An Overview of LEATHER & LEATHER GOODS INDUSTRY, BANGLADESH Managerial Communication Page 1 Origin of the Report We, the student of Institute of Business administration (IBA-JU) are required to submit this report on country’s potential industrial sector “Leather & leather goods Industry”. According to our course agenda this project is a pre requisite of completing the required credit by the institution. As we were not required to collect any information from primary sources we did not head for any corporation’s in this industry to acquire necessary information’s to prepare this report. Most of the information provided in the report is from secondary sources; like electronic print media, internet, company annual reports and other journals. The purpose of this report is to provide a thorough idea about the leather industry in context to the Bangladesh scenario; its possible future, growth perspective, hindrance etc. Therefore this report scrutinized some external factors like: competitor analysis, world leather goods market and showed the situation of Bangladesh in this industrial estate. The report submission time was almost 2 weeks which we spent efficiently in scrutinizing all the possible information’s of Leather industry to come up with a professional report on it. Background of the Report Leather is one of the oldest industries in Bangladesh and at the same time one of the most potential one. It has a profound history in this south Asian territory which was laid by RP Saha; a profound industrialists. Bangladesh earns more than 8.0 billion taka - 11 per cent of all the export earnings – by exporting leather and leather goods. The leather industries are mostly situated in the densely populated residential area surrounded by slums, where people are living ignorantly in one of the worst polluted areas in the world. Leather footwear accounted for 28% of export earnings from leather and leather products in 2007-08, while the share of leather and other leather products were 68% and 4% respectively. Thus notwithstanding its small size, leather industry in Bangladesh seems to have undergone significant transformation during the past two decades from a low value
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An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
Page 1
Origin of the Report
We, the student of Institute of Business administration (IBA-JU) are required to submit this
Local Consumption of leather is around one fifth of the total output and the rest 80%
is exported in the form of Crust leather (75%), and finished leather (20%), Footwear
and leather goods (5%). Though there has been some appreciable improvement in
animal husbandry and butcher's techniques in Bangladesh in recent times, it may
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
Page 10
take quite some time to reach the international standard. The Black Bengal and other
variants of goat skin from Bangladesh enjoy an excellent reputation for quality
worldwide. At present, the leather sector accounts for 3-4 per cent of total export
earnings.
According to Bangladesh Export Promotion Bureau (EPB), contribution of leather
sector to total GDP was 0.32% in 2005.
The relocation of tanneries from Hazaribagh to Savar is being delayed due to the
owners' reluctance to move. Tannery owners are yet to lay down the foundation
stone for their factories, blaming the holdup on the failure to reach a consensus with
the government regarding compensation and bank loans. Tannery owners are
demanding 1000 crore compensation, a readymade CETP and soft loans to proceed
with their re-allocation. Their statement is they would have to build new
infrastructures and repair machinery that would be damaged during relocation. The
government proposed sharing costs for the CETP installations, which will require
more than Tk 300 crore. But the Industrialist say that they are supposed to get that
by free from government according to a deal made in 2003. Besides re-allocating the
whole industry to a new zone the recent industry ministry implies its node over
installing a CETP (central effluent treatment plant). He also urge that Bangladesh
would have loose its significant leather goods export if the re-allocation would not
have been made within few years and install an CETP immediately as because
global leather importers are demanding environment friendly production besides
looking at the quality of goods.
Additionally, the industrialists are demanding another 200 acres of land in the
proposed leather estate at Savar for building dumping yards and labor barrack for
the workers. Though the re allocation was supposed to be done 10 years ago by a
verdict by the Court at 2001 yet the process is under progression. The government,
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
Page 11
0
50
100
150
200
US
Mill
ion
Export Earning from leather goods
to accommodate the tanneries, began work on the leather estate more than five
years ago. The estate, which cost Tk 545 crore, remains unused and empty. And by
this time the tanneries located in Hazaribagh, Dhanmondi, Basila, Kamrangirchar
and the surrounding areas continue to inflict its emissions upon the long-suffering
residents of the western part of the city.
At present leather and leather products are exported to about 53 countries of the
world. The major importing countries are: Italy, Brazil, Germany, Singapore, China
and the USA. EPB sources report that export earnings from leather goods was US$
287.78 million in 2004-2005, out of which, about 80% are from leather and the rest is
from finished leather goods.
The above graph exhibits that the export growth rate of Bangladesh leather sector
declined initially in the year 1998-1999 because there was economic recession in
Bangladesh due to massive flood. During this period (from 1998 to 2005), the growth
rate was highest in 2000-2001 (16.32%).
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
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In the year 2002-2003 export growth rate was negative because of the global
economic recession as a consequence of the War in Iraq, the Twin Tower (9/11)
incident, rise of international terrorism, fundamentalist orientations, etc. Export
growth rate for the year 2004-2005 was 8.22%. Foreign investment to the industrial
leather sector of Bangladesh has been very limited. Till March 2010, the total foreign
investment in the industrial leather sector was $116.12 million, which is only 1.33 per
cent of the total foreign direct investment into the country.
