Footwear Manufacturing
Footwear Manufacturing
Business Model Description
Investment in a business to customer (B2C) model for setting up footwear stores and outlets. Business to business (B2B) models for scaling up or establishing manufacturing units for the domestic and export markets using locally sourced products. Examples of companies active in this space are:
Atoms, a Pakistani e-commerce brand for footwear, raised USD 8.1 million in 2019. The company plans to use the funding to invest in further development of its shoes and to expand its retail and marketing presence. The company has been selling directly to consumers in the US via its website — which at one point had a waiting list of nearly 40,000 people. (9)
The footwear unit supplies brands including Inditex SA’s Zara, Levi Strauss & Co.’s Dockers and Reckitt Benckiser Group Plc’s Scholl. The business has an annual revenue of about USD 44 million and exports to European countries such as Germany, France and Italy. It has the capacity to produce 3.6 million pairs of shoes annually. (11)
Expected Impact
The IOA proposes a model that produces footwear using sustainable practices that address the negative outcomes of the footwear industry and provides a safe and gainful work environment for the workforce and businesses.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Pakistan: Punjab
- Pakistan: Sindh
- Pakistan: Khyber Pakhtunkhwa
Sector Classification
Consumer Goods
Development Needs
In Pakistan, since the COVID-19 pandemic, 7 million workers have been laid off in the textile and apparel sector due to low exports and the country’s prevailing economic crisis. In Faisalabad's cluster alone 1.3 million workers, half of whom are women, have lost jobs. (1) Overall, in the manufacturing sector, flood-related damages are USD 186 million, and losses are USD 3,527 million (2)
Policy priority
Pakistan Textile Policy for 2020-25 with four-tier strategy and 21 recommendations aims to increase country’s textile exports target by 2025 to USD 25.3 billion and to USD 50 billion by 2030. (3) Pakistan's current account deficit has reached to USD 17.6 Billion due to severe trade imbalances. Textile being the highest export needs value addition for getting better export value. (4)
Gender inequalities and marginalization issues
Most employers are biased against women employees, who are rarely offered permanent contracts. Women are also deprived off paid-maternity leave and functional day-care centers among other facilities. The working conditions, unfortunately, for women in the industry, are dismal; they work for low wages in labor intensive units, with fewer incentives and growth opportunities. (5)
Investment opportunities
Textile and Apparel is the largest industry of Pakistan and country is the 8th largest exporter of textile products in Asia. It is 4th largest producer and 3rd largest consumer of cotton. It comprises of 46 percent of the total manufacturing sector and provides employment to 40 percent of the total labor force. 5 percent of the total textile companies are listed. (6)
Key bottlenecks
The main challenges are energy crises, fluctuating yarn prices, shortage of gas supply and load shedding, law and order situation, devaluation of Pakistani currency, lack of research and development (R&D) institutions, lack of modern equipment and machinery and production cost. (3)
Apparel and Textiles
Development need
Footwear contributes less than one percent to Pakistan’s global exports. Despite this Pakistan is the seventh largest producer of footwear, manufacturing more than 2.0 percent of all footwear produced worldwide but it is also the seventh largest consumer which highlights the need of sustainable practices adoption to enhance sector's contribution (7)
Policy priority
Strategic Trade Policy Framework 2020-2025: The framework provides actions for enhancing the competitiveness of footwear sector, promotes integration into global value chains and trade facilitation for the exporters. It also provides the incentives and interventions for "developmental priority sectors" for export which includes that footwear. (7)
Gender inequalities and marginalization issues
In 2015, the footwear, luggage and handbag industry employed 173,000 men and 38,000 women (22 percent of employees of sector) (8) Furthermore, International Labour Organization has estimated that at 64.5 per cent, Pakistan’s textile, garment and footwear sector had one of the highest gender-pay gaps in the world (9)
Investment opportunities
To enhance the competitiveness and increase revenues of the sector. investment is required in establishment of a footwear hub and research centers through the establishment of footwear clusters along with collaborations with foreign companies and to promote export oriented FDI & Joint Ventures. (7)
Key bottlenecks
The main challenges are lack of skilled manpower, lack of complementary value-added industries, poor tannery effluent discharge management, and lack of certification to uphold quality and sustainability expectations. (10)
Apparel, Accessories and Footwear
Pipeline Opportunity
Footwear Manufacturing
Investment in a business to customer (B2C) model for setting up footwear stores and outlets. Business to business (B2B) models for scaling up or establishing manufacturing units for the domestic and export markets using locally sourced products. Examples of companies active in this space are:
Atoms, a Pakistani e-commerce brand for footwear, raised USD 8.1 million in 2019. The company plans to use the funding to invest in further development of its shoes and to expand its retail and marketing presence. The company has been selling directly to consumers in the US via its website — which at one point had a waiting list of nearly 40,000 people. (9)
The footwear unit supplies brands including Inditex SA’s Zara, Levi Strauss & Co.’s Dockers and Reckitt Benckiser Group Plc’s Scholl. The business has an annual revenue of about USD 44 million and exports to European countries such as Germany, France and Italy. It has the capacity to produce 3.6 million pairs of shoes annually. (11)
Business Case
Market Size and Environment
> USD 1 billion
5% - 10%
There are currently 175 footwear companies (both manufacturers as well as sellers).
