Barriers to Entry

1. Capital Requirements Footwear Industry is not highly capital

intensive. We can start small size footwear enterprise in a reasonable
investment. We will take an example of a slipper industry containing 10
machines to explain this. The requirements for setting up a slipper machine
are flat bed sewing machine, drill machine, motor and dies. All these costs
add up to around Rs 28,000. We cans start a cottage footwear business with
an investment of as small as Rs.50,000. To set up a small to medium scale
slipper factory, we need initial investment of under Rs 3 lakh (for 10
machines), the cost of raw materials, packaging materials and wages of the
workers. Leather and rubber are the primary raw materials in this industry,
which costs only Rs 75/sq ft for leather and Rs. 10,000/100kg for rubber. The
average wage rate in rural India is Rs 3000-4000 per month depending on
the skill level. This data clearly points out that capital is not a barrier to entry
in the case of footwear industry.

2. Economies of scale Fixed cost or the start up costs in the footwear

industry are not as large as compared to some other capital intensive
sectors. So, the economies of scale can be achieved with a medium volume
of units. New product development costs are also low in this case. Thus,
economies of scale is not a considerable barrier to entry.

3. Product Differentiation Footwear industry has seen a lot of innovation

over the years. Various companies have tried to differentiate their product
from others by changing the attributes of the product, introducing new
products in the same category and targeting the emotional attitudes of the
customers. Global brands like Nike and Adidas target a diverse set of
customers, whose focus is not on utility rather on differentiated products in
footwear. But, if a new entrant wants to compete in a non-niche segment
there is a lot of scope for it. The new entrant can focus on designing standard
footwear with existing technologies and still earn profits. Customer loyalty is
not that strong in the standard footwear segment in the Indian context.
Majority of Indians lie in middle earning group, which has low disposable
income and cannot afford high style brands like Nike. So, even product
differentiation is not a big barrier to entry in the Indian context.

4. Access to channels of distribution Channels of distribution in

footwear industry can be listed as Departmental stores, Specialty athletic
footwear stores, Factory outlets, Sporting goods stores, Small shops, e-
commerce. Factory outlets, specialty and departmental stores are mostly
captured by big brands like Nike, Reebok etc. These types of stores are quite
popular in Tier-1 cities in India. But Sporting good stores and small shops are
more popular in Tier-2 and Tier-3 cities and rural India. Plus, the advent of e-
commerce has opened numerous opportunities for small companies to make
their name in the mainstream business. According to Nasscoms report,
72.5% of Indians live in Tier-2, Tier-3 and other rural areas. This clearly shows
that any new entrant can target these places for distributing its products
without facing any retaliation from big players. So, the access to distribution
channels is also more or less a low barrier to entry.

5. Government Regulations Government regulations have played a

mixed bag in case of footwear industry. On positive side, it has allowed 100%
FDI and Joint ventures, de-licensing the leather sector, concessions on the
import duty for machines, establishment of Indian Leather Development
program and many other schemes to improve basic infrastructure. On the
other hand some State governments have banned beef, which caused
shortage of raw materials for making leather shoes. Several small units had
to shut down due to the hard hitting ban. If we see in a larger perspective
only small units in leather business in Maharashtra have been affected. So, if
a new entrant is targeting a bigger market, it can diversify into rubber and
plastic as raw materials and can set up their units in the states which dont
have such regulatory restrictions. So, even governmental regulations are
supportive of footwear industry to a large extent.

After analyzing all the above factors, we can certainly conclude that footwear
industry has low barriers of entry or in other words the threat of a new
entrant is high. Due to this very reason we see a lot of local brands in
footwear.

Future of footwear industry

India is one of the fastest growing economies and second largest populated
nation in the world. This will create large domestic demand for consumer
products in the coming years. We will try to see some trends that may shape
the Indian footwear industry in next 25 years.

The footwear industry has a large growth potential. Currently, annual per
capita consumption of footwear in India is 1.6 pair of shoes. This is quite low
as compared to the affluent countries. As the demography of the country
changes and middle class becomes more concentrated, this number is
expected to rise. Moreover with the advent of booming IT sector, e-
commerce and startups, a large portion of people will shift to the upper
middle class category and hence will have higher disposable income. Thus,
the per capita consumption can be increased from 1.6 to 3-4. This creates a
great space for the footwear industry.

The consumer preferences in India are also shifting. Earlier, the footwear was
treated only as utility product. But now the focus is shifting from just utility to
design, style, lightweight, international brands etc. As the population
becomes more affluent these changes are quite expected. In Tier-1 cities
people are willing to pay high prices for global brands like Jimmy Choo,
Prada, Nike and Adidas to get the quality features.

The shift in consumer buying preferences may also cause threat to the
traditional forms of footwear. In the coming years the traditional footwear
like Punjabi Jutti, Kolhapuri Chappal, Kille Waali Jutti etc. will have to face the
heat from national and international brands. People are more inclined to
sports footwear, stylish designer shoes and luxury brands. Being said that
rural India and Tier-3 and Tier-4 cities are still untapped in terms of footwear.
They will still prefer more traditional forms or basic footwear like shoes,
slipper, chappal etc.

All in all we can summarize that there is a lot of potential in the footwear
industry in the coming years. Seeing the Indias demography and growth, we
can easily predict optimistic road for the in industry. Thus we can conclude
that although trends are changing, there is a large market for every type of
footwear. The future of this industry looks bright and prosperous.

http://machinesforsmallbusiness.blogspot.in/2012/07/slipper-making-machine-and-
shoe-making.html

http://rubberboard.org.in/rubberprice.asp?url=earlyrubberprice.asp

http://muvsi.in/slipper-making-small-business-manufacturing/

http://www.nasscom.in/looking-beyond-tier-landscape?fg=127463

http://www.thehindu.com/news/cities/mumbai/beef-ban-hits-dharavi-leather-traders-
hard/article7313098.ece

http://www.dsir.gov.in/reports/isr1/Leather%20and%20Footwear/3_5.pdf