Small Business Management IMMG32082
Upcoming SlideShare
Loading in...5
×
 

Small Business Management IMMG32082

on

  • 289 views

 

Statistics

Views

Total Views
289
Views on SlideShare
289
Embed Views
0

Actions

Likes
0
Downloads
27
Comments
0

0 Embeds 0

No embeds

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Small Business Management IMMG32082 Small Business Management IMMG32082 Document Transcript

    • Small Business ManagementIMMG -32082Euroleather Lanka (Pvt) LtdB.Sc. in and Information Technology 2006/2007Department of Industrial ManagementFaculty of ScienceUniversity of Kelaniya
    • 2 | P a g eTable of ContentsIntroduction to the Industry....................................................................................................................3Sri Lanka Footwear & Leather Industry ..............................................................................................3Industry Analysis.................................................................................................................................5Profile of the Client..................................................................................................................................6Characteristics of the Entrepreneur........................................................................................................8Marketing Strategies of Euroleather (Pvt.) Ltd.....................................................................................11Early days ..........................................................................................................................................11Present..............................................................................................................................................12Future................................................................................................................................................12Competitive Environment of the business.............................................................................................13Work Life Balance .................................................................................................................................16Quality awards......................................................................................................................................17
    • 3 | P a g eIntroduction to the IndustrySri Lanka Footwear & Leather IndustryFootwearThe footwear industry in Sri Lanka includes 10 large export companies, 30 mediumcompanies & about 3000 small scale manufactures. The total production capacity is expectedto, in the range of 20-30 Mn pairs per year. Sri Lanka produces wide range of modern shoessuch as gents & ladies fashion shoes, rubber boots, beach slippers, safety shoes, sports andcanvas shoes etc. One of the key advantages enjoyed by the footwear industry is the localavailability of high quality natural rubber plus sole crape. Sri Lankan footwear exporters havealready established themselves as suppliers of fashion footwear to well known internationalbrands, like Mark & Spencer, Bata France, H.H.Browns, Clarks, Aerosols, Nike etc.Leather & Leather ProductsSri Lankan leather industry consists generally of three manufacturing activities, manufacturerof leather, leather goods & leather footwear. Sri Lanka producers high superiority leathergoods in the range of leather gloves, travel bags, back packs, ladies handbags, jackets andtiny leather goods and caters to the high end of the nichemarkets in the global market. Sri Lanka leather productsmanufacturers have also catering to well-known brandssuch as Play Boy Laurel, Helen, Kaminski etc.
    • 4 | P a g eCurrent SituationSri Lankan Footwear industry has survived for a long period of time and this industry hasprofitably catered the local market till the early 90‟s, but in the recent past, this industry hasbeen badly affected by dumping of footwear products from East Asian countries, especiallyfrom China. Another reason for this is lack of proper planning. It is believed that the localfootwear industry is capable of even exploring an international market. It might have a hugepotential especially in the western countries as fashion oriented designer-wear, but thisindustry has not acquired enough attention of the relevant parties. It should be noted that theinvolvement of engineering know-how in the footwear industry is minimal. Although, there issome small engineering involvement, the technology transfer to the footwear industry issmall compared with the global arena. No proper research has been carried out focusing onthe problems related to the footwear industry in recent years in Sri Lanka. The presentsituation with respect to the footwear industry has not been systematically evaluated by anyorganization or individual. Finally, most of the footwear manufacturing firms are carrying outtheir businesses in isolation, thinking that this expertise is unique to individual businesses.Therefore, there is a necessity for comprehensive research, which is highly demanded by theindustry and, that would be beneficial to all stakeholders of this industry at great.
