Individual Case Analysis Leatherex Footwear Industries Limited

Submitted to Sheikh Morshed Jahan

Associate Professor

Submitted by

Laboni Akter Tarana Roll: 14; MBA 52D

IBA, University of Dhaka

04 May, 2016

Individual Case Analysis on Leatherex

Footwear Industries Limited

Submitted for Sheikh Morshed Jahan

Associate Professor Course Instructor: Business Strategy

Submitted by Laboni Akter Tarana

Roll: 14; MBA 52D

Institute of Business Administration University of Dhaka

04 May, 2016

INDIVIDUAL CASE ANALYSIS ON LEATHEREX

FOOTWEAR INDUSTRIES LIMITED

QUALITY AND COMFORT IN GENUINE LEATHER: LEATHEREX

Leather has been favorite among many for both its longevity and style. It has always fascinated

people by its fashionable and trendy appearance. Also its endurance can outlast, outperform any

synthetic good. Whether it is leather jacket or leather shoe, starting from clothes to accessories,

everything that is leather has always had its own uniqueness.

Leather is a durable and flexible material created by tanning the animal raw hide and skin - often

cattle hide. This material is used for various purposes including clothing, bookbinding, leather

wallpaper, furniture covering etc. It is produced in a wide variety of types, styles and colors using

a wide range of techniques.

Leatherex Footwear Industries Limited is one of the leading leather shoe manufacturer and

exporter in Bangladesh. This 100% export oriented leather footwear company has been working

continuously with inherited expertise and know-how. It is now a leading footwear company in this

country, catering to the footwear needs of a global clientele. It is manufacturing and exporting all

kinds of leather footwear.

The company was founded in March, 2000. It has utilized most modern state-of-the-art machinery

for footwear production and all the manufacturing operations are automated and manual both.

The manufacturing capacity permits a yearly production of up to 12, 00,000 pairs of shoes and

sandals.

Leatherex has been working in the field of leather chemicals for more than a decade. It processes

raw hides to finished leather, produces shoe upper to footwear. All of the experiences helped the

company reach its current position. Leatherex operates under the technical collaboration of

Japan, Italy and Taiwan. It has launched international brands of leather shoes and bags and

Italian famous brand ‘Garden Franco Ballin and Tu Ogi’.

Besides exporting to foreign countries, Leatherex also wanted to offer genuine and fashionable

leather goods to Bangladeshi people. With this purpose, Leatherex Fashion and Footwear started

its journey in 2012. It is a sister concern of Leatherex Footwear Industries limited.

Leatherex has already gained popularity among fashion-conscious customers because of its

comfortable, durable and stylish leather products. “I have shopped here for some time and

wouldn’t buy my shoes from anywhere else now. Leatherex offers first rate goods at a very

competitive price”, said Karin Ashraf a student of a private university while she was buying her

shoes from Leatherex.

“Every product of Leatherex is strongly tested and we emphasize on quality. We never

compromise with the genuineness of leather,” said Nazmul Hassan, the managing director of

Leatherex.

The company was founded with a mission of becoming a high-quality manufacturer of footwear

in Bangladesh. It has contributed to the development of the leather sector in this country and

provided tremendous support to the domestic cattle industry in the past years.

LEATHER - EXPORT HUB NEXT TO RMG

Leather is the second largest export sector of Bangladesh next to RMG (Ready Made Garments).

It is one of the oldest traditional industries. It has several components like tanning, footwear &

leather products including garments. This industry has a long heritage of over six decades.

Availability of indigenous raw material (hides and skins) facilitated the setting up of the industry in

early 1940s in the then East Bengal. During Pakistan period (1947-1971), the industry was

dominated by non-Bengali migrants from India, who had the knowledge and the know-how of

leather processing industry. At that time, leather processing was limited to the production of wet

blue leather (semi-processed tanned leather) and the non-Bengali traders exported a large part

of the produce to West Pakistan for further processing and production of leather goods. A few

small tanning units belonged to Bengali entrepreneurs who processed leather mainly for the

domestic market.

