2011

Global Marketing
Final Project Exports of Leather Shoes
Submitted to: Prof. Ahmad-Ur-Rehman Submitted by:
FAIZAN AHMAD AFZAL L1F08MBAM2075 REHMAN AFZAL L1F08MBAM2065 AATIF ILYAS L1F08MBAM0074

Date of Submission: 07 June 2011

Table of Contents
LEATHER INDUSTRY............................................................................................................3 OVERVIEW OF INDUSTRY...................................................................................................3 HISTORY..............................................................................................................................3 PRODUCTION CAPACITY.................................................................................................4 PRODUCT.................................................................................................................................5 Leather Shoes.............................................................................................................................5 MARKET..................................................................................................................................5 UK (England).............................................................................................................................5 SIGNIFICANCE OF PAKISTAN IN LEATHER SHOES: ................................................5 BARRIERS:...........................................................................................................................5 LOCATIONS IN PAKISTAN...............................................................................................6 PRODUCTION PROCESS.......................................................................................................6 SHOE MAKING PROCESS.................................................................................................6 CLOSING OR MACHINING DEPARTMENT...................................................................7 FINISHING DEPARTMENT AND THE SHOE ROOM.....................................................8 PRICING STRATEGIES..........................................................................................................9 PRICE PER SHOE................................................................................................................9 PACKAGING COST...........................................................................................................10 COMPETITORS......................................................................................................................10 LOCAL COMPETITORS ..................................................................................................10 INTERNATIONAL COMPETITORS................................................................................11 Buyers/Importers.....................................................................................................................11 B & S Shoes Inc.:.................................................................................................................11 Company Profile:.................................................................................................................11 Company contact:................................................................................................................12 Nicos Shoes:.......................................................................................................................13 Company Profile:.................................................................................................................13 Company Contact:...............................................................................................................13 Newmans Footwear:...........................................................................................................13 Company Profile:.................................................................................................................13 Company Contact................................................................................................................14 Negotiation Process.................................................................................................................14 LEGAL DOCUMENTS..........................................................................................................16

LEATHER INDUSTRY OVERVIEW OF INDUSTRY

Leather industry, including leather products, is the second largest export earning sector after textiles. Currently, this sector is contributing around $800 million a year but has the potential to multiply volume of exports with the improvement of quality and diversification in different range of products, specially garments and footwear. Basically, it is a job-oriented sector providing employment to a very large segment of the society besides earning foreign exchange for the country. The leather finishing and made ups industries represent an important sector in Pakistan, contributing almost more than half a billion US dollars in foreign exchange earnings to the national exchequer. The leather industry consists of six sub-sectors namely, Tanning, Leather. Footwear, Leather Garments, Leather Gloves, Leather Shoe Uppers, and Leather Goods. The Tanning industry plays a vital role in the progress of these sub-sectors by providing the basic material i.e. leather. Today, Pakistanis among the leading countries in the production of Leather Garments and Gloves. The leather and leather made-ups industry plays a significant role in the economy of Pakistan and its share in GDP is 4%. Ten years ago, it was the fifth most important export industry in the manufacturing sector, and now it is the second.

HISTORY
The history of leather industry in Pakistan is as old as the country itself. At the time of independence there were only a few tanneries producing sole leather and that too at a very small scale. However, since then this industry has been flourishing and has never looked back. During 1950s, some well-equipped tanneries were set up at Karachi and Lahore, while during 60s and 70s more units were established at Hyderabad Kasur, Sialkot, Multan, Sahiwal and Gujranwala. Starting with the production of picked and vegetable tanned hides and skins, the tanneries, today, are producing not only wet blue and crust, but also fully finished leather.

In the early days of independence some tanneries were established in Karachi. In 1950's some were established in Lahore and adjoining areas. The entire production of hides and skins were being exported in a raw form. Thereafter the local tanning industry making at first semi-finished leather made rapid progress due to favorable raw material situation, cheap labor and the existence of growing demand and foreign market.

PRODUCTION CAPACITY
PARTICULARS PRODUCTION CAPACITY Tanned Leather Leather garments /Apparels Leather gloves Leather footwear 90 million Sq meter 7 million 10 million 200 million

Source: Pakistan Tanneries Association NOTE: Against a capacity of producing 90 million square feet of tanned leather, the tanneries are presently producing only 60 million square feet tanned leather per year. Presently, there are some 461 leather garments/apparels making units, which annually produce some 5.0 million pieces against a capacity of producing 7.0 million pieces. The 524 footwear units in the country are currently producing 100 million pairs against a capacity for producing 200 million pairs, while 348 leather gloves units are producing 5.0 million pairs against a capacity of making 10 million pairs annually. These statistics clearly show that the capacity of this sector remains highly under-utilized and with a little extra effort Pakistan can substantially increase the production and exports of its shoes and other leather products.

