5.

Overview and analysis of leather industry

5.1 PESTEL Analysis

Stakeholders need in-depth insight into the industry they delve into. A PESTEL analysis is a
framework or tool used by businesses to analyze and monitor the macro-environmental (external
marketing environment) factors that have an impact on an organization. The result of which is
used to identify threats and weaknesses which is used in a SWOT analysis. PESTEL stands for:
P - Political, E - Economical, S - Social, T - Technological, E - Environmental, L - Legal.

Political

1. The political environment is highly volatile with frequent strikes and clashes between the
major political crises.
2. The government policies are highly favorable with the sector being declared a “Thrust” sector,
whereby enjoying 7% interest rate for loans, bonded warehouse facility, 15% cash incentives,
Generalized System of Preference (GSP) facilities etc.
3. Trade policies fixed by the government has always been favorable to businesses though
bureaucratic red tape has always hindered the smooth operations of business.
4. EPZs provide excellent environment throughout for smooth operations of the business.
5. The government has set highly attractive incentives for the foreign investors to lure in FDI,
including 100% foreign ownership, 100% profit transfer to country of origin and that too without
prior permission from the central bank.

Economical

1. The economy has been growing at over 5 percent over the last decade and is set to continue
this trend for years. This has increased the number of middle to high-income group in the
economy who can afford leather goods with higher than average disposable
2. Interest rates have been set at the minimum possible level by the government whereby
ensuring the cheap source of capital for the business.
3. Exchange rates are heavily monitored by the central bank and are always favorable to the
exporters. However, the relatively devalued local currency makes imports of chemicals used in
the processing of rawhide and machinery used in the production process expensive.
4. While the economy sees the high level of food inflation, the overall inflation level has been
quite consistent over the last few years at less than 8 percent 26 showing a downward trend.

Social

1. Social factors like the acceptability of leather goods by the vast majority of the population
helps the sector gain popularity.
2. The trend of the present generation to lean towards fashionable and expensive products like
leather belts, side bags, jackets etc. increased the prospect of the sector.

Technological
1. The local companies are lacking behind major international brands in terms of innovation and
quality.
2. The small firms in the local market are overshadowed by the bigwigs producing in large scale
allowing for them to be able to afford expensive technologies.

Environmental

1. The long awaiting shift of the tanneries to Savar from Hazaribagh is yet to see any light of
day. When done, it will mean expensive relocation for the tanneries, and even more burdensome
costs to the small businesses who will not be allocated any land in the selected area.
2. The ETPs in Savar will allow increasing the value and acceptability of the local leather
whereby allowing for premium pricing and entry into the previously untapped market due to
restrictions.

Legal

1. Health and safety rules in Bangladesh are barely monitored and controlled.

2. Labor rate is the lowest in the world and there seems to be no interest in the government to
push the bar higher in the foreseeable future. There are no major restrictive laws in place that
hamper the smooth operations of the companies.

Strength
 
GovernmentIncentive:
 The government provides subsidy for the exporters to promote export in the country. This is a
huge strength of the industry. There are mainly two kinds of government incentives.
1.
 
An incentive is given when a new shoe exporting business begins for the first time. In this sort of
incentive, the company does not need to pay any tax for initial five years of its operation.2.
 
The second type of incentive is that the company gets incentive of 15% for every export they
conduct
Availabilityofrawmaterials:
This is another big strength for the shoe exporters. The main raw material for shoe is the leather
that is pretty much available in our country. The amount of leather is more than enough to meet
the present demand of shoes. Moreover there are enough tanneries in the country mainly in
Hazaribag to support this industry.

Qualityofleather:
Besides the availability in the country, the quality of the leather is also very good. This leads to
better quality of product when compared against close competing shoe industries of other
countries in the export market.
 

