Analyzing Integration of Small and Micro Enterprises with Ethiopian

Leather Industry

Eshetie Kassegn1

School of Mechanical and Industrial Engineering

Mekelle University, Mekelle, Postal Code +251, Ethiopia

keshetie61@yahoo.com

Abstract

The Ethiopian economy is dominated by the agriculture and services sectors, with each accounting for about

more 43-44 percent of gross domestic product (GDP), leaving only about 13 percent for industry of which

manufacturing accounts for about 6-7 percent. The low industrial contribution is attributed to lower

participation of private enterprises. This time, thanks to encouraging policy & conduciveness environment

for entrepreneurs, the sector becomes enthusiastically growing. This research aims at investigating

inhibiting factors of growth of small and micro enterprises (SMEs) and analysis how to integrate SMEs with

large leather industries for better productivity and profitability through capacity development on product

design and development, and innovation. Industrial development and SMEs are two side of a coin. SMEs by

entrepreneurship encompass the promoters, government and financial institutes. SMEs based

Entrepreneurship development is essential to solve the problem of economic development through creating

local employment, balanced area development, decentralization of economic power and diversion of profits

from rich to middle class & poor. Many local innovations go unnoticed because of innovator’s limitations in

commercialize the product. If stakeholders of entrepreneurship work in tandem, SMEs can grow fast.

Key Words: SMEs, Integration, Leather Industry, Scrap, Link

1. Introduction

Ethiopia highlighted the role of small and micro

enterprises (SMEs) in the country’s development in

its Industrial Development Strategy pointed out the

need to promote and support micro-enterprises

across the country and to encourage the

establishment of financial institutions to serve them

due to the fact that SMEs in Ethiopia cover 92% of

the total taxpayer [15]. They form by far the largest

number of enterprises; they contribute towards

achieving a more equal income distribution in

society and serve as a “training platform” for

upgrading and developing complementary role to

large and giant firms in the economy. Generally

SMEs have a number of acknowledgement

characteristics that arguably make them more

important to modern economies. The development

of SMEs is a cornerstone of Ethiopia’s rural

development and poverty reduction strategy.

Currently, Ethiopia is investing more on leather

subsectors to improve the productivity of the sector

and its income by exporting quality leather products

to different foreign countries. But, lack of a well

developed system to control the quality of the raw

materials (hides and skins) affects the productivity

of leather Industry. Besides this leather wastes

generated within the companies are not managed and

reused for usable purposes at large.

In Ethiopia, SMEs playing a significant role for the

development of our economy by creating large

employment opportunity and producing important

alternative machines and machinery parts for saving

huge foreign currency for our country. The leather

industry in Ethiopia is based on livestock as sources

of raw materials.

Therefore, the purpose of this study is to analyze

how to integrate SMEs in leather subsector with

leather industries found in the country, particularly

Tigray.

This study comprises hides and skins, and scraps

generated from leather industries. But the study

mainly focused on leather scraps which are

generated from Leather Industries and could be

reused for other products. This study was to develop

mechanisms to integrate SMEs in leather subsector

with large leather processing industries like Sheba

Leather Industry which is found in Wukiro Town.

As said repeatedly, SMEs have played and continue

to play significant roles in the growth, development

and industrialization of many economies the world

over. In the case of Ethiopia particularly Tigray,

SMEs have performed below expectation due to a

combination of problems which ranges from lack of

skill and knowledge on design and development of

products, and innovation.

1.1 Background and Justification of the Study

The expansion and development of any

manufacturing sector of a country is influenced,

among other factors, by its resource base. The

resource base for a leather sector is the livestock

population. However, the existence of a large

livestock population alone does not guarantee

development and growth unless various other

requirements are fully met to efficiently exploit the

available resource. The main leather-related export

item of Ethiopia is, however, low value-added hides

and skins. To resolve such problems, the

Government of Ethiopia (GOE) has been promoting

to shift the major export items from the low value-

added hides/skins to high value-added finished

leather products. The leather industry has been one

of the major traditional industries together with the

coffee and garment industries, but it is now at a

turning point to change itself from a traditional

industry to a modern industry to penetrate the

international high value-added leather market, under

the strong initiative of the GOE. But, the quality of

the raw materials (hides and skins) is still the major

constraint that affects the quality of the finished

products of the leather industry. These raw materials

are collected from different vicinity of the country

starting from the rural spots. They are collected from

each home of the residents by different informal

dealers, who are found in different Kebeles of the

woredas. These dealers simply pick it from the

household and deliver it to other dealers found in the

woreda city. The collected skin and hide stays for a

long time on the hand of the dealers and many of the

leather become decayed before arriving to the

leather processing industry. And, it also affects the

quality of the products of the industry. Therefore, to

resolve such problems, SMEs in the leather

subsector has to be established in each woredas of

the country. These SMEs will have a direct

communication with the leather processing

industries. Similarly the SMEs can manufacture

small leather products using leather wastes (scraps)

generated in the leather industries. So, the leather

processing industries can also provide the wastes

(scraps) generated within the company to SMEs [4],

[6].

