I met some people who want to invest on footwear manufacturing, and they are new investor. They believe it is not saturated yet like garments (though I have different view on garment saturation) and have more potentiality for future expansion. Unfortunately, we don’t have much industry insight (or I don’t know!) and professionals who can support them neutral and professionally. I know few cases where machine supplier gives plant layout and propose machine set-up, materials supplier give product range indication and financial professionals calculate an excellent ROI and then investor now struggling to pay bank interest. No blame, it’s business.
Here is my note to new investor. (it’s my note, you can disagree)
- Factory location:
Unfortunately, we don’t have dedicated industrial zone for footwear. But government is now expanding lot of industrial zone by their own or by public-private partnership. My note to new investor to invest on this industrial zone, not segregated place. Why?
– Today or tomorrow, government will not allow any industry in segregated place and will not provide facilities (like electricity, gas etc) here and there. That will not possible practically also.
– You must be inside community to get workforce, supply chain and transport facility (I know some factory in segregated place, having scarcity of workers and mid-management).
In current practice, for example, if your factory located Gazipur/Mawna belt or Chottogram EPZ zone, you get skilled labor availability, communication and transportation facilities competitiveness, concentrated neighborhood. Off-course cost is more here (I don’t mean exactly this belt, I mean community). Outside community may give you low wage structure facility but think twice for other factors.
- Compliance Industry
No negotiation here. It is MUST requirement for every industry. Now you want to be first GREEN, RED or WHITE factory; it’s up-to you. My note to new investor to invest on compliant and good-looking factory. Good looking doesn’t mean that it should be look like 5 start hotel, but at least people should not have messy feeling when they see and enter your factory. Why?
– As a new investor, nobody knows your product. You may hire best people of industry and may produce best quality but that comes later. First, they see your factory. You need to sell your factory first, then product.
- Dual facility (leather and non-leather mix)
Personally, I believe no product mix but if we can have a good mix that will support lot financially. I know some people disagree with me, but customer come to Bangladesh mainly for price (off-course product and commitment is also considerable factor as-well) and product mix allow you to play on price. If you only do non-leather segment, your ROI period may prolong. On the other hand, as world leather footwear market shrinkage (in one way it’s an opportunity for Bangladesh) and image of Bangladesh leather industry decline (I strongly believe we can come back and its now more international business politics and local policy making issue), I have doubt as a new investor you invest on leather footwear! My note for this case is go for Non-leather segment initially but keep leather footwear in mind if need as future expansion.
- Process Mix (Cemented with Injection / Vulcanized)
Ideally, I am not fan of ‘All in One’. I strongly believe, a finished shoes investor should not invest on backward industry (like insole / sole /foam etc.) in same facility and their aim should not be all in one. They could invest it as separately, as group. I think we should have separate industry to produce insole, sole, last, mould, foam etc. But when it’s about process mix, my note goes on that. As a new investor, I suggest having one more option than cemented process. Why?
– Minimize risk off-course. Market is moving very fast and new investor should be ready for each opportunity.
– Sometimes help to minimize seasonality of product and cost, (Injection or Vulcanized require less manpower with higher productivity or only investment on lasting process added).
- Product or Export-local Mix / Early Production Flexibility/Sufficient Warehouse
No customer can order you a smooth production as like your capacity. Reality is out of 12 month a year, maximum 5/6 month can be very smooth production (you don’t have shortage of order and you need to do overtime), 3/4 month you have less order (you don’t need to do overtime) and rest of the year you need to struggle to pay your workers. Means, 8/10 month you have order and 2/4 month you need to pay your workers. This is situation if your facility able to mix product (you can do both spring and summer product). These 2/4 months is crucial for you as investor. May be local market could help you here or an early production with discount can attract customer to place you in advance. You can get idea by below picture.
So, my note to new investor to think about
– Try to mix product (summer and spring), you may need some extra investment. It’s tricky as you need to make your signature of expertise
– Try to have a local presence. Bangladesh now become a very big consumer market.
– Invest on enough warehousing that allow you to keep produced goods and minimize your seasonality peak and drop
- Machine Mix
And finally machine mix. This is very important as this hugely impact your investment. But I believe, if you already consider above factors, you can already know what machines you are going to buy. My note for that..
– Be clear what you are going to produce. I see some factories have invested for leather footwear, now produce synthetic sneakers. Off-course you can use lot of common machine but there are lot not common. And as you consider price of leather footwear and invest best Italian/German machine, now your depreciation goes double/triple time.
– Mix of Italian/German and Chinese machine is must. This allow you to get competitive price.
– Be in mind, technology changing very fast. You don’t know what technology coming tomorrow, so invest on machine which has faster depreciation possibilities.