Industries

Legal Environment of Business Legal Environment of Law – Paper 1, Spring 2009 “Effects of government bailout of General Motors as viewed by two contrasting government control views” Summary This report is based on the notes I took listening to a debate I overheard from two of the presenters, Jurgis and Equality, at a business seminar I attended. The topic of the debate was the need for the government to provide more assistance to General Motors, who already received stimulus payments but due to the economic recession, is still in peril.

Jurgis had the socialistic view that the more government involvement and influence the better. Jurgis believed that employers, working conditions, and the positions themselves should be regulated by the government. Equality had an opposing view of capitalism, and the need to limit the involvement of the government and let the economy work itself out. Equality felt there was enough support for the employees without need for any more mandated by the government. In conclusion I agree with many of the aspects Equality presented.

General Motors was already given assistance; they need to be given the chance and motivation to try to rescue themselves. In history it’s been proven that the economy will right itself, government involvement has a tendency to make the situation worse. While attending a business seminar on the impacts of further oil shale development in the United States, I became fascinated with two contrary presenters. Jurgis promoted the thought that we need more laws and government control to protect us from ourselves.

Equality had a laissez-faire view of government involvement. Equality felt that the government should have limited power and control over the people and marketplace. After the seminar I noticed Jurgis and Equality having a conversation and decided to tag along and listen to their conversation. Jurgis and Equality were discussing the government bailout of General Motors and the proposal for additional money needed; since the first extension period is almost up and the first disbursement of funds did little to help General Motors.

Due to the economic recession people have stopped buying new cars and General Motors has not yet sold their December production. Jurgis argued that the government must intervene to protect employee’s jobs and welfare by instituting more laws and regulations to protect the workers as well as providing economic subsidies. Jurgis said that if General Motors should be allowed to fail then the loss of jobs will pit man against man, something Jurgis knows about. “In Russia, there were rich men who owned everything” [ (Sinclair, p. 13) ] Jurgis argues that without regulation and control with regard to the employee than the conditions he suffered through in Russia will return. I remembered from my business law class that before unions and regulation, “Workers, often women and sometimes children, worked 60 to 70 hours per week and sometimes more, standing at assembly lines in suffocating, dimly lit factories, performing monotonous yet dangerous work with heavy machinery” [ (Samuelson, p. 403) ], we do need some form of workplace regulation.

Equality disputed the need for increased government help and regulation, every man should work to achieve for himself, not the common good. Equality said that he was once told “Many men in the Homes of the Scholars have had strange new ideas in the past… but when the majority of their brother Scholars voted against them, they abandoned their ideas, as all men must” [ (Rand, p. 73) ], this kind of mentality only suppresses the people, it doesn’t help them. He doesn’t want to return to a society that has no respect for individualism, only what benefits the whole.

Equality fears that if we allow the government some control over General Motors, its workers, and operation, then eventually more and more control will be given until every aspect of life and even death is controlled. Jurgis told Equality about the working conditions and life he had lived because there was no regulation, no union to represent and bargain for the worker. Jurgis explained how his wife had gotten a job for a packer, and the woman she replaced was let go only because she was sick, not due to performance. Someone must look out for the workers, and the government has a responsibility to be this regulator.

I remember from my business law book a story of miners working conditions “Temperatures in the mines were well over 100 degrees. Miners drank more than three gallons of water every day. Some suddenly collapsed… Within minutes they were dead, but even before they died, their places in the mine were taken by other workers desperate for pay. ” This was when unions developed to protect and fight for the workers. Equality said the people should be allowed to prosper or fail on their own, let General Motors control its own fate.

For every amount of power that is given to the government, there is a corresponding loss of personal freedom and in the case of General Motors, economic success. And if the government keeps bailing out General Motors and other companies, what are we telling these companies? General Motors was already given a disbursement to aid their financial situation; if they chose to misuse this bailout then maybe they deserve to fail. Equality said that “There is nothing to take a man’s freedom away from him, save other men. To be free, a man must be free of his brothers. That is freedom.

This and nothing else. ” [ (Rand, p. 101) ] Each man must have the ability to provide for themselves, even if it is in competition and at the cost of another man. As I listened to Jurgis and Equality debate, I remembered that under statute 9 of the National Labor Relations Act of 1935 “… the union will represent all the designated employees, regardless of whether a particular worker wants to be represented. ” [ (Samuelson, p. 407) ]. Equality argues that each person should be responsible for him or herself and have the right to choose if, when, who, or how they should be represented.

But Jurgis said that some workers may not realize that they need representation, or work in bad or illegal conditions. This is the case with child labor, laws are needed to limit child labor, and someone must also represent them. The government should not only provide the money needed to keep General Motors going, but also increase its oversight of the company making sure that the employees are taken care of. Jurgis told Equality that there are people that are above the law like the man that made his wife Ona bend to his wishes at the threat of her family.

When Jurgis found out about this and confronted and assaulted the man, Jurgis was the one that was hauled off and given an unfair trial. Jurgis had to spend 30 days in jail, and his family paid the price. As far as Jurgis is concerned this type of power and wealth needs to be controlled by the government to make sure that every man has value and a say in his life. There are so many workers for General Motors that the government must help it keep going to keep these workers employed, safe, and able to live. Equality told Jurgis of a similar, but opposing story from his life.

From birth he was told what he was, how he would live and even die. You were assigned an occupation, there was no occupational protection provided; you did as the government told you until you were no longer valuable to society. When you were deemed worthless you reported to house of the dying to live out the few remaining moments of your life. “We are nothing. Mankind is all. By the grace of our brothers are we allowed our lives. We exist through, by and for our brothers who are the State. Amen. ” [ (Rand, p. 20) ] This was the only prayer aloud.

Jurgis argued that we need a society and government based on socialism, that it’s the responsibility of the majority to look after its people. By giving General Motors the aid they require in return for some control over the company, its operations, and employees, we would move toward socialism. Jurgis felt that he owed his life to socialism, and that it was the answer to any problem he faced or had endured. Equality on the other hand continued to argue that the government needed to be controlled and that society needed to be based on capitalism.

As power was given to the government little by little, its overall control over society grew until it was the controller. Equality argues this point with bailout and help of General Motors. By giving aid the government in turn acquires power over the company, its share holders, and employees themselves. In conclusion I agree that extended help in the form of funds may not be the best way to help General Motors. Since this aid comes with strings attached, the government does indeed move to the socialist schema. As described in the video on the American form of government [ (http://www. imp. com/thegovernment/, 2008) ] the state of government is always moving to a monarchy or oligarchy. Any move away from a system based on a republic ideology always ends with an oligarchy. But this is a continuing cycle, as seen in a rudimentary way in Anthem. General Motors has already had some assistance, now it should be left alone. There are enough current laws and government involvements to make sure that the employees are at the least, treated fairly. Though some may end up temporarily unemployed ore are pushed to find a different type of work, these people will make it.

Should General Motors fail, another company will step into its shoes and fill the void. There is too much need for their products for them to simply disappear. Bibliography http://www. wimp. com/thegovernment/. (2008). Retrieved from http://www. wimp. com/thegovernment/: http://www. wimp. com/thegovernment/ Rand, A. (1995). Anthem. New York, NY: SIGNET. Samuelson, B. (2008). Legal Environment, Third Edition. Mason, OH: South-Western, Cengage Learning. Sinclair, U. (2004). The Jungle. New York, NY: Pocket Books, a division of Simon & Schuster, Inc.

Most of coffee growing countries in East Africa and southern America export their coffee beans after dehusking due to lack technology and capital to roast and process the product. This results in low market price and farmers receive peanuts from the crop. Establishing a roasting factory can transform the coffee industry in these countries to be more profitable and farmer can be properly paid for the amount produced. The products will sold both local and exported to expand the market for the commodity

Objectives: to improve the quality of coffee exported and ensure farmer gets high returns on amount produced. Encourage local consumption by producing affordable coffee brands.

Coffee roasting in these countries has not developed and they rely on exporting green beans which are not processed. This situation allows exploitation by company that processes the product by buying at low prices and later sells to the processed coffee to them at high prices. Setting up this kind of business will reverse the situation to improve the coffee industry and farmers enjoy the fruits of their work. I want to be part of this change process and end this exploitation by people who imports the green coffee and they greatly benefit from products they process.

This business is very viable since coffee beans to be processed are ready available thus setting should be centrally located to local pulping factories available.  There are no other factories of this type thus all coffee producers will accept the factory and support it. market needs to be accomplished are further processing of coffee, improve the quality of the product export to earn high prices in international market and increase the coffee consumption locally by producing ready coffee which can be bought at affordable price. This is a common problem in all coffee producing areas such that the co-operatives society which market the coffee beans are subjected to explain how the product is not earning enough money to support. Read about Doughnut Industry

Organization Structure

The ownership of this factory will be by all individual coffee pulping factories with equal rights forming a co-operative society which will finance purchasing of the equipment and managing the daily activities. Board of governor will be elected by the members who are representatives of individual factories to run the factory. The manager will be selected through merit after meeting the qualifications desired. The supervisors will oversee the daily activities in their section and report to the manager.

For this factory to be operational, the site should be spacious to allow room for construction of warehouses and setting up the roasting machines. The processing system will include reception area, cleaning section, roasting section, cooling section, grinding section, packaging section and waste disposal area. The personnel will consist of engineers well equipped with coffee roasting technology supported by machine operators and other junior staff.

References

Hollensen, S. (2004): Business Plan strategies: A Market-Responsive Approach, 2nd

Edition, Essex, Pearson Education pp 32-65.

Lee, K. and Carter, S., (2005): Marketing: Changes, New Challenges and Strategies. 1^st

Edn, New York, Prentice Hall

Case Study: Tootsie Roll Industries

I. EXECUTIVE SUMMARY

The report given is about a Chicago based company called Tootsie Roll Industries, Inc. Tootsie Roll Industries is an old company that has been manufacturing and selling candy for more than 110 years and has come a long way after a number of merger and acquisitions to add to the brands’ product line. The company currently operates in 30 countries. However, it is imperative that the company operations should be extended to other countries to make Tootsie Rolls a household name in every country.

 As an International Business Development Manager of this company, I have suggested expanding the company operations to Pakistan where the consumers look for newer products. And even though the local competition provides candies at lower prices, the lack of quantity and quality of the local candies has made them undesirable for the brand conscious middle and upper class of the country. Moreover, the imported chocolates of the companies Hershey’s, Cadbury, Nestle and Mars can not be afforded often by the lower middle and the middle class who also have desire to consume high quality sweets and chocolates.

The report discusses the company operations, target market, brands and core competencies. Then the report presents recommendations about the target country and comprehensively analyses and discusses how and why this country is suitable for expanding the company operations.

II. COMPANY ANALYSIS

Tootsie Roll Industries is a manufacturer of confectionery in the United States. Its best known products / brands have been Tootsie Rolls which are “chewy chocolate -flavoured candies” and Tootsie Pops, “hard candy lollipops filled with chewy chocolate-flavoured Tootsie Rolls”. Along with these, the company has added to its brands by acquiring other confectioners.

The company was established in 1896 by an Austriant immigrant called Leo Hirshfield who brought his own recipe when he came to America. He first started to produce Tootsie Rolls in a small store in New York City. In 1917, the company was called The Sweets Company of America, and in 1966, adopted its current name of Tootsie Roll Industries, Inc.

Since its inception, the company has expanded by acquiring several famous brands of confections such as Mason Division from Candy Corporation of America, Cellas’ Confections, The Charms Company, The Warner-Lambert Company (excluding gum ; mints), Andes Candies, and Concord Confections. “Tootsie Roll Industries currently markets its brands internationally in Canada, Mexico, and over 30 other countries. The company’s heaquarters are located in Chicago.”

The company has been operating successfully under the auspices of the married team of 87-year-old chairman and CEO Melvin Gordon and 75-year-old president and COO Ellen Gordon who control 80% of the company’s voting power. The company has been known to use the same formula for over 100 years. Its Charms and Tootsie Pops brands make it one of the largest lollipop producers in the world.

