FINISHED LEATHER MARKET IN INDONESIA
The Indonesian leather industry plays an important role in the country’s economy. The industry is among the ten largest export earning industries within the so-called non-oil and gas sector; it is a labor-intensive undertaking as the majority of the processing and manufacturing industries consists of medium and small-scale industries. The leather processing industry consists of leather tanning industry and the leather manufacturing industry, producing various finished leather articles such as footwear, bags, suitcases, belts, gloves and apparels.
The development of the Indonesian leather industry, however, has shown a downward trend especially during the period of 1996 to 2002. Up until the year 1996, the industry flourished due to a government regulation prohibiting the exports of raw leather. The total export value of processed leather and finished leather articles in 1996 was in excess of US$ 2.2 billion as compared to US$ 1.1 billion in 2002. The export ban was lifted in 1998 as part of an agreement signed with the IMF to deregulate the international trade sector, causing thereby a decline in the exports of semi-finished and finished leather articles as a result of shortage of domestic raw material supply in the subsequent years. Suppliers of raw leather prefer to export their product of raw leather rather than selling to the domestic leather processors or manufacturers. The production situation became even worse due to the fact that the leather raw material needed by the tanning industry of some 70.000 tons can only be supplied domestically at a level of less than 50%, e.g. around 31.000 tons, out of which, approximately 70% of this output is being exported and the balance sold to the domestic manufacturers. This condition has forced many leather manufacturers of finished leather articles to change the raw material from raw leather to plastic or imitation leather.
The current situation with the Indonesian leather processing industry is that there is a shortage in the supply of raw leather due to the raw leather material being exported. The leather manufacturers are faced with the choice of either closing down their factories or using substitute materials such as plastic or imitation leather with the latter being mostly the better choice for the industry. The exports of finished leather articles logically also decline as a result of the raw material supply shortage. On the other hand, a potential domestic market for finished leather articles is not being given enough attention to and demand for such finished leather articles is to a certain extent being fulfilled by imported articles. To be added to this is the fact that Indonesian leather manufacturers are still facing the obstacle of appropriate product design as well as production method, technology and know-how. The majority of the Indonesian finished leather manufacturers are small-scale industries, more of a type of cottage, home industries with limited resources on capital, market and product design. Unless the government re-considers its trade policies and provides assistance to and in favor of the domestic leather industry, the current condition will not be supportive to the future development of this labor-intensive and export-oriented industry.
The future of this particular industrial sector, however, may be looking bright especially when considering the potential raw material availability as well as a vast domestic market. What the industry needs is supportive government regulation to protect domestic supply of raw materials and at the same time provision for improvements in various production aspects. Only by doing so will the industry be capable of competing not only in the international market but also fulfilling the potential domestic market demand.
The development of the Indonesian leather industry, however, has shown a downward trend especially during the period of 1996 to 2002. Up until the year 1996, the industry flourished due to a government regulation prohibiting the exports of raw leather. The total export value of processed leather and finished leather articles in 1996 was in excess of US$ 2.2 billion as compared to US$ 1.1 billion in 2002. The export ban was lifted in 1998 as part of an agreement signed with the IMF to deregulate the international trade sector, causing thereby a decline in the exports of semi-finished and finished leather articles as a result of shortage of domestic raw material supply in the subsequent years. Suppliers of raw leather prefer to export their product of raw leather rather than selling to the domestic leather processors or manufacturers. The production situation became even worse due to the fact that the leather raw material needed by the tanning industry of some 70.000 tons can only be supplied domestically at a level of less than 50%, e.g. around 31.000 tons, out of which, approximately 70% of this output is being exported and the balance sold to the domestic manufacturers. This condition has forced many leather manufacturers of finished leather articles to change the raw material from raw leather to plastic or imitation leather.
The current situation with the Indonesian leather processing industry is that there is a shortage in the supply of raw leather due to the raw leather material being exported. The leather manufacturers are faced with the choice of either closing down their factories or using substitute materials such as plastic or imitation leather with the latter being mostly the better choice for the industry. The exports of finished leather articles logically also decline as a result of the raw material supply shortage. On the other hand, a potential domestic market for finished leather articles is not being given enough attention to and demand for such finished leather articles is to a certain extent being fulfilled by imported articles. To be added to this is the fact that Indonesian leather manufacturers are still facing the obstacle of appropriate product design as well as production method, technology and know-how. The majority of the Indonesian finished leather manufacturers are small-scale industries, more of a type of cottage, home industries with limited resources on capital, market and product design. Unless the government re-considers its trade policies and provides assistance to and in favor of the domestic leather industry, the current condition will not be supportive to the future development of this labor-intensive and export-oriented industry.
The future of this particular industrial sector, however, may be looking bright especially when considering the potential raw material availability as well as a vast domestic market. What the industry needs is supportive government regulation to protect domestic supply of raw materials and at the same time provision for improvements in various production aspects. Only by doing so will the industry be capable of competing not only in the international market but also fulfilling the potential domestic market demand.
posted by Zumrowi Yunus at
11:43 AM
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