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Footwear industry: exploring new waters

Updated November 28, 2016


Javed Iqbal Siddiqui, Chairman Pakistan Footwear Manufacturers Association.
Javed Iqbal Siddiqui, Chairman Pakistan Footwear Manufacturers Association.

The footwear industry is striving to reposition itself with a view to forming joint ventures with Chinese manufacturers in order to take advantage of the opportunity created by increasing labour wages in China.

Collaboration with Chinese shoemakers is expected to help the domestic industry access new technology and improve labour skills, as well as boost exports.

“Our industry wants to collaborate with Chinese manufacturers and establish joint ventures with them in the proposed economic zones to be created along the China Pakistan Economic Corridor (CPEC). This is because the move can help us boost exports and improve labour skills and productivity,” Javed Iqbal Siddiqui, chairman of the Pakistan Footwear Manufacturers Association (PFMA) told Dawn in an interview last week.

“A little government support on issues hampering growth, and collaboration with Chinese manufacturers, will go a long way towards improving our exports” — Javed Siddiqui

Local shoe-makers have so far been unable to attract Chinese investors in spite of their strong desire for collaboration because they do not have the requisite experience for establishing joint ventures with foreign companies. Moreover, according to Mr Siddiqui, the Chinese are also afraid of coming to Pakistan because of security concerns.

“Rising labour costs, which have crossed $6,000 per person per year compared with around $1,200 in Pakistan, are forcing Chinese manufacturers to relocate their facilities in countries like ours. A little bit of help from the government in this regard will be greatly appreciated,” asserted Mr Siddiqui, whose company, Stylo Shoes, has expanded its retail network from a mere three outlets in 2003 to more than 100 stores across the country.

Shoe imports, primarily from China, form almost two-fifth or Rs100bn of the annual industry sales turnover of around Rs250bn. Mechanised shoe-making units in the organised sector — concentrated mainly in and around Lahore — represent only a fifth of the total domestic production Rs150bn. The remaining demand is met by the cottage industry in the unorganised sector and spread in Karachi, Lahore, Multan and Faisalabad.

Stylo Shoes has an in-house manufacturing capacity to produce fashion products, representing a third of its annual sales of 2.5m pairs. The production of casual footwear is outsourced to unorganised units. “The products that cannot be manufactured in Pakistan because of lack of technology, raw materials or high production costs are imported from China. Imports form a third of our sales,” Mr Siddiqui said.

The PFMA chairman is of the view that Pakistan’s industry missed the opportunity offered by the global shift of manufacturing, from the West to the East.

“Our industry’s growth is hampered because we did not invest to improve our technology, groom skilled labour and develop the ancillary industry (producing lasts, heels, trims, buckles, etc).

“Little wonder that we have to import from China to meet our domestic demand while our footwear exports are stuck at around $110m despite the availability of locally produced high quality finished leather. Compared with us, Vietnam exports shoes worth $6.23bn and India $10bn.”

He said his association has launched a programme to support the creation of an ancillary industry and develop skills of workers in collaboration with the Australian government and a German organisation.

Australia has set up a Market Development Facility (MDF) under which a facility has been established for producing plastic lasts. The German organisation, GIZ, is helping the industry in skills development.

The PFMA chairman argued that the lack of an ancillary industry had forced organised shoemakers to ‘vertically’ structure their facilities. “Each and every step involved in the production of a shoe is performed under one roof against the global practice of encouraging horizontal production. The vertical structuring of manufacturing not only hampers expansion but also affects productivity.”

Siddiqui contended that footwear is one of those industries that has a significant potential for job creation and boosting exports. “But our failure as an industry to adopt the global model of production has encouraged the spread of the unorganised sector and stunted the growth of organised, mechanised units, as well as hampered product development.”

He believed that the local footwear industry will have to be restructured horizontally through development of an ancillary, supporting industry, mechanisation of the cottage industry, investment in technology and skills development.

“If India and others are ahead of us, it is because they have worked hard to remove the snags in the development of their industry. A little government support on issues hampering growth, and collaboration with Chinese manufacturers, will go a long way in improving our exports.”

Published in Dawn, Business & Finance weekly, November 28th, 2016