According to Hoover’s Fact Sheet, Tootsie Roll Industries, Inc. has total of 26 competitors in the confectionary and candy industry in the countries in which it is operating. However, the most important ones are Hershey, Mars and Nestlé. [1]Mars is considered to be the industry leader manufacturing high quality and high energy brands such as Twix, Mars, Snickers, Milky Way, M;Ms, etc. that not only cater to the children but adults of all ages as well. Read about a ll the wrong moves

Customers/ Target Market

The company mostly targets the children and to some extent the younger population (teenagers) up to the age of 18. However, Tootsie also targets the adults as well for using its products in the offices, meetings, social gatherings, parties, and special occasions so that they become a family product rather than a child’s. Even though, candies and sweets are products that are primarily for the children, the products are used by and popular among all ages both young and old.

During the Korean War, Tootsie Rolls was very famous among the armed forces. According to them, Tootsie Rolls reminded them of their country America, and gave them hope and kept them alive during the war. US military has since been a major part of the loyal customers of Tootsie products. Tootsie Rolls has been a nostalgic reminder of home bringing them good memories about their country.[2]

Also, the brands such as Charms Family Fun and Child’s Play specifically cater to family occasions such as Halloween and birthday parties. Moreover, they do not cater to any specific income class; hence they are affordable and liked by affluent as well as the middle class.

Products and Services

The company is basically into manufacturing candies and confectionery industry. Tootsie’s core products are candies and confectionery items such as chocolates, toffees, caramel sweets, bubble gums, lollipops, jellies, cotton candy, etc. It has added to its original brand of Tootsie Rolls by mergers and acquisitions and has extended its product line and customer base since its inception.

Some famous brands manufactured and sold by the company are as follows:

1. Tootsie Rolls

Tootsie Rolls was the first product that was produced and sold by Leo Hirshfield in his small shop that brought the company fames. “Hirshfield hand rolled and wrapped his chewy, chocolate flavored creation and named the candy after his 5-year-old daughter, Clara, whose nickname was “Tootsie.” Tootsie Roll was the first wrapped penny candy in America.”

Today, Tootsie Rolls are produced using the same basic recipe that was used by its creator over a century ago. About 62 million Tootsie Rolls are produced every day. Tootsie Rolls now come in a variety of shapes and sizes.

2. Tootsie Pops

Tootsie Roll Pops was the first lollipop with a soft chewy center. Over the years, Tootsie Pops have become part of American history. They have been featured on classic television programs and several motion pictures throughout the years. Tootsie Pops are the No. 1 selling lollipop and are very popular among the consumers.

3. Dots

The acquisition of the Mason Division of Candy Corporation of America added two famous “theater candies” to the Tootsie Roll candy family: Mason Crows and Mason DOTS. DOTS are one of the best-known brands of gumdrops in America.

Other brands

Other well-known brands are Tootsie Fruit Rolls, Frooties, Caramel Apple Pops, Junior Mints/ Junior Caramels, Charleston Chew, Cella Cherries, Charms, Andes, Blow Pops, Sugar Daddies/ Sugar Babies, Fluffy Stuff Cotton Candy, Double Bubble, Razzles, Cry Baby and Nik- L- Nip. Two more brands Child’s Play and Charms Family Fun are specifically for occasions such as Halloween, family gatherings, parties, Easter, Christmas, and any other social events. They contain assortments of all the famous brands of Tootsie Roll Industries.

Services

Services offered are online shopping by the individual customers, or bulk buying for retailers, or distributors.

Also, the website provides fun stuff for the children like comics, games, memories relating to a particular brand, recipes using Tootsie products, bubble blowing contests and the nutritional benefits of the products. The most popular is ‘How many licks?’ contest which sends certificates to the children for using the brand Tootsie Pops and for consuming lollipop after a certain number of licks.

Core Competencies

Company Resources

The company has many invaluable human and capital resources. One of the Tootsie’s corporate principles states that the company strives to acquire and retain the human resources of high caliber for each job. The company also manufactures its own products and has to continuously innovate to improve the quality of its products.

Moreover, the company has expanded its product line by mergers and acquisitions and by expanding its operations to Mexico and Canada and importing to 30 countries in different parts of the world. The main challenge faced by the company is intense competition for maintaining retail shelf space.

According to the Annual Report, 2006, Tootsie’s competitive advantage lies in its well-known brands which offer high volume sales for retailers and attractive values for consumers. Also, sales are high during Halloween, newer introductions (brand extensions) and social gatherings during which the Charms Family Fun and the Child’s Play are the most popular brands that are sold.

Capabilities

Tootsie Roll Industries has many strengths, which has helped the company maintain its favorable place and niche in the market. TRI has two main distinct competencies: its brand names portfolio and very effective production capabilities. Its brands portfolio is very wide and diversified and the length and the depth of the brand are very extensive. Also, Tootsie varies the ingredients to improve the quality and to reduce its cost.

The company has successfully maintained half of the market share of the industry. It has 50% of the taffy and lollipop market segment of the candy industry. Moreover, another strength is its access to distribution networks. Despite strong competition from the industry giants such as Mars, Hershey and Cadbury, its robust and established supply chain has helped Tootsie do well in the industry. The financials show that sales and the profits are increasing and the company is doing well.

Also despite its size, it has managed to get good shelf space in most retail and discount stores. It was able to capitalize on that to get good shelve space for the other products it sells, using Tootsie Roll’s distribution network. In addition to this, it can even adapt pretty well to external forces as the company can change the formula of its candies according to fluctuations in commodity prices in order to keep costs as low as possible.

The most important core competency is that it is oldest in the industry and has stuck to its original formal that was used by its creator. Also, the Tootsie Rolls was the first toffee that was wrapped. Since, then, it has tried to improve its packaging to reduce its costs and to improve the quality and freshness of the products.

Tootsie’s brands that are especially for occasions such as Halloween and family events, are very popular among the consumers and the sales during those times are higher. Also, Tootsie Roll is such a strong brand that it can be a distinct competency.

Another distinct competency can be manufacturing, because TRI is able to have extensively customized machinery built to increase production efficiency. This helps keep production costs low, and adapt to changes in supply and demand.

Also, the company outsources the functions that others can do cheaply and efficiently to reduce costs and to increase production efficiency. That is why Tootsie seeks to effectively avail vertical integration opportunities that come its way. Other core competencies are autonomous production, growing US and international markets and unique marketing.

Even though Tootsie’s sales are growing, it is not fully taking advantage of the growth of the potential in the market due to inadequate advertising. It’s advertising attempts are rather subtle and not so persuasive like other companies. It seeks to advertise its brands using jingles, movies, comics and cartoons. Even though, these marketing efforts are sufficient for increasing the revenues, they are not enough to fully exploit the market potential.

Tootsie Roll Industries Inc. must make marketing and innovation its core competency and top priority to compete with the industry giants like Mars, Nestle, Cadbury and Hershey. Moreover, the company should develop a long-term strategy to get competitive edge over others in this highly competitive industry.

Current operating capacity

Tootsie Roll Industries currently markets its brands internationally in Canada, Mexico, and over 30 other countries. The company’s heaquarters are located in Chicago. According to the Annual Reprot 2006, the sales and profits of the Mexico Division are doing well. Also, reorganisation of the Canadian division has resulted in sales growth and increased profitability. Additionally, Tootsie’s export division, which reaches approximately 75 countries in Europe, Asia, and South and Central America, is experiencing increased sales and profits every year.

All the Tootsie brands are produced according to the demands. The highest production is of Tootsie Rolls: 62 million every day. Also, Tootsie Roll is also the biggest lollipop producer in the world.

Need for global expansion at this time
As the company’s International Business Development Manager, I would recommend the company to expand its operations and presence in other countries such as India, Pakistan, Bangladesh, etc. This is because there is another baby boom to come and there is a lot of potential for growth in the market. This potential is not being fully exploited by the company. Also the market in other countries is ripe for such products that are not expensive, affordable and are of high quality.

In this report, I recommend the executives of the company to expand its brands’ presence in Pakistan. Although, the manufacturing should not start right away until the consumers are aware of the brands and have become loyal to them.

III. TARGET COUNTRY ENVIRONMENTAL ANALYSIS

Demographic characteristics
Pakistan has a majority of younger population with increasing GDP and disposable income. Also with the awareness of family planning in the middle class, there are lesser number of members in a family thus, more disposable income is available for a person to spend. Hence, the children can spend money on their whims from time to time.

Moreover, there is an increase in the per capita income which is showing signs of emerging middle class. Hence, the rise in the incomes is making spending easier and many of the imported items affordable.[5]

The demographics of the country is also changing rapidly with over 60% of the population in the age bracket of 25 to 45 years old. The demographics of Pakistan show that there is more youth and lesser number of older members of the population. Also, since the awareness of the importance of the education is increasing, there are more educated youth who need jobs.

Hence, opening up a branch in Pakistan will prove beneficial for the company as well as for the population because it will fulfill the consumption needs of the population and also help in reducing unemployment.

Target location(s) description

The subsidiary for Tootsie Roll Industries should be opened in Karachi, Lahore and Islamabad because that’s where the affluent class of the Pakistani population lives. These people are brand conscious and also quality conscious and can afford to spend money on goods other than necessities of life.

Cultural characteristics

The culture of Pakistan is more family- oriented, even though it is changing nowadays due to influence from the foreign media. More importance is given to family affairs such as weddings and other get together. Also, other social gatherings occur at religious important days such as Eid. Most of the rich also dine out during Ramzan for keeping and breaking fasts at Sahar and Iftar times.

Hence, the company Tootsie Roll Industries can successfully market its family oriented brands such as Child’s Play and Charms Family Fun for Eid and other family gatherings.

Workforce characteristics
Since the demographics is changing and most of the population is falling in the age bracket of 25 to 45 years old and also because the awareness of importance of education is increasing, there is enough educated manpower and talent for the company to hire from the unemployed youth.

Relevant trade and investment policies and laws
Trade and investment related laws and policies are very favorable in Pakistan. The government of Pakistan is giving special incentives to all the companies in all the industries to come and invest in Pakistan.

Moreover, the infrastructure and investment policies are favorable so that the companies are attracted and earn a higher return on investment.

Politics and laws that may affect entry

The only things that may hinder the entry are unpredictable political and law and order situation prevailing in the country. Due to conflicts between the government and the judiciary and the media, entry of the company may be affected.

Another factor that might affect the entry is the religious sector that might find flaws with the haram ingredients and or with anything unethical related to the company.

Currency and financial market issues
The currency has been on a constant depreciation which might make the local ingredients cheaper. However, the financial institutions and the government of Pakistan do provide financial assistance to the entrepreneurs who want to invest to set up their business.

Also, investment banks, though they are in initial stage, have been set up to help the businesses to go public and earn mandates.

Market transitions and development issues
The market in Pakistan is still in developmental stage and is not yet mature. Therefore, there is lot of potential in the market for the upcoming entrants to exploit in the confectionary industry.

Moreover, since the per capita income is increasing the economy is becoming better; there is a lot of potential in the market to exploit. Also the consumers are becoming brand and quality conscious and the affluent class nowadays wants the imported items.

Hence Tootsie Roll can benefit a lot if it expands its operations in Pakistani region.

IV. TARGET MARKET ANALYSIS

Description of customers and characteristics
The demographics show that the population mostly falls in the age 25-45 yrs. Also, there are more children who are spoiled by their parents these days who prefer to provide for their children. Mostly both the parents are working these days so they tend to neglect their children and spend lesser time with them. Hence, they make it up by buying their children sweets of all kinds.

Moreover, snacks and sweets are popular with the teens and students who prefer sweet stuff to provide them with instant energy. Also, the consumers want good quality chocolate that is affordable as well and is not as expensive as the other imported chocolates.

Hence, Tootsie can grab the market quickly if it keeps its costs and hence prices comparable with the local confectioners such as Hilal and Candyland.

Estimation of market size

The market size of the confectionery industry comprises of the affluent and the upper middle class who can afford the imported chocolate, candy and sweets. However, if Tootsie can try to keep its prices low, the market size can also accommodate the lower middle class which also wants good quality sweets at lower prices.

Local competition analysis

The structure of the local confectionery industry in Pakistan is a little fragmented. The local industry comprises of some companies that are foreign such as Nestle and Cadbury which are manufacturing some of the brands in Pakistan. Other local companies such as Candyland, Hilal and B.P. are the well-known local companies in Pakistan.

