Glbal Footwear Analysis and Jordan

7/31/2019 Glbal Footwear Analysis and Jordan

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CONTENTS

EXECUTIVESUMMARY

SECTIONI:

THEGLOBALFOOTWEARINDUSTRY

A. StructureoftheWorldFootwearIndustry

1. GlobalConsumption

2. TheSupplyChain

B. InternationalSupply,ExportAnalysis

1. ShoeExportSupply,Asia1.1 China

1.2 Indonesia/Vietnam

1.3 India

1.4 Others

2. ShoeExportSupplyEurope(EU15)

2.1 Italy

2.2 Spain/Portugal

2.3 France

2.4 Benelux

2.5 UK/Germany

2.6 OtherEuropeanCountries

3. OtherExporters

3.1 Brazil

3.2 Mexico

3.3 Tunisia/Morocco

4. Conclusions/InternationalSupply

C. InternationalImportMarketAnalysis

1. EU(15)MarketforImports

1.1 UK

1.2 Benelux

1.3 Germany

1.4 France

1.5 Spain/Portugal

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1.6 Italy

2. Conclusions/EUMarketforImports

3. USAMarketforImports

3.1 TypesofShoeswithMarketPotential

3.2 Conclusions-USAMarketfor

Imports

SECTIONII: ANALYSISOFJORDANFOOTWEARSECTOR

1. Methodology

2. Manufacturing

3. LocalMarket

3.1 Marketsize4. BenchmarkingofIndustry

5. SWOTanalysisofIndustry

6. ConclusionsonJordanFootwearSector

6.1 Humanresources

6.2 Technologylevels

6.3 TheLocalmarket

6.4 Optionsforexportmarketpenetration

6.5 Typesofshoesforexport

6.6 TargetCountries

SECTIONIII:RECOMMENDATIONS

1. StrategyforJordanianShoe

ManufacturingIndustry2. ActionPlanforJordanianShoe

ManufacturingIndustry

2.1 DomesticMarket

2.2 DomesticManufacturing

2.3 MarketingtoEU

2.4 MarketingtoUSA

2.5 Training

Annex:FootwearexportsbycountryShoecosting

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EXECUTIVESUMMARY

TheobjectiveofthisstudyistoassessthestrategicpositioningoftheJordanianFootwear Manufacturing Industry in the international market and to determinea strategy and action plan to enhance the competitiveness of exports from thesector.

Footwearisanactiveproductininternationalmarkets.Itisbeingdelocalizedfromdevelopedcountriestodevelopingones.ThebeneficiariesofthisprocessareFarEast nations, inparticular China, India, NorthAfricancountriesand the CentralandEasternEuropeancountries(CEEC).ItisworthnotingJordansnearneighbours;TunisiaandMoroccoarequitesuccessfulinexportingfootweartotheEU.

JordanhasanadvantageininternationaltradeinthatithasagreementswithUSAthrough Qualifying Industrial Zones (QIZ) and a FreeTradeAgreement (FTA), italso has an Association Agreement with the EU. These agreements allow duty

freeaccesstothesemarkets,forfootwear,providingcertainstipulationsaremet(and theseare not onerous).Thesetwo markets therefore became the targets forJordanianexports.

Theworldfootwearmarketisestimatedat12,469millionpairsin2002.Thebiggestconsumersofconventionalfootwear(i.e.withleatheruppers)areUSAandEurope.Betweenthemtheyconsumed5,823millionpairsinthisyear,46.7%ofthetotal.

Chinaproduces6.9billionpairsperyearandrising,itexportsmorethanhalfofthese.Mostoftheseshoesaresynthetic(over60%)andoflowqualityandprice.The average price of exported shoes from China was US$2.46 in 2002. Other

factories in the Far East produce more leather shoes, in particularVietnam andIndia.ThesetwocountrieswouldbedirectcompetitorsforJordanianshoes(Chinawithitsproductmixandtradingpracticesisimpossibletocompetewithdirectly).

In Europe and the Mediterranean zone, there are significant exporters ofconventionalfootwearnamely;Italy,SpaininEUandTunisia,MoroccoinNorthAfrica.TunisiaandMorocco,inasense,aretiedtoItalyandSpainastheyhavemanysub-contractingagreementswiththesetwocountries.Thesetwoblocksarealso major competitors for Jordan. Among the CEEC, Romania is the strongestcompetitor.

The sleeping giant for conventional shoes is India. It has a well-developedindustrialinfrastructureandcompetitivepricing.Ithasnotyetreacheditspotentialasanexporteroffootwear. However, the shoesitdoes export are competitivelypricedandofincreasingqualitylevels.

TheEuropeanmarketforimportsiswideanddiverse.Themarketineachcountryhasdifferentcharacteristics,someareeasiertooperateinthanothers.OftheEU15,UKasaprimarytargetmarketandHollandasthesecondary,emergedwiththebestpotentialforexportsfromJordan.IntheUSAmarket,becauseofitslargesize,nichemarketingistheonlysensiblewayforwardfortherelativelysmallproducers

inJordan.Althoughthesemarketsareavailableandareimportfriendly,theshoemanufacturingindustryinJordanmustbeinapositioninwhichtoservicethem.Duringthesurvey

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ofcompanies,itbecameobviousthatnoneofthemwascapableofexportingtosophisticatedmarketswithoutoutsidehelp.

Inrecentyears,shoemanufacturinginJordanhasgoneintosharpdeclinewithfactories closing or converting to importers. This is due to many factors; thecumulativeresultofthesefactorsisthatthelocalretailindustryisdominatedbycheapimportsfromChina(ItisallegedthatsomeofthemmayhaveenteredJordanbydubiousmeans).Localmanufacturershavenotbeenabletofighttheseimports.Asaresult,theyhaveaverysmallmarketlefttothem.Nodoubtmanagementhavemademistakesinthepast,nowthereisanopportunitytocorrectthisandre-habilitatetheindustryintoaviableexporter.

Withanestimatedlocalmarketofbetween7and9millionpairs,itisproposedthatthisbesharedwithimportsona50-50basisbyrestrictingtheimportsfromChinathroughtheWTOSafeguardMechanismforaninitialperiodof4years.Controlsshouldalsobeexercisedonpublicisingthematerialcontentandcountryoforiginfortheshoessoldatretail.Thiswillcreateamarketforlocalfactoriestosellinto,

theywillbeabletomakeprofitsonceagainandrebuildtheircapitalbase.During this time, manufacturers must upgrade their manufacturing plants tointernationalnormsbyforginglinkswiththeItalianmachinery,materialsuppliersanddesignstudios.

They must implement programmes for operator training and workshopmanagement.Seniormanagementandownersmustalsoacquireknowledgeofuptodatemarketingtechniquesandtheneedforstrategicthinking.Anassociationisnecessarytodisseminateknowledgearoundtheindustry,tolookafteritsinterestsandtolobbyGovernment.

TheyhavetoreviewthetypesofshoetheymakeandtailorthesetotheinternationalmarketsoftheEUandUSA.Helpwithfactfindingtrips,marketingstudiesandtheattendanceatinternationalshoefairsasobserversandeventuallyassellersisrequiredfromexportdevelopmentagencies.

PartnershipsshouldbesoughtoutwithEuropeanmanufacturersandmarketerstoactassubcontractors.Licenseeagreementswithsmallerinternationalbrandsforthelocalmarketareanotherpossibilitythatwilleventuallyleadtofullexporting.

Withthedevelopmentofasound-manufacturingbase,foreign(orlocal)investorswillbeattractedtofurtherenhancetheindustry.Jordanhasonlyonetannery,there

willbeopportunitiesfor23more.

Providingtheaboveplansmaterialise,thereisnoreasonwhyJordancannothave1016viableshoemanufacturingplantswithin5yearswhoarenetexporters.

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SECTIONI:THEGLOBALFOOTWEARINDUSTRY

A.StructureofWorldFootwearIndustry

1 GlobalConsumption

Itisaxiomatictosayglobally,thefootwearindustryhasanexpandingmarket.Worldpopulationincreases,livingstandardsrise,sodoesthedemandforfootwear.

The following charts published by SATRA (Shoe and Allied Trades ResearchAssociation,UK)showthetrends.ThelargestmarketforfootwearintermsofpairsisAsiaincludingtheIndiansubcontinent.

Thefiguresfor global footwearconsumption(2002) and forecastto2008are asfollows:

GLOBALFOOTWEARCONSUMPTION(2002)

GLOBALCONSUMPTIONOVER10YEARS

GLOBALCONSUMPTIONPERCAPITAOVER10YEARS

REGION

China

Asia(excludingChina)

Europe(all)

North&CentralAmerica

MiddleEast,Africa,Oceania

SouthAmerica

TOTAL

%OFTOTAL

22.2

21.7

20.4

19.1

9.4

7.2

100

MILLIONSOFPAIRS

2,768

2,706

2,544

2,381

1,172

898

12,469

9

CONSUMPTION(MillionsofPairs)

Asia(all)

Americas

Europe(all)RestoftheWorld

TOTAL

1998

4,744

3,011

2,2391,086

11,080

2000

5,222

3,274

2,3961,187

12,079

2002

5,474

3,279

2,5441,172

12,469

2004

5,840

3,433

2,7171,317

13,307

2008

6,528

3,611

2,8861,399

14,424

CONSUMPTION(Pairs/capita/year)

Americas

Europe(all)

Asia(all)

RestoftheWorld

WORLDAVERAGE

1998

3.8

3.1

1.4

1.1

1.9

2000

3.9

3.3

1.5

1.1

2.0

2002

3.9

3.5

1.5

1.1

2.0

2004

4.0

3.7

1.6

1.1

2.1

2008

4.1

4.0

1.7

1.1

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Intheyear2003thefollowingwasthemarketinfinancialtermsforexportersoffootwear,i.e.themajorimportingareas

Source:ICONGroupLtd.www.icongrouponline.com

ThemarketinmonetarytermsshowsadifferentpicturewithAsialyingapoorthird

behindEuropeandNorthAmerica,reflectingthedegreeofsophisticationineachmarket.

Chinaproducesandexportsmore shoesthananyothercountrybyfar.Itis alsothebiggestconsumeroffootwearbyvirtueofthesizeofitspopulation.Ontheotherhanditspercapitaconsumptionislowonaparwithdevelopingcountries.Afurtherbreakdownofthemajorconsumingcountriesandareasisasfollows:

SourceFDRA

FootwearproductionisthereforeconcentratedinAsiaandfootwearconsumptionintheUSAandEurope.

*Figuresareanestimatebasedonofficialstatistics.Seepages3738formoredetails.

REGION

Europe

NorthAmerica

Asia

LatinAmerica

MiddleEast

Africa

Oceania

TOTAL

%OFWORLD

50.15

33.74

9.14

2.19

1.94

1.48

1.35

100.00

US$000

23,362,091

15,718,585

4,256,841

1,022,423

903,873

689,675

629,106

46,582,594

COUNTRY

USAJapan

EU

Canada

Taiwan

Australia

Korea

Brazil

Thailand

Mexico

China

India

Indonesia

*JORDAN

CONSUMPTIONMILLIONS/PAIRS

1,939.7584.4

1,666.5

122.4

82.7

72.0

165.4

483.0

144.4

180.4

2,768.7

1,687.0

350.0

8.4

POPULATIONMILLIONS

290.3127.2

380.2

32.2

22.6

19.7

48.3

182.0

64.3

104.9

1,286.9

1,049.7

234.9

5.4

PERCAPITAPAIRS/PERSON/YEAR

6.684.60

4.38

3.80

3.66

3.65

3.42

2.68

2.25

1.72

1.71

1.61

1.49

2.25

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2 TheSupplyChain

ThesupplychainoftheindustrystartswithAgroIndustriesandprogressesthroughthechemicalindustryandtanningtomanufacturing.Leatherisaby-productofthefoodindustry.Itisacommodityandassuchissubjecttomarketforcesinasimilarwaytotea,sugar,coffee,etc.

