INDUS' RY AND ENERGY DEPARTMENT WORKING PAPERINDUS TRY SERIES PAPER No. 34

Footwear: Global Subsector Study

June 1990

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FOOTWEAR

GLOBAL SUBSECTOR STUDY

Bita Hadjim!chel

June 1990

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TABILE OF CONTENTIS

Page No.

EXECUTIE SUIMMARY ..........................................

I. WORLD TRADE IN FOOTWEAR .................................

A. World Production ........................................ 1B. World Exports ......................................... 3C World Imports ......................................... 5D. The U.S. Market ....................................... 5E. The European Market .................................... 11F. The Asian Market ....................................... 140. Trade Bariers .............. ........................... 15

IL PRODUCTION . ............................................. 18

A. Competitive Production Strategies in Industrial Countries .... ........ 13B. Modern Techniques in Production Organization .................. lli

C Developments in Microelectronic Technology .................... 2)D. Barriers to Adoption of Modern Technologies ................... '2E. Technical Management and Labor Requirements .................. 22F. Implications of the Modern Technologies for

Developing Countries ..................................... 23

HI. MARKETING AND DISTRIBUTION ............................... 28

A. Distrbution Channels .................................... 28B. Marketing and Distrbution Strategies ......................... 32

Iv. CONCLUSIONS ........................ ..................... 36

ANNEXES

Annex A Statistical Annex ................................... 39Annex B: Major Microelectronic Technologies for Footwear

Production ...................................... 47Annex C: Research and Development ........................... 51

REERENCES.53tE CE ................................................. 5

The author is grateful to Nancy Barry, Antonia Bowring, and Felicia Morrow for helpful comments andsuggestions, Stephanie Gerard for editorial assistance, and Wilson Peiris for Word Processing&

EXECUVE SUMMARY

i This study provides a global overview of the footwear industiy, highlighting trends in globalproduction and trade. Technological developments in footwear manufacturing and their implications fordeveloping countries are dicussed. Distribution channels and competitive marketing strategies are outlined.

World Production of Footwear

ii. Worldwide production of footwear grew by 4.1% per year between 1983 and 1987, reachingabout 9.7 billion pairs for a world population of 4.2 billion people. Developing countries, which accountedfor half of the world's footwear output in 1983, increased their share to 61A% by 1987. China, Taiwan,Brazil, South Korea, India, Mexico, Thailand, Indonesia, Portugal, and Colombia were among the countriesthat increased -ieir production of footwear during that period.

iiL In contrast, industrial countries saw their shares of world output decline between 1983 and1987. U.S. output feU signlficantly, Italy, Japan, Spain, France, the United Kingdom, and West Germanyshowed smaller output declines.

Footwear Exports and Imports

iv. In 1987, world exports of footwear totaled US$20 billion (c.Lf.), having increased at 6% peryear since 1978. Italy is the largest exporter of footwear. Together with Taiwan, South Korea, and Brazil,whose shares have risen rapidly, these four countries accounted for nearly 65% of world footwear exportsas of 1987.

V. From 1978 to 1987, several developing countries, most notably China, Thailand, andIndonesia, showed high export growth rates from low initial bases. In fact, a shift of high-volume, low-cost footwear manufactuing from Korea to Thailand and Indonesia is occurring, making these two countriesimportant new sources of footwear from Asia. Both offer low wages, few labor problems, political stability,and an adaptable work force. They have also benefited from the Generalized System of Preferences (GSP)vith the ECR not available to Taiwan, Korea, Hong Kong and Singapore.

vi At the same time, fluctuating exchange rates have profoundly affected footwear exportsworldwide. The strength of the European currencies has made it difficult for European producers to selltheir footwear in the United States, for example, particularly in the low-end segments. The Italian industly,once dominant, seems to have lost the lower price market segment in the US., with currency fluctuationsexacerbating cost competitiveness concerns. European manufacturers also have confronted rising importsfrom Taiwan and South Korea; in fact, the latter countries have been redirecting some of their exports awayfrom the U.S. and into Europe because of the rise in value of the Korean and Taiwanese currencies againstthe doUar.

vii Industrial countries are the main importers of footwear. The United States and WesternEurope accounted for 37% and 49%, respectively, of total import value in 1987. From 1978 to 1987, worldfootwear imports expanded at a rate of 6% per year, reaching a value of nearly US$20 billion by 1987.

vii. US. imports of children's, athletic, and women's footwear recorded the fastest rates ofgrowth in the footwear market in the 1980-88 period. The fitness fad of the 1980s and the fad for sportsshoes turned athletic shoes into one of the fastest growing consumer sectors. Worldwide sales of sportsshoes soared from about US$4.5 billion in 1985 to US$9.0 billion in 1988, with close to half the sales inthe US. Most sports footwear was imported from South Korea, Taiwan, and China.

X i -

Ix West Cermany, France, and the United Kingdom accounted for almost 60% of Europeanimports in 1987. The major supplers of footwear to the European market in 1987 were Italy, Portugal.Spain, Taiwan, German, Korea, France, Austria, and Yugoslavia. Itays share remained the largest despitea decine from 49.5% in 1978 to 41.4% in 1987. Portugal, Taiwan and Korea inceased their shares overthat period, while Spain held steady, and Gemny and Frnce lost ground. Thus, whie actual footweaxproduction in Europe declined significantly, impors Increased.

x In Asia, the main importers of footwear are Japan, Hong Kong, and Singapore, with HongKong's imports mainly for re-expot Footwear imports into Asia grew 13.5% annually between 1978 and1987, the fastest Import growth rate of aU regions. In 1987, the major suppliers of footwear to the Asianmarket were Kotea, China, Taiwan, Italy, Franx, and the United States-these countries acwunted for over90%0 of total impors of footwear into the Asian market

Trade Baies

xi With reductions in tarffs on footwear under the General Agreement on Tarfs and Trade(GATI), tariffs no longer constitute a formidable barrier to trade in footwear since tariff rates are fairlymoderate in the major markets.

aii. At the same time, nontanff bariers have persisted, primarfly various types of import quotas.Currently the most important restrictions are exercised through voluntary export restraint agreements(VERs), such as those negotiated by Italy and Ftance with Korea and Tain.

xiii In hct, in 1989, European footwear industry lobbyists pressed for the introduction ofrestraints on imports from the Far East, along the lines of those obtained for Italy and France. Faced bybaiers to entty, Korean and Taiwanese footwear firms export indirecly to Italy and France via otherEuropean countries with free acoess o the EC, such as Belgium and Holland. The Asian manufacturersalso have switched production to other Far Eastern countries, such as Thailand and Malaysia, on whichthere are no Import restrictions in the French and Italian markets. The situation has prompted footwearlobbyists to ask for import restraints all across the EC, to end indirect exporting within Europe, and toimtroduce restraints not only for Korea and Taiwan but for aU the Far Eastern footwear producem

Productin

xiv. In the meantime, to combat the surge of imports from countries with low labor costs,producers in industrial countries are

* focusing on production of custom made or high quality footwear,

* reorganizing according to new production techniques to save on stocks and work-in-process while increasing their responsiveness to market changes; and

* using advawed microelectronic technology to improve the quality of footwear andto cut labor costs.

Tedhoblog Deveopmnt In Footwear Mn

xv. vandem in computer technology durng the 1980s have brought prospects for majortechnological changes in the traditionally labor-intensive footwear industzy. The most significanttechnological Innovations, orginating mainly in Western Europe and the US, have been computer-aided

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design (CAD) and microcomputer-based management systems. The latter provide the opportunity for firmsof all sizes to use information technology to reduce costs.

xvi. However, despite potential benefits, the diffusion of automated technology in footwearmanufacturing has not been rapid. Thi is due to the complexity of footwear design; lack of informationand technical expertise; and the high costs of Investing in the new technologies. SkiUed workers stil arerequired wherever traditional methods of production persist, and benefits from automation in footwearmanufacture still are associated with large volumes, long rums, and mass production techniques. As a result,automated machinery has so far been adopted mostly by very large footwear firms, except in Italy. In asnycase, limited managerial resources in smaU firms and the lack of information for choosing technologyremain major constraints in the adoption of new technologies.

Implications of Moderm Techlogies for Deveoping Countries

xvii Average wages in the footwear industry are well below wages in other branches of manufacturing.Nevertheless, in the developed countries, labor accounts for a significant percentage of total cost, while indeveloping countries the cost of maintaining work-in-process and inventories is high. Given such a break-down, a traditional footwear factory in a developed country may find it difficult to compete on productioneosts with low-wage newly industrialized (NC) and less developed countries for the time being.

xii Although low cost countries will continue to have a comparative advantage in production for quitesome time, they winl need to consider the use of electronic-based production and information technologies.Thus, technological innovation represents both a threat and an opportunity for developing country suppliers.'Me threat comes from the possibility that in the long run, with computer integrated manufacturing (C:IM)becoming a reality, mass producers in industrial countries could gain a competitive advantage over currentdeveloping country producers. Also, to the extent that the new technologies give producers in industrialcountries an edge in quality and in timely delivery, developing countries could be at risk of losing marketshare, particularly in high-end segments.

xIL Adopting the latest microelectronic technologies, however, is not the most important waydeveloping country firms can maintain or increase their competitiveness. The success of footwearcompanies in aUl countries depends mostly on adjusting production organization and increasing responsive-ness to market changes. Such organizational changes wilt be critical for smaller firms, particularly becauseautomated methods are not usually conducive to small-scale footwear production and frequent changes indesigng

XL Production reorganization should mainly aim at reducing work-in-process through:

* improving access to raw materials;

* improving quality control;

* improving inventory control and production scheduling; and

* providing training for both management and staftL

Xxi Footwear manufacturers In many developing countries rely on lowquahity, local rawmaterials-which relegates these firms to the low end of the export market. Unavailability of raw materialsis often connected to high duties or restrictions on imported inputs-for both direct and indirt exporters--and inadequate development of local allied industries Liberalizing the importation of inputs for exportproduction will be critical for less developed countries if they are to compete internationally, like thesuccessful MC exporters. Lowering duties on imported materials also would force domestic suppliers to

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improve the quality of their products. Further, leather footwear manufacturers need to establish stableand effective supply networks.

xxii. In view of the strong international competition in footwear markets, especially in low-endsegments, developing country firms need to invest in training for their fAnagement and operators. Design,protUuction, and marketing skills embodied in their workers would allow these firms to produce betterquality footwear.

Marketing and Distribution

xxiii. Retailers, domestic manufacturers, and importers or wholesalers are the three main typesof buyers or distribution channels in the footwear market. Retailers generally combine sourcing methods,buying directly through their own overseas buying offices or indirectly through associated or independentbuying agents or wholesale distributors. The prindipal function of buying offices or agents is to channelexport orders to local producers, oversee the subcontracting of orders, negotiate prices, perform qualitycontrol, and ensure timely deliveries.

xxiv. Due to the increasing competition from imports, many footwear manufacturers in industrialcountries are moving into retail operations and becoming major importers of footwear, particularly in theU.S. Domestic producers buy finished footwear, which they resell through their own retail operations orto other distributors or retailers. Many manufacturers also import components for their own products, orthey re-import finished footwear made from domestically-manufactured components to costs. Their mainsourcing arrangements include:

** subcontracUng: the most common type of sourcing used by US. domesticmanufacturers, accounting for about a third of footwear Imports into the US.(through manufacturers of national brands); often based on exlusive and long-term relationships with factories abroad.

o joint ventures or direct investment: more common among European and largeKorean and Taiwanese footwear companies. Domestic manufacturers often augmenttheir range of footwear with high labor-content items produced under cooperativeagreements with foreign manufacturers, according to strict specifications, e.&,German footwear manufacturers have long made use of low-labor-st countries bysetting up their own factories or through joint ventures.

o licensing: a sourcing method typical among manufacturers of branded athletic foot-wear, for example, for athletic footwear produced mainly in Asian countries.

Constraints and Opportunties

xxv. The intensified efforts by industrial country footwear manufacturers to regain their market sharesprovide both opportunities and challenges for firms in developing countries. Since technologicalinnovations offer an opportunity to industrial country producers to improve their competitive position bycompensating somewhat for their relatively high wage costs, the challenge for developing countries is howto take advantage of the new technologies themselves.

xxvi. Moreover, consistent product quality and timely deliveries, as well as price competitveness, are thekey success factors in all market segments. In fact, product quality has virtually overtaken priceconsideration as the most important aspect of competition in the upper segments of the footwear market.

uviL Footwear producers in developing countries need to step up their efforts to improve theiroperational efficiency and production flexibility. Their main objectives should be to reduce work-in-process,turn out products of consistent quality, and guarantee timely deliveries to customers. The achievement ofthese objectives primarily would require improved access to raw materials, better infrastructure and customsprocedures, improved quality control, improved inventoty control and production scheduling, andappropriate training for both management and staffE

Xviii. Access to information on international markets is essential for market penetration. Themain task of developing country producers targeting export markets is to become familiar with thedistribution structure and buyers' requirements in the different market segments. This information allowsproducers to choose the best market niche for their production capabilities and export experience.

XXOL However, developing country firms often are not fully equipped to carry out the researchrequired to gain market access To this end, subcontracting arrangements or joint ventures with foreignretailers, manufacturers, or buying agents can provide developing country firms with support or. productdevelopment, information on the designs and styles required by the export market, quality control and, mostimportant, distnbution and access to final markets.

3xL Footwear manufacturers in developing countries need to build up their reputation asreliable suppliers by achieving timely deliveries, and to concentrate on producing high quality products, withthe aim of eventually producing for the more fashionable and higher value-added market segments. Toachieve this, they need to identify and establish links with foreign manufacturers and retailers who couldprovide continuous access to design, improved production techniques, and distnbution channels.

XXi. The technical innovations in the footwear industry constitute a challenge to footwearproducers in both industrial and developing countries and are bound to influence the pattern in worldfootwear trade in the years ahead.

L WORLD TRADE IN FOOTWEAR 1/

A. World Producton Y

1.01 Worldwide production of footwear grew by 4.1% per year between 1983 and 1987, reachingabout 9.7 billion pairs for a world population of 4.2 bilon people (Table 1).

1.02 Developing countries, which accounted for half of the world's footwear output in 1983,increased their share to 61.4% by 1987. For example, China, Taiwan, Brazil, South Korea, India, Mexico,Thailand, Indonesia, Portugal, and Colombia increased their production of footwear during that period-China alone produced 1.9 billion pairs of footwear in 1987, 89.5% for domestic consumption. Indonesiaand Portugal almost doubled their production. Other countries increased footwear production by relativelysmaller increments.

1.03 In contrast, industrial countries saw their shares of world output decline by 8.5% between1983-1987. L.S. output declined significantl, Italy, Japan, Spain, France, the United Kingdom, and WestGermany showed smaller output declines.

1.04 Asian countries accountea for 42% of the world's footwear output in 1987. EasternEuropean countries produced 1&1%Y,, down from 20% in 1983, with most production for internalconsumption. Western European countries followed, with 12.5% of global output, down from 15.1% in1983. Latin America had the most rapid growth between 1983 and 1987 (10.1% per annum) and accountedfor 11.8% of world output. Global shares for the Middle East and Africa remained steady.

j/ For the purpose of this study, the footwear subsector is defined as including all types of footwear.Footwear product segments are generally based on some combination of age and gender of theoonsumer (men's, women's, and children's), on the intended use of the footwear (dress and casualwear versus athletic), on the physical characteristics of the footwear (leather versus vinyl, canvas,plastic or rubber uppers).

mThe analysis in this section is based on production volumes because accurate data on value ofproduction are not available. The period of coverage starts from 1983; data for earlier years areirregular.

