A Comprehensive Study on Leather Industry

By Debasis Samanta Varun Sharma PGDBA-Second year

ASIAN INSTITUTE OF COMMUNICATION AND RESEARCH NERAL

Acknowledgement
We would like to thank Dr. R. Chandran for giving me the opportunity to work in such a vital project and continuously guiding us through out the project.

Global Market Overview

The global leather industry is valued at about US$ 85 billion. Most of the producing countries are developing countries, while developed markets such as the US are major consumers of leather products. The industry is buyer-driven, with producing countries manufacturing in line with specifications, guidelines and technical advice provided by the buyer countries. China and Italy are the leading producing and exporting nations in the world with exports worth US$ 19 billion and US$ 13 billion respectively. India, with an output of US$ 4 billion and exports of US$ 2.4 billion, is placed third. The leather industry occupies a prominent place in the Indian economy in view of its substantial export earnings, employment potential and growth. The industry provides employment to about 2.5 million people, of which 30 per cent are women. Exports have risen from US$ 1604 million in 19992000 to US$ 2379 million in 2004-05 at a CAGR of 8 per cent. India has a 2.32 per cent share in the global leather trade and ranks eighth in the world in terms of the countrys foreign exchange earnings from the industry. The composition of exports has also been changing, with more and more value added products being exported. In 2004-05, for example, value added finished products constituted around 80 per cent of the total exports from the industry, a far cry from 7 per cent in 1956-57. The value addition is at present to the tune of 200 to 500 percent. India has plans to double its leather exports over the next 5 years. It has been estimated that India has the capacity to meet nearly 10 per cent of global leather requirement.

Indian Scenario
The Indian leather industry comprises the following key sub-sectors - tanning and finishing, footwear, footwear components, leather garments and leather goods and accessories. A large part (nearly 60-65 per cent) of the production is done by the small/cottage sector. Leather and leather products production is centered in southern, northern and eastern India. Key production units are located in Tamil Nadu, West Bengal, Uttar Pradesh, Punjab, Karnataka, Andhra Pradesh, Haryana and Delhi. Tamil Nadu is the biggest leather exporter in the country with the south accounting for 43 per cent of the countrys share. The industry uses primarily indigenous natural resources with little dependence on imported resources.

Structure of the industry

The leather industry is spread in different segments, namely, tanning & finishing, footwear & footwear components, leather garments, leather goods including saddlery & harness, etc. The estimated production capacity in different segments is as under. Product Hides Skins Leather Footwear Leather Shoe Uppers Non-leather Footwear Leather Garments Leather Goods Industrial Gloves Saddlery production Capacity 65 million pieces 170 million pieces 776 million pairs 112 million pairs 960 million pairs 18 million pieces 60 million pieces 52 million pairs 0.10 million pieces

Leather Manufacture - The processing of hides to make leather

There are 2 stages in making leather

Stage 1. Wet-blue processing

Fleshing-The excess flesh and fatty tissue under the hide is removed by a fleshing machine before the hides are loaded into drums. Soaking (3-4 hours) -The hides are washed to remove dirt and blood from the surface. Detergents are added along with a slightly alkaline chemical such as sodium carbonate to raise the pH to 8-9. The soaking process also restores lost moisture to hides that have been salted and stored for long periods before processing. Hair removal (4-6 hours) -Water, lime and sulfide are added to the hides. The hides become very alkaline, above pH 12. The hair is attacked by the chemicals and breaks off at the surface. The hair can be filtered out through large screens and collected. The epidermis of the hide is also removed. The hair that is recovered can be used as a fertiliserLiming (10-16 hours) More water, lime and sulfide are added. At this alkaline pH the hide structure swells as the fibres in the hide absorb water. Unwanted proteins are removed from the hide during this time. Deliming (3-6 hours) -Deliming removes the lime and alkaline chemicals present in the limed hide. Carbon dioxide and ammonium salts are added which lowers the pH to ~8. The temperature is raised to 35oC. The hide de-swells as the alkalinity is reduced and water is released Bating (1 hour) Proteolytic enzymes are added which clean up the grain surface and further destroy any remaining hair roots and pigments. This makes the grain surface softer and cleaner. Pickling (2-3 hours) -Water, sulfuric acid and salt are added. This solution is very acidic and the pH is usually below 2. This acid environment makes the hides ready to accept the tanning chemicals. The addition of salt prevents any swelling of the hide. After penetration of the salt and acid the hides are in a preserved state. Tanning and basification (10-15 hours)-Tanning converts the hide into a stable material which will not putrefy or be attacked by bacteria. Chrome powder is added which dissolves and penetrates into the hide structure and forms crosslinks with the collagen. Once adequate penetration of the chrome has occurred, the hides are basified. A slightly alkaline chemical such as magnesium oxide is added and the pH is slowly raised to 4. The temperature is also increased to 45oC. The chrome is fixed to the collagen in the hide. The leather is fully tanned when it is resistant to heat and wont denature (shrink) at 100oC. The wet-blue hides are then removed from the processing drums. Sammying -Excess moisture is squeezed out of the hides by passing them through large rollers under pressure

