Value Chain Analysis

PROJECT WORK
ON
STUDIES ON THE VALUE CHAIN ANALYSIS IN FOOTWEAR
MANUFACTURING FROM RAW HIDES
A Dissertation for The Partial Fulfillment of The Requirements for The

Degree of
B.Sc. IN FOOTWEAR ENGINEERING
Submitted By:
A B M Rafiqul Hasan Khan
Exam Roll # 56, Registration # 2012-815-434
Department of Footwear Engineering
University of Dhaka
Submitted To:
DEPARTMENT OF FOOTWEAR ENGINEERING
INSTITUTE OF LEATHER ENGINEERING AND TECHNOLOGY
UNIVERSITY OF DHAKA
Dedicated To
My Beloved Parents
Who Give Me the Light of Hope
&
All of My Respectful Teachers
ii
ACKNOWLEDGEMENT
Starting by the name of almighty ALLAH who has sent me on earth and alive me and
whose blessing directed me for the accomplishment of this project work.
Then, thanks to my honorable teachers and the Director of Institute of Leather Engineering
& Technology, Aftab Ali Sheikh, PhD for offering me such a useful and interesting project
in my project work.
I would like to express my deepest sense of gratitude and thanks to my guide teacher Sobur
Ahmed Chairman of the department, Department of Leather Engineering, for his
invaluable guidance during this study and also for his kind help with different information
and ideas.
I also thank my honorable teacher Amal Kanti Deb Chairman of the department,
Department of Footwear Engineering for his invaluable guidance during this study.
I wish to express my hearth reverence and gratitude to my other respectable teachers who
taught me through their valuable lecture and personal contact except which we cannot
reach this stage promoting different years.
Finally, I want to express my heartiest thanks to all of my friends who have inspired me to
carry out this project work by giving their valuable tips.
A B M Rafiqul Hasan Khan

October, 2017
iii
ABSTRACT
Leather, Leather products and Footwear had always been a part of Bangladeshs heritage
that was closely linked to indigenous arts and crafts and not to mention, ancient fables. The
country earns a sizeable amount of foreign exchange every year through export of leather
and leather products to international markets. Endowed with a strong stream of local supply
of quality hides and skins and a large, skilled, and low-wage workforce, Bangladesh has
all the potentials to augment export earnings and employment in the leather sector by
producing finished leather products. Here, the value-chain approach identifies trends at
each stage of the production-consumption system in a disaggregated manner, which is
subject to growing global competition, highlights the mechanisms to upgrade the activities
and links to producers and consumers in the global economy that can lead to a sustainable
income growth and improve the overall productivity of the sector. Thus, this approach
contributes effectively to poverty reduction in the country. The research methodology
addresses a thorough analysis of both primary and secondary information. To illustrate
various functions within the subsector, three value chain maps with descriptions of
different actors at each stage of the value chain have been developed. The major constraints
of the sub-sectors have been identified through detailed interviews with key informants,
experts, and stakeholders of this sector.
So, A study towards the Value Chain Analysis might be helpful for all to understand the
sub-sectoral constraints in accordance with the recommendations.
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TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION..............................................................................[1-10]
1.1 Acronyms Used.2
1.2 Objectives of This Project Work3
1.3 Rationale of The Study.3
1.4 Background of the Leather Sector.................................................................................5
1.5 Industry Profile.............................................................................................................7
1.6 Leather, Leather Products & Footwear for Domestic and International Market ........9
CHAPTER 2: VALUE ADDITION AND VALUE CHAIN..................................[11-27]

2.1 Definition of Value Addition...........................................................12
2.2 Approaches to Adding Value.12
2.3 Discussion on Value Chain..................... 15
2.4 Leather Value Chain Analysis.........16
2.5 Value Chain Maps of Leather and Leather Sub-sectors...............................................17
2.6 Description of the Actors Involved in Leather Value Chain ........................................21
2.7 Total Number (Accumulated) Of People Employed In Leather Sector Value Chain...26
2.8 Overall Calculation Of Value Addition Across Different Stages in the Value Chain...27
CHAPTER 3: CALCULATION OF VALUE ADDITION IN DIFFERENT STAGES

OF FOOTWEAR MANUFACTURING FROM RAW HIDES...[28-41]
3.1 Value Addition by Raw Hide Suppliers ......................................................................29
3.2 Value Addition by Wet Blue Producer........................................................................30
3.3 Value Addition by Crust Leather Producer................................................................31
3.4 Value Addition by Finished Leather Producer (Export Quality) .................................31
3.5 Value Addition by Wholesaler of Leather (Supplier for Footwear Industry) ..32
3.6 Value Addition by Handmade Footwear Producer..33
3.7 Value Addition by Wholesaler of Handmade Footwear......................35
3.8 Value Addition by Handmade Footwear Retailer36
3.9 Value Addition by Industrial Footwear Producer for Local Market37
3.10 Value Addition by Wholesaler of Industrial Footwear........................38
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3.11 Value Addition by Formal Retailer of Industrial Footwear.39
3.12 Value Addition by Industrial Footwear Producer for Export Market.40
3.13 Distribution of Value Addition across Different Stages of the Value Chain (In
Details)...41
CHAPTER 4: MARKET ANALYSIS OF LEATHER SECTOR ........................[42-61]

4.1 Global Market Scenario ..............................................................................................43
4.2 World-wide Leather Export and Imports ....................................................................46
4.3 The Changing Global Leather Market and Bangladesh...............................................50
4.4 Export Market for Bangladesh Leather, Leather Goods, and Footwear ......................52
4.5 Domestic Leather Market............................................................................................55
4.6 Growth Potential of Leather Sector in Bangladesh......................................................56
4.7 SWOT Analysis..........................................................................................................59
CHAPTER 5: SUMMARY OF THE FINDINGS..................................................[61-66]

5.1 Bangladeshs Leather Sector.......................................................................................63
5.2 Description of Actors ..................................................................................................63
5.3 Implementation of Value Chain..................................................................................64
5.4 Global and Domestic Market Scenario .......................................................................65
5.5 The Strengths and Weaknesses of Leather and Leather Sub-sectors............................66
5.6 Growth Potential of Leather, Leather Goods and Footwear ........................................66
CHAPTER 6: CONCLUSION....................................................................[67-70]
6.1 Recommendations...68
6.2 Bibliography...70
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CHAPTER 1
INTRODUCTION
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1.1 Acronyms Used Here
BBS Bangladesh Bureau of Statistics

EPB Export Promotion Bureau
BCIC Bangladesh Chemical Industries Corporation
ILET Institute of Leather Engineering & Technology
BCSIR Bangladesh Council of Scientific and Industrial Research
BDS Business Development Services
BFLLFEA Bangladesh Finished Leather, Leather goods and Footwear
and Exporters Association
BSCIC Bangladesh Small & Cottage Industries Corporation
BSTI Bangladesh Standard and Testing Institute
BTA Bangladesh Tanners Association
CBA Collective Bargaining Agent
EPB Export Promotion Bureau
EPZ Export Processing Zone
FGD Focus Group Discussion
GDP Gross Domestic Product
GTZ German Technical Cooperation
HRD Human Resource Development
ILO International Labor Organization
ITC International Trade Centre
LDCs Least Developed Countries
LFMEAB Leather goods and Footwear Manufacturers & Exporters
Association of Bangladesh
LSBPC Leather Sector Business Promotion Council
MFA Multi-fiber Arrangement
NBR National Board of Revenue
R&D Research & Development
RSMA Raw hide & Skin Merchants Association
SMEs Small & Medium-sized Enterprises
UNIDO United Nation Industrial Development Organization
USA United State of America
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MOI Ministry of Industry
MOC Ministry of Commerce
MOFL Ministry of Fisheries & Livestock
GOB Government of Bangladesh
1.2 Objectives of This Project Work
The primary objective of this assignment is to provide brief but relevant information on
the leather sector of Bangladesh to make a decision about extending the support.
Therefore, it is imperative that the information is sufficient for the design of interventions.
The specific objectives of this study include the following:
Preparation of a value-chain map of the leather sector and its sub-sectors in
Bangladesh, including the actors and their corresponding descriptions.
Preparation of a database with tables, charts and diagrams that include updated
statistical information describing the sub-sectors.
Description of market trends and export opportunities.
Identification and prioritization of constraints related to leather and its sub-sectors on the
basis of the contribution to sustainable SME development in order to develop meaningful
interventions.
1.3 Rationale of The Study
The sector value-chains include the full range of activities that are required to bring a
product from its initial conceptualization, through different phases of production, to its
final customer. It will contribute to increased competitiveness, and includes support for
the development of BDS markets, enabling business environment and social- and
environmental compliance.
The value-chain approach identifies trends at each stage of the production-consumption

