Executive Summary
The history of the leather sector and tannery industry in Bangladesh started when R.P Saha set up first tannery in Narayanganj back in 1940. It was later shifted to Hazaribagh area of Dhaka, which turned into a location that now accommodates a large number of tannery units of the whole country. At present, the leather sector of Bangladesh has 220 processing units located at different parts of the country (mainly in Hazaribagh, Dhaka). But only 28 tanneries are in operation, among them 20 are operating in crust section and 8 are in finishing section.
Total capital invested in the tannery industry is estimated at Tk 2.5 billion, of which government/bank finance is about Tk 1.2 billion. Bangladesh currently produces about 20.0 million sq. meters of leather and leather goods per year. Contribution of leather sector (hide & skin, leather and leather goods, and footwear except rubber) to GDP is 0.31 (at constant price) in FY 2003. According to Leather Sector Census Study,2005 total production of wet blue leather in 2003 was 3,50,60,000 square feet, crust leather 6,61,72,000 square feet, finished leather 13,48,20,000 feet, whereas 1,67,66,000 pairs of leather footwear were produced in 2003 and 766000 pieces of leather goods were produced in 2003. In 2004, 247 million square feet raw hides were available for the leather industry, among which cow and buffalo hides were 184 million square feet and goat and sheep skin were 6 million sq.ft. According to a report published by FAO in 2003 the numbers of bovine animals in Bangladesh were 2,48,30,000 in 2002; the number of sheep and lambs were 11,43,000 and there were 3,44,00,000 goats and kids in Bangladesh.
In addition of finding out the whole scenario of the leather sector of Bangladesh, this study mainly focused to identify the major chemical suppliers in the different stages of leather processing. To find out the main chemicals required in various stages of finished leather production was also the prime consideration of this study. The market share contributed by the suppliers in various stages was the main finding of this report. Along with primary and secondary survey, in depth interview and Expert opinions have been taken for the final modification and recommendation of the whole research. Why the big suppliers are loosing their market and why small and new suppliers are doing well and getting the market acceptability has also been discussed in this research material.
Introduction
Origin of the Report
This internship report was prepared as a compulsory requirement for the MBA degree. From the program office of the Institute of Business Administration (IBA), I was placed as an intern in ACI trading limited. The project is titled “To study the current market scenario and the future prospect of the leather chemical industry of Bangladesh”. The project was assigned to me by my supervisor at ACI Trading Limited, Mr. Azmal Hossain, Executive Director of ACI Trading Limited. It was overseen by my faculty advisor Mr. Mustaque Ahmed, Associate Professor, Institute of Business Administration, University of Dhaka.
Broad Objective
To understand the current market situation and the future business prospect of the leather chemical industry of Bangladesh from the viewpoint of ACI Trading limited.
Specific Objectives
To achieve the broad objective the following specific objectives are required to be achieved.
1. Identify the major market players of leather chemicals (especially in value addition section).
2. To analyze the ins and outs of the tannery industry of Bangladesh.
3. To compare the marketing strategies of all the major chemical suppliers in Bangladesh and to find which marketing strategy the clients prefer.
4. To find out the proper marketing strategy for ACI Trading limited to increase their market share in crust and finishing section.
Scope of the Research
This report is basically a requirement of ACI trading limited to understand the details of tannery industry in Bangladesh. ACI trading limited is the agent of Stahl (Holland), a well renowned chemical supplier in the world. From the ACI’s point of view, they want to know their competitors and how they are marketing in Bangladesh.
To know the major leather chemical market players in Bangladesh, the tannery factories and their leather technologists are the main focus of this research. All the organized bodies related to leather sector such as Bangladesh Chemical Importers and Merchants Association, Bangladesh Tanners Association, Bangladesh Finished Leather, Leather goods and Footwear Exporters Association, Bangladesh Leather Manufacturers Association, Bangladesh Leather Importers Association are the major considerations of this research.
Leather Sector Business Promotion Council (LSBPC) was the prime source of all research papers necessary for this study.
Background:
ACI was established as the subsidiary of Imperial Chemical Industries (ICI) in the East Pakistan in 1968. After independence the company has been incorporated in Bangladesh on the 24th of January, 1973 as ICI Bangladesh Manufactures Limited and also as Public Limited Company. This Company also obtained listing with Dhaka Stock Exchange on 28.12.1976 and its first trading of share took place on 09.03.1994. Later on May 05, 1992, ICI Plc divested 70% of its shareholders to local management. Subsequently the company was registered in the name of Advanced Chemical Industries Limited. Listing with Chittagong Stock Exchange was making on 22 October, 1995.
Advanced Chemicals Industries (ACI) Limited is one of the leading conglomerates in Bangladesh, with a multinational image. ACI is a Public Limited Company with a total number of 19,653 shareholders. Among these, there are three foreign and fifty local institutional shareholders. The company has diversified into five major businesses. Beside these, the company has a large list of international associates and partners with various trade and business agreements.
