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Shoe production must have been amongst the earliest industries established in Rhodesia, but large-scale factory production only took off after the Second World War. As cattle breeding has always been important, the availability of leather stimulated the development of the industry. The other major raw materials are canvas, which is locally produced, together with imported rubber and more recently plastic.
Hide production is dominated by the parastatal Cold Storage Commission (CSC), although in recent years private abattoirs have become increasingly important as a source of hides. At the next stage of leather production there are six tanneries, the four main ones being owned by three shoe manufacturers: Bata, Superior and G&D Shoes. These three vertically integrated enterprises, with combined employment of about 5 500, thus dominate the sub-sector. There are also four medium-size shoe manufacturers with about 250 workers each, five small but mechanized shoe manufacturers with about 50 workers each and a large number of artisan enterprises, mainly involved in repair but also in the manufacture of shoes (Mead and Kunjeku, 1992, p. 21).
The demand for shoes in Zimbabwe would appear to be in excess of one pair per person per annum, although the actual consumption is highly dependent on economic conditions. This year, with the combined effects of the drought and the downturn induced by structural adjustments, domestic demand has dropped precipitously except for the high end of the market. In that segment, there is a remarkable range of locally made shoes on offer, as diverse a choice of styles as is available in many industrialized countries. Bata alone is presently making 3 00(}4 000 styles in a country with a population of only 10.4 million.
Since the initiation of trade liberalization, a significant proportion of raw materials needed in the shoe industry, such as chemicals, has been put onto OGIL. This has considerably eased input supply problems. Domestic input supply has also improved in some respects. Competitive imports of finished shoes will only be allowed in the closing phases of the liberalization process. It is local production of cheaper footwear, such as plastic and canvas shoes, which will be most under threat from imports from the Far East, especially China. Manufacturers of high-fashion leather footwear believe that, if they use the intervening years to improve productivity, they will be able to compete with comparable imports with little or no tariff protection.
History of firms in the sample
Origins, ownership and structure
The three main firms studied have very different origins and resulting structures. The Zimbabwe Bata Shoe Company (henceforward referred to as Bata) is a wholly owned subsidiary of Bata International, based in Canada. Despite its vast size (Bata has a presence in over a hundred countries), the Bata empire is still in some ways run along the lines of a family business, with one of the Bata family visiting Bata in Zimbabwe at least once a year. In other ways, it is a sophisticated modern multinational. with considerable autonomy being given to local management in order to provide the requisite motivation and setting to maximize creativity and productivity.
In Zimbabwe, Bata consists of a vertically integrated leather and shoe manufacturing concern, together with the largest chain of wholesale and retail shoe outlets in the country. Zimbabwe Bata is the third largest Bata subsidiary internationally. The production side consists of three units on the same site as the head office in Gweru (tannery, canvas and rubber, leather shoes), a sports shoe factory in Kwekwe (manufacturing, inter alia Adidas shoes under licence) and a plastic shoe factory in Mutare.
Superior Footwear was started in 1967 by da Costa, an immigrant from Portugal. It is now part of a group of companies with specialized functions, including a leather tannery (Imponente Tanning), shoe component manufacturers and an engineering workshop for machinery construction and maintenance. The group is controlled by the da Costa family through Superior Footwear Holdings, which was registered in 1991. In addition to members of the family making decisions at board level, key management positions are held by them.
Cathula Sandals is a more recent company, formed in the 1970s by Mr Mpofu, at a time under the UDI government when it was difficult for blacks to go into business. Starting from hawking leather goods after hours while still in full-time employment, Mr Mpofu moved through successive stages: setting up of a production unit in his home, opening a retail outlet in town, expansion of the production unit into successively larger hired premises, opening further retail outlets, building a retail outlet and finally building a factory. At the time of the interview, the construction of the new factory was stalled at window height, due to financing difficulties. To carry out the building, Mr Mpofu had started a construction company, and in order to overcome difficulties in obtaining imported raw materials, he had also set up a buckle manufacturing concern. Besides marketing through their own outlets, Cathula also sells to large chains, including Bata.
