Glbal Footwear Analysis and Jordan[1]

CONTENTS

EXECUTIVESUMMARY

SECTIONI: THEGLOBALFOOTWEARINDUSTRY

A. StructureoftheWorldFootwearIndustry

1. GlobalConsumption

2. TheSupplyChain

B. InternationalSupply,ExportAnalysis

1. ShoeExportSupply,Asia1.1 China1.2 Indonesia/Vietnam1.3 India

1.4 Others

2. ShoeExportSupplyEurope(EU15)2.1 Italy2.2 Spain/Portugal2.3 France2.4 Benelux2.5 UK/Germany2.6 OtherEuropeanCountries

3. OtherExporters3.1 Brazil3.2 Mexico3.3 Tunisia/Morocco

4. Conclusions/InternationalSupply

C. InternationalImportMarketAnalysis

1. EU(15)MarketforImports1.1 UK1.2 Benelux1.3 Germany1.4 France1.5 Spain/Portugal

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Page

5-6

8-29

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9

11

12

12131416

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17181919192020

21212121

22

23

232425252626

1.6 Italy2. Conclusions/EUMarketforImports3. USAMarketforImports3.1 TypesofShoeswithMarketPotential3.2 Conclusions-USAMarketfor

Imports

SECTIONII: ANALYSISOFJORDANFOOTWEARSECTOR

1. Methodology

2. Manufacturing

3. LocalMarket3.1 Marketsize

4. BenchmarkingofIndustry

5. SWOTanalysisofIndustry

6. ConclusionsonJordanFootwearSector

6.1 Humanresources6.2 Technologylevels6.3 TheLocalmarket6.4 Optionsforexportmarket

penetration6.5 Typesofshoesforexport6.6 TargetCountries

SECTIONIII:RECOMMENDATIONS

1. StrategyforJordanianShoeManufacturingIndustry

2. ActionPlanforJordanianShoeManufacturingIndustry

2.1 DomesticMarket2.2 DomesticManufacturing2.3 MarketingtoEU2.4 MarketingtoUSA2.5 Training

Annex:FootwearexportsbycountryShoecosting

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2627272929

32-48

33

33

3637

39

44

45

45464646 4747

49-57

51

52

5253555557

58-6263-64

EXECUTIVESUMMARY

Theobjectiveof this study is to assess the strategicpositioningof the JordanianFootwear Manufacturing Industry in the international market and to determinea strategy and action plan to enhance the competitiveness of exports from thesector.

Footwearisanactiveproductininternationalmarkets.Itisbeingdelocalizedfromdevelopedcountriestodevelopingones.ThebeneficiariesofthisprocessareFarEast nations, in particularChina, India,NorthAfrican countries and theCentralandEasternEuropeancountries(CEEC).ItisworthnotingJordan’snearneighbours;TunisiaandMoroccoarequitesuccessfulinexportingfootweartotheEU.

JordanhasanadvantageininternationaltradeinthatithasagreementswithUSAthroughQualifying Industrial Zones (QIZ) and a FreeTradeAgreement (FTA), italso has an Association Agreement with the EU.These agreements allow dutyfreeaccess to thesemarkets, for footwear,providingcertain stipulationsaremet(and thesearenotonerous).These twomarkets thereforebecame the targets forJordanianexports.

Theworldfootwearmarketisestimatedat12,469millionpairsin2002.Thebiggestconsumersofconventionalfootwear(i.e.withleatheruppers)areUSAandEurope.Betweenthemtheyconsumed5,823millionpairsinthisyear,46.7%ofthetotal.

Chinaproduces6.9billionpairsperyearandrising,itexportsmorethanhalfofthese.Mostoftheseshoesaresynthetic(over60%)andoflowqualityandprice.The average price of exported shoes from China was US$2.46 in 2002. Otherfactories in the Far East producemore leather shoes, in particularVietnam andIndia.ThesetwocountrieswouldbedirectcompetitorsforJordanianshoes(Chinawithitsproductmixandtradingpracticesisimpossibletocompetewithdirectly).

In Europe and the Mediterranean zone, there are significant exporters ofconventionalfootwearnamely;Italy,SpaininEUandTunisia,MoroccoinNorthAfrica.TunisiaandMorocco,inasense,are“tied”toItalyandSpainastheyhavemanysub-contractingagreementswiththesetwocountries.Thesetwoblocksarealso major competitors for Jordan. Among the CEEC, Romania is the strongestcompetitor.

The “sleeping giant” for conventional shoes is India. It has a well-developedindustrialinfrastructureandcompetitivepricing.Ithasnotyetreacheditspotentialas anexporterof footwear.However, the shoes itdoesexport arecompetitivelypricedandofincreasingqualitylevels.

TheEuropeanmarketforimportsiswideanddiverse.Themarketineachcountryhasdifferentcharacteristics,someareeasiertooperateinthanothers.OftheEU15,UKasaprimarytargetmarketandHollandasthesecondary,emergedwiththebestpotentialforexportsfromJordan.IntheUSAmarket,becauseofitslargesize,nichemarketingistheonlysensiblewayforwardfortherelativelysmallproducersinJordan.

Althoughthesemarketsareavailableandareimportfriendly,theshoemanufacturingindustryinJordanmustbeinapositioninwhichtoservicethem.Duringthesurvey

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ofcompanies, itbecameobviousthatnoneofthemwascapableofexportingtosophisticatedmarketswithoutoutsidehelp.

In recent years, shoemanufacturing in Jordanhas gone into sharpdeclinewithfactories closing or converting to importers. This is due to many factors; thecumulativeresultof thesefactorsis that thelocalretail industryisdominatedbycheapimportsfromChina(ItisallegedthatsomeofthemmayhaveenteredJordanbydubiousmeans).Localmanufacturershavenotbeenabletofighttheseimports.As a result, they have a very smallmarket left to them.Nodoubtmanagementhavemademistakesinthepast,nowthereisanopportunitytocorrectthisandre-habilitatetheindustryintoaviableexporter.

Withanestimatedlocalmarketofbetween7and9millionpairs,itisproposedthatthisbesharedwithimportsona50-50basisbyrestrictingtheimportsfromChinathroughtheWTOSafeguardMechanismforaninitialperiodof4years.Controlsshouldalsobeexercisedonpublicisingthematerialcontentandcountryoforiginfortheshoessoldatretail.Thiswillcreateamarketforlocalfactoriestosellinto,theywillbeabletomakeprofitsonceagainandrebuildtheircapitalbase.

During this time, manufacturers must upgrade their manufacturing plants tointernationalnormsbyforginglinkswiththeItalianmachinery,materialsuppliersanddesignstudios.

They must implement programmes for operator training and workshopmanagement.Seniormanagementandownersmustalsoacquireknowledgeofuptodatemarketingtechniquesandtheneedforstrategicthinking.Anassociationisnecessarytodisseminateknowledgearoundtheindustry,tolookafteritsinterestsandtolobbyGovernment.

Theyhavetoreviewthetypesofshoetheymakeandtailorthesetotheinternationalmarketsof theEUandUSA.Helpwith factfinding trips,marketing studies andtheattendanceatinternationalshoefairsasobserversandeventuallyassellersisrequiredfromexportdevelopmentagencies.

PartnershipsshouldbesoughtoutwithEuropeanmanufacturersandmarketerstoactassubcontractors.Licenseeagreementswithsmallerinternationalbrandsforthelocalmarketareanotherpossibilitythatwilleventuallyleadtofullexporting.

Withthedevelopmentofasound-manufacturingbase,foreign(orlocal)investorswillbeattractedtofurtherenhancetheindustry.Jordanhasonlyonetannery,therewillbeopportunitiesfor2–3more.

Providingtheaboveplansmaterialise,thereisnoreasonwhyJordancannothave10–16viableshoemanufacturingplantswithin5yearswhoarenetexporters.

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SECTIONI:THEGLOBALFOOTWEARINDUSTRY

A.StructureofWorldFootwearIndustry

1 GlobalConsumptionItisaxiomatictosayglobally,thefootwearindustryhasanexpandingmarket.Worldpopulationincreases,livingstandardsrise,sodoesthedemandforfootwear.

The following charts published by SATRA (Shoe and Allied Trades ResearchAssociation,UK)showthetrends.ThelargestmarketforfootwearintermsofpairsisAsiaincludingtheIndiansubcontinent.

Thefigures forglobal footwearconsumption (2002)and forecast to2008areasfollows:

GLOBALFOOTWEARCONSUMPTION(2002)

GLOBALCONSUMPTIONOVER10YEARS

GLOBALCONSUMPTIONPERCAPITAOVER10YEARS

REGION

China

Asia(excludingChina)

Europe(all)

North&CentralAmerica

MiddleEast,Africa,Oceania

SouthAmerica

TOTAL

%OFTOTAL

22.2

21.7

20.4

19.1

9.4

7.2

100

MILLIONSOFPAIRS

2,768

2,706

2,544

2,381

1,172

898

12,469

9

CONSUMPTION(MillionsofPairs)

Asia(all)

Americas

Europe(all)

RestoftheWorld

TOTAL

1998

4,744

3,011

2,239

1,086

11,080

2000

5,222

3,274

2,396

1,187

12,079

2002

5,474

3,279

2,544

1,172

12,469

2004

5,840

3,433

2,717

1,317

13,307

2008

6,528

3,611

2,886

1,399

14,424

CONSUMPTION(Pairs/capita/year)

Americas

Europe(all)

Asia(all)

RestoftheWorld

WORLDAVERAGE

1998

3.8

3.1

1.4

1.1

1.9

2000

3.9

3.3

1.5

1.1

2.0

2002

3.9

3.5

1.5

1.1

2.0

2004

4.0

3.7

1.6

1.1

2.1

2008

4.1

4.0

1.7

1.1

2.2

Intheyear2003thefollowingwasthemarketinfinancialtermsforexportersoffootwear,i.e.themajorimportingareas

Source:ICONGroupLtd.www.icongrouponline.com

ThemarketinmonetarytermsshowsadifferentpicturewithAsialyingapoorthirdbehindEuropeandNorthAmerica,reflectingthedegreeofsophisticationineachmarket.

Chinaproducesandexportsmoreshoes thananyothercountryby far. It isalsothebiggestconsumerof footwearbyvirtueof thesizeof itspopulation.On theotherhanditspercapitaconsumptionislow–onaparwithdevelopingcountries.Afurtherbreakdownofthemajorconsumingcountriesandareasisasfollows:

SourceFDRA

FootwearproductionisthereforeconcentratedinAsiaandfootwearconsumptionintheUSAandEurope.

*Figuresareanestimatebasedonofficialstatistics.Seepages37–38formoredetails.

REGION

Europe

NorthAmerica

Asia

LatinAmerica

MiddleEast

Africa

Oceania

TOTAL

%OFWORLD

50.15

33.74

9.14

2.19

1.94

1.48

1.35

100.00

US$000

23,362,091

15,718,585

4,256,841

1,022,423

903,873

689,675

629,106

46,582,594

COUNTRY

USA

Japan

EU

Canada

Taiwan

Australia

Korea

Brazil

Thailand

Mexico

China

India

Indonesia

*JORDAN

CONSUMPTIONMILLIONS/PAIRS

1,939.7

584.4

1,666.5

122.4

82.7

72.0

165.4

483.0

144.4

180.4

2,768.7

1,687.0

350.0

8.4

POPULATIONMILLIONS

290.3

127.2

380.2

32.2

22.6

19.7

48.3

182.0

64.3

104.9

1,286.9

1,049.7

234.9

5.4

PERCAPITAPAIRS/PERSON/YEAR

6.68

4.60

4.38

3.80

3.66

3.65

3.42

2.68

2.25

1.72

1.71

1.61

1.49

2.25

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2 TheSupplyChainThesupplychainoftheindustrystartswithAgroIndustriesandprogressesthroughthechemicalindustryandtanningtomanufacturing.Leatherisaby-productofthefoodindustry.Itisacommodityandassuchissubjecttomarketforcesinasimilarwaytotea,sugar,coffee,etc.

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B.InternationalSupply,ExportAnalysis

1 Shoeexportsupply,AsiaWorld footwear manufacturing is notorious for its pursuit of so called “cheap”labour.Inthe1960’sJapanwasthemainsourceofsupplyoflowcostfootwear.JapanwasthefirstFarEasternsupplierofNikeSportsshoes.(NikeistheGreekgoddessofvictory).Lowlabourcosts,suppliesofleatherandatraditionofshoemakingmadeJapan the launchpad for the Far East shoemanufacturing industry.The industrythenmoved toTaiwanas labour costs in Japangrew. It in turnmoved to SouthKorea,thentoIndonesiaandThailand.TaiwanandSouthKoreanolongerhaveanysignificantshoemanufacturingindustries.

The economic problems in the late 1990’s had amajor negative impact on thefootwear industries of Indonesia andThailand. This created many problems inthesupplychain,particularly inUSA,with the result the industries in these twocountrieshaveneverfullyrecoveredbecausebuyerslostconfidenceinthefactoriesabilitiestomaketimelydeliveriesatstableprices.

Meanwhile China was liberating its economic policies. Taiwan Chineseentrepreneurswerelookingforanewmanufacturingbase.HongKongbecameanewcapitalisticpartofChina.OperatingthroughHongKongforpoliticalreasons,theTaiwanese industrialistssetupshoe factoriesdirectlyoppositeTaiwanon theChinesemainland,wherethereweregreenfieldsitesandlabourwasplentifulandcheap.ThustheindustrythenmovedonagaintoChinaasthelowestlabourcostcountryintheregion.

This left China emerging as the dominant player because of it’s high capacitiesinstalled(atleastfortheUSA),infrastructure,andcomponentsupplyindustry.

ItisdifficultforanonFarEastcountrytocompeteheadtoheadwithChina.TheymustfindmarketnichesChinadoesnotdoparticularlywell.Forexampleleathertrumocs,sidewallstitch,McKaystitch,StCrispin,safetyshoesetc.TheseshoesareabitmoredifficulttomakeanddonotlendthemselvestotheautomatedproductionlinesprevalentinChina.Theyarealsoinconstantdemandinthemarket.

ItisclaimedthatVietnamisanevenlowercostproducerthanChina.VietnamisbuildingupitsinfrastructureaimingtobecomeaseriousplayerbutithasadifficultrelationshipwithUSA.

In parallelwith these developments Indiawas also targeting its large somewhatinformal leather sector tomodernise.ThroughGovernment legislation the sectorhasnowbecomeoneofthedominantleathershoesupplyingcountries.

TodaythemaininternationalsuppliersoflowcostfootwearfromAsiaareChina,IndonesiaandIndia;VietnamandThailandfollow.

AccordingtoSATRA(ShoeandAlliedTradesResearchAssociation,UK),in2002,India, China, and Indonesia accounted for about 75.2%, 9.4 billion pairs, of aglobalproductionof12.5billionpairsofshoes.

In monetary terms footwear exports of the “big three” present the followingpicture:

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“BIGTHREE”GLOBALEXPORTSOFFOOTWEARU.S.$‘000

Theabovefiguresare indollarvaluesasopposed topairs.Chinahasamassiveproductioncapability,however itsex factorypriceaveragesat$2.50perpair, in2003,upfrom$2.46in2002.Indiaismoreupmarketandhasanexfactorypriceon average nearer $10-12.00 per pair as 60% of its exports are leather shoes,exactlythereverseofChina.Indonesiatraditionallymakes“white“shoesforthelikesofNike,ReebokandAdidasthathaveahigherexfactoryvalue.

