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

HORIZONTAL BOUNDARY OF RFL PLASTIC LTD

SUBMITTED TO:

Prof. Abu Hena Reza HasanProfessor

Department of International BusinessFaculty of Business Administration

University of Dhaka

SUBMITTED BY:

Mohammed Zahidul IslamID# 801310017

DATE OF SUBMISSION: 19/07/2014

University of DhakaLETTER 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 boundaryof RFL plastic ltd’ which was proposed term paper topics assigned byyou to complete my course.

I would like to convey my gratitude to you and thank you for giving methe opportunity to work on this topic under your thoughtfulcoordination. Utmost care and concentration has been given inpreparation of this paper. I have tried my best to present informationthat is valid and reliable so that the findings are as accurate aspossible. Due to various constrains, there may be some mistakes forwhich I beg your kind consideration.

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

Sincerely yours,

-----------------------------------

Mohammed Zahidul IslamID# 801310017

EXECUTIVE SUMMARY

Horizontal boundaries identify the quantity and the varieties ofproducts a firm produces. (But also the expansion of a firm bypurchase or acquisition of similar products). The determinants of thehorizontal boundaries of the firm are economies of scale, of scope andlearning economies. Economies of scale are the result of physicallycombining inputs to form outputs that continually reduce producer unitcosts over the relevant range of demand. Economies of scope existwhenever the total cost of producing two different products orservices is lower when a single firm instead of two separate firmsproduces them. In essences, cost savings associated with increasingthe variety of activities in goods produced. Learning economies arepresent where costs fall with experience. Learning economies do notdirectly expand the firm, but they contribute to its success. Theyderive from the fact that managers and employees become more efficientin the production process as time passes by. Employees become morefamiliar and efficient in carrying out their tasks while managers

become better at allocating resources and in scheduling the productionprocess.

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

RFL group come with a vision to leveraging the farmer in irrigationthrough cast iron products like centrifugal pump as well as ensuringdrinking water through Tube well. After that they come with theplastic products and formulate some strategy for huge production levelwith wide range of product variety. Which influence them to achievethe economies of scale and scope in the industry. Even they gain theeconomies 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 Itried to describe shortly the economies of scale, scope and learningcurve of RFL plastic ltd and the contribution of this company in theindustry 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 of this report is to know about horizontal boundary of a firm in

Bangladesh perspective by assessing the existence of economies of scale and

scope and learning curve in RFL plastic ltd.

1.3. Scope of the Report:

The report contains a short discussion on determinants of horizontal

boundary in terms of RFL plastics ltd. In connection with certain

restrictions, here in this report, only the available information available

was discussed.

1.4. Methodology:

The Data collected for this report, both primary 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 Limited commenced 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, RFL has already been

established as most preferred brand in plastic category in Bangladesh. With

the expansion of its product line and capacity, the RFL products 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

Malaysia

RFL 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 scale exist 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 scope   of RFL plastics

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.

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

Furniture

Long-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 spreadingadvertising expenditures over larger markets. Economies of scope due tobuilding a reputation of one product in the product line benefiting otherproducts as well.  For example, RFL food and household plastic productseffective message is widely available and its ads would thus have a higherimpact on its furniture products. Spreading Advertising Costs over largermarkets.

Economies of scale and scope helps RFL plastics in enhance value chain and

reducing cost by following way:

3.3. Learning curve:

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 limited reduces their cost by exploiting experienced manpower,

moreover testing facilities for quality control, innovative technology and consultancyservices 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.