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Kanpur (India) Leather Cluster-A SWOT analysis

Article · February 2014

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 Kanpur (India) Leather Cluster - A SWOT analysis
Sandeep Kumar Guptaa1 and Sanjeev Guptab
a
Dept. of Industrial & Management Engineering, Indian Institute of Technology Kanpur, India-208016;
b
PIU of IDLS, Central Leather Research Institute, Chennai, India-600020

Abstract

Kanpur, a city in the state of Uttar Pradesh, holds a major industrial cluster of leather and leather
products manufacturing in India. It consists of mainly small and medium business enterprises,
located at the bank of the Ganga river. These business units have been meeting the needs of
society and economy by generating employments and earning foreign exchanges, but many
industrial surveys reveal that the cluster does not meet the requirement of the first pillar of
sustainability i.e. environment. This study focuses on the SWOT analysis of the cluster in order
to find out appropriate strategies for its sustainable development.

Keywords: Leather; Kanpur; India.

1
Corresponding author (Tel: +91-8765696343; Fax: +91-512-259 7553; E-mail: sandipkg@iitk.ac.in (S.K. Gupta)
 1. Overview of Indian Leather sector

India, one of the rapidly emerging countries of the Asian continent, has made its footprint in the
map of world leather industry through its significant share in the world trade. Indian leather
industry is mostly unorganized sector/MSME segment. Small companies contribute to 90% of its
overall production (Bombault and Begeer 2013). Indian leather industry has massive potential
for employment, output growth and export. Table 1 highlights the annual production capacities
of different segments of leather industry.

Table 1. Annual Production capacities of Indian leather industry

Hides 6.5 crores pieces

Skins 17 crores pieces

Leather footwear 90.9 crores pairs

Leather shoe upper 10 crores pairs

Leather garment 1.6 crores pieces

Leather goods 6.3 crores pieces

Industrial Gloves 5.2 crores pairs

Saddlery & Harness 1.25crores pieces

Source: CLRI estimates

India has about sixteen hundred tanneries with a total processing capacity of 23.5 crores pieces
hides and skins per year (DIPP, 2012). The sector is dominated by micro and small units. Indian
tanneries process goat, sheep, cow and buffalo hides/skin, using both vegetable and chrome
tanning. As leather processing requires large amounts of water, most of the tanneries are located
around the Ganga river system in North India and the Palar river system in Tamil Nadu. Table 2
provides the details about the major leather clusters in India.
 Table 2. State-wise Tanneries & Production units in Indian Leather Industry (2008-09)

Leather Leather garments

Numbers % of
State Production Places Footwear & leather goods
of Tanneries Tanneries
Units Units

Chennai,Amber,Ranipet,
Tamil Nadu 934 44.6 Vaniyambadi,Trichi, 160 598
Dindigal

West
538 25.7 Kolkata 230 436
Bengal

Uttar Pradesh 378 18 Kanpur, Agra,Noida 268 22

Maharashtra 33 1.6 Mumbai 20 48

Karnataka 16 0.8 Bangalore 48 40
AP 24 1.15 Hyderabad 128 10
Punjab 79 3.8 Jalandhar 163 8
Ambala,Karnal,
Haryana 18 0.8 30 1
Guragaoun,Panchkula

Source: Central Pollution Control Board, Council of Leather Exports(2008-09)

Table 2 reveals that of tanneries and production units are concentrated in three statesmainly,
Tamil Nadu, Uttar Pradesh and West Bengal.

2. Overview of Kanpur Leather Cluster

Kanpur is one of the very important districts of the state of Uttar Pradesh, India. The district lies
0 0 0 0
between 25 25’ & 25 54’ latitudes and 79 34’ and 80 34’ longitudes. The Kanpur leather
industry is known for sole leather, industrial shoes and saddlery products. It is the largest centre
of buffalo based leather in India.
 Figure 1. Location of Kanpur (encircled) in the map of state of Uttar Pradesh

Most of these tanneries are located in a small area nearby the river Ganges, called Jajmau. A few
of tanneries has also been set up in the nearby town of Unnao. In addition to these, Kanpur city
has a number of leather product manufacturers. Many of them have either a tannery in the
Jajmau cluster and/or long term association with Jajmau tanneries. Table 3 presents some facts
about this cluster.

