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Prepared for
Mrs. Syeda Rownak AfzaLecturer
BRAC Business School
Course: BUS 301; Section 1BRAC University
Prepared By
Rubaiya Afreen HuqID: 05204013
A.S.M Moshiur RahmanID: 05204014
Noor Ahmed NaveedID: 06104003
Rahib Maruf IftekharID: 06104053
Date of Submission: 29th November, 2008
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Table of Contents
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Acknowledgement
We would like to start by thanking our course instructor, Ms. Syeda Rownak
Afza for giving us this opportunity to work on such an interesting topic.
While working on this report we actually had to explore and learn how
companies really export their products, which is affected by various internal
and external factors. We had learnt all these facts in theory and when we
started working on this paper, we discovered the practicality of the topic.
We would like to thank her for her excellent guidance through valuable
lectures, personal advice and support.
Sometimes we got confused on how to proceed with report but the
innovative ideas contributed by all group members helped overcome these
problems. We would also like to drop a word of thanks to each other, among
our group, for our well managed coordination and division of work. Through
group cooperation and hard work were able to prepare this project report.
We are also very thankful to Subrata Kumar Chakraborty, Deputy Manger,
Export of Otobi Ltd. for helping us with all the necessary information that
could not have otherwise been obtained.
Finally and above all, we would all like to thank God, the Almighty for giving
us great strength and patience to work together to prepare this report on
“International Operations Otobi Limited”.
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Executive Summary
The report, “International Operation of Otobi Limited’ has been prepared for
the course International Business. The report takes an in-depth look into how
Otobi Limited is conducting their business outside the borders of Bangladesh.
With the “Number One” tag in the furniture industry in Bangladesh, Otobi
Limited’s venture outside the border has not yet proved fruitful. The
unnerving strives for quality, have allowed competitors to stake a claim in
their market share, both locally and in the international arena. Recent
modifications were made in their market strategy and their customary
product line to address the ever evolving international market. The report
further includes our recommendations which would help Otobi Limited retain
its market share in the international arena.
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30th November, 2008
Ms. Syeda Rownak AfzaCourse InstructorCourse: Organisational Behaviour (MGT 201)BRAC University66 Mohakhali, C/ADhaka, 1212
Subject: Report submission on “International Operations Otobi Limited ”.
Dear Ms. Afza,
Please accept the accompanying report entitled as “International Operations Otobi Limited”.
The report is a complete study which has been conducted to understand how Otobi Ltd. is doing conducting business outside Bangladesh’s borders and they can expand their business. The report was assigned to us as a term paper which is a part of our course curriculum. The purpose of this report is to understand how companies export their products, what factors influence their choice of markets and their performance in those markets, and how organisations deal with those factors.
Hard work was required to gather information through an interview with Subrata Kumar Chakraborty, Deputy Manager, Export Otobi Ltd. We must thank you ma’am for your patient guidance and suggestions that have made it possible for us to complete this report.
For any clarification required, we are there to provide you with an explanation. We hope that you will enjoy going through our report.
Thank You
Yours Sincerely,
______________________ ________________________
Rahib Maruf Iftekhar Rubaiya Afreen Huq
______________________ ________________________
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Noor Ahmed Naveed A.S.M Moshiur Rahman
Introduction
International Business is a term used to collectively describe the topics
relating to the operations of firms with interest in multiple countries. Such
firms are called multinational corporations. Such firms’ areas of study include
topics which differ from their countries such as political, economy, language,
living standards, etc.
International business by its nature is a primary determinant of international
trade. One of the results on the increasing success of international business
is ventures is globalization. In today’s fast moving world, the next step
towards expansion is going ‘global’.
Expansion outside the borders, facilitate companies to find new market for
their product. It helps them to expand to market where there is demand for
their product, or to achieve economies of scale. In other cases many other
companies may expand internationally due to adverse economic conditions,
or cultural shock. Companies in today’s world cannot afford to stay at one
place for too long. If they do so, they risk being over-run by competitors.
Otobi Limited, like many others see the international market as a bottomless
pit of opportunities. Expansion in other territories would help Otobi Limited
diminish the advantage their competitors hold over them and also help them
to gain a competitive edge over their competitors. Although they are yet to
set an example of themselves in the international arena, one can only
predict that it is just a matter of time.