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Tabe 1: LEADING PRODUCERS OF FOOTWEAR

Grwtb %Sbae inMillin - rate (%) wod production

1983 1987 19s3 1983 1987

China 1,349 1,903 9.0 163 19.6USSR 970 1,052 2.0 118 10.8Taiwan 574 803 88 6.9 83Bnael 458 592 6.6 S.6 6.1South Koma 346 534 11.5 4.2 5.5Italy 488 465 -12 .9 4.8Japan 483 409 4.1 5.9 42India 327 390 4.5 4.0 4.0United States 424 291 -9.0 5.1 3.0MacKi 228 243 1. 2.8 2.5Spain 190 190 0.0 2.3 2.0Frnce 206 183 -2.9 2.5 1.9Poland 161 163 0.4 2.0 1.7Turkey 158 - - 1.6Thailand 110 147 7.5 13 1.5Ulited lingdom 125 125 0.0 1.S 13Yugoslavia 112 122 2.1 1.4 13Romaia 114 121 1.7 1.4 13Pakistan - 120 1.2Cwechoslovaia 128 119 -1.6 15 12Hong Kong 108 101 -1.9 13 1.0Indonesia 53 92 15.0 0.6 1.0Portugal 42 80 17.5 0.5 0.8West Grmany 94 79 -43 1.1 0.8Colombia 60 65 1.9 0.7 0.7

Asia 2,967 4,075 83 36.0 42.0Eastern Eurpe 1,652 1,754 1.5 20.0 18.1Westen Europe 1,250 1,215 -0.7 15.1 12.5Latin Ameria 780 1,144 10.1 9.4 11.8Africa & Middle East 619 734 4.4 7.S 0.0Noth Amedca 463 330 82 5.6 3.4Otherll 522 451 3.6 63 4.6

World Total 8,254 9,703 4.1 100.0 100.0

Source Swailes and Snlal (1989).

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1.06 Italy remained the argt exponer of footwear, despite a modest expost pwth of 2.7% peryear from 1978 to 19i and a fa in Its trade sbae from 3&4% to 26.6% In that perod. Exports fromTaiwan South Korea, and Brazl grew at rates of 12.3%, 10.7%, and 13.4%, respectvey, nreig theirshares of world trade. Spain and Portugal provided 5.4% and 3.8%, respectively, of the total value ofexports worldwide in 1967, with Portugal experiencing dramatic annual real growth of 26.2% over 9 yeam.Many other countsies supplied footwear to the world market, but their shares were not significant.Howver, among this group, China, Indonesia, and Thailand recorded substantial growth rates of 20.9%,313%, and 52.9% respecly, from very low bases (rable 2).

TaJ.2 MAJOR EXPORTERS OF FOOTWEAR

aowib rte Sham in wrodd maulet(%) (*)

19787 1978 1987

Ita* 27 354 266Taiwan 123 11. 18.4South Koea 10.7 92 13.6razil 13.4 32 S.9

Spain 2.1 7. 5.4Pod'uga 26.2 08 3.8France 0.9 S6 3.6Cina 209 09 2.9Wiea Germany 38 34 28Austia 1.8 2.4 1.7Yugos'avla 6.7 13 1.4United ngdom .0.1 .1 S.2Hong Kong 5.4 13 12United States 10.8 0.7 1.0Neeransds 35 1.1 0.9Swcidand 2.5 1.1 0.8Thaiand 52.9 0.0 0.7

mabs 7.0 . 6Inda 11A 04 06Phiippi 6.0 03 0.3Fnand 04 0.5 03Bdgiur4- 1.9 04 0.3Malaya 07 04 02Jan -94 0.8 02Canada -3.6 04 02Morocco 4.6 0.2 02hnko,al 313 0.0 01

Cdombia 8.8 0.0 0.0Oiler 41 9.0 52

Wodd 60 10. 100.0

Sour:: Appead Table A- l.

1.07 Twenty-fie yea ago the center of high-volume, low-cost footwear manuactuing movedfhom Japan to Korea. Now a similar shift is taking place to Thaiand and Indonesia as these two countriesemerge as imporat sources of footwear from Asia. Both offer low wages, few labor problms, poliicstability, and an adaptable work forme It is in the area of spotlS footwear that Thailand and Indonesia havebeen able to make their mark helped significantly by the imnoement of major brand companies. They have

also benefited from the Generalized System of Preferences (OSP) with the EC, not available to Taiwan,Korea, Hong Kong and Singapore. This may change as exports climb-there were signs of change alreadywhen Britain imposed a 2W0% surcharge on vinyl shoe exporTs from Indonesia in August 198&

1.08 Fluctuating exchange rates during the past few years have had profound effects on footwearexports. The strength of the European currencies has made it difficult for European producers to seUl theirfootwear in the United States. The low-end segments have been most affected; sports footwearmanufacturers, in particular, have faced heavy competition from low-cost countries. The Italian industry,for example, seems convinced that it has lost the lower price market in the U.S., with currency fluctuationsexacerbating cost competitiveness concerns. Italian producers find that they will have to concentrate onhigher quality footwear where cost is not such a determining factor. European manufacturers also haveconfronted rising impors from Taiwan and South Korea, which have redirected some of their exports fromthe U.S to Europe because of the rise in the value of Korean and Taiwanese currencies against the dollar.

C. World Imports

1.09 From 1978 to 1987, world footwear imports expanded at a rate of 6% per year, their valuereaching nearly US$20 bilion by 1987. Imports have been dominated by industrial countries, particularlyWestern Europe, which accounted for 48.9% of world import values in 1987, followed by the U.S. (36.8%),and Asia (6.4%6). However, footwear imports into Asian countries grew at a rate of 13.5% between 1978and 1987. Imports into the U.S. rose at a rate of 10.3%. Western Europe's imports expanded at the moremoderate rate of 53% (Table 3).

D. The US Market

1.10 Table 4 shows the major demand and supply trends for leather and other nonrubberfootwearN in the United States. Imports declined from 375.7 million pairs in 1978 to 361.0 million pairsin 1980 as a result of Orderly Market Agreements (OMAs) with Korea and Taiwan (Section G). However,after these agreements expired in 1981, imports increased steeply to a peak of 940.8 milUion pairs by 1986.Two years later, imports had eased somewhat, to 903.1 million pairs. However, the import penetrationratioY was 81% in 1988 versus 48% in 1978.

1.11 Apparent consumptionY of nonrubber footwear declinea from 1,169.8 million pairs in 1986to 1,118.0 million pairs in 1988. The U.S. per capita consumption of nonrubber footwear declined from4.8 pairs in 1986 te 4.5 pairs in 1988

i/ Nonrubber footwear includes leather and all other types of footwear except rubber and rubber-soled/fabric-upper footwear.

Import penetration ratio is the ratio of imports to consumption.

5/ Apparent consumption is defined as the sum of domestic production and imports less exports

Table 3: WORLD IMPORTS OF FOOTWEAR

World United States Westenn Eutpe J Asia bt

Share in Shar in Share InGrowth wdd Growth word Growth world Growt

Current ate Current Imports rate Current imports rate Curmt imporu rateYear USSOOO (%) USS$OO (%) (%) USSO0O (%) (%) US$S00 (%) (%)

1978 7,630,145 1,972,13 25.9 3,951,988 51.8 - 266,374 3.5

1979 9,727M,915 12.5 2,317,465 23.8 3.7 5,592,S96 57.5 24.9 39S,S95 4.1 31.1

1980 11,210,076 5.1 2808,578 25.1 10.5 6,512,001 58.1 6.2 450,648 4.0 3.9

1981 10,370,347 -8. 2,451,634 23.6 -13.1 5,331,055 SIA 4185 517S,048 s. 142

1982 10,617,459 3.8 3,287,400 31.0 36.0 5,271,126 49.6 0.3 53,882 52 8.6

1983 10,734,719 3.7 3,6S4,721 34.0 14.1 5,204,03S 485 t3 S2,639 5.1 2.4

1984 1221,331 16.2 4,971,753 40.6 385 5,2,795 42.9 2.8 641,653 5.2 18.2

1985 13,141,844 6.2 S586603 44.6 16.8 5,584,974 42.S S2 680,670 5.2 5.0

1986 16,543,793 6.5 6,625,348 40.0 -4.S 7,751,845 46.9 17.4 834,936 5.0 317

1987 19,98,238 93 7,343,536 36.8 1.0 9,768,058 48.9 14.8 12iE3169 6.4 40.0

1978.87 6.0 - 10.3 - - S.3 - - Lks

Sourom Coatmde Dataeb, Inta<;_lona Comptin Center, Genev&

w Waan Europe nlde EEC, AurI DenmarI, Finland Notway, Suden, and Stzeland.

IV As indaes Jspa n,ng H Kg and Sbnpo.

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Tb: SUPPLY AND DEMAND FOR NONRUDIER FOOTWEAR IN TE UNITED STATES(MfflM paw)

ImporlDo_ate Appa3t Per capita pentation

Year pBducte Exwr Impos COmpt coonsumption ratio

1978 4189 6.9 375.7 787.7 3.5 481979 3969 9.1 403.6 794 3.5 511980 3863 128 361.0 7343 3.2 49I981 3720 112 369. 729.8 32 511982 359.1 &9 479.5 829.7 3.6 581983 3392 75 5802 911.9 3.9 641964 3332 8.8 725.9 10203 43 71195 265.1 113 842.7 1096.5 4.6 771986 2409 11.9 940.8 1169.8 4.8 801967 2259 14.6 937.7 1149.0 4.7 821988 235.0 20.1 903.1 1118.0 4.1 81

Sorces U.S. Bueau of the cmn (198T usr (1989), Own estImate

1.12 Personal consumption e tpendiure (PCE) on all types of footwear reached US$27.1 billionin 1988, up from US$26.3 billion in 1987, and was expected to increase to US$28.7 biDlion in 1989.7/.However, PC3 in constant 1982 primas fell by about 2.9% in 1988, avenging about US$111.0 per capita in1988.0

1.13 AcodIng to the US. Department of Commerce, domestic production of nonrubberfootwear by U.S. manuawctures was expected to increase by 4.7% in 1989, to 252.7 million pails, withIncreases expec in au footwear segments. Import volumes of nonrubber footwear were expected todecline for the third consewthie year, with the Import penetration ratio expected to fall to 79% in 1989JP

1.14 In 1988 the lrgest suppliers of all types of footwear to the US. were Taiwan (34.7,%),Korea (21.3%), Chna (13.7%), Braz (11.2%), Italy (4.4%), Mexco (3.3%), Hong Kong (2.7%), and Spain(2.3%). In value, however, Brazil, Italy, and Spain were ahead of China. These eight countries togetheraccounted for over 85% of the total volume and value of footwear imports into the U.S. (Figure 2).

7/ Kurt Salmon Assocates (1988), p. 2.

A( UUS. Department of Commece (1989), p. 38-7.

2/ Slippers by 7% to 54.2 mIllion pairs, men's footwear by 7% to 69.4 million pairs, women's footwearby 3% to 87 miflion pairs, and other footwear, including children's shoes and athletic footwear, by2% to 42.1 million pairs.

jQ/ IbI p. 384

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FIGURE 2: U.S. IMPORTS OF FOOTWEAR IN 1988(percentage shares of major suppliers)

TAIWAN 341% ~ ~ ~ ~ ~ ~ TWA "S

0..KOMA ~ ' .. c KORA 74%%

KOREA I13 .. .tCO3.3 GRM'

.. ne .

OAM 11-2% ITALY :0.'

Volume of Imports Value of Imports

Source: Appendix Table A- 1.2.

1.15 U.S. imports of womenWs footwear and athletic shoes grew rapidly between 1980 and 1988and remain the largest segmentsyW Imports of childrens footwear have shown the fastest rate of growth,at 31.6%, although they aco,unted for only 4.9% of the total volume of imports into the US. in 1988(Table 5). The import penetration ratio for nonathletic footwear (dress and casual) in 1988 was about 68%for men and 86% for women. Import penetration for all types of children's footwear was 78%, and forathletic shoes, 97%.Wf

fiJ The fitness fad of the 1980s and the fad for sports shoes among young Americans turned athleticshoes into one of the fastest growing consumer sectos Worldwide sales of sports shoes soaredfrom about US$4.5 billion in 1985 to US$9 billion in 1988, with close to half the sales in the U.S.market. Reebok and Nike made sales of USS1.8 bitlion and US$1.2 bilion respectively in 1988.LA Gear, which stared as a shop in West Holywood, CA. six years ago, sold US$224 million in1988, and sales were expected to double in 1989 (Rawsthorn (1989b)). Analysts estimate that Nikenow claims a 26% share of the US. market for brand-name athletic shoes, Reebok controls about22% of the market, and LA Gear 13%, with the rest of the market dominated by Converse, Adidas,Keds, New Balance, and Avia (Rudolph (19899)).

IV US. Department of Commerce (1989), p. 38-9.

.9.

Table 5: U.S. IMPORTS OF FOOTWEAR BY TYPE (Milicn palm)

OWth Shererate Of total(%) (%)

1980 1982 1984 198S 1986 1987 1988 1980.88 1987

Women's 188.5 2143 397.4 417.7 45S.0 204 4843 17.0 482Athletic 74.1 912 147.9 213.9 281.7 22S.7 269.8 24.0 26.8Men's 521 112.6 84.5 103.1 1144 1" 1068 12.7 10.6Chadrens 9.4 22.4 32.9 463 50.0 502 4&9 31.6 4.9Other 44.8 76.4 99.1 10&32 96.9 94.7 9S2 13.4 9.5

Tbtal 368.9 516.9 761.8 884.2 998 107. 1005.0 18.2 100.0

Soune Compiled fm offidial data of the US. Bureau of the Census

1.16 Women's footwer was imported mainly from Taiwan and Brazil while athletic footwearcame from South Korea, Taiwan, and China. Men's footwear was imported pimaily frm South Korea,Taiwan, China, and Brazil, and children's footwear mainly from Taiwan. China and Mexico were thedominant sources of other footwear, such as workshoes and slippers (Table 6).

TabkI6 U.S. IMPOR OF FOOTWEAR BY TYPE AND BY PRINCIPLE SOURCES IN 1988

Women's Atetk Men's Chbldiens Other

MIL % share MIL % sham MiL %share MiL %se MAL %fsharepal in tota pw in ota pan in tow pairs intoa palr in tota

Taiwan 201.5 41.6 69.7 25.8 38.4 36.0 243 49.6 14.5 152Brazil 983 203 0.4 0.2 102 9.5 3.4 7.0 05 0.5Korea 622 12.8 119.7 44.4 182 17.1 32 6.6 10.4 11.0aCina 34.2 7.1 56.2 20.8 11.7 10.9 8.1 165 28.0 294Italy 333 6.9 1.2 0.5 4.9 4.6 2.6 53 1.8 1.9Spain 15.1 05 02 4.9 4.6 1.8 3.7 0.4 0.4Hon Kong 12.6 2.6 48 1is 26 2.4 2.S S2 4.8 5.1Thailand 7.1 15 82 3.1 0.6 0.6 03 07 1.9 2.0Yugoslavia 4.1 0.9 0.2 0.1 1.0 1.0 0.1 0.2 0.7 0.7Melco 2.6 0.5 2.0 0.7 2.2 2.1 02 03 26.0 273Other 13.2 2.7 6.9 2.6 12.1 113 2.4 4.8 62 6.5

Total 4843 100.0 269.8 100.0 106.8 100.0 48.9 100.0 9.2 100.0

Somu Compied tim offical data of the U.S. Bureau of the Cus

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1.17 Export prices. Footwear export prices (Lo.b.) vary widely, reflecting the many tpes andstyles, and differences in costs of production (Table 7):

* In 1988 47.8% of the volume of footwear expored to the US. was in theprice bracket of US$S or less. The bulk of exports in this price range wererubber and plastic footwear. Taiwan and China were the main suppliersin this category.

* Footwear priced at US$6-10 fo.b. accounted for 25.3% of total exports offootwear to the U.S. Brazil was the dominant supplier, particularly in thewomen's category, followed by Taiwan and Korea.

* About 25.6% of the total exports of footwear to the U.S. was in theUS$11-$20 Lo.b. price category. Kora, Taiwan, and Italy were the majorsuppliers in this price range.