After the independence of Bangladesh, the government took over the tannery industry abandoned

by the departing non-Bengali entrepreneurs but had limited success in operating them under the

public sector. Export of processed leather consisted almost entirely of wet-blue leather till 1980-

81. After 1981, a number of policy support measures aimed at raising the level of value addition

in the industry provided incentive for new private investment in leather industry. The ban on export

of wet-blue leather in June 1990 led to the setting up of modern leather tanning units for the

production of crust leather (tanned leather after further processing of wet blue leather) and

finished leather and this was followed by new investment in leather goods industry, particularly

leather footwear. In fact, real progress in terms of product development with respect to ‘Crust &

Finished’ leather commenced in 1990’s following the ban.

The principal raw materials for this industry are cow and buffalo hides and goat and sheep skins.

Bangladesh produces between 2% and 3% of the world’s leather. Most of the livestock base for

this production is domestic, which is estimated as comprising 1.8 % of the world’s cattle stock and

3.7 % of the goat stock.

Although there are reportedly over 240 tanneries in Bangladesh, but, in fact, 50-60 tanneries are

in real operation with regard to production of ‘Crust & Finished’ leather. However, there are 150

members are officially enlisted with Bangladesh Tanners Association (BTA), the oldest leather

association in Bangladesh.

Around 250 million square feet raw hides and skins are annually processed consisting of 63.98%

cowhides, 32.74%wet-blue goatskins, 2.23% buffalo hides and 1.05% sheep skins. Over 80% of

which is exported in the form of Crust (70%), Finished (23%), footwear and leather-goods (7%).

And the rest is consumed locally for footwear and leather-goods industries. According to EPB

(Export Promotion Bureau), Bangladesh exports its leather, leather-goods and footwear to 53

countries of the world. The major importing countries are Italy, Germany, Japan, Spain, Hong

Kong, China, Brazil, UK, Canada, Australia, the USA, Vietnam and Fiji Island. Bangladesh Hide

and Skin Merchant Association President Md Ali Hossain said, “The country annually produced

200-300 million square feet of finished leather, most of which is exported. Bangladeshi leather is

the best in the world after the French product.”

Having business-friendly environment and imposing European Union’s antidumping duties on the

import of shoes from China, many global leather giants especially shoemakers are rushing to

Bangladesh. USA-based Timberland, Germany-based PICARD, Korea-based Youngone and

most notably Taiwan-based Pou Chen Group (one of the world’s largest shoemakers, producing

shoes for Adidas, Reebok, Nike, Puma and so on) as well as many renowned companies from

the leather-world have shifted here lately and many more is in the pipe line to come to

Bangladesh.

According to EPB, export of leather and leather goods crossed $1 billion in fiscal 2014-15 for the

second year in a row. We exported leather and leather goods worth $1.13 billion in 2014-15 which

was $1.12 billion in the previous fiscal year. Compound annual growth for the preceding five years

was over 25 percent, and there are early signs that the industry is moving towards higher value-

added production, more diversified export markets, and innovative new products. Stakeholders

believe that the country’s leather industry would see greater potentials once the tanneries are

shifted from Dhaka’s Hazaribagh to Savar.

Bangladesh Leather Sector is privileged by two potential opportunities. Availability of raw hides

and skins with globally recognized its fine textured grain. And enjoying a comparatively lower

production cost due to having a large number of skilled and semi-skilled low wage work force,

utility cost and cost of living in general. According to LSBPC (Leather Sector Business Promotion

Council), around 100,000 people are employed directly or indirectly in leather and its sub-sectors.

So, it is to say, Bangladesh Leather Sector has all the basic elements to make a sustainable

prospective business here.

PROMISING PROSPECTS OF FOOTWEAR INDUSTRY

Bangladesh is a country that promises great achievements in the years to come. Although the

export basket of our country is heavily skewed towards RMG export, several new sectors have

cropped up over the last decade. Footwear is one such sector which has tremendous potential to

significantly boost country’s export while diversifying the economy’s export basket. The

manufacturers believe Bangladesh’s annual $550-million footwear industry may grow to a $15-

billion sector within a few years, if the opportunity is seized. Total leather industry export marked

a record with over USD 1 billion in fiscal year 2013-2014 of which footwear alone accounted for

around 71 percent of this. All the major exporting companies are mainly export leather footwear.

Besides leather, footwear sourcing is also bringing in increased foreign earnings for the country.

Leather sector businessmen say foreign entrepreneurs are interested in Bangladesh’s footwear,

thanks to the availability of raw hide, processing infrastructure, low labor cost, and a slew of

government incentives including duty-free machinery imports.

