Pakistan Shoe Industry Analysis 1

Problems and challenges:

Pakistan’s leather industry has great potential to grow and it has resources which can be
helpful. But in these days leather industry has called for immediate measures to save this vital
sector that has been facing pressure for the last 18-months in the backdrop of persist decline in
leather and leather exports mainly because of the affects of war on terrorism which restricted the
foreign buyers from Pakistan. According to the data revealed by the Bureau of Statistics, the
leather exports have been declined by 28.83 percent, leather apparel and clothing by 25.49
percent, leather gloves by 9.42 percent and leather footwear by 2.49 percent. However, other
leather goods showed upward trend by 8.41 percent but total decline during the year was 22.24
percent from $1220.121 million of 2007-08 to $948.800 million during the financial year 2008-
09. The leather apparel and clothing recorded a loss of 15.88 percent to $165.146 million as
compared to $196.315 million, leather gloves by 59.03 percent from last year $76.070 million to
$31.167 million, leather footwear by 13.57 percent from $42.120 million to 36.403 million
during July-November 2009 as compared to corresponding period of last year.
In the global market, the demand for footwear is high and in most of the developing countries it
is growing on average. It is also estimated that about 60% of the world’s total consumption
consists of simple footwear made entirely of non-leather materials and that for the remaining
40% only the upper part of the shoe is made of leather. According to UNCOMTRADE data,
Pakistan footwear exports for the year 2006 were about US$ 135 million.
Out of total footwear exports, leather footwear accounts for 43.15%, which makes leather
footwear extremely significant.
 One of the most important problems hindering the growth of footwear industry is higher
energy prices. Increasing energy and inputs prices leads to an increase in the cost of production
that influences the expected production of the industries and thereby exports.
 Industries do not have footwear training institutes of quality and repute and in result there
is a lack of skilled labor force. Thus there exists a problem of absorption capacity in advanced
machinery.
 Outdated production methods are still prevailing in the shoe factories.
 Improper availability of raw material.

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 There is no mechanism of collaboration between Industry units and other related research
organization and academic institution to improve their productivity.
 Transport and utility infrastructure facilities are not adequate.
 Industry is facing high competition from China providing cheaper footwear product in
markets.
 Heavy taxes in the form of sales tax and income tax on retail businesses.

Growth trends in the industry:

The special subsidized rates for Pakistan’s worldwide footwear trade have helped increase the
exports to the extent of 250 per cent in the last couple of years. Export of shoes has shown an
increase of 13 per cent in the previous fiscal year till Apr against the corresponding period of last
year. If the support was not withheld the footwear industry would have certainly crossed the
$2000000. Pakistan’s footwear industry manufactures around 120 million pair annually for local
consumption and it exports 2 million pair per annum roughly and the average price charged for
each pair stands around $10. Its share in Pakistan’s total exports is about to touch the figure of
$200 million.
Volume of Pakistan’s footwear exports grew at a considerable rate of 16% for the years 2003 and
2004. The share of Pakistan’s footwear exports in the world’s total footwear exports is about
0.18% while it is 1.6% for India and 29% for China in the year 2006. For Pakistan it rose from
0.16% to0.23% in 2005 and decreased to 0.18% in 2006. Footwear exports share in Pakistan’s
total exports rose to 1% in 2005 from 0.7% in 2002 and it accounts for about 0.8% in 2006 of
Pakistan’s total exports. India’s footwear exports account for about 1.6% of total exports while
for China the same is 2.2% in the year 2006.
The current industry structure is monopolistic competitive. The industry has entered into mass
production especially local industry. There are 306 manufacturing sites in Lahore which are 59%
of total Pakistan and 44 manufacturing units in Karachi which are 8 % of total in Pakistan. In
footwear industry price is the dominant force these days both for manufacturers and buyers
because of bad economic and political situation. For manufacturer cost is issue and for buyer
income issue. Asian economies such as China and India are enjoying a notable growth in
changing circumstances across the world. Pakistan also has great potential for higher growth

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however the political threats, socio economic environment and lack of updated technologies are
obstruction in the way of progress.
This sector has pivotal importance in terms of providing and creating jobs, earning of foreign
exchange with the help of exports and fulfilling the local consumption requirements.
Both in Pakistan and around the globe, the demand for footwear is increasing. Pakistan is one of
the most populous countries in the World and according to an estimate with an average
population growth of 2.25 %, about 3 million children have been born during the year 2005-06,
signaling the growing demand for footwear in Pakistan. It is also estimated that about 60 percent
of the World’s total consumption consists of simple footwear made entirely of non-leather
materials and that for the remaining 40 percent only the upper part of the shoe is made of leather.
In the manufacturing of footwear, most frequently used material consists upon leather, manmade
materials, rubber / canvas / synthetic and textile along accessories. Different type of shoes
are being produced by the local industry e.g. sportsmen, army, disabled persons and safety shoes
for the industrial workers etc. The population of Pakistan is expected to be about 172 million in
the year 2010. Keeping in view the growth in population, the growth in the demand of footwear
industry is also anticipated.
Footwear industry is changing rapidly. Industry is moving towards high competition because of
overcapacity interims of supply and manufactures are offering similar kind of product to almost
same target market. Because of local manufactures and imports of footwear’s from china.
We can also see the growth trends with the help of table that how footwear industry vary in the
past:
Pakistan’s share in the international market is hovering at about 1.5% from the last five
years, earning an average foreign exchange of US$ 681 million per annum. According to
Federal Bureau of Statistics data, Pakistan exports for the year 2001 were about US$ 763
million. Out of total leather exports, leather footwear accounts for 50.93%, which makes
leather footwear extremely significant.
Value in $ million
LEATHER FOOTWEAR 85115, 85124 & 8514

1995 1996 1997 1998 1999

WORL 21,477 23,083 22,771 22,053 21,049
Growth % age 7% 1% -3% -5%

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Industry growth trends and challenges in respect of very critical points:

Shoe industry in Pakistan is growing rapidly and a lot of companies are competing for market
share so the rivalry among the firms is intense.

• Overcapacity Production
Industry is producing more than its demand in the total production of industry, because there are
local manufacturers and imports of shoes from China. So there is threat of price war.
• Product Differentiation
.Most shoe companies are using direct inject technology by which shoe is made as a single piece
and ultimately there is no any kind of stitches in the shoes. This gives competitive advantage to
most companies in overall industry.
• Switching Costs:
Lots of companies are fulfilling the needs of buyers on low prices ultimately switching cost is
low so the overall industry suffers because imported shoes are more cheaper and famous among
the young people.
• Concentration and Balance:
In these aspects there is intense rivalry among competitor because many companies trying to
chase same customers.
• Diversity of Competitors
Local companies are implementing more diverse strategies on distribution and retail channel, so
over all industry is not stable. The reason is that many local companies are entering very quickly
and vice versa because they could not stay for long time in the market.

List of Members of Footwear Manufacturers Association

 Army Welfare Shoe Project
 Bata Pakistan Limited
 Brothers Associates
 Dalex International

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 Desma Industries
 East Pakistan Chrome Tannery
 Elegant (Pvt.) Limited
 Falk Shoes International
 Fircos Industries (Pvt.) Limited
 Firhaj Footwear (Pvt.) Limited
 Footlib (Pvt.) Limited
 K.Shoes (Pvt.) Limited
 Lyra Shoes Company (Pvt.) Limited
 Mehar Dastgir Leather & Footwear Industry (Pvt.) Limited
 Mobson Industries (Pvt.) Limited
 Prime Naalain (Pvt.) Limited
 Raja Industries (Pvt.) Limited
 Service Industries Limited
 Shafi (Pvt.) Limited
 Sigma Shoes (Pvt.) Limited
 Starlet Products (Pvt.) Limited
 Topfit Shoes Industries
 Trust Shoes International
 V & V Industries
Major Players
Current strategy of Hush Puppies:
Hush Puppies is one of the fastest growing shoe company in Pakistan. Hush Puppies is targeting
upper class customers with the price range of Rs.1895 to Rs.4395. Hush Puppies offering 50%
Discount on its articles at their factory outlets. Hush Puppies distribute direct from their
warehouse in factories. Hush Puppies focus is to provide comfortable and reliable shoes. The
outlet of Hush Puppies has online system to place order to factory. To forecast monthly demand
company conduct meeting and use previous data of twelve months. Retail outlets receive orders

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after two days of placement of orders. For better customer relationship Hush Puppies give
trainings to its employees every year. For this purpose they also trained new employees.

Current strategy of Bata:

In past, Bata targeted middle and upper class customers but after massive abundance of Chinese
shoes in Pakistan Bata has been changing its strategy with respect to target market. Now Bata
offering Chinese outsourced shoes with their own Bata brand to capture the large segment of
target market of price conscious buyers which were not target properly in past. So the main
strategic focus of Bata Company is to achieve low manufacturing cost. Bata is using outsource
channel in which they are manufacturing Chinese base shoes from their own factory in china.
The purpose of shifting some of their manufacturing site in china is the low labor and electricity
cost. These strategies show that Bata Shoes Company is using price as their marketing mix tool.
In marketing strategy Bata is using electronic and print media for the promotion of their shoes.
Electronic media is the basic channel which Bata is focusing more. They give different
advertisement for different target customers e.g. Bubble Gummers for children brand they give
adds and promotion differently. For school shoes they use different advertisement and promotion
like they give stickers or tennis balls to promote their school shoes. Bata is not implementing
divers marketing strategy for its premium brand Weinbrenner in shoes as compared to Servis
premium brand Don Carlos. Servis is capturing the imagination of targeted customers for its
brand Don Carlos by giving unique advertisement.

Current strategy of Servis:

Though Servis is a leader in footwear industry in Pakistan with a market share of 7 percent but in
formal shoes Servis is lagging behind Bata. In past, Servis has more focus on sports and casual
footwear. The Servis Company started its work in the shoes market in 1941 at a small scale at
Lahore but athletic wear products were recently planed and launched in Pakistan and all over the
world. Business so far has shown that high quality and economic price strategy about athletic
wears of Servis Company has proven successful. The company also puts a lot of emphasis on
motivating, educating staff and also focusing on the career development of its employees to
promote its products in an effective and socially acceptable manner. The company employs more
than 5,000 people in its facilities located in Gujrat and Muridke. Servis has more than 500 stores

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all over the country. Today, the production side of the company has flourished into Service
Industries Limited which has world class shoes, tyres, tubes, and rubber production facilities in
Gujrat and Muridke. SIL is also the leading exporter of footwear. Service Sales Corporation
(Pvt.) Ltd. Servis is Pakistan’s leading footwear retailer which is also diversifying into other
businesses. Cheetah is the leading brand of sports footwear in Pakistan. Winner of the Brands of
the Year Awards 2008, Cheetah now features special ranges for a variety of sports. When it
comes to sports footwear, Cheetah definitely has no parallel.

Stylo Shoes:
The global fashion market is growing by leaps and bounds and indeed, the fashion footwear
industry is no exception. Stylo’s production capacity and existing infrastructure are prime
reasons for making it the perfect entrant into the global export market. Besides our impressive
production figures, we also boast a collection of footwear that is inspired from around the world.
These international inspirations are tailor-made by our experienced craftsmen for local clients
and merchandisers. Trends in the fashion footwear market are evolving and the style mantras of
the past are no longer applicable. There are new fashion icons and trends governing consumer
choices now. Stylo makes sure that its customers always get the cutting-edge fashion footwear
that they desire, be it formal shoes with the finest embellishments, or a profusion of delicate
flowers. We ensure that Stylo is a brand that caters to local needs but also finds a place for itself
on the international platform. The magazine is launched for the loyalty card members of Stylo
Shoes. This magazine is delivered bi monthly at customer address via courier, It is also
distributed in foreign embassies, libraries and community centers and hotels through courier free
of cost.
Stylo shoes have gained popularity in the international market as these shoes are sent to many
countries in Europe, America and the Far East. This demand has prompted the company to look
into further developing business opportunities on an international platform. Also, with the long-
term fascination with the East and its traditions, international products are reflecting the design
philosophy that Stylo swears by. It is only natural that export is an avenue Stylo is keen to
explore. We have the production capacity that caters to the sales of 4,500 shoes a day, with 50
new designs hitting shelves each week. Therefore, we are confident that Stylo is fully geared
towards providing quality fashion products for international clients.

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Current strategy of Borjan:

Although Borjan operates in a wide variety of markets, with emphasis on two important points in
order to offer customers great value and the best possible service.

1. Product concept development

2. Constant improvement of business processes

Based on the above objectives Borjan has therefore achieved great heights in a very short span of
time with the vision to make its consumers not only look but feel smart as well

Industry Analysis
Political Trends:
• Political instability is effecting badly to the footwear industry.
• Energy problem (high cost and power failure) is the main issue in these days, because it leads
to increase in production cost.
• The import of under-priced shoes was badly hitting the domestic footwear industry,
especially hundreds of cottage industry footwear units working across the country.
• 5% concessional duty on raw materials of footwear
• Exporters of footwear are allowed to import duty free footwear samples to meet their
export commitments.
• Leather footwear is also provided R&D support at 6%
• From the previous some years Government of the Pakistan are encouraging import and
export policies. And also encourage the foreign investors to invest in Pakistan.
• There are no many difficult formalities to import or export, any dealer can import in Pakistan
and sell by the fulfilling the certain formalities required by the law.
• Government should take measures to check the inflow of foreign footwear into Pakistani
market through the tactics of under-invoicing and miss-declaration.

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• Countries provide services to other countries by the using of labor of that country, as China is
providing the services to the Pakistan .Main advantage of it is, that manufacturing cost of the
products come down (cost reduction), like the electricity bills, other factory overheads, taxes
etc, so this is the reason that Pakistan prefer to outsource mostly products from China even in
the finished form.
• To establish a plant for this industry is not so much easy, one has to fulfill certain rules and
regulations, and also the huge investment is required.
• The overall political trend is negative for industry.
The government may ask coalition partners to facilitate training of trainers for various leather
technical institutes of Pakistan. The government may announce various industrial parks as
announced by the Indian government for leather, leather footwear, leather garments and leather
goods. These parks may be equipped with all facilities and infrastructure and handed over to the
SME and large size exporters on easy terms, he added
The market share of the domestic industry was decreased from 83% in 2002 to 61% in 2004. The
market share of imports under bound tariff lines was 0.12 percent in 2002, which increased to
0.30 percent in 2003 and decreased to 0.10 percent in 2004. The market share of imports under
unbound tariff lines increased from 17 percent in 2002 to 31 percent in 2003 and in 2004 it was
39 percent. Domestic market grew by 28.99% and 1.2% in the years 2003 and 2004 respectively.
The expansion in the domestic market is largely due to increase in imports, as the sales of
domestic industry are almost constant. It is evident from the figures that market share of
domestic industry has decreased from 83% to 61% because the domestic industry was
unable to increase its sales.

Economic Trends:
• Economic crisis hit badly on footwear industry especially raw material to manufacture
footwear.
• One of the most important problems in the growth of footwear industry is higher energy
prices.
• Increasing energy and inputs prices leads to an increase in the cost of Production that
influences the expected production of the industries and the exports.

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• Pakistan footwear exports for the year 2006 were about US$ 135 million. Out of total
footwear exports, leather footwear accounts for 43.15%, which makes leather Footwear
extremely significant.
• Pakistan’s footwear industry manufactures around 120 million pair annually for local
Consumption and it exports 2 million pair per annum roughly and the average price
charged for each pair stands around $10.
• Its share in Pakistan’s total exports is about to touch the figure of$200 million. So
economic downward trend is badly affecting the industry.

Impact of international Competition:

Local footwear dealers confirm of their business getting a big setback because of what they say
flooding of the footwear from China and Korea. “These are of pig leather”, a well known local
footwear with a popular brand name informed this correspondent. “But you cannot say that
China has dumped footwear in Pakistan market”, another leading footwear manufacturers from
Lahore said. He said the bulk of Chinese footwear are either being under-invoiced or are being
smuggled through known routes. Chinese have set up big warehousing facilities in Jabal-e-Ali in
Sharjah from where a lot of goods are making their way into Pakistan.
The official import figures of Chinese footwear is very small and insignificant and therefore
cannot be called ‘dumping’ is one explanation. The Lahore footwear manufacturer explained that
local production cost is high because the import tariff on shoes and components of shoes is by
and large equal. The principle of cascading has been totally disregarded in matter of footwear
imports and government refuses to offer a protective margin to the local shoe industry.

Social Trends:
In Pakistan the life style of people is changing with a fast pace. Their life has become more
money and time oriented. There is a major shift in the values of the people of Pakistan. People
now prefer western life style rather than the traditional one. Everyone wants that he or she wear
new shoes at every occasion. Especially it is a race between ladies to have more and matching
shoes with her dresses which are more trendy and fashionable.
So it overall increased demand for foot wear products especially in young generation.

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In Pakistan people mostly purchase foot wear on the time of occasion like marriages, Eid and on
the seasonal base like in summer season shoes are different and the winter season shoes are
different. And ladies wear new trendy and fashionable shoes at every occasion.
As cities are growing and more people shifting from ruler areas to urban areas therefore increase
students, people having jobs and trend to play sports and healthy physical activities so this social
trend has direct positive impact on demand of footwear industry.
Footwear is the basic necessity of life. Due to evolution there is a huge change in footwear
industry.
Pakistan is among the top ten most populous countries of the world, increase in population also
increase in demand for the products and it also increase demand for footwear industry.People are
becoming health conscious day by day and people think more as compared to past on confront
and quality of footwear’s. Fashion industry is growing rapidly in Pakistan now people think
footwear in terms of fashion like their other fashionable items.

Technological Trends:
New technology trends also effecting footwear industry in Pakistan. Multinational competitors
are introducing innovative techniques to manufacture footwear. Like in sports footwear new
technology is being used regarding technical aspects on that particular sport. For processing of
raw material like leather new techniques are being implemented by multinationals.
The process of leather includes a number of different steps during which large quantities of water
and chemicals are applied to the skins. About 130 different chemicals are used in leather
processing, depending on the trends is now in leverage technology to gain competitive
advantage. New technologies like water proof souls, polyurethane soul which are light weight
and other artificial leather etc.

Forecast:
In the nutshell we can say that there is potential for higher growth of the industry and it can
become a source of export earnings. The rapidly changing global economic environment and in
the face of increasing cost of doing business in Pakistan, there is a need to strengthen the
competitiveness of the footwear industry in Pakistan.

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In coming five years competition will be among two major competitor segments local versus
multinational rather than among multinationals because majority of customers in Pakistan are
price conscious instead of quality and brand. Though behavior of customers is changing towards
quality but bad economic situation is resulting lower income level in coming five years. Only
those companies will be stay successful who will be able to find all kind of threats and make
them opportunities for their businesses. The basis of competition will be on price with more
diverse retail strategy. Multinationals are currently missing to capture those customers which are
price conscious and living in rural areas. In future companies having diverse strategies regarding
in inertial outlets in their value chain will have the tendency to capture more market share. In
mass production the company which will give differentiation to their product on reasonable
prices will have the tendency to gain success.

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References

www.pakfootwear.
www.pgbf.com.pk/market_briefs/Footwear
www.pide.org.pk/PSDE/pdf/17.pdf
b2bpakistan.com/1/ footwear_products_services htm
www.allbusiness.com/trade-development
www.pakistantex.com/
www.unu.edu/unupress/unupbooks/uu34ee/uu34ee0t.htm
www.ntc.gov.pk/.../Report%20of%20PD%20_Non-Confedential_Final.pdf
www.pakistantex.com/
www.pide.org.pk/PSDE/pdf/17.pdf
www.pgbf.com.pk/market_briefs/Footwear.pdf
www.pgbf.com.pk/market_briefs/Footwear.pdf
b2bpakistan.com/1/footwear_products_services.html
goliath.ecnext.com/.../product-compint-0000951964-page.html
www.tradekey.com › Buy Offers
www.fibre2fashion.com/news/general...industry.../pakistan/
http://www.styloshoes.com/business.html

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