Small Business Management

IMMG - 32082

Euroleather Lanka (Pvt) Ltd

B.Sc. in and Information Technology 2006/2007

Department of Industrial Management

Faculty of Science

University of Kelaniya

2 | P a g e

Table of Contents Introduction to the Industry .................................................................................................................... 3

Sri Lanka Footwear & Leather Industry .............................................................................................. 3

Industry Analysis ................................................................................................................................. 5

Profile of the Client .................................................................................................................................. 6

Characteristics of the Entrepreneur ........................................................................................................ 8

Marketing Strategies of Euroleather (Pvt.) Ltd. .................................................................................... 11

Early days .......................................................................................................................................... 11

Present .............................................................................................................................................. 12

Future ................................................................................................................................................ 12

Competitive Environment of the business ............................................................................................. 13

Work Life Balance ................................................................................................................................. 16

Quality awards ...................................................................................................................................... 17

3 | P a g e

Introduction to the Industry

Sri Lanka Footwear & Leather Industry

Footwear

The footwear industry in Sri Lanka includes 10 large export companies, 30 medium

companies & about 3000 small scale manufactures. The total production capacity is expected

to, in the range of 20-30 Mn pairs per year. Sri Lanka produces wide range of modern shoes

such as gents & ladies fashion shoes, rubber boots, beach slippers, safety shoes, sports and

canvas shoes etc. One of the key advantages enjoyed by the footwear industry is the local

availability of high quality natural rubber plus sole crape. Sri Lankan footwear exporters have

already established themselves as suppliers of fashion footwear to well known international

brands, like Mark & Spencer, Bata France, H.H.Browns, Clarks, Aerosols, Nike etc.

Leather & Leather Products

Sri Lankan leather industry consists generally of three manufacturing activities, manufacturer

of leather, leather goods & leather footwear. Sri Lanka producers high superiority leather

goods in the range of leather gloves, travel bags, back packs, ladies handbags, jackets and

tiny leather goods and caters to the high end of the niche

markets in the global market. Sri Lanka leather products

manufacturers have also catering to well-known brands

such as Play Boy Laurel, Helen, Kaminski etc.

4 | P a g e

Current Situation

Sri Lankan Footwear industry has survived for a long period of time and this industry has

profitably catered the local market till the early 90‟s, but in the recent past, this industry has

been badly affected by dumping of footwear products from East Asian countries, especially

from China. Another reason for this is lack of proper planning. It is believed that the local

footwear industry is capable of even exploring an international market. It might have a huge

potential especially in the western countries as fashion oriented designer-wear, but this

industry has not acquired enough attention of the relevant parties. It should be noted that the

involvement of engineering know-how in the footwear industry is minimal. Although, there is

some small engineering involvement, the technology transfer to the footwear industry is

small compared with the global arena. No proper research has been carried out focusing on

the problems related to the footwear industry in recent years in Sri Lanka. The present

situation with respect to the footwear industry has not been systematically evaluated by any

organization or individual. Finally, most of the footwear manufacturing firms are carrying out

their businesses in isolation, thinking that this expertise is unique to individual businesses.

Therefore, there is a necessity for comprehensive research, which is highly demanded by the

industry and, that would be beneficial to all stakeholders of this industry at great.

5 | P a g e

Industry Analysis

Initially, a comprehensive analysis of the data elicited was a SWOT analysis to investigate

the present status of the footwear industry in general and pros and cons of the industry were

identified according to PEST considerations. A comparison between the Sri Lankan footwear

industry and other countries where the footwear industry is advanced was done with respect

to the footwear industry.

Strengths Weaknesses

1. Trainability of Labour

2. Supportive Industries

3. Quality Manufacturing

4. Ethical Manufacturing

5. Geographical Location

6. Machinery Industry

1. Standard Techniques Usage

2. Product Development

3. Customer Satisfaction

4. Training Facilities

5. Testing Facilities

6. Dependency of Institutions

7. Financial Assistance

8. Attitude

9. Technical Knowledge

Opportunities Threats

1. Potential in Export market

2. Quality Consciousness

3. Potential of Leather Availability

1. Imported footwear

2. Environmental Regulation

3. Religious Views

4. Laws & Regulations

5. Reliance on Imported Accessories

6. Power Tariffs

6 | P a g e

Profile of the Client

Leather industry is not a new field for Mr. Nimal Samarakkody because he is running third

generation of their family business. His grandfather was the first to start manufacturing these

leather products. Then generation by generation it was gradually developed to the current

stage. Though Samarakkody family has enough experience in leather products, shoe

manufacturing was an untouched area until Mr.Nimal Samarakkody gets the control. Since

there was an untapped demand in the market he made his mind to start a leather shoe

manufacturing company and named it as „Euroleather Lanka‟.

Euroleather Lanka (Pvt) Ltd was registered in 2008 as a limited liability company and it

comes under the same „Sapco Group‟ umbrella as a new arm. When we asked „What driven

you to enter into this shoe industry?‟ his answer was that he could find direct customers from

UK and government incentives for the export market such as reductions of tariffs, encouraged

him to touch this market.

Mr. Nimal Samarakkody initially put 16 million as his fixed capital for the company and then

he went for a 10 million bank loan to pump money into its working capital. That 16 million

he invested on buying new machinery and other technological components. These were

bought from leading shoe manufacturing countries such as Italy, China and India. He started

his business with 12 employees who had no experience at all in the shoe production industry.

In leather shoe production they identified three key processes as Cutting, Sewing and

Assembly & Finishing. In the very first year he hired 3 Indian technicians for each process

who are specialized in those areas and also one British consultant for guidance in the overall

business. All of them were hired on contract basis for one year period, to support the business

because neither Mr. Nimal nor his employees had hands on experience in this shoe industry.

Key Processes

Cutting Sewing Assembly

& Finishing

7 | P a g e

Euroleather Lanka‟s first market was the UK. They directly export their finish goods because

they had reliable customers there. But unfortunately during the economic crisis in 2009 their

demand dropped drastically. Finally Euroleather Lanka stopped importing shoes to the UK.

This was a critical time period for Mr. Nimal Samarakkody because he lost his major

customers. It forced them to stop production.

But Mr. Samarakkody did not give up his fight. He conducted a market analysis and found

out few local buyers. There after he totally gave up the export market and started producing

leather shoes for the local market. Gradually he could develop his market base and now he is

operating at profit without any difficulties. Currently Euroleather Lanka markets its products

through,

1. Area Sales Officers

2. Retail Shops

3. Manufacture shoes for Private labels

8 | P a g e

Characteristics of the Entrepreneur

“All cannot be entrepreneurs”

In general people who are taking the risk and start own business known as entrepreneurs, but

there is no universally accepted entrepreneur character profile and it differ from country to

country based on gender, culture, religion, geography and genetics. Among the people who

have the potential to be entrepreneurs become success. Risk takers, family inheritors, long

rangers, survival artists defined as people who have the potential.

Characteristics of the successful entrepreneurs are defined by different people who had

different perspectives.

Dranken (1985) – “Entrepreneur as an opportunity maxi miser”

As we perceived in the success story of Mr. Nimal Samarakkody is a good example for an

opportunity maximizer. With the gap created at the footwear export market (2006/2007) in

the Sri Lanka he started his own footwear manufacturing company within short time period

with all capabilities. As he said he realized that Sri Lankan government has giving various

kinds of incentives and supports to the leather industry. So he took it as great opportunity and

also hired world class consultants to cater the international market more successfully.

With the world economic crisis (2008) the footwear export industry got decline because of all

of the buyers of Euro leather (pvt) Ltd were from the Europe. Then he did a structural change

to the business and started to cater local market rather than export market. He saw it as a

great opportunity and deliver international standard quality footwear to the local customer.

As a result of that the Euro leather (Pvt) Ltd able to gain their market share within short time

period.

