A Study on the Application of Economic Concepts and Theories Pertaining to Shipbuilding Industry of Bangladesh

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1.0 INTRODUCTION

Economics is the social science that studies the behavior of individuals, households, and organizations, when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Economics plays a central role in business. It helps to understand all the happenings of business enterprise in its market.

Basically, all the activities of business enterprise revolve around economics. It not only helps to make understand market better by explaining what and why is happening in the market, but also contributes in decision making and forward planning.

The undertaken report is a look into the practical dimensions of the economic theories learned inside the classroom. The basic concept of economics is allocating scarce resources to meet growing demand. Another basic principle of economics is that trade is beneficial to all.

Shipbuilding is a growing industry in Bangladesh with great potentials. Bangladesh has a long history of shipbuilding dating back to the early modern era. Shipbuilding is in the blood of local people as we have a rich history in this sector. People here in Chittagong had built sailing ships 500 to 600 years ago.

However, shipbuilding has become a major promising industry in recent years when the locally made ships began to be exported. Bangladesh has now over 200 shipbuilding companies, mostly concentrated in Dhaka, Chittagong, Narayanganj, Barisal and Khulna.

Shipbuilding in Bangladesh is not new but the rise of export-oriented shipbuilding industry is. Chittagong port was the best centre of building ocean going vessels in the middle of the 15th century and even in the 17th century; the entire fleet of ships of the Sultan of Turkey was built at Chittagong.

Also in 1805, British Navy built ships at Chittagong for the famous battle of Trafalgar. However, with the passage of time, glory of shipbuilding in this region began to fade. Recently fame of shipbuilding revives again when local shipbuilders exported some ocean going vessel to foreign countries.

The country now foresees a huge economic progress into the arena of shipbuilding industry by utilizing the economic globalization, free international trade & shipping boom of the recent time.

With the first export order for building ocean going vessel secured by Ananda Shipyards and Slipways Ltd. and the keel-laying of first export order ship on 22nd February, 2006, the real era of building export oriented ocean going vessel began in Bangladesh. The export basket of Bangladesh is very limited where ready-made garments alone account for nearly 80 percent of its total exports.

The extreme dependence of export earnings on the ready-made garments may pose serious threats in the near future. Thus, product diversification is necessary in that case shipbuilding could be a new horizon. Therefore, it is of interest to look into the various dimensions in which this sector has contributed to the economy and how each unit in this industry has been affected. This report will be a thorough study of the Shipbuilding sector along with individual business units.

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ORIGIN OF THE STUDY

The current study aims at understanding the different dynamics of the Shipbuilding industry of Bangladesh as an economic boost sector. Through this report we would like to form a bridge between the theories of economics learnt in the classroom and their practical applications and implications in the real world. We were assigned the Shipbuilding industry as the area of study because of its magnanimous potential to contribute to the economy of Bangladesh.

At present, Bangladesh is looking for the market for small ocean-faring vessels less than 25,000 DWT. The global market for the small ocean-faring vessels is now estimated to be $ 400 billion annually although some estimates place this figure at only $200 billion.

Major shipyards of the world can meet75% of the total demand. If Bangladesh could achieve 4% market share of the surplus demand, which is $100 billion (25% of $ 400 billion), it could earn $4 billion annually. Being the biggest budding export sector, this sector is of unparalleled importance if we are to understand some of the most crucial aspects of economics such as GDP, employments, foreign exchange earnings, foreign exchange reserves, government policies, etc. This report is part of the course requirement for Managerial Economics (E501) course being conducted by Prof. A.K.M. Saiful Majid.

1.2 OBJECTIVES OF THE STUDY

The study has been designed with two categories: Broad Objectives and Specific Objectives. This report is a course requirement for Managerial Economics and that entails the primary objective of this report.

1.2.1 Broad Objective

The broad objective of this report is to have a thorough look into the high potential and growth driver Shipbuilding industry of Bangladesh and related the theories to the practical aspects of this industry.

1.2.2 Specific Objectives

In order to fulfill the broader objective there are specific objectives that this report aims to accomplish

- Relation of Ten Principles of Economics with the operations of the industry

- Factors affecting the demand and supply in the shipbuilding industry

- Impact of the macroeconomic factors (such as monetary policy, GDP, GNP) that are influencing the sector

- Look at the impact of this sector on various socio-economic issues such as employment, literacy, environment etc.

- See a comparative study of the export growth of this sector to all other export sectors

- Price, income, cross-price elasticity of the industry

- Analysis of market needs

- Understand the industrial policies of the government and their impact on the shipbuilding industry

- Study the market structure

- Price and output decisions

If these concepts of economics are studied under the light of real life situation from right now, the report writers will be able to take coherent managerial decisions when faced with a relevant problem in