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Barriers To Entry
Barriers To Entry
1. Capital Requirements – Footwear Industry is not highly capital intensive. We can start small
size footwear enterprise in a reasonable investment. We will take an example of a slipper
industry containing 10 machines to explain this. The requirements for setting up a slipper
machine are flat bed sewing machine, drill machine, motor and dies. All these costs add up to
around Rs 28,000. We cans start a cottage footwear business with an investment of as small as
Rs.50,000. To set up a small to medium scale slipper factory, we need initial investment of
under Rs 3 lakh (for 10 machines), the cost of raw materials, packaging materials and wages of
the workers. Leather and rubber are the primary raw materials in this industry, which costs only
Rs 75/sq ft for leather and Rs. 10,000/100kg for rubber. The average wage rate in rural India is
Rs 3000-4000 per month depending on the skill level. This data clearly points out that capital is
not a barrier to entry in the case of footwear industry.
2. Economies of scale – Fixed cost or the start up costs in the footwear industry are not as large
as compared to some other capital intensive sectors. So, the economies of scale can be
achieved with a medium volume of units. New product development costs are also low in this
case. Thus, economies of scale is not a considerable barrier to entry.
3. Product Differentiation – Footwear industry has seen a lot of innovation over the years.
Various companies have tried to differentiate their product from others by changing the
attributes of the product, introducing new products in the same category and targeting the
emotional attitudes of the customers. Global brands like Nike and Adidas target a diverse set of
customers, whose focus is not on utility rather on differentiated products in footwear. But, if a
new entrant wants to compete in a non-niche segment there is a lot of scope for it. The new
entrant can focus on designing standard footwear with existing technologies and still earn
profits. Customer loyalty is not that strong in the standard footwear segment in the Indian
context. Majority of Indians lie in middle earning group, which has low disposable income and
cannot afford high style brands like Nike. So, even product differentiation is not a big barrier to
entry in the Indian context.
After analyzing all the above factors, we can certainly conclude that footwear industry has low
barriers of entry or in other words the threat of a new entrant is high. Due to this very reason
we see a lot of local brands in footwear.
The footwear industry has a large growth potential. Currently, annual per capita consumption
of footwear in India is 1.6 pair of shoes. This is quite low as compared to the affluent countries.
As the demography of the country changes and middle class becomes more concentrated, this
number is expected to rise. Moreover with the advent of booming IT sector, e-commerce and
startups, a large portion of people will shift to the upper middle class category and hence will
have higher disposable income. Thus, the per capita consumption can be increased from 1.6 to
3-4. This creates a great space for the footwear industry.
The consumer preferences in India are also shifting. Earlier, the footwear was treated only as
utility product. But now the focus is shifting from just utility to design, style, lightweight,
international brands etc. As the population becomes more affluent these changes are quite
expected. In Tier-1 cities people are willing to pay high prices for global brands like Jimmy Choo,
Prada, Nike and Adidas to get the quality features.
The shift in consumer buying preferences may also cause threat to the traditional forms of
footwear. In the coming years the traditional footwear like Punjabi Jutti, Kolhapuri Chappal,
Kille Waali Jutti etc. will have to face the heat from national and international brands. People
are more inclined to sports footwear, stylish designer shoes and luxury brands. Being said that
rural India and Tier-3 and Tier-4 cities are still untapped in terms of footwear. They will still
prefer more traditional forms or basic footwear like shoes, slipper, chappal etc.
All in all we can summarize that there is a lot of potential in the footwear industry in the coming
years. Seeing the India’s demography and growth, we can easily predict optimistic road for the
in industry. Thus we can conclude that although trends are changing, there is a large market for
every type of footwear. The future of this industry looks bright and prosperous.
http://machinesforsmallbusiness.blogspot.in/2012/07/slipper-making-machine-and-shoe-making.html
http://rubberboard.org.in/rubberprice.asp?url=earlyrubberprice.asp
http://muvsi.in/slipper-making-small-business-manufacturing/
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http://www.thehindu.com/news/cities/mumbai/beef-ban-hits-dharavi-leather-traders-
hard/article7313098.ece
http://www.dsir.gov.in/reports/isr1/Leather%20and%20Footwear/3_5.pdf