Way forward for Leather Industry
As per the industry experts primary reason for slump in demand of raw or tanned hides is the presence of cheap imports from various international markets. Even after a drastic fall in the prices of raw hides in comparison to 2014-15 it is still costlier than many international markets. Evidence to this fact are the latest figures related ton exports from the country. As per the ibef.org, India’s leather industry has grown drastically, transforming from a mere raw material supplier to a value-added product exporter.
•Total leather and leather good exports from India stood at US$ 4.72 billion during April 2016-January 2017.
•During April 2016-January 2017, the major markets for Indian leather products were US (15.69 per cent), Germany (11.82 per cent), UK (10.85 per cent), Italy (6.61 per cent), Spain (5.27 per cent), France (5.02 per cent), Hong Kong (4.71 per cent), UAE (3.69 per cent), China (3.16 per cent), Netherlands (3.01 per cent), Belgium (1.78 per cent) and Australia (1.44 per cent).
•At 48.82 per cent, footwear (leather and non-leather) and footwear components accounted for the lion’s share of leather exports in April 2016-January 2017, followed by leather goods and accessories with 23.37 per cent share, finished leather with 15.60 per cent share, leather garments with 9.71 per cent share and saddlery & harness with 2.50 per cent share.
•Per capita footwear consumption in India is expected to increase up to four pairs, while domestic footwear consumption is expected to reach up to five billion pairs by 2020.
One can see the revival in the leather industry of the valley if prices of raw hides fall further and come in line with international markets. This will lead to demand creation, but at the same time may lead to decline in bottom line figures or loss eventually. Which is not a good sign for revival of the industry.
Michael E. Portor in his five-force model identifies “bargaining power of the buyers” as competition, but it is also an opportunity for a declining business. Leather dealers from the valley need to forward integrate and invest in various finished leather products like footwear, jackets, various accessories, etc. This is a high time to adopt this strategy and revive the industry. Leather industry in India is primarily export oriented, but domestic demand has also risen over the years. Which is a good opportunity for leather dealers of the valley especially the presence of various online market places like Myntra, Jabong, Flipkart, Amazon, Etc. makes it easy to sell products in the domestic market. Then is the question of investment in manufacturing units where finished products will be made. Well BPO (Business process outsourcing) is the answer, multinational companies use it very often to outsource supportive activities and focus on core business processes only. Leather dealers from the valley should outsource the manufacturing of finished goods. When investing in business people are always sceptical about the amount of capital to be invested and most of the time 2-3 lac is a sufficient amount to kick start a new business. Once it shows prospects of growth fresh capital can be infused in later stages. Dealers from the valley are at a competitive advantage as there is 70-80% decline in the prices of raw hides which is also the primary raw material for finished products. Whereas on the other hand, prices of finished goods are mostly on the rise depending on the quality of the product and other factors. Now they need to know how to penetrate the already existing leather products market. The best strategy for them in a market like India would be to price their products lower than the competition. This pricing strategy is adopted by companies in case of new and existing products to attract larger number of buyers in the initial phase. India is a highly price sensitive market where in we recently witnessed the effect of JIO’s aggressive pricing to gain market share promptly. This strategy increases the product sales in the company's present markets through an aggressive marketing mix. It is usually introduced to: increase the rate of product usage; encourage repeat purchases; attract consumers away from competitors; or attract current non-users.
(The writer can be reached at: email@example.com)