Analysis of Future Manufacturing Locations in the Medical Supply Industry by Dragon Sourcing

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1

christian.santner@dragonsourcing.com | Tel: +43 664 88518030

About Dragon Sourcing We offer procurement services that deliver value from emerging markets, both for export and for localisation requirements Relevant category experience includes: Capex, Components, Transportation, Services, Raw Materials, Packaging, Promotional, & MRO. Key Services:

• Procurement Intelligence to deliver insight into categories and markets, and support effective procurement decisions.

• Global Sourcing to deliver sustainable value from sourcing goods and services from emerging markets.

• 70 staff globally • 15 locations across Asia, Latin America,

• Procurement Outsourcing

Middle East, Europe & US.

and setup of international procurement offices to increase productivity and decrease overheads.

• Headquarters in Shanghai (45 staff) • Private ownership since 2004 • Turnover: $7.5m (managed spend ~$1.2b)

• Capability Assessment of your international procurement operations to identify and implement practical opportunities for improvements 2

Our Clients Food & Beverage

Industrial Products

Construction

DIY Government

Our Clients Retail

Consumer Goods

Automotive

Pharma / Medical

Heavy Machinery

Energy/Chemicals Packaging

Service

Analysis of future manufacturing locations in the medical supply industry

christian.santner@dragonsourcing.com | Tel: +43 664 88518030

Methodology for Stage 1 (of 3 Stages) § The following 17 emerging market countries were selected for Stage 1 analysis: 1 Vietnam 2 Uzbekistan 3 Turkmenistan 4 Cambodia 5 India 6 Ethiopia 7 Myanmar 8 Bangladesh 9 China (Xinjiang Province) 10 Brazil 11 Paraguay 12 Bulgaria 13 Sri Lanka 14 Turkey 15 Greece 16 Mexico 17 Indonesia § The above countries were scored on a 5 point scale in a score card on the following indicators with their respective weights: 30% weight ① GDP per capita 30% weight ② Cotton production 20% weight ③ Political stability ④ FDI inflow as a % of GDP 20% weight § The countries were ranked based on the final scores obtained through a score card. § HS Codes: a. HS 52 Series Cotton b. HS 56 Series Non woven, felt and wadding c. HS 55 Series Man-made staple fibers Ø South America was not considered as a region of focus due to its large distance from the target markets of Europe and Asia.

Selected Countries for Analysis

UK

Germany Austria Czech Rep France Bulgaria Greece

Turkey

Uzbekistan Xinjiang Province Turkmenistan China Bubei Province

Mexico

India

Myanmar Bangladesh

Vietnam

Cambodia Ethiopia

Sri Lanka Indonesia

Brazil

Paraguay

Client’s Current Locations: Austria, Germany, France, UK, Czech Rep, Mexico & China (Hubei Province) Stage 1 Countries: Vietnam, Uzbekistan, Turkmenistan, Cambodia, India, Ethiopia, Myanmar, Bangladesh, Brazil, Paraguay, Bulgaria, Sri Lanka, Turkey, Greece, Indonesia, Mexico and China (Xinjiang Province) Stage 2 Countries: Ethiopia, Indonesia, Uzbekistan, Turkey and Vietnam

Country Scores & Ranking All countries in the analysis have been ranked based on the final score- higher the score, higher the rank

Final Score on 100

Rank1 India

Mexico

28

Greece

Rank 2

40 56

Turkey

Rank 3

40

Sri Lanka Bulgaria

Cambodia

28

Paraguay Brazil

52

China (Xinjiang Province) 64

China (Xinjiang)* Bangladesh

Rank 5

60

Myanmar

Indonesia

52

India

84

Cambodia

Rank 7

68

Uzbekistan

72

Vietnam

60 20

30

40

50

60

Myanmar

Brazil

Paraguay

Sri Lanka

Bulgaria

Mexico

Rank 8

60

Turkmenistan

Turkmenistan

Turkey

60

Indonesia

Vietnam

Rank 6

68

Ethiopia

10

Ethiopia

Rank 4

40

0

Uzbekistan

Rank 9 70

80

90

Greece

Bangladesh

Score Card Computation- 1

Example No.

Business Information

Weight of criteria

100%

Sum up

China (Xinjiang)

India

Brazil

Uzbekistan

Turkey

Turkmenistan Greece

Max Scor Points Score Points Score Points Score Points Score Points Score Points Score Points Score Points Score Points e per per Max Score per Points per per per per per per per per per per per per per per per per criteria per criteri criteri criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria a a

Scoring

GDP per 1 = >10,000 Capita 1 30% 3 = 5,001-10,000 (PPP) in 5 = <5,000 USD Cotton 1 = <1,000 production 2 30% 3 = 1,001-5,000 in Thousand 5= >5,000 480 lb. Bales 1 = <-1.0 Political 3 20% 3= -1 to -0.1 stability 5 = >0 1 = <2% FDI Inflow 4 20% 3 = 2%-5% as % of GDP 5 = >5% TOTAL

