Export growth against the odds24 April 2002
The Indian leather industry occupies a place of prominence in the Indian economy in view of its substantial export earnings, employment generation and growth. There has been increasing emphasis on its planned development, aimed at optimum utilisation of available raw materials for maximising the returns, particularly from exports. Footwear accounts for around 60% of the global leather market. India remains the second largest producer of leather footwear by volume and this segment contributes an estimated 20% of the revenue generated by the entire Indian leather industry. The exports of leather and leather products have increased considerably over the past decades. The export increased from Rs28 crore (US$6.5 million) in 1956-57 to Rs9,000 crore (US$2.1 billion) in 2000-2001, nearly 320 times higher in five decades. Today, the leather industry ranks 8th in the export trade of the whole economy. The composition of exports of leather and leather products from India has undergone a structural change during the past three decades, from merely an exporter of raw materials in the 1960s to that of value added products in the 1990s. Finished products now constitute 81% of the total export from the industry, which was a mere 7% in 1956-57. A number of committees were formed by the Indian government over the years to introduce new initiatives for increasing exports from the leather sector. Indian government policies were decided by recommendations given by the various sector committees and have been instrumental in the transformation of the Indian leather sector. The estimated production capacity of the leather sector in India can be seen in Table 1. The staple product of the industry is footwear and the country has the potential to produce 178 million complete shoes and shoe uppers a year. The Indian Leather Industry is organised as follows: * Tanning & finishing of leather * Footwear & footwear components * Leather garments * Leathergoods (bags, wallets, belts, gloves, accessories) * Saddlery and harness articles Rise in exports despite adverse campaign India's exports of leather and leather products during April-August 2001 were US$846 million compared with US$828 million during the corresponding period of 2000, recording a positive growth of 4.6%. However, expansion did tail-off after August when growth measured between August and October 2001 totalled 1.4%. This would suggest that September and October 2001 were particularly poor. 'Despite the fact that our major importing countries are suffering from a world recession and an adverse and unjust campaign initiated by some against our leather industry, our exports during 2001 (April - October) have reached a level of US$1.2 billion showing a growth of nearly 1.4% over exports during the same period in 2000. This is indeed a commendable achievement. However, we still have a long way to go as our share in the global leather trade is only 2.4%', says Thiru Murasoli Maran, Union Minister for Commerce & Industry. This is despite companies such as Timberland of the USA and Adidas-Solomon of Germany who have suspended further procurement of shoes and leather products from India, over the use of Indian sourced cow leather in the manufacture of shoes and other accessories. To combat this development, leather product manufacturers want the Indian government to kick-start reforms to reduce cruelty to cattle during transportation so that it can overcome the adverse campaign carried out by the international animal rights group People for Ethical Treatment of Animals (PETA). Adidas-Solomon, manufacturers of sports products, have said that they would also not use leather originating either from India or China until both crack down on transport and slaughter-related cruelties against animals. According to a press release issued by Peta, this had been communicated to them from the German based company on January 29. In the same press release Peta claimed that Kohl's, a leading department store chain, had also agreed to boycott Indian leather until animal conditions improved. The release said that it regretted that the CLE continues to side step the issue of animal cruelty, barely addressing the problem, despite giving assurances to Peta. What Peta seem not to realise in their propaganda is that leather is a byproduct of the meat industry. The CLE and other leather industry organs in India have a limited say or impact in the control of live animals or national policies for farming or slaughtering animals. According to Shafeeq Ahmed, president of the Indian Shoe Federation, due to the campaign, some of the American and European brands have been insisting that the products sold to them are not made out of cow hide sourced from India. Though the product manufacturers have been meeting their orders by importing hides from other countries, the loss has been for the Indian leather market. Hides from India are not making it to products that would have given the highest value-addition. 