Nov 24 - Dec 07, 2003



ABDUL JALEEL has always been associated with the footwear business. The company that he runs today was established 73 years ago by his grandfather in 1930 in Delhi in the then undivided India. Two years later in 1932 the multinational footwear manufacturer Bata, which had just started its operations in the country, appointed Rashid Shoe Company as its distributor in Delhi. After the partition, the family migrated to Karachi and re-started Bata's distribution 'from a scratch', as written by Mr. Bata in his memoirs mentions Abdul Jaleel proudly. Being a third-generation footwear distributor of the best renowned multinational himself, Abdul Jaleel is now joined by his son Abdul Latif to induct the latest trends in marketing necessary to meet the fourth-generation market. Besides the wholesale business Abdul Jaleel has also opened a retail outlet and plans to open another 4-5 in near future. He aims to sell 2 million pairs of footwear a year.

PAGE: What's the share of the formal sector in the overall footwear market of the country?

ABDUL JALEEL: The combined share of Bata and Service, the two companies in the organized sector, is only about 16 percent, two-third of which is enjoyed by the former. The remaining 85 per cent of the market is dominated by the footwear from the informal sector which pays no taxes thereby depriving the footwear manufacturers in the formal sector of a level playing field despite paying all taxes the overall impact of which adds up to be about one-third of the retail price. In a price driven market where the cheaper imports from China are on incessant increase it is becoming hard for the two formal foot wear manufacturers to compete not only with local counterparts by also imports.

PAGE: What's been the impact like?

ABDUL JALEEL: Let me illustrate the toll that the no-tax paying informal sector and the imports have taken on the all-taxes paying formal sector. Prior to the levy of the general sales tax in 1996, I was selling some 2 million pairs of footwear a year which has shrink to just 1.2 million pairs today. The formal footwear sector, of which I am a part, has been unable to compete with the informal sector because it pays no taxes and the situation has only become worse with the flooding of market with the Chinese products which after paying all the duties and taxes have been able to make big niche because of competitive prices.

PAGE: So you feel that the GST is the single biggest reason for the substantial loss of share of the market by the formal sector?

ABDUL JALEEL: Yes it is one of the primary factor because the manufacturers in the informal sector, who enjoy the bulk of the market share, have no qualms to avoid paying taxes thereby enabling them to retail their products at prices which the two manufacturers in the formal just cannot afford. The formal sector, by its very nature, has to pay numerous direct and indirect taxes and that explains that while it enjoys just about 16 per cent share of the total footwear market it contributes unproportionate high taxes. In addition, the 15 and 18 per cent GST as the case may be depending on whether a retailer is registered or unregistered, is way too high when compared to another countries where the Value Added Tax is charged at an affordable rate of 5-6 per cent.

PAGE: What kind of impact the Chinese imports has on the market?

ABDUL JALEEL: Footwear imported from China has been able to wrestle away 15-20 per cent share of the local footwear market already. On an average they retail for 60 less than the locally made shoe despite being imported into the country legally after paying 25 per cent duty, 15 per cent sales tax and 6 per cent income tax. Bata itself is the biggest importer of shoe from China.



PAGE: What you think are the primary factors for the inability of the local footwear industry to compete with imported footwear flooding the market today?

ABDUL JALEEL: It can be attributed to numerous factors low productivity, absence of standardization, lack of craftsmanship, high production costs and the last but not least the high prices of basic raw material the leather. As you know the finest hides and leather produced in the country are exported because it offers the relevant class of exporters to make good and easy money without being bothered about value addition. The average price of good quality leather has increased from Rs 1.50 square foot to unaffordable Rs 70-80 square foot at present. The average price of good quality leather has registered a sharp increase from Rs 30-35 square foot to Rs 70-80 square foot in last 5 years alone. In a price-driven market such as ours, the growing cost of inputs and the price basic raw material on the one hand and the imposition of high taxes on the other, which hurts the formal sector particularly, has pushed the production costs to a level whereby the footwear manufacturers in the formal sector just could not compete with either the local counterparts in the informal sector or with the Chinese imports.

PAGE: Do you think the local footwear industry would be able to retain its hold on the market in the years to come?

ABDUL JALEEL: As mentioned earlier Chinese footwear has already been able to capture a good 15-20 per cent of the market. If the things remain the same and the formal sector, which contributes the lion's share of taxes, is not accorded the level playing field both against the local counterparts and exports, I fear that it would ultimately result in the closure of operations by the formal sector. Thus far the wholesalers like me has not diverted their attention to market Chinese products. If the declining business does force them to try out that venue it would be a great setback for the national footwear industry because it would mean that the imports would be much better organized to main deeper penetration of the market a reality by imports.