Companies going global to expand footprint
Companies worldwide go beyond their home markets to achieve economies of scale, source raw materials cheaply, lower costs and capture new markets. Similarly, many Bangladeshi firms are expanding abroad to find larger markets for their products and services and power their next phase of growth. Their success will depend on how efficiently they run the overseas operations and the regulations Bangladesh puts in place to pave the way for the expansion and eliminate any scope for misuse.
Bangladesh's people have witnessed a huge surge in entrepreneurial spirit over the last couple of decades.
Beginning with investments in garments in the early 1980s and their subsequent success, entrepreneurs steadily pushed their boundaries to explore the international and domestic markets.
Today, local entrepreneurs have a strong presence in the global apparel market thanks to their courage and resilience, putting Bangladesh on the list of the top three garment exporters in the world.
On the domestic front, a number of sectors – steel, cement, pharmaceuticals, food and agro-processing – have staged a strong emergence over the last two to three decades. And the expansion drive by entrepreneurs continues.
Now, a growing number of entrepreneurs have set their sights on international markets to grow by joining the global value chain.
The Bangladesh Bank started allowing local firms to make investments abroad in 2014.
Till last year, it gave the nod to 10 firms to establish subsidiaries or open offices in various countries such as Malaysia, Singapore, Ethiopia and Kenya, according to a central bank document.
It also gave approval for $52.2 million to be invested altogether.The firms subsequently doled out$40 million. And at the end of June this year, the central bank granted permission to six more firms to invest a total of $7.77 million in India, Ireland, the US, Singapore, and Saudi Arabia.
The companies are the NASSA Group of Industries, Pran-RFL Group, Bangladesh Steel Re-Rolling Mills (BSRM), Incepta Pharmaceuticals, Renata, andMBM Garments Ltd.
Of the first 10 firms, Akij Jute Mills poured the whole $20 million it had received permission for into its subsidiary, Akij Resources SDN BHD, in Malaysia.
Square Pharmaceuticals invested $10 million to establish a pharmaceuticals plant in an export processing zone in Kenya from the approved amount of $16 million. It is yet to begin production.
DBL, one of the leading apparel exporters, set up a garment factory in Ethiopia, investing $5.5 million. It started production on a limited scale but could not make a profit, the BB said in a document prepared in the middle of 2021.
Another major firm, MJL Bangladesh Ltd, invested over $5 million in its subsidiary MJL-AKT Petroleum Company Limited in Myanmar.
MJL-AKT repatriated $1.3 million by selling products as of June 2019, while another concern, MJL (S) Pte Ltd in Singapore incurred losses, Bangladesh Bank data showed.
Service Engine BPO, a business process outsourcing company, formed a subsidiary, AIIM International EZE, in the United Arab Emirates, investing $5,700. It was able to bring back nearly $16,000.
Beximco Limited was granted permission to invest in Sri Lanka, but it could not make any progress afterwards as the authorities in the island country changed the rule regarding allowing foreign investment in pharmaceuticals, said an official of the company.
BSRM invested $27,500 until last year to set up a steel mill in Kenya out of the authorised amount of $4.87 million.
Tapan Sengupta, deputy managing director of the largest steel manufacturer in Bangladesh, says they have recently invested $400,000 to purchase land to establish a factory.
"We are in the process of setting up the factory," he said. BSRM has opened an office in Hong Kong to make it easier to source raw materials and explore export opportunities.
The BB, in June this year, allowed BSRM to invest $500,000 from its export earnings retention quota to open a subsidiary in Hong Kong.
The quota specifies the amount of export earnings that can be retained by a business in foreign currency in an account.
"Our first priority is to invest locally. At the same time, we want to tap opportunities abroad," Sengupta added.
Ahsan Khan Chowdhury, chairman and chief executive officer of Pran-RFL Group, said a plant in neighbouring Indiawould enable his company to expand its market.
"We now export our products to a number of states in India. Now, we are in a position such that we need to set up factories in India to expand to South, North and West India."
"We see a very good prospect. If we can replicate what we have learned there, we can be one of the top food companies in India."
Chowdhury thinks Bangladesh's corporate sector should be given the opportunity to make overseas investments so that they can gain greater market access.
"The US has given tariff benefit to African nations. If a company wants to invest there to avail duty advantages and export to the US market, the authority should allow it."
This will benefit Bangladesh as local firms will be able to repatriate profits from investments made abroad.
Khokan Chandra Das, chief financial officer of Renata, says the company wants to set up a subsidiary to export pharmaceuticals and associated products to the European Union.
There is a rule that requires firms to establish a fully-owned subsidiary in Europe in order to export products to the bloc, he said last month.
Incepta Pharmaceuticals Ltd wants to open a subsidiary in the US to market drugs.
"The US is the biggest market for pharmaceuticals. Our competitors are doing good in that market since they have offices there. We need to have an office," said Incepta Pharmaceuticals Chairman and Managing Director Abul Muktadir.
"If we are allowed to use our foreign currency earnings in the export retention quota freely, we could do much bigger things."
Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said the interest in investing abroad was positive since the competitiveness of local firms had increased.
Over the past decades, particularly from 1980 onwards, liberalisation of policies encouraged private sector-led industrialisation, he said. And beginning with garments, industries expanded to other export and domestic market-oriented sectors.
"Now, we see a sense of confidence among entrepreneurs. They want to go abroad to try to expand the business."
"It can be said that our entrepreneurs have got a certain level of upgradation, and they are ready for global exposure," he added.
Moazzem, however, requests the government to ensure transparency in the whole process.
"As we are a country with a small foreign currency reserve base, the regulator should monitor whether investments are being made transparently and profits are being repatriated properly."
A separate policy is needed for overseas investments, he says, adding that time has come to evaluate the performance of firms that have already invested abroad.
Atiur Rahman, a former governor of the Bangladesh Bank who had overseen granting of a number of investment proposals while in office, said Bangladesh's entrepreneurs should continue learning by conducting experiments.
"We should keep the window open. But the authority should give permissions on a case-to-case basis. We can explore business prospects in countries where Bangladesh has already earned goodwill."