system in a disaggregated manner, which is subject to growing global competition,
highlights the mechanisms to upgrade the activities and links to producers and consumers
in the global economy that can lead to a sustainable income growth and improve the
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overall productivity of the sector. Thus, this approach contributes effectively to poverty
reduction in the country.
It has been selected value chains that: (i) are pertinent to the program expertise, (ii) can
create opportunities for additional employment, (iii) have scope for diversifying the export
portfolio of Bangladesh, (iv) have a positive impact on poverty reduction, and (v) have the
potential to increase compliance with social and environmental standards. Since the
leather sector fulfills all these criteria, we can consider this sector to be one of the potential
value chains to which it may extend its program assistance since:
The leather industry in Bangladesh is well established and is the third highest foreign
exchange earner right after RMG and frozen food sector. At present Bangladeshs
major export earning is from processed leather while a huge potential market for value-
added leather goods and footwear is untapped since the country has a huge population
and at the least 10% of its population do have the income level equal to that of the
population in the rich countries.
The sector is a large employment generating sector having a huge population working
in tanneries, industrial leather and footwear units, cottage units and EPZ.
Export volume is increasing gradually over the years due to the reputation of
Bangladeshs quality grain leather.
The sector can help Bangladesh to attain Millennium Development Goals as it provides
employment opportunities for women that would eventually help in promoting gender
equality, women empowerment, and ultimately poverty reduction.
Leather, Leather products and Footwear had always been a part of Bangladeshs heritage
that was closely linked to indigenous arts and crafts and not to mention, ancient fables.
The country earns a sizeable amount of foreign exchange every year through export of
leather and leather products to international markets. Endowed with a strong stream of
local supply of quality hides and skins and a large, skilled, and low-wage workforce,
Bangladesh has all the potentials to augment export earnings and employment in the
leather sector by producing finished leather products. This includes, among other things,
leather fashion garments with items of distinction and prestige with the rapidly growing
world leather industry. At the same time, the developed countries are treating
Bangladeshs leather sector as a lucrative one to invest as well. Positive notes in the
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international business arena are made on the basis of the widespread reputation of the fine-
textured (especially) Black Bengal Goat skin from the Northern Region of the country, a
steady business environment generated by the existence of organizations like the EPZ
(Export Processing Zones), and last but not the least, the tendency of the developed
countries to relocate their not-so-clean industries to the Least Developed Countries
(LDCs). All these issues made PROGRESS consider Bangladeshs leather and its sub
sectors value chain for the extension of its program support in order to encourage further
growth and development.
So, A study towards the Value Chain Analysis was conducted to illustrate the sub-
sectoral constraints in accordance with the recommendations.
1.4 Background of the Leather Sector
The leather sector is an old manufacturing sub-sector in Bangladesh with a long heritage
of over five decades. This is an agro-based bi-product industry integrated with locally
available indigenous raw materials (hides and skins) having tremendous potentials for
export development and sustained growth along a considerably long duration of time
length.
Indian vegetable tanned crust was developed by the small leather industry of Indian
subcontinent over a hundred years ago to preserve the hide in the safest way to suit Indian
conditions. The leather industry was dominated by vegetable tanned until mid-1960s. In
case of Bangladesh development of leather processing industry started in the late 1940s.
The first tannery of the country, erstwhile East Bengal was set up by RP Saha at
Narayanganj in the 1940s3. It was later moved to Hazaribagh area of Dhaka, which turned
into the prime mover of tannery units with the installation of a large number of tannery
units in subsequent years. During the period before Partition of Bengal (1947), almost all
the raw hides and skins available in the former East Bengal were exported to West Bengal,
erstwhile West Pakistan, Iran and Turkey. At that time, it was mostly the non-Bengali
tradesmen and traders controlling the tanning industry in East Pakistan and export of
leather from the province. However, a few small tanning units, mostly cottage type,
belonged to Bengali entrepreneurs, who used to process leather mainly for the domestic
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markets. Non-Bengali tanners processed wet-blue and sent them to erstwhile West
Pakistan for further processing and finishing for producing different consumer goods. Till
1960, tanneries of erstwhile 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 shaltu6.
In 1971, during the war of liberation, 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 with a newly formed
Tannery Corporation, addressing an implied expectation to convert the units into finished
leather manufacture units. Unfortunately, the corporation could not serve the purpose
because of lack of experience and corrupt practices. Later, the government closed down
the Tannery Corporation and handed over the management of most of these tanneries to
Bangladesh Chemical Industries Corporation (BCIC) and three of them to Bangladesh
Freedom Fighters Welfare Trust. Both the authorities had miserably failed to bring success
in the tannery industry. The Government of Bangladesh imposed an export duty on wet
blue leather in 1977 to encourage the production of crust and finished leather. The export
from the leather sector was almost 100% in the form of wet blue, the chrome tanned and
semi-processed leather until 1980-813.
During the period of 1980-81, reformation of major policies took place in this sector,
which resulted in the positive development of the sector. With the ban on wet blue export
from July, 19906, the leather industry of Bangladesh had entered into the second phase of
its development. During the mid-90s modern leather manufacturing units were set up, and
herewith began a new era for leather industries in Bangladesh. Till the end of the last
century, the leather sector maintained a very weak profile with all the characteristic
symptoms of industrial sickness and only a few firms ventured into producing selected
leather goods for export. In the leather footwear industry, a few factories had been set up
with mostly imported Italian machinery, but those factories could not bring any success to
this sector. As a result, the growth of this industry was always negligible. This trend in
management of technology has further worsened the state of the industry, as it has neither
encouraged the emergence of new entrepreneurs in this sector nor has it helped to raise
foreign buyers confidence to invest. Consequently, Bangladesh still remains very much
a source of processed leather and to a very limited extent finished leather and leather goods
in the international market.
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1.5 Industry Profile
The leather industry in Bangladesh is well established and is an important foreign
exchange earner. The industry is entirely in the private sector which has proved to be fully
capable of handling it. Approximately 187 number of Bangladeshs 220 tanneries6 are
located in the Hazaribagh area of Dhaka where 84 percent of the total supply of hides and
skins are processed in a highly congested area of only 70 acres of land8. The unplanned
tanneries at Hazaribagh do not have supporting infrastructure facilities. No tannery in the
area has effluent treatment facilities, posing a grave threat to the environment. The
industry, however, is in the process of shifting to Savar in consideration of the pollution it
cast upon the Dhaka City and because of an acute lack of space for expansion and
modernization.
Over 50 manufacturers are producing various leather items such as footwear, travel goods,
suitcases, briefcases, fashion accessories, belts, wallets, handbags, case holders etc. for
overseas export. Most of the small tanneries are family owned and operated as cottage
type industries. Many of them are established as proprietorship or partnership. The larger
tanneries are basically public or private limited companies. Only a few tanneries have
proper accounting practices and financial controls in place to define their profitability and
financial condition.
The principal raw materials for this industry are cowhides and goatskin. The annual
domestic supply of hides and skins is around 200 million square feet, consisting of 63.98%
Cowhides, 32.74% goatskin, 1.09% Sheepskin and 2.219% buffalo hides. Local
Consumption of leather is around one-fifth of the total output and the rest 80% is exported
in the form of Crust leather (75%) and finished leather (20%), Footwear and leather goods
(5%)8. Though there has been some appreciable improvement in animal husbandry and
butcher's techniques in Bangladesh in recent times, it may take quite some time to reach
the international standard. The Black Bengal and other variants of goat skin from
Bangladesh enjoy an excellent reputation for quality worldwide. In the last decades, the
leather sector accounted for 3-4 percent of total export earnings. The contribution of the
leather sector to GDP has been increased year on year. So it has been expected within few
years it will become an emerging sector of the economy of Bangladesh.
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In FY15 it has been seen that the contribution of the leather sector to GDP is 1.06 percent
of the total value of GDP at the terms of constant price, where leather footwear added
major portion. But in FY14 it was 1.18 percent in terms of total value of GDP.
Manufacture of leather and related products are in a position of a slump over the last 6
months likely due to the political crisis from the beginning of this year.
Figure: Contribution of Leather Sector to Total GDP
At present leather and leather products are exported to about 53 countries of the world1.
The major importing countries are Italy, Brazil, Germany, Singapore, China and the USA.
Figure: Month to Month Growth
Leather manufacturing and processing in Bangladesh is mostly export-oriented. When

export order declined production will also decline. From the beginning of the year 2015,
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the country faced political crisis and Hartal was the daily routine of that time. Due to
Hartal, all manufacturing firms faced a critical business crisis especially leather industry.
This industry faced a negative growth in production, though there was a potential demand
in export in the international market. On January 2015 production growth was negatively
16 percent and on February production growth jumped negatively to 32 percent. It is
noticeable that, Export killer Hartal may be the big reason for the negative growth in
production of leather and leather related goods. After February 2015, Production growth
is gradually coming to the positive horizon most likely due to the opposition political
parties are giving a negative eye to Hartal. Eid ul Adha (Feast of Sacrifice) is the time
when the rawhide is available in Bangladesh and production of leather and leather related
goods are supposed to accelerate at that time. But this year production growth was not at
its expected level and the trade of rawhide was almost in a slump position. This situation
was created most likely due to negative growth in production that causes ability in rawhide
for production. So, willingness to pay for rawhide got down.
Despite having a great potential for growth, the net results of development efforts
undertaken for the leather export sector of Bangladesh have been far from impressive due
to the poor quality of processing, illegal export to India, poor technological base,
inadequate financing, low value addition, lack of marketing skill, incorrect planning and
improper implementation.
1.6 Leather, Leather Goods and Footwear for Domestic and International
Market
Bangladesh exports a considerable amount of processed leather, which is used as an

intermediary product for producing different types of leather goods and footwear by the
developed countries. Besides, Bangladesh manufactures a wide and varied range of leather
goods and footwear for the export market albeit in a limited quantity.
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Table: All kind of Leather Products for Domestic and International Market
Sl For Domestic Market Sl For International Market

1 Ladies Shoes 1 Processed Leather
2 Leather Jacket
2 Gents Shoes 3 Leather Blazer
4 Leather Skirt
3 Sandals /Slippers 5 Leather Trouser
6 Apron
4 Belts 7 Purse
8 Moneybags
5 Travel Bags 9 Belts
10 Briefcase
6 Purse 11 Travel bags
12 Office bags
7 Money Bags 13 Suitcase
14 Ladies shoes
8 Office Bags 15 Gents shoes
16 Sandals /Slippers
9 Suitcase 17 Camera case
18 Racket cover
10 Briefcases 19 Card holder
20 Pen holder
11 Gift Items 21 Passport case
22 Document case
12 Processed Leather 23 Spectacle case
24 Gift Items
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CHAPTER 2
VALUE ADDITION AND VALUE
CHAIN
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2.1 Definition of Value Addition
The amount by which the value of an article is increased at each stage of its production,
exclusive of initial costs.
In general, adding value is the process of changing or transforming a product from its
original state to a more valuable state. Many raw commodities have intrinsic value in their
original state.
Adding value is the process of changing or transforming a product from its original state
to a more valuable state that is preferred in the marketplace. Market forces have led to
greater opportunities for adding value to raw commodities because of increased consumer
demands regarding health, nutrition, and convenience as well as technological advances
that enable producers and processors to produce what consumers desire. Producers
involved with adding value are striving for a larger share of the food dollar by producing
what consumers demand, instead of producing only raw commodities.
A broad definition of value added is to economically add value to a product by changing

its current place, time, and form characteristics to characteristics more preferred in the
marketplace. As a specific example, a narrower definition would be to economically add
value to a product (such as wheat) by processing it into a product (such as flour) desired
by customers (such as bread bakers). Producers involved in adding value should think of
themselves as members of a food company that processes and markets products to
consumers. Often, this may involve building processing plants in the producers
geographical regions to process locally produced crops or animals. However, another
model has occurred, which involves building the processing plant wherever it is most
feasible and profitable, such as closer to where the final products will be marketed. An
example of adding value to wheat through a distant processing plant is illustrated by the
following case study.
Often, successful value-added ideas focus on very narrow, highly technical,
geographically large markets where competition is sparse.
2.2 Approaches to Adding Value

