Indian Leather

Industry

1

Department of Business Administration

University of Lucknow

Business Policy & Strategic Analysis

Term Paper

Industry Profile on:

Leather Industry

In

India

Submitted to- Submitted by-

Prof J. K. Sharma PallaviBhargava

Faculty, Dept. of Business Admn. M.B.A. Sem 3 rd

University of Lucknow finance

2

ACKNOWLEDGEMENT

I would like to take this opportunity to thank all those people who have contributed towards the

completion of this term paper.

First of all I would like to thank my teacher, Prof. J. K. Sharma for the informative and

interactive class sessions on strategic management.

I would also like to thank all my friends and family for their constant support.

-Pallavi Bhargava

3

CONTENTS

Topic Page No.

1. INTRODUCTION 42. MAJOR PRODUCTION CENTERS IN INDIA 53. STRUCTURE OF THE INDUSTRY 6-7

4. MAJOR PLAYERS 85. GOVERNMENT REGULATIONS AND SUPPORT 96. PORTERS FIVE FORCES MODEL 107. SWOT ANALYSIS 11-128. COMPETITIVE ADVANTAGE 13-149. ENVIRONMENTAL ISSUES 15-1610. CONCLUSION 1711. REFERENCES 18

4

INTRODUCTIONThe Indian leather industry, one the most vibrant sector of the country’s economy, iswell-structured and spans various segments, such as tanning and finishing, footwear andfootwear components, leather garments, leather goods, including saddles and harness. Wellrecognized in the international market, the Indian leather goods constitute about 7 per cent of India’s export earnings. Besides being a significant earner of foreign exchange, the leatherindustry generates employment, ensuring jobs for over 2.5 million people, with 75 per cent of theproduction from small and cottage sectors. India, with an output of Rs. 186.56 billion (3.354 billionEuros) and exports of Rs. 125.46 billion (2.225 billion Euros), is placed third, while developed markets such as the US are major consumers of leather products. It is now poised for a big leapto double its global share from the present 3%. The industry covers a vast spectrum of inputs,activities, skills and products i.e. livestock, hides and skins, tanning, leather products and exports.The Indian Leather Industry is growing by leaps and bounds. One must be wondering why India isexporting so much of leather to western countries. Apparently because leatherwear still enjoys agreat demand abroad and now-a-days even the domestic market is developing and consumingthe offerings of this industry.

Indian leather sector : A profiler sector: A ProfileIndia is the largest livestock holding country 21% large animals and 11% small animals• A source for 10% global leather requirement• Annual production value over Rs. 186.56 billion (3.354 billion Euros)• Annual export value over Rs. 125.46 billion (2.225 billion Euros)• Export growth CAGR (compound annual growth rate) 8.61% (5 years)• About 2.50 million workforce (30% women)• Promising technology inflow and Foreign Direct Investment• Enormous potential for future growth (domestic as well as export)

5

MAJOR PRODUCTION CENTERS IN INDIA

Major production centers in India are Tamil Nadu

Tamil Nadu has a dominant presence in the leather and leather based industries. The tanningindustry in India has a total installed capacity of 225 million pieces of hide and skins of whichTamil Nadu alone contributes to an inspiring 70%. Leather industry occupies a pride of place inthe industrial map of Tamil Nadu. The major production centres in tamilnadu are Chennai,,Ambur, Ranipet, Vaniyambadi, Trichy and Dindigul.

West BengalWest Bengal is one of the country's top states for export of finished leather goods.Bata India Limited is India's largestmanufacturer and marketer of footwear products.It has 5 plants nearKolkata. Main plant is located in Batanagar near Kolkata. Bata India secures its leather supplyfrom two tanneries in Mokamehghat (Bihar) and Batanagar (West Bengal).The number of manufacturing industries engaged in leather products is 538 in West Bengal.

Uttar Pradesh

U.P. is one of the most important states in India holding sizeable population of live stock. Claiming a share of 22% U.P. ranks Ist in case of Buffalo and IInd in case of Cattle having a share of 12% Thus, U.P. has a very strong raw material base and all types of main raw material for leather industry are available.