* Only about 1.4% of the total exports of footwear to the US. was in theexpensive footwear categoIy, mainly from Italy. IN

Table 7: US. IMPORIS OF FOOVWEAR IN 1988(perntage duar by Eob. prke segments)

LO W < US$S) Medium (US$6-10) High (USS11-20) Very High (> USS20)

Milion Share in M Share in bMilion Share in Million Share InCounty Pi toa ( Cony pait total (16) Coutry p- toal (%) Country paia total (%)

Taiwan 232.8 48.5 Brazil 97.0 382 KOMea 1313 51.1 ItalY 7.8 574China 127.0 26.4 Tawan 66.6 26.2 Taia 49.0 19.1 France 0.8 5.9Korea 382 8U0 KOa 43.5 17.1 It 25.7 10.0 Other 5.0 36.8Mexco 28.5 5.9 China 10.7 4.2 Spain 18.4 7.2Hong Ko 18.6 3.9 Tbagand 9.0 3I5 Baz 9.9 3.9Other 353 73 Otber 27.4 10.8 Other 22.6 8.8

Total SI 4804 47.8 2542 25.3 256.9 25.6 13.6 14

Sour: Compild from offidal data of the US. Bureau of the Census

a/ The parentage share fiue for th totals in eacb pie cateor ep the p_entape shae in the grnd total impor of 1005million pair.

D3I The markup by importersw0holesalers is about 30% of the export pric It normally includeshandling, transportation, duty, and a commission of about 5-10%. Retail markups vary dependingon the type of retai outlet. Independent shoe stores and depment stores have a 60-65% markupof the wholesale price. Discount stores have a 50-55% markup (Egan and Mody, 1989, pp. 12).

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E The E qrpean MaWk

1.18 In 1987, Germany vas the largest impoter of footwear in the European market, followedby France and the United Kingdom (TIable 4 Imports of footwear by these three countries constitutedalmost 60% of the total footwear impors Into Western Europe. Between 1978 and 1987, imports offootwear grew in real terms by 4.0% In Germany, 8.2% in France, and 6.3% in the United Kingdom. Othersignificant imporers Included the Netherlands, Belgium, Switzerland, Sweden, Austia, and Italy. Strongreal increases in Imports of footwear were recorded by Greece (26.4%), Italy (21.7%), Spain (18.4%), andFilad (14.0%).

Table MAJOR EUROPEAN IMPORTERS OF FOOTWEAR

Share ofGrowth rate impors into

() Eure (%)

1978-7 1978 1987

West Genna 4.0 33.5 29.8France 82 132 16.7Unid Kingdom 6.3 122 13.2Netbelands 3.1 9A 7.7Bdgium-Im 13 9.1 63Switzerland 52 SR. S.7Sweden 6.7 3.7 4.1Ausra 4.4 4.1 38Italy 21.7 1.0 37Nornway 32 29 2.4Denm1k 4.8 25 2.4re;and 3. 1.7 1.5

FInlnd 14.0 7 1.4Spain 18,4 03 0.9Gre4ee 26.4 0.1 0A

Soume: Table A-IA

1.19 Table 9 shows the trends in the supply and demand for footwear in Germany, France, andthe United Kingdom. Production of footwear declided in all three countries (after 1985 in the UnitedKingdom). Impors, apparent consumption, and import penetration ratios incresed signfficantly.L4

/I In 1987, the combination of the dwindling dollar and the threat of protectionism in the UnitedStates-which prompted Far Eastem exports to re-direct their energis towards Europe-fueled anunprecedented surge of imported footwear into Euope. The U.K was hardest hit, with a numberof small faoWries, mainly speciaized in making synthetic women's shoes for the multiple retailgroups, 1toed to close down.

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\ Table 9 SUPPLY AND DEMAND FOR FOOTWEAR IN GERMANY, FRANCE, AND UNIrED XINGDOM(MfiDbo pars)

ImportDomesni Appart Per cpia pmratloe

Year pn ducla ERsp Imports cons mumption ratio

1983 93. 29.7 26.7 270.6 4.4 761984 922 3.1 216.4 2785 4. 781985 8.7 35.7 222.8 273.8 4.4 811986 867 34.1 239.7 292.3 4.8 821987 786 36.5 2734 315.5 S5 87

Franon

1983 206.1 S43 138 289.8 53 481984 201.8 603 147.0 288.5 52 511985 198.1 60.S 1573 294.9 5.4 531986 194.8 57.7 1731 310.2 SA 561987 1832 S4. 205. 334.2 6.0 62

Unit Kndom

1983 153 17.0 139.3 247.6 4A S61984 1.7 18D 1633 273.0 4.9 601985 136.0 183 17.2 274.9 4.8 571986 129.1 19.2 154.4 2643 4.6 S81987 1253 203 177.9 212.9 4.9 63

S ¢ou, Swalks and Smal (19) own admt.

1.20 Amcrdi to figures from the Euromonitor database, personal consumption expenditure onanl types of footwear expanded vwy rapidly in Western Europe between 1977 and 1986 (rable 10).

1.21 In 1987, the major suppliers of footwear to the European market we Italy, PortualSpain, Taiwan, Germany, Korea, Fnce, Austua, and Yugoslavia, in that order (gure 3). The Europeanmarket has been d acteized by a high degree of intratrade. I,ly remained the largest supplier offootwear to the European market, despite a decline in its share from 49.5% in 1978 to 41.4% in 1987.Portugal increased its share from 1.5% in 1978 to 73% in 1987, Taiwan from 2.3% to 6%, and Korea from33% to 5.1%. Spain held a kitty steady share, while German and France lst ground. Although thenumber of other suppliers was large, including several developing countnes, thc. market shares of thesecountries were less than 3% each (Appendix Table A-1.4).

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ITal 1 CONSUMER EXPENDIMURE ON FOOTWEAR INWEBSTRN EUROPE. 1986

Total per Capita % growthMlL US USS 1977.86

Belgln 8Om1 81 79.2Denma* 315 61 61.1Ftane 5,703 103 146.7West Gamany 8004 131 75.0Greece 181 18 247.4Irelad 192 54 460.8Italy 5S6 88 252Nelheda 1,310 90 433Portud 356 35 441.7Spah 2392 62 1653United KWSdom 4,414 78 171.1Austria 1,274 168 72.7Finland 267 54 110.1Nonwy 461 110 126.0Sweden 769 92 172.4swltidand 845 130 512

Source: Eummonitor (1964.

FIGURE 3: IMPORTS OF FOOTWEAR INTO EUROPE iN 1987(percentage shares of major suppliers)

POftIUGAL 7.3W ~ ~ ~ 8.3

Value of Imports

Source: Appendix Table A- 1.4.

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F. Ite Asian Market

1.22 Japan, Hong Kong. and Singapore have been the major Importers of footwear in Asa, withHong Kong importing mainly for reexport (Table 11). Japan accounted for 60.1% of the imports into theregion in 1987; the value of Japan's footwear imports rose by 11.2% per year between 1978 and 1987.

Table 11: MAJOR ASUAN 4PORThRS OF FOOTWEAR

Share InGnrwh rate imports ino

(*) A (%)

1978-1987 1978 1987

Jaan 11.2 72.1 60.1Haon Kn 21.2 17.9 32.5Sngpoe 9.6 10. 7A

Sonurc Table A-15.

1.23 Table 12 shows the trends in supply and demand for footwear in Japan. Impors offootwear increased significantly in 1987. Mmeimport penetration ratio incresed significantly as well, from26% in 1983 to 41% in 1987.

Table 1' SUPPLY AND DEMAND FOR FOOTWEAR IN JAPAN(Miliou pain)

Donestic Appant Per capha pene_tationYear productko Hpols I consumption conumptio ratio

1983 220.0 1S5 723 2768 2.3 261984 235.1 14.4 868 307.5 2.6 28198S 224.0 13.0 89.8 300.0 2.5 301986 209.5 7.8 998 30135 25 331987 198.7 6.8 1360 327.9 2.7 41

Source: Swals and Small (1"98 Own atimata.

1.24 In 1987, the major suppliers of footwear to the Asian market included Korea, China,Taiwan, Italy, France, and the United States (Figure 4). Tgether these countries provided over 90% oftotal imports of footwear into the Asian market.

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FIGURE 4: IMPORTS OF FOOTWEAR INTO ASIA IN 1987(percentage shares of major suppliers)

aw O2tR 10.4%TAIWAN 21.M%~

PRNc 45%6

n v n.t

Value of Imports

Source: Appendix Table A- 1.6.

G. Trade Barrirs

1.25 Sine 1950, several rounds of multilateral negotiations have reduced tarff on footwearimports into developed countries; on the whole, tariffs no longer constitute a formidable trade barrier Withtariff practies constained by GA1T (General Agreements on Tariff and Trade), many countries haveesablished other types of trade barriers to limit footwear imports.

1.26 Taiffs. With the emeption of taiffs on rubber and plastic footwear in some countries,tariff rates on footwear are fairly moderate in the major markets. In the United States, the most-favored-nation (MFN) duties on footwear range from 0-10% of the value of imports for leather footwear, and from048% for rubber and plastic footwear. In 1988, the trade weighted average was around 7.2% for leatherfootwear and 14% for rubber and plastic footwear.! Under tarff provision 807.00, American companiesthat reimport footwear assembled overseas from US.-made components pay duty only on the value addedabroad.

1.27 In Japan, duty on impots of leather footwear is based on a tariff quota system; tadff ratesranging from 21.6% to 273% of Import values may be raised to 60% to 72.7% if quotas are exceeded.Imports of rubber and plastic footwear are subject to a tariff rate of 10%.

1.28 Table 13 shows the post-Tokyo Round MEN bound tariff rates for the major Importersof footwear.

/I Estmated, using official data of the U.S. Bureau of the Census.

* 16 -

Table 13: POST TOKYO ROUND MFN BOUND TARIFFS ON IMPORTS OF FOOTWEAR (ad "Wrem)

Rubber or PanUs of kgging,plsti Leather Wooden Other footr etc.

EC commo anal tariff 20.0 8.0 S.8 4.9 4.5.8 6.0Finland 125-15.0 I00-20.0 6.2 62 9.0-15.7 8oNotway 18-10.4 3.1-9.8 03-21.7 8.5 539.4 8.9Sweden 19.5 14-165 S 5.8 5.-72 4.9-72Switzerland 9.1-9.6 &2812.7 Z7-32 6.6 13-3.3 2.8United States 0.014 04-10.0 5.1 0.80 0.0480 00-48Japan 10.0 21.-273 4.8 43 4.2 42-5*

Sou Adapted frm the tarff database of World Banks Ilternationa Trade Diison. Mie tarff rates for Ithe U.S. awe eomthe Harmonized Tadff Schedule of the United States.

1.29 In the 197(h a number of preferential schemes were inrduced to give developing countrieseasier acce to overseas makets. In practice, such preferential treatment is subject to limitations. Forexample, in the Japanese market, preftial treatment for footwear is tightly controlled. In Can andthe U.S. most footwear is excluded from preferential schemes In Europe, a revised CDmmon Marketscheme in 1981 resulted in reductions in preferential quotas of leather and leather products from developingcountries.

1.30 NontArlff Barries Various types of import quotas have been the prevalent nontariffbarriers In 1987, Japan's global quotas restricted footwear imports to 2.7 million pairs, of which 2.4 millionwere actualy imported.O In 1984, the Footwear Industries of America (FIA), representing the U.S.footwear industly, asked for protection from imports for its member, which was refused by the US.International Trade Commission (USTC). In 1985, however, the USITC determined that imports were asubstantial cause of serious injury to the domestic footwear industry. lhe CDommsion recmmendedquantitative restrictions for a five-year period on imported footwear valued at more than $2.50 per pair bythe U.S. Customs Seic 1 However, the President of the United States did not accept the USITCecommendation, and no further action has been taken.W

131 Trade in footwear and footwear components made from textile materials is regulatedthrough the Multi-Miber Afangement For eample, in 1988 the U.S. imposed quota restrictions on textile

IN Th US. Department of Commerce (1989), p. 384X

17/ The United States International Trade Commission (1985).

In September 1987, the US. House of Representatives passed the Tetile and Apparl Trade Act,which limited nonrbber footwear imports to their 1986 level (941 million pais) and establishedglobal import quotas by category and proe bracket. Action was postponed until September 1988when the U.S. Senate passed a new verion of the bill, containing an amendment to discourageretaliation On U.S. agricultural exports and to change the base year to 1987. However, the Presidentvetoed the Bill, and an ovrde attempt in the Houe failed (Me U.S. Depment of Commerce,1989, p. 38-8).

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footwear imports from Macao, Mexico, Paktstan, Poland, Romania, and Singapore. However, theserestrctions do not seem to have been binding; most of the quotas were not hlled.

132 A second, and currently important, means of applying quantitative restrictions to importsinvolves so-called voluntaty export restraint (VER) or orderly marketing arangements (OMAs). When anexporing countiy and an imporing country sign a VER agreement, the former is constrained in its volumeof sales to the latter. The U.S. negotiated footwear OMAs with Korea and Tiwman over the period 1977-81. When these OMAs expired in 1981, footwear imports jumped sharply.

1.33 In 1987, the Italian govenment persuaded the European Commission to launch aninvestigation into the increasing volume of imported footwear from Korea and Taiwan. Italy imported 18miDion pairs of footwear from Taiwan in 1987, but since March 1988 imports bave been limited to 9.5million pairs annually.AW Korea also agreed voluntarily to reduce its exports of footwear to Italy until 1990.The agreement was reached during talb with the European Commission and called for Korea to ship 12.6million pairs of footwear to Italy, with a provision allowing for an annual growth rate of 5% until June1990.2 France also obtained similar VER agreements from Korea and Taiwan.

1.34 In 1989, European footwear industry lobbyists pressed for the introduction of restraints onimports from the Par East, along the lines of those obtained for Italy and France. The EuropeanCommision has conducted an inquily to assess whether impor restraints are justifiable but has not madeany decisions. A growing body of opinion is that restraints proposed against South Korea and Taiwan alonewould not be adequate. The experience of the Italian and French industries suggests that, faoed by barriersto entry, Korean and Taiwanese footwear exporters have simply exported indirectly to Italy and France viaother European countries with free access to the EC, such as Belgium and Holland. Korea and Taiwanhave also switched production to other Far Eastern countries, such as Thailand and Malaysia, from wherethere are no restrictions to the French and Italian markets

135 This situation has prompted footwear lobbyists to ask for impor restraints across the EC,to end indirect exporting within Europe, and to introduce restraints not only for Korea and Taiwan but forall the Far Eastern footwear producers.AY

11 Higham (1988b), p. 35.

W/ Financial Times (1988).

IV Rawsthorn (1989a).

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IL PRODUCION

A. Competitlve Production Strtegies In Industrlal Countries

2.01 In response to the increasing flow of footwear imports from low labor-cost countries, firmsin industrial countries are adopting measures to recapture their shaies of the footwear markets. Some oftheir competitive production strategies include:

* focusing on production of special or high quality footwear with superiordesign and craftsmanship;

* reorganizing their production processes through techniques such as QuickResponse (OR) to save on stocks and work-in-process while increasingtheir responsiveness to market changes; and

* using advanced microelectronic technology to improve the quality of theproduct and to cut labor cost.

2.02 Many segments of the footwear Industry remain resistent to automation, however, givinglow-cost countries a continued comparative advantage in production. At the same time, nonprice factors,such as quality in all segments and quick response to orders and reorders, are becoming increasinglyimportant. This will mean that developing country producers need to consider the use of electronic-basedproduction and information technologies. Technological innovations in footwear thus represent both athreat and an opportunity for developing country suppliers.

B. Modern Techniques In Productlon Organlzatlon

2.03 Frequent changes in footwear fashions mean rapid obsolescence of style, color, and design.To protect themselves against the risk of accumulating unsold stocks of footwear, many retailers are lookingfor producers that are fleible enough to produce a variety of footwear styles with shorter lead times.Consequently, QR production techniques based on the Japanese-inspired "just-in-time concept, arebecoming widespread in several industrial countries-including Australia, the United Kingdom, and theUnited StatesA

2.04 Studies indicate that the footwear production cycle, from order to delivery, can be reducedby 60%o through a QR program-combining reduced inventories, shorter production runs, and streamlinedproduction techniques.V The basic idea behind QR is to achieve timely delivery through a partnershupbetween the supplier of raw materials, the footwear manufacturer, and the retailer. Managem'rn,information technologies are an essential part of the QR programs (see Section C).