Overall the industry is lead by the two major competitors Nestle and Cadbury who closely compete with each other. Besides these, Candyland leads the local companies in the industry and has given importance to quality in its products. The products very from sweets, toffees, caramel chews, chocolate bars of all kinds to marshmallows.

If Tootsie Roll Industries sets up its manufacturing operations in Pakistan, its cost effective production operations and diversified brands will provide the consumers with something new and different and of good quality at a lower price. Moreover, in my opinion, they will be more receptive to the comics, ‘How many licks?’ contest and other ‘value added services hat help in the marketing of the products. Also, the brands that cater to the social gatherings and occasions will help in the marketing and creating advocates for the company.

However, Tootsie Roll will face intense competition from Cadbury, Nestle, Candyland and Hilal which might create barriers to entry such as product diversity, lower prices, established distribution channels and brand loyalty among the consumers. Also, these brands are well known and the brand awareness is there. The marketing done by these companies may become aggressive and they might start offering promotions to increase their sales.

Therefore, Tootsie Roll needs to recognize the market niche and concentrate on producing newer products that are not offered by its competitors. For instance, its cotton candy might be a good idea because it is not available easily even in the supermarkets.

Estimated market share and sales expected

I am of the view that the market share and the sales will rise gradually. The market share may be 5-6% in the first year. But it is expected to rise with the brand awareness and brand loyalty. Customer satisfaction and creating advocates is a must right from the start to encourage repeat purchase. I recommend that Tootsie should first create market for its products in Pakistan, and then it should setup a manufacturing plant to increase its sales and fully exploit the market potential.

V.    STRATEGIC ALTERNATIVES

Alternatives for market entry
S.No.
Advantages
Disadvantages
1. Opening franchises of Tootsie that only sell Tootsie products

This might be a good idea if the demand is higher and the product category is diverse enough to attract lots of consumers everyday. This will provide and exclusive outlet for the consumers to visit if they wan Tootsie products.
However, this might prove to be expensive if the sales are slow. Also, it will give the lower middle class a wrong message that Tootsie products are for the rich class.
2. Finding a local exporter in the country to create the brand awareness in the local market

This will be beneficial for the company since it will help in creating brand awareness, loyalty and in obtaining feedback and in conducting market research for the feasibility study before making huge investments to bring production and marketing operations to the country.
However, this might also give the lower middle class a wrong message that Tootsie products are for the rich class because tne imported items are usually expensive and are bought by the upper and upper middle class people.

Moreover, since everything can be counterfeited easily in Pakistan, there is a threat from the counterfeit Tootsie brands n Pakistan. That is why the original Tootsie Roll will have to make itself unique for its consumers.
3. Setting up production and marketing operation in Pakistan

Setting up production in Pakistan will help lower the cost of production and hence the prices. This might increase the customer base and increase sales and market share.

Also the company can assure the consumers that local halal ingredients have been used.
This will require a lot of startup investment. Also, the company will have to continuously spend in innovation to improve the quality and diversify the products. This might increase the marketing expenses and the investment costs, thus raising the price of the product.

Alternatives for form of multinational corporation and relevant characteristics

The company could set up either production and marketing or only the marketing division in the country. However, this will call for heavy investment into the capital, machinery and in establishing the distribution channels. Also, it is expected that this expected entry might invoke a reaction from the existing local competitors.

Apart from setting up the company operations in Pakistan, the company may also offer to open a franchise in Pakistan. The franchisee must be chosen with care to determine whether it has enough funds for investing into the company operations and whether it imbibes the value system of the parent organisation.

Also, to create a strong demand for the brands before crating a company presence, the company can also find local importers from Pakistan who are willing to import considerable amount of the Tootsie Roll brands. This would help establish brand loyalty and brand awareness in the upper and middle class because physically creating a presence in the country. Moreover, this would benefit the company because the company will not have to make any hefty investments into the country and the distribution channel would be established prior to making an entrance into the country.

Marketing alternatives

The marketing practices that are followed by the parent company should be adopted. For instance, there should be jingles, comics, cartoons, and recipes for using these brands in newer ways so that the children are enchanted by the brands and become loyal to them. Also, there should be bubble-blowing contests and ‘How many licks?’ contests for the children that are held by the parent company. Moreover, these will help increase interaction between the company and the consumer and help gain feedback.

However, considering the literacy rate in Pakistan, the jingles, cartoons and comics may have to be translated to Urdu so that the population understands what is being said about the brand and retains the name of the brands for consumption. Using English might also convey a wrong message to the lower middle and lower income group that the brand might be for the rich only.

Human resources alternatives

Initially, during the stat of the marketing operations, there should be an expatriate manner sent to Pakistan to work with the locals to train them so that they incorporate the parent company’s principles, mission, vision and most importantly, marketing techniques such as the comics, cartoons and the ‘How many licks?’ contest. Once, the locals have been trained and the company has been established, an in-depth market research should be conducted under the auspices of the parent company or the expatriate manger to determine the feasibility of the setting up a factory for manufacturing the products using local products.

Extensive training should be provided to the local nationals who will be hired. They should be trained in the marketing techniques, handling finances, distribution, IT so that they send the company to new heights in the new country.

Organizational structure, control mechanisms, etc. that would be useful

The company should be structured in the same way as the parent company so that uniformity in everything is prevailed. The parent company Tootsie is organized according to the function. Then a small team in each function should be responsible for each brand so that they are dedicated to growth that brand and make it successful.

VI. REFERENCES

Tootsie Annual Report for the year 2006, Retrieved 20 June, 2007 from <http://www.tootsie.com/pdf/annualreport2006.pdf>

Tootsie Roll Industries website, Retrieved 20 June, 2007 <http://www.tootsie.com/history.html>

Company Information Tootsie Roll Industries, Inc., Retrieved 20 June, 2007 <http://www.sec.gov/cgi-bin/browse-edgar?filenum=001-01361&action=getcompany>

“Tootsie Roll Idustries: Company Report” Hoover’s Fact Sheet , Retrieved 20 June, 2007 ;http://www.hoovers.com/tootsie-roll/–ID__11490–/free-co-factsheet.xhtml>

“Tootise Roll History ”, Retrieved 20 June, 2007 ;http://www.victoryseeds.com/candystore/confectioners/tootsie.htm;

“Tootise Roll Case internal and external analysis distinct competencies”, Retrieved 20 June, 2007 ;http://www.freeforessays.com/members/show_essay/Business-T-1-001001110101000.html;

Concord Confections Inc. Website, Retrieved 20 June, 2007 ;http://www.concordconfectionsinc.com/product/product.html;

Dubble Bubble Website, Retrieved 20 June, 2007 ;http://www.dubblebubble.com/;

“Tootsie Roll Industries”, Retrieved 20 June, 2007 ;http://www.answers.com/topic/tootsie-rolls?cat=biz-fin;

Economic Survey of Pakistan, 2004- 2006

Hilal Cofectionery Pvt Ltd. website, Retrieved 20 June, 2007 ;http://www. hilalcandy.com/productcategory.html;

VII.          APPENDICES

History of Tootsie Roll Industries Inc.

1896
Austrian immigrant Leo Hirshfield brings to the U.S. his recipe for a chocolaty, chewy candy, which he begins producing in a small store in New York City.

Hirshfield names the candy after his five-year-old daughter, whose nickname is “Tootsie.”

1905
Tootsie Rolls are now produced in a four-story candy factory in New York City.

1917
The name of the company is changed to Sweets Company of America.  Sweets Company of America begins to advertise nationally.

1922
Sweets Company of America is registered with the New York Stock Exchange.

1931
The Tootsie Pop, consisting of hard candy on the outside and chocolaty, chewy Tootsie Roll on the inside, is invented.

1938
As the country emerged from the Depression, sales continued to grow. The company moves from its 35,000 square-foot space in New York City to a 120,000 square-foot plant in Hoboken, New Jersey. The installation of conveyor belt systems marks the appearance of mass production techniques.

1941
A 50,000 square-foot addition is built onto the factory.

1942
The candy is included in World War II rations and becomes highly valued by the armed forces for its ability to withstand severe weather conditions and give troops “quick energy.”

1945
With raw materials released in greater quantities, production increases and quickly surpasses pre-war levels.

1948
William B. Rubin becomes President of the Sweets Company of America.

1950
In the early years of television, the company sponsors popular children’s shows including Howdy Doody, Rin Tin Tin and Rocky & Bullwinkle.

1962
Melvin J. Gordon becomes Chairman of the company.

1966
The company’s name is changed to Tootsie Roll Industries, Inc.

Tootsie Roll opens a Midwest facility in the Ford City Industrial Park on Chicago’s southwest side.

1968
Tootsie Roll expands operations to include the Philippines and other areas of the Far East.

1969
Tootsie Roll expands operations into Mexico.

1970
Tootsie Roll expands operations to include Canada.

1972
In June, the company acquires the Mason Division of Candy Corporation of America. The acquisition adds two famous candy names — Mason Dots and Crows — to the Tootsie Roll family.

1978
Ellen Gordon is named President of Tootsie Roll Industries, Inc. At this time, she is the second woman to be elected president of a company listed on the New York Stock Exchange.

1985
Tootsie Roll acquires Cellas’ Confections, Inc., a chocolate covered cherry manufacturer operating in New York City, since 1864.

1988
Tootsie Roll acquires the Charms Company. Combined production of the Tootsie Pop, Blow Pops, and Charms line of lollipops makes Tootsie Roll Industries, Inc. the world’s largest lollipop producer.

1993
The company acquires the caramel and chocolate brands of Warner-Lambert Company, which includes Junior Mints, Sugar Daddy, Sugar Babies and Charleston Chew.

1996
Tootsie Roll celebrates its 100th anniversary.

1999
Junior Mints celebrates its 50th anniversary.

2000
Tootsie Roll acquires O’TEC Industries and begins to manufacture Fluffy Stuff Cotton Candy.

Tootsie Roll acquires Andes Candies. The Andes brand includes the Andes Créme de Menthe Thins, Cherry Jubilee Thins and Toffee Crunch Thins as well as a line of Mint Patties.

2002
Tootsie Roll celebrates is 100th anniversary of being listed on the New York Stock Exchange.

2003
Company production reaches more than 60 million Tootsie Rolls and 20 million Tootsie Pops each day.

2004
In August 2004, Tootsie Roll Industries acquires Concord Confections of Toronto, Canada, a market leader in the bubble gum category, known for exceptional quality. Concord Confections’ products are sold primarily under the Dubble Bubble brand that was introduced in 1928 and are known throughout the world. Other Concord products include Razzles, Cry Baby and Nik-L-Nip.

Source: Tootsie Roll Industries website, Retrieved 20 June, 2007 <http://www.tootsie.com/history.html>

Brands by Tootsie Roll Industries
1. Tootsie Rolls

This was the first  product that was produced and sold by Leo Hirshfield in his small shop that brought the company fames. “Hirshfield hand rolled and wrapped his chewy, chocolatey creation and named the candy after his 5-year-old daughter, Clara, whose nickname was “Tootsie.” Tootsie Roll was the first wrapped penny candy in America.”

Today, Tootsie Rolls are produced using the same basic recipe that was used by its creator over a century ago. About 62 million Tootsie Rolls are produced every day. Tootsie Rolls now come in a variety of shapes and sizes.

In addition to its popularity with consumers of all ages, Tootsie Rolls have been a nostalgic reminder of home for our service men and women during every conflict since WWI. Tootsie Roll is one of the few century-old products with such a close resemblance to the original.

The new metallic wrapper, introduced in 2002, delivers more shelf appeal while delivering the same traditional taste. The production and packaging process have been automated by state of the art equipment and packaging technology. The shiny metallic wrapper is another page in Tootsie Roll’s history of growth and innovation, with much more to come.

Tootsie Roll Mini Chews start with the chewy goodness of original Tootsie Roll. Soft Midgee shaped, bite size morsels are covered in real milk chocolate. They’re perfect for snacking and sharing.

Contact your local Tootsie Roll Sales Representative today.
Tootsie Roll Mini Chews – “Your new favorite candy!”

