LE SCHUS MANUFACTURING INC.

Astrud Malvar and Faye Mendoza

The shoemaker protégé and crusader

The man behind the Le Schus Manufacturing Inc. is Mr.

Ceceng Nepomuceno or, as family, friends and close
acquaintances would fondly call him, simply “Dad” or
“Daddy-O”. Dad, being the son of a shoemaker and a
home-grown Marikina native, he grew up closely-tied
with the shoe industry. Actually, he didn’t even want
to go into the shoe industry in the first place – he
wanted to be an architect. But he has no other choice
back then but to embrace the industry that his
community was proud of. Even though he does not
want to get his fingers stained by the adhesives used to glue the shoe pieces together, and would
rather hold a pencil for drawing; he was obligated to enter the shoemaking industry in his teenage
years to earn money for his daily allowance.

He eventually grew to love it and the footwear business, proudly adopted him as one of the most
respected protégé of the industry. He easily gained respect and trust among his colleagues and
clients. His skills in drawing and designing shoes also leveraged his reputation within the shoemaking
community. He used these things to his advantage when he started his own shoemaking business.
His creative mind and endearing leadership have both inspired him to successfully manage a
manufacturing company for almost 30 years. His vision for Marikeños to make a comeback in the
shoemaking local arena is evident on how he applies several modern strategies and techniques in his
company.

To complement his ideas and vision, he attends local and international seminars and trainings to
broaden his knowledge in the shoe business. Moreover, his mere presence in the company has
engaged the skilled craftsmen to continually pursue their shoe-making career with the company.
Mainly because he treats his subordinates equally as friends, when problems arise, it is easier to
reach a resolution as the employees can easily and openly discuss these issues with him.

However, his major challenge to accomplishing this wonderful feat is how the local market responds
with their product compared with other global competitors, as well as the financial implications of
applying the said innovations and improvements in his system.

The Marikina Shoe Industry: An industry gasping for survival

The Footwear Industry 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.

Around 43% of all footwear production is concentrated in Metro Manila. The center of this industry
is situated in Marikina City wherein almost three fourths of all shoe producers are located. The
industry is clustered into many micro to small firms and is very labor intensive. Most of these
manufacturers usually have their own shop facilities, although a small number rely on
subcontractors for production work.

A paper by Joel Q. Tanchuco mapped and described the common value chain of footwear
manufacturing found in Marikina. The components of this chain were deliberately simplified to
maintain focus on key activities.

Fig. 1 Footwear Value Chain Map

The value chain starts with sourcing of raw materials and inputs from various local and domestic
suppliers. To enable the sourcing of these inputs, manufacturing companies solicit support from
financial firms and other support industries (banks, credit cooperatives, etc.) as well as the national
and Marikina city government (plus supporting private organizations such as SIKAPMO, SAMAHAN
and the Philippine Footwear Federation Incorporated (PFFI)). Local and national governments are
included because of their policymaking; private organizations because of their provision of support
services. Vertically after manufacturing in the value chain are distribution and marketing – these
include all the different channels firms utilize like retail outlets, specialty stores and boutiques,
department stores, sales agents. The footwear value chain, finally, ends with the local and export
markets.

Several problems were identified in each component of the value chain which became detrimental
for the whole industry. Eduardo Morato (2005) reported that traders’ oligopolistic market control is
the primary issue for sourcing the raw materials. This caused high import dependence, high local
production costs, and weak market relations of footwear firms with raw material suppliers, among
others.

There is a growing reliance on internally sourcing capital among footwear firms because of fear of
high interest rates of external sources. Firms primarily obtain credit from banks and other financial
institutions. Nevertheless, firms also engage in discounting arrangements with buyers, and supplier-
provided credit lines. However, most of its concern lies in financial intermediation – in particular,
unfair lending practices and extended payment deadlines.

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The exact impact of government policies on raw materials’ costs with regard to the Philippine
footwear industry has not been considered yet. Import tariffs, for instance, inflate materials’ prices
and indirectly strengthen the bargaining power of both local and foreign suppliers. Excessive
taxation and other forms of interference are also real and legitimate drawbacks to the local
footwear industry’s growth.

