Term paper on Industrial Organization for Global Economy (EIB-524)

Horizontal boundary of rfl plastic ltd

SUBMITTED TO:

Prof. Abu Hena Reza HasanProfessorDepartment of International BusinessFaculty of Business AdministrationUniversity of Dhaka

Submitted by:

Mohammed Zahidul IslamID# 801310017

Date of Submission: 19/07/2014

University of Dhaka

LETTER OF TRANSMITTAL

July 19, 2014

Prof. Abu Hena Reza HasanProfessorDepartment of International BusinessFaculty of Business AdministrationUniversity of Dhaka

Submission of Term paper

Sir,

It is an enormous pleasure to submit my paper on Horizontal boundary of RFL plastic ltd which was proposed term paper topics assigned by you to complete my course.

I would like to convey my gratitude to you and thank you for giving me the opportunity to work on this topic under your thoughtful coordination. Utmost care and concentration has been given in preparation of this paper. I have tried my best to present information that is valid and reliable so that the findings are as accurate as possible. Due to various constrains, there may be some mistakes for which I beg your kind consideration.

Finally, I shall be glad to answer your any kind of query related to this report, if necessary.

Sincerely yours,

-----------------------------------Mohammed Zahidul IslamID# 801310017

EXECUTIVE SUMMARY

Horizontal boundaries identify the quantity and the varieties of products a firm produces. (But also the expansion of a firm by purchase or acquisition of similar products). The determinants of the horizontal boundaries of the firm are economies of scale, of scope and learning economies. Economies of scale are the result of physically combining inputs to form outputs that continually reduce producer unit costs over the relevant range of demand. Economies of scope exist whenever the total cost of producing two different products or services is lower when a single firm instead of two separate firms produces them. In essences, cost savings associated with increasing the variety of activities in goods produced. Learning economies are present where costs fall with experience. Learning economies do not directly expand the firm, but they contribute to its success. They derive from the fact that managers and employees become more efficient in the production process as time passes by. Employees become more familiar and efficient in carrying out their tasks while managers become better at allocating resources and in scheduling the production process.

RFL plastic is a renowned brand in Bangladesh. They create the quality plastic products with a large number of variety and volumes. Which is reduces their cost of production and gaining competitive advantage. RFL Plastics is a sister concern of PRAN-RFL group. The group has a turnover in the vicinity of USD $0.5 billion p.a. Primarily Rangpur Foundry Ltd (RFL) was founded by Maj. Gen. Amjad Khan Chowdhury (Retd) in 1981. It commenced its operation in plastics business in 2003. The factory sites are in company owned industrial parks of 300,000 sq. meters, which is fully equipped with state of the art injection molding machines with a conversation capacity of over 10,000 tons per month.

RFL group come with a vision to leveraging the farmer in irrigation through cast iron products like centrifugal pump as well as ensuring drinking water through Tube well. After that they come with the plastic products and formulate some strategy for huge production level with wide range of product variety. Which influence them to achieve the economies of scale and scope in the industry. Even they gain the economies of scale and scope in marketing and R&D activities too. Ultimately the consumer get the quality plastic goods with low price.

RFL plastic exports a huge portion around the world. In this paper I tried to describe shortly the economies of scale, scope and learning curve of RFL plastic ltd and the contribution of this company in the industry by enhancing its horizontal boundary

1. Introduction:

1.1. Origin of the Report:According to the instructor, Prof. Abu Hena Reza Hasan., this report prepared, which a partial requirement is of fulfills the course EIB-524 Industrial Organization for Global Economics. The report is on Horizontal boundary of RFL Plastic Limited.

1.2. Purpose of the Report:The purpose ofthisreportistoknow about horizontal boundary of a firm in Bangladesh perspective by assessingthe existenceof economies of scale and scope and learning curve in RFL plastic ltd.

1.3. Scope of the Report:The reportcontains ashort discussion on determinants of horizontal boundary in terms of RFL plastics ltd.Inconnectionwith certain restrictions, here in this report, only theavailable information available was discussed.