Need of Integrating Small and Micro enterprises

with leather industries:

To use leather wastes generated from leather

industries to produce different leather products

by SMEs

To increase the capacity of small and micro

enterprises in leather subsectors

To create job opportunities for different people

in different parts of the country particularly

those living near the leather industries.

1.2 Problem Statement

Lack of well developed system for information flow

between leather products processing industries and

raw materials suppliers (hides and skins) affect the

quality of the finished products and similarly the

productivity of leather industries in many areas of

the country. There are no formal enterprises in the

enclose proximity kebeles and woredas to collect

and convey these raw materials to the industries,

only Informal dealers collect it and distribute to the

industries. In this route, many hides and skins

become out of use and the remaining arrive at the

industries with many defects. The industries are not

able to reach its extended suppliers easily to get

quality raw materials on time.

Besides this, many re-useable wastes or scraps are

generated from leather industries of the country.

These wastes or scraps are dropped everywhere

within the company resulting environmental

pollution, but it can be processed into useful

products by SMEs for better job opportunities as

well as resource utilization. However, due to lack of

integration between the two, this is not yet practiced.

So, this research is mainly intended to address a

solution for the limitations of re-using wastes or

scraps generated from leather industries in detail,

and highlighted problems of improper materials

delivery. To realize how much the problem is

critical, the following figures are exemplariness:

Figure 1: High amount of waste generated at Sheba

Leather Industry

1.3 Objectives of the project

To analyze how to integrate different Small

and Micro Leather Enterprises with large

Leather Industries, especially Sheba Leather

Industry.

To develop and present a detail and clear

picture of what Small and Micro Leather

Processing Enterprises requires to

effectively manufacturing and market

process products.

To develop a mechanisms for Small and

Micro Enterprises to use wastes or scraps

generated from leather industries.

To show direction how to initiate small and

micro entrepreneurs in different parts of the

country in the leather subsectors.

To develop market linkage and information

business model within the leather

subsectors.

2. Literatures Reviewed

2.1 Leather Process

Leather tanning covers the treatment of raw

materials; it is the conversion of raw hide or skin, a

rotten material, into leather, a stable material so that

it can be used in the manufacture of a wide range of

consumer products. Leather is the tanning sector's

fundamental output. It is an intermediate industrial

product, with applications in downstream sectors of

the consumer goods industry. The leather and

footwear industry encompasses three main sub-

sectors, namely tanning and dressing of leather;

manufacture of luggage, handbags and the like,

saddler and harness; and manufacture of footwear.

The leather sector and subsectors have good

opportunities and weaknesses globally. Identifying

the strengths, weaknesses, opportunities and threats

is important for business success of the sector.

According to different sources, the SWOT analysis

of the sector is shown below:

a. Main strengths of the sector:

The strengths of the leather sector are mainly strong

competitiveness of leather and footwear products on

foreign markets; high flexibility, adaptability and

quick response to changes in the nature of market

demand; low-cost labor force; competitive

environment and a large number of players, micro

enterprises and SMEs, more flexible and adaptable

to changes in the nature of market demand; and

competitive environment within the sector given the

great number of manufacturers.

b. Main weaknesses of the sector:

The weak sides of the leather sector are widespread

CMT business model (lohn system); obsolete

technological level of the tanning sub-sector;

insufficient financial resources for upgrading and

streamlining the production capabilities; failure of

supplying raw materials from indigenous sources;

and high manufacturing costs within primary sub-

sectors.

3. Main threats of the sector:

Among the threats that SMEs face, the main is

increasing competition from products of large

leather industries.

4. Main opportunities of the sector:

There are opportunities that SMEs couldn’t utilize so

far. The one opportunity that drives enterprises to be

engaged in leather sector is unrestricted access to the

structural funds of the Community/on the Single

Market.

As different scholars concluded, there are also main

barriers facing small and micro enterprises (SMEs)

involved in leather sectors and subsectors. Top

barriers of the leather sector under SMEs are

shortage of working capital, identifying foreign

business opportunities, limited information to

locate/analyze markets, inability to contact potential

overseas customers, and lack of managerial time,

skill and knowledge.

