Historically, with transport being expensive and difficult, just raw materials and valuable items moved across our seas. Globalisation in the 19th century accelerated this by taking finished goods from the west (and north) to new markets, and returning with even more raw materials. The change with improved communications made it much easier, instead, to relocate the manufacture itself to more suitable locations.

This thought is based on the premise that the major purpose of business is to reduce the cost of transactions. On that basis, locational pull is based not only on access to cheap labour, but to raw materials and to markets. For industries such as aluminium, access to power is usually the deciding factor for location.

Generally speaking, leather and leather using industries have done well out of all this with its raw material widely spread around the world, but with significant locations where higher qualities are concentrated. With leather using industries being labour-intensive, and relatively low cost to establish and move, sectors like footwear have been very peripatetic. Indeed, in this regard, the modern globalisation in the leather industry began not in 1990 but thirty years earlier, in the 1960s. Companies such as Nike were founded and structured on this basis, hence, it often being called the first “virtual” corporation: owning its marketing, design and other intellectual property, but outsourcing the rest around the world.

Tanning moved much more slowly than footwear as it is more tied to the raw material, more capital intensive and harder to move. So, countries like Italy held on to much of their tanning industry while China captured much less of the world’s tanning industry than it has of footwear and clothing. Indeed, the west would have lost much less tanning capacity if the move of footwear had not coincided with a need to renovate old factories, and build expensive effluent plants on what were often unsuitable small city centre plots.

As we look forward, we can see some underlying trends evolving. Generally, it is better to do at least the early processes close to the source of the raw material. The location of the later stages is generally better closer to the customer and, as society moves beyond wasteful consumerism, this becomes a greater imperative. Making leather goods of all sorts is attractive in emerging markets to pull citizens out of poverty, and is likely to happen wherever there is a good supply of raw material. Only a small number of leather end uses are suited for high volume single system production, with most being batch production where the highest value is increasingly coming from smaller volumes and very quick reaction times.

At the moment, automated, robotic production looks best suited to synthetics and textiles, while leather is best handled essentially by craft experts.

These underlying trends appear secure however, volatile currencies and national and international trade policies may become more significant over the next few years.

Mike Redwood

7th February 2017


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