Wet blue is the intermediate stage of leather processing. The wet-blue hides have been tanned and can be stored or transported from the tannery to finishing plants.

Stage 2. Finishing- The finishing stage of leather making can have many variations depending on
the type of leather being processed and its use as a final product. Splitting and Shaving-The wet blue is split through the middle to a required thickness for end use. This is typically 1-2mm thick. Any further correction of the thickness is done by shaving off any fleshy material not wanted. Retanning -This is a second tanning step. The pH is raised to ~5 by removing free acids that are present in the wet blue. This step determines many of the properties of the leather when processing is ended. Vegetable extracts and syntans can be added to give the leather its desired feel when made into the final product. Retanning can make the leather softer or firmer. Dyeing- dye is added to colour the leather Fatliquoring-oil is added that coats the fibres in the hide structure so that the leather will remain flexible after drying. The fatliquor also gives the leather a soft feel Drying -The hide is dried to reduce moisture. This is achieved using one of two methods. The hides can have moisture removed in a vacuum dryer, where the hides are spread on warm metal plates and the moisture is removed under vacuum. The hides can then be hung up and air dried. Alternatively, if the hides are not vacuumed dried they can be toggle dried, where the hides are stretched and pegged on a perforated frame and then moved into a drying oven. The final moisture content is 15-20%. Staking-After the hides are dried they become stiff and less flexible. Staking is a mechanical treatment to make the leather soft and supple after it has dried out. Buffing-For hides which have a damaged, faulty or uneven grain surface, this can be smoothed by mechanical sanding. This smoothes any scratches or blemishes in the grain which will improve the final appearance of the leather surface and allow a more even and consistent finish coat to be applied. These leathers are known as corrected grain. Finishing-Protects the grain surface of the leather from moisture, dirt and abrasion. The specific steps in the finishing process are dependent on the requirements of the final product and vary for different leathers as the surface properties of the leathers are modified. Full grain leathers have a polymer or wax finish applied to the grain surface by a spray gun or a rollercoater. Corrected grain leathers have one or more basecoats and pigment coats applied which improves the adhesion of the following topcoat The topcoat is applied by rollercoater or spray gun and then dried. The finish applied determines how the end product looks in terms of colour, shade, lustre and feel. Embossing-Embossing is a further process which stamps an artificial grain pattern onto the surface of the leather if required.

Production centers in the country

The major production centres for leather and leather products are located at Chennai, Ambur, Ranipet, Vaniyambadi, Trichi, Dindigul in Tamil Nadu, Calcutta in West Bengal, Kanpur in Uttar Pradesh, Jalandhar in Punjab, Bangalore in Karnataka, Delhi and Hyderabad in Andhra Pradesh.

Export Scenario
The leather industry is among the top 10 export earners of the country. Exports from the sector constitute about 4 per cent of Indias total exports. The key markets for leather products exported from India are Germany, UK, USA and Italy, which together consume about 49 per cent of Indian exports. In terms of product category, leather footwear, finished leather and leather goods together account for over 75 per cent of exports. Leather footwear exports were to the tune of US$ 601 million in 2004, finished leather exports were US$ 577 million and leather goods stood at US$ 568 million.

Sourcing For Leather industry

Leather Footwear Domestic production centers -Agra, Ambur, Bangalore, Chennai, Delhi, Jallandhar, Kanpur, Mumbai and Ranipet. International Importers - U.S.A., U.K., Germany, France, Italy, Netherlands, U.A.E., Canada, Russia and Australia Leather Footwear Components Domestic production centres-Agra, Ambur, Bangalore, Chennai, Delhi, Jalandhar, Kanpur, Mumbai and Ranipet International Importers- U.K., Germany, Italy, U S A, France, Portugal, Switzerland, Spain, Netherlands and Austria Leather Garments Domestic production centres -Bangalore, Chennai, Delhi, Hyderabad, Jalandhar, Kanpur Mumbai and Poona International Importers -Germany, U.K., U S A., Italy, Spain, France, Netherlands, Denmark and Sweden and Canada Leather Goods Domestic production centres -Calcutta, Chennai, Delhi, Jalandhar, Kanpur and Mumbai International Importers -U.S.A., Germany, U K., Italy, Netherlands, France, Spain, Russia, Canada and Sweden.