Buyerslookingforshoesupplies,tendtolookatthesecountries.HowevertherearesomeproblemsassociatedwithdealingwiththeAsianregion. Intoday’smarket,retailers are looking for production flexibility, i.e. the ability to react quickly tomarketdemands.Theyalsolookatthetotalprocurationcosttogetshoesintotheirwarehouses.Thisincludesacalculationoftransportationcosts,deliverytimes(costoffinance)fastturnroundofrepeats(keepsstocksdown),traveltoforeignfactories,ratherthan,inthepast,justtheprice.Thiscanputthelargevolumeproducersinthe Far East at adisadvantage.Chinaand Indonesia arenot soflexible, India ismoreflexible.FarEastproducerstraditionallyhavedemandedlargeorders(50,000to 100,000) pairs per style; they are far away from themainmarkets,USA andEurope.

Largeordersarefineforlargeglobaldistributors.However,thereisamarkettrendtodaytobemoreindividual,requiringmoreoftensmallerordersofdifferentstyles.LargeFarEastfactoriesarepresentlynotgeareduptothisnewtrend.

1.1ChinaIthastakenChina20yearstoreachthestageitisattodayintheglobalfootwearindustry. Production figures in pairs, from ITC and China customs say thefollowing:

BILLIONSOFPAIRS

Chinaproduced55%ofallworld footwear in2002. Itsbiggestexportmarket istheUSA followed by Europe. Exports toUSAwere 5.1 billion dollars in 2002,representing 45.6% of the total exports. Europe imported 1.2 billion dollars

COUNTRY

China

Indonesia

India

TOTAL

RestofWorld(72countries)

Big3%shareofworldexports

SourceITC,UNComtrade

2000

9,850,226

1,672,110

651,382

12,175,718

27,760,714

31.3

2001

10,095,769

1,505,580

662,511

12,265,861

28,136,539

30.5

2002

11,090,084

1,148,052

622,590

12,862,728

25,858,232

33.3

YEAR

Exportpairs

Domesticpairs

Totalpairs

2000

3.9

2.0

5.9

2001

4.2

2.4

6.6

2002

4.4

2.5

6.9

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representing 11.1% of the total (See annex). China production of shoes withnon-leather uppers is about 60% of the total, the balance being leather.Thesenon-leather shoes, although cheap are of, at best, indifferent quality.There areover20,000shoefactoriesinChina.Ofthefactoriesengagedinexports80%areownedbyTaiwaneseinvestors,theothersbyHongKongandlocalinvestors.WithhelpfulgovernmentpoliciesandTaiwaneseknowhow,theindustryhasprogressedtowhereitistoday.

ItisoftenoverlookedthatChinaalsohasalargedomesticmarket,over2.0billionpairsandexpanding.Itcurrentlyconsumeslessthan2.0pairspercapita.Thisstabledomesticbasegivesitasecureplatformonwhichtoexport.

Therearealsoproblemsloomingintheindustry.ChinaisnowasignedupmemberofWTOwhichwillseetariffbarriersfalling,thereducingoreliminationoftradesubsidiesandtheopeningupofthedomesticmarkettoimports.

Thereis increasedovercapacityintheChinesefootwearmanufacturingindustryleading to intensecompetitionandveryfinemarginsorevennomarginsat all.(One can understand this when told of the buying prices of shoes imported toJordanfromChina).Costoflivingincreasesinthecoastalareas,wheretheindustryisestablished,hasdrivenupwages.Chinesefactories,becausetheyrelyonlargevolumestobreakeven,haveaveryhighbreak-evenpoint.Ifthevolumesdeclinethefactoriesquicklyfallintooperatinglosses.

Consequently, the foreign owned companies are now looking for higher valueitems,namely leather footwear, tosurvive.Thecheapsynthetic footwearwillbelefttolocalfactoriestomake.Thereisalsoareportedshortageofskilledoperativesinthecoastalareas. It isalsopredictedthat therewillbeamoveawayfromthecoastalareasintotheinteriorbecauseofloweroperatingcosts.ThishoweverwillputpressureonlogisticsandmaynotbeasattractivetoUSbuyers.

OneofthemajorweaknessesoftheChineseindustryisthatitisnotaninnovator,itmakestoorder,orcopiesEuropeanstyling.ThisisbeingrecognisedandmovesarebeingimplementedtotrainindigenousChinesedesignersandcreateChineseglobalbrandnames.Whethertheywillsucceedinthisisamootpoint.Thedemandforhighvolumeordersisalsobeingaddressedwithfactoriesnowacceptingordersforafullcontainerasaminimum,ofanexistingdesign.

Nomatterwhathappens,Chinawillremainthedominantforceinfootwearsupplyfor the foreseeable future.However,costsandconsequentlypriceswill increasefrom China. As living standards increase around the world there will be moreemphasisonleatherfootwear.ThiswillprovidemorecompetitiontotheChineseindustry fromother countries, especially fromquality brand names that are notwidelyavailableinChina.

1.2Indonesia/VietnamIndonesia has had for some time an unstable economic and political climate,causinggreatconcernforinternationalshoesourcingcompanies,particularlythosefromtheUSA.TheshoemanufacturingcompaniesinIndonesia,manyofwhichareforeignowned,realisethisandareactivelyconsideringmovingtoVietnam,IndiaandChina.

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Already 5 toy and 10 textile factories have recently moved out of Indonesia.TheTaiwanFootwearManufacturersAssociation (TFMA)says thatup to12shoecompaniesarelikelytoleaveIndonesia. Itwillbeinterestingtoseewherethesefactorieseventually relocate.MainlandChina iscertainlyoneoptionbutmaybesavvyTaiwaneseinvestorsmaylookatVietnamorevenfurtherafield(Jordan?)asChinaisbecoming“crowded”withshoecompanies.

Indonesia’sshoeexportshavebeenonthedeclineforthelastfewyears(Seeannex).In2000theywereUS$1.7billion,1.5billionin2001,andin20021.1billion.TheirbiggestmarketsarethesameasChina,USAandEurope.BoththeseareasareshowingdeclinesduemainlytoChinesecompetition.

Indonesia, incommonwithmanyotherexportingcountries,has to importupto80%oftherawmaterialsneededforshoemaking.TherapiddeclineinthevalueoftheIndonesiandollarhasmadethesematerialsmuchmoreexpensive.IndonesiahasbeenformanyyearsamajorsuppliertoNike,Reebok,Adidas,Converse,Fila,etc;all“white”sportsshoes.Withexfactorypricesescalating,thesecompaniesaredriftingawayfromthecountry.ThemainbeneficiaryofthisisVietnam.However,Indonesiaisdoingitsbesttore-groupandre-establishitsindustry.Itisaggressivelycuttingpricestogetmarketshare,pushingupthenumberofpairssoldbutleadingtoadeclineinexportrevenue.

It isalso interesting tonote that the IndonesianShoeManufacturingAssociationclaimsthat,illegalimportsofChineseshoesare“floodingtheIndonesianmarketandisseriouslyhurtingshoemanufacturers”.

Indonesiatherefore,becauseofitsinternalproblems,isbecominglessofaplayerintheglobalfootwearmarket.

Vietnamincontrast,in2003,exportedindollarvalueterms,morethanIndonesia.Mostoftheseexports(63%)goingtotheEU,13%toUSAand3%toJapan.ExportsrosefromUS$1.5billionin2000to2.2billionin2003(Seeannex).

Vietnamhasaggressiveplanstomoderniseits industrywithnewequipmentandtechnologies,trainingandtradepromotionactivities.Itisorganisingleatherclustersandencouragingtheinvestmentinprimarymaterials,namelyleathertanning.

Currentlyitimports75-80%ofallrawmaterialsrequiredforshoeproduction.Fromthis, it is obvious that the cost structure is based on importedmaterials,whichmakessettingacompetitivepricedifficult.Hence,theplantodevelopindigenousmaterials.

Much of the export business, (80% according to theVietnam Leather FootwearCorporation)isontheCMTprinciple,leavingverysmallprofitsfortheproducers.Governmentandindustrypolicyistomoveawayfromthisandselldirect.

In 2000,Vietnam had a problemwith the EU.A specialmethod ofmonitoringfootwearoriginatinginVietnamwasintroducedtopreventshoesoriginatingfromathirdcountryleavingVietnamandenteringtheEuropeanmarketfraudulently.

IthasalsoconcludedabilateraltradepactwiththeUSAallowingtariffratestofalltobetween0and20%.ItexportedoverUS$851millionworthoffootwearinthefirstsixmonthsof2002toUSAalone.

Thereare233 footwearproducerswithacapacityof380millionpairsperyear,

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makingmostly sports shoes,48.5%.Othersarecanvas18%andasmall leatherfootwearproductionof1.5%.76ofthesecompaniesarestateowned,and77areforeigninvestors,themajoritybeingTaiwaneseandSouthKorean.

In the future,Vietnamwill emergeasa significant supplier in theglobalmarketplaceespeciallywhenitdevelopsitscapacitytomakeleathershoes.ItwillneverbeasbigasChinaor Indiabutcouldbecome thenumber three supplier in theregion.

1.3IndiaIndia has emerged in recent years as a relatively sophisticated low tomediumcost supplier toworldmarkets –The leather industry in India has been targetedbytheCentralGovernmentasanengineforeconomicgrowth.Progressively,theGovernmenthasproddedandlegislatedareluctantindustrytomodernise.Indiawasnotedasasupplierofrawhidesandskinssemiprocessedleatherandsomeshoes.Inthe1970’s,theGovernmentinitiallybannedtheexportofrawhidesandskins,followedthisbylimiting,thenstoppingtheexportofsemiprocessedleatherandencouraging local tanneries tomanufacturefinished leather themselves.Despiteprotestationsfromtheindustrialists,thishasresultedinamarkedimprovementintheshoemanufacturingindustry.IndiaisnowamajorsupplierofleatherfootweartoworldmarketsandhasthepotentialtorivalChinainthefuture(60%ofChineseexportsaresyntheticshoes).

Indiaisoftenreferredtoasthesleepinggiantinfootwearterms.Ithasaninstalledcapacityof1,800millionpairs,secondonly toChina.Thebulkofproductionisinmen’sleathershoesandleatheruppersforbothmenandladies.Ithasover100fullymechanised,modernshoemakingplants,asgoodasanywhereintheworld(includingEurope).ItmakesforsomeupmarketbrandsincludingFlorsheim(US),Lloyd(Germany),Clarks(UK),MarksandSpencer(UK).

Indiahashadmixedfortunesinitsrecentexportperformance.In2000,exportsofshoeswereUS$651million,in2001theseincreasedto663millionbutdeclinedin2002to623milliondollars(Seeannex).

ThemainmarketsforIndianleathershoesareUKandUSA,whichbetweenthemtakeabout55%oftotalexports.

Indiahasnotyetreacheditsfullpotentialintermsofaworldsupplier.Thisisduemainlytolocalcowleatherthatalthoughplentiful,hasamaximumthicknessof1.4–1.6mm,andthesocio/political/ infrastructureofthecountry.However,Indiaisanexcellentsupplierofleatheruppers,afactthatJordanianshoemanufacturerscould takeadvantageof. Importationofuppers fromIndiadoesnot infringeFTAwithEuropeortheUSA(ItmightbeaproblemintheQIZsystembecauseofthestipulationofvalueadded).

Thepotentialissettochangealbeitslowly,butwithapopulationrivallingChinaforsize,thereisnodoubtthetussleforworlddominationinfootwearsupplywillbebetweenthesetwocountries.

1.4OthersOthercountriesthatoperateintheregionareMalaysia,Thailand,PhilippinesandHongKong.

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Malaysia traditionallymadeshoesbasedon the rubber industry.Thishas largelybeenreplacedwithnewereasyprocessingsyntheticpolymers,whichhasledtothedeclineoftheshoemanufacturingindustryinthecountry.Itisnowasupplieroflowvolumespecialityproductsthatrequirerubberfortechnicalreasons.

Thailand does export footwear. However, it has a very well developed tanningindustry.Thereareover130tanneriesinthecountrythatexportlargelytotheregion.Footwearexportsarenotassignificantas theyonceweredueto theincreaseinlabourcosts.Theindustrythatsurvivesismovingupmarkettohigherqualitynichemarketproductswithbetterqualityleather,producedbylocaltanneries.Thailandalsoexportsasignificantamountofleathergoods.

ThePhilippinesare reallyno longeraplayer in theglobalmarket.Theysufferedthe same fate asTaiwan and South Korea. Chinese imports are penetrating themarket.Since1997,thedomesticindustryhaslostanestimatedUS$142,000,000inrevenue.

HongKong is amajor factor in the region althoughnot a producer of shoes. Itprovides marketing, banking and logistical services. It is a stabilising influenceinsomeofthedifficultpoliticalproblemsintheregion.Itactsasafacilitatorforproducersandbuyers.TheAPLFisheldthere(AsiaPacificLeatherFair),amajormeetingplaceforbuyersandsellersfortheregion.

2 Shoeexportsupply,Europe(EU15)Itisarguablethatthe“heart”oftheshoeindustrystillliesinEuropeandnotAsia(China/India),manyshoemakingcountriesinEuropearemajorexportersofshoes.Thecreativeprocessesoffashionandtechnologyarecertainlycentredhere,Asiadoes not create fashion or decide colours for a coming season. ShoemachineshavebeendevelopedinEurope.ThemachinesmadeinAsiaareinthemaincopiedfromEuropeanideas.EuropedevelopedtheCADsystemsnowusedinmanyshoecompaniesaroundtheworld.

Possiblythedevelopmentof“white”shoeshasbeendevelopedinparallelinUSA,withbrandslikeNikeandNewBalance.However,itshouldberememberedthatReebok andHitec started inUK,Adidas andPuma, inGermany, Lotto andFilain Italy, Le Coq Sportif, in France.These brands still havemajor tieswith theiroriginatingcountries.

Italyistheworldleaderintermsoffashionanddesign.Italsohasavibrantshoemachinerymakingindustrybasedonprogressivetechnology.Itisamajorsupplierofshoecomponents totheworld.Othercountries inEurope,particularlyFranceandSpainalsocontributetothisconcentrationofknowledgeanddevelopment.InEurope,thereisavastsupplyindustrysupportinglocalmanufacturers(aswellasexportingtoAsia).

Because of this accumulation of experience over many years, Europe is still asignificantexporterofshoes.This isconcentratedonthemediumtohighendoftheleathershoemarket,itsuppliesthedemandsofmoresophisticatedconsumers,intraEuropeaswellastherestoftheworld.YoucanseeupmarketItalianshoesinjuxtapositionwithcheapChinesefootwearinmostinternationalcities,includingAmman.EvenBritishmadeexpensive($350perpair)goodyearweltedshoesareinhighdemandinItalyandFranceaswellasUSAandtheGulfStates.

17

However,althoughtheEuropeanfootwearindustryisfightinghardtosurvive,itisstillloosingmarketshareinexports.From1999to2002,exportsdeclinedby5.5%withafurtherdeclinein2003(Overthesameperiodimportsroseby20.5%).

FootwearexportsfromEuropepresentsthefollowingpicture:

FOOTWEAREXPORT‘000PAIRS

The largest market for EU produced footwear is North America, followed bySwitzerland,RussiaandJapan.ApartfromRussia,marketshareisdecliningintheseareas.Penetrationdeclinedfrom1999to2003by34.2%inUSA,(exchangerateproblem),7.9%inSwitzerland,30.5%inJapanandincreasedby28.9%inRussia.

ThebiggestexporterandthemostsignificantisItaly,followedbySpainandtoalesserextenttheothercountries.

