastic 

products from Bangladesh in 

developed markets. 

● There is a lack of awareness 

among local manufacturers 

regarding demand and quality 

requirements in the export 

market.




Initiation: Industry players, GoB, 

development partners 

● Target B2B segments such as 

● Currently RMG sector is the 

Action: Private firms 

pharmaceuticals, foodprocessing 

and agriculture. 

● Target high-end B2C segment 

prime B2B segment served by 

Bangladeshi plastics industry. 

Others are construction and 

pharmaceuticals. 

Access new markets with 

new products by targeting 

potential B2B segments 

and unexplored B2C 

opportunities. 

and diversify the offering 

basket by incorporating the 

products that offer costadvantage. 

● A premium segment of the 

B2C segment is also largely 

untapped. 

● Offer fair competition to local 

firms over imports through 

policy support and actions. 

101


Annex Notes 

ANNEX NOTE 1.1 

List of Plastic Products 

HS 2002 

Code 

Name 

Description 

39 

Name: Plastics and articles thereof 

Plastics and articles thereof 

3901 

Polymers of ethylene, in primary 

forms. 

Polymers of ethylene, in primary forms. 

3902 

Polymers of propylene or of other 

olefins, in primary forms. 

Polymers of propylene or of other olefins, in 

primary forms. 

3903 

Polymers of styrene, in primary 

forms. 

Polymers of styrene, in primary forms. 

3904 

Polymers of vinyl chloride or of 

other halogenated olefins, in 

primary form... 

Polymers of vinyl chloride or of other 

halogenated olefins, in primary forms. 

3905 

Polymers of vinyl acetate or of 

other vinyl esters, in primary forms 

Polymers of vinyl acetate or of other vinyl 

esters, in primary forms; other vinyl 

polymers in primary forms. 

3906 

Acrylic polymers in primary forms. 

Acrylic polymers in primary forms. 

3907 

Polyacetals, other polyethers and 

epoxide resins, in primary forms 

Polyacetals, other polyethers and epoxide 

resins, in primary forms; polycarbonates, 

alkyd resins, polyallyl esters and other 

polyesters, in primary forms. 

3908 

Polyamides in primary forms. 

Polyamides in primary forms. 

3909 

Amino-resins, phenolic resins and 

polyurethanes, in primary forms. 

Amino-resins, phenolic resins and 

polyurethanes, in primary forms. 

3910 

Silicones in primary forms. 

Silicones in primary forms. 

3911 

Petroleum resins, coumaroneindene 

resins, polyterpenes 

Petroleum resins, coumarone-indene resins, 

polyterpenes, polysulphides, polysulphones 

102 

3912 

3913 

Cellulose and its chemical 

derivatives 

Natural polymers and modified 

natural polymers 

Cellulose and its chemical derivatives, not 

elsewhere specified or included, in primary 

forms. 

Natural polymers (for example, alginic acid) 

and modified natural polymers (for 

example, hardened proteins, chemical 

derivatives of natural rubber), not 

elsewhere specified or included, in primary 

forms. 

3914 

Ion-exchangers based on polymers 

of headings 39.01 to 39.13, in 

primary for... 

Ion-exchangers based on polymers of 

headings 39.01 to 39.13, in primary forms.


HS 2002 

Code 

Name 

Description 

3915 

Waste, parings and scrap, of 

plastics. 

Waste, parings and scrap, of plastics. 

3916 

Monofilament of which any crosssectional 

dimension exceeds 1 mm 

Monofilament of which any cross-sectional 

dimension exceeds 1 mm, rods, sticks and 

profile shapes, whether or not surfaceworked 

but not otherwise worked, of 

plastics. 

3917 

Tubes, pipes and hoses, and fittings 

therefore 

Tubes, pipes and hoses, and fittings 

therefore (for example, joints, elbows, 

flanges), of plastics. 

3918 

Floor coverings of plastics in rolls 

Floor coverings of plastics, whether or not 

self-adhesive, in rolls or in the form of tiles; 

wall or ceiling coverings of plastics, as 

defined in Note 9 to this Chapter. 

3919 

Self-adhesive plates, sheets, film, 

foil, tape, strip and other flat 

shapes... 

Self-adhesive plates, sheets, film, foil, tape, 

strip and other flat shapes, of plastics, 

whether or not in rolls. 

3920 

Other plates, sheets, film, foil and 

strip, of plastics 

Other plates, sheets, film, foil and strip, of 

plastics, non-cellular and not reinforced, 

laminated, supported or similarly combined 

with other materials. 

3921 

Other plates, sheets, film, foil and 

strip, of plastics 

Other plates, sheets, film, foil and strip, of 

plastics. 

3922 

Baths, shower-baths, sinks, washbasins, 

bidets, lavatory pans 

Baths, shower-baths, sinks, wash-basins, 

bidets, lavatory pans, seats and covers, 

flushing cisterns and similar sanitary ware, 

of plastics. 

3923 

Articles for the conveyance or 

packing of goods, of plastics 

Articles for the conveyance or packing of 

goods, of plastics; stoppers, lids, caps and 

other closures, of plastics. 

3924 

Tableware, kitchenware, other 

household articles and toilet 

articles, of pl... 

Tableware, kitchenware, other household 

articles and toilet articles, of plastics. 

3925 

3926 

Builders’ ware of plastics, not 

elsewhere specified or included. 

Other articles of plastics and 

articles of other materials of 

headings 39.0... 

Builders’ ware of plastics not elsewhere 

specified or included. 

Other articles of plastics and articles of 

other materials of headings 39.01 to 39.14. 

103 

Source: UNCOMTRADE (2009).


ANNEX NOTE 1.2 

Types of Manufacturers in the Global Plastics Industry 

Types Operational Process Products Type 

104 

1. Thermo 

Formers 

2. Injection 

Moulders 

3. Pipe, Profile 

and Tubing 

Extruders 

4. Rotational 

Moulders 

5. Film and Sheet 

Manufacturers 

6. Blow Moulders 

Plastic sheet is heated to a pliable 

forming temperature, formed to 

a specific shape in a mould, and 

trimmed to create a usable product 

Material is fed into a heated barrel, 

mixed and forced into a mould 

cavity where it cools and hardens 

to the configuration of the mould 

cavity 

High volume manufacturing 

process in which raw plastic 

material is melted and formed into 

a continuous profile 

A high-temperature, low-pressure 

plastic-forming process that uses 

heat and biaxial rotation (i.e., 

rotation on two axes) to produce 

hollow, one-piece parts 

Manufacture of film and sheets 

through a controlled extrusion 

process 

Manufacturing process by which 

hollow plastic parts are formed. 

Three main types of blow 

moulding are extrusion blow 

moulding (EBM), injection blow 

moulding (IBM), and stretch blow 

moulding (SBM) 

Source: Compiled from PlasticsNews.com 2009. 

Thin-gauge thermoforming: 

disposable cups, containers, lids, 

trays, blisters, clamshells, and other 

products used as food carriers or 

medical appliances 

Thick-gauge thermoforming: 

vehicle doors and dash panels, 

refrigerator liners, utility vehicle 

beds and plastic pallets 

Milk cartons, packaging, bottle 

caps, automotive dashboards, 

pocket combs, consumer products, 

toys, plumbing, packaging and 

construction materials etc. 

Tubes, pipes, rods, rails etc. 

Storage tanks, bins and refuse 

containers, doll parts, road cones, 

footballs, helmets, kayak hulls etc. 

Trash bags, stretch films, packaging 

materials etc. 

EBM: dairy containers, hoses/pipes 

IBM: medicine containers 

SBM: pet bottles


Annex II 

Country Study on Nepal 


THE AGRO INDUSTRY (COFFEE AND GINGER PRODUCTS) 29 

105 

29 

The author would like to thank Ms. Neelu Thapa, Programme Coordinator and Mr. Paras Kharel, 

Senior Programme Officer both of South Asia Watch on Trade, Economics and Environment, 

Kathmandu, Nepal for research and logistics support.

106 




Page 


List of tables ............................................................................................................................... 108 

List boxes ..................................................................................................................................... 108 

1. Introduction ................................................................................................................... 109 

1.1. Objectives of the study .................................................................................... 110 

1.2. Methodology ....................................................................................................... 110 

1.3. Limitations ............................................................................................................ 111 

2. Business Prospects for the Ginger and Coffee Products Sectors in 

Nepal ................................................................................................................................. 112 

2.1. Overview of major coffee producing countries ...................................... 112 

2.2. Coffee production in Nepal ............................................................................ 115 

2.3. Overview of major ginger producing countries ..................................... 116 

2.4. Ginger production in Nepal ........................................................................... 117 

2.5. Employment in the coffee and ginger products sectors ..................... 120 

3. Export Potential and the Government Policy ................................................ 120 

3.1. Export potential for coffee products .......................................................... 121 

3.2. Export potential for ginger products .......................................................... 126 

3.3. The Government policy ................................................................................... 128 

4. Value Chain Analysis .................................................................................................. 130 

4.1. Analysis of the coffee product value chain ............................................... 131 

4.2. Value chain analysis of the coffee sector in Nepal ................................. 133 

4.3. Major constraints on the coffee sector development in Nepal ......... 136 

4.4. Value chain analysis of the ginger sector in Nepal ................................ 137 

4.5. Major constraints on the ginger sector development in Nepal ........ 141 

5. SWOT Analysis .............................................................................................................. 142 

5.1. SWOT analysis of the coffee sector .............................................................. 142 

5.2. SWOT analysis of the ginger sector ............................................................. 144 

6. Future Thrust and Business Plans ........................................................................ 146 

6.1. The coffee sector: future thrust ................................................................... 146 

6.2. The coffee sector: business plan ................................................................. 147 

6.3. The ginger sector: future thrust ................................................................... 150 

6.4. The ginger sector: business plan ................................................................. 151 

107



Page 


1. The coffee value chain ................................................................................................. 132 

2. The coffee sector value chain .................................................................................... 134 

3. The ginger sector value chain ................................................................................... 139 


108 

1. World coffee production, 2000/2001-2010/2011 .............................................. 114 

2. Major coffee producing countries, 2010/2011 .................................................... 114 

3. Coffee production by coffee bean type (in per cent) ....................................... 114 

4. Coffee production in Nepal, 1994/1995-2008/2009 ......................................... 115 

5. District-wise production of coffee in Nepal, 2007/2008 .................................. 116 

6. Area and production of ginger in the world, 2009 ............................................ 117 

7. Production of ginger in Nepal, 1998-2009 ........................................................... 118 

8. Geographical distribution of ginger production in Nepal, 2008 .................. 118 

9. Coffee exports of Nepal (green beans) .................................................................. 121 

10. Export markets for the Nepalese coffee, 2007/2008, (in thousands 

of Nepalese Rupees) ..................................................................................................... 121 

11. World coffee export from 2000/2001 to 2009/2010 ......................................... 122 

12. World’s top 10 coffee exporters, 2009 .................................................................... 122 

13. World’s top 10 coffee importers, 2008 ................................................................... 123 

14. Market access conditions for the Nepalese coffee in major importing 

countries (tariffs in per cent) ...................................................................................... 123 

15. World export of ginger, 2001-2008 ......................................................................... 126 

16. Top 10 ginger exporting countries, 2009 .............................................................. 126 

17. Ginger exports to India (in millions of NRs.) ......................................................... 127 

18. Top 10 importers of ginger, 2009 ............................................................................. 127 

19. Value added in the coffee sector value chains (inclusive of profits) ........... 136 

20. The ginger sector value chain (Phidim, Panchthar), (in NRs./kg) .................. 141 

21. The coffee sector: business plan ............................................................................. 147 

22. The ginger sector: business plan ............................................................................. 151 

List of box 

1. Composition of the Steering Committee of Nepal ............................................ 111


1. Introduction 

In developing countries, small and medium-sized enterprises (SMEs) are 

generally considered the engine of economic growth, as well as a means for poverty 

reduction by virtue of their numbers and their significant economic and social 

contributions. In Nepal, they account for 90 per cent of total enterprises, employ 

95 per cent of the non-agricultural workforce and contribute 50 per cent of industrial 

value addition (Khatiwada 2001). 

Economic liberalization and globalization have significant bearings on the 

performance and prospects of SMEs. At the macro-level, trade liberalization could 

benefit the <strong>country</strong> broadly through improved resource allocation, access to better 

technology, inputs and intermediate goods, economies of scale and scope, greater 

domestic competition and availability of favourable growth externalities such as transfer 

of know-how. Similarly, globalization can provide better access to markets and 

information, and may also facilitate a new physical or virtual proximity between global 

buyers and local firms (UNCTAD 2004). SMEs could benefit enormously from these 

processes, provided they improve their competitive strengths. 

At the disaggregated and firm levels, at least in the short run, however, 

globalization may affect domestic firms both positively and negatively through 

increased foreign competition due to lower import tariffs, quotas and other non-tariff 

measures, lower production costs through cheaper imported inputs, increased export 

opportunities and reduced availability of local inputs (Tambunan 2008). In addition, 

the global system of market governance advocates macro policies that largely tend to 

be indifferent towards the microeconomic conditions of SMEs. 

Thus, it is difficult to have an a priori judgment of the impact of liberalization 

and globalization on SMEs. Increased foreign competition in the domestic market may 

hurt some inefficient or uncompetitive SMEs while benefiting efficient or competitive 

ones. Empirical evidences show that in the short run SMEs may lose due to liberalization 

as it may work against scale efficiency (Tewari 2001; Tybout 2000). Therefore, it is 

necessary that SMEs are supported to upgrade their production capabilities, their access 

to human resources and new technology and their ability to improve the quality of their 

products so as to enable them to expand their base and sustain higher rates of export 

growth through participation in global and regional value chains (Kaplinsky, Morris and 

Readman 2002; Roberts 2000; Roberts and Tybout 1996). It means that it is imperative 

to improve the competitiveness of SMEs through addressing supply-side constraints and 

building up national productive capacity, as well as an efficient trading and transport 

infrastructure. 

109 

The present study, using value chain analysis, proposes national action 

plans for the improvement of the business environment for the facilitation of the 

Nepalese SMEs’ access to regional and global markets. In particular, it presents a supply 

chain network of selected products, their supply capacity, policy and regulatory 

framework as well as an infrastructure and logistics system for the selected agro 

products in Nepal.


1.1. OBJECTIVES OF THE STUDY 

The broad objective of the study is to analyze business environment within 

which Nepalese agro product SMEs, particularly those dealing in coffee and ginger 

products, are operating, and develop national action plan to enhance their 

competitiveness. The study also evaluates production capacity, export potential, supply 

chain networks, policy and regulatory frameworks and strengths, weaknesses, 

opportunities, and threats (SWOT analysis) for the coffee and ginger products sectors. 

Other objectives of the study included assessing export potentials, identifying 

constraints/bottlenecks to export promotion and the value added and suggesting 

measures for implementing national action plans. To achieve the objectives, value chain 

and SWOT analyses were carried out. 

1.2. METHODOLOGY 

The export basket of Nepal contains more than 1100 products at HS 6 digit level, 

including agricultural and manufacturing products, both primary and processed. The 

regular macro-level export promotion strategies and programmes might be unable to 

address the firm- or product-level constraints and conditions for export promotion. It 

is neither practical nor feasible to develop export promotion strategies for all exportable 

products. Therefore, the study focuses on two targeted products with a high export 

potential that could contribute significantly to poverty reduction and social 

development of the <strong>country</strong>. 

The following key criteria have been used to identify two out six short-listed 

products, namely: cardamom; ginger; medical plants (herbs) and essential oils; 

processed leather; tea; and coffee. 30 

110 

a. Export potential 

b. Value added 

c. Job creation 

d. Linkages with other sectors 

e. Supply capacity 

f. Impact on gender empowerment 

g. Accessibility 

h. Government priority 

Out of these products, ginger and coffee were selected by the Steering 

Committee of Nepal, chaired by the Secretary, Ministry of Commerce and Supplies and 

comprised of representatives from the ministries of commerce, industry, finance and 

agriculture, the private sector and the civil society organizations, including the study 

team (Box 1). 

30 

ESCAP Mission had initially identified five potential products for consideration, namely: 

cardamom; ginger;medical plants (herbs) and essential oils; processed leather; and tea based on 

government priority, domestic value addition and potential for employment creation. The Steering 

Committee of Nepal added coffee to the list.


Box 1: Composition of the Steering Committee of Nepal 

The Steering Committee, chaired by the Secretary, Ministry of Commerce and 

Supplies was formed to provide policy and operational guidance to the implementation 

of the project. The composition of the committee included: 

Secretary, Ministry of Commerce and Supplies 

Joint-Secretary (Export Promotion, Trade and Transit 

Division), Ministry of Commerce and Supplies 

Joint-Secretary (Planning and International Trade 

Cooperation Division), Ministry of Commerce 

and Supplies 

Representative, Ministry of Industry 

Chief Executive Officer, Trade and Export Promotion Centre 

Chairman, South Asian Watch on Trade Economics & 

Environment 

Representative, Federation of Nepalese Chamber of 

Commerce and Industry 

Representative, Federation of Nepalese Cottage and 

Small Industry 

Representative, ESCAP 

Under-Secretary (Planning and International Trade 

Cooperation Division), Ministry of Commerce 

and Supplies 

Chairman 

Member 

Member 

Member 

Member 

Member 

Member 

Member 

Member 

Member Secretary 

The analysis was conducted through a combination of literature review and 

focus group discussions. The required data and information were collected through 

different sources, including the government, private sector and international 

organizations publications. The consultants on the project met and interacted with all 

possible value chain agents – farmers, traders, processors, exporters, service providers, 

international non-governmental organizations and government officials in focus group 

discussions. The focus group discussions were organized in Kathmandu for the coffee 

products sector and in Byas Municipality, Tanahu district for the ginger products sector. 

The events not only helped verify additional information, but also provided critical 

insights into the issues. Subsequently, the study was submitted at a national workshop 

and a subregional workshop in Kathmandu and Colombo, respectively, where key 

stakeholders conducted further review. Discussions and comments made at the 

workshops were all reflected in the final study. 

111 

1.3. LIMITATIONS 

The study was conducted within a limited time frame and with little resources, 

which made it impossible to collect primary information through a structured 

questionnaire from all the actors. Similarly, it was impossible to observe all the processes 

included in the value chain, for example land preparation, farming, harvesting,


processing and so on. While interactions with stakeholders helped gain insights into 

the issues, such insights could not be considered as representing all nation-wide 

stakeholders. 

2. Business Prospects for the Ginger and Coffee Products Sectors in 

Nepal 

Sandwiched between two neighbours with giant populations—China to the 

north and India to the south, west, and east—Nepal has a population of about 

27 million. The <strong>country</strong> is divided into three geographical regions: (i) the Himalayan 

range, covered with snow throughout the year; (ii) the valleys and hills; and (iii) the Terai 

belt, low and fertile land that borders India. While about 70 per cent of land area in 

Nepal is covered by hills and high mountains, only the remaining 30 per cent of land, 

found in the Terai belt is suitable for commercial agriculture. Over 56 per cent of the 

<strong>country</strong>’s population lives in the hills and mountains and relies on subsistence farming 

in the absence of other economic activities. Since the Terai belt has highly fertile land 

compared to other regions, most economic activities are located there. Because of 

a difficult terrain, there is a lack of an efficient transport network in the hilly and 

mountainous regions. 

Agriculture is the backbone of the Nepalese economy, making an important 

contribution to the national income and employment generation. In the 1950s, it 

contributed as high as 80 per cent to gross domestic product (GDP) and employed 

90 per cent of the workforce. However, with a shift in government policy since the 

mid-1950s, its importance as a major contributor to GDP gradually declined and fell to 

32.8 per cent by 2008/09 (MOF 2009a). Despite the fact, agriculture still provides 

employment for 67.1 per cent of the workforce—64.0 per cent in subsistence farming 

and 3.1 percent in market agriculture (CBS 2009). The share of manufacturing in GDP 

remains very small, at 6.8 per cent, while the services sector, largely based in urban areas, 

contributes about 60 per cent of GDP. 

112 

Total cultivated land in Nepal is a little more than three million hectares, but 

irrigation facilities are available only on one third of the cultivated land. Nepalese 

farmers have traditionally produced cereal crops, such as paddy, maize, millet, wheat 

and barley. However, they have been shifting to the exclusive production of or 

intercropping with cash crops, such as oilseeds, potato, tobacco, sugarcane, tea, coffee, 

ginger and horticultural products. The following section introduces coffee and ginger 

production in Nepal. 

2.1. OVERVIEW OF MAJOR COFFEE PRODUCING COUNTRIES 

Although there are between 25-100 different species of Coffea (coffee trees), 

the two most important species that are grown and traded internationally—Coffea 

arabica (Arabica coffee), which accounts for over 60 per cent of the world production 

and Coffea canephora (Robusta coffee). Two other species that are grown on a much 

smaller scale are Coffee liberica (Liberica coffee) and Coffee dewevrei (Excelsa coffee). 

These major species of coffee have different varieties and cultivars. For example, the


best known varieties of Coffea arabica are ‘Typica’ and ‘Bourbon’ but from these two 

varieties many different strains and cultivars have been developed, such as Caturra 

(Brazil, Colombia), Mundo Novo (Brazil), Tico (Central America), the dwarf San Ramon 

and the Jamaican Blue Mountain. Arabica coffee plants are often susceptible to attacks 

by pests and diseases. 

Coffee is a tropical plant which grows between the latitudes of less than 

25 degree north and less than 25 degree south of the Ecuator and requires very specific 

environmental conditions for commercial cultivation. Temperature, rainfall, sunlight, 

wind, and soils are all important but requirements vary according to varieties grown. 

Ideal average temperatures are 15-24 degrees Celsius for Arabica and 24-30 Celsius for 

Robusta, which can take hotter and drier conditions. Coffee plants are easily damaged 

by frost. In general, coffee plants need an annual rainfall of 1,500 to 3,000 mm; Arabica 

plants require less moisture than other species. The patterns of rainy and dry periods 

are important for growth, budding and flowering. Rainfall requirements depend on the 

retention properties of the soil, atmospheric humidity and cloud cover as well as 

cultivation practices. 

Arabica coffee plants are best grown at higher altitudes (over 1,000 metres), 

often in hilly areas and, thus, produce superior quality beans of good flavour and 

aromatic characteristics. Robusta coffee, on the other hand, can be grown at lower 

altitudes (between sea level and about 800 metres), have higher yields and are more 

resistant to disease. But they produce beans of inferior taste in comparison with Arabica, 

usually with a woody, astringent flavour and with double amount of caffeine. As a result, 

Robusta beans command a lower price and are generally used for producing cheap 

instant coffee or to increase a caffeine ‘kick’ in products such as espresso. In terms of 

production markets, Arabica coffee is grown throughout Latin America, in Central and 

East Africa, in India and Nepal, and to some extent in Indonesia; while Robusta coffee 

is grown in West and Central Africa, throughout South-East Asia and in certain parts of 

Brazil, where it is known as Conillon. 

The first coffee plantations were originally established in Ethiopia and the 

Arabian Peninsula. Today it is widely grown throughout topical regions (ITC 2009). 

Coffee is produced in more than 70 developing countries while 45 countries are 

responsible for over 97 per cent of world coffee output. The world production of coffee 

is quite volatile and is extremely vulnerable to weather conditions. Global production 

during the period 2000/01 to 2010/08 was recorded in the range of 6.4 million MT to 

8.0 million MT; however, the production sharply declined by 13.7 per cent in 2003/04, 

whereas it increased by 8.4 per cent in the crop year 2010/11 (table 1). Most of the 

world’s coffee beans are produced in Latin America, which accounts for 61.9 per cent 

of global production; the shares of Asia and Africa are 25.5 per cent and 12.6 per cent, 

respectively (Roldan-Perez et al 2009). Brazil is the largest producer of coffee followed 

by Viet Nam, Colombia and Indonesia. In 2008/09 more than half of global coffee 

production was concentrated in these three countries (table 2). 

113


Table 1: World coffee production, 

2000/2001-2010/2011 

Table 2: Major coffee producing 

countries, 2010/2011 

Coffee year 

Production Million Bags 

(60 kg) 

Country 

Production Million Bags 

(60 kg) 

2000/2001 113.0 

2001/2002 107.7 

2002/2003 123.2 

2003/2004 106.3 

2004/2005 116.2 

2005/2006 111.3 

2006/2007 128.9 

2007/2008 120.0 

2008/2009 128.4 

2009/2010 123.0 

2010/2011 133.3 

Brazil 48.1 

Viet Nam 18.5 

Colombia 9.2 

Indonesia 8.8 

Ethiopia 7.5 

India 5.0 

Mexico 4.0 

World 133.3 

Source: ICO (2011). 


Arabica is the dominant variety in coffee production. More than 60 per cent of 

coffee produced worldwide is Arabica, with Brazilian natural being the principal Arabica 

variety, though its share has declined in recent years compared to the 1980s and the 

1990s. The remaining share is Robusta variety (table 3). Arabica is produced in 

Colombia, Kenya, United Republic of Tanzania, the Plurinational State of Bolivia, Burundi, 

Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, 

India, Jamaica, Malawi, Mexico, Nicaragua, Panama, Papua New Guinea, Peru, Rwanda, 

Venezuela, Zambia, Zimbabwe, Brazil, Ethiopia, and Paraguay; whereas Robusta is 

produced in Angola, Benin, Cameroon, Central African Republic, Congo, Côte d’Ivoire, 

Democratic Republic of the Congo, Equatorial Guinea, Gabon, Ghana, Guinea, Indonesia, 

Liberia, Madagascar, Nigeria, Philippines, Sierra Leone, Sri Lanka, Thailand, Togo, Trinidad 

and Tobago, Uganda and Viet Nam (ICO 2009). 

Table 3: Coffee production by coffee bean type (in per cent) 

Types of Coffee Beans 2005 2006 2007 2008 

114 

Arabicas 61.72 62.27 61.20 61.62 

Colombian Milds 12.43 10.82 11.56 8.62 

Other Milds 22.88 21.19 22.90 20.95 

Brazilian Naturals 26.41 30.26 26.73 32.05 

Robustas 38.28 37.73 38.80 38.83 

Source: ICO (2009).


2.2. COFFEE PRODUCTION IN NEPAL 

Coffee production does not have a long history in Nepal. A saint, Hira Giri of 

Gulmi district in western Nepal, is considered to be the pioneer of coffee cultivation in 

Nepal. He bought some coffee seeds from Myanmar and introduced them in Aanpchaur 

of Gulmi district back in 1938. Gradually, plantations of coffee started spreading to 

adjoining districts, such as Palpa, Syangja, Kaski and Baglung, and other districts. 