SWOT Analysis of the Indian leather industry

Strengths

High Growth Ready availability of highly skilled and cheap manpower Large raw material base Policy initiatives taken by the Government Capability to assimilate new technologies and handle large projects Continuous emphasis on product development and design up gradation. Large domestic market. Research and Development capabilities. Availability of low cost skilled labour.

Weaknesses

Lack of warehousing support from the government International price fluctuation Huge labour force resulting in high labour charges Lack of strong presence in the global fashion market Unawareness of international standards by many players
Opportunities

Rising potential in the domestic market Growing fashion consciousness globally Use of information technology and decision support software to help eliminate the length of the production cycle for different products Use of e-commerce in direct marketing

Threats

Major part of the industry is unorganized Limited scope for mobilizing funds through private placements and public issues (many businesses are family-owned) Difficulty in obtaining bank loans resulting in high cost of private borrowing Stricter international standards High competition from East European countries and other Asian countries Lack of communication facilities and skills

Key Domestic & Foreign Players

Superhouse Leathers Superhouse Leathers Ltd. was incorporated in 1980 by a private Indian party to produce shoe uppers. The company has plants at Jaimau (Kanpur Dehat, Uttar Pradesh) producing leather goods, at Kanpur (Uttar Pradesh); shoe uppers, at Noida (Ghaziabad, Uttar Pradesh); leather and textile garments, at Sikandra (Agra, Uttar Pradesh); shoes at Unnao (Uttar Pradesh) shoes and sole leather, at Unnao (2 plants; in Uttar Pradesh) producing chrome leather and chrome leather (skins). Revenue for the year 2004-05 was US$ 45 million.
Mirza International

Mirza Tanners Ltd. was incorporated in 1979 by the Mirza Tanners Group to produce leather shoes. The company has plants at Juhi, Kanpur Nagar (in Uttar Pradesh), for manufacturing shoe uppers and shoes; at Magarwara, Unnao (Uttar Pradesh) for bags, finished leather, shoe uppers and shoes; at Noida, Ghaziabad, in Uttar Pradesh, which produces shoe uppers and shoes and another at Shahjani, Unnao (Uttar Pradesh) which produces bags, finished leather, shoe uppers and shoes. Its revenue for the year 2004-05 stood at US$ 57 million. Bata India Ltd. Bata India Ltd. was incorporated in 1931 by a private Indian party and mainly produces leather shoes. The company has plants at Bangalore (Karnataka), Bataganj (Patna, Bihar), Hosur, (Dharmapuri, Tamilnadu) and at Batanagar (North 24 Parganas, West Bengal) producing leather footwear; at Faridabad in Haryana producing rubber & canvas footwear and at Mokamehghat (Patna, Bihar), which produces finished leather from hides. Bata India Ltd. is an affiliate of the Toronto based Bata Shoe organisation. Bata India had revenues of US$ 158 million in the year 2003-04.

Liberty Shoes Ltd. Liberty Shoes Ltd. was incorporated in 1996 by a private Indian party and produces shoes. The company has plants at Kutail, (Karnal, Haryana) producing Eva co-polymer compound, lshoe uppers, leather shoes, non leather shoes and rubber chappals (slippers). The revenue for the year 2004-05 was US$ 44.5 million and the profit stood at US$ 2.2 million. Bhartiya International Ltd. Bhartiya International Ltd. was incorporated in the year 1987 by a private Indian party. The company mainly produces leather apparel and clothing accessories. The company has a plant at Bangalore, Karnataka, producing leather garments. The revenue and profit for the year 2004-05 was US$ 21 million and US$ 1 million respectively.

Lakhani India Ltd. Lakhani India Ltd. was incorporated in 1981 by the Lakhani group and produces leather shoes. The company has plants at Faridabad in Haryana for producing leather shoes. The revenue and profit for the year 2004-05 was US$ 28 million and US$ 0.6 million respectively. Forward Group The company generated revenues of US$ 25 million in 2003. Nearly 90 per cent of its revenue comes from the UK market. The Forward group has entered into a first-of-its-kind joint venture with Conceria Virginia Italy (CVI), a 10-year-old Italian tannery, specializing in leathers for shoes and leather goods, and has set up a six million sq. ft state of- the-art leather manufacturing facility in Chennai. This is the first FDI in the tanning sector in India with investments by both partners, raw material resourcing expertise & technology transfer from Italy and marketing by the joint venture partner. Khadims Khadims is among the top three national players in terms of organized footwear retailing. It has more than 220 exclusive retail outlets across the country .With its foray in footwear retailing in 1993 Khadims has scripted one of the biggest success stories in the footwear industry. With the birth of independent India began a journey that was to set an example for others to follow. Growing from strength to strength, we have converted every obstacle we encountered into a stepping-stone towards success.