    • 5 | P a g eIndustry AnalysisInitially, a comprehensive analysis of the data elicited was a SWOT analysis to investigatethe present status of the footwear industry in general and pros and cons of the industry wereidentified according to PEST considerations. A comparison between the Sri Lankan footwearindustry and other countries where the footwear industry is advanced was done with respectto the footwear industry.Strengths Weaknesses1. Trainability of Labour2. Supportive Industries3. Quality Manufacturing4. Ethical Manufacturing5. Geographical Location6. Machinery Industry1. Standard Techniques Usage2. Product Development3. Customer Satisfaction4. Training Facilities5. Testing Facilities6. Dependency of Institutions7. Financial Assistance8. Attitude9. Technical KnowledgeOpportunities Threats1. Potential in Export market2. Quality Consciousness3. Potential of Leather Availability1. Imported footwear2. Environmental Regulation3. Religious Views4. Laws & Regulations5. Reliance on Imported Accessories6. Power Tariffs
    • 6 | P a g eProfile of the ClientLeather industry is not a new field for Mr. Nimal Samarakkody because he is running thirdgeneration of their family business. His grandfather was the first to start manufacturing theseleather products. Then generation by generation it was gradually developed to the currentstage. Though Samarakkody family has enough experience in leather products, shoemanufacturing was an untouched area until Mr.Nimal Samarakkody gets the control. Sincethere was an untapped demand in the market he made his mind to start a leather shoemanufacturing company and named it as „Euroleather Lanka‟.Euroleather Lanka (Pvt) Ltd was registered in 2008 as a limited liability company and itcomes under the same „Sapco Group‟ umbrella as a new arm. When we asked „What drivenyou to enter into this shoe industry?‟ his answer was that he could find direct customers fromUK and government incentives for the export market such as reductions of tariffs, encouragedhim to touch this market.Mr. Nimal Samarakkody initially put 16 million as his fixed capital for the company and thenhe went for a 10 million bank loan to pump money into its working capital. That 16 millionhe invested on buying new machinery and other technological components. These werebought from leading shoe manufacturing countries such as Italy, China and India. He startedhis business with 12 employees who had no experience at all in the shoe production industry.In leather shoe production they identified three key processes as Cutting, Sewing andAssembly & Finishing. In the very first year he hired 3 Indian technicians for each processwho are specialized in those areas and also one British consultant for guidance in the overallbusiness. All of them were hired on contract basis for one year period, to support the businessbecause neither Mr. Nimal nor his employees had hands on experience in this shoe industry.Key ProcessesCutting SewingAssembly& Finishing
    • 7 | P a g eEuroleather Lanka‟s first market was the UK. They directly export their finish goods becausethey had reliable customers there. But unfortunately during the economic crisis in 2009 theirdemand dropped drastically. Finally Euroleather Lanka stopped importing shoes to the UK.This was a critical time period for Mr. Nimal Samarakkody because he lost his majorcustomers. It forced them to stop production.But Mr. Samarakkody did not give up his fight. He conducted a market analysis and foundout few local buyers. There after he totally gave up the export market and started producingleather shoes for the local market. Gradually he could develop his market base and now he isoperating at profit without any difficulties. Currently Euroleather Lanka markets its productsthrough,1. Area Sales Officers2. Retail Shops3. Manufacture shoes for Private labels
    • 8 | P a g eCharacteristics of the Entrepreneur“All cannot be entrepreneurs”In general people who are taking the risk and start own business known as entrepreneurs, butthere is no universally accepted entrepreneur character profile and it differ from country tocountry based on gender, culture, religion, geography and genetics. Among the people whohave the potential to be entrepreneurs become success. Risk takers, family inheritors, longrangers, survival artists defined as people who have the potential.Characteristics of the successful entrepreneurs are defined by different people who haddifferent perspectives.Dranken (1985) – “Entrepreneur as an opportunity maxi miser”As we perceived in the success story of Mr. Nimal Samarakkody is a good example for anopportunity maximizer. With the gap created at the footwear export market (2006/2007) inthe Sri Lanka he started his own footwear manufacturing company within short time periodwith all capabilities. As he said he realized that Sri Lankan government has giving variouskinds of incentives and supports to the leather industry. So he took it as great opportunity andalso hired world class consultants to cater the international market more successfully.With the world economic crisis (2008) the footwear export industry got decline because of allof the buyers of Euro leather (pvt) Ltd were from the Europe. Then