Managing International Trade: Strategies for Leather Industry Expansion

This board paper discusses strategies for expanding the leather industry internationally, focusing on the Indian company Style Bites. It covers recommendations, background, research, and implementation plans.

M018LON MANAGING INTERNATIONAL TRADE: BOARD PAPER
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BRIEF SYNOPSIS OF THE ISSUE
Trading internationally means exchanging goods and services across
international borders. This trading represents an important part of the gross
domestic product of any country. India is the second largest producer of
leather after China. India has a share of 17% in the global trade of leather
and that of China is 20%. As this industry has huge potential for growth,
employment and exports, it occupies an important place in the economy of
India (Ethier, 2014). The industry is developed under a scheme in 2005 in
which it was decided that modernization will be implemented in existing
tanneries and new manufacturing units will be set up for leather products,
mainly footwear.
The market for leather goods industry in the United Kingdom is constantly
increasing with a market value of 1.42 British pounds in 2017. The main
exports of leather are made up of hides and skins such as goat skin, cow,
sheep, and camel. Exporting products includes footwear, garments,
handbags, wallets, briefcases, purses, leather gloves etc.
Style bites international company was established in Mumbai, Maharashtra
and at present is one of the leading manufacturer and exporter of leather in
India. The company was set to grow with vast career opportunities in
technical as well as designing field. The leather industry of India at present
employs 2.5 million persons (Feenstra, 2015). The main objective of style
bite international is to cover up the whole global market with its excellent
quality products.
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RECOMMENDATION(S)
Online marketing- The concept of online marketing is very significant in
today’s world of trading as people in almost all countries have access to the
internet and the trend of online shopping is continuously growing. It involves
online advertisements, websites and social media sites such as Facebook
and Google, these are the most common marketing strategy.
Traditional marketing- This strategy involves marketing through banners,
billboards, business cards etc. before applying this marketing strategy in
case of exports, a thorough study of the culture of target market should be
done and changes should be made accordingly (Armstrong, et al. 2015).
Partnership and alliances- To enter a foreign market, one way is
partnership and alliances. Being in partnership with a foreign company
provides benefits of expertise, technology and market access which
otherwise may not be affordable.
Foreign distributors- Distributors in the foreign market actually buys the
product and resells in the local market. They also decide the selling prices
and provide the customers with after sale services (Obadia & Stöttinger,
2015). It can be a good option as an intermediary for style bites the
international company.
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BACKGROUND
When different countries are rapidly integrated and interconnected by their
economies or when the local economy is in integration with the economy of
the world, then it is called as globalisation. Countries establish
interconnection through spreading the base of their multinational companies
in other countries where resources are easily available and at a low cost.
Because of globalisation, the rate of people moving to different countries
also increased (Krishna & Kumar, 2015). The government of India is building
many new platforms so that globalisation can be made easy and
infrastructures are being developed for the townships of industries. Below is
the pie chart showing the share of different leather products which are
exported from India.
[Source: http://www.india-exports.com/leather.html]
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International trade theory
When the goods and services are exchanged between two countries, to
achieve more growth and profit, it is referred to as an international trade.
Many theories are developed to fully understand the global trade as per
different economies (Feenstra, 2015). The theories are either classical
country based theories or modern firm based theories.
The classical country based theory is as follows:
 Mercantilism
 Absolute advantage
 Comparative advantage
 Heckscher-Ohlin or factor proportions theory
Modern firm based theories are as follows:
 Country similarity
 Product lifecycle
 Global strategic rivalry
 Porter’s national competitive advantage
The theory which best fits the country giving it maximum benefits through
international trading can be applied.
The leather is one of the most demanded and traded commodity across the
globe. In recent years, the growth in demand of leather is seen due to
increase in fashion trends, specifically leather footwear. Out of the total
production of leather in the world, India contributes 12.93% and is in the
second position in case of leather garments and footwear production. In case
of world's leather footwear production, India contributes 9.75%. Mainly in
2017, India became a value-added product exporter transforming from just a
small raw material supplier. There is also a council for leather exports (CLE),
which is a non-profit organisation mainly focuses on the development of
Indian leather industry and about 3500 companies are members of this
council at present.
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Host country
The United Kingdom is a highly developed country and is also market-
oriented. It is the fifth largest economy in the world in terms of gross
domestic product. The promotion and protection of leather industry of UK are
done by United Kingdom leather federation (UKLF). It helps its members in
various ways including technical and commercial matters. The membership
of UKLF provides many benefits to the member companies such as a
communication network is developed to take the experiences and problems
faced by the other fellow companies (UK LEATHER FEDERATION, 2017).