2.2 Contributions of SMEs

According to [10], at all levels of development,

SMEs have significant role to play in industrial

development in particular and in economic

development in general. SMEs form the backbone of

the private sector; make up over 90% of enterprises

in the world, and accounts for 50 to 60 % of

employment in a country. SMEs engaged in

manufacturing account for between 40 and 80

percent of manufacturing employment. 99.7% of all

organizations in the world are SMEs. This is valid

for all economies of the world including Ethiopia.

Only 0.3% of organizations are large. SMEs make a

vital contribution to the development processes for

the following reasons:

SMEs are more labor-intensive and tend to lead

to a more equitable distribution of income than

larger enterprises.

SMEs contribute to a more efficient allocation of

resources in developing countries.

SMEs support the building of systemic

productive capacities.

2.3 Integration

These are customer integration, internal integration,

material and service supplier integration, technology

and planning integration, measurement integration,

and relationship integration [8].

The leather industries are potential areas for the

developing countries. The sector is trying to get

advantages from large livestock potential and

promising market for leather products. However, the

industry is highly fragmented.

The presence of a large number of chain participants

is creating high price fluctuation and unstable

market. The supply chain of the leather sector from

raw materials to the end customer is indicated here

below:

Figure 2: Leather industry supply chain.

There is consensus that markets alone are not

enough to promote the improvement of the

innovative capacities of SMEs. There is also

consensus about the need to promote relations

between SMEs and local and multinational

companies, encourage their insertion into global

value chains, and the sustainable growth in them [9].

Marketing and communication are critical to the

exporting process, and greater inclusion of women in

the marketing process, as well as account

management responsibilities with potential or

existing international clients, can be a route to

increasing the role of women in the sector.

In most developing countries, tanning operations is a

family business, carried out in small to medium

scale semi-mechanized units, very frequently

grouped tightly in clusters which used to be outside

residential areas [1].

Africa is an industrial reality with low technological

levels, where innovation goes very slowly, and new

productive units are installed with old plant and

machinery that are difficult to use for innovative

production [2].

Quality is the most critical element for market

success [16]. The prevalence of defects in hides and

skins imports from Africa, coupled with lack of

compliance with delivery dates, are key issues for

present and potential importers. Quality and

standards control is a direct function of the pervasive

manufacturing process [3].

2.4 SMEs in Ethiopia on Leather Sector

Ethiopia’s ability to run a successful leather industry

is enormous as it produces huge amounts of hides

and skins. The industry is one of the key agricultural

sub-sectors in the country since it is the 1st ranked

country in Africa in terms of number of livestock

animals, and has a high potential for commodity

development to address pertinent issues of socio

economic importance, which impact on rural

development, employment and wealth creation [11].

Tigray region is also one of the potential regions in

terms of quantity of livestock animals. So,

integrating SMEs with large scaled leather industries

enable the region to generate the region promising

revenue, and to contribute a lot for the economic

development of the country at large. Different

studies states that the integration can also enhance

materials utilization, and strengthen managerial

capacity. Even though there are abundant resources

in the region and the country in general, the

resources are not converted into economically

valuable product; merely send to abroad in the form

of skins and hides except recent few attempts to add

value for export.

According to [5], one of the top ten barriers of SMEs

business development is developing new products

for local and foreign markets. This is because of

limitations on skill and knowledge of design,

development and innovation of noble products.

Different literatures assured that this problem is

main challenge of SMEs in Ethiopia. Not only this

problem, but also other limitations like unable to

access local and international markets are main

barriers facing Ethiopian SMEs.

3. Materials and Methods

3.1 Introduction

An exploratory approach was used and case study

design was adopted to identify, analyze and describe

the scraps and ways of integrating SMEs involved in

leather sector and subsectors with huge leather

industries addition in leather and leather products in

Ethiopia. It is supported by [17] which state that the

exploratory approach employs an open, flexible and

inductive approach to research as it attempts to look

for new insights into phenomena.

3.2 Study area

The study has been conducted in Ethiopia taking

Tigray region as focus area. Now days, many SMEs

are established in all regions of the country. SMEs

are growing fast in Tigray regardless of poor to

globally competition because of capacity limitation

on financial assets, skills and knowledge.