Major production centers and Number of leather and leather products industries in U.P. are to the tune of approx. 11500 of which Kanpur and Agra are the two famous production centres in the world.Kanpur is a prominent centre for leather processing. About 200 tanneries are located in Kanpur.Kanpur tanneries specialize in processing hides into heavy leather (Sole, harness and Industrial leather). This is the only centre in India where saddlery products are manufactured. Agra has been the biggest centre for shoe-manufacturing in the country.

STRUCTURE OF THE INDUSTRY

6

The leather industry is spread in four broad sectors, these are

Tanning and finishing

Footwear and footwear components

Leather goods

Leather garments

Footwear and footwear components sector

India is the world's second largest producer of footwear; its production estimated over 700 million pairs per annum. At about US $ 300 million per year, footwear accounts for 18 percent share of total exports of leather exports.

Various types of shoes produced and exported from India include dress shoes, casuals, moccasins, sports shoes, horacchis, sandals, ballerinas, and booties. Major production centres are Chennai (Madras), Delhi, Agra, Kanpur, Mumbai (Bombay), Calcutta and Jalandhar.

Most of the modern footwear manufacturers in India are already supplying to well established brands in Europe and USA

Leather garments sector

The Leather Garment Industry occupies a place of prominence in the Indian leather sector.  The product classification of leather garments comprise of jackets, long coats, waist coats, shirts, pant/short, children garments, motorbike jackets, aprons and industrial leather garments.The second most important product made out of leather is leather garments. Modern factorieshave been established in the small-scale during the last decade, mostly in the vicinity of urban areas of Chennai, Bangalore, Delhi and Hyderabad. Due toincreased export demand, the capacity for the leather garment industry has been rising and ispresently 18 million pieces per annum.

Indian Leather Goods Industry

Items produced by this sector include, in addition to bags, handbags, handgloves and industrial gloves, wallets, ruck sacks, folios, brief cases, travelware, belts,sports goods, upholstery and saddlerygoods.

A surfeit of modern units in Chennai, Kanpur and Calcutta employing skilled human resources and equipped with modern and sophisticated machinery account for a diversified range of superlative small leather goods including bags, purses, wallets, industrial gloves etc.

7

The major market for Indian leather goods is Germany, with an offtake of about 25 per cent of the leather goods produced in India followed by USA, UK, France and Italy. With products ranging from designer collections to personal leather accessories, this sector has a share of 20.53 per cent in the leather industry, while maintaining an average growth rate of 11 per cent in the last year.

Indian Saddlery Industry

India is one of the largest producers of saddlery and harness goods in the world. The saddlery industry was established in the 19th century primarily to cater to the needs of military and police. From then on initiatives were taken to develop, the industry and today there are over 150 units in the organised sector, out of which approximately 105 are 100% export oriented units.

Kanpur, in the state of Uttar Pradesh, is a major production centre for saddlery goods in India accounting for more than 95% of the total exports of saddlery items from India. Kanpur, because of its specialisation in tanning and finishing of buffalo hides is the only centre in the country where harness leather, which is major input for saddlery industry, is manufactured.

The major importers of Indian saddlery are Germany, USA, UK, France, Scandinavia, Netherlands, Japan, Australia and New Zealand.

Tanning and Finishing sector

The Indian market has been fragmented with about 2200 tanneries of which 2100 are small scaleunits and over 8000 leather product manufacturing units. The tanning industry is concentrated inthree states viz. Tamil Nadu, West Bengal and Uttar Pradesh. Of the total number of tanneries inIndia, Tamil Nadu accounts for 52%, West Bengal 23% and U.P 12%. The other important statesare Maharashtra, Andhra Pradesh and Punjab. Looking from the angle of scale of operations, thetanning industry largely exists in the small-scale sector with a share of 93% in the total number oftanneries in the organized sector.

8

MAJOR PLAYERS

Tata International Ltd. :It was established in 1962,one of the largest export house in India

Farida Shoes Ltd. : Based in Chennai, Farida shoes ltd.is the leading leather and leather footwear exporters in India with a turnover of approximately 170 million USD.

Mirza Tanners Ltd. :Mirza International Limited (formerly known as Mirza Tanners Limited) was incorporated on 5th September 1979. The company has its headquarters in Delhi and production unit at Kanpur.Today, the company has emerged as a frontrunner in the manufacturing and marketing of leather and leather footwear.