Company Mission:
ACI’s mission is to enrich the quality of life of people through responsible application of knowledge, skills and technology. ACI is committed to the pursuit of excellence through world-class products, innovative processes and empowered employees to provide the highest level of satisfaction to its customers.
Company Vision:
To realize the mission ACI will:
• Endeavor to attain a position of leadership in each category of it businesses.
• Attain a high level of productivity in all its operations through effective and efficient use of resources, adoption of appropriate technology and alignment with our core competencies.
• Develop its employees by encouraging empowerment and rewarding innovation.
• Promote an environment for learning and personal growth of its employees.
• Provide products and services of high and consistent quality, ensuring value for money to its customers.
• Encourage and assist in the qualitative improvement of the services of its suppliers and distributors.
• Establish harmonious relationship with the community and promote greater environmental responsibility within its sphere of influence.
Distribution Network:
The company maintains strategically located sales centers in 198 different locations across the country. It has developed an advanced distribution system through its more than 300 skilled and trained manpower and a large fleet over 80 vehicles. The distribution system is capable of handling continuing volume of diverse range of products from the various businesses.
The company’s distribution centers are highly streamlined, computerized and automated. We are capable of maintaining a cold chain for some specialized range of products such as vaccines and insulin. The combination of this advanced function and multi dimensional capabilities make it possible to handle hundreds of products efficiently.
Business Units:
ACI Pharmaceuticals: In 2004, ACI Pharmaceuticals ranked 11th in the Bangladesh pharmaceuticals industry. It provides the market with a wide selection of drugs across all major therapeutic classes, and also offers some specially medicines. ACI Pharmaceutical represents AstraZeneca, Eli Lily and UCB in Bangladesh.
2.7.2 ACI Crop Care and Public Heath Division: This Division is holding the leadership position in the industries; Animal Health has experienced one of the highest growth rates in this sector. ACI Agribusiness has partnerships with several international conglomerates including Ceva Santhe Animale, Invesa, UCB, Isago Asia and Boreegaad Taicang Chemical Co. Ltd.sdx.
ACI Consumer Brands: This Division is a leading Fast Moving Consumer Goods (FMCG) company in Bangladesh. In the liquid antiseptic and mosquito repellant categories, this division is a very strong market leader. Foreign partners represented in by this division include Godrej Consumer Products (for hair care and skin care ), Parle Group (for Parle G biscuits), Beiersdorf, Germany (for Nivea range of Products) and Colgate Palmolive.
ACI has formed joint ventures with leading FMCG and agribusiness players in the region. These are:
• Asian Consumer Care Private Ltd: Joint venture of ACI and Redrock Limited, for distribution of various ranges of Dabur products in Bangladesh. ACI holds 50% stake in the venture.
• Tetly ACI Bangladesh Ltd: Joint venture of ACI and Tetley Group of United Kingdom for distribution of Tetley products in Bangladesh, with ACI having 50% shareholding.
Many ACI products have crossed our national boundary and are being successfully exported to various countries in Asia, the Middle East and the CIS region. The responsible of foreign consumers to our products has been encouraging.
Manufacturing Standards:
ACI has three separate manufacturing plants in the outskirts of Dhaka. The Pharmaceuticals plant is located at Narayanganj; ACI Formulations has been setup in Gazipur and the Tetley factory has been built at Konabari. ACI Limited is the first company in Bangladesh to have attained the ISO 9001 certification for Quality Management and ISO 14001 for Environment Management. The Trading subsidiary has also received ISO 9002 certificate. At our manufacturing facilities, we follow CGMP guidelines and standards recommended by World Health Organization (WHO) for pharmaceutical formulations.
Diversification into new industries:
ACI Limited is venturing into new areas of business, as part of its diversification initiatives. Two such businesses being set up are ACI Salt Ltd. And ACI Godrej Agrovet Private Limited.
• ACI Salt Ltd: ACI has set up its salt plant in Rupganj, on the bands of the Shitalakhya river. The plant will produce refined iodized salt through Thermal Evaporation System. ACI has used technology from China Heavy Machineries Corporation (CHMC) in establishing the plant. The end product will be high quality, free-flowing salt with even, crystallized grains. The iodine content of ACI salt will have a stability of more than 6 months. The project has been undertaken at an approximate cost of Taka 32 crores.
• ACI Godrej Agrovet Private Limited: Godrej is a pioneer in the packaged meat business in India. It is also the market leader in the poultry industry, and the owner of ‘Real Good’ brand. ACI and Godrej have a joint venture in Bangladesh to set up an Integrated Poultry Project. Under this project, ACI Godrej Agovet has already set up a feed mill at Sirajganj. This is fully automatic pellet poultry and fisheries feed mill, which uses technology from Jiangsu Muyang group of China. The company has also set up a hatchery at Joynabazar, on the Dhaka Mymenshingh road, with technology from Godrej. The plans for this project also include establishing Grand Parents and Parent Stock breeding farms. The investment in the project is Taka 8 crores, with ACI Limited having 50% shareholding of the company.