2.05 Electronic communication, in particular, is the prerequisite for QR implementation. Shoeboxes are marked by the manufactuer with standard UPC (uniersal product code) stickers that containinformation on style, color, and size. A scan of the box's UPC code at the point-of-sale captures completeitem information for sales analysis and inventory update. This information also is passed on to themanufacturer who can monitor sales trends and anticipate color, size, and style reo.ders. The data also canbe used to modify the product mix, making sure that products meet consumer preferences (see Box 2.1).

D2/ UNIDO (1989), p. 297.

/ Ihall, Dedol and Sutton (1988), p. 41.

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Box 2.1: SUCCESSFUL CANDIDATES OF QUICK RESPONSE STRATEGY

Fshaer Camuto, a U.S. company in Stamford, Connecticut, manufactures over is milion pairs of women's shoes in Brazilannually under a number of product lines. Over the nao two yeats it plans to open more than 200 retail stores in the U.S.in addition to its large wholesale opertion. n?e company uses computers for every function, ranging from order processing.Inventory control, and distribution to accounting, polling retail stores, and tracking production and work-in-process.

Oue of the main jobs of the 230 staff at its data center Is to track shoes as they are shipped from the Brazilianmanufacturing plants to warehouses in the U.S. and finally to more than 5,000 retail locations. In addition, each day the datacenter colects sales information on shoe color, style, size, mateal, even beel height, from large department stores as well asfrom its own ret nework, to identify sales and fashion trends quickly.

lhe process begins on mainframe computers that collect data from point-of-sales terminals in retail stores. The data aredownloaded into minicomputes, analyzed, and the results sent via telx to the manufacturing contractors in Brzil. The objectiveis to step up production on best sellers and slow down work on poor performes lhe information collected also allows thecompany to shift its hiventory to areas where a panicular style is selling well (Conlon, 1985).

Peter Kaiser, a German company specializing in classic and cxpensive all-leather women's pumps, is a profitable companythat emphasizes fit and elegance before fashion. The key to Kaisers success is the Quick Response strategy rather thancompetition based on price or fashion. Kaiser manufactures all its products based on received consumer orders to helpminimize inventories and detivery schedules. Kaiser employs liaison staff at idskin tanneries in Italy and India to inspect andselect only the best grades of leather at the right time. Selection is based on codes from a central computer that processes allclient orders and directs the manufacturing operation accordingly. Kaiser also demands post-dated checks from its customersat the time of the order. It then allows customers to set specific delivery dates for specific lots of merchandise. This allowsKaiser to plan its production to meet these target dates. KaiserWs sales in the US. have remained stable at about 80,000 pairsin each of the past two years, despite price increases of 50%-up to $47-landed for a pair of plain pumps--because of thedevaluation of the dollar. Most of Kaiser's clients are independent retailers that have worked dosely with the company formany years. Mmhe clients help by tracking new color and style developments in the market on a daily basis to maximize Kaiser'sQuick Response and their own respective profit margins (Dimaria, 1988a).

Another company that has benefited f(rm computerized management systems is Baly in Norwich, England. The companyhas inlled a US$8.2 million computerized management sptem to integrate its manufactuing, distribution, and retailingactivities-with the objective of having every part of the system respond dynamically to changes in the market. After the systemis completely instaled the company is expecting to produce 50% more output using much the same work force (Financial Times,1987).

2.06 QR methods of production also call for timely delivery of raw materials: manufacturersand suppliers define parameters and needs and set up a programmed delivery schedule.

2.07 Advocates of QR footwear manufacturing claim that the program eliminates time andmaterial waste in several ways:

* Quality is improved, with damages and the need to rework footwear greatlyreduced.

* Since the system calls for just enough material to produce the footwear fora given order, material surpluses are avoided.

* Problems with quality and type of raw materials are identified beforecutting or usage begins.

o Because job lots are smaller and more tightly controlled, work-in-processis greatly reduced. This reduces lead times, inventory costs--and increasesfirms' ability to respond quickly to orders and reorders.

* Fmished footwear inventories are greatly reduced.

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C. Devopments In M kIroeectnk Tecnolo

2.08 Footwear production usualy involves numerous steps, grouped into six broad categories:design, cutting, dosing (stitching), bottom stock preparation, makdng, and finishing. These steps are caiedout with a vadety of technologies, ranging from labor-intensive to highly mechanized. Mechanizationnormally Is associated with lage scale.

209 Despite footwear production's traditional reliance on labor-intensive methods and theresistance of several manufacturing processes tO automation, technological change in the 1980s wassubstantial The most signifcant innovations have been computer-aided design (CAD) and microcomputer-based management systems. Deted description of these and other technologies are provided in Table 14and Annex B.

2.10 Use of automated technology, particularly in design and cutting, reduces machine setup timeand unit labor inputs. Material savings and energy conservation are among the additional benefits.Experience indicates that operators can learn to use these technologies quickly.

2.11 CAD systems can save time, reduce unit labor and material requirements, and improve thequality of the product in seveIal ways:

* Significant costs usally are inouwred in developing the many styles offootwear in most manufacturers' lines. CAD allows designers to modilyexisting styles on the computer without having to construct iany models.

* C;onversion of designs into patterns and pattern grading also has beencomputerized, thus speeding up the design process Using CAD to gradepatterns ensure accuracy. The Improvement in acuacy of grading by sizeis particularly important for brand-name producers who emphasize fit andcomfort.

212 managemt systems also have provided the opportunity for firmsof all sizes to use information technolog to reduce costs. Some of these technologies include:

* software for accounting. invoicing, and payroll;

* software for calculating costs in new footwear design;

* software for leather measurement, which helps reduce material waste;

* software for production scheduling and inventoty controL

2.13 Such pkaes allow manufaaurs to minimize inventories and delirvey time. This in turnmeans a reducion in throughput time, with smaller amounts of materials and components tied up inproduction, elimination of overproduction, and major savings in labor costs.

2.14 Computer Igated -ufcg (ClM). Seval footwear manuacts in industrialcountries are attempting to interface the varous computer systems into a computer-integrated manufctur-ing system. Hover, CIM is stil in expermental stages, with the links between CAD systems and footwearmachdnety still being developed. The Footwear Technology Center in the United Kingdom plays a majorrole in these developments.W

W4 UNIDO (1989), p. 297.

*21 -

Tabbl1: MAJOR MICR3tLECJRONIC TECHNOLOGIS FOR FOOTWEAR PRODUCTION

Technokog DaseiDption Labor implicos

Computeraided dedsg (CAD) Shoe style can be depcted rapidly an a Unit labor requrements can be greatlyscram CAD Is also used to derive meas- educed compared to the manual process.urements for component parts of a oepr to Its production.

te gs~an Includadadaountandadmlnst- Reduc the requimnt for white-collarratve progrms, leather measrement woarer. Provides the opportunity toyuems, databas for piecawork prices, inaese responsiveness to market needscmpone and materials stock control and to reduce costssystes productio scheduling andfilnshod stock contr ystem

Compute-crolled Stitching Most advanoed stitchig Is on mro- A productitvity Increa of at last 25proomor- controled macdhin Ibe perent is asocaud with some decle inmachines-used for fntinal and fay emplyment and rplacement of skilledstichlng-stitch automatically with plug-in workes by semisil opem. Amodules that contian stitcbhg patterns. mechanic an often be trained to progam

the modukl

Numerically-contrlied (NC) The machn automatialy dim a brush Unit labor are itl kwer than forup rughin maiwne In roughing pot of the sh upper to manual mughing, since operator may

provide a base for cementi perform other work after machine is setin motion Opoerator skill requirmtsare also reduced.

Fwepart pulling and stng machine with Automaticsizedeterminationandposition- Unit labor rqu_ ments and ski requirmipocesr conto lug assure predse cementig of upper to meats of operators ar reduced.

the Insole Prgamming can be eaily mastered byworke with epence in lating.

l4ectionmoldng madhieih micpo- Automatically molds a shoe bottm frm Injection moldig deimabtes steps and iscssor control themoplat or polyurethane to the therefore mucb lss labor intensih

upper Automatic ading feature may limtiateone opeator on a molWing machine

Sole laying prms Machine automaticlDy determines the Less operator sMi Ws equred and qualtycontour of shoes bottom and adjusts for of output is Improved over that ofbeel height to assure that shoe is accurate- mahines without automatic adjustmentsly positoned before permanent attachmentof sole to shoe bottom.

Soo= US. Depatment of Labor (1966)6 p. 19.

2.15 Soures of ew technologes. Technological developments for footwear manufcturing haveoriginated mainly in Western Europe and the US. (see Annex C on R&D). The United States is a majorfootwear machinezy manufactuer, while Italy and West Germany produce the most comprehensive rangeof equlpment Footwear machiMney also is produced in Brazil, Czechoslovakia, Korea, Tawan, and Chinaand is essentially based on European or American models.0

/I International Labor Organiation (1985), p. 33.

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D. Barriers to Adoption of Modern Technologies

2.16 Despite potential benefits, the diffusion of automated technology in footwear manufacturehas not progressed rapidly for several reasons. First, the complexity of footwear design and constructionmeans that many processes do not lend themselves to automation. For example, automated machines havelimited capacity to handle frequent design changes or to carry out complicated processes. The automationof stitching in particular has proven difficult due to the variety of stitches and shapes; it is only feasible forlong runs of simple stitchwork.

2.17 Second, skiUed workers are required wherever traditional methods of production persistFor quality men's and women's dress footwear, shoes of traditional design and construction are in world-wide demand. I Thus, countries with relatively low-cost skilled labor wil continue to have advantages inthe foreseeable future.

2.18 Third, benefits from automation in footwear manufacture still are associated with largevolumes, long runs, and mass production techniques. As a result, automated machinery has so far beenadopted mostly by very large footwear firms. Italy is the exception, where small-scale footwear manufac-turers have equipped themselves with the latest machinery.

219 Although the incentive to automate production is greatly reduced by the high costs and highbreakeven volumes of such machinery, CAD is one area where the cost-benefit picture may be attractiveto smaU footwear manufacturers. Even though CAD systems require significant investments, automationof design and grading is possible without a company having to automate manufacturing at the same time.Also, the cost of CAD systems is dropping steadily with the increased availability of small, cost effectivecomputers (PCs). In Canada, the Waterloo Region Shoe Manufacturers Ltd. acts as a CAD service for fivecooperating footwear manufacturers, allowing them to share the high cost of automation. lmesharingpolicies allow for confidentiality of company designs, equal access to computer time, and the sharing ofthe dividends with owner companies.

2.20 In any case, the limited managerial resources in small fims and the lack of expertise andinformation required in the choice and use of technology systems remain major constraints in the adoptionof new technologies.

E Technical Management and Labr Requirements

2.21 The increasing importance of design and product development has affected organization andthe mix of labor skils in footwear firms. The importance of rapid response to changes in various marketsegments has required tighter links betwcen marketing, product development and production engineeringin competitive footwear firms. For some firms, these requirements have led to growth in so-called multi-skilling

2.22 New technologies are having a major impact-in some cases substituting for traditional skillsand labor inputs, and in others complementing them. As noted, CAD systems have become important inpattern production and grading, ie., software has replaced traditional skils. However, in transforming

7AJ Rubery, Tarling and Wilidnson (1987), p. 146.

27I Falconer, T. (1986).

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design ideas into products, computers complement skilled workers' knowledge of products, materials andprocesses.A'

2.23 In production scheduling and stock control, major advances have been possible throughadvances in information technology. These changes have reduced labor in stockroom management andproduction planning-enabling better control of inventory and work-in-process costs and time.

F. Implications of Modern Technologies for Developing Countries

2.24 Despite technological innovation, most segments of the footwear industry remain labor-intensive, thus being suited to low-wage countries. Newly industrialized countries (NICs) such as Korea andTaiwan and, more recently, less developed countries such as China, Thailand, and Indonesia have been ableto compete successfully with industrial countries, thus increasing their market shares.

2.25 Average wage levels in the footwear industry have been well below the averages for othermanufacturing because the skill requirements are, on the whole, fairly modest. However, wages for footwearworkers in industrial countries are much higher than in developing countries (Table 15).

Table 15: TOTAL HOURLY COMPENSATION IN FOOTWEARINDUSTRY IN 1987

Total hourlycompensation

Ccountry USS

Italy 1136Japan 82West Germany 7.34Spain 658United Kingdom 6.57France 6.54United States 5.95Hong Kong 2.36Taiwan 1.83Portugal 153Korea 1.26Brazil b/ 1.20Melico 0.48China A( 0.40Ibailand 0.35

Source: FIA (1988); Swailes and Small (1989)

. 1985 data.

y 1986 data.

2,/ Allen-Edmonds, is a U.S. manufacturer of high quality men's leather welt shoes. At the Allen-Edmonds plant in Port Washington, New York, computer-aided design means that patterns for afull range of sizes in new styles can be produced in hours instead of months. A $125,000conveyor system moves shoes from each workstation to the next Machines assist with cutting,stamping, and drying. And yet many of the 212 separate steps required for completing everypair of Allen-Edmonds shoes involve shaping, stitching, and polishing by hand. Allen-Edmondsis one of many companies that has carved a niche for itself in the world market by producinghigh quality shoes that still draw more heavily on skilled labor than on automated technology(Bahls (1989)).

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2.26 A recent World Bank/University of Wisconsin study PJ makes a comparison of the cost ofa leather dress shoe in developed countries, in newly industrialized countries (NICs) and in less developedcountries using traditional manufacturing techniques. As Figure 5 shows, material costs (mainly leather)and valued scrap M make up a significant proportion of the total cost. In the developed countries, laboralso accounts for a significant percentage of total cost, while in developing countries the cost of maintainingwork-in-process and inventories is high. Given such a breakdown, a traditional footwear factory in adeveloped country may find it difficult to compete on production costs with low-wage NICs and lessdeveloped countries.

Figure 5: Production Cost of a Leather Shoe

1232 166%) $12 92 166%I

63 (2-A I ~ ~ ~ $060(2%) 0 6 (3%)

70 (3%) (31A W (2.I$066)%)$ %2 110%)

$7.37 (27-A1 ti tii 11i ;4 S7 f21% ill 123%)

Developed Less Developed Newly Industrializedcountries countries Countries($26.94) ($21.99) ($19.00)

) Malrida , Labor j Vaoed Scrap

EqUIPM*nt ~~Land, 9vi)4igs,,We Wo0 -np ooass 3Equlpmant EIII ;st toEl I ~~~~~~~~Admn,is,tration1

Source: Mody, SurI, Sanders, and Van Zoest (1990).

2.27 The question is, however, whether developing countries can remain competitive on the basisof their low labor costs. In the short and medium term, low-cost production will remain a competitivefactor for the low-end segments of the footwear industry. Companies using low-cost sourcing, such as Nike,Reebok, Hi-Tech, and Wortman International, will continue to do so. In the long run, with the possibilityof computer integrated manufacturing (CIM) becoming a reality, mass producers in industrial countries couldgain a competitive advantage over current developing country producers. Also, to the extent that the newtechnologies give producers in industrial countries an edge in quality and in timely delivery, developingcountries could be at risk of losing market share, particularly in high-end segments.

2.28 The World Bank/University of Wisconsin detailed analysis of the impact of new technologieson production costs in the developed, newly industrialized, and less developed countries shows that thelargest reductions in costs for all types of countries can be achieved through improved production andmanagement techniques (Table 16). On a purely cost basis, the study does not find any merit in the

9/ Mody, Suri, Sanders, and Van Zoest (1990).

N/ Includes cost of raw materials as well as any direct and indirect costs of the item scrapped.