Total Footwear Export from July 2021 to Mar 2022 is USD 1.17 billion as compared to Export from July 2020 to Mar 2021 was USD 99 million, a 17.9 percent increase. (12) The CAGR for footwear industry in Pakistan is 3.7 percent from 2015-2019 (13)
Indicative Return
> 25%
64 percent IRR as per Small and Medium Enterprise Development Authority's (SMEDA) prefeasibility study for outlet store and 85 percent for a sole and insole unit for shoe making. (14)(15)
In 2020, the country manufactured 483 million pairs of shoes, which reflects a global share of 2.4 percent. Pakistan 's destination exports are widely spread, a larger percentage of which is exported to Germany, UK, USA and China. (5)
Existing companies are improving the operation capacity, and new companies are being set up in the footwear industry, creating a positive outlook for the industry. Pakistan’s footwear industry is in a position to expand its exports to USD 1 billion by 2027. (16)
Investment Timeframe
Short Term (0–5 years)
SMEDA's estimates suggest that a period of 2.8 years is sufficient as payback period. The first year will be required for completing infrastructure development for the unit, stores and from second year the unit will start generating revenue. (14)(15)
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Capital - Limited Investor Interest
Business - Supply Chain Constraints
Market - High Level of Competition
Impact Case
Sustainable Development Need
Sustainability related challenges exist in footwear industry. Need is to ensure from shoe design to selling firms minimize negative environmental impacts, conserve energy and natural resources, adopt practices safe for employees, communities, and consumers to ensure exports to markets like EU. (18)
In order to produce globally accepted footwear products, it is important to ensure usage of environmentally preferred materials and to reduce toxic and chemical waste. (18)
Pakistan’s existing vocational and technical training ecosystem is not sufficient to meet the present and incoming labor force’s needs. There is a need to take initiative to design and develop training programs be it led by the government or by the private sector (7)
Gender & Marginalisation
In 2015, the footwear, luggage and handbag industry employed 173,000 men and 38,000 women (22 percent of employees of sector) (8) Furthermore, International Labour Organization has estimated that at 64.5 per cent, Pakistan’s textile, garment and footwear sector had one of the highest gender-pay gaps in the world (9)
Women are also deprived of paid maternity leave, functional day care centers among other facilities. It was also observed that career progression chances for women were higher in large textile units as compared to small and medium units. Training opportunities for women are very limited. (13)
Employers are biased against women employees, and they are rarely offered permanent contracts. They are also deprived of paid maternity leave, functional day care centers among other facilities. In a nutshell, there is need to broaden the job types; introduce fair paying systems for women (13)
Expected Development Outcome
From global experiences, there are several guidelines and frameworks to guide sustainability practices in the footwear industry for eco-conscious consumers. The footwear industry is mature and understands sustainability as a core subject in its sourcing of materials, to product, to stores.
With foreign investor and the unit set with the purpose of export; it is expected that water treatment plants, worker's conditions and atmosphere care will be taken. These steps will make leather industry more sustainable.
The need case and expected outcomes are pertinent in the case of footwear industry because after textile, leather, footwear has potential to reach USD 1 billion in export base in Pakistan. In order for such scale to be realized, adequate capital, capacity building support framed within sustainability practices need to be promoted. (16)
Gender & Marginalisation
Increase in participation of women in the industry labor force in diverse roles in addition to the traditional roles due to capacity building and training in sustainable practices.
Increase in incomes, better career progression, better contracts and better working and supportive environment for women.
Primary SDGs addressed
9.2.1 Manufacturing value added as a proportion of GDP and per capita
9.3.1 Proportion of small-scale industries in total industry value added
On SDGs indicator 9.2.1, manufacturing value added (MVA) as a proportion of GDP slightly reduced to 12.23 from 13.56 percent between 2015- 20 at the national level. Though MVA declined, manufacturing employment as a proportion of total employment remain unchanged. This proportion significantly decreased by 7 percent in Balochistan from 11 to 4 percent during 2015-19.