PRODUCT Leather Shoes

MARKET UK (England)

SIGNIFICANCE OF PAKISTAN IN LEATHER SHOES:

Pakistan`s Leather shoes are on number 2 in world leather shoes market Cost of labor is low in Pakistan There are less environmental laws Price is low as compare to Italy and providing supreme quality leather shoes There is no Quota restriction on Pakistan related to leather shoes exports

BARRIERS:
First off all Pakistani exporter have to get the contract form the company in UK ISO 9002 and 9000 certifications

Financial barrier: Machinery cost is so high

Quality manager of that company with the contract has been signed assures the following things: Facility of the company must have the lawn or proper environment for the labors Machine does not exceeding its normal life

Government do not support the exporters Tax has been increased from 15% to 18% There is lack of financial support from the government in the form of loans

Lack of Skilled labor

LOCATIONS IN PAKISTAN
In Pakistan there are more than 2500 tanneries (registered & Un registered) and footwear manufacturing units running in Pakistan. Over the years, the number of registered tanneries in the country has increased from 529 in 1999 to 600 in 2003 and to 725 at present. Located in Karachi, Hyderabad, Lahore, Multan, Kasur, Faisalabad, Gujranwala, Sialkot, Sahiwal, Sheikhupura and Peshawar, the increase in the number of tanneries can be attributed to increase in demand of tanned leather in the world markets till the fiscal year 2007-08.

PRODUCTION PROCESS
SHOE MAKING PROCESS
A footwear company has mainly four departments in which a progressive route is followed for producing finished shoes. These are Clicking or Cutting Department, Closing or

Machining Department, Lasting & Making Department, Finishing Department and the Shoe Room.

CLICKING OR CUTTING DEPARTMENT

In this department, the top part of the shoe or the "upper" is made. The clicking operative is given skins of leather, mostly cow leather but not restricted to this type of leather. Using metal strip knives, the worker cuts out pieces of various shapes that will take the form of "uppers". This operation needs a high level of skill as the expensive leather has to be wasted at the minimum level possible. Leather may also have various defects on the surface such as barbed wire scratches which needs to be avoided, so that they are not used for the uppers.

CLOSING OR MACHINING DEPARTMENT

Here the component pieces are sewn together by highly skilled machinists so as to produce the completed upper. The work is divided in stages. In early stages, the pieces are sewn together on the flat machine. In the later stages, when the upper is no longer flat and has become three-dimensional, the machine called post machine is used. The sewing surface of the machine is elevated on a post to enable the operative to sew the three dimensional upper. Various edge treatments are also done onto the leather for giving an attractive look to the finished upper. At this stage only, the eyelets are also inserted in order to accommodate the laces in the finished shoes.

LASTING &MAKING DEPARTMENT

The completed uppers are molded into a shape of foot with the help of a "Last". Last is a plastic shape that simulates the foot shape. It is later removed from the finished shoe to be used further in making other shoes. Firstly, an insole to the bottom of the last is attached. It is only a temporary attachment. Sometimes, mostly when welted shoes are manufactured, the insole has a rib attached to its under edge. The upper is stretched and molded over the last and attached to the insole rib. After the procedure completes, a "lasted shoe" is obtained. Now, the welt- a

strip of leather or plastic- is sewn onto the shoe through the rib. The upper and all the surplus material is trimmed off the seam. The sole is then attached to the welt and both are stitched together. The heel is then attached which completes the "making" of the shoe. That was the process for heeled shoes. When a flat shoe is in the making, there are considerably fewer operations. The insole in this case is flat and when the uppers are 'lasted', they are glued down to the surface of the inner side of the insole. The part of the upper that is glued down is then roughed with a wire brush to take off the smooth finish of the leather. This is done because rough surface absorbs glue to give a stronger bond. The soles are usually cut, finished and prepared as a separate component so that when they are glued to the lasted upper, the result is a complete and finished shoe. Soles can also be pre-molded as a separate component out of various synthetic materials and again glued to the lasted upper to complete the shoe.

FINISHING DEPARTMENT AND THE SHOE ROOM

The finishing of a shoe depends on the material used for making it. If made of leather, the sole edge and heel are trimmed and buffed to give a smooth finish. To give them an attractive finish and to ensure that the edge is waterproof, they are stained, polished and waxed. The bottom of the sole is often lightly buffed, stained and polished and different types of patterns are marked on the surface to give it a craft finished look. A "finished shoe" has now been made. For shoe room operation, an internal sock is fitted into shoe which can be of any length- full, half or quarter. They usually have the manufacturers details or a brand name wherever applicable. Depending on the materials used for the uppers, they are then cleaned, polished and sprayed. Laces and any tags that might have to be attached to the shoes, such as shoe care instructions, are also attached. The shoes, at last, get packaged in boxes.

PRICING STRATEGIES
The leather grading system employed by leather upholstery manufacturers and suppliers is used as a means of differentiating and marketing individual types of leather by price, based on quality or style. The grading system is the method manufacturers use to present their pricing structures to retail dealers. Leather suppliers also use a grading system to distinguish their leathers and prices to manufacturers.

