Introduction

The leather industry has been a key player in the global commerce market for millennia, some
even claiming that it may be the second oldest profession in the world. Today it is indisputably
a major industry of huge economic importance on an international s cale; in just one year alone,
23 billion square feet of leather is produced, accounting to around 45 billion dollars* (2007).
However, the industry has not been unaffected since its genesis, but rather has experienced
many significant and consequential changes, particularly in the last 20 to 30 years.

Due to new environmental legislations being placed on all sectors of the industry in countries
across the world, it saw advancements not only for environmental means but for ethical and
social sustainability (particularly with regards to animal welfare) and economic (such as a
commitment to fair trade) too. Strict, restrictive regulations were enforced in Industry at large
and some more specifically to the leather sector to best improve its end products and in every
stage that led up to their completion. The farmers, tanners and production units that were able
to survive under the new conditions were those that had invested heavily in order to meet high
standards and thrive. New technology and machinery was developed to the advantage of
leather production and as a result, the industry and its producers found more success and
integrity.

The bedrock of the leather industry is, for the most part, based on the conversion of the food
and agriculture industries’ waste into a variety of beneficial, sustainable and covetable end
products. By processing and recycling waste byproducts from the meat, dairy and wool
industries for leather, huge value is generated and the global economic importance is immense.

Value all begins with the basic material; for the tanner, the raw hides and skins represent 50%-
60% of the cost of producing a piece of leather, so their quality and care is priority. Tanners buy
on the assurance that the raw skins and hides are suitable for manufacture in order to meet the
particular purpose for the leather and their target markets. The quality of these hides and skins
will eventually be reflected in the price of the final product, so it really starts with the quality in
farming followed by careful handling and maintenance in each stage of the process.
The attributes that are considered when deciding on the quality and in turn price of a piece of
leather include strength, flexibility, breathability, friction resistance and the potential to be
water or heat resistant. These qualities usually depend on the part of the animal that the piece
of hide comes from and will determine its eventual use, e.g. the posterior is the strongest part
as the fibres in the hide are more tightly packed while the shoulder is thick and strong but tends
to crease more easily. Many companies in the industry, in order to stay competitive and
survive, choose to become specialists in a particular type of leather. Furthermore, how much of
the end product is leather will determine the pricing too, with some ‘leather’ products
containing some non-leather materials as is often the case in fashion garments and smaller
leather goods. All these factors mentioned inform the buying and pricing of leather.

The leather industry could not be described as anything but an international industry, with
everything from the raw hides and skins, part processed leather, finished leather, leather
components to the whole leather products being extensively imported and exported.
Production takes places all over the world and is closely connected to the agriculture industry
of each country. With around 65% of global leather production sourced from bovine (cattle),
15% from sheep, 11% from pigs and 9% from goats, areas of production depend heavily on
where these animals are raised for food and wool. Most of the leather in the U.S. and Europe
comes from China (the world’s leading exporter), India, Brazil, the U.S., and Argentina, all of
which make up the majority of the 65% bovine share. While the addition of countries including
Australia and New Zealand account for the leather sourced from sheep, and Pakistan, Sudan
and Bangladesh in the case of that sourced from goats.

The world’s leading countries for leather goods manufacturing include China, India, Brazil,
Vietnam and Italy; some are more important for value-adding and luxury goods and others for
sheer volume. The production of leather goods in Europe specifically is in a steady decline, but
the countries that export the largest share are Italy, France, Belgium and Spain.

In an industry such as this one, the consumers inevitably have the control, with their infinite
desires, needs and demands for leather. The industry must therefore meet and keep up with
these ever-evolving and growing pressures through constant innovation and ingenuity - the
simple uses of leather that have been around for millennia are no longer enough. Traditional
leather manufacturers are also now made to compete with alternatives in the market. Despite
these departures from the age-old uses of leather, the classical uses: footwear, clothing,
furniture, and small leather goods remain the most popular. In fact, roughly 50% of the leather
produced today is estimated to go into leather footwear, followed by furniture, clothing,
leather goods, the automative industry (parts in automobiles and aircrafts) and saddlery; all
time-honoured products of the global leather industry.

Players in Industry
Taking all sectors into account, exports from Asia represent 59% of the global total, a
percentage that has remained stable for the last ten years. The four main Asian exporters are
China (1st), Vietnam (3rd), Indonesia (5th) and India (7th). This quartet represent some 52% of
global exports.