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Objective:
The objective of the study is as follows:
- To enrich knowledge about the exporting methods of Otobi Ltd.
- To know the International and global market for furniture and home décor products
- To know what are the internal and external factors that affect international business of a company
- Find out ways to exploit the factors that present opportunities and overcome the ones that pose threats
Methodology:
Two sources had been used to collect the required information, which are as
follows:
Primary Source: An interview was conducted on the Subrata Kumar
Chakraborty, Deputy Manager, Export Otobi Ltd.
Secondary Source: Basic theoretical information was collected from
the course text book and by searching through the internet.
Scope of the Report:
- To study international business methods, and internal and external factors
that could affect them.
- Practical experience was gained by working in a group for collecting
information and compiling it into a report. An insight on international
business was received and experience gained by all while working in a
group for a simple institutional project.
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- Knowledge gathered about how internal and external factors of a company
affect its business, thus teaching us methods to deal with these factors
later in life.
Company Introduction
Background of Otobi Ltd.
Otobi Limited started its journey sometime back in the year 1975. The
entrepreneur of this business was Mr. Nitun Kundu who conceived the
idea of Bangladeshi made furniture. He was a Bangladeshi artist, sculptor
and finally entrepreneur.
Nitun Kundu was known to be the pioneer for integrating metal and wood
designs in furniture for which Otobi Ltd. gained its popularity in the
market. Kundu’s artistic skills were highly reflected in those furniture
pieces making them “a world apart”. They had a kind of simplicity which
distinctly marked Otobi’s character. Today Otobi Ltd. is one of the biggest
furniture manufacturers in Bangladesh and it has traveled a long way
since its commencement.
Initially the company manufactured mainly chairs and steel tables, in the
office furniture section. Since the year 2000, Otobi Ltd. started the
manufacture of a variety of furniture like beds, cabinets, conference
desks, book shelves, etc all using melamine laminated boards and
medium density fibre boards. From then Otobi Ltd. has been operating at
a new level, and providing products to the international market mainly in
South East Asia. In 2008 Otobi decided to break out of their tedious
furniture line to focus on a wider range of products. The introduction of
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candles, cushions and table lamp, which complements the furniture, has
been a huge success in the market. Their products are backed by
warranty along with after sales services which contribute to their goodwill.
Bengali people always prefer wood to melamine boards, but Bangladesh
is short on this crucial resource, which is why the furniture manufacturers
are all turning to this substitute for production. Nowadays furniture is
more about design and quality, rather than “type of raw material used”,
and in this market, Otobi Ltd. still dominates in Bangladesh.
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Overview of the Bangladesh Market
Before we take any further look into the Otobi’s international business,
let us take a look in to the national market. Domestically Otobi Ltd. has
been the leading company for many years. None of its competitors has
been able to possess any major threat to their market position. The
products’ quality and outlook, which is their major asset for their rise to
the top, has been the major problem for their competitors to replicate.
Obstacles Faced in Bangladesh
In the home market of Bangladesh Otobi Ltd. faces a few minor
challenges. Even though these challenges are minor, they need a lot of
tending; otherwise these can pose a great amount of threat to the
company. The obstacles faced are:
ـ There is a certain degree of uncertain competition in the
Bangladeshi market. This is because no competitor is actually
equivalent to Otobi in terms of size and product line, but there are
certain seasonal and occasional set backs due to these
competitors.
ـ Imported products available at shops such as Koncept Furniture,
Studio 45 and many other furnishers pose a threat to Otobi’s
market share. This is because Otobi Ltd. is trying to compete in
terms of quality and design with imported furniture. Therefore
when customers prefer imported goods than to Otobi’s local
products, this posses a threat to the company.
ـ Price competition is a major setback for the company. Otobi Ltd.
has many small and medium competitors in various parts of the
country especially in Dhaka. Panthapath is a prominent location
to get melamine laminated board furniture which also uses the
concept of Otobi to blend metal & wood designs. These products
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are less durable, but a lot cheaper than Otobi’s products. They
also don’t provide any warranty. Still there is a large group of the
population willing to sacrifice quality for price and make
purchases from such places.
