Mm Shoe Project

Introduction

Pakistan footwear Industry has flourished quite significantly by making effective use of the indigenous raw materials and the conducive infrastructure available. The footwear industry runs in parallel with changing fashion, designs and materials. Footwear has undergone a complete reversal, from being a utility product to a fashion product. Leading players have to make continuous changes in terms of designs, styles, material used, in all the offerings.

There is a need to provide innovative solutions in the Pakistan Footwear Industry to remain competitive and retain customers. Manufacturers have to make products that match both fashion and utility requirements of the customers. Comfort is a very important factor in the industry. Cost is also a significant factor for ensuring success. There is a lot of pressure on margins in the Pakistan footwear industry, due to frequent changes in fashion and demand.

PFMA is a Trade Association representing Pakistani footwear manufacturers, exporters, importers and traders. It is an Association duly approved by the Ministry of Commerce, registered with Directorate General Trade Organizations, incorporated under the Companies Ordinance 1984 with Securities and Exchange Commission of Pakistan and a member of Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

Pakistan Footwear Manufacturer Association (PFMA) is operating in Pakistan since….. The Association was formed to protect and safeguard the interests of Footwear manufacturers and traders by applications, deputation, delegations, petitions and memoranda to the Government of Pakistan or the Provincial governments. It is to assist the members by investigating problems peculiar to the industry and trade with a view to cause improvements and progress.

List of PFMA managing committee members are,

PFMAMr. Nasir Anwar Sheikh

(Elegant Shoes)Chairman

Mr. M. Younas(Starlet Shoes)Vice Chairman

Mr. Waseem Zakria(Footlib Shoes)

Member

Mr. Rizwan Shahid(EPCOT Shoes)

Member

Mr. M. Akram(Servis Shoes)

Member

Mr. Imtiaz Ali(Modila Shoes)

Member

Data:

The basic raw materials, hides and skins for footwear is abundantly available in the country. Pakistan has 44 million large animals and 70 million small animals. The small animals provide 81% of the total skin, while total raw hides and skins available in 1999 were 43.6 million. The break up of hides and skin is:

There are about 500 fully organized units in the country who are producing quality shoes and proving their presence nationally and in the world market. This growth is in the interest of Pakistan economy as this industry is labor intensive employing half a million labor force at present with export figure higher by 13% till April 2009.

To train the manpower and up-gradation of the skills, an institute is working in Gujranwala i.e. Institute of Leather Technology. Keeping in view the immense need of skilled manpower and institute, PFMA is planning to establish another training institute in Lahore.

In Pakistan, on the average each person wear 1.83 ~ 2.0 pair per annum. Some 25% of the total footwear production in the country is done at abut 24% mechanized manufacturing units while 75% demand is met by the cottage industry.

There are around 800 or so cottage units in and around Lahore alone e.g. Chuna Mundi, Kasoor, Okara, Mureedkay, Pattoki, etc. A good trend is also exist in wearing hand made shoes like Khusa in Punjab, Pehsawari Chappal in NWFP, Sindhi Khehri in Sindh.

Estimated Production Capacities

The estimated production capacity of major players in Pakistan (Source: Business Recorder 01-FEB-2002) is given below.

Major Units Pairs Per DayPair Per Annum (300 days Single

Shift Basis)Bata Pakistan 100,000 30m

Servis Industries 35000 10.50mEast Pak Chrome (EPCOT) 2500 0.75m

Footlib 2000 0.60mFirhaj Footwear 1500 0.45m

Shafi Group (Urban Sole) 1000 0.30m

The graph shows BATA is at the top in terms of production capacity followed by SERVIS, Footlib and other.

The average unit price per pair of shoe is given below, showing the increasing price trend from the year 2001~2005. (Source SMEDA)

Commodities 2000-1 2001-2 2002-3 2003-4 2004-5

$ $ $ $ $Footwear A.U.P per Pair

7.88 7.53 8.76 8.89 9.64

Global Perspective

The contribution of Pakistan’s leather footwear in the world is about 0.28% (2004). In 2004-05 exports of leather footwear were increased by 38.5% from $ 78 million of the previous year to $ 108 million. The major buyers of the product were UAE, Saudi Arabia, Yemen, UK and Germany.