Tables 1: Number of SMEs involved in leather

sectors in Tigray

SMEs in leather

sector Male Female Total

Existing enterprises 172 43 215

New enterprises

underway for

establishment

38 24 62

(Source: SMEs Development Agency, Tigray

Region)

3.3 Data Collection Process

Interview: Interviews were conducted with the

people of rural and urban areas, and dealers who

collect the leather product from the household. It

was also used to collect data from responsible bodies

of the case leather industry.

Questionnaire: It was developed and used to identify

the needs of the leather processing industry and

SMEs. The questionnaire was distributed to leather

industries and SMEs found in Tigray region. From

45 target respondents, 30 were filling the

questionnaire properly.

Observation: Visual observation was used to

understand the existing situation. Photos and videos

were captured during field visit.

Table 2: Research phases,tools used, and results obtained

Research

phases

Main sources

of the data

used

Data

collecti

on and

analysis

tools

Results

obtained

1. Prelimin

ary

collectio

n and

analysis

of

secondar

y data

Financial

statements,

scrap

storages,

environmenta

l situations,

articles,

publications,

books,

company

documents,

catalogues,

reports

Current

status of

SMEs

regard

to

technol

ogy

usage

and

creativit

y,

Analysi

s of

financia

l

stateme

nts,

analysis

of how

waste

could be

re-used

Analysis of

financial

statement,

identificatio

n of possible

products to

be

manufacture

d by SMEs,

analysis of

how leather

SMEs can

work

together

with large

leather

industries,

integration

model

developed

2. Structure

d and

semi-

structure

d

interview

s

More than 10

interviews

made for the

case company

and SMEs

Structur

ed and

semi-

structur

ed

question

naire of

30

question

s per

intervie

w of

which

10 were

commo

n to all

intervie

ws

Completion

of data

collection in

phase 1.

Identificatio

n of the

aspects

relevant for

the

interpretatio

n of the

integration

between

SMEs and

case

company

3. In detail Collection of Unstruc In depth

analysis further

secondary

data. 4

additional

interviews

and

observations,

selected on

the basis of

the results

obtained in

phase 2.

tured

intervie

w and

random

visual

observat

ion

analysis of

the relevant

aspects

arising from

phase 2.

4. Interpret

ation of

need to

integratio

n of

SMEs

with case

company

All the results

of the

preceding

phases

Structur

ed

compan

y fact

sheets,

structur

ed

reports

for the

case

compan

y,

unstruct

ured

perform

ance of

SMEs

Understandi

ng of the

growth of

SMEs, its

determinants

, its results

for the case

company

and SMEs

5. Analysis

of the

issues

raised

Structured

company and

report sheets

(in phase 4)

Centrali

zed

databas

e for the

collecte

d data

In detail

transversal

analysis of

the main

issues that

proved to be

relevant for

the

interpretatio

n of

integration

processes

6. Compara

tive

interpreta

tion of

the

model

develope

d

All the results

of the

preceding

phases

Centrali

zed

databas

e for the

collecte

d data

Comparative

interpretatio

n of the need

to integrate

SMEs with

large

industries

7. Interpret

ation of

the

benefits

would be

obtained

from the

All the results

of the

preceding

phases

Centrali

zed

databas

e for the

collecte

d data

Interpreting

the benefits

of

integration

model in

many

dimension,

model

develope

d

further tasks

requested

3.4 Data Analysis Tools

Arena Software: It was used to model the working

process of the system starting from sources of the

skin and hide to the leather processing industry, and

then distribution of scraps to SMEs involved in

leather sectors.

Different statistical tools were used to analyze the

input data to resolve the problems stated in the

study. Market linkage and information business

model was also developed.

The statistical tool for Social Sciences (SPSS) was

used for data analysis, and qualitative data was

analyzed using descriptive statistics. These are

known to provide the foundation upon which

correlation and experimental studies emerge, and

clues regarding issues that should be focused on,

leading to further studies [18]. Correlation was used

to show how the activities of SMEs and large

industries are inter-related and integrate-able, while

multiple regression method was used to show the

integration can be strengthen for further

improvement on global competition of the market.

Figure 3: Phases in data collection and analysis

4. Result and Discussion

4.1 Over viewing

Ethiopia is one of the developing countries with very

fast successive growth rate of two digits for the last

twelve years. The government of Ethiopia has

developed a growth and transformation plan (GTP)

which is to be re-iterated every five years to reach

among the middle income level countries in 2025.

For doing so, the government gave due attention to

strengthen the capacity of SMEs and transformed

them to the medium and large industries, taking

experience of developed countries like Taiwan,

South Korea, etc.

SMEs are thus the frontier target groups in the

development strategies of Ethiopia for different

reasons. Among the reasons the following may be

sited:

a. Reducing huge number of unemployment

problem

b. Creating supply chain (integration) to large

scale industries in the country

c. Import substitution

d. Export of noble products and earning foreign

currency; to mention majors.

Regardless of the advantages that can be gained

from SMEs of the current development issues of

Ethiopia, they are at their infant stage that most of

SMEs have no knowledge of product design,

development and innovation, and the use of modern

methodologies of different working processes as

well as controlling qualities. SMEs are producing

products using out of date processing technologies

(almost all use manual production system) which

affects quality of products (especially finishing) and

productivity. Therefore, these SMEs have to be

assisted by industries have the capacity to fill the

gaps of SMEs.

Modern industries not only assist SMEs via

capacitating with required technologies, but also can

provide materials and semi-processed products

through integration networks. SMEs can get scraps

of leather products with minimum price and produce

marketable products; otherwise, they will be forced

to by the normal tanner leather semi-product which

is too costly [14].

Other way of helping is that large industries can

outsource some orders and activities to SMEs after

all required trainings and technology transfer works

for encouraging them. As data obtained during

interviews made, the case company is allowing

permanent employees to take shoes home and

perform round sewing, and the company pays 4 birr

per shoe. However, such activities should be

outsourced to SMEs involved in the same sector. So,

the integrate cooperation between SMEs and the

large industries will address solution for such

potential problems. This will encourage SMEs to

promote their skill and knowledge as well as

enhance global market competitiveness. The other

advantage of integration is also to the case company.

Currently the case company is outsourcing shoes for

sewing to all interested employees of the company.

One thing that all of us can agree is the matter of

quality. If one finance worker does the activity

mentioned without taking intensive training, quality

will be compromised too much. Hence, the case

company will pay cost in addition to loosing

goodwill of it.

4.2 Scraps (wastes) of leather products

There are solid and liquid wastes generated at Sheba

Leather Industry while passing through all required

processes. The solid waste especially, scraps are

major huge in amount. But, this waste could be re-

used by small-scaled enterprises for manufacturing

of different goods without further chemical

processes. Nevertheless, scrap waste is simply

rejected from temporary storage station to the

permanent disposal area unless sell to small-scaled

enterprises because of tedious bureaucratic process

required, and limitation of awareness of not to drop

every piece of scrap.

Table 3: Amount of scraps sold

S.N Month Quantity

sold (kg)

Unit

price/kg

Total

price

1 September 0.00 7.50 0.00

2 October 0.00 7.50 0.00

3 November 0.00 7.50 0.00

4 December 32.00 7.50 240.00

5 January 2.50 7.50 18.75

6 February 149.00 7.50 1,117.50

7 March 1,500.00 7.50 11,250.00

8 April 0.00 7.50 0.00

9 May 0.00 7.50 0.00

10 June 8.00 7.50 60.00

(Source: Survey data from finance department of

Sheba Leather Industry, 2015/16)

The unit price of the scrap is ranged from 5 to 10

ETB per kg as the data from finance department

obtained. However, the average price which is 7.5

ETB/kg has been taken to be optimistic more. The

total price of scraps is found by multiplying the

quantity sold by unit price as shown in column

“Total price”.

Whereas the scrap cost is too much compared with

the revenue gained from selling of it. Almost non

scrap is sold annually when generated scrap is

considered. The monthly scrap costs were

determined to know how much the cost of the

company is because of it. Example, if we take the

amount of waste generated during June of 2015, it is

290 units of scraps from 31,756 units of products.

According to the data from the case company, the

unit price of scraps is 181.00 ETB. Thus, the total

cost of the scrap during the month is 290

units*181.00 ETB = 52,490 ETB/June. The mount

of scrap sold, however, is 60 ETB/June, as shown in

the above table. Imagine how much the difference it

is. Similarly, the other monthly scraps generated are

too much and the cost is also too.

As data obtained during survey, cost of the case

company due to scrap generated before and during

processes account from 5-30% of the profit margin

of the year. As a result of it, 24 million ETB has

been lost due to scrap generation in 2015/16. It is a

huge amount of money that can build another

elementary company. This amount of cost was

minimized significantly if scraps would be re-used

by SMEs involved in leather subsectors. Thus if

scraps are re-processed for production of other

jewelries and household goods, the lost can

definitely be minimized significantly. The scraps

which are discarded have been passing all tannery

processes with good surface finishing. Many

products could be manufactured using these scraps

without any further chemical process. The products

may be demanded in abroad as far as manufactured

with good quality finishing. The following figures

exhibits the amount of scraps generated from the

case industry but can be used to manufacture other

products rather than discarding to the solid disposal

area.