As the climate and soil conditions in the mid- and high hills of Nepal are suitable 

for Arabica coffee, Nepal grows only the Arabica variety of coffee. Areas under coffee 

plantations have increased more than ten-fold between 1994/1995 and 2008/2009. In 

2008/2009, a total of 557 MT of coffee was produced on 1,531 ha of farmland in Nepal 

(table 4). The average yield of green beans is about 300 kg per ha. Although the 

productivity has increased significantly over the period, it is lower than in major coffee 

producing countries such as Viet Nam and Indonesia. However, through proper 

management, adequate shading and manuring practices, the productivity level 

could go as high as up to 1,550 kg per ha (AEC 2006). Gulmi district produces the 

highest amount of coffee followed by Laltipur, Kavrepalanckok, Syangja and Palpa. 

Lamjung, Gorkha, and Nuwakot districts are other emerging coffee producing districts 

(table 5). 

Table 4: Coffee production in Nepal, 1994/1995-2008/2009 

Year 

Area (ha) 

Production Dry Productivity (dry 

Cherry (in MT) cherry kg per ha) 

1994/1995 135.7 13.0 95 

1995/1996 220.3 29.2 132 

1996/1997 259.0 37.4 144 

1997/1998 272.1 55.9 205 

1998/1999 277.1 44.5 160 

1999/2000 314.3 72.40 230 

2000/2001 424.0 88.7 209 

2001/2002 596.0 139.2 233 

2002/2003 764.0 187.5 245 

2003/2004 925.0 217.6 235 

2004/2005 1 078.0 250.0 231 

2005/2006 1 285.0 391.0 304 

2006/2007 1 295.5 270.0* 347 

2007/2008 1 145.0 265.0* 386 

2008/2009 1 531.0 334.0* 364 

* Parchment, average ratio parchment to dry cherry is about 0.6. 

Source: NTCDB (2011). 

115


Table 5: District-wise production of coffee in Nepal, 2007/2008 

Districts Area (ha) Production (MT) 

Palpa 185.0 25.0 

Gulmi 110.0 35.0 

Arghakhangi 74.0 10.0 

Syangja 205.0 29.5 

Kaski 70.0 13.5 

Parbat 40.0 5.0 

Lamjung 148.0 8.0 

Gorkha 97.0 5.0 

Baglung 35.0 5.0 

Tanahu 45.0 2.0 

Myagdi 5.0 3.0 

Sankhuwashava 18.0 3.0 

Ilam 30.0 15.0 

Khotang 7.0 2.0 

Jhapa 2.0 1.0 

Panchthar 8.0 2.0 

Udayapur 2.5 2.0 

Lalitpur 70.0 30.0 

Sindhupalchok 77.0 17.0 

Kavrepalanchok 116.5 30.0 

Nuwakot 58.0 13.0 

Dhading 16.0 7.0 

Makawanpur 11.0 3.0 

Others 20.0 10.0 

Total 1 450.0 276.0 

Source: MAC 2008. 

2.3. OVERVIEW OF MAJOR GINGER PRODUCING COUNTRIES 

116 

Ginger, the underground stem, or rhizome, of the plant Zingiber officinale Roscoe, 

is a medicinal plant that has been widely used in Chinese, Ayurvedic and Tibb-Unani 

herbal medicines since antiquity to remedy a wide array of ailments that included 

arthritis, rheumatism, sprains, muscular aches, pains, common cold, flu-like symptoms, 

sore throat, headaches, painful menstrual periods, cramps, constipation, indigestion, 

vomiting, hypertension, dementia, fever, infectious diseases and helminthiasis. In 

addition to medicinal use, ginger is valued as an important cooking spice. 31 Currently, 

there is a renewed interest in ginger, and several scientific <strong>studies</strong> have been conducted 

aimed at identifying ginger’s active constituents and verifying their pharmacological 

properties in treating ailments and diseases. The main pharmacological characteristics 

31 

New World Encyclopedia. Available at www.newworldencyclopedia.org.


of ginger and compounds include immuno-modulatory, anti-tumorigenic, 

anti-inflammatory, anti-apoptotic, anti-hyperglycemic, anti-lipidemic and anti-emetic 

actions. Ginger is also a strong anti-oxidant and may either mitigate or prevent 

generation of free radicals. It is considered a safe herbal medicine with only a few and 

insignificant adverse/side effects (Ali et al. 2008). 

Ginger has a long history of medicinal use in the preparation of many Ayurvedic 

formulations, the traditional medical discipline in India and Nepal. In the United States 

of America and Europe, remedies containing ginger are sold as nutraceuticals or overthe-counter 

medications for the treatment of nausea, motion sickness and migraine. 

Ginger is also listed in the German Commission E Monographs as an approved 

phytomedicine against dyspepsia and as a preventive remedy against motion sickness 

(Plotto 2004). 

Ginger is cultivated in Nepal, Bhutan, India, China, Japan, Indonesia, Australia, 

Nigeria and the Pacific islands. India is the largest producer and consumer of ginger in 

the world. Out of the total production, 

Table 6: Area and production of ginger in 

about 30 per cent is used dry, while 50 

the world, 2009 

per cent is consumed as a fresh 

product and the rest as seed material. 

Area Production 

Table 6 presents total areas under 

Year 

(ha) 

(MT) 

cultivation and production volumes of 

1998 312 689 862 863 

ginger in the world. It shows that in 

1999 308 409 948 720 

2009 the area under ginger cultivation 

in the world was 273,736 ha. India has 2000 307 277 948 235 

the largest area of ginger cultivation, 2001 318 776 986 267 

constituting about 39.7 per cent of the 2002 314 064 996 005 

total world area under ginger 2003 338 106 1 150 820 

cultivation. World production of 2004 340 713 1 195 546 

ginger was 1,615,974 MT in 2009. 2005 365 002 1 321 790 

India had a predominant position in 2006 417 349 1 491 069 

ginger production, contributing 23.5 2007 270 007 1 581 392 

per cent of the total world production 

2008 279 648 1 641 629 

in 2009 but productivity was very poor 

2009 273 736 1 615 974 

compared to that of the United States 

of America (FAO 2011). 

Source: FAO 2011. 

2.4. GINGER PRODUCTION IN NEPAL 

Ginger is an important spice cash crop traditionally grown in the mid-hill areas 

of Nepal at altitudes of up to 1,500 meters, across the whole east-west length along 

the Siwalik. It can also be grown in the uplands of Terai. The intercropping of ginger 

with maize is a traditional method and the two form a suitable crop combination. Some 

farmers of Palpa are intercropping ginger with pigeon pea and okra. Ginger is being 

grown in coffee plantations and orange orchards as well (AEC 2006). 

117


The production of ginger almost doubled in a decade to reach 174,268 MT in 

2009; however, the growth is attributed more to the area harvested than to the growth 

yield. The growth yield is 3.0 per cent per year compared to 4.7 per cent of the growth 

of harvested area during 1998 to 2009. Ginger is produced all over the <strong>country</strong> except 

on high altitudes (table 7). The geographical distribution of ginger production shows 

its concentration in western mid-hills. Among the development regions, production is 

the highest in the eastern development region followed by the western, central 

mid-western and far-western regions. However, the productivity seems highest in the 

far-western development region followed by the central and mid-western regions. 

Among the districts, the most important ginger producing districts are Palpa, 

Nawalparasi, Arghakhanchi, Syangja, Kaski and Tanahu in the western development 

region, Salyan in the mid-western region, and Ilam in the eastern region (table 8). 

Table 7: Production of ginger in Nepal, 1998-2009 

Year 

Area Harvested Yield Production 

(ha) (kg/ha) (MT) 

1998 8 821 92 508 81 601 

1999 8 821 92 732 81 799 

2000 8 314 90 202 74 994 

2001 8 956 94 201 84 366 

2002 9 189 95 668 87 909 

2003 11 830 127 298 150 593 

2004 11 930 128 000 152 704 

2005 12 000 128 500 154 200 

2006 12 994 118 668 154 197 

2007 13 025 122 000 158 905 

2008 13 332 132 465 176 602 

2009 13 808 126 208 174 268 

Sources: FAO 2011. 

Table 8: Geographical distribution of ginger production in 

Nepal, 2008 

118 

Development Area Harvested Production 

Regions (ha) (MT) 

Eastern 4 119 51 956 

Central 1 928 24 791 

Western 5 136 46 848 

Mid-Western 1 830 23 452 

Far-Western 994 14 124 

Source: MAC 2008.


Ginger is grown in tropical, subtropical and humid climate at an altitude of up 

to 1,500 metres. A well-distributed (eight to ten months) rainfall (1,500-3,000 mm) 

during the growing season and dry spells during land preparation and harvesting are 

required for good growth and yield of the crop. Dry weather, with temperatures in the 

range of 28-30 degree Celsius for about a month before harvesting, is ideal for ginger 

farming. High humidity throughout the crop growing period is necessary. Ginger gives 

high yield when planted at a depth of 30 cm in good, light, well-drained, loosely friable, 

rich in humus garden soil with a slightly acidic character. 

Depending on the altitude and rainfall, planting is done from February to April. 

Farmers believe that early planted ginger escapes hailstorms and results in high yields. 

Rhizomes are planted in two-three rows in each bed and covered with soil. The spacing 

between rhizomes should be about 15 cm. In most areas, the whole unbroken rhizome 

is planted , which increases the recovery of the mother rhizome yield called mau 

extraction, an ancient practice in Nepal. However, there has been a widespread practice 

among small farmers of intercropping ginger with maize, beans and millets. When 

ginger is intercropped with other crops, inter-row distance is generally 60-90 cm. 

Immediately after planting, beds are covered with mulches consisting of forest leaves, 

straw, grass and other plant residue up to eight- ten cm. thick. Mulching protects 

seedlings from rain, prevents weed growth, keeps soil soft and moist and accelerates 

growth. 

For fresh ginger, the crop should be harvested before full maturity, i.e., when 

rhizomes are still tender, with low pungency and fibre content, usually from the fifth 

month after planting. Such fresh and green ginger is used in pickles, candy preparation 

or cooking. In order to make preserved ginger, harvesting should be done between 

five and seven months after planting, while for dried spice and oil harvesting is best at 

full maturity, i.e., between eight to nine months after planting, when leaves become 

yellow. Rhizomes used as planting material should be harvested when the leaves 

become completely dry. The root and rhizome diseases, particularly bacterial wilt, soft 

rot and yellow are major troubles besides insect pests, such as white grub and shoot 

borer. 

After harvesting, the ginger should be stored properly. There are three 

traditional methods of seed rhizome storage in Nepal. They are storage in soil pits, 

storage in a dry and shaded place and in situ storage. Instead of bearing storage costs, 

many farmers prefer in situ storage (delayed harvest) so that they can supply the product 

according to market demand and allow the rest of rhizomes to remain in the field. 

However, this method leads to rhizome rotting and rhizome sprouting in the course of 

time and also to harbouring insect pests. 

119 

After the harvest, the fibrous roots attached to rhizomes should be trimmed off 

and the soil removed by washing. Rhizomes should be soaked in water overnight and 

then cleaned. The skin can be removed by scraping with sharp bamboo splits or 

wooden splice. Use of metallic knives should be avoided since they will discolour the 

rhizomes. Peeling or scraping reduces drying time, thus minimizing mould growth and 

fermentation. However, the scraping process tends to remove some of the oil that is 

concentrated in the peel. By removing the outside corky skin, the fibre content also


decreases. After scraping, the rhizomes should be sun dried for a week with frequent 

turning and hand rubbed to remove outer skin. This process is called unbleached 

ginger. Mechanical drying is rapid and gives more homogenous and cleaner product 

over the sun drying method where peeled ginger takes eight to nine days to reach 

moisture content of eight to nine per cent. To reduce losses in quality, cleaning and 

drying should be done as fast as possible after harvesting. To avoid discolouration, the 

temperature should not exceed 60 degree Celsius during mechanical drying. Proper 

care should be taken during the grading and packaging to supply quality ginger (Yadav 

et al. 2004). 

Farmers in Nepal traditionally cultivate two landraces of ginger, namely, Nase 

rhizome containing more fibers, and Bose rhizome, which is fibreless or with negligible 

fibres. Ginger Research Programme, Kapurkot offered another ginger variety named 

Kapurkot Aduwa-1 in 2001; however, the demand for seeds of this variety of rhizome 

among farmers cannot be satisfied even now (AEC 2006). 

2.5. EMPLOYMENT IN THE COFFEE AND GINGER PRODUCTS SECTORS 

Coffee and ginger products are highly labour intensive and a large number of 

small farmers are involved in their production. Generally, small farmers employ 

household labour for production and post-production management; however, medium 

and large farmers use hired labour in their post-production and value added activities. 

Small farmers’ family members do almost all the work – from land preparation to 

harvesting of the crops. Men generally purchase seeds and do the ploughing while 

both men and women do the hoeing and digging. Sowing, planting, manure 

application and harvesting are done by both men and women. Women do the weeding. 

While women generally dig out ginger from the field and do cherry picking, its sale is 

looked after by men. 

120 

International Trade Centre (ITC) estimates that ginger production requires 

around 66,600 people for two months per year, which is around 11,000 people as 

full-time employees at the current level of production (ITC 2007). Similarly, it is 

estimated that about 20,000 families are engaged in the production of coffee (Ghimire 

2009) and that is the equivalent of more than 7,700 full-time employees (ITC 2007). In 

addition to direct employment, a large number of people are employed in different 

stages of value addition such as cleaning, packaging, transportation, loading and 

unloading. The Agro Enterprise Centre (AEC) of the Federation of Nepalese Chambers 

of Commerce and Industry estimates that promotion and diversification of coffee 

products into specialty and organic coffee products may engage 75,000 farm families, 

resulting in 460,000 people as beneficiaries – with 420,000 employment positions going 

to farmers’ family members and 40,000 employment positions to processing and 

marketing (AEC 2006). 

3. Export Potential and the Government Policy 

While the total exports of Nepal declined by 0.2 per cent in 2007/08, the export 

of coffee and ginger increased by 168 per cent and one per cent, respectively, implying 

the significance of these sectors. The study evaluates the potential for export promotion


of coffee and ginger products based on export supply growth, global market situation 

and market access conditions. Government policies in agriculture and trade promotion 

are also reviewed. 

3.1. EXPORT POTENTIAL FOR COFFEE PRODUCTS 

Nepal Coffee Producers Association estimates that about 65 per cent of 

the production of coffee is exported to foreign countries. In 2007/08, a total of 

112 thousand kg of coffee was exported with total proceeds reaching 107 million NRs. 

The trend in the growth of export 

both in volume and value is quite 

encouraging. During the last seven 

years export volume increased at an 

average annual growth rate of 71 per 

cent, whereas export value increased 

at a growth rate of 264 per cent 

indicating that Nepalese coffee 

exporters are getting better prices for 

their products (table 9). 

Nepal exports only Arabica 

green beans of two varieties: decaffeinated 

(65 per cent) and regular. 

Destination-wise, export of coffee is 

presented in table 10. The major 

market for the Nepalese coffee is Japan 

for both decaffeinated (85 per cent) 

and regular varieties (50 per cent), 

followed by Germany for the former, 

Canada for the both, and the Republic 

of Korea for the latter varieties. Smaller 

volumes of coffee have also been 

exported to the United Kingdom and 

the United States of America. 

Coffee is the second most 

traded commodity in the world after 

oil. It reached $13 billion in international 

trade and about 80 per cent 

of the coffee’s global production 

trades internationally (ICO 2011). 

World exports increased at an annual 

average growth rate of 26.4 per cent in 

value and 0.7 per cent in volume from 

Table 9: Coffee export of Nepal (green 

beans) 

Year 

Exports 

Volume (kg) NRs. Millions 

2000/01 3 677 0.67 

2001/02 9 075 2.45 

2002/03 16 861 5.20 

2003/04 25 295 5.94 

2004/05 65 000 1.96 

2005/06 91 500 27.67 

2006/07 100 180 40.11 

2007/08 112 000 107.80 

Source: NTCDB (2009). 

Table 10: Export markets for the Nepalese 

coffee, 2007/2008 (in thousands of Nepalese 

Rupees) 

Regular De- 

Countries unroasted caffeinated 

unroasted 

Canada 1 044 927 

Germany 140 7 857 

Japan 8 899 9 242 

Republic of Korea 185 989 

United Kingdom 98 – 

United States 6 – 

of America 

Total 10 372 19 015 

Source: TEPC (2008). 

2000/2001 to 2009/2010, implying that the prices of coffee in international market 

increased over the period (table 11). As far as the global export market is concerned, 

the share of Brazil (32.1 per cent in 2009/2010) is the highest, followed by Viet Nam 

121


(15.5 per cent), Indonesia (8.5 per cent) and Colombia (7.6 per cent) (table 12). Similarly, 

the United States of America is the largest importer of coffee followed by Germany, 

France, Italy, Japan, Belgium and Canada. The growth of imports in all major importing 

countries during 2004-2008 is quite high for both green bean and roasted coffee. 

Belgium recorded the highest growth of 34 per cent in the import of green beans 

whereas Japan topped the list with an average annual growth rate of 78 per cent for 

roasted coffee during 2004-2008 (table 13). 

Table 11: World coffee export from 2000/2001 to 2009/2010 

Year 

Exports Exports Average Price 

(US$ billion) Million Bags Cents/lb FOB 

2000/2001 6.7 88.0 58 

2001/2002 6.6 85.8 58 

2002/2003 7.6 90.2 64 

2003/2004 9.2 88.0 79 

2004/2005 12.4 89.0 106 

2005/2006 14.8 88.0 127 

2006/2007 17.8 98.5 137 

2007/2008 22.0 94.1 177 

2008/2009 20.0 95.4 159 

2009/2010 24.4 94.2 196 

Sources: ICO (2011); ITC (2011). 

Note: One bag contains 60 kg. 

Table 12: World’s top 10 coffee exporters, 2009 

Country 

Exports in 

thousands of bags 

122 

Brazil 30 207 

Viet Nam 14 591 

Indonesia 7 990 

Colombia 7 196 

India 3 901 

Guatemala 3 446 

Honduras 3 161 

Peru 2 999 

Ethiopia 2 904 

Uganda 2 669 


Note: One bag contains 60 kg


Table 13: World’s top 10 coffee importers, 2008 

Country 

Value in billions 

of dollars 

Import Growth 2004-2008 (in per cent) 

Green Bean 

Roasted 

United States of America 4.256 18.0 4.0 

Germany 3.329 23.0 30.0 

France 1.381 29.0 16.0 

Italy 1.379 26.0 30.0 

Japan 1.267 24.0 78.0 

Belgium 1.206 34.0 20.0 

Spain 0.669 21.0 25.0 

United Kingdom 0.628 18.0 3.0 

Austria 0.445 25.0 45.0 


All major importing countries levy zero duty in the imports of green coffee 

beans; therefore, any kind of tariff preference is irrelevant for Nepal. Nonetheless, Nepal, 

being a least developed <strong>country</strong> (LDC), enjoys duty-free access for roasted coffee under 

trade preference for LDCs in all major coffee importing countries. However, the 

preference margin is higher in Japanese markets compared to other markets (table 14). 

Table 14: Market access conditions for the Nepalese coffee in major importing 

countries (tariffs in per cent) 

Green Beans 

Roasted 

Country 

Most Pre- Pre- Most Pre- Pre- 

Favored ferential ferential Favored ferential ferential 

Nation Tariffs Tariffs Nation Tariffs Tariffs 

Tariff for GSP for LDCs Tariff for GSP for LDCs 

United States 

of America 0 – – 0.0 – - 

Germany 0 – – 7.5 – 0 

France 0 – – 7.5 – 0 

Italy 0 – – 7.5 – 0 

Japan 0 – – 20.0 10 0 

Belgium 0 – – 7.5 – 0 

Spain 0 – – 7.5 – 0 

United Kingdom 0 – – 7.5 – 0 

Austria 0 – – 7.5 – 0 

123 

Source: ITC (2011).


The above tables demonstrate that the export of coffee from Nepal has been 

growing significantly and the markets are diversified. The world export market is 

encouraging and demand in major importing countries recorded double-digit growth. 

There are no tariff barriers for market access for the Nepalese coffee and the <strong>country</strong> 

enjoys significant tariff preferences in European and Japanese markets. Thus, a major 

challenge for promoting export is export quality for both specialty and organic coffee 

and meeting sanitary, phyto-sanitary and other standards. 

The quality of coffee is determined by a combination of factors, including 

botanical variety, topographical conditions, weather conditions and care taken during 

growing, harvesting, storage, export preparation and transport. Botanical variety and 

topographical conditions are constants while weather conditions are variable and 

difficult to predict. Therefore, growing, harvesting, storage, export preparation and 

transport are variables that can affect the quality. Although Nepalese coffee producers 

and processors are not highly skilled and equipped with adequate expertise, Nepalese 

coffee is considered high quality because of suitable and diverse climatic conditions. 

Nevertheless, Nepalese producers are not that quality conscious and the presence of 

Ochratoxin A (OTA) 32 has been found in Nepalese coffee in recent years (AEC 2006). 

Moreover, it is disheartening to note that there is no coffee quality standard introduced 

by any agency, private or public, in Nepal. 

The International Coffee Organization (ICO) has adopted resolution 420, which 

recommends voluntary targets for the minimum quality export standards for both 

varieties of coffee, Arabica and Robusta. It calls on producing members to restrict the 

export of Arabica coffee with more than 86 defects per 300 g sample or the export of 

Robusta coffee with more than 150 defects per 300 g sample. The resolution also calls 

on members to prohibit Arabica or Robusta of any grade to be exported if the moisture 

level of beans is below eight per cent or above 12.5 per cent; it also includes a proviso 

that this should not affect the established, good and accepted commercial practices. 

Although specialty coffees that traditionally have high moisture content are exempted, 

resolution 420 requires all producers to clearly identify on the Certificate of Origin any 

coffee that does not reach the recommended standards. 

124 

Since consumer awareness on sanitary and phyto-sanitary standards of food 

items has increased, stringent food legislation is being introduced with a potential 

impact on the export of coffee. For example, Hazard Analysis Critical Control Points or 

HACCP system developed by Codex Alimentarius Commission has become a mandatory 

requirement in the markets of various countries since the 1990s and, particularly, for 

non-farm food businesses in the European Union since January 2006. 

Despite the fact that coffee is mostly grown organically in Nepal, Nepal has not 

been able to export all the coffee as organic because of the problems with certification 

Organic certification requirements cover not only on the product itself but also the 

intrinsic part of the production process and procedure. International Federation of 

32 

Ochratoxin A is one of the most abundant food-contaminating mycotoxins in the world. Studies 

have shown that OTA is potentially carcinogenic. Human exposure occurs mainly through 

consumption of improperly stored food products, including coffee.


Organic Agriculture Movements (IFOAM) has formulated basic standards for organic 

products. These standards are at the base of the legislation that has been introduced 

in the European Union (1992), the United States of America (2000), Japan (2001), and 

a number of other countries, including Argentina, Bolivia, India and Mexico that have 

created national legislation to regulate the market for organic products (ITC 2009). 

Besides certifying coffee cultivation, all subsequent steps in production chain 

also have to be certified to get an organic product certificate. On-farm processing, 

storage, transport, drying and hulling, roasting, packaging, distribution and retailing all 

have to be certified organic. Contact with conventionally produced coffee should be 

excluded. Spraying or fumigation with toxic agents should not be permitted and special 

measures should be taken to prevent contact with areas where fumigation has taken 

place. Adequate records should be kept of incoming and outgoing coffee products so 

that the entire product flow could be documented and accounted for, such process 

referred to as traceability. All steps in the chain should, therefore, be documented and 

accounted for making it possible to trace back the origin of the product from one step 

to the next (track and trace), ensuring that no contamination with conventional coffee 

has occurred. This traceability minimizes the risk of fraud at all stages and is a very 

important part of the inspection process by certifying organizations (ITC 2009). 

Organic products imported into the European Union must have been produced 

in accordance with the European Union regulation on organic food (EC 834/2007). This 

regulation provides that a non-European Union <strong>country</strong> can get an approval if its 

production system complies with principles and inspection measures equivalent to 

those laid down in the European Union regulations. According to such regulations, the 

following standards must be followed: 

● 

● 

● 

● 

● 

Cultivation of vegetables, green manures or deep-rooting plants in an 

appropriate multi-annual rotation programme; 

Incorporation in the soil of organic material, organic livestock manure and 

vermicompost; 

Pests, diseases and weeds to be controlled by using appropriate varieties, 

rotation programmes, biological pest control, mechanical practices and 

flame weeding; 

Seeds and propagation materials organically produced;. 

Use of non-organic fertilizers, pesticides and biological pest control 

methods is limited. 

In the United States of America, National Organic Program (NOP) has been 

established under Organic Food Production Act. Organizations that are fully NOPcompliant 

(certified) may label their products or ingredients as organic, and may use 

the ‘USDA Organic Seal’ on organic products in the <strong>country</strong>, irrespective of whether they 

are produced domestically or are imported. 

125 

Japanese Agricultural Standard (JAS) for Organic Agricultural Products entered 

into force in April 2002. Enacted by the Ministry of Agriculture, Forestry and Fisheries, 

JAS regulates the production and labelling of organic food items produced in Japan.


Although coffee is not grown in Japan, JAS nevertheless also covers organic coffee (and 

tea) under ‘organic agricultural products.’ Only Ministry-accredited certifying bodies may 

issue JAS organic certification for coffee to be imported into Japan. 

3.2. EXPORT POTENTIAL FOR GINGER PRODUCTS 

World trade in ginger was estimated at $578 million in 2008 and the quantity 

traded was 2.223 million tonnes (table 15 and FAO 2011). The growth of world ginger 

exports was one per cent in value terms 

Table 15: World export of ginger, 

and nine per cent in volume terms during 

2001-2008 

the period 2004-2008 (ITC 2011). China is 

the major supplier in world ginger 

Value in millions 

markets followed by Thailand, Nepal and Year 

of dollars 

the Netherlands (table 16). Despite the 

2001 123.1 

fact that ginger accounts for just more 

than one per cent of national exports, 

2002 121.1 

Nepal ranks as the third largest exporter 2003 132.4 

of ginger in terms of volume and the sixth 2004 286.5 

largest exporter in terms of value in the 2005 321.7 

world market. The fact implies that the 2006 248.0 

price Nepal is getting for its exports is 2007 264.6 

substantially lower than that of the world 2008 578.4 

average. 


Table 16: Top 10 ginger exporting countries, 2009 

126 

Country 

Quantity (tonnes) 

Value (in thousands Unit value 

of dollars) 

(dollars/tonnes) 

China 341 388 284 454 833 

Thailand 49 808 24 932 501 

Nepal 26 724 5 209 195 

Netherlands 18 364 25 835 1 407 

India 12 175 14 279 1 173 

Ethiopia 10 752 6 531 607 

Indonesia 7 326 3 391 463 

Nigeria 4 256 4 431 1 041 

Brazil 3 952 3 892 985 

Fiji 1 037 3 270 3 153 

Source: FAO (2011). 