China

5

2.00 5.00 2.00 3.00 1.20 3.00 1.20 5.00 2.00 1.00 0.40 5.00 2.00 1.00 0.40 3.00

1.20 1.00 0.40

5

1.00 5.00 1.00 5.00 1.00 5.00 1.00 5.00 1.00 5.00 1.00 3.00 0.60 3.00 0.60 3.00

0.60 3.00 0.60

5

1.00 5.00 1.00 3.00 0.60 3.00 0.60 1.00 0.20 5.00 1.00 3.00 0.60 1.00 0.20 5.00

1.00 3.00 0.60

5

1.00 5.00 1.00 3.00 0.60 1.00 0.20 1.00 0.20 3.00 0.60 3.00 0.60 3.00 0.60 5.00

1.00 1.00 0.20

20

5.00 20.00 5.00 14.00 3.40 12.00 3.00 12.00 3.40 14.00 3.00 14.00 3.80 8.00 1.80 16.00 3.80 8.00 1.80

Example

China

China(Xinjiang)

India

Brazil

Uzbekistan

Turkey

Turkmenistan

Greece

Points

Points

Points

Points

Points

Points

Points

Points

Points

Total points on 5

5.00

3.40

3.00

3.40

3.00

3.80

1.80

3.80

1.80

Total points on 100

100

68

60

68

60

76

36

76

36

Category

Score Card Computation- 2

Indonesia No.

Business Information

Weight of criteria

Max Max Score Points per per criteria criteria

Scoring

GDP per 1 = >10,000 1 Capita (PPP) 30% 3 = 5,001-10,000 in USD 5 = <5,000 Cotton 1 = <1,000 production in 2 30% 3 = 1,001-5,000 Thousand 5= >5,000 480 lb. Bales 1 = <-1.0 Political 3 20% 3= -1 to -0.1 stability 5 = >0 1 = <2% FDI Inflow as 4 20% 3 = 2%-5% % of GDP 5 = >5% TOTAL

100%

Sum up

Score per criteria

Mexico

Ethiopia

Myanmar Bangladesh Paraguay Vietnam

Points Points Score Points Score per Score per per per per per criteria criteria criteria criteria criteria criteria

Bulgaria Cambodia Sri Lanka

Points per criteria

Score Points Score Points Score Points Score Points Score Points Score Points per per per per per per per per per per per per criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria criteria

5

2.00 5.00 2.00

1.00 0.40 5.00 2.00 5.00 2.00

5.00 2.00 3.00 1.20 5.00 2.00 1.00 0.40 5.00 2.00 3.00 1.20

5

1.00 1.00 0.20

1.00 0.20 1.00 0.20 1.00 0.20

1.00 0.20 1.00 0.20 1.00 0.20 1.00 0.20 1.00 0.20 1.00 0.20

5

1.00 3.00 0.60

3.00 0.60 1.00 0.20 3.00 0.60

3.00 0.60 3.00 0.60 5.00 1.00 5.00 1.00 3.00 0.60 3.00 0.60

5

1.00 3.00 0.60

1.00 0.20 3.00 0.60 1.00 0.20

1.00 0.20 1.00 0.20 5.00 1.00 3.00 0.60 5.00 1.00 1.00 0.20

20

5.00 12.00 3.40

6.00 1.40 10.00 3.00 10.00 3.00 10.00 3.00 8.00 2.20

16.0 10.0 14.0 4.20 2.20 3.80 8.00 2.20 0 0 0

Indonesia

Mexico

Ethiopia

Myanmar

Bangladesh

Paraguay

Vietnam

Bulgaria

Cambodia

Sri Lanka

Category

Points

Points

Points

Points

Points

Points

Points

Points

Points

Points

Total points on 5

3.40

1.40

3.00

3.00

3.00

2.20

4.20

2.20

3.80

2.20

68

28

60

60

60

44

84

44

76

44

Total points on 100

Country Specific Indicators

GDP per Capita (PPP) in USD (2012) Mexico

$15.363

Indonesia

Mexico

$4.923 $24.260

Turkey

$14.812 $6.046 $14.103

Bulgaria $6.053

Paraguay Brazil

$11.747

China (Xinjiang)*

$8.100

Bangladesh

790

Indonesia

Greece Sri Lanka

Cotton production in Thousand 480 lb. Bales in 2012

$1.963

30

Greece

1.200

Turkey

2.250

Sri Lanka

5

Bulgaria

10

Paraguay

55

Brazil

7.400

China (Xinjiang)*

13.333

Bangladesh

120

Myanmar

$1.400

Myanmar

270

Ethiopia

$1.256

Ethiopia

170

India

$3.843

Cambodia

India

$2.395

Turkmenistan

Cambodia $8.641

$3.523

Uzbekistan

Vietnam

$3.788

Vietnam

Source: IMF

2

Turkmenistan

Uzbekistan $-

29.000

$5.000 $10.000 $15.000 $20.000 $25.000 $30.000

1.500 4.250 21 -

Source: Indexmundi

* GDP per capita and Cotton production values are for Chinese Xinjiang province only

