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LEATHER INDUSTRY OF

PAKISTAN

Overview
In 1947, there were a few tanneries

operating on a small scale producing sole


leather.
In 1950s tanneries were set up at Karachi

and Lahore
1960s and 70s marked the establishment of

tanneries at Hyderabad, Kasur, Multan, Sialkot,


Sahiwal and Gujranwala.

Leather Industry
Today
Today, the leather tanneries are divided into two

sectors organized and unorganized sector


700 units in total 450 units in the unorganized sector

and 250 units are members of organized sector


The tannery units in the unorganized sector producing
leather on cottage basis, with negligible use of
machinery
These are concentrated in the form of clusters
-Kasur has 275 tanneries
-Sialkot houses 250 tanneries
-Karachi has around 150 tanneries

The Pakistan Leather Industry started with the production

of pickled and vegetable tanned hides and skins.


Today we produce not only wet blue and crust forms of

leather but we also produce fully finished leather and


leather based products
-Such as jackets, belts, gloves and footwear

The industry plays a pivotal role in stimulating

export volumes
- In 2007-2008, the industry achieved
exports of worth US$ 1.22 billion, registering an
increase 21% when compared to the previous
year
Export of finished leather increased 26% in terms

of quantity and 16% in terms of value in the year


2007-08

The major export partners

are:

16%

15%

14%
European
community(accounts for 65% of 12%
the total exports)
10%

North and Latin American


countries as well as Central Asian 8%
states(contributing 35% of total
6%
exports)

4%

Pakistan has 1% share of the

world leather market.


This is a reflection of the

deteriorating situation our


leather industry is in.

2% 1%
0%

3%

3%

Leather associations in Pakistan

Pakistan garments
association(PLGMEA)-Karachi
Pakistan tanners association(PTA)
-Karachi
Pakistan footwear association(PFMA)Lahore
Pakistan gloves association(PGMEA)Sialkot

ANALYZING INDUSTRY
COMPETITIVENESS

Model used: Porters Diamond model


Research methodology used:
o Published data
o Primary research conducted at

Nova leathers Pvt. Ltd


Omar Leathers Pvt. Ltd
Noor Leathers
Shafi tanners and co.
Mehmood Brothers tanners and manufacturers
Prime tanners Pvt Ltd.
Blooming Leather Pvt. Ltd
KHAS Pvt.Ltd
Pakistan Tanners Association
National Institute of Leather Technology

Factor conditions
Raw material

The basic raw material used are the


hides and skins of ovine and bovine
animals.

The word skin is used for small

animals or ovine(sheep and goat)


The word hide is used for bigger

animals bovine(buffalos and cows)

Category-wise usage of the hides and skins:


Cow hide and sheep skin is mostly used for
smooth finishes of the upper sole of shoes, inner
side of gloves and designer bags and clothing
Buffalo hides and goat skin are used in coarser

items like leather soles and joints


Tanning methods used:
Vegetable-tanning uses tannin
Chrome-tanning uses salt compound of

chromium

Buffalo and cow skins mostly come from

Punjab, while goat and sheep is of much


better quality in Sindh.
Interestingly enough we import around 70-

80% of hides and skins from Europe, Africa


and Middle-east.
Locally, tanners usually procures the raw

material from slaughter colonies(kamelas)


situated in the outskirts of various cities

The leather tanneries purchase quite a lot of the

hides and skins during Eid-ul-Azha (some of them


stock raw materials for the 4-5 months of usage)
The local slaughtering is mainly done by

unprofessional slaughterers during Eid-ul-Azha


This results in a lot of unnecessary cuts that

decreases the net worth of the raw material or at


times renders the skin useless.

Hides and skins are perishable items. They

start rotting soon due to the flesh and blood


residue.
Local slaughterers do not have state-of-the art

preservation houses and they use the


traditional method of salting to preserve the
skin.