Major Footwear Producers

Major footwear producers with their production in million pairs is shown below showing china as the leading manufacturer followed by India. Both are the critical countries affecting the Pakistan Footwear industry. (Source Business Recorder 01-Feb-2002)

Country Million PairsChina 5841India 680Brazil 527Italy 420

Turkey 283Thailand 272Mexico 265

Indonesia 262Vietnam 240

Spain 208Pakistan 207

Competitive Position of Neighboring Countries

The Pakistan’s competitive position with its neighboring countries is given below implying

Items Pakistan India ChinaProduction 226.8 685.0 5520.0Imports 0.7 0.1 2.6Export 9.0 32.4 386.10Total Consumptions 218.5 652.7 2436.5Per Capita Consumptions 1.5 0.7 2.0

Export Growth Trend

The global export market in leather footwear has been valued at nearly $21 billion. The five year trend shows negative growth (-for leather footwear and in 1999 exports fell by 5% while its share as a sub commodity of leather has increased from 47% to about 51%. Thus even though there has been lower trade in leather as whole, leather footwear has not declined significantly. (Source SMEDA)

Leather Footwear Growth Trend (in million $)1995 1996 1997 1998 1999

WORLD 21,477 23,083 22,771 22,053 21,049Growth % age 7% -1% -3% -5%

Leather footwear exports can be further divided into three major classes i.e. footwear with upper of leathers (83%), sports footwear (14%) and other footwear (2.29%). The leading exporter of leather footwear is Italy with a 28.21% share of total exports in 1999. China is second with 13% of the export market and Portugal has 7.57% of the total export market.

Leather Footwear Export BreakdownLeather footwear are included items such as sandals, slippers, boots and shoes. Themost popular item in 2000-2001 was leather boots and shoes, which accounted for nearly70.33% of the total export value of leather footwear.$ 58 (2000-2001)

Pakistan Leather Footwear Export Breakdown (millions)

1999-2000 2000-2001

Leather Boots and Shoes 20.978 24.631Leather Sandles 0.578 1.122Leather Slippers 0.657 0.632Leather Footwear of Embroidary 0.007 0.054Leather Footwear 3.450 5.262Footwear Outersole Of Leather 0.003 1.826Footwear NES- Outersole - Leather 0.039 0.169Footwear -Upper of Leather 2.322 1.322

TOTAL 28.03 35.02@USD: 51.8 @USD: 58

Challenges

Pakistan show industry is facing challenges due to which industry is not getting the desired results.

Govt. of Pakistan was helping the Footwear Industry in flourishing by providing 6% grant in the R&D sector. But Government discontinued that 6% R&D support on 25th June, 2008.

High Custom duties on Four important shoe items i.e. Soles, Lasts, Insole board and Toe puff and back Counter Thermoplastic Sheets acting as a big hindrance in flourishing shoe import. If shoe are imported, these attract a 25% custom duty. Foot wear raw material attract 5 ~20% and components required for use in shoes attract 20 ~ 25% duty.

Footwear industry is facing shortage of training institutes for skill development shoe designs, proper health & safety shoes, supervision, introduction, implementation & support of state of the art technology and up- gradation of skills.

Threat from less expensive shoes from China and India destroying the national

footwear industry creating unemployment and decline in the economy & revenue.

Instability in Government and frequent changes in Government policies create confusion and uncertainty among the existing and future investors which is detrimental to the healthy growth of not only Footwear industry but to any industry.

Energy Crisis (Electricity, Natural Gas) is diverting the footwear manufacturers investments in alternate energy resources e.g. generators, UPS etc from investing into new product designs/launching, state of the art technology, after sales support, etc

Deteriorating Law and Order situation is another impediment blocking the local as well as foreign investment in the industry.

Footwear manufacturers are subjected to a variety of local taxes which on the one hand increase the cost of local as well as exportable products and on the other, much time is wasted in dealing with government departments.

Due to lack of Footwear institutes, local manufacturers rely on copying of foreign made shoe designs instead of designing their own styles and designs.

Most manufacturers are still dependent on usage of old technologies, manual shoe making, old machinery and methods, not getting the return in true sense.

Seasonal effect on usage of shoes as people wear different shoe in different industries.

Competition from international brands like Pierre Cardin with comparable prices badly affecting the footwear industry as people find high quality and comfort shoes in reasonable prices.

