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Policies and Strategies to Enhance the Entry
of Local Firms and their upgrading within the Value Chain
Managing information and monitoring
Governments, producers associations and planners should establish and
permanently use information networks for the leather, footwear and other
leather products value chain for monitoring external and internal developments
and performance and for quick, and informed decision making. The above
statement agrees with a recent view that predicts that the only sustainable
competitive advantage in the next ten years, would be the ability to
“learn faster than your competitors” and indicates that in an economy
of constant change, what is crucial is to “be aware of the big picture
and finding ways to play a role in it” Dalla Colletta 2000.
Government assistance
Governments have a number of roles to play in assisting producers,
particularly small producers:
- Inform and assist the private sector and workers organizations to
understand opportunities and threats posed by their participation
in leather global value chains.
- Assist producers to enter the chains and to reposition themselves
in the chain by improving their capabilities in areas such as design,
marketing and negotiating abilities for the establishment and strengthening
of internal and external links.
- Improve access to productive capital, trained human resources and
promote the use of trade policy rents (Kaplinsky).
Environmental and social management
The Leather industry commodity chain will need to apply acceptable
environmental and social strategies and programmes. Their participants
will be required to develop and apply benchmarking, social mapping of
labour conditions and practices prevailing in factories and workshops
around the world in order to comply with the expected demands from society
concerning pollution prevention, safe use of chemicals and working conditions.
Industry associations and industrial development support institutions
should undertake this work 31.
Standards, measures and quality specifications
The lack of harmonized standards and measures among firms in industrial
districts is a common constraint to reaching higher levels of division
of labour, competitiveness and cluster growth in developing countries.
The lack of them increases transaction costs and requires the use of
specialized firms for certain jobs that could be performed internally
within the firms. This constraint was found in empirical work conducted
by Rabellotti in two Mexican footwear-manufacturing districts. Although,
locally there was total agreement on the need for the harmonization
of norms and measurement systems it was acknowledged that harmonization
is a huge task which requires the participation from many institutions
and the industry itself and in which international technical assistance
would probably be required.
Transnational companies TNCs, global chains
In the global economy TNCs regional and global strategies predominate.
A challenge for developing countries governments is to control the production
potential of the TNCs and in doing so, learning how to link with the
global economy. Buyer -driven commodity chains, give interesting opportunities
for learning, providing that local economic policies, particularly those
related to local capital markets promote and not hinder upgrading from
the conventional stages of manufacturing described in this paper. Local
industry and associations should be better prepared for participating
in the different modalities of global chains. Negotiations with agents
should be conducted under informed conditions i.e. updated information
on global markets, language and contract negotiating abilities.
Competitiveness
More investment should be made for product development and marketing
to improve competitiveness. The concentration on core competencies,
promoted by the current managing doctrine does not facilitate the entry
of manufacturers in overseas markets. Producers in developing countries
that have not focused only on overseas markets have developed their
own designs and have captured markets in neighbouring countries.
The integration of buyers into technical assistance projects of donor
agencies to improve competitiveness of the different components of the
chain should be promoted. An integrated programme to address most of
the constraints found in the leather commodity chain in 10 African countries
has been carried out by UNIDO in cooperation with donor agencies, local
associations and buyers since 1989. .
| An SME becomes Competitive and enters
the Global Value Chain by Introducing Technical and Managerial Skills
within a “Stretch Strategy”
This is the case of RAS Dashen Shoe Factory in Addis Ababa. This
company was founded in 1986 producing 50 pairs of shoes per day.
It expanded in 1991 into new premises produces 1000 pairs per
day of cement lasted shoes and up to 1,500 of hand stitched moccasins.
Assistance provided by UNIDO comprised product development, plant
layout, the introduction of standard production methods and manuals,
selection of equipment and skill upgrading. Additionally the firm
participated in an international fair (GDS). Investment in additional
equipment was of the order of US$ 50,000.
Training promoted the use of new technical and managerial skills
to improve production flow, consistency in quality and in levels
of production. The additional equipment purchased increased production
capacity and improved product quality. Participation in a trade
fair provided the entrepreneur with the opportunity to learn about
and understand export and prospects. The company has been able
to sustain itself, become competitive and enter the export market
in Europe and the Middle East.
During the period 1995-98 the firm received orders and produced
40,000 pairs of shoes for export with a value of US$500,000. Shoe
soles were also exported. To cope with additional demand the firm
has built and extension and increased its capacity.
The firm participates in the G.D.S Fair in Düsseldorf and offers
flexible production with short lead times, low minimum order quantities,
competing prices and the advantage of being much closer to Europe
than the Far East.
The “stretch strategy” refers to promoting technical and managerial
improvements with very low levels of investment.
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Improving Competitiveness of the Leather Commodity Chain in
10 Eastern and Southern African Countries
Results
- Improvements in the collection of hides and skin's: An increase
of 104,000 cattle hides and 73,000 goatskins in the target areas
during 1992-93 worth US$ 1,7000,000.
- Improvements in the quality of hides and skins in target areas
equivalent to US 630,000 per year.
- Establishment of "Revolving Fund”34 operations in all
countries to provide technical assistance to private industries
operating in different components of the sector.
- National leather Associations operating in all countries,
active partners to UNIDO, involved in the management of the
programme, responsible for further developments of the LLPIS.
- ESALIA, Eastern and Southern African leather Industry Association
in operation. The regional association, that covers nine countries
is involved in the management of the programme and cooperates
with international leather products associations in the management
of cooperation projects. Its existence and dynamic functioning
is a key to the sustain ability of the programme at the regional
level.
- Creation of a pool of trained human resources, 1,000 artisan
workers, 550 extension officers and a cross section of workers
operating in the industrial component of the leather industries
system. (LLPIS) 1,000 operators, supervisors, and managers.
- Rehabilitation of 30 tanneries, the establishment of 17 effluent
treatment plants, the rehabilitation of 30 footwear manufacturing
plants and leather production units and the establishment of
Training and Production Centres for the Shoe Industry (TPCSI)
in Kenya and Zimbabwe. Strengthening of existing sectoral institutions
such as LDC/KIRDI, Kenya, LIZ, Zimbabwe.
- Training in marketing and market awareness activities shortened
the path to the export market to 10 tanneries (for the export
of leather) and 10 shoe manufacturers.
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Innovation
There is a considerable margin for developing and applying local innovations
to the management of buyer-driven chains as well as for the application
of OEM and OBM export mechanisms. Adaptive and organizational innovations
have been instrumental in the growth of export- oriented garments and
footwear industries in East Asian countries. Further analysis of those
innovations, the policy context in which they were applied and their
applicability to improve competitiveness in other regions of the developing
world seems to be appropriate.
Support systems for investment and innovation
The development of any industrial sector relies on the proper functioning
of what has have been called the National System of Innovation (NSI).
The following Box illustrates the Ethiopian NSI under operation and
gives examples of interactions among the main actors of the system and
some of the operational difficulties found, the solutions suggested
and or implemented.
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Box - Support Systems for Investment and Innovation (the case
of Ethiopia)
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Component/actor Hides and skins:
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Interaction
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There are missing linkages between the Ministry of Agriculture,
the Quality Standards authority and between the tanners and the
Ethiopian Environment Standards to guarantee the purchasing of
hides and skins on the bases of quality/grade, promote expansion
of infrastructure, train extension officers, collectors, traders
and agents involved in the preservation of raw materials.
Industry and Trade
The Ministry of Industry and Trade (MOT) and its agency, the
Ethiopian Investment Authority (EIA) have implemented extensive
investment liberalization programmes since 1992 that include:
the removal of restrictions regarding private investment; removal
of the authority established to control prices; reform and liberalization
of the exchanges system; liberalization of imports; reduction
of custom duties which has resulted in a major integration in
the international trade system. The above measures require continuous
interaction and strong coordination between actors to make them
operational.
The Ethiopian Tanners Association
ETA established as a centre to focus on quality standards, environment,
training, trade and a delegate of tanneries. At present acts as
a lobbying organization for tanners more than a provider of services.
The Quality and Standards Authority in Ethiopia
There are two mandatory standards which deal with leather products,
for raw hides and skins and the leather standards. The implementation
of the raw hides and skins standards are delegated to the ministry
of Agriculture. The authority provides quality control services.
Field inspection and sample collection are understaffed.
The newly established Leather an Leather
Products Training Development Institute
(LLPTDI) Its main roles are training, R&D for improving
quality, physical testing services to tanneries and shoe factories,
provision of updated information
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A centralised authority for the development of hides
and skins has been established to promote
coordination and marketing of raw material.
Industry and Trade
Interaction among actors MOTI, EIA ETA is strong
and well coordinated. A Trade Point has been
established in the Prime Minister’s Office with MOTI
and MOTI has supported the establishment of the
LLPTDI to eliminate a major problem, the lack of
qualified manpower.
The Ethiopian Tanners Association
The tanners association needs to represent the whole industry
and not only tanners, promoting the integration of all components
of the chain geared towards exports and should cooperate with
international organiations such as COTANCE and UNIC.
Quality Standards
Buyers and suppliers do not utilized efficiently the standards
due to: limited knowledge of these; poor skills, lack of experience
and common criteria used by selectors; limited supervision and
facilities. The correct application of standards is essential
for promoting exports. It is necessary to review, modernise and
simplify present raw hides and skins and finished leather products
standards.
LLPTDI. Great expectations have been created. The challenge
is how to link with the private sector and other established institution
and how to secure the participation of industry as partners and
supporters.
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Clusters and districts
Local government policies should promote multilateral cooperation in
industrial districts to form vertical alliances to face globalization.
Government agencies should be prepared to mediate between large enterprises
and associations operating in industrial clusters in the process of
establishing vertical alliances ( the case of Sinos Valley).