'It is not a commercial loss for individual companies, but a loss for the country which is not getting the real value for its resource', he said. During the recent Indian International Leather Fair (IILF), held in Chennai at the beginning of February, senior members of the Indian leather and finished products industry met to discuss the crisis caused by the animal rights lobby. The meeting was held behind closed doors but was reported to have been heated. The outcome of the meeting was to put a strategy in place to apply greater pressure onto the national government to try and improve livestock conditions, live animal transportation and slaughterhouse welfare. According to a spokesman from the CLE, the concerns over animal husbandry in India and the campaign waged by Peta is being looked at by members of the Indian government 'at the highest level'. A strategy to improve the situation is being established at the moment while the industry is beginning to suffer as it is forced to procure raw materials from outside. A negative effect on the industry has been felt despite the industry's difficulty in being able to alter farming and slaughter practices. M Rafeeque Ahmed, president, All-India Skin and Hide Tanners and Merchants Association (AISHTMA), said that at least a million square feet of Indian cow hide had been replaced with imported cow leather. 'This, in turn, has made it difficult for the product manufacturers to get the exact quality of tanned hide they require for their products', he said, adding 'we are losing our competitive strength when we are not permitted to use our own raw materials. 'Despite the pressure put on the retailers, only one brand has so far refused to take Indian products', says Ahmed. His shoe company, Farida, have been supplying shoes to the American Timberland brand, which has decided not to take further consignments from India. Though Timberland will honour current orders, they have communicated that they would not be buying any more shoes, he said. His company had been expecting to supply Timberland over the next three years. Other major brands such as Clarks, Florsheim and Marks & Spencer have been insisting on buying finished leather products made from imported cowhide. Industry sources say that the recent decision by the Italian brand, Gucci, not to take products made from Indian cowhide will have a negligible impact on Indian exports. A premium brand such as Gucci imports very little from India. Fortunately, there is a willingness among many of the leather buyers to alleviate the situation and a number of companies, including international brands, have taken a more pragmatic approach. According to M M Hashim, former chairman of the Council for Leather exports (CLE), German importers have decided not to be pressurised by Peta to stop buying products made out of Indian cowhide. Instead, they have taken a policy decision to work with the Indian industry and put pressure from inside to prevent cruelty to cattle during transportation. Germany is one of the largest importers of Indian leather products, taking more than 15% of the country's entire leather exports in 2001. Increased export earnings to the US According to Peter Mangione, president, US Shoe Dealers and Distributors Association, retail sales of footwear in the US was worth US$39.6 billion and in 2000 approximately 1.2 billion pairs were sold, making it the largest consumer market for footwear in the world. Mangione was addressing Indian tanners during the IILF in Chennai. As reported in Leather International, April 2001, page 26, the Council for Leather Exports wants to see an increase in the leather and leather product exports from India to reach a global market share of 10% by 2010. Increased export sales to the US market has been identified as one of their key objectives. Between 2000 and 2001, Indian exporters made considerable gains. Table 3 shows that Indian leather and leather products increased by 32% to US$343 million in 2000-2001. In just one year, the US has leapt from third to first in terms of imports from India and now accounts for nearly 18% of the total. Indian exporters also managed significant growth in Germany, the UK, Italy and Spain over the same period. Overall, most Indian leather exports are headed towards markets in the EU. Increase global market share According to Dr T Ramasami, director, Central Leather Research Institute (CLRI), the Indian leather sector needs to concentrate on strategic action and aggressive marketing over the next five years to corner 10-14% of the world market. Speaking at the LERIG (Leather Research Industry Get-together) earlier this year, he said that India had reached a stage where its finished leather has a quality that is recognised worldwide. Ramasami said that 40-60% of the global leather market is for footwear and India only enjoys a 1-2% market share. 'To increase our share, there is a need to produce good quality components in this country and for better forward planning.' Features of the leather sector in India * Employs 2.5 million people mostly from poorer backgrounds and many women * Nearly 60-65% of the production is in the small scale/cottage sector * Annual export value poised to touch US$2 billion * Estimates suggest India has 10% of the world raw material base * Very high value addition within the country * High return on capital investment, ie ratio of turnover to capital employed * Possesses enormous potential for future growth (domestic as well as export) * India has known international brands for leather products Major production centres The major production centres for leather and leather products are located in Chennai (Madras), Ambur, Ranipet, Vaniyambadi, Trichy, Dindigul in Tamil Nadu, Kolkatta (Calcutta) in west Bengal, Kanpur and Agra in Uttar