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EXPORT-IMPORT MANAGEMENT
Project Report
on
Exporting
Leather Products
to
Germany
Submitted to:
Prof. P.K. Chugan
Submitted By:
Pankaj Poddar
MBA (074141, Fb&e, 07-09)
TABLE OF CONTENTS
Introduction
There came the long awaited dusk to the complacence of the Indian
manufacturers (the village leather industry in particular) When the long
slammed doors of global markets were opened to the leather industry. As
already project by various economic wizards, the leather manufacturers met
challenge with a renewed vigor and started capturing markets like Germany,
U.S, Italy, U.K., and France. The very fact that a major market like Germany
has been chosen to build up positive image for the Indian leather products
and to promote joint ventures adds one more feather in the cap of leather
industry in presenting a strategy so remarkable.
History of Leather
The primitive man, even more than 7000 years ago, made and used leather
goods. He dried fresh skins in the sun, softened them by pounding in animal
fats and brains, and preserved them by salting and smoking. Of course, the
products were crude, made for protection than as fashion.
The Egyptians and Hebrews developed around 400 BC, the process of
vegetable tanning that involved simple drying and curing techniques
Under the Arabs during the middle Ages, the art of leather making became
quite sophisticated. Morocco and cordovan leathers were in great demand.
The ancient puppet theatre in the southern India used primarily leather dolls.
The tradition continues even today.
ITC HS code for products with outer surface of leather, of composition leather
or of patent leather is 42029190
42 stand for Chapter 42: Articles of leather; saddlery and harness; travel
goods, handbags and similar containers; articles of animal gut (other than
silk-worm gut)
The export of leather and leather products in total during 2006-07 has
reached 2849.61 millions U.S. $ as against 1558.60 millions U.S. $ in 1994-
95 registering an increase of 16.59%.In 2001-02 export has reach 1.93
billion U.S. $ and in year 2005-06, the Indian export of leather goods
reached to 2648.14 million US $.
In 2006, estimated exports stood at US$112 billion and imports were around
US$187.9 billion. Textiles, leather products etc. are major export
commodities. India's most important trading partners are the United States,
the European Union, China, and the United Arab Emirates. More recently,
India has capitalized on its large pool of educated, English-speaking people
to become an important outsourcing destination for multinational
corporations. India has also become a major exporter of software as well as
financial, research, and technological services.
To give a brief idea of the Indian exports of leather products to the world, we
have prepared this table showing you the country wise exports of Indian
leather products on the basis of percentage, FOB value and units exported.
A search for light, purity, clear lines has been acclaimed at the basis for
fashion in the leather products. Elegance is the back with the timeless,
thorough bred city –dwellers-inspirations that will characterize this look. City
fashion has new focal points in this new trend towards elegance. Talking
about the contemporary fashion, one cannot ignore the timeless crocodile
and python prints in elegant cameo tones have a slightly old fashioned look
that is now very fashionable.
There are a large number and variety of leather products available and sold
in India. First and foremost this includes footwear, which constitutes the
majority of the leather market. There after there is leather furniture,
garments, fashion jewellery, Men and Women Leather Accessories etc
There are also numerous types of leather available in India. But the ones
most commonly used and preferred in Indian climate are Dry Mill, Cow Softy,
Sheep Napa and Buff Calf.
The process of making leather is as follows. The raw animal hide is sent to
the tanneries, where it is cleaned, processed, dyed, dried and polished, after
which it is available and ready for further use. Various Leather product
companies buy leather in bulk from these tanneries and then use them in
their respective products.
Leather wear in India is basically for export though a very small quantity is
available in the local market mainly in the north where the weather is
conducive to leather wear and also in five star hotels where the tourists from
all over the world buy leather garments. Most of the garments sold are
designed as per international standards and the buyers are mainly foreigners
who find the locally made garments very fashionable. The main leather
garment centres for manufacture are Bombay, Kanpur, and Madras.
The Indian Leather Industry has captured world attention by way of its
unique performance in the international arena. There has been an increasing
emphasis on its planned development, aimed at optimum utilization of
available raw materials for maximizing returns, particularly from exports.
There has been a remarkable growth in exports from US $746.34 million
during 1986-87 to US $ 1.93 Billion in 2001-02.