Shoe industry employs child workers, violating the Child Labor Act of Pakistan that no child before the age of 13 is legally allowed to work.

High inflation rate forcing labor for high demand in labor rate.

Operating CompaniesThere are lots of local and international companies operating in Pakistan but we

are considering few top companies for our analysis.

BATA Pakistan Servis Pakistan EPCOT Urban Sole ECS/FootLib/Milli Shoe

BATABata Pakistan Limited is a Pakistan-based company. The Company is engaged in

the manufacturing and distributor, with footwear as its core business. It is engaged in the sale of footwear of all kinds along with sale of accessories and hosiery items. The total production of the Company during the year ended December 31, 2008 was 9.48 million

pairs. Its major brands include Power, Weinbrenner, Marie Claire, Comfit and Bubblegummers.

BATA has market share of about 6% in Pakistan and serves about 1million customers a day. There are about 40,000 employees working in about 5000 retail stores.

Brands of Bata

Marie Claire shoes are for women with an active

lifestyle who seek contemporary modern styles

Bubble Gummers

Bubble gummers is the leading children’s footwear brand in Pakistan

Hush Puppies

World's first casual shoe and provided a new alternative in footwear. Hush Puppies emerged as a soft, breathable and very comfortable shoe.

Other Brands

Servis Pakistan

Introduction Of Servis Pvt Limited:

Servis Group is Pakistan's largest footwear manufacturer and exporter. It also has interests in retailing. Its Group Company, SSC PRIVATE LIMITED, is the country's largest retailer and wholesaler of footwear. The Group has diversified interests in rubber products including tyres and in defense industry products.  The Group was set up in 1958 and today has sales of more than PKR 9 billion. Servis Group employs close to 8000 people in its Group Companies.

Servis Industries Limited

SIL is a public limited company listed on the stock exchanges of Pakistan. It has annual revenue of USD 80 million. It is the largest manufacturer of footwear and tyres & tubes for two-wheelers, and has been the largest exporter of footwear from Pakistan for the last 10 years.

The company employs more than 5,000 people in its facilities located in Gujrat and Muridke. The company's products are exported primarily to Germany, Italy, France and UK.

SERVIS BRAND

CHEETAH

CHEETAH is the leading brand of sports footwear in Pakistan, Cheetah has developed a cult following among sportsmen and symbolizes the sportsman’s spirit.

CALZA

The unique style and amazing comfort of CALZA have made it Pakistan’s most favorite slipper. Designed to keep you light and carefree wherever you go, CALZA is perfect all-day casual footwear and ensures comfort in each and every step.

LIZA

When it comes to everyday living for the modern woman, LIZA is the ladies shoe that stands apart from the rest. Featuring trendy designs and go-anywhere comfort, every step is a step towards life with LIZA

TOZ

TOZ brings kids a colorful world packed full of fun and adventure. The fun never stops with TOZ!

SKOOZ

SKOOZ puts a whole new spin on student life with comfortable and durable shoes that are perfect for fun on and off the schoolyard

EPCOT:

Introduction

EPCT Private Limited formerly known as (East Pakistan Chrome Tannery) is the largest manufacturer and exporter of both of finished leather and leather shoes in Pakistan. The company was originally founded by Mr. Muhammad Usman, Chairman of Ayesha group of Industries in 1947. The founding purpose of the company was to export goat napa to the American and European market under the brand name “EPCT”.

In 1978 company established its own dying unit. In 1985 an in house finishing department was organized thus laying the foundation of a company. In 1992 the EPCT set up a composite shoe manufacturing unit targeted to the European market soon to dominate world market. Since 1947 the company has grown 10 fold with sales touching 3 billion Pak Rupees and as a result has become the undisputed market leader.

EPCOT Brands:

URBAN SOLE

Introduction

Urban Sole was launched as a National Brand in June 1988 by Shafi (Pvt.) Ltd.

The leather shoe industry was evolving at that time and Urban Sole was introduced as a

national brand proving quality products in the market in much affordable prices. The

shoe was designed for those who approach life with intensity and passion, those who

desire quality craftsmanship and incomparable leather quality with best suited styles for

their shoes.

So keeping this mind in mind Urban Sole made an entry in the market introducing

shoes with ultimate finish, classically designed and elegantly style; an Urban Shoe Brand

for the consumers. The shoes were designed in all categories starting from male to

female in casual, formal and rough wearing.

