JUTE SHOPPING BAG MANUFACTURING UNIT (EXPORT ORIENTED) By Arka Jyoti Paul GITAM SCHOOL OF INTERNATIONAL BUSINESS GITAM

UNIVERSITY EXPORT-IMPORT MANAGEMENT

VISHAKHAPPATNAM

JUTE GROWING AREAS Jute is a rainy season crop and hence sown from March to May according to rainfall and type of land, and harvested from June to September depending on whether the sowings are early or late. India is one of the major jute producing countries, accounting for nearly two-thirds of jute and allied fibers production. According to UN Food and Agriculture Organisation, India produced 2,041 metric tonnes of jute and jute-like fibers in 2006. Within India, the major jute producing areas are West Bengal, Bihar, Assam, Orissa, Andhra Pradesh and Tripura. Earlier, jute was used mostly for the purpose of packaging, but the advent of synthetic fibers lead to a drop in the demand of the fiber. This dip, lead to intense research and development resulting in diversified jute products. The versatility of jute has enabled it to be used in a number of industries ranging from fashion to automobile, hence opening new opportunities. For the purpose of this article, we have studied five opportunities around jute. Jute products are gaining immense popularity around the globe due to the fibers properties. Jute is high on tensile strength, is bio-degradable, inexpensive, and does not emit poisonous gasses when burnt. Moreover, advanced manufacturing techniques have also transformed jute into an attractive and versatile fiber, with a high degree of user appeal. A dash of colours, a masters hand at work, and you have the perfect fabric that can be transformed into almost anything. Major Growing Areas Jute thrives best in damp heat, and the climatic conditions prevalent in West Bengal in India are well suited for its cultivation. Indian states ideally suitable for the cultivation of jute are:

West Bengal Bihar Assam Orissa Uttar Pradesh

Mesta, or Kenif, botanically known as Hibiscus Cannabinus, is also grown in these areas as a textile fiber. Mesta is a coarser, more brittle fiber, and is used by the jute mills in admixture with jute to obtain certain desired properties.

Jute producing countries The top Ten Jute Producing countries are:

India Bangladesh People's Republic of China Cte d'Ivoire Thailand Myanmar Brazil Uzbekistan Nepal Vietnam

Jute Bags Shopping bags, beach bags, Christmas bags, wine bags, designer bagsthese are just a few of the options. The popularity of jute bags has been increasing tremendously both in the international and domestic markets because it is available in the trendiest of design, while being highly utilitarian and eco-friendly. Jute bags fit in this space perfectly due to its high tensile strength and durability. Moreover, with shopping marts such as Wal-Mart and Tesco switching to jute bags and others following suite, the demand for these products is not anymore seasonal. Another advantage is that these bags can be manufactured in several colours, designs, shapes, and sizes, according to the consumers choice. The bags produced in India find market mostly in Europe, and the profit margin ranges from as low as 20% to as high as 100% while catering to niche markets. On the other hand, the domestic market for jute bags is also fast catching up. This is evident from the mushrooming of several retail outlets catering exclusively to jute products. According to Rajalakshmi of Chennai-based Jute Emporium, in India, these bags are also being increasingly asked for by corporate houses and big businesses, which are becoming environment conscious. She says that besides being inexpensive, another advantage of using these bags is that it can be customized. Festive season also determine the sales of such products in India. For example, for Rajalskshmi, Navratri and Durga Puja season proves to be profitable. An unit manufacturing jute bags is highly labourintensive, and a skilled artisan can make up to 50-80 bags in a single day. For setting up a medium-sized unit, a jute entrepreneur would require 10,000-12,000 sq feet of land, and equipments such as sewing machines, screens for printing, and cutting equipments. The operating cost of such a unit would be near about 2-2.5 lacs. The government is also supportive and provides several concessions for exporting such products. Given the nature of investment, demand for such products, and profit margins, this area is worth venturing into.