Leather products are in limelight even in the UK and in spite of having such
strong history of manufacturing and selling leather in the UK, the local sellers
and manufacturers are facing tough competition from the importers of
leather products, mainly India as it supplies high quality and original leather
all over the world. The biggest brands of leather in the UK had shifted its
source of raw material from a local supplier to the importing products. Style
Bites international company of India is trying to form its base in the United
Kingdom by supplying the raw materials and finished products which are
manufactured in India.
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[Source: http://www.theweek.co.uk/uk-news/your-business/61274/biggest-
trends-in-british-trade]
For exporting goods to the UK, a licence is necessary for the trading to be
started. A special preference is given to the countries who are members of
European Union and they have multiple free trade agreements and various
partnership agreements so that the trade among the countries can be done
freely (UK TAX AND CUSTOMS, 2017). Since India is not the member of
European Union, the Style Bites international company has to follow various
rules and guidelines before exporting its products in the United Kingdom.
 India is considered as a third country for the UK in respect of trade and
appropriate licence should be obtained before trading of goods and
services.
 Export declarations are to be made to the custom department through
National Export Systems.
 Various taxes and duties are to be paid and export procedures are to
be followed.
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 The goods can also be zero-rated and VAT will be implied accordingly,
but first, it should be evaluated that the goods to be exported come
under the category of zero-rated goods or not.
RESEARCH ON ASSESSMENT TOPIC
Style Bites international focuses on manufacturing leather products and
establishing itself as an export house. It takes most care regarding the
quality of the raw material and finished products so that the expectations of
customers can be fulfilled worldwide. It will manufacture all the products as
per European Standard EN ISO 20345 and also get certified with a quality
management system known as ISO 9001:2008. It will represent its dedication
towards the achievement of high quality and latest designing with
continuous improvement.
The quality of an output product depends largely upon the quality of the
process which it undertakes and Style Bites international ensures to stay
ahead of time for all the products and processes. A team will be appointed
which can keep a check on the requirement of the internal organisation as
well as the requirements of customers as per their specifications (Srivastav &
Rawat, 2015). Latest plants and machinery will be installed with suitable
infrastructure keeping in mind the conservation of natural resources. Its
manufacturing units will be set up in Mumbai Maharashtra so that the
transportation of goods can be easily done. As Mumbai is considered as the
financial capital of India, various resources are available there at low cost
such as labour, transportation, capital etc. which are necessary for the
operations of the business. The range of products manufactured will include:
 Automotive
 Footwear
 Furnishing
 Leather goods and garments
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The main exports will be done to the United Kingdom and the following
researchers are done for the same relating to taxation system in the UK and
the number of leather products imported.
Value of leather goods and related products imported to the United Kingdom
from 2014 to 2017(in million GBP)
[Source: https://www.statista.com/statistics/465921/leather-goods-imports-
quarterly-united-kingdom-uk/]
Regarding the import and export regulations in the United Kingdom, Style
Bites international first have to classify its products, it can be done with the
help of Binding Tariff Information of UK. It includes a detailed description of
the product manufactured, like what it is made from, the use of the product
and the packaging it does (UK TAX AND CUSTOMS, 2017). Then the
declarations and other paperwork are to be done by the company so that the
duty and VAT can be paid accordingly and can also claim the reliefs in the
duty. In case of leather goods, the import duty is to be paid at the rate
mentioned in the chart below.
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[Source:
https://www.trade-tariff.service.gov.uk/trade-tariff/commodities/4202290000
?country=IN#import]
ARGUMENTS AGAINST THE RECOMMENDATION(S)
PESTLE ANALYSIS
POLITICAL FACTORS
The political factors majorly
affect any company, but the
government of UK is relatively
stable. Many approvals have to
be taken by Style Bites
international from the
government of the UK regarding
the number of goods sent and
the quality standards (Feys &
Probert, 2015). It will be
ECONOMIC FACTORS
The main economic factor
affecting the company in case of
export and import is the currency
exchange rate. The rate of
exchange plays a major role in
deciding the price of the goods
manufactured and even the raw
material supplied.
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necessary to follow the
guidelines of local government to
which the goods are exported.
SOCIAL FACTORS
The social factors may include
the killing of animals in the
slaughterhouses. This can affect
the production level of Style
Bites international and in order to
produce original leather, it could
hurt the sensitive feelings of the
citizens with regard to the
animals.
TECHNOLOGICAL FACTORS
Technology can be the most
important factor for Style Bites
international as for best quality
products and to compete in the
market of UK, latest machinery
and plants will be required.
LEGAL FACTORS
Style Bites international ltd has
to follow the rules and
regulations of both the countries,
India and UK. While
manufacturing, it has to abide by
the rules of Indian legislation and
while exporting the goods, it has
to comply with the rules of UK’s
customs (Feys & Probert, 2015).
ENVIRONMENTAL FACTORS
Style Bites can easily come into
the target of various activists,
but they have to convince that if
they are using the natural
resources then they are also
taking steps to nourish them.