ACI Formulation Limited:
ACI Formulations Limited (ACI FL) is a subsidiary of ACI Limited, located at Gazipur, in the outskirt of Dhaka.
ACI FL manufactures majority of the products of ACI strategic Business Limited except for Pharmaceuticals division. The factory is equipped with the state-of-Art facilities for product formulations and process innovation. These include modern computerized equipment like HPLC and GLC.
The product range manufactured at ACI FL include Crop Protection Chemicals like insecticides, herbicides and fungicides in granular, powder and liquid forms, Mosquito Pesticides in the forms of aerosols, vaporizers and coils, and households chemicals like toilet cleaners and hand wash.
Quality Policy
ACI aims is to achieve business excellence through quality by understanding accepting, meeting and exceeding customer expectations.
ACI follows International Standards on Quality Management System to ensure consistent quality of products and services to achieve customer satisfaction. ACI also meets all national regulatory requirements relating to its current business and ensures that current Good Manufacturing Practices (CGMP) as recommended by World Health Organization is followed for its pharmaceutical operations.
The management of ACI commits itself to quality as the prime consideration in all its business decisions. All employees of ACI must follow documented procedures to ensure compliance with quality standards.
The pool of human resources of the company will be developed to their full potential and harnessed through regular training and their participation in seeking continuous improvement of work methods.
ACI Trading Ltd is one of the leading Trading Houses in Bangladesh. Originally it was ICI Pakistan Ltd established as the subsidiary of Imperial Chemical Industries (ICI) in the then East Pakistan. After independence of Bangladesh the operation continued as ICI Bangladesh Ltd. In July 1994 ACI Ltd another divested part of ICI PLC UK for Pharmaceuticals and Agrochemicals operation purchased ICI Bangladesh Ltd from ICI PLC and renamed it to ACI Trading Ltd.
ACI Trading Ltd has been accredited with ISO 9002 certification since June 1997 for its Quality System on indenting business. The Company is mainly involved in marketing and sales of various Industrial Chemicals, Petrochemicals, Plastics, Pharmaceuticals, Leather and Shoe finishes. Textile Dyes and Auxiliaries through Indent sales. It has four business divisions such as Chemicals, Textile, Leather and Water Pumps. To render technical service ACI Trading has two separate technical application laboratories for textile and leather businesses.
We represent ‘World Class Products’ in Bangladesh from ICI and some other multi-nationals like ExxonMobile, Solvay Interox, Enichem, Huntsman Tioxide, Magadi Soda Co., Stahl UK Ltd, Onga Australia Pte Ltd etc. We also represent some reputed Principals form Asian countries mostly from India, Singapore and Malaysia.
This is a 60% owned subsidiary. ICI, Zeneca, Exxon, Stahl are leaders in their respective fields and ACI have excellent market share of their products in Bangladesh.
The major responsibilities of ACI Trading are:
– Representing various international companies
– Procuring raw materials
Strategic Objective :
• To sustain and improve Market Share for the key products
• To offer World Class products from reputed sources
• Increase ability to compete in the industry by developing people
• To render superior service (technical & logistics) to customers
• To maintain & improve business relation with our Principals
• New Products Sourcing from reputed manufacturers
• Aggressively grow Ex-stock Trading with calculative risk
• To ensure stable earning through balanced product port-folio
• Taking care of our shareholders interest.
SWOT Analysis of ACI Trading Limited
Strength
• On going need base training of people (Management & Technical)
• Well groomed Employees & Professional approach
• Association of global famous brand (ExxonMobil, ICI)
• Loyal customer base for World Class products
• Quality perception of customer for products & services from ACI
• Support of ACI conglomerate & its image
Weakness
• Achievement depends on supplier’s own strategy
• Much dependent on few major suppliers
• Some major Raw Material suppliers absence in Portfolio
• Uncompetitive price & longer lead-time (Europe vs. India/China)
• Technical support is based on suppliers’ priority
Opportunity
• More Local & Export orientated industries coming up
• Sourcing Chinese suppliers for some major RM
• New business line expansion (API, PET, PS etc)
• Value addition of products (Textile, Leather)
• Increase Ex-stock Trading (existing & new)
Threat
• Indian & Chinese cheaper RM suppliers
• Local basic RM manufacturers coming up
• Increase of competition taking advantage of IT
Business Strategy
To nourish the Strength
• More need base training of people (Management & Technical)
• Build more relation with major supplier
• Exert Professional Behavior to maintain the reputation of ACI
• Proactive approach to customers for relationship marketing
To turn Weaknesses to Strength
• Find suppliers for some major Raw Material not in range
• Update suppliers with market & competition on regular basis
• Insist supplier for technical support showing business potentiality
To avail Opportunities
• Increase customer base
• Increase product base
• Step for Value Addition
• Increase trading of Ex-stock
To turn Threat to Opportunity
• Take advantage of IT to form chemical data-base for new opportunity.
