Brief Analysis On Business and Ownership

Business is the economic pulse of a nation, the means through which society’s standard of living improves. Profits are a primary mechanism for accomplishing these goals. But, besides earning profits, successful businesses also seek to meet their ethical and social responsibilities. This means businesses must be responsible in the dealings with employees, consumers, competitors, suppliers, government. But its implication vary from country to country on the basis of the stage of economic development and the nature of the economy itself, type of industry, section importance in the economy and many other considerations.

A profitable business should be able to perform the following things:

In Bangladesh, the definition of small-scale industry has undergone changes from time to time.  The evolution of the definitions is discussed below.

During the period 1957-65, small industry in Bangladesh, then East Pakistan, stood for an industrial establishment or unit run mainly with hired labor, not exceeding 50 workers when power was used; and whose investment in land, building and machinery did not exceed Tk.0.25 million in value.

In 1970, the definition was changed by raising the fixed investment ceiling in fixed assets to Tk. 1.00 million.  There was no limitation on the number of workers that could be employed by small industry.

In the post-liberation policy of 1972-73, the Government limited the size of investment in the private sector to Tk.2.50 million. It was stated that an industrial unit having less than Tk.2.5 million fixed investments, including land would be considered small industry. These definitions indicate in Bangladesh there is no uniformity either in respect to fixed investment or employment criterion. In most cases, the employment criterion is absent. There appears to be no clear-cut demarcation between small, medium and cottage industries.

Such a diversity is not surprising, since small is a relative concept. As stated before what is considered large in one country may be considered small in another. Moreover, the definitions will vary depending on the purpose for which they were designed in a particular country at a particular time.  Thus, we can see changing definitions of small-enterprises in Bangladesh over the years.

2.1 The Growth Rate of Small Industries
There was almost no data on small industries from 1971-1978. The data on this important sector was available from the year 1979. Since then the number of small industries has steadily increased over the years. The number and growth rate of the small industries are presented in the following table.

Table 2.1: The growth Rate of Small Industries in Bangladesh

2.2 Small Industries and the Government
A careful study of the documents on the policy of incentives and facilities revealed that there is a wide gap between policy announcements and   implementations steps. Though it has been repeatedly emphasized that small industries constitutes an important part of the economy, yet no separate clear cut policy for this sector has been ever designed and whatever was designed has not been fully and consistently implemented. As for example, the investment outlay for the small sector during the Second and Third Five Year Plans were Tk.125.00 million and Tk.160.00 million respectively. But the performance during the Second and Third plan was 25 percent and 52 percent respectively.

Problems of the large and small industries of the country are not identical. But it seems that, these two sectors were viewed in Government Policy from almost same angle. Excepting minor concessions in some specific areas, no real discrimination was made in the provisions of incentives and fiscal concessions between the large and small industries. The natural outcome was the deprivation of the facilities and concessions to small entrepreneurs in the face of competition from the affluent big industrial counterparts.

There exists a good deal of gap regarding the scope, concept and definitions of the small industries. One agency took it to be an enterprise which has fixed assets up to Tk.2.5 million including land, while another agency took it to be an enterprise with fixed assets up to Tk.1.00 million excluding the value of land. Despite the disadvantages felt an appropriate definition has not yet been evolved or designed. This situation has led to many difficulties in developing and executing proper promotional assistance programs by the concerned institutions keeping in view the special needs of the small industries sector. So there is a strongly felt need of a uniform and appropriate definition of the small industries.

2.3 Forms of Ownership
Selecting a legal form of business ownership is a complex and critical decision for the owners of any organization. Every business, be it Beximco Pharma. Or the local plastic utensil shop, must choose the legal form of ownership that best fits the needs. Various factors must be considered when choosing a form of business ownership. Some of these variables include ease of formation, financial liabilities, ability of financial resources and management skills, taxes, the ability to raise capital and the personal interests of those involved.

The most widely used form of private ownership is the Sole proprietorship, Partnership and corporation.

2.3.1 Sole-proprietorship
The original form of business ownership is the Sole-proprietorship, an organization owned and usually operated by single individual. It is also the simplest type of ownership because there is no legal distinction between the sole-proprietor as an individual and as a business owner.

3.1 Plastic defined
By definition, plastics are a large and varied group of materials, consisting wholly or partially of combinations of carbon, with oxygen, hydrogen and other elements and are capable of being readily formed into many shapes.
Most plastics are synthetic, and only a few occur naturally e.g. rubber, gutta percha and some types of vegetables waxes. The molecules of plastics are composed principally of carbon, hydrogen, oxygen and nitrogen. These are derived from petroleum, coal, salt, air and water. Initially, the plastics are monomeric, resinous compounds composed of small, single molecules; but under the influence of heat or heat and pressure or of chemical catalysts, these small molecules combine to form polymeric compounds and become solid or semisolid structure.
Many synthetic resins which are used as plastic materials are useful in their forms; further mixing with other ingredients is required to make them more flexible or more rigid as the case may call for.
The purpose of mixing the basic resin with other materials is to improve and enhance the properties of resin.

3.2 Classification of plastic
Plastics are categorized in two different ways. According to this these are –

3.2.2 Industrial Classification
There are about 50 types of plastics available in the market. Some of them are widely used while some of them have become out of date. Plastics have a wide range of properties from very hard to sufficiently soft. In the market Plastic is classified into 17 groups. The names of these groups are given in the appendix.