2.1ItalyItalyisthedrivingforceoftheEUfootwearindustry,astheleadingexporterandproducer. Its main export markets (extra EU) are USA, Romania, Switzerland,Russiaand Japan.The industry isgeared towards leather footwearofmediumtohigh qualitywithmany international, though smaller, brand names.Average exfactorypriceisUS$22–25.ExportshavebeenholdingsteadyforthelastfewyearsataroundUS$7.5billionperannum(Seeannexfordetails).Exportsin2003were320millionpairs.

Italian flair and styling is well known, it is the innovator in the market place.Consequently,isusuallythefirsttooffernewproducts,ensuringatleastthebulkofinitialorders.Inthismanner,itmanagestohangontomarketshare.Inasense,thefactthatitsexportshavedeclinedonlyby6%since1999,isquiteacreditableperformance.Muchofthisdeclinemustbearesultofcurrencyfluctuations,whichinturndistortsexportprices.However,withtheintensecompetitionnowprevalent,itisdifficulttokeepaheadofthefollowerswhomanagetobringsimilarproductstomarketnotsofarbehindtheItaliansatlowerpricesandacceptablequality.

PartofthestrengthoftheItalianindustryisitsstructure,whichistheexactoppositeof China.The Italian industry is composedmostly of small firms employing 12–20people(Ofcoursetherearesomelargercompanies,Filanto,Effietc).Therearemore than7,000firms in the sector900ofwhichare shoeproducers.Theyco-operatetogether,sharingmanufacturingprocesses,andmarketingplans.Theyare very flexible, have quick reaction times, lowminimum ordering quantities,elastic production capacities and an imageof goodquality.They can easily actas subcontractors for the bigger companies, this satisfies the needs of themoreupmarket retailers and distributors. In this way they keep overheads and coststo aminimumandmanage to compete internationally in theirmarket segment.It isaunique Italian structure thatworkswell in Italyduemainly to thecultureandtraditionofshoemakinginthecountry.Itisanongoingquestionanddebatewhetherthissystemcanbereplicatedinothercountries.

EXPORTS(EXTRAEU-15)

SourceEurostat,CEC

2000

245,897

2001

241,198

2002

223,245

2003

190,773

18

2.2Spain/PortugalSpainisverysimilartoItalyinexportprofile.Theindustryismuchsmaller,about50%insize,oftheItalianindustry.Generallyitsproductsareabitcheaperforverycomparablequality. ItsmainmarketsoutsideofEUareUSA,MexicoandJapan.Becauseofthiscompetitiveedge,SpanishexportshaveincreasedinrecentyearsfromUS$1.9billionin2000to2.1billionin2002.

SpainistryinghardtocaptureexportmarketsandisprovingaveryfastfollowertoItaly.ItisexploitingitsSpanishconnectionwithMexicoandtosomeextentintheUSA.

PortugalisevensmallerthanSpain,itsmainmarketstendtobeintraEurope.ItsonlysignificantoutsidemarketisUSA.AccordingtotheFootwearAssociation,in2002Portugalhad1,350smallcompaniesmaking99,000,000pairsof shoesofwhich87,000,000wereexportedtoneighbouringcountries.

The fact that Portugal still supplies largemarketers of footwear, Clarks,UK andEcco,Denmark,withshoes,isanindicationofitscompetitiveness.

2.3FranceFrance tends to have exportmarkets that are francophone in nature or in closeproximity. Its biggest exportmarket isGermany followedbyBelgium (Benelux),afterthistheUSAcomesthird.ItalsoexportstoNorthAfricancountries(Tunisia,Morocco,Algeria)whereithascloserelationships.ExportsroseinmonetarytermsfromUS$0.9billionto1.0billionin2002reflectinganincreaseininflationratherthanpairs(Seeannex).

There are 173 small and medium sized companies producing shoes. France isparticularlystronginsafetyfootwearandchildren’sshoes.Ittendstoproduceinthetopendforallitsmarketsegments.IthasstrongbrandssuchasMephisto,CharlesJourdan, Kickers and Babybotte. Jallate and Lemaitre are well known in safetyfootwear.

ManufacturinginFrancegenerallyisgoingthroughadifficulttimecausedbynewEU legislation, which France has enthusiastically adopted, namely the 35-hourworkingweek.OtherEuropeancountrieshaveoptedoutofthis.In1992therewere278shoecompaniesinFrance.In2002,thishadreducedto175,adeclineof37%.ManycompaniesrelocatingoffshoretoNorthAfrica(TunisiaandMorocco).

With the difficult manufacturing environment, the decline in manufacturing inFranceisinevitable.

2.4BeneluxTheBeneluxcountriesofNetherlands,BelgiumandLuxembourgproducevirtuallynoshoesbetweenthem.However,theyhaveagreattraditionintrading.HollandandBelgiumactasre-exportersandsupplymanycountriesinEU(15)andtheCEECcountriesplusRussia.Theymanagetointroducegoodqualitymediumtolowendshoestothemarketsourcedfrominternationalsuppliersatcompetitiveprices.TheyhaveapermanentinternationalsalonsetupnotfarfromAmsterdamwherebuyersareoffered“onestopshopping”.Exportswereupby23.8%fromUS$2.1billionin2000to2.6billionin2002

19

2.5UK/GermanyThese two countries have suffered themost in a decline inmanufacturing.Thecompanies that are still active, produce shoes for niche markets. These theysuccessfullyexportusuallyatthetopendintermsofpricing.TheUKhasalongestablishedmensgoodyearwelttraditionandproduceshighqualityfootwearsuchasChurch,Barker,Grenson,whichareexportedtoUSAandtheEU(15).GermanyhasareputationofproducingcomfortshoesformenandladieswithsuchbrandsasJosefSeibel,Gabor,Romika,Salamanderetc.mostlyexportedintraEurope.

Germany’smainexportmarketsareAustria,followedbyHolland(forre-export)andFrance.ThesecondarymarketsareFrance,SwitzerlandandUK.Therewere127shoefactoriesinGermanyattheendof2002,andbytheendof2003thisnumberhaddeclinedto109.

UKmarketsareUSA,thebiggest,followedbyFrance,ItalyandGermany,withasmallproportiongoingtoHollandforre-export.Exportshavedeclinedby14.3%intherecentyear.

These twocounties,byvirtueof the typesof shoes theymake,wouldnot reallybe international competitors for the types of shoes Jordanwould be capable ofproducing and would not feature in any strategic marketing plans in terms ofcompetingwiththeproducersformarketshare.

2.6OtherEuropeanCountriesMany of the countries applying to join or have joined the EU are significantproducersoffootwearandhaveadistinct,shortterm,advantageinwageratesovertherestof theEU.ThesecountriesdoexportshoestotheEU,usuallyundersubcontractmanufacturingforItalianandGermancompanies,althoughTurkeytendstobemoreindependent.

PRODUCTIONMILLIONPAIRS

SourceEurostat

Production in these countries however, has declinedor stagnated over a 4-yearperiod to 2002.This reflectsmore on the transformation of the industry from aplannedeconomy toanopenmarketone. In recentyears,productionhasbeenincreasing as companies re-organise and comes to terms with the newmarketenvironment.

Themanufacturing plants make leather shoes in themedium quality level, butarehavingdifficultymeetingthepricepointsdemandedbythemarketinEuropeduemainlytoorganisationaldifficulties.Thesehowever,arebeingsolvedbytheirEuropeancounterparts.

COUNTRY

Turkey

Poland

CzechRepublic

Hungary

Slovakia

1998

241

58

15

14

10

2002

215

52

8

14

10

EXPORTS2001

52

31

N/A

N/A

N/A20

Romania has a significant footwearmanufacturing industry supported by Italianinvestment.It isnotfarfromNorthernItaly,thehuboftheshoeindustry.Asit is(currently)outside theEU, itcanmaintaina lowcostbase in termsofwages. ItproducesmediumtomediumlowqualityshoesatcompetitivepricesandobviouslysubcontractsfortheItalians,Italytakes75%ofitsexports.

FOOTWEAREXPORTU.S.$‘000

3 Otherexporters

3.1BrazilBrazilhasalargeshoeindustryandisanaggressiveexporter.Thereareover6,000shoefactoriesproducingalmost650millionpairsperyear.70%oftheshoesmadeareforlocalconsumption.Thebalanceforexport,mostlygoestotheUSA,againabout 70%. UK ranks second with other South American countries taking therest.ExportsareaboutUS$1.5billion.Themainproductexportedishighqualityaffordableladiesshoesofalltypes.

3.2MexicoMexicoisalargeproducerofshoes,mainlyforthedomesticmarket.ForexportsittendstolookNorth/South,especiallyasithastheNAFTAtotradein.However,this is adouble-edged sword.Anyunwanted stock left inUSA is verypromptlyshippedtoMexicoatlowprices,whichdisruptsthelocalmarket.IthasalsobeennoticedthatcheapChineseshoesalsocomeinthiswaysomehow,whichputsanevenbiggerstrainonlocalmanufacturers.MexicoshipsverylittletoEuropewiththeexceptionoftoSpain.Theshoesareaimedatthemiddlemarket.

ExportsaredecliningfromUS$400millionin2000to328millionin2002.Buttheindustryhasaprogrammeofre-generationassistedbystronglocalassociationsandhelpfromtheFederalGovernment(ThepresidentofMexicocomesfromashoemakingarea).

ThecountryissufferingfromlowcostshoesfromChina.TheMexicanGovernmenthas recently (2004) extended its anti dumpingduties for another 4 years.Theserangefrom165%to1,105%dependingonthetypeoffootwear(Nikehoweverisexempt fromthismeasure).Thishasnotcompletelysolvedtheproblem,Mexicois suffering from “Triangulation” i.e. shoes from China entering the USA andthenbeingshippedtoMexicofreeofdutiesduetotheNorthAmericaFreeTradeAgreement(NAFTA).

3.3Tunisia/MoroccoTunisiaisasuccessstoryasfarasshoeexportingisconcerned.AcombinationofindustryfriendlyGovernmentpolicies,aggressivepromotionbyexportpromotion

ROMANIASOURCEITC

World

Italy

Rest

2000

784,974

599,276

185,698

2001

975,599

737,958

237,641

2002

1,157,931

864,612

293,319

21

agencies,atraditionofshoemaking,adevelopedsupportindustryintermsoftrainingschemesandatechnicalcentre,havecreatedaleatherindustryworthUS$770.2million.There are 423 companies in the sector employing over 25,000 people,20,000ofwhichworkinexportorientedfactories(2002figuresfromCEPEX).Itisalsoclosetothemostimportantfootwearmarketintheworld–Europe.Ittakesatruck4-5daysdoortodoortoMilan.

Exportshavetripledin10yearsfromUS$138.7millionin1993to$439.6millionin 2003. Companies that export 100% of their production due to their specialstatusasindividualexportingzonesmanufacture77%ofexports.Shoesanduppersrepresentcloseto84%oftheseexportsinmonetaryterms.

Over90%ofexportsgo toEurope, Italybeing thebiggestmarket (52%),France(30%)andGermany(9%).Obviouslyshoesgoingtothesecountriesareofahighstandard.

Oneoftheproblemscomingtolightaftertenyearsofdevelopment,forcompaniesthatarenot100%foreignowned,isprofitability.MuchoftheworkdoneinTunisiaissubcontract forEuropeanbrands.Thesepartnersdictate the termsofbusiness(becausetheysupplytheorders),andconsequently,theprofitallowedtothelocalproducer.Localcompaniesfindthemselvestrappedinthissystemandfinditalmostcommerciallyimpossibletogetoutofit.Thesystemworkswellinthebeginningbut as local companies gain more experience through technology transfer andmarketingandbecomemoreconfident,therecomesatimetheywouldliketobe“mastersoftheirowndestiny”.

TheonlyrealwayoutofthisdilemmaistostartanewfacilityelsewhereeitherinTunisia(mightbedifficult,conflictofinterests)oranother“userfriendly”country–Jordan.

MoroccoisasomewhatsmallerplayerthanTunisiabutstructuredinaverysimilarway.Thereareabout220smallertomediumsizedcompaniesemploying13,000peopleproducingabout70millionpairsperannum.TheyhavethesamecustomersasTunisia.

4 Conclusion–internationalsupplyTheFarEastisaformidableproducerofcheap,lowqualitysyntheticshoesandhighqualitysportsshoes,dominatedbyChina.Itisdevelopingitsleathershoemakingcapability,theratioof60%syntheticshoeswillswingmoreandmoretoleather.

ItisgeareduptohighvolumesandtendstodealwithlargebuyerswhoareusuallylocatedintheUSA–wheremassmarketingisthenorm.Inotherareas,particularlyEuropethereisatrendtotargetmarketing,creatingniches,requiringfastreactiontimesfromsuppliers.TheFarEastisnotsosuccessfulinthistypeofoperation.Thisprovidesopportunities for smallerflexible, specialised,productionunits that areclosertothemarket.

This goes a longway to explaining the reasons for the success of theTunisian,Moroccan,ItalianandSpanishshoeindustries.ThereisanopportunityforJordantoemulatethem.

Romaniaisemergingasaformidablesupplier,helpedtoalargeextentbyItalianknowhow,bothtechnicalandmarketing.

22

Indiahasagreatpotentialbutnotyetfullyrealised.

C.InternationalImportMarketAnalysis

1 EU(15)marketforimportsForseriousshoemanufacturerswhowishtoenterexportmarketsEuropeprovidesthemostpotential.If“GreaterEurope”istakenintoconsideration,itisthebiggestimportmarket in theworld, it isalsothemostdiversified.Europeimportscheapquality low-end shoes,andalso thehighestqualityavailable,pluseverything inbetween.There are differences inmarket characteristics betweenmember statesanddifferencesindistributionmethods.Somecountriesareeasiertoexporttothanothers.Thesizeofthemarketsinindividualcountriesalsovariesduetopopulationandconsumption trends.There isamoveaway fromthecheapershoes tomorecomfortableleatherfootwear.Fashionplaysabigpartinthemassmarket.ThereisasubstantialtradeamongtheEUpartners,especiallyfromItaly,whoexportstoeveryothercountryintheEU.

Threecountriesarenotpartof themonetaryunion,UK,DenmarkandSweden.WiththeJordanianDinarpeggedtotheUSdollarthisshouldmakeexportstothesecountriescompetitive,especially to theUK(DenmarkandSwedenarerelativelysmallmarkets).

Thebiggestconsumersof footwear in theEUareGermanyandUK followedbyItaly,FranceandSpain.Germanyinparticular,andItalytosomeextent,havehaddepressed economic climates and are showing limited growth potential. UK isprobablythemostbuoyantmarketintheEUatpresent.

Consumptionfiguresareasfollows:

EU(15)FOOTWEARCONSUMPTIONU.S.$‘000

SourceCBISurvey

Theleading6countriesrepresent87%ofthetotalconsumptionofthe15states.

Thedifference inconsumption inmember states ismore related toclimaticandculturaldifferencesratherthanmarketforces.

AsfarasimportsofshoesmadeinJordanareconcernedthebiggestcompetitorswouldbe:

COUNTRY

Germany

UK

Italy

France

Spain

Benelux

Others

2000

11,026

7,693

8,457

7,934

5,183

3,553

6,355

2001

11,021

8,147

8,639

8,037

5,485

3,702

6,526

2002

10,763

8,595

8,293

8,198

5,777

3,693

6,676

CONSUMP-TIONPERCAPITA

132

143

146

139

144

142

129

ESTIMATEDANNUALGROWTH%

2003–2007

1.5

3.0

-1.0

2.2

1.8

1.0

1.5

23

ItalySpainPortugalTunisiaMorocco

IndiaCentral&EasternEuropeanCountries(CEEC)

TheFarEastisstillafactorincertainEUcountries(Vietnamwithitsleatherindustrydevelopment).Itsproductmixtendstobemorein“white”shoes,itisnotpossibletocompetewiththemdirectly.Nichemarketingisthekeytomarketentryintheso-called“brown”shoemarket.