Considering this fact that Urban Sole is a part of Shafi Groups Pakistan, which was

established in 1940 and working in Pakistan since then in chemical, leather and textile

industries. Urban Sole is a Brand introduced by Shafi group in recent past with a huge

investment and was backed up by company’s total turnover of more than US $ 100

million.

Before the launch of Urban Sole in Pakistan, the group was exporting shoes and

other leather made manufactured goods to Germany, France, Italy, China and other

European Countries and was rated as the top export company of Pakistan generating the

highest revenues in Pakistan.

Urban sole Brands

DRIVING MOC

MARINE CLUB

TRAIL

RACER

SOFT STEP

FREE WALK

MILLI SHOES

INTRODUCTION:

Milli shoes is a leading name in the shoe industry in Pakistan has vast experience of manufacturing quality shoes since pre-partition under the patronage of Muhammad Ahmad Ansari. His sons, Shafiq Ahmad Ansari, Iqbal Ahmad Ansari And Riaz Ahmad Ansari also joins the business during 1970’s.

In 1978, 1st flagship outlet was inaugurated in Liberty Market followed by Anarkali outlet in 1983 and the Mall outlet in 1987. In 1997, another outlet was opened adjacent to the Mall outlet to need the ever-rising demand of its customers. All these four shops have a wide range of Ladies, Gents and Children shoes. In last decade, a number of leather items such as Briefcases, Wallets, Handbag, and Belts etc have also been added to these shops.

Shoe Industry SWOT Analysis

Strengths

Comfortable availability of shoe raw material

Good Quality Upper Leather Hand Skilled Labor Better shoe life and durability. Export of hand made shoe e.g.

Khussa, Khehri, etc Easy availability of low cost labor Exposure to export market Spare manufacturing capacity Good quality school shoes Direct delivery capability Presence of technologist Product innovations ongoing. Shoe production in sports, safety,

casual, comfort categories

Can serve from existing sites.

Weaknesses

Low labor productivity due to inadequate training and unskilled labor

Low level of modernization Low level of up-gradation of

technology Low integration of developed

technology Less no of organize product

manufacturer Lack of modern finishing facilities for

leather Highly unhygienic environment Unawareness of international

standards by many players Poor infrastructure and access to

testing, designing and technical services

Environmental problems Import of shoe components Limited budget. Lack of after sale support Lack of fresh investment in the sector Lack of training institutes and shoe

experts Uneconomical size of manufacturing

units

High taxes and customs duty No R&D support by Govt. Low machine and material

productivity Delayed deliveries Weak support infrastructure for export Poor distribution network

Lack of coordination among supply chains

Opportunities

Growing fashion consciousness globally

Use of IT and decision support software’s (ERP, SAP, etc) to help eliminate length of the production cycle for different products

Growing international & domestic markets

Retain customer through quality suppliers and timely deliveries

Introduction of new designs in comfort, sports, casual, & safety shoes

Use of modern technologies De-reservation of footwear sector Exhibits strength in manufacturing

e.g. strength in classic shoe manufacturing, hand crafting

Product diversification due to opportunities available in other leather products

Threats

Entry of multinational brands in domestic market

Energy crisis Instability in Government and it’s

policies Meeting domestic and international

quality, delivery, cost standards High taxes & custom duty on import Existing core business distribution

risk. No R&D support by Govt. Market demand very seasonal. Retention of key staff critical. Possible negative publicity. Vulnerable to reactive attack by major

competitors

High interest and exchange rates

Fast changing fashion trends are difficult to adapt by the shoe industry

PEST Analysis

Political

Political instability is effecting badly to the footwear industry

Energy problem (high cost and

power failure) is the main issue in

these days, because it leads to

increase in production cost.

The import of under-priced shoes

was badly hitting the domestic

footwear industry, especially

hundreds of cottage industry

footwear units working across the

country.

From the previous some years

Government of the Pakistan are

encouraging import and export

policies. And also encourage the

foreign investors to invest in

Economic

Economic crisis hit badly on

footwear industry especially raw

material to manufacture

footwear.

One of the most important

problems in the growth of

footwear industry is higher

energy prices.