The next major challenge in the value chain is the vertical fragmentation of marketing and
distribution stages. This has lead to higher footwear prices, as each agent involved imposes their
own mark-up.

Last but not the least is how customers now prefer imported shoe products versus the Marikina-
made shoes. In the 70s, other countries go to the Philippines to manufacture shoes due to the cheap
labor. As average wages rose, however, they began shifting to other countries, most notably
Vietnam in the recent years. The Marikina Shoe Industry was still competitive during the 1980s with
trade barriers still in place. However, during the late 1990s and early 2000s, the tariffs (leather,
rubber and footwear tariffs were 17.6% in 1996 and declined to just 7.7% in 2000) were significantly
reduced, causing the local industry to lose competitive edge in both the international and domestic
market. In fact, the Philippines do not even have a presence in the international supply chain.

Furthermore, a paper by Allen J. Scott (2005) demonstrated that the Philippines was not included in
the ranking of the top exporters of footwear in Asia, let alone the world. In Asia, the Philippines is
behind China, Vietnam, Taiwan, Indonesia, and Thailand. These countries have not only penetrated
the local market in the Philippines but have also blocked off potential export opportunities for
Philippine shoe products.

This series of unfortunate events have pushed all the businesses involved in the industry in the edge,
and its ultimate demise is impending, hence shoemaking is now seen as a sunset industry. In fact,
only a handful of researches were done to at least revive the said industry, but the constructive
results that could have benefit it did not, in any way, materialize. This macro perspective would
definitely be a challenging feat for those under this dying industry.

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Le Schus Manufacturing: The shoemaking fortress

Dad’s first business venture in the late 80s was a made-to-order shop set-up of footwear initially
targeting a small market. They are involved in levels of production such as pattern making to fit the
desired specifications of their customers, to the production and delivery to main outlets of their
clients. The quality of his output and the relatively affordable price of his
products eventually enabled him to capture a market that demanded
more in volume. But the demand became greater than what his small shop
can handle. Due to weak marketing efforts, tight competition, and
primarily the rising cost of production, Dad did not manage to sustain the
business any longer. These series of unfortunate events in the mid-90s
hindered this significant turning point and led him to close his shop
temporarily.

However, Dad was encouraged by a Chinese friend and another business

partner to team up and reopen his shop. His business partners promised
to be in-charge of financing and sourcing of materials, whereby Dad would
be on top of operations and management of the business. With this second chance of doing
business, the three of them established Le Schus Manufacturing. He managed to get back his
previous clients and coped up with the high demand for his products. This eventually compelled him
to expand the operations, which includes manufacturing the slippers line.

The production system employed in the factory is an assembly line type. Two lines, one for closed
shoes and another for rubber slippers, are running simultaneously. The average daily output for the
closed shoes line is approximately 500 to 600 pieces, while that for the rubber slippers line can
produce 3,000 pieces per day. Workers are paid on a piece rate basis. Each worker has their own
specialization in the operation. Only a handful actually knows how to complete a pair of shoes from
cutting to finishing. These are the more experienced and seasoned shoemakers who have been with
the company for more than a decade.

The success of the business is manifested through the list of their present clients. The company now
produces shoes for the Marikina Shoe Exchange, and also manufacture slippers / sandals for
Sandugo. They also supply closed shoes for Natasha and other smaller retail outlets and direct-
selling shops in Metro Manila.

Business Challenges: The Warzone Environment

Marikina shoemaking industry is more or less dying and being involve with this sunset industry is not
really an advisable move for businessmen. But being equipped with 3 decades of shoemaking
experience, modern and innovative learning from shoemaking experts, and the passion and vision of
getting Marikina shoemakers back in the map, Le Schus Manufacturing, headed by Dad
Nepomuceno, still survived and is still trying to fight hard against internal and external challenges
that come their way. Dad is very much aware of these problems and always struggle to overcome
the following issues.

Internal business risks. Le Schus does not have any formal organizational chart. They have a flat
organizational structure and job promotion is very much unlikely because of distinct characteristics
of each process. Each employee have a specialized role in the two assembly lines, and only a handful

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of them really know the entire process of shoemaking and/or slipper-making. Although specialized,
there is a little growth opportunity in innovating one’s process because of the routinary nature of
the job. It does not also help that Le Schus employees have low work morale because cordwainers
are said to be worse compared to a construction worker, and does not need any formal education to
be accepted. Moreover, most of the employees have aged along with the company, and no new
young recruits are willing to enter the business. This limits an employee’s potential to grow and
innovate themselves or the process, per se, which hinders possible business developments.

Dad tries to address these by giving incentives during big successful transactions and most especially
during Christmas season. He also tries to instill the valuable impact of each worker to the surviving
industry, and reiterates how their work will benefit the entire shoemaking community. However, this
is only short-term in nature and may not be a sustainable strategy to use in order to motivate the
workers.

Little / no government support. Marikina, being the shoe capital of the Philippines, is fortunate
enough to be given financial support from local government units and other non-government
organizations (like PFFI) to keep the shoe industry alive. This supplementary support should at least
help Le Schus market their products to a wider spectrum of consumers and investors. This includes
attending local and international shoe fairs where they can display their products to prospective
parties, increase exposure for the market, etc. However, this expected support has been diminishing
greatly in recent years as the country favors more information technology-related businesses or
business processing outsourcing companies (BPOs) which gives the economy more financial stability.
Therefore, shoe businessmen solely rely on financial institutions to sustain their respective
businesses.

Local competitive sphere. Businesses in the Marikina shoe industry are small or medium in nature
and are fragmented. Generally, Dad mentioned that one major reason why most shoe companies
failed or shrunk during the last decade was how managers disregard the advances innovation and
technology can do for them. Another thing Le Schus admittedly feels is hindering their growth is the
resources and processes of making the shoes. Most shoe parts are made and assembled manually
and rely heavily on the hand-made quality promise Marikina shoes offer. But due to minimal product
differentiation, competition among rivals are primarily dictated by price. So if one company has
better machineries and facilities in making shoes, and can produce more efficiently through
economies of scale, they can offer a lower price than yours. Most of the time, buyers buy by bulk
and are highly price-conscious. This would mean that if you lagged in the game, your business may
be dead in a snap.

Also, the absence of strong patent protection in the country makes it easier for competitors to
replicate Le Schus’ original design. And according to Federation of Philippine Industries, “Shoes
cannot be patented. Brand – yes, but not the shoes. Therefore it is prone to be copied.” So Dad is
very conscious about this and seeing his designs being imitated by others just discourages him to
continue creating new breed of shoes.

Additionally, other community-based shoemaking industry are on the rise, as of late. Gapan, Cebu
and Laguna are now their biggest local / community-based competitor in the shoemaking industry in
the country. One notable example is Liliw, Laguna. Initially it was a slipper-making industry but are
now shifting into shoemaking with the introduction of Espadrilles in their line of products. Some

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consumers now flock to their area capitalizing on travelers who passed by while they were on their
way to other Southern provinces (Calabarzon areas). This may be a different target market but it was
admittedly eating up a large portion Marikina shoes’ market share due to its rising popularity.

Lastly, Marikina’s brand identity of being a supplier of ‘hand-made quality shoes’ is no longer
relevant in today’s society as some merchants deceive interested consumers by selling fake
Marikina-made shoes in sidewalks, Divisoria, Baclaran, and other premises. This, then, diminishes
customer trust towards their offered products and would rather buy cheaper alternatives coming
from imported shoes from other countries.

Global Threats. Dad mentioned that the main global threats for the company are their international
competitors and legislative practices implemented in the country. A paper by Tanchuco agrees with
this and shared that under the emerging trends and directions in the global footwear trade, lower
labor costs and widespread dismantling of trade barriers are the competitive advantages used by
footwear production companies. Other less quantifiable but equally important factors defining this
global shift in competitiveness includes the following:

a. Continuous technological innovation;

b. Proximity to major footwear markets;
c. Quick response or fast turnaround times;
d. Possession of Management, design and marketing skills;
e. Reliable and consistent footwear quality/standards
f. Ready acceptance among factory-hosting countries of joint ventures, contract
production, and other forms of fragmented vertical arrangements
g. Country specific factors (e.g. political stability, infrastructure constraints and availability
of raw materials)
The onset of trade agreements and WTO provisions has brought about the need for footwear
producers everywhere to be fully acquainted with many more countries’ business regulations,
trading rules, taxes, and incentives. There is also an upcoming ASEAN integration in 2015 whereby
the Southeast Asian region are compelled to work under one ASEAN community to share its socio-
cultural values, political-security as well as economic resources. These have direct bearing on risk
management of each market agent along the footwear value chain. Low trade barriers allow price-
competitive products from countries like China, Vietnam, and Bangladesh to penetrate and
dominate the local market, eating up Le Schus’ market share.

Recently, Vietnam and Thailand shoe products have dominated the domestic market and the
Philippine-made products are very much behind in attaining a market share. Because of irregularities
in the Bureau of Customs’ import procedures, the smuggling of low-priced yet low-quality shoes
from these competitor countries have become rampant, which also hinders their market growth.
These high-quality Marikina-made shoes are deemed to be too expensive compared to its low-
priced, low-quality counterparts.

The perceived costly goods may also be attributed to its imported raw materials. Since Le Schus
tends to be a small player compared to other competitors in the global market, they barely have a
bargaining power over these foreign suppliers and they do not have any power to control the
fluctuating prices of these raw materials. Strict implementation of truck bans also have cost
implications for the firm as the delivery schedule of their raw materials and finished products are
always delayed. This limits the avenues for business advancement as they are fully-dependent on

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the resources they can find. Unlike in China, manufacturers can seek and buy parts from various
firms at a lower price. This also minimizes their profit margin which barely covers its daily operations
and employee wages.

Business Succession. Living his whole life in Marikina, as well as being a second-generation
shoemaker, one would easily suggest that he will pass his business on to one of his four children.
However, each one has gone their separate paths – away from the shoemaking business. As much as
Dad wanted to give up the business, he still went on to provide a living for his 100+ employees. He
would rather keep it running until he grows old than to throw it all away in exchange of the lives of
his ‘family’. But should the time comes when he no longer have the capacity to manage the
company, he might give it to his two Chinese partners or close shop altogether.

Implemented Strategies: Aces of Combat

Man on top of everything. The company draws its main strength from the owner, Dad
Nepomuceno. He knows every bits, curves, corner, and shapes of the shoe business since it is part of
his upbringing. He oversees everything in managing the business – operations, finances, marketing,
product development, etc. He admits that he is very hands on – he teaches, he trains, he plans, he
supervises, he spearheads everything but ensures that he lets his employees be involve and give any
constructive inputs during each process. It is unbelievable how he manage the business mostly on
his own, and yet find time to relax after the working hours.

However, no matter how hard he tries to elevate the status of the company, he sometime feels like
giving up the business because of the losing streak the industry itself is getting versus global
competitors. His willingness to provide a living to his employees is the only one that keeps him
running the company.

Strong long-term relationship with the whole value chain. Dad highly values every relationship in
the value chain – from suppliers to customers. Through his years in the industry, he already
established a network of people whereby most of his clients were referred to them by trusted
affiliates, and have became friends with him in the process. But Dad is very conservative with his
operational capacity and choosing his suppliers and customers. He said that he has a lot of clients
coming in and asking for quotation, but he sometimes turn it down even though he will earn a lot if
he knows that his company cannot meet the specified targets and deadlines. He would rather keep
clients at minimum and give them a high-quality product than give in to the high-volume demands
on the client at low quality. Failure, especially in quality, is not an option for him because it will
adversely affect his relationship with his existing and also his potential clients.

In addition, he does not really accept supplier offers and/or client orders unless they have establish
their sustainability and capacity to deliver / to pay the agreed exchange of products. He checks their
financial capacities and forms strong long-term relationships with its management. Currently, his line
of clients include Marikina Shoe Exchange (MSE), Natasha, Sandugo, among others.

Applying TQM techniques: Lean manufacturing and JIT. He proudly applies Lean Manufacturing and
Just-in-time inventory management schemes to lessen his cost and minimize waste in the process.
Dad is actually very open in learning new techniques and processes for the business. In fact, he
learned this not just by attending government / shoemaking federation-initiated forums, trainings,

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and workshops, but by also students and researchers who he always accommodate to observe the
company’s operations. He welcomes new ideas and innovation to improve his current system to
lessen his expenses, and may ultimately boost his profits. He let his company adapt the suggested
strategies and accepts that some processes are obsolete and needed to be revamped. He would
even allot time for his employees to attend such training. But as much as he really wants to apply all
recommendations given to him, executing it is a major challenge given the company only has limited
budget and resources.

Outsource other components in the process. Shoemaking is a long assembly process, and Le Schus
does not solely make everything from scrap. And as part of his TQM applications, the company
outsource some processes and buy some parts from other suppliers. They find it cheaper and wiser
to just buy from other trusted firms than to make one themselves. But in connection with his value
map strategy, he builds and maintains a strong partnership with his suppliers. However, he does
have problems with foreign suppliers because of his low bargaining power, he sometimes cannot
return incorrect deliveries. He will then resort to discuss this matter with his customer to make ends
meet.

Maintain the legacy of quality. In his own words, that should be the mission of any Marikina
shoemakers to keep their company and the industry alive. He firmly believes that some consumers
still have trust and are willing to patronize their proudly high quality product. He let the employees
imbibe an important contribution to the business, industry, and society.

Partnerships and Affiliates. The company is one of the founding members of the Philippine
Footwear Federation, Inc. (PFFI). This non-profit organization helps manufacturers and wholesalers
to participate in local and international trade fairs and competitions where they can display their
array of footwear products. Being a member of this organization is Le Schus’ ticket to meet and
create business with other players in the footwear industry. Dad is actively participating and
organizing events, trainings, and seminars to complement member-companies’ expertise in
shoemaking.

Also at one point, Le Schus has partnered with TESDA to come up with a continuing school in the
interest of continuously developing the knowledge base of shoemakers, and in the attempts to train
more interested individuals in the art of shoe making. For this investment, the involved stakeholders
had to send individuals abroad to study shoe making and then come back to become the professors
in the school. However, there were poor number of interested individuals and enrollment was close
to zero. And one of the reasons pointed out was because of the poor perception of the youth about
shoemakers wherein it is a more low-end job compared to construction worker.

The last battle cry

Dad has given all his efforts to face all these issues and concerns. However, it seems impossible to
rise up from its current downward trail. The man seems to lose his grip on the trade and it would
seem a trivial undertaking to pursue. He is already in his 60s and want to live a quiet life in his lovely
home. However, he feels restless knowing that all his goals for his company, his community, and the
industry, as a whole, are all far-fetched and very impractical to achieve. He has then become very
hopeless in his current situation and is very unsure of the future of Le Schus. He even admits a dark
future for the company as he no longer sees it operating 5-10 years from now. It also does not help

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that among his four professional children, no one wants to ‘step into his shoes’ and take over the
business as they already had led diverse lives away from shoemaking.

In addition, a united Marikina shoemaking community is like a dream which is starting to fade in
Dad’s eyes. Independent, exclusive, clustered / fragmented, and financially-reliant on banks and
family members are the words to best describe the current state of his hometown’s industry, and
being united and consolidated is an unfeasible feat for the industry.

Lastly, as the country is set to enter the ASEAN integration, it further blurs the bright future of the
local shoemaking industry. Dubbed as a sunset industry, its ultimate demise is indeed coming if no
government intervention or any kind of industry revamped were made as soon as possible. This
macroeconomic perspective would definitely be a challenging feat for Le Schus and might even push
Dad to close shop.