Project Introduction: Jute shopping bag is an item which has large demand in our domestic market as well as in the export market. Jute is the world's second most used fiber after cotton. The India jute industry is an integral part of the Indian Textile Industry. Jute is a natural fiber and is grown in extensive parts of West Bengal, Bihar, Assam, and Orissa. The small scale sector in the Indian jute industry is being encouraged by Govt. to move into value added items like shopping bags, wine bags, beach bags , upholstery and consumer durables which have increasing demand in advanced countries like EU countries, USA, Japan etc. due to following advantages :

A natural fiber with golden and silky shine 100% bio-degradable and recyclable Second most important vegetable fiber after cotton, in terms of consumption and production in the world. High tensile strength Durable Good insulating property Ensures better breathability Versatile and re-usable

Given the nature of investment, demand for such products, and profit margins, this area is worth venturing into. A shopping bag manufacturing unit (export oriented) of capacity 1000 to 1200 Pieces per day is envisaged to be set up near Kolkata where raw materials and skilled labours are available.

SET UP THE COMPANY: As a Partnership company, the statutory requirements to set-up the company is:-

1.) Register our company under Partnership Deed Act, 1932 2.) INCOME TAX PERMANENT ACCOUNT NUMBER (PAN) - To start a business we should have a permanent account number (10 digit alpha-numeric number).It is issued by Income-Tax department of India 3.) BANK ACCOUNT - We will open a bank account with State Bank of India 4.) IMPORTER EXPORTER CODE (IEC) - This is required for the identification of the company, issued by the Directorate General of Foreign Trade (DGFT) 5.) REGISTRATION CUM MEMBERSHIP CERFICATE (RCMC) - We will get the RCMC from Apparel Exports Promotion council (EPC) 6.) VALUE ADDED TAX (VAT)/ CENTRAL EXCISE REGISTRATION For exercising proper administrative control on collection of Central Excise duty, every manufacturer who is liable for payment of Central Excise duty is required to get himself registered with the Central Excise Department under whose jurisdiction his place of manufacture falls. (Section 6 of the CEA 1944 and Rule 174 of the CER 1944)

MANUFACTURING PROCESS

Fabrics prepared form medium grade jute fiber (sacking) are used for the manufacturing of jute bags usually used for domestic purpose in our country and fabrics prepared from of white jute yarn (Hessian) are generally used for export purpose. These fabrics are available in Kolkata market. Fabrics are taken and pass over sizing table to cut the fabrics in proper size according to requirement. (Size may be varied from height 15" - 30" and width 10" - 25" generally without handle). After proper cutting of fabrics, bags are stitched in sewing machine. When the stitching of bags are over then put the handles on the bag and make the stiffening border over the bag to make it proper strength. For making decorative bags, decorative fabrics, dyed or printed fabrics are used: PROCESSING FLOW SHEET: FABRICS (SACKING QUALITY)
PASS OVER SIZING TABLE

TO SIZE THE FABRICS

PASS THROUGH THE SEWING MACHINE

SEWING THE FABRICS TO MAKE SHAPE OF BAG

NOW PUT HANDLES OVER THE BAG

BAG IS READY
GRADING THE BAGS ACCORDING TO SIZE

GRADED BAGS

STORE MARKET

PRODUCT SAMPLES:

Proposed Location Location of a plant is determined on the basis of proximity to raw materials, availability of infrastructure and distance to potential market areas. Proposed areas selected is Kolkata as because the main raw material that is jute is produced in high amount in west Bengal and Kolkata has easy transportation link with other parts of West Bengal from where the jute will be procured. It is therefore suggested that jute bags producing plant be established in shone town.

MANPOWER REQUIREMENT The plant requires manpower both for production and administrative work. The details of manpower requirement including monthly salary and annual expenditure is given in Table

JOB TITLE A. ADMINISTRATION Plant manager Secretary Clerk Accountant B. PRODUCTION Supervisor Worker/ labourer Packer Total

REQ NO

MONTHLY SALARY 5000 500 3000 3000 4000 2200 2000 19,700

ANNUAL WAGES 60000 6000 36000 36000 48000 26400 24000 2,36,400

1 1 2 1 1 16 2 24

Plant and Machinery: 1. 2. 3. 4. Bag Sewing Machine 12 Nos. Interlock Sewing Machine 2 Nos. Cutting Table 2 Nos. Cutting equipments and stencils etc 1 lot.