As Table 7.3 shows, the three companies are of very different sizes and capacities. The figures are not directly comparable, because the product ranges are very different. The majority of Bata's large output consists of canvas, plastic and rubber shoes, with only a relatively small proportion of leather and fashion footwear. By contrast, Superior concentrates only on the upper end of the market for high-quality leather shoes. Cathula only manufactures sandals, which are much less demanding from a production viewpoint than shoes. Superior and Cathula are in the process of establishing new factories; planned capacities for these are given as well as current capacities.
Shorter interviews were held with officials of two other companies: Footwear and Rubber in Bulawayo and Italian Styles in Harare. Both of these companies have been hit by the decline in domestic demand. Footwear and Rubber has laid off 160 workers and has reduced production from 2 000 to 600 pairs per day; Italian Styles is working a 3-day week, producing 150 pairs per day. This contrasts with Bata, which has managed to avoid any lay-offs or short-time operations, in no small measure because of its ability to export, in particular to increase its exports to South Africa rapidly to make up for the shortfall in domestic demand. Prior to independence Footwear and Rubber used to be a major exporter of footwear to the region, before UDI maintaining a branch office in Lusaka; exports now are mainly to South Africa, with about 16 per cent of normal production going to this market.
Table 7.3 Employment and production capacity of sample firms
|L Bata||1 650||3500||50000|
Source: Company interviews
Within the sample, Bata is the main company exporting footwear. Superior has exported shoes in the past but these have mainly been small, sporadic consignments. Cathula has been approached by potential customers from the region but is yet to export.
Internationally, Bata's main objective is to provide affordable footwear for the people of the countries in which it operates, so that exports are secondary. In Zimbabwe's case, apart from exports to South Africa under the bilateral trade agreement, there was little scope for exports during the UDI period. Since independence, Bata has responded to downturns in domestic demand, and to the growing array of export incentives, by attempting to break into new export markets. These efforts have not always been successful: mistakes were made in exports to France and Italy a few years back, resulting in the loss of those markets. The lessons from this experience are being applied to the European markets presently being developed (principally the UK).
With the advent of the ERS and the present downturn in the domestic market, production for export is being given priority. As a result, the domestic market tends to suffer shortages of particular styles and sizes but one of the advantages of being vertically integrated and dominant in the domestic market is that Bata retail outlets and the ordinary Zimbabwean customer have to put up with this. At present, Bata exports approximately 20 per cent of its production (10 000 pairs per day or about 3 million pairs per annum). Export value has grown rapidly in recent years (partly as a result of devaluation) to about Z$30 million (US$6 million) in 1992 and was expected to reach Z$40 million (US$8 million) in 1994.
Bata's main export markets are in South Africa (60 per cent of total exports), Botswana (10-15 per cent) and the UK (10 per cent), with the balance being spread over a variety of countries. These include Namibia, Angola, Zambia, Malawi, Tanzania, Burundi, Ghana and Uganda in Africa, and Australia, New Zealand, the US, Ireland, France and Italy elsewhere in the world. In African countries, exports are generally made either to agents or to other subsidiaries of Bata. In the UK, exports are made directly to suppliers of large retail chains.
During the 1980s Superior became a major exporter of leather, the approach adopted being to start at the lowest level (wet blue) and, working with established customers abroad, to add value progressively by exporting product that has been through further stages of production (to crust and then to finished leather). Shoe manufacture is seen as the final stage in this process and, in order to make the sort of concerted effort that is required for the successful export of footwear, a new factory has been built and is presently being commissioned. Superior plans shortly to expand its footwear exports significantly, starting with exporting shoe uppers and moving into the export of finished shoes. Ultimately footwear exports will be a major component of the company's activities.
The reasons for Cathula not exporting, despite enquiries about its products from potential customers in Africa (Nigeria, Kenya, Swaziland, South Africa and Botswana), are significant. Cathula would have liked to respond but did not have the foreign currency needed to purchase the imported inputs which would have been required. The company was unaware until very recently of the existence of the ERF, which was specifically set up to overcome this problem. Cathula did spend some time lobbying the Ministry of Industry and Commerce for an increased foreign exchange allocation but was not during that period informed by Ministry officials of the existence of the ERF. The lobbying was successful, so much so that in the present period of poor liquidity, the company is unable to access all of its foreign currency allocation because it is unable to put up the corresponding amount in Zimbabwe dollars.