• Try sourcing of RM from India & China
Key differentiating factors that attracts customers:
• Quality, price, timely delivery with clean documents
• Technical Assistance/Information to customers about int’l price
• Proactive involvement in customers purchasing decision
• Excellent relation with loyal customers
• Highly professional & customers caring sales people
Major Development through initiative in 2005
1) Re-start of Ex-stock sales of ExxonMobil Plastics
2) Increased customer & Product base through trials for Textile Auxiliaries
3) Introduction of C&TP from Stahl India
4) Appointed a Retailer for Stahl Leather Chemical sales
5) Irregularities caused by Sales Manager, Leather (Mr Mizan) mostly adjusted with customer satisfaction
6) Sourcing PET from China
7) Sourcing API from India & China
8) Measurable & Comparable items Software development
9) Weekly sales Meeting with all SBU with EDT
10) Study on Textile Auxiliaries Market through Internee
Projects/Suppliers looked for
1) H2O2
2) Paints
3) Bulb & Tube Lights
4) Dry Cell Battery
5) Adhesive Tapes
6) Lady Napkin
Initiative to be taken in 2006
1. Value Addition – Textile Auxiliaries
2. ICI Paints India (J.V.)
3. Value Addition for Beam House Chemicals for leather
4. More trials of Text. & Leather Chemicals to increase customer & Product base
5. Dyes & Optical Brightener sourcing – India, China
6. Introduction more Traders for Textile Aux. credit sales
7. Recruit sales person for Chemical & Textile division
8. Implementation of Program for Measurable & Comparable items related to sales performance
9. Engage two Internee for Chemical & Leather Market Study
10. Interaction with knowledgeable & experienced persons from Faculties and Trade
11. Aggressive Plan to become a big Trading House by 2008
Chapter-Three
Leather chemical industry of Bangladesh
Tannery transforms raw hides and skins into leather for manufacturing articles like shoe-upper, bag, suitcase, belt, wallet and jacket. In the past, leather processing was done manually using certain indigenous chemicals.
The beginning of the Tannery
The first tannery in Bangladesh territory was set up at Narayanganj by RP Saha in the 1940s. It was later shifted to Hazaribag area of Dhaka, which turned into a location that now accommodates a large number of tannery units. During the period before Partition of Bengal (1947), almost all the raw hides and skins available in East Bengal were exported to west Bengal, particularly to Calcutta and processed there. In fact the tannery industry of Bangladesh originated after its relocation from Narayanganj to Hazaribagh in Dhaka in 1951.
The tanning industry in East Pakistan and export of leather from the province were mainly in the hands of the non-Bengali people. A few tanning units, however, belonged to Bengali entrepreneurs but they were small and of cottage type and they used to process leather mainly for the domestic markets. Most non-Bengali tanners processed wet-blue and sent the product to West Pakistan where it was further processed and finished for producing different consumer goods. Till 1960, tanneries of East Pakistan used to process raw hides and skins applying salt and then drying them in the sun and the material thus developed was known as shaltu.
Post Liberation Period
During the war of liberation in 1971 the non-Bengali tanners of Bangladesh left the country abandoning about 30 tannery units owned by them. After the war, the new government of Bangladesh vested the management of these units on a newly formed Tannery Corporation, which was expected to convert them into finished leather manufacture units. Unfortunately, the corporation did not serve the purpose because of lack of experience and other reasons including corrupt practices. Later, the government relinquished the Tannery Corporation and handed over the management of most of these tanneries to Bangladesh Chemical Industries Corporation (BCIC). Three of them were given to Bangladesh freedom fighters welfare trust. Both the authorities had miserably failed to manage the tanneries. In 1982, the government transferred them to private entrepreneurs in pursuance of its general policy of disinvestments, which had allowed some enterprising Bengalis with little or no experience in the industry to start wet-blue production.
Chapter-Four
Production
Leather Sector in the Economy of Bangladesh
The Leather sector plays a significant role in the economy of Bangladesh in terms of its contribution to export and domestic market. Bangladesh currently produces about 20.0 million sq. meters of leather and leather goods per year. The total production of leather and leather goods shows an increasing trend over the years. Beginning with the 1993/94, the production increased from 14.60 in 1993/94 million sq. meters to 15.90 million sq. meters in 1995/96. It fell to 11.95 million sq. meters in 1996/97. Since 1996/97, there has been a steady increase in the production of leather and leather goods that reached 19.91 million sq. meters in 2000/2001. The following table shows the production of leather and leather goods in the country.