1.4. Methodology:The Data collected forthisreport,bothprimary and secondary.Past records of the company were analyzed as well as internet survey was conducted to collect more information.

1.5. Limitations:Time and Distance constraints were the main encumbrances for this report. It was not possible for us to cover all production segments of the company as the time was short. There were also problems of collecting the primary data from the source. For above mentioned reasons we had to come up with some arbitrary data.

2. Company Overview:

2.1. Background of the company:RFL Plastics is a sister concern of PRAN-RFL group. The group has a turnover in the vicinity of USD $0.5 billion p.a. Primarily Rangpur Foundry Ltd (RFL) was founded by Maj. Gen. Amjad Khan Chowdhury (Retd) in 1981 with a vision to leveraging the farmer in irrigation through cast iron products like centrifugal pump as well as ensuring drinking water through Tube well. After that it commenced its operation in plastics business in 2003. The factory sites are in company owned industrial parks of 300,000 sq meters, which is fully equipped with state of the art injection molding machines with a conversation capacity of over 10,000 tons per month.RFL Plastics currently utilizes 1200 molds through 250 machines having own tooling facilities. They are a very strong organization of 10,000 employees dedicated to supplying customized and quality plastic products globally. RFL Plastics Limitedcommenced its operation in 2003. The vision of the company is to make molded household products and furniture made of plastics of decorative design at an affordable price. The company's product ranges include household items like table ware, kitchen ware, cleaning accessories, storage containers, multipurpose ware, baby ware, hangers and furniture items like Arm Chair, Armless Chair, Table, Stool etc. Due to its perceived superior quality, innovative design and varying ranges,RFLhas already been established as most preferred brand in plastic category in Bangladesh. With the expansion of its product line and capacity, theRFLproducts are now being exported in various countries around the globe.Through vigorous selection and evaluation process, best quality food grade plastics are used as raw materials for manufacturing. The factory is located at Ghorashal, Narshingdhi and is equipped with 70 plus injection molding machine. Around 3000 workers under the supervision of more than 100 technical experts put their effort to give the shape of the consumer demands. Each process line of manufacturing goes through stringent quality control process and checked against slightest of non-conformance. The company has its own R&D laboratory which explores about product and design innovations that can meet both expressed and unexpressed consumer demand.2.2. Products:The industry is well equipped with China, Taiwanese and Thai Technology to produce high quality flexible plastic products such as Hanger & Garments Accessories (Moving Shirt Hanger, wall Hanger), Food Storage Products (Food Storage Box), Household Utilities (Mug, Super Bucket), Washroom Accessories (Square Soap Case), Beverage Products (Glass Stand, Design Glass), Utility & Cleaning Products (Laundry Basket), Furniture (Arm Chair, Table, Stool) etc.Covering the wide range of packaging, pouches, tubes, garment and films of HDPE (High Density Polyethylene), LDPE (Low Density Polyethylene), PP (Polypropylene), LLDPE (Linear Low Density Polyethylene) and their mixes based packing materials round the clock and satisfies almost all sort of the industry. It can produce up to 8 (Eight) colors and deliver its products within a very short span of time with a total installed production capacity of 3,000 MT per annum. The capacity utilization of the industry is over 95%.The industry has the started with an installed capacity to produce 3,300 tons of plastic flexible of different sizes, colors and thickness and now increasing their capacity to meet the growing demand.