2. Tootsie Pops

In 1931, the famous Tootsie Roll Pop was born. Tootsie Roll Pops were a revolutionary new confection, as they were the first lollipop with a soft chewy center. Over the years, Tootsie Pops have become part of American history. They have been featured on classic television programs and several motion pictures throughout the years.

Tootsie Pops are the No. 1 selling lollipop and are widely known by consumers trying to answer that age-old question: “Mr. Owl, how many licks does it take to get to the center of a Tootsie Roll Pop?” To date, Tootsie Roll has received many thousands of letters, each with a response unique to the author. The real answer may never be known!!

http://www.tootsie.com/trop_pop.htmlTootsie Roll Pops have just recently been offered in a new unique miniature size called Tootsie Pops Miniatures. These smaller versions of our regular size Tootsie Pop are perfect for giveaways and other reward occasions. Some people serve Tootsie Pop Miniatures as a warm greeting in their offices and homes or as a treat at parades.

3. Tootsie Fruit Rolls

Like their cousins, the Tootsie Rolls, chewy Tootsie Fruit Rolls are a luscious treat. Individually wrapped, bite sized Tootsie Fruit Rolls come in 5 flavors: Cherry, Lemon, Orange, Vanilla & Lime. They’re available bagged, or by the piece at stores with bulk candy sections.

Tootsie Fruit Rolls are also available in Tootsie Roll’s Child’s Play Assortment of Tootsie Roll favorites. Many people put them in a jar or bowl at their workplace as a friendly welcome. Others keep a few on hand as a sweet treat for the little ones in their lives.

4. Frooties

Tootsie Roll Frooties are soft chewy candies that carry the taste of fresh fruit. Individually wrapped, bite-size Frooties were invented in the 1970’s. They are one of the few penny candies still available in today’s marketplace. They come in 9 fun fruity flavors: Banana-Berry, Green Apple, Grape, Smooth Cherry, Blue Raspberry, Fruit Punch, Pink Lemonade, Strawberry and Watermelon.

Frooties are sold in bags or by the piece at stores with penny candy sections. A handful of Frooties slip into a purse or pocket for a quick, on-the-go treat to satisfy any sweet tooth. In addition, Frooties are also a great parade crowd-pleaser.

5. Dots

In 1972, Tootsie Roll Industries acquired the Mason Division of Candy Corporation of America. The acquisition added two famous “theater candies” to the Tootsie Roll candy family: Mason Crows and Mason DOTS.

Today, delicious DOTS are one of the best known brands of gumdrops in America. DOTS come in three varieties, Tropical, Wild Berry and Original. Toostie Roll Industries produces more than 16 million Dots a day in their Chicago Plant.

Based on the popularity of Original DOTS, mouth-watering Wild Berry DOTS were introduced in 2000. Wild Berry DOTS are sweet, chewy gumdrops coated with tart, tangy flavor crystals that pack a sour punch.

Like a cool summer sea breeze, Tropical DOTS offer a refreshing variety of exotic flavors. In 2003, Tropical DOTS began sporting a new “ocean horizon” package and new, improved fresh flavors including island nectar, wild mango, grapefruit cooler, carambola melon, and paradise punch.

Crows were invented in the 1890’s by confectioners Ernest Von Au and Joseph Maison. Originally, Crows were to be called “Black Rose”, but the printer misheard the name as “Black Crows” and printed wrappers with the wrong name on them. The sweet, black licorice-flavored gumdrops are as delectable today as they were more than a century ago.

6. Child’s Play

Tootsie Roll Child’s Play brand features an assortment of all of Tootsie Roll Industries top selling items in one bag. This brand was introduced during the 1985 Halloween season and quickly became the top selling kids variety bag.

Each Child’s Play bag contains our most popular items: Tootsie Rolls, Tootsie Pops, Mason Dots, Tootsie Flavor Rolls and Tootsie Snack Bars. Child’s Play variety bags are available in bags sized from 15 ounces all the way up to and beyond 4 lbs.

7. Caramel Apple Pops

Tootsie Caramel Apple Pops were introduced in 1995 to rave reviews and was an immediate hit with children and adults of all ages.

Tootsie Caramel Apple Pops offer a unique combination of delicious green apple hard candy and a chewy caramel soft candy. The eating experience closely resembles that of a traditional caramel apple.

8. Junior Mints/ Junior Caramels

Tootsie Roll Industries acquired Junior Mints from the Warner-Lambert Company in 1993. The product was developed by James Welch and launched into the market in 1949. Welch named the candy specifically after his favorite Broadway stage performance, Junior Miss.

Junior Mints with its chocolate covered, creamy mint, center, are a popular item in theaters and at home. Tootsie Roll Industries produces over 15 million Junior Mints a day.

Junior Caramels are a rich blend of Milk Chocolate and soft, easy to chew caramel. Bite sized caramel centers are covered with just the right amount of chocolate and are ideal for snacking and sharing with friends of all ages.

9. Charleston Chew

Tootsie Roll Industries acquired Charleston Chew from the Warner Lambert Company in 1993. The Charleston Chew was originally launched in 1922 by its previous owner, the Fox-Cross Candy Company, and was named after a dance craze in full swing at the time, the Charleston. Currently, Charleston Chew bars are offered in, strawberry, chocolate, and vanilla flavors. Many people still freeze these bars and crack them to enjoy them.

In 1998, Tootsie Roll introduced a bite size Charleston Chew called the Charleston Mini Chews. These smaller pieces deliver the same great taste as the full size vanilla flavored Charleston Chew. The Mini Chews have become irresistibly popular with kids of all ages.

10. Cella Cherries

In 1985, Tootsie Roll Industries acquired Cella’s Confections, Inc., a manufacturer of premium chocolate covered cherries that have been popular since 1864.

Cella’s cherries are a high quality chocolate covered cherry with a 100% liquid center. Cella’s not only are an excellent gift item but can be found at checkouts as well.

11. Charms

Tootsie Roll Industries acquired the Charms Company in 1988. The Charms products consist of Blow Pops, Charms Squares, Charms Flat Pops, and Zip-A-Dee Mini Pops.

Charms Flat Pops come in a variety of flavors, as well as Sweet, Sweet & Sour and Sour and the newest flavor offering, Fluffy Stuff Cotton Candy.

During seasonal times, you can also find Charms Pops available in several unique shapes. These include, Dead Heads, Pumpkin Pops, Santa Pops, Valentine Heart Pops and the Easter Pops.

The original Charms Co. offering was the Charms Squares. Still sold today, this item has been especially popular with America’s armed forces.

12. Andes

Originally founded in 1921, Andy’s Candies produced a variety of boxed chocolates, which were sold on the store premises. As the business grew over the years, a factory was built and the name changed to Andes Candies.

In 1950, the Crème de Menthe candy piece was added to the Andes stores’ product line. This three-layer mint has remained the foundation of the brand and today is the #1 After Dinner Mint on the market.

Over the years Andes has expanded to include a variety flavors and packages including the popular Cherry Jubilee, Mint Parfait and Toffee Crunch Thins. Andes Crème de Menthe flavor can be found in a number of different packages including our new 14 pc. convenience pack and larger 25¢ piece.

Recently, Andes has become a well-known ingredient in many items. Many retailers across the country are stocking Andes Crème de Menthe Ice Cream, Cake Rolls and Cookies. In the fall of 2003, Andes Crème de Menthe Baking Chips were introduced. These chips have the same great taste as traditional Andes and maintain our famous 3-layer design.

13. Blow Pops

Charms Blow Pops are the original 2 in 1 candy treat with flavorful hard candy outside and a large bubblegum center inside. They are sold individually or in bags at retailers across the country. Known for their great taste, the Charms Co. produces many unique flavors of Blow Pops such as Blue Razz Berry, Black Cherry, Kiwi Berry, Way 2 Sour as well as assorted flavor boxes.

14. Sugar Daddies/ Sugar Babies

Initially developed in 1925 by the James O. Welch Co. and called the “Papa”, the product was designed as a rich milk caramel on a stick for easy handling. In 1932 the name was changed to Sugar Daddy to suggest a wealth of sweetness. It has since become a well-known product to consumers of all generations. To this day the Sugar Daddy pops continue to deliver long-lasting caramel enjoyment.

Following the success of the Sugar Daddy, the James O. Welch Company introduced Sugar Babies in 1935. Being part of the family, the product is based on caramel, too. But in contrast to the Sugar Daddy pops, the Babies come in a bite-sized, pan-coated chewy form. Having been on the market for almost 70 years, Sugar Babies enjoys a high degree of brand awareness.

15. Fluffy Stuff Cotton Candy

In the early days, cotton candy was sold primarily at fairs and exhibitions and was limited to immediate consumption due to its very short shelf life. Today however there is Charms “Fluffy Stuff”, a one of a kind cotton candy made into multi-flavored pillows and packed into various sized packages. “Fluffy Stuff” is produced and packaged in our state-of-the-art production facility without being touched by human hands until you open the package and have your first flavorful taste. We produce “Fluffy Stuff” cotton candy in moisture-resistant and air-tight bags for an enhanced shelf life and fresh taste that’s available all year! Now everybody can enjoy the “taste of the fair” whenever they want throughout the year.

Charms “Fluffy Stuff” comes in 0.6 oz., 2.1 oz., and 3.1 oz. bag sizes and is available at leading supermarkets, drug stores, and mass merchants.

16. Charms Family Fun

Family Fun is an assortment of Charms Blow Pops, Sweet Pops, Zip-A-Dee-Doo-Da Pops, Sugar Babies, and Sugar Daddy available primarily during Halloween. Family Fun comes filled with those brand name favorites in either 27 oz. or 3 lb. bags and represents an excellent value choice in sugar confectionery.

17. Double Bubble

Dubble Bubble is a brand of bubble gum invented in 1928 by Philadelphia-based Fleer. Walter E. Diemer–an accountant at Fleer–enjoyed experimenting with recipes during his free time. In an interview a few years before his death he said “It was an accident”. In 1937, the gum went on the market nationally. The gum only holds its flavor for a short time, then it becomes flavorless; however, it is when the gum is flavorless that it is best for blowing bubbles.

It featured a comic strip that came with the gum starting in 1930, featuring twin brothers Dub and Bub. They were replaced by a new character named Pud in 1950.

Dubble Bubble was distributed in rations during World War II. In 1945, Fleer extended the line to apple, grape, and watermelon flavors. In 1954, the company began sponsoring bubble gum blowing contests–which grew in popularity and were eventually televised. In 2000, this spirit was resurrected when Concord Confections (which bought Dubble Bubble in 1998) began a nationwide bubble gum blowing contest for children aged 12 and younger in Wal-Mart stores across America. The Wal-Mart contest ended in 2006 and was replaced with an online contest.

Dubble Bubble was introduced as the first five-pack of gum in 1957, and began selling gumballs in 1999. The gum is sold in 50 countries.

In 2003, Dubble Bubble celebrated its 75th anniversary.

The brand was acquired by Chicago-based Tootsie Roll Industries in 2004, as part of its purchase of Concord Confections. Concord Confections ranks as one of the world’s leading manufacturers of bubble gum and candy products.  Concord Confections is renowned in the confectionary market for leading edge innovation and incredible product breadth. Concord Confections has many world-renowned brands.

18. Razzles

Razzles are small pellets of “candy” that once chewed, mix to turn into chewing gum. Originally introduced in 1966, with an advertising slogan and jingle of, “First it’s a candy, then it’s a gum. Little round Razzles are so much fun.” The original flavor was raspberry. They were named after a fictional flavor, Razzleberry that was planned but never panned out.

Concord Confections was formed in 1986, and sometime after that date acquired the Razzles brand. Additional fruit flavors were added to raspberry. Most recently, a “tropical fruit” pack was added to the product line. Tootsie Roll Industries acquired Concord Confections in 2004.

The candy is shown and consumed by two of the main characters in the film 13 Going on 30

19. Cry Baby

Cry Baby is a brand of extra sour bubble gum manufactured by Tootsie Roll Industries, Inc. Their claim to fame is their incredibly sour coating, which disappears shortly after the gum is chewed. The name comes from the fact that the gum is so intensely sour that it is not uncommon for one’s eyes to water upon first tasting it.