Nepal’s export market for ginger is primarily India although it has also been 

exporting to Japan and the United States of America in smaller quantities (exports of 

less than half a million NRs. in 2007/2008). Raw and dry ginger export constitutes about 

a half of Nepal’s total export of spices to India. Export of raw ginger constitutes about 

85 per cent and the remaining percentages of ginger export are divided between semi-


processed and dry product, i.e., Suntho. It is reported that more than 60 per cent of 

the total production of ginger is exported to India as fresh or dry product. Ginger export 

trend in terms of value is very erratic. From 2011 to 2008 it has showed an annual 

growth of as high as 75 per cent in 2006/2007 and a decline of 33 per cent in 2004/ 

2005 (table 17). Such volatility in exports could not be explained just by the volatility 

in production; it could be explained 

partly by the internal security measures, 

the political situation and by an 

imposition of sanitary standards by the 

Indian Government. 

Northern Indian markets of 

Gorakhapur, Varanasi, Lucknow, Kanpur, 

Patna, Jaipur and Delhi are major 

destinations for Nepalese ginger. India 

is a large and dynamic market for 

Nepalese ginger. A number of long 

established markets for Nepalese ginger 

in India are currently under threat from 

the increased domestic production, 

especially from the towns of Cochin in 

southern India and Bangalore in 

Table 17: Ginger export to India 

(in millions of NRs.) 

Year 

Total 

Dried Fresh 

Ginger Ginger 

2001/2002 288.4 80.5 207.9 

2002/2003 423.8 108.4 315.4 

2003/2004 365.1 78.0 287.1 

2004/2005 241.1 80.1 161.0 

2005/2006 337.4 62.2 275.2 

2006/2007 590.9 49.6 541.3 

2007/2008 597.2 54.0 543.2 

2008/2009 403.1 68.0 335.1 

Source: 

MOF (2009b). 

south-eastern India (ITC 2007). The major competitors in the Indian markets are China, 

Nigeria, Myanmar and Ethiopia. 

Japan, followed by the United States of America, the United Kingdom and 

Bangladesh, are the major importers of ginger in the world. In these countries, 

ginger is imported processed rather than fresh. However, in South Asia, in countries 

such as India, Pakistan and 

Bangladesh, fresh ginger 

constitutes a major chunk of 

ginger imports. The growth 

rates of ginger imports are 

high in Bangladesh, the 

United Arab Emirates, 

Germany, the Netherlands, 

the United Kingdom, and 

Malaysia; moderate in 

Pakistan, the United States of 

America and India; and 

negative in Japan (table 18). 

The market access 

conditions for the Nepalese 

ginger in major importing 

countries show that Nepal 

enjoys duty-free access in 

Table 18: Top 10 importers of ginger, 2009 

Import value Import growth 

Country (in millions (2004-2008) 

of dollars) (per cent) 

Japan 90.7 -12.0 

United States 43.2 14.7 

of America 

Bangladesh 35.6 732.4 

Pakistan 28.9 23.6 

Netherlands 24.7 46.2 

United Kingdom 24.2 41.2 

United Arab Emirates 22.8 177.0 

Malaysia 21.0 37.1 

Germany 15.9 59.9 

India 12.3 8.5 


127


developed economies, such as Japan, the United States of America, the Netherlands 

and Germany under the Generalized System of Preferences (GSP) for least developed 

countries. Nepal also enjoys a zero duty in the Indian market under a bilateral trade 

agreement and the margin of preference for Nepal is higher in India compared to other 

South Asian least developed countries. Pakistan also provides preferential access for 

least developed countries under the Agreement on South Asian Free Trade Area (SAFTA). 

However, there is no such tariff preference in the Bangladeshi and Saudi Arabian markets 

(ITC 2011). 

The above analysis shows that tariff barrier is not a major constraint for Nepal 

in promoting exports of ginger. The challenge is in the diversification of the value added 

products and the markets. Ginger in Nepal is traded in fresh, dry and processed forms. 

About 85 per cent of ginger is traded fresh and the remaining volume is distributed 

between the dry and a negligible quantity of processed forms. Similarly, more than 99 

per cent of ginger is exported to India. However, product diversification and value 

added is the precondition for market diversification. 

In Asia and the Pacific, most of the consumption of ginger is in the fresh form 

but in other countries consumption of processed ginger, such as paste, oil, oleoresin, 

candy, etc., is on the increase. For example, ginger can be preserved in syrup as in China. 

Australia has also developed the ginger industry and it exports mostly candied rhizomes, 

reputed to have ‘superior and consistent quality.’ Ginger oil can be received by steam 

distillation of grind paste or dried powdered ginger, which is used as a flavouring agent 

for soft drinks and ginger beer and in food preparation. Similarly, ginger oleoresin can 

be obtained by extraction from dried ginger pulverized to coarse powder and added 

organic solvents like ethanol or acetone. However, one needs to note that oil obtained 

from dried rhizomes yields 1.5 per cent to 3.5 per cent on the dry weight basis and 

0.4 per cent on the green weight basis while oleoresin content ranges from 3.5 to 

9.5 per cent. With the increasing ginger production, India and Hawaii (the United States 

of America) have started to produce ginger paste as a value added product. However, 

it is difficult to maintain stability in flavour and quality and preserve ginger paste for 

a long time. 

128 

To enter new markets Nepal needs to diversify processed ginger products. It is 

imperative for Nepal to explore export potentials in the Asia-Pacific markets for fresh 

ginger and in other markets for processed ginger, including organic ginger products. 

However, exporters need to comply with sanitary and phyto-sanitary standards. 

3.3. THE GOVERNMENT POLICY 

Agricultural Perspective Plan (APP) launched in 1995, is the Government’s key 

policy document on agricultural and rural development, but it has only been partially 

implemented. The strategies outlined in the APP were expected to lead to a technologybased 

green revolution in agriculture, which would raise outputs and incomes through 

increased use of yield increasing inputs (fertilizer, improved seed, reliable irrigation) and 

promotion of off-farm activities. The strategy was regionally differentiated between the 

Terai (focusing on high yielding input-based food grain production) and hilly and 

mountainous areas (focusing on horticulture and other cash crops, including ginger and


coffee, as well as on livestock production in prioritized pocket programmes). The APP 

envisaged significant increases in public and private investments and an integrated 

package approach to exploit complementarities between public and private 

investments and with other sectors such as transport and energy. The APP included 

explicit investment targets focused on four priority inputs: fertilizer, irrigation, 

technology and infrastructure (HMG/ADB 1995). 

National Planning Commission of Nepal adopted a three year interim plan 

(2007/2008-2009/2010) in which it spelled out one of its strategies for commercial 

agriculture as establishing and strengthening competitive agriculture value chains on 

products with comparative advantages. The plan also included creating partnerships 

among the Government, cooperatives and the private sector for sustainable 

development of commercial agriculture by establishing, developing and strengthening 

larger pocket areas based on geographic, technical and economic feasibilities. The plan 

has also identified priority agricultural crops and commodities for mission programmes 

by choosing ginger and coffee products and proposed to accomplish the mission by 

addressing various stages of the products’ value chains, among others. To achieve this, 

the plan has adopted the policy of providing high quality seeds, better irrigation 

facilities, agricultural credit, technological development and dissemination, extension 

services, better marketing management system and regulations and human resource 

development (NPC 2007). 

Trade Policy 2009 has also identified ginger and coffee as products for export 

promotion. Regarding ginger products, the policies included production expansion 

based on providing financial support, technology and quality seeds, establishment of 

market system, improvement in the quality of production and processing of ginger, 

introducing quality certification, training farmers during all stages from production to 

marketing, value addition and product and market diversification. Regarding coffee 

products, the document emphasized providing high quality seeds and seedlings, 

identification of new areas for highland and organic coffee production, adoption of new 

technologies for coffee production, processing and grading and assistance to farmers 

in the formation of farmers’ cooperatives (MCS 2009). The Government has also enacted 

Coffee Policy 2003 aiming at increasing the participation of private and cooperative 

sectors in coffee production, processing and trade, developing coffee sector in a 

sustainable manner, creating income and employment opportunities, reducing poverty 

and promoting coffee exports. The policy has also identified strategies and policies in 

production and processing, market and market promotion and institutional 

development (MAC 2003). However, it is yet to be implemented because of the absence 

of implementing policy regulation. 

129 

Direct support to farmers and processors included Government provided 

interest subsidies for the loans taken by coffee producers. The budget speech of 2009/ 

2010 has initiated a programme of providing 25 per cent subsidies on the cost of 

machinery and equipment to coffee and ginger processing industries. It has also 

introduced 100 per cent subsidies for the registration of a trademark ‘Nepalese Coffee’ 

in international markets. However, there is no similar support programme designed 

for the ginger sector.


The Government policies on the development of coffee and ginger sectors are 

positive and progressive, but in comparison with policies of other Asian coffee and 

ginger producing countries are still inadequate and policies’ implementation is sluggish. 

There is no government support for planting seeds and seedling, technology adoption 

and adaptation, quality upgrading and market development, while government 

initiatives on product research and development, processing technology and human 

resource development are disappointing. 

4. Value Chain Analysis 

Value chain has been defined by Michael Porter as a tool for analysis that 

‘disaggregates a firm into its strategically relevant activities in order to understand the 

behavior of costs and existing and potential sources of differentiation’ (Porter 1985). He 

claims that value chain allows us to diagnose the competitive advantage of a firm or 

industry and to enhance the advantage by tailoring the value chain. However, there 

have been significant developments since Porter introduced the concept and a broad 

approach to value chain looks at the complex ranges of activities implemented by 

various actors (suppliers, primary producers, processors, traders, service providers, etc.) 

to deliver raw material to retail market of the final product. The broad value chain starts 

from the production system of raw materials and moves along the linkages between 

enterprises engaged in trading, assembling, processing, etc. This broad approach not 

only looks at the activities implemented by a single enterprise but also includes all its 

backward and forward linkages, up until the level at which the raw material produced 

is linked to the final consumers (Roldan-Prez et al. 2009). 

130 

Value chain analysis or commodity chain analysis disaggregates the global 

structure of fabrication, trade and consumption of commodities and allows for the 

identification of factors and geographical divisions (Tuvhag 2008). Value chain analysis 

has been widely adopted by researchers, industry and development practitioners to 

understand the political economy of contemporary global production systems and has 

been also used as a tool to analyze different aspects of chain coordination and 

governance. Value chain analysis has three key elements: (a) barriers to entry and rent; 

(b) governance; and (c) systemic efficiency (as opposed to point efficiency, meaning that 

the links of the complex value chain need to be integrated to make them efficient) 

(Kaplinsky 2000). At the most basic level, it systematically maps the actors participating 

in the production, distribution, marketing and sale of a particular product. This mapping 

assesses the characteristics of actors, profit and cost structures and flows of goods 

throughout the chain, as well as employment characteristics and the destination and 

volumes of domestic and foreign sales (Kaplinsky and Morris 2001). Secondly, it can 

play a key role in identifying the distribution of benefits to different actors in the chain. 

It means that, through a value chain, one can determine who benefits from participation 

in the chain and also assess which actors benefit from the government interventions 

or support. Thirdly, it can be used to examine the role of upgrading within the chain, 

i.e., improvement in quality and product design and identification of product 

regulations, entry barriers, trade restrictions and standards. Fourthly, it can highlight 

the role of governance in the value chain. Governance in a value chain refers to the 

structure of relationships and coordination mechanisms that exist between its various 

actors. The following analysis focuses on the first two aspects.


4.1. ANALYSIS OF THE COFFEE PRODUCT VALUE CHAIN 

Coffee product value chain is the sequence of stages involved in delivering 

coffee products to the final consumer. It includes production (cultivation, harvest and 

initial processing), roasting, distribution and consumption. 

Coffee production takes place in coffee estates and small farms. This stage 

involves planting, growing and harvesting of the coffee cherry and initial processing 

of separating coffee beans from the skin and pulp of the cherry. The stage is finished 

with the production of green beans. 

Since coffee is largely consumed in non-producing countries, it is exported to 

consumer mostly in the form of green beans. Several firms may be involved in the 

international trade of coffee including exporters, importers and roasters. The trade can 

also occur directly between a grower and a roaster. Moreover, growing and roasting 

can be vertically integrated under single ownership and management. 

Green beans should be processed to display its aromatic and flavour 

characteristics. This processing is called coffee roasting and consists of heating coffee 

beans that transforms the physical and chemical properties of the green beans and turns 

them into roasted coffee beans. 

Finally, coffee is ground and brewed for consumption as a hot or cold beverage. 

Brewing includes the use of a dip brewer, an espresso machine, a French press or 

a vacuum pot, among other methods. Coffee may be further processed to make instant 

coffee, which only requires adding water to consume. 

Fitter and Kaplinsky (2001) have mapped the major inter-<strong>country</strong> input-output 

relations in the coffee value chain presented in figure 1. Various stages of a value chain 

include the following: 

● 

● 

● 

● 

● 

● 

Farmers either pick and dry process or pick and wet process coffee cherries, 

receiving a farm-gate price. 

The cherries are then dry or wet processed to receive coffee beans at 

factory gate price. 

Coffee beans then go to an intermediary for export, reflected in fob prices. 

Coffee beans are shipped to importing countries at cif prices. 

Importers sell coffee beans at wholesale prices. 

Roasters process coffee beans and sell them at factory gate prices. 

131 

Retailers sell coffee beans to the public for domestic consumption and 

restaurants, caterers and coffee bars for out-of-home consumption at retail prices. 

Fitter and Kalinsky (2001) found that not only have coffee producers 

experienced declining share of returns, but also a rising share of the total value chain 

returns has gone to roasters and retailers in the high income consuming countries, who 

were able to protect themselves from competition by introducing product-related


Figure 1: The coffee value chain 33 

Fresh cherry 

US 

cents/lb 

(1994) 

% retail 

value 

added 

Producing Country 

Farm 

Factory 

Dry process: 

dry cherry 

Unwashed green 

bean 

Wet process: 

washed parchment 

Washed green 

beans 

Farm gate 

costs: 

45/91 

Factory 

door 

costs: 136 

10/21 

20/9 

Exporter 

Beans for export 

Export duty 

FOB: 170 

7 

Freight and 

insurance 

CIF: 180 

4 

Import duty 

Import agents 

Beans cleared 

for market 

Dealer 

Wholesale 

costs: 214 

8 

Consuming Country 

Factory 

Processing 

company 

Instant coffee 

Roasted ground 

coffee 

Coffee house 

Factory 

door 

costs: 343 

29 

Retail 

Shop retail for 

home market 

Commercial and 

catering 

Retail 

costs: 440 

22 

132 

Bar 

Coffee bar 

Cappuccino 

costs* 

* Costs variable but very high. Include: overheads, advertising other products (i.e., milk), and the 

‘experience‘ of the coffee bar. (see breakdown of the price of a cup of coffee) 

33 

Source: Fitter and Kaplinsky (2001).


branding barriers entry. It is estimated that farmers only get 10 per cent of final product 

prices and total returns in producing countries are less than 40 per cent of the final 

product prices. 

4.2. VALUE CHAIN ANALYSIS OF THE COFFEE SECTOR IN NEPAL 

In a simplified model of Nepal’s participation in the global coffee value chain, 

the first stages include artisanal process of planting and growing coffee plants, then 

hand picking and seizing and afterwards drying, washing and cleaning coffee beans. 

The process requires a farmer’s constant attention, assuring good quality coffee. Local 

farmers, sometimes through cooperatives, sell the cherry to pulpers or operators, who 

in turn sell them to processors/marketers. After hulling and quality control, it is exported 

as roasted or green beans or sold on domestic market after roasting, grinding and 

packaging. An exporter channels the coffee either to roasters or to other brokers or 

intermediaries. About 65 per cent of the total coffee production is exported while 

35 per cent is consumed domestically. Coffee value chain map is presented in figure 2. 

Farmers play an important role in the coffee value chain because they take part 

in production phase, the first phase in the chain. There are more than 21,000 farmers 

producing coffee in 40 districts of mid hills. Lalitpur, Gulmi, Palpa, Syangja, Kaski, 

Kavrepalanchok, Sindhupalchok, and Arghakhanchi are well-known districts for coffee 

production and farmers of Baglung, Parbat, Dhading, Gorkha, Lamjung, Tanahu, Rasuwa, 

Nuwakot, Okhaldhunga, Ramechap and Ilam have also started growing coffee recently. 

An average coffee farmer belongs to lower middle class and owns 1.4 ha of land 

consisting of bari grassland (non-arable land with steep and moderate slopes, prone 

to soil erosion, which is used for cultivation of maize, millet, beans and mustards) and 

arable land divided in almost equal parts/segments (AEC 2006). Since coffee farming 

gives returns only after three to four years of plantation, poor farmers are rarely engaged 

in coffee farming, as they need immediate returns from their land and labour. Some of 

exporting enterprises, e.g., Highland Coffee Promotion Company Limited and Plantec 

Coffee Estate have also started coffee farming on a large scale by leasing land from 

farmers/government agencies. 

All cherries are handpicked by farmers/hired workforce. Farmers often pluck 

all berries on each branch and do not distinguish between ripe and green cherries. Such 

practice has resulted in quality variation of coffee beans. 

The focus group was informed that the expansion of coffee farming is being 

carried out by farmers despite any scientific proof of the suitability of the land and 

climate conditions to such type of farming. Pioneers of coffee farming had adopted 

the farming and processing system imported from El Salvador and they have been 

modifying the system on hit-and-trial basis ever since. Some farmers are emulating such 

farming system. There has not been any scientific research on the farming methods in 

Nepal and the appropriate method for coffee farming in terms of attaining optimum 

yields and better quality and minimizing plant diseases is yet to be found. 

133


Performed by 

Marketers/Exporters 

Hulling/Selection 

Export 

Hulling 

Selection 

Packing 

Quality Control 

Marketing 

Logistics-Transport 

to post/air bound 

freight, out bound 

logistics 

Domestic Market 

Roasting 

Packaging 

Retailing 

Performed by 

pulpers/processors 

Processing 

Depulping 

Fermentation 

Washing 

Drying 

Sorting 

Storage 

Harvest 

Hand picking 

cherries 

Cherry selection 

Cherry 

transportation 

134 

Figure 2: The coffee sector value chain 

Performed by farmers 

Farming 

Inputs and Land 

Transportation 

Trimming 

Fertilization 

Pesticides/ 

Insecticides 

application 

Land Preparation 

Fencing 

Purchase/transport 

of coffee plants 

Irrigation system 

Plantation of coffee 

trees 

Establishment of 

shading system


Initially there were five players/stakeholders in the coffee sector value chain, 

namely farmers, collectors, pulpers, processors and traders. However, in the past few 

years some collectors have also started pulping ripe cherries and delivering them to 

processors. The process is common in wet processing systems, which covers nearly 80 

per cent of the market. However, in some places farmers bring ripe cherries/dry cherries 

to collectors, who in turn (after drying ripe cherries if needed) take them to processors 

directly. Such procedure prevails in the dry processing system that accounts for nearly 

20 per cent of the market share. In both dry and wet processing systems, the processors 

act as traders and sell the final product either on domestic and/or international markets. 

Coffee farmers sell ripe cherry to pulper operators at pulpers’ gate. The pulping 

stage is the crucial stage for determining the quality of coffee. It involves sorting, water 

soaking, pulping, fermentation, washing and drying. Pulpers sell parchment to 

processors/marketers. After processing and packaging, processors/marketers sell coffee 

in domestic or international markets. 

Processors or exporting companies often buy parchment from collectors or get 

cherries from their own farms. Processors are also involved in processing and packaging 

of coffee in different size packages and putting brand labels. 

It was reported in the focus group discussion that there has not been any 

research on the use of technology in pulping, hulling and drying. Participants in the 

discussion complained that the Government does not provide any support for farming 

and processing. On the contrary, they view government policies as a bias against the 

coffee sector. For example, the import of machinery for pulping, drying, grinding and 

roasting has normal custom duties up to 30 per cent, while other machinery importing 

industries have much lower custom duties. 

In order to prepare coffee beans for marketing in the domestic market or for 

export, marketers/exporters reprocess the coffee collected from processors to meet 

export standards and classify the coffee into different quality categories. But even after 

reprocessing, the coffee still has many imperfections, due to inadequate technology. 

The coffee export is often affected by three problems: humidity, black and broken 

beans, and impurities. Additionally, contamination with Ochratoxin A is also seen as a 

problem (AEC 2006). 

Coffee is exported mostly on fob Kolkata basis. However, some exporters also 

export by air. Transporting coffee is costly. The extra cost involved in export includes 

the movement of fumigated container (for conventional coffee) from Kolkata to 

Kathmandu and back, the cost of ventilated container and a detention charge. Exporters 

also have to pay taxes/fees at customs points. Since there is no national agency in Nepal 

that certifies both the quality of coffee and the <strong>country</strong> origin of producer, it has been 

reported that imported coffee, mostly coming from India, has been marketed and 

exported overseas as the Nepalese coffee. 

135 

An indicative value added/profit in different supply chains of the coffee sector 

is presented in table 19. The table shows that coffee growing is more profitable for 

farmers compared to growing alternative crops. Farmers get 150 per cent return on


Table 19: Value added in the coffee sector supply chains (inclusive of profits) 

Stages 

Index 

Percentage of 

value added and profits 

Cost of production 100.0 – 

Sale proceeds of growers/farmers 250.0 150.0 

Sale proceeds of pulpers/operators 322.2 28.8 

Sale proceeds of processors/marketers 355.5 10.3 

Sale proceeds of domestic retailers 611.1 71.8 

Sale proceeds of exporters 648.8 82.5 

Source: The author’s calculation based on AEC (2006). 

their investment. The return in exporting coffee in international market is higher than 

the return in marketing it in domestic market. However, the quality of exported coffee 

is also high compared to the quality of coffee sold in domestic market. 

In 1990 the farmers of Palpa district established Coffee Entrepreneurs 

Association, Palpa for promoting coffee production and distribution. In 2001 the 

initiatives of the farmers of Palpa and farmers of other districts resulted in the 

establishment of a Federation of Nepalese Coffee Producers Association, an umbrella 

organization of coffee producers, traders and exporters. At present, 14 district-level 

coffee entrepreneurs’ associations, 750 coffee producers’ groups and cooperatives and 

about 20,000 farmers are affiliated with the Federation. The objectives of the Federation 

include: improving quality and standards of Nepalese coffee, institutionalizing 

commercialization of coffee in a sustainable manner, developing infrastructure for coffee 

production and distribution and protecting the interests of coffee farmers. 

National Tea and Coffee Development Board (NTCB) was established in 1993 

under Tea and Coffee Development Board Act 1993. Its functions include: formulating 

and implementing tea and coffee development policies; identifying problems and 

providing recommendations for the development of tea and coffee sectors; providing 

support to enterprises in using tools and equipment for tea and coffee production and 

processing; bringing in technical know-how and skills to farmers, entrepreneurs and 

relevant organizations; and networking and cooperating with all stakeholders in tea and 

coffee sectors. 

136 

4.3. MAJOR CONSTRAINTS TO THE COFFEE SECTOR DEVELOPMENT IN NEPAL 

The favourable natural conditions, enjoyed by the coffee industry in Nepal, 

create an advantage over other coffee exporting countries. These conditions are a 

product of the right altitude, latitude, climate, soil type, the surrounding environment 

and default organic farming practices. In spite of being blessed with favourable natural 

environment, the Nepalese coffee industry has been facing problems in all parts of its 

value chain, including production, processing and marketing. In addition, there are 

some institutional problems too.


As there has not been any research on the suitability of soils for coffee 

production, coffee tree planting has been done sporadically, all over the mid-hills, 

without any pocket areas selected for coffee development. As the production is thinly 

distributed among small growers, the farmers are not aware of the quality of the coffee 

produced as there is no agency to certify the quality of coffee. Similarly, there has not 

been any research on improving the quality of seeds and seedlings and there is no 

institutional mechanism to provide/distribute quality seeds/seedlings or the required 

nutrients/organic fertilizers and pesticides. There is no financial incentive to upscale 

production such as an easy access to and lower cost of finances. Participants in the 

focus group discussion also mentioned that coffee plants were infected by White Stem 

Borer. 34 But there were no experts who could advise farmers on how to control the pest. 

In processing coffee beans, there is a lack of adequate machines, equipment 

and accessories for pulping, washing and drying. There has not been any significant 

research on the suitability of the machines used in coffee processing. There is a lack of 

skilled workforce to do the processing and the accredited laboratory to control the 

quality. After the processing is finished, storage at appropriate temperatures becomes 

another problem, which, if not solved, exposes coffee beans to fungus and moulds and 

thus causes Ochratoxin A. 

Exporters and traders are facing a number of problems both in domestic and 

export markets. There is no quality and market regulation in the domestic market 

resulting in substandard imported products entering the market. Similarly, there is no 

testing laboratory for certification, including cup testing, to ensure coffee beans quality. 

In addition, exporters are facing high costs for certification, transportation (including 

fulfilling requirements for ventilator containers) and packing materials as well as 

experiencing problems with warehousing system. Exporters are also required to pay 

local taxes, both formal taxes levied by the state and informal taxes imposed by multiple 

private actors. There is also no institutionalized system providing export market 

information. 

Though the Government has enacted the Coffee Policy 2003, but due to a lack 

of implementation guidelines the policy is in limbo. During focus group discussion the 

participants complained that National Tea and Coffee Board (NTCB) was preoccupied 

by the activities of tea promotion and coffee-related issues were put on the back burner. 

4.4. VALUE CHAIN ANALYSIS OF THE GINGER SECTOR IN NEPAL 

The ginger produced in Nepal has been traditionally traded domestically as well 

as exported to India. Therefore, both Nepalese and Indian functionaries are engaged 

in creating a value chain map – the Nepalese functionaries are engaged in production 

and collection stages and the Indian functionaries in wholesale and retail stages. 

Though the linkages between the actors are traditionally deeply rooted but the chain 

137 

34 

A disease caused by an insect Xylotrechus quadripes, that affects the stem and sometimes the 

root of Arabica coffee plant. It is one of the most destructive pests affecting Arabica coffee plants 

in India, resulting in not only the loss of the current crop but also in uprooting of infested plants 

and replacing them with new trees.


provides more value to the Indian traders and wholesalers than to the Nepalese 

producers (Full Bright Consultancy 2008). The Agri-Business and Trade Promotion 

Multipurpose Cooperative reports that scientific method of cultivation, improved 

varieties, grading and modern packaging methods are not practiced by farmers as well 

as by traders (ABTRACO 2005). Traders reported that because of these problems up to 

20 per cent of the product was wasted every year and the Nepalese ginger fetched 

a comparatively lower price than the ginger produced in the hills of India. 

There are three types of farmers engaged in ginger production: (a) small farmers 

with subsistence ginger production; (b) small commercial farmers with small production 

volume but still targeting the market; and (c) large-scale commercial production farmers. 