IMPORTSTOEU(15)FROMCOUNTRIES

Itcanbeseenfromtheabove,importsfromintraEuropecountriesaredeclining,while imports fromNorthAfricaand Indiaare increasing.TheCEECaremakinginroadswithRomania(notyetamemberofEU)makingthebiggestpenetration.OftheexportingcountriesthereforeTunisia,IndiaRomaniawouldbethemajordirectcompetitors.

1.1UKTheUKmarketissomewhatuniqueinEuropeinthatitimportsfootwearfromtheverylowend(allsynthetic),toexpensive(allleather)designerbrands.Themarketsegmentsrangefromverylowtoveryhighpricepoints.AccordingtotheBritishFootwearAssociation,UKimported338millionpairsin2003.

About240millionpairsweresoldthroughretailchains,withlessthan10%soldthroughindependentretailers.Theseretailchainscanbeof20-30shopsupto300–450shopsspecialisinginfootwear.Otherretailersincludedepartmentstoresthattraditionally sold only clothing, now they are starting to sell the total ensembleincluding shoes.Other outlets, non-specialist, are supermarkets,mail order andmarketstalls.

Women’sshoesaccountforabout50%ofthemarket,men’s34%andthebalance16%children’sinmonetaryterms.Inpairagetermswomenbuy49%men26%andthechildren’smarketis25%.Importsofleatherfootwearaccountforalmost60%

COUNTRY

Italy

Spain

Portugal

Tunisia

Morocco

India

CEEC(exclRom.)

Romania

1999 20012000‘000prs

244

103

81

11

12

29

92

45

‘000US$

3,291

1,145

1,357

263

161

428

1,422

661

‘000prs

240

93

76

14

13

30

98

53

‘000US$

3,215

1,108

1,336

320

175

481

1,543

862

‘000prs

201

92

76

16

15

33

110

63

‘000US$

3,323

1,166

1,390

355

199

585

1,793

1,155

24

oftheUKmarket.

Distributors,wholesalers and agents introduce shoes to themarket.There is nomajorbuyinggroup,whichmeanstherearemanycustomerstosellto.Therearealsomany popular brand names on themarket, either as supplied footwear orbrandedshops.

Themainsuppliersforleatherfootwearin2001in‘000pairswereasfollows:

Thissectorimported130,852millionpairsintotalfortheperiod.

1.2BeneluxThetraditionoftradedominatesthefootwearsectorhere,HollandandBelgiumarebigre-exportersofimportedshoes.TheysupplytherestofEU(15)plustheCEECaswellastheirlocalmarket.Themarketsegmenttendstobemediumormediumlowendandthetradersdemandkeenprices.However,ifthemerchandisingiscorrect,goodbusinessrelationshipscandevelop.TheattractionofBeneluxismoreforthere-exportingratherthanjustthelocalmarket.



1.3GermanyTheretailmarketinGermanyhasbeendepressedforsometimeduetoprevailingeconomicconditionsinthecountry.Theredoesnotseemtobeanygreatchangeintheseconditionsfortheforeseeablefuture.

Twolargebuyinggroups(GarantandANWR)controlover25%ofthepurchasesinthecountryanddominatethemarket.Theyhavebetweenthem3,500members,theDiechmanngroupisthebiggestretailchainoperatingwith1,113shops.

Thereare fewother largegroupswhoarealsoplayers.Thismakes itdifficult forexporterstosellintothemarketbecauseofthelimitednumberofcustomers.Also,Germanyhasahighqualitythreshold,withrigidspecifications,makinglifedifficultforoverseasmanufacturers.

COUNTRY

Italy

Portugal

India

FarEast

‘000PAIRS

24,303

16,333

3,787

31,845

COUNTRY

Italy

Portugal

Spain

Germany

India

FarEast

‘000PAIRS

6,053

4,948

276

184

122

18,828

25



1.4FranceThe Frenchmarket has a very similar structure toUKwith the largedivergenceofmarketsegments.Ithasaretailsector,whichisverysimilaraswell.Thereareabout6,700shoeretailshopsinFrance,whichincludes42chains.ThebigchainsareVivarte(formallyAndre)with143shopsandLaHalleauxChaussureswith495shops.



1.5Spain/PortugalSpain has about 16,000 retailers supplying shoes. Independent specialisedretailerssellabout55%andmultiplechainsabout7%ofthemarket.Therestisindepartmentstores,mailorderandclothingshops.DevelopmentsinthedistributionoffootwearinSpainhavelaggedbehindotherEuropeancountries.

Portugalissimilarbutsmaller.

The main suppliers for leather footwear to Spain in 2001 were Benelux, ItalyPortugalandtheFarEast.Importswere13,959millionpairsintotalfortheperiod.

1.6ItalyAlthoughamajorproducerofshoesandisexportoriented,theItalianshoemarketfor imports isgrowing. Importswere196millionpairs in2000andestimatedat294millionpairsin2003.80%oftheseshoescomefromoutsidetheEU.In2002,Romaniawas thebiggest supplier in value terms (28%) as the shoes it sells arenearlyall leather.Themajorityof supplies fromRomaniaare subcontractswithItalian manufacturers or distributors, so little marketing is done by Romanian

COUNTRY

Italy

Portugal

Spain

Austria

India

FarEast

‘000PAIRS

34,03

14,325

10,660

439

351

15,371

COUNTRY

Italy

Portugal

Spain

Netherlands

FarEast

‘000PAIRS

22,340

15,779

12,756

8,922

6,488

26

producers.China is thebiggest supplier inpairage terms (27.4%),mostlysports,textileandplasticshoes.

Leatherfootwearisthebiggestmarketsegmentatabout70%oftotalconsumption.Distribution in Italy is somewhat fragmented with no major chains unlike UK,Germany and France.There are many independents and of course departmentstores. Shoppingmalls have not yet developed in amajorway. Because of thisfragmentationthereare,intheory,manycustomerstogoat.Thesecustomerstendtobeservedbywholesalers,importagents,anddistributors.



2 Conclusions–EUmarketforimportsTheEUmarketislargeanddiversified,itisalsoverycompetitive,withallaspiringexportingcountriestryingtopenetrateit.Themarketisfullandoccupied,theonlywaytoenterthemarketisbyconquestmarketingi.e.beatingoutacompetitor.

TheEUisnotproactivewhenlookingfornewsuppliers,itisuptothemtopresenttheirofferingtothebuyersforconsideration.Forbuyerstotakenoteacompetitiveadvantagemustbeestablishedandavaluepropositionmade.

ThecurrentintraEuropesuppliers,Italy,SpainandBeneluxarewellestablishedandareatleadingedgeofthemarketintermsofproductdevelopment.Theyoperatein the medium to high end of the market.The extra Europe suppliers,Tunisia,India,Romaniahavegovernmentalsupport,havestrongdomesticmanufacturingindustries,arewellsupportedbycomponentsuppliersandothers.Consequently,theyareverycompetitive,theyoperateatthemediumtomediumlowendofthemarket.

OperatingintheEuropeanmarkethasotheradvantages.Inevitably,companiesareexposedtothelatestfashions,technologyandmarkettrends;thisisabighelpwhenexportingtootherlessdevelopedmarkets.

TheFarEastisafactor,italwaysis,itdominatesthewhiteshoemarketsupplyinEurope.FarEastcountriescompeteamong themselves for thismarket,Europeansuppliershavemoreor lessabandoned it.However, as thismarket isbecomingsaturated, Far East suppliers are turningmore andmore to “brown shoes” fromleatherandposeathreatforthefuture.

3 USAmarketforimportsUSAhas the biggest individualmarket in theworld for shoes. Like amagnet itattractsalmostall shoemanufacturers.However, the realitiesofoperating in the

COUNTRY

Romania

CEEC

Vietnam

China

Others

‘000PAIRS

32,876

9,544

6,020

976

35,332

27

Americanmarketareharsh–itisverycompetitive,verybig,andveryunforgivingifmistakesaremade.

ThemajorityofconsumergoodssoldintheUSA,themassmarket,aresoldthroughlargechainsofshops,withthousandsofstoresperchain.Footwearisnoexceptionto this fact, this type of operation needs like sized suppliers to feed the largevolumesinvolved.ThisiswhymainstreamUSAlookstotheFarEastforitssupplierswhoarecompatibleinsize.However,thereareotherchannelsofdistributionthatinAmerican termsare relatively small,but for smallandmediumsizeexportersofferopportunities.

ImportsoffootwearintotheUSAareasfollows:

FOOTWEARIMPORTSTOUSAUS.$‘000

Sportsshoes,predominantlywhiteshoes,takeupthemajorityoftheretailmarket.AccordingtotheNationalSportingGoodsAssociationover$14,400millionworthofshoesweresoldeachyearforthepast3years.TheactualproductionofshoesintheUSAisabout75millionpairsperyear(manyofthemindustrialfootwear)versusimportsof1.9billionpairs(2002figures).

Althoughthemarketishugeandcanbeintimidatingforsmallandmediumsizedmanufacturers,itstillhasitssegments.Therearestillopportunitiesforgoodqualityleatheruppered shoes, correctlypriced, likewise safety footwear. Fully injectionmouldedsafetywellingtonbootsisanotherarea.

Forsmallandmediumsizedshoemanufacturersthishasimplicationswhichmeandevelopingstrategiestoenterthemarket.

JordanhastheFTAandQIZagreementswithUSA.TheFTAallowsconventionalleatherandsafetyshoes toenterUSAat0%duty.Forothercountries thedutiesrangefrom8.5%to20%.TheQIZallowsfullymouldedindustrialfootweartobeimportedfreeofduty.OutsidetheQIZitwouldbesubjectto22.5%fromJordanand37.5%fromothercountries (TheFTAandQIZsystemshavecertainrules toallowthistohappenbutthesearemanageable.Theobjectiveistoencouragetradebetweenthetwocountries).

For Jordanianmanufacturers, itwould seem tomake sense to aim at these twosegmentswhichofferacompetitiveadvantage.

Recently (August 2004) the NSRA (the National Shoe Retailers Association of

USASOURCEITC

WORLD

China

OtherFarEast

Italy

Brazil

Mexico

Spain

UK

Rest

2000

15,662,620

9,741,866

1,603,698

1,317,198

1,205,938

356,225

341,779

203,214

2,078,182

2001

16,009,439

10,283,988

1,549,544

1,311,242

1,202,939

315,290

286,042

156,039

904,355

2002

16,159,259

10,763,137

1,548,637

1,229,370

1,134,595

283,188

281,269

109,105

809,958

28

America) launched their buying alliance. The NSRA represents independentretailerswhogenerallyoperatesmallchainsofshopsthatarefamilyowned.Thebuyingallianceislookingtopurchaseforitsmembers,privatebrandsthatarenotavailableinothershopsinUSA.Theyaimtobuydirectfromproducersandimportdirectly to their member’s stores, in this way they cut out themiddleman.Themanufacturerandtheshopsshouldsharethissaving.Theshopsarehopingforupto70%margins.Althoughnewandasyetuntried,itcouldturnouttobeanexcellentwayforasmallproducertoentertheUSAmarket.

ThealliancewillbeshowingattheWSA(WorldShoeAssociation)shoeshowinLasVegastwiceperyear.Contactshouldbemadewiththem.

Industrialfootwearistechnicalinnatureandneedstobecarefullydeveloped,witha37.5%dutyadvantage itwould seemanother segment tobe investigated.ThecompaniescurrentlymakingthisproductforthelocalandregionalmarketshouldconsidertheUSAmarketthroughtheQIZ.ThepossibilityofmakingunderlicenceinJordanshouldalsobeborneinmind.

3.1TypesofshoeswithmarketpotentialThereisnoreasonthatshoesaimedattheEUmarketcannotalsobesoldinUSA.Thereforetoavoidduplication,thesesametypesofshoeslistedundertheEuropeanmarketwouldbesuitablefortheUSA.

3.2Conclusions–USAmarketforimportsTherearenogreatsecretsorspecialtechniquesaboutoperatingintheUSAmarket.Tobesuccessful,thefollowingshouldberemembered:

Producersanddistributorsshouldbeofcompatiblesize.Theproductmustbeofconsistentlygoodquality.Pricingmustbekeen.Excellentservicemustbegiven.

29

SECTIONII:ANALYSISOFJORDANFOOTWEARSECTOR

1 MethodologyIn order to get a proper picture of the shoe manufacturing industry in Jordan,a seriesof visitsweremade to the larger enterprises inAmman.This comprised13 companies (1 company declined a visit) ranging from shoe manufacturers,componentmanufacturersandrawmaterialsuppliers.Theoriginalaimofthevisitswastodoabenchmarkingexerciseoneachcompanytocompareitwithindustrynorms.Abenchmarkingformwasdesigned.Intheevent,theparlousstateoftheindustry rendered the form redundant. Much of the information therefore wasempirical in nature, obtained from entrepreneurs themselves throughdiscussionandinterviewandbyobjectiveexperience.Theowners/managersofthecompanieswereforthrightintheirviews.Whereinformationcouldbeverified,itwasacceptedasfact,whereitcouldnotbeverified,itwasacceptedasopiniononly.Afterinitialhesitation, (the visit coming from “government”), entrepreneurs welcomed thevisits,recognisingthatthemainobjectivewastohelptheindustryoutofitspresentdifficulties.

AsurveywasalsoconductedoftheretailshopsinAmmantoseethevariousmarketsegmentsthattheindustryserved.

In order to complete the study, information was obtained from official sources(Department of Statistics, EJADA, The Competitiveness Team at the Ministry ofPlanning,plusotherrecognisedshoeinformationcentres).

2 ManufacturingFromanassessmentofthesevisits,itisclearthatthestateofshoemanufacturinginJordanisinaverybadway.

With the exception of JordanTanning Company and possiblyAl-Manara ShoesCompany(whobothhavenichemarketsintheservicesegment)thereisnoshoefactory in operation. All have been reduced to mere workshops, making, bytraditionalhandmethods,between20and120pairsofshoesperday,mostlyfromsyntheticmaterials.EvenaCompany,whichisknownasoneofthebestmanagedshoeenterprisesintheworld,hasreduceditsoperationtoonlyimporting,havingpreviouslymade 1,500,000 pairs of shoes per year in Jordan 50% of the shoeenterprisesvisitedarealsoimportingshoesforresellinordertocreateanincome.Thisisanobviousconflictofinterests.

Becauseof themassive impact ofChinese (synthetic shoes) and to some extentSyrian (leather) footwear imports, local manufacturers now have a very limitedmarket for their products. It is worth noting, Syrian shoe manufacturers areprotecteddomesticallyagainstimports.Companieshavealsosufferedfromcapitalerosion.Management andowners are completely demoralised, thinking only ofsurvivalratherthanplanningforthefuture.

Thedomesticmarkethasbeenmoreorlesslosttolocalmanufacturers.Theonly

33

peopledoingwellareshoerepairers!Themassmarket,retailpricesbetweenJD5.00toJD15.00,hasbeentakenoverbyimportsfromChina.Theseshoesare90-95%synthetici.e.withPUorPVCuppersandliningsandsolesofPVC,thermoplasticrubber,resinrubberorPU.Theseshoesarenotleather,theydonotbreath,(unlikeleather),theyaresimilartoputtingaplasticbagonyourfoot,whichcanproducefoothealthproblems,especiallyduringthehotseason.Theyareuncomfortabletowear,butpeoplestillbuythemforthemselvesandevenfortheirchildren!