They come in the following fruit flavors: Lemon , Cherry , Apple , Berry , Orange and Watermelon.

20. Nik- L- Nip

Nik-L-Nip is a brand of juice confection that comes in a variety of fruit flavors, marketed by Tootsie Roll Industries. The fruit flavored juice is found inside small, bottle-shaped wax, which you chew on, much like the popular wax lips.

Nik-L-Nip is also the name of an indie-rock band out of Pennsylvania that hit the west coast in the early nineties and the east coast and Canada in 1995.

Source: Tootsie Roll Industries website, Retrieved 20 June, 2007 <http://www.tootsie.com/history.html>

[1] “Tootsie Roll Industries”, Hoover’s Fact Sheet, Retrieved 20 June, 2007 < http://www.hoovers.com/tootsie-roll/–ID__11490–/free-co-factsheet.xhtml >
[2] Tootsie Annual Report, year 2006, Retrieved 20 June, 2007 <http://www.tootsie.com/pdf/annualreport2006.pdf>
[3] Tootsie Roll Industries website, Retrieved 20 June, 2007 <http://www.tootsie.com/>
[4] “Tootsie Roll Case internal and external analysis distinct competencies”, Retrieved 20 June, 2007 from <http://www.freeforessays.com/show_essay/Business-T-40484.html>

[5] Economic Survey of Pakistan, 2004- 2006

Setting up business inline is yet simple but practical, companies can make good use of the advantages to create incredible results for its own companies. With inexpensive set-up cost and capital requirements, it is easy to attract new entries into this market. Especially for some products which already have real products and resources, they can use their existing materials and expand the business to online. All these can proof that it is an easy market to enter and the threat of new entry to BBC industry is high. It) Bargaining Power of Suppliers

Since there are many publishers in the market, substitutes are available and BBC industry faces only low switching costs when it changes suppliers. Since there are no physical stores in BBC industry, changing suppliers does not matter for them to continue their business. Besides, most of the customers go to online retailing websites to compare some products with similar functions but not a certain brand, so those retail companies do not think that the input offers by their suppliers are necessary to affect the sales. Moreover, usually BBC companies would order large illume of purchase, so suppliers treat them as important customers.

Because of these, the bargaining power of its suppliers is low. Iii) Bargaining Power of Buyers The bargaining power of buyers of BBC industry is medium. As there is a large availability of products with limited difference from its competitors, consumers will have higher power to switch to other competitors easily. Also, when people change to other companies, they do not involve high cost to enjoy similar products or services. However, when people purchase online, they usually purchase in a low volume, this ay lower the bargaining power of buyers.

Apart from this, usually the bargaining power is really high when people are concentrated and there are only few of them. Yet, there is large number of buyers in this market and mostly, people are scattered in different time and locations to buy online. ‘v) Threats of Substitute Products or Services Although there are many substitutes to replace each company in the BBC industry, and consumers have low switching cost to the substitutes, the threat of substitutes of BBC is high. Even in the online platform, there are many different companies for customers to choose.

Not only the substitutes sold online, substitutes sold in physical Five-fore analysis of BBC industry and Amazon’s market valuation By season_CT can find some online shops which sell products with lower price, customers would shift to those shops since they would think that they can purchase products with similar quality even the prices are different. ‘v) Rivalry Among Existing Competitors The rivalry among the existing firms in this market is high. Though there are only few major commerce companies in this field and have been existing for a long time, the raked is still competitive.

With the development of advanced technology and wide spread of Internet application, there is high growth rate of e-commerce industry and this will increase the competition of this industry. Value Chain of Amazon Value chain can be divided into nine activities and each of them can affect the revenue of company. I) Inbound Logistics Amazon can gather information of customers’ experiences efficiently as it highly reduced returns to its suppliers. It) Operations As it has our warehouse, its easy and fast operation and system can meet high emend of customers. Ii) Outbound Logistics Amazon has the ability to sum up orders bounds for some locations. Iv) Marketing & Sales Since the delivery is only based on single transaction, the delivery is free and it reduces the price of some suggested products. V) Firm Infrastructure With a single platform, Amazon has a strong technological infrastructure to help the management of the company. V’) Human Resources Management Amazon put a greater force on human resources management. It hired trained professionals to work for the company to help its development. Vii) Technology

Development Amazon has high investment in technology development such as Kindle to support daily operations and growth. Viii) Procurement Amazon can purchase raw materials or useful products from the supplier at a low price which can help reduce the production cost. Ix) Service Amazon has a policy of free returns within 30 days, which allows people to make a possible change of the products after purchase. From the above information, I do think that Amazon can outperform and operation efficiently in this market since its development is all-round and can meet market needs.

Introduction

The title of the research is “A study on Training and Development of Work Force in Catering Industry in Wrexham Area”. Training is one of the most important elements in each and every organisation for the betterment of its employees. The aim of the research is to study the Training programmes conducted for the staffs or employees of an organisation to improve the company’s performance and productivity. The research aim is mainly to identify the importance of training requirements in catering industry and to identify the benefits of it.

Question aims to find what all successful training and development programmes or schemes are adopted by the management in catering industry to motivate the employees of a company and also to improve the performance of the overall organisation with the help of total work force employed. The three important research questions will be:

1. What are the benefits obtained by a company after providing trainings to their staffs?
2. What costs are involved in training?
3. How will a company ensure that the training is successful?

Objective is to conduct an investigation through qualitative analysis by interviewing the managers and the staffs by distributing printed questionnaire containing open and closed and questionnaires. Also collecting details provided by the interviewed persons orally. A detailed investigation on the topic will help to give more ideas to the management to implement more training courses to develop the skills of the employees working in the company and also will be able to judge how effective productivity can be made with less cost and wastage. Also the research would be helpful to understand whether the employees are happy towards the current training programmes and how helpful is it for the employees or staffs.

Limitations of the Study

While conducting the research there may arise many limitations with respect to sampling and also due to the non – random sampling. The research which is to be conducted will have managers and employees who works in a catering industry.

Literature Review

Human resource management plays an important role in an organisation providing various characteristics of employment in catering industry.

The success of catering industry depends on its manpower. Training and development plays an important role in human resource management. Training is essential in every work environment and has become every day aspect of human life. The government has taken certain initiatives to improve the catering industry’s standard. One of the important establishments in the field is the Hotel and Catering Board (HCTB). In most of the organisation, training is provided on: Computing studies Supervisory skills Food and Beverage management House keeping . The reason to provide training is to avoid; The failure to attain the targets like gross or net profit on food or liquor.  Dissatisfied customers.  Slow service.  High labour turn over and low morale.  Unhealthy relationship between two departments.

Types of Training

There are two types of training:

1. On the job training: As most of the staffs working on catering industry will have direct contact with the customers, so new staffs are given training ‘on the job’ to experience dealing with customers.
2. Of the job training: This type of training takes place away from the actual work place. Real working environment will be crated to train the new staffs.

Training Need and Analysis

The need for training should be considered from employer’s point of view and employees. There will be always a person assigned to provide training to staffs whenever required in consultation with the line managers. The line managers will identify, analyse the requirements of training or problems or opportunities and exploit training with assistance.

Benefits of Training

The benefits of training to the organisation will be short term or long term and it includes:

• Increased customer satisfaction
• Help to develop relationship between staffs and departments. Increased customer demand
• Safe working mode
• Wastage reduction
• Less staff turnover . Process involved in training

Before the actual training process it is to be considered ‘who is to do the training, what is to be taught, how to train and evaluating the success of training. The actual process of training includes:

• Identify the training and development needs.
• Design training and development strategies and plans.
• Providing learning opportunities, resources and support.
• Evaluate the effectiveness of training and development.
• Support training and development advances and practice.

Development

Development is the main part of any training session. Development may be defined as those activities designed to provide the organisation with competent work force which is able to meet the target in short, medium or long term objectives. In development stage the trainer’s knowledge and skills are transferred to the trainees. The other concepts of development includes: recruitment, induction and appraisal. Some of the examples of development programmes are: Trainee management programme, junior supervisory position, new project department, trainee officer, and assistant to area manager.

The main objective of training and development will be to ‘Develop human potential and assist organisations and individuals to achieve their objectives’. Health and Safety training Accidents and healthy problems in places of work occur very frequently and so health and safety training will have to be provided to all the individuals working in an organisation. There are two laws which have to be followed in hotel or catering industry and they are the Health and Safety at Work Act 1974 (the HASAW Act) and the Control of Substances Hazardous to Health (COSHH).

Health and Safety

Training at work includes -preventing accidents and dealing with accidents; the ways in which accidents happen and what all ways to prevent such accidents. It is the objective of Health and safety training to identify the health problems and accidents happening in work life and to take important steps to minimise them. Research Methodology Types of data employed There will be different types of data employed in a research.

Sampling Technique

Sampling Techniques includes Non Random Sampling and other techniques. Primary data: face to face interaction, questionnaire, telephonic interviews. Secondary data: books, training records, internet. The method of qualitative analysis and qualitative analysis will be employed in the research study. Qualitative analysis will be helpful to analyse the interview outputs. To analyse the interview questionnaires qualitative analysis will be employed. To analyse the research questionnaires, quantitative analysis will be employed.

Primary data will be collected through face to face interviews. Face to face method of interviews was taken to overcome any communicative difficulties if arises. Closed and open ended questions will be used to implement the survey questionnaire. The aim of using open  ended questionnaire is that the respondent will be free to give up his ideas or opinions. The closed ended questions will be analysed by using regression technique which is a quantitative approach and the interviews will be analysed by using qualitative approach. Conclusion

The time period for the research to be conducted is estimated to be three months and the samples taken for the research will include the managers and his subordinates working in a hotel or in a catering sector. Survey questionnaire will be made before starting actual research. A detailed analysis will be conducted with respect to literature review.  One of the major anxieties in an organisation is about the training. It may be due to more staffs or because of the labour turnover.

For an effective training programme there should be sufficient funds allocated for it in an organisation. There will be more benefits for an effective training scheme. The benefits of a training programme include:

• Less wastage and speedy work performance by the trained worker.
• Less mistakes or accidents in the organisation.
• Less damage of machines and equipments.
• The complaints from the customers will be reduced.
• Another important benefit is that the trained staffs require less supervision and guidance.
• The trained staff will be more resourceful when other staffs go for holidays or any absence problems arise. Training will improve the job satisfaction and confidence in employees and will let them perform well in the organisation.

Another benefit is that the potential to work and personal benefits of working efficiently and safe. Training needs analysis To design the training method, it is required to identify the training needs. It will be the responsibility of the trainer or the line manager. He should attempt to identify the problems and opportunities which could be made better with the help of training. For this the training needs of individuals has to be studied through the appraisal reports and detailed discussion with the manager.

Identification of individuals training needs will lead to corporate training needs. For example, if a catering company wishes to expand its business in a limited time, it is important to identify the staffs that are to be transferred or promoted to the new unit and the kind of training required for them to adapt with the new business unit. This may range from preparing some assistant managers and trainee chefs or stewards to do more responsible job like cooking food for the customers. The availability of sufficient trained persons in the organisation will give a successful growth to the company.

The training needs arise from unexpected circumstances or conditions. For example if a restaurant makes new menu launch, the waiters or waitresses has to give training about the new products, service and selling techniques which plays a big role in sales and profits of the company. Training is considered as one of the vital tools of management. It helps the management to increase the efficiency of the company. Different skills and knowledge and attitude could be developed with training to achieve company’s objective. Training enables an individual to go through increased competences and confidence and to gain promotions.

Job Analysis

Job analysis is one of the major roles of Human Resource Management. Job analysis is conducted to check the efficiency and effectiveness of a job. Job analysis highlights the needs of training to be conducted for the job or activity to be performed. The trainee’s actual work inside the organisation is evaluated and more training will be given to improve their performance up to company’s standard. Job Evaluation Job evaluation is another method to identify the requirements of training.

It is essential that a person such as chef should be well trained to acquire knowledge and skill. The type of factors assessed for training in job evaluation is: Knowledge, skill, responsibility, social skills and working conditions.

Performance Appraisal

Performance appraisal is one of the methods to identify the training needs. Performance appraisal is conducted in every six months or annually. It is actually a review of performance of each staff by the manager. It usually compares the actual performance of the person with the set standards of performance, company’s objective, consent job objective, specific core competencies.