LFMEAB (Leather goods & Footwear Manufacturers & Exporters Association of Bangladesh)

President Syed Nasim Manjur said at least 51 foreign companies had already expressed interest

in establishing joint-venture footwear units in Bangladesh. “China, the world’s largest footwear

manufacturer, is now withdrawing from the global market. And our country is ready with huge

potentials to attract foreign investments in the sector”, he said.

According to a report on www.researchandmarkets.com, China’s annual leather footwear

production had dropped by 5.29 percent in 2012 and 7.45 percent in 2013. Bangladeshi

manufacturers are planning to fill the vacuum in the international footwear market being left by

China.

LFMEAB estimates that in the first nine months of the fiscal year 2014-2015 (July 2014- March

2015) leather footwear exports totaled 354.22 million US dollars, which compares to a target for

the period of 325.08 million US dollars. This positions exports of leather footwear 9% above the

target for the period.

Data recently released by the Export Promotion Bureau of Bangladesh reinforces this, with

estimates for the period July 2014 –May 2015 of total footwear exports of 574.5 million US dollars

(excludes parts of footwear). This compares to 467.21 million US dollars in the period July 2013-

May 2014, and represents an increase of 23%, which is revealing of the country’s dynamic growth

in terms of footwear exports. LFMEAB General Secretary Humayun Kabir said, “Footwear

exports would grow more if duties on import of shoe materials were cut.”

The government has no specific information about the local footwear demand. However, the

footwear sector estimates it to be anywhere between 200 and 250 million pairs a year and 92-95

percent of the domestic demand was met by local products.

Bangladesh is exporting raw leather since the early Seventies, but it got its first footwear exporter,

Apex Footwear, in 1990. Now Apex produces 20,000 pairs of footwear a day in its Gazipur factory.

Footwear sector, as a sub sector of leather sector gets also priority from government but this

sector as well was ignored by the government for many years. Now in the era of globalization,

nobody can find an alternative of product/ export diversification. For this reason, government has

now started looking after footwear sector rather than jute and tea.

LEATHEREX EXPORTING TO FOREIGN COUNTRIES

In the wave of globalization, countries are exporting goods and services in which they are more

efficient, to a barrier free world market. Such efficiency rationalizes the specialization of a country

in the production of those goods in which they have a comparative advantage. The low wage rate

and poor enforcement of environmental laws and rules have given footwear sector of Bangladesh

a comparative advantage in the world market. Moreover, the country enjoys duty exemption under

the GSP (Generalized System of Preference) from the most of the importing countries of the

developed world. Bangladesh also enjoys a reduction of Tariff and other non-Tariff barriers from

WTO (World Trade Organization). While this provide an opportunity for a country like Bangladesh

to boost up its export. Also Bangladesh has available and high quality raw materials (hides and

skins) which is convenient for booming the leather and footwear industry.

Previously, Bangladesh only exported crust leather from the leather industry, as intermediate

product. Other leather products such as leather shoes and bags had not penetrated into the

international market by then. Leatherex realized that they could produce high-quality leather items

by utilizing their existing high quality raw materials and competent labor force. Leather footwear

offers a lot more value than Intermediate products or finished leathers. It earns four times more

foreign currency. Hence, to enter into the untapped market in order to enhance the export

earnings from this sector and contribute to the leather industry as a whole, Leatherex stated its

operations back in 2000. Currently, the major exporting market of Leatherex lies in a group of

countries which includes Japan, Germany, Italy, Austria, Australia, Canada and USA.

Keystone Quarterly Review said Bangladesh is increasingly becoming a preferred destination for

leather and footwear sourcing. “A number of Chinese firms have already relocated in Bangladesh

because of its competitive advantages within the value chain which includes: low labor cost, high

supply of raw hide, duty free and GSP facilities etc.”, it said. Several orders which earlier used to

go to China and India are now coming to Bangladesh.

CURRENT POSITION OF LEATHEREX

Leatherex is one of the major footwear exporters of Bangladesh. Apex-Adelchi Footwear Limited

is the market leader in this sector accounting for 45 per cent of the total footwear export earnings.

They shipped $110 million of goods overseas in 2013. Among other major exporters are Jenny’s

Shoes, Landmark Footwear, Bay Footwear, etc. Leather footwear is the major exported item of

these companies besides other leather goods.