Leather sector is perceived to be one of the important economic sectors in Bangladesh. As a single sector of the economy, the sector contributes modestly to the country’s GDP. Contribution of leather sector (hide &skin, leather and leather goods, and footwear except rubber) to GDP is 0.31 (at constant price) in FY 2003.
Chapter-Five
Leather Export
5.01 Leather Export Performance of Bangladesh: The ever highest export performance was achieved in 2000-2001 due to the mad cow disease in EU but after 11th September incident, the declining trend cannot be prevented due to the less value addition capability and non-sustainable nature of the leather sector industry of Bangladesh. The export performance in Leather export is almost 2.5 percent to the total export of Bangladesh.
Hong Kong, Korea Rep., Italy, Japan are the main export destinations of the leather goods of Bangladesh. Though the Leather export performance of Bangladesh is decreasing day by day but still some countries like China, Taiwan, Vietnam are showing their interest to import more leather goods from Bangladesh. In comparison to India and Pakistan the export performance of Bangladesh shows a very uncomfortable figure. The main reason for that is the infrastructure of the sector. Although the RMG sector of Bangladesh is booming even after the post MFA era, foreign investors are not showing interests to invest in the leather sector of Bangladesh. Even the local investors are not interested to invest in leather sector, though there are lots of places Bangladeshi investors can invest easily.
Chapter-Six
Raw Materials used by the Leather Firms
From the survey data it is transpires that raw materials used by the leather sector firms are procured mainly from local market. Except for an insignificant proportion, almost all raw materials of wet blue i.e. raw hides are collected from the local sources. Raw materials for crust leather and finished leather are wet-blue and crust respectively. About 99 percent of the raw materials of wet blue, crust and finished leather are sourced locally. Of the broad categories of leather firms, footwear sector used highest proportion of raw materials (includes finished leather, lining leather sole, etc.) from external sources, which is 3.13 percent of the total used by the sector.
Raw Materials: Leather Processing
Leather processing units or tanneries produce wet-blue, crust, and finished leather. In producing wet-blue and crust, the firms use raw hides and wet-blue as raw materials respectively. Crust leather is used as raw materials for producing finished leather.
Raw Materials for Wet Blue
Raw hides used for producing wet-blue are mainly procured from local sources. Locally, raw hides are collected mainly from leather depot located at Dhaka, Chittagong, Comilla, Kustia, Natore and Rangpur. Only an insignificant volume of camel hide is imported from external sources. South Africa was the only source of camel hide imports in 2003.
Raw Materials for Crust
Wet blue, raw materials for producing crust is mainly collected from local sources particularly from Dhaka. A small quantity of wet-blue to prepare crust leather is collected from Chttagong and Jessor. Very insignificant volume of raw materials is imported. In 2003, only about 1.5 percent of total raw materials (wet blue cow and camel) was imported from South Africa, Australia, and Brazil .
Raw Materials for Finished Leather
Crust leather used for producing finished leather is also collected mainly from local sources. Only a very insignificant volume of cow crust is imported to produce finished leather. In 2003, cow crust was imported from Australia valued Tk.34 million.
Raw Materials: Footwear
Other than finished leather, some other raw materials as lining leather, artificial sole, insole-leather etc. are used in producing footwear by the footwear-manufacturing firms. Footwear manufacturing units imports comparatively greater volume of raw materials (as compared to leather processing and leather footwear sector) from external sources. Footwear manufacturing units imported over 3 percent of their total raw materials amounted to about Tk. 38 million during January to December 2003. Sources for local raw materials are mainly Dhaka and Chittagong. Of the external sources, finished leather is mainly collected from Pakistan and China. Artificial sole is imported mainly from India, Indonesia, China and Taiwan, and lining leather is collected mainly from China, Taiwan and Pakistan. China, India and Italy are the major sources of in-sole leather. Some footwear raw materials are also imported from Canada, France and Germany.
Raw Materials: Leather Goods
The leather goods producing firms that are very few in number use basically finished leather and lining leather as raw materials. The value of the raw materials used by the leather goods manufacturing units constitute less than 8 percent of the raw materials used by the footwear manufacturing units. All of the raw materials of the leather goods manufacturing firms are collected from local sources.
Chapter-Seven
SWOT Analysis
Strengths
Strengths of the Firms: Leather Processing
The SWOT analysis is based on the opinions of the leather chemical industry. The survey reveals that ‘higher productive capacity’ is the main strength of the maximum number of firms of the leather chemical industry. Main strengths of the leather processing industry as identified by the leather processing firms in the survey are as follows:
Strengths Percent of Total Firms
Production capacity 70%
Competitive price 67%
Cheap Labour 66%
Market Information 56%
Better management 54%
With high installed capacity and better utilization of that capacity, firms can economize on the costs and offer competitive price. It is recognized that the element of competitive price is related to productivity and cost of production. Hence firms with better productive capacity can offer better price to their clients. Generally, productivity of the big firms is expected to be higher than that of smaller firms with low productive capacity. Availability of cheap labour is another common advantage in the leather processing. This sector is relatively more labour-intensive than other two sectors (footwear and leather goods).