One notable fact over the last ten years has been the redrawing of the map within the Asian
continent. In 2017, despite its first place in the rankings, China represented just 34% of global
exports, against 45% in 2010. This shrinkage from the Asian giant was particularly beneficial to
Vietnam which has earned 6 points of market share since 2010 and 8 since 2000. The situation
is most notable within the footwear sector. In general, 65% of global footwear imports come
from Asia and 30% from Europe. Although it is true that the shoes are mainly of Chinese origin,
China has actually lost 10 points of market share over the last decade, while Vietnam and
Indonesia have respectively gained 8 and 2.5 points. The United States are the largest importers
of shoes from this leading trio.

For the last 10 years, China has been the world leader in the leather sector but it is facing
increasing competition in footwear (down 10 points), leather goods (down 14 points) and
leather clothing (down 16 points) from its Asian neighbors, who manage to combine
inexpensive labour and a level of quality that is sometimes superior, as well as from European
countries situated in the premium segment.
 Raw material, leather and shoe production by country
Raw Material Leather Production Shoe Production
Country
% of World Total % of World Total % of World Total
Argentina 4.4 3.5 0.4
Brazil 10.9 8.8 5
China 16.5 21.4 63.7
India 12.6 6 12.5
Italy 1.2 10.9 1.5
Republic of Korea 0.2 5.8 0.8
Mexico 2.3 3 1.3
Pakistan 2 1.9 1.5
Spain 0.8 2.3 0.8
Thailand 0.4 1.1 1.7
Turkey 0.5 2.8 1.1
USA 10 2.2 0.2
Rest of the world 38.2 30.3 9.5
100 100 100
Source: FAO, SATRA.

Major leather producing countries

Country % increase in 10
1997 2000 2001 2003 2006
years
Argentina 721 529 561 561 655 -9.15
Brazil 602 726 741 1,005 1,655 174.92
China 1,969 3,005 3,312 3,546 4,000 103.15
India 1,036 1,102 1,106 1,092 1,119 8.01
Italy 2,020 1,922 1,926 1,902 2,039 0.94
Republic of Korea 1,235 1,260 1,349 1,344 1,090 -11.74
Mexico 614 556 509 511 570 -7.17
Pakistan 302 323 336 350 359 18.87
Russia 660 888 1,034 1,450 1,410 113.64
Spain 541 529 528 510 430 -20.52
Turkey 572 340 470 470 528 -7.69
USA 560 730 670 558 417 -25.54

Now basing on the data sated above from Food and Agriculture Organization (FAO) of United Nations
we can sort out three countries namely China, India and Brazil basing on location benefit, stability and
growth of market for last 10years and Governments policy towards tannery business.
Strength of Selected Countries in the Industry
China
• Very large production of leather footwear, garments, upholstery, and other leather products;
• Very large and growing (but not adequate) domestic raw material supply;
• Large and fast-growing domestic market for footwear, premium leather goods and
upholstery;
• Very large imports of leather mainly from India, the Republic of Korea and Italy;
• Potential limitations in water and energy supply;
• Major environmental issues emerging;
• The world’s largest pigskin supply and pigskin tanning industry;
• Pigskin supply badly affected in recent years by disease;
• Current government policy is to close smaller tanneries and those without effluent treatment
(the impact of this policy on total production volume is unclear).

India
• Strong raw material base and tradition;
• Good benefits from clustering and investment;
• Recent switch from second-hand to new machinery in investment policy;
• Growing domestic market;
• Some limitations in water supply and due to environmental issues in some regions;
• Despite significant growth in recent years, domestic consumption is surpassed by tanning
capacity;
• Sizeable production of leather clothing and other leather goods.

Brazil
• Strong domestic raw material supply and substantial supply from neighboring countries;
• Strong domestic footwear and leather (especially travel) goods production;
• Good links to US footwear market, but exports affected by strength of domestic currency;
• Highly active in world export markets;
• Tanners are specialized and effective.
Brazil went down by 8 in rank for the Global Competitiveness Index from 2007 to 2017. Its
latest rank is 80 out of 137 countries for 2017. Whereas China went up by 7 in rank (27) and
India went up by 8 (40).

Global Competative Index

Now for sake of easy understanding let us consider only China and India for Investment consideration.
This decision is baked by distance economics as Bangladesh being the home country and exchange rate
stability.

Country China India

Overall 28 39
Institutions 45 42
Infrastructure 42 68
Macroeconomic environment 8 75
Health and primary education 41 85
Higher Education and Training 54 81
Goods market efficiency 56 6o
Labor market efficiency 39 84
Financial market development 56 38
Technological readiness 74 110
Market size 1 3
Business Sophistication 34 35
Innovation 3o 29
Financial development is the 8th pillar in The Global Competitiveness Index, and includes
several sub-metrics that describe the soundness of a country’s financial sector. That includes
such measures as domestic credit to private sector, financing of SMEs, corporate bond
issuance, financing through equity markets, market capitalization of listed companies,
soundness of banks, bank non-performing loans, and regulation of security exchanges.