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B.InternationalSupply,ExportAnalysis

1 Shoeexportsupply,Asia

World footwear manufacturing is notorious for its pursuit of so called cheaplabour.Inthe1960sJapanwasthemainsourceofsupplyoflowcostfootwear.Japan

wasthefirstFarEasternsupplierofNikeSportsshoes.(NikeistheGreekgoddessofvictory).Lowlabourcosts,suppliesofleatherandatraditionofshoemakingmadeJapan the launch pad for the Far East shoe manufacturing industry.TheindustrythenmovedtoTaiwanaslabourcostsinJapangrew.ItinturnmovedtoSouthKorea,thentoIndonesiaandThailand.TaiwanandSouthKoreanolongerhaveanysignificantshoemanufacturingindustries.

Theeconomicproblemsinthelate1990shadamajornegativeimpactonthefootwear industries of Indonesia and Thailand. This created many problems inthe supplychain,particularlyin USA,withthe resulttheindustries inthese twocountrieshaveneverfullyrecoveredbecausebuyerslostconfidenceinthefactories

abilitiestomaketimelydeliveriesatstableprices.

Meanwhile China was liberating its economic policies. Taiwan Chineseentrepreneurswerelookingforanewmanufacturingbase.HongKongbecameanewcapitalisticpartofChina.OperatingthroughHongKongforpoliticalreasons,theTaiwaneseindustrialistssetupshoefactoriesdirectlyoppositeTaiwanontheChinesemainland,wherethereweregreenfieldsitesandlabourwasplentifulandcheap.ThustheindustrythenmovedonagaintoChinaasthelowestlabourcostcountryintheregion.

This left China emerging as the dominant player because of its high capacities

installed(atleastfortheUSA),infrastructure,andcomponentsupplyindustry.

ItisdifficultforanonFarEastcountrytocompeteheadtoheadwithChina.TheymustfindmarketnichesChinadoesnotdoparticularlywell.Forexampleleathertrumocs,sidewallstitch,McKaystitch,StCrispin,safetyshoesetc.TheseshoesareabitmoredifficulttomakeanddonotlendthemselvestotheautomatedproductionlinesprevalentinChina.Theyarealsoinconstantdemandinthemarket.

ItisclaimedthatVietnamisanevenlowercostproducerthanChina.VietnamisbuildingupitsinfrastructureaimingtobecomeaseriousplayerbutithasadifficultrelationshipwithUSA.

In parallelwith thesedevelopments Indiawas also targeting itslargesomewhatinformalleathersectortomodernise.ThroughGovernmentlegislationthesectorhasnowbecomeoneofthedominantleathershoesupplyingcountries.

TodaythemaininternationalsuppliersoflowcostfootwearfromAsiaareChina,IndonesiaandIndia;VietnamandThailandfollow.

AccordingtoSATRA(ShoeandAlliedTradesResearchAssociation,UK),in2002,India, China, and Indonesia accounted for about 75.2%, 9.4 billion pairs, of aglobalproductionof12.5billionpairsofshoes.

In monetary terms footwear exports of the big three present the followingpicture:

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BIGTHREEGLOBALEXPORTSOFFOOTWEARU.S.$000

Theabovefigures are indollar valuesasopposedtopairs. Chinahas amassiveproductioncapability,howeveritsexfactorypriceaveragesat$2.50perpair,in2003,upfrom$2.46in2002.Indiaismoreupmarketandhasanexfactorypriceon average nearer $10-12.00 per pair as 60% of its exports are leather shoes,

exactlythereverseofChina.IndonesiatraditionallymakeswhiteshoesforthelikesofNike,ReebokandAdidasthathaveahigherexfactoryvalue.

Buyerslookingforshoesupplies,tendtolookatthesecountries.HowevertherearesomeproblemsassociatedwithdealingwiththeAsianregion.Intodaysmarket,retailersare looking for production flexibility, i.e. the ability to react quickly tomarketdemands.Theyalsolookatthetotalprocurationcosttogetshoesintotheirwarehouses.Thisincludesacalculationoftransportationcosts,deliverytimes(costoffinance)fastturnroundofrepeats(keepsstocksdown),traveltoforeignfactories,ratherthan,inthepast,justtheprice.Thiscanputthelargevolumeproducersin

theFarEastatadisadvantage.ChinaandIndonesiaarenotsoflexible,Indiaismoreflexible.FarEastproducerstraditionallyhavedemandedlargeorders(50,000to100,000)pairsperstyle;theyarefarawayfromthemainmarkets,USAandEurope.

Largeordersarefineforlargeglobaldistributors.However,thereisamarkettrendtodaytobemoreindividual,requiringmoreoftensmallerordersofdifferentstyles.LargeFarEastfactoriesarepresentlynotgeareduptothisnewtrend.

1.1China

IthastakenChina20yearstoreachthestageitisattodayintheglobalfootwearindustry. Production figures in pairs, from ITC and China customs say thefollowing:

BILLIONSOFPAIRS

Chinaproduced55%ofallworld footwearin2002. Itsbiggest export market isthe USA followed by Europe. Exports to USA were 5.1 billion dollars in 2002,representing 45.6% of the total exports. Europe imported 1.2 billion dollars

COUNTRY

China

Indonesia

India

TOTAL

RestofWorld(72countries)

Big3%shareofworldexports

SourceITC,UNComtrade

2000

9,850,226

1,672,110

651,382

12,175,718

27,760,714

31.3

2001

10,095,769

1,505,580

662,511

12,265,861

28,136,539

30.5

2002

11,090,084

1,148,052

622,590

12,862,728

25,858,232

33.3

YEAR

Exportpairs

Domesticpairs

Totalpairs

2000

3.9

2.0

5.9

2001

4.2

2.4

6.6

2002

4.4

2.5

6.9

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representing 11.1% of the total (See annex). China production of shoes withnon-leather uppers is about 60% of the total, the balance being leather.Thesenon-leather shoes, although cheap are of, at best, indifferent quality.There areover20,000shoefactoriesinChina.Ofthefactoriesengagedinexports80%areownedbyTaiwaneseinvestors,theothersbyHongKongandlocalinvestors.WithhelpfulgovernmentpoliciesandTaiwaneseknowhow,theindustryhasprogressed

towhereitistoday.

ItisoftenoverlookedthatChinaalsohasalargedomesticmarket,over2.0billionpairsandexpanding.Itcurrentlyconsumeslessthan2.0pairspercapita.Thisstabledomesticbasegivesitasecureplatformonwhichtoexport.

Therearealsoproblemsloomingintheindustry.ChinaisnowasignedupmemberofWTOwhichwillseetariffbarriersfalling,thereducingoreliminationoftradesubsidiesandtheopeningupofthedomesticmarkettoimports.

ThereisincreasedovercapacityintheChinesefootwearmanufacturingindustryleadingtointensecompetitionandveryfinemarginsorevennomarginsatall.(One can understand this when told of the buying prices of shoes imported toJordanfromChina).Costoflivingincreasesinthecoastalareas,wheretheindustryisestablished,hasdrivenupwages.Chinesefactories,becausetheyrelyonlargevolumestobreakeven,haveaveryhighbreak-evenpoint.Ifthevolumesdeclinethefactoriesquicklyfallintooperatinglosses.

Consequently, the foreign owned companies are now looking for higher valueitems,namelyleatherfootwear,tosurvive.Thecheapsyntheticfootwearwillbelefttolocalfactoriestomake.Thereisalsoareportedshortageofskilledoperativesinthecoastalareas.It isalsopredictedthattherewillbea moveawayfromthe

coastalareasintotheinteriorbecauseofloweroperatingcosts.ThishoweverwillputpressureonlogisticsandmaynotbeasattractivetoUSbuyers.

OneofthemajorweaknessesoftheChineseindustryisthatitisnotaninnovator,itmakestoorder,orcopiesEuropeanstyling.ThisisbeingrecognisedandmovesarebeingimplementedtotrainindigenousChinesedesignersandcreateChineseglobalbrandnames.Whethertheywillsucceedinthisisamootpoint.Thedemandforhighvolumeordersisalsobeingaddressedwithfactoriesnowacceptingordersforafullcontainerasaminimum,ofanexistingdesign.

Nomatterwhathappens,Chinawillremainthedominantforceinfootwearsupply

fortheforeseeablefuture.However,costsandconsequentlypriceswillincreasefrom China. As living standards increase around the world there will be moreemphasisonleatherfootwear.Thiswillprovidemorecompetitionto theChineseindustryfromothercountries,especiallyfromqualitybrandnamesthatarenotwidelyavailableinChina.

1.2Indonesia/Vietnam

Indonesia has had for some time an unstable economic and political climate,causinggreatconcernforinternationalshoesourcingcompanies,particularlythosefromtheUSA.TheshoemanufacturingcompaniesinIndonesia,manyofwhichareforeignowned,realisethisandareactivelyconsideringmovingtoVietnam,IndiaandChina.

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Already 5 toy and 10 textile factories have recently moved out of Indonesia.TheTaiwanFootwearManufacturersAssociation(TFMA)saysthatupto12shoecompaniesarelikelytoleaveIndonesia.Itwillbeinterestingtoseewherethesefactorieseventuallyrelocate.MainlandChinaiscertainlyoneoptionbutmaybesavvyTaiwaneseinvestorsmaylookatVietnamorevenfurtherafield(Jordan?)asChinaisbecomingcrowdedwithshoecompanies.

Indonesiasshoeexportshavebeenonthedeclineforthelastfewyears(Seeannex).In2000theywereUS$1.7billion,1.5billionin2001,andin20021.1billion.TheirbiggestmarketsarethesameasChina,USAandEurope.BoththeseareasareshowingdeclinesduemainlytoChinesecompetition.

Indonesia,incommonwithmanyotherexportingcountries,hastoimportupto80%oftherawmaterialsneededforshoemaking.TherapiddeclineinthevalueoftheIndonesiandollarhasmadethesematerialsmuchmoreexpensive.IndonesiahasbeenformanyyearsamajorsuppliertoNike,Reebok,Adidas,Converse,Fila,etc;allwhitesportsshoes.Withexfactorypricesescalating,thesecompaniesare

driftingawayfromthecountry.ThemainbeneficiaryofthisisVietnam.However,Indonesiaisdoingitsbesttore-groupandre-establishitsindustry.Itisaggressivelycuttingpricestogetmarketshare,pushingupthenumberofpairssoldbutleadingtoadeclineinexportrevenue.

ItisalsointerestingtonotethattheIndonesianShoeManufacturingAssociationclaimsthat,illegalimportsofChineseshoesarefloodingtheIndonesianmarketandisseriouslyhurtingshoemanufacturers.

Indonesiatherefore,becauseofitsinternalproblems,isbecominglessofaplayerintheglobalfootwearmarket.

Vietnamincontrast,in2003,exportedindollarvalueterms,morethanIndonesia.Mostoftheseexports(63%)goingtotheEU,13%toUSAand3%toJapan.ExportsrosefromUS$1.5billionin2000to2.2billionin2003(Seeannex).

Vietnamhasaggressiveplanstomoderniseitsindustrywithnewequipmentandtechnologies,trainingandtradepromotionactivities.Itisorganisingleatherclustersandencouragingtheinvestmentinprimarymaterials,namelyleathertanning.

Currentlyitimports75-80%ofallrawmaterialsrequiredforshoeproduction.Fromthis, it is obvious that the cost structure is based on imported materials, whichmakessettingacompetitivepricedifficult.Hence,theplantodevelopindigenous

materials.

Much of the export business, (80% according to theVietnam Leather FootwearCorporation)isontheCMTprinciple,leavingverysmallprofitsfortheproducers.Governmentandindustrypolicyistomoveawayfromthisandselldirect.

In 2000,Vietnam had a problem with the EU. A special method of monitoringfootwearoriginatinginVietnamwasintroducedtopreventshoesoriginatingfromathirdcountryleavingVietnamandenteringtheEuropeanmarketfraudulently.

IthasalsoconcludedabilateraltradepactwiththeUSAallowingtariffratestofall

tobetween0and20%.ItexportedoverUS$851millionworthoffootwearinthefirstsixmonthsof2002toUSAalone.

Thereare233footwearproducerswithacapacityof380millionpairsperyear,

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making mostlysports shoes, 48.5%. Others are canvas18% and asmallleatherfootwearproductionof1.5%.76ofthesecompaniesarestateowned,and77areforeigninvestors,themajoritybeingTaiwaneseandSouthKorean.

Inthe future,Vietnam will emerge asa significantsupplier inthe global marketplaceespeciallywhenitdevelopsitscapacitytomakeleathershoes.ItwillneverbeasbigasChinaorIndiabutcouldbecomethenumberthreesupplierintheregion.

1.3India

India has emerged in recent years as a relatively sophisticated low to mediumcost supplier to worldmarkets The leather industry in India has been targetedbytheCentralGovernmentasanengineforeconomicgrowth.Progressively,theGovernmenthasproddedandlegislatedareluctantindustrytomodernise.Indiawasnotedasasupplierofrawhidesandskinssemiprocessedleatherandsomeshoes.Inthe1970s,theGovernmentinitiallybannedtheexportofrawhidesandskins,

followedthisbylimiting,thenstoppingtheexportofsemiprocessedleatherandencouraginglocaltanneriestomanufacturefinishedleatherthemselves.Despiteprotestationsfromtheindustrialists,thishasresultedinamarkedimprovementintheshoemanufacturingindustry.IndiaisnowamajorsupplierofleatherfootweartoworldmarketsandhasthepotentialtorivalChinainthefuture(60%ofChineseexportsaresyntheticshoes).

Indiaisoftenreferredtoasthesleepinggiantinfootwearterms.Ithasaninstalledcapacityof1,800millionpairs,secondonlytoChina.Thebulkofproductionisinmensleathershoesandleatheruppersforbothmenandladies.Ithasover100

fullymechanised,modernshoemakingplants,asgoodasanywhereintheworld(includingEurope).ItmakesforsomeupmarketbrandsincludingFlorsheim(US),Lloyd(Germany),Clarks(UK),MarksandSpencer(UK).

Indiahashadmixedfortunesinitsrecentexportperformance.In2000,exportsofshoeswereUS$651million,in2001theseincreasedto663millionbutdeclinedin2002to623milliondollars(Seeannex).

ThemainmarketsforIndianleathershoesareUKandUSA,whichbetweenthemtakeabout55%oftotalexports.

Indiahasnotyetreacheditsfullpotentialintermsofaworldsupplier.Thisisdue

mainlytolocalcowleatherthatalthoughplentiful,hasamaximumthicknessof1.41.6mm,andthesocio/political/infrastructureofthecountry.However,Indiaisanexcellentsupplierofleatheruppers,afactthatJordanianshoemanufacturerscouldtakeadvantageof.ImportationofuppersfromIndiadoesnotinfringeFTAwithEuropeortheUSA(ItmightbeaproblemintheQIZsystembecauseofthestipulationofvalueadded).

Thepotentialissettochangealbeitslowly,butwithapopulationrivallingChinaforsize,thereisnodoubtthetussleforworlddominationinfootwearsupplywillbebetweenthesetwocountries.

1.4Others

OthercountriesthatoperateintheregionareMalaysia,Thailand,PhilippinesandHongKong.

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Malaysiatraditionallymadeshoesbasedontherubberindustry.Thishaslargelybeenreplacedwithnewereasyprocessingsyntheticpolymers,whichhasledtothedeclineoftheshoemanufacturingindustryinthecountry.Itisnowasupplieroflowvolumespecialityproductsthatrequirerubberfortechnicalreasons.

Thailand does export footwear. However, it has a very well developed tanningindustry.Thereareover130tanneriesinthecountrythatexportlargelytotheregion.Footwearexportsarenotassignificantas theyoncewereduetotheincreaseinlabourcosts.Theindustrythatsurvivesismovingupmarkettohigherqualitynichemarketproductswithbetterqualityleather,producedbylocaltanneries.Thailandalsoexportsasignificantamountofleathergoods.

ThePhilippines are really nolongeraplayerintheglobal market.They sufferedthe same fate asTaiwan and South Korea. Chinese imports are penetrating themarket.Since1997,thedomesticindustryhaslostanestimatedUS$142,000,000inrevenue.

HongKong is a major factor in the region although not aproducer of shoes. Itprovides marketing, banking and logistical services. It is a stabilising influenceinsomeofthedifficultpoliticalproblemsintheregion.Itactsasafacilitatorforproducersandbuyers.TheAPLFisheldthere(AsiaPacificLeatherFair),amajormeetingplaceforbuyersandsellersfortheregion.

2 Shoeexportsupply,Europe(EU15)

ItisarguablethattheheartoftheshoeindustrystillliesinEuropeandnotAsia(China/India),manyshoemakingcountriesinEuropearemajorexportersofshoes.Thecreativeprocessesoffashionandtechnologyarecertainlycentredhere,Asia

doesnotcreatefashionordecidecoloursforacomingseason.ShoemachineshavebeendevelopedinEurope.ThemachinesmadeinAsiaareinthemaincopiedfromEuropeanideas.EuropedevelopedtheCADsystemsnowusedinmanyshoecompaniesaroundtheworld.

PossiblythedevelopmentofwhiteshoeshasbeendevelopedinparallelinUSA,withbrandslikeNikeandNewBalance.However,itshouldberememberedthatReebokandHitecstartedinUK,AdidasandPuma,inGermany,LottoandFilain Italy, Le Coq Sportif, in France.These brands still have major ties with theiroriginatingcountries.

Italyistheworldleaderintermsoffashionanddesign.Italsohasavibrantshoemachinerymakingindustrybasedonprogressivetechnology.Itisamajorsupplierofshoecomponentstotheworld.OthercountriesinEurope,particularlyFranceandSpainalsocontributetothisconcentrationofknowledgeanddevelopment.InEurope,thereisavastsupplyindustrysupportinglocalmanufacturers(aswellasexportingtoAsia).

Because of this accumulation of experience over many years, Europe is still asignificantexporterofshoes.Thisisconcentratedonthemediumtohighendoftheleathershoemarket,itsuppliesthedemandsofmoresophisticatedconsumers,intraEuropeaswellastherestoftheworld.YoucanseeupmarketItalianshoesinjuxtapositionwithcheapChinesefootwearinmost internationalcities,includingAmman.EvenBritishmadeexpensive($350perpair)goodyearweltedshoesareinhighdemandinItalyandFranceaswellasUSAandtheGulfStates.

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However,althoughtheEuropeanfootwearindustryisfightinghardtosurvive,itisstillloosingmarketshareinexports.From1999to2002,exportsdeclinedby5.5%withafurtherdeclinein2003(Overthesameperiodimportsroseby20.5%).

FootwearexportsfromEuropepresentsthefollowingpicture:

FOOTWEAREXPORT000PAIRS

The largest market for EU produced footwear is North America, followed bySwitzerland,RussiaandJapan.ApartfromRussia,marketshareisdecliningintheseareas.Penetrationdeclinedfrom1999to2003by34.2%inUSA,(exchangerateproblem),7.9%inSwitzerland,30.5%inJapanandincreasedby28.9%inRussia.

ThebiggestexporterandthemostsignificantisItaly,followedbySpainandtoalesserextenttheothercountries.

2.1Italy

ItalyisthedrivingforceoftheEUfootwearindustry,astheleadingexporterandproducer. Its main export markets (extra EU) are USA, Romania, Switzerland,RussiaandJapan.Theindustryisgearedtowardsleatherfootwearofmediumtohigh quality with many international, though smaller, brand names. Average exfactorypriceisUS$2225.ExportshavebeenholdingsteadyforthelastfewyearsataroundUS$7.5billionperannum(Seeannexfordetails).Exportsin2003were320millionpairs.

Italian flair and styling is well known, it is the innovator in the market place.Consequently,isusuallythefirsttooffernewproducts,ensuringatleastthebulkofinitialorders.Inthismanner,itmanagestohangontomarketshare.Inasense,thefactthatitsexportshavedeclinedonlyby6%since1999,isquiteacreditableperformance.Muchofthisdeclinemustbearesultofcurrencyfluctuations,whichinturndistortsexportprices.However,withtheintensecompetitionnowprevalent,itisdifficulttokeepaheadofthefollowerswhomanagetobringsimilarproductstomarketnotsofarbehindtheItaliansatlowerpricesandacceptablequality.

PartofthestrengthoftheItalianindustryisitsstructure,whichistheexactopposite

of China.The Italian industry is composed mostly of small firms employing 1220people(Ofcoursetherearesomelargercompanies,Filanto,Effietc).Therearemorethan7,000firmsinthesector900ofwhichareshoeproducers.Theyco-operatetogether,sharingmanufacturingprocesses,and marketingplans.Theyare very flexible, have quick reaction times, low minimum ordering quantities,elastic productioncapacities and animageofgood quality.Theycan easily actas subcontractors for the bigger companies, this satisfies the needs of the moreupmarket retailers and distributors. In this way they keep overheads and coststoaminimumandmanagetocompeteinternationallyintheirmarketsegment.ItisauniqueItalianstructurethatworkswellinItalyduemainlytotheculture

andtraditionofshoemakinginthecountry.Itisanongoingquestionanddebatewhetherthissystemcanbereplicatedinothercountries.

EXPORTS(EXTRAEU-15)

SourceEurostat,CEC

2000

245,897

2001

241,198

2002

223,245

2003

190,773

18


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2.2Spain/Portugal

SpainisverysimilartoItalyinexportprofile.Theindustryismuchsmaller,about50%insize,oftheItalianindustry.Generallyitsproductsareabitcheaperforverycomparablequality.ItsmainmarketsoutsideofEUareUSA,MexicoandJapan.Becauseofthiscompetitiveedge,Spanishexportshaveincreasedinrecentyears

fromUS$1.9billionin2000to2.1billionin2002.SpainistryinghardtocaptureexportmarketsandisprovingaveryfastfollowertoItaly.ItisexploitingitsSpanishconnectionwithMexicoandtosomeextentintheUSA.

PortugalisevensmallerthanSpain,itsmainmarketstendtobeintraEurope.ItsonlysignificantoutsidemarketisUSA.AccordingtotheFootwearAssociation,in2002 Portugal had 1,350smallcompanies making 99,000,000 pairsofshoesofwhich87,000,000wereexportedtoneighbouringcountries.

The fact that Portugal still supplies large marketers of footwear, Clarks, UK and

Ecco,Denmark,withshoes,isanindicationofitscompetitiveness.

2.3France

Francetendstohaveexportmarketsthatarefrancophoneinnatureorincloseproximity. Its biggest export market is Germany followedby Belgium (Benelux),afterthistheUSAcomesthird.ItalsoexportstoNorthAfricancountries(Tunisia,Morocco,Algeria)whereithascloserelationships.ExportsroseinmonetarytermsfromUS$0.9billionto1.0billionin2002reflectinganincreaseininflationratherthanpairs(Seeannex).

