(FoUowtng is the remaining part of the article published on page 6 of our yesterday's issue.)

Prospects of the

Leather Industry

The futpre face of the -leather industry will be determined by two major factors: ’

The High Growth Areas of the Industry.

The Geographical Configuration of the Industry.

Iq Order to address these factors one has to examine the supply of raw hides and skins, the processing capacity to convert raw hides and skins to finished leather and of course the demand for finished leather and leather goods. Obviously there exists a strong synergy between these factors as matters relating to the quantity and price of supply of raw materials affect ultimate demand.

The leather industry in Bangladesh has been a "Sleeping Tiger compared to the competition in India and Pakistan. In India the industry has enjoyed 25 per cent annual growth for the past 3 years and has been the highest growth sector in the economy. Chart No: I compares the export earnings from leather of Bangladesh with those of India and Pakistan for 1990-91.

It is obvious from the chart that* the leather sector in -Bangladesh has not yet lived up to its promise and ly still very much in its infancy vtz-a-viz India and Pakistan.

Today the leather industry is one whose lime has come in Bangladesh. In 1993, world supplies of raw material were ‘ 29 per cent lower compared to 1977 but demand had risen 33 per cent compared to 5977 and h ” r-'»itim>«i to gmw J0-1 a per cent per annum.' Rising global purchasing power, particularly In ihe South has In creased demand for luxury

goods and leather has always occupied a

"quality/luxury/tashlon market niche: the athletic footwear boom and of course the growing world population have all created strong demand growth.

Agricultural subsidies and strong farnj lobbies have helped keep the livestock population in the US. ANZ. and EC well above domestic requirement levels. So even in the face of the pressure on pasture land as populations grow, supply overall will not fall drastically. The deterioration in the overall quality of raw hides and skins is however a global phenomenon.

Introduction of uniform anti-pollution laws from January 1. '93 in the EC have seriously afferf-ted the competitive position of the remaining producers in Italy. Spain, and Portugal.

Against this global backdrop Bangladesh has the key ingredients for success in this industry:

Bangladesh has a domestic supply of good quality-fined grained raw hides and skins that enjoys a premium in Western Europe and Japan. Countries such as Hong Kong and Korea had to develop their industries without any real domestic supply of raw materials.

Geographical proximity to India with its religious restrictions on the consumption, °f beef combined with the growing meat consumption in Bangladesh as per capita income rises, has assured an alternative supply source from India.

Lack of subsidies or cash •incentive such as those that

were provided tn India and Pakistan forced the local leather industry to be more competitive. As global trade today takes a more free market stance. Bangladeshi producers have not been protected and lulled into complacency.

The leather industry is one of the 3Ks — Kiken, Kitanai, Kitsui — industries in Japan, which means dangerous, dirty, and difficult. Working conditions especially upto crust leather are uncomfortable and labour content is high. Bangladesh with over 120 million people concentrated in an area the size of Wisconsin has an abundance of people willing to work in such Industries. Wage levels at about US$550 per worker per annum in 1993 are amongst the lowest in the world.

Liberalization of trade, especially imports, has already allowed duty free import of capital machinery for export oriented, units. Furthermore, It is believed and fervently hoped that the tariff structnre on all input materials for the leather and leather goods industry will be revised by the government to make them zero based, th'at is. duty free. This will throw open the floodgates of growth in this sector. The stated government policy of pursuing value addition in exports, for example, banning of wet blue exports, have also set the stage for the push towards finished leather. Preferenjial access of leather footwear and goods .to EC and Japan will create demand pull for finished leather a* modern producers realize ihe homegrown advantages of Bangladesh.

Environmental concerns in Bangladesh are already being

addressed in, ; I r for relocation of the ndut mtside Dhaka, where .. i - ly located, as well a . diluent treatment facilities in order to minimize negative social impact and engender a long-term future for this Industry.