India’s inherent strength lies in its strong raw material base, technical
manpower, and proven quality control measures. India ranks first among the
major livestock holding countries in the world, having 57% of buffalo, 16% of
cattle, 20% of goat and 4% of sheep population. It is no denying fact that
the legendary quality of India’s traditional leather craft, combined with
modern production facilities and trained personnel, has put India on the
world map for sophisticated leatherwear. The liberalized economic and
developmental trade policies adopted by the government of India since 1991
and simplification of procedures have been instrumental to the growth of this
industry. With an enviable reputation in international leather circles, and an
ever-increasing global demand, Indian leather today ranks among the top
export earners in the country. Indian leather products are exported to as
many as 120 countries.
The Indian leather industry is well set for rapid growth in coming years. The
industry has undergone tremendous changes in the past two decades and the
policy measures adopted by the government have started paying rich
dividends. To add to this, thanks to cheap labour and raw material.
German Economy
Germany, which is the single largest buyer of Indian leather items, with a
14.3 per cent share, increased its imports by 7.2 per cent, buying more of
footwear — leather and non-leather — as well as saddlery and harness.
Exporters of other leather items such as garments, leather goods, footwear
components and leather, also increased over a period of time.
Leather goods and garments are big business all over the world. These are
being manufactured and exported by India and the Indian leather industry is
poised to take the international markets by storm.
Germany was the largest luggage and (leather) accessories market in the EU
in value. It was also close in value to the next three markets of Italy, France
and the UK, although Italian and UK volumes were higher. On a per capita
basis, it was also similar to Spain. Per capita consumption of € 23.7 was
higher than the EU27 average of € 20.3. This suggests that Germans
purchased more high quality items on average than elsewhere, or purchased
more items generally.
Despite the fact that German consumers are generally not as brand
conscious as consumers in some of EU countries, handbags and other
personal accessories such as belts have continued to experience sales
increases, underpinned largely by increasing interest in fashion. This has
been stimulated by major media coverage and close inspection of the
accessories worn and used by celebrities. There are, however, some signs
that the major focus on handbags is starting to become less intense, and
greater interest is now being shown on footwear, both by consumers and by
the media. The other major growth area has been in holders and carrying
cases for electronic gadgets.
German consumers are practical and usually feel there should be a clear
reason for replacing luggage. They regard function, quality, comfort and a
competitive price as most important, but fashion is becoming more of an
issue when buying luggage. However, in handbags, belts, cross over bags
and sports bags, design, fashion and brand awareness are still the most
important, especially among women.
Euro monitor have estimated the market to grow by 2.6% in 2007, and then
by 3.2% and 5.2% in the subsequent two years. This market growth will be
mainly driven by:
c) New markets for men and teens. For example, pouches for men,
instead of briefcases, have become more popular. More variety in girls’
purses in different fabrics is expected.
d) Fast changes in the technology sector will boost the small accessories
segment, as consumers buy new mobile phones, portable audio
systems, personal GPS systems, with or without holders.
Market trends
Environmental concerns continue to grow. Consumers are increasingly
demanding to know how these products are produced.
Bags for men have shown a great increase in interest by affluent working
males of all ages, but particularly younger businessmen. They want small
bags with much internal space, made of soft leather and with a number of
different pockets.
For women, designer bags are less popular. The latest trends are for
individually styled bags with a high gloss finish, and more decorated bags
with rivets, buckles, embroidery and chains, a move away from the simpler,
more subdued styles.
There are more women in business, which means that there is an increasing
demand for briefcases. These briefcases are lighter and have more
compartments nowadays. Designs are more female oriented, which not only
applies to briefcases, but also to suitcases and small accessories. Restrictions
generally on the size of hand luggage for air travellers is also stimulating
more demand for lighter weight models.
More money is being spent on accessories and all sorts of bags, and parents
are also spending more on bags for their children. Part of this is due to
greater influence from advertising.
For all luggage and (leather) accessories, there is more variety in non-leather
material, e.g. made of nylon, fibre, PVC coated, textile or combinations of
materials.
SWOT Analysis
Germany is a very large market and the large population can provide a range
of opportunities for exporters from developing countries. There is more
demand for cross over bags, fashionable handbags, light and compact
luggage and computer cases.
The ageing of the German population offers opportunities for suitcases with
ergonomic elements, especially with regard to comfort - easy to carry, easy
to store - which is important for older people.
Product range:
a} Leather Belts
b} Leather Wallets
c} Leather Portfolios
f} Travel Bags
The highest selling products in the men’s accessories range in the descending
order are leather belts, wallets, portfolios and key chains etc. There are
many players in the men’s leather accessories in the market and there is stiff
competition among them. Following is a summary of major players in each
product segment along with their price range.
We chose these products out of the entire leather accessories range because
they are the highest selling products in the order. Although, the ladies purse
segment also makes very high sales, if we were to survive in this segment,
we would have to keep a very large variety and mix of designs, which is not
possible for us as a new entrant in the market. Hence we have kept limited
variations and designs to start with.
Before giving the variations, we shall explain the features of most commonly
used leathers.
The things which wie will be taking care to select the range for our products
are as follows:
one. If he buys for himself, the packaging is not of much use to him but if he
has to gift it to someone he definitely opts for a one which has a good
packing. Keeping in mind the above points, we have decided the packaging
of our various products as follows.
Belts
Belts would be coiled vertically and packed in thin hard board boxes with the
front side upper half having a transparent plastic window, from where we can
see the product. The lower half of the front side would have a white label
stuck on which the following details would be printed: code number, style
number, Colour, size, M.R.P. The two sides would have the Brand name and
the photographs of our other products printed on the box. This would be a
good medium for advertising, as the one who buys or receives it also
becomes aware of our entire product range. The back side would have our
company details such as the name and address printed. The base colour of
the box would be gold.
Wallets
The Wallets would be packed in hardboard boxes. The bottom and the sliding
cover would be separate. The bottom would have case / groove in which the
wallet would fit. The cover which slides in would be made of thick transparent
plastic through which we can see the actual wallet. The Back of the box
would contain the Brand name, product details and the photographs of our
other products. The base colour of the box would be gold.
Port Folios
Portfolios would have a comparatively simple packaging as they are too huge
and bulky to be packed in boxes. They would be packed comfortably in
cream coloured soft cotton bags of the appropriate size. The brand name
would be printed in bold letters on the bag. We would not print the photos on
these bags as photo printing on cloth becomes quite expensive. This bag can
afterwards be used for any other purpose. No body would throw a cotton bag
and thus it would be a permanent reminder of the brand name.
Key Chains
Key chains would be packed in small boxes of appropriate sizes similar to the
wallet. The sliding boxes would have a transparent cover on the top and the
details printed on the back. Here we would not be providing the photos on
the back of the box as the space available is too less.
Leather Jackets
Our leather jackets are of high quality standards. In our tanneries, right from
procuring the raw material to production of finished goods, each and every
process is highly explicit. For the same reason, we have branded our product
“EXPLICIT”. This gives us an added advantage in the quality conscious
market of the United States of America.
In India, leather jackets are manufactured mainly for fashion. It is not used
for the purpose of shielding oneself from cold. But in case of the United
States of America, it is not only used as trendy attire, but also to protect the
masses from cold. It is chilling in the United States of America for most part
of the year.
Price structure
In each trade channel different margins and prices apply, with a total mark-
up (including VAT) of 3 up to 4 of the export (CIF) price. The margin figures
quoted in Table 2.2 are calculated as a percentage of the price purchased
from whom they buy in the chain, not as a percentage of the CIF price.
The best way to find a trading partner is usually to contact the main trade
sources. The German Leather Goods and Luggage Association and the
German Leather Industry Association are important contacts (see Chapter 6
for contact details). The best place to meet potential trading partners is at a
trade fair, such as the International Leather Goods Fair in Offenbach.
c) In which areas they are well represented in their country. If they are
exporting, to which other EU countries they sell.
We could also find this out by looking at their website or try to find a
company profile through other hosted sites e.g. of a local Business Support
Organisations or trading platform, or by finding their company brochure.
German fashion companies are notorious for their attention to detail and
subsequent enforcement of trading terms. If you can make a success of a
trading relationship in Germany, you are likely to succeed in most other EU
countries.
Developing a relationship
The most important ways to develop a business relationship are to either
exhibit at one of the main luggage and accessories fairs, or to make a direct
approach to wholesalers or major retailers. In Germany, many business
people still prefer a formal style of communication, both in the way a
presentation is put together, and in the way contact is made. A very
aggressive price driven approach will not be effective, although price is very
important in the German market. It is also important to appreciate from the
outset the importance of holding on to your customers. Many buyers are not
always loyal and it is much easier to lose a customer than to find a new one.
Trade Fairs
The main trade fair for the luggage and (leather) accessories industry in
Germany is called the International Leather Goods Fair and takes place in
Offenbach each year in March and September (http://www.messe-
offenbach.de). The Leather and More Fair, each April and October, could also
be of interest. The GDS Fair in Dusseldorf is an International Event for Shoes
and Accessories, also twice a year in March and September (http://www.gds-
online.com).
Promotion
Advertising in trade magazines can sometimes be an effective means of
reaching a small target group. The main trade publication for the leather
industry is the monthly Leder & Häute (http://www.cor-communication.de).
Another important publisher is Sternefeld, who issue a leatherwear report
(http://www.sternefeld.de) and publish the magazine STEP
(http://www.stepverlag.de), which includes coverage of accessories, as well
as footwear. TM Fashion Trendmagazin provides information on trends and
developments in the fashion industry (http://www.tm-fashion-portal.de).
Having a website
Being online is fundamental, especially when taking into account that trust
and credibility are major challenges for DC exporters, a good website can
overcome this issue. A website offering well-defined products, competitive
advantages (e.g. USP, quality, cost reduction and delivery reliability) and a
list of other customers helps create a trusting environment.
Useful contacts
There is information on the luggage and (leather) accessories industry in
Germany at the website of the German Leather Industry Association
(http://www.vdl-web.de) and the Leather Goods and Luggage Association
(http://www.lederwarenverband.de). Some manufacturers featured may be
looking to develop relationships with developing country exporters. Other
useful contacts include:
(http://www.lgr-reutlingen.de).
Registration with export promotional council.
The council for Leather Exports was set up in July 1984.A non-profit company
registered under the Indian Companies Act, 1956, the Council functions
under the Ministry of Commerce, Government of India. The council is
entrusted with export promotion activities and overall development of the
Indian leather industry. The Council’s activities also include promoting
Foreign Direct Investment and Joint Ventures in the Indian Leather industry.
The CLE serves as a bridge between Indian leather exporters and buyers all
over the world.
Method of Costing
Pricing methods are usually related to pricing objectives and prices fixed.
There are different methods of calculating prices such as cost plus pricing,
marginal cost pricing etc. For exporting leather goods, we will opt for cost
plus pricing method which is described as follows:-
It is simple and popular method of pricing, under this method average cost of
production and marketing is calculated first. Such cost includes the cost of
raw materials, cost of manufacturing, cost of packing, cost of distribution,
selling cost, taxes and so on. In addition , certain percentage of profit is
added to this cost and price per unit is fixed.
Selling price per unit: Total unit cost + Expected margin of profit per unit.
Apart from this, there are several costs that are related to when products are
exported. These costs are as follows
Government Policies:
The application for this purpose is prescribed from CNX (Code Number for
Exchange), where is to be submitted in duplicate along with a report from
the bank where the firm is opened a current account. Besides providing the
detail about the nature of organization and product intended to export, the
applicant requires permanent Income Tax Number, it will be required to
apply for the same and a reference to this effect is to be given in the CNX
form. RBI is too initiated with in fifteen days of the allotment of the income
tax account number. On completion of these formalities, RBI will allocate
code number to the firm. If the application is in order, RBI wills allot code
number. The code number is permanent there is no need to renew or
revalidate it. the number shall be cited invariably on export forms used for
declaration of exports.
Registration:
To obtain the benefits available to the registered export s under the import
policy, an exporter should get himself registered by making an application on
the prescribed form with an Export Promotion Council related to his main
product line export. If there is no EPC, registration may be done with the
Regional Licensing Authority concerrned.some of the important
registering authority are export promotion council, commodity boards, The
Marine product and proceeds Food Product Export Development Authorities,
Jute Commissioner, Khadi and Village Industries Commission, State Directors
of Industries, Development Commissioner for Foreign Trade Zone/Export
Processing Zone, and the federation of Indian export organization.
STATISTICS