Yee, (1991) – “Entrepreneur as a risk taker”

As an entrepreneur able to take a risk, which not means take a risk blindly. The visions they

are keep help to take a risk and become success. Build up a business to meet the requirements

of gap created at the Sri Lankan footwear export market was a kind of risk. In other words

international market is a buyers‟ market which there prices determine by the buyers. Find a

suitable price offers, reliable buyers are major challengers of the export market.

9 | P a g e

As he said India, Pakistan has strong export footwear industry than Sri Lanka. When he

enters in to the market he analyzed the industry and the requirements of the manufacturing

which drive him to invest 16 million rupees from his own. That was relatively very high

investment for a new business and which increase the risk has to take higher.

When change the business process also he took the risk to compete with local market leaders.

After established the business in the local market he try to be a trend setter rather than

follower. That also kind of risk which couldn‟t say the society will accept or reject.

Relatively low resources compare to the market leaders also become a threat at this point.

Silver, (1983) - “Entrepreneur as a Person with a vision and mission”

In 2008 he started the business with a great vision which was become a largest natural

leather footwear exporter of the Asian region someday. In order to achieve the vision he took

strategically important steps from the beginning. For a new business capability improvement

is highly required. So he hired well trained foreign workers to start the process and

simultaneously train the local workers. And also to identify the technology requirement he

took the consultancies from a British person for one year contract basis. These show how he

acts from the beginning of the business to achieve his vision someday.

With world economic crisis he had to change his mission to survive in the industry but didn‟t

change his vision until now.

As he said he planned to outsource their some business processes to foreign people who have

the competence to increase the international quality of the product. And also go into a joint

venture with a large Indian footwear company in near future.

Anita Roddick - "I want to define success by redefining it. For me it isn't that solely mythical

definition - glamour, allure, power of wealth, and the privilege from care. Any definition of

success should be personal because it's so transitory. It's about shaping my own destiny. …

Entrepreneurs have this real belief that their lives are about services and leadership."

Leadership for the entrepreneur is not about status but about function. Imbibing a healthy self

esteem, they have little need for status. They are not motivated by external acknowledgement

but by achieving their own internal measures of success and achievement. At the very core of

entrepreneurial leadership is problem solving and decision making. If there is a problem or if

there is a decision to be made Mr. Samarakkodys‟ does not reluctant to take care of those.

10 | P a g e

He has sound knowledge on business management which greatly support to decision making

process. And also he has fair knowledge on economic situation and the leather industry as

well. Empowering employees and recruit right people in right place at right time also

showing his managerial skills. He recruits people if he feels his knowledge is not enough to

do the better job.

Mr. Samarakkody know how to add value by making a product better and getting a target

market to demonstrate their appreciation of it by parting with their money. As he said he feels

that his core competency is to find new ways to solve problems and to come up with clever,

workable solutions. That innovative thinking pattern also make him successful entrepreneur

in today‟s world.

11 | P a g e

Marketing Strategies of Euroleather (Pvt.)

Ltd.

Although Euroleather Lanka (Pvt.) Ltd. was started by a small entrepreneur as one of the

arms in their family business it had a clear strategic vision to meet both industry challenges

and opportunities. So marketing strategies adopted by Euroleather Lanka (Pvt.) Ltd. at

different paces of their life cycle can be classified as follows.

Early days

Euroleather Lanka (Pvt.) Ltd. was started in 2008 to meet an untapped demand (1 Billion per

year) for Gents shoes in the European market. Till then their core business was other leather

products such as handbags, wallets etc. but with the sudden market opportunity and other

incentives provided by the government Mr. Nimal Samarakkody diversified his family

business into a new market. He started exporting Gents Shoes which was out of his product

line to popular brands in the UK. His target market was the B2B customers in the Europe.