 
Cheaplabor:
Another important strength for the industry is the cheap labor available in the country. In
Bangladesh the labor is very cheap; according to an interviewee raw labors are available for only
Tk 1500-2000. This cheap labor helps to reduce the price of

3.1.10 SWOT analysis of Bangladesh leather industry

https://www.studocu.com/row/document/the-university-of-asia-pacific/internation-business/
rabbi-report-on-lether-industry/5312053

Challenges/Threats

i. The chemicals used in the leather industry of Bangladesh are mostly import-based. The price of such
chemicals and other sub-materials has surged several times in the Covid-19 pandemic and has a greater
unpredictability in the future. ii. Many foreign buyers who keep the environmental issue as their highest
priority may shift their orders to anywhere in the world from Bangladesh. iii. Some of the respondents
expressed their concern that more international price reductions may affect this sector. iv. The
availability of quality cheap artificial leather products & their attractiveness are also pointed out by
many participants as one of the major potential threats for this industry in Bangladesh. v. A delay in
establishing international standard compliance will also delay the issuance of some international
certificates, such as the Leather Working Group (LWG) certification, which is essential for market access
in Europe, the United States, and several developed Asian countries. More new countries, along with
current competitors, may form long-term sustainable trade partnerships with these countries, making
entry into these markets more difficult for Bangladesh. vi. Many respondents think that the delay of the
making fully functional of Central Effluent Treatment Plant (CETP) at Savar; the renewal of the previously
issued environmental clearance for many tanneries may hamper. It will also make it difficult to get an
export registration certificate (ERC) as an exporter, import registration certificate (IRC), which will also
linger the international standard certificates(Bangladesh Leather Industry Authority Proposed, 2021). vii.
According to Q6(v), roughly 85 percent of respondents believe that one of the main reasons for
importing footwear and goods is the Bangladeshi people's inherent desire to buy foreign items. This
issue also poses a significant danger to Bangladesh's leather industry's future development.
 Leather can be treated as
renewable
resource.
 Availability of integrated
production
chain from raw materials to
tanneries
and leather goods.
 Availability of a large
rather
inexpensive workforce
relative to
other comparable
manufacturing
societies.
 Reputation of Bangladesh’s
premium
grain leather
 Price advantage of
Bangladeshi
Leather In International market
 Durability of leather
products.
 Favorable business
environment with
existence of EPZ
 Reduced interest rate for
industrial
credit to leather sector to 7%
since it is
considered as thurst sector
by the
governme
strength Weakness
 Leather can be treated as
renewable
resource.
 Availability of integrated
production
chain from raw materials to
tanneries
and leather goods.
 Availability of a large
rather
inexpensive workforce
relative to
other comparable
manufacturing
societies.
 Reputation of Bangladesh’s
premium
grain leather
 Price advantage of
Bangladeshi
Leather In International market
 Durability of leather
products.
 Favorable business
environment with
existence of EPZ
 Reduced interest rate for
industrial
credit to leather sector to 7%
since it is
considered as thurst sector
by the
government
 Insufficient research and
development
facilities.
 Inadequate Knowledge on
proactive
marketing of local leather
enterprise.
 Lack of initiative in
arranging events
to promote locally produce
leather.
 Limited access to
financial
institutions.
 Unavailability of
chemicals and
accessories locally and no
provision
for local chemical industry.
 Poor demand in domestic
market.
 Inability to come up with
innovative
and trendy products.
 Absence of Vertical
integration
(forward and backward linkage)
 Lack of professional training
institutes
to improve skills of
workers at all
levels.
 Challenge of international
brand
image
Opportunity Threat
 Increasing global demand
for leather
products.
 High potential for quality
raw
 Delay in introducing
integrated
government policy for the
development of leather industry
strength Weakness
 Leather can be treated as
renewable
resource.
 Availability of integrated
production
chain from raw materials to
tanneries
and leather goods.
 Availability of a large
rather
inexpensive workforce
relative to
other comparable
manufacturing
societies.
 Reputation of Bangladesh’s
premium
grain leather
 Price advantage of
Bangladeshi
Leather In International market
 Durability of leather
products.
 Favorable business
environment with
existence of EPZ
 Reduced interest rate for
industrial
credit to leather sector to 7%
since it is
considered as thurst sector
by the
government
 Insufficient research and
development
facilities.
 Inadequate Knowledge on
proactive
marketing of local leather
enterprise.
 Lack of initiative in
arranging events
to promote locally produce
leather.
 Limited access to
financial
institutions.
 Unavailability of
chemicals and
accessories locally and no
provision
for local chemical industry.
 Poor demand in domestic
market.
 Inability to come up with
innovative
and trendy products.
 Absence of Vertical
integration
(forward and backward linkage)
 Lack of professional training
institutes
to improve skills of
workers at all
levels.
 Challenge of international
brand
image
Opportunity Threat
 Increasing global demand
for leather
products.
 High potential for quality
raw
 Delay in introducing
integrated
government policy for the
development of leather industry