The record of Cathula has some clear lessons for support agencies set up to assist companies to become established and to export. These would include the Indigenous Business Development Centre and Zimtrade, both of which have been alerted to the experience documented in this study.
External factors affecting export growth
Ability to mobilize export finance
Provided that companies are well run, size has numerous advantages when it comes to competing in export markets. One obvious aspect is the ability to mobilize export finance. A company such as Bata can more readily raise export finance from banks than less well-established concerns, or can simply absorb the costs of foreign market development, including having to wait for payments for goods exported.
While neither Bata nor Superior specifically complained of lack of finance as a constraint to expanding exports, both companies are experiencing some difficulties with the tight monetary conditions currently prevailing. Cathula, however, has over-extended itself in constructing a new factory, to the extent that money borrowed for working capital has been used, to the bank's displeasure, for fixed capital purposes. With the rise in interest rates, Cathula is now unable to do more than make the required monthly repayments. As the bank has refused to make further loans so that the new factory can be completed and used, the future is gloomy. As the company is unable to make full use of its existing foreign exchange allocations and is not significantly constrained on the domestic market, and since margins on exports would be unlikely to be as high as domestic ones, Cathula does not see any reason to pursue export markets actively.
Raw material problems
In the past, the availability and price of imported raw materials have been problems. In recent months, however, many of the required inputs have been put under OGIL, allowing currency allocations to be used for the remainder, topped up, if necessary, by ERS
allocations earned from exporting, or from buying surplus ERS from others at a premium. While availability has improved through these mechanisms' prices have also gone up markedly, partly through the sharp devaluation of 1991 and partly through new taxes which have been introduced to curb imports and raise revenues; these include a 20 per cent duty on all goods brought into Zimbabwe on OGIL.
The quality and reliability of supply of domestic raw materials remains problematic. This applies particularly to leather, where the following underlying causes can be noted:
lack of care of hides by cattle owners, the premium system introduced by the CSC of Z$10 per hide being insufficient to change practices such as branding in the rump rather than the neck and not protecting the animals from damage on barbed wire fencing.
deterioration in the services and supervision in government departments such as veterinary services and parastatals such as the CSC
additional deterioration in the current year due to drought stress on the animals.
the large-scale production orientation of the country's tanneries' which are not geared to produce the quality that is needed to make shoes for export to sophisticated markets.
In the past, smaller consumers of leather felt that too much leather was being exported, in particular the better-quality leather. There was some justification for this assertion, as the workings of the exchange control regulations at the time made it imperative for the CSC to export untreated hides and for the tanneries to export treated hides and finished leather, even when there was a shortage of leather on the local market. This situation was clearly irrational from a national economic viewpoint and one of the benefits of trade liberalization will be to eliminate such anomalies. With 70 per cent of the imported inputs to the tanning industry now on OGIL, and new equipment installed to bring capacity in the later stages of tanning into line with the capacity to produce wet blue hide, the situation should improve markedly.
For the small shoe manufacturer, problems with leather availability and quality are compounded by the fact that the three tanning groups are also vertically integrated with major shoe companies: Bata, G&D Shoes and Superior Footwear. The tanners counter that their own shoe factories suffer the same problems that outside shoe companies do in securing regular supplies of high-quality leather.
This may in general be true but it is none the less the case that when a special order of leather is required to meet an export contract' the vertically integrated enterprise is in a much better position to put pressure on the tannery to produce the quality and colour of leather required in time. A particular example was cited in the interviews: a European client had approached both Superior Footwear and Italian Styles but only Superior was able to respond, as Italian Styles found itself unable to obtain the requisite colour leather from its normal supplier, Imponente, the tannery belonging to the Superior Footwear Group. There is no suggestion that Superior had tried to sabotage Italian Style's efforts but simply that Imponente was not geared to provide what was required in this particular case.