Table 3. Some facts about the Kanpur leather cluster

1 Principal Products Manufactured in the Cluster Finished Leather, Leather Footwear, Leather
Garments and Leather Goods etc.
2 Key Association address U.P. Leather Industries Association, Kanpur.
3 No. of Functional units in the Clusters 1635 Nos.
4 Turnover of the Clusters Rs. 2926 crore.
5 Value of Exports from the Clusters Rs. 2038 crore.
6 Employment in Cluster 100000 persons.
7 Average investment in Plant & M/c Rs. 2.5 lakh
9 Major Issues • Poor quality raw material
• Limited access to finance (Small Tanners)
• Low value Realization
• Low productivity
• Availability of stitches
10 Access to Export Market USA, Hong Kong, China, UAE.
Source: DIP 2012
 2.1 Export Performance of the Kanpur (central) leather cluster

The cluster has marked a significant CAGR of 13.62% over the time period 2002-03 to
2012-13 with export value increased from Rs. 1433.55 crore to Rs. 5138.06 crore (Fig.
2). The upward trends of all the product segments of leather basket are really a very
positive sign for business sustainability of the cluster.

Figure 2. Export trend of leather products of Kanpur leather cluster

Source: CLE 2013

Table 4 shows that finished leather has been leading the portfolio with impressive CAGR and
AAGR of 16.23% and 34.99% respectively during 2002-03 to 2012-13. Leather footwear exports
have been the second best performer in the leather and leather products portfolio of Kanpur
leather cluster.

Table 4. Growth rate pattern of leather and leather products during 2002-03 to 2012-13

Cumulative Annual Growth rate (in %) Average Annual Growth rate (in %)
Finished leather 16.23 34.99
Leather footwear 12.86 23.53
Leather garments 5.50 7.08
Leather goods 16.67 36.73
Saddlery 8.87 13.39
Since decades finished leather and leather footwear and it components have been major
contributors to export’s earnings with 75 to 80% share (Fig. 3). Saddlery products, which are
specialty of this cluster, have maintained their average share as 15.7%.

Figure 3. Export share of leather products of Kanpur leather cluster

Source: CLE 2013

Although the volume of exports has been increasing impressively but its share in India’s exports
has been hovering around 16 to 21% with average as 18.19% during 2002-03 to 2011-12 (Fig.
4).
Figure 4. Trend of export share of Kanpur leather cluster

Source: CLE 2013

Note: KLC stands for Kanpur Leather Cluster and RoI stands for Rest of India
 3. SWOT Analysis

3.1 Strengths:

1. Raw material availability

Due to agrarian based economy of the U.P. state, Kanpur has good accessibility of animal
population which can be utilized for leather processing after natural death or
slaughtering. According to 18th livestock census of the state, it has 1,90,97,352 cattles,
2,64,40,393 buffalos, 14,00,474 sheeps, and 1,48,29,064 goats. Moreover, increasing
trend of the livestock population, as shown in Fig. 5, highlights bright prospects of the
leather industry in Kanpur.
While analyzing supply and demand flow of raw hides and skins, as shown in Fig. 6, it
seems that the cluster has good backward linkages with other states also for procurement
of raw material. The annual availability of 50 lakh bovine and 35 lakh ovine pieces of
hides and skins respectively is the main strength of the cluster. Another major input i.e.
water is also abundant in the cluster due to proximity of the Ganga river.
Figure 5. Trend of livestock population in Uttar Pradesh

Source: GoUP 2013

 Figure 6. Supply and demand balance of raw hides and skins for Kanpur leather
cluster

Neighboring towns Local slaughter

Terminal markets 50 lakh bovine, 35 lakh Flayers

ovine per annum.
Kanpur
Other states Delhi,
Haryana, Rajasthan, Imports
Uttaranchal

