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| Ethiopian brand Sole Rebels targets the export market |
I returned from Ethiopia about a week ago. Leather is a big deal in the country (and several Chinese firms are investing large amounts in tanneries and shoes). Around 2001, Ethiopia's shoe industry was severely hit by competition from cheap Chinese imports. Omar Redi of Fortune (Addis) reports on the shoe industry's remarkable recovery over the past decade. Originally serving only the local market, Ethiopian companies like Peacock are now exporting to Italy. "The industry," Redi says, "has survived the onslaught from Chinese competition and prospered."
Highlights of the Ethiopian shoe story:
- The history of leather industry in Ethiopia dates back to 1928, but focused only on the local market. Chinese imports began to swamp local markets around 2000.
- In an unexpected twist of fortune, the Chinese challenge presented an opportunity for Ethiopian shoe manufacturers by pushing them to focus on the quality, design and durability of their products so that they can win the hearts of, at least, the local users.
- For Peacock Shoes, the pinnacle of the problem was a wake up call; they realised that if they did not compete with better quality and price, their business in the shoe manufacturing sector would crumble.
- "It was at the height of the challenge around 2001 that we imported our first huge machineries from Europe," Elias said.
- A leather training institute also helped. Since January 2009, the institute began benchmarking work, under which best practices in the industry from across the world are implemented at Peacock and Anbessa Shoe Share Company.
- Peacock Shoes now earns around $4 million a year from exports to Europe. Read more here.
4 comments:
Interesting article and a sign that African manufacturing may have a bright future. I have also heard of Turkish textile firms setting up shop in Ethiopia for export to Europe. Merlin
Part II
Next question is how many governments in Africa have similar industrial policy, sorry, COULD have such an industrial policy? Already not the DRC where the government is not able to pay regularly its soldiers, nor his judges, nor its teachers…
And my final question refers to the global framework; this is not about one, or 10 shoe companies that have escaped bankruptcy, it's not even about the shoe industry, but it is mainly about the millions of craftsmen in the leather sector in the whole of Africa capable of transforming the goat of their neighbors into leather shoes or belts…. How should they exploit the "opportunity" that their neighbors do walk in dirt-cheap Chinese flip-flops?
Chinese entrepreneurs have a nose for a. commodities (Ethiopia has the largest livestock population in Africa) b. state subsidies, especially if the president comes to Beijing als a salesman and promises them the same state subsidies as the Ethiopian producers received.
Two Chinese tanneries (China Overseas Leather Products with 16,000 skins a day and Friendship Tanneries with 15,000) are already up and running at full speed.
New Gmy Cy now builds its U.S. $ 6 million shoe factory ( with an initial production of 1 million pairs of shoes per year, but 5 to 6 million within three years) and Hu Han Zangur (the largest producer) is also interested…
If ever there will be an interview with Chali Bedada Junior, then Dire Industries will probably no longer be in the shoe production business, but possibly still in its commercialization, like many African industries whose production (partially) stopped because in a survival effort they were obliged to sell the cheaper Chinese products themselves…
But unfortunately I know nothing about the "half-empty part of this glass". Therefore I should know something about the consequences for the workers of this increased performance, the working conditions in the once nationalized industry, the power of the unions, how many businesses failed in the "high road" (better quality) to face the Chinese competition and were forced to the "low road" (lower prices)… And you can imagine what this meant for the workers; increased exploitation, low wages, companies who retreated to the informal sector and finally bankruptcy and layoffs…
5,000 jobs have been saved. But a multiple of that were lost and what "opportunities" were there to be exploited by those workers made redundant?
You can call this an "opportunity" as in the article, or "Creative Destruction"(which sounds rightly already so social Darwinist), in reality it is nothing but "damage control", unfortunately, a luxury reserved for African states ... worthy of this name.
But even if you get this logic, the question remains whether we can speak of a "success story". For the business year 2010/11 the professional organization of the leather industry declares:
“The Ethiopian leather industry intended to earn US$ 59.5 million from exports of leather footwear enterprises, but was able to collect revenue of just US$ 8.8 million”…
dan
Damage control…
To find “a glass half full " a very deep drill was needed this time;
it goes to Ethiopia, a pro-government business newspaper, the successful shoe industry, an article about one of its three largest companies, and about mens footwear only!
And this in an industry where the Chinese invasion has caused a massive onslaught all over Africa ....
In essence, the article makes clear that you must become big and powerful to survive at home and to have a shot at the worldmarket. Peacock, one of the 10 companies that could resist the Chinese invasion (in Ethiopia “ big” means 300 workers) then illustrates this universal truth.
How, you will find in any MBA course: by injecting capital.
At Peacock this came in part from the family group Dire Industries, a local, vertically and horizontally (own tanneries and transport (to the port of Djibouti)) integrated, group.
Equally important is that the Ethiopian Government has done everything to save this industry through a costly and sustained industrial policy. This started with the sale, almost for free, of the companies in the privatization drive after the Derg and was put on year after year.
And as midwifes of this success, I saw no Chinese entities, but new entrepreneurs, managers with Western education, USAID, UNIDO, South Korea, FDDI from India, Italian craftsmen and designers, German NGOs and orders from Italy…
My first question is; how those 10 successful companies will be able to realise the same succestory for women and children shoes (they now produce 95% of men's shoes, 4% of women shoes and 1 % for children, because sustainability is less important for the latter two categories)?
Readers might be interested in more academic research on Ethiopia's leather shoe industry. See "An Exploration into the Successful Development of the Leather-Shoe Industry in Ethiopia," by Tetsushi Sonobe1, John E. Akoten, and Keijiro Otsuka in Review of Development Economics 13(4)(December 2009) and a study that focuses on the rebound of small & medium sized firms: "The Developmental Impact of Asian Drivers on Ethiopia with Emphasis on Small-scale Footwear Producers," by Tegegne Gebre-Egziabher in The World Economy (December 2009)which outlines the "high road" of competition leading to improvements, followed more by small and medium enterprises, and the "low road" of failure to compete followed by more microenterprises. Gebre-Egziabher points out that it is technically a lot more demanding to make women's shoes with high heels.
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