Leatherex’s main export market is Japan, Korea, USA, UAE, Germany and Italy. Their factory is

operated under technical supervision of Italian, Japanese and Korean. They import necessary

materials from the renowned manufacturers of the World. Foreign raw material sources are

Korea, India, Italy, Taiwan, Japan & China, besides 70-80% locally sourced leather and others

materials. The tanneries are catering top brand shoe and goods makers in Europe, Far East and

China. So they have strong linkage for leather. They are also looking for new customers / agents

/ marketing companies in Japan, Europe, Middle East and USA to utilize their full capacity.

Leatherex has yearly turnover of 6 million US Dollar (approximately) and yearly capacity of

12,00,000 pairs which depends on design/article. It has a building area 75,000 square feet and

1200 employees.

Leatherex have proved their competency in the global market as a reliable manufacturer of high

quality and brand name leather footwear. “The leather industry of our country frequently faces

stiff competition from countries like Myanmar, India, China, Vietnam and Pakistan. We have to

bear in our minds that we must be competitive and produce better products than our competitors,

in order to stay in business.”, said Mr. Mohammed Nazmul Hassan Sohail, Managing Director of

Leatherex. Exported intermediate products never show the origin of the products but finished

products exported to foreign countries focus the name of the country of origin. ‘Made in

Bangladesh’ inscribed in international brands highlights the country's image globally. They

consider this a pride to be a part of this honor.

PRODUCT LINE AND PRICING STRATEGY

Leatherex’s main products are men’s sandal, casual, formal, women’s sandal, pumps, and boots.

They offer extremely stylish and fashionable ladies bag. These bags are of great quality and look

amazing. In addition, Leatherex has leather key rings, wallets, purses, pen holder, belt, cigarette

case etc.

Products Price Range (TK)

Men’s Sandals 1,000 to 7,000

Woman’s Sandal Starts from 700

Men’s Shoe 1,500 To 12,000

Ladies Bag 1,200 to 3,500

Key Rings, Wallets, Purses, Pen Holder, Belt,

Cigarette Case etc.

Within 1,500

Leatherex divided the shoes into sections for women, men and kids, and the shop organizes their

inventory in multiple ways. One can shop by category; Leatherex keeps it basic with sandals,

heels or boots or by special occasions, casual, dress or office. Leatherex’s impressive inventory

and extended categories, their wonderfully showcased outlets, their hard-to-find specialty sizes

or superior customer service makes it clear that it is one of the best shoe stores. Bangladeshi

customers can enjoy world class foreign shopping at home now.

LOCATION AND MARKETING STRATEGY

Bangladesh has a total population of 157.9 million and a large number of target customers.

Besides exporting, Leatherex also serves the home market. It targets the middle to upper class

of Bangladesh. As Leatherex ensures the quality and comfort of the products, we are bound to

keep the price in range which considered high price by many in our country. But considering the

durability and comfortability of the products, their price is quite competent.

Leatherex has five outlets in Dhaka at Gulshan, Dhanmondi, Shimanto Square, Farmgate & New

Elephant Road. They offer both the in-store and online shopping. To shop online, one needs to

simply choose the design from the official Facebook page. We can see their product number,

price including VAT and product description and then contact any helpline to book the order.

Leatherex even offers three months’ replacement guarantee. To make the shopping experience

more convenient, they also offer home delivery services. Considering their huge inventory with

finely tuned categories and their variations, Leatherex is the shoe store that anyone will want to

check out.

ENSURING QUALITY

Leatherex team try their best to ensure success and protection of their buyers. They have different

types of policy package for Quality Assurance. In the first one, buyer inspects 100% before

packaging with a support of Quality Assurance Department of Leatherex. In the second one, buyer

can nominate their representative to monitor and inspect the quality before shipment. In the third

one, Leatherex in-house QA (Quality Assurance) team check and inspect 100% merchandize

before shipment and a PSI certificate is being issued to the buyers.

Leatherex takes full responsibility of the products after arriving at the buyer’s destination. In case

of poor quality during inspection after arrived at the destination, Leatherex gives replacement

within 60 days at free of charge. An additional service such as X-ray with scan report is also

available for Japanese customers.

BARRIERS AND CHALLENGES TO OVERCOME

Leatherex started its journey in 2001 with Japanese know-how. Later they spread their business

in Korea, Italy and other countries. Their Japanese collaborator had doubt that if Leatherex would

be able to maintain the strict quality requirements. But Leatherex was able to pull that off

successfully with their competent management, skill labor force and strong determination.

