Introduction

The present paper is a review of current events in the leather, footwear and other leather products industry and its participation in the global leather value chain. The paper is addressed to policy makers, business leaders and industrial support institutions in developing countries as well as in economies in transition. The contents of this paper should help decision makers to understand the new conditions of competition, innovation and learning that should be considered when designing policies and strategies and when organizing programs to accelerate and improve the participation of the local industry in the leather global value chain.

The characterization of the global chain and its evolution is discussed and is followed by a review of the opportunities for developing countries to enter the value chain, the capabilities required and the challenges faced by them in enhancing their competitive position and moving up in the chain. The role of local and multinational enterprises in the process is discussed, together with the policies and strategies to be followed for upgrading local capabilities and institutions as well as programs needed to support the upgrading process.

The review places emphasis on the footwear value chain 2 and uses information produced by a number of researchers and institutions within the concept of value chain analysis. The use of value chains has several advantages for researchers, planners, industrial firms and associations for it identifies trends at each stage of the production-consumption system in a disaggregated manner at the local and global level and helps to identify areas of production which are subject to growing global competition and which are therefore subject to declining terms of trade (Gereffi 1995).

Value chain analysis also highlights the mechanisms through which developing countries and their producers have upgraded their activities and linked to producers and consumers in the global economy, or may do so in the future in a manner that can lead to a sustainable income growth. The results of this type of analysis should indicate the way to policy challenges confronting the private and public agents operating in or promoting the chain (Kaplinsky 2000).

The characterization of the different components of the global leather and leather products value or commodity chain is presented in the first section of the paper together with a review of the geographical shifts, relocation and technological evolution of the chain during the period 1985 to 1996-98. Included in this section are trends and predictions for the present decade in terms of environmental management, functional properties of the products and demands that the industrial components of the chain are making in the areas of research, process development and the design of chemicals. This section is followed by a discussion of the main factors that have influenced evolution and geographical shifts and relocations such as the availability of hides and skins, labour costs and the globalization phenomenon.

The promotion of collective efficiency through cooperation between industrial firms in clusters and districts is discussed and illustrated with the case of Sinos Valley in Brazil, its evolution through time and the limits to growth encountered during the second phase of globalization.

Outsourcing as a means to fulfil the objectives of both multinational corporations and the manufacturers in developing countries is described together with a description of the role played by multinationals. The competitive advantages that some of the major exporting countries have and which allow them to participate in the global chain - as identified by buyers, are given as examples.

Opportunities and challenges for enhancing the developing countries competitive position within the global chain are presented in section 4, from the simple form of outsourcing to higher levels of upgrading such as OEM and OBM and Supply Chain. Also discussed are the advantages of triangle manufacturing and its implications for developing countries manufacturers who are increasingly subject to short-lived cycles during which they may exploit their competitive advantages in the global and local chains.

Policy challenges confronting the private and public agents when operating in, or promoting the chain, and the capabilities and institutions needed to support the upgrading process are presented in the last section of the paper.

Specific examples are given of countries that are managing their position within the global chain include Italy, Brazil, Mexico, India, and Hong Kong, and a regional programme is briefly described which is upgrading the leather value chain since 1989 in ten South Eastern African countries and which is implemented by the local industry, together with the industrial associations and local government agencies under the coordination of UNIDO.