Why is this metric so important? First, poor financial development leads to uncontrolled growth
of credit, which fuels financial bubbles, which lead to economic crises.

That seems already to be the case in China. In a recent report the Bank for International
Settlements (BIS), pointed to the rapid rise of China’s credit-to-GDP ratio, which now stands at
30.1, three times the threshold of 10 that indicates an impending financial crisis.

Second, the financial system is the Achilles heel of emerging market economies -- the sector
where economic crises arise, and the reason equity market rallies end and bear markets begin.

In fact, it was government’s heavy-handed intervention in financial markets that killed recent
rallies in Chinese equities, which have been lagging behind Indian equities in the last five years.
And things can turn worse, when China’s multiple bubbles burst.

That’s why I’d rather bet on Indian rather than Chinese equities at this point.

Here are eight reasons why India is a seriously compelling story for investors:
1. Size of India
India's GDP is currently US$1.3 trillion, making it the 8th largest economy in the world.
However, in PPP terms, which recognises India's low cost base, the GDP notionally rises to three
times this amount (US$3.8 trillion) which places it on a similar size to Japan and, by 2013, it will
become the third largest economy in the world (after the USA and China) in PPP terms.
However, despite representing 7.5% of Global GDP (on a PPP basis) in 2010, India attracts less
than 0.5% of investment inflows. An anomaly which is unlikely to continue for much longer!
2. Economic growth
India's economy is currently growing by 8.75% per annum (in 2010) and this GDP growth rate is
expected to increase to 9% - 10% per annum for each of the next 10 years. India's GDP will
grow five times in the next 20 years, and GDP per capita will almost quadruple.
3. Diversity
The Indian economy offers investors exposure to a wide range of opportunities from consumer
goods and pharmaceuticals to infrastructure, energy and agriculture. With its strong services
sector (comprising 50% of India's economy), particularly in knowledge-based services (IT,
software and business services) India has proved that industrialisation and the export of
commodities and resources is not the only path to rapid economic development.
4. Demographics
India is one of the youngest countries in the world, with an average age of 25 and likely to get
younger. India's working-age population will increase by 240 million over the next 20 years.
With a population of 1.2 billion, a strong work ethic, high levels of education, democracy,
English language skills and an entrepreneurial culture, India is poised to dominate the global
economy in the next 20 years.
5. High Savings
With a savings rate of 37% of GDP, India's domestic savings fuels most of its investment
requirements, and only 20% of India's total public debt is sourced from foreign borrowing. With
significant investment to be made in upgrading India's poor infrastructure in the next 10 years
(estimated to be US$1.7 trillion) India's Government is taking various steps to further
encourage private and foreign investments.
6. Domestic economy
India's domestic consumption, generally led by the private sector, has played a significant role
in India's growth and is expected to remain firm as more people enter the workforce and the
emerging middle classes. India's wealthiest consumers (those earning US$1m or more in PPP
terms) will increase by 40 million in the next 10 years! Every sector within India's consumer
market is booming, making India far less vulnerable to external shocks and pressures than other
emerging markets.
7. A robust financial sector
India has a robust, diversified and well regulated financial system which has allowed it to
weather the global financial crisis without any major difficulties and present an image of
quality, resilience and transparency. India's banking sector is strong, with top quality balance
sheets, high levels of competition (there are around 80 banks in India) and strong corporate
governance.
8. Quality of Investment Markets
The Bombay Stock Exchange is the second oldest in the world (165 years) and offers investors a
low cost, highly efficient, modern and well governed environment in which to prosper from
India's extraordinary economic growth. The Indian stockmarket has generated investment
returns of over 15% per annum for the last 10 years and experts expect this rate to increase in
the next decade. More significantly perhaps, Indian investors have doubled their money over
the last 3 years at a time when many have lost money in almost every other market
The World Bank has predicted that the Indian economy will register an 8% growth in 2019. If
this prediction comes true, India will become the fastest growing economy for the first time,
surpassing China's 7.7% growth.

Conclusion
The success of investment prospects in India will depend primarily on the precise estimation of
its potential. Overestimation of its possibilities or underestimation of its complexity can lead to
failure. For entering India's marketplace, companies will need to have a well-planned strategy
backed by careful research and serious thought. For people looking at India as an opportunity
for long-term growth instead of short-term profit, the trip will surely be worth the effort.