Bangladesh is categorized in the Least Developed Countries (LDC) in South Asia, renowned for its developing industrial sector, specifically the domains of textile, cotton and jute. PESTLE analysis of the country will provide insight into the way the external environment makes the region a favorable or unfavorable location for businesses.
Political Factors
Bangladesh has become an independent sovereign state in 1971 and since then the country has faced numerous issues in terms of its political climate, along with more than a decade of military rule. After democracy was restored, Bangladesh continues to face stability issues as the political parties remain engage in significant amount of rivalry.
In recent times, the country has faced conflict between the ruling and opposition party, where the ruling party has used force to suppress the protestors in raising their voice against the current government. The conflict took a violent turn, resulting in injuries and casualties as law enforcement and political activists engaged in clash (Ganguly, 2022). Businesses operating in the country, especially the garments sector have been impacted by the political instability, facing lower output and revenue.
Economic Factors
The industrial developments made by the country have positioned it as a favorable choice for businesses. UN has acknowledged the significant development and the promising future prospects, suggesting that by 2026 the country may be upgraded from LDC category (United Nations, 2021). The lowering rate of poverty shows that the country is progressing towards economic stability, as the country was able to achieve a significant amount of poverty reduction from 43.5% in 1991 to 14.3 % in 2016.
However, Bangladesh continues to face different issues as COVID-19 and Ukraine war brought new challenges for the country. In a report by The World Bank (2022), it has been stated that some of the challenges being faced by the region is the increased prices and inflation, which has resulted in altered buying power of the consumers. Moreover, the expected decrease in GDP growth in 2023 is another indicator which suggests that the country is struggling in the economic domain. The current inflation rate is 8.71%., which is slightly lower than the previous year and unemployment rate has illustrated a similar positive economic trend as the rate dropped from 5.41% to 5.23% in 2021.
Social Factors
The population dynamics of a country determine the trends and demand of different products emerging in the society. Aging population has different taste and preference than the younger population, while the gender based differences also influence preference and consumption patterns. The current population of Bangladesh is 165,650,475, comprising different ethnic groups, however 98 % of the population is Bengali, with a smaller proportion representing the other ethnicities.
The largest section of the population consists of people within the age range of 25-54 years, making more than 40% of the population, and the smallest percentage is of people who are 65 years or more representing 6.82% of the population (The World Factbook, 2023). The gender based division of population shows that the country has 49.47% females and 50.53% males. The country is making efforts to increase the literacy rate; however the progress is slow in this regard. Current literacy rate is more than 70% literacy for both genders.
The consumer trends of Bangladesh have a positive outlook as by 2030 the economic improvement is likely to increase consumer spending power, resulting in greater degree of purchasing. Some of the sectors that are expected to benefit from the improved consumer market are computer equipment, housing, travel and insurance.
Technological Factors
The availability of technology and degree of innovation in a country helps the business to grow and use the advanced technology to their advantage. Bangladesh is still in need to further develop its technological capability, as improved technological capacity would help in increasing the productivity of its garment sector (The World Bank, 2021). In addition, other manufacturing industries are also going to benefit from the technology advancement. Another area where adopted technology can help the local businesses is by reducing the time spent on manual paper work and facilitating the employees to focus on more productive tasks. However, the limited finances make it difficult for the companies specially the SMEs to integrate technology as a part of their work operations.
Social media as a part of technology has helped numerous businesses to connect with the local and global consumers. The segment is likely to grow by more than 6% till 2027, indicating a gradual increase in social media marketing. The goal of digital Bangladesh shows that the government is focusing on improving the technological domain of the country, particularly digital media, recognizing the potential it carries for business development and future progress of the region.
Legal Factors
The weak rule of law and high levels of corruption reduce the effectiveness of the legal framework in protecting the businesses against manipulation and losses. There are laws that have been put in place to regulate the business activities; however corruption and red tape are the major issues that discourage foreign investors from entering into the market. Another issue that creates a challenge for the businesses is the high tax rate, which is greater than the tax applied in other regions, making it problematic for the organizations to operate in the country.
Environmental Factors
Even though there are frameworks for managing the environmental issues, such as Environment Conservation Act, Bangladesh continues to face challenges in developing and maintaining environment friendly business practices. Currently, Bangladesh is poorly ranked in terms of being sustainable as Environmental Performance Index (EPI) positioned it at 162nd place out of 180 countries. Environmental degradation not only has a cost for the natural capital, but also causes economic loss, as evident through the US$6.5 billion loss (Bhowmick & Ghosh, 2022).
Conclusion
Although Bangladesh has improved its environment for businesses, as seen in the above discussion, the country is still facing some issues that can hamper the economic growth and business development. The companies operating in Bangladesh have to make decision in accordance to the opportunities and challenges existing in the country.
References
Bhowmick, S., & Ghosh, N. (2022). A Game of Shadows: Growth, Distribution, and Systemic Shocks in the Bangladesh Economy. ORF Occasional Paper No. 380. Observer Research Foundation. Retrieved from: https://www.orfonline.org/research/a-game-of-shadows/
Ganguly, M. (2022). Bangladesh’s Brutal Crackdown on Political Opposition. Human Rights Watch. Retrieved from: https://www.hrw.org/news/2022/12/09/bangladeshs-brutal-crackdown-political-opposition
The World Bank (2021). Bangladesh: Improving Productivity and Technology Adoption Key to a Globally Competitive Manufacturing Sector. The World Bank Group. Retrieved from: https://www.worldbank.org/en/news/press-release/2021/06/24/bangladesh-improving-productivity-and-technology-adaption-key-to-a-globally-competitive-manufacturing-sector
The World Bank (2022). Bangladesh. Retrieved from: https://www.worldbank.org/en/country/bangladesh
The World Factbook (2023). Bangladesh. Retrieved from: https://www.cia.gov/the-world-factbook/countries/bangladesh/#people-and-society
United Nations (2021). Country profile: Bangladesh. Retrieved from: https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/LDC_profile_Bangladesh.pdf