Pradesh, Jallandhar in Punjab, Bangalore in Karnataka, Hyderabad in Andhra Pradesh and Delhi. The southern Indian State of Tamil Nadu accounts for over 43% of the total leather and leather product output. Strengths of the Indian leather industry Raw material base: The raw material base in the country is enormous with an estimated population of 212 million cattle, 96 million buffalo, 144 million goat and 53 million sheep. According to the latest census, India ranks first among the major livestock holding countries in the world. The annual raw material availability is believed to be around 65 million pieces of hide and 170 million pieces of skin. Some varieties of goat, calf and sheep are regarded highly on the world market due to their premium quality. The Indian government have also liberalised the import of basic raw materials, including machinery and chemicals, by placing them on Open General License and eliminating import duty wherever necessary. Manpower: Abundant availability of manpower skill required for tanning, finishing and manufacturing downstream products is another key strength. Competitive wage levels in the country are an added advantage. Technology: The upgrading of technology in the tanning sector to meet environmental standards, the capabilities in the design development of leather products particularly of footwear. A number of institutions such as CLRI, FDDI, NID, NIFT etc, have been set up to support the Indian industry in R&D, quality control, design and product development. Environmental management: The environmental management in the tanning industry in India has received sharp focus in the recent years. 17 common and more than 180 individual effluent treatment plants are operating in the country, catering to more than 70% of the estimated 80,000 cubic metres of liquid effluent generated every day. Much of the solid wastes and hair are converted into useful byproducts. Global scenario vis-à-vis India's export The global trade in leather and leather products has increased in total over the years and reached a turnover of US$68 billion in 1999. The export of Indian leather and leather products also grew over the past three decades and its current share in global trade is 2.4%. Among the total world trade in only leather, India's share is 2%. The major exporting countries of leather and their shares in 1999 were Italy 23.4%, Korea 9.6%, the USA 6.8%, Argentina 6.1%, Germany 5.7%, Brazil 4.9%, the UK 2.9% and China 2.9%. Among the world trade of leather and leather products, the share of leather footwear alone constituted 38.7%. Whereas India's share in global trade of leather footwear is 1.4%. The leading exporting countries of leather footwear in 1999 by market share was Italy 18.6%, China 15%, Portugal 5.6%, Spain 5.6%, Brazil 4.3%, Indonesia 3.6%, Germany 3.6%, Belgium/Luxembourg 2.7% and the UK 2.6%. In world trade of footwear components, India's market share is 5%. The leading exporting countries of footwear components and their shares are Italy 20.1%, Korea 7.8%, China 7.5%, the USA 7.0%, Romania 5.7%, Germany 4.6% and Tunisia 3.2%. In world export of leather garments, India's share is 11.2%. The major exporting countries of leather garments and their shares are China 39.2%, Pakistan 9.2%, Türkiye 7.1%, Italy 7.0%, Germany 5.0%, Korea 5.0% and the USA 2.5%. In global exports of leathergoods, India's share is 7.1%. The major exporting countries of leathergoods and their market shares are Italy 21.7%, China 16.5%, France 11.5%, the USA 5.2%, Greece 4.8%, Thailand 4.6% and Germany 3.7%. In world trade in leather gloves, India's share is 9.6%. The major exporting countries of leather gloves and their market shares are China 35.8%, Pakistan 2.6%, Germany 2%, Italy 1.9%, Hungary 1.6% and Mexico 1.2%. India's share in global trade of leather saddlery and harness is 8.3%. The major exporting countries of saddlery and harness and their market shares are China 14.3%, Germany 11.3%, the UK 10.6%, the USA 7.4%, Denmark 4%, Mexico 3.7% and Italy 3.7%. India's share in trade of non-leather footwear is 0.1%. The major exporting countries of non-leather footwear and their market shares are China 26%, Italy 6.7%, Belgium/Luxembourg 4.4%, Indonesia 3.5%, Spain 2.6%, France 2.1% and Thailand 1.8%. India has stiff competition in the international market from countries such as China, Vietnam, Thailand and Indonesia, which are emerging as major manufacturing countries. East European countries like Poland, Romania, Czech and Slovak Republics have re-emerged as major production centres, particularly in the footwear sector. These countries, too, are major competitors to Indian exporters as they enjoy geographical advantage, in view of their closeness to the European marketplace. India vs China Despite India being the second largest volume footwear manufacturer, it is still a long way behind China. Speaking at the IILF opening, Thiru Murasoli Maran said: 'There is no doubt that the global market situation has become quite tough with competition hotting-up particularly from countries in south east Asia such as China, Indonesia, Vietnam, South Korea and Thailand. Following a massive relocation of this industry from the USA, Japan, South Korea and Europe in the past ten years, the main beneficiaries have been China, Indonesia and, of late, Vietnam. It is time that we take a close look at the global picture and take immediate measures to augment exports of leather and leather products from China.' India has a duty level of between 63-83% on Chinese goods. 