There are 173 small and medium sized companies producing shoes. France isparticularlystronginsafetyfootwearandchildrensshoes.Ittendstoproduceinthetopendforallitsmarketsegments.IthasstrongbrandssuchasMephisto,CharlesJourdan, Kickers and Babybotte. Jallate and Lemaitre are well known in safetyfootwear.

ManufacturinginFrancegenerallyisgoingthroughadifficulttimecausedbynewEU legislation, which France has enthusiastically adopted, namely the 35-hourworkingweek.OtherEuropeancountrieshaveoptedoutofthis.In1992therewere278shoecompaniesinFrance.In2002,thishadreducedto175,adeclineof37%.

ManycompaniesrelocatingoffshoretoNorthAfrica(TunisiaandMorocco).With the difficult manufacturing environment, the decline in manufacturing inFranceisinevitable.

2.4Benelux

TheBeneluxcountriesofNetherlands,BelgiumandLuxembourgproducevirtuallynoshoesbetweenthem.However,theyhaveagreattraditionintrading.HollandandBelgiumactasre-exportersandsupplymanycountriesinEU(15)andtheCEECcountriesplusRussia.Theymanagetointroducegoodqualitymediumtolowend

shoestothemarketsourcedfrominternationalsuppliersatcompetitiveprices.TheyhaveapermanentinternationalsalonsetupnotfarfromAmsterdamwherebuyersareofferedonestopshopping.Exportswereupby23.8%fromUS$2.1billionin2000to2.6billionin2002

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2.5UK/Germany

These two countries have suffered the most in a decline in manufacturing.Thecompanies that are still active, produce shoes for niche markets. These theysuccessfullyexportusuallyatthetopendintermsofpricing.TheUKhasalongestablishedmensgoodyearwelttraditionandproduceshighqualityfootwearsuch

asChurch,Barker,Grenson,whichareexportedtoUSAandtheEU(15).GermanyhasareputationofproducingcomfortshoesformenandladieswithsuchbrandsasJosefSeibel,Gabor,Romika,Salamanderetc.mostlyexportedintraEurope.

GermanysmainexportmarketsareAustria,followedbyHolland(forre-export)andFrance.ThesecondarymarketsareFrance,SwitzerlandandUK.Therewere127shoefactoriesinGermanyattheendof2002,andbytheendof2003thisnumberhaddeclinedto109.

UKmarketsareUSA,thebiggest,followedbyFrance,ItalyandGermany,withasmallproportiongoingtoHollandforre-export.Exportshavedeclinedby14.3%

intherecentyear.Thesetwocounties, byvirtueofthetypesof shoestheymake, wouldnotreallybe international competitors for the types of shoes Jordan would be capable ofproducing and would not feature in any strategic marketing plans in terms ofcompetingwiththeproducersformarketshare.

2.6OtherEuropeanCountries

Many of the countries applying to join or have joined the EU are significantproducersoffootwearandhaveadistinct,shortterm,advantageinwageratesovertherestoftheEU.ThesecountriesdoexportshoestotheEU,usuallyundersubcontractmanufacturingforItalianandGermancompanies,althoughTurkeytendstobemoreindependent.

PRODUCTIONMILLIONPAIRS

SourceEurostat

Production inthese countrieshowever, has declinedor stagnated over a 4-yearperiod to 2002.This reflects more on the transformation of the industry from aplannedeconomytoanopenmarket one. Inrecent years, production has beenincreasing as companies re-organise and comes to terms with the new marketenvironment.

The manufacturing plants make leather shoes in the medium quality level, butarehavingdifficultymeetingthepricepointsdemandedbythemarketinEuropeduemainlytoorganisationaldifficulties.Thesehowever,arebeingsolvedbytheirEuropeancounterparts.

COUNTRY

Turkey

Poland

CzechRepublic

Hungary

Slovakia

1998

241

58

15

14

10

2002

215

52

8

14

10

EXPORTS2001

52

31

N/A

N/A

N/A20


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Romania has a significant footwear manufacturing industry supported by Italianinvestment.ItisnotfarfromNorthernItaly,thehuboftheshoeindustry.Asitis(currently)outsidetheEU,itcanmaintainalowcostbaseintermsofwages.ItproducesmediumtomediumlowqualityshoesatcompetitivepricesandobviouslysubcontractsfortheItalians,Italytakes75%ofitsexports.

FOOTWEAREXPORTU.S.$000

3 Otherexporters

3.1Brazil

Brazilhasalargeshoeindustryandisanaggressiveexporter.Thereareover6,000shoefactoriesproducingalmost650millionpairsperyear.70%oftheshoesmadeareforlocalconsumption.Thebalanceforexport,mostlygoesto theUSA,againabout 70%. UK ranks second with other South American countries taking therest.ExportsareaboutUS$1.5billion.Themainproductexportedishighqualityaffordableladiesshoesofalltypes.

3.2Mexico

Mexicoisalargeproducerofshoes,mainlyforthedomesticmarket.ForexportsittendstolookNorth/South,especiallyasithastheNAFTAtotradein.However,thisisadouble-edgedsword.AnyunwantedstockleftinUSAisverypromptlyshippedtoMexicoatlowprices,whichdisruptsthelocalmarket.IthasalsobeennoticedthatcheapChineseshoesalsocomeinthiswaysomehow,whichputsanevenbiggerstrainonlocalmanufacturers.MexicoshipsverylittletoEuropewiththeexceptionoftoSpain.Theshoesareaimedatthemiddlemarket.

ExportsaredecliningfromUS$400millionin2000to328millionin2002.Buttheindustryhasaprogrammeofre-generationassistedbystronglocalassociations

andhelpfromtheFederalGovernment(ThepresidentofMexicocomesfromashoemakingarea).

ThecountryissufferingfromlowcostshoesfromChina.TheMexicanGovernmenthasrecently(2004)extendeditsantidumpingdutiesforanother4years.Theserangefrom165%to1,105%dependingonthetypeoffootwear(Nikehoweverisexemptfromthismeasure).Thishasnotcompletelysolvedtheproblem,Mexicois suffering from Triangulation i.e. shoes from China entering the USA andthenbeingshippedtoMexicofreeofdutiesduetotheNorthAmericaFreeTradeAgreement(NAFTA).

3.3Tunisia/Morocco

Tunisiaisasuccessstoryasfarasshoeexportingisconcerned.AcombinationofindustryfriendlyGovernmentpolicies,aggressivepromotionbyexportpromotion

ROMANIASOURCEITC

World

Italy

Rest

2000

784,974

599,276

185,698

2001

975,599

737,958

237,641

2002

1,157,931

864,612

293,319

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agencies,atraditionofshoemaking,adevelopedsupportindustryintermsoftrainingschemesandatechnicalcentre,havecreatedaleatherindustryworthUS$770.2million.There are 423 companies in the sector employing over 25,000 people,20,000ofwhichworkinexportorientedfactories(2002figuresfromCEPEX).ItisalsoclosetothemostimportantfootwearmarketintheworldEurope.Ittakesatruck4-5daysdoortodoortoMilan.

Exportshavetripledin10yearsfromUS$138.7millionin1993to$439.6millionin 2003. Companies that export 100% of their production due to their specialstatusasindividualexportingzonesmanufacture77%ofexports.Shoesanduppersrepresentcloseto84%oftheseexportsinmonetaryterms.

Over90% ofexportsgo toEurope,Italy beingthebiggestmarket(52%), France(30%)andGermany(9%).Obviouslyshoesgoingtothesecountriesareofahighstandard.

Oneoftheproblemscomingtolightaftertenyearsofdevelopment,forcompaniesthatarenot100%foreignowned,isprofitability.MuchoftheworkdoneinTunisiaissubcontractforEuropeanbrands.Thesepartnersdictatethetermsofbusiness(becausetheysupplytheorders),andconsequently,theprofitallowedtothelocalproducer.Localcompaniesfindthemselvestrappedinthissystemandfinditalmostcommerciallyimpossibletogetoutofit.Thesystemworkswellinthebeginningbut as local companies gain more experience through technology transfer andmarketingandbecomemoreconfident,therecomesatimetheywouldliketobemastersoftheirowndestiny.

TheonlyrealwayoutofthisdilemmaistostartanewfacilityelsewhereeitherinTunisia(mightbedifficult,conflictof interests)oranotheruserfriendlycountry

Jordan.MoroccoisasomewhatsmallerplayerthanTunisiabutstructuredinaverysimilarway.Thereareabout220smallertomediumsizedcompaniesemploying13,000peopleproducingabout70millionpairsperannum.TheyhavethesamecustomersasTunisia.

4 Conclusioninternationalsupply

TheFarEastisaformidableproducerofcheap,lowqualitysyntheticshoesandhighqualitysportsshoes,dominatedbyChina.Itisdevelopingitsleathershoemaking

capability,theratioof60%syntheticshoeswillswingmoreandmoretoleather.

ItisgeareduptohighvolumesandtendstodealwithlargebuyerswhoareusuallylocatedintheUSAwheremassmarketingisthenorm.Inotherareas,particularlyEuropethereisatrendtotargetmarketing,creatingniches,requiringfastreactiontimesfromsuppliers.TheFarEastisnotsosuccessfulinthistypeofoperation.Thisprovidesopportunitiesforsmallerflexible,specialised,productionunitsthatareclosertothemarket.

Thisgoes a long way to explaining the reasons for the success of theTunisian,Moroccan,ItalianandSpanishshoeindustries.ThereisanopportunityforJordan

toemulatethem.Romaniaisemergingasaformidablesupplier,helpedtoalargeextentbyItalianknowhow,bothtechnicalandmarketing.

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Indiahasagreatpotentialbutnotyetfullyrealised.

C.InternationalImportMarketAnalysis

1 EU(15)marketforimports

ForseriousshoemanufacturerswhowishtoenterexportmarketsEuropeprovidesthemostpotential.IfGreaterEuropeistakenintoconsideration,itisthebiggestimportmarketintheworld,itisalsothemostdiversified.Europeimportscheapqualitylow-endshoes,andalsothehighestqualityavailable,pluseverythinginbetween.Therearedifferencesinmarketcharacteristicsbetweenmemberstatesanddifferencesindistributionmethods.Somecountriesareeasiertoexporttothanothers.Thesizeofthemarketsinindividualcountriesalsovariesduetopopulationand consumptiontrends.There isa moveaway fromthe cheapershoesto morecomfortableleatherfootwear.Fashionplaysabigpartinthemassmarket.ThereisasubstantialtradeamongtheEUpartners,especiallyfromItaly,whoexportstoeveryothercountryintheEU.

Threecountries are not partofthe monetaryunion, UK, Denmarkand Sweden.WiththeJordanianDinarpeggedtotheUSdollarthisshouldmakeexportstothesecountriescompetitive,especiallytotheUK(DenmarkandSwedenarerelativelysmallmarkets).

Thebiggestconsumersof footwearin the EUareGermanyand UKfollowed byItaly,FranceandSpain.Germanyinparticular,andItalytosomeextent,havehaddepressed economic climates and are showing limited growth potential. UK isprobablythemostbuoyantmarketintheEUatpresent.

Consumptionfiguresareasfollows:

EU(15)FOOTWEARCONSUMPTIONU.S.$000

SourceCBISurvey

Theleading6countriesrepresent87%ofthetotalconsumptionofthe15states.

Thedifferenceinconsumptionin member statesis more relatedtoclimatic andculturaldifferencesratherthanmarketforces.

AsfarasimportsofshoesmadeinJordanareconcernedthebiggestcompetitorswouldbe:

COUNTRY

Germany

UK

Italy

France

Spain

Benelux

Others

2000

11,026

7,693

8,457

7,934

5,183

3,553

6,355

2001

11,021

8,147

8,639

8,037

5,485

3,702

6,526

2002

10,763

8,595

8,293

8,198

5,777

3,693

6,676

CONSUMP-TIONPERCAPITA

132

143

146

139

144

142

129

ESTIMATEDANNUALGROWTH%

20032007

1.5

3.0

-1.0

2.2

1.8

1.0

1.5

23


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ItalySpainPortugalTunisiaMorocco

IndiaCentral&EasternEuropeanCountries(CEEC)

TheFarEastisstillafactorincertainEUcountries(Vietnamwithitsleatherindustrydevelopment).Itsproductmixtendstobemoreinwhiteshoes,itisnotpossibletocompetewiththemdirectly.Nichemarketingisthekeytomarketentryintheso-calledbrownshoemarket.

IMPORTSTOEU(15)FROMCOUNTRIES

Itcanbeseenfromtheabove,importsfromintraEuropecountriesaredeclining,whileimportsfromNorthAfricaandIndiaareincreasing.TheCEECaremakinginroadswithRomania(notyetamemberofEU)makingthebiggestpenetration.OftheexportingcountriesthereforeTunisia,IndiaRomaniawouldbethemajordirectcompetitors.

1.1UK

TheUKmarketissomewhatuniqueinEuropeinthatitimportsfootwearfromthe

verylowend(allsynthetic),toexpensive(allleather)designerbrands.Themarketsegmentsrangefromverylowtoveryhighpricepoints.AccordingtotheBritishFootwearAssociation,UKimported338millionpairsin2003.

About240millionpairsweresoldthroughretailchains,withlessthan10%soldthroughindependentretailers.Theseretailchainscanbeof20-30shopsupto300450shopsspecialisinginfootwear.Otherretailersincludedepartmentstoresthattraditionallysoldonlyclothing,nowtheyarestartingtosellthetotalensembleincluding shoes.Other outlets, non-specialist, are supermarkets,mail order andmarketstalls.

Womensshoesaccountforabout50%ofthemarket,mens34%andthebalance16%childrensinmonetaryterms.Inpairagetermswomenbuy49%men26%andthechildrensmarketis25%.Importsofleatherfootwearaccountforalmost60%

COUNTRY

Italy

Spain

Portugal

Tunisia

Morocco

India

CEEC(exclRom.)

Romania

1999 20012000

000prs

244

103

81

11

12

29

92

45

000US$

3,291

1,145

1,357

263

161

428

1,422

661

000prs

240

93

76

14

13

30

98

53

000US$

3,215

1,108

1,336

320

175

481

1,543

862

000prs

201

92

76

16

15

33

110

63

000US$

3,323

1,166

1,390

355

199

585

1,793

1,155

24


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22/56


23/56

producers.Chinaisthebiggestsupplierinpairageterms(27.4%),mostlysports,textileandplasticshoes.

Leatherfootwearisthebiggestmarketsegmentatabout70%oftotalconsumption.Distribution in Italy is somewhat fragmented with no major chains unlike UK,Germany and France. There are many independents and of course departmentstores. Shopping malls have not yet developed in a major way. Because of thisfragmentationthereare,intheory,manycustomerstogoat.Thesecustomerstendtobeservedbywholesalers,importagents,anddistributors.

Themainsuppliersforleatherfootwearin2001in000pairswereasfollows:

Thissectorimported84,748millionpairsintotalfortheperiod.

2 ConclusionsEUmarketforimports

TheEUmarketislargeanddiversified,itisalsoverycompetitive,withallaspiringexportingcountriestryingtopenetrateit.Themarketisfullandoccupied,theonlywaytoenterthemarketisbyconquestmarketingi.e.beatingoutacompetitor.

TheEUisnotproactivewhenlookingfornewsuppliers,itisuptothemtopresenttheirofferingtothebuyersforconsideration.Forbuyerstotakenoteacompetitiveadvantagemustbeestablishedandavaluepropositionmade.

ThecurrentintraEuropesuppliers,Italy,SpainandBeneluxarewellestablishedandareatleadingedgeofthemarketintermsofproductdevelopment.Theyoperatein the medium to high end of the market.The extra Europe suppliers,Tunisia,India,Romaniahavegovernmentalsupport,havestrongdomesticmanufacturingindustries,arewellsupportedbycomponentsuppliersandothers.Consequently,theyareverycompetitive,theyoperateatthemediumtomediumlowendofthemarket.

OperatingintheEuropeanmarkethasotheradvantages.Inevitably,companiesareexposedtothelatestfashions,technologyandmarkettrends;thisisabighelpwhenexportingtootherlessdevelopedmarkets.

TheFarEastisafactor,italwaysis,itdominatesthewhiteshoemarketsupplyinEurope.FarEastcountriescompeteamongthemselvesforthismarket,Europeansuppliershavemoreorless abandoned it. However, asthis market isbecomingsaturated, Far East suppliers are turning more and more to brown shoes fromleatherandposeathreatforthefuture.

3 USAmarketforimportsUSAhasthebiggestindividualmarketintheworldforshoes.Likeamagnetitattractsalmostallshoemanufacturers.However,therealitiesofoperatinginthe

COUNTRY

Romania

CEEC

Vietnam

China

Others

000PAIRS

32,876

9,544

6,020

976

35,332

27


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Americanmarketareharshitisverycompetitive,verybig,andveryunforgivingifmistakesaremade.

ThemajorityofconsumergoodssoldintheUSA,themassmarket,aresoldthroughlargechainsofshops,withthousandsofstoresperchain.Footwearisnoexceptionto this fact, this type of operation needs like sized suppliers to feed the largevolumesinvolved.ThisiswhymainstreamUSAlookstotheFarEastforitssupplierswhoarecompatibleinsize.However,thereareotherchannelsofdistributionthatinAmericantermsarerelativelysmall,but for smalland medium size exportersofferopportunities.

ImportsoffootwearintotheUSAareasfollows:

FOOTWEARIMPORTSTOUSAUS.$000

Sportsshoes,predominantlywhiteshoes,takeupthemajorityoftheretailmarket.AccordingtotheNationalSportingGoodsAssociationover$14,400millionworthofshoesweresoldeachyearforthepast3years.TheactualproductionofshoesintheUSAisabout75millionpairsperyear(manyofthemindustrialfootwear)versusimportsof1.9billionpairs(2002figures).

Althoughthemarketishugeandcanbeintimidatingforsmallandmediumsizedmanufacturers,itstillhasitssegments.Therearestillopportunitiesforgoodqualityleatherupperedshoes,correctlypriced,likewisesafetyfootwear.Fullyinjectionmouldedsafetywellingtonbootsisanotherarea.

Forsmallandmediumsizedshoemanufacturersthishasimplicationswhichmeandevelopingstrategiestoenterthemarket.

JordanhastheFTAandQIZagreementswithUSA.TheFTAallowsconventionalleatherand safety shoesto enterUSAat0% duty.Forother countries the dutiesrangefrom8.5%to20%.TheQIZallowsfullymouldedindustrialfootweartobeimportedfreeofduty.OutsidetheQIZitwouldbesubjectto22.5%fromJordanand37.5%fromothercountries(TheFTAandQIZsystemshavecertainrulestoallowthistohappenbutthesearemanageable.Theobjectiveistoencouragetradebetweenthetwocountries).

ForJordanianmanufacturers,itwouldseemtomakesensetoaimatthesetwosegmentswhichofferacompetitiveadvantage.

Recently (August 2004) the NSRA (the National Shoe Retailers Association of

USASOURCEITC

WORLD

China

OtherFarEast

Italy

Brazil

Mexico

Spain

UK

Rest

2000

15,662,620

9,741,866

1,603,698

1,317,198

1,205,938

356,225

341,779

203,214

2,078,182

2001

16,009,439

10,283,988

1,549,544

1,311,242

1,202,939

315,290

286,042

156,039

904,355

2002

16,159,259

10,763,137

1,548,637

1,229,370

1,134,595

283,188

281,269

109,105

809,958

28


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America) launched their buying alliance. The NSRA represents independentretailerswhogenerallyoperatesmallchainsofshopsthatarefamilyowned.Thebuyingallianceislookingtopurchaseforitsmembers,privatebrandsthatarenotavailableinothershopsinUSA.Theyaimtobuydirectfromproducersandimportdirectly to their members stores, in this way they cut out the middleman. Themanufacturerandtheshopsshouldsharethissaving.Theshopsarehopingforupto

70%margins.Althoughnewandasyetuntried,itcouldturnouttobeanexcellentwayforasmallproducertoentertheUSAmarket.

ThealliancewillbeshowingattheWSA(WorldShoeAssociation)shoeshowinLasVegastwiceperyear.Contactshouldbemadewiththem.

Industrialfootwearistechnicalinnatureandneedstobecarefullydeveloped,witha 37.5%dutyadvantageit would seemanothersegment tobeinvestigated.ThecompaniescurrentlymakingthisproductforthelocalandregionalmarketshouldconsidertheUSAmarketthroughtheQIZ.ThepossibilityofmakingunderlicenceinJordanshouldalsobeborneinmind.

3.1Typesofshoeswithmarketpotential

ThereisnoreasonthatshoesaimedattheEUmarketcannotalsobesoldinUSA.Thereforetoavoidduplication,thesesametypesofshoeslistedundertheEuropeanmarketwouldbesuitablefortheUSA.

3.2ConclusionsUSAmarketforimports

TherearenogreatsecretsorspecialtechniquesaboutoperatingintheUSAmarket.Tobesuccessful,thefollowingshouldberemembered:

Producersanddistributorsshouldbeofcompatiblesize.Theproductmustbeofconsistentlygoodquality.Pricingmustbekeen.Excellentservicemustbegiven.

29


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27/56

SECTIONII:ANALYSISOFJORDANFOOTWEARSECTOR

1 MethodologyIn order to get a proper picture of the shoe manufacturing industry in Jordan,a seriesof visitsweremade tothe larger enterprises inAmman.Thiscomprised13 companies (1 company declined a visit) ranging from shoe manufacturers,componentmanufacturersandrawmaterialsuppliers.Theoriginalaimofthevisitswastodoabenchmarkingexerciseoneachcompanytocompareitwithindustrynorms.Abenchmarkingformwasdesigned.Intheevent,theparlousstateoftheindustry rendered the form redundant. Much of the information therefore wasempirical in nature, obtained fromentrepreneurs themselves through discussionandinterviewandbyobjectiveexperience.Theowners/managersofthecompanies

wereforthrightintheirviews.Whereinformationcouldbeverified,itwasacceptedasfact,whereitcouldnotbeverified,itwasacceptedasopiniononly.Afterinitialhesitation, (the visit coming from government), entrepreneurs welcomed thevisits,recognisingthatthemainobjectivewastohelptheindustryoutofitspresentdifficulties.

AsurveywasalsoconductedoftheretailshopsinAmmantoseethevariousmarketsegmentsthattheindustryserved.

In order to complete the study, information was obtained from official sources(Department of Statistics, EJADA, The Competitiveness Team at the Ministry of

Planning,plusotherrecognisedshoeinformationcentres).

2 Manufacturing

Fromanassessmentofthesevisits,itisclearthatthestateofshoemanufacturinginJordanisinaverybadway.

With the exception of Jordan Tanning Company and possibly Al-Manara ShoesCompany(whobothhavenichemarketsintheservicesegment)thereisnoshoefactory in operation. All have been reduced to mere workshops, making, bytraditionalhandmethods,between20and120pairsofshoesperday,mostlyfrom

syntheticmaterials.EvenaCompany,whichisknownasoneofthebestmanagedshoeenterprisesintheworld,hasreduceditsoperationtoonlyimporting,havingpreviously made 1,500,000 pairs of shoes per year in Jordan 50% of the shoeenterprisesvisitedarealsoimportingshoesforresellinordertocreateanincome.Thisisanobviousconflictofinterests.

BecauseofthemassiveimpactofChinese(syntheticshoes)andtosomeextentSyrian (leather) footwear imports, local manufacturers now have a very limitedmarket for their products. It is worth noting, Syrian shoe manufacturers areprotecteddomesticallyagainstimports.Companieshavealsosufferedfromcapital

erosion. Management and owners are completely demoralised, thinkingonly ofsurvivalratherthanplanningforthefuture.

Thedomesticmarkethasbeenmoreorlesslosttolocalmanufacturers.Theonly

33


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peopledoingwellareshoerepairers!Themassmarket,retailpricesbetweenJD5.00toJD15.00,hasbeentakenoverbyimportsfromChina.Theseshoesare90-95%synthetici.e.withPUorPVCuppersandliningsandsolesofPVC,thermoplasticrubber,resinrubberorPU.Theseshoesarenotleather,theydonotbreath,(unlikeleather),theyaresimilartoputtingaplasticbagonyourfoot,whichcanproducefoothealthproblems,especiallyduringthehotseason.Theyareuncomfortableto

wear,butpeoplestillbuythemforthemselvesandevenfortheirchildren!

Local shoe manufacturers who are still active, are trying desperately hard tocompetewiththeChineseimports.However,theycontinuetoreplicatetheChineseproductin termsofcheapmaterials,lastshapes,heelheights,colours.TheyhaveseentheChineseshoesintheshopsandthereforebelievethisiswhatconsumerswant.TheyarefightingtheChineseheadtohead.Thisisnotagoodstrategyandclearlylacksvision.Theyneedtofindothernicheproductsiftheyaretosurvive,butnichemarketinghastobedoneearlyoninthecycle.Manymanufacturersnowfind itis too late,theyrealisethis strategyisnotworkingandsuccumb tobeingimportersthemselves.

OnlyonecompanyvisitedchangeditsproductionfromChinesetypeimportstosafetyshoesinordertosurvive,thiswasmainlyduetocorrectstrategicthinking.

FOBpricesforthetypesofshoesinquestionhavebeenquotedatbetweenUS$1.40and$4.00.Someof thepricesquoted,comparedtothecostofmakingtheshoe look far too low, which gives rise to the suspicion of dumping. However,this is difficult to prove. It also seems that smuggling is an issue. Even officialspokespersonsfortheChineseindustrysaytheaverageexfactorypriceis$2.50perpairin2003.ItisalsosuspectedthattheChineseindustryhashiddensubsidiesandexportincentives(13-14%)whichareineffecttheprofitofthefactoriesratherthan a percentage of the true production cost, (importers themselves mentionedthis).Thesefactsmakemanufacturersevenlesswillingtoproduceandturnsthemintoreluctantimporters.

Faced with this structure, it is extremely difficult for local manufacturers tocompete.Theyhaveduties,upto30%,theyhavetopayforrawmaterialimports.Themainrawmaterial,leather,isonlyavailablefrom1localtannerywhoismoregeared toservice footwearthan fashion.Many criticalraw materials needed forshoemanufacturinginJordanhavetobeimportedanddutypaid.Governmenthasrecentlyannouncedthatimportedindustrialinputswillbereducedtozerorateof

duty.However,thesituationonthisisstillunclear.Atrialcostingwasdone(seeannexes)on aladiesdress shoesimilartoChineseimportsbutusinglocallyavailablesyntheticmaterials.ThisshowedarawmaterialcostofUS$4.15,addonlabour,$2.96,givingaproductioncostof$7.11.Thisisprobablyabout$4.11to$4.61morethantheFOBpriceoftheequivalentChineseshoe.

Say the Chinese shoe is $3.00 FOB, $3.50 CIF, duty, clearing and forwarding,local transportation etc, would be 35% = $4.73 into warehouse cost, still lessthanproductioncost(withoutoverheadsandprofit)of$7.11forthelocallymade

equivalent.Reduce the local raw material costs by 30% (duty, handling charges, localwholesalersprofitetc)givesarawmaterialcostof$2.90addlabourof$2.96=

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36

wants.Successfulshoemanufacturersmakewhattheycansellratherthansellwhattheycanmake.

The above are manageable situations which can be solved by technologytransferandtraining.Thestructureofthemarket,however,requiresGovernmentintervention.

3 Localmarket

Thesurveyoftheretailshops,fromshoppingmallstothedowntownarea,revealsthatthemarketissaturatedwithlowquality,thoughcheap,Chinesemadefootwear.They are all verysimilar instylingand pricinginalmost all shops,thereis littleproductdifferentiation.Theyarenotvalueformoney.However,theshoeslookgood,arefashionable,intermsoflastshapesandheelheights.Thisisthereasontheysell,iftheydidnotlookgoodnomatterwhattheprice,consumerswouldnotbuy.Addtothisanattractivepriceandyouhaveawinningretailcombination.

Thereseemstobetoomanyshoeschasingtoofewcustomers.Hopefully,thefactthatthistypeofChineseshoethatlastsfrom3daysto3monthsbeforeitbreaks,andhastobereplaced,willhaveaneffectonthemarketandincreasethedemandforbetterqualityfootwear,albeitathigherretailprices(Bettertobuy3pairsperyearfor45JDthan5pairsfor50JD). Thelackofimplementationofconsumerprotectionlawsdoesnothelpthesituation.However,itseemsthatconsumershavenotyetreactedtothisfact,butsoonerorlaterthequalityproblembecomesafactorandsalesinevitablydecline(Onelocalmanufacturergivesanunconditionalguaranteefor6monthsonitsshoes).

Inothercountriesthisinfluxofcheap,inferior,Chinesefootweardisruptsthelocal

marketforaperiodof3to5yearsbeforeconsumersbecomedisillusionedwiththeproductsandrejectthem.Chinesefootwear,initially,gainsanentryintoamarketnotreallyonprice,(althoughthisisafactor)butbecausetheylookgoodandarefashionable (Possibly in the past local manufacturers were not supplying whatconsumerswanted).

Thefirstimportersmakegoodprofits(buylow,sellhigh),thenothersrealisethisand also start to import. Competition between importers becomes fierce, retailpricesandmarginsfall,themarketcannotabsorballtheshoesinstock,eventuallythereisafalloutandthemarketshouldreturntosomenormality.

Somemanufacturers,evenimporters,claimthereareupto5millionpairsofshoesinwarehouseswaitingtobeputonthemarket.Therewasnowaytoverifytheseclaimsbutevidenceinalltheretailshopswherethereisheavydiscountinggoingon,maypointtostockeliminationratherthantraditionalsummersales.Iftherearelargeinventories,thishastheeffectofstagnationinthemarket.Retailershavenoopentobuybecauseofcapitaltiedupinstock.Inthiscase,manufacturerswiththebestproductintheworldcouldnotsell.

The statistics on imports of shoes into Jordan are confusing. The DOS has onesetoffigures,the ITC, whichpublishesfigures fromthe UNComtrade Statistics,obtainedfromreportingcountries(inthiscaseChina)hasanother.Thefiguresareasfollows:


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37

IMPORTSOFSHOESINJORDAN(US$)

Thereisahugediscrepancyinthefigures.Anaverageof3millionpairsperyearunaccountedfor (andthis istaking anaveragepriceof $3.00per pair, whichisprobablyhigherthanthetrueaverage).Thislendscredencetotheclaimsthattherearemillionsofpairssittinginwarehouseswaitingtobemarketed.

Duringthisperiod,thelocalshoemanufacturingindustryhasaverydifficulttimeand is in danger of going into terminal decline. If nothing isdone, it is almostimpossibleforittorecover.Theindustryisaneasycreatorofjobs,bothintanningandmanufacturing.Acomponentandrawmaterialsupplyindustryalsodependsonit.

A further irritant in the market is the selling of imported second hand or usedfootwear.Thiscommodityisimportedbythekiloandissubjecttoadutyrateof30%underthe640590classification.Ithasbeenknownforthecategorytobechangedto charitable status which is zero rate.The shoes are of poor quality, no twopeoplehavethesamefeet.Itisthereforeguaranteedthatpreviouslywornfootwearwillbeuncomfortabletowear.Furthermore,theseshoescanprovetobeahealthhazardastheiroriginsareunknownandtheyarecertainlynotsterilised.Theydonotseemtobeamajorfactorinthelocalmarketatpresentdue,inthemain,tothe

lowpricesofregularimportedshoesandlackofconsumerawareness.However,iftheChineseshoeimportsweretobecurbed,thereisadangerthatthisitemcouldtaketheirplace,whichwouldbeevenworsescenarioforlocalmanufacturers.Theyreallyhavenoplaceinadevelopingmarketandshouldbebanned.

3.1Marketsize

Aneffortwasmadetotryanddeterminetherealsizeofthelocalmarketforshoes.Intheeventthisturnedouttobemoredifficultthananticipatedduetoconflictinginformation,andthelackofstatisticsinpairageterms.Industrialistsopinionswerethatthemarketranged from8 millionto 20millionpairs.Whenaskedtojustifythesefigurestheyprevaricatedleadingtotheconclusiontheydidnotreallyhaveanyconcreteinformationastothesizeofthemarket.

However,usingstatisticsfromDOS,industrysources,andexperience,thefollowingextrapolationwasdone:

YEAR

DOS,allshoes

ITC,CHINAonly

Difference

Diff.Inpairs@$3.00perpair

2000

11,940,261

20,044,000

8,103,739

3,980,087

2001

11,169,963

19,894,000

8,724,037

2,908,012

2002

14,650,480

20,240,000

5,589,520

1,863,173


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ESTIMATIONOFTHEFOOTWEARMARKETINJORDAN

ThefollowingisanestimationofthesizeofthefootwearmarketinJordan.Itassumesthateveryshoethatismanufacturedorimported(minusexports)issoldinthecountryduringtheyearinquestion.Ittakesnoaccountofchangeininventory.

TOTALPOPULATION

AgeGroup0-14

15-19

20-65

65+

TOTAL

INCOMEEARNERS(I.E)

Employed

Male

Female

TOTAL

Infomal(33.3%employed)

TOTALINCOMEEARNERS

FOOTWEARMARKET(JD)

Imports

Local

Exports

TOTAL

PURCHASEPERCAPITA(JD)

PURCHASEPERI.E(JD)

1998

1,764,383

603,980

2,206,668

180,719

4,755,750

1,372,966

217,775

1,590,741

529,717

2,120,458

6,547,554

13,865,000

10,603,708

9,808,846

2.06

4.63

1999

1,817,900

622,300

2,273,600

186,200

4,900,000

1,414,610

224,381

1,638,991

545,784

2,184,775

7,564,210

14,364,000

4,084,463

17,843,747

3.64

8.17

2000

1,869,469

639,953

2,338,096

191,482

5,039,000

1,454,739

230,746

1,685,485

561,267

2,246,752

8,528,758

20,486,000

4,467,418

24,547,340

4.87

10.93

2001

1,922,522

658,114

2,404,448

196,916

5,182,000

1,496,023

237,294

1,733,317

577,195

2,310,512

7,978,545

16,666,000

2,654,520

21,990,025

4.24

9.52

2002

1,987,076

680,212

2,485,184

203,528

5,356,000

1,538,569

246,599

1,785,168

594,461

2,379,629

10,464,629

15,942,000

1,962,246

24,444,383

4.56

10.27

Theabovegivesanindicationofmarketactivityinfinancialterms.However,abetterindicationofthesizeofthe

marketisthenumberofpairsconsumedi.e.boughtduringthecourseof1year.Therearenoavailablestatisticsonthenumberofpairsofshoesmade,importedorexported.Thefollowingisanattempttodeterminethemarketsizeintermsofpairageconsumed.

MARKETBREAKDOWN

EST.PAIRSPERCAPITA

ESTPAIRSPERCAPITA,I.E

5.00JD

6-10JD

10.00+JD

ESTPRS

3,103,601

3,338,6883,889,487

0.65

0.70

0.82

0.72

1.46

1.57

1.83

1.62

ESTCIFUS$

3.00

5.00

8.00

ESTPRS

5,645,911

6,073,5697,075,554

1.15

1.24

1.44

1.28

2.58

2.78

3.24

2.87

ESTCIFJD

2.14

3.57

5.71

ESTPRS

7,766,984

8,355,3069,733,720

1.54

1.66

1.93

1.71

3.46

3.72

4.33

3.84

ESTMARKET

SHARE%(A)

25

65

10

ESTPRS

6,957,828

7,484,8598,719,672

1.34

1.68

1.68

1.57

3.01

3.24

3.77

3.34

ESTMARKET

SHARE%(B)

35

60

5

ESTPRS

7,734,408

8,320,2629,692,894

1.44

1.55

1.81

1.60

3.25

3.50

4.07

3.61

I

II

III

AI+AII+AIII

BI+BII+BIIICI+CII+CIII

AVERAGE

AVERAGE

RETAILSELLING

PRICE

Upto

(A)

(B)

(C)

(A)

(B)

(C)

AVERAGECONSUMPTIONOVERTHE6YEARPERIODISESTIMATEDAS:

Percapita1.40pairsperyearPerI.E.3.11pairsperyear*estimate

TOTALSHOEMARKETACCORDINGTOTHEABOVEDATAIS:7,437,153TO9,320,369PAIRSPERYEAR.OR8,378,761PAIRSAVERAGE

38

2003

2,033,080

695,960

2,542,720

208,240

5,480,000

1,585,079

249,888

1,834,967

611,044

2,446,011

12,899,502

12,275,340*

1,669,926

23,504,916

4.29

9.61

ESTMARKET

SHARE%(C)

65

30

5

ESTPRS

7,437,153

8,000,4909,320,369

1.36

1.46

1.70

1.51

3.04

3.27

3.81

3.37


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The official statistics of household expenditure on footwear in 2002 shows apurchaseofJD1.369.02perannum.AtanaveragesellingpriceofJD7.00,thiswouldgiveapercapitaof0.20to1.30pairsperyear.

Ifthesefiguresareanywherenearcorrectthen,thequestionremainshowmanymodernshoemanufacturingplantscanthemarketsupport?

Importsarenevergoingtogoaway,theyaretheretoagreaterorlesserextentinanymarket.Governmentinterventionand/ormarketforcescancontrolthesizeoftheimportmarket.WehaveseentheresultofsocalledmarketforcesthedelugeofimportsfromChina.

Ifimportswerepeggedat4millionpairs(50%ofthemarket)thiswouldleave4 million pairs available for local manufacture. At 260 working days per yearthis represents a local production of about 15,000 pairs per day.This level ofproductioncouldsupport12to18modernSMEsmakingbetween800and1,200pairs per day each. At this level of production, shoe factories become viableenterprises.Theywoulddirectlycreate1,500to2,000directlabourjobs,withmanymorebeingaddedinsupportingindustries.

Thisalsoassumesthatnotasinglepairoflocallymadeshoesisexported,whichis unrealistic. Exports are a bit of an unknown quantity. Nevertheless, it is safeto assume some exporting will take place either regionally or internationally,especiallywhentheQIZsystemandFTAwithEuropearetakenintoconsideration.Thiswouldcreateanevenbiggermanufacturingbasethanindicatedabove.

Itshouldbenoted,forthistohappen,somesortofmarketregulationisnecessaryintheshorttermtoallowthelocalmanufacturingbasetoregroup.

4 Benchmarkingofindustry

Asdiscussed,thelocalmanufacturershaveretreatedfrommechanisedproduction.Of the visits made, 7 companies were more or less equipped with the basicmachinery (lying idle) required for this type of manufacture. This represents aconsiderable investment onthepartoftheowners (Amodern lasting plantfromItalywouldcostintheregionofUS$325,000).

Itwasnotpossiblethereforetodoanactualbenchmarkforeachindividualcompany.However,ifandwhen,theindustryhasthecorrectenvironmenttorebuild,itmustaspiretointernationalnormsinordertosurviveintheworldmarket.Itmustalsopresentamodern,viablefacetopotentialbuyersandinvestors.Seriousbuyerstendtovisittheirsuppliersandseetheirfacilities.Theywanttoseeaclean,tidy,wellorganisedmanufacturingoperation(notoffices)thatgivesthemconfidence.

ThefollowingbenchmarksweredevelopedforthefootwearindustrybytheleatherunitofUNIDO,Vienna.Theyaredesignedtoevaluateacompanyscompetitivenessintheglobalmarket.Managementshouldusethesetoassesswhethertheywillbeabletomeetthechallengesofthemarket,inotherwordsaretheyasgoodasorbetterthantheirglobalcompetitors.Cantheybeatothersuppliersofthesametypesoffootwear?

The study lists the most important areas (controls, management, processes) andaspects of footwear manufacturing, provides benchmarks and indicates goodmanufacturing practices. It is understood that the quoted quantitative criteria

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are fairly general (i.e.they characterise production ofeveryday leather shoesorstreet shoes) or may be applicable only to specific segments of an entire rangeoffootwear.Further,theseparametersarebasedonthecurrentachievedresultsandwillcertainlychangeastechnologydevelops,consumerneedschangeand/orexternal conditions of industrial operations change.Therefore, it is obvious thatbenchmarks and GMP (Good Manufacturing Practice) are not static.They need

to be periodically reviewed, updated and supplemented according to actualeconomic,market,technicalandsocialconditions.

Company(Business)Management

Verylargeshoemakingcompanies,havegraduallydeclinedinthepast40years

(Notwithstanding the situation inChina). In the 1950-60s, factoriesoperatedinmulti-story buildings, today most factories are single story rectangular shapedbuildings.Theuseofpremisesofinadequateand/orinappropriatelayoutcanadd15%tothetotalemploymentbill.

Production:Cutting

Despiterelativelyhighinvestmentcosts,theuseofcomputercontrolledleather-cutting machines in the production of samples and small orders can have asurprisinglyshortpaybackperiod.

Shoecomponent-prefabricationofunitsoles,insoles,stiffeners,heelshasbecome

abusinessinitselfandareproducedbyspecialistmanufacturers.

Benchmark

Minimumcompanysizeproduction

Optimalcompanysizeno.ofemployees

Optimalcompanysizeproduction

Locationfrommajormarketbytrucktransporttime

Unit

Pairs/day

People

Pairs/day

Day

Value

450-1000

~600

5,0008,000


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Production:MaterialUtilisation

Production:Closing(Stitching)

Shoeuppersarethemostvariablepartsofashoe.Theirlabourcontentdependsonthenumberofcomponents,complexityofconstruction,contours,decorationsetc.Itisnotpossibletosetbenchmarksforactualproduction.Ifmorethan10%ofclosingroomworkersareidle(moving,waiting,inspecting,thinking,talking,etc),thentheremustbesomeproblemsthatmustbesolved.

Production:ShoeAssembling

* pairsperworkerperhour

Benchmark

Useofleathermeasuringmachine

Patternmeasurement,

materialcosting&cuttercontrolsystem

Usableleatherarea

Useofcuttingoptimisationsystem

Unit

%

%

%

%

Value

+2

+515

7592

57

GoodManufacturingPractice

Incentivestobepaidtocuttersfor

materialeconomy

Benchmark Unit Value GoodManufacturingPractice

Performancecanbeincreasedby3070%

through:Better&regulartraining(skilldevelopment)

Workplaceorganisation&motionstudies

Betterworkmeasurement

Useofoptimalworkingconditions(lightingspaceetc.)

Betteroperatorcontrol

Performancecanbeincreasedby30%through:

Quickstop&variablespeedmotors

Needlestop&positioningdevices

Threadcutters

Programmefacilities

Evensmallercompaniescanjustifyautomated,computercontrolledsewingmachines

Benchmark

Productivity

Conventionallymechanised

Highlyautomated

Bestknowntoday

Finishing:numberofoperatorsinrelationtothosein

assembling

Unit

*Pair/w/hr

%

Value

16

26-28

32


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Ifacriticalmassofproduction(minimum400pairs/8hourshift)isnotensured,thelastingmachinesaretooexpensive,thenhandlastingshouldbeused.Equipment,productionlinebalancingandincentivesdefineproductivity.

Production:Overheads

Production:QualityAssurance

ProductDevelopment

Purchasing

Benchmark

Materialcontent(incosts)

Sandals

Standardshoes

Boots

Markdownbyendofseason

Unit

%

%

%

%

Value

~45

~50

~60


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Marketing

Thenumber ofshoemanufacturers and the supply tothe worldmarket exceeds

theactualdemand.Companies,whodonothavemarketingandsellingpolicies/strategies, leave a high rate of profit to traders. Manufacturers should be awarewheretheymakeprofit.Typeofproduct,customer,market,distributionchanneletc. A brand is not created only by advertising,good reputation (image) is animportant factor in getting business and also staying in business.The followingfactors, in order of priority, define market competitiveness and success in shoemanufacturing:

Specialityproduct Compliance with order specification (delivering what was ordered by

customers) Deliveringontime,reliabilityandconsistencyofsupply Service,acceptingsmallandrepeatorders Priceandpaymentterms

FinanceandAssetUtilisation

Benchmark

Margins(ofprofitonsellingprice)

Wholesalers

RetailersAgents

Bonusesoffered

Quickrepeatorders

Specialseller(e.g.mailorder)

Brandadvertisementcosts

Unit

%

%

%

%

Value

~30

45-60~7

~10

10-25

3.5-4.0

GoodManufacturingPractice

Companyreputation:

Quality,consistency,reliability

Health&safety(atwork),

environmentalprotection,labourpolicy

Brandedfootwear:

Goodproductispre-requisite

Longtermstrategy

Benchmark

Turnofcapital:

Shoemanufacturer

Shoeretailer

Returnonsales:Basicshoemaking

Branded

Niche/special

Workingcapital:

Basicmaterials

Workinprogress

Finishedgoods:

Directsupplytoretailers

WholesaleCapacityutilisation:

Ladies

Menandchildren

Unit

times/year

%

%

%

w.day

w.day

w.day

w.day

%

%

Value

>2.5

2.53.5

68

812

1216


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Profitmadeonfootwearproductionisessentialtokeepthecompanyinbusiness.Generally,itisnoteasytoborrowfundsfortheshoeindustry.Loansusuallyhavehighborrowingcosts.Profitabilityoflessthan5%createshigh-riskconditionsandmakesthecompanyquitevulnerable.

TheaboveguidelinesshouldbeusedbyJordanianshoemanufacturingcompanieswhentheyaregoingthroughare-organisationprocess.Benchmarkingisausefultool,measuringperformanceisnecessaryinordertobecomegloballycompetitive.Noimprovementwillbeachievedwithoutthedeterminationofmanagementtofindouthowthingscanbedonebetter.

Thosewhothinktheyaredifferentandthatbenchmarkingandgoodmanagementpracticesdonotapplytothem,willlikelydisappearfromthemarket.