Adding value to products can be accomplished in a number of different ways, but
generally falls into one of two main types: innovation or coordination.
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In general, the problem is to evaluate what, where, how, and who can efficiently perform
the marketing functions (Tilley).
a) Innovation
Innovation focuses on improving existing processes, procedures, products, and services
or creating new ones. Often, successful value-added ideas focus on very narrow, highly
technical, geographically large markets where competition is sparse. Innovative value-
added activities developed on farms or at agricultural experiment stations are sources of
national growth through changes either in the kind of product or in the technology of
production (Kraybill and Johnson). By encouraging innovative ideas, adding value
becomes a reality.
Innovation also can come from research about alternative crops that can be grown
successfully by producers to replace traditional crops. Value-added is if producers are
able to economically profit by growing these alternative crops instead of traditional
crops. Some alternative crops that show promise include industrial hemp for its fiber,
kenaf for fiber, and castor bean for its oil. The following case study describes an
innovative nonfood use for a commodity common in Texas, but one that could be
considered an alternative crop.
Industrial Innovation
A specific type of innovation is industrial innovation, which is processing traditional crops
into nonfood end uses. These value-adding innovative activities use the research and
emphasis that has been placed on finding industrial, nonfood uses for common agricultural
products. Several innovative processes have been developed to transform traditional crops
into nonfood products. Examples of these ventures include producing ethanol from corn,
biodiesel from soybeans, and particleboard from straw.
The next case study demonstrates innovative industrial uses for common field crops.
b) Coordination
Coordination focuses on arrangements among those that produce and market farm
products. Horizontal coordination involves pooling or consolidation among individuals or
companies from the same level of the food chain. An example would be hog producers
combining their market hogs to make a truckload. Vertical coordination includes
contracting, strategic alliances, licensing agreements, and single ownership of multiple
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market stages in different levels of the food chain (Peterson and Wysocki). Vertical
coordination, either through ownership integration or contractual arrangements, is
necessary to link production processes and product characteristics to the preferences of
consumers and processors (Royer).
Fundamental changes through coordination are altering traditional marketing relationships
that link consumers, food retailers and wholesalers, food processors, and producers
(Barkema and Drabenstott). However, individual producers usually do not have sufficient
levels of production to effectively produce, process, and market their products (Akridge et
al.). Few individuals possess all of the very different skills necessary for processing,
marketing, and business management, as well as staying efficient with their production
enterprises. Therefore, a coordinated effort is needed to increase market efficiency or cost
reduction. Many observers believe that both upstream and downstream linkages of
processors will continue to increase in the 21st century (Durham et al.). A specific type of
coordination, vertical integration, will be explained after a coordinated effort is described
in the next case study.
Vertical Integration
Complete vertical integration is to align and control all of the segments of a production
and marketing system under single ownership (King). The factors aligned and controlled
are price, quantity, quality, and transactional terms of exchange (Sporleder). Producers
who invest in value-added projects past the farm gate cause the market to become more
vertically integrated. A totally integrated system can provide consistent quality from the
field to the shelf, eliminating middlemen and even saving money for consumers.
Integration downstream towards consumers by producers commonly involves an equity
investment for processing, sometimes by means of a producer cooperative. Consequently,
cooperatives are positioned uniquely for further integration in food processing. The
success of these value-added ventures hinges on thorough planning and implementation.
The following case study demonstrates adding value through vertical integration.
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2.3 Discussion on Value Chain
A value chain is a high-level model developed by Michael Porter used to describe the
process by which businesses receive raw materials, add value to the raw materials through
various processes to create a finished product, and then sell that end product to customers.
Companies conduct value-chain analysis by looking at every production step required to
create a product and identifying ways to increase the efficiency of the chain. The overall
goal is to deliver maximum value for the least possible total cost and create a competitive
advantage9.
Value chains are an integral part of strategic planning for many businesses today. A value
chain refers to the full life cycle of a product or process, including material sourcing,
production, consumption and disposal/recycling processes9.
The concept of the global value chain recognizes that the design, production and
marketing of many products now involves a chain of activities divided among enterprises
located in different places. The value chain describes the activities required to bring a
product from its conception to the final consumer.
Figure: A Stylized View of a Typical Chain
The chain includes all of a products stages of development, from its design to its sourced
raw materials and intermediate inputs, its marketing, its distribution, and its support to the
final consumer5.
Primary Activities of the Value Chain9

All five primary activities are essential in adding value and creating a competitive
advantage.
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1 The first activity in the value chain is inbound logistics, which includes all
receiving, warehousing and inventory management of raw materials ready for
production.
2 The second activity is operations and encompasses all efforts needed to convert raw
materials into a finished product or service.
3 Outbound logistics is the third activity in the value chain and occurs after all operations
are completed and the end product is ready for the customer. Activities required to
deliver a product to the end user are considered part of outbound logistics.
4 Marketing and sales are the fourth part of the value chain and include all strategies
used to get potential customers to purchase a product, such as channel selection,
advertising and pricing.
5 Service is the fifth and final step in a company's value chain and describes all activities
that create better consumer experiences, such as customer service and repair services.
2.4 Leather Value Chain Analysis
The leather value chain has four main stages, namely rearing of livestock; production of
hides and skins, tanning and production of footwear and other leather products. The leather
value chain globally is estimated at US$ 100 billion. A comparison of this value chain
with other commodities reveals that its trade is greater than the combined trade of meat,
sugar, coffee, rice, rubber, cotton and tea; From the below Figure we can see that.
Despite this immense importance, the sector has not received much attention, especially
in many developing countries, when compared with other commodities, whose production
and marketing were championed by Government Institutional support before the
introduction of Economic Structural Adjustment Programs (ESAP), for example Meat
Commission, Tea or Coffee Boards, etc. The absence of an institutional support to the
leather value chain has retarded its growth, as it has not attracted the desired policy and
financial support from Central Governments and other relevant stakeholders.
The global trade in the leather value chain grew over the period 1993 to 2015. The fastest
growing segment was that of footwear with leather uppers, which went up by 97%,
followed by tanned leather at 49.6 % and raw hides and skins grew marginally by 14.9%.
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Global growth is in favor of value added products, which is in line with Ethiopias overall
strategy of promoting value addition and the manufacturing sector.
2.5 Value Chain Maps of Leather and Leather Sub-sectors7
Figure: Structure of Leather Value Chain
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2.6 Description of the Actors Involved in Leather Value Chain
Raw Hide and Skin Collectors and Suppliers: The value chain process of this sector is
initiated by raw hides and skins collectors and suppliers including a number of people
locally termed as Faria, Bapari and Arotdar. The Farias (local small traders)
collect the hides and skins from the butcher or slaughterer and send them to Baparies
(small capital businessman) in different market for the initial treatment. After taking
necessary care, Baparies send those to Arotdars (district level hide wholesalers). The
Arotdars add salt to the delivered skins and hides if needed while sorting these in their
sheds. Later these products are sent to Posta area of Dhaka city from all over the country
and from Posta it is supplied to different tanneries as per demand. The distribution channel
for raw hide and skin collectors and suppliers is:
Raw Hide and Skin Collectors and Suppliers Tanneries
Importers of Chemicals: One of the main obstacles for the development of leather
industry in Bangladesh is the absence of chemical plants for producing chemical reagents
needed for leather processing. More than 90% of the chemical substances used are
imported from different countries. Tanneries collect these chemicals from the local
merchants of chemicals or the local agents for the foreign chemical companies. Because
of the lengthy import procedure, most of the local merchants and local agents cannot
supply chemicals in time to the tanneries. Insufficient supply of chemicals leads to high
price of chemicals in the local markets and thereby increases the production cost.
Traditionally for these reasons, Bangladesh is not being able to gain the expected foothold
in the international market. The distribution channel for importers of chemicals is:
Importers of chemicals Local Merchant/Local Agent of chemicals
Leather Processing Units or Tanneries: Tannery transforms raw hides and skins into
leather for manufactured articles like shoe-upper, bag, suitcase, belt, wallet and jacket. In
tanneries raw hide is processed though performing Soaking, Fleshing, Liming, De-liming,
Bating, Pickling, Chrome Tanning, Samming, Splitting, Skiving, Scudding, Drying,
Staking and providing finishing touch where the leather is given the final surface treatment
and look. There are reportedly around 220 tanneries2 in Bangladesh but, in fact, only 113
tanneries are in effective operation, out of these 20 units are reported to be fairly large (7
Page 21 of 70
units very large), around 45 units are considered of medium size and around 48 units are
considered small groups as detailed in below Table.
Table: Structure Of Tanneries In Bangladesh2
Typical Total Actual

Annual Total Installed Share of
Production/
Number of Actual
Production Capacity/
Annum for all
Tanneries Annum for all Production
Capacity/
Tanneries Tanneries (%)
Tannery
7 >5 million sq.ft 40 million sq.ft 30 million sq.ft 17
13 2-5 million 60 million sq.ft 52 million sq.ft 29

sq.ft
45 <2 million sq.ft 70 million sq.ft 60 million sq.ft 33
48 <1 million sq.ft 60 million sq.ft 38 million sq.ft 21
Total= 113 230 millon sq.ft 180 million 100

sq.ft
Source: Bangladesh Bureau of Statistics, 2013
In total, 105 of the tanneries are positioned arbitrarily in the Hazaribagh area in Dhaka
where 84 per cent of the total supply of hides and skins are processed in a highly congested
area of only 29 hectares of land. Some reputed tanneries of Bangladesh are Dhaka Leather,
Apex Tannery, Lexco, Karim Leather, Samata Tannery and Bay Tannery. Tanneries of
Bangladesh can be classified into three categories in terms of capacity to process raw hides
and skins. They are:
Large Scale Units (Census Sector)
Medium and Small-Scale Units (Simple Sector)
Cottage Unit (Household Sector)
These tanneries generally produce wet blue, crust and finished leather. Most of them
produce crust leather, only a few of them are producing finished leather. Around 80% of
the produced leather (crust and finished) is exported to international market and the rest is
consumed locally for the production of footwear, leather goods and garments. The
largescale units are capital intensive (small number of workers involved) and producing
Page 22 of 70
high quality finished leather. These have higher demand in the international market.
Medium scale units are producing comparatively low quality and exporting a lower
quantity of products. Cottage units are entirely devoted to catering to the local market
only. Due to the huge dependency on imported chemicals, these tanneries are facing
problems in meeting deadlines of international contracts. The distribution channels used
by these tanneries are:
Tanneries Export Agent
Tanneries Manufacturer of leather goods and footwear
Wholesaler of Leather and Accessories (Bangshal): Wholesalers of leather in Bangshal