Performance Appraisal helps the employees to identify whether they require more training to achieve their objectives as compared to the present performance.

Self Assessment

Self assessment can be formal or informal. Formal assessment methods suggest the employee to asses or rate their performance against the performance standard set and will be provided if they ask for more training if they feel training would benefit. Informal assessment is method is up to the employees. The employee can ask for training if they feel would be useful.

It depends upon the organisations training policy and training budget. Direct Observation Direct Observation is another method to identify the training requirements in an organisation. Observation may be with or without the knowledge of the employee. For example, in a call centre, the line manger would spend time to listen to calls attended by the staffs to find how many of them are following the prescribed standard. Otherwise a mystery caller would make a call from outside the organisation where he pretends as a customer to find the outcome. Different methods of training

The two main approaches are:

• On the job training
• Off the job training

On the job training in hotel or in catering industry. In a hotel or a catering industry most of the staffs will have direct contact with the customers. So on the job training will be beneficial for the trainees to acquire knowledge about how to deal with the customer. On the job training plays a vital role in catering industry. If the trainer is talented in training techniques and if the objectives are clear then on the job training is the best possible way to teach the trainee the manual and social skills.

In some companies new employees are put together with experienced employees who are not capable of training others. If the experienced employees are interested to train the new comers, then it will good for the company that they could save the expenses paid for specialist trainer and also the experienced employees will be able to train the new staffs in the work place along with them. They will be able to share their knowledge with the new staffs. The experienced employees should be given apt training before they are asked to train the new employees.

In off the job training the progress of employees according to the training has to be checked from time to time by the person who trains. For example, the training for barmen include: bar preparation and cleanliness.

The benefits of on the job training are:

• Training is provided in the same working environment itself. The trainee will quickly understand the nature or the standard of the job that he has to be followed.
• Training could be provided in exact timing. No pre-determined schedules need to be followed.

There may be fewer requirements for special equipments as it is possible to use the operational resources.

Off the job training in hotel and catering industry Off the job training takes place away from the actual work place. In off the job training a variety of methods and techniques are applied.

The main methods used are:

• Talks- talks are the methods used to share knowledge regarding the nature and policies of the company, rules and regulations and other legal matters. There should be question and answer session to check the progress.
• Case studies, projects and business games are the best ways of off the job training techniques. Role plays are identified as the best ways to develop skills to interact with customer, how to handle customer complaints, up selling and interviewing.
• Some time visual aids such as films on different hotel and catering industry are used to train the new staffs of the company.

Other techniques of off the job training include Programmed texts and teaching machines which could be helpful for the individual to learn at his convenient time. It does not require the presence of any instructor. The disadvantage of this method is that sometimes it could be expensive to design and the training can not give on manual skills.

Staff Induction

Staff induction is one of the training methods. The term induction training means process by which the new staffs are given ideas about the nature of business, its structure, rules and regulations of the company, conditions of employment and duties to be performed. Induction training is not compulsory as per legal Acts. But for the welfare of the new employees or staffs, companies would indent to have staff induction when they employ new staffs.

The important information concerned under the staff induction is:

1. Contract or Terms and conditions of employment.
2. The condition to perform a job and to whom the person is accountable to.
3. Grievance procedures, Disciplinary rules and procedures.
4. Policies regarding promotion and training.

Health and Safety rules

Other social and welfare benefits The new employees should be given formal induction training to avoid unhealthy or malfunctions inside the organisation and to develop attitudes, norms and practises. The role of training agencies In developing countries importance is given for quality and standards rather than individual productivity.

In Britain Industrial Training Act was established in the year 1964 to maintain the quality and supply of skilled labour so it led to establishment of Hotel and Catering Industry Training Board (HCITB).

The main aims of the Board are:

• To provide advise to the companies, how to implement effective training.
• To conduct research and to develop new methods of training and materials and practises.
• To allocate sufficient funds for training needs and to aid companies to conduct approved training.
• To co-ordinate the supply of labour to hotel and catering industry, the Manpower Service Commission was established in 1973.

It provides funds for training young people and retraining schemes for those who are unemployed. There are plenty of colleges which has department of hotel and catering. Organising training Each aspects of training have its advantages and disadvantages. One of the advantages of On the job training is that it is cheap as compared to the other methods of training. The trainee will be able to learn from the actual work place the standards or procedures of work that he has to be followed. On the job training is flexible and can adapt to any pressures of the work environment.

Just like the advantages, there are disadvantages also. The trainer may find it difficult if he has had no instructional training. And so he will not be able to adopt the work pressure and will withheld training considering it as less important. Inexperienced trainers will not be able to provide effective training. On the job trainer would be able to share only those knowledge which he possessed when he was trained. The advantage of off the job training is that the expense involved in training can be measured already and the company can allocate budget and control for the off the job training programme.

There will be a well trained instructor to provide training. The training will be conducted in a planned environment with good equipments. Another advantage is that training can be conducted in logical way after preplanning. The disadvantage of off the job training is that the trainee will find difficulty while facing actual work environment. The principles which he learned from off the job training have to apply in actual work place. The existing workers may feel uncomfortable to attend off the job training programmes. Systematic training Systematic training is the process of actual implication of training in a system.

Systematic training is divided into three phases and it operates as a cycle. The three phases are : planning, implementing and reviewing.

Planning

The different stages of planning include:

• Formulation of policy
• Identifying training needs
• Decision on priorities

Preparing a plan Formulation of policy: formulation of training policy should be given importance as like the other policies of the company. A training policy should include company’s attitudes to training and the place it will occupy in its activities. It should point out the budget allocated for training requirements.

Should have specific responsibility for the implementation of training policies and it should be communicated to all staffs and management. Identifying training needs: training need can be identified if there is a clear standard which is followed in a company. Sometimes the departmental managers will make assessment whether the employees is performing up to the company’s standard. Job analysis and job evaluation are two methods to identify the training requirements. Decision on priorities: because of economic and practical reasons an employer will not be immediately be able to undertake all the training needs.

And so the employer will have to set a priority. Managers in developing countries need to take staffs with more training on western style. Preparing training plan: a training plans may originate from two sources. One is the man power requirements and the other is the detailed analysis of training requirements. A training plan will make plan about the methods of training, who to conduct the training and the responsible person to implement the training. It also plans the costs involves in training and other financial considerations.

Implementation

Implementation involves three areas: attitude training, knowledge training and skills training. In hotel and catering industry attitude training plays an important role as the customers expect a pleasant and active service. Attitude training is important as some jobs can not be supervised closely, so the person carrying out the job should have a well attitude. For any kind of skill knowledge is required. Most skills are based on the foundation of knowledge. There should be knowledge about application of tools and equipments, methods and procedures, knowledge about the menus and recipes, food, hygiene, health and fire safety, cost control standards and onditions of employment. Those who are in higher post require more knowledge.

Knowledge training may include the following:

• Talks and lectures
• Handbooks and instruction manual
• Posters and charts
• Video tapes or CD’s
• Programmed training packs

Knowledge training is not expensive. The materials used for this kind of training can be re-used. With the help of relevant and realistic and in a very attractive manner the training can be made effective. Skills training are very important in a hotel and catering industry in order to maintain the accuracy, consistency and speed.

It therefore helps to reduce the wastage and helps to produce the standards required. The skilled person always is able to work fast without mistakes or less mistakes. The two general types of skills are: social skills and physical skills.

Physical Skills

Physical skills include movement of hands, the fingers, the eyes and other senses. Examples of the use of senses in carry out of skills include flavour for wine specialist, touch for pastry cooks, to gauge the consistency of dough, etc. Social skills training Social skills are being used as motivational technique and as a method to control a work group inside an organisation.

Social skills are always attached to attitudes. A social skill is a trained ability to perform with apt behaviour in different situations. Methods of skills training There are four methods of skills training: Informal training: the informal method includes observation and hearing. It is not possible to plan and control in this method. It totally depends on the experienced worker, who performs correctly and he should be helpful. Training within the industry: this method is well organised and involves demonstrations and copying. The task will be broken down to different stages.

This method requires mental thinking and judgement. The discovery method: this method enables the trainee to perform correctly through his own deductive process. This method requires great amount of preparation and careful monitoring. The skills analysis method: this method involves explanation of principles in different stages and also requires comprehension and active participation of trainee. The trainee should establish some sort of interest in this method. The training objective should be clear and the trainee has to be confident about what he has to perform.

Supervisory Training

Supervisor is a part of management and has the responsibility to direct and control the work of others. A supervisor in an organisation is expected to maintain loyalty and reduce conflict. As supervisor’s job vary it is difficult for them to provide only general training. They would need specialised training. First the job of internal supervisor has to be analysed to asses the training requirements for a supervisor.

The special areas include:

• Maintaining staff relationship by encouraging staff motivation and group performance development. Ensure disciplinary actions are being taken to correct and improve the performance of the employees.
• Industrial relationship in consideration with use of procedures.

Health and Safety

A high proportion of training should be given to supervisors in order to enable them to face problems and different situations. Group work will help to identify each other and to solve the problems of each department. Supervisor plays an important role in the industry and good supervisory training would be an asset to the organisation. Development of personnel in catering industry

The word personnel imply a particular activity which is conducted by a qualified person or a trained staff. There will many factors which will help the development of personnel in a catering industry.

The five major factors which influence the development of staffs in hotel and catering industry are:

1. The growth or prosperity of catering industry on world wide basis.
2. The growth of the medium sized hotels. New traditional approaches were taken into consideration to manage the large work force.
3. The number of labour turn over is another factor concerning the catering industry.
4. Large number of unskilled or part time workers or casual workers creates more stress on the skilled labour. This could be avoided by creating a separate training squad in the company.
5. Lack of personnel practises and standards within the industry and among the management level will influence the development of staffs in catering industry.

Management development may be defined as process of providing organisation with capable and competent management team which is able to meet its short, medium and long term objectives.

Most of the managers develop their knowledge, skills and attitude by continuous practise of managing others at work. A management development programme must have a balance between the formal training and work experience.

Management Development

Management development is the process by which the young active talented staffs are trained to supervisory or management positions. It describes how a staff’s performance can be improved effectively and also makes them adapt to changes in the organisation. MINTZBERG studied managerial work and stated that in an organisation compared to other post managerial posts should be given foremost importance.

He identified the roles of manager as: interpersonal, information and decision maker. Interpersonal roles include manager acting as a Leader and the Liaison. He will be responsible for team integration and motivation. As a Liaison, he will maintain a good relationship with the outside parties who are involved in the business and with the internal parties. Information Role Manager act as a Monitor, who analyses and collects information about the competitors, change of trends, internal and external factors. He will act as a Spokesperson who transmits information to outside parties.

Decision

Role As an Entrepreneur, manager will make decisions on any changes in the organisation. A manager will act as negotiator representing the organisation. Also, he will play the role of Resource allocator by scheduling, organising and programming subordinates work. Trainee management courses Trainee management course has a very important role in young manager’s career. In order to be a successful manager, a manager should posse’s knowledge and skills about other departments. Trainees must be given departmental training objectives in written form.

Regular objectives should be held to check whether the trainees achieved their objectives. Methods of staff development:

• General management training programmes which are of for a short period of time with theories and practises. It would be conducted in detached centres so that the manager doesn’t have the work pressure and will be free to actively participate in the training programme.
• Comprehensive programmes, such as a Diploma course. It requires an extended commitment from the company.
• Technical workshops for short term covering the use of new equipment. Job enlargement and Job rotation is another method of staff development. This method is cheap and is within the company’s control.
• Informal method including the process of consultation and senior management. In this method, improvement includes individual and specialized standards, expressive resilience, understanding, elasticity, assurance and inspired initiative. Systematic approaches to training Systems approach can be recognized as a rational connection between different stages in the course of examining training needs, designing, delivering and authenticating training.

The illustrative image of a logical approach is a effective tool and as such it should be accepted that trainers will sketch up a model which is comfortable for them to utilize as members of a training division who must to observe the advancement of their training projects. Training Objective Training objective is to clearly state as likely what the apprentice are expected to be able to do at the end of their training, the circumstances under which they will exhibit their knowledge and the standards that must be reached to substantiate their level of competence.