Local tanners Commission agents / tanners

Kolkota, Chennai

Source: GoI 2006

2. Rich experience in leather processing

Kanpur is one of the major Industrial towns in the country. It was very famous in the
world for manufacturing of clothes and known as Manchester of Asia (DIP 2012). Since
British time (approx. 150 yrs.), production of leather and leather products’ has been going
on in this cluster. It started by Britishers’ in 19th century to meet requirement of army
and police. In due course of time, the place acquired a name for making leather and
leather products on world map and started exporting these products to many countries
across the globe. Thus, abundance of traditional skills in tanning, finishing and
manufacturing downstream products is the major factor of comparative advantage for
Kanpur.
 3. Institutional support
There is plethora of government supported academic and industry welfare related
institutions in the cluster. As Kanpur was hub of industrial activities in the past, the
directorate of Industries, Govt. of UP is situated at Kanpur only. Support institutions
related to leather sector like extension centre of Central Leather Research Institute
(CLRI) and Council for Leather Exports (CLE) have their presence in the cluster. In
addition, Indian Institute of Technology (IIT), one polytechnic and one Industrial
Training Institute (ITI), and many other engineering colleges and management institutes
are also present in the cluster.

4. Skilled and low cost manpower availability

Harcourt Butler Technological Institute (HBTI), Government Leather Institute (GLI) and
International Institute for Saddlery Technology & Export Management (IISTEM) are
running full time degree/diploma courses in areas of leather, footwear and saddlery
technology and also short term courses for operators. Therefore, skilled manpower is
easily available in the cluster. Moreover, declining business scenario of other industry
also offers it a better opportunity. As far as cost is concerned, a study conducted by
IL$FS reveals that the labour cost 5% of finished leather production cost.

3.2 Weaknesses

1. Inadequate environmental compliance:

The malfunctioning of individual and common effluent treatment plants due to under
capacity (see Table 5) has led to dumping of polluted water into the Ganga river. This
poor environmental compliance has been degrading the water quality of the Ganga and
making it more vulnerable towards public protest.
 Table 5. Status of the CETPs’ of the Kanpur leather cluster2
Details Jajmau Unnao
No. of tanneries Proposed 354 21
No. of tanneries actually 400 25
connected
Inflow of effluent planned 36 (27 (sewage) + 9 4.5
(MLD) (effluent)) (3:1)
Inflow of effluent actually 4 to 5 times more than NA*
takes place (MLD) actually planned
*NA= Not available
Only few large export houses have certain systems and adherence to environmental
regulations and standard (Gombault and Begeer 2013).
2. Poor quality raw material:
It is reported that cluster lacks in state-of-the-art slaughter house facility which lead
towards damage of hide during slaughtering and/or flaying. In case of transport of the
live animal under unhygienic and congested condition, hides or skins suffer scratches,
bruising, or dirt contamination.
3. Suboptimal backward integration of supply chain
The cluster procures only 30% of its raw material supply from organized slaughter
houses and remaining from Hide merchants/commission agents (55%) and import (15%).
This kind of supply proposition may pose some risk due to excessive dependence on
commission agent which, generally, considered unorganized with uncertain supply and
variable price of raw hides and skins.
4. Technology Management and Financial Problems
Most of the tanneries in Jajmau cluster use outdated and inefficient technologies and their
environmental performance is poor which makes every kind of financing (term loan and
working capital loan) either unavailable or available at higher cost.
5. Small Capacities
Out of around 1600 units engaged in production of leather & leather products, approx.
95% are small and medium enterprises (GoI 2006). Due to small capacity of tanneries in
this cluster, they are not reaping the benefits of economy of scale.

2
Information is based on personal interviews conducted by authors
 6. Non recovery of raw hide and skin
Recovery of fallen hides of carcasses is not up to the mark due to unavailability of
appropriate infrastructure. As of now, we could recover only 25% of fallen animal hides
and 70% of slaughtered animal hides (GoI 2006).