The proportion of small-scale industries in total industry value added increased to 10.50 percent in 2019-20 from 8.40 percent in 2014-15, despite the Overall negative effects of COVID-19 in 2019-20 (indicator 9.3.1). (19)(20)
The national vision 2025 and voluntary national review, strategic trade policy framework considers increase of value-added manufacturing important for Goal 9 but do not provide a specific quantifiable target.
The national vision 2025 and Strategic Trade Policy and Voluntary National Review consider increase in small scale industry proportion as an important metric of development but do not provide a specific quantifiable target.
12.4.2 (a) Hazardous waste generated per capita; and (b) proportion of hazardous waste treated, by type of treatment
In 2015, Pakistan was party to four international agreements on hazardous waste. From 2015 to 2020 on two agreements country' s performance was 100% while the performance decreased to 25 percent from 50 percent in Stokholm and improved in Rotterdam convention to 70percent from 64 percent. (21)
The target levels of compliance of four conventions on hazardous waste was set at 100 percent compliance. (Rotterdam, Stockholm, Montreal Protocol and Basel Convention) (21)
5.5.2 Proportion of women in managerial positions
The percentage of women in managerial positions has increased from 2.70 percent in 2014 to 4.53 percent in 2019. (21)
The National Vision 2025 by Government sets the target of increasing women labor force participation from 24to 45 percent by 2025 but does not give a specific target of increasing their presence in managerial positions.
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Corporates
Public sector
Outcome Risks
With the increase in demand, there is a risk of putting a pressure on the delivery of end product which could lead to producers by-passing the environmental safeguards to save costs.
Gender inequality and/or marginalization risk: On average, women earn less than men, are segregated in the lowest skill, lowest wage occupations (23)
Gender inequality and/or marginalization risk: Women are underrepresented in supervisory and management roles relative to their share in total employment in the sector (23)
Impact Risks
The impact risk is significant in this investment opportunity as all stakeholders may not be in line with the climate responsible, labor health supportive and worker wage sensitive agenda of within the leather industry.
Lack of employment opportunities, decent work for skilled and unskilled workers, employees, cotton pickers to organized facilities may continue if the investments do not account for and address such exclusions.
Gender inequality and/or marginalization risk: the sector poses risks in terms of poor working conditions and violations of labour rights that are well documented but if not addressed, they will persist. (24)
Impact Classification
What
The IOA impacts the footwear value chain in Pakistan as the raw material is sourced locally, sold locally as well as globally (for leather shoes)
Risk
The employees in the sector receive trainings including financial workshops. Lack of investments in show manufacturing can lead to less capacity building and empowerment especially for women
Contribution
Ministry of commerce expects increase in exports of USD 158-223 million by 2025 from footwear sector. (25)
Impact Thesis
The IOA proposes a model that produces footwear using sustainable practices that address the negative outcomes of the footwear industry and provides a safe and gainful work environment for the workforce and businesses.
Enabling Environment
Policy Environment
Strategic Trade Policy Framework 2020-2025: The framework provides actions for enhancing the competitiveness of sector, promotes integration into global value chains and trade facilitation for the exporters. (25)
The policy framework states the incentives and interventions for "developmental priority sectors" for export. Among others these sectors include footwear as a developmental sector. The export potential till 2025 is estimated to be between USD 158 million to USD 223 million. (25)
Financial Environment
Financial incentives: Refinance Scheme for Working Capital Financing by SBP (markup 6 percent), (29)
Fiscal incentives: Exemption of custom duty on plant and machinery used in manufacturing of goods. (29)
Other incentives: current support to the footwear industry by exempting custom duties on imports, enhancing duty drawback rates, decreasing regulatory duties. Incentives in case of special economic zone will also apply if that is choice of investor. (30)
Regulatory Environment
National Environment Quality Standards related to municipal and industrial effluents SRO no 742 (1)/93 & S.R.O. 1023 (I)/95 and all provincial environment protection acts. (27)
Companies Ordinance 1984, Punjab Essential Articles (Control) Act, 1973 Punjab Industrial Development Board Act, 1973 Punjab Small Industries Corporation Act, 1973, Punjab Industries Ordinance 1963 (28)
Marketplace Participants
Private Sector
Outlet and brands for footwear local as well as international like Hub, Hobo, Stylo, ECS, Aldo and Charles and Keith, Nike, Addidas and Reebok.
Government
Ministry of Commerce, Ministry of Industries, Provincial Commerce, Industries and Environment Departments.
Multilaterals
International Labor Organization.
Non-Profit
Pakistan Footwear Manufacturers Association (PFMA) in collaboration with Pakistan Tanners Association (PTA), Pakistan Gloves Manufacturers and Exporters Association (PGMEA) and with the support of Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA).
Target Locations
Pakistan: Punjab
Pakistan: Sindh
Pakistan: Khyber Pakhtunkhwa
References
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