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Arguments in support of the Recommendation(s)
The leather market of UK is a continuously growing market and Style Bites
international company have ample amount of opportunities to launch their
product in such growing market. It can be seen that the people of UK
demand the products made of original leather and India is the best place to
produce original best quality leather goods as the resources are available in
bulk and the cost of labour is also very less, thus reducing the overall cost of
production of the company (IBEF, 2017). The retail market of leather in the
UK highly demands goods manufactured from India, so the Style Bites
international can enjoy the competitive advantage available. The local
manufacturers of leather goods in the UK sell their products at a very high
price and thus the products of Style Bites can overtake the market with their
low cost and high quality.
BRAND: MOWBRAY LEATHER
GOODS
 High-quality original leather
goods
 Made from skin of camel
 Price: 200 dollars
BRAND: STYLE BITES
INTERNATIONAL
 High-quality original leather
goods
 Made from camel skin
 Price: 120 dollars
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Mowbray leather goods is a leading manufacturer of leather goods in the UK
and giving the same quality products at a very high price as compared to
Style Bites international, thus leaving a competitive advantage for the
company.
IMPLEMENTATION OF RECOMMENDATIONS
Style Bites international ltd have all the resources needed for its growth in
the domestic as well as international market. It has to decide the suitable
strategies which will be adopted for the entry in the leather market of UK.
The most suitable market for Style Bites International Ltd is the retail market
of UK and can also go for online trading of its goods as the trend and craze of
online shopping is continuously increasing worldwide. The manufacturing
unit is in Mumbai and is the most suitable location for every aspect. The
packaging of the products is an important issue for the company and has to
abide by the rules of packaging authorities of UK. The packaging should be
done in such a way that the product is not at all damaged even in case of
transportation through air or shipping.
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MODE OF TRANSPORTATION: Since the location of manufacturing unit of
Style Bites is in Mumbai, there are various options available for
transportation of goods such as by shipping or by air. The cheapest mode of
transportation will be shipping but it will consume a large amount of time, so
the aviation mode will be most suitable for delivery of goods.
COMPETITORS AND PRICING: The main competition of Style Bites
international ltd can be other Indian companies which also export the goods
to the UK and other countries. Also, competition can be faced by the local
manufacturers of UK such as FORMA leather, Andrew Muirhead and sons
limited, which also delivers high-quality products in the retail market of UK. It
can leave behind its competitors by using various pricing strategies such as
price skimming, in which it can keep its pricing low at the time of entry in the
market of UK.
The supply chain process to be followed by the Style Bites is explained as
follows:
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[Source: http://sustainablesmartbusiness.com/2016/01/useful-report-
infographics-on-palm-oil-beef-leather-and-soy-supply-chains/]
The supply chain for the Style Bites international limited will start from the
suppliers of raw material, the skin of animals can be obtained from the local
slaughterhouses of Mumbai and the regions nearby. It then enters the
production process and raw materials will be divided as per the requirements
of each department and each product. It classifies its products on the basis
of finished goods and finished raw materials which are required by the
suppliers in the market of UK. After the process of production begins the
marketing management and promotion of its products in the local markets
as well as the markets of UK. For marketing and promotion in the UK, Style
Bites adopts traditional techniques such as hoardings, billboards etc. and
also modern techniques such as social media. After the sale of the product, it
has to give after sale services in case of any complaint from customers. The
distribution channel also includes the opening of retail stores in various
regions of UK, and that is how the supply chain is completed.
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LIST OF REFERENCES
 Ethier, W. J. (2014). National and international returns to scale in the
modern theory of international trade. In THE FLOATING WORLD: Issues
in International Trade Theory (pp. 77-93).
 Feenstra, R. C. (2015). Advanced international trade: theory and
evidence. Princeton university press.
 Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing:
an introduction. Pearson Education.
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 Obadia, C., & Stöttinger, B. (2015). Pricing to manage export channel
relationships. International Business Review, 24(2), 311-318.
 Krishna, G., & Kumar, R. (2015). Indian Exports Loss of Global
Competitiveness. Economic and Political Weekly, 50(34).
 Feenstra, R. C. (2015). Advanced international trade: theory and
evidence. Princeton university press.
 UK LEATHER FEDERATION, (2017) [ online available at
http://www.manufacturing-today-europe.com/2016/01/06/uk-leather-
federation/]
 UK TAX AND CUSTOMS, (2017) [ online available at:
https://www.gov.uk/goods-sent-from-abroad]
 Srivastav, G., & Rawat, P. S. (2015). Indian Handicraft and
Globalization: The Export Context. Designing and Implementing Global
Supply Chain Management. Pennsylvania, USA: IGI Global, 175-184.
 Feys, B., & Probert, C. (2015). PESTLE analysis. Primento Digital.
 IBEF, (2017) [ online available at: https://www.ibef.org/exports/leather-
industry-india.aspx]
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