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immediate adoption of CAD/CAM technologies, although, as mentioned before, CAD could be justified onthe basis of improvements in design and quality of the products. 'he study also assesses the impact ofassembly automation and concludes that cost savings from automation are minimal at present. Howeer,with the emergence of new materials and technologies and further development of present technologies, thestudy foresees scope for more reductions in costs, primarily in developed countries.

Table 16: COST OF PRODUCING A SHOE WIIH ALTERNATIVEPRACTICES & TECHNOLOGIES

Less Newlydeveloped industrialized Developecountries countries countries

Production cost under presentstate of production 21.99 19.00 26.94

Curet best production &management practices Al 104 23.22

Future best practices w 1647 17.3 W06

Future automation St - &X78

Future automation and"Actio Leathee(new materal) - 14.1

/f Consis of internal process improvements (such as reduced scrap rates), reducedinventores, duced cyce times, and improved management. Newly indusalizedcountries are considered to be at this stage already.

nbwolves further improvements in process friiency and management, and inventoryreduction.

5/ Automation extended to more operations.

Source Mody, Suri, Sanden, and Van Zoest (1990).

2.29 Adopting the latest microelectronic technologies therefore is not the most important waydeveloping country firms can maintain or increase their competitiveness. The success of footwear companiesin all countries depends mostly on adjusting production organization and increasing responsiveness tomarket changes. Such organizational changes wiU be critical for smaller firms, particularly because manyautomated methods are not conducive to small-scale footwear production and frequent changes in design.Production reorganization should aim at reducing work-in-process through:

* improving access to raw materials;

* improving quality control;

* improving inventory control and production scheduling; and

* providing training for both management and staff.

2/ Rubery, Tarlin& and Wilkinson (1987), p. 141.

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2.30 Access to raw materlals. Footwear manufacturers in many developing countries rely on low-quality, local raw materials--which relegates these firms to the low end of the export market. The problemof raw materials can be connected to high duties or restrictions on imported inputs--for both direct andindirect exporters--and inadequate development of local allied industries.

2.31 Liberalizing the import of Inputs for export production will be critical for less developedcountries if they are to compete. Some of the successful NIC footwear exporters rely heavily on importedleathe.rs, for example-Taiwan and Korea import their leather in finished and semi-finished forms. Loweringduties on imported materials also would force domestic suppliers to improve the quality of their products.-MIn general, the flow of leather has always tended to be problematic; and it is important that leather footwearmanufacturers establish stable and effective supply networks (see Box n2).

Box 2.2: RAW MATERIAL SUPPLY NETWORKS

The supply of leather available for footwear production is affected by the quantity of hides and skins available and bythe quality of the leather itsel£

Quantity is influenced by cyclical variations in cattle slaughtcr--and even depends on people's meat-eating babits. In theUnited States,- mor poutry is being consumed than beef, with a consequent effect on the number of cattle being raised andslaughtet& MTe reduction in cattle raising means impending shortages of hides and leather. Similar meat-eating patterns areoccurring in other parts of the world.

Differences in texture, thickness and colors in leather are a potential soLrce of difficulties for footwear producers as welLThe quality of rawhides and tanned leather is affected by a variety of factors: slaughtering techniques, climatic change, pests,and other environmental conditions. Footwear producers need to find means to ensure not only an adequate supply of leatherat predictable prices but also consistent quality. Many producers in Argentina, for example, argue that their footwear is notintemationally competitive because the best grades of Argentine-produced leather are shipped abroad (Gereffi and Korzeniewicz,

1989, p. 17). Proiding incentives to tanners to sell in the local market, rather than to export, will be necesaty for theproduction of better quality footwear.

Such luctuations in quantity and quality of raw materials support the organizational imperative for footwear manufactuiretsto establish meliable supply networks. It is xpensive for tanners to buy hides, tan them, and maintain Inrentories of leather thatmay not sel In Bruzl, for example, many contract finishing houses have begun to produce leather at a steady rate and boldit as inventory, with manufacturers contracting to have the leather finished as needed. Alternativdy, footwear manufacturetscould share the ct of the inventories by making advance payments to the tanners (Thall, Dedol and Sutton, 1988, pp. 65-

66)3

Another option is vertical integration. This gives manufacturers the rapid flexibility in responding to changing fashiondemands (Gerefl and Korzeniewiic, 1989, p. 18). For example, Brazil's largest footwear manufacturers have purchased lcaltanneries tn China, the powerful group companies, such as the Shanghai Leather Corporation or the Guangzhou LeatherIndustry Corporation, include tanneries and footwear machinery plants in their holdings as well as footwear factories (WorldFootwear, 1989, p. 40). In Thailand, Saha Union, the leading Thai footwear group, has strengthetned its supply network byinstalling a leather-tanning plant (Howie, 1988, p. 45).

IV In China special economic zones have been set up, mainly on the East Coast, which is the mainarea for the footwear manufacturing industry. In these zones, imports are duty-free if they areinputs into goods that will be exported. In India, the government allows exporters of leatherfootwear to import all leather fiee of duty. There are also concessionary import duties oncomponents, and the import of footwear machinery has been liberalized. Indonesian shoemanufacturers can also import raw materials dtuty free if the final product is destined for export.However, no mechanism allows suppliers of raw materials--leather, canvas or chemicals-toimport their goods duty free. Thus, local suppliers often cannot compete with importedmaterials.

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232 Local allied industries also are important in the development of a competitive footwearindustry. Taiwan, for example, enjoys the advantage of producing good quality polyurethane andpolyvinylchloride sheet materials. A range of modern footwear machincry, hardware, textiles, and syntheticrubber is available locally as well.

2.33 Quality controL Controlling the quality of production processes and products is essentialfor cutting costs and eliminating waste. Quality control must be implemented at all stages of manufacturingto reduce damage and rework time.

2.34 Inventory control and production scheduling. Stock management is critical in reducing highraw material and work-in-process inventory and labor costs. Close supplier links and careful inventorymanagement are critical if footwear firms are to respond quickly to market changes. As noted, computerizedproduction scheduling and inventory systems are playing a major role--even when the actual productionprocess remains labor intensive. Such systems present immediate operational savings by reducing rawmaterial waste and inventory costs.

2.35 TraIiong. In view of the strong international competition in footwear markets, especiallyin low-end segments, developing country firms need to invest in training for their management andoperators Design, production, and marketing skills embodied in their workers would allow these firms toproduce high quality, even fashionable footwear. On-site training through collaboration with foreign buyingfirms or joint venture partners could be a good starting point. This would provide managers and workerswith an understanding of the quality requirements of overseas buyers and would reinforce production skills.

2.36 Product design has become increasingly important for competitiveness in the footwearindustry. Developing country firms that follow the market rather than initiate new designs have less of aproblem. Such firms copy the established styles; their main hurdle is whether they can produce these stylesat competitive prices and deliver them quickly. Firms that aim to be market leaders, particularly at the highend, could benefit from computer-aided design. As noted, CAD can reduce the risk of product developmentand increase the scope for improvements in product quality.

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IHI. MARKETING AND DISTRIBUIMON

A. Distribution Channels

3.01 Most footwear buyers fall Into three groups: retailers, domestic manufacturers, andimporters or wholesalers. In the U.S. market, volume retailers and domestic manufacturers account forroughly 75% of footwear imports, independent importers and wholesalers accounting for the remainder ofimports. Direct importing by manufacturers and retailers is gaining Importance, with buyers attempting tocut out the importer/wholesaler (middlemen) markups. The most common type of footwear sourcing is sub-contracting. Sourcing also can be done through licensing, particularly for branded footwear, and throughjoint ventures. Joint ventures in the footwcar sector are more common in Europe and Asia than In theUnited States.

(i) Retailers L'

3.02 Retailers generally use a combination of sourcing methods; the mix varies with retailers'size and the type of footwear they sell. Large multiple chains and department stores often source directlythrough their overseas buying offices. In the U.S., for example, leading mass merchandise chains such as3. C Penny and Sears have their own buying offices abroad. Smal retail chains or retailers that do nothave their own buying offices generaly buy footwear through associated or independent buying agents orpurchase footwear from importers or wholesale distributors. Associated buying agencies are organizationsthat are supported by a group of retailers, while independent buying agents work on commission.

3.03 Retailers provide designs and specifications. The buying offices usually work with localagents to find suitable producers and often get involved in all stages of product development. Buying agentschannel export orders to local producers, oversee subcontracting to suppliers, negotiate prices, performquality control for outgoing orders, ensure timely deliveries, and sometimes handle customs procedures.Most often the overseas supplier, not the agent, is responsible for shipping the merchandise directly to thebuyer's warehouses in the final market

3.04 In the United States, one of the largest associated buying agencies is AssociatedMerchandising Corporation (AMC). It provides both product development services and undertakes sourcingfor its retail clients. AMCs overseas offices are staffed by merchandise representatives familiar with thestructure and production capacity of the local industry. They develop their expertise through market reportsand market research, trade shows, consultation with trade associations, and, most important, by word ofmouth. One of AMCs functions is to examine footwear fashion trends. Designs are produced by AMCin collaboration with the retail clients.

3.05 The primary function of the merchandise representative is to identify producers who canmanufacture the particular line of footwear that the retail client wants. AMC first orders samples beforeit places a final order with the overseas manufacturer. The merchandise representatives also are responsiblefor quality control, with their technicians in the overseas offices working with factories to achieve the desiredquality levels.

3.06 In West Germany, buying groups are the major import channel. The four largest groupsare Garant Schuh, Ariston, Rexor, and Nord-West Ring. Garant Schuh counts about 1,600 of the 5,000independent footwear retailers in West Germany as members and also has 900 members in 12 otherEuropean countries, including France, the Netherlands and Scandinavia. Garant offers its clients a selectionof about 1,300 footwear styles from 300400 different suppliers each season. It has a permanent office in

2/ See Box 3.1 for a brief description of final retail channels in some of the major footwear markets.

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Italy to keep up with fashion trends and to control quality and deliveries. It also sources heavily fromBrazil and the Far East.H

3.07 In France, large retail chains and central buying groups account for about 30% o1 footwearimports. Except for the major chains, retailers are reluctant to carry large stocks; they rely instead on stocksheld by central buying groups and Importers. Some retail chains and central buying groups maintain officesin supplier countries, but buyers usually visit supply areas or rely on export agents. Buyers rarely visitpotential new supply areas, but they do attend both the French and international fairs.

(U) Manufacturers

3.08 Because of increasing pressure from imports, many manufacturers are expanding into retailoperations and, in fact, are becoming the largest importers of footwear. This move from production tomerchandising is most pronounced in the United States. Domestic producers buy finished footwear, whichthey resell through their own retail operations or to other distributors or retailers.w1 Many manufacturersalso import components that they incorporate in their own products, or they re-import finished footwearmade from domestically manufactured components in order to reduce the cost of domestic production.

3.09 Subcontracting is the most common type of sourcing used by U.S. domestic manufacturers.About one-third of footwear imports into the U.S. are through manufacturers of national brands. Thesemanufacturers deal directly with overseas producers and handle all aspects of production, distribution andmarketing. Some have exclusive and long-term relationships with factories abroad.

3.10 Fisher Camuto, for example, is a privately held U.S.-based company that produces mediumto higher priced women's and girrs dress shoes and boots. Since 1977 the company has had an exclusiveworking relationship with 22 Brazilian footwear factories, with an employee work force of 40,000, thatproduce 2.5 million pairs of shoes and boots monthly. Fisher Camuto's in-house designers provide thefashion directions, and the shoes are produced at the Brazilian operations under the close supervision ofFisher Camuto's product managers and technicians. The finished products are shipped daily to FisherCamuto's distribution warehouses in the U.S. The company then distributes its shoes to more than 5,000retailers as well as to over 200 of its own "9 West"-brand retail stores in the U.S., Canada, and Europe.More recently, the company has launched a brand that it produces at a factory in Italy.

3.11 Among other major U.S. manufacturers that have recently changed their sourcing strategiesand shifted part of their production to offshore sites are G.H. Bass Co., the Brown Shoe Co., and the U.S.Shoe Corporation. G.H. Bass Co. manufactures men's and women's casual and dress shoes. It produces40% percent of its footwear overseas in Brazil, Taiwan, and the Dominican Republic. Bass's own officesare staffed with product development experts who work directly with the factories overseas. In Taiwan, Bassimports leather from the U.S. in order to ensure quality consistency.

3.12 The Brown Shoe Company, one of the largest U.S. producers, has gradually shifted frommanufacturing to retailing. As a result, the company has broadened its international sourcing base forcomponents and finished footwear. For example, it has direct subcontracting operations in Italy and Brazil

S4/ Dimaria (1988b).

&/ Many of the leading names in footwear--including U.S. Shoe, Stride Rite, Jumping-Jacks Shoes,Juvenile Shoe Corp., Timberland, Nike, Travel Fox, Martinez Valero, and Revelations--are eitheroperating their own concept stores, or are aggressively pressuring independent retailers to operatestores for them.

.30 -

and recently purchased the Pagoda Trading Company, its agent in Taiwan. The company also has anagent in Korea that works exclusively for Brown Shoe Company.

3.13 Ucensing is another arrangement, typical among manufacturers of brand athletic footwear.Athletic footwear is produced under license, mainly in Asian countries. For instance, Nike and Reebokcontract most production of their athletic footwear in Korea and Taiwan. Although they have had long-term relationships with large firms such as H.S. Corr and Kukje-ICC Corp. in Korea and SherwoodIndustries in Taiwan, they recently have been looking into opportunities for buying footwear from lower-cost Asian countries such as Thailand, China, and Indonesia. In Thailand, the Saha Group is Ucensed toproduce Nike shoes-Pan Asia, one of the group's divisions, manufactures 80% of its output for Nike.Bangkok Rubber also makes shoes for Nike and Reebok under license as well as sports shoes for Wrangler,Bata, and Dunlop. Other Thai firms that work under license include Piyavat Rubber Industry, which makesathletic footwear for Converse, and Loxley, which makes footwear for Addidas.

3.14 Athletic footwear manufacturers are heavily involved in research and development. Theyprovide overseas manufacturers with designs, specifications, patterns, and the JastsZ for the footwear theycommission. They also handle the distribution and marketing of the footwear.

3.15 Joint ventures or direct investment are other forms of sourcing used by industrial countryfootwear manufacturers. With the exception of Reebok, Nike, and Bata, joint ventures or direct investmenthave been more common among European and large Korean and Taiwanese footwear companies.

3.16 The situation in West Germany provides an example. The domestic footwear manufacturingindustry has been unable to compete with imports. Germany now produces less than 100 million pairslocally. Domestic manufacturers often augment their range of footwear with high labor-content itemsproduced under cooperative agreements with foreign manufacturers, according to strict specifications.German footwear manufacturers have long made use of low-labor-cost countries by setting up their ownfactories or through joint ventures. The articles are sold either to wholesalers or through the manufacturers'own retail shops. Austria has for several years been a second home for West German footwear producers.Addidas has factories there; Gabor's Austrian plant is larger than its West German .acility. Portugal alsohas gained in popularity as a manufacturing country, with about 12 West German companies operatingthere. More recently, Salamander, one of the largest footwear manufacturers in West Germany, hasembarked on a 40-60 joint venture with the Proletarian Victory Shoe concern in Russia and has openeda factory in Leningrad. The Russian partners provide the labor and raw material the Germans provide theknowhow, machines, management techniques, and quality control. The West Germans also have beenlooking at the People's Republic of China. The German Company Pfaff-Sandt has become involved in theYun Sheng project in Beijing to produce men's leather footwear.

3.17 Some of the large Korean and Taiwanese footwear companies that make shoes for Nike,Reebok and other large athletic footwear companies are increasingly becoming involved in offshoreproduction as welL The declining profitability of lower- to medium-priced ranges has persuadedmanufacturers in Korea and Taiwan to move production to countries with lower labor costs. Indonesia,Thailand, and China seem to be the most favored locations.