LIVESTOCK POPULATION IN PAKISTAN


(2001-02 TO 2007-08)
Million Numbers
Buffalos
Sheep

Fiscal Year

Cattle

Goats

Camels

2001-2002

22.8

24.0

24.4

50.9

0.8

2002-2003

23.3

24.8

24.6

52.8

0.8

2003-2004

23.8

25.5

24.7

54.7

0.7

2004-2005

24.2

26.3

24.9

56.7

0.7

2005-2006

29.6

27.3

26.5

53.8

0.9

2006-2007 *

30.7

28.2

26.8

55.2

0.9

2007-2008 *

31.8

29.0

27.1

56.7

1.0

Dyes and Chemicals


90% of the dyes and chemicals used

in the tanning of leather are imported


mainly from
Germany
Spain
Italy

10% dyes and chemicals are taken

from MNCs which have got their set


ups in Pakistan
Sandoz
Bayer
BASF
Clariant

The proportion of imported to local dyes is

very high because of the poor quality of dyes


and the restrictions
(regarding the usage of certain chemicals in
the manufacture of dyes) by international
buyers.

Labour
The leather industry provides employment to 200,000

people of Pakistan
Almost 80% of the labour is skilled( they have the

required expertise to operate the machinery)


Approximately 20% are the unskilled workers who are

basically helpers( they help in unloading, loading and


packaging)
Apart from this there are around 15 to 20% graduated ,

engineers and diploma holders In the big players of the


industry.
The smaller tanneries have 2 to 5% of graduates in their

workforce

Almost all the tanneries have the minimum age

requirement of 18 years, below which they do not employ


the candidate
Basic training methodology prevalent is the Ustaad-

shaagird method
The tanneries we visited have not conducted any sort of

workshops or skill development programs for their workers


over the past two years

They believe that the expertise that the workers have is


sufficient enough to meet the buyer preferences

Our leather industry is facing the same problems as the

other industries in Pakistan, which is the lack of interest of


todays literate class to opt for working in these industries

Training institutes:

There are various training institutes that have been

established to provide leather based academic


degrees.
Some of them are:
National institute of Leather Technology, Karachi(NILT)
Leather products development institute, Sialkot(LPDI)
Institute of Leather Technology, Gujranwala(ILT)
Pakistan Institute of Fashion Design, Lahore(PIFD)
Footwear training institute, Charsadda(FTI)
Facility cum Training centre, Kasur
Cleaner Production centre, Kasur

There are various programs that NILT is offering in

order to impart Leather related knowledge. Some


of them are:
Diploma
Diploma
Diploma
Diploma

of Associate Engineering(DAE)
in Leather Technology
in Leather garments
in Leather goods

NILT has fully fledged mini tannery, Physical, Chemical and

Analytical Laboratories, Information Technology Centre, a


good Library, Research & Design Laboratories with other
essential facilities which is catering to the needs of
upgrading the leather sector

Capital and Machinery


Around 80 to 95% of machinery is imported from countries

like Italy and France


The high percentage of import in terms of machinery is a

reflection of the insignificant manufacturing base in


Pakistan.
Around 5 to 10% machinery used by the small tanneries is

locally produced. Such machinery is locally known as


chukrum.
These are smaller in size and available at reasonable

prices.

Research & Development:


There are numerous institutes related to leather, yet

the rate at which research and development is being


carried out is very slow and is in its initial stages
Our primary research showed that only big players of

the industry such as Nova leathers and Mhmood


Brothers have come up with a new dyeing
technology(steel dyeing drums) which ensure better
quality of dyeing.
The university of veterinary and animal

sciences(UVAS), Lahore and PTA have signed a


research project for the identification of skin diseases
in animals and geographical patterns of these
diseases.

Infrastructure:
There are severe infrastructure

problems faced by the Leather


industry.
The industrial hub of Karachi, Korangi

Industrial Area (sector 7-A) does not


have a single metal road. These
tanneries are also deprived of the
basic utilities(such as water and
electricity).
Being a water-based industry,

tanneries have to purchase water


and they have also arranged for
company-owned generators to
ensure uninterrupted power supply.
The drainage system is in a very

poor condition as well.