Italian Styles sees the availability of leather as the primary constraint in pursuing export markets. Since it cannot guarantee the quality of leather which may be available, the company feels it should not accept export orders. The present situation is that some consignments of leather are first rate but others are 'shocking'; reliability is essential if companies are to succeed in exporting high-quality (high-value added) footwear. The solution may eventually lie in placing leather on OGIL (hides have already been put on OGIL but not finished leather). In the meantime, some of the second-tier shoe manufacturers are looking to small, independent tanneries to produce the quality of finished leather needed to meet export orders for shoes.
Once finished leather is on OGIL, shoe manufacturers will be able to choose between locally produced and imported leather. This will force local producers to be more competitive in quality and service, with price determined by the world price plus duties on imports. Shoe manufacturers should not then have grounds to complain of discrimination and inability to produce the highest-quality goods for export due to shortages of leather. For the exporter, able to claim duty rebates, the price should also be close to the price faced by competitors in other countries. Already, with the possibility of using ERS funds for importation, some of the shoes being made for export are using imported leather, although Zimbabwe itself is a significant producer and exporter of leather.
As mentioned on p. 149, deterioration in the quality of infra-structural services and failures to expand supplies fast enough to cater for demand are beginning to impact directly on productive activities. Besides the problems now common in Zimbabwe of making contact with suppliers and customers by telephone or other forms of telecommunication and of obtaining reasonable transport services, and the challenge of managing production within the monthly quota of electricity allocated by the supply utility ZESA, there are specific problems encountered by companies in the sample.
Specific instances of the general problems cited in the interviews will illustrate their importance. For example, the new factory being built by Superior has had to contend with considerable problems with respect to electricity and telephones. In order to obtain an electricity connection, the company itself had to purchase the equipment that ZESA would normally be expected to supply. As far as telephones are concerned, the PTC has not allocated any lines to a factory which will employ over 200 people, producing for export as well as the domestic market. Requests to have lines transferred from the old factory 4.5 km away have been turned down. It is hard to accept that the technical difficulties cited would be insurmountable if the PTC (Post and Telecommunications Corporation) were to adopt a more constructive and determined posture.
Superior is also considering the purchase of stand-by electricity generators to obviate the risk of an unscheduled power cut resulting in an entire consignment of hides and tanning chemicals having to be destroyed. With nine tanning drums operating simultaneously in the tannery, the risk is substantial. A single such incident would justify the purchase of the stand-by equipment (approximately Z$1 million). The company is reluctant, however, arguing that the country surely should have higher priorities for the expenditure of foreign currency, not least being the need to allocate sufficient quantities of foreign currency to ZESA for effective maintenance to reduce the risk of unscheduled load shedding or blackouts.
Bureaucratic and policy obstacles
While welcoming improvements as imported inputs go onto OGIL, the companies continued to identify bureaucratic and policy issues as major problems inhibiting export growth. Again, the problems being faced, whether on-going or related to the 1992 drought-distorted economic climate, are general to the manufacturing sector (see the list on pp. 148-50) but some concrete examples may serve to bring home their significance.
For instance, several respondents complained about the Department of Customs. Customs' insistence on sticking to the letter of their duties, even when there is little or no customs revenue involved and delays could cost the country not just one particular export order but perhaps a valuable relationship with an overseas client, goes beyond being exasperating into the realm of economic sabotage.
For example, in preparing an export order for the UK, Bata was requested to tag the shoes with bar codes. As these could not be produced in Zimbabwe, Bata requested their UK customer to supply the tags, which were duly sent but then seized by Customs and held while deciding what tariff to apply. Although these were of no intrinsic value and destined anyway for re-export, Customs refused to release the tags for long enough to threaten Bata's ability to meet the deadline for the export order, in a situation where meeting the deadline was one of the primary demands of the customer.
Another example is the trade practice of sending samples to manufacturers, asking them to return 'counter-samples' and quotations, which might then lead to export orders. When such a parcel is received by Customs, it sends notice to the recipient of the need for an import licence, which requires application to the Reserve Bank through a commercial bank and thereafter application to the Ministry of Industry and Commerce. As the counter-sample is typically required within days, such procedures rule Zimbabwean firms out of consideration.