are also a part of the value chain of leather sector. They buy inferior quality leathers from
tanneries and sell them to local manufacturer of footwear and leather products. They also
import all kind of chemicals and accessories for footwear and leather goods. Factors like:
(i) the traffic jam of old Dhaka (causing wastage of working hours), and (ii) inadequate
space for leather processing in the Bangshal market region, are hindering the growth of
business in the locality. The distribution channel for wholesalers is:
Wholesaler of Leather & Accessories Manufacturer of footwear & leather goods for
domestic and international market
Handmade Footwear Manufacturers: Handmade footwear is manufactured throughout

the country in scattered locations. These manufacturers collect leather, accessories, and
chemicals from Bangshal wholesale market and manufacture economy quality (low
quality justified by low price) sandals, shoes, slippers etc. for local market only. Most of
these manufacturers do not have access to modern technology and market information.
They use sewing machine only for sewing and the rest is done manually. Most of them
sell their products to wholesalers, retailers or local showrooms and then these products are
delivered to the end users. Therefore, the distribution channels for handmade footwear
manufacturers are:
Handmade Footwear Manufacturer Retailer/ Local Showroom End User
(Domestic Market)
Handmade Footwear Manufacturer Wholesaler Retailer End User (Domestic
Market)
Page 23 of 70
Industrial Footwear Manufacturers: Other than finished leather, some other raw
materials as lining leather, artificial sole, insole-leather and adhesive are also used in
producing footwear by the footwear manufacturing firms. Footwear manufacturing units
imports considerable volume of raw materials from external sources. They Export their
products to Hong Kong, Italy, Germany, Thailand and European countries. Around 15-20
footwear firms are operating business at present in Bangladesh. These footwear firms
manufacture customized high-quality sandals, shoes, slippers etc. as per needs and wants
of international buyers. A major problem for these firms is the unavailability of the Last
Machines locally. The dependency on imported last delays their manufacturing process
resulting in inability to meet deadlines. In addition, due to scarcity of skilled designers,
insufficient supply of quality leather, limited product line and product mix, etc.
international market of Bangladeshi footwear is not expanding to its full potential.
Industrial footwear manufacturers are using three distribution channels and those are:
Industrial Footwear Manufacturer International Market

Industrial Footwear Manufacturer Export Agent International Market
Industrial Footwear Manufacturer Retailer Domestic Market
Semi-industrial Footwear Manufacturers: Semi-industrial footwear units manufacture

quality footwear for local market as well as for export market in a limited scale. Production
capacity of these industries is smaller in comparison to industrial footwear manufacturers.
These units are facing similar problems - as those of the industrial leather goods units -
hindering growth of their business. Semi-industrial footwear units use two distribution
channels, they are:
Semi-industrial Footwear Manufacturer Retailer End User (Domestic Market)
Semi-industrial Footwear Manufacturer Export Agent International Market
Wholesaler of Footwear: Most of the wholesale footwear markets are situated at the
Bangabazar of Dhaka city and adjacent areas. Wholesalers collect footwear products from
industrial, semi-industrial, handmade manufacturers and sell them to retailers keeping a
reasonable profit margin. Sometimes they import cheap sandals/ slippers and shoes from
china and other Asian countries. The distribution channel for wholesaler of footwear is:
Wholesaler of Footwear Retailer of Footwear
Page 24 of 70
Retailers of Footwear, Leather Goods, and Leather Garments: Retail shops of
footwear are located everywhere in the country but retailers of leather goods are basically
urban area based. Only a few retail shops of leather goods are seen in the divisional level.
In Dhaka, most of the retail shops of footwear are situated in the elephant road, New
market, Gausia, Polwel (Kakrail), Gulistan, Gulshan, and Banani area. Retail shops of
leather goods and garments are situated in Gulshan, Banani, Elephant road, Eastern Plaza
and nearby areas of Hazaribagh. The distribution channel used by these retailers is:
Retailer of Footwear End User (Domestic Market)
Export Agent: Export agents are helping local producers get international contracts and
they act as liaison between the two parties. However, they do not bear any responsibility
for export, shipment, or quality of products. Export agents are involved in crust and
leather export only. Tanneries export their leather to foreign buyers through these export
agents. They use one distribution channel and that is:
Export Agent
Tanneries International Clients
Page 25 of 70
2.7 Total Number (Accumulated) Of People Employed in Leather Sector Value
Chain
Total Number of People Average Value

Stages in Value Chain Employed (Estimated) Addition at Each Stage
Direct Indirect Total
Raw hide Supply 70,000 130,000 200,000 3%
Tannery/Leather Processing 30,000 20,000 50,000 Wet Blue 7%

Crust Leather 8%
Finished Leather 9%
Wholesaling (Leather, 3,000 - 3,000 Leather 29%
Footwear and Leather Goods) Footwear 6%
Retailing (Leather, Footwear 300,000 - 300,000
and Leather Goods) 16%
Footwear Production 130,000 20,000 150,000
(Mechanized, Semi mechanized 35%
& Handmade)
Exporting and by products - 8,000 8,000
Processing 13%
Total number of people
533,000 178,000 711,000 -
employed
(Source: ILET, LSBPC, ILO, BBS, GTZ, RSMA and ITC-ATF)
Page 26 of 70
2.8 Overall Calculation of Value Addition Across Different Stages in The Value
Chain
(For more detail calculation see section 3.13)
Distribution of
Value Addition %
Sl. Stages
Tannery
1. Raw hide to wet blue stage 24

2. Wet blue to crust leather stage 33
3. Crust leather to finished leather stage 43
Total 100
Footwear Handmade (Local Market)
1. Input supplier to footwear production 65

2. Footwear production to footwear wholesale 9
3. Footwear wholesale to retailing 26
Total 100
Footwear Industrial (Local Market)
1. Tannery to footwear production 65

2. Footwear production to wholesale 9
3. Wholesale to retailing 26
Total 100
Footwear Industrial (Export Market)
1. Tannery to footwear production 100
Total 100
Page 27 of 70
CHAPTER 3
CALCULATION OF VALUE
ADDITION IN DIFFERENT STAGES
OF FOOTWEAR MANUFACTURING
Page 28 of 70
This data7 is collected to understand the value addition more practically. It has been
collected from A Focus Group Discussion on Value Chain Assessment of The Leather
Sector in Bangladesh: A Sub Sector Constraint Approach was held on 8th June 2006 at
Dhaka Sheraton (a validation workshop) jointly organized by GTZ- PROGRESS and
SEBA limited.
3.1 Value Addition by Raw Hide (Cow) Suppliers
Assumption:
Raw hide : 7 bundles 140 pcs (Each bundle
contains 20 pieces)
Purchase Price : Tk. 1,450.00 /Each raw hide
Selling Price : Tk. 1,500.00 / Each raw hide
Calculation:
Rawhide Sales:
7 bundles /140 pcs @ Tk. 1,500 : Tk. 210,000.00
Less: Cost and Expenses:

Purchase of Raw hide (140 pcs @ Tk.1,450) : Tk. 203,000.00
Transportation (7 bundles @ Tk.150) : Tk. 1,050.00
Labour, hat and Izara charge : Tk. 1,260.00
Travelling, Conveyance Foods and hotel rent : Tk. 1,500.00
------------------------
Tk. 206,810.00
----------------------
Profit calculation for value addition: Tk. 3,190.00
Value Addition : (210,000 203,000)

= Tk. 7,000
Page 29 of 70
7,000
Value Addition Percentage : ( 100)
210,000
= 3%
3.2 Value Addition by Wet Blue Producer
Assumption:
Raw hide purchase : 140 Pcs
Purchase Price of raw hide : Tk. 1,500/Pcs.
Wet Blue Production : 25 sft from 1 pc. of raw hide
Selling Price of Wet Blue : Tk. 75/sft.
Calculation:
Sales:
3500 sft @ Tk. 75 : Tk. 262,500.00

Raw hide purchase (140 pcs @ Tk. 1500) : Tk. 210,000.00
Chemical (3500 sft @ Tk. 10) : Tk. 35,000.00
Overhead (All) : Tk. 10,000.00
------------------------
Tk. 255,000.00
----------------------
Profit calculation for value addition: Tk. 7,500.00
Value Addition : (262,500 245,000)

= Tk. 17,500.00
17,500
Value Addition Percentage : (262,500 100)
=7 %
Page 30 of 70
3.3 Value Addition by Crust Leather Producer
Assumption:
Purchase of Wet Blue : 3,500 sq. ft.
Purchase Price Wet Blue : Tk. 75/ sq. ft.
Selling Price of Crust Leather: Tk. 91/ sq. ft.
Calculation:
Crust Sales:
3500 sft @ Tk. 91 : Tk. 318,500.00

Purchase of Wet Blue (3500sft @ Tk.75) : Tk. 262,500.00
Chemical (3500 sft @ Tk. 9) : Tk. 31,500.00
Overhead (All) : Tk. 12,000.00
------------------------
Tk. 306,000.00
----------------------
Profit calculation for value addition : Tk. 12,500.00
Value Addition : (318,500 294,000)

= Tk. 24,500.00
24,500
=8%
3.4 Value Addition by Finished Leather Producer (Export Quality)
Assumption:
Purchase of Crust Leather : 3,500 sq. ft.
Purchase Price Crust Leather : Tk. 91/sft
Selling Price of Finished Leather : Tk. 110/sft.
Page 31 of 70
Calculation:
Finished Leather Sales:
3,500 sft @ Tk. 110 : Tk. 385,000.00

Purchase of Crust Leather (3,500sft @ Tk.91): Tk. 318,500.00
Chemical (3,500 sft @ Tk. 10) : Tk. 35,000.00
Overhead (including export cost) : Tk. 16,000.00
------------------------
Tk. 369,500.00
----------------------
Profit calculation for value addition : Tk. 15,500.00
Value Addition : (385,000 353,500)

= Tk. 31,500.00
31,500
=9%
3.5 Value Addition by Wholesaler of Leather (Input Supplier for

Footwear Industry)
Assumption:
Purchase Leather : 2.5 sft
Purchase Price : Tk. 50/sft.
Selling Price : Tk. 70/sft
Page 32 of 70
Calculation:
Sales: 2.5 sft @ Tk. 70 : Tk. 175.00