Demand Conditions
Climatic conditions:
The demand of Leather is highly dependant on
natural factors such as climate
Pakistan lies in the temperate zone, the climate is
generally arid, characterized by hot summers and
cool winters. There are also wide variations
between extremes of temperature at various
locations.
The demand can still be created by focusing more
on the products which are not affected by the

EX PO RT O F LEATH ER & LEATH ER PR O D U CTS FR O M PA K ISTA N


D U R IN G JU LY-JU N E 2006-07 V IS- -V IS JU LY-JU N E 2007-2008
Value = US D ollars in Thousand
Commodities

Unit

Leather

000
SQM
AUP/Sq.
M
Leather Apparel & 000
Clothing
DOZ
AUP/Pcs
Leather Gloves
000
DOZ
AUP/Pair
Leather Footwear

July-June
2006-2007
Qty
Value

%
Change

19,22
5

356,88 24,25 415,26


4
7
3
18.56
17.12

+16.36
%
-7.75%

848

388,11 1,121 528,15


5
4
38.14
39.26
132,58 4,258 161,16
9
9
5.62
6.31

+36.08
%
+2.94%
+21.56
%
+12.31
%
+8.52%

3,934

000
9,979
Pairs
AUP/Pair

Other
Leather 000
Manufactures
KGS

July-June
2007-2008
Qty
Value

1,360

97,089 9,809 105,35


8
9.73
10.74
33,477 521

10,177

+10.40
%
69.60%

Global Demand for Leather Products

Product Profile
Automotive; 7%

Gloves; 4%

Leather Goods; 9%
Other Leather Products; 1%
Footwear; 8%
Garments; 42%
Gloves; 16%

Leather; 33%

Clothing; 11%

Upholstery; 13%

Footwear; 56%

Absence of commercial farming:


In Pakistan, 65% of the population resides in rural
areas.
The inhabitants of these areas do not take care of
animals in a professional manner
Animals become victims of wobble fly disease
and skin rash.

Country Image and Price:


70% of tanneries that we visited mentioned that the

major impediment in the growth of the Leather


industry is the unfavorable image Pakistan has in
the international arena.
We identified 4 factors that are significant for the

development of any industry, that are:


Country image
Logistics
Price
Quality

In Pakistan, we gave minor attention to these four

aspects which are otherwise essentials for success.

The law and order situation is

making foreign investors reluctant


to invest
Even the hoteling facilities and

country ambience is not up to the


standards

Animal activists:

A recent culture shift has been observed, due to

which people are becoming more and more


conscious about the environment and extinction
of animal life
There have been recent activist movements such

as the one by Pamela Anderson and the Chetus


organization

Livestock Industry:
In Pakistan, we regard the meat industry to be of

prime importance, Leather is just seen as a byproduct.


This perspective needs to be changed for the

sophistication of local demand

Effluent treatment plant & REACH


agreement
This plant has been made in

Korangi with the collaboration


of Dutch government.
Certifications of social

compliance and
standardization for the use of
chemicals.

Related & supporting


Industries
Fashion
Industry:

The fashion industry of Pakistan is not up to the


standards.

There is lack of awareness among the masses

regarding the latest trends in fashion


If the fashion industry flourishes and creates

awareness about its products, the leather industry will


get a boost as more and more people will be inclined
to buy leather based products(such as belts and bags)

Film Industry:
Pakistans film industry is almost non-existent.
Over the years, Indias clothing industry has

prospered due to the fact that its film industry


has been progressing at an amazing rate, and
that makes Indiaa one of our major
competitors.

Feed Industry:
In the process of tanning, leather passes through

the shaving process in which a lot of


wastage(burada type) is gathered
This wastage is then sent to the feed industry

where it is used in the manufacture of animal


feed.

Soap Industry:

During the fleshing stage, the access fat is

removed from the animal skin.


This fat is used in the manufacture of low-grade

soaps

Machinery:
90% of the machinery used in the leather

industry is imported from countries like Italy


and France.
Our local manufacturing base is insignificant

and no conscious effort is being made to locally


produce low priced and good quality machines.

Banking and finance industry:


The credit availibilty to the leather tanneries is

an on going issue.
The borrowing cost is high which deters further

investment in the industry.