PRICE PER SHOE Price per Shoe (article)

Article 1 Details Thread cream Thread Sole Foam Inner sole pad Sheet Buckle Banwer (0.3mm) EVA sheet Cloth Leather Cow leather Sheep leather Total Material Cost Overhead 10% Total Cost of Shoe 200 105 554 55 609 363 133 971 97 1,068 25 14 11 PKR 10 30 100 14 25 20 Article 2 PKR 11 32 200 23 50 40 30 45 23 21

Inward carriage cost Shoe Box Cost of Shoe sold

6 31* 646

10 31* 1,109

* Shoe box calculation is in the next table

PACKAGING COST Packaging cost

PKR Positive Plate Printing Total Fix Cost Art card 23x36 Lamination Box maker Variable cost per Box Total Cost/box 20/shee t 1.5/ft 2/box 3.5/inc h 600/p 800/p 828 2,40 0 3,20 0 6,42 8 20 6 2 28 31 3 Per Shoe

COMPETITORS
LOCAL COMPETITORS
Urbansole
o

Owned by Shafi (Pvt.) Limited

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o Estabilished in 1998 o Outlets in europe o 48 dealers o Licensee for Pierre Cardin (Paris) in Pakistan Elegant o Estabilished in 1994 o Global player o Parada (most popular brand) Hush Puppies o Global player o Outlets all over the world

INTERNATIONAL COMPETITORS
Fermo (brand names) o Marc by marc jacobs o CK o Tod o Mans Fermo AGO

Buyers/Importers
B & S Shoes Inc.:
Company Profile:
B & S Shoes Inc. in Drexel Hill, PA is a private company categorized under Shoe Stores. It was established in 1982 and incorporated in Pennsylvania. It is offering leatherwear shoes of

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all kinds as well as foot repair as an additional customer service. The company is in business from 29 years, having a prior experience of U.K market. Current estimates show this company has annual revenue of $500,000 to $1 million. Companies like B & S Shoes Inc usually offer: Kids Shoes, Evening Shoes, Jordans Shoes, Simple Shoes and Best Running Shoes.

Company contact:
Address: 5100 State Road # 1 Drexel Hill, PA 19026-4627 Phone: (610) 284-107 Website: www.bsshoes.com Email:

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Nicos Shoes:
Company Profile:
Nico's Shoes works as Nicos Buster Brown Shoes in Woodland Hills, CA is a private company categorized under Shoe Stores. It was started in 1977 and registered in Pennsylvania. The companys core product is leather shoes. It is in business of import from 34 years. The sources of imports are Far East countries. Numbers of Pakistani companies are exporting finished leather shoes to Nicos shoes from years. Companys major import is from china but Pakistan has a great chance to grab market by increasing quality of production as raw leather of Pakistan is best and renowned worldwide.

Company Contact:
Address: 21761 Ventura Boulevard Woodland Hills, CA Website: www.nicos.com Phone: (818) 340-6281 Email:

Newmans Footwear:
Company Profile:
Newmans Footwear is a major UK importer of footwear, handbags and fashion accessories. Based in Blackburn, Lancashire, and supplying many of the UK's leading retailers. The company is a mature player as it has an experience of over 70 years. The company is highly quality conscious and imports products from countries with excellent manufacturing facilities. China is leading exporter to the company but few Pakistan companies are also working to improve their share. High quality raw leather is one strength for Pakistani

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companies and have a room for improvement in production quality and increasing their global market share.

Company Contact
Address: Newman's Footwear Ltd Garden Street Blackburn BB2 1TZ Phone: 01254 296540 Fax. 01254 296541 Website: www.nfw.co.uk E-mail: info@nfw.co.uk

Negotiation Process

Negotiation Process is start with the sampling of the product. Exporter Company sends its product samples to Importer Company along with all the specifications of the product. If the sample of the product is approved by the importer company then the process of costing and pricing starts. Both the parties negotiate in order to make a best deal which can provide benefit and profits to both of them.

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After setting up the prices the terms and conditions of the trade process is decided. Terms and conditions include the: The delivery process Time of the delivery Mode of payment Etc.

When all the terms and conditions of the sale process are completed then order letter is placed by the importer company which includes all the specifications of the product, quantity of the product etc. After the acceptance of the of the order letter by the exporter company the manufacturing process of the products is start and the products go for the shipment.

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LEGAL DOCUMENTS
FBR CERTIFICATE LAHORE CHAMBER OF COMMERCE MEMBERSHIP SALES TAX CERTIFICATE LETTER OF CREDIT COPY SHIPPING LETTER BILL OF LADING DECLARATION CERTIFICATE CERTIFICATE OF ORIGIN PACKING LIST PERFORMA INVIOCE PURCHASE ORDER

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