Mecca Rafeeque Ahmed, the past president of the Federation of Indian Export Organisations (FIEO), has been in the leather export business since 1963. His Chennai-based Farida Group, with over 10,000 employees, is the largest shoe exporter (13 million pairs a year) in the country. The group is a vertically-integrated manufacturer of footwear, footwear components and finished leather products for the global market. Ahmed is passionately committed to exports and has played an active role in every association dealing with exports. He is the president of 95-year-old All India Skin and Hide Tanners and Merchants Association; member, Research Council of Central Leather Research Institute; chairman, Footwear Design and Development Institute (under the ministry of commerce and industry); and chairman, Council for Leather Exports (CLE). He is also past president, Tamil Nadu State Council, Ficci.
Ahmed continues to retain a sense of optimism in the future of Indian exports in spite of its decline since December last year. Does he have answers?
Ahmed travels incessantly all over the country as the chairman of CLE. I finally get to meet him for breakfast in his office in a Chennai suburb, where the factory is also located. Most of Farida’s manufacturing operations are at Ambur, the leather belt of Tamil Nadu. These shoe factories are nothing like the leather factories of the past. These are airy, spacious places. Manufacturing is highly mechanised. Women outnumber men in factories. “We have creches in all our factories,” he says.
Farida’s canteen serves only vegetarian food. I am offered fresh orange juice. Ahmed suggests I choose from an array of south Indian breakfast dishes. I make my choice and piping hot idlis and medu vadas arrive. “My father was in this business from 1935. For a long time, leather remained a commodity business. We exported semi-tanned leather to the UK; the leather trade was dominated by the English. From tanned leather, we moved to semi-finished leather. In the 1970s, the government decided to encourage export of value-added goods. It also introduced a quota system to discourage production of semi-finished leather.”
However, many in the leather industry could not deal with this change. “Overnight, we had to invest in infrastructure and learn to understand the technology. There were many hiccups, but we survived.” Ahmed says the next step was easier when companies like Farida moved up the value chain to make shoe uppers. Shoe uppers are labour-intensive and the US shoe companies had to outsource them because of labour costs. “They gave us the technology, helped us with the production. Slowly, other high cost companies like some in Germany too came to us. In spite of us making shoe uppers, shoe manufacturing was not viable in the US.”
Ahmed says they hired technicians from Italy and started making shoes. “US companies started buying from us and branding them in their names. Shoe uppers consist of only 10-11% of our exports today.” This happy equation changed overnight when China entered the market in the early 1990s. Shoe manufacturers from Taiwan set up huge factories in mainland China. And now in Vietnam. The American market shifted to China. “We have been trying to counter it by continuously hiring European designers. Now the higher end of the market is with us. Our factories have so far not been geared for mass production.”
Ahmed feels that shoe exports are on the cusp of change. He tells me why, over a few cups of coffee. “China after a long run is suffering because costs have gone up. Americans and Europeans have started looking to us. We have to take advantage of this situation. The Chinese have been aggressive. They are good at service. The Taiwanese, when they shifted to China, moved the entire manufacturing there, which made deliveries faster. When Hyundai came to Chennai, they brought in a whole lot of component makers. We still don’t have that kind of infrastructure.”
To solve this problem, Farida is setting up its own component units. “Not everybody can do this. You have to have the size. We are moving to the next stage in shoe exports now. We are setting up distribution and retail outlets in Europe. Every company has to do this to survive. We are now planning for the next five years. For us, manufacturing is no longer a problem. It is distribution and marketing that we have to master. This means setting up warehouses and offices in Europe. We have to create our own brand. Brands cannot be created in a day. It will take at least five years to reach a comfortable level.”
Ahmed feels the government is not taking sufficient steps to curtail the decline in exports. “The government is not asking us why this is happening and what we need. The decline in oil commodity and metal prices is propping up the balance of payments situation. Larger exporters will survive this crisis. But it is affecting many SMEs and individual exporters. There will be job losses. SMEs cannot rebuild and cannot relaunch themselves. Exports decline should not be thought of in terms of trade deficit alone. The government must help exporters market their products. It should come up with subsidy schemes which are WTO-norms-compliant. It is time to bring down tariffs and take positive measures.”
Farida itself has seen a 2-3% decline in demand. Having lived through many crises, he says, “I am positive about the future. India still has only a 3% share in the world trade. We have a lot of room to grow. China is such a huge market. We must crack it. We have a $45-billion deficit with China. We should start trading more with them. I see a good future for Indian industry. It’s not because we have become efficient. We still have some way to go. But other countries are becoming uneconomical.”
As I get ready to leave, Ahmed tells me he is putting up a factory in West Bengal. “Labour is much cheaper there. Contrary to what people say, everybody is very cooperative.”