The produce from the first category of farmers generally does not enter the market or 

enters in a very limited quantity, targeting local hat-bajar market. Small and large-scale 

commercial farmers sell most of their produce to various market intermediaries. 

Many farmers clean ginger by removing dirt and soil immediately after 

harvesting. About half of the farmers sell ginger immediately after harvesting and 

the rest store their produce either inside or under houses in jute bags or in pits. Only 

commercial farmers do sorting and grading of ginger according to product size (AEC 

2006). 

Market information is generally inaccessible to small farmers and they have to 

depend on the information provided by collectors, while large farmers do use 

information technology such as phones, radios and TVs to get the latest market 

information. 

138 

Small traders and big producers residing in same village would occasionally be 

involved in ginger trading. Local traders generally collect ginger from producers and 

transport it to the district-level traders and wholesalers. In addition to the village-level 

collectors, some shopkeepers on highways/roads are also engaged in ginger trading. 

These traders have a permanent base of regular customers/farmers. Road head traders 

are important market functionaries in ginger marketing and a large part of the produced 

ginger flows through them. Farmers deliver ungraded ginger to the road head traders 

and it is there, where the preliminary grading is performed. Cut, rotten and spoiled 

rhizomes are graded out. The grading may be carried out on their premises or when 

the product reaches the district market but in both cases road head traders pay for 

grading (labour cost plus weight loss). These traders have limited storage facilities and 

keep ginger until they have filled a full truck or tractor load. In many cases the road 

head traders make purchases using the capital provided by big traders as short-term 

loans. The interest rate is quite high, around two per cent per month (Full Bright 

Consultancy 2008). 

Local traders collect ginger from local collectors and sell them to wholesalers/ 

exporters stationed in bordering cities. These traders deal in big quantities and possess 

some sort of storage facilities. However, the storage facilities are not adequate for 

storing fresh ginger for a long time and losses are reported to be quite high for delayed 

shipments.


Figure 3: The ginger sector value chain 

Retailing 

Indian retail shops 

Trading 

Processing 

Trading 

Collection 

Napali 

Processors/Traders 

Big District Level 

Traders 

Local collectors 

Indian wholesales 

and 

Traders 

Commission Agents 

(India)/traders 

Road Head 

Traders 

District Chamber of 

Commerce and Industries 

National Federation of Ginger 

Traders 

Agriculture Development Bank 

Informal Credit Supplier 


Ginger Growers 

Cooperatives 

Farmers’ Groups 

Panchkhal Farm 

DADO NGRP 

Ginger and 

Cardamom 

Development 

Centre 

Micro-Credit 

Function Actors Enablers 

Source: Full Bright Consultancy (2008). 

Commission agents play a vital role in marketing channels. Basically all 

exportable ginger go to various terminal markets in India through commission agents 

stationed in border cities in India. The commission agents generally do not own the 

product but arrange sales on behalf of owners/traders, working on commission and 

bearing no risk. For this service, they charge 10 per cent commission on the total sales 

value. Nepalese exporters do washing, grading and repacking before handing over the 

shipment to Indian wholesalers. 

139 

Unlike coffee farmers, ginger growers are not well organized. Nepal Ginger 

Producers and Traders Association was established in 2005 to promote ginger product 

in Nepal but its activities cover only the eastern part of Nepal. NGOs/INGOs and other 

support groups have assisted farmers organizing informal groups but these groups are 

mostly inactive. However, recently ginger farmers started forming cooperatives, 

although the effectiveness of such cooperatives is negligible compared to cooperatives 

of vegetable growers.


There are only a few ginger producers’ associations at district levels, such as in 

Palpa and Ilam districts. Some of district chambers of commerce and industries are 

active in promoting the ginger business. However, these organizations do not have 

meaningful coordination and linkages with the public sector and other support 

agencies to enhance the value chain (Full Bright Consultancy 2008). 

Department of Agriculture (DOA), Ministry of Agriculture and Cooperatives is 

entrusted with the task of providing pre-cultivation, cultivation, harvesting and postharvesting 

services to farmers. However, due to limited financial and human resources 

the services are inadequate. Instead, farmers get ‘embedded’ services from input 

suppliers. For example, information and protection measures against pests and plant 

diseases are provided by pesticide retailers. Unfortunately such information is biased 

and the quality of services is poor. 

District Agriculture Development Office (DADO) is also implementing various 

activities on ginger product promotion, such as farmers’ group formation, providing 

advice to farmers, training and technology demonstrations. Ginger and Cardamom 

Development Section (Directorate of Vegetable Development within the Department 

of Agriculture) is engaged, among other things, in collection and selection of ginger 

varieties, technology generation, production and distribution of quality planting 

materials and providing training and technical know-how to farmers. Spices 

Development Centre, Panchkhal and National Ginger Research Programme are public 

sector agencies engaged in promotion and development of ginger product. 

140 

An indicative value added at different stages of ginger sector value chain, based 

on a study in Phidim, Panchthar district in east Nepal, is presented in table 20. The Table 

shows that farmers incur major expenditures in the cost of seeds (around 38 per cent), 

labour (26 per cent), fertilizer (19 per cent) and land rent (13 per cent). A margin received 

by the farmers is about 25 per cent of the wholesale market price in India. Local traders 

are generally involved in collecting and transporting ginger to local market centres and 

their margin is about four per cent of the wholesale market price in India. The local 

traders and wholesalers are two key players in ginger product marketing and bear the 

costs of short-term storages, transportation, washing, grading, packaging, etc. They also 

have to pay taxes, both formal and informal, also, the cost of customs clearance. The 

margin at this level of the value chain is reported to be around nine per cent of the 

Indian wholesale market price. An Indian commission agent stationed in Naxal, a nearby 

Indian wholesale market, receives a 10 per cent margin on this nearest Indian market 

wholesale price. An important finding, emerging from the analysis, shows that the costs 

incurred in customs clearance, transportation and tax collection by different groups 

make the marketing cost quite high. Similarly, the losses at the marketing level are also 

high due to inadequate post-harvest management at the production level. Also, the 

commission charged by wholesalers and commission agents is relatively high due to a 

lack of market information among upstream value chain actors.


Table 20: The ginger sector value chain (Phidim, Panchthar), (in NRs. /kg) 

Farmers/ Local Traders/ Wholesaler/ Indian Commission 

Growers Collectors Exporters agent 

Items Cost Items Cost Items Cost Items Cost 

Production Cost Assembling Load/unload 0.19 Commission 4.32 

Costs 

Land rent 1.92 Bag – Short term 0.05 

storage 

Seed 5.39 Grading/ – Transport 1.25 

Packaging 

Labour 3.69 Collection/ 1.50 DDC tax 0.25 

Transportation 

Fertilizer 2.73 Acquisition 25.0 Other local 0.34 

costs 

informal taxes 

Total production 13.73 – – Customs 1.15 

cost 

clearance 

Post production – – – Cleaning, 0.89 

cost 

grading, 

packaging cost 

(India) 

Post harvest 0.47 – – Acquisition cost 28.25 

transportation 

Total Farm level 14.20 Total local trade 26.50 Total Wholesaler/ 32.37 

costs level cost Exporter cost 

Losses – Losses – Losses (8%) 2.58 

Margin 25.00 Margin 1.75 Margin 3.93 

Farm gate price Assembler level 28.25 Wholesale level 38.88 Price at Indian 

price price wholesale 

market 

Source: Full Bright Consultancy (2008). 

4.5. MAJOR CONSTRAINTS TO THE GINGER SECTOR DEVELOPMENT IN NEPAL 

In spite of the fact that ginger is an important cash crop for the Nepalese 

farmers, no major breakthrough has been made so far in boosting its production and 

export. Since it is a vegetatively propagated crop, a lack of knowledge in selecting highyield 

varieties and other mistakes, committed in the past, must have contributed to poor 

results. The major constraints to ginger production and export increase are as follows: 

141 

Small land holdings. Because of the terrain, the size of land holdings is very small 

and farmers are producing many crop varieties on the same piece of land. Therefore, 

commercialization of crop/variety on a large scale is very difficult unless the Government 

supports the system of contract/ lease farming;


Unavailabilty of quality planting material and other inputs. Although National 

Ginger Research Programme is mandated to conduct research on ginger, it has 

recommended so far only one variety of ginger, Kapurkot-1. Good quality, high-yielding 

and disease resistant rhizomes are not available to farmers. In addition, inputs like 

manure, pesticides and herbicides are rarely used; 

Pest infestation. High rainfall and inappropriate storage facilities cause heavy 

infestation with weeds, pests and diseases and lead to nutrient leaching; 

Lack of funding. Although ginger is one of the major cash crops for rural farmers, 

farmers are not getting any financial support from the Government to purchase quality 

seeds and other inputs. A scheme should be created to provide soft loans to farmers; 

Problems in processing and marketing. Succesful ginger growing depends on 

adequate processing units, marketing and transport facilities. Presently, there are hardly 

any cold storage facilities available and a few existing processing units are not 

functioning up to the desired capacity. All ginger producing pockets are not well 

connected to a transport network and the majority of farmers do not get access to 

collection centres; 

Lack of laboratory testing facilities. The major export market for the Nepalese 

ginger is India. Indian Quarantine Act requires ginger to be tested in the laboratory 

and the quality ensured before importation. There is no such facility in Nepal or at least 

none that fulfills Indian requirements. In order to export ginger to India, exporters are 

required to send a sample to an Indian laboratory and get the laboratory report, which 

takes about three weeks. Moreover, a higher quality standard would be required to 

export to developed countries. 

5. SWOT Analysis 

142 

SWOT analysis is a simple framework for generating strategic alternatives from 

a situation analysis. It is a strategic planning method used to evaluate the strengths, 

weaknesses, opportunities and threats involved in a business venture. It involves 

identifying favourable and unfavourable internal and external factors helping to achieve 

the objectives of a business venture. The strengths and weakness related to the 

business venture are internal factors whereas the opportunities and threats from the 

outside environment are external factors. The results are often presented in the form 

of a matrix. This section presents the SWOT analysis for the coffee and ginger product 

sectors. 

5.1. SWOT ANALYSIS OF THE COFFEE SECTOR 

The favourable climate, the rate of growth in coffee production and export the 

interest and passion on the part of the Nepalese coffee farmers and the identification 

of coffee as a priority product for development — all point to its potential, emerging 

as an important enterprise. Therefore, it is necessary to identify and analyse the 

strengths, weaknesses, challenges and opportunities of the coffee sector, so that the 

necessary steps required for its development are taken out on time. The study has 

identified the following major strengths, weaknesses, opportunities and threats.


Strengths 

● 

● 

● 

● 

● 

● 

● 

Availability of favourable climatic and other natural conditions for the 

production of high quality coffee, including specialty coffee, in most 

districts of the mid-hills. 

Existence of a well-established institutional base, e.g., Federation of 

Nepalese Coffee Producers Association and Nepal Tea and Coffee 

Development Board and the willingness and the ability of all stakeholders, 

including the Government, the farmers, the private sector, the nongovernmental 

organizations and the donor community to participate in 

coffee product promotion. 

Availability of numerous cheap workforce for coffee farming and 

production with the farming system being ‘organic’ by default. 

Availability of farmers and processors having basic understanding of coffee 

production and the gradual emergence of professional pulpers, processors 

and roasters. 

Emergence of the Nepalese coffee as a highland organic coffee brand in 

export markets and the increased demand for such specialty coffee. 

Possibility of intercropping with other food crops. 

Coffee production as a potent instrument to alleviate poverty in rural areas 

by creating employment and generating income in marginalized groups. 

Weaknesses 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

Low export volume. 

Minimum research and development on the suitability of land, seeds and 

seedlings varieties, farming techniques and processing and roasting 

technologies. 

Lack of skilled manpower. 

Lack of awareness among farmers of the importance of quality resulting 

in quality variation. 

Lack of supply of quality inputs, such as seeds and seedlings, nutrients, 

organic fertilizers, insecticides and pesticides. 

Lack of coffee product standardization, quality laboratories, certification 

agencies and market regulation. 

Inadequate government support in land acquisition, farming, processing, 

and marketing. 

Insufficient information on production, processing, marketing, and 

domestic market. 

Discontinuity of the initiatives on coffee development by international 

non-governmental organizations and development partners. 

Insufficient coordination among government agencies and private sector 

players. 

143


Opportunities 

● 

● 

● 

● 

● 

High-income elasticity and the growing demand in domestic and 

international markets, although at a slow rate. 

Ample opportunities for entering into new niche markets in the United 

States of America, the European Union and the Gulf countries with specialty 

and highland organic coffee. 

Favourable climatic conditions and a high potential for growing specialty 

and highland organic coffee for the international market. 

Increasing demand and price for specialty and organic coffee. 

Growing interest and activity of producers’ associations both at the district 

and national levels and farmers/private sector in coffee production. 

Threats 

144 

● 

● 

● 

● 

● 

● 

● 

Increasing migration of the workforce overseas and to urban areas may 

result in a decrease of labour force for coffee farming and an increase in 

the wage rate. 

Income elasticity of the coffee sector is positive and greater than one and, 

thus, any volatility in global economic situation impacts the demand for 

coffee. 

Unilateral trade liberalization and tariff reduction under the World Trade 

Organization may erode the margin of preference that the Nepalese coffee 

has been enjoying in export markets. 

Most coffee exporting countries are promoting coffee with the help of 

strong government intervention and support; hence, lack of resources 

to provide support to the coffee sector may adversely affect the 

competitiveness of the Nepalese coffee. 

Nepal specializes in the production of Arabica variety so the increased 

production and aggressive marketing of Robusta at the global level may 

affect the demand for Arabica coffee. 

Increasing quality consciousness of the consumer in the export markets 

may pressure governments concerned into adopting unilaterally higher 

level of sanitary and phyto-sanitary standards. 

High variations and unpredictability in quality may be detrimental to 

acquiring brand status in the international market. 

5.2. SWOT ANALYSIS OF THE GINGER SECTOR 

Ginger is one of the main cash crops supporting the livelihood and improving 

the economic level of many rural households in Nepal. Its development would 

contribute in creating employment and raising income and standard of living of rural 

dwellers. The following section deals with the strength, weaknesses, opportunities and 

threats of the ginger sector in Nepal.


Strengths 

● 

● 

● 

● 

● 

The climatic and soil conditions for the production of ginger exist in many 

districts in Nepal and the supply capacity could be enhanced with the 

appropriate interventions. 

Traditional spices in South Asia include ginger as a major component and, 

therefore, demand in the domestic and export market is stable. In addition, 

the medicinal value of ginger has also helped increase the demand. 

It could be traded in raw or semi-raw form without any sophisticated 

processing. 

Farmers are aware of the production system, and are organized through 

cooperatives and district-level associations. 

Most of the ginger producing pockets, e.g., Palpa in the west and Ilam in 

the east of Nepal are well connected to the transportation system and 

market network, including domestic retail and wholesale markets as well 

as northern Indian markets. 

Weaknesses 

● 

● 

● 

● 

● 

● 

● 

● 

Most of ginger produced in Nepal have high fibre content and is considered 

inferior in quality compared to ginger produced in South India, but farmers 

are not aware of the importance of quality. 

The prices farmers receive from collectors are highly volatile and this is a 

disincentive for ginger farming. 

Farmers are not well organized and transport their produce to the 

collection centres on their own, paying high transportation costs. 

Shortage of the minimum essential services required for the farmers, 

including the inputs such as: seeds and fertilizer, irrigation facilities, 

marketing services, credit, and market/price information. 

Farmers use traditional farming methods and do not possess the adequate 

knowledge of and techniques in production, grading, packaging, and postharvest 

handling. 

Prevalence of rhizome rot disease causes significant losses during both 

growing and storing stages. 

Farmers use traditional method of drying (Suntho making) ginger, which 

makes it unacceptable for industrial use. 

Farmers and other entrepreneurs are unaware of ginger processing 

technology and value added secondary ginger products. 

145 

Opportunities 

● 

● 

High and increasing demand in northern cities of India for the Nepalese 

ginger. 

Government has identified ginger as one of priority products for 

development and committed to provide facilities/services to farmers/ 

traders.


● 

● 

● 

A rate of return in ginger production is higher compared to the rate of 

return in the production of cereal products. 

Market access condition in export market is favourable for Nepal as it 

enjoys high tariff preferences in the Indian market. 

Private sector institutions, e.g., Agro Enterprise Centre, provide market/price 

information to farmers/traders; there is also a well established coordination 

mechanism with government agencies, e.g., Agro-business and Marketing 

Development Directorate. 

Threats 

● 

● 

● 

China has been aggressively entering into the ginger market and there is 

a risk of displacement of Nepalese ginger from the Indian market by an 

over-supply of better quality cool season products from Tibet of China. 

In order to diversify the product by moving upwards in the value chain, 

the product has to meet sanitary and phyto-sanitary standards as well as 

other quality standards. 

Insufficient and interrupted supply of electric power used for ginger 

processing. 

6. Future Thrust and Business Plans 

6.1. THE COFFEE SECTOR: FUTURE THRUST 

Interventions in the followings areas of production, processing and marketing 

would go a long way in the promotion and development of coffee product in Nepal, 

which might eventually reduce costs and improve quality and efficiency. 

Survey, analysis and farming model: There is a need for a survey and analysis of 

lands suitable for coffee growing and the development of area-specific farming system 

model under a cluster approach. 

Introduction, evaluation and improvement: There is a need for research on the 

varieties of coffee, their productivity, susceptibility to diseases, cup quality suitable for 

Nepalese climatic situation and soil conditions. Similarly, commercialized nurseries with 

proper monitoring of the quality of seedlings need to be widely established. 

146 

Awareness and skill development: Only producers in the organized sector are 

aware of the importance of the quality of coffee while small farmers give least 

importance to the quality matters. Therefore, there is a need for creating awareness in 

the quality of coffee and training all actors involved in the value chain – farmers, pulpers, 

and processors – on how to improve, maintain, and preserve the quality of coffee. Also, 

there is a need for imparting knowledge to the farmers on the farming of coffee. 

Introduction of a course on coffee in Agricultural Colleges would help to create the 

trained workforce for the coffee sector. 

Certification of coffee products: The Nepalese coffee is by default organic but 

due to the absence of a certifying agency, the bulk of coffee is exported as conventional


coffee. The future action should be focused on establishing legal and institutional 

frameworks for certification and labelling of coffee. There should be a regular 

monitoring of coffee quality marketed in domestic and/or export markets. Similarly, 

supply of organic fertilizers, pesticides and insecticides should also be ensured and cup 

testing laboratories should be widely established. In this regard, support to the farmers 

in establishing internal control system (ICS) is crucial. 

Processing and storage system: Participants in the focus group discussion argued 

that coffee processing system adopted in Nepal was brought in from El Salvador more 

than a decade ago and there has been no improvement in the system since then. 

Research is needed for improving coffee processing system, in particular introducing 

new pulping and solar drying methods. Intervention is also required for better storage 

of coffee so that fungal infection and mould could be reduced. 

Reducing transport and transaction costs: The distance between a farm and 

a processing unit is high in most of the rural areas and, due to a lack of road connections, 

coffee is transported through portage. In this context, harmonization of the rural road 

transport programme with coffee production sites would go a long way to lower 

transportation costs. Traders are required to pay District Development Committee taxes 

even for bringing cherry for processing. In addition, they have to pay taxes to non-state 

actors as well. An empty ventilated container has to be brought to Kathmandu from 

Kolkata by exporters and sent back to Kolkata with coffee beans. A proper warehousing 

facility is also needed in the airport for air transport. 

Institutional development: There is a need for coordination between and among 

government agencies such as Ministry of Agriculture and Cooperatives, National 

Planning Commission, National Tea and Coffee Development Board, District Agriculture 

Development Office, Federation of Nepalese Chambers of Commerce and Industry, 

Federation of Nepalese Cottage and Small Industries, Federation of Nepalese Coffee 

Producers Association and district-level chambers. There is also a need for the 

establishment of a resource centre and institutional support for coffee producers. The 

technical support for this may be sought from development partners including ESCAP 

and FAO. 

6.2. THE COFFEE SECTOR: BUSINESS PLAN 

Table 21: The coffee sector: business plan 

Objectives Actions Recommended Responsible Institutions 

Increasing 

production of high 

quality coffee to 

3,000 MT in 

10 years’ period 

Establishing high level Coffee 

Development Committee under 

the Chairmanship of Member, 

National Planning Commission to 

coordinate and monitoring the 

activities listed below. 

Establishing and strengthening of 

Coffee Resource Centre for 

identification of suitable land, 

National Planning Commission 

Ministry of Agriculture and 

Cooperatives 

147




148 

varieties, farming system, collecting 

and disseminating of coffee-related 


Establishing commercial nurseries 

in major coffee producing pockets 

and providing high yielding and 

disease resistant varieties 

Developing technical expertise in 

coffee farming and up scaling 

extension services 

Providing training to farmers, 

pulpers, and processors, including 

organizing study visits in coffee 

producing countries 

Improving existing and introducing 

new and appropriate pulping, 

drying storage, and roasting 

technology 

Provisioning of cheap and easy 

access to finance 

Creating awareness in specialty 

coffee and organic farming and 

provisioning of organic fertilizers, 

pesticides and insecticides 

Strengthening of organic 

certification system 

Supporting farmer groups in the 

establishment of Internal Control 

System 

Ministry of Agriculture, National 

Agriculture Research Centre, 

National Tea and Coffee Board, 

National Coffee Producer’s 

Association, Coffee Resource 

Centre 


Cooperatives, National Coffee 

Producers’ Association, Universities, 

Centre for Technical Education and 

Vocational Training (CTEVT) 

Department of Agriculture, District 

Agriculture Development Office, 

National Tea and Coffee 

Development Board, National 

Coffee Producers’ Association, 

Federation of Nepalese Chamber of 

Commerce and Supplies 


Cooperatives, Federation of 

Nepalese Chamber of Commerce 

and Industries, Federation of 

Nepalese Cottage and Small 

Industries, National Coffee 

Producers’ Association 


Cooperatives, Ministry of Finance, 

Nepal Rastra Bank 

Ministry of Agriculture, Federation 

of Nepalese Chamber of Commerce 



Industries, National Coffee 



Cooperatives, National Coffee 



Cooperatives, District Agriculture 

Development Offices, District 

Coffee Producers’ Association




Increasing export to 

four per cent of 

total export in 10 

years period and 

diversifying export 

markets 

Encouraging contract and lease 

farming, including leasing of 

government land and community 

forest 

Supporting coffee producers in the 

establishment of cup testing 

laboratories 

Linking coffee producing pockets 

with rural transport system and 

promoting gravity rope way 

Establishing Coffee Development 

Board as an exclusive body for 

coffee development and market 

regulation 

Enforcing Implementing 

Regulation for Coffee Policy 2003 

and implementation of coffee 

development strategy 

Exploring new export markets and 

developing inventory of sanitary 

and phyto-sanitary and other 

standards required in export 

market 

Rationalizing tariffs on the import 

of machinery and packaging 

material 

Reducing transaction costs 

including abolishing local taxes 

Supporting private sector in 

acquiring appropriate containers 

Support in acquiring logo and 

brand name for Nepalese coffee 

Improving warehouses at major 

customs points 

Promoting FDI 


Cooperatives and other Ministries/ 

Agencies 


Cooperatives, District Agriculture 

Development Offices, National Tea 

and Coffee Development Board, 

District Coffee Producer’s 

Associations 

National Planning Commission, 

Ministry of Physical Planning, 


Cooperatives 


Cooperatives, National Tea and 

Coffee Board 

Council of Ministers, Ministry of 

Agriculture and Cooperatives 

Ministry of Commerce and 

Supplies, Trade and Export 

promotion Centre, Federation of 


and Industries 

Ministry of Finance, Ministry of 


Ministry of Finance and Ministry of 

local Development 

Ministry of Finance, Ministry of 


Department of Industry, Ministry of 

Agriculture and Cooperatives, 

National Coffee Producers’ 


Ministry of Finance, Department of 

Customs 

Department of Industry, Federation 


and Industries 

149


6.3. THE GINGER SECTOR: FUTURE THRUST 

Identified below are the areas where intensive intervention could increase 

production and productivity in the ginger sector. 

Survey, analysis and farming model: There is a need for survey and analysis of 

lands suitable for ginger growing and the development of area-specific farming system 

model under a cluster approach. 

Introduction, evaluation and improvement: Introduction of indigenous and exotic 

high-yielding strains of ginger suitable for Nepalese climatic and soil conditions. 

Selective breeding should be done for high-yield, better quality varieties with resistance 

to biotic and abiotic stresses. 

System management research: There is a need to develop micro propagation 

and other propagation methods for rapid mass multiplication. Use of integrated pest 

management (IPM) and integrated nutrient management system is required. 

Post-harvest management: There is a need to develop quality control measures, 

adequate packing and storage techniques. Similarly, there is a need for modern 

technology for processing and preservation of value added products. 

Establishment of a laboratory for product certification: In the global trading 

system, non-tariff barriers, such as sanitary and phyto-sanitary, have become the major 

market access constraints after tariff reduction. Therefore, there is an urgent need for 

the establishment of a well-equipped laboratory for certification of products. The 

Government should also initiate the process for concluding Mutual Recognition 

Agreements (MRAs) with major importing countries. 

Skill development and technology transfer: There is a huge need for 

strengthening the extension system for transfer of technologies and providing training 

to farmers. 

150 

Emphasis on organic farming: Ginger production in Nepal is organic by default 

as ginger farmers in the <strong>country</strong> use neither chemical fertilizers nor chemical pesticides. 

They only use locally available farmyard manures (cow dung, pig manure, poultry 

manures, etc.). Considering the increased demand for organic produce in the world, 

farmers could hope to get better returns for their produce. But first and foremost, they 

need to have proper organic certification for their products. 

Diversification of products: Nepal exports ginger mostly in raw or semi-raw form 

without any significant value added. In order to increase export proceeds from ginger 

products, Nepal should focus on both the value added and diversification of products 

in its production structure.


6.4. THE GINGER SECTOR: BUSINESS PLAN 

Table 22: The ginger sector: business plan 


Creating 200,000 

full time 

employment 

opportunities in 

rural areas in 10 

years 

Establishing high level Ginger 

Development Committee under 

the Chairmanship of Member, 

National Planning Commission to 

coordinate and monitoring the 

activities listed below. 

Establishing and strengthening of 

Ginger Resource Centre for the 

identification of suitable land, 

varieties and farming system. 

Introducing new exotic high 

yielding varieties of ginger. 

Developing technical manpower 

and upscaling extension services. 

Training farmers in the new ginger. 

farming system, including the 

system management. 

Introducing new processing 

technology and supporting 

farmers/cooperatives in the 

application of such technologies. 

Providing cheap and easy access to 

finance. 

Creating awareness in organic 

farming and providing organic 

fertilizers, pesticides and 

insecticides. 

Strengthening organic certification 

system. 

National Planning Commission. 


Cooperatives. 