Figure 4: Applicability of scraps for different

purposes

By far, the largest quantity of leather scrap is

generated at the cutting step. The cutting rate for

leather can range from 25-60% of the total scrap [7].

This literature elaborates that there is possibility of

reducing the high cutting rate by optimally cutting.

According to this study, the reasons of this relatively

high cutting rate are:

A leather skin is never homogeneous and

rectangular,

The quality of the leather at the side of the skin

is generally poor,

The shapes of the pieces to be cut are scarcely

the same and the production delay does not

allow the optimization of their arrangement.

The question is what can be done to use the

scraps if generating mandatory rather than

rejection. The solution is, as mentioned

previously, re-using to produce many valuable

goods for local and international markets.

4.3 Environmental issues

The waste generated from the company is not only

affecting the company economically but also

pollutes the surround environment. As said many

time, the scraps are suppose to be sold for SMEs;

unfortunately, since there is no formal linkage

between the company and those SMEs and other

private small-scaled enterprises to re-produce

products using scraps, the company is forced to

dropout scraps to save space inside the compound.

Temporarily, the scraps (wastes) are stored inside

closed store room as long as not get full; however,

when the room gets full, the only option is to put

around there which is outside of the room.

Figure 5: Close and open storage system of scrap

wastes inside Sheba Leather Industry

Hence, when the rain comes, for sure the scraps will

be exposed for the rain. Meanwhile, different

chemicals which were used during the tannery

process will be released to the environment. These

chemicals are dangerous and poison chemicals

which seriously affect the environment. The

chemicals release to the far distant places through

flood during raining season. After all, the company

avoids the scraps to the surrounding place dedicated

for discarding such wastes but put negative impact to

the environment furthermore. The area where solid

wastes disposed is said to be “solid waste disposal

area”. The below figures illustrates the area of solid

waste disposal place and its impact to the

environment (descriptive imagination).

The waste disposal area is near to the company so

that it affects the working environment. The waste

disposed stays there forever till now. There is no

plan on the ways to dispose wastes without or with

minimum impact to the company and the

environment at large. The disposed waste makes a

bad odor taste around the environment inside the

company. This waste was a capital if used properly.

What happened practically is the waste harms the

company as well as the environment. This has to be

solved. The following figures show the situation of

the waste which built mountain and its disposal area

which too near to the company.

Figure 6: Solid waste disposal area around Sheba

Leather Industry

4.4 Limitations of SMEs in leather sector

The SMEs moving in Tigray region have many

challenges which causes of lagging rather than

progressing forward. It is fact that some of the SMEs

in leather sub-sectors are becoming non functional

as information from SMEs obtained, and practically

seen. Some of them already discarded from the

sector, and emplaced with other form of sectors. The

remaining SMEs are also moving with speed of like

giant tortoise. They have many problems that should

be addressed by collaboration of all responsible

bodies and private potential leather industries. The

main problems that tackle the SMEs are:

Capacity limitation on design, development

and innovation of new products

Lack of skilled employees from the sector

Lack of facilities at working places provided

Lack of well training on the sector

Lack of commitment of responsible bodies to

integrate them with leather industries and

proper follow up as well as support

SMEs have attitudinal problems to organize

and expand leather related activities using

wastes (or scraps) and convert into valuable

products

Unable to share good experiences among SMEs

themselves and absence of any attempt to

alleviate problems facing them cooperatively

Financial and technology related problems

which results unable to compute with potential

leather industries

Unable to access market opportunities because

of absence of market linkage

The SMEs are also poor in terms of beating

competitions of market advantages. This is because

the products produced by SMEs are poor in quality

since manufacturing is done manually. The other

factor is that the price of products of leather

industries is less than the price by SMEs since the

production of products of large leather industries is

by mass using machineries.

4.5 Integration from Global Perspective

It is important to see examples to show how much

integration between small and micro-scaled

enterprises with large industries can capacitate

SMEs in terms of many directions. [12]

Consolidation in the automobile industry started

earlier than in other industries. Ever since the mid-

1980s, some suppliers gradually grew in size and

capacity to become mega-suppliers in automobile

production systems. They also expanded

geographically following the auto lead firms. The

supplier plants at each location specialize in

producing a few specific components based on

economies of scale, and these components are either

directly shipped to the lead firms’ assembly plants,

or go through initial assembly locally to form

modules and subsystems and then are sent to final

assembly. Auto lead firms in the industry are limited

in numbers, and they have the power to structure the

automobile global value chain, enforce their own

strategies onto lower-tier suppliers and to bring the

suppliers along during their global expansion, which

is described as ‘follow sourcing’. As the competence

of large suppliers grows, they establish design

centers and build system design capabilities, which

in turn enable them to take on larger roles in the

automobile global value chain. This means there is

less room for SME auto-parts manufacturers in the

market, due to their lagging capacity and

diminishing competitive edge.