The leather industry with over Taka 160 billion annual export earnings is the
country’s third biggest foreign exchange earner after the RMG and the frozen food
sectors. Local and foreign experts believe that this sector could replicate the
successes of the Readymade Garment (RMG) sector if the government and genuine
entrepreneurs join hands for effective cooperation and develop the sector with a
comprehensive strategic plan.
Leather industry is growing all over the world – both in market potentials and in
installed capacity. For Bangladesh, export earning only from leather was US$ 160
million in 2010- 2011 and it is expected to reach US$ 235 million in 2015-2020 as the
demand for quality raw material for finished leather goods is increasing in developed
countries. The size of the global footwear market is enormous as well. A thorough
analysis of the historic data shows that factors like demographic composition, depth
and reach of urbanization and distribution of wealth have consistently shaped the
growth of the footwear industry. Though till now Bangladesh has shown poor
performance in the leather goods sector, it has a good growth potential if
entrepreneurs can avail modern technology to diversify their products and designs
according to international market trends and apply modern tools for marketing &
promotion.
Realizing this sector’s growth potential, Bangladesh Government has reiterated its
decision to treat the industry as one of the thrust sectors and reduce interest rates
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
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for industrial credit to this sector to seven percent (7%). The government has already
decided to develop a leather industrial area at Savar, outside Dhaka where tanneries
from Dhaka would be shifted to free the Hazaribagh area and the river Buriganga in
general, where most of the tanneries are concentrated, of pollution.
CHINA
China is today globally the undisputed leader in footwear manufacturing and also
has a highly developed components and accessories industry. This development
was favoured by the opening up of the Chinese economy, which enabled the influx of
Taiwanese investment amounting to billions of dollars as well as the transfer of
Taiwanese know-how in this sector.
The North-South migration of various industries, which began from the industrialised
USA and West European countries to the newly industrialised countries such as
Japan, Taiwan and Hong Kong continued with the rise of labour costs in those
countries to the new cheap labour countries like China, Indonesia, Thailand, Vietnam
and India. In this respect China was certainly favoured by foreign investors because
of its political stability, reliability, infrastructure, qualified and cheap labour forces and
big local market.
INDIA
Like China, the leather and leather goods sector of India has benefited the most from
a long-term development policy. Obviously it capitalises on its natural advantages of
abundant raw materials, plentiful and low-cost labour, a large pool of skilled and
trained human resources, a strong artisan shoe-making tradition as well as an
immense domestic market. Certainly India remains far behind China because it has
in the last decade been more reluctant to open its market and liberalise the
economy.
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
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STRENGTH
•Leather Can be treated as renewable resource.
•Availability of integrated production chain from raw materials to tanneries and leather goods.
•AVailability of a large rather inexpensive workforce relative to other comparable manufacturing societies.
•Reputation of Banglaesh's premium grain leather
•Price advantage of Bangladeshi Leather In International market
•Durability of leather products.
•Favourable business environment with existance of EPZ
•Reduced interest rate for industrial credit to leather sector to 7% since it is considered as thurst sector by the government.
WEAKNESS
•Insufficient research and development facilities.
•Inadequate Knowledge on pro active marketing of local leather entreprise.
•Lack of initiative in arranging events to promote locally produce leather.
•Limited access to financial institutions.
•Unavialbility of chemicals and accesories locally and no provision for local chemical industry.
•Poor demand in domestic market.
•Inability to come up with innovative and trendy products.
•Absence of Vertical integration (forward and backward linkage)
•Lack of professional training institutes to improve skills of workers at all levels.
•Challenge of international brand image.
OPPORTUNITY
•Increasing global demand for leather products.
•High potential for quality raw materials and maximum value addition inside the country.
•Availability of Cheap labor force inside the country.
•GSP (Genaralized system of preferences) facilities to exporters.
•Duty free access in major markets.
•Potential footwear market in middle east and southern Africa.
•Opportunity in establishing by product industry based on solid and liquid wate tannery and slaughter house.
•Unlike resin and other synthtic and artificial fibre elemnets, leather products are hygenic and most importantly environment freindly and bio degradable.
•Promise of setting up ETP with allocation of a substantial modern industrial place in savar by the government.
THREAT
•Delay in introducing integrated government policy for the development of leather industry.
•Leather sector growth was stagnant in some years because of political instabilities leading to apathy international investment communities.
•Political instability of bangladesh, poor governance at all levels including corporate governance.
•Intensive competition for gaining market because of strong competitors like: china, India and pakistan.
•Huge dependency on high priced imported chemical and accesories.
•Limited product diversification compared to competing countries like: China, India and Pakistan.
•Availability of low priced imported homogeneous products made of rexin and other artificial fibres.
•Illegal export of raw hides and skins to india and neighbouring countries is creating scarcity of raw materials for local production.
•Insufficient measure to address the environemnt pollution, helathy and safety issues by the tanneries.
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
Page 15
FINANCIAL PERFORMANCE
An Overview of LEATHER &
LEATHER GOODS INDUSTRY,
BANGLADESH
M a n a g e r i a l C o m m u n i c a t i o n
Page 16
Footwear
The leather manufacturing process is divided into three fundamental sub-processes:
Preparatory stages,
Tanning and crusting.
Preparatory stages
In this stage the hide/skin is prepared for tanning. Preparatory stages may include: