Local footwear industry needs paradigm shift to move forward - Ex Chamber Chief | Sunday Observer

Local footwear industry needs paradigm shift to move forward - Ex Chamber Chief

28 July, 2019
The oldest sports shoe
The oldest sports shoe

The country’s footwear industry needs a paradigm shift in production to move forward. Producers have to change manufacturing processes fast to elevate the industry to global standards, Past Chairman, Ceylon National Chamber of Industries, Rangith Hettiarachchy said.

“It is time to make drastic changes in the manufacturing process to accommodate the changing needs of customers and buyers. As Sri Lanka has a limited market for footwear, producers have to create an ‘exportable’ range of products to capture the international market. As such producers have to select target markets and study it in depth and create a range of products competitive in all aspects,” he said.

Major footwear producing countries such as China, India, Vietnam and Bangladesh have already captured the fast growing casual sports shoe market. The whole world is becoming casual.

When the Canadian Prime Minister visits India he changes to Indian type clothes. Another good example is airports where in the olden days it was full of formally dressed passengers. But today the majority are in casual wear. Millennials are moving to casual wear. Therefore, a new category called leisure has come into being, he explained.

“Just as young adults are becoming health conscious, the casual concept too is spreading fast. All athleisure brands have moved to zero-stitched knitted uppers (see the two pictures). The world’s oldest sports type shoe and the latest single joint upper has become the trend now.

“Everything is becoming smart - smartphone, smartTV, smart cities and even footwear is moving to ‘smartness’. The product change has to be fast if we are to make the industry a vibrant economic driving force.

“New collections are introduced once every three months and producers need to be quick to adopt. There is a saying that ‘shoe fashion trends change while it is on the feet (while wearing the shoes)’. Change fast, if you cannot, move to a business that is profitable,” Hettiarachchy said.

Producers should make an effort to present a product that customers will grab. They need to supply products that ‘speak to customers’. As raw material cost in footwear production is around 60%, industrialists should look for ways to cut down on waste and avoid the use of material that does not add value to the product. They need to make a visible change in production by moving to lean factories and by outsourcing. To this end we need to develop a good supply chain, he said.

China and Thailand have developed a very active supply chain. Lamination of material, sole making, upper making is completely carried out by different manufacturers some even located by the roadside in footwear producing districts. Most of the shoe factories operate with a minimum stock of raw material. The shoe material markets have become there warehouses.

A Sri Lankan BOI production unit has become a major knitted shoe upper supplier to a world famous brand and the shoes are produced in Vietnam. The use of high-tech machinery is important to ensure quality and efficient production. As Sri Lanka cannot compete in volume with Chinese shoe producers, we have to think of a paradigm shift, he said.

There are three options for Sri Lanka: 1) Either import major shoe components and carry out assembly and re-export the finished product, 2) Develop a good supply chain and use the outsourced components to carry out local production with individual manufacturers or associated business units and, 3) If we follow the second option after gaining experience we can become a partner in the global supply network and sell the products to manufacturers and not direct to the end user. This will help in a big way to gain foreign markets.

This will bring in advantages such as: 1) Product development by the buyer, 2) Material selection by the buyer, 3) Distribution and cash collection by the buyer, 4) Clearance of slow moving stocks becomes buyers’ responsibility, 5) Seller (local) receives payment direct from one source (buyer).

To test the above concept, the footwear industry is the most appropriate as it has so many components. If we can be a partner of global production sharing we can easily join the fourth stage of the industrial revolution where robotics will be used to complete shoe production in European countries with high-tech machinery.

“The decision will depend on our entrepreneurship and ability. Either we have to import components and assemble locally or we have to commence producing components. This way we can become a partner of the global production sharing program which is being popularised by Prof. Premachandra Athukorala.

“It is necessary to embrace modern manufacturing methods. Producing A to Z in-house is becoming outdated. Outsourcing or Global Production Sharing (GPS) is becoming more economical and should be made use of. World footwear production has moved within Asia, from Japan to Taiwan, Taiwan to Pusan, Korea, Korea to China, China to Vietnam, and Vietnam to Bangladesh. Today, the latest in the footwear industry is moving back to Europe with the use of robotics and auotomated machinery. We have to develop more component manufacturers to meet this trend. Earlier assembling was known as the ‘Nut and bolt industry’. Today it has become GPS. It can even be done in Sri Lanka,” he said.

With these evolving trends producers have to change for survival and for market expansion.

The government has a big role to play in the growth of the footwear sector. This could be the first change of production method after the setting up of the FTZ in 1977.

It should take measures to safeguard all local producers who have a share of 40 to 50% of the market. Manufacturers can venture on to this new mode only by standing on the local market base. Otherwise, if there are world market shocks, our industry will collapse similar to 9/11 where our IT industry had to freeze salaries.

For this, the government must have long-term rolling development plans. The Export Development Board must support expansion, nurturing and developing them by giving better exposure on new product development and adaptation of new technology, he said.

“Removal of border barriers (cess) has become the watchword among FTA negotiators. If the government is planning to withdraw cess immediately they have to change the present duty free status and introduce a duty structure for footwear. From 2016, footwear was made duty-free without any request from producers and without any visible advantage. It is necessary to re-introduce duty and even in China footwear has a 28% duty, Bangladesh, India, Vietnam have developed as major footwear producers while maintaining duty for footwear imports,” he said.

In addition to having duty they have curtailed unhealthy competition using various illegal means.

The government must stop subjecting industrialists to market shocks frequently such as weekly railway strikes, (first strike and then present a list of demands) irregular power cuts, unreliable public transport system which scares locals and foreigners thinking of getting into business.

In an atmosphere of this nature we cannot dream of attracting FDIs. Having an election in December can disturb not only tourism (it is our peak tourist season), but other industries as well. It can reverse peak season business for all consumer items. Therefore, the government is duty bound to have an action plan for damage control.

Measures should be taken to create an industry-friendly atmosphere with a focus on sustainability as footwear creates customer demand and enhances income distribution. The government must help them to grow by having a long-term tax plan and forward looking industrial policies.

The government has to play the matchmaker’s role to attract joint venture partners to infuse new technology and to develop our exports. We should follow the Indian example in Hero- Honda and Maruti-Suzuki. While in China, people work 60 hours a week, we work 45 hours. We should look for ways to introduce a long holiday (as all Asian countries do) during the month of April and to reduce the ‘weekly’ public ‘holidays’ we enjoy at present, he said.

Today, taxi services are run by companies that do not own a single vehicle; world renowned sports shoe brand owners do not have a single factory. Food distributors are growing without a single kitchen and in the same manner, the footwear industry too could focus on outsourcing its production process either among the global supply network or foreign network. The private sector must stop pointing fingers at the government and the government must follow suit. The Government’s duty should be to govern the country (good governance). This will help to create the much needed political stability. Producers must produce quality goods for export and help the country to earn foreign exchange and create jobs, Hettiarachchy said.

Footwear exports

1. As per the chart we can observe that achievements do not show a visible growth.

2. Year 2016 was the peak year for footwear exports – The reason for this is that the country showed stability after general election for two years. 

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