Technology, productivity and human resources
Characteristics of demand in target markets
Bata's main regional markets (South Africa and Botswana) are not dissimilar to the Zimbabwean domestic market. Bata supplies its agents in those countries, who are also major manufacturers in their own right, with styles in canvas and leather which complement their own ranges. In the case of South Africa, Bata puts forward suggested designs for each season (twice per year) and manufactures those selected by its agent. Deliveries are made to final customers in South Africa, with a small commission being paid to the agent. Bata is sufficiently well known in the relatively large South African market for export business to be secured at short notice. Thus during 1992, Bata was able to arrange additional export orders to South Africa to compensate for the decline in the domestic market in Zimbabwe.
Overseas markets are far more demanding in terms of style' finish, overall quality and delivery time than the regional markets. This is because Zimbabwe cannot become a large volume exporter in Europe or America, so it must find special niche markets' often involving developing a personal rapport with customers. Zimbabwean companies are prepared to supply small orders (10 000 pairs or less), while companies in other countries are said to be interested in much larger orders (e.g. Indonesia, supplying an order of 1 million pairs). Zimbabwe is thus well placed to serve some of the smaller developed markets, such as Australia with a population of 14 million.
In the UK market, in which Bata and Superior are presently active, the companies have to be able to offer alternative designs, responding to subtle changes in style and fashion. On the production side, quality depends both on careful production management to achieve the required craftsmanship and on supplies of uniformly high-quality inputs. Finally, adhering to agreed delivery dates is considered to be particularly important by the UK importers, because the marketing of shoes is carefully phased and any unforeseen delay is likely to result in reduced sales and being left with unwanted stocks.
Reliability, in terms of quality and delivery times, is thus the watchword for Zimbabwean shoe exports to overseas markets. Inter alia, this implies that orders whose quality and delivery cannot be assured have to be turned down. Bata made several errors during the 1980s in exports to France and Italy: the company now regularly carries out a critical path analysis for. the production of an export consignment and carefully monitors each of the critical activities to ensure successful completion of the work.
Both Bata and Superior have acquired their own CAD facilities, coupled to laser pattern cutters, in recent months. This technology was first introduced to the Zimbabwean shoe industry through a grant from UNIDO to the Leather Institute, the equipment being installed in the Institute's premises in Bulawayo. It is unfortunately not much used at present but is available for use by the smaller companies in the industry.
Bata already has a very strong product development department, with a staff of 11, together with a sample factory with a staff of 35. This has enabled Bata to offer prospective buyers visiting Gweru a wide range of styles which have been discussed and agreed, with samples being produced during the visitor's stay. In one case, it is reported that the visitor returned to Europe with 1 000 samples! The CAD equipment will facilitate interaction with the client and help to speed up the whole process. As is clear from the discussion in the previous section, speed of response is an important attribute which overseas shoe importers are looking for.
Technology and productivity
As is typical in Zimbabwean manufacturing, much of the equipment in shoe factories is old enough to be considered museum pieces elsewhere in the world. It is, however, also 'appropriate' in that it is operational and is readily maintained with local skills. Productivity, in units such as pairs per person per day, is low by international standards (from 7 to 45, with international levels two to three times higher for comparable styles) but the total costs of production, reflecting the written-down costs of the antiquated but operational equipment and relatively low labour costs, would appear to be competitive. Productivity could be improved by reducing the number of styles being produced, while cost efficiency is already being improved through more efficient stockholding, a spin-off of the present tight monetary conditions.
Despite the continued productivity of old machinery, it is none the less significant that the footwear companies in a position to do so are importing modern, sophisticated equipment with a view to being able to compete not only on export markets but with imported footwear once the final product is put onto OGIL. Bata, for example, will be installing new export production lines in Gweru in 1993 and has just commissioned a three-colour screen printer at its Kwekwe factory. Coupling this with a combined lasting and two-colour plastic sole injection moulding machine, it should be possible to attain internationally competitive productivity of high-fashion sports shoes and sneakers. The German technicians who come out regularly to ensure that production standards for the Adidas footwear being made under licence are adequate are well satisfied with the performance of the Kwekwe factory. Bata will be introducing an across-the-board efficiency improvement programme (the Swiss USO-9000 system) during 1993.