3.3 Background of Plastic Industries in Bangladesh
The growth of plastics industry in Bengal goes back to not much more than four decades. It started with the opening up of a belt and plastics factory in Calcutta (in the then undivided India) by a pioneering businessman named Mr. Monirullah. After the partition of Bengal in 1947 some of his associates opened 2/3 factories at ChawkBazar in old Dhaka at a small scale with machinery bought from India. Since the level of mechanization was very low and dice moulds were underdeveloped, most of the works had to be done by hand at immense manual labor. Lack of proper electricity supply necessitated the use of kerosene blow lamps. The workers are mostly unskilled and no training facility was available for them in the then East Pakistan to develop their technical skills. At present, the Plastic Training Centre (PTC) in the Tejgaon Industrial Area is the only facility available for skill development.

During the period of 1973-88, the growth of plastic industry in Bangladesh has been quite satisfactory. The following Table shows the growth rate of mechanized, semi-mechanized and hand operated plastic industry in Bangladesh during the period of 1973-88.

Table 3.1: The Growth of Plastic Industries in Bangladesh

Plastic Industry in Bangladesh

4.1 Location
The plastic industry is clustered in the IslamBagh area of old Dhaka. There is no official registration of these firms; there total number is not certain. According to estimates by a number of entrepreneurs the total number of firms could exceed 3000. But the industry has now expanded to outside the capital. It has been learnt that, some new plastic industries has been recently established in Chittagong, Bogra, Comilla and many other parts of the country, mainly to cater the needs of the local markets.

Production Process: Plastic chips comprised the principle raw material used in the production of plastic products. Plastic chips used in Bangladesh, are of two types

1. High Quality Imported Chips
2. Locally produced from waste Plastic

A die is usually designed by the entrepreneurs and manufactured by a local engineering workshop. The die is then used in a molding machine to produce plastic products. After molding, products are checked and finishing is done using a pair of scissors and other simple tools. The final stage of production consists of coloring and packaging of products.

4.2 Sales and Revenues
The Table shows that output sales vary according to season. Average sales of manufacturing units during the peak period are about 2.5 times higher than the off peak period. About 43% of the total output was sold on credit compared to 58% of raw materials bought on credit. Credit sales were made to retail and wholesale shops. As seen in Table credit is repaid within 2-4 weeks depending on the type of units and was about 3 weeks on average. The period of which credit is outstanding was shorter for firms with lower sales. Average interest paid on credit sales by the retailers and wholesalers was about 9% with little variation observed by the type of unit. There is also little variation in the rate of interest between the peak and non-peak season. During the non-peak season manufacturers are willing to sell their products on credit to retailer and wholesalers. However such willingness only prevailed for some selective products for which demand declines during the non peak season.

Table 4.1: Sales Output

4.3 Permanent Assets
Assets including own premises, advances paid for rental premises, machinery and equipment ancillary equipment and fixtures and fittings. The principal fixed assets of enterprises in this industry are machinery and equipment, since premises are in most cases rented. Apart from those the inventory of raw materials and finished goods is also important.

Most of the industries are located in a kutcha (temporary structure) while some have semi-pucca and a very few have pucca (permanent structure). The average area of the premises is 172 square feet. The actual area varies from 135 square feet to 200 square feet depending on the type of unit. A large number of manufacturing units use kutcaha premises compared to raw materials manufacturers.
Machinery and equipment are simple. The main machine used is a hand molding machine. Ancillary machinery and equipment are hand cutter, die, measuring and weighting equipment, scissors and other simple tools. Coloring brushes are used for coloring and making designs on products. Machinery and equipment are locally produced and available in local markets. A typical enterprise has a few other assets such as wooden shelves, tables for the molding machine and an electric fan.

4.4 Financing the Industry
The important financial aspects of the industry are as follows:

The role of money lenders in the financing fixed assets had been significant in this industry, even though the 100% rate of interest charged was about 6 times higher than that prevailing in the formal financial sector. The main reasons which promoted the entrepreneurs to use such high cost finance are described below:

About 43 percent of output is sold on credit while 58% of inputs is bought on credit. Entrepreneurs find credit sales of output very risky. Credit sales are based only on the good relationship between the entrepreneurs and the retailers or wholesalers with whom they deal further, because of the shortage of operating capital, entrepreneurs prefer not to sale on credit.
Financing of fixed Assets mainly involves raising capital for following reasons:

4.5 Effects of Seasonality
The demand for plastic products increases during the winter season, when there are a number of fares in the city. Extra people are employed to handle the increased level of production and sales. The duration of peak period varies from 4-7 months (October to March) depending on the type of product. It can be mentioned here that the demand for toys and house hold goods continues at a reasonably uniform level during the off-peak season.

Findings & Analysis
5.1 Analysis of collected data
5.1.1 Ratio of Entrepreneurs
The entrepreneurs in plastic industry are by and large male. All the owners surveyed was male. The environment and procedures prohibit any female intrusion, although there are some female workers. If we ignore the sampling error we can say that 100% owners are male. So it is evident that female are not comfortable in this business.

5.1.2 Age variation

5.1.3 Educational Qualification
Largely the entrepreneurs seem to lack much educational background. Generally educational qualification is not of much importance in this industry. Most of the owners are only High-school passed.

5.1.4 Forms of Ownership
All of the plastic industry units are either sole-proprietorships or partnerships. Family owned partnerships are also prevalent.

Figure 5.3: Forms of ownership

5.1.5 Starting Period of the Business

Figure 5.4: Year of business commencement

5.1.6 Latest occupation prior to starting the business
About 70% of the owners, that is 16 out of 22 owners surveyed, said that they were previously engaged in another job before turning to this profession. Most of the previously employed owners had a business.

Figure 5.5: Latest occupation before starting the business

5.1.7 Business Experience
Of the 40% owners who said that they were previously engaged in some business and some the others a total of 32% had previous business experience in this industry, some from family business and some from occupational background.

Figure 5.6: Previous business experience

5.1.8 Family Members

Many of the owners of the industries live with a joined family of more members. In 60% cases the owner is the only earning member of the family.

5.1.9 Reasons for Starting the Business