Major Challenges
The issues that are hindering the export growth of the Indian leather industry are as follows: Environmental Issues The leather industry is traditionally considered as a polluting industry in the tanning and finishing stages of the production chain. Global standards set by importing countries affect the entry and increase the cost of market access to products of developing countries. Usage of many chemicals has been banned by various countries. The product specifications for leather are constantly under review, leading to greater stringency. Impact of PETA Campaigns by NGOs, such as People for Ethical Treatment of Animals (PETA), related to cruelty against animals have led to boycott of Indian leather products by many foreign companies. WTO Related Matters With the advent of WTO, the average and bound tariffs for manufactured products have fallen in the developed countries. However, the average and bound tariffs for leather products remain relatively high. Many developed countries are implementing Technical Barriers to Trade (TBT) as Non-Tariff Barriers to restrict leather exports from developing countries like India. Cost Escalation Leather exporters have to meet domestic as well international environmental norms. Testing and certification requirements add to the costs of leather manufacturers. However, it is observed that small supplier firms may not be able to comply with stringent environmental standards. High costs of compliance impose real economic costs on firms. Chinese Competition Chinese leather industry ranks top on the raw material resources, product yield and import and export trade in the world. China is one of the major competitors to Indias leather sector as it has the capability to produce large volume at low price. Chinese leather exports have increased by three-fold after its entry into WTO.

Future Strategies for Indian Leather Sector

The Indian leather industry is targeting over US$ 5 billion exports by 2010 and is expected to add about additional 1 million direct and indirect jobs to already existing employment base of 2.5 million people. Shifting of Manufacturing Base - Major world tanning firms are shifting their manufacturing base to developing countries due to high wage levels and strict environmental norms in developed countries. The factors which are in Indias favor are availability of leather, production know-how, processing of shoes. India could effectively use these advantages to increase its share in global production and exports. Government Support -The priority should be given to Technology up gradation and modernization of the entire leather value chain. Recently, the Government has already approved Rs. 290 crores for modernization and technology up gradation programme. Strong Production Base -The industry should give more emphasis to design and technology, quality and innovation and economies of scale. Skill development of the manpower engaged in the sector should be given due importance for enhancing the export potential. Investment by Large Corporate - Indian leather industry is dominated by household and small scale sectors. The large scale production capacity of big Corporates would enhance the capability of producing quality leather products and also bring down the unit cost and increase the competitiveness in international markets. New Markets Another important strategy for Indian leather industry is the Diversification of export markets. Consolidation in new markets such as Croatia, Slovakia and Serbia would sustain the export growth momentum because the Imports of leather articles by these countries have increased in the range of 20- 30% in a period of five years. New Trends -The industry needs to keep itself abreast with latest fashion trends in the sector. It is observed that Italian buyers pay attention not only to the quality of the leather products but also to the accessories used in the garments. It is imperative that adequate care is taken about the packing material. Diverse Marketing Techniques - To endure global competition India needs to adopt aggressive marketing techniques. The industry could undertake business delegation to secure overseas investments and technology partnerships, besides building brand image. Developing countries like India should have two pronged marketing strategy of simultaneously targeting low price and high quality markets, rather than the traditional strategy of being a low price-low quality supplier.

Enabling Infrastructure - Exclusive leather complexes could be developed in all the major production centers. The development of the Calcutta Leather Complex is a positive sign as all amenities are available at one place. Improvements in efficiency of ports, internal transport, customs procedures and supply chain management are necessary for increasing the productivity and exports in this sector. Fairs and Exhibitions - It is imperative that Indian exporters participate in fairs and exhibitions organized in the international market. It could serve as a good platform to showcase our products. Lack of information about Indian leather manufacturers also acts as a hurdle for international buyers. Training Facilities Regular Training programmes should be conducted to foresee and adapt to changing trends and technology. It is imperative that the staff is skilled and well qualified to train the students. Further, programmes need to be conducted to make Indian exporters aware of different standards and requirements in the global market to ensure that Indian exports do not get rejected due to environmental norms.