Chennai, March 16 A leading leather footwear exporter plans to shut down one of his 10 factories as orders from overseas buyers drop - that means 400 families losing their livelihood.
It is a stitching unit that exported shoe uppers to an overseas footwear manufacturer.
The factory owner had planned to convert the unit to a whole-shoe production facility last year and stopped taking orders for shoe uppers.
But due to the downturn in the final quarter, the expected orders for whole shoes did not happen; it is now too late to regain orders for shoe uppers.
Retaining customers is the key challenge for exporters now. Focus on efficiency improvement apart, retaining customers at any cost is key to survival.
Mr Habib Hussain, Chairman, Council for Leather Exports, says exporters are fighting to retain the top line to survive even if it means compromising on profits.
Indian exporters have established themselves as quality suppliers of leather products to global brands in footwear and other products. If such customers are lost, exporters would not be able to get them back when the economic cycle turns.
Competition from China
Compared with the double-digit growth in the last few years, the industry will see exports remaining stagnant at about $3.5 billion this year - about 3 per cent of the global trade. The major markets in the West have shrunk by about a third. Also there is a stiff competition from China which is a key challenge as much as the drop in demand, says Mr Hussain.
Effectively, exporters need to bring down costs by about 15-20 per cent. The industry is seeing Chinese exporters, backed by their Government, bringing down costs to meet market requirements.
Leather garment costs in China are down to almost the cost of leather, according to industry estimates.
China, which accounts for about 25 per cent of the global trade, has focussed on ensuring that employment-intensive industries continue to retain workers at any cost.
Leather accounts for about 70 per cent of the cost of production, with the balance being fixed and variable costs. The industry is looking at bringing down variable cost by about 10 per cent and looks to Government support for the rest. In India, jobs are going to be lost as exporters fight to keep costs down, he said.
Tanneries hit
According to Mr Rafeeque Ahmed, Chairman, Farida Group, an exporter of leather footwear, factories need to react faster as buyers are putting off placing order till the last minute. Earlier, the buyers anticipated sales trend and placed orders well ahead of time. But now they wait to ensure retail off-take before placing orders. Improving speed of operations even as one keeps cost down is important.
Exporters hope to bring down the wage bill by about a fifth. Tanneries are worse affected as they used to supply finished leather to China, which catered to the US market. But with that market down, tanneries are working at about half their capacity.
Leather garments
Mr Mohan Sreenivas of Orient Express, an exporter of leather garments, says this is one segment that has continuously been under pressure from 2003 and efficiency has been continuously in focus. Despite the shrinking market, Indian garment exporters are benefiting from manufacturing capacities shifting out of East Europe.
Increased cutting efficiency has helped to bring down leather use by about 10 per cent per garment. Leather prices are also dropping and this contributed to leather cost, as a percentage of garment price, coming down to 50-60 per cent from 70 per cent.
Source : Business Line