3.18 In Korea, H.S. Corporation through its mother company Tong Yang Rubber, is involvedin a 50-50 joint venture at Jakarta. Tae Hwa and Sung Hwa, whose principal factories are in Pusan, arealso operating several production lines with Nike's help in Indonesia. Eagle footwear, part of the Korindo

;I In addition to sourcing shoes for its parent company, the Pagoda Trading Company also buys shoesfor other retailers, including discount retail chains such as Wal-Mart and K^Mam

&7/ Lasts are wooden or plastic molds in the shape of the foot on which the different components ofa shoe are assembled.

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Group, with offices in Seoul and Pusan, also manufactures footwear near Jakarta. Cheap labor is the mainattraction for Korean manufacturer In Indonesia, a footwear employee's monthly pay is between US$60and US$100 compared with US$250-US$300 in Korea. The principal benefit to the Indonesian footwearindustty is that a growing workforce is being trained in mass-production of athletic footwear.

3.19 China and Thailand have become important locations for Taiwan's offshore manufacturingof low-priced footwear. Industry sources estimate that since restrictions on Taiwanese contracts with Chinahave been relaxed, about 60 Taiwan-backed footwear companies have started up in China over the past twoyears. However, since Taiwan's govanment continues to forbid direct investment In China, many of thejoint ventures rely on Hong Kong-based affiliated companies with Taiwan partnets. One of the recentexamples is U Feng Footwear Industry Development Corporation, which produces only Nike shoes It isa 50-50 joint venture in China between the state-run Fujian Footwear and Headgear Import and ExrortCorporation (FFC) and Growth-Link, a Hong Kong-based firm with Taiwanese investments. The mainattraction again Is the low labor costs. Workers in Fujian earn only about US$40 a month compared withUS$610 in Taiwan. Most of the footwear manufacturing equipment is from Taiwan; a small staff ofTaiwanese nationals oversees the operations.

3.20 In Bangkok, Thailand, Sherwood industries of Taiwan, a licensee of Addidas, has set up aplant caUed Orental Sports for the production of 25,000 pairs of sports footwear per day. It also isentering into a joint venture with the Danish manufacturer ECCO to produce sports footwear in Thailand.

3.21 Among firms from other countries that are also embarking on joint ventures in Asia area Finnish firm called Nokia, one of the few producers of slush-molded footwear in the world. They havecooperated with the Peking Rubber Factory No. 5 in China in the setting up of a plant for PVC moldedfootwear. Vulcabras, a large Brazilian footwear manufacturer, also has a joint venture in China.

3.22 Hong Kong firms are also involved in China. For example, the New Way Footwear IndustryCompany has an interest in factories in Guanzhou Province for making casual footwear, and in Foshan andHuayuan for making vulcanized footwear. New Way claims that the cost of making footwear in China is25% less than in Hong Kong.

(ill) Independent Importers

3.23 Importers buy footwear from overseas and sell to retailers and wholesale dktributors.Footwear sold by importers to wholesale distributors is mainly in the low-price end.-

3.24 Most importers are involved in long-term relationships with their subcontractors and requireexclusive production rights, but from time to time they also may buy single shipments that they think mightsell well in the final market.

3.25 Importers tend to follow fashion trends and develop their own design specifications. TheyusuaUy provide technical assistance to the suppliers through all stages of production and handle themarketing and distribution of footwear.

MI Despite enthusiasm over the growth of the U Feng factory, the recent unrest in China has raisedwarning flags among Taiwanese investors. Unlikely to give up on China, they are equally unlielyto make any significant new investments there until they are convinoed that stability has returnedand that their efforts in China will continue to be rewarded.

92/ Distnrbutors generally try to buy their merchandise from the cheapest source possible Theyassemble and package the product in their warehouses and then sell it to discount retailers

* 32 -

3.26 In the United States, only 25% of footwear imports ae trough importes Rockport Co.,one of the leading importers of footwear, sources heavify from Portugal but has recently moved a large partof its volume production to Eastern Bloc countries. Jonathan Richards, another leading US Importer offootwear from Portugal, works with 14 factories In Portugal and oversees product development, qualitycontrol, and distribution of the footwear in the United States

327 In Gemany, imponers and wholesalers tend to spedalize In footwear from ceain areas,for example from Italy or East Asia. They supply independent retailers and, occasIonally, the centralizedpurchasing organizations of the large retail chains. However, importers are losing ground to large retailchains and buying groups as channels for impotting footwear

3.28 In France, wholesale importers are responsible for over 50% of imported footwear in theFrench market. They usual demand that the footwear be produced exiiusively for them. Often importersalso are distributors for French manufacturers. When visiting supply countries, French importers wil seekthe services of export agents who assemble the footwear for Inspection and accompany the importers onfactory visits. These agents are required to arrange export documentation and shipment of the goods.

B Marketing and Disbuton Strategies

3.29 Access to information on international markets is essential for market penetration. Themain task of producers targeting export markets is to become familiar with the distribution structure andbuyers' requirements in the different market segments. This information allows producers to choose marketniches that best match their production capabilities and export experience. This kind of information alsowould help developing country manufacturers select appropriate exporting channels.

3.30 Developing country firms often are not fully equipped to carry out the research requiredto gain market access. To this end, subcontracting arrangements or joint ventures with foreign retailers,manufacturers, or buying agents can provide developing country firMs ith support on product development,information on the designs and styles required by the eport market, quality control and, most important,distnbuton and access to final markets. Manw importers, especially reais and manufacturers of privatelabel or brand name footwear, already are engaged in long-term relationships with their suppliers and maybe reluctant to switch to new suppliers. Until suppliers gain enough experience in production, marketing,and distnbution to sell directly to these retailers and manufacturers, associated buying organizations orindependent buying groups could perhaps serve as the most appropriate intetmediaries for developingcountry produces The latter thus can obtain information on design, acquire hands-on experence inmodern production and marketing techniques, and gain access to the final distribution channels.

3.31 In most developed countries and in the newly industrialied countries (NICs), nationalproducer associations have played a major role in the development of the footwear industry. They provideinformation, advice and guidance for their member fims on management, design and production methods,and marketing. They set up research and fashion inbormation services. Frequent product exhibitionscontribute to promoting sales in domestic and foreign markets. Producer associations also have encouragedand developed vocational training at staff and managerial levels.

3.32 Export market demands. To develop or maintain a competitive position in the exportmarket for footwear, suppliers need to be aware of buyers' requirements. Demands in the footwear marketare for attractive prices, high quality and timely delvy. Without satisfying these basic requirements,produces wil find it difficult to secure initial orders or repeat orders.

3.33 Price remains a competitive factor in attracting buyers, and often buyers will not sourceoveseas unless they find products that are priced below comparable products availabl domestically.- This

40/ Egan and Mody (1989), p. 15.

* 33-

is especially true for large-volume buyers and discount retaiers of low-qualityAlow.price products who tendto switch sources based on a slight difference In wholesale footwear prices.A

3.34 Rising wage rates rnd appreciating exchange rates in the NIC have prompted a numberof buying firms in developed countu es to consider shifting their sourcing from NIC firms to those in lessdeveloped countries. This has provided an opportunity for producers in these low labor cost countries toenter the exremely competitive developed countly markets for low-priced footwear.

3.35 Qualky has become a major competitive factor for entering the market-in all price andproduct segments.1y The degree of quality required varies with the product segment and price range,however. Inexpensive footwear should last through reasonable wear. Expensive footwear, however, is notonly expected to wear well but to be made from high qualty material, to be available in a vie of sizes,and to reflect the latest fashion in color and designul

3.36 The international market for medium-priced to expensive footwear has become extremelyfashion and quality oriented. One of the major factors that has contributed to this change has been thegrowth of designer labelng. Fins specializing in design place great emphasis on the exclusiveness of thedesign and the qualty of the goods they commission from global producers.

3.37 To ignore fashion and design means to be forced to concentrate on the low end of theexport market Here qualty and style requirements are low, but the returns are smalL The challenge facingproducers in developing countries is to become suppliers of high-quality and fashionable products and tobuild long-term relationships with buyers based on quality rather than on price alone. Visits by developingcountry producers to the major footwear trade shows could provide information on fashion trends.S'Sending designers abroad for training might also assist firms in producing high quality and fashionablefootwear.ff

41. The country director for ASCO, an English footwear trading company that concentrates on thelow end of the market, described the competitiveness of the low-cost footwear market, mostly PVCuppers and PVC injection models: ... In my market, five cents can mean the difference betweenselling 50,000 and selling 200,000 pairs of shoes.-" (Schwarz (1989), p. 69).

4Z Foreign buyers often complain about the quality of shoes they source from developing countries.For example, in a study on Malaysian rubber footwear done by the Osaka Laboratory of ChemicalInspection and Testing Institute, it was reported that many defects were apparent in the shoes madein Malaysia. Some shoes were a bit heavy, left-side shoes and right-side shoes were uneven in sizeand weight, color fastness was not reliable, uppers were deformed, and adhesion between soles anduppers was defective (Magesvaran (1985), pp. 79.80). Simiarly, when Nike tried to meet increaseddemand by assigning more production to Chinese factories in 1985, its efforts backfired because itsquality inspectors had to reject four out of five of the Chinese-made shoes (Rudolph (1989), p. 54).While many U.S. pvoducers are impressed by the possibilities for Mexican footwear, they warn thatat least initially, getting a quality product can be difficult (Rottman (1987), p. 40).

43/ Egan and Mody (1989), p. 16.

4.4j Some of the major trade fairs are the National Shoe Fair in New York, Campionaria di Firenzein Italy, and the Tokyo Shoe Fair.

45/ In Taiwan, the Taiwan Footwear Manufacturer's Association (rFMA) and the Industrial DesignBureau have sponsored an Industrial Design Center at Uenho Junior College of TechnoloVgespedally for shoe designes Training courses in shoe design involve six months of dassroomtraining and six months of hands-on training in a factory. Students also are sent to Italy, theUnited Kingdom, and Germany to learn shoemaking and design. TFMA also provides servicesthrough machinery and components fairs and assists in quality control programs for members.

- 34 -

3.38 Timely delivery is crucial for establishing a reputation as a reliable supplier and for securingrepeat orders. Since fashions change rapidly and seasonally, Incomplete or late delivery can result in lostsales and large markdowns.

3.39 Adequate nfastructure is a prerequisite for improving marketing and distribution indeveloping countries. In most, infrastructure is deficient. Shipping via air freight is the most desirable wayto transport footwear because of the requirement for short lead times.

3.40 Streamling customs procedures is necessary for facilitating raw material imports and tohelp attract foreign investors. In Indonesia, for example, despite the recent liberalization of trade andinvestment procedures, the bureaucracy still creates problems for business. For example, one Koreanmanufacturer, on a recent fact finding trip to Jakarta, was stopped at the airport with a dozen shoe samples.He was forced to pay import duty on the samples as saleable goods, despite the fact that he had broughtonly one shoe of each modeL On another occasion, the customs office impounded a delivery of computercards that a compans European buyer required with each box of shoes. Despite the fact that the cardshad no possible resale value on the local market, customs insisted on charging duty on the cards, idling oneplant while the dispute was being settledff

45I Schwarz (1989), p. 70.

-35 -

Box 3.1: FINAL DISTRIBUTION CHANNEIS

RetaUl oudels In the United Stats

In the US. shoxs are sold through nearly 100,000 retail outlets, primarily independent shoe stotes, depanrmt stosra, chai4stores, self-serve stores, and maiflorder bsiness.

Independent shoe stors and department stores scil national brands (labeled with brand names of domestic produca, foreignproducera, or US. importets) In the higher prde ranga and provide full customer servic Inctuded in this atesy are prodouer-owned shohme ains selling producer-branded footwear, such as Naturalizer, Stride Rite, and Jumping-Jachs Shoes; and coneept soes,such as the Foot Locker, which sewls athletic footwear acdusvely (USITC 1985, p. A162C) Over three-fourlhs of totatail shoe salesare accounted for by neatly 25,000 shoe stores and over 8,500 department stons (USfTC 1985, p. A19). In 1984 about 43% of thevolume of footwear sod was through independent shoe stores and department stores combined; 58% of that volume was imporwed(usrrc 198, pp. A172-183).

Chain stores sell predominatly their store brands and provide ful customer service. This category Indudes the largest shoestore ehains such as Kinney and Tom McAnn, and the leading general merchandise chains, Seams and JC Penny. All cary shoes inthe middle to lower price ranges (USITC 1985, p. A172-A173). In 1984, about 32% of footwear was sold by this categor of retailerof which 68% was imported.

Self-service shoe stores and discount chains primarily offer retaier brands or unbranded footwear. They offer limited or nocuatomer service. Some of these stores are known as "bin or 'rack" stores, where customers serve themselves. is categoy includesself-service shoe chains, such as Pay Less shoe stores, Pien'Pay shoe stores, and Fayva and geneal-mehbandise discount stores anddiscount chains, such as K-Mart and Zayrm Stores in this category typically sell the lowest priced footwear in the U.S. market (USITC1985, p. A162). In 1984, about 2S% of the volume of footwear sold was through self-svice and discount wins, and 82% of theseshoes were imported (UStTC 1985, p A174-A175).

RetaIl oatts In the United Kingdom

Acoording to the Eummonitor Retail Database, there were about 3,353 retail outlets for footw in the United Kingdomin 1984 (Euromonitor 1988). The British Shoe Corporation is the leading shoe retailer in the United Kingdom C & J Clrt with amarket share of 8.7% in 1986, is the second largest footwear group. There has been a decline In the number of Independent storesand an emergence of multiple tetailers such as Marks & Spencer (6.7%) and Store House (2.7%) Rwbsthou 1987). Table 14 showsthe percentage shares of retail sales by volume of each retail distribution channel for the year 1980 and projecons for 1992.

Table 17: RETAIL SALES BY VOLUME IN THE UNITED KINGDOM(percentage share)

1982 1992 6

Multiples (specalist) 55 51Independents is 12Mail order 10 12Multiples (nonspecialist) jI 10 10Clothing stores 2 3Deparment stores 2 1Sports shops 2 3Hypersupemarkets 1 2Dbiscountcn 1 4

°oop 1 1Other II

Source Adaptud from Rubery and Wilkinson (1989), p. 124.

W Prcecton

W Includes Mars & Spencer, BHS, Utteoods, Boots,Woolworths, etc.

blall outlets In Japan

Tne mal retail dributon hd ls in Japan are specalty sres, witb 74% share of the retail mateL Footwea also issold thrugh dept stos and appatel specalty stotes (18.4%), and through mali order ad spots Stores (A.%) (BO( 1988).

v 36 -

IV. CONCLUSIONS

4.01 Over the past decade, footwear firms in virtually all industrial countries struggled tocompete with lowcost producers-especially from the Far East and Brazil. In the late 1970s and early 198Ms,the lower-to medium- price segments of the market were captured by Korea and Taiwan. Recently, inresponse to rising wages and appreciating exchange rates in Korea and Taiwan, a growing number ofimporters in industral countries are switching to countries such as China, Thailand, and Indonesia wherelabor costs are much lower. Even producers in Korea and Taiwan are relocating production of their low-quality footwear overseas. Although this has increased export opportunities for developing countries, in thelower value-added segments competition is fierce. Even though China, Thailand and Indonesia haveemerged as important low-cst sources of footwear, their shares of the world market are still small. Italianmanufacturets in the meantime have virtually giwen up the manucure of lower- and medium-pricedfootwear exports, concentrating at the high-price end.

4.02 Industrial countries, particularly Western Europe and the United States remain the principalimporters of footwear. In response to the increasing competition from these imports, manufacturers inindustrial countries have expanded their own operations to include the retailing of imported footwear aswell as their domestically made products. Retailers and manufacturers are increasingly importing footweardirectly, through suboontracting and licensing to foreign producers as well as through joint ventures anddirect investment.

4.03 Footwear firms in industrial countries are trying to recapture their shares of the footwearmarkets also by adopting competitive production strategies such as producing high quality footwear,reortganizing their production ptoesses through techniques such as Quick Response, and usingmicroelectronic technology such as computer aided design and microcomputer-based management systemsto improve their product quality and save on labor costs.

