Untitled Document
  
 

This chapter focuses on understanding the operations of the small and medium enterprises (SMEs) in the leather and textile segments in the Kolkata cluster, and highlights the operational structure and business practices of these SMEs.

Section A: Leather Industry

Kolkata is one of the main manufacturing hubs for leather. The players in this city are involved in activities across the value chain and manufacture a wide range of leather and leather goods.

The following noteworthy characteristics of the leather companies emerged during our study of the cluster:

Ownership patterns

The ownership pattern of the Kolkata-based leather companies reflects a greater proportion of proprietary firms (40% of the entire sample), followed by partnership firms (34% share) and private limited companies (20% share).

Turnover classification

According to the survey results, 70% companies have registered a turnover of Rs 10 mn - Rs 100 mn, and 13% companies had a turnover between Rs 100 mn – Rs 250 mn.

Around 50% of the leather goods sales are made to wholesalers and 3% sales are made to retailers; the remaining sales are made to both retailers and wholesalers.

Europe is the most-favoured destination among leather manufacturing companies

93% companies that were surveyed export leather and out of these companies, 68% earn their revenue exclusively from the export market. Europe is a major export destination for leather manufacturers in the cluster; it has 56% share in the total leather exports, followed by America.

According to the survey results, the export market is the largest revenue generator for the Kolkata leather industry.

Segment classification

Leather goods such as leather wallets, ladies bags, purses and others have a major share in the leather production of the surveyed leather companies; 80% companies that manufacture leather goods fall under the revenue bracket below Rs 100 million. Out of the leather goods produced by the sample companies, around 44% is sold to wholesalers and the remaining is sold to both wholesalers and retailers.

Value chain process

The leather firms in the cluster follow the following value chain processes: tanning, processing, designing and finishing.

IT adoption among SMEs

The survey queried the sample companies on their IT deployment patterns and IT spending. It was found that IT adoption is gaining wide acceptance among the leather companies operating across the city. The IT and decision support software in business eliminates the lengthy processes of production cycle. Around 97% of the total surveyed companies have imbibed IT in their business. Hardware forms a major portion of IT budget and desktops, printers and scanners are the most essential components. Even though software applications such as ERP, accounts software and customised software have a smaller share in the IT budget, they are the most widely-adopted IT application among the sample companies. It’s worth mentioning that the customised and ERP software has contributed in the performance of the companies by enabling better planning and inventory management. The companies mostly use IT applications for payroll and for marketing and production.

Majority of surveyed leather companies have spent less than 2.5% of their total expenditure on technology in the past. Also, in future, only half of the total surveyed companies are planning to increase their investment in IT, out of which 60% are planning to increase their investment to 5%.

The main reason why SMEs in the cluster hesitate to adopt IT is that the size of their unit is too small. The other equally important challenges that obstruct them from adopting IT are unavailability of skilled labour, unavailability of funds and high costs of IT applications.

Fluctuating prices of raw material is one of the major concerns for the leather SMEs in Kolkata

Most companies in the cluster have to grapple with fluctuating price of raw materials. China is major competition for the Indian leather industry as it has an edge over the industry in terms of infrastructure and cost of raw materials. Besides, India also faces high competition from east European countries and other Asian countries. Lack of proper infrastructure and shortage in power supply further hamper growth of the sector. Moreover, companies have less time for strategic planning and for building growth avenues as they find that arranging funds for working capital in less time is not easy.

Section B: Textile Industry

The Indian textile industry is one of the largest manufacturing sectors in India that contributes significantly to the Indian economy in terms of industrial output, employment generation and export earnings.

The textile industry is highly fragmented, is vertically- integrated across the value chain and is interconnected in various operations. While the organised sector consists of spinning mills and composite mills, the unorganised sector comprises handlooms, power looms and handicrafts. Cotton, blended, silk, wool and manmade are the major sub-segments of the textile industry. Readymade garments, suiting and shirting, shirts and trousers, fabrics, bed linen and embroidery work are the major products that the Indian textile industry supplies.

Ownership pattern

The ownership pattern of the textile industries in the Kolkata cluster is similar to the leather companies in the cluster. Proprietary textile firms dominate the cluster – they constituted 53% of the sample – followed by private limited and partnership firms that represented 40% and 7% of the sample companies, respectively.

Turnover classification

According to the survey results, approximately 60% of the textile companies in the Kolkata cluster reported a turnover in the range of Rs 10 mn – Rs 100 mn and 20% has turnover below Rs 10 mn.

Europe is the most favoured export destination for textile companies

Approximately 63% of the textile SMEs that were surveyed in the Kolkata cluster is engaged in some export activity. Europe is one of the most-favoured export destinations for the textile companies in the Kolkata cluster.

Sub-segments

The textile industry is large and has many sub-segments, but for the purpose of this study, the industry has been divided into the following sub-segments: cotton, man-made fibre, blended fibre, wool and silk. Majority textile companies that were surveyed in the Kolkata cluster operate in the cotton segment.

Value chain process

Among the value chain activities carried out in the textile industry, made-ups were found to be the most common in the Kolkata cluster. Even though every single player is involved in multiple value chain processes, made-ups have a 16% share in the total value chain within the cluster, closely followed by printing at 15%.

IT adoption among textile SMEs

Approximately 63% textile companies that were surveyed use some form of IT product in their business operations. Besides, the textile companies are willing to increase the adoption of hardware and software products in their business.

Among the software products, 20% textile SMEs in the cluster adopted ERP solutions for their business and approximately 10% companies adopted 100% customised software solutions. Besides, textile companies are also using the accounting software Tally. Thus, SMEs in the Kolkata textile industry seem to be fairly IT savvy. Most of the companies uses IT applications for the payroll and for managing their receivables. During FY09, around 81% respondents spent less than 1% of their total expenditure on IT.

Challenges faced by the companies in adopting IT

Textile companies in Kolkata reportedly face a lot of challenges in adopting IT solutions in their day to day operations. Among the many challenges, implementation cost of IT was cited as the most difficult by the textile companies in Kolkata.

Fluctuating prices of raw material is one of the major concerns for the textile SMEs in Kolkata

Fluctuating prices of raw material is one of the major concerns for the textile SMEs in Kolkata Fluctuating prices of raw materials and competition from other states, clusters and countries emerged as the major challenge for the textile companies.