5.000 10.000 15.000 20.000 25.000 30.000 35.000

Country Specific Indicators

FDI Inflow as % of GDP in 2012

Political stability (2012) Mexico

-0,67

Indonesia

Mexico

-0,60

Indonesia

Greece

-0,23

Turkey

Greece

Sri Lanka

-0,71

Sri Lanka

Bulgaria

0,33 -0,84 0,07

China (Xinjiang)*

Ethiopia India

China (Xinjiang)*

-1,35 -0,96 -1,54 -1,25 -0,14 0,35 -0,52

Source: World Bank

0,25 -1,00

-0,50

2,9% 0,33%

Myanmar

1,0% 2,0% 1,7% 7,0%

Turkmenistan

11,4%

Uzbekistan

Vietnam -1,50

1,6%

Cambodia

Turkmenistan

-2,00

3,9%

1,0%

India

Uzbekistan

1,6%

Bangladesh Ethiopia

Cambodia

2,1%

Brazil

-0,54

Myanmar

0,4%

Bulgaria Paraguay

Brazil Bangladesh

2,3%

Turkey

-1,19

Paraguay

1,9%

0,00

0,50

3,1%

Vietnam 0,0%

6,0% 2,0%

4,0%

6,0%

Source: World Bank

* Political Stability value is for the whole of China and FDI inflow as a % of GDP value is only for Xinjiang province

8,0%

10,0%

12,0%

STAGE II ANALYSIS

Country Final Score and Ranking

Rank

Country

Final Scores

1 Vietnam

Vietnam

3,14

2 Ethiopia

3

Ethiopia

3,02

Turkey

2,81

Turkey

4

Indonesia

2,75

Indonesia

5

Uzbekistan

2,62

Uzbekistan 2,30

2,40

2,50

2,60

2,70

2,80

2,90

3,00

3,10

3,20

Country Performance by Main Criteria

Performance by Main Criteria Vietnam

Turkey

0,3

0,4

0,14 0,2

0,38

0,32 0,12 0,19

0,55

1,55

0,75

1,05

PoliScal & Legal NaSonal Economics Uzbekistan 0,14

0,4

0,14 0,22

0,69

Social & Demographic

1,03

Infrastructure & Technology Business Environment Indonesia

0,38

0,22

Ethiopia

0

0,36

0,26 0,08 0,14

0,5

0,14 0,21

0,61

0,45

1

Business Expenses

1,05

1,87

1,5

2

2,5

3

3,5

Stage II- Scorecard (1/3)

Main Criteria

PoliScal & Legal

Weight Per Criteria

10%

Sub-­‐ Criteria

Weight per sub-­‐criteria

Indicators

PoliScal Stability

2%

PoliScal Stability Index-­‐ World Bank

Commitment to Reform

2%

Legal Framework, Rule of Law-­‐ World Bank

CorrupSon and Bureaucracy

2%

Transparency InternaSonal-­‐ CorrupSon PercepSon Index 2012

Legal Framework & Rule of Law

2%

World Bank Data, Govt EffecSveness

Human Rights

2%

Voice & Accountability Index, World Bank

NaSonal Performance

3%

GDP Growth Rate

FDI as a % of GDP

2%

FDI

3%

InflaSon

2%

Indebtedness (External debt as % of GDP)

EducaSon

2%

World Economic Forum-­‐ Global CompeSSveness Report

Labour ParScipaSon Rate

1%

World Bank Labour ParScipaSon Index

Human Development

1%

United NaSons Development Programme

10% Financial SituaSon NaSonal Economics

4%

Social & Demographic

Measure 1 = <-­‐1.2 3= -­‐1.2 to -­‐0.1 5 = >0 1 = < -­‐1 3= -­‐0.99 to -­‐0.1 5 = > 1 1 = < 30 3= 30 to 70 5 = > 70 1 = < -­‐1 3= -­‐0.99 to -­‐0.1 5 = > 1 1 = <-­‐1 3= -­‐1 to 0 5 = > 0 1 = <5% 3= 5% to 8% 5 = > 8% 1 = <2% 3= 2% to 5% 5 = > 5% 1 = >15% 3= 10% to 15% 5 = < 10% 1 = >30% 3= 10% to 30% 5 = < 10% 1 = <3 3= 3 to 4.5 5 = > 4.5 1 = >50 3= 51 to 60 5 = <60 1 = <0.4 3= 0.4 to 0.7 5 = > 0.7

Ethiopia Indonesia Uzbekistan Turkey Vietnam Weight Weight Weight Weight Weight Points Points Points Points Points ed Avg ed Avg ed Avg ed Avg ed Avg 1

0.02

5

0.1

3

0.06

3

0.06

5

0.1

3

0.06

3

0.06

1

0.02

5

0.1

3

0.06

3

0.06

3

0.06

1

0.02

3

0.06

3

0.06

3

0.06

3

0.06

1

0.02

5

0.1

3

0.06

1

0.02

5

0.1

1

0.02

3

0.06

1

0.02

5

0.15

3

0.09

5

0.15

3

0.09

3

0.09

1

0.02

3

0.06

3

0.06

1

0.02

5

0.1

1

0.03

5

0.15

3

0.09

5

0.15

5

0.15

3

0.06

3

0.06

5

0.1

3

0.06

3

0.06

1

0.02

3

0.06

3

0.06

3

0.06

3

0.06

5

0.05

5

0.05

5

0.05

1

0.01

5

0.05

1

0.01

3

0.03

3

0.03

5

0.05

3

0.03

Stage II- Scorecard (2/3)

Main Criteria

Infrastructure, Technologies,

Business Environment

Weight Per Criteria

Weight per sub-­‐criteria

Indicators

Measure

Quality of Infrastructure

2%

World Economic Forum-­‐ Global CompeSSveness Index-­‐ Overall Quality of Infrastructure

1 = <3.5 3= 3.5 to 5 5 = > 5

1

0.02

3

0.06

3

0.06

3

0.06

3

0.06

Energy and Power Supply

1%

World Bank-­‐ Per Capita Electric Power ConsumpSon

1 = <500 3= 500 to 2000 5 = > 2000

1

0.01

3

0.03

3

0.03

5

0.05

3

0.03

Electricity Price

1%

DomesSc Industrial Electricity Prices

1 = >15 3= 8.5 to 15 5 = < 8.5

5

0.05

3

0.03

5

0.05

1

0.01

5

0.05

LPG Price

0.5%

DomesSc Industrial LPG Prices

1 = >1000 3= 500 to 999 5 = < 500

1

0.005

3

0.015

5

0.025

5

0.025

1

0.005

Coal Price

0.5%

DomesSc Coal Prices

1 = >250 3= 100 to 250 5 = < 100

1

0.005

5

0.025

5

0.025

3

0.015

1

0.005

ConservaSon Policies

1%

CO2 Emissions (MT per capita), World Bank

1 = >5 3= 2 to 5 5 = < 2

5

0.05

5

0.05

3

0.03

3

0.03

5

0.05

Foreign Ownership Rights of CorporaSon

1%

Business Impact on Rules on FDI-­‐ Global CompeSSveness Index

1 = < 4 3 = 4 -­‐ 5 5= > 5

3

0.03

3

0.03

3

0.03

3

0.03

3

0.03

Property Ownership of Foreign Companies

2%

Prevalence of Foreign Ownership-­‐ World Economic Forum

1 = < 4 3 = 4 -­‐ 5 5= > 5

1

0.02

3

0.06

3

0.06

3

0.06

3

0.06

Ease of Seing Up a New Business

3%

World Economic Forum-­‐ Global CompeSSveness Report-­‐ Number of Days to Start a New Business

1 = > 30 3 = 16 -­‐ 29 5= < 15

5

0.15

1

0.03

5

0.15

5

0.15

1

0.03

Business SophisScaSon Index

3%

World Economic Forum-­‐ Global CompeSSveness Report-­‐ Business SophisScaSon Index

1 = < 4 3 = 4 -­‐ 5 5= > 5

1

0.03

3

0.09

1

0.03

3

0.09

1

0.03

No. of texSle manufacturers in medical sector

3%

Approx number of manufacturers of texSle manufacturers in the medical/ healthcare sector, listed in B2B sites

1 = < 5 3 = 5 -­‐ 15 5= > 15

1

0.03

5

0.15

1

0.03

1

0.03

5

0.15

Availability of raw material

10%

Cokon ProducSon

1 = <1,000 3 = 1,001-­‐5,000 5= >5,000

1

0.1

1

0.1

3

0.3

3

0.3

1

0.1

Cost of Living

3%

Consumer Price Index

1 = > 100 3 = 50-­‐100 5= < 50

3

0.09

5

0.15

3

0.09

3

0.09

5

0.15

6%

25%

Ethiopia Indonesia Uzbekistan Turkey Vietnam Weight Weight Weight Weight Weight Points Points Points Points Points ed Avg ed Avg ed Avg ed Avg ed Avg

Sub-­‐ Criteria

Stage II- Scorecard (3/3)

Weight Main Criteria Per Criteria

Sub-­‐ Criteria

Weight per sub-­‐criteria

2% Total tax rate (TTR) 3%

Business Expenses

45%

Labor wages rates in LCC

15%

Trade Barriers

3%

LogisScs Costs

5%

Duty Rates into EU

2%

Polyamide Prices

2.5%

Viscose Prices

2.5%

Cokon Prices

10%

Total

100%

Indicators

Measure

1 = > 15% 3= 8% to 15% 5 = < 8% 1 = > 60 Total Tax Rate (% of 3= 40 to 60 Profits) 5 = < 40 1 = >100 ILO 3= 50 to 100 5 = < 50 Prevalence of Trade 1 = > 4.5 3= 4 to 4.5 Barriers, World 5 = < 4 Economic Forum Cost of transporaSon of 1 = >2000 1 TEU from a port/ 3= 1000 to 2000 capital city to Rokerdam 5 = < 1000 1 = > 5% Export and Import 3= 0% to 5% duSes 5 = 0% 1 = >5 DomesSc Polyamide 3= 3 to 5 Prices 5 = < 3 1 = >3 3= 2 to 3 DomesSc Viscose Prices 5 = < 2 1 = >2.2 Raw Cokon Prices 3= 1.8 to 2.2 5 = < 1.8 DomesSc VAT

Ethiopia Indonesia Uzbekistan Turkey Vietnam Weig Weig Weig Weig Weig Points hted Points hted Points hted Points hted Points hted Avg Avg Avg Avg Avg 1

0.02

3

0.06

1

0.02

1

0.02

5

0.1

5

0.15

5

0.15

1

0.03

3

0.09

5

0.15

5

0.75

1

0.15

3

0.45

1

0.15

3

0.45

5

0.15

3

0.09

1

0.03

3

0.09

5

0.15

3

0.15

1

0.05

1

0.05

5

0.25

3

0.15

5

0.1

5

0.1

5

0.1

5

0.1

5

0.1

1 0.025 3 0.075 1 0.025 1 0.025 3 0.075 1 0.025 3 0.075 1 0.025 1 0.025 3 0.075 5

0.5

3

0.3

3

0.3

3

0.3

3

0.3

88

3.02

114

2.75

94

2.62

104

2.81

114

3.14

Fact Finding Mission to Ethiopia Analysis of potential production locations

19

EXAMPLE SLIDES

20

Section I â&#x20AC;&#x201C; Location Analysis

ANALYSIS OF INDUSTRIAL ZONES IN ETHIOPIA 21

Textile Industry in Ethiopia – An overview

•

According to the German Engineering Association (VDMA) the export value of the Ethiopian Textile and Garment sector reached about USD 111 million in 2013 and they estimate it to reach USD 500 million by 2016.