Strengths of the Firms: Leather Footwear
As is leather-processing industry, ‘higher productive capacity’ is the main strength of the maximum number of firms operating in the footwear industry. The major strengths of the firms as identified in the survey (as opined by the firms) are as follows:
Strengths Percent of Total Firms
Production capacity 74%
Better quality of management 66%
Sufficient supply of processed leather 65%
Trained manpower 60%
Quality Control 58%
Footwear firms appear to have emphasis on the quality of management of the firms. Adequate supply of processed leather (from the leather processing firms) is the third most important factors that determine the strength of the footwear firms. Quality control appears to have provided competitive advantages to a good number of firms.
Strengths of the Firms: Leather Goods
Better management quality, and quality control came up as the main strengths of the leather goods producing firms. A list of major strengths of the footwear manufacturing firms as identified in the survey (as opined by the firms) are presented:
Strengths Percent of Total Firms
Better management Quality 71%
Quality control 69%
Sound environmental management 64%
Market information 60%
Production Capacity 48%
As in case of footwear, leather goods manufacturing firms also appear to put considerable emphasis on better management quality and quality control. Environmental management and market information have also been identified by considerable percentages of firms as may be expected from a hundred percent export oriented industry.
Weaknesses
Weaknesses of the Firms: Leather Processing
Size of the firms and financial crisis are found to be the main weaknesses of the firms operating in the leather processing industry. The major weaknesses of the firms as identified in the survey (as opined by the firms) are as follows:
Weaknesses of the Leather Processing Firm
Weaknesses Percent of Total Firms
Low Volume of Production 82%
Financial Crisis 80%
Weak Marketing 64%
Inefficient Management 46%
In global context the smaller leather processing firms produce lower quantity that precludes them in attaining economies of scale. Generally, leather-processing firms face financial difficulty and have no marketing strategy. Of the leather chemical industry, 46 percent identified inefficient management as one of their main weaknesses.
Weaknesses of the Firms: Leather Footwear
‘Financial Crisis’ is found to be the main weakness of the leather footwear industry. The major weaknesses of the footwear firms as identified in the survey (as opined by the firms) are as follows:
Weaknesses Percent of Total Firms
Financial Crisis 92%
Weak Marketing 86%
Low Volume of Production 84%
Uncompetitive Product Price 80%
Generally, footwear firms face financial difficulty and lack effective marketing strategy. Size of the firms in global context is smaller which is a notable obstacle in achieving economies of scale and offering competitive price.
Weaknesses of the Firms: Leather Goods
In line with leather footwear, ‘financial Crisis’ is found to be the main weakness of the leather chemical industry. The major weaknesses of the leather goods firms as identified in the survey (as opined by the firms) are as follows:
Weaknesses Percent of Total Firms
Financial Crisis 88%
Weak Marketing 87%
Low Volume of Production 87%
Uncompetitive Product Price 74%
About 90 percent leather-goods manufacturing firms have identified ‘financial difficulty’ as their one of the major weakness. The firms also lack effective marketing strategy. Size of the leather goods firms in global context is smaller which is a notable obstacle in achieving economies of scale and offering competitive price.
Opportunities
Opportunities of the Firms: Leather Processing
‘Cheap Supply of Labour’ is found to be the main aspect the opportunities the leather processing firms enjoy. The major aspects of opportunities of the leather processing firms as identified in the survey (as opined by the firms) are as follows:
Opportunities Percent of Total Firms
Cheap Supply of Labour 82%
Sufficient Supply of Hide and Skin 64%
Stable Global Demand 62%
Favourable Business Environment 60%
Conducive Industrial Policy 58%
It is obvious that availability of cheap labour can provide considerable cost advantage to the firms of a particular area/location. Leather chemical industry located in Bangladesh have been availing the opportunity. Supply of raw materials, global demand of the footwear, and business environment are also found to be positive from the firms’ point of view.
Opportunities of the Firms: Leather Footwear
‘Stable glocal demand’ is found to be the main aspect of the opportunities the footwear firms currently have. The major aspects of opportunities of the footwear firms as identified in the survey (as opined by the firms) are as follows:
Opportunities Percent of Total Firms
Stable Global Demand 60%
Conducive Industrial Policy 58%
Favourable Business Environment 57%
Cheap Supply of Labour 51%
Duty Free Access in Major Markets 51%
The footwear firms found the current stable global demand condition for the Bangladeshi footwear is a major aspect of opportunity on the way towards expanding export markets for footwear. The industrial policy and business environment are found to be positive for them and availability of cheap labour is an added advantage.
Opportunities of the Firms: Leather Goods
The ‘Industrial Policy’ is found to be positive for the leather goods manufacturing firms. The major aspects of opportunities of the leather-goods firms as identified in the survey (as opined by the firms) are as follows:
Opportunities Percent of Total Firms
Conducive Industrial Policy 66%
Favourable Business Environment 60%
Cheap Supply of Labour 58%
Stable Global Demand 58%
Duty Free Access in Major Markets 51%
Threats
Threats to the Firms: Leather Processing
‘Disruption of electricity’ is found to be the main aspect of threat to the leather processing firms of Bangladesh. The major aspects of threats of the leather processing firms as identified in the survey (as opined by the firms) are as follows:
Threats Percent of Total Firms
Disruption of Electricity 74%
Hartals, strike, and other disturbances 72%
Unstable Policy Environment 68%
External Competition 64%
Lack of Trained Labour 62%
Environment consciousness in Importing Countries 60%
Shortage of Water Supply 58%
Practically, ‘disruption of electricity’ and ‘hartal strike etc.’ are very common aspects of threats facing by the industry sector of the country in general. Inadequate infrastructural facilities like insufficient supply of electricity and shortage of water supply affect optimum capacity utilization, volume of production, and destroy cost advantage. Such problem is particularly threatening in an atmosphere of growing global competition. Moreover, environment consciousness in importing countries mainly in the developed world is the cause of concern for the exporting countries like Bangladesh where environmental issues are not strongly addressed both in firm and policy level. Moreover, Firms also do not get sufficient trained people.
Threats to the Firms: Leather Footwear
As in leather processing sector, ‘disruption of electricity’ is found to be the main aspect of threat to the footwear firms of Bangladesh. The major aspects of threats of the footwear firms as identified in the survey (as opined by the firms) are as follows:
Threats Percent of Total Firms
Disruption of Electricity 74%
Hartals, strike, and other disturbances 68%
External Competition 68%
Environment consciousness in Importing Countries 60%
Shortage of Water Supply 58%
Inadequate infrastructure facilities like insufficient supply of electricity and shortage of water supply are among the major causes of concern for the footwear firms. Growing external competition and environment consciousness in the importing countries may affect the export market of the footwear firms in coming days.
Threats to the Firms: Leather Goods
In line with the leather processing and footwear sectors, ‘disruption of electricity’ is found to be the main aspect of threat to the leather goods manufacturing firms of Bangladesh. The major aspects of threats of the leather goods manufacturing firms as identified in the survey (as opined by the firms) are as follows:
Threats Percent of Total Firms
Disruption of Electricity 74%
Lack of Trained Labour 64%
External Competition 62%
Hartals, strike, and other disturbances 60%
Environment consciousness in Importing Countries 58%
Other than inadequate supply of electricity, leather goods manufacturing firms face lack of trained labour force to be employed. Growing external competition and environment consciousness in the importing countries may affect the hundred percent export-oriented leather goods sector of the country in near future.
Chapter-Nine
LEATHER CHEMICALS & ACCESSORIES
Chemicals and Accessories: Leather Sector
A number of chemicals are used in the leather processing, footwear manufacturing and leather goods manufacturing units most of which are foreign chemicals. In terms of value, above 87 percent chemicals used by the leather sector firms are of foreign origin. Above 95percent (of the total value) of the chemicals used in the productions of crust and finished leather are foreign. Over 70percent (of the total value) of the chemicals used by the footwear manufacturing are foreign made.
Most accessories used by the footwear and leather goods manufacturing enterprises are locally made. As a whole, about 20 percent of the accessories used in the production of footwear and leather goods are foreign made. About 81 percent (of the total value) accessories used by the footwear-manufacturing units are local accessories.
Chemicals: Leather Processing
Leather Processing: Wet-Blue
Secondary data show that over 75 percent (of total value) of the chemicals used for the production of wet-blue by the tanneries are foreign-made. There are chemicals that are supplied by both local and foreign sources like sodium chloride, sodium carbonate, ammonium sulphate, sulphuric Acid, Bating Agent etc.
Leather Processing: Crust Leather
As the survey data show over 98 percent of the chemicals used for the production of crust leather (from wet-blue) are foreign made. Other than a few chemicals like basic chroming sulphat, phenolic syntan etc. generally chemicals have both local and foreign suppliers. However, very insignificant volumes of local chemicals are used as compared to the foreign chemicals. Foreign chemicals used are mainly made in Germany, UK, Holland, and Italy .
Leather Processing: Finished Leather
Over 95 percent (of the total value) of the chemicals used in the production of finished leather (from crust) are foreign-made. Except for a few, almost all chemicals have domestic suppliers, however, uses of local-made chemicals are very limited. Most of the chemicals used to produce finished leather are made mainly in Germany, Italy, UK, and Holland.
Chemicals and Accessories: Leather Goods
About 90 percent of the chemicals (of the total value) used by the leather goods manufacturing units are locally made (Table 9.9). Accessories used by the leather goods manufacturing units include bukless, belt etc. Over 70 percent of the expenses on accessories of the leather goods manufacturing units are on foreign made accessories. Hong-Kong was the main supplier of the foreign made accessories for the leather goods firms in 2003. Packaging and labeling materials used by the leather goods manufacturing units are locally made.
Chapter Eleven
Findings and Recommendations
As the whole tannery industry of Bangladesh is getting squeezed day-by-day, the negative impact of it is obviously affected the leather chemical industry of Bangladesh. Since on this small industry more than fifty chemical merchants and organizations are operating, price; marketing policy; relationship marketing; technical support by the chemical suppliers; are scrupulously observed by the tanneries of Bangladesh.
Ten years back BASF and some other big chemical suppliers led the leather chemical industry market single handedly and played monopoly game with their consumers. At that time they took high price from the buyers. But now there are numerous competitors available on the market. Now, buyers can choose their own sellers since they have their alternatives. In the description bellow I tried to find out some basic marketing factors of leather chemical industry.
1. Technical Support: The leather chemical industry marketing and selling requires reliable technical services. Suppliers can sell their product only then, when they can make it sure to the buyers that the chemical is really useful for fulfilling buyer’s special purpose. So, if you don’t have good and skilled technical sales person you are no way near in the competition.
2. Price: Price has always been a huge factor in leather chemical industry. Big suppliers are getting away from the good notice of their clients because of their high price comparing to their Chinese and Indian counter products. Freight cost, taxes, currency exchange rate have always played a big factor for the ultimate price of the chemical. Most of the Chinese and Indian products are proved to be less costly than most of the well-known German, Dutch and English chemicals.
3. Relationship Marketing: Since the whole leather chemical market is very narrow, each and every one knows one another very well. But then again one has to maintain a very good relationship with the buyers. Most of the buyers want to purchase their chemicals on credit basis. So, you have no option but to sell your product on credit. Since, chemical selling requires post purchase technical support, one has to make it sure their chemical is doing better than competitors one in each and every aspect.
Discount can be offered for buying bulk amount.
Most of the buyers are facing difficulties in getting loan from the bank to purchase their raw materials. A supplier can also make a link with the banks to give loan to the tanneries for buying chemicals form them.
4. Lead Time:
Some times buyers have to buy a bulk amount of chemicals for their production. In most of the cases suppliers are not able to supply beyond a certain amount of chemicals, then they require importing chemicals from the manufacturing agents. Lead-time plays a big role in that particular case. If a supplier cannot maintain its declared time of supply, obviously the buyers will be dissatisfied.
5. Quality:
No matter in which way you have sold your chemical to the buyers you have to make it sure that you are selling a quality product. You have to remember that it is not the one time selling policy you want to follow. Only, the good quality product can ensure long term selling policy.
Problems of ACI Trading and Stahl in Leather Chemical Marketing
1. Price: Most of the Stahl products are costlier than their competitor’s counter products. Although Stahl has very good brand image in Finishing chemical section but high price is one of the factor for which Stahl is loosing market towards the Indian and Chinese products. Even in some cases their chemicals are costlier than BASF, ALPA and TFL’s chemicals. Actually, Stahl has to wait for their shipment from Holland. Fluctuations of Euro play an important part to fluctuate the price of the chemicals. ALPA (The market leader in finishing Leather chemical section) arranges shipment from two sources, one is India and another one is Italy. ALPA gives emphasize to the customers choice from where they want to get the shipment. In case of shipment from India, ALPA offers lower price in US Dollar. The other benefit, they can avoid the risk of frequent Euro fluctuation. Not only ALPA but also other competitors are practicing this strategy as well (BASF India, TFL Sri Lanka, BUCK MAN Singapore, etc).
2. Organizational Hierarchy of ACI Trading Ltd and insufficient technical person in the leather chemical division: ACI Trading Limited is one the subsidiaries of Advanced Chemical Industries (ACI), Bangladesh Limited. The Company is mainly involved in marketing and sales of various Industrial Chemicals, Petrochemicals, Plastics, Pharmaceuticals, Leather and Shoe finish, Textile Dyes and Auxiliaries through Indent sales. It has four business divisions such as Chemicals, Textile, Leather and Water Pumps. To render technical service ACI Trading has two separate technical application laboratories for textile and leather chemical industry businesses.
In the leather chemical industry there are only two persons working, a) Senior Technical Sales Officer, b) Technical Sales officer. There was a manager in this division, but after his death this position is vacant now.