T. Abdul Wahid &Company :the company is based in Chennai, tamilnadu

Hindustan Lever Ltd.:subsidy of Hindustan Unilever Ltd. situated in Chennai.

Super House Leather Ltd.: Situated in Unnao near Kanpur

RSL Industries Ltd.: the company has its production unit in Chennai

Presidency Kid Leather Ltd.: the company has its production unit in Chennai

GOVERNMENT REGULATION & SUPPORTWith an eye on the potential of the sector, the Indian Government has placed an emphasis on theutilization of the available raw materials to maximize returns. It has introduced a number ofinitiatives, with the special emphasis on integrated development of the tanning sector.

9

These includes raw material augmentation, technology upgrade, and promotion ofenvironmental cleaner processing options, quality standardization and human skills development.To encourage training of unorganized artisan workers, the Government has given support to wellequippedtraining institutions to encourage training programmes to be given jointly with reputedforeign enterprises and experts.the various measures taken by the government are as follows-

De-licensing of integrated tanneries that convert raw hides and skins into finished leather. Several leather goods have been de-reserved from the small Scale Sector. Free import of raw hides & skins, semi-finished and finished leather. Concessional duty on imported machinery and chemicals. Free export of raw hides & skins, semi-finished and finished leather and leather products. Policies to facilitate modernization / up gradation: In June 2005 the government initiated

aRs. 2788.45 million (50.82 Million Euros) ‘modernizing scheme’ called the ‘IntegratedLeather Development Programme’, whereby all leather tanning and product units will beeligible for modernization assistance. The assistance will be to the extent of 30% ofproject cost for Small scale industry (SSI) units and 20% for non-SSI units.

Establishment of ‘design centres’ at individual manufacturing units, to facilitateimprovement in design capabilities: Under this scheme, 25 % of the project cost isprovided to the units under the market access initiative scheme of the Ministry OfCommerce and Industry.

The regulatory body for this industry is

Council for Leather Exports (CLE)

The Council for Leather Exports was set up in July 1984. A non-profit company registered underthe Indian Companies Act, 1956, the Council functions under the Ministry of Commerce,Government of India. The Council is entrusted with export promotion activities and overalldevelopment of the Indian leather industry.The Council's activities also include promoting Foreign Direct Investments and Joint Ventures inthe Indian leather industry. The CLE serves as a bridge between Indian leather exporters andbuyers all over the world.

10

PORTER’S FIVE FORCES MODEL

Threat of substitutes :In this industry the threat of substitute is moderate, due to presence of various leather substitutes.leather substitutes like rexine and canvas.Leather products cater to countries like Germany, US, UK, etc., hence the threat of substitute is not very high since the product is considered as a niche product in these countries.In footwear sector and leather goods sector there is a moderate threat from rexine and canvas shoes, handbags, gloves, valets etc.

Bargaining power of buyers :Indian leather industry basically is a export based industry catering to US and European countries. The bargaining power of these countries has increased due to stiff competition from other exporter countries like China and Italy.China is the biggest threat to indian leather industry due to its cheap labour.

Bargaining power of suppliers : India is the largest livestock holding country with 21 percent of the large animals and 11percent of small animals in the world. The large population of cattle, buffaloes, goat andsheep that the country possesses ensures that India has ten percent of the world’s raw material base. In addition, some of the leather available in India is premium quality andmuch sought after. These factors increase bargaining power of suppliers.

Competition :the competition has increased due to entry of multinationals in domestic market. Multinationals like Irving shoes and Liberty have entered in the domestic market.Fast changing fashion trends are difficult to adapt by the small scale sector hence the competition has increased in the domestic market as well as international market.

Barriers to entry:India’s advantage as a source of low cost, skilled labour is quite relevant to industriessuch as manufacturing of leather goods and footwear that are manufacturing of leathergoods and footwear which are relatively labour intensive.India has among the lowest cost of labour among key footwear producing countries. Barriers to entry in this industry is not high due to cheap labour cost, and low capital investment.

11

SWOT ANALYSIS

STRENGTHS

• Existence of more than sufficient productive capacity in tanning.

• Easy availability of low cost of labour.

• Exposure to export markets.