For the past 8 years, the export performance of the Textile and Garment sector (yarn, fabric, apparel, handloom products) have been showing an increasing trend, on average 50% per annum.

•

Few companies already sourcing from Ethiopia Company

•

•

Base Country

Nature of Business

Sourcing From

1

Sweden

Clothing Retailer

H is sourcing knitwear from the Textile Factory, based in Mekele in northern Ethiopia, and part of the K Enterprise Group

2

UK

Clothing Retailer

Not Available

3

Ireland

Clothing Retailer

Not Available

4

USA

Clothing Company

Not Available

5

UK

Supermarket Brand

Not Available

6

Germany

Beverage, Retailer

Not Available

Turkish Investment in Ethiopia: – Turkish textile Group X, a subsidiary of Istanbul based Y, has invested about one billion Ethiopian Birr (around 42 million Euros) in an expansion of its current RMG ready-made garment production unit in Alem Gena, 19 km from Addis Ababa as a means to tripling its exports.

– In August of 2013, around 50 Turkish textile and apparel companies announced their relocation to Ethiopia to establish an industrial zone around the capital Addis Ababa.

According to ETGMA (the Ethiopian Textile and Garment Manufacturers’ Association) ten new additional factories with a combined production capacity of 100 tons a day are expected to have started production in the fiscal year (2013-14), and an additional three new projects in the next fiscal year.

Source: txm.vdma.org, textile-future.com, just-style.com

22

Location of Industrial Zones

Mekelle

Gonder Bahir Dar

• Addis Ababa is the only International Airport.

There are a total of 85 airports in Ethiopia, 11 of which have paved runways. The airlines' international services link the country with more than 50 cities on all main continents, while domestic services link 38 airfields and 21 landing strips with Addis Ababa.

• Djibouti is nearest port.

• Railway connects industrial zones of Addis Ababa and Dire Dawa.

• It is possible for a company to lease land in any part of Ethiopia and construct a factory.

However, we focused on Industrial Zones in that country for the ease it provides in setting operations.

• Bole-Lemi, the recommended IZ (analysis on why this IZ is recommended is in the following slides) has a total of 342 hectares available. Bole-Lemi will focus on textile, garments and leather product (including footwear) sectors.

Kombolcha Industrial Zone

Djibouti Port

Sandafa (Ethio-Turkish Industrial Zone ) Addis Ababa International Airport

Bole-Lemi Diredawa Industrial Zone Kilinto Eastern Industry Zone Ayka Addis Industrial Zone Huajian Industrial Zone

Jimma Awasa Industrial Zone

Industrial Zones Rail route connecting Addis Abba & Djibouti

23

13 Industrial Zones have been identified but only 2 are operational

Industrial Zones Industrial Zones

Current Operational Status

1

Operational

2

Operational

3

IZ Under Construction- No companies present yet

4

Govt. studying feasibility- awaiting external funds to commence construction

5

IZ Under Construction- No companies present yet

6

Govt. studying feasibility- awaiting external funds to commence construction

7

Govt. studying feasibility- awaiting external funds to commence construction

8

Govt. studying feasibility- awaiting external funds to commence construction

9

IZ not fully complete- very few companies present

10

Govt. studying feasibility- awaiting external funds to commence construction

11

IZ Under Construction- No companies present yet

12

IZ not fully complete- very few companies present

13

IZ not fully complete- very few companies present

Selected for further analysis (only IZs already operational) Not selected for further analysis 24

Selected for next stage of analysis

Of the 2 industrial zones that are immediately operational, X is the preferred option

Parameters

X Industrial Zone

Y Industry Zone

Developer

Government

Chinese company Group

Area

Phase I: 156 hectares fully complete and sold out Phase II: 186 hectares, construction in progress and is expected to be complete by the end of 2015. Booking open for Phase II

Phase I: 233 hectares Phase II: IZ in talks with the Govt. for additional 260 hectares for phase II expansion

Tax Holiday for Investors

Yes (Up to 2-7 years depending on case-by case approval by Govt.)

Yes (Up to 2-7 years depending on case-by case approval by Govt.)

Focus Industries

Textiles, Garments and leather products (including footwear) sectors

Textiles, Garment, Shoe, Construction materials, Electrical equipment, Engineering material equipment manufacturing and Food processing factories

Companies Present

1.â&#x20AC;Ż

Factory Rent

USD 1 per square meter in Phase II (Under construction)

USD 2 per square meter

Available buildings for rent (L&R requires a building with floor space 20,000 sqm)

2 types of buildings in phase II being constructed: 5,000 sqm area buildings and 10,100 sqm buildings. No buildings available anymore of Phase I.

