Production cost nearly half in Bangladesh than Japan: JETRO study
A total of 4,392 firms participated in the study across Asia and Oceania regions. A total of 72.5 per cent of the firms cite India as the first choice for business expansion and Bangladesh as the second position
Nearly 71 per cent of Japanese firms operating in Bangladesh are not satisfied with the business environment in the country. Of those firms, 26.2 per cent expressed dissatisfaction while the remaining 45 per cent reported they were ‘somewhat dissatisfied’, according to a study by the Japan External Trade Organisation (JETRO).
The findings of the study titled ‘2022 Survey on Business Conditions of Japanese Companies Operating Overseas in Asia and Oceania with focus on Bangladesh’ were revealed at an event at the Metropolitan Chamber of Commerce and Industry’s (MCCI) auditorium in the capital on Wednesday.
A total of 214 Japanese companies currently operating in Bangladesh participated in the study, which was conducted in August-September 2022.
According to study findings, about 72 per cent of Japanese firms said they are keen to expand business in Bangladesh because business costs are still low in the South Asian country.
A total of 4,392 firms participated in the study across Asia and Oceania regions. Overall, a total of 72.5 per cent of the firms cite India as the first choice for business expansion and Bangladesh as the second position, followed by Vietnam, Singapore, Australia, New Zealand and South Korea.
The current market size of Bangladesh and its potential to grow bigger also played a significant role in increasing the interest of Japanese businesses in investing in the country.
Bangladesh tops in cheap labour
According to the study, Japanese firms choose Bangladesh as their first choice for four reasons, and these are cheap labour, availability of workers and employees, availability of Specialised human resources and engineers, and existing market. Bangladesh is the first choice of Japanese companies for ‘cheap labour’, with 51.7 per cent of firms selecting the country for doing business, while Myanmar and the Philippines came in second and third places respectively in this category.
The survey also found that 46.6 per cent of Japanese companies placed Bangladesh as their second choice for the availability of workers and employees after the Philippines. In terms of the internal market size, Japanese firms also placed Bangladesh in third position after India and Indonesia. Bangladesh is also the third favourite destination for Japanese companies in terms of availability of specialised human resources and engineers, after Pakistan and Sri Lanka.
Where Bangladesh performs poorly
Japanese companies disliked Bangladesh the most for doing business for two reasons. One is a lack of capacity to provide business approval and certificates and another is the incapacity of the tax system. Nearly 80 per cent of Japanese firms think bureaucratic complexity is a big barrier to doing business in this country, while 73.8 per cent of the firms found the incapacity of the tax system in Bangladesh as a major obstacle to doing business.
Besides, there are two other major barriers to business conditions in Bangladesh. One is the creation of a legal framework or foundation for foreign capitals, and another is the availability of visas for foreigners and work permits. Bangladesh, however, performed better than Myanmar, Singapore and Malaysia.
Big challenge in operating businesses
Japanese firms faced two main challenges in operating business in Bangladesh in 2022. These were systemic complexities in providing customs clearance and volatile foreign currency prices. The lack of skilled workforce and wage rise were the main challenges for Japanese companies to do business in Bangladesh in 2021.
The study found that 73.2 per cent of firms cited complicated customs clearance procedures as the main challenge to doing business and 72.6 per cent of firms mentioned exchange rate volatility as a big challenge to doing business here.
Besides, 67.4 per cent of Japanese firms cited difficulties in procurement of raw materials locally as one of the major challenges to business while 65 per cent mentioned power outages and 63 per cent cited rise in raw material prices as a major challenge.
Production cost is half in Bangladesh
The study found production cost is 60 per cent less in Bangladesh than in Japan, which is 54.2 per cent in Cambodia and 48.8 per cent in Laos. In terms of lowest production cost, Bangladesh came in third position among the 19 countries surveyed.
Addressing the programme as the chief guest, Lokman Hossain Miah, executive chairman of Bangladesh Investment Development Authority (BIDA), said the process has started to issue work permits for foreigners in three days. Besides, BIDA is also working on reducing the approval time for business-related services less than the time required in Vietnam.
IWAMA Kiminori, ambassador of Japan to Bangladesh, said the visa process for business persons from Bangladesh will be made easier after direct flight between Japan and Bangladesh starts, and initiative will be taken to issue multiple visas for businesspersons.
Md Abdus Samad Al Azad, joint secretary (FTA-1) of the commerce ministry, said the trade deficit of Bangladesh with Japan is huge, so there are many opportunities to increase exports.
Nihad Kabir, former president of MCCI, said regulatory agencies in Bangladesh still ask for many documents to open a company, and that takes time and cost is more compared to other countries.
Saiful Islam, incumbent president of MCCI, urged Japanese firms to use authorised economic operator (AEO) facility to reduce customs difficulties.
Manabu Sugawara, vice president of the Japan-Bangladesh Chamber and Commerce Industry, said existence of investment potential does not mean investment has arrived. It is necessary to provide incentive to increase foreign investment, he added.
Yuji Ando, country representative of JETRO, highlighted various aspects of the study at the programme, where Tetsuro Kano, president of the Japanese Commerce and Industry Association, also spoke.