2012

Product Presentation
Leather Industry
Indian leather Products/Goods

NITIN KUMAR SINGH

Foreign Trade Development Centre BATCH: July, 2012 (Evening)

Introduction

Indian Leather
In view of its immense potential for employment, growth and exports, leather industry occupies an important place in Indian economy. The sector is spread across the formal as well as informal sectors and produces a comprehensive range of products from raw hides to fashionable shoes. The industry consists of firms in all capacities, including small artisans to major global players. Specialized institutions have been setup to promote the overall growth and performance of the industry. There has been an increasing emphasis on the planned development of industry, which is aimed at optimum utilization of available raw materials for maximizing the returns, especially from exports.

Indian Leather Exports Some important Facts & Figures

India is the largest livestock holding country - 21% large animals and 11% small animals A source for 10% world leather requirement About 2.50 million workforce (30% women) Annual production value is over U$ 4 billion Annual export value is over U$ 2 billion Export growth CAGR 8.20% (2000-04) Promising technology inflow and FDI High priority to occupational safety and work environment Compliance to environmental standards Immense potential for future growth (domestic as well as export)

Some of the important leather products exported by India include Leather Footwear Footwear Components (Shoe Uppers, Soles etc.) Leather Garments Leather Goods (Including Harness & Saddlery, Leather Gloves etc.) Finished Leather

Sourcing Hubs and Reason for Selecting the Product

The reason for selecting the product

The reason for selecting this as product for this presentation is that the product is widely and easily available in the industry and India owns a good share of leather products in the world trade. According to Council for Leather Exports (CLE) officials, leather goods form an important segment of India's leather industry. The production capacity is estimated to be 63 million pieces annually. Some of the products that are manufactured in the country include trunks, suitcases, vanity-cases, executive-cases, briefcases, school satchels, traveling bags and luggage, hand bags, shopping bags, wallets, purses, pouches, passport and credit card holders, diary covers, leather belts, caps. The country also produces leather upholstery items such as sofa and car seat covers.

Sourcing Hubs
Predominantly, most of the manufacturing units for leather goods are located in cities like Kolkata, Chennai, Mumbai, Kanpur, Bangalore and Pondicherry. Kanpur is popularly known as the Leather City of the World. Kanpur leather traders export leather goods in large volumes throughout the world. These massive amounts of leather products are shipped to New Delhi and other major cities in India by the Kanpur leather traders. From these places, they are exported to other nations of the world. Kanpur leather traders are involved in manufacturing, exporting, and supplying of all types of finished leather products.

Product Life Cycle, Profitability and Salability

Product Life cycle and its profitability and salability.

Product Life Cycle

India could well become a global sourcing hub for leather goods and accessories. The availability of right quality raw materials as per the requirements of various international markets along with skilled craftsmen could pave way for enhancing the country's share in global leather goods and accessories segment. India is the fifth largest exporter of leather goods and accessories in the world. Its share in the global leather goods and accessories segment is between 5% to 6%. The Foreign Trade Policy 2004-09 identified leather and leather products as a thrust sector for export promotion because of its significant export prospects coupled with employment generation. The policy goal is to double the share in the world export by 2008-09. With the Indian share in the global exports at 2.5 percent in 2003-04 and the world export growing at a CAGR of 4.0 percent, to achieve the 5 percent share in the world export in 2008-09, our export must grow at a CAGR of 19.3 percent. The share of domestic sales in the value of leather production in 2003-04 is estimated at 43 percent. If we assume a CAGR in the domestic demand of 6.0 percent, then the value of production in 2008-09 must be 91.2 percent above the 2003-04 value to meet both the domestic demand and the export demand.

Profitability and Salability

The growth of Indian leather exports a sector dominated by small and medium enterprises (SMEs) is likely to stall this year due to volatile economic conditions in the European markets and the steep increase in raw material and input prices, which has eroded margins by 50 per cent, said industry representatives. The good news is that the industry is expected to attain a size of $5.4 billion by 2014 from the current level of $3.8 billion. But the question of survival has become a priority for entrepreneurs, and the industry is now looking at consolidation and turning its eyes towards the domestic market. Export growth is likely to stall in the next six-month period due to volatile economic conditions in the US and European markets, said M Rafeeque Ahmed, chairman of the Council of Leather Exports (CLE) and head of the Farida Group.

Ahmed added that though the industry is witnessing 13-15 per cent growth at present, this pace may slow down in the months ahead due to the crisis in western markets. Their (western) economies are weak and purchasing power is becoming weaker, said Ahmed. About 80 per cent of Indias leather exports go to the US and Europe. The main markets are Germany (14 per cent), UK (13 per cent), USA (nine per cent), Italy (11.6 per cent), France (17 per cent) and Spain (16.25 per cent). The way to earn more profit is to make sale in large quantities and to sale in large quantities the price should be minimum and competitive as well. Therefore, the only make maximum profit is to give the best to the customers at the lowest possible price, which will eventually increase the sales volume as well as the demand for the product in the industry or the world trade.

Freight On Board (Mumbai) Price

Calculation of FOB (Mumbai) Price Quantity (number of shoes) = 5000

Particulars
Raw Material Cost Labor Cost Overhead Cost Prime Cost Administrative Office Overheads 5,000 X 1 Packaging and Labeling Cost or Production Profit Margin (25%) EX WORK PRICE (EXW) Forwarding Expenses Documentation Export Credit Insurance Misc/Inspection Expenses 5,000 X 0.50 2,500 2,000 3,000 2,500 42,500 5,000 X 1 5,000 5,000 5,000 X 20 5,000 X 10 5,000 X 2 1, 00,000 50,000 10,000

Cost (in USD)

1, 60,000

1, 70,000

2, 12,500

FOB (Mumbai) Price

Therefore, the price per pair of shoe would be $44.50.

2, 22,500

The market Entry Strategy and the Target Market

The Market Entry Strategies

Advertisements o the website Creation of website Participation in the trade fairs Approaching agents (or Export through agents) Business visits to foreign markets Opening overseas office Follow-up on enquiries circulated by export promotion councils/chamber of commerce or other trade promotion agencies

Target Markets
Germany, USA, UK, Italy, France, Hong Kong, Spain, Russia, Netherlands, Australia, New Zealand, Denmark, Greece, Canada, Switzerland, Sweden, S. Africa, Austria, Belgium, Japan, Portugal, China, Ireland, Finland, Korea Rep., Indonesia, UAE, Arabia, Saudi, etc.

Major Markets for India's Export of Leather Export of Leather Products (2000-01 to 2004-05) Country USA Germany UK Italy Hong Kong 2000-01 342.78 307.17 270.09 241.07 98.32 2001-02 286.89 304.46 248.89 263.11 121.43 2002-03 246.44 272.53 24096.00% 25592.00% 16570.00% 2003-04 251.58 329.82 250.65 285.02 22697.00% 2004-05 279.7 336.69 299.21 242.6 236.52

Suggested Value Additions

Suggested Value Additions

Packaging and Labeling Focus on Augmented Products Research and Development Discounts Innovation with uniqueness

A commodity that has both the primary physical attributes and the non-physical attributes that are added to increase the product's value. Non-physical attributes of an augmented product may include a product warranty, service or installation, and may increase the price of the basic product being purchased, and allow the company selling the good to provide the consumer with other services that may make using the product easier.