Competition in Bangladesh
Navana Furnitures: It is the brand of the furniture unit of AFTAB
Automobile Ltd, founded in 2002. Since then it has been regarded as the
leading competitor for Otobi Ltd.’s market share. However it has never
been able to match Otobi’s product quality and variety. Although it may
seem that Navana Furniture does not possess a direct threat to Otobi’s
market share, the company must remain vigilant to outwit Navana in all
ways possible.
Aarong and Local Private Brands: The recent inclusion of wider range
of home decor has seen their ‘competition base’ increase significantly.
The likes of Aarong provide stiff competition in Otobi’s bid to increase
their customer base. Their home decor products such as candles, cushion,
table lamps, etc have already created a position in the people’s mind,
thus making it hard for Otobi to capture their potential market.
Local Traders: Traders who occupy the streets of Panthopath, Science
Laboratory, Hatirpool and other key areas around Dhaka city are
providing uneven competition for Otobi Ltd. They are price competitive,
but they compromise on quality. Consumers, who have budget
constraints, are easily attracted to such products and this is eating away
Otobi’s potential market share.
Foreign Threat: Furniture from China and Malaysia, and also Europe are
regarded as major threat for Otobi Ltd. Both the countries have abundant
factor endowments for being able to produce furniture at competitive
prices. European furniture is preferred very much by the upper crust of
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the society for its elegance and quality. This is the reason why imported
furniture has been able to penetrate markets in Bangladesh.
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Background of Export
How, When & Why Export?
In mid 2003, between July and August Otobi Limited started its export
journey to India. During that time, the company attended an industrial
fair at Kolkata, India. Through this fair, Otobi Ltd. made contacts with a
lot of Indian customers who were very interested in the Bangladeshi
furniture products. The main idea of the company to attend the industrial
fair was to expand their market globally. Otobi Ltd. has been operating in
Bangladesh for the past 33 years, and in 2003 it saw the opportunity to
go global, which is why the company took the initiative to attend an
international industrial fair.
Selecting Export Markets
Otobi Ltd. did not begin “searching” for their market, because they were
focused on exporting to India and it was a part of their plan. The
company is currently exporting to the eastern provinces of India such as
West Bengal, Shillong, Tripura, and Assam. Otobi Ltd. provides dealership
to Indian retailers in those provinces and through them the company is
making sales in India. Initially, the company was not in a position to
“choose” dealers because they had to accept any offer that came their
way, but 5 years into the export business Otobi Ltd. now chooses carefully
whom it’ll give the dealership contract in India to.
Otobi does not have a specific target from a income level perspective. It
chooses to market to all furniture and home décor customers. This makes
it a difficult for them as their goods a premium priced and best suited to
higher income level customers.
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Intermediaries and Transport Used
The intermediaries used for selling the products into the Indian market
are the Indian dealers themselves. As for sending the goods to India,
Otobi Ltd. uses special trucks which have been hired for the purpose of
exporting the company’s furniture. They are like “containers” in ships,
and are very protective and sealed for ensuring the quality of Otobi’s
products. Regionally within Bangladesh, local trucks are used to transport
goods to regional outlets, and within Dhaka city Otobi Ltd. has its own
pick up van to distribute products from warehouse to showroom.
C&F Agents, Insurance Company & Banks
Otobi Ltd. exports its products to India through the land ports of
Bangladesh which goes to include Benapol, Burimari, Akhaora and
Shewla. At each land port, there are clearing and forwarding agents from
both the Bangladeshi side and the Indian side. These agents check
whether all the necessary documents have been fulfilled by the exporter
& importer on both borders. The particular C&F agent used by Otobi Ltd.
has not been disclosed for the purpose of this report for which it cannot
be mentioned. Since Otobi Ltd. is the exporter, the company is not
required to prepare arrange for any insurance. It is the importer of the
furniture who arranges for the insurance of imported goods. This is also
another reason why Otobi Ltd. could not provide this particular
information for this report.
All export transactions carried out by Otobi Ltd. as an exporter is handled
by AB (Arab-Bangladesh) Bank Ltd. Importers usually send their TT
(telephonic transfers) or LC (letters of credit) from their Indian banks to
AB Bank Ltd. to process for Otobi. The company usually prefers receiving
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TT compared to LC because it is a more direct form of payment, and
requires much lesser time to process and receive the fund.