In its new shoe factory, Superior Footwear has installed an ultramodern rink' system to be used particularly for export production. A computer-based diagnostic and training system has also been commissioned. This enables a supervisor to view on a computer screen the performance of a trainee during a session of work, identify problems and suggest ways in which improvements to quality and productivity can be made. The company foresees improvements in skills, productivity and hence the quality and price competitiveness of the final product. This will benefit the local market as well as the export market.
The third company studied, Cathula, uses far less sophisticated machinery, producing a product (sandals) for which indications of being hand-made may often be a positive marketing trait, rather than a negative one. Like many companies during the UDI period, Cathula has reacted to problems associated with a shortage of foreign currency by innovating. For example, the machine in use for printing transfer patterns on shoes, and much of the equipment in the buckle making plant, have been designed and built by the company. The drive and skills required for such innovation are thus not confined to the old established companies.
Human resources and the development of skills
Now that the supply of materials, especially imported inputs, has become easier, the availability of skills is emerging as the limiting constraint. On the shop floor, several companies are experiencing difficulty in finding suitable supervisory staff, and skilled personnel are also needed, particularly for product design. In order to keep abreast of developments, regular exchanges need to be made, with Zimbabwean designers travelling abroad and overseas designers visiting Zimbabwe. Under current foreign exchange regulations, such visits are apparently difficult to arrange but the benefits could be quite considerable in terms of maximizing value added in export markets. International organizations such as UNIDO have supplied consultants from time to time (e.g. to assist Superior in commissioning its new shoe factory), but it is generally felt that the limited duration of such visits has restricted their usefulness.
Since there is no formal training, such as polytechnic courses on footwear design and production, available in Zimbabwe, all of the companies interviewed have some means of providing in-house training. Due to its size and corporate culture, in-house training is most comprehensive at Bata, which offers various kinds of training programmes, to all its staff and has developed the infrastructure necessary to do this. The Leather Institute would like to see regular training being offered for the benefit of the industry as a whole.
Up to 1991, the British Council gave scholarships for Zimbabweans to study leather technology in the UK. At present, both Superior and Cathula are themselves sponsoring employees or family members undertaking courses in leather technology and shoe design in the UK.
Zimbabwe shoe manufacturers attempt to keep abreast of the latest developments in styles, production processes and equipment by subscribing to international industry journals, belonging to international associations of leather and footwear institutes (such as the Shoe and Allied Trade Research Association, based in the UK), and attending trade fairs where new equipment can be viewed and selected. Bata, as part of a multinational, has the advantage of getting much of this information through Bata's international network but the local company is not obliged to take the parent company's advice on issues such as the choice of equipment.
There is strong resistance to the idea of subcontracting. Companies are used to having tight control within their organization of each stage of production and the idea of putting out work to others and then being reliant on their performance to meet quality standards and delivery requirements is anathema. The suggestion that production for the domestic market might be subcontracted if there were to be a surge in export demand which would require the full capacity of the company's own facilities is also not appealing. There is a fear that markets would be lost to subcontractors, who would in time make contact and establish relations with the ultimate client, whether this be an export or a domestic market customer. This has in fact been the experience of some firms which have experimented with subcontracting (Mead and Kunjeku, 1992, p. 25).
The only example given of subcontracting by the companies interviewed is the stitching of moccasins for Bata in (Gweru. This is regularly undertaken by cooperatives, which may legally be paid on a piece-work basis. The first time a cooperative was approached by Bata was during a boom period, when the company found it did not have the personnel to carry out this function. While subcontracting this particular function has apparently been very successful, the idea has not been carried across to other functions which might profitably be handled in the same manner. This reluctance to subcontract is one of many barriers to entry that a small producer is faced with in a market dominated by efficient enterprises.
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