he did a structural changeto the business and started to cater local market rather than export market. He saw it as agreat opportunity and deliver international standard quality footwear to the local customer.As a result of that the Euro leather (Pvt) Ltd able to gain their market share within short timeperiod.Yee, (1991) – “Entrepreneur as a risk taker”As an entrepreneur able to take a risk, which not means take a risk blindly. The visions theyare keep help to take a risk and become success. Build up a business to meet the requirementsof gap created at the Sri Lankan footwear export market was a kind of risk. In other wordsinternational market is a buyers‟ market which there prices determine by the buyers. Find asuitable price offers, reliable buyers are major challengers of the export market.
    • 9 | P a g eAs he said India, Pakistan has strong export footwear industry than Sri Lanka. When heenters in to the market he analyzed the industry and the requirements of the manufacturingwhich drive him to invest 16 million rupees from his own. That was relatively very highinvestment for a new business and which increase the risk has to take higher.When change the business process also he took the risk to compete with local market leaders.After established the business in the local market he try to be a trend setter rather thanfollower. That also kind of risk which couldn‟t say the society will accept or reject.Relatively low resources compare to the market leaders also become a threat at this point.Silver, (1983) - “Entrepreneur as a Person with a vision and mission”In 2008 he started the business with a great vision which was become a largest naturalleather footwear exporter of the Asian region someday. In order to achieve the vision he tookstrategically important steps from the beginning. For a new business capability improvementis highly required. So he hired well trained foreign workers to start the process andsimultaneously train the local workers. And also to identify the technology requirement hetook the consultancies from a British person for one year contract basis. These show how heacts from the beginning of the business to achieve his vision someday.With world economic crisis he had to change his mission to survive in the industry but didn‟tchange his vision until now.As he said he planned to outsource their some business processes to foreign people who havethe competence to increase the international quality of the product. And also go into a jointventure with a large Indian footwear company in near future.Anita Roddick - "I want to define success by redefining it. For me it isnt that solely mythicaldefinition - glamour, allure, power of wealth, and the privilege from care. Any definition ofsuccess should be personal because its so transitory. Its about shaping my own destiny. …Entrepreneurs have this real belief that their lives are about services and leadership."Leadership for the entrepreneur is not about status but about function. Imbibing a healthy selfesteem, they have little need for status. They are not motivated by external acknowledgementbut by achieving their own internal measures of success and achievement. At the very core ofentrepreneurial leadership is problem solving and decision making. If there is a problem or ifthere is a decision to be made Mr. Samarakkodys‟ does not reluctant to take care of those.
    • 10 | P a g eHe has sound knowledge on business management which greatly support to decision makingprocess. And also he has fair knowledge on economic situation and the leather industry aswell. Empowering employees and recruit right people in right place at right time alsoshowing his managerial skills. He recruits people if he feels his knowledge is not enough todo the better job.Mr. Samarakkody know how to add value by making a product better and getting a targetmarket to demonstrate their appreciation of it by parting with their money. As he said he feelsthat his core competency is to find new ways to solve problems and to come up with clever,workable solutions. That innovative thinking pattern also make him successful entrepreneurin today‟s world.
    • 11 | P a g eMarketing Strategies of Euroleather (Pvt.)Ltd.Although Euroleather Lanka (Pvt.) Ltd. was started by a small entrepreneur as one of thearms in their family business it had a clear strategic vision to meet both industry challengesand opportunities. So marketing strategies adopted by Euroleather Lanka (Pvt.) Ltd. atdifferent paces of their life cycle can be classified as follows.Early daysEuroleather Lanka (Pvt.) Ltd. was started in 2008 to meet an untapped demand (1 Billion peryear) for Gents shoes in the European market. Till then their core business was other leatherproducts such as handbags, wallets etc. but with the sudden market opportunity and otherincentives provided by the government Mr. Nimal Samarakkody diversified his familybusiness into a new market. He started exporting Gents Shoes which was out of his productline to popular brands in the UK. His target market was the B2B customers in the Europe.Although this was part of his family business (SAPCO Group) Mr. Samarakkody brandedthis with a separate name called “Euro”. He wanted to make the brand closer to the newmarket (Europe) with a familiar brand name. Starting from the beginning Mr. Samarakkodyunderstood that the European market highly value the product quality than the price. So heacquired the right technology and expertise in the three main areas of Leather clicking,Sewing and Assembly to make sure the quality level of his shoes conforms to the Europeanstandards. He also imported natural leather from Italy for this purpose. The prices of hisproducts were kept high in order to communicate the quality level and recover the hugecapital he has invested on the business. In this manner he positioned his product as apremium brand in the mind map of his customer.