Written training objectives provide the trainer to decide the methods f training and contents of training and also it provide the trainees a clear target. Too much training is expensive and if inappropriate materials are integrated, then it will be confusing. Training objective act as the foundation for determining the success of training in terms of knowledge, skills and attitude expected of the trainees, the lowest acceptable standards of performance and the situation under which the performance is calculated.

Also training objectives can be used to validate the link between the training needs and the actual training provided. It also considered as the first point of reference for any investigation or review in relation to training. Actions by the trainer Depending upon the nature of training to be conducted, the trainer may use different actions to make the training effective. Some of the actions used are: Setting up sub goal .In order to lead the trainees towards the organisational goal, the trainer will sub divide the goals and provides motivation and support for the employees.

This will help the trainer to monitor the progress of trainee’s achievement. While conducting the training the trainer has to ensure that the trainee’s concentration is fully on training programme. They may do this through verbal, pictorial or any other means. The trainer should be aware of the different ways in which ‘to give selective emphasis to stimulus presentations for learning’ (Gagne, 1977). Implementing humour in an effective way will help to stimulate and maintain the trainee’s attention towards training.

Use of humour will keep away stress and will provide a relaxed situation. It will improve the communication between the trainer and the trainees. Humour may make the training session more enjoyable and will be a kind of motivation to the trainees. Pictures and demonstrations. Pictures or demonstrations will help the trainees to identify the methods or actions to be followed. It also will help to develop manual skills. Verbal instructions Language is a meditational process which can be used in training to provide information, ideas which could fit into the learning context.

Also it could provide explanation about context, rules, principle and theories for acquiring basic intellectual, social and manual skills. Conclusion There are lots of benefits for the employees and the company through an effective and well planned training. With the job effective job training, individual may feel great job satisfaction. And the benefits of training towards the organisation include improved employee work performance and productivity, less wastage, less absenteeism, fewer accidents, and low labour turn over and greater customer satisfaction. Training will also have an indirect impact on the culture of the organisation.

Abstract

Since the 1980s the export oriented readymade garment (RMG) industry of Bangladesh has experienced an extraordinary evolution: This trend was accompanied by a tremendous rise in the export share from 0. 2% in 1980 to nearly 75% in 1997-98. High concentration on low value-added products, strong dependence on imported textiles and high regional concentration of exports characterize Bangladesh’s RMG sector.

The main policy framework is given by the WTO’s Agreement on Textiles and Clothing (ATC) which follows the former Multifibre Arrangement (MFA). By 2005, the sector is to be fully integrated into GATT rules and existing quotas currently hampering trade will come to an end. Thus, it can be expected that worldwide trade in textile and clothing will expand and that production in now discriminated regions will increase. However, existing import tariffs for textiles, strongly supported by local textile producers, hinder the current RMG production in Bangladesh.

In this paper we will discuss how future policy developments may affect the RMG sector of Bangladesh. For the analysis we used the comparative static general equilibrium model GTAP. In this model quotas resulting from the MFA agreement are included as export tax equivalents. Compared to China and India, Bangladesh has less restricted access to the most important markets the EU and USA. The experiments simulate a full phase-out of the MFA quotas, as well as a reduction of import tariffs in the textile and clothing sector.

First results indicate an increase in RMG production in Bangladesh, but compared to China and particularly India growth rates are quite modest. It is shown that the effects resulting from textiles imports tariff reduction in Bangladesh itself are stronger than the MFA phase out. This demonstrates the importance of the existing tariff regime for textiles. Furthermore it can be shown that RMG imports from Bangladesh to NAFTA are reduced while China and especially India significantly expands their exports to this region.

Although Bangladesh can augment its RMG exports on the second large market, the EU, again it looses in competitiveness against China and India.

Introduction

The export oriented readymade garment (RMG) industry of Bangladesh has experienced an extraordinary evolution: having started with 9 enterprises in the late seventies, the number has now grown to over 3000. This trend was accompanied by a tremendous rise in the export share from 0. 2% in 1980 to over 80% in 1998. With a value of about 4 billion US$, the RMG industry has clearly become the dominant source for Bangladesh’s export earnings.

However, Bangladesh’s RMG sector is characterized by some unfavourable circumstances: the sector highly depends on imported fabrics. In 115 out of 127 categories of fabrics the share of imports exceeds 70% (CPD, 1999). Over the years about half the export earnings were spent on textile imports. Since natural conditions in Bangladesh hardly allow for a huge expansion of cotton production, this problem will continue in the future. Additionally, the added value in the apparel sector is quite low.

The sourcing of textiles for the Bangladesh RMG industry has changed dramatically over the last 20 years. In the 1980s, the dominant suppliers were the high-income Asian countries, led by Japan with an import share of more than 40%, and followed by Korea with a share of about 10%. Until the mid 1990s, Korea had taken over the position of Japan as the leading source for textile imports, with a share of around 30%. Since then, India has expanded its textile imports into Bangladesh, and more recently China has started to assume an increasing importance.

By 1998, 35% of textile imports were sourced from China and about 20% from India. Bangladesh’s RMG sector is concentrated both in regards to export products and export markets: the concentration of products is much higher than for India and China, two important competitors on international markets, while 90% of Bangladesh RMG exports are going to two markets, the EU and the USA.

The main policy framework is given by the WTO’s Agreement on Textiles and Clothing (ATC) which follows the former Multifibre Arrangement (MFA). By 2005, the sector is to be fully integrated into GATT rules and existing quotas currently hampering trade will come to an end. Bangladesh faces quota in two markets, the USA and Canada. Due to the Generalised System of Preference (GPS) the important EU market provides no quota restrictions for Bangladesh’s textile and clothing products. With respect to other competitors on this market like India and Sri Lanka this presents a comparative advantage.

Nevertheless, some restrictions resulting from the Rules of Origin also apply for imports from Bangladesh. In the near future, the EU market for textile and clothing will not only be affected by changes in the ATC agreement, but by bilateral agreements connected to further enlargement processes of the EU as well as developments with regard to the EU? s specific regional preferences. This will particularly influence the market access of the Central and Eastern European countries and Turkey. In general, the abolition of textiles and clothing quotas will initiate an expanded worldwide trade and production in now discriminated regions.

This of course will lead to country specific effects depending on regional idiosyncrasies. Concerning Bangladesh existing import tariffs for textiles, strongly supported by local textile producers, hinder the current RMG production in Bangladesh. In the recent past the pure existence as well as the rate of these tariffs has been under heavy discussion in Bangladesh (e. g. The Independent, 2002). Therefore, we will discuss how different future policy developments may affect the RMG sector of Bangladesh.

This includes the changes in the global ATC agreement, further developments on the huge import market EU as well as changes in the national tariff regime of Bangladesh. DATA and SIMULATIONS The analysis was done using the comparative static general equilibrium model GTAP. Since the GTAP framework is well known and documented (see Hertel, 1997 and http://www. gtap. agecon. purdue. edu), we will not elaborate on its theoretical background here. However, it is important to note that import barriers resulting from the ATC agreement are calculated into tariff equivalents (see Francois & Spinanger, 2002 and table 2).

For the experiments the GTAP database version 5. 1 was used, which contains 66 countries and 57 sectors. The selected aggregation can be obtained from 1.

If exports are constrained under the MFA export quota regime, there are lower exports and higher prices than in a free-trade situation. The effects of this constraint can be measured in terms of an implicit export tax or tariff equivalent of the quota rent.

Not all countries are facing quotas on each export market. The tariff equivalents described here result from the estimation of rents and thus include not only direct but also indirect effects originating from the ATC agreement. The estimated value of the export tax equivalent for Bangladesh is 190 million US$ in 1997, which amounts to 8% of the domestic value of total RMG exports. Exports to the North American markets from China and India apparently face higher quota restrictions, as the estimated ad-valorem tariff equivalent of the quota shows. For example, Indian exports to the USA would be more than 50% cheaper without the quota.

The current RMG production in Bangladesh is affected not only by export measures but also by existing import tariffs. Although the country has xperienced some liberalization in the recent past, tariffs for intermediate inputs and especially textiles are high compared to other products entering Bangladesh (see table 3). In international comparison Bangladesh levies relatively high import taxes on its textile imports (table 4). Tariffs of more than 30% of the import value are not uncommon. On (trade-weighted) average, textile imports into Bangladesh face a tariff equivalent of 29%, which is three times as high as the world average. According to the GTAP database, the tariffs on textiles have contributed approximately 420 million US$ to tax revenues in Bangladesh.

Since the RMG sector of Bangladesh is restricted on the export side as well as on the imports the simulations analyzed in this paper include two experiments. Experiment 1 (EXP 1) focuses on the export market. It simulates firstly a complete phase-out of the ATC agreement and secondly specific relevant developments on the EU market such as the Eastern Enlargement and a preferential agreement with Turkey. Experiment 2 (EXP 2) additionally describes a reduction of import tariffs in the textile sector of Bangladesh by 20%.

Results

Experiment 1: Abolition Of Mfa Quotas

What can be expected for Bangladesh if all quota restrictions on textiles and garments trade are abolished by December 31st, 2004, as foreseen in the ATC?

The main competitors of Bangladesh’s RMG sector, located in India and China, are relatively more restricted by the ATC agreement than Bangladesh’s producers. On the North American markets, Mexico and Central American countries have increased their market positions over Bangladesh as a result of closer regional integration in the Americas. On the European markets, exports from Turkey and Central and Eastern European countries are competing with exports from Bangladesh. The Eastern enlargement and trade preferences for Turkey imply that the GSP (and Everything but Arms, EBA) preferences supporting Bangladesh on the EU market are losing their importance.

In order to capture the latter issue we incorporated the enlargement of the EU as well as zero-tariff access to the EU for Turkish producers in our simulation.

Obviously, the highly quota constrained exporters from India and China are able to dramatically expand their exports. In the case of China, the model predicts a 60% increase in export volumes. However, exporters now face a price that is on average 11% lower. [2] For India the picture is even more impressive, as exports are simulated to expand by more than 260%, albeit at 20% lower prices. Bangladesh is simulated to maintain its export volumes, but would face a 7% lower price.

Columns (3) and (4) in the table compare current world market shares in RMG with post-MFA shares. Clearly, China and India are increasing their world market shares.

Obviously, Bangladesh is losing ground in North American markets, where China and India are out-competing all other suppliers, including Mexico and Central America. Only on the European market does Bangladesh have positive growth rates. The granting of preferences to suppliers from CEEC countries and from Turkey enables those regions to double their sales volumes to the EU, which leads to a diversion of imports from all other sources.

Experiment 2: Lower Textile Tariffs In Bangladesh

The phase-out of the MFA is an external event that Bangladesh producers and policymakers will have to deal with in some way, but on which they have little influence.

In contrast, there are also a number of national policy instruments available that Bangladesh could use to further its RMG industry. One of these instruments is the lowering of import taxes on textiles. It has been seen in section 2 that import barriers on textiles – a vital input in RMG – are relatively high in Bangladesh. The tariffs lead to an average increase of the price of imported textiles by about 30%. Clearly, a lower tariff would reduce the cost of imported textiles to the Bangladesh RMG industry, and this will decrease production costs in the RMG sector.

While expansion of RMG production and exports under the MFA phase-out is rather limited, the unilateral reduction of textile import tariffs has notable positive effects on output and trade. In fact, the 20% tariff cut results in a simulated RMG output growth of more than 7%. Not surprisingly, this output effect turns out to be mainly export driven.

The lower price for imported textiles in the wake of the tariff reduction drives down the price for textiles that the RMG industry in Bangladesh uses. Table 8 summarizes the important effects. The 4. 5% lower price for imported textiles is combined with a very slight drop of domestic textile prices to yield a drop of the composite textiles price by -1. 5%. Given the large 70% cost share of textiles in RMG production, the supply price of RMG products can drop by -0. 9%. This drop is sufficient to lead importers to substitute towards Bangladesh RMG products. The GTAP model has an Armington import structure with an elasticity of substitution between domestic and foreign RMG varieties equal to 8. for all importers such that the substitution effect alone results in an almost 8% rise of Bangladesh RMG exports. Since Bangladesh is a small player on global RMG markets (market share around 1%), global import levels are not affected by Bangladesh’s cheaper supplies. The conclusion from this exercise is that lowering tariffs on textile imports does indeed boost the competitiveness of the Bangladesh RMG industry. At the same time, the domestic textiles industry experiences some competition from abroad, resulting in lower domestic textile prices and a slight drop in output, but this is more than compensated by increased export earnings in the RMG industry.