Although this was part of his family business (SAPCO Group) Mr. Samarakkody branded

this with a separate name called “Euro”. He wanted to make the brand closer to the new

market (Europe) with a familiar brand name. Starting from the beginning Mr. Samarakkody

understood that the European market highly value the product quality than the price. So he

acquired the right technology and expertise in the three main areas of Leather clicking,

Sewing and Assembly to make sure the quality level of his shoes conforms to the European

standards. He also imported natural leather from Italy for this purpose. The prices of his

products were kept high in order to communicate the quality level and recover the huge

capital he has invested on the business. In this manner he positioned his product as a

premium brand in the mind map of his customer.

12 | P a g e

Present

During the last year (2009) the whole world faced a massive economic recession which made

several giant industry players close down. Mr. Samarakkody too came across a turning point

in his business during this time. Due to the recession most of the UK suppliers stopped

placing their orders with Euro. Although it was a huge blow on the business Mr.

Samarakkody was strong enough to face it. He changed his market strategy and entered into

the local market. By this time he has recovered better part of his investments made on the

Gents shoe business.

Today he targets both B2B and B2C customers. He currently manufactures gent‟s shoes with

his own label to cater the B2C customers and private labels to cater the B2B customers. Since

brand Euro is alien to the Sri Lankan consumer, his products are now branded as SAP taking

advantage of his family heritage. It is now positioned as a bargain brand in order to penetrate

into the Sri Lankan market. He continues the existing quality of the product to attract

customers. While most of his competitors (Ex: Bata) use synthetic leather, he uses natural

leather since the general perception is in favor of natural leather. By today stitching operation

is outsourced to a Sri Lankan supplier while finishing and assembly (Most of the value

additions which create their competitive advantage lies here.) is still done by them.

Future

Looking ahead Mr. Samarakkody wants to continue the existing brand positioning but he has

plans to enter into the overseas market again through a joint venture with an Indian company.

He also wants to expand Sri Lankan distribution network with an intensive distribution

strategy. Mr. Samarakkody also wants to enter into Sri Lankan Lady‟s footwear market. One

of the main competitors in this market segment is Bankok. Most of the customers are

attracted to trendy designs of these imported shoes. (Especially the Bankok designs)

Therefore Mr. Samarakkody is planning to outsource the designing operation to a skillful

supplier who can match the Bankok standards in Lady‟s footwear.

13 | P a g e

Competitive Environment of the business

Footwear industry in Sri Lanka has survived for a long period of time and this industry has

successfully catered the local market till the early 90‟s, but in the recent past, this industry

has been seriously affected by dumping of footwear products from East Asian countries,

especially from China. Another reason for this is lack of proper planning. It is believed that

the local footwear industry is capable of even exploring an international market. It might

have a huge potential especially in the western countries as fashion oriented designer-wear,

but this industry has not acquired enough attention of the relevant parties. It should be noted

that the involvement of engineering know-how in the footwear industry is minimal.

Although, there is some minute engineering involvement, the technology transfer to the

footwear industry is negligible compared with the global arena.

Following are some of the major threats that Euro Leather (PVT) Ltd faces as a SME in Sri

Lanka.

1. Sri Lankan footwear manufacturers are lagging behind in application of standard

techniques for maintenance, quality control, process planning and testing etc. because

of the competition of prices. Even the large scale manufacturers in the local context

have not implemented these procedures. Considering global trends, effective

maintenance procedures such as TPM (Total Productive Maintenance) and quality

procedures such as TQM (Total Quality Management) are common.

2. Product development in footwear industry is virtually nonexistent compared to the

international footwear companies. SME sector cannot focus much on this aspect

because of financial constraints. Even though, product development is important for

continuous improvement, even the large scale manufacturers are reluctant to focus on

product development.

3. Local manufacturers are not interested in getting feedback from the customers for

products they put into the market. The communication between the marketing and

production departments is poor. This may lead to failure in identifying customer

preferences. Hence, local footwear has not been able to achieve customer satisfaction.

14 | P a g e

As a consequence, local customers have gradually accepted imported footwear. Also,

a lot of designs have failed to achieve the target marketing bench marks.

4. The facilities for training in the footwear industry are minimal. This is because of lack

of training institutions. There is only one training centre, which is under the IDB. Due

to lack of facilities and awareness on available resources, the number of participants

for the offered training courses is low.