Local shoe manufacturers who are still active, are trying desperately hard tocompetewiththeChineseimports.However,theycontinuetoreplicatetheChineseproductintermsofcheapmaterials,lastshapes,heelheights,colours.TheyhaveseentheChineseshoesintheshopsandthereforebelievethisiswhatconsumerswant.TheyarefightingtheChineseheadtohead.Thisisnotagoodstrategyandclearlylacksvision.Theyneedtofindothernicheproductsiftheyaretosurvive,butnichemarketinghastobedoneearlyoninthecycle.Manymanufacturersnowfindit is too late, theyrealise thisstrategy isnotworkingandsuccumbtobeingimportersthemselves.

Onlyonecompanyvisitedchanged itsproduction fromChinese type imports tosafetyshoesinordertosurvive,thiswasmainlyduetocorrectstrategicthinking.

FOBpricesforthetypesofshoesinquestionhavebeenquotedatbetweenUS$1.40and$4.00.Someofthepricesquoted,comparedtothecostofmakingtheshoe look far too low,which gives rise to the suspicion of dumping.However,this is difficult to prove. It also seems that smuggling is an issue. Even officialspokespersons for theChinese industrysay theaverageex factoryprice is$2.50perpairin2003.ItisalsosuspectedthattheChineseindustryhashiddensubsidiesandexportincentives(13-14%)whichareineffecttheprofitofthefactoriesratherthanapercentageof the trueproductioncost, (importers themselvesmentionedthis).Thesefactsmakemanufacturersevenlesswillingtoproduceandturnsthemintoreluctantimporters.

Faced with this structure, it is extremely difficult for local manufacturers tocompete.Theyhaveduties,upto30%,theyhavetopayforrawmaterialimports.Themainrawmaterial,leather,isonlyavailablefrom1localtannerywhoismoregeared to service footwear than fashion.Manycritical rawmaterialsneeded forshoemanufacturinginJordanhavetobeimportedanddutypaid.Governmenthasrecentlyannouncedthatimportedindustrialinputswillbereducedtozerorateofduty.However,thesituationonthisisstillunclear.

A trialcostingwasdone (seeannexes)ona ladiesdressshoesimilar toChineseimportsbutusinglocallyavailablesyntheticmaterials.ThisshowedarawmaterialcostofUS$4.15,addonlabour,$2.96,givingaproductioncostof$7.11.Thisisprobablyabout$4.11to$4.61morethantheFOBpriceoftheequivalentChineseshoe.

Say the Chinese shoe is $3.00 FOB, $3.50 CIF, duty, clearing and forwarding,local transportation etc, would be 35% = $4.73 into warehouse cost, still lessthanproductioncost(withoutoverheadsandprofit)of$7.11forthelocallymadeequivalent.

Reduce the local raw material costs by 30% (duty, handling charges, localwholesalersprofitetc)givesarawmaterialcostof$2.90addlabourof$2.96=

34

productioncostof$5.86.

This isstill$1.13morethantheChineseCIFprice.Thisscenariostillmakes itextremelydifficultforthelocalmanufacturertofighttheimportsandre-establishthelocalmanufacturingbase,evenifitwouldgivetheconsumersabetterqualityproduct.

Nodoubtwithafactorymakingupwardsof450pairsperday,everyday,efficienciesinmanufacturingwouldbeachievedandcostswoulddecreasetogettoacceptednorms.Thiscostsavingwouldallowtheshoestobemarketedatsensibleprices.

Howevereveniflocalmanufacturershadamarketandaccesstodutyfreeinputstheystillhavesomemajorobstaclestoovercomeiftheyaretosurvive.Thesearetechnicalinnature.

Shoeengineeringhastobeimproved.Gradingofpatternsshouldbedonebymechanicalorcomputerisedmeans,itisnotpossibletomakeexcellentqualityshoesgradingpatternsbyhand.This is timeconsuming, inaccurateandmostimportantly wastes material, (leather, the most expensive commodity in theshoe).

Lasts,solesandheelsmustbeinthecorrectcombination.Theshoemusttreadcorrectly,otherwiseitwillbeuncomfortableinwear.Noforeignbuyerwouldbuyashoethatdoesnottreadcorrectly.

Cuttingofleathermustbedoneproperlyaccordingtothelinesofstretchandpositionofthepartontheleatherhidetopreservetheintegrityandqualityoftheshoe.Wastehastobecontrolled.

Thereneedstoaninvestmentinthestitchingofuppers.Mostmachinesusedaresimpleflatbed,veryfewpostbedsewingmachineswereinevidence.Postbedmachinesgivetheflexibilityandefficiencyinproducingdesignsthatthemarketwants.

Workshopmanagementisatbestrudimentary.Therewaslittlecontrolovertheproductionprocesses.Shoesweretreatedlikepotatoesduetolackofequipmentfor transportingsemi-processedgoodsthroughthefactory.Tobeefficientandreducecosts,aproperlabourloadingofoperatorsisrequired,linkedtoincentivepayment.

Propercostingsystemsare required.Most factoriesestimatecosts rather thancalculatethemgivinginflatedfiguresleadingtotoohighprices.Costingcanbedonemanuallybytheparallelogramsystemorbetterstillbycomputer.

Companies need to decide their market niches and build a range of shoesaccordingly,thengooutandsolicitordersforthem.Thisshouldbedoneatleasttwiceperyear.

Companies should practice proactive, sound marketing techniques. Thereneedstobeproductdifferential,(not“metoo”shoes),keycustomervalues,acompetitiveadvantage(s),brandnamesthatarepromotedtotheconsumeretc.Itispossiblethatpartofthereasontheimportshavebeensuccessful,intheshorttermatleast,isthefactthatthelookoftheshoeorfashioniswhatthemarket

35

36

wants.Successfulshoemanufacturersmakewhattheycansellratherthansellwhattheycanmake.

The above are manageable situations which can be solved by technologytransferand training.Thestructureof themarket,however, requiresGovernmentintervention.

3 LocalmarketThesurveyoftheretailshops,fromshoppingmallstothedowntownarea,revealsthatthemarketissaturatedwithlowquality,thoughcheap,Chinesemadefootwear.Theyareallvery similar in stylingandpricing inalmostall shops, there is littleproductdifferentiation.Theyarenotvalue formoney. However, the shoes lookgood,arefashionable,intermsoflastshapesandheelheights.Thisisthereasontheysell,iftheydidnotlookgoodnomatterwhattheprice,consumerswouldnotbuy.Addtothisanattractivepriceandyouhaveawinningretailcombination.

Thereseemstobetoomanyshoeschasingtoofewcustomers.Hopefully,thefactthatthistypeofChineseshoethatlastsfrom3daysto3monthsbeforeitbreaks,andhastobereplaced,willhaveaneffectonthemarketandincreasethedemandforbetterqualityfootwear,albeitathigherretailprices(Bettertobuy3pairsperyearfor45JDthan5pairsfor50JD).Thelackofimplementationofconsumerprotectionlawsdoesnothelpthesituation.However,itseemsthatconsumershavenotyetreactedtothisfact,butsoonerorlaterthequalityproblembecomesafactorandsalesinevitablydecline(Onelocalmanufacturergivesanunconditionalguaranteefor6monthsonitsshoes).

Inothercountriesthisinfluxofcheap,inferior,Chinesefootweardisruptsthelocalmarketforaperiodof3to5yearsbeforeconsumersbecomedisillusionedwiththeproductsandrejectthem.Chinesefootwear,initially,gainsanentryintoamarketnotreallyonprice,(althoughthisisafactor)butbecausetheylookgoodandarefashionable (Possibly in the past local manufacturers were not supplying whatconsumerswanted).

Thefirstimportersmakegoodprofits(buylow,sellhigh),thenothersrealisethisand also start to import. Competition between importers becomes fierce, retailpricesandmarginsfall,themarketcannotabsorballtheshoesinstock,eventuallythereisafalloutandthemarketshouldreturntosomenormality.

Somemanufacturers,evenimporters,claimthereareupto5millionpairsofshoesinwarehouseswaitingtobeputonthemarket.Therewasnowaytoverifytheseclaimsbutevidenceinalltheretailshopswherethereisheavydiscountinggoingon,maypointtostockeliminationratherthantraditionalsummersales.Iftherearelargeinventories,thishastheeffectofstagnationinthemarket.Retailershavenoopentobuybecauseofcapitaltiedupinstock.Inthiscase,manufacturerswiththebestproductintheworldcouldnotsell.

The statistics on imports of shoes into Jordan are confusing.TheDOS has onesetoffigures, the ITC,whichpublishesfigures fromtheUNComtradeStatistics,obtainedfromreportingcountries(inthiscaseChina)hasanother.Thefiguresareasfollows:

37

IMPORTSOFSHOESINJORDAN(US$)

Thereisahugediscrepancyinthefigures.Anaverageof3millionpairsperyearunaccounted for (and this is takinganaveragepriceof$3.00perpair,which isprobablyhigherthanthetrueaverage).Thislendscredencetotheclaimsthattherearemillionsofpairssittinginwarehouseswaitingtobemarketed.

Duringthisperiod,thelocalshoemanufacturingindustryhasaverydifficulttimeand is in danger of going into terminal decline. If nothing is done, it is almostimpossibleforittorecover.Theindustryisaneasycreatorofjobs,bothintanningandmanufacturing.Acomponentandrawmaterialsupplyindustryalsodependsonit.

A further irritant in themarket is the selling of imported second hand or usedfootwear.Thiscommodityisimportedbythekiloandissubjecttoadutyrateof30%underthe640590classification.Ithasbeenknownforthecategorytobechangedto “charitable status”which is zero rate.The shoes are of poor quality, no twopeoplehavethesamefeet.Itisthereforeguaranteedthatpreviouslywornfootwearwillbeuncomfortabletowear.Furthermore,theseshoescanprovetobeahealthhazardastheiroriginsareunknownandtheyarecertainlynotsterilised.Theydonotseemtobeamajorfactorinthelocalmarketatpresentdue,inthemain,tothelowpricesofregularimportedshoesandlackofconsumerawareness.However,iftheChineseshoeimportsweretobecurbed,thereisadangerthatthisitemcouldtaketheirplace,whichwouldbeevenworsescenarioforlocalmanufacturers.Theyreallyhavenoplaceinadevelopingmarketandshouldbebanned.

3.1MarketsizeAneffortwasmadetotryanddeterminetherealsizeofthelocalmarketforshoes.Intheeventthisturnedouttobemoredifficultthananticipatedduetoconflictinginformation,andthelackofstatisticsinpairageterms.Industrialists’opinionswerethat themarketrangedfrom8millionto20millionpairs.Whenaskedto justifythesefigurestheyprevaricatedleadingtotheconclusiontheydidnotreallyhaveanyconcreteinformationastothesizeofthemarket.

However,usingstatisticsfromDOS,industrysources,andexperience,thefollowingextrapolationwasdone:

YEAR

DOS,allshoes

ITC,CHINAonly

Difference

Diff.Inpairs@$3.00perpair

2000

11,940,261

20,044,000

8,103,739

3,980,087

2001

11,169,963

19,894,000

8,724,037

2,908,012

2002

14,650,480

20,240,000

5,589,520

1,863,173

ESTIMATIONOFTHEFOOTWEARMARKETINJORDANThefollowingisanestimationofthesizeofthefootwearmarketinJordan.Itassumesthateveryshoethatismanufacturedorimported(minusexports)issoldinthecountryduringtheyearinquestion.Ittakesnoaccountofchangeininventory.

TOTALPOPULATIONAgeGroup0-1415-1920-6565+TOTALINCOMEEARNERS(I.E)EmployedMaleFemaleTOTALInfomal(33.3%employed)TOTALINCOMEEARNERSFOOTWEARMARKET(JD)ImportsLocalExportsTOTALPURCHASEPERCAPITA(JD)PURCHASEPERI.E(JD)

1998

1,764,383603,9802,206,668180,7194,755,750

1,372,966217,7751,590,741529,7172,120,458

6,547,55413,865,00010,603,7089,808,846

2.064.63

1999

1,817,900622,3002,273,600186,2004,900,000

1,414,610224,3811,638,991545,7842,184,775

7,564,21014,364,0004,084,46317,843,747

3.648.17

2000

1,869,469639,9532,338,096191,4825,039,000

1,454,739230,7461,685,485561,2672,246,752

8,528,75820,486,0004,467,41824,547,340

4.8710.93

2001

1,922,522658,1142,404,448196,9165,182,000

1,496,023237,2941,733,317577,1952,310,512

7,978,54516,666,0002,654,52021,990,025

4.249.52

2002

1,987,076680,2122,485,184203,5285,356,000

1,538,569246,5991,785,168594,4612,379,629

10,464,62915,942,0001,962,24624,444,383

4.5610.27

Theabovegivesan indicationofmarketactivity infinancial terms.However,abetter indicationof the sizeof themarketisthenumberofpairsconsumedi.e.boughtduringthecourseof1year.Therearenoavailablestatisticsonthenumberofpairsofshoesmade,importedorexported.Thefollowingisanattempttodeterminethemarketsizeintermsofpairageconsumed.

MARKETBREAKDOWN

EST.PAIRSPERCAPITA

ESTPAIRSPERCAPITA,I.E

5.00JD6-10JD10.00+JD

ESTPRS3,103,6013,338,6883,889,487

0.650.700.820.721.461.571.831.62

ESTCIFUS$3.005.008.00

ESTPRS5,645,9116,073,5697,075,554

1.151.241.441.282.582.783.242.87

ESTCIFJD2.143.575.71

ESTPRS7,766,9848,355,3069,733,720

1.541.661.931.713.463.724.333.84

ESTMARKETSHARE%(A)256510

ESTPRS6,957,8287,484,8598,719,672

1.341.681.681.573.013.243.773.34

ESTMARKETSHARE%(B)35605

ESTPRS7,734,4088,320,2629,692,894

1.441.551.811.603.253.504.073.61

IIIIII

AI+AII+AIIIBI+BII+BIIICI+CII+CIII

AVERAGE

AVERAGE

RETAILSELLINGPRICEUpto

(A)(B)(C)

(A)(B)(C)

AVERAGECONSUMPTIONOVERTHE6YEARPERIODISESTIMATEDAS:

Percapita1.40pairsperyearPerI.E.3.11pairsperyear*estimate

TOTALSHOEMARKETACCORDINGTOTHEABOVEDATAIS:7,437,153TO9,320,369PAIRSPERYEAR.OR8,378,761PAIRSAVERAGE

38

2003

2,033,080695,9602,542,720208,2405,480,000

1,585,079249,8881,834,967611,0442,446,011

12,899,50212,275,340*1,669,92623,504,916

4.299.61

ESTMARKETSHARE%(C)65305

ESTPRS7,437,1538,000,4909,320,369

1.361.461.701.513.043.273.813.37

The official statistics of household expenditure on footwear in 2002 shows apurchaseofJD1.36–9.02perannum.AtanaveragesellingpriceofJD7.00,thiswouldgiveapercapitaof0.20to1.30pairsperyear.

If thesefiguresareanywherenearcorrect then, thequestionremainshowmanymodernshoemanufacturingplantscanthemarketsupport?

Importsarenevergoingtogoaway,theyaretheretoagreaterorlesserextentinanymarket.Governmentinterventionand/ormarketforcescancontrolthesizeoftheimportmarket.Wehaveseentheresultofsocalledmarketforces–thedelugeofimportsfromChina.

Ifimportswerepeggedat4millionpairs(50%ofthemarket)thiswouldleave4million pairs available for localmanufacture.At 260working days per yearthis represents a local production of about 15,000 pairs per day.This level ofproductioncouldsupport12to18modernSME’smakingbetween800and1,200pairs per day each. At this level of production, shoe factories become viableenterprises.Theywoulddirectlycreate1,500 to2,000direct labour jobs,withmanymorebeingaddedinsupportingindustries.