Purchase of Leather (2.5 sft. @ Tk. 50) : Tk. 125.00
Transportation Cost : Tk. 0.75
Shop Rent and Electricity : Tk. 10.00
Salesman Salary : Tk. 7.50
Entertainment : Tk. 1.00
------------------------
Tk. 144.25
----------------------
Profit calculation for value addition : Tk. 30.75
Value Addition : (175 125)

= Tk. 50.00
50.00
Value Addition Percentage : (175.00 100)
= 29 %
3.6 Value Addition by Handmade Footwear Producer
Assumption:
Production : One pair shoe
Style : Derby Monk
Size : 7
Upper Leather required: : 2.5 sft
Purchase Price of upper Leather : Tk. 70/sft
Lining Leather required : 2.0 sft.
Purchase Price of Lining Leather : Tk. 30/sft
Selling Price of Shoe : Tk. 680/shoe
Page 33 of 70
Calculation:
Sales: 1 pair shoe : Tk. 680.00

Upper Leather (2.5 sft @ Tk. 70) : Tk. 175.00
Lining Leather 2 sft @ Tk. 30) : Tk. 60.00
Insole : Tk. 25.00
Sole : Tk. 35.00
Heel : Tk. 25.00
Welt : Tk. 7.00
Chemical Sheet : Tk. 14.00
Thinner : Tk. 1.00
Adhesive : Tk. 15.00
Thread : Tk. 3.00
Sticker (Metal) : Tk. 50.00
Velcro : Tk. 2.00
Shank (Bamboo) : Tk. 1.00
Tag : Tk. 3.00
Filler (Bond) : Tk. 12.00
Polishing Finishing Materials : Tk. 12.00
Making Charge : Tk 150.00
Rent : Tk. 15.00
Electricity : Tk. 2.00
Others : Tk. 1.00
------------------------
Tk. 608.00
----------------------

= Tk. 240
Page 34 of 70
240
680
= 35 %
3.7 Value Addition by Wholesaler of Handmade Footwear
Assumption:
Purchase price : Tk. 680 (Medium standard)
Selling price of shoe : Tk. 720 (Retailers)
Calculation:
Sales : Tk. 720.00

Leather shoe purchase : Tk. 680.00
Salesmen salary : Tk. 1.90
Warehouse rent : Tk. 1.49
Shop rent : Tk. 1.49
Telephone bill : Tk. 0.09
Entertainment and miscellaneous : Tk. 0.69
--------------------------------
Tk. 686.00
----------------------

= Tk. 40
40
Value Addition Percentage : (720 100)
= 6%
Page 35 of 70
3.8 Value Addition by Handmade Footwear Retailer
Assumption:
Purchase price : Tk. 720 (Medium standard)
Calculation:
Sales : Tk. 850.00

------------------------
: Tk. 740.00
----------------------
= Tk. 130
130
850
= 15%
Page 36 of 70
3.9 Value Addition by Industrial Footwear Producer for Local Market
Assumption:
Production : One pair shoe
Style : Derby
Size : 7
Upper Leather Required : 2.5 sft.
Purchase Price of Upper Leather : Tk. 110/sft
Lining Leather Required : 2.0 sft.
Purchase Price of Lining Leather : Tk. 40/sft
Selling Price of Shoe : Tk. 900/shoe
Calculation:
Sales: 1 (one) pair shoe : Tk. 900.00

Upper Leather (2.5 sft @ Tk. 110/-) : Tk. 275.00
Lining Leather 2.0 sft @ Tk. 40) : Tk. 80.00
Insole : Tk. 25.00
Sole : Tk. 50.00
Heel : Tk. 30.00
Welt : Tk. 10.00
Chemical Sheet : Tk. 15.00
Thinner : Tk. 1.00
Adhesive : Tk. 15.00
Thread : Tk. 3.00
Sticker (Metal) : Tk. 40.00
Velcro : Tk. 2.00
Shank (Bamboo) : Tk. 1.00
Tag : Tk. 3.00
Filler (Bond) : Tk. 12.00
Polishing Finishing Materials : Tk. 12.00
Overheads (Office, selling and interest on loan): Tk. 300.00
------------------------
Tk. 874.00
----------------------

= Tk.326
Page 37 of 70
326
900
= 36%
3.10 Value Addition by Wholesaler of Industrial Footwear
Assumption:
Purchase price : Tk. 900 (Standard)
Calculation:
Sales : Tk. 945.00

--------------------------------
Tk. 906.50
---------------------

= Tk. 45
45
= 5%
Page 38 of 70
3.11 Value Addition by Formal Retailer of Industrial Footwear
Assumption:
Purchase price : Tk. 945 (Standard)
Calculation:
Sales : Tk. 1075.00

------------------------
Tk. 965.00
----------------------
Profit calculation for value addition: Tk. 110.00

= Tk 130
130
= 12%
Page 39 of 70
3.12 Value Addition by Industrial Footwear Producer for Export Market
Assumption:
Shoe (Ladies) : One pair
Style : E 662C
Leather required : 1.50 sft.
Purchase Price of Leather : Tk. 110/sft.
Selling price of shoe : Tk. 490 (Export market)
Calculation:
Sales : Tk. 490.00

Purchase of leather (upper) 1.5 sft @ Tk. 110 : Tk. 165.00
Jute Sole : Tk. 30.00
Rubber Sole : Tk. 15.00
Eva sheet and glue and fitting materials : Tk. 110.00
Overhead (Factory, office selling overhead, financial expenses and
export cost) : Tk. 90.00
----------------------
Tk. 410.00
----------------------

= Tk. 170
170
= 35%
Page 40 of 70
3.13 Distribution of Value Addition across Different Stages of the Value Chain (In
Details)
Tannery Stages Purcha Additional Total
Selling Value Distribution
se Bought in Bought in
Price/ Addit of Value
Price/ Material/ Material/
Unit ion Addition %
Unit Unit Unit
1. Raw hide to wet blue 60 10 70 75 5 24
stage
2. Wet blue to crust 75 9 84 91 7 33
leather stage
3. Crust leather to 91 10 101 110 9 43
finished leather stage
Total 21 100
Footwear Handmade Purcha Additional Total
(Local Market) Stages se Bought in Bought in
Unit ion Addition %
Unit Unit Unit
1. Input supplier to 175 265 440 680 240 58
footwear production
2. Footwear production 680 0 680 720 40 10
to footwear wholesale
3. Footwear wholesale 720 0 720 850 130 32
to retailing
Total 410 100
Footwear Industrial Purcha Additional Total
(Local Market) Stages se Bought in Bought in
Unit ion Addition %
Unit Unit Unit
1. Tannery to footwear 275 299 574 900 326 65
production
2. Footwear production 900 0 900 945 45 9
to wholesale
3. Wholesale to retailing 945 0 945 1075 130 26
Total 501 100
Footwear Industrial Purcha Additional Total
(Export Market) Stages se Bought in Bought in
Unit ion Addition %
Unit Unit Unit
1. Tannery to footwear 165 155 320 490 170 100
production
Total 170 100
Page 41 of 70
CHAPTER 4
MARKET ANALYSIS OF LEATHER
SECTOR
Page 42 of 70
4.1 Global Market Scenario
Leather and leather products are among the most widely traded and universally used
commodities in the world. Formal trade in these products is recorded at over US$ 60
billion per year and it is estimated that the value of the informal trade is of similar amount
to formal trade in many developing countries8. The international market for leather and
leather products is still far from the saturated point. Projections of demand & supply
scenario of leather by industry analysts indicate that in the next decade the demand for
raw materials and finished products will outweigh supply situation. About 18 billion
square feet of leather is produced by the world leather industry in total per year. The
number of people employed in the leather industry worldwide is estimated at well over
500,00010. Today, the world leather market is growing with countries like Taiwan, South
Korea, Hong Kong, Malaysia, Turkey and countries from South America being the major
manufacturers and exporters. The European leather industry plays a key role in the global
leather system notably for its leadership in innovation and market development. Trade of
developing countries is not confined to export of raw materials. In fact, developing
countries take 45% share of exports of leather manufactures8.
As the last century came to a close, the enactment of environmental legislations in

countries across the world had become faster, stricter and more restrictive. Significant
steps have been taken by the global leather industry with regard to environmental matters
as it is considered as a dirty or pollution-generating industry. In the manufacturing
stages, a high level of quality control ensures that the best use is made of hides and skins
and the chemicals required in their conversion into leather. Overall chemical and water
use has been reduced for reducing the level of waste for treatment.
Tariff and Non-Tariff Barriers on imports and exports of the sectors products constitute
an enormous cost handicap for the Leather industry worldwide, consuming resources that
could be better allocated in increasing the wealth of the leather industry. These barriers
distort adversely global trade flows and intervene critically in the pricing of supplies
causing irreparable damage to the leather industrys structures in rich and poor nations.
Page 43 of 70
The global leather market is characterized by some distinctive features, such as:
Leather Industry: A true example of Globalization
There is probably no better example of globalization than that of the leather sector. The
trade component of the value chain of Leather and leather products knows no national or
continental boundaries since hides from South America may be processed in India and
intermediate and end products may be sold in Europe or in the United States. Similarly,
garments made from New Zealand goat skin may be manufactured in the Asian
subcontinent and sold in the United States. As a result, leather products often are not the
result of one industry, but of an integrated industrial supply chain. E-Commerce has
become an important feature of this industry as transactions are frequently being made
through the Internet.
Slow growth of global leather industry over the years
World leather trade is dominated by footwear industry followed by processed leather and
leather goods.
Figure: Growth of Global Footwear Over the Years
Initially the trade growth declined in the year 1999. This decline was recovered with a
huge boost in trade in the next year. Trend analysis of world leather trade from 1999 to
2004 shows that leather industry is experiencing a slow growth rate over the years. The
Page 44 of 70
industry managed to earn an increase in trade in the year 2002-2003 when the global
economy suffered from Source: UN COM trade-rounded figure one of the worst economic
recession due to 9/11 issue, Iraq war, global political unrest etc. As per UN Com trade,
total value of world leather trade in 2004 was US$ 67223 million and the export growth
rate was 4.29%.
Growth of world footwear market has positive co-relationship with world

population
Current size of the global footwear market is still enormous because it has parallel
relationship with the increase of world population. Data obtained from Market Report,
Fashion Trends and Forecasts up to 2005 by Steve Lee clearly indicates that since 1950
till 2005 a positive relationship was observed between growth of world population and
production of footwear, as it is a basic commodity aspired to be used even at a lower
stratum of income. China is the leading country in terms of production and consumption
of footwear with its huge population. Historical data show that factors like demographic
composition and pattern of evolution, level and extent of urbanization, and distribution of
wealth have consistently driven the growth in the footwear industry. For example, the
volume of world footwear production in 1950 was 2.1 billion pairs, then in 1970 it was
4.9 billion pairs, in 1998 it increased to 11.3 billion pairs and in the year 2005, world
footwear production was 14.5 billion pairs.
Table: Development of the World Population (in million) and the Footwear
Production (in million pairs) from 1950 to 2005
Category/Year 1950 1970 1980 1990 1995 1998 2000 2005
Footwear 2,100 4,881 7,972 9,794 10,300 11,300 12,300 14,500
Population 2,250 3,697 4,444 5,285 5,702 - 6,158 6,594
Footwear/Population 0.93 1.32 1.78 1.85 1.81 - 2.0 2.20