• Managements with business background become quality and environment conscious.

• Presence of qualified leather technologists in the field.

• Comfortable availability of raw materials and other inputs.

• Massive institutional support for technical services, designing, manpower developmentand marketing.

• Exporter-friendly government policies.

• Tax incentives on machinery by Government.

• Well-established linkages with buyers in EU and USA.

WEAKNESSES

• Low level of modernisation and upgradation of technology, and the integration ofdeveloped technology is very slow.

• Low level of labour productivity due to inadequate formal training / unskilled labour.

• Horizontal growth of tanneries.

• Less number of organised product manufacturers.

• Lack of modern finishing facilities for leather.

• Unawareness of international standards by many players as maximum number of leatherindustries are SMEs.

• Difficulties in accessing to testing, designing and technical services.

• Environmental problems.

12

OPPORTUNITIES

• Abundant scope to supply finished leather to multinationals setting up shop in India.

• Growing fashion consciousness globally.

• Use of information technology and decision support software to help eliminate the lengthof the production cycle for different products

• Product diversification - There is lot of scope for diversification into other products,namely, leather garments, goods etc.

• Growing international and domestic markets.

THREATS

• Entry of multinationals in domestic market.

• Stiff competition from other countries.(The performance of global competitors in leatherand leather products indicates that there are at least 5 countries viz, China, Indonesia,Thailand, Vietnam and Brazil, which are more competitive than India.)

• Non- tariff barriers - Developing countries are resorting to more and more non – tariffbarriers indirectly.

• Improving quality to adapt the stricter international standards.

• Fast changing fashion trends are difficult to adapt for the Indian leather industries.

• Limited scope for mobilising funds through private placements and public issues, asmany businesses are family-owned.

13

COMPETITIVE ADVANTAGE

Competitive Advantages of Leather IndustryThe leather industry can benefit from several characteristics of the Indian Market and thecorresponding advantages they offer.Some of these advantages are:

1. Supply side advantages

Availability of low cost skilled labour :India’s advantage as a source of low cost, skilled labour is quite relevant to industriessuch as manufacturing of leather goods and footwear that are manufacturing of leathergoods and footwear which are relatively labour intensive.India has among the lowest cost of labour among key footwear producing countries.In India to low costs, India also has the world’s largest technically trained manpower inleather craft. The twin advantages of low cost and technical skills offer India distinctcompetitive advantages of low cost and technical skills offer India a distinct competitiveadvantage in this industry.

Abundance of raw material : Availability of supporting institutionsIndia is the largest livestock holding country with 21 percent of the large animals and 11percent of small animals in the world. The large population of cattle, buffaloes, goat andsheep that the country possesses ensures that India has ten percent of the world’s rawmaterial base. IN addition, some of the leather available in India is premium quality andmuch sought after.

Availability of supporting institutions :

2. Demand side advantages :_ Large and growing domestic market

3. Regulatory / policy related advantages

_ Government Regulation_ Government Support_ Licensing Policy

14

Supply Side Advantages

Availability of low cost skilled labourIndia’s advantage as a source of low cost, skilled labour is quite relevant to industriessuch as manufacturing of leather goods and footwear that are manufacturing of leathergoods and footwear which are relatively labour intensive.India has among the lowest cost of labour among key footwear producing countries.Labour costs in leKorea 297.1 7.01

Taiwan 243.4 5.75

Hong Kong 222.85 5.26

Portugal 218.73 5.16

Brazil 61.90 1.46Indonesia 28.88 0.68

Romania 28.88 0.68

China 24.76 0.58

Vietnam 24.76 0.58

Thailand 20.63 0.48Pakistan 8.254 0.19India 8.254 0.19

15

ENVIRONMENTAL ISSUES

The leather industry has been traditionally considered as a heavy polluting industry in the tanningand finishing stages of the chain. Pesticides, chemicals and organic materials are the mainsources of pollution. Chrome is the most dangerous and long-lasting chemical pollutant. Othersare sulphides and solvents.

• OdourThe tropical climate of our country enhances the process of degeneration of any tissue materialremaining as a waste in the premises of the slaughter houses. Therefore, the slaughter housepremises always give a particular stink. In order to avoid this stinking odour proper ventilation ofslaughtering halls, washing of the floors with non-poisonous disinfectants and if need be use ofaerobic deodorants must be provided at each slaughter house.