The initiative taken by the government to

reduce the Banks spread from 3% to 2% ( in


06-07) can help the industry grow.

Livestock Industry
Livestock provides the most important raw material to the

Leather industry, therefore the quality and quantity of


livestock available matters a lot.
Severe need to commercialize livestock farming in order to

breed healthy animals for provision of quality hides and


skins.
Hides and skins are worth more money and can have more

value-addition done to them therefore, this should be


focused as a primary product rather than a secondary
product of the meat industry.

Dyes and chemicals


Our local chemical and dye manufacturing is not

supporting the Leather industry, as apart from a


few MNCs mentioned earlier, none of the
companies meet the international standards.
Our local chemical and dyes should address

various health issues associated with the


chemicals they produce in order to abide by all
the set international regulations.

Training, research and educational

institutes
The institutes(already mentioned in the factor

conditions) are not working to their full capacity


due to the lack of students, faculty, proper
academic curriculum.
The NILT has taken initiatives to train individuals in

Leather and Leather products but they are not


capable of attracting people, which is reflected in
the minute number of the present class at the
institute(currently 110)

Firm structure,
strategy and rivalry
Structure:
Divided

into two subsectors


organized and unorganized sector
Leather
Industry

700 units in total 450 units in the

unorganized sector and 250 units


are members of organized sector
The

unorganized
sector
has
retailers in the area of in Joria
Bazaar and Zainab market.

Organized
sector

Unorganiz
ed sector

The associations of leather in

Pakistan are:
Pakistan garments
association(PLGMEA)
Pakistan tanners association(PTA)
Pakistan footwear association(PFMA)
Pakistan gloves association(PGMEA)

The

Pakistan tanners association fully


represents the tanneries all over Pakistan, and
has represented the issues of its member
exporters at the federal level for consideration

Pakistan

Tanners Association central sub


committees are also in touch with SMEDA to
discuss some relevant issues of the leather
industry towards to the formulation of the
leather vision.

Clusters formation
The

organized sector is mainly


concentrated in the main hubs of the
Country Karachi, Lahore and
Sialkot.

Other towns having leather industries

are:
Hyderabad, Multan, Sahiwal, Kasur,
Sheikhupura,
Gujranwala,
and
Peshawar
In Karachi Korangi industrial area an

informal cluster
emerged.

of

tanners

has

Informal Cluster: Korangi

Industrial Area (Sector 7A)


This cluster comprises of not only over 150

tanneries but also an effluent treatment plant,


National Institute of Leather and southern zone
office of Pakistan Tanners Association. The
tanneries residing over here are all export
oriented .
Apart from these 150 tanneries we have a few

scattered units in Sher Shah and SITE

Informal Cluster: Kasur


Apart from this we also have a cluster in Kasur, in

this cluster there are mostly unorganized and


unregistered tanneries.
There are 275 tanneries in total
Average daily input is 190 tons of wet salted weight
The units tend to provide hides and skins up to the
wet blue form only.
The structure of industries in Kasur is a traditional
family owned business. This informal cluster has
always remained a high processing center mostly
catering to the needs of local, low priced bracket
footwear manufacturers

Rivalry
Research

proved that there is


minimal domestic rivalry among
the tanneries in Pakistan each
tannery is working in isolation and
the actions of the rivals does not
have any direct affect on it, as
mostly the big industry players are
export-oriented

So in order to brew competition

and innovation we need to propel a


competitive environment in the
local arena.

Strategy
Lately,

the leather industry has


engaged
in
various
fairs
domestically and internationally in
order to increase awareness of
leather products among the masses
Pakistan Pavilions was organized by
Pakistan Tanners Association in
collaboration with the EPB.
The government of Pakistan gives
50% government subsidy in various
international fairs and exhibitions
held at different destinations in the
world

Some of the fairs in which Pakistan

tanners participated are mentioned


below:
Lineapelle Fair held in October 2005, at Bologna, Italy.
IDF Leather Fair, held in January 2006, at Istanbul,

Turkey.
MMT Section of APLF, held in March 2006, at Hong
Kong.
All China leather exhibition, held in September 2006,
at Shanghai.
Le Cuir, held in September 2006, at Paris

The government of Pakistan assigned a task of

Comprehensive development Strategy for the


sector.
The entities that are involved in this venture
are
SMEDA
Ministry of industries
Production & special initiatives

The aim of this strategic step, is to reposition

the leather industry on the domestic, regional


and the internationla front.