ABOUT THE BUYER

The buyer is located in Saudi Arabia; the company name is SOUDI UNITED CO. It is located in Al-Fouhad Building, Hail Street JeddahSaudi Arabia. The buyer is a reseller to the multi complex and shopping mall in SAUDI ARABIA. He informed us about the high demand of jut fashionable bags in Saudi Arabia.

Export Promotion Council for Handicraft Marketing Strategy: 1. - To participate in International Trade Fairs where buyers meet sellers. Partial participation cost is reimbursed by respective Export promotion councils. Fair Name Heimtextil Fair Indian handicrafts & gifts fair Mohtexa Gift & Handicraft Fair (Spring) Gift & Handicraft Fair(Autumn) Fatex Fair Venue Date

Frankfurt (Germany) January Greater Noida (India) Dubai Delhi Delhi Paris February November February October November

2. 3. 4. 5. 6. 7.

-To appoint agents in target countries to procure orders. To build a Web-site showing your products To advertise in print media. Attend buyer seller meets organized by Export promotion councils. Keep regular touch with reputed buying houses. Contact big buyers for direct order.

COMPANY FINANCE Production Capacity: 1000 to 1200 bags per day Covered Area Requirement: 2500 Sq. Ft. (Rented shed) Cost of plant and machinery including packing, transportation and installation charges: Rs. 5, 75000/Labour requirement: 16 per shift. Approx Cost of a Bag: Tote Bag of Size: 13 x 15 x 5 Cost of Fabric Cutting Thread Stitching Packing & Inspection charges Overhead cost Total Add profit @ 25% FOB Price @ $1 = 44.5 $0.71 / Pc : : : : : : Rs. 16.00 0.55 1.00 5.00 1.25 1.50 25.30 6.30 31.60

Payment Terms: 100% through irrevocable unrestricted Letter of credit in favour of company. Mode of shipment: By air / by sea / by road Packaging: Carton boxes of suitable size. Project Financing: Plant and machinery: term loan from bank; self margin Working capital: Packing credit and Post shipment credit from bank.

1. Pre-shipment Credit (Packing Credit) 2. Post-Shipment Credit These are available to the exporters, for financing purchase, processing, manufacturing or packing of goods prior to shipment. This would mean any loan or advance extended to you by the bank on the basis of: a) Letter of Credit opened in your favour or in favour of some other person, by an overseas buyer; b) a confirmed and irrevocable order for the export of goods from India; c) any other evidence of an order or export from India having been placed on the exporter or some other person, unless lodgement of export order or Letter of Credit with the bank has been waived. Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods. Packing credit is released in one lump sum or in stages, as per the requirement for executing the orders/LC. The pre-shipment / packing credit granted has to be liquidated out of the proceeds of the bill dawn for the exported commodities, once the bill is purchased/discounted etc., thereby converting pre-shipment credit into post-shipment credit. Post Shipment Packing Credit It runs from the date of extending credit, after shipment of goods to the date of realization of export proceeds and includes any loan / advance granted on the security of any duty drawback allowed by the Govt. from time to time. Post-shipment credit has to be liquidated by the proceeds of export bills received from abroad in respect of goods exported. The exporter has the following options at post-shipment stage: i. To get export bills purchased /discounted / negotiated; ii. To get advances against bills for collection; iii. To receive advances against duty drawback receivable from Govt. The exporter has the option to avail of pre-shipment and post-shipment credit either in rupee or in foreign currency. However, if the pre-shipment credit has been availed in foreign currency, the post-shipment credit has necessarily to be under EBR Scheme since foreign currency pre-shipment credit has to be liquidated in foreign currency. The details of pre-shipment and post-shipment credit in foreign currency are mentioned below.

Once the regular export credit limit is sanctioned, the company is required to submit the following documents to the bank at the time of disbursal of packing credit loan: 1. Export credit Agreement

2. Hypothecation/ Pledge agreement 3. Corporate/individual guarantees from company/firm/partners/directors/sureties etc. 4. Insurance policy to cover the stocks etc. 5. Necessary undertakings (e.g., for payment of insurance Premium, non-encumbrance of stocks, Payment of ECGC premium, Waiver of interest change notice, etc.) 6. Formalities connected with registration of charges were necessary. 7. Other documents as specified by the bank in the sanction letter.