Experience from various industries and economies

confirm that SMEs can work together with large

industries, play a significant part in global value

chains and be internationally competitive. The value

chain links benefit large industries and SMEs, as

well as the local communities where the SMEs are

based. It is a promising route for SMEs and their

local communities to engage in sustainable

development and growth [12].

From this international experience on advantages of

integration, what could be conclude is that in the

case of Ethiopian leather industries and SMEs, the

integration is mandatory even though not built yet.

Today’s SMEs becoming capacitated and large

industries as far as they involve in value chain

integration system with large industries.

Though the SMEs in leather sector is becoming

gradually a rising industrial sector of our country

and contributing more and more to our export even

if low as compared with the potential of the country

for the sector, this sector faces several common

problems like lack of technical know-how, shortage

of long-term financial support, lack of skilled

workers, marketing linkage, research &

development, knowledge on safety measures,

hygiene, environmental pollution, and so on. We

need to acquire proper institutional knowledge in the

fields of technological and managerial education and

ask academics and researchers to work more

vigorously for the sector’s rapid development.

The above all common problems will not be

addressed by a single or two parties. Since the

problems are multi-dimensional aspects, the

solutions should be from multi-direction. That

means, the government, industries, academic

institutions, researchers, NGOs and others shall have

common standing to work together for better

developments of SMEs and the country at large.

If one large company emerges around somewhere,

we should have many SMEs providing different

materials and components; and activate outsourced

activities given by large industry. To strengthen this

idea, it is possible to take Toyota Corolla Company

and many SMEs which supply many components as

an example.

As shown in the figure below, there are too much

many components of Japan’s Toyota Corolla which

are supplied by many SMEs found around there.

This example will be a big lesson for Ethiopian’s

industries [13].

Figure 7: Suppliers to the 2009 Toyota Corolla

4.6 The integration model developed

The new integration model was developed from the

sources of raw materials (skins and hides) to the

output (result) of the production processes. This

model doesn’t include the detail integration of

market linkage and information business flows. The

market linkage model was prepared separately as

shown below in figure 10.

The integration of SMEs with large industries is not

only improved the ability of technology adoption

and innovation, but also enhances the international

competence on all aspects.

4.6 1 Conceptual model and hypothesis development In order to empirically test the interrelationships

between IT of SMEs, strategic purchasing, logistics

integration and business performance, a conceptual

model was developed premised on the reviewed

logistics and supply chain management literature.

Figure 8: conceptual research model

Figure 9: The supply chain integration model

developed

In doing so, the following improvements are being

specified by the case company:

The period of material delay in the

collectors will be reduced approximately

from more than three months to one month.

The management of material distribution will

be minimized by approximately from a week to

an hour.

The ratio of finalizing production on time will

be enhanced approximately from 55% to 80%.

The average time on payment operation for

materials will be shortened approximately from

number of days to two hours and below.

The integration will reduce errors occurrence

and operation time significantly.

The risk will be highly reduced as a result of

material delay and stocks are reduced.

The case company is able to obtain and

exchange real-time information right now.

There is no information gap between the case

company and SMEs. The integration model

was developed by considering conceptual

research model in figure 8 above.

The capital transaction and distribution will be

definitely strengthened, and the capital share

will be fair and justifiable.

The integration will increase collaboration

among customers, development supporters,

banks and suppliers; hence, building a closer

relationship among stakeholders.

At last but not the least, the integration will

enhance competitive advantage among SMEs

and the case company with global market.

These are the basic and major improvements that

would be achieved after implementation of the new

integration model developed so far.

4.7 Market linkage and information business model

The market linkage and information business model

was developed by considering the conceptual

integration platform and the supply chain integration

models into consideration. This market integration is

actually part of the integration system of the case

company and small business enterprises, and

expansion of it to the international customers

through the case company since already linked

internationally to access markets to the extent. As all

scholars agree upon many advantages of market

linkage, one best promising approach expected from

integrating SMEs with larger domestic enterprises

helps those SMEs involved in leather sector to

access international markets. The market linkage and

information business model enables small leather

business enterprises to accomplish the following

target advantages:

Upgrading their leather products that can fit

to the international market since competition

itself drives quality enhancement

(competitive advantage).

