As an industrial manufacturing hub, Bangladesh has continued its romance with apparel and textiles, a dependence which has been questioned by many economists and businessmen, since the country has access to some of the most protected markets and economies because of trade benefits endowed on it as a Least Developed Country (LDC). As of now, besides apparel, pharmaceutical and to a smaller degree, the footwear and leather sectors are taking the advantage of such benefits in exports. The Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB) has a total of 120 members, out of which 110 are footwear manufacturers and exporters. Finished leather and leather goods exports from the country crossed the US $ 1.1 billion mark recently, out of which, footwear accounts for US $ 600 million, but the industry still has a long way to go before making an impressionable mark on the global footwear and leather sourcing map. In an exclusive conversation with Apparel Online, Syed Nasim Manzur, Managing Director, Apex Footwear and President, Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB), defines the roadmap for Bangladesh’s nascent leather goods sector to be noticed on the global sourcing map.
Though USA and Europe are the biggest markets for footwear, but for Bangladesh, Japan is the biggest market as of now, and footwear brands like Timberland, Esprit, Tamaris and Hugo Boss are being sourced from the country. “If you look at the transition in the leather exports of Bangladesh in the last five years, more than 70% was export of leather (crust and finished leather) and rest was of leather products, but today more than 60% is finished product such as footwear. This is a very healthy trend,” elucidates Nasim, who believes that by selling leather to other footwear manufacturing countries, Bangladesh is selling its advantage. With nearly 200 tanneries, Bangladesh satisfies 90% of the demands of its footwear sector and produces more than 220 million square feet of leather hides, of which 64% is cowhides and 33% is goat skin.
The only thing holding Bangladesh back in the global arena is the relatively small scale companies, except Apex, which manufactures 22,000 pairs of leather shoes daily. While the next big company, Fortuna Leather Craft is producing just 8,000 pairs of shoes per day and after these two companies, the size of the units drops drastically as most of the factories are one line units, catering to the small boutique buyers and retailers based in Japan. “The rest of the industry is stuck in a catch-22 situation as big buyers will not come till the time people have developed scales, and manufacturers will not develop scales until the buyers assure business,” bemoans Nisam.
Today, China exports every 2 out of 3 pairs of footwear sold in the world, controlling 67% of the world market through more than 200 factories, each making more than 20,000 pairs per day, which is equivalent to Apex’s capacity. In India, only three companies have such huge capacities and despite a large bovine population they are struggling at US $ 6 billion exports, of which footwear accounts for US $ 2.4 billion, whereas Vietnam, which has no domestic bovine population, exported leather footwear worth US $ 8.4 billion in 2013. Another major player in the footwear segment is Taiwan, and Taiwanese footwear manufacturers are on the prowl to set-up footwear factories in low-wage countries. “All Taiwanese companies, Apache in India and Pou Chen Corporation and Stella Shoes, the two largest footwear manufacturers of the world, have set-up factories in Bangladesh,” informs Nasim.
There are many reasons why Vietnam and China have been successful in pulling in major investments to build scales in footwear, as opposed to India and Bangladesh. While India’s labour laws are discouraging towards large scale manufacturing, Bangladesh is struggling with an image issue wherein customers are not ready for a ‘Made in Bangladesh’ footwear. Also, investors can go into China and Vietnam and ask for hectares of land for tanneries and factories, and they will get it in a matter of weeks, because most of the land belongs to the Government, but the same is not possible in India and Bangladesh, as most of the land is privately held. Moreover, the Chinese Government has incentivized and driven the manufacturing sector, because they have realized that with such a large population, people can only be employed with a thriving manufacturing sector and not by high-end technology-driven industries like IT.
In 2013, China exported US $ 48 billion worth of footwear, while Vietnam exported US $ 8.4 billion, India exported US $ 2.4 billion, and Bangladesh exported US $ 600 million of footwear to the world.
The largest footwear importer, United States imported 2.3 billion pairs of shoes in 2013, valued at US $ 25.3 billion. The European Union (EU) imported 1.1 billion pairs of footwear valued at Euro 10.5 billion, with Germany, France, Italy and UK being the biggest consumers. The third largest market, Japan imported US $ 5 billion worth of footwear in 2013.
A square foot of finished leather from Bangladesh fetches US $ 3, so a hide of finished leather will fetch US $ 9. But if it is converted into a pair of shoes, the average FOB would be US $ 19.
The quality of leather in Bangladesh is adversely affected by hand flaying due to the Islamic rituals of Qurbani, during which goats are slaughtered keeping the focus on maximizing the meat content, cutting the hide very close to the skin, which downgrades at least 20% of the total leather hides produced by Bangladesh.
“I did a survey of cost of doing business in Bangladesh, Vietnam and Cambodia, the results speak for themselves,” says Nasim. The survey showed that while the cost of land in Bangladesh is US $ 350 per sq. metre, the same is US $ 3 per sq. metre in Cambodia and US $ 100 per sq. metre in Vietnam. Further, the cost of a 5-star hotel room in Dhaka is US $ 330, while a similar room would cost US $ 100 each in Vietnam and Cambodia. The travel time from the airport to city in Dhaka is 2 hours to 4 hours, depending on traffic, whereas it would be around 20 minutes in Cambodia and 30 minutes in Vietnam. “All of this adds to the cost of doing business in a country and goes on to define the preferences of the foreign buyers,” reasons Nasim.
No country can replicate the capacities of China, but with the Chinese domestic market growing and the rising labour wages in the country, another door of opportunities has opened for Bangladesh and India. But one needs to be wary about the competition from unexpected sources. “Ethiopia has already gained substantial amount of footwear manufacturing business with Chinese and Indian companies setting up manufacturing plants. There is one company in Ethiopia which has been given 1,000 hectares of land as it has promised US $ 4 billion investment in the coming 10 years,” shares Nasim. Under the African Growth and Opportunity Act (AGOA), Ethiopia is rapidly making its mark on the global footwear sourcing map and Chinese companies such as the Huajian Group has invested billions of dollars in the country for manufacturing footwear.
Growth beyond Footwear
Leather industry has always been in the eye of the storm for being one of the most polluting manufacturing sectors. Tanneries in Bangladesh are concentrated in the Hazaribagh region of Dhaka and relocation drives have been going on for the past 25 years, to shift the industry to a leather park which would have a CETP. “The Government has done a good job of allocating space and more than 170 companies have submitted their plans to shift, moreover, the construction work is going on in full swing. Once this shift happens, we would be able to work with high-end brands such as Coach and Timberland, who presently do not allow us to use domestic leather because it does not come from a sustainable tannery,” explains Nasim, who defines ‘sustainable leather’ as a growth area for the industry. Bangladesh is known for goat leather, which is suitable for making bags, wallets and footwear, but globally, car upholstery is the growing segment which requires leather from bigger animals such as cows and buffaloes, available in South America and to some extent even in Pakistan. “Nowadays even mid-segment cars, which are the most in demand, would have leather upholstery,” concludes Nasim.