Ministry of Agriculture, National 

Agriculture Research Centre, Ginger 

Resource Centre. 


Cooperatives, Centre for Technical 

Education and Vocational Training 

(CTEVT). 



District Ginger Producers’ 

Association and District Chambers. 






Industries, District Ginger 

Producers’ Association, 

Cooperatives. 


Cooperatives, Ministry of Finance, 

Nepal Rastra Bank. 

Ministry of Agriculture, Federation 




Industries, District Ginger 

Producers’ Association. 


Cooperatives. 

151




152 

Increasing export 

of ginger to five per 

cent of total export 

through increased 

exports of 

processed products 

in 10 years. 

Supporting farmer’s cooperatives 

and agriculture product trading 

centre(s). 

Strengthening ginger market 

information system and 

establishing ginger trading 

centre(s). 

Encouraging contract and lease 

farming. 

Creating awareness in export 

potential of processed ginger 

products. 

Expanding and strengthening 

quarantine laboratory services at 

customs points and initiating 

process for mutual recognition 

agreement with major importing 

countries 

Organizing study tour for potential 

investors to ginger processing 

centres. 

Providing support/ incentive in 

production of secondary products. 

Establishing strategic alliance with 

ginger traders of the South Asia 

region and promoting FDI in ginger 

processing. 



District Ginger Producers’ 

Association. 

Agro Enterprise Centre, 

Department of Agriculture. 


Cooperatives and relevant 

government Ministries/ 

Departments. 


Cooperatives, Ministry of 

Commerce and Supplies, Trade and 

Export promotion Centre, 


Commerce and Industries, 

Federation of Nepalese Cottage 

and Small Industries. 


Cooperatives, Ministry of Finance 

and Ministry of Commerce and 

Supplies 






Industries. 


Cooperatives, Ministry of Industry, 

Ministry of Finance. 

Trade and Export Promotion 

Centre, Department of Industry, 


Commerce and Industries, 

Federation of Nepalese Cottage 

and Small Industries.


Annex III 

Country Study on Sri Lanka 


THE INDUSTRIAL RUBBER AND ELECTRONIC PRODUCTS SECTORS 35 

153 

35 

The authors acknowledge cooperation extended by the steering committee of Sri Lanka 

consisting of officials from Ministry of Enterprise Development and Investment Promotion, Ministry 

of Industrial Development, Ministry of Plantation Industries, Federation of Chambers of Commerce 

and Industry of Sri Lanka, Small and Medium Enterprise Developers and Export Development Board. 

This study would not have been possible without the support of all sector level institutions including 

Rubber Research Institute of Sri Lanka, Sri Lanka Association of Manufacturers and Exporters of 

Rubber Products, Sri Lanka Electronic Manufacturers and Exporters Association, which provided the 

core data essential for this study.

154 




Page 


List of tables ............................................................................................................................... 156 

List of boxes ............................................................................................................................... 156 

Preface .......................................................................................................................................... 157 

The Industrial Rubber Products Sector in Sri Lanka .............................................. 157 

1. An Overview of the Natural Rubber Sector in Sri Lanka .......................... 157 

2. The Global Rubber Market and Sri Lanka’s Share ........................................ 158 

3. Structure of the Rubber Sector Value Chains ................................................ 163 

3.1. Raw materials and suppliers .......................................................................... 163 

3.2. Natural rubber production process ............................................................. 165 

3.3. Marketing environment .................................................................................. 167 

3.4. Infrastructure and logistics system ............................................................. 168 

4. Factors Affecting Comparative Advantage in Rubber 

Manufacturing .............................................................................................................. 169 

4.1. Rubber cultivation, production and costs ................................................ 169 

4.2. Human resources ............................................................................................... 172 

4.3. Policies and regulatory framework .............................................................. 172 

5. SWOT Analysis .............................................................................................................. 173 

6. Action Plan for the Development of the Rubber Industry in 

Sri Lanka .......................................................................................................................... 178 

The Electronic Products Sector in Sri Lanka ............................................................... 183 

7. Overview of the Global Electronics Industry ................................................. 183 

8. Advancement of Asia-Pacific Developing Countries in the 

Electronics Sector ........................................................................................................ 185 

9. Potential for the Development of the Electronics Industry in 

Sri Lanka .......................................................................................................................... 186 

10. Access to Major Markets .......................................................................................... 189 

11. Value Chains in the Electronics Industry in Sri Lanka ................................ 192 

12. SWOT Analysis of the Electronics Industry in Sri Lanka ........................... 196 

13. Action Plan for the Development of the Electronics Sector Value 

Chains in Sri Lanka ...................................................................................................... 198 

155



Page 


1. Global natural rubber production in 2008 ........................................................... 158 

2. Rubber production in Sri Lanka from 1990 to 2008 .......................................... 159 

3. Global rubber consumption in 2008 ...................................................................... 160 

4. Competitive factor grid (based on industry expert opinion) ........................ 160 

5. Natural rubber production, consumption and exports in Sri Lanka ........... 161 

6. Rubber products export from Sri Lanka, 1999-2008 ......................................... 162 

7. Export income from value added rubber products .......................................... 162 

8. Global value chain of rubber products .................................................................. 164 

9. Natural rubber production cycle .............................................................................. 166 

10. Growth of global consumption in natural rubber, 2005-2010 

(in per cent) ...................................................................................................................... 168 

11. Value of input components in the rubber sector ............................................... 169 

12. Rubber cultivation in 2008 ......................................................................................... 170 

13. Rubber cultivation, yield and cost of production in Sri Lanka ...................... 170 

14. Global rubber cultivation, production and yield in 2008 ................................ 171 

15. Annual average remuneration by rubber product segments ....................... 172 

16. Comparative percentage price variations ............................................................ 175 

17. Natural rubber/synthetic rubber relative price ratio ........................................ 176 

18. Performance of the semiconductor sector, 2001-2010 (actual); 

2011 and 2012 (forecast) ............................................................................................. 185 

19. Total value of inputs and outputs in the electronics sector in Sri Lanka ... 188 

20. Value chains for electronic components ............................................................... 194 

21. Value chains for electronic products ...................................................................... 195 

156 


1. Global rubber production and consumption, 2004-2008 

(in thousands of MT) ..................................................................................................... 159 

2. Competitive factor matrix (based on industry expert opinion) .................... 160 

3. Types of rubbers ............................................................................................................. 165 

4. Action plan matrix for the rubber sector in Sri Lanka ...................................... 179 

5. Apple iPhone 3G’s major components and cost drivers .................................. 184 

6. Productivity levels across the three sectors in Sri Lanka ................................. 188 

7. Trade between India and Sri Lanka, 2000-2007 (in millions of dollars) ...... 190 

8. Action plan matrix for the electronics sector in Sri Lanka .............................. 200 

9. Sub-activities for the action plan ............................................................................. 202 

List of boxes 

1. Experience of Malaysia and Taiwan Province of China in the 

development of the electronics industry ............................................................. 187 

2. An example of the electronics sector FDI in Sri Lanka ..................................... 199


Preface 

Rubber and electronic products are two important export-oriented products of 

Sri Lanka. Rubber, mainly natural rubber industry in Sri Lanka, is based on the 

geographical advantage of the <strong>country</strong>, with its extensive experience in growing rubber 

trees, and on foreign investment in advanced technologies in processing and 

manufacturing of rubber products. Sri Lanka is now exporting different types of 

manufactured finished rubber products. In view of the increasing global demand for 

natural rubber and rubber products and the emerging competitiveness in the rubber 

industry, Sri Lanka is enacting various measures to increase and improve rubber 

cultivation and collection and to enhance the quality of manufactured products. 

Electronic products manufacturing relies on the availability of a skilled labour 

force and the <strong>country</strong>’s central transit location particularly for maritime logistics, which 

could facilitate efficient transportation of electronic components for different end 

products, manufactured in other countries. Furthermore, with considerable experience 

in producing and exporting electronic components for the local joint ventures and fully 

foreign-owned branded electronic products companies, Sri Lanka is now exploring the 

prospects of developing its own branded products. 

The study was conducted with the purpose of enhancing the value added in 

both the rubber and electronic products sectors’ SMEs so that the benefits from such 

value added could be widely distributed. Action plans, detailing national strategies, as 

well as some critical regional programmes have been prepared to facilitate cooperation 

among countries and enterprises for the products under consideration. The findings 

of the initial <strong>studies</strong> were presented at a national workshop, held in Colombo, and the 

proposed strategies and recommendations for strengthening the value added in the 

rubber and electronic products sectors were deliberated. Action plans were presented 

and further discussed at the subregional workshop also held in Colombo with 

representatives from participating countries, bilateral and multilateral agencies, involved 

in promoting subregional cooperation, and other stakeholders. 

The Industrial Rubber Products Sector in Sri Lanka 

1. AN OVERVIEW OF THE NATURAL RUBBER SECTOR IN SRI LANKA 

The rubber industry in Sri Lanka dates back to 1876 with the first planting of 

rubber trees in Henerathgoda Gardens in Gampaha. Rubber cultivation focuses on 

growing rubber trees and producing raw rubber from field latex, while rubber 

manufacturing converts the raw rubber into value added products. In 2008 the natural 

rubber sector contributed $664 million to the economy (EDB 2009) and created 

employment for approximately 200,000 people, mainly in the rural areas (ASI 2009). 

Rubber plantations in 2008 extended over 122,000 hectares, accounting for seven per 

cent of the total cultivated land area of Sri Lanka (Central Bank 2008). 

157


The manufacturing of rubber products began in the 1950s primarily with rubber 

re-treading and expanded rapidly after the introduction of open trade policies and 

development of industry zones in the late 1970s. A tremendous growth of the rubber 

sector has allowed Sri Lankan rubber manufacturers to compete in regional and global 

markets at both industrial and consumer levels, offering value added natural rubber 

products such as solid tires, surgical gloves, automotive parts, mats and hoses. Currently, 

the Government of Sri Lanka and private entrepreneurs are considering the possibilities 

of product diversification and the improvement of domestic and international 

competition. 

2. THE GLOBAL RUBBER MARKET AND SRI LANKA’S SHARE 

The global demand for rubber is satisfied by the supply of both natural and 

synthetic rubber each catering to different consumer needs. Global natural rubber 

production in 2008 amounted to 9.88 million MT, of which 93.2 per cent came from Asia 

and the Pacific (figure 1). The remaining 4.4 per cent and 2.4 per cent were produced 

by Africa and Latin America, respectively. The global supply of synthetic rubber mainly 

comes from Asia and the Pacific, the United States of America and the European Union. 

A contribution of Asia and the Pacific in the global synthetic rubber production in 2008 

was 48.8 per cent, of which 17.3 per cent and 12.3 per cent were from China and Japan, 

respectively. On a macrolevel, the global natural rubber production has gradually 

increased from 2004 to 2008 while synthetic rubber production experienced a dip in 

2008 (table 1) due to economic recession in North America and Europe. Increased 

petroleum prices also led to the decrease in production of synthetic rubber during this 

time. While there was a further overall decline in production and consumption in 2009, 

estimates for 2010 indicated an upward trend. 

Figure 1: Globa l natura l rubber production in 2008 

Sri Lanka 

China 1.3% 

5.6% 

Viet Nam 

6.6% 

Other Asia 

2.5% 

Africa 

4.4% Latin America 

2.4% 

158 

India 

8.7% 

Malaysia 

10.6% 

Thailand 

30.6% 

Source: IRSG (2009). 

Indonesia 

27.3%


Table 1: Globa l rubber production and consumption, 2004-2010* (in thousands 

of MT) 

2004 2005 2006 2007 2008 2009 2010* 

Natural rubber production 8 758 8 906 9 698 9 687 9 877 9 662 10 291 

Natural rubber consumption 8 701 9 184 9 709 10 230 10 088 9 390 10 671 

Synthetic rubber production 11 999 12 136 12 690 13 434 12 813 12 087 14 002 

Synthetic rubber consumption 11 880 11 921 12 692 13 284 12 586 11 754 13 858 

Per cent of natural rubber in 42.3 43.5 43.3 43.5 44.5 44.4 43.9 

total rubber consumption 

Source: IRSG (2009 and 2011). 

Sri Lanka ranks as the eighth largest natural rubber producing <strong>country</strong> in the 

world with a production of 129,243 MT in 2008, which represents just a tiny share of 

around 1.3 per cent of the global natural rubber production and 0.6 per cent of the 

global total rubber production (see figure 1). The natural rubber production in Sri Lanka 

declined significantly and rapidly during the Asian financial crisis in 1997-1998 due to 

low prices for natural rubber in the world market, but rebounded strongly during the 

next decade, as shown in figure 2. 

Figure 2: Rubber production in Sri Lanka from 1990 to 2008 

140 

130 

120 

110 

100 

90 

80 

1990 

1991 

1992 

1993 

1994 

Production ’000 MT 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

The production of natural rubber in Sri Lanka increased by 36 per cent between 

2004 and 2008 (figure 2) and is expected to increase even further as rubber plantation 

projects have been implemented both by the private or small holding and the larger 

state estate (20 acres or more of agricultural land) sectors. Of the total natural rubber 

production in Sri Lanka in 2008, 62 per cent was used for domestic product 

manufacturing and the remaining was exported as raw rubber. 

159 

Of the global rubber consumption in 2008, China consumed 28.4 per cent while 

the United States of America, the European Union, Japan and India consumed 12.3, 15.8, 

8.9 and 5.2 per cent, respectively (figure 3). Sri Lanka consumed 0.5 per cent of global 

rubber products, of which 0.8 per cent was natural rubber consumption and 0.2 per 

cent synthetic rubber consumption (IRSG 2009).


Figure 3: Globa l rubber consumption in 2008 

Japan 

8.9% 

Sri Lanka 

0.5% 

Malaysia 

2.6% 

India 

5.2% 

Other Asia 

7.3% 

USA 

12.3% 

Canada 

1.3% 

Latin America 

6.5% 

Africa 

1.0% 

EU 

15.8% 

China 

28.4% 


Europe 

5.2% 

Indonesia Thailand 

2.5% 2.6% 

With respect to natural rubber production, Sri Lanka has to compete with its 

regional neighbours India, Thailand and Indonesia. Except for the human resources 

factor, these other countries have better competitive advantages as seen in the 

competitive factor analysis presented in table 2 and figure 4 and based on the industry 

expert opinion. 

Ta ble 2: Competitive factor matrix (based on industry expert opinion) 

India Thailand Indonesia Sri Lanka 

Natural resources Strong Strong Strong Average 

Human resources Average Strong Strong Strong 

Macroeconomic conditions Strong Strong Strong Average 

Infrastructure facilities Average Strong Strong Average 

Manufacturing facility Average Strong Strong Average 

Figure 4: Competitive factor grid (based on industry expert opinion) 

160 

Manufacturing 

facility 

Natural 

resources 

8 

6 

4 

2 

0 

Human 

resources 

India 



Sri Lanka 

Infrastructure 

facilities 

Macroeconomic 

conditions


Market analysis 

Sri Lanka produces different natural rubber products such as ribbed smoked 

sheet (RSS), latex crepe, sole crepe, scrap crepe, technically specified rubber and 

concentrated latex. Sheet rubber, which is mainly produced by small enterprises, 

accounted for 43 per cent, while concentrated latex accounted for 28 per cent of the 

total production in 2008, becoming the second largest type of natural rubber products 

in the <strong>country</strong> (RDD 2009). The production of latex crepe, which is mainly produced 

for the export market by the estate sector, accounted for 16 per cent. 

Sri Lankan raw natural rubbers and latex are exported mainly to Pakistan; the 

European Union; India; Japan; the United States of America; Hong Kong, China; and 

some other industrially developed countries (EDB 2009). Of those raw rubber exports 

in 2008, 35 per cent was high-quality sheet rubber and 32 per cent latex crepe. 

Currently, 83 per cent of the sole crepe and 73 per cent of the latex crepe are mainly 

exported to manufacturers to produce footwear, food and pharmaceutical products. 

Sri Lanka rubber clones produce pure white latex containing no significant dirt content 

and suitable for clear transparent products. Therefore, there is a high demand for 

Sri Lankan natural rubber that has resulted in a gradual increase in the export of raw 

rubber over time with a slight decline in 2008. Over the years, domestic consumption 

of natural rubber has kept on rising, indicating that the fall in the 2008 export was 

compensated by the increase in domestic consumption (see figure 5). 

Figure 5: Natura l rubber production, consumption and exports in Sri Lanka 

Volume ’000 MT 

140 

120 

100 

80 

60 

40 

20 


Domestic 

Consumption 

Exports 

0 

2003 2004 2005 2006 2007 2008 2009 

Sources: RDD (2009); MPI (2008). 

Rubber products have been a solid part of <strong>country</strong>’s economy since the 1980s. 

All leading solid tire manufacturers — major consumers of natural rubber — have 

operations in Sri Lanka. In the past two decades, Sri Lankan rubber product 

manufacturers have entered into regional and global markets for the value added 

products in both industrial and consumer segments. Although export of rubber 

products from Sri Lanka dropped during the Asian financial crisis of 1997-1998, it has 

recovered significantly during 2002-2003 due to the introduction of a new investment 

incentive, growing steadily from $286 million in 2004 to $543 million in 2008 (figure 6). 

According to statistics, rubber product exports accounted for seven per cent of the total 

161


Figure 6: Rubber products export from Sri Lanka, 1999-2008 

350 

600 

No. of Markets/Exporters 

300 

250 

200 

150 

100 

50 

Exporters 

Export Value 

Markets 

500 

400 

300 

200 

100 

Export value, US$ millions 

0 

0 

1998 2000 2002 2004 2006 2008 2010 

Source: EDB (2009). 

export earnings of Sri Lanka, representing 1.4 per cent of its gross domestic production 

in 2007 (Central Bank 2008). A total number of 259 players are engaged in the export 

of rubber products (EDB 2009). 

The number of countries, where Sri Lankan rubber products are exported, has 

grown up to 130 in 2008 and include the major markets such as the United States of 

America, the European Union, India, Canada and Australia. The rubber products, 

exported to those countries, include tires, tubes, articles of unhardened rubber like 

gloves, apparel clothing accessories, industrial components, biomedical devices and 

food packaging materials. It is clear that the export earnings of Sri Lanka from value 

added rubber products are rapidly growing compared to that of raw natural rubber 

(figure 7). Of the total earnings from the value added rubber products, more than 

50 per cent is from tires and tubes. The rest is largely distributed among apparel 

clothing accessories and unhardened rubber products. 

Figure 7: Export income from va lue added rubber products 

162 

Export Income (US$ milliion) 

600 

500 

400 

300 

Total Rubber 

Products 

Tyres and tubes 

200 

Apparel clothing 

100 

accessories 

Articles of 

Raw Rubber 

unhardened 

rubber 

0 

2003 2004 2005 2006 2007 2008 2009 

Sources: EDB 2009; RDD 2009.


3. STRUCTURE OF THE RUBBER SECTOR VALUE CHAINS 

A global value chain for rubber products (both natural and synthetic) is 

illustrated in figure 8. The main input to the industry is the different types of raw 

materials: natural rubber, synthetic rubbers, natural and synthetic lattices, chemicals 

and other additives. Different natural rubber products are available locally while 

synthetic rubbers, lattices and additives are all imported. Natural rubber originates from 

rubber trees and field latex and coagulum are collected by planters. Field latex and 

coagulum are converted into raw rubbers and concentrated latex by raw rubber 

manufacturers and then used by compound manufacturers and/or by rubber product 

manufacturers buying product from rubber traders. Some rubber product 

manufacturers collect raw rubber from their own plantations and from other smaller 

subsidiaries. Rubber product manufacturers sell their products to local customers 

through agents/dealers. Most domestically manufactured high value added rubber 

products are exported to international markets through wholesalers and retailers. 

Several ministries, trade associations, research institutions and business associations 

provide their assistance and services to planters, traders and manufacturers in the 

rubber industry to improve quality and quantity of the final rubber products. 

3.1. Raw materials and suppliers 

Different natural rubber products are produced in Sri Lanka of which 60 per cent 

is produced by smallholders. Natural rubber is also imported to meet occasional 

shortage on the domestic market. For example, 3,636 MT of natural rubber was 

imported in 2008 (DOC 2009); however, this amount is insignificant compared to the 

domestic natural rubber consumption of 80,600 MT. 

Synthetic rubber is a distinct but integral part of rubber products sector, though 

it is not a complete substitute of natural rubber. Different types of synthetic rubbers, 

such as SBR, BR, NBR, EPDM, IR, IIR, HIIR and CR (see table 3), and synthetic lattices are 

imported for specific use in certain industries. 23,500 MT of synthetic rubbers and 

lattices (IRSG 2009) were imported in 2008, mainly from the United States of America, 

the Republic of Korea, Malaysia, the European Union, South Africa and some other 

countries. Rubber chemicals, such as carbon black, silica, activators, accelerators and 

processing oil, are mostly imported from India. Small volumes of rubber chemicals are 

also imported from Thailand, Malaysia and China. A total of 10,660 MT of chemicals 

(DOC 2009) was imported in 2008. On top of that, steel and nylon fabrics are also 

imported and used especially in the tire manufacturing industry. 

163


Wholesaler/ 

Agent 

Products 

Manufacturer 

Agent Customer 

Wholesaler/ 

Agent 

Retailer Customer 

National 

Global 

Ministry of Industries 

Sri Lanka Export Development Board (EDB) 

Industrial Technology Institute (ITI) 

Sri Lanka Association of Manufacturers 

and Exporters of Rubber Products 

(SLAMERP) 

The SME Rubber Manufacturers 


Die and Mould Manufacturing Centre 

Compound 

Manufacturer 

Mould Maker 

Supplier/ 

Manufacturer 

Packaging 

Materials 

Rubber 

Products 

Manufacturer 

(tires and 

tubes, dipped 

products, 

foams, 

household 

products, 

industrial 

products) 

Sri Lanka Standards Institute (SLSI) 

Plastics and Rubber Institute (PRI) 

Industrial Development Board 

(IDB) 

University Research Groups 

Sri Lanka Nanotechnology 

Institute (SLINTEC) 

164 

Figure 8: Globa l value chain of rubber products 

Finished 

Goods 

Raw Rubber 

Manufacturer 

Trader 

Planter/ 

plantation 

Agent 

Chemical/ 

Synthetic 

Rubber/steel 

and Nylon 

fabric 

Supplier 

Global 

Planters 

Association (PA) 

Colombo Rubber 

Traders Association 

(CRTA) 

Ministry of Plantation 

Industries 

Rubber Development 

Department (RDD) 

The Sri Lanka Society of 

Rubber Industry (SRI) 

Rubber Research Institute (RRI) 

University Research Groups 

Wellassa Rubber Company


Table 3: Types of rubbers 

Rubber 

Abbreviation 

Used mainly to 

manufacture 

Stirene Butadiene SBR Tire 

Butadiene rubber BR Tire 

Nitrile Rubber NBR Gaskets 

Ethylene propylene 

EPDM 

Isoprene rubber IR Tire 

Butyl rubber IIR Tubes 

Halobutyl rubber 

HIIR 

Chloroprene rubber 

CR 

3.2. Natural rubber production process 

Natural raw rubber production starts with the tapping of the field latex from 

the trunk of a rubber tree. The latex is first collected in small containers fitted on the 

bark of the rubber tree and then transferred into buckets and mixed with anticoagulants. 

The field latex and field coagulum (cup lump, tree lace and earth scrap) are delivered 

to raw rubber manufacturers. Anticoagulated field latex is placed into a centrifuge to 

produce concentrated latex that contributes to the rubber value chain at process specific 

level and is used in the manufacturing of foam rubber, dipped products, rubber threads 

and caste rubber products. In the ribbed smoked sheet (RSS) and technically specified 

rubber (TSR) manufacturing units, the field latex is blended and coagulated first to form 

the soft coagulum. The soft rubber mass is then milled in a two-roller mill with ribbed 

rollers and the resultant sheets are then dried in a smoke house. These dried sheets 

are then packed into bales for transport. The soft rubber mass is also mashed and then 

dry heated to produce block rubber, which is also called TSR. Some grades of TSR are 

produced from field coagulum. Crepe rubber is manufactured from fresh coagulum, 

field coagulum or cuttings of RSS. In the latex crepe manufacturing units latex is 

transferred into bulking tanks to separate white and yellow fractions. The two fractions 

are taken out from the tanks separately and coagulated separately. The white coagulum 

is cut and then fed through mills to become mats and then laces. The laces are dried 

in drying chambers and are either sold as pale crepe or folded and compressed into 

blankets called blanket crepe. The yellow coagulum is processed in the same way to 

produce laces. In this case, the laces are then made into blankets, which in turn are 

passed through a lamination process to form sole crepe. Field coagulum also undergoes 

the same processes to produce low-grade rubbers. The production cycles of main raw 

rubbers are given in Figure 9. 

165


Figure 9: Natural rubber production cycle 

Rubber Tree 

Field Latex 

Field Coagulum 

Blending & 

Coagulation 

Creping 

Concentrated 

Latex 

RSS TSR Crepe 

Source: 

The authors. 

Rubber product manufacturers and related entities 

Manufacturers of rubber products can be classified into two categories 

according to the raw materials they use – rubber or latex-based manufacturers. Rubberbased 

manufacturers produce tires, tubes, belts, hoses, mats, floor coverings, slippers, 

gaskets, caster wheels, hot water bottles, jar rings, exercise components, automotive 

components, etc., using natural rubber (RSS, crepe and TSR), synthetic rubbers and 

chemicals. Latex-based manufacturers produce dipped products including different 

types of gloves (examination, surgical, household, cotton supported industrial and 

agricultural gloves), balloons, foam rubber mattresses and other articles of foams, rubber 

bands and threads, toys and masks, cot sheets, etc., using both natural and synthetic 

lattices. A total number of 529 rubber enterprises are currently engaged in 

manufacturing rubber products; each of these manufacturing units employ from 10 to 

500 labourers (ASI 2009). 

166 

The Government of Sri Lanka has given a priority to improving global 

competitiveness of the <strong>country</strong>’s rubber sector initiating the appropriate policy reforms 

and other support initiatives. In recent years, the development of this sector has been 

given a high priority, particularly in the areas of infrastructure development and 

improving access to finance. A large number of agencies, including Ministry of 

Enterprise Development and Investment Promotion (MEDIP), Ministry of Industrial 

Development (MID), Ministry of Trade and Commerce (MTC) and Ministry of Plantation 

Industries (MPI) have launched activities aimed at developing and improving the rubber 

manufacturing industry. However, they do not have product-centred strategies or 

specific long-term development strategies targeted to the rubber industry.


Rubber industry related government agencies and private sector organizations 

have also played key roles in promoting the rubber industry by short-term measures. 