The leather vision and strategy also includes

the goal of setting up leather parks in Sialkot.


SMEDA
has
initiated
the
project
of
IIN( industry information Network)
The goal is to provide a common platform
which will stimulate coordination among the
members.

Government
The government of Pakistan is not providing the

Leather industry with channelized and adequate


support.
Repeated efforts have been made by the Pakistan

Tanners Association to let the government know


of their problems however they haven't yet
achieved anything worth mentioning.
EPB has helped the leather industry by providing

easy access in international fairs and is also


offering subsidies from 50%-75%

The article published in business recorder on the 28 th December

2008, mentions that government of India and China are taken


various measures such as Indian government has injected
Rs.9130 million to save its leather industry.

The Pakistani government should also provide the

much needed financial support (as proposed by


Pakistan Tanners Association, the provision of 25%
financial costs for setting up design centers and
individual units).
Another outcry by the tanners was over the high cost

and unwarranted supply of utilities (electricity, water


and gas).
Even the logistic support is in a very poor situation.
There have been many unchannelized haphazard

activities by the government to promote the leather


industry of Pakistan

The government needs to take great strides in

order to improve the image of Pakistani products.


Furthermore, as we read in the dairy sector, the

smuggling and exporting of live animals is


disadvantageous for the Leather Industry. The
Government needs to look into this matter.

Export rebates of upto 23% were given uptil 10

years ago, which has now been reduced to a


meager 0.8 to 1% for finished goods, 0.22% for
apparels, 1.76% for gloves and 2% for footwear.
This reduces our ability to compete with countries

giving high export rebates.

For example, Indian and Chinese Leather


exporters receive around 7 to 11% export rebates
for finished goods, where as the Bangladesh
exporters get 15% rebates.

Impact of WTO on Leather


Industry
Some of leather products from Pakistan especially

leather jackets are much in demand but under the


foreign renowned brand names, e.g Zaras, Marks
and Spencer, and NEXT.
Under WTO, no import tariffs are applied to raw hides

and skins in Pakistan at present. However, there are


varying levels of tariffs on processed goods.
A major debate is about whether or not unfinished

leather should be exported or not, as a restriction in


this case would give the leather garment industry a
stronger edge over the leather tanners. 1

A major dispute with WTO concerning

Pakistans leather industry is the export


restrictions on hides and skins which were
initiated by the European communities.
Despite the fact that Pakistan removed the

restrictions on the export of hides and skins,


WTO is still seriously concerned about the
matter and it is still a dispute.1

Lack of Infrastructure:
The industry is a water based industry, yet
there is extreme water shortage that
tanneries have to face.
There is an unwarranted supply of electricity,
which disrupts the production process.
Road networks are in a very bad shape,
where all that is available are the Katcha
roads.
The drainage system is also in a very poor
condition.The drains carrying the industrial
waste are not covered.

Availability of quality Raw


material
raw material is not good enough to meet

the

needs of the international buyers


80-85% tanneries import their raw material.
NewZeland
Sudan
Spain
Europe
Animals in Sindh become victims of the
wobble fly disease and skin rashes.
UnFavorable
environmen
tal
conditions

Poor Quality
animal
breed

Poor quality
of skin

low quality
of finished
products

Demand conditions:
The local production is not reflective of

international demand.
Internationally there is a huge demand for
footwear.
Pakistan is not at all competent in this arena
and accounts for 0.1% share of global footwear
market.

Increasing global market competition:


Pakistans Leather industry accounts for 1% of the total world share of Leather.
While countries like Bangladesh which entered this industry after Pakistan, is grabbing around 2-3% of the
global market share.

Lack of R&D and workforce training.