'Imports from China are not a serious threat to the Indian leather industry', says Rafeeque Ahmed, president, AISHTMA. 'In fact, it provides an opportunity for some introspection by the industry. 'Chinese imports have not affected the Indian leather industry as much as they have hit other industries. I don't think China will in any way be able to compete with India in leather. The affected area will be ladies' footwear and that, too, in non-leather synthetic footwear. Not much development has taken place in ladies' footwear in India, and particularly so in the non-leather sector.' Ahmed believes that the Chinese market is set in a different way from other markets. Instead of producing their own brands, they produce large quantities on behalf of other international companies. 'The Chinese are not big companies who want to come into India, sit down here, open offices and brand and market products. They are not very strong at that. They have only been manufacturing for the branded people abroad', says Ahmed. 'We have to consolidate and find out why we are costlier than the Chinese. Why are we not able to offer our Indian consumers more products and more variety?' he concluded. Ahmed recently visited major shoe companies in China and was very impressed with their productivity and efficiency. 'The Chinese leather industry is supported by their local municipal administration, which provides them with a good supply of electricity and land to build a factory. Once the factory is up and running, the company has the power to hire and fire without problems. Beijing doesn't get involved which makes the decision-making processes quicker.' Integrated tannery projects in the offing According to the Union Minister for Commerce and Industry, Thiru Murasoli Maran and J Vasudevan, CMD, ITPO, to promote foreign investment in the leather sector, the government proposes to set up integrated tannery projects on a pilot basis and current initiatives such as the tannery modernisation scheme. Inaugurating the IILF-2002, Maran said that during the Tenth Plan, the government would offer incentives and launch infrastructure facilities for the accelerated development of the leather sector, in which the country enjoys an advantage. The policy announcement made by the government to assist leather and leather products manufacturers from the small-scale sector is to enable them to modernise and expand. The plan would give the Indian industry the economics of scale to compete globally. Maran hoped that the 'market access initiative scheme', launched this year, would help promote exports through a country and product approach. 'I expect the leather industry to take full advantage of this scheme by planning comprehensive projects to enhance market access to the US, European Union, Japan etc.' The imports of various capital goods and components have been liberalised by the government over the years. 'You will see more steps in the next Exim Policy', he said. About 82 tanneries had made use of the funds made available in 2000 under the tannery modernisation scheme. He asked other units to make use of this fund to strengthen their competitive muscle in the global market. Leading Indian tanners and footwear producers such as Presidency Kid Leather Limited have taken full advantage of the governments tannery modernisation scheme. A full article follows in this issue of Leather International. The Tannery Modernisation Scheme was launched on a pilot scale in January 2000 in order to assist tanneries with technological improvements and upgrades to meet international standards. The 82 companies already signed up to the scheme have utilised Rs9.4 crore (US$2.2 million). A further 55 tanneries have completed a proposal to extend the scheme with a further Rs6.4 crore (US$1.5 million) of funding. IILF - a major meeting point The 17th India International Leather Fair (IILF) took place at the Chennai Trade Centre in Chennai (Madras), January 31 - February 3. This year the exhibition area booked had increased by 15.3%. A large number of buyers from countries such as the US, UK, Germany and Italy, attended as well as overseas delegations from Spain, Belarus, Yugoslavia, Ghana, Indonesia, Sri Lanka, Thailand, Israel and Latin America. Over 200 companies exhibited including 35 from 19 countries exhibiting leather, leather chemicals and machinery, footwear components and accessories, footwear and other related products. According to the ITPO, the exhibition was bigger than in 2001 despite a global economic slowdown. Further construction at the Chennai Trade Centre is to take place over the next year in order to increase the exhibition capacity in time for the 2003 show. 'To upgrade the facilities available at the Chennai Trade Centre, the government will take efforts to construct an extension to the convention centre. This could be on a build-operate-transfer basis. Thiru Murasoli Maran hoped that as with the first phase the remainder of the trade centre would be completed within a year, without cost overrun. The ITPO provides a wide spectrum of services to trade and industry and acts as a catalyst for growth of India's trade. As a nodal agency of the Government, ITPO approves the holding of international trade fairs in India and regulates the various expositions in India.