    • 12 | P a g ePresentDuring the last year (2009) the whole world faced a massive economic recession which madeseveral giant industry players close down. Mr. Samarakkody too came across a turning pointin his business during this time. Due to the recession most of the UK suppliers stoppedplacing their orders with Euro. Although it was a huge blow on the business Mr.Samarakkody was strong enough to face it. He changed his market strategy and entered intothe local market. By this time he has recovered better part of his investments made on theGents shoe business.Today he targets both B2B and B2C customers. He currently manufactures gent‟s shoes withhis own label to cater the B2C customers and private labels to cater the B2B customers. Sincebrand Euro is alien to the Sri Lankan consumer, his products are now branded as SAP takingadvantage of his family heritage. It is now positioned as a bargain brand in order to penetrateinto the Sri Lankan market. He continues the existing quality of the product to attractcustomers. While most of his competitors (Ex: Bata) use synthetic leather, he uses naturalleather since the general perception is in favor of natural leather. By today stitching operationis outsourced to a Sri Lankan supplier while finishing and assembly (Most of the valueadditions which create their competitive advantage lies here.) is still done by them.FutureLooking ahead Mr. Samarakkody wants to continue the existing brand positioning but he hasplans to enter into the overseas market again through a joint venture with an Indian company.He also wants to expand Sri Lankan distribution network with an intensive distributionstrategy. Mr. Samarakkody also wants to enter into Sri Lankan Lady‟s footwear market. Oneof the main competitors in this market segment is Bankok. Most of the customers areattracted to trendy designs of these imported shoes. (Especially the Bankok designs)Therefore Mr. Samarakkody is planning to outsource the designing operation to a skillfulsupplier who can match the Bankok standards in Lady‟s footwear.
    • 13 | P a g eCompetitive Environment of the businessFootwear industry in Sri Lanka has survived for a long period of time and this industry hassuccessfully catered the local market till the early 90‟s, but in the recent past, this industryhas been seriously affected by dumping of footwear products from East Asian countries,especially from China. Another reason for this is lack of proper planning. It is believed thatthe local footwear industry is capable of even exploring an international market. It mighthave a huge potential especially in the western countries as fashion oriented designer-wear,but this industry has not acquired enough attention of the relevant parties. It should be notedthat the involvement of engineering know-how in the footwear industry is minimal.Although, there is some minute engineering involvement, the technology transfer to thefootwear industry is negligible compared with the global arena.Following are some of the major threats that Euro Leather (PVT) Ltd faces as a SME in SriLanka.1. Sri Lankan footwear manufacturers are lagging behind in application of standardtechniques for maintenance, quality control, process planning and testing etc. becauseof the competition of prices. Even the large scale manufacturers in the local contexthave not implemented these procedures. Considering global trends, effectivemaintenance procedures such as TPM (Total Productive Maintenance) and qualityprocedures such as TQM (Total Quality Management) are common.2. Product development in footwear industry is virtually nonexistent compared to theinternational footwear companies. SME sector cannot focus much on this aspectbecause of financial constraints. Even though, product development is important forcontinuous improvement, even the large scale manufacturers are reluctant to focus onproduct development.3. Local manufacturers are not interested in getting feedback from the customers forproducts they put into the market. The communication between the marketing andproduction departments is poor. This may lead to failure in identifying customerpreferences. Hence, local footwear has not been able to achieve customer satisfaction.