5. In order to get the best output from the production process, the raw material should be

good in quality. Due to lack of laboratory facilities for footwear industry, especially

for raw material testing, quality testing and for research and development, Sri Lankan

manufacturers find it difficult to keep up with the global quality standards.

6. Institutions that are established for the development of footwear industry are not

independent. Legal, institutional and financial barriers are encountered when carrying

out activities for the betterment of the industry. There are stringent government rules

and regulations that have to be followed most of the time delaying development

projects. Sometimes these even result in abandonment of such projects.

7. Financial institutions are not flexible enough to assist the local industries to find

necessary finances to initiate businesses or to expand. The interest rates and the bank

guarantees are beyond the reach of the local manufacturer. The SME sector finds it

difficult to keep up with the ever improving technology because of lack of financial

assistance from banks even if they are capable of using the technology.

8. Sri Lankan footwear industry suffers from negative attitude of the public towards

locally manufactured products. Machinery manufacturers also face this problem. Even

though level of quality is matched with international standards, the local customers

reject these products because it is under “Made in Sri Lanka” label.

9. Technological knowledge present in the footwear industry is minimal in the local

footwear industry. It has made this industry backward that uses primitive machinery

and production techniques.

15 | P a g e

10. Dumping of low priced footwear from countries such as China, Thailand, Vietnam

and Hong Kong has severely affected the local footwear industry. Their production

costs are much lower than that of the Sri Lankan industry due to the usage of latest

technology and economies of scale.

11. Environmental regulations have been barriers for the development of this industry.

Tanning process is associated with environmental impact and the Sri Lankan

environmental regulations are unfavorable for the development of the leather industry.

12. Sri Lanka is a country with a majority of Buddhists. Therefore, religious reasoning

has affected the raw material processing industry especially the tanning and related

processes.

13. Governmental laws and regulations are unfavorable for the local enterprises most of

the time. The taxes imposed on the local manufacturers are unbearable for the SME

sector. For the well being of the industry, the manufacturers should be guided and

assisted more by the government.

14. At present, Sri Lanka is facing a huge power crisis. All the industries suffer from high

overheads from the increasing tariffs of the national power supply. Footwear industry

is no exception. It also has to add this high overhead to the production cost. This

factor has a considerable influence on large scale manufactures.

16 | P a g e

Work Life Balance

Mr. Samarakkody is a father of three. So he has a lot of responsibilities in the office as well

as at home. As a group chairman he is really busy with all the entities of the group. When we

ask about how he balances both business and his family together he said, “I never take my

work home. When I come to the office I am the CEO, when I am at home, I concern only

about my family”.

His eldest son now works with Mr. Samarakkody as a senior executive. Daughter is following

CIMA and the youngest son is still schooling. His wife is giving him a great support by

managing all the work at home and reduces his pressure by solving children‟s problems,

household issues within her scope.

Mr. Samarakkody is making his elder son as a shadow to his position in the future. Now he is

sharing his knowledge and experiences he gained and observed from his parents. Since it is a

family business he has to give all the contacts and networking environment he has developed

up to now and give his son enough confidence to stand on his own feet in the future.

Left corner gentleman is Mr. Nimal Samarakkody

17 | P a g e

Pattern area and perimeter information Material Usage

calculation

Quality awards

Euroleather Lanka initially started its business targeting the export market. After the

economic crisis they lost the foreign market. While they are in the foreign export market they

could win a quality award from Footwear Design & Development Institute (FDDI) – India.

This award has given for the overall quality of its shoes. The institute has six well designed

campuses at Noida, Fusatganj, Chennai, Kolkata, Rohtak & Chindwara around India. They

measure following qualities,

Footwear designing

Pattern engineering

Prototype development

Pattern grading and cutting sets of graded patterns

After they move to Sri Lankan market they still could not won a quality award but they are

following ISO quality standards and hoping to achieve those quality awards in the future.