Exploit their maximum capacity to control all

advantages of the sector, and as a result

becoming large industries after awhile. This will

again facilitate the economic development of the

nation at large.

Experience and knowledge sharing from global

market at every stage is another benefit. Leather

industries from developed countries re-used

directly and/or after re-processing almost all

wastes generated from leather industries.

Especially, solid wastes (scraps) are applicable

for production of other leather and leather

garment products. No scrap is thrown away from

the leather industries rather than re-using for

many applications, profiles of leather industries

in those countries indicated. Why these

industries are applied principle of “no or

minimum waste can be tolerated” is because of

the introduction of “lean manufacturing system”

which is avoiding waste generation if possible,

otherwise minimizing to the maximum level.

This as it is, one of the wastes is scraps of

leather industries, and it has to be minimized by

re-using since generating of scraps is must.

Moreover, the other advantage of the market linkage

is to facilitate cooperatively working with whole

sellers and dealers abroad. Cooperation between

SMEs appears to be much easier when it involves

vertical value chain links than when it requires

cooperation between firms doing similar things, to

have a market share internationally. This is because

of the problems associated with SMEs which are as

a result of their size.

Figure 10: Market linkage and information business

model

Small scale leather goods manufacturers can sell

their products to the inland users and exporters

directly, or can access international markets with

large similar products manufacturers through

integrations /or market linkages. This market linkage

helps SMEs to get market share of the products

internationally, and strengthen their capacity as well

as competitiveness. The same scenario is applicable

to all manufacturing businesses which are small

scaled enterprises in developing countries.

4.8 Benefits from the integration

The integration between SMEs and large industries

producing the same /or similar products, enables

small scald manufactures more strong and visionary.

When the SMEs get strong, they will be competitive

in the global market and hence, they will bring

foreign currency for their country. Thus, the

government will be benefited with this regard. As

SMEs become more and more strong, and

competitive, their size becomes large. As a result,

they will be centre of researches. Moreover, more

job opportunity will be created for suppliers in

buying and selling processes. This is what everyone

insists to have in this world. This all benefits will be

accomplished with accompany of the following

partners:

Figure 11: Multi-sector partnerships for SME

development

The partners of SMEs proposed are also target

beneficiaries from the market linkage and

information integration developed so far. To realize

this fact, all partners should work close each other to

support SMEs. Moreover, the cooperation results

sustainable and consistent development of the

country. The failure of one partner may result poor

performance of small scaled enterprises, and the

country in general.

The benefits of the integration have many features

and directions as mentioned many time. The ultimate

advantage of it is its impact on the development of

developing country, like Ethiopia. The development

processes history of some successful countries like

Taiwan, South Korea and others, indicates that the

secret of their success is because they gave due

attention for development of SMEs. The attention

starts from preparing workable policy and

environment, in addition to providing all required

supports from all directions. This task is not some

body’s duty or responsibility; it is to alls. Moreover,

government should take the share of a line in this

case. The summary of benefits of integration by

SMEs involved in leather sector or sub-sectors with

large leather industries:

Figure 12: Summary of integration benefits

5 Conclusion and Recommendation

In this world, the competition of enterprises is

getting complex as time goes. The enterprises which

win the competition will stay in the market. Wining

the tough completion will not be gain by chance;

strong work is deserved. The strong work starts from

building highly competence SMEs which will grow

financially and technologically to large industries.

To accomplish this, these SMEs have to work close

to large industries. This fact is already realized by

successful nations.

So, the research was conducted on the way to

capacitate SMEs on leather sector by integrating

them with large leather industries, by considering

SMEs on leather sector in Tigray region with Sheba

Leather Industry.

To conduct this thesis data survey through

questionnaire, interview, self observation, reviewing

literatures and documents from the company has

been done. Then, the collected data has been

analyzed by using modeling and simulation

software, Arena 2010 and Microsoft Visio. After

conducting this urgent problem oriented research,

the following conclusions have been drawn:

SMEs have many problems, but majors are

financial limitations, absence of market for

their products and capacity limitations on

design, development and innovation of new

products. These problems were identified

during data surveying and analysis.

There is no formal cooperation among SMEs

and large industries, as well as among SMEs

themselves.

There is high amount of solid wastes (scraps)

generated at the case company. This high

amount of scraps is not re-used or re-processed

for different leather products. So, material

utilization is too poor.

A new integration model was developed which

encourages SMEs to convert the large amount of

scraps generated into valuable goods. References

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