Constraints and Opportunities for Developlng Country Producers

4.04 The intensified efforts by industrial country footwear manufacturers to regain their marketshares provide both opportunities and challenges for firms in developing countries.

4.05 Advances in computer technology during the 1980s have led to major technologicalinnovations in the traditionally labor-intensive footwear industry. At present, the technological innovationsoffer an opportunity to industrial country producers to improve their competitive position by compensatingsomewhat for their relatively high wage costs. Although many segments of the footwear industry remainresistent to automation-giving low-cost countries a continued comparative advantage in production--developing countries clearly will not be able to rely on low wages for long to remain competitive andpreserve their market shares. Their challenge is how to take advantage of the new technologies mosteffectively.

4.06 Consistent produdt quality and timely deliveries, as well as price competitiveness, haveemerged as the key success factors in all market segments. In fact, product quality has virually overtakenprice consideration as the most important aspect of competition in the upper segments of the footwearmarket

4.07 Footwear producers in developing countries need to step up their efforts to improve theiroperational efficiency and production flexibility. Their main objectives should be to reduce work-in-process,turn out products of consistent quality, and guarantee timely deliveries to customers. The achievement ofthese objectives primarily would require improved access to raw materials, better infrastructure and customs

- 37 -

procedures, improved quality control, improved Inventory control and production scheduling, and appropriatetraining for both management and staff.

4.08 Access to information on international markets also is essential for market penetration.The main task of producers targeting export markets is to become familiar with the distribution structureand buyer's requirements in the different market segments. Ts informadon allows producers to choosemarket niches that best match their production capabilities and export experience. This kdnd of informationalso would help developing country manufacturers select appropriate exporting channels.

4.09 Daeloping country footwear producers often lack the expertise to carTy out effectiveproduction and export market strategies and may be confronted with difficulties, at least initially, inaccessing export markets. To overcome constraints, these producers need to atrange subcontractig or jointventures with experienced foreign manufacturers and retailers. Such arrangements would allow them toreceive guidance on bow to upgrade their production, marketing, and distribution skdlls. In addition, theycould set up local producer associatons to provide information and guidance on design, production,management, and marketing techniques.

4.10 The chalenge facing producers in developing countries therefore is to become suppliers ofhigh-quality and fashionable products and to build long-term relationships with buyers based on qualityrather than on price alone.

ANNEX A

STATISTICAL ANNEX

- 41 -

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MM A-12 U.S IMPORIS OF FOOTWEAR BY PRINCIPAL SOURCES IN 1988

Qunty customs Value

MoD Par Shae hi TO (%) US 00 Shr n TOa (%) Aver Uni Vale

T_iwan 426.2 3484 42.3 34.7 11,131 2X9,602 333 293 SA 6.4 14.9KOMn 2137 2117 212 213 1,63,330 2,074,662 23.9 27.4 78 9.7 193cIn 72.3 11 72 17 121,130 3 K 440 1.7 4.0 1.7 22 245Brazil 108.4 1123 10.8 112 918,641 989" "2 125 85 &4 4.7Ita 472 43.8 4.7 4.4 836,262 817,080 12.0 10. 17.7 17 5.0Music 30.7 32.9 3.1 3.3 92.173 105,132 13 1.4 3.0 32 6.2Hong Kong 30.8 27.4 31 2.7 122,788 142,495 18 1.9 4.0 52 23.1Spai 27.4 22.6 2.7 2.3 368,140 347,142 53 4.6 13.4 IS3 12.3

Ilahnd 7.7 183 0o 1i 34,704 101,623 0.5 1.3 4.5 5.6 193Yugoela 3.9 62 OA 0.6 45,269 71,S51 0.7 0.9 IlS 11.6 0.6Romania 3.3 5.7 03 0.6 23,0X- 40,630 03 0.5 7.0 72 32Philippines 3.0 4.4 03 0.4 11,810 '98R76 02 03 4.0 4.6 12.1InonesI 0.1 3.7 0.0 0.4 960 19,66S 0.0 03 8S S.4 -59.4di 3&S 3.1 03 03 30,430 30,611 0,4 0.4 8.7 9.9 12.9

Polugal 2.2 2.4 02 0.2 32,744 37,82S 0.5 O.S 152 1S.6 2.8Coombla 1.0 2.1 0.1 02 5,SS8 10,787 0.1 0.1 .5 5.2 -63France 3.8 2.1 0.4 02 97314 64,801 1.4 0.9 25.5 31.5 19.0Canada 1.9 1.8 02 02 29,608 31,476 0.4 0.4 1S.7 17.0 7.6Caechoekwakla 1.1 13 0.1 0.1 8,910 10,410 0.1 0.1 7.8 7.8 0.0Sri 1.1 12 0.1 0.1 3,434 3,794 0.0 0.1 3.0 3.1 2.0United KIgdom 1.0 1.2 0.1 0.1 24,234 28,782 03 0.4 23.4 23.6 0.9Dominca Republic 13 1.1 0,1 0.1 2,788 3,016 0.0 0.0 2.1 2.8 23.9Hungay 0.8 0.9 0.1 0.1 13,223 17,332 02 02 16.4 16 12.0Sw nd 1.0 0.9 0,1 0.1 31,370 31,220 0.5 0A 32.7 3S.6 8.1

nany 1.0 0.9 0.1 0.1 20,219 18,59 03 02 19.9 212 S.9Poland 0.8 0. 01 0.1 S,162 S,850 0.1 0.1 65 7.0 7.4Japan 1.1 0.8 0.1 0.1 7,771 4,940 0.1 0.1 7. 65 -7.6Other 112 6.5 1.1 0.6 83,129 67,104 12 0.9 7A 10.3 28.1

Total 1007.6 10054) 100.0 100. 6,94S,287 7,581,064 100.0 100.0 6.9 75 8.6

Source: Compied fom offic data of be U.S. BWeau Of the Cenu.

Table lJ MAJOR EtURO9EAN ePORTERS OF FOOTWEAlR (Qmet tSS t 000)

1978 1979 1980 1981 1982 1963 1984 1985 1986 1987

West Oernnamy 1,34798 1,821,614 2.134,469 1,59,500 1,SSSi99 1,547,996 1,S61,347 1,616,180 2,2758M8 2,90X209Fanoe 521,871 7S4,723 898,303 763,957 794,676 764,984 755,435 855,311 1,268308 1635,302Unbld Kin8dom 481,s7 746,055 819,266 826,947 80,721 807,464 851,73 854,976 1,%66,654 1,29327Ne _het 371,477 491,045 S25,744 398688 405,171 40781 394,964 414,89 604873 755445ae4i=-Lm 3S8,227 477,466 528,867 400,758 38347 39,619 341,39 365,X6 s3837 620,074Swlzzdand 228,84S 312,180 375,491 313,904 315,377 313,65 312,470 317,862 44695 56,173Sweden 144,957 2289 282,619 231,806 230,834 202, 220,433 289 3796 403,Ahta 161,619 227,304 269,120 202,797 204704 21127 216090 216,484 310W00 367,9Ital 40028 8314S 1227 120,265 115,179 157,609 13,798 1w58 268478 36161NoWy 113,027 146,830 18766 152538 137,773 1332 138,2 15,6 209,97 23142Dnmak 97,417 1,465 135,107 103,41S 106,310 105,458 109,740 127,297 18,65 230,261T1I_u 65,970 95,189 116,373 116,386 104,571 97,601 1082 101,0 127,20 142447Finland 26,882 39,781 68676 68241 69,9 63763 64,474 7669 101,548 135Spain 12,461 25,640 36,739 22,872 27,02 24,59 20,92 25625 52,702 87Omees 3,158 7,762 8,778 16,887 19,506 16924 2=251 24,236 23,438 40,32

Tota 3,92408 5,9308 61245 S3,961 S78 5,2055 S,257,0 S7 7,7S395 9,7732

Som~ cne. D tlmbae, w _ Comp_u Cmt, OeOw

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-45.

labI MAOR ASIAN IMeORTE OP FOOTWAR (CwM USS 00

1978 1979 1980 1961 1962 1 1 196 1 1987

Jap 191,933 287949 277 30653 299531 293,366 379,66 3ilUi 484,0 M7,Hong Ko 47,635 76,541 125,5S0 148,466 17298 172656 184,024 2015 27 416,SiqPe 26806 29,105 47,473 62,229 81,403 84617 78263 7744 87,8 94,36

TOWal 266,374 35,95 45 8 517,046 553,8 5639 641,653 6 834,936 1l8,69

SO C Databe, IAmncal - Cana, Gcw&

m D 1SPORIS OF FOOTWEAR INll ASIA BY PRINCIPAL SORtCES (CARa US 10)

1978 199 1960 t1981 1982 1983 1984 1985 196 1987 178 18Soh IB 96608 123,1 9,983 106243 99,S77 81,612 128900 128 148,8 316,722 37.1 24?7cmd" 24,W8 41,566 73,68 94,98 102,419 111,94 123,047 39,276 179,08 3 9 92 236Twa 44M8 84566 9125 117,490 116,977 126,185 142,980 155,882 190,06S 2M739 1I 21t1t8 39,013 6012 60,173 64 79,518 8787 80,26 908 l189 141 16" ItFkans 10,038 1385 17,111 13$92 18,861 19,660 18,768 2S,631 37,538 57,819 3.8 43Lb"e Stao 9,788 14,88 23,472 2,7M 29,919 25,0S1 47,701 43,448 438 S,475 37 4.1SWl_dand 7,125 804 9422 10,t2. 15,152 1S,20S 13,9S2 14,702 18,298 21.287 .7 LiMaIuI 4,728 7.107 9,893 8,78 6,653 S,734 S397 5,"9 8,142 1S,49 L8 L2U d gdom 4S 6,618 07 7,438 9,25 9 7,366 8,2 S8 1 1t9 LtJapn 4,665 5,347 11,627 21,151 250552 22,005 19M200 204 Is,40 194 I1 0.9West O ny S,72 7 12,21 13,682 17,886 17,684 17,385 13,491 162 10,077 2.1 0A7hdbold 362 707 1,195 982 1,024 1,220 1.282 2,031 4,8l2 8,962 0.1 0tPbil#nes 764 1,3I3 4,560 6634 7,6 6,922 6,26 6,898 6092 8,480 03 07Asu62b 123 109 11589 9,826 10,896 10,575 11,305 8635 7,91 $,w3 23 06Span 1,M2 1,936 1577 1,8 14,5 1,841 2779 4,041 S,4 6555 0.5 05Hoag Ko 1,092 1,306 1,367 t,464 2,498 2481 2,301 2,860 3,174 5,639 OA 04osil 3S7 491 479 746 37m 290 8 656 2,33 1, 0.1 02Macau 130 323 371 44 87 362 631 606 676 984 0.0 0.1Yugmpw 720 1,334 7,668 1,679 97t 1,784 2,72 2,803 2,3W3 868 03 0.1lad 243 209 203 192 362 405 1,485 632 1,048 701 0.1 01Poteg 13 0 7 35 86 3 24 35 191 611 0.0 0.0Ndbedand 107 21 33 33 41 46 37 34 1S8 343 0.0 0O.Oebr 1,613 3,267 5,252 5329 6,489 S,231 7,131 6,569 9,108 19,240 0.6 15Totdal 274 395f95 450,648 517M 553882 52639 641,53 68O,670 834,936 1,283,169 1OD. 1Q0Osow= comrade D e 8m, _ Co_ Coapaun Cer, Oaum

- 47 -

Annex B: MAJOR MICROELECTRONIC TECHNOLOGIES FORFOOTWEAR PRODUCTION V

1. The major technological advances in footwear manufacture have been computer-aided designand microcomputer-based management systems. Technological innovations have also occured in the cutting,closing, bottom stock preparation, and making processes as well as in raw materials.

A. Design

2. Design involves determining the shape of the lastY, the appearance of the upper, the typeof the sole, the height and shape of the heel, the material of the upper, and in essence, the constructionof the shoe. Computer-aided design (CAD) is the latest development in footwear design technology. Inthe inital design operation, the last is numerically defined by 'digitizing its surface. Special computersoftware turns this into a two-dimensional surface, which is displayed on the computer screen. A footweardesigner can create a new design pattern on the two-dimensional surface; it can be easily modified on thecomputer screen during the development process. Microprocessors can also conert the two-dimensionalimage into a three-dimensional view that can be studied from any angle. Fmally, the designer can alsoexperiment with color by using digitized "color booksW to superimpose colored patterns (of uppers, forexample) on the original design.

3. After a new style is accepted and developed for production, the pattern must be graded.this involves production of patterns for all the different sizes and widths in which the particular style offootwear will be manufactured. Whereas manual grading by specialists could require several weeks, patternscan be produced on the CAD system within hours and with greater accuracy. Data on the new shoe'sspecifications are stored in the computer. This data can be used for costing and production of patterns.The computer can also develop programs for laser or so-called water-jet cutting (thus achieving materialsavings of about three percent), automatic or computer-controlled stitching, and workiflow and managementschedules.

B Microoomputer-based Management Systems

4. In addition to standard accounting and administrative programs, such systems includeleather measurement systems, computer programs for calculating costs of production (using data bases forpiecework prices), components and materials stock control systems, production scheduling and finished stockcontrol systems. Such systems have been developed commercially for large companies, but the Shoe andAllied Trades Research Association (SATRA) in the United Kingdom has been producing scaled-downsystems for personal computers. In principle, at this level, programs could be implemented by smallcompanies. One example of such a program is a diagnostic system that compares the performance of oneoperator with another and evaluates the relative efficiency of each operator's machine use. Another systemis the SATRASUM, a material-management system for footwear uppers that can assess material utlizatonto predict the costs of making uppers. SATRATRACK is a microcomputer-controlied work-handling system

The information in this Annex is heavily drawn from the U.S. Department of Labor (1986),International Labor Organization (1985), and numerous issues of the American ShoemakingMa azlne the Leather & Shoe magazine, and the Footwear Manufacturing magazine.

Last is a wooden or plastic mold in the shape of the foot and on which the differentcomponents of a shoe are assembled.

- 48-

that was first used in the stitching room of a shoe factory in Northampton, UIL The adoption of thissystem resulted in an increase in productivity and a large reduction in work-in-protesy

C CuttDg

5. Several types of cutting machines are available for cutting patterns: automatic laser, waterand knife cutters, and computer-controlled cutting presses. Cutting machines can interface withcomputerized grading; in this way, patterns stored in the computer can be realled and sent to the cuttingmachines. As an alternative, enterprises known as service bureaus could be set up to perform cutting andpattern grading for manufacturers who either cannot afford or prefer not to assume the cost of such capitaloutlays.

D. Closing

6. The closing or stitching together of the parts of the shoe uppers is the most labor-intensivephase in shoe manufactuing and the most resistant to technical change due to the thr m al shapeof the shoe. The work content ranges from skiving, folding, cementing, printing, hole punching, eyeletting,pattern sewing and printing to assembling the pieces and stitching them together. Significant technicalchanges, howeve, include the development of faster and automated or computerized transport betweenworksations, improvement in non-automated machines, development of edge-folding machines, computerizedstitchers, and computer-based training system for workers

7. Stitching machine speed bas increased as a result of technical advances in the steel forneedles, oil feed systems, motor operation, needle positioning, under-bed trimming, and back tracking. Themain new advances are in microcomputer-controiled profile stitching. The operations include majorunctional stitching, such as vamping (attachment of the vamp or front pan of the shoes upper to the

quarter or back part), as well as fancy design stitching. These machines stitch automatcally and rapidly withplug-in modules that contain stitching pattems. The modules, technically identiffed as erasable-programmable-read-only-memory (EPROM) cards, can be programmed directly on the machine. Anoperator loads the work pieces, pushes a button, and the EPROM card carries out an operationautomatically for a whole range of footwear sizes.

& Computer stitching in vamping reduces unit labor requirements and improves the qualityof the product through greater acuracy and consistency. In contrast, older conventional processes ofvamping are very labor intensive. It is estimated that computer stitching used for long production runsresults in a productivity increase of at least twenty-five percent Howver, the machines are not effcientfor short production runs because of the costs involved.