Products of Export
Furniture:
Otobi Ltd. initially exported very basic
furniture to the Indian market that
consisted mainly of chairs and tables. Once
they were established in the market they
introduced bedroom set, dining room set,
and general office furniture. All the
products were of economy range because Indians want “good quality
products at economical prices”. Therefore in order to capture the fancy of
the Indian market Otobi Ltd. exports cheap, but good quality and modern
designed furniture.
Now they are exporting a wide range of multi-
purpose furniture all within the economic price
range such as a cabinet that serves as a tv stand,
a CD rack, a stand for decoratives etc, all of which
were to cater to more specific Indian demands.
Their newer product lines such as office
furniture, hospital furniture etc are in high
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demand in the corporate market. Their furniture line has evolved over the
years since they commenced their business in India.
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Home Decor:
As of 2008, Otobi expanded their product line to include other interior
decorations. They first introduced these new products in Bangladesh to
observe customer’s reactions. They started with
cushions to complement their home furniture.
These were quickly accepted by the Bangladesh
market and perceived as stylish and trendy. Due
to the similarities between the Bangladeshi and
Indian culture Otobi decide to export it to India.
The cushions captured the market quite quickly.
To build on the success of the cushions they decided to
make more products that could complement their
existing product line. They thus started on lamps and
candles. They started test marketing these in the
first quarter of 2008 in Bangladesh. Although they
did not create the same buzz as the cushions, they
have nonetheless been deemed a success. Otobi
have now started exporting the lamps and candles
to India, but on a small scale.
However, Otobi’s focus on “good quality products at economical prices”
was not enough for the Indian market. Conducting further business in
India revealed that the Indian people were not particularly attracted to
Otobi’s products (challenges faced have been included in the report).
Thus Otobi altered their product line of home decor so as to capture the
illusive Indian market.
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Obstacles Faced in India
The Indian market is very hard to penetrate and government rules and
regulations are known not to be too flexible to allow outsiders to enter.
The obstacles are:
ـ A very ethnocentric market which does not accept foreign made
products. Indians are very patriotic when it comes to the
purchase of locally made products which is why Otobi products
are not entirely accepted by the Indians.
ـ Otobi’s largest contender in India is Godrej. The company
produces furniture and provides the same product line like that of
Otobi. India has its own stock of raw materials, and does not
require importing, which is why Godrej is able to offer its furniture
at competitive prices. Whereas Otobi imports many of its raw
materials from Malaysia, the cost of production is slightly higher
for Otobi Ltd.
ـ Another major problem with the Indian customers is that they are
very biased in believing that the products of Otobi Ltd. are not
actually Bangladeshi made. The customers are very critical and
are reluctant to believe that Bangladesh is capable of making
such high quality furniture.
ـ Moreover, the Indian customers are highly price & design
sensitive. They also desire having furniture that has a multi-
purpose function.
Competition in India
Local Producers: Indian people multipurpose furniture which are
economical and also allows a variety of choice. Indians are very
conservative in making any investment decision therefore they are very
precise about everything they purchase. As mentioned earlier, in India,
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Otobi’s main competitor is Godrej in terms of providing the “right kind of
furniture” to its people.
Foreign Competition: Otobi also faces stiff competition in India form
other companies that are from China, Japan, Taiwan, etc. These are
basically the same foes that it competes against in Bangladesh. They
answer the Indian market’s need through their low priced and multi-
purpose products.
Competitive Advantage of Competitors: The competitive advantage of Otobi’s
competitors home and abroad includes:
ـ Cheaper Furniture
ـ A Variety of Designs which are Attractive
ـ Multi Purpose Furniture
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SWOT ANALYSIS
Strengths:
It is quite ironic how certain competitive advantages of Otobi Ltd’s
competitors are also its own competitive advantage. They include:
ـ High Quality Furniture using Melamine Boards, and Chairs
ـ Product Durability
ـ Product Warranty
ـ Many Attractive Designs which is quite unconventional for
Melamine Board Furniture
ـ The Goodwill of Otobi Ltd.
Otobi Ltd’s precision for quality is termed as their major asset. The
unhindered need to provide its customers with the best product doubled
with features and variation, they are still the leading company in the
industry in Bangladesh. Using their goodwill, they have been able to gain
local customers, who live abroad thus gaining a competitive edge over its
rivals.