Increasing energy and inputs prices leads to an increase in the cost of Production that influences the expected production of the industries and the exports

Pakistan footwear exports for

the year 2006 were about US$

Pakistan.

Government should take measures to check the inflow of foreign footwear into Pakistani market through the tactics of under-invoicing and miss-declaration

Countries provide services to other countries by the using of labor of that country, as China is providing the services to the Pakistan .Main advantage of it is, that manufacturing cost of the products come down (cost reduction), like the electricity bills, other factory overheads, taxes etc, so this is the reason that Pakistan prefer to outsource mostly products from China even in the finished form

To establish a plant for this industry is not so much easy, one has to fulfill certain rules and regulations, and also the huge investment is required

The overall political trend is

negative for industry.

135 million. Out of total

footwear exports, leather

footwear accounts for 43.15%,

which makes leather Footwear

extremely significant.

Pakistan’s footwear industry

manufactures around 120

million pair annually for local

Consumption and it exports 2

million pair per annum roughly

and the average price charged

for each pair stands around $10.

Its share in Pakistan’s total

exports is about to touch the

figure of$200 million. So

economic downward trend is

badly affecting the industry.

Social

In Pakistan the life style of people is changing with a fast pace. Their life has become more money and time oriented.

major shift in the values of the

Technological

New technology trends also effecting footwear industry in Pakistan. Multinational competitors are introducing innovative

people of Pakistan. People now prefer western life style rather than the traditional one.

Everyone wants that he or she wear

new shoes at every occasion.

Especially it is a race between

ladies to have more and matching

shoes with her dresses which are

more trendy and fashionable.

increased demand for foot wear products especially in young generation

In Pakistan people mostly purchase foot wear on the time of occasion like marriages, Eid and on the seasonal base like in summer season shoes are different and the winter season shoes are different. And ladies wear new trendy and fashionable shoes at every occasion.

As cities are growing and more people shifting from ruler areas to urban areas therefore increase students, people having jobs and trend to play sports and healthy physical activities so this social trend has direct positive impact on demand of footwear industry.

Pakistan is among the top ten most

populous countries of the world,

increase in population also increase

in demand for the products and it

also increase demand for footwear

industry.

People are becoming health

techniques to manufacture footwear

In sports footwear new technology

is being used regarding technical

aspects on that particular sport. For

processing of raw material like

leather new techniques are being

implemented by multinationals.

The process of leather includes a

number of different steps during

which large quantities of water and

chemicals are applied to the skins.

About 130 different chemicals are

used in leather processing,

depending on the trends is now in

leverage technology to gain

competitive advantage. New

technologies like water proof souls,

polyurethane soul which are light

weight and other artificial leather

etc.

conscious day by day and people think more as compared to past on confront and quality of footwear’s.

Fashion industry is growing rapidly in Pakistan now people think footwear in terms of fashion like their other fashionable items

Future Trends in Political Environment

Government is developing a frame work so that in future the exports of shoes industry

will increase for this purpose Government has decided to give relief regarding to decrease

the exports duty for machinery.

Future Trends in Economical Environment

The economy is expected to perform well in the near future as petrol prices decreases and

electricity problem will resolve then it will decrease our trade deficit. Government is

getting aid from IMF and some other countries are also helping the Pakistan economy.

Government is also trying for minimizing the trade deficit and encouraging for foreign

investment as well as exports of the local industry. It is still hoped that national economy

will continue to grow and rising prosperity will bring expanding opportunities for the

shoes Industry.

Future Trends in Social Environment

People will buy the walking shoes and other formal shoes with the changing the fashion

and special events. As per capita income is increasing people will mostly prefer to buy

comfort and leather shoes. Shoes industry is also having some peak seasons sale like

marriages, summer and Eid events.

Future Trends in Technological Environment

High tech technology will used in shoes for the comforts of customers. By using a laser

foot scanner to create a 3D computer model of a person’s feet, the ERGOSHOE system

bridges the design gap between shoe manufacturers and customers, allowing shoe

comfort to be improved efficiently and at relatively low cost.

Forecast:

In coming five years competition will be among two major competitor segments local

versus multinational rather than among multinationals because majority of customers in

Pakistan are price conscious instead of quality and brand. Though behavior of customers

is changing towards quality but bad economic situation is resulting lower income level in

coming five years.