9. In certain plants, a mechanic with a highschool education plus some additional mathematicscan qualify for a programming position after 2 to 3 months of instruction. Maintenance of the machinesrequires only a modest knowledge of electronics. Some machines contain built-in systems that self-diagnosemost operational problems. Microcomputers also may be used as an aid for training sewing machineoperators. They can record and analyze the operator's precise movements and be a guide to Improvedoperations.

10. Initially, this sewing technology was used for decorative stitching, primarily by manufacturersof Weswn-style boots. Now computer-based machines for functional and fancy stitching are used by fimsof aU sizeL In fact, computerized control of functional stitching has begun to be used by a broad base ofmanufactring. Increased use is expected in the next S to 10 yeas as new machines are developed withimproved capability and stitch quality.

t1 Manning (1985).

-49-

11. Fiber optics are being developed that will obsene individual stitch ngths and adjust thenext stitches automatically. TMis would enable the upper to be produced without vaiation, a problem thatcurrently hinders the introductdon of automation.

L Bottom Sole Preparatio

12. Bottom sole preparation is usoally subcontracted to specialty firms that can achieve majoreconomies of scale since soles are relatiely stadardized and not subject to fashion chage. Soles, knownas molded unit bottoms, are purhased by shoe manufacturers and glued to shoe uppers, thereby eimiatnglabor that would be required in the shoe factory. About one-fourth of shoes made in the United Statescontain such unit bottoms. However, if volume of production is large enough, shoe mnufacres Wil stillcut soles in-house.

F. Maklng

13 New technology has had the greatest impact on the making proces. Making occors whenthe uppers are pulled over the last and attached to the insoles and the sole and heel are attached. Ihelatest technological developments have been in the roughing and lasting processes.

14. The roughing proes consists of sowring the margn area of the fitted shoe upper witha rough brush (usually wire) to provide a good base to which glue can adhere. The traditional, and stilmost common, method is manuaL Tlis relies on the operator's good hand-eye coordination Anothermethod is to shape the shoe on a metal template; the upper is then roughed with a wire brush that followsthe outline of the template.

15. The newest technology involves the use of a numerically controlled (NC) upper roughingmachine. The shape of the shoe bottom is digitized, which involves securing some 20 points correspondingto the outline of the shoe's bottom. The NC machine automatically makes the calculations to direct a wirebrush in the roughing of right and left shoes in all shoe sizes.

16. The NC machine has advantages over both the manual method and the automatic machinethat uses templates. One advantage is in its ability to operate on a wider range of shoe types Anotheris the greater speed in shifting from one shoe style to another. Better quality of roughing can also improvethe process of sole attachment. Unit labor requirement are slightly lower for NC roughing machines-shoes can be damaged in the manual process if an operator holds a shoe incorrectly when applying therotating brush. Also the operator can work on other jobs after the machine is set in motion. An operatorwith limited job experience can quickly learn to use the NC machine. Although the maintenance of theNC machine is not simple, a digital readout screen indicates the site of operational problems. The numberof upper roughing machines is expected to rise in the next few years.

17. Forepart pulng and lastng machines with microprocessor control assure precise lastingfor the process of stretching the upper over the last and gluing it to an insole. In addition to detminingsizes and position automatically, with these machines it is possible to adjust rapidly to various shoe stylesconstructed with different matedrals he machine can be progammed to eiminate the need for manualadjustments, which greatly improves the efficiency of the lastng operation. For example, when shiftingfrom one shoe last to another, downthie is reduced because the many machine changes accomplihedlby the computer program. Unit labor and skiU requirements are greatly reduced as welL In fact,programming for these machines can be mastered after about one week of inruction. Maintenanceworkers merely need some knowledge of electronics to repair these machines. The macines manutueralso supplies a technician for Instruction for a couple of weeks. This microprocessor-cnttolled machineis relatively costly but is likely to be considered cost effive by large and medium-sized firms that expectto remain competitive with Imports from low labor cost countries.

-So-

18. Although gluing a sole to the upper part of a shoe is still labor intensive, automaticadjustments on some sole-laying presses substantially improve the uniformity of production. An operator,after receiving uppers and soles with glue already applied, uses heat to reactivate the glue and then spotsthe soles to the uppers temporarily. In the newer sole-laying presses, the operator uses a self-adjusting padbox that automatically determines the contour of a shoe's bottom and a toe-and-heel rest that automaticallyadjusts for heel height. This ensures that the lasted shoe is held in an accurate position. After the loadingand initial adjustment, the operator starts up a high-pressure cycle to secure the permanent attachment ofthe sole to the shoe bottom. While unit labor requirements are not reduced significantly by this machine,less operator skill is required and quality of output is improved. On a traditional machine, that is, withoutthe automatic adjustments, an operator may break a last when the high pressure is applied or may fail toachieve precise adhesion of the shoe's parts.

19. An inection molding machine automatically molds a shoe bottom from thermoplastic orpolyurethane and fuses it to the upper part of the shoe. It is considerably less labor intensive than themajor alternative processes of cutting, stitching, or gluing, and associated intermediary steps. Using thismachine, one operator may replace as many as six workers producing a comparable quantity ofconventionally glued soles. The quality of output is also higher with injection molding because of theconsiderable uniformity of the units produced. Labor requirements for injection molding are relativelylow, and only modest skills are required to operate the machines. Two operators with little mechanicalexperience can operate a machine with 12 or 18 stations to load or unload. They periodically examine unitsof production so as to minimize the number of defective parts that may occur because of an occasional errorin the process. The optional feature of automatic loading further eliminates labor requirements. At leastone kind of computerized machine allows both loading and unloading to be carried out. Use of micropro-cessor-controlled molding machines by large and medium-size shoe manufacturing firms is expected toincrease moderately.

G. Finishing

20. Fnishing involves examining the shoes, correcting minor faults, and spraying color ifnecessary. Little technical change has been experienced in this area.

H. Raw materials

21. There have also been countless technological improvements in the type of raw materialsused in the construction of footwear. These include new materials for the uppers, new insole or liningfabrics, new threads, adhesives and glues. Manufacturers of athletic footwear, for example, are constantlysearching for materials beyond the standard materials. Some in the industry believe that materials used incurrent space exploration could make athletic shoes lighter and more breathable.*

41 Lee (1989).

. 51 -

Annex C: RESEARCH AND DEVELOPMENT

1. Much Research and development (R&D) in the footwear industry takes place in the largefirms themselves, but manufactuers' associations also conduct a certain amount of R&D.

2. In the United States, R&D generally is limited to the work of machinery suppliers and thelargest shoe manufacturers. This is particularly true in the athletic footwear sector where the fiercetechnology race among large firms supports their attempts to gain market shares. A development thathas fueled this race is Nike's so-called Air System--while some suppliers have been trying to developalternatives to this system, Nike has been working to outdo itself by refining it.

3. Although to sell shoes suppliers introduce new Unes continuously, R&D has become a long-term commitment and is carried further with each line. Nike, for example, has been working on developingits Air Max (running shoes with a windowed air-filled midsole) for almost ten yearsY

4. The Footwear Industries of America (FIA), an association of shoe manufacturers, is alsopromoting R&D. FIA provides marketing and management services and assists in upgrading technologicalskills FIA has been conducting seminars in which machine suppliers and material suppliers discuss withfootwear manufacturers the improvements needed in key processes. During these regional seminars,manufacturers can make suggestions that may be incorporated in designs and innovations in newmachineryY

5. In the United Kingdom, Shoes and Allied Trades Research Association (SATRA) is anindustry-wide organization that provides technical and managerial services for individual firms. SATRA alsoundertakes two major research programs: the Process and Management Research Program, which aims atreducing production costs; and Materials and Products Research, intended to reduce material costs andimprove product qualityY

6. In Canada, a number of footwear manufacturers belong to an affiliate of SATRA calledSATRA North America Research Inc. France has, in parallel with the research carried out by the largestfirms, the Centre Technique du Cuir in Lyon, which is run by heads of enterprises, technology experts, andpublic authorities. In Sweden, R&D is the responsibility of the Footwear Research Institute.

7. In Korea, the major manufacturers have invested heavily in research and development inrecent years. In 1987 the industry spent an equivalent of US$39.4 million on R&D, equal to 1.4% ofindustry sales. Within the next decade, this investment is expected to rise to close to US$147 milion.Kukje Corporation alone is spending US$14 thousand a year on R&D in its Science Research Center forSporting Goods in Pusan.

& Several state organizations and footwear companies have joined to establish the KoreaInstitute of Footwear Technology. Most Korean footwear is made to order and does not bear the nameof the manufacturer when sold abroad. Some Korean manufacturers express the desire to export under theirown brand names. Although Korea is not far behind foreign manufacturers in terms of know-how andtechnology, Korean producers feel they need to improve design and quality of their footwear.A

1/ Lee (1989).

International Labor Organization (1985), p. 46.

a' Ibid.

A/ Business Korea (1989a).

S3.

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Heiderstadt, D. 1989. 'Fifysometbing What Do Mature Consumers Want." Footwear News Magazine.March:10-13.

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Kelly, C. 1987. 'Automated Artistry.' Footwear News Magazinc. September:44-45.

Kentouris, C 1989. "Analysts See Footwear Future Belonging to Athletic Firms, Top'88 Performers."Footwear News. July 17:2

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Kurt Salmon Associates. 1988. 'Soft Goods Outlook for 1989.' The KSA Persnective.

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Rawsthom, A. 1989a 'European Shoe Industry Fights for Suni Fanancial MmeL. August 164.

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-. 1987b. *Clark Plans 3m Shoe Factory in PortugaL. Financial Times. October 6:11.

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- 56-

Statlitical References

Euromonitor. 1988. European Marketinm Data and Statitstics 1988/89. London.

FAO. 1989. World Statistical Compendium for Raw Hides and Skins. Leather and Leather Footwear 1968-1987.

Footwear Industries of America. 1988. Current Highlights. Washington, D.C.:FLA.

Swailes, S. R. and S. SmaLL 1989. World Footwear Markets. Northants:Shoe & Alied Trades ResearchAssociation.

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-. 1986 International Trade Statistics Yearbook. United Nations: New York.

United States Bureau of Census. Various years. U.S. Imports for Consumption and General Impors.Washington D.C.:U.S. Government Printing Office.

-. 1987. Footwear.' Current Industrial Reports. Washington D.C.:U.S. Government Printing Office.

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-57-

DUSThY SERIES PAPERS

No. 1 Japanese Direct Foreign Investment: Patterns and Implications forDeveloping Countries, February 1989.

No. 2 Emerging Patterns of International Competition in Selected IndustrialProduct Groups, February 1989.

No. 3 Changing Firm Boundaries: Analysis of Technology-Sharing Alliances,February 1989.

No. 4 Technological Advance and Organizational Innovation in theEngineering Industry, March 1989.

No. 5 Export Catalyst in Low-Income Countries, November 1989.

No. 6 Overview of Japanese Industial Technology Development, March 1989.

No. 7 Reform of Ownership and Control Mechanisms in Hungry and China,April 1989.

No. 8 The Computer Industry in Industrialied Economies: Lessons for theNewly Indulizin February 1989.

No. 9 Insfftutions and Dynamic Comparative Advantage Electronics Industryi South Korea and Taiwan, June 1989.

No. 10 New Environments for Intellectual Property, June 1989.

No. 11 Managing Entry Into Intemnational Markets: Lessons From the EastAsian Experience, June 1989.

No. 12 Impact of Technological Change on Industrial Prospects for the LDCa,June 1989.

No. 13 The Protection of Intellectual Property Rights and IndustrilTechnology Development in Brazil, September 1989.

No. 14 Regional Integration and Economic Development, November 1989.

No. 15 Specialization, Technical Change and Competitiveness in the BrazilianElectronics Industy, November 1989.

-58-

INDU_TRY S PAPER cmat'd

No. 16 Smal Trading Companies and a Successfu Export Response: LessonsFrom Hong Kong, December 1989.

No. 17 Flowers: Global Subsector Study, December 1989.

No. 18 The Shrinp Industry. Global Subsector Study, December 1989.

No. 19 Garments: Global Subsector Study, December 1989.

No. 20 World Bank Lending for Small and Medium Enterprses: Fifteen Yearsof Experience, December 1989.

No. 21 Reputation in Manufactured Goods Trade, December 1989.

No. 22 Foreign Direct Investment From the Newly Industrialized Economies,December 1989.

No. 23 Buyer-Seller Links for Export Development, March 1990.

No. 24 Technology Strategy & Policy for Industrial Competitveness: ACase Study of Thailand, February 1990.

No. 25 Investment, Productivity and Comparative Advantage, April 1990.

No. 26 Cost Reduction, Product Development and the Real Exchange Rate,April 1990.

No. 27 Overcming Policy Endogeneity: Strategic Role for DomesticCompetition in Industrial Policy Reform, April 1990.

No. 28 Conditionaity in Adjustment Lending FY80-89. The ALCID Database,May 1990.

No. 29 International Competitiveness: Determinants and Indicators,March 1990.

No. 30 FY89 Sector Review Industry, Trade and Finance, November 1989.

No. 31 The Design of Adjustment Lending for Industry-. Review of Current Practice,June 1990.

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INDUSIRY SERIES PAPERS cot'd

No. 32 National Systems Supporng Technical Advance in Industry: The BrazilianExperience, June 26, 1990.

No. 33 Ghana's Small Enterprise Sector: Survey of Adjustment Response andConstraints, May 1990.

No. 34 Footwear: Global Subsector Study, June 1990.

No. 35 Tightening the Soft Budget Constraint in Reforming Socialist Economies,May 1990.

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-60-

ENERGY SERIES PAPERS

No. 1 Energy Issues in the Developing World, February 1988.

No. 2 Review of World Bank Lending for Electric Power, March 1988.

No. 3 Some Considerations in Collecting Data on Household Energy Consumption,March 1988.

No. 4 Improving Power System Efficiency in the Developing Countries throughPerformance Contracting, May 1988.

No. 5 Impact of Lower Oil Prices on Renewable Energy Technologies, May 1988.

No. 6 A Comparison of Lamps for Domestic Lighting in Developing Countries, June1988.

No. 7 Recent World Bank Activities in Energy (Revised October 1989).

No. 8 A Visual Overview of the World Oil Markets, July 1988.

No. 9 Current International Gas Trades and Prices, November 1988.

No. 10 Promoting Investment for Natural Gas Exploration and Production inDeveloping Countries, January 1988.

No. 11 Technology Survey Report on Electric Power Systems, February 1989.

No. 12 Recent Developments in the U.S. Power Sector and Their Relevance for theDeveloping Countries, February 1989.

No. 13 Domestic Energy Pricing Policies, April 1989.

No. 14 Financing of the Energy Sector in Developing Countries, April 1989.

No. 15 The Future Role of Hydropower in Developing Countries, April 1989.

No. 16 Fuelwood Stumpage: Considerations for Developing Country Energy Planning,June 1989.

No. 17 Incorporating Risk and Uncertainty in Power System Planning, June 1989.

No. 18 Review and Evaluation of Historic Electricity Forecasting Experience, (1960-1985), June 1989.

.61-

ENERGY SERIES PAPERS :ont'd

No. 19 Woodfuel Supply and Environmental Management, July 1989.

No. 20 The Malawi Charcoal Project - Experience and Lessons, January 1990.

No. 21 Capital Expenditures for Electric Power in the Developing Countries in the1990s, February, 1990.

No. 22 A Review of Regulation of the Power Sectors in Developing Countries,February 1990.

No. 23 Summary Data Sheets of 1987 Power and Commercial Energy Statistics for100 Developing Countries, March 1990.

No. 24 A Review of the Treatment of Environmental Aspects of Bank Energy Projects,March 1990.

No. 25 The Status of Liquified Natural Gas Worldwide, March 1990.

No. 26 Population Growth, Wood Fuels, and Resource Problems in Sub-SaharanAfrica, March 1990.

No. 27 The Status of Nuclear Power Technology - An Update, April 1990.

No. 28 Decommissioning of Nuclear Power Facilities, April 1990.

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