Buildings available with 10,688 sqm area in Phase I.

Closeness to Addis Ababa airport/ Djibouti sea port

15 km East of Addis Ababa

37 Km East of Addis Ababa

1.â&#x20AC;Ż

Shortlisted Industrial Zone No

Yes Recommendation (Cheaper rental cost & closer to Addis Ababa) 25

(Rental more expensive, IZ focus is multi industry and further from Addis Ababa)

X - Some Pictures of the Industrial Zone

Bole Lemi IZ in 2013

26

Detailed Analysis â&#x20AC;&#x201C; Location Analysis of X (1) Building & (2) Legal Entity (3) Tax and (4) Electricity

Parameters Section

X - Location

Legal

Tax

Electricity (Govt. Rates)

Industrial Zone Sub-section

X

Land Available (hectares)

156 Hectares in Phase I & 186 hectares in Phase II

Location

15 km east to Addis

Developer

Ethiopian Government

Time to set up a factory

Six months to a year (estimated time to construct factory by the tenant) from the time company is registered and lease signed

Special Economic Zone

Yes, no import duty and export duty for products manufactured for 100% export.

Monthly Rent per square meter

IZ provides building at a rent of USD 1/m2 for 5 years and for the next 5 years at USD 1.25/ m2. Tenants have the option of building their own plant as well

Floor space of available buildings

2 buildings at 5,000 sqm each and one at 10,100 sqm

Security Deposit

USD 25,000

Lease Option

Investing companies have the option of building their own building by leasing land from the Govt. in X. Land is usually leased out for a period of 70 years at a one time payment of USD 11.55 per square meter (period of lease and price per square meter subject to case by case approval by the authorities). Price per square meter can be paid in full or over a period of 20 years including interest charges.

Maintenance Cost to the IZ

None. All utility costs will be paid by the tenants themselves directly to the service providers

Paper work time for registering company in Ethiopia

10 business days from the time lease is signed

VAT

15%

Corporate Income Tax Holiday

2-7 years depending on case by case approval by the authorities based on the level of investment and projection of the growth in exports by the investing company

Expat salary income tax holiday

Up to two years

High voltage Consumers for over 400 KW per month

USD 0.038/KW (ETB 0.77/KW)

27

Detailed Analysis â&#x20AC;&#x201C; Location Analysis (6) Workforce â&#x20AC;&#x201C; 2/2 Parameters Section

Workforce

Indicative Time to Recruit a worker (number of days)

Indicative Total Cost to the Company per worker category in USD

Industrial Zones

Sub-section

X

Termination cost to employer

3 months salary as termination cost to be paid by the employer of 3 months notice not provided- normal working practice in Ethiopia

Yearly bonus

Depends on the profit gained by the employer and based on its own policy, not stipulated by the Government

Lean period

Major religions are Christianity and Islam - Christmas time and Ramadan time are lean period

Operator

30-45 days

Technician

30-45 days

Supervisor

30-45 days

Engineer

30-45 days

Manager

30-45 days

Plant Manager

30-45 days

Operator (2 years experience)

USD 50 excluding mandatory 11% pension fund and 3% health insurance

Technician (2 years experience)

USD 50 excluding mandatory 11% pension fund and 3% health insurance

Supervisor (3-5 years experience)

USD 100 excluding mandatory 11% pension fund and 3% health insurance

Engineer (5 years experience)

USD 350 excluding mandatory 11% pension fund and 3% health insurance

Manager (5 years experience)

USD 550 excluding mandatory 11% pension fund and 3% health insurance

Plant Manager (5 years experience)

USD 550 excluding mandatory 11% pension fund and 3% health insurance

28

Section II â&#x20AC;&#x201C; Sourcing Analysis

RFI-RFQ ANALYSIS

29

The sourcing work focuses on the following yarn specs…

Description

Composition

SKU's

SAP #

Actual L&R Price (€ per kg)

Annual Quantity (Tons)

47 47 Cotton Yarn

100% Cotton

4 47 47 200

Viscose Yarn

100% Viscose

2 36

Elastane/Spandex Yarn

74% Polyamide, 26% PUE

1

7 110

Polyamide yarn

100% Polyamide

2 15 30

Spec description

â&#x20AC;¦and packaging requirements

Description

Size (mm)

Colour

230x115x92

White

Inner carton

SKU's

SAP #

Picture

Actual price Annual Quantity (PCS) (Euro/1000 PCS)

316,725 2

135x107x100

White

316,725

570x240x237

Brown

105,340

Master carton

2 535x270x210

Brown

105,340

31

Executive Summary

Results

Recommendation

• Total 31 suppliers identified in Ethiopia for two categories – Yarn (18 suppliers) & Cartons (13 suppliers)

1.

Suppliers will be motivated & might respond more aggressively once the factory is set up in Ethiopia.

2.

One cannot rely completely on the local cotton and packaging supply base and should develop partners outside Ethiopia to import.

3.

Polyester & Polyamide yarns can be bought locally from the importers or should be imported directly if the volumes are high – min 20ft container basis.

4.

Book fixed capacity of the yarn & carton suppliers to ensure regular supply & flexible payment terms.