The basis of competition will be on price with more diverse retail strategy. Multinationals

are currently missing to capture those customers which are price conscious and living in

rural areas.

In future companies having diverse strategies regarding in inertial outlets in their value

chain will have the tendency to capture more market share. In mass production the

company which will give differentiation to their product on reasonable prices will have

the tendency to gain success. So service is moving in right direction to maintain its

leadership of overall strategies though still weak in diverse retailing.

Porter’s five forces

Brand Identity:

In Pakistan industry there is no heavy spending is required for brand identification for

new entrant.

Switching Cost:

In terms of switching cost for new entrants threat is high.

Capital Requirements:

High capital is required to compete at highest level but on small scale competition

Bargaining Powers of Buyers

Concentration:

Buyer is fragmented throughout the country and they are large in numbers that’s why

bargaining powers of buyer becomes low regarding concentration.

Product Cost Vs Total Purchases:

Servis is providing reliable products to its buyers in terms of usage in all types of brands

and buyers bargaining power is low.

Product Differentiation:

Servis is offering relatively differentiated products in terms other brands of and comforts

and set high standard therefore buyers bargaining power is low.

Switching Cost:

Buyers perceive Servis shoes as quality product giving value against cost and Servis has

better brand image so in this case buyer switching cost is high and bargaining power is

low.

Profits:

Buyers consider themselves self on profit side when he uses Servis footwear.

Impact on Quality/ Performance

Servis is offering high quality product so the bargaining power is low.

Buyer Information

Buyers have no such information regarding processes of Servis shoes. Because Servis

doesn’t use such channels which provide confidential information to buyers. Buyers have

less information and have low bargaining power.

Bargaining Powers of Suppliers

Concentration:

Suppliers are fragmented for raw material like leather throughout the country but

chemicals used in manufacturing and equipment are imports from outside the country e.g.

PU material for sole is imported from France and large pool products China and

Germany. So the bargaining power of supplier in terms of concentration is low.

Presence of Substitute Inputs:

Servis company suppliers are readily available in terms of raw material especially for the

manufacturing of leather shoes so bargaining power of supplier is low.

Importance Relative to Customer:

Servis has unique brand image and leading in footwear industry of Pakistan. For supplier

Servis is relatively powerful customer therefore in this sense supplier bargaining power

become low.

Impact on Quality/ Performance:

Servis requires high quality raw material from its suppliers to manufacture quality

product so supplier bargaining strength increases with respect to this aspects.

Product Differentiation

As Servis use high quality raw material for its products to gain competitive edge so

Servis demand raw material from its supplier which is not just commodity. So supplier’s

products have direct impact on the quality of Servis product.

Switching Cost:

Servis can easily switch for raw material like leather and small scale equipment therefore

switching cost is low.

Forward Integration:

Pakistan leather industry growing and supplier on small scale can do forward integration

for local competition therefore threat of forward integration is high.

Rivalry among the Firms

Industry growth:

Shoe industry in Pakistan is growing rapidly and a lot of companies is competing for

market share so the rivalry among the firms is intense.

Fixed Costs:

Servis Company is currently using unique ways and methods to innovate its products

using new technology it makes fixed cost high as well as prices. In these aspects

competitors can cut their cost to reduce their price.

Intermittent Overcapacity

Industry is producing more than its demand in the total production of industry, because

there are local manufacturers and imports of shoes from China. So there is threat of price

war.

Product Differentiation

. Servis shoe company is using direct inject technology by which shoe is made as a single

piece and ultimately there is no any kind of stitches in the shoes. This gives

differentiation to its product over the competitor’s products.

Brand Identity

In case of brand identity service has low treat from its local except multinationals r

because service is perceived as company giving reliable products to customers and has

brand loyalty.

Switching Costs:

Using good quality and reliable products of Servis Company it is difficult for consumer

to switch another company. But lots of companies are fulfilling the needs of buyers on

low prices ultimately switching cost low.

Concentration and Balance:

In these aspects there is intense rivalry among competitor because many companies

trying to chase same customers.

Diversity of Competitors

Servis has threat from its competitor’s especially local competitors because they are

implementing more diverse strategies on distribution and retail channel.

Corporate Stakes:

Servis has 15% of market share and revenue averaging 3405.19 million in past recent

years. Servis is trying to increase its profits in market but lagging behind its strategies.

