Industrial Analysis

On the Leather Industry of Pakistan

Course: Analysis of Pakistans Industries
Faculty: Ms sadia
:Presented By
fawaaad
147220
Irfan
5639
Wajeeh
6999

History of Leather
Export-Oriented for Industry
several decades

Until 1970s, Pakistan had been exporting raw hides and skins and
semi-processed leather in the form of crust leather
In 1980s, Pakistan started exporting finished leather and leather
products
Tanning method used is CHROME
Vegetable tanning method is secondary
A small import of raw skins and hides does sometimes takes place
when the demand is not met

Intro And Overview

Introduction
Second largest Export Earning Sector
One of the Major Foreign Exchange Earners for Pakistan
Contributes atleast 5% to manufacturing GDP & 8% to
exports
Tremendous Improvement for growth with Quality and
diversification
Exports increased $77 million in 1978 to $671 million in
2001-2002
Pakistan has a natural advantage in the area of livestock
population
The import of Hides are mostly not because of shortage but
rather product specifications

Intro And Overview

Introduction
It provides employment to a very large segment of the
industry, employees around 500,000 people
The industry has evolved from exporting raw hides and
skins to value-added leather products like apparel, gloves,
footwear etc.
There are 725 registered tanneries, total Tanneries above
2500
Concentrated in a few clusters like Kasur(180) Karachi
(170) and Sialkot (135)
Main Export Market for leather apparel is USA (19%)

Intro And Overview

The industry witnessed a decline of 29% in exports in fiscal year
2008-09
There was a consistent growth before that.
Exports dropped from $19.1 billion in 2007-08 to $17.8 billion in
2008-09

BRIC & Pk
1.

The varieties imported from the BRIC countries plus Turkey in the textile, creative
and leather industries are likely to take precedence over the imported varieties
from smaller developing countries as either their production is relatively more
efficient in labor-intensive industries or their resources are relatively more
abundant.
2. I study the impact of the exports of the BRIC countries plus Turkey on the exports
of Pakistan to the set of importing countries based on their importance as major
export destinations of Pakistan for each industry considered and the set of
importing countries based on the geographical location of the importing countries
as regional and non-regional destinations of the BRIC countries plus Turkey.
3. The export flow of BRIC countries plus Turkey constitutes a major proportion of
global export flow that originates from developing countries1 . For instance, China
contributed roughly 11.5% of the world export flow in 2012. In certain industries
such as textile, creative and leather industries, China contributed more than onethird of the total world exports. I think this way, BRIC countries plus Turkey are
likely to impact the export flow of the other smaller developing countries.
4. I would say, Pakistan The leather industry has contributed roughly 3% to 5% of the
total export receipts.

BRIC & Pk
6.Importing from regional trading partners is likely to incur lower costs than
importing from non-regional trading partners. Apart from the trade costs, the fixed
costs to import are likely to be lower to import inputs from regional trading partners
than from non-regional trading partners as the importers find it less costly to
incorporate inputs from regional markets into their production process because of
the similarity of such imported inputs with the domestic varieties
7.The Chinese products are the most prominent products in all industries as well as
textile, creative and leather industries because of their proliferation in the world
exports.
The Chinese products are the most prominent products in all industries as well as .8
textile, creative and leather industries because of their proliferation in the world
exports. On the other hand, the Indian products have also gained prominence over the
last few years. The prominence of the inputs in global exports is an indication of
greater knowledge by the importers and the adaptability of the inputs into the
production process relative to the inputs provided by the other non-regional trading
partners. The importers are likely to use the profits generated from the imported
inputs to add varieties to their product range and satisfy a greater range of consumer
preferences. This may allow importers to invest in secondary varieties available from

BRIC & Pk
The exports from BRIC countries plus Turkey are likely to substitute exports from .9
Pakistan in destinations where Pakistani exports are prominent as the exporters
have incurred substantial fixed costs to make their products competitive against
.core varieties supplied by the BRIC countries plus Pk
On the other hand, the exports from Pakistan are likely to complement exports from
certain BRIC countries plus Turkey to their non-regional destinations but not to their
.regional destinations
The lack of supply available from an origin that produces limited quantities, such as .10
the Russian Federation, may lead to a shortage of a product and increase the
demand from alternate sources such as Pakistan. However, the exports from Brazil
mainly complement varieties from Pakistan as the Brazilian varieties and Pakistani
varieties may not be considered as substitutes due to the vast geographical distance
.between the countries

BRIC & Pk
:FACTS
Brazil
Growth
in (Avg)
exports

8
percent

World
Export
BRIC

Russia

India

China

14
percent

18
percent

=20%

BRIC & Pk
:Conclude

Wilson and Purushohaman (2003), in their article titled Dreaming With BRICS: The .1
Path to 2050, map out the tremendous increase in economic activity likely to be
observed in the BRIC countries during the next 40 years. They suggest that the
BRIC countries will individually outgrow many of the developed economies today
and will eventually account for more GDP cumulatively than the UK, Germany,
.Japan, Italy, France and the US
Although, the exports from Pakistan contribute a negligible amount to the total . 2
world exports, its proportion in the total exports have been more prominent than
that observed for the Russian Federation and Brazil in the textile and creative
industries and more prominent than the exports from the Russian Federation in the
. leather industry

Challenges faced by
Use of High-Technology
for Quality Products to compete in the
Pakistan
international market
Availability of skilled manpower
The absence of energy efficient technologies and lack of proper
maintenance of steam pipes, steam traps and insulation are
causing wastage of significant amount of energy in most leather
processing units

Government Policies and

Incentives
Facilities from Export
Investment Support (EIS) Fund for

procurement of expert advisory services

Establishment of Research and Development Centers in Karachi
and Sialkot
Schemes to accommodate inland freight costs to exporters of
leather garments
Improving the electricity supply, the government announced that
agreements between water, power and electricity distribution
countries and a cluster of industries including leather industry
should be done
Less than 1% rebate on exports compared to 15% rebate of Asian
Countries

Threat of new Entrants

The Industry competes on price to cater the Local and
International market
Machinery for production is imported, High capital cost incurred
in Setup
New Technology in the International arena makes it hard for
foreign players to leave the Industry.
Local Manufacturers do not posses a Brand Equity
Hence the Threat of New Entrants is High

Bargaining Power of
Large number of manufacturers
in the Industry, catering the
Buyer
same market
The switching costs are negligible between manufacturers
Low local demand makes it hard to sell
Threat of backward-integration
The industry has generic variety of Products
Hence, the Buyer Power is High

Threat of Substitutes
Artificial leather and even Textile form a substitute for some of
the varieties
Substitute demand growing world-wide
Substitutes provide clothing needs while the product provides
esteem need
Hence, Threat of Substitutes is HIGH

Bargaining Power of
Abundant raw-material
available
Supplier
Threat of backward integration

Suppliers are in a large number so there are no monopolies

Suppliers are heavily dependant on manufacturers
High Profit Margin
Hence, Bargaining Power of Suppliers is LOW

Rivalry

The Industry has slow growth

Big retailers fighting for market share in the local market e.g
Jafferjees, Hub leather, EBH, Bata
Brand Identities In local market with low demand, generic products
in International market with High demand.
Competitors are diversified
Pakistan possessing a Quality advantage
Chinas double advantage; cheap Labor and cheap leather
Hence The Rivalry is HIGH

Recommendations
Above average Profit Margin can be utilized in the following ways:
Research and Development: Quality differentiation
Adopt a generic strategy of Cost leadership International
market
Diversification and/or Forward Integration: Creating Brand
Identities In the International Market
Increasing share of value-added leather products in the total export
market. (Currently 60%)
Train the labor force and make them technology oriented to upgrade
our end products to enhance credibility in the international market.
(Korean Technicians famous for Leather processes)

Recommendations
Comprehensive Study of the Supply Chain in the Industry to
lower Production and Setup Costs.
Creating unions with International brand producers of footwear
sector. Other brands sell extensively with Pakistani leather used.
Pakistan needs to develop local brand identities in this sector