Weakness:
Weaknesses refer to the internal limitation of a company. Despite all its
strength there are no shortages of weakness for Otobi Ltd. They are as
follows:
ـ Country of origin
ـ Price.
ـ Lack of information for foreign customers.
ـ Time management.
Otobi’s main disadvantage is its image its country of origin carries.
Bangladesh is not perceived to producer quality products, which is why Otobi
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finds it difficult to position itself based on its quality, which unfortunately
happens to be its biggest asset in Bangladesh.
Otobi’s uncompromising focus on quality has made their products too
expensive for the target market. Combined with the lack of information -
such as no website, infrequent advertisement, etc - makes attracting new
customers very difficult. At the same time, their poor customer service adds
to their woes.
Opportunities:
Over the years Otobi has achieved significant success in the market, and the
products are being widely accepted. This presents the opportunity to expand
their product line.
It has also been seen that Otobi has been generating some buzz in the
international market. Private importers from Denmark and England are
creating a market for Otobi’s product through their own businesses. This
gives Otobi the opportunity to expand to these countries and perhaps many
others.
Threats:
Threats for Otobi are no different from other companies conducting business
in this industry. They face threats from new competitors who can provide its
target market with low price products. China and Malaysian exporters have
already taken a huge market share from Otobi. Their cost effective manner
of producing the products have penetrated the market.
With Otobi’s new wooden product line it might so happen that the
government may impose restrictions upon such furniture, due to its adverse
effect on the economy.
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Future Plan
Domestically Otobi Ltd. intends to introduce wood furniture product line.
They have established a factory dedicated to producing such products.
Some of the wooden furniture is already available retail outlets around
Dhaka city, but a full commercial launch in expected in the 2009 Dhaka
International Trade Fair (DITF).
Internationally Otobi’s main aim is to spread its business all over India
within the up coming years. Already it has established a showroom in
Kolkata, which it will use as a stepping stone to gain access to others
parts of India. Once they have captured India, they intend to divert their
attention to others markets in Asia. Countries such as Nepal, Indonesia
and Bhutan are being seen as potential targets. Extensive surveys are
being conducted to get in depth information regarding markets in South
Africa, which will be platform for multinational status.
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Recommendations
First and foremost Otobi should be more selective about their
target market as it will allow them to position themselves
better, especially when they export. It could consider
expanding to other home décor products. This may include
chandeliers, lights, etc.
It should also consider offering more variety in its existing product line. Some more innovative
designs could easily attract a lot of attention and quickly boost their long term sales while also
strengthening their image. Some possible examples are given below:
Titan Table
Transforming sofa set Lizard Chair
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Kube Table
Ying Yang Table
Oval Table
Folding wall chair
aero
ball chair
Tri layer table
Plateau coffee table
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Apollo chairs
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Many of the above are also multi functional, an attribute which is in
high demand in many foreign markets.
Finally, Otobi’s market potential in other foreign countries is limitless and we
recommend that they exploit it to the fullest
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Conclusion
Since its inception Otobi has been very successful in the market, both in
the furniture, and in the home décor industry. Despite many
shortcomings, the company has done well for itself, and has great
potential as a global furniture and home décor company. There is
however still a lot of room for improvement in its present condition.
Bibliography
1. Cateora, Phillip. R and Graham, John. L, “International Marketing”, 12th Edition
2. Internet Websites:
ـ http://en.wikipedia.org/wiki/Nitun_Kundu#Furniture_Pioneer
ـ http://www.evistatech.com.au/otobi1/home.asp
ـ http://www.probenewsmagazine.com/index.php?index=2&contentId=4239
ـ http://mocoloco.com
ـ http://weburbanist.com/
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Support from the Bangladeshi Government
There is no particular assistance that Otobi Ltd. receives from the
Bangladeshi Government. The benefit that the company reaps is due to
the different trade agreements for SAARC countries such as SAFTA (South
Asian Free Trade Agreement) and SAPTA (South Asian Preferential Trade
Agreement). This allows the exporter (Otobi Ltd.) to enjoy certain VAT
exemptions and the importer (Indian Dealers) to benefit from tax rebates.
Other than that, there is no help from the government of Bangladesh that
Otobi Ltd. is capable of acquiring benefit.
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