Elsewhere, we have looked at the carpet industry and the workings of informal sector producers with the formal retail economy. See Post below. Let’s consider Leather in India.
Of 6.6 million metric tonnes of leather produced worldwide in 2004, Developing countries generate 60% and this is increasing year-on-year. After China and Italy, India is third in size with 3% of the global market generating an estimated 2 billion sq ft of leather. This is up to 7% of Indian Exports which have grown from $2.4 billion (2004/05) to $3.47 bn (07/08) and were expected, before the current crisis, to climb to over $5 bn by 2010. Indian figures compare with China exports having grown from $11.76 bn (2001) to $32 bn (2005). In both countries, the Leather industry is the leading light production industry.
The industry has seen a significant shift in recent years from exporting raw materials to added value design based products. In particular, footwear is regarded as the engine of growth. Also, increasing attention is paid to accessories and packaging as part of a more sophisticated offering. It is an excellent case study of all of the issues facing any industry that straddles the informal / formal sectors. Especially in terms of how enabling infrastructure and logistics techniques and skills can transform economic, social and environmental outcomes.
The Indian Leather industry employs 2.5 m people most of whom are in the highly fragmented primary processing and flaying phase. This could rise to well over 3.5m workers by 2010. An estimated 75% of this production capacity is from small scale cottage and artisans – the informal sector. Over 50% of production is concentrated in the Palar Valley of Northern Tamil Nadu. Then, agents aggregate capacity and sell into tanneries – these vary in scale and, in their usage of technologies. The entire process is a by product of the livestock industry industry – mainly beef.
There are a number of issues to explore. How does the process handle and control effluent? Is there a clear commitment to ethical treatment of animals? How are end-to-end logistics set up, managed and, assessed for carbon footprint? What financial services are in place or available to develop the industry? And, what is being done to upgrade the skills along the supply chain to ensure that such improvments are sustainable?
The Leather industry demonstrates how enabling infrastructure can make a significant contribution to sustainable growth and how logistics and supply chain management can facilitate an integrative informal / formal market agenda. For example, the industry draws raw material from a highly fragmented largely informal production capacity. As such, there is increasing evidence of governments championing exclusive leather cluster centres such as the Chinese specialist industrial villages or, the Calcutta Leather Complex. The informal sector cannpt access the required funding and so Government has the choice – stand back and let the industry stagnate; assist and deliver a sustainable industry.
Specialist villages or, Leather based SEZs demonstrate that sustainable growth and prosperous export markets depend on excellent local transport to facilitate aggregation of fragmented capacity; affordable (rather than state-of-the-art) cold chain and warehousing facilities; professional supply chain and logistics resources; the efficiency of ports and reduced red tape for customs. This latter applies to imports equally. After all, as exports of added value product increases, the industry – as with China – may depend on imports for continuous supply of raw materials. For example, China imported $5.6 billion hides and skins in 2006. Such dependency opens up the need for greater transparency end-to-end along the supply chain. This is where logistics can transform outcomes.
However, major markets in Europe and USA are being hit by tightening credit, unemployment and, lower retail footfall during the recent peak period – usually, retail stores generate up to 35% of annual traffic in the Christmas / New Year period. This will impact Indian and China Leather exports. It could mean a 30 to 35% drop in export potential.
Facing these issues, it is important to assess the impact on key factors such as (1) industry integration (informal and formal sectors) – skills and gender in particular; (2) modernisation and, (3) ethical and environmental management.
We are looking for insights into this industry; how logistics and supply chain management techniques are assisting growth and, what developments are likely going forward. Much progress has been made. What are the likely impacts from the global financial crisis? Any thoughts?