The equivalent variation welfare indicator provides a summary of effects on the total economy. According to this welfare measure, the main beneficiary of the MFA phase-out is the USA. The importing regions Canada and the EU also benefit, as do India, China and Central and Eastern Europe and Turkey. The latter two regions mainly due to the EU-preference effect. This picture makes clear why not all countries always support the abolition of the MFA. For Bangladesh a slight negative welfare effect of the MFA phase can be observed. The unilateral reduction of textiles tariffs somewhat improves this outcome, but is insufficient to tip the balance.

The terms of trade for Bangladesh – and indeed for all the quota-restricted exporters – are negatively affected as world prices for garments drop. In contrast to, for example, India, the terms-of trade loss is not compensated by allocative gains in Bangladesh. Closer inspection of the underlying data shows that the negative allocative result in the MFA phase-out scenario is mainly due to the expansion of the domestic textiles industry which is currently subsidized.

Expansion of a subsidized activity receives a negative welfare evaluation, because it pulls resources into an activity that could be more effectively used elsewhere in the economy. With lower textiles tariffs, the domestic textiles industry shrinks somewhat and the negative allocative effect is turned in to an allocative gain, as less subsidization is required.

Conclusions

The phase out of the MFA changes global patterns of trade. India and China are the biggest winners in terms of output and export growth. In terms of welfare, the importing countries gain most, as the import prices drop. At the same time, this means terms of trade loss for exporters. Bangladesh can only mildly benefit from the MFA phase-out, and loses ground on North American markets.

Since the EU grants preferences to CEECs and Turkey, Bangladesh exporters face increasing competition on the EU market. On balance output volumes are expected to be unchanged from Bangladesh, implying a drop in market share in the expanding RMG market. A counteracting policy option for Bangladesh is the unilateral lowering of import tariffs on textiles. This reduces costs to the RMG industry and improves exports through lower supply prices. Macro-economically, increased export revenues easily compensate the loss in tariff revenues.

Reference Source

1. Office of Textiles and Apparel, United States Department of Commerce. Abbreviations: MMF: man-made fibre; S/V: silk and vegetable; MB: man and boy; WG: woman and girl.

Compiled by: Mirza Rohail B http://economicpakistan. wordpress. com/2008/02/10/cng-industry/ Compressed Natural Gas (CNG) is a substitute for gasoline (petrol) or diesel fuel. It is considered to be an environmentally “clean” alternative to those fuels. It is made by compressing methane (CH4) extracted from natural gas. Argentina and Brazil are the two countries with the largest fleets of CNG vehicles. As of 2005, Pakistan is the largest user of CNG in Asia, and third largest in the world.

The Compressed Natural Gas (CNG) sector of Pakistan by end of 2007 has attracted over Rs 70 billion investments during the last few years as a result of liberal and encouraging policies of the government. Presently, more than 2,700 CNG stations are operating in the country in 85 cities and towns, and 1000 more would be setup in the next three years. It has provided employment to above 30,000 people in Pakistan. Over 2 million vehicles were converted to CNG as of march 2009, showing an increase of 35 percent yearly.

On average 29,167 vehicles are being converted to CNG every month. All Pakistan CNG Association (APA) Sana-ur-Rehman confirms that CNG stakeholders have invested Rs. 90 billion in this sector and another Rs 20 billion investment is in pipeline. The CNG consumers had invested around Rs 60 billion in converting their vehicles to CNG. The CNG was replacing at least 6. 12 billion liters of petrol every year and saving foreign exchange to the tune of billions of dollars. The CNG sector pays 24 percent sales tax and 4 percent withholding tax to the government.

Moreover, the CNG is contributing tremendously towards maintaining the air pollution level lower since it emits almost 85 percent less harmful gasses, zero lead and zero particulate matter. Compressed Natural Gas (CNG) Compressed Natural Gas (CNG) is a substitute for gasoline (petrol) or diesel fuel. It is considered to be an CNG has grown into one of the major fuel sources used in car engines in Pakistan, Bangladesh and India. The government of Punjab, Pakistan, the most populous province of that country, has mandated that all public-transport vehicles will use CNG by 2007.

CNG conversion 3rd generation environmentally “clean” alternative to those fuels. It is made by compressing methane (CH4) extracted from natural gas. It is stored and distributed in hard containers, usually cylinders. Conversion has been facilitated by a substantial price differential with liquid fuels, locally-produced conversion equipment and a growing CNG-delivery infrastructure. A ‘Blue-network’ of CNG stations is being developed on the major highways of the Southern Cone (including Chile and Bolivia) to allow for long-haul transportation fuelled by CNG.

According to the International Association for Natural Gas Vehicles, Pakistan has the third-largest number of natural gas vehicles. In the Middle East and Africa, Egypt is a top ten country in the world with more than 63000 CNG vehicles and 95 fueling stations nationwide. Egypt was also the first nation in Africa and the Middle East to open a public CNG fuelling station in January 1996. Brisbane Transport and Trans-Perth in Australia have both adopted a policy of only purchasing CNG buses in future; the former purchasing 216 Scania L94UB and 180 MAN 18. 10 models, with the latter purchasing 451 Mercedes-Benz OC500LE buses, including 58 articulated buses. Brisbane Transport has also ordered up to 30 articulated CNG buses on MAN chassis’. During the 1970s and 1980s, CNG was commonly used in New Zealand in the wake of the oil crises, but fell into decline after petrol prices receded. Technology CNG can easily be used in Otto-cycle (gasoline) and modified Diesel cycle engines. Lean-burn Otto-cycle engines can achieve higher thermal efficiencies when compared with stoichiometric Otto-cycle engines at the expense of higher NOx and hydrocarbon emissions.

Electronically-controlled stoichio-metric engines offer the lowest emissions across the board and the highest possible power output, especially when combined with EGR, turbo charging and inter-cooling, and three way catalytic converters. The octane rating of CNG is far greater than Petrol and if handled correctly it can produce same or more power output from an engine provided the Compressed Natural Gas is compressed properly and accurate amounts of BTU Figures attained. CNG cylinders can be made of steel, aluminum, or plastic.

Lightweight composite (fiber-wrapped plastic) cylinders are especially beneficial for vehicular use because they offer significant weight reductions when compared with earlier generation steel and aluminum cylinders, which leads to lower fuel consumption. CNG may be refueled from low-pressure or high-pressure systems. The difference lies in the cost of the station vs. the refueling time. There are also some implementations to refuel out of a residential gas line during the night, but this is forbidden in some countries. CNG compared to LNG and LPG CNG is often confused with LNG.

While both are stored forms of natural gas, the key difference is that CNG is in compressed form, while LNG is in liquefied form. CNG has a lower cost of production and storage compared to LNG as it does not require an expensive cooling process and cryogenic tanks. CNG requires a much larger volume to store the same mass of natural gas and the use of high pressures. CNG is also often confused with LPG, which is a compressed blend of propane (C3H8) and butane (C4H10). The Advantages of Compressed Natural Gas The Environmentally Clean Advantage Compressed natural gas is the cleanest burning fuel operating today.

This means less vehicle maintenance and longer engine life. CNG vehicles produce the fewest emissions of any motor fuel. Dedicated Natural Gas Vehicles (NGV) has little or no emissions during fueling. In gasoline vehicles, fueling emissions account for at least 50% of a vehicle’s total hydrocarbon emissions. CNG produces significantly less pollutants than gasoline. Tailpipe emissions from gasoline operated cars release carbon dioxide, which contributes to global warming. This is greatly reduced with natural gas. The Maintenance Advantage Some fleet operators have reduced maintenance costs by as much as 40% by converting their vehicles to CNG.

Intervals between tune-ups for natural gas vehicles are extended 30,000 to 50,000 miles. Intervals between oil changes for natural gas vehicles are dramatically extended–anywhere from 10,000 to 25,000 additional miles depending on how the vehicle is used. Natural gas does not react to metals the way gasoline does, so pipes and mufflers last much longer. The Performance Advantage Natural gas gives the same mileage as gasoline in a converted vehicle. Dedicated CNG engines are superior in performance to gasoline engines. CNG has an octane rating of 130 and has a slight efficiency advantage over gasoline.

Because CNG is already in a gaseous state, NGV’s have superior starting and drivability, even under severe hot and cold weather conditions. NGV’s experience less knocking and no vapor locking. The CNG Cost Advantage Natural gas is cheaper per equivalent gallon than gasoline (an average of 15% to 50% less than gasoline). The Safety Advantage Surveys indicate that NGV’s are as safe or safer than those powered by other fuels. A 1992 AGA survey of more than 8,000 vehicles found that with more than 278 million miles traveled, NGV injury rates per vehicle mile traveled were 34% lower than the rate for gasoline vehicles.

There were no fatalities reported–even though these vehicles were involved in over 1,800 collisions. The Financial Incentive Advantage Some States offers a 50% investment tax credit for each vehicle converted to natural gas. This 50% credit on state income tax features a three-year, carry-forward option. A federal tax deduction is also available for the cost of conversion. Apprehensions in Industry The CNG Stations Owners Association of Pakistan (CSOAP) in January 2009 demanded the government to introduce a separate tariff for CNG to protect the investment by CNG station owners.

An executive committee members meeting of CSOAP Thursday urged the Ministry of Petroleum and OGRA to keep the CNG policy 1992 enforced. The recent steps by the government to increase gas price would damage the CNG industry and would put additional burden on the common man. The current increase of 10 percent in gas prices is unjustified and uncalled for when the fuel prices all over the world have plunged. The 33 percent steep increase of gas prices in July 2008 by SSGCL and SNGPL was fully absorbed by CNG station owners and dealers by reducing their profit margins.

He said the CNG sector as a whole consumes less than 6 percent of total gas output from SSGCL and SNGPL. The investments of more than Rs 60 billion of middle and lower middle class people who converted their vehicles to use cheap and environmental friendly CNG would go waste if the government does not revert the recent increase of gas price immediately. The CNG industry’s efforts to reduce government’s burden of foreign exchange payments and huge savings of Forex reserves resulted from shift to CNG use in vehicles.

He claimed CNG has resulted in savings of more than $250 million per annum of foreign exchange for Pakistan. The recent increase of gas prices would force the CNG vehicle owners to buy CNG at a higher rate forcing CNG stations to close down their businesses leaving 2. 1 million vehicle owners including rickshaws and taxis prone to inflation. He said if the government did not meet their genuine demands, they would be forced to shut down their businesses and would not be able to pay their leasing payments and other loans.

All Pakistan CNG Association (APA) in 2008 had also expressed resentment over the government’s plan to increase CNG prices equalizing petroleum prices so as to resolve ongoing gas crises in the country. The APA has contacted the planning division for holding a meeting on the issue but the concerned officials have refused to meet the stakeholders, he claimed. The APA chairman Sana-ur-Rehman claimed that there is an anti-CNG lobby in the planning division. He said that the CNG stakeholders have invested Rs 90 billion in this sector and another Rs 20 billion investment is in pipeline.

He expressed apprehensions that the industry would totally collapse if the CNG prices were equalized with petroleum prices. According to APA Chairman, the CNG sector accounts only for 6 percent of the national gross consumption of the natural gas, where as it is being portrayed as the cause for present gas shortage crisis. The domestic sector consumes 21 percent gas during summer, which rises to 69 percent in winter and that was actually responsible for the gas shortage every winter season. He informed journalists that gas was provided to industrial sector for a contract of 9 month in a year.

The industries were required to arrange for alternate energy source during the remaining three months of winter, he maintained. However, he regretted that the government machinery wanted to provide supply of gas to industrial sector throughout the year for the last several years against the contractual obligations. CNG Conversions Converting a gasoline-powered car to CNG requires only minor engine modifications. To learn more about converting your car, please contact a certified CNG conversion company. (c) ECONOMIC PAKISTAN