Rubber Development Department (RDD), Rubber Research Institute (RRI), Planters 

Association of Ceylon (PA), Wellassa Rubber Company, Sri Lanka Society of Rubber 

Industry (SRI) and Colombo Rubber Traders’ Association (CRTA) have provided support 

to the rubber plantation industry. Sri Lanka Association of Manufacturers and Exporters 

of Rubber Products (SLAMERP), SME Rubber Manufacturers Association, etc., are 

responsible for the rubber products manufacturing industry. All these organizations 

are engaged in certain activities individually but their lack of inter-relationship and 

coordination has limited the overall growth of the rubber industry. The Sri Lanka Export 

Development Board offers a platform for product manufacturers to market their 

products at international markets; however, such government sponsored export 

promotion activities are quite inadequate. 

3.3. Marketing environment 

The production and marketing of natural rubber is generally subjected to high 

level intrinsic barriers, which are normal for most commodity systems in developing 

countries (Jaffee and Gordon 1992). The geographical distribution and involvement of 

a large number of small-scale growers has resulted in the escalation of costs related to 

collection of raw materials, transportation, agglomerating, sorting, grading, etc. that 

occur at different locations in the processing of rubber products. Despite a relatively 

good system of transportation and relatively short distances, geographical dispersion 

of rubber plantations has adversely affected the farmers’ ability to receive better prices 

for their products. 

Marketing of natural rubber is left in the hands of middle-level dealers, 

operating in the rubber growing areas of the <strong>country</strong>, and mostly takes place at 

Colombo rubber auction. Traditionally, these marketing channels have been used for 

the low-grade rubber. Sri Lanka has yet to fully utilize Thailand’s model of Group 

Marketing Centres, where a group of smallholders form a joint venture, which 

collectively assists in weighing, grading and selling their product (Ali et al. 1997). These 

centres collect unprocessed rubber from smallholders and decide on the best 

processing mechanisms that provide better pricing and quality output. Apart from 

creating the necessary infrastructure for such centres, it is important to educate the 

stakeholders about the advantages of such system for achieving long-term 

sustainability. Additionally, it is necessary to establish quality standards for the 

unprocessed rubber that will be purchased through the system. It must also be noted 

that Sri Lanka could receive better prices for its rubber if direct links, requiring the 

Government’s intervention, could also be established in global niche markets. 

167 

Most of Sri Lanka’s large rubber product manufacturing entities are either 

owned by international brands or established under joint venture partnerships between 

foreign and local investors. This has resulted in product marketing controlled by foreign 

investors. Many small players struggle, trying to find access to international markets 

for their products, because of the existing deficiencies in the overall marketing efforts. 

Sri Lanka’s rubber products marketing system lacks cohesion due to a variety of reasons,


such as the inability of stakeholders (especially small players) to absorb market and 

production risks, asymmetric information flow, low or no integrity and coordination 

among stakeholders and high cost structures. 

The majority of Sri Lankan rubber products reach international markets, being 

part of a few established international brands that operate their manufacturing entities 

in the <strong>country</strong>, and via other direct and indirect links of the Government and private 

non-governmental organizations. During the 1990s, Sri Lankan major markets for 

manufactured rubber products were the Islamic Republic of Iran, Pakistan and Germany. 

Thus, Sri Lankan export of rubber products was positively correlated with the economic 

growth and development of these countries. But in the past decade, Sri Lankan rubber 

products became diversified and reached North America and Europe, thus reducing its 

dependence on the markets of the Islamic Republic of Iran and Pakistan. Though the 

rubber sector witnessed a slump in 2008 and 2009, higher growth was predicted for 

2010 and beyond (figure 10). 

Figure 10: Growth of globa l consumption in natura l rubber, 

2005-2010 (in per cent) 

Rate of change 

0.08 

0.06 

0.04 

0.02 

0.00 

-0.02 

-0.04 

-0.06 

-0.08 


Note: Estimates for 2010. 

2005 2006 2007 2008 2009 2010 

3.4. Infrastructure and logistics system 

168 

Rubber production in Sri Lanka is blessed with year-round favourable weather 

conditions. Rubber product manufacturing centres are located in the districts with 

abundant rubber plantations within a 150 km distance from each other. Rubber-based 

products, raw rubber export and the raw material import are currently channelled 

through Bandaranayake International Airport and Colombo Freeport. The ongoing 

development and upgrading of Galle Port on the south coast, Trincomalee Port on the 

northeast coast and Oluwil Port on the east coast will help to improve maritime 

transportation facilities for the export market. 

The rubber industry requires significant fuel and electricity consumption 

(figure 11) and is negatively affected by scarce energy resources in Sri Lanka. Three 

power generation projects (coal power plants at Norochcholai and Sampur and Upper 

Kotmale hydroelectric power station) were expanded to meet the <strong>country</strong>’s annual 

growth of electricity demand by eight per cent (Mahinda Chintana 2005).


Figure 11: Value of input components in the rubber sector 

% Cost of Raw 

Materials 

120% 

90% 

60% 

30% 

0% 

Imported 

Local 

% Cost of Other 

Inputs 

120% 

90% 

60% 

30% 

0% 

Tyres & 

tubes, and 

rebuilding 

of tyres 

Gloves 

Products 

from 

natural 

rubber 

Article of 

rubber 

products 

Other 

rubber 

products 

Fuel 

Water 

Electricity 

Services by 

otehrs 

Source: ASI (2009). 

4. FACTORS AFFECTING COMPARATIVE ADVANTAGE IN RUBBER 

MANUFACTURING 

As stated earlier, Sri Lanka has a significant comparative advantage in the rubber 

industry compared to other countries. However, to sustain its market share and improve 

competitiveness in international markets, Sri Lanka needs to analyze several critical 

factors, affecting such advantage, some of which are presented in the following sections. 

4.1. Rubber cultivation, production and costs 

Rubber plantations stretch over 13 districts in Sri Lanka the largest of those, with 

over 20,000 hectares, are in Kegalle, Kalutara and Rathnapura districts, followed by 

plantations of 7,000-20,000 hectares in Colombo and Galle districts and plantations of 

1,000-7,000 hectares in Gampaha, Matara, Kurunegala, Kandy and Monaragala districts 

(figure 12). Matale, Badulla and Hambantota districts have smaller plantation areas of 

70-1,000 hectares. Of the total plantation areas, nearly 42 per cent is owned by the 

public/estate sector while the remaining 58 per cent is owned by the private/ 

smallholder sector. The major cultivating districts offer the best conditions, in terms of 

soil and weather, for successful rubber cultivation. Since the early 2000s, a positive trend 

in yield increase has emerged after the stakeholders started to put serious effort in 

increasing the rubber production and productivity. 

169 

Rubber replanting and new-planting has gradually increased with the 

implementation of the Monaragala Rubber Development Programme (MRDP) in 2005 

by Sri Lanka Society of Rubber Industry (SRI). MRDP aims at replanting of around 40,000 

hectares by 2016, resulting in an additional annual production of 60,000 MT of rubber 

(SLRC and USAID 2002). 

Rubber plantation areas, yield and cost of production are shown in figure 13. 

Unlike in Indonesia and Thailand, where considerable areas of land were reserved for


Figure 12: Rubber cultivation in 2008 

>20,000 

20,000 - 7,000 

7,000 - 1,000 

1,000 - 70 

Source: RDD (2009). 

expansion of rubber plantations in future years, Sri Lanka, over the past decade, 

experienced a decrease in the areas under rubber cultivation, as these land areas were 

diverted to other uses, partially due to urbanization of the <strong>country</strong>. The rubber 

cultivation in Sri Lanka is mainly centred in the western part of the <strong>country</strong>, whereas 

sabaragamuwa and the southern provinces have undergone urbanization during the 

past two decades. The land values during the past two decades have demonstrated 

a growing trend, being used for residential and commercial rather than rubber 

cultivation purposes, and provided the owners with higher financial benefits. 

Figure 13: Rubber cultivation, yield and cost of production in Sri Lanka 

170 

1 600 

140 


1 400 

120 

1 200 

100 

Yeild 

1 000 

Cost of 

80 

800 


60 

600 

400 

200 

0 

Area 

40 

20 

0 

1998 2000 2002 2004 2006 2008 2010 

Sources: MPI (2008); RDD (2009); Central Bank (2008). 

Yeild kg/ha, area ha, production 

‘000 MT 

Cost of production, LKR/kg


Sri Lanka recorded an average yield of 1,353 kg/hectare per year in 2008, well 

below the yield shown by other Asia-Pacific countries, such as India, Malaysia, Thailand 

and Viet Nam (figure 14). The yield targets under MRDP are above 2,000 kg/hectare 

(USAID 2008), nearly a 50 per cent increase from the current productivity levels. 

Figure 14: Globa l rubber cultivation, production and yield in 2008 

‘000 hectares/‘000 MT 

4 000 

3 500 

3 000 

2 500 

2 000 

1 500 

1 000 

500 

0 

Land 




Malaysia 

China* 

India 

Viet Nam 

Myanmar* 

Nigeria 

Brazil 

Sri Lanka 

Cambodia 

Liberia** 

Côte d’lvoire* 

Yield, kg/ha 

Sources: IRSG (2009), values reported in 2008, 2006*, 1999**. 

2 000 

1 600 

1 200 

800 

400 

0 

Sri Lanka 

Thailank 

Viet Nam 

Malaysia 


India 

Brazil 

Côte d’lvoire 

A major feature in the rubber sector is the number of tapping days. A tapper 

in Sri Lanka can only tap an average of 260 days per year, whereas in other countries 

the tapping exceeds 300 days a year (Ali et al. 1997), the difference being the number 

of days lost to rain. A major share of rubber cultivation in Sri Lanka is located in a wet 

zone, which cause volatility in rubber prices compared to rubber prices in Singapore. 36 

The proper use of rain guards can increase the tapping days to over 300 days. 

Wages is another important component in the overall cost structure of rubber 

production. Figure 15 shows the average remuneration per employee during the year 

2008. Though rubber glove manufacturing has recorded a high value added, the 

average remuneration remains low due to the labour intensive process involving low 

skilled workers. Large-scale manufacturers invest in advanced production facilities and 

employ a relatively small number of people with better remuneration packages. The 

labour intensive processes, such as quality inspection and packaging, are generally 

outsourced and the outsourced workforce tends to receive minimal remuneration. 

36 

Generally, rubber prices are compared to Singapore Commodity Exchange prices. In his speech, 

the Senior Minister of State for Trade and Industry, Singapore at the World Rubber Summit in 2009 

estimated that Singapore handled more than 50 per cent of the world’s annual natural rubber trade 

and that Singapore has also been recognized as the global pricing centre for the physical trade of 

rubber, with more than 80 per cent of global rubber trade priced at the Singapore Commodity 

Exchange (SICOM) prices. Being neither a producer nor a major consumer of natural rubber, 

Singapore serves as a neutral trading hub that generates financing, procurement and risk 

management activities. Today the world prices for rubber are not only driven by demand but are 

also subject to speculations on the futures markets. Japan and Singapore are two major futures 

markets for rubber. 

171


Figure 15: Annua l average remuneration by rubber product segments 

250 

Average remuneration ‘000 

200 

150 

100 

50 

0 

Tyres and tubes 

Gloves 

Natural rubber 

products 

Article of rubber 

products 

Other rubber 

product 

Source: ASI (2009). 

4.2. Human resources 

Sri Lanka has low cost semiskilled and disciplined labour force, engaged at 

different levels of the supply chain, including 23,813 skilled and 9,383 unskilled workers 

in rubber product manufacturing industry (ASI 2009). Employment of labour in the 

rubber industry is directly supervised by the Government that sets minimum daily wage 

rates, minimum work hours and other rules. 

172 

Over the years government and non-governmental rubber related organizations 

have been actively engaged in providing education and training programmes to further 

improve the competitiveness of the rubber sector labour force. Furthermore, 

government and non-governmental research bodies, employee federations and unions, 

farmer associations, owner associations, civil society organizations and many other 

statutory and non-statutory institutions have played pivotal roles in uplifting the rubber 

industry by providing short-term and long-term planning for labour force development. 

Some institutions like Plastic and Rubber Institute of Sri Lanka (PRISL) provide training 

facilities to workforce engaged in the rubber industry with a financial support from 

international development agencies (e.g., ADB and USAID). All these efforts improved 

the efficiency and further augmented the capabilities of Sri Lankan skilled workforce, 

ensuring its competitiveness in the coming decades. 

4.3. Policies and regulatory framework 

There are no export restrictions and no licensing requirements for rubber 

dealers and exporters; however, the Government imposes duty on the import of 

synthetic rubber and related input materials. At present synthetic rubber imports are


subjected to a CESS 37 of SL Rs 15 per kg, which has led to higher prices for final products. 

The Government also charges SL Rs 4 per kg as CESS on procurement of natural rubber 

(EDB 2007), and this has significantly impacted the cost of rubber products. The rubber 

products manufacturing sector could be further encouraged, if the CESS on domestically 

consumed natural rubber is reduced while the CESS on raw rubber exports is increased, 

– thus favouring domestic rubber demand without affecting the Government revenue. 

The changes in CESS policy should aim at natural rubber to become more competitive 

locally and to increase export of higher value added rubber products. Although the 

total CESS collection is said to be available for the development of the rubber industry 

and the long-term production of raw rubber, both the rubber cultivation and rubber 

manufacturing sectors complain that the CESS is not utilized for that purpose. However, 

at present the Government uses the CESS to finance replanting of rubber trees and 

provide certain social benefits to smallholders. 

The Government also plays a pivotal role in rubber research and development, 

and by extension, rubber cultivation. However, the industry lacks expertise on product 

and compound developments, introducing only limited innovations. There is currently 

no centralized rubber- and/or polymer-based product testing facilities, especially the 

ones focused on quality improvements in Sri Lanka. Although polymer-based and 

compound material testing facilities exist at several research and academic institutions, 

cost testing procedures in these institutions do not have official accreditation and their 

certification is not internationally recognized to testify the quality of Sri Lankan rubber 

products – an important requirement in the export market. Finally, all rubber product 

manufacturers must obtain Environmental Protection License (EPL) from the Central 

Environmental Authority (CEA), affirming their continuous compliance with minimizing 

noise and dust levels to protect the environment. 

5. SWOT ANALYSIS 

The value chain dynamics in the rubber industry, as discussed above, can be 

strengthened by continuous improvements and innovations in production and 

distribution processes. To understand the factors, affecting the rubber industry in Sri 

Lanka with regards to global value chains, it is essential to: (a) take advantage of the 

opportunities; (b) mobilize the strengths; (c) manage the possible threats; and 

(d) assuage the weaknesses, in order to formulate a long-term strategy and strengthen 

Sri Lankan position in the global rubber market. 

Strengths 

1. The rubber industry is a relatively well-established industry in Sri Lanka 

having a comprehensive legal and institutional framework, good 

infrastructures, a strong private sector and well-organized professional 

bodies such as SLAMERP and PRISL. The Government has pledged to 

173 

37 

CESS is a local levy on a commodity/product for special purpose. Objectives of imposing CESS 

on rubber export/import are to generate funds for developing rubber cultivation in Sri Lanka and 

to encourage the export of value added rubber products. CESS is computed as a percentage of CIF 

value on imports and LKR 4 per (quantity) kg on exports as per the Gazette issued in 2004.


Weaknesses 

support the rubber industry private sector with pro-business policies, 

infrastructure development and financial help. 

2. Sri Lanka’s rubber industry has been successful in supplying foreign niche 

markets (through joint ventures with renowned multinational/world class 

companies) with industrial tires and surgical and household gloves by 

establishing high quality/low cost manufacturing facilities. 

3. Competitive though limited logistics support and infrastructure facilities 

(seaport and airport) are available in the <strong>country</strong>. 

4. Sri Lanka is a natural rubber producing <strong>country</strong> and has an adequate supply 

of different grades of centrifuged latex and dry rubber at competitive 

prices. Also, there is an easy access to rubber product manufacturers with 

readily available raw materials. 

5. Sri Lankan crepe rubber is considered to be of the highest quality. 

6. Relatively low labour cost compared to the region’s other major labour 

supplying countries, except Indonesia. 

7. Availability of skilled, trainable competitive labour force, at technical, 

managerial, and supervisory levels and qualified scientists, technologists 

and engineers. 

8. Academic programmes, enhancing the knowledge and skills related to the 

rubber industry, are continuously provided by universities and private 

training institutions. 

174 

1. The return on investment in rubber cultivation and production is relatively 

low due to the limited use of fertilizers, outdated technology, low levels of 

mechanization, unskilled workforce, financial constraints and inadequate 

investment. An increase in labour costs combined with low productivity 

has been a recent trend. 

2. Sri Lankan rubber industry experiences high price volatility when 

compared to Singapore and other regional markets rubber prices (figure 

16). The volatility is mainly due to the supply side constraints. For example, 

during the monsoon season, rubber supply drops sharply and creates 

significant price hikes at the rubber auctions. 

3. Sri Lanka has a small domestic market compared to other competing 

countries such as India and China. Its rubber sector consists of only a few 

large producers and a relatively large number of small producers/suppliers 

– resulting in a weak bargaining power as a rubber-producing nation. 

4. During the rainy season, the frequency of rubber tapping which is done 

manually, decreases and results in fluctuations in the supply of rubber. 

5. Rubber production cost tends to be high due to the use of imported 

materials, including synthetic rubber and rubber additives. 

6. There is no government or private formally established institution to 

provide market information on domestic and international markets. The


Figure 16: Comparative percentage price variations 

0.2 

Percentage price change 

0.1 

0 

-0.1 

-0.2 

-0.3 

-0.4 

-0.5 

Feb. 08 

Mar. 08 

Apr. 08 

May 08 

Jun 08 

Sicom 

Jyl 08 

Aug. 08 

Sep. 08 

Oct. 08 

Nov. 08 

Dec. 08 

Jan. 09 

Colombo 

Feb. 09 

Mar. 09 

Apr. 09 

May 09 

-0.6 


marketing done by the Government through their export promotion 

bodies such as Export Development Board (EDB) is still at a nascent stage. 

This unavailability of international marketing research has hindered 

attempts to form linkages between local producers and international 

buyers to advocate product portfolio diversification or withdrawal, which 

resulted in failure to reach the expected export volume. 

7. A lack of applied research institutions for technological development and 

innovations hampers the industry’s ability to launch and promote new 

rubber products for niche markets. Also, there is no central product testing 

facility to cater to the rubber industry. This is a major constraint for largescale 

rubber exports from Sri Lanka. 

8. Low investment and poor collaboration in research and development 

activities, especially for product and process developments. 

9. A lack of strategic integration and coordination between the existing 

research bodies and rubber product manufacturers. 

10. Though Sri Lanka has established a formal polymer education, the industry 

still lacks the know-how on compound development aspects. Most 

research <strong>studies</strong> in Sri Lanka focuses on local optimizations and very few 

<strong>studies</strong> have been done on technology acquisition and/or development 

of advance technologies for the new product. 

11. Sri Lanka lacks an internal system for quality control and product and/or 

process standardization; only a handful of large export-oriented 

manufacturers have focused on quality improvement and standardization 

(e.g., six-sigma and ISO). 

12. Policymaking does not completely address the root causes of issues faced 

by the rubber industry. Restrictions applied on imported high-quality raw 

rubber have discouraged key stakeholders from further investment in the 

industry. 

175


13. Sri Lanka records the highest energy cost compared to other rubberproducing 

nations as the rubber industry consumes a relatively high 

amount of energy compared to other industries. In particular, dry rubber 

production has higher energy content compared to latex production. 

Opportunities 

1. The global demand for natural rubber-based products has witnessed 

substantial growth over the years and is expected to grow further with the 

emerging markets in the region, such as China and India. 

2. In Sri Lanka, continuous government support is provided to manufacturing 

by recognizing rubber industry as a “Thrust Industry.” 

3. Existence of many regional, unilateral and bilateral trade agreements, such 

as Indo-Sri Lanka Free Trade Agreement (ISFTA), South Asian Preferential 

Tariff Agreement (SAPTA), South Asian Free Trade Agreement (SAFTA) and 

Sri Lanka-Pakistan FTA, provides opportunities to export Sri Lankan rubber 

products at zero duty, along with many other concessions. 

4. During the past few years, a declining trend in natural rubber to Stirene 

Butadiene Rubber (SBR) price ratio has been observed, which is favourable 

for natural rubber. Additionally, global demand for natural rubber shows 

a positive trend (figure 17). 

Figure 17: Natural rubber/synthetic rubber relative price ratio 

160 

Price percentage 

120 

80 

40 

0 

2007 2008 2009 

176 

Relative NR/SR price ratio 


5. Existence of dedicated industrial parks, with well-designed central 

treatment facilities, would allow manufacturers to consolidate and control 

processing costs effectively. 

6. Projects for new planting (in non-traditional areas) and replanting of rubber 

trees have been started by both the Government and private organizations 

with the technical and financial support from international development 

agencies.


Threats 

7. Introduction of rubber trees with high yield clones is expected to increase 

natural rubber production levels. 

8. Plantation companies can form joint ventures with foreign or local product 

manufacturers, especially to produce goods based on latex crepe. 

9. A Mould and Die Design Centre was established at the University of 

Moratuwa to cater to the local rubber product manufacturing industry and 

thereby reduce high costs associated with the import of expensive dies and 

moulds. In addition, vocational training programmes for rubber processing 

machine operators are being developed by National Apprentice and 

Industrial Training Authority (NAITA) for the implementation at the 

University of Vocational Technology (UNIVOTEC). 

1. In the absence of a sector-wide comprehensive marketing strategy, rubber 

producers in Sri Lanka are dependent on the Government external 

marketing efforts. Any change in the Government’s focus or the withdrawal 

of donor support could result in the rubber industry’s loss of market share. 

2. The growth of Chinese rubber product manufacturing sector with its low 

(compared to Sri Lanka) production costs, poses a serious threat to Sri 

Lankan rubber industry. 

3. Expansion of rubber plantation in African countries, such as Nigeria and 

Liberia, represent future threats. 

4. Increasing wage and other labour costs, coupled with low productivity 

levels, are becoming serious threats to the rubber industry in Sri Lanka. 

Critical issues for consideration 

Based on the above strengths, weaknesses, opportunities and threats (SWOT) 

analysis, Sri Lankan rubber industry requires the following urgent responses: 

1. Supply-side constraints have restricted the industry development and 

every effort should be made by both the public and private sectors to ease 

those constraints and help further develop the rubber industry. Particular 

attention should be paid to further modernization of transport and energy 

infrastructures in the rural areas to effectively link urban rubber industries 

and rural plantations. 

2. The industry’s focus on niche markets has resulted in greater dependence 

on the solid-tire export sector. Unsuccessful entries into other international 

market niches have hindered the development of the latex sector and 

attracting FDI. 

3. There are no sector-wide marketing efforts for Sri Lankan rubber products 

and no marketing research mechanism. A well-designed marketing 

strategy could bring huge dividends to the rubber industry. 

4. There is no evidence of strategic collaboration among research institutions, 

statutory bodies, producers and exporters. A well-functioning public 

institution with adequate resource provisions should be established. 

177


5. There are no linkages among product development, process development 

and technological capability improvement entities which hinders the 

growth and competitiveness of the rubber industry. 

6. There is an urgent need for a full-fledged standardization and quality 

control mechanism for Sri Lankan rubber products for both domestic and 

foreign markets. 

6. ACTION PLAN FOR THE DEVELOPMENT OF THE RUBBER INDUSTRY IN 

SRI LANKA 

As presented in earlier sections on the value chain and SWOT analysis, Sri Lanka 

could develop a competitive rubber industry and gain enormous benefits by being 

firmly established in both domestic and international markets. An action plan for the 

purpose is formulated and presented below. 

Objectives of the action plan 

1. Increasing export earnings: to increase export earnings by 50 per cent from 

the current export levels reaching US$ 800 million by 2014. 

2. Supply, stability of prices and volume: to increase the supply of natural 

rubber by 50 per cent and stabilize the year-round supply of natural rubber 

by 2014 in order to avoid price volatility. 

3. Product portfolio diversification: to diversify current product portfolio and 

increase its value added by 20 per cent by 2014; to improve living standards 

of workers engaged in the rubber industry by upgrading their skills and 

raising productivity 

Strategic options and critical actions 

While specific actions are outlined in the matrix in table 10, some of the 

important measures are emphasized below. Increasing plantation areas, promoting 

non-tire and non-traditional rubber products FDI, enhancing research and development, 

pursuing aggressive marketing and own-brand development are the strategic actions, 

requiring priority attention. For such actions, the following measures should be 

implemented: 

178 

1. Establish national market research and trade promotion agency: Sri Lankan 

rubber products should have an effective access to the regional and global 

markets through the establishment of a national marketing research and 

trade promotion institution. 

2. Allow import of raw rubber on a limited scale to meet occasional shortages: 

permit the controlled import of raw rubber until the sufficient supply of 

natural rubber is fully available within the <strong>country</strong>. 

3. Increase rubber plantation in non-traditional areas along with the measures 

for the increased productivity to meet the domestic demand in natural rubber: 

ensure a consistent supply of natural rubber to help stabilize rubber prices.


Ta ble 4: Action plan matrix for the rubber sector in Sri Lanka 

Targets Actions Responsible institution 

Present status/ 

constraints 

Objective 1: To increase natural rubber supply by 50 per cent by 2014 in order to achieve stable supply at low price volatility. 

Government, SLAMERP 

Relax restrictions on limited import of natural rubber by 

introducing a licensing system. 

Increase natural rubber supply 

at a competitive price. 

RRI, MPI, PA 

Implement scientific agro-management practices. 

Increase the yield level of 

natural rubber. 

Decline in land area 

under rubber 

cultivation due to 

rapid urbanization. 

RRI, MPI, PA 

Expand introduction of modified (high-yielding) clones, and 

bring down the low yielding acreage. 

Use of traditional raw 

rubber manufacturing 

processes. 

RRI, universities, PA 

Introduce new tapping techniques (e.g., to replace manual 

tapping during rainy season with mechanical devices). 

MPI, Ministry of Lands 

Review existing rubber plantation programmes through proper 

survey. 

Increase rubber cultivation. 

Develop new rubber plantations particularly in non-traditional 

areas (Moneragala, Hambantota and to the North East). 

RRI, MPI, PA 

Launch new inter-cropping programmes to diversify the 

cultivation. 

Government, business 


Introduce cost effective, less labour dependent, user friendly, 

less energy, environmental-friendly raw rubber manufacturing. 

Increase natural rubber 

production by upgrading raw 

rubber manufacturing 

processes. 

PA, MPI 

Establish raw rubber collection centres for cost reduction and 

higher income. 

Provide better pricing to raw 

rubber manufacturers. 

179


180 

Ta ble 4: (continued) 



constraints 

Objective 2: To increase rubber products export revenue by 50 per cent by 2014 

Research institutions, 

universities 

Expand present characterization and physical testing facilities at 

research institutions and/or universities, and provide services to 

SMEs. 

Improve research and product 

development facilities. 