We do have numerous institutes for leather based technology, yet they have not been performing up to
the standards.
Moreover the general perception, shared by tannery owners is that their workforce is good enough. This
needs to be changed and employees must be encouraged to take the courses offered by institutes like
NILT

Gaps in the qualities of local supplies


This is reflected in the inefficiency of the local
machinery and dyes manufacturers.
Our local machinery and dye manufacturers
are not competent enough, forcing tannery
owners to import all the machines ands the
chemicals.
Empirical research shows that 80% dyes used
are imported.

Poor coordination among the clusterplayers


The clusters in Kasur, Sialkot and Karachi
are the most important. Yet there isnt a
concerted
effort
taking
place
to
turnaround things for the sector.
There isnt a shortage of institutes
NILT
Leather products development ( LPDI)
Institute of leather technology(ILT)

But there is a need of unanimity of effort.

Cumbersome regulatory procedures


Export rebates of upto 23% were given uptil
10 years ago, which has now been reduced to
a meager 0.8 to 1% for finished goods, 0.22%
for apparels, 1.76% for gloves and 2% for
footwear.
This reduces our ability to compete with
countries giving high export rebates.
Over and above this, the Pakistan Leather
Industry is subject to high L/C Margin
approximating to 35%.

Lack
of
competition/rivalry

intercompany

Lack of awareness in the local arena


Red tape and bureaucracy
There are 32 departments in the government
to look after the industries
Unfortunately all that they is to hinder the
growth of the industry rather than support it.

Brand Pakistan
The biggest impediment in the way of the
industry, has been Pakistans image in the
international arena

Coordination between the relevant training institutes

across Pakistan.
Management of the training institute facilities is not

proactively focused to meet the needs of the industry.


Workforce development should be high on the list of

strategic interventions to be made within the leather


industry due to the challenge that they face in maintaining
a workforce that has the skills and qualities required for
the sector to remain competitive.
Product development in the Leather industry is majorly

required. The tanneries in Pakistan should improve upon


their product lines through R&D and innovation.

These days, people have become more aware of the

hazards caused by these industries to human as well


as animal life, therefore proper testing process of
the chemicals produced locally should be done.
Increase awareness about the courses offered by

NILT in conjunction with the Northampton University.


As the Leather industry has affiliation with the PIFD,

there should be linkages with other universities and


institutes as well.
The initiatives to make leather parks at Sialkot,

Kasur and Charsadda should be taken seriously and


proper work should be done upon them.

The strategy focuses on the need for the Pakistan

leather industry to brand itself in the international


market. Leather Pakistan should be presented as a
brand through marketing initiatives.
Major trade shows, fairs and other promotional

activities should be used to build our name, and thus


improving the position of Brand Pakistan.
E-marketing- the use of the internet in order to make

people more aware of leather industry in Pakistan


Provide investment incentives
Higher duty drawback / tax rebate
6% R&D subsidy

Sustainable Pakistan leather sector competitiveness

requires greater concentration on fashion and design


Government of Pakistan should support the establishment

of a renowned and reputed international lab for leather


and leather products to engage in R&D.
The industry has some excellent clients in the US and

Europe and building on these with a marketing campaign,


perhaps allied with warehousing assistance, there is
potential for Pakistan to compete for clients with countries
like Turkey who deal in a generally higher price bracket.
The focus on production of products specifically for the

motorcycle industry by Sialkot producers is a good


example of a specialty that can be promoted worldwide to
draw positive buyer attention to Pakistan.

Commercialization of livestock farming to make the

standard of breeding practices better.


The people at the slaughter houses who skin the

animal, should be made more aware of the use of


those hides and skins and how a little cut on the skin
can make the whole skin useless.
Utilize the skin of aquatic animals, such as the sting

ray fish and the white sharks, as well as crocodiles


and alligators
More emphasis on the foot wear
Differentiate products in terms design

According to Porter's diamond model, domestic

rivalry is healthy but if Pakistan is not very


capable of that, the firms in the industry should
atleast try to collaborate and thus contribute
global competitiveness together.
The cost of production is also very high in

Pakistan as compared to our competitors like


China, India and Bangladesh. This is mainly due
to the utilities, import costs and taxes, so
Pakistan can work on that to capture its lost
market