• Information about rejection during phone screening process & RFI-RFQ process are given in the report Yarn Category: • Suppliers responded only with the RFQ & none responded to the RFI. • From 15 suppliers passed phone screening & RFQ sent, DS received only 3 RFQ’s • Ethiopian suppliers manufacture only cotton yarn & import polyester/polyamide yarn mainly from China.

• Procurement intelligence report on Ethiopian spinning mills based on the analysis from Industry experts given on slide 15.

Carton Category: • Suppliers responded only with the RFQ & none responded to the RFI. • From 7 suppliers passed phone screening & RFQ sent, DS received 4 RFQ’s.

• All the carton suppliers have negative savings as compared to current buying prices.

• Procurement intelligence report on carton manufacturers based on the analysis from Industry experts given on slide 15. © 2015 Dragon Sourcing. All rights reserved.

32

We have interviewed industry experts: Summarized Feedback General comments • Ethiopian suppliers speak little English and the communication is mostly happening in local languages.

• Ethiopian suppliers rather want to have face2face B2B relationships, and are rather weak in internet communication.

• Importing yarn to Ethiopia will be cheaper only if the end purpose is for exports as the raw material can be imported under duty & tax exemption.

• Ethiopian companies are importing yarn from different markets globally.

• Larger textile companies in Ethiopia try to be intensively vertically integrated, due to the difficult local supply situation.

Yarn Category: • Ethiopian spinning mills seem to be producing only 100% cotton yarn or viscose yarn.

• Spinning mills are producing yarn either for self consumption if they are integrated mills or supplying limited volume outside to regular clients.

• Supply of cotton yarn to the local market is not sufficient hence garment companies or local suppliers are also importing cotton yarn.

30-40% of the cotton processed in Ethiopia is from local suppliers, rest is imported.

• Local cotton price should be competitive, length of fibers and chemical composition often lack in quality.

• Spinning mills are not producing man made yarns like Elastane, Polyamide, etc. so garment companies are directly importing or buying man made yarns from the local importers.

Corrugated boxes Category: • Number of manufacturers is limited, small to medium scale manufacturers are available with limited flexibility to make customized size.

• Suppliers’ capacity utilization seems very high leaving little room for new clients.

• Local textile companies are buying the corrugated boxes from local manufacturers only but the supply is not easy and needs to be followed aggressively to ensure on time delivery.

• Manufacturers requesting 100% payment in advance before starting the production and almost every time do not comply with the deadline.

• Delays are happening due to frequent power cuts.

33

Section III – Cost Model

ANALYSIS OF TOTAL COSTS IN ETHIOPIA VS CHINA VS CZECH REP © 2015 Dragon Sourcing. All rights reserved.

34

STAFF COMPARISON OF LABOR COST PER MONTH

Level

# of staff

CN

Weaver

100

Technician

10

Supervisor

10

Engineer

10

Manager

5

© 2015 Dragon Sourcing. All rights reserved.

CZ

35

ETH

PRODUCT 1

(€ per 100 pcs EXW) Category

Ressource

CZ Plant

ETH Plant

Quantity

Machine Labor Yarn Machine Labor Yarn Packaging Labor Machine Labor Yarn Yarn Yarn Packaging Packaging Packaging Packaging Factory overheads Factory overheads Factory overheads Machine overheads Machine overheads R&D overheads Packaging Packaging

MIN MIN KG MIN MIN KG KG MIN MIN MIN ST ST ST RL RL KG KG

Inner Carton Outer Carton Sum

Transport

Unit

€ €

€ €

€

€

Same 7% labor cost in Ethiopia compared to CZ Comparable landed cost Same 7% labor cost in Ethiopia compared to CZ Comparable landed cost Same 7% labor cost in Ethiopia compared to CZ Same 7% labor cost in Ethiopia compared to CZ Comparable landed cost Comparable landed cost Same Same Same Same Same 30% fixed, 70% labor cost dependend 30% fixed, 70% labor cost dependend 50% of CZ Same Same Same Imported (incl. 10% handling and logistics) 100% more expensive in ETH Transport cost from ETH to EU will be € 0,383 per 100 pcs (€ 2.316 per container with 54 palettes á 11.200 pcs)

Transport to EU Sum Difference ETH / CZ

Comment

€ -13,18%

€

FACT FINDING MISSION ETHIOPIA © 2015 Dragon Sourcing. All rights reserved.

37

INTRODUCTION

§ A Fact Finding Mission Ethiopia was undertaken from 9th to 12th of November 2015 § Main focus of the trip was to gather information: ü On two Industrial Zones on site (X next to airport, Y 44min/36km Southeast of Addis) and talk to at least 2 companies on site in each IZ ü Clarify frame conditions of logistics and customs for import and export ü Visit local suppliers for packaging and yarn to understand supply options ü Visit biggest local investor, strongly vertically integrated: A & Investment Group ü Meet officials and experts for § Company foundation § Labor & HR § Real estate § Construction § Tax § Ethiopian Textile and Garment Authority § Cleanroom

© 2015 Dragon Sourcing. All rights reserved.

38

MEETING 1 COMPANY A ADDIS A Textile was founded in 1988 in Istanbul / Turkey as a ready-made garment manufacturer and exporter. The youngest investment is the A Addis Group in Ethiopia, a vertically integrated subsidiary of our company. It is the biggest international investment in Ethiopia (140 Mio USD in 2010).