5 SWOTanalysis

Theresultsoftheanalysisareasfollows:

SWOTANALYSIS

STRENGTHS

QIZagreementwithUSA

FTAwithEU(andUSA)

ProximitytotheEUmarket,11daysdoortodoor.

0%dutyratesonnecessaryimportedrawmaterials(inprocess)

Smallerflexiblefactories

Labourisavailable

Wageratesarerelativelylow

ProximitytoItalyforrawmaterialsandstyling

Efficientinfrastructureandcommunications

WEAKNESSES

Lowmarketingskills

LackofexperienceinInternational(asopposedtoregional)markets

Nolocalmarket

Nosectorassociation

Poorfactorymanagement

ShoemachineinventorypoorandoldNoCADsystemsinplace

Poorpatternengineering

Lackofexperiencedshopfloormanagement

Poorsourcingofrawmaterials

Nolocalleather

Lackofworkingcapital

Poorcommunicationskills

OPPORTUNITIES

MarketingofsafetyshoestoUSA

MarketingofleathershoestoEU

Canre-organisefactoriestoahigherleveloftechnology

Exportpromotionschemesavailable

Reclaimlocalmarket

Upgradeworkingconditions(job

security,benefits,incentives)

THREATS

Importstakeoverthelocalmarket

Managementcannotcopewiththecommercialproblemsthatwillappear

Labourdoesnotreachinternationalstandardsofproductivity

Smugglingofshoes

Notrainedlabourtointernationalstandards

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6 ConclusionsonJordanFootwearSector

6.1HumanResources

In any industry or business, the levels of skill available with which to operatepredicateitssuccess(orfailure).Themostsophisticatedtechnologyormarketing

techniques are useless, unless they are understood and implemented properly.This particularly applies when entering international markets (Nike are superbmarketersandexcellenttechnicians,Microsoftaresuperbtechniciansandexcellentmarketers).

ThelevelofskillavailableintheshoeindustryinJordanneedstobeaugmented.

Fromtheevidence,theredoesnotseemtobeenoughskilled(uptointernationalstandards)machineoperatorsavailable.ThiscanbecorrectedbytheVTCsystemthroughmovingthecoursesavailableupalevel.Thecriticaloperationsofclicking(cuttingupleather),closing(stitchingpartstogether)andtosomeextentlastingby

machineneedtobeaddressed.Any operator cannot work efficiently, unless he has good organisation in theworkshop. It was difficult to judge the plants, simply because they were notworkingundernormalconditions.However,fromexperienceitcouldbeseenthatworkshopmanagementwaspoor.Theflowofwork,thebalancingofoperations,materialhandling, cost control, the control ofparts,is rudimentaryatbest.Thisreflectsalackofknowledgeandortrainingonthepartofworkshopsupervisors.Inshoemaking,thecontrolofthetwocriticalareasofcostofmaterialsandwagescanleadtosuccessorfailure(Theindustryisnotcapitalintensive).

Apartfromhavingskilledoperatorsandknowledgeableworkshopsupervisors,themost important areaofall isSenior Management.Theleadmustcomefromthetop.Theownersandmanagersoftheindustryneedmoreexposuretointernationalbusinessdealings.Theymustunderstandinternationalmarketing,they mustmoveaway from being producers to marketers. All Management in the industry hashadadifficulttimeoflateandhaslostalotofconfidenceinthefuture.Thisisunderstandablegiventhesituationinthelocalretailmarket.Whateverthereasonsfortheinfluxofimportedshoes,managementhasnotbeenabletocopewiththem.Theyhavelostabattle,hopefullynotthewar.

Assumingthataviablelocalmarketcanbecreatedfortheindustrytouseasabase

forfutureexports,Managementmustbeuptothechallengeahead.MechanismsneedtobeavailableforManagementtogaintheknowledgenecessarytooperateinInternationalmarketsand,perhapsmoreimportantly,theconfidencewithwhichtodoit.

Thereisstrengthinnumbers,ownersandentrepreneurshavetocometogetherandshareknowledgeandexperiences.Therehastobeaforumforthis,anassociationis required.The industry in many successful exporting countries operates as anintegratedunit.Inotherwords,eachmemberofthesupplychainworksinharmonywiththeotherstocreateateamwiththecommongoaltogetexportorders.Thisinturn,willbenefitallmembersoftheteam.ItworksonanOlympicRingsystem.The principle members of the team are tanners, component suppliers, the shoefactory,marketingunit,banks,accountants.

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6.2Technologylevels

Incertainplants,thelastingmachineryavailablewasgood.Thisistheglamourendoftheshoemanufacturingprocess.However,tofeedthesemachines,goodqualityuppersarerequired.Thismeanspropershoeengineering,todaycomputersusing CAD systems does this best. None are in use in the industry, clicking isavailablebymachine.However,theareaofclosingneedsalotofimprovement,sewingmachinesareoldandofrestrictedtypes(mostlyflatbed).Today,sewingmachines are more reliable. They have many automatic features available toimproveproductivity,whichcanpaybackinashortperiodoftimeevenforasmallcompany.

Withtwoexceptions,thecompanieswereoperatinginmultifloorbuildings.Thisisinefficient.Factoriesshouldbesinglefloorbuildingsforeaseofcontrolandcostreduction.

6.3Thelocalmarket

Therehastobeare-alignmentofthelocalmarketforcompaniestosurviveandgrow.Noinvestmentwilltakeplaceinmanufacturingunlessthisisso,allexportersneedabasefromwhichtooperate.Thisisusuallythelocalmarket,mechanismsarenecessaryforthistohappen.

6.4OptionsforExportMarketPenetration

TheindustryhasanexcellentstartingpointintheexportprocessthroughtheFTA,withEUandUSA,andtheQIZwithUSA.Thiseffectively,atpresent,allows,undercertainconditionstheexportoffootweartothesemarketsat0%duty.

Themechanismformarketpenetrationrevolvesaroundtwomethodsviz:

DirectsellingSubcontracting

Bothhaveadvantagesanddisadvantages.Directsellingallowscompaniestocontrolthewholeoperation,theycandecidewhichmarketstosellinto,andtheycancreatetheirownbrands.Thereisthepotentialforhigherprofits.Thedisadvantagesaremoreinternationalcompetition,continuedproductdevelopment.Marketentrytakesalongertime.

Subcontracting,inotherwordsformingpartnershipsand/orjointventureswiththirdparties,allowsforeasiermarketaccess.Inthesepartnershipsinmanycases,thelocalmanufactureisthejuniormember.However,itallowsforthetransferoftechnology,anditcreatescrediblesalesinthelocalmarket.Thereisalsoacomfortzonewiththesystem.Themaindisadvantageisthat,theseniorpartnereffectivelycontrolsprofitlevels.Thelocalcompanyisusuallylockedintoanagreementandhasnointernationalmarketingexposure.However,thissystemworkswellinmanycountries,particularlythosethatarepotentialcompetitorsoftheJordanindustry,Tunisia and Romania. None the less, there comes a time when companies feelstronger and feel they can manage on their own. At this point, it is difficult to

becomeindependent.

A step along the way for exporting under this system, is to become the locallicenseeforaninternationalbrand,thisusuallyinvolvesanupfrontlicensefeeand

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/orapercentageofsales.Intheagreementthereshouldbeaclausethatstates,atapointinthefuture,thattheprinciplewillpurchaseshoesforexport.

Whichmethodtouseforinternationalmarketingisreallyuptothecompaniestodecideforthemselves.

6.5TypesofShoesforExportThisisacriticaldecisionforcompaniestomake.Theprincipleistohavesomethingdifferentoratleastinrelativelyshortsupply.ThereisnotmuchpointinfollowingtheTunisian,Romanianor Italianmainstreamfootwear,makingmetooshoes.Shoesthatareabitmoredifficulttomakeorslightlyunusualhavemorechanceofsuccess.

Itemsinthiscategoryareasfollows:

Industrialfootwear,bootsandshoeswithleatheruppersandtwocomponentsoles.SolesofPU/vulcanisedrubberortwocomponentPU,injectionmoulded

on.Withandwithoutsteeltoecaps,steelinsoleandmetatarsalguard. FullymouldedPVCand/orTRwellingtonboots,withorwithoutthecomponents

above.

HandsewnuppersontoPUsolesknownasClarkstypeorSt.Crispin. Sidewallstitchedshoes McKaystitchedgenuinemoccasins Caterpillartypeconstruction Stitchouts Goodyearwelted

IndustrialandmouldedfootwearlendsitselfwelltotheUSmarketunderQIZrules.These shoes attract a 37.5% duty from other countries. Mens goodyear weltedshoesalsohaveahighdemandinUSA,currentsuppliersareUKandMexico.

TheothertypesaresuitableforbothmarketsEUandUSA.

6.6TargetCountries

Normally, exporters should start with 1 target country and a secondary market.InthecaseofJordantotheEUthisisacceptablebutbecauseoftheQIZ/FTAthe

USAshouldalsobeincluded.AsfarasEuropeisconcerned,thequestioniswhichmarkettotarget.Someareeasiertopenetratethanothers.

Dependingonthemarketentrymethodchosen,therearedifferentcriteriatobeassessedtotryandmakeanobjectivedecisiononwhichcountriestotarget.

Therefore,amethodwasdevisedtotryandmakethisjudgementpossible.Alistof attributes was drawn up according to the entry method.These were given aweightingintheirorderofimportance,eachattributewasthenassessedbycountrywithascoreoutof10.Atotalpointsscorewasthereforeobtained,thecountrywiththehighestscorewasjudgedtobetheoptimumtargetmarket

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TARGETMARKETSDIRECTSELLING

Fromtheabove,itcanbeseenthatthebestmarketfordirectsellingisUKfollowedbyBenelux,thenFranceandGermanybothfairlyequal.

TARGETMARKETSSUBCONTRACTING

*ThehigherthescorethelessoneroustheagreementFromtheabove,itcanbeseenthatthebestmarketforsubcontractingisItalyfollowedbyGermany.FranceandUKarebothfairlyequal.

Acceptanceof

ImportsSizeofMarket

Importfriendly

-Rules,regulations,

distributionchannels

Marketdynamics

Expanding,

contracting,same

Pricepoints

Qualitylevelsthe

higherthelevelthemoredifficult

Communications

AvailabilityofAgents

TOTAL

RELATIVEPOSITON

Weight-ingKEYATTRIBUTE

2.0

1.6

1.5

1.4

1.2

1.0

0.8

0.5

10.0

GERMANY

5

10

5

6

8

5

6

6

Score

Points

10.0

16.0

7.5

8.4

9.6

5.0

4.8

3.0

64.3

3

UK

9

9

8

9

6

8

7

6

Score

Points

18.0

14.4

12.0

11.8

7.2

8.0

5.6

3.0

80.0

1

ITALY

6

8

6

4

7

6

5

6

Score

Points

12.0

12.8

9.0

5.6

8.4

6.0

4.0

3.0

60.8

6

FRANCE

6

7

6

7

7

6

5

6

Score

Points

12.0

11.2

9.0

9.8

8.4

6.0

4.0

3.0

63.4

4

SPAIN

6

6

6

6

7

7

5

6

Score

Points

12.0

9.6

9.0

8.4

8.4

7.0

4.0

3.0

61.4

5

BENELUX

8

5

8

5

5

8

7

6

Score

Points

16.0

8.0

12.0

7.0

6.0

8.0

5.6

3.0

73.6

2

WeightingKEYATTRIBUTE GERMANYScore

Points

UK

Score

Points

ITALY

Score

Poin

Documents

Glbal Footwear Analysis and Jordan