Different types of RFL Plastic Products

3. Horizontal Boundary of RFL plastics ltd:The horizontal boundaries of the firm refer to the size (how much of the total product market will the firm serve) and scope (what variety of products and services does the firm produce). The horizontal boundaries of a firm depend critically on economies of scale and scope.RFL Plastics ensures their boundary by producing in large scale production. Domestic market size of plastic product is $714 million. Per capita consumption of plastics in Bangladesh is 5 kg per year. In that situation RFL plastic extend its boundary by serving in Europe, Gulf, Asia and America of around more than 36 countries in the globe. Currently they are operating their own distribution channel in the below countries: India Nepal Africa UAE MalaysiaRFL plastics used different pricing and entry strategy in this industry at the initial stage, then they go for the large volume production that reduce the cost of production of RFL and helps them to entry in the market more aggressively. Moreover RFL get the economies of scale and scope in advertising by which they use varieties of product information in one advertisement. RFL has another great advantage of umbrella branding by use the RFL brand, they can cover any plastic product by use the brand name RFL.3.1. Economies of scale of RFL plastics:Economies of scaleexist whenever the average cost per unit of output falls as the volume of output increases.RFL plastics average cost per unit reduced by minimum efficient level for targeting maximum market coverage. The current market size of plastic products is around $1 billion with majority $714 million in the domestic market and the rest in the global market. The plastic sector has around 3,000 manufacturing units that offer jobs to more than 2 million people directly and indirectly.

3.2. Economies of scopeof RFL plasticsEconomies of scopeexist whenever the total cost of producing two different products or services is lower when a single firm instead of two separate firms produces them.In essences, cost savings associated with increasing the variety of activities in goods produced.RFL produces wide variety of products which reduces their cost of production and helps to achieve economies of scope. Following products are scoped by RFL plastics ltd Household Food Containers Storage Kids Miscellaneous Cleaning FurnitureLong-run Economies of Scale: RFL plastics reduces unit costs switching from a low fixed/high variable cost plant to a high fixed/low variable cost plant. These arise due to adoption of technologies and larger plants that have higher fixed costs but lower variable costs. Product-Level Economies of Scope: reductions in unit cost attributable to RFL diversification into several products produced in the same plant. Examples include RFL furniture items and cleaning products. Another example is a product that shares a key component or set of components whose production is characterized by economies of scale, such as food containers and storage items of EFL. A final example is a firm that utilizes off peak capacity such as kids and miscellaneous plastic products.Marketing Economies: RFL plastics achieve economies of scale due to spreading advertising expenditures over larger markets. Economies of scope due to building a reputation of one product in the product line benefiting other products as well.For example, RFL food and household plastic products effective message is widely available and its ads would thus have a higher impact on its furniture products. Spreading Advertising Costs over larger markets.

Economies of scale and scope helps RFL plastics in enhance value chain and reducing cost by following way:

3.3. Learning curve:Learning economiesare present where costs fall with experience. Learning economies do not directly expand the firm, but they contribute to its success. They derive from the fact that managers and employees become more efficient in the production process as time passes by. Employees become more familiar and efficient in carrying out their tasks while managers become better at allocating resources and in scheduling the production process. RFL Plastic limited reduces their cost by exploiting experienced manpower, moreover testing facilities for quality control, innovative technology and consultancy services helps them to achieving low cost production. The availability of cheap labor and the fast developing plastic wastes recycling industry due to rising cost of petroleum (raw material of polymers) provide Bangladesh potential advantage of competitiveness in the global market. The RFL plastic ltd has developed the plastic industries with their own initiative and finance.

4. Conclusion:Plastic-based products currently represent a sizeable sub-sector in the chemical industry of Bangladesh. Plastic is an engineered material used to manufacture a wide variety of products to meet the domestic demand in Bangladesh as well as some products are exported. An in-depth study of the plastic sector reveals multi-dimensional constraints and an excellent prospect for future growth. Major constraint in the plastic sector is the lack of an institutional arrangement dedicated to this sector, in order to provide supporting services such as skilled manpower, testing facilities for quality control, innovative technology and consultancy services. The availability of cheap labor and the fast developing plastic wastes recycling industry due to rising cost of petroleum (raw material of polymers) provide Bangladesh potential advantage of competitiveness in the global market. The RFL plastic has emerged as a promising brand in the sector for last decades. Their extensive strategy and competitive advantage helps them to gain the maximum market share, as well as the customer the quality products with low price variability.