Universities, SLRMERP, PRI, RRI 

Form a research and development association (a cluster of 

rubber industrialists, manufacturers’ associations, researchers 

from universities and research institutions). 

Low value-added 

exports are popular 

among grassroots 

level producers who 

look for quick cash. 

Govt. 

Launch a product and process development centre (select a 

suitable institution for expansion, expand capacity, purchase 

product testing and analytical instruments and lab scale 

processing equipment). 

Govt. 

Improve human resources and capabilities in R&D, product 

development and specifications standardization (overseas/local 

training) 

IDB, proposed technical 

innovation centre 

Establish a custom compound facility, especially catering to 

SMEs 

Enhance supply of rubber 

compound facilities. 

Govt., SLAMERP 

Bring necessary changes to CESS policy and other levies and 

duties on domestic natural rubber procurement to promote the 

value-added product manufacturing. 

Reduce raw rubber exports by 

enhancing product 

manufacturing. 

Govt., SLAMERP 

Relax restrictions on imports of synthetic and natural rubber 

and input material by introducing licensing mechanisms. 

SLAMERP members, proposed 

product and process 

development centre 

Establish new production facilities, especially for crepe rubberbased 

products (e.g., food and medical components), high end 

value-added products (e.g., automotive parts), and eco-friendly 

products (e.g., rubber with coir)



SLSI, industries, ITI, universities 

and research institutions or 

proposed product and process 


Launch quality awareness programmes at all levels of export 

production processes, including calibration. Develop 

infrastructure necessity for proper maintenance of quality. 

Produce better quality 

products. 

Establish a national accreditation body to assess conformity of 

institutions and their infrastructure for quality, with possible 

services extended to other regional countries. 

Encourage and assist more testing conducted by several 

institutions to be accredited to international standards. 

NCPC, universities, Energy 

Authority 

Conduct in-house programmes on waste minimization and 

good housekeeping practices. Introduce cheaper alternative 

energy sources and energy efficient techniques. 

Reduce production costs. 

Proposed product and process 


Form a central rubber-recycling unit with necessary equipment. 

Reduce raw material costs. 

Provide recycled rubber to industrialists at a reduced cost and 

encourage incorporating them in export-rubber products. 

SME rubber association, MID 

Establish promotion schemes for rubber-related SMEs 

manufacturing import substitutes. 

Develop new production lines. 

Produce import substitutes for 

low performance products by 

SMEs. 

IDB, RRI, proposed technical 

innovation centre 

Provide technical know how to SMEs for manufacturing of new 

products. 

Statutory bodies, SLAMERP 

Establish long-term purchase agreements with major importers. 

Facilitate exporters with steady 

orders. 

181 



constraints


182 


BOI 

Maintain a level-playing field for all exporters. 

Minimize discrepancies 

between BOI and non-BOI 

incentives. 

EDB, SLAMERP members, BOI 

Export promotions – strengthening the trading arms of foreign 

missions. 

Creation of own brand. 

EDB 

Position Sri Lanka as a high value-added rubber product 

manufacturer. 

Boost marketing efforts of 

currently manufactured 

products, and identify end 

users’ requirement by 

manufacturers through 

marketing research. 

International market research 

entity or RRI, ITI, IDB 

To make research and development institutions market-oriented 

and market-driven, and to establish an international market 

research and trade promotion entity to boost marketing efforts 

for Sri Lanka rubber. 



constraints


4. Promote research and development, increase testing standards and improve 

accreditations facilities: establish research and development facility to 

enable product- and process- related innovations and enhance testing 

standards and international accreditation related to the natural rubber 

industry. 

5. Attract more latex- and rubber-related FDI: increase manufacturing of the 

latex-based and non-traditional rubber-based products. 

Action plan matrix for Sri Lankan rubber industry 

The action plan (table 4) aims(a) to achieve a 50 per cent increase in the 

production of natural rubber by 2014, and (b) to increase export revenues from rubber 

products by 50 per cent by 2014. 

The Electronic Products Sector in Sri Lanka 

7. OVERVIEW OF THE GLOBAL ELECTRONICS INDUSTRY 

Globally, the electronics industry is a rapidly growing sector of economy that 

is expected to grow into a trillion dollar industry in 2011. During the past decade, the 

industry that encompasses consumer appliances, ICT, industrial electronics, aerospace 

and defense and several other industries has experienced a steady expansion that were 

both demand-and industrial infrastructure-driven. The exponential growth of Internet 

for business and personal data collection and management and communications will 

continue to be the driving phenomenon in this decade. Within this context, ICT 

equipment accounted for roughly two-thirds of global electronic production in 2007, 

with the increased demand for core components like semiconductors and printed circuit 

boards. 

The growth of the electronics industry is underpinned by transnational 

corporations’ ability to make the production process more efficient. Due to the global 

nature of the electronics industry, its production facilities have spread to locations with 

the lowest labour and production costs. The production process in most electronics 

sub-sectors has been organized in such a way that individual parts can be manufactured 

at different places and the final product assembled in yet another location thus 

providing low costs and high profitability (see table 5). 

International electronic manufacturers are increasingly reliant on sales in 

established economies (i.e., the United States of America, the European Union and 

Japan) and emerging markets (e.g., BRICS: Brazil, the Russian Federation, India, China 

and South Africa) to increase their revenues. Within this framework, the criteria for 

choosing a suitable location for production hubs are crucial in terms of production 

effectiveness and optimal distance to numerous markets. 

183 

The main difference between the electronics industry and other manufacturing 

industries lies in the fast introduction of technological innovations and adaptations that 

has created rapid market expansion over the past 30 years. Presently, electronic product 

manufacturing is expanding at an unprecedented scale in the Asia-Pacific region. Many


Ta ble 5: Apple iPhone 3G’s major components and cost drivers 

Manufacturer Component Cost (US Dollars) 

Toshiba (Japan) Flash Memory $24.00 

Display Module $19.25 

Touch Screen $16.00 

Samsung (Republic of Korea) Application Processor $14.46 

SDRAM-Mobile DDR $8.50 

Infineon (Germany) Baseband $13.00 

Camera Module $9.55 

RF Transceiver $2.80 

GPS Receiver $2.25 

Power IC RF Function $1.25 

Broadcom (United States of America) Bluetooth/FM/WLAN $5.95 

Numonyx (United States of America) Memory MCP $3.65 

Murata (Japan) FEM $1.35 

Dialog Semiconductor (Germany) Power IC Application $1.30 

Processor Function 

Cirrus Logic (United States of America) Audio Codec $1.15 

Rest of Cost of Materials $48.00 

Total Cost of Materials $172.46 

Manufacturing Costs in China $6.50 

Grand Total $178.96 

Source: Xing and Detert (2010). 

countries in the Asia-Pacific region – particularly Japan, Republic of Korea, China, Taiwan 

Province of China, Malaysia, Thailand, India and Singapore – have become principal 

manufacturing hubs for electronic goods and products. Significantly, China is becoming 

the global manufacturing centre of consumer electronic products. In 2002, Asia had 

41 per cent of the global electronics market share and that has risen to 56 per cent in 

2009 (Digivity Report 2009). 

184 

According to JEITA (2009), global IT production, including electronic equipment, 

components and devices and information technology, totalled $1.67 trillion in 2005. 

Global production of electronic equipment, components and devices totalled $1.73 

trillion in 2005. The annual global growth of the electronics industry was estimated at 

6.6 per cent. In addition to fast growth, the electronics industry’s value added is 

considered high when compared to the value added of other industrial sectors. For 

example the value added in manufacturing of electronic components ranges from 

40 to 50 per cent, while the value added in equipment manufacturing ranges from 10 

to 15 per cent. Since the aggregated data on the global electronics industry is difficult 

to attain because various sub-sectors are involved and different classifications are used


by different nations, a specific electronics sub-sector was chosen to provide 

a quantitative assessment of the growth in the electronics sector in the past decade. 

With this in mind, the semiconductor industry 38 is widely recognized as the key 

driver in the growth of the entire electronics industry, with its dual role as a multiple 

lever and technology enabler for the electronics value chain. According to 

Semiconductor Industry Association, total annual sales of semiconductors for 2008 

amounted to $248.6 billion compared to $255.6 billion in 2007, a decrease of 2.8 per 

cent (SIA Report 2009). Along with the strong growth of Internet use, smartphones, 

3DTVs and tablet PCs, the global recovery from the recent financial shock will provide 

strong impetus for sustained growth in the electronics industry (SIA 2011). With 

semiconductors being a vital component in those ICT products/services, strong growth 

in their sales and manufacturing would indicate strong demand for electronic products 

(figure 18). Sri Lanka could tap this potentially lucrative market by carefully selecting 

certain high value-added electronic products for manufacturing within the <strong>country</strong>. 

Figure 18: Performance of the semiconductor sector, 2001-2010 (actual); 2011 

and 2012 (forecast) 

350 

300 

250 

200 

B$ 

150 

100 

50 

0 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Year numbers mark December of each year 

Source: WSTS (2011). 

8. ADVANCEMENT OF ASIA-PACIFIC DEVELOPING COUNTRIES IN THE 

ELECTRONICS SECTOR 

Developing Asia-Pacific nations, such as China, India and ASEAN countries, have 

expanded its production capacity as suppliers of components and manufacturing 

systems to major electronic transnational corporations (TNCs) and significantly 

185 

38 

Semiconductors are materials that have conductivity between conductors (general metals) and 

nonconductors or insulators (such as ceramics) and play a pivotal role in the fabrication of electronic 

devices. And even though many electronic devices can be produced using vacuum tube technology, 

breakthrough in semiconductor technology in the past 50 years has allowed electronic devices to 

become smaller, faster and more reliable (SIA 2011).


increasing their production facilities throughout the first decade of this millennium. 

Several notable developments were observed: 

a. Many Asia-Pacific producers, mainly from North-East Asia, have successfully 

transitioned from technology-followers to technology-leaders in handling 

local system design and component production. They maintain the 

advantage of low labour costs by spreading their operations throughout 

the region. 

b. Global value chains for electronics equipment in the region were welldeveloped, 

especially in countries of North-East and South-East Asia. They 

linked various levels of production inputs, such as materials, electronic 

parts and components, technology, production facilities and labour to 

assemble competitive final products for export. 

c. A consolidation of upstream suppliers of value chains in the electronics 

industry occurred when the leading materials and equipment supply 

companies became major global suppliers, developing capabilities for 

system design, such as integrated modules that offered short lead-time and 

cost reduction (e.g., electronic system manufacturing (EMS)). 

d. “Green” manufacturing and environmentally-friendly electronic products 

emerged in response to new market demands and technological 

advancement. 

e. Emerging markets in the region e.g., China, India and the Russian 

Federation have increasingly expanded their share in the global electronics 

market. 

Thus, the trend is obvious that developing countries of Asia and the Pacific have 

become production hubs for electronic products. Following in the steps of other 

developing countries, such as China, India and ASEAN countries, Sri Lanka could have 

developed a potential to become a competitive electronics industry. And in order to 

further gauge this potential in Sri Lanka, a brief overview of the Sri Lankan electronics 

industry is presented below. 

9. POTENTIAL FOR THE DEVELOPMENT OF THE ELECTRONICS INDUSTRY IN 

SRI LANKA 

186 

Despite the immense global growth of the electronics industry, Sri Lanka has 

yet to partake in this sector even though the issues that constrained most developing 

countries are not present in Sri Lanka. Sri Lanka has a great potential to procure and 

develop a competitive electronics industry having the low-cost and skilled labour, 

relatively well developed infrastructure and, most important of all, Indo-Sri Lanka Free 

Trade Agreement providing access to the rapidly growing neighbouring market. With 

this being said, the engine that has driven Sri Lanka’s economic growth has been 

its apparel industry annually accounting for over 40 per cent of exports since 2000 

(DOC 2009). Compared to its leading manufacturing sub-sector, apparel manufacturing, 

the electronics industry in Sri Lanka is rather small.


Box 1: Experience of Malaysia and Taiwan Province of China in the development of 

the electronics industry 

Malaysia 

Malaysian electronics industry has come a long way in the past 40 years, from its 

inception in the 1970s to becoming one of the world’s largest exporters of semiconductor 

devices and ASEAN preeminent leader in electronics manufacturing. The key factor behind 

this impressive rise is the Government’s success in attracting electronics targeted FDI. Three 

main waves caused the relocation of TNC production facilities to Malaysia: 1) between 1972 

and 1974, when American and Japanese TNCs relocated some of their electronic assembly 

operations; 2) between 1987 and 1989, as a result of the Plaza Accord of 1985, Japanese 

TNCs moved their labour-intensive consumer electronic manufacturing to low labour cost 

nations; and 3) between 1990 and 1994, when American disk drive and computer 

manufacturers decided to move their production to locations with supplier networks of 

key components. TNCs were attracted to Malaysia because of its relatively modern 

infrastructure, efficient bureaucracy, low tariffs and tax incentives, political stability and 

non-unionized, low-cost skilled labour. 

Source: Rasiah (1999). 

Taiwan Province of China 

The rise of Taiwan Province of China as one of the global leaders in the electronics 

industry is closely linked to the relentless efforts of the industry stakeholders and the 

support of the Government. First, Taiwan Province of China overcame technology/capital 

barriers using task distribution among SMEs. For example, manufacturing of printed circuit 

boards (PCB) requires the use of expensive specialized equipment, which SMEs cannot 

afford. Taiwanese electronics industry solved this problem by establishing specialized 

drilling mills that undertake the most capital-intensive part of the PCB production process, 

thus allowing small PCB imprinting operators to survive and cater to other similar fields. 

This vertical disintegration of the PCB production process allowed for two things to happen: 

1) the continual growth of SMEs in niche categories; and 2) capital-intensive producers, 

such as PCB imprinting, became large independent subcontractors benefiting from 

economies of scale. Second, Taiwanese firms evolved starting with relatively primitive 

electronic products and then moving to more sophisticated ones through developing 

advance production processes and supplier networks. A typical example is notebook PC 

manufacturers in the 1970s. Assembling notebook computers is a highly complex task 

that requires deep technological understanding. Taiwanese SMEs overcame technological 

constraints by relying on an earlier experience of producing calculators. The experience, 

working with a large number of component suppliers for calculator production, gave them 

a competitive advantage over their rivals in terms of cost control and work coordination. 

Third, the success of Taiwanese electronics industry depended on the active participation 

of the Government. In addition to indicating export processing zones and initiating a series 

of tax and financial incentives, the Taiwanese Government actively supported and fostered 

SMEs in the electronics industry by conducting promotional activities, such as organizing 

trade fairs and exhibitions that aimed to foster foreign investor and local manufacturer 

relationships to attract more electronics related FDI to the island. 

Source: Chen and Ku (2002). 

187


Sri Lanka’s domestic electronics market is still small. In 2008, the electronics 

industry accounted for just 160 of the total 3,309 manufacturing enterprises in Sri Lanka 

and employed 27,000 people. For example, the apparel industry consists of 564 

enterprises that employ a whopping 340,000 people. A look into the value of Sri Lankan 

imports and exports provides a perspective of the current level of the electronics 

industry. In 2008, the electronics industry had $967 million in outputs from the inputs 

of $531 million. Figure 19 shows the levels of Sri Lankan inputs and outputs between 

2006 and 2008. As seen, the level of electronics industrial output has remained stable. 

Figure 19: Tota l va lue of inputs and outputs in the electronics sector in Sri Lanka 

Millions US dollars 

1 000 

800 

600 

400 

200 

Total input 

Total output 

0 

Source: DCS (2011). 

2006 2007 2008 

The electronics industry shows a great potential as a driver of future economic 

growth. When compared to the apparel and rubber/plastics sectors, the productivity 

level of the electronics industry (both at micro- and macro-levels) is considered high 

with the value output per worker being $16,200, which is the highest level among the 

three manufacturing sectors. High productivity level is seen as an important 

competitiveness indicator (table 6). In 2008, the apparel sector had exports valued at 

$2.98 billion, while the electronics sector exported only one third of this value and 

employed only 10 per cent of the apparel sector workforce. The electronics industry, 

due to its high value added, is more efficient in converting inputs into outputs than 

other manufacturing sectors and thus has a much higher productivity level. 

188 

Ta ble 6: Productivity levels across the three sectors in Sri Lanka 

Indicator 

Apparel 

Rubber 

and Plastics 


Output/Input Ratio 1.68 1.83 1.82 

Output/Worker (in dollars) 8 767 20 599 35 972 

Value Added/Worker (in dollars) 3 540 9 335 16 200 

Value Added/Input Ratio 0.68 0.83 0.82 

Source: Calculated by the authors with the data obtained from DCS (2011).


10. ACCESS TO MAJOR MARKETS 

As previously mentioned, the electronics industry in Sri Lanka has been 

neglected and is underdeveloped even by the standards of lower middle income 

nations. 39 On average, lower middle income nations had high technology exports share 

of 22 per cent in their manufacturing exports from 2001 to 2008 while Sri Lanka only 

had a paltry 1.6 per cent (World Bank 2011b). 

Sri Lanka’s five main export destinations are the European Union, the United 

States of America, India, United Arab Emirates and the Russian Federation – with the 

first two having close to 60 per cent share of exports in 2010 (EC 2011a). And 

unsurprisingly, Sri Lanka’s leading exports are apparel and clothing accessories. After 

a detailed look into the export data of the four major markets, including the European 

Union, the United States of America, India and China, one can see that there are 

negligible exports of electronic products to these markets with the exception of the 

European Union. And even though the export of electronic goods to the European 

Union increased more than six-fold from $22.5 million to $148.4 million in the period 

from 2002 to 2007, it still represents only five per cent of Sri Lankan total exports to 

the European Union (DOC 2007). 

Sri Lanka is well situated in the middle of the main maritime transport corridor 

that links Europe to Asia and the Pacific and North America, which provides logistic 

access to key overseas markets such as the European Union, China, Japan, ASEAN and 

the United States of America. Sri Lanka, with its supply of relatively skilled workers and 

low labour costs, could market its domestic capabilities for manufacturing low-cost 

electronic components that could easily be exported to overseas assembly hubs (for 

the finished products). The following sections will briefly describe potential key export 

markets for Sri Lankan electronics industry, namely India, ASEAN, the European Union 

and the United Sates of America. 

India 

Sri Lanka’s proximity to India allows it benefit from the Indian economic growth 

with its growing demand for electronic products. As more Indians can afford modern 

luxury and the necessary items such as televisions, refrigerators, personal computers, 

mobile phones, cars, etc. more opportunities emerge for the electronics industry of 

Sri Lanka. Sri Lanka stands to benefit from Indo-Sri Lanka Free Trade Agreement, which 

was signed in 2000 with the aim of promoting economic linkages between India and 

Sri Lanka (ISFTA 2007). This agreement allows over 4,000 Sri Lankan goods a duty-free 

access into India 40 ; included among the list of eligible-products are various electronic 

189 

39 

The World Bank classifies countries, according to GNI per capita, into four income groups: low 

income, $1,005 or less; lower middle income, $1,006-$3,975; upper middle income, $3,976-$12,275, 

and high income, $12,276 or more. Sri Lanka is classified as a lower middle income nation with a 

GNI per capita of $2,290 (World Bank 2011b). 

40 

Conversely, ISFTA also provides preferential tariffs for petroleum, natural gas, steel and other core 

infrastructural products exported from India to Sri Lanka – so that enterprises in Sri Lanka also have 

access to key manufacturing inputs from India.


goods: household appliances, printed circuits, semiconductors, electronic integrated 

circuits, electrical machinery parts, motor vehicles, televisions, personal computers and 

telephones (DOC 2009). The ISFTA has brought about a rapid growth of exports from 

Sri Lanka to India or a nine-fold increase from $55.7 million to $516.4 million in the 

period from 2000 to 2007 India now represents the third largest export market for 

Sri Lanka (table 7). More than 70 per cent of Sri Lankan exports to India presently fall 

under the tariff preferences offered through ISFTA. 

Ta ble 7: Trade between India and Sri Lanka, 2000-2007 (va lue in millions of 

dollars) 

Year Exports to India Imports from India Total Trade 

2000 55.7 600.1 655.8 

2001 70.1 601.5 671.6 

2002 168.9 834.7 1 003.6 

2003 241.1 1 076.2 1 317.3 

2004 385.5 1 358.0 1 743.5 

2005 559.3 1 440.4 1 999.7 

2006 494.1 1 822.1 2 316.2 

2007 516.4 2 785.0 3 301.4 

Source: ISFTA (2007). 

The current economic environment fosters the expansion of the Sri Lankan 

electronics industry as it has an advantage in supplying low-cost electronics parts and 

components to the Indian market. Since most electronic products are not manufactured 

in India and have to be imported, Sri Lanka could act as a production site for the 

electronic components (and finished products) destined for the Indian market. 41 

Sri Lanka could act as secondary supplier of electronic car parts for Indian automotive 

manufacturers (especially small sized). With an investment from Japanese TNCs and 

an experience in exporting to foreign nations, Sri Lanka has been developing a capacity 

for producing products to international standards. 42 Despite a growth potential in 

bilateral trade, the level of exported electronic products to India is minimal at best. 

190 

Since the implementation of ISFTA, the growing mutual dependence of Sri 

Lankan and Indian economies is obvious (see table 7). Taking into consideration the 

supply of skilled workers and low labour costs, there is a golden opportunity for foreign 

investors to invest in the manufacturing of high value added electronic components/ 

products in Sri Lanka and export them to the Indian market. 

41 

India has attracted FDI in its electronics sector mostly for research and development (R&D) 

operations rather than manufacturing and production (cf. Ernst 2009). 

42 

Companies such as Toslanka, Kik Group, Nippon Maruchi, Soar Technologies, and FDK Lanka.


ASEAN 

Association of Southeast Asian Nations (ASEAN) has undergone rapid 

industrialization that has transformed it from an agrarian-based economy to the one 

based on industry and services. The subregion’s FDI-driven development strategy has 

integrated its industries into global and regional value chains. Next to China, ASEAN 

(specifically Malaysia and Thailand) has risen to become a global manufacturing centre 

for electronic and electrical products. However, rising labour costs are seen as a major 

challenge for South-East Asia, which hamper its future reliance on assembly 

manufacturing. A small number of skilled labour in the subregion has limited the type 

of manufacturing to assembly manufacturing that has drastically capped the high 

valued-added activities. The result is that ASEAN imports the necessary components 

and parts for the final assembly from abroad . 

Sri Lanka is in a unique position, due to an abundance of skilled labour and low 

labour costs, to take advantage of the situation in ASEAN. Because of its proximity to 

ASEAN and its low labour, resource and transportation costs, Sri Lanka could market 

itself as a low-cost manufacturer of electronic and electrical components for a further 

integration into the ASEAN electronics value chain. Additionally, Sri Lanka could 

produce computer hardware components and car electronic parts (similar for those it 

produces for India) for the ASEAN high tech and auto industries. Since these export 

industries already exist in Sri Lanka (albeit minimally) through affiliation with TNC 

subsidiaries, their further development should be relatively straightforward. 

The European Union 

The European Union (EU) has incorporated the World Trade Organization (WTO) 

Generalized System of Preferences (GSP) 43 into its trade agreement with Sri Lanka and 

other 175 other developing countries and territories, which provides them with 

a preferential access to the European market. It achieves this by reducing tariffs 44 on 

over 7,000 products destined for sale in the European market. As an extension to the 

European GSP, there is a non-reciprocal preferential import regime for developing 

nations, known as the special incentive arrangement for sustainable development and 

good governance (colloquially as GSP plus). The GSP plus provides additional 

preferences to economically vulnerable developing countries, including Sri Lanka, that 

have ratified, implemented and maintained international conventions dealing with 

sustainable development, good governance and human and labour rights (EC 2011b). 

43 

GSP is a formal exemption mechanism from the WTO provision that requires all WTO member 

nations to treat imports from all other WTO member nations equally, i.e., by imposing equal tariffs 

on them. Under the GSP, qualifying nations such as Sri Lanka have preferential access, due to lower 

or non-tariffs, to all WTO member nations (WTO 2011). The aim of the GSP is to contribute to the 

reduction of poverty and promotion of sustainable development and good governance. Within this 

framework, preferential tariff rates for exports to EU markets would enable developing nations to 

participate more fully in international trade and generate export revenue to support its developing 

industries, jobs and poverty reduction (EC 2011b). 

44 

The tariff preferences differ according to the sensitivity of products: non-sensitive products enjoy 

duty-free access to the EU market while sensitive products benefit from a tariff reduction. For specific 

duties, however, a 30 per cent reduction is the general rule (EC 2011b). 

191


Driven by GSP plus programme, Sri Lankan exports of electric goods, machinery, 

sound recorders, televisions, vehicles and parts to the EU increased from $22.5 million 

to $148.5 million from 2002 to 2007 (DOC 2009). In 2009, the EU was responsible for 

5.6 per cent of Sri Lankan electronic exports (EC 2011b). However, in 2010 the EU 

suspended Sri Lanka from the GSP plus programme due to its failure to meet three 

United Nations human rights conventions (EC 2011c). 45 Despite this, Sri Lanka still 

receives regular GSP tariff preferences from the EU. This brings uncertainty about the 

benefits Sri Lanka may receive in the form of future electronic-related exports to the 

European Union. 

The United States of America 

Similar to the European Union GSP, the United States of America (The United 

States) has incorporated World Trade Organization GSP into its trade agreements with 

Sri Lanka and other 129 designated countries and territories, which provide preferential 

duty-free treatment to over 3,400 products. The purpose of GSP programme is to give 

exports from developing nations a competitive edge in the United States market; the 

United States companies, on the other hand, are interested in buying goods through 

GSP programme because no tariff is charged on the products’ entry into the United 

States. 46 GSP programme covers many eligible items and among them are industrial 

items and inputs for manufacturing. The total United States import under GSP 

programme in 2006 amounted to $32.6 billion, 20 per cent of which was classified as 

“machinery, electronics or transportation” product types. Sri Lanka was the 14 th top user 

of US GSP in 2006 with $143.6 million worth of exports and benefitted greatly from the 

programme. For example, the duties for certain electrical transformers exported were 

reduced by 6.6 per cent (USTR 2007). Despite this, Sri Lankan exports through GSP 

programme accounted for only 6.7 per cent of the total United States imports from 

Sri Lanka, with electronics export non-existent. As such, there is an immense potential 

for Sri Lanka to utilize the United States GSP programme to market itself to foreign 

investors for manufacturing of electronic components or finished products to be 

marketed in the United States. 

11. VALUE CHAINS IN THE ELECTRONICS INDUSTRY IN SRI LANKA 

192 

One of the major players in the electronics industry value chain are brand 

owners or own brand manufacturers (OBMs). The OBMs have marketing expertise in 

identifying the needs of the user, doing in-house product design (i.e., own design 

manufacturers (ODMs)) or ordering it from outside product designers. There are 

a number of players in Sri Lanka that provide contract manufacturing services to the 

OBMs and to several other support industries such as printed circuit board (PCB) 

manufacturers, plastic enclosure producers, precision metal parts manufacturers and 

die and mould makers. The support industries provide accessories and parts/ 

components needed for the production of electronic goods. However, the contract 

45 

Those include the International Covenant on Civil and Political Rights, the Convention against 

Torture and the Convention on the Rights of the Child. 