With these driving forces already in play the leather industry requires a catalyst for combustion and that catalyst is a mixture of Transfer of

Technology (TOT) with capital, and strategic marketing.

Transfer of technology: As explained earlier the level of technology Involved In finishing leather is much mpre involved compared to that for making crust leather. Italy leads the world in the process technology and has begun to take over the lead in chemical technology as well from the Germans. The need of the day

is a- transfer of the knowrhow that exists in Italy. Japan. Korea, and Taiwan. This technology is mature and not very expensive but what is critical is the managerial and technical ability to complete this transfer. This will not only allow maximum utilization of domestic resources but also allow Bangladesh to enter new mar ket segments such as low cost garment suede leather or expensive heavy nubuck leather based on imported raw hides and skins. The Korean example is illustrative wfiere in 17 years from 1973-1990. tech nfcal know-how allowed them to become a major player in the global industry based completely on imported raw materials.

Capital: Technology has its price and therefore access to capital will be critical not only for increasing output capacity but also to acquire know-how As environmental pressures mount even in the least developed countries, investment in effluent treatment facilities will be necessary to create the environmental-friendly ''green-tanneries of the future. Also the nature of the industry re quires holding large Invento ries of raw hides and skin* as well as Imported chemicals due to seasonal variations In supply. This creates the need for very large working capital requirements as well.

Strategic Marketing: It is true that producers of develop ing countries such as Bangladesh tend to be associ ated only with the manufacturing and exporting, they do not have much control over downstream operations Lack of power in dictating final prices, reduce* margins..

Therefore in the long term there has to be a balance or integration in the process of supply of raw hides and skins, manufacturing of finished leather and leather goods, and marketing of such goods. Bangladesh's current low posl tion on the manufacturingmarketing chain implies that short term rapid growth will occur in the "copy-cat' industry with lower priced mass rparket products being sourced from Bangladesh. However the success Of Bangladeshi firms in attracting brand names such as "Puma".

Ptkolinos". and "Hugo Boss’ to source from Bangladesh prove that there is ample scope for upward mobility. The industry must look towards quality and product differentiation for its future in order to avoid being branded as just the low cost producer of the day!

CONCLUSION

Leather is a by product of the meat industry As long as people continue to consume meat, raw hides and skins will be made available for tanning. Even if in the developed world livestock population should decline due to changed dietary habits, two entire continents mainly Africa and Asia have very low meat consumption due to low per capita income As per-capita incomes in crease* in these two regions more than half the worlds population will continue to consume more meat for a long time before they have to cut back due to health reasons' Therefore any fall in supply due to lack of demand in the West should be more than compensated from growing

demand in the East. Modern cultivation and fanning methods are also targeted at optimizing yield both in terms of land utilization and return.

Secondly, as consumption power increases in the East, demand for consumer items including fashionabie/luxury leatlier goods is also growing Therefore derived demand for leather will be created to feed the leather gdods industry, which have also shifted from the West.

High manual labour content in this industry and the fact that it is not possible to completely automate this process will .^ceep the industry in labour rich ones.

As Western markets approach saturation, markets in China. South Asia, and the NICs will only begin to take off. Access to these industries is easier both geographically and through the creation of regional trading agreements such as South Asian Preferential Trade Agreement (SAPTA).

As the market leaders oi this industry for the last decade realize the gradual phasing out of mass production capacity in their own nations, (hey too must adapt or face extinction And the process has already1 begun in Bangladesh. As production capacity in finished leather and leathei gixxis is developed in Bangladesh, new fobs will be n-.ued te< hnology will be acquired markets will be ac i essed and the consumer will lx1 benefited The 3K industry in Japan will lx* replaced by the 31 industry in Bangladesh leather Labour and

Liberalization

(The author is the tmmedl ate past President of Bangla ii< sh Employers Assocuitkm and former I'resitieni of WCt'l He is the < hatrman of .Apex Tannery Uti 1