Tanneries Tanneries harbour the greatest risk potential for the environment. This is due on the one hand tothe considerable odour nuisance and on the other to the dyes and other chemicals (particularlychromium compounds) used in the tanning process which complicate the wastewater treatmentoperation.

• Effect on Groundwater

Most parts of India are facing anthropogenic groundwater pollution. Such types of pollution aremainly enrichments of various chemical parameters such as nitrate, hardness, metallic traceelements and microbiological organisms. The overexploitation of groundwater in some parts ofthe country induces water quality degradation. Untreated industrial effluents discharged on thesurface cause severe groundwater pollution in the industrial belt of the country. This poses aproblem of supply of hazard-free drinking water in the rural parts of the country.

Pollution of water resources, both surface and underground, by indiscriminate discharge of spentwastes of chromium-based industries has become a serious global concern, for it has created anacute scarcity of safe drinking water in many countries.Wastes and chemicals released to water system are the main pollution concerns for the leatherindustry. They are produced during washing, dehairing and tanning of the leather. The Indian government has numerous laws in place that effect the leather industry. Althoughcompliance is effective achieving the required norms of total dissolved solid from the tanneryeffluent is a problem. The common effluent plants have been established in all areas of wheretanneries are clustered.

• Bio-accumulation of Chrome

The presence of chromium in the effluent is a major concern for the tanning industry. Currently,chemical precipitation methods are practiced for the removal of chromium from the effluent, butthat leads to the formation of chrome-bearing solid wastes. The other membrane separation andion exchange methods available are unfeasible due to their cost.

16

• People for Ethical Treatment of Animals (PETA)

PETA has more than 800,000 members and with offices in the United States, England, Italy,Germany and Mumbai, is the largest animal rights organization in the world.. PETA India, basedin Mumbai, was launched in January 2000.PETA India operates under the simple principle that animals are not ours to eat, wear, experimenton or use for entertainment, educating policymakers and the public about animal abuse andpromoting an understanding of the right of all animals to be treated with respect.

• Indian Leather Industry Foundation (ILIFO)

Another Association promoted by the industry with the basic objective of providing pollutionrelated services to the industry. It trains people in skills of running effluent treatment plants put upby tanneries. It conducts awareness programme in for workers’ safety andoccupational health hazards.

17

CONCLUSION

The leather industry occupies a prominent place in the Indian economy in view of its substantialexport earnings, employment potential and growth. The Indian leather industry, one the most vibrant sector of the country’s economy, is well-structured and spans various segments, such as tanning and finishing, footwear and footwear components, leather garments, leather goods, including saddles and harness.

Well recognized in the international market, the Indian leather goods constitute about 7 per cent ofIndia’s export earnings. Besides being a significant earner of foreign exchange, the leatherIndustry generates employment, ensuring jobs for over 2.5 million people, with 75 per cent of theproduction from small and cottage sectors. India, with an output of Rs. 186.56 billion (3.354 billionEuros) and exports of Rs. 125.46 billion (2.225 billion Euros), is placed third, while developedmarkets such as the US are major consumers of leather products. It is now poised for a big leapto double its global share from the present 3%. The industry covers a vast spectrum of inputs,activities, skills and products i.e. livestock, hides and skins, tanning, leather products and exports.

The Indian Leather Industry is growing by leaps and bounds. One must be wondering why India isexporting so much of leather to western countries. Apparently because leatherwear still enjoys agreat demand abroad and now-a-days even the domestic market is developing and consumingthe offerings of this industry.

18

References

National Labour Institute National Institute Of Occupational Health (http://www.ijoem.com) Exime Bank: Research Brief (http://www.eximebankindia.com) International Council of Tanners Indian Investment Centre India Brand Equity Foundation (http://www.ibef.org) All India Association of Industries Science Tech Entrepreneur E-Zine (DST & FICCI) http://www.thehindubusinessline.com/2006/12/01/stories/2006120101341100.htm United Nations Development Programme (NLDP) BIOONE Online Journals Access Control (http://www.bioone.org) Council for Leather Exports (http://www.fibre2fashion.com)

19