Meeting with: X, Management Representative Meeting notes: • • • • • • • • • • • • • • • •

A does circle knitting only Started to operate own truck fleet for inland transport for cost reasons, said “to achieve 50% reductions” through own fleet Mentioned high handling fees of containers at the port of Djibouti Use 90% 40ft containers for transport Have own offset printing machine from company Heidelberg, print 250g carton (both sides white), carton is imported from Turkey -> can offer inner cartons for Y (most probably only Ethiopian inland supply option) Can also offer outer cartons To train staff in the beginning A contracted C Jeans Factory to do training for workers, mentioned that this is “expensive, but good solution” A provides bus transport for workers within a radius of 30 to 35km A has appr. 6.500 employees total (thereof 150 expats), decreasing because they are pushing for more efficient production After 5 years A (later than expected) also has Ethiopian fore workers Basic wage level is 45 USD per month, plus meals/transport/medical insurance and health care internally or through clinic contracts it sums up to 75 USD per month “Training is the key” to succeed with the local workforce Z accounts for appr. 75% of the turnover of A A pays workers on a monthly basis With worker’s union A has developed salary system with 15 types of salaries Generally wages are 50% depending on how long a worker is with A and 50% performance related 39

MEETING 1 COMPANY A ADDIS

Meeting notes: • • • • • • • • • • • • • • • • •

Garment finishing has appr. 10% absence of workers (1 shift), rest of production is lower at appr. 5% Spinning, knitting, dyeing has 3 shifts (on 6 days per week) Starting with 10 employees in a company, employees have the right to join a union 20-30% of the workers of A are union members Workers’ efficiency in Ethiopia is appr. 50% in comparison to Turkey More absence of workers at holidays like Easter or Christmas (3-5 days absence) No absence during harvest seasons No people who cannot read and write basically Addis did use the funding of Ethiopian Development Bank (30% equity, 70% loan from EDB at a fixed interest rate of 8,5%) Government has installed state run enterprise for purchasing cotton yarn to achieve lower cotton price according to the local demand, state’s purchasing entity imports cotton for local companies duty free, A gets cotton in exchange for 10% of A’s earnings Produce 17 tons of yarn per day with spinning factory 1 and 25 tons of yarn per day with spinning factory 2 There are no currency restrictions regarding billing A has electricity substation in the factory, this is needed as the transmission of electricity is a problem and lines are old, power cuts are not the problem Need 10MW for their plant Own sewage treatment is mandatory Have own ground water supply from 4 bore wells (no cost for water supply) For expats A has dormitory, for managers houses are leased

© 2015 Dragon Sourcing. All rights reserved.

40

MEETING 11 A SPINNING FACTORY

A Spinning Factory is the largest spinning company in Ethiopia.

Meeting with: Meeting notes: • • • • • •

Made a very open presentation of the company mentioning that they have problems with a high price of local cotton Did refuse to get cotton from national buying entity from international markets Seek for cooperation and other business options Well equipped manufacturing with most machines from German company RIETER Made good impression, well organized Want to quote on yarns and also cartons (through a sister company)

© 2015 Dragon Sourcing. All rights reserved.

41

ADDIS ABEBA TO ADAMA A SPINNING FACTORY

42

Y INDUSTRY ZONE

43

Y INDUSTRY ZONE

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44

MEETING 5 Y INDUSTRY ZONE MANAGEMENT

Meeting with: Meeting notes: • • • • • • •

20 companies in IZ operating, 10 are starting Have another 160.000 sqm for sheds finished in 2016 Loading terminal for train transport is 5km from IZ 6000 employees now total working in IZ Water well provided by IZ costs 20 USDc per ton, or option is also to drill own well(s) Lease contract is for a duration of 90 years Have one Indian company, one company from Holland (), some local companies, Unilever starts for washing powder manufacturing

© 2015 Dragon Sourcing. All rights reserved.

45

RAILWAY PLAN

© 2015 Dragon Sourcing. All rights reserved.

46

MEETING 16 INDUSTRY MINISTER

Meeting with:

Tadesse HAILE, State Minister, Ministry of Industry

Meeting notes: • • • • • • • • • • •

Goal is to make cotton available at a competitive price from in and outside of Ethiopia New railway will bring “50% improvement of land transport price” 80% of Ethiopian people live in the highlands Proposed to move into Awassa IZ, there are 34 sheds under construction and already 22 of them are occupied/booked There are only 12 sheds remaining for new investors In order to get the sheds, the investor needs to submit its proposal Government wants to subsidize the transport to Awassa, so that cost is similar than from Addis Comparable quality and quantity of labor available in Awassa Airport in Awassa needs 1,5 years to be finished IZ in Awassa will be finished mid of 2016 8 Companies which have booked in Awassa: 1. PVH - US - Garments 2. Arvind - India - Garments 3. Wuxi - China 4. …

© 2015 Dragon Sourcing. All rights reserved.

47

DI (FH) Christian Santner Director Germany, Austria and Switzerland christian.santner@dragonsourcing.com Dragon Sourcing Germany, Austria and Switzerland Tobis 3 | 8504 Preding | Austria T: +43 664 88518030 F: +43 316 2311238882 Dragon Sourcing Ltd. Headquarter 7/F Hong Kong Trade Centre 161-7 Des Voeux Rd Central Hong Kong SAR T: +852 91 80 40 57 F: +852 25 80 24 26

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