46 

Otherwise, the tariffs could range between two per cent and seventeen per cent of the 

product’s cost.


manufacturers and support industries provide their services to the OBMs with relatively 

low profit margins. 

Figure 20 depicts a typical value chain of electronic components, which includes 

plant developers, process developers, raw material suppliers, electronic component 

manufacturers, distributors and industrial customers. In the production of 

semiconductors, for example, raw materials (such as silicon wafers) are converted into 

various discrete devices and integrated chips. The design of an integrated circuit is an 

expensive process and is the key factor that determines the final quality and thus the 

value of the product. Usually designs are protected by patents and copyrights to ensure 

that the expenses incurred during the design stage are recovered Thus, production 

under license agreements is practiced by many companies (i.e., licensed manufacturers). 

The cost of plants and machinery required for integrated circuit manufacturing is also 

considerably high. Semiconductors manufactured in large volumes, such as 

microprocessors and memories, are typically marketed under a brand names such as 

Intel, Motorola, AMD, Samsung and Hitachi. 

Figure 21 depicts a value chain of electronic products for which electronic 

components are major inputs. Laminats are processed chemically into PCBs while 

electronic components are later assembled into PCBs. The assembly process is usually 

outsourced to contract manufacturers. Plastics and metals are major raw materials used 

in the industry to make enclosures and accessories. Die and mould makers provide the 

dies and moulds needed by the industry while plastic enclosure/component producers 

and metal fabricators supply the enclosures and accessories. The PCB manufacturers, 

die and mould makers and enclosure/component producers can be treated as related 

support industries for the electronic product manufacturing industry. In addition, 

design service providers mainly for die and mould, electronic circuit and prototyping 

assist ODMs and OBMs in engineering and designing electronic products. 

Figures 20 and 21 also suggest that certain functions of both the electronics 

components and electronics products value chains could be developed in Sri Lanka. 

As far as the local electronics industry is concerned, the raw materials and required 

facilities (e.g., plant and machinery) are mainly imported at present and such trend could 

be continued for the foreseeable future. At present, the Sri Lankan electronics industry 

could be identified as a supporting industry to OBMs and ODMs that provide significant 

opportunities for Sri Lankan manufacturers to work for contract manufacturing services 

in exporting parts and components for display technologies, entertainment devices, 

optical storage devices, passive components and telecommunication equipment. The 

Sri Lankan electronics industry should attract foreign TNCs for local contract 

manufacturing during trade fairs organized by the EDB. Foreign direct investment could 

increase the sector’s output and productivity due to the use of advanced manufacturing 

techniques and higher productivity capacities of newly constructed plants. However, 

technological inputs, which play a major role in value added, are expected to be 

provided by the leading brand owners. The quality control and marketing of the final 

product should be done according to TNCs standards. 

193


Customer 1 

Customer N 

Customer 1 

Customer N 

194 

Figure 20: Va lue chains for electronic components 

Global National International 

Branding Distributor 1 

Own Design 

Manufacturers 

Plant Manufacturers/ 

Process Developers 

Licensed 

Manufacturers 

Distributor N 

Raw Materials 

Suppliers 

Electronic 

Industries


Customer 1 

Customer N 

Customer 1 

Customer N 

Figure 21: Va lue chains for electronic products 

Global National International 

Universities 

Die & Mould 

Design 

R&D 

Institutes 


Circuits Design 

Mould 

Manufacturers 

Rapid 

Prototyping 

Distributor 1 

Design Service 

Providers 

Suppliers 

Plastic Enclosure/ 

Components 

Manufacturers 

Plastic 

Branding 

PCB 

Manufacturers 

Chemicals and 

Laminates 

Distributor N 

ODM 


Conponents 

OBM 

Metal Parts 

Fabricators 

Metal 

Branding 

Manufacturers 

Die 

Manufacturers 

Support Industries 

195


Over time, electronics contract manufacturers in Sri Lanka should attempt to 

come up the electronic value chain by providing the finished product to OBMs and 

ODMs as original equipment manufacturers (OEMs) and developing their own brands 

by enhancing their engineering and marketing capabilities. The local universities and 

R and D institutions could provide the required human resources for engineering and 

marketing activities. Various suppliers (e.g., raw materials, plastic enclosures/ 

components and metal parts) should be established near such universities and 

institutions to form industry clusters. 

As stated earlier, the major strength of the electronics industry in Sri Lanka is 

the relatively skilled and adaptable local labour force, which is flexible and is used to 

frequent designs changes in the production of electronics components and products 

and to quality and delivery requirements of leading electronics manufacturers. On the 

flip side, the major drawback of contract manufacturing is the low value added for Sri 

Lankan industries. And as marketing has not been done to any discernible extent by 

Sri Lankan electronics industries, one could not expect that any Sri Lankan electronics 

brand emerge in the global market in the short term. The second major drawback is 

the heavy dependence on imported machinery and raw materials, such as precision 

metal parts required for some electronics products. The third major drawback is a lack 

of engineering and design activities for the electronic export products in Sri Lanka. 

Within this context one key issue that the electronics industry in Sri Lanka 

should address is the identification of niche markets. Sri Lankan firms engaged as 

contract manufacturers could learn from their principal buyers, typically TNC-brand 

manufacturers, how to reach the regional and global markets. However, buyers may 

resist helping Sri Lankan contract manufacturers, who could become their competitors 

over time. The strategy that Sri Lankan contract manufacturers could adopt to overcome 

this resistance is to develop products that are not marketed by their customer TNCs. 

12. SWOT ANALYSIS OF THE ELECTRONICS INDUSTRY IN SRI LANKA 

Strengths 

196 

● 

● 

● 

● 

● 

● 

Availability of low-cost, skilled workforce that is trainable, adaptable and 

capable of working in high tech environments. 

Preferential access to major overseas markets, such as the European Union, 

the United States of America and India, which, by way of reduced or zero 

tariffs, give Sri Lankan products a competitive advantage. 

Relatively low international transportation costs due to a proximity to 

maritime corridors. 

High productivity levels when compared to other key export sectors 

(i.e., apparel and rubber/plastic industries). 

Ample duty-free supply of natural resources (iron, oil, etc.) from India. 

Foundation of the Government supported microfinance institutions 

assisting in funding SME development.


● 

● 

Presence of foreign TNCs subsidiaries, exporting quality electronic 

components to ASEAN and Japan, and thus displaying the feasibility and 

success of electronic manufacturing in Sri Lanka. 

Increase of designated industrial parks and export processing zones 

equipped with electric power supply, transportation access and 

infrastructure for manufacturing operations. 

Weaknesses 

● 

● 

● 

● 

● 

● 

● 

Despite relatively modernized urban centres, the rural infrastructure 

remains underdeveloped with neglected roads and rail lines and uneven 

supply of electricity, which undermines rural SMEs development. 

High corporate tax rates and convoluted tax regulations are deterrents to 

foreign investments in Sri Lanka. 

Arcane labour regulations restrict the free flow of labour force and hinder 

SMEs’ ability to react to market changes. 

Lack of access to institutional credit and high costs of borrowing restrict 

the capital needed for SMEs startups and expansion. 

Lack of adequate local auxiliary services (precision engineering, high tech 

testing and calibration) for electronics goods manufacturing necessitates 

the import of machinery and components. 

Lack of specific training and technological capability-building facility to 

promote and improve electronic goods manufacturing. 

Lack of an influential electronics industry association. 

Opportunities 

● 

● 

● 

● 

● 

● 

Proximity to India allows Sri Lanka to benefit from the growing domestic 

demand. 

Low levels of electronic goods exports and the electronics industry high 

productivity levels (relative to the apparel and rubber/plastic industries) 

allows for tangible gains from economies of scale. 

The growing global demand for electronic products combined with the 

TNCs desire to lower production costs allows Sri Lanka to market itself as 

a low-cost manufacturing <strong>country</strong>. 

Ability to assimilate into the existing ASEAN regional value chains (i.e., 

Malaysia and Thailand) as low-cost component suppliers and offer 

secondary components for the Indian manufacturing markets (e.g., 

electronics parts for automobile). 

As production costs rise in the more developed neighbouring economies 

such as ASEAN, Sri Lanka, with its ample supply of skilled workforce and 

low labour costs, represents a cost effective alternative for TNCs. 

Government sponsored electronics sector-specific investment campaign to 

promote Sri Lanka as an electronic manufacturing hub to foreign investors. 

197


Threats 

● 

● 

● 

Further growth of Chinese, Indian and ASEAN manufacturing electronic 

product markets threatens Sri Lanka prospects of electronic product 

market development. 

Bureaucratic processes, tax and labour regulations create confusing 

business environment that hinders future foreign investments. 

Weak access to credit hinders SMEs growth. 

13. ACTION PLAN FOR THE DEVELOPMENT OF THE ELECTRONICS SECTOR 

VALUE CHAINS IN SRI LANKA 

Asia and the Pacific is fast becoming the manufacturing hub of the global 

electronics industry and Sri Lanka should capitalize on the great opportunity. By 2020, 

venturing into electronic component and product manufacturing as specified in the 

action plan, Sri Lanka aims at capturing a 0.1 per cent share of the global electronics 

market, which would correspond to approximately $2 billion (as compared to $967 

million in 2008). 

The strategic perspectives of the action plan are based on the electronics 

industry maturity level and specific areas within the electronics industry where the 

production and sales of precision and branded electronic components and products 

would fit. The perspectives and action plan are presented in the following matrices 

(tables 8 and 9). Several priority actions and activities specified below are as follows: 

198 

1. Vigorously promote electronics component manufacturing by attracting 

FDI from major component manufacturers; 

2. Commence electronic component manufacturing by promoting joint 

ventures to manufacturers under license; 

3. Develop and modernize education/training and R and D for the electronics 

industry; 

4. Establish market information and advisory system for the identification of 

new markets; 

5. Promote design and manufacturing of electronic components for niche 

markets by establishing Sri Lankan brands; 

6. Establish and strengthen design service providers in electronic circuit 

design, die and mould design and rapid prototyping; 

7. Establish supporting industries capable of manufacturing precision plastic 

and metal components for the electronics industry; 

8. Promote establishment of links with foreign brand manufacturers to 

consider Sri Lanka as a suitable destination for own design manufacturing 

in addition to contract manufacturing; 

9. Promote and support technology parks that cooperate closely with 

educational and R and D centres;


10. Prepare the industry to comply with the environmental laws and 

regulations (e.g., lead-free soldering, electromagnetic compatibility, etc.); 

11. Promote the establishment of links with foreign brand manufacturers to 

market Sri Lankan brands for niche markets where foreign brand 

manufacturers are not currently providing any services; and 

12. Promote the establishment of foreign subsidiaries to promote Sri Lankan 

brands. 

Box 2: An example of the electronics sector FDI in Sri Lanka 

FDK Lanka was established in 1990 as one of foreign subsidiaries of FDK Corporation, 

a Japanese manufacturer of electronic-related materials and products that received over 

$1.2 billion in revenue in 2010. The FDK Lanka employs over 1,100 people and is located 

within the Katunayake EPZ, which provides a convenient access to transportation hubs. 

FDK Lanka started with producing magnetic heads for floppy drives in 1990, but recently, 

after five expansion stages, has overhauled its product portfolio to include optical isolators 

(for fibre optic communication equipments) and ferrite cores and rotary transformers (for 

VCR/Video cameras). FDK Lanka is equipped with computerized production machineries, 

precision cutting, cleanroom manufacturing environments of Class 100, 1,000, and 10,000, 

where optical components and rotary transformers are processed and assembled up to 

the final product. Its products are shipped to China; European Union; Hong Kong, China; 

Indonesia; Japan; Malaysia, Republic of Korea; and the United States of America. The 

success of FDK Lanka demonstrates a business opportunity for the electronics sector TNCs 

in Sri Lanka. 

Source: http://www.fdklanka.com 

199


200 

Ta ble 8: Action plan matrix for the electronics sector in Sri Lanka 

Responsible 

Institution 

Objective Present Status Target Actions 

Main objective: To capture 0.1 per cent share in the global electronics market by 2020 by venturing into electronics component and product manufacturing. 

BOI, SLEMEA 

A1. Attract FDI by major component manufacturers. 

BOI, SLEMEA 

A2. Promote joint ventures to manufacturers under 

license. 

Commence production 

and market electronic 

components, such as 

capacitors, resistors, 

inductors, connectors, 

etc. 

Only one foreign 

investor is involved 

in manufacturing 

capacitors. 

Commence the 

production of 


components. 

EDB, SLEMEA 

A3. Promote design and manufacture electronic 

components for niche markets by establishing Sri Lankan 

brands. 

Universities 

A4. Development and modernization of education and R 

and D for the electronics industry. 

MID 

Commence the 

production of 

electronic products. 

A5. Promotion and support for technology parks 

cooperating closely with educational and R&D centres. 

At present, mainly 

contract 

manufacturing is 

carried out. 

Ministry of 

Environment 

A6. Preparation of industry for environmental directives 

(e.g., lead-free soldering), electromagnetic compatibility, 

etc. 

EDB 

Commence production 

and market electronic 

products in consumer 

electronics, 

telecommunication, 

computer and office 

automation sector, as 

well as industrial 

electronics sectors. 

A7. Establish market information and advisory system 

for identification of new markets. 

MID 

A8. Establish design service providers in electronic 

circuit design, die and mould design, rapid prototyping 

and strengthening them. 

MID 

A9. Establish supporting industries capable of 

manufacturing precision plastic and metal components 

for the electronics industry.


Responsible 

Institution 

EDB, SLEMEA 

EDB, SLEMEA 

EDB, Sri Lanka 

Electronic and 

Exporters Association 


Objective Present Status Target Actions 

A10. Promote establishment of links with foreign brand 

manufacturers to consider Sri Lanka as a suitable 

destination for ODM, instead of contract manufacturing. 

A11. Promote establishment of links with foreign brand 

manufacturers to market Sri Lankan brands for niche 

markets where foreign brand manufacturers are not 

providing any service. 

A12. Promote establishment of foreign subsidiaries to 

promote Sri Lankan Brands. 

201


202 

Ta ble 9: Sub-activities for the action plan 

Action (budget required) Proposed Activities 

A1 Attract FDI by major component manufacturers. ● Establish investment policies promoting FDI from component manufacturers. 

● Dispatch delegations comprising government and private sector stakeholders to major 

component manufacturers to attract FDI. 

● Set up a steering committee to promote FDI for component manufacturing. 

A2 Promote joint ventures with manufacturers under license. ● Establish investment policies promoting joint ventures for component manufacturing. 

● Dispatch delegations comprising government and private sector stakeholders to major 

component manufacturers to promote joint ventures. 

● Set up a steering committee to promote joint ventures for component manufacturing. 

A3 Design and manufacture electronic components for ● Use activities of A7 to promote marketing electronic components for niche markets. 

niche markets by establishing Sri Lankan brands. ● Set up a mechanism to promote technology spillover from FDI and joint ventures to 

Sri Lankan brand manufacturers. 

A4 Develop and modernize education and R&D for ● Provide training programmes to academics/researchers in electronic product design. 

the electronics industry (SL Rs. 10 Million) 

● Commence undergraduate course specializing in electronic product design. 

● Set up technology incubation facilities at Universities of Moratuwa, Peradeniya and 

Ruhuna to promote start-up electronics industries. 

A5 Promote and support technology parks that will ● Identify suitable location to set up technology parks closed to Universities of 

cooperate closely with educational and R&D centres. Moratuwa, Peradeniya and Ruhuna. 

● Construct infrastructure for technology parks using foreign grants/loans. 

● Promote start-ups in incubators to commence commercial operation in technology 

parks. 

A6 Prepare the industry for compliance with environmental ● Set up an expert team to identify environmental directives, standards, etc., related to 

directives (e.g., lead-free soldering, electromagnetic major markets such as United States of America, European Union and Japan. 

compatibility, etc.) 

● Identify consultants to conduct training programmes to the industry.



Action (budget required) Proposed Activities 

A7 Establish market information and advisory system for ● Establish a network of trade missions at Sri Lankan Embassies to identify new markets 

the identification of new markets (SL Rs .10 Million). for electronic products and components. 

● Establish an information bureau to gather and disseminate market information among 

electronic product and component manufacturers. 

● Create a funding mechanism to explore market potentials identified by the above two 

points. 

● Set up a service bureau to provide marketing expertise to electronic product and 

component manufacturers. 

A8 Establish and strengthen design service providers in ● Provide financial support to the private sector to establish design services for 

electronic circuit design, die and mould design and electronic circuit design. 

rapid prototyping (SL Rs. 10 Million). ● Provide tax concessions to design service providers. 

● Strengthen rapid prototyping facilities at University of Moratuwa. 

● Strengthen die and mould facilities at University of Moratuwa. 

A9 Establish supporting industries capable of ● Provide financial support to the private sector to commence precision plastic and 

manufacturing precision plastic and metal metal components. 

components for the electronics industry. 

● Provide tax concession to precision plastic and metal component manufacturers. 

A10 Promote the establishment of links with foreign brand ● Use activities of A4 to promote ODM. 

manufacturers to consider Sri Lanka as a suitable ● Use activities of A5 to promote ODM. 

destination for ODM, instead of contract manufacturing. 

● Use activities of A7 to promote ODM. 

A11 Promote the establishment of links with foreign brand ● Use activities of A7 to promote links with foreign brand manufacturers to market Sri 

manufacturers to market Sri Lanka brands for niche Lankan brands. 

markets where foreign brand manufacturers are not 

providing any services. 

A12 Promote the establishment of subsidiaries to promote ● Provide financial aids to establish subsidiaries. 

Sri Lankan brands. 

● Provide tax concession to companies who establish foreign subsidiaries. 

203


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210

ESCAP STUDIES IN TRADE AND INVESTMENT 

No. 

1. Strengthening Capacities in Trade, Investment and the Environment for the Comprehensive Development of 

Indo-China (ST/ESCAP/1482) 

2. Regional Cooperation in Export Credit and Export Credit Guarantees (ST/ESCAP/1438) 

3. Expansion of Manufactured Exports by Small and Medium Enterprises (SMEs) in ESCAP Region (ST/ESCAP/1457) 

4. Towards a More Vibrant Pepper Economy (ST/ESCAP/1494) 

5. Sectoral Flows of Foreign Direct Investment in Asia and the Pacific (ST/ESCAP/1501) 

6. Review and Analysis of Intraregional Trade Flows in Asia and the Pacific (ST/ESCAP/1506) 

7. Prospects of Economic Development through Cooperation in North-East Asia (ST/ESCAP/1472) 

8. An Analysis of Fiji’s Export Potential to Asia (ST/ESCAP/1511) 

9. Development of the Export-Oriented Electronics Goods Sector in Asia and the Pacific (ST/ESCAP/1512) 

10. Assessing the Potential and Direction of Agricultural Trade within the ESCAP Region (ST/ESCAP/1517) 

11. Benefits and Challenges Facing Asian and Pacific Agricultural Trading Countries in the Post-Uruguay Round Period 

(ST/ESCAP/1526) 

12. Trade Prospects for the Year 2000 and Beyond for the Asian and Pacific Region (ST/ESCAP/1516) 

13. Electronic Commerce Initiatives of ESCAP – Role of Electronic Commerce in Trade Facilitation (ST/ESCAP/1557) 

14. Promotion of Investment in Countries in the Early Stages of Tourism Development: Mongolia, Myanmar, Nepal, 

Viet Nam (ST/ESCAP/1597) 

15. Implications of the Uruguay Round Agreements for the Asian and Pacific Region (ST/ESCAP/1535) 

16. Implications of the North American Free Trade Agreement for the Asian and Pacific Region (ST/ESCAP/1627) 

17. Prospects for the Textile and Clothing Sector of the ESCAP Region in the Post-Uruguay Round Context 


18. Trade and Investment Complementarities in North-East Asia (ST/ESCAP/1640) 

19. Myanmar: Trade and Investment Potential in Asia (ST/ESCAP/1671) 

20. Promoting Exports of Fish and Fishery Products in Selected Island Developing Countries of the ESCAP Region 


21. Enhancing Trade and Environment Linkages in Selected Environmentally Vulnerable Export-Oriented Sectors of 

the ESCAP Region (ST/ESCAP/1704) 

22. Asian and Pacific Developing Economies and the First WTO Ministerial Conference: Issues of Concern 


23. Inter-networking through Electronic Commerce to Facilitate Intra-regional Trade in Asia (ST/ESCAP/1721) 

24. Tea Marketing Systems in Bangladesh, China, India, Indonesia and Sri Lanka (ST/ESCAP/1716) 

25. Private Sector Development and ODA in Indo-China (ST/ESCAP/1723) 

26. Implications of the Single European Market for Asian and Pacific Economies: Opportunities and Challenges 


27. Trade Effects of Eco-labelling (ST/ESCAP/1792) 

28. Assistance to Small and Medium-sized Enterprises for Enhancing Their Capacity for Export Marketing 


29. Border Trade and Cross-border Transactions of Selected Asian Countries (ST/ESCAP/1824) 

30. Market Prospects for Pulses in South Asia: International and Domestic Trade (ST/ESCAP/1825) 

31. Electronic Commerce Initiatives of ESCAP: Business Facilitation Needs (ST/ESCAP/1854) 

32. Assistance to Economies in Transition in Export Promotion (ST/ESCAP/1808) 

33. Implications of the APEC Process for Intraregional Trade and Investment Flows (ST/ESCAP/1886) 

34. Enhancement of Trade and Investment Cooperation in South-East Asia: Opportunities and Challenges Toward 

ASEAN-10 and Beyond (ST/ESCAP/1882) 

35. Trade and Investment Complementarities among the South-western Member Countries of ESCAP 


36. Trade and Investment Scenarios and Liberalization Agenda for Asia and the Pacific (ST/ESCAP/1965) 

37. Implications of General Agreement on Trade in Services (GATS) for Asia-Pacific Economies (ST/ESCAP/1926) 

38. Electronic Commerce Initiatives of ESCAP – Alignment of the Trade Documents of Cambodia, Myanmar and 

Viet Nam (ST/ESCAP/1892) 

39. Electronic Commerce Initiatives of ESCAP – International Trade Transaction (ITT) Models as an Aid to the Process 

of Harmonization (India, Malaysia, Philippines and Sri Lanka (ST/ESCAP/1963) 

40. Non-tariff Measures with Potentially Restrictive Market Access Implications Emerging in a Post-Uruguay Round 

Context (ST/ESCAP/2024)

41. The Future WTO Agenda and Developing Countries (ST/ESCAP/2047) 

42. Private Sector Perspectives in the Greater Mekong Subregion (ST/ESCAP/2065) 

43. Interregional cooperation in trade and investment: Asia-Latin America (ST/ESCP/2069) 

44. Enhancing export opportunities through environmentally sound business development (ST/ESCAP/2120) 

45. Export promotion for Economies in Transition (ST/ESCAP/2107) 

46. Export competitiveness and sustained economic recovery (ST/ESCAP/2150) 

47. Regional Perspectives on the WTO Agenda: Concerns and Common Interests (ST/ESCAP/2161) 

48. Accession to the World Trade Organization: Issues and Recommendations for Central Asian and Caucasian 

Economies in Transitions (ST/ESCAP/2160) 

49. Facilitating the Accession of ESCAP Developing Countries to WTO through Regional Cooperation 


50. Foreign Direct Investment in Central Asian and Caucasian Economies: Policies and Issues (ST/ESCAP/2255) 

51. The Doha Development Agenda: Perspectives from the ESCAP Region (ST/ESCAP/2278) 

52. Trade and Investment Policies for the Development of the Information and Communication Technology Sector 

of the Greater Mekong Subregion (ST/ESCAP/2336) 

53. Prospects from the ESCAP Region after the Fifth WTO Ministerial Meeting: Ideas and Actions following Cancún 


54. Harmonized Development of Legal and Regulatory Systems for E-commerce in Asia and the Pacific: Current 

Challenges and Capacity-building Needs (ST/ESCAP/2348) 

55. The Role of Trade and Investment Policies in the Implementation of the Monterrey Consensus: Regional 

Perspectives (ST/ESCAP/2363) 

56. Delivering on the WTO Round: A High-level Government-Business Dialogue (ST/ESCAP/2393) 

57. An exploration of the need for and cost of selected trade facilitation measures in Asia and the Pacific in the context 

of the WTO negotiations (ST/ESCAP/2426) 

58. Trade Facilitation in the Selected Landlocked Countries in the Asia-Pacific Region, Studies in Trade and Investment 


59. Linking Greater Mekong Subregion Enterprises to International Markets: The Role of Global Value Chains, 

International Production Networks and Enterprise Clusters (ST/ESCAP/2439) 

60. Agricultural Trade Planting the Seeds of Regional Liberalization in Asia (ST/ESCAP/2451) 

61. Future Trade Research Areas that Matter to Developing Country Policymakers (ST/ESCAP/2467) 

62. Towards Coherent Policy Frameworks: Understanding Trade and Investment Linkages (ST/ESCAP/2469) 

63. Role of Regional cooperation: Business Sector Development and South-South Investment (ST/ESCAP/2477) 

64. Emerging Trade Issues for Policymakers in Developing Countries in Asia and the Pacific (ST/ESCAP/2526) 

65. Globalization of Production and the Competitiveness of Small and Medium-sized Enterprises in Asia and the 

Pacific: Trends and Prospects (ST/ESCAP/2540) 

66. Impact of Trade Facilitation on Export Competitiveness: A Regional Perspective (ST/ESCAP/2543) 

67. Challenges and Opportunities for Trade and Financial Integration in Asia and the Pacific (ST/ESCAP/2563) 

68. Creating Business and Social Value: The Asian Way to Integrate CSR into Business Strategies (ST/ESCAP/2565) 

69. The Development Impact of Information Technology in Trade Facilitation: A Study by the Asia-Pacific Research 

and Training Network on Trade (ST/ESCAP/2584) 

For more information, please contact: 

Director 


Economic and Social Commission for Asia and the Pacific (ESCAP) 

United Nations Building 



Tel.: +66 2 288 1902 

Fax: +66 2 288 1027, 288 3066 

E-mail: escap-tid@un.org

United Nations 

United Nations publication 

Economic and Social Commission for 

Sales No. E.12.II.F.6 

Asia and the Pacific Copyright © United Nations 2011 

Trade and Investment Division ISBN: 978-92-1-120640-1 

United Nations Building ISSN: 1020-3516 


ST/ESCAP/2610 


Tel.: +66 2 288 1902 

Fax: +66 2 288 1027, 288 3066 

E-mail: escap-tid@un.org


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country studies on bangladesh, nepal and sri lanka - Escap

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