    • 14 | P a g eAs a consequence, local customers have gradually accepted imported footwear. Also,a lot of designs have failed to achieve the target marketing bench marks.4. The facilities for training in the footwear industry are minimal. This is because of lackof training institutions. There is only one training centre, which is under the IDB. Dueto lack of facilities and awareness on available resources, the number of participantsfor the offered training courses is low.5. In order to get the best output from the production process, the raw material should begood in quality. Due to lack of laboratory facilities for footwear industry, especiallyfor raw material testing, quality testing and for research and development, Sri Lankanmanufacturers find it difficult to keep up with the global quality standards.6. Institutions that are established for the development of footwear industry are notindependent. Legal, institutional and financial barriers are encountered when carryingout activities for the betterment of the industry. There are stringent government rulesand regulations that have to be followed most of the time delaying developmentprojects. Sometimes these even result in abandonment of such projects.7. Financial institutions are not flexible enough to assist the local industries to findnecessary finances to initiate businesses or to expand. The interest rates and the bankguarantees are beyond the reach of the local manufacturer. The SME sector finds itdifficult to keep up with the ever improving technology because of lack of financialassistance from banks even if they are capable of using the technology.8. Sri Lankan footwear industry suffers from negative attitude of the public towardslocally manufactured products. Machinery manufacturers also face this problem. Eventhough level of quality is matched with international standards, the local customersreject these products because it is under “Made in Sri Lanka” label.9. Technological knowledge present in the footwear industry is minimal in the localfootwear industry. It has made this industry backward that uses primitive machineryand production techniques.
    • 15 | P a g e10. Dumping of low priced footwear from countries such as China, Thailand, Vietnamand Hong Kong has severely affected the local footwear industry. Their productioncosts are much lower than that of the Sri Lankan industry due to the usage of latesttechnology and economies of scale.11. Environmental regulations have been barriers for the development of this industry.Tanning process is associated with environmental impact and the Sri Lankanenvironmental regulations are unfavorable for the development of the leather industry.12. Sri Lanka is a country with a majority of Buddhists. Therefore, religious reasoninghas affected the raw material processing industry especially the tanning and relatedprocesses.13. Governmental laws and regulations are unfavorable for the local enterprises most ofthe time. The taxes imposed on the local manufacturers are unbearable for the SMEsector. For the well being of the industry, the manufacturers should be guided andassisted more by the government.14. At present, Sri Lanka is facing a huge power crisis. All the industries suffer from highoverheads from the increasing tariffs of the national power supply. Footwear industryis no exception. It also has to add this high overhead to the production cost. Thisfactor has a considerable influence on large scale manufactures.
    • 16 | P a g eWork Life BalanceMr. Samarakkody is a father of three. So he has a lot of responsibilities in the office as wellas at home. As a group chairman he is really busy with all the entities of the group. When weask about how he balances both business and his family together he said, “I never take mywork home. When I come to the office I am the CEO, when I am at home, I concern onlyabout my family”.His eldest son now works with Mr. Samarakkody as a senior executive. Daughter is followingCIMA and the youngest son is still schooling. His wife is giving him a great support bymanaging all the work at home and reduces his pressure by solving children‟s problems,household issues within her scope.Mr. Samarakkody is making his elder son as a shadow to his position in the future. Now he issharing his knowledge and experiences he gained and observed from his parents. Since it is afamily business he has to give all the contacts and networking environment he has developedup to now and give his son enough confidence to stand on his own feet in the future.Left corner gentleman is Mr. Nimal Samarakkody
    • 17 | P a g ePattern area and perimeter informationMaterial UsagecalculationQuality awardsEuroleather Lanka initially started its business targeting the export market. After theeconomic crisis they lost the foreign market. While they are in the foreign export market theycould win a quality award from Footwear Design & Development Institute (FDDI) – India.This award has given for the overall quality of its shoes. The institute has six well designedcampuses at Noida, Fusatganj, Chennai, Kolkata, Rohtak & Chindwara around India. Theymeasure following qualities, Footwear designing Pattern engineering Prototype development Pattern grading and cutting sets of graded patternsAfter they move to Sri Lankan market they still could not won a quality award but they arefollowing ISO quality standards and hoping to achieve those quality awards in the future.