Artisan clusters in the developing world are often not industrial clusters
but an agglomeration of independent artisan firms that lack cohesion,
the provision of good quality premises, infrastructure, training and
business services.
If industrial footwear manufacturing clusters are to be promoted from
artisan clusters, it is necessary that the following three conditions
be present:
- Division of tasks between firms and the supply of specialized services;
- The need to consolidate the cluster as a “centre of knowledge creation,
inventiveness, entrepreneurial capability”37 within a given product
line;
- A collection of institutions of different types interacting within
the cluster 38 that provide needed services to their members / clients
and facilitate trust in collective representation of the industrial
group.
Policy actions at the micro level within clusters should seek the development
of the firms' capability to cooperate and exploit advantages from clustering,
recognizing that firms differ in their capacity to interact with other
economic agents. Rabellotti describes several initiatives that had been
promoted in clusters in Italy and Mexico focused on increasing the cohesion
within the districts, by creating occasions for meetings, for exchanges
of information and for developing common strategies.
Business associations
Business associations can have a function in promoting local cooperation
and with it industrial upgrading, in industrial clusters. Results from
three case studies on footwear industrial clusters in India, Mexico
and Brazil indicate that the pressure of the new global competition,40
including trade liberalization, has increased cooperation through the
business associations and a greater use of some of the services provided
by them. The case studies also provided evidence of a positive relationship
between the performance of firms and their relationships with business
associations; particularly evident was the case of Guadalajara, Mexico
in which regression analysis showed that cooperation through the business
association was the most significant factor associated with firm performance.
(Nadvi 1999).
In the face of the new competition not only firms need to upgrade but
also local associations need upgrading.
- Increase and refine the delivery of appropriate producer services
to effectively lower the costs of local firms.
- Articulate concerns of the cluster to the state in a more effective
manner
- Identify and promote mechanisms of state intervention to strategically
assist the cluster
- Search ways and means to play a more active role in providing effective
coordination within the cluster and with agents external to the cluster
(Nadvi 99).
The role of government would be at the local and national levels implement
policies to facilitate the development of activities of local associations,
mechanisms to improve coordination between associations and the state
and provide support when required.
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A Regional Association Upgrades the Leather Commodity Chain
in AFRICA
ESALIA, the Eastern and Southern Africa Leather Industry Association
was created in 1995 to promote the interests of the regional
Leather, Footwear and Leather Products Industry in nine countries
of the region. Members of the regional association are the national
leather industrial associations of those countries that represent
the leather industry including leather manufacturers, the tanning
sector, footwear manufacturers and allied industries.
The main purpose of ESALIA is to coordinate regional efforts
to upgrade the leather commodity chain in all its components,
from the recovery and handling of raw materials through marketing
of leather and leather end products.
Its activities include the regional management of activities
within the UNIDO-ESALIA regional leather programme, assist in
pollution control, and coordinate training, the promotion of rehabilitation,
standards, marketing, information, policy advice and sourcing
trade finance. The regional association has established cooperation
activities with equivalent associations regional, national and
international institutions such as COTANCE, UNIC, CDT, ITC, and
CFC.
The capability of ESALIA to function and negotiate on behalf
of the regional leather industries is illustrated by a recent
contract signed in 1999 between ESALIA and the Common Fund of
Commodities, CFC, for US $1.4 million with the purpose of introducing
a common leather grading systems in Kenya, Ethiopia, Tanzania
and Zambia. ESALIA in turn is subcontracting technical assistance
with UNIDO for carrying out raw hides and skins grading extension
services.
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Policies in India promote Growth and Enhancement in Value
-added Leather Processing
Government policies enacted and implemented from 1973 to 1993
have been credited for the transformation of the leather industry
from a “somnolent industry into a vibrant export thrust”. In 1973,
75% of exports from the industry consisted of raw and semi-processed
hides and in 1994, 82% of total leather consisted of finished
leather, finished leather products and footwear components.
Policies included the creation of an “export thrust status” as
a strategy for the leather industry, and lowering import duties
of raw materials, concessional duty on imported machinery and
chemicals and easy approval of joint ventures for introducing
cleaner technologies. Remarkable has been the continuity in maintaining
the “export thrust status” and related policies even during the
liberalization of the economy during the period 1991-92.
Determinants of success additional to the availability of raw
materials, competitive wages and technical knowledge, are:
A clear strategy for the development of an export industry: an
institutional network linking industry, research and government;
an agency connecting exporters and buyers; a forward looking management
concept applied by industry; industrial support to education,
training, research and development; environmental auditing and
the introduction of cleaner technology; improvement of quality
standards and the development of brands.
The Indian experience in climbing the leather value chain has
been considered as the result of an intelligent, integrated, private
sector-government response to liberal globalization in a priority
agro-industrial sub-sector.
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Based on a report compiled by Teresa
Salazar de Buckle
Presented to UNIDO - Vienna, February 28 2001
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