3.3 Opportunities:

1. Favorable trade policies

As mentioned earlier that GoI has implemented many policies under ILDP which
provides ample opportunity for incentivizing and growth of the leather sector. Till
recently, around 108 tanneries have been benefited and 28 are in pipeline, and approx.
Rs. 25 crores have been disbursed to this cluster under ILDP scheme.3
2. Development of Mega Leather Clusters
In a recent notification, Govt. of Uttar Pradesh has approved two greenfield mega leather
cluster (MLC) projects to come up at Sandila in Hardoi and Ramaipur in Kanpur districts
(GoUP, 2012). It is expected that development of these clusters will fill the infrastructural
gap and bring back development of the cluster.
3. Opulence of Synthetic Support Materials
Now-a-days, in the manufacturing of leather products lot of synthetic materials are also
used for embellishment. Suppliers of these materials have their establishments in the
cluster which ensures smooth and ample supply.

3.4 Threats

1. Competition from Existing and New entrants

There is an intense competition for Kanpur leather cluster form other clusters which are
well established and also from clusters which are coming up, within India like Chennai,
Ambur etc. and abroad like china, Indonesia, Turkey, Thailand (SINET, 2007) etc. For
instance, leather working group’s (LWG), an international certification organization for
environmental compliance, gold rating to suppliers from southern cluster of India which
include Chennai, Ambur, Ranipet etc. is giving them an edge over others.

3
It is based on personal communication with the chief scientist at IDLS office, Chennai
 2. Strict environment compliance laws
In the time to come, stricter environment norms like zero liquid discharge (ZLD) which
has been already implemented and adopted by tanneries in south india may lead towards
temporary or permanent closure of tanneries in the cluster.
3. Supply of raw material squeezing
Figure 7 clearly depicts that supply of raw hides and skins from slaughter houses has
either decreased, or increased marginally over the time period 2005-06 to 2011-12 in the
state of Uttar Pradesh. The supply constraint is really very alarming for the development
of this cluster.
Figure 7. Counts of slaughtered livestock’s in Uttar Pradesh

Source: GoUP 2013

4. Perpetual Dependence on Western Market
Kanpur exports around 90% of its production to western countries like Germany, Italy,
USA etc. This makes it highly vulnerable for any kind of economic slowdown in these
countries.

Conclusion

Though the Kanpur leather cluster has evolved and established itself well in the world map for
leather and leather products manufacturing, it has still a long way to go as far as technology
adaptation and implementation is concerned. The cluster has marked a significant CAGR of
 13.62% over the time period 2002-03 to 2012-13 but not yet strike the balance between
economic, social and environment development. There is strong need for tanneries to
demonstrate that they are environmentally responsible and, thus, enhance their image and
reputation in public perception and give them a competitive advantage.

References

Bombault, M., Begeer, A (2013):“Sustainability in the leather supply chain”, Ernst & Young.

DIPP (2012):“Leather & Leather Products: Twelfth Five Year Plan Period (2012‐17)”. Ministry
of Commerce and Industry, Government of India. Viewed on 10 July
2013(http://planningcommission.nic.in/aboutus/committee/wrkgrp12/wg_leath0203.pdf).

GoI (2006):“Report of All India Survey on Raw Hides and Skins”, Prepared for the Ministry of
Commerce and Industry, Government of India, New Delhi.

GoUP (2012):“Development of Mega Leather Clusters to be expedited”, Press release-

Infrastructure & Industrial Development Department, Uttar Pradesh, Viewed on 21July 2013(
http://udyogbandhu.com/DataFiles/CMS/file/pr_11122012_E.pdf).

GoUP (2013): Animal Husbandry Department, Government of Uttar Pradesh, Viewed on 10

June 2013 ( http://animalhusb.up.nic.in/Default.htm).

IL&FS (2007):“Diagnostic Study of Kanpur Leather Cluster”, IL&FS cluster development

initiative, Viewed on 25June 2013
(http://gangapedia.iitk.ac.in/sites/default/files/Kanpur%20Diagnostic%20Study%20-
20Internal.pdf).

MSME (2011):“Brief Industrial Profile of District Kanpur Nagar”, Ministry of MSME,

Government of India, Viewed on 10 May 2006
(http://dcmsme.gov.in/dips/DIP%20Kanpur%20Nagar.pdf).

NMCC (2010):“Deriving Manufacturing Competitiveness Indices of Key Sectors”, ICRA

Management Consulting Services Limited, Viewed on 30June 2013
(http://nmcc.nic.in/pdf/nmcc_indices_finalreport_15april2011.pdf).

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