Source: Market Report, Fashion Trends and Forecasts up to 2005, Steve Lee. Sam 4/1998,
page 4 & 13
Computed ratios of population/footwear presented in the table (Table-9) shows a rising

trend of footwear use as it increased from .93 in 1950 to 2.20 in 2005 per person.
Page 45 of 70
Increasing purchasing power of target prospect
Europe is the largest market for leather goods including shoes, purse, bags, travel goods,
suitcases, briefcases and fashion accessories, along with leather jackets, belts, wallets,
hand bags, case holders etc. These products are equally popular in North American
countries as the purchasing power of mass population in these developed countries is rising
continuously.
The above Figure exhibits that many developing countries in Asia, the Middle East and in
South America- Brazil, Argentina, Mexico etc. are following a similar pattern of market
expansion for leather goods.
Growing awareness of fashion and style all over the world
In Europe and America which is the major arena of global leather market, leather has
established its own status in their fashion statement. The growing concern of fashion and
style of their mass population to design their life with sophistication has contributed hugely
to the growth of global leather market. Even in Asia the concept of Living Life
Fashionably is gradually being popularized as a chain reaction of globalization despite
the limited purchasing power of its mass population.
4.2 World-wide Leather Exports and Imports
Figure: A Global Data of Footwear Import-Export17
Page 46 of 70
Having the blessings of an open economy (regimented towards higher productivity gains)
and superior technology, China is the undisputed leader of leather goods and footwear
export market with its strong economy by ensuring steadily rising cash flows for the R&D
of this growing high-tech industry. European countries such as France, Italy, Spain,
Germany, etc., are other key players in leather goods and footwear market.
Source: http://content.acesphere.com
Figure: Product Wise Export Performance of Leather Sector
The Chart on the following page exhibits that, total footwear export value of China was
US$ 15,203 million and leather goods export value was US$ 602 million. Export market
of leather is dominated by Italy, China, Brazil and USA. Here Italys total export value
of leather was US$ 4,022 million. Only India and Vietnam are the two countries from
Asia that are participating significantly in world export of leather, leather goods and
footwear. Within the total size of USD215 billion of global leather market Bangladesh
now exports only 0.5 percent of the global leather and leather goods market.
Page 47 of 70
Figure: Country Wise Export Performance of Leather Sector Up to Fiscal Year 2016
Germany, with its technological advancement and stable economy is another leading
country of leather export market with its predominant presence in all the i.e. leather, leather
goods and footwear equally. It is observed from data that developing countries dominate
leather export market as they have sufficient production of raw hides and skin due to their
agro based and village-oriented economy. On the other hand, developed countries from
America and Europe are dominating leather goods and footwear market as they have
manufacturing based stable economies to support research and development on product
development, designs and arts, branding, proactive marketing strategies, etc., which can
be considered to be the key success factors for premium products made of leather.
Page 48 of 70
Figure: Country Wise Analysis of Top Level Footwear Importers17
In footwear imports, United States of America is the largest country in the world which is
importing from 130 countries. It recorded footwear export value of USD 26552471
thousand during the year 2016. USA footwear imports represent 20.9% value from totals
output. USA is followed by Germany, France, United Kingdom and Italy. USA has
imported footwear, gaiters and its parts from China only with value of 57.9% i.e. USD
15372404 thousand. Generally, the product under HS code 6403 is more in demand in
United States. As per the footwear import data, USA has imported this product in 2016
with the value of USD 11629605 thousand. Check the following table to know the 10
largest footwear importing countries in the world.
Page 49 of 70
Table: Footwear Importers Country Wise Analysis4
Source: http://www.exportgenius.in
Germany stood as 2nd largest in footwear importers, recorded value of USD 11230263
thousand during 2016. China, Vietnam, Italy and Indonesia are its top footwear exporters
while Germany is importing from more than 100 countries.
France rank 3rd in the list of footwear importing countries across the world. France is
importing from 100 countries and recorded footwear import value of USD 7396064
thousand in 2016. France footwear imports represent 5.8% worldwide. China, Italy,
Vietnam, Portugal and Indonesia are its top footwear exporters.
4.3 The Changing Global Leather Market and Bangladesh
International leather market has gone through several interesting changes in the past
decades in terms of market leadership and major market players. Previously this sector
was predominantly occupied by European countries since they were the major producer
and end users of classy leather goods. Later, China and Hong Kong established as strong
traders of this sector with their improved economic status and are still maintaining the
lead in the leather industry due to their cost advantage and technological advancement.
China, Thailand and Hong Kong gained substantial growth in this sector by proper
Page 50 of 70
utilization of inexpensive labor force and popularizing the concept Developing Leather
Brands as branding has emerged as a significant factor for exporting high value leather
products. Separate design institutes for the leather sectors have been established in India,
Thailand, China, Vietnam, Indonesia and Pakistan to improve the exports of these
countries by having high level product diversification. Realizing the growth potential of
this sector, Bangladesh needs to respond immediately towards the international market
trends with integrated long term development policies that include optimizing the use of
the large and low-wage workforce, improving skills of the personnel involved with the
sector (both production and logistics, and marketing), introducing modern technology
based industry, establishing design institutions and giving easy access to market
information to all the producers for increased product diversification etc. Leather industry
has a reputation for being a not so clean, (better known as Dirty) industry worldwide
because of its gruesome production procedure, which can and is often rather unhealthy.
Bangladesh must also take necessary steps to ensure hygienic environment for leather
workers as well as for its mass population.
Page 51 of 70
4.4 Export Market for Bangladeshi Leather, Leather Goods, and Footwear
Figure: Export Statistics of Leather Industry in recent years1
Exports of leather and leather goods crossed USD 1 billion for the second year in fiscal
2014-15, according to data from the Export Promotion Bureau.
In 2014-15, Bangladesh exported leather and leather goods worth USD1.13 billion,
compared with USD1.12 billion in the previous fiscal year, making it the second highest
contributor to national exports after garments.15
Bangladesh exports leather shoes, travel bags, wallets, belts and finished leather. We earn
the major portion of export revenue from the leather sector by exporting raw hides & skins
to China. Other major countries for leather exports are Japan, Germany, Hong Kong, USA,
Spain, Italy, Korea Republic and Netherland. In FY15 China contribute to leather export
17.7 percent of total leather export. After China, Germany & Japan contribute 10.3 & 10.9
percent respectively.1
Page 52 of 70
The sector has been performing well, as higher export values have helped the sector earn
over USD1 billion for two years in a row, said Syed Nasim Manzur, managing director
of Apex Footwear Ltd, Bangladesh's largest footwear exporter that shipped USD110
million of goods overseas in 2013.
Bangladesh now exports only 0.5 percent of the global leather and leather goods market
worth USD215 billion, according to industry insiders.
About 80% of the total export value is from leather and only 20% is from finished leather
goods. There is a sharp decline of leather goods export volume due to Bangladeshs
inability to capture current trends of international leather goods market in terms of style,
design and quality. At present leather products are exported to about 53 countries of the
world. The major importing countries are: Italy, USA, Japan, Canada, Hong Kong, UK,
Brazil, Germany, China etc.
Although Leather Sector represents the second largest export sector of Bangladesh, its
export share is significantly lower than RMG. So, Ready Made Garment sector has a strong
dominance over the countries total export.
Bangladesh's export basket is heavily concentrated on one product that is the readymade
garments.
With about four million workers and 81.9 percent of total export earnings, a lot of the
country's fate depends on a single sector. High export concentration on the garment
sector can make the economy vulnerable to shocks. Export diversification through leather
sector also increases the employments.
Page 53 of 70
Figure: Total Export Percentage of Bangladesh1
In the FY16 up to March, it has been seen that RMG accounting for more than 80 percent
of the total exports in the country. After RMG Leather sector holds the percentage of more
than 3 percent of the total countrys export. Among the total export of USD25 billion in
FY16 (up to March) only three sectors (RMG, Leather & Jute) individually accounts for
more than USD600 million. Therefore, to slackening the pressure on the balance of
payment & to participate effectively in the global trading system export diversification is
mandatory for the economy at this stage.
New hope for the leather sector after RMG because of the worlds largest footwear
manufacturer China is shifting focus away from this sector.
As a consequence of plus one strategy recently China is withdrawing them from the global
market. According to a report on Chinas leather footwear industry, it has been shown that
their production had been dropped by 5.29% in 2012 & 7.45% in 2013. Although
according to a survey of Euro Monitor International, it has been seen that for the next few
years Chinas footwear market will continue to grow at a rate exceeding 9%. But the recent
policy (Plus one strategy) may hamper this growth.
For the last twenty years, those western companies invested in china have drawn
themselves due to rising of production cost & other business challenges. Now they are
looking for other growing Asian markets both to hold down costs and to reduce
overdependence on China.
Page 54 of 70
Figure: Export Trend of Bangladesh Leather Sector1
In FY15, Bangladesh earned US $ 1.13 billion from the export of leather, leather goods &
leather footwear. Comparing to the FY14 it was a growth of 0.5%. According to Export
Promotion Bureau (EPB) Bangladesh earned total USD851.33 million from leather Export
in July-March, 2015-16.
Among them USD354.02 million is from exporting footwear, USD286.14 million is from
exporting Leather products & USD211.17 million is from exporting Raw Leather. In the
FY15, earnings from leather footwear, leather products & leather were USD483.81
million, USD249.16million, and USD397.4 million respectively.
4.5 Domestic Leather Market
Bangladesh, with its 80% population in villages (close to 40% of whom are living under
the poverty line) has no niche domestic market for high-priced products made of leather
due to low purchasing power of mass population and weak economic structure.
Generally, the target prospect for leather goods and footwear is from middle echelons to
upper echelons people in local market. Data acquired from a census study.
Figure elucidates that total national sales volume of leather was only half of the Footwear
is the bestselling item compared to processed leather and leather goods in local leather
Page 55 of 70
market. Because of its status in expensive product category and availability of reasonably
priced substitutes made of other refined artificial materials, leather goods such as, leather
bags, purse, suitcase, briefcase, money-bags, leather jackets etc. have a rather limited
demand in domestic market. In addition, since Bangladesh does not have a full-fledged
leather industry for mass production of leather goods and footwear as yet, processed
leather does not have a good domestic market either.
4.6 Growth Potential of Leather Sector in Bangladesh
The leather industry with over Taka 160 billion annual export earnings is the countrys
third biggest foreign exchange earner after the RMG and the frozen food sectors. Local
and foreign experts believe that this sector could replicate the successes of the
Readymade Garment (RMG) sector if the government and genuine entrepreneurs join
hands for effective cooperation and develop the sector with a comprehensive strategic
plan.
According to BBS Survey of manufacturing industries at 2011-12, the total number of
leather firms are 930, among them 23 units are categorized as a large firm, 100 are medium,
274 are small & 533 are micro firm. It is likely an eleven percent increased within five
years comparing to the 2005-06 BBS Survey Reports. But this trend of growth decreases
in recent years because of lower earnings of some firms & due to higher Competition
among the firms. As per SMI 2011-12 total person engaged in leather firms are almost
seventy-six thousand, among them fifty thousand are male & rest are female. They earned
8380 million TK as their salary & wages benefit. Their gross output is almost seventy-
seven thousand million TK.
Page 56 of 70
Table: Growth of Leather Industry of Bangladesh2
(Enterprises with 10 or more Yearly Growth