Leatherex had to train its workforce and build the infrastructure of the business. The company

acted in compliance with environmental laws and worker safety which is also required by the

foreign buyers.

In the next 10 years, leather industry is aiming for USD 16 billion export target. Leatherex can

reach that goal only if it can overcome the obstacles that exist in the industry. In order to reach

the desired export target, certain conditions are prerequisite. Such preconditions include calm

and stable political environment, efficient regulatory body, safe and protected industry for the

workers, buyers and entrepreneurs, efficient and accident free traffic, no further such undesired

incidences in the RMG sector like that of Rana Plaza and Tazreen garments, etc. Keeping all

such externalities stable, the company has to look forward to capacity building which will be their

first priority in the years ahead. Most important is competitiveness in the World market and

reduction of high bank interest rate. They would also consistently search for new opportunities

and penetrate into new markets overseas. And, once new scopes and opportunities would be

identified, accordingly, they will plan to expand their existing infrastructure to accommodate high

business volume.

All the tanneries are to be relocated from Hazaribag to Savar with next years which is definitely

not only a good initiative but an essential one as well. Recently, the foreign buyers have raised

their concerns about the absence of ETP and pollution-free operations of tanneries in

Bangladesh. Moving the tanneries to Savar would ensure production of leather products in an

environmental friendly way. This would mean more foreign buyers would purchase the leather

products from Bangladesh as environment compliance would be met.

World leather footwear manufacturing industry, which is dominated by China, is shifting to other

neighboring countries in Asia due to labor cost differential. This could mean more foreign

investment in the Bangladesh. But the reality is that currently Bangladesh do not have the required

level of power supply and industrial zone suitable for foreigners in order to accommodate them.

Shortage of power and energy has been the only barrier for such foreign direct investment in the

leather sector. The government needs a long term solution in this regard to capture the fleeing

market share of China.

Shortage of power and energy and inadequate infrastructure pose the main threat to the business.

When there are electricity disruptions, power has to be generated by diesel-run generators, and

the cost of running diesel generators is very high. Poor condition of the Dhaka-Chittagong

highway road also makes it very difficult and costly to move goods as per buyers’ stiff deadline.

Leather industry also requires skilled labor force. The efficient human resource management of

Leatherex consistently focuses on building skilled manpower whose production adds to the GDP

of the country. Additionally, Leatherex values its employees by satisfactory remuneration.

In order to have strong growth of the leather industry, the industry must also get continuous

government policy support and bureaucratic hassles must be eliminated by the government, too.

Higher cost of diesel for power generation should be compensated by higher subsidies.

To run a business in leather industry, one must at first ensure that he/she has an efficient and

qualified management, which is indispensable for the day to day operations of the business.

Additionally, it is also imperative for the entrepreneur to be a leather professional.

AWARDS AND RECOGNITIONS

Leatherex achieved the following awards and recognitions.

National Export Trophy for 2001-2002 (Silver)

National Export Trophy for 2005-2006 (Gold)

National Export Trophy for 2008-2009 (Gold)

National Export Trophy for 2009-2010 (Silver)

Dun & Bradstreet Corporate Awards-2010

The Financial Mirror Business Award 2005

Business Award 2005

ISO-9001:2000 Certifications

A LOOK TO THE FUTURE

Leatherex look forward to adopting new technologies for their existing manufacturing units in order

to launch new brands under ODM (Original Design Manufacturer) program. ODM is a program

under which They plan to design, manufacture and brand their own products themselves. In the

future, they would also like to invite their major foreign buyers in Bangladesh and showcase their

products and capture more market share.

CONCLUSIONS

The main advantage that Bangladesh leather footwear industry holds is that, it has adequate

supply of the main raw material, leather, which comprises of minimum 50% to 80% of a leather

shoe/bag. In addition to this, the linkage industry like the ones producing shoe insole and outsole

have also developed, gradually. Our labors also have good trainable workers and craftsmanship

which gives us pretty unique combination of advantages over competitors. Our country also

enjoys GSP facilities in EU, Japan, Korea and other countries, which gives us a competitive edge.

From its humble beginning in 2000, Leatherex has become a global player by manufacturing high-

quality brand of footwear. Their products reflect high-quality design, superb craftsmanship,

attention to details, high level of customer satisfaction, and latest fashion trend. It is a local

company that has carved out a niche in the global market place.