Professional Documents
Culture Documents
Footwear
Footwear
PHILIPPINE
FOOTWEAR
October 1, 2003
Pearl2 Project
+ 63 2 715 5912
+ 63 2 884 1544
info@pearl2.net
www.pearl2.net
Pearl2 Project
Technical Paper #2 State of the Sector Report Philippine Footwear
October 2003
All rights reserved. No part of this document may be reproduced, stored in a retrieval system,
transmitted in any form or by any means, or otherwise circulated in any form, binding or cover,
other than the form, binding and cover in which it was published, without prior written permission
of the Innovation and Science Council of British Columbia, on behalf of its Pearl2 partners the
British Columbia Institute of Technology and the Canadian International Development Agency.
Innovation and Science Council of BC
4720 Kingsway
Suite 1048 Metro Tower II
Burnaby, B.C.
Canada
V5H 4N2
Telephone + 1 604 438 2752
www.iscbc.org
Disclaimer
This report has been prepared by contracted advisors to the Pearl2 Project. The judgments
expressed do not necessarily reflect the views of the Pearl2 Canadian Executing Agency
(Innovation and Science Council of British Columbia and the British Columbia Institute of
Technology), the funding agency, the Canadian International Development Agency or the Projects
Philippine partner the Department of Trade and Industry.
While every effort has been made to ensure accuracy of the information contained in this
technical paper, this is not guaranteed. Accordingly, neither the Canadian Executing Agency, the
Canadian International Development Agency nor the Department of Trade and Industry accepts
any liability for actions taken based on this material
Project Team
Mr. Arun Abraham, Project Director
Mr. John Manzanas, Senior Programme Officer and Editor
Dr. Rizalito Gregorio, Advisor, Value Chain Analysis
Ms. Ana Jover, Advisor, Costume Jewlery
Ms. Ma. Teresita Agoncillo, Advisor, Costume Jewelry
Ms. Cherie Carlos, Technical Editor
Front Cover Design pITstop, Legaspi Village, Makati City, Philippines
The Pearl2 Project gratefully acknowledges the assistance from the Philippine Footwear
Federation, Inc. (PFFI) and Sikap Mo, Inc. and its members in the preparation of this report.
TABLE OF CONTENTS
1. Introduction
Methodology
Limitations
Acknowledgements
2. Executive Summary
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Annexes
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INTRODUCTION
1
INTRODUCTION
The Pearl2 Project, working with the Department of Trade
and Industry, has identified the footwear industry as one of
the areas for program assistance under the Projects Sectoral
Enhancement component. Footwear manufacture has good
export potential and has been established in the country
for quite some time. To help determine how the Pearl2
Project can effectively assist the industry, this study was
undertaken to determine the needs of the sector and the
possible areas for assistance. In addition, the study also
generated information on the firms in the industry that can
serve later as baseline data for use in assessing the impact
of assistance.
Methodology
Two consultants were engaged by the Pearl2 Project to
undertake this report. Data was gathered from existing
studies and reports provided by both government and private
entities, including the Department of Trade and Industry
(DTI), the National Statistics Office (NSO) and the Cottage
Industry Technology Center (CITC). In addition, the
Limitations
The study is limited to the members of PFFI and Sikap Mo,
Inc., who are concentrated in Marikina, Metro Manila. A
total of forty six companies responded to the questionnaire,
INTRODUCTION
Acknowledgements
The Pearl2 Project acknowledges with thanks the assistance
and support for this report of the following persons: Ms.
Ma. Teresita Jocson-Agoncillo and Ms. Ana Jover for
undertaking the research and drafting the State of the Sector
Report on Footwear; Dr. Rizalito Gregorio for helping
develop the value chain for the sector; Mr.Joel Rodriguez,
Philippine International Trading Corporation brand manager
for wearables; Ms. Merlin Diaz of the Bureau of Export Trade
EXECUTIVE SUMMARY
2
EXECUTIVE SUMMARY
The local footwear sector covers a range of products that
includes dress and casual shoes, sports shoes, sandals and
slippers. This report focuses on footwear made of leather
and non-leather materials manufactured by small- to
medium-sized producers and sold in both the local and
export markets.
There about 2,148 footwear firms nationwide directly
employing 26,396 workers. Production of footwear in the
country is concentrated in the National Capital Region
(NCR), where about 43% of all shoe manufacturers are
situated, employing some 46% of the industrys total work
force. Within this area, the city of Marikina is the center of
the footwear business. As of 2001, the city accounted for
almost three fourths of all shoe producers in the NCR.
Most of manufacturers in the industry are micro to small in
size. Firms usually have their own shop facilities, although
a small number rely on subcontractors for production work.
For marketing and distribution, some companies have their
EXECUTIVE SUMMARY
OVERVIEW
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OVERVIEW
Product Scope
Footwear manufacturing in the country covers a range of
products that includes sports shoes, dress or casual shoes,
slippers and sandals. Materials range from leather, rubber
and plastic to textile and other components. The sector
targets buyers of all ages and offers products for men,
women and children.
Leather footwear is normally used as dress shoes. Nonleather footwear with outer soles of rubber or other
materials such as plastic, wood, textile is commonly used
as casual footwear. Sandals and slippers are mostly made
of textile or plastic material and are used both indoors and
outdoors.
Sports footwear entails high standards of production and
most sport shoes facilities in the country involve some direct
foreign investments. Annex 2 provides a brief description
of the general classification of footwear products. For the
purposes of this study, the focus will be on leather and
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non-leather footwear.
Industry Coverage
As of 2001, there were about 2,148 registered footwear
manufacturers nationwide. Total direct employment for the
same year was estimated at around 26,396. Another 30,000
workers are estimated to be indirectly employed in the
sector.
The industry has a large presence in the National Capital
Region (NCR), where 924 firms or 43% of the total
manufacturers are located. Other regions with significant
footwear producers include Central Luzon, Southern Tagalog
and Central Visayas. Table 1 on the next page shows the
distribution of footwear firms and employment in the
country.
OVERVIEW
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OVERVIEW
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Market Segments
While footwear product lines vary according to fashion and
cater to a specific market segment, the market
segmentation for this sub-sector follows the same pattern
as that of garments in that it is based on the income levels
and the lifestyle of the end consumer. There are basically
three distinct market segments for footwear based on
quality and price.
The high end market represents the upper echelon of the
market segment. Buyers in this category can afford luxury
items and indulge in extravagant lifestyles. This group
normally buys imported shoes ranging from US$ 75.00 a
pair to US$ 350.00 a pair in the local retail market.
Preference leans towards Italian, French and American
branded shoes. While customers from this sector purchase
mostly imported branded shoes, they occasionally also
purchase the locally made, branded footwear of select local
boutiques. Normally, local boutique brands are made from
imported materials. The average price point of the locally
manufactured high-end footwear ranges from US$50 to
US$75 a pair.
Price and comfort are the major concerns for the middleend market consumers. This group belongs to the lowmiddle to middle-high end in the economic scale and is
OVERVIEW
World Market
The global market for footwear of all types was estimated
at US$ 48.8 billion in 2001. Much of this figure is composed
of non-leather products, which accounted for almost half
of the market in 2001. The chart on the next page shows
the distribution of footwear products in the world market.
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OVERVIEW
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OVERVIEW
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Exports of Footwear
Exports of local footwear products totaled US$ 47.79 million
in 2002. Sports shoes comprised almost half (49.76%) of
this amount. Consigned footwear accounted for about a
fourth of the total while non-leather footwear constituted
around 23% of exports. (Please see the chart on the next
page for details.)
OVERVIEW
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OVERVIEW
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million. The bulk of footwear imports is comprised of nonleather shoes basically made of synthetic, textile and
similar materials which accounted for about 50% of
footwear imports in 2002. The table below shows the type
of footwear imported by the country.
OVERVIEW
The growth in imports from both China and Hong Kong has
been significant. From US$ 16.09 million in 1998, footwear
from China reached US$ 25.66 million by 2002. This
represents an average growth of 16.86% yearly. Imports of
footwear from Hong Kong grew yearly by an average of
12.68%. (See the chart on the next page for details.)
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PROFILE OF THE FOOTWEAR
MANUFACTURING SECTOR
The Pearl2 project conducted a survey of members of the
Philippine Footwear Federation Inc. and Sikap Mo, Inc. to
gauge the situation within the sector. A response rate of
about 44% was obtained during the survey, with 46 out of a
combined membership of around 105, responding to the
survey. The following section contains the significant
findings from the survey. Please note that some questions
in the survey elicited multiple answers from the respondents
which affect the figures indicated when the responses were
tabulated.
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Company size
In terms of assets, a large proportion or 86% of respondents
are either micro or small in size. Micro and small enterprises
had identical proportions of 43% each of the total firms
surveyed.
Company setup
Only a minority of survey respondents or 23% are established
as corporations. Most (77%) of the companies surveyed are
set up as single proprietorships.
Product lines
A large number of firms or 40% of those surveyed produce
leather footwear. Companies manufacturing non-leather
footwear accounted for 30% of respondents while 26%
produced sandals and slippers. The remaining 4% of
respondents are into other product lines such as sportswear,
bags and belts and parts of footwear. Most firms produce a
variety of products, meaning a mix of leather and other
types of footwear. Only a few firms concentrate on a single
product line. Among the respondents, only about 17%
Ownership of facilities
Traditionally started as family businesses, the majority or
80% of the manufacturing facilities are set-up on owned
properties. The remaining twenty per cent (20%) of the
companies work in rented facilities. These producers consist
mainly of micro and small-sized companies.
Employment
The survey respondents reported 2,950 employees, of which
67% are involved in production, 26% in marketing, and 7%
in administration.
A large proportion or 90% of firms surveyed have their own
in-house production system. The number of production
workers range from 10 to 155. Of these firms, more than
half have 30 or fewer workers in production. About 17%
have from 31 to 60 production personnel while 31% have
more than 60.
The number of marketing personnel range from a minimum
staff of 2 to an extensive sales network involving 80 to 600
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Subcontractors
The majority or 78% of the total survey respondents do not
use any subcontractors. Only 22% of respondents employ
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Mode of Production
Almost two thirds or 65% of respondents stated that they
use semi-automated means of production. Some 31% use
manual production, while 4% have a fully automated setup.
Automation is defined as the presence of mechanized
process for cutting, skiving, installing shoe lasts, sealing,
drying, testing and others. A manual-based production
produces an average of 1,000 pairs per week. This can
accelerate to 3,000 5,000 pairs per week with a semiautomated process.
Capacity Utilization
Twenty-eight per cent (28%) of respondent companies stated
that they had a 100% utilization of their production capacity.
These companies represent a cross-range of small (46%),
micro (31%) and medium/large-sized companies (23%). The
remaining 72% of surveyed firms had underutilized
production capacities. Three main reasons were cited for
unutilized capacity. Some 58% of firms said that inadequate
supply of raw materials was the primary cause for low
production capacity. This includes poor raw material quality
and shortage of materials. In addition, 55% of respondents
also indicated machine limitations as the cause for
unutilized capacity. About 28% cited lack of space as another
reason. Other reasons include manpower problems and
STATE
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Quality control
The majority of the survey respondents or 60% stated that
they conduct quality control measures. Some 56% of the
companies have in-house quality control and testing setup,
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Market coverage
The majority or 93% of the respondents cater solely to the
local market, while the remaining 7% sell both in the local
and export markets. The majority or 55% of surveyed
companies manufacture and sell products aimed at the
middle market segment. About 29% of firms target the highend market while 16% cater to the low segment of the
market.
Companies defined market segments based on a price range
relative to the type of products manufactured. Each firm
stated general price ranges for all its product groupings,
with one given price range covering both leather and nonleather footwear.
No medium-sized company sells in the low end of the
market, a segment dominated by small (67%) and microsize (33%) companies. The majority (52%) of the companies
producing for the middle-end market are small-sized. About
29% of those who target this segment are micro enterprises
and 19% are medium-sized. High-end suppliers are also
mainly small-size companies (38%) with micro firms
S
ROFILE
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MANUFACTURING
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Competitors
Among the respondents, nearly all of the companies or 90%
identified China as their major competitor. Citing Chinas
fully-mechanized operations, they pointed out that Chinese
shoe factories now have the capacity to produce large
volumes of fashionable and even branded shoes which are
sold at relatively low prices. Other minor competitors
mentioned include Thailand with its access to local materials
and components.
Concerns
Regarding their concerns, 59% of the companies cited
uncompetitive pricing as the foremost problem in marketing
their products. This was followed by unsuitable packaging,
reported by 16%, unsuitable design by 13% and unacceptable
quality by 6% of the respondents. Some 3% of them reported
difficulties with both insufficient technology and marketing.
Sales
For the year 2002, respondent firms indicated a wide range
of sales figures, from below Php 1 million to more than Php
Financing
About 61% of surveyed companies are dependent on internal
sources to support expansion plans. Forty two per cent of
firms said they depend on bank credit lines for funding.
Around 50% of the respondents are still sourcing their funds
as of the time of the survey.
Operating Expenses
More companies are spending on R&D, with about 41% of
surveyed firms saying this was their major operating
expenditure. Administrative and marketing expenditures
were reported as the biggest cost item by 32% and 27% said
marketing was their leading cost category. Most firms or
60% of respondents say they use their own funds for
operating expenses. About 33% borrow from banks and 7%
use funds from cooperatives.
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Needs Indicated
Almost all of the respondents or 97% have never availed of
direct assistance from any foreign-funding agency.
Companies who participated in the survey rated their needs
as follows: supply chain sources (30%), financial (28%),
technology (22%), training (13%), marketing (11%),
production/quality (9%), product development (9%) and
government policies (7%).
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VALUE CHAIN ANALYSIS
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NEEDS ASSESSMENT OF THE SECTOR
The value chain analysis of the local footwear sector has
identified some issues and needs of the industry. They are
as follows:
Inbound Logistics
y The industry needs a reliable source of good quality
leather hides. At present, local hides are not up to the
standards required by the footwear sector in terms of
quality and price, so producers have to rely heavily on
imported leather.
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Operations
y The technology used in the industry is outdated and
technology adoption rate of new technologies by
producers is low. Efforts should be made to accelerate
the pace of technology adoption among shoe
manufacturers.
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Services
y The inconsistent sizing system in the industry requires
good after-sales service to deal with customer
complaints on shoe size problems. This is needed
particularly for high-end products promoted and priced
on the basis of their quality.
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PROPOSED AREAS FOR INTERVENTION
Based on the analysis of the needs of the industry, the
following measures and activities are recommended:
2. Encourage consolidation of
raw material imports
Given the volume of materials and components bought by
footwear producers from abroad, it may be practical to
consider a consolidation of their orders. Bulk importation
can reduce per unit cost and limit the amount of time and
resources spent on this process. The industry should
consolidate import requirements and coordinate delivery
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3. Provide support to
shoe-component suppliers
To augment the local supply of hides and components, there
should be institutional support for producers of these items.
This would include increasing their access to affordable
credit and containing technical smuggling of shoe
components from abroad. Collaboration and trading with
transnational companies supplying footwear components
should also be encouraged with the objective of establishing
joint ventures or investments in the country.
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ANNEXES
ANNEXES
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ANNEXES
Annex 1
Value Chain Analysis as Used in the Sectoral
Enhancement Component of Pearl2
The Value Chain Concept
Value chain analysis is a method for identifying and
understanding the various activities of an organization that
provide value to its products or services and the linkages among
such activities. It is used to determine which aspects of a
firms operation can be enhanced, where to reduce costs,
optimize resource use, or even reconfigure the entire chain
of operations for better performance. The end result of this
effort is increased product or service value, lower costs of
operation or both.
A value chain covers of two sets of activities. The first refers
to the primary activities of a firm and consists of inbound
logistics, operations, outbound logistics, marketing & sales
and service. These are the activities that organizations engage
in to produce a product or service. The second set covers
support activities that indirectly contribute to the firms
operations. These include organization infrastructure, human
resource management, technology development and
procurement.
All these activities are linked together and work in a process
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ANNEXES
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ANNEXES
Annex 3
Brief Background on the
Philippine Footwear Federation, Inc. (PFFI)
The Philippine Footwear Federation, Inc. (PFFI) was
established on December 20, 1992. Formerly known as the
Marikina Footwear Federation, Inc. or MFFI, the federation
was founded through the joint efforts of Architect Tereso
V. Pasco, Sr., the late Mr. Rogelio G. Villareal and Mr. Renato
A. Florencio after a meeting attended by various NGOs,
civic organizations, cooperatives, trade associations and
various footwear manufacturers in Marikina.
The PFFI is composed of footwear manufacturers, retailers,
cooperatives and allied industries. At present, the
organization has about 63 members. The majority of the
members are from Marikina, Laguna, Bulacan, San Mateo
and Cebu. Most of the members are classified as small and
medium enterprises (SMEs) and are often family-owned.
The PFFI is currently manned by a Director General with
two staff members, an Assistant Director General and a
clerk/messenger.
From 1993 to 1998, it was the MFFI that provided the
footwear industry with training, seminars and workshops
on the various aspects of footwear making. The federation
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ANNEXES
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Annex 4
Brief Background on Sikap Mo., Inc.
Sikap Mo, Inc. is a joint venture of companies comprising
the Marikina shoe industry. The group aims to make the
footwear sector become more competitive and win back
the local market share it has lost to imported shoes. Sikap
Mo pools together the resources of its members in an
association in order to achieve the following objectives:
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ANNEXES
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Annex 5
Carcar United Footwear Manufacturers
Association, Inc. (CUFMAI)
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ANNEXES
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