Exit Barrier:

Exit barrier are high because Servis has assets including new equipment and has large

setup in Pakistan footwear industry.

Threats of New Entrants

Economies of Scale and Experience:

There is no lot hurdles for mass production to achieve economy of scale producing low

quality products for such entrants who are focusing on price conscious buyers. So in this

aspects threat of new entrants is high.

Product Differences:

In Pakistan there is low budget is required for customer service or to differentiate the

product in footwear industry in Pakistan. Therefore threat of new entrants is high in this

industry.small financial resources are required. So ultimately threat of new entrants is

high.

Access to Distribution:

New entrants can easily distribute their products through various channels. The more

common distribution channel is wholesale which is easily accessible.

Cost Advantages:

Established companies have little bit cost advantage in the beginning over the new

entrants but it can be cashable after some time because to access raw material, facilities is

easy in Pakistan footwear industry.

Government Policy:

There is no such restriction from the government for new entrants though government is

considering rules and regulation regarding environmental issues for manufacturing sites

especially leather is processed to manufacture the product.

Expected Retaliation:

Existing firms has less responsive in their overall straggles except few multinational and

have low expected retaliation for new entrants.

Analysis

Pakistan shoe industry is in monopolistic competition and entering into the price war in

future. Basically abundance of Chinese shoes in Pakistan market has changed industry

competition. In future the whole Pakistan shoe industry wills mainly rely on Chinese

shoes. It is because low prices of Chinese shoes. For this purpose local manufacturer and

retailer will try to achieve high margin to cut the cost. Though Servis is not as keen for

Chinese shoes as Bata, but in future Servis should relay on Chinese outsource shoes to

even survive in Pakistan market because in Pakistan the energy cost is high like

electricity, technology. Another reason is buyers are recognizing and also accepting

Chinese outsourced shoes with the brand of large firm like Bata. So the overall behavior

of the buyers and the industry competition will heavily rely on Chinese shoes. But Servis

is doing better with respect to quality in the local manufacture shoes with better

marketing strategy as compared to Bata. Servis is also better in creating good brand

image than Bata.

If Servis will shift their processes for Chinese outsourced shoes, Servis is potential leader

having current marketing and customer relationship strategy in future.

Porter is also known for his simple identification of five generic descriptions of industries:

1. Fragmented (eg, shoe repairs, gift shops) 2. Emerging (eg, space travel) 3. Mature (eg, automotive) 4. Declining (eg, solid fuels) 5. Global (eg, micro-processors)

Export Growth Trend

The five year trend shows negative growth (-3% for the last 3 years) for leather footwear and in 1999 exports fell by 5% while its share as a sub commodity of leather has increased from 47% to about 51%. Thus even though there has been lower trade in leather as whole, leather footwear has not declined significantly.

Leather Footwear Export Trend (in millions)1995 1996 1997 1998 1999

Italy 5,938 6,665 5,977 5,617 5,938China 2,737 2,971 3,626 3,743 2,737Spain 1,535 1,670 1,773 1,713 1,535Portugal 1,593 1,609 1,562 1,497 1,593Brazil 1,330 1,459 1,365 1,171 1,330Germany 1,002 962 946 989 1,002

In 1999 the value of export earnings for leather footwear was $28 million which is 4.61% of the total leather exports for Pakistan. The five-year trend shows that there are a lot ofinconsistencies in the growth rate with high fluctuations. However in 1999 while the global export growth rates declined by 5%, Pakistan’s export growth rate increased by 7%.

In 1999 the value of export earnings for leather footwear was $28 million which is 4.61% ofthe total leather exports for Pakistan. The five-year trend shows that there are a lot ofinconsistencies in the growth rate with high fluctuations. However in 1999 while the globalexport growth rates declined by 5%, Pakistan’s export growth rate increased by 7%.

Leather Footwear Exports Trend (in million $)1995 1996 1997 1998 1999

Italy 5,938 6,665 5,977 5,617 5,938China 2,737 2,971 3,626 3,743 2,737Spain 1,535 1,670 1,773 1,713 1,535Portugal 1,593 1,609 1,562 1,497 1,593Brazil 1,330 1,459 1,365 1,171 1,330Germany 1,002 962 946 989 1,002