Thisalsoassumesthatnotasinglepairoflocallymadeshoesisexported,whichis unrealistic. Exports are a bit of an unknown quantity.Nevertheless, it is safeto assume some exporting will take place either regionally or internationally,especiallywhentheQIZsystemandFTAwithEuropearetakenintoconsideration.Thiswouldcreateanevenbiggermanufacturingbasethanindicatedabove.

Itshouldbenoted,forthistohappen,somesortofmarketregulationisnecessaryintheshorttermtoallowthelocalmanufacturingbasetoregroup.

4 BenchmarkingofindustryAsdiscussed,thelocalmanufacturershaveretreatedfrommechanisedproduction.Of the visits made, 7 companies were more or less equipped with the basicmachinery (lying idle) required for this type of manufacture. This represents aconsiderable investmenton thepartof theowners (Amodern lastingplant fromItalywouldcostintheregionofUS$325,000).

Itwasnotpossiblethereforetodoanactualbenchmarkforeachindividualcompany.However,ifandwhen,theindustryhasthecorrectenvironmenttorebuild,itmustaspiretointernationalnormsinordertosurviveintheworldmarket.Itmustalsopresentamodern,viablefacetopotentialbuyersandinvestors.Seriousbuyerstendtovisittheirsuppliersandseetheirfacilities.Theywanttoseeaclean,tidy,wellorganisedmanufacturingoperation(notoffices)thatgivesthemconfidence.

ThefollowingbenchmarksweredevelopedforthefootwearindustrybytheleatherunitofUNIDO,Vienna.Theyaredesignedtoevaluateacompany’scompetitivenessintheglobalmarket.Managementshouldusethesetoassesswhethertheywillbeabletomeetthechallengesofthemarket,inotherwordsaretheyasgoodasorbetterthantheirglobalcompetitors.Cantheybeatothersuppliersofthesametypesoffootwear?

The study lists themost important areas (controls,management, processes) andaspects of footwear manufacturing, provides benchmarks and indicates goodmanufacturing practices. It is understood that the quoted quantitative criteria

39

are fairly general (i.e. they characterise productionof everyday leather shoesorstreet shoes) ormay be applicable only to specific segments of an entire rangeof footwear. Further, theseparameters arebasedon thecurrent achieved resultsandwillcertainlychangeastechnologydevelops,consumerneedschangeand/orexternal conditions of industrial operations change.Therefore, it is obvious thatbenchmarks andGMP (GoodManufacturing Practice) are not static.They needto be periodically reviewed, updated and supplemented according to actualeconomic,market,technicalandsocialconditions.

Company(Business)Management

Very large shoemakingcompanies,havegraduallydeclined in thepast40years(Notwithstanding the situation inChina). In the 1950-60’s, factories operated inmulti-story buildings, today most factories are single story rectangular shapedbuildings.Theuseofpremisesofinadequateand/orinappropriatelayoutcanadd15%tothetotalemploymentbill.

Production:Cutting

Despite relativelyhigh investmentcosts, theuseofcomputercontrolled leather-cutting machines in the production of samples and small orders can have asurprisinglyshortpaybackperiod.

Shoecomponent-prefabricationofunitsoles,insoles,stiffeners,heelshasbecomeabusinessinitselfandareproducedbyspecialistmanufacturers.

Benchmark

Minimumcompanysize–production

Optimalcompanysize–no.ofemployees

Optimalcompanysize–production

Locationfrommajormarketbytrucktransporttime

Unit

Pairs/day

People

Pairs/day

Day

Value

450-1000

~600

5,000–8,000

<3

GoodManufacturingPractice

Unutilisedpremisesandequipmentreduceefficiency

Marketingisthekeyfunction:productdevelopmentshouldbecontrolledbymarketing

Onlydesignandshoemakingskillsarespecifictoshoemakingtechnology.Specialistsshouldbeemployedinotherarease.g.unitsolesmaking,purchasing,accounts,marketing.

Trainingoflabourandmanagementisessential

Benchmark

Diecutting(formakingcuttingdies)

Cutterproductivity

Genuineleatherbeamcutting

Manualsoftleathercutting

Unit

Pairs/style

Stroke/8hr

Pairs/8hr

Value

<2,000

200–220

80–100


Workplaceorganisation:1,500Lxevenartificiallighting,properdielabelling&storagesystem,organisedcutpieceremoval&storagewastecollectionateachmachine/workspace

40

Production:MaterialUtilisation

Production:Closing(Stitching)

Shoeuppersare themostvariablepartsofashoe.Their labourcontentdependsonthenumberofcomponents,complexityofconstruction,contours,decorationsetc.Itisnotpossibletosetbenchmarksforactualproduction.Ifmorethan10%ofclosingroomworkersareidle(moving,waiting,inspecting,thinking,talking,etc),thentheremustbesomeproblemsthatmustbesolved.

Production:ShoeAssembling

* pairsperworkerperhour

Benchmark

Useofleathermeasuringmachine

Patternmeasurement,materialcosting&cuttercontrolsystem

Usableleatherarea

Useofcuttingoptimisationsystem

Unit

%

%

%

%

Value

+2

+5–15

75–92

5–7


Incentivestobepaidtocuttersformaterialeconomy

Benchmark Unit Value GoodManufacturingPractice

Performancecanbeincreasedby30–70%through:Better&regulartraining(skilldevelopment)Workplaceorganisation&motionstudiesBetterworkmeasurementUseofoptimalworkingconditions(lightingspaceetc.)Betteroperatorcontrol

Performancecanbeincreasedby30%through:Quickstop&variablespeedmotorsNeedlestop&positioningdevicesThreadcuttersProgrammefacilitiesEvensmallercompaniescanjustifyautomated,computercontrolledsewingmachines

Benchmark

Productivity

Conventionallymechanised

Highlyautomated

Bestknowntoday

Finishing:numberofoperatorsinrelationtothoseinassembling

Unit

*Pair/w/hr

%

Value

16

26-28

32

<50


Principlesforhighproductivity:

Wellbalanceproductionline

Combinationofoperations

Noshoesshouldbetouchedifnophysicalchangesaremade

41

Ifacriticalmassofproduction(minimum400pairs/8hourshift)isnotensured,thelastingmachinesaretooexpensive,thenhandlastingshouldbeused.Equipment,productionlinebalancingandincentivesdefineproductivity.

Production:Overheads

Production:QualityAssurance

ProductDevelopment

Purchasing

Benchmark

Materialcontent(incosts)

Sandals

Standardshoes

Boots

Markdownbyendofseason

Unit

%

%

%

%

Value

~45

~50

~60

<2


Negotiatewithsuppliers

Donotdependonasinglesupplier

Payaccurately(poorpaymentmayadd12%)

Usesuppliersofmatchingsize(toyourself)

Usealeatherassessmentsystem

Measureandcheckqualityofsupplies

Benchmark

Defectrate:

Rejects+customerreturns

Unit

%

Value

<3


Solebondtests

ISO9000

Finalinspection

Benchmark

Designsandpatternengineeringfromidea/sketchtogradedpatterns

Manual

CAD

Unit

Day/style

Value

~1

~2


Efficiencycriteria:

Productivity

Punctuality&speed

Accuracy

Benchmark

Shareofindirectworkersinnormalshoeproduction

Productionsupervision

Supervisiononly

Supervisewithsupportstaff

Unit

%

Worker

Value

<15

~25

~40


Openplanoffice:

Easiercommunication

Higherefficiency&discipline

Eliminates“halfjobs”

42

Marketing

Thenumberof shoemanufacturersand the supply to theworldmarketexceedstheactualdemand.Companies,whodonothavemarketingandsellingpolicies/strategies, leave a high rate of profit to traders.Manufacturers should be awarewhere theymakeprofit.Typeofproduct,customer,market,distributionchanneletc. A brand is not created only by advertising, good reputation (image) is animportant factor in getting business and also staying in business.The followingfactors, in order of priority, definemarket competitiveness and success in shoemanufacturing:

Specialityproduct Compliance with order specification (delivering what was ordered bycustomers)Deliveringontime,reliabilityandconsistencyofsupply Service,acceptingsmallandrepeatorders Priceandpaymentterms

FinanceandAssetUtilisation

Benchmark

Margins(ofprofitonsellingprice)

Wholesalers

Retailers

Agents

Bonusesoffered

Quickrepeatorders

Specialseller(e.g.mailorder)

Brandadvertisementcosts

Unit

%

%

%

%

Value

~30

45-60

~7

~10

10-25

3.5-4.0


Companyreputation:

Quality,consistency,reliability

Health&safety(atwork),environmentalprotection,labourpolicy

Brandedfootwear:

Goodproductispre-requisite

Longtermstrategy

Benchmark

Turnofcapital:ShoemanufacturerShoeretailerReturnonsales:BasicshoemakingBrandedNiche/specialWorkingcapital:BasicmaterialsWorkinprogress

Finishedgoods:Directsupplytoretailers

Wholesale

Capacityutilisation:LadiesMenandchildren

Unit

times/year

%%%

w.dayw.day

w.dayw.day

%%

Value

>2.52.5–3.5

6–88–1212–16

<304–10

<10<60

~87~92


Mediumandlargescaleoperationsbestcombineprivateandbankcapital

Smallercompanies–shareholdersfunds

Loansshouldbetakenonlyforhighlyprofitablegrowthopportunities

Alternativestonormalbankfinancingshouldbeexplored(supplierscredit,governmentschemes,internationalfunds)

Ifproductionneedstobeincreasedthenaproperinvestmentdecisiontobemaderatherthanaddingmorelabour

Theproductionlevelshouldbemaintainedevenlythroughtheyear.

43

Profitmadeonfootwearproductionisessentialtokeepthecompanyinbusiness.Generally,itisnoteasytoborrowfundsfortheshoeindustry.Loansusuallyhavehighborrowingcosts.Profitabilityoflessthan5%createshigh-riskconditionsandmakesthecompanyquitevulnerable.

TheaboveguidelinesshouldbeusedbyJordanianshoemanufacturingcompanieswhentheyaregoingthroughare-organisationprocess.Benchmarkingisausefultool,measuringperformanceisnecessaryinordertobecomegloballycompetitive.No improvementwillbeachievedwithout thedeterminationofmanagement tofindouthowthingscanbedonebetter.

Thosewhothinktheyare“different”andthatbenchmarkingandgoodmanagementpracticesdonotapplytothem,willlikelydisappearfromthemarket.

5 SWOTanalysisTheresultsoftheanalysisareasfollows:

SWOTANALYSIS

STRENGTHS

QIZagreementwithUSA

FTAwithEU(andUSA)

ProximitytotheEUmarket,11daysdoortodoor.

0%dutyratesonnecessaryimportedrawmaterials(inprocess)

Smallerflexiblefactories

Labourisavailable

Wageratesarerelativelylow

ProximitytoItalyforrawmaterialsandstyling

Efficientinfrastructureandcommunications

WEAKNESSES

Lowmarketingskills

LackofexperienceinInternational(asopposedtoregional)markets

Nolocalmarket

Nosectorassociation

Poorfactorymanagement

Shoemachineinventorypoorandold

NoCADsystemsinplace

Poorpatternengineering

Lackofexperiencedshopfloormanagement

Poorsourcingofrawmaterials

Nolocalleather

Lackofworkingcapital

Poorcommunicationskills

OPPORTUNITIES

MarketingofsafetyshoestoUSA

MarketingofleathershoestoEU

Canre-organisefactoriestoahigherleveloftechnology

Exportpromotionschemesavailable

Reclaimlocalmarket

Upgradeworkingconditions(jobsecurity,benefits,incentives)

THREATS

Importstakeoverthelocalmarket

Managementcannotcopewiththecommercialproblemsthatwillappear

Labourdoesnotreachinternationalstandardsofproductivity

Smugglingofshoes

Notrainedlabourtointernationalstandards

44

6 ConclusionsonJordanFootwearSector

6.1HumanResourcesIn any industry or business, the levels of skill available with which to operatepredicateitssuccess (or failure).Themostsophisticatedtechnologyormarketingtechniques are useless, unless they are understood and implemented properly.This particularly applies when entering international markets (Nike are superbmarketersandexcellenttechnicians,Microsoftaresuperbtechniciansandexcellentmarketers).

ThelevelofskillavailableintheshoeindustryinJordanneedstobeaugmented.

Fromtheevidence,theredoesnotseemtobeenoughskilled(uptointernationalstandards)machineoperatorsavailable.ThiscanbecorrectedbytheVTCsystemthroughmovingthecoursesavailableupalevel.Thecriticaloperationsofclicking(cuttingupleather),closing(stitchingpartstogether)andtosomeextentlastingbymachineneedtobeaddressed.

Any operator cannot work efficiently, unless he has good organisation in theworkshop. It was difficult to judge the plants, simply because they were notworkingundernormalconditions.However,fromexperienceitcouldbeseenthatworkshopmanagementwaspoor.Theflowofwork,thebalancingofoperations,material handling, cost control, the control of parts, is rudimentary at best.Thisreflectsalackofknowledgeandortrainingonthepartofworkshopsupervisors.Inshoemaking,thecontrolofthetwocriticalareasofcostofmaterialsandwagescanleadtosuccessorfailure(Theindustryisnotcapitalintensive).

Apartfromhavingskilledoperatorsandknowledgeableworkshopsupervisors,themost importantareaofall isSeniorManagement.The leadmustcome from thetop.Theownersandmanagersoftheindustryneedmoreexposuretointernationalbusinessdealings.Theymustunderstandinternationalmarketing,theymustmoveaway from being producers to marketers. All Management in the industry hashadadifficult timeof lateandhas losta lotofconfidence in the future.This isunderstandablegiventhesituationinthelocalretailmarket.Whateverthereasonsfortheinfluxofimportedshoes,managementhasnotbeenabletocopewiththem.Theyhavelostabattle,hopefullynotthewar.

Assumingthataviablelocalmarketcanbecreatedfortheindustrytouseasabaseforfutureexports,Managementmustbeuptothechallengeahead.MechanismsneedtobeavailableforManagementtogaintheknowledgenecessarytooperateinInternationalmarketsand,perhapsmoreimportantly,theconfidencewithwhichtodoit.

Thereisstrengthinnumbers,ownersandentrepreneurshavetocometogetherandshareknowledgeandexperiences.Therehastobeaforumforthis,anassociationis required.The industry inmany successful exporting countries operates as anintegratedunit.Inotherwords,eachmemberofthesupplychainworksinharmonywiththeotherstocreatea“team”withthecommongoaltogetexportorders.Thisinturn,willbenefitallmembersoftheteam.Itworksonan“OlympicRing”system.The principlemembers of the team are tanners, component suppliers, the shoefactory,marketingunit,banks,accountants.

45

6.2TechnologylevelsIncertainplants,thelastingmachineryavailablewasgood.Thisisthe“glamour”endof the shoemanufacturingprocess.However, to feed thesemachines,goodqualityuppersarerequired.Thismeanspropershoeengineering,todaycomputersusing CAD systems does this best. None are in use in the industry, clicking isavailablebymachine.However, theareaofclosingneedsalotof improvement,sewingmachinesareoldandof restricted types (mostlyflatbed).Today, sewingmachines are more reliable. They have many automatic features available toimproveproductivity,whichcanpaybackinashortperiodoftimeevenforasmallcompany.

Withtwoexceptions,thecompanieswereoperatinginmultifloorbuildings.Thisisinefficient.Factoriesshouldbesinglefloorbuildingsforeaseofcontrolandcostreduction.

6.3ThelocalmarketTherehastobeare-alignmentof thelocalmarket forcompanies tosurviveandgrow.Noinvestmentwilltakeplaceinmanufacturingunlessthisisso,allexportersneedabasefromwhichtooperate.Thisisusuallythelocalmarket,mechanismsarenecessaryforthistohappen.

6.4OptionsforExportMarketPenetrationTheindustryhasanexcellentstartingpointintheexportprocessthroughtheFTA,withEUandUSA,andtheQIZwithUSA.Thiseffectively,atpresent,allows,undercertainconditionstheexportoffootweartothesemarketsat0%duty.

Themechanismformarketpenetrationrevolvesaroundtwomethodsviz:

DirectsellingSubcontracting

Bothhaveadvantagesanddisadvantages.Directsellingallowscompaniestocontrolthewholeoperation, theycandecidewhichmarkets to sell in to,and theycancreatetheirownbrands.Thereisthepotentialforhigherprofits.Thedisadvantagesaremoreinternationalcompetition,continuedproductdevelopment.Marketentrytakesalongertime.

Subcontracting,inotherwordsformingpartnershipsand/orjointventureswiththirdparties,allowsforeasiermarketaccess.Inthesepartnershipsinmanycases,thelocalmanufactureisthejuniormember.However,itallowsforthetransferoftechnology,anditcreatescrediblesalesinthelocalmarket.Thereisalsoa“comfortzone”withthesystem.Themaindisadvantageisthat,theseniorpartnereffectivelycontrolsprofitlevels.Thelocalcompanyisusuallylockedintoanagreementandhasnointernationalmarketingexposure.However,thissystemworkswellinmanycountries,particularlythosethatarepotentialcompetitorsof theJordanindustry,Tunisia and Romania.None the less, there comes a timewhen companies feelstronger and feel they canmanage on their own.At this point, it is difficult tobecomeindependent.

A step along the way for exporting under this system, is to become the locallicenseeforaninternationalbrand,thisusuallyinvolvesanupfrontlicensefeeand

46

/orapercentageofsales.Intheagreementthereshouldbeaclausethatstates,atapointinthefuture,thattheprinciplewillpurchaseshoesforexport.

Whichmethodtouseforinternationalmarketingisreallyuptothecompaniestodecideforthemselves.

6.5TypesofShoesforExportThisisacriticaldecisionforcompaniestomake.Theprincipleistohavesomethingdifferentoratleastinrelativelyshortsupply.ThereisnotmuchpointinfollowingtheTunisian,RomanianorItalianmainstreamfootwear,making“metoo”shoes.Shoesthatareabitmoredifficulttomakeorslightlyunusualhavemorechanceofsuccess.

Itemsinthiscategoryareasfollows: Industrial footwear,bootsandshoeswith leatheruppersand twocomponentsoles.SolesofPU/vulcanisedrubberortwocomponentPU,injectionmouldedon.Withandwithoutsteeltoecaps,steelinsoleandmetatarsalguard. FullymouldedPVCand/orTRwellingtonboots,withorwithoutthecomponentsabove.HandsewnuppersontoPUsolesknownasClarkstypeorSt.Crispin. SidewallstitchedshoesMcKaystitchedgenuinemoccasins Caterpillartypeconstruction StitchoutsGoodyearwelted

IndustrialandmouldedfootwearlendsitselfwelltotheUSmarketunderQIZrules.These shoes attract a 37.5% duty from other countries.Men’s goodyearweltedshoesalsohaveahighdemandinUSA,currentsuppliersareUKandMexico.

TheothertypesaresuitableforbothmarketsEUandUSA.

6.6TargetCountriesNormally, exporters should startwith 1 target country and a secondarymarket.InthecaseofJordantotheEUthisisacceptablebutbecauseoftheQIZ/FTAtheUSAshouldalsobeincluded.AsfarasEuropeisconcerned,thequestioniswhichmarkettotarget.Someareeasiertopenetratethanothers.

Dependingonthemarketentrymethodchosen, therearedifferentcriteria tobeassessedtotryandmakeanobjectivedecisiononwhichcountriestotarget.

Therefore,amethodwasdevisedtotryandmakethis judgementpossible.Alistof attributeswas drawn up according to the entrymethod.Thesewere given aweightingintheirorderofimportance,eachattributewasthenassessedbycountrywithascoreoutof10.Atotalpointsscorewasthereforeobtained,thecountrywiththehighestscorewasjudgedtobetheoptimumtargetmarket

47

TARGETMARKETS–DIRECTSELLING

Fromtheabove,itcanbeseenthatthebestmarketfordirectsellingisUKfollowedbyBenelux,thenFranceandGermanybothfairlyequal.

TARGETMARKETS–SUBCONTRACTING

*Thehigherthescorethelessoneroustheagreement

From the above, it can be seen that the bestmarket for sub contracting is ItalyfollowedbyGermany.FranceandUKarebothfairlyequal.

AcceptanceofImports

SizeofMarket

Importfriendly-Rules,regulations,distributionchannels

Marketdynamics–Expanding,contracting,same

Pricepoints

Qualitylevels–thehigherthelevelthemoredifficult

Communications

AvailabilityofAgents

TOTAL

RELATIVEPOSITON

Weight-ingKEYATTRIBUTE

2.0

1.6

1.5

1.4

1.2

1.0

0.8

0.5

10.0

GERMANY

5

10

5

6

8

5

6

6Score

Points

10.0

16.0

7.5

8.4

9.6

5.0

4.8

3.0

64.3

3

UK

9

9

8

9

6

8

7

6

Score

Points

18.0

14.4

12.0

11.8

7.2

8.0

5.6

3.0

80.0

1

ITALY

6

8

6

4

7

6

5

6

Score

Points

12.0

12.8

9.0

5.6

8.4

6.0

4.0

3.0

60.8

6

FRANCE

6

7

6

7

7

6

5

6

Score

Points

12.0

11.2

9.0

9.8

8.4

6.0

4.0

3.0

63.4

4

SPAIN

6

6

6

6

7

7

5

6

Score

Points12.0

9.6

9.0

8.4

8.4

7.0

4.0

3.0

61.4

5

BENELUX

8

5

8

5

5

8

7

6

Score

Points

16.0

8.0

12.0

7.0

6.0

8.0

5.6

3.0

73.6

2

WeightingKEYATTRIBUTE GERMANY

Score

Points

UK

Score

Points

ITALY

Score

Points

FRANCE

Score

Points

SPAIN

Score

Points

BENELUX

Score

Points

StructureofAgreements*

Willingnesstosubcontract

Technologysupport

Financialsupport

Availabilityofbrands(Quality)

Willingnesstoallowlocalsales

TOTAL

RELATIVEPOSITION

2.5

2.0

1.8

1.5

1.2

1.0

7

6

8

8

5

6

17.5

12.0

14.4

12.0

6.0

6.0

67.9

2

6

6

8

7

4

7

15.0

12.0

14.4

10.5

4.8

7.0

63.7

4

6

8

8

6

8

7

15.0

16.0

14.4

9.0

9.6

7.0

71.0

1

6

7

7

6

6

6

15.0

14.0

12.6

9.0

7.2

6.0

63.8

3

5

7

6

5

5

7

12.5

14.0

10.8

7.5

6.0

7.0

57.8

5

5

5

5

5

4

6

12.5

10.0

9

7.5

4.8

6.0

49.8

6

48

SECTIONIII:RECOMMENDATIONS

1 StrategyforJordanianshoemanufacturingindustry1.1 Create a viable domesticmarket for shoemanufacturing companies by the

reductionofimportsespeciallyfromChina.Allimportsshouldbelimitedtoa50%shareofthelocalmarketintermsofpairs.

1.2 Createaviablelocalmanufacturingenvironmenttoallowtherehabilitationofexistingfactoriesandencouragetheformationofnewproducerseitherlocal,jointventureorFDI, (TheMinister forTradeandCommerce from IndonesiavisitedJordanrecentlytoexploreJVpossibilities.WiththeexodusoffootwearfactoriesfromIndonesia,Jordancouldbecomeabeneficiary).

1.3 Implement industry specific knowledge transfer courses to strengthen themanagement skills of seniormanagers, especially in the areas ofmarketingandfactoryworkshopmanagement.

1.4 EstablishregionallinkagesbetweenVTCandcounterpartsinTunisiaandEgypt,withaviewtoprovidingmoderntraininginskilledshoemachineoperation,shoetechnologyanddesign.

1.5 Attract investment in the tanning sector to establish2–3new tanneries inJordantosupportlocalshoemanufacturing.

1.6 Establish linkages with Assomac (Italian Association for Shoe MachineryManufacturers), and the leather unit of UNIDO for technology transfer toestablishbestmanufacturingpracticesappropriatetothelocalindustry.

1.7 In the next 4 years target 2 EU (15) markets through FTA and selectedmarket segments in USA throughQIZ for export promotion and/or inwardinvestment.

1.8 Haveinplace in5years time10–16viable Jordanianshoemanufacturingcompaniescapableofexportingglobally.

1.9 Concentrateandfocusexistingexportpromotionschemes,specificallytoassisttheexportprocessforfootwear.

51

2 ActionplanforJordanianshoemanufacturingindustry

2.1 Forthedomesticmarket

2.1.1 Togive localmanufacturersachance to rebuildby investingfurthercapital, theyneedthelocalmarketforsupportandtoreducerisk.Importedfootwearshouldbelegislateddownwardstoalevelof50%ofthetotaldomesticmarket.

2.1.2 This means instigating a Safeguard Mechanism with China.Theirshareofimportsofsyntheticshoesshouldbereducedto40%ofthetotalmarket.Theremaining10%ofimportswouldbe from other countries. These shoes should be of a moreupmarketnature.

2.1.2 Toensuretheabovemarketmix,tariffsshouldbeleviedonaperpairbasisandapercentageoftheCIFpricesimilartotheUSAregulations.UsingHTS6402(syntheticshoesandsandals)asanexamplethiswouldmeanatariffstructureasfollows:

valuenotover$3.00perpair 84%

valueover$3.00butnotover$6.50,$1.58perpair+66%

valueover$6.50butnotover$12.00,$1.58perpair+35%

valueover$12.00perpair 35%

ThesefiguresmayhavetobeamendedfortheJordanianmodel.ItisworthnotingPolandleviedanantidumpingtaxonChineseshoesin1999.ImportsofChinesefootweardeclinedfrom79.8millionpairsin1998to2.2millionpairsin2000.

2.1.3 All shoes made in Jordan or imported should have the EU“pictogram”attachedtoatleasthalfapair.Thistellsconsumerswhattheshoeismadeofi.e.theuppermaterial,liningmaterial,andsolingmaterial(ItismandatoryintheEU).

2.1.4 All shoes sold in Jordan should also have a label clearlyshowingthecountryoforigin.Thisisaimedprimarilytotryandstop“triangulation”i.e.shoesbeingmadeinonecountryandshippedtoasecondforimportintothethirdtoevadeduties.

2.1.5 Revive (if they exist) consumer protection laws so thatcustomersaresureofgoodsof“merchantablequality”andarenotexploitedbyunscrupulousretailers.

2.1.6 The Jordan InstituteofStandards&Metrology shouldhaveawatchingbriefoverthequalityofshoesthatenterthecountry.

2.1.7 Haveanoutrightbanonsecondhandorusedshoes.Theseareahealthrisk.

2.1.8 Statistics should be collected in pairs as well as monetaryvalue.

ACTIONBY:

MOITCUSTOMS

MOITCUSTOMS

MOITCUSTOMS

JISM

JISM

JISMCONSUMERPROTECTIONSOCIETY

JISM

JISM

DOS

52

ACTIONBY:

EJADACHAMBEROFINDUSTRYCOMPANIES

MOIT

MOIT

EJADACOMPANIES

EJADAUNIDOSATRA

COMPANIES

EJADA EJEP JIB

JUMPCOMPANIES

COMPANIES

JIB

COMPANIES

2.2 Fordomesticmanufacturing

2.2.1 The Industrymust formanassociation to further its interests.(Thishasbeentriedinthepastwithmixedresults.Howeverwith thesupportandguidanceofGovernmentandtheChamberofIndustryitshouldbemadetowork).

2.2.2 Reduction to zero rate of all raw materials required to beimportedforshoemanufacture(Thisisinprocess).

2.2.3 Reductiontozerorateforindustrialleathersewingmachines.Thesearecriticalmachinesinshoemanufacture.

2.2.4 The industry must develop leather shoe making rather thansynthetics or full plastic (with the exception of industrialfootwear).

2.2.5 Industrialists must gain the knowledge of how to managea shoe production unit efficiently, especially in the areasof costing, workshop management, pattern engineering byCADandmechanically.CoursesshouldbeorganisedthroughSATRAand/orUNIDO.

2.2.6 WiththehelpoftheAssociationformabuyinggroupinordertoimportnecessarybasicmaterials,insoleboard,toepuffandcountersheets,rubbersolingsheets,grinderiesetc.

2.2.7 EstablishlinkageswithASSOMAC(ItalianAssociationofShoeMachineryManufacturers)withaviewtogroupvisitstoLineaPelle (shoe component and design fair) and SIMAC, (shoemachinery fair).Theobjective is to be aware of the latest instylingandtechnology.

2.2.8 Companies must take it upon themselves to upgrade theirmachinery inventories (particularly in closing) depending onthetypeofshoetheydecidetomake.Theyhaveanopportunitynowto“leapfrog”technologies.TheyshouldinvestigateCADsystemsandautomaticmachines.

2.2.9 Companies to consider importing leather uppers from India(or others) to kick-start the rehabilitation process.These arepermissibleunderFTAandtheQIZsystems.

2.2.10Governmenttoactivelyencourageoutsideinvestment(orlocal)intwo(orthree)newtanneriesinJordan.Thesecanbefinishingtanneriestostartwith(processingwetblueleather)tominimiseriskand investment.Thiswouldbepreferable thanhaving toimportleather.Thefinishedleathercanalsobeanexportitem.Itwillalsoallowfastreactiontimestocustomersrequests.

2.2.11 Companies should achieve productivity gains to become aplayer in the internationalmarket. Examples of internationalproductivityinpairsperoperatorperdayinshoefactoriesis:

France 18.5

53

Spain 18.0

Italy 13.0

UK 13.0

Germany 9.0

Within1yearshouldtargetthelevelof15pairsperdayperoperatorandstrivefor20pairsperdayperoperator.

2.2.12Where necessary and this will be a judgement on anindividualbasis,companiesmustensuredesigninputsthatareup todate.This canbedonebyestablishing linkageswithinternational(particularlyItalian)designstudios.

2.2.13Companies, with the assistance to the Association, theChamber of Industry and relevant Ministry, should seekoutlicensingagreementswithestablishedbrands.Thiswillenablethemtomakeforthelocalmarketandexportinthefuture.TheFTAwithEUandQIZwithUSAwillbeabigadvantage in this regard. It is better to approach “lesserknown”brandsthanthemajors,somesuggestions:

Geox (Italy) men’s comfort dress shoes. CurrentlyimportedintoJordan

Stonefly(Italy)Men’scomfort/dressshoes

Clarks (UKmen’s, ladies andchildren, amajorBrand,but susceptible to licensing), currently imported intoJordan

Hush Puppies (USA) men’s and ladies comfort streetshoes

Hotters/Padders(bothUK)ladiescomfortStreetshoes,solesPUinjectionmouldedon(ThistechnologyexistsinJordan).

Initial approaches should be made through ANCI(Italian National Association of Shoe Manufacturers),ASSOMAC, and BFA (British Footwear Association).(HushPuppies-direct).

1.2.14Oneof thebiggestadvantages to the footwear industry inJordan,throughtheQIZisthemanufactureofsafetyshoesfor export to theUSA.Thesecurrentlyattract37.5%dutyfromallothercountries(withtheexceptionofshoesmadeinMexicoandCanada).Localinvestorsandmanufacturersshould investigate this exceptional opportunity. TheadvantagesoftheQIZshouldbedisseminatedmorewidelythroughtheindustry(ThroughanAssociation)

ACTIONBY:

COMPANIES

JIBEJADAJEDCOCHAMBERCOMPANIES

ASSOCIATIONCOMPANIES

54

ACTIONBY:

JEDCOEJADA

JEDCOEJADACOMPANIES

ditto

COMPANIES

COMPANIES

COMPANIES

JEDCOEJADA

COMPANIES

JEDCOEJADA

JUSBP

JUSBP

2.3 MarketingtoEU

2.3.1 Financial help should be given to a select group of shoecompanies, on a cost-sharing basis, to become exportdevelopmentpathfinders.

2.3.2 Group visits should be made to European shoe shows asobservers viz. GDS, Dusseldorf, Expo Riva Schu (Italy).Thisshould be combined with window shopping trips to Milan,Frankfurt,Paris,Amsterdam,London.Thisshouldbedoneoveroneyeari.e.twotimes,Spring/summerandAutumn/winter.

2.3.3 GroupvisitLineaPelle(Italy)2times(accordingtotheseasons)togetrangebuildinginformation.

2.3.4 Buildshoerangesbasedonthemarketresearchandtypesofshoes.

2.3.5 Testmarketshoesonthelocalmarket

2.3.6 Decidewhichcountries tomarket into.ThesuggestionisUKandBenelux(Holland).

2.3.7 Contactpotentiallicensingpartners(Seeabove)

2.3.8 Searchforagentsintherelevantcountrieswhererepresentationisrequired.

2.3.9 HaveathreeyearprogrammetoshowasaJordanGroupattheGDStwotimesperyear(Thiswillneedfinancialassistance).

2.4 MarketingtoUSA

IndustrialFootwear

2.4.1 UtilisingtheQIZsystemandFTA,offersamajoropportunityforJordanshoemanufacturersinthesafetyfootwearmarket.Fullyinjectionmouldedfootwearattractsa37.5%dutyfortherestoftheworld(exceptCanadaandMexico),0%fromJordan.Leatherupper shoeswith injectionmoulded soleshaveaMFN rateof8.5%and20% fromother countries.FromJordanundertheFTAthisis0%

The shoes are highly technical in nature, so makingunder licence would be the way forward for Jordanianmanufacturers.

2.4.2 Twocompaniesarecurrentlymakingsafety footwearwithleather uppers in Jordan. They should be encouraged toconsider having licence agreements with US companiesafter they have upgraded their manufacturing facilities.Nobody is making fully injection moulded boots. Thisprocess calls for a large capital investment in terms ofmachineryandmoulds.Amarketneeds tobesecured forthisfirst,consequentlythisprocesslendsitself toFDIora

55

wellconnectedlocalinvestor.

2.4.3 ThefollowingcompaniesmakesafetyshoesintheUSAWeinbrennerShoeCoLehighSafetyShoeCoAltamaFootwear(military&service)H.H.Brown

ThefollowingdistributesafetyfootwearNautilusSafetyFootwearWolverine(previouslyweremanufacturers,alsomarketCaterpillarBoots,whicharesoldinJordan)

2.4.4 TheinterestedcompaniesshouldreviewtheproductrangeonofferfromUSAmarketleaders(thiscanbedoneontheinternet).

2.4.5 Re-engineer and/or re-design current footwear range tothese standards and features. Get certification under ISO(forEurope)andASTM(forUSA).

2.4.6 Establishthecorrectsellingprice,thencostshoestoensuretheycanbemadeatthisprice.(Ifthepriceistoolowthencosts have to be cut, not prices increased. If this is notpossiblethentheprojectshouldbeabandoned).

TraveltoamajorUSandattendamajorsafetyindustryshowtoascertainmarketinginformation,especiallythepossibilityofexportingtoUSfromJordan.

2.4.8 Approach USA manufacturers for possible licensingagreementsforJordanandtheregionalmarkets.

2.4.7 HaveanagreementinprinciplewithlicensorthatfootwearcaneventuallybeexportedtoUSA.

[Safety shoes can also be marketed in Europe. It is acompetitivemarket and less inclined to imports.Also thedistributionmethodsaredifferentfromthoseoutlinedaboveforconventionalshoes].

ConventionalShoes

2.4.8 The shoe line can be the same as for Europe. Check thedollar price applicable to theUSmarket.Aim at smallerretail chains.Arrange a group visit toWSA shoe show inLasVegas as observers to get marketing information andpossiblerepresentation.AttheshowcontacttheNSRA.

2.4.9 Inparallelrun“advertorials”inFootwearNewsmagazine.

2.4.10Return to the show as an exhibiting group. Continue the

ACTIONBY:

COMPANIES

COMPANIESJISM

COMPANIES

JEDCOJUSBPCOMPANIES

JEDCOJUSBPCOMPANIES

JEDCOJUSBPCOMPANIES

JEDCO

JEDCO

56

ACTIONBY:

EJADAVTC

EJADAVTC

EJADAVTC

EJADAVTCUNIDO

EJADAVTCUNIDOSATRA

shoeshowprogrammefor3years.

2.5 Training

2.5.1 There is a need to upgrade themarketing skills of seniormanagersandownersinmarketingtechniques.Thecriticalareasaresegmentationpositioningtargetingpromotiondistribution

Coursesforseniormanagementshouldbeorganised.

2.5.2 Trainingshouldalsobeconductedinshoefactoryworkshopmanagement:workflowloadingofoperators(balancingaproductionline)

2.5.3 Trainingincostingtechniques:materialallowanceslabourrates

2.5.4 Traininginpatternengineering:patternmakinggradingbymachineandCAD

2.5.5 Training of operators. This should be upgraded from thecurrent machine control level to full speed operation.(Modernsewingmachinesoperateat~2,300stitchesperminute).

57

AnnexCHINAFOOTWEAREXPORTU.S.$‘000

ChinaSourceITC

World

USA

Europe

Regional

Rest

2000

9,850,226

4,886,500

1,059,104

1,831,606

2,073,016

2001

10,095,769

5,044,340

1,068,367

1,793,782

2,189,280

2002

11,090,084

5,055,068

1,230,180

2,053,272

2,751,564

INDONESIAFOOTWEAREXPORTU.S.$‘000

IndonesiaSourceITC

World

USA

UK

Germany

France

Italy

Spain

BelgiumLux/Netherlands

EastAsia

Rest

2000

1,672,110

692,340

151,571

80,175

64,705

49,412

27,864

185,689

126,621

293,733

2001

1,505,580

611,881

124,597

79,314

60,547

40,608

25,415

179,789

155,756

227,673

2002

1,148,052

475,494

103,002

68,764

39,583

26,350

16,942

123,912

140,707

153,298

VIETNAMFOOTWEAREXPORTSU.S.$‘000

Vietnam

SourceITC

World

UK

Germany

BelgiumLux/

Netherlands

France

USA

Italy

Spain

Sweden

Asia

Rest

2000

1,471,667

219,972

210,605

288,417

140,270

87,393

86,503

39,162

22,501

148,780

228,064

2001

1,630,193

256,854

214,070

318,607

168,154

114,889

102,677

45,100

21,990

114,891

272,961

2002

1,900,000

-

-

-

-

-

-

-

-

-

-

2003

2,200,000

-

-

-

-

-

-

-

-

-

-

2004

(projection)

2,500,000

-

-

-

-

-

-

-

-

-

-

58

INDIAFOOTWEAREXPORTU.S.$‘000

IndiaSourceITC

World

UK

Germany

USA

Italy

France

Spain


Portugal

EastAsia

MiddleEast

Rest

2000

651,382

159,614

100,684

113,387

77,532

30,722

11,619

20,698

20,038

12,170

19,525

85,393

2001

662,511

159,101

116,601

89,487

97,388

32,429

12,830

27,708

17,319

9,671

22,531

77,446

2002

622,590

145,199

105,155

89,457

78,779

36,579

20,019

24,413

16,756

8,087

23,044

75,102

MALAYSIAFOOTWEAREXPORTU.S.$‘000

MalaysiaSourceITC

World

Italy

Germany

France

Turkey

Belgium/Netherlands

UK

Greece

Spain

EastAsia

Rest

2000

92,966

9,808

1,790

3,892

179

4,022

2,239

904

498

42,183

27,451

2001

85,918

5,008

3,782

4,432

355

2,410

3,458

1,644

1,201

37,278

26,350

2002

90,475

5,827

4,463

3,908

3,893

3,631

3,278

3,148

2,788

34,805

24,734

THAILANDFOOTWEAREXPORTU.S.$‘000

ThailandSourceITC

WorldUSAUKBelgiumLux/NetherlandsDenmarkFranceItalySpainEastAsiaMiddleEastRest

2000

832,951330,90692,76979,64233,37926,11318,03810,17757,53746,793137,597

2001

839,255308,121101,832108,10236,35825,23112,26010,89559,11948,768128,569

2002

-----------

59

PHILIPINESFOOTWEAREXPORTU.S.$‘000

PhilippinesSourceITC

WorldBelgiumLux/NetherlandsUKMexicoUSAGermanySpainFranceSwitzerlandItalyEastAsiaRest

2000

76,45412,3353,81566417,3387,4708482,9994852,19915,36312,938

2001

72,95318,8766,6194,26114,2933,4352,0782,1744908858,48011,362

2002

35,54713,2435,1073,0141,3721,2945955685665336,2572,998

ITALYFOOTWEAREXPORTU.S.$‘000

COUNTRY

ItalySourceITCUSAGermanyFranceUKRomaniaSwitzerlandRussianFedBelgiumLux/NetherlandsEastAsiaMiddleEastRest

2000

7,153,3041,249,5241,196,238723,024561,651266,051297,589210,714448,109354,205257,5071,588,692

2001

7,570,2541,250,1761,235,723740,243543,814343,216362,675254,969479,703390,311273,5271,695,897

2002

7,587,7291,136,5931,089,391849,374600,816413,421315,049271,838476,754378,824277,2281,778,441

SPAINFOOTWEAREXPORTU.S.$‘000

SpainSourceITC

WorldFranceUSAUKGermanyPortugalItalyBelgiumLux/NetherlandsGreeceMexicoEastAsiaMiddleEastRest

2000

1,885,249344,340319,736211,736287,174106,78177,767121,53435,07016,30050,48763,392250,932

2001

1,985,784385,271273,171235,776263,596127,97186,423131,77635,10926,29854,49268,881297,020

2002

2,124,644415,436272,473272,262266,113144,936111,984133,62146,19142,43955,41868,092295,679

60

PORTUGALFOOTWEAREXPORTU.S.$‘000

PortugalSourceITC

World

Germany

France

UK


USA

Denmark

Spain

Sweden

Norway

EastAsia

Rest

2000

1,479,109

414,620

277,868

301,772

151,613

43,553

76,818

47,220

40,390

18,660

10,440

96,155

2001

1,515,059

429,701

313,437

288,431

171,382

55,526

51,853

45,032

35,808

17,730

6,603

99,556

2002

1,497,448

405,723

320,351

280,941

164,421

60,356

52,514

49,068

35,740

16,072

7,493

104,769

FRANCEFOOTWEAREXPORTU.S.$‘000

FranceSourceITC

World

Germany


USA

UK

Italy

Spain

Switzerland

Portugal

EastAsia

MiddleEast

Rest

2000

944,220

133,200

145,485

99,949

63,582

61,098

58,563

48,823

26,079

56,536

79,527

171,378

2001

956,120

123,077

148,204

94,662

62,939

63,373

56,194

47,024

30,168

58,094

88,763

183,622

2002

1,070,762

133,575

170,095

105,111

80,244

76,251

63,075

48,862

31,108

70,388

100,292

191,761

BENELUXFOOTWEAREXPORTU.S.$‘000

BeneluxSourceITC

World

France

UK

Italy

Spain

Germany

MiddleEast

Rest

2000

2,141,108

313,384

292,120

195,407

116,498

114,984

151,600

805,515

2001

2,545,470

380,372

356,507

210,092

143,487

136,099

219,280

1,199,633

2002

2,620,026

457,053

374,654

216,905

167,094

162,519

199,900

1,041,901

61

TUNISIAFOOTWEAREXPORTSUS$‘000

TunisiaSourceITC

World

Italy

France

Germany

Rest

2000

265,279

125,766

91,139

31,724

16,650

2001

328,319

170,645

106,896

28,694

22,084

2002

343,555

180,198

101,541

30,382

31,434

MOROCCOFOOTWEAREXPORTSUS$‘000

MoroccoSourceITC

World

France

Spain

Germany

Italy

Rest

2000

148,692

85,758

9,724

14,224

24,929

14,057

2001

163,417

94,967

23,310

15,102

23,715

6,323

2002

178,639

117,119

21,025

17,509

16,081

6,905

62

Name

Customer

Item

Upper1

Upper2

Upper3

Lining1

Lining2

Sock

Foam

Eyelets

Thread

Binding

Trims

Elastic

Toepuff

Counter

Insole

Shank

Shankboard

Sole

Heel

Lace

Label

Box

Carton

Grinderies

TOTALRAWMATERIAL

Chinatype

ChineseimportedPVC

ChineseimportedPVC

Chineseimportedfabricbased

Local

Allowance

Allowance

Solventactivated

Solventactivated

Chinesecellulousboard2mm

Importedsteel

GenuineleathergradeI

Chineseresinrubber2.00mm

Imported90mm

localprinted

Local

Allowance

SHOECOSTING

Last

ShoeType

Description

N/A

ladieshighheelcloseddressshoe

Patternno. N/A

Allowance

0.23

0.18

0.05

0.005

0.008

0.042

0.05

1

0.03

0.06

1

2

1

18

U.O.M.

Ft2

m2

Ft2

m2

m2

m2

m2

m2

m2

pair

m2

m2

pair

piece

piece

piece

Date:08/21/2004

Currency

Price

2.50

1.60

1.50

1.00

1.25

1.65

2.20

0.05

5.25

3.90

0.50

0.02

0.50

0.50

JD

Cost

0.00

0.58

0.00

0.00

0.29

0.08

0.01

0.00

0.05

0.00

0.10

0.00

0.01

0.07

0.11

0.05

0.16

0.23

0.50

0.00

0.04

0.50

0.03

0.15

2.94

63

$

0.40

0.40

0.70

0.60

2.10

2.52

0.76

8.32

1.66

9.98

12.03

10.00

Prsperday

1

1

1

1

20

0.83

JD

0.40

0.40

0.70

0.60

120%ofdirectlabour

Rawmaterials+directlabour+directoverheadsx10%

totheUS$,totalcosts=

No.ops

1

1

1

1

LABOUR

Bottompreparation

Upperpreparation

Closing

Makingfinishing

TOTALDIRECTLABOUR

DIRECTOVERHEADS

INDIRECTOVERHEADS

TOTALMANUFACTURINGCOST

PROFITMARKUP%

TOTALCOSTS

REMARKS

RecommendedsellingpriceJDFOB.

NotethesellingpricesforrawmaterialswereobtainedfromalocalwholesalerinAmman

Thelabourcostswerequotedbymanufacturers.Thesearethepricestheypaytooutworkers

OverheadsarebasedonaformulaforawesterntypefactoryandareprobablyoverstatedinJordanianterms.

64

Glbal Footwear Analysis and Jordan[1]

Documents

biggest export market

local manufacturers

biggest supplier

shoe manufacturers

south korea

technology transfer

theglobalfootwear industrya

leather footwear