Description workers) (%)
1991-92 2001-02 2011-12 2001-02 2011-12
Number of establishment 77 35 930 Negative Positive
Number of persons engaged 5302 10005 75524 6.6 22.4
Average employment size 69 286 81 15.3 -11.8
Value added (Million Tk. in 1124 4712 22180 15.4 16.8

1995-96 price)
Share in Manufacturing Value 1.4 2.0 1.4 3.6 -3.4

Added (%)
Source: BBS, Census of Manufacturing Industries 1991-92, 2001-02 & 2011-12
According to BBS number of the person engaged in Leather industry of Bangladesh faced
a yearly compound growth of 22.4 percent during 2001-02 to 2011-12, although at the
same period value added per worker declined at a yearly compound rate of nearly five
percent. This is because average employment size declined at a yearly compound rate of
almost 12 percent during 2001-02 to 2011-12. The average employment size declined
because of technological development of leather industry reduced the dependency over
labor force.
The size of the global footwear market is enormous as well. A thorough analysis of the
historic data shows that factors like demographic composition, depth and reach of
urbanization and distribution of wealth have consistently shaped the growth of the
footwear industry. Though till now Bangladesh has shown poor performance in the leather
goods sector, it has a good growth potential if entrepreneurs can avail modern technology
to diversify their products and designs according to international market trends and apply
modern tools for marketing & promotion.
Realizing this sectors growth potential, Bangladesh Government has reiterated its
decision to treat the industry as one of the thrust sectors and reduce interest rates for
industrial credit to this sector to seven percent (7%). The government has decided to
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develop a leather industrial area at Saver, outside Dhaka where tanneries from Dhaka
would be shifted to free the Hazaribagh area and the river Buriganga in general, where
most of the tanneries are concentrated, of pollution. About 200 leather units would be re-
located at the new site with modern waste-treatment plants to create a healthy
environment.
Presently, many of the advanced communities consider Bangladesh as a worthwhile

investment destination due primarily to:
(i) An abundance of a marked low-wage labor force, and
(ii) The existence of export processing zones and facilities including incentives like
tax holidays for 10 years.
A report of Japan-Bangladesh Business Associations including Japanese Commerce and
Industry Association (SHOO-KOO-KAI) shows in clear terms that remarkable economic
development and concentration of massive FDI within a short period of time in China,
increasing labor costs in Thailand, and inadequate domestic market for high-income
groups in Vietnam, is leading Japan to think of investing more in Bangladesh,
particularly in area like leather. Also about 10% of the total population of Bangladesh
(14 million) is recognized to have an income level comparable to that of their rich country
counterparts. Assuming that two pairs of footwear are purchased by a person in this
group, the demand for footwear would be 20 million pairs per year. Hence, there is a
large latent domestic market for quality footwear and other leather goods in Bangladesh
as well.
Page 58 of 70
4.7 SWOT Analysis
Opportunities Threats
Increasing global demand for leather Delay in introducing integrated
products. government policy for the
development of leather industry
High potential for quality raw
materials and maximum value Leather industry growth rate is
addition inside the country. stagnant for a variety of reasons
stemming mainly from political
Availability of cheap labor force can instabilities leading to apathy in the
be the sustainable competitive international investment
advantage for the country. communities.
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GSP (Generalized System of Political instability of Bangladesh,
Preferences) facilities to exporters poor governance at all levels
including corporate governance.
Duty free access in Major Markets
Intensive competition for gaining
Potential footwear market in Middle market because of strong competitors
East and Southern Africa. such as China, India, Pakistan etc.
Opportunity of establishing by-
Huge dependency on high priced
product industry based on solid and
imported chemical and accessories
liquid waste tannery and
Limited product diversification
slaughterhouse.
compared to competing countries like
Unlike resin and other synthetic and
China, India, Pakistan etc.
artificial fiber elements, leather
Availability of low priced imported
products are hygienic and most-
homogeneous products made of Rexin
importantly
and other artificial fibers.
environment friendly and bio-
Illegal export of raw hides and skins
degradable
to India and neighboring countries is
Undergoing project of setting up a
creating scarcity of raw materials for
modernized tannery industrial area in
local production of leather goods and
Savar, Dhaka will result in an overall
footwear.
productivity rise, production of
Insufficient measures to address the
international quality finished leather
environment pollution, health and
and environmental safety.
safety issues by the tanneries and
producers of footwear can be a huge
threat to environment and human lives
in particular.
The SWOT Analysis presented above along with the existing & projection of demand
trend of Bangladesh leather sector (section 4.4) and the growth potential of Bangladeshs
leather sector (section 4.6) give us a strong signal that the leather sector in Bangladesh
has all the basic elements for a sustainable rate of growth in the future. What is essential
now is to prepare and adopt strategic plan, set organizational structures in government
and industry to implement their plan and evaluate the achievements in the light of
Page 60 of 70
emerging markets and technological factors and revise the strategic plan accordingly for
the next five to ten years. The EPB made forecast of export growth targets of less than
4% per year is too pessimistic for this sector. Bangladesh should forecast to attain a 5-
7% growth in export earnings from leather sector and combine necessary acts together
for that purpose.
Page 61 of 70
CHAPTER 5
SUMMARY OF THE FINDINGS
Page 62 of 70
The core objective of this study was to identify major constraints that are hindering the
development of Bangladeshs leather sector which has all the fundamental elements for
contributing to the countrys economy through sustainable development. The study
addressed those constraints that should be eliminated in order to create additional
employment opportunities and increase in export. Findings of the study are presented
below:
5.1 Bangladeshs Leather Sector
Leather sector is a vital component of Bangladesh economy in terms of foreign exchange

earnings since it is the third highest foreign exchange earner after RMG and frozen food.
The industry is generally export based. More than 80% of leather and leather products
of Bangladesh are marketed abroad, mostly in the form of crushed leather, finished
leather, leather garments, and footwear. More than 200 modern tannery units are now in
operation in the industry. With the exception of a few tanneries located in Chittagong and
other places of the country, tanneries located mostly in the Hazaribagh area of Dhaka
city. In FY15, Bangladesh earned US $ 1.13 billion from the export of leather, leather
goods & leather footwear. Comparing to the FY14 it was a growth of 0.5%1. The
country's share in the world leather market is still very insignificant with a share of only
0.5 percent within the total size of USD215 billion of global leather and leather goods
market. An important characteristic of the leather industry in Bangladesh is its rather poor
domestic demand. This promising sector is suffering from a host of problems including
problems related to management and infusion of advanced technology and innovative
and integrative marketing strategy. Issues related to concerns for the environment
generated by the tanneries and health and hygiene factors for both the tannery workers
and the people living nearby continue to haunt the image and operational efficiency of
the sector.
5.2 Description of Actors
The study distinguished a number of actors within the value chain of leather and its sub
sectors. Raw hide collectors and suppliers initiate the value chain process through
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collecting raw hides from unscientific slaughter houses and butchers shops and sold
them to tanneries. Faria Baparies, Aratdars are the local terms of raw hide suppliers
who supply raw hides to tanneries. The industry is heavily dependent on imported
chemicals; hence importers of chemicals are playing an important role in the value chain
by supplying chemicals to tanneries. Tanneries carry out the huge job of processing these
raw hides into finished leather though performing soaking, fleshing, liming, de-liming,
bating, pickling, chrome tanning, samming, splitting, skiving, scudding, drying, staking
and thus providing finishing touch where the leather is given the final surface treatment
and look. These processed leathers are mostly exported directly in international market
and the rest is supplied to leather goods and footwear manufacturers through wholesalers.
As of date, the industrial footwear manufactures and industrial leather goods
manufacturers have devoted all their concentration to manufacture customized products
to satisfy international market only. However, semi-industrial footwear manufacturers
and semi-industrial leather goods manufacturers are serving both international and
domestic market. Their products are sold to international market directly but they use
wholesalers, retailers or local showrooms as intermediaries for domestic market.
Handmade footwear manufacturers and handmade leather goods manufactures are the
artisan units with limited access to finance facilities who are manufacturing footwear and
leather goods in a limited scale for serving domestic market only. These products are
delivered to the end users through wholesalers and retailers. Export agents are holding a
significant position in export oriented leather sectors value chain since they act as liaison
between the tanneries and international buyers for the ultimate transaction.
5.3 Implementation of Value Chain
There are many advantages of value chain analysis, which all result in a company's ability
to understand and optimize the activities that lead to its competitive advantage and high
profit levels. The disadvantage of value chain analysis is that it forces a company to break
into segments, and there is the possibility of losing the big picture in the minutiae.
The primary goal and advantage of a value chain, and therefore value chain analysis, is
to create or strengthen a competitive advantage. Through analyzing the five primary value
chain activities, a company can ensure that the value it's creating exceeds the cost to
Page 64 of 70
create that value. The five value chain activities are inbound logistics, operations,
outbound logistics, marketing and sales, and service.
If a company can create an advantage in any one of these activities through a value chain
analysis, it captures a competitive advantage and increases its overall profit. To capture
a competitive advantage, a company maps out its specific activities within the five generic
value chain activities and looks for ways to create efficiencies.
Value-added projects should start with intelligent market information on customers and
competitors to make sure an opportunity exists. A recipe for success is to begin with a
basic commodity and add a healthy dose of ingenuity to create a product desired by
consumers that also has a valuable edge on the competition. Successful groups enlist the
counsel and involvement of many experts and stakeholders, study conditions and trends,
develop a vision, chart the future, and develop strategic and operational plans with which
producers can identify.
5.4 Global and Domestic Market Scenario
Leather celebrates its reputation as a prestigious material globally, which is catering into
new markets continuously with a host of innovative products ranging from accessories
and linings for the auto industry to cutting-edge latest fashion attire. World trade in the
leather sector represents US$ 60 million placing it in the top echelons of the most
important internationally traded commodities. Factors like the proliferation of free market
economy, increasing purchasing power of the target markets, growing appreciation of
fashion and fads at more levels of the economy (as opposed to the generally richer
sections), depth of urbanization, etc. are contributing to the growth of the global leather
market. China dominates the world leather market with its export earnings from footwear
and leather goods placed on top in ranking among all the countries of the world. European
countries, along with U.S.A and some other South and North Americas countries are
playing leading roles in the export market as well. China, Italy, USA, etc. import most of
the leather, leather goods, and footwear in the world. Incidentally, leather from
Bangladesh enriched with naturally occurring fine texture and grain patterns is in great
demand and gets a certain amount of leverage for its solid reputation in the international
market. In spite of these factors, the industry has not yet played up to its potentials, and
Page 65 of 70
thus its performance in world trade is rather nominal when compared to the continued
pattern of growth. It is nonetheless also imperative that Bangladesh wakes up to the need
to create new markets inside the country for leather, leather goods and footwear produced
locally as it has an insignificant latent demand in the domestic market as well.
5.5 The Strengths and Weaknesses of Leather and Leather Sub-sectors
This research has identified some strengths of the leather sector such as:
Leather can be construed as a renewable natural resource
Worldwide reputation for quality grain leather
Availability of a large, low-wage workforce
Favorable business environment with the existence of EPZ in the country
The identified weaknesses of this sector are:

Insufficient R&D facilities
Lack of marketing knowledge
Insufficient and rather un-imaginative initiatives for promoting leather sector
Insufficient access to short-term finance for SMEs of all leather sub-sectors
Absence of innovative and contemporary product designs
High and rising price of imported chemicals for tanneries and footwear units
5.6 Growth Potential of Leather, Leather Goods and Footwear
Demand projections constructed by the EPB for the time period till 2018 show an upward
demand trend for the leather industry with the expectation of export earnings to the
maximum tune. A solid reputation for Bangladeshs goatskin (specifically of the Black
Bengal one), increasing demand for leather goods and footwear from Bangladesh in
Middle East, Southern Africa and Europe, active interest of foreign investors from Japan
and some other European countries to invest in leather sector due mostly to the
availability of a low wage large workforce and investor-friendly installations and
mechanisms like the EPZ and other financial and tax incentives clearly show the strong
growth potential of this sector in future. Chinese footwear industry can be an inspiration
for Bangladesh since Chine itself has a large untapped potential market within its
boundaries for locally produced footwear emanating out of its huge population.
Page 66 of 70
CHAPTER 6
CONCLUSION
Page 67 of 70
6.1 Recommendations
Bangladesh Government has given leather export a 'thrust sector' status. It is a traditional
industry of business and considered as a driving force for the country's economy. Yet,
several flawed policy decisions in the past and lack of dedicated efforts have denied the
industry the deserved success. Tannery is known as 'dirty industry' all over the world
because of its environment polluting capacity. In Bangladesh this situation is even worse.
Many tanneries at the Hazaribagh area do not have proper effluent plants. This creates
pollution and put at risk on health of localities. As a result, Government has decided to
move the tanneries to a new industrial park, which will be equipped with modern
treatment plants at the outskirts of Dhaka city. This park is expected to bring a revolution
in leather industry with a huge increase in production, product diversification and new
product lines.
The study identified major strengths and weaknesses of this sector with the possible
opportunities and threats. Those identified strengths along with the existing and
projection of demand trend of leather sector provided by EPB gives a strong signal that
the sector has all the basic elements for a sustained rate of growth. If major constraints of
leather sector identified in this research are properly addressed and concerned authorities
fully concentrate on the leather industry to remove obstacles in the way to its progress,
the sector could bring remarkable result in the total economic growth of the country and
poverty reduction.
Initiative should be taken according to the problems:
Assist concerned agencies to introduce and implement the integrated leather

policy
Developing the market for training and counselling on marketing management
including the aspects of forward and backward linkages
Assist in organizing specialized leather trade shows or leather and leather products
display events to promote the existing product portfolio and to demonstrate the
potential of Bangladesh leather sector to both national and international buyers
Page 68 of 70
Organize roundtable / seminar / workshops with the leather sector actors
(enterprises and institutions) for building up awareness to address the
environmental pollutions, heath and safely issues
Assist in developing the skills and capacity of the local leather technologists and
designers to further improve the competitiveness of Bangladeshi leather products
in both local and international markets.
The above recommendations would address certain key constraints. However, there are
some other important constraints, which may be taken up by the national and/or
international organizations.
The country earns a sizeable amount of foreign exchange every year through export of
leather and leather products to international markets. So, if we can find out a proper value
chain map for leather and its sub sectors, then different kinds of people involved in each
stages of value chain would be able to make a good profit from this.
Page 69 of 70
BIBLIOGRAPHY
1. Export Promotion Bureau (EPB)
2. Bangladesh Bureau of Statistics (BBS)
- Census of Manufacturing Industries 1991-92, 2001-02 & 2011-12
- Bangladesh Bureau of Statistics, 2013
3. Banglapedia, The National Encyclopedia of Bangladesh
4. Export Genius - an ISO Certified Company (Article #58: Footwear Exports Fetch
USD 133 Billion in 2016 Globally)
5. McCormick, D and Schmitz, H (2001) Manual for Value Chain Research on
Homeworkers in the Garment Industry, Institute for Development Studies, p.17-
19. (emphasis added) (Accessed 19/01/15)
6. Asia Pacific Leather Fair (Trade Show) News & Blog - News/34420
7. Focus Group Discussion on Value Chain assessment held on 8th June 2006 at
Dhaka Sheraton jointly organized by GTZ- PROGRESS and SEBA limited
Scientific Leather Council (SLC)
8. www.bmet.gov.bd
Article: Leather sector and Tannery Industry in Bangladesh -
Dr. Md. Nurul Islam, Director, Bureau of Manpower Employment and Training
9. Investopedia, owned by IAC
- terms/v/valuechain.asp
10. International Council of Tanners (ICT)
11. Draft Leather Policy 2006-2010 by LSBPC, MOC & GOB
Page 70 of 70

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PROJECT WORK

A Dissertation for The Partial Fulfillment of The Requirements for The

A B M Rafiqul Hasan Khan

CHAPTER 2: VALUE ADDITION AND VALUE CHAIN..................................[11-27]

CHAPTER 3: CALCULATION OF VALUE ADDITION IN DIFFERENT STAGES

CHAPTER 4: MARKET ANALYSIS OF LEATHER SECTOR ........................[42-61]

CHAPTER 5: SUMMARY OF THE FINDINGS..................................................[61-66]

BBS Bangladesh Bureau of Statistics

1.2 Objectives of This Project Work

1.3 Rationale of The Study

The value-chain approach identifies trends at each stage of the production-consumption

1.4 Background of the Leather Sector

Figure: Contribution of Leather Sector to Total GDP

Figure: Month to Month Growth

Leather manufacturing and processing in Bangladesh is mostly export-oriented. When

Bangladesh exports a considerable amount of processed leather, which is used as an

Sl For Domestic Market Sl For International Market

A broad definition of value added is to economically add value to a product by changing

2.2 Approaches to Adding Value

Figure: A Stylized View of a Typical Chain

Primary Activities of the Value Chain9

2.4 Leather Value Chain Analysis

2.5 Value Chain Maps of Leather and Leather Sub-sectors7

Figure: Structure of Leather Value Chain

Table: Structure Of Tanneries In Bangladesh2

Typical Total Actual

13 2-5 million 60 million sq.ft 52 million sq.ft 29

48 <1 million sq.ft 60 million sq.ft 38 million sq.ft 21

Total= 113 230 millon sq.ft 180 million 100

Wholesaler of Leather and Accessories (Bangshal): Wholesalers of leather in Bangshal

Handmade Footwear Manufacturers: Handmade footwear is manufactured throughout

Industrial Footwear Manufacturer International Market

Semi-industrial Footwear Manufacturers: Semi-industrial footwear units manufacture

Total Number of People Average Value

Raw hide Supply 70,000 130,000 200,000 3%

Tannery/Leather Processing 30,000 20,000 50,000 Wet Blue 7%

1. Raw hide to wet blue stage 24

1. Input supplier to footwear production 65

1. Tannery to footwear production 65

1. Tannery to footwear production 100

3.1 Value Addition by Raw Hide (Cow) Suppliers

Less: Cost and Expenses:

Value Addition : (210,000 203,000)

3.2 Value Addition by Wet Blue Producer

Less: Cost and Expenses:

Value Addition : (262,500 245,000)

Less: Cost and Expenses:

Value Addition : (318,500 294,000)

3.4 Value Addition by Finished Leather Producer (Export Quality)

Less: Cost and Expenses:

Value Addition : (385,000 353,500)

3.5 Value Addition by Wholesaler of Leather (Input Supplier for

Sales: 2.5 sft @ Tk. 70 : Tk. 175.00

Less: Cost and Expenses:

Value Addition : (175 125)

3.6 Value Addition by Handmade Footwear Producer

Less: Cost and Expenses:

Value Addition : (680 440)

3.7 Value Addition by Wholesaler of Handmade Footwear

Less: Cost and Expenses:

Value Addition : (720 